<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, 1995
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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 0-11982
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CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3126150
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 492-1100
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
- -------------------------------- --------------------------------
- -------------------------------- --------------------------------
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
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(Title of Class)
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(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 deliquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
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 10, 1982. The General Partners of Registrant are Carey
Corporate Property, Inc. (the "Corporate General Partner"), a Delaware
corporation and William Polk Carey (the "Individual General Partner"). The
Corporate General Partner is 79.9% owned by W. P. Carey & Co., Inc. ("W.P.
Carey"), 10.1% owned by William P. Carey ("Carey"), and 10% owned by Lehman
Brothers Inc. The Corporate General Partner and the Individual General Partner
and/or certain affiliates are also the General Partners of Corporate Property
Associates ("CPA(R):1"), Corporate Property Associates 2 ("CPA(R):2"), Corporate
Property Associates 3 ("CPA(R):3"), Corporate Property Associates 5
("CPA(R):5"), Corporate Property Associates 6 - a California limited partnership
("CPA(R):6"), Corporate Property Associates 7 - a California limited partnership
("CPA(R):7"), Corporate Property Associates 8, L.P., a Delaware limited
partnership ("CPA(R):8"), Corporate Property Associates 9, L.P., a Delaware
limited partnership ("CPA(R):9") and the advisor of Corporate Property
Associates 10 Incorporated ("CPA(R):10"), Carey Institutional Properties
Incorporated ("CIP(TM)") and Corporate Property Associates 12 Incorporated
("CPA(R):12"). Registrant has a management agreement with Carey Corporate
Property Management Company ("Carey Management"), a division of W.P. Carey.
According to the terms of this agreement, Carey Management performs a variety of
management services for Registrant. Registrant has entered into an agreement
with Fifth Rock L.P., an affiliate, for the purpose of leasing office space.
Reference is made to the Prospectus of Registrant dated October 28, 1982, as
supplemented by Supplements dated December 2, 1982, January 11, 1983 and May 25,
1983, filed pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933
and such Prospectus and such Supplements are incorporated herein by reference
(said Prospectus, as so supplemented, is hereinafter called the "Prospectus").
Registrant has two industry segments consisting of (a) the investment in
and the leasing of industrial and commercial real estate and (b) the operation
of a hotel business. Registrant assumed the operation of a hotel business in
August 1992 in connection with the eviction of a tenant. By operating the hotel
business, Management is seeking to preserve the value of the underlying
investment while generating a contribution to Registrant's operating cash flow.
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 March 12, 1984, the date of
Registrant's final real estate acquisition.
For the year ended December 31, 1995, revenues from properties occupied by
lease obligors which accounted for 10% or more of leasing revenues of Registrant
were as follows: Simplicity Manufacturing Inc. ("Simplicity"), 26%; Hughes
Markets, Inc. ("Hughes"), 19%; Brodart Co. ("Brodart"), 17%; Genesco, Inc.
("Genesco"), 14% and Continental Casualty Company ("Continental"), 10%. No other
property owned by Registrant accounted for 10% or more of its total leasing
revenues during 1995. Revenues from the industrial and commercial real estate
segment represent approximately 64% of total revenues. For the year ended
December 31, 1995, gross revenues from the hotel business segment were
$3,835,000 (approximately 32% of total revenues). The hotel property is located
in Kenner, Louisiana and is owned as a tenant-in-common with CPA(R):8. See Note
9 to the Consolidated Financial Statements in Item 8.
Six of Registrant's nine real estate properties are leased to corporate
tenants under long-term 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
<PAGE>
liabilities on all matters related to the leased properties. Registrant's lease
with Petrocon Engineering, Inc. ("Petrocon") for the property in Beaumont, Texas
is not a net lease and Registrant absorbs a portion of the property operating
expenses. The property located in Salisbury, North Carolina is currently net
leased to Family Dollar Stores, Inc. ("Family Dollar") under a short-term lease
and since August 1992 the Holiday Inn New Orleans Airport in Kenner has been
operated by Registrant. Registrant believes that the insurance and indemnity
provided on its behalf by its lessees at its net leased properties 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 on its leased properties. To the extent that any lessees are
not financially able to satisfy indemnification obligations which exceed
insurance reimbursements, Registrant may incur the costs necessary to repair
property and settle liabilities. For properties not subject to net leases,
Registrant also has primary property and liability insurance coverages which
Management believes to be adequate. Presently, there are no claims pending for
property damages or liability claims known to Registrant that would have a
material adverse effect on Registrant's financial condition or liquidity even in
the event that a lessee is unable to fulfill its indemnity obligation to the
Registrant.
As described above, lessees, other than Petrocon, 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. In addition, the Petrocon lease includes
escalation provisions which pass through certain increases in operating expenses
to Petrocon. As discussed in Registrant's Management's Discussion and Analysis
in Item 7, Registrant's leases generally provide for periodic rent increases
during the initial lease term which are either stated and negotiated at the
inception of the lease or based on formulas indexed to increases in the Consumer
Price Index. The lease with Hughes for a dairy processing plant in Los Angeles,
California, which accounts for 19% of Registrant's leasing revenues, is due to
expire in April 1996. Registrant has entered into negotiations with Hughes for a
two-year lease extension, however, there is no assurance that an extension will
be executed. Registrant intends to remarket the property in the event that an
agreement with Hughes is not reached. Except for the lease with Petrocon which
expires in November 1997 and which represents approximately 5% of Registrant's
leasing revenue and the lease with Family Dollar which was extended for one year
through April 1997, all of Registrant's other leases expire between 1998 and
2008 and provide for multiple renewal terms of generally 5 years per renewal
term. Registrant's lease with Simplicity provides for a purchase option which is
exercisable in 1998 at the greater of fair market value, as defined in the
lease, or $9,684,000.
As Registrant's objective has been to invest in properties which are
occupied by a single corporate tenant and subject to long-term 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 has been 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. Because
Registrant's properties in Beaumont, Texas and Salisbury, North Carolina are
both subject to short-term leases with one tenant, the properties may be subject
to current market conditions. In addition, if Registrant is not able to reach an
agreement with Hughes, the property will also be subject to current market
conditions. The Beaumont property is currently leased at market rates and
Registrant does not expect rentals to significantly change in the event that a
lease extension is executed. The Salisbury property was leased in December 1994
to Family Dollar under a short-term lease. Other leased properties have terms
which are not scheduled to expire until after the year 2000. 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. Although Registrant's
hotel is subject to the competitive conditions that would be expected of a hotel
situated near the commercial airport of a major metropolitan area, the hotel has
maintained occupancy rates of approximately 85% and 82% in 1995 and 1994.
<PAGE>
Registrant and Agency Management Systems, Inc. ("Agency Management"), which
leases a property in College Station, Texas, and the lease guarantor,
Continental, agreed to amend an existing lease effective February 1, 1995. In
exchange for Registrant's funding of approximately $105,000 in capital
improvements at the property, Agency Management's monthly rental increased from
$59,086 to $61,844. The amended lease also provides for a scheduled rental
increase on August 1, 1996 to $64,306 per month through October 31, 1998 at
which time the lease term expires.
On June 30, 1995, Registrant sold its property in Allentown, Pennsylvania,
which it purchased in June 1983 for $11,702,128, to Genesco, the lessee, for
$15,200,000 and recognized a gain on the sale of $3,330,098. In connection with
the sale, Registrant paid off the remaining balance of a nonrecourse mortgage
loan on the Genesco property for $5,722,508. Registrant used a portion of the
net proceeds of $9,477,492 to pay a special distribution to Limited Partners of
$4,278,400 ($50 per Limited Partnership Unit) and $43,216 to the Individual
General Partner in July 1995.
Registrant voluntarily contracted for Phase I environmental reviews of all
of its properties in 1993. Registrant believes, based on the results of such
reviews and Phase II environmental reviews on certain of its properties in 1994,
that its properties are in substantial compliance with Federal and state
environmental statutes and regulations. Phase II reviews were only performed 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 any required remediation. Tenants
are generally subject to environmental statutes and regulations regarding the
discharge of hazardous materials and any related remediation obligations. In
addition, Registrant's leases generally require tenants to indemnify Registrant
from all liabilities and losses related to the leased properties. Accordingly,
Management believes that the ultimate resolution of any 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. In February 1995, Registrant
engaged American General Hospitality Corp., a hotel management company, to
manage Registrant's hotel operation. 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 for Registrant. W.P. Carey has
substantially the same officers as the Corporate General Partner.
<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>
HUGHES MARKETS, Land and Dairy Los Angeles, Ownership of an
INC. Processing/ California 83.24% interest
Distribution in land and
Facilities buildings
SIMPLICITY Land and Manufac- Port Washington, Ownership of land
MANUFACTURING, turing/Product Wisconsin and buildings (1)
INC. Testing Buildings
- 2 locations
(2) Land and Hotel Kenner, Ownership of a
Complex Louisiana 46.383% interest in
land and building (1)
CONTINENTAL Land and Office, College Station, Ownership of land
CASUALTY COMPANY Manufacturing Texas and buildings (1)
and Warehouse
Buildings
BRODART CO. Land and Manufac- Williamsport, Ownership of land
turing, Distribution Pennsylvania and buildings (1)
and Office Buildings
- 2 locations
FAMILY DOLLAR Land and Warehouse/ Salisbury, Ownership of land
STORES, INC. Distribution Center North Carolina and buildings (1)
PETROCON Land and Office Beaumont, Texas Ownership of land
ENGINEERING, Building and building
INC.
WINN-DIXIE Land and Supermarket Leeds, Alabama Ownership of land
STORES, INC. and building (1)
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) Registrant and CPA(R):8 operate a hotel business at this property.
<PAGE>
The material terms of Registrant's leases with its significant tenants are
summarized in the following table:
<TABLE>
<CAPTION>
Partnership's
Share of Current
Current Annual Rent/Inc-
Lease Rents/Operat- Square ome Per Lease Renewal Ownership Gross
Obligor ing Income Footage Sq.Ft.(1) Expiration Terms Interest Terms of Purchase Option Costs (2)
- ----------- ---------------- ------- --------- ---------- ------- --------------- ------------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Simplicity
Manufact-
uring, Inc. $1,996,710 419,676 $4.76 03/03 YES 100% The greater of $12,000,000
fair market value
of the property at
purchase date or
$9,684,000 with fair
market value not to be
in excess of $12,000,000
Hughes
Markets,
Inc. 505,000 (3) 390,000 4.67 04/96 YES 83.24% N/A 9,784,796
interest;
remaining
interest owned
by Corporate
Property
Associates 3
Brodart, Co. 1,344,764 521,231 2.58 06/08 YES 100% N/A 6,224,428
Continental
Casualty
Company 742,123 97,567 7.61 10/98 YES 100% N/A 8,615,638
Family
Dollar
Stores, Inc. 547,200 311,182 1.76 04/97 YES 100% N/A 6,153,179
Petrocon
Engineering
Inc. 364,668 48,700 7.49 11/97 YES 100% N/A 1,265,502
Winn-Dixie
Stores, Inc. 144,713 25,600 5.65 03/04 YES 100% N/A 1,245,846
Kenner,
Louisiana
Holiday Inn
New Orleans
Airport 1,431,000 168,190 18.34 N/A N/A 46.383% N/A 7,769,780
interest;
remaining
interest owned
by Corporate
Property
Associates 8
</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) Represents rent due through the lease expiration date, April 1996.
<PAGE>
The material terms on the nonrecourse 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 12/31/95 Service Date Due at Maturity Prepayment Provisions
------------- ---- -------- ------- ---- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Simplicity
Manufact-
uring, Inc. 10.52% $5,535,028 $1,062,374 07/01/98 $4,169,000 Prepayable at any time.
Prepayment premium based on
formula.
Brodart Co. 7.60 3,369,780 406,419 01/01/04 1,754,000 No premium if prepaid after
1/31/03
(1) (3) 8.9375(2) 7,130,000 817,000 06/30/98 6,680,000
Kenner, Louisiana
hotel property 8.59 3,452,074 406,935 06/30/98 3,157,000 Prepayable in whole at any time.
Prepayment premium based on a
yield maintenance formula which
shall not be less than 1% for
prepayments through June 1996.
</TABLE>
(1) One mortgage loan encumbers these properties. This mortgage loan has a
provision whereby lender may have recourse to assets of Registrant of up to
$1,500,000.
(2) Variable rate indexed to London Inter-Bank Offered Rate.
(3) This loan is also cross-collateralized by properties leased to Family
Dollar Stores, Inc., Continental Casualty Company and Winn-Dixie Stores,
Inc.
<PAGE>
Item 3. Legal Proceedings.
As of the date hereof, Registrant is not a party to any material pending
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the year ended
December 31, 1995 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 26 of Registrant's Annual Report contained in
Appendix A.
Item 6. Selected Financial Data.
Selected Financial Data are hereby incorporated by reference to page 1 of
Registrant's Annual Report contained in Appendix A.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's Discussion and Analysis are hereby incorporated by reference
to pages 2 to 6 of Registrant's Annual Report contained in Appendix A.
Item 8. Consolidated Financial Statements and Supplementary Data.
The following financial statements and data are hereby incorporated by
reference to pages 7 to 20 of Registrant's Annual Report contained in Appendix
A:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1994 and 1995.
(iii) Consolidated Statements of Income for the years ended December 31, 1993,
1994 and 1995. (iv) Consolidated Statements of Partners' Capital for the
years ended December 31, 1993, 1994 and 1995.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995.
(vi) Notes to Consolidated Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Registrant has no directors or officers. 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 65 Chairman of the Board 8/82
Director
Francis J. Carey 70 President 8/82
Director
George E. Stoddard 79 Chairman of the Investment Committee 8/82
Director
Raymond S. Clark 82 Chairman of the Executive Committee 8/82
Director
Madelon DeVoe Talley 64 Vice Chairman of the Board 4/86
Director
Barclay G. Jones III 35 Executive Vice President 8/82
Director
Lawrence R. Klein 75 Chairman of the Economic Policy 4/84
Committee
Director
Claude Fernandez 43 Executive Vice President 3/83
Chief Administrative Officer
Howard J. Altmann 32 Senior Vice President 8/90
H. Augustus Carey 38 Senior Vice President 8/88
John J. Park 31 Senior Vice President 7/91
Treasurer
Michael D. Roberts 44 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 and Raymond S. Clark
is their brother-in-law. H. Augustus Carey is the nephew of William Polk Carey
and Raymond S. Clark 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,
<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, 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 and its medical school, The
James A. Baker III Institute for Public Policy at Rice 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.
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. 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 and has served as a member of the Board of
Trustees of the Investment Program Association since 1990. From April 1987 until
August 1992, he served as counsel to Reed Smith Shaw & McClay, counsel for
Registrant, the General Partners, the CPA(R) Partnerships and W.P. Carey and
some of its affiliates. A real estate lawyer of more than 30 years' experience,
he holds A.B. and J.D. degrees from the University of Pennsylvania.
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.
Raymond S. Clark is former President and Chief Executive Officer of the
Canton Company of Baltimore and the Canton Railroad Company. A graduate of
Harvard College and Yale Law School, he is presently a Director and Chairman of
the Executive Committee of W.P. Carey and served as Chairman of the Board of
W.P. Carey from its founding in 1973 until 1982. He is past Chairman of the
Maryland Industrial Development Financing Authority.
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 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. Besides
her duties at W.P. Carey, Mrs. Talley is 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
Affairs at Columbia University.
Barclay G. Jones III, Executive Vice President, Managing Director, and
co-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.
<PAGE>
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.
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.
Howard J. Altmann, Senior Vice President, Investment Department, joined
W.P. Carey in August 1990. He was a securities analyst at Goldman Sachs & Co.
for the retail industry from 1986 to 1988. Mr. Altmann received his
undergraduate degree in economics and finance from McGill University and his
M.B.A. from the Stanford University Graduate School of Business.
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in 1988.
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.
John J. Park, Senior Vice President and Treasurer, joined W.P. Carey as an
Investment Analyst in December 1987. Mr. Park received his undergraduate degree
from Massachusetts Institute of Technology and his M.B.A. in Finance from New
York University.
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, where he attained the title of audit manager. A certified public
accountant, Mr. Roberts received a B.A. from Brandeis University and an M.B.A.
from Northeastern University.
The officers and directors of W.P. Carey are substantially the same as
above.
Item 11. Executive Compensation.
Under the Amended Agreement of Limited Partnership of Registrant (the
"Agreement"), 5% of Distributable Cash From Operations, as defined, is payable
to the Corporate General Partner and 1% of Distributable Cash From Operations is
payable to the Individual General Partner. The Corporate General Partner and the
Individual General Partner received $239,045 and $91,025, respectively, from
Registrant as their share of Distributable Cash From Operations during the year
ended December 31, 1995. As owner of 200 Limited Partnership Units, the
Corporate General Partner received cash distributions of $20,504 during the year
ended December 31, 1995. See Item 6 for the net income allocated to the General
Partners under the Agreement. Registrant is not required to pay, and has not
paid, any remuneration to the officers or directors of the Corporate General
Partner, W.P. Carey or any other affiliate of Registrant during the year ended
December 31, 1995.
In the future, the Corporate General Partner will continue to receive 5% of
Distributable Cash From Operations, the Individual General Partner will continue
to receive 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.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of December 31, 1995, 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 20, 1996 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>
Limited
Partnership Units William Polk Carey (1) 200 units .20%
Francis J. Carey
George E. Stoddard
Raymond S. Clark 15 .02
Madelon DeVoe Talley
Barclay G. Jones III
Lawrence R. Klein
Claude Fernandez
Howard J. Altmann
H. Augustus Carey
John J. Park
Michael D. Roberts
--- ---
All executive officers
and directors as a
group (12 persons) 215 units .22%
=== ====
</TABLE>
(1) As of March 20, 1996, the Corporate General Partner, Carey Corporate
Property, Inc. ("Carey Property"), owned 200 Limited Partnership Units of
Registrant. William Polk Carey, the majority shareholder of Carey Property,
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 Consolidated Financial Statements in Item 8. Michael B. Pollack, First
Vice President and Secretary of the Corporate General Partner, is a partner of
Reed Smith Shaw & McClay which is engaged to perform legal services for
Registrant.
No officer or director of the Corporate General Partner, W.P. Carey 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.
<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, 1994 and 1995.
Consolidated Statements of Income, for the years ended December 31, 1993, 1994
and 1995.
Consolidated Statements of Partners' Capital, for the years ended December 31,
1993, 1994 and 1995.
Consolidated Statements of Cash Flows, for the years ended December 31, 1993,
1994 and 1995.
Notes to Consolidated Financial Statements.
The financial statements are hereby incorporated by reference to pages 7 to 20
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, 1995.
Notes to Schedule III.
Schedule III and notes thereto are hereby incorporated by reference to pages 21
to 24 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.
<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 September 30, 1982. tration Statement (Form
S-11) No. 2-79041
4.1 $4,500,000 Promissory Note dated December 30, Exhibit 4(B)(1) to Post-
1982 from Registrant to The Mutual Benefit Effective Amendment No. 1
Life Insurance Company. to Registration Statement
(Form S-11) No. 2-79041
4.2 Mortgage and Security Agreement dated Exhibit 4(B)(4) to Post-
December 30, 1982 between Registrant and Effective Amendment No. 1
The Mutual Benefit Life Insurance Company. to Registration Statement
(Form S-11) No. 2-79041
4.3 Assignment of Lessor's and Landlord's Exhibit 4(B)(5) to Post-
Interest in Leases, Rents and Profits Effective Amendment No. 1
dated December 30, 1982 from Registrant to Registration Statement
to The Mutual Benefit Life Insurance (Form S-11) No. 2-79041
Company.
4.4 $8,000,000 Promissory Note dated March 3, Exhibit 4.1 to Form 8-K
1983 from Registrant to Sunkist Service filed March 17, 1983
Company.
4.5 Mortgage with Assignment of Leases and Exhibit 4.3 to Form 8-K
Rents and Security Agreement dated as of filed March 17, 1983
March 3, 1983 from Registrant to Sunkist
Service Company.
4.6 Assignment of Lease and Rents dated Exhibit 4.4 to Form 8-K
March 3, 1983 from Registrant to Sunkist filed March 17, 1983
Service Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
--- ----------- ------
<S> <C> <C>
4.9 $6,600,000 Promissory Note dated June 2, Exhibit 4.1 to Form 8-K
1983 from Registrant to First Eastern dated June 22, 1983
Bank, N.A. ("FEB").
4.10 Mortgage with Assignment of Leases and Exhibit 4.2 to Form 8-K
Rents dated as of June 2, 1983 from dated June 22, 1983
Registrant to FEB.
4.11 Term Loan Agreement dated June 2, 1983 Exhibit 4.3 to Form 8-K
between Registrant and FEB. dated June 22, 1983
4.12 $3,800,000 Promissory Note dated July 1, Exhibit 4.1 to Form 8-K
1983 from Registrant to CP 4 Corp. dated July 14, 1983
4.13 Mortgage and Security Agreement dated Exhibit 4.2 to Form 8-K
July 1, 1983 from Registrant to CP 4 Corp. dated July 14, 1983
4.14 Assignment of Leases, Rents and Profits Exhibit 4.3 to Form 8-K
dated July 1, 1983 from Registrant to dated July 14, 1983
CP 4 Corp.
4.15 $2,750,000 Promissory Note dated Exhibit 4.1 to Form 8-K
August 11, 1983 from Registrant to FCA dated November 2, 1983
American Mortgage Corporation ("FCA").
4.16 Deed of Trust, Mortgage with Assignments Exhibit 4.2 to Form 8-K
of Leases and Rents and Security dated November 2, 1983
Agreements dated as of August 11, 1983
from Registrant to Harry M. Roberts, Jr.,
as trustee for FCA.
4.17 Assignment of Lease and Rents dated Exhibit 4.3 to Form 8-K
August 11, 1983 from Registrant to FCA. dated November 2, 1983
4.18 $4,300,000 Promissory Note dated Exhibit 4.4 to Form 8-K
October 17, 1983 from Registrant to dated November 2, 1983
Bankers Life Company ("Bankers").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
--- ----------- ------
<S> <C> <C>
4.19 Deed of Trust dated October 17, 1983 Exhibit 4.5 to Form 8-K
from Registrant to Howard T. Ayres, Jr., dated November 2, 1983
as trustee for Bankers.
4.20 Collateral Assignment of Lease and Exhibit 4.6 to Form 8-K
Agreement dated October 17, 1983 from dated November 2, 1983
Registrant, as assignor, ARC Automation
Services, Inc. ("ARC"), as lessee, and
American Express Insurance Services,
Inc. ("American Express"), as guarantor,
to Bankers, as assignee.
4.21 $3,500,000 Deed of Trust Note dated Exhibit 4.21 to Form 10-K
December 14, 1983 from Registrant to dated March 31, 1984
Mellon Bank, N.A. ("Mellon").
4.22 Deed of Trust and Security Agreement Exhibit 4.22 to Form 10-K
dated December 14, 1983 between dated March 31, 1984
Registrant and John H. Noblitt, as
trustee for Mellon.
4.23 Assignment of Rentals and Leases dated Exhibit 4.23 to Form 10-K
December 14, 1983 from Registrant to dated March 31, 1984
Mellon.
4.24 Agreement for Sale and Sale of Property and Exhibit 4.1 to Form 10-K
Escrow Instructions, dated October 17, 1986, dated November 6, 1986
by and between Registrant and CPA(R):3,
collectively as Seller, and Kraft, Inc.
("Kraft"), as Purchaser.
4.25 Agreement for Sale and Sale of Property and Exhibit 4.2 to Form 10-K
Escrow Instructions, dated October 17, 1986, dated November 6, 1986
by and between Registrant and CPA(R):3,
collectively as Seller, and Hughes Markets,
Inc. ("Hughes"), as Purchaser.
4.26 Letter Agreement dated October 17, 1986 from Exhibit 4.3 to Form 8-K
Registrant and CPA(R):3, and agreed to and dated November 6, 1986
accepted by Kraft and Hughes.
4.27 Guaranty made as of October 21, 1986 by Exhibit 4.4 to Form 8-K
Hughes, as Guarantor, to Registrant and dated November 6, 1986
CPA(R):3.
4.28 Assumption of Note and Mortgage dated Exhibit 4.1 to Form 8-K
June 14, 1988 between Registrant, CPA(R):8, dated June 29, 1988
Integra and Bell Atlantic TriCon Leasing
Corporation.
4.29 Agreement to Exchange dated June 14, 1988 Exhibit 4.2 to Form 8-K
by and between Registrant and Integra. dated June 29, 1988
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
--- ----------- ------
<S> <C> <C>
10.1 Lease Agreement dated December 30, 1982 Exhibit 10(H)(3) to Post-
between Registrant, as landlord, and Effective Amendment No. 1
Brock Residence Inns, Inc. as tenant. to Registration Statement
(Form S-11) No. 2-79041
10.2 Lease Guaranty dated December 30, 1982 Exhibit 10(H)(4) to Post-
from Brock Hotel Corporation to Effective Amendment No. 1
Registrant. to Registration Statement
(Form S-11) No. 2-79041
10.3 Real Estate Purchase Agreement dated Exhibit 10.1 to Form 8-K
January 19, 1983 between Allis-Chalmers filed March 17, 1983
Corporation, as seller and Gibson
Realty, Inc., as purchaser.
10.4 Assignment of Real Estate Purchase Exhibit 10.2 to Form 8-K
Agreement dated March 3, 1983 from Gibson filed March 17, 1983
Realty, Inc., as assignor, to Registrant,
as assignee.
10.5 Lease Agreement dated March 3, 1983 Exhibit 10.3 to Form 8-K
between Registrant, as landlord, and filed March 17, 1983
Simplicity Manufacturing, Inc. as
tenant, for two properties in Port
Washington, Wisconsin.
10.6 Management Agreement between Registrant Exhibit 10(B) to Amendment
and Carey Corporate Property Management, No. 2 to Registration
Inc. Statement (Form S-11)
No. 2-79041
10.7 Support Agreement among Registrant, Exhibit 10(C) to Amendment
Fourth Carey Corporate Property, Inc. No. 2 Registration
and W.P. Carey & Co., Inc. Statement (Form S-11)
No. 2-79041
10.8 Lease Agreement dated June 1, 1983 between Exhibit 10.1 to Form 8-K
Registrant and CPA(R):3, as landlord, and dated June 22, 1983
Knudsen Corporation, as tenant.
10.9 Agreement dated June 1, 1983 between Exhibit 10.2 to Form 8-K
Registrant and CPA(R):3, as landlord, and dated June 22, 1983
Knudsen, as tenant.
10.10 Lease Agreement dated June 2, 1983 between Exhibit 10.3 to Form 8-K
Registrant, as landlord, and Genesco, Inc., dated June 22, 1983
as lessee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
--- ----------- ------
<S> <C> <C>
10.11 Lease Agreement dated July 1, 1983 between Exhibit 10.1 to Form 8-K
Registrant, as landlord, and Broco, as dated July 14, 1983
tenant.
10.13 Lease Agreement dated October 17, 1983 Exhibit 10.2 to Form 8-K
between Registrant, as landlord, and dated November 2, 1983
ARC, as tenant.
10.15 Purchase Agreement dated February 23, 1983 Exhibit 10.15 to Form 10-K
between J.D.N. Enterprises, Inc. and dated March 31, 1984
Winn-Dixie Montgomery, Inc. ("Winn-Dixie").
10.16 Assignment of Purchase Agreement dated Exhibit 10.16 to Form 10-K
March 7, 1984 from Winn-Dixie to dated March 31, 1984
Registrant.
10.18 Lease Agreement dated March 7, 1984 Exhibit 10.18 to Form 10-K
between Registrant, as landlord, and dated March 31, 1984
Winn-Dixie, as tenant.
10.19 Lease Guaranty dated March 7, 1984 Exhibit 10.19 to Form 10-K
from Winn-Dixie, Stores, Inc. to dated March 31, 1984
Registrant.
10.20 Second Amendment of Lease entered into as of Exhibit 10.1 to Form 8-K
October 21, 1986, by and between Registrant dated November 6, 1986
and CPA(R):3, collectively as Landlord, and
Santee Dairies, Inc., as Tenant.
10.21 Lease Agreement dated June 14, 1988 Exhibit 10.1 to Form 8-K
by and between Registrant and CPA(R);8, dated June 29, 1988
together, as Landlord, and Integra,
as Tenant.
28.1 Exchange and Conveyance of Property Deed Exhibit 28.1 to Form 8-K
dated June 14, 1988 from Integra, as dated June 29, 1988
Transferor, to Registrant, as Transferee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
--- ----------- ------
<S> <C> <C>
28.2 Bill of Sale dated June 14, 1988 from Exhibit 28.2 to Form 8-K
Integra, as Seller, to Registrant and dated June 29, 1988
CPA(R):8, together, as Purchaser.
28.3 Seller/Lessee's Certificate dated June 14, Exhibit 28.3 to Form 8-K
1988 from Integra, as Seller, to Registrant dated June 29, 1988
and CPA(R):8, together, as Purchaser.
28.4 Prospectus of Registrant Exhibit 28.4 to Form 10-K/A
dated October 28, 1982. dated September 24, 1993
28.5 Supplement dated December 2, 1982 Exhibit 28.5 to Form 10-K/A
to Prospectus dated October 28, 1982. dated September 24, 1993
28.6 Supplement dated January 11, 1983 Exhibit 28.6 to Form 10-K/A
to Prospectus dated October 28, 1982. dated September 24, 1993
28.7 Supplement dated May 25, 1983 Exhibit 28.7 to Form 10-K/A
to Prospectus dated October 28, 1982. dated September 24, 1993
28.8 Press release dated June 30, 1993 Exhibit 28.1 to Form 8-K
announcing the suspension of secondary dated July 12, 1993
market sales of Limited Partnership Units.
</TABLE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1995 the Registrant was not required
to file any reports on Form 8-K.
<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 4
(a California limited partnership)
BY: CAREY CORPORATE PROPERTY, INC.
03/28/96 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: CAREY CORPORATE PROPERTY, 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 -----------------------
Committee and Director George E. Stoddard
Attorney in fact
March 28, 1996
Dr. Lawrence R. Klein
Chairman of the Economic Policy
Committee and Director
Madelon DeVoe Talley
Vice Chairman of the Board of
Directors and Director
03/28/96 BY: /s/ Claude Fernandez
-------- ------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
03/28/96 BY: /s/ Michael D. Roberts
-------- ------------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
<PAGE>
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------------------------
(In thousands except per unit amounts)
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 9,653 $ 9,959 $12,450 $11,571 $11,896
Income before extraordinary
item 4,236 3,698 4,741 4,443 8,679
Income before extraordinary item allocated:
To General Partners 254 222 284 266 879
To Limited Partners 3,982 3,476 4,457 4,177 7,800
Per unit 46.54 40.63 52.08 48.81 91.16
Distributions attributable (1):
To General Partners 285 290 292 293 323
To Limited Partners 4,472 4,539 4,570 4,590 8,667
Per unit 52.26 53.04 53.41 53.64 101.29(2)
Payment of mortgage
principal (3) 580 645 806 1,168 1,158
BALANCE SHEET DATA:
Total assets 59,892 58,331 57,497 56,108 48,508
Long-term
obligations (4) 25,141 10,029 26,418 24,999 18,540
</TABLE>
(1) Includes distributions attributable to the fourth quarter of each fiscal
year payable in the following fiscal year less distributions in the first
fiscal quarter attributable to the prior year.
(2) The 1995 figure includes a $50 per Unit special distribution to the Limited
Partners.
(3) Represents scheduled mortgage principal amortization paid.
(4) Represents mortgage obligations due after more than one year.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Results of Operations
Net income and cash provided by operating activities increased by
$4,235,000 and $327,000, respectively, in 1995 as compared with 1994. Of this
increase, $3,330,000 was attributable to the gain on the sale of the Genesco
Inc. ("Genesco") property in 1995. Income before gain on sale reflected an
increase of $905,000; $184,000 of this increase was due to several nonrecurring
items; the rest of the increase was primarily due to an increase in earnings
from the hotel operations, a decrease in property expenses and an increase in
interest income. The decreases in lease revenues and interest expenses were
primarily attributable to the sale of the Genesco property and repayment of the
Genesco mortgage loan.
Income from hotel operations of $1,431,000 increased by 31% in 1995 as
compared with 1994. This increase resulted primarily from an increase in the
average daily room rate, which reflected an increase of approximately 18%. The
occupancy rate of 82%, which approximates the historical occupancy levels
achieved prior to 1994, reflect a 3% increase for 1995 from 1994. Due to the
renovation work performed in 1994, there were fewer room nights available, which
negatively impacted the hotel's results of operations in 1994. The average room
rate in 1995 improved as group business, which is generally discounted,
decreased to 12% of rooms occupied compared with 19% of rooms occupied in 1994.
Leasing revenues decreased by $713,000 solely as a result of the Genesco
sale. As a result of the sale, Genesco rentals were $1,048,000 lower in 1995
than in 1994. The decrease resulting from the Genesco sale was partially offset
by revenue increases of $313,000 from the rental of the Salisbury, North
Carolina property to Family Dollar Stores, Inc. ("Family Dollar") for the full
year, a rent increase resulting from a lease modification with Agency Management
Services, Inc. ("Agency Management"), a modest increase from the lease with
Petrocon Engineering, Inc. ("Petrocon") and a rent increase in November 1995 on
the lease with Hughes Markets, Inc. ("Hughes").
Interest expense decreased by $297,000, almost entirely as a result of the
payoff of the Genesco loan upon the sale of Genesco in June 1995. Interest
expense relating to other fixed rate mortgage loans decreased by $63,000 due to
declining balances on those loans. The interest on the Partnership's sole
variable rate loan increased by $61,000 due to increases in interest rates. The
decrease in property expense in 1995 was primarily due to approximately $538,000
of costs incurred in 1994 related to the evaluation of the Partnership's
liquidity alternatives which costs included environmental reviews and property
valuations. Other interest income increased due to higher cash balances
generated from the sale of the Genesco property and higher interest rates during
the year.
Net income and cash provided by operating activities decreased by $642,000
and $459,000, respectively, in 1994 as compared with 1993. Nonrecurring items
contributed $1,187,000 and $842,000 to 1993 net income and cash provided by
operations, respectively. Nonrecurring items in 1993 include a $345,000
extraordinary gain on extinguishment of debt and $842,000 of other income
relating to funds received in connection with the exercise of an assignment on a
promissory note which had been pledged to the Partnership. Excluding the effects
of these nonrecurring items, income and cash provided from operations would have
reflected increases of 14% and 7%, respectively, for 1994. Operating income and
cash provided from operations in 1994 were favorably affected by rental
increases in July 1993 on two leases and decreases in interest and depreciation
expense. These items were partially offset by a reduction in rentals for two
properties and an increase in property expense.
Although lease revenues remained relatively unchanged in 1994 as compared
with 1993, the Partnership realized increases in leasing revenue from the
Partnership's leases with Genesco and Brodart Co. ("Brodart"). These leases had
rental increases effective July 1, 1993, contributing an additional $276,000 to
revenues in 1994. These increases were offset by a $165,000 decrease in rent
from the renewal of the Agency Management lease, effective November 1, 1993. In
addition, the Partnership's property leased to Family Dollar was leased for only
six months in 1994 and, therefore, the Partnership's revenue decreased by
$140,000 from 1993.
2
<PAGE>
Interest expense decreased in 1994 as a result of interest rate decreases
in 1994 and 1993 on various loans. In January 1994, the interest rate on the
Brodart mortgage loan decreased from 12.29% to 7.6%, pursuant to an interest
rate reset provision. The interest rate on the hotel mortgage loan decreased
from 12% to 8.59% in June 1993 pursuant to an interest rate reset provision. In
connection with the April 1993 refinancing of the Genesco mortgage loan, the
interest rate decreased from 11.79% to 9%. After a balloon payment was made to
pay off a mortgage loan on the Agency Management property, which had a 13%
interest rate, the loan was refinanced at a variable rate which is currently
less than 10%. Interest expense also decreased due to the decreasing interest
component of the Partnership's amortizing debt.
Income from the hotel operations of $1,090,000 in 1994 increased by 2% from
the 1993 income of $1,066,000. During 1994, the hotel had an occupancy rate of
79% representing a decrease of 1.5% from 1993; however, there was a slight
increase in the average room rate. The decrease in occupancy also contributed to
a 10% decrease in food and beverage sales. The decrease in the occupancy was
caused by the disruption from the major renovations performed at the hotel
during the first six months of 1994. Subsequent to the completion of
renovations, the occupancy rate rebounded to its historical averages. As the
hotel operates in a competitive market, Management believes that the renovations
were necessary to retain its share of the market surrounding the New Orleans
airport.
Included in 1994 property expense are costs related to the evaluation of
liquidity alternatives. The decrease in depreciation expense is due to the full
depreciation of certain assets which resulted in higher depreciation in the
early years of owning real property.
Net income and cash flow provided by operating activities in 1996 may be
affected by the outcome of negotiations relating to the Hughes lease. The lease
with Hughes for a dairy processing plant in Los Angeles, California is currently
scheduled to expire in April 1996. The Partnership and Hughes have entered into
negotiations for a two-year lease extension. There can be no assurance that such
an extension will be executed. The Partnership is in the process of remarketing
the property in the event that the lease is not extended. Annual rent from the
Hughes lease is currently $1,444,000. If the property is vacated, the
Partnership estimates that annual carrying costs for insurance, real estate
taxes and maintenance and security would be approximately $467,000. The
Partnership's short-term lease with Family Dollar for the Salisbury property,
which contributed $547,000 of rental revenues in 1995 has been extended through
April 1997. In addition, several leases have rent increases scheduled in 1998.
Solely as a result of the sale of the Genesco property, annual cash flow
(rentals, net of mortgage debt service installments) will decrease by
$1,082,000.
The Partnership's lease for an office building in Beaumont, Texas with
Petrocon is not a net lease and, therefore, the Partnership pays real estate
taxes, insurance and maintenance costs; however, the lease includes certain
escalation provisions so that in the event operating costs increase, a portion
of such increases will be passed through to the tenant. The lease with Petrocon,
which is due to expire in November 1997, provided gross rentals of $369,000 in
1995. Any renewals or extensions of the lease will be subject to the prevailing
market conditions in Beaumont at that time. Management believes that the
prospects for a lease renewal are positive, although there can be no assurance
that the Petrocon lease will be extended. The hotel business is affected by
changing prices and competition and Management is continually assessing the
impact of these factors. As the rate of inflation has been moderate in recent
years, the Partnership believes that the hotel may not be significantly impacted
by changing prices. In addition, Management believes that increases in costs may
be offset by increases in room rates.
The Partnership's leases are primarily net leases and long-term in nature
and, as such, inflation and changing prices have not unfavorably affected the
Partnership's revenue and net income nor have they had an impact on the
continuing operations of the Partnership's properties. Substantially all of the
Partnership's net leases have either periodic mandated rent increases, periodic
rent increases based on formulas indexed to increases in the Consumer Price
Index ("CPI") or sales overrides which have the potential to increase the future
rentals from the Partnership's current tenants. Future rent increases may be
affected by changes in the method of how the CPI is calculated. Although there
are indications that there may be legislation which considers changes to the CPI
methodology, the Partnership cannot predict the outcome of any proposal relating
to the CPI formula.
3
<PAGE>
Financial Condition
Other than the hotel property operated by the Partnership and the Salisbury
and Beaumont properties which are subject to short-term leases, the
Partnership's properties are net leased to corporate tenants. Under a net lease,
the tenants are generally required to pay all operating expenses relating to the
leased properties. The Partnership depends on a stable cash flow from net leases
to meet operating expenses, service its debt, fund distributions and maintain
adequate cash reserves. In addition, the Partnership maintains a cash reserve to
fund major outlays such as capital improvements and balloon debt payments. Such
expenditures may also be funded from additional borrowing on the Partnership's
real estate portfolio. The cash flow of the hotel operation is more likely to be
subject to greater variations than what the Partnership would experience if the
same property were net leased to a tenant. Cash flow provided by hotel
operations increased in 1995.
Since its inception, the Partnership has distributed a substantial portion
of its cash flow to its partners. Cash provided from operations of $6,099,000 in
1995 was sufficient to pay $4,781,000 of quarterly distributions from operations
to partners and scheduled mortgage debt service of $1,158,000. As cash flow from
operating activities may exceed earnings, distributions per Limited Partnership
Unit may also be in excess of net income per Limited Partnership Unit. During
the five-year period ended December 31, 1995, distributions per Unit have
exceeded net income per Unit by $5.42, $12.31, $4.78 and $11.36 in 1991, 1992,
1994 and 1995, respectively. Net income is reduced by charges which do not
impact operating cash flow such as depreciation and amortization. In addition,
the proceeds generated from a property sale and which are available for
distribution may exceed the gain that is realized for financial reporting
purposes.
In 1995, Partnership investing activities consisted of funding $105,000 of
improvements at the Agency Management property, $141,000 of capital expenditures
at the hotel property and the sale of the Genesco property. The expenditures at
the hotel consisted primarily of the replacement of furniture, fixtures and
equipment. The hotel operation maintains a reserve account which is funded by
allocating 5% of hotel revenues to fund replacements of furniture, fixtures and
equipment which is necessary to remain competitive in the hotel business. At
December 31, 1995, the reserve account had a balance of approximately $459,000
and is included in other assets in the accompanying financial statements. As the
result of successful negotiations with Holiday Inn in 1995, the Partnership will
not be required to make additional improvements to comply with the Holiday Inn
core modernization plan. The Partnership does not anticipate funding any
improvements at the hotel property, other than replacements funded from the
aforementioned reserve, over the next several years as a major capital
improvement plan was completed at the hotel in 1994.
The Partnership's financing activities generally consist of using cash
provided from operating activities to pay quarterly distributions to partners
and meeting scheduled principal payments on the Partnership's mortgage debt.
During 1995, the Partnership used $5,723,000 of the proceeds from the Genesco
sale to satisfy the mortgage debt on that property. In addition, the Partnership
distributed $4,321,000 ($50 per Limited Partnership Unit) of such proceeds as a
special distribution to partners. With this distribution, the Partnership has
now distributed $70 in special distributions since the inception of the
Partnership, representing 14% of the original capital contribution per Unit of
$500. Cash flow from operations will decrease as the result of the Genesco sale.
The distribution rate based on original capital less the cumulative amount of
special distributions has continued to increase. The Partnership's cash balances
have increased to $7,580,000 at December 31, 1995 as compared with $2,509,000 at
December 31, 1994, primarily due to the remaining undistributed proceeds from
the Genesco sale. Management is still considering the most appropriate use of
these funds which may include, but is not limited to, maintaining higher cash
reserves or paying off mortgage debt. With the increased cash reserves,
Management has continued to increase the rate of distribution based on its
judgment that this trend will not adversely affect the Partnership's financial
condition.
4
<PAGE>
Future operating cash flow and the Partnership's ability to continue
increasing the distribution rate are subject to various uncertainties including
the ability of the Partnership to extend the Hughes lease and/or remarket the
Hughes property, extending the short-term lease with Petrocon, further extending
the Family Dollar lease, and any changes in cash flow from the hotel property.
In addition, cash balances and cash flow may be affected by the Partnership's
ability to refinance balloon payments on three mortgage loans which are
scheduled for payment in 1998, as described below. As a result of its ability to
maintain adequate cash reserves, the Partnership has no lines of credit or other
short-term financing arrangements. Management believes the Partnership has
additional borrowing capacity based on its operating cash flow and the
unleveraged portion of its real estate portfolio.
The Partnership's mortgage loans are limited recourse mortgage obligations,
except as noted. In 1998, mortgage loan balloon payments totaling $14,000,000
are scheduled on the mortgage loans on the hotel property and the property
leased to Simplicity Manufacturing , Inc. ("Simplicity") and a loan
cross-collateralized on properties leased to Family Dollar, Agency Management
and Winn-Dixie Stores, Inc. ("Winn-Dixie"). Under certain circumstances, the
cross-collateralized loan could be recourse to the Partnership for up to
$1,500,000. In the case of mortgage financing which does not fully amortize over
its term, the Partnership would be responsible for the balloon payment required
only to the extent of its interest in the encumbered property because the holder
of each such obligation has recourse only to the property collateralizing such
debt. The Partnership could seek to refinance the loans, restructure the debt
with existing lenders, evaluate its ability to satisfy the mortgages from
existing reserves or sell the property and use the sales proceeds to satisfy the
mortgage debt. When lessees obligate themselves to remain as tenants, the
Partnership's ability to refinance loans is usually enhanced. The Partnership
was able to successfully refinance the loans on the Genesco and Agency
Management properties in 1993 as the properties remained subject to long-term
leases. Accordingly, the Partnership believes it should be successful in
refinancing the Simplicity loan; however, this will not be necessary if
Simplicity elects to exercise its option to purchase the property, which would
be exercisable at that time. Additionally, as the cash flow from the hotel
operation is positive and has been increasing, Management believes prospects for
refinancing that loan are good. If Family Dollar does not further extend its
lease, the Partnership may consider using cash reserves to pay off a portion of
the cross-collateralized loan. At that time, the Partnership could consider new
mortgage financings which separately encumber the Winn-Dixie and Agency
Management properties.
Simplicity has a purchase option exercisable in April 1998 for the greater
of $9,684,000 or fair market value capped at $12,000,000. In the event that
Simplicity exercises its option, the Partnership could realize no less than
$5,362,000 before any necessary costs and after paying the outstanding debt on
the mortgage loan on the property. Cash flow from the property (lease rentals
less debt service on the mortgage loan) is $934,000.
Except for the hotel property, all of the Partnership's properties are
currently leased to corporate tenants, all of which are subject to environmental
statutes and regulations regarding the discharge of hazardous materials and
related remediation obligations. The Partnership generally structures a lease to
require the tenant to comply with all laws. In addition, substantially all of
the Partnership's net leases include provisions which require tenants to
indemnify the Partnership from all liabilities and losses related to their
operations at the leased properties. 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, the General Partners believe
such expenditures will not have a material adverse effect on the Partnership's
financial condition, liquidity or results of operations. None of the
environmental conditions found in the Phase I reviews relate to the hotel
property.
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 surface spills from facility activities. For
those conditions which were identified, the Partnership has advised the affected
tenants of the Phase I findings and of their obligations, if any, to perform
required remediation.
5
<PAGE>
Effective January 1, 1995, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("SFAS
121"). Pursuant to SFAS 121, the Partnership assesses the recoverability of its
real estate assets, including residual interests, based on projections of 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.
The adoption of SFAS 121 did not have a material effect on the Partnership's
financial condition or results of operations.
6
<PAGE>
REPORT of INDEPENDENT ACCOUNTANTS
To the Partners of
Corporate Property Associates 4,
a California limited partnership
We have audited the accompanying consolidated balance sheets of Corporate
Property Associates 4, a California limited partnership, and Subsidiary as of
December 31, 1994 and 1995, and the related consolidated statements of income,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1995. We have also audited the financial statement schedule
included on pages 21 to 24 of this Annual Report. These financial statements and
financial statement schedule are the responsibility of the General Partners. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 4, a California limited partnership, and Subsidiary as of
December 31, 1994 and 1995, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles. In addition,
in our opinion, the Schedule of Real Estate and Accumulated Depreciation as of
December 31, 1995, 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 21, 1996
7
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 4,294,809 $ 4,294,809
Buildings 22,665,152 22,770,152
----------- ----------
26,959,961 27,064,961
Accumulated depreciation 11,717,884 12,626,558
----------- ----------
15,242,077 14,438,403
Net investment in direct financing leases 29,952,612 18,224,428
----------- ----------
Real estate leased to others 45,194,689 32,662,831
Operating real estate, net of accumulated
depreciation of $495,099 in 1994 and
$735,950 in 1995 7,133,023 7,033,830
Cash and cash equivalents 2,509,451 7,579,071
Accrued interest and rents receivable 262,998 203,651
Other assets, net of accumulated amortization of
$463,682 in 1994 and $435,047 in 1995 1,007,653 1,028,692
----------- -----------
Total assets $56,107,814 $48,508,075
=========== ===========
LIABILITIES:
Mortgage notes payable $26,367,583 $19,486,882
Accrued interest payable 193,839 136,087
Accounts payable and accrued expenses 610,264 435,977
Accounts payable to affiliates 31,427 87,461
Prepaid rental income 119,118
----------- ----------
Total liabilities 27,322,231 20,146,407
----------- -----------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners (486,282) 62,061
Limited Partners (85,568 Limited
Partnership Units issued and
outstanding) 29,271,865 28,299,607
----------- ----------
Total partners' capital 28,785,583 28,361,668
----------- ----------
Total liabilities and
partners' capital $56,107,814 $48,508,075
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
CONSOLIDATED STATEMENTS of INCOME
For the years ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $ 3,163,350 $ 2,921,429 $ 3,260,022
Interest income from direct financing leases 5,137,870 5,414,500 4,362,928
Other interest income 110,008 106,798 254,935
Revenues of hotel operations 3,197,476 3,127,894 3,834,671
Other income 841,670 183,768
----------- ----------- -----------
12,450,374 11,570,621 11,896,324
----------- ----------- -----------
Expenses:
Interest on mortgages 2,987,868 2,396,017 2,098,857
Depreciation 1,346,641 1,141,143 1,149,525
General and administrative 394,867 444,307 454,000
Property expense 769,999 983,409 327,528
Operating expense of hotel operations 2,131,271 2,037,764 2,404,091
Amortization 79,222 124,601 113,835
----------- ----------- ----------
7,709,868 7,127,241 6,547,836
----------- ----------- ----------
Income before gain on sale of real
estate and extraordinary item 4,740,506 4,443,380 5,348,488
Gain on sale of real estate 3,330,098
----------- ----------- ----------
Income before extraordinary item 4,740,506 4,443,380 8,678,586
Extraordinary gain on extinguishment
of debt 345,000
----------- ----------- ----------
Net income $ 5,085,506 $ 4,443,380 $8,678,586
=========== =========== ==========
Net income allocated to:
Individual General Partner $ 50,855 $ 44,434 $ 205,754
=========== =========== ==========
Corporate General Partner $ 254,275 $ 222,169 $ 672,659
=========== =========== ==========
Limited Partners $ 4,780,376 $ 4,176,777 $7,800,173
=========== =========== ==========
Net income per Limited
Partnership Unit
(85,568 Units outstanding):
Income before extraordinary item $52.08 $48.81 $ 91.16
Extraordinary item 3.79
------ ------ -------
$55.87 $48.81 $ 91.16
====== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
CONSOLIDATED STATEMENTS of PARTNERS' CAPITAL
For the years ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Partners' Capital Accounts
--------------------------------------------------
Limited
Partners'
General Limited Amount Per
Total Partners Partners Unit (a)
----- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $28,989,602 $(474,040) $ 29,463,642 $ 344
Distributions (4,854,619) (291,278) (4,563,341) (53)
Net income, 1993 5,085,506 305,130 4,780,376 56
----------- --------- ------------ ------
Balance, December 31, 1993 29,220,489 (460,188) 29,680,677 347
Distributions (4,878,286) (292,697) (4,585,589) (54)
Net income, 1994 4,443,380 266,603 4,176,777 49
----------- --------- ------------ ------
Balance, December 31, 1994 28,785,583 (486,282) 29,271,865 342
Distributions (9,102,501) (330,070) (8,772,431) (102)
Net income, 1995 8,678,586 878,413 7,800,173 91
----------- --------- ------------ ------
Balance, December 31, 1995 $28,361,668 $ 62,061 $ 28,299,607 $ 331
=========== ========= ============ ======
</TABLE>
(a) Based on 85,568 Units issued and outstanding during all periods.
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
CONSOLIDATED STATEMENTS of CASH FLOWS
For the years ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,085,506 $ 4,443,380 $ 8,678,586
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,425,863 1,265,744 1,263,360
Cash receipts on operating and direct financing
leases greater than income recognized 17,972 21,994 9,808
Gain on extinguishment of debt (345,000)
Gain on sale of real estate (3,330,098)
Net change in operating assets and liabilities 47,245 40,985 (522,176)
------------ ----------- ------------
Net cash provided by operating activities 6,231,586 5,772,103 6,099,480
------------ ----------- ------------
Cash flows from investing activities:
Proceeds from sale of real estate 15,200,000
Additional capitalized costs (261,596) (845,935) (246,658)
------------ ----------- ------------
Net cash (used in) provided by
investing activities (261,596) (845,935) 14,953,342
------------ ----------- ------------
Cash flows from financing activities:
Distributions to partners (4,854,619) (4,878,286) (9,102,501)
Proceeds from mortgages 10,852,977
Payments of mortgage principal (806,474) (1,168,014) (1,158,193)
Prepayments of mortgages payable (10,899,160) (5,722,508)
Deferred financing costs (419,710) (366)
Payment on extinguishment of debt (30,000)
Net cash used in financing activities (6,156,986) (6,046,666) (15,983,202)
------------ ----------- ------------
Net (decrease) increase in cash
and cash equivalents (186,996) (1,120,498) 5,069,620
Cash and cash equivalents, beginning of year 3,816,945 3,629,949 2,509,451
------------ ----------- ------------
Cash and cash equivalents, end of year $ 3,629,949 $ 2,509,451 $ 7,579,071
============ =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Consolidation:
The financial statements for 1993 include the accounts of
Corporate Property Associates 4 and Beaumont Limited Liability
Company ("Beaumont"), a 99% owned subsidiary (the "Partnership").
Effective December 31, 1993, Beaumont was dissolved.
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 generally leased to others on a net lease basis. In a
net lease 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.
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.
Operating Real Estate:
Land, building and personal property are carried at cost. Major
renewals and improvements are capitalized to the property
accounts, while replacements, maintenance and repairs which do
not improve or extend the lives of the respective assets are
expensed currently.
Long-Lived Assets:
Effective January 1, 1995, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 121 - Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of ("SFAS 121"). Pursuant to SFAS 121, the
Partnership assesses the recoverability of its real estate
assets, including residual interests, based on projections of
cash flows over the life of such assets. In the event that such
cash flows are insufficient, the assets
Continued
12
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
are adjusted to their estimated net realizable value. The
adoption of SFAS 121 did not have a material effect on the
Partership's financial condition or results of operations.
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 40 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, 1994 and
1995 were held in the custody of three financial institutions.
Other Assets:
Included in other assets are deferred rental income, deferred charges
and furniture, fixture and equipment reserves related to the
hotel property. Deferred rental income is the aggregate
difference for operating leases between scheduled rents which
vary during the lease term and income recognized on a
straight-line basis. Deferred costs incurred in connection with
mortgage note refinancings are amortized over the terms of the
mortgages.
Income Taxes:
A partnership is not liable for 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 10, 1982 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, 2020, 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 6% (1%
to the Individual General Partner, William P. Carey, and 5% to
the Corporate General Partner, Carey Corporate Property, Inc.)
and the Limited Partners are allocated 94% 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. An affiliate of the General Partners
may be entitled to receive incentive fees during the liquidation
stage of the Partnership. A division of W. P. Carey & Co., Inc.
("W.P. Carey"), an affiliate, is engaged in the real estate
brokerage business. The Partnership may sell properties through
the division and pay subordinated real estate commissions as
provided in the Agreement. The division could ultimately earn up
to $857,694 of real estate commissions with respect to the sales
of property between 1986 and 1995 which amount will be retained
by the Partnership unless the subordination provisions of the
Agreement are satisfied.
Continued
13
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In accordance with the Agreement, the General Partners were
allocated a portion of the 1995 gain on sale of property as well
as the related tax gain in order to eliminate their negative
balances. The Partnership paid a special distribution of
$4,321,618 related to the sale which distribution was allocated
1% to the Individual General Partner and 99% to the Limited
Partners in accordance with the Agreement.
3. Transactions with Related Parties:
The Partnership's ownership interest in certain properties are
jointly held with affiliates as tenants-in-common. The
Partnership has a 46.383% and 83.24% ownership interest in two
properties which are jointly held.
Under the Agreement, a division of W.P. Carey is also entitled to
receive a property management fee and reimbursement of certain
expenses incurred in connection with the Partnership's
operations. General and administrative expense reimbursements
consist primarily of the actual cost of personnel needed in
providing administrative services necessary for the operation of
the Partnership. Property management fees and general and
administrative expense reimbursements are summarized as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Property management fee $ 96,962 $ 98,187 $ 91,564
General and administrative
expense reimbursements 119,738 160,125 95,644
-------- -------- --------
$216,700 $258,312 $187,208
======== ======== ========
</TABLE>
During 1993, 1994 and 1995, fees aggregating $165,800, $172,675 and
$28,683, 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 of such firm.
The Partnership is a participant in an agreement with W.P. Carey and
certain affiliates for the purpose of leasing office space used
for the administration of the 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 1993, 1994 and 1995 were
$52,719, $56,446 and $130,986, respectively. The increase in 1995
costs was due, in part, to certain nonrecurring costs incurred in
connection with the relocation of the Partnership's offices.
4. Real Estate Leased to Others Accounted for Under the Operating Method and
Operating Real Estate:
A. Real Estate Leased to Others
The scheduled minimum future rentals, exclusive of renewals, under
noncancellable operating leases amount to approximately
$2,227,000 in 1996, $1,188,000 in 1997, $788,000 in 1998,
$145,000 in both 1999 and 2000 and aggregate approximately
$4,963,000 through 2004.
Contingent rentals were approximately $181,000 in both 1993 and 1994 and
$195,000 in 1995.
Continued
14
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. Operating Real Estate:
Operating real estate, at cost, is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1994 1995
---- ----
<S> <C> <C>
Land $ 850,000 $ 850,000
Building 6,693,973 6,818,635
Personal property 84,149 101,145
---------- ----------
7,628,122 7,769,780
Less: Accumulated depreciation 495,099 735,950
---------- ----------
$7,133,023 $7,033,830
========== ==========
</TABLE>
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1994 1995
---- ----
<S> <C> <C>
Minimum lease payments
receivable $44,462,382 $28,653,756
Unguaranteed residual value 25,085,107 13,382,979
----------- ----------
69,547,489 42,036,735
Less, Unearned income 39,594,877 23,812,307
----------- -----------
$29,952,612 $18,224,428
=========== ===========
</TABLE>
The scheduled minimum future rentals, exclusive of renewals, under
noncancellable direct financing leases amount to approximately
$2,616,000 in each of the years 1996 to 2000 and aggregate
approximately $28,654,000 through 2008
Contingent rentals were approximately $973,000, $1,253,000 and
$990,000 in 1993, 1994 and 1995, respectively.
6. Mortgage Notes Payable:
The Partnership's mortgage loans are limited recourse obligations and
are collateralized by lease assignments and by real property.
Under certain circumstances, one loan could be a recourse
obligation of the Partnership for up to $1,500,000. The
encumbered properties have an aggregate carrying amount of
$42,009,000, before accumulated depreciation. As of December 31,
1995, mortgage notes payable bear interest at rates varying from
7.60% to 10.52% per annum and mature from 1998 to 2004.
Continued
15
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Scheduled principal payments during each of the next five years
following December 31, 1995 and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1996 $ 946,493
1997 1,024,153
1998 14,640,023
1999 191,464
2000 206,750
Thereafter 2,477,999
-----------
Total $19,486,882
===========
</TABLE>
Interest paid was $2,968,564 $2,408,669 and $2,156,609 for 1993, 1994 and
1995, 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>
1993 $291,278 $4,563,341 $ 53.33
======== ========== =======
1994 $292,697 $4,585,589 $ 53.59
======== ========== =======
1995:
Quarterly
distributions $286,854 $4,494,031 $ 52.52
Special
distribution
- Note 10 43,216 4,278,400 50.00
-------- ---------- -------
$330,070 $8,772,431 $102.52
======== ========== =======
</TABLE>
Distributions of $66,634 to the General Partners and $1,043,929 to the
Limited Partners for the quarter ended December 31, 1995 were declared
and paid in January 1996.
Continued
16
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Income for Federal Tax Purposes:
Income for financial statement purposes differs from income for
Federal income tax purposes because of the difference in the
treatment of certain items for income tax purposes and financial
statement purposes. A reconciliation of accounting differences is
as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net income per Statements of Income $ 5,085,506 $ 4,443,380 $ 8,678,586
Excess tax depreciation (2,124,785) (1,746,077) (1,242,601)
Excess tax gain related to sale of property 9,318,375
Gain recognized for tax purposes in
connection with dissolution of
subsidiary 957,340
Other 579,805 (234,766) (211,474)
----------- ----------- ------------
Income reported for
Federal income tax purposes $ 4,497,866 $ 2,462,537 $16,542,886
=========== =========== ===========
</TABLE>
9. Industry Segment Information:
The Partnership's operations consist of the investment in and the
leasing of industrial and commercial real estate and the
operation of a hotel business.
In 1993, 1994 and 1995, the Partnership earned its total leasing
revenues (rental income plus interest income from direct
financing leases) from the following lease obligors:
<TABLE>
<CAPTION>
1993 % 1994 % 1995 %
---- --- ---- --- ---- --
<S> <C> <C> <C> <C> <C> <C>
Simplicity Manufacturing, Inc. $1,996,710 24% $1,996,710 24% $1,996,710 26%
Hughes Markets, Inc. 1,429,471 17 1,429,421 17 1,443,715 19
Brodart Co. 1,200,174 15 1,322,770 16 1,318,708 17
Genesco, Inc. 1,940,985 23 2,095,020 25 1,047,510 14
Continental Casualty Company 873,675 10 709,027 9 755,614 10
Family Dollar Stores, Inc. 421,200 5 280,800 3 547,200 7
Petrocon Engineering, Inc. 294,292 4 357,468 4 368,780 5
Winn-Dixie Stores, Inc. 144,713 2 144,713 2 144,713 2
---------- --- ---------- ---- ---------- ----
$8,301,220 100% $8,335,929 100% $7,622,950 100%
========== ==== ========== ==== ========== ====
</TABLE>
Continued
17
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Summarized operating results of the Partnership's share of the hotel
operation are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $ 3,197,476 $ 3,127,894 $ 3,834,671
Fees paid to hotel management company (89,316) (95,660) (112,713)
Other operating expenses (2,041,955) (1,942,104) (2,291,378)
----------- ----------- ------------
Partnership's interest in hotel
operating income $ 1,066,205 $ 1,090,130 $ 1,430,580
=========== =========== ===========
</TABLE>
10. Gain on Sale of Real Estate:
On June 30, 1995, the Partnership sold its property, subject to a
direct financing lease, in Allentown, Pennsylvania, which it
purchased in June 1983 for $11,702,128, to its lessee, Genesco,
Inc. ("Genesco") for $15,200,000 and recognized a gain on the
sale of $3,330,098, net of writing off certain deferred costs. In
connection with the sale, the Partnership paid off an existing
limited recourse mortgage loan on the Genesco property for
$5,722,508.
The Partnership used a portion of the net proceeds of $9,477,492 to
pay a special distribution to Limited Partners of $4,278,400 ($50
per Limited Partnership Unit) and $43,216 to the Individual
General Partner. The special distribution was declared and paid
in July 1995.
11. Extraordinary Gain on Extinguishment of Debt:
Pursuant to an agreement in January 1988 among the Partnership, a
previous lender and Wesray Capital Corporation ("Wesray"), the
Partnership received $375,000 from Wesray which was applied to
payment of principal under a modification agreement on a mortgage
note collateralized by the Partnership's property in Beaumont,
Texas currently leased to Petrocon Engineering, Inc. The
Partnership purchased the mortgage note from the lender in 1990.
Wesray's payments were evidenced by a nonrecourse promissory note made
by the Partnership and collateralized by a second deed of trust.
In lieu of interest on the note, Wesray would be entitled to 50%
of the net proceeds in excess of $2,497,500 from any sale or
refinancing of the Beaumont property. In November 1993, Wesray
accepted a payment of $30,000 from the Partnership in exchange
for releasing the Partnership from its obligations under the
promissory note and the reconveyance of the second deed of trust.
In connection with this agreement, the Partnership realized an
extraordinary gain on the extinguishment of debt of $345,000 in
1993.
12. Hotel Property:
On June 15, 1988, the Partnership and Corporate Property Associates
8, L.P. ("CPA(R):8"), an affiliate, purchased the New Orleans
Airport Holiday Inn in Kenner, Louisiana from Integra - A Hotel
and Restaurant Company ("Integra") with 46.383% and 53.617%
interests, respectively and net leased the hotel back to Integra.
Subsequent to the purchase, Integra assigned the lease to a
wholly-owned subsidiary, Kenner Management, Inc. ("Kenner").
Continued
18
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
As a result of Integra's financial condition, Integra stopped paying
rent in May 1992, and in July 1992 filed a voluntary bankruptcy
petition under the United States Bankruptcy Code; however, no
filing was made by Kenner. As a result, the Partnership and
CPA(R):8 declared a lease default and filed a suit which required
Kenner to pay its rent arrearages and penalties as provided for in
the lease. Under a letter of agreement with Kenner, the Partnership
and CPA(R):8 evicted Kenner and assumed control of the operations
of the hotel as of August 15, 1992.
Due to the lease default, the mortgage loan on the hotel property was
also in default; however, under a prior agreement with the lender
and in consideration for the Partnership and CPA(R):8 satisfying
certain conditions, the lender agreed not to exercise its remedies
available to it under the mortgage. These conditions included the
agreement by the Partnership and CPA(R):8 to transfer any and all
proceeds from the Integra bankruptcy claim to the lender as a
prepayment of principal on the mortgage loan, transfer the
Partnership's and CPA(R):8's interest as holder of a promissory
note from an indirect affiliate of Integra to the lender as
described below and remain in compliance with the terms of the loan
documents by the Partnership and CPA(R):8.
In December 1993, Integra transferred its interest in Kenner's stock
to the Partnership and CPA(R):8 which allowed for the orderly
transfer of certain contracts, permits and licenses to the
Partnership and CPA(R):8. Additionally, Integra transferred to the
Partnership and CPA(R):8 its interest in a promissory note made by
ShowBiz Pizza Time, Inc. The promissory note had previously been
pledged by Integra to the Partnership and CPA(R):8. Subsequent to
the transfer, the Partnership and CPA(R):8 received $1,814,609 as a
full payoff of the promissory note. The $1,814,609 proceeds were
transferred to the lender and applied as a reduction of the
principal balance on the nonrecourse mortgage loan. The
Partnership's $841,670 portion of the payoff is included in other
income for 1993. The Partnership and CPA(R):8 have agreed that the
$1,814,609 received in connection with the promissory note payoff
will be credited toward funds they may be entitled to receive in
the future in connection with their bankruptcy claims against
Integra.
13 Environmental Matters:
Based on the results of Phase I environmental reviews performed in
1993, the Partnership voluntarily conducted Phase II environmental
reviews on certain of its properties in 1994. The Partnership
believes, based on the results of Phase I and Phase II reviews,
that its properties are in substantial compliance with Federal and
state environmental statutes and regulations. Portions of certain
properties have been documented as having a limited degree of
contamination, principally in connection with surface spills from
facility activities. For the conditions that were identified, the
Partnership has advised the affected tenants of the Phase II
findings and of their obligations to perform required remediation.
All of the Partnership's properties are subject to environmental
statutes and regulations regarding the discharge of hazardous
materials and related remediation obligations. Except for the hotel
property, 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 expected to
be performed and paid by the affected tenant, are not expected to
be material. In the event that the Partnership absorbs a portion of
any costs because of a tenant's failure to fulfill its obligations,
the General Partners believe such expenditures will not have a
material adverse effect on the Partnership's financial
Continued
19
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
condition, liquidity or results of operations. None of the
environmental conditions found in the Phase I reviews relate to
the hotel property.
14. 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 mortgage notes
payable approximates the carrying amount of such mortgage notes
at December 31, 1995. 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.
Continued
20
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1995
<TABLE>
<CAPTION>
Initial Cost to Cost
Partnership Capitalized
--------------------------- Subsequent to Decrease In
Description Encumbrances Land Buildings Acquisition(a) Investment (b)
----------- ------------ ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating method:
Dairy processing,
distribution and
office facilities
leased to Hughes
Markets, Inc. $1,689,536 $8,073,617 $21,643
Office building in
Beaumont, Texas
partially leased
to Petrocon
Engineering, Inc. 510,000 4,490,000 612,462 $(4,346,960)
Office, manufacturing
and warehouse
buildings leased to
a subsidiary of
Continental Casualty
Company $3,815,840 1,800,000 6,710,638 105,000
Warehouse and
distribution center
leased to Family
Dollar Stores, Inc. 2,755,571 291,540 5,708,460 153,179
Supermarket leased
to Winn-Dixie
Stores, Inc. 558,589 213,289 1,032,557
---------- ---------- ----------- ---------- -----------
$7,130,000 $4,504,365 $26,015,272 $892,284 $(4,346,960)
========== ========== =========== ========== ===========
Operating real estate (f)
Property located in
New Orleans, Louisana $3,452,074 $850,000 $5,818,508 $1,101,272
========== ========== =========== ==========
<CAPTION>
Life On which
Gross Amount at which Carried Depreciation
Carried at Close of Period (d)(e) in Latest
-------------------------------------------------- Statement of
Personal Accumulated Income
Land Property Buildings Total Depreciation(e) Date Acquired is Computed
---- -------- --------- ----- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating method:
Dairy processing,
distribution and
office facilities
leased to Hughes
Markets, Inc. $1,711,179 $8,073,617 $9,784,796 $4,901,436 June 1, 1983 8-36 yrs.
Office building in
Beaumont, Texas
partially leased
to Petrocon
Engineering, Inc. 278,801 986,701 1,265,502 465,188 August 11,
1983 30 yrs.
Office, manufacturing
and warehouse
buildings leased to
a subsidiary of
Continental Casualty October 20,
Company 1,800,000 6,815,638 8,615,638 4,976,633 1983 10-40 yrs.
Warehouse and
distribution center
leased to Family December 16,
Dollar Stores, Inc. 291,540 5,861,639 6,153,179 1,874,382 1983 30 yrs.
Supermarket leased
to Winn-Dixie March 12,
Stores, Inc. 213,289 1,032,557 1,245,846 408,919 1984 30 yrs.
---------- ----------- ----------- -----------
$4,294,809 $22,770,152 $27,064,961 $12,626,558
========== =========== =========== ===========
Operating real estate (f)
Property located in
New Orleans, Louisana $ 850,000 $ 101,145 $ 6,818,635 $ 7,769,780 $ 735,950 June 15,
========== ========== =========== =========== =========== 1988 5-30 yrs.
</TABLE>
See accompanying notes to Schedule.
-21-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1995
<TABLE>
<CAPTION>
Initial Cost to Gross Amount at which Carried
Partnership Decrease In at Close of Period (d)
-------------------- Net -----------------------------
Description Encumbrances Land Buildings Investment (c) Land Buildings Total Date Acquired
----------- -------------- ---- --------- -------------- ---- --------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Direct financing method:
Manufacturing and
product testing
buildings leased
to Simplicity
Manufacturing, Inc. $5,535,028 $472,700 $11,527,300 $12,000,000 March 3, 1983
Manufacturing,
distribution and
office buildings
leased to
Brodart Co. 3,369,780 241,550 6,141,429 $(158,551) 6,224,428 June 15, 1988
---------- -------- ----------- --------- -----------
$8,904,808 $714,250 $17,668,729 $(158,551) $18,224,428
========== ======== =========== ========= ===========
</TABLE>
See accompanying notes to Schedule.
-22-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES TO SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
(a) Consists of the cost of improvements and acquisition costs, including legal
fees, appraisal fees, title costs and other related fees, and the purchase
of additional land subsequent to original purchase.
(b) Represents writedowns of property to net realizable value.
(c) The 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 less than lease payments received.
(d) At December 31, 1995, the aggregate cost of real estate owned for Federal
income tax purposes is $58,874,893.
(e)
Reconciliation of Real Estate Accounted
for Under the Operating Method
December 31,
------------------------------
1994 1995
----------- -----------
Balance at beginning
of period $26,959,961 $26,959,961
Additions during period 105,000
----------- -----------
Balance at close of period $26,959,961 $27,064,961
=========== ===========
Reconciliation of Accumulated Depreciation
December 31,
------------------------------
1994 1995
----------- -----------
Balance at beginning
of period $10,794,329 $11,717,884
Depreciation expense for
the period 923,555 908,674
----------- -----------
Balance at close of period $11,717,884 $12,626,558
=========== ===========
-23-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES TO SCHEDULE OF REAL ESTATE - Continued
(f)
Reconciliation of Operating Real Estate
December 31,
----------------------------
1994 1995
---------- ----------
Balance at beginning of period $6,782,187 $7,628,122
Additions during period 845,935 141,658
---------- ----------
Balance at close of
period $7,628,122 $7,769,780
========== ==========
Reconciliation of Accumulated Depreciation for
Operating Real Estate
December 31,
-----------------------
1994 1995
-------- --------
Accumulated depreciation
at beginning of period $277,511 $495,099
Depreciation expense for the period 217,588 240,851
-------- --------
Balance at close of
period $495,099 $735,950
======== ========
-24-
<PAGE>
PROPERTIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------- ---------------- -------- --------
<S> <C> <C> <C>
HUGHES MARKETS, Land and Dairy Los Angeles, Ownership of an
INC. Processing/ California 83.24% interest
Distribution in land and
Facilities buildings
SIMPLICITY Land and Manufac- Port Washington, Ownership of land
MANUFACTURING, turing/Product Wisconsin and buildings (1)
INC. Testing Buildings
- 2 locations
(2) Land and Hotel Kenner, Ownership of a
Complex Louisiana 46.383% interest in
land and building (1)
CONTINENTAL Land and Office, College Station, Ownership of land
CASUALTY COMPANY Manufacturing Texas and buildings (1)
and Warehouse
Buildings
BRODART CO. Land and Manufac- Williamsport, Ownership of land
turing, Distribution Pennsylvania and buildings (1)
and Office Buildings
- 2 locations
FAMILY DOLLAR Land and Warehouse/ Salisbury, Ownership of land
STORES, INC. Distribution Center North Carolina and buildings (1)
PETROCON Land and Office Beaumont, Texas Ownership of land
ENGINEERING, Building and building
INC.
WINN-DIXIE Land and Supermarket Leeds, Alabama Ownership of land
STORES, INC. and building (1)
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) The Partnership and CPA(R):8 operate a hotel business at this property.
-25-
<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, 1995 there were 3,039 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 1992:
Cash Distributions Paid Per Unit
1993 1994 1995
---- ---- ----
First quarter $13.30 $13.38 $ 13.43
Second quarter 13.32 13.39 13.44
Third quarter 13.34 13.40 63.50(a)
Fourth quarter 13.37 13.42 12.15
------ ------ -------
$53.33 $53.59 $102.52
====== ====== =======
(a) Includes a special distribution of $50 per 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, 1995 as filed with the
Securities and Exchange Commission.
-26-
<PAGE>
DIRECTORS AND SENIOR OFFICERS
- --------------------------------------------------------------------------------
The Partnership has no directors or officers. The directors and senior
officers of the Corporate General Partner are as follows:
William Polk Carey Chairman of the Board
Director
Francis J. Carey President
Director
George E. Stoddard Chairman of the Investment Committee
Director
Raymond S. Clark Chairman of the Executive Committee
Director
Madelon DeVoe Talley Vice Chairman of the Board
Director
Barclay G. Jones III Executive Vice President
Director
Lawrence R. Klein Chairman of the Economic Policy
Committee
Director
Claude Fernandez Executive Vice President
Chief Administrative Officer
Howard J. Altmann Senior Vice President
H. Augustus Carey Senior Vice President
John J. Park Senior Vice President
Treasurer
Debra E. Bigler First Vice President
Ted G. Lagried First Vice President
Anthony S. Mohl First Vice President
Michael D. Roberts First Vice President
Controller
The directors and senior officers of W. P. Carey & Co., Inc. are
substantially the same as above.
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,
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, 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 and its medical school, The
James A. Baker III Institute for Public Policy at Rice 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.
-27-
<PAGE>
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. 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 and has served as a member of the Board of
Trustees of the Investment Program Association since 1990. From April 1987 until
August 1992, he served as counsel to Reed Smith Shaw & McClay, counsel for
Registrant, the General Partners, the CPA(R) Partnerships and W.P. Carey and
some of its affiliates. A real estate lawyer of more than 30 years' experience,
he holds A.B. and J.D. degrees from the University of Pennsylvania.
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.
Raymond S. Clark is former President and Chief Executive Officer of the
Canton Company of Baltimore and the Canton Railroad Company. A graduate of
Harvard College and Yale Law School, he is presently a Director and Chairman of
the Executive Committee of W.P. Carey and served as Chairman of the Board of
W.P. Carey from its founding in 1973 until 1982. He is past Chairman of the
Maryland Industrial Development Financing Authority.
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 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. Besides
her duties at W.P. Carey, Mrs. Talley is also a former Governor of the N.A.S.D.
and is 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 Affairs at Columbia University.
Barclay G. Jones III, Executive Vice President, Managing Director, and
co-head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant
to the President in July 1982 after his graduation from the Wharton School of
the University of Pennsylvania, where he majored in Finance and Economics. He
was elected to the Board of Directors of W.P. Carey in April 1992. Mr. Jones is
also a Director of the Wharton Business School Club of New York.
Lawrence R. Klein, 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.
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.
Howard J. Altmann, Senior Vice President, Investment Department, joined
W.P. Carey in August 1990. He was a securities analyst at Goldman Sachs & Co.
for the retail industry from 1986 to 1988. Mr. Altmann received his
undergraduate degree in economics and finance from McGill University and his
M.B.A. from the Stanford University Graduate School of Business.
-28-
<PAGE>
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in 1988.
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.
John J. Park, Senior Vice President and Treasurer, joined W.P. Carey as an
Investment Analyst in December 1987. Mr. Park received his undergraduate degree
from Massachusetts Institute of Technology and his M.B.A. in Finance from New
York University.
Debra E. Bigler, First Vice President, joined W.P. Carey in 1989 as an
assistant marketing director, rising to her present position where she bears
responsibility for investor services throughout the southern United States. She
was previously employed by E. F. Hutton & Company for nine years where she began
as a Marketing Associate in Private Placement, Sales and Marketing and was then
promoted to Regional Director.
Ted G. Lagreid, First Vice President, joined W.P. Carey in 1994 and is
regional director responsible for investor services in the western United
States. Prior to joining the firm, he was a Vice President with Shurgard Capital
Group, then for Sun America where he was an executive in its mutual funds group.
He earned an A.B. from the University of Washington, received an M.P.A. from the
University of Puget Sound and then spent eight years in the city of Seattle's
Office of Management and Budget and Department of Community Development. Mr.
Lagreid was a commissioner of the City of Oakland, California, serving on its
Community and Economic Advisory Commission.
Anthony S. Mohl, First Vice President, Director of Portfolio Management,
joined W.P. Carey 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.
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, where he attained the title of audit manager. A certified public
accountant, Mr. Roberts received a B.A. from Brandeis University and an M.B.A.
from Northeastern University.
-29-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
for the year ended December 31, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,579,071
<SECURITIES> 0
<RECEIVABLES> 203,651
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,811,414
<PP&E> 53,059,169
<DEPRECIATION> 13,362,508
<TOTAL-ASSETS> 48,508,075
<CURRENT-LIABILITIES> 659,525
<BONDS> 19,486,882
0
0
<COMMON> 0
<OTHER-SE> 28,361,668
<TOTAL-LIABILITY-AND-EQUITY> 48,508,075
<SALES> 0
<TOTAL-REVENUES> 11,896,324
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,185,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,098,857
<INCOME-PRETAX> 8,678,586
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,678,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,678,586
<EPS-PRIMARY> 91.16
<EPS-DILUTED> 91.16
</TABLE>
