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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 JUNE 30, 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: 000-25771
-------------------------
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-3951476
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
50 ROCKEFELLER PLAZA 10020
NEW YORK, NEW YORK 10020 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBERS:
INVESTOR RELATIONS (212) 492-8920
(212) 492-1100
-----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
-------------------------
CPA(R):14 has SHARES OF COMMON STOCK registered pursuant to Section 12(g)
of the Act.
CPA(R):14 HAS NO SECURITIES registered on any exchanges.
CPA(R):14 does not have any Securities registered pursuant to Section
12(b) of the Act.
CPA(R):14 (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ].
CPA(R):14 has no active market for common stock at August 6, 2004.
CPA(R):14 has 67,350,313 shares of common stock, $.001 par value
outstanding at August 6, 2004.
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
INDEX
Page No.
--------
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets as of June 30, 2004
and December 31, 2003 2
Condensed Consolidated Statements of Income for the three and six
months ended June 30, 2004 and 2003 3
Condensed Consolidated Statements of Comprehensive Income for the
three and six months ended June 30, 2004 and 2003 3
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2004 and 2003 4
Notes to Condensed Consolidated Financial Statements 5-8
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. - Controls and Procedures 14
PART II - Other Information
Item 2. - Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 15
Item 4. - Submission of Matters to a Vote of Security Holders 15
Item 6. - Exhibits and Reports on Form 8-K 15
Signatures 16
* 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 14 INCORPORATED
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
June 30, 2004 December 31, 2003
------------- -----------------
(Unaudited) (Note)
----------- ------
ASSETS:
Land and buildings, net of accumulated depreciation of $73,531 at
June 30, 2004 and $62,105 at December 31, 2003 $ 992,709 $ 1,010,438
Net investment in direct financing leases 115,424 114,907
Equity investments 135,186 120,388
Cash and cash equivalents 34,655 54,675
Marketable securities 6,653 6,792
Other assets, net 39,928 38,547
----------- -----------
Total assets $ 1,324,555 $ 1,345,747
=========== ===========
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY:
Liabilities:
Mortgage notes payable $ 691,709 $ 702,175
Accrued interest 4,385 4,461
Due to affiliates 4,139 4,559
Accounts payable and accrued expenses 4,529 5,968
Prepaid rental income and security deposits 18,538 19,607
Deferred acquisition fees payable to affiliate 19,985 22,530
Dividends payable 12,772 12,662
----------- -----------
Total liabilities 756,057 771,962
----------- -----------
Minority interest 26,852 27,356
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; authorized, 120,000,000 shares;
issued and outstanding, 68,306,747 shares at
June 30, 2004 and 67,694,702 shares at December 31, 2003 68 68
Additional paid-in capital 612,995 606,380
Dividends in excess of accumulated earnings (71,632) (64,036)
Accumulated other comprehensive income 9,224 11,150
----------- -----------
550,655 553,562
Less, treasury stock at cost, 1,011,903 shares at June 30, 2004 and
802,642 shares at December 31, 2003 (9,009) (7,133)
----------- -----------
Total shareholders' equity 541,646 546,429
----------- -----------
Total liabilities, minority interest and shareholders' equity $ 1,324,555 $ 1,345,747
=========== ===========
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 14 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS of INCOME (Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Rental income $ 28,193 $ 26,753 $ 56,442 $ 53,312
Interest income from direct financing leases 3,319 3,234 6,707 6,463
Other operating income 948 518 1,168 3,169
----------- ----------- ----------- -----------
32,460 30,505 64,317 62,944
----------- ----------- ----------- -----------
Operating expenses:
Depreciation 5,846 5,617 11,705 11,213
General and administrative 1,552 2,170 3,354 4,331
Property expenses 5,798 4,277 10,664 8,869
----------- ----------- ----------- -----------
13,196 12,064 25,723 24,413
----------- ----------- ----------- -----------
Income from continuing operations
before other interest income, minority
interest, equity investments, interest
expense and (loss) gain 19,264 18,441 38,594 38,531
Other interest income 280 401 611 826
Minority interest in income (406) (410) (812) (882)
Income from equity investments 3,578 3,354 6,945 6,492
Interest expense (13,471) (12,975) (26,989) (25,762)
----------- ----------- ----------- -----------
Income from continuing operations
before (loss) gain 9,245 8,811 18,349 19,205
Unrealized loss on derivative instruments, net (853) (314) (909) (104)
Gain on foreign currency transactions, net 513 169 454 169
----------- ----------- ----------- -----------
Net income $ 8,905 $ 8,666 $ 17,894 $ 19,270
=========== =========== =========== ===========
Basic and diluted earnings per share: $ .13 $ .13 $ .27 $ .29
=========== =========== =========== ===========
Weighted average shares outstanding - basic
and diluted 67,339,075 66,578,604 67,234,339 66,465,459
=========== =========== =========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income $ 8,905 $ 8,666 $17,894 $19,270
------- ------- ------- -------
Other comprehensive income:
Change in foreign currency translation adjustment (885) 2,034 (1,840) 3,089
Change in unrealized (depreciation)
appreciation of marketable securities (241) 362 (86) 625
------- ------- ------- -------
(1,126) 2,396 (1,926) 3,714
------- ------- ------- -------
Comprehensive income $ 7,779 $11,062 $15,968 $22,984
======= ======= ======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS (Unaudited)
(in thousands)
Six Months Ended June 30,
-------------------------
2004 2003
---- ----
Cash flows from operating activities:
Net income $17,894 $19,270
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,290 11,794
Straight-line rent adjustments (2,282) (1,989)
Income from equity investments in excess of distributions received (455) (997)
Issuance of shares in satisfaction of current and accrued performance fees 4,008 3,314
Minority interest in income 812 882
Funds released from escrow - 1,120
Unrealized loss on derivatives, net 909 104
Unrealized loss on foreign currency transactions, net 272 -
Gain on foreign currency transactions, net (726) (169)
Decrease in prepaid rents and security deposits (987) (2,269)
Change in other operating assets and liabilities, net (1,134) (1,666)
------- -------
Net cash provided by operating activities 30,601 29,394
------- -------
Cash flows from investing activities:
Distributions from operations of equity investments in excess of equity income 1,423 564
Purchases of real estate and equity investments and additional capitalized costs (15,665) (35,798)
Distributions of mortgage financing proceeds received from equity investee - 8,722
Payment of value added taxes from purchase of real estate (1,617) (924)
Payment of deferred acquisition fees (3,266) (2,373)
------- -------
Net cash used in investing activities (19,125) (29,809)
------- -------
Cash flows from financing activities:
Proceeds from mortgages - 4,852
Funds released by mortgage lenders 167 -
Payments of mortgage principal (5,354) (4,451)
Distributions to minority interest partner (1,427) (1,833)
Contributions from minority interest partner 111 -
Proceeds from issuance of shares, net of costs 2,607 217
Deferred financing costs - (266)
Dividends paid (25,380) (25,011)
Purchase of treasury stock (1,876) (1,138)
------- -------
Net cash used in financing activities (31,152) (27,630)
------- -------
Effect of exchange rate changes on cash (344) 564
------- -------
Net decrease in cash and cash equivalents (20,020) (27,481)
Cash and cash equivalents, beginning of period 54,675 74,107
------- -------
Cash and cash equivalents, end of period $34,655 $46,626
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of
Corporate Property Associates 14 Incorporated (the "Company") have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to
Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. All significant intercompany balances and
transactions have been eliminated. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the results of the interim period presented have been included.
The results of operations for the interim period are not necessarily indicative
of results for the full year. These condensed consolidated financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.
Certain prior year amounts have been reclassified to conform to current year
financial statement presentation.
Note 2. Transactions with Related Parties:
In connection with performing services on behalf of the Company, the Advisory
Agreement between the Company and W. P. Carey & Co. LLC (the "Advisor"),
provides that the Advisor receive asset management and performance fees, each of
which are 1/2 of 1% of Average Invested Assets as defined in the Advisory
Agreement. The Advisor has elected at its option to receive the performance fee
in restricted shares of common stock 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 $2,133 and $1,889 for the three months ended
June 30, 2004 and 2003, respectively, and $4,236 and $3,743 for the six months
ended June 30, 2004 and 2003, respectively, with performance fees in like
amounts, both of which are included in property expenses in the accompanying
condensed consolidated financial statements. For the three months ended June 30,
2004 and 2003, the Company incurred personnel reimbursements of $774 and $797,
respectively, and $1,549 and $1,600 for the six months ended June 30, 2004 and
2003, respectively, which are included in general and administrative expenses in
the accompanying condensed consolidated financial statements.
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
installments each January over no less than eight years following the first
anniversary of the date a property was purchased. Such deferred fees are only
payable if the Preferred Return is met. The unpaid portion of the deferred fees
bears interest at an annual rate of 6% from the date of acquisition until paid.
Current and deferred fees for transactions completed during the six months ended
June 30, 2004 were $901 and $721, respectively. For transactions that were
completed during the six months ended June 30, 2003, the current and deferred
fees were $1,825 and $1,460, respectively.
Note 3. Equity Investments:
The Company owns interests in single-tenant net leased properties leased to
corporations through noncontrolling interests (i) in various 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 joint control. The ownership interests range from 11.54% to 50%. All
of the underlying investments are owned with affiliates that have similar
investment objectives as the Company. The lessees are Advanced Micro Devices,
Inc., Compucom Systems, Inc., Textron, Inc., CheckFree Holdings, Inc., Special
Devices, Inc., Applied Materials, Inc., TruServ Corporation, Clear Channel
Communications, Inc., Starmark Camhood, LLC, U-Haul Moving Partners, Inc.
("U-Haul") and Mercury Partners, LP ("Mercury"). The interests in the properties
leased to U-Haul and Mercury were acquired in April 2004 and are described
below.
5
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
Summarized financial information of the Company's equity investees is as
follows:
(In thousands) June 30, 2004 December 31, 2003
------------- -----------------
Assets (primarily real estate) $1,123,025 $781,144
Liabilities (primarily mortgage notes payable) 681,032 471,052
---------- --------
Partners' and members' equity $ 441,993 $310,092
========== ========
Company's share of equity investees' net assets $ 135,186 $120,388
========== ========
Six Months Ended June 30,
-------------------------
2004 2003
---- ----
Revenues (primarily rental income and interest income
from direct financing leases) $ 47,962 $ 39,705
Expenses (primarily interest on mortgages and
depreciation) (28,885) (22,663)
-------- --------
Net income $ 19,077 $ 17,042
======== ========
Company's share of net income from equity investments $ 6,945 $ 6,492
======== ========
On April 29, 2004, the Company, along with two affiliates, Corporate Property
Associates 15 Incorporated and Corporate Property Associates 16 - Global
Incorporated, through a limited partnership in which the Company owns an 11.54%
interest through a subsidiary, 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, and the
truck rental facilities are leased to 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 Mercury lease is guaranteed
by Mercury 99, LLC, an entity that owns a 99% ownership interest in Mercury. 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 of default, termination or
expiration of the U-Haul lease, Mercury 99, LLC will automatically assume the
obligations of the U-Haul lease and Mercury 99, LLC will continue to lease the
self-storage facilities and shall lease the truck rental facilities pursuant to
the terms (with extension) of the U-Haul lease. Upon Mercury 99, LLC's
assumption, the term of the U-Haul lease shall be deemed extended so as to
automatically become co-terminus for the term of the Mercury 99, LLC lease. Each
lease provides for rent increases every five years based on a formula indexed to
the Consumer Price Index.
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 4. Interest in Mortgage Loan Securitization:
The Company is accounting for its subordinated interest in the Carey Commercial
Mortgage Trust mortgage securitization as an available-for-sale marketable
security, which is measured at fair value with all gains and losses from changes
in fair value reported as a component of other comprehensive income as part of
shareholders' equity. As of June 30, 2004, the fair value of the Company's
interests was $6,653, reflecting an aggregate unrealized gain of $812 and
cumulative net amortization of $192 ($53 for the six months ended June 30,
2004). The fair value of the Company's interests in the trust is determined
using a discounted cash flow model with assumptions of market rates and the
credit quality of the underlying lessees.
One of the key variables in determining fair value of the subordinated interest
is current interest rates. As required by Statement of Financial Accounting
Standards ("SFAS") No. 140, "Accounting for Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities," a sensitivity analysis of the
current value of the interest based on adverse changes in market interest rates
of 1% and 2% is as follows:
6
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
Fair Value as of June 30, 2004 1% Adverse Change 2% Adverse Change
------------------------------ ----------------- -----------------
Fair value of the interests $6,653 $6,339 $6,046
The above sensitivity is hypothetical and changes in fair value, based on a 1%
or 2% variation, should not be extrapolated because the relationship of the
change in assumption to the change in fair value may not always be linear.
Note 5. Lease Revenues:
The Company's operations consist of the direct and indirect investment in and
the leasing of industrial and commercial real estate. The financial reporting
sources of lease revenues for the six-month periods ended June 30, 2004 and 2003
are as follows:
2004 2003
---- ----
Per Statements of Income:
Rental income from operating leases $56,442 $53,312
Interest from direct financing leases 6,707 6,463
Adjustment:
Share of lease revenue applicable to minority interest (3,980) (4,036)
Share of lease revenue from equity investments 16,349 14,872
------- -------
$75,518 $70,611
======= =======
For the six-month periods ended June 30, 2004 and 2003, the Company earned its
net lease revenues from its investments as follows:
2004 % 2003 %
---- --- ---- ---
Carrefour France, SAS $ 6,690 9% $ 5,415 8%
Starmark Camhood, LLC/Wellbridge Club
Management, Inc.(a) 3,746 5 2,967 4
Nortel Networks Limited. 3,000 4 3,000 4
Petsmart, Inc. (b) 2,906 4 2,906 4
Clear Channel Communications, Inc. (a) 2,830 4 2,830 4
TruServ Corporation (a) 2,533 3 2,528 4
Atrium Companies, Inc. 2,278 3 2,224 3
Advance PCS, Inc. 2,150 3 2,150 3
Federal Express Corporation (b) 1,993 3 1,972 3
Tower Automotive, Inc. 1,948 3 1,948 3
Galyan's Trading Company 1,905 3 1,905 3
Katun Corporation 1,902 3 1,860 3
PerkinElmer, Inc. 1,698 2 1,457 2
Collins & Aikman Corporation 1,674 2 1,639 2
Advanced Micro Devices, Inc. (a) 1,629 2 1,629 2
Metaldyne Company LLC 1,625 2 1,582 2
Applied Materials, Inc. (a) 1,609 2 1,549 2
APW North America Inc. 1,466 2 1,394 2
Amerix Corporation 1,249 2 1,229 2
Mayo Foundation (d) 1,210 2 1,210 2
Buffets, Inc. 1,136 2 1,112 2
Institutional Jobbers Company 1,135 2 1,135 2
Other (a) (b) (c) 27,206 33 24,970 34
------- --- ------- ---
$75,518 100% $70,611 100%
======= === ======= ===
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
(b) Net of minority interest of an affiliate.
(c) Net of minority interest of an unaffiliated third party.
7
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands, except share and per share amounts)
(d) Lease was assumed from Celestica Corporation effective January 1, 2004.
In the quarter ended March 31, 2003, the Company recorded $2,588 of other
operating income as a result of the forfeiture of a security deposit on property
located in Utah.
Note 6. Unrealized Losses:
Included in the determination of net income for the six months ended June 30,
2004 and 2003 are unrealized losses of $1,181 and $104, respectively, which
reflect changes in the fair value of derivative instruments and losses on
foreign currency transactions. Derivative instruments include an interest rate
swap agreement on a variable rate limited recourse mortgage obligation, common
stock warrants in certain tenant companies, which provide for net settlement and
a provision in a lease contract which provides the Company with an option to
receive a portion of rent in U.S. dollars or the local currency. For the period
ended June 30, 2004, unrealized losses on derivatives consist of $766 on the
interest rate swap agreement, $136 on common stock warrants and $7 on the
foreign currency option. The interest rate swap agreement has a notional amount
of $8,943 and matures in September 2007.
Note 7. Accounting Pronouncements:
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.
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 five limited partnerships
that are 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 and fair value of these minority interests at June 30, 2004 are
$12,380 and $18,692, respectively. 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.
8
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
The following discussion and analysis of financial condition and results of
operations of Corporate Property Associates 14 Incorporated ("CPA(R):14") should
be read in conjunction with the condensed consolidated financial statements and
notes thereto as of June 30, 2004 included in this quarterly report and
CPA(R):14'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):14. 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):14 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):14 that the results or conditions
described in such statements or objectives and plans of CPA(R):14 will be
achieved. Additionally, a description of CPA(R):14'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.
EXECUTIVE OVERVIEW
How CPA(R):14 Earns Revenue
The primary source of CPA(R):14's revenues are earned from leasing real estate.
CPA(R):14 acquires and owns commercial properties that are then leased to
companies domestically and internationally, primarily on a net lease basis.
Revenue is subject to fluctuation because of lease expirations, lease
terminations, the timing of new lease transactions and sales of property.
How Management Evaluates Results of Operations
Management evaluates the results of CPA(R):14 with a primary focus on the
ability to generate cash flow necessary to meet its investment objectives of
increasing its distribution rate to its shareholders and overall property
appreciation. 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
and 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 distributions
in excess of equity income are the result of noncash charges such as
depreciation and amortization. Management does not consider unrealized gains and
losses from foreign currency or derivative instruments when evaluating its
ability to fund dividends. Management's evaluation of CPA(R):14's potential for
generating cash flow is based on long-term assessments.
For the three months ended June 30, 2004, cash flow generated from operations
and equity investments were substantially sufficient to fund dividends paid and
meet other obligations including paying scheduled mortgage principal payments
and making distributions to minority interests which hold ownership interests in
several of CPA(R):14's properties. Management expects based on its current
projections that over the long-term, cash flow from operations and equity
investments will meet the objective of increasing the distribution rate and
meeting other cash obligations. CPA(R):14 has cash balances of $15,000 as of
June 30, 2004 which can be utilized for working capital needs and other
commitments and may be used for future real estate purchases.
Current Developments and Trends
As general economic conditions continue to improve, inflation and interest rates
are expected to continue to rise as well. In addition, competition for both real
estate properties and for investors' money continues to increase. These trends
generally present challenges to the real estate leasing market. Management feels
that its objective of maintaining a diverse portfolio of properties with
long-term leases and long-term, fixed rate debt obligations provides investors
protection from these trends. In addition, the majority of lease transactions
include Consumer Price Index escalation clauses or stated rent increases that
are intended to help protect our investors against potential future inflation
and should allow CPA(R):14 to continue to increase its dividend.
9
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(Dollars in thousands, except share and per share amounts)
Management will continue to pursue its objectives through long-term transactions
and continuing to diversify its portfolio. To that end, management is seeking to
continue to invest in the international commercial real estate market as a means
of diversifying its portfolio. While more complex and generally requiring a
longer lead time to complete, international transactions currently provide the
benefits of more favorable interest rates and greater flexibility to leverage
the underlying property.
Management believes that as the portfolio matures there is a potential for a
substantial increase in the value of the portfolio and that any increase will
not be reflected in its financial statements.
Current developments include:
In April 2004, CPA(R):14, along with two affiliates, Corporate Property
Associates 15 Incorporated and Corporate Property Associates 16 - Global
Incorporated through a limited partnership in which CPA(R):14 owns an
approximate 11% interest through a subsidiary, completed a transaction
purchasing 78 retail self-storage and truck rental facilities under the U-Haul
brand for $312,000. In connection with the purchase, the limited partnership
obtained $183,000 of limited recourse mortgage financing collateralized by the
properties and lease assignments. The loan, which matures on May 1, 2014,
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.
Annual rental income from the related leases approximates $28,541 over the
initial terms, which range from 10 to 20 years. This transaction is accounted
for as an equity investment.
In June 2004, the Board of Directors of CPA(R):14 approved and increased the
second quarter dividend to $.1897 per share payable on July 15, 2004 to
shareholders of record as of June 30, 2004.
RESULTS OF OPERATIONS:
Lease Revenues - For the comparable quarters ended June 30, 2004 and 2003, lease
revenues (rental income and interest income from direct financing leases)
increased by $1,525 primarily as a result of recent acquisitions and the
completion of build-to-suit projects during 2003, scheduled rent increases at
several properties and the impact of favorable changes in foreign exchange rates
on rents from foreign properties. During 2003, CPA(R):14 completed build-to-suit
projects at properties leased to Waddington North America, Inc., Career
Education Group and Rave Motion Pictures LLC, which provided $678 of the
increase in lease revenues during the current quarter. Lease revenues also
increased by $266 as the result of the expansion in July 2003 at a property in
LeMans, France leased to Carrefour France, SAS. Scheduled rent increases at
several properties contributed an additional $460 to lease revenues.
Approximately 20 properties have scheduled rent increases during the remainder
of 2004. The rent increases are generally determined by formulas that are
indexed to increases in the Consumer Price Index. Lease revenues from
CPA(R):14's properties in Europe and the United Kingdom benefited from the
changes in foreign exchange rates, with $274 of the increase in lease revenues
attributable to the favorable changes in the average exchange rates for the Euro
and the British Pound as compared with average exchange rates in 2003. These
increases were partially reduced by lower rental income as a result of vacant
properties.
For the comparable six-month periods ended June 30, 2004 and 2003, lease
revenues increased $3,374 primarily due to the same factors as described above.
Additional rental income from completed build-to-suit projects and an
acquisition contributed $1,897 of the increase, scheduled rent increases
contributed $928 of the increase and the positive impact of foreign currency
exchange rates accounted for $917 of the increase. These increases were
partially reduced by lower rental income as a result of vacant properties.
During the first six months of 2004, CPA(R):14 entered into new net leases with
The Retail Distribution Group and Wavetronix LLC at properties that were
previously vacant or partially vacant. The net lease with Retail Distribution
was entered into in January 2004 for property in Grand Rapids, Michigan in which
CPA(R):14 owns a 60% interest. The Grand Rapids property had been vacant since
May 2003. The Retail Distribution lease provides for initial annual rent of
$903, of which CPA(R):14's share is $542, and has an initial term through August
31, 2009. The Retail Distribution lease provides for adjustments to its rent as
it vacated another property, which is still subject to lease in order to lease
the Grand Rapids property. Any adjustments to rent will be reduced by any
sublease rentals Retail Distribution receives from the other property. In
December 2003, CPA(R):14 entered into a net lease with Wavetronix
10
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(Dollars in thousands, except share and per share amounts)
for a portion of a partially vacant property in Lindon, Utah which began
contributing $301 of annual lease revenue in June 2004 when improvements at the
property were completed. The lease has an initial term of five years and seven
months.
Other Operating Income - For the comparable quarters ended June 30, 2004 and
2003, other operating income increased $430 primarily due to an increase in
costs reimbursable by tenants. Such reimbursable costs are recorded as both
revenue and expense and therefore have no impact on net income.
For the comparable six-month periods ended June 30, 2004 and 2003, other
operating income decreased $2,001 primarily as a result of the recognition of
$2,588 from the forfeiture of a security deposit in the quarter ended March 31,
2003 which was partially offset by the increase in costs reimbursable by tenants
as described above.
Depreciation Expense - For the comparable quarters ended June 30, 2004 and 2003,
depreciation expense increased $229 primarily due to additional depreciation of
$160 related to acquisitions and completion of several build-to-suit projects in
the last six months of 2003 and the increase in average exchange rates for the
comparable periods.
For the comparable six-month periods ended June 30, 2004 and 2003, depreciation
expense increased $492 primarily due to $333 of additional depreciation as a
result of the 2003 acquisitions and completion of several build-to-suit projects
as described above. Depreciation expense also increased as a result of increases
in average exchange rates primarily due to Carrefour.
General and Administrative Expenses - For the comparable three and six-month
periods ended June 30, 2004 and 2003, general and administrative expenses
decreased $618 and $977, respectively, primarily due to a reduction in several
general and administrative expenses including personnel cost reimbursements,
investor related service costs and acquisition expenses partially offset by
increased accounting and auditing fees and state taxes.
Property Expenses - For the comparable quarters ended June 30, 2004 and 2003,
property expenses increased by $1,521 primarily due to increases in asset
management and performance fees and property related expenses. Asset management
and performance fees increased $488 as a result of the growth of CPA(R):14's
asset base and the appreciation of existing properties as determined by
CPA(R):14's initial independent valuation of its portfolio as of December 31,
2003. Property related expenses paid by CPA(R):14 and reimbursed by tenants
increased $433 primarily related to an expansion of property leased to
Carrefour. Such reimbursable costs are recorded as both revenue and expense and
therefore have no impact on net income. Property related expenses also increased
as a result of property carrying costs paid on vacant properties and changes in
certain property related accruals.
The increase of $1,795 for the comparable six-month periods ended June 30, 2004
and 2003, is due primarily to the same factors as described above. Asset
management and performance fees increased $986 for the six-month period ended
June 30, 2004. Property related expenses paid by CPA(R):14 and reimbursed by
tenants increased $474 due to the same factors as described above.
Income From Equity Investments - Income from equity investments increased by
$224 for the comparable quarters ended June 30, 2004 and 2003, primarily as a
result of the April 2004 purchase by CPA(R):14 along with two affiliates through
a newly-formed limited partnership of 78 self-storage and truck leasing
facilities and entering into two net leases with lessees that operate the
properties under the U-Haul brand name. CPA(R):14's cash flow from its
approximate 11% interest was $150 during the quarter. Annual cash flow from this
transaction is expected to approximate $1,500. Rent increases at several
properties during the first six months of 2004 also contributed to the increase.
The increase of $453 for the comparable six-month periods ended June 30, 2004
and 2003, is due primarily to the same factors as described above as well as the
acquisition of a noncontrolling interest in properties leased to Starmark
Camhood, LLC in February 2003.
Interest Expense - For the comparable quarters ended June 30, 2004 and 2003,
interest expense increased by $496 primarily due to additional interest of $339
on new mortgages obtained during 2003 on properties leased to Carrefour, Career
Education and Nascar Technical Institute, Inc. Prior year capitalization of
interest related to build-to-suit projects also contributed to the current
quarter increase as there have been no such projects to date in 2004.
For the comparable six-month periods ended June 30 2004 and 2003, interest
expense increased $1,227 primarily due to increased interest of $863 on new
mortgages obtained during 2003 on properties leased to Carrefour, Career
11
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(Dollars in thousands, except share and per share amounts)
Education Group and Nascar Technical Institute. Prior year capitalization of
interest related to build-to-suit projects also contributed to the current
quarter increase as there have been no such projects to date in 2004.
Net Income - For the quarter ended June 30, 2004, net income increased by $239
to $8,905 as compared with net income of $8,666 for the quarter ended June 30,
2003. For the comparable six-month periods ended June 30, 2004 and 2003 net
income decreased by $1,376 to $17,894 as compared with net income of $19,270 for
the comparable prior year period. The decease in net income for the six-month
period is primarily due to the recognition of $2,588 in the quarter ended March
31, 2003 related to the forfeiture of a security deposit, which is classified as
other operating income. During the current quarter and six-month period ended
June 30, 2004, CPA(R):14 benefited from increases in lease revenues and income
from equity investments as well as a decrease in general and administrative
expense, but these benefits were offset by increases in depreciation, interest
and property expenses.
FINANCIAL CONDITION:
Uses of Cash During the Period
There has been no material change in CPA(R):14's financial condition since
December 31, 2003. Cash and cash equivalents totaled $34,655 as of June 30,
2004, a decrease of $20,020 from the December 31, 2003 balance. Management
believes CPA(R):14 has sufficient cash balances to meet its working capital
needs. CPA(R):14's use of cash during the period is described below.
Operating Activities - For the six-month period ended June 30, 2004, cash flows
from operating activities and equity investments of $32,024 were substantially
sufficient to pay dividends to shareholders of $25,380, meet scheduled principal
payment installments on mortgage debt of $5,354 and distribute $1,316 to
minority partners. Annual operating cash flow is expected to continue to
increase as a result of new leases signed in 2004 including leases with Retail
Distribution and Wavetronix as well as scheduled rent increases at several
properties during the remainder of 2004. The Retail Distribution and Wavetronix
leases will contribute annual cash flow (lease revenues, net of property-level
debt service) of approximately $549. Retail Distribution and Wavetronix will
also pay certain carrying costs of the properties which had been incurred by
CPA(R):14.
Investing Activities - CPA(R):14's investing activities primarily consist of
real estate purchases and payment of its annual installment of deferred
acquisition fees. In April 2004, CPA(R):14 used $15,000 to purchase its interest
in the U-Haul transaction. Annual cash flow from this transaction (lease
revenues, net of property-level debt service) is expected to approximate $1,500.
Other real estate related payments included $455 to fund leasehold improvements
at the Lindon, Utah building in connection with signing the Wavetronix lease and
$166 to pay final construction costs for the Waddington North America and Rave
Motion Pictures build-to-suit projects, which were placed in service in 2003.
The annual installment of deferred acquisition fees is paid each January and was
$3,266 in 2004. Additionally, $1,617 was used to pay off a payable for
refundable value added taxes in connection with the Carrefour expansion.
Financing Activities - In addition to making scheduled mortgage principal
payments, paying dividends to shareholders and making distributions to minority
partners, CPA(R):14 obtained $2,607 as a result of issuing shares through its
dividend reinvestment plan, and used $1,876 to purchase treasury shares.
Substantially all of CPA(R):14's mortgages are limited recourse and bear
interest at fixed rates. Accordingly, CPA(R):14's cash flow should not be
adversely affected by increases in interest rates which are near historical
lows. A lender on limited recourse mortgage debt has recourse only to the
property collateralizing such debt and not to any of CPA(R):14's other assets,
while unsecured financing would give a lender recourse to all of CPA(R):14's
assets. The use of limited recourse debt, therefore, will allow CPA(R):14 to
limit its exposure of all of its assets to any one debt obligation. Management
believes that the strategy of combining equity and limited recourse mortgage
debt will allow CPA(R):14 to meet its short-term and long-term liquidity needs
and will help to diversify CPA(R):14's portfolio and, therefore, reduce
concentration of risk in any particular lessee.
12
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(Dollars in thousands, except share and per share amounts)
Cash Resources
As of June 30, 2004, CPA(R):14 has $34,655 in cash and cash equivalents which
can be used for working capital needs and other commitments and may be used for
future real estate purchases. In addition, debt may be incurred on unleveraged
properties with a carrying value of $56,295 as of June 30, 2004 and any proceeds
may be used to finance future real estate purchases.
Cash Requirements
During the next twelve months, cash requirements will include scheduled mortgage
principal payments (CPA(R):14 has no mortgage balloon payments scheduled until
February 2008), paying dividends to shareholders and making distributions to
minority partners as well as other normal recurring operating expenses.
CPA(R):14 may also seek to use its cash to purchase new properties to further
diversify its portfolio and maintain cash balances sufficient to meet working
capital needs. Based on the projected increase in operating cash flows from new
leases, the completed build-to-suit projects and recent property acquisitions,
cash flow from operations and distributions from operations of equity
investments in excess of equity income is expected to be sufficient to meet
operating cash flow objectives. Accordingly, CPA(R):14 expects to have
sufficient cash flow to continue increasing the distribution rate to its
shareholders. Distributions are determined by management's long-term projections
of cash flow.
Other Matters
CPA(R):14 conducts business in Europe and may recognize transaction gains and
losses from its foreign operations. Foreign currency transaction gains and
losses were not material to CPA(R):14's results of operations for the current
quarter. CPA(R):14 is subject to material foreign currency exchange rate risk
from the effects of changes in exchange rates. To date, CPA(R):14 has not
entered into any foreign currency forward exchange contracts to hedge the
effects of adverse fluctuations in foreign currency exchange rates. CPA(R):14
has obtained limited recourse mortgage financing at fixed rates of interest in
the local currency. To the extent that currency fluctuations increase or
decrease rental revenues as translated to dollars, the change in debt service,
as translated to dollars, will partially offset the effect of fluctuations in
revenue, and, to some extent mitigate the risk from changes in foreign currency
rates. As of June 30, 2004, Carrefour, which leases properties in France,
contributed 9% of lease revenues (see Note 5 to the accompanying condensed
consolidated financial statements). The leverage used on the limited recourse
financing of the Carrefour France, SAS investments is higher than the average
leverage on CPA(R):14's domestic real estate investments.
OFF-BALANCE SHEET ARRANGEMENTS, GUARANTEES AND AGGREGATE CONTRACTUAL AGREEMENTS:
A summary of CPA(R):14's contractual obligations and commitments is as follows:
(in thousands) Total 2004 2005 2006 2007 2008 Thereafter
----- ---- ---- ---- ---- ---- ----------
Obligations:
Limited recourse mortgage notes payable (1) $691,709 $5,617 $11,974 $12,945 $13,900 $20,071 $627,202
Deferred acquisition fees 19,985 - 3,484 3,573 3,573 3,304 6,051
Subordinated disposition fees 240 - - - - - 240
Commitments:
Share of minimum rents payable under office
cost-sharing agreement 780 127 373 280 - - -
-------- ------ ------- ------- ------- ------- --------
$712,714 $5,744 $15,831 $16,798 $17,473 $23,375 $633,493
======== ====== ======= ======= ======= ======= ========
(1) The limited recourse mortgage notes payable were obtained in connection with
the acquisition of properties in the ordinary course of business.
13
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(in thousands)
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates and equity prices. In pursuing its business
plan, the primary market risks to which CPA(R):14 is exposed are interest rate
risk and foreign currency exchange risk.
The value of CPA(R):14's real estate is subject to fluctuations based on changes
in interest and foreign currency exchange rates, local and regional economic
conditions and changes in the creditworthiness of lessees. These factors may
affect CPA(R):14's ability to refinance its debt when balloon payments are
scheduled.
CPA(R):14 owns marketable securities through its ownership interests in Carey
Commercial Mortgage Trust ("CCMT"). The value of the marketable securities is
subject to fluctuation based on changes in interest rates, economic conditions
and the creditworthiness of lessees at the mortgaged properties. As of June 30,
2004, CPA(R):14's interests in CCMT had a fair value of $6,653.
Approximately $663,848 of CPA(R):14's long-term debt bears interest at fixed
rates, and therefore the fair value of these instruments is affected by changes
in the market interest rates. The following table presents principal cash flows
based upon expected maturity dates of the debt obligations and the related
weighted-average interest rates by expected maturity dates for the fixed rate
debt. The interest rate on the fixed rate debt as of June 30, 2004 ranged from
5.15% to 8.85%. The interest rate on the variable rate debt as of June 30, 2004
ranged from 2.94% to 6.27%.
2004 2005 2006 2007 2008 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Fixed rate debt $ 5,323 $ 11,368 $ 12,320 $ 13,255 $ 19,407 $602,175 $663,848 $659,331
Weighted average
interest rate 7.15% 7.16% 7.16% 7.16% 7.32% 7.46%
Variable rate debt $ 294 $ 606 $ 625 $ 645 $ 664 $ 25,027 $ 27,861 $ 27,861
Annual interest expense from variable rate debt would increase or decrease by
approximately $279 for each change of 1% in annual interest rates.
CPA(R):14 has foreign operations. Accordingly, CPA(R):14 is subject to foreign
currency exchange risk from the effects of exchange rate movements of foreign
currencies and this may affect future costs and cash flows; however, exchange
rate movements to date have not had a significant effect on CPA(R):14's
financial position or results of operations. To date CPA(R):14 has not entered
into any foreign currency forward exchange contracts to hedge the effects of
adverse fluctuations in foreign currency exchange. One of CPA(R):14's lease
agreements provides the option to receive a portion of the rent in dollars or
the local currency; this option is considered a derivative financial instrument
and changes in the fair value of the option, which were not significant, are
included in the determination of net income.
Item 4. - CONTROLS AND PROCEDURES
The Co-Chief Executive Officers and Chief Financial Officer of the Company have
conducted a review of the Company's disclosure controls and procedures as of
June 30, 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.
14
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
PART II
Item 2. - CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(c) For the three and six-month periods ended June 30, 2004, 186,089 and
354,774 shares, respectively, were issued to the Advisor as
consideration for performance fees and 130,549 and 257,271 shares,
respectively, were issued pursuant to the Company's Stock Purchase
and Dividend Reinvestment Plan. Shares were issued at per share
amounts which ranged from $10.00 to $11.30.
(e) Issuer Purchases of Equity Securities
Total Number of Shares
Purchased as Part of
Total Number of Average Price Publicly Announced
Period Shares Purchased Paid Per Share Plans or Programs (1)
------ ---------------- -------------- ---------------------
January 1, 2004 - January 31, 2004 47,328 $ 8.89 N/A
February 1, 2004 - February 29, 2004 28,884 8.85 N/A
March 1, 2004 - March 31, 2004 - - N/A
April 1, 2004 - April 30, 2004 130,987 8.98 N/A
May 1, 2004 - May 31, 2004 2,062 10.17 N/A
June 1, 2004 - June 30, 2004 - - N/A
-------
209,261
-------
(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 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual Shareholders' meeting was held on June 10, 2004, at which time a vote
was taken to elect the Company's directors through the solicitation of proxies.
The following directors were elected for a one-year term:
Name Of Director Total Shares Voting Shares Voting Yes Shares Voting No Shares Abstaining
- ---------------- ------------------- ----------------- ---------------- -----------------
William P. Carey 36,504,693 36,181,681 24,500 298,512
William Ruder 36,504,693 36,109,925 96,256 298,512
George E. Stoddard 36,504,693 36,063,151 143,030 298,512
Warren G. Wintrub 36,504,693 36,185,643 20,538 298,512
Charles E. Parente 36,504,693 36,169,550 36,631 298,512
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:
None
15
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
8/6/2004 By: /s/ John J. Park
--------- ----------------------------------
Date John J. Park
Managing Director and
Chief Financial Officer
(Principal Financial Officer)
8/6/2004 By: /s/ Claude Fernandez
--------- -----------------------------------
Date Claude Fernandez
Managing Director and
Chief Accounting Officer
(Principal Accounting Officer)
-16-