<PAGE> 1
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, 1997
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)
CALIFORNIA 13-3164925
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 492-1100
--------------
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:
SUBSIDIARY PARTNERSHIP UNITS
- --------------------------------------------------------------------------------
(Title of Class)
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
/X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by non-affiliates of
Registrant: There is no active market for Subsidiary Partnership Units.
<PAGE> 2
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 April 12, 1983. Effective January 1, 1998, the General
Partner of Registrant is Carey Diversified LLC ("Carey Diversified"). W. P.
Carey & Co., Inc. and William P. Carey were formerly Corporate General Partner
and Individual General Partner, respectively. Carey Diversified is also the
General Partner of Corporate Property Associates ("CPA(R):1"), Corporate
Property Associates 2 ("CPA(R):2"), Corporate Property Associates 3
("CPA(R):3"), Corporate Property Associates 4, a California limited partnership
("CPA(R):4"), 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") and Corporate Property Associates 9, L.P., a Delaware
limited partnership ("CPA(R):9"). Registrant has entered into an agreement with
Carey Management LLC ("Carey Management") pursuant to which Carey Management
performs a variety of management services for Registrant.
Registrant has two industry segments consisting of the
investment in and the leasing of industrial and commercial real estate and the
operation of a hotel business at two properties. See Selected Financial Data in
Item 6 and Management's Discussion and Analysis in Item 7 for a summary of
Registrant's operations. By assuming the operation of the hotel businesses from
former tenants, Management intends to preserve the value of the underlying
investment while generating a contribution to Registrant's operating cash flow.
Also see the material contained in the Prospectus under the heading INVESTMENT
OBJECTIVES AND POLICIES.
The properties owned by Registrant are described in Item 2.
Registrant's entire net proceeds from the public offering, less a working
capital reserve have been fully invested in net leased commercial and industrial
real estate since March 17, 1988, the date of Registrant's final real estate
acquisition.
Except for the two hotel properties, Registrant's properties
are leased to corporate tenants under net leases. A net lease generally requires
tenants to pay all operating expenses relating to the leased properties
including maintenance, real estate taxes, insurance and utilities which under
other forms of leases are often paid by the lessor. Lessees are required to
include Registrant as an additional insured party on all insurance policies
relating to the leased properties. In addition, substantially all of the net
leases include indemnification provisions which require the lessees to indemnify
Registrant and the General Partners for liabilities on all matters related to
the leased properties. Registrant believes that the insurance and indemnity
provided on its behalf by its lessees provides adequate coverage for property
damage and any liability claims which may arise against Registrant's ownership
interests. In addition to the insurance and indemnification provisions of the
leases, Registrant has contingent property and liability insurance on its leased
properties and primary property and liability coverages on its two hotel
properties. Management believes that its insurance is adequate. 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.
As described above, lessees generally retain the obligation
for the operating expenses of their leased properties so that, other than rental
income, there are no significant operating data reportable on Registrant's
leased properties. Current rental income is reported in Note 9 to the Financial
Statements in Item 8. As discussed in Item 7, Management's Discussion and
Analysis, Registrant's leases generally provide for periodic rent increases
which are either fixed or based on formulas indexed to increases in the Consumer
Price Index. The lease with Penn Virginia Corporation ("Penn Virginia") expires
in 1999, however, Penn Virginia may elect a ten-year renewal option in the event
it does not exercise its purchase option. Penn Virginia's purchase option is
exercisable between August 1998 and August 1999. The purchase option provides
for an exercise price based on the greater of fair market value, as defined in
the lease, or $3,700,000.
- 1 -
<PAGE> 3
Since Registrant's objective has been to invest in properties
which are occupied by a single corporate tenant and subject to long-term net
leases backed by the credit of the corporate lessee, Registrant's properties are
not generally subject to the competitive conditions of local and regional real
estate markets. In selecting its real estate investments, Registrant's strategy
was to identify properties of material importance to the lessee so that the
lessee would be more likely to extend its lease beyond the initial term or
exercise a purchase option if such option was provided for in the lease
agreement. Registrant is more likely to 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 with geographical diversification being
only a secondary objective. The Alpena, and Petoskey businesses are seasonal in
nature with occupancy rates for the year ended December 31, 1997 of 57% and 53%,
respectively. The occupancy rates decreased by 2% for Alpena and increased by 3%
for Petoskey from that of the prior year.
As discussed in Note 10 to the financial statements in Item 8,
on November 12, 1997, Registrant and Gould entered into an agreement to
terminate their lease effective October 1, 1997 with a remaining obligation on
the part of Gould to perform certain repairs to the building. In consideration
for the termination of the lease, Gould paid a termination fee of $1,837,500 in
January 1998. On October 1, 1997, Registrant entered into a lease with Lockheed
Martin Corporation ("Lockheed") for approximately 48% of the leasable space.
The Lockheed lease provides for an initial term through August 31, 2000 with
options for two one-year renewal terms. Annual rent is $360,000 increasing to
$475,000 in December 1999.
In May 1997, the lender on the limited recourse mortgage loan
collateralized by the Arley Merchandise Corporation ("Arley") properties made a
demand for payment for the entire outstanding principal balance of the loan of
$4,754,940. In June 1997, the lender initiated a lawsuit for the purpose of
foreclosing on the Arley properties. Registrant did not contest the lender's
actions, and on November 17, 1997, the ownership of the Arley properties was
transferred to the lender and the loan obligation was canceled.
For the year ended December 31, 1997, revenues from properties
occupied by lease obligors which accounted for 10% or more of the revenues of
the industrial and commercial real estate segment of Registrant were as follows:
Gould 19%; Duff-Norton Company, Inc., 17%; DeVlieg Bullard, Inc., 16% and Exide
Electronics Corporation, 10%. No other property owned by Registrant accounted
for 10% or more of its total real estate operating revenue during 1997. Revenues
from the industrial and commercial real estate segment represent approximately
62% of total revenues. See Note 9 to the Financial Statements in Item 8.
In 1994, Registrant voluntarily conducted Phase II reviews of
certain of its properties based on the results of the Phase I environmental
reviews contracted for in 1993. Registrant believes, based on the results of
such 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 either leakage from underground storage tanks or
surface spills from facility activities. Phase II investigations have been
recommended for some properties based upon the Phase I reports. For those
conditions which were identified, Registrant advised its tenants of such
findings and of their obligations, if any, 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 the
aforementioned environmental matters will not have a material effect on
Registrant's financial condition, liquidity or results of operations.
On October 16, 1997, Registrant distributed a Consent
Solicitation Statement/Prospectus to the Limited Partners that described a
proposal to consolidate Registrant with the other CPA(R) Partnerships. Proposals
that each of the nine CPA(R) limited partnerships be merged with a corresponding
subsidiary partnership of Carey Diversified, of which Carey Diversified is the
general partner, were approved by the Limited Partners of all nine of the CPA(R)
limited partnerships. Each limited partner had the option of either exchanging
his or her limited partnership interest for an interest in Carey Diversified
("Listed Shares") or to retain a limited partnership interest in the subsidiary
partnership ("Subsidiary Partnership Units"). On January 1, 1998, 3,494 holders
representing 111,658 of the 113,200 limited partnership units exchanged such
units for 2,051,157 Listed Shares with 48 holders of the remaining 1,542 limited
partnership units exchanging such units for Subsidiary Partnership Units.
- 2 -
<PAGE> 4
The Listed Shares are listed on the New York Stock Exchange.
The Subsidiary Partnership Units provide substantially the same economic
interest and legal rights as those of a limited partnership unit in Registrant
prior to the consolidation, but are not listed on a securities exchange. A
liquidating distribution to holders of Subsidiary Partnership Units will be made
after an appraisal of Registrant's properties. The date of such an appraisal is
to be no later than December 31, 2001.
Registrant does not have any employees. Carey Management, an
affiliate of the General Partner of Registrant, performs accounting, secretarial
and transfer services for Registrant. Chase Mellon Shareholder Services, Inc.
performs certain transfer services for Registrant and The Chase Manhattan Bank
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.
Registrant's management company has responsibility for
maintaining Registrant's books and records. An affiliate of the management
company services the computer systems used in maintaining such books and
records. In its preliminary assessment of Year 2000 issues, the affiliate
believes that such issues will not have a material effect on Registrant's
operations; however, such assessment has not been completed. Registrant relies
on its bank and transfer agent for certain computer related services and has
initiated discussions to determine whether they are addressing Year 2000 issues
that might affect Registrant.
Item 2. Properties.
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ----------- ---------------- -------- -----------------
<S> <C> <C> <C>
DUFF-NORTON Manufacturing and Forrest City, Ownership of land
COMPANY, INC. Office Facility Arkansas and building
ROCHESTER BUTTON Manufacturing Kenbridge, Ownership of land
COMPANY Facilities - South Boston, and buildings (2)
2 locations Virginia
PENN VIRGINIA Office and Duffield, Ownership of land
CORPORATION Manufacturing Virginia and building (3)
Facilities - Cuyahoga Falls,
3 locations Ohio and
Broomall,
Pennsylvania
(4) Hotels Petoskey and Ownership of 65%
Alpena, interest in land
Michigan and buildings (1)
EXIDE ELECTRONICS Office and Raleigh, Ownership of land
CORPORATION Research Facility North Carolina and building
HARCOURT GENERAL Movie Theater Canton, Ownership of land
CORPORATION Michigan and building (3)
</TABLE>
- 3 -
<PAGE> 5
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ----------- ---------------- -------- -----------------
<S> <C> <C> <C>
INNO TECH Office, and Manufac- Elyria, Ownership of land
INDUSTRIES, INC. turing Facility Ohio and buildings
LOCKHEED MARTIN Manufacturing and Oxnard, Ownership of land
CORPORATION Research Facility California and building
DEVLIEG BULLARD, INC. Manufacturing Frankenmuth, Ownership of land
Facilities - Michigan and buildings (3)
2 locations McMinnville,
Tennessee
PENBERTHY Manufacturing Prophetstown, Ownership of land
PRODUCTS, INC. Facility Illinois and building (3)
DS GROUP LIMITED Manufacturing Goshen, Ownership of land
(formerly STOODY Facility Indiana and building
DELORO STELLITE, INC.)
WINN-DIXIE Supermarket Montgomery, Ownership of land
STORES, INC. Alabama and buildings (3)
SUNDS DEFIBRATOR Manufacturing Carthage, Ownership of land
WOODHANDLING, INC. Facility New York and buildings
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) These properties are subject to a mortgage as collateral for loans issued
by unaffiliated parties to the lessee.
(3) These properties are encumbered by mortgages and/or lease assignments in
connection with mortgage notes payable on other of Registrant's
properties.
(4) Registrant operates a hotel business at these properties.
- 4 -
<PAGE> 6
The material terms of Registrant's leases with its significant
tenants are summarized in the following table:
<TABLE>
<CAPTION>
Registrant's
Share Current Lease
Lease of Current Square Rent Per Expiration Renewal Ownership Terms of
Obligor Annual Rents Footage Sq.Ft. (Mo/Year) Terms Interest Purchase Option
- ------- ------------ ------- ------ --------- ----- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Duff-Norton $1,020,717 265,000 $ 3.85 12/12 YES 100% The greater of
Company, fair market value
Inc. or $5,500,000.
DeVlieg 953,803 409,391 2.33 04/06 YES 100 The greater of
Bullard, fair market value
Inc. or the sum of the
purchase price, of
$5,075,000, and any
mortgage prepayment
premium.
Penn Virginia 498,750 116,059 4.30 08/99 YES 100 The greater of
Corporation fair market value
or $3,700,000.
Exide 572,130 27,770 20.60 07/06 YES 100 The greater of
Electronics fair market value
Corporation or $3,200,000.
</TABLE>
- 5 -
<PAGE> 7
Item 3. Legal Proceedings.
As of the date hereof, Registrant is not party to any material
pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Information with respect to matters submitted to a vote of
security holders during the fourth quarter of the year ended December 31, 1997
is hereby incorporated by reference to page 28 of Registrant's Annual Report
contained in Appendix A.
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 28 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 4 of Registrant's Annual Report contained in Appendix
A.
Item 8. Financial Statements and Supplementary Data.
The following financial statements and supplementary data are
hereby incorporated by reference to pages 5 to 21 of Registrant's Annual Report
contained in Appendix A:
(i) Report of Independent Accountants.
(ii) Balance Sheets as of December 31, 1996 and 1997.
(iii) Statements of Income for the years ended December 31, 1995, 1996 and 1997.
(iv) Statements of Partners' Capital for the years ended December 31, 1995,
1996 and 1997.
(v) Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997.
(vi) Notes to Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
- 6 -
<PAGE> 8
PART III
Item 10. Directors and Executive Officers of the Registrant.
Registrant has no officers or directors. The directors and
executive officers of the General Partner, Carey Diversified LLC, are as
follows:
<TABLE>
<CAPTION>
Has Served as a
Director and/or
Name Age Positions Held Officer Since (1)
---- --- -------------- -----------------
<S> <C> <C> <C>
Francis J. Carey 72 Chairman of the Board 1/98
Chief Executive Officer
Director
William Polk Carey 67 Chairman of the Executive Committee 1/98
Director
Steven M. Berzin 47 Vice Chairman 1/98
Chief Legal Officer
Director
Gordon F. DuGan 31 President 1/98
Chief Acquisitions Officer
Director
Donald E. Nickelson 64 Chairman of the Audit Committee 1/98
Director
Eberhard Faber, IV 61 Director 1/98
Barclay G. Jones III 37 Director 1/98
Lawrence R. Klein 77 Director 1/98
Charles C. Townsend, Jr. 69 Director 1/98
Reginald Winssinger 55 Director 1/98
Claude Fernandez 45 Executive Vice President 1/98
- Financial Operations
John J. Park 33 Executive Vice President 1/98
Chief Financial Officer
Treasurer
H. Augustus Carey 40 Senior Vice President 1/98
Secretary
Samantha K. Garbus 29 Vice President - Asset Management 1/98
Susan C. Hyde 29 Vice President - Shareholder Services 1/98
Robert C. Kehoe 37 Vice President - Accounting 1/98
Edward V. LaPuma 24 Vice President - Acquisitions 1/98
</TABLE>
William Polk Carey and Francis J. Carey are brothers. H.
Augustus Carey is the nephew of William Polk Carey and the son of Francis J.
Carey.
- 7 -
<PAGE> 9
A description of the business experience of each officer and
director of the Corporate General Partner is set forth below:
Francis J. Carey, Chairman of the Board, Chief Executive
Officer and Director, was elected President and a Managing Director of W. P.
Carey & Co. ("W.P. Carey") in April 1987, having served as a Director since its
founding in 1973. Prior to joining the firm full-time, he was a senior partner
in Philadelphia, head of the Real Estate Department nationally and a member of
the executive committee of the Pittsburgh based firm of Reed Smith Shaw &
McClay, counsel for Registrant, the General Partners, the CPA(R) Partnerships,
W.P. Carey and some of its affiliates. He served as a member of the Executive
Committee and Board of Managers of the Western Savings Bank of Philadelphia from
1972 until its takeover by another bank in 1982 and is former chairman of the
Real Property, Probate and Trust Section of the Pennsylvania Bar Association.
Mr. Carey served as a member of the Board of Overseers of the School of Arts and
Sciences of the University of Pennsylvania from 1983 through 1990. He has also
served as a member of the Board of Trustees of the Investment Program
Association since 1990 and on the Business Advisory Council of the Business
Council for the United Nations since 1994. He holds A.B. and J.D. degrees from
the University of Pennsylvania.
Gordon F. DuGan, President, Chief Acquisitions Officer and
Director, was elected Executive Vice President and a Managing Director of W.P.
Carey in June 1997. Mr. Dugan rejoined W.P. Carey as Deputy Head of Acquisitions
in February 1997. Mr. Dugan was until September 1995 a Senior Vice President in
the Acquisitions Department of W.P. Carey. Mr. Dugan joined W.P. Carey as
Assistant to the Chairman in May 1988, after graduating from the Wharton School
at the University of Pennsylvania where he concentrated in Finance. From October
1995 until February 1997, Mr. Dugan was Chief Financial Officer of
Superconducting Core Technologies, Inc., a Colorado-based wireless
communications equipment manufacturer.
Steven M. Berzin, Vice Chairman, Chief Legal Officer and
Director, was elected Executive Vice President, Chief Financial Officer, Chief
Legal Officer and a Managing Director of W.P. Carey in July 1997. From 1993 to
1997, Mr. Berzin was Vice President - Business Development of General Electric
Capital Corporation in the office of the Executive Vice President and, more
recently, in the office of the President, where he was responsible for business
development activities and acquisitions. From 1985 to 1992, Mr. Berzin held
various positions with Financial Guaranty Insurance Company, the last two being
Managing Director, Corporate Development and Senior Vice President and Chief
Financial Officer. Mr. Berzin associated with the law firm of Cravath, Swaine &
Moore from 1978 to 1985 and from 1976 to 1977, he served as law clerk to the
Honorable Anthony M. Kennedy, then a United States Circuit Judge. Mr. Berzin
received a B.A. and M.A. in Applied Mathematics from Harvard University, a B.A.
in Jurisprudence and an M.A. from Oxford University and a J.D. from Harvard Law
School.
Donald E. Nickelson, Chairman of the Audit Committee and
Director, serves as Chairman of the Board and a Director of Greenfield
Industries, Inc. and a Director of Allied Healthcare Products, Inc. Mr.
Nickelson is Vice-Chairman and a Director of the Harbor Group, a leverage
buy-out firm. He is also a Director of Sugen Corporation and D.T.I. Industries,
Inc. and a Trustee of mainstay Mutual Fund Group. From 1986 to 1988, Mr.
Nickelson was President of PaineWebber Incorporated; from 1988 to 1990, he was
President of the PaineWebber Group; and from 1980 to 1993 a Director. Prior to
1986, Mr. Nickelson served in various capacities with affiliates of PaineWebber
Incorporated and its predecessor firm. From 1988 to 1989, Mr. Nickelson was a
Director of a diverse group of corporations in the manufacturing, service and
retail sectors, including Wyndham Baking Co., Inc., Hoover Group, Inc., Peebles,
Inc. and Motor Wheel Corporation. He is a former Chairman of National Car
Rentals, inc. Mr. Nickelson is also a former Director of the Chicago Board
Options Exchange and is the former Chairman of the Pacific Stock Exchange.
William Polk Carey, Chairman of the Executive Committee and
Director, 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
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 and Commerce, Mr. Carey
is a Governor of the National Association of Real Estate Investment Trusts
(NAREIT). He also serves on the boards of The Johns Hopkins University, The
James A. Baker III Institute for Public Policy at Rice University, Templeton
College of
- 8 -
<PAGE> 10
Oxford University and other educational and philanthropic institutions. He
founded the Visiting Committee to the Economics Department of the University of
Pennsylvania and co-founded with Dr. Lawrence R. Klein the Economics Research
Institute at that University. Mr. Carey is also a Director of CPA(R):10, CIP(TM)
and CPA(R):12.
Eberhard Faber IV, is currently a Director of PNC Bank, N.A.,
Chairman of the Board and Director of the newspaper Citizens Voice, a Director
of Ertley's Motorworld, Inc., Vice-Chairman of the Board of King's College and a
Director of Geisinger Wyoming Valley Hospital. Mr. Faber served as Chairman and
Chief Executive Officer of Eberhard Faber, Inc., from 1973 to 1987. Mr. Faber
also served as the Director of the Philadelphia Federal Reserve Bank, including
service as the Chairman of its Budget and Operations Committee from 1980 to
1986. Mr. Faber has served on the boards of several companies, including First
Eastern bank from 1980 to 1993.
Barclay G. Jones III, Executive Vice President, Managing
Director, and head of the Investment Department. Mr. Jones joined W.P. Carey as
Assistant to the President in July 1982 after his graduation from the Wharton
School of the University of Pennsylvania, where he majored in Finance and
Economics. He was elected to the Board of Directors of W.P. Carey in April 1992.
Mr. Jones is also a Director of the Wharton Business School Club of New York.
Lawrence R. Klein, Director, 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.
Charles C. Townsend, Jr., Director, currently is an Advisory
Director of Morgan Stanley & Co., having held such position since 1979. Mr.
Townsend was a Partner and a Managing Director of Morgan Stanley & Co. from 1963
to 1978 and served as Chairman of Morgan Stanley Realty Corporation from 1977 to
1982. Mr. Townsend holds a B.S.E.E. from Princeton University and an M.B.A. from
Harvard University. Mr. Townsend serves as Director of CIP(TM) and CPA(R)14.
Reginald Winssinger, Director, is currently Chairman of the
Board and Director of Horizon Real Estate Group, Inc. Mr. Winssinger has managed
portfolios of diversified real estate assets exceeding $500 million throughout
the United States for more than 20 years. Mr. Winssinger is active in the
planning and development of major land parcels and has developed 20 commercial
properties. Mr. Winssinger is a native of Belgium with more than 25 years of
real estate practice, including 10 years based in Brussels, overseeing
appraisals, construction and management. Mr. Winssinger holds a B.S. in
Geography from the University of California at berkeley and received a degree in
Appraisal and Survey in Belgium. Mr. Winssinger presently serves as Honorary
Belgium Consul to the State of Arizona, a position he has held since 1991.
Claude Fernandez, Executive Vice President - Financial
Operations, 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 a 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.
John J. Park, Executive Vice President, Chief Financial
Officer 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.
H. Augustus Carey, Senior Vice President and Secretary,
returned to W.P. Carey in 1988 and is President of W.P. Carey's broker-dealer
subsidiary. Mr. Carey previously worked for W.P. Carey from 1979 to 1981 as
Assistant to the President. Prior to rejoining W.P. Carey, Mr. Carey served as a
loan officer of the North American Department of Kleinwort Benson Limited in
London, England. He received an A.B. from Amherst College in 1979 and an M.Phil.
in Management Studies from Oxford University in 1984. Mr. Carey is a trustee of
the Oxford Management Centre Associates Council.
- 9 -
<PAGE> 11
Samantha K Garbus, Vice President - Director of Asset
Management, became a Second Vice President of W.P. Carey in April 1995 and a
Vice President in April 1997. Ms. Garbus joined W. P. Carey as a Property
Management Associate in January 1992. Ms. Garbus received a B.A. in History from
Brown University in May 1990 and an M.B.A. from the Stern School of New York
University in January 1997.
Susan C. Hyde, Vice President - Director of Shareholder
Services, joined W. P. Carey in 1990, became a Second Vice President in April
1995 and a Vice President in April 1997. Ms. Hyde graduated from Villanova
University in 1990 where she received a B.S. in Business Administration with a
concentration in Marketing and a B.A. in English.
Robert C. Kehoe, Vice President - Accounting, joined W.P.
Carey as a Senior Accountant in 1987. Mr. Kehoe became a Second Vice President
of W. P. Carey in April 1992 and a Vice President in July 1997. Prior to joining
the company, Mr. Kehoe was associated with Deloitte, Haskins & Sells for three
years and was Manager of Financial Controls at CBS Educational and Professional
Publishing for two years. Mr. Kehoe received a B.S. in Accounting from Manhattan
College in 1982 and an M.B.A. in Finance from Pace University in 1993.
Edward V. LaPuma, Vice President - Acquisitions, joined W. P.
Carey as an Assistant to the Chairman in July 1995, became a Second Vice
President in July 1996 and a Vice President in April 1997. A graduate of the
University of Pennsylvania, Mr. LaPuma received a B.A. in Global Economic
Strategies from The College of Arts and Sciences and a B.S. in Economics with a
Concentration in Finance from the Wharton School.
Item 11. Executive Compensation.
Until January 1, 1998, under the Amended Agreement of Limited
Partnership of Registrant (the "Agreement"), 5% of Distributable Cash From
Operations was payable to the former Corporate General Partner and 1% of
Distributable Cash From Operations was payable to the former Individual General
Partner. The former Corporate General Partner and the former Individual General
Partner received $201,531 and $40,307, respectively, from Registrant as their
share of Distributable Cash From Operations during the year ended December 31,
1997. As owner of 200 Limited Partnership Units, the former Corporate General
Partner received cash distributions of $10,116g the year ended December 31,
1997. 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 former Corporate General Partner, W.P. Carey
or any other affiliate of Registrant during the year ended December 31, 1997.
In the future, a special limited partner, Carey Management
LLC, will receive 5% of Distributable Cash From Operations, and William Polk
Carey, the former Individual General Partner will receive, as a special limited
partner, 1% of Distributable Cash From Operations and each will be allocated the
same percentage of the profits and losses of Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of December 31, 1997, no person owned of record, or was
known by Registrant to own beneficially more than 5% of the Registrant.
- 10 -
<PAGE> 12
The following table sets forth as of March 20, 1998 certain
information as to the ownership by directors and executive officers of
securities of the General Partner of Registrant:
<TABLE>
<CAPTION>
Number of Listed
Name of Shares and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ---------------- -------------------- --------
<S> <C> <C> <C>
Listed Shares William Polk Carey
Francis J. Carey
Steven M. Berzin
Gordon F. DuGan
Donald E. Nickelson
Eberhard Faber IV
Barclay G. Jones III
Lawrence R. Klein
Charles C. Townsend, Jr.
Reginald Winssinger
John J. Park
Claude Fernandez
H. Augustus Carey
Samantha K. Garbus
Susan C. Hyde
Robert C. Kehoe
Edward V. LaPuma
All executive officers
and directors as a
group (17 persons)
</TABLE>
In connection with Consolidation of Registrant into Carey
Diversified LLC, effective January 1, 1998, no officer or director, other than
William Polk Carey, owns a direct interest in Registrant. William Polk Carey
owns a 1% interest in Registrant as a special limited partner and has a
controlling interest in Carey Management LLC which owns a 5% interest in
Registrant as a special limited partner. Effective January 1, 1998, Carey
Diversified owns an approximate 93% interest in Registrant.
There exists no arrangement, known to Registrant, the
operation of which may at a subsequent date result in a change of control of
Registrant.
Item 13. Certain Relationships and Related Transactions.
For a description of transactions and business relationships
between Registrant and its affiliates and their directors and officers, see
Notes 2 and 3 to the Financial Statements in Item 8. Michael B. Pollack and
Senior Vice President, is a partner of Reed Smith Shaw & McClay which is engaged
to perform legal services for Registrant. Mr. Pollack was the Secretary, until
July 1997, of the former Corporate General Partner.
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.
- 11 -
<PAGE> 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The following financial statements are filed as a
part of this Report:
Report of Independent Accountants.
Balance Sheets as of December 31, 1996 and 1997.
Statements of Income for the years ended December 31, 1995, 1996 and 1997.
Statements of Partners' Capital for the years ended December 31, 1995, 1996
and 1997.
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997.
Notes to Financial Statements.
The financial statements are hereby incorporated by reference to pages 5 to
21 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,
1997.
Notes to Schedule III.
Schedule III and notes thereto are hereby incorporated by reference to pages
22 to 25 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 Financial
Statements or the Notes thereto, or because the conditions requiring their
filing do not exist.
- 12 -
<PAGE> 14
(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 Amendment
Registrant dated as of June 1, 1983. No. 2 to Registration
Statement (Form S-11)
No. 2-83092
4.4 $4,500,000 Mortgage Note dated January 2, Exhibit 4.6 to Form 10-K
1984 from Registrant to Empire of America filed April 10, 1984
FSA ("Empire").
4.5 Deed of Trust, Mortgage, Deed to Secure Exhibit 4.7 to Form 10-K
Debt, Security Agreement and Assignment filed April 10, 1984
dated January 2, 1984 from Registrant
to Empire.
4.6 Assignment of Rents and Lessor's Interest Exhibit 4.8 to Form 10-K
in Lease dated January 2, 1984 from filed April 10, 1984
Registrant to Empire.
4.7 $2,400,000 Deed of Trust Note dated Filed as Exhibit 4.7 to
April 11, 1984 from Registrant to Mellon Registrant's Report on
Bank, N.A. Form 8-K dated April 25,
1984
4.8 Deed of Trust and Security Agreement dated Filed as Exhibit 4.8 to
April 11, 1984 from Registrant to Registrant's Report on
Robert A. Johnson and John L. Ostby, as Form 8-K dated April 25,
trustees for Mellon Bank, N.A., and 1984
Mellon Bank.
4.9 Assignment of Rentals and Leases dated Filed as Exhibit 4.9 to
April 11, 1984 from Registrant, as assignor, Registrant's Report on
to Mellon Bank, N.A., as assignee. Form 8-K dated April 25,
1984
4.10 $3,000,000 Promissory Note dated June 29, Filed as Exhibit 4.1 to
1984 from Registrant to TRW Inc. Registrant's Report on
Form 8-K dated July 26,
1984
4.11 $5,000,000 Promissory Note dated July 13, Filed as Exhibit 4.2 to
1984 from Registrant to FCA American Registrant's Report on
Mortgage Corporation ("FCA"). Form 8-K dated July 26,
1984
4.16 Mortgage, Security Agreement and Filed as Exhibit 4.7 to
Assignment of Leases and Rents dated Registrant's Report on
July 13, 1984 by Registrant to FCA. Form 8-K dated July 26,
1984
</TABLE>
- 13 -
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
4.17 $3,000,000 Promissory Note dated Filed as Exhibit 4.17 to
April 30, 1984 from Registrant to FCA. Registrant's Annual Report
on Form 10-K dated
March 29, 1985
4.18 Mortgage and Security Agreement dated Filed as Exhibit 4.18 to
April 30, 1984 by Registrant to FCA. Registrant's Annual Report
on Form 10-K dated
March 29, 1985
4.19 Collateral Assignment of Leases and Rents Filed as Exhibit 4.19 to
dated April 30, 1984 from Registrant Registrant's Annual Report
to FCA. on Form 10-K dated
March 29, 1985
4.45 Agreement to Assign Contract of Sale Filed as Exhibit 4.1 to
dated July 2, 1985 between American Registrant's Form 10-Q
Industrial Warehouses, Inc. ("AIW") dated August 15, 1985
and Registrant.
4.46 Assignment of Rights in Contract of Filed as Exhibit 4.2 to
Sale dated July 16, 1985 between AIW Registrant's Form 10-Q
and Registrant. dated August 15, 1985
4.47 $4,600,000 Promissory Note dated Filed as Exhibit 4.1 to
August 30, 1985 from Registrant to Registrant's Report on
Mellon Bank, N.A. ("Mellon"). Form 8-K dated
September 12, 1985
4.56 Seller's/Lessee's Certificate dated Filed as Exhibit 4.1 to
November 25, 1985 from Gould Inc. to Registrant's Report on
Registrant. Form 8-K dated
December 9, 1985
4.57 Assignment of Rights in Purchase Filed as Exhibit 4.2 to
Agreement dated November 21, 1985 Registrant's Report on
between JB Properties, as Assignor, Form 8-K dated
and Registrant as Assignee. December 9, 1985
4.60 Mortgage, Assignment of Leases and Filed as Exhibit 4.2 to
Security Agreement dated January 30, Registrant's Report on
1986 between Registrant, as Form 8-K dated
Mortgagor, and Lloyds and Texas March 4, 1986
Commerce, collectively as Mortgagee,
on Broomall, PA property.
</TABLE>
- 14 -
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
4.61 Modification Agreement dated March 1, Exhibit 4.61 to Form 10-K
1986 in connection with the Mortgage, Filed April 18, 1986
Assignment of Leases and Security Agreement
dated January 30, 1986 on Broomall, PA property.
4.62 Mortgage, Assignment of Leases and Filed as Exhibit 4.3 to
Security Agreement dated January 30, Registrant's Report on
1986 between Registrant, as Form 8-K dated
Mortgagor, and Lloyds and Texas March 4, 1986
Commerce, collectively as Mortgagee,
on Cuyahoga Falls, OH property.
4.63 Modification Agreement dated March 1, Exhibit 4.63 to Form 10-K
1986 in connection with the Mortgage, Filed April 18, 1986
Assignment of Leases and Security Agreement
dated January 30, 1986 on Cuyahoga Falls,
OH property.
4.64 Deed of Trust, Assignment of Leases Filed as Exhibit 4.4 to
and Security Agreement dated January Registrant's Report on
30, 1986, between Registrant, as Form 8-K dated
Grantor, and Lawyers Title Insurance, March 4, 1986
as Trustee on Duffield, VA property.
4.65 Deed of Trust Modification Agreement Exhibit 4.65 to Form 10-K
dated March 1, 1986 in connection Filed April 18, 1986
with the Deed of Trust, Assignment of
Leases and Security Agreement dated
January 30, 1986 on Duffield, VA
property.
4.66 Trust Indenture dated as of January Filed as Exhibit 4.5 to
1, 1986 between Michigan Strategic Registrant's Report on
Fund ("MSF") and Texas Commerce. Form 8-K dated March
4, 1986
4.74 $3,700,000 Promissory Note dated Filed as Exhibit 4.9 to
January 30, 1986 from CPA(R):5, as Registrant's Report on
Payee, to Registrant and CPA(R):6, Form 8-K dated March
collectively as Payor. 4, 1986
4.75 Deed of Trust, Assignment of Rents, Filed as Exhibit 4.10 to
dated February 14, 1986 from Form 8-K dated March
Registrant, as Trustor, to Chicago 4, 1986
Title Insurance Company, as Trustee,
for the benefit of New York Life
Insurance Company ("New York Life"),
as Beneficiary.
4.76 $7,000,000 Promissory Note Secured by Filed as Exhibit 4.11 to
Deed of Trust, dated February 18, Registrant's Report on
1986 from Registrant to New York Life. Form 8-K dated March
4, 1986
</TABLE>
- 15 -
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
4.77 Assignment of Lessor's Interest in Filed as Exhibit 4.12 to
Lease with Assignment of Rents, Registrant's Report on
Income and Cash Collateral, dated Form 8-K dated March
February 14, 1986, from Registrant to 4, 1986
New York Life.
4.78 $1,500,000 Promissory Note from Exhibit 4.78 to Form 10-K
Registrant to First Southern Federal Filed April 18, 1986
Savings and Loan Association ("First
Southern") dated March 10, 1986.
4.79 Deed of Trust, Assignment of Rents Exhibit 4.79 to Form 10-K
and Security Agreement between Filed April 18, 1986
Registrant, William A. Mann, Trustee
and for the benefit of First Southern
dated March 10, 1986.
4.80 Estoppel Certificate and Exhibit 4.80 to Form 10-K
Subordination Attornment and Filed April 18, 1986
Recognition Agreement between First
Southern and Exide dated March 10, 1986.
4.92 $1,500,000 First Mortgage Note dated Filed as Exhibit 4.1 to
December 22, 1986 from the Registrant, as Registrant's Report on
Borrower, to 1st Source Bank ("1st Source"), Form 8-K dated
as Lender. January 7, 1987
4.93 Mortgage and Security Agreement dated Filed as Exhibit 4.2 to
December 22, 1986 between the Registrant, Registrant's Report on
as Borrower, and 1st Source, as Lender Form 8-K dated
and Secured Party. January 7, 1987
4.94 $5,000,000 Promissory Note dated December 14, Filed as Exhibit 4.1 to
1987, from Registrant, as Borrower, to Registrant's Report on
Prudential, as Lender. Form 8-K dated
December 28, 1987
4.95 Unconditional Guaranty of Payment and Filed as Exhibit 4.2 to
Performance dated December 14, 1987 from Registrant's Report on
Arley, as Guarantor, to Prudential, as Form 8-K dated
Lender. December 28, 1987
4.96 Mortgage and Security Agreement dated Filed as Exhibit 4.3 to
December 14, 1987 between Registrant, as Registrant's Report on
Mortgagor, and Prudential, as Mortgagee. Form 8-K dated
December 28, 1987
4.97 Assignment of Leases, Rents, Issues, Filed as Exhibit 4.4 to
Income and Profits dated December 14, 1987 Registrant's Report on
from Registrant, as Assignor, to Form 8-K dated
Prudential, as Assignee. December 28, 1987
10.1 Agreement of Sale dated December 30, 1983 Exhibit 10.1 to Form 10-K
between Eaton Corporation and Registrant. filed April 10, 1984
</TABLE>
- 16 -
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
10.2 Lease Agreement dated December 30, 1983 Exhibit 10.2 to Form 10-K
between Registrant, as landlord, and Yale filed April 10, 1984
Industrial Products, Inc. ("Yale"), as
tenant.
10.6 Management Agreement between Registrant and Exhibit 10(B) to Amendment
Carey Corporate Property Management, Inc. No. 2 to Registration
Statement (Form S-11)
No. 2-83092
10.7 Support Agreement among Registrant, Exhibit 10(C) to Amendment
Fifth Carey Corporate Property, Inc. No. 2 to Registration
and W.P. Carey & Co., Inc. Statement (Form S-11)
No. 2-83092
10.8 Lease Agreement dated April 11, 1984 Filed as Exhibit 10.5
between Registrant, as Landlord, and to Registrant's Report
Rochester Button Company, Inc., on Form 8-K dated
("Rochester") as Tenant. April 25, 1984
10.13 Agreement Concerning Lease dated July 13, Filed as Exhibit 10.4 to
1984 by Shapiro & Son Bedspread Corp. as to Registrant's Report
Tenant, Registrant as Borrower and FCA on Form 8-K dated
as Lender. July 26, 1984
10.14 Guaranty dated July 13, 1984 from Filed as Exhibit 10.5
Hampshire Textile Corp. to Registrant. to Registrant's Report
on Form 8-K dated
July 26, 1984
10.15 Agreement Concerning Guaranty dated Filed as Exhibit 10.6
July 13, 1984 by Hampshire Textile to Registrant's Report
Corp. as Guarantor, Registrant as on Form 8-K dated
Borrower and FCA as Lender. July 26, 1984
10.16 Agreement Amending Lease Agreement Filed as Exhibit 10.16
dated April 30, 1984 between Registrant to Registrant's Annual
and Yale. Report on Form 10-K dated
March 29, 1985
10.17 Subordination, Non-Disturbance and Filed as Exhibit 10.17
Attornment Agreement dated April 30, to Registrant's Annual
1984 among FCA, Registrant and Yale. Report on Form 10-K dated
March 29, 1985
10.18 Lease Agreement dated August 7, 1984 Filed as Exhibit 10.18
between Registrant, as Landlord and to Registrant's Annual
Penn Virginia Resources Corporation Report on Form 10-K dated
("Resources") and Pennsylvania Crusher March 29, 1985
Corporation ("Crusher"), as Tenants.
10.19 Memorandum of Lease dated August 7, Filed as Exhibit 10.19
1984 between Registrant and Crusher to Registrant's Annual
recorded in Summit County, Ohio. Report on Form 10-K dated
March 29, 1985
</TABLE>
- 17 -
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
10.20 Memorandum of Lease dated August 7, Filed as Exhibit 10.20
1984 between Registrant and Crusher to Registrant's Annual
recorded in Delaware County, Report on Form 10-K dated
Pennsylvania. March 29, 1985
10.21 Memorandum of Lease dated August 7, Filed as Exhibit 10.21
1984 between Registrant and Resources to Registrant's Annual
recorded in Scott County, Virginia. Report on Form 10-K dated
March 29, 1985
10.22 Lease Guaranty dated August 7, 1984 Filed as Exhibit 10.22
by Penn Virginia Corporation ("Penn to Registrant's Annual
Virginia") to Registrant. Report on Form 10-K dated
March 29, 1985
10.27 Lease Agreement between Filed as Exhibit 10.1 to
Registrant as Landlord and Registrant's Report on
Exide Electronics Corporation Form 8 K dated July 2,
("Exide") as Tenant dated June 1985
20, 1985.
10.28 Memorandum of Lease between Filed as Exhibit 10.2 to
Registrant and Exide dated Registrant's Report on
June 20, 1985. Form 8-K dated July 2,
1985
10.29 Guaranty from Exide Electronics Filed as Exhibit 10.3 to
Group, Inc. ("Exide Registrant's Report on
Electronics") to Registrant Form 8-K dated July 2,
dated June 20, 1985. 1985
10.33 Lease Agreement dated July 11, Filed as Exhibit 10.1 to
1985 between Registrant as Registrant's Form
landlord and General Cinema 10-Q dated August
Corp. ("GCC") as tenant. 15, 1985
10.34 Lease Guaranty dated July 16, Filed as Exhibit 10.2 to
1985 between Registrant and GCC. Registrant's Form
10-Q dated August
15, 1985
10.35 Memorandum of Lease dated Filed as Exhibit 10.3 to
July 11, 1985 between Registrant's Form
Registrant and GCC. 10-Q dated August
15, 1985
10.40 Lease Agreement dated November Filed as Exhibit 10.1 to
25, 1985 between Registrant, as Registrant's Report on
Lessor, and Gould Inc., as Form 8-K dated December 9,
Lessee. 1985
</TABLE>
- 18 -
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
10.41 Memorandum of Lease dated Filed as Exhibit 10.2 to
November 21, 1985, between Registrant's Report on
Registrant, as Landlord, and Form 8-K dated December 9,
Gould Inc., as Tenant. 1985
10.42 Joint Venture Agreement dated Filed as Exhibit 10.1 to
January 30, 1986 between Registrant's Report on
Registrant and CPA(R):6. Form 8-K dated March 4,
1986
10.43 Lease Agreement dated as of Filed as Exhibit 10.2 to
January 30, 1986 by and between Registrant's Report on
Registrant and CPA(R):6, Form 8-K dated March 4,
collectively as Landlord, and 1986
Great Lakes Hotel Corporation
("Great Lakes"), as Tenant.
10.44 Lease Agreement as of March 6, Exhibit 10.44 to Form 10-K
1986 by and between Registrant filed April 18, 1984
and CPA(R):6, collectively as
Landlord, and Northwoods Hotel
Corporation ("Northwoods"), as Tenant.
10.45 Memorandum of Lease dated Filed as Exhibit 10.3 to
January 30, 1986 between Registrant's Report on
Registrant and CPA(R):6, as Form 8-K dated March 4,
Landlord, and Northwoods, as Tenant. 1986
10.46 Memorandum of Lease dated March Exhibit 10.46 to Form 10-K
6, 1986 between Registrant and CPA(R):6, filed April 18, 1984
as Landlord, and Northwoods, as Tenant.
10.47 Lease Guaranty dated January Filed as Exhibit 10.4 to
30, 1986 from Landmark Hotel Registrant's Report on
Corporation ("Landmark"), as Form 8-K dated March 4,
Guarantor, to Registrant and 1986
CPA(R):6, collectively, as Landlord.
10.48 Lease Guaranty dated March 6, Exhibit 10.48 to Form 10-K
1986 from Landmark, as filed April 18, 1984
Guarantor, to Registrant and
CPA(R):6, collectively as Landlord.
10.49 Lease Agreement dated April 3, 1987 Filed as Exhibit 10.5 to
by and between Registrant, as Landlord, Registrant's Report on
and Stanwich, as Tenant. Form 8-K dated April 17,
1986
</TABLE>
- 19 -
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
10.50 Memorandum of Lease dated April 3, Filed as Exhibit 10.6 to
1986 between Registrant, as Landlord, Registrant's Report on
and Stanwich, as Tenant. Form 8-K dated April 17,
1986
10.53 Lease Agreement dated December 22, 1987 Filed as Exhibit 10.1 to
by and between Registrant, as Landlord, Registrant's Report on
and Stoody, as Tenant. Form 8-K dated
January 7, 1987
10.54 First Amendment to Lease dated December 14, Filed as Exhibit 10.1 to
1987 by and between Registrant, as Landlord, Registrant's Report on
and Arley, as Tenant. Form 8-K dated
December 28, 1987
10.55 Lease Subordination Agreement dated December Filed as Exhibit 10.2 to
14, 1987 by and among Registrant, as Landlord, Registrant's Report on
Arley, as Tenant, and Prudential, as Lender. Form 8-K dated
December 28, 1987
10.56 Lease Agreement dated March 10, 1988 by Filed as Exhibit 10.56 to
and between Registrant, as Landlord, Form 10-K dated
and Winn-Dixie, as Tenant. April 15, 1988
10.57 Lease Guaranty dated March 10, 1988 from Filed as Exhibit 10.57 to
Winn-Dixie Stores, as Guarantor, to Form 10-K dated
Registrant, as Lessor. April 15, 1988
10.58 Lease dated September 13, 1995 between G.I. Pastek Filed as Exhibit 10.1 to
Limited Partnership, as Tenant, and G.I. Plastek Industrial Registrant's Form 8-K
Properties Limited Partnership, as Landlord. dated September 29, 1995
10.59 Purchase Agreement dated March 28, 1996 between Filed as Exhibit 10.1 to
Corporate Property Associates 5, the seller, CenterPoint Registrant's Form 8-K
Properties Corporation as purchaser. dated April 9, 1996
10.60 Amendment to Purchase Agreement dated April 3, 1996 Filed as Exhibit 10.2 to
between Corporate Property Associates 5, the seller, Registrant's Form 8-K
CenterPoint Properties Corporation as purchaser. dated April 9, 1996
28.1 General Warranty Deed dated December 28, Filed as Exhibit 28.1
1983 from Eaton Corporation to to Registrant's Report
Registrant. on Form 8-K dated
April 25, 1984
28.2 Quitclaim Deed dated January 31, 1984 Filed as Exhibit 28.2
from Eaton Corporation to Registrant. to Registrant's Report
on Form 8-K dated
April 25, 1984
28.5 General Warranty Deeds dated April 11, Filed as Exhibit 28.5
from Rochester to Registrant. to Registrant's Report
on Form 8-K dated
April 25, 1984
28.6 Bill of Sale dated April 11, 1984 Filed as Exhibit 28.6
from Rochester to Registrant. to Registrant's Report
on Form 8-K dated
April 25, 1984
</TABLE>
- 20 -
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
28.10 Deed dated July 13, 1984 from Shapson Filed as Exhibit 28.4
Realty Corp. to Registrant. to Registrant's Report
on Form 8-K dated
July 26, 1984
28.11 Deed dated July 13, 1984 from Shapson Filed as Exhibit 28.5
Realty Corp. to Registrant. to Registrant's Report
on Form 8-K dated
July 26, 1984
28.12 Bill of Sale dated July 13, 1984 Filed as Exhibit 28.6
from Shapson Realty Corp. to Registrant. to Registrant's Report
on Form 8-K dated
July 26, 1984
28.13 Deed dated August 7, 1984 from Filed as Exhibit 28.13
Resources to Registrant. to Registrant's Annual
Report on Form 10-K dated
March 29, 1985
28.14 General Warranty deed dated August 7, Filed as Exhibit 28.14
1984 from Crusher to Registrant. to Registrant's Annual
Report on Form 10-K dated
March 29, 1985
28.15 Deed dated August 7, 1984 from Crusher Filed as Exhibit 28.15
to Registrant. to Registrant's Annual
Report on Form 10-K dated
March 29, 1985
28.16 Warranty Deed dated April 24, 1985 Filed as Exhibit 28.4 to
between Adventure Restaurant Corp. Registrant's Report on
("Adventure") and Registrant. Form 8-K dated May 8, 1985
28.17 Bill of Sale dated April 24, 1985 Filed as Exhibit 28.5 to
from Adventure to Registrant. Registrant's Report on
Form 8-K dated May 8, 1985
28.27 Warranty Deed dated July 11, 1985 Filed as Exhibit 28.1 to
from GCC to Registrant. Registrant's Form 10-Q
dated August 15, 1985
28.28 Bill of Sale dated July 16, 1985 Filed as Exhibit 28.2 to
from GCC as seller to Registrant as Registrant's Form 10-Q
buyer. dated August 15, 1985
28.43 Deed dated November 25, 1985 from Filed as Exhibit 28.1 to
Gould Inc. to Registrant. Registrant's Report on
Form 8-K dated
December 9, 1985
28.44 Bill of Sale dated November 25, Filed as Exhibit 28.2 to
1985 from Gould Inc. to Registrant. Registrant's Report on
Form 8-K dated
December 9, 1985
</TABLE>
- 21 -
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
28.45 Purchase Agreement dated July 25, Filed as Exhibit 28.3 to
1985 by Gould Inc., as Seller, with Registrant's Report on
JB Properties, as Buyer. Form 8-K dated December
9, 1985
28.46 Warranty Deed dated January 30, 1986 Filed as Exhibit 28.1 to
among Adventure Restaurant Corporation Registrant's Report on
("Adventure"), Registrant and CPA(R):6. Form 8-K dated March 4,
1986
28.47 Warranty Deed dated March 6, 1987 Exhibit 28.47 to Form 10-K
among Adventure, Registrant and CPA(R):6. Filed April 17, 1986
28.48 Bill of Sale dated January 30, 1987 Filed as Exhibit 28.2 to
from Adventure to Registrant and CPA(R):6. Registrant's Report on
Form 8-K dated March
4, 1986
28.49 Bill of Sale dated March 6, 1987 Exhibit 28.49 to Form 10-K
from Adventure to Registrant and CPA(R):6. Filed April 17, 1986
28.50 Bill of Sale dated April 3, 1986 from Filed as Exhibit 28.3 to
Stanwich to Registrant. Registrant's Report on
Form 8-K dated April 17,
1986
28.51 Warranty Deed dated April 3, 1986 from Filed as Exhibit 28.4 to
Stanwich to Registrant (Frankenmuth, Registrant's Report on
MI property). Form 8-K dated April 17,
1986
28.52 Warranty Deed dated April 3, 1986 from Filed as Exhibit 28.5 to
Stanwich to Registrant (Prophetstown, Registrant's Report on
IL property). Form 8-K dated April 17,
1986
28.53 Warranty Deed dated April 3, 1986 from Filed as Exhibit 28.6 to
Stanwich to Registrant (McMinnville, Registrant's Report on
TN property). Form 8-K dated April 17,
1986
28.54 Seller/Lessee's Certificate dated Filed as Exhibit 28.7 to
April 3, 1986 from Stanwich, as Seller, Registrant's Report on
to Registrant, as Purchaser, and Form 8-K dated April 17,
Security Pacific, as Lender. 1986
28.58 Bill of Sale dated December 22, 1987 Filed as Exhibit 28.1 to
from Stoody to Registrant. Registrant's Report on
Form 8-K dated
January 7, 1987
28.59 Corporate Warranty Deed made as of December Filed as Exhibit 28.2 to
22, 1986 by Stoody, as Grantor, and Registrant's Report on
Registrant, as Grantee. Form 8-K dated
January 7, 1987
</TABLE>
- 22 -
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
28.60 Seller/Lessee's Certificate dated Filed as Exhibit 28.3 to
December 22, 1986 from Stoody, as Seller, Registrant's Report on
to Registrant, as Purchaser. Form 8-K dated
January 7, 1987
28.61 Indemnification Agreement by and between Filed as Exhibit 28.4 to
the Registrant, as Borrower, 1st Source, Registrant's Report on
as Lender, and Stoody, as Tenant. Form 8-K dated
January 7, 1987
28.62 Agreement of Sale dated December 1, 1987 by Filed as Exhibit 28.1 to
and between Registrant, as Seller, and Registrant's Report on
Brondy, as Buyer. Form 8-K dated
January 14, 1988
28.63 First Amendment to Agreement of Sale dated Filed as Exhibit 28.2 to
December 1, 1987 by and between Registrant, Registrant's Report on
as Seller, and Brondy, as Buyer. Form 8-K dated
January 14, 1988
28.64 Bill of Sale dated December 31, 1992 from Filed as Exhibit 28.3 to
Registrant to Brondy. Registrant's Report on
Form 8-K dated
January 14, 1988
28.65 Bargain and Sale Deed dated December 30, 1987 Filed as Exhibit 28.4 to
from Registrant, as party of the first part, Registrant's Report on
to Brondy, as party of the second part. Form 8-K dated
January 14, 1988
28.66 Warranty Deed dated March 10, 1988 between Filed as Exhibit 28.66
Winn-Dixie, as Grantor, and Registrant, Form 10-K dated
as Grantee. April 15, 1988
28.67 Bill of Sale dated March 10, 1988 from Filed as Exhibit 28.67
Winn-Dixie, as Seller, to Registrant, Form 10-K dated
as Purchaser. April 15, 1988
28.68 Seller's Certificate dated March 10, 1988 Filed as Exhibit 28.68
from Winn-Dixie, as Seller, to Registrant, Form 10-K dated
as Purchaser. April 15, 1988
28.69 Prospectus of Registrant Filed as Exhibit 28.69
dated August 2, 1983. to Form 10K/A dated
September 24, 1993
28.70 Supplement dated September 29, 1983 Filed as Exhibit 28.70
to Prospectus dated August 2, 1983. to Form 10K/A dated
September 24, 1993
28.71 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>
- 23 -
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ----------
<S> <C> <C>
28.72 Agreement of Limited Partnership of G.I. Plastek Filed as Exhibit 28.1 to
Limited Partnership dated September 8, 1995. Registrant's Form 8-K
dated September 29, 1995
</TABLE>
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated January 1,
1998 pursuant to Item 5 - Other Events (EX-99.1 Press Release From W.P. Carey &
Co., Inc. (December 17, 1997)).
- 24 -
<PAGE> 26
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 DIVERSIFIED LLC
03/24/98 BY: /s/ John J. Park
-------- ----------------------------------
Date John J. Park
Executive Vice President, Chief
Financial Officer and Treasurer
(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 DIVERSIFIED LLC
03/24/98 BY: /s/ Francis J. Carey
-------- ----------------------------------
Date Francis J. Carey
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
03/24/98 BY: /s/ William P. Carey
-------- ----------------------------------
Date William P. Carey
Chairman of the Executive
Committee and Director
03/24/98 BY: /s/ Steven M. Berzin
-------- ----------------------------------
Date Steven M. Berzin
Vice Chairman, Chief Legal Officer
and Director
03/24/98 BY: /s/ Gordon F. DuGan
-------- ----------------------------------
Date Gordon F. DuGan
President, Chief Acquisitions
Officer and Director
03/24/98 BY: /s/ Donald E. Nickelson
-------- ----------------------------------
Date Donald E. Nickelson
Chairman of the Audit Committee
and Director
03/24/98 BY: /s/ Eberhard Faber IV
-------- ----------------------------------
Date Eberhard Faber IV
Director
03/24/98 BY: /s/ Barclay G. Jones, III
-------- ----------------------------------
Date Barclay G. Jones, III
Director
03/24/98 BY: /s/ Dr. Lawrence R. Klein
-------- ----------------------------------
Date Dr. Lawrence R. Klein
Director
03/24/98 BY: /s/ Charles C. Townsend, Jr.
-------- ----------------------------------
Date Charles C. Townsend, Jr.
Director
03/24/98 BY: /s/ Reginald Winssinger
-------- ----------------------------------
Date Reginald Winssinger
Director
03/24/98 BY: /s/ John J. Park
-------- ----------------------------------
Date John J. Park
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
03/24/98 BY: /s/ Claude Fernandez
-------- ----------------------------------
Date Claude Fernandez
Executive Vice President -
Financial Operations
(Principal Accounting Officer)
- 25 -
<PAGE> 27
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 5
(A CALIFORNIA LIMITED PARTNERSHIP)
1997 ANNUAL REPORT
<PAGE> 28
SELECTED FINANCIAL DATA
(In thousands except per unit amounts)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $18,261 $18,125 $15,768 $13,205 $ 9,750
Net income 4,496 5,557 1,913 7,776 2,685
Net income allocated:
To General Partners 270 1,011 201 463 180
To Limited Partners 4,226 4,546 1,712 7,314 2,505
Per unit 37.34 40.16 15.12 64.61 22.13
Distributions attributable (1):
To General Partners 350 352 365 244 254
To Limited Partners 5,489 5,516 7,635 3,816 4,769
Per unit 48.49 48.73 67.45(2) 33.71 42.13(2)
Payment of mortgage
principal(3) 826 725 463 365 234
BALANCE SHEET DATA:
Total assets 93,950 92,366 72,268 52,652 44,265
Long-term
obligations (4) 34,949 31,310 24,505 10,446 10,193
</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. The distribution
attributable to the fourth quarter of 1997 was paid to Limited Partners in
December 1997.
(2) 1995 and 1997 distributions include special distributions of $20 and $7,
respectively, per Limited Partnership Unit.
(3) Represents scheduled mortgage amortization paid.
(4) Represents mortgage and note payable obligations due after more than one
year.
- 1 -
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Net income for the year ended December 31, 1997 decreased by
$5,091,000 to $2,685,000 as compared with the year ended December 31, 1996.
Excluding the effect of gains on the disposition of properties in 1996 and 1997,
income decreased by $764,000. The decrease, as adjusted, was primarily due to
decreases in lease revenues (rental income and interest income from direct
financing leases) and hotel operating income and an increase in general and
administrative expenses. The effect of these items was partially offset by a
decrease in interest expense.
The decrease in lease revenues was due to the sale in 1996 of
a property leased to GATX Logistics, Inc., the termination of the Arley
Merchandise Corporation lease in July 1997 and the December 1996 modification of
the Rochester Button Company lease. The decrease in hotel earnings was solely
due to the sale of the Rapid City hotel property in October 1996. The increase
in general and administrative costs was due to costs incurred in connection with
the structuring of the exchange transaction described below. The decrease in
interest expense was due to the prepayment of several mortgage loans in 1996. As
of December 31, 1997, the Partnership's remaining debt consists of the mortgage
loans on the two hotel properties in Alpena and Petoskey, Michigan and a note
payable to an affiliate.
Net income for the year ended December 31, 1996 increased by
$5,864,000 as compared with the year ended December 31, 1995. Such increase was
primarily due to gains realized on the sale of Partnership properties. Income
before gains, and excluding (i) the effects of noncash charges for writedowns of
assets to their estimated net realizable values in both 1996 and 1995 and (ii)
nonrecurring items in 1995 included in other income in the accompanying
financial statements, would have reflected an increase of $683,000.
The increase in income, as adjusted for 1996, was due to
decreases in interest, depreciation, general and administrative and property
expenses and was partially offset by a decrease in lease revenues. The decrease
in interest expense resulted from the combination of (i) satisfying mortgage
loans in connection with property dispositions, and (ii) using proceeds from
those property sales to pay off mortgage debt on other Partnership properties
that are still subject to leases. The decrease in depreciation expense was
solely due to the disposition of properties resulting in a reduction in the
balances of assets subject to depreciation. The decrease in general and
administrative expense reflected lower state tax and office occupancy expenses
in 1996. Prior to selling the Helena, Montana office building in January 1996,
the Partnership absorbed a portion of the operating expenses for that property.
In 1995, such costs, net of tenant reimbursements, were approximately $82,000.
Accordingly, property expense decreased due to the sale of the Helena property
and because of legal costs incurred in 1995 in connection with a dispute
regarding the final determination for the sales price of a property. The
decrease in lease revenues is entirely due to the sale of properties in 1995 and
1996. The 1996 gain on the sale of properties resulted from the sales of the
office building in Helena, Montana, a warehouse facility in Hodgkins, Illinois
leased to GATX Logistics and the Holiday Inn in Rapid City, South Dakota which
had been operated by the Partnership
Earnings for the hotel operation decreased in 1997 as a result
the sale of the Rapid City hotel in October 1996. Management had decided to sell
the Rapid City hotel, having concluded that the cost of upgrading the Rapid City
hotel to meet the core modernization plan of Holiday Inn and retain the Holiday
Inn affiliation would not provide an adequate return on the additional
investment. Revenues and profitability of the Rapid City operation were expected
to decrease from any change in hotel chain affiliation. For the year ended
December 31, 1997, earnings from the Alpena and Petoskey hotels increased by
18%, to $705,000. The occupancy rate of the Petoskey hotel increased by 3% to
53%, and the average room rate increased by 4%, resulting in revenue growth of
8%. The Petoskey hotel had also realized an increase in its occupancy rate in
1996. The occupancy rate of the Alpena hotel decreased by 2% to 57%; however,
the average room rate increased by 7% so that revenue was stable for the
comparable years. The Alpena hotel realized increases in average room and
occupancy rates in 1996. Operating expenses at the two hotels were stable for
the comparable years.
- 2 -
<PAGE> 30
Cash flow from the Partnership's leases will decrease as a
result of the termination of the Gould, Inc. lease for its property in Oxnard,
California. The Partnership received a lump sum payment in January 1998 in
consideration for agreeing to the termination. The lump sum of $1,837,500
represented a significant portion of the remaining lease rentals that would have
been received over the remaining initial term of the Gould lease. Concurrent
with the lease termination, the Partnership entered into a lease with Lockheed
Martin Corporation for a portion of the Oxnard property. Cash flow will benefit
further if Lockheed Martin elects to exercise its option to lease such remaining
space or if the remaining space is leased to others.
Because of the net and long-term nature of most of the
Partnership's leases, inflation and changing prices have not unfavorably
affected the Partnership's revenues and net income. Except for the Penn Virginia
Corporation lease, all of the Partnership's leases have provisions providing for
rent increases based on formulas indexed to increases in the Consumer Price
Index and may include caps on such CPI increases, sales overrides or scheduled
mandatory increases which could increase operating revenues in the future. As
the rate of inflation has been moderate in recent years, the Partnership
believes that hotel operations may not be significantly impacted by changing
prices. Management believes that reasonable increases in costs may be partially
or entirely passed through by increases in room rates. Over the past several
years, increases in the average room rate have generally been in excess of the
rate of inflation.
Financial Condition
The Partnership's cash balances of $3,047,000 as of December
31, 1997 decreased by $2,191,000 from the previous year. Cash flow from
operations of $4,394,000 was sufficient to pay four quarterly distributions of
approximately $4,031,000 and scheduled debt service of $234,000. In addition to
such distributions, the Partnership used its cash reserves to pay a special
distribution of $7.00 per Limited Partnership Unit ($792,000) in the first
quarter of 1997 representing proceeds from 1996 asset sales. The Partnership
also paid a distribution in December 1997 of $10.11 per Limited Partnership Unit
($1,144,000).
The distribution paid in December 1997 reflected an exchange
transaction which occurred on January 1, 1998. The majority of the Partnership's
Limited Partners and its General Partners approved a consolidation by merger of
the Partnership with a subsidiary limited partnership of Carey Diversified LLC,
as proposed in the Consent Solicitation Statement/Prospectus of Carey
Diversified dated October 16, 1997. In connection with the merger, 3,494 Limited
Partnership Unitholders representing 111,658 Limited Partnership Units elected
to exchange their limited partnership units for interests in Carey Diversified.
The December 1997 distribution was intended to (a) distribute funds in order to
adjust the net assets of the Partnership with the estimate of Total Exchange
Value, as defined in the Consent Solicitation Statement/Prospectus, of those
assets and (b) pay the January distribution.
Limited Partners owning 1,542 Limited Partnership Units who
did not elect to receive interests in Carey Diversified have elected to retain a
limited partnership interest in the Partnership as Subsidiary Partnership
Unitholders. Subsidiary Partnership Units have economic interests and legal
rights in the Partnership that are substantially similar to those of Limited
Partnership Units and represent a direct ownership interest in the Partnership.
The holders of Subsidiary Partnership Units will be paid a pro rata share of any
distribution paid by the Partnership to Carey Diversified. The Partnership will
continue to pay distributions on a quarterly basis until liquidating
distributions are made, as described in the Consent Solicitation
Statement/Prospectus. The objective with respect to Subsidiary Partnership Units
will be to pay distributions as if the Consolidation never had occurred based
upon the net cash flows generated by the Partnership.
The Partnership's investing activities during 1997 included
$383,000 of costs incurred in connection with the completion of renovations
necessary to bring the Alpena and Petoskey hotels in compliance with the Holiday
Inn hotel modernization plan and replacement of furniture, fixture and equipment
at the hotels. Alpena and Petoskey maintain a reserve of $95,000 for on-going
replacement purchases.
- 3 -
<PAGE> 31
DS Group Limited has an option to purchase its leased property
in December 1998 at a purchase price of the greater of $3,000,000 or fair market
value. The DS Group property is not encumbered by mortgage debt and provides for
annual rent of $393,000. If DS Group does not exercise its option, the lease
term will continue until 2010. Penn Virginia Corporation may exercise an option
to purchase its leased properties at any time between August 1998 and August
1999 at a purchase price of the greater of $3,700,000 or fair market value. The
Penn Virginia property is not encumbered by mortgage debt and provides an annual
rent of $499,000. Neither DS Group nor Penn Virginia has indicated whether it
intends to exercise its option. The Penn Virginia lease term expires in 1999.
Penn Virginia also may elect a ten-year renewal option in the event that it does
not exercise its purchase option.
All of the Partnership's properties are subject to
environmental statutes and regulations regarding the discharge of hazardous
materials and any related remediation obligations. Except for the two hotel
properties, all of the properties are currently net leased to corporate tenants.
The Partnership normally structures its leases to require tenants to comply with
all laws. In addition, substantially all of the Partnership's net leases include
indemnification provisions that 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
leased properties, the General Partner believes that in most cases the
Partnership will be entitled to full reimbursement from tenants for such costs.
In the event that the Partnership absorbs a portion of such costs, the General
Partner believes that such expenditures will not have a material adverse effect
on the Partnership's financial condition, liquidity or results of operations.
In 1994, the Partnership voluntarily conducted Phase II
reviews of certain of its properties based on the results of the Phase I
environmental reviews conducted in 1993. The Partnership believes, based on the
results of such 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 either leakage from underground
storage tanks or surface spills from facility activities. For those conditions
that were identified, the Partnership advised its tenants of such findings and
of their obligations, if any, to perform any required remediation.
In June 1997, the FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in full set
general purpose financial statements. SFAS No. 131 establishes accounting
standards for the way that public business enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 130 and SFAS No. 131 are required to be adopted by 1998.
The Partnership is currently evaluating the impact, if any, of SFAS No. 130 and
SFAS 131.
The Partnership's management company has responsibility for
maintaining the Partnership's books and records and servicing the computer
systems used in maintaining such books and records. In its preliminary
assessment of Year 2000 issues, the management company believes that such issues
will not have a material effect on the Partnership's operations; however such
assessment has not been completed. The Partnership relies on its bank and
transfer agent for certain computer-related services and has initiated
discussions to determine whether they are addressing Year 2000 issues that might
affect the Partnership.
- 4 -
<PAGE> 32
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, 1996
and 1997, and the related statements of income, partners' capital and cash flows
for each of the three years in the period ended December 31, 1997. 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 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 financial position of Corporate
Property Associates 5 (a California limited partnership) as of December 31, 1996
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the Schedule of
Real Estate and Accumulated Depreciation as of December 31, 1997, 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 24, 1998
- 5 -
<PAGE> 33
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
BALANCE SHEETS
December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 3,960,767 $ 3,704,767
Buildings 22,753,408 15,200,853
------------ ------------
26,714,175 18,905,620
Accumulated depreciation 9,111,827 7,205,039
------------ ------------
17,602,348 11,700,581
Net investment in direct financing leases 19,298,726 19,257,669
------------ ------------
Real estate leased to others 36,901,074 30,958,250
Operating real estate, net of accumulated depreciation
of $4,637,421 in 1996 and $5,106,449 in 1997 7,463,300 7,377,569
Cash and cash equivalents 5,237,995 3,046,822
Funds in escrow 575,051 591,917
Other assets, net of accumulated amortization
of $130,589 in 1996 and net of reserve for
uncollected rents of $45,140 in 1997 2,474,117 2,289,995
------------ ------------
Total assets $ 52,651,537 $ 44,264,553
============ ============
LIABILITIES:
Mortgage notes payable $ 14,283,940 $ 9,295,000
Note payable to affiliate 1,151,000 1,151,000
Accrued interest payable 45,707
Accounts payable and accrued expenses 433,842 262,658
Accounts payable to affiliates 111,526 1,656,880
Deferred gain, net of accumulated amortization of
$180,278 in 1996 and $225,347 in 1997 901,390 856,321
Prepaid rental income 140,472
Other liabilities 658,542 614,600
------------ ------------
Total liabilities 17,585,947 13,976,931
------------ ------------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners (67,666) (1,625,151)
Limited Partners (113,200 Limited Partnership
Units issued and outstanding) 35,133,256 31,912,773
------------ ------------
Total partners' capital 35,065,590 30,287,622
------------ ------------
Total liabilities and
partners' capital $ 52,651,537 $ 44,264,553
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 6 -
<PAGE> 34
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
STATEMENTS of INCOME
For the years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $ 4,642,686 $ 3,225,129 $2,544,856
Interest income from direct financing leases 3,879,125 3,409,166 3,473,565
Other interest income 307,951 210,913 150,047
Revenue of hotel operations 6,768,268 6,359,758 3,571,232
Other income 170,107 10,000
----------- ----------- ----------
15,768,137 13,204,966 9,749,700
----------- ----------- ----------
Expenses:
Interest 3,495,872 2,075,230 1,363,680
Depreciation 2,065,781 1,331,028 1,131,397
General and administrative 841,920 460,948 677,531
Property expenses 810,581 579,189 632,612
Amortization 33,599 13,301
Writedown to fair value 1,980,550 1,300,000 1,350,000
Operating expense of hotel operations 5,241,370 4,952,959 2,865,861
----------- ----------- ----------
14,469,673 10,712,655 8,021,081
----------- ----------- ----------
Income before gain on sale 1,298,464 2,492,311 1,728,619
Gain on foreclosure 956,829
Gain on sale of real estate, net 614,234 5,284,165
----------- ----------- ----------
Net income $ 1,912,698 $ 7,776,476 $2,685,448
=========== =========== ==========
Net income allocated to:
Individual General Partner $ 52,520 $ 119,855 $ 26,178
=========== =========== ==========
Corporate General Partner $ 148,208 $ 342,857 $ 154,097
=========== =========== ==========
Limited Partners $ 1,711,970 $ 7,313,764 $2,505,173
=========== =========== ==========
Net income per Limited
Partnership Unit
(113,200 Units outstanding) $ 15.12 $ 64.61 $ 22.13
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 7 -
<PAGE> 35
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
STATEMENTS of PARTNERS' CAPITAL
For the years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Partners' Capital Accounts
------------------------------------------------------------------------
Limited
Partners'
General Limited Amount Per
Total Partners Partners Unit (a)
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
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, 19967 35,065,590 (67,666) 35,133,256 310
Distributions (6,040,572) (314,916) (5,725,656) (51)
Accrued preferred distribution (1,422,844) (1,422,844)
Net income, 1997 2,685,448 180,275 2,505,173 22
------------ ----------- ------------ -----
Balance, December 31, 1997 $ 30,287,622 $(1,625,151) $ 31,912,773 $ 281
============ =========== ============ =====
</TABLE>
(a) Based on 113,200 Units issued and outstanding during all periods.
The accompanying notes are an integral part of the financial statements.
- 8 -
<PAGE> 36
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
STATEMENTS of CASH FLOWS
For the years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,912,698 $ 7,776,476 $ 2,685,448
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,099,380 1,344,329 1,131,397
Amortization of deferred gains (71,678) (64,974) (45,069)
Other noncash items 13,162 54,212 41,057
Writedown to fair value 1,980,550 1,300,000 1,350,000
Gain on foreclosure (956,829)
Net gain on sale of real estate (614,234) (5,284,165)
Provision for uncollected rents 180,164 235,313 345,140
Net change in operating assets and liabilities (811,972) 245,119 (157,498)
------------ ------------ -----------
Net cash provided by operating
activities 4,688,070 5,606,310 4,393,646
------------ ------------ -----------
Cash flows from investing activities:
Additional capitalized costs (1,078,951) (172,447) (383,297)
Proceeds on sale and transfer of real estate 3,387,362 18,592,329
Purchase of limited partnership interests (1,750,175)
------------ ------------ -----------
Net cash provided by (used in) investing activities 558,236 18,419,882 (383,297)
------------ ------------ -----------
Cash flows from financing activities:
Distributions to partners (8,054,982) (4,456,949) (5,967,522)
Release of escrow funds in
connection with mortgage prepayment 2,295,000
Prepayments of mortgage payable (2,200,000) (18,561,812)
Payments on mortgage principal (463,487) (365,118) (234,000)
Partial prepayment of note payable to affiliate (144,000)
Deferred financing costs (10,000)
------------ ------------ -----------
Net cash used in financing activities (10,872,469) (21,088,879) (6,201,522)
------------ ------------ -----------
Net (decrease) increase in cash and
cash equivalents (5,626,163) 2,937,313 (2,191,173)
Cash and cash equivalents, beginning of year 7,926,845 2,300,682 5,237,995
------------ ------------ -----------
Cash and cash equivalents, end of year $ 2,300,682 $ 5,237,995 $ 3,046,822
============ ============ ===========
</TABLE>
<TABLE>
<S> <C>
Supplemental Schedule of noncash investing and financing activity:
A. Accrued preferred distribution $ 1,422,844
===========
B. 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.
C. In connection with a foreclosure on a Partnership property in 1997, the
Partnership transferred the property to the lender and was released from the
obligations of the limited recourse mortgage loan. The gain on the
foreclosure was as follows:
Mortgage loan payable released $ 4,754,940
Other liabilities and assets, net 91,287
Carrying value of property (3,889,398)
-----------
Gain on foreclosure $ 956,829
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 9 -
<PAGE> 37
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. The most significant estimates relate to the assessment
of recoverability of real estate assets. 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, rental revenue is recognized on a
straight-line basis over the term of the leases and
expenses (including depreciation) are charged to
operations as incurred.
The Partnership assesses the recoverability of its real estate
assets, including residual interests, based on projections of
undiscounted cash flows over the life of such assets. In the
event that such cash flows are insufficient, the assets are
adjusted to their estimated fair 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.
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
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, 1996 and
1997 were held in the custody of three, and two financial
institutions, respectively.
Continued
- 10 -
<PAGE> 38
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
Other Assets and Liabilities:
Included in other assets are deferred charges incurred in connection
with mortgage note financings and refinancings, an investment in
a limited partnership and deferred costs of Consolidation (Note
15). Deferred charges are amortized 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 costs of
Consolidation represent certain costs related to a Consolidation
transaction which have been capitalized. Such Consolidation costs
will be included in the revaluation of assets subsequent to
December 31, 1997.
Deferred Gain:
Deferred gain consists of certain funds received in 1992, in
connection with the loan refinancings of the Alpena and Petoskey,
Michigan mortgage which are being amortized on a straight-line
basis over 24 years.
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 1995 and 1996 amounts have been reclassified to conform to
the 1997 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. 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").
Through December 31, 1997, the Agreement provided that the General
Partners were allocated 6% (1% to the Individual General Partner,
and 5% to the Corporate General Partner, Carey Corporate
Property, Inc.), and the Limited Partners were allocated 94% of
the profits and losses as well as distributions of Distributable
Cash From Operations, as defined in the Agreement, as well as net
proceeds from the sale of Partnership properties. Effective
January 1, 1998, as a result of the merger (see Note 15) of the
Partnership with a subsidiary partnership of Carey Diversified
LLC ("Carey Diversified"), Carey Diversified is the sole general
partner of the Partnership. Carey Diversified and the holders of
Subsidiary Partnership Units are allocated 94% of the profits and
losses and distributable cash, and two special limited partners,
Carey Management LLC ("Carey Management") and William P. Carey,
are allocated 5% and 1% of the profits and losses and
distributable cash from operations, respectively.
Continued
- 11 -
<PAGE> 39
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
In connection with the merger with Carey Diversified and the listing
on the New York Stock Exchange, the former Corporate General
Partner will be entitled to receive a subordinated preferred
return of $1,422,844 which was measured based upon the cumulative
proceeds arising from the sale of the Partnership's assets. To
satisfy the conditions for receiving the preferred return, the
shares of Carey Diversified must achieve a closing price equal to
or in excess of $23.11 for five consecutive trading days. The
General Partner believes that it is probable, as defined pursuant
to Statement of Financial Accounting Standards No. 5, that the
conditions for paying the preferred return will be achieved, and
the full amount of the subordinated preferred return is included
in accounts payable to affiliates as of December 31, 1997 in the
accompanying financial statements.
In accordance with the Agreement, the former General Partners, as a
result of having negative capital balances at the beginning of
each year, were allocated a portion of the 1995, 1996 and 1997
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.
The 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% undivided 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 were 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. Effective January 1, 1998,
the fees and reimbursements are payable to Carey Management, an
affiliate of Carey Diversified. Property management fee and
general and administrative expense reimbursements are summarized
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Property management fee $116,825 $ 76,763 $ 62,086
General and administrative
expense reimbursements 117,584 113,288 201,875
-------- -------- --------
$234,409 $190,051 $263,961
======== ======== ========
</TABLE>
During 1995, 1996 and 1997, fees aggregating $180,242, $91,265 and
$63,323, respectively, were incurred for legal services performed
by a firm in which the Secretary, until July 1997, 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 $7,150,000 for each property of
which the Partnership's share of each is $4,647,500. 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
- 12 -
<PAGE> 40
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 1995, 1996 and 1997 were
$182,843, $83,533 and $63,108, respectively.
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
$1,355,000 in 1998, $1,179,000 in 1999, $793,000 in 2000 and
$477,000 each of the years 2001 to 2002, and aggregate
approximately $6,456,000 through 2010.
Contingent rents were approximately $5,000, $6,000 and $6,000 in
1995, 1996 and 1997, respectively.
B. Operating Real Estate:
Operating real estate, at cost, is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
----------- -----------
<S> <C> <C>
Land $ 479,050 $ 479,050
Buildings 9,603,750 10,177,569
Personal property 2,017,921 1,827,399
----------- -----------
12,100,721 12,484,018
Less: Accumulated depreciation 4,637,421 5,106,449
----------- -----------
$ 7,463,300 $ 7,377,569
=========== ===========
</TABLE>
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
----------- -----------
<S> <C> <C>
Minimum lease payments receivable $32,483,668 $29,899,105
Unguaranteed residual value 17,495,677 17,495,677
----------- -----------
49,979,345 47,394,782
Less: Unearned income 30,680,619 28,137,113
----------- -----------
$19,298,726 $19,257,669
=========== ===========
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable financing leases amount to approximately
$2,585,000 in each of the years from 1998 to 2002 and aggregate
approximately $29,899,000 through 2017.
Contingent rents were approximately $758,000, $776,000 and $930,000
in 1995, 1996 and 1997, respectively.
Continued
- 13 -
<PAGE> 41
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
6. Mortgage Notes Payable and Note Payable to Affiliate:
A. Mortgage Notes Payable
The Partnership's mortgage note payable is collateralized by lease
assignments and by real property with a gross amount of
approximately $12,484,000, before accumulated depreciation (also
see Note 3). As of December 31, 1997, mortgage notes payable bear
interest at rates varying from 6.8% to 8% per annum and mature in
2015.
Scheduled principal payments during each of the next five years
following December 31, 1997 and thereafter, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 $ 253,500
1999 266,500
2000 286,000
2001 312,000
2002 331,500
Thereafter 7,845,500
----------
Total $9,295,000
==========
</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 $3,554,413, $2,254,150 and $983,568 in 1995, 1996
and 1997, respectively.
7. Distributions to Partners:
Distributions declared and paid to partners are summarized as
follows:
<TABLE>
<CAPTION>
Distributions Paid
Year Ending and Payable to Distributions Paid to Limited Partners'
December 31, General Partners Limited Partners Per Unit Amount
------------ ---------------- ---------------- ---------------
<S> <C> <C> <C>
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
======== ========== ======
1997:
Quarterly distributions $314,916 $4,933,256 $43.58
Special distribution 792,400 7.00
-------- ---------- ------
Total 1997 $314,916 $5,725,656 $50.58
======== ========== ======
</TABLE>
Distributions for 1997 include distributions of $1,144,452 to Limited
Partners and $73,050 to General Partners declared in December
1997.
Continued
- 14 -
<PAGE> 42
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>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income per Statements of Income $ 1,912,698 $ 7,776,476 $ 2,685,448
Excess tax depreciation (2,399,357) (1,980,182) (1,408,880)
Writedowns of assets 1,980,550 1,300,000 1,350,000
Difference in gains or losses on
dispositions of property (157,203) 3,475,585 1,970,372
Other 284,878 (544,552) (188,565)
----------- ----------- -----------
Income reported for Federal
income tax purposes $ 1,621,566 $10,027,327 $ 4,408,375
=========== =========== ===========
</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
operation of hotel properties.
In 1995, 1996 and 1997, the Partnership earned its total leasing
revenues (rental income plus interest income from financing
leases) from the following lease obligors:
<TABLE>
<CAPTION>
1995 % 1996 % 1997 %
---- --- ---- --- ---- --
<S> <C> <C> <C> <C> <C> <C>
Gould, Inc. $1,132,500 13% $1,215,000 18% $1,113,750 19%
Duff-Norton Company, Inc. 1,020,717 12 1,020,717 15 1,020,717 17
DeVlieg Bullard, Inc. 830,984 10 912,864 14 953,803 16
Exide Electronics
Corporation 528,926 6 572,130 9 572,130 10
Penn Virginia Corporation 498,750 6 498,750 8 498,750 8
DS Group Limited (formerly
Stoody Deloro Stellite, Inc.) 404,719 5 390,068 6 491,298 8
Arley Merchandise
Corporation 600,000 7 600,000 9 300,000 5
Harcourt General Corporation 233,750 3 233,750 4 233,750 4
Penberthy Products, Inc. 182,529 2 200,514 3 209,507 3
Winn Dixie Stores, Inc. 191,534 2 191,534 3 191,534 3
Other 212,383 2 31,602 150,000 3
Sunds Defibrator Woodhandling, Inc.
(formerly FMP/Rauma Company) 131,033 2 144,239 2 144,239 2
Rochester Button Company 199,968 2 225,706 3 138,943 2
GATX Logistics, Inc. 1,398,600 16 380,730 6
IBM Corporation 318,097 4 16,691
Industrial General Corporation 637,321 8
---------- --- ---------- --- ---------- ---
$8,521,811 100% $6,634,295 100% $6,018,421 100%
========== === ========== === ========== ===
</TABLE>
Continued
- 15 -
<PAGE> 43
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
The Partnership's share of the operating results for the hotel
properties are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 6,768,268 $ 6,359,758 $ 3,571,232
Fees to hotel management
company (143,498) (134,872) (75,356)
Other operating expenses (5,097,872) (4,818,087) (2,790,505)
----------- ----------- -----------
Hotel operating income $ 1,526,898 $ 1,406,799 $ 705,371
=========== =========== ===========
</TABLE>
10. Property in Oxnard, California:
In November 1985, the Partnership purchased land and building for
$9,840,500 and entered into a net lease with Gould, Inc.
("Gould"). The Gould lease provided for an initial term of
fourteen years ending November 30, 1999 with multiple five-year
renewal terms at Gould's option.
On November 12, 1997, the Partnership and Gould entered into an
agreement to terminate the lease effective October 1, 1997 with a
remaining obligation on the part of Gould to perform certain
repairs to the building. In consideration for the termination of
the lease, Gould paid a termination fee of $1,837,500 in January
1998.
On October 1, 1997, the Partnership entered into a lease with
Lockheed Martin Corporation ("Lockheed") for approximately 48% of
the leaseable space. The Lockheed lease provides for an initial
term through August 31, 2000 with options for two one-year
renewal terms. Annual rent is $360,000 increasing to $475,000 in
December 1999. In the event that the Partnership receives a bona
fide offer to lease the remaining space, Lockheed will have a
right of first refusal. If the remaining space is vacant,
Lockheed can exercise the right to occupy such space.
The termination fee is being amortized through November 1999.
11. Funds in Escrow:
Funds in escrow at December 31, 1996 and 1997 consist of reserves
and escrow funds for the hotel properties and related mortgage
debt.
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
--------- ---------
<S> <C> <C>
Debt service escrow account and bond
reserves on Alpena and Petoskey
properties $ 490,100 $ 496,600
Hotel furniture, fixture
and equipment reserves 84,951 95,317
--------- ---------
$ 575,051 $ 591,917
========= =========
</TABLE>
Continued
- 16 -
<PAGE> 44
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
12. Gains and Losses on the Sale of Real Estate:
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.
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, 1997. 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.
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, they do 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,
1997, the Partnership has not received any distributions.
Continued
- 17 -
<PAGE> 45
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
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.
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. 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 was 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. Management concluded that such additional
investment required was not in the best interests of the
Partnership and determined to sell the property.
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 fair 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 in 1996,
and the bonds were paid off. 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.
Continued
- 18 -
<PAGE> 46
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
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 in 1996.
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 in 1996 of $4,409,191.
Arley Merchandise Corporation:
The Partnership owned two properties in Sumter and Columbia, South
Carolina that were leased to Arley Merchandise Corporation
("Arley"). In July 1997, the Arley lease was terminated by the
Bankruptcy Court in connection with Arley's voluntary petition of
bankruptcy. In connection with the termination of the lease, the
Partnership wrote off $300,000 of uncollected rents and wrote
down the Arley properties by $1,350,000.
In May 1997, the lender on the limited recourse mortgage loan
collateralized by the Arley properties made a demand for payment
for the entire outstanding principal balance of the loan of
$4,754,940. The loan had initially matured in January 1993, at
which time the lender and the Partnership entered into a
forbearance agreement and attempted to reach an agreement to
restructure the loan. Such an agreement was not reached and the
forbearance agreement expired July 1, 1995.
In June 1997, the lender initiated a lawsuit for the purpose of
foreclosing on the Arley properties. The Partnership did not
contest the lender's actions, and on November 17, 1997, the
ownership of the Arley properties was transferred to the lender
and the loan obligation was canceled. Since the loan was limited
recourse, the lender's sole recourse was to the Arley properties
and certain deposits. In connection with the foreclosure, the
Partnership recognized a gain of $956,829 on the difference
between liabilities forgiven and assets surrendered.
Continued
- 19 -
<PAGE> 47
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, the General Partner believes 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 that
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 and $9,420,000 at December 31,
1996 and 1997, respectively. 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. Management believes that it is not
practicable to estimate fair value for the note payable to
affiliate.
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.
15. Exchange of Limited Partnership Units:
On October 16, 1997, Carey Diversified distributed a Consent
Solicitation Statement/Prospectus to the Limited Partners that
described a proposal to consolidate the Partnership with the
other CPA(R) Partnerships. The General Partners' proposals that
each of the nine CPA(R) limited partnerships be merged with a
corresponding subsidiary partnership of Carey Diversified, of
which Carey Diversified is the general partner, was approved by
the Limited Partners of all nine of the CPA(R) limited
partnerships. Each limited partner had the option of either
exchanging his or her limited partnership interest for an
interest in Carey Diversified ("Listed Shares") or to retain a
limited partnership interest in the subsidiary partnership
("Subsidiary Partnership Units"). On January 1, 1998, 3,494
holders representing 111,658 of the 113,200 limited partnership
units
Continued
- 20 -
<PAGE> 48
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
exchanged such units for 2,051,157 Listed Shares with 48 holders
with the remaining 1,542 limited partnership units exchanging
such units for Subsidiary Partnership Units.
Listed shares commenced public trading on the New York Stock
Exchange on January 21, 1998. Subsidiary Partnership Units
provide substantially the same economic interests and legal
rights as those of a limited partnership unit in the Partnership,
but are not listed on a securities exchange. A liquidating
distribution to holders of Subsidiary Partnership Units will be
made after an appraisal of the Partnership's properties which
date is to be no later than December 31, 2001.
16. Accounting Pronouncements:
In June 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in full set general
purpose financial statements. SFAS No. 131 establishes accounting
standards for the way that public business enterprises report
selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 130 and SFAS
No. 131 are required to be adopted by 1998. The Partnership is
currently evaluating the impact, if any, of SFAS No. 130 and SFAS
131.
- 21 -
<PAGE> 49
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Partnership Costs
--------------------------------- Capitalized Decrease
Personal Subsequent to in Net
Description Encumbrances Land Buildings Property Acquisition (a) Investment (b)
----------- ------------ ---- --------- -------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operating method:
Manufacturing and office
leased to Penn
Virginia Corporation $ 453,192 $ 3,246,808 $ 3,112
Land leased to
Exide Electronics
Corporation 1,170,000
Motion picture theater leased
to Harcourt General
Corporation 243,000 1,927,000 25,424
Office and research facility
leased to Lockheed Martin
Corporation 1,422,000 8,418,500 34,587
Retail store leased to
Winn Dixie Stores, Inc. 414,700 1,525,872 21,425
Office/Manufacturing leased
to Inno Tech Industries, Inc. 122,884 568,756 $(691,640)
---------- ----------- ---------- ---------
$3,825,776 $15,686,936 $ 84,548 $(691,640)
========== =========== ========== =========
Operating real estate (e):
Hotel properties located in
Alpena, Michigan $4,647,500 $ 136,500 $4,905,875 $482,625 $822,768
Petoskey, Michigan 4,647,500 342,550 4,684,875 497,575 611,250
---------- --------- ---------- -------- ---------
$9,295,000 $ 479,050 $9,590,750 $980,200 $1,434,018
========== ========= ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried
at Close of Period (c)(d)
------------------------------------------------------
Personal
Description Land Buildings Property Total
----------- ---- --------- -------- -----
<S> <C> <C> <C> <C>
Operating method:
Manufacturing and office
leased to Penn
Virginia Corporation $ 453,192 $ 3,249,920 $ 3,703,112
Land leased to
Exide Electronics
Corporation 1,170,000 1,170,000
Motion picture theater leased
to Harcourt General
Corporation 243,000 1,952,424 2,195,424
Office and research facility
leased to Lockheed Martin
Corporation 1,423,875 8,451,212 9,875,087
Retail store leased to
Winn Dixie Stores, Inc. 414,700 1,547,297 1,961,997
Office/Manufacturing leased
to Inno Tech Industries, Inc.
---------- ----------- -----------
$3,704,767 $15,200,853 $18,905,620
========== =========== ===========
Operating real estate (e):
Hotel properties located in
Alpena, Michigan $ 136,500 $5,265,396 $945,872 $6,347,768
Petoskey, Michigan 342,550 4,912,173 881,527 6,136,250
---------- ---------- --------- -----------
$ 479,050 $10,177,569 $1,827,399 $12,484,018
========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation in
Latest Statement
Accumulated of Income
Description Depreciation (d) Date Acquired is Computed
----------- ---------------- -------------- ------------
<S> <C> <C> <C>
Operating method:
Manufacturing and office
leased to Penn
Virginia Corporation $2,477,521 August 7, 1984 5-30 YRS.
Land leased to
Exide Electronics
Corporation June 20, 1985
Motion picture theater leased
to Harcourt General
Corporation 810,796 July 17, 1985 30 YRS.
Office and research facility
leased to Lockheed Martin
Corporation 3,407,405 November 25, 1985 30 YRS.
Retail store leased to
Winn Dixie Stores, Inc. 509,317 March 17, 1988 30 YRS.
Office/Manufacturing leased
to Inno Tech Industries, Inc. August 30, 1995 N/A
----------
$7,205,039
==========
Operating real estate (e):
Hotel properties located in
Alpena, Michigan $2,784,649 March 6, 1987 7-30 YRS.
Petoskey, Michigan 2,321,800 January 30, 1987 7-30 YRS.
----------
$5,106,449
==========
</TABLE>
See accompanying notes to Schedule.
- 22 -
<PAGE> 50
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1997
<TABLE>
<CAPTION>
Gross Amount
Initial Cost to Cost at which
Partnership Capitalized Decrease in Carried
Encum- --------------------- Subsequent to Net at Close of
Description brances Land Buildings Acquisition(a) Investment (b) Period (c) Date Acquired
----------- ------- ---- --------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Direct financing method:
Manufacturing facility
to Duff-Norton
Company, Inc. $ 444,730 $ 5,055,270 $ 5,500,000 December 30, 1983
Manufacturing facility
leased to Rochester
Button Company, Inc. 86,663 2,815,596 $ 4,429 $(1,044,696) 1,861,992 April 11, 1984
Office and research
facility leased to
Exide Electronics
Corporation 2,030,000 1,500 2,031,500 June 20, 1985
Manufacturing
facilities leased to
DeVlieg Bullard, Inc. 310,032 4,782,667 5,092,699 April 3, 1986
Manufacturing
facilities leased to
Penberthy Products, Inc. 48,968 1,028,333 1,077,301 April 3, 1986
Manufacturing
facilities leased
to DS Group Limited 200,000 2,800,000 3,000,000 December 22, 1986
Manufacturing
facilities leased
to Sunds Defibrator
Woodhandling, Inc. 24,750 669,427 694,177 August 30, 1985
---------- ----------- ------- ----------- -----------
$1,115,143 $19,181,293 $ 5,929 $(1,044,696) $19,257,669
========== =========== ======= =========== ===========
</TABLE>
See accompanying notes to Schedule.
- 23 -
<PAGE> 51
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
(a) Consists of additional costs capitalized and acquisition costs,
including legal fees, appraisal fees, title costs and other related
professional fees, property acquired in connection with acquiring
hotel assets and purchases of equipment for hotel operations.
(b) The decrease in net investment is due to the amortization of
unearned income producing constant periodic rate on the net
investment in direct financing leases and does not include lease
payments received, which may be greater or less than such
amortization and the writedown of properties to fair value.
(c) At December 31, 1997, the aggregate cost of real estate owned for
Federal income tax purposes is $51,290,721.
RECONCILIATION OF REAL ESTATE ACCOUNTED FOR
UNDER THE OPERATING METHOD
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
------------ -----------
<S> <C> <C>
Balance at beginning
of year $ 38,994,553 $26,714,175
Additions
Disposition of property (12,280,378) (6,458,555)
Writedown to net realizable value (1,350,000)
------------ -----------
Balance at close of
year $ 26,714,175 $18,905,620
============ ===========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Accumulated Depreciation
------------------------------------------
December 31,
------------
1996 1997
----------- -----------
<S> <C> <C>
Balance at beginning
of year $12,371,727 $ 9,111,827
Depreciation expense 840,660 662,369
Disposition of property (4,100,560) (2,569,157)
----------- -----------
Balance at close of year $ 9,111,827 $ 7,205,039
=========== ===========
</TABLE>
- 24 -
<PAGE> 52
CORPORATE PROPERTY ASSOCIATES 5
(a California limited partnership)
NOTES TO SCHEDULE OF REAL ESTATE AND ACCUMULATED
DEPRECIATION - Continued
<TABLE>
<CAPTION>
(e) Reconciliation of Operating Real Estate
December 31,
------------
1996 1997
----------- -----------
<S> <C> <C>
Balance at beginning of year $12,001,027 $12,100,721
Additions 99,694 383,297
----------- -----------
Balance at close of year $12,100,721 $12,484,018
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Accumulated Depreciation for
Operating Real Estate
December 31,
------------
1996 1997
---------- ----------
<S> <C> <C>
Balance at beginning of year $4,265,218 $4,637,421
Reclassification to real estate
held for sale (118,165)
Depreciation expense 490,368 469,028
---------- ----------
Balance at close of year $4,637,421 $5,106,449
========== ==========
</TABLE>
- 25 -
<PAGE> 53
PROPERTIES
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ------------ ---------------- -------- ------------------
<S> <C> <C> <C>
DUFF-NORTON Manufacturing and Forrest City, Ownership of land
COMPANY, INC. Office Facility Arkansas and building
ROCHESTER BUTTON Manufacturing Kenbridge, Ownership of land
COMPANY Facilities - South Boston, and buildings (2)
2 locations Virginia
PENN VIRGINIA Office and Duffield, Ownership of land
CORPORATION Manufacturing Virginia and building (3)
Facilities - Cuyahoga Falls,
3 locations Ohio and
Broomall,
Pennsylvania
(4) Hotels Petoskey and Ownership of 65%
Alpena, interest in land
Michigan and buildings (1)
EXIDE ELECTRONICS Office and Raleigh, Ownership of land
CORPORATION Research Facility North Carolina and building
HARCOURT GENERAL Movie Theatre Canton, Ownership of land
CORPORATION Michigan and building (3)
INNO TECH INDUSTRIES, Office, and Elyria, Ownership of land
INC. Manufacturing Ohio and building
Facility
LOCKHEED MARTIN Manufacturing and Oxnard, Ownership of land
CORPORATION Research Facility California and building
DEVLIEG BULLARD, INC. Manufacturing Frankenmuth, Ownership of land
Facilities - Michigan and buildings (3)
2 locations McMinnville,
Tennessee
PENBERTHY Manufacturing Prophetstown, Ownership of land
PRODUCTS, INC. Facility Illinois and building (3)
DS GROUP LIMITED Manufacturing Goshen, Ownership of land
Facility Indiana and building
</TABLE>
- 26 -
<PAGE> 54
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ------------ ---------------- -------- ------------------
<S> <C> <C> <C>
WINN-DIXIE Supermarket Montgomery, Ownership of land
STORES, INC. Alabama and buildings (3)
SUNDS DEFIBRATOR Manufacturing Carthage, Ownership of land
WOODHANDLING, INC. Facility New York and buildings
(formerly FMP/RAUMA, CO.)
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) These properties are subject to a mortgage as collateral for loans issued
by unaffiliated parties to the lessee.
(3) These properties are encumbered by mortgages and/or lease assignments in
connection with mortgage notes payable on other of the Partnership's
properties.
(4) The Partnership operates a hotel business at these properties.
- 27 -
<PAGE> 55
MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS
As of December 31, 1997, there were 3,542 holders of record of
the Limited Partnership Units of the Partnership. On January 1, 1998 3,494
holders of Limited Partnership Units exchanged such units for interests in Carey
Diversified LLC and 48 holders exchanged such interests for Subsidiary
Partnership Units. There is no established trading market for Subsidiary
Partnership Units.
In accordance with the requirements of the Partnership's
Amended Agreement of Limited Partnership (the "Agreement") 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 1994:
<TABLE>
<CAPTION>
Cash Distributions Paid Per Unit
--------------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
First quarter $12.20 $11.75 $15.45 (b)
Second quarter 32.21 (a) 8.40 8.34
Third quarter 11.74 8.42 8.34
Fourth quarter 11.75 8.44 18.45 (c)
------ ------ ------
$67.90 $37.01 $50.58
====== ====== ======
</TABLE>
(a) Includes a special distribution of $20 per Unit.
(b) Includes a special distribution of $7 per Unit.
(c) Includes distributions of $8.34 and $10.11 per Limited Partnership Unit
paid in October 1997 and December 1997, respectively.
On October 16, 1997, the Partnership began the solicitation of
consents from limited partners to approve the merger of the Partnership with all
of the CPA(R) Partnerships into Carey Diversified LLC, a Delaware limited
liability company. Limited Partners were offered the opportunity to vote to
approve or disapprove the merger and to choose either interests ("Listed
Shares") in the Carey Diversified LLC or interests ("Subsidiary Partnership
Units") in the partnership which survived the merger. The solicitation period
ended on December 16, 1997. The results of the voting were as follows:
<TABLE>
Units Voted Units Voted Units Voted Units Not
Yes No Abstaining Voting
---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Merger of Partnership
with Carey Diversified 79,113 69.89% 2,474 2.19% 644 .57% 30,969 27.35
</TABLE>
<TABLE>
<CAPTION>
Subsidiary
Listed Shares Partnership Units
------------- -----------------
<S> <C> <C>
Number of Units
Electing 111,658 1,542
</TABLE>
- 28 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMTENTS.
</LEGEND>
<CIK> 0000718075
<NAME> CORPORATE PROPERTY ASSOCIATES 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,046,822
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,046,822
<PP&E> 50,178,279
<DEPRECIATION> 11,842,460
<TOTAL-ASSETS> 44,264,553
<CURRENT-LIABILITIES> 3,530,931
<BONDS> 10,446,000
0
0
<COMMON> 0
<OTHER-SE> 30,287,622
<TOTAL-LIABILITY-AND-EQUITY> 44,264,553
<SALES> 0
<TOTAL-REVENUES> 9,749,700
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,312,261
<LOSS-PROVISION> 345,140
<INTEREST-EXPENSE> 1,363,680
<INCOME-PRETAX> 2,685,448
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,685,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,685,448
<EPS-PRIMARY> 22.13
<EPS-DILUTED> 22.13
</TABLE>
