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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A #2
For the year ended DECEMBER 31, 1999
of
CAREY DIVERSIFIED LLC
CD LLC
A DELAWARE Limited Liability Company
IRS Employer Identification No. 13-3912578
SEC File Number 001-13779
50 ROCKEFELLER PLAZA,
NEW YORK, NEW YORK 10020
(212) 492-1100
CD LLC has LISTED SHARES registered pursuant to Section 12(g) of the Act.
CD LLC is registered on the NEW YORK STOCK EXCHANGE.
CD LLC does not have any Securities registered pursuant to Section 12(b) of the
Act.
CD LLC is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-K.
CD LLC (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Non-affiliates held 24,468,901 Listed Shares at March 31, 2000. There are
25,979,383 Listed Shares outstanding at March 31, 2000.
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PART I
Item 1. Business.
Carey Diversified LLC ("Carey Diversified" or "CDC") is a real estate
investment company that acquires and owns commercial properties leased to
companies nationwide, primarily on a triple net basis. As of December 31, 1999,
Carey Diversified's portfolio consisted of 207 properties in the United States
and six properties in Europe and totaling more than 20 million square feet.
Carey Diversified's core investment strategy is to purchase and own
properties leased to a variety of companies on a single tenant net lease basis.
These leases generally place the economic burden of ownership on the
tenant by requiring them to pay the costs of maintenance, insurance, taxes,
structural repairs and other operating expenses. Carey Diversified also
generally seeks to include in its leases:
- - clauses providing for mandated rent increases or periodic rent increases
tied to increases in the consumer price index or other indices or, when
appropriate, increases tied to the volume of sales at the property;
- - covenants restricting the activity of the tenant to reduce the risk of a
change in credit quality;
- - indemnification of Carey Diversified for environmental and other
liabilities; and
- - guarantees from parent companies or other entities.
Carey Diversified was formed as a limited liability company under the
laws of Delaware on July 15, 1996. On January 1, 1998, Carey Diversified was
consolidated with nine Corporate Property Associates limited partnerships and
became the General Partner and owner of over 90% of the limited partnership
interests in each partnership. Carey Diversified's shares began trading on the
New York Stock Exchange on January 21, 1998 under the symbol "CDC". On July 15,
1998, each CPA(R) Partnership redeemed the interests of the holdover CPA(R)
limited partners and became the owner of virtually all of the limited
partnership interests in the CPA(R) Partnerships. The former general partners of
each partnership have a right to receive a portion of the distributions made by
each partnership. As a limited liability company, Carey Diversified is not
subject to federal income taxation as long as it satisfies certain requirements
relating to its operations. On December 20, 1999, Carey Diversified entered into
a merger agreement with Carey Management LLC ("Carey Management" or the
"Manager"), the manager of Carey Diversified, pursuant to which the Manager
would become a wholly-owned subsidiary of Carey Diversified. The merger is
conditioned upon the approval of Carey Diversified shareholders. Upon
consummation of the merger, Carey Diversified will change its name to W.P. Carey
& Co. LLC and trade on the New York Stock Exchange and Pacific Exchange under
the symbol "WPC". See "Recent Developments" below.
The Manager provides both strategic and day-to-day management for Carey
Diversified, including acquisition services, research, investment analysis,
asset management, capital funding services, disposition of assets, investor
relations and administrative services. Carey Management also provides office
space and other facilities for Carey Diversified. The Manager has dedicated
senior executives in each area of its organization so that Carey Diversified
functions as a fully integrated operating company.
Following the merger, W.P. Carey & Co. LLC will be a fully integrated
company that will continue and expand the real estate investment business of
Carey Diversified and the asset and private equity management business of Carey
Management. Upon completion of the merger, W.P. Carey & Co. LLC will both own
and manage commercial and industrial properties located in 35 states and France,
net leased to 125 tenants. In addition, W.P. Carey & Co. LLC will manage more
than 175 additional net leased properties on behalf of four real estate
investment trusts of which it will be the advisor and manager: Corporate
Property Associates 10, Inc., Carey Institutional Properties, Incorporated,
Corporate Property Associates 12, Inc., and Corporate Property Associates 14,
Inc.
Carey Diversified's principal executive offices are located at 50
Rockefeller Plaza, New York, NY 10020 and its telephone number is (212)
492-1100. Carey Diversified's website address is http://www.careydiv.com. As of
March 31, 2000, Carey Diversified employed one person. An affiliate of Carey
Management employs 90 individuals who perform services for Carey Diversified.
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BUSINESS OBJECTIVES AND STRATEGY
Carey Diversified's objective is to increase shareholder value and its
funds from operations through prudent management of its real estate assets and
opportunistic investments. Carey Diversified expects to evaluate a number of
different opportunities in a variety of property types and geographic locations
and to pursue the most attractive based upon its analysis of the risk/return
tradeoffs. Carey Diversified will continue to own properties as long as it
believes ownership helps attain its objectives.
Carey Diversified presently intends to:
- - seek additional investment and other opportunities that leverage core
management skills (which include in-depth credit analysis, asset valuation
and sophisticated structuring techniques);
- - optimize the current portfolio of properties through expansion of existing
properties, timely dispositions and favorable lease modifications;
- - utilize its size and access to capital to refinance existing debt; and
- - increase its access to capital.
DEVELOPMENTS DURING 1999
On February 19, 1999, Carey Diversified, through a majority owned
newly-formed subsidiary, entered into a net lease with Cendant Operations, Inc.
at an existing Company property in Moorestown, New Jersey. The Cendant lease
became effective upon completion of the property's renovation on May 17, 1999.
The Cendant lease provides for a five-year term at an initial annual rent of
$1,016,000 with annual stated increases of 2.5%. The minority owner of the
subsidiary, Matrix Realty, Inc. ("Matrix"), is a real estate developer that
supervised the renovation. The agreement with Matrix provides that Carey
Diversified receive a preferred return on its capital contributions, as defined,
with any remaining cash flow allocated 75% to Carey Diversified. In March 2000,
Carey Diversified fulfilled its obligation to purchase Matrix's interest within
one year of the inception of the Cendant lease and bought out Matrix's interest
for approximately $500,000.
On June 3, 1999, Carey Diversified and Corporate Property Associates
14, both through 50% ownership interests in a limited liability company,
purchased land and building in Norcross, Georgia for $31,306,000 and assumed
existing net leases with CheckFree Corporation, Inc. CheckFree's lease
obligations have been unconditionally guaranteed by its parent company,
CheckFree Holdings, Inc. The CheckFree leases have remaining terms through
December 31, 2015. The annual combined rent on the leases at December 31, 1999
was $2,564,000 The land lease with CheckFree provides for annual rent of $77,000
with stated rent increases effective January 2000, 2005 and 2010. Annual rent on
the building lease is $2,487,000 with rent increases scheduled for January 2004
and each year thereafter based on a formula indexed to increases in the Consumer
Price Index, capped at 2.5% per year. The purchase of the CheckFree property was
financed with a limited recourse mortgage loan of $15,800,000 collateralized by
a deed of trust on the CheckFree property and lease assignments. The loan bears
interest at an annual variable rate of interest equal to the sum of the London
InterBank Offered Rate ("LIBOR") and 2.5% and provides for scheduled principal
payments that approximate a twenty-five year amortization schedule. The loan is
scheduled to mature on June 1, 2006 at which time a balloon payment will be due.
The loan is prepayable at any time without premium. Carey Diversified and
CPA(R):14 also assumed an existing agreement to construct an additional office
building at the CheckFree property on a build-to-suit basis at a cost not to
exceed $11,061,000. Upon completion of construction, which is scheduled for
June, 2000, CheckFree's annual rent will increase by approximately $1,550,000.
Carey Diversified and CPA(R):14 have obtained limited recourse mortgage
financing of $7,500,000 that will be used to fund the construction. The loan
bears interest at an annual variable rate equal to the sum of LIBOR and 2.5%
with principal payment installments, effective August 1, 2000, based on a
twenty-five year amortization schedule. This loan will also mature on August 1,
2006 at which time a balloon payment will be due.
On July 15, 1999 Carey Diversified and AWHQ LLC obtained $25,000,000 of
limited recourse financing collateralized by a deed of trust and a lease
assignment on a property in Tempe, Arizona that is subject to a net lease with
America West Holdings Corporation ("America West"). Carey Diversified owns the
property as a tenant-in-common with AWHQ LLC, an affiliate of America West. As a
result of the distribution of the entire mortgage proceeds to Carey Diversified,
Carey Diversified's undivided ownership interest in the property as a
tenant-in-common was adjusted to 74.583%, representing its share of its net
contribution, after distribution of the mortgage proceeds, in the property. The
loan provides for monthly payments of interest and principal of approximately
$180,000 (of which Carey Diversified's share is approximately $134,000) at an
annual interest rate of 7.23% based on a 25-year amortization schedule. The loan
is scheduled to mature in August 2009 at which time a balloon payment will be
due.
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On December 22, 1999 Carey Diversified purchased a property in
Lafayette, Louisiana and assumed an existing net lease with Bell South
Telecommunications, Inc. The transaction is described in Note 14 to the
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
OTHER SIGNIFICANT RECENT EVENTS
On December 20, 1999, Carey Diversified LLC and the Manager entered
into an Agreement and Plan of Merger, whereby the Manager will contribute
certain assets relating to its real estate investment advisory business to Carey
Diversified by way of a merger with and into a wholly-owned subsidiary of Carey
Diversified (the "Merger"). The Merger is subject to the approval of the
shareholders of the Company. A consent solicitation with respect to such
shareholder approval will be distributed to the shareholders of Carey
Diversified, and the Merger will be consummated as soon as practicable following
receipt of consents from a majority of the shareholders of Carey Diversified.
Following the Merger, Carey Diversified will be renamed W. P. Carey & Co. LLC
and will be listed on the New York Stock Exchange and the Pacific Exchange under
the symbol "WPC".
At the effective time of the merger, Carey Diversified will issue
8,000,000 Listed Shares (subject to adjustment) to the shareholders of the
Manager, and will issue up to an additional 2,000,000 Listed Shares over the
next four years if funds from operations and total share value return targets
are met. The 8,000,000 shares will be subject to a three-year lock-up agreement
(with one-third of the shares released from the lock-up each year). The owners
of these shares will have the benefit of registration rights once free from the
lock-up.
In the fourth quarter of 1999, Carey Diversified announced that it
would purchase up to 1,000,000 Listed Shares on the open market. Purchases are
made on the open market on a discretionary basis based upon favorable market
conditions in compliance with Securities and Exchange Commission rules and
regulations. As of December 31, 1999, Carey Diversified has repurchased 62,300
Listed Shares for a weighted-average purchase price of $17.01 per Listed Share.
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. Carey Diversified takes advantage of 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 Carey Diversified, 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.
Careful credit analysis is a crucial aspect of every transaction. Carey
Diversified 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. Carey Diversified
believes that the experience of the Manager's 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.
The Manager's strategy in structuring its net lease investments for
Carey Diversified is to:
- - combine the stability and security of long-term lease payments, including
rent increases, with the appreciation potential inherent in the ownership
of real estate;
- - enhance current returns by utilizing varied lease structures;
- - reduce credit risk by diversifying investments by tenant, type of facility,
geographic location and tenant industry; and
- - increase potential returns by obtaining equity enhancements from the tenant
when possible, such as warrants to purchase tenant common stock.
FINANCING STRATEGIES
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Consistent with its investment policies, Carey Diversified uses
leverage when available on favorable terms. Carey Diversified has in place a
$185,000,000 credit facility, which it has used and intends to continue to use
in connection with acquiring additional properties, funding build-to-suit
projects and refinancing existing debt. As of December 31, 1999, Carey
Diversified also had approximately $188,248,000 in property level debt
outstanding. The Manager continually seeks opportunities and considers
alternative financing techniques to refinance debt, reduce interest expense or
improve its capital structure.
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
Carey Diversified'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 these types of tenants, Carey
Diversified can generally charge rent that is higher than the rent charged to
tenants with recognized credit and, thereby, enhance its current return from
these 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 Carey
Diversified's properties leased to that tenant 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. This credit enhancement provides Carey Diversified with
additional financial security.
LEASES WITH INCREASING RENTS
The Manager seeks to include clauses in Carey Diversified'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 certain retail stores, participation in gross sales above a
stated level, mandated rental increases on specific dates and through other
methods. Carey Diversified seeks to avoid entering into leases that provide for
contractual reductions in rents during their primary term (other than reductions
related to reductions in debt service).
PROPERTIES IMPORTANT TO TENANT OPERATIONS
The Manager, on behalf of Carey Diversified, generally seeks to acquire
properties with operations that are essential or important to the ongoing
operations of the tenant. Carey Diversified believes that these properties
provide better protection in the event that tenants file for bankruptcy, because
leases on properties essential or important to the operations of a bankrupt
tenant are less likely to be rejected and 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, Carey Diversified can 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 Carey
Diversified's leases that require Carey Diversified's consent to certain tenant
activities 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 Carey Diversified
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 Carey Diversified or could reduce the value of Carey
Diversified's Properties.
DIVERSIFICATION
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The Manager tries to diversify Carey Diversified's portfolio of
properties to avoid dependence on any one particular tenant, type of facility,
geographic location and tenant industry. By diversifying its portfolio, Carey
Diversified reduces the adverse effect on Carey Diversified of a single
underperforming investment or a downturn in any particular industry or
geographic location.
The Manager employs a variety of other strategies and practices in
connection with Carey Diversified's acquisitions. These strategies include
attempting to obtain equity enhancements in connection with transactions.
Typically, these 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, Carey Diversified 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.
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 Carey Diversified'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.
Carey Diversified 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 20 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.
- - Nathaniel S. Coolidge previously served as Senior Vice President -
Head of Bond & Corporate Finance Department of the John Hancock
Mutual Life Insurance Company. His responsibilities included
overseeing $21 billion of fixed income investments for Hancock,
its affiliates and outside clients.
- - 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.
ASSET MANAGEMENT
Carey Diversified believes that effective management of net lease
assets is essential to maintain and enhance 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 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. Monitoring involves 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 regular physical inspections of the
condition and maintenance of its properties. Additionally, the Manager
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periodically analyzes each tenant's financial condition, the industry in which
each tenant operates and each tenant's relative strength in its industry.
COMPETITION
Carey Diversified faces competition for the acquisition of office and
industrial properties in general, and such properties net leased to major
corporations in particular, from insurance companies, credit companies, pension
funds, private individuals, investment companies and real estate investment
trusts. Carey Diversified also faces competition from institutions that provide
or arrange for other types of commercial financing through private or public
offerings of equity or debt or traditional bank financings. Carey Diversified
believes its management's experience in real estate, credit underwriting and
transaction structuring will allow Carey Diversified to compete effectively for
office and industrial properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, regulations
and ordinances, current or former owners of real estate, as well as other
parties, may be required to investigate and clean up hazardous or toxic
chemicals, substances or waste or petroleum product or waste, releases on,
under, in or from a property. These parties may be held liable to governmental
entities or to third parties for specified damages and for investigation and
cleanup costs incurred by these parties in connection with the release or
threatened release of hazardous materials. These 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
these laws has been interpreted to be joint and several under some
circumstances. Carey Diversified's leases often provide that the tenant is
responsible for all environmental liability and for compliance with
environmental regulations relating to the tenant's operations.
Carey Diversified typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Phase I environmental
assessments are performed by independent environmental consulting and
engineering firms for all properties acquired by Carey Diversified. Where
warranted, Phase II environmental assessments are performed. Phase I assessments
do not involve subsurface testing, whereas Phase II assessments involve some
degree of soil and/or groundwater testing. Carey Diversified may acquire a
property which 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. Carey Diversified normally requires property sellers to indemnify
it fully against any environmental problem existing as of the date of purchase.
Additionally, Carey Diversified often structures its leases to require the
tenant to assume most or all responsibility for compliance with the
environmental provisions of the lease or environmental remediation relating to
the tenant's operations and to provide that non-compliance with environmental
laws is a lease default. In some cases, Carey Diversified 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 entity providing the protection.
Such a contractual arrangement does not eliminate Carey Diversified's statutory
liability or preclude claims against Carey Diversified by governmental
authorities or persons who are not a party to the arrangement. Contractual
arrangements in Carey Diversified's leases may provide a basis for Carey
Diversified to recover from the tenant damages or costs for which Carey
Diversified has been found liable.
Some of the properties are located in urban and industrial areas where
fill or current or historic industrial uses of the areas may have caused site
contamination at the properties. In addition, Carey Diversified 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. Carey Diversified
and its consultants estimate that the majority of the aggregate cost of
addressing environmental conditions known to require remediation at the
properties is covered by existing letters of credit and corporate guarantees.
Carey Diversified 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, Carey Diversified 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 Carey Diversified. 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.
OPERATING SEGMENTS
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Carey Diversified operates in two operating segments, real estate
operations, with investments in the United States and Europe, and hotel
operations. For the year ended December 31, 1999, no lessee represented 10% or
more of the total operating revenue of Carey Diversified.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The provisions of the Private Securities Litigation Reform Act of 1995
(the "Act") became effective in December 1995. The Act provides a "safe harbor"
for companies which make forward-looking statements providing prospective
information. The "safe harbor" under the Act relates to protection for companies
with respect to litigation filed on the basis of such forward-looking
statements.
Carey Diversified wishes to take advantage of the "safe harbor"
provisions of the Act and is therefore including this section in its Annual
Report on Form 10-K. The statements contained in this Annual Report, if not
historical, are forward-looking statements and involve risks and uncertainties
which are described below that could cause actual results to differ materially
from the results, financial or otherwise, or other expectations described in
such forward-looking statements. These statements are identified with the words
"anticipated," "expected," "intends," "seeks" or "plans" or words of similar
meaning. Therefore, forward-looking statements should not be relied upon as a
prediction of actual future results or occurrences.
Carey Diversified's future results may be affected by certain risks and
uncertainties including the following:
SINGLE TENANT LEASES INCREASE OUR EXPOSURE IN THE EVENT OF A FAILURE OF TENANT.
We focus our acquisition activities on net leased real properties or
interests therein. Due to the fact that our net leased real properties are
leased to single tenants, the financial failure of or other default by a tenant
resulting in the termination of a lease is likely to cause a reduction in the
operating cash flow of Carey Diversified and might decrease the value of the
property leased to such tenant.
WE DEPEND ON MAJOR TENANTS.
Revenues from several of our tenants and/or their guarantors constitute
a significant percentage of our consolidated rental revenues. Our five largest
tenants/guarantors, which occupy 11 properties, represent 23% of annualized
revenues. The default, financial distress or bankruptcy of any of the tenants of
such Properties could cause interruptions in the receipt of lease revenues from
such tenants and/or result in vacancies in the respective Properties, which
would reduce our revenues until the affected property is re-let, and could
decrease the ultimate sale value of each such property.
WE CAN BORROW A SIGNIFICANT AMOUNT OF FUNDS.
We have incurred, and may continue to incur, indebtedness (secured and
unsecured) in furtherance of our activities. Neither the Operating Agreement nor
any policy statement formally adopted by the Board of Directors limits either
the total amount of indebtedness or the specified percentage of indebtedness
(based upon the total market capitalization of Carey Diversified) which may be
incurred. Accordingly, we could become more highly leveraged, resulting in
increased risk of default on our obligations and in an increase in debt service
requirements which could adversely affect our financial condition and results of
operations and our ability to pay distributions. Our current unsecured revolving
credit facility with Chase Manhattan Bank, as agent, contains various covenants
which limit the amount of secured and unsecured indebtedness we may incur.
WE MAY NOT BE ABLE TO REFINANCE BALLOON PAYMENTS ON OUR MORTGAGE DEBTS.
A significant number of our properties are subject to mortgages with
balloon payments. Scheduled balloon payments for the next five years are as
follows:
<TABLE>
<S> <C>
2000 - $3 million;
2001 - $13 million;
2002 - $3 million;
2003 - $3 million;
2004 - $20 million
</TABLE>
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Our credit facility matures in 2001. As of December 31, 1999, the
Company had $129,000,000 drawn from the line of credit. An additional
$25,000,000 was drawn from the line of credit through March 31, 2000. Our
ability to make such balloon payments will depend upon our ability either to
refinance the obligation when due, invest additional equity in the property or
to sell the related property. Our ability to accomplish these goals will be
affected by various factors existing at the relevant time, such as the state of
the national and regional economies, local real estate conditions, available
mortgage rates, our equity in the mortgaged properties, our financial condition,
the operating history of the mortgaged properties and tax laws.
WE MAY BE UNABLE TO RENEW LEASES OR RE-LET VACATED SPACES.
We will be subject to the risks that, upon expiration of leases, the
premises may not be re-let or the terms of re-letting (including the cost of
concessions to tenants) may be less favorable than current lease terms. If we
are unable to re-let promptly all or a substantial portion of our properties or
if the rental rates upon such re-letting were significantly lower than current
rates, our net income and ability to make expected distributions to our
shareholders would be adversely affected. There can be no assurance that we will
be able to retain tenants in any of our properties upon the expiration of their
leases. Our scheduled lease expirations, as a percentage of annualized revenues
for the next five years, are as follows:
<TABLE>
<S> <C>
2000 - 1%
2001 - 3%
2002 - 1%
2003 - 3%
2004 - 3%
</TABLE>
WE ARE SUBJECT TO POSSIBLE LIABILITIES RELATING TO ENVIRONMENTAL MATTERS.
We own industrial and commercial properties and are subject to the risk
of liabilities under federal, state and local environmental laws. Some of these
laws could impose the following on Carey Diversified:
- - Responsibility and liability for the cost of investigation and removal or
remediation of hazardous substances released on our property, generally
without regard to our knowledge or responsibility of the presence of the
contaminants;
- - Liability for the costs of investigation and removal or remediation of
hazardous substances at disposal facilities for persons who arrange for the
disposal or treatment of such substances; and
- - Potential liability for common law claims by third parties based on damages
and costs of environmental contaminants.
WE MAY BE UNABLE TO MAKE ACQUISITIONS ON AN ADVANTAGEOUS BASIS.
A significant element of our business strategy is the enhancement of
our portfolio through acquisitions of additional properties. The consummation of
any future acquisition will be subject to satisfactory completion of our
extensive analysis and due diligence review and to the negotiation of definitive
documentation. There can be no assurance that we will be able to identify and
acquire additional properties or that we will be able to finance acquisitions in
the future. In addition, there can be no assurance that any such acquisition, if
consummated, will be profitable for us. If we are unable to consummate the
acquisition of additional properties in the future, there can be no assurance
that we will be able to increase the cash available for distribution to our
shareholders.
WE MAY SUFFER UNINSURED LOSSES.
There are certain types of losses (such as due to wars or some natural
disasters) that generally are not insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of the
limits of our insurance occur, we could lose capital invested in a property, as
well as the anticipated future revenues from a property, while remaining
obligated for any mortgage indebtedness or other financial obligations related
to the property. Any such loss would adversely affect our financial condition.
CHANGES IN MARKET INTEREST RATES COULD CAUSE OUR STOCK PRICE TO GO DOWN.
The trading prices of equity securities issued by real estate companies
have historically been affected by changes in broader market interest rates,
with increases in interest rates resulting in decreases in trading prices, and
decreases in interest rates resulting in increases in such trading prices. An
increase in market interest rates could therefore adversely affect the trading
prices of any equity securities issued by us.
WE FACE INTENSE COMPETITION.
-8-
<PAGE> 10
The real estate industry is highly competitive. Our principal
competitors include national real estate investment trusts, many of which are
substantially larger and have substantially greater financial resources than us.
THE VALUE OF OUR REAL ESTATE IS SUBJECT TO FLUCTUATION.
We are subject to all of the general risks associated with the
ownership of real estate. In particular, we face the risk that rental revenue
from the properties will be insufficient to cover all corporate operating
expenses and debt service payments on indebtedness we incur. Additional real
estate ownership risks include:
- - Adverse changes in general or local economic conditions,
- - Changes in supply of or demand for similar or competing properties,
- - Changes in interest rates and operating expenses,
- - Competition for tenants,
- - Changes in market rental rates,
- - Inability to lease properties upon termination of existing leases,
- - Renewal of leases at lower rental rates,
- - Inability to collect rents from tenants due to financial hardship,
including bankruptcy,
- - Changes in tax, real estate, zoning and environmental laws that may have an
adverse impact upon the value of real estate,
- - Uninsured property liability, property damage or casualty losses,
- - Unexpected expenditures for capital improvements or to bring properties
into compliance with applicable federal, state and local laws, and
- - Acts of God and other factors beyond the control of our management.
WE DEPEND ON KEY PERSONNEL FOR OUR FUTURE SUCCESS.
We depend on the efforts of the executive officers and key employees of
the Manager. The loss of the services of these executive officers and key
employees could have a material adverse effect on our operations. The risk
factors may have affected, and in the future could affect, our actual operating
and financial results and could cause such results to differ materially from
those in any forward-looking statements. You should not consider this list
exhaustive. New risk factors emerge periodically, and we cannot completely
assure you that the factors we describe above list all material risks to Carey
Diversified at any specific point in time.
YEAR 2000 ISSUES.
In 1999, Carey Diversified and its affiliates formed a task
force to identify year 2000 problems. The task force developed and implemented a
plan that included inventory, assessment, remediation, testing and contingency
planning. Carey Diversified experienced no significant disruptions as a result
of the year end date change. The task force intends to monitor other critical
dates in the future, such as quarter-end dates. The impact of the year 2000
issues on the company will continue to depend on the way the issues have been
addressed by third parties that provide services to Carey Diversified. To date
Carey Diversified has not been adversely impacted to any significant extent by
the failure of third parties to address year 2000 issues. The task force has
developed contingency plans to address risks associated with year 2000 issues
that may arise. There can be no assurance that these plans will fully mitigate
any problems, if any arise. The foregoing year 2000 discussions constitute a
Year 2000 Readiness Disclosure within the meaning of the Year 2000 Readiness and
Disclosure and Disclosure Act of 1998.
-9-
<PAGE> 11
Item 2. PROPERTIES
Set forth below is certain information relating to the Company's properties
owned as of December 31, 1999:
<TABLE>
<CAPTION>
PROPERTY SQUARE CURRENT INCREASE LEASE MAXIMUM
LESSEE/GUARANTOR LOCATION FOOTAGE ANNUAL RENT FACTOR EXPIRATION TERM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DR PEPPER BOTTLING COMPANY OF TEXAS Irving, TX 459,497 $2,124,018
Houston, TX 262,450 2,124,019
--------------------------
721,947 4,248,037 CPI Jun-14 Jun-14
DETROIT DIESEL CORPORATION Detroit, MI 2,730,750 3,658,060 PPI Jun-10 Jun-30
SYBRON INTERNATIONAL CORPORATION Dubuque, IA 144,300 496,163
Glendora, CA 25,000 404,401
Portsmouth, NH 95,000 588,285
Rochester, NY 221,600 1,079,369
Romulus, MI 220,000 1,058,694
--------------------------
705,900 3,626,912 CPI Dec-13 Dec-38
GIBSON GREETINGS, INC. Cincinnati, OH 593,340 1,860,000
Berea, KY 601,500 1,240,000
--------------------------
1,194,840 3,100,000 Stated Nov-13 Nov-23
LIVHO, INC. Livonia, MI 158,000 3,014,545 Stated Jan-08 Jan-28
AMERICA WEST HOLDINGS CORPORATION Tempe, AZ 218,000 2,538,815(10) CPI Nov-19 Nov-29
QUEBECOR PRINTING INC. Doraville, GA 432,559 1,428,094 CPI Dec-09 Dec-34
Olive Branch, MS 270,500 973,255 CPI Jun-08 Jun-33
--------------------------
703,059 2,401,349
FURON COMPANY New Haven, CT 110,389 532,705
Mickleton, NJ 86,175 395,786
Aurora, OH 147,848 543,330
Mantua, OH 150,544 482,960
Bristol, RI 105,642 283,498
Aurora, OH 26,692 176,521
--------------------------
627,290 2,414,800 PPI Jul-12 Jul-37
AUTOZONE, INC. 31 Locations: 185,990 1,321,568 % Sales Jan-11 Feb-26
NC, TX, AL, GA,
IL, LA, MO
AUTOZONE, INC. 13 Locations: 70,425 393,599 % Sales Aug-12 Aug-37
FL, LA, MO,
NC, TN
AUTOZONE, INC. 11 Locations: 54,000 524,390 % Sales Aug-13 Aug-38
FL, GA, NM,
SC, TX
--------------------------
310,415 2,239,557(5)
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
PROPERTY SQUARE CURRENT INCREASE LEASE MAXIMUM
LESSEE/GUARANTOR LOCATION FOOTAGE ANNUAL RENT FACTOR EXPIRATION TERM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THERMADYNE HOLDINGS CORP. Industry, CA 325,800 $2,525,163 CPI Feb-10 Feb-35
THE GAP, INC. Erlanger, KY 391,000 1,252,636 CPI Feb-03 Feb-43
362,750 952,749 CPI Feb-03 Feb-43
--------------------------
753,750 2,205,385
ORBITAL SCIENCES CORPORATION Chandler, AZ 280,000 2,655,320 CPI Sep-09 Sep-29
UNITED STATES POSTAL SERVICE Bloomingdale, IL 116,000 1,089,982 Stated Apr-06 Apr-06
COMARK INC. 36,967 272,120 Stated May-00 May-00
--------------------------
152,967 1,362,102
LOCKHEED MARTIN CORPORATION King of Prussia, 88,578 974,358 Market Jul-03 Jul-08
PA
Glen Burnie, MD 45,804 345,000 Stated Apr-01 Apr-21
--------------------------
134,382 1,319,358
AP PARTS INTERNATIONAL, INC. Toledo, OH 1,160,000 1,614,338 CPI Dec-07 Dec-22
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
BRODART COMPANY Williamsport, PA 309,030
Williamsport, PA 212,201
--------------------------
521,231 1,519,253 CPI Jun-08 Jun-28
CSS INDUSTRIES, 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
Chicago, IL 92,400
--------------------------
252,000 1,457,788(7) CPI Oct-10 Oct-15
RED BANK DISTRIBUTION, INC. Cincinnati, OH 589,150 1,400,567 CPI Jul-15 Jul-35
HIGH VOLTAGE ENGINEERING CORP. Lancaster, PA 70,712 649,087
Sterling, MA 70,000 679,555
--------------------------
140,712 1,328,642 CPI Nov-13 Nov-30
DUFF-NORTON COMPANY, INC. Forrest City, AR 265,000 1,164,280 CPI Dec-12 Dec-32
SPRINT SPECTRUM, INC. Albuquerque, NM 74,714 1,154,331 CPI Sep-08 Sep-18
EAGLE HARDWARE & GARDEN, INC. Bellevue, WA 127,360 1,120,606(6) CPI & Sep-17 Sep-17
%sales
BELL SOUTH TELECOMMUNICATION Lafayette Parish, 80,450 1,096,170 Stated Dec-09 Dec-39
LA
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
PROPERTY SQUARE CURRENT INCREASE LEASE MAXIMUM
LESSEE/GUARANTOR LOCATION FOOTAGE ANNUAL RENT FACTOR EXPIRATION TERM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHECKFREE HOLDINGS, INC. Norcross, GA 178,584 1,243,872 Stated/ Dec-15 DEC-15
CPI
LOCKHEED MARTIN SERVICES GROUP Houston, TX 60,364 $561,264 Stated Jul-04 Jul-04
JOHNSON ENGINEERING CORPORATION Houston, TX 48,214 476,964 Stated Jun-03 Jun-03
--------------------------
108,578 1,038,228
CENDANT OPERATION, INC. Moorestown, NJ 65,567 1,016,289 Stated June-04 June-04
DEVLIEG-BULLARD, INC. McMinnville, TN 276,991 605,172
Frankenmuth, MI 132,400 348,631
--------------------------
409,391 953,803 CPI Apr-06 Apr-26
ANTHONY'S MANUFACTURING COMPANY, San Fernando, CA 95,420 493,392
INC. San Fernando, CA 7,220 37,333
San Fernando, CA 40,285 206,416
San Fernando, CA 39,920 208,303
--------------------------
182,845 945,444 CPI May-07 May-12
UNITED STATIONERS SUPPLY COMPANY New Orleans, LA 59,000 324,389
Memphis, TN 75,000 280,886
San Antonio, TX 63,321 310,559
--------------------------
197,321 915,834 CPI Mar-10 Mar-30
WAL-MART STORES, INC. West Mifflin, PA 118,125 891,129 CPI Jan-07 Jan-37
PRE FINISH METALS INCORPORATED Walbridge, OH 313,704 828,506 CPI Jun-03 Jun-28
IMO INDUSTRIES, INC. Garland, TX 150,203 822,750 Stated Sep-02 Sep-07
CONTINENTAL CASUALTY COMPANY College Station, TX 97,567 765,101 Stated Dec-04 Dec-09
VERIFICATIONS NATIONALES ET
INTERNATIONALES DES IMPORTS(2)
NATIONAL POUR L'EMPLOI(2)
DIRECTION DEPARTMENTALE DU
TRAVAIL ET DE L'EQUIPMENT(2)
HOECHST ROUSSEL VET(2) Pantin, France
--------------------------
51,714 777,618 INSEE(5) Jun-04 Jun-04
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 34,887 128,470 % Sales Jun-07 Jun-37
Brewton, AL 30,625 134,500 % Sales Oct-10 Oct-30
--------------------------
158,512 769,616(6)
AT&T CORPORATION Bridgeton, MO 55,810 757,846 Stated Nov-01 Nov-11
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
PROPERTY SQUARE CURRENT INCREASE LEASE MAXIMUM
LESSEE/GUARANTOR LOCATION FOOTAGE ANNUAL RENT FACTOR EXPIRATION TERM
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NV RYAN, INC. Thurmont, MD 150,468 125,131
Farmington, NY 29,273 648,239
--------------------------
179,741 $773,370 CPI Mar-14 Mar-30
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(6)
BELL SOUTH ENTERTAINMENT, INC. Ft. Lauderdale, FL 80,540 300,000 CPI Jul-06 Jul-09
VACANT Salisbury, NC 311,182
MOTOROLA, INC. Urbana, IL 46,350 600,000 Stated (9)
VARIOUS Broomfield, CO 60,660 184,633 CPI May-02 May-02
Broomfield, CO 40,440 149,530 CPI Dec-01 Dec-01
--------------------------
101,100 334,163
WESTERN UNION FINANCIAL SERVICES, Bridgeton, MO 78,080 573,221 Stated Nov-01 Nov-11
INC.
EXIDE ELECTRONICS CORPORATION Raleigh, NC 27,770 572,130 CPI Jul-06 Jul-06
LOCKHEED MARTIN CORPORATION 142,796 475,200 Stated Aug-00 Aug-02
MERCHANTS HOME DELIVERY, INC. Oxnard, CA 22,716 250,788 Stated Jan-04 Jan-14
--------------------------
165,512 725,988
UNITED SPACE ALLIANCE LLC 88,200 505,020 Stated Sep-06 Sep-06
CALEB BRETT USA, INC. Webster, TX 3,600 34,992 Stated Jun-00 Jun-00
--------------------------
91,800 540,012
EXCEL COMMUNICATIONS, INC. Reno, NV 53,158 532,800 Stated Dec-06 Dec-20
DS GROUP LIMITED Goshen, IN 54,270 500,212 CPI Feb-10 Feb-35
WOZNIAK INDUSTRIES, INC. Schiller Park, IL 84,197 497,400 Stated Aug-05 Dec-23
TITAN CORPORATION San Diego, CA 166,403 485,084(8) CPI Jul-07 Jul-31
SWISS-M-TEX, L.P. Travelers Rest, SC 178,693 480,000 CPI Aug-07 Aug-17
CSK AUTO, INC. Denver, CO 8,129 58,910 CPI Jan-08 Jan-38
Glendale, AZ 3,406 66,720 CPI Jan-02 Jan-22
Apache Junction, AZ 5,055 49,348 CPI Jan-02 Jan-22
Casa Grande, AZ 11,588 64,590 CPI Jan-02 Jan-22
Scottsdale, AZ 8,000 135,100 CPI Jan-02 Jan-22
Mesa, AZ 3,401 68,304 CPI Jan-02 Jan-22
--------------------------
39,579 442,972
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
PROPERTY SQUARE CURRENT INCREASE LEASE MAXIMUM
LESSEE/GUARANTOR LOCATION FOOTAGE ANNUAL RENT FACTOR EXPIRATION TERM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TELLIT ASSURANCES(2) Rouen, France 27,593 $464,041 INSEE(5) Aug-04 Aug-09
CHILDTIME CHILDCARE, INC. 12 Locations: 83,694 439,008(9) CPI Jan-16 Jan-41
AZ, CA, MI,TX
PETROCON ENGINEERING, INC. Beaumont, TX 48,700 327,516 Stated Jan-99 Jan-00
OLMSTEAD KIRK PAPER COMPANY 5,760 36,000 Stated Jan 03 Jan 03
--------------------------
54,460 363,516
YALE SECURITY INC. Lemont, IL 130,000 399,000 Stated Apr-11 Apr-11
PENN CRUSHER CORPORATION Cuyahoga Falls, OH 80,445 197,234
Broomall, PA 22,810 180,000
--------------------------
103,255 377,234 Market Jan-05 Jan-20
B&G CONTRACT PACKAGING, INC. Maumelle, AR 160,000 222,102 Stated Dec-01 Dec-03
HONEYWELL, INC. Houston, TX 32,320 335,484 Stated Sep-02 Sep-02
ADAPTIVE CONTROLS, INC. 18,058 107,880 Stated Nov-00 Nov-00
ADPLEX, INC. 13,698 92,280 Stated May-01 May-01
WORK READY, INC 7,306 59,640 Stated Aug-01 Aug-01
THE TERMINEX INTERNATIONAL COMPANY, Houston, TX 3,330 25,980 Stated Sep-00 Sep-00
INC.
--------------------------
42,392 285,780
KOBACKER STORES, INC. Fontana, CA 4,500 46,158
Rialto, CA 4,500 20,580
Reynoldsburg, OH 3,840 21,525
Tallmadge, OH 4,000 21,157
Anderson, IN 4,500 19,362
Cuyahoga Falls, OH 3,792 18,900
Marion, OH 3,900 18,663
Fremont, OH 4,000 16,800
Merced, CA 4,500 20,370
Sacramento, CA 4,400 25,725
Stockton, CA 4,500 21,525
Sacramento, CA 4,400 16,548
--------------------------
50,832 267,313 None Dec-06 Dec-36
SEARS ROEBUCK AND CO. Houston, TX 21,069 200,372 Stated Sep-05 Sep-05
BIKE BARN HOLDING COMPANY, INC. 6,216 59,160 Stated Aug-05 Aug-05
--------------------------
27,285 259,532
DIRECTION REGIONAL DES AFFAIRES
SANITAIRES ET SOCIALES(3) Rouen, France 25,228 232,828 INSEE(5) Oct-04 Oct-04
BELL ATLANTIC CORPORATION Milton, VT 30,624 231,000 Stated Feb-03 Feb-13
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
PROPERTY SQUARE CURRENT INCREASE LEASE MAXIMUM
LESSEE/GUARANTOR LOCATION FOOTAGE ANNUAL RENT FACTOR EXPIRATION TERM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NORTHERN TUBE, INC. Pinconning, MI 220,588 $219,282 CPI Dec-07 Dec-22
PENBERTHY PRODUCTS, INC. Prophetstown, IL 161,878 209,507 CPI Apr-06 Apr-26
THE ROOF CENTERS, INC. Manassas, VA 60,446 256,896 Stated Mar-02 Jul-09
ROCHESTER BUTTON COMPANY South Boston, VA 43,387 95,957
Kenbridge, VA 38,000 84,043
--------------------------
81,387 180,000 None Dec-16 Dec-36
SUNDS DEFIBRATOR WOODHANDLING, INC. Carthage, NY 76,000 144,239 CPI Aug-05 Jul-07
FEDERAL EXPRESS CORPORATION Corpus Christi, TX 30,212 65,000 Market May-99 May-09
College Station, TX 12,080 189,986 Market Feb-02 Feb-09
Colliersville, TN 390,380 6,624,000 CPI Dec-19 Dec-29
--------------------------
432,672 6,878,986
CONTINENTAL AIRLINES, INC. Houston, TX 25,125 142,560 Stated Jul-03 Jul-03
PEPSI-COLA METROPOLITAN BOTTLING
COMPANY, INC. Houston, TX 17,725 111,558 Stated Oct-04 Oct-04
POPULAR STORES, INC. Scottsdale, AZ 11,800 96,766(6) %Sales Jul-00 Jul-10
STAIR PANS OF AMERICA, INC. Fredericksburg, VA 45,821 94,300 Stated Jul-07 Jul-07
LOCKHEED MARTIN SERVICES. Webster, TX 10,960 82,200 Stated Jul-00 Jul-00
PENN VIRGINIA COAL COMPANY Duffield, VA 12,804 74,000 CPI Nov-04 Nov-04
CENTS STORES, INC. Mesa, AZ 11,039 55,620 Stated Jan-13 Jan-13
FAMILY BARGAIN CENTER Colville, WA 15,300 50,733 CPI Jan-00 Jan-15
THE CRAFTERS MALL, INC. Glendale, AZ 11,760 47,968 None Quarterly
Renewals
CAPIN MERCANTILE CORPORATION Silver City, NM 11,280 36,660 None May-00 May-05
KINKO'S OF OHIO, INC. Canton, OH 1,700 26,010(6) %Sales Aug-00 Aug-10
RECLAMATION FOODS, INC. Apache Junction, AZ 9,945 24,028 CPI Jun-01 Jun-06
WEXLER & WEXLER New Orleans, LA 1,641 19,692(6) %Sales Oct-05 Oct-15
SCALLON'S CARPET CASTLE, INC. Casa Grande, AZ 3,134 18,480 Stated Dec-03 Dec-03
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
PROPERTY SQUARE CURRENT INCREASE LEASE MAXIMUM
LESSEE/GUARANTOR LOCATION FOOTAGE ANNUAL RENT FACTOR EXPIRATION TERM
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ARTHUR L. JONES Greensboro, NC 1,700 $ 6,600 CPI Apr-99 Apr-01
ALPENA HOLIDAY INN Alpena, MI 96,333 759,365(1)
PETOSKEY HOLIDAY INN Petoskey, MI 83,462 353,459(1)
GIST-BROCADES FRANCE S. A. Indre et Loire, 37,337 214,447 INSEE(5) Jun-05 Jun-08
France
SOCIETE DE TRAITEMENS Indre et Loire, 69,470 245,083 INSEE(5) Jun-05 Jun-08
France
</TABLE>
(1) The Company operates a hotel business at this property. Dollar amounts
are net operating income for 1999 for the hotel business.
(2) CD owns 75% of this property and rents are collected in French Francs,
conversion rate at December 31, 1999 used.
(3) CD owns 99% of this property and rents are collected in French Francs,
conversion rate at December 31, 1999 used.
(4) CD owns 80% of this property and rents are collected in French Francs,
conversion rate at December 31, 1999 used.
(5) INSEE construction index, an index published quarterly by the French
Government.
(6) Current annual rent amount before any percentage of sales rent.
(7) Current annual rent represents the 33.33% ownership interest in this
property.
(8) Current annual rent represents the 18.54% ownership interest in this
property.
(9) Current annual rent represents the 33.93% ownership interest in this
property.
(10) Current annual rent represents 74.583% ownership interest in this
property.
16
<PAGE> 18
Item 3. Legal Proceedings.
As of the date hereof, the Company is not a party to any
material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the year
ended December 31, 1999 to a vote of security holders, through the solicitation
of proxies or otherwise.
17
<PAGE> 19
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.
As of December 31, 1999 there were approximately 20,800 shareholders of
record.
Dividend Policy
Quarterly cash dividends are usually declared in December, March, June
and September and paid in January, April, July and October. Quarterly cash
dividends paid since inception are as follows:
Cash dividends declared per share:
<TABLE>
<CAPTION>
Quarter 1999 1998
- ------- ---- ----
<S> <C> <C>
1 $ .4175 $ .4125
2 .4175 .4125
3 .4175 .4125
4 .4175 .4125
------- -------
Total $1.6700 $1.6500
</TABLE>
Listed Shares
The high, low and closing prices on the New York Stock Exchange for a
Listed Share for each fiscal quarter of 1999 and 1998 were as follows (in
dollars):
<TABLE>
<CAPTION>
1999 High Low Close
- ---- ---- --- -----
<S> <C> <C> <C>
First Quarter $17.88 $17.44 $17.69
Second Quarter 17.38 17.06 17.25
Third Quarter 20.00 17.38 20.00
Fourth Quarter 17.19 16.63 16.88
</TABLE>
<TABLE>
<CAPTION>
1998 High Low Close
- ---- ---- --- -----
<S> <C> <C> <C>
First Quarter $22.38 $20.13 $20.13
Second Quarter 22.25 19.75 19.75
Third Quarter 20.94 18.50 19.75
Fourth Quarter 21.31 18.19 19.69
</TABLE>
18
<PAGE> 20
Item 6. Selected Financial Data.
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Company The Predecessor
Consolidated Combined
Operating Data 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 88,506 $ 85,330 $ 96,271 $101,576 $107,946
Income before extraordinary items 34,078 39,085 40,561 45,547 49,363
Basic and diluted earnings per Listed Share 1.33 1.55
Cash distributions (1) 42,525 30,820 43,620 34,173 57,216
Cash provided by operating activities 48,241 51,944 51,641 53,317 63,276
Cash (used in) provided by investing
activities (55,189) (71,525) (273) 19,545 24,327
Cash provided by (used in) financing
activities 3,353 6,668 (61,335) (72,020) (105,578)
Cash dividends declared per share 1.67 1.65
Balance Sheet Data:
Real estate, net (2) $501,350 $453,181 $240,498 $271,660 $301,505
Net investment in direct financing leases 295,556 295,826 216,761 215,310 218,922
Total assets 856,259 813,264 523,420 544,728 582,324
Long-term obligations (3) 310,562 254,827 150,907 187,414 233,300
</TABLE>
(1) 1997, 1996 and 1995 amounts represent cash distributions to Limited
Partners of the predecessor partnership.
(2) Includes real estate accounted for under the operating method,
operating real estate and real estate under construction leased to
others, net of accumulated depreciation.
(3) Represents mortgage and note obligations and deferred acquisition fees
due after more than one year.
19
<PAGE> 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(dollar amounts in thousands)
Overview
The following discussion and analysis of financial condition and
results of operations of Carey Diversified LLC ("CDC") should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1999. The following discussion includes forward looking
statements. Forward looking statements, which are based on certain assumptions,
describe future plans, strategies and expectations of CDC. Such statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievement of CDC to be materially different
from the results of operations or plan expressed or implied by such forward
looking statements. The risk factors are fully described in Item I of this
Annual Report on Form 10-K. Accordingly, such information should not be regarded
as representations by CDC that the results or conditions described in such
statements or objectives and plans of CDC will be achieved.
CDC was organized to combine and continue the business of the nine
Corporate Property Associates real estate limited partnerships (the "CPA(R)
Partnerships") and began trading on the New York Stock Exchange on January 21,
1998. CDC owns and manages a diverse portfolio of real properties, generally
leased to corporate tenants under long-term net leases. CDC intends to continue
to expand the existing net lease portfolio and, as appropriate, engage in new
lines of business. During 1998, CDC expanded its scope of operations into Europe
with property acquisitions in France. Additional properties were purchased in
France in 1999.
Public business enterprises are required to report financial and
descriptive information about their reportable operating segments. CDC's
management evaluates the performance of its portfolio as a whole, but allocates
its resources between two operating segments: Real estate operations, with
domestic and international investments, and hotel operations.
Results of Operations:
Year-Ended December 31, 1999 Compared to Year-Ended December 31,
1998
Income before the effects of non-recurring items consisting of the
noncash writedown of investments, gains from sales and extraordinary items
increased by $437 or 1% in 1999 as compared to 1998. This increase is primarily
due to the growth of lease revenues, which was partially offset by increases in
depreciation, interest and general and administrative expenses. Net income for
the twelve months ended December 31, 1999 decreased by $4,425 as compared to
1998 primarily due to a noncash writedown to net realizable value of $4,830 of
CDC's investment in Meristar Hospitality Corporation, a publicly traded real
estate investment trust specializing in hotels. The noncash writedown was
recognized because of continued weakness in the public market's valuation of
equity securities of real estate investment companies, including Meristar. CDC
owns approximately 780,000 units of the operating partnership of Meristar, which
was acquired in 1996 by the predecessor CPA partnerships in exchange for the
transfer of a hotel property. Upon commencement of CDC's operations in January
1998, pursuant to a consolidation of the nine CPA predecessor partnerships, the
equity investment in Meristar was recorded on the books of CDC at $23,600 based
on the then quoted market value per share of Meristar common stock. The carrying
value of the equity investment in Meristar subsequent to the writedown
approximated CDC's pro rata share of Meristar at Meristar's reported net asset
value. The quoted market value of a share of common stock at December 31, 1999
was $16.00 resulting in an aggregate value as of that date of approximately
$12,484, if converted.
Lease revenues, including rental income from operating leases and
interest income from financing leases, increased by approximately $3,300 or 4%
for the year ended December 31, 1999 as compared to 1998. This increase
represents the excess of additional lease revenues of approximately $6,000 from
completed construction projects and the effect of property acquisitions, over
revenue decreases as compared with 1998 of approximately $2,700 due to sales of
properties and lease terminations. During 1999, CDC completed construction of a
new $37,000 office building for America West Holdings Corp. in Tempe, Arizona in
which CDC owns an approximate 75% interest, a $3,000
-20-
<PAGE> 22
renovation for property leased to Cendant Operations, Inc. in Moorestown New
Jersey and a $1,800 expansion on a property in Chandler, Arizona leased to
Orbital Sciences Corporation. Annual rent on the America West and Cendant
properties is $2,539 and $1,000 respectively. Additional annual rent from the
Orbital Science expansion is $234. Approximately $2,500 of the increase in lease
revenues was realized as a result of recognizing a full year's rent in 1999 on
properties acquired in 1998, including a property leased to Eagle Hardware and
Garden Inc., a portfolio of seven properties acquired from J.A. Billipp
Development Corporation and three properties located in France.
Decreases in lease revenues in 1999 of approximately $2,700 resulted
from the scheduled expiration of a lease with Hughes Markets in April 1998 and
the sale of properties. Approximately $1,300 of the decrease in lease revenues
was due to the termination of the lease with Hughes Markets for a dairy
processing plant in Los Angeles, California. On April 30, 1998, CDC's two-year
extension term with Hughes Markets at above-market rental rates ended, and a new
lease for the property with Copeland Beverage Group, Inc. became effective.
Annual rent of $1,800 from the lease with Copeland approximated the rent in
effect before commencement of Hughes' two-year extension term. In April 1998,
CDC received a final rent payment of $3,500 from Hughes. Loss of revenues from
the sale of properties in 1999 and 1998 account for approximately $1,400 of the
decrease in lease revenues. These properties were sold as a result of exercise
of purchase options by the lessees of the properties.
Copeland Beverage Group, Inc. defaulted on its loans and a receiver
was appointed to oversee the liquidation of the company in August 1999. Copeland
was required to provide CDC with an $1,800 letter of credit, and since December
31, 1999, CDC has drawn on the full amount of the letter. DeVlieg Bullard, Inc.,
the lessee of two properties in McMinnville, Tennessee and Frankenmuth,
Michigan, filed a petition for bankruptcy and is in the process of submitting a
plan of reorganization to the bankruptcy court. DeVlieg has not indicated
whether it will seek to affirm or terminate its lease with CDC. Annual rent from
the DeVlieg lease is $954. CDC has drawn on the full amount of a letter of
credit for $831 provided by DeVlieg. Proceeds from the Copeland and DeVlieg
letters of credit will be applied to fund unpaid rent and property carrying
costs for 1999 and, to the extent there are sufficient proceeds, for 2000.
CDC has completed funding construction of four office buildings in
Collierville, Tennessee for the Federal Express Corporation at a cost of $77,000
as of February 2000. CDC has entered into a lease with Federal Express with an
initial term of 20 years and two ten-year renewal options, that provides for
annual rental income of approximately $6,600. The lease also provides for yearly
rent increases indexed to increases in the Consumer Price Index. The lease term
commenced in February 2000. CDC is also funding construction of an office
facility in Tours, France leased to Bouygues Telecom for an estimated cost of
$12,600. The lease with Bouygues Telecom provides for annual rent of $1,146.
Construction is expected to be completed in the year 2000 at which time
recognition of rental income on the lease will commence.
Hotel operating income (hotel revenues less hotel expenses)
decreased from $1,333 in 1998 to $1,113 in 1999 primarily due to a transfer of
hotel operations in 1998. Income from hotels in 1998 included one month of
operating income from a hotel in Livonia, Michigan, whose operations were
transferred to an affiliated entity on February 1, 1998. The affiliated entity
entered into a lease with CDC for the hotel property, allowing CDC to retain
certain tax benefits while retaining substantially all of the economic benefits
of owning the hotel properties. Operating income from the hotels located in
Alpena and Petosky, Michigan was substantially unchanged.
Other income increased by $250 or 26%, primarily due to the receipt
of payments in connection with the settlement of a dispute with the former
tenant of a property in Broomfield, Colorado. Pursuant to the settlement, CDC
received $700 of unpaid rents, interest and penalties due from the former
tenant. CDC also received proceeds of $265 from the settlement of a bankruptcy
by a former tenant that is included in other income. Income from equity
investments increased by 3% in 1999 as compared to 1998.
Minority interest in income decreased by approximately $2,000 in
1999 as compared to 1998 due to the redemption of certain minority interests in
July 1998. Net gains from the sale of assets in 1999 were $471 and consist of
the sale of two properties, Hotel Corporation of America and KSG, Inc. Both
sales were made pursuant to the exercise of purchase options by the lessees.
Interest expense increased by approximately $535, or 3% in 1999 as
compared to 1998 primarily due to an increase in debt balances for the
acquisition of additional properties. Total debt, consisting of limited recourse
mortgage debt and advances on the revolving line of credit, increased from
approximately $271,000 in 1998 to $317,000
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<PAGE> 23
in 1999. The increase in interest expense from additional borrowings was
substantially offset by the decrease in expense from lower principal balances on
amortizing mortgage loans. CDC used draws on its $185,000 revolving line of
credit to fund construction costs, acquisitions and refinance high rate debt on
a transitional basis. Advances made on the revolving line of credit during 1999
were repaid from the proceeds of limited recourse mortgage loans and property
sales. CDC continues to evaluate opportunities for re-leveraging certain of its
properties with limited recourse mortgage debt.
Depreciation and amortization expense increased by $2,786 in 1999
as compared to 1998 primarily due to the acquisition of properties in 1998
and the completion of construction on properties leased to America West
Holding Corp. and Cendant Operations, Inc. in 1999.
General and administrative expenses increased by approximately
$1,400 in 1999 as compared to 1998 primarily due to increases in professional
fees and state and local income taxes. Professional fees increased due to the
implementation of a new integrated accounting and asset management system and
costs related to the evaluation and remediation of Year 2000 issues. A portion
of the increase in professional fees is due to efforts to improve CDC's tax
reporting capabilities to shareholders. CDC revised its systems and procedures
to provide accelerated reporting of tax information to shareholders and engaged
an external processing agent to provide shareholders with internet access to
their tax information. State and local income taxes have increased due to the
growth of CDC's portfolio of properties.
Property expenses increased by approximately $375 due to an increase
in management and performance fees. Management and performance fees are based on
the total market capitalization of CDC. These fees will tend to increase with
the growth of CDC's portfolio.
Because of the long-term nature of CDC's net leases, inflation and
changing prices should not unfavorably affect revenues and net income or have an
impact on the continuing operations of CDC's properties. CDC's leases usually
have rent increases based on the consumer price index and other similar indexes
and may have caps on such increases, or sales overrides, which should increase
operating revenues in the future. The moderate increases in the consumer price
index 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.
Year-Ended December 31, 1998 Compared to Year-Ended December 31,
1997
Net income for 1998 is not fully comparable to net income for 1997.
CDC commenced operations on a consolidated basis as an ongoing and growing
business on January 1, 1998, while the prior year reflect the combined results
of nine static and liquidating predecessor partnerships.
The results for 1997 reflect several nonrecurring items including
other income of $2,859 primarily in connection with bankruptcy claims and
revenues of $1,600 in excess of market rates for a property under a lease with
Advanced System Applications, Inc. ("ASA") that ended in June 1997. The ASA
lease represented 3% of 1997 lease revenues, and had been renegotiated in 1994
to allow the lessee to terminate the lease in 1997 rather than 2003. The rents
received during the abbreviated term were intended to provide a significant
portion of the rents that would have been due over the remainder of the original
lease term.
Lease revenues decreased by $319 for 1998. The decrease was
primarily a result of the termination of the ASA lease in June 1997 and the
termination of the Hughes Markets, Inc. lease. Lease revenues from ASA and
Hughes for 1997 were $2,267 and $5,784, respectively. This was offset, in part,
by $2,958 from lease revenues in 1998 from rentals on the Livonia, Michigan
hotel property, which has been leased since February 1, 1998 and an increase of
annualized revenue of $6,653 from leases on the properties acquired in 1998 with
(i) Eagle Hardware & Garden, Inc., (ii) properties in Houston, Texas,(iii) the
French properties and (iv) the commencement of the lease with Sprint Spectrum LP
subsequent to the completion of construction.
In April 1998, CDC received a final rent payment of $3,500 from
Hughes. At the time the extension term was negotiated, management had
anticipated that the funds would be used to retrofit the property for
alternative uses and to cover carrying costs during a period of vacancy. As a
result of entering into the Copeland lease, no significant property expenditures
were required in 1999 or 1998.
-22-
<PAGE> 24
The decrease in hotel revenues and related operating expenses
resulted from the change in status of the Livonia property in February 1998 to a
leased property. As a result, the percentage of hotel revenues decreased to 7%
of overall revenues. Hotel operating income of the two remaining hotels
increased by over $115 or 11% in 1998 as compared to 1997. The increase was
primarily attributable to an increase in the average room rates. Occupancy
levels were stable.
Interest expense decreased as a result of paying off several
mortgage loans in 1998, amortization of mortgage debt and the refinancing of a
$12,700 limited recourse mortgage loan in June 1997, collateralized by
properties leased to Furon Company at a lower rate of interest. CDC used draws
from its $185,000 revolving line of credit from a syndicate of banks to
refinance high interest debt and fund acquisitions on a transitional basis. In
connection with paying off three mortgage loans with funds advanced from the
line of credit, CDC incurred an extraordinary charge on the early extinguishment
of debt of $621in 1998. In addition, CDC obtained $11,000 of mortgage financing
on the Eagle property in December 1998.
The increase in general and administrative expense was due, in part,
to CDC's transition from a combined group of static finite-life entities to a
publicly-traded infinite-life entity. These expenses include the cost of a
full-time chief executive officer and additional professional fees. The decrease
in property expenses resulted from a lower provision for potential future
uncollected rents, lower legal costs in connection with lease disputes, all of
which were partially offset by higher overall management and performance fees.
CPA(R) Partnership management fees were based on operating cash flow and/or rent
collections.
Noncash charges for property writedowns to fair value of $1,585 in
1998 included CDC's writedown of a property in Urbana, Illinois. The writedown
on the Urbana property was based on the expected sales price pursuant to the
exercise of a purchase option by the tenant, Motorola Inc. The $1,512 gain on
sales of real estate resulted from the sales of the Simplicity and NVR
properties in Port Washington, Wisconsin and Pittsburgh, Pennsylvania,
respectively. The $958 of other income resulted primarily from proceeds from
bankruptcy claims and reimbursements from a tenant in connection with a lease
dispute.
Income from equity investments decreased $239 primarily due to lower
earnings from CDC's investment in Meristar. The decreased earnings for Meristar
for 1998 included an extraordinary charge and one-time restructuring charges.
Financial Condition
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 mortgage debt service and to fund quarterly distributions to partners,
generally at an increasing rate each quarter. Net proceeds from the sale of
assets and lump sums received in the settlement of bankruptcy and other claims
were used to pay off high rate mortgage debt or to fund special distributions to
partners.
CDC's primary sources of capital to meet its short-term and
long-term needs are cash generated from operations, limited recourse mortgage
loans, unsecured indebtedness and the issuance of additional equity securities.
The issuance of equity was not a significant source of capital in 1999 because
the cost of obtaining debt financing during 1999 was attractive as compared to
the cost of raising capital through an offering of equity securities. This is
primarily due to the general weakness in valuation of equity securities of real
estate companies by the public markets and a favorable interest rate climate for
debt financing.
Cash flows from operations and distributions from equity investments
for the year ended December 31, 1999 of $49,016 were sufficient to fund the
payment of dividends to shareholders of $42,525 and distributions to minority
interests of $2,344. Cash and cash equivalents decreased by $3,376 in 1999 as
compared to 1998 resulting from to management's decision to reduce excess cash
balances and improve the effectiveness of working capital.
Dividends paid to shareholders in 1999 of $42,525 exceeded dividends
paid in 1998 of $30,820 primarily because 1998 was the first full year of
operations for the CDC and three of the four dividends declared in 1998
-23-
<PAGE> 25
were paid during the year. In March, 2000, quarterly dividends were increased to
$0.4225 per listed share from $0.4175 per listed share.
CDC expects to meet its short-term liquidity needs for the payment
of operating expenses, dividends to shareholders and regularly scheduled debt
service from cash flows generated from operations and existing cash balances.
Cash flows from operations derived from existing properties for 2000 are
expected to remain stable as compared to 1999. Cash flows for the year 2000 will
be favorably affected by recognition of a full year's operation of properties
acquired or constructed in 1999, including the properties leased to America West
and Cendant Operations. Annual cash flows from these investments will
approximate $2,300. Increases in annual cash flows of $6,840 are expected from
the completion of construction of properties leased to Federal Express and
Bouygues Telecom in 2000.
The expected increases in cash flows will be partially offset by the
possible loss of rents from properties leased to Copeland Beverage and DeVlieg
Bullard and from properties sold in 1999. A portion of the funds received from
the Copeland and DeVlieg letters of credit will be applied to fund property
carrying costs and unpaid rents during 2000 but such proceeds will not cover the
loss of revenues from both leases for the entire year. A property formerly
leased to KSG Inc. was sold in November 1999 for $11,000 resulting in a
reduction in annual cash flows of $900. The Company's ability to maintain its
current level of cash flows after 2000 may depend in part on its ability to
re-lease the Copeland and DeVlieg properties.
CDC is exploring various options for the property leased to Copeland
including re-leasing the property for its current use or a possible
redevelopment of the property. The property consists of an 18 acre parcel in the
City of Los Angeles, California. A redevelopment could result in no revenues
being generated from the property for an extended period due to the time
required for planning, construction of new facilities and obtaining tenants for
the property. CDC is in the initial stages of evaluating its options with
respect to the Copeland property and no final decision has been made with
respect to the re-marketing of the property. CDC is currently pursuing new
tenants for the DeVlieg properties.
CDC's investing activities for 1999 primarily consist of funding
construction costs for build to suit transactions and the acquisition of new
properties for $64,588. Construction costs funded in 1999 approximated $38,600
and primarily relate to properties leased to America West, Cendant Operations
and Federal Express and the funding of an expansion for Orbital Sciences.
Construction of these properties, except for the property leased to Federal
Express, was completed in 1999. The Federal Express property was completed in
February 2000. Construction costs for the properties located in France
approximate $5,117 and work on these properties except for the office facility
in Tours was completed in July 1999. In June 1999, CDC acquired a 50% interest
in a joint venture that purchased property located in Norcross, Georgia leased
to CheckFree Corporation. The total purchase price of the property was $31,306
of which $15,800 was supplied by a limited recourse mortgage loan. The leases
with CheckFree provide for annual rents of $2,564 per year of which CDC's share
is $1,282 with scheduled rent increases based on a formula indexed to the
Consumer Price Index.
Financing activities during 1999 consisted primarily of the payment
of dividends to shareholders of $42,525, distributions to minority interests of
$2,344 and obtaining additional borrowings of $74,251 to fund investment
activities. The additional borrowings were derived primarily from the placement
of additional mortgage debt during the year. CDC uses limited recourse mortgage
notes for a substantial portion of its long-term financing strategy because the
cost of this financing is attractive and the exposure of its assets is limited
to the collateral designated for each loan. Limited recourse mortgage loans
placed in 1999 collateralized by properties leased to America West, AutoZone,
Inc. and The Gap, Inc. is equal to $55,850. Annual interest rates on the loans
ranged from 6.85% to 7.91% with maturities of five to twelve years. The mortgage
loans provide for monthly installment payments including interest and principal
amortization pursuant to specified amortization periods for each loan.
CDC maintains a revolving line of credit that provides for
borrowings of up to $185,000. Advances from the line of credit bear interest at
an annual rate indexed to the LIBOR Rate. The revolving credit agreement has
financial covenants that require the Company to (i) maintain minimum equity
value of $400,000 plus 85% of amounts received by the Company 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 Company is in compliance with these covenants.
Advances of $150,000 were drawn on the revolving line of credit as of March
2000. The revolving line of credit matures in March, 2001. CDC believes that
based on its current financial condition an extension or renewal of the
revolving line of credit is probable.
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<PAGE> 26
CDC uses its revolving line of credit to provide additional
flexibility in meeting its long and short-term capital needs. During 1999
advances from the revolving line of credit were used to acquire new properties,
fund construction costs on build-to-suit transactions and capital improvements
to existing properties in the portfolio. Funds from the revolving line of credit
were also used to pay off high rate mortgage debt, satisfy balloon payments on
maturing mortgage debt and to temporarily fund working capital needs. Advances
made on the revolving line of credit during 1999 were repaid from the proceeds
of new limited recourse mortgage debt and from excess cash derived from the
sales of properties during the year.
CDC expects to meet its capital requirements to fund future property
acquisitions, construction costs on build-to-suit transactions, capital
expenditures on existing properties and scheduled debt maturities through
long-term secured and unsecured indebtedness and the issuance of additional
equity securities. CDC's remaining commitments on build-to-suit transactions for
properties leased to Federal Express and Bouygues Telecom approximate $7,200.
Commitments for capital expenditures on the Livonia, Alpena and Petoskey,
Michigan hotels are currently estimated to be approximately $600.
In the case of limited recourse mortgage financing that does not
fully amortize over its term or is currently due, CDC is responsible for the
balloon payment only to the extent of its interest in the encumbered property
because the holder has recourse only to the collateral. In the event that
balloon payments come due, CDC may seek to refinance the loans, restructure the
debt with the existing lenders or evaluate its ability to satisfy the obligation
from its existing resources including its revolving line of credit, to satisfy
the mortgage debt. To the extent the remaining initial lease term on any
property remains in place for a number of years beyond the balloon payment date,
CDC believes that the ability to refinance balloon payment obligations is
enhanced. CDC also evaluates all its outstanding loans for opportunities to
refinance debt at lower interest rates that may occur as a result of decreasing
interest rates or improvements in the credit rating of tenants. Scheduled
balloon payments on limited recourse mortgage notes approximate $2,800 in 2000
and $12,500 in 2001.
In connection with the purchase of many of its properties, CDC
required the sellers to perform environmental reviews. Management believes,
based on the results of such reviews, that CDC's properties were in substantial
compliance with Federal and state environmental statutes at the time the
properties were acquired. However, portions of certain properties have been
subject to some degree of contamination, principally in connection with leakage
from underground storage tanks, surface spills or historical on-site activities.
In most instances where contamination has been identified, tenants are actively
engaged in the remediation process and addressing identified conditions. Tenants
are generally subject to environmental statutes and regulations regarding the
discharge of hazardous materials and any related remediation obligations. In
addition, CDC's leases generally require tenants to indemnify CDC from all
liabilities and losses related to the leased properties with provisions of such
indemnification specifically addressing environmental matters. The leases
generally include provisions that allow for periodic environmental assessments,
paid for by the tenant, and allow CDC to extend leases until such time as a
tenant has satisfied its environmental obligations. Certain of the leases allow
CDC to require financial assurances from tenants such as performance bonds or
letters of credit if the costs of remediating environmental conditions are, in
the estimation of CDC, in excess of specified amounts. Accordingly, Management
believes that the ultimate resolution of environmental matters will not have a
material adverse effect on CDC's financial condition, liquidity or results of
operations.
In 1999, CDC and its affiliates formed a task force to identify year
2000 problems. The task force developed and implemented a plan that included
inventory, assessment, remediation, testing and contingency planning. CDC
experienced no significant disruptions as a result of the year end date change.
The task force intends to monitor other critical dates in the future, such as
quarter-end dates. In connection with these procedures, CDC incurred expenses of
$139. The impact of the year 2000 issues on the CDC will continue to depend on
the way the issues have been addressed by third parties that provide services to
the CDC. To date, CDC has not been adversely impacted to any significant extent
by the failure of third parties to address year 2000 issues. The task force has
developed contingency plans to address risks associated with year 2000 issues
that may arise. There can be no assurance that these plans will fully mitigate
any problems that may arise. The foregoing year 2000 discussions constitute a
Year 2000 Readiness Disclosure within the meaning of the Year 2000 Readiness and
Disclosure and Disclosure Act of 1998.
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<PAGE> 27
On December 20, 1999, CDC and Carey Management LLC, the Manager of
CDC's business operations, entered into an Agreement and Plan of Merger, whereby
CDC would acquire certain assets relating to the Manager's real estate
investment advisory business by way of a merger with the Manager. The Merger is
subject to the approval of the shareholders of the CDC. A consent solicitation
with respect to such shareholder approval will be distributed to the
shareholders of CDC, and the Merger will be consummated as soon as practicable
following receipt of consents from a majority of the shareholders of CDC.
Following the Merger, CDC will be renamed W. P. Carey & Co. LLC and will be
listed on the New York Stock Exchange and the Pacific Exchange under the symbol
"WPC." Pursuant to the Agreement and Plan of Merger, CDC will acquire
substantially all of the business operations of the Manager and W.P. Carey &
Co., Inc. and its subsidiaries and affiliates in exchange for 8,000,000 shares
of CDC. Up to an additional 2,000,000 shares will be paid over four years if
specified performance criteria are satisfied. The assets and liabilities to be
acquired include, but are not limited to, all the stock of the Manager, the
Advisory Agreements to four real estate investment trusts that are managed by an
affiliate of the Manager, the management agreement with CDC and the employees of
W.P. Carey & Co. Management believes that the merger will broaden CDC's access
to capital, enhance its growth opportunities and strengthen its credit position
by acquiring the businesses of W. P. Carey & Co., Inc. without indebtedness.
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<PAGE> 28
Item 7A. Quantitative and Qualitative Disclosures about Market Risk:
(in thousands)
$159,764 of the CDC's long-term debt bears interest at fixed rates, and
therefore the fair value of these instruments is affected by changes in the
market interest rates. The following table presents principal cash flows based
upon expected maturity dates of the debt obligations and the related
weighted-average interest rates by expected maturity dates for the fixed rate
debt. The interest rate on the variable rate debt as of December 31, 1999 ranged
from 4.65% to 7.40%.
Advances from the line of credit bear interest at an annual rate of
either (i) the one, two, three or six-month LIBOR, 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 of up to .125% depending on CDC's leverage.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $6,590 $10,464 $9,158 $9,640 $26,838 $97,074 $159,764 $156,160
Average
interest
rate 7.66% 7.63% 7.63% 7.67% 7.79% 7.82%
Variable rate $3,753 $138,990 $ 716 $ 755 $ 768 $12,605 $157,587 $157,587
</TABLE>
Item 8. Consolidated/Combined Financial Statements and Supplementary Data:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1999 and 1998.
(iii) Consolidated Statements of Income for the years ended December 31, 1999
and 1998 and Combined Statements of Income for the year ended December
31, 1997.
(iv) Consolidated Statements of Members' Equity for the years ended December
31, 1999 and 1998 and Combined Statement of Partners' Capital for the
year ended December 31, 1997.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998 and Combined Statement of Cash Flows for the year ended
December 31, 1997.
(vi) Notes to Consolidated/Combined Financial Statements.
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<PAGE> 29
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Carey Diversified LLC and Subsidiaries:
In our opinion, the consolidated / combined financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Carey Diversified LLC and Subsidiaries (the "Company") at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. In addition,
in our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)(2) on page 52 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated / combined financial statements. 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 of
these statements in accordance with auditing standards generally accepted in the
United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 28, 2000
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<PAGE> 30
CAREY DIVERSIFIED LLC and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
ASSETS:
<S> <C> <C>
Real estate leased to others:
Accounted for under the
operating method, net $425,421 $390,312
Net investment in direct
financing leases 295,556 295,826
-------- --------
Real estate leased to others 720,977 686,138
Operating real estate, net of
accumulated depreciation
of $832 and $300 at December 31,
1999 and 1998 6,753 7,013
Real estate under construction
leased to others 69,176 55,856
Assets held for sale 3,091 12,842
Cash and cash equivalents 2,297 5,673
Equity investments 32,167 29,532
Other assets, net of accumulated
amortization of $1,125 and $375
at December 31, 1999 and 1998 and
reserve for uncollected rent of
$1,839 and $1,353 at December 31,
1999 and 1998 21,798 16,210
-------- --------
Total assets $856,259 $813,264
======== ========
LIABILITIES:
Mortgage notes payable $188,248 $138,964
Notes payable 129,103 132,334
Accrued interest payable 874 2,128
Dividends payable 10,718 10,447
Accounts payable to affiliates 7,227 7,013
Other liabilities 10,625 11,771
-------- --------
Total liabilities 346,795 302,657
-------- --------
Minority interest (3,136) (3,626)
-------- --------
Commitments and contingencies
MEMBERS' EQUITY:
Listed Shares, no par value,
25,833,603 and 25,343,402
shares issued and outstanding at
December 31, 1999 and 1998 526,130 517,755
Dividends in excess of accumulated
earnings (11,560) (2,803)
Accumulated other comprehensive income (910) (719)
-------- --------
513,660 514,233
Less, shares in treasury at cost,
62,300 shares at December 31, 1999 (1,060) -
-------- --------
Total members' equity 512,600 514,233
-------- --------
Total liabilities and
members' equity $856,259 $813,264
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated/combined
financial statements.
-29-
<PAGE> 31
CAREY DIVERSIFIED LLC and SUBSIDIARIES
CONSOLIDATED / COMBINED STATEMENTS of INCOME
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
The Company Consolidated The Predecessor Combined
For the Years Ended For the Year Ended
December 31, December 31,
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Rental income $46,719 $42,771 $43,045
Interest income from direct
financing leases 33,842 34,529 34,574
Other interest income 962 783 1,270
Other income 1,208 958 2,859
Revenues of hotel operations 5,775 6,289 14,523
------- ------ -------
88,506 85,330 96,271
------- ------ -------
Expenses:
Interest 18,801 18,266 19,888
Depreciation and amortization 11,192 8,406 10,628
General and administrative 8,045 6,660 5,275
Property expenses 5,433 5,059 6,430
Writedowns to fair value 5,988 1,585 3,806
Operating expenses of hotel operations 4,662 4,956 10,748
------- ------- -------
54,121 44,932 56,775
------- ------- -------
Income before income from equity
investments, gain on sale, minority
interest in income
and extraordinary items 34,385 40,398 39,496
Income from equity investments 1,886 1,837 2,076
------- ------- -------
Income before gain on sale, minority
interest in income and
extraordinary items 36,271 42,235 41,572
Gain on sale of real estate and
securities, net 471 1,512 1,565
------- ------- -------
Income before minority interest in
income and extraordinary items 36,742 43,747 43,137
Minority interest in income (2,664) (4,662) (2,576)
------- ------- -------
Income before extraordinary
items 34,078 39,085 40,561
Extraordinary losses on early
extinguishment of debt, net of
minority interest of
$79 in 1998 (39) (621)
-------- ------- -------
Net income $34,039 $38,464 $40,561
======= ======= =======
Basic and diluted earnings per share:
Earnings before
extraordinary item $1.33 $1.57
Extraordinary item - (.02)
----- -----
1.33 1.55
Weighted average shares
outstanding:
Basic 25,596,793 24,866,225
========== ==========
Diluted 25,596,793 24,869,570
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated/combined
financial statements.
-30-
<PAGE> 32
CAREY DIVERSIFIED LLC and SUBSIDIARIES
CONSOLIDATED
STATEMENTS of MEMBERS' EQUITY
For the years ended December 31, 1998 and 1999
(In thousands except share amounts)
<TABLE>
<CAPTION>
Dividends Accumulated
In Excess Of Other
Paid-in Comprehensive Accumulated Comprehensive Treasury
Shares Capital Income Earnings Income Shares Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1998 23,959,101 $490,820 $490,820
Cash proceeds on issuance
of shares, net 384,708 6,191 6,191
Shares issued in
connection with
services rendered and
properties acquired 999,593 20,744 20,744
Dividends declared $(41,267) (41,267)
Comprehensive income:
Net income $38,464 38,464 38,464
Other comprehensive income:
Change in unrealized
appreciation (depreciation)
of marketable securities (233)
Foreign currency translation
adjustment (486)
---------
(719) $(719) (719)
---------
$37,745
=========
Balance at
---------- -------- --------- --------- --------
December 31, 1998 25,343,402 517,755 (2,803) (719) 514,233
Cash proceeds on issuance
of shares, net 34,272 652 652
Shares issued in
connection with
services rendered and
properties acquired 455,929 7,723 7,723
Dividends declared (42,796) (42,796)
Repurchase of shares (62,300) $(1,060) (1,060)
Comprehensive income:
Net income $34,039 34,039 34,039
Other comprehensive income:
Change in unrealized
appreciation (depreciation)
of marketable securities 497
Foreign currency translation
adjustment (688)
---------
(191) $(191) (191)
---------
$33,848
=========
Balance at
---------- -------- --------- --------- -------- --------
December 31, 1999 25,771,303 $526,130 $(11,560) $(910) $(1,060) $512,600
========== ======== ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated/combined
financial statements.
-31-
<PAGE> 33
CAREY DIVERSIFIED LLC and SUBSIDIARIES
COMBINED STATEMENT of
PARTNERS' CAPITAL
For the year ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
The Predecessor Company
-----------------------
<S> <C>
Balance, January 1, 1997 $304,045
Distributions to partners (43,620)
Comprehensive income:
Net Income 40,561
Change in unrealized appreciation
of marketable securities (98)
--------
40,463
--------
Balance, December 31, 1997 $300,888
========
</TABLE>
The accompanying notes are an integral part of the consolidated/combined
financial statements.
-32-
<PAGE> 34
CAREY DIVERSIFIED LLC
CONSOLIDATED / COMBINED
STATEMENTS of CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) The Company Consolidated The Predecessor Combined
For the Years Ended For the Year Ended
December 31, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 34,039 $ 38,464 $ 40,561
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 11,192 8,406 10,628
Amortization of deferred income (1,397) (964) (348)
Extraordinary loss 39 621
Gain on sales, net (471) (1,512) (1,565)
Securities received in lieu of cash (265) (1,690)
Minority interest in income 2,664 4,662 2,576
Straight-line rent adjustments and
other noncash rent adjustments (1,646) (2,642) (2,310)
Writedown to fair value 5,988 1,585 3,806
Provision for uncollected rents 328 682 1,576
Payment of deferred management fees (1,509)
Compensation costs paid by
issuance of shares 1,647 881
Net changes in operating assets
and liabilities and other (3,877) 3,270 (1,593)
------- ------- ----
Net cash provided by operating
activities 48,241 51,944 51,641
------- ------- ----
Cash flows from investing activities:
Purchases of real estate (60,804) (89,650)
Additional capital expenditures (3,784) (5,156) (1,955)
Proceeds from sales of real estate
and securities 9,631 21,567 1,242
Accrued disposition fees payable (1,007) 1,007
Purchases of mortgage receivable
and marketable securities (3,676) (65)
Sale of mortgage receivable 3,676
Distributions received from
equity investments in
excess of equity income 775 763 245
Other 9 195
------- ------- ----
Net cash used in
investing activities (55,189) (71,525) (273)
------- ------- ----
</TABLE>
- continued -
-33-
<PAGE> 35
CAREY DIVERSIFIED LLC
CONSOLIDATED/COMBINED
STATEMENTS of CASH FLOWS, Continued
<TABLE>
<CAPTION>
(In thousands) The Company Consolidated The Predecessor Combined
For the Years Ended For the Year Ended
December 31, December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends distributions paid (42,525) (30,820) (43,620)
Payment of accrued preferred
distributions (4,422)
Distributions paid to special
limited partners (2,344) (2,499) (2,327)
Distributions to and redemptions of
subsidiary partnership unitholders (8,789)
Payments of mortgage principal (6,393) (6,627) (27,565)
Proceeds from mortgages and
notes payable 74,251 157,823 12,700
Prepayments of mortgages and
notes payable (17,803) (101,555)
Prepayment charges paid (39) (700)
Deferred financing costs (1,744) (1,963) (66)
Proceeds from issuance of shares 652 7,304
Purchase of treasury stock (627)
Other (75) (1,084) (457)
------- --------- ---------
Net cash provided by (used in)
financing activities 3,353 6,668 (61,335)
------- --------- ---------
Effect of exchange rate changes on cash 219 -
------- ---------
Net decrease in cash and
cash equivalents (3,376) (12,913) (9,967)
Cash and cash equivalents,
beginning of year 5,673 18,586 28,553
Cash and cash equivalents,
------- --------- ---------
end of year $ 2,297 $ 5,673 $ 18,586
======= ========= ========
</TABLE>
Noncash operating, investing and financing activities:
A. The Company issued 203,166 and 215,424 restricted shares valued at $3,311 and
$4,367 in 1999 and 1998, respectively, to certain directors, officers and
affiliates as consideration for services rendered, including performance fee
(see Note 3).
B. In connection with the acquisition of properties, the Company assumed
mortgage obligations of $6,098 and $13,593 and issued 252,763 and 784,169
shares valued at $4,412 and $16,377 in 1999 and 1998, respectively.
C. In connection with the disposition of a property in Topeka, Kansas in 1999,
the property was transferred to the purchaser in exchange for assumption of
the mortgage obligation on the property and certain other assets and
liabilities. The gain on sale was as follows:
<TABLE>
<S> <C>
Land, buildings and personal property,
net of accumulated depreciation $(7,654)
Mortgage note payable 8,107
Other (373)
-------
Gain on sale $ 80
=======
</TABLE>
D. Deferred acquisition fees payable to an affiliate at December 31, 1999 and
1998 are $ 3,945 and $3,137, respectively.
E. In connection with foreclosure of a property in 1997, the Company 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>
<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 consolidated/combined
financial statements.
-34-
<PAGE> 36
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS
(All amounts in thousands except share and per share amounts)
1. Organization and Basis of Consolidation:
The combined financial statements for year ended December 31, 1997 have
been presented as those of a predecessor company consisting 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 "Company"). The financial statements
have been presented on a combined basis at historical cost because of
affiliated general partners, common management and common control and
because the majority ownership interests in the CPA(R) Partnerships
were transferred to Carey Diversified effective January 1, 1998,
pursuant to a consolidation transaction. The consolidated financial
statements for the years ended December 31, 1999 and 1998 are those
of Carey Diversified and its wholly-owned and majority-owned
subsidiaries including the nine CPA(R) Partnerships. All material
inter-entity transactions have been eliminated. The former General
Partners' interest in the CPA(R) Partnerships is classified under
minority interest because that interest was retained 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 was accounted
for as a purchase with the limited partner interests recorded at the
fair value of the shares exchanged. The excess of fair value over the
related historical cost basis of $189,932 was allocated principally
to real estate under operating leases, net investment in direct
financing leases and equity investments. The exchange of the former
General Partners' interests for shares has been accounted for at
their historical cost basis. As a result of the consolidation
transaction, the results of operations of the Company are not
directly comparable to those of the predecessor CPA(R) Partnerships
for 1997.
Limited partners who did not elect to receive shares retained a direct
ownership interest in the applicable Partnership as subsidiary
partnership unitholders. On July 15, 1998, the Company redeemed all
subsidiary partnership units for $8,377. The redemption values were
determined by an independent valuation of each of the CPA(R)
Partnerships as of May 31, 1998. The redemption amounts approximated
the carrying amounts of the subsidiary partnership units and,
accordingly, no purchase accounting adjustment was required. The
subsidiary partnership unitholders' share of income in 1998 is
included in minority interest in income in the accompanying
consolidated financial statements.
2. Summary of Significant Accounting Policies:
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 Company diversifies its real estate investments among various
corporate tenants engaged in different industries and by property
type. No lessee currently represents 10% or more of total leasing
revenues.
-35-
<PAGE> 37
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
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 Company's net investment in the lease.
Operating method - Real estate is recorded at cost, rental
revenue is recognized on a straight-line basis over the term of
the related leases and expenses (including depreciation) are
charged to operations as incurred.
Substantially all of the Company's leases provide for either scheduled
rent increases, periodic rent increases based on formulas indexed to
increases in the Consumer Price Index or, for certain retail
properties, sales overrides.
Certain of the Company's leases provide for additional rental revenue by
way of percentage rents to be paid based upon the level of sales to
be achieved by the lessee. These percentage rents are recorded once
the required sales level is achieved and are included in the
accompanying consolidated statements of income in rental revenue and
interest income from direct financing leases.
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.
In connection with the lease of the property in Livonia, Michigan,
$16,563 of operating real estate was reclassified to real estate
accounted for under the operating method at its historical cost in
1998.
Real Estate Under Construction, Leased to Others:
For properties under construction, interest charges, if any, are
capitalized rather than expensed and rentals received are recorded as
a reduction of capitalized project (i.e., construction) costs.
The amount of interest capitalized is determined by applying the
interest rate applicable to outstanding borrowings on the line of
credit to the average amount of accumulated expenditures for
properties under construction during the period.
Assets Held for Sale:
Assets held for sale are accounted for at the lower of carrying value or
fair value, less costs to dispose.
The Company recognizes gains and losses on the sale of properties when
among other criteria, the parties are bound by the terms of the
contract, all consideration has been exchanged and all conditions
precedent to closing have been performed. At the time the sale is
consummated, a gain or loss is recognized as the difference between
the sale price less any closing costs and the carrying value of the
property.
Long-Lived Assets:
The Company assesses the recoverability of its long-lived assets,
including residual interests of real estate assets and investments,
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 (generally forty years) and
for furniture, fixtures and equipment (generally seven years).
-36-
<PAGE> 38
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
Foreign Currency Translation:
The Company consolidates its real estate investments in France. The
functional currency for these investments is the French Franc. The
translation from the French Franc to U. S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the
balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during the period. The gains and
losses resulting from such translation are reported as a component of
other comprehensive income as part of members' equity.
Cash Equivalents:
The Company 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 Company's cash and cash
equivalents at December 31, 1999 and 1998 were held in the custody of
four financial institutions and which, at times, exceed federally
insurable limits. The Company mitigates this risk by depositing funds
with major financial institutions.
Other Assets and Liabilities:
Included in other assets are accrued rents and interest receivable,
deferred rental income, deferred charges and marketable securities.
Included in other liabilities are accrued interest payable and
accounts payable and accrued expenses. Deferred charges include costs
incurred in connection with debt financing and refinancing and are
amortized over the terms of the obligations. 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 in deferred rental income are
lease restructuring fees received which are recognized over the
remainder of the initial lease terms.
Marketable securities are classified as available-for-sale securities
and reported at fair value with the Company's interest in unrealized
gains and losses on these securities reported as a component of other
comprehensive income until realized. Such marketable securities had a
cost basis of $2,065 and $1,800 and reflected a fair value of $2,329
and $1,513 at December 31, 1999 and 1998, respectively.
Equity Investments:
The Company's limited partner interests in two real estate limited
partnerships and a limited liability company in which the Company's
ownership is 50% or less are accounted for under the equity method,
i.e., at cost, increased or decreased by the Company's pro rata share
of earnings or losses, less distributions. The three ownership
interests are jointly owned with affiliates and represent interests
in properties net leased to single tenants.
An interest in the operating partnership of a publicly-traded real
estate investment trust is also accounted for under the equity
method.
Accounts Payable to Affiliates:
Included in payables to affiliates are deferred acquisition fees which
are payable for services provided by Carey Management, relating to
the identification, evaluation, negotiation, financing and purchase
of properties. The fees are payable in eight annual installments,
beginning January 1 following the first anniversary of the date a
property was purchased, with each installment equal to .25% of the
purchase price of the property.
-37-
<PAGE> 39
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
Income Taxes:
The Company is a limited liability company and has elected partnership
status for federal income tax purposes. The Company is not liable for
Federal income taxes as each member recognizes his or her
proportionate share of income or loss in his or her tax return.
Accordingly, no provision for Federal income taxes is recognized for
financial statement purposes. The Company is subject to certain state
and local taxes.
Earnings Per Share:
The Company presents both basic and diluted earnings per share ("EPS").
Basic EPS excludes dilution and is computed by dividing net income
available to shareholders by the weighted average number of shares
outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue
shares were exercised or converted into common stock, where such
exercise or conversion would result in a lower EPS amount.
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Income Basic and Diluted Per
Available Weighted Shares Share
to Members Outstanding Amount
<S> <C> <C> <C>
Year Ended December 31, 1999
Basic and diluted earnings
before extraordinary item $34,078 25,596,793 $1.33
Extraordinary item (39) -
------- -----
Basic and diluted earnings $34,039 25,596,793 $1.33
======= =====
Year Ended December 31, 1998
Basic earnings before
extraordinary item $39,085 24,866,225 $1.57
Extraordinary item (621) (.02)
------- -----
Basic earnings $38,464 24,866,225 $1.55
======= =====
Effect of dilutive securities -
options for shares 3,345
----------
Diluted earnings before
extraordinary item $39,085 24,869,570 $1.57
Extraordinary item (621) (.02)
---- ----
Diluted earnings $38,464 24,869,570 $1.55
======= ========== =====
</TABLE>
As of December 31, 19999, the Company had issued 3,199,280 share
options that were not reflected in the 1999 calculation because based
on the exercise price of the options, such options were
anti-dilutive.
Stock Based Compensation:
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations ("APB No. 25"). Under APB No. 25, compensation cost
is measured as the excess, if any, of the quoted market price of the
Company's shares at the date of grant over the exercise price of the
option granted. Compensation cost for stock options, if any, is
recognized ratably over the vesting period. No compensation cost was
recognized in 1999 and 1998 in connection with the Company's share
option plans. The Company provides additional pro forma disclosures
as required under SFAS No. 123, "Accounting for Stock Based
Compensation" (see Note 16).
All transactions with non-employees in which the Company issues stock as
consideration for services received are accounted for based on the
fair value of the stock issued or services received, whichever is
more reliably determinable.
-38-
<PAGE> 40
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
Reclassification:
Certain 1998 and 1997 amounts have been reclassified to conform to the
1999 financial statement presentation.
3. Transactions with Related Parties:
Through December 31, 1997, the Partnership agreements of each of the
CPA(R) Partnerships provided that the former 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 and
distributable cash from operations, as defined, and the Limited
Partners were allocated between 90% and 99% of the profits and losses
and distributable cash from operations. As a result of the merger of
the CPA(R) Partnerships into subsidiary partnerships of Carey
Diversified, Carey Diversified is the sole general partner of the
nine CPA(R) Partnerships. The allocation of profits and losses and
cash distributions provided in the partnership agreements as amended
effective January 1, 1998, are on essentially on the same terms as
prior to the consolidation. Carey Diversified is allocated between
90% and 99% of the profits and losses and distributable cash from
operations, and two special limited partners, Carey Management, an
affiliate, and William Polk Carey, are allocated between 1% and 10%
of the profits and losses and distributable cash from operations.
In connection with the merger of the CPA(R) Partnerships with Carey
Diversified and the listing of shares of Carey Diversified on the New
York Stock Exchange, the former Corporate General Partners of eight
of the CPA(R) Partnerships satisfied provisions for receiving a
subordinated preferred return from the Partnerships totaling $4,422
based upon the cumulative proceeds from the sale of the assets of
each Partnership from inception through the date of the
consolidation. Payment of this preferred return, paid in 1998, was
based on achieving a specified cumulative return to limited partners.
For the partnership that has not yet achieved the specified
cumulative return, its subordinated preferred return of $1,423 is
included in accounts payable to affiliates in the accompanying
consolidated financial statements. To satisfy the conditions for
receiving this remaining preferred return, the shares of Carey
Diversified must achieve a closing price equal to or in excess of
$23.11 for five consecutive trading days.
The Company's management and performance fees are payable, each at an
annual rate of 1/2% of the total market capitalization of the
Company. The Management Agreement, effective January 1, 1998,
provides that the performance fee is payable in the form of
restricted shares issued by the Company which vest ratably over a
five-year period. Management and performance fees were $3,025, $2,201
and $1,139 for 1999, 1998 and 1997, respectively. The management fee
for 1999 and 1998 reflects a dollar-for-dollar reduction for
quarterly distributions paid to special limited partners. General and
administrative reimbursements consist primarily of the actual cost of
personnel needed in providing administrative services to the Company
and were $1,457, $1,540 and $1,788 in 1999, 1998 and 1997,
respectively.
Carey Management performs certain services for the Company including the
identification, evaluation, negotiation, purchase and disposition of
property. Carey Management and certain affiliates receive fees and
compensation in connection with these services, including acquisition
and structuring and development fees, loan refinancing fees and
disposition fees. Disposition fees were $695 and $1,007 in 1999 and
1998, respectively. In connection with performing services related to
the Company's real estate purchases in 1999 and 1998, W. P. Carey
received structuring and development fees of $441 and $2,502,
respectively. The affiliate is entitled to receive deferred
acquisition fees of $3,945 in equal annual installments over a period
of no less than eight years. An installment of $392 was paid in
January 2000. Unpaid deferred acquisition fees bear interest at an
annual rate of 6%.
-39-
<PAGE> 41
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
The Company 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 Company, other affiliated real estate entities
and W.P. Carey and sharing the associated costs. Pursuant to the
terms of the agreement, the Company's share of rental, occupancy and
leasehold improvement costs is based on gross revenues. Expenses
incurred were $545, $558 and $590, in 1999, 1998 and 1997,
respectively.
An independent director of the Company has an ownership interest in
companies that own the minority interest in the Company's French
majority-owned subsidiaries. The director's ownership interest is
subject to the same terms as all other ownership interests in the
subsidiary companies. The Chairman of the Board of the Company is the
sole shareholder of Livho, Inc., a lessee of the Company.
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,
1999 1998
<S> <C> <C>
Land $ 91,447 $ 88,731
Buildings 350,429 309,198
------- -------
441,876 397,929
Less: Accumulated
depreciation 16,455 7,617
------- -------
$425,421 $390,312
======== ========
</TABLE>
The scheduled future minimum rents, exclusive of renewals, under
noncancellable operating leases amount to $51,030 in 2000, $50,199 in
2001, $48,644 in 2002, $44,752 in 2003, $41,490 in 2004, and
aggregate $506,858 through 2019.
Contingent rentals were $563, $614 and $2,022 in 1999, 1998 and 1997,
respectively.
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Minimum lease payments
receivable $365,558 $398,520
Unguaranteed residual value 293,550 294,891
-------- --------
659,108 693,411
Less: Unearned income 363,552 397,585
------- -------
$295,556 $295,826
======== ========
</TABLE>
The scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases amount to $30,994 in 2000,
$31,480 in 2001, $30,260 in 2002, $30,458 in 2003, $30,204 in 2004,
and aggregate $365,558 through 2016.
Contingent rentals were approximately $995, $320 and $4,533 in 1999,
1998 and 1997, respectively.
-40-
<PAGE> 42
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
6. Mortgage Notes Payable and 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 carrying value of approximately $334,813.
As of December 31, 1999, mortgage notes and notes payable have
interest rates varying from 4.65% to 10% per annum and mature from
2000 to 2015.
Scheduled principal payments for the mortgage notes during each of the
next five years following December 31, 1999 and thereafter are as
follows:
<TABLE>
<S> <C>
Year Ending December 31,
2000 $ 10,343
2001 20,351
2002 9,874
2003 10,395
2004 27,606
Thereafter 109,679
-------
$188,248
========
</TABLE>
The Company has a line of credit of $185,000 pursuant to a revolving
credit agreement with The Chase Manhattan Bank in which eight lenders
participate. The revolving credit agreement has a term of three years
and expires in March 2001 with all advances prepayable at any time.
As of December 31,1999, the Company had $129,000 drawn from the line
of credit. Additional advances of $25,000 have been drawn from the
line of credit since December 31, 1999
.
Advances made bear interest at an annual rate of either (i) the one,
two, three or six-month LIBOR, 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 of up to .125% depending
upon the Company's leverage. In addition, the Company 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 Company's leverage, if no
minimum credit rating for the Company is in effect or (b) equal to
.15% of the total commitment amount, if the Company has obtained a
certain minimum credit rating.
The revolving credit agreement has financial covenants that require the
Company to (i) maintain minimum equity value of $400,000 plus 85% of
amounts received by the Company 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
Company has always been in compliance with the financial covenants.
Interest paid by the Company on mortgages and notes payable aggregated
approximately $20,055, $17,936 and $19,534 in 1999, 1998 and 1997
respectively. In addition, capitalized interest paid by the Company
was $3,808 and $910 for 1999 and 1998, respectively.
In connection with providing services in connection with the placement
of debt, fees of $696 and $1,001 were paid to an affiliate of the
Company in 1999 and 1998, respectively.
7. Dividends Payable:
The Company declared a quarterly dividend of $.4175 per share on
November 30, 1999 payable to shareholders of record as of December
15, 1999. The dividend was paid in January 2000. In March 2000, the
quarterly dividend rate was increased to $.4225.
-41-
<PAGE> 43
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
8. Lease Revenues:
For the years ended December 31, 1999, 1998 and 1997, the Company 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,
1999 % 1998 % 1997 %
<S> <C> <C> <C> <C> <C> <C>
Dr Pepper Bottling Company
of Texas $ 4,123 5% $ 3,998 5% $ 3,998 5%
Gibson Greetings, Inc. 3,954 5 3,870 5 3,466 5
Detroit Diesel Corporation 3,658 5 3,658 5 3,645 5
Sybron International
Corporation 3,627 4 3,311 4 3,311 4
Livho, Inc. 3,226 4 2,958 4
Lockheed Martin Corporation 2,740 3 1,621 2 1,131 1
Quebecor Printing, Inc. 2,552 3 2,523 3 2,618 4
Furon Company 2,415 3 2,415 3 2,416 3
AutoZone, Inc. 2,331 3 2,469 3 2,512 3
Orbital Sciences Corporation 2,311 3 2,154 3 2,154 3
Thermadyne Holdings Corp 2,243 3 2,234 3 2,234 3
The Gap, Inc. 2,205 3 2,199 3 2,154 3
America West Holdings Corp 1,839 2
Copeland Beverage Group, Inc. 1,800 2 1,200 2
Unisource Worldwide, Inc. 1,726 2 1,714 2 1,654 2
AP Parts International, Inc. 1,617 2 1,783 2 1,837 2
CSS Industries, Inc. 1,588 2 1,580 2 1,844 2
Brodart, Co. 1,519 2 1,432 2 1,308 2
Peerless Chain Company 1,463 2 1,463 2 1,709 2
Red Bank Distribution, Inc. 1,401 2 1,401 2 1,401 2
United States Postal Service 1,396 2 1,090 1 894 1
Eagle Hardware & Garden, Inc. 1,387 2
High Voltage Engineering Corp. 1,329 2 1,187 2 1,174 2
Duff-Norton Company, Inc. 1,164 1 1,164 2 1,021 1
Sprint Spectrum, Inc. 1,154 1
Hughes Markets, Inc. 1,928 3 5,784 7
Other 25,793 32 27,948 35 29,354 38
------- --- ------- --- ------- ---
$80,561 100% $77,300 100% $77,619 100%
======= ==== ======= ==== ======= ====
</TABLE>
-42-
<PAGE> 44
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
9. Gains and Losses on Disposition of Properties:
Significant sales of properties are summarized as follows:
1999
On September 30 ,1999, the Company sold its property in Topeka, Kansas,
leased to Hotel Corporation of America ("Hotel Corp.") pursuant to
Hotel Corp.'s exercise of its purchase option. The exercise price was
determined using the greater of (a) a formula based on the operating
cash flow of the hotel's operations and (b) an amount equal to the
outstanding mortgage loan balance on the property. The exercise price
of $8,107, was equal to outstanding mortgage loan balance. In
connection with the sale, the Company realized a $80 gain. The
Company's annual cash flow (rent less mortgage debt service) from the
Topeka property was $70.
In December 1996, KSG, Inc. ("KSG") notified the Company that it was
exercising its option to purchase the property it leases in
Hazelwood, Missouri. The exercise price was to be determined based on
the fair market value of the property as encumbered by the lease,
determined in part by discounting all future rents over the remaining
terms, including renewal terms, of the lease. The Company and KSG
were not able to reach an agreement on the exercise price because of
a dispute about the calculation of a rent increase. In January 1999,
the Company and KSG entered into an agreement to establish a minimum
and maximum exercise price of $9,000 and $11,500 and to defer the
exercise price determination until a dispute regarding an
interpretation of the rent provisions of the lease was resolved. In
March 1999, the court ruled in favor of the Company. On November 1,
1999, the Company sold the property to KSG for $11,000 plus an
allowance of $100 for legal costs. In connection with the sale, the
Company realized a $391 gain. Annual cash flow from the KSG property
was $921.
1998
In April 1998 Simplicity Manufacturing, Inc. purchased its leased
property in Port Washington, Wisconsin for $9,684 pursuant to the
exercise of its purchase option. A loss of $291 was recognized on
the sale.
In December 1998, NVR, Inc. purchased its leased property in
Pittsburgh, Pennsylvania for $12,193 pursuant to a purchase option
exercised in 1998. A gain of $1,754 was recognized on the sale.
1997
In 1997, the Company sold a property in Louisville, Kentucky leased to
Winn-Dixie Stores, Inc. for $1,100 and recognized a gain on sale of
$608.
In July 1997, the Company's lease with Arley Merchandise Corporation
("Arley") for properties in Sumter and Columbia, South Carolina was
terminated by the Bankruptcy Court in connection with Arley's
voluntary petition of bankruptcy. In May 1997, the lender on 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 November 1997 the lender foreclosed on the properties and the
ownership of the Arley properties was transferred to the lender. In
connection with the foreclosure, the Company recognized a gain of
$957 representing the difference between liabilities forgiven and
assets surrendered.
In connection with the sale of two properties in 1999 and three
properties in 1998, the Company incurred disposition fees of $695 and
$1,007, respectively, paid to an affiliate. Disposition fees are
included in the determination of gain or loss on sale.
10. Extraordinary Gains and Losses on Extinguishment of Debt:
In connection with the prepayment of high interest loans collateralized
by properties leased to Dr Pepper Bottling Company of Texas, Orbital
Sciences Corporation and Simplicity Manufacturing, Inc., the Company
incurred $700 in prepayment charges resulting in an extraordinary
loss on the extinguishment of debt of $621, net of $79 attributable
to minority interests in 1998.
-43-
<PAGE> 45
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
11. Writedowns to Fair Value:
Significant writedowns of properties to fair value are summarized as
follows:
1999
The Company owns a property in Carthage, New York leased to Sunds
Defibrator, Inc. ("Sunds"). During 1999, the Company accepted offers
to sell the property for $300 and to receive a lease termination
payment of $500, payable at the time of sale. Based on the current
market conditions and prospects for releasing the property, upon the
termination of the lease in 2005, the Company believes it is prudent
to sell the property. In connection with the proposed sale, the
Company recognized a noncash charge of $1,000 on the writedown of the
property to the anticipated sales price. Current annual rent for the
property is $144. The initial term of the Sunds lease was scheduled
to expire in 2005.
As described in Note 12, the Company recognized a noncash charge of
$4,830 on the writedown of the Company's equity interest in Meristar
Hospitality Corporation.
1998
The Company owns a property in Urbana, Illinois leased to Motorola, Inc.
("Motorola"). During 1998, Motorola notified the Company of its
intention to exercise its option to purchase the property. The
exercise price is determined based on independent appraisals
performed on behalf of the Company and Motorola. Based on the
appraisal prepared for the Company, the Company recognized a
writedown of $1,575 to an amount representing the fair value of the
property, less costs to sell. An additional writedown of $158 was
recognized in 1999.
1997
As described in Note 9, in connection with the exercise by Simplicity
Manufacturing, Inc. of its option to purchase its leased property,
the Company concluded that the likely agreed-upon exercise price
would be $9,684. Accordingly, the Company recognized a noncash charge
of $2,316 on the writedown of the property to the anticipated
exercise price.
As more fully described in Note 9, the Company reevaluated the fair
value of the property in connection with the termination of the Arley
lease and recognized a noncash charge of $1,350 on the writedown of
the property.
12. Equity Investments:
The Company owns 780,269 units of the operating partnership of Meristar
Hospitality Corporation ("Meristar") which is accounted for under the
equity method. Meristar is a lessor of hotel properties The Company
has the right to convert its equity interest in the Meristar
operating partnership to shares of common stock in Meristar at any
time on a one-for-one basis. The exchange of operating partnership
units for common stock would be taxable in the year of the exchange.
The carrying value of the equity interest in the Meristar operating
partnership was $18,725 and $24,070 as of December 31, 1999 and 1998,
respectively. Because of a continued weakness in the public market's
valuation of equity securities of real estate investment companies
including Meristar, Management concluded that the underlying value of
its investment in operating partnership units has been impaired.
Accordingly, the Company has written down its equity investment by
$4,830 in 1999. The carrying value of the investment in Meristar
subsequent to the writedown approximated the Company's pro rata
ownership of Meristar at Meristar's reported net asset value. As of
December 31, 1999, Meristar's quoted per share market value was
$16.00 resulting in an aggregate value of approximately $12,484, if
converted.
The audited consolidated financial statements of Meristar filed with the
United States Securities and Exchange Commission reported total
assets of $3,094,201 and $2,998,460 and shareholders' equity of
$1,170,602 and $1,150,992 as of December 31, 1999 and 1998,
respectively, and revenues of $374,904, $525,297 and $316,393 and net
income of $98,964, $43,707 and $20,060 for the years ended December
31, 1999, 1998 and 1997.
-44-
<PAGE> 46
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
The Company owns interests in two limited partnerships that own net
leased real estate as a limited partner with Corporate Property
Associates 10 Incorporated, an affiliate, that owns the remaining
controlling interests as a general partner and a 50% equity interest
in a limited liability company that owns real estate with Corporate
Property Associates 14 Incorporated ("CPA(R):14), an affiliate which
owns the remaining 50% interest. The investment with CPA(R):14 was
jointly purchased in 1999. Summarized combined financial information
of the two limited partnerships and limited liability company is as
follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Assets (primarily real estate) $81,054 $46,391
Liabilities (primarily mortgage
notes payable) 51,211 32,399
------ ------
Capital $29,843 $13,992
======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Revenue (primarily rental revenue) $8,465 $6,990 $6,909
Expenses (primarily depreciation
and interest on mortgages) 5,603 4,536 4,593
----- ----- -----
Net income $2,862 $2,454 $2,316
====== ====== ======
</TABLE>
13. 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 Company estimates that the fair value of mortgage notes payable and
other notes payable was $313,747 and $272,075 at December 31, 1999
and 1998, respectively. The fair value of debt instruments was
evaluated using a discounted cash flow model with discount rates that
take into account the credit of the tenants and interest rate risk.
14. Purchase of Real Estate:
On December 22, 1999 the Company purchased a property in Lafayette,
Louisiana for $8,377 subject to an existing net lease with Bell South
Telecommunications, Inc. ("Bell South"). The purchase was funded
through the assumption of an existing mortgage loan of $6,098 and the
issuance of 112,904 shares of the Company with a value of $1,902. The
Bell South lease has a remaining term of ten years through December
2009 and provides for six five-year renewals at the lessee's option.
Annual rent is $1,096 with an increase to $1,351 in January 2005.
Bell South has the option to purchase the property at the end of the
initial and any extended term at fair market value.
In connection with the purchase of the Bell South property, the Company
paid off the mortgage loan that had been scheduled to mature on
January 1, 2000 and obtained new mortgage financing for $5,995. The
new limited recourse mortgage loan provides for monthly payments of
principal and interest of $60 at an annual interest rate of 8.11%
through July 1, 2005 at which time the monthly payments will increase
to $70. The loan will mature on January 1, 2010 at which time a
balloon payment will be due. The loan may not be prepaid; however,
the Company may defease the loan.
In connection with performing services relating to the Company's real
estate purchases in 1999 and 1998, an affiliate of the Company
received acquisition fees of $480 and $1,001, respectively.
-45-
<PAGE> 47
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
15. Selected Quarterly Financial Data (unaudited):
<TABLE>
<CAPTION>
Three Months Three Months Three Months Three Months
ended ended ended ended
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
<S> <C> <C> <C> <C>
Revenues $21,114 $21,877 $23,731 $21,784
Expenses 11,084 11,687 13,872 17,478
Income before
extraordinary items 9,866 9,620 9,470 5,122
Net income 9,827 9,620 9,470 5,122
Net income per share -
basic and diluted .39 .38 .37 .20
Dividends declared
per share .4175 .4175 .4175 .4175
</TABLE>
16. Stock Options and Warrants:
In January 1998, W. P. Carey was granted warrants to purchase 2,284,800
shares exercisable at $21 per share and 725,930 shares exercisable at
$23 per share as compensation for investment banking services in
connection with structuring the consolidation on the CPA(R)
Partnerships. The warrants are exercisable until January 2009.
The Company maintains stock option plans pursuant to which share
options may be issued. The 1997 Share Incentive Plan (the "Incentive
Plan") authorizes the issuance of up to 700,000 shares. The Company
Non-Employee Directors' Plan (the "Directors' Plan") authorizes the
issuance of up to 300,000 shares.
The Incentive Plan provides for the grant of (i) share options which
may or may not qualify as incentive stock options, (ii) performance
shares, (iii) dividend equivalent rights and (iv) restricted shares.
In 1999, 38,500 share options were granted at an exercise price of
$19.69 per share. In 1998, share options for 113,500 shares were
granted at an exercise price of $20 per share. The options granted
under the Incentive Plan have a 10-year term and are exercisable for
one-third of the granted options on the first, second and third
anniversaries of the date of grant. The vesting of grants, however,
may be accelerated upon a change in control of the Company and under
certain other conditions.
The Directors' Plan provides for the same terms as the Incentive Plan.
In 1999, 12,704 share options were granted at exercise prices ranging
from $17.25 to $19.69 per share. In 1998, 23,846 share options were
granted at an exercise price of $20 per share.
-46-
<PAGE> 48
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
Share option and warrant activity is as follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Exercise Price
Shares Per Share
<S> <C> <C>
Balance at January 1, 1998 -
Granted 3,148,076 $21.42
Exercised
Forfeited
--------- ------
Balance at December 31, 1998 3,148,076 $21.42
Granted 51,204 $19.31
Exercised
Forfeited
--------- ------
Balance at December 31, 1999 3,199,280 $21.38
========= ======
</TABLE>
At December 31, 1998 and 1999, the range of exercise prices and
weighted-average remaining contractual life of outstanding share
options and warrants was $20 to $23 and ten years and $17.25 to
$23.00 and 9.01 years, respectively.
The per share weighted average fair value of share options issued
during 1999 was estimated to be $1.48, using a binomial option
pricing formula. The more significant assumptions underlying the
determination of the weighted average fair value include a risk-free
interest rate of 5.54% a volatility factor of 18.35%, a dividend
yield of 7.64% and an expected life of ten years.
The per share weighted average fair value of share options and warrants
issued during 1998 were estimated to be $1.45 using a binomial option
pricing formula. The more significant assumptions underlying the
determination of the weighted average fair value include a risk-free
interest rate of 5.36%, a volatility factor of 18.16%, a dividend
yield of 7.33% and an expected life of ten years.
The Company has elected to adopt the disclosure only provisions of SFAS
No. 123. If stock based compensation cost had been recognized based
upon fair value at the date of grant for options awarded under the
two plans in accordance with the provisions of SFAS No. 123, pro
forma net income for 1999 and 1998 would have been $33,964 and
$38,299 and pro forma basic and diluted earnings per share would have
been unchanged for 1999 and $1.54 for 1998.
-47-
<PAGE> 49
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
17. Segment Reporting:
The Company has determined that it operates in two business segments -
real estate operations with domestic and international investments and
hotel operations. The two segments are summarized as follows:
<TABLE>
<CAPTION>
Real Estate Hotel Total Company
<S> <C> <C> <C>
Revenues:
1999 $82,731 $ 5,775 $ 88,506
1998 79,041 6,289 85,330
1997 81,748 14,523 96,271
Operating and interest
expenses:
(excluding depreciation
and amortization)
1999 $38,267 $ 4,662 $42,929
1998 31,570 4,956 36,526
1997 35,399 10,748 46,147
Income from equity
investments:
1999 $ 1,886 $ 1,886
1998 1,837 1,837
1997 2,076 2,076
Net operating income
(1):
1999 $ 32,561 $1,046 $33,607
1998 36,320 1,253 37,573
1997 35,447 3,549 38,996
Total assets:
1999 $848,526 $ 7,733 $856,259
1998 804,755 8,509 813,264
1997 497,722 25,698 523,420
Total long-lived
assets:
1999 $825,411 $ 6,753 $832,164
1998 784,368 7,013 791,381
1997 461,723 23,333 485,056
</TABLE>
The Company acquired its first international real estate investment in
1998. For 1999, geographic information is as follows:
<TABLE>
<CAPTION>
Domestic International Total Company
-------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 86,458 $ 2,048 $ 88,506
Operating and interest
expense 41,850 1,079 42,929
Net operating income 32,752 855 33,607
Total assets 834,045 22,214 856,259
Total long-lived assets 810,402 21,762 832,164
</TABLE>
For 1998, geographic information is as follows:
<TABLE>
<CAPTION>
Domestic International Total Company
-------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 84,503 $ 827 $ 85,330
Operating and interest
expense 35,982 544 36,526
Net operating income 37,477 96 37,573
Total assets 789,884 23,380 813,264
Total long-lived assets 772,413 18,968 791,381
</TABLE>
(1) Net operating income represents income before gains and extraordinary
items.
-48-
<PAGE> 50
CAREY DIVERSIFIED LLC
NOTES to CONSOLIDATED/COMBINED
FINANCIAL STATEMENTS (Continued)
18. Accounting Pronouncement:
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", effective January 1,
2000, which establishes accounting and reporting standards for
derivative instruments. The Company believes that upon adoption SFAS
will not have a material impact on the consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which provides guidance on
several revenue recognition issues including recognition of rents
based upon lessees' sales. Certain of the Company's leases provide
for additional rents to be paid based upon the level of sales
achieved by the lessee. These percentage rents are recorded once the
required sales level is achieved and included in the consolidated
statements of income in rental revenue and interest income from
direct financing leases. The adoption of SAB 101 did not have a
significant impact on the consolidated financial statements.
19. Proposed Acquisition:
On December 20, 1999, the Company, Carey Management and W. P. Carey
entered into an Agreement and Plan of Merger whereby the Company
would acquire certain assets relating to Carey Management's and
W. P. Carey's real estate investment advisory business. The Merger is
subject to the approval of the shareholders of the Company. Pursuant
to the Agreement and Plan of Merger, the Company will acquire all
of the business operations of Carey Management and W. P. Carey and
its subsidiaries and affiliates in exchange for 8,000,000 shares
of the Company. Up to an additional 2,000,000 shares will be paid
over four years if specified performance criteria are satisfied. The
assets and liabilities to be acquired include, but are not limited
to, all the stock of Carey Management and W. P. Carey, the Advisory
Agreements to four real estate investment trusts that are managed
by an affiliate of Carey Management, the management agreement with
the Company and the employees of W. P. Carey.
The exchange of interests for shares of the Company will be accounted
for as a purchase and recorded at the fair value of the initial
8,000,000 shares issued by the Company. The purchase price will be
allocated to the assets and liabilities acquired based on their
estimated fair market values. The portion of the purchase price
attributable to the existing management contract between the Company
and Carey Management will be accounted for as a contract termination
and the purchase price allocated to such contract will be expensed
immediately at the date of acquisition.
-49-
<PAGE> 51
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
-50-
<PAGE> 52
\ PART III
Item 10. Directors and Executive Officers of the Registrant.
WILLIAM P. CAREY
AGE: 69
Mr. Carey, Chairman, Chief Executive Officer of W.P. Carey & Co. since
1973, has been active in lease financing since 1959 and a specialist in net
leasing of corporate real estate property since 1964. Before founding Carey
Management, 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), and 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, Mr. Carey also received a
Sc.D. honoris causa from Arizona State University and is a Trustee of The John
Hopkins University and of other educational and philanthropic institutions. He
has served for many years on 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. In the fall of 1999, Mr. Carey
was the Executive-in-Residence at Harvard Business School. He also serves as
Chairman of the Board and Chief Executive Officer of CPA(R):10, CIP(R),
CPA(R):12 and CPA(R):14. Mr. Carey is the brother of Francis J. Carey.
DR. LAWRENCE R. KLEIN
AGE: 79
Dr. Klein was elected to the board of directors of Carey Diversified in
1998 and is Benjamin Franklin Professor Emeritus of Economics and Finance at the
University of Pennsylvania and its Wharton School, having joined the faculty of
the University in 1958. He is a holder of earned degrees from the University of
California at Berkeley, the Massachusetts Institute of Technology and Oxford
University and has been awarded the Alfred Nobel Memorial Prize in Economic
Sciences, as well as a number of 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. Dr. Klein joined
W.P. Carey & Co. in 1984 as Chairman of the Economic Policy Committee and as a
director.
CHARLES C. TOWNSEND, JR.
AGE: 72
Mr. Townsend was elected to the board of directors of Carey Diversified in
1998 and currently is an Advisory Director of Morgan Stanley & Co., having held
such position since 1979. Mr. Townsend was a Partner and a Managing Director and
head of the Corporate Finance Department 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 also serves as director of CIP(R) and
CPA(R):14; he will resign from those positions upon the consummation of the
merger.
DONALD E. NICKELSON
AGE: 67
Mr. Nickelson was elected to the board of directors of Carey Diversified in
1998 and is currently Vice-Chairman and director of Harbour Group Industries
Inc., a leverage buy-out firm. Mr. Nickelson served as Chairman of the Special
Commuter of the board of directors of Carey Diversified which evaluated and
approved the merger on behalf of the shareholders of Carey Diversified. From
1988 to 1990, he served as President of Paine, Webber, Jackson & Curtis,
PaineWebber, Inc. and PaineWebber Group, investment banking and brokerage firms.
He also serves as a Trustee of the Mainstay Mutual Funds Group, and is on the
Advisory Board at Stanford Institute for the Quantitative Study of Society.
Previously, Mr. Nickelson was Chairman of the Board of Omniquip International,
Inc., Greenfield Industries and Flair Corporation. He served as director for
Selectide Corporation and Sugen, Inc., biotech companies. In addition, he served
as Chairman of the Pacific Stock Exchange and director of the Chicago Board of
Options Exchange.
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<PAGE> 53
GORDON F. DUGAN
AGE: 33
Mr. DuGan, President and Chief Acquisitions Officer of Carey Diversified,
was elected President of W.P. Carey & Co. in 1999, Executive Vice President and
a Managing Director of W.P. Carey & Co. in June 1997. Mr. DuGan rejoined W.P.
Carey & Co. 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 & Co. From October 1995 until February 1997, Mr. DuGan was Chief Financial
Officer of Superconducting Core Technologies, Inc., a Colorado-based wireless
communications equipment manufacturer. Mr. DuGan joined W.P. Carey & Co. as
Assistant to the Chairman in May 1988, after graduating from the Wharton School
at the University of Pennsylvania where he concentrated in Finance.
REGINALD WINSSINGER
AGE: 57
Mr. Winssinger was elected to the board of directors of Carey Diversified
in 1998 and is currently Chairman of the Board and Director of Horizon Real
Estate Group, Inc. and National Portfolio, 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. He 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.
FRANCIS J. CAREY
AGE: 74
Mr. Carey was elected in 1997 as Chairman, Chief Executive Officer and a
director of Carey Diversified. From 1987 to 1997, Mr. Carey held various
positions with affiliates of the W.P. Carey & Co. Inc., including President of
W.P. Carey & Co., and President and director of CPA(R):10, CIP(R) and CPA(R):12.
Mr. Carey also served as director of Carey Management from its founding in 1973
through 1997. Prior to 1987, he was senior partner in Philadelphia, head of the
real estate department nationally and a member of the executive committee of
Reed Smith Shaw & McClay LLP, counsel for W.P. Carey & Co. and Carey
Diversified. 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 a 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 at the
University of Pennsylvania from 1983 to 1990. He has also served as a member of
the Board of Trustees and executive committee of the Investment Program
Association since 1990, and as its Chairman from 1998 to 2000 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 and
completed executive programs in corporate finance and accounting at Stanford
University Graduate School of Business and the Wharton School of the University
of Pennsylvania. Mr. Carey is the brother of William P. Carey.
EBERHARD FABER, IV
AGE: 63
Mr. Faber was elected to the board of directors of Carey Diversified in
1998 and is currently Chairman of the Board and director of the newspaper
Citizens Voice, Chairman of the Board of Kings 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 other companies, including
First Eastern Bank from 1980 to 1994, where he was Chairman. He is also a
Borough Councilman and Chief Financial Officer of Bear Creek Village Borough.
Carey Diversified's executive officers are elected annually by Carey
Diversified's board of directors. Detailed information regarding Carey
Diversified's executive officers who are not directors is set forth below.
-52-
<PAGE> 54
CLAUDE FERNANDEZ
AGE: 47
Mr. Fernandez, Executive Vice President -- Financial Operations, is a
Managing Director, Executive Vice President and Chief Administrative Officer of
W.P. Carey & Co. Mr. Fernandez joined W.P. Carey & Co. as Assistant Controller
in March 1983, was elected Controller in July 1983, a Vice President in April
1986, a First Vice President in April 1987, a Senior Vice President in April
1989 and Executive Vice President in April 1991. Prior to joining W.P. Carey &
Co., Mr. Fernandez was associated with Coldwell Banker, Inc. in New York for two
years and with Arthur Andersen & Co. in New York for over three years. Mr.
Fernandez, a Certified Public Accountant, received a B.S. in Accounting from New
York University in 1975 and an M.B.A. in Finance from Columbia University
Graduate School of Business in 1981.
JOHN J. PARK
AGE: 35
Mr. Park, Executive Vice President, Chief Financial Officer and Treasurer,
is an Executive Vice President, Chief Financial Officer and a Managing Director
of W.P. Carey & Co. Mr. Park became a First Vice President of W.P. Carey & Co.
in April 1993 and a Senior Vice President in October 1995. Mr. Park joined W.P.
Carey & Co. as an Investment Analyst in December 1987 and became a Vice
President in July 1991. Mr. Park received a B.S. in Chemistry from Massachusetts
Institute of Technology in 1986 and an M.B.A. in Finance from the Stern School
of New York University in 1991.
H. AUGUSTUS CAREY
AGE: 42
Mr. Carey, Senior Vice President and Secretary, is Senior Vice President
and a Managing Director of W.P. Carey & Co. He returned to W.P. Carey & Co. as a
Vice President in August 1988 and was elected a First Vice President in April
1992. He also serves as President of CPA(R):10, CPA(R):12, CPA(R):14 and CIP(R).
Mr. Carey previously worked for W.P. Carey & Co. from 1979 to 1981 as Assistant
to the President. From 1984 to 1987, Mr. Carey served as a loan officer in the
North American Department of Kleinwort Benson Limited in London, England. He
received his A.B. in Asian Studies from Amherst College in 1979 and a M.Phil. in
Management Studies from Oxford University in 1984. Mr. Carey is Chairman of the
Corporate Advisory Council for the International Association for Investment
Planners and a Trustee for the Oxford Management Center Advisory Council. He is
the son of Francis J. Carey and a nephew of William P. Carey.
-53-
<PAGE> 55
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In 1999, Francis J. Carey filed two late reports and Charles C. Townsend,
Jr., H. Augustus Carey and Reginald Winssinger each filed one late report
required by Section 16(a). Based on a review of its records and written
representations, Carey Diversified believes that during 1999, all other Section
16 filings of its officers and directors complied with the requirements of the
Securities Exchange Act.
Item 11. Executive Compensation.
Carey Diversified was organized as a Delaware limited liability company in
October 1996. On January 1, 1998, Carey Diversified completed its merger with
nine CPA(R) Partnerships. During 1996 and 1997 Carey Diversified had no
employees and paid no compensation to any executive officer. Carey Diversified
currently has one employee. The following table sets forth the base compensation
earned by Francis J. Carey, Carey Diversified's Chief Executive Officer, during
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION
--------------- ---------------------------
RESTRICTED STOCK SECURITIES UNDERLYING
YEAR SALARY BONUS AWARDS($)(1) OPTIONS(#)
---- -------- -------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
Francis J. Carey
Chairman & Chief Executive 1999 $300,000 $102,738 $379,688 150,000
Officer.............................
1998 $250,000 $150,000 $150,000 113,500
</TABLE>
- ---------------
(1) On January 3, 2000, Mr. Carey received a grant of 22,500 shares as part of
his annual compensation for 1999. On January 3, 2000, the New York Stock
Exchange was closed. The closing price of Carey Diversified's shares on the
immediately preceding trading date was $16.875 per share. Mr. Carey holds
30,000 restricted shares valued at $506,250 as of December 31, 1999. These
shares are eligible to receive dividends.
OPTIONS GRANTED IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL OPTIONS AT ASSUMED ANNUAL RATE OF
GRANTED TO EXERCISE SHARE PRICE APPRECIATION
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------------
GRANTED(1) FISCAL YEAR SHARE DATE 0%(2) 5% 10%
---------- --------------- --------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Francis J. Carey........... 150,000 100% $16.50 1/21/08 $56,250 $1,264,809 $2,950,959
</TABLE>
- ---------------
(1) The options are exercisable for one-third of the covered shares on each of
January 2000, January 2001 and January 2002.
(2) Options were granted on January 3, 2000, when the New York Stock Exchange
was closed. The closing price of Carey Diversified shares on the immediately
preceding trading date was $16.875 per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money Option
Unexercised Options at Fiscal Year-End At Fiscal Year-End
-------------------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Francis J. Carey ..... 50,000 213,500 None None
</TABLE>
Compensation Committee Report on Executive Compensation
Carey Diversified established a Compensation Committee which monitors and
implements the compensation program for Carey Diversified. The committee's
activity is currently limited to evaluating the compensation of Carey
Diversified's sole employee, Francis J. Carey, Carey Diversified's Chief
Executive Officer. For 1999, Mr. Carey's base salary was established by the
board of directors. The Compensation Committee meet during 1999 to determine the
bonus to be paid to Francis J. Carey, Carey Diversified's Chief Executive
Officer, for 1999 and his 2000 compensation.
The committee concluded that Carey Diversified was on target to satisfy its
funds from operations target for 1999 and the Mr. Carey was entitled to a bonus
of $102,738 in cash, 22,500 shares of restricted stock valued at $379,688 and
options to purchase 150,000 shares. This bonus was within the target bonus range
established Carey Diversified's compensation consultant.
Submitted by the Compensation
Committee:
Charles C. Townsend, Jr., Chairman
Eberhard Faber, IV
Donald E. Nickelson
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<PAGE> 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth certain information regarding the beneficial
ownership of shares as of March 31, 2000 by each of the directors including the
Chief Executive Officer of the Carey Diversified. The business address of the
individuals listed is 50 Rockefeller Plaza, New York, NY 10020. Wm. Polk Carey
beneficially owns 15.2% of the shares of Carey Diversified. No other director or
officer beneficially owns more than 1% of the shares of Carey Diversified. The
directors and executive officers as a group own approximately 16.1% of the
shares.
<TABLE>
<CAPTION>
AMOUNT OF SHARES
NAME BENEFICIALLY OWNED(1)
- ---- ---------------------
<S> <C>
Francis J. Carey(2)......................................... 152,711
Gordon F. DuGan(3).......................................... 6,005
Wm. Polk Carey(4)........................................... 4,428,579
Eberhard Faber, IV(5)(6).................................... 15,958
Dr. Lawrence R. Klein(6).................................... 7,283
Donald E. Nickelson(7)...................................... 24,507
Charles C. Townsend, Jr.(6)................................. 10,398
Reginald Winssinger(6)...................................... 12,283
All Directors and Executive Officers and a Group (11
individuals).............................................. 4,689,497
</TABLE>
- ---------------
(1) Beneficial ownership has been determined in accordance with the rules of the
Securities and Exchange Commission. Except as noted, and except for any
community property interest owned by spouses, the listed individuals have
sole investment power and sole voting power as to all shares which they are
identified as being the beneficial owners.
(2) The amounts shown include 88,500 shares which Mr. Carey has the right to
acquire through the exercise of stock options within 60 days after March 31,
2000 under Carey Diversified's 1997 Listed Share Incentive Plan.
Additionally, 37,500 of these shares are held pursuant to a compensation
arrangement with Carey Management LLC (the "Manager") and are subject to the
restrictions connected therewith.
(3) 5,000 of these shares are held pursuant to a compensation arrangement with
the Manager and are subject to the restrictions connected therewith.
(4) Includes 1,367,718 shares held by the Manager, Carey Management LLC, which
Mr. Carey is deemed to own beneficially as a result of his ownership of the
shareholders of Carey Management LLC, W.P. Carey & Co., Inc., Carey
Corporate Property, Inc., Seventh Carey Corporate Property, Inc., Eighth
Carey Corporate Property, Inc. and Ninth Carey Corporate Property, Inc. This
amount also includes 3,010,730 shares which W.P. Carey & Co. has the right
to acquire through the exercise of stock options. See "Certain
Transactions."
(5) Includes 4,675 shares held by trusts of which Mr. Faber is a trustee and a
beneficiary. Does not include 1,090 shares held by the Faber Foundation.
(6) The amount shown includes 2,666 shares which each of these directors has the
right to acquire pursuant to stock options exercisable within 60 days of
March 31, 2000 under Carey Diversified's Non-Employee Director Plan.
(7) Includes 2,912 shares held by Mr. Nickelson's wife. Also includes 11,497
shares which Mr. Nickelson has the right to acquire pursuant to stock
options exerciseable within 60 days of March 31, 2000 under Carey
Diversified's Non-Employee Director Plan.
Item 13. Certain Relationships and Related Transactions.
MANAGEMENT CONTRACT WITH CAREY MANAGEMENT LLC
Carey Management LLC, the manager of Carey Diversified, provides both
strategic and day-to-day management services for Carey Diversified including
acquisition services, research, investment analysis, asset management, capital
funding services, disposition of assets and administrative services for which it
receives a fee from Carey Diversified. W.P. Carey & Co., Inc., a company which
is owned solely by Wm. Polk Carey, a director of Carey Diversified and
affiliates, owns directly and indirectly 100% of Carey Management LLC. Carey
Diversified has agreed to acquire the management business of Carey Management
LLC, pending stockholder approval.
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<PAGE> 57
AMOUNTS PAYABLE TO CAREY MANAGEMENT
The following is a description of the fees payable by Carey Diversified to
Carey Management in connection with the services provided by Carey Management:
Management Fee. Carey Management is paid a monthly management fee at an
annual rate of 0.5 percent of the total capitalization of Carey Diversified.
Total capitalization is based on the average of total principal amount of the
debt owed by Carey Diversified and the average market capitalization of Carey
Diversified. The management fee is reduced by one-half of the amount received by
Carey Management from the partnerships controlled by Carey Diversified for
property management or leasing fees and distributions of cash from operations.
Performance Fee. Carey Management is paid a monthly performance fee at an
annual rate of 0.5 percent of the total capitalization of Carey Diversified. The
fee amount is divided by the closing price of the shares on the last trading day
of the month to determine the fee paid to Carey Management. This fee is paid in
the form of cash or restricted shares of Carey Diversified which vest ratably
over five years. Until these shares become vested, the restricted shares are not
transferable and are subject to forfeiture in the event Carey Management is
terminated for cause or resigns. The restricted shares vest immediately in the
event of a change of control and certain other circumstances. The merger will
not be considered a change of control for purposes of the vesting schedule of
these shares. The performance fee is reduced by one-half of the amount received
by Carey Management from the partnerships controlled by Carey Diversified for
property management or leasing fees and distributions of cash from operations.
The sale of the shares is restricted pursuant to Rule 144 of the Securities Act.
Termination Fee. If the management agreement is terminated by Carey
Diversified, Carey Management is entitled to receive payment of any earned but
unpaid compensation and expense reimbursements accrued as of the end of the term
of the agreement and an incentive fee based on the appraised value of certain
properties owned by Carey Diversified. If the management agreement is terminated
in connection with a change of control of Carey Diversified, without cause or by
Carey Management with good reason, Carey Management is entitled to receive a
termination fee. The termination fee equals the sum of
- any fees that would be earned by Carey Management upon the disposition of
the assets of Carey Diversified owned by the CPA(R) Partnerships prior to
the Consolidation at their appraised value as of the date the management
agreement is terminated, and
- if the agreement is terminated by Carey Diversified after a change in
control, five times the total fees paid to the Carey Management by Carey
Diversified and the CPA(R) Partnerships in the 12 months preceding the
change in control, or
- if the agreement is terminated without cause or for good reason, $40
million if the agreement is terminated before December 31, 2000; $30
million if the agreement is terminated before December 31, 2001; $20
million if the agreement is terminated before December 31, 2002 and $10
million if the agreement is terminated before December 31, 2003.
No termination fee will be paid in connection with the merger.
Carey Management is also paid fees on a transactional basis for
acquisitions. The acquisition fees are generally 2.5% of the purchase price of
properties purchased on behalf of Carey Diversified, which is paid at the time
of acquisition, plus 2% of the purchase price if certain performance goals are
satisfied, which is paid over eight years (with interest).
Fees Payable by the Partnerships Controlled by Carey Diversified. Carey
Management is entitled to certain distributions from the CPA(R) Partnerships.
Distributions paid to Carey Management by these partnerships reduce each of the
management fee and performance fee otherwise payable to Carey Management by
Carey Diversified by one-half of the amount paid by each partnership.
Incentive Fee. Carey Management is paid an incentive fee of 15 percent of
the amount of the net proceeds received from the sale of a property previously
held by a CPA(R) Partnership in excess of the appraised value of the equity
interest in that property used for purposes of the Consolidation, less an
adjustment for the share of the net proceeds in excess of the appraised value of
the equity interest attributable to Carey Management's interest in the shares of
Carey Diversified.
Expenses. Carey Diversified reimburses Carey Management for certain costs
that it incurs in connection with the services it provides to Carey Diversified,
including, but not limited to, personnel costs, rent and the cost of goods and
services used on behalf of Carey Diversified.
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<PAGE> 58
AMOUNTS PAYABLE BY CAREY DIVERSIFIED TO CAREY MANAGEMENT
The following table sets forth the amounts paid by Carey Diversified for
management services in 1998 and 1999.
CAREY MANAGEMENT COMPENSATION FROM CAREY DIVERSIFIED
<TABLE>
<CAPTION>
ACQUISITION MANAGEMENT FINANCING DISPOSITION
FEES(1) FEES(2) FEES(1) FEES(1) TOTAL
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1998.............................. $6,640,000 $6,769,000 $1,001,000 $1,007,000 $15,417,000
1999.............................. 1,474,000 6,801,000 696,000 695,000 9,666,000
</TABLE>
- ---------------
(1) Revenue classified as structuring and financing fees by Carey Management.
(2) Revenue classified as management fees by Carey Management. Includes
reimbursement of expenses.
If the merger is approved, W.P. Carey & Co. LLC will no longer pay any of
the fees listed above, but will be responsible for the salaries and other
overhead expenses necessary to provide the services that Carey Management
currently provides to Carey Diversified and the CPA(R) REITs. In 1999, Carey
Management received 15% of its gross revenue from Carey Diversified.
AMOUNTS PAID TO W.P. CAREY & CO.
Upon completion of the merger of the nine CPA(R) Partnerships, W.P. Carey &
Co. received warrants to purchase 2,284,800 of Carey Diversified's shares at $21
per share and 725,930 shares at $23 per share as compensation for investment
banking services provided to Carey Diversified. The warrants are exercisable
through December 31, 2008.
AMOUNTS PAID/PAYABLE TO THE GENERAL PARTNERS
In connection with the merger of the nine CPA(R) Partnerships, W.P. Carey &
Co. and affiliates (collectively, the "General Partners") received a
subordinated preferred return of $4,422,000, measured based upon the cumulative
proceeds arising from the sale of the CPA(R) partnerships assets (with the
exception of CPA(R):5). Carey Management is entitled to be paid a preferred
return in connection with CPA(R):5 of $1,423,000 if the closing price of the
shares exceeds $23.11 for five consecutive days.
LIVHO, INC. TRANSACTION
In connection with the consolidation, Carey Diversified obtained a hotel in
Livonia, Michigan which was not subject to a lease. Carey Diversified would be
taxed as a corporation if it received more than a small percentage of its income
from the operation of a hotel. In order to avoid taxation as a corporation,
Carey Diversified leased the hotel to Livho Inc., a corporation wholly-owned by
Francis J. Carey, the chairman and chief executive officer of Carey Diversified
pursuant to a 10-year lease. Livho Inc. paid $2,923,044 in rent in 1999 and is
scheduled to pay $3,014,544 in rent for 2000.
FREDIP, S.A. TRANSACTIONS
Carey Diversified has acquired six properties in France through its
subsidiary, Polkinvest. In the acquisition of these properties, Polkinvest has
co-invested with a FREDIP, S.A., a company in which Reginald Winssinger, a
director of Carey Diversified, is a 25% owner. Polkinvest owns between a 75% and
a 99% interest in these properties and FREDIP owns the remaining interest. The
total cost of acquiring these properties was $18,963,373. FREDIP has invested on
the same terms as Carey Diversified.
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<PAGE> 59
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:
Consolidated/Combined Report of Independent Accountants.
Consolidated Balance Sheets, December 31, 1999 and 1998.
Consolidated/Combined Statements of Income for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Members' Equity for the years ended December 31,
1999 and 1998
Combined Statement of Partners' Capital for the year ended December 31,
1997.
Consolidated/Combined Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997.
Notes to Consolidated/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,
1999.
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.
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<PAGE> 60
(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)
10.6 Credit Agreement by and among Carey Diversified LLC, Exhibit 10.1 to Form 8-K
Chase Manhattan Bank, and the Bank of New York, dated dated May 15, 1998.
March, 26, 1998
21.1 List of Registrant Subsidiaries Exhibit 21.1 to Form 10-K
dated April 11, 2000
23.1 Consent of PricewaterhouseCoopers LLP Exhibit 23.1 to Form 10-K
dated April 11, 2000
24.1 Power of Attorney 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)
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
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)
99.23 Press Release from Carey Diversified LLC Exhibit 99.1 to Form 8-K
(March 26, 1998) dated May 15, 1998
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)
99.23 Press release from Carey Diversified LLC Exhibit 99.1 to Form 8-K
(March 26, 1998) dated May 15, 1998
99.24 Press release from Carey Diversified LLC Exhibit 99.1 to Form 8-K
(November 30, 1999) dated December 2, 1999
99.25 Presentation to Analysts Exhibit 99.2 to Form 8-K
dated December 2, 1999
</TABLE>
(b) Report on Form 8-K:
During the quarter ended December 31, 1999, the Company filed
a report on Form 8-K dated December 2, 1999 under Item 5 - Other Events.
-60-
<PAGE> 62
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
5/01/00 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
5/01/00 BY: Francis J. Carey*
- -------- -----------------------------------------
Date Francis J. Carey
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
5/01/00 BY: William P. Carey*
- -------- -----------------------------------------
Date William P. Carey
Chairman of the Executive Committee
and Director
5/01/00 BY: Gordon F. DuGan*
- -------- -----------------------------------------
Date Gordon F. DuGan
President, Chief Acquisitions
Officer and Director
5/01/00 BY: Donald E. Nickelson*
- -------- -----------------------------------------
Date Donald E. Nickelson
Chairman of the Audit Committee and
Director
5/01/00 BY: Eberhard Faber IV*
- -------- -----------------------------------------
Date Eberhard Faber IV
Director
5/01/00 BY: Dr. Lawrence R. Klein*
- -------- -----------------------------------------
Date Dr. Lawrence R. Klein
Director
5/01/00 BY: Charles C. Townsend, Jr.*
- -------- -----------------------------------------
Date Charles C. Townsend, Jr.
Director
5/01/00 BY: Reginald Winssinger*
- -------- -----------------------------------------
Date Reginald Winssinger
Director
5/01/00 BY: /s/ John J. Park
- -------- -----------------------------------------
Date John J. Park
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
5/01/00 BY: /s/ Claude Fernandez
- -------- -----------------------------------------
Date Claude Fernandez
Executive Vice President, Chief
Administrative Officer
(Principal Accounting Officer)
*By Claude Fernandez and John J. Park as Attorney-in-fact
-61-
<PAGE> 63
CAREY DIVERSIFIED LLC and SUBSIDIARIES
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company Cost
----------------------------------- Capitalized Increase
Personal Subsequent to (decrease) in
Description Encumbrances Land Buildings Property Acquisition(a) Net Investment (b)
----------- ------------ ---- --------- -------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method:
Office, warehouse and
manufacturing buildings
leased to various tenants
in Broomfield, Colorado $ 1,990,288 $ 247,993 $ 2,538,263 1,200,000
Office and manufacturing
building leased to IMO
Industries Inc. 1,245,486 814,267 4,761,042
Distribution facilities
and warehouses
leased to
The Gap, Inc. 13,690,953 1,525,593 21,427,148
Supermarkets
leased to Winn-Dixie
Stores, Inc. 855,196 6,762,374
Land leased to
Kobacker Stores, Inc. 1,186,443
Warehouse and manufac-
turing plant
leased to Pre Finish
Metals Incorporated 324,046 8,408,833
Retail store leased
to A. Jones 16,452 80,937
Retail store leased
to Wexler & Wexler 73,267 116,019
Retail stores leased to
Kinko's of Ohio, Inc. 14,844 185,541
Warehouse and distribution
center leased to, B&G
Contract Packaging, Inc. 201,721 2,870,928
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried at Close of Period (c)
----------------------------------------------------
Personal
Description Land Buildings Property Total
----------- ---- --------- -------- -----
<S> <C> <C> <C> <C>
Operating Method:
Office, warehouse and
manufacturing buildings
leased to various tenants
in Broomfield, Colorado $ 247,993 $ 3,738,263 $ 3,986,256
Office and manufacturing
building leased to IMO
Industries Inc. 814,267 4,761,042 5,575,309
Distribution facilities
and warehouses
leased to
The Gap, Inc. 1,525,593 21,427,148 22,952,741
Supermarkets
leased to Winn-Dixie
Stores, Inc. 855,196 6,762,374 7,617,570
Land leased to
Kobacker Stores, Inc. 1,186,443 1,186,443
Warehouse and manufac-
turing plant
leased to Pre Finish
Metals Incorporated 324,046 8,408,833 8,732,879
Retail store leased
to A. Jones 16,452 80,937 97,389
Retail store leased
to Wexler & Wexler 73,267 116,019 189,286
Retail stores leased to
Kinko's of Ohio, Inc. 14,844 185,541 200,385
Warehouse and distribution
center leased to, B&G
Contract Packaging, Inc. 201,721 2,870,928 3,072,649
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation In Latest
Accumulated Statement of Income
Description Depreciation Date Acquired is Computed
----------- ------------ ------------- --------------------
<S> <C> <C> <C>
Operating Method:
Office, warehouse and
manufacturing buildings
leased to various tenants
in Broomfield, Colorado $ 138,164 January 1, 1998 40 yrs.
Office and manufacturing
building leased to IMO
Industries Inc. 238,052 January 1, 1998 40 yrs.
Distribution facilities
and warehouses
leased to
The Gap, Inc. 1,071,357 January 1, 1998 40 yrs.
Supermarkets
leased to Winn-Dixie
Stores, Inc. 338,118 January 1, 1998 40 yrs.
Land leased to
Kobacker Stores, Inc. January 1, 1998 N/A
Warehouse and manufac-
turing plant
leased to Pre Finish
Metals Incorporated 420,442 January 1, 1998 40 yrs.
Retail store leased
to A. Jones 4,046 January 1, 1998 40 yrs.
Retail store leased
to Wexler & Wexler 5,800 January 1, 1998 40 yrs.
Retail stores leased to
Kinko's of Ohio, Inc. 9,277 January 1, 1998 40 yrs.
Warehouse and distribution
center leased to, B&G
Contract Packaging, Inc. 143,546 January 1, 1998 40 yrs.
</TABLE>
-62-
<PAGE> 64
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company Cost
----------------------------------- Capitalized Increase
Personal Subsequent to (decrease) in
Description Encumbrances Land Buildings Property Acquisition(a) Net Investment (b)
----------- ------------ ---- --------- -------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Land leased to Unisource
Worldwide, Inc. 1,931,903 4,573,360
Centralized telephone
bureau leased to Excel
Communications, Inc. 925,162 4,023,627
Dairy processing
facility in Los Angeles,
California 2,283,470 10,911,060 $ 373,503
Office building in
Beaumont, Texas
leased to Petrocon
Engineering, Inc. and
Olmstead Kirk Paper Company 164,113 2,343,849
Office, manufacturing
and warehouse
buildings leased to
Continental Casualty
Company 1,389,951 5,337,002
Warehouse and
distribution center
in Salisbury,
North Carolina 246,949 5,034,911 1,301,707
Manufacturing and office
buildings leased to Penn
Virginia Corporation 652,668 4,080,613
Land leased to
Exide Electronics
Corporation 1,638,012
Motion picture theaters leased
to Harcourt General
Corporation 1,568,453 1,527,425 5,709,495
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried at Close of Period (c)
------------------------------------------------------
Personal
Description Land Buildings Property Total
----------- ---- --------- -------- -----
<S> <C> <C> <C> <C>
Operating Method (continued):
Land leased to Unisource
Worldwide, Inc. 4,573,360 4,573,360
Centralized telephone
bureau leased to Excel
Communications, Inc. 925,162 4,023,627 4,948,789
Dairy processing
facility in Los Angeles,
California 2,656,973 10,911,060 13,568,033
Office building in
Beaumont, Texas
leased to Petrocon
Engineering, Inc. and
Olmstead Kirk Paper Company 164,113 2,343,849 2,507,962
Office, manufacturing
and warehouse
buildings leased to
Continental Casualty
Company 1,389,951 5,337,002 6,726,953
Warehouse and
distribution center
in Salisbury,
North Carolina 246,949 6,336,618 6,583,567
Manufacturing and office
buildings leased to Penn
Virginia Corporation 652,668 4,080,613 4,733,281
Land leased to
Exide Electronics
Corporation 1,638,012 1,638,012
Motion picture theaters leased
to Harcourt General
Corporation 1,527,425 5,709,495 7,236,920
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation In Latest
Accumulated Statement of Income
Description Depreciation Date Acquired is Computed
----------- ------------ ------------- ---------------------
<S> <C> <C> <C>
Operating Method (continued):
Land leased to Unisource
Worldwide, Inc. January 1, 1998 N/A
Centralized telephone
bureau leased to Excel
Communications, Inc. 201,180 January 1, 1998 40 yrs.
Dairy processing
facility in Los Angeles,
California 1,520,729 January 1, 1998 5 yrs.
Office building in
Beaumont, Texas
leased to Petrocon
Engineering, Inc. and
Olmstead Kirk Paper Company 117,190 January 1, 1998 40 yrs.
Office, manufacturing
and warehouse
buildings leased to
Continental Casualty
Company 266,850 January 1, 1998 40 yrs.
Warehouse and
distribution center
in Salisbury,
North Carolina 290,296 January 1, 1998 40 yrs.
Manufacturing and office
buildings leased to Penn
Virginia Corporation 203,760 January 1, 1998 40 yrs.
Land leased to
Exide Electronics
Corporation January 1, 1998 N/A
Motion picture theaters leased
to Harcourt General
Corporation 285,474 January 1, 1998 40 yrs.
</TABLE>
-63-
<PAGE> 65
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company Cost
----------------------------------- Capitalized Increase
Personal Subsequent to (decrease) in
Description Encumbrances Land Buildings Property Acquisition(a) Net Investment (b)
----------- ------------ ---- --------- -------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Warehouse/ office research
and manufacturing
facilities leased to
Lockheed Martin
Corporation 2,617,330 14,752,353 539,706
Warehouse and office
facility leased to
Kinney Shoe Corporation/
Armel, Inc. 1,173,108 3,368,141
Manufacturing and office
facility leased to
Yale Security, Inc. 345,323 3,913,657
Manufacturing facilities
leased to AP Parts
International, Inc. 4,121,009 447,170 12,337,106
Manufacturing facilities
leased To
Northern Tube, Inc. 31,725 1,691,580
Manufacturing facilities
leased to Anthony's
Manufacturing
Company, Inc. 2,051,769 5,321,776
Manufacturing facilities
leased to Swiss
M-Tex, L.P. 263,618 4,046,406
Land leased to
AutoZone, Inc. 16,798,764 9,382,198
Retail stores leased to
Northern Auto, Inc. 3,202,467 2,711,994
Retail stores leased tp
General Textiles, Inc. 129,173 313,107
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried at Close of Period (c)
----------------------------------------------------
Personal
Description Land Buildings Property Total
----------- ---- --------- -------- -----
<S> <C> <C> <C> <C>
Operating Method (continued):
Warehouse/ office research
and manufacturing
facilities leased to
Lockheed Martin
Corporation 2,617,330 15,292,059 17,909,389
Warehouse and office
facility leased to
Kinney Shoe Corporation/
Armel, Inc. 1,173,108 3,368,141 4,541,249
Manufacturing and office
facility leased to
Yale Security, Inc. 345,323 3,913,657 4,258,980
Manufacturing facilities
leased to AP Parts
International, Inc. 447,170 12,337,106 12,784,276
Manufacturing facilities
leased To
Northern Tube, Inc. 31,725 1,691,580 1,723,305
Manufacturing facilities
leased to Anthony's
Manufacturing
Company, Inc. 2,051,769 5,321,776 7,373,545
Manufacturing facilities
leased to Swiss
M-Tex, L.P. 263,618 4,046,406 4,310,024
Land leased to
AutoZone, Inc. 9,382,198 9,382,198
Retail stores leased to
Northern Auto, Inc. 3,202,467 2,711,994 5,914,461
Retail stores leased tp
General Textiles, Inc. 129,173 313,107 442,280
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation In Latest
Accumulated Statement of Income
Description Depreciation Date Acquired is Computed
----------- ------------ ------------- ---------------------
<S> <C> <C> <C>
Operating Method (continued):
Warehouse/ office research
and manufacturing
facilities leased to
Lockheed Martin
Corporation 760,501 January 1, 1998 40 yrs.
Warehouse and office
facility leased to
Kinney Shoe Corporation/
Armel, Inc. 168,407 January 1, 1998 40 yrs.
Manufacturing and office
facility leased to
Yale Security, Inc. 195,683 January 1, 1998 40 yrs.
Manufacturing facilities
leased to AP Parts
International, Inc. 616,856 January 1, 1998 40 yrs.
Manufacturing facilities
leased To
Northern Tube, Inc. 84,579 January 1, 1998 40 yrs.
Manufacturing facilities
leased to Anthony's
Manufacturing
Company, Inc. 266,089 January 1, 1998 40 yrs.
Manufacturing facilities
leased to Swiss
M-Tex, L.P. 202,320 January 1, 1998 40 yrs.
Land leased to
AutoZone, Inc. January 1, 1998 N/A
Retail stores leased to
Northern Auto, Inc. 135,600 January 1, 1998 40 yrs.
Retail stores leased tp
General Textiles, Inc. 15,655 January 1, 1998 40 yrs.
</TABLE>
-64-
<PAGE> 66
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company Cost
----------------------------------- Capitalized Increase
Personal Subsequent to (decrease) in
Description Encumbrances Land Buildings Property Acquisition(a) Net Investment (b)
----------- ------------ ---- --------- -------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Retail stores leased to
Fact 2U, Inc. 77,099 236,231
Office facility leased to
Bell Atlantic Corporation 219,548 1,578,592
Land leased to Sybron
International Corporation 1,135,003
United States Postal Service,
Office facility leased to
General Services
Administration
and Comark, Inc. 1,074,640 11,452,967 73,905
Manufacturing and office
facility leased to
Allied Plywood Corp. 459,593 1,351,737
Manufacturing and office
facility leased to
StairPans
of America, Inc. 139,004 1,758,648
Manufacturing facilities
leased to Quebecor
Printing Inc. 9,535,543 4,458,047 18,695,004
Land leased to High
Voltage Engineering
Corp. 1,954,882
Manufacturing facility
leased to
Wozniak Industries, Inc. 864,638 2,677,512 1,745
Distribution and office
facilities leased to
Federal Express
Corporation 335,189 1,839,331
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried at Close of Period (c)
----------------------------------------------------
Personal
Description Land Buildings Property Total
----------- ---- --------- -------- -----
<S> <C> <C> <C> <C>
Operating Method (continued):
Retail stores leased to
Fact 2U, Inc. 77,099 236,231 313,330
Office facility leased to
Bell Atlantic Corporation 219,548 1,578,592 1,798,140
Land leased to Sybron
International Corporation 1,135,003 1,135,003
United States Postal Service,
Office facility leased to
General Services
Administration
and Comark, Inc. 1,074,640 11,526,872 12,601,512
Manufacturing and office
facility leased to
Allied Plywood Corp. 459,593 1,351,737 1,811,330
Manufacturing and office
facility leased to
StairPans
of America, Inc. 139,004 1,758,648 1,897,652
Manufacturing facilities
leased to Quebecor
Printing Inc. 4,458,047 18,695,004 23,153,051
Land leased to High
Voltage Engineering
Corp. 1,954,882 1,954,882
Manufacturing facility
leased to
Wozniak Industries, Inc. 864,638 2,679,257 3,543,895
Distribution and office
facilities leased to
Federal Express
Corporation 335,189 1,839,331 2,174,520
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation In Latest
Accumulated Statement of Income
Description Depreciation Date Acquired is Computed
----------- ------------ ------------- ---------------------
<S> <C> <C> <C>
Operating Method (continued):
Retail stores leased to
Fact 2U, Inc. 11,811 January 1, 1998 40 yrs.
Office facility leased to
Bell Atlantic Corporation 78,929 January 1, 1998 40 yrs.
Land leased to Sybron
International Corporation January 1, 1998 N/A
United States Postal Service,
Office facility leased to
General Services
Administration
and Comark, Inc. 573,588 January 1, 1998 40 yrs.
Manufacturing and office
facility leased to
Allied Plywood Corp. 67,587 January 1, 1998 40 yrs.
Manufacturing and office
facility leased to
StairPans
of America, Inc. 87,933 January 1, 1998 40 yrs.
Manufacturing facilities
leased to Quebecor
Printing Inc. 934,750 January 1, 1998 40 yrs.
Land leased to High
Voltage Engineering
Corp. January 1, 1998 N/A
Manufacturing facility
leased to
Wozniak Industries, Inc. 133,961 January 1, 1998 40 yrs.
Distribution and office
facilities leased to
Federal Express
Corporation 91,966 January 1, 1998 40 yrs.
</TABLE>
-65-
<PAGE> 67
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company Cost
----------------------------------- Capitalized Increase
Personal Subsequent to (decrease) in
Description Encumbrances Land Buildings Property Acquisition(a) Net Investment (b)
----------- ------------ ---- --------- -------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Land leased to Dr Pepper
Bottling Company
of Texas 9,795,193
Manufacturing facility
leased to Detroit Diesel
Corporation 20,238,699 5,967,620 31,730,547
Engineering and
Fabrication facility
leased to Orbital
Sciences Corporation 14,875,614 5,034,749 18,956,971 2,185,077
Distribution
facility leased to
PepsiCo, Inc. 166,745 884,772
Land leased to Childtime
Childcare, Inc. 482,373 1,673,925 324
Hotel leased to Livho, Inc. 2,765,094 11,086,650 2,711,519 4,264,238
Retail store leased to Eagle
Hardware and Garden, Inc. 10,846,197 4,125,000 11,811,641 376,088
Office building in Pantin,
France leased to
four lessees 7,210,132 2,674,914 8,113,120 (531,115)
Office facility in Mont Saint
Argany, France leased to
Tellit Assurances 3,783,469 542,968 5,286,915 (553,046)
Portfolio of seven properties
In Houston, Texas
leased to 15 lessees 10,057,481 3,260,000 22,574,073
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried at Close of Period (c)
----------------------------------------------------
Personal
Description Land Buildings Property Total
----------- ---- --------- -------- -----
<S> <C> <C> <C> <C>
Operating Method (continued):
Land leased to Dr Pepper
Bottling Company
of Texas 9,795,193 9,795,193
Manufacturing facility
leased to Detroit Diesel
Corporation 5,967,620 31,730,547 37,698,167
Engineering and
Fabrication facility
leased to Orbital
Sciences Corporation 5,034,749 21,142,048 26,176,797
Distribution
facility leased to
PepsiCo, Inc. 166,745 884,772 1,051,517
Land leased to Childtime
Childcare, Inc. 1,674,249 1,674,249
Hotel leased to Livho, Inc. 2,765,094 14,852,839 3,209,568 20,827,501
Retail store leased to Eagle
Hardware and Garden, Inc. 4,476,416 11,836,313 16,312,729
Office building in Pantin,
France leased to
four lessees 2,450,830 7,806,089 10,256,919
Office facility in Mont Saint
Argany, France leased to
Tellit Assurances 488,359 4,788,478 5,276,837
Portfolio of seven properties
In Houston, Texas
leased to 15 lessees 3,260,000 22,574,073 25,834,073
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation In Latest
Accumulated Statement of Income
Description Depreciation Date Acquired is Computed
----------- ------------ ------------- ---------------------
<S> <C> <C> <C>
Operating Method (continued):
Land leased to Dr Pepper
Bottling Company
of Texas January 1, 1998 N/A
Manufacturing facility
leased to Detroit Diesel
Corporation 1,586,527 January 1, 1998 40 yrs.
Engineering and
Fabrication facility
leased to Orbital
Sciences Corporation 981,980 January 1, 1998 40 yrs.
Distribution
facility leased to
PepsiCo, Inc. 44,239 January 1, 1998 40 yrs.
Land leased to Childtime
Childcare, Inc. January 1, 1998 N/A
Hotel leased to Livho, Inc. 1,303,887 January 1, 1998 7-40 yrs.
Retail store leased to Eagle
Hardware and Garden, Inc. 504,411 April 23, 1998 40 yrs.
Office building in Pantin,
France leased to
four lessees 295,790 May 27, 1998 40 yrs.
Office facility in Mont Saint
Argany, France leased to
Tellit Assurances 151,411 June 10, 1998 40 yrs.
Portfolio of seven properties
In Houston, Texas
leased to 15 lessees 869,910 June 15, 1998 40 yrs.
</TABLE>
-66-
<PAGE> 68
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company Cost
----------------------------------- Capitalized Increase
Personal Subsequent to (decrease) in
Description Encumbrances Land Buildings Property Acquisition(a) Net Investment (b)
----------- ------------ ---- --------- -------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method (continued):
Office facility leased to
Sprint Spectrum L.P. 1,190,000 9,352,965
Office facility leased to
Direction Regional des
Affaires Sanitaires et
Sociales 1,462,839 303,061 2,109,731 (310,243)
Office facility leased to
Cendant Operations, Inc. 351,445 5,980,736
Office facility leased to
Bellsouth
Telecommunications 5,995,498 720,000 7,708,458
Office building in
Lille and Indre et Loire,
France leased to
Gist-Brocades France S.A. 3,642,171 451,168 4,478,891 (238,571)
Office facility leased to
America West
Holdings Corp. 18,533,528 2,274,782 26,701,663
Vacant 747,449
------------ ----------- ------------ ---------- ----------- -----------
$148,010,401 $91,066,569 $339,414,917 $2,711,519 $10,316,293 $(1,632,975)
============ =========== ============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried at Close of Period (c)
----------------------------------------------------
Personal
Description Land Buildings Property Total
----------- ---- --------- -------- -----
<S> <C> <C> <C> <C>
Operating Method (continued):
Office facility leased to
Sprint Spectrum L.P. 1,190,000 9,352,965 10,542,965
Office facility leased to
Direction Regional des
Affaires Sanitaires et
Sociales 259,604 1,842,945 2,102,549
Office facility leased to
Cendant Operations, Inc. 351,445 5,980,736 6,332,181
Office facility leased to
Bellsouth
Telecommunications 720,000 7,708,458 8,428,458
Office building in
Lille and Indre et Loire,
France leased to
Gist-Brocades France S.A. 428,307 4,263,181 4,691,488
Office facility leased to
America West
Holdings Corp. 2,274,782 26,701,663 28,976,445
Vacant 747,449 747,449
----------- ------------ ----------- ------------
$91,446,801 $347,219,954 $3,209,568 $441,876,323
=========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation In Latest
Accumulated Statement of Income
Description Depreciation Date Acquired is Computed
----------- ------------ ------------- ---------------------
<S> <C> <C> <C>
Operating Method (continued):
Office facility leased to
Sprint Spectrum L.P. 253,469 July 1, 1998 40 yrs.
Office facility leased to
Direction Regional des
Affaires Sanitaires et
Sociales 46,268 November 16, 1998 40 yrs.
Office facility leased to
Cendant Operations, Inc. 213,318 February 19, 1999 40 yrs.
Office facility leased to
Bellsouth
Telecommunications 8,061 December 22, 1999 40 yrs.
Office building in
Lille and Indre et Loire,
France leased to
Gist-Brocades France S.A. 72,902 May 5, 1999 40 yrs
Office facility leased to
America West
Holdings Corp. 443,120 January 1, 1998 and
Vacant July 23, 1998 40 yrs.
-----------
$16,455,189
===========
</TABLE>
-67-
<PAGE> 69
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company
-----------------------
Cost Capitalized Increase
Subsequent to (Decrease) 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. $3,880,080 $ 331,910 $12,281,102 $ 229,343
Retail stores leased
to Kobacker Stores,
Inc. 1,938,179
Centralized Telephone
Bureau leased to
Western Union Financial
Services, Inc. 842,233 4,762,302 (11,199)
Computer Center
leased to
AT&T Corporation 269,700 5,099,964 (5,096)
Warehouse and
manufacturing
buildings
leased to Gibson
Greetings, Inc. 3,495,507 34,016,822 1,624,897
Warehouse and
manufacturing
buildings
leased to CSS Industries,
Inc./ Cleo, Inc. 1,051,005 14,036,912 167,813
Direct Financing Method
(continued):
</TABLE>
<TABLE>
<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
Unisource Worldwide, Inc. $12,842,355 January 1, 1998
Retail stores leased
to Kobacker Stores,
Inc. 1,938,179 January 1, 1998
Centralized Telephone
Bureau leased to
Western Union Financial
Services, Inc. 5,593,336 January 1, 1998
Computer Center
leased to
AT&T Corporation 5,364,568 January 1, 1998
Warehouse and
manufacturing
buildings
leased to Gibson
Greetings, Inc. 39,137,226 January 1, 1998
Warehouse and
manufacturing
buildings
leased to CSS Industries,
Inc./ Cleo, Inc. 15,255,730 January 1, 1998
Direct Financing Method
(continued):
</TABLE>
-68-
<PAGE> 70
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company
-----------------------
Cost Capitalized Increase
Subsequent to (Decrease) 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. 2,690,525 445,383 11,323,899
Manufacturing facility
to Duff-Norton
Company, Inc. 726,981 8,263,635
Manufacturing facilities
leased to Rochester
Button Company, Inc. 43,753 1,235,328
Manufacturing facilities
leased to Thermadyne
Holdings Corp. 3,789,019 13,163,763
Office and research
facility leased to
Exide Electronics
Corporation 2,844,120
Manufacturing
facilities leased to
DeVlieg Bullard, Inc. 462,295 7,143,644
Manufacturing
facility leased to
Penberthy Products, Inc. 70,317 1,476,657
</TABLE>
<TABLE>
<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. 11,769,282 January 1, 1998
Manufacturing facility
to Duff-Norton
Company, Inc. 8,990,616 January 1, 1998
Manufacturing facilities
leased to Rochester
Button Company, Inc. 1,279,081 January 1, 1998
Manufacturing facilities
leased to Thermadyne
Holdings Corp. 16,952,782 January 1, 1998
Office and research
facility leased to
Exide Electronics
Corporation 2,844,120 January 1, 1998
Manufacturing
facilities leased to
DeVlieg Bullard, Inc. 7,605,939 January 1, 1998
Manufacturing
facility leased to
Penberthy Products, Inc. 1,546,974 January 1, 1998
</TABLE>
-69-
<PAGE> 71
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company
-----------------------
Cost Capitalized Increase
Subsequent to (Decrease) in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ------------ ---- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Manufacturing facility
and warehouse leased
to DS Group Limited 238,532 3,339,449
Retail stores leased to
AutoZone, Inc. 16,416,402
Manufacturing facility
leased to Peerless
Chain Company 1,307,590 11,026,975
Retail store leased to
Wal-Mart Stores, Inc., $3,095,268 1,839,303 6,535,144
Manufacturing and office
facilities leased to
Sybron International
Corporation 2,727,958 31,329,955 22,043
Manufacturing and office
facilities leased to
NVR, Inc. 728,683 6,092,840
Direct Financing Method
(continued):
Manufacturing and
generating facilities
leased to High
Voltage Engineering
Corp. 973,328 9,166,104
Office/warehouse
facilities leased to
United Stationers
Supply Company 1,882,372 5,846,214 26,581
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which
Carried at Close of Period (c)
Description Total Date Acquired
----------- ----- -------------
<S> <C> <C>
Manufacturing facility
and warehouse leased
to DS Group Limited 3,577,981 January 1, 1998
Retail stores leased to
AutoZone, Inc. 16,416,402 January 1, 1998
Manufacturing facility
leased to Peerless
Chain Company 12,334,565 January 1, 1998
Retail store leased to
Wal-Mart Stores, Inc., 8,374,447 January 1, 1998
Manufacturing and office
facilities leased to
Sybron International
Corporation 34,079,956 January 1, 1998
Manufacturing and office
facilities leased to
NVR, Inc. 6,821,523 January 1, 1998
Direct Financing Method
(continued):
Manufacturing and
generating facilities
leased to High
Voltage Engineering
Corp. 10,139,432 January 1, 1998
Office/warehouse
facilities leased to
United Stationers
Supply Company 7,755,167 January 1, 1998
</TABLE>
-70-
<PAGE> 72
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company
-----------------------
Cost Capitalized Increase
Subsequent to (Decrease) in Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ------------ ---- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Bottling and Distribution
facilities lease to
Dr Pepper Bottling
Company of Texas 27,598,638
Land and industrial/
warehouse/office
facilities leased to
Furon Company 11,838,535 4,221,568 19,676,226
Office/warehouse
facility leased
to Red Bank
Distribution, Inc. 4,499,587 1,629,715 9,396,770
Day care facilities
leased to Childtime
Childcare, Inc. 733,231 2,412,916
----------- ----------- ------------ -------- ----------
$26,737,226 $27,077,152 $266,423,960 $ 48,624 $2,005,758
=========== =========== ============ ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which
Carried at Close of Period (c)
Description Total Date Acquired
----------- ----- -------------
<S> <C> <C>
Bottling and Distribution
facilities lease to
Dr Pepper Bottling
Company of Texas 27,598,638 January 1, 1998
Land and industrial/
warehouse/office
facilities leased to
Furon Company 23,897,794 January 1, 1998
Office/warehouse
facility leased
to Red Bank
Distribution, Inc. 11,026,485 January 1, 1998
Day care facilities
leased to Childtime
Childcare, Inc. 2,412,916 January 1, 1998
------------
$295,555,494
============
</TABLE>
-71-
<PAGE> 73
CAREY DIVERSIFIED LLC and Subsidiaries
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company
-----------------------
Cost
Capitalized
Personal Subsequent to
Description Encumbrances Land Buildings Property Acquisition (a)
----------- ------------ ---- --------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Operating real estate:
Hotels located in:
Alpena, Michigan $ 6,749,992 $114,241 $4,256,356 $618,066 $291,019
Petoskey, Michigan 6,749,992 98,326 1,446,757 290,668 469,195
----------- -------- ---------- -------- --------
$13,499,984 $212,567 $5,703,113 $908,734 $760,214
=========== ======== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried at Close of Period (c)
-----------------------------------------------------
Personal Accumulated
Description Land Property Buildings Total Depreciation
----------- ---- -------- --------- ----- -----------
<S> <C> <C> <C> <C> <C>
Operating real estate:
Hotels located in:
Alpena, Michigan $114,241 $ 795,389 $4,370,052 $5,279,682 $553,671
Petoskey, Michigan 98,326 584,244 1,622,373 2,304,943 278,065
-------- ---------- ---------- ---------- --------
$212,567 $1,379,633 $5,992,425 $7,584,625 $831,736
======== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation In Latest
Statement of Income
Description Date Acquired is Computed
----------- -------------- -----------
<S> <C> <C>
Operating real estate:
Hotels located in:
Alpena, Michigan January 1, 1998 7-40 yrs.
Petoskey, Michigan January 1, 1998 7-40 yrs.
</TABLE>
-72-
<PAGE> 74
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) sales of properties (iii) writedowns of
properties to fair value, and (iv) changes in foreign currency
exchange rates.
(c) At December 31, 1999, the aggregate cost of real estate owned
by the Company and its subsidiaries for Federal income tax
purposes is $786,229,000.
Reconciliation of Real Estate Accounted
for Under the Operating Method
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
<S> <C> <C>
Balance at beginning
of year $397,929,165 $315,097,546
Additions 54,283,955 73,900,429
Sales (8,703,822) (3,044,712)
Change in foreign currency
translation adjustment (1,632,975)
Writedowns to fair value (1,575,000)
Reclassification from investment in
direct financing lease 16,563,263
Reclassification to real estate
held for sale (3,012,361)
------------- --------------
Balance at end of
year $441,876,323 $397,929,165
============ ============
</TABLE>
-73-
<PAGE> 75
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to Schedule III - Real Estate
and ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Reconciliation of Accumulated Depreciation
------------------------------------------
December 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Balance at beginning
of year $ 7,617,500
Depreciation expense 9,887,829 $7,725,130
Reclassification to real estate
held for sale (104,550)
Writeoff resulting from sales
of property (1,050,140) (3,080)
----------- ----------
Balance at end of
year $16,455,189 $7,617,500
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation for Operating Real Estate
----------------------------------------
December 31, December 31,
1999 1998
<S> <C> <C>
Balance at beginning
of year $7,313,478 $23,387,677
Additions 271,142 489,064
Reclassification to operating
method (16,563,263)
Balance at close of ---------- -----------
year $7,584,625 $ 7,313,478
========== ===========
</TABLE>
-74-
<PAGE> 76
CAREY DIVERSIFIED LLC and
CORPORATE PROPERTY ASSOCIATES PARTNERSHIPS
NOTES to Schedule III - Real Estate
and ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Reconciliation of Accumulated Depreciation
------------------------------------------
Operating Real Estate
---------------------
December 31, December 31,
1999 1998
<S> <C> <C>
Balance at beginning
of year $300,218
Depreciation expense $531,518 $ 300,218
-------- ---------
Balance at end of year $831,736 $ 300,218
-------- ---------
</TABLE>
-75-
<PAGE> 1
Exhibit 24.1
We, the undersigned directors and/or officers of Carey Diversified LLC (the
"Registrant") hereby severally constitute and appoint Claude Fernandez and John
J. Park, and each of them individually, with full powers of substitution and
re-substitution, our true and lawful attorneys, with full powers to each of them
to sign for us, in our names and in the capacities indicated below, the
Registrant's Form 10-K Annual Report Pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, for the fiscal year ending December 31, 1999
filed with the Securities and Exchange Commission, and any and all amendments to
said Form 10-K, and to file or cause to be filed the same, with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as full to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
This Power of Attorney may be executed in counterparts.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Francis J. Carey Chairman & Chief Executive Officer April 10, 2000
- ---------------------------
Francis J. Carey
/s/ William P. Carey Director April 10, 2000
- ---------------------------
William P. Carey
/s/ Gordan DuGan Director April 10, 2000
- ---------------------------
Gordan DuGan
/s/ Donald E. Nickelson Director April 10, 2000
- ---------------------------
Donald E. Nickelson
/s/ Eberhard Faber, IV Director April 10, 2000
- ---------------------------
Eberhard Faber, IV
/s/ Dr. Lawrence R. Klein Director April 10, 2000
- ---------------------------
Dr. Lawrence R. Klein
/s/ Charles C. Townsend,Jr. Director April 10, 2000
- ---------------------------
Charles C. Townsend, Jr.
/s/ Reginald Winssinger Director April 10, 2000
- ---------------------------
Reginald Winssinger
</TABLE>
