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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
COMMISSION FILE NUMBER: 333-58854
-------------------------
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
(Exact name of Registrant as specified in its charter)
Maryland 52-2298116
(State of incorporation) (I.R.S. Employer
Identification No.)
50 Rockefeller Plaza 10020
New York, New York 10020 (Zip code)
(Address of principal executive office)
Registrant's telephone numbers:
Investor Relations (212) 492-8920
(212) 492-1100
-------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.001 par value
-------------------------
CPA(R):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.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ].
CPA(R):15 has no active market for common stock at May 6, 2004.
CPA(R):15 has 106,545,823 shares of common stock, $.001 par value
outstanding at May 6, 2004.
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
INDEX
Page No.
--------
PART I
- ------
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of March 31, 2004
and December 31, 2003 2
Condensed Consolidated Statements of Income for the three months
ended March 31, 2004 and 2003 3
Condensed Consolidated Statements of Comprehensive Income (Loss)
for the three months ended March 31, 2004 and 2003 3
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2004 and 2003 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 1. - Legal Proceedings 16
Item 2. - Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 16
Item 2(d). - Use of Proceeds of Registered Offering 16
Item 4. - Submission of Matters to a Vote of Security Holders 17
Item 6. - Exhibits and Reports on Form 8-K 17
Signatures 18
* The summarized condensed consolidated financial statements contained herein
are unaudited; however, in the opinion of management, all adjustments necessary
for a fair presentation of such financial statements have been included.
-1-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, 2004 December 31, 2003
-------------- -----------------
(Unaudited) (Note)
----------- ------
ASSETS:
Land and buildings, net of accumulated depreciation of $23,782
and $18,725 at March 31, 2004 and December 31, 2003 $ 918,174 $ 864,737
Net investment in direct financing leases 143,128 148,325
Intangible assets, net of accumulated amortization of $964 and $533
at March 31, 2004 and December 31, 2003 40,080 32,742
Real estate under construction 64,415 61,270
Equity investments 84,038 83,984
Cash and cash equivalents 313,244 346,217
Short-term investments 41,475 37,833
Other assets 56,380 64,044
---------- ----------
Total assets $1,660,934 $1,639,152
========== ==========
LIABILITIES, MINORITY INTEREST, AND
SHAREHOLDERS' EQUITY:
Liabilities:
Limited recourse mortgage notes payable $ 618,632 $ 596,003
Notes payable 3,938 4,061
Accrued interest 3,092 2,464
Due to affiliates 2,699 2,912
Accounts payable and accrued expenses 7,404 6,907
Prepaid rental income and security deposits 39,187 38,504
Deferred acquisition fees payable to affiliate 22,053 24,005
Dividends payable 16,654 16,555
---------- ----------
Total liabilities 713,659 691,411
---------- ----------
Minority interest 53,776 52,650
---------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; authorized 120,000,000 shares;
issued and outstanding, 106,220,018 and 105,681,019 at
March 31, 2004 and December 31, 2003 106 106
Additional paid-in capital 949,657 944,788
Dividend in excess of accumulated earnings (57,946) (52,887)
Accumulated other comprehensive income 2,532 3,255
---------- ----------
894,349 895,262
Less, treasury stock at cost, 94,016 and 18,807 shares at
March 31, 2004 and December 31, 2003 (850) (171)
---------- ----------
Total shareholders' equity 893,499 895,091
---------- ----------
Total liabilities, minority interest and shareholders' equity $1,660,934 $1,639,152
========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Note: The balance sheet at December 31, 2003 has been derived from the audited
consolidated financial statements at that date.
-2-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS of INCOME (Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended March 31,
----------------------------
2004 2003
------- -------
Revenues:
Rental income $22,611 $13,847
Interest income from direct financing leases 3,526 598
Other operating income 4,215 1,174
------- -------
30,352 15,619
------- -------
Operating expenses:
Depreciation and amortization of intangibles 5,585 2,968
General and administrative 1,974 1,268
Property expenses 5,147 2,996
------- -------
12,706 7,232
------- -------
Income before other interest income, minority interest,
equity investments, interest expense and gains 17,646 8,387
Other interest income 1,005 254
Minority interest in income (1,995) (765)
Income from equity investments 2,071 2,068
Interest expense (8,999) (5,429)
------- -------
Income before gains 9,728 4,515
Gain on sale -- 977
Gain on foreign currency transactions, net 1,876 --
------- -------
Net income $11,604 $ 5,492
======= =======
Basic and diluted earnings per share $ .11 $ .14
===== =====
Weighted average shares outstanding - basic and diluted 106,094,871 40,779,669
=========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS of COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in thousands)
Three Months Ended March 31,
----------------------------
2004 2003
------- ------
Net income $11,604 $5,492
------- ------
Other comprehensive income:
Change in foreign currency translation adjustment (523) 199
Unrealized loss on derivative instruments (200) - _
------- -------
(723) 199
------- ------
Comprehensive income $10,881 $5,691
======= ======
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)
(in thousands)
Three Months Ended March 31,
----------------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net income $11,604 $ 5,492
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,612 3,013
Equity income in excess of distributions received (221) (601)
Straight-line rent adjustments (1,706) (1,094)
Gain on sale -- (977)
Settlement proceeds assigned to lender (2,754) --
Unrealized loss on foreign currency transactions 760 --
Realized gain on foreign currency transaction (2,636) --
Fees paid to affiliate by issuance of stock 1,275 419
Minority interest in income 1,995 765
Changes in operating assets and liabilities, net 2,031 6,412
-------- --------
Net cash provided by operating activities 15,960 13,429
-------- --------
Cash flows from investing activities:
Distributions from operations of equity investments in excess of equity income 167 132
Distributions of mortgage financing from equity investees -- 12,460
Acquisitions of real estate and equity investments and other capitalized costs (58,779) (91,814)
VAT taxes recovered in connection with purchases of real estate, net 604 --
Payment of deferred acquisition fees (3,253) --
Purchase of short-term investments (13,059) --
Redemption of short-term investments 9,488 --
Proceeds of amount receivable from sale of real estate from affiliate 3,034 --
-------- --------
Net cash used in investing activities (61,798) (79,222)
-------- --------
Cash flows from financing activities:
Proceeds from mortgages 28,589 16,330
Mortgage and note principal payments (2,065) (1,209)
Deferred financing costs and mortgage deposits, net of deposits refunded (8) 223
Capital contributions from minority partner -- 11,916
Distributions paid to minority partners (802) (798)
Proceeds from issuance of stock, net of costs of raising capital 3,871 164,047
Dividends paid (16,565) (5,789)
Purchase of treasury stock (679) --
-------- --------
Net cash provided by financing activities 12,341 184,720
-------- --------
Effect of exchange rate changes on cash 524 125
-------- --------
Net (decrease) increase in cash and cash equivalents (32,973) 119,052
Cash and cash equivalents, beginning of period 346,217 94,762
-------- --------
Cash and cash equivalents, end of period $313,244 $213,814
======== ========
-4-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of
Corporate Property Associates 15 Incorporated (the "Company") have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to
Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the results of the interim period presented have been included.
The results of operations for the interim period are not necessarily indicative
of results for the full year. These condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2003.
During the period ended March 31, 2004, the Company entered into an interest
rate swap agreement. The interest rate swap is a derivative instrument.
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", establishes accounting and
reporting standards for derivative instruments. As required by SFAS No. 133, the
Company records all derivatives on the balance sheet at fair value. The
accounting for changes in the fair value of derivatives depends on the intended
use of the derivative and the resulting designation. Derivatives used to hedge
the exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular risk, such as interest rate risk, are
considered fair value hedges. Derivatives used to hedge the exposure to
variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges. For derivatives designated as
fair value hedges, changes in the fair value of the derivative and the hedged
item related to the hedged risk are included in the determination of net income.
For derivatives designated as cash flow hedges, the effective portion of changes
in the fair value of the derivative is initially reported in accumulated other
comprehensive income, a component of shareholders' equity. The Company assesses
the effectiveness of each hedging relationship by comparing the changes in fair
value or cash flows of the derivative hedging instrument with the changes in
fair value or cash flows of the designated hedged item or transaction.
Note 2. Agreements and Transactions with Related Parties:
In connection with performing services on behalf of the Company, the Advisory
Agreement between the Company and the Advisor, W. P. Carey & Co. LLC, provides
that the Advisor receive asset management and performance fees, each of which
are 1/2 of 1% of Average Invested Assets as defined in the Advisory Agreement.
The performance fee is subordinated to the Preferred Return, a cumulative
non-compounded dividend return of 6%. 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. The Company incurred asset management fees of $1,430 and $848
for the three months ended March 31, 2004 and 2003, respectively, with
performance fees in like amount. The Company incurred personnel reimbursements
of $552 and $189 for the three months ended March 31, 2004 and 2003,
respectively.
Fees are payable to the Advisor for services provided to the Company relating to
the identification, evaluation, negotiation, financing and purchase of
properties. A portion of such fees is deferred and is payable in equal annual
installments each January over no less than four years following the first
anniversary of the date a property was purchased. Such deferred fees are only
payable if the Preferred Return has been met. The unpaid portion of the deferred
fees bears interest at an annual rate of 6% from the date of acquisition of a
property until paid. For transactions that were completed during the three
months ended March 31, 2004, current and deferred fees were $1,626 and $1,301,
respectively. During the three months ended March 31, 2003, current and deferred
fees incurred were $4,319 and $3,455, respectively.
Note 3. Acquisitions of Real Estate:
A. On March 26, 2004, the Company purchased land and building in
Peachtree City, Georgia for $8,699 and entered into a net lease with
World Airways, Inc. The lease has an initial term of 15 years followed
by two
-5-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
ten-year renewal options and provides for annual rent of $853 with
annual increases based on a formula indexed to increases in the
Consumer Price Index ("CPI").
B. During the three-month period ended March 31, 2004, the Company
acquired properties and real estate investments which were previously
described in its Reports on Form 10-K for the year ended December 31,
2003. A summary of the properties and investments acquired is as
follows:
Initial Original Annual
Annual Mortgage Debt Date
Lease Obligor: Cost Location Rent Financing Service Acquired
- -------------- ------- ---------------------- ---- --------- ------- --------
Universal Technical Institute $25,149 Rancho Cucamonga, CA $2,326 -- -- 2/6/2004
of California, Inc.
Affina Corporation 12,565 Peoria, IL 1,254 -- -- 1/8/2004
Regie des Batiments 12,120 Mons, Belgium 1,088 -- -- 1/2/2004
Plumbmaster, Inc. 9,843 Concord Township, PA and 855 -- -- 1/2/2004
Oceanside, CA
Note 4. Equity Investments:
The Company owns interests in single-tenant net leased properties through
noncontrolling interests in (i) partnerships and limited liability companies in
which its ownership interests are 50% or less and the Company exercises
significant influence, and (ii) as tenants-in-common subject to common control.
The ownership interests range from 30% to 64%. All of the underlying investments
are owned with affiliates that have similar investment objectives as the
Company. The lessees are Petsmart, Inc.; Builders FirstSource, Inc.; TruServ
Corporation; Hologic, Inc. and Starmark Camhood LLC.
Summarized combined financial information of the equity investees is as follows:
(in thousands) March 31, 2004 December 31, 2003
-------------- -----------------
Assets (primarily real estate) $449,490 $450,586
Liabilities (primarily mortgage notes payable) 264,888 265,972
Partners' and members' equity 184,602 184,614
Three Months Ended March 31,
-----------------------------
2004 2003
-------- --------
Revenues (primarily rental revenues) $ 11,416 $ 9,492
Expenses (primarily interest on mortgages
and depreciation) (6,782) (5,009)
-------- --------
Net income $ 4,634 $ 4,483
======== ========
Note 5. Derivative Instrument:
During the period ended March 31, 2004, the Company obtained a (pound)12,410
($22,663) variable rate mortgage loan and entered into an interest rate swap
contract with the lender which effectively converted the variable rate debt
service obligations of the loan to a fixed rate. The interest rate swap is a
derivative instrument designated as a cash flow hedge. The Company's objective
in using derivatives is to add stability to interest expense and to manage its
exposure to interest rate movements. To accomplish this objective, the Company
primarily may use interest rate swaps as part of its cash flow hedging strategy.
Interest rate swaps designated as cash flow hedges involve the receipt of
variable-rate amounts in exchange for fixed-rate payments over the life of the
agreements without exchange of the underlying principal amount. At March 31,
2004, derivatives with a fair value liability of $200 were included in other
liabilities. The change in net unrealized losses of $200 for the three-month
period ended March 31, 2004 for this derivative designated as cash flow hedge is
included in accumulated other comprehensive income in shareholders' equity.
Note 6. 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 for the three-month periods ended March 31, 2004 and 2003 are
as follows:
-6-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
2004 2003
------- -------
Per Statements of Income:
Rental income from operating leases $22,611 $13,847
Interest from direct financing leases 3,526 598
Adjustment:
Share of leasing revenue applicable to
minority interest (3,738) (1,708)
Share of leasing revenue from equity investments 5,086 4,246
------- -------
$27,485 $16,983
======= =======
For the three-month periods ended March 31, 2004 and 2003, the Company earned
its net leasing revenues from its investments from the following lease obligors:
2004 % 2003 %
---- --- ------- ---
Starmark Holdings L.L.C. (a) $ 2,668 10% $ 1,175 7%
Clear Channel Communications, Inc. (b) 2,123 8 2,123 13
Carrefour France, SA (b) (c) 1,919 7 2,520 15
TruServ Corporation (a) 1,806 7 1,805 11
Foster Wheeler, Inc. 1,318 5 1,309 8
Life Time Fitness, Inc. 1,232 4 - -
Qualceram Shires plc 993 4 - -
Lillian Vernon Corporation 962 3 - -
Medica - France, SA (b) (c) 805 3 954 6
Danka Office Imaging Company 765 3 218 1
Meadowbrook Meat Company 752 3 752 4
Overland Storage, Inc. 748 3 748 4
Berry Plastics Corporation 713 2 - -
Precise Technology, Inc. 670 2 - -
Petsmart, Inc. (a) 623 2 623 4
Tower Automotive, Inc. 589 2 589 3
MediMedia USA, Inc. 584 2 - -
Insulated Structures, Ltd. 538 2 - -
Hologic, Inc. (a) 505 2 505 3
Kerr Group, Inc. 433 2 - -
American Pad & Paper LLC 433 2 - -
Other (a) 6,306 22 3,572 21
------- --- ------- ---
$27,485 100% $16,893 100%
======= === ======= ===
(a) Represents the Company's proportionate share of lease revenues from
its equity investments (see Note 4).
(b) Net of minority interest of an affiliate.
(c) Until March 12, 2003, the Company owned 100% interests in the
applicable properties at which time minority interests were sold to an
affiliate.
Note 7. Commitments and Contingencies:
As of March 31, 2004, the Company was not involved in any material litigation.
Following a broker-dealer examination of Carey Financial Corporation ("Carey
Financial"), the broker-dealer that managed the public offerings of the
Company's common stock (and a wholly-owned subsidiary of our advisor, W. P.
Carey & Co. LLC), by the staff of the Securities and Exchange Commission, the
Company was notified that Carey Financial had received a letter on or about
March 4, 2004 from the staff of the Securities and Exchange Commission alleging
certain infractions by Carey Financial and the Company of the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder and of the National Association of Securities
Dealers, Inc. ("NASD"). Although the letter was delivered in the context of a
broker-dealer examination of Carey Financial, and states it is for the purpose
of requiring Carey Financial to take corrective action, it contains allegations
against both Carey Financial and the Company. It is not known at this time if
the Commission intends to bring any action against Carey Financial or the
Company. The infractions alleged, as they pertain to the Company, are described
below.
-7-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
The staff alleges that in connection with two public offerings of shares of the
Company in 2002 and 2003 for which Carey Financial served as the dealer manager,
CPA(R):15, Carey Financial and its retail distributors sold certain securities
without an effective registration statement. Specifically, the staff alleges
that the Company and Carey Financial oversold the amount of securities
registered in the first offering (the "Phase I Offering") completed in the
fourth quarter of 2002 and sold securities with respect to the second offering
(the "Phase II" Offering) before a registration statement with respect to such
offering became effective in the first quarter of 2003. It appears to be the
staff's position that, notwithstanding the fact that pending effectiveness of
the registration statement investor funds were delivered into escrow and not to
the Company or Carey Financial, such delivery involved sales of securities in
violation of Section 5 of the Securities Act of 1933. In the event the
Commission pursues these allegations, or if affected CPA(R):15 investors bring a
similar private action, the Company might be required to offer the affected
investors the opportunity to receive a return of their investment. It cannot be
determined at this time the amount of securities purchases the Company would be
required to rescind, if any. As such, the Company cannot predict the potential
effect such an offer may ultimately have on the operations of the Company. There
can be no assurance such effect, if any, would not be material. Further, if the
Commission commenced any proceeding against the Company, it could impose or seek
different or additional penalties or relief, including without limitation,
injunctive relief and/or civil monetary penalties.
The staff also alleges that the prospectus delivered with respect to the Phase I
Offering contained material misstatements and omissions because that prospectus
did not disclose that the proceeds of the Phase I Offering would be used to
advance commissions and expenses payable with respect to the Phase II Offering.
The staff claims that the failure to disclose the advances constitutes a
misstatement of a material fact in violation of Section 17(a) of the Securities
Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated under the Securities Exchange Act of 1934. Carey Financial has
reimbursed the Company for the interest cost of advancing the commissions that
were later recovered by the Company from the Phase II Offering proceeds. It
cannot be determined at this time what relief, if any, would be granted if an
action were to be brought by the Commission or a private investor of CPA(R):15
with respect to these allegations. It cannot be determined at this time what
remedy, if any, would be pursued by the Commission if any action were to be
brought by the Commission with respect to these allegations. As such, the
Company cannot predict the potential effect such an action may ultimately have
on the Company's operations. There can be no assurance such effect, if any,
would not be material.
The staff also alleges that the Company's offering documents contained material
misstatements and omissions because they did not include a discussion of the
manner in which dividends would be paid to the initial investors in the Phase II
Offering. The staff letter asserts that the payment of dividends to the Phase II
shareholders resulted in significantly higher annualized rates of return than
was being earned by the Phase I shareholders, and that the Company failed to
disclose to the Phase I shareholders the various rates of return. The staff
claims that the failure to make this disclosure constitutes a misstatement of a
material fact in violation of Section 17(a) of the Securities Act of 1933,
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
under the Securities Exchange Act of 1934. It cannot be determined at this time
what relief, if any, would be granted if an action were to be brought by the
Commission or a private investor of CPA(R):15 with respect to these allegations.
It cannot be determined at this time what remedy, if any, would be pursued by
the Commission if an action were to be brought by the Commission with respect to
these allegations. As such, the Company cannot predict the potential effect such
an action may ultimately have on the Company's operations. There can be no
assurance such effect, if any action would not be material. There can be no
assurance that if the Commission brought an action against the Company the
remedy imposed would not be material.
Note 8. Subsequent Events:
A. On April 14, 2004, the Company purchased land and buildings in Mentor,
Ohio and Franklin, Tennessee for $7,168 and entered into a net lease
with Worthington Precision Metals, Inc. The lease obligations are
unconditionally guaranteed by WPM Holding Corp. The lease has an
initial term of 20 years followed by two ten-year renewal options and
provides for annual rent of $788 with annual increases based on a
formula indexed to changes in the CPI.
-8-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
B. On April 29, 2004, the Company, along with two affiliates, Corporate
Property Associates 14 Incorporated, and Corporate Property Associates
16 - Global Incorporated, through a limited partnership in which the
Company owns an approximate 58% interest through two subsidiaries, one
of which is the general partner, purchased 78 retail self-storage and
truck rental facilities and entered into master lease agreements with
two lessees that operate the facilities under the U-Haul brand name.
The self-storage facilities are leased to Mercury Partners, LP,
("Mercury"), and the truck rental facilities are leased to U-Haul
Moving Partners, Inc., ("U-Haul"). The total cost was $312,445. In
connection with the purchase, the limited partnership obtained
$183,000 of limited recourse mortgage financing collateralized by the
properties and lease assignments.
The Mercury lease has an initial term of 20 years with two 10-year
renewal options and provides for annual rent of $18,551. The U-Haul
lease has an initial term of 10 years with two 10-year renewal options
and provides for annual rent of $9,990. In the event that U-Haul does
not renew its lease, Mercury will assume the lease obligation for the
truck rental facilities. Each lease provides for rent increases every
five years based on a formula indexed to the CPI.
The loan provides for monthly payments of principal and interest of
$1,230 at a fixed annual interest rate of 6.449% and based on a
25-year amortization schedule. The loan matures on May 1, 2014.
Note 9. Accounting Pronouncements:
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others," ("FIN 45")
which changes the accounting for, and disclosure of certain guarantees.
Beginning with transactions entered into after December 31, 2002, certain
guarantees are required to be recorded at fair value, which is different from
prior practice, under which a liability was recorded only when a loss was
probable and reasonably estimable. In general, the change applies to contracts
or indemnification agreements that contingently require the Company to make
payments to a guaranteed third-party based on changes in an underlying asset,
liability, or an equity security of the guaranteed party. The adoption of the
accounting provisions of FIN 45 on January 1, 2003 did not have a material
effect on the Company's financial statements.
In December 2002, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," which amends SFAS No. 123, Accounting for Stock Based Compensation.
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock based compensation (i.e.,
recognition of a charge for issuance of stock options in the determination of
income.). However, SFAS No. 148 does not permit the use of the original SFAS No.
123 prospective method of transition for changes to the fair value based method
made in fiscal years beginning after December 15, 2003. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock based employee compensation, description of
transition method utilized and the effect of the method used on reported
results. The transition and annual disclosure provisions for valuing stock-based
compensation of SFAS No. 148 are to be applied for fiscal years ending after
December 15, 2002. The Company does not have any employees nor any stock-based
compensation plans. Accordingly, the adoption of SFAS No. 148 did not impact the
Company.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). In December 2003, the FASB issued a revised FIN 46
which modifies and clarifies various aspects of the original Interpretation. FIN
46 applies when either (1) the equity investors (if any) lack one or more of the
essential characteristics of controlling financial interest, (2) the equity
investment at risk is insufficient to finance that entity's activities without
additional subordinated financial support or (3) the equity investors have
voting rights that are not proportionate to their economic interest. In addition
FIN 46 requires additional disclosures. The adoption of FIN 46 did not have a
material impact on the financial statements as none of its investments in
unconsolidated joint ventures are VIEs.
-9-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging under SFAS No. 133. The
changes in the statement improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. In particular, the
statement (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative instrument discussed in
paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a
financing component, (3) amends the definition of an underlying to conform it to
language used in FIN 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others", and (4)
amends certain other existing pronouncements. SFAS No. 149 is generally
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of FASB No.
149 did not have a material effect on the financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). In particular, it requires
that mandatorily redeemable financial instruments be classified as liabilities
and reported at fair value and that changes in their fair values be reported as
interest cost.
This statement was effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for the Company as of July 1,
2003. On November 7, 2003, the FASB indefinitely deferred the classification and
measurement provisions of SFAS No. 150 as they apply to certain mandatorily
redeemable non-controlling interests entered into before November 5, 2003. This
deferral is expected to remain in effect while these provisions are further
evaluated by the FASB. The Company has interests in one limited partnership that
is consolidated and have minority interests that have finite lives and were
considered mandatorily redeemable noncontrolling interests prior to the issuance
of the deferral. Accordingly, in accordance with the deferral noted above, these
minority interests have not been reflected as liabilities. The carrying value
approximates the fair value of these minority interests at March 31, 2004.
Based on the FASB's deferral of this provision, the adoption of SFAS No. 150 did
not have a material effect on the Company's financial statements.
-10-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except share amounts)
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 condensed consolidated financial statements and
notes thereto as March 31, 2004 included in this quarterly report and
CPA(R):15's Annual Report on Form 10-K for the year ended December 31, 2003. 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. Forward-looking statements discuss
matters that are not historical facts. Because they discuss future events or
conditions, forward-looking statements may include words such as "anticipate",
"believe", "estimate", "intend", "could", "should", "would", "may", or similar
expressions. Do not unduly rely on forward looking statements. They give our
expectations about the future and are not guarantees, and speak only as of the
date they are made. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievement of CPA(R):15 to be materially different from the results of
operations or plan expressed or implied by such forward looking statements. The
risk factors are fully described in Item 1 of the Annual Report on Form 10-K for
the year ended December 31, 2003. Accordingly, such information should not be
regarded as representations by CPA(R):15 that the results or conditions
described in such statements or objectives and plans of CPA(R):15 will be
achieved. Additionally, a description of CPA(R):15's critical accounting
estimates is included in the management's discussion and analysis in the Annual
Report on Form 10-K. There has been no significant change in such critical
accounting estimates.
CPA(R):15 was formed in 2001 and raised approximately $1,000,000 from its public
offerings which second offering concluded in 2003, and it is using the proceeds
from these offerings along with limited recourse mortgage financing to purchase
properties and enter into long-term net leases with corporate lessees. CPA(R):15
structures the net leases to place certain economic burdens of ownership on
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, may provide for
additional rents based on sales in excess of a specified base amount. CPA(R):15
has also acquired interests in real estate through joint ventures with
affiliates who have similar investment objectives as CPA(R):15. These joint
ventures also enter into net leases on a single-tenant basis.
CPA(R):15 is actively engaged in acquiring properties and has used approximately
$79,368 since March 31, 2004 to acquire properties. As CPA(R):15 becomes fully
invested, Management will evaluate the results of CPA(R):15 with a primary focus
on its ability to generate cash flow necessary to meet its investment objectives
of overall property appreciation and increasing its distribution rate to its
shareholders. As a result, Management's assessment of operating results gives
less emphasis to the effect of unrealized gains and losses which may cause
fluctuations in net income for comparable periods but has no impact on cash flow
or to other noncash charges such as depreciation and impairment charges. In
evaluating cash flow from operations, Management includes equity distributions
that are included in investing activities to the extent that the source of
distributions in excess of equity income are the result of noncash charges such
as depreciation and amortization. For the three month period ended March 31,
2004, cash flow generated from operations and equity investments was
insufficient to fully fund dividends to shareholders, distributions to minority
partners, that is, to affiliates who have interests in investments that are
included in the Company's condensed consolidated financial statements, and
scheduled mortgage principal payments. For the three-month period ended March
31, 2004, cash flows from operating and equity investments were $16,127. In
determining the distribution rate to shareholders, Management considers its
projections of future operations as well as its historical results. These
projections assume that CPA(R):15 will substantially increase its real estate
asset base. Management believes that CPA(R):15 will meet its objectives but
situations which negatively affect cash flow such as lease terminations are
likely to occur.
-11-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(Amounts in thousands, except share amounts)
Results of Operations
CPA(R):15's real estate asset base has increased from $760,000 at March 31, 2003
to $1,250,000 at March 31, 2004, an increase of 64%, and estimated cash flows
from its properties (annual contractual rent less annual debt service on
property-level mortgages) have also increased by 64%.
CPA(R):15's net income for the three months ended March 31, 2004 was $11,604, as
compared with net income of $5,492 for the comparable period in 2003. The
results for the current period include gains on foreign currency transactions of
$1,876 and other income of $2,754 from the forfeiture of a security deposit.
Lease revenues and interest, depreciation, general and administrative and
property expenses all increased as a result of the growth of CPA(R):15's asset
base.
Lease revenues (rental income and interest income from direct financing leases)
increased by $11,692 for the comparable three-month periods. During the period
from March 31, 2003 to March 31, 2004, CPA(R):15 entered into net leases with 20
new tenants which contributed $9,500 of the current period's lease revenues.
CPA(R):15 also recognized an additional $1,601 of lease revenues as the result
of completing build-to-suit projects for five tenants subsequent to March 31,
2003. During the three months ended March 31, 2004, CPA(R):15 entered into net
leases with Affina Corporation, Plumbmaster, Inc., World Airways, Inc. and Regie
des Batiments in Belgium. These leases will provide aggregate annual lease
revenues of $4,050 (subject to foreign currency fluctuations on the lease for
the Belgian property) and contributed $796 of lease revenues for the current
period. CPA(R):15 also entered into a construction agency and net lease
agreement with Universal Technical Institute of California, Inc. which is
projected to contribute approximately $2,325 of annual lease revenues upon
completion of construction, scheduled for September 2004. In April 2004,
CPA(R):15 entered into net leases with two lessees that operate under the U-Haul
brand name and Worthington Precision Metals, Inc. which will contribute
aggregate annual lease revenues of $29,329. Lease revenues for the three months
ended March 31, 2003 include $1,377 from the Fleming Companies, Inc. lease which
was terminated in August 2003 pursuant to Fleming's voluntary petition of
bankruptcy.
During the three months ended March 31, 2004, CPA(R):15 recognized other
operating income of $4,215 as compared with $1,174 for the comparable period in
2003. CPA(R):15 benefited from the forfeiture of Fleming's $2,754 security
deposit to CPA(R):15 and an increase of $287 from reimbursements from tenants
for expenses paid by CPA(R):15. Interest income of $1,005 is from CPA(R):15's
uninvested cash during the current period. Interest income will decrease as the
proceeds of CPA(R):15's offerings are invested in real estate. After CPA(R):15
is fully invested, it intends to maintain cash balances which Management
believes to be sufficient for meeting its operating needs.
CPA(R):15's mortgage balances have increased by $224,323 since March 31, 2003,
resulting in an increase in interest expense of $3,570 for the comparable
three-month periods. The increase in depreciation and amortization expense of
$2,617 is a direct result of the growth in the asset base. Property expense
increased by $2,151 for the comparable periods, primarily as the result of
increases in asset management and performance fees. Asset management and
performance fees are based on CPA(R):15's assets invested in real estate and
have increased solely as a result of acquisitions. CPA(R):15's real estate asset
base will increase as it has substantial amounts of cash available for
investment and debt capacity as several of its properties are unleveraged.
CPA(R):15 has negotiated a forbearance agreement with the limited recourse
mortgage lender on the Tulsa property formerly leased to Fleming. The forfeited
security deposit of $2,754 and $283 from a construction escrow each of which is
held by the lender is being used to make interest-only payments on the mortgage.
Upon the earlier of two years or the time at which more than 50% of the property
is leased, the forbearance agreement will terminate and monthly principal and
interest installments of $209 will recommence. In November 2003, the initial
term of a lease with Transworld Center, Inc. was scheduled to commence at a
newly constructed property in Miami, Florida. At that time, Transworld notified
CPA(R):15 that it would not occupy the property. CPA(R):15 is attempting to
enforce its rights under the Transworld lease and is aggressively remarketing
the property. Annual carrying costs on the Miami, Florida and Tulsa, Oklahoma
properties are estimated to be $1,550.
During the three months ended March 31, 2004, CPA(R):15 recognized net foreign
currency transactions gains of $1,876 on the transfer of cash from a foreign
subsidiary to the parent company.
-12-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(Amounts in thousands, except share amounts)
Financial Condition
There has been no material change in CPA(R):15's financial condition. Management
believes that CPA(R):15 will generate sufficient cash from operations and, if
necessary, from the proceeds of mortgage financings, to meet its short-term and
long-term liquidity objectives.
Cash flows from operating activities and distributions from the operations of
equity investments in excess of equity income of $16,127 were not sufficient to
fund dividend payments of $16,565, scheduled mortgage principal payments of
$2,065 and distributions to minority interests of $802. Management projects that
as new properties are added to CPA(R):15's portfolio, cash flows from operations
will meet CPA(R):15's objective of fully funding dividends to shareholders and
amounts payable to minority interests and mortgage lenders. CPA(R):15 has
invested its available cash in money market instruments and short-term
investments. Management believes that cash flows from operations will benefit as
available cash is fully deployed in a portfolio of diversified real estate
properties and will be sufficient to meet CPA(R):15's objectives. On April 29,
2004, CPA(R):15 and two affiliates purchased 78 properties and entered into
master leases with two lessees which operate self-storage and truck leasing
facilities under the U-Haul brand name. Net of mortgage financing and amounts
contributed by the affiliates, CPA(R):15 used $72,344 in connection with
purchasing its approximate 58% ownership interest. CPA(R):15's share of annual
cash flow from this investment is projected to be approximately $7,950.
CPA(R):15's investing activities included using $58,779 to acquire properties
net leased to five lessees on a single-tenant basis, including one property at
which a building is being constructed on a build-to-suit basis, and to fund
construction costs at five other build-to-suit properties. Since March 31, 2004,
CPA(R):15 has used approximately $79,368 to acquire properties leased to
Worthington Precision Metals, Inc. and the U-Haul lessees. During the three
months ended March 31, 2004, CPA(R):15 used $13,059 of its cash to purchase
short-term investments (i.e., investments with maturities of more than 90 days
but less than one year); $9,488 of short-term investments matured. As of May 1,
2004, up to approximately $44,200 was committed to complete build-to-suit
projects. During the three months ended March 31, 2004, CPA(R):15 received a
final payment of $3,034 in connection with the sale of interests in 2003 in
properties leased to Carrefour, SA to an affiliate. As of May 1, 2004, CPA(R):15
has approximately $268,133 (cash and cash equivalents and short-term
investments) available for investment.
During the three months ended March 31, 2004, CPA(R):15's financing activities
included obtaining $28,589 of limited recourse mortgage debt. Currently, all of
CPA(R):15's mortgage debt bears interest at fixed rates with no loans maturing
before May 2012. 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, allows CPA(R):15 to
limit the 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. After CPA(R):15 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 issued $3,871 through
its dividend reinvestment plan, and used $678 to redeem shares.
-13-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(Amounts in thousands, except share amounts)
Off-Balance Sheet Arrangements, Guarantees and Aggregate Contractual Agreements:
A summary of CPA(R):15's contractual obligations and commitments as of March 31,
2004 is as follows:
(in thousands) Total 2004 2005 2006 2007 2008 Thereafter
-------- ------- ------- ------- ------- ------- ----------
Obligations:
Limited recourse mortgage
notes payable (1) $618,632 $ 7,354 $10,492 $11,309 $12,251 $13,310 $563,916
Deferred acquisition fees 22,053 -- 6,001 6,327 6,327 3,073 325
Commitments:
Build-to-suit obligations 44,213 44,213 -- -- -- -- --
Share of minimum rents
payable under office
cost-sharing agreement 514 140 214 160 -- -- --
-------- ------- ------- ------- ------- ------- --------
$685,412 $51,707 $16,707 $17,796 $18,578 $16,383 $564,241
======== ======= ======= ======= ======= ======= ========
(1) The limited recourse mortgage notes payable were obtained in connection
with the acquisition of properties in the ordinary course of business.
As of March 31, 2004, CPA(R):15 was not involved in any material litigation.
Following a broker-deal examination of Carey Financial Corporation ("Carey
Financial"), the broker-dealer that managed the public offering of CPA(R):15's
common stock (and a wholly-owned subsidiary of our advisor, W. P. Carey & Co.
LLC) by the staff of the United States Securities and Exchange Commission (the
"SEC"), CPA(R):15 was notified that Carey Financial had received a letter on or
about March 4, 2004 from the staff of the SEC alleging certain infractions by
Carey Financial and CPA(R):15 of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the National Association of Securities Dealers, Inc. The letter was delivered
for the purpose of requiring Carey Financial to take corrective action and
without regard to any other action the SEC may take with respect to the
broker-dealer examination. It is not known at this time if the SEC intends to
bring any action against Carey Financial or CPA(R):15. The infractions alleged
are described in Item 3 of CPA(R):15's Annual Report on Form 10-K and in Note 7
of the condensed consolidated financial statements.
In connection with the purchase of its properties, CPA(R):15 requires the
sellers to perform environmental reviews. Management believes, based on the
results of such reviews, that CPA(R):15's properties were in substantial
compliance with Federal and state environmental statutes at the time the
properties were acquired. However, portions of certain properties have been
subject to some degree of contamination, principally in connection with either
leakage from underground storage tanks, surface spills from facility activities
or historical on-site activities. In most instances where contamination has been
identified, tenants are actively engaged in the remediation process and
addressing identified conditions. Tenants are generally subject to environmental
statutes and regulations regarding the discharge of hazardous materials and any
related remediation obligations. In addition, CPA(R):15's leases generally
require tenants to indemnify CPA(R):15 from all liabilities and losses related
to the leased properties with provisions of such indemnification specifically
addressing environmental matters. The leases generally include provisions which
allow for periodic environmental assessments, paid for by the tenant, and allow
CPA(R):15 to extend leases until such time as a tenant has satisfied its
environmental obligations. Certain of the leases allow CPA(R):15 to require
financial assurances from tenants such as performance bonds or letters of credit
if the costs of remediating environmental conditions are, in the estimation of
CPA(R):15, in excess of specified amounts. Accordingly, Management believes that
the ultimate resolution of any environmental matter will not have a material
adverse effect on CPA(R):15's financial condition, liquidity or results of
operations.
-14-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(in thousands)
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates and equity prices. In pursuing its business
plan, the primary market risk to which CPA(R):15 is exposed is interest rate
risk and foreign currency exchange 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 $618,632 either bears interest at fixed
rates or is hedged through the use of interest rate swap instruments that
convert variable rate debt service obligations to a fixed rate, 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 March 31, 2004 ranged from 5.52% to 7.98%.
2004 2005 2006 2007 2008 Thereafter Total Fair Value
------ ------- ------- ------- ------- ---------- -------- ----------
Fixed rate debt $7,354 $10,492 $11,309 $12,251 $13,310 $563,916 $618,632 $613,881
Average interest
rate 6.18% 6.16% 6.15% 6.14% 6.13% 6.20%
Changes in interest rates would have no effect on annual interest expense as all
of CPA(R):15's long-term debt bears interest at fixed rates. CPA(R):15 has
entered into an interest rate swap agreement to hedge cash flows on a variable
rate debt. The objective in using this derivative instrument is to add stability
to interest expense and manage exposure to interest rate movements.
CPA(R):15 conducts business in France, Germany, Belgium and the United Kingdom.
CPA(R):15 is subject to foreign currency exchange rate risk from the effects of
changes in exchange rates. To date, CPA(R):15 has not entered into any foreign
currency forward exchange contracts to hedge the effects of adverse fluctuations
affecting foreign currency exchange rates. CPA(R):15 has obtained limited
recourse mortgage financing at a fixed rate of interest in the local currency.
To the extent that currency fluctuations affecting rental revenues as translated
to dollars, the change in debt service, as translated to dollars, will partially
offset the fluctuations in revenue, and, to some extent mitigate the risk from
changes in foreign currency rates.
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
March 31, 2004.
The Company's disclosure controls and procedures include the Company's controls
and other procedures designed to ensure that information required to be
disclosed in this and other reports filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act") is accumulated and communicated to the
Company's management, including its Co-Chief Executive Officers and Chief
Financial Officer, to allow timely decisions regarding required disclosure and
to ensure that such information is recorded, processed, summarized and reported,
within the required time periods.
Based upon this review, the Company's Co-Chief Executive Officers and Chief
Financial Officer have concluded that the Company's disclosure controls (as
defined in Rule 13a-14(c) promulgated under the Exchange Act) are sufficiently
effective to ensure that the information required to be disclosed by the Company
in the reports it files under the Exchange Act is recorded, processed,
summarized and reported with adequate timeliness.
-15-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
PART II
Item 1. - LEGAL PROCEEDINGS
As reported in the Company's Annual Report on Form 10-K for fiscal year 2003,
Carey Financial Corporation ("Carey Financial"), the broker-dealer that managed
the public offerings of the Company's common stock, received a letter from the
Securities and Exchange Commission (the "Commission"), on or about March 4,
2004, alleging certain infractions in connection with the offerings by Carey
Financial of Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder and of the National
Association of Securities Dealers, Inc. The letter was delivered for the purpose
of requiring Carey Financial to take corrective action and without regard to any
other action the Commission may take with respect to the broker-dealer
examination. There has been no change in the status of this matter since the
filing of the Annual Report.
Item 2. - CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(c) For the quarter ended March 31, 2004, 127,499 shares were issued to
the Advisor as consideration for performance fees and 411,500 shares
were issued pursuant to the Company's Stock Purchase and Dividend
Reinvestment Plan. Shares were issued at $10.00 per share.
(e) Issuer Purchases of Equity Securities
Total Number of Shares
Purchased as Part of
Total Number of Average Price Publicly Announced Plans
Period Shares Purchased Paid Per Share or Programs (1)
------ ---------------- -------------- ------------------------
January 1, 2004 - January 31, 2004 45,331 $9.00 N/A
February 1, 2004 - February 29, 2004 17,358 9.00 N/A
March 1, 2004 - March 31, 2004 12,520 9.00 N/A
------
Total 75,209
======
(1) All shares were purchased pursuant to the Company's Redemption Plan.
The maximum amount of shares purchasable in any period depends on the
availability of funds generated by the Dividend Reinvestment Plan and
other factors at the discretion of the Company's Board of Directors.
Item 2b. - 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 March 19, 2003 (File #333-100525) is as
follows as of March 31, 2004:
Shares registered: 69,000,000
Aggregate price of offering amount registered: $690,000,000
Shares sold: 64,687,294
Aggregated offering price of amount sold: $646,872,940
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: $13,750,450
Direct or indirect payments to others: $55,237,651
Net offering proceeds to the issuer after deducting expenses: $577,884,839
Purchases of real estate and equity investments: $239,764,298
Temporary investments in cash and cash equivalents: $338,120,541
-16-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 2004, no matters were submitted to
a vote of Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
31.1 Certification of Co-Chief Executive Officers
31.2 Certification of Chief Financial Officer
32.1 Certification of Co-Chief Executive Officers Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
During the quarter ended March 31, 2004, the Company furnished a
report on Form 8-K on March 25, 2004, which included an Item 9
disclosure with respect to the Company's dividend.
-17-
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
5/6/2004 By: /s/ John J. Park
------------ -----------------------------------
Date John J. Park
Managing Director and
Chief Financial Officer
(Principal Financial Officer)
5/6/2004 By: /s/ Claude Fernandez
------------ -----------------------------------
Date Claude Fernandez
Managing Director and
Chief Accounting Officer
(Principal Accounting Officer)
-18-