-----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, H9dJnV+S41Y4s8RgilWPQ1d3xdx8SQdLpizi6Pp8nA+1Fmo9OdnuPt/cmhCEo3tj ZJGkpczLO8iozUGhCzkAMQ== 0000950123-97-009271.txt : 19971111 0000950123-97-009271.hdr.sgml : 19971111 ACCESSION NUMBER: 0000950123-97-009271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 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: SEC FILE NUMBER: 000-11982 FILM NUMBER: 97710950 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 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, 1997 -------------------------------- 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, 1996 and September 30, 1997 2 Statements of Income for the three and nine months ended September 30, 1996 and 1997 3 Statements of Cash Flows for the nine months ended September 30, 1996 and 1997 4 Notes to Financial Statements 5-6 Item 2. - Management's Discussion of Operations 7-8 PART II Item 6. - Exhibits and Reports on Form 8-K 9 Signatures 10 *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, 1996 1997 ------------ ------------- (Note) (Unaudited) ASSETS: Land and buildings, net of accumulated depreciation of $13,487,845 at December 31, 1996 and $14,120,641 at September 30, 1997 $13,577,116 $12,944,320 Net investment in direct financing leases 18,193,555 6,166,711 Real estate held for sale 9,684,000 Cash and cash equivalents 4,668,645 4,025,400 Other assets 1,628,031 2,617,706 Equity investment 3,999,632 4,005,723 ----------- ----------- Total assets $42,066,979 $39,443,860 =========== =========== LIABILITIES: Mortgage notes payable $10,699,799 $ 7,713,863 Accrued interest payable 82,827 60,084 Accounts payable and accrued expenses 288,509 269,788 Accounts payable to affiliates 146,447 121,058 Prepaid rental income 46,800 58,860 ----------- ----------- Total liabilities 11,264,382 8,223,653 ----------- ----------- PARTNERS' CAPITAL: General Partners 210,626 235,683 Limited Partners (85,528 Limited Partnership Units issued and outstanding at December 31, 1996 and September 30, 1997) 30,591,971 30,984,524 ----------- ----------- Total partners' capital 30,802,597 31,220,207 ----------- ----------- Total liabilities and partners' capital $42,066,979 $39,443,860 =========== =========== The accompanying notes are an integral part of the financial statements. Note: The balance sheet at December 31, 1996 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, 1996 September 30, 1997 September 30, 1996 September 30, 1997 ------------------ ------------------ ------------------ ------------------ Revenues: Rental income from operating leases $1,663,793 $1,636,625 $3,886,777 $4,909,872 Interest from direct financing leases 827,493 826,038 2,483,448 2,479,258 Other interest income 102,223 55,605 292,589 135,561 Other income 94,345 94,345 186,395 ---------- ---------- ---------- ---------- 2,687,854 2,518,268 6,757,159 7,711,086 ---------- ---------- ---------- ---------- Expenses: Interest on mortgages 362,151 183,073 1,226,562 669,113 Depreciation 216,201 210,932 709,015 632,796 General and administrative 100,090 137,377 351,066 399,950 Property expense 109,467 203,002 310,802 433,341 Amortization 20,067 7,760 71,601 23,278 Writedown to net realizable value 2,316,000 ---------- ---------- ---------- ---------- 807,976 742,144 2,669,046 4,474,478 ---------- ---------- ---------- ---------- Income before income from equity investment 1,879,878 1,776,124 4,088,113 3,236,608 Income from equity investment 122,586 196,832 122,586 535,701 Earnings from hotel operation 60,789 867,934 ---------- ---------- ---------- ---------- Net income $2,063,253 $1,972,956 $5,078,633 $3,772,309 ========== ========== ========== ========== Net income allocated to General Partners $ 123,795 $ 118,378 $ 304,718 $ 226,339 ========== ========== ========== ========== Net income allocated to Limited Partners $1,939,458 $1,854,578 $4,773,915 $3,545,970 ========== ========== ========== ========== Net income per Unit (85,568 and 85,528 Limited Partnership Units in 1996 and 1997) $22.66 $21.68 $55.79 $41.46 ====== ====== ====== ======
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, ----------------- 1996 1997 ---- ---- Cash flows from operating activities: Net income $ 5,078,633 $ 3,772,309 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 780,616 656,074 Other noncash items (715,257) (1,056,818) Writedown to net realizable value 2,316,000 Equity income in excess of distributions received (122,586) (6,091) Net change in operating assets and liabilities 341,123 15,916 ----------- ----------- Net cash provided by operating activities 5,362,529 5,697,390 ----------- ----------- Cash flows from investing activities: Additional capitalized costs (8,182) Purchase of interest in operating partnership and related costs (198,970) ----------- Net cash used in investing activities (207,152) ----------- Cash flows from financing activities: Distributions to partners (3,334,153) (3,354,699) Purchase of limited partnership units (20,000) Payments on mortgage principal (684,043) (580,936) Prepayment of mortgage payable (2,405,000) ----------- ----------- Net cash used in financing activities (4,038,196) (6,340,635) ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,117,181 (643,245) Cash and cash equivalents, beginning of period 7,579,071 4,668,645 ----------- ----------- Cash and cash equivalents, end of period $ 8,696,252 $ 4,025,400 =========== =========== Supplemental disclosure of cash flows information: Interest paid $ 1,250,339 $ 691,856 =========== ===========
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 =========== 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, 1996. Note 2. Distributions to Partners: Distributions declared and paid to partners during the nine months ended September 30, 1997 are summarized as follows: Quarter Ended General Partners Limited Partners Per Limited Partner Unit - ------------- ---------------- ---------------- ------------------------ December 31, 1996 $67,039 $1,050,284 $12.28 ======= ========== ====== March 31, 1997 $67,094 $1,051,139 $12.29 ======= ========== ====== June 30, 1997 $67,149 $1,051,994 $12.30 ======= ========== ====== A distribution of $12.31 per Limited Partner Unit for the quarter ended September 30, 1997 was declared and paid in October 1997. Note 3. Transactions with Related Parties: For the three-month and nine-month periods ended September 30, 1996, the Partnership incurred property management fees of $61,869 and $142,942, respectively, and general and administrative expense reimbursements of $18,500 and $97,831, respectively. For the three-month and nine-month periods ended September 30, 1997, the Partnership incurred property management fees of $67,218 and $201,809, respectively, and general and administrative expense reimbursements of $45,871 and $145,951, respectively. Management believes that ultimate payment of a preferred return to the General Partners of $857,754, based upon cumulative proceeds of sales of assets, is reasonably possible but not probable, as defined in Statement of Financial Accounting Standards No. 5, and no accrual for such preferred return has been reflected in the accompanying Financial Statements. 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, 1996 and 1997 were $55,205 and $50,569, 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, 1996 and 1997, the Partnership earned its total lease revenues (rental income plus interest income from financing leases) from the following lease obligors: 1996 % 1997 % ---- --- ---- --- Hughes Markets, Inc. $2,511,143 39% $3,610,946 49% Simplicity Manufacturing, Inc. 1,497,533 24 1,497,533 20 Brodart Co. 985,916 15 981,725 13 Continental Casualty Company 569,886 9 569,886 8 Family Dollar Stores, Inc. 416,400 7 421,200 6 Petrocon Engineering, Inc. 280,813 4 199,306 3 Winn-Dixie Stores, Inc. 108,534 2 108,534 1 ---------- --- ---------- --- $6,370,225 100% $7,389,130 100% ========== === ========== === Note 5. Equity Investment: The Partnership owns 427,008 limited partnership units in American General Hospitality Operating Partnership, L.P., the operating partnership of American General Hospitality Corporation ("AGH"), a publicly-traded real estate investment trust. The Partnership's investment in the operating partnership is accounted for under the equity method. The Partnership has the right to convert the limited partnership units on a one-for-one basis to shares of common stock in AGH at any time. On September 22, 1997, AGH filed a registration statement with the United States Securities and Exchange Commission which would allow shares of AGH converted from units to be freely transferred. As of November 4, 1997, the quoted market value of AGH common stock was 27 15/16 per share. AGH's unaudited financial statements reported total assets of $547,398,000 and shareholders' equity of $281,728,000 as of June 30, 1997, and total revenues of $23,515,000 and net income of $10,472,000 for the six-month period ended June 30, 1997. Note 6. Consent Solicitation: On October 15, 1997, Carey Diversified LLC ("CDSM") filed a Consent Solicitation Statement/Prospectus ("consent solicitation") with the United States Securities and Exchange Commission. The General Partners are proposing that the Limited Partners of the nine CPA(R) limited partnerships approve a transaction in which each CPA(R) limited partnership would be merged with a subsidiary partnership of CDSM, of which CDSM is the general partner. As described in the consent solicitation, each limited partner would have the option of either exchanging his or her limited partnership units for an interest in CDSM ("Listed Shares") or to retain a limited partnership interest in the subsidiary partnership ("Subsidiary Partnership Units"). If the holders of a majority of the outstanding limited partnership units of the Partnership consent to the transaction, the merger of the Partnership with the corresponding subsidiary partnership of CDSM may be consummated. If the transaction is consummated, the General Partners will exchange a portion of their general partnership interests in exchange for Listed Shares. The transaction will not occur unless the CPA(R) Partnerships approving the transaction represent at least $200,000,000 in Total Exchange Value, as defined. There is no assurance that the holders of limited partnership units of the Partnership will consent to the transaction or that the transaction will occur. If the transaction is completed, the Listed Shares will be listed and publicly traded on the New York Stock Exchange. Subsidiary Partnership Units will provide substantially the same economic interest and legal rights as those of a limited partnership unit in the Partnership, but will not be listed on a securities exchange. Conversion of limited partnership units to Listed Shares or Subsidiary Partnership Units will not result in a taxable event to the limited partners. The risk factors and benefits relating to the proposed transaction are described in the consent solicitation. The General Partners, as well as all the Directors of the Corporate General Partners of the CPA(R) Partnerships, have unanimously approved the proposed transaction. -6- 8 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS Results of Operations: Net income for the three-month and nine-month periods ended September 30, 1997 decreased by $90,000 and $1,306,000, respectively, compared with net income for the similar periods ended September 30, 1996. Excluding nonrecurring other income of $186,000 and $94,000 in 1997 and 1996, respectively, and a noncash charge of $2,316,000 in 1997 on the writedown of a property held for sale to its estimated residual value, income as adjusted, would have increased by $4,000 and $918,000 for the comparable three-month and nine-month periods. The increases in income as adjusted for the comparable nine-month period is attributable to an increase in lease revenues and a decrease in interest expense. These benefits were partially offset by an increase in general and administrative and property expenses. The results for the comparable three-month periods were affected by the decrease in interest expense and increases in general and administrative and property expenses. Lease revenues; however, were unchanged. The increase in lease revenues was due to the restructuring agreement negotiated with Hughes Markets, Inc. in May 1996 in connection with agreeing to a two-year extension to the then expiring lease. As previously reported, the Partnership has entered into a lease with Copeland Beverage Group which will go into effect when Hughes vacates the Partnership's dairy processing facility in Los Angeles, California. Cash flow from the Copeland lease will approximate the cash flow from the Hughes lease that was in effect prior to the increase negotiated in connection with the lease extension. Accordingly, annual cash flow will decrease by $1,860,000; however, the lump sum rental payment of $2,913,000 to be received in May 1998 at the end of the Hughes extension will not be needed to retrofit the facility as had been anticipated. The decrease in interest expense was due to the satisfaction of the mortgage loan on the Holiday Inn New Orleans Airport in connection with the exchange of the interest in the hotel for limited partnership units of the operating partnership of American General Hospitality Corporation, a publicly-traded real estate investment trust, in July 1996 and the prepayment of a mortgage loan collateralized by three properties in March 1997. The increase in general and administrative expenses was due to the costs incurred in structuring the proposed transaction described in Note 6 to the Financial Statements. The increase in property expense included a nonrecurring charge of $55,000 paid to settle litigation relating to the New Orleans Airport hotel property. For the nine-month periods ended September 30, 1996, income from the hotel property after depreciation and interest expense was $645,000 so that the reduction in earnings resulting from the exchange for the comparable periods ended September 30, 1997 was approximately $232,000. Such comparison of results does not reflect the substantial resources the Partnership used to maintain and upgrade the property during the period it operated the hotel. If direct ownership of the hotel had been retained, periodic capital expenditures would have continued to be required. As of November 4, 1997, the quoted market value of American General Hospitality common stock was $27 15/16 per share. Since the limited partnership units received in exchange for the hotel are convertible to American General Hospitality common stock on a one-for-one basis, the underlying fair value of the Partnership's investment is approximately $11,930,000. Simplicity Manufacturing, Inc. has exercised its option to purchase the property it leases from the Partnership on or before April 1, 1998. After paying off the limited recourse mortgage loan encumbered by the property, the Partnership anticipates that it will receive cash of no less than $5,362,000, less any costs of sales, based on the minimum exercise price. Annual cash flow from the property after mortgage debt service is $934,000. -7- 9 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued Financial Condition: There has been no change in the Partnership's financial condition since December 31, 1996. Cash provided from operations of $5,697,000 has been sufficient to fund distributions to partners of $3,355,000 and scheduled mortgage principal installments of $581,000. The Partnership also paid off an existing mortgage loan of $2,405,000 in March 1997. Solely as a result of paying off the loan, annual cash flow will increase by approximately $360,000. Cash flow from operations in 1998 is expected to be sufficient to fund distributions and scheduled principal payment obligations at their current rates. As more fully described in Note 6 to the Financial Statements, the General Partners have distributed to Limited Partners a consent solicitation which proposes an exchange of limited partnership units for securities in a publicly-traded limited liability company. The exchange would not result in a taxable event to the limited partners, and the General Partners believe that this proposed transaction will provide limited partners with liquidity on a tax-effective basis. There is no assurance that the proposed transaction will be completed. -8- 10 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, 1997, the Partnership was not required to file any reports on Form 8-K. -9- 11 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. 11/06/97 By: /s/ Steven M. Berzin -------- ---------------------------------- Date Steven M. Berzin Executive Vice President and Chief Financial Officer (Principal Financial Officer) 11/06/97 By: /s/ Claude Fernandez -------- ---------------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Accounting Officer) -10- EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Form 10-Q for the Quarter Ended September 30, 1997 and is qualified in its' entirety by reference to such financial statements. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 4,025,400 0 0 0 0 4,025,400 42,915,672 14,120,641 39,443,860 509,790 7,713,863 0 0 0 31,220,207 39,443,860 0 7,711,086 0 0 1,466,087 0 669,113 3,772,309 0 3,772,309 0 0 0 3,772,309 41.46 0
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