<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-11982
CORPORATE PROPERTY ASSOCIATES 4, A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 13-3126150
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (212) 492-1100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
(Title of Class)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of deliquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by non-affiliates of
Registrant: There is no active market for Limited Partnership Units.
<PAGE> 2
PART II
Item 8. Financial Statements and Supplementary Data.
(i) Report of Independent Accountants.
(ii) Balance Sheets as of December 31, 1995 and 1996.
(iii) Statements of Income for the years ended December 31, 1994, 1995 and 1996.
(iv) Statements of Partners' Capital for the years ended December 31, 1994,
1995 and 1996.
(v) Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996.
(vi) Notes to Financial Statements.
-7-
<PAGE> 3
REPORT of INDEPENDENT ACCOUNTANTS
To the Partners of
Corporate Property Associates 4,
a California limited partnership
We have audited the accompanying balance sheets of Corporate
Property Associates 4, a California limited partnership, as of December 31, 1995
and 1996, and the related statements of income, partners' capital and cash flows
for each of the three years in the period ended December 31, 1996. We have also
audited the financial statement schedule included on pages 20 to 22 of this
Annual Report. These financial statements and financial statement schedule are
the responsibility of the General Partners. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the General Partners, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Corporate Property
Associates 4, a California limited partnership, as of December 31, 1995 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the Schedule of
Real Estate and Accumulated Depreciation as of December 31, 1996, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the financial information required to
be included therein pursuant to Securities and Exchange Commission Regulation
S-X Rule 12-28.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 21, 1997
-6-
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
BALANCE SHEETS
December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 4,294,809 $ 4,294,809
Buildings 22,770,152 22,770,152
------------ ------------
27,064,961 27,064,961
Accumulated depreciation 12,626,558 13,487,845
------------ ------------
14,438,403 13,577,116
Net investment in direct financing leases 18,224,428 18,193,555
------------ ------------
Real estate leased to others 32,662,831 31,770,671
Operating real estate, net of accumulated
depreciation of $735,950 in 1995 7,033,830
Cash and cash equivalents 7,579,071 4,668,645
Accrued interest and rents receivable 203,651 269,543
Other assets, net of accumulated amortization of
$435,047 in 1995 and $399,342 in 1996 1,028,692 1,358,488
Equity investment 3,999,632
------------ ------------
Total assets $ 48,508,075 $ 42,066,979
============ ============
LIABILITIES:
Mortgage notes payable $ 19,486,882 $ 10,699,799
Accrued interest payable 136,087 82,827
Accounts payable and accrued expenses 435,977 288,509
Accounts payable to affiliates 87,461 146,447
Prepaid rental income 46,800
------------ ------------
Total liabilities 20,146,407 11,264,382
------------ ------------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners 62,061 (210,626)
Limited Partners (85,568 and 85,528
Limited Partnership Units issued
and outstanding in 1995 and 1996) 28,299,607 30,591,971
------------ ------------
Total partners' capital 28,361,668 30,802,597
------------ ------------
Total liabilities and
partners' capital $ 48,508,075 $ 42,066,979
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-7-
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
STATEMENTS of INCOME
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $2,921,429 $3,260,022 $5,546,662
Interest income from direct financing leases 5,414,500 4,362,928 3,310,601
Other interest income 106,798 254,935 370,765
Other income 183,768 94,345
---------- ---------- ----------
8,442,727 8,061,653 9,322,373
---------- ---------- ----------
Expenses:
Interest on mortgages 2,396,017 2,098,857 1,515,248
Depreciation 1,141,143 1,149,525 921,702
General and administrative 444,307 454,000 447,901
Property expense 983,409 327,528 551,785
Amortization 124,601 113,835 90,529
---------- ---------- ----------
5,089,477 4,143,745 3,527,165
---------- ---------- ----------
Income before income from equity
investments and gain on sale 3,353,250 3,917,908 5,795,208
Hotel operating income 1,090,130 1,430,580 853,262
Income from equity investment 265,056
---------- ---------- ----------
Income before gain on sale 4,443,380 5,348,488 6,913,526
Gain on sale of real estate 3,330,098
---------- ---------- ----------
Net income $4,443,380 $8,678,586 $6,913,526
========== ========== ==========
Net income allocated to:
Individual General Partner $ 44,434 $ 205,754 $ 69,135
========== ========== ==========
Corporate General Partner $ 222,169 $ 672,659 $ 345,676
========== ========== ==========
Limited Partners $4,176,777 $7,800,173 $6,498,715
========== ========== ==========
Net income per Limited
Partnership Unit
(85,568 Units outstanding in 1994 and
1995 and 85,548 weighted average Limited
Partnership Units in 1996): $ 48.81 $ 91.16 $ 75.97
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-8-
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
STATEMENTS of PARTNERS' CAPITAL
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Partners' Capital Accounts
---------------------------------------------------------------
Limited
Partners'
General Limited Amount Per
Total Partners Partners Unit (a)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ 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
Distributions (4,452,597) (266,246) (4,186,351) (49)
Purchase of Limited Partner Units (20,000) (20,000)
Net income, 1996 6,913,526 414,811 6,498,715 76
------------ ------------ ------------ ------------
Balance, December 31, 1996 $ 30,802,597 $ (210,626) $ 30,591,971 $ 358
============ ============ ============ ============
</TABLE>
(a) Based on weighted average Units issued and outstanding during all periods.
The accompanying notes are an integral part of the financial statements.
-9-
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
STATEMENTS of CASH FLOWS
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,443,380 $ 8,678,586 $ 6,913,526
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,265,744 1,263,360 1,012,231
Cash receipts on operating and direct financing
leases greater (less) than straight line adjustments
and amortization of unearned income 21,994 9,808 (945,667)
Equity income in excess of distributions received (147,800)
Gain on sale of real estate (3,330,098)
Net change in operating assets and liabilities 40,985 (522,176) 335,351
------------ ------------ ------------
Net cash provided by operating activities 5,772,103 6,099,480 7,167,641
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of real estate 15,200,000
Purchase of equity investment and related costs (198,969)
Additional capitalized costs (845,935) (246,658) (8,182)
------------ ------------ ------------
Net cash (used in) provided by
investing activities (845,935) 14,953,342 (207,151)
------------ ------------ ------------
Cash flows from financing activities:
Distributions to partners (4,878,286) (9,102,501) (4,452,597)
Payments of mortgage principal (1,168,014) (1,158,193) (898,319)
Prepayments of mortgages payable (5,722,508) (4,500,000)
Deferred financing costs (366)
Purchase of Limited Partner Units (20,000)
------------ ------------ ------------
Net cash used in financing activities (6,046,666) (15,983,202) (9,870,916)
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents (1,120,498) 5,069,620 (2,910,426)
Cash and cash equivalents, beginning of year 3,629,949 2,509,451 7,579,071
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,509,451 $ 7,579,071 $ 4,668,645
============ ============ ============
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In July 1996, the Partnership exchanged its interest in a hotel property and
related assets and liabilities for 427,008 units in the operating partnership of
a publicly-traded real estate investment trust. The assets and liabilities
transferred are as follows:
<TABLE>
<S> <C>
Real estate, net of accumulated depreciation $ 6,981,597
Mortgage note payable (3,388,764)
Other assets and liabilities transferred, net 60,030
------------
Equity investment $ 3,652,863
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-10-
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Real Estate Leased to Others:
Real estate is 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.
Corporate Property Associates 4 (the "Partnership") diversifies its real
estate investments among various corporate tenants engaged in
different industries and by property type throughout the United
States.
The leases are accounted for under either the direct financing or
operating methods. Such methods are described below:
Direct financing method - Leases accounted for under the direct
financing method are recorded at their net investment (Note 5).
Unearned income is deferred and amortized to income over the
lease terms so as to produce a constant periodic rate of return
on the Partnership's net investment in the lease.
Operating method - Real estate is recorded at cost, revenue is
recognized as rentals are earned and expenses (including
depreciation) are charged to operations as incurred.
The Partnership assesses the recoverability of its real estate assets,
including residual interests, based on projections of cash flows over
the life of such assets. In the event that such cash flows are
insufficient, the assets are adjusted to their estimated net
realizable value.
Substantially all of the Partnership's leases provide for either
scheduled rent increases, periodic rent increases based on formulas
indexed to increases in the Consumer Price Index or sales overrides.
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. As more
fully described in Note 11, the Partnership transferred operating
real estate in 1996 in connection with an exchange transaction.
Continued
-11-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
Depreciation:
Depreciation is computed using the straight-line method over the
estimated useful lives of components of the particular properties,
which range from 10 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, 1995 and 1996 were held in the
custody of three financial institutions.
Other Assets:
Included in other assets are deferred rental income and deferred
charges. 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.
Equity Investment:
The Partnership's interest in American General Hospitality Operating
Partnership, L.P. is accounted for under the equity method; i.e. at
cost, increased by the Partnership's share of earnings or loss and
reduced by distributions received (see Note 11).
Income Taxes:
A partnership is not liable for Federal income taxes as each partner
recognizes his proportionate share of the partnership income or loss
in his tax return. Accordingly, no provision for income taxes is
recognized for financial statement purposes.
Reclassifications:
Certain 1994 and 1995 amounts have been reclassified to conform with the
1996 presentation.
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").
Continued
-12-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
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, except
as described below, as well as distributions of Distributable Cash
From Operations, as defined. The partners are also entitled to
receive net proceeds from the sale of the Partnership properties as
defined in the Agreement. The General Partners may be entitled to
receive a subordinated preferred return, measured based upon the
cumulative proceeds arising from the sale of Partnership assets.
Pursuant to the subordination provisions of the Agreement, the
preferred return may be paid only after the limited partners receive
100% of their initial investment from the proceeds of asset sales and
a cumulative annual return of 6% since the inception of the
Partnership. The General Partners interest in such preferred return
amounts to $857,754 based upon the cumulative proceeds from the sale
of assets since the inception of the Partnership through December 31,
1996. The Partnership's ability to satisfy the subordination
provisions of the Agreement may not be determinable until liquidation
of a substantial portion of the Partnership's assets has been made,
formal plans of liquidation are adopted or limited partnership units
are converted to other securities which provide the security holder
with greater liquidity than a limited partnership unit. Management
believes that as of the report date, ultimate payment of the
preferred return is reasonably possible but not probable, as defined
pursuant to Statement of Financial Accounting Standards No. 5.
The Agreement provides that profits from asset dispositions are
allocated to partners with negative capital balances until such
negative balances are eliminated. Accordingly, 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
in 1995 related to such 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 an
83.24% ownership interest in a property which is jointly held.
Under the Agreement, a division of W. P. Carey & Co., Inc. ("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>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Property management fee $ 98,187 $ 91,564 $210,254
General and administrative
expense reimbursements 160,125 95,644 148,728
-------- -------- --------
$258,312 $187,208 $358,982
======== ======== ========
</TABLE>
During 1994, 1995 and 1996, fees aggregating $172,675, $28,683 and
$68,895, respectively, were incurred for legal services performed by
a firm in which the Secretary of the Corporate General Partner and
other affiliates is a partner.
The Partnership is a participant in an agreement with W.P. Carey and
certain 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
Continued
-13-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
Partnership's share of rental, occupancy and leasehold improvement
costs is based on adjusted gross revenues as defined. Net expenses
incurred in 1994, 1995 and 1996 were $56,446, $130,986 and $72,775,
respectively. The 1995 amount included 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
Scheduled future minimum rents, exclusive of renewals, under
noncancellable operating leases amount to approximately $4,667,000 in
1997, $4,939,000 in 1998; and $145,000 in each of the years 1999
through 2001 and aggregate approximately $10,371,000 through 2004.
Contingent rents were approximately $181,000 in 1994, $195,000 in 1995
and $91,000 in 1996.
B. Operating Real Estate:
Operating real estate, at cost, as of December 31, 1995 is summarized as
follows:
<TABLE>
<S> <C>
Land $ 850,000
Building 6,818,635
Personal property 101,145
----------
7,769,780
Less: Accumulated depreciation 735,950
----------
$7,033,830
==========
</TABLE>
The Partnership disposed of its operating real estate in 1996 (see Note
11).
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1995 1996
---- ----
<S> <C> <C>
Minimum lease payments
receivable $28,653,756 $26,038,257
Unguaranteed residual value 13,382,979 13,382,979
----------- -----------
42,036,735 39,421,236
Less: Unearned income 23,812,307 21,227,681
----------- -----------
$18,224,428 $18,193,555
=========== ===========
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases amount to approximately
$2,616,000 in each of the years 1997 to 2001; and aggregate
approximately $26,038,000 through 2008.
Contingent rents were approximately $1,253,000, $990,000 and $726,000 in
1994, 1995 and 1996, respectively.
Continued
-14-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
6. Mortgage Notes Payable:
The Partnership's mortgage loans are limited recourse obligations and
are collateralized by lease assignments and by real property. The
encumbered properties have an aggregate carrying amount of
$34,208,000, before accumulated depreciation. As of December 31,
1996, mortgage notes payable bear interest at rates varying from
7.60% to 10.52% per annum and mature from 1998 to 2004.
Scheduled principal payments during each of the next five years
following December 31, 1996 and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 903,766
1998 6,918,837
1999 191,464
2000 206,750
2001 223,256
Thereafter 2,255,726
-----------
Total $10,699,799
===========
</TABLE>
Interest paid was $2,408,669, $2,156,609 and $1,568,508 for 1994, 1995
and 1996, respectively.
7. Distributions to Partners:
Distributions are declared and paid to partners quarterly and are
summarized as follows:
<TABLE>
<CAPTION>
Limited
Year Ending Distributions Paid to Distributions Paid to Partners' Per
December 31, General Partners Limited Partners Unit Amount
------------ --------------------- --------------------- -------------
<S> <C> <C> <C>
1994 $ 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
========== ========== =======
1996 $ 266,246 $4,186,351 $ 48.93
========== ========== =======
</TABLE>
Distributions of $67,039 to the General Partners and $1,050,284 to the
Limited Partners for the quarter ended December 31, 1996 were declared and
paid in January 1997.
Continued
-15-
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to 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>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net income per Statements of Income $ 4,443,380 $ 8,678,586 $ 6,913,526
Excess tax depreciation (1,746,077) (1,242,601) (877,624)
Excess tax gain related to sale of property 9,318,375
Cash receipts on operating and direct financing
leases greater (less) than income recognized 9,808 (945,667)
Other (234,766) (221,282) (40,470)
------------ ------------ ------------
Income reported for
Federal income tax purposes $ 2,462,537 $ 16,542,886 $ 5,049,765
============ ============ ============
</TABLE>
9. Industry Segment Information:
The Partnership's operations consist of the investment in and the
leasing of industrial and commercial real estate.
In 1994, 1995 and 1996, the Partnership earned its total leasing
revenues (rental income plus interest income from direct financing
leases) from the following lease obligors:
<TABLE>
<CAPTION>
1994 % 1995 % 1996 %
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hughes Markets, Inc. $1,429,421 17 $1,443,715 19 $3,714,792 42
Simplicity Manufacturing, Inc. 1,996,710 24% 1,996,710 26 1,996,710 22
Brodart Co. 1,322,770 16 1,318,708 17 1,313,891 15
Continental Casualty Company 709,027 9 755,614 10 759,849 9
Family Dollar Stores, Inc. 280,800 3 547,200 7 556,800 6
Petrocon Engineering, Inc. 357,468 4 368,780 5 370,508 4
Winn-Dixie Stores, Inc. 144,713 2 144,713 2 144,713 2
Genesco, Inc. 2,095,020 25 1,047,510 14
---------- ---------- ---------- ---------- ---------- ----------
$8,335,929 100% $7,622,950 100% $8,857,263 100%
========== ========== ========== ========== ========== ==========
</TABLE>
Continued
-16-
<PAGE> 14
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
10. Gain on Sale of Real Estate:
On June 30, 1995, the Partnership sold a property to Genesco, Inc.
("Genesco"), the lessee, for $15,200,000. The Partnership recognized
a gain on the sale of $3,330,098, net of certain costs. In connection
with the sale, the Partnership paid off the limited recourse mortgage
loan on the 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. Hotel Property in Kenner, Louisiana:
The Partnership and Corporate Property Associates 8 ("CPA(R):8"), an
affiliate, purchased a hotel property in Kenner, Louisiana, in June
1988 as tenants-in-common with 46.383% and 53.617% interests,
respectively. The Partnership and CPA(R):8 assumed operating control
of the hotel in 1992 after evicting the lessee due to its financial
difficulties. On July 30, 1996, the Partnership and CPA(R):8
completed a transaction with American General Hospitality Operating
Partnership L.P. (the "Operating Partnership"), the operating
partnership of a newly-formed real estate investment trust, American
General Hospitality Corporation, ("AGH"), in which the Partnership
and CPA(R):8 received 920,672 limited partnership units (of which the
Partnership's share was 427,008 units) in exchange for the hotel
property and its operations. In connection with the transfer, the
Partnership and CPA(R):8 paid a cash contribution of $391,221 (of
which the Partnership's share was $181,460) and the Operating
Partnership's assumed the mortgage loan obligation collateralized by
the hotel property (of which the Partnership's share was $3,388,764).
AGH owns an 81.3% equity interest in the Operating Partnership
The exchange of the hotel property for limited partnership units has
been treated as a nonmonetary exchange for tax and financial
reporting purposes. The Partnership's interest in the Operating
Partnership is being accounted for under the equity method. After one
year, the Partnership will have the right to convert its Operating
Partnership Units to shares of common stock in AGH on a one-for-one
basis. AGH completed an initial public offering during 1996. The
Partnership's carrying value for the limited partnership units at the
time of the exchange of $3,851,832 was based on the historical basis
of assets transferred, net of liabilities assumed by the Operating
Partnership; cash contributed and costs incurred to complete the
exchange.
As of September 30, 1996, the audited consolidated financial statements
of AGH reported total assets of $187,870,000 and shareholders' equity
of $127,408,000 and for the period from inception (July 31, 1996)
through September 30, 1996, revenues of $5,251,000, income before
minority interest of $2,850,000 and net income of $2,302,000. As of
March 15, 1997, AGH's quoted per share market value was $28 resulting
in an aggregate value of approximately $11,956,000. The carrying
value of the equity interest in the Operating Partnership as of
December 31, 1996 was approximately $4,000,000. For the period from
July 31, 1996 to December 31, 1996, the Partnership's share of
Operating Partnership earnings was $265,056.
Between January 1995 and July 1996, the Partnership and CPA(R):8 had
engaged an affiliate of AGH to manage the operations of Kenner on
their behalf.
Continued
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<PAGE> 15
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
Summarized operating results of the Partnership's share of the hotel
operation through the date of disposal (July 30,1996) are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 3,127,894 $ 3,834,671 $ 2,314,569
Fees paid to hotel management company (95,660) (112,713) (83,062)
Other operating expenses (1,942,104) (2,291,378) (1,378,245)
----------- ----------- -----------
Hotel operating income $ 1,090,130 $ 1,430,580 $ 853,262
=========== =========== ===========
</TABLE>
12. Property Leased to Hughes Markets, Inc.:
The Partnership and Corporate Property Associates 3 ("CPA(R):3"), an
affiliate, own a dairy processing facility in Los Angeles, California
as tenants-in-common with 83.24% and 16.76% ownership interests,
respectively. On May 1, 1996, the Partnership and CPA(R):3 entered
into a lease amendment agreement with the lessee, Hughes Markets,
Inc. ("Hughes"), to extend the lease term from April 30, 1996 to
April 30, 1998. Under the extension agreement, Hughes' monthly rent
increased to $336,166 (of which the Partnership's share is $279,825)
from $151,686 (of which the Partnership's share was $126,266). At the
end of the lease term, Hughes is obligated to pay a lump sum rental
payment of $3,500,000 (of which the Partnership's share will be
approximately $2,913,000). Hughes has an option to extend the lease
on a month-to-month basis for up to six months at a rental of
$500,000 per month.
In accordance with the lease amendment agreement, Hughes has provided
the Partnership and CPA(R):3 with an irrevocable letter of credit in
the amount of $3,500,000, an amount equal to Hughes' lump sum payment
obligation. For financial reporting purposes, the Partnership's share
of the $3,500,000 lump sum rental payment due at the end of the lease
term is being recognized on a straight-line basis over the lease
extension term. For the year ended December 31, 1996, the difference
between scheduled rents under the lease and rent recognized for
financial reporting purposes with the adjustment for the lump sum
payment was $971,133.
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.
Continued
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<PAGE> 16
CORPORATE PROPERTY ASSOCIATES 4,
a California limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
All of the Partnership's properties are subject to environmental
statutes and regulations regarding the discharge of hazardous
materials and related remediation obligations. All of the
Partnership's properties are currently leased to corporate tenants.
The Partnership generally structures a lease to require the tenant to
comply with all laws. In addition, substantially all of the
Partnership's net leases include provisions which require tenants to
indemnify the Partnership from all liabilities and losses related to
their operations at the leased properties. The costs for remediation,
which are 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 condition, liquidity or results of
operations.
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
at December 31, 1996 approximates the carrying value of such mortgage
notes at December 31, 1996. The fair value of debt instruments was
evaluated using a discounted cash flow model with discount rates
which take into account the credit of the tenants and interest rate
risk.
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<PAGE> 17
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.
09/03/97 BY: /s/ Steven M. Berzin
- -------------- ---------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
09/03/97 BY: /s/ Claude Fernandez
- -------------- ---------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
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