-----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, Uh7fNatPX/bPs/WtnSVNqgWBcoBPHDSwm62qKjWfLhldzL9JMgvFlOhCT9osCeH6 kxFV17fNAkRbU6+tGnTCFw== 0000950123-03-012500.txt : 20031112 0000950123-03-012500.hdr.sgml : 20031111 20031112101646 ACCESSION NUMBER: 0000950123-03-012500 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES 14 INC CENTRAL INDEX KEY: 0001041326 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133951476 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25771 FILM NUMBER: 03991308 BUSINESS ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA 2ND FL CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124921100 MAIL ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA 2ND FL CITY: NEW YORK STATE: NY ZIP: 10020 10-Q 1 y91581e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . ----------- ------------ COMMISSION FILE NUMBER: 000-25771 ------------------------- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 13-3951476 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 50 ROCKEFELLER PLAZA 10020 NEW YORK, NEW YORK 10020 (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) REGISTRANT'S TELEPHONE NUMBERS: INVESTOR RELATIONS (212) 492-8920 (212) 492-1100 ------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: COMMON STOCK, $.001 PAR VALUE ------------------------- CPA(R):14 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the Act. CPA(R):14 HAS NO SECURITIES registered on any exchanges. CPA(R):14 does not have any Securities registered pursuant to Section 12(b) of the Act. CPA(R):14 (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]. CPA(R):14 has no active market for common stock at November 10, 2003. CPA(R):14 has 66,910,487 shares of common stock, $.001 par value outstanding at November 10, 2003. CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED INDEX
Page No. -------- PART I Item 1. - Financial Information* Condensed Consolidated Balance Sheets, as of September 30, 2003 and December 31, 2002 2 Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2003 and 2002 3 Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2003 and 2002 4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 5 Notes to Condensed Consolidated Financial Statements 6-11 Item 2. - Management's Discussion and Analysis of Financial Conditions and Results of Operations 12-19 Item 3. - Quantitative and Qualitative Disclosures About Market Risk 20 Item 4. - Controls and Procedures 20 PART II - Other Information Item 4. - Submission of Matters to a Vote of Security Holders 21 Item 6. - Exhibits and Reports on Form 8-K 21 Signatures 22
* The summarized condensed financial statements contained herein are unaudited; however, in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. -1- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED PART I Item 1. - FINANCIAL INFORMATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
September 30, 2003 December 31, 2002 ------------------- ----------------- (Unaudited) (Note) ----------- ------ ASSETS: Land and buildings, net of accumulated depreciation of $55,811 at September 30, 2003 and $38,683 at December 31, 2002 $1,000,412 $ 971,459 Net investment in direct financing leases 116,834 113,428 Real estate under construction - 14,723 Equity investments 120,871 99,320 Cash and cash equivalents 55,024 74,107 Marketable securities 6,806 6,258 Other assets 39,760 40,602 ---------- ---------- Total assets $1,339,707 $1,319,897 ========== ========== LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY: Liabilities: Mortgage notes payable $ 693,444 $ 666,740 Note payable 1,631 - Accrued interest 4,161 4,043 Due to affiliates 4,226 3,821 Accounts payable and accrued expenses 7,579 7,898 Prepaid rental income and security deposits 18,425 20,642 Deferred acquisition fees payable to affiliate 22,530 23,170 Dividends payable 12,601 12,488 ---------- ---------- Total liabilities 764,597 738,802 ---------- ---------- Minority interest 27,767 29,206 ---------- ---------- Commitments and contingencies Shareholders' equity: Common stock, $.001 par value; authorized, 120,000,000 shares; issued and outstanding, 67,403,718 shares at September 30, 2003 and 66,836,152 shares at December 31, 2002 67 67 Additional paid-in capital 603,512 597,852 Dividends in excess of accumulated earnings (59,799) (47,508) Accumulated other comprehensive income 10,101 6,113 ---------- ---------- 553,881 556,524 Less, treasury stock at cost, 735,929 shares at September 30, 2003 and 520,911 shares at December 31, 2002 (6,538) (4,635) ---------- ---------- Total shareholders' equity 547,343 551,889 ---------- ---------- Total liabilities, minority interest and shareholders' equity $1,339,707 $1,319,897 ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. Note: The balance sheet at December 31, 2002 has been derived from the audited consolidated financial statements at that date. -2- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED CONDENSED CONSOLIDATED STATEMENTS of INCOME (UNAUDITED) (in thousands, except share and per share amounts)
Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- Revenues: Rental income $ 27,439 $ 26,059 $ 80,751 $ 71,928 Interest income from direct financing leases 3,250 2,889 9,713 8,581 Interest and other income 2,126 552 6,121 1,737 ----------- ----------- ----------- ----------- 32,815 29,500 96,585 82,246 ----------- ----------- ----------- ----------- Expenses: Interest 13,472 11,862 39,234 32,246 Depreciation 5,774 5,340 16,987 15,082 General and administrative 1,924 2,016 6,255 4,721 Property expenses 6,348 3,338 15,216 9,590 Impairment charge on real estate 2,900 - 2,900 - ----------- ----------- ----------- ----------- 30,418 22,556 80,592 61,639 ----------- ----------- ----------- ----------- Income from continuing operations before minority interest, equity investments and (loss) gain 2,397 6,944 15,993 20,607 Minority interest in income (274) (369) (1,156) (1,110) Income from equity investments 3,530 1,342 10,022 3,931 ----------- ----------- ----------- ----------- Income from continuing operations before (loss) gain 5,653 7,917 24,859 23,428 Unrealized gain (loss) on warrants and foreign currency contract, net 316 (133) 212 135 Gain on foreign currency transactions 155 - 324 - ----------- ----------- ----------- ----------- Income from continuing operations 6,124 7,784 25,395 23,563 Discontinued operations: Income from operations of discontinued properties - - - 72 Gain on sale of real estate - - - 333 ----------- ----------- ----------- ----------- Income from discontinued operations - - - 405 ----------- ----------- ----------- ----------- Net income $ 6,124 $ 7,784 $ 25,395 $ 23,968 =========== =========== =========== =========== Basic and diluted earnings per share: Earnings from continuing operations $ .09 $ .12 $ .38 $ .36 Earnings from discontinued operations - - - - ----------- ----------- ----------- ----------- Net income $ .09 $ .12 $ .38 $ .36 =========== =========== =========== =========== Weighted average shares outstanding - basic and diluted 66,706,224 66,236,321 66,546,596 66,146,025 =========== =========== =========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements. -3- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands)
Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income $ 6,124 $ 7,784 $ 25,395 $ 23,968 ---------- ---------- ---------- ---------- Other comprehensive income: Change in foreign currency translation adjustment 271 (295) 3,360 3,479 Unrealized appreciation of marketable securities 3 (3) 628 (3) ---------- ---------- ---------- ---------- Other comprehensive income 274 (298) 3,988 3,476 ---------- ---------- ---------- ---------- Comprehensive income $ 6,398 $ 7,486 $ 29,383 $ 27,444 ========== ========== ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. -4- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED) (in thousands)
Nine Months Ended ----------------- September 30, ------------- 2003 2002 ---- ---- Cash flows from operating activities: Net income $ 25,395 $ 23,968 Adjustments to reconcile net income to net cash provided by continuing operating activities: Income from discontinued operations - (405) Depreciation and amortization 17,861 15,664 Straight-line rent adjustments (2,952) (3,182) Income from equity investments in excess of distributions received (1,822) (19) Issuance of shares in satisfaction of current and accrued performance fees 5,204 3,640 Minority interest in income 1,156 1,110 Unrealized gain on warrants and foreign currency transactions, net (212) (135) Impairment charge on real estate 2,900 - (Decrease) increase in prepaid rents and security deposits (2,616) 4,800 Change in other operating assets and liabilities, net (1,237) 123 -------- -------- Net cash provided by continuing operations 43,677 45,564 Net cash provided by discontinued operations - 74 -------- -------- Net cash provided by operating activities 43,677 45,638 -------- -------- Cash flows from investing activities: Distributions from operations of equity investments in excess of equity income 988 736 Proceeds from sale of real estate - 3,634 Purchases of real estate and equity investments and additional capitalized costs (48,874) (206,914) VAT taxes paid and recoverable from purchase of real estate 911 (1,957) Purchase of securities - (8,397) Proceeds from sales of securities - 1,245 Distributions of mortgage financing proceeds received from equity investee 8,722 - Payment of deferred acquisition fees (2,373) (1,638) -------- -------- Net cash used in investing activities (40,626) (213,291) -------- -------- Cash flows from financing activities: Prepayment of mortgage principal - (3,800) Proceeds from mortgages 21,582 190,775 Funds released by mortgage lenders 3,000 - Proceeds from note 1,617 - Payments on mortgage principal (6,701) (4,415) Funding of defeasance escrow account - (2,537) Distributions to minority interest partner (2,595) (1,994) Contributions from minority interest partner - 10,758 Proceeds from issuance of shares, net of costs 456 (1,750) Deferred financing costs and mortgage deposits (47) (3,515) Dividends paid (37,573) (36,133) Purchase of treasury stock (1,904) (1,291) -------- -------- Net cash (used in) provided by financing activities (22,165) 146,098 -------- -------- Effect of exchange rate changes on cash 31 209 -------- -------- Net decrease in cash and cash equivalents (19,083) (21,346) Cash and cash equivalents, beginning of period 74,107 147,695 -------- -------- Cash and cash equivalents, end of period $ 55,024 $126,349 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. -5- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share and per share amounts) Note 1. Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of Corporate Property Associates 14 Incorporated (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of the interim period presented have been included. The results of operations for the interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. Certain prior year amounts have been reclassified to conform to current year financial statement presentation. Note 2. Transactions with Related Parties: In connection with performing services on behalf of the Company, the Advisory Agreement between the Company and Carey Asset Management Corp (the "Advisor"), a wholly-owned subsidiary of W. P. Carey & Co. LLC, provides that the Advisor receive asset management and performance fees, each of which are 1/2 of 1% of Average Invested Assets as defined in the Advisory Agreement. The Advisor has elected at its option to receive the performance fee in restricted shares of common stock rather than cash. The Advisor is also reimbursed for the actual cost of personnel needed to provide administrative services necessary to the operation of the Company. Asset management fees were $1,901 and $1,489 for the three months ended September 30, 2003 and 2002, respectively, and $5,644 and $4,053 for the nine months ended September 30, 2003 and 2002, respectively, with performance fees in like amount. For the three months ended September 30, 2003 and 2002, the Company incurred personnel reimbursements of $748 and $611, respectively, and $2,348 and $1,578 for the nine months ended September 30, 2003 and 2002, respectively. Fees are payable to the Advisor for services provided to the Company relating to the identification, evaluation, negotiation, financing and purchase of properties. A portion of such fees are deferred and are payable in equal installments over no less than eight years following the first anniversary of the date a property is purchased. For transactions that were completed during the nine months ended September 30, 2003, the current and deferred fees were $2,166 and $1,733, respectively. Note 3. Interest in Mortgage Loan Securitization: The Company is accounting for its subordinated interest in the Carey Commercial Mortgage Trust mortgage securitization as an available-for-sale marketable security which is measured at fair value with all gains and losses from changes in fair value reported as a component of other comprehensive income as part of shareholders' equity. As of September 30, 2003, the fair value of the Company's interests was $6,806, reflecting an aggregate unrealized gain of $885 and cumulative net amortization of $112 ($80 for the nine months ended September 30, 2003). The fair value of the Company's interests in the trust is determined using a discounted cash flow model with assumptions of market rates and the credit quality of the underlying lessees. One of the key variables in determining fair value of the subordinated interest is current interest rates. As required by SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities," a sensitivity analysis of the current value of the interest based on adverse changes in market interest rates of 1% and 2% is as follows: -6- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Amounts in thousands, except share and per share amounts)
Fair Value at -------------- September 30, 2003 1% Adverse Change 2% Adverse Change ------------------ ----------------- ----------------- Fair value of the interests $6,806 $6,470 $6,158
The above sensitivity is hypothetical and changes in fair value, based on a 1% or 2% variation, should not be extrapolated because the relationship of the change in assumption to the change in fair value may not always be linear. Note 4. Lease Revenues: The Company's operations consist of the investment in and the leasing of industrial and commercial real estate. The financial reporting sources of the lease revenues for the nine-month periods ended September 30, 2003 and 2002 are as follows:
2003 2002 ---- ---- Per Statements of Income: Rental income from operating leases $ 80,751 $71,928 Interest from direct financing leases 9,713 8,581 Adjustment: Share of leasing revenue applicable to minority interest (5,935) (5,588) Share of leasing revenue from equity investments 22,712 9,764 -------- ------- $107,241 $84,685 ======== =======
For the nine-month periods ended September 30, 2003 and 2002, the Company earned its net lease revenues from its investments as follows:
2003 % 2002 % ---- ---- Carrefour France, SAS $ 8,392 8% $ 4,289 4% Starmark Camhood, L.L.C. (b) 4,840 5 - - Nortel Networks Limited. 4,501 4 4,501 5 Petsmart, Inc. (a) 4,359 4 4,774 6 Clear Channel Communications, Inc. (b) 4,245 4 - - TruServ Corporation (b) 3,792 4 - - Atrium Companies, Inc. 3,336 3 3,339 4 Advance PCS, Inc. 3,225 3 3,225 4 Federal Express Corporation 2,961 3 2,929 4 Tower Automotive, Inc. 2,921 3 1,839 2 Galyan's Trading Company 2,858 3 2,858 3 Katun Corporation 2,794 3 846 1 Collins & Aikman Corporation 2,459 2 2,430 3 Advanced Micro Devices, Inc. (b) 2,444 2 2,444 3 Metaldyne Company LLC 2,395 2 2,351 3 Applied Materials, Inc. (b) 2,323 2 2,325 3 PerkinElmer, Inc. 2,200 2 1,834 2 APW North America Inc. 2,124 2 2,071 3 Amerix Corporation 1,853 2 1,843 2 Celestica Corporation 1,815 2 1,815 2 Institutional Jobbers Company 1,703 2 1,703 2 Buffets, Inc. 1,668 2 1,599 2 Gerber Scientific, Inc. 1,638 2 1,588 2 CheckFree Holdings, Inc. (b) 1,596 2 1,581 2 McLane Company, Inc. (a) 1,590 1 1,566 2 Gibson Guitar Corp. (c) 1,533 1 1,408 2 Waddington North America, Inc. 1,490 1 1,370 2 Stellex Technologies, Inc. 1,488 1 1,471 2 Special Devices, Inc. 1,486 1 1,472 2
-7- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Amounts in thousands, except share and per share amounts)
2003 % 2002 % ---- ---- Best Buy Co., Inc. 1,425 1 1,425 2 Builders FirstSource, Inc. 1,401 1 1,479 2 Consolidated Theaters Holding, G.P. 1,298 1 1,281 2 PW Eagle, Inc. 1,238 1 961 1 American Tire Distributors, Inc. 1,233 1 850 1 New Creative Enterprises, Inc. 1,183 1 1,182 1 Rave Reviews Cinemas, L.L.C. 1,075 1 1,054 1 Barjan Products L.L.C. 1,065 1 1,065 1 Compucom Systems, Inc. 1,056 1 1,030 1 Fitness Holdings, Inc. 1,015 1 987 1 Metagenics, Inc. 1,011 1 1,011 1 Other (d) (e) 14,212 13 12,889 14 -------- --- ------- --- $107,241 100% $84,685 100% ======== === ======= ===
(a) Net of minority interest of an affiliate. (b) Represents the Company's proportionate share of lease revenues from its equity investments. (c) Net of minority interest of an unaffiliated third party. (d) Includes amounts which are net of minority interest. (e) Includes the Company's proportionate share of lease revenues from equity investments. For the nine-month period ended September 30, 2003, lessees were responsible for the direct payment of approximately $10,049 of real estate taxes on behalf of the Company. In connection with a lease that had been terminated in a prior period, the Company recognized approximately $2,588 of other income in 2003 as the result of a security deposit from a former lessee, Exodus Communications, Inc. which was forfeited to the Company. Such amount is included in interest and other income for the nine-month period ended September 30, 2003 in the accompanying condensed consolidated financial statements. Note 5. Equity Investments: The Company owns interests in single-tenant net leased properties through equity interests (i) in various partnerships and limited liability companies and (ii) as tenants-in-common subject to joint control. The ownership interests range from 33.33% to 50%. All of the underlying investments are owned with affiliates that have similar investment objectives as the Company. The lessees are Advanced Micro Devices, Inc., Compucom Systems, Inc., Textron, Inc., CheckFree Holdings, Inc., Special Devices, Inc., Applied Materials, Inc., TruServ Corporation, Clear Channel Communications, Inc. and Starkmark Camhood, LLC. On February 7, 2003, the Company along with two affliliates, through a newly-formed limited liability company, entered into a master net lease with Starmark Camhood, LLC ("Starmark") (see Note 8). Summarized financial information of the Company's equity investees is as follows:
(In thousands) September 30, 2003 December 31, 2002 ------------------ ----------------- Assets (primarily real estate) $782,695 $591,167 Liabilities (primarily mortgage notes payable) 471,471 329,330 Partners' and members' equity 311,224 261,837
Nine Months Ended September 30, -------------------------------- 2003 2002 ---- ---- Revenues (primarily rental revenues) $ 60,402 $ 25,396 Expenses (primarily interest on mortgages and depreciation) (34,152) (14,907) -------- -------- Net income $ 26,250 $ 10,489 ======== ========
-8- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Amounts in thousands, except share and per share amounts) Note 6. Discontinued Operations: In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", effective for financial statements issued for fiscal years beginning after December 15, 2001, the results of operations and gain or loss on sales of real estate for properties sold or held for sale are to be reflected in the consolidated statements of operations as "Discontinued Operations" for all periods presented. The provisions of SFAS No. 144 are effective for disposal activities initiated by the Company's commitment to a plan of disposition after the date it is initially applied (January 1, 2002). The operations from a property in Greenville, Texas, which was sold in June 2002 are included as "Discontinued Operations." There were no discontinued operations in 2003. A summary of Discontinued Operations for the nine months ended September 30, 2002 is as follows:
Nine Months Ended September 30, 2002 ------------------ Revenues (primarily rental revenues) $150 Expenses (primarily interest on mortgages, depreciation and property expenses) (78) Gain on sale of real estate 333 ---- Income from discontinued operations $405 ====
Note 7. Acquisition of Real Estate Interest: Investments acquired during the nine months ended September 30, 2003 which were fully described in the Company's Quarterly Report on Form 10-Q for the periods ended March 31, 2003 and June 30, 2003 are summarized as follows:
Initial Original Annual Ownership Annual Mortgage Debt Date Lease Obligor: Cost Interest Location Rent Financing Service Acquired - -------------- ---- -------- -------- ---- --------- ------- -------- Starmark Camhood LLC(a) $72,984 41% 15 health club $7,492 $ 44,403 $ 4,138 2/7/2003 facilities Carrefour France SAS(c) $10,422 100% Le Mans, France $2,651 $ 8,203(b) $ 642 7/24/2003
(a) The Starmark investment is accounted for as an equity investment. The amounts presented are pro rata. (b) Variable rate obligation. (c) Expansion of an existing property. Note 8. Impairment Charge on Real Estate: The Company owns a property in Gardena, California leased to Scott Companies Inc. Scott has rent arrearages of $272 as of September 30, 2003 and as a result of its financial difficulties has defaulted on its lease. The Company has written down the property to its estimated fair value and recognized an impairment charge of $2,900. Note 9. Accounting Pronouncements: In June 2001, FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 143 was issued to establish standards for the recognition and measurement of an asset retirement obligation. SFAS No. 143 requires retirement obligations associated with tangible long-lived assets to be recognized at fair value as the liability is incurred with a corresponding increase in the carrying amount of the related long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS No. 143 was adopted on January 1, 2003, and did not have a material effect on the financial statements. -9- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Amounts in thousands, except share and per share amounts) In May 2002, FASB issued SFAS No. 145 "Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections" which eliminates the requirement that gains and losses from the extinguishment of debt be classified as extraordinary items unless it can be considered unusual in nature and infrequent in occurrence. The Company adopted this Statement effective January 1, 2003 and the adoption did not have a material effect on the Company's financial statements. The Company no longer classifies gains and losses for the extinguishment of debt as extraordinary items. In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities". SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. SFAS No. 146 was adopted on January 1, 2003 and did not have a material effect on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," ("FIN 45") which changes the accounting for, and disclosure of certain guarantees. Beginning with transactions entered into after December 31, 2002, certain guarantees are required to be recorded at fair value, which is different from prior practice, under which a liability was recorded only when a loss was probable and reasonably estimable. In general, the change applies to contracts or indemnification agreements that contingently require the Company to make payments to a guaranteed third-party based on changes in an underlying asset, liability, or an equity security of the guaranteed party. The adoption of the accounting provisions of FIN 45 on January 1, 2003 did not have a material effect on the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amends SFAS No. 123, Accounting for Stock Based Compensation. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based compensation (i.e., recognition of a charge for issuance of stock options in the determination of income.). However, SFAS No. 148 does not permit the use of the original SFAS No. 123 prospective method of transition for changes to the fair value based method made in fiscal years beginning after December 15, 2003. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock based employee compensation, description of transition method utilized and the effect of the method used on reported results. The transition and annual disclosure provisions for valuing stock-based compensation of SFAS No. 148 are to be applied for fiscal years ending after December 15, 2002. The Company does not have any employees nor any stock-based compensation plans. On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), the primary objective of which is to provide guidance on the identification of entities for which control is achieved through means other than voting rights ("variable interest entities" or "VIEs") and to determine when and which business enterprise should consolidate the VIE (the "primary beneficiary"). This new model applies when either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without additional financial support. In addition, FIN 46 requires both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. On October 8, 2003, the FASB staff issued a FASB Staff Position ("FSP") which deferred the effective date of FIN 46 until December 31, 2003 for VIEs created prior to February 1, 2003. The Company's maximum loss exposure is the carrying value of its equity investments. The Company has evaluated the potential impact and believes this interpretation will not have a material impact on its accounting for its investments in unconsolidated joint ventures as none of these investments are VIEs. On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging under SFAS No. 133. The changes in the statement improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, the statement (1) clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative instrument discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when -10- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Amounts in thousands, except share and per share amounts) a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", and (4) amends certain other existing pronouncements. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on the financial statements. On May 30, 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity." SFAS No. 150 establishes standards to classify as liabilities certain financial instruments that are mandatorily redeemable or include an obligation to repurchase. Such financial instruments will be measured at fair value with changes in fair value included in the determination of net income. The FASB recently issued FSP 150-3, which defers the provisions of paragraph 9 and 10 of SFAS No. 150 indefinitely as they apply to mandatorily redeemable noncontrolling interests associated with finite-lived entities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has interests in five limited partnerships that are consolidated and that are considered mandatorily redeemable controlling interests with finite lives. In accordance with the deferral noted above, these minority interests have not been reflected as liabilities. The carrying value and fair value of these minority interests are approximately $12,451 and $13,478, respectively, at September 30, 2003. -11- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except share and per share amounts) The following information should be read in conjunction with Corporate Property Associates 14 Incorporated's ("CPA(R):14") condensed consolidated financial statements and notes thereto as of September 30, 2003 included in this quarterly report and CPA(R):14's Annual Report on Form 10-K for the year ended December 31, 2002. This quarterly report contains forward looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievement of CPA(R):14 to be materially different from the results of operations or plans expressed or implied by such forward looking statements. Accordingly, such information should not be regarded as representations by CPA(R):14 that the results or conditions described in such statements or the objectives and plans of CPA(R):14 will be achieved. Item 1 of the Annual Report on Form 10-K for the year ended December 31, 2002 provides a description of CPA(R):14's business objectives, acquisition and financing strategies and risk factors which could affect future operating results. CRITICAL ACCOUNTING POLICIES: Certain accounting policies are critical to the understanding of CPA(R):14's financial condition and results of operations. Management believes that an understanding of financial condition and results of operations requires an understanding of CPA(R):14's accounting policies. The preparation of financial statements requires that Management make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses. For instance, CPA(R):14 must assess its ability to collect rent and other tenant-based receivables and determine an appropriate charge for uncollected amounts. Because CPA(R):14's real estate operations have a limited number of lessees, Management believes that it is necessary to evaluate specific situations rather than solely use statistical methods. CPA(R):14 recognizes a provision for uncollected rents which typically ranges between 0.25% and 1% of lease revenues (rental income and interest income from direct financing leases) and measures its allowance against actual rent arrearages and adjusts the percentage applied. Real estate accounted for under the operating method is stated at cost less accumulated depreciation. Costs directly related to build-to-suit projects, primarily interest, if applicable, are capitalized. CPA(R):14 considers a build-to-suit project as in service upon completion of improvements, but no later than a date that is negotiated and stated in the lease. If portions of a project are substantially completed and occupied and other portions have not reached that stage, the substantially completed portions are accounted for separately. CPA(R):14 allocates costs incurred between the portions under construction and the portions completed and only capitalizes costs for the portion under construction. In connection with CPA(R):14's acquisition of properties, purchase costs will be allocated to the tangible and intangible assets and liabilities acquired based on their estimated fair values in accordance with SFAS No. 141, "Business Combinations." The value of the tangible assets, consisting of land, buildings and tenant improvements, will be determined as if vacant. Intangible assets including the above-market or below-market value of leases, the value of in-place leases and the value of tenant relationships will be recorded at their relative fair values. CPA(R):14 records above-market and below-market in-place lease values for owned properties based on the present value (using an interest rate reflecting the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the leases negotiated and in-place at the time of acquisition of the properties and (ii) an estimate of fair market lease rates for the property or equivalent property, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease value is amortized as a reduction of rental income over the remaining non-cancelable term of each lease. The capitalized below-market lease value is amortized as an increase to rental income over the initial term and any fixed rate renewal periods in the respective leases. The total amount of other intangible assets is allocated to in-place lease values and tenant relationship intangible values based on CPA(R):14's evaluation of the specific characteristics of each tenant's lease and its overall relationship with each tenant. Characteristics considered in allocating these values include the nature and extent of -12- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED the existing relationship with the tenant, prospects for developing new business with the tenant, the tenant's credit quality and the expectation of lease renewals among other factors. The aggregate value of other intangible assets acquired is measured based on the difference between (i) the property valued with an in-place lease adjusted to market rental rates and (ii) the property valued as if vacant. Independent appraisals or our estimates are considered in determining these values. Factors considered in the analysis include the estimated carrying costs of the property during a hypothetical expected lease-up period, current market conditions and costs to execute similar leases. CPA(R):14 also considers information obtained about a property in connection with its pre-acquisition due diligence. Estimated carrying costs will include real estate taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypothetical expected lease-up periods, based on an assessment of specific market conditions. CPA(R):14 estimates costs to execute leases including commissions and legal costs to the extent that such costs are not already incurred with a new lease that has been negotiated in connection with the purchase of the property. The value of in-place leases are amortized to expense over the remaining initial term of each lease. The value of tenant relationship intangibles are amortized to expense over the initial and renewal terms of the leases but no amortization period for intangible assets will exceed the remaining depreciable life of the building. CPA(R):14 also uses estimates and judgments when evaluating whether long-lived assets are impaired. When events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, Management performs projections of undiscounted cash flows, and if such cash flows are insufficient, the assets are adjusted (i.e., written down) to their estimated fair value. An analysis of whether a real estate asset has been impaired requires Management to make its best estimate of market rent, residual value and holding period. As CPA(R):14's investment objective is to hold properties on a long-term basis, holding periods will range from five to ten years. In its evaluations, CPA(R):14 obtains market information from outside sources; however, such information requires Management to determine whether the information received is appropriate to the circumstances. Depending on the assumptions made and estimates used, the estimated cash flow projected in the evaluation of long-lived assets can vary within a range of outcomes. CPA(R):14 considers the likelihood of possible outcomes in determining the best estimate of future cash flows. Because CPA(R):14's properties are leased to single tenants, CPA(R):14 is more likely to incur significant writedowns when circumstances deteriorate because of the possibility that a property will be vacated in its entirety. This makes the risks faced by CPA(R):14 different from the risks faced by companies that own multi-tenant properties. Events or changes in circumstances can result in further writedowns and impact the gain or loss ultimately realized upon sale of the asset. For its direct financing leases, CPA(R):14 performs a review of its estimated residual values of properties at least annually to determine whether there has been an other than temporary decline in CPA(R):14's current estimate of residual value. If the review indicates a decline in residual values that is other than temporary, a loss is recognized and the accounting for the direct financing lease will be revised using the changed estimate, that is, a portion of the future cash flow from the lessee will be recognized as a return of principal rather than as revenue. To the extent that investments and subsidiaries account for their financial position and results of operations in a functional currency other than U.S. dollars, it is necessary for CPA(R):14 to translate from the functional currency to U.S. dollars. The functional currency is the currency of the primary economic environment in which the real estate investments or subsidiary operates. The translation of the functional currency for assets and liabilities uses the current exchange rate as of the balance sheet date and for revenues and expenses uses a weighted average exchange rate during the period. Gains and losses resulting from foreign currency translation adjustments are reported as a component of other comprehensive income as part of shareholders' equity. Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in the exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of that transaction. That increase or decrease in the expected functional currency cash flows is a foreign currency transaction gain or loss that generally is included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss measured from the transaction date or the most recent intervening balance sheet date, whichever is later, realized upon settlement of a foreign currency -13- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED (Dollars in thousands, except share and per share amounts) transaction generally is included in net income from the period in which the transaction is settled. Foreign currency transactions are not included in determining net income but are accounted for in the same manner as foreign currency translation adjustments and reported as a component of other comprehensive income as part of shareholders' equity if (i) they are designated as, and are effective as, economic hedges of a net investment and are (ii) intercompany foreign currency transactions that are of a long-term nature (that is, settlement is not planned or anticipated in the foreseeable future), when the entities to the transactions are consolidated or accounted for by the equity method in the financial statements. When assets are identified by Management as held for sale, CPA(R):14 discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets. If, in Management's opinion, the net sales price of the assets that have been identified for sale is less than the net book value of the assets, an impairment charge is recognized and a valuation allowance is established. If circumstances that previously were considered unlikely occur and, as a result, CPA(R):14 decides not to sell a property previously classified as held for sale, the property is reclassified as held and used. A property that is reclassified is measured and recorded individually at the lower of (a) the carrying value before it was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the time of the subsequent decision not to sell. In 2002, CPA(R):14 acquired a subordinated interest in a mortgage trust that consists of limited recourse loans on 62 properties that are owned by CPA(R):14 or three of its affiliates. The fair value of the interests in the trust is determined using a discounted cash flow model with assumptions of market rates and the credit quality of the underlying lessees. If there are adverse changes in either market rates or the credit quality of the lessees, the model and, therefore, the income recognized from the subordinated interests as well as the fair value, will be adjusted. Costs incurred in connection with leases are capitalized and amortized on a straight-line basis over the terms of the related leases and included in property expense. Unamortized leasing costs are also charged to property expense upon early termination of the lease. Costs incurred in connection with obtaining mortgages and debt financing are capitalized and amortized over the term of the related debt and included in interest expense. Unamortized financing costs are written off and included in charges for early extinguishment of debt if a loan is retired early. Stated rental revenue and interest income from direct financing leases are recognized on a straight-line basis and a constant rate of interest, respectively, over the terms of the respective leases. Unbilled rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements. The majority of CPA(R):14's leases provide for periodic rent increases based on formulas indexed to increases in the CPI. CPI-based and other contingent-type rents are recognized currently. CPA(R):14 recognizes rental income from sales overrides after the level of sales requiring a rental payment to CPA(R):14 is reached. CPA(R):14 and certain affiliates are investors in certain real estate assets. It is anticipated that additional properties will be purchased through real estate ventures. These investments may be held through incorporated or unincorporated jointly-held entities. Substantially all of these investments represent jointly purchased properties which were net leased to a single tenant and were structured to provide diversification and reduce concentration of a risk from a single lessee for CPA(R):14 and the affiliate. The placement of an investment in a jointly-held entity or tenancy in common requires the approval of CPA(R):14's Independent Directors. All of the jointly-held investments are structured so that CPA(R):14 and the affiliate contribute equity, receive distributions and are allocated profit or loss in amounts that are proportional to their ownership interests. All of the jointly-held investments are subject to contractual agreements. No fees are payable to affiliates under any of the limited partnership and joint venture agreements. The presentation of these jointly-held investments and their related results in the accompanying consolidated financial statements is determined based on factors such as controlling interest, significant influence and whether each party has the ability to make independent decisions. Such factors will determine whether such investments are consolidated in the accounts of CPA(R):14 or accounted for under the equity method. Equity method investments are reviewed for impairment in the event of a change in circumstances that is other than temporary. An investment's value is only impaired if Management's estimate of the net realizable value of the investment is less than the carrying value of the investment. To the extent an impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment. -14- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED (Dollars in thousands, except share and per share amounts) CPA(R):14 measures derivative instruments, including derivative instruments embedded in other contracts, if any, at fair value and records them as an asset or liability, depending on CPA(R):14's rights or obligations under the applicable derivative contract. For derivatives designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of the derivative would be reported in other comprehensive income, a component of shareholders' equity, and are subsequently reclassified into earnings when the hedged item affects earnings (i.e., the forecasted event occurs). Changes in fair value of derivative instruments not designated as hedging and ineffective portions of hedges are recognized in the determination of earnings. Public business enterprises are required to report financial and descriptive information about their reportable operating segments. Operating segments are components of an enterprise about which financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Management evaluates the performance of CPA(R):14's portfolio of properties as a whole, rather than by identifying discrete operating segments. This evaluation includes assessing CPA(R):14's ability to meet distribution objectives, increase the dividend and increase value by evaluating potential investments in single tenant net lease real estate and by seeking favorable limited recourse mortgage financing opportunities. As of September 30, 2003, CPA(R):14 operates in one segment, real estate operations, and owned properties in the United States, the Netherlands, Finland, France and the United Kingdom. RESULTS OF OPERATIONS: Net income for the comparable three-month and nine-month periods ended September 30, 2003 and 2002 decreased and increased by $1,660 and $1,427, respectively, and income from continuing operations decreased and increased by $1,660 and $1,832, respectively. Net income for the nine-month period ended September 30, 2003 included the benefit from the forfeiture of a $2,588 security deposit to CPA(R):14 by a former lessee which was offset by a $2,900 impairment charge on real estate. The increases in income from continuing operations, net of the forfeiture benefit and impairment charge are due to an increase in CPA(R):14's real estate asset base including its equity investments and the completion of build-to-suit projects. CPA(R):14 still has funds available to further diversify its real estate portfolio. Lease revenues increased by $1,741 and $9,955 for the three-month and nine-month periods, respectively, primarily as a result of completing build-to-suit commitments and purchasing real estate. In July 2003, CPA(R):14 funded an expansion of an existing property leased to Carrefour France SAS in Le Mans, France. Additional annual rent from the expansion will provide approximately $1,000, based on current exchange rates. CPA(R):14 also completed build-to-suit projects with Waddington North America, Inc., Career Education Group and Rave Motion Pictures LLC during the current nine-month period which will provide aggregate annual lease revenues of $2,691. During 2002, CPA(R):14 entered into leases with Carrefour France SA, UTI Holdings, Inc., Tower Automotive, Inc., PW Eagle, Inc., American Tire Distributors and Katun Corporation, which provided for $1,025 and $8,732 of the increases in lease revenues for the three-month and nine-month periods. In March 2003, Fleming Companies, Inc. filed a voluntary petition of bankruptcy and subsequently terminated its lease at a property in Grand Rapids, Michigan. An affiliate owns a 40% minority interest in the property. CPA(R):14's share of annual rent from the Fleming lease was $925. The Grand Rapids property is being remarketed. More than 35 leases have rent increases scheduled in 2003 and 2004. The initial term of a lease with Best Buy, Inc. for a retail property in Torrance, California is scheduled to expire in 2005 and contributes $1,900 of annual lease revenues. Best Buy has not indicated whether it intends to extend its lease. Income from equity investments increased by $2,188 and $6,091 for the three-month and nine-month periods ended September 30, 2003, respectively, primarily as the result of acquiring interests in properties leased to TruServ Corporation and Clear Channel Communications, Inc. in December 2002 and Starmark Camhood, LLC in February 2003. CPA(R):14's annual distributions from the real estate operations of these equity investments are estimated to be approximately $7,715. The increase in interest and other income of $1,574 and $4,384 during the three-month and the nine-month periods ended September 30, 2003, respectively, consisted of property expense reimbursements received from lessees, -15- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED (Dollars in thousands, except share and per share amounts) interest income earned from CPA(R):14's interest in a mortgage securitization and, for the nine-month period, the forfeiture of the $2,588 security deposit. Reimbursements from tenants of $1,593 and $1,742 for the current three-month and nine-month periods, respectively, were used to pay real estate taxes and other property expenses that a lessee generally incurs under a net lease, and the reimbursements, net of the expenses, have no effect on net income. CPA(R):14 acquired its subordinated interest in the mortgage securitization in August 2002 and earned interest income of $194 and $599 from the investment for the current three-month and nine-month periods, respectively. Interest income from cash investments decreased by $124 and $825 for the comparable periods, respectively, as CPA(R):14 has used its cash to purchase real estate. Interest expense for the three-month and nine-month periods ended September 30, 2003 increased by $1,610 and $6,988, respectively, as a result of obtaining $198,455 and $27,477 of mortgage financing in 2002 and 2003, respectively. Increases in depreciation were directly attributable to the increase in real estate assets purchased in 2002 and 2003. Property expense for the comparable three-month and nine-month periods increased by $3,010 and $5,626, respectively, due to expenses which have been reimbursed by lessees and increases in asset management and performance fees of $449 and $3,182 for the comparable periods. The asset-based fees increased as a result of the growth of CPA(R):14's asset base. Property expenses have increased due to the vacancy of a property in Grand Rapids, Michigan; however, if CPA(R):14 enters into a lease with a new tenant, CPA(R):14 expects the lessee to pay such costs. Estimated annual carrying costs on the Grand Rapids property are approximately $400. General and administrative expense decreased by $92 and increased by $1,534 for the comparable three-month and nine-month periods, due to an increase in investor-related costs over the comparable nine-month periods and increases in certain variable costs which increased as CPA(R):14's asset base increased. Financial Condition: There has been no material change in CPA(R):14's financial condition since December 31, 2002. CPA(R):14's cash has decreased by $19,083 since December 31, 2002, primarily as a result of acquiring new real estate investments. CPA(R):14 is using its cash to purchase new properties to further diversify its portfolio, complete its commitments on build-to-suit construction projects and maintain cash balances sufficient to meet working capital needs. As of September 30, 2003, CPA(R):14 had approximately $18,339 of cash available for the acquisition of real estate investments, and $1,661 committed to complete build-to-suit projects. For the nine months ended September 30, 2003, cash flows from operating activities and equity investments of $44,665 were not fully sufficient to pay dividends to shareholders of $37,572, meet scheduled principal payment installments on mortgage debt of $6,701 and distribute $2,195 to minority partners ($400 from the release of mortgage escrow funds was distributed to a minority partner). Operating cash flow is expected to continue to increase as a result of acquiring the Carrefour expansion and completing three build-to-suit projects, all of which commenced paying rent in the third quarter. Annual cash flow from the three build-to-suit projects and the Carrefour expansion, net of property-level debt service, is projected to be approximately $2,104. CPA(R):14's investment in Starmark is projected to contribute annual distributions of $3,300, of which only $587 had been received through September 30, 2003. A portion of Starmark's rent has been used to fund certain debt service escrow obligations which are to be reimbursed by the lessee. Based on the projected increase in operating cash flows from the completed build-to-suit projects and the investment in Starmark, cash flow from operations and equity investments is expected to be sufficient to meet operating cash flows objectives. CPA(R):14's investing activities included using a total of $48,874 to purchase a 41% interest in the Starmark properties, to complete the Waddington, Career Education and Rave projects and to acquire the Carrefour expansion. As of September 30, 2003, all three build-to-suit projects were in service; however, $1,661 remained to be funded. In July 2003, CPA(R):14 used $10,422 for the acquisition of the Carrefour expansion (including obtaining mortgage financing of $8,203 based on the exchange rate for the Euro). The annual cash flow (rent less property-level mortgage debt service) from the expansion is projected to be approximately $397, based on current exchange rates. In January 2003, CPA(R):14 received $8,722 from its share of mortgage proceeds obtained by an equity investee. CPA(R):14 also paid an annual installment of deferred acquisition fees in January 2003 of $2,373. In addition to paying dividends to shareholders, principal payments on mortgage debt and paying distributions to minority interest owners, CPA(R):14's financing activities included obtaining proceeds of $21,582 from mortgage -16- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED (Dollars in thousands, except share and per share amounts) loans and $1,617 from a note payable collateralized by the Carrefour property. During 2003, CPA(R):14 obtained the $8,203 mortgage loan collateralized by the Carrefour property and $6,680 of additional proceeds on a mortgage loan collateralized by the Career Education property, increasing the loan on the property to $12,500. Annual debt service on the Carrefour and Career Education properties is $558 at current exchange rates and $984, respectively. CPA(R):14 also obtained $6,700 of limited recourse mortgage debt collateralized by the UTI Holdings, Inc. property in Mooresville, North Carolina, at an annual debt service of $587. CPA(R):14 has no mortgage balloon payments scheduled until June 2006. Substantially all of CPA(R):14's mortgages are limited recourse and bear interest at fixed rates. Accordingly, CPA(R):14's cash flow should not be adversely affected by increases in interest rates which are at or near historical lows. A lender on limited recourse mortgage debt has recourse only to the property collateralizing such debt and not to any of CPA(R):14's other assets, while unsecured financing would give a lender recourse to all of CPA(R): 14's assets. The use of limited recourse debt, therefore, will allow CPA(R):14 to limit its exposure of all of its assets to any one debt obligation. Management believes that the strategy of combining equity and limited recourse mortgage debt will allow CPA(R):14 to meet its short-term and long-term liquidity needs and will help to diversify CPA(R):14's portfolio and, therefore, reduce concentration of risk in any particular lessee. CPA(R):14 conducts business in Europe. While CPA(R):14 recognized a foreign transaction gain in 2003 of $324 in connection with the transfer of cash from a foreign subsidiary, foreign currency transaction gains and losses were not material to CPA(R):14's results of operations for the nine months ended September 30, 2003. CPA(R):14 was not subject to material foreign currency exchange rate risk from the effects of changes in exchange rates. To date, CPA(R):14 has not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. CPA(R):14 has obtained limited recourse mortgage financing at fixed rates of interest in the local currency. To the extent that currency fluctuations increase or decrease rental revenues as translated to dollars, the change in debt service, as translated to dollars, will partially offset the effect of fluctuations in revenue, and, to some extent mitigate the risk from changes in foreign currency rates. As of September 30, 2003, Carrefour, which leases properties in France, contributed 8% of lease revenues (see Note 4 to the accompanying condensed consolidated financial statements). The leverage used on the limited recourse financing of the Carrefour investments is higher than the average leverage on CPA(R):14's domestic real estate investments. OFF-BALANCE SHEET ARRANGEMENTS, GUARANTEES AND AGGREGATE CONTRACTUAL AGREEMENTS: A summary of CPA(R):14's contractual obligations and commitments is as follows:
(in thousands) Total 2003 2004 2005 2006 2007 Thereafter ----- ---- ---- ---- ---- ---- ---------- Obligations: Mortgage notes payable (1) $693,444 $2,544 $10,578 $11,593 $12,547 $13,488 $642,694 Deferred acquisition fees 22,530 3,204 3,420 3,420 3,420 9,066 Subordinated disposition fees 240 240 Commitments: Commitments for build-to-suit construction 1,661 1,661 Share of minimum rents payable under office cost-sharing agreement 1,100 28 390 390 292 -------- ------ ------- ------- ------- ------- -------- $718,975 $4,233 $14,172 $15,403 $16,259 $16,908 $652,000 ======== ====== ======= ======= ======= ======= ========
(1) The mortgage notes payable were obtained in connection with the acquisition of properties in the ordinary course of business. ACCOUNTING PRONOUNCEMENTS: In June 2001, FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 143 was issued to establish standards for the recognition and measurement of an asset retirement obligation. SFAS No. 143 requires retirement obligations associated with tangible long-lived assets to be recognized at fair value as the -17- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED (Dollars in thousands, except share and per share amounts) liability is incurred with a corresponding increase in the carrying amount of the related long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS No. 143 was adopted on January 1, 2003 and did not have a material effect on the financial statements. In May 2002, FASB issued SFAS No. 145 "Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections" which eliminates the requirement that gains and losses from the extinguishment of debt be classified as extraordinary items unless it can be considered unusual in nature and infrequent in occurrence. CPA(R):14 adopted this statement effective January 1, 2003 and the adoption did not have a material affect on CPA(R):14's financial statements. CPA(R):14 no longer classifies gains and losses for the extinguishment of debt as extraordinary items. In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities". SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. SFAS No. 146 was adopted on January 1, 2003 and did not have a material effect on CPA(R):14's financial statements. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," ("FIN 45") which changes the accounting for, and disclosure of certain guarantees. Beginning with transactions entered into after December 31, 2002, certain guarantees are required to be recorded at fair value, which is different from prior practice, under which a liability was recorded only when a loss was probable and reasonably estimable. In general, the change applies to contracts or indemnification agreements that contingently require CPA(R):14 to make payments to a guaranteed third-party based on changes in an underlying asset, liability, or an equity security of the guaranteed party. The adoption of the accounting provisions of FIN 45 on January 1, 2003 did not have a material effect on CPA(R):14's financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amends SFAS No. 123, Accounting for Stock Based Compensation. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based compensation (i.e., recognition of a charge for issuance of stock options in the determination of income.). However, SFAS No. 148 does not permit the use of the original SFAS No. 123 prospective method of transition for changes to the fair value based method made in fiscal years beginning after December 15, 2003. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock based employee compensation, description of transition method utilized and the effect of the method used on reported results. The transition and annual disclosure provisions for valuing stock-based compensation of SFAS No. 148 are to be applied for fiscal years ending after December 15, 2002. CPA(R):14 does not have any employees nor any stock-based compensation plans. On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), the primary objective of which is to provide guidance on the identification of entities for which control is achieved through means other than voting rights ("variable interest entities" or "VIEs") and to determine when and which business enterprise should consolidate the VIE (the "primary beneficiary"). This new model applies when either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without additional financial support. In addition, FIN 46 requires both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. On October 8, 2003, the FASB staff issued a FASB Staff Position ("FSP") which deferred the effective date of FIN 46 until December 31, 2003 for VIEs created prior to February 1, 2003. CPA(R):14's maximum loss exposure is the carrying value of its equity investments. CPA(R):14 has evaluated the potential impact and believes this interpretation will not have a material impact on its accounting for its investments in unconsolidated joint ventures as none of these investments are VIEs. -18- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED (Dollars in thousands, except share and per share amounts) On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging under SFAS No. 133. The changes in the statement improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, the statement (1) clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative instrument discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", and (4) amends certain other existing pronouncements. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of FASB No. 149 did not have a material effect on the financial statements. On May 30, 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity." SFAS No. 150 establishes standards to classify as liabilities certain financial instruments that are mandatorily redeemable or include an obligation to repurchase. Such financial instruments will be measured at fair value with changes in fair value included in the determination of net income. The FASB recently issued FSP 150-3, which defers the provisions of paragraph 9 and 10 of SFAS No. 150 indefinitely as they apply to mandatorily redeemable noncontrolling interests assocated with finite-lived entities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. CPA(R):14 has interests in five limited partnerships that are consolidated and that are considered mandatorily redeemable controlling interests with finite lives. In accordance with the deferral noted above, these minority interests have not been reflected as liabilities. The carrying value and fair value of these minority interests are approximately $12,451 and $13,478, respectively, at September 30, 2003. -19- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (in thousands) Market risk is the exposure to loss resulting from changes in interest and foreign currency exchange rates and equity prices. In pursuing its business plan, the primary market risks to which CPA(R):14 is exposed are interest rate risk and foreign currency exchange risk. The value of CPA(R):14's real estate is subject to fluctuations based on changes in interest and foreign currency exchange rates, local and regional economic conditions and changes in the creditworthiness of lessees, and which may affect CPA(R):14's ability to refinance its debt when balloon payments are scheduled. CPA(R):14 owns marketable securities through its ownership interests in Carey Commercial Mortgage Trust ("CCMT"). The value of the marketable securities is subject to fluctuation based on changes in interest rates, economic conditions and the creditworthiness of lessees at the mortgaged properties. As of September 30, 2003, CPA(R):14's interests in CCMT had a fair value of $6,806. Approximately $665,939 of CPA(R):14's long-term debt bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. The following table presents principal cash flows based upon expected maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt. The interest rate on the fixed rate debt as of September 30, 2003 ranged from 6.09% to 8.85%. The interest rate on the variable rate debt as of September 30, 2003 ranged from 3.12% to 6.59%.
2003 2004 2005 2006 2007 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Fixed rate debt $2,469 $10,211 $11,201 $12,138 $13,061 $616,859 $665,939 $675,290 Weighted average interest rate 7.20% 7.20% 7.20% 7.20% 7.20% 7.47% Variable rate debt $ 75 $ 367 $ 392 $ 409 $ 427 $ 25,835 $ 27,505 $ 27,505
CPA(R):14 has foreign operations. Accordingly, CPA(R):14 is subject to foreign currency exchange risk from the effects of exchange rate movements of foreign currencies and this may affect future costs and cash flows; however, exchange rate movements to date have not had a significant effect on CPA(R):14's financial position or results of operations. To date CPA(R):14 has not entered into any foreign currency forward exchange contracts to hedge the effects of adverse fluctuations in foreign currency exchange. One of CPA(R):14's lease agreements provides the option to receive a portion of the rent in dollars or the local currency; this option is considered a derivative financial instrument and changes in the fair value of the option, which were not significant, are included in the determination of net income. Item 4. - CONTROLS AND PROCEDURES The Co-Chief Executive Officers and Chief Financial Officer of the Company have conducted a review of the Company's disclosure controls and procedures as of September 30, 2003. The Company's disclosure controls and procedures include the Company's controls and other procedures designed to ensure that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is accumulated and communicated to the Company's management, including its Co-Chief Executive Officers and Chief Financial Officer, to allow timely decisions regarding required disclosure and to ensure that such information is recorded, processed, summarized and reported, within the required time periods. Based upon this review, the Company's Co-Chief Executive Officers and Chief Financial Officer have concluded that the Company's disclosure controls (as defined in Rule 13a-14(c) promulgated under the Exchange Act) are sufficiently effective to ensure that the information required to be disclosed by the Company in the reports it files under the Exchange Act is recorded, processed, summarized and reported with adequate timeliness. -20- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED PART II Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the quarter ended September 30, 2003, no matters were submitted to a vote of Security Holders. Item 6. - EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: 31.1 Certification of Co-Chief Executive Officers 31.2 Certification of Chief Financial Officer 32.1 Certification of Co-Chief Executive Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: During the quarter ended September 30, 2003, the Company was not required to file any reports on Form 8-K. -21- CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED 11/10/2003 By: /s/ John J. Park - -------------- ----------------------------------- Date John J. Park Managing Director and Chief Financial Officer (Principal Financial Officer) 11/10/2003 By: /s/ Claude Fernandez - -------------- ----------------------------------- Date Claude Fernandez Managing Director and Chief Accounting Officer (Principal Accounting Officer) -22- EX-31.1 3 y91581exv31w1.txt 302 CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICERS Exhibit 31.1 CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED CERTIFICATIONS We, William Polk Carey and Gordon F. DuGan, certify that: 1. We have reviewed this Quarterly Report on Form 10-Q of Corporate Property Associates 14 Incorporated (the "Registrant"); 2. Based on our knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on our knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and we are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d) Disclosed in this quarterly report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and we have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls over financial reporting. Date 11/10/2003 Date 11/10/2003 /s/ William Polk Carey /s/ Gordon F. DuGan --------------------------- -------------------------- William Polk Carey Gordon F. DuGan Chairman Vice Chairman (Co-Chief Executive Officer) (Co-Chief Executive Officer) EX-31.2 4 y91581exv31w2.txt 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 31.2 CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED CERTIFICATIONS I, John J. Park, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Corporate Property Associates 14 Incorporated (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the Registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d) Disclosed in this quarterly report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls over financial reporting. Date 11/10/2003 /s/ John J. Park --------------------------- John J. Park Chief Financial Officer EX-32.1 5 y91581exv32w1.txt 906 CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICERS Exhibit 32.1 CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Corporate Property Associates 14 Incorporated (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, William Polk Carey, Co-Chief Executive Officer of the Company, and Gordon F. DuGan, Co-Chief Executive Officer of the Company, certify, to the best of our knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ William Polk Carey /s/ Gordon F. DuGan ------------------------------- ------------------------------- William Polk Carey Gordon F. DuGan Chairman Vice Chairman (Co-Chief Executive Officer) (Co-Chief Executive Officer) 11/10/2003 11/10/2003 ------------------------------- ------------------------------- Date Date A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Corporate Property Associates 14 Incorporated and will be retained by Corporate Property Associates 14 Incorporated and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 6 y91581exv32w2.txt 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 32.2 CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Corporate Property Associates 14 Incorporated (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John J. Park, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John J. Park ----------------------------------- John J. Park Chief Financial Officer 11/10/2003 ----------------------------------- Date A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Corporate Property Associates 14 Incorporated and will be retained by Corporate Property Associates 14 Incorporated and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----