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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
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: 001-32162
----------------
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 80-0067704
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
50 ROCKEFELLER PLAZA 10020
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBERS:
INVESTOR RELATIONS (212) 492-8920
(212) 492-1100
----------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed 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. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Registrant has 56,234,806 shares of common stock, $.001 par value
outstanding at May 4, 2005.
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
INDEX
Page No.
--------
PART I
Item 1. - Financial Statements*
Condensed Consolidated Balance Sheets, as of March 31, 2005 and December 31, 2004 2
Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2005
and 2004 3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 4
Notes to Condensed Consolidated Financial Statements 5 - 8
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14
Item 3. - Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. - Controls and Procedures 16
PART II - Other Information
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 4. - Submission of Matters to a Vote of Security Holders 17
Item 5. - Other Information 17
Item 6. - Exhibits 17
Signatures 18
* 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 statement of
such financial statements have been included.
1
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
PART I
Item 1. - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands except share and per share amounts)
March 31, 2005 December 31, 2004
(Note)
-------------- -----------------
ASSETS:
Real estate leased to others:
Accounted for under the operating method:
Land $ 62,380 $ 17,318
Buildings 178,161 41,779
--------- ---------
240,541 59,097
Less, accumulated depreciation 1,076 443
--------- ---------
239,465 58,654
Net investment in direct financing leases 94,728 97,102
Real estate under construction 10,416 9,994
Mortgage notes receivable 29,867 20,291
Cash and cash equivalents 202,952 217,310
Short-term investments 15,432 9,753
Equity investments 75,836 65,964
Marketable securities 5,000 69,900
Funds in escrow 11,014 22,922
Intangible assets, net of accumulated amortization of $429 at March 31, 2005 and
$123 at December 31, 2004 52,050 5,614
Due from affiliates 1,707 --
Deferred offering costs 2,918 3,080
Other assets 11,686 4,928
--------- ---------
Total assets $ 753,071 $ 585,512
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Limited recourse mortgage notes payable $ 217,047 $ 97,691
Accrued interest 960 298
Prepaid rental income and security deposits 11,730 3,737
Other deposits 2,397 2,458
Due to affiliates 4,956 4,399
Dividends payable 6,932 5,353
Deferred acquisition fees payable to affiliate 11,697 7,535
Accounts payable and accrued expenses 1,232 833
--------- ---------
Total liabilities 256,951 122,304
--------- ---------
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, $.001 par value; authorized 110,000,000 shares; 55,912,159 and
51,426,720 shares issued and outstanding at March 31, 2005 and December 31, 2004 56 51
Additional paid-in capital 504,042 465,292
Accumulated other comprehensive income 1,294 4,053
Dividend in excess of accumulated earnings (9,272) (6,188)
--------- ---------
Total shareholders' equity 496,120 463,208
--------- ---------
Total liabilities and shareholders' equity $ 753,071 $ 585,512
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The balance sheet at December 31, 2004 has been derived from the audited
consolidated financial statements at that date.
2
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS of OPERATIONS (Unaudited)
(in thousands except share and per share amounts)
Three Months Ended
March 31, 2005 March 31, 2004
-------------- --------------
Revenues:
Rental income $ 3,887 $ --
Interest income from direct financing leases 1,927 --
Interest income on mortgage receivable 563
Other operating income 66 --
------------ ------------
6,443 --
------------ ------------
Operating expenses:
Depreciation and amortization $ 892 $ --
General and administrative 908 127
Property expenses 1,369 --
------------ ------------
3,169 127
------------ ------------
Income (loss) before other interest income, equity investments, gains and losses, and
interest expense 3,274 (127)
Other interest income 1,501 94
Income from equity investments 1,277 --
Loss on foreign currency transactions and derivative instrument, net (166) --
Interest expense (2,042) --
------------ ------------
Net income (loss) $ 3,844 $ (33)
============ ============
Basic earnings (loss) per share $ 0.07 $ (0.01)
============ ============
Weighted average shares outstanding - basic 55,447,733 3,321,413
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS of COMPREHENSIVE INCOME (LOSS)(Unaudited)
(in thousands except share and per share amounts)
Three Months Ended
March 31, 2005 March 31, 2004
-------------- --------------
Net income (loss) $ 3,844 $ (33)
Other comprehensive income:
Change in foreign currency translation adjustment (2,759) -
------- -------
Comprehensive income (loss) $ 1,085 $ (33)
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS (Unaudited)
(in thousands except share and per share amounts)
Three Months Ended March 31,
----------------------------
2005 2004
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 3,844 $ (33)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of intangible assets and deferred financing costs 903 --
Gain on foreign currency transactions, net (35) --
Unrealized loss on foreign currency transactions, net 129 --
Unrealized loss on derivative instrument 72 --
Equity income in excess of distributions received (199) --
Issuance of shares in satisfaction of current management fees 395 --
Straight-line rent adjustments and amortization of rent related intangibles (232) --
Increase in due from affiliates 719 30
Increase in accrued interest 669 --
Increase in due to affiliates (a) (1,707) --
Increase in accounts payable and accrued expenses 338 55
Increase in prepaid rent and security deposits 1,671 --
Decrease in funds in escrow 745 --
Net change in other operating assets and liabilities (162) --
--------- ---------
Net cash provided by operating activities 7,150 52
--------- ---------
Cash flows from investing activities:
Distributions received from equity investments in excess of equity income 387 --
Contributions to equity investments (76) --
Purchase of short term investments (5,616) --
Purchase of securities (17,625) --
Proceeds from sale of securities 82,525 --
Purchase of mortgage note receivable (12,778) --
Funds held in escrow for acquisition of real estate (4,753) --
Release of funds held in escrow for acquisition of real estate and equity investments 12,371 --
Acquisition of real estate and equity investments (c) (230,039) (2)
--------- ---------
Net cash used in investing activities (175,604) (2)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of stock, net of costs of raising capital $ 38,360 $ 78,430
Proceeds from mortgages (b) 121,540 --
Payment of financing costs and mortgage financing deposits, net of deposits refunded (3) --
Mortgage principal payments (391) --
Dividends paid (5,348) --
--------- ---------
Net cash provided by financing activities 154,158 78,430
--------- ---------
Effect of exchange rate changes on cash (62) --
--------- ---------
Net increase in cash and cash equivalents (14,358) --
Cash and cash equivalents, beginning of period 217,310 170
--------- ---------
Cash and cash equivalents, end of period $ 202,952 $ 78,650
========= =========
(a) Increase in due to affiliates excludes amounts related to the
raising of capital (financing activities) pursuant to the Company's
initial public offering. At March 31, 2005 and 2004, the amount due to the
Company's advisor for such costs was $2,918 and $1,753, respectively.
(b) Net of $125 retained by mortgage lenders during the three-month
period ended March 31, 2005.
(c) Included in the cost basis of real estate investments acquired
during the three-month period ended March 31, 2005 are deferred
acquisition fees payable of $4,162.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share amounts)
NOTE 1. BASIS OF PRESENTATION:
Corporate Property Associates 16 - Global Incorporated (the "Company") is a Real
Estate Investment Trust ("REIT") that invests in commercial and industrial
properties leased to companies domestically and internationally. As a REIT, the
Company is not subject to federal income taxation as long as it satisfies
certain requirements relating to the nature of its income, the level of its
distributions and other factors. The accompanying unaudited condensed
consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Article
10 of Regulation S-X of the United States Securities and Exchange Commission
("SEC"). 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 adjustments) considered necessary
for a fair statement of the results of the interim periods presented have been
included. The results of operations for the interim periods are not necessarily
indicative of results for the full year. 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, 2004.
Dividend
Dividends declared per share for the three-month periods ended March 31, 2005
and 2004 were $.12501 and $.11247, respectively.
NOTE 2. ORGANIZATION AND OFFERING:
The Company commenced its initial public offering of up to 110,000,000 shares of
common stock at a price of $10 per share in December 2003. The initial offering
was conducted on a "best efforts" basis by Carey Financial Corporation ("Carey
Financial"), a wholly-owned subsidiary of the Company's advisor, W. P. Carey and
Co. LLC (the "Advisor"), and selected other dealers. The Company sold 55,332,415
shares of common stock in its initial offering before suspending sales
activities on December 30, 2004. The Company formally terminated the initial
offering in March 2005 by filing an amendment to the registration statement for
its initial offering, to deregister shares of its common stock that remained
unissued as of March 8, 2005, excluding shares issuable under its Distribution
Reinvestment and Share Purchase Plan (the "Plan").
In September 2004, the Company filed a registration statement with the SEC for a
second offering of up to 80,000,000 shares of common stock at a price of $10 per
share plus an additional 40,000,000 shares issuable under the Plan. This
registration statement has not yet been declared effective.
NOTE 3. TRANSACTIONS WITH RELATED PARTIES:
Pursuant to an advisory agreement between the Company and its Advisor, the
Advisor performs certain services for the Company including the identification,
evaluation, negotiation, purchase and disposition of property, the day-to-day
management of the Company and the performance of certain administrative duties.
The advisory agreement between the Company and the Advisor provides that the
Advisor will receive an asset management fee. The fee is 1% of average invested
assets as defined in the advisory agreement, 1/2 of which is subordinated to the
preferred return, a non-compounded cumulative distribution return of 6% (the
"performance fee"). As of March 31, 2005, the non-compounded cumulative
distribution return was 4.78%. The asset management and performance fees will be
payable in cash or restricted stock at the option of the Advisor. For 2005, the
Advisor has elected to receive its management fee in restricted shares of common
stock of the Company rather than cash. In connection with the day-to-day
operations, the Advisor is also reimbursed for the actual cost of personnel
needed to provide administrative services to the operation of the Company. For
the three-month period ended March 31, 2005, the Company incurred asset
management fees of $637, with performance fees in like amounts, which are
included in property expenses in the accompanying condensed consolidated
financial statements. For the three months ended March 31, 2005, the Company
incurred personnel reimbursements of $79 which are included in general and
administrative expenses in the accompanying condensed consolidated financial
statements. No such asset management and performance fees nor personnel cost
reimbursements were incurred in the three months ended March 31, 2004.
5
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands except share and per share amounts)
In connection with structuring and negotiating acquisitions and related mortgage
financing on behalf of the Company, the Advisory Agreement provides for
acquisition fees averaging not more than 4.5%, based on the aggregate cost of
properties acquired, of which 2% will be deferred and payable in equal annual
installments over three years with payment subordinated to the performance fee.
Unpaid installments bear interest at an annual rate of 5%. For transactions that
were completed during the three-month period ended March 31, 2005, current and
deferred acquisition fees were $5,201 and $4,162, respectively, and were paid or
payable to the Advisor. When a real estate acquisition is completed, the Company
pays the Advisor an acquisition expense allowance of 0.5% of the cost of the
properties in consideration for the Advisor's payment of certain acquisition
expenses. For the three-month period ended March 31, 2005, the allowance was
$1,427. There were no current and deferred acquisition fees and no acquisition
expense allowance incurred in the three months ended March 31, 2004.
NOTE 4. COMMITMENTS AND CONTINGENCIES:
The Company is liable for certain expenses of offerings of its securities
including filing, legal, accounting, printing and escrow fees, which are to be
deducted from the gross proceeds of the offerings. The Company reimburses Carey
Financial or one of its affiliates for expenses (including fees and expenses of
its counsel) and for the costs of any sales and information meetings of Carey
Financial's employees or those of one of its affiliates relating to the
Company's securities offerings. Total underwriting compensation with respect to
any offering may not exceed 10% of gross proceeds of such offering. The Advisor
has agreed to be responsible for the payment of (i) organization and offering
expenses (excluding selling commissions to Carey Financial with respect to
shares sold by selected dealers) which exceed 4% of the gross proceeds of each
offering and (ii) organization and offering expenses (including selling
commissions, fees paid and expenses reimbursed to selected dealers) which exceed
15% of the gross proceeds of each offering. The total costs paid by the Advisor
in connection with offerings of the Company's securities were $13,445 through
March 31, 2005, of which the Company has reimbursed $10,527. Unpaid costs are
included in due to affiliates in the accompanying condensed consolidated
financial statements.
As previously reported, the Advisor and Carey Financial, the wholly-owned
broker-dealer subsidiary of the Advisor, are currently subject to an SEC
investigation into payments made to third party broker dealers in connection
with the distribution of REITs managed by the Advisor and other matters.
Although no regulatory action has been initiated against the Advisor or Carey
Financial in connection with the matters being investigated, it is possible that
the SEC may pursue an action in the future. The potential timing of any such
action and the nature of the relief or remedies the SEC may seek cannot be
predicted at this time. If such an action is brought, it could materially affect
the Advisor and the REITs managed by the Advisor.
NOTE 5. EQUITY INVESTMENTS:
On April 29, 2004, the Company, along with two affiliates, Corporate Property
Associates 14 Incorporated and Corporate Property Associates 15 Incorporated
("CPA(R):15"), through a limited partnership in which the Company owns a 30.77%
limited partnership interest, purchased 78 retail self-storage and truck rental
facilities and entered into master lease agreements with two lessees that
operate the facilities under the U-Haul brand name. The self-storage facilities
are leased to Mercury Partners, LP and the truck rental facilities are leased to
U-Haul Moving Partners, Inc.
Summarized financial information of the limited partnership is as follows:
March 31, 2005 December 31, 2004
-------------- -----------------
Assets (primarily real estate) $ 349,029 $ 350,882
Liabilities (primarily mortgage notes payable) (218,807) (219,753)
--------- ---------
Partners' and members' equity $ 130,222 $ 131,129
========= =========
Company's share of equity investees' net assets $ 40,311 $ 40,596
========= =========
Three Months Ended
March 31, 2005
------------------
Revenues (primarily rental income) $ 7,135
Expenses (primarily interest on mortgages and depreciation) (4,598)
-------
Net income $ 2,537
=======
Company's share of net income from equity investments $ 775
=======
The Company also owns interests in single-tenant net leased properties leased to
corporations through noncontrolling interests in partnerships and limited
liability companies in which its ownership interests are 50% or less and the
Company exercises significant
6
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands except share and per share amounts)
influence. The underlying investments are owned with affiliates that have
similar investment objectives as the Company. The ownership interests range from
35% to 50%. The lessees are Actuant Corporation, Pohjola Non-Life Insurance
Company, TietoEnator Plc. and Thales S.A. The interest in Pohjola was acquired
in January 2005.
Summarized financial information of the above mentioned equity investees are as
follows:
March 31, 2005 December 31, 2004
-------------- -----------------
Assets (primarily real estate) $ 346,182 $ 249,920
Liabilities (primarily mortgage notes payable) (257,231) (185,665)
--------- ---------
Partners' and members' equity $ 88,951 $ 64,255
========= =========
Company's share of equity investees' net assets $ 35,525 $ 25,368
========= =========
Three Months Ended
March 31, 2005
------------------
Revenues (primarily rental income and interest income from direct financing leases) $ 6,951
Expenses (primarily interest on mortgages and depreciation) (5,718)
-------
Net income $ 1,233
=======
Company's share of net income from equity investments $ 502
=======
NOTE 6. ACQUISITIONS OF REAL ESTATE:
A summary of properties (real estate accounted for under the operating method
and net investment in direct financing leases), equity investments and mortgage
notes receivable acquired in the quarter ended March 31, 2005 follows. These
investments have previously been described in the Company's Annual Report on
Form 10-K for the year ended December 31, 2004.
Properties Acquired
Initial Annual
Contractual Mortgage Annual Debt Date
Lease Obligor(s): Cost Location Rent Financing Service Acquired
- -------------------------------- ------------ ------------------- -------------- --------- ------------ ---------
HMS Healthcare, Inc. $ 18,732 Southfield, MI $ 1,228 $ - $ - 1/3/2005
Clean Earth Kentucky, LLC 7,366 Cynthiana, KY 711 4,550 393 1/14/2005
Precise Technology Group, 16,469 Buffalo Grove, IL 1,448 - - 1/18/2005
Inc.
LFD Manufacturing Limited 23,689 Lamlukka and 1,495 11,440 900 1/28/2005
and IDS Logistics Bangpa-In, Thailand
(Thailand) Limited (1) (2)
Finisar Corporation 29,292 Sunnyvale, CA and 2,951 17,000 1,457 2/4/2005
Allen, TX
MetalsAmerica, Inc. 7,437 Shelby, NC 651 4,000 339 2/9/2005
PolyPipe, Inc. 8,714 Frenley, NV; 787 5,000 447 2/25/2005
Gainesville, TX;
Sandersville, GA
and Erwin, TN
Telcordia Technologies, Inc. (4) 116,908 Piscataway, NJ 8,913 79,686 4,436 3/15/2005
Equity Investments Acquired
Initial Annual
Contractual Mortgage Annual Debt Date
Lease Obligor: Cost Location Rent Financing Service Acquired
- -------------------------- ------------ ----------------- -------------- ------------ ----------- --------
Pohjola Non-Life Insurance $ 45,542 Helsinki, Finland $ 3,251 $ 33,865 $ 1,712 1/3/2005
Company (1) (3)
(1) Based on the applicable exchange rate on the dates of acquisition.
7
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands except share and per share amounts)
(2) The Company is committed to funding expansions at these properties, at the
option of the lessees, in an amount up to $6,057. In the event the
expansions take place, the Company has the ability to increase its
borrowing under the loan facility by $3,900 at substantially the same
terms as the original borrowing.
(3) Amounts shown represent the Company's proportionate 40% share. The
remaining interest is owned by an affiliate.
(4) Annual debt service increases to $5,578 in year three.
Mortgage Notes Receivable Acquired
In January 2005, the Company originated a $54,000 mortgage collateralized by
distribution and storage facilities of Reyes Holdings L.L.C. The mortgage was
originated as a 10-year loan with a 25-year amortization schedule, bearing
interest at a fixed rate of approximately 6.34%. The Advisor arranged for the
syndication of the first $41,260 in the form of an A-note, bearing interest at a
fixed rate of 5.14%. In consideration for an investment of $12,740, the Company
obtained the $12,740 B-note, which bears interest at a fixed rate of 6.34%, and
an interest only participation in the A-note for the difference between the
stated amounts payable under the A-note and the amounts receivable from the
interests sold to the participants in the A-note (the difference between the
amounts payable at an annual rate of 6.34% and 5.14%). The interest only
participation is accounted for as a derivative instrument with changes in its
fair value included in the determination of net income.
NOTE 7. INTANGIBLES:
In connection with its acquisition of properties, the Company has recorded net
intangibles of $45,130, which are being amortized over periods ranging from 12
years to 40 years. Amortization of below-market and above-market rent
intangibles is recorded as an adjustment to rental income.
Intangibles are summarized as follows:
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
Lease intangibles
In-place lease $ 36,569 $ 3,822
Tenant relationship 9,037 1,568
Above-market rent 6,873 347
Less: accumulated amortization (429) (123)
-------- --------
$ 52,050 $ 5,614
-------- --------
Below-market rent $ (7,349) $ (938)
Less: accumulated amortization 103 22
-------- --------
$ (7,246) $ (916)
======== ========
Net amortization of intangibles was $225 for the quarter ended March 31, 2005.
Based on the intangibles recorded through March 31, 2005, annual net
amortization of intangibles for each of the next five years is expected to be
$2,364.
NOTE 8. PRO FORMA FINANCIAL INFORMATION:
The following consolidated pro forma financial information has been presented as
if the Company's acquisitions made during the quarter ended March 31, 2005 had
occurred on January 1, 2005 for the quarter ended March 31, 2005 and January 1,
2004 for the quarter ended March 31, 2004. 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.
Quarter Ended March 31, Quarter Ended March 31,
2005 2004
----------------------- -----------------------
Pro forma total revenues $9,008 $8,900
Pro forma net income 4,087 3,382
Pro forma earnings per share: 0.07 0.06
Basic
The pro forma weighted average shares outstanding for the quarters ended March
31, 2005 and 2004 were determined as if all shares issued since the inception of
the Company were issued on January 1, 2004.
NOTE 9. SUBSEQUENT EVENT:
In May 2005, the Company and CPA(R):15, through 70% and 30% interests,
respectively, purchased properties located in Stuart, Florida, Portsmouth, Rhode
Island, Southwest Harbor and Trenton, Maine, for $58,115 and entered into a net
lease with The Talaria Company, LLC. The lease has an initial term of 25 years
with three ten-year renewal options and provides for initial annual rent of
$5,162. Limited recourse mortgage financing of $35,000 was obtained in
connection with this purchase.
8
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands except share and per share amounts)
The following discussion and analysis of financial condition and results of
operations of Corporate Property Associates 16 - Global Incorporated contain
forward-looking statements and should be read in conjunction with the condensed
consolidated financial statements and notes thereto as of March 31, 2005. As
used in this quarterly report on Form 10-Q, the terms "the Company," "we," "us"
and "our" include Corporate Property Associates 16 - Global Incorporated, its
consolidated subsidiaries and predecessors, unless otherwise indicated.
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," "expect," "estimate," "intend,"
"could," "should," "would," "may," "seeks," "plans" 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 our actual results, performance or achievement to be materially
different from the results of operations or plan expressed or implied by such
forward-looking statements. While we cannot predict all of the risks and
uncertainties, they include, but are not limited to, the risk factors described
in Item 1 of our Annual Report on Form 10-K for the year ended December 31,
2004. Accordingly, such information should not be regarded as representations
that the results or conditions described in such statements or that our
objectives and plans will be achieved. Additionally, a description of our
critical accounting estimates is included in the management's discussion and
analysis section in our Annual Report on Form 10-K for the year ended December
31, 2004. There has been no significant change in such critical accounting
estimates.
EXECUTIVE OVERVIEW
Business Overview
We were formed in 2003 for the purpose of investing primarily in commercial and
industrial properties leased to companies domestically and internationally and
are managed by our advisor, W. P. Carey & Co. LLC (the "Advisor"). We intend to
file our 2004 Federal tax return as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, and accordingly will not be subject to
Federal income taxes on income distributed to shareholders, provided we
distribute at least 90% of our REIT taxable income to shareholders on an annual
basis and meet certain other conditions. We intend to retain our REIT status.
Our initial public offering was terminated following the sale of 55,332,415
shares. (see Current Developments and Trends below). In September 2004, we filed
a registration statement with the United States Securities and Exchange
Commission ("SEC") for a second offering of up to 80,000,000 shares of common
stock at a price of $10 per share plus an additional 40,000,000 shares issuable
under the Distribution Reinvestment and Share Purchase Plan. This registration
statement has not yet been declared effective.
How We Earn Revenue
The primary source of our revenue is earned from leasing real estate. We invest
in commercial and industrial properties that are then leased to companies
domestically and internationally, primarily on a net lease basis. We also invest
in mortgage loans that are collateralized by real estate. Revenue is subject to
fluctuation because of lease expirations, lease terminations, the timing of new
lease transactions, tenant defaults and sales of property.
How Management Evaluates Results of Operations
Management evaluates our results with a primary focus on the ability to generate
cash flow necessary to meet its objectives of funding dividends to our
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 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 our ability to fund dividends.
Management's evaluation of our potential for generating cash flow is based on
long-term assessments.
Our Results of Operations section below contains a table describing our
investments as of March 31, 2005 and annual cash flow expected from each
investment.
Current Developments and Trends
Competition for investments continues to remain strong. Inflation and interest
rates, at least for the short term, are expected to rise.
9
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(in thousands except share and per share amounts)
Rising interest rates are expected to have the following impact on our business:
- - Rising interest rates would likely cause a decline in the values of
properties in our investment portfolio;
- - Rising interest rates would likely cause an increase in inflation and a
corresponding increase in the Consumer Price Index ("CPI"), which over
time will result in increased revenue and partially offset the impact of
declining property values;
- - The impact of rising interest rates would be mitigated through our use of
fixed interest rates on our current debt; however, fixed rate debt
obtained in connection with subsequent investments would be affected;
- - Rising interest rates would likely enable us to achieve higher rates of
return on new investments, which would be partially offset by increased
debt costs associated with increased interest rates;
- - Rising interest rates could make other income generating products more
attractive to investors on a relative basis and affect our ability to
raise capital; and
- - Rising interest rates may have an impact on the credit quality of certain
tenants.
We will continue to pursue our objectives through long-term transactions and
diversifying our portfolio. We expect to continue investing in the international
commercial real estate market, as we believe the international market provides
for favorable opportunities relative to risk/return as compared to opportunities
in the United States. In addition, financing terms are generally more favorable
for international transactions. Financing terms for international transactions
generally provide for lower interest rates and greater flexibility to finance
the underlying property. These benefits are partially offset by shorter loan
maturities. Investing in additional international properties increases our
exposure to fluctuations in foreign currency exchange rates.
For the three months ended March 31, 2005, cash flows generated from operations
and equity investments were sufficient to fund dividends paid and meet other
obligations, including paying scheduled mortgage principal payments. As of March
31, 2005, we had $202,952 in cash and cash equivalents as well as $15,432 in
short-term instruments and $5,000 in marketable securities that we intend to
convert to cash, which will primarily be used to fund future real estate
investments, as well as maintain sufficient working capital balances and meet
other commitments.
We intend to fund quarterly dividends from cash generated from operations. We
also currently expect to continue raising funds through an additional offering
of our common stock. Substantially all of the capital raised has been raised by
one selected-dealer and any adverse change in our relationship with this
selected-dealer could limit our ability to sell additional shares of common
stock.
Management believes that as the portfolio matures there is a potential for an
increase in the value of the portfolio and that any increase may not be
reflected in the financial statements; however, rising interest rates and other
market conditions may have an adverse affect on the future value of the
portfolio.
CURRENT DEVELOPMENTS INCLUDE:
ACQUISITIONS. All investments completed during the quarter ended March 31, 2005
have been previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2004. These investments are also described below in Results
of Operations.
PROPOSED ACQUISITION. In February 2005, we and an affiliate, Corporate Property
Associates 15 Incorporated ("CPA(R):15"), through 25% and 75% interests,
respectively, in a limited liability company, entered into a purchase and sale
agreement with Hellweg Die Profi-Baumarkte GMBH to purchase up to 16 properties
in Germany for up to $166,345 (based on the exchange rate of the Euro as of the
date of the agreement), subject to certain due diligence procedures and
negotiations with the proposed lessees. There is no assurance that this purchase
will be completed, and, if completed, that the actual terms will not differ from
the proposed terms. To the extent that all 16 properties are purchased, initial
annual rent will be $13,597 (based on the exchange rate of the Euro as of the
date of the agreement). In the event that the purchase is completed, we and
CPA(R):15 intend to seek limited recourse mortgage financing of approximately
$115,223. We expect this transaction to be completed during our second quarter
ending June 30, 2005.
FUND RAISING ACTIVITY. In March 2005, we filed an amendment to the registration
statement for our initial offering, to deregister all shares of our common stock
that remained unissued as of March 8, 2005, pursuant to our initial offering.
Also registered under the registration statement were shares of our common stock
to be sold pursuant to our Distribution Reinvestment and Share
10
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(in thousands except share and per share amounts)
Purchase Plan (the "Plan Shares"). The unsold Plan Shares were not deregistered
by such amendment, and we will continue to issue and sell Plan Shares under our
Distribution Reinvestment and Share Purchase Plan pursuant to the registration
statement.
SENIOR MANAGEMENT. In March 2005, Gordon F. DuGan, vice chairman, was elected
chief executive officer. Mr. DuGan was previously our co-chief executive officer
with William Polk Carey, who will remain chairman of the board. Mr. DuGan will
also serve as chief executive officer of our Advisor. Also in March 2005, Thomas
E. Zacharias was appointed chief operating officer. Mr. Zacharias will continue
to serve as managing director and head of our Advisor's asset management
department and will also serve as our Advisor's chief operating officer. In
connection with the ongoing SEC investigation, the Board of Directors has
accepted the resignation of John J. Park as chief financial officer and elected
Claude Fernandez, who has been our principal accounting officer, as acting chief
financial officer. A search is underway for a new chief financial officer.
DIVIDEND. In March 2005, our board of directors approved and increased the first
quarter dividend to $.12501 per share payable in April 2005 to shareholders of
record as of March 31, 2005.
RESULTS OF OPERATIONS
We commenced real estate operations in 2004. Through March 31, 2005, we have
invested in several properties, both domestic and international, leased to
companies on a net lease basis. We have also invested in mortgage loans that are
collateralized by real estate We anticipate that we will use the proceeds of our
initial public offering along with limited recourse property-level mortgage
financing and proceeds from future offerings of our common stock to form a
diversified portfolio of real estate net leased to corporate tenants.
Accordingly, the results of operations for the three-month period ended March
31, 2005 are not expected to be representative of our future results because we
expect that our asset base will continue to increase. As our asset base
increases, revenues and general and administrative, property and depreciation
expenses will increase. Interest expense will increase as mortgage loans are
obtained. We have investments in Europe, the United Kingdom and Thailand and as
such, results of operations are subject to fluctuations in foreign currency
exchange rates.
Real Estate Investments
Our real estate portfolio as of March 31, 2005 is expected to generate annual
cash flow (annual contractual rent less annual property level debt service) of
$16,257, from our direct ownership of real estate as follows:
Annual Estimated
Contractual Annual Annual
Lease Obligor Rent Debt Service Cash Flow
------------- ---- ------------ ---------
Telcordia Technologies, Inc. (1) (3) $ 8,913 $ 4,436 $ 4,477
Ply Gem Industries, Inc. (2) 3,510 1,790 1,720
Foss Manufacturing Company, Inc. 3,195 1,533 1,662
Finisar Corporation (3) 2,951 1,457 1,494
Precise Technology Group, Inc. (3) 1,448 -- 1,448
HMS Healthcare, Inc (3) (4) 1,228 -- 1,228
Plantasjen ASA (2) 2,162 1,385 777
Polestar Petty Ltd. (2) 2,116 1,363 753
LFD Manufacturing Limited and IDS Logistics
(Thailand) Limited (2) (3) 1,495 900 595
Xpedite Systems, Inc. 1,395 820 575
Castle Rock Industries, Inc. 1,328 770 558
PolyPipe, Inc. (3) 787 447 340
Clean Earth Kentucky, LLC (3) 711 393 318
MetalsAmerica, Inc. (3) 651 339 312
---------- --------- ---------
$ 31,890 $ 15,633 $ 16,257
========== ========= =========
(1) Annual debt service increases to $5,578 in year three.
(2) Based on the applicable exchange rate on the dates of acquisition. Amounts
are subject to fluctuations in foreign currency exchange rates.
(3) Represents investment completed during the quarter ended March 31, 2005.
(4) Excludes two assumed leases that provide for annual rent of $318 and $63,
respectively, and which expire in December 2005 and December 2010,
respectively. There are no other leases expiring in the next 12 months.
We recognize income from equity investments of which lease revenues are a
significant component. Our ownership interests range from 30.77% to 50%. Our pro
rata share of equity investments as of March 31, 2005 is expected to generate
annual cash flow (annual contractual rent less annual property level debt
service) of $9,257 as follows:
Annual Estimated
Contractual Annual Annual
Lease Obligor Rent Debt Service Cash Flow
------------- ---- ------------ ---------
U-Haul Moving Partners, Inc. and Mercury LP $ 8,782 $ 4,541 $ 4,241
Thales S.A. (1) 4,142 2,053 2,089
Pohjola Non-Life Insurance Company (1) (2) 3,251 1,712 1,539
TietoEnator Plc. (1) 2,793 1,731 1,062
Actuant Corporation (1) 803 477 326
---------- --------- ---------
$ 19,771 $ 10,514 $ 9,257
========== ========= =========
(1) Based on the applicable exchange rate on the dates of acquisition. Amounts
are subject to fluctuations in foreign currency exchange rates.
(2) Represents investment completed during the quarter ended March 31, 2005.
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(in thousands except share and per share amounts)
A build-to-suit project for a building to be leased to Huntsman LLC is expected
to be completed in September 2005 and is expected to provide for estimated
annual cash flow of $3,545 once completed.
Mortgage Notes Receivable
We currently have interests in two mortgage notes receivable. Our interest in a
mortgage note receivable collateralized by the distribution facilities of
BlueLinx Holdings, Inc. was purchased in December 2004 and is expected to
provide annual cash flow of approximately $1,300, which is based on a floating
rate of interest. The note is initially scheduled to mature in November 2007 and
may be extended for two-1 year periods.
In January 2005, we purchased a $12,740 mortgage note receivable and related
interest-only participation collateralized by the distribution and storage
facilities of Reyes Holding L.L.C. Annual cash flow from this investment,
including installments of principal, is expected to approximate $1,515. The note
expires in February 2015.
FINANCIAL CONDITION
Uses of Cash During the Period
There has been no material change in our financial condition since December 31,
2004. Cash and cash equivalents totaled $202,952 as of March 31, 2005, a
decrease of $14,358 from the December 31, 2004 balance. Management believes we
have sufficient cash balances to acquire a diversified real estate portfolio and
meet our working capital needs including our distribution rate. Our use of cash
during the period is described below.
OPERATING ACTIVITIES - For the three-month period ended March 31, 2005, cash
flows from operating activities and equity investments of $7,537 were sufficient
to pay dividends to shareholders of $5,348 and meet scheduled principal payment
installments on mortgage debt of $391. Annual operating cash flow is expected to
increase as a result of recent investment activity. Investments completed in the
quarter ended March 31, 2005 are expected to generate annual cash flow of
$11,751 (subject to fluctuations in foreign currency exchange rates).
INVESTING ACTIVITIES - Our investing activities are generally comprised of real
estate transactions (purchases of real estate and mortgage loans collateralized
by real estate) and the purchase of and sale of short-term investments and
marketable securities which we intend to convert to cash.
We completed several investments during the quarter ended March 31, 2005,
including the purchase of a mortgage note receivable. These investments are
described in Results of Operations above and in the accompanying condensed
consolidated financial statements. Our recent investment activity was funded
through the use of existing cash balances, proceeds from mortgage financings,
the release of funds of $12,371 held in escrow and a portion of the proceeds
from the sale of marketable securities and the issuance of our stock. During the
quarter ended March 31, 2005, we had net sales (purchases less proceeds from
sale) of marketable securities of $64,900, which was used to fund investment
activity and for working capital needs. We also placed $4,753 in escrow in
connection with a potential acquisition.
FINANCING ACTIVITIES - In addition to paying dividends to shareholders and
making scheduled mortgage principal payments, we obtained $121,540 in mortgage
financing to fund investment activity and received $38,360 from the issuance of
stock, net of costs. The decrease in proceeds from the issuance of our stock as
compared to the comparable prior year period is due to the termination of our
initial offering in March 2005.
All of our mortgage obligations are limited recourse and bear interest at fixed
rates and provide for monthly or quarterly installments which include scheduled
payments of principal. Accordingly, our cash flow should not be adversely
affected by increases in interest rates, which are near historical lows.
However, financing 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 our other assets, while
unsecured financing would give a lender recourse to all of our assets. The use
of limited recourse debt, therefore, will allow us to limit our
12
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(in thousands except share and per share amounts)
exposure of all of our assets with respect to any one debt obligation.
Management believes that the strategy of combining equity and limited recourse
mortgage debt will allow us to meet our short-term and long-term liquidity needs
and will help to diversify our portfolio and, therefore, reduce concentration of
risk in any particular lessee.
We intend to obtain limited recourse financing ranging from approximately 50% to
60% of the purchase cost for our domestic properties and 70% to 80% for our
foreign properties. We do not currently plan on seeking additional sources of
financing such as an unsecured line of credit; however, our financing strategies
could change in the future.
Cash Resources
As of March 31, 2005, we had $202,952 in cash and cash equivalents as well as
$15,432 in short-term instruments and $5,000 in marketable securities that we
intend to convert to cash, which will primarily be used to fund future real
estate investments, as well as maintain sufficient working capital balances and
meet other commitments. In addition, debt may be incurred on unleveraged
properties with a carrying value of $35,019 as of March 31, 2005 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 payment installments (we have no mortgage balloon payments scheduled
until 2011), paying dividends to shareholders, funding build-to-suit commitments
on projects that we currently project to total $35,657 as well as other normal
recurring operating expenses. We also intend to use our cash to purchase new
properties to further diversify our portfolio and maintain cash balances
sufficient to meet working capital needs. Based on the projected increase in
operating cash flows from new leases, 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 during the next twelve months.
Other Matters
We currently have foreign operations in Europe, the United Kingdom and Thailand
and may recognize foreign currency transaction gains and losses from our foreign
operations. We are likely to conduct business in other currencies as we seek to
invest funds from our offering internationally. We are subject to foreign
currency exchange rate risk from the effects of changes in exchange rates. To
date, we have not entered into any foreign currency forward exchange contracts
to hedge the effects of adverse fluctuations in foreign currency exchange rates.
We have 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.
We have filed a registration statement which is not yet effective for a second
"best efforts" offering to issue up to an additional 80,000,000 shares at $10
per share.
OFF-BALANCE SHEET AND AGGREGATE CONTRACTUAL AGREEMENTS
The table below summarizes our contractual obligations as of March 31, 2005 and
the effect that such obligations are expected to have on our liquidity and cash
flow in future periods.
LESS THAN
TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS MORE THAN 5 YEARS
---------- --------- --------- --------- -----------------
Limited recourse mortgage notes payable (1) $ 344,415 $ 15,636 $ 32,563 $ 34,182 $ 262,034
Deferred acquisition fees (1) 14,207 3,392 8,967 1,848 --
Deposit held for future expansion (3) 1,926 1,926 -- -- --
Build-to-suit commitment (4) 35,657 35,657 -- -- --
Operating leases (2) 599 41 97 102 359
---------- -------- -------- -------- -------------
$ 396,804 $ 56,652 $ 41,627 $ 36,132 $ 262,393
========== ======== ======== ======== =============
(1) Amounts are inclusive of principal and interest.
(2) Operating lease obligations consist primarily of our share of minimum
rents payable under an office cost-sharing agreement with certain
affiliates for the purpose of leasing office space used for the
administration of real estate entities.
13
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(in thousands except share and per share amounts)
(3) In connection with the acquisition of the Polestar Petty property in 2004,
we entered into an agreement to fund a future expansion at the property.
(4) Represents remaining build-to-suit commitments for two projects.
Commitments include a project in Woodlands, Texas where estimated total
construction costs are currently projected to total $38,025, of which
$7,842 was funded as of March 31, 2005 and a project in Thailand where
estimated total construction costs are currently projected to total $5,474
(subject to fluctuations in foreign currency exchange rates).
SUBSEQUENT EVENT
In May 2005, we and CPA(R):15, through 70% and 30% interests, respectively,
purchased properties located in Stuart, Florida, Portsmouth, Rhode Island,
Southwest Harbor and Trenton, Maine, for $58,115 and entered into a net lease
with The Talaria Company, LLC. The lease has an initial term of 25 years with
three ten-year renewal options and provides for initial annual rent of $5,162.
Limited recourse mortgage financing of $35,000 was obtained in connection with
this purchase.
14
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(in thousands except share and per share amounts)
Market risk is the exposure to loss resulting from changes in interest rates,
credit spreads, foreign currency exchange rates and equity prices. In pursuing
our business plan, the primary market risks to which we are exposed are interest
rate and foreign currency exchange rate risks.
Interest Rate Risk
The value of our real estate is subject to fluctuations based on changes in
interest rates, local and regional economic conditions and changes in the
creditworthiness of lessees, and which may affect our ability to refinance our
debt when balloon payments are scheduled.
All of our $217,047 of 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 our debt obligations and the related
weighted-average interest rates by expected maturity dates for our fixed rate
debt. The interest rates on our fixed rate debt as of March 31, 2005 ranged from
4.81% to 7.15%.
2005 2006 2007 2008 2009 Thereafter Total Fair Value
------ ------ ------ ------ ------ ---------- -------- ----------
Fixed rate debt $2,084 $2,991 $3,972 $4,830 $5,192 $ 197,978 $217,047 $ 216,859
Weighted average interest rate 5.99% 6.07% 5.86% 5.93% 5.94% 5.87%
A change in interest rates of 1% would not have an effect on annual interest
expense as we have no variable rate debt. A change in interest rates of 1% would
increase or decrease the fair value of our fixed rate debt at March 31, 2005 by
approximately $15,572.
At March 31, 2005, we own $5,000 of auction-rate securities which are long-term
securities that provide a resetting of their interest rate at intervals
(typically ranging between weekly and semi-annually) and provide a market
mechanism which allows a holder to sell at the interest reset date. Because of
the interest reset, auction-rate securities are priced and traded as short-term
investments. There is no assurance that an auction-rate security will be sold at
par nor can sellers force issuers to redeem if sell orders exceed buy orders at
an interest rate reset date.
Although we have not experienced any credit losses on investments in loan
participations, in the event of a significant rising interest rate environment
and/or economic downturn, loan defaults could increase and result in us
recognizing credit losses, which could adversely affect our liquidity and
operating results. Further, such defaults could have an adverse effect on the
spreads between interest earning assets and interest bearing liabilities.
Foreign Currency Exchange Rate Risk
We have foreign operations in the United Kingdom, France, Finland, Germany,
Sweden ,Canada and Thailand and as such are subject to risk from the effects of
exchange rate movements of foreign currencies, which may affect future costs and
cash flows. The majority of our foreign operations were conducted in the Euro.
For all currencies we are a net receiver of the foreign currency (we receive
more cash then we pay out) and therefore our foreign operations benefit from a
weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative
to the foreign currency. Net realized and unrealized foreign currency
translation losses of $94 are included in the accompanying condensed
consolidated financial statements for the quarter ended March 31, 2005.
To date, we have not entered into any foreign currency forward exchange
contracts to hedge the effects of adverse fluctuations in foreign currency
exchange rates.
15
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Item 4. - CONTROLS AND PROCEDURES
Our disclosure controls and procedures include our 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 our management, including
our Chief Executive Officer 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.
Our Chief Executive Officer and Chief Financial Officer have conducted a review
of our disclosure controls and procedures as of March 31, 2005.
Based upon this review, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls (as defined in Rule 13a-15(e)
promulgated under the Exchange Act) are sufficiently effective to ensure that
the information required to be disclosed by us in the reports we file 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 our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
16
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
PART II
Item 2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) For the quarter ended March 31, 2005, 39,511 shares were issued to the
Advisor as consideration for asset management fees. Shares were issued
at $10 per share.
(b) Pursuant to Rule 701 of Regulation S-K, the use of proceeds from
our initial offering of common stock which commenced in December
2003 (File #333-106838) is as follows as of March 31, 2005:
Shares registered: 110,000,000
Aggregate price of offering amount registered: $1,100,000,000
Shares sold: 55,374,421
Aggregated offering price of amount sold: $ 553,744,210
Direct or indirect payments to directors, officers, general partners of the issuer or their associates, to
persons owning ten percent or more of any class of equity securities of the issuer and to affiliates of
the issuer: $ --
Direct or indirect payments to others: $ 54,970,880
Net offering proceeds to the issuer after deducting expenses: $ 498,773,330
Purchases of real estate, mortgage notes receivable, and equity investments: $ 269,694,568
Temporary investments in cash and cash equivalents: $ 229,078,762
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 2005, no matters were submitted to a
vote of security holders.
Item 5. - OTHER INFORMATION
On May 5, 2005, the Advisor announced the resignation of John Park as its Chief
Financial Officer in connection with an ongoing investigation by the Securities
and Exchange Commission of payments to broker-dealers that is described in the
Company's Annual Report on Form 10-K for the year ended December 31, 2004. Mr.
Park has also resigned as Chief Financial Officer of the Company.
Claude Fernandez, the Company's Principal Accounting Officer, will assume the
position of acting Chief Financial Officer and Michael D. Roberts, an Executive
Director of the Company, will assume the position of acting Principal Accounting
Officer, effective immediately. The Company has commenced a search for a new
Chief Financial Officer.
Claude Fernandez, age 52, joined the Company as Assistant Controller in March
1983, was elected Controller in July 1983, Vice President in April 1986, and was
until now a Managing Director and the Principal Accounting Officer of the
Company.
Michael D. Roberts, age 53, joined the Company as Second Vice President and
Assistant Controller in April 1989, was named Vice President and Controller in
October in 1989, First Vice President in 1997, and was until now an Executive
Director of the Company.
Item 6. - EXHIBITS:
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer 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
17
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 16-GLOBAL INCORPORATED
5/10/2005 By: /s/ Claude Fernandez
- --------- ----------------------------------
Date Claude Fernandez
Managing Director and
acting Chief Financial Officer
(acting Principal Financial Officer)
5/10/2005 By: /s/ Michael D. Roberts
- --------- ----------------------------------
Date Michael D. Roberts
Executive Director and Controller
(acting Principal Accounting Officer)
18