-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C3GzYb8+OCfieSUxLz3u/q4FNGh8sEl+T/0RKMj7280ygm7u65a1mEdOYWPAzv1w 5QBTBlM37k2LFctBgm+3oA== 0000950123-96-006320.txt : 19961111 0000950123-96-006320.hdr.sgml : 19961111 ACCESSION NUMBER: 0000950123-96-006320 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961108 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES 4 CENTRAL INDEX KEY: 0000706005 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 133126150 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11982 FILM NUMBER: 96657286 BUSINESS ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124921100 MAIL ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 10-Q 1 CORPORATE PROPERTY ASSOCIATES 4, L.P. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1996 ------------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-11982 CORPORATE PROPERTY ASSOCIATES 4, A CALIFORNIA LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) CALIFORNIA 13-3126150 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020 (Address of principal executive offices) (Zip Code) (212) 492-1100 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. X Yes No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No --- --- 2 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership INDEX Page No. PART I Item 1. - Financial Information* Balance Sheets, December 31, 1995 and September 30, 1996 2 Statements of Income for the three and nine months ended September 30, 1995 and 1996 3 Statements of Cash Flows for the nine months ended September 30, 1995 and 1996 4 Notes to Financial Statements 5-7 Item 2. - Management's Discussion of Operations 8-9 PART II Item 6. - Exhibits and Reports on Form 8-K 10 Signatures 11 *The summarized financial information contained herein is unaudited; however in the opinion of management, all adjustments necessary for a fair presentation of such financial information have been included. -1- 3 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership PART I Item 1. - FINANCIAL INFORMATION BALANCE SHEETS
December 31, September 30, 1995 1996 ------------ ------------- (Note) (Unaudited) ASSETS: Land and buildings, net of accumulated depreciation of $13,362,508 at December 31, 1995 and $13,275,158 at September 30, 1996 $21,472,233 $13,789,803 Net investment in direct financing leases 18,224,428 18,201,771 Cash and cash equivalents 7,579,071 8,696,252 Accrued interest, distributions and rents receivable 203,651 329,563 Other assets 1,028,692 1,092,170 Investment in operating partnership 3,867,133 ----------- ----------- Total assets $48,508,075 $45,976,692 =========== =========== LIABILITIES: Mortgage notes payable $19,486,882 $15,414,075 Accrued interest payable 136,087 112,310 Accounts payable and accrued expenses 435,977 268,922 Accounts payable to affiliates 87,461 100,567 ----------- ----------- Total liabilities 20,146,407 15,895,874 ----------- ----------- PARTNERS' CAPITAL: General Partners 62,061 169,229 Limited Partners (85,568 and 85,528 Limited Partnership Units issued and outstanding at December 31, 1995 and September 30, 1996) 28,299,607 29,911,589 ----------- ----------- Total partners' capital 28,361,668 30,080,818 ----------- ----------- Total liabilities and partners' capital $48,508,075 $45,976,692 =========== ===========
The accompanying notes are an integral part of the financial statements. Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date. -2- 4 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, 1995 September 30, 1996 September 30, 1995 September 30, 1996 ------------------ ------------------ ------------------ ------------------ Revenues: Rental income from operating leases $ 812,362 $1,663,793 $2,432,852 $3,886,777 Interest from direct financing leases 828,723 827,493 3,534,494 2,483,448 Other interest and investment income 103,049 219,479 154,573 409,845 Other income 94,345 44,764 94,345 ---------- ---------- ---------- ---------- 1,744,134 2,805,110 6,166,683 6,874,415 ---------- ---------- ---------- ---------- Expenses: Interest on mortgages 453,836 362,151 1,654,203 1,226,562 Depreciation 288,827 216,201 869,978 709,015 General and administrative 103,781 100,090 347,767 351,066 Property expense 59,868 109,467 232,864 310,802 Amortization 25,768 20,067 88,068 71,601 ---------- ---------- ---------- ---------- 932,080 807,976 3,192,880 2,669,046 ---------- ---------- ---------- ---------- Income before gain on sale of real estate and earnings from discontinued operations 812,054 1,997,134 2,973,803 4,205,369 Gain on sale of real estate (167,774) 3,330,098 ----------- ---------- ---------- ---------- Income from continuing operations 644,280 1,997,134 6,303,901 4,205,369 Earnings from discontinued operations 309,270 60,789 1,075,559 867,934 ----------- ---------- ---------- ---------- Net income $ 953,550 $2,057,923 $7,379,460 $5,073,303 =========== ========== ========== ========== Net income allocated to General Partners $ 65,601 $ 123,475 $ 771,830 $ 304,398 =========== ========== ========== ========== Net income allocated to Limited Partners $ 887,949 $1,934,448 $6,607,630 $4,768,905 =========== ========== ========== ========== Net income per weighted average Unit (85,568 weighted average Limited Partnership Units) Income from continuing operations $ 6.98 $ 21.93 $ 65.40 $ 46.20 Discontinued operations 3.40 .67 11.82 9.53 ----------- ---------- ---------- ---------- $ 10.38 $ 22.60 $ 77.22 $ 55.73 =========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements. -3- 5 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, -------------------------------- 1995 1996 ---- ---- Cash flows from operating activities: Net income $ 7,379,460 $ 5,073,303 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 958,046 780,616 Scheduled rents in excess of (less than) income on direct financing leases and straight-line adjustments on operating leases 7,305 (592,671) Gain on sale of real estate (3,330,098) Net change in operating assets and liabilities (534,760) 101,281 ------------ ----------- Net cash provided by operating activities 4,479,953 5,362,529 ------------ ----------- Cash flows from investing activities: Proceeds from sale of real estate 15,200,000 Additional capitalized costs (210,918) (8,182) Purchase of interest in operating partnership and related costs (198,970) ------------ ----------- Net cash provided by (used in) investing activities 14,989,082 (207,152) ------------ ----------- Cash flows from financing activities: Distributions to partners (7,996,488) (3,334,153) Purchase of limited partnership units (20,000) Payments on mortgage principal (932,667) (684,043) Prepayment of mortgage payable (5,722,508) ------------ ----------- Net cash used in financing activities (14,651,663) (4,038,196) ------------ ----------- Net increase in cash and cash equivalents 4,817,372 1,117,181 Cash and cash equivalents, beginning of period 2,509,451 7,579,071 ------------ ----------- Cash and cash equivalents, end of period $ 7,326,823 $ 8,696,252 ============ ===========
Supplemental disclosure of noncash investing and financing activities: In July 1996, the Partnership exchanged its interest in a hotel property and related assets and liabilities for 427,008 units in the operating partnership of a publicly-traded real estate investment trust. The assets and liabilities transferred are as follows: Real estate, net of accumulated depreciation $ 6,981,597 Mortgage note payable (3,388,764) Other assets and liabilities transferred, net 75,330 ------------ $ 3,668,163 ============
Supplemental disclosure of cash flows information: Interest paid $ 1,710,263 $ 1,250,339 ============ ===========
The accompanying notes are an integral part of the financial statements. -4- 6 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation: The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995. Note 2. Distributions to Partners: Distributions declared and paid to partners during the nine months ended September 30, 1996 are summarized as follows:
Quarter Ended General Partners Limited Partners Per Limited Partner Unit ------------- ---------------- ---------------- ------------------------ December 31, 1995 $65,633 $1,043,930 $12.20 ======= ========== ====== March 31, 1996 $65,745 $1,045,641 $12.22 ======= ========== ====== June 30, 1996 $65,852 $1,047,352 $12.24 ======= ========== ======
A distribution of $12.27 per Limited Partner Unit for the quarter ended September 30, 1996 was declared and paid in October 1996. Note 3. Transactions with Related Parties: For the three-month and nine-month periods ended September 30, 1995, the Partnership incurred management fees of $19,642 and $73,136, respectively, and general and administrative expense reimbursements of $28,450 and $71,180, respectively. For the three-month and nine-month periods ended September 30, 1996, the Partnership incurred management fees of $61,869 and $142,942, respectively, and general and administrative expense reimbursements of $18,500 and $97,831, respectively. The Partnership, in conjunction with certain affiliates, is a participant in a cost sharing agreement for the purpose of renting and occupying office space. Under the agreement, the Partnership pays its proportionate share of rent and other costs of occupancy. Net expenses incurred for the nine months ended September 30, 1995 and 1996 were $101,250 and $55,205, respectively. -5- 7 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) Note 4. Industry Segment Information: The Partnership's operations consist of the investment in and the leasing of industrial and commercial real estate. For the nine-month periods ended September 30, 1995 and 1996, the Partnership earned its total lease revenues (rental income plus interest income from financing leases) from the following lease obligors:
1995 % 1996 % ---- ---- ---- -- Hughes Markets, Inc. $1,072,065 18% $2,511,143 39% Simplicity Manufacturing, Inc. 1,497,533 25 1,497,533 24 Brodart Co. 989,451 17 985,916 15 Continental Casualty Company 565,652 9 569,886 9 Family Dollar Stores, Inc. 410,400 7 416,400 7 Petrocon Engineering, Inc. 276,201 4 280,813 4 Winn-Dixie Stores, Inc. 108,534 2 108,534 2 Genesco, Inc. 1,047,510 18 ---------- ---- ---------- ---- $5,967,346 100% $6,370,225 100% ========== ==== ========== ====
Note 5. Discontinued Operations: The Partnership and Corporate Property Associates 8 ("CPA(R):8"), an affiliate, purchased a hotel property in Kenner, Louisiana, in June 1988 as tenants-in-common with 46.383% and 53.617% interests, respectively. The Partnership and CPA(R):8 assumed operating control of the hotel in 1992 after evicting the lessee due to its financial difficulties. On July 30, 1996, the Partnership and CPA(R):8 completed a transaction with American General Hospitality Operating Partnership L.P. (the "Operating Partnership"), the operating partnership of a newly-formed real estate investment trust, American General Hospitality, Inc. ("AGH") in which the Partnership and CPA(R):8 received 920,672 limited partnership units (of which the Partnership's share was 427,008 units) in exchange for the hotel property and its operations, a cash contribution of $388,331 (of which the Partnership's share was $180,120) and the Operating Partnership's assumption of the Partnership's and CPA(R):8's mortgage loan obligation collateralized by the hotel property (of which the Partnership's share was $3,388,764). The exchange of the hotel property for limited partnership units will initially be treated as a noncash exchange for tax and financial reporting purposes. After one year, the Partnership will have the right to convert its equity interest in the operating partnership to shares of common stock in AGH, which recently completed an initial public offering, with such shares registered with the Securities and Exchange Commission. The Partnership's carrying value for the limited partnership units of $3,867,133 is based on the historical basis of assets transferred, net of liabilities assumed by the Operating Partnership ($3,668,163); cash contributed ($180,120) and costs incurred to complete the exchange ($18,850). The Partnership's interest in the limited partnership is being accounted for under the cost method. Operating results of the hotel for the nine-month period ended September 30, 1995 and the period from January 1996 through July 30, 1996, the date of the exchange, are summarized as follows:
1995 1996 ---- ---- Revenues $ 2,867,234 $ 2,311,907 Fees paid to hotel management company (95,033) (83,061) Other operating expenses (1,696,642) (1,360,912) ----------- ----------- Hotel operating income $ 1,075,559 $ 867,934 =========== ===========
-6- 8 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) Note 6. Subsequent Event: On November 6, 1996, the Partnership made a prepayment of $4,500,000 on the loan on properties in Salisbury, North Carolina currently leased to Family Dollar Stores, Inc., College Station, Texas leased to Continental Casualty Company and Leeds, Alabama leased to Winn-Dixie Stores, Inc. which is collateralized by deeds of trust on the properties and assignments on the related leases. The loan, which had a balance of $6,998,000 at September 30, 1996, provides for a floating interest rate at the London Interbank Offered Rate plus 3% (currently 8.625%). The loan matures on June 30, 1998, at which time a balloon payment will be due. -7- 9 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS Results of Operations: Excluding the effect of a gain on sale of real estate in 1995, income from continuing operations for the three-month and nine-month periods ended September 30, 1996 increased by $1,185,000 and $1,232,000, respectively, as compared with the same periods ended September 30, 1995. The increases in net income were due to increases in lease revenues and other interest and investment income and a decrease in interest expense. The increase in lease revenues was solely attributable to the May 1996 lease extension agreement with Hughes Markets, Inc. ("Hughes"). Under the two-year extension agreement, annual rent has been increased by $1,843,000 with a lump sum rental payment of approximately $2,910,000 due at the end of term; for financial reporting purposes, the lump sum payment is being recognized as rental revenue on a straight-line basis over the extension term. As of September 30, 1996, $768,000 of the increase in rental revenue recognized on the Hughes lease was due to the increase in scheduled monthly rent since the commencement of the extension term, $64,000 from a rent increase that went into effect in the fourth quarter of 1995 and $607,000 due to the straight-line accounting of the lump sum rental payment. The increase from the Hughes lease offset the effect for the comparable nine-month periods of rentals earned in 1995 from Genesco, Inc. ("Genesco") which lease was terminated when the Genesco property was sold in June 1995. The increase in other interest and investment income was due to investment income of $120,000 from the new investment in American General Hospitality Operating Partnership L.P. (the "Operating Partnership"). The Partnership acquired this investment on July 30, 1996 when it exchanged an interest in its hotel property in Kenner, Louisiana (and related assets and liabilities including the transfer of a mortgage loan obligation on the property) for limited partnership units in the Operating Partnership. The decrease in interest expense was due to the transfer of the debt obligation on the hotel property to the Operating Partnership, the continuing principal amortization on other mortgage debt and, for the nine-month period, the satisfaction of the mortgage debt on the Genesco property at the time such property was sold. Income from discontinued operations was not comparable as the disposition of the hotel operation occurred on July 30, 1996; such operations were not in effect for the full current periods. As a result of the transaction with the Operating Partnership, the Partnership expects to realize investment income of approximately $700,000 per year of which $120,000 has been recognized for the two months such investment has been held as the Operating Partnership declared a distribution to partners in September 1996. Although the Partnership's income will decrease as income from the hotel operation exceeded projected income from the Operating Partnership investment, Management believes that the Partnership would have had to continue to invest significant resources to periodically fund the capital improvements needed to remain competitive in operating the hotel. For instance, the Partnership realized cash flow after debt service from the hotel in 1995 of $1,024,000; however, the Partnership funded improvements in excess of $750,000 in 1994. Management hopes that the exchange will eliminate the uncertainty and fluctuation in cash flow relating to operating a single hotel as the Operating Partnership owns a diversified portfolio of hotel properties. The Partnership has an option after July 30, 1997 to exchange its limited partnership units for shares of American General Hospitality, Inc. ("AGH"), a publicly traded real estate investment trust, which holds the majority interest in the Operating Partnership. Financial Condition: There has been no material change in the Partnership's financial condition since December 31, 1995. Cash flow from operations of $5,363,000 was sufficient to pay scheduled mortgage principal installments of $684,000 and distributions to partners of $3,334,000. The increase in cash balances is primarily due to the benefit realized from the increased rent from Hughes. -8- 10 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS On November 6, 1996, the Partnership made a prepayment of $4,500,000 on a loan collateralized by Partnership properties leased to Winn-Dixie Stores, Inc., Family Dollar Stores, Inc. and Continental Casualty Company. Such loan, which had a balance of $6,998,000 at September 30, 1996, is scheduled to mature in June 1998 and provides for a floating interest rate at the London Inter-Bank Offerred Rate plus 3% per annum. Management believes that it is prudent to reduce cash balances to pay off debt which incurred higher rates of interest than can be earned by investing cash in money market instruments. Based on the current interest rate of the loan, the prepayment is expected to reduce annual debt service by approximately $375,000. As a real estate investment trust, AGH has an obligation to distribute 95% of its taxable income in order to retain its special Federal income tax status. Since AGH owns a majority of the Operating Partnership limited partnership units, the Operating Partnership has a fiduciary obligation to use its best efforts for AGH to receive distributions which can be passed through to AGH shareholders in order to meet the tax distribution objective. Accordingly, with the exchange, the Partnership should achieve less fluctuation in cash flow and has eliminated the need for allocating funds for capital improvements. Further, with the option to exchange Operating Partnership units for AGH shares, the Partnership will have the opportunity to sell its interests at a readily determinable market value. The General Partners are currently investigating ways to provide liquidity to limited partners on a tax-effective basis. -9- 11 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership PART II Item 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K: During the quarter ended September 30, 1996, the Partnership was not required to file any reports on Form 8-K. -10- 12 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership By: CAREY CORPORATE PROPERTY, INC. 11/8/96 By: /s/ Claude Fernandez ------- ---------------------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Financial Officer) 11/8/96 By: /s/ Michael D. Roberts ------- ---------------------------------------- Date Michael D. Roberts First Vice President and Controller (Principal Accounting Officer) -11- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 8696252 0 329563 0 0 9025815 45266732 13275158 45976692 481799 15414075 0 0 0 30080818 45976692 0 6874415 0 0 1370883 0 1226562 0 0 4205369 867934 0 0 5073303 55.73 55.73
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