<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(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
Commission file number 0-9174
CORPORATE PROPERTY ASSOCIATES
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 94-2572215
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
</TABLE>
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
(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 (Section 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> 2
Part II
Item 8. Financial Statements and Supplementary Data.
(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.
-5-
<PAGE> 3
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> 4
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> 5
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> 6
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> 7
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> 8
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.
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-
Continued
-10-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
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 $144,773 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, formal plans of liquidation are
adopted or limited partnership units are converted to other
securities which provide the security holder with greater liquidity
than a limited partnership unit. Management believes that as of the
report date, ultimate payment of the preferred return is reasonably
possible but not probable, as defined pursuant to Statement of
Financial Accounting Standards No. 5.
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> 10
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> 11
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> 12
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> 13
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> 14
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.
09/3/97 BY: /s/ Steven M. Berzin
- --------------- -------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
09/3/97 BY: /s/ Claude Fernandez
- --------------- -------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-16-
