<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended December 31, 1997
------------------------------------------------
or
|_| TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from _______________________ to ______________________
Commission file number 001-13779
---------------------------------------------------------
CAREY DIVERSIFIED LLC
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3912578
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
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(Address of principal executive offices) Zip Code)
Registrant's telephone number, including area code (212) 492-1100
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
- -------------------------------- -----------------------------------------
- -------------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
LISTED SHARES
- --------------------------------------------------------------------------------
(Title of Class)
================================================================================
(Title of Class)
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 such 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.
|X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |X|
The aggregate market value of Carey Diversified LLC voting stock held by
non-affiliates of Registrant as of March 28, 1998 is $477,932,000. The number of
shares outstanding on the Registrant's common stock as of March 28, 1998 is
23,974,791.
<PAGE> 2
PART I
Item 1. Business.
The Company
Carey Diversified LLC (the "Company" or "Carey Diversified") is a
dynamic, growth-oriented organization which intends to increase shareholder
value by acquiring net leased properties and making opportunistic investments
utilizing the core competencies of the Company's management (which include
in-depth credit analysis, asset valuation and creative structuring). The Company
also seeks to optimize its existing portfolio through the expansion of existing
properties and strategic property sales. As a perpetual life, growth-oriented
company, the Company will continue to own Properties as long as it believes
ownership helps the Company attain its objectives.
The Company's objective is to increase funds from operations through
prudent management of its real estate assets and opportunistic investments.
The Company presently intends to:
o Seek additional investment and other opportunities that leverage
core management skills (which include in-depth credit analysis,
asset valuation and sophisticated structuring techniques);
o optimize the current portfolio of properties through expansion of
existing properties, timely dispositions and favorable lease
modifications;
o utilize its enhanced size and access to capital to refinance
existing debt; and
o increase the Company's access to capital.
The Company was formed as a Delaware limited liability company on
October 15, 1996. On January 1, 1998, the Company completed its merger with the
nine CPA(R) Partnerships and now is the general partner and owner of
substantially all of the former limited partner interests in those partnerships.
The Company is expected to be treated as a partnership for tax purposes. These
nine Partnerships raised equity capital aggregating approximately $400 million
and invested the net proceeds primarily in net leased properties. As of January
1, 1998, the Company, through its subsidiaries, owned 198 properties in 37
states. The Company's principal executive offices are located at 50 Rockefeller
Plaza, New York, New York 10020.
Carey Management LLC (the "Manager") provides both strategic and
day-to-day management for the Company, including research, investment analysis,
acquisition and development services, asset management, capital funding
services, disposition of assets and administrative services.
Acquisition Strategies:
The Manager has a well-developed process with established procedures
and systems for acquiring net leased property. As a result of its reputation and
experience in the industry and the contacts maintained by its professionals, the
Manager has a presence in the net lease market that has provided it with the
opportunity to invest in a significant number of transactions on an ongoing
basis. The Company seeks to utilize the Manager's presence in the net lease
market to acquire additional properties in transactions with both new and
current tenants. In evaluating opportunities for the Company, the Manager
carefully examines the credit, management and other attributes of the tenant and
the importance of the property under consideration to the tenant's operations.
The Company believes that the Manager has one of the most extensive underwriting
processes in the industry and has an experienced staff of professionals involved
with underwriting transactions. The Manager seeks to identify those prospective
tenants whose creditworthiness is likely to improve over time. The Company
believes that the experience of its management in structuring sale-leaseback
transactions to meet the needs of a prospective tenant enables the Manager to
obtain a higher return for a given level of risk than would typically be
available by purchasing a property subject to an existing lease.
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The Manager's strategy in structuring its net lease investments for
the Company is to:
o combine the stability and security of long-term lease
payments, including rent increases, with the appreciation
potential inherent in the ownership of real estate;
o enhance current returns by utilizing varied lease structures;
o reduce credit risk by diversifying its investments by tenant,
type of facility, geographic location and tenant industry; and
o increase potential returns by obtaining equity enhancements
from the tenant when possible, such as warrants to purchase
tenant common stock.
Transaction Origination:
In analyzing potential acquisitions, the Manager reviews and
structures many aspects of a transaction, including the tenant, the real estate
and the lease, to determine whether a potential acquisition can be structured to
satisfy the Company's acquisition criteria. The aspects of a transaction which
are reviewed and structured by the Manager include the following:
Tenant Evaluation. The Manager subjects each potential tenant to an extensive
evaluation of its credit, management, position within its industry, operating
history and profitability. The Manager seeks tenants it believes will have
stable or improving credit. By leasing properties to such tenants, the Company
can generally charge rent that is higher than the rent charged to tenants with
recognized credit and, thereby, enhance its current return from such properties
as compared with properties leased to companies whose credit potential has
already been recognized by the market. Furthermore, if a tenant's credit does
improve, the value of the Company's properties leased to such tenants will
likely increase (if all other factors affecting value remain unchanged). The
Manager may also seek to enhance the likelihood of a tenant's lease obligations
being satisfied, such as through a letter of credit or a guaranty of lease
obligations from the tenant's corporate parent. Such credit enhancement provides
the Company with additional financial security.
Leases with Increasing Rents. The Manager seeks to include clauses in the
Company's leases that provide for increases in rent over the term of the leases.
These increases are generally tied to increases in certain indices such as the
consumer price index, in the case of retail stores participation in gross sales
above a stated level, mandated rental increases on specific dates and by other
methods.
Properties Important to Tenant Operations. The Manager, on behalf of the
Company, generally seeks to acquire properties with operations that are
essential or important to the ongoing operations of the tenant. The Company
believes that such properties provide better protection in the event that a
tenant files for bankruptcy, because leases on properties essential or important
to the operations of a bankrupt tenant are less likely to be rejected and,
thereby, terminated by a bankrupt tenant. The Manager also seeks to assess the
income, cash flow and profitability of the business conducted at the property,
so that, if the tenant is unable to operate its business, the Company can either
continue operating the business conducted at the property or re-lease the
property to another entity in the industry which can operate the property
profitably.
Lease Provisions that Enhance and Protect Value. When appropriate, the Manager
attempts to include provisions in the Company's leases that require the
Company's consent to certain tenant activity or require the tenant to satisfy
certain operating tests. These provisions include, for example, operational and
financial covenants of the tenant, prohibitions on a change in control of the
tenant and indemnification from the tenant against environmental and other
contingent liabilities. Including these provisions in its leases enables the
Company to protect its investment from changes in the operating and financial
characteristics of a tenant that may impact its ability to satisfy its
obligations to the Company or could reduce the value of the Company's
Properties.
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Diversification. The Manager attempts to diversify the Company's portfolio of
properties to avoid dependence on any one particular tenant, type of facility,
geographic location or tenant industry. By diversifying its portfolio, the
Company reduces the adverse effect on the Company of a single underperforming
investment or a downturn in any particular industry.
The Manager employs a variety of other strategies and practices in
connection with the Company's acquisitions. These strategies include attempting
to obtain equity enhancements in connection with transactions. Typically, such
equity enhancements involve warrants to purchase stock of the tenant to which
the property is leased or the stock of the parent of the tenant. In certain
instances, the Company grants to the tenant a right to purchase the property
leased by the tenant, but generally the option purchase price will be not less
than the fair market value of the property. The Manager's practices include
performing evaluations of the physical condition of properties and performing
environmental surveys in an attempt to determine potential environmental
liabilities associated with a property prior to its acquisition.
While the Company invests in properties subject to triple net leases
(i.e., leases in which the tenant is responsible for real estate taxes and
assessments, repairs and maintenance, insurance and other expenses relating to
the property and has the duty to restore in case of casualty), the Company may,
in its discretion, acquire properties subject to leases under which it has more
responsibilities than would normally be the case under a triple net lease and
may make other investments.
Acquisition and Underwriting Process:
The Manager's Acquisition and Asset Management Department has the
primary responsibility for the origination and negotiation of acquisitions of
properties. Members of this department will identify potential acquisitions and
conduct negotiations with sellers and tenants. Members of the Acquisition and
Asset Management Department generally structure the terms of any financing the
Company may use to acquire a property.
As a transaction is structured, it is evaluated by the Chairman of
the Investment Committee with respect to the potential tenant's credit, business
prospects, position within its industry and other characteristics important to
the long-term value of the property and the capability of the tenant to meet its
lease obligations. Before a property is acquired, the transaction is reviewed by
the Investment Committee to ensure that it satisfies the Company's investment
criteria. Aspects of the transaction that are typically reviewed by the
Investment Committee include the expected financial returns, the
creditworthiness of the tenant, the real estate characteristics and the lease
terms.
The Investment Committee is not directly involved in originating or
negotiating potential acquisitions, but instead functions as a separate and
final step in the acquisition process. The Manager places special emphasis on
having experienced individuals serve on its Investment Committee and does not
invest in a transaction unless it is approved by the Investment Committee.
The Company believes that the Investment Committee review process
gives it a unique, competitive advantage over other unaffiliated net lease
companies because of the substantial experience and perspective that the
Investment Committee has in evaluating the blend of corporate credit, real
estate and lease terms that combine to make an acceptable risk.
The following people serve on the Investment Committee:
George E. Stoddard, Chairman, was formerly responsible for the direct corporate
investments of The Equitable Life Assurance Society of the United States and has
been involved with the CPA(R) Programs for over 16 years.
Frank J. Hoenemeyer, Vice Chairman, was formerly Vice Chairman, Director and
Chief Investment Officer of The Prudential Insurance Company of America. As
Chief Investment Officer, Mr. Hoenemeyer was responsible for all of Prudential's
investments, including stocks, bonds, private placements, real estate and
mortgages.
Lawrence R. Klein is Benjamin Franklin Professor of Economics Emeritus at the
University of Pennsylvania and its Wharton School. Dr. Klein has been awarded
the Alfred Nobel Memorial Prize in Economic Sciences and currently advises
various governments and government agencies.
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Asset Management:
The Company believes that effective management of net lease assets
is essential to maintaining and enhancing property values. Important aspects of
asset management include restructuring transactions to meet the evolving needs
of current tenants, re-leasing properties, refinancing debt, selling properties
and knowledge of the bankruptcy process. The Company believes that the Manager's
knowledgeable and experienced professionals are well qualified in these areas of
asset management.
The Manager monitors, on an ongoing basis, compliance by tenants
with their lease obligations and other factors that could affect the financial
performance of any of its Properties. Such monitoring includes receiving
assurances that each tenant has paid real estate taxes, assessments and other
expenses relating to the Properties it occupies and confirming that appropriate
insurance coverage is being maintained by the tenant. The Manager reviews
financial statements of its tenants and undertakes physical inspections of the
condition and maintenance of its Properties. Additionally, the Manager
periodically analyzes each tenant's financial condition, the industry in which
each tenant operates and each tenant's relative strength in its industry.
Financing Strategies:
Consistent with its investment policies, the Company uses leverage
when available on favorable terms in connection with the acquisition at
additional net lease property. In March 1998, the Company obtained a credit
facility of $150,000,000, which it intends to use primarily to acquire
additional properties and to pay off higher interest debt. The Manager will
continually seek opportunities and consider alternative financing techniques to
refinance debt, reduce interest expense or improve its capital structure.
Environmental Matters:
Under various federal, state and local environmental laws,
regulations and ordinances, current or former owners of real estate, as well as
certain other categories of parties, may be required to investigate and clean up
hazardous or toxic chemicals, substances or waste or petroleum product or waste
(collectively, "Hazardous Materials") releases on, under, in or from such
property, and may be held liable to governmental entities or to third parties
for certain damages and for investigation and cleanup costs incurred by such
parties in connection with the release or threatened release of Hazardous
Materials. Such laws typically impose responsibility and liability without
regard to whether the owner knew of or was responsible for the presence of
Hazardous Materials, and the liability under such laws has been interpreted to
be joint and several under certain circumstances. The Company's leases generally
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
Such a contractual arrangement does not eliminate the Company's statutory
liability or preclude claims against the Company by governmental authorities or
persons who are not a party to such an arrangement. Contractual arrangements in
the Company's leases may provide a basis for the Company to recover from the
tenant damages or costs for which the Company has been found liable.
The cost of investigation and cleanup of Hazardous Materials on,
under, in or from property can be substantial, and the fact that the property
has had a release of Hazardous Materials, even if remediated, may adversely
affect the value of the property and the owner's ability to sell or lease the
property or to borrow using the property as collateral. In addition, some
environmental laws create a lien on a property in favor of the government for
damages and costs it incurs in connection with the release or threatened release
of Hazardous Materials, and certain state environmental laws provide that such a
lien has priority over all other encumbrances on the property or that a lien can
be imposed on other property owned by the responsible party. Finally, the
presence of Hazardous Materials on a property could result in a claim by a
private party for personal injury or a claim by a neighboring property owned for
property damage.
Other federal, state and local laws and regulations govern the
removal or encapsulation of asbestos-containing material when such material is
in poor condition or in the event of building remodeling, renovation or
demolition. Still other federal, state and local statutes, regulations and
ordinances may require the removal or upgrading of underground storage tanks
that are out of service or out of compliance. In
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<PAGE> 6
addition, federal, state and local laws, regulations and ordinances may impose
prohibitions, limitations and operational standards on, or require permits,
approvals and notifications in connection with, discharge of wastewater and
other waste pollutants, the emission of air pollutants and operation of air
pollution equipment, the generation and management of Hazardous Materials, and
workplace health and safety. Non-compliance with environmental or health and
safety requirements may result in the need to cease or alter operations at a
property, which could affect the financial health of a tenant and its ability to
make lease payments. Furthermore, if there is a violation in connection with a
tenant's operation, it is possible that the Company, as the owner of the
property, could be held accountable by governmental authorities for such
violation and could be required to correct the violation.
The Company typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Where warranted, Phase I and
Phase II assessments are performed by independent environmental consulting and
engineering firms. Phase I assessments do not involve subsurface testing,
whereas Phase II assessments involve some degree of soil and/or groundwater
testing. The Company may acquire a property that is known to have had a release
of Hazardous Materials in the past, subject to a determination of the level of
risk and potential cost of remediation. The Company normally requires property
sellers to indemnify it fully against any environmental problem existing as of
the date of purchase. Additionally, the Company normally structures its leases
to require the tenant to assume all responsibility for environmental compliance
or environmental remediation relating to the tenants operations and to provide
that non-compliance with environmental laws is deemed a lease default. In
certain instances, the Company may also require a cash reserve, a letter of
credit or a guarantee from the tenant, the tenant's parent company or a third
party to assure lease compliance and funding of remediation. The value of any of
these protections depends on the amount of the collateral and/or financial
strength of the Company providing the protection.
Some of the properties are located in industrial areas where current
or historic industrial uses of adjacent properties may threaten or have caused
contamination at the Properties. In addition, the Company is aware of
environmental conditions at certain of the Properties that require some degree
of remediation. All such environmental conditions are primarily the
responsibility of the respective tenants under their leases. The Company
believes that its tenants are taking or will soon be taking all required
remedial action with respect to any material environmental conditions at the
Properties. However, the Company could be responsible for some or all of these
costs if one or more of the tenants fails to perform its obligations or to
indemnify the Company. In the event that the Company absorbs a portion of the
costs to comply with environmental statutes, the Company believes that the
ultimate resolution of such environmental matters will not have a material
adverse effect on the Company's financial condition, liquidity or results of
operations. Furthermore, no assurance can be given that the environmental
assessments that have been conducted at the Properties disclosed all
environmental liabilities, that any prior owner did not create a material
environmental condition not known to the Company, or that a material condition
does not otherwise exist as to any of the Properties.
Competition:
The Company faces competition for the acquisition of properties from
insurance companies, commercial banks, credit companies, pension funds, private
individuals, investment companies, REITs and other real estate finance
companies. The Company also faces competition from institutions or investors
that provide or arrange for other types of financing through private or public
offerings of equity or debt and from traditional bank financings. The Company
believes that its 20 years of continuous market presence through the CPA(R)
Partnerships, the experience of its management and its ability to underwrite
credit and asset-based investment opportunities allow it to compete effectively.
Employees:
The Company has one employee who serves as its Chairman and Chief
Executive Officer and 10 Directors. The Manager has over 60 officers, employees
and directors who will be involved in the operations of the Company.
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Year 2000 Issues:
The Manager has responsibility for maintaining the Company's books
and records. An affiliate of the Manager has responsibility for servicing the
computer systems used in maintaining such books and records. In its preliminary
assessment of Year 2000 issues the affiliate believes that such issues will not
have a material effect on the Company's operations; however, such assessment has
not been completed. The Company relies on its bank, The Chase Manhattan Bank,
and transfer agent Chase Mellon Shareholder Services, Inc., for certain
computer-related services and has initiated discussions to determine whether
they are addressing Year 2000 issues that might affect the Company.
Insurance:
Under their leases, the Company's tenants will generally be
responsible for providing adequate insurance on the properties leased. The
Company believes the Properties are covered by adequate fire, flood and property
insurance provided by reputable companies. However, some of the Properties are
not covered by disaster-type insurance with respect to certain hazards (such as
earthquakes) for which coverage is not available or available only at rates
which, in the opinion of the Company, are prohibitive.
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Item 2. PROPERTIES
As of December 31, 1997, the Company's portfolio consisted of -
Properties, all but 7 of which were 100% leased. The Company operates two
properties as hotels. Set forth below is certain information relating to the
Properties.
Registrant's properties are as follows:
<TABLE>
<CAPTION>
Property Square Annual Increase Lease Maximum
Lessee/Guarantor Location Footage Rent Factor Expiration Term
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hughes Markets, Inc. Los Angeles, CA 390,000 1,344,644 Stated Apr-98 Oct-98
Dr Pepper Bottling Company of Texas Irving, TX 459,497
Houston, TX 262,450
-----------------------------
721,947 3,998,000 CPI Jun-14 Jun-14
Detroit Diesel Corporation Detroit, MI 2,730,750 3,655,525 PPI Jun-10 Jun-30
Sybron International Corporation Dubuque, IA 144,300 452,956 CPI Dec-13 Dec-38
Glendora, CA 25,000 369,186 CPI Dec-13 Dec-38
Portsmouth, NH 95,000 537,058 CPI Dec-13 Dec-38
Rochester, NY 221,600 985,378 CPI Dec-13 Dec-38
Romulus, MI 220,000 966,504 CPI Dec-13 Dec-38
-----------------------------
705,900 3,311,082
Gibson Greetings, Inc. Cincinnati, OH 593,340
Berea, KY 601,500
-----------------------------
1,194,840 3,100,000 Stated Nov-13 Nov-23
Thermodyne Holdings Corp. Industry, CA 325,800 2,234,191 CPI Feb-10 Feb-35
DS Group Limited Goshen, IN 54,270 500,212 CPI Feb-10 Feb-35
Quebecor Printing Inc. Doraville, GA 432,559 1,496,780 CPI Dec-09 Dec-34
Olive Branch, MS 270,500 992,349 CPI Jun-08 Jun-33
-----------------------------
703,059 2,489,129
Furon Company New Haven, CT 110,389
Mickleton, NJ 86,175
Aurora, OH 147,848
Mantua, OH 150,544
Bristol, RI 105,642
Aurora, OH 26,692
-----------------------------
627,290 2,416,049 PPI Jul-07 Jul-37
Pre Finish Metals Incorporated Walbridge, OH 313,704 2,421,640 CPI Jun-03 Jun-28
</TABLE>
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<TABLE>
<CAPTION>
Property Square Annual Increase Lease Maximum
Lessee/Guarantor Location Footage Rent Factor Expiration Term
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AutoZone, Inc. 31 Locations: 185,990 1,483,957 % Sales Jan-11 Feb-26
NC, TX, AL, GA,
IL, LA, MO
AutoZone, Inc. 13 Locations: 70,425 393,598 % Sales Aug-12 Aug-37
FL, LA, MO,
NC, TN
AutoZone, Inc. 11 Locations: 54,000 545,883 % Sales Aug-13 Aug-38
FL, GA, NM,
-----------------------------
SC, TX 310,415 2,423,438
Orbital Sciences Corporation Chandler, AZ 280,000 2,226,547 CPI Sep-09 Sep-29
The Gap, Inc. Erlanger, KY 391,000 1,252,636 CPI Feb-03 Feb-43
Erlander, KY 362,750 952,749 CPI Feb-03 Feb-43
-----------------------------
753,750 2,205,385
AP Parts International, Inc. Toledo, OH 1,160,000
Pinconning, MI 220,588
-----------------------------
1,380,588 1,836,534 CPI Dec-07 Dec-22
NVR, Inc. Thurmont, MD 150,468 729,114 CPI Mar-14 Mar-39
Farmington, NY 29,273
Pittsburgh, PA 42,000 938,046 CPI Mar-14 Mar-18
Pittsburgh, PA 36,000
-----------------------------
257,741 1,667,160
Unisource Worldwide, Inc. Commerce, CA 411,579 1,292,800 Stated Apr-10 Apr-30
Anchorage, AK 44,712 312,700 Stated Dec-09 Dec-29
-----------------------------
456,291 1,605,500
CSS Industries, Inc./Cleo Inc. Memphis, TN 1,006,566 1,500,000 CPI Dec-05 Dec-15
Peerless Chain Company Winona, MN 357,760 1,463,425 CPI Jun-11 Jun-26
Information Resources, Inc. Chicago, IL 159,600
(33.33% ownership) Chicago, IL 92,400
-----------------------------
252,000 1,457,788 CPI Oct-10 Oct-15
Red Bank Distribution, Inc. Cincinnati, OH 589,150 1,400,567 CPI Jul-15 Jul-35
Brodart Co. Williamsport, PA 309,030
Williamsport, PA 212,201
-----------------------------
521,231 1,344,764 CPI Jun-08 Jun-28
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
Property Square Annual Increase Lease Maximum
Lessee/Guarantor Location Footage Rent Factor Expiration Term
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High Voltage Engineering Corp. Lancaster, PA 70,712 600,262 CPI Nov-13 Nov-38
Sterling, MA 70,000 578,757 CPI Nov-13 Nov-38
-----------------------------
140,712 1,179,019
United States Postal Service Bloomington, IL 116,000 1,089,982 Stated Apr - 06 Apr - 06
Duff-Norton Company, Inc. Forrest City, AR 265,000 1,020,717 CPI Dec-12 Dec-32
Kinney Shoe Corp./Armel, Inc. Ft. Lauderdale, FL 80,540 964,941 CPI Sep-01 Sep-16
DeVlieg-Bullard, Inc. McMinnville, TN 276,991
Frankenmuth, MI 132,400
--------------
409,391 953,803 CPI Apr-06 Apr-26
Lockheed Martin Corporation King of Prussia, PA 88,578 934,186 Market Jul-98 Jul-08
Oxnard, CA 142,796 360,000 Stated Aug-00 Aug-02
Glen Burnie, MD 45,804 310,000 Stated Apr-01 Apr-21
-----------------------------
277,178 1,604,186
Wal-Mart Stores, Inc. West Mifflin, PA 118,125 891,129 CPI Jan-07 Jan-37
Anthony's Manufacturing Company, San Fernando, CA 95,420
Inc. San Fernando, CA 7,220
San Fernando, CA 40,285
San Fernando, CA 39,920
-----------------------------
182,845 876,000 CPI May-07 May-12
Hotel Corporation of America Topeka, KS 117,590 835,120 Stated Sep-03 Sep-03
(Holiday Inn Franchisee)
IMO Industries, Inc. Garland, TX 150,203 822,750 Stated Sep-02 Sep-07
United Stationers Supply Co. New Orleans, LA 59,000
Memphis, TN 75,000
San Antonio, TX 63,321
-----------------------------
197,321 812,708 CPI Mar-10 Mar-30
Continental Casualty Company College Station, TX 97,567 771,666 Stated Oct-98 Oct-03
Winn-Dixie Stores, Inc. Montgomery, AL 32,690 191,534 % Sales Mar-08 Mar-38
Panama City, FL 34,710 170,399 % Sales Mar-08 Mar-38
Leeds, AL 25,600 144,713 % Sales Mar-04 Mar-34
Bay Minette, AL 34,887 128,472 % Sales Jun-07 Jun-37
Brewton, AL 30,625 134,500 % Sales Oct-10 Oct-30
-----------------------------
158,512 769,618
AT&T Corporation Bridgeton, MO 55,810 794,764 Stated Nov-01 Nov-11
</TABLE>
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<PAGE> 11
<TABLE>
<CAPTION>
Property Square Annual Increase Lease Maximum
Lessee/Guarantor Location Footage Rent Factor Expiration Term
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harcourt General, Inc. Burnsville, MN 31,837 467,500 % Sales Jul-06 Jul-31
Canton, MI 29,818 233,750 % Sales Jul-05 Jul-30
-----------------------------
61,655 701,250
Western Union Financial Services, Inc. Bridgeton, MO 78,080 656,882 Stated Nov-01 Nov-11
Exide Electronics Corporation Raleigh, NC 27,770 572,130 CPI Apr-97 Apr-98
Swiss-M-Tex, L.P. Travelers Rest, SC 178,693 480,000 CPI Aug-07 Aug-17
Motorola, Inc. Urbana, IL 46,350 540,000 Stated Dec-00 Dec-20
EXCEL Communications, Inc. Reno, NV 53,158 532,802 Stated Dec-00 Dec-20
Penn Virginia Corporation Cuyahoga Falls, OH 80,445
Broomall, PA 22,810
Duffield, VA 12,804
-----------------------------
116,059 498,750 Market Aug-99 Aug-34
Titan Corporation San Diego, CA 166,403 485,084 CPI Jul-07 Jul-31
(18.54% ownership)
Wozniak Industries, Inc./ Mayfair
Molded Products Corporation Schiller Park, IL 84,197 460,755 Stated Dec-03 Dec-23
Childtime Childcare, Inc. 12 Locations: 83,694 413,638 CPI Jan-16 Jan-41
(33.93% ownership) AZ, CA, MI,TX
Yale Security Inc. Lemont, IL 130,000 399,000 Stated Apr-11 Apr-11
CSK Auto, Inc. Denver, CO 8,129 51,709 CPI Jan-08 Jan-38
Glendale, AZ 3,406 58,564 CPI Jan-02 Jan-22
Apache Junction, AZ 5,055 43,316 CPI Jan-02 Jan-22
Casa Grande, AZ 11,588 56,695 CPI Jan-02 Jan-22
Scottsdale, AZ 8,000 18,586 CPI Jan-02 Jan-22
Mesa, AZ 3,401 59,955 CPI Jan-02 Jan-22
-----------------------------
39,579 288,825
B&G Contract Packaging, Inc. Maumelle, AR 160,000 335,880 Stated Jul - 98 Dec-03
Sports & Recreation, Inc. Moorestown, NJ 74,066 308,750 Stated Jun-12 Jun-42
</TABLE>
-10-
<PAGE> 12
<TABLE>
<CAPTION>
Property Square Annual Increase Lease Maximum
Lessee/Guarantor Location Footage Rent Factor Expiration Term
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kobacker Stores, Inc. Fontana, CA 4,500
Rialto, CA 4,500
Reynoldsburg, OH 3,840
Tallmadge, OH 4,000
Anderson, IN 4,500
Cuyahoga Falls, OH 3,792
Marion, OH 3,900
Fremont, OH 4,000
Merced, CA 4,500
Sacramento, CA 4,400
Stockton, CA 4,500
Sacramento, CA 4,400
-----------------------------
50,832 267,314 None Dec-06 Dec-36
Petrocon Engineering, Inc./ Beaumont, TX 118,800 Stated Dec-98 Dec-00
Olmstead Kirk Paper Company 103,740 None Jun-99 Jun-03
43,200 None Nov-99 Nov-03
33,000 None Jan-03 Jan-08
15,444 None Mar-98
--------------
48,700 314,184
Federal Express Corporation Corpus Christi, TX 30,212 189,986 Market May-99 May-09
College Station, TX 12,080 56,700 Market Feb-99 Feb-09
--------------
246,686
Bell Atlantic Corporation Milton, VT 30,624 229,717 Stated Feb-03 Feb-13
Penberthy Products, Inc. Prophetstown, IL 161,878 209,507 CPI Apr-06 Apr-26
Allied Plywood Corporation Manassas, VA 60,446 190,550 Stated Mar-02 Mar-02
Rochester Button Company South Boston, VA 43,387
Kenbridge, VA 38,000
-----------------------------
81,387 180,000 None Dec-16 Dec-36
Sunds Defibrator Woodhandling, Inc. Carthage, NY 76,000 144,239 CPI Aug-05 Jul-07
Pepsi-Cola Metropolitan Bottling
Company, Inc. Houston, TX 17,725 97,568 Stated Oct-04 Oct-04
Popular Stores, Inc. Scottsdale, AZ 11,800 94,266 % Sales Jul-00 Jul-10
Stair Pans of America, Inc. Fredericksburg, VA 45,821 89,810 Stated Jul-98 Jul-98
Inno Tech Industries, Inc. Elyria, OH 183,000 60,000 None Apr-98 Apr-03
Cent Stores, Inc. Mesa, AZ 11,039 54,000 Stated Jan-13 Jan-13
Family Bargain Center Colville, WA 15,300 50,733 CPI Jan-00 Jan-15
</TABLE>
-11-
<PAGE> 13
<TABLE>
<CAPTION>
Property Square Annual Increase Lease Maximum
Lessee/Guarantor Location Footage Rent Factor Expiration Term
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Crafters Mall, Inc. Glendale, AZ 11,760 47,964 None Quarterly Renewals
Kinko's, Inc. Canton, OH 1,700 26,010 % Sales Aug-00 Aug-10
Capin Mercantile Corporation Silver City, NM 11,280 36,660 None May-00 May-05
Building 7 Corporation Apache Junction, AZ 9,945 23,100 CPI Jun-01 Jun-06
Wexler & Wexler New Orleans, LA 1,641 19,692 % Sales Oct-05 Oct-15
Scallon's Carpet Castle, Inc. Casa Grande, AZ 3,134 17,710 Stated Dec-03 Dec-03
A. Jones Greensboro, NC 1,700 10,725 CPI Apr-99 Apr-01
Livonia Holiday Inn - Livho, Inc. Livonia, MI 158,000 2,346,607 Stated Jan-08 Jan-28
Lutz Bagels LLC Canton, OH 4,800 76,800 Stated Dec-07 Dec-17
Petoskey Holiday Inn (1) Petoskey, MI 83,462
Alpena Holiday Inn (1) Alpena, MI 96,333
Various lessees Broomfield, CO 60,660
Broomfield, CO 40,440
--------------
101,100
Vacant Salisbury, NC 311,182
Vacant Garland, TX 52,241
</TABLE>
(1) The Company operates a hotel business at this property.
-12-
<PAGE> 14
Item 3. Legal Proceedings.
As of the date hereof, Registrant is not a party to any material
pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
On October 16, 1997, the CPA(R) Partnerships began the solicitation
of consents from limited partners to approve the merger of the Partnership with
all of the CPA(R) Partnerships into Carey Diversified LLC, a Delaware limited
liability company. Limited Partners were offered the opportunity to vote to
approve or disapprove the merger and to choose either interests ("Listed
Shares") in the Carey Diversified LLC or interests ("Subsidiary Partnership
Units") in the partnership which survived the merger. The solicitation period
ended on December 16, 1997. The results of the voting were as follows:
<TABLE>
<CAPTION>
Units Voted Units Voted Units Voted Units Not
Yes No Abstaining Voting
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Merger of Partnership
with Carey Diversified 405,728 69.92% 12,586 2.17% 2,960 0.51% 158,993 27.4%
</TABLE>
<TABLE>
<CAPTION>
Subsidiary
Listed Shares Partnership Units
------------- -----------------
<S> <C> <C>
Number of Units
Electing 570,134 10,133
</TABLE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Listed Shares are listed on the New York Stock Exchange. Trading
commenced on January 21, 1998.
-13-
<PAGE> 15
Item 6. Selected Financial Data.
The following table sets forth selected combined operating and
balance sheet information on a combined historical basis, for the CPA(R)
Partnerships. The following information should be read in conjunction with the
financial statements and notes thereto for the Company included elsewhere
herein. The combined historical operating and balance sheet information of the
CPA(R) Partnerships as of December 31, 1995, 1996, and 1997, and for the years
ended December 31, 1994, 1995, 1996, and 1997 have been derived from the
historical Combined Financial Statements audited by Coopers & Lybrand L.L.P.,
independent accountants. The combined historical operating information for the
year ended December 31, 1993 and the historical balance sheet information as of
December 31, 1993 and 1994, have been derived from the unaudited combined
financial statements of the Company.
(in thousands)
<TABLE>
<CAPTION>
Operating Data 1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 109,027 $ 109,137 $ 107,946 $ 102,731 $ 98,347
Income before extraordinary items 33,790 38,456 49,363 45,547 40,561
Distributions 50,638 35,589 57,216 34,173 43,620
Cash provided by operating activities 45,673 45,131 63,276 50,983 49,559
Cash provided by (used in) investing
activities 21,051 37,136 24,327 19,545 (518)
Cash used in financing activities (66,071) (70,045) (105,578) (69,686) (59,008)
Balance Sheet Data
Real estate, net (1) 345,199 330,671 301,505 271,660 240,498
Investment in direct financing leases 260,663 244,746 218,922 215,310 216,761
Total assets 679,284 659,047 582,324 544,728 523,420
Mortgages and notes payable 358,768 325,886 274,737 227,548 207,627
Long-term obligations (2) 322,539 284,291 233,300 187,414 150,907
</TABLE>
(1) Real estate leased to others accounted for under the operating method and
operating real estate, net of accumulated depreciation.
(2) Represents mortgage and note obligations due after more than one year.
-14-
<PAGE> 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Carey Diversified LLC ("Carey Diversified" or the "Company") which
commenced public trading on the New York Stock Exchange on January 21, 1998 was
organized to combine and continue the business of the nine Corporate Property
Associates real estate limited partnerships. The Partnerships own and manage a
diverse portfolio of real properties, generally leased to corporate tenants
pursuant to long-term net leases. With the Consolidation of the nine CPA(R)
Partnerships into Carey Diversified, effective January 1, 1998, the Company will
use the corporate finance, asset valuation and structuring capabilities of its
management team to expand the existing net lease Partnership portfolio and to
use such expertise, as appropriate, to engage in new lines of business.
From 1979 through 1991, the CPA(R)Partnerships raised approximately
$400 million of equity through public offerings of Limited Partnership Units.
Each CPA(R) Partnership was structured so that holders of limited partnership
units anticipated a return of their investment over the finite life of the
Partnership with a disposition strategy that included the sale of assets and
liquidation of the Partnership. Accordingly, each CPA(R) Partnership was
structured so that there would be no additional raising of equity after the
initial offering, nor, after a defined period, reinvestment of sales proceeds in
new properties.
This structure restricted the ability of a CPA(R) Partnership to
increase its asset base after the investment of offering proceeds was completed.
As a Partnership disposed of a property, its asset base and income from
continuing operations would decrease. Further, the stated objective of a
Partnership was to use its cash flow to pay distributions at an increasing rate
rather than for reinvestment. In contrast, the Company is an infinite life
entity that has the ability to raise additional equity capital either through
public stock or debt offerings or by exchanging shares in the Company to acquire
properties. Management will have greater flexibility in evaluating whether
shareholder value will better benefit from the reinvestment of a portion of its
cash flow in acquiring properties or in increasing its rate of distributions.
The historical results of operations described below may not reflect future
operating results because the flexibility to pursue strategies to increase the
Company's asset base was not possible under the constraints of the finite life
and static structure of the CPA(R) Partnerships.
Limited Partners in the CPA(R) Partnerships that elected to receive
Listed Shares in the Company in exchange for Limited Partnership Units were
issued 23,225,967 Listed Shares on the effective date. The listing of the Listed
Shares on the New York Stock Exchange provides the holders thereof with
liquidity. The allocation of Listed Shares was based on Total Exchange Value as
determined pursuant to an independent valuation.
Results of Operations:
Net income for the year ended December 31, 1997 decreased by
$4,734,000 as compared with net income for the year ended December 31, 1996. The
decrease was due to increases in general and administrative and property
expenses, property writedowns, a decrease in earnings from the Company's hotel
operations and a decrease in gains on asset dispositions. The effect of these
items was partially offset by an increase in other income and decreases in
interest expense and depreciation. Lease revenues (rental income and interest
income from direct financing leases) were substantially unchanged.
The increase in general and administrative costs was primarily the
result of administrative costs incurred in connection with the evaluation of
Partnership liquidity alternatives and the structuring of the Consolidation. The
increase in property expenses reflected (i) higher management fees, determined
in accordance with the Agreement of Partnership of each CPA(R) Partnership, (ii)
increased legal fees as a result of the CPA(R) Partnerships seeking to preserve
its interests in both existing bankruptcy claims against former and current
lessees and disputes with current lessees, (iii) leasing commissions paid to
brokers in the remarketing of properties, (iv) operating costs for those
properties that are not subject to net leases and (v) charges incurred in
connection with evaluating reserves for uncollected rent. The increase in
property writedowns reflected the writedown of a property held for sale pursuant
to the exercise of a purchase option to an amount equal to the estimated
proceeds to be received on sale and the evaluation of the fair value on two
other properties during the year. A full year's lease revenues from leases with
Sports & Recreation, Inc. and Excel Communications, Inc., an increase by the
United States Postal Service for space leased at the property in Bloomingdale,
Illinois from 34% to 52% of such leasable space, the benefit from the 1996 lease
modification and extension agreement with Hughes Markets, inc. and several rent
increases, generally based on formulas
-15-
<PAGE> 17
indexed to increases in the Consumer Price Index, offset the reduction in lease
revenues resulting from the sale of properties in 1996 and the expiration of the
Advanced System Applications lease at the Bloomingdale property
The decrease in earnings from hotel operations resulted from the
disposition of two hotel properties in 1996 as earnings for the three remaining
hotels operated by the Company and located in Alpena, Petosky and Livonia,
Michigan increased in 1997. For the three remaining hotels, operating earnings
increased by more than $400,000, or approximately 12%, as a result of a 3.5%
increase in revenues with no change in operating expenses. The increase in
revenues reflects moderate increases in both overall occupancy and average room
rates. Other income included $2,467,000, received as distributions in bankruptcy
claims from former tenants and equity income of $2,076,000 including $1,472,000
from the Company's equity interest in the operating partnership of American
General Hospitality Corporation, a publicly traded real estate investment trust
specializing in hotel properties. The decrease in interest expense was the
result of decreasing mortgage balances resulting from both prepayments and
scheduled amortizing payments of mortgage principal. The decrease in
depreciation was due to the disposition of properties in both 1997 and 1996.
Net income for the year ended December 31, 1996 decreased by
$7,275,000 as compared with the year ended December 31, 1995, Several
nonrecurring items; however, are reflected in the results for 1995 including
$3,207,000 of extraordinary gains from the extinguishments of mortgage debt and
a gain of $11,499,000 on the settlement of a dispute with The Leslie Fay
Company. Excluding extraordinary items and other gains for the comparable years,
income (including the effect of minority interest) would have reflected an
increase in earnings of $7,173,000 for 1996. The increase in income, as
adjusted, was the result of lower interest, depreciation and general and
administrative expenses, and a higher level of property writedowns in 1995 as
compared with 1996 and was partially offset by lower hotel earnings. Lease
revenues decreased by approximately 2%, primarily due to the sale of properties.
The decrease in interest expense was due to the prepayment of
several mortgages in both 1995 and 1996 and the continuing amortization of the
Company's mortgage debt. The decrease in depreciation reflected the effect of
property sales, while the decrease in general and administrative expenses was
due to costs incurred in 1995 for state taxes and nonrecurring costs related to
the relocation of the CPA(R) Partnerships' offices. The property writedown in
1996 related to the hotel in Rapid City, South Dakota and establishing its fair
value at an amount equal to its anticipated sales price. Hotel earnings
decreased by $1,058,000 reflecting the exchange of the Kenner, Louisiana Holiday
Inn New Orleans Airport for units in the operating partnership of American
General Hospitality in July 1996 and the sale of the Rapid City Holiday Inn in
October 1996. Hotel earnings at the three remaining hotels increased with such
increases ranging from 7% to 13%.
The Company exchanged its ownership interests in the Kenner hotel
for 960,672 units of the American General Hospitality operating partnership.
Management's expectation was that the exchange would eliminate the uncertainty
and fluctuation in cash flow related to operating a single hotel by a CPA(R)
Partnership as the operating partnership owns a diversified portfolio of hotel
properties and continues to acquire properties. The Company has the right to
exchange its units on a one-for-one basis for shares of American General
Hospitality common stock. While conversion of units to shares would be taxable
to holders of Listed Shares, the shares would be freely transferable on
conversion. The quoted market value of a share of common stock at December 31,
1997 was $26 3/4 resulting in an aggregate value as of that date of
approximately $25,700,000, if converted.
Gains realized in 1996 included a gain of $4,408,000 on the sale of
a warehouse property in Hodgkins, Illinois leased to GATX Logistics, Inc. as
well as the sale of the Rapid City hotel. Management sold the Rapid City
property, after concluding that the cost of upgrading the hotel to meet the core
modernization plan of Holiday Inn and retain the Holiday Inn affiliation would
not provide an adequate return on the additional investment. Revenues and
profitability of the Rapid City operation were expected to decrease from any
change in hotel chain affiliations.
Lease revenues of the Company are expected to decrease in 1998 as a
result of the expiration of a lease in June 1997 with Advanced System
Applications, the termination of the Gould, Inc. lease in November 1997 granted
in exchange for a settlement payment by Gould and the expiration of a lease with
Hughes, in April 1998. While revenue from these lessees represented
approximately 12% of 1997 lease revenues, both the Hughes and Advanced System
Applications lease had been renegotiated in prior years at rents substantially
in excess of market rates. The Hughes lease provided for a final rental payment
of
-16-
<PAGE> 18
$3,500,000 which the Company had initially anticipated as being needed for
retrofitting the special purpose property and remarketing costs. Because the
Company has entered into a lease with Copeland Beverage Group for that property
which will go into effect when Hughes Markets vacates, the Company will not need
to use the final payment from Hughes as initially anticipated. In addition, the
annual rent from the Copeland Beverage lease will approximate the rents received
from Hughes prior to the two-year extension term. Advanced System Applications
renegotiated its lease in 1994 in order to allow it to complete its lease
obligation in 1997 rather than 2003. The rents paid during this abbreviated term
were intended to provide the Company with a significant proportion of the rents
that would have been due over the remainder of the original term. A portion of
the increased rents were used to amortize fully the loan on the Bloomingdale
property so that the carrying costs of the property do not include any debt
service obligations. The Company is remarketing the remaining leasable space.
Although the Gould lease was originally scheduled to expire in August 1999, the
Company permitted an early termination in consideration for a lump sum payment
approximately of $1,830,000, received in January 1998, representing
approximately 80% of remaining rents for what would have been the remaining
lease term. Lockheed Martin Corporation has entered into a lease for a portion
of the vacated space. While it will be a challenge to fully replace the rents
from Hughes, Advanced System Applications and Gould, these transactions
reflected agreements that were negotiated for increased rents and/or lump sum
settlement amounts. Since January 1, 1998, the Company has entered into net
leases with America West Holdings Corporation for a new corporate headquarters
in Tempe, Arizona and Federal Express Corporation for an office building complex
in Collierville, Tennessee When these build-to-suit projects are completed, they
are expected to provide annual rents of up to $10,000,000. As described in the
overview, the use of resources to build the asset base is a direct result of the
Consolidation. Several lessees have purchase options that are exercisable over
the next several years. The Company will now have the option of investing the
proceeds from any such sales in new properties.
In connection with the Consolidation, the operations of the Livonia,
Michigan hotel and related license and franchise agreements have been
transferred to an affiliate, Livho, Inc. in 1998. Based on Management's
analysis, retaining direct control of the Livonia hotel could have adverse tax
consequences for holders of Listed Shares under the qualification regulations
for publicly-traded partnerships. The lease with Livho will initially provide
annual rent of $2,348,000.
The expense structure of the Company may be expected to change as a
result of the Consolidation. There were certain costs in maintaining nine
publicly-registered real estate limited partnerships that mitigated against any
benefit that could be achieved from economies of scale. Such benefits are more
likely to be available to the Company in the future. Certain of these
efficiencies will not be realized until the interests of the Subsidiary
Partnership Unitholders in the CPA(R) Partnerships are liquidated.
Because of the long-term nature of the Company's net leases,
inflation and changing prices should not unfavorably affect the Company's
revenues and net income or have an impact on the continuing operations of the
Company's properties. The Company's net leases have rent increases based on the
Consumer Price Index and may have caps on such CPI increases, or sales
overrides, which should increase operating revenues in the future. The moderate
increases in the CPI over the past several years will affect the rate of such
future rent increases. Management believes that hotel operations will not be
significantly impacted by changing prices. In addition, Management believes that
reasonable increases in hotel operating costs may be partially or entirely
offset by increases in room rates.
Liquidity and Capital Resources:
The CPA(R) Partnerships' portfolio of properties was acquired with
funds from the offering of each Partnership and with financing provided by
limited recourse mortgage debt. Cash flow from operations was used to pay
scheduled principal payment obligations on the mortgage debt and to fund
quarterly distribution to partners, generally at an increasing rate each
quarter. Net proceeds from the sale of assets and lump sums received from
disputes or bankruptcy claims were used, after reviewing the adequacy of cash
reserves, to pay off high rate mortgage debt or to fund special distributions to
partners.
While the Company will initially distribute a significant portion of
its cash flow to shareholders, Management will have the ability to evaluate
whether a greater return may be realized by reinvesting any available excess
cash flow, rather than increasing the rate of distributions. The Company will
have more flexibility in structuring its debt as well. The Company may use
non-amortizing and unsecured debt to lower debt service levels. On March 26,
1998, the Company entered into a three year revolving credit agreement
-17-
<PAGE> 19
which provides the Company with a line of credit of $150,000,000. The Company
initially expects to use the funds available under the line of credit to fund
acquisitions and build-to-suit projects and to pay off higher interest and/or
maturing debt. The use of unsecured financing will require the Company to meet
financial covenant requirements. Such requirements generally include maintaining
defined net worth levels and operating cash flow and interest coverage ratios.
The Company expects to meet its short-term liquidity requirements,
including general and administrative and property expenses, scheduled principal
payment installment obligations and distribution objectives from cash generated
from operations and from existing cash balances. The CPA(R) Partnerships
maintained working capital reserves in order to fund their nonrecurring needs,
including capital improvements and maturing debt. The CPA(R) Partnerships cash
balance at December 31, 1997 was $18,586,000. Such cash balance may decrease in
the future as the Company might have the opportunity to use lines of credit to
supplement cash flow from operations to fund short-term liquidity and working
capital reserve needs. Since March 26, 1998, the Company has used $55,000,000
from its newly acquired line of credit to satisfy outstanding mortgage and note
payable principal balances on higher interest debt.
The Company's cash balance decreased by $9,967,000 primarily as a
result of paying the CPA(R) Partnerships' distributions of $9,730,000 in
December 1997, that were intended to adjust the net assets of each CPA(R)
Partnership to conform with the estimate of Total Exchange Value, as specified
in the Consent Solicitation Statement/Prospectus. Without such distribution,
cash balances would have been unchanged from the prior year. Cash flow from
operations of $49,559,000 was sufficient to fund payment of four quarterly
distributions in January, April, July and October 1997, totaling $33,890,000,
scheduled principal installments of $8,166,000, debt prepayments of $6,699,000
and a portion of additional capital costs, primarily at the hotel properties of
$1,955,000. Other mortgage prepayments of $12,700,000 were paid off by acquiring
new limited recourse mortgage financing on the same properties. Mortgages were
refinanced based on the opportunity to lower interest rates, and, therefore,
debt service requirements.
The Company expects to have the opportunity to raise additional
equity capital through public offerings of shares or the issuance of shares in
exchange for properties. The Company is also adopting a dividend reinvestment
and share purchase plan which may allow the Company to raise additional capital
at little or no cost.
The Company's management company has responsibility for maintaining
the Company's books and records. An affiliate of the management company services
the computer systems used in maintaining such books and records. In its
preliminary assessment of Year 2000 issues, the affiliate believes that such
issues will not have a material effect on the Company's operations; however such
assessment has not been completed. The Company relies on its bank and transfer
agent for certain computer-related services and has initiated discussions to
determine whether they are addressing Year 2000 issues that might affect the
Company.
In June 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in full set general
purpose financial statements. SFAS No. 131 establishes accounting standards for
the way that public business enterprises report selected information about
operating segments in interim financial reports issued to shareholders. SFAS No.
130 and SFAS No. 131 are required to be adopted in 1998. The Company is
currently evaluating the impact, if any, of SFAS No. 130 and SFAS 131.
Item 8. Financial Statements and Supplementary Data.
(i) Report of Independent Accountants.
(ii) Combined Balance Sheets as of December 31, 1996 and 1997.
(iii) Combined Statements of Income for the years ended December 31, 1995,
1996 and 1997.
(iv) Combined Statements of Partners' Capital for the years ended
December 31, 1995, 1996 and 1997.
(v) Combined Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.
(vi) Notes to Combined Financial Statements.
-18-
<PAGE> 20
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Carey Diversified LLC,
We have audited the combined balance sheets of Corporate Property
Associates Partnerships, as described in Note 1, as of December 31, 1996 and
1997, and the related combined statements of income, partners' capital and cash
flows for each of the three years in the period ended December 31, 1997. We have
also audited the financial statement schedule included in this Annual Report on
Form 10K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of Corporate
Property Associates Partnerships as of December 31, 1996 and 1997, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the Schedule of
Real Estate and Accumulated Depreciation as of December 31, 1997, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the financial information required to
be included therein.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 27, 1998
-19-
<PAGE> 21
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
COMBINED BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
Pro Forma
Consolidated Balance
Historical Sheet as of
December 31, December 31,
1996 1997 1997
--------- --------- ---------
(audited) (audited) (unaudited)
ASSETS:
<S> <C> <C> <C>
Real estate leased to others:
Accounted for under the
operating method, net $ 247,580 $ 217,165 $ 349,753
Net investment in direct financing leases 215,310 216,761 268,376
--------- --------- ---------
Real estate leased to others 462,890 433,926 618,129
Operating real estate, net 24,080 23,333 22,805
Assets held for sale 434 14,382 19,772
Cash and cash equivalents 28,553 18,586 9,416
Equity investments 13,660 13,415 44,530
Other assets, net of accumulated amortization of
$2,023 and $2,109 at December 31, 1996 and
1997 and reserve for uncollected rent of
$1,103 at December 31, 1997 15,111 19,778 11,206
--------- --------- ---------
Total assets $ 544,728 $ 523,420 $ 725,858
========= ========= =========
LIABILITIES:
Mortgage notes payable $ 202,339 $ 182,718 $ 182,718
Notes payable to affiliate 500 200 200
Notes payable 24,709 24,709 24,709
Accrued interest payable 1,927 1,798 1,798
Accounts payable to affiliates 2,543 8,792 3,554
Other liabilities 9,415 10,565 5,567
--------- --------- ---------
Total liabilities 241,433 228,782 218,546
--------- --------- ---------
Minority interest (750) (6,250) (6,708)
--------- --------- ---------
Redeemable subsidiary partnership units 8,597
---------
Commitments and contingencies
PARTNERS' CAPITAL/
MEMBERS EQUITY:
Partners' capital 304,045 300,888
--------- ---------
Listed Shares, no par value, 23,959,101
shares issued and outstanding 505,423
---------
Total liabilities and
partners' capital/members' equity $ 544,728 $ 523,420 $ 725,858
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
-20-
<PAGE> 22
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
COMBINED STATEMENTS of INCOME
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Consolidated
Historical Statement of Income
For the Years Ended for the year ended
December 31, December 31,
----------------------------- ----------------------
1995 1996 1997 1997
---- ---- ---- ----
(audited) (audited) (audited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 42,255 $ 44,576 $ 43,045 $ 43,024
Interest income from direct
financing leases 36,391 32,644 34,574 33,560
Other interest income 1,700 1,681 1,270 1,270
Other income 2,523 1,901 4,935 4,935
Revenues of hotel operations 25,077 21,929 14,523 14,523
--------- --------- --------- ---------
107,946 102,731 98,347 97,312
--------- --------- --------- ---------
Expenses:
Interest 28,842 23,200 19,888 19,933
Depreciation and amortization 12,810 11,274 10,628 9,391
General and administrative 4,509 3,747 5,275 6,200
Property expenses 4,086 4,008 6,430 7,666
Writedowns to fair value 3,619 1,300 3,806 3,806
Operating expenses of hotel
operations 18,037 15,947 10,748 10,748
--------- --------- --------- ---------
71,903 59,476 56,775 57,744
--------- --------- --------- ---------
Income before net gains, minority
interest in income and extra-
ordinary items 36,043 43,255 41,572 39,568
Gain on sales of real estate and
securities, net 4,964 5,474 1,565 1,565
Gain on settlement 11,499
--------- --------- --------- ---------
Income before minority interest in
income and extraordinary items 52,506 48,729 43,137 41,133
Minority interest in income (3,143) (3,182) (2,576) (3,187)
--------- --------- --------- ---------
Income before extraordinary
items 49,363 45,547 40,561 37,946
Extraordinary gain (loss) on extinguishments
of debt, net of minority interest of
$(205) and $3 in 1995 and 1996 3,207 (252)
--------- --------- --------- ---------
Net income $ 52,570 $ 45,295 $ 40,561 $ 37,946
========= ========= ========= =========
Pro forma basic earnings per Listed Share
(24,055,145 pro forma weighted average
Listed Shares outstanding) $ 1.58
=========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
-21-
<PAGE> 23
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
COMBINED STATEMENTS of PARTNERS' CAPITAL
For the years ended December 31, 1995, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1994 $ 297,812
Distributions to partners (57,216)
Purchase of Limited Partnership Units (270)
Net income, 1995 52,570
---------
Balance, December 31, 1995 292,896
Distributions to partners (34,173)
Purchase of Limited Partnership Units (17)
Change in unrealized appreciation,
marketable securities 44
Net income, 1996 45,295
---------
Balance, December 31, 1996 304,045
Distributions to partners (43,620)
Change in unrealized appreciation,
marketable securities (98)
Net income, 1997 40,561
---------
Balance, December 31, 1997 $ 300,888
=========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
-22-
<PAGE> 24
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
COMBINED STATEMENTS of CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 52,570 $ 45,295 $ 40,561
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of deferred
financing costs, net of amortization of deferred
gains and deferred rental income 12,670 10,905 10,280
Extraordinary (gain) loss (3,207) 252
Gain on sales, net (4,964) (5,474) (1,565)
Gain on settlement (11,499)
Securities received in connection with settlement (1,690)
Minority interest in income 3,143 3,182 2,576
Distributions to minority interest (2,670) (2,334) (2,327)
Straight-line rent adjustments and
other noncash rent adjustments 364 (1,343) (2,310)
Writedowns to fair value 3,619 1,300 3,806
Restructuring consideration received 15,188
Provision for uncollected rents 322 247 1,576
Net changes in operating assets
and liabilities and other (2,260) (1,047) (1,348)
--------- --------- ---------
Net cash provided by operating
activities 63,276 50,983 49,559
--------- --------- ---------
Cash flows from investing activities:
Purchases of real estate and capital
expenditures (2,095) (3,420) (1,955)
Installment and settlement proceeds 5,436
Proceeds from sales of real estate
and securities 22,736 23,394 1,242
Other (1,750) (429) 195
--------- --------- ---------
Net cash provided by (used in)
investing activities 24,327 19,545 (518)
--------- --------- ---------
Cash flows from financing activities:
Distributions to partners (57,216) (34,173) (43,620)
Payments of mortgage principal (60,349) (63,171) (27,565)
Release of escrow funds in connection
with mortgage prepayments 2,395
Proceeds from mortgage financings and
notes payable 10,000 28,189 12,700
Proceeds from notes payable to affiliate 2,550 1,000 200
Payments of notes payable to affiliate (3,050) (500)
Deferred financing costs (293) (603) (66)
Other (270) (273) (157)
--------- --------- ---------
Net cash used in financing
activities (105,578) (69,686) (59,008)
--------- --------- ---------
</TABLE>
(Continued)
The accompanying notes are an integral part of the combined financial
statements.
-23-
<PAGE> 25
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
COMBINED STATEMENTS of CASH FLOWS, Continued
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash
and cash equivalents (17,975) 842 (9,967)
Cash and cash equivalents, beginning
of year 45,686 27,711 28,553
-------- -------- --------
Cash and cash equivalents,
end of year 27,711 $ 28,553 $ 18,586
======== ======== ========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<CAPTION>
<S> <C>
A. Accrued preferred distribution $ 5,151
=========
</TABLE>
B. In July 1996, the Group exchanged its interest in a hotel property and
related assets and liabilities for units in the operating partnership of
American General Hospitality Corporation, a publicly-traded real estate
investment trust (see Note 15). The assets and liabilities transferred
were as follows:
<TABLE>
<CAPTION>
<S> <C>
Operating real estate, net of accumulated
depreciation $ 16,098
Mortgage note payable (7,304)
Other assets and liabilities transferred, net 69
---------
Equity investment $ 8,863
=========
</TABLE>
C. In connection with foreclosure of a property in 1997, the Group
transferred the property to the lender and was released from the
obligations of the limited recourse mortgage loan. The gain on the
foreclosure was as follows:
<TABLE>
<CAPTION>
<S> <C>
Mortgage loan payable released $ 4,755
Other liabilities and assets, net 91
Carrying value of property transferred (3,889)
---------
Gain on foreclosure $ 957
=========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
-24-
<PAGE> 26
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
1. Organization and Basis of Combination:
A. The combined financial statements consist of interests in nine
Corporate Property Associates ("CPA(R)") real estate limited
partnerships (individually, a "Partnership"), their wholly-owned
subsidiaries and Carey Diversified LLC ("Carey Diversified")
(collectively, the "Group") which have been presented on a combined
basis at historical cost because of the affiliated general partners,
common management and common control and because the majority
ownership interests in the CPA(R) Partnerships was transferred to
Carey Diversified, effective January 1, 1998, pursuant to a
Consolidation transaction described below. All materialinter-entity
transactions have been eliminated. The General Partners' interest
in the CPA(R) Partnerships is classified under minority interest
as such interest in the CPA(R) Partnerships will be maintained
subsequent to January 1, 1998 by two special limited partners,
William Polk Carey, formerly the Individual General Partner of the
nine CPA(R) Partnerships and Carey Management LLC ("Carey
Management"). Effective January 1, 1998, the exchange of CPA(R)
Partnership Limited Partner interests for interests in Carey
Diversified ("Listed Shares") will be accounted for as a purchase
and recorded at the fair value of the Listed Shares exchanged. The
exchange of the General Partner's interests for Listed Shares will
be accounted for on the historical basis of accounting.
The Group has been engaged in the net leasing of industrial and
commercial real estate. The future business activities of the Group
will not necessarily be limited to net leasing. The CPA(R)
Partnerships referred to above are as follows:
Corporate Property Associates
Corporate Property Associates 2
Corporate Property Associates 3
Corporate Property Associates 4, a California limited
partnership
Corporate Property Associates 5
Corporate Property Associates 6 - a California limited
partnership
Corporate Property Associates 7 - a California limited
partnership
Corporate Property Associates 8, L.P., a Delaware limited
partnership
Corporate Property Associates 9, L.P., a Delaware limited
partnership
B. On October 16, 1997, Carey Diversified distributed a Consent
Solicitation Statement/Prospectus to the Limited Partners of the
nine CPA(R) Partnerships that described a proposal to consolidate
the Partnerships. The General Partner's proposals that each of the
nine CPA(R) limited partnerships be merged with a corresponding
partnership of Carey Diversified, of which Carey Diversified is the
general partner, were approved by the Limited Partners of all nine
of the CPA(R) Partnerships. Each limited partner had the option of
either exchanging his or her limited partnership interests for an
interest in Carey Diversified ("Listed Shares") or to retain a
limited partnership interest in the applicable subsidiary
partnership ("Subsidiary Partnership Units"). On January 1, 1998,
23,225,967 Listed Shares and 10,133 Subsidiary Partnership Units
were issued in exchange for limited partnership units. The General
Partners received 733,134 Listed Shares for their interest in their
share of the appreciation in the Group's properties. W.P. Carey has
received warrants to purchase 2,284,800 Listed Shares at $21 per
share and 725,930 Listed Shares at $23 per share as compensation for
investment bank services performed in connection with structuring
the Consolidation. The warrants will be exercisable for 10 years,
beginning January 1, 1999.
Listed Shares commenced public trading on the New York Stock Exchange
on January 21, 1998. Subsidiary Partnership Units provide
substantially the same economic interest and legal rights as those
of a limited partnership unit in a CPA(R) Partnership, but are not
listed on a securities exchange. A liquidating distribution to
holders of Subsidiary Partnership Units will be made after an
appraisal of an applicable CPA(R) Partnerships appraisal in the time
frame specified to each Partnership in the Consent Solicitation
Statement/Prospectus.
-25-
<PAGE> 27
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
C. The unaudited pro forma Consolidated Balance Sheet as of December
31, 1997 is presented as if the Consolidation transaction and
related issuance of Listed Shares had occurred on December 31, 1997.
The unaudited pro forma Consolidated Statement of Income is
presented as if the Consolidation Transaction had occurred as of
January 1, 1997. The pro forma adjustments are based upon estimates
which are subject to final adjustment. The unaudited pro forma
financial statements are not necessarily indicative of what the
actual financial position would have been at December 31, 1997 and
of what actual results of operations of the Group would have been
for the year then ended, nor do they purport to represent the
future financial position or future results of operations of Carey
Diversified and subsidiaries. In Management's opinion, all
adjustments necessary to reflect the Consolidation transaction and
related issuance of Listed Shares have been made.
The most significant pro forma adjustments relate to the revaluation
of assets and liabilities to fair value and elimination of certain
deferred charges and deferred credits at December 31, 1997, and
adjustments to revenues and expenses resulting from such
revaluation, elimination of the current year's effect of the
amortization of deferred charges and deferred credits and
recognizing estimates for certain incremental recurring expenses
applicable to the new entity. The real estate assets have been
valued by an independent appraiser. The redemption value for
redeemable Subsidiary Partnership Units is based on the exchange
value of limited partnership units to Listed Shares of the
applicable CPA(R) Partnership.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS No. 128") which establishes standards for computing
earnings per share. The adoption of SFAS No. 128 had no impact on
the Group's pro forma financial statements because the effect of
stock warrants was anti-dilutive. As a result the Group has
presented basic per-share amounts in the accompanying pro forma
Consolidated Statement of Income.
2. Summary of Significant Accounting Policies:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The most
significant estimates relate to the assessment of recoverability of
real estate assets. Actual results could differ from those
estimates.
Real Estate Leased to Others:
Real estate is leased to others on a net lease basis, whereby the
tenant is generally responsible for all operating expenses relating
to the property, including property taxes, insurance, maintenance,
repairs, renewals and improvements.
The Group diversifies its real estate investments among various
corporate tenants engaged in different industries and by property
type throughout the United States. No lessee currently represents
10% or more of total leasing revenues (see Note 10).
The leases are accounted for under either the direct financing or
operating methods. Such methods are described below:
Direct financing method - Leases accounted for under the
direct financing method are recorded at their net investment
(Note 5). Unearned income is deferred and amortized to income
over the lease terms so as to produce a constant periodic rate
of return on the Group's net investment in the lease.
-26-
<PAGE> 28
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
Operating method - Real estate is recorded at cost, rental
revenue is recognized on a straight-line basis over the term
of the leases and expenses (including depreciation) are
charged to operations as incurred.
Substantially all of the Group's leases provide for either scheduled
rent increases, periodic rent increases based on formulas indexed to
increases in the Consumer Price Index or sales overrides.
For properties under construction, interest charges are capitalized
rather than expensed and rentals received are recorded as a
reduction of capitalized project (i.e. construction) costs in
accordance with Statement of Financial Accounting Standards No. 67.
Operating Real Estate:
Land and buildings and personal property are carried at cost.
Renewals and improvements are capitalized while replacements,
maintenance and repairs that do not improve or extend the lives of
the respective assets are expensed currently.
Assets Held for Sale:
Assets held for sale are accounted for at the lower of cost or fair
value, less costs to dispose.
Long-Lived Assets:
The Group assesses the recoverability of its long-lived assets,
including residual interests of real estate assets, based on
projections of undiscounted cash flows over the life of such assets.
In the event that such cash flows are insufficient, the assets are
adjusted to their estimated fair value.
Depreciation:
Depreciation is computed using the straight-line method over the
estimated useful lives of the properties which range from 5 to 50
years.
Cash Equivalents:
The Group considers all short-term, highly liquid investments that
are both readily convertible to cash and have a maturity of
generally three months or less at the time of purchase to be cash
equivalents. Items classified as cash equivalents include commercial
paper and money market funds. Substantially all of the Group's cash
and cash equivalents at December 31, 1996 and 1997 were held in the
custody of three financial institutions.
Other Assets and Liabilities:
Included in other assets are accrued rents and interest receivable,
escrow funds, deferred charges, deferred costs of Consolidation and
marketable securities. Included in other liabilities are accrued
interest payable, accounts payable and accrued expenses, deferred
rental income and deferred gains.
Escrow funds are funds that are restricted, primarily as additional
collateral on the mortgage financing for certain of the Group's
hotel properties. Such restricted amounts totaled $754 and $634 at
December 31, 1996 and 1997, respectively.
Deferred charges are costs incurred in connection with mortgage
financing and refinancing and are amortized over the terms of the
mortgages.
Deferred rental income is the aggregate difference for operating
method leases between scheduled rents which vary during the lease
term and rent recognized on a straight-line basis. Also included
-27-
<PAGE> 29
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
in deferred rental income are lease restructuring fees received
which are recognized over the remainder of the initial lease terms.
Deferred gains consist of assets acquired in excess of liabilities
assumed in connection with acquiring certain hotel operations and
certain funds received in connection with two loan refinancings
which are being amortized into income over 20 and 24 years,
respectively. The deferred gain on the acquisition of hotel
operations was realized in 1996 in connection with the sale of such
hotel.
Deferred costs of Consolidation represent certain costs related to
the consolidation of the CPA(R) Partnerships into Carey Diversified
which have been capitalized. Such consolidation costs will be
included in the revaluation of the Group's assets subsequent to
December 31, 1997.
Marketable securities are classified as available-for-sale
securities and are reported at fair value with the Group's interest
in unrealized gains and losses on these securities reported in
partner's capital. Such marketable securities have a cost basis and
fair value of $1,735 and $1,683, respectively, at December 31, 1997.
Reclassification:
Certain 1995 and 1996 amounts have been reclassified to conform to
the 1997 financial statement presentation.
Equity Investments:
The Group's limited partner interests in two real estate limited
partnerships in which such ownership is less than 50% are accounted
for under the equity method, i.e., at cost, increased or decreased
by the Group's pro rata share of earnings or losses, less
distributions. Equity income in the limited partnerships has been
included in other income in the accompanying combined financial
statements. The Group's income from these equity investments was
$565, $583 and $607 in 1995, 1996 and 1997, respectively.
Distributions received from such investments were $850, $795 and
$786 in 1995, 1996 and 1997, respectively. The Group is the sole
limited partner in the two partnerships with the general partner
interests owned by Corporate Property Associates 10 Incorporated
("CPA(R):10"), an affiliate. An ownership interest in a third
limited partnership in which CPA(R):10 owned the general partner
interest was written off in 1995.
An interest in the operating partnership of a publicly-traded real
estate investment trust acquired in July 1996 is also accounted for
under the equity method. The share of income from this investment
was $572 and $1,469 in 1996 and 1997, respectively (see Note 15).
Distributions received were $253 and $1,535 in 1996 in 1997,
respectively.
Federal Income Taxes:
None of the Partnerships is liable for Federal income tax purposes as
each partner recognizes his or her proportionate share of income or
loss in his or her tax return. Accordingly, no provision for income
taxes is recognized for financial statement purposes.
Distributions and Profits and Losses:
Partners' distributions and profits and losses are allocated in
accordance with the terms of the Agreements of individual
Partnerships.
-28-
<PAGE> 30
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
3. Transactions with Related Parties:
Through December 31, 1997, the Agreements of each of the Group's
Partnerships provided that the General Partners (consisting of W. P.
Carey & Co., Inc. ("W.P. Carey") or affiliated companies as
Corporate General Partners and William P. Carey as Individual
General Partner) were allocated between 1% and 10%, for the
applicable Partnership, of the profits and losses as well as
Distributable Cash From Operations, as defined, and the Limited
Partners were allocated between 90% and 99%, for the applicable
Partnership, of the profits and losses as well as Distributable Cash
From Operations. The Partners were also entitled to receive an
allocation of gains and losses from the sale of properties and to
receive net proceeds from such sales with such allocation and
distribution as defined in the Agreements. Effective January 1,
1998, as a result of the merger of the CPA(R) Partnerships with
subsidiary partnerships of Carey Diversified, Carey Diversified is
the sole general partner of the nine CPA(R) Partnerships. Carey
Diversified and holders of Subsidiary Partnership Units are
allocated between 90% and 99% of the profits and losses and
distributable cash of the applicable Partnership, and two special
limited partners, Carey Management LLC ("Carey Management"), an
affiliate, and William Polk Carey, are allocated between 1% and 10%
of the profits and losses and distributable cash of the applicable
Partnership.
In connection with the merger of the CPA(R)Partnerships with Carey
Diversified and the listing of Listed Shares of Carey Diversified on
the New York Stock Exchange, the former Corporate General Partners
of eight of the nine CPA(R)Partnerships satisfied provisions for
receiving a subordinated preferred return from the Partnerships
totaling $3,728 based upon the cumulative proceeds from the sale of
the assets of each Partnership since its inception. Such amount has
been included in accounts payable to affiliates as of December 31,
1997 in the accompanying combined financial statements. Payment of
the preferred return, made in January 1998, was contingent on
achieving a specified cumulative return to limited partners. For the
single Partnership that did not achieve the specified cumulative
return, the Group has also accrued the subordinated preferred return
of $1,423 as payable to affiliates as of December 31, 1997. To
satisfy the conditions for receiving the preferred return, the
Listed Shares of Carey Diversified must achieve a closing price
equal to or in excess of $23.11 for five consecutive trading days.
The General Partner believes that it is probable, as defined by
Statement of Financial Accounting Standards No. 5, that the
conditions for this Partnership paying the preferred return will be
achieved. The Exchange Values for the exchange of Limited
Partnership Units to Listed Shares of Carey Diversified was included
in calculating the cumulative return for each of the
CPA(R)Partnerships.
Under the Agreements, certain affiliates were entitled to receive
property management or leasing fees and reimbursement of certain
expenses incurred in connection with the Group's operations. General
and administrative reimbursements consist primarily of the actual
cost of personnel needed in providing administrative services
necessary to the operation of the Group. Property management and
leasing fees in 1995, 1996 and 1997 were $1,886, $916, and $1,139,
respectively. Effective January 1, 1998, the fees and reimbursements
are payable to Carey Management. General and administrative
reimbursements in 1995, 1996 and 1997 were $852, $911 and $1,788,
respectively.
For the years ended December 31, 1995, 1996 and 1997, fees
aggregating $652, $902 and $664, respectively, were incurred for
legal services in connection with the Group's operations and were
provided by a law firm in which the Secretary, until July 1997, of
the Corporate General Partners of the Partnerships is a partner.
The Group is a participant in an agreement with W.P. Carey and
certain affiliates for the purpose of leasing office space used for
the administration of the Group, other affiliated real estate
entities and W.P. Carey and for sharing the associated costs.
Pursuant to the terms of the agreement, the Group's share of rental,
occupancy and leasehold improvement costs is based on adjusted
-29-
<PAGE> 31
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
gross revenues, as defined. Expenses incurred in 1995, 1996 and 1997
were $964, $720 and $590, respectively.
In November 1995, the Group borrowed $2,550 from W.P. Carey in
connection with the retirement of a mortgage loan. The loans from
W.P. Carey were evidenced by two promissory notes, bearing interest
at the prime rate and required the Group to pay the entire principal
amount and accrued interest thereon on demand. Prior to December 31,
1997, the outstanding balances were paid in full.
4. Real Estate Leased to Others Accounted for Under the Operating Method:
Real estate leased to others, at cost, and accounted for under the
operating method is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997
---- ----
<S> <C> <C>
Land $ 73,310 $ 69,154
Buildings 266,193 241,601
-------- --------
339,503 310,755
Less: Accumulated depreciation 91,923 93,590
-------- --------
$247,580 $217,165
======== ========
</TABLE>
The scheduled future minimum rents, exclusive of renewals, under
noncancellable operating leases amount to $35,477 in 1998, $29,027
in 1999, $28,413 in 2000, $26,354 in 2001, $24,869 in 2002 and
aggregate $289,892 through 2016.
Contingent rentals were $1,583, $1,697 and $2,022 in 1995, 1996 and
1997, respectively.
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997
---- ----
<S> <C> <C>
Minimum lease payments
receivable $426,491 $402,530
Unguaranteed residual value 210,146 210,887
-------- --------
636,637 613,417
Less: Unearned income 421,327 396,656
-------- --------
$215,310 $216,761
======== ========
</TABLE>
The scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases amount to $28,163 in 1998,
$28,178 in 1999, $28,302 in 2000, $28,997 in 2001, $27,835 in 2002
and aggregate $402,530 through 2017.
Contingent rentals were approximately $4,889, $3,444 and $4,533 in
1995, 1996 and 1997, respectively.
-30-
<PAGE> 32
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
6. Operating Real Estate:
Operating real estate relating to the Group's hotel operations is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997
---- ----
<S> <C> <C>
Land $ 3,867 $ 3,867
Buildings 27,979 28,604
Personal property 5,581 5,489
-------- --------
37,427 37,960
Less: Accumulated depreciation 13,347 14,627
-------- --------
$ 24,080 $ 23,333
======== ========
</TABLE>
7. Mortgage Notes Payable and Notes Payable:
A. Mortgage Notes Payable:
Mortgage notes payable, substantially all of which are limited
recourse obligations, are collateralized by the assignment of
various leases and by real property with a gross amount of
approximately $344,514, before accumulated depreciation. As of
December 31, 1997, mortgage notes payable have interest rates
varying from 6.60% to 11.85% per annum and mature from 1998 to 2020.
Scheduled principal payments, including mortgages subject to
acceleration, during each of the next five years following December
31, 1997 and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1998 $ 37,068
1999 41,264
2000 4,875
2001 22,472
2002 10,543
Thereafter 66,496
--------
$182,718
========
</TABLE>
B. Notes Payable:
The Group's notes payable which aggregated $24,709 at December 31,
1996 and 1997 provide for quarterly payments of interest at a
variable rate of the London Inter-Bank Offered Rate plus 4.25% per
annum with such notes maturing between July 1999 and December 1999
at which time balloon payments for the entire outstanding principal
balance will be due. Each note obligation is recourse to the assets
of a specific Partnership.
Covenants under the notes limit the amount of limited recourse
indebtedness the applicable Partnership may incur. Additionally,
each Partnership must maintain certain debt coverage ratios, minimum
net worth and aggregate appraised property values. The debt coverage
ratios require each Partnership to maintain ratios of free operating
cash flow, as defined, to the debt service on the applicable note
ranging from 3:1 to 3.4:1 over the terms of the note. The net worth
and aggregate property values minimums range from $15,000 to
$25,000. Under the covenants, certain of the Partnerships have
limitations on the amount of total indebtedness that such
Partnership may incur. The Company is in compliance with the
covenants of the note payable agreements as of December 31, 1997.
-31-
<PAGE> 33
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
The note payable agreements require that the lender be offered the
proceeds from property sales as a principal payment. To date, the
lender has declined to accept all mandatory offers of proceeds.
Interest paid by the Group on mortgages and notes payable aggregated
approximately $28,197, $23,805, and $19,534 in 1995, 1996 and 1997,
respectively.
8. Distributions to Partners:
Distributions declared and paid to partners are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
1995:
Quarterly $35,962
Special 21,254
-------
$57,216
=======
1996:
Quarterly $33,350
Special 823
-------
$34,173
=======
1997:
Quarterly $42,828
Special 792
-------
$43,620
=======
</TABLE>
9. Income for Federal Tax Purposes:
Income for financial statement purposes differs from income for
Federal income tax purposes because of the difference in the
treatment of certain items for income tax purposes and financial
statement purposes. A reconciliation of accounting differences is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net income per Statements of Income $ 52,570 $ 45,295 $ 40,561
Excess tax depreciation (10,489) (8,440) (7,667)
Difference in recognition of gain from sales 7,272 3,532 562
Difference in the recognition of restructuring fees 14,491
Difference in timing of recognition of
purchase installments as income (5,881)
Writedowns to fair value 11,019 1,300 3,806
Provision for uncollected rents 322 247 1,576
Straight-line rent adjustments and
other noncash rent adjustments 120 (1,620) (2,570)
Minority interest 3,143 3,182 2,576
Other (890) (1,871) 204
-------- -------- --------
Income reported for Federal
income tax purposes $ 71,677 $ 41,625 $ 39,048
======== ======== ========
</TABLE>
-32-
<PAGE> 34
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
10. Industry Segment Information:
The Group's operations consist of two business segments (i) the
investment in and the leasing of industrial and commercial real
estate and (ii) owning and operating hotels.
For the years ended December 31, 1995, 1996 and 1997, the Group
earned its net leasing revenues (i.e., rental income and interest
income from direct financing leases) from over 75 lessees. A summary
of net leasing revenues including all current lease obligors with
more than $1,000 in annual revenues is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1995 % 1996 % 1997 %
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Hughes Markets, Inc. $ 1,734 2% $ 4,463 5% 5,784 7%
Dr Pepper Bottling Company of Texas 3,998 5 3,998 5 3,998 5
Detroit Diesel Corporation 3,496 5 3,645 5 3,645 5
Gibson Greetings, Inc. 7,234 9 3,384 4 3,466 5
Sybron International Corporation 3,311 4 3,311 4 3,311 4
Stoody Deloro Stellite, Inc. (a) 2,551 3 2,624 3 2,725 4
Quebecor Printing Inc. 2,569 3 2,533 3 2,618 4
AutoZone, Inc. 2,444 3 2,304 3 2,512 3
Pre Finish Metals Incorporated 2,436 3 2,408 3 2,421 3
Furon Company 2,539 3 2,528 3 2,416 3
Advanced System Applications, Inc. 4,693 6 4,586 6 2,267 3
Orbital Sciences Corporation 2,154 3 2,154 3 2,154 3
The Gap, Inc. 2,154 3 2,154 3 2,154 3
Simplicity Manufacturing, Inc. 1,997 3 1,997 3 1,997 3
CSS Industries, Inc./Cleo, Inc. 1,793 2 1,844 2
AP Parts International, Inc. 1,526 2 1,729 2 1,837 2
NVR, Inc. 1,803 3 1,814 2 1,819 2
Peerless Chain Company 1,280 2 1,611 2 1,709 2
Unisource Worldwide, Inc. 1,656 2 1,646 2 1,654 2
Red Bank Distribution, Inc. 1,350 2 1,401 2 1,401 2
Brodart, Co. 1,319 2 1,314 2 1,308 2
High Voltage Engineering Corp. 1,168 1 1,179 1 1,174 2
Lockheed Martin Corporation 1,035 1 1,035 1 1,131 1
Gould, Inc. 1,133 1 1,215 2 1,114 1
Duff-Norton Company, Inc. 1,021 1 1,021 1 1,021 1
Anthony's Manufacturing
Company, Inc. 1,073 1 876 1 876 1
GATX Logistics, Inc. 1,399 2 381 1
Other 19,573 25 18,116 26 19,263 25
------- ---- ------- ---- ------- ----
$78,646 100% $77,220 100% $77,619 100%
======= ==== ======= ==== ======= ====
</TABLE>
(a) Stoody Deloro Stellite, Inc. assigned its leases in 1997. Leases
were assigned to DS Group, Ltd. and Thermodyne Holdings Corp.,
respectively.
Results for the hotel properties are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues $ 25,077 $ 21,929 $ 14,523
Management fees paid to
unaffiliated hotel managers (594) (547) (368)
Other operating expenses (17,443) (15,400) (10,380)
-------- -------- -------
$ 7,040 $ 5,982 $ 3,775
======== ======== ========
</TABLE>
-33-
<PAGE> 35
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
11. Gain on Settlement:
In August 1995, the Group reached a settlement with The Leslie Fay
Company ("Leslie Fay") and its surety company regarding Leslie Fay's
lease with the Group. In connection with the settlement, the Group
recognized a gain of $11,499, which consisted of aggregate net cash
received from Leslie Fay and the surety company of $18,840 and the
waiving of the $383 accrued interest, offset by the writedown of
$7,400 and aggregate management fees, payable to an affiliate, of
$324 since the beginning of the dispute in 1992. Of the rent
received, $5,436 was received in 1995. Under the settlement
agreement, Leslie Fay was required to dismiss with prejudice all of
its suits filed against the Group, and the Group's bankruptcy claim
against Leslie Fay, as an unsecured creditor, was reduced to $2,650.
During 1997, the Group received distributions on its bankruptcy
claim of $1,691 consisting of securities of Leslie Fay, Inc. and
Sassco Fashions, Ltd. There is no assurance that the remaining
amount of the claim will be distributed.
As the fair value of the property was no longer affected by the
Leslie Fay lease, the Group wrote down the estimated fair value of
the property, net of anticipated selling costs, to $2,000 and
recognized a noncash charge of $7,400, which is netted against the
1995 gain of settlement.
In January 1996, the Group sold the vacant property to a third
party, net of transaction costs, for $1,854. The Group recognized an
additional writedown on the property to an amount equal to the net
sales proceeds, resulting in a charge to income in 1995 of $146.
Accordingly, no gain or loss was recognized in 1996 in connection
with the sale.
12. Gains and Losses on Disposition of Properties:
Significant sales of properties and securities are summarized as follows:
1997
In September 1996, the Group entered into a purchase and sale
agreement for the sale of the Group's property in Louisville,
Kentucky, leased to Winn-Dixie Stores, Inc. ("Winn-Dixie") for
$1,100 less selling costs. The Winn-Dixie property was sold in
August 1997 at which time, the Group received $1,042 and recognized
a gain on sale of $608. Such property was classified as real estate
held for sale as of December 31, 1996.
The Group owned two properties in Sumter and Columbia, South
Carolina that were leased to Arley Merchandise Corporation
("Arley"). In July 1997, the Arley lease was terminated by the
Bankruptcy Court in connection with Arley's voluntary petition of
bankruptcy. In connection with the termination of the lease, the
Partnership wrote off $300 of uncollected rents and wrote down the
Arley properties by $1,350. In May 1997, the lender on the limited
recourse mortgage loan collateralized by the Arley properties made a
demand for payment for the entire outstanding principal balance of
the loan of $4,755. In June 1997, the lender initiated a lawsuit for
the purpose of foreclosing on the Arley properties. The Group chose
not to contest the lender's actions, and in November 1997, the
ownership of the Arley properties was transferred to the lender and
the loan obligation was canceled. Since the loan was limited
recourse, the lender's sole recourse was to the Arley properties and
certain deposits. In connection with the foreclosure, the Group
recognized a gain of $957 on the difference between liabilities
forgiven and assets surrendered.
1996
In January 1996, the Group sold a multi-tenant property in Helena,
Montana whose primary tenant was IBM Corporation ("IBM") for $4,800.
Net of closing costs, the Group received cash proceeds of $1,741 and
assigned a mortgage loan obligation of $2,854 and accrued interest
of $12 thereon to the purchaser. A gain of $90 was recognized on the
sale. All of the Group's leases at the Helena property, including
the IBM lease, were assigned to the purchaser.
-34-
<PAGE> 36
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
In April 1996, the Group sold its warehouse property in Hodgkins,
Illinois leased to GATX Logistics, Inc. ("GATX") for $13,200 and
assigned the GATX lease to the purchaser. Net of the costs of sale
and amounts necessary to satisfy the $3,209 balance on the mortgage
loan collateralized by the Hodgkins property, the Group received
cash proceeds of $9,661 and recognized a gain of $4,408. The Group
used $7,477 of the cash proceeds from the Hodgkins sale to satisfy
two mortgage loan obligations which were scheduled to mature in
1996.
In 1985, the Group purchased a hotel in Rapid City, South Dakota,
which was operated as a Holiday Inn, with $6,800 of tax-exempt bonds
which were supported by a letter of credit issued by a third party.
In September 1994, the Group was advised by Holiday Inn that it
would need to upgrade the hotel's physical plant by January 1997 in
order to meet the requirements of a modernization plan adopted by
Holiday Inn or surrender its Holiday Inn license. Management
concluded that such additional investment required was not in the
best interests of the Group and determined to sell the property. In
1995, the Group reevaluated the fair value of the property and
recognized a noncash charge of $1,000. In 1996, the Group recognized
an additional charge of $1,300 as a writedown to fair value to an
amount Management believed would approximate the proceeds from a
sale.
In October 1996, the Group sold the property and the operating assets
and liabilities of the hotel for $4,105. The Group recognized a gain
of $785 on the sale and the bonds were paid off. The gain includes
the recognition of the release of unamortized deferred gains
relating to the acquisition of the hotel operation in 1991 from the
former lessee.
1995
In December 1995, the Group sold the food service facility in Jupiter,
Florida, at which it operated a restaurant, for $4,140, recognizing
a gain on the sale of $1,019.
In June 1995, the Group sold its property in Allentown, Pennsylvania,
which it purchased in June 1983 for $11,702, to its lessee, Genesco,
Inc. ("Genesco") for $15,200 and recognized a gain on the sale of
$3,330, net of certain costs. In connection with the sale, the Group
paid off an existing limited recourse mortgage loan on the Genesco
property for $5,723.
In August 1985, the Group purchased from and net leased to Industrial
General Corporation ("IGC") and certain of its wholly-owned
subsidiaries, seven properties located in Elyria and Bellville,
Ohio, Forrest City and Bald Knob, Arkansas, Carthage, New York,
Saginaw, Michigan and Newburyport, Massachusetts for $9,100.
Subsequent to the purchase, the Group agreed to exchange the Saginaw
property for an expansion of the Newburyport facility, severed the
Carthage property from the lease sold the Forrest City property. In
July 1995, IGC filed a voluntary petition of bankruptcy. In
connection with IGC's sale of its plastics division, in September
1995, the Group entered into a series of transactions which resulted
in the termination of the IGC lease, the sale of the Bald Knob,
Bellville and Newburyport properties and the full satisfaction of
the mortgage loan obligation collateralized by all of the IGC
properties that had been scheduled to mature at that time. In
connection with the sale of the Bald Knob property to IGC, the Group
received cash of $987 and IGC, with the consent of the mortgage
lender, assumed the Group's mortgage obligation of $720 and accrued
interest of $6. Additionally, the Group received an additional $200
in installments subsequent to the sale. The Bellville and
Newburyport properties were sold for $2,400 in cash to the third
party that acquired the assets of the IGC plastics division. The
Group used $2,200 of the proceeds to pay off the remaining balance
on the matured mortgage loan obligation on the IGC and FMP
properties. In connection with the sale of the three properties, the
Group realized a loss of $1,720 in 1995.
-35-
<PAGE> 37
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
In January 1984, the Group purchased properties in Gordonsville,
Virginia and in North Bergen, New Jersey for $7,000 and entered into
a net lease with Liberty Fabrics of New York ("Liberty"). In
December 1993, Liberty notified the Group of its intention to
exercise its purchase option on the properties. On December 29,
1994, the Group and Liberty terminated the lease and agreed that the
properties would be transferred to Liberty for $9,359, subject to a
final determination of the fair value of the property. The final
determination was made with no adjustment to the fair market value,
thereby completing the sale. As a result, the Group recognized a
gain in 1995 on the sale of the properties of $2,334.
13. Extraordinary Gains and Losses on Extinguishment of Debt:
1996
In 1996, the Group obtained $6,400 of new limited recourse mortgage
financing on one of its properties leased to The Gap, Inc. (the
"Gap"). Proceeds from the mortgage financing were used to pay off
the remaining balance of $6,195 on an existing mortgage loan on the
Gap property, certain refinancing costs and prepayment charges of
$255. The prepayment charges have been reflected as an extraordinary
charge on the extinguishment of debt in the accompanying combined
financial statements. The new mortgage loan is a limited recourse
obligation and is collateralized by a deed of trust and a lease
assignment. The loan bears interest at 7.25% per annum and provides
for monthly payments of principal and interest of $58 based on a
15-year amortization schedule. The retired mortgage loan provided
for quarterly payments of $211 at an annual interest rate of 10%.
The new mortgage loan has a term of three years and a balloon
payment of $5,608 will be due on the maturity date, May 1, 1999.
1995
In connection with the sale of its property in Jupiter, Florida in
December 1995, the Group satisfied the mortgage notes collateralized
by the Jupiter property. Under a prior agreement, certain principal
and interest payments were deferred through 1995. The prior
agreement provided that the payment of deferred amounts would be
forgiven under certain circumstances including the payment in full
of all other amounts due under the mortgage notes. At the time of
sale, the Group paid all amounts due and met the conditions for
forgiveness of the deferred amounts. Accordingly, the Group
recognized an extraordinary gain of $1,324 on the extinguishment of
debt on the satisfaction of the Jupiter property mortgage notes.
The Group recognized a gain on the satisfaction of the mortgage loan
collateralized by the property leased to Anthony's Manufacturing
Company, Inc. ("Anthony's"). In May 1995, the Group paid off and
satisfied the mortgage loan collateralized by the Anthony's
properties. The lender accepted payments aggregating $5,440 to
satisfy an outstanding principal balance of $6,854 and accrued
interest thereon of $705. In connection with the satisfaction of the
debt, the Group recognized an extraordinary gain on the
extinguishment of debt of $2,088, net of certain related legal
costs. The Group also received $1,550 from Anthony's under a
settlement agreement.
-36-
<PAGE> 38
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
14. Writedowns to Fair Value:
Significant writedowns of properties to fair value are summarized as
follows:
As described in Note 16, Simplicity Manufacturing, Inc. ("Simplicity")
notified the Group that it was exercising its option to purchase the
property it leases from the Group in Port Washington, Wisconsin on
April 1, 1998. The Group concluded that it was not likely that the
agreed-upon exercise price would be in excess of the minimum
exercise price of $9,684. Accordingly, the Group recognized a
noncash charge of $2,316 in 1997 on the writedown of the property to
the anticipated exercise price.
The Group owned two properties in Sumter and Columbia, South
Carolina leased to Arley. As more fully described in note 12, the
Group reevaluated the fair value of the property in connection with
the termination of the Arley lease and recognized a noncash charge
of $1,350 in 1997.
The Group owned a hotel property in Rapid City, South Dakota which
it sold in October 1996. As more fully described in Note 12, the
Group reevaluated the fair value of the property in 1995 and
recognized a noncash charge of $1,000 on the writedown. An
additional noncash charge of $1,300 was recorded in 1996.
In connection with the sale of the IGC properties as described in
Note 12, the Group retained ownership of a property in Elyria, Ohio
and wrote off its carrying value of $692 in 1995.
In January 1991, the Group and CPA(R):10 formed a limited
partnership, Hope Street Connecticut Limited Company ("Hope
Street"), for the purpose of purchasing land and an office building
in Stamford, Connecticut for $11,000. The Group contributed $1,500
to Hope Street for a 31.915% limited partnership interest and
CPA(R):10 contributed $3,200 for a 68.085% general partnership
interest. Hope Street used this equity and assumed an existing
limited recourse mortgage loan of $6,300 collateralized by the
property and also assumed an existing net lease, as lessor, with
Xerox Corporation ("Xerox"), as lessee. The mortgage loan was an
interest only obligation with annual debt service of $639 and was
scheduled to mature on September 1, 1995 with a balloon payment of
$6,300 due at that time.
In August 1995, Xerox vacated the property at the end of the initial
term. Hope Street was unsuccessful in its efforts to remarket the
property and find a new lessee even at a substantially lower annual
rental. Based on its assessment of current conditions for the
Stamford market, the general partner concluded that the fair value
of the property was less than the outstanding balance of the
mortgage loan. Given these circumstances, the general partner
considered various alternatives, including negotiating with the
lender to extend the maturity, restructure the loan or satisfy the
balloon payment obligation at a substantial discount. All of these
alternatives were rejected by the lender. Since the Group did not
anticipate receiving any further cash distributions from Hope Street
and did not have any obligation to contribute additional funds in
Hope Street, the Group wrote off its remaining equity investment in
Hope Street and recognized a charge of $1,173 in 1995. The property
was transferred to the lender in connection with a foreclosure
proceeding which was completed in September 1997, at which time Hope
Street was released from its limited recourse mortgage obligation.
-37-
<PAGE> 39
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
15. Equity Investment in American General Hospitality Operating Partnership
L.P.:
The Group purchased a hotel property in Kenner, Louisiana, in June
1988. The Group assumed operating control of the hotel in 1992 after
evicting the lessee due to its financial difficulties. On July 30,
1996, the Group completed a transaction with American General
Hospitality Operating Partnership L.P. (the "Operating
Partnership"), the operating partnership of a newly-formed real
estate investment trust, American General Hospitality Corporation,
("AGH"), in which the Group received 920,672 limited partnership
units in exchange for the hotel property and its operations. In
connection with the exchange the Group and the Operating Partnership
assumed the mortgage loan obligation collateralized by the hotel
property of $7,304.
The exchange of the hotel property for limited partnership units was
treated as a nonmonetary exchange for tax and financial reporting
purposes. The Group's interest in the Operating Partnership is being
accounted for under the equity method. The Group has the right to
convert its equity interest in the Operating Partnership to shares
of common stock in AGH on a one-for-one basis. AGH completed an
initial public offering during 1996. The Partnership's carrying
value for the limited partnership units at the time of the exchange
of $9,292 was based on the historical basis of assets transferred,
net of liabilities assumed by the Operating Partnership; cash
contributed and costs incurred to complete the exchange.
As of September 30, 1997, the unaudited consolidated financial
statements of AGH reported total assets of $562,013 and
shareholders' equity of $284,629 and for the nine months then ended
revenues of $43,439 and net income of $17,212. As of December 31,
1997, AGH's quoted per share market value was $26 3/4 resulting in
an aggregate value of approximately $24,628, if converted. The
carrying value of the equity interest in the Operating Partnership
as of December 31, 1997 was $9,545. For the period from July 31,
1996 to December 31, 1996, and for the year ended December 31, 1997,
the Group's share of the Operating Partnership's earnings were $572
and $1,469, respectively.
16. Assets Held for Sale:
In March 1997, Simplicity notified the Group that it was exercising
its option to purchase the property it leases from the Group in Port
Washington, Wisconsin on April 1, 1998. The agreed-upon option price
is $9,684. After paying the limited recourse mortgage loan on the
Simplicity properties, the Group will realize cash proceeds of
approximately $5,362, before any selling costs. Annual cash flow
from the property (rent less mortgage debt service on the property)
is $934. The carrying value of the Simplicity property at December
31, 1997 was $9,684 (also see Note 14).
In December 1996, KSG, Inc. ("KSG") notified the Group that it was
exercising its option to purchase the property it leases in
Hazelwood, Missouri. The exercise price will be the greater of
$4,698 (the Group's purchase price for the property in March 1987)
or fair market value as encumbered by the lease. The option provides
that the sale of the property occur no later than March 8, 1998. KSG
and the Group; however, have not been able to reach an agreement as
to the exercise price. The fair market value is determined, in part,
by estimating future rents for the remaining lease terms including
the renewal terms. KSG is disputing the methodology used to
calculate a rent increase that went into effect in 1997.
Accordingly, determination of the exercise price is contingent on
resolving the dispute. The carrying value of the KSG property at
December 31, 1997 was $4,698.
-38-
<PAGE> 40
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
17. Environmental Matters:
Substantially all of the Group's properties, other than the hotel
properties, are currently leased to corporate tenants, all of which
are subject to environmental statutes and regulations regarding the
discharge of hazardous materials and related remediation
obligations. The Group generally structures a lease to require the
tenant to comply with all laws. In addition, substantially all of
the Group's net leases include provisions that require tenants to
indemnify the Group from all liabilities and losses related to their
operations at the leased properties. The costs for remediation, that
are expected to be performed and paid by the affected tenant, are
not expected to be material. In the event that the Group absorbs a
portion of any costs, Management believes such expenditures will not
have a material adverse effect on the Group's financial condition,
liquidity or results of operations.
In 1994, based on the results of Phase I environmental reviews
performed in 1993, the Group voluntarily conducted Phase II
environmental reviews on certain of its properties. The Group
believes, based on the results of Phase I and Phase II reviews, that
its leased properties are in substantial compliance with Federal and
state environmental statutes and regulations. Portions of certain
properties, which do not include any of the hotel properties, have
been documented as having a limited degree of contamination,
principally in connection with surface spills from facility
activities and leakage from underground storage tanks. For those
conditions that were identified, the Group has advised the affected
tenants of the Phase II findings and of their obligations to perform
required remediation.
18. Disclosures About Fair Value of Financial Instruments:
The carrying amounts of cash, accounts receivable, accounts payable
and accrued expenses approximate fair value because of the short
maturity of these items.
The Group estimates that the fair value of mortgage notes payable and
other notes payable approximates the carrying amounts for such loans
at December 31, 1996 and December 31, 1997. The fair value of debt
instruments was evaluated using a discounted cash flow model with
discount rates which take into account the credit of the tenants and
interest rate risk.
The fair value of the Group's marketable securities were $93 at
December 31, 1996 and $1,683 at December 31, 1997 based on the
quoted value for such securities.
19. Accounting Pronouncements:
In June 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in full set general purpose
financial statements. SFAS No. 131 establishes accounting standards
for the way that public business enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. SFAS No. 130 and SFAS No. 131 are required
to be adopted in 1998. The Company is currently evaluating the
impact, if any, of SFAS No. 130 and SFAS 131.
-39-
<PAGE> 41
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
20. Subsequent Events:
A. On February 18, 1998, the Group and an unaffiliated limited liability
company, AWHQ LLC, with 80% and 20% interests, respectively, as
tenants-in-common, acquired land in Tempe, Arizona upon which a
nine-story 225,000 square foot office building with an attached
parking garage is to be constructed pursuant to construction agency
and net lease agreements with America West Holdings Corporation
("America West"). Total acquisition and project costs are estimated
to be $37,000. America West has the obligation for any costs in
excess of such amount necessary to complete the project.
During the construction period, America West will pay monthly rent
based on the weighted average amount advanced for project costs. The
lease provides for an initial term of 15 years with two five-year
renewal terms commencing May 1, 1999. Annual rent will initially be
equal to total project costs multiplied by 9.2%. Rent increases are
scheduled May 2003 and every five-years thereafter, on a formula
indexed to increases in the Consumer Price Index ("CPI"), with each
increase capped at 11.77%.
The lease provides America West with purchase options to purchase the
property at the end of the tenth lease year of the initial term and
the end of the initial term at an option price equal to the greater
of fair market value as affected and encumbered by the lease or the
Group's and AWHQ LLC's project costs for the property.
B. On March 17, 1998, the Group acquired approximately 46 acres of land
in Collierville, Tennessee upon which four office buildings totaling
up to 400,000 square feet are being constructed. At the end of the
construction period, the buildings will be occupied by Federal
Express Corporation ("Federal Express") pursuant to a master net
lease.
In connection with the acquisition of the land, the Group entered into
a lease agreement with FEEC II, L.P. ("FEEC") which in turn is the
sublessor to Federal Express. The lease between the Group and FEEC
provides for a development period term ending on the earlier of the
completion of the project or November 30, 1999 followed by a
twenty-year initial term.
The FEEC lease grants the Group an exclusive option to acquire FEEC's
leasehold estate in the Federal Express net lease, as lessor, with
such option exercisable at any time after the end of the development
period. The option price will be based on a formula indexed to
Federal Express' annual rent under its lease with FEEC less all
amounts previously advanced by the Group to FEEC for project costs.
The Group expects that the total cost will not exceed $77,000. The
Group intends to exercise its option at the earliest practicable
date and at such time will assume the Federal Express lease.
Federal Express' initial annual rent will be based on the actual costs
necessary to complete the build-to-suit project with such rent
capped at $6,628. Rent increases are scheduled annually and are
indexed to increases in the CPI with annual increases limited to
1.7%. The Federal Express lease provides for an initial term of 20
years with two ten-year renewal terms at the option of the lessee.
C. On March 26, 1998, the Group obtained a line of credit of $150,000
pursuant to a revolving credit agreement with The Chase Manhattan
Bank. The revolving credit agreement has a term of three years.
-40-
<PAGE> 42
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to COMBINED FINANCIAL STATEMENTS, Continued
Advances from the line of credit must be for at least $3,000 and in
multiples of $500. for any single advance. Advances made will bear
interest at an annual rate of either (i) the one, two, three or
six-month LIBO Rate, as defined, plus a spread which ranges from
0.6% to 1.45% depending on leverage or corporate credit rating or
(ii) the greater of the bank's Prime Rate and the Federal Funds
Effective Rate, plus .50%, plus a spread ranging from 0% to .125%
depending upon the Group's leverage. In addition, the Group will pay
a fee (a) ranging between 0.15% and 0.20% per annum of the unused
portion of the credit facility, depending on the Group's leverage,
if no minimum credit rating for the Group is in effect or (b) equal
to .15% of the total commitment amount, if the Group has obtained a
certain minimum credit rating.
The revolving credit agreement has financial covenants that require
the Group to (i) maintain minimum equity value of $400,000 plus 85%
of amounts received by the Group as proceeds from the issuance of
equity interests and (ii) meet or exceed certain operating and
coverage ratios. Such operating and coverage ratios include, but are
not limited to, (a) ratios of earnings before interest, taxes,
depreciation and amortization to fixed charges for interest and (b)
ratios of net operating income, as defined, to interest expense.
The Group has drawn $55,000 from the line of credit to pay off
existing debt.
-41-
<PAGE> 43
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
-42-
<PAGE> 44
PART III
Item 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Has Served as a
Director and/or
Name Age Positions Held Officer Since (1)
---- --- -------------- -----------------
<S> <C> <C> <C>
Francis J. Carey 72 Chairman of the Board 1/98
Chief Executive Officer
Director
William Polk Carey 67 Chairman of the Executive Committee 1/98
Director
Steven M. Berzin 47 Vice Chairman 1/98
Chief Legal Officer
Director
Gordon F. DuGan 31 President 1/98
Chief Acquisitions Officer
Director
Donald E. Nickelson 64 Chairman of the Audit Committee 1/98
Director
Eberhard Faber, IV 61 Director 1/98
Barclay G. Jones III 37 Director 1/98
Lawrence R. Klein 77 Director 1/98
Charles C. Townsend, Jr. 69 Director 1/98
Reginald Winssinger 55 Director 1/98
Claude Fernandez 45 Executive Vice President 1/98
- Financial Operations
John J. Park 33 Executive Vice President 1/98
Chief Financial Officer
Treasurer
H. Augustus Carey 40 Senior Vice President 1/98
Secretary
Samantha K. Garbus 29 Vice President - Asset Management 1/98
Susan C. Hyde 29 Vice President - Shareholder Services 1/98
Robert C. Kehoe 37 Vice President - Accounting 1/98
Edward V. LaPuma 24 Vice President - Acquisitions 1/98
</TABLE>
William Polk Carey and Francis J. Carey are brothers. H. Augustus
Carey is the nephew of William Polk Carey and the son of Francis J. Carey.
-43-
<PAGE> 45
A description of the business experience of each officer and
director of the Corporate General Partner is set forth below:
Francis J. Carey, Chairman of the Board, Chief Executive Officer and
Director, was elected President and a Managing Director of W. P. Carey & Co.
("W.P. Carey") in April 1987, having served as a Director since its founding in
1973. Prior to joining the firm full-time, he was a senior partner in
Philadelphia, head of the Real Estate Department nationally and a member of the
executive committee of the Pittsburgh based firm of Reed Smith Shaw & McClay,
counsel for Registrant, the General Partners, the CPA(R) Partnerships, W.P.
Carey and some of its affiliates. He served as a member of the Executive
Committee and Board of Managers of the Western Savings Bank of Philadelphia from
1972 until its takeover by another bank in 1982 and is former chairman of the
Real Property, Probate and Trust Section of the Pennsylvania Bar Association.
Mr. Carey served as a member of the Board of Overseers of the School of Arts and
Sciences of the University of Pennsylvania from 1983 through 1990. He has also
served as a member of the Board of Trustees of the Investment Program
Association since 1990 and on the Business Advisory Council of the Business
Council for the United Nations since 1994. He holds A.B. and J.D. degrees from
the University of Pennsylvania.
Gordon F. DuGan, President, Chief Acquisitions Officer and Director,
was elected Executive Vice President and a Managing Director of W.P. Carey in
June 1997. Mr. Dugan rejoined W.P. Carey as Deputy Head of Acquisitions in
February 1997. Mr. Dugan was until September 1995 a Senior Vice President in the
Acquisitions Department of W.P. Carey. Mr. Dugan joined W.P. Carey as Assistant
to the Chairman in May 1988, after graduating from the Wharton School at the
University of Pennsylvania where he concentrated in Finance. From October 1995
until February 1997, Mr. Dugan was Chief Financial Officer of Superconducting
Core Technologies, Inc., a Colorado-based wireless communications equipment
manufacturer.
Steven M. Berzin, Vice Chairman, Chief Legal Officer and Director,
was elected Executive Vice President, Chief Financial Officer, Chief Legal
Officer and a Managing Director of W.P. Carey in July 1997. From 1993 to 1997,
Mr. Berzin was Vice President - Business Development of General Electric Capital
Corporation in the office of the Executive Vice President and, more recently, in
the office of the President, where he was responsible for business development
activities and acquisitions. From 1985 to 1992, Mr. Berzin held various
positions with Financial Guaranty Insurance Company, the last two being Managing
Director, Corporate Development and Senior Vice President and Chief Financial
Officer. Mr. Berzin associated with the law firm of Cravath, Swaine & Moore from
1978 to 1985 and from 1976 to 1977, he served as law clerk to the Honorable
Anthony M. Kennedy, then a United States Circuit Judge. Mr. Berzin received a
B.A. and M.A. in Applied Mathematics from Harvard University, a B.A. in
Jurisprudence and an M.A. from Oxford University and a J.D. from Harvard Law
School..
Donald E. Nickelson, Chairman of the Audit Committee and Director,
serves as Chairman of the Board and a Director of Greenfield Industries, Inc.
and a Director of Allied Healthcare Products, Inc. Mr. Nickelson is
Vice-Chairman and a Director of the Harbor Group, a leverage buy-out firm. He is
also a Director of Sugen Corporation and D.T.I. Industries, Inc. and a Trustee
of mainstay Mutual Fund Group. From 1986 to 1988, Mr. Nickelson was President of
PaineWebber Incorporated; from 1988 to 1990, he was President of the PaineWebber
Group; and from 1980 to 1993 a Director. Prior to 1986, Mr. Nickelson served in
various capacities with affiliates of PaineWebber Incorporated and its
predecessor firm. From 1988 to 1989, Mr. Nickelson was a Director of a diverse
group of corporations in the manufacturing, service and retail sectors,
including Wyndham Baking Co., Inc., Hoover Group, Inc., Peebles, Inc. and Motor
Wheel Corporation. He is a former Chairman of National Car Rentals, inc. Mr.
Nickelson is also a former Director of the Chicago Board Options Exchange and is
the former Chairman of the Pacific Stock Exchange.
William Polk Carey, Chairman of the Executive Committee and
Director, has been active in lease financing since 1959 and a specialist in net
leasing of corporate real estate property since 1964. Before founding W.P. Carey
in 1973, he served as Chairman of the Executive Committee of Hubbard, Westervelt
& Mottelay (now Merrill Lynch Hubbard), head of Real Estate and Equipment
Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of Real Estate and
Private Placements, Director of Corporate Finance and Vice Chairman of the
Investment Banking Board of duPont Glore Forgan Inc. A graduate of the
University of Pennsylvania's Wharton School of Finance and Commerce, Mr. Carey
is a Governor of the National
-44-
<PAGE> 46
Association of Real Estate Investment Trusts (NAREIT). He also serves on the
boards of The Johns Hopkins University, The James A. Baker III Institute for
Public Policy at Rice University, Templeton College of Oxford University and
other educational and philanthropic institutions. He founded the Visiting
Committee to the Economics Department of the University of Pennsylvania and
co-founded with Dr. Lawrence R. Klein the Economics Research Institute at that
University. Mr. Carey is also the Chairman of the Boards of Directors of
Corporate Property Associates 10 Incorporated, Carey Institutional Properties
Incorporated, Corporate Property Associates 12 Incorporated and Corporate
Property Associates 14 Incorporated.
Eberhard Faber IV, is currently a Director of PNC Bank, N.A.,
Chairman of the Board and Director of the newspaper Citizens Voice, a Director
of Ertley's Motorworld, Inc., Vice-Chairman of the Board of King's College and a
Director of Geisinger Wyoming Valley Hospital. Mr. Faber served as Chairman and
Chief Executive Officer of Eberhard Faber, Inc., from 1973 to 1987. Mr. Faber
also served as the Director of the Philadelphia Federal Reserve Bank, including
service as the Chairman of its Budget and Operations Committee from 1980 to
1986. Mr. Faber has served on the boards of several companies, including First
Eastern bank from 1980 to 1993.
Barclay G. Jones III, Executive Vice President, Managing Director,
and head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant
to the President in July 1982 after his graduation from the Wharton School of
the University of Pennsylvania, where he majored in Finance and Economics. He
was elected to the Board of Directors of W.P. Carey in April 1992. Mr. Jones is
also a Director of the Wharton Business School Club of New York.
Lawrence R. Klein, Director, is Benjamin Franklin Professor of
Economics Emeritus at the University of Pennsylvania, having joined the faculty
of Economics and the Wharton School in 1958. He holds earned degrees from the
University of California at Berkeley and Massachusetts Institute of Technology
and has been awarded the Nobel Prize in Economics as well as over 20 honorary
degrees. Founder of Wharton Econometric Forecasting Associates, Inc., Dr. Klein
has been counselor to various corporations, governments, and government agencies
including the Federal Reserve Board and the President's Council of Economic
Advisers.
Charles C. Townsend, Jr., Director, currently is an Advisory
Director of Morgan Stanley & Co., having held such position since 1979. Mr.
Townsend was a Partner and a Managing Director of Morgan Stanley & Co. from 1963
to 1978 and served as Chairman of Morgan Stanley Realty Corporation from 1977 to
1982. Mr. Townsend holds a B.S.E.E. from Princeton University and an M.B.A. from
Harvard University. Mr. Townsend serves as Director and Vice Chairman of Carey
Institutional Properties Incorporated and a Director of Corporate Property
Associates 14 Incorporated.
Reginald Winssinger, Director, is currently Chairman of the Board
and Director of Horizon Real Estate Group, Inc. Mr. Winssinger has managed
portfolios of diversified real estate assets exceeding $500 million throughout
the United States for more than 20 years. Mr. Winssinger is active in the
planning and development of major land parcels and has developed 20 commercial
properties. Mr. Winssinger is a native of Belgium with more than 25 years of
real estate practice, including 10 years based in Brussels, overseeing
appraisals, construction and management. Mr. Winssinger holds a B.S. in
Geography from the University of California at Berkeley and received a degree in
Appraisal and Survey in Belgium. Mr. Winssinger presently serves as Honorary
Belgium Consul to the State of Arizona, a position he has held since 1991.
Claude Fernandez, Executive Vice President - Financial Operations,
joined W.P. Carey in 1983. Previously associated with Coldwell Banker, Inc. for
two years and with Arthur Andersen & Co., he is a Certified Public Accountant.
Mr. Fernandez received a B.S. degree in accounting from New York University in
1975 and his M.B.A. in Finance from Columbia University Graduate School of
Business in 1981.
John J. Park, Executive Vice President, Chief Financial Officer and
Treasurer, joined W.P. Carey as an Investment Analyst in December 1987. Mr. Park
received his undergraduate degree from Massachusetts Institute of Technology and
his M.B.A. in Finance from New York University.
-45-
<PAGE> 47
H. Augustus Carey, Senior Vice President and Secretary, returned to
W.P. Carey in 1988 and is President of W.P. Carey's broker-dealer subsidiary.
Mr. Carey previously worked for W.P. Carey from 1979 to 1981 as Assistant to the
President. Prior to rejoining W.P. Carey, Mr. Carey served as a loan officer of
the North American Department of Kleinwort Benson Limited in London, England. He
received an A.B. from Amherst College in 1979 and an M.Phil. in Management
Studies from Oxford University in 1984. Mr. Carey is a trustee of the Oxford
Management Centre Associates Council.
Samantha K Garbus, Vice President - Director of Asset Management,
became a Second Vice President of W.P. Carey in April 1995 and a Vice President
in April 1997. Ms. Garbus joined W. P. Carey as a Property Management Associate
in January 1992. Ms. Garbus received a B.A. in History from Brown University in
May 1990 and an M.B.A. from the Stern School of New York University in January
1997.
Susan C. Hyde, Vice President - Director of Shareholder Services,
joined W. P. Carey in 1990, became a Second Vice President in April 1995 and a
Vice President in April 1997. Ms. Hyde graduated from Villanova University in
1990 where she received a B.S. in Business Administration with a concentration
in Marketing and a B.A. in English.
Robert C. Kehoe, Vice President - Accounting, joined W.P. Carey as a
Senior Accountant in 1987. Mr. Kehoe became a Second Vice President of W. P.
Carey in April 1992 and a Vice President in July 1997. Prior to joining the
company, Mr. Kehoe was associated with Deloitte, Haskins & Sells for three years
and was Manager of Financial Controls at CBS Educational and Professional
Publishing for two years. Mr. Kehoe received a B.S. in Accounting from Manhattan
College in 1982 and an M.B.A. in Finance from Pace University in 1993.
Edward V. LaPuma, Vice President - Acquisitions, joined W. P. Carey
as an Assistant to the Chairman in July 1995, became a Second Vice President in
July 1996 and a Vice President in April 1997. A graduate of the University of
Pennsylvania, Mr. LaPuma received a B.A. in Global Economic Strategies from The
College of Arts and Sciences and a B.S. in Economics with a Concentration in
Finance from the Wharton School.
Item 11. Executive Compensation.
This information will be contained in Company's definitive Proxy
Statement with respect to the Company's 1997 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information will be contained in Company's definitive Proxy
Statement with respect to the Company's 1997 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
This information will be contained in Company's definitive Proxy
Statement with respect to the Company's 1997 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
-46-
<PAGE> 48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements:
The following financial statements are filed as a part of this
Report:
Combined Report of Independent Accountants.
Combined Balance Sheets, December 31, 1996 and 1997.
Combined Statements of Income for the years ended December 31, 1995, 1996 and
1997.
Combined Statements of Partners' Capital for the years ended December 31, 1995,
1996 and 1997.
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997.
Notes to Combined Financial Statements.
(a) 2. Financial Statement Schedule:
The following schedule is filed as a part of this Report:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1997.
Notes to Schedule III.
Financial Statement Schedules other than those listed above are
omitted because the required information is given in the Financial Statements,
including the Notes thereto, or because the conditions requiring their filing do
not exist.
-47-
<PAGE> 49
(a) 3 Exhibits:
The following exhibits are filed as part of this Report. Documents
other than those designated as being filed herewith are incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
3.1 Amended and Restated Limited Liability Company Exhibit 3.1 to Registration
Agreement of Carey Diversified LLC. Statement on Form S-4
(No. 333-37901)
3.2 Bylaws of Carey Diversified LLC. Exhibit 3.2 to Registration
Statement on Form S-4
(No. 333-37901)
4.1 Form of Listed Share Stock Certificate. Exhibit 4.1 to Registration
Statement on Form S-4
(No. 333-37901)
10.1 Management Agreement Between Carey Management LLC Exhibit 10.1 to Registration
and the Company. Statement on Form S-4
(No. 333-37901)
10.2 Non-Employee Directors' Incentive Plan. Exhibit 10.2 to Registration
Statement on Form S-4
(No. 333-37901)
10.3 1997 Share Incentive Plan. Exhibit 10.3 to Registration
Statement on Form S-4
(No. 333-37901)
10.4 Investment Banking Engagement Letter between Exhibit 10.4 to Registration
W. P. Carey & Co. and the Company. Statement on Form S-4
(No. 333-37901)
10.5 Non-Statutory Listed Share Option Agreement. Exhibit 10.5 to Registration
Statement on Form S-4
(No. 333-37901)
21.1 List of Registrant Subsidiaries Filed herewith
23.1 Consent of Independent Accountants Filed herewith
99.13 Amended and Restated Agreement of Limited Partnership Exhibit 99.13 to Registration
of CPA(R):1. Statement on Form S-4
(No. 333-37901)
99.14 Amended and Restated Agreement of Limited Partnership Exhibit 99.14 to Registration
of CPA(R):2. Statement on Form S-4
(No. 333-37901)
99.15 Amended and Restated Agreement of Limited Partnership Exhibit 99.15 to Registration
of CPA(R):3. Statement on Form S-4
(No. 333-37901)
</TABLE>
-48-
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
99.16 Amended and Restated Agreement of Limited Partnership Exhibit 99.16 to Registration
of CPA(R):4. Statement on Form S-4
(No. 333-37901)
99.17 Amended and Restated Agreement of Limited Partnership Exhibit 99.17 to Registration
of CPA(R):5. Statement on Form S-4
(No. 333-37901)
99.18 Amended and Restated Agreement of Limited Partnership Exhibit 99.18 to Registration
of CPA(R):6. Statement on Form S-4
(No. 333-37901)
99.19 Amended and Restated Agreement of Limited Partnership Exhibit 99.19 to Registration
of CPA(R):7. Statement on Form S-4
(No. 333-37901)
99.20 Amended and Restated Agreement of Limited Partnership Exhibit 99.20 to Registration
of CPA(R):8. Statement on Form S-4
(No. 333-37901)
99.21 Amended and Restated Agreement of Limited Partnership Exhibit 99.21 to Registration
of CPA(R):9. Statement on Form S-4
(No. 333-37901)
99.22 Listed Share Purchase Warrant. Exhibit 99.22 to Registration
Statement on Form S-4
(No. 333-37901)
</TABLE>
-49-
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CAREY DIVERSIFIED LLC
3/28/98 BY: /s/ John J. Park
- -------------- ---------------------------------------
Date John J. Park
Executive Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
BY: CAREY DIVERSIFIED LLC
3/28/98 BY: /s/ Francis J. Carey
- -------------- ---------------------------------------
Date Francis J. Carey
Chairman of the Board, Chief Executive Officer and
Director (Principal Executive Officer)
3/28/98 BY: /s/ William P. Carey
- -------------- ---------------------------------------
Date William P. Carey
Chairman of the Executive Committee and Director
3/28/98 BY: /s/ Steven M. Berzin
- -------------- ---------------------------------------
Date Steven M. Berzin
Vice Chairman, Chief Legal Officer and Director
3/28/98 BY: /s/ Gordon F. DuGan
- -------------- ---------------------------------------
Date Gordon F. DuGan
President, Chief Acquisitions Officer and Director
3/28/98 BY: /s/ Donald E. Nickelson
- -------------- ---------------------------------------
Date Donald E. Nickelson
Chairman of the Audit Committee and Director
3/28/98 BY: /s/ Eberhard Faber IV
- -------------- ---------------------------------------
Date Eberhard Faber IV
Director
3/28/98 BY: /s/ Barclay G. Jones, III
- -------------- ---------------------------------------
Date Barclay G. Jones, III
Director
3/28/98 BY: /s/ Dr. Lawrence R. Klein
- -------------- ---------------------------------------
Date Dr. Lawrence R. Klein
Director
3/28/98 BY: /s/ Charles C. Townsend, Jr.
- -------------- ---------------------------------------
Date Charles C. Townsend, Jr.
Director
3/28/98 BY: /s/ Reginald Winssinger
- -------------- ---------------------------------------
Date Reginald Winssinger
Director
3/28/98 BY: /s/ John J. Park
- -------------- ---------------------------------------
Date John J. Park
Executive Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer)
3/28/98 BY: /s/ Claude Fernandez
- -------------- ---------------------------------------
Date Claude Fernandez
Executive Vice President - Financial Operations
(Principal Accounting Officer)
-50-
<PAGE> 52
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------------- Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Method:
Office, warehouse and
manufacturing buildings
in Broomfield, Colorado $ 2,173,949 $ 354,970 $ 3,073,575 $ 559,647
Office and manufacturing
buildings leased to IMO
Industries Inc. 2,080,176 685,026 2,006,559 2,617,652
Office and manufacturing
buildings formerly leased to
IMO Industries, Inc. 221,474 448,641 4,384 $ (38,155)
Distribution facilities
and warehouses leased to
The Gap, Inc. 6,003,499 1,363,909 19,065,813 225,569
Supermarkets
leased to Winn-Dixie
Stores, Inc. 904,589 6,749,989 111,880
Land leased to
Kobacker Stores, Inc. 1,236,735 (176,112)
Warehouse and manufac-
turing plant leased to
Pre Finish Metals
Incorporated 910,435 636,000 16,470,208 33,652
Retail store leased
to A. Jones 40,946 186,926 14,508
Retail store leased
to Wexler & Wexler 129,065 188,599 15,776
Retail stores leased to
Kinko's of Ohio, Inc.
and Lutz Bagels, LLC 47,350 581,034 10,795
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (c)(d) Statement of
-------------------------------- Accumulated Income
Description Land Buildings Total Depreciation Date Acquired is Computed
----------- ---- --------- ----- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method:
Office, warehouse and
manufacturing buildings
in Broomfield, Colorado $ 354,970 $ 3,633,222 $ 3,988,192 $ 2,301,151 November 17, 1978 10-30 yrs.
Office and manufacturing
buildings leased to IMO
Industries Inc. 685,026 4,624,211 5,309,237 2,477,994 April 20, 1979 17 yrs.
Office and manufacturing
buildings formerly leased to
IMO Industries, Inc. 183,319 453,025 636,344 453,025 April 20, 1979 17 yrs.
Distribution facilities
and warehouses leased to July 6, 1979 and
The Gap, Inc. 1,363,909 19,291,382 20,655,291 11,114,925 February 16, 1988 5-50 yrs.
Supermarkets March 12, 1984,
leased to Winn-Dixie June 17, 1987,
Stores, Inc. 904,589 6,861,869 7,766,458 2,298,653 March 17, 1988, and 30 yrs.
October 26, 1990
Land leased to
Kobacker Stores, Inc. 1,060,623 1,060,623 January 17, 1979
Warehouse and manufac-
turing plant leased
to Pre Finish December 11, 1980 5-30 yrs.
Metals Incorporated 636,000 16,503,860 17,139,860 9,147,519 and June 30, 1986
Retail store leased
to A. Jones 40,946 201,434 242,380 144,402 September 2, 1980 15-35 yrs.
Retail store leased
to Wexler & Wexler 129,065 204,375 333,440 150,795 January 5, 1981 15-35 yrs.
Retail stores leased to
Kinko's of Ohio, Inc.
and Lutz Bagels, LLC 47,350 591,829 639,179 432,315 October 1, 1980 15-35 yrs.
</TABLE>
-51-
<PAGE> 53
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------------- Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Method (continued):
Warehouse and distribution
center leased to, B&G
Contract Packaging, Inc. 216,000 3,048,862 29,922
Land leased to Unisource
Worldwide, Inc. 2,171,572 3,575,000
Centralized telephone
bureau leased to Excel
Communications, Inc. 1,139,600 3,379,679 1,576,606 (1,230,690)
Building leased to
Sports & Recreation, Inc. 677,600 4,908,238 (2,625,838)
Dairy processing
facility leased to
Hughes Markets, Inc. 2,029,682 9,699,041 26,000
Office building in
Beaumont, Texas
leased to Petrocon
Engineering, Inc. and
Olmstead Kirk Paper Company 510,000 4,490,000 612,462 $(4,346,960)
Office, manufacturing
and warehouse
buildings leased to
Continental Casualty
Company 1,800,000 6,710,638 105,000
Warehouse and
distribution center
in Salisbury,
North Carolina 291,540 5,708,460 153,179
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (c)(d) Statement of
-------------------------------- Accumulated Income
Description Land Buildings Total Depreciation Date Acquired is Computed
----------- ---- --------- ----- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Warehouse and distribution
center leased to, B&G
Contract Packaging, Inc. 216,000 3,078,784 3,294,784 1,710,911 April 9, 1981 30 yrs.
Land leased to Unisource
Worldwide, Inc. 3,575,000 3,575,000 April 29, 1980
Centralized telephone
bureau leased to Excel
Communications, Inc. 1,139,600 3,725,595 4,865,195 267,567 November 24, 1981 30 yrs.
Building leased to
Sports & Recreation, Inc. 359,068 2,600,932 2,960,000 411,813 November 24, 1981 30 yrs.
Dairy processing
facility leased to
Hughes Markets, Inc. 2,055,682 9,699,041 11,754,723 6,962,751 June 1, 1983 10-36 yrs.
Office building in
Beaumont, Texas
leased to Petrocon
Engineering, Inc. and
Olmstead Kirk Paper Company 278,801 986,701 1,265,502 530,968 August 11, 1983 30 yrs.
Office, manufacturing
and warehouse
buildings leased to
Continental Casualty
Company 1,800,000 6,815,638 8,615,638 5,253,695 October 20, 1983 15-40 yrs.
Warehouse and
distribution center
in Salisbury,
North Carolina 291,540 5,861,639 6,153,179 2,265,158 December 16, 1983 30 yrs.
</TABLE>
-52-
<PAGE> 54
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------------- Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Method (continued):
Manufacturing and office
buildings leased to Penn
Virginia Corporation 453,192 3,246,808 3,112
Land leased to
Exide Electronics
Corporation 1,170,000
Motion picture theaters leased
to Harcourt General
Corporation 1,895,864 1,387,000 5,113,000 36,459
Office/Manufacturing
facility in leased to
Inno Tech Industries, Inc. 122,884 568,756 (691,640)
Office facility leased
to Motorola, Inc. 2,051,702 387,000 3,981,000 11,455
Warehouse/ office research
and manufacturing
facilities leased to
Lockheed Martin
Corporation 3,307,692 3,074,247 17,528,226 61,078
Warehouse and office
facility leased to
Kinney Shoe Corporation/
Armel, Inc. 11,058 1,360,935 3,899,415 8,000
Manufacturing and office
facility leased to
Yale Security, Inc. 300,000 3,400,000
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (c)(d) Statement of
-------------------------------- Accumulated Income
Description Land Buildings Total Depreciation Date Acquired is Computed
----------- ---- --------- ----- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Manufacturing and office
buildings leased to Penn
Virginia Corporation 453,192 3,249,920 3,703,112 2,477,521 August 7, 1984 5-30 yrs.
Land leased to
Exide Electronics
Corporation 1,170,000 1,170,000 N/A June 20, 1985
Motion picture theaters
leased to Harcourt General July 17, 1985 and
Corporation 1,387,000 5,149,459 6,536,459 2,027,496 July 31, 1986 30 yrs.
Office/Manufacturing
facility in leased to
Inno Tech Industries, Inc. August 30, 1985 N/A
Office facility leased
to Motorola, Inc. 387,000 3,992,455 4,379,455 1,602,310 December 23, 1985 30 yrs.
Warehouse/ office research
and manufacturing
facilities leased to November 25, 1985
Lockheed Martin May 15, 1986 and
Corporation 3,079,188 17,584,363 20,663,551 6,381,976 December 12, 1988 30 yrs.
Warehouse and office
facility leased to
Kinney Shoe Corporation/
Armel, Inc. 1,360,935 3,907,415 5,268,350 1,470,719 September 17, 1986 30 yrs.
Manufacturing and office
facility leased to
Yale Security, Inc. 300,000 3,400,000 3,700,000 198,333 August 13, 1985 30 yrs.
</TABLE>
-53-
<PAGE> 55
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------------- Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Method (continued):
Manufacturing facilities
leased to AP Parts
International, Inc. 5,397,705 443,500 11,256,500 1,733,087
Manufacturing facilities
leased to Anthony's
Manufacturing Company, Inc. 3,200,000 8,300,000
Manufacturing facilities
leased to Swiss
M-Tex, L.P. 420,440 4,379,560 1,300 (621,098)
Land leased to
AutoZone, Inc. 3,221,466 7,199,219 60,795 (206,920)
Retail stores formerly
leased to Yellow
Front Stores, Inc. 4,934,160 3,897,549 351,255 (2,238,493)
Office facility leased to
Bell Atlantic Corporation 275,363 1,955,820 24,093
Land leased to Sybron
International Corporation 414,533 742,246 4,230
Office facility leased
to United States
Postal Service 1,484,340 14,835,661 992,244
Manufacturing and office
facility leased to
Allied Plywood, Inc. 661,196 1,932,997 13,383
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (c)(d) Statement of
-------------------------------- Accumulated Income
Description Land Buildings Total Depreciation Date Acquired is Computed
----------- ---- --------- ----- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Manufacturing facilities
leased to AP Parts
International, Inc. 443,500 12,989,587 13,433,087 4,248,706 December 23, 1986 30 yrs.
Manufacturing facilities
leased to Anthony's
Manufacturing Company, Inc. 3,200,000 8,300,000 11,500,000 3,001,667 February 24, 1987 30 yrs.
Manufacturing facilities
leased to Swiss
M-Tex, L.P. 255,678 3,924,524 4,180,202 1,351,768 August 24,1987 30 yrs.
January 17 &
May 2, 1986,
Land leased to August 28, 1987 &
AutoZone, Inc. 7,053,094 7,053,094 August 24, 1988 N/A
Retail stores formerly
leased to Yellow
Front Stores, Inc. 3,332,294 3,612,177 6,944,471 922,024 January 29,1988 30 yrs.
Office facility leased to
Bell Atlantic Corporation 275,363 1,979,913 2,255,276 654,471 January 29,1988 30 yrs.
Land leased to Sybron
International Corporation 746,476 746,476 December 22, 1988 N/A
Office facility leased
to United States
Postal Service 1,485,075 15,827,170 17,312,245 4,626,563 September 29, 1988 30 yrs.
Manufacturing and office
facility leased to
Allied Plywood, Inc. 661,627 1,945,949 2,607,576 275,676 March 31, 1989 30 yrs.
</TABLE>
-54-
<PAGE> 56
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------------- Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Method (continued):
Manufacturing and office
leased to StairPans of
America, Inc. 87,936 1,110,847 3,458 (456,203)
Manufacturing facilities
leased to Quebecor
Printing Inc. 10,010,987 3,957,645 15,961,355 13,782
Land leased to High
Voltage Engineering
Corp. 742,407 1,720,000 1,601
Manufacturing facility
leased to
Wozniak Industries, Inc./
Mayfair Molded
Products Corporation 793,325 2,456,675 4,356
Distribution and office
facilities leased to
Federal Express
Corporation 394,544 2,102,456 49,041
Land leased to Dr Pepper
Bottling Company
of Texas 4,004,474 7,351,740 34,370
Manufacturing facility
leased to Detroit Diesel
Corporation 22,658,392 4,986,450 26,513,550 8,130
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (c)(d) Statement of
-------------------------------- Accumulated Income
Description Land Buildings Total Depreciation Date Acquired is Computed
----------- ---- --------- ----- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Manufacturing and office
leased to StairPans of
America, Inc. 54,566 691,472 746,038 98,210 March 31 , 1989 30 yrs.
Manufacturing facilities
leased to Quebecor June 24, 1988 and
Printing Inc. 3,961,025 15,971,757 19,932,782 4,604,905 December 29, 1989 30 yrs.
Land leased to High
Voltage Engineering
Corp. 1,721,601 1,721,601 N/A November 10, 1988 N/A
Manufacturing facility
leased to
Wozniak Industries, Inc./
Mayfair Molded
Products Corporation 794,388 2,459,968 3,254,356 743,364 December 8, 1988 30 yrs.
Distribution and office
facilities leased to
Federal Express March 24 and
Corporation 401,526 2,144,515 2,546,041 613,060 June 30, 1989 30 yrs.
Land leased to Dr Pepper
Bottling Company
of Texas 7,386,110 7,386,110 N/A June 30, 1989 N/A
Manufacturing facility
leased to Detroit Diesel
Corporation 4,987,737 26,520,393 31,508,130 6,666,826 June 15, 1990 30 yrs.
</TABLE>
-55-
<PAGE> 57
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------------- Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Method (continued):
Engineering and
Fabrication Facility
leased to Orbital
Sciences Corporation 8,494,188 3,675,966 7,757,081 5,976,705
Land leased to
NVR, Inc. 1,828,657 3,342,854 23,850
Distribution facility
leased to PepsiCo 156,327 829,488 15,075
Land leased to Childtime
Childcare, Inc. 518,986 1,170,448
Hotel complex leased to
Hotel Corporation of America 8,414,628 762,839 8,241,162
------------ ----------- ------------ ----------- ------------
$ 86,312,370 $71,875,282 $235,984,168 $15,527,891 $(12,632,109)
============ =========== ============ =========== ============
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (c)(d) Statement of
-------------------------------- Accumulated Income
Description Land Buildings Total Depreciation Date Acquired is Computed
----------- ---- --------- ----- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Engineering and
Fabrication Facility
leased to Orbital
Sciences Corporation 3,676,492 13,733,260 17,409,752 3,307,829 September 29, 1989 30 yrs.
Land leased to
NVR, Inc. 3,366,704 3,366,704 May 16, 1989 N/A
Distribution
facility leased to
PepsiCo 158,717 842,173 1,000,890 228,117 November 16, 1989 30 yrs.
Land leased to Childtime
Childcare, Inc. 1,170,448 1,170,448 January 4, 1991 N/A
Hotel complex leased to
Hotel Corporation of America 762,839 8,241,162 9,004,001 2,165,499 30 yrs.
----------- ------------ ------------ -----------
$69,154,063 $241,601,169 $310,755,232 $93,590,682
=========== ============ ============ ===========
</TABLE>
-56-
<PAGE> 58
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------ Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Direct financing method:
Office buildings and
warehouses leased to
Unisource Worldwide, Inc. $4,355,546 $ 298,655 $ 9,956,345 $9,528 $ 703,449
Retail stores leased
to Kobacker Stores,
Inc. 2,008,850 105,207 (376,015)
Centralized Telephone
Bureau leased to
Western Union Financial
Services, Inc. 893,200 5,050,489 (92,976)
Computer Center
leased to
AT&T Corporation 369,600 6,985,844 3,189 36,891
Warehouse and
manufacturing
buildings leased to
Gibson Greetings, Inc. 1,904,186 $17,239,235 (5,478,876)
Warehouse and
manufacturing buildings
leased to CSS Industries,
Inc./ Cleo, Inc. 1,133,761 15,142,206 (4,588,867)
<CAPTION>
Gross Amount at which Carried
at Close of Period (c)
-----------------------------
Description Total Date Acquired
----------- ----- -------------
<S> <C> <C>
Direct financing method:
Office buildings and
warehouses leased to December 28, 1979 and
Unisource Worldwide, Inc. $10,967,977 April 29, 1980
Retail stores leased
to Kobacker Stores,
Inc. 1,738,042 January 17, 1979
Centralized Telephone
Bureau leased to
Western Union Financial
Services, Inc. 5,850,713 November 24, 1981
Computer Center
leased to
AT&T Corporation 7,395,524 November 24, 1981
Warehouse and
manufacturing buildings
leased to Gibson
Greetings, Inc. 13,664,545 January 26, 1982
Warehouse and
manufacturing buildings
leased to CSS Industries,
Inc./ Cleo, Inc. 11,687,100 January 26, 1982
</TABLE>
-57-
<PAGE> 59
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------ Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Direct Financing Method
(continued):
Manufacturing,
distribution and
office buildings
leased to
Brodart Co. 3,054,518 241,550 6,141,429 (226,002)
Manufacturing facility
to Duff-Norton
Company, Inc. 444,730 5,055,270
Manufacturing facilities
leased to Rochester
Button Company, Inc. 86,663 2,815,596 4,429 (1,044,696)
Manufacturing facilities
leased to Thermadyne
Holdings Corp. 2,615,000 9,085,000
Office and research
facility leased to
Exide Electronics
Corporation 2,030,000 1,500
Manufacturing facilities
leased to DeVlieg
Bullard, Inc. 310,032 4,782,667
<CAPTION>
Gross Amount at which Carried
at Close of Period (c)
-----------------------------
Description Total Date Acquired
----------- ----- -------------
<S> <C> <C>
Direct Financing Method
(continued):
Manufacturing,
distribution and
office buildings
leased to
Brodart Co. 6,156,977 June 15, 1988
Manufacturing facility
to Duff-Norton
Company, Inc. 5,500,000 December 30, 1983
Manufacturing facilities
leased to Rochester
Button Company, Inc. 1,861,992 April 11, 1984
Manufacturing facilities
leased to Thermadyne
Holdings Corp. 11,700,000 February 14, 1985
Office and research
facility leased to
Exide Electronics
Corporation 2,031,500 June 20, 1985
Manufacturing facilities
leased to DeVlieg
Bullard, Inc. 5,092,699 April 3, 1986
</TABLE>
-58-
<PAGE> 60
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------ Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Direct Financing Method
(continued):
Manufacturing facility
leased to Penberthy
Products, Inc. 48,968 1,028,333
Manufacturing facility
and warehouse leased
to DS Group Limited 200,000 2,800,000
Manufacturing
facilities leased
Sunds Defibrator
Woodhandling, Inc. 24,750 669,427
Retail stores leased to
AutoZone, Inc. 5,396,609 12,649,956 98,930 (321,900)
Manufacturing facility
leased to Peerless
Chain Company 829,000 6,991,000
Retail facility leased to
Wal-Mart Stores, Inc., 3,351,280 1,467,000 5,208,000 10,250
Manufacturing and office
facilities leased to Sybron
International Corporation 13,604,070 1,984,406 22,383,348 138,318
Manufacturing and office
facilities leased to
NVR, Inc. 4,871,343 570,729 12,904,948 321,200 551,758
<CAPTION>
Gross Amount at which Carried
at Close of Period (c)
-----------------------------
Description Total Date Acquired
----------- ----- -------------
<S> <C> <C>
Direct Financing Method
(continued):
Manufacturing facility
leased to Penberthy
Products, Inc. 1,077,301 April 3, 1986
Manufacturing facility
and warehouse leased
to DS Group Limited 3,000,000 December 22, 1986
Manufacturing
facilities leased
Sunds Defibrator
Woodhandling, Inc. 694,177 August 30, 1985
Retail stores leased to January 17, 1986
AutoZone, Inc. 12,426,986 May 2, 1986; August 28, 1987
and August 24, 1988
Manufacturing facility
leased to Peerless
Chain Company 7,820,000 June 18, 1986
Retail facility leased to
Wal-Mart Stores, Inc., 6,685,250 August 7, 1986
Manufacturing and office
facilities leased to Syb
International Corporatio 24,506,072 December 22, 1988
Manufacturing and office
facilities leased to March 31, 1989 and
NVR, Inc. 14,348,635 May 16, 1989
</TABLE>
-59-
<PAGE> 61
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost Increase
Company Capitalized (Decrease)
------------------ Subsequent to in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ---------------- ---- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Direct Financing Method
(continued):
Manufacturing and
generating facilities
leased to High
Voltage Engineering
Corp. 3,422,846 688,000 7,242,000 7,394
Office/warehouse
facilities leased to
Stationers Distributing
Company 2,307,669 1,120,000 3,510,000 293 (732,255)
Bottling and Distribution
facilities lease to
Dr Pepper Bottling
Company of Texas 11,355,992 20,848,260 97,467
Land and industrial/
warehouse/office
facilities leased to
Furon Company 12,558,672 4,187,766 19,104,786 127,177 (5,981,113)
Office/warehouse
facility leased
to Red Bank
Distribution, Inc. 5,161,768 1,572,296 9,065,704 11,302
Day care facilities
leased to Childtime
Childcare, Inc. 747,947 1,686,816
----------- ----------- ------------ -------- ------------
$70,188,260 $20,990,292 $212,385,509 $936,184 $(17,550,602)
=========== =========== ============ ======== ============
<CAPTION>
Gross Amount at which Carried
at Close of Period (c)
-----------------------------
Description Total Date Acquired
----------- ----- -------------
<S> <C> <C>
Direct Financing Method
(continued):
Manufacturing and
generating facilities
leased to High
Voltage Engineering
Corp. 7,937,394 November 10, 1988
Office/warehouse
facilities leased to
Stationers Distributing
Company 3,898,038 December 29, 1988
Bottling and Distribution
facilities lease to
Dr Pepper Bottling
Company of Texas 20,945,727 June 30, 1989
Land and industrial/
warehouse/office
facilities leased to
Furon Company 17,438,616 January 29, 1990
Office/warehouse
facility leased
to Red Bank
Distribution, Inc. 10,649,302 July 20, 1990
Day care facilities
leased to Childtime
Childcare, Inc. 1,686,816 January 4, 1991
------------
$216,761,383
============
</TABLE>
-60-
<PAGE> 62
CAREY DIVERSIFIED LLC and CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
Schedule III - Real Estate AND ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Cost
Company Capitalized Decrease
------------------------- Personal Subsequent to in Net
Description Encumbrances Land Buildings Property Acquisition (a) Investment (b)
----------- ---------------- ---- --------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operating real estate (e):
Hotels located in:
Alpena, Michigan $ 7,150,000 $ 210,000 $ 7,551,000 $ 742,500 $1,262,297
Petoskey, Michigan 7,150,000 527,000 7,211,000 765,500 936,886
Livonia, Michigan 7,446,223 3,130,000 12,410,000 2,260,000 953,552
----------- ---------- ----------- ---------- ----------
$21,746,223 $3,867,000 $27,172,000 $3,768,000 $3,152,735
=========== ========== =========== ========== ==========
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (c)(d) Statement of
-------------------------------- Accumulated Income
Description Land Personal Property Buildings Total Depreciation Date Acquired is Computed
----------- ---- ----------------- --------- ----- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating real estate (e):
Hotels located in:
Alpena, Michigan $ 210,000 $1,455,188 $ 8,100,609 $ 9,765,797 $ 4,176,740 March 6, 1987 5-30 yrs
Petoskey, Michigan 527,000 1,356,197 7,557,189 9,440,386 3,679,335 June 30, 1987 5-30 yrs
Livonia, Michigan 3,130,000 2,677,513 12,946,039 18,753,552 6,770,673 November 20, 1987 5-30 yrs
---------- ----------- ----------- ----------- -----------
$3,867,000 $5,488,898 $28,603,837 $37,959,735 $14,626,748
========== ========== =========== =========== ===========
</TABLE>
-61-
<PAGE> 63
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to Schedule III - Real Estate
and ACCUMULATED DEPRECIATION
(a) Consists of the cost of improvements and acquisition costs subsequent to
acquisition, including legal fees, appraisal fees, title costs, other
related professional fees and purchases of furniture, fixtures, equipment
and improvements at the hotel properties.
(b) The increase (decrease) in net investment is primarily due to (i) the
amortization of unearned income from net investment in direct financing
leases producing a periodic rate of return which at times may be greater
or less than lease payments received, (ii) accumulated depreciation from
operating leases that were reclassified to direct financing leases, (iii)
sales of properties, and (iv) writedowns of properties to fair value.
(c) At December 31, 1996, the aggregate cost of real estate owned by the
Company and its subsidiaries for Federal income tax purposes is
$599,953,299.
(d)
Reconciliation of Real Estate Accounted
for Under the Operating Method
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------- -------------
<S> <C> <C>
Balance at beginning
of year $ 348,220,453 $ 339,503,452
Additions 2,842,338 1,422,179
Sales (14,157,435) (6,458,555)
Writedowns to fair value (1,489,999)
Reclassification from (to) investment in
direct financing lease 3,700,000 (21,868,468)
Reclassification to assets
held for sale (1,101,904) (353,377)
------------- -------------
Balance at end of
year $ 339,503,452 $ 310,755,232
============= =============
</TABLE>
-62-
<PAGE> 64
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to Schedule III - Real Estate
and ACCUMULATED DEPRECIATION
Reconciliation of Accumulated Depreciation
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------ ------------
<S> <C> <C>
Balance at beginning
of year $ 87,603,614 $ 91,923,183
Depreciation expense 9,334,741 8,819,816
Reclassification to assets
held for sale (153,377)
Reclassification to direct financing
lease (667,565) (4,429,853)
Writeoff resulting from sales
of property (4,347,537) (2,569,087)
------------ ------------
Balance at end of
year $ 91,923,253 $ 93,590,682
============ ============
</TABLE>
(e)
Reconciliation for Operating Real Estate
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------ ------------
<S> <C> <C>
Balance at beginning
of year $ 55,369,375 $ 37,426,984
Additions 578,005 532,751
Sales and exchange of property (18,520,396)
------------ ------------
Balance at close of
year $ 37,426,984 $ 37,959,735
============ ============
</TABLE>
-63-
<PAGE> 65
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to Schedule III - Real Estate
and ACCUMULATED DEPRECIATION
Reconciliation of Accumulated Depreciation
Operating Real Estate
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------ ------------
<S> <C> <C>
Balance at beginning
of year $ 14,481,112 $ 13,346,982
Depreciation expense 1,215,149 1,279,766
Writeoff resulting from
sales and exchange (2,349,279)
------------ ------------
Balance at end of year $ 13,346,982 $ 14,626,748
============ ============
</TABLE>
-64-
<PAGE> 66
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
3.1 Amended and Restated Limited Liability Company Exhibit 3.1 to Registration
Agreement of Carey Diversified LLC. Statement on Form S-4
(No. 333-37901)
3.2 Bylaws of Carey Diversified LLC. Exhibit 3.2 to Registration
Statement on Form S-4
(No. 333-37901)
4.1 Form of Listed Share Stock Certificate. Exhibit 4.1 to Registration
Statement on Form S-4
(No. 333-37901)
10.1 Management Agreement Between Carey Management LLC Exhibit 10.1 to Registration
and the Company. Statement on Form S-4
(No. 333-37901)
10.2 Non-Employee Directors' Incentive Plan. Exhibit 10.2 to Registration
Statement on Form S-4
(No. 333-37901)
10.3 1997 Share Incentive Plan. Exhibit 10.3 to Registration
Statement on Form S-4
(No. 333-37901)
10.4 Investment Banking Engagement Letter between Exhibit 10.4 to Registration
W. P. Carey & Co. and the Company. Statement on Form S-4
(No. 333-37901)
10.5 Non-Statutory Listed Share Option Agreement. Exhibit 10.5 to Registration
Statement on Form S-4
(No. 333-37901)
21.1 List of Registrant Subsidiaries Filed herewith
23.1 Consent of Independent Accountants Filed herewith
99.13 Amended and Restated Agreement of Limited Partnership Exhibit 99.13 to Registration
of CPA(R):1. Statement on Form S-4
(No. 333-37901)
99.14 Amended and Restated Agreement of Limited Partnership Exhibit 99.14 to Registration
of CPA(R):2. Statement on Form S-4
(No. 333-37901)
99.15 Amended and Restated Agreement of Limited Partnership Exhibit 99.15 to Registration
of CPA(R):3. Statement on Form S-4
(No. 333-37901)
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
99.16 Amended and Restated Agreement of Limited Partnership Exhibit 99.16 to Registration
of CPA(R):4. Statement on Form S-4
(No. 333-37901)
99.17 Amended and Restated Agreement of Limited Partnership Exhibit 99.17 to Registration
of CPA(R):5. Statement on Form S-4
(No. 333-37901)
99.18 Amended and Restated Agreement of Limited Partnership Exhibit 99.18 to Registration
of CPA(R):6. Statement on Form S-4
(No. 333-37901)
99.19 Amended and Restated Agreement of Limited Partnership Exhibit 99.19 to Registration
of CPA(R):7. Statement on Form S-4
(No. 333-37901)
99.20 Amended and Restated Agreement of Limited Partnership Exhibit 99.20 to Registration
of CPA(R):8. Statement on Form S-4
(No. 333-37901)
99.21 Amended and Restated Agreement of Limited Partnership Exhibit 99.21 to Registration
of CPA(R):9. Statement on Form S-4
(No. 333-37901)
99.22 Listed Share Purchase Warrant. Exhibit 99.22 to Registration
Statement on Form S-4
(No. 333-37901)
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES of REGISTRANT
Corporate Property Associates, a California limited partnership, a
majority-owned subsidiary of Registrant incorporated under the laws of the State
of California and doing business under the name Corporate Property Associates.
Corporate Property Associates 2, a California limited partnership, a
majority-owned subsidiary of Registrant incorporated under the laws of the State
of California and doing business under the name Corporate Property Associates 2.
Corporate Property Associates 3, a California limited partnership, a
majority-owned subsidiary of Registrant incorporated under the laws of the State
of California and doing business under the name Corporate Property Associates 3.
Corporate Property Associates 4, a California limited partnership, a
majority-owned subsidiary of Registrant incorporated under the laws of the State
of California and doing business under the name Corporate Property Associates 4.
Corporate Property Associates 5, a California limited partnership, a
majority-owned subsidiary of Registrant incorporated under the laws of the State
of California and doing business under the name Corporate Property Associates 5.
Corporate Property Associates 6, a California limited partnership, a
majority-owned subsidiary of Registrant incorporated under the laws of the State
of California and doing business under the name Corporate Property Associates 6.
Corporate Property Associates 7, a California limited partnership, a
majority-owned subsidiary of Registrant incorporated under the laws of the State
of California and doing business under the name Corporate Property Associates 7.
Corporate Property Associates 8, L.P., a Delaware limited
partnership, a majority- owned subsidiary of Registrant incorporated under the
laws of the State of Delaware and doing business under the name Corporate
Property Associates 8, L.P.
Corporate Property Associates 9, L.P., a Delaware limited
partnership, a majority- owned subsidiary of Registrant incorporated under the
laws of the State of Delaware and doing business under the name Corporate
Property Associates 9, L.P.
AWHQ LLC a Arizona limited liability company, a wholly-owned
subsidiary of Regist-rant incorporated under the laws of the State of Arizona
and doing business under the name AWHQ LLC.
RUSH IT LLC, a Delaware limited liability company, a wholly-owned
subsidiary of Registrant incorporated under the laws of the State of Delaware
and doing business under the name RUSH IT LLC.
<PAGE> 1
EXHIBIT 23.1
CONSENT of INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Carey Diversified LLC on Form S-1 (File No. 333-46257) and Form
S-3 (File No. 333-46083) of our report dated March 27, 1998, on our audits of
the combined financial statements and financial statement schedule of Corporate
Property Associates Partnerships as of December 31, 1996 and 1997 and for the
years ended December 31, 1995, 1996, and 1997, which report is included in this
Annual Report on Form 10-K .
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31,1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,048
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,048
<PP&E> 565,476
<DEPRECIATION> 108,217
<TOTAL-ASSETS> 523,420
<CURRENT-LIABILITIES> 21,155
<BONDS> 207,627
0
0
<COMMON> 0
<OTHER-SE> 300,888
<TOTAL-LIABILITY-AND-EQUITY> 523,420
<SALES> 0
<TOTAL-REVENUES> 98,347
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 36,235
<LOSS-PROVISION> 1,576
<INTEREST-EXPENSE> 19,933
<INCOME-PRETAX> 37,946
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,946
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>NOT APPLICABLE
</FN>
</TABLE>
