-----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, CRimPDyr6azPsRphwSUplK8Q6BiQYTTcwRsgfuITDf7nUPT6t3o+aaVxo08eLRep rtOgxqo+A36ISrzu/vNgEA== 0000950123-99-004507.txt : 19990513 0000950123-99-004507.hdr.sgml : 19990513 ACCESSION NUMBER: 0000950123-99-004507 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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: SEC FILE NUMBER: 000-19156 FILM NUMBER: 99618352 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: CORPORATE PENSION INVESTORS DATE OF NAME CHANGE: 19600201 FORMER COMPANY: FORMER CONFORMED NAME: CAREY PROPERTY INVESTORS L P DATE OF NAME CHANGE: 19600201 10-Q 1 CORPORATE PROPERTIES 10 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q For the quarterly period ended MARCH 31, 1999 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 is not registered on any exchanges. CPA(R):10 does not have any Securities registered pursuant to Section 12(b) of the Act. CPA(R):10 is unaware of any delinquent filers pursuant to Item 405 of Regulation S-K. 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 May 10, 1999. 7,621,656 shares of common stock, $.001 Par Value outstanding at May 10, 1999. 2 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED INDEX
Page No. -------- PART I Item 1. - Financial Information* Condensed Consolidated Balance Sheets, as of December 31, 1998 and March 31, 1999 2 Condensed Consolidated Statements of Income for the three months ended March 31, 1998 and 1999 3 Condensed Consolidated Statements of Comprehensive Income for 3 the three months ended March 31, 1998 and 1999. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1999 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 3A.- 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, March 31, 1998 1999 ------------- ------------- (Note) (Unaudited) ASSETS: Land and buildings, net of accumulated depreciation of $13,541,345 at December 31, 1998 and $14,030,214 at March 31, 1999 $ 87,557,617 $ 86,479,846 Net investment in direct financing leases 16,758,447 16,758,447 Assets held for sale 218,250 Equity investment 12,382,287 12,576,336 Cash and cash equivalents 1,770,478 1,954,726 Other assets 787,077 870,906 ------------- ------------- Total assets $ 119,255,906 $ 118,858,511 ============= ============= LIABILITIES: Limited recourse mortgage notes payable $ 58,748,585 $ 58,408,610 Accrued interest 472,220 480,303 Accounts payable and accrued expenses 479,388 439,203 Accounts payable to affiliates 1,912,233 2,091,138 Dividends payable 1,348,268 1,349,797 Prepaid rental income 27,365 41,562 ------------- ------------- Total liabilities 62,988,059 62,810,613 ------------- ------------- Minority interest 3,665,708 3,622,492 ------------- ------------- Commitment and contingencies SHAREHOLDERS' EQUITY: Common stock, $.001 par value; 40,000,000 shares authorized; 7,633,558 shares issued and outstanding at December 31, 1998 and March 31, 1999 7,633 7,633 Additional paid-in capital 66,530,408 66,530,408 Dividends in excess of accumulated earnings (13,993,711) (14,141,271) Accumulated other comprehensive income 155,589 126,416 ------------- ------------- 52,699,919 52,523,186 Less: common stock in treasury at cost, 11,902 shares at December 31, 1998 and March 31, 1999 (97,780) (97,780) ------------- ------------- Total shareholders' equity 52,602,139 52,425,406 ------------- ------------- Total liabilities and shareholders' equity $ 119,255,906 $ 118,858,511 ============= =============
The accompanying notes are an integral part of the condensed consolidated financial statements. Note: The balance sheet at December 31, 1998 has been derived from the audited consolidated financial statements at that date. -2- 4 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1998 March 31, 1999 -------------- -------------- Revenues: Rental income from operating leases $ 3,352,679 $ 3,358,447 Interest income from direct financing leases 549,477 547,520 Other interest income 29,942 22,492 ----------- ----------- 3,932,098 3,928,459 ----------- ----------- Expenses: Interest on mortgages 1,538,793 1,453,493 Depreciation and amortization 521,312 522,112 General and administrative 262,948 375,723 Property expense 474,286 557,075 Writedown to fair value 348,716 ----------- ----------- 2,797,339 3,257,119 ----------- ----------- Income before minority interest and income from equity investment 1,134,759 671,340 Minority interest in income (157,731) (162,330) ----------- ----------- Income before equity investment 977,028 509,010 Income from equity investment 661,916 692,259 ----------- ----------- Net income $ 1,638,944 $ 1,201,269 =========== =========== Basic income per share (7,206,642 shares outstanding at March 31, 1998 and 1999): $ .23 $ .16 =========== ===========
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31, 1998 March 31, 1999 -------------- -------------- Net Income $ 1,638,944 $ 1,201,269 Other comprehensive income: Change in unrealized gain in securities during the period (29,173) ----------- Other comprehensive income (29,173) ----------- ----------- $ 1,638,944 $ 1,172,096 =========== ===========
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)
Three Months Ended March 31, ------------------------------- 1998 1999 ----------- ----------- Cash flows from operating activities: Net income $ 1,638,944 $ 1,201,269 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 521,312 522,112 Income from equity investment in excess of dividends received (187,438) (194,049) Minority interest in income 157,731 162,330 Straight-line rent adjustments 2,841 1,310 Provision for uncollected rents 27,581 28,095 Writedown to fair value 348,716 Net change in operating assets and liabilities (393,388) 7,286 ----------- ----------- Net cash provided by operating activities 1,767,583 2,077,069 ----------- ----------- Cash flows from financing activities: Dividends paid (1,269,091) (1,347,300) Distributions paid to minority interest (224,901) (205,546) Payments of mortgage principal (316,085) (339,975) ----------- ----------- Net cash used in financing activities (1,810,077) (1,892,821) ----------- ----------- Net (decrease) increase in cash and cash equivalents (42,494) 184,248 Cash and cash equivalents, beginning of period 2,608,523 1,770,478 ----------- ----------- Cash and cash equivalents, end of period $ 2,566,029 $ 1,954,726 =========== =========== Supplemental disclosure of cash flows information: Interest paid $ 1,493,292 $ 1,445,410 =========== ===========
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 generally accepted accounting principles 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 generally accepted accounting principles 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, 1998. Assets held for sale are accounted for at the lower of cost or fair value, less costs to dispose. Note 2. Transactions with Related Parties: For the three-month periods ended March 31, 1998 and 1999, the Company incurred asset management fees of $194,702 and $200,563, respectively, performance fees in like amount and general and administrative expense reimbursements of $125,298 and $144,749, respectively, payable to an affiliate. 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 three-month periods ended March 31, 1998 and 1999 are as follows:
1998 1999 ----------- ----------- Per Statements of Income: Rental income from operating leases $ 3,352,679 $ 3,358,447 Interest from direct financing leases 549,477 547,520 Adjustments: Rental income attributable to minority interests (485,718) (485,718) Share of interest income from equity investment's direct financing lease 1,284,897 1,321,695 ----------- ----------- $ 4,701,335 $ 4,741,944 =========== ===========
For the three-month periods ended March 31, 1998 and 1999, the Company earned its proportionate net lease revenues from its investments as follows:
1998 % 1999 % ---------- --- ---------- --- Marriott International, Inc. (a) $1,284,897 27% $1,321,695 28% Information Resources Incorporated (b) 729,003 16 729,003 15 The Titan Corporation (b) 532,834 11 532,834 11 Wal-Mart Stores, Inc. 444,226 9 501,067 11 Kmart Corporation 376,032 8 386,612 8 EnviroWorks, Inc. 346,939 8 361,572 8 New WAI, L.P./Warehouse Associates 363,403 8 361,446 8 Childtime Childcare Inc. 201,364 4 201,364 4 Neodata Corporation 146,932 3 147,433 3 Other 275,705 6 198,918 4 ---------- --- ---------- --- $4,701,335 100% $4,741,944 100% ========== === ========== ===
(a) Represents the Company's proportionate share of lease revenues from an equity investment. (b) Net of Corporate Property Associates 9'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, 1998 March 31, 1999 ----------------- -------------- Assets (primarily real estate) $149,150 $149,067 Liabilities (primarily mortgage notes payable) 99,315 98,368 Shareholders' equity 49,835 50,699
Three Months Ended March 31, 1998 March 31, 1999 -------------- -------------- Revenue (primarily interest from direct financing lease) $ 5,431 $ 5,536 Interest and other expenses 2,589 2,566 -------- -------- Net income $ 2,842 $ 2,970 ======== ========
Note 5. Writedown to Fair Value: On April 15, 1999, the Company and Carey Institutional Properties Incorporated, an affiliate, the owners as tenants in common of a property in Ruston, Louisiana entered into an agreement to sell the property for $450,000. The property has been vacant since the termination of the Harvest Foods, Inc. ("Harvest Foods") lease in March 1997. Based on the proposed sales price less estimated transaction costs, the Company's 50% interest in the property has been written down to $218,250. As a result of this writedown, the Company has recognized an impairment loss of $348,716. Because it satisfied the subordinated mortgage loan on the former Harvest Foods properties in December 1998, the Company will retain the entire amount of its share of net proceeds from the proposed sale of the Ruston property. -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 the Company's condensed consolidated financial statements and notes thereto as of March 31, 1999 included in this quarterly report and the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 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 the Company 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 the Company that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. RESULTS OF OPERATIONS: Net income for the three-month period ended March 31, 1999 decreased by $438,000 as compared with the three-month period ended March 31, 1998. Net income for the current three-month period includes the effect of a property writedown of $349,000. Excluding the noncash charge for the writedown, income would have reflected a decrease of $89,000. The decrease in income was due primarily to higher general and administrative and property expenses offset by a decrease in interest expense. Revenues for the comparable periods were substantially unchanged. The increase in general and administrative expenses resulted from higher consulting costs, including costs for Year 2000 remediation, and the Company's share of costs relating to the upgrade and installation of integrated asset management and accounting systems software that were lower than annual costs. The increase in property expenses was due to estimates of appraisal costs in the first quarter of 1998 that were lower than annual costs. Based on overall appraisal costs in 1998, the Company has accrued an increase in such costs for the valuation of the Company's real estate portfolio as of December 31, 1999. The decrease in interest expense was due to the satisfaction of the Harvest Foods, Inc. mortgage loan in December 1998 and decreasing principal balances on the Company's existing mortgage debt. FINANCIAL CONDITION: Cash flow from operations of $2,077,000 was sufficient to fund dividends of $1,347,000 to shareholders and to pay $206,000 in distributions to minority interest partners and $340,000 of scheduled mortgage principal installments. Cash flow from operations has been affected by the failure of CalComp Technology, Inc. to pay rent since January 1999. CalComp, a tenant of a property in Austin, Texas stopped paying its rent when it announced its intention to liquidate. The Company has filed a complaint against CalComp and is seeking a judgment for all unpaid and future rents plus associated costs. The Company has also entered into negotiations with CalComp in an attempt to reach a settlement. Because of the expectation that the Company will no longer receive rents from CalComp, no rental income from the CalComp lease was recorded during the current three-month period. The mortgage loan on the CalComp property is scheduled to mature in August 1999 when a balloon payment of $1,574,000 is due. Because of the CalComp lease default, the mortgage loan is in default and is subject to acceleration. The lender has not exercised its remedies, and the Company has continued to pay monthly debt service based on management's conclusion that the value of the property is in excess of the loan balance. The ability to pay the balloon payment may depend on the amount of any lease termination settlement received from CalComp or the ability to releverage other of the Company's properties. Because the loan is a limited recourse mortgage loan, the lender would have recourse only to the CalComp property in the event the loan is not satisfied. -7- 9 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued A mortgage loan on the Wal-Mart Stores, Inc. properties that had been scheduled to mature in January 1999 has been extended through May 1999. The lender has proposed to extend the maturity of the loan for several years. The Company is currently evaluating the lender's proposal. The Company was formed in 1990 with the expectation that shareholders' interests would be liquidated beginning eight to twelve years after the net proceeds of the Company's offering were substantially invested. The Advisor is beginning to evaluate liquidity alternatives. The Company and its affiliates are actively evaluating their readiness relating to the Year 2000 issue. The Year 2000 issue refers to the series of problems that have resulted or may result from the inability of certain computer software and embedded processes to process dates properly. The Company and its affiliates are completing a program of replacing or upgrading equipment that has been identified as not being Year 2000 compliant. The Company and its affiliates have also completed remediating certain software applications. Contingency plans are in the process of being developed and should be completed during the second quarter. The Company believes it is addressing its internal Year 2000 issues in a timely manner. There is, however, a risk that the inability of third-party suppliers and tenants to meet Year 2000 readiness issues could have an adverse effect on the Company. The Company and its affiliates have identified their critical suppliers and are requiring that suppliers communicate their plans and progress in identifying Year 2000 readiness. The Company has contacted its tenants regarding Year 2000 readiness and emphasized the need to address Year 2000 issues. Generally, tenants are contractually required to maintain their leased properties in good working order and to make necessary alterations, foreseen or unforeseen, to meet their contractual obligations. Because of those obligations, the Company believes that the risks and costs of upgrading systems related to operations of the buildings and that contain technology affected by Year 2000 issues will generally be absorbed by tenants rather than the Company. The major risk is that Year 2000 issues have such an adverse effect on the financial condition of a tenant that its ability to meet its lease obligations, including the timely payment of rent, is impaired. In such an event, the Company may ultimately incur the costs for Year 2000 readiness at the affected properties. The potential materiality of any impact is not known at this time. -8- 10 CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED AND SUBSIDIARIES PART II Item 3A. - Quantitative and Qualitative Disclosures about Market Risk: Approximately $53,930,000 of the Company'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 variable rate debt as of March 31, 1999 ranged from the lenders prime rate plus 1% to LIBOR plus 4%. There has been no material change since December 31, 1998. (in thousands)
1999 2000 2001 2002 2003 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Fixed rate $7,775 $22,847 $7,356 $996 $8,829 $8,127 $55,930 $59,323 Weighted average interest rate 9.89% 10.65% 8.89% 9.89% 9.77% 9.94% Variable rate 44 805 - - - 2,479 2,479
As of March 31, 1999, the Company had no other material exposure to market risk. Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the quarter ended March 31, 1999, no matters were submitted to a vote of Security Holders. Item 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None. (b) Reports on Form 8-K: During the quarter ended March 31, 1999, the Company was not required to file any reports on Form 8-K. -9- 11 CORPORATE PROPERTY ASSOCIATES 10 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 10 INCORPORATED 5/10/99 By: /s/ Steven M. Berzin --------- -------------------------------------- Date Steven M. Berzin Executive Vice President and Chief Financial Officer (Principal Financial Officer) 5/10/99 By: /s/ Claude Fernandez --------- -------------------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Accounting Officer) -10- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE THREE-MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1998 MAR-31-1999 1,954,726 0 0 0 218,250 2,172,976 117,268,507 14,030,214 118,858,511 4,402,003 58,408,610 0 0 7,633 52,417,773 118,858,511 0 3,928,459 0 0 1,775,531 376,811 1,104,777 1,201,269 0 1,201,269 0 0 0 1,201,269 .16 .16
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