<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
---------------------- -----------------------
Commission file number 0-9727
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CORPORATE PROPERTY ASSOCIATES 2
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 13-3022196
- ------------------------------------------------------------------------------------------------------
(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)
Registrant's telephone number, including area code (212) 492-1100
---------------------------------------------------
</TABLE>
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 ((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 August 9, 1979. 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 ("CPA(R):1"), 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 agreements with Fifth Rock L.P., an
affiliate, for the purpose of leasing office space. Reference is made to the
Prospectus of Registrant dated January 18, 1980, as supplemented by a Supplement
dated May 7, 1980, filed pursuant to Rules 424(b) and 424(c) under the
Securities Act of 1933 and such Prospectus and such Supplement are incorporated
herein by reference (said Prospectus, as so supplemented, is hereinafter called
the "Prospectus").
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.
The properties owned by Registrant are described in Properties in Item
2. Registrant's entire net proceeds from the public offering, less any return
of capital and a working capital reserve have been fully invested in net leased
commercial and industrial real estate since November 30, 1982, the date of
Registrant's final real estate acquisition.
For the year ended December 31, 1996, revenues from properties
occupied by tenants which accounted for 10% or more of operating revenue were as
follows: Unisource Worldwide, Inc. ("Unisource"), 29%; Pre Finish, Metals, Inc.
("Pre Finish"), 21%; Gibson Greetings, Inc., 18%; and Cleo, Inc., 10%. No other
property owned by Registrant accounted for 10% or more of its total operating
revenues during 1996. See Note 9 to the Financial Statements in Item 8.
Unisource and Materials Sciences Corporation ("MSC") guarantor of Pre Finish's
lease obligations are publicly traded companies. For the fiscal year ended
September 30, 1996, Unisource's audited financial statement reported revenues of
$7,022,808,000, net income of $59,998,000, total assets of $2,191,714,000 and
shareholders' equity of $935,501,000. MSC's audited financial statements for
the year ended February 28,1996 reported net sales of $236,150,000, net income
of $11,979,000, total assets of $202,115,000 and shareholders' equity of
$121,708,000.
All of Registrant's real estate properties are leased to corporate
tenants under net leases. A net lease generally requires tenants to pay all
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. 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 leased
properties and primary property
- 1 -
<PAGE>
and liability for its property in Maumelle, Arkansas which is reimbursed by
tenants. 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 properties and settle liabilities.
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 lease terms which generally end between 2001 and 2013 with such
leases providing for multiple renewal terms of generally five or ten years.
Registrant's leases with Pre Finish, Unisource, Gibson and Cleo include purchase
options which provide for purchase of leased properties exercisable at the
greater of fair market value, as defined in the lease, or a stated amount. No
purchase options are exercisable until June 1998.
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 may 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.
Registrant's strategy in acquiring long-term real estate investments
which are not greatly impacted by current competitive conditions has been
effective for leases with AT&T Corporation, Gibson, Pre Finish, Unisource and
Cleo which are not scheduled to expire until after the year 2000.
In April 1996, B&G Contract Packaging, Inc. ("B&G") net leased 50% of
the available space at Registrant's distribution property in Maumelle through
December 31, 1997 with two two-year renewal terms at B&G's option. Due to the
short-term nature of the leases at this property, Registrant's rents are based
on the competitive rates for this property.
In June 1996, Registrant paid off an existing mortgage loan of
$5,539,072 collateralized by Registrant's property leased to Unisource and
obtained new mortgage financing for the property. The new loan of $7,000,000
provides for quarterly installments of principal and interest of $202,000 at
annual interest rate of 7.24% and fully amortizes in February 2010.
In August 1996, Registrant entered into a lease agreement for its
Reno, Nevada property with a wholly-owned subsidiary of Excel
Telecommunications, Inc ("Excel"), with such lease obligations unconditionally
guaranteed by Excel. The initial lease term commenced in December 1996 with
Registrant's share of annual rents of approximately $209,000. The lease
provides Excel the right to terminate the lease at the end of the sixth lease
year.
Registrant voluntarily performed initial environmental reviews of all
of its properties in 1993. Registrant believes, based on the results of such
reviews and Phase II environmental reviews of four of its properties in 1994,
that its properties are in substantial compliance with Federal and state
environmental statutes and regulations. Phase II reviews were performed only on
certain properties 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
additional investigations and any required remediation.
- 2 -
<PAGE>
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.
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.
also 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 to Registrant.
- 3 -
<PAGE>
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>
GIBSON GREETINGS, Land and Manufacturing Cincinnati, Ownership of a 28.5%
INC. Warehouse Buildings Ohio and interest in land and
- 2 locations Berea, Kentucky buildings
CLEO, INC. Land and Manufac- Memphis, Ownership of a 28.5%
turing/Warehouse Tennessee interest in land and
Building buildings
UNISOURCE Land and Office/ City of Commerce, Ownership of land
WORLDWIDE, Warehouse/Distri- California and building (1)
INC. bution Center
NEW VALLEY Land and Bridgeton, Ownership of an
CORPORATION Centralized Missouri approximate 39%
Telephone Bureau interest in land
and buildings
SPORTS & Land and Moorestown, Ownership of an
RECREATION, Building New Jersey approximate 39%
INC. interest in land
and buildings
AT&T CORPORATION Land and a Bridgeton, Ownership of an
Computer Center Missouri approximate 39%
interest in land
and building
EXCEL TELE- Land and Reno, Ownership of an
COMMUNICATIONS, Building Nevada approximate 39%
INC. interest in land
and buildings
PRE FINISH METALS Land and Warehouse/ Walbridge, Ohio Ownership of a 40%
INCORPORATED Manufacturing Plant interest in land
and building (1)
MAYBELLINE Land and Warehouse/ Maumelle, Ownership of land
PRODUCTS CO., INC. Distribution Center Arkansas and building
AND B&G CONTRACT
PACKAGING, INC.
WEXLER AND WEXLER Land and Retail New Orleans, Ownership of land
Stores LA and building
A. JONES Land and Retail Greensboro, North 0wnership of land
Stores Carolina and building
COLOR TILE, INC. Land and Retail Store Canton, Ohio Ownership of land
and KINKOS (on adjacent sites) and building
OF OHIO, INC.
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
- 4 -
<PAGE>
The material terms of Registrant's leases with its significant tenants
are summarized in the following table:
<TABLE>
<CAPTION>
Registrant's
Share Current Lease
Lease of Current Square Rent Per Expiration Renewal Ownership
Obligor Annual Rents Footage Sq.Ft.(1) (Mo./Year) Terms Interest
- ----------- ------------ --------- ---------- ----------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gibson $ 733,429 1,194,840 2.59 04/2010 YES 28.5% interest as
Greetings, tenant-in-common;
Inc. remaining interest
owned by Corporate
Property Associates
3 ("CPA(R):3")
Cleo, Inc. 345,600 1,006,566 1.49 12/2005 YES 28.5% interest
as tenant-in-common;
remaining interest
owed by CPA(R):3
Unisource 1,292,800 411,579 3.14 04/2010 YES 100%
Worldwide,
Inc.
New Valley 240,684 78,080 7.86 11/2001 YES 39% interest;
Corporation as tenant-in-common,
remaining interest
owned by CPA(R):3
AT&T 292,588 55,810 13.37 11/2001 YES 39% INTEREST;
Corporation as tenant-in-common,
remaining interest
owned by CPA(R):3
Pre Finish 967,599 (3) 313,704 7.72 06/2003 YES 40% INTEREST;
Metals as tenant-in-common,
Incorporated remaining interest
owned by Corporate
Property Associates
Sports & 121,000 74,066 4.17 05/2012 YES 39% interest;
Recreation, as tenant-in-common
Inc. interest owed by CPA(R):3
Excel Tele- 208,966 53,158 10.02 12/2002 YES 39% INTEREST;
commun- as tenant-in-common,
ications, Inc. remaining interest
owned by CPA(R):3
<CAPTION>
Terms of
Lease Purchase Gross
Obligor Option Costs (2)
- ----------- ------------ ------------
<S> <C> <C>
Gibson Fair market value as $ 3,799,587
Greetings, encumbered by the lease.
Inc.
Cleo, Inc. The greater of fair 3,242,269
market value or
$4,275,000. Fair
market value is capped
at $4,631,250.
Unisource The greater of 11,572,179
Worldwide, fair market
Inc. value of the
property or
$10,744,680.
New Valley N/A 2,310,649
Corporation
AT&T N/A 2,909,846
Corporation
Pre Finish The greater of 6,875,982
Metals fair market
Incorporated value of the
property or
$5,248,817 plus
2 1/2% thereof per
annum, not compounded,
from 12/9/80 to the
closing date.
Sports & N/A 1,160,000
Recreation,
Inc.
Excel Tele- N/A 1,490,808
commun-
ications, Inc.
</TABLE>
(1) Represents rate for rent per square foot when combined with rents applicable
to tenants-in-common.
(2) Includes original cost of investment and net increases or decreases to net
investment subsequent to purchase.
(3) Partnership's share of equity rent of $329,422 plus variable debt rent.
- 5 -
<PAGE>
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 Payment
Lease Obligor Rate 12/31/96 Service Date Due at Maturity Prepayment Provisions
- ----------------- --------------- -------- ----------- --------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Unisource
Worldwide, Inc. 7.24 $6,847,993 $808,088 2/1/2010 (3) NO PREMIUM FOR PREPAYMENT IN FULL
OR IN PART (MINIMUM OF $100,000).
Pre Finish Metals
Incorporated 9.00 (1) 939,068 636,851 (2) 07/01/98 (3) NO PREMIUM FOR PREPAYMENT IN FULL
OR IN PART (MINIMUM OF $500,000).
</TABLE>
(1) Variable rate indexed to lender's prime rate.
(2) Estimate based on current interest rates.
(3) Fully amortizing.
Item 3. Legal Proceedings.
------------------
On April 1, 1993, New Valley Corporation, ("New Valley"), a tenant of
a property owned by Registrant and formerly a tenant of two other of
Registrant's properties, filed a petition of voluntary bankruptcy seeking
reorganization under Chapter 11 of the United States Bankruptcy Code. In
connection with the filings, Registrant and Corporate Property Associates 3,
which together own the properties as tenants-in-common, filed a bankruptcy claim
in the amount of $6,766,904. New Valley is contesting the claims and Registrant
and New Valley are now in litigation regarding this claim. The matter is
expected to go to trial in May of 1997. No prediction regarding the outcome of
this litigation can be made at this time.
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 22 of Registrant's Annual Report contained in
Appendix A.
Item 6. Selected Financial Data.
------------------------
Selected Financial Data are hereby incorporated by reference to page 2
of Registrant's Annual Report contained in Appendix A.
- 6 -
<PAGE>
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 3 to 5 of Registrant's Annual Report contained in Appendix A.
Item 8. Consolidated Financial Statements and Supplementary Data.
---------------------------------------------------------
The following financial statements and supplementary data are hereby
incorporated by reference to pages 6 to 17 of Registrant's Annual Report
contained in Appendix A.
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1995 and 1996.
(iii) Consolidated Statements of Income for the years ended December 31,
1994, 1995 and 1996.
(iv) Consolidated Statements of Partners' Capital for the years ended
December 31, 1994, 1995 and 1996.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996.
(vi) Notes to Consolidated Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
-----------------------------------------------------
NONE
- 7 -
<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 8/79
Director
Francis J. Carey 71 President 8/79
Director
George E. Stoddard 80 Chairman of the Investment Committee 8/79
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,
- 8 -
<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.
- 9 -
<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 is payable to
the Corporate General Partner and 1/10 of 1% of Distributable Cash From
Operations, as defined, is payable to the Individual General Partner. The
Corporate General Partner and the Individual General Partner received $13,322
and $1,480, 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 $5,336 during the year ended December 31, 1996. See Item 7 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 continue to receive
9/10th of 1% of Distributable Cash From Operations, the Individual General
Partner will continue 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.
- 10 -
<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 (1) of Class
- --------------------- ---------------------- ------------------------ ---------
<S> <C> <C> <C> <C>
Limited
Partnership Units William Polk Carey (1) 210 UNITS .38%
Francis J. Carey
George E. Stoddard
Madelon DeVoe Talley
Barclay G. Jones III
Lawrence R. Klein
Claude Fernandez
H. Augustus Carey 20 .04
Anthony S. Mohl
John J. Park
Michael D. Roberts --- ----
All executive officers
and directors as a
group (11 persons) 230 units .42%
=== ====
</TABLE>
(1) As of March 15, 1997, the Corporate General Partner, W. P. Carey & Co.,
Inc., owned 200 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 and certain of its
affiliates, 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.
- 11 -
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on
------------------------------------------------------
Form 8-K
--------
(a) 1. Consolidated Financial Statements:
----------------------------------
The following consolidated financial statements are filed as a part of
this Report:
Report of Independent Accountants.
Consolidated Balance Sheets, December 31, 1995 and 1996.
Consolidated Statements of Income for the years ended December 31, 1994, 1995
and 1996.
Consolidated Statements of Partners' Capital for the years ended December 31,
1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996.
Notes to Consolidated Financial Statements.
The financial statements are hereby incorporated by reference to pages 6 to 17
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
18 to 19 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 Consolidated Financial
Statements, including the Notes thereto, or because the conditions requiring
their filing do not exist.
- 12 -
<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 Regis-
Registrant dated as of November 1, 1979. tration Statement (Form
S-11) No. 2-65357
3.2 Amendment No. 1 dated April 29, 1980 to Exhibit 12 to Form 8-K
Amended Agreement of Limited Partnership filed May 12, 1980
of Registrant.
4.36 $11,000,000 Note dated May 30, 1986 Exhibit 4.2 to Form 8-K
from Creditanstalt-Bankverein dated July 14, 1986
("Creditanstalt"), as Lender, to the
Registrant and CPA(R):1, as Borrower.
4.37 Note Purchase Agreement dated as of Exhibit 4.3 to Form 8-K
May 30, 1986 between Material dated July 14, 1986
Sciences Corporation ("MSC"), as
Purchaser, and Creditanstalt,
as Lender.
4.38 Letter dated June 27, 1986 from Exhibit 4.4 to Form 8-K
Registrant and CPA(R):1 to Pre Finish dated July 14, 1986
Metals Incorporated ("PFM") and MSC
regarding Note Purchase Agreement.
4.39 Mortgage and Security Agreement Exhibit 4.5 to Form 8-K
dated as of May 30, 1986 between dated July 14, 1986
Registrant and CPA(R):1, as Mortgagor,
and Creditanstalt, as Mortgagee
and Secured Party.
4.40 Assignment of Agreements dated as of Exhibit 4.6 to Form 8-K
May 30, 1986 from the Registrant and dated July 14, 1986
CPA(R):1, as Assignors, to Creditanstalt,
as Assignee.
4.41 Assignment of Sublease dated as of Exhibit 4.7 to Form 8-K
May 30, 1986 from PFM, as Assignor, dated July 14, 1986
to the Registrant and CPA(R):1, as
Assignees.
4.42 Letter Agreement dated June 26, 1986 Exhibit 4.8 to Form 8-K
among Creditanstalt, as Lender, and dated July 14, 1986
MSC and PFM.
4.43 Joint Tenancy Agreement dated Exhibit 4.9 to Form 8-K
May 30, 1986 between Registrant and CPA(R):1. dated July 14, 1986
</TABLE>
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------------------------
<S> <C> <C>
10.1 Management Agreement between Registrant Exhibit 12(c) to
and Carey Corporate Property Management, Registration Statement
Inc. (Form S-11)
No. 2-65357
10.2 Amendment No. 1 dated April 29, 1980 to Exhibit 13 to Form 8-K
Management Agreement between Registrant dated May 12, 1980
and Carey Corporate Property Management,
Inc.
10.3 Support Agreement among Registrant, Second Exhibit 12(D) to Regis-
Carey Corporate Property, Inc. and W. P. tration Statement (Form
Carey & Co., Inc. S-11) No. 2-65357
10.5 Straw Party Agreement by and among Line 6 Exhibit 10.8 to Form 10-K
Corp., Registrant and Corporate Property dated March 31, 1982
Associates dated December 11, 1980.
10.6 Lease and Agreement between Line 6 Corp. Exhibit 10.9 to Form 10-K
and Pre Finish Metals Incorporated dated March 31, 1982
dated as of December 1, 1980.
10.7 Lease Agreement dated January 25, 1982 Exhibit 1 to Form 8-K
between Registrant and CPA(R):3, as landlord, dated February 10, 1982
and Gibson Greeting Cards, Inc., as
tenants.
10.8 Indenture of Lease dated September 16, Exhibit 10(H) to Post-
1971 between Western Union Realty Effective Amendment No. 1
Corporation ("WURC"), as landlord, and to Registration Statement
The Western Union Telegraph Company (Form S-11) No. 2-70773
("WUTCO"), as tenant. of Corporate Property
Associates 3 ("CPA(R):3")
10.9 Amendment of Lease dated March 27, 1972 Exhibit 10(H)(5) to Post-
between WURC and WUTCO. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.10 Second Amendment of Lease dated Exhibit 10(H)(6) to Post-
November 16, 1981 between WURC and Effective Amendment No. 1
WUTCO. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.11 Assignment of Lease from WUTCO to CPA(R):3 Exhibit 10(H)(7) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.12 Indenture of Lease dated November 14, Exhibit 10(H)(14) to Post-
1972 between WURC, as landlord, and Effective Amendment No. 1
Western Union Corporation ("WUC"), to Registration Statement
as tenant. (Form S-11) No. 2-70773 of
CPA(R):3
</TABLE>
- 14 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- --------------------------
<S> <C> <C>
10.13 Amendment of Lease dated December 12, Exhibit 10(H)(15) to Post-
1972 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.14 Amendment of Lease dated April 30, 1973 Exhibit 10(H)(16) to Post-
between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.15 Third Amendment of Lease Agreement dated Exhibit 10(H)(17) to Post-
November 12, 1981 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.16 Assignment of Lease from WURC to CPA(R):3 Exhibit 10(H)(18) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.17 Indenture of Lease dated July 12, 1972 Exhibit 10(H)(24) to Post-
between WURC, as landlord, and WUC, Effective Amendment No. 1
as tenant. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.18 Amendment of Lease dated March 1, 1973 Exhibit 10(H)(25) to Post-
between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.19 Second Amendment of Lease Agreement dated Exhibit 10(H)(26) to Post-
November 16, 1981 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.20 Assignment of Lease from WURC to CPA(R):3 Exhibit 10(H)(27) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.21 Indenture of Lease dated December 18, Exhibit 10(H)(34) to Post-
1973 between WURC, as landlord, and Effective Amendment No. 1
WUC, as tenant. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- -----------------------------------
<S> <C> <C>
10.22 Second Amendment of Lease Agreement dated Exhibit 10(H)(35) to Post-
November 16, 1981 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of CPA(R):3
10.23 Assignment of Lease from WURC to CPA(R):3 Exhibit 10(H)(36) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.25 Contract of Sale dated November 16, 1981 Exhibit 10.11 to Form 10-K
between Western Union Realty Corporation, dated March 31, 1982
as seller, and Registrant and CPA(R):3, as
purchasers.
10.26 Letter of Intent from Registrant to Gibson Exhibit 2.1 to Form 8-K
Realty, Inc. and Wesray Packing, Inc. dated October 6, 1982
dated September 22, 1982.
10.27 First Amendment to Lease and Exhibit 10.2 to Form 8-K
Agreement dated as of May 30, 1986 dated July 14, 1986
between Registrant and CPA(R):1, as
Lessor, and PFM, as Lessee.
10.28 Memorandum of First Amendment to Exhibit 10.3 to Form 8-K
Lease and Agreement dated May 30, dated July 14, 1986
1986 between Registrant and CPA(R):1,
as Lessor, and PFM, as Lessee
10.29 Letter dated June 30, 1986 from Exhibit 10.4 to Form 8-K
Creditanstalt to PFM regarding dated July 14, 1986
Lease as amended by First Amendment
to Lease and Agreement, dated May
30, 1986.
10.30 Lease Guaranty dated as of May 30, Exhibit 10.5 to Form 8-K
1986 from MSC to Registrant and dated July 14, 1986
CPA(R):1 and Creditanstalt.
10.31 Sublease dated as of May 30, 1986 Exhibit 10.6 to Form 8-K
between PFM and Walbridge Coatings dated July 14, 1986
("Walbridge").
10.32 Memorandum of Sublease dated as of Exhibit 10.7 to Form 8-K
May 30, 1986 by and between PFM and dated July 14, 1986
Walbridge.
10.33 Letter of Agreement dated November 24, 1992 Exhibit 10.1 to Form 8-K
between Registrant and Heekin Can, Inc. dated December 10, 1992
10.34 Lease Agreement dated November 15, 1995 Exhibit 10.34 to Form 10-K
by and between Registrant and CPA(R):3, as dated April 8, 1996
Landlord, and Cleo, Inc., as Tenant.
</TABLE>
- 16 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- --------------------------
<S> <C> <C>
10.35 Lease Amendment Agreement dated November 15, 1995 Exhibit 10.35 to Form 10-K
by and between Registrant and CPA(R):3, as dated April 8, 1996
Landlord, and Gibson Greetings, Inc., as Tenant.
28.1 Instruction Letters from Cigna Exhibit 28.1 to Form 8-K
Corporation dated June 25, 1986 to dated July 14, 1986
Creditanstalt and Louisville Title
Agency regarding repayment of loan.
28.2 Estoppel Certificate dated as of Exhibit 28.2 to Form 8-K
June 30, 1986 from PFM to dated July 14, 1986
Creditanstalt.
28.3 Estoppel Certificate dated as of Exhibit 28.3 to Form 8-K
June 30, 1986 from Walbridge to dated July 14, 1986
Creditanstalt.
28.4 Seller's/Lessee's Certificate dated Exhibit 28.4 to Form 8-K
as of June 30, 1986 from PFM to dated July 14, 1986
Registrant and CPA(R):1.
28.5 Bill of Sale dated as of May 30, Exhibit 28.5 to Form 8-K
1986 from PFM to Registrant and dated July 14, 1986
CPA(R):1.
28.6 Deed dated as of May 30, 1986 from Exhibit 28.6 to Form 8-K
PFM to Registrant and CPA(R):1. dated July 14, 1986
28.7 Press release regarding Letter of Exhibit 28.1 to Form 8-K
Agreement. dated December 10, 1992
28.8 Prospectus of Registrant Filed as Exhibit 28.8 to
dated January 18, 1980. Form 10-K/A dated
September 24, 1993
28.9 Supplement dated May 7, 1980 Filed as Exhibit 28.9 to
to Prospectus dated January 18, 1980. Form 10-K/A dated
September 24, 1993
28.10 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
-------------------
No reports on Form 8-K were filed during the fourth quarter of the
year ended December 31, 1996.
- 17 -
<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 2
(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
President and Director
George E. Stoddard BY: /s/ George E. Stoddard
-----------------------
Chairman of the Investment George E. Stoddard
Committee and Director Attorney in fact
April 3, 1997
Dr. Lawrence R. Klein
Chairman of the Economic Policy
Committee and Director
Madelon DeVoe Talley
Vice Chairman of the Board of
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)
- 18 -
<PAGE>
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 2
(A CALIFORNIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES
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 $9,764 $ 6,666 $5,161 $5,186 $4,591
Income before
extraordinary item (1) 4,967 10,711 1,732 2,596 2,625
Income before extraordinary
item allocated:
To General Partners 50 107 17 26 26
To Limited Partners 4,917 10,604 1,715 2,570 2,599
Per unit 89.40 192.80 31.18 46.75 47.33
Distributions attributable (2)(3):
To General Partners 39 21 15 15 14
To Limited Partners 3,873 16,352 1,447 1,495 2,256
Per unit 70.42 297.31 26.31 27.19 41.11
Payment of mortgage
principal (4) 1,985 1,675 1,617 1,490 937
BALANCE SHEET DATA:
Total assets 63,247 41,736 40,571 33,123 33,683
Long-term
obligations (5) 28,861 15,758 13,973 939 6,891
</TABLE>
(1) Income in 1993 includes a $7,857,000 gain on sale of properties and an
extraordinary loss on extinguishment of nonrecourse debt of the disposed
properties of $521,000.
(2) 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.
(3) Distributions include special distributions of $260 and $15 per Limited
Partnership Unit in 1993 and 1996, respectively.
(4) Represents scheduled mortgage principal amortization paid.
(5) 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 increased by $29,000
as compared with net income for the prior year. The results for 1995 include
$123,000 from nonrecurring items included as other income in the accompanying
financial statements. The increase in income was due to the decrease in
interest expense and was partially offset by decreases in lease revenues and
interest income and by an increase in property expense.
The decrease in interest expense was due to the payoff of the debt
collateralized by the Gibson Greetings, Inc. ("Gibson") properties in connection
with the restructuring of the Gibson lease and the benefit from the refinancing,
in June 1996, of the mortgage loan on the Partnership's property leased to
Unisource Worldwide, Inc. ("Unisource") at a lower rate of interest. Solely as
a result of the Unisource mortgage refinancing, annual debt service will
decrease by $305,000. The decrease in lease revenues was due to the Gibson
restructuring which included the severing of a property from the Gibson master
lease, restating the Gibson lease and entering into a lease agreement for the
severed property with Cleo, Inc. ("Cleo"). As more fully described below, the
Partnership received substantial consideration in 1995 for agreeing to the
restructuring. Although the combined rent from the Cleo and Gibson properties
decreased as compared with rents prior to the restructuring, net cash flow from
the Gibson and Cleo properties has remained stable due to the retirement of the
mortgage debt on such properties. The decrease in lease revenues was partially
offset by new leases for the Moorestown, New Jersey property with Sports &
Recreation, Inc. ("Sports & Recreation") and a new lease with B&G Contract
Packaging, Inc. for 50% of the leasable space at the Partnership's distribution
facility in Maumelle, Arkansas. The increase in property expense was
attributable to legal costs incurred in connection with the Partnership's
pursuing its bankruptcy claim against New Valley Corporation ("New Valley")
relating to New Valley's termination of leases in 1993 and 1994. The amount of
any settlement with New Valley cannot be determined at this time.
Net income for the year ended December 31, 1995 increased by $864,000
as compared with net income for 1994. Of such increase, $123,000 was due to
nonrecurring items. Excluding the effects of the nonrecurring items and the
$446,000 writedown of a property to net realizable value in 1994, the
Partnership would have reflected an increase in income of $295,000. The
increase in income, as adjusted, was due to decreases in interest and property
expenses and was partially offset by a modest decrease in lease revenues. The
decrease in interest expense resulted from the prepayment of three mortgage
loans on properties leased or formerly leased to New Valley in the first quarter
of 1995 and the prepayment of the mortgage loan on the Gibson properties in
November 1995 in connection with the restructuring. The decrease in property
expenses was due to the costs incurred in 1994 in connection with the
Partnership's assessment of its liquidity alternatives which included
environmental reviews and property valuations. Lease revenues decreased by
$59,000 as the result of the restructuring of the Gibson lease in November 1995,
and the termination of the New Valley lease in Reno, Nevada in December 1994.
The Gibson and New Valley revenue decreases were partially offset by the leasing
of the Maumelle, Arkansas distribution facility in 1995 to Maybelline Products
Co. Inc. ("Maybelline") and A-Pak Packaging, Inc. ("A-Pak"). A-Pak subsequently
vacated the property; however, a new lessee took occupancy of the vacated space
in 1996. The substantial increase in cash flow provided from operations was
primarily due to the receipt of a lump sum payment of $3,477,000 ($3,238,000,
net of costs) in connection with the Gibson lease restructuring and which
included the Partnership's consenting to sever a property from the lease to
enable Gibson to sell its Cleo subsidiary to CSS Industries, Inc.
Interest expense is expected to decrease as a result of the
refinancing of the Unisource property mortgage loan in June 1996 and the
scheduled maturity of the mortgage loan on the Pre Finish Metals, Inc. ("Pre
Finish") property in June 1998. Lease revenues will benefit from a full year's
revenues from the Partnership's new lease with Excel Telecommunications, Inc.
("Excel") which will provide annual rents of $208,000 and scheduled increases in
May 1996 on the leases with New Valley and AT&T Corporation which will increase
annual cash flow by $36,000. In addition, with the commencement of the Excel
lease at the Reno, Nevada property in December 1996, the Partnership has been
relieved of the carrying costs for maintenance, insurance and real estate taxes
related to that property. In December 1996, Maybelline extended its lease for
50% of the leasable space at the Maumelle facility. Under the two-year
extension agreement, effective
- 2 -
<PAGE>
January 1997, Maybelline has the option to terminate the lease at any time with
three months' notice. The Maybelline lease provides for annual rent of
$156,000. Although Sports & Recreation continues to meet its rental obligation,
it has decided not to occupy the property. Sports & Recreation may seek to
terminate its lease on the Moorestown property; however, the Partnership will
only agree to such termination in exchange for substantial consideration.
Because of the long-term nature of the Partnership's net leases,
inflation and changes in prices have not unfavorably affected the Partnership's
net income or had an impact on the continuing operations of the Partnership's
properties. All of the Partnership's net leases have either periodic mandated
rent increases, sales overrides or periodic rent increases based on formulas
indexed to increases in the Consumer Price Index ("CPI"), and may have caps on
such CPI increases. Although increases in the CPI have been relatively moderate
over the past several years, the Partnership should not be significantly
impacted as several of its leases provide for stated rent increases rather than
increases based on CPI formulas. Although there are indications that there may
be legislation which changes the method of calculating the CPI, the Partnership
cannot predict the outcome of any proposed changes relating to the CPI.
Financial Condition
-------------------
All of the Partnership's properties are leased to corporate tenants
under net leases which generally require the 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, and
fund quarterly distributions to partners. The Partnership's cash balances
increased by $489,000 to $1,067,000.
Cash provided from operations of $2,792,000 was sufficient to pay
quarterly distributions to partners of $1,480,000 and scheduled principal
payment installments of $937,000. Although cash provided from operations
reflected a decrease from the prior year, cash provided from operations for the
year ended December 31, 1995 included a one-time benefit of $3,238,000 received
in connection with the Gibson restructuring.
The Partnership's investing activities during 1996 consisted primarily
of funding improvements at the Reno property in connection with its obligation
under the Excel lease. The Partnership will fund up to $416,000 of improvements
in 1997 at the Reno property under the tenant improvement obligation even though
Excel has already taken occupancy of the property. The Partnership expects to
fund this remaining commitment from its cash flow or by utilizing a portion of
its current cash reserves.
The Partnership's financing activities in 1996 included quarterly
distributions to partners of $1,480,000, a special distribution of $824,000 and
payments of scheduled mortgage principal installments of $937,000. In addition,
the Partnership borrowed $7,000,000 in connection with refinancing the mortgage
loan on the Unisource property at which time it paid off an existing loan of
$5,539,000. The excess proceeds from the refinancing were used to pay off a
$1,250,000 note obligation to an affiliate and the aforementioned special
distribution. As noted, solely as a result of the refinancing, annual debt
service has decreased by $305,000.
The Partnership currently has two mortgage loans outstanding; the
Unisource loan which will fully amortize in 2010 and the Pre Finish loan which
will fully amortize in 1998. As a substantial number of the Partnership's
properties are unleveraged, the Partnership has significant borrowing capacity.
The Partnership's projected cash flows from operations are expected to be
sufficient for it to meet distribution objectives and debt service requirements
and the Partnership has no current plans to use its borrowing capacity.
Pre Finish has an option to purchase its leased property between June
1998 and 2003. The option is exercisable at the greater of fair market value or
$5,249,000 plus 2 1/2% per annum from December 1980 to the closing date. The
mortgage loan on the Pre Finish property will fully amortize by June 30, 1998,
therefore, the Partnership would not need to use any sales proceeds to pay off
any mortgage debt in the event the option is exercised. Annual cash flow
(rentals less debt service on the mortgage loan) from the Pre Finish property is
currently $331,000. In addition, Cleo's option to purchase its property is
exercisable at any time
- 3 -
<PAGE>
with at least six months' notice. The Partnership's share of the sales proceeds
in the event the option is exercised would range between $4,275,000 and
$4,631,000. Annual cash flow from the Cleo property is $355,000.
All of the Partnership's properties are subject to environmental
statutes and regulations regarding the discharge of hazardous materials and
related remediation obligations. All of the Partnership's properties are
currently leased to corporate tenants. 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 against all liabilities and losses related to their
operations at the leased properties. If the Partnership undertakes to clean up
or remediate any of its properties, the General Partners believe that in most
cases the Partnership will be entitled to reimbursement from tenants for such
costs. In the event that the Partnership absorbs a portion of such costs
because of a tenant's failure to fulfill its obligations (or because a property
has no tenant), 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, the Partnership voluntarily conducted Phase II environmental
reviews of certain of its properties based on the results of 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 the affected tenant of the Phase II findings
and of its obligation to perform 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 2
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Corporate Property Associates 2 (a California limited partnership) and
Subsidiaries as of December 31, 1995 and 1996, and the related consolidated
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 17 to 19 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
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
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 consolidated financial position of
Corporate Property Associates 2 (a California limited partnership) and
Subsidiaries as of December 31, 1995 and 1996, and the consolidated results of
their operations and their 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 2
(a California limited partnership)
and SUBSIDIARIES
CONSOLIDATED 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 $ 4,850,433 $ 4,850,433
Buildings 12,555,513 12,756,321
----------- -----------
17,405,946 17,606,754
Accumulated depreciation 5,351,359 5,850,679
----------- -----------
12,054,587 11,756,075
Net investment in direct financing leases 20,060,127 20,259,530
----------- -----------
Real estate leased to others 32,114,714 32,015,605
Cash and cash equivalents 577,506 1,066,861
Accrued interest and rents receivable, net of
reserve for uncollected rents of $22,660 in 1995 348,201 360,786
Other assets, net of accumulated amortization of
$83,725 in 1995 and $3,571 in 1996 82,862 239,271
----------- -----------
Total assets $33,123,283 $33,682,523
=========== ===========
LIABILITIES:
Mortgage notes payable $ 7,262,720 $ 7,787,061
Note payable to affiliate 250,000
Accrued interest payable 109,632 75,233
Accounts payable and accrued expenses 74,884 66,050
Accounts payable to affiliates 57,263 63,447
Security deposits 282,800 283,694
----------- -----------
Total liabilities 8,037,299 8,275,485
----------- -----------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners 196,888 208,334
Limited Partners (54,900 Limited Partnership
Units issued and outstanding at
December 31, 1995 and 1996) 24,889,096 25,198,704
----------- -----------
Total partners' capital 25,085,984 25,407,038
----------- -----------
Total liabilities and
partners' capital $33,123,283 $33,682,523
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 6 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
CONSOLIDATED 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 $1,513,091 $1,717,457 $1,850,494
Interest income from direct financing leases 3,437,921 3,174,996 2,688,154
Other interest income 186,038 170,631 46,177
Other income 24,397 122,720 6,138
---------- ---------- ----------
5,161,447 5,185,804 4,590,963
---------- ---------- ----------
Expenses:
Interest 1,593,880 1,351,797 731,843
Depreciation 501,657 519,891 499,320
General and administrative 276,283 298,974 274,126
Property expense 618,277 402,928 454,044
Amortization 17,195 16,133 6,848
Writedown to net realizable value 445,551
---------- ---------- ----------
3,452,843 2,589,723 1,966,181
---------- ---------- ----------
Income before gain on sale of real
estate 1,708,604 2,596,081 2,624,782
Gain on sale of real estate 23,451
---------- ---------- ----------
Net income $1,732,055 $2,596,081 $2,624,782
========== ========== ==========
Net income allocated to:
Individual General Partner $ 1,732 $ 2,596 $ 2,625
========== ========== ==========
Corporate General Partner $ 15,589 $ 23,365 $ 23,623
========== ========== ==========
Limited Partners $1,714,734 $2,570,120 $2,598,534
========== ========== ==========
Net income per Unit:
(55,000 Limited Partnership Units
in 1994, 54,975 weighted average
Limited Partnership Units in 1995 and
54,900 Limited Partnership Units in 1996) $31.18 $46.75 $47.33
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 7 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
CONSOLIDATED 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 $23,737,447 $183,113 $23,554,334 $428
Distributions (1,458,890) (14,590) (1,444,300) (26)
Net income, 1994 1,732,055 17,321 1,714,734 32
----------- -------- ----------- ----
Balance, December 31, 1994 24,010,612 185,844 23,824,768 434
Repurchase of Limited Partner Units (29,042) (29,042)
Distributions (1,491,667) (14,917) (1,476,750) (27)
Net income, 1995 2,596,081 25,961 2,570,120 47
----------- -------- ----------- ----
Balance, December 31, 1995 25,085,984 196,888 24,889,096 454
Distributions (2,303,728) (14,802) (2,288,926) (42)
Net income, 1996 2,624,782 26,248 2,598,534 47
----------- -------- ----------- ----
Balance, December 31, 1996 $25,407,038 $208,334 $25,198,704 $459
=========== ======== =========== ====
</TABLE>
(a) Based on the weighted average Units issued and outstanding during all
periods.
The accompanying notes are an integral part of the consolidated financial
statements.
- 8 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
CONSOLIDATED 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 $ 1,732,055 $ 2,596,081 $ 2,624,782
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 518,852 536,024 506,168
Cash receipts on direct financing leases less
than amortization of unearned income (15,604) (32,043) (199,403)
Writedown to net realizable value 445,551
Restructuring fees received, net of costs 3,237,685
Gain on sale of real estate (23,451)
Net change in operating assets and liabilities 113,132 (173,738) (139,675)
----------- ----------- -----------
Net cash provided by operating
activities 2,770,535 6,164,009 2,791,872
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate 124,615
Additional capitalized costs (6,851) (200,808)
----------- ----------- -----------
Net cash provided by (used in)
investing activities 124,615 (6,851) (200,808)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners (1,458,890) (1,491,667) (2,303,728)
Repurchase of Limited Partner Units (29,042)
Proceeds from note payable to affiliate 250,000 1,000,000
Payment of note payable to affiliate (1,250,000)
Payments of mortgage principal (1,617,464) (1,489,763) (936,587)
Proceeds from mortgages 7,000,000
Prepayments of mortgage payable (7,005,103) (5,539,072)
Deferred financing costs (72,322)
----------- ----------- -----------
Net cash used in
financing activities (3,076,354) (9,765,575) (2,101,709)
----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents (181,204) (3,608,417) 489,355
Cash and cash equivalents, beginning of year 4,367,127 4,185,923 577,506
----------- ----------- -----------
Cash and cash equivalents, end of year $ 4,185,923 $ 577,506 $ 1,066,861
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 9 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
-------------------------------------------
Basis of Consolidation:
-----------------------
The consolidated financial statements include the accounts of Corporate
Property Associates 2 and its wholly-owned subsidiaries (collectively,
the "Partnership").
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.
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 35 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 at December 31, 1995 and 1996 were held in the custody of
two financial institutions.
- 10 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Other Assets:
-------------
Included in other assets are deferred charges which are costs incurred in
connection with mortgage note refinancing and are amortized on a
straight-line basis over the terms of the mortgages.
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.
2. Partnership Agreement:
----------------------
The Partnership was organized on August 9, 1979 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, 2017, 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. 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 $1,048,430 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:
----------------------------------
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 (see Note 11). Property
management fee in 1995 includes the effect of a lease restructuring
transaction. General and administrative expense reimbursements consist
primarily of the actual cost of personnel needed in providing
administrative services, necessary to the operation of the Partnership.
Property management fee and general and administrative expense
reimbursements are summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Property management fee $ 57,148 $254,174 $101,644
General and administrative
expense reimbursements 56,265 51,138 51,394
-------- -------- --------
$113,413 $305,312 $153,038
======== ======== ========
</TABLE>
- 11 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
NOTES to CONSOLIDATION FINANCIAL STATEMENTS, Continued
During 1994, 1995 and 1996, fees aggregating $29,657, $39,370 and
$192,086, 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 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 $46,172, $51,472 and $45,007, respectively.
In connection with a note payable to an affiliate, which was paid off in
1996, the Partnership incurred interest expense of $20,335.
The Partnership's ownership interests in certain properties are jointly
held with affiliated entities as tenants-in-common with the
Partnership's ownership interests ranging from 28.5% to 40%. The
Partnership accounts for its assets and liabilities relating to tenants-
in-common interests on a proportional basis.
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 $1,981,000 in
1997; $1,774,000 in 1998; $1,767,000 in 1999; $1,772,000 in 2000; and
$1,746,000 in 2001 and aggregate approximately $15,938,000 through 2012.
Contingent rents were approximately $65,000 in 1996.
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 $37,321,569 $34,832,818
Unguaranteed residual value 22,700,673 22,700,673
----------- -----------
60,022,242 57,533,491
Less, Unearned income 39,962,115 37,273,961
----------- -----------
$20,060,127 $20,259,530
=========== ===========
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases amount to approximately
$2,509,000 in 1997; $2,485,000 in 1998; $2,473,000 in 1999, $2,543,000
in 2000; and $2,708,000 in 2001 and aggregate approximately $34,833,000
through 2013.
Contingent rents were approximately $176,000 and $149,000 in 1994 and
1995, respectively. No contingent rents were realized in 1996.
- 12 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Mortgage Notes Payable:
-----------------------
The Partnership's two mortgage notes payable, both of which are limited
recourse obligations, are collateralized by the assignment of leases and
by real property with a carrying amount as of December 31, 1996 of
approximately $18,448,000, before accumulated depreciation. As of
December 31, 1996, mortgage notes payable bear interest at rates of
7.24% and 9% per annum. One mortgage note matures in 1998 and the other
mortgage note matures in 2010.
Scheduled principal payments during each of the next five years following
December 31, 1996 and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 895,764
1998 708,924
1999 370,390
2000 397,943
2001 427,546
Thereafter 4,986,494
----------
Total $7,787,061
==========
</TABLE>
Interest paid was $1,605,141, $1,422,223 and $769,023 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>
Limited
Year Ending Distributions Paid to Distributions Paid to Partners' Per
December 31, General Partners Limited Partners Unit Amount
- ------------ --------------------- --------------------- -------------
<S> <C> <C> <C>
1994 $14,590 $1,444,300 $26.26
======= ========== ======
1995 $14,917 $1,476,750 $26.85
======= ========== ======
1996:
Quarterly distributions: $14,802 $1,465,426 $26.68
Special distribution 823,500 15.00
------- ---------- ------
Total 1996 $14,802 $2,288,926 $41.68
======= ========== ======
</TABLE>
Distributions of $3,532 to the General Partners and $349,713 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:
- 13 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net income per Statements of Income $1,732,055 $2,596,081 $2,624,782
Excess tax depreciation (630,883) (612,649) (368,687)
Writedown to net realizable value 445,551
Restructuring fee 3,237,685
Other (138,363) (106,511) (288,538)
---------- ---------- ----------
Income reported for Federal
income tax purposes $1,408,360 $5,114,606 $1,967,557
========== ========== ==========
</TABLE>
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>
Unisource Worldwide, Inc. $1,314,240 27% $1,316,677 27% $1,316,677 29%
Pre Finish Metals Incorporated 891,558 18 937,772 19 967,600 21
Gibson Greetings, Inc. 1,847,712 37 1,708,392 35 823,776 18
Cleo, Inc. 46,763 1 444,576 10
AT&T Corporation 295,429 6 295,728 6 296,066 7
New Valley Corporation 410,266 8 237,162 5 236,784 5
Other 113,807 2 206,959 4 171,169 4
Maybelline Products Co., Inc. 143,000 3 156,000 3
B & G Contract Packaging, Inc. 126,000 3
Family Dollar Stores, Inc. 78,000 2
---------- --- ---------- --- ---------- ---
$4,951,012 100% $4,892,453 100% $4,538,648 100%
========== === ========== === ========== ===
</TABLE>
10. Properties Formerly Leased to New Valley Corporation:
-----------------------------------------------------
The Partnership and Corporate Property Associates 3 ("CPA(R):3"), an
affiliate, own 39% and 61% interests, respectively, in three properties
located in Reno, Nevada; Bridgeton, Missouri; and Moorestown, New
Jersey. Until May 1993, the three properties were leased to New Valley
Corporation ("New Valley"). On April 1, 1993, New Valley filed a
petition of voluntary bankruptcy seeking reorganization under Chapter 11
of the United States Bankruptcy Code. In connection with the bankruptcy
filing, the Bankruptcy Court approved New Valley's termination of its
lease with the Partnership and CPA(R):3 for the Moorestown, New Jersey
property in May 1993. In December 1994, the Bankruptcy Court also
approved the termination of New Valley's lease on the Reno property
effective December 31, 1994. In connection with the lease termination,
the Partnership wrote down the Reno property in 1994 to its estimated
net realizable value of $1,295,000 and recognized a charge of $445,551
on the writedown. New Valley continues to lease the Bridgeton property.
- 14 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
NOTES to FINANCIAL STATEMENTS, Continued
In 1995 the Partnership and CPA(R):3 entered into a lease agreement with
Sports & Recreation, Inc. ("Sports & Recreation") for the Moorestown
property. The agreement provided that after conversion of the facility
into a retail store, a lease term of 16 years with an initial rent of
$308,750 (of which the Partnership's share is $121,000) would commence.
During 1996 Sports & Recreation indicated to the Partnership and
CPA(R):3 that it had decided not to occupy the property and would seek
to terminate the lease. At that time, the Partnership and CPA(R):3
rejected as inadequate Sports & Recreation's offer of $300,000 as a
settlement in exchange for being released from its lease obligations.
Sports & Recreation has paid all scheduled rents. The Partnership and
CPA(R):3 expect that Sports & Recreation will resume discussions for the
purposes of reaching a termination settlement; however, no discussions
are currently in progress.
On August 28, 1996 the Partnership and CPA(R):3 entered into a lease
agreement for the Reno property with Excel Teleservices, Inc. ("Excel").
The lease obligations of Excel have been guaranteed by its parent
company, Excel Telecommunications, Inc. The initial lease term
commenced on December 26, 1996. Annual rent during the first five years
is $532,800 increasing to $580,800 thereafter (of which the
Partnership's share is $207,800 and $226,600, respectively). The lease,
which has a term of ten years, provides Excel with two five-year renewal
options with the rent during such renewal terms based on the then
prevailing market rate. Excel has the right to terminate the lease at
the end of the sixth lease year.
In connection with the termination of the Moorestown and Reno leases, the
Partnership and CPA(R):3 expect to receive a bankruptcy settlement from
New Valley. The amount of such settlement cannot be estimated and no
amounts that the Partnership may ultimately receive have been recorded
in the accompanying financial statements.
11. Properties Leased to Gibson Greetings, Inc.:
--------------------------------------------
In January 1982, the Partnership and CPA(R):3 entered into a net lease
with Gibson Greetings, Inc. ("Gibson"), for three properties in Memphis,
Tennessee; Berea, Kentucky; and Cincinnati, Ohio. In 1988, the
Partnership and CPA(R):3 consented to Gibson's sublease of the Memphis,
Tennessee property to a wholly-owned subsidiary, Cleo, Inc. ("Cleo").
The lease for the three properties had an initial term of 20 years with
two five-year renewal options and provided for minimum annual rentals of
$5,865,000 with rent increases every five years based on a formula
indexed to the CPI. The lease also provided Gibson with a purchase
option which was exercisable during the tenth year of the lease and at
the end of the initial term. Gibson declined to exercise its purchase
option in 1992.
In connection with Gibson's sale of the Cleo subsidiary to CSS Industries,
Inc. ("CSS"), the Partnership, CPA(R):3 and Gibson entered into an
agreement on November 15, 1995, whereby the Memphis, Tennessee property
occupied by Cleo was severed from the Gibson master lease, the Gibson
lease was amended and Cleo entered into a separate lease for the
Tennessee property with CSS as the guarantor of Cleo's lease
obligations. The Partnership and CPA(R):3 received $12,200,000 (of
which the Partnership's share was $3,477,000) as a one-time lump sum
payment in consideration for severing the Tennessee property from the
Gibson master lease. Gibson still retains certain specific obligations
for any environmental violations which may be detected and which
resulted from any pre-existing conditions at the Tennessee property.
The Gibson lease on the two remaining properties in Kentucky and Ohio, as
amended, provides for an initial term which has been extended through
November 30, 2013, and provides for one renewal term of ten years.
Annual rent is $3,100,000 (of which the Partnership's share is
approximately $733,000), with stated increases of 20% every five years
through the end of the
- 15 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
NOTES to FINANCIAL STATEMENTS, Continued
renewal term. The lease includes new purchase options exercisable on
November 30, 2005 and 2010 and Gibson has the right to exercise the
purchase option on either one of its leased properties or both. The
option is exercisable at fair market value of the properties as
encumbered by the lease.
The Cleo lease provides for a ten-year term through December 31, 2005 with
two five-year renewal terms. Annual rent is $1,500,000 (of which the
Partnership's share is approximately $355,000), and there is a rent
increase effective January 1, 2001. The rent increase will be based on
a formula indexed to the CPI; however, the increased annual rent will be
at least $1,689,000 but no more than $1,898,000. Cleo has an option to
purchase the property at any time during the term of the lease so long
as there is no event of monetary default. Exercise of the purchase
option requires at least six months' notice. The exercise price is the
greater of (i) $15,000,000 or (ii) fair market value capped at a maximum
of $16,250,000.
In connection with the payment made by Gibson to sever the Tennessee
property from the Gibson lease, the Partnership deferred recognition of
a gain on restructuring of $3,237,685, consisting of the Partnership's
$3,477,000 share of the lump sum payment offset by costs of $239,315
including management fees of $173,000, payable to an affiliate. The
Partnership is amortizing such deferral over the remaining initial terms
of the Gibson and Cleo leases. The net proceeds from the agreement as
well as other available funds were used to pay off the Partnership's
share of the mortgage loan collateralized by the Gibson properties of
$6,153,000 in November 1995.
12. Environmental Matters:
----------------------
All of the Partnership's properties are subject to environmental statutes
and regulations regarding the discharge of hazardous materials and
related remediation obligations. All of the Partnership's properties
are currently leased to corporate tenants. 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. The costs for remediation, which are being performed and
paid for by the affected tenant at three of the properties, are not
expected to be material. In the event that the Partnership absorbs a
portion of such 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 four of its properties. The Partnership believes, based on
the results of such 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 tenant of the Phase II
findings and of its obligation to perform required remediation.
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 estimates that the fair value of the Partnership's two
mortgage notes payable approximates the carrying amount of such mortgage
notes 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.
- 16 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1996
<TABLE>
<CAPTION>
Cost
Initial Cost to Capitalized Decrease in Gross Amount at which Carried
Partnership Subsequent to Net at Close of Period (c)(d)
----------- -----------------------------
Acquisition Investment
Description Encumbrances Land Buildings (a) (b) Land Buildings Total
- ----------- ------------ ---------- ----------- ------------ ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Method:
Retail store in
Greensboro, North Carolina $ 40,946 $ 186,926 $ 14,508 $ 40,946 $ 201,434 $ 242,380
Retail store in
New Orleans, Louisiana 129,065 188,599 15,776 129,065 204,375 333,440
Retail stores leased to
Kinko's of Ohio, Inc. and
Color Tile, Inc. 47,350 581,034 10,795 47,350 591,829 639,179
Warehouse and distribution
center leased to,
Maybelline Products Co., Inc.
and B&G Contract
Packaging, Inc. 216,000 3,048,862 25,103 216,000 3,073,965 3,289,965
Land leased to Unisource
Worldwide, Inc. $2,278,415 3,575,000 3,575,000 3,575,000
Building leased to Sports &
Recreation, Inc. 265,757 1,925,029 $(1,030,786) 140,716 1,019,284 1,160,000
Centralized telephone bureau
leased to Excel
Telecommuni-
cations, Inc. 446,956 1,325,456 198,390 (479,994) 446,956 1,043,852 1,490,808
Warehouse and manufac-
turing plant leased to
Pre Finish Metals
Incorporated 939,068 254,400 6,587,930 33,652 254,400 6,621,582 6,875,982
---------- ---------- ----------- -------- ----------- ---------- ----------- -----------
$3,217,483 $4,975,474 $13,843,836 $298,224 $(1,510,780) $4,850,433 $12,756,321 $17,606,754
========== ========== =========== ======== =========== ========== =========== ===========
<CAPTION>
Life on
which
Depreciation
in Latest
Statement of
Accumulated Date Income
Description Depreciation (d) Acquired is Computed
- ----------- ---------------- ----------- ------------
<S> <C> <C> <C>
Operating Method:
Retail store in
Greensboro, North Carolina $ 139,023 September 2, 1980 15-35 YRS.
Retail store in
New Orleans, Louisiana 144,842 January 5, 1981 15-35 YRS.
Retail stores leased to
Kinko's of Ohio, Inc. and
Color Tile, Inc. 415,828 October 1, 1980 15-35 YRS.
Warehouse and distribution
center leased to,
Maybelline Products Co., Inc.
and B&G Contract
Packaging, Inc. 1,608,633 April 9, 1981 30 YRS.
Land leased to Unisource
Worldwide, Inc. April 29, 1980
Building leased to Sports &
Recreation, Inc. 127,411 November 24, 1981 30 YRS.
Centralized telephone bureau
leased to Excel
Telecommuni-
cations, Inc. 56,535 November 24, 1981 30 YRS.
Warehouse and manufac-
turing plant leased to
Pre Finish Metals December 11, 1980 5-30 YRS.
Incorporated 3,358,407 and June 30, 1986
-----------
$5,850,679
===========
</TABLE>
See accompanying notes to Schedule.
- 17 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1996
<TABLE>
<CAPTION>
Gross Amount at
Cost Increase which Carried
Initial Cost to Capitalized (Decrease) in at Close of
Partnership Subsequent to Net Period (c)
----------------- -------------- ------------- ----------------
Description Encumbrances Land Buildings Acquisition (a) Investment (b) Total Date Acquired
----------- ------------ ---- --------- -------------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Direct Financing Method:
Office, warehouse and
distribution center
leased to Unisource
Worldwide, Inc. $4,569,578 $ 7,170,000 $ 9,528 $ 817,651 $ 7,997,179 APRIL 29, 1980
Centralized Telephone
Bureau leased to
New Valley NOVEMBER 24,
Corporation $ 350,316 1,980,820 (20,487) 2,310,649 1981
Computer Center
leased to NOVEMBER 24,
AT&T Corporation 144,958 2,739,941 1,183 23,764 2,909,846 1981
Warehouse and
manufacturing
buildings
leased to Gibson JANUARY 26,
Greetings, Inc. 542,693 4,913,459 (1,656,565) 3,799,587 1982
Warehouse and
manufacturing
buildings JANUARY 26,
leased to Cleo, Inc. 323,122 4,315,774 (1,396,627) 3,242,269 1982
---------- ---------- ----------- ------- ----------- -----------
$4,569,578 $1,361,089 $21,119,994 $10,711 $(2,232,264) $20,259,530
========== ========== =========== ======= ============ ===========
</TABLE>
See accompanying notes to Schedule.
- 18 -
<PAGE>
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
and SUBSIDIARIES
NOTES TO SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
(a) Consists of acquisition costs, including legal fees, appraisal fees,
title costs and other related professional fees and capitalized
improvements.
(b) The increase (decrease) in net investment is due to the amortization of
unearned income producing a constant periodic rate of return on the net
investment which is greater (less) than lease payments received under
the direct financing method, the writedowns to net realizable value of
the Partnership's properties in Moorestown, New Jersey and Reno Nevada
and adjustments relating to deferred gains on lease restructurings.
(c) At December 31, 1996, the aggregate cost of real estate owned for
Federal income tax purposes is $41,609,249.
(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 $17,399,095 $17,405,946
Additions 6,851 200,808
----------- -----------
Balance at close of
year $17,405,946 $17,606,754
=========== ===========
</TABLE>
Reconciliation of Accumulated Depreciation
------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Balance at beginning
of year $4,831,468 $5,351,359
Depreciation expense 519,891 499,320
---------- ----------
Balance at close of
year $5,351,359 $5,850,679
========== ==========
</TABLE>
- 19 -
<PAGE>
PROPERTIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ----------------- ---------------- -------- ---------------------
<S> <C> <C> <C>
GIBSON GREETINGS, Land and Manufac- Cincinnati, Ownership of a 28.5%
INC. turing/Warehouse Ohio; and interest in land and
Buildings - 2 locations Berea, Kentucky buildings
CLEO, INC. Land and Manufac- Memphis, Ownership of a 28.5%
turing/Warehouse Tennessee interest in land and
Buildings buildings
UNISOURCE Land and Office/ City of Commerce, Ownership of land
WORLDWIDE, Warehouse/Distri- California and building (1)
INC. bution Center
NEW VALLEY Land and Bridgeton, Ownership of an
CORPORATION Centralized Missouri approximate 39%
Telephone Bureau interest in land
and buildings
SPORTS & Land and Moorestown, Ownership of an
RECREATION, INC. Building New Jersey approximate 39%
interest in land
and building
AT&T CORPORATION Land and a Bridgeton, Ownership of an
Computer Center Missouri approximate 39%
interest in land
and building
EXCEL TELE- Land and Reno, Nevada Ownership of an
COMMUNICATIONS, Building approximate 39%
INC. interest in land
and building
PRE FINISH METALS Land and Warehouse/ Walbridge, Ohio Ownership of a 40%
INCORPORATED Manufacturing Plant interest in land
and building (1)
MAYBELLINE Land and Warehouse/ Maumelle, Ownership of land
PRODUCTS CO., INC. Distribution Center Arkansas and building
and B&G CONTRACT
PACKAGING, INC.
WEXLER & WEXLER LAND AND RETAIL NEW ORLEANS, OWNERSHIP OF LAND
STORE LOUISIANA AND BUILDING
A. JONES LAND AND RETAIL GREENSBORO, OWNERSHIP OF LAND
STORE NORTH CAROLINA AND BUILDING
COLOR TILE, INC. AND LAND AND RETAIL STORE CANTON, OHIO OWNERSHIP OF LAND
KINKOS OF OHIO, INC. (ON ADJACENT SITES) AND BUILDING
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
- 20 -
<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 1,981 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 Per Unit
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
First quarter $ 6.55 $ 6.60 $ 6.94
Second quarter 6.56 6.66 22.03 (a)
Third quarter 6.57 6.75 6.35
Fourth quarter 6.58 6.84 6.36
------ ------ ------
$26.26 $26.85 $41.68
====== ====== ======
</TABLE>
(a) Includes a special distribution of $15 per Limited Partnership Unit.
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.
- 21 -
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1066861
<SECURITIES> 0
<RECEIVABLES> 360786
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1427647
<PP&E> 37866284
<DEPRECIATION> 5850679
<TOTAL-ASSETS> 33682523
<CURRENT-LIABILITIES> 204730
<BONDS> 7787061
0
0
<COMMON> 0
<OTHER-SE> 25407038
<TOTAL-LIABILITY-AND-EQUITY> 33682523
<SALES> 0
<TOTAL-REVENUES> 4590963
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1227490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 731843
<INCOME-PRETAX> 2624782
<INCOME-TAX> 0
<INCOME-CONTINUING> 2624782
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2624782
<EPS-PRIMARY> 47.33
<EPS-DILUTED> 47.33
</TABLE>
