-----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, P1QeuAw9416ZSYggVJBn8QlUukiLkl1SVyu0kVOBa8GBFmqRMupQlMTKviwYqOcO xqTu0v3D6HrSY1P0Luvjng== 0000950123-01-505344.txt : 20010813 0000950123-01-505344.hdr.sgml : 20010813 ACCESSION NUMBER: 0000950123-01-505344 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES 10 INC CENTRAL INDEX KEY: 0000778214 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133559213 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19156 FILM NUMBER: 1704308 BUSINESS ADDRESS: STREET 1: 50 ROCKEFELLER PLZ CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124921100 MAIL ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: CAREY PROPERTY INVESTORS L P DATE OF NAME CHANGE: 19600201 FORMER COMPANY: FORMER CONFORMED NAME: CORPORATE PENSION INVESTORS DATE OF NAME CHANGE: 19600201 10-Q 1 y52314e10-q.txt CORPORTATE PROPERTY ASSOCIATES 10 INCORPORATED 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q For the quarterly period ended JUNE 30, 2001 of CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED CPA(R):10 A MARYLAND Corporation IRS Employer Identification No. 13-3559213 SEC File Number 0-19156 50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020 (212) 492-1100 CPA(R):10 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the Act. CPA(R):10 HAS NO SECURITIES registered on any exchanges. CPA(R):10 does not have any Securities registered pursuant to Section 12(b) of the Act. CPA(R):10 (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. CPA(R):10 has no active market for common stock at August 9, 2001. CPA(R):10 has 7,621,656 shares of common stock, $.001 Par Value outstanding at August 9, 2001. 2 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED INDEX
Page No. PART I Item 1. - Financial Information* Condensed Consolidated Balance Sheets, as of December 31, 2000 and June 30, 2001 2 Condensed Consolidated Statements of Income for the three and six months ended June 30, 2000 and 2001 3 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001 4 Notes to Condensed Consolidated Financial Statements 5-6 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 PART II - Other Information Item 3. - Quantitative and Qualitative Disclosures About Market Risk 9 Item 4. - Submission of Matters to a Vote of Security Holders 9 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 10 INCORPORATED PART I Item 1. - FINANCIAL INFORMATION CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2000 June 30, 2001 ----------------- ------------- (Note) (Unaudited) ASSETS: Land and buildings, net of accumulated depreciation of $17,731,796 at December 31, 2000 and $18,893,020 at June 30, 2001 $ 79,925,070 $ 79,087,519 Net investment in direct financing leases 16,758,447 16,758,447 Equity investment 14,111,738 14,640,353 Assets held for sale 625,000 -- Cash and cash equivalents 4,683,742 5,159,297 Other assets, net 1,047,717 1,541,522 ------------- ------------- Total assets $ 117,151,714 $ 117,187,138 ============= ============= LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY: Liabilities: Mortgage notes payable $ 58,456,566 $ 57,461,076 Accrued interest 245,742 344,473 Accounts payable and accrued expenses 305,435 136,832 Accounts payable to affiliates 3,500,121 4,055,975 Dividends payable 1,360,466 1,363,514 Prepaid rental income 42,134 18,114 ------------- ------------- Total liabilities 63,910,464 63,379,984 ------------- ------------- Minority interest 2,181,062 2,121,893 ------------- ------------- Commitments and contingencies Shareholders' Equity: Common stock, $.001 par value; 40,000,000 shares authorized; 7,633,558 shares issued and outstanding at December 31, 2000 and June 30, 2001 7,633 7,633 Additional paid-in capital 66,530,408 66,530,408 Dividends in excess of accumulated earnings (15,380,073) (14,755,000) ------------- ------------- 51,157,968 51,783,041 Less, common stock in treasury, at cost, 11,902 shares at December 31, 2000 and June 30, 2001 (97,780) (97,780) ------------- ------------- Total shareholders' equity 51,060,188 51,685,261 ------------- ------------- Total liabilities, minority interest and shareholders' equity $ 117,151,714 $ 117,187,138 ============= =============
The accompanying notes are an integral part of the condensed consolidated financial statements. Note: The condensed consolidated balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. -2- 4 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended ------------------ ---------------- June 30, 2000 June 30, 2001 June 30, 2000 June 30, 2001 ------------- ------------- ------------- ------------- Revenues: Rental income $ 2,963,443 $ 3,220,237 $ 6,212,930 $ 6,475,901 Interest income from direct financing leases 562,529 611,842 1,120,275 1,174,935 Interest and other income 45,508 187,151 88,843 251,676 ----------- ----------- ----------- ----------- 3,571,480 4,019,230 7,422,048 7,902,512 ----------- ----------- ----------- ----------- Expenses: Interest 1,386,722 1,263,048 2,781,286 2,475,894 Depreciation and amortization 596,217 625,335 1,188,113 1,210,919 General and administrative 453,485 310,546 835,406 689,596 Property expenses 423,570 487,837 946,701 920,632 ----------- ----------- ----------- ----------- 2,859,994 2,686,766 5,751,506 5,297,041 ----------- ----------- ----------- ----------- Income before minority interest, income from equity investment and (loss) gain on sale 711,486 1,332,464 1,670,542 2,605,471 Minority interest in income (166,311) (244,451) (331,924) (509,180) ----------- ----------- ----------- ----------- Income before income from equity investment and (loss) gain on sale 545,175 1,088,013 1,338,618 2,096,291 Income from equity investment 452,897 479,573 1,185,324 1,293,423 ----------- ----------- ----------- ----------- Income before (loss) gain on sale 998,072 1,567,586 2,523,942 3,389,714 (Loss) gain on sale of real estate (1,500) (38,420) 22,750 (38,420) ----------- ----------- ----------- ----------- Net income $ 996,572 $ 1,529,166 $ 2,546,692 $ 3,351,294 =========== =========== =========== =========== Basic and diluted earnings per common share (7,621,686 shares outstanding, basic and diluted) $ .13 $ .20 $ .33 $ .44 =========== =========== =========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements. -3- 5 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, ----------------------------------- 2000 2001 ----------- ----------- Cash flows from operating activities: Net income $ 2,546,692 $ 3,351,294 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,188,113 1,210,919 Income from equity investment in excess of dividends received (458,750) (528,615) Minority interest in income 331,924 509,180 Straight-line rent adjustments 5,307 17,784 (Gain) loss on sale of real estate (22,750) 38,420 Net change in operating assets and liabilities (23,983) 110,071 ----------- ----------- Net cash provided by operating activities 3,566,553 4,709,053 ----------- ----------- Cash flows from investing activities: Proceeds from sale of real estate 22,750 605,161 Additional capitalized costs (18,687) (323,673) ----------- ----------- Net cash provided by investing activities 4,063 281,488 ----------- ----------- Cash flows from financing activities: Dividends paid (2,710,888) (2,723,173) Distributions paid to minority partner (430,660) (568,349) Prepayment of mortgage payable -- (209,567) Payment of financing costs -- (227,974) Payments of mortgage principal (682,949) (785,923) ----------- ----------- Net cash used in financing activities (3,824,497) (4,514,986) ----------- ----------- Net (decrease) increase in cash and cash equivalents (253,881) 475,555 Cash and cash equivalents, beginning of period 3,293,827 4,683,742 ----------- ----------- Cash and cash equivalents, end of period $ 3,039,946 $ 5,159,297 =========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements. -4- 6 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation: The accompanying unaudited condensed consolidated financial statements 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 Form 10-Q and 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 periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Note 2. Transactions with Related Parties: The Company incurred asset management fees payable to its Advisor, Carey Asset Management Corp., of $193,150 and $189,965 for the three-month periods ended June 30, 2000 and 2001, respectively, and $386,325 and $392,478 for the six-month periods ended June 30, 2000 and 2001, respectively, with performance fees in like amount. General and administrative expense reimbursements were $216,222 and $173,524 for the three-month periods ended June 30, 2000 and 2001, respectively, and $390,769 and $344,067 for the six-month periods ended June 30, 2000 and 2001, respectively. Note 3. Lease Revenues: The Company's operations consist of the direct and indirect investment in and leasing of industrial and commercial real estate. The financial reporting sources of leasing revenues for the six-month periods ended June 30, 2000 and 2001 are as follows:
2000 2001 ----------- ----------- Per Statements of Income: Rental income from operating leases $ 6,212,930 $ 6,475,901 Interest from direct financing leases 1,120,275 1,174,935 Adjustments: Rental income attributable to minority interests (971,436) (1,075,194) Share of interest income from equity investment direct financing lease 2,376,464 2,417,920 ----------- ----------- $ 8,738,233 $ 8,993,562 =========== ===========
For the six-month periods ended June 30, 2000 and 2001, the Company earned its net lease revenues from its investments as follows:
2000 % 2001 % ---------- --- ---------- --- Marriott International, Inc. (a) $2,376,464 27% $2,417,920 27% Information Resources Incorporated (b) 1,458,007 17 1,643,850 18 The Titan Corporation (b) 1,065,668 12 1,113,336 12 New WAI, L.P./Warehouse Associates 727,544 8 778,087 9 EnviroWorks, Inc. 736,405 8 749,665 8 Wal-Mart Stores, Inc. 659,821 8 641,402 7 Kmart Corporation 585,499 7 518,233 6 Childtime Childcare Inc. 423,311 5 427,428 5 Electronic Data Systems Corporation 294,866 3 298,717 3 Other 410,648 5 404,924 5 ---------- --- ---------- --- $8,738,233 100% $8,993,562 100% ========== === ========== ===
(a) Represents the Company's proportionate share of lease revenues from an equity investment. (b) Net of W. P. Carey & Co. LLC's minority interest. -5- 7 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) Note 4. Equity Investment: The Company owns an approximate 23.7% interest in Marcourt Investments Incorporated ("Marcourt") which net leases 13 Courtyard by Marriott hotels to a wholly-owned subsidiary of Marriott International, Inc. Summarized financial information of Marcourt is as follows: (in thousands)
December 31, 2000 June 30, 2001 ----------------- ------------- Assets (primarily net investment in direct financing lease) $148,777 $148,586 Liabilities (primarily mortgage notes payable) 91,268 88,753 Shareholders' equity 57,509 59,833
Six Months Ended June 30, ------------------------- 2000 2001 ---- ---- Revenue (primarily interest income from direct financing lease) $ 10,042 $10,215 Expenses (primarily interest expense) (4,942) (4,657) -------- ------- Net income $ 5,100 $ 5,558 ======== =======
Note 5. Loss on Sale of Real Estate: In June 2001, the Company sold its interest in a vacant property in Texarkana, Arkansas for $625,000, less closing costs, and incurred a realized loss of $38,420 on the sale. With the sale of the Texarkana property, all of the properties that were formerly leased to Harvest Foods, Inc. are either currently subject to net leases or have been sold. -6- 8 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION And RESULTS OF OPERATIONS The following information should be read in conjunction with Corporate Property Associates 10 Incorporated's ("CPA(R):10") condensed consolidated financial statements and notes thereto as of June 30, 2001, included in this quarterly report, and CPA(R):10's Annual Report on Form 10-K for the year ended December 31, 2000. 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):10 to be materially different from the results of operations or plan expressed or implied by such forward-looking statements. Accordingly, such information should not be regarded as representations by CPA(R):10 that the results or conditions described in such statements or the objectives and plans of CPA(R):10 will be achieved. RESULTS OF OPERATIONS: Net income for the three-month and six-month periods ended June 30, 2001 increased by $533,000 and $805,000, respectively, as compared with net income for the three-month and six-month periods ended June 30, 2000. The increase in net income was primarily due to decreases in interest and general and administrative expenses and an increase in lease revenues (rental income and interest income from direct financing leases). The decrease in interest expense was primarily due to the refinancing of the limited recourse mortgage loan collateralized by properties leased to Information Resources, Inc. at a lower rate of interest in December 2000. The decrease in general and administrative expenses was due to moderate decreases for various services including printing costs and general and administrative reimbursements. The increase in lease revenues was due to rent increases on the Company's leases with the Titan Corporation and Information Resources in August 2000 and October 2000, respectively. Solely as a result of the two rent increases, annual revenues have increased by $675,000. FINANCIAL CONDITION: CPA(R):10's cash balances have increased by $476,000 since December 31, 2000. Cash flows from operations of $4,709,000 were sufficient to fund CPA(R):10's financing activities, which primarily consisted of dividends paid to shareholders of $2,723,000, distributions paid to the minority interests in two properties of $568,000, scheduled mortgage principal payments of $786,000 and a mortgage prepayment of $210,000 on the loan collateralized by CPA(R):10's 50% interest in six retail properties leased to Wal-Mart Stores, Inc. Under the loan agreement on the Wal-Mart properties, CPA(R):10 is obligated to make an annual prepayment equal to 80% of the annual percentage of sales rents earned on the Wal-Mart leases. For the six months ended June 30, 2001, CPA(R):10's investing activities included receiving $605,000 in connection with the sale of a property in Texarkana, Arkansas which had been vacant and using $324,000 for capital improvements. The additional capital costs included funding the replacement of the roof at CPA(R):10's Kmart Corporation property in Austin, Texas and the commencement of the retrofitting of a 96,000 sq. ft. vacant property in Austin, Texas. Costs to complete the retrofit are being evaluated and are estimated to be in excess of $500,000. A mortgage loan collateralized by the property leased to Warehouse Associates matured in April 2001 at which time a balloon payment was scheduled. CPA(R):10 has negotiated a six-month extension of the loan. As of June 30, 2001, the loan had a balance of $6,351,000. A balloon payment of $779,000 for a second mortgage loan on the Warehouse Associates property is also due in August 2001. CPA(R):10 expects to complete the refinancing of the loans in August 2001. Based on the progress of the negotiations for the new loan, Management believes that CPA(R):10 will receive financing for an amount in excess of the amount necessary to pay off the existing loans. CPA(R):10 was formed in 1990 with the expectation that shareholders' interests would be liquidated beginning eight to twelve years after the net proceeds of CPA(R):10's offering were substantially invested. The Advisor is currently evaluating CPA(R):10's liquidity alternatives. -7- 9 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION And RESULTS OF OPERATIONS (Continued) CPA(R):10 owns an approximate 23.7% interest in Marcourt Investments, Inc. ("Marcourt"), a real estate investment trust ("REIT") that owns 13 net-leased Courtyard by Marriott hotels. As a result of rapidly amortizing debt, Marcourt's taxable income exceeds its distributable cash flow and such excess is projected to increase substantially in the coming years. The projected inability to distribute 90% of its taxable income may impair Marcourt's ability to retain REIT status in future years and result in the payment of federal income taxes by Marcourt. Management and the other Marcourt shareholders are evaluating the situation for potential resolutions including, but not limited to, a potential sale, refinancing or restructuring to enable Marcourt to retain its REIT status. -8- 10 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED PART II Item 3. - Quantitative and Qualitative Disclosures about Market Risk Approximately $56,678,000 of the Company's long-term debt bears interest at fixed rates, and the fair value of these instruments is affected by changes in 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 variable rate debt as of June 30, 2001 was 8.0%. There has been no material change since December 31, 2000. (in thousands)
2001 2002 2003 2004 2005 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Fixed rate debt $7,051 $ 7,335 $ 9,216 $ 3,001 $ 1,002 $ 29,073 $56,678 $56,184 Weighted average interest rate 8.809% 10.209% 9.676% 9.674% 8.933% 7.995% -- -- Variable rate debt $ 783 -- -- -- -- -- $ 783 $ 783
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS An annual Shareholders meeting was held on June 7, 2001, at which time a vote was taken to elect the Company's directors through the solicitation of proxies. The following directors were elected for a one-year term:
Name Of Director Total Shares Voting Shares Voting Yes Shares Voting No ---------------- ------------------- ----------------- ---------------- William P. Carey 3,827,365 3,794,792 32,573 Ralph G. Coburn 3,827,365 3,762,242 65,123 William Ruder 3,827,365 3,786,292 41,073 George E. Stoddard 3,827,365 3,773,492 53,873 Warren G. Wintrub 3,827,365 3,795,292 32,073
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None. (b) Reports on Form 8-K: During the quarter ended June 30, 2001, the Company was not required to file any reports on Form 8-K. -9- 11 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 10 INCORPORATED 8/9/01 By: /s/ John J. Park -------------- ---------------------------------------- Date John J. Park Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) 8/9/01 By: /s/ Claude Fernandez -------------- ---------------------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Accounting Officer) -10- -----END PRIVACY-ENHANCED MESSAGE-----