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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 SEPTEMBER 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: 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 November 5, 2004.
CPA(R):15 has 124,810,361 shares of common stock, $.001 par value
outstanding at November 5, 2004.
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
INDEX
Page No.
PART I
Item 1.- Financial Statements*
Condensed Consolidated Balance Sheets, as of September 30, 2004
and December 31, 2003 2
Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 2004 and 2003 3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three
and nine months ended September 30, 2004 and 2003 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2004 and 2003 4-5
Notes to Condensed Consolidated Financial Statements 6-13
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-19
Item 3. - Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. - Controls and Procedures 20
PART II - Other Information
Item 1. - Legal Proceedings 21
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 4. - Submission of Matters to a Vote of Security Holders 21
Item 6. - Exhibits 22
Signatures 23
* The summarized condensed consolidated financial statements contained herein
are unaudited; however, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of such financial statements have been included.
-1-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
PART I
Item 1. - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
September 30, 2004 December 31, 2003
------------------ -----------------
(Unaudited) (Note)
------------------ -----------------
ASSETS:
Land and buildings, net of accumulated depreciation of $38,065 and $18,725
at September 30, 2004 and December 31, 2003 $ 1,687,838 $ 864,737
Net investment in direct financing leases 276,803 148,325
Intangible assets, net of accumulated amortization of $4,183 and $533 at
September 30, 2004 and December 31, 2003 232,182 32,742
Real estate under construction 25,478 61,270
Equity investments 180,845 83,984
Cash and cash equivalents 77,628 346,217
Short-term investments -- 37,833
Marketable securities 12,058 --
Escrow assets 53,226 14,012
Other assets, net 44,493 50,032
------------------ -----------------
Total assets $ 2,590,551 $ 1,639,152
================== =================
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY:
Liabilities:
Mortgage notes payable $ 1,197,359 $ 596,003
Notes payable 3,988 4,061
Accrued interest 6,780 2,464
Due to affiliates 3,668 2,912
Accounts payable and accrued expenses 37,573 6,907
Prepaid rental income and security deposits 54,760 38,504
Deferred acquisition fees payable to affiliate 34,590 24,005
Dividends payable 17,816 16,555
------------------ -----------------
Total liabilities 1,356,534 691,411
------------------ -----------------
Minority interest 169,902 52,650
------------------ -----------------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common stock, $.001 par value; authorized 240,000,000 shares; issued and
outstanding, 125,184,001 and 105,681,019 at September 30, 2004 and
December 31, 2003 125 106
Additional paid-in capital 1,138,869 944,788
Dividend in excess of accumulated earnings (72,603) (52,887)
Accumulated other comprehensive income 755 3,255
------------------ -----------------
1,067,146 895,262
Less, treasury stock at cost, 336,359 and 18,807 shares at September 30,
2004 and December 31, 2003 (3,031) (171)
------------------ -----------------
Total shareholders' equity 1,064,115 895,091
------------------ -----------------
Total liabilities, minority interest and shareholders' equity $ 2,590,551 $ 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 OPERATIONS (Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenues:
Rental income $ 37,414 $ 17,053 $ 88,245 $ 45,888
Interest income from direct financing leases 4,531 1,963 11,670 4,010
Other operating income 3,052 2,483 8,560 5,867
------------- ------------- ------------- -------------
44,997 21,499 108,475 55,765
------------- ------------- ------------- -------------
Operating expenses:
Depreciation and amortization 9,647 5,463 22,561 11,657
General and administrative 1,755 1,932 5,247 4,969
Property expenses 7,862 5,217 18,219 12,459
Impairment charge on real estate -- 24,000 -- 24,000
------------- ------------- ------------- -------------
19,264 36,612 46,027 53,085
------------- ------------- ------------- -------------
Income (loss) before other interest income,
minority interest, equity investments,
interest expense and gains and losses 25,733 (15,113) 62,448 2,680
Other interest income 785 1,135 2,456 2,217
Minority interest in income (2,627) (1,155) (6,367) (2,850)
Income from equity investments 2,657 2,146 6,851 6,385
Interest expense (15,546) (6,247) (35,969) (17,504)
------------- ------------- ------------- -------------
Income (loss) before gains and losses 11,002 (19,234) 29,419 (9,072)
(Loss) gain on sale of real estate -- -- (48) 961
Gain on foreign currency transactions, net 416 199 2,153 199
------------- ------------- ------------- -------------
Net income (loss) $ 11,418 $ (19,035) $ 31,524 $ (7,912)
============= ============= ============= =============
Basic and diluted earnings (loss) per share $ .10 $ (.20) $ .29 $ (.11)
============= ============= ============= =============
Weighted average shares outstanding - basic and
diluted 112,802,854 97,256,074 108,511,601 69,987,670
============= ============= ============= =============
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 September 30, Nine Months Ended September 30,
-------------------------------- ------------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net income (loss) $ 11,418 $(19,035) $ 31,524 $ (7,912)
-------- -------- -------- --------
Other comprehensive income (loss):
Change in foreign currency translation
adjustment 134 3,164 (2,700) 6,810
Change in unrealized appreciation of
marketable securities 151 -- 151 --
Unrealized gain on derivative instruments 387 -- 49 --
-------- -------- -------- --------
672 3,164 (2,500) 6,810
-------- -------- -------- --------
Comprehensive income (loss) $ 12,090 $(15,871) $ 29,024 $ (1,102)
======== ======== ======== ========
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)
Nine Months Ended September 30,
-------------------------------
2004 2003
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 31,524 $ (7,912)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of intangibles and deferred financing costs 22,906 11,776
Impairment charge on real estate -- 24,000
Equity income in excess of distributions received (510) (1,473)
Straight-line rent adjustments (4,958) (3,597)
Loss (gain) on sale of real estate 48 (961)
Settlement proceeds assigned to lender (2,754) --
Unrealized loss (gain) on foreign currency transactions 348 (210)
Realized (gain) loss on foreign currency transaction (2,501) 11
Fees paid to affiliate by issuance of stock 4,354 2,222
Minority interest in income 6,367 2,850
Changes in operating assets and liabilities, net of operating assets acquired
and liabilities assumed in connection with acquisition of business operations 1,005 16,798
--------- ---------
Net cash provided by operating activities 55,829 43,504
--------- ---------
Cash flows from investing activities:
Distributions from operations of equity investments in excess of equity income 976 362
Distributions of mortgage financing from equity investees -- 24,162
Acquisitions of real estate and equity investments and other capitalized costs (671,917) (343,909)
VAT taxes recovered in connection with purchases of real estate, net 5,132 6,117
Payment of deferred acquisition fees (3,253) --
Purchase of short-term investments (17,782) --
Redemption of short-term investments 55,615 --
Proceeds from sale of real estate 5,786 --
Cash acquired in acquisition of business operations (1) 86,626 --
Cash payments to shareholders of acquired company (231,826) --
--------- ---------
Net cash used in investing activities (770,643) (313,268)
--------- ---------
Cash flows from financing activities:
Proceeds from mortgages 418,862 94,216
Mortgage and note principal payments (7,885) (3,914)
Prepayment of note payable -- (3,622)
Deferred financing costs and mortgage deposits, net of deposits refunded (1,178) (2,268)
Capital contributions from minority partner 76,709 11,916
Distributions paid to minority partners (4,139) (1,765)
Proceeds from issuance of stock, net of costs of raising capital 15,818 586,440
Dividends paid (49,980) (25,265)
Purchase of treasury stock (2,860) --
--------- ---------
Net cash provided by financing activities 445,347 655,738
--------- ---------
Effect of exchange rate changes on cash 878 882
--------- ---------
Net (decrease) increase in cash and cash equivalents (268,589) 386,856
Cash and cash equivalents, beginning of period 346,217 94,762
--------- ---------
Cash and cash equivalents, end of period $ 77,628 $ 481,618
========= =========
-continued-
-4-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS (Unaudited) (Continued)
(in thousands)
1. The merger with Carey Institutional Properties Incorporated
("CIP(R)") as described in Note 2 to the condensed consolidated
financial statements, consisted of the acquisition and assumption of
certain assets and liabilities, respectively, at fair value in
exchange for the issuance of shares, and a cash payment to CIP(R)
shareholders who elected to redeem their shares and certain costs as
follows:
Real estate accounted for under the operating method $ 228,465
Net investment in direct financing leases 136,638
Intangible assets 105,675
Equity investments 94,251
Investment in mortgage loan securitization 11,999
Other assets 3,382
Mortgage notes payable net (cost $205,572) (202,246)
Amounts due to CIP(R)shareholders (a) (231,826)
Other liabilities (b) (23,262)
Minority interest (35,497)
Issuance of common stock (174,205)
---------
Cash acquired in acquisition of CIP(R)'s business operations $ 86,626
=========
As part of the merger, the Company issued 17,420,571 shares of
common stock of the Company to shareholders of CIP(R) in exchange
for 15,982,176 shares of common stock of CIP(R).
(a) Consists of final dividend payable of $90,913 and $140,913 for
redemption of shares.
(b) Includes current and deferred fees of $6,385 and $5,108 payable to
the Advisor (see Note 3 to the condensed consolidated financial
statements)
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-5-
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 adjustments) 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.
In February 2004, the Company entered into an interest rate swap agreement,
which effectively converted the variable rate debt service obligations of the
loan to a fixed rate. 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.
Dividends declared per share for the three and nine-month periods ended
September 30, 2004 were $.15796 and $.47201, respectively.
Certain prior period amounts have been reclassified to conform to current period
presentation.
Note 2. Business Combination with Carey Institutional Properties Incorporated:
On September 1, 2004, a subsidiary of the Company and Carey Institutional
Properties Incorporated ("CIP(R)"), an affiliated real estate investment trust
managed by W. P. Carey & Co. LLC, the Company's advisor ("Advisor"), completed a
merger pursuant to a merger agreement dated June 4, 2004 between the companies.
The merger provides a liquidation option for CIP(R) shareholders and provided
for the continued growth and enhancement of the Company's investment portfolio.
Under the terms of the merger, which was approved by the shareholders of both
companies at special meetings of the shareholders of each company held on August
24, 2004, the Company's subsidiary is the surviving company. The total purchase
price for CIP(R) was $317,162, which is comprised of 17,420,571 ($174,206 based
on $10 per share) shares of the Company's common stock, $140,913 in
consideration for CIP(R) shareholders who redeemed their interests, and
estimated transaction costs of $2,043. Prior to the completion of the merger,
CIP(R)'s interests in certain real estate assets that do not meet the investment
objectives of the Company were sold to the Advisor.
Under the terms of the merger agreement, each CIP(R) shareholder had the option
of receiving either 1.09 shares of newly issued Company common stock or $10.90
in cash for each CIP(R) common share that he or she owned as of August 31, 2004.
The exchange ratio for issuing shares was based on a third party valuation of
CIP(R) and pursuant to fairness opinions that each company received from
separate investment banking firms. Shareholders holding 15,982,176 shares of
CIP(R) common stock received 17,420,571 shares of Company common stock and
shareholders holding 12,927,812 shares of CIP(R) common stock elected to receive
cash of $140,913 in consideration for redeeming their CIP(R) interests.
The Company has accounted for the merger under the purchase method of
accounting. The purchase price has been allocated to the assets acquired and
liabilities assumed based upon their fair values. The assets acquired primarily
consist of commercial real estate assets net leased to single tenants, cash, a
subordinated interest in a mortgage loan
-6-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Amounts in thousands, except share and per share amounts)
securitization, receivables and deposits and the liabilities assumed primarily
consist of mortgage notes payable, accrued interest, accounts payable, security
deposits and amounts due to former CIP(R) shareholders. The amounts due to
former CIP(R) shareholders were paid prior to September 30, 2004. The results of
operations for the three and nine month periods ended September 30, 2004 include
CIP(R) for the month of September 2004.
In connection with evaluating the fair value of real estate interests acquired,
the Company assigned a portion of the value to both tangible assets and
intangible assets. Intangible assets consist of values attributable to
above-market and below-market leases, in-place lease intangibles and tenant
relationships. As more fully described in the Company's Annual Report on Form
10-K for the year ended December 31, 2003, the allocation of value to tangible
and intangible assets are based on certain critical accounting estimates. The
value attributed to tangible assets is determined in part using a discounted
cash flow model which is intended to approximate what a third party would pay to
purchase the property as vacant and rent at "market" rates. Above-market and
below-market lease intangibles are based on the difference between the market
rent and the contractual rents and are discounted to a present value using an
interest rate reflecting the Company's assessment of the risk associated with
the lease acquired. In-place lease and tenant relationship values are based on
the specific characteristics of each lease and estimated carrying costs of the
property during a hypothetical expected lease-up period, current market
conditions and costs to execute similar leases. The fair value of the interest
in the mortgage loan securitization and mortgage notes payable were determined
using cash flow models and assumptions about market interest rates at or near
the date of the merger. Substantially all of the other assets acquired and
liabilities assumed approximate their stated values and are short-term in
nature.
Note 3. Transactions with Related Parties:
In connection with performing services on behalf of the Company, the advisory
agreement ("Advisory Agreement") between the Company and its 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 performance fee is subordinated to the preferred return, a cumulative
non-compounded dividend return of 6%. The Advisor can elect 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 $2,134 and $1,083
for the three months ended September 30, 2004 and 2003, respectively, and $5,212
and $2,886 for the nine months ended September 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. The
Company incurred personnel reimbursements of $764 and $341 for the three months
ended September 30, 2004 and 2003, respectively, and $1,896 and $778 for the
nine months ended September 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 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 nine months
ended September 30, 2004, current and deferred fees were $17,308 and $13,846,
respectively. During the nine months ended September 30, 2003, current and
deferred fees were $10,728 and $7,551, respectively. A portion of the fees were
attributable to the real estate acquired in the merger.
In connection with the business combination described in Note 2, the Company
acquired real estate interests owned with affiliates. Such interests are
consolidated when the Company owns a controlling interest and are accounted for
under the equity method when the Company has a noncontrolling interest. Pursuant
to a third party valuation, the value attributed to the Company's real estate
interests was $571,147. Current and deferred fees on the interests acquired were
$6,385 and $5,108, respectively, and were determined based on the proportion of
cash used to redeem to CIP(R) shares.
-7-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Amounts in thousands, except share and per share amounts)
Note 4. Acquisitions of Real Estate:
In addition to the properties acquired from CIP(R), during the nine-month period
ended September 30, 2004, the Company acquired properties and real estate
investments which were previously described in its Report on Form 10-K for the
year ended December 31, 2003 and its Reports on Form 10-Q for the three months
ended March 31, 2004 and the six months ended June 30, 2004. A summary of the
properties and investments acquired is as follows:
Initial Original Annual
Annual Mortgage Debt
Lease Obligor: Cost Location Rent Financing Service Date Acquired
- ------------- ---- -------- ---- --------- ------- -------------
TietoEnator Plc. (1)(2) $ 58,422 Espoo, Finland $ 4,191 $ 42,444 $2,596 7/8/2004
Thales S.A.(1)(3) 67,080 Guyancourt, Conflans, 6,315 49,973 3,753 7/26/2004
Laval, Ymare and and
Aubagne, France 8/3/2004
Grande Communications Networks, 1,361 San Marcos, TX 140 - - 6/24/2004
Inc.
Shaklee Corporation 32,461 Pleasanton, CA 2,679 18,800 1,557 5/26/2004
Oriental Trading Company, Inc. 31,000 La Vista, NE 2,728 16,400 - 5/7/2004
(4)
Mercury Partners, LP and U-Haul 180,250 78 locations in the United 16,465 105,573 8,514 4/29/2004
Moving Partners, Inc.(5) States
Worthington Precision Metals, 7,168 Mentor, OH and 788 4,600 381 4/14/2004
Inc. Franklin, TN
World Airways, Inc. 8,699 Peachtree City, GA 853 5,500 502 3/26/2004
Universal Technical Institute of 25,149 Rancho Cucamonga, CA 2,326 - - 2/6/2004
California, Inc.(6)
Affina Corporation 12,565 Peoria, IL 1,254 - - 1/8/2004
Regie des Batiments(1) 12,120 Mons, Belgium 1,269 11,231 799 1/2/2004
Plumbmaster, Inc. (6) 9,843 Concord Township, PA 855 - - 1/2/2004
and Oceanside, CA
(1) Based on the applicable exchange rates on the dates of acquisition.
(2) Amounts shown represent the Company's proportionate 60% share.
(3) Amounts shown represent the Company's proportionate 65% share.
(4) Build-to-suit commitment. The Company has obtained a loan facility of
$16,400 which may be drawn upon to fund construction of the property.
The initial annual rent is based on estimated construction costs of
$31,000 and will commence when construction is completed.
(5) Amounts shown represent the Company's proportionate 57.69% share.
(6) Mortgage financing was placed on the properties in October 2004 (see
Note 11).
Note 5. Equity Investments:
The Company owns interests in single-tenant net leased properties leased to
corporations 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., Starmark Camhood LLC., Actuant
Corporation, Marriott International, Inc. ("Marriott"), Advanced Micro Devices,
Inc. ("AMD"), Compucom Systems, Inc. ("Compucom"), The Upper Deck Company
("Upper Deck") and Del Monte Corporation ("Del Monte"). The interests in the
Marriott, AMD, Compucom, Upper Deck and Del Monte properties were acquired in
connection with the CIP(R)merger.
Summarized combined financial information of the equity investees is as follows:
-8-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Amounts in thousands, except share and per share amounts)
September 30, 2004 December 31, 2003
------------------ -----------------
Assets (primarily real estate) $ 783,505 $ 450,586
Liabilities (primarily mortgage notes payable) (467,138) (265,972)
------------------ -----------------
Partners' and members' equity $ 316,367 $ 184,614
================== =================
Company's share of equity investees' net assets $ 180,845 $ 83,984
================== =================
Nine Months Ended September 30,
-------------------------------------------
2004 2003
------------------ -----------------
Revenues (primarily rental income and interest income from
direct financing leases) $ 64,268 $ 32,322
Expenses (primarily interest on mortgages and depreciation) (34,721) (18,202)
------------------ -----------------
Net income $ 29,547 $ 14,120
================== =================
Company's share of net income from equity investments $ 6,851 $ 6,385
================== =================
Note 6. 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 nine-month periods ended September 30, 2004
and 2003 are as follows:
2004 2003
-------- --------
Per Statements of Income:
Rental income from operating leases $ 88,245 $ 45,888
Interest income from direct financing leases 11,670 4,010
Adjustment:
Share of lease revenue applicable to minority interest (17,874) (7,294)
Share of lease revenue from equity investments 16,767 14,410
-------- --------
$ 98,808 $ 57,014
======== ========
For the nine-month periods ended September 30, 2004 and 2003, the Company earned
net lease revenues from its investments as follows:
2004 % 2003 %
------- ------- ------- -------
Starmark Camhood LLC/Wellbridge Club Management, Inc. (a) (e) $ 8,004 8% $ 5,194 9%
Mercury Partners and U-Haul Moving Partners (b) 6,958 5 -- --
Clear Channel Communications, Inc. (b) 6,368 7 6,368 11
Carrefour France, SA (b) (c) 5,648 6 6,297 10
TruServ Corporation (a) 5,427 6 5,417 10
Foster Wheeler, Inc. 3,955 4 3,933 7
Life Time Fitness, Inc. (g) 3,696 4 12 --
Qualceram Shires plc (f) 2,964 3 1,384 2
Lillian Vernon Corporation (g) 2,886 3 948 2
Medica-- France, SA (b) (c) 2,398 2 2,403 4
Danka Office Imaging Company (f) 2,295 2 1,054 2
Meadowbrook Meat Company 2,256 2 2,256 4
Overland Storage, Inc. 2,244 2 2,244 4
Berry Plastics Corporation (h) 2,190 2 -- --
Precise Technology, Inc. (h) 1,992 2 -- --
Petsmart, Inc. (a) 1,868 2 1,868 3
Tower Automotive, Inc. 1,767 2 1,767 3
MediMedia USA, Inc. 1,751 2 1,167 2
Insulated Structures, Ltd. (h) 1,604 2 -- --
-9-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Amounts in thousands, except share and per share amounts)
2004 % 2003 %
------- ------- ------- -------
Hologic, Inc. (a) 1,515 2 1,515 3
Other (a) (b) (d) 31,022 32 13,187 24
------- ------- ------- -------
$98,808 100% $57,014 100%
======= ======= ======= =======
(a) Represents the Company's proportionate share of lease revenues from
its equity investments (see Note 5).
(b) Net of minority interest of an affiliate. The Company acquired its
interest in the U-Haul property during the second quarter of 2004.
(c) Until March 12, 2003, the Company owned 100% interests in the
applicable properties at which time minority interests were sold to an
affiliate.
(d) Includes the CIP(R)real estate interests acquired in the September 1,
2004 merger.
(e) The Company acquired its interest in this property during the first
quarter of 2003.
(f) The Company placed into service or acquired its interests in these
properties during the second quarter of 2003.
(g) The Company acquired its interests in these properties during the
third quarter of 2003.
(h) The Company placed into service or acquired its interests in these
properties during the fourth quarter of 2003.
Note 7. Derivative Instrument:
During the nine months ended September 30, 2004, the Company obtained a L12,410
($22,663) variable rate mortgage loan and concurrently 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,
which has a notional amount of $22,175 as of September 30, 2004 and a term
ending February 2014, is a derivative instrument designated as a cash flow
hedge. The Company's objective in using derivatives is to limit its exposure to
interest rate movements. To accomplish this objective, the Company has used
interest rate swaps as part of its cash flow hedging strategy. At September 30,
2004, the interest rate swap had a fair value of $49 and was included in other
assets. The change in net unrealized gains of $387 and $49 for the three and
nine month periods ended September 30, 2004, respectively, for this cash flow
hedge is included in accumulated other comprehensive income in shareholders'
equity.
Note 8. Intangible Assets:
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other
Intangibles," addresses the accounting for goodwill and intangible assets
subsequent to their acquisition. SFAS No. 142 provides intangible assets
acquired and liabilities assumed in business combinations are only amortized if
such assets and liabilities are capable of being separated or divided and sold,
transferred, licensed, rented or exchanged or arise from contractual or legal
rights (including leases), and are amortized over their useful lives.
In connection with its acquisition of properties, including properties acquired
from CIP(R), the Company has recorded net lease intangibles of $217,796, which
are being amortized over periods ranging from 6 years and 5 months to 40 years.
Amortization of below-market and above-market rent intangibles is recorded as an
adjustment to revenue.
Intangible assets are summarized as follows:
September 30, 2004 December 31, 2003
------------------ -----------------
Lease intangibles
In-place lease $ 136,933 $ 19,958
Tenant relationship 27,938 10,236
Above-market rent 71,494 3,081
Less: accumulated amortization (4,183) (533)
------------------ -----------------
$ 232,182 $ 32,742
------------------ -----------------
Below-market rent $ (18,569) $ (7,338)
Less: accumulated amortization 378 172
------------------ -----------------
$ (18,191) $ (7,166)
================== =================
-10-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Amounts in thousands, except share and per share amounts)
Amortization of intangibles was $2,007 and $1,727 for the three-month periods
ended September 30, 2004 and 2003, respectively, and $3,438 and $1,727 for the
nine-month periods ended September 30, 2004 and 2003, respectively. Scheduled
amortization of intangibles for each of the next five years is $16,022 annually.
Note 9. Commitments and Contingencies:
As of September 30, 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 Broker-Dealer Inspection Program
("Inspection Staff") of the Securities and Exchange Commission ("Commission"),
the Company was notified that Carey Financial had received a letter on or about
March 4, 2004 from the Inspection Staff 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 stated that it was for the purpose of requiring Carey
Financial to take corrective action, it contained allegations against both Carey
Financial and the Company.
In the March 4, 2004 letter, the Inspection Staff alleged that in connection
with public offerings of shares of the Company between September 2002 and March
2003 for which Carey Financial served as the dealer manager, the Company, Carey
Financial and its retail distributors sold certain securities without an
effective registration statement. Specifically, the Inspection Staff alleged
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 on March 19, 2003. The Inspection Staff claimed that
these sales were 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
(rescission). If the Company is required to offer rescission, or elects
voluntarily to offer rescission, it cannot be determined how many of the
affected shareholders would decide to accept rescission. Thus, the Company
cannot predict the potential effect a rescission offer may have on the
operations of the Company. There can be no assurance that 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 Inspection Staff also alleged in the March 4, 2004 letter 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 Inspection Staff
claimed that the failure to disclose the advances constituted 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 Inspection Staff also alleged in the March 4, 2004 letter 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 Inspection Staff asserted
that the payment of dividends to the Phase II shareholders resulted in
significantly higher annualized rates of return than were 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 Inspection Staff claimed 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
-11-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Amounts in thousands, except share and per share amounts)
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 the
Company 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.
Commencing in June 2004, the Company, Carey Financial, and W. P. Carey & Co. LLC
have received subpoenas from the staff of the Division of Enforcement of the
Commission ("Enforcement Staff") seeking information relating to, among other
things, the events and issues addressed in the March 4, 2004 letter. The
Company, Carey Financial, and W. P. Carey & Co. LLC have provided information to
the Enforcement Staff in response to the subpoenas and are cooperating with the
Enforcement Staff. It cannot be determined at this time what action, if any, the
Enforcement Staff will pursue or what relief or remedies the Enforcement Staff
may seek. There can be no assurance that the effect of the investigation by the
Enforcement Staff and any action, relief, or remedies sought by the Enforcement
Staff would not be material.
Note 10. Pro Forma Financial Information:
The following consolidated pro forma financial information has been presented as
if the merger of CIP(R) into the Company had occurred on January 1, 2004 and
2003 for the three-month and nine-month periods ended September 30, 2004 and
2003, respectively. In Management's opinion, all adjustments necessary to
reflect the merger and the related issuance of common stock of the Company have
been made. The pro forma financial information is not necessarily indicative of
what the actual results would have been, nor does it purport to represent the
results of operations for future periods.
Three Months Ended September 30,
--------------------------------
2004 2003
---- ----
Pro forma total revenues $53,003 $ 32,780
Pro forma net income (loss) 14,801 (14,273)
Pro forma earnings (loss) per share:
Basic and diluted $ .12 $ (.12)
Nine Months Ended September 30,
-------------------------------
2004 2003
---- ----
Pro forma total revenues $139,014 $89,810
Pro forma net income 44,882 6,923
Pro forma earnings per share:
Basic and diluted $ .36 $ .08
The pro forma net income and earnings per share figures for both the three and
nine-month periods ended September 30, 2003 presented above include a
non-recurring, non-cash impairment loss on real estate of $24,000, a gain on
foreign currency transactions of $199 and a gain on sale of real estate in the
nine-month period ended September 30, 2003 of $961. The pro forma net income and
earnings per share figures for the three and nine-month periods ended September
30, 2004 presented above include gains on foreign currency transactions of $416
and $2,153, respectively, and the nine-month period ended September 30, 2004
includes a loss on sale of real estate of $48.
Note 11. Subsequent Events:
During October 2004, the Company obtained $54,900 of limited recourse mortgage
financing on the following properties:
Property Amount of Financing Interest Rate Maturity
-------- ------------------- ------------- -------------
Berry Plastics Corp. $ 21,200 5.54% November 2024
UTI-- California (1) 14,000 6.27% November 2019
Sportsrack LLC 7,400 5.63% November 2024
Plumbmaster, Inc. 6,300 5.54% November 2024
Gaylans Trading Company, Inc. 6,000 7.78% October 2024
(1) A balloon payment is scheduled at the maturity date.
-12-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Amounts in thousands, except share and per share amounts)
Note 12. Accounting Pronouncements:
In December 2003, the FASB issued Interpretation No. 46(R), "Consolidation of
Variable Interest Entities" ("FIN 46(R)"), 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"). FIN 46(R) 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(R) requires
additional disclosures. The adoption of FIN 46(R) 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 one limited partnership that
is consolidated and has 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 September 30, 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.
-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)
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 of September 30, 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.
EXECUTIVE OVERVIEW
How CPA(R):15 Earns Revenue
The primary source of CPA(R):15's revenues are earned from leasing real estate.
CPA(R):15 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):15 with a primary focus on the
ability to generate cash flow necessary to meet its 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 have no impact on cash flow and on 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):15's potential for generating cash flow is
based on long-term assessments.
Current Developments and Trends
If 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 periodic stated rent
increases that are intended to help protect our investors against potential
future inflation and may allow CPA(R):15 to continue to increase its dividend.
Management will continue to pursue its objectives through long-term transactions
and diversifying 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 an
increase in the value of the existing portfolio and that any increase may not be
reflected in its financial statements.
-14-
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)
For the nine months ended September 30, 2004, cash flow generated from
operations and equity investments were not 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):15's properties. Refer to the "Operating Activities" section
of Financial Condition below for further analysis. Management expects, based on
its current assessments 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):15 has cash balances of $77,628 as of
September 30, 2004 which can be used for working capital needs, future real
estate purchases and other commitments.
Current developments include:
On September 1, 2004, CPA(R):15 completed its merger with Carey Institutional
Properties Incorporated ("CIP(R)"). Under the terms of the merger, CPA(R):15 is
the surviving company. Subsequent to the approval of the merger by the
shareholders of both companies, CPA(R):15 paid $140,913 to CIP(R) shareholders
who elected to redeem their interests and issued 17,420,571 shares of common
stock of CPA(R):15 to the remaining CIP(R) shareholders. CPA(R):15 has accounted
for the merger under the purchase method of accounting and the purchase price
has been allocated to assets acquired and liabilities assumed based upon their
fair values. In connection with the merger, CPA(R):15's share of real estate
interests had a fair value of approximately $571,147, determined pursuant to a
third party valuation of CIP(R)'s real estate assets. Certain of the assets
acquired are (i) accounted for under the equity method or (ii) consolidated with
the noncontrolling interests of affiliates reflected as minority interests. All
of the properties acquired have remaining lease terms of more than eight years,
with most of the leases providing for renewal terms. A summary of the real
estate interests acquired is as follows:
Current Annual Annual Debt Current Annual
Contractual Rent(1) Service (1) Cash Flow
------------------ ----------- --------------
Marriott International, Inc. $ 8,854 $ 6,533 $ 2,321
Omnicom Group, Inc. 3,695 1,532 2,163
Electronic Data Systems Corporation 3,180 1,371 1,809
Information Resources, Inc. 3,288 1,551 1,737
Best Buy Co., Inc. 3,206 1,591 1,615
UTI Holdings, Inc. 1,797 290 1,507
Advanced Micro Devices, Inc. 3,259 1,983 1,276
Bell Sports, Inc. 1,215 - 1,215
Del Monte Corporation 1,478 531 947
ShopRite Supermarkets, Inc. 1,870 946 924
Detroit Diesel Corporation 908 - 908
Custom Foods Products, Inc. 917 25 892
Electronics Assembly Corp. 1,358 485 873
Q Clubs, Inc. 1,483 700 783
Compucom Systems, Inc. 1,408 663 745
The Upper Deck Company, Inc. 1,452 720 732
New WAI. L.P./Warehouse Associates 1,654 948 706
Barnes & Noble, Inc. 1,476 775 701
Merit Medical Systems, Inc. 1,465 814 651
Societe Hoteliere Tourisme Grand Noble (2) 897 338 559
Humco Holding Group, Inc. 875 381 494
Garden Ridge, Inc. 1,654 1,165 489
Childtime Childcare, Inc. 1,617 1,133 484
Oshman Sporting Goods, Inc. 479 - 479
Kroger Co. 476 - 476
PSC Scanning, Inc. 927 477 450
New Wave Logistics (UK) Ltd. (2) 681 341 340
Petsmart, Inc. 535 269 266
Superior Telecommunications Inc. 669 403 266
ISA International plc (2) 705 450 255
Cognitive Solutions, Inc. 206 298 (92)
------------------ ----------- --------------
$ 53,684 $ 26,713 $ 26,971
================== =========== ==============
-15-
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)
(1) Amounts represent CPA(R):15's proportional ownership, which ranges
from 33.33% to 100%.
(2) These companies conduct business in foreign currencies, and as a
result, rents and debt service are subject to fluctuations in foreign
currency exchange rates.
CPA(R):15 has provided information to the Staff of the Division of Enforcement
in response to subpoenas received during the second quarter of 2004 in
connection with an examination by the staff of the Broker-Dealer Program of the
Securities and Exchange Commission (See Note 9 of the accompanying condensed
consolidated financial statements).
In September 2004, the Board of Directors of CPA(R):15 approved and increased
the third quarter dividend to $.15796 per share payable on October 15, 2004 to
shareholders of record as of September 30, 2004.
On July 8, 2004, CPA(R):15 and Corporate Property Associates 16-Global
Incorporated ("CPA(R):16-Global") with 60% and 40% interests, respectively,
purchased two properties in Finland for E78,734 ($97,370 based on the exchange
rate as of the date of acquisition, of which CPA(R):15's share is $58,422) and
entered into two net leases with TietoEnator plc. Both leases have an initial
term of 12.5 years at an initial aggregate rent of E5,648 ($6,985, of which
CPA(R):15's share is $4,191). Mortgage financing of E57,200 ($70,739, of which
CPA(R):15's share is $42,444) was obtained in connection with the purchase of
the properties.
On July 26, 2004 and August 3, 2004, CPA(R):15 and CPA(R):16-Global with 65% and
35% interests, respectively, purchased five properties in France for E85,356
($103,200, of which CPA(R):15's share is $67,080) and assumed existing leases
with Thales S.A. The leases expire between December 2010 and December 2011 and
each lease has a nine-year renewal option. Annual rent is E8,099 ($9,715, of
which CPA(R):15's share is $6,315). Mortgage financing of E63,500 ($76,835, of
which CPA(R):15's share is $49,973) was obtained in connection with the purchase
of the properties.
Build-to-suit projects for properties leased to UTI Holdings, Inc. in
Pennsylvania, Arizona and California were completed during the third quarter of
2004 and will provide annual rent of $6,409.
During October 2004, the Company secured $54,900 of limited recourse mortgage
financing on several leased properties.
Results of Operations
Lease Revenues - For the comparable quarters ended September 30, 2004 and 2003,
lease revenues (rental income and interest income from direct financing leases)
increased by $22,929 primarily due to $17,671 from 23 new leases entered into
during 2003 and 2004, $3,235 from the properties acquired from CIP(R) on
September 1, 2004 and $2,770 from the completion of several build-to-suit
projects. Fluctuations in foreign currency exchange rates did not have a
significant impact on lease revenues during the third quarter of 2004. These
increases were partially offset by a reduction of $1,377 from the vacancy of a
property in Tulsa, Oklahoma, due to a lease termination in August 2003 by the
Fleming Companies pursuant to their voluntary petition of bankruptcy.
For the comparable nine-month periods ended September 30, 2004 and 2003, lease
revenues increased $50,017 due to the same factors as described above. Leases
that were entered into in 2003 and 2004 contributed $41,481, the completion of
several build-to-suit projects contributed $7,587, the acquired CIP(R)
properties contributed $3,235 and the positive impact of fluctuations in foreign
currency exchange rates contributed $1,380 of the total increase. These
increases were partially offset by a reduction due to the Fleming lease
termination.
During the quarter ended September 30, 2004, CPA(R):15 entered into new net
leases with Thales S.A. and TietoEnator Plc. Aggregate annual lease revenues
related to these new leases are approximately $16,700 (subject to fluctuation in
foreign currency exchange rates). Build-to-suit projects for UTI Holdings Inc.
were completed during the quarter and will generate annual lease revenue of
approximately $6,409. Substantially all of CPA(R):15's leases provide for
periodic rent increases. Rent increases are generally determined by formulas
that are indexed to increases in the Consumer Price Index and comparable foreign
indexes as appropriate. The Fleming lease provided annual lease revenues of
$5,508. CPA(R):15 is aggressively remarketing the former Fleming property.
-16-
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)
The CIP(R) properties are projected to contribute annual lease revenues of
approximately $39,000. Such projected revenues include noncash adjustments for
financial reporting purposes such as recognizing interest income from direct
financing leases at a constant rate of return and amortizing above-market and
below-market rent intangibles.
Other Operating Income -- For the comparable quarters ended September 30, 2004
and 2003, other operating income increased $569 primarily due to an increase in
reimbursable costs from tenants. Such reimbursable costs are recorded as both
income and expense, and, therefore, have no impact on net income.
For the comparable nine-month periods ended September 30, 2004 and 2003, other
operating income increased $2,693. During the nine-month period ended September
30, 2004, other operating income benefited from the forfeiture of Fleming's
$2,754 security deposit to CPA(R):15.
Depreciation and Amortization - For the comparable three and nine-month periods
ended September 30, 2004 and 2003, depreciation and amortization increased
$4,184 and $10,904, respectively. The increase is primarily due to acquisitions
in 2003 and 2004 as well as the completion of several build-to-suit projects.
General and Administrative Expenses -- For the comparable quarters ended
September 30, 2004 and 2003, general and administrative expenses decreased $177
due to a reduction in several general and administrative expenses including
acquisition expenses and investor related service costs and was partially offset
by increased accounting and auditing fees and personnel cost reimbursements.
For the comparable nine-month periods ended September 30, 2004 and 2003, general
and administrative expenses increased $278 primarily due to increased personnel
reimbursement costs and accounting and auditing services which were partially
offset by a reduction in several general and administrative expenses including
acquisition expenses and investor related service costs.
Property Expenses - For the comparable quarters ended September 30, 2004 and
2003, property expenses increased $2,645 primarily due to an increase in asset
management and performance fees of $2,101. The increase in asset management and
performance fees is based primarily on the growth of CPA(R):15's asset base.
Annual asset management and performance fees are projected to increase by
approximately $5,710 as a result of the CIP(R) merger.
For the comparable nine-month periods ended September 30, 2004 and 2003,
property expenses increased $5,760 primarily due to an increase in asset
management and performance fees of $4,652 and increased absorption costs on the
vacant Transworld and Fleming properties of $656. CPA(R):15 is aggressively
remarketing the Transworld and Fleming properties. Annual carrying costs for
both properties approximate $1,550.
Minority Interest in Income - For the comparable three and nine-month periods
ended September 30, 2004 and 2003, minority interest in income increased $1,472
and $3,517, respectively. The increase is primarily due to the acquisitions in
2004 of controlling interests in U-Haul, Thales and TietoEnator, which
contributed $1,196 and $1,747 of the increase for the quarterly and nine-month
periods, respectively. The change in ownership in Carrefour France, SA and
Medica-France, SA, which resulted from the sale of interests to two affiliates,
contributed additional minority interest income of $1,678 for the nine months
ended September 30, 2004.
Income from Equity Investments - For the comparable three and nine-month periods
ended September 30, 2004 and 2003, income from equity investments increased by
$511 and $466, respectively. Equity income on interests acquired from CIP(R)
contributed $372 for both the three and nine-month periods ended September 30,
2004.
Interest Expense -- For the comparable three and nine-month periods ended
September 30, 2004 and 2003, interest expense increased $9,299 and $18,465,
respectively. CPA(R):15's mortgage balances have increased, net of amortizing
debt service payments, by $601,336 in 2004 as a result of financing recent
acquisition activity, placing initial financing on existing properties and the
assumption of CIP(R)'s property-level limited recourse mortgage debt. The
increase in mortgage balances resulted in a corresponding increase in interest
expense for both periods.
Gain on Foreign Currency Transactions -- For the comparable nine-month periods
ended September 30, 2004 and 2003, gain on foreign currency transactions
increased $1,954. Foreign currency gains in the current period primarily
represent cash balances that have been generated from our foreign real estate
investments that have been converted back to U.S. dollars.
-17-
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)
Net Income -- For the quarter and nine-month period ended September 30, 2003,
CPA(R):15 incurred net losses of $19,035 and $7,912, respectively, primarily as
the result of recognizing an impairment charge on the Fleming property. For the
quarter ended September 30, 2004, net income increased by $30,453 to $11,418.
For the nine-month period ended September 30, 2004, net income increased by
$39,436 to $31,524. For both the three and nine-month periods ended September
30, 2004, CPA(R):15 benefited from significant revenue growth as a result of the
completion of several acquisitions, the CIP(R) merger and the completion of
several build-to-suit projects. For the three and nine month periods ended
September 30, 2004, net income increased by $1,423 as a result of the CIP(R)
merger. The revenue growth was partially offset by higher expenses, including
depreciation, interest and property expenses as a result of acquisition
activity.
Financial Condition
Uses of Cash During the Period
Cash and cash equivalents totaled $77,628 as of September 30, 2004, a decrease
of $268,589 from the December 31, 2003 balance. Management believes CPA(R):15
has sufficient cash balances to meet its working capital needs including its
distribution rate. CPA(R):15's use of cash during the period is described below.
Operating Activities - Cash flows from operating activities and distributions
from the operations of equity investments in excess of equity income of $56,805
were not sufficient to fund dividend payments of $49,980, scheduled mortgage
principal payments of $7,885 and distributions to minority interests of $4,139.
Cash used in operating activities included approximately $7,749 of funding
of certain escrow accounts to be held by lenders and VAT deposits, both of which
will be ultimately returned to CPA(R):15 in the ordinary course of business.
Management believes that the annual cash flow from acquisitions completed during
2004, including the interests acquired in the CIP(R) merger, the completion of
several build-to-suit projects and scheduled rent increases will provide
sufficient operating cash flow to fund dividends to shareholders and amounts
payable to mortgage lenders and minority interests. Annual cash flow from the
properties acquired in the CIP(R) merger is projected to amount to $26,971.
Additionally, the interest acquired in the mortgage loan securitization in
connection with the merger is projected to provide annual cash flow of
approximately $1,540.
Investing Activities - CPA(R):15's investing activities are generally comprised
of real estate purchases and payment of its annual installment of deferred
acquisition fees. CPA(R):15 used $671,917 for real estate purchases and to fund
build-to-suit projects in 2004, of which $314,646 relates to the U-Haul
transaction, $101,682 relates to the Thales transaction, $96,397 relates to the
TietoEnator transaction, and $31,816 relates to the Shaklee transaction. In
connection with the CIP(R) merger, CPA(R):15 used $140,913 to purchase CIP(R)
shares and $90,913 to pay final dividend distributions that were declared to
CIP(R) shareholders prior to completion of the merger but had not been paid as
of September 1, 2004. CPA(R):15 also acquired cash of $86,626 as part of the
merger. During the period, CPA(R):15 purchased $17,782 in short-term investments
(i.e., money-market type investments with maturities of more than 90 days but
less than one year) and redeemed $55,615 for a net decrease of $37,833. Cash
receipts during the period included $5,132 from the recovery of VAT taxes and
$5,786 from the sale of real estate.
Financing Activities -- In addition to making scheduled mortgage principal
payments, paying dividends to shareholders and making distributions to minority
partners, CPA(R):15 obtained $418,862 in mortgage loans to finance acquisitions
in 2004 and received $76,709 from minority partners related to the U-Haul,
Thales and TietoEnator transactions. During the period CPA(R):15 also obtained
$15,818 as a result of issuing shares through its Distribution Reinvestment and
Share Purchase Plan, and used $2,860 to purchase treasury shares. In connection
with the CIP(R) merger, CPA(R):15 assumed limited recourse mortgage debt of
$205,572 (with a fair value on the date of acquisition of $202,246). Annual debt
service on the assumed limited recourse mortgage debt amounts to $26,713.
Currently, the majority of CPA(R):15's mortgages are limited recourse and bear
interest at fixed rates, including a loan which has a fixed rate as the result
of entering into an interest rate swap agreement. Accordingly, CPA(R):15's cash
flow should not be adversely affected by increases in interest rates which are
near historical lows. However, financings on future acquisitions will likely
bear higher rates of interest. A lender on limited recourse mortgage debt has
recourse only to the property collateralizing such debt and not to any of
CPA(R):15's other assets, while unsecured financing would give a lender recourse
to all of CPA(R):15's assets. The use of limited recourse debt, therefore, will
allow CPA(R):15 to limit its exposure of all of its assets to any one debt
obligation. Management believes that the strategy of combining equity and
limited recourse mortgage debt will allow CPA(R):15 to meet its short-term and
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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)
long-term liquidity needs and will help to diversify CPA(R):15's portfolio and,
therefore, reduce concentration of risk in any particular lessee.
Cash Resources
As of September 30, 2004, CPA(R):15 has $77,628 in cash and cash equivalents
which can be used for working capital needs, future real estate purchases,
distributions and other commitments. In addition, debt may be incurred on
unleveraged properties with a carrying value of $188,145 as of September 30,
2004 and any proceeds may be used to finance future real estate purchases.
During October 2004, CPA(R):15 secured $54,900 of limited recourse mortgage
financing on several leased properties.
Cash Requirements
During the next twelve months, cash requirements will include scheduled mortgage
principal payment installments (CPA(R):15 has no mortgage balloon payments
scheduled until October 2008), paying dividends to shareholders, making
distributions to minority partners as well as other normal recurring operating
expenses. CPA(R):15 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
as described above, 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):15 expects to have
sufficient cash flow to continue increasing the distribution rate to its
shareholders. Distributions are determined by management's long-term assessments
of cash flow.
Other Matters
CPA(R):15 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):15's results of operations for the current
quarter; however, such gains and losses may cause fluctuations in the results of
operations. CPA(R):15 is subject to foreign currency exchange rate risk from the
effects of changes in foreign currency exchange rates. CPA(R):15 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.
Off-Balance Sheet Arrangements, Guarantees and Aggregate Contractual Agreements:
A summary of CPA(R):15's contractual obligations and commitments as of September
30, 2004 is as follows:
(in thousands) Total 2004 2005 2006 2007 2008 Thereafter
---------- ---------- ---------- ---------- ---------- ---------- ----------
Obligations:
Limited recourse mortgage
notes payable (1) $1,197,359 $ 5,347 $ 21,402 $ 23,353 $ 25,547 $ 27,784 $1,093,926
Deferred acquisition fees 34,590 -- 6,001 9,461 9,461 6,208 3,459
Commitments:
Build-to-suit obligations 26,733 14,037 12,696 -- -- -- --
Share of minimum rents
payable under office
cost-sharing agreement 11,685 122 727 825 974 974 8,063
---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,270,367 $ 19,506 $ 40,826 $ 33,639 $ 35,982 $ 34,966 $1,105,448
========== ========== ========== ========== ========== ========== ==========
(1) The limited recourse mortgage notes payable were obtained in connection
with the acquisition of properties in the ordinary course of business.
-19-
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, which may affect CPA(R):15's ability to
refinance its debt when balloon payments are scheduled.
Substantially all of CPA(R):15's long-term debt of $1,197,359 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.
The fair value of these instruments is affected by changes in market interest
rates. The following table presents principal cash flows based upon expected
maturity dates of the debt obligations and the related weighted-average interest
rates by expected maturity dates for the fixed rate debt. The interest rate on
the fixed rate debt as of September 30, 2004 ranged from 5.09% to 10.00%. The
interest rate on the variable rate debt as of September 30, 2004 was 3.56%.
2004 2005 2006 2007 2008 Thereafter Total Fair Value
------ ------- ------- ------- ------- ---------- ---------- ----------
Fixed rate debt $5,302 $21,191 $23,112 $25,245 $27,482 $1,085,088 $1,187,420 $1,186,257
Average interest
rate 6.34% 6.28% 6.24% 6.22% 6.20% 6.30%
Variable rate debt $ 45 $ 211 $ 241 $ 302 $ 302 $ 8,838 $ 9,939 $ 9,939
Changes in interest rates would not have a significant effect on annual interest
expense as substantially 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. A change in interest rates of 1% would impact the fair
value of CPA(R):15's fixed rate debt at September 30, 2004 by approximately
$47,800.
CPA(R):15 conducts business in France, Germany, Belgium, Finland 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 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.
The Co-Chief Executive Officers and Chief Financial Officer of the Company have
conducted a review of the Company's disclosure controls and procedures as of
September 30, 2004.
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.
There have been no changes during the most recent fiscal quarter in the
Company's internal control over financial reporting that have materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
-20-
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.
Commencing in June 2004, the Company, Carey Financial, and W. P. Carey & Co. LLC
received subpoenas from the staff of the Division of Enforcement of the
Commission ("Enforcement Staff") seeking information relating to, among other
things, the events and issues addressed in the March 4, 2004 letter. The
Company, Carey Financial, and W. P. Carey & Co. LLC have provided information to
the Enforcement Staff in response to the subpoenas and are cooperating with the
Enforcement Staff. (See Note 9 of the accompanying condensed consolidated
financial statements.)
Item 2.-- UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS
(a) For the three and nine-month periods ended September 30, 2004,
164,847 and 435,353 shares, respectively, were issued to the
Advisor as consideration for performance fees and 789,943 and
1,647,058 shares, respectively, were issued pursuant to the
Company's Distribution Reinvestment and Share Purchase Plan.
Shares were issued at $10.00 per share.
(c) Issuer Purchases of Equity Securities
Total Number of Shares Purchased
Total Number of Average Price as Part of Publicly Announced
Period Shares Purchased Paid Per Share Plans 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
April 1, 2004 -- April 30, 2004 25,461 9.00 N/A
May 1, 2004 -- May 31, 2004 87,639 9.00 N/A
June 1, 2004 -- June 30, 2004 6,516 9.00 N/A
July 1, 2004 -- July 31, 2004 1,000 9.00 N/A
August 1, 2004 -- August 31, 2004 117,227 9.00 N/A
September 1, 2004 -- September 30, 2004 4,500 9.00 N/A
----------------
Total 317,552
================
(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
Distribution Reinvestment and Share Purchase 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
On August 24, 2004, a special meeting of the shareholders of CPA(R):15 was held
for the sole purpose of approving the acquisition by CPA(R):15 of Carey
Institutional Properties Incorporated ("CIP(R)"), another non-traded REIT
managed by the Company's Advisor, whereby CIP(R) would be a wholly owned
subsidiary of CPA(R):15. Holders of 58,637,108 shares (55%) of CPA(R):15 voted
in favor of the merger, holders of 1,911,142 shares (2%) voted against the
merger and holders of 46,131,028 shares (43%) abstained from voting. Holders of
a majority of the outstanding shares of CPA(R):15 were required to approve the
merger. At a meeting held on the same day, the shareholders of CIP(R) also
approved the merger. The merger was consummated on September 1, 2004.
-21-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
Item 6. - 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
-22-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
11/5/2004 By: /s/ John J. Park
------------- ----------------------------------
Date John J. Park
Managing Director and
Chief Financial Officer
(Principal Financial Officer)
11/5/2004 By: /s/ Claude Fernandez
------------- ----------------------------------
Date Claude Fernandez
Managing Director and
Chief Accounting Officer
(Principal Accounting Officer)
-23-