<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the quarterly period ended DECEMBER 31, 1996
--------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-9174
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CORPORATE PROPERTY ASSOCIATES
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2572215
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 492-1100
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
- ----------------------------------- -----------------------------------------
- ----------------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
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(Title of Class)
- -------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
[X]
Aggregate market value of the voting stock held by non-affiliates of
Registrant: There is no active market for Limited Partnership Units.
<PAGE>
PART I
------
Item 1. Business.
---------
Registrant is engaged in the business of investing in commercial and
industrial real estate properties which are net leased to commercial and
industrial entities. Registrant was organized as a California limited
partnership on July 24, 1978. The General Partners of Registrant are W.P. Carey
& Co., Inc. (the "Corporate General Partner" or "W.P. Carey") and William Polk
Carey (the "Individual General Partner"). The Corporate General Partner, the
Individual General Partner and/or certain affiliates are also the General
Partners of Corporate Property Associates 2 ("CPA(R):2"), Corporate Property
Associates 3 ("CPA(R):3"), Corporate Property Associates 4, a California limited
partnership ("CPA(R):4"), Corporate Property Associates 5 ("CPA(R):5"),
Corporate Property Associates 6 - a California limited partnership ("CPA(R):6"),
Corporate Property Associates 7 - a California limited partnership ("CPA(R):7"),
Corporate Property Associates 8, L.P., a Delaware limited partnership
("CPA(R):8"), Corporate Property Associates 9, L.P., a Delaware limited
partnership ("CPA(R):9") and the advisor of Corporate Property Associates 10
Incorporated ("CPA(R):10"), Carey Institutional Properties Incorporated
("CIP(TM)") and Corporate Property Associates 12 Incorporated ("CPA(R):12").
Registrant has a management agreement with Carey Corporate Property Management
Company ("Carey Management"), a division of W.P. Carey. According to the terms
of this agreement, Carey Management performs a variety of management services
for Registrant. Registrant has entered into an agreement with Fifth Rock L.P.,
an affiliate, for the purpose of leasing office space. Reference is made to the
Prospectus of Registrant dated January 16, 1979, as supplemented by Supplements
dated January 19, 1979 and April 30, 1979, filed pursuant to Rules 424(b) and
424(c) under the Securities Act of 1933 and such Prospectus and such Supplements
are incorporated herein by reference (said Prospectus, as so supplemented, is
hereinafter called the "Prospectus").
The properties owned by Registrant are described in Item 2.
Registrant's entire net proceeds from the public offering, less distributions of
cash from sales of properties and a working capital reserve have been fully
invested in net leased commercial and industrial real estate since December 11,
1980.
Registrant has only one industry segment which consists of the
investment in and the leasing of industrial and commercial real estate. See
Selected Financial Data in Item 6 for a summary of Registrant's operations.
Also see the material contained in the Prospectus under the heading INVESTMENT
OBJECTIVES AND POLICIES.
Except for a property in Garland, Texas, all of Registrant's real
estate properties are leased to corporate tenants under long-term net leases. A
net lease generally requires tenants to pay operating expenses relating to the
leased properties including maintenance, real estate taxes, insurance and
utilities which under other forms of leases are often paid by the lessor.
Lessees are required to include Registrant as an additional insured party on all
insurance policies relating to the leased properties. In addition,
substantially all of the net leases include indemnification provisions which
require the lessees to indemnify Registrant and the General Partners for
liabilities on all matters related to the leased properties. Accordingly,
Registrant believes that the insurance and indemnity provided on its behalf by
its lessees provides adequate coverage for property damage and any liability
claims which may arise against Registrant's ownership interests. In addition to
the insurance and indemnification provisions of the leases, Registrant has
contingent property and liability insurance for its properties. To the extent
that any lessees are not financially able to satisfy indemnification obligations
which exceed insurance reimbursements, Registrant may incur the costs necessary
to repair property and settle liabilities. Presently, there are no claims
pending for property damages or liability claims.
As described above, lessees retain the obligation for the operating
expenses of their leased properties so that, other than rental income, there are
no significant operating data (i.e. expenses) reportable on Registrant's leased
properties. As discussed in Registrant's Management's Discussion and Analysis in
Item 7, Registrant's leases generally provide for periodic rent increases which
are either stated and negotiated at the inception of the lease or based on
formulas indexed to increases in the Consumer Price Index. Registrant's leases
have initial terms ending between 1999 and 2009 with the majority of the leases
providing for multiple renewal terms at the option of the tenants, of generally
5 or 10 years per renewal term. Registrant's lease with Varo, Inc. ("Varo") for
the 5th Street property initially expired in April 1996 and was extended through
February 12, 1997. IMO Industries, Inc. ("IMO"), Varo's parent company and the
guarantor of the Varo lease, and Registrant entered into a settlement agreement
which released Varo and IMO from the 5th Street lease and, in
- 1 -
<PAGE>
exchange, IMO deposited $486,000 into an escrow account held by an affiliate of
the Corporate General Partner representing estimated repair costs and
construction management fees as Varo had not fulfilled its obligation to return
the property in suitable condition. Funds in escrow will be released for the
payment of repairs and maintenance for the property. Various leases include
purchase options which are described in Item 2 and are generally exercisable at
the greater of fair market value, as defined in the lease, or a stated amount.
The Pre Finish Metals Incorporated ("Pre Finish") lease provides for a purchase
option which may be exercised between June 30, 1998 and June 30, 2003.
Registrant and CPA(R):2 own the Pre Finish property as tenants-in-common with
60% and 40% interests, respectively. In September 1996, Registrant entered into
a purchase and sale agreement for the sale of Registrant's property in
Louisville, Kentucky, leased to Winn-Dixie Stores, Inc. ("Winn-Dixie"). There
can be no assurance that the Winn-Dixie sale will be completed, as the
transaction is subject to the completion of certain due diligence procedures and
the buyer's ability to obtain debt financing. If the proposed sale of the Winn-
Dixie property is completed, Registrant would realize net proceeds of
approximately $1,000,000.
As Registrant's objective has been to invest in properties which are
occupied by a single corporate tenant and subject to long-term net leases with
such lease obligation backed by the credit of the corporate lessee, Registrant's
properties have not been generally subject to the competitive conditions of
local and regional real estate markets. In selecting its real estate
investments, Registrant's strategy was to identify properties which included
operations of material importance to the lessee so that the lessee might be more
likely to extend its lease beyond the initial term or exercise a purchase option
if such option was provided for in the lease agreement. Registrant believes
that this strategy reduces its exposure to the competitive conditions of the
local and regional real estate markets. Because Registrant may be affected by
the financial condition of its lessees rather than the competitive conditions of
the real estate marketplace, Registrant's strategy has been to diversify its
investments among tenants, property types and industries in addition to
achieving geographical diversification.
For the year ended December 31, 1996, revenues from properties
occupied by Pre Finish, The Gap, Inc. the ("Gap") and Varo, amounted to 32%, 27%
and 19%, respectively, of the total operating revenues of Registrant. No other
property owned by Registrant accounted for more than 10% of its total operating
revenues during 1996. Material Sciences Corporation ("MSC") is the guarantor of
the Pre Finish lease. MSC's stock is traded on the New York Stock Exchange.
For MSC's fiscal year ended February 28, 1996, MSC's audited financial
statements reported net sales of $236,150,000, net income of $11,979,000, total
assets of $202,115,000 and shareowners' equity of $121,708,000. The Gap's stock
is publicly traded, principally on the New York and Pacific Stock Exchanges.
The Gap's audited financial statements for the fiscal year ended February 3,
1996 and the unaudited financial statements for the nine-month period ended
November 2, 1996, reported net sales of $4,395,253,000 and $1,382,996,000,
respectively, net earnings of $354,039,000 and $134,310,000, respectively and
total assets of $2,343,068,000 and $2,628,156,000, respectively and total
stockholders' equity of $1,640,473,000 and $1,632,226,000, respectively. See
Note 9 to the Financial Statements in Item 8.
Registrant voluntarily conducted Phase I environmental reviews of all
of its properties in 1993. Registrant believes, based on the results of such
reviews and Phase II environmental reviews of certain properties in 1994, that
its properties are in substantial compliance with Federal and state
environmental statutes and regulations. Phase II reviews were only performed
based on the recommendations of the Phase I reviews. Portions of certain
properties have been subject to a limited degree of contamination, principally
in connection with either leakage from underground storage tanks or surface
spills from facility activities. In many instances, tenants are actively
engaged in the remediation process and addressing identified conditions. For
those conditions which were identified, Registrant advised its tenants of such
findings and of their obligations to perform any required remediation. Tenants
are generally subject to environmental statutes and regulations regarding the
discharge of hazardous materials and any related remediation obligations. In
addition, Registrant's leases generally require tenants to indemnify Registrant
from all liabilities and losses related to the leased properties. Accordingly,
Management believes that the ultimate resolution of the aforementioned
environmental matters will not have a material adverse effect on Registrant's
financial condition, liquidity or results of operations.
- 2 -
<PAGE>
Registrant does not have any employees. The Corporate General Partner
of Registrant together with its affiliates employ twelve individuals who perform
accounting, secretarial and transfer services for Registrant. Gemisys, Inc.
performs certain transfer services for Registrant and The Bank of New York
performs certain banking services for Registrant. In addition, Registrant has
entered into an agreement with Carey Management pursuant to which Carey
Management provides certain management services for Registrant.
Item 2. Properties.
-----------
Registrant's properties are as follows:
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ---------------------- ---------------------- ----------------- ------------------
<S> <C> <C> <C>
THE GAP, INC. Land and Distribution/ Erlanger, Ownership of land
Warehouse Building Kentucky and building (1)
PRE FINISH METALS Land and Warehouse/ Walbridge, Ownership of a 60%
INCORPORATED Manufacturing Plant Ohio interest in land
and building (1)
BROOMFIELD TECH Land and Office/ Broomfield, Ownership of land
CENTER CORPORATION Warehouse/Manufac- Colorado and buildings (1)
turing Buildings -
2 locations
UNISOURCE Land and Office/ Anchorage, Ownership of land
WORLDWIDE, Warehouse Building Alaska and building
INC.
IMO INDUSTRIES, INC. Land and Office/ Garland, Ownership of land
Manufacturing Building Texas and building (1)
KOBACKER STORES, Land and Retail Stores In California: Ownership of land
INC. - 12 locations Fontana, and buildings (1)
Merced, Rialto,
Stockton and two
in Sacramento
In Ohio:
Cuyahoga Falls,
Freemont, Marion,
Reynoldsburg, and
Tallmadge
In Indiana:
Anderson
WINN-DIXIE Land and Supermarket Louisville, Ownership of land
STORES, INC. Kentucky and building
(3) Land and office/ Garland, Texas Ownership of land
Manufacturing Building and building
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) Only one of the locations is encumbered by a mortgage note payable.
(3) This property is vacant
- 3 -
<PAGE>
The material terms of Registrant's leases with its tenants are
summarized in the following table:
<TABLE>
<CAPTION>
Registrant's
Share Current Lease
Lease of Current Square Rent Per Expiration Renewal Ownership Terms of Gross
Obligor Annual Rents Footage Sq.Ft.(1) (Mo/Year) Terms Interest Purchase Option Costs (2)
- ------------- ------------ ------- ----------- ----------- ------- --------------- ----------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pre Finish $1,452,379 313,704 $7.72 06/03 YES 60% interest; Greater of fair market $10,263,878
Metals Inc. as tenant-in value of the property
common, or an amount equal
remaining to $7,873,226 plus
interest owned 2 1/2% thereof per
by Corporate annum, not compounded
Property from 12/9/80 to the
Associates 2 closing date.
The Gap 1,225,994 391,000 3.14 02/03 YES 100% The greater of 11,846,079
Inc. fair market value
or $11,956,440
(less other amounts
stated in lease).
IMO
Industries Inc. 687,750 150,203 4.58 09/02 YES 100% N/A 5,309,237
Unisource
Worldwide,
Inc. 312,700 44,712 6.99 12/09 YES 100% Greater of fair 2,922,529
market value
of the property
or purchase cost.
Kobacker
Stores, Inc. 267,315 33,032 8.09 12/06 YES 100% N/A 2,798,665
Broomfield
Tech 300,136 101,100 2.97 12/01 NO 100% The purchase price 3,988,192
Center AND 05/02 shall be the greater
Corporation of (a) approximately
$2,550,000 as
adjusted for certain
allowances; (b) the
outstanding mortgage
balance at the date of
sale on the properties'
plus 50% of the fair
market value in excess
of the outstanding
mortgage balance less
allowable capital improve-
ments funded by Broomfield
or (c) $2,375,000.
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
Registrant's
Share Current Lease
Lease of Current Square Rent Per Expiration Renewal Ownership Terms of Gross
Obligor Annual Rents Footage Sq.Ft.(1) (Mo/Year) Terms Interest Purchase Option Costs (2)
- -------------- ------------ ------- ----------- ----------- ------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Winn-Dixie
Stores, Inc. $102,400 25,600 4.00 12/99 YES 100% N/A $1,101,904
</TABLE>
(1) Represents rate for rent per square foot when combined with rents
applicable to tenants-in-common.
(2) Includes original cost net of increases or decreases to net investment
subsequent to purchase.
(3) Partnership's share of equity rent of $497,104 plus variable debt rent.
The material terms on the mortgage debt of Registrant's properties are
summarized in the following table:
<TABLE>
<CAPTION>
Mortgage
Annual Interest Balance Annual Debt Maturity Estimated
Lease Obligor Rate 12/31/96 Service Date Due at Maturity Prepayment Provisions
- --------------------------- --------------- ---------- ----------- ----------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Pre Finish Metals
Incorporated 9.00% (1) $1,408,609 $955,276 (2) 07/01/98 (3) Loan may be prepaid in
full or in part (minimum
of $500,000) at any time.
The Gap, Inc. 10.00 6,259,172 701,079 05/01/99 $5,632,543 Loan may be prepaid in
full at any time, with a
prepayment premium.
IMO Industries Inc. 10.00 2,585,302 586,749 10/01/02 (3) After november 1, 1997,
principal balance may be
paid in full with a
prepayment premium.
Kobacker Stores,
Inc. 10.50 1,025,761 174,671 01/17/06 (3) The loan may be prepaid in
full or in part (in
multiples of $10,000) with
prepayment premium.
Broomfield Tech
Center
Corporation 9.00 2,250,640 276,136 09/01/11 (3) The loan may be prepaid in
part, at any time, without
a prepayment premium.
</TABLE>
(1) Variable rate indexed to lender's prime rate.
(2) Estimate based on current interest rates.
(3) Fully amortizing.
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<PAGE>
Item 3. Legal Proceedings.
------------------
As of the date hereof, Registrant is not a party to any material
pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matter was submitted during the fourth quarter of the year ended
December 31, 1996 to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related
-------------------------------------------------
Stockholder Matters.
-------------------
Information with respect to Registrant's common equity is hereby
incorporated by reference to page 19 of Registrant's Annual Report contained in
Appendix A.
Item 6. Selected Financial Data.
------------------------
Selected Financial Data are hereby incorporated by reference to page 1
of Registrant's Annual Report contained in Appendix A.
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations.
-------------------------
Management's Discussion and Analysis are hereby incorporated by
reference to pages 2 to 4 of Registrant's Annual Report contained in Appendix A.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The following financial statements and supplementary data are hereby
incorporated by reference to pages 5 to 15 of Registrant's Annual Report
contained in Appendix A.
(i) Report of Independent Accountants.
(ii) Balance Sheets as of December 31, 1995 and 1996.
(iii) Statements of Income for the years ended December 31, 1994, 1995
and 1996.
(iv) Statements of Partners' Capital for the years ended December 31,
1994, 1995 and 1996.
(v) Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996.
(vi) Notes to Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
-----------------------------------------------------
NONE
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<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
Registrant has no officers or directors. The directors and executive
officers of the Corporate General Partner are as follows:
<TABLE>
<CAPTION>
Has Served as a
Director and/or
Name Age Positions Held Officer Since (1)
- -------------------------- --- ------------------------------------ -----------------
<S> <C> <C> <C>
William Polk Carey 66 Chairman of the Board 7/78
Director
Francis J. Carey 71 President 7/78
Director
George E. Stoddard 80 Chairman of the Investment Committee 12/78
Director
Madelon DeVoe Talley 65 Vice Chairman of the Board 4/86
Director
Lawrence R. Klein 76 Chairman of the Economic Policy 4/84
Committee
Director
Barclay G. Jones III 36 Executive Vice President 8/82
Director
Claude Fernandez 44 Executive Vice President 3/83
Chief Administrative Officer
H. Augustus Carey 39 Senior Vice President 8/88
Anthony S. Mohl 34 Senior Vice President 9/87
John J. Park 32 Senior Vice President 7/91
Treasurer
Michael D. Roberts 45 First Vice President 4/89
Controller
</TABLE>
(1) Each officer and director of the Corporate General Partner will hold office
until the next annual meeting of the Board of Directors and thereafter until
his successor shall have been elected and shall have qualified or until his
prior death, resignation or removal.
William Polk Carey and Francis J. Carey are brothers. H. Augustus
Carey is the nephew of William Polk Carey and the son of Francis J. Carey.
A description of the business experience of each officer and director
of the Corporate General Partner is set forth below:
William Polk Carey, Chairman and Chief Executive Officer, has been
active in lease financing since 1959 and a specialist in net leasing of
corporate real estate property since 1964. Before founding W.P. Carey & Co.,
Inc. ("W.P. Carey") in 1973, he served as Chairman of the Executive Committee of
Hubbard,
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<PAGE>
Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate and
Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of Real
Estate and Private Placements, Director of Corporate Finance and Vice Chairman
of the Investment Banking Board of duPont Glore Forgan Inc. A graduate of the
University of Pennsylvania's Wharton School of Finance and Commerce, Mr. Carey
is a Governor of the National Association of Real Estate Investment Trusts
(NAREIT). He also serves on the boards of The Johns Hopkins University, The
James A. Baker III Institute for Public Policy at Rice University, Templeton
College of Oxford University and other educational and philanthropic
institutions. He founded the Visiting Committee to the Economics Department of
the University of Pennsylvania and co-founded with Dr. Lawrence R. Klein the
Economics Research Institute at that University. Mr. Carey is also a Director
of CPA(R):10, CIP(TM) and CPA(R):12.
Francis J. Carey was elected President and a Managing Director of W.P.
Carey in April 1987, having served as a Director since its founding in 1973.
Prior to joining the firm full-time, he was a senior partner in Philadelphia,
head of the Real Estate Department nationally and a member of the executive
committee of the Pittsburgh based firm of Reed Smith Shaw & McClay, counsel for
Registrant, the General Partners, the CPA(R) Partnerships, W.P. Carey and some
of its affiliates. He served as a member of the Executive Committee and Board
of Managers of the Western Savings Bank of Philadelphia from 1972 until its
takeover by another bank in 1982 and is former chairman of the Real Property,
Probate and Trust Section of the Pennsylvania Bar Association. Mr. Carey served
as a member of the Board of Overseers of the School of Arts and Sciences of the
University of Pennsylvania from 1983 through 1990. He has also served as a
member of the Board of Trustees of the Investment Program Association since 1990
and on the Business Advisory Council of the Business Council for the United
Nations since 1994. He holds A.B. and J.D. degrees from the University of
Pennsylvania. Mr. Carey is also a Director of CPA(R):10 and CIP(TM).
George E. Stoddard, Chief Investment Officer, was until 1979 head of
the bond department of The Equitable Life Assurance Society of the United
States, with responsibility for all activities related to Equitable's portfolio
of corporate investments acquired through direct negotiation. Mr. Stoddard was
associated with Equitable for over 30 years. He holds an A.B. degree from
Brigham Young University, an M.B.A. from Harvard Business School and an LL.B.
from Fordham University Law School.
Madelon DeVoe Talley, Vice Chairman, is a member of the New York State
Controller's Investment Committee, a Commissioner of the Port Authority of New
York and New Jersey, former CIO of New York State Common Retirement Fund and a
Trustee of the New York State Teachers Retirement System. She also served as a
managing director of Rothschild, Inc. and as the President of its asset
management division. Mrs. Talley was also a former Governor of the N.A.S.D. and
a director of Biocraft Laboratories, a New York Stock Exchange company. She is
an alumna of Sarah Lawrence College and the graduate school of International and
Public Affairs at Columbia University.
Lawrence R. Klein, Chairman of the Economic Policy Committee since
1984, is Benjamin Franklin Professor of Economics Emeritus at the University of
Pennsylvania, having joined the faculty of Economics and the Wharton School in
1958. He holds earned degrees from the University of California at Berkeley and
Massachusetts Institute of Technology and has been awarded the Nobel Prize in
Economics as well as over 20 honorary degrees. Founder of Wharton Econometric
Forecasting Associates, Inc., Dr. Klein has been counselor to various
corporations, governments, and government agencies including the Federal Reserve
Board and the President's Council of Economic Advisers.
Barclay G. Jones III, Executive Vice President, Managing Director, and
head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant to
the President in July 1982 after his graduation from the Wharton School of the
University of Pennsylvania, where he majored in Finance and Economics. He was
elected to the Board of Directors of W.P. Carey in April 1992. Mr. Jones is
also a Director of the Wharton Business School Club of New York.
- 8 -
<PAGE>
Claude Fernandez, Chief Administrative Officer, Managing Director, and
Executive Vice President, joined W.P. Carey in 1983. Previously associated with
Coldwell Banker, Inc. for two years and with Arthur Andersen & Co., he is a
Certified Public Accountant. Mr. Fernandez received his B.S. degree in
accounting from New York University in 1975 and his M.B.A. in finance from
Columbia University Graduate School of Business in 1981.
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in
1988 and is President of W.P. Carey's broker-dealer subsidiary. Mr. Carey
previously worked for W.P. Carey from 1979 to 1981 as Assistant to the
President. Prior to rejoining W.P. Carey, Mr. Carey served as a loan officer of
the North American Department of Kleinwort Benson Limited in London, England.
He received an A.B. from Amherst College in 1979 and an M.Phil. in Management
Studies from Oxford University in 1984. Mr. Carey is a trustee of the Oxford
Management Centre Associates Council.
Anthony S. Mohl, Senior Vice President and Director of Portfolio
Management, joined W.P. Carey & Co., in 1987 as Assistant to the President after
receiving his M.B.A. from the Columbia University Graduate School of Business.
Mr. Mohl was employed as an analyst in the strategic planning group at Kurt
Salmon Associates after receiving an undergraduate degree from Wesleyan
University.
John J. Park, Senior Vice President, Treasurer and Director of
Research, joined W.P. Carey as an Investment Analyst in December 1987. Mr. Park
received his undergraduate degree from Massachusetts Institute of Technology and
his M.B.A. in Finance from New York University.
Michael D. Roberts joined W. P. Carey as a Second Vice President and
Assistant Controller in April 1989 and is currently First Vice President and
Controller. Prior to joining W.P. Carey, Mr. Roberts was employed by Coopers &
Lybrand for over 8 years, where he attained the title of audit manager. A
certified public accountant, Mr. Roberts received a B.A. in sociology from
Brandeis University and an M.B.A. from Northeastern University.
Item 11. Executive Compensation.
-----------------------
Under the Amended Agreement of Limited Partnership of Registrant (the
"Agreement"), 9/10th of 1% of Distributable Cash From Operations, as defined, is
payable to the Corporate General Partner and 1/10 of 1% of Distributable Cash
From Operations is payable to the Individual General Partner. The Corporate
General Partner and the Individual General Partner received $12,936 and $1,418,
respectively, from Registrant as their share of Distributable Cash From
Operations during the year ended December 31, 1996. As owner of 200 Limited
Partnership Units, the Corporate General Partner received cash distributions of
$7,016 ($35.08 per Unit) during the year ended December 31, 1996. See Item 6
for the net income allocated to the General Partners under the Agreement.
Registrant is not required to pay, and has not paid, any remuneration to the
officers or directors of the Corporate General Partner or any other affiliate of
Registrant during the year ended December 31, 1996. Although Registrant is
authorized to pay the Individual General Partner a fee of up to $15,000 in any
year beginning after December 31, 1978, no fee will be paid so long as Mr. Carey
is the Individual General Partner and no fee may be paid to any successor
Individual General Partner appointed by Mr. Carey pursuant to the Agreement.
In the future, the Corporate General Partner will expect to receive
9/10th of 1% of Distributable Cash From Operations, the Individual General
Partner will expect to receive 1/10th of 1% of Distributable Cash From
Operations and each General Partner will continue to be allocated the same
percentage of the profits and losses of Registrant as had been allocated in the
past. For a description of the subordinated interest of the Corporate General
Partner and the Individual General Partner in Cash From Sales and Cash From
Financings, reference is made to the materials contained in the Prospectus under
the heading MANAGEMENT COMPENSATION.
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<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management.
-----------
As of December 31, 1996, no person owned of record, or was known by
Registrant to own beneficially more than 5% of the Limited Partnership Units of
Registrant.
The following table sets forth as of March 15, 1997 certain
information as to the ownership by directors and executive officers of
securities of Registrant:
<TABLE>
<CAPTION>
Number of Units
Name of and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- --------------------- ---------------------- -------------------- ---------
<S> <C> <C> <C>
Limited
Partnership Units William Polk Carey (1) 205 units .51%
Francis J. Carey
George E. Stoddard
Madelon DeVoe Talley
Barclay G. Jones III
Lawrence R. Klein
Claude Fernandez
H. Augustus Carey
John J. Park
Michael D. Roberts ___ ----
All executive officers
and directors as a
group (11 persons) 205 units .51%
=== ====
</TABLE>
(1) As of March 15, 1997, the Corporate General Partner, W. P. Carey &
Co., Inc., owned 205 Limited Partnership Units of Registrant. William Polk
Carey, the sole shareholder of the Corporate General Partner, is the beneficial
owner of these Units.
There exists no arrangement, known to Registrant, the operation of
which may at a subsequent date result in a change of control of Registrant.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
For a description of transactions and business relationships between
Registrant and its affiliates and their directors and officers, see Notes 2 and
3 to the Financial Statements in Item 8. Michael B. Pollack, Senior Vice
President and Secretary of the Corporate General Partner, is a partner of Reed
Smith Shaw & McClay which is engaged to perform legal services for Registrant.
No officer or director of the Corporate General Partner or any other
affiliate of Registrant or any member of the immediate family or associated
organization of any such officer or director was indebted to Registrant at any
time since the beginning of Registrant's last fiscal year.
- 10 -
<PAGE>
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:
Report of Independent Accountants.
Balance Sheets, December 31, 1995 and 1996.
Statements of Income for the years ended December 31, 1994, 1995 and 1996.
Statements of Partners' Capital for the years ended December 31, 1994, 1995
and 1996.
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996.
Notes to Financial Statements.
The financial statements are hereby incorporated by reference to pages 5 to 15
of Registrant's Annual Report contained in Appendix A.
(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,
1996.
Notes to Schedule III.
Schedule III and notes thereto are hereby incorporated by reference to pages
16 to 17 of Registrant's Annual Report contained in Appendix A.
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.
- 11 -
<PAGE>
(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 Agreement of Limited Partnership of Exhibit 3(B) to
Registrant dated as of October 20, 1978. Registration
Statement S-11)
No. 2-62195
(Form 8-K)
4.4 Straw Party Agreement between Registrant Exhibit 12(H) to Regis-
and Broomfield Properties Corp. ("BPC") tration Statement (Form
dated as of November 17, 1978. S-11) No. 2-62195
4.8 Straw Party Agreement by and among Line 6 Exhibit 4.8 to Form
Corp., Registrant and CPA(R):2 dated 10-K filed March 31,
December 11, 1980. 1982
4.9 Secured Note from Line 6 Corp. to Exhibit 4.9 to Form
Connecticut General Life Insurance 10-K filed March 31,
Company ("CG"). 1982
4.10 Mortgage from Line 6 Corp. to CG dated Exhibit 4.10 to Form
as of December 1, 1980. 10-K filed March 31,
1982
4.11 Assignment of Lease from Line 6 Corp. to Exhibit 4.11 to Form
CG dated as of December 1, 1980. 10-K filed March 31,
1982
4.12 Agreement to furnish instruments defining Exhibit 4.12 to Form
the rights of holders of long-term debt 10-K filed March 31,
of Registrant. 1982
4.13 $11,000,000 Note dated May 30, 1986 from Exhibit 4.2 to Regis-
Creditanstalt-Bankverein ("Creditanstalt"), trant's Form 8-K dated
as Lender, to the Registrant and CPA(R):2, July 14, 1986
Borrower.
4.14 Note Purchase Agreement dated as of May Exhibit 4.3 to Regis-
30, 1986 between Material Sciences trant's Form 8-K dated
Corporation ("MSC"), as Purchaser, and July 14, 1986
Creditanstalt, as Lender.
4.15 Letter dated June 27, 1986 from Registrant Exhibit 4.4 to Regis-
and CPA(R):2 to Pre Finish Metals Incorporated trant's Form 8-K dated
("PFM") and MSC regarding Note Purchase July 14, 1986
Agreement.
</TABLE>
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
4.16 Mortgage and Security Agreement dated as of Exhibit 4.5 to Regis-
May 30, 1986 between Registrant and CPA(R):2, trant's Form 8-K dated
as Mortgagor, and Creditanstalt, as Mortgagee July 14, 1986
and Secured Party.
4.17 Assignment of Agreements dated as of May 30, Exhibit 4.6 to Regis-
1986 from the Registrant and CPA(R):2, as trant's Form 8-K dated
Assignors, to Creditanstalt, as Assignee. July 14, 1986
4.18 Assignment of Sublease dated as of May 30, Exhibit 4.7 to Regis-
1986 from PFM, as Assignor, to the Registrant trant's Form 8-K dated
and CPA(R):2, as Assignees. July 14, 1986
4.19 Letter Agreement dated June 26, 1986 among Exhibit 4.8 to Regis-
Creditanstalt, as Lender, and MSC and PFM. trant's Form 8-K dated
July 14, 1986
4.20 Joint Tenancy Agreement dated May 30, 1986 Exhibit 4.9 to Regis-
between Registrant and CPA(R):2. trant's Form 8-K dated
July 14, 1986
10.1 Lease Agreement dated July 6, 1979 between Exhibit A to Form 8-K
Registrant and The Gap Stores, Inc. filed July 20, 1979
10.2 Straw Party Agreement between Registrant Exhibit 12(H) to Regis-
and BPC dated as of November 17, 1978. tration Statement (Form
S-11) No. 2-62195
10.4 Straw Party Agreement by and among Line 6 Exhibit 4.8 to Form
Corp., Registrant and CPA(R):2 dated 10-K filed March 31,
December 11, 1980. 1982
10.5 Lease and Agreement between Line 6 Corp. Exhibit 10.5 to Form
and Pre Finish Metals, Inc. dated as of 10-K filed March 31,
December 1, 1980. 1982
10.6 Management Agreement between Registrant and Exhibit 12(C) to Regis-
Carey Corporate Property Management, Inc. tration Statement (Form
S-11) No. 2-62195
10.7 Support Agreement among Registrant, Carey Exhibit 12(E) to Regis-
Corporate Property Management, Inc. and tration Statement (Form
W.P. Carey & Co., Inc. S-11) No. 2-62195
10.8 First Amendment to Lease and Agreement dated Exhibit 10.2 to Regis-
as of May 30, 1986 between Registrant and trant's Form 8-K dated
CPA(R):2, as Lessor, and PFM, as Lessee. July 14, 1986
10.9 Memorandum of First Amendment to Lease and Exhibit 10.3 to Regis-
Agreement dated May 30, 1986 between trant's Form 8-K dated
Registrant and CPA(R):2, as Lessor, and PFM, July 14, 1986
as Lessee.
10.10 Letter dated June 30, 1986 from Creditanstalt Exhibit 10.4 to Regis-
to PFM regarding Lease as amended by First trant's Form 8-K dated
Amendment to Lease and Agreement, dated May July 14, 1986
30, 1986.
</TABLE>
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.11 Lease Guaranty dated as of May 30, 1986 Exhibit 10.5 to Regis-
from MSC to Registrant and CPA(R):2 and trant's Form 8-K dated
Creditanstalt. July 14, 1986
10.12 Sublease dated as of May 30, 1986 between Exhibit 10.6 to Regis-
PFM and Walbridge Coatings ("Walbridge"). trant's Form 8-K dated
July 14, 1986
10.13 Memorandum of Sublease dated as of May 30, Exhibit 10.7 to Regis-
1986 by and between PFM and Walbridge. trant's Form 8-K dated
July 14, 1986
10.14 Lease Agreement between Registrant as landlord and Exhibit 10.1 to Registrant's Form
Varo as tenant. 8-K dated November 4, 1992
10.15 Guaranty and Suretyship Agreement from IMO to Registrant. Exhibit 10.2 to Registrant's Form
8-K dated November 4, 1992
10.16 Construction Contract between Registrant, as owner, and Exhibit 10.3 to Registrant's Form
Rule Construction Incorporated as contractor. 8-K dated November 4, 1992
10.17 Construction Agency Agreement between Registrant, as Exhibit 10.4 to Registrant's Form
owner, and Varo as agent. 8-K dated November 4, 1992
10.18 Promissory Note of Registrant to MetLife. Exhibit 10.5 to Registrant's Form
8-K dated November 4, 1992
10.19 Commercial Deed of Trust from Registrant to George C. Exhibit 10.6 to Registrant's Form
Dunlap, Jr. as trustee for the benefit of MetLife. 8-K dated November 4, 1992
10.20 Indemnity Agreement between Registrant as indemnitor and Exhibit 10.7 to Registrant's Form
MetLife as indemnitee. 8-K dated November 4, 1992
10.21 Lease Modification Agreement between Registrant and Varo. Exhibit 10.8 to Registrant's Form
8-K dated November 4, 1992
28.1 Instruction Letters from Cigna Corporation Exhibit 28.1 to Regis-
dated June 25, 1986 to Creditanstalt and trant's Form 8-K dated
Louisville Title Agency regarding repayment July 14, 1986
of loan.
28.2 Estoppel Certificate dated as of June 30, Exhibit 28.2 to Regis-
1986 from PFM to Creditanstalt. trant's Form 8-K dated
July 14, 1986
28.3 Estoppel Certificate dated as of June 30, Exhibit 28.3 to Regis-
1986 from Walbridge to Creditanstalt. trant's Form 8-K dated
July 14, 1986
28.4 Seller's/Lessee's Certificate dated as of Exhibit 28.4 to Regis-
June 30, 1986 from PFM to Registrant and trant's Form 8-K dated
CPA(R):2. July 14, 1986
28.5 Bill of Sale dated as of May 30, 1986 from Exhibit 28.5 to Regis-
PFM to Registrant and CPA(R):2. trant's Form 8-K dated
July 14, 1986
</TABLE>
- 14 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- ---------
<S> <C> <C>
28.6 Deed dated as of May 30, 1986 from PFM Exhibit 28.6 to Regis-
to Registrant and CPA(R):2. trant's Form 8-K dated
July 14, 1986
28.7 Environmental Indemnity Agreement between Varo and IMO Exhibit 28.1 to Registrant's Form
as indemnitors and MetLife as indemnitee. 8-K dated November 4, 1992
28.8 Press release dated June 30, 1993 Exhibit 28.1 to Form 8-K
announcing the suspension of secondary dated July 12, 1993
market sales of Limited Partnership Units.
</TABLE>
(b) Reports on Form 8-K
-------------------
During the quarter ended December 31, 1996 the Registrant was not
required to file any reports on Form 8-K.
- 15 -
<PAGE>
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.
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
BY: W. P. CAREY & CO., INC.
4/3/97 BY: /s/ Claude Fernandez
---------------- ---------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(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: W. P. CAREY & CO., INC.
William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
Francis J. Carey BY: /s/ George E. Stoddard
President and Director -----------------------
George E. Stoddard
Attorney in fact
April 3, 1997
George E. Stoddard
Chairman of the Investment
Committee and Director
Dr. Lawrence R. Klein
Chairman of the Economic Policy
Committee and Director
Madelon DeVoe Talley
Vice Chairman of the Board of
Directors and Director
4/3/97 BY: /s/ Claude Fernandez
------------------ ---------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
4/3/97 BY: /s/ Michael D. Roberts
------------------ -----------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 16 -
<PAGE>
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES
(A CALIFORNIA LIMITED PARTNERSHIP)
1996 ANNUAL REPORT
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except per unit amounts)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $4,102 $4,418 $4,480 $4,831 $4,589
Income before extraordinary
item 1,058 1,160 1,108 1,842 1,927
Net income 1,058 1,160 1,108 1,842 1,672
Income before extraordinary
item allocated:
To General Partner 11 12 11 19 19
To Limited Partner 1,047 1,148 1,097 1,823 1,908
Per Unit 26.18 28.71 27.43 45.58 47.70
Net income allocated
To General Partner 11 12 11 19 17
To Limited Partner 1,047 1,148 1,097 1,823 1,655
Per Unit 26.18 28.71 27.43 45.58 41.38
Distributions attributable (1):
To General Partners 12 13 13 13 14
To Limited Partners 1,234 1,250 1,264 1,333 1,405
Per unit 30.86 31.25 31.53 33.32 35.13
Payment of mortgage
principal (2) 972 1,178 1,306 1,417 1,425
BALANCE SHEET DATA:
Total assets 26,776 25,531 24,418 23,530 22,226
Long-term
obligations (3) 17,324 9,564 14,889 13,432 11,822
</TABLE>
(1) Includes distributions attributable to the fourth quarter of each fiscal
year payable in the following fiscal year less distributions in the first
fiscal quarter attributable to the prior year.
(2) Represents scheduled mortgage principal amortization paid.
(3) Represents mortgage obligations due after more than one year.
- 1 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Results of Operations
---------------------
Net income for the year ended December 31, 1996 decreased by $170,000
as compared with the prior year, primarily due to the effect of $244,000 of
nonrecurring other income items included in 1995 operating results and an
extraordinary charge of $255,000 relating to the prepayment of higher interest
mortgage debt in 1996. Income, after adjusting for the effects of these items
and a $23,000 loss from the sale of two properties, would have reflected an
increase of $352,000. In spite of the lower net income for 1996, cash flow
provided by operations increased.
The increase in income, as adjusted, in 1996 was due to decreases in
interest and depreciation expenses. The decrease in interest expense was due to
the continuing amortization of the Partnership's limited recourse mortgage debt
and the benefit from the refinancing of the mortgage loan collateralized by the
property leased to The Gap, Inc. (the "Gap") in April 1996. As a result of the
refinancing, the annual interest rate on the Gap property mortgage loan
decreased to 7.25% from 10%. Depreciation expense decreased as the result of
the full depreciation of certain components of properties of which the
Partnership uses component depreciation methods. Leasing revenues were stable;
however, as described below, the Partnership anticipates a decrease in lease
revenues in 1997. The extraordinary charge on the extinguishment of debt
resulted from prepayment charges and the costs incurred in connection with
paying off the mortgage loan on the Gap property.
Net income for the year ended December 31, 1995 increased by $734,000,
compared with net income for the year ended December 31, 1994. The results for
1995 benefited from certain nonrecurring items totaling $244,000 of nonrecurring
other income. The results of operations for 1995 also benefited from a decrease
in property and interest expenses, and an increase in rental revenues. The
decrease in property expense was due to higher costs incurred in 1994 in
connection with the assessment of liquidity alternatives which included
environmental reviews and property valuations. The increase in lease revenues
was primarily the result of an increase in the variable mortgage interest rate
on the debt component of rentals from Pre Finish Metals Incorporated ("Pre
Finish"). The increased debt service payments on the Pre Finish mortgage loan
were directly passed through to the tenant in the form of a rent adjustment,
thereby having no impact on the Partnership's cash flow. Interest expense
decreased as a result of principal payments of $1,417,000 of mortgage balances.
Other income included approximately $119,000 received in cash and securities as
final settlement of a bankruptcy claim on a lease which was terminated in 1985.
Leasing revenues are projected to decrease in 1997 as the result of
the sale of two properties to Kobacker Stores, Inc. ("Kobacker") in November
1996, the anticipated sale of the property leased to Winn-Dixie Stores, Inc.
("Winn-Dixie") and the termination of one of the Partnership's leases with IMO
Industries, Inc. ("IMO"). The Kobacker, IMO and Winn-Dixie leases provided
annual revenues of $36,000, $91,000 and $102,000, respectively. As the sale of
the Winn-Dixie property is subject to certain contingencies, there is no
assurance that the sale will be completed. In the event that the Winn-Dixie
sale is not completed, the lease will expire in 1999. A portion of the proceeds
of the Kobacker sale was applied as a principal prepayment on the mortgage loan
collateralized by the Kobacker properties. The loan has been reamortized and
the annual debt service requirement on the loan has been reduced by $24,000. In
addition, in October 1997, annual rents on the remaining IMO lease will increase
by $135,000. Accordingly, $159,000 of the $229,000 decrease in cash flow will
be offset. Because the rents on the IMO lease are recorded on a straight-line
basis for financial reporting purposes, the rental increase will not increase
reported income. Operating cash flow will also benefit from the full year
effect of the mortgage refinancing on the Gap property. As a result of this
refinancing, annual debt service decreased by $143,000. In addition, a rent
increase on the Gap lease is scheduled in 1998.
Because of the long-term nature of the Partnership's net leases,
inflation and changing prices have not unfavorably affected the Partnership's
revenues and net income. Certain of the Partnership's net leases have increases
based on formulas indexed to increases in the Consumer Price Index ("CPI") and
may have caps on such CPI increases, periodic mandated rent increases or sales
overrides which should increase operating revenues in the future. Future rent
increases may be affected by changes in the method of the calculation of the
CPI. Although there are indications that there may be legislation which changes
the method
- 2 -
<PAGE>
of calculating the CPI, the Partnership cannot predict the outcome of any
proposed changes relating to the CPI formula.
Financial Condition
-------------------
Except for a property in Garland, Texas formerly leased to IMO, all of
the Partnership's properties are leased to corporate tenants under long-term net
leases which generally require tenants to pay all operating expenses relating to
the leased properties. The Partnership depends on relatively stable cash flow
from its net leases to meet operating expenses, service its debt, fund
distributions and maintain adequate cash reserves. The Partnership maintains a
cash reserve to fund major outlays such as capital improvements and balloon debt
payments. Such expenditures may also be funded from additional borrowing on the
Partnership's real estate portfolio. Since its inception, the Partnership has
distributed to its partners a substantial portion of its cash flow. The
Partnership's current strategy has been to utilize its funds from operations and
excess cash reserves to fund an increasing rate of distributions to its
partners. The Partnership's cash balance of $865,000 at December 31, 1996 is
substantially unchanged from the prior year.
Cash generated from operating activities has generally remained stable
or increased over the past several years. Management generally considers its
projections of cash flows and cash provided from operations as well as the
Partnership's current cash balances rather than reported earnings in determining
the distributions paid to limited partners. In 1996, cash provided from
operations of $2,827,000 was sufficient to fund distributions of $1,418,000 and
$1,325,000 of scheduled mortgage principal amortization. Management believes
that its cash flow from operations and cash reserves are sufficient to continue
to sustain the rate of distributions As discussed above, cash flows from
operating activities are expected to decrease in 1997 due to the termination of
certain leases; however, due to future rent increases and the current benefit
being realized from the refinancing of a mortgage loan, such decrease is not
expected to negatively impact the ability of the Partnership to maintain the
current distribution rate.
The Partnership's net cash from investing activities for 1996
consisted of $356,000 received from the sale of two properties leased to
Kobacker and $100,000 from the release of funds from an escrow account. The
Partnership assigned $240,000 of such proceeds to mortgage lenders as mandatory
partial prepayments on mortgage loan obligations. The Partnership was not
required to fund any improvements during 1996. In connection with the February
1997 agreement to release IMO from a lease on one of its properties, IMO has
deposited $485,000 in an escrow account held by an affiliate of the Partnership
which will be used to fund necessary repairs and maintenance on the property.
Accordingly, the Partnership does not expect to use any cash reserves to
maintain or improve the property. The Partnership is also considering the
possibility of attempting to sell the property in its current condition in which
event, it would be entitled to receive any unused funds remaining in escrow. If
the proposed sale of the Winn-Dixie property is completed, the Partnership would
realize net proceeds of approximately $1,000,000.
In addition to paying quarterly distributions to partners of
$1,418,000 and $1,325,000 of scheduled principal payment installments on
mortgage debt, the Partnership's financing activities in 1996 included paying
off the existing mortgage loan of $6,195,000 on the Gap property and obtaining a
new limited recourse mortgage loan of $6,400,000 collateralized by the Gap
property. The excess funds from the refinancing were used to pay the costs of
obtaining the funds. Annual cash flow will increase by $143,000 as a result of
the substantial decrease in the annual interest rate on the property loan.
As a result of its stable cash flow and ability to maintain adequate
reserves, the Partnership has no lines of credit or other short-term financing
arrangements. Management believes the Partnership has additional borrowing
capacity based on the unleveraged portion of its real estate portfolio and the
continuing principal reductions of existing mortgage loans. Except for the
mortgage loan on the Gap property which matures with a balloon payment of
$5,608,000 in 1999, all of the Partnership's mortgage debt is fully amortizing,
with such loans scheduled to be fully paid between 1998 and 2011.
Pre Finish may exercise an option to purchase its leased property
between June 1998 and 2003. Pre Finish's option would be exercisable at the
greater of fair market value or $7,873,000 plus 2 1/2% per annum from December
1980 (the date of the Partnership's purchase of the property) to the closing
date of sale. The Pre Finish lease provides annual cash flow (rent, net of
mortgage debt service) of $497,000. Broomfield
- 3 -
<PAGE>
Tech Center Corporation has an option to purchase its leased properties.
Exercise of such option has not been consummated due to lack of agreement as to
the option purchase price.
Except for a property in Garland, Texas, all of the properties are
currently leased to corporate tenants, all of whom are subject to environmental
statutes and regulations regarding the discharge of hazardous materials and any
related remediation obligations. The Partnership normally structures its leases
to require tenants to comply with all laws. In addition, substantially all of
the Partnership's net leases include indemnification provisions which require
tenants to indemnify the Partnership from all liabilities and losses related to
their operations at the leased properties. If the Partnership undertakes to
clean up or remediate any of its leased properties, the General Partners believe
that in most cases the Partnership will be entitled to full reimbursement from
tenants for such costs. If the Partnership either is responsible or becomes
responsible for such costs because of a tenant's failure to fulfill its
obligations, the General Partners believe that the ultimate resolution of the
aforementioned environmental matters will not have a material adverse effect on
the Partnership's financial condition, liquidity or results of operations.
In 1994, the Partnership voluntarily conducted Phase II reviews of
certain of its properties based on the results of the Phase I environmental
reviews conducted in 1993. The Partnership believes, based on the results of
such reviews, that its properties are in substantial compliance with Federal and
state environmental statutes and regulations. Portions of certain properties
have been documented as having a limited degree of contamination, principally in
connection with either leakage from underground storage tanks or surface spills
from facility activities. For those conditions which were identified, the
Partnership advised its tenants of such findings and of their obligations, if
any, to perform any required remediation.
The General Partners are continuing to investigate ways to provide
liquidity for limited partners on a tax-effective basis.
- 4 -
<PAGE>
REPORT of INDEPENDENT ACCOUNTANTS
To the Partners of
Corporate Property Associates:
We have audited the accompanying balance sheets of Corporate Property
Associates (a California limited partnership) as of December 31, 1995 and 1996,
and the related statements of income, partners' capital and cash flows for each
of the three years in the period ended December 31, 1996. We have also audited
the financial statement schedule included on pages 16 to 17 of this Annual
Report. These financial statements and financial statement schedule are the
responsibility of the General Partners. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the General Partners, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Corporate Property
Associates (a California limited partnership) as of December 31, 1995 and 1996,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the Schedule of Real Estate
and Accumulated Depreciation as of December 31, 1996, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the financial information required to be included therein
pursuant to Securities and Exchange Commission Regulation S-X Rule 12-28.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 17, 1997
- 5 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
BALANCE SHEETS
December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 3,546,994 $ 3,335,260
Buildings 30,785,997 29,769,093
----------- -----------
34,332,991 33,104,353
Accumulated depreciation 17,950,541 18,252,546
----------- -----------
16,382,450 14,851,807
Net investment in direct
financing leases 4,895,886 4,660,571
----------- -----------
Real estate leased to others 21,278,336 19,512,378
Real estate held for sale 434,339
Cash and cash equivalents 872,864 864,889
Escrow funds 100,000
Accrued interest and rents receivable 377,471 397,309
Other assets, net of accumulated
amortization of $56,946 in 1995
and $119,157 in 1996 901,434 1,017,079
----------- -----------
Total assets $23,530,105 $22,225,994
=========== ===========
LIABILITIES:
Mortgage notes payable $14,888,807 $13,429,484
Accrued interest payable 190,843 108,755
Accounts payable and accrued expenses 81,726 83,443
Prepaid rental income and security deposits 263,548 198,610
Accounts payable to affiliates 46,304 45,840
----------- -----------
Total liabilities 15,471,228 13,866,132
----------- -----------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners (98,679) (95,847)
Limited Partners (40,000
Limited Partnership Units
issued and outstanding) 8,157,556 8,455,709
----------- -----------
Total partners' capital 8,058,877 8,359,862
----------- -----------
Total liabilities and
partners' capital $23,530,105 $22,225,994
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 6 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS of INCOME
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Rental income $3,907,692 $3,994,281 $4,030,182
Interest income from direct financing leases 518,483 525,673 510,293
Other interest income 54,285 66,654 48,670
Other income 244,010
---------- ---------- ----------
4,480,460 4,830,618 4,589,145
---------- ---------- ----------
Expenses:
Interest on mortgages 1,598,614 1,524,837 1,280,995
Depreciation 1,106,712 1,089,758 969,570
General and administrative 222,086 237,800 202,551
Property expenses 428,358 109,460 123,722
Amortization 16,511 27,068 62,211
---------- ---------- ----------
3,372,281 2,988,923 2,639,049
---------- ---------- ----------
Income before loss on sale and
extraordinary item 1,108,179 1,841,695 1,950,096
Loss on sale of real estate 22,871
---------- ---------- ----------
Income before extraordinary item 1,108,179 1,841,695 1,927,225
Extraordinary charge on extinguishment of debt 255,438
---------- ---------- ----------
Net income $1,108,179 $1,841,695 $1,671,787
========== ========== ==========
Net income allocated to:
Individual General Partner $ 1,108 $ 1,842 $ 1,672
========== ========== ==========
Corporate General Partner $ 9,974 $ 16,575 $ 15,046
========== ========== ==========
Limited Partners $1,097,097 $1,823,278 $1,655,069
========== ========== ==========
Net income per Unit:
(40,000 Limited Partnership
Units outstanding)
Income before extraordinary item $27.43 $45.58 $47.70
Extraordinary item (6.32)
---------- ---------- ----------
$27.43 $45.58 $41.38
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 7 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS of PARTNERS' CAPITAL
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Partners' Capital Accounts
----------------------------------------------------
Limited
Partners'
General Limited Amount Per
Total Partners Partners Unit (a)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ 7,690,289 $(102,363) $ 7,792,652 $195
Distributions (1,269,699) (12,699) (1,257,000) (31)
Net income, 1994 1,108,179 11,082 1,097,097 27
----------- --------- ----------- ----
Balance, December 31, 1994 7,528,769 (103,980) 7,632,749 191
Distributions (1,313,535) (13,135) (1,300,400) (33)
Change in unrealized appreciation
in marketable securities 1,948 19 1,929
Net income, 1995 1,841,695 18,417 1,823,278 46
----------- --------- ----------- ----
Balance, December 31, 1995 8,058,877 (98,679) 8,157,556 204
Distributions (1,417,554) (14,354) (1,403,200) (35)
Change in unrealized appreciation in
marketable securities 46,752 468 46,284 1
Net income, 1996 1,671,787 16,718 1,655,069 41
----------- --------- ----------- ----
Balance, December 31, 1996 $ 8,359,862 $ (95,847) $ 8,455,709 $211
=========== ========= =========== ====
</TABLE>
(a) Based on 40,000 Units issued and outstanding during all periods.
The accompanying notes are an integral part of the financial statements.
- 8 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
STATEMENTS of CASH FLOWS
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,108,179 $ 1,841,695 $ 1,671,787
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,123,223 1,116,826 1,031,781
Scheduled rents on direct financing leases in
excess of (less than) amortization of unearned income 38,590 23,576 (16,780)
Scheduled rents on operating leases less
than income recognized (67,500) (67,500) (67,500)
Securities received in connection with settlement (44,561)
Loss on sale of real estate 22,871
Extraordinary charge on extinguishment of debt 255,438
Net change in operating assets and liabilities 13,980 (203,857) (71,066)
----------- ----------- -----------
Net cash provided by operating
activities 2,216,472 2,666,179 2,826,531
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate, net 355,958
Release of escrow funds 100,000
Purchase of note receivable (77,254)
----------- -----------
Net cash (used in) provided by
investing activities (77,254) 455,958
----------- -----------
Cash flows from financing activities:
Distributions to partners (1,269,699) (1,313,535) (1,417,554)
Proceeds from mortgage note payable 2,400,000 6,400,000
Deferred refinancing costs (272,746) (158,149)
Prepayment charges paid on extinguishment of debt (255,438)
Payments of mortgage principal (1,305,967) (1,417,411) (1,424,875)
Prepayment of mortgage payable (2,112,194) (6,434,448)
----------- ----------- -----------
Net cash used in financing activities (2,560,606) (2,730,946) (3,290,464)
----------- ----------- -----------
Net decrease in cash
and cash equivalents (421,388) (64,767) (7,975)
Cash and cash equivalents, beginning of year 1,359,019 937,631 872,864
----------- ----------- -----------
Cash and cash equivalents, end of year $ 937,631 $ 872,864 $ 864,889
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 9 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
-------------------------------------------
Use of Estimates:
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. 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.
Corporate Property Associates (the "Partnership") diversifies its real
estate investments among various corporate tenants engaged in different
industries and by property type throughout the United States.
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
Partnership's net investment in the lease.
Operating method - Real estate is recorded at cost, revenue is
----------------
recognized as rentals are earned and expenses (including
depreciation) are charged to operations as incurred.
The Partnership assesses the recoverability of its real estate assets,
including residual interests, 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 net
realizable value.
Substantially all of the Partnership's leases provide for either scheduled
rent increases, periodic rent increases based on formulas indexed to
increases in the Consumer Price Index or sales overrides.
Depreciation:
-------------
Depreciation is computed using the straight-line method over the estimated
useful lives of components of the particular properties, which range
from 5 to 50 years.
Cash Equivalents:
-----------------
The Partnership 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 Partnership's cash and cash
equivalents for both years ended December 31, 1995 and 1996 were held in
the custody of three financial institutions.
Continued
- 10 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
Other Assets:
-------------
Included in other assets are deferred rental income, deferred charges and
marketable equity securities. Deferred rental income is the aggregate
difference for operating method leases between scheduled rents which
vary during the lease term and income recognized on a straight- line
basis. Deferred charges are primarily costs incurred in connection with
mortgage note refinancing and are amortized on a straight-line basis
over the terms of the mortgages.
The Partnership's marketable equity securities, which consist of 1,948
shares of Storage Technology Corporation common stock are classified as
available-for-sale securities and are reported at fair market value with
the Partnership's interest in unrealized gains and losses on these
securities reported as a separate component of partners' capital.
Income Taxes:
-------------
A partnership is not liable for federal income taxes as each partner
recognizes his proportionate share of the partnership income or loss in
his tax return. Accordingly, no provision for income taxes is
recognized for financial statement purposes.
Reclassification:
-----------------
Certain 1994 and 1995 amounts have been reclassified to conform to the
1996 financial statement presentation.
2. Partnership Agreement:
----------------------
The Partnership was organized on July 24, 1978 under the Uniform Limited
Partnership Act of the State of California for the purpose of engaging
in the business of investing in and leasing industrial and commercial
real estate. The Corporate General Partner purchased 200 limited
partnership units in connection with the Partnership's public offering.
The Partnership will terminate on December 31, 2016, or sooner, in
accordance with the terms of the Amended Agreement of Limited
Partnership (the "Agreement").
The Agreement provides that the General Partners are allocated 1% (1/10 of
1% to the Individual General Partner, William P. Carey, and 9/10 of 1%
to the Corporate General Partner, W. P. Carey & Co., Inc. ("W.P.
Carey")) and the Limited Partners are allocated 99% of the profits and
losses as well as distributions of Distributable Cash From Operations,
as defined in the Agreement. The partners are also entitled to receive
net proceeds from the sale of the Partnership properties as defined in
the Agreement. The General Partners may be entitled to receive a
subordinated preferred return, measured based upon the cumulative
proceeds arising from the sale of Partnership assets. Pursuant to the
subordination provisions of the Agreement, the preferred return may be
paid only after the limited partners receive 100% of their initial
investment from the proceeds of asset sales and a cumulative annual
return ranging from 6% to 9% since the inception of the Partnership. The
General Partners interest in such preferred return amounts to
approximately $145,000 based upon the cumulative proceeds from the sale
of assets since the inception of the Partnership through December 31,
1996. The Partnership's ability to satisfy the subordination provisions
of the Agreement may not be determinable until liquidation of a
substantial portion of the Partnership's assets has been made.
3. Transactions with Related Parties:
----------------------------------
The Partnership holds a 60% ownership interest in a property as tenants-
in-common with an affiliate which holds the remaining 40% interest. The
Partnership accounts for its assets and liabilities relating to tenants-
in-common interests on a proportional basis.
Continued
- 11 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
Under the Agreement, a division of W.P. Carey is entitled to receive a
property management fee and reimbursement of certain expenses incurred
in connection with the Partnership's operations. General and
administrative expense reimbursements consist primarily of the actual
cost of personnel needed in providing administrative services necessary
for the operation of the Partnership. Property management fees and
general and administrative expense reimbursements are summarized as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Property management fee $44,581 $ 72,881 $ 66,815
General and administrative
expense reimbursements 51,607 44,250 43,956
------- -------- --------
$96,188 $117,131 $110,771
======= ======== ========
</TABLE>
During 1994, 1995 and 1996, fees aggregating $97,438, $18,338 and $10,329,
respectively, were incurred for legal services performed by a firm in
which the Secretary of the Corporate General Partner and other
affiliates is a partner.
The Partnership is a participant in an agreement with W.P. Carey and
certain other affiliates for the purpose of leasing office space used
for the administration of real estate entities and W.P. Carey and for
sharing the associated costs. Pursuant to the terms of the agreement,
the Partnership's share of rental, occupancy and leasehold improvement
costs is based on adjusted gross revenues, as defined. Net expenses
incurred in 1994, 1995 and 1996 were $15,615, $61,243 and $30,477,
respectively.
4. Real Estate Leased to Others Accounted for Under the Operating Method:
----------------------------------------------------------------------
Scheduled future minimum rents, exclusive of renewals, under
noncancellable operating leases amount to approximately $3,708,000 in
1997; $3,804,000 in each of the years 1998 through 2001; and aggregate
approximately $23,526,000 through 2006.
Contingent rents were approximately $56,000 in 1995 and $89,000 in 1996.
There were no contingent rents in 1994.
5. Net Investment in Direct Financing Leases:
------------------------------------------
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Minimum lease payments
receivable $ 6,666,724 $ 5,945,229
Unguaranteed residual value 5,075,137 4,823,041
----------- -----------
11,741,861 10,768,270
Less, Unearned income 6,845,975 6,107,699
----------- -----------
$ 4,895,886 $ 4,660,571
=========== ===========
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases amount to approximately $477,000
in each of the years 1997 to 1999, $492,000 in each of the years 2000
and 2001 and aggregate approximately $5,945,000 through 2009.
Continued
- 12 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
6. Mortgage Notes Payable:
-----------------------
Mortgage notes payable, all of which are limited recourse obligations of
the Partnership or the partners, are collateralized by real property
with a carrying amount as of December 31, 1996 of approximately
$34,206,000, before accumulated depreciation, and the assignment of
various leases. As of December 31, 1996, mortgage notes payable bear
interest at rates varying from 7.25% to 10.5% per annum and mature
between 1998 and 2011.
Scheduled principal payments during each of the next five years following
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 1,607,968
1998 1,361,997
1999 6,325,539
2000 658,765
2001 727,079
Thereafter 2,748,136
-----------
Total $13,429,484
===========
</TABLE>
Interest paid was $1,604,379, $1,536,914 and $1,363,083 in 1994, 1995 and
1996, respectively.
7. Distributions to Partners:
--------------------------
Distributions are declared and paid to partners quarterly and are
summarized as follows:
<TABLE>
<CAPTION>
Year Ending Distributions Paid to Distributions Paid to Limited Partners'
December 31, General Partners Limited Partners Per Unit Amount
- -------------- --------------------- --------------------- -----------------
<S> <C> <C> <C>
1994 $12,699 $1,257,000 $31.43
======= ========== ======
1995 $13,135 $1,300,400 $32.51
======= ========== ======
1996 $14,354 $1,403,200 $35.08
======= ========== ======
</TABLE>
Distributions of $3,556 to the General Partners and $352,000 to the Limited
Partners for the quarter ended December 31, 1996 were declared and paid in
January 1997.
8. Income for Federal Tax Purposes:
--------------------------------
Income for financial statement purposes differs from income for Federal
income tax purposes because of the difference in the treatment of
certain items for income tax purposes and financial statement purposes.
A reconciliation of accounting differences is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income per Statements of Income $1,108,179 $1,841,695 $1,671,787
Excess tax depreciation (24,267) 1,115 (16,894)
Other (153,863) (1,759) 38,919
---------- ---------- ----------
Income reported for
Federal income tax purposes $ 930,049 $1,841,051 $1,693,812
========== ========== ==========
</TABLE>
Continued
- 13 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
9. Industry Segment Information:
-----------------------------
The Partnership's operations consist of the investment in and the leasing
of industrial and commercial real estate.
In 1994, 1995 and 1996, the Partnership earned its total operating
revenues (rental income plus interest income from direct financing
leases) from the following lease obligors:
<TABLE>
<CAPTION>
1994 % 1995 % 1996 %
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Pre Finish Metals
Incorporated $1,345,442 30% $1,407,841 31% $1,441,238 32%
The Gap, Inc. 1,225,994 28 1,225,994 27 1,225,994 27
IMO Industries, Inc. 846,743 19 846,743 19 846,743 19
Unisource Worldwide 332,110 8 339,300 8 329,480 7
Broomfield Tech Center
Corporation 269,946 6 294,136 6 300,136 7
Kobacker Stores, Inc. 303,540 7 303,540 7 294,484 6
Winn-Dixie Stores, Inc. 102,400 2 102,400 2 102,400 2
---------- --- ---------- --- ---------- ---
$4,426,175 100% $4,519,954 100% $4,540,475 100%
========== === ========== === ========== ===
</TABLE>
10. Sale of Real Estate:
--------------------
On October 17, 1996, Kobacker Stores, Inc. ("Kobacker") exercised options
under the terms of its leases for properties in Eastlake and Cleveland,
Ohio to purchase such properties for stated purchase prices of $165,000
and $200,000, respectively, resulting in a loss of $22,871. A portion
of the net sales proceeds was assigned to the mortgage lender on the
Kobacker properties as a partial prepayment. As a result of the sale
and the related mortgage prepayment of $139,507, Kobacker's annual rent
will decrease by $36,225 and the Partnership's debt service on the
mortgage loan will decrease $23,756.
11. Real Estate Held for Sale:
--------------------------
On September 17, 1996, the Partnership entered into a purchase and sale
agreement for the sale of the Partnership's property in Louisville,
Kentucky, leased to Winn-Dixie Stores, Inc. ("Winn-Dixie") for
$1,100,000, less selling costs, including a 5% brokerage commission.
The transaction is subject to completion of certain due diligence
procedures and the ability of the buyer to obtain debt financing.
Accordingly, there can be no assurance that the sale of the property
will be completed. The Winn-Dixie lease, which is scheduled to expire
in December 1999, provides annual rentals of $102,000.
12. Settlement Agreement:
---------------------
One of the Partnership's leases with IMO Industries, Inc. ("IMO") had been
scheduled to terminate in March 1996. The Partnership granted IMO an
extension of three months to enable IMO to meet its lease obligation to
return the property in suitable condition. As IMO did not satisfy such
Continued
- 14 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
obligation, the Partnership refused to release IMO from the lease and
continued to collect monthly rental payments from IMO. On February 12,
1997, the Partnership and IMO entered into an agreement which released
IMO from the lease. Under the agreement, IMO returned the property in
"as is" condition to the Partnership, paid $485,766, representing
estimated repair costs and construction management fees, into an escrow
account held by an affiliate of the Partnership. Funds in escrow will
only be released under certain conditions including, but not limited to,
the payment of repairs and maintenance for the property.
Rents from the terminated IMO lease contributed annual revenues of
approximately $91,000. The Partnership's lease with IMO for an adjacent
property currently provides for annual rent of $687,750 and has a lease
term through 2002.
13. Disclosures About Fair Value of Financial Instruments:
------------------------------------------------------
The carrying amounts of cash, receivables and accounts payable and accrued
expenses approximate fair value because of the short maturity of these
items.
The Partnership's estimate of fair value of mortgage notes payable
approximates the carrying amount of such mortgage note at December 31,
1996. The fair value of debt instruments was evaluated using a
discounted cash flow model with discount rates which take into account
the credit of the tenants and interest rate risk.
14. Environmental Matters:
----------------------
The Partnership's properties are currently leased to corporate tenants,
all of which are subject to environmental statutes and regulations
regarding the discharge of hazardous materials and related remediation
obligations. The Partnership generally structures a lease to require
the tenant to comply with all laws. In addition, substantially all of
the Partnership's net leases include provisions which require tenants to
indemnify the Partnership from all liabilities and losses related to
their operations at the leased properties. Any costs of remediation are
expected to be performed and paid by the affected tenant. In the event
that the Partnership absorbs a portion of any costs because of a
tenant's failure to fulfill its obligations, the General Partners
believe such expenditures will not have a material adverse effect on the
Partnership's financial condition, liquidity or results of operations.
In 1994, based on the results of Phase I environmental reviews performed
in 1993, the Partnership voluntarily conducted Phase II environmental
reviews on certain of its properties. The Partnership believes, based
on the results of Phase I and Phase II reviews, that its properties are
in substantial compliance with Federal and state environmental statutes
and regulations. Portions of certain properties have been documented as
having a limited degree of contamination, principally in connection with
either leakage from underground storage tanks or surface spills from
facility activities. For those conditions which were identified, the
Partnership advised the affected tenants of the Phase II findings and of
their obligations to perform required remediation.
- 15 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to Cost Gross Amount at which Carried
Partnership Capitalized Decrease in at Close of Period (c)(d)
------------------- Subsequent Net ------------------------------
Description Encumbrances Land Buildings Acquisition (a) Investment (b) Land Buildings Total
- ----------- ------------ ---- --------- --------------- ------------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Method:
Office, warehouse and
manufacturing buildings
leased to Broomfield
Tech Center Corporation $ 2,250,640 $ 354,970 $ 3,073,575 $ 559,647 $ 354,970 $ 3,633,222 $ 3,988,192
Office and manufacturing
building leased to IMO
Industries Inc. 2,485,302 685,026 2,006,559 2,617,652 685,026 4,624,211 5,309,237
Office and manufacturing
building formerly leased
to IMO Industries Inc. 221,474 448,641 4,384 $ (38,155) 183,319 453,025 636,344
Distribution facility
and warehouse
leased to
The Gap, Inc. 6,259,172 669,722 10,990,000 186,357 669,722 11,176,357 11,846,079
Land leased to
Kobacker Stores, Inc. 395,944 1,236,735 (176,112) 1,060,623 1,060,623
Warehouse and manufac-
turing plant
leased to Pre Finish
Metals Incorporated 1,408,609 381,600 9,882,278 381,600 9,882,278 10,263,878
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
$12,799,667 $3,549,527 $26,401,053 $3,368,040 $(214,267) $3,335,260 $29,769,093 $33,104,353
=========== ========== =========== ========== ========= ========== =========== ===========
Direct financing method:
Office building and
warehouse leased to
Unisource Worldwide,
Inc. $ 298,655 $ 2,786,345 $(162,471) $ 2,922,529
Retail stores leased
to Kobacker Stores,
Inc. $ 629,817 2,008,850 $ 105,207 (376,015) 1,738,042
----------- ---------- ----------- ---------- --------- -----------
$ 629,817 $ 298,655 $ 4,795,195 $ 105,207 $(538,486) $ 4,660,571
=========== ========== =========== ========== ========= ===========
Real estate held for sale:
Supermarket
leased to Winn-Dixie
Stores, Inc. $ 85,000 $ 1,004,300 $ 12,604 $ 85,000 $ 1,016,904 $ 1,101,904
========== =========== ========== ========== =========== ===========
<CAPTION>
Life on which
Depreciation
in Latest
Statement of
Accumulated Income
Description Depreciation (d) Date Acquired is Computed
- ----------- ---------------- ------------- -----------
<S> <C> <C> <C>
Operating Method:
Office, warehouse and
manufacturing buildings
leased to Broomfield November 17,
Tech Center Corporation $ 2,194,402 1978 10-30 YRS.
Office and manufacturing
building leased to IMO
Industries Inc. 2,391,393 April 20, 1979 17-30 YRS.
Office and manufacturing
building formerly leased
to IMO Industries Inc. 453,025 April 20, 1979 17 yrs.
Distribution facility
and warehouse
leased to
The Gap, Inc. 8,189,583 July 6, 1979 5-50 yrs.
Land leased to January 17, 1979
Kobacker Stores, Inc.
Warehouse and manufac-
turing plant
leased to Pre Finish December 11, 1980 5-30 yrs.
Metals Incorporated 5,024,143 and June 30, 1986
-----------
$18,252,546
===========
Direct financing method:
Office building and
warehouse leased to
Unisource Worldwide, December 28,
Inc. 1979
Retail stores leased
to Kobacker Stores, January 17,
Inc. 1979
Real estate held for sale:
Supermarket
leased to Winn-Dixie December 28,
Stores, Inc. $ 667,565 1979
===========
</TABLE>
See accompanying notes to Schedule.
- 16 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES to SCHEDULE of 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 and other
related professional fees.
(b) The decrease in net investment is due to (i) the amortization of
unearned income producing a constant periodic rate of return on the net
investment which is less than lease payments received and (ii) sales of
property.
(c) At December 31, 1996, the aggregate cost of real estate owned for
Federal income tax purposes is $39,079,392.
(d)
Reconciliation of Real Estate Accounted
---------------------------------------
for Under the Operating Method
------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
----------- ------------
<S> <C> <C>
Balance at beginning
of year $34,332,991 $34,332,991
Sales (126,734)
Reclassification to real estate
held for sale (1,101,904)
----------- -----------
Balance at close of year $34,332,991 $33,104,353
=========== ===========
</TABLE>
Reconciliation of Accumulated Depreciation
------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
----------- ------------
<S> <C> <C>
Balance at beginning
of year $16,860,783 $17,950,541
Reclassification to real estate
held for sale (667,565)
Depreciation expense 1,089,758 969,570
----------- -----------
Balance at close of year $17,950,541 $18,252,546
=========== ===========
</TABLE>
- 17 -
<PAGE>
PROPERTIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ---------------------- ---------------------- --------------- ------------------
<S> <C> <C> <C>
THE GAP, INC. Land and Distribution/ Erlanger, Ownership of land
Warehouse Building Kentucky and building (1)
PRE FINISH METALS Land and Warehouse/ Walbridge, Ownership of a 60%
INCORPORATED Manufacturing Plant Ohio interest in land
and building (1)
BROOMFIELD TECH Land and Office/ Broomfield, Ownership of land
CENTER CORPORATION Warehouse/Manufac- Colorado and buildings (1)
turing Buildings -
2 locations
UNISOURCE Land and Office/ Anchorage, Ownership of land
WORLDWIDE, Warehouse Building Alaska and building
INC.
IMO INDUSTRIES, INC. Land and Office/ Garland, Ownership of land
Manufacturing Texas and building (1)
Building
(2) Land and Office/ Garland, Ownership of land
Manufacturing Texas and building
Building
KOBACKER STORES, Land and Retail Stores In California: Ownership of land
INC. - 12 locations Fontana, and buildings (1)
Merced, Rialto,
Stockton and two
in Sacramento
In Ohio:
Cuyahoga Falls,
Freemont, Marion,
Reynoldsburg
and Tallmadge
In Indiana:
Anderson
WINN-DIXIE Land and Supermarket Louisville, Ownership of land
STORES, INC. Kentucky and building
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) This property is currently vacant.
- 18 -
<PAGE>
MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED
UNITHOLDER MATTERS
- --------------------------------------------------------------------------------
Except for limited or sporadic transactions, there is no established
public trading market for the Limited Partnership Units of the Partnership. As
of December 31, 1996 there were 1,714 holders of record of the Limited
Partnership Units of the Partnership.
In accordance with the requirements of the Partnership's Amended
Agreement of Limited Partnership (the "Agreement"), contained as Exhibit A to
the Prospectus, the Corporate General Partner expects to continue to make
quarterly distributions of Distributable Cash from Operations as defined in the
Agreement. The following table shows the frequency and amount of distributions
paid per Unit since 1993:
<TABLE>
<CAPTION>
Cash Distributions Paid Per Unit
--------------------------------
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
First quarter $ 7.84 $ 7.94 $ 8.75
Second quarter 7.85 8.00 8.76
Third quarter 7.86 8.13 8.78
Fourth quarter 7.88 8.44 8.79
------ ------ ------
$31.43 $32.51 $35.08
====== ====== ======
</TABLE>
REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
The Corporate General Partner will supply to any owner of Limited
Partnership Units, upon written request and without charge, a copy of the Annual
Report on Form 10-K for the year ended December 31, 1996 as filed with the
Securities and Exchange Commission.
- 19 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 864,889
<SECURITIES> 0
<RECEIVABLES> 397,309
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,262,198
<PP&E> 38,199,263
<DEPRECIATION> 18,252,546
<TOTAL-ASSETS> 22,225,994
<CURRENT-LIABILITIES> 436,648
<BONDS> 13,429,484
0
0
<COMMON> 0
<OTHER-SE> 8,359,862
<TOTAL-LIABILITY-AND-EQUITY> 22,225,994
<SALES> 0
<TOTAL-REVENUES> 4,589,145
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,295,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,280,995
<INCOME-PRETAX> 1,927,225
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,927,225
<DISCONTINUED> 0
<EXTRAORDINARY> 225,438
<CHANGES> 0
<NET-INCOME> 1,671,787
<EPS-PRIMARY> 41.38
<EPS-DILUTED> 41.38
</TABLE>
