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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended SEPTEMBER 30, 2002
of
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
CPA(R):15
A MARYLAND Corporation
IRS Employer Identification No. 52-2298116
SEC File Number 333-58854
50 ROCKEFELLER PLAZA,
NEW YORK, NEW YORK 10020
(212) 492-1100
CPA(R):15 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of
the Act.
CPA(R):15 HAS NO SECURITIES registered on any exchanges.
CPA(R):15 does not have any Securities registered pursuant to Section 12(b) of
the Act.
CPA(R):15 (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):15 has no active market for common stock at November 11, 2002.
CPA(R):15 has 37,973,234 shares of common stock, $.001 Par Value outstanding at
November 11, 2002.
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
INDEX
Page No.
--------
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, December 31, 2001
and September 30, 2002 2
Condensed Consolidated Statements of Income for the three and nine months
ended September 30, 2001 and 2002 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and 2002 4
Notes to Condensed Consolidated Financial Statements 5-10
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
Item 3. - Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. - Controls and Procedures 15
PART II - Other Information
Item 2(d). - Use of Proceeds of Registered Offering 16
Item 4. - Submission of Matters to a Vote of Security Holders 16
Item 6. - Exhibits and Reports on Form 8-K 16
Signatures 17
Certifications 18-19
* 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-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2001 September 30, 2002
----------------- ------------------
(Note) (Unaudited)
ASSETS:
Land and buildings, net of accumulated depreciation of $1,000,626 at
September 30, 2002 $203,351,752
Net investment in direct financing leases 29,933,421
Real estate under construction 14,663,469
Equity investments $ 128,995 11,105,037
Cash and cash equivalents 188,207 125,122,145
Deferred offering costs 1,888,548 4,582,728
Other assets - 16,393,045
--------- -----------
Total assets $2,205,750 $405,151,597
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Limited recourse mortgage notes payable $ 96,326,077
Accrued interest 575,160
Due to affiliates $2,039,774 5,032,072
Accounts payable and accrued expenses 34,455 886,936
Prepaid rental income and security deposits - 13,130,944
Deferred acquisition fees payable to affiliate - 5,627,111
Dividends payable - 3,833,272
--------- -----------
Total liabilities 2,074,229 125,411,572
--------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; authorized 120,000,000 shares;
20,000 and 31,346,054 shares issued and outstanding at December 31,
2001 and September 30, 2002 20 31,346
Additional paid-in capital 199,980 283,085,067
Dividends in excess of accumulated earnings (68,479) (3,376,388)
--------- -----------
Total shareholders' equity 131,521 279,740,025
--------- -----------
Total liabilities and shareholders' equity $2,205,750 $405,151,597
========= ===========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Note: The balance sheet at December 31, 2001 has been derived from the
audited consolidated financial statements at that date.
-2-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS of INCOME (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2001 2002 2001(1) 2002
---- ---- ---- ----
Revenues:
Rental income $ 3,652,382 $ 4,287,694
Interest income from direct 617,137 784,022
financing leases
Interest income $ 1,118 543,668 $ 1,118 1,040,880
------ ---------- ------ ----------
1,118 4,813,187 1,118 6,112,596
------ ---------- ------ ----------
Expenses:
Interest 1,398,916 1,655,418
Depreciation 830,526 1,000,626
General and administrative(2) 400,210 686,633
Property expenses(3) - 472,483 - 639,339
------ ---------- ------ ----------
- 3,102,135 - 3,982,016
------ ---------- ------ ----------
Income before equity
investments 1,118 1,711,052 1,118 2,130,580
Income from equity investments - 311,636 - 740,145
------ ---------- ------ ----------
Net income $ 1,118 $ 2,022,688 $ 1,118 $ 2,870,725
====== ========== ====== ==========
Basic and diluted earnings per share $ .06 $ .08 $ .06 $ .21
====== ========== ====== ==========
Weighted average shares outstanding -
basic and diluted 20,000 25,016,087 20,000 13,680,360
====== ========== ====== ==========
(1) For the period from inception (February 26, 2001) to September 30, 2001.
(2) Includes reimbursements for administrative services to the Advisor of
$69,800 and $119,294 for the three-month and nine-month periods ended
September 30, 2002.
(3) Includes asset management fees to the Advisor of $236,969 and $317,489 for
the three-month and nine-month periods ended September 30, 2002 with
performance fees in like amounts.
The accompanying notes are an integral part of the condensed
consolidated financial statements
-3-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
-------------------------------
2001 (1) 2002
---- ----
Cash flows from operating activities:
Net income $ 1,118 $ 2,870,725
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of financing costs 1,001,582
Equity income in excess of distributions received (68,952)
Straight-line rent adjustments (80,003)
Fees paid to affiliate by issuance of stock 69,570
Increase in other assets (1,139,420)
Increase in accrued interest 575,160
Increase in accounts payable and accrued expenses 694,481
Increase in due to affiliates (a) 426,758
Increase in prepaid rent and security deposits - 2,669,244
------- -----------
Net cash provided by operating activities 1,118 7,019,145
------- -----------
Cash flows from investing activities:
Distributions from equity investments in excess of equity
income 427,233
Acquisitions of real estate and equity investments and other
capitalized costs (b) (246,075,076)
-----------
Net cash used in investing activities (245,647,843)
-----------
Cash flows from financing activities:
Proceeds from issuance of stock, net of costs of raising
capital 200,000 282,846,843
Dividends paid (2,345,362)
Proceeds from mortgages (c) 83,972,341
Mortgage principal payments (91,834)
Deferred financing costs and mortgage deposits - (819,352)
------- -----------
Net cash provided by financing activities 200,000 363,562,636
------- -----------
Net increase in cash and cash equivalents 201,118 124,933,938
Cash and cash equivalents, beginning of period - 188,207
------- -----------
Cash and cash equivalents, end of period $201,118 $125,122,145
======= ===========
(1) For the period from inception (February 26, 2001) to September 30, 2001.
Noncash investing and financing activities:
In connection with acquiring a property in 2002, the Company assumed
a mortgage note payable of $8,630,041.
(a) Increase in due to affiliates excludes amounts which relate to
the raising of capital (financing activities) pursuant to the
Company's public offering.
(b) Includes payment of fees to the Advisor of $6,407,607 relating
to the identification, evaluation, negotiation, financing and
purchase properties.
(c) Net of $3,815,529 held by lenders to fund escrow accounts.
(d) The Company assigned a security deposit of $10,461,700 to a lender
and it is included in other assets and prepaid rents and security
deposits, respectively.
The accompanying notes are an integral part of the
condensed consolidated financial statements.
-4-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation:
The condensed consolidated financial statements include the accounts of
Corporate Property Associates 15 Incorporated and its wholly owned subsidiaries
(collectively, the "Company"). All material inter-entity transactions have been
eliminated. The subsidiaries in which the Company has a controlling interest
(i.e., ownership of more than 50% of the voting and financial interests) are
consolidated in the accompanying condensed consolidated financial statements .
The accompanying unaudited condensed consolidated financial statements of 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. 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. For further information,
refer to the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the period ended December 31, 2001.
Note 2. Organization and Offering:
Corporate Property Associates 15 Incorporated, a Maryland corporation (the
"Company"), was formed on February 26, 2001 under the General Corporation Law of
Maryland for the purpose of engaging in the business of investing in and owning
property net leased to creditworthy corporations and other creditworthy
entities. Subject to certain restrictions and limitations, the business of the
Company is managed by Carey Asset Management Corp. (the "Advisor"), a
wholly-owned subsidiary of W. P. Carey & Co. LLC.
On April 2, 2001, the Advisor purchased 20,000 shares of common stock for
$200,000 as the initial shareholder of the Company.
A maximum of 40,000,000 shares of common stock are being offered to the public
(the "Offering") on a "best efforts" basis by Carey Financial Corporation
("Carey Financial"), an affiliate of the Advisor, and selected other dealers at
a price of $10 per share. During the nine months ended September 30, 2002, the
Company issued 31,326,054 shares ($313,260,540) and has issued an additional
6,584,572 shares ($68,845,722) since September 30, 2002. The Company is
investing the net proceeds of the Offering in properties, as described in the
prospectus of the Company (the "Prospectus"). The Company has also registered up
to 10,000,000 shares for a dividend reinvestment plan. On October 29, 2002, the
Company filed an amendment to the Offering to register an additional 10,000,000
shares ($100,000,000).
On October 11, 2002, the Company filed a registration statement with the United
States Securities and Exchange Commission (the "SEC") for the purpose of
offering up to an additional 60,000,000 shares ($600,000,000) of common stock to
the public on a "best efforts" basis by Carey Financial at a price of $10 per
share. The filing is currently being reviewed by the SEC and the Company expects
to commence raising capital under the second offering in the fourth quarter.
Note 3. Transactions with Related Parties:
In connection with performing management services on behalf of the Company, the
Advisory Agreement between the Company and the Advisor provides that the Advisor
receive asset management and performance fees, each of which are in the per
annum amount of 1/2 of 1% of Average Invested Assets. The performance fee is
subordinated to the Preferred Return, a cumulative annual non-compounded
dividend return of 6%. As of September 30, 2002, the Preferred Return has been
met. The Advisor has elected, at its option, to receive the performance fee in
restricted shares of common stock of the Company 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. For the
three-month and nine-month periods ended September 30, 2002, the Company
incurred asset management fees of $236,969 and $317,489, respectively, with
performance fees in like amounts. For the three-month and nine-month periods
ended September 30, 2002, the Company incurred personnel reimbursements of
$69,800 and $119,294, respectively. No fees or reimbursements were incurred for
the three-month and nine-month periods ended September 30, 2001.
-5-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 annual
installments over no less than four years following the first anniversary of the
date a property is purchased. For transactions that were completed during the
nine months ended September 30, 2002, current fees were $6,407,607.
The Advisor is obligated to reimburse the Company for the amount by which
operating expenses of the Company exceed the greater of 2% of Average Invested
Assets or 25% of Net Income as defined in the Advisory Agreement for any
twelve-month period. If in any year the operating expenses of the Company exceed
these amounts, the Advisor will have an obligation to reimburse the Company for
such excess, subject to certain conditions. If the Independent Directors find
that such expenses were justified based on any unusual and nonrecurring factors
which they deem sufficient, the Advisor may be reimbursed in future years for
the full amount or any portion of such excess expenses, but only the extent that
such reimbursement would not cause the Company's operating expenses to exceed
this limit in any such year. Charges related to asset impairment, bankruptcy of
lessees, lease payment defaults, extinguishment of debt or uninsured losses are
generally not considered unusual and nonrecurring; however, such determination
is at the sole discretion of the Independent Directors. The Company will record
any reimbursement of operating expenses as a deferred revenue until any
contingencies are resolved.
Note 4. Commitments and Contingencies:
The Company is liable for certain expenses of the Offering described in the
Prospectus, which include filing, legal, accounting, printing and escrow fees,
which are to be deducted from the gross proceeds of the Offering. The Company is
reimbursing Carey Financial or one of its affiliates for expenses (including
fees and expenses of its counsel) and for the costs of any sales and information
meetings of Carey Financial's employees or those of one of its affiliates
relating to the Offering. Total underwriting compensation with the Offering
shall not exceed 10% of gross proceeds of the Offering. The Advisor has agreed
to be responsible for the payment of (i) organization and offering expenses
(excluding selling commissions to Carey Financial with respect to Shares held by
selected dealers) which exceed 4% of the gross proceeds of the offering and (ii)
organization and offering expenses (including selling commissions, fees and fees
paid and expenses reimbursed to selected dealers) which exceed 15% of the gross
proceeds of the Offering. The total of these costs paid by the Advisor was
$8,552,364 through September 30, 2002, of which the Company has reimbursed
$3,969,636.
Note 5. 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
leasing revenues below for the nine-month period ended September 30, 2002 are as
follows:
2002
----
Per Statements of Income:
Rental income from operating leases $4,287,694
Interest from direct financing leases 784,022
Adjustment:
Share of leasing revenue from equity investments 1,778,165
---------
$6,849,881
=========
-6-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine-month period ended September 30, 2002, the Company earned its net
leasing revenues from its investments from the following lease obligors:
2002 %
---- ---
Petsmart, Inc. (a) $1,453,104 21%
Fleming Companies, Inc. 1,422,900 21
Tower Automotive, Inc. 1,112,497 16
Foster Wheeler, Inc. 653,856 10
Racal Instruments, Inc. 546,061 8
IntegraColor, Ltd. 366,632 5
Advantis Technologies, Inc. 332,723 5
Builders Firstsource, Inc. (a) 325,061 5
Hologic, Inc. 291,581 4
Trends Clothing Corp. 264,170 4
BE Aerospace, Inc. 72,407 1
Danka Office Imaging Company 8,889 -
--------- ---
$6,849,881 100%
========= ===
(a) Represents the Company's proportionate share of lease revenues from its
equity investments (see Note 6).
Note 6. Equity Investments:
In 2001, the Company and Corporate Property Associates 14 Incorporated
("CPA(R):14"), an affiliate, formed two limited partnerships which entered into
net leases for 13 properties with Petsmart, Inc. ("Petsmart") and a limited
partnership which entered into a net lease for three properties with Builders
Firstsource, Inc. ("Builders First") with (CPA(R):14 as the general partner. The
Company initially purchased a 0.001% interest in the Petsmart limited
partnerships and a 1% interest in the Builders First partnership at the time the
properties were acquired. Under the limited partnership agreements, the Company
had an obligation to CPA(R):14 to increase its ownership interests in the
Petsmart and Builders First limited partnerships to 30% and 40%, respectively,
subject to certain conditions. On February 28, 2002, the Company satisfied these
conditions and paid $10,961,939 to CPA(R):14 to purchase the additional
ownership interests in the Petsmart and Builders First limited partnerships. The
amounts paid to CPA(R):14 were based on the fair value of the underlying
properties, less mortgage debt. The interests in the three limited partnerships
are accounted for under the equity method as the Company's ownership interests
are less than 50% and the Company exercises significant influence.
Summarized combined financial information of the equity investees is as follows:
(in thousands) December 31, 2001 September 30, 2002
----------------- ------------------
Assets (primarily real estate) $87,325 $87,132
Liabilities (primarily mortgage notes payable) 43,823 51,715
Partners' equity 43,502 35,417
Nine Months Ended
September 30, 2002(1)
------------------
Revenues (primarily rental revenues) $ 7,278
Expenses (primarily interest on mortgages and depreciation) (4,229)
------
Net income $ 3,049
======
(1) The equity investees were formed subsequent to September 30, 2001.
Note 7. Dividends Payable:
A dividend of $0.0016576 per share per day in the period from July 1, 2002
through September 30, 2002 was declared in September 2002 and paid in October
2002 ($3,833,272).
-7-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8. Acquisitions of Real Estate:
A. On September 27, 2002, the Company purchased land and buildings
in St. Petersburg, Florida for $23,810,133 and entered into a net
lease with Danka Office Imaging Company ("Danka"). The lease
obligations of Danka are unconditionally guaranteed by Danka
Holding Company and Danka Business Systems, PLC, affiliates of
Danka. The Company has committed to fund retrofit and tenant
improvement costs of $7,700,000 with such costs scheduled to be
completed by no later than July 1, 2003. Upon completion, an
initial lease term of fifteen years with two ten-year renewal
terms will commence at an annual rent of $3,060,000. The lease
provides for rent increases every three years based on a formula
indexed to increases in the Consumer Price Index ("CPI"). During
the construction period, the Company will receive annual rent of
$871,000 on the portion of the buildings that are currently
occupied by the tenant.
B. On September 12, 2002, the Company purchased land and buildings in
Miami, Florida for $15,470,072 and entered into a net lease with
BE Aerospace, Inc. The lease has an initial term of 18 years with
two ten-year renewal options. Annual rent is $1,462,618 with
scheduled increases of 1.5% each year. On October 29, 2002, the
Company obtained a limited recourse mortgage loan of $10,500,000
which is collateralized by a mortgage and a lease assignment. The
loan provides for monthly payments of principal and interest of
$63,697 at an annual interest rate of 6.11% based on a 30-year
amortization schedule. The loan matures in November 2012, at
which time a balloon payment is scheduled.
C. On August 28, 2002, the Company purchased land and buildings in
Danbury, Connecticut for $33,769,634 and entered into a net lease
with Hologic, Inc. The lease has an initial term of 20 years with
four five-year renewal terms. Annual rent is $3,155,940 with the
first rent increase on the fifth anniversary of the lease and
every five years thereafter. Rent increases are based on a
formula indexed to increases in the CPI, capped at 5.1% for the
first rent increase and 8.16% thereafter, during each five-year
period.
D. On August 16, 2002, the Company purchased a leasehold interest in
a building in Clinton, New Jersey, subject to a long-term land
lease, for $47,015,707 and entered into a net lease with Foster
Wheeler Realty Services, Inc. ("Foster Wheeler"). The lease
obligations of Foster Wheeler are unconditionally and jointly
guaranteed by Foster Wheeler Ltd., Foster Wheeler, Inc. and
Foster Wheeler International Holdings, Inc., affiliates of Foster
Wheeler. The lease has an initial term of 20 years with two
ten-year renewal options. Annual rent is $5,230,850 with
increases every three years based on a formula indexed to
increases in the CPI, capped at 10.07% during each three-year
period. The ground lease has an initial term through 2100 with
annual rent of $100. In connection with the purchase, the Company
obtained a limited recourse mortgage loan of $29,185,000, which
is collateralized by a leasehold mortgage and a lease assignment.
The loan provides for monthly payments of interest and principal
of $187,744 at an annual interest rate of 5.67% and based on a
30-year amortization schedule. The loan matures in September 2012
at which time a balloon payment is scheduled.
E. During the nine-month period ended September 30,2002, the Company
acquired properties which were previously described in the
Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, 2002 and June 30, 2002. A summary of the properties
acquired is as follows:
Original
Initial Mortgage Annual
Lease Obligor: Cost Location Annual Rent Financing Debt Service Date Acquired
- -------------- ---- -------- ----------- --------- ------------ -------------
Trends Clothing Corp. $14,869,110 Miami, FL $1,420,000 $ 8,630,041 $ 850,620 July 22, 2002
Fleming Companies, Inc. 53,870,063 Tulsa, OK 5,508,000 30,000,000 2,507,376 June 28, 2002
Advantis Technologies, Inc. 13,089,005 Alpharetta, GA 1,275,000 - - June 25, 2002
IntegraColor Ltd. 12,356,020 Mesquite, TX 1,256,700 - - June 14, 2002
Racal Instruments, Inc. 13,455,497 Irvine, CA 1,301,929 9,500,000 732,600 May 21, 2002
Tower Automotives, Inc. 20,995,621 Auburn, IN;
Buffton, OH and
Milan, TN 2,355,875 12,022,870 1,056,624 April 10, 2002
-8-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9. Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangibles," which establish
accounting and reporting standards for business combinations and certain assets
and liabilities acquired in business combinations.
SFAS No. 141 requires that all business combinations and asset acquisitions be
accounted for under the purchase method, establishes specific criteria for the
recognition of intangible assets separately from goodwill and requires that
unallocated negative goodwill be written off immediately as an extraordinary
gain. Use of the pooling-of-interests method for business combinations is no
longer permitted. The adoption of SFAS No. 141 did not have a material effect on
the Company's financial statements.
SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. SFAS No. 142 provides that goodwill and
indefinite-lived intangible assets are no longer amortized but are tested for
impairment at least annually. Intangible assets acquired and liabilities assumed
in business combinations are only amortized if such assets and liabilities are
capable of being separated or divided and sold, transferred, licensed, rented or
exchanged or arise from contractual or legal rights (including leases), and are
amortized over their useful lives. The adoption of SFAS No. 142 on January 1,
2002 did not have a material effect on the Company's financial statements.
In August 2001, FASB issued SFAS No. 144 "Accounting for the Impairment of
Long-Lived Assets" which addresses the accounting and reporting for the
impairment and disposal of long-lived assets and supercedes SFAS No. 121 while
retaining SFAS No. 121's fundamental provisions for the recognition and
measurement of impairments. SFAS No. 144 removes goodwill from its scope,
provides for a probability-weighted cash flow estimation approach for analyzing
situations in which alternative courses of action to recover the carrying amount
of long-lived assets are under consideration and broadens that presentation of
discontinued operations to include a component of an entity. The adoption of
SFAS No. 144 on January 1, 2002 did not have a material effect on the Company's
financial statements; however, the revenues and expenses relating to an asset
held for sale or sold will be presented as a discontinued operation 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 of adoption (January 1, 2002).
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 provisions of SFAS No. 145 are effective for
fiscal years beginning after May 15, 2002. Early adoption is permitted. Upon
adoption, the Company will no longer classify gains and losses for the
extinguishment of debt as extraordinary items and will adjust comparative
periods presented. The Company has not elected early adoption.
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. The Company does not
expect SFAS No. 146 to have a material effect on the Company's financial
statements.
In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain Financial
Institutions" which amends SFAS No. 72, SFAS No. 144 and FASB Interpretation No.
9. SFAS No. 147 provides guidance on the accounting for the acquisitions of
certain financial institutions and includes long-term customer relationships as
intangible assets within the scope of SFAS No. 144. The Company does not expect
SFAS No. 147 to have a material effect on its financial statements.
-9-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10. Subsequent Events:
On October 9, 2002, the Company purchased land in Baton Rouge, Louisiana and
entered into construction agency and net lease agreements with Rave Motion
Pictures Baton Rouge, LLC ("Rave Motion Pictures") to construct and lease a
movie theater. The construction and lease obligations of Rave Motion Pictures
are unconditionally guaranteed by its parent company, Rave Reviews Cinemas,
L.L.C. The total cost of the build-to-suit project is expected to amount to
$11,555,239. Any excess costs to complete the project will be the obligation of
Rave Motion Pictures. Upon the earlier of completion of construction or August
31, 2003, an initial term of 20 years will commence followed by options for two
ten-year renewal terms. To the extent that all project costs are incurred,
annual rent will be $1,285,607 and will be reduced by 11.65% of any costs not
incurred. The lease provides for rent increases every two years based on a
formula indexed to increases in the CPI.
On October 15, 2002, the Company purchased land and buildings in San Diego,
California for $30,096,836 and assumed an existing lease with Overland Storage,
Inc., as lessee. The lease has an initial term through February 2014 with one
five-year renewal option. Annual rent is $2,621,285 with rent increases of 5%,
effective March 2004 and every two years thereafter. In connection with the
purchase, the Company obtained a limited recourse mortgage loan of $20,000,000
which is collateralized by a deed of trust and a lease assignment. The loan
provides for monthly payments of interest and principal of $122,234 at an annual
interest rate of 6.18% and based on a thirty-year amortization schedule. The
loan matures in August 2014 at which time a balloon payment is scheduled.
-10-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion and analysis of financial condition and results of
operations of Corporate Property Associates 15 Incorporated ("CPA(R):15") should
be read in conjunction with the financial statements and notes thereto as of
September 30, 2002 included in this quarterly report and CPA(R):15's Annual
Report on Form 10-K for the year ended December 31, 2001. This quarterly report
contains forward looking statements. The following discussion includes
forward-looking statements. Forward-looking statements, which are based on
certain assumptions, describe future plans, strategies and expectations of
CPA(R):15. Such statements included known and unknown risks, uncertainties and
other factors that may cause its actual results, performance or achievement 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 us that the results or conditions
described in such statements or objectives and plans will be achieved. A
description of CPA(R):15's objectives, acquisition and financing strategies and
factors that may affect future operating results is detailed in Item 1 of the
Annual Report on Form 10-K.
CPA(R):15 was formed in 2001 and is currently using the proceeds from its
$400,000,000 "best efforts" public offering along with limited recourse mortgage
financing to purchase properties and enter into long-term net leases with
corporate lessees. The offering is a "blind pool", that is, investments have not
been selected prior to the raising of offering proceeds. As of September 30,
2002, CPA(R):15 had raised gross proceeds of $313,460,540. An affiliate, Carey
Financial Corporation earns a wholesaling fee of 1/2 of 1% of gross proceeds
raised ($1,567,303 as of September 30, 2002) and such fee is directly charged to
shareholders' equity. CPA(R):15 structures the net leases to place certain
economic burdens of ownership on these corporate lessees by requiring them to
pay the costs of maintenance and repair, insurance and real estate taxes.
CPA(R):15 negotiates leases that may provide for periodic rent increases that
are stated or based on increases in the Consumer Price Index ("CPI") or, for
retail properties, provide for additional rents based on sales in excess of a
specified base amount. CPA(R):15 may also acquire interests in real estate
through joint ventures with affiliates who have similar investment objectives as
CPA(R):15. These joint ventures, which may be in the form of general
partnerships, limited partnerships or limited liability companies, generally
enter into net leases with single corporate tenants. As of September 30, 2002,
CPA(R):15 holds interests in the three limited partnerships with Corporate
Property Associates 14 Incorporated ("CPA(R):14"), which are accounted for under
the equity method of accounting.
CPA(R):15's objectives are to pay quarterly dividends at an increasing rate,
provide inflation-protected income through CPI-based rent increases, own a
diversified portfolio of net leased properties and increase the equity in
CPA(R):15's real estate portfolio by obtaining mortgage debt that provides for
scheduled principal payment installments.
As CPA(R):15 uses its offering proceeds to purchase investments in real estate,
it is adopting certain critical accounting policies that will be crucial to
understanding of its financial condition and results of operations. Such
policies include, but are not limited to the following:
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):15 will be required to assess its ability to
collect rent and other tenant-based receivables and determine an appropriate
charge for uncollected amounts. Because CPA(R):15's real estate operations will
have a limited number of lessees, Management believes that it will be necessary
to evaluate specific situations rather than solely use statistical methods.
CPA(R):15 will also use 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 will
perform projections of undiscounted cash flows, and if such cash flows are
insufficient, the assets will be 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 rents, residual
values and holding periods. As CPA(R):15's investment objectives are to hold
properties on a long-term basis, holding period assumptions will likely range
from five to ten years. In its evaluations, CPA(R):15 will generally obtain
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 future cash flow projected in the evaluation of long-lived assets can
vary within a range of outcomes. CPA(R):15 will consider the likelihood of
possible outcomes in determining the best estimate of future cash flows. Because
CPA(R):15's properties
-11-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
are leased to single tenants, CPA(R):15 may be 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):15 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): 15 will be required to perform a review of
residual values at least annually.
CPA(R):15 will recognize rental income from sales overrides when reported by
lessees, that is, after the level of sales requiring a rental payment to
CPA(R):15 is reached.
CPA(R):15 and certain affiliates are investors in certain real estate ventures.
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
will represent jointly purchased properties which are net leased to a single
tenant and will be structured to provide diversification and reduce
concentration of a risk from a single lessee for CPA(R):15 and the affiliate.
The placement of an investment in a jointly-held entity requires the approval of
CPA(R):15's Independent Directors. All of the jointly held investments will be
structured so that CPA(R):15 and the affiliate contribute equity, receive
distributions and are allocated profit or loss in amounts that are proportional
to their ownership interests. The presentation of these jointly held investments
and their related results in the accompanying condensed 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):15 or accounted for under the equity method. All of
the jointly-held investments are subject to contractual agreements.
CPA(R):15 classifies its directly-owned leased assets for financial reporting
purposes as either real estate leased under the operating method or net
investment in direct financing leases based on several criteria, including, but
not limited to, estimates of the remaining economic life of the leased assets
and the calculation of the present value of future minimum rents. In determining
the classification of a lease, CPA(R):15 uses estimates of remaining economic
life provided by independent appraisals of the leased assets. The calculation of
the present value of future minimum rents includes determining a lease's
implicit interest rate which requires an estimate of the residual value of
leased assets as of the end of the noncancellable lease term. Different
estimates of residual value result in different implicit interest rates and
could possibly affect the financial reporting classification of leased assets.
Results Of Operations
CPA(R):15 did not have any significant operating activity for the periods ended
September 30, 2001 and did not commence any substantial acquisition activity
until February 2002. During the nine months ended September 30, 2002, CPA(R): 15
entered into ten net lease transactions (see Note 8 for a summary description of
the transactions) and purchased additional equity interests in three limited
partnerships owned with an affiliate and which net lease properties to two
lessees. Annual cash flow (rents less mortgage debt service) from these ten
acquisitions, after completion of certain improvements, will be approximately
$18,000,000. In addition annual distributions from the three equity interests
will approximate $1,000,000. Since September 30, 2002, CPA(R): 15 has entered
into two transactions, including the purchase of land and a build-to-suit
commitment with Rave Reviews Cinemas L.L.C. and the purchase of properties net
leased to Overland Storage, Inc. Upon completion of construction which is
expected to be completed in 2003, the lease with Rave Reviews will contribute
annual cash flow of $1,286,000. Net of debt service, the lease with Overland
Storage will provide annual cash flow of $1,154,000. For the three-month and
nine-month periods ended September 30, 2002, CPA(R):15 had net income of
$2,023,000 and $2,871,000, respectively. The results of operations for the
periods ended September 30, 2002 are not expected to be representative of future
results. CPA(R):15 expects that its asset base will continue to increase
substantially over the next several years. As the asset base of the Company
increases, general and administrative, property and depreciation expenses will
increase and interest expense will increase as mortgage loans are placed on
newly-acquired and existing properties. Expenses incurred to the Advisor in
connection with performing management services pursuant to the Advisory
Agreement and related to day-to-day operations of CPA(R):15 are expensed and
were $544,000 and $754,000 for the three-month and nine-month periods,
respectively. Interest income from uninvested cash currently represents a
substantial portion of CPA(R):15's revenues. As the proceeds of the offering are
fully invested in real estate, interest income will decrease and is expected to
be a minor component of overall revenues. After CPA(R):15 is fully invested,
CPA(R):15 will maintain cash balances which Management believes to be sufficient
for meeting working capital needs.
-12-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Financial Condition
A major objective of CPA(R):15 is to fully invest its funds in real estate in
order to generate sufficient cash flow from operations and its equity
investments to support its operating requirements, fund dividends to
shareholders at an increasing rate and pay scheduled mortgage debt service. Cash
flow from operations and equity investments of $7,446,000 were sufficient to pay
dividends of $2,345,000. When evaluating cash generated from operations,
Management includes cash provided from equity investments. Under accounting
principles generally accepted in the United States of America, distributions
from equity investments in excess of income from equity investments are a return
of capital and presented as an investing cash flow. The ability of the equity
investees to distribute cash to CPA(R):15 in excess of their income is primarily
due to noncash charges for depreciation. CPA(R):15 evaluates its ability to pay
dividends to shareholders by using its projections of cash flow (lease revenues,
net of property-level debt service) from both its directly-owned real estate and
its equity investments.
CPA(R):15 used $235,113,000 to acquire properties net leased to ten lessees on a
single-tenant basis and $10,962,000 increase its limited partnership interests
in limited partnerships that net lease properties on a single-tenant basis to
Petsmart, Inc. and Builders Firstsource, Inc. CPA(R):15 currently owns a 30% in
the Petsmart limited partnerships and a 40% interest in the Builders Firstsource
limited partnership with CPA(R):14 owning the remaining interests as general
partner. Before these additional purchases, CPA(R):15 owned a 0.001% interest in
the Petsmart limited partnerships and a 1% interest in the Builders Firstsource
limited partnership. The ownership interests and the allocation of income or
loss and distributions to CPA(R):14 and CPA(R):15 in the three limited
partnerships are proportionate to the capital contributed by each partner. The
partnerships will have a duration of no more than 50 years and each partner has
a right of first refusal in the event that any partner seeks to sell its
interest. The partnership agreements do not provide for payments of fees to the
general partner or any affiliate. Fees paid to the Advisor, Carey Asset
Management Corp., a wholly-owned subsidiary of W.P. Carey & Co. LLC, pursuant to
the Advisory Agreement, for services provided to CPA(R):15 relating to the
identification, evaluation, negotiation and purchase of properties are
capitalized to the cost of real estate investments and were $6,407,607 as of
September 30, 2002. Since September 30, 2002, CPA(R):15 has used an additional
$33,796,000 to acquire the Rave Reviews and Overland Storage properties, as
described in Note 10. CPA(R):15 expects to use substantially all of the net
proceeds of its offering along with limited recourse mortgage debt to purchase
ownership interests in real estate either directly or with affiliates. To the
extent that the entire offering and a proposed second "best efforts" offering
are subscribed, acquisition activity can be expected to continue for several
years with total real estate assets exceeding $1,500,000,000. Management
believes that a fully invested, diversified portfolio of real estate investments
will mitigate the risk of nonpayment of rent from any single lessee. As of
November 8, 2002, CPA(R):15 had approximately $165,000,000 available for
investment and completion of build-to-suit commitments.
During the nine months ended September 30, 2002, CPA(R):15 raised $282,847,000,
net of costs, in connection with its "best efforts" public offering. Since
September 30, 2002, the Company issued an additional 6,584,572 shares
($65,845,722). As of September 30, 2002, CPA(R):15 had cash balances of
$125,122,000. CPA(R):15 intends to hold cash balances sufficient to maintain its
operations. CPA(R):15 is actively evaluating potential net lease investments and
is using its available cash along with limited recourse mortgage financing to
purchase properties. In connection with purchasing properties, CPA(R):15
obtained $96,418,000 of limited recourse mortgage debt. A lender on limited
recourse mortgage debt has recourse only to the property collateralizing such
debt and not to any of CPA(R):15's other assets, while unsecured financing would
give a lender recourse to all of CPA(R): 15's assets. The use of limited
recourse debt, therefore, will allow CPA(R):15 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):15 to meet
its short-term and long-term liquidity needs and will help to diversify
CPA(R):15's portfolio and, therefore, reduce concentration of risk in any
particular lessee. Therefore, after CPA(R):15 completes its public offering and
fully invests in real estate, it will evaluate on an ongoing basis whether to
obtain additional sources of funds such as lines of credit; however, no
consideration is being given to such additional sources at this time.
CPA(R):15 expects to fully subscribe its initial $400,000,000 public offering
before the end of 2002 and has filed an amendment to increase the Offering by an
additional $100,000,000. CPA(R): 15 intends to commence a second "best efforts"
offering for up to $600,000,000 upon completion of the current offering. A
filing for the second offering is currently being reviewed by the United States
Securities and Exchange Commission.
A summary of CPA(R):15's contractual obligations and commitments as of September
30, 2002 is as follows:
(in thousands) Total 2002 2003 2004 2005 2006 Thereafter
----- ---- ---- ---- ---- ---- ----------
Obligations:
Limited recourse mortgage notes
payable(1) $ 96,326 $255 $ 1,059 $1,126 $1,222 $1,314 $91,350
Deferred acquisition fees 5,627 1,407 1,407 1,407 1,406
Commitment:
Build-to-suit obligations 14,585 - 14,585 - - - -
-------- --- ------ ----- ----- ----- ------
$116,538 $255 $15,644 $2,533 $2,629 $2,721 $92,756
======= === ====== ===== ===== ===== ======
(1) The limited recourse mortgage notes payable were obtained in connection with the acquisition of properties in the
ordinary course of business (see Note 8 for a summary description of mortgage terms).
-13-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangibles," which establish
accounting and reporting standards for business combinations and certain assets
and liabilities acquired in business combinations.
SFAS No. 141 requires that all business combinations and asset acquisitions be
accounted for under the purchase method, establishes specific criteria for the
recognition of intangible assets separately from goodwill and requires that
unallocated negative goodwill be written off immediately as an extraordinary
gain. Use of the pooling-of-interests method for business combinations is no
longer permitted. The adoption of SFAS No. 141 did not have a material effect on
CPA(R):15's financial statements.
SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. SFAS No. 142 provides that goodwill and
indefinite-lived intangible assets are no longer amortized but are tested for
impairment at least annually. Intangible assets acquired and liabilities assumed
in business combinations are only amortized if such assets and liabilities are
capable of being separated or divided and sold, transferred, licensed, rented or
exchanged or arise from contractual or legal rights (including leases), and will
be amortized over their useful lives. The adoption of SFAS No. 142 on January 1,
2002 did not have a material effect on CPA(R):15's financial statements.
In August 2001, FASB issued SFAS No. 144 "Accounting for the Impairment of
Long-Lived Assets" which addresses the accounting and reporting for the
impairment and disposal of long-lived assets and supercedes SFAS No. 121 while
retaining SFAS No. 121's fundamental provisions for the recognition and
measurement of impairments. SFAS No. 144 removes goodwill from its scope,
provides for a probability-weighted cash flow estimation approach for analyzing
situations in which alternative courses of action to recover the carrying amount
of long-lived assets are under consideration and broadens that presentation of
discontinued operations to include a component of an entity. The adoption of
SFAS No. 144 on January 1, 2002 did not have a material effect on CPA(R):15's
financial statements; however, the revenues and expenses relating to an asset
held for sale or sold will be presented as a discontinued operation 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 of adoption (January 1, 2002).
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 provisions of SFAS No. 145 are effective for
fiscal years beginning after May 15, 2002. Early adoption is permitted. Upon
adoption, CPA(R):15 will no longer classify gains and losses for the
extinguishment of debt as extraordinary items and will adjust comparative
periods presented. CPA(R):15 has not elected early adoption.
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. CPA(R):15 does not expect
SFAS No. 146 to have a material effect on its financial statements.
In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain
Financial Institutions" which amends SFAS No. 72, SFAS No. 144 and FASB
Interpretation No. 9. SFAS No. 147 provides guidance on the accounting for
the acquisitions of certain financial institutions and includes long-term
customer relationships as intangible assets within the scope of SFAS No. 144.
CPA(R): 15 does not expect SFAS No. 147 to have a material effect on its
financial statements.
-14-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates and
equity prices. In pursuing its business plan, the primary market risk to which
CPA(R):15 is exposed is interest rate risk.
The value of CPA(R):15's real estate is subject to fluctuations based on changes
in interest rates, local and regional economic conditions and changes in the
creditworthiness of lessees, and which may affect CPA(R):15's ability to
refinance its debt when balloon payments are scheduled.
All of CPA(R):15's long-term debt of $96,326,000 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 fixed rate debt as of September 30, 2002 ranged from 6.66% to 7.98%.
(in thousands)
2002 2003 2004 2005 2006 Thereafter Total Fair Value
------ ------ ------ ------ ------ ---------- ------- ----------
Fixed rate debt $ 255 $1,059 $1,126 $1,222 $1,314 $91,350 $96,326 $96,326
Average interest
rate 7.17% 7.17% 7.17% 7.17% 7.18% 7.16%
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, 2002.
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 pursuant to 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.
-15-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
PART II
Item 2d. - USE OF PROCEEDS OF REGISTERED OFFERING
Pursuant to Rule 701 of Regulation S-K, the use of proceeds from the Company's
offering of common stock which commenced November 7, 2001 (File #333-58854) is
as follows as of September 30, 2002:
Shares registered: 40,000,000
Aggregate price of offering amount registered: $400,000,000
Shares sold: 31,346,054
Aggregated offering price of amount sold: $313,460,540
Direct or indirect payments to directors, officers, general
partners of the issuer or their associates, to persons
owning ten percent or more of any class of equity
securities of the issuer and to affiliates of the issuer: $ 3,427,503
Direct or indirect payments to others: $ 27,139,834
Net offering proceeds to the issuer after deducting expenses: $282,893,203
Purchases of real estate and equity investments: $162,922,087
Working capital reserves: $3,134,605
Temporary investments in cash and cash equivalents: $116,836,511
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 2002, no matters were submitted
to a vote of Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
99.1 Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
99.2 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, 2002, the Company was not
required to file any reports on Form 8-K.
-16-
CORPORATE PROPERTY ASSOCIATES 15 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 15 INCORPORATED
11/11/2002 By: /s/ John J. Park
------------ ----------------------------------------
Date John J. Park
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
11/11/2002 By: /s/ Claude Fernandez
------------ ----------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-17-
CORPORATE PROPERTY ASSOCIATES 15 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 15 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 officers and we are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and we have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; 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; and
6. The Registrant's other certifying officers and we have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date 11/11/2002 Date 11/11/2002
/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)
-18-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
CERTIFICATIONS (Continued)
I, John J. Park, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Corporate Property
Associates 15 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-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; 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; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date 11/11/2002
/s/ John J. Park
---------------------------
John J. Park
Chief Financial Officer
-19-