<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-11948
CORPORATE PROPERTY ASSOCIATES 5
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 13-3164925
(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 5:
We have audited the accompanying balance sheets of Corporate
Property Associates 5 (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 22 to 25 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 5 (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 5
(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 $ 4,722,767 $ 3,960,767
Buildings 34,271,786 22,753,408
------------ ------------
38,994,553 26,714,175
Accumulated depreciation 12,371,727 9,111,827
------------ ------------
26,622,826 17,602,348
Net investment in direct financing leases 19,352,938 19,298,726
------------ ------------
Real estate leased to others 45,975,764 36,901,074
Operating real estate, net of accumulated depreciation
of $4,265,218 in 1995 and $4,637,421 in 1996 7,735,809 7,463,300
Real estate held for sale 10,388,398
Cash and cash equivalents 2,300,682 5,237,995
Funds in escrow 2,977,622 575,051
Other assets, net of accumulated amortization of
$130,589 and reserve for uncollected
rent of $165,164 in 1995 2,890,127 2,474,117
------------ ------------
Total assets $ 72,268,402 $ 52,651,537
============ ============
LIABILITIES:
Mortgage notes payable $ 36,065,145 $ 14,283,940
Note payable to affiliate 1,151,000 1,151,000
Accrued interest payable 170,877 45,707
Accounts payable and accrued expenses 572,267 433,842
Accounts payable to affiliates 144,553 111,526
Deferred gains, net of accumulated amortization of
$245,788 in 1995 and $180,278 in 1996 1,366,593 901,390
Other liabilities 1,051,904 658,542
------------ ------------
Total liabilities 40,522,339 17,585,947
------------ ------------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners (262,961) (67,666)
Limited Partners (113,200 Limited Partnership
Units issued and outstanding) 32,009,024 35,133,256
------------ ------------
Total partners' capital 31,746,063 35,065,590
------------ ------------
Total liabilities and
partners' capital $ 72,268,402 $ 52,651,537
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-7-
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 5
(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 $ 5,606,618 $ 4,642,686 $ 3,225,129
Interest income from direct financing leases 5,805,643 3,879,125 3,409,166
Other interest income 117,325 307,951 210,913
Revenue of hotel operations 6,595,570 6,768,268 6,359,758
Other income 170,107
----------- ----------- -----------
18,125,156 15,768,137 13,204,966
----------- ----------- -----------
Expenses:
Interest 4,534,425 3,495,872 2,075,230
Depreciation 2,181,422 2,065,781 1,331,028
General and administrative 571,189 841,920 460,948
Property expenses 1,516,194 810,581 579,189
Amortization 63,932 33,599 13,301
Writedown to net realizable value 1,980,550 1,300,000
Operating expense of hotel operations 4,959,699 5,241,370 4,952,959
----------- ----------- -----------
13,826,861 14,469,673 10,712,655
----------- ----------- -----------
Income before gains on sale 4,298,295 1,298,464 2,492,311
Gains on sale of real estate, net 1,140,891 614,234 5,284,165
----------- ----------- -----------
Net income $ 5,439,186 $ 1,912,698 $ 7,776,476
=========== =========== ===========
Net income allocated to:
Individual General Partner $ 171,409 $ 52,520 $ 119,855
=========== =========== ===========
Corporate General Partner $ 832,262 $ 148,208 $ 342,857
=========== =========== ===========
Limited Partners $ 4,435,515 $ 1,711,970 $ 7,313,764
=========== =========== ===========
Net income per Limited
Partnership Unit
(113,200 Units outstanding) $ 39.18 $ 15.12 $ 64.61
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-8-
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 5
(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 $ 38,311,475 $ (746,920) $ 39,058,395 $ 345
Distributions (5,862,314) (351,738) (5,510,576) (49)
Net income, 1994 5,439,186 1,003,671 4,435,515 39
------------ ------------ ------------ ------------
Balance, December 31, 1994 37,888,347 (94,987) 37,983,334 335
Distributions (8,054,982) (368,702) (7,686,280) (68)
Net income, 1995 1,912,698 200,728 1,711,970 15
------------ ------------ ------------ ------------
Balance, December 31, 1995 31,746,063 (262,961) 32,009,024 282
Distributions (4,456,949) (267,417) (4,189,532) (37)
Net income, 1996 7,776,476 462,712 7,313,764 65
------------ ------------ ------------ ------------
Balance, December 31, 1996 $ 35,065,590 $ (67,666) $ 35,133,256 $ 310
============ ============ ============ ============
</TABLE>
(a) Based on 113,200 Units issued and outstanding during all periods.
The accompanying notes are an integral part of the financial statements.
-9-
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 5
(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 $ 5,439,186 $ 1,912,698 $ 7,776,476
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,245,354 2,099,380 1,344,329
Amortization of deferred gains (71,609) (71,678) (64,974)
Cash receipts on operating and financing
leases greater than straight-line adjustments and
amortization of unearned income 8,388 13,162 54,212
Writedown to net realizable value 1,980,550 1,300,000
Net gain on sale of real estate (1,140,891) (614,234) (5,284,165)
Net change in operating assets and liabilities (187,595) (631,808) 480,432
------------ ------------ ------------
Net cash provided by operating
activities 6,292,833 4,688,070 5,606,310
------------ ------------ ------------
Cash flows from investing activities:
Issuance of note receivable (188,910)
Additional capitalized costs (407,538) (1,078,951) (172,447)
Proceeds on sale and transfer of real estate 16,939,000 3,387,362 18,592,329
Purchase of limited partnership interests (1,750,175)
------------ ------------ ------------
Net cash provided by investing activities 16,342,552 558,236 18,419,882
------------ ------------ ------------
Cash flows from financing activities:
Distributions to partners (5,862,314) (8,054,982) (4,456,949)
Release of escrow funds in
connection with mortgage prepayment 2,295,000
Prepayments of mortgage payable (10,413,985) (2,200,000) (18,561,812)
Payments on mortgage principal (725,239) (463,487) (365,118)
Partial prepayment of note payable to affiliate (144,000)
Deferred financing costs (1,247) (10,000)
------------ ------------ ------------
Net cash used in financing activities (17,002,785) (10,872,469) (21,088,879)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 5,632,600 (5,626,163) 2,937,313
Cash and cash equivalents, beginning of year 2,294,245 7,926,845 2,300,682
------------ ------------ ------------
Cash and cash equivalents, end of year $ 7,926,845 $ 2,300,682 $ 5,237,995
============ ============ ============
</TABLE>
Supplemental Schedule of noncash investing and financing activity:
In connection with the sales of properties, purchasers assumed a mortgage
loan obligation of $2,854,275 and accrued interest thereon of $12,049 in 1996
and a mortgage loan obligation of $720,401 and accrued interest thereon of
$5,780 in 1995 in lieu of paying cash.
The accompanying notes are an integral part of the financial statements.
-10-
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Real Estate Leased to Others:
Real estate is leased to others on a net lease basis, whereby the tenant
is generally responsible for all operating expenses relating to the
property, including property taxes, insurance, maintenance, repairs,
renewals and improvements.
Corporate Property Associates 5 (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 - Under this method, real estate is recorded at
cost, revenue is recognized as rentals are earned and expenses
(including depreciation) are charged to operations as incurred.
When scheduled rents vary during the lease term, income is
recognized on a straight-line basis so as to produce a constant
periodic rent.
The Partnership assesses the recoverability of its real estate assets,
including residual interests, based on projections of undiscounted
cash flows over the life of such assets. In the event that such cash
flows are insufficient, the assets are adjusted to their estimated
net realizable value.
Substantially all of the Partnership's leases provide for either
scheduled rent increases, periodic rent increases based on formulas
indexed to increases in the Consumer Price Index or sales overrides.
Operating Real Estate:
Land, buildings 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.
Real Estate Held for Sale:
Real estate held for sale is accounted for at the lower of cost or fair
value less cost of sale.
Depreciation:
Depreciation is being computed using the straight-line method over the
estimated useful lives of components of the particular properties,
which range from 5 to 30 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
Continued
-11-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
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 and Liabilities:
Included in other assets are deferred charges incurred in connection
with mortgage note financings and refinancings and an investment in a
limited partnership. Deferred charges are amortized on a
straight-line basis over the terms of the mortgages. The
Partnership's 17.5% investment in an unaffiliated limited partnership
is accounted for under the cost method, i.e., income is recorded
based on distributions received from net accumulated earnings.
Included in other liabilities is deferred rental income for the
aggregate difference on an operating method lease between scheduled
rents which vary during the lease term and rent recognized on a
straight-line basis.
Deferred Gains:
Deferred gains consist of assets acquired in excess of liabilities
assumed in connection with acquiring the operations of a hotel
property in Rapid City, South Dakota and certain funds received in
connection with the two loan refinancings. The deferred gain from the
refinancings is being amortized on a straight-line basis over 24
years. The deferred gain on acquisition had been amortized on a
straight-line basis on a 20-year schedule until sale of the property
in October 1996, at which time the remaining unamortized gain was
recognized.
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 to the
1996 financial statement presentation.
2. Partnership Agreement:
The Partnership was organized on April 12, 1983 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. All the Units were sold prior to December 21, 1983, at
which time the offering terminated. The Partnership will terminate on
December 31, 2005, 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, except
as described below, as well as distributions of Distributable Cash
From Operations, as defined. 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 after the limited partners receive 100%
of their initial investment from the proceeds of asset sales and a
cumulative annual return
Continued
-12-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
of 6% since the inception of the Partnership. The General Partners
interest in such preferred return amounts to $1,422,844 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.
In accordance with the Agreement, the General Partners, due to having
negative capital balances at the beginning of each year, were
allocated a portion of the 1994, 1995 and 1996 gains on sale of
property as well as the related tax gain in order to reduce their
negative balances. The Partnership paid a special distribution in
1995 of proceeds from a property 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 holds a 65% interest as tenants-in-common in hotel
properties in Alpena and Petoskey, Michigan with Corporate Property
Associates 6 ("CPA(R):6"), an affiliate which owns the remaining 35%
interest. The Partnership accounts for its interest in the Alpena and
Petoskey properties on a proportional basis.
Under the Agreement, W.P. Carey & Co., Inc. ("W.P. Carey") and other
affiliates are 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 to the
operation of the Partnership.
Property management fee and general and administrative expense
reimbursements are summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Property management fee $156,947 $116,825 $ 76,763
General and administrative
expense reimbursements 178,840 117,584 113,288
-------- -------- --------
$335,787 $234,409 $190,051
======== ======== ========
</TABLE>
During 1994, 1995 and 1996, fees aggregating $339,112, $180,242 and
$91,265 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 mortgage loans on the Alpena and Petoskey properties consist of
tax-exempt bond obligations of $7,330,000 for each property of which
the Partnership's share of each is $4,764,500. The bonds are also
collateralized by mortgage and/or lease assignments on eight other
Partnership properties. In the event of default, the bondholders have
recourse to the Partnership's collateral to the full extent of the
outstanding balance of the bonds including the portion of the
obligation applicable to CPA(R)6. In connection with restructuring
the bond obligation in 1992, the Partnership received cash and other
consideration from CPA(R)6.
Continued
-13-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
The Partnership is a participant in an agreement with W.P. Carey and
other affiliates for the purpose of leasing office space used for the
administration of real estate entities and W.P. Carey and for sharing
the associated costs. Pursuant to the terms of the agreement, the
Partnership's share of rental, occupancy and leasehold improvement
costs is based on adjusted gross revenues, as defined. Net expenses
incurred in 1994, 1995 and 1996 were $76,426, $182,843 and $83,533,
respectively. Net expenses in 1995 included certain nonrecurring
items.
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 $2,850,000 in
1997, $2,822,000 in 1998, $2,647,000 in 1999, $1,077,000 in both of
the years 2000 and 2001, and aggregate approximately $16,650,000
through 2010.
Contingent rents were approximately $106,000, $5,000 and $6,000 in 1994,
1995 and 1996, respectively.
B. Operating Real Estate:
Operating real estate, at cost, is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1995 1996
----------- -----------
<S> <C> <C>
Land $ 479,050 $ 479,050
Buildings 9,603,750 9,603,750
Personal property 1,918,227 2,017,921
----------- -----------
12,001,027 12,100,721
Less: Accumulated depreciation 4,265,218 4,637,421
----------- -----------
$ 7,735,809 $ 7,463,300
=========== ===========
</TABLE>
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 $34,887,327 $32,483,668
Unguaranteed residual value 17,495,677 17,495,677
----------- -----------
52,383,004 49,979,345
Less: Unearned income 33,030,066 30,680,619
----------- -----------
$19,352,938 $19,298,726
=========== ===========
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable financing leases amount to approximately $2,585,000 in
each of the years from 1997 to 2001 and aggregate approximately
$32,484,000 through 2017.
Continued
-14-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
Contingent rents were approximately $995,000, $758,000 and $776,000 in
1994, 1995 and 1996, respectively.
6. Mortgage Notes Payable and Note Payable to Affiliate:
A. Mortgage Notes Payable
The Partnership's mortgage notes payable are limited recourse
obligations and are collateralized by lease assignments and by real
property with a carrying amount of approximately $32,914,000, before
accumulated depreciation (also see Note 3). As of December 31, 1996,
mortgage notes payable bear interest at rates varying from 6.6% to
10% per annum and mature from 1997 to 2015.
Scheduled principal payments during each of the next five years following
December 31, 1996 and thereafter, including a mortgage loan subject
to acceleration, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 4,988,940
1998 253,500
1999 266,500
2000 286,000
2001 312,000
Thereafter 8,177,000
-----------
Total $14,283,940
===========
</TABLE>
B. Note Payable to Affiliate:
A note payable to CPA(R):6 of $1,151,000 provides for payments of
interest only at a rate of 13.48% per annum through August 1, 1999,
at which time the interest rate will reset to the Applicable Federal
Rate (as defined in the Internal Revenue Code of 1986). The note,
which is a recourse obligation of the Partnership, matures on May 1,
2012, at which time a balloon payment for any unpaid principal is
due. The note may be prepaid in part or whole at any time.
Interest paid on mortgage notes payable and the note payable to
affiliate was $4,642,849, $3,554,413 and $2,254,150 in 1994, 1995 and
1996, respectively.
7. Distributions to Partners:
Distributions declared and paid to partners 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 $ 351,738 $5,510,576 $48.68
========== ========== ======
1995:
Quarterly distributions $ 345,833 $5,422,280 $47.90
Special distribution 22,869 2,264,000 20.00
---------- ---------- ------
Total 1995 $ 368,702 $7,686,280 $67.90
========== ========== ======
1996 $ 267,417 $4,189,532 $37.01
========== ========== ======
</TABLE>
Distributions of $61,056 to the General Partners and $956,540 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 5
(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 $ 5,439,186 $ 1,912,698 $ 7,776,476
Excess tax depreciation (2,979,063) (2,399,357) (1,980,182)
Writedowns of assets 1,980,550 1,300,000
Difference in gains or losses on
dispositions of property 8,776,856 (157,203) 3,475,585
Other (351,394) 284,878 (544,552)
------------ ------------ ------------
Income reported for Federal
income tax purposes $ 10,885,585 $ 1,621,566 $ 10,027,327
============ ============ ============
</TABLE>
9. Industry Segment Information:
The Partnership's operations consist primarily of the investment in and
the leasing of industrial and commercial real estate and the
operations of three hotel properties.
In 1994, 1995 and 1996, the Partnership earned its total leasing
revenues (rental income plus interest income from financing leases)
from the following lease obligors:
<TABLE>
<CAPTION>
1994 % 1995 % 1996 %
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gould, Inc. $ 1,125,000 10% $ 1,132,500 13% $ 1,215,000 18%
Spreckels Industries, Inc. 880,264 8 1,020,717 12 1,020,717 15
DeVlieg Bullard, Inc. 830,984 7 830,984 10 912,864 14
Arley Merchandise
Corporation 600,000 5 600,000 7 600,000 9
Exide Electronics
Corporation 485,726 4 528,926 6 572,130 9
Penn Virginia Corporation 498,750 5 498,750 6 498,750 8
Stoody Deloro Stellite, Inc. 380,325 3 404,719 5 390,068 6
GATX Logistics, Inc. 1,834,350 16 1,398,600 16 380,730 6
Harcourt General Corporation 233,750 2 233,750 3 233,750 4
Rochester Button Company 204,743 2 199,968 2 225,706 3
Penberthy Products, Inc. 182,529 2 182,529 2 200,514 3
Winn Dixie Stores, Inc. 191,534 2 191,534 2 191,534 3
Sunds Defibrator Woodhandling, Inc.
(formerly FMP/Rauma Company) 124,430 1 131,033 2 144,239 2
Other 146,342 1 212,383 2 31,602
IBM Corporation 318,097 3 318,097 4 16,691
Industrial General Corporation 1,385,643 12 637,321 8
Pace Membership Warehouse, Inc. 601,718 5
Liberty Fabrics of New York 1,388,076 12
----------- ----------- ----------- ----------- ----------- -----------
$11,412,261 100% $ 8,521,811 100% $ 6,634,295 100%
=========== =========== =========== =========== =========== ===========
</TABLE>
Continued
-16-
<PAGE> 14
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
The Partnership's share of the operating results for the three hotel
properties are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 6,595,570 $ 6,768,268 $ 6,359,758
Fees to hotel management
company (131,911) (143,498) (134,872)
Other operating expenses (4,827,788) (5,097,872) (4,818,087)
----------- ----------- -----------
Hotel operating income $ 1,635,871 $ 1,526,898 $ 1,406,799
=========== =========== ===========
</TABLE>
10. Rochester Button Company:
In June 1992, the Partnership and Rochester Button Company ("RBC")
entered into restructuring and lease modification agreements for
properties leased by RBC in South Boston and Kenbridge, Virginia.
Under the restructuring agreement, the Partnership agreed to exchange
a $300,000 subordinated promissory note from RBC for 300 shares of
preferred stock ($1,000 par value, 5%). In January 1994, the
Partnership agreed to lend $250,000 to RBC at an annual interest rate
of 9% evidenced by a subordinated promissory note. In 1995, the
Partnership incurred a charge of $288,910 in writing off the note
receivable and preferred stock as a result of RBC experiencing
financial difficulties and its inability to pay dividends and debt
service installments in a timely manner. The Partnership had
previously written down the investment in the preferred stock. In
addition, the Partnership incurred charges on uncollected rents of
$165,164 and $235,314 for the years ended December 31, 1995 and 1996,
respectively.
On December 30, 1996, the Partnership entered into a new lease agreement
with RBC and agreed to forgive all previously uncollected rents. The
lease amendment provides for a reduction of annual rent from $286,000
to $180,000. Additionally, RBC granted the Partnership warrants which
are exercisable at any time prior to December 31, 2006, to purchase
up to 273.5 shares of RBC common stock, representing 40% of the
outstanding common stock of RBC, at an exercise price of $18.28 per
share prior to December 31, 2006.
The South Boston and Kenbridge properties are pledged as collateral for
$400,000 of bond financings issued to RBC by industrial development
authorities.
Continued
-17-
<PAGE> 15
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
11. Funds in Escrow:
Funds in escrow at December 31, 1995 and 1996 consist of reserves and
escrow funds for the hotel properties and related mortgage debt.
<TABLE>
<CAPTION>
December 31,
------------
1995 1996
---------- ----------
<S> <C> <C>
Security reserve on Rapid City
property $1,895,000
Debt service escrow account and bond
reserves on Alpena and Petoskey
properties 412,100 $ 490,100
Hotel furniture, fixture
and equipment reserves 270,522 84,951
Special escrow accounts
on Rapid City hotel property 400,000
---------- ----------
$2,977,622 $ 575,051
========== ==========
</TABLE>
12. Gains and Losses on the Sale of Real Estate:
Pace Membership Warehouse, Inc.:
On November 10, 1994, Pace Membership Warehouse, Inc. ("Pace"),
purchased its leased property in Tampa, Florida from the Partnership
for $7,000,000. A portion of the Partnership's proceeds from the sale
was used to satisfy the remaining $3,290,437 mortgage balance on the
Tampa property. In connection with the sale, the Partnership
recognized a gain of $2,027,891.
Industrial General Corp.:
In August 1985, the Partnership purchased from and net leased to
Industrial General Corporation ("IGC") and certain of its
wholly-owned subsidiaries, seven properties located in Elyria and
Bellville, Ohio; Forrest City and Bald Knob, Arkansas; Carthage, New
York; and Newburyport, Massachusetts. Subsequent to the purchase, the
Partnership agreed to exchange the Saginaw property for an expansion
of the Newburyport facility, severed the Carthage property from the
lease and entered into a lease with FMP/Rauma Company ("FMP"). In
December 1994, the Partnership sold the Forrest City property for
$650,000 and recognized a loss of $887,000.
In July 1995, IGC filed a voluntary petition of bankruptcy under Chapter
11 of the United States Bankruptcy Code. In connection with an asset
acquisition of the plastics division of IGC, on September 14, 1995,
the Partnership entered into a series of transactions which resulted
in the termination of the IGC lease, the sale of the Bald Knob,
Bellville and Newburyport properties and the full satisfaction of the
mortgage loan obligation collateralized by all of the IGC properties
and the FMP property which had been scheduled to mature on September
1, 1995. In connection with the sale of the Bald Knob property to
IGC, the Partnership received cash of $987,362 and IGC, with the
consent of the mortgage lender, assumed a mortgage obligation from
the Partnership of $720,401 and accrued interest thereon of $5,780.
Additionally, IGC agreed to pay an additional $200,000 in
installments to the Partnership of which $185,000 had been received
as of December 31, 1996. The Bellville and Newburyport properties
were sold for $2,400,000 in cash to G.I. Plastek Industrial
Properties Limited Partnership ("Plastek Properties"), an affiliate
of G.I. Plastek Limited Partnership ("Plastek") which acquired the
assets of the IGC plastics division.
Continued
-18-
<PAGE> 16
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
The Partnership used $2,200,000 of the proceeds to pay off the
remaining balance on the matured mortgage loan obligation on the IGC
and FMP properties. In connection with the sale of the three
properties, the Partnership realized a loss of $1,719,828.
The Partnership also purchased limited partnership interests in Plastek.
The Partnership made capital contributions of $175 and $1,750,000 for
Class A and Class B limited partnership interests, respectively. The
Class A interest provides for a 17.5% participation in the profits
and losses of Plastek after payment of preferred returns to Class B
interests. Class B interests are entitled to a cumulative preferred
return of 10% on their contributions; however, it does not
participate in nor receive other allocations of any gains or losses
of Plastek. The Class B interest is redeemable on September 8, 2000.
As of December 31, 1996, the Partnership has not received any
distributions.
The Partnership retains ownership of the Elyria property. In 1995, based
on the appraised value of the property and the costs that would need
to be incurred to prepare the property for sale or lease after IGC
vacated, the Partnership wrote off the value of the property and
recognized a charge of $691,640. The Elyria property is presently
leased to InnoTech Industries, Inc. through April 1998 for an annual
rental of $60,000.
Liberty Fabrics of New York:
In January 1984, the Partnership purchased properties in Gordonsville,
Virginia and in North Bergen, New Jersey and entered into a net lease
with Liberty Fabrics of New York ("Liberty"). In December 1993,
Liberty notified the Partnership of its intention to exercise its
purchase option on the properties. Pursuant to the lease, the
purchase price would be the greater of $7,000,000, the Partnership's
purchase price for the property, or fair market value as encumbered
by the lease.
On December 29, 1994, the Partnership and Liberty terminated the lease
and agreed that the properties would be transferred to Liberty for
$9,359,000, subject to a final determination of the fair value of the
property. Liberty would have the right within 30 days of the
determination to rescind the transfer, in which case all proceeds
would be returned to Liberty, title of the properties transferred
back to the Partnership and Liberty would pay all rents in arrears
for the period from the initial transfer of title if the fair market
value was determined to be greater than $9,359,000. The final
determination was made with no adjustment made to the fair market
value thereby completing the sale. As a result, the Partnership
recognized a gain of $2,334,062 in 1995 on the sale of the
properties.
Rapid City Hotel:
In 1985, the Partnership purchased a hotel in Rapid City, South Dakota,
which it operated as a Holiday Inn, with $6,800,000 of tax-exempt
bonds which were supported by a letter of credit issued by a third
party. In September 1994, the Partnership was advised by Holiday Inn
that it would need to upgrade the hotel's physical plant by January
1997 in order to meet the requirements of a modernization plan
adopted by Holiday Inn or surrender its Holiday Inn license. As the
cost of such upgrade was estimated to be $1,925,000, Management
concluded that such additional investment would not justify
compliance with the modernization plan. Although Management was
considering an affiliation with another national hotel chain,
earnings were expected to decline after any change in affiliation.
Continued
-19-
<PAGE> 17
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
In 1995, under an agreement with the issuer of the letter of credit
supporting the $6,800,000 tax-exempt mortgage bond on the Rapid City
property, the Partnership agreed to use its best efforts to sell the
hotel property in exchange for an extension of the letter of credit
from October 1995 to October 1997. Annual cash flow from the hotel
(hotel earnings, adjusted for depreciation and amortization, less
debt service on the tax-exempt bonds) for 1995, the last full year of
operations, was $305,000. In 1995, the Partnership reevaluated the
net realizable value of the property and recognized a noncash charge
of $1,000,000 on the writedown. In the second quarter of 1996, the
Partnership charged an additional $1,300,000 as a writedown to net
realizable value to an amount Management believed would approximate
the proceeds from a sale.
On October 1, 1996, the Partnership sold the property and the operating
assets and liabilities of the hotel for $4,105,000. The Partnership
recognized a gain of $784,618 on the sale. The bond was paid off by
utilizing the net proceeds from the sale, $302,000 of cash and
various escrow accounts which had been held by the bond trustee or
issuer of the letter of credit. The gain includes the recognition of
the release of unamortized deferred gains relating to the acquisition
of the hotel operation in 1991 from the former lessee.
Helena, Montana Office Building :
In May 1985, the Partnership purchased an office building in Helena,
Montana and was assigned an existing net lease with IBM Corporation
("IBM") as lessee. In 1992, the lease with IBM and the mortgage loan
on the property were modified at which time IBM reduced its occupancy
from 100% to 40% of the leasable space. The Partnership subsequently
leased the remaining space to various other tenants.
On January 19, 1996, the Partnership sold the property for $4,800,000
including the purchaser's assumption of the existing mortgage loan on
the property. Net of closing costs, the Partnership received cash
proceeds of $1,741,261, assigned the mortgage loan obligation of
$2,854,275 and accrued interest thereon of $12,049 to the purchaser
and recognized a gain of $90,356 on the sale.
GATX Logistics, Inc.:
In June 1985, the Partnership purchased a warehouse property in
Hodgkins, Illinois leased to General Motors Corporation ("GM"). In
November 1993, GM terminated its lease and the Partnership entered
into a short-term lease with GATX Logistics, Inc.("GATX").
Subsequently, in November 1994, GATX and the Partnership entered into
a new lease which provided for a five-year term and a renewal term of
five years at GATX's option.
On April 9, 1996, the Partnership sold the Hodgkins property for
$13,200,000 and assigned the GATX lease, as lessor, to the purchaser.
Net of costs and amounts necessary to pay the remaining $3,208,526
balance on the property's mortgage loan, the Partnership received
cash proceeds of $9,428,270 and recognized a gain on sale of
$4,409,191.
Continued
-20-
<PAGE> 18
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
13. Environmental Matters:
All of the Partnership's properties, other than the hotel 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. 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.
In 1994, based on the results of Phase I environmental reviews performed
in 1993, the Partnership voluntarily conducted Phase II environmental
reviews on certain of its properties. The Partnership believes, based
on the results of Phase I and Phase II reviews, that its leased
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 and leakage from underground storage tanks. For
those conditions which were identified, the Partnership advised the
affected tenants of the Phase II findings and of their obligations to
perform required remediation.
14. Disclosure on 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 $13,914,000 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.
The carrying amount of the Partnership's limited partnership investment
in Plastek, which interest was purchased in September 1995 and which
is accounted for under the cost method, approximates fair value.
-21-
<PAGE> 19
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 5
(a California limited partnership)
BY: CAREY CORPORATE PROPERTY, INC.
09/3/97 BY: /s/ Steven M. Berzin
- --------------- -------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
09/3/97 BY: /s/ Claude Fernandez
- --------------- -------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-22-
