<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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-19156
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
(Exact name of registrant as specified in its charter)
MARYLAND 13-3559213
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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:
SHARES OF COMMON STOCK
(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 common stock of Registrant at March
26, 1997. Non-affiliates held 7,161,233 shares of common stock, $.001 Par Value
outstanding at March 26, 1997.
<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 Maryland corporation on March
7, 1990 and is qualified as a real estate investment trust ("REIT") for Federal
income tax purposes. Registrant's operations are managed by Carey Property
Advisors (the "Advisor"), a Pennsylvania limited partnership, in accordance with
an advisory agreement between Registrant and the Advisor. The general partner of
the Advisor is Carey Fiduciary Advisors, Inc., a Pennsylvania corporation
("CFA"). Affiliates of the Advisor and CFA are the general partners of Corporate
Property Associates ("CPA(R):1"), Corporate Property Associates 2 ("CPA(R):2"),
Corporate Property Associates 3 ("CPA(R):3"), Corporate Property Associates 4, a
California limited partnership ("CPA(R):4"), Corporate Property Associates 5
("CPA(R):5"), Corporate Property Associates 6 - a California limited partnership
("CPA(R):6"), Corporate Property Associates 7 - a California limited partnership
("CPA(R):7"), Corporate Property Associates 8, L.P., a Delaware limited
partnership ("CPA(R):8") and Corporate Property Associates 9, L.P., a Delaware
limited partnership ("CPA(R):9"). The Advisor is also the advisor of Carey
Institutional Properties Incorporated ("CIP(TM)") and Corporate Property
Associates 12 Incorporated ("CPA(R):12"). Registrant has an advisory agreement
with the Advisor. According to the terms of this agreement, the Advisor performs
a variety of management services for Registrant. Registrant has entered into an
agreement with Fifth Rock L.P., an affiliate, for the purpose of leasing office
space. Reference is made to the Prospectus of Registrant dated June 11, 1990
filed pursuant to Rule 424(b), as supplemented by Supplements dated August 14,
1990, January 17, 1991 and March 26, 1991 under the Securities Act of 1933 and
incorporated herein by reference (said Prospectus, as so supplemented, is
hereinafter called the "Prospectus").
A maximum of 20,000,000 Shares were offered to the public on a "best
efforts" basis by Carey Financial Corporation ("Carey Financial") and other
selected dealers at a price of $10 per Share. Sales of the Shares to the public
commenced on June 20, 1990. Issuances of Shares pursuant to the offering
occurred between September 14, 1990 and June 17, 1991, for an aggregate of
7,197,294 Shares. Additionally, the Advisor purchased 20,000 Shares for $200,000
prior to the commencement of the public offering. Registrant filed a
post-effective amendment to its registration statement with the Securities and
Exchange Commission during 1991 withdrawing from registration the balance of the
unsold Shares.
The properties owned by Registrant are described in Properties in
Item 2. All net offering proceeds not currently invested in real estate are
invested in cash and cash equivalents. Registrant has invested such funds except
for the funds utilized to establish a working capital reserve in real estate.
Registrant also has a line of credit of approximately $6,000,000 at December 31,
1996. The line of credit may be used for the purchase of additional real estate
investments in build-to-suit construction subject to lease or to pay mortgage
indebtedness as described hereafter. At December 31, 1996, there were no
outstanding loans on the revolving credit facility.
A portion of Registrant's property acquisitions have been made in
conjunction with acquisitions, recapitalizations and other financial
restructurings. In some of these transactions, an acquiring entity may have
purchased all or substantially all of the stock or assets of a company and the
acquired company or its successor in interest thereby may have become obligated
on the substantial loans necessary to finance the acquisition. In such
instances, Registrant may act as one of several sources of financing by
purchasing real property from the seller of the subject company and net leasing
it to such company or its successor. This type of lessee typically will have
substantially greater debt and substantially lower net worth than that
attributable to the company prior to the transaction. Consequently, such lessees
may be particularly vulnerable to adverse conditions in the lessee's business or
industry, adverse economic conditions generally and increases in interest rates,
which increases directly or indirectly may result in higher payments under the
debt portion of the lessee's lease with Registrant. In addition, the lessee's
payment of lease rentals and debt service may prevent the lessee from investing
in new equipment and from devoting resources to research and development or
making other expenditures which are necessary to keep the lessee competitive in
its industry. Furthermore, if the lessee plans to replace existing management,
it will be more difficult for the Advisor to determine the likelihood of the
lessee's being successful in its business and of being able to pay rentals
throughout the term of a lease with Registrant.
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Registrant has only one industry segment which consists of the
investment in and the leasing of industrial and commercial real estate. See
Selected Financial Data in Item 6 and Management's Discussion and Analysis in
Item 7 for a summary of Registrant's operations. Also see the material contained
in the Prospectus under the heading INVESTMENT OBJECTIVES AND POLICIES.
For the year ended December 31, 1996, Registrant's share of revenues
from properties occupied by Marriott International, Inc. ("Marriott"),
Information Resources, Inc. ("IRI") and Titan Corporation amounted to 25%, 17%
and 11%, respectively, of the total operating revenues of Registrant. See Note 8
to the Consolidated Financial Statements in Item 8. No other property owned by
Registrant accounted for 10% or more of its total operating revenue during 1996.
Land and buildings leased to IRI exceed 20% of Registrant's total consolidated
assets. IRI's audited financial statements for the year ended December 31, 1995,
reported revenues of $399,916,000, a net loss of $11,982,000, total assets of
$338,536,000 and stockholders' equity of $229,754,000. IRI's financial
statements for the nine-months ended September 30, 1996 reported revenues of
$297,933,000, a net loss of $1,995,000, total assets of $340,506,000 and
shareholders' equity of $230,574,000. Marriott's audited financial statements
for the fiscal year ended December 29, 1995, reported revenues of
$8,961,000,000, net income of $247,000,000, total assets of $4,018,000,000 and
shareholders' equity of $1,054,000,000. Marriott's financial statements for the
twenty-four weeks ended June 14, 1996, reported revenues of $4,515,000,000, net
income of $138,000,000, total assets of $5,065,000,000 and shareholders' equity
of $1,227,000,000. IRI and Marriott are publicly-traded companies with financial
statements on file with the United States Securities and Exchange Commission.
Except for certain of the Harvest Foods, Inc. ("Harvest") properties
vacated in March 1997, all of Registrant's real estate properties are leased to
corporate tenants under net leases. A net lease generally requires tenants to
pay all operating expenses relating to the leased properties including
maintenance, real estate taxes, insurance and utilities which under other forms
of leases are often paid by the lessor. Lessees are required to include
Registrant as an additional insured party on all insurance policies relating to
the leased properties. In addition, substantially all of the net leases include
indemnification provisions which require the lessees to indemnify Registrant,
its directors and officers and the Advisor 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 secured contingent property and liability
insurance on the properties owned. 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. Currently, there are no claims pending for property damages
or liability claims. Primary insurance coverages have been obtained for the
Harvest properties
As described above, lessees retain the obligation for the operating
expenses of their leased properties so that, other than rental income, there are
no significant operating data reportable on Registrant's leased properties.
Current rental income is reported in Note 8 to the Financial Statements in Item
8. As discussed in Registrant's Management's Discussion and Analysis in Item 7,
Registrant's leases generally provide for periodic rent increases or percentage
rents based on specified sales levels. The periodic rent increases are either
stated, based on percentage of sales or based on formulas indexed to increases
in the Consumer Price Index or Producer Price Index. Except for the Harvest
lease which was terminated by Harvest pursuant to a bankruptcy proceeding, no
leases were materially modified or amended during the year ended December 31,
1996. Registrant's leases provide for multiple renewal terms with initial terms
on its leases expiring between 2001 and 2017.
Since December 31, 1995, Registrant:
(i) on January 8, 1996, drew an advance of $2,480,000 from its
revolving credit facility which it then used to pay the $2,430,000 balloon
payment plus accrued interest thereon to satisfy a mortgage loan encumbering
properties located in Citrus Heights, California and Drayton Plains, Michigan
leased to Kmart Corporation ("Kmart") which had matured in November 1995. The
$2,480,000 advance was repaid in March 1996;
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(ii) together with CIP(TM), sold Safeway Stores, Incorporated
("Safeway") properties located in Glendale, Arizona and Escondido, California
which they had owned as tenants-in-common with 50% ownership interests. On
January 26, 1996, the Glendale store was sold for $1,950,000. On February 15,
1996, the Escondido property was sold for $3,450,000. Net of the costs of sale,
Registrant realized net proceeds of $2,605,010 in cash and a promissory note. Of
the consideration received in connection with the Glendale property, $1,121,500
was in the form of a promissory note of which Registrant's share is $560,750.
The final installment of the promissory note was received in January 1997;
(iii) on March 15, 1996, sold its property leased to Empire Of
America Realty Credit Corp. ("Empire") for $8,500,000. On November 29, 1995,
Registrant notified Empire that it was in default under the lease as Empire had
previously notified Registrant of their intention to vacate the property and
liquidate its business. Under the terms of the lease, Empire was required to
provide Registrant with an irrevocable offer to purchase the property which
offer was received and accepted in February 1996.
(iv) on May 16, 1996, sold its property leased to Best Buy Co., Inc.
("Best Buy") for $3,250,000. Net of the costs of the sale and paying off the
remaining balance of $1,509,371 outstanding on the mortgage loan collateralized
by the property, Registrant realized net cash proceeds of $1,588,000; and
(v) together with CPA(R):9, with 66.07% and 33.93% interests,
respectively, refinanced in December 1996, at a lower interest rate, an existing
mortgage loan collateralized by the properties leased to Childtime Childcare,
Inc. The new limited recourse mortgage loan of $3,800,000 (of which Registrant's
share is $2,511,000) provides for monthly installments of principal and interest
of $35,546 (of which Registrant's share is $23,485) at an annual interest rate
of 9.55% based on a 20-year amortization schedule. The loan matures in December
2006, at which time a balloon payment of $2,768,000 will be due (of which
Registrant's share is $1,829,000). The retired loan provided for monthly
payments of principal and interest of $39,930 (of which Registrant's share was
$26,382) at an annual interest rate of 11.25% based on a 25-year amortization
schedule with a balloon payment due in February 1998.
A mortgage loan on Registrant's property leased to New WAI, L.P.
("Warehouse Associates") which had been scheduled to mature in April 1996 has
been extended an additional five years pursuant to an extension option which was
available to Registrant. If Registrant had not exercised the option, a balloon
payment of $977,000 would have been due. In addition, due to successful
negotiations by Registrant, the interest rate on another limited recourse
mortgage loan on the Warehouse Associates property was reduced from 10% to
8.75%.
In January 1991, Registrant and CPA(R):9 formed a limited
partnership, Hope Street Connecticut Limited Partnership ("Hope St"), for the
purpose of purchasing land and an office building in Stamford, Connecticut net
leased to Xerox Corporation ("Xerox"). In August 1995, Xerox vacated the
property at the end of the initial term. Registrant was unsuccessful in its
efforts to remarket the property and find a new lessee even at a substantially
lower annual rental. Based on the then current conditions in the Stamford
market, Management concluded that the net realizable value of the property was
less than the outstanding balance of the mortgage loan. Registrant, as Hope St's
general partner, attempted to negotiate with the lender and proposed various
alternatives such as extending the maturity, satisfying the balloon payment
obligation at a substantial discount or selling the property back to the lender
a nominal amount in excess of the mortgage balance; however, the lender did not
agree to any these proposals. In December 1996, the Boards of Directors of the
Corporate General Partner of CPA(R):9 and Registrant approved a transaction that
allowed Registrant to transfer Registrant's entire general partnership interest
in the limited partnership to CPA(R):9 and a wholly-owned subsidiary of CPA(R):9
for nominal consideration.
On February 21, 1992, Registrant and CIP(TM) purchased as
tenants-in-common, each with 50% ownership interests, 13 supermarkets and two
office buildings and entered into a master lease with Harvest as lessee. On June
18, 1996 Harvest filed a voluntary bankruptcy petition under Chapter 11 of the
United States Bankruptcy Code. Subsequent to Harvest's bankruptcy filing,
Harvest filed a motion to sever the master lease into 15 separate leases.
Registrant and CIP(TM) vigorously opposed the motion which Harvest subsequently
withdrew. In March 1997, the Bankruptcy Court approved Harvest's motion to
terminate the master lease. Registrant has agreements-in-principle to sell one
of the properties and lease two of the supermarkets. As final
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<PAGE> 5
agreements have not been completed for sale or lease of properties, there is no
assurance that the proposed sale or lease of properties will occur. The two
limited recourse mortgage loans, with a combined balance of $5,782,000 at
December 31, 1996 are in default and are subject to acceleration by the lenders
as a result of the filing of the bankruptcy petition. A portion of the debt
service for the period subsequent to December 31, 1996 was not paid in a timely
manner. As the lender's sole recourse is to the Harvest properties, Registrant
and CIP(TM) are evaluating their options including proposing a restructuring of
the loan.
Subsequent to December 31, 1996, Registrant has, on February 25,
1997, drawn an advance of $1,554,000 from its revolving credit facility to
satisfy a mortgage balloon payment of $1,600,000 for the loan collateralized by
the Denton, Texas property leased to Kmart.
As Registrant's objective is to invest in properties which are
occupied by a single corporate tenant and subject to long-term net leases with
such lease obligation backed by the credit of the corporate lessee, Registrant's
properties are not generally subject to the competitive conditions of local and
regional real estate markets. Competitive conditions of local and regional real
estate markets may have a more material affect on Registrant as leases
terminate. No initial term of a lease expires until after the year 2000. Because
Registrant is generally more significantly affected by the financial conditions
of its lessees rather than the competitive conditions of the real estate
marketplace, Registrant's strategy has been to diversify its investments among
tenants, property types and industries in addition to achieving geographical
diversification.
In connection with the purchase of its properties, Registrant
requires sellers of such properties to perform environmental reviews. Management
believes, based on the results of such reviews, that Registrant's properties
were in substantial compliance with Federal and state environmental statutes at
the time the properties were acquired. However, portions of certain properties
have been subject to some degree of contamination, principally in connection
with either leakage from underground storage tanks, surface spills from facility
activities or on-site historical activities. In most instances where
contamination has been identified, tenants are actively engaged in the
remediation process and addressing identified conditions. 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 with provisions of such
indemnification specifically addressing environmental matters. The leases
generally include provisions which allow for periodic environmental assessments,
paid for by the tenant, and allow Registrant to extend leases until such time as
a tenant has satisfied its environmental obligations. Certain of the leases
allow Registrant to require financial assurances from tenants such as
performance bonds or letters of credit if the costs of remediating environmental
conditions, in the estimation of Registrant, are in excess of specified amounts.
Accordingly, Management believes that the ultimate resolution of environmental
matters will not have a material adverse effect on Registrant's financial
condition, liquidity or results of operations.
Registrant does not have any employees. An affiliate of the Advisor
employs twelve individuals who perform accounting, secretarial and transfer
services for Registrant. Service Data Corporation performs certain transfer
services for Registrant and The Bank of New York performs certain banking
services for Registrant. In addition, Registrant has an agreement with the
Advisor pursuant to which the Advisor provides certain management services for
Registrant.
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<PAGE> 6
Item 2. Properties.
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ---------------- ---------------- -------- -----------------
<S> <C> <C> <C>
US WEST Office/Repair Scottsdale, Ownership of land
COMMUNICATIONS Facility Arizona and building
INC.
INFORMATION Office Buildings Chicago, Ownership of a 66.67%
RESOURCES INC. Illinois interest in a limited
partnership owning land
and buildings (1)
K MART Retail Stores Denton, Texas; Ownership of land and
CORPORATION - 3 locations Drayton Plains, buildings
Michigan; and
Citrus Heights,
California
CHILDTIME Child Daycare Westland - 2 and Ownership of a 66.07%
CHILDCARE, INC. Centers Sterling Heights, interest in land and
- 12 locations Michigan; Chandler buildings (1)
and Tucson, Arizona;
Duncanville, Carrollton
and Lewisville, Texas;
Chino, Garden Grove,
Alhambra and
Tustin/Santa Ana,
California
NEW WAI, L.P./ Warehouse Lima, Ohio Ownership of land and
WAREHOUSE Facility buildings (1)
ASSOCIATES
TITAN CORPORATION Office Building San Diego, Ownership of an 81.46%
California interest in a Limited
Partnership owning land
and building (1)
WAL-MART STORES, INC. Retail Stores Center, Groves, Ownership of a 50%
- 6 locations Silsbee and Vidor, interest in land
Texas; and buildings (1)
Weatherford,
Oklahoma;
Fort Smith, Arkansas;
</TABLE>
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<PAGE> 7
<TABLE>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- --------------- ---------------- -------- -----------------
<S> <C> <C> <C>
SAFEWAY STORES Supermarket Broken Arrow, Ownership of a 50%
INCORPORATED Oklahoma interest in land
and buildings
MARRIOTT Hotels Irvine, Sacramento, Ownership of a 23.67%
INTERNATIONAL, INC. - 13 locations and San Diego, interest in a company
California; owning land
Orlando - 2, and buildings (1)
Florida;
Des Plains,
Illinois;
Indianapolis,
Indiana;
Louisville, Kentucky;
Linthicum, Maryland;
Las Vegas, Nevada;
Newark, New Jersey;
Albuquerque,
New Mexico;
Spokane, Washington
Properties Retail Stores Little Rock - 7, Hope, Ownership of a 50%
formerly leased to and Office North Little Rock, interest in land
HARVEST FOODS, Buildings - 15 locations Conway, Hot Springs, and buildings
INCORPORATED Texarakana and except as noted (1)(2)
Jonesboro, Arkansas;
Ruston, Louisiana;
Clarksdale,
Mississippi
CALCOMP TECHNOLOGY Office/ Austin, Ownership of a 50%
(FORMERLY Manufacturing Texas interest in land and
SUMMARGRAPHICS Facility buildings (1)
CORPORATION)
NEODATA Distribution/ Louisville, Ownership of a 20%
CORPORATION Warehouse/Office Colorado interest in land and
Facility buildings (1)
ENVIROWORKS, INC. Manufacturing/ Apopka, Florida Ownership of land
Distribution Facility and buildings (1)
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) Ownership of buildings with ground leases of land for one property in
Little Rock, Arkansas and properties in Hot Springs, North Little Rock and
Jonesboro, Arkansas.
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<PAGE> 8
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.(1) (Mo/Year) Terms Interest Purchase Option
- ------- ------------ ------- --------- ---------- ------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Information $2,916,014 252,000 $17.36 9/05 YES 66.67% general N/A
Resources, partnership interest;
Inc. remaining limited
partnership interest
owned by Corporate
Property Associates 9
("CPA(R):9")
Titan 2,019,000 166,403 14.89 7/07 YES 81.46% general N/A
Corporation partnership interest;
remaining limited
partnership interest
owned by CPA(R):9
New WAI 1,454,000 534,121 2.72 3/16 YES 100% The greater of
L.P./ fair market value
Warehouse or the sum of
Associates $12,026,000 and
prepayment penalty
under the note.
EnviroWorks, 1,387,757 374,289 3.71 3/10 YES 100% N/A
Inc.
Wal-Mart 758,886 454,251 3.34 1/08 YES 50% interest; N/A
Stores, Inc. remaining
interest owned
by CIP(TM)
ChildTime 800,205 83,694 14.47 1/16 YES 66.07% interest; N/A
Childcare remaining
Inc. interest owned
by CPA(R):9
Neodata 587,728 403,871 7.28 12/14 YES 20% interest; The greater of fair
Corporation remaining market value or the
interest owned sum of approximately
by CIP(TM) $4,030,000 less any
teant loan outstanding.
</TABLE>
<TABLE>
<CAPTION>
Lease Gross
Obligor Costs (2)
- ------- ---------
<S> <C>
Information $23,763,219
Resources,
Inc.
Titan 16,135,554
Corporation
New WAI 12,027,029
L.P./
Warehouse
Associates
EnviroWorks, 11,180,954
Inc.
Wal-Mart 7,759,971
Stores, Inc.
ChildTime 5,566,126
Childcare
Inc.
Neodata 4,036,829
Corporation
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
Registrant's
Share Current Lease
Lease of Current Square Rent Per Expiration Renewal Ownership Terms of Gross
Obligor Annual Rents Footage Sq.Ft.(1) (Mo/Year) Terms Interest Purchase Option Costs (2)
- ------- ------------ ------- --------- ---------- ------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
K mart $390,000 278,839 $2.17 5/01 YES 100% N/A $5,533,941
Corporation
</TABLE>
(1) Represents annualized rate for rent per square foot when combined with
rents applicable to tenants-in-common or minority interests in limited
partnerships.
(2) Includes original cost of investment net of increase or decrease to net
investment subsequent to purchase less share of investment applicable to
minority interest.
The material terms on the mortgage debt of Registrant's properties
are summarized in the following table:
<TABLE>
<CAPTION>
Mortgage
Annual Interest Balance Annual Debt Maturity Estimated Payment
Lease Obligor Rate 12/31/96(2) Service (2) Date Due at Maturity (2) Prepayment Provisions
- --------------- --------------- ----------- ----------- -------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Information
Resources, Inc. 10.70% $15,046,330 $1,747,967 10/01/00 $14,413,000 Prepayment premium of
the greater of 3% of
the outstanding
principal balance or
the present value of
the lender's monthly
income loss between
prepayment and
maturity.
Titan
Corporation 9.75 8,680,252 1,084,817 07/01/03 6,530,000 Prepayment allowed
after January 1,
1998. Premium will
be the greater of 2%
of the outstanding
principal or the
difference between
the remaining
principal balance and
the present value of
the remaining
payments pursuant to
a formula based on
U.S. Treasury yields.
New WAI L.P./
Warehouse,
Associates 8.75 7,130,144 765,648 04/01/01 6,404,000
9.25(1) 954,688 123,500 08/01/01 779,000
Harvest Foods,
Inc. 9.75(1) 4,281,854 512,000 01/31/02 3,752,000
13.00 1,500,000 204,614 12/31/02 1,420,000
Wal-Mart
Stores, Inc. 9.42 7,147,211 781,326 01/01/99 6,910,000 Prepayment premium
based on a formula
based on current
treasury bond yield
plus .5%.
</TABLE>
-8-
<PAGE> 10
<TABLE>
<CAPTION>
Mortgage
Annual Interest Balance Annual Debt Maturity Estimated Payment
Lease Obligor Rate 12/31/96(2) Service (2) Date Due at Maturity (2) Prepayment Provisions
- --------------- --------------- ----------- ----------- -------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
ChildTime
Childcare, Inc. 9.55% $2,510,660 $281,820 12/01/06 $1,829,000 The loan
may be prepaid in
full with a 5%
premium, in the first
five loan years and
decreasing 1/2% in
each loan year
thereafter.
Calcomp Technology
(formerly 10.25(1) 1,712,100 230,000 08/31/99 1,573,000
Summagraphics
Corporation
Neodata
Corporation 10.00 126,838 12,684 07/01/13 58,000
10.00 2,610,268 312,667 12/12/04 1,981,000 The loan may be
prepaid after
December 31, 1999
subject to a
prepayment premium of
the greater of 1% of
the outstanding
balance or a premium
based on a formula
based on U.S.
Treasury yields.
</TABLE>
(1) Variable rate based on lender's prime rate.
(2) Net of amounts attributable to minority interest.
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<PAGE> 11
Item 3. Legal Proceedings.
As of the date hereof, Registrant is not a party to any material
pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the year ended
December 31, 1996 to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
Information with respect to Registrant's common stock 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. Consolidated Consolidated Financial Statements and Supplementary Data.
The following consolidated 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) Consolidated Balance Sheets as of December 31, 1995 and 1996.
(iii) Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996.
(iv) Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996.
(vi) Notes to Consolidated Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
-10-
<PAGE> 12
PART III
Item 10. Directors and Executive Officers of the Registrant.
The directors and senior officers of Registrant and members of the
Investment Committee of the Board of Directors of the Advisor are as follows:
<TABLE>
<CAPTION>
Has Served as a
Director and/or
Name Age Positions Held Officer Since
---- --- -------------- ---------------
<S> <C> <C> <C>
William P. Carey 66 Chairman of the Board 3/90
Director
Francis J. Carey 71 President 3/90
Director
Charles C. Townsend, Jr.(1) 69 Vice Chairman of the Board 3/90
Director
Ralph G. Coburn (1) 87 Director 3/90
Donald E. Nickelson (1) 64 Director 3/90
William Ruder (1) 75 Director 3/90
George E. Stoddard 80 Chairman of Investment Committee 3/90
Senior Executive Vice President
Warren G. Wintrub (1) 62 Director 10/92
Barclay G. Jones III 36 Executive Vice President 3/90
Claude Fernandez 44 Executive Vice President 3/90
Chief Administrative Officer
H. Augustus Carey 39 Senior Vice President 3/90
Anthony S. Mohl 34 Senior Vice President 3/90
John J. Park 32 Senior Vice President 7/91
Treasurer
Michael D. Roberts 45 First Vice President 3/90
Controller
</TABLE>
(1) Independent Director of Registrant.
William Polk Carey and Francis J. Carey are brothers. H. Augustus Carey is
the nephew of William Polk Carey and the son of Francis J. Carey.
A description of the business experience of each director of
Registrant is set forth below:
William Polk Carey, Chairman and Chief Executive Officer, has been
active in lease financing since 1959 and a specialist in net leasing of
corporate real estate property since 1964. Before founding W.P. Carey & Co.,
Inc. ("W.P. Carey") in 1973, he served as Chairman of the Executive Committee of
Hubbard, Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate
and Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of
Real Estate and Private Placements, Director of Corporate Finance and Vice
Chairman of the Investment Banking Board of duPont Glore Forgan Inc. A graduate
of the University of Pennsylvania's Wharton School of Finance 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
-11-
<PAGE> 13
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 CIP(TM) and
CPA(R):12.
Francis J. Carey was elected President and a Managing Director of
W.P. Carey in April 1987, having served as a Director since its founding in
1973. Prior to joining the firm full-time, he was a senior partner in
Philadelphia, head of the Real Estate Department nationally and a member of the
executive committee of the Pittsburgh based firm of Reed Smith Shaw & McClay,
counsel for Registrant, the General Partners, the CPA(R) Partnerships, W.P.
Carey and some of its affiliates. He served as a member of the Executive
Committee and Board of Managers of the Western Savings Bank of Philadelphia from
1972 until its takeover by another bank in 1982 and is former chairman of the
Real Property, Probate and Trust Section of the Pennsylvania Bar Association.
Mr. Carey served as a member of the Board of Overseers of the School of Arts and
Sciences of the University of Pennsylvania from 1983 through 1990. He has also
served as a member of the Board of Trustees of the Investment Program
Association since 1990 and on the Business Advisory Council of the Business
Council for the United Nations since 1994. He holds A.B. and J.D. degrees from
the University of Pennsylvania. Mr. Carey is also a Director of CIP(TM).
Charles C. Townsend, Jr., Independent Director of CIP(TM) and
CPA(R):12 and Vice Chairman of CIP(TM)'s was formerly Managing Director in
charge of the Corporate Finance Department at Morgan Stanley & Co. and Chairman
of Morgan Stanley Realty Corporation. Mr. Townsend holds a B.S.E.E. from
Princeton University and an MBA from Harvard University.
Ralph G. Coburn, Independent Director of CIP(TM) and CPA(R):12, Rear
Admiral USNR (Ret.), is former President and Chief Executive Officer of Hubbard
Real Estate Investments (now HRE Properties), a $100,000,000 NYSE equity REIT,
sponsored by Merrill Lynch. Admiral Coburn had been engaged in a variety of real
estate activities for over 30 years. A graduate of Harvard College, Harvard Law
School and the Naval War College, Admiral Coburn previously served as CEO of the
National Association of Real Estate Investment Trusts (NAREIT), representing the
multi-billion dollar REIT industry.
Donald E. Nickelson, Independent Director of CIP(TM), is currently
Chairman of the Board and Director of Greenfield Industries, Inc., Chairman of
Omniquip International, Inc. and Vice Chairman and Director of Harbour Group, a
leveraged buy-out firm. He is also a Director of Sugen Corporation, D.T.
Industries, Inc., Allied Healthcare Products, Inc., CIP(TM) and a Trustee of
Mainstay Mutual Fund Group. He is currently a member of the Advisory Panel of
Sedgwick James of New York, Inc. From 1986 to 1987 Mr. Nickelson was President
of PaineWebber, Inc., from 1988 to 1990 he was President of the PaineWebber
Group and Director from 1980 to 1993. Mr. Nickelson served in various
capacities with affiliates of PaineWebber Inc. 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 Wyndon Foods, 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 a former Chairman of the Pacific Stock
Exchange.
William Ruder, Independent Director of CIP(TM) and CPA(R):12, is
Chairman of the Board of William Ruder Incorporated, a consulting firm founded
in 1981. From 1948 to 1981, Mr. Ruder was Chairman of Ruder & Finn, an
international public relations company which he co-founded. He is a former
Assistant Secretary of Commerce of the United States and is on the Board of
Directors of the United Nations Association of the United States of America,
Junior Achievement and the Council on Economic Priorities. A member of the Board
of Overseers of the Wharton School at the University of Pennsylvania for a
number years, he has also served as a consultant to the Communications Advisory
Board to the White House Press Secretary, the Committee for Economic Development
and the Office of Overseas Schools for the U.S. State Department. Mr. Ruder is a
lecturer at Harvard Graduate School of Business and is associated with several
other business, civic and cultural organizations.
-12-
<PAGE> 14
George E. Stoddard, Chief Investment Officer, was until 1979 head of
the bond department of The Equitable Life Assurance Society of the United
States, with responsibility for all activities related to Equitable's portfolio
of corporate investments acquired through direct negotiation. Mr. Stoddard was
associated with Equitable for over 30 years. He holds an A.B. degree from
Brigham Young University, an M.B.A. from Harvard Business School and an LL.B.
from Fordham University Law School.
Warren G. Wintrub, Independent Director of CIP(TM) and CPA(R):12 and
Chairman of the Audit Committee, became a partner at Coopers & Lybrand LLP in
1963. He specializes in taxation and served on Coopers & Lybrand LLP's
Executive Committee from 1976 to 1988 and chaired its Retirement Committee from
1979-1992. Mr. Wintrub serves as a director of Getty Petroleum Corp. and
Chromcraft Revington, Inc. He received a B.S. degree from Ohio State University
and an LL.B. degree from Harvard Law School.
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.
Claude Fernandez, Chief Administrative Officer, Managing Director,
and Executive Vice President, joined W.P. Carey in 1983. Previously associated
with Coldwell Banker, Inc. for two years and with Arthur Andersen & Co., he is a
Certified Public Accountant. Mr. Fernandez received his B.S. degree in
accounting from New York University in 1975 and his M.B.A. in finance from
Columbia University Graduate School of Business in 1981.
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in
1988 and is President of W.P. Carey's broker-dealer subsidiary. Mr. Carey
previously worked for W.P. Carey from 1979 to 1981 as Assistant to the
President. Prior to rejoining W.P. Carey, Mr. Carey served as a loan officer of
the North American Department of Kleinwort Benson Limited in London, England.
He received an A.B. from Amherst College in 1979 and an M.Phil. in Management
Studies from Oxford University in 1984. Mr. Carey is a trustee of the Oxford
Management Centre Associates Council.
Anthony S. Mohl, Senior Vice President and Director of Portfolio
Management, joined W.P. Carey & Co., in 1987 as Assistant to the President after
receiving his M.B.A. from the Columbia University Graduate School of Business.
Mr. Mohl was employed as an analyst in the strategic planning group at Kurt
Salmon Associates after receiving an undergraduate degree from Wesleyan
University.
John J. Park, Senior Vice President, Treasurer and Director of
Research, joined W.P. Carey as an Investment Analyst in December 1987. Mr. Park
received his undergraduate degree from Massachusetts Institute of Technology and
his M.B.A. in Finance from New York University.
Michael D. Roberts joined W. P. Carey as a Second Vice President and
Assistant Controller in April 1989 and is currently First Vice President and
Controller. Prior to joining W.P. Carey, Mr. Roberts was employed by Coopers &
Lybrand for over 8 years, where he attained the title of audit manager. A
certified public accountant, Mr. Roberts received a B.A. in sociology from
Brandeis University and an M.B.A. from Northeastern University.
Item 11. Executive Compensation.
This information will be contained in Registrant's definitive Proxy
Statement with respect to the Company's 1996 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
-13-
<PAGE> 15
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information will be contained in Registrant's definitive Proxy
Statement with respect to the Company's 1996 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
This information will be contained in Registrant's definitive Proxy
Statement with respect to the Company's 1997 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
-14-
<PAGE> 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements:
The following consolidated financial statements are filed as a
part of this Report:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 1995 and 1996.
Consolidated Statements of Operations for the years ended December 31, 1994,
1995 and 1996.
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996.
Notes to Consolidated Financial Statements.
The consolidated financial statements are hereby incorporated by reference to
pages 5 to 21 of Registrant's Annual Report contained in Appendix A.
(a) 2. Financial Statements of Material Equity Investee:
Marcourt Investments Incorporated
Report of Independent Accountants.
Balance Sheets, December 31, 1995 and 1996.
Statements of Income for the years ended December 31, 1994, 1995 and 1996.
Statement of Shareholders' Equity for the years ended December 31, 1994, 1995
and 1996.
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996.
Notes to Financial Statements.
Schedule III -Real Estate and Accumulated Depreciation as of December 31,
1996 of Marcourt Investments Incorporated.
The financial statements of material equity investees is contained herewith
in Item 14 on pages 17 to 25.
The separate financial statements of material equity investees have been
audited as of December 31, 1996 and for the year then ended in accordance
with Rule 3-09 of Regulation S-X.
-15-
<PAGE> 17
(a) 3. Financial Statement Schedule:
The following schedule is filed as a part of this Report:
Schedule III -Real Estate and Accumulated Depreciation as of December 31,
1996.
Notes to Schedule III.
Schedule III and notes therein are hereby incorporated by
reference to pages 22 to 24 of Registrant's Annual Report in Appendix A.
Financial Statement Schedules of Material Equity Investees are contained
herewith in Item 14.
Financial Statement Schedules other than those listed above
are omitted because the required information is given in the Consolidated
Financial Statements, including the Notes thereto, or because the conditions
requiring their filing do not exist.
-16-
<PAGE> 18
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Marcourt Investments Incorporated:
We have audited the accompanying balance sheets of Marcourt Investments
Incorporated (the "Company") as of December 31, 1995 and 1996, and the related
statements of income, shareholders' equity and cash flows for the years ended
December 31, 1994, 1995 and 1996. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, 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 Marcourt Investments
Incorporated as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for the years ended December 31, 1994, 1995 and 1996, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the Schedule of Real Estate and Accumulated Depreciation as of December
31, 1996, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the financial information
required to be included therein pursuant to Security and Exchange Commission
Regulation S-X Rule 12-28.
New York, New York
February 11, 1997
-17-
<PAGE> 19
MARCOURT INVESTMENTS INCORPORATED
BALANCE SHEETS
December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ASSETS:
Net investment in direct
financing lease $148,935,858 $148,831,067
Cash and cash equivalents 79,311 172,537
Other assets 894,817 690,747
------------ ------------
Total assets $149,909,986 $149,694,351
============ ============
LIABILITIES:
Mortgage notes payable $107,089,808 $104,304,209
Accrued interest payable 1,553,400 1,522,897
Accounts payable and accrued expenses 100,195 136,076
Accounts payable to affiliates 6,500 4,000
State and local taxes payable 126,290 35,000
------------ ------------
Total liabilities 108,876,193 106,002,182
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, Class A; $.01 par value; authorized,
999,750 shares; issued and outstanding,
369,850 shares; Class B; $.01 par value;
authorized, 250 shares; issued and outstanding,
150 shares at December 31, 1995 and 1996 3,700 3,700
Additional paid-in capital 36,996,300 36,996,300
Accumulated earnings in excess of dividends 4,033,793 6,692,169
------------ ------------
Total shareholders' equity 41,033,793 43,692,169
------------ ------------
Total liabilities and
shareholders' equity $149,909,986 $149,694,351
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-18-
<PAGE> 20
MARCOURT INVESTMENTS INCORPORATED
STATEMENTS OF INCOME
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Interest income on
direct financing lease $17,647,071 $17,733,841 $ 17,722,059
Percentage rents 491,132 564,069 629,681
Other income 1,954 1,948 197,077
----------- ----------- ------------
18,140,157 18,299,858 18,548,817
----------- ----------- ------------
Expenses:
Interest on mortgages 11,412,754 11,301,049 11,055,265
General and administrative 55,959 57,129 44,019
State and local taxes 17,368 11,941 (1,976)
----------- ----------- ------------
11,486,081 11,370,119 11,097,308
----------- ----------- ------------
Net income $ 6,654,076 $ 6,929,739 $ 7,451,509
=========== =========== ============
Net income per share
of common stock
(Class A and Class B) $ 17.98 $ 18.73 $ 20.14
=========== =========== ============
Common shares outstanding 370,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-19-
<PAGE> 21
MARCOURT INVESTMENTS INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Additional Earnings in
Common Paid-in Excess of
Stock Capital Dividends Total
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ 3,700 $ 36,996,300 $ 349,017 $37,349,017
Dividends (4,747,933) (4,747,933)
Net income 6,654,076 6,654,076
----------- ------------ ---------- -----------
Balance, December 31, 1994 3,700 36,996,300 2,255,160 39,255,160
Dividends (5,151,106) (5,151,106)
Net income 6,929,739 6,929,739
----------- ------------ ---------- -----------
Balance, December 31, 1995 3,700 36,996,300 4,033,793 41,033,793
Dividends (4,793,133) (4,793,133)
Net income 7,451,509 7,451,509
----------- ------------ ---------- -----------
Balance, December 31, 1996 $ 3,700 $ 36,996,300 $6,692,169 $43,692,169
=========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-20-
<PAGE> 22
MARCOURT INVESTMENTS INCORPORATED
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Rentals received from lessee $ 16,836,787 $ 18,390,919 $ 18,456,531
Interest paid on mortgage loans (12,020,100) (11,266,536) (11,011,673)
Interest received on cash and cash equivalents 1,953 1,573 6,680
General and administrative expenses paid (49,822) (47,554) (54,270)
Taxes paid, net of refunds received (6,350) (12,329) 35,686
Other, net (4,527) 48,366 48,607
------------ ------------ ------------
Net cash provided by operating activities 4,757,941 7,114,439 7,481,561
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from easement 190,397
------------
Net cash provided by investing activities 190,397
------------
Cash flows from financing activities:
Dividends paid (4,747,933) (5,151,106) (4,793,133)
Payment of mortgage principal (1,910,192) (2,785,599)
------------ ------------ ------------
Net cash used in financing activities (4,747,933) (7,061,298) (7,578,732)
------------ ------------ ------------
Net increase in cash and cash equivalents 10,008 53,141 93,226
Cash and cash equivalents, beginning of period 16,162 26,170 79,311
------------ ------------ ------------
Cash and cash equivalents, end of period $ 26,170 $ 79,311 $ 172,537
============ ============ ============
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 6,654,076 $ 6,929,739 $ 7,451,509
Adjustments to reconcile net income to net
cash provided by operating activities:
Cash receipts on direct financing lease
(less) greater than revenues recognized (1,301,416) 93,009 104,791
Other income from sale of easement (190,397)
Amortization of deferred interest 76,137 79,986 74,095
Decrease (increase) in other assets 9,477 (129,975) 129,975
(Decrease) increase in accounts payable
and accrued expenses (1,278) 61,041 35,881
Increase (decrease) in accrued interest payable 21,517 (45,473) (30,503)
Increase (decrease) in state and
local taxes payable 1,678 124,612 (91,290)
Increase (decrease) in accounts payable
to affiliates 2,750 1,500 (2,500)
Increase in deferred interest (705,000)
------------ ------------ ------------
Net cash provided by operating
activities $ 4,757,941 $ 7,114,439 $ 7,481,561
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-21-
<PAGE> 23
MARCOURT INVESTMENTS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business:
Marcourt Investments Incorporated (the "Company") was formed on January 2,
1992 under the General Corporation Law of Maryland. Under its by-laws, the
Company was organized for the purpose of engaging in the business of investing
in and owning industrial and commercial real estate. It is intended that the
Company carry on business as a real estate investment trust ("REIT") as defined
under the Internal Revenue Code of 1986.
The Company's business consists of the leasing of 13 hotel properties to a
wholly-owned subsidiary of Marriott International, Inc. ("Marriott") pursuant to
a master lease. The master lease has an initial term of 20 years through
February 10, 2012, followed by a 10-year renewal term and two 5-year renewal
terms. During the initial lease term, minimum annual rentals are $17,826,850
with the lease providing for additional rent of 4% of annual sales in excess of
$36,000,000 with such additional rent capped at $1,766,717. In connection with
the restructuring of Marriott Corporation in 1993, Marriott assumed a guarantee
of the lease obligations. In addition, Host Marriott Corporation has also
provided a guarantee of the lease obligation for the greater of 10 years from
the Marriott Corporation restructuring or until the resolution of all claims and
litigation with respect to such restructuring.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies:
Real Estate Leased to Others:
The Company's master lease for land and thirteen hotel properties is
accounted for under the direct financing method whereby the gross investment in
the lease consists of minimum lease payments to be received plus the estimated
value of the properties at the end of the lease. Unearned income, representing
the difference between gross investment and actual cost of the leased
properties, is amortized to income over the lease term so as to produce a
constant periodic rate of return.
Cash Equivalents:
The Company considers all short-term highly liquid investments that are
both readily convertible to cash and have a maturity of three months or less at
the time of purchase to be cash equivalents. Items classified as cash
equivalents may include commercial paper and money market funds. The Company had
$76,915 and $52,974 in a money market fund at December 31, 1995 and 1996,
respectively.
Federal Income Taxes:
The Company is qualified as a REIT as defined under the Internal Revenue
Code as of December 31, 1996. The Company is not subject to Federal income taxes
on amounts distributed to shareholders provided it distributes at least 95% of
its REIT taxable income to its shareholders and meets other conditions necessary
to retain its REIT status.
-22-
<PAGE> 24
MARCOURT INVESTMENTS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Other Assets:
Included in other assets are deferred charges which resulted from increased
interest obligations on the Company's mortgage notes payable in a prior period
and are being amortized on an effective interest method over the remaining term
of the mortgage notes.
3. Transactions with Related Parties:
An affiliate of W.P. Carey & Co., Inc. ("W.P. Carey") is the advisor to two
shareholders whose ownership interest in the Company represents approximately
47% of the Company's outstanding shares. The Company has entered into a service
agreement with W. P. Carey which has been engaged to perform various
administrative services which include, but are not limited to, accounting and
cash management. The agreement provides that W.P. Carey be reimbursed for its
costs incurred in connection with performing the necessary services under the
agreement. For the years ended December 31, 1994, 1995 and 1996, the Company
incurred expenses of $13,568, $9,153 and $5,789, respectively, under the
agreement.
Frontier Equity Partners II, Ltd. and an affiliate ("Frontier") own
approximately 53% of the outstanding shares of the Company. The Company has also
agreed to reimburse Frontier for certain costs incurred in connection with the
physical inspection of the Company's leased properties. For the years ended
December 31, 1994, 1995 and 1996, the Company incurred expenses of $3,506,
$6,752 and $6,971, respectively, in connection with reimbursement for such
physical inspections.
4. Net Investment in Direct Financing Lease:
The net investment in the direct financing lease is summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Minimum lease payments
receivable $285,229,599 $267,402,749
Unguaranteed residual value 146,045,268 146,045,268
------------ ------------
431,274,867 413,448,017
Less, unearned income 282,339,009 264,616,950
------------ ------------
$148,935,858 $148,831,067
============ ============
</TABLE>
The anticipated minimum future rentals, exclusive of renewals and any
rents based on percentage of sales, amount to $17,826,850 in each of the years
1997 through 2001 and aggregate $267,402,749 through 2011.
5. Mortgage Notes Payable:
The Company's mortgage notes payable are collateralized by the Company's
thirteen hotel properties and by the rights of assignment on the Company's
master lease on the properties. $67,098,558 of the mortgage notes bear interest
at a rate of 9.94% per annum with the remaining $37,205,651 bearing interest at
a rate of 11.18% per annum. The mortgage will fully amortize in November 2011.
-23-
<PAGE> 25
MARCOURT INVESTMENTS INCORPORATED
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Scheduled principal payments during each of the next five years following
December 31, 1996 and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 3,085,300
1998 3,417,356
1999 3,785,273
2000 4,192,937
2001 4,644,658
Thereafter 85,178,685
------------
Total $104,304,209
============
</TABLE>
6. Dividend Paid:
Dividends paid to shareholders consist of ordinary income and a return of
capital for income tax purposes. For the three years ended December 31, 1996,
dividends paid per share were reported as follows for income tax purposes:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Ordinary income $ 2.74 $ 8.95 $ 10.38
Return of capital 10.09 4.97 2.57
-------- -------- --------
$ 12.83 $ 13.92 $ 12.95
======== ======== ========
</TABLE>
Dividends of $1,032,372 and $2,088 payable to Class A and Class B
shareholders, respectively, were declared and paid in February 1997.
7. Disclosure About Fair Value of Financial Instruments:
The carrying amounts of cash and accounts payable and accrued expenses
approximate fair value because of the short maturity of these items.
The fair value of the Company's mortgage notes payable at December 31,
1996 is approximately $119,900,000. Based on projections of settlement costs,
including prepayment charges, the Company would not realize a benefit from
refinancing the existing mortgage debt.
-24-
<PAGE> 26
MARCOURT INVESTMENTS INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to
Company Costs
------------------------------------------ Capitalized Increase In
Personal Subsequent to Net
Description Encumbrances Land Property Buildings Acquisition (a) Investment (b)
- ----------------- ------------- ----------- ----------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Direct Financing
Method:
Hotels leased to
Marriott Inter-
national, Inc. $ 104,304,209 $27,559,637 $14,199,292 $104,241,071 $45,268 $2,785,799
============= =========== =========== ============ ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which
Carried at Close of Period (c)
----------------------------------------------------------
Personal
Description Land Property Buildings Total Date Acquired
- ----------------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Direct Financing
Method:
Hotels leased to
Marriott Inter- February 10,
national, Inc. $27,568,182 $14,203,695 $107,059,190 $148,831,067 1992
=========== =========== ============ ============
</TABLE>
(a)Consists of costs of completion of construction and acquisition costs
including legal fees, appraisal fees, title costs and other related
professional fees.
(b)The increase in net investment is due to the amortization of unearned
income producing a constant periodic rate of return on the net investment
which is more than the lease payments received.
(c)At December 31, 1996, the aggregate cost of real estate owned by Marcourt
Investments Incorporated for Federal income tax purposes is $146,045,268.
-25-
<PAGE> 27
(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 Articles of Incorporation of Registrant. Exhibit 3(A) to Regis-
tration Statement (Form
S-11) No. 33-514
3.2 Bylaws of Registrant. Exhibit 3(B) to Regis-
tration Statement (Form
S-11) No. 33-514
10.1 Advisory Agreement between Registrant and Exhibit 10(B) to
Carey Property Advisors. Registration Statement
(Form S-11) No. 33-514
10.2 Contract of Sale between Registrant Filed as Exhibit 10(E)(1)
and H MA Properties Co., L.P. ("H MA") to Registrant's Post
dated August 24, 1990. Effective Amendment No. 1
to Form S-11
10.3 Special Warranty Deed from H MA to Filed as Exhibit 10(E)(2)
Registrant dated September 18, 1990. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.4 Bill of Sale from H MA to Registrant Filed as Exhibit 10(E)(3)
dated September 18, 1990. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.5 Assignment and Assumption of Lease Agreement Filed as Exhibit 10(E)(4)
(between BetaWest Properties Inc. and The to Registrant's Post
Mountain States Telephone and Telegraph Effective Amendment No. 1
Company ("Mountain Bell") dated December 16, to Form S-11
1986) from H MA to Registrant dated September
18, 1990.
10.6 Agreement of Exchange and Sale ("Texas Filed as Exhibit 10(F)(1)
Agreement") by and among Joanne Talenfeld to Registrant's Post
Rubinoff, both individually and as Trustee Effective Amendment No. 1
of the Murray A. Talenfeld Residuary Trust to Form S-11
(collectively "Denton Seller"), Registrant
and the E.H. Talenfeld Real Estate Company
("Agent") dated September 28, 1990.
10.7 Agreement of Sale between D/S St. Lucis Joint Filed as Exhibit 10(F)(2)
Venture and Registrant ("Florida Agreement") to Registrant's Post
dated October 8, 1990. Effective Amendment No. 1
to Form S-11
</TABLE>
-26-
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.8 Assignment of Florida Agreement from Filed as Exhibit 10(F)(3)
Registrant to Seller dated October 8, 1990. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.9 Assignment of Texas Agreement from Registrant Filed as Exhibit 10(F)(4)
to Denton (TX) QRS 10-2, Inc. ("Denton QRS"), to Registrant's Post
a Texas corporation and wholly-owned subsidiary Effective Amendment No. 1
of Registrant, dated October 19, 1990. to Form S-11
10.10 Purchase and Sale Agreement between HRE Filed as Exhibit 10(G)(1)
Properties ("HRE") and Registrant regarding to Registrant's Post
properties in Citrus Heights, California (the Effective Amendment No. 1
"K mart California Property) and Drayton to Form S-11
Plains, Michigan (the "K mart Michigan
Property").
10.11 Grant Deed from HRE to Registrant for the Filed as Exhibit 10(G)(2)
K mart California Property. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.12 Deed from HRE to Registrant for the Filed as Exhibit 10(G)(3)
K mart Michigan Property. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.13 Assumption and Assignment Agreement between Filed as Exhibit 10(G)(4)
HRE and Registrant regarding the Lease to Registrant's Post
Agreement between HRE and S.S. Kresge Company Effective Amendment No. 1
(n/k/a K mart Corporation) ("K mart") for to Form S-11
property located in Citrus Heights, California
(the "K mart California Lease") dated March 16,
1976.
10.14 Assumption and Assignment Agreement between Filed as Exhibit 10(G)(5)
HRE and Registrant regarding the Lease Agreement to Registrant's Post
between HRE and S.S. Kresge Company for property Effective Amendment No. 1
located in Drayton Plains, Michigan (the "K mart to Form S-11
Michigan Lease") dated March 16, 1976.
10.15 Assignment of Leases and Rents of the K mart Filed as Exhibit 10(G)(6)
California Property from Registrant to New to Registrant's Post
England Mutual Life Insurance Company ("New Effective Amendment No. 1
England"). to Form S-11
10.16 Assignment of Leases and Rents of the K mart Filed as Exhibit 10(G)(7)
Michigan Property from Registrant to New to Registrant's Post
England. Effective Amendment No. 1
to Form S-11
10.17 $2,430,000 Promissory Note from Registrant Filed as Exhibit 10(G)(8)
to New England. to Registrant's Post
Effective Amendment No. 1
to Form S-11
</TABLE>
-27-
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.18 Deed of Trust and Security Agreement Filed as Exhibit 10(G)(9)
from Registrant to North American Title to Registrant's Post
Company, as Trustee, with New England as Effective Amendment No. 1
Beneficiary. to Form S-11
10.19 Mortgage and Security Agreement from Filed as Exhibit 10(G)(10)
Registrant to New England for K mart to Registrant's Post
Michigan Property. Effective Amendment No. 1
to Form S-11
10.20 Guaranty of Performance dated September 27, 1990 Filed as Exhibit 10(H)(1)
by Registrant, as Guarantor, to the Mutual to Registrant's Post
Life Insurance Company of New York ("MONY"). Effective Amendment No. 1
to Form S-11
10.21 General Warranty Deed from Gerber Children's Filed as Exhibit 10(I)(1)
Centers Inc. ("Gerber") to Registrant and to Registrant's Post
Corporate Property Associates 9, L.P. Effective Amendment No. 2
("CPA(R):9") for the Chandler, Arizona Gerber to Form S-11
property.
10.22 General Warranty Deed from Gerber to Filed as Exhibit 10(I)(2)
Registrant and CPA(R):9 for the Tucson, to Registrant's Post
Arizona Gerber property. Effective Amendment No. 2
to Form S-11
10.23 Corporation Grant from Gerber to Filed as Exhibit 10(I)(3)
Registrant and CPA(R):9 for the Alhambra, to Registrant's Post
California Gerber property. Effective Amendment No. 2
to Form S-11
10.24 Corporation Grant from Gerber to Filed as Exhibit 10(I)(4)
Registrant and CPA(R):9 for the Chino, to Registrant's Post
California Gerber property. Effective Amendment No. 2
to Form S-11
10.25 Corporation Grant from Gerber to Filed as Exhibit 10(I)(5)
Registrant and CPA(R):9 for the Garden to Registrant's Post
Grove, California Gerber property. Effective Amendment No. 2
to Form S-11
10.26 Corporation Grant from Gerber to Filed as Exhibit 10(I)(6)
Registrant and CPA(R):9 for the Tustin/ to Registrant's Post
Santa Ana, California Gerber property. Effective Amendment No. 2
to Form S-11
10.27 General Warranty Deed from Gerber to Filed as Exhibit 10(I)(7)
Registrant and CPA(R):9 for the Sterling to Registrant's Post
Heights, Michigan Gerber property. Effective Amendment No. 2
to Form S-11
10.28 General Warranty Deed from Gerber to Filed as Exhibit 10(I)(8)
Registrant and CPA(R):9 for the Westland to Registrant's Post
Michigan-I Gerber property. Effective Amendment No. 2
to Form S-11
</TABLE>
-28-
<PAGE> 30
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.29 General Warranty Deed from Gerber to Filed as Exhibit 10(I)(9)
Registrant and CPA(R):9 for the Westland to Registrant's Post
Michigan-II Gerber property. Effective Amendment No. 2
to Form S-11
10.30 General Warranty Deed from Gerber to Filed as Exhibit 10(I)(10)
Registrant and CPA(R):9 for the Carrollton, to Registrant's Post
Texas Gerber property. Effective Amendment No. 2
to Form S-11
10.31 General Warranty Deed from Gerber to Filed as Exhibit 10(I)(11)
Registrant and CPA(R):9 for the Duncanville, to Registrant's Post
Texas Gerber property. Effective Amendment No. 2
to Form S-11
10.32 General Warranty Deed from Gerber to Filed as Exhibit 10(I)(12)
Registrant and CPA(R):9 for the Lewisville, to Registrant's Post
Texas Gerber property. Effective Amendment No. 2
to Form S-11
10.33 Bill of Sale from Gerber to Registrant Filed as Exhibit 10(I)(13)
and CPA(R):9. to Registrant's Post
Effective Amendment No. 2
to Form S-11
10.34 Co-Tenancy Agreement between Registrant Filed as Exhibit 10(I)(14)
and CPA(R):9 as tenants-in-common on to Registrant's Post
properties leased to Gerber. Effective Amendment No. 2
to Form S-11
10.35 Lease Agreement between Registrant and Filed as Exhibit 10(I)(15)
CPA(R):9, as landlord, and Gerber, as Tenant. to Registrant's Post
Effective Amendment No. 2
to Form S-11
10.36 Real Estate Note from Registrant and CPA(R):9 Filed as Exhibit 10(I)(16)
to Pan-American Life Insurance Company to Registrant's Post
("Pan American"). Effective Amendment No. 2
to Form S-11
10.37 Master Mortgage, Deed of Trust, Security Filed as Exhibit 10(I)(17)
Agreement and Assignment of Leases, Rents and to Registrant's Post
Profits by and among Registrant, CPA(R):9, Effective Amendment No. 2
Theodore Tumminello, Chicago Title Agency of to Form S-11
Arizona, Chicago Title Company and Pan American.
10.38 Assignment and Assumption of Lease from Filed as Exhibit 10(J)(1)
835 Hope Street Limited Partnership ("835 to Registrant's Post
Hope Street") to Hope Street Connecticut Effective Amendment No. 2
Limited Partnership ("HSCLP"). to Form S-11
</TABLE>
-29-
<PAGE> 31
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.39 First Amendment to the Mortgage and Security Filed as Exhibit 10(J)(2)
Agreement, the Collateral Assignment of Lease to Registrant's Post
and Agreement and the 835 Hope Street Secured Effective Amendment No. 2
Note due March 1, 1995 by and among 835 Hope to Form S-11
Street, HSCLP and Principal.
10.40 $6,300,000 Wraparound Note from HSCLP to 835 Filed as Exhibit 10(J)(3)
Hope Street. to Registrant's Post
Effective Amendment No. 2
to Form S-11
10.41 Bargain and Sale Deed with covenant Filed as Exhibit 10(J)(4)
against Grantor's Acts from 835 Hope to Registrant's Post
Street to HSCLP. Effective Amendment No. 2
to Form S-11
10.42 Bill of Sale from 835 Hope Street Filed as Exhibit 10(J)(5)
to HSCLP. to Registrant's Post
Effective Amendment No. 2
to Form S-11
10.43 Lease Agreement dated July 9, 1991 by Filed as Exhibit 10.1
and between Torrey Pines Limited to Registrant's Form 8-K
Partnership, a California limited dated July 25, 1991
partnership ("Torrey Pines"), as Landlord
and The Titan Corporation ("Titan"), as Tenant.
10.44 $11,700,000.00 Promissory Note dated July 9, Filed as Exhibit 10.2
1991 from Torrey Pines as Borrower to The to Registrant's Form 8-K
Northwestern Mutual Life Insurance Company dated July 25, 1991
("Northwestern"), as Lender.
10.45 Deed of Trust and Security Agreement, dated Filed as Exhibit 10.3
July 9, 1991 between Torrey Pines and to Registrant's Form 8-K
Northwestern. dated July 25, 1991
10.46 Absolute Assignment of Leases and Rents, dated Filed as Exhibit 10.4
July 9, 1991 from Torrey Pines as Assignor to to Registrant's Form 8-K
Northwestern as Assignee. dated July 25, 1991
10.47 Indemnity Agreement dated July 9, 1991 between Filed as Exhibit 10.5
Torrey Pines, CPA(R):9 and Registrant. to Registrant's Form 8-K
dated July 25, 1991
10.48 Lease Agreement dated June 28, 1991 between QRS Filed as Exhibit 10.6
10-7 (NY), Inc. ("QRS 10-7") as Landlord and to Registrant's Form 8-K
Empire Acquisition Corp. ("Empire") as Tenant. dated July 25, 1991
10.49 $4,500,000.00 Promissory Note dated July 12, Filed as Exhibit 10.7
1991 from QRS 10-7, as Borrower to Bell to Registrant's Form 8-K
Atlantic TriCon Leasing Corporation ("Bell dated July 25, 1991
Atlantic"), as Lender.
</TABLE>
-30-
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.50 Mortgage and Security Agreement dated July 12, Filed as Exhibit 10.8
1991 from QRS 10-7, as Borrower to Bell to Registrant's Form 8-K
Atlantic. dated July 25, 1991
10.51 Assignment of Rents and Leases dated July 12, Filed as Exhibit 10.9
1991 by QRS 10-7, as Assignor to Bell Atlantic, to Registrant's Form 8-K
as Assignee. dated July 25, 1991
10.52 Limited Guarantee dated July 12, 1991 from Filed as Exhibit 10.10
Registrant to Bell Atlantic. to Registrant's Form 8-K
dated July 25, 1991
10.53 Amended Advisory Agreement dated September 14, Filed as Exhibit 10(B)(2)
1990. to Registrant's Post
Effective Amendment No. 3
to Form S-11
10.54 Lease between Marcourt Investments Incorporated Filed as Exhibit 10.1
("Marcourt") and CTYD III Corporation ("CTYD"). to Registrant's Form 8-K
dated February 24, 1992
10.55 Series A-2 9.94% Secured Note from Marcourt to Filed as Exhibit 10.2
the registered owner of note (Various Series to Registrant's Form 8-K
A-1 9.94% Notes in an aggregate amount of dated February 24, 1992
$38,750,000, substantially in the form of the
Series A-1 9.94% Note attached, were issued by
Marcourt in connection with the Financing).
10.56 Series A-2 11.18% Secured Note from Marcourt Filed as Exhibit 10.3
to the registered owner of the note (Various to Registrant's Form 8-K
notes in an aggregate amount of $70,250,000, dated February 24, 1992
substantially in the form of the Series A-2
11.18% Note attached, were issued by Marcourt
in connection with the Financing.
10.57 Indenture between Marcourt, as borrower, to Filed as Exhibit 10.4
First Fidelity Bank, National Association, New to Registrant's Form 8-K
Jersey, as trustee ("Trustee"). dated February 24, 1992
10.58 Real Estate Deed of Trust from Marcourt to Filed as Exhibit 10.5
Albuquerque Title Company, as trustee for to Registrant's Form 8-K
benefit of the Trustee filed in New Mexico, dated February 24, 1992
securing Series A-1 9.94% Notes and Series
A-2 11.18% notes allocated to Albuquerque, New
Mexico Marriott property (Deeds of Trust or
Mortgages substantially similar to this Deed of
Trust were filed in all other jurisdictions in
which Marriott Properties are located. Such
other deeds of trust or mortgages secure the
principal amount of Series A-1 9.94% Notes and
Series A-2 11.18% Notes allocated to the Marriott
Properties located in such other jurisdictions).
</TABLE>
-31-
<PAGE> 33
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.59 Second Real Estate Deed of Trust from Marcourt Filed as Exhibit 10.6
to Albuquerque Title Company as trustee for the to Registrant's Form 8-K
benefit of the Trustee, filed in New Mexico, dated February 24, 1992
securing all Series A-1 9.94% Notes and Series
A-2 11.18% Notes other than those notes
allocated to the Albuquerque, New Mexico
Marriott property (Deeds of trust or mortgages
substantially similar to this Second Real Estate
Deed of Trust were filed in all other
jurisdictions in which the remaining Marriott
Properties are located. Such other deeds of
trust or mortgages secure the principal amount
of Series A-1 9.94% Notes and Series A-2 11.18%
Notes allocated to all Marriott Properties not
located in the jurisdiction in which such other
deeds of trust were filed for recording).
10.60 Guaranty from the Registrant, Carey Filed as Exhibit 10.7
Institutional Properties Incorporated to Registrant's Form 8-K
("CPA(R):11"), Trammell Crow Equity Partners II, dated February 24, 1992
Ltd. ("TCEP II") and PA/First Plaza Limited
Partnership ("First Plaza") as guarantors, to
the Trustee.
10.61 Shareholders Agreement between the Registrant, Filed as Exhibit 10.8
CPA(R):11, TCEP II and First Plaza. to Registrant's Form 8-K
dated February 24, 1992
10.62 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10.9
for property located in Glendale, Arizona. to Registrant's Form 8-K
dated February 24, 1992
10.63 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10.10
for property located in Ft. Smith, Arkansas. to Registrant's Form 8-K
dated February 24, 1992
10.64 Assignment and Assumptions or Lease Agreement Filed as Exhibit 10.11
for property located in Escondido, California. to Registrant's Form 8-K
dated February 24, 1992
10.65 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10.12
for property located in Broken Arrow, Oklahoma. to Registrant's Form 8-K
dated February 24, 1992
10.66 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10.13
for property located in Weatherford, Oklahoma. to Registrant's Form 8-K
dated February 24, 1992
10.67 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10.14
for property located in Center, Texas. to Registrant's Form 8-K
dated February 24, 1992
10.68 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10.15
for property located in Groves, Texas. to Registrant's Form 8-K
dated February 24, 1992
</TABLE>
-32-
<PAGE> 34
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.69 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10.16
for property located in Silsbee, Texas. to Registrant's Form 8-K
dated February 24, 1992
10.70 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10.17
for property located in Vidor, Texas. to Registrant's Form 8-K
dated February 24, 1992
10.71 Lease Amendments for the Ft. Smith, Arkansas Filed as Exhibit 10.18
and Weatherford, Oklahoma properties. to Registrant's Form 8-K
dated February 24, 1992
10.72 Promissory Note from subsidiaries of the Filed as Exhibit 10.19
Registrant and CPA(R):11 to The New England to Registrant's Form 8-K
Mutual Life Insurance Company ("New England"). dated February 24, 1992
10.73 Mortgage/Deed of Trust from subsidiaries of the Filed as Exhibit 10.20
Registrant and CPA(R):11 to New England to Registrant's Form 8-K
encumbering the property in Ft. Smith, Arkansas. dated February 24, 1992
10.74 Mortgage/Deed of Trust from subsidiaries of the Filed as Exhibit 10.21
Registrant and CPA(R):11 to New England to Registrant's Form 8-K
encumbering the property in Weatherford, dated February 24, 1992
Oklahoma.
10.75 Mortgage/Deed of Trust from subsidiaries of the Filed as Exhibit 10.22
Registrant and CPA(R):11 to New England to Registrant's Form 8-K
encumbering the properties in Center, Groves, dated February 24, 1992
Silsbee, and Vidor, Texas.
10.76 Lease Agreement between QRS 10-9 (AR), Filed as Exhibit 10.1
Inc. ("QRS 10-9") and QRS 11-2(AR), Inc. to Registrant's Form 8-K
("QRS 11-2") as landlord and Acadia Stores 63, dated April 3, 1992
Inc. ("Tenant") as tenant.
10.77 Co-Tenancy Agreement between QRS 10-9 and QRS Filed as Exhibit 10.2
11-2. to Registrant's Form 8-K
dated April 3, 1992
10.78 Term Loan Agreement among The First National Filed as Exhibit 10.3
Bank of Boston ("First Lender"), QRS 10-9 and to Registrant's Form 8-K
QRS 11-2. dated April 3, 1992
10.79 Note of QRS 10-9 and QRS 11-2 to First Lender. Filed as Exhibit 10.4
to Registrant's Form 8-K
dated April 3, 1992
10.80 Mortgage from QRS 10-9 and QRS 11-2 to First Filed as Exhibit 10.5
Lender for the following jurisdictions: to Registrant's Form 8-K
dated April 3, 1992
a. Arkansas
b. Louisiana
c. Mississippi
</TABLE>
-33-
<PAGE> 35
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.81 Term Loan Agreement among Acadia Partners, L.P. Filed as Exhibit 10.6
("Second Lender"). QRS 10-9 and QRS 11-2. to Registrant's Form 8-K
dated April 3, 1992
a. Arkansas
b. Louisiana
c. Mississippi
10.82 Note of QRS 10-9 and QRS 11-2 to Second Lender. Filed as Exhibit 10.7
to Registrant's Form 8-K
dated April 3, 1992
10.83 Mortgage/Deed of Trust from QRS 10-9 and QRS Filed as Exhibit 10.8
11-2 to Second Lender for the following to Registrant's Form 8-K
jurisdictions: dated April 3, 1992
a. Arkansas
b. Louisiana
c. Mississippi
10.84 Purchase and Sale Agreement between Neoserv Filed as Exhibit 10.1
(CO) QRS 10-13, Inc. ("QRS:10") and Neoserv to Registrant's Form 8-K
(CO) QRS 11-8, Inc. ("QRS:11) as purchasers dated October 29, 1992
and Homart Development Co. ("Homart").
10.85 Promissory Note of QRS:10 and QRS:11 to Homart. Filed as Exhibit 10.2
to Registrant's Form 8-K
dated October 29, 1992
10.86 Deed of Trust from QRS:10 and QRS:11 for Filed as Exhibit 10.3
benefit of Homart. to Registrant's Form 8-K
dated October 29, 1992
10.87 Option Agreement between QRS:10 and QRS:11 as Filed as Exhibit 10.4
option grantee and Homart as option grantor. to Registrant's Form 8-K
dated October 29, 1992
10.88 Co-Tenancy Agreement between QRS:10 and QRS:11. Filed as Exhibit 10.5
to Registrant's Form 8-K
dated October 29, 1992
10.89 Lease from QRS:10 and QRS:11 as lessor and Filed as Exhibit 10.6
Neodata Services, Inc. ("Neodata") as lessee. to Registrant's Form 8-K
dated October 29, 1992
10.90 Guaranty Agreement from Neodata Corporation as Filed as Exhibit 10.7
guarantor to QRS:10 and QRS:11. to Registrant's Form 8-K
dated October 29, 1992
10.91 Promissory Note of QRS:10 and QRS:11 to Neodata. Filed as Exhibit 10.8
to Registrant's Form 8-K
dated October 29, 1992
</TABLE>
-34-
<PAGE> 36
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.92 Deed of Trust from QRS:10 and QRS:11 for Filed as Exhibit 10.9
benefit of Neodata. to Registrant's Form 8-K
dated October 29, 1992
10.93 Construction Contract between QRS:10 and QRS:11 Filed as Exhibit 10.10
as owners and Austin Commercial, Inc. ("Austin") to Registrant's Form 8-K
as contractor. dated October 29, 1992
10.94 Guaranty from Austin to QRS:10 and QRS:11. Filed as Exhibit 10.11
to Registrant's Form 8-K
dated October 29, 1992
10.95 Construction Agency Agreement between QRS:10 Filed as Exhibit 10.12
and QRS:11 as owners and Neodata as agent. to Registrant's Form 8-K
dated October 29, 1992
10.96 Agreement of Purchase and Sale between Milestone Filed as Exhibit 10.1
Properties, Inc. ("Milestone"), as seller, and to Registrant's Form 8-K
Registrant. dated April 12, 1993
10.97 Assignment of Agreement of Purchase and Sale Filed as Exhibit 10.2
from Registant to PMWI (IA) QRS 10-16, Inc. to Registrant's Form 8-K
("QRS 10-16"). dated April 12, 1993
10.98 Assignment and Assumption of Lease from Filed as Exhibit 10.3
Milestone to QRS 10-16. to Registrant's Form 8-K
dated April 12, 1993
10.99 $3,500,000 Promissory Note from QRS 10-16 to Filed as Exhibit 10.4
National Western Life Insurance Company ("Iowa to Registrant's Form 8-K
Lender"). dated April 12, 1993
10.100 Mortgage, Security Agreement and Financing Filed as Exhibit 10.5
Statement between QRS 10-16, as mortgagor, and to Registrant's Form 8-K
Iowa Lender, as mortgagee. dated April 12, 1993
10.101 Collateral Assignment of Lease from QRS 10-16 Filed as Exhibit 10.6
to Iowa Lender. to Registrant's Form 8-K
dated April 12, 1993
10.102 Certificate and Indemnity Regarding Hazardous Filed as Exhibit 10.7
Substances from QRS 10-16 Iowa Lender. to Registrant's Form 8-K
dated April 12, 1993
10.103 Co-Tenancy Agreement between DDI (NE) QRS Filed as Exhibit 10.8
10-15, Inc. ("QRS 10-15") and DDI (NE) QRS to Registrant's Form 8-K
11-13, Inc. ("QRS 11-13"). dated April 12, 1993
10.104 Cross Indemnity Agreement between QRS 10-15 Filed as Exhibit 10.9
and QRS 11-13. to Registrant's Form 8-K
dated April 12, 1993
</TABLE>
-35-
<PAGE> 37
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.105 Lease Agreement between QRS 10-15 and QRS 11-13, Filed as Exhibit 10.10
as landlord, and Data Documents, Inc. ("DDI"), to Registrant's Form 8-K
as tenant. dated April 12, 1993
10.106 Loan Agreement between QRS 10-15 and QRS 11-13, Filed as Exhibit 10.11
as borrower,and U S West Financial Services to Registrant's Form 8-K
("US West"), as lender. dated April 12, 1993
10.107 $8,000,000 Promissory Note from QRS 10-15 and Filed as Exhibit 10.12
QRS 11-13 to US West. to Registrant's Form 8-K
dated April 12, 1993
10.108 Deed of Trust from QRS 10-15 and QRS 11-13 to Filed as Exhibit 10.13
US West (for filing in the states of Colorado, to Registrant's Form 8-K
Nebraska and Texas). dated April 12, 1993
10.109 Mortgage from QRS 10-15 and QRS 11-13 to US West Filed as Exhibit 10.14
(for filing in the state of Kansas). to Registrant's Form 8-K
dated April 12, 1993
10.110 Assignment of Parent Guaranty from QRS 10-15 and Filed as Exhibit 10.15
QRS 11-13. to Registrant's Form 8-K
dated April 12, 1993
21.1 Subsidiaries of Registrant. Filed as Exhibit 22.1
to Registrant's Post
Effective Amendment No. 2
to Form S-11
21.2 Subsidiaries of Registrant as of March 27, 1992. Filed as Exhibit 22.2 to
Registrant's Form 10-K For The
Year Ended December 31, 1991
Dated March 27, 1992
21.3 Subsidiaries of Registrant as of March 30, 1993. Filed as Exhibit 22.3 to
Registrant's Form 10-K For The
Year Ended December 31, 1992
Dated March 30, 1993
21.4 Subsidiaries of Registrant as of March 30, 1994 Filed as Exhibit 22.4 to
Registrant's Form 10-K For The
Year Ended December 31, 1993
Dated March 30, 1994
21.5 Subsidiaries of Registrant as of March 27, 1995. Filed as Exhibit 22.5 to
Registrant's Form 10-K For The
Year Ended December 31, 1994
Dated March 27, 1995
21.6 Subsidiaries of Registrant as of March 20, 1996. Filed as Exhibit 22.6 to
Registrant's Form 10-K For The
Year Ended December 31, 1995
Dated March 28, 1996
21.7 Subsidiaries of Registrant as of March 24, 1997. Filed herewith
</TABLE>
-36-
<PAGE> 38
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
28.1 Lease Agreement between BetaWest Properties Filed as Exhibit 28(A)(1)
Inc. and Mountain Bell dated December 16, 1986. to Registrant's Post
Effective Amendment No. 1
to Form S-11
28.2 Lease Agreement (the "K mart Texas Lease") Filed as Exhibit 28(B)(1)
between Clark Development Company - Denton to Registrant's Post
("Clark") and S.S. Kresge Company for property Effective Amendment No. 1
located in Denton, Texas (the "K mart Texas to Form S-11
Property") dated February 9, 1977.
28.3 Assignment of the K mart Texas Lease from Filed as Exhibit 28(B)(2)
Clark to Murray A. Talenfeld and Joanne to Registrant's Post
Talenfeld (n/k/a/ Joanne Talenfeld Rubinoff) Effective Amendment No. 1
dated December 14, 1976. to Form S-11
28.4 $1,750,000 Promissory Note from Clark to Filed as Exhibit 28(B)(3)
Union Mutual Life Insurance Company (n/k/a to Registrant's Post
UNUM Life Insurance Company) ("UNUM") dated Effective Amendment No. 1
December 20, 1977. to Form S-11
28.5 Deed of Trust from Clark to UNUM dated Filed as Exhibit 28(B)(4)
December 20, 1977. to Registrant's Post
Effective Amendment No. 1
to Form S-11
28.6 Deed from Denton Seller to Denton QRS for the Filed as Exhibit 28(B)(5)
K mart Texas Property dated October 19, 1990. to Registrant's Post
Effective Amendment No. 1
to Form S-11
28.7 Agreement for Assignment and Assumption Filed as Exhibit 28(B)(6)
of Real Property Lease from Denton Seller to to Registrant's Post
Denton QRS dated October 19, 1990. Effective Amendment No. 1
to Form S-11
28.8 Assignment of Rents, Leases and other Filed as Exhibit 28(B)(7)
Benefits from Denton QRS to UNUM dated to Registrant's Post
October 19, 1990. Effective Amendment No. 1
to Form S-11
28.9 The K mart California Lease. Filed as Exhibit 28(C)(1)
to Registrant's Post
Effective Amendment No. 1
to Form S-11
28.10 The K mart Michigan Lease. Filed as Exhibit 28(C)(2)
to Registrant's Post
Effective Amendment No. 1
to Form S-11
28.11 Agreement of Limited Partnership dated Filed as Exhibit 28(D)(1)
September 21, 1990 between 564 Randolph to Registrant's Post
Co. #2 (564 Randolph) and North Clinton Effective Amendment No. 1
Corporation ("NCC"). to Form S-11
</TABLE>
-37-
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
28.12 Assignment of Partnership Interests dated Filed as Exhibit 28(D)(2)
September 27, 1990 from 564 Randolph and NCC, to Registrant's Post
as Assignors, to CPA(R):9 and QRS 10-1 (ILL), Effective Amendment No. 1
Inc. ("QRS 10-1"), as Assignees. to Form S-11
28.13 Amended and Restated Agreement of Limited Filed as Exhibit 28(D)(3)
Partnership dated September 27, 1990 to Registrant's Post
between CPA(R):9 and QRS 10-1, joined by Effective Amendment No. 1
564 Randolph and NCC. to Form S-11
28.14 Warranty Deed dated September 27, 1990 from 564 Filed as Exhibit 28(D)(4)
Randolph to Randolph/Clinton Limited Partnership to Registrant's Post
("Randolph/Clinton"), Trustee's Deed dated Effective Amendment No. 1
September 20, 1990 from American National Bank to Form S-11
and Trust Company of Chicago to
Randolph/Clinton, Trustee's Deed dated September
20, 1990 from LaSalle National Trust, N.A., as
Successor Trustee to LaSalle National Bank,
Trustee, to 564 Randolph.
28.15 Bill of Sale dated September 25, 1990 from 564 Filed as Exhibit 28(D)(5)
Randolph to Randolph/Clinton; Bill of Sale to Registrant's Post
dated September 25, 1990 from NCC to Effective Amendment No. 1
Randolph/Clinton; Bill of Sale dated September to Form S-11
25, 1990 from Information Resources, Inc.
("IRI") to 564 Randolph.
28.16 $23,500,000 Note Secured by First Real Estate Filed as Exhibit 28(D)(6)
Lien dated September 27, 1990 from Randolph/ to Registrant's Post
Clinton, as Maker, to MONY, as Payee. Effective Amendment No. 1
to Form S-11
28.17 Mortgage and Security Agreement dated Filed as Exhibit 28(D)(7)
September 27, 1990 from Randolph/Clinton, to Registrant's Post
as Mortgagor, to MONY, as Mortgagee. Effective Amendment No. 1
to Form S-11
28.18 Assignment of Lessor's Interest in Leases Filed as Exhibit 28(D)(8)
dated September 27, 1990 from Randolph/ to Registrant's Post
Clinton, as Assignor, to MONY, as Assignee. Effective Amendment No. 1
to Form S-11
28.19 Lease Agreement dated September 27, 1990 Filed as Exhibit 28(D)(9)
between Randolph/Clinton, as Landlord, to Registrant's Post
and IRI, as Tenant. Effective Amendment No. 1
to Form S-11
28.20 Assignment of Subleases and Rents dated Filed as Exhibit 28(D)(10)
September 27, 1990 from IRI, as Assignor, to Registrant's Post
and Randolph/Clinton, as Assignee. Effective Amendment No. 1
to Form S-11
28.21 Lease Agreement between 835 Hope Street, as Filed as Exhibit
Lessor, 28(E)(1) and Xerox Corporation, as to Registrant's Post
Lessee, dated February 1, 1985; Letter Agreement Effective Amendment No. 1
between Lessor and Lessee dated March 13, 1985; to Form S-11
First Amendment of Lease between Lessor and
Lessee dated December 20, 1989.
</TABLE>
-38-
<PAGE> 40
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
28.22 Mortgage and Security Agreement from 835 Hope Filed as Exhibit 28(E)(2)
Street, as Mortgagor, to Bankers Life Company to Registrant's Post
(n/k/a Principal Mutual Life Insurance Company), Effective Amendment No. 1
as Mortgagee, dated February 1, 1985. to Form S-11
28.23 $8,750,000 Secured Note due March 1, 1995 from Filed as Exhibit 28(E)(3)
835 Hope Street, as Maker, to Bankers Life to Registrant's Post
Company, as Payee, dated February 28, 1985. Effective Amendment No. 1
to Form S-11
28.24 Collateral Assignment of Lease and Agreement Filed as Exhibit 28(E)(4)
from 835 Hope Street, as Assignor, to Bankers to Registrant's Post
Life Company, as Assignee, dated February 1, Effective Amendment No. 1
1985. to Form S-11
28.25 General Warranty Deed dated July 9, 1991 from Filed as Exhibit 28.1
Titan Linkabit Corporation to Torrey Pines. to Registrant's Form 8-K
dated July 25, 1991
28.26 Bill of Sale dated July 9, 1991 from Titan Filed as Exhibit 28.2
Linkabit Corporation to Torrey Pines. to Registrant's Form 8-K
dated July 25, 1991
28.27 Deed dated June 28, 1991 from Empire of America Filed as Exhibit 28.3
Realty Credit Corp. to QRS 10-7. to Registrant's Form 8-K
dated July 25, 1991
28.28 Bill of Sale dated July 1, 1991 from Empire of Filed as Exhibit 28.4
America Realty Credit Corp., as Seller to to Registrant's Form 8-K
QRS 10-7, as Buyer. dated July 25, 1991
28.29 Guaranty from Harvest Foods, Inc., a Delaware Filed as Exhibit 28.1
corporation ("Harvest"), to QRS 10-9 and QRS to Registrant's Form 8-K
11-2. dated April 3, 1992
28.30 Guaranty from Harvest Foods, Inc., an Arkansas Filed as Exhibit 28.2
corporation, to QRS 10-9 and QRS 11-2. to Registrant's Form 8-K
dated April 3, 1992
28.31 Deeds from Safeway Inc. and Property development Filed as Exhibit 28.3
Associates to QRS 10-9 and QRS 11-2 for: to Registrant's Form 8-K
dated April 3, 1992
a. Stores 179 and 258
b. 255
c. 269
d. 4120
28.32 Deed from Acadia Stores 60, Inc. to QRS 10-9 and Filed as Exhibit 28.4
QRS 11-2 for Corporate and Annex premises. to Registrant's Form 8-K
dated April 3, 1992
</TABLE>
-39-
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
28.33 Deed from Acadia Stores 61, Inc. to QRS 10-9 and Filed as Exhibit 28.5
QRS 11-2 for Store 194. to Registrant's Form 8-K
dated April 3, 1992
28.34 Deeds from Acadia Stores 62, Inc. ("AS-62") to Filed as Exhibit 28.6
QRS 10-9 and QRS 11-2 for: to Registrant's Form 8-K
a. Store 287 dated April 3, 1992
b. Store 289
28.35 Deed from Harvest to QRS 10-9 and QRS 11-2 for Filed as Exhibit 28.7
Store 4426. to Registrant's Form 8-K
dated April 3, 1992
28.36 Deed of Improvements from Harvest to QRS 10-9 Filed as Exhibit 28.8
and QRS 11-2 for: to Registrant's Form 8-K
a. Store 4281 dated April 3, 1992
b. Store 4409
28.37 Leasehold Deed of Trust from Neodata for benefit Filed as Exhibit 28.1
of General Electric Capital Corporation. to Registrant's Form 8-K
dated October 29, 1992
28.38 Prospectus of Registrant dated June 11, 1990. Filed as Exhibit 28.38
to Registrant's Form 10-K/A
dated September 24, 1993
28.39 Supplement dated August 14, 1990 to Prospectus Filed as Exhibit 28.39
dated June 11, 1990. to Registrant's Form 10-K/A
dated September 24, 1993
28.40 Supplement dated January 17, 1991 to Prospectus Filed as Exhibit 28.40
dated June 11, 1990. to Registrant's Form 10-K/A
dated September 24, 1993
28.41 Supplement dated March 26, 1991 to Prospectus Filed as Exhibit 28.41
dated June 11, 1990. to Registrant's Form 10-K/A
dated September 24, 1993
28.42 Deed from Milestone to QRS 10-16 for property Filed as Exhibit 28.1
located in Des Moines, Iowa. to Registrant's Form 8-K
dated April 12, 1993
28.43 Lease between The Concord Milestone Income Fund, Filed as Exhibit 28.2
L.P., as landlord, and Pace Membership to Registrant's Form 8-K
Warehouse, Inc., as tenant. dated April 12, 1993
28.44 Deed from DDI to QRS 10-15 and QRS 11-13 for Filed as Exhibit 28.3
property located in Denver, Colorado. to Registrant's Form 8-K
dated April 12, 1993
28.45 Deed from DDI to QRS 10-15 and QRS 11-13 for Filed as Exhibit 28.4
property located in Lenexa, Kansas. to Registrant's Form 8-K
dated April 12, 1993
</TABLE>
-40-
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
28.46 Deed from DDI to QRS 10-15 and QRS 11-13 for Filed as Exhibit 28.5
property located in Omaha, Nebraska. to Registrant's Form 8-K
dated April 12, 1993
28.47 Deed from DDI to QRS 10-15 and QRS 11-13 for Filed as Exhibit 28.6
property located in Dallas, Texas. to Registrant's Form 8-K
dated April 12, 1993
28.48 Deed from DDI to QRS 10-15 and QRS 11-13 for Filed as Exhibit 28.7
property located in Hutchins, Texas. to Registrant's Form 8-K
dated April 12, 1993
28.49 Guaranty and suretyship Agreement from Data Filed as Exhibit 28.8
Documents Holdings, Inc. to QRS 10-15 and to Registrant's Form 8-K
QRS 11-13. dated April 12, 1993
28.50 Guaranty from Registrant and CPA(R):11 Filed as Exhibit 28.9
to US West. to Registrant's Form 8-K
dated April 12, 1993
</TABLE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1996 the Registrant was not
required to file any reports on Form 8-K.
-41-
<PAGE> 43
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 10 INCORPORATED
a Maryland corporation
04/3/97 /s/ Claude Fernandez
-------- -----------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
Francis J. Carey
President and Director
BY: /s/ George E. Stoddard
----------------------
Ralph G. Coburn George E. Stoddard
Director Attorney in fact
April 3, 1997
Charles C. Townsend, Jr.
Director
William Ruder
Director
Warren G. Wintrub
Director
04/3/97 /s/ Claude Fernandez
--------- ---------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
04/3/97 /s/ Michael D. Roberts
--------- -----------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-42-
<PAGE> 44
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
1996 ANNUAL REPORT
<PAGE> 45
SELECTED FINANCIAL DATA
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 14,548 $ 16,129 $ 16,386 $ 16,132 $ 15,506
Net income (loss) 3,861 4,481 5,248 (1,076) 2,990
Net income (loss)
per share .53 .62 .73 (.15) .41
Dividends paid 5,860 5,916 5,951 5,976 5,982
Dividends declared
per share .61(1) .82 .82 .83 .83
Payment of mortgage
principal (2) 361 635 802 931 1,142
BALANCE SHEET DATA:
Total consolidated
assets 146,759 148,358 145,124 141,438 127,755
Long-term
obligations (3) 78,948 81,515 69,679 71,527 60,042
</TABLE>
(1) There were only three dividends declared in 1992. The dividend declared
in January 1993 attributable to the quarter ended December 1992, if
declared in 1992, would have increased the 1992 dividends declared to
$0.81 per Share.
(2) Represents scheduled mortgage principal amortization paid.
(3) Represents mortgage obligations due after more than one year.
-1-
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Net income for the year ended December 31, 1996 increased by
$4,067,000 as compared with the net loss incurred in 1995. Excluding the effect
of noncash charges in 1995 and 1996 on the writedowns of property to net
realizable value and gains on property sales in 1996, income would have
reflected a decrease of $352,000 as compared with 1995.
The decrease in income before gains, as adjusted for the
writedowns, was due to decreases in lease revenues and an increase in property
expenses. These were partially offset by increases in other interest income,
equity income and a decrease in interest expense. Lease revenues decreased due
to the sales of the properties leased to Empire of America Realty Credit Corp.
("Empire"), Safeway Supermarkets Incorporated ("Safeway") and Best Buy Co., Inc.
("Best Buy") in 1996 and the termination of the Xerox Corporation ("Xerox")
lease in August 1995. Lease revenue benefited from the lease with EnviroWorks,
Inc. ("EnviroWorks") which initial term commenced in September 1995 and an
increase, effective October 1995, on the lease with Information Resources, Inc.
("IRI"). Other interest income increased due to interest earned on the proceeds
held from the property sales which the Company is seeking to reinvest in new
properties. Equity income from the Company's investment in a real estate
investment trust which net leases 13 Courtyard by Marriott hotels to Marriott
International, Inc. ("Marriott") increased due to the increasing amortization of
principal on a limited recourse mortgage loan which is amortizing over 16-3/4
years and an increase in rents earned pursuant to a sales override provision in
the Marriott lease.
In 1995, the Company incurred a net loss of $1,076,000 due to
the writedown of its Stamford, Connecticut property to estimated net realizable
value after Xerox vacated the property. The operating results for 1995,
excluding the effect of the writedown (net of amounts of the writedown
attributable to minority interest) in 1995 and gains on sale of real estate of
$923,000 in 1994, would have reflected a decrease of $281,000 from 1994. This
decrease was due to a decrease in lease revenues and an increase in interest
expense. The decrease in lease revenues was due to (i) the sales of the Pace
Membership Warehouse, Inc. ("Pace") and Data Documents, Inc. ("Data Documents")
properties in 1994 which contributed $837,000 of rents in 1994 and (ii) the
expiration of the Xerox lease in August 1995, which reduced lease revenues by
$433,000 from the prior year. Such decreases were partially offset by an
increase in lease revenues of $375,000 from Neodata Corporation ("Neodata") and
New WAI L.P. ("Warehouse Associates"). The Neodata and Warehouse Associates
rents increased as the leases were modified in the fourth quarter of 1994 in
consideration for funding improvements at those properties. Lease revenues also
benefited from increases effective in August 1994 and October 1995 on the
Company's leases with Titan Corporation ("Titan") and IRI, respectively, and an
increase of $64,000 from the sales overrides from Kmart Corporation ("Kmart")
and Wal-Mart Stores, Inc. ("Wal-Mart") leases. Additionally, subsequent to
completion of construction of its property leased to EnviroWorks in September
1995, EnviroWorks contributed $408,000 of lease revenues. The increase in
interest expense was due to $271,000 directly attributable to the mortgage
financing received in connection with funding the Neodata and Warehouse
Associates expansions in December 1994 and $180,000 of interest expense on the
mortgage loan obtained upon completion of construction of the EnviroWorks
property. This was partially offset by the reduction from paying off the Pace
and Data Documents mortgage loans in November 1994.
As a result of a rent increase in 1997 and a decrease in debt
service as the result of refinancing a mortgage loan, annual cash flow (rents
less mortgage service) from the properties leased to Childtime Childcare, Inc.
("Childtime") will increase by $98,000. Cash flow will also benefit from a rent
increase with Titan scheduled for July 1997. As a result of selling the Safeway,
Empire and Best Buy properties, annual cash flow has been reduced by $792,000.
The Company is seeking to reinvest proceeds from the sale of these properties in
order to restore a substantial portion of the cash flow. Future operating cash
flow will be affected by the outcome of the Harvest Foods, Inc. ("Harvest")
bankruptcy. The Bankruptcy Court agreed to Harvest's plan to terminate the lease
in March 1997. Annual cash flow from the Harvest lease was $607,000. There is no
assurance that future cash flow from the Harvest properties will reach
pre-bankruptcy levels. Accordingly, based on Management's assessment of future
cash flows, the Harvest properties were written down by $1,753,000 in 1996.
Because of the long-term nature of the Company's net leases,
inflation and changing prices have not unfavorably affected the Company's
revenues and net income. The Company's net leases have rent increases based on
formulas indexed to increases in the Consumer Price Index ("CPI"), sales
overrides, or other periodic increases which are designed to increase lease
revenues in the future. Future rent increases may be affected by changes in the
method of how the CPI is calculated. Although there are indications that
legislation which considers changes to the method of calculating the CPI, the
Company cannot predict the outcome of any proposal relating to the CPI formula.
-2-
<PAGE> 47
Financial Condition
Except for certain of the Harvest properties vacated in March
1997, all of the Company's properties are leased to corporate tenants and are
subject to long-term net leases which generally require tenants to pay all
operating expenses relating to the leased properties. The Company's objective is
to use the cash flow from its net leases to fund dividends to shareholders and
meet scheduled principal payments on the Company's mortgage debt. The Company
maintains a cash reserve to fund major outlays such as capital improvements and
balloon debt payments. Such expenditures may also be funded from additional
borrowing on the Company's real estate portfolio. The Company's cash balances
increased by $4,203,000 in 1996 primarily due to the sale of properties.
The Company's cash provided by operations of $6,657,000 was
used to fund dividend payments of $5,982,000 and pay a portion of the Company's
scheduled mortgage principal payments. The Company's cash position has been
favorably affected by the Advisor's continuing its voluntary deferral of asset
management and performance fees which totaled $3,810,000 at December 31, 1996.
Although the Advisor may continue deferring such collection, it has no
obligation to do so. The ability of the Company to sustain its current level of
operating cash flow is subject to the outcome of uncertainties related to (i)
remarketing the properties formerly leased to Harvest and (ii) the level of
operating cash flow to be realized from any investment in new properties.
The Company's investing activities included receiving
$13,734,000 from the sales of properties and funding $370,000 to replace the
roof on a property leased to Kmart as required under the Kmart leases. The
Company is currently evaluating whether it will need to incur similar costs at
another of the Kmart properties within the next year.
The Company's financing activities consisted primarily of
using funds provided from operating activities to pay dividends and meeting
scheduled debt service requirements. In 1996, the Company used $8,382,000 of
sales proceeds to pay off loans on properties sold and to satisfy an advance on
its line of credit. An advance of $2,480,000 had been used to pay a balloon
payment on a mortgage which had matured in 1995. In December 1996, the Company
refinanced an existing $2,485,000 mortgage loan with an annual interest rate of
11.25% collateralized by the properties leased to Childtime with a new mortgage
loan of $2,511,000 which bears an annual interest rate of 9.55%. The line of
credit facility of $6,000,000 is available for funding purchases of real estate,
capital improvements and refinancings. Borrowings under the credit facility are
recourse to the Company. The revolving credit agreement, which expires in August
1997, includes financial covenants which require the Company to maintain a
minimum tangible net worth and meet certain debt service coverage ratios on all
outstanding advances. The Company is in compliance with such terms at December
31, 1996. The aforementioned $2,480,000 advance on the line of credit was used
to pay a balloon payment in January 1996 on a mortgage loan collateralized by
two properties leased to Kmart and was subsequently paid off. Since December 31,
1996, the Company also used $1,554,000 from the line of credit to satisfy a
mortgage balloon payment for the loan collateralized by a third property leased
to Kmart. The Company is monitoring Kmart's credit rating. To the extent that
Kmart's credit prospects improve, the Company would seek to place new limited
recourse mortgage debt on the three properties with the objective of using a
portion or all of the funds received for new investments.
The Company is continuing to evaluate its ability to maintain
the current dividend rate while considering reinvestment opportunities and the
need to maintain appropriate levels of cash reserves to meet current and
expected obligations. Expected cash from operations, taking into account the
reduction in lease revenues from the termination of the Harvest lease and any
reinvestment of funds from property sales, will not be sufficient to fully fund
future dividends at the current levels and scheduled mortgage principal payments
for the next several years. Management is considering a reduction in the
dividend rate to a level that could be sustained solely from cash flow from
operations remaining after amortization of debt.
The Company has a scheduled balloon payment on a mortgage loan
of $6,910,000 in 1998 on properties leased to Wal-Mart. A mortgage loan on the
Company's property leased to Warehouse Associates which had been scheduled to
mature in April 1996 has been extended an additional five years pursuant to an
extension option which was available to the Company. If the Company had not
exercised the option, a balloon payment of $977,000 would have been due. In
addition, due to successful negotiations by the Company, the interest rate on
another limited recourse mortgage loan on the Warehouse Associates property was
reduced from 10% to 8.75%. As a result of the reset, annual debt service
decreased by $69,000. Two mortgage loans with a combined balance of $5,782,000
collateralizing the Harvest properties are in default. Debt service on one of
the loans has not been paid on a timely basis. The loans are
-3-
<PAGE> 48
subject to acceleration from the lenders; however, no notice of acceleration has
been received from the lenders. In the event a lender gives notice of
acceleration, the Company will evaluate its alternatives. In the case of
mortgage financing which does not fully amortize over its term or is subject to
acceleration, the Company would be responsible for the balloon payment required
only to the extent of its interest in the encumbered properties because the
holder of each such obligation has recourse only to the properties
collateralizing such debt. In the event that balloon payments come due, the
Company could seek to refinance the loans, restructure the debt with existing
lenders, evaluate its ability to satisfy the mortgages from existing cash
reserves or sell the property and use the sales proceeds to satisfy the mortgage
debt. To the extent that the remaining initial term of a lease will remain in
place for a number of years, the Company believes that the prospects are good.
The limited recourse refinancing prospects are conditional, in part, by the
credit rating of the lessee. Based on the remaining initial terms of the
Wal-Mart leases of at least 10 years, the Company expects to refinance the
maturing loan.
In connection with the purchase of its properties, the Company
requires sellers of such properties to perform environmental reviews. Management
believes, based on the results of such reviews, that the Company's properties
were in substantial compliance with Federal and state environmental statutes at
the time the properties were acquired. However, portions of certain properties
have been subject to some degree of contamination, principally in connection
with either leakage from underground storage tanks, surface spills from facility
activities or historical on-site activities. In most instances where
contamination has been identified, tenants are actively engaged in the
remediation process and addressing identified conditions. Tenants are generally
subject to environmental statutes and regulations regarding the discharge of
hazardous materials and any related remediation obligations. In addition, the
Company's leases generally require tenants to indemnify the Company from all
liabilities and losses related to the leased properties with provisions of such
indemnification specifically addressing environmental matters. The leases
generally include provisions which allow for periodic environmental assessments,
paid for by the tenant, and allow the Company to extend leases until such time
as a tenant has satisfied its environmental obligations. Certain of the leases
allow the Company to require financial assurances from tenants such as
performance bonds or letters of credit if the costs of remediating environmental
conditions, in the estimation of the Company, are in excess of specified
amounts. Accordingly, Management believes that the ultimate resolution of
environmental matters will not have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
No. 128"), which establishes standards for computing and presenting earnings per
share. SFAS No. 128 will be effective for financial statements issued for
periods ending after December 15, 1997. The impact of the adoption of this
statement is not expected to be material to the Company's Consolidated Financial
Statement.
-4-
<PAGE> 49
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Corporate Property Associates 10 Incorporated
and Subsidiaries:
We have audited the accompanying consolidated balance sheets
of Corporate Property Associates 10 Incorporated and Subsidiaries as of December
31, 1995 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. We have also audited the financial statement schedule
included on pages 22 to 24 of this Annual Report. These financial statements are
the responsibility of Carey Property Advisors, a Pennsylvania limited
partnership (the "Advisor"). Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Advisor, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Corporate Property Associates 10 Incorporated and Subsidiaries as of December
31, 1995 and 1996, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the Schedule of Real Estate and Accumulated Depreciation as of December
31, 1996, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the financial information
required to be included therein pursuant to Securities and Exchange Commission
Regulation S-X Rule 12-28.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 24, 1997
-5-
<PAGE> 50
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method
Land $ 19,946,914 $ 17,970,759
Buildings 80,153,352 77,452,437
------------ ------------
100,100,266 95,423,196
Accumulated depreciation 8,686,779 9,484,029
------------ ------------
91,413,487 85,939,167
Net investment in direct financing leases 26,526,818 23,563,052
------------ ------------
Real estate leased to others 117,940,305 109,502,219
Equity investment 10,432,181 11,016,708
Real estate held for sale 10,079,819
Cash and cash equivalents 2,249,315 6,452,554
Other assets, net of accumulated amortization
of $332,286 in 1995 and $182,123 in 1996 736,789 783,245
------------ ------------
Total assets $141,438,409 $127,754,726
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $ 84,384,583 $ 68,586,254
Accrued interest payable 850,986 553,985
Accounts payable and accrued expenses 240,505 231,555
Accounts payable to affiliates 3,044,843 3,974,450
Deferred gain 3,423,043
Prepaid rental income 44,337 42,682
------------ ------------
Total liabilities 88,565,254 76,811,969
------------ ------------
Minority interest 2,987,811 4,048,527
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; 7,217,294 shares issued
and outstanding at December 31, 1995 and 1996 7,217 7,217
Additional paid-in capital 62,160,058 62,160,058
Dividends in excess of earnings (12,193,839) (15,184,953)
------------ ------------
49,973,436 46,982,322
Less common stock in treasury at cost,
10,652 shares at December 31, 1995 and 1996 (88,092) (88,092)
------------ ------------
Total shareholders' equity 49,885,344 46,894,230
------------ ------------
Total liabilities and
shareholders' equity $141,438,409 $127,754,726
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
<PAGE> 51
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATIONS
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income from operating leases $11,895,320 $ 12,105,236 $ 11,812,148
Interest income from direct financing leases 4,322,954 3,843,593 3,362,406
Other interest income 168,033 182,921 331,194
----------- ----------- ------------
16,386,307 16,131,750 15,505,748
----------- ----------- ------------
Expenses:
Interest on mortgages 8,151,222 8,310,440 7,911,209
Depreciation 1,945,769 1,967,631 2,007,557
General and administrative 989,690 1,033,182 965,983
Property expenses 1,809,519 1,787,577 2,008,468
Amortization 95,501 66,262 56,329
Writedown to net realizable value 7,519,431 1,753,139
----------- ----------- -----------
12,991,701 20,684,523 14,702,685
----------- ----------- -----------
Income (loss) before minority interest in
(income) loss, equity income and gains on
sale of real estate, and extraordinary item 3,394,606 (4,552,773) 803,063
Minority interest in (income) loss (599,839) 1,881,218 (583,283)
----------- ----------- -----------
Income (loss) before equity income and
gains on sale of real estate 2,794,767 (2,671,555) 219,780
Income from equity investment 1,529,736 1,595,406 1,718,797
----------- ----------- -----------
Income (loss) before gains on sale of real
estate 4,324,503 (1,076,149) 1,938,577
Gains on sale of real estate 923,382 1,051,823
----------- ----------- -----------
Net income (loss) $ 5,247,885 $(1,076,149) $ 2,990,400
=========== =========== ===========
Net income (loss) per common share: $ .73 $(.15) $.41
===== ===== ====
Weighted average shares outstanding 7,217,294 7,209,269 7,206,642
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
<PAGE> 52
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Additional Dividends
Common Paid-in In Excess Of Treasury
Stock Capital Earnings Stock Total
----- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $7,217 $62,160,058 $ (4,439,425) $ 57,727,850
Dividends (5,950,669) (5,950,669)
Net income, 1994 5,247,885 5,247,885
------ ----------- ------------ -----------
Balance at December 31, 1994 7,217 62,160,058 (5,142,209) 57,025,066
Dividends (5,975,481) (5,975,481)
Repurchase of 10,652 shares $(88,092) (88,092)
Net loss, 1995 (1,076,149) (1,076,149)
------ ----------- ------------ -------- -----------
Balance at December 31, 1995 7,217 62,160,058 (12,193,839) (88,092) 49,885,344
Dividends (5,981,514) (5,981,514)
Net income, 1996 2,990,400 2,990,400
------ ----------- ------------ -------- -----------
Balance at December 31, 1996 $7,217 $62,160,058 $(15,184,953) $(88,092) $46,894,230
====== =========== ============ ======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-8-
<PAGE> 53
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,247,885 $ (1,076,149) $ 2,990,400
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,041,270 2,033,893 2,063,886
Cash receipts on operating and financing leases
(less than) greater than straight-line adjustments
and amortization of unearned income (81,154) 51,219 104,180
Minority interest in income (loss) 599,839 (1,881,218) 583,283
Distributions to minority interest (901,541) (849,551) (795,196)
Income from equity investment in excess of
dividends received (406,051) (376,365) (584,527)
Writedown to net realizable value 7,519,431 1,753,139
Gains on sale of real estate (923,382) (1,051,823)
Net change in operating assets and liabilities 734,600 842,364 1,593,498
------------ ------------ -----------
Net cash provided by operating activities 6,311,466 6,263,624 6,656,840
------------ ------------ -----------
Cash flows from investing activities:
Purchases of real estate and other capitalized costs (8,636,434) (12,091,080) (370,043)
Proceeds from sale of real estate 5,289,080 13,733,825
Decrease in escrow funds 5,751,808
Reimbursement of project costs by affiliate 5,583,615
Issuance of note receivable on sale of real estate (560,750)
Proceeds from repayments on note receivable 450,000
------------ ----------- -----------
Net cash provided by (used in)
investing activities 2,236,261 (6,339,272) 13,253,032
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from mortgages 3,700,000 12,000,000 2,510,660
Advances on line of credit 6,981,180 2,480,000
Payments on mortgage principal (801,536) (930,647) (1,141,876)
Purchase of treasury stock (88,092)
Prepayments of mortgage payable and
advances on line of credit (12,875,857) (6,000,000) (13,347,113)
Deferred financing costs (96,737) (48,209) (226,790)
Dividends paid (5,950,669) (5,975,481) (5,981,514)
------------- ------------ ------------
Net cash used in financing activities (9,043,619) (1,042,429) (15,706,633)
------------ ------------ ------------
Net (decrease) increase in cash
and cash equivalents (495,892) (1,118,077) 4,203,239
Cash and cash equivalents, beginning of year 3,863,284 3,367,392 2,249,315
------------ ------------ ------------
Cash and cash equivalents, end of year $ 3,367,392 $ 2,249,315 $ 6,452,554
============ ============ ============
</TABLE>
(Continued)
-9-
<PAGE> 54
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS, Continued
For the years ended December 31, 1994, 1995 and 1996
Schedule of noncash investing and financing activity:
During the year ended December 31, 1996, the Company transferred a
property to an affiliate and assigned a mortgage note payable and interest
thereon as follows:
<TABLE>
<S> <C>
Mortgage note payable $ 6,300,000
Accrued interest payable 790,678
Land and building, net
of minority interest (3,667,635)
-----------
Deferred gain $ 3,423,043
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-10-
<PAGE> 55
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Consolidation:
The consolidated financial statements include the accounts of
Corporate Property Associates 10 Incorporated, its wholly-owned
subsidiaries and majority interests in three limited partnerships
in which the company is general partner and a limited partnership
in which the Company owned the majority interest until such
interest was disposed of in December 1996 (see Note 10)
(collectively, the "Company").
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Real Estate Leased to Others:
Real estate is leased to others on a net lease basis, whereby the
tenant is generally responsible for all operating expenses
relating to the property, including property taxes, insurance,
maintenance, repairs, renewals and improvements.
The Company 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 Company's net
investment in the lease.
Operating method - Real estate is recorded at cost,
revenue is recognized as rentals are earned and expenses
(including depreciation) are charged to operations as
incurred. When scheduled rentals vary during the lease
term, income is recognized on a straight-line basis so as
to produce a constant periodic rent.
The Company assesses the recoverability of its real estate assets,
including residual interests, based on projections of
undiscounted cash flows over the life of such assets. In the
event that such cash flows are insufficient, the assets are
adjusted to their estimated net realizable value.
Continued
-11-
<PAGE> 56
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Substantially all of the Company'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.
Real Estate Held for Sale:
Real estate held for sale is accounted for at the lower of cost or
fair value less costs of sale.
Depreciation:
Depreciation is computed using the straight-line method over the
estimated useful lives of the properties - 40 years.
Cash Equivalents:
The Company 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
Company's cash and cash equivalents at December 31, 1995 and 1996
were held in the custody of three financial institutions.
Equity Investment:
The Company's 23.7% interest in a real estate investment trust
("REIT") is accounted for under the equity method, i.e. at cost,
increased or decreased by the Company's share of earnings or
losses, less distributions.
Treasury Stock:
Treasury stock is recorded at cost.
Other Assets:
Included in other assets are deferred rental income and deferred
charges. Deferred rental income is the aggregate difference for
operating method leases between scheduled rents which vary during
the lease term and rent recognized on a straight-line basis.
Deferred charges are costs incurred in connection with mortgage
financing and refinancing and are amortized on a straight-line
basis over the terms of the mortgages.
Federal Income Taxes:
The Company qualifies and intends to continue to qualify as a REIT
under the Internal Revenue Code of 1986, and accordingly, is not
subject to Federal income taxes on amounts distributed to
shareholders provided it distributes at least 95% of its REIT
taxable income to its shareholders and meets certain other
conditions.
Reclassification:
Certain 1994 and 1995 amounts have been reclassified to conform to
the 1996 financial statement presentation.
Continued
-12-
<PAGE> 57
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Organization and Offering:
The Company was formed on March 7, 1990 under the General Corporation
Law of Maryland for the purpose of engaging in the business of
investing in and owning industrial and commercial real estate.
Pursuant to a public offering, 7,217,294 ($72,172,940) shares of
common stock were issued by the Company between September 14,
1990 and June 17, 1991. Subject to certain restrictions and
limitations, the business of the Company is managed by Carey
Property Advisors, a Pennsylvania limited partnership (the
"Advisor"). The Advisor may be entitled to certain incentive fees
in the event of the liquidation of the Company.
3. Transactions with Related Parties:
The Advisor may be entitled to receive a subordinated preferred
return, measured based upon the cumulative proceeds arising from
the sale of Company assets. Pursuant to the subordination
provisions of the advisory agreement, the preferred return may be
paid after the shareholders receive 100% of their initial
investment from the proceeds of assets sales and a cumulative
annual return of 6% since the inception of the Company. The
Advisor's interest in such preferred return amounts to $753,156
based upon the cumulative proceeds from the sales of assets since
the inception of the Company through December 31, 1996. The
Company's ability to satisfy the subordination provisions of the
advisory agreement may not be determinable until liquidation of a
substantial portion of the Company's assets has been made.
Pursuant to the advisory agreement, the Advisor performs certain
services for the Company including the identification,
evaluation, negotiation, purchase and disposition of property,
the day-to-day management of the Company and the performance of
certain administrative services. If in any year when the
operating expenses of the Company exceed the 2%/25% Guidelines
(the greater of 2% of Average Invested Assets or 25% of net
income) as defined in the Prospectus, the Advisor will have an
obligation to reimburse the Company for such excess, subject to
certain conditions.
In connection with the Company's acquisitions of real estate and
obtaining of mortgage financing, W.P. Carey & Co., Inc. ("W.P.
Carey") received $76,000, $800,000 and $54,000 in 1994, 1995 and
1996, respectively, as development, structuring, financing and
acquisition fees.
The Company's asset management and performance fees are both 1/2 of
1% per annum of Average Invested Assets, as defined in the
Prospectus. General and administrative expense reimbursement
consists primarily of the actual cost of personnel needed in
providing administrative services necessary to the operation of
the Company. Asset management fees were $779,256, $779,829 and
$858,793 in 1994, 1995 and 1996, respectively, with performance
fees for such periods in like amounts. General and administrative
expense reimbursements were $360,418, $365,778 and $378,221 in
1994, 1995 and 1996, respectively. Effective January 1996, for
the purpose of determining the asset management and performance
fees, Average Invested Assets are based on an independent
valuation of the Company's real estate assets.
Continued
-13-
<PAGE> 58
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
For the years ended December 31, 1994, 1995 and 1996, fees
aggregating $72,102, $32,855 and $27,585, respectively, were
incurred for legal services provided by a firm in which the
Secretary of the Company and other affiliates is a partner.
The Company is a participant in an agreement with W.P. Carey and
certain affiliates for the purpose of leasing office space used
for the administration of real estate entities and W.P. Carey and
for sharing the associated costs. Pursuant to the terms of the
agreement, the Company's share of rental, occupancy and leasehold
improvement costs is based on adjusted gross revenues, as
defined. Net expenses incurred in 1994, 1995 and 1996 were
$88,746, $151,744 and $132,207, respectively.
The Company's ownership interests in certain properties are jointly
held with affiliated entities. The Company's interests in jointly
held properties range from 20% to 81.46%. The Company's share of
assets and liabilities relating to tenants-in-common interests
are accounted for on a proportional basis.
4. Real Estate Leased to Others Accounted for Under the Operating Method:
Scheduled future minimum rents, exclusive of renewals, under
noncancellable operating leases amount to approximately
$11,145,000 in 1997, $11,149,000 in 1998, $11,150,000 in 1999,
$11,157,000 in 2000; $10,916,000 in 2001; and aggregate
approximately $119,904,000 through 2016.
Contingent rents were approximately $439,000, $583,000 and $586,000
in 1994, 1995 and 1996, respectively.
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1996
---- ----
<S> <C> <C>
Minimum lease payments
receivable $66,338,813 $60,627,524
Unguaranteed residual value 26,415,753 23,644,330
----------- -----------
92,754,566 84,271,854
Less, Unearned income 66,227,748 60,708,802
----------- -----------
$26,526,818 $23,563,052
=========== ===========
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases amount to approximately
$3,093,000 in each of the years 1997 through 2001 and aggregate
approximately $60,628,000 through 2017.
The Company is committed under long-term ground leases which have
expiration dates ranging from June 2004 to January 2011 for
certain properties formerly occupied by Harvest Foods, Inc.
Future minimum ground lease rents aggregate approximately
$1,751,000.
Contingent rents were approximately $55,000 in 1994 and $132,000 in
1996. No contingent rents were received in 1995.
Continued
-14-
<PAGE> 59
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Mortgage Notes Payable and Revolving Credit Facility:
Mortgage notes payable, all of which are limited recourse
obligations, are collateralized by the assignment of various
leases and by real property with a carrying amount of
approximately $117,339,000, before accumulated depreciation. As
of December 31, 1996, mortgage notes payable have interest rates
varying from 8.75% to 13% per annum and mature between 1997 and
2013.
Scheduled principal payments, including mortgages subject to
acceleration, during each of the next five years following
December 31, 1996 and thereafter are as follows:
<TABLE>
<S> <C>
Year Ending December 31,
1997 $ 8,544,105
1998 1,283,280
1999 9,742,495
2000 22,887,153
2001 8,160,796
Thereafter 17,968,425
-----------
Total $68,586,254
===========
</TABLE>
The Company's revolving credit agreement provides a credit facility
to the Company on which it can draw up to $6,000,000. Advances
under the facility are evidenced by a promissory note which bears
an annual interest rate equivalent to short-term London
Inter-Bank Offering Rates plus 2.5%. The amount available under
the credit facility decreases by $166,667 each month. There is
also a nonutilization fee of 0.2% per annum on funds available
under the credit facility but not advanced. The revolving credit
agreement matures on August 23, 1997.
The revolving credit agreement places the following restrictions on
the Company: funds advanced under the credit facility may only be
used to purchase real estate, fund capital improvements or pay
off mortgage debt. After payment of related mortgage loans and
costs, the lender has the right to apply all the proceeds of real
estate sales as a payment of principal on any amount outstanding
on the credit facility. The amount of additional mortgage
indebtedness the Company can incur is limited and the Company is
required to meet certain financial covenants, including
maintaining a tangible net worth of $45,000,000 and a debt
service coverage ratio of 2 to 1 with such ratio calculated as
net cash flow provided by operating activities divided by the sum
of the amounts required for such period to pay principal and
interest on the credit facility. The Company is in compliance
with the terms of the revolving credit agreement. Amounts
advanced under the credit facility are recourse obligations of
the Company. No amounts were outstanding as of December 31, 1996.
Interest paid, including capitalized interest, was $8,356,980,
$8,309,308 and $8,208,210, in 1994, 1995 and 1996, respectively.
Continued
-15-
<PAGE> 60
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Dividends:
Dividends paid to shareholders consist of ordinary income, capital
gains, return of capital or a combination thereof for income tax
purposes. For the three years ended December 31, 1996, dividends
paid per share reported for tax purposes were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Ordinary income $0.36 $0.47 $0.49
Capital gains 0.11 0.06
Return of capital .35 0.30 0.34
----- ----- -----
$0.82 $0.83 $0.83
===== ===== =====
</TABLE>
A dividend of $.2075 per share for the quarter ended December 31, 1996
was declared and paid in January 1997.
8. Industry Segment Information:
The Company's operations consist of the investment in and the leasing
of industrial and commercial real estate. The financial reporting
sources of leasing revenues are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Per Statements of operations:
Rental income from operating leases $11,895,320 $12,105,236 $11,812,148
Interest income from direct financing leases 4,322,954 3,843,593 3,362,406
Adjustments:
Rental income attributable to
minority interests (2,231,141) (2,129,058) (1,917,313)
Share of interest income from equity
investment's direct financing lease 4,292,381 4,330,176 4,342,921
----------- ----------- -----------
$18,279,514 $18,149,947 $17,600,162
=========== =========== ===========
</TABLE>
Continued
-16-
<PAGE> 61
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
For the years ended December 31, 1994, 1995 and 1996, the Company
earned its share of net leasing revenues from its direct and
indirect ownership of real estate from the following lease
obligors:
<TABLE>
<CAPTION>
1994 % 1995 % 1996 %
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Marriott International, Inc. (1) $ 4,292,381 24% $ 4,330,176 24% $ 4,342,921 25%
Information Resources
Incorporated (2) 2,743,052 15 2,786,293 16 2,916,014 17
Titan Corporation (2) 1,954,888 11 2,019,033 11 2,019,033 11
New WAI, L.P./
Warehouse Associates 1,301,835 7 1,442,303 8 1,483,640 8
EnviroWorks, Inc. 407,505 2 1,387,757 8
Harvest Foods, Inc. (3) 1,237,573 7 1,238,403 7 1,239,206 7
Wal-Mart Stores, Inc. 941,402 5 976,287 6 994,433 6
Kmart Corporation 756,103 4 785,314 4 823,301 5
Childtime Childcare Inc. 737,407 4 742,458 4 742,458 4
Neodata Corporation 320,921 2 555,826 3 574,435 3
CalComp Technology, Inc.
(formerly Summagraphics
Corporation) 439,678 2 440,902 2 381,412 2
US West Communications, Inc. 222,600 1 222,600 1 222,600 1
Empire of America Realty
Credit Corp. 903,558 5 904,015 5 188,322 1
Safeway Stores Incorporated 393,750 2 393,750 2 167,212 1
Best Buy Co., Inc. 234,308 1 315,013 2 117,418 1
Xerox Corporation (2) 885,105 5 590,069 3
Other 914,953 5
----------- ---- ----------- ---- ----------- ----
$18,279,514 100% $18,149,947 100% $17,600,162 100%
=========== ==== =========== ==== =========== ====
</TABLE>
(1) Represents the Company's share of revenue from its 23.7% equity
interest in Marcourt Investments Incorporated.
(2) Net of the minority interest attributable to Corporate Property
Associates 9, L.P. ("CPA(R):9"), an affiliate.
(3) Net of ground lease expenses of approximately $152,000 in 1994 and
$158,000 in both 1995 and 1996.
Continued
-17-
<PAGE> 62
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Investment in Marcourt Investments Incorporated:
The Company owns an approximate 23.7% interest in Marcourt
Investments Incorporated ("Marcourt") which, pursuant to a master
lease, net leases 13 hotel properties to a wholly-owned
subsidiary of Marriott International, Inc. Summarized audited
financial information of Marcourt is as follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Assets $149,900 $149,910 $149,694
Liabilities 110,645 108,876 106,002
Shareholders' equity 39,255 41,034 43,692
Revenues $18,140 18,300 18,549
Interest and other expenses 11,486 11,370 11,097
Net income 6,654 6,930 7,452
Dividends paid 4,748 5,151 4,793
Cash provided from operating activities 4,758 7,114 7,482
</TABLE>
10. Property in Stamford, Connecticut:
In January 1991, the Company and CPA(R):9 formed a limited
partnership, Hope Street Connecticut Limited Partnership ("Hope
St."), for the purpose of purchasing an office building in
Stamford, Connecticut for $11,000,000. The Company contributed
$3,200,000 for a 68.085% general partnership interest and
CPA(R):9 contributed $1,500,000 for a 31.915% limited partnership
interest in Hope St. Hope St. used this equity and assumed a
limited recourse mortgage loan of $6,300,000 collateralized by
the property and also assumed an existing net lease, as lessor,
with Xerox Corporation ("Xerox"), as lessee. The Xerox lease
provided for an annual rent of $1,300,000 with an initial term
through August 31, 1995 and two five-year renewals at Xerox's
option. The mortgage loan was an interest only obligation and was
scheduled to mature on September 1, 1995 with a balloon payment
of $6,300,000 due at that time.
In August 1995, the initial term ended and Xerox vacated the
property. The Company was unsuccessful in its efforts to remarket
the property and find a new lessee even at a substantially lower
annual rental. Based on the then current conditions in the
Stamford market, Management concluded that the net realizable
value of the property was less than the outstanding balance of
the mortgage loan. The Company attempted to negotiate with the
lender and proposed various alternatives such as extending the
maturity, satisfying the balloon payment obligation at a
substantial discount or selling the property back to the lender a
nominal amount in excess of the mortgage balance; however, the
lender did not agree to any these proposals. Given these
circumstances, in 1995, the Company wrote down the property to
its estimated fair value of $2,490,000.
In December 1996, the Boards of Directors of the Corporate General
Partner of CPA(R):9 and the Company approved a transaction that
allowed the Company to transfer the Company's entire general
partnership interest in the limited partnership to CPA(R):9 and a
wholly-owned subsidiary of CPA(R):9 for nominal consideration.
For financial reporting purposes, a gain of $3,423,043
Continued
-18-
<PAGE> 63
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
resulting from the transfer of liabilities in excess of assets
has been deferred pending the disposition of the Stamford
property by CPA(R):9. For tax reporting purposes, a capital loss
was recognized on the disposition of the general partnership
interest in Hope St.
11. Gains on Sale of Real Estate:
1994
Pace Membership Warehouse, Inc.:
On November 10, 1994, Pace Membership Warehouse, Inc. ("Pace"),
purchased its leased premises in Des Moines, Iowa from the
Company for $7,150,000. A portion of the proceeds from the sale
was used to satisfy the $3,500,000 mortgage loan on the property
and pay a prepayment charge to the mortgage lender. In connection
with the sale, the Company recognized a gain of $483,039.
Data Documents, Inc.:
In May 1993, the Company and Carey Institutional Properties
Incorporated ("CIP(TM)"), an affiliate, purchased land and
buildings as tenants-in-common for $13,450,000 with 22.22% and
77.78% interests, respectively, and entered into a net lease with
Data Documents, Inc. ("Data Documents"). In 1994, Data Documents
notified the Company and CIP(TM) that it intended to restructure
its debt. The Company and CIP(TM) informed Data Documents that
such restructuring would violate the financial covenants of the
lease. Data Documents did not remedy the covenant violation and,
therefore, was required to purchase its leased properties at the
higher of the original cost or fair market value as encumbered by
the lease. In November 1994, the lease was terminated and title
to the properties was transferred. In connection with the
transfer, Data Documents deposited funds in an escrow account
pending final determination of fair value. The fair market value
was subsequently determined to be $15,775,000. In connection with
such determination, all remaining sales proceeds were received by
the Company. The Company recognized a gain on the sale of the
properties of $440,343 in 1994.
1996
Safeway Stores, Inc.:
In December 1991, the Company and CIP(TM), purchased three
supermarkets leased to Safeway Stores Incorporated ("Safeway") as
tenants in-common, each with 50% ownership interests. In 1996,
the Company and CIP(TM) sold a property in Glendale, Arizona and
a property in Escondido, California.
On January 26, 1996, the Glendale store was sold for $1,950,000. On
February 15, 1996, the Escondido property was sold for
$3,450,000. A net loss of $11,017 was recognized on the sales.
Net of transaction costs, the Company received $2,605,010 in cash
and a promissory note of $560,750. The final installment on the
promissory note, was received in January 1997.
Annual cash flow from the two properties was $252,000.
Empire of America Realty Credit Corp.:
In June 1991, the Company purchased land and an office building
occupied by Empire of America Realty Credit Corp. ("Empire")
located in Buffalo, New York for $7,330,000. $4,500,000 of the
purchase price was financed by a mortgage loan.
Continued
-19-
<PAGE> 64
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In November 1995, the Company declared that Empire was in default
under the lease as Empire had previously notified the Company of
its intention to vacate the property. The lease required Empire
to make an irrevocable purchase offer in the event of a default
and in February 1996, the Company accepted Empire's $8,500,000
offer. In connection with the sale of the property to Empire on
March 15, 1996, the Company recognized a gain, net of transaction
costs, of $558,665. After paying the transaction costs and
satisfying the mortgage loan collateralized by the Empire
property, the Company realized net cash proceeds of approximately
$3,675,000. As a result of the sale of the Empire property,
annual cash flow (rents less mortgage debt service) decreased by
approximately $415,000.
Best Buy Co., Inc.:
In October 1992, the Company purchased land and a retail store in
Charlotte, North Carolina, for $2,435,000 subject to an existing
net lease with SportsTown, Inc. The lease was subsequently
assumed by Best Buy Co., Inc.
On May 16, 1996, the Company sold the property for $3,250,000 and
recognized a gain of $504,175 on the sale. Net of the costs of
sale and paying off the remaining balance of $1,509,371
outstanding on the mortgage loan collateralized by the property,
the Company realized net cash proceeds of $1,588,000. As a result
of the sale, annual cash flow (rents less mortgage debt service)
will decrease by approximately $126,000.
12. Debt Refinancing:
The Company and CPA(R):9 own 12 properties as tenants-in-common with
66.07% and 33.93% ownership interests, respectively, leased,
pursuant to a master lease, to Childtime Childcare, Inc.
("Childtime"). On December 13, 1996, the Company and CPA(R):9
refinanced, at a lower interest rate, an existing mortgage loan
of $3,800,000 (of which the Company's share is $2,511,000). The
loan provides for monthly installments of principal and interest
of $35,546 (of which the Company's share is $23,485) at an annual
interest rate of 9.55% based on a 20-year amortization schedule.
The loan may be prepaid at any time subject to a 5% prepayment
charge. The loan matures in December 2006 at which time a balloon
payment for the entire outstanding principal balance of
approximately $2,768,000 (of which the Company's share is
$1,829,000) is scheduled.
The original loan provided for monthly payments of principal and
interest of $39,930 (of which the Company's share was $26,382) at
an annual interest rate of 11.25% based on a 25-year amortization
schedule. The loan had been scheduled to mature in February 1998
at which time a balloon payment was due. Solely as a result of
the refinancing, the Company's annual debt service will decrease
by $34,764.
13. Harvest Foods, Inc.:
On February 21, 1992, the Company and CIP(TM) purchased as
tenants-in-common, each with 50% ownership interests, 13
supermarkets and two office buildings and entered into a master
lease with Harvest Foods, Inc. ("Harvest"), as lessee. The total
purchase price of the Harvest
Continued
-20-
<PAGE> 65
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
properties was $20,165,000. The Company and CIP(TM) each
contributed $3,950,000 of equity and each obtained $6,132,500 of
limited recourse mortgage financing from two lenders of
$4,632,500 and $1,500,000, respectively, to fund the purchase of
the Harvest properties.
On June 18, 1996 Harvest filed a voluntary bankruptcy petition under
Chapter 11 of the United States Bankruptcy Code. Subsequent to
Harvest's filing for Chapter 11 bankruptcy, Harvest filed a
motion to sever the master lease into 15 separate leases. The
Company and CIP(TM) vigorously opposed the motion which Harvest
subsequently withdrew. In March 1997, the Bankruptcy Court
approved Harvest's motion to disaffirm the master lease. The
Company has agreements-in-principle to sell one of the properties
and lease two of the supermarkets. As final agreements have not
been completed for sale or lease of properties, there is no
assurance that the proposed sale or lease of properties will
occur. The Company's share of annual rent under the Harvest lease
was the sum of (i) $607,806 and (ii) an amount equal to debt
service on the two loans. Based on the Company's expectation that
future cash flow from the properties will be reduced, Management
has concluded that there has been an impairment to the value of
the properties. Based on a writedown of the properties to their
estimated net realizable value of $8,250,000, the Company has
incurred a charge of $1,753,139 for the year ended December 31,
1996.
The two limited recourse mortgage loans, with a combined balance of
$5,782,000 at December 31, 1996 are in default and are subject to
acceleration by the lenders as a result of the filing of the
bankruptcy petition. A portion of the debt service for the period
subsequent to December 31, 1996 has not been paid. As the
lender's sole recourse is to the Harvest properties, the Company
and CIP(TM) are evaluating their options including proposing a
restructuring of the loan.
14. Disclosures About Fair Value of Financial Instruments:
The carrying amounts of cash, accounts receivable, accounts payable
and accrued expenses approximate fair value because of the short
maturity of these items.
The Company estimates that the fair value of mortgage notes payable
at December 31, 1996 was approximately $70,110,000. 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.
In conjunction with executing several of its leases, the Company was
granted warrants to purchase common stock or limited partnership
units of the lessee or lease guarantor. To the extent that the
lessee is not a publicly traded entity, the warrants are judged
at the time of issuance to be speculative in nature and a nominal
cost basis is attributed to them. The Company believes it is not
practicable to estimate the fair value of warrants for closely
held entities. At December 31, 1996, the Company had warrants to
purchase 81,460 shares of stock of the Titan Corporation
("Titan"), a publicly traded company, at $5.30 per share, with
such warrants expiring on July 11, 1998. The quoted price of
Titan's common stock as of December 31, 1996, was $3.25. The
Titan warrants are carried on the books at a nominal value.
15. New Accounting Pronouncement:
In March 1997, the Financial Accounting Standards Boards issued
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS No. 128"), which establishes standards for
computing and presenting earnings per share. SFAS No. 128 will be
effective for financial statement issued for periods ending after
December 15, 1997. The impact of the adoption of this statement
is not expected to be material to the Company's Consolidated
Financial Statements.
-21-
<PAGE> 66
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
SCHEDULE of REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to Costs Gross Amount at which Carried
Company Capitalized at Close of Period (c)(d)
--------------------- Subsequent to ----------------------------------
Description Encumbrances Land Buildings Acquisition (a) Land Buildings Total
----------- ------------ ---- --------- --------------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Method:
Office/repair facility
leased to The
US West
Communications, Inc. $ 498,557 $ 1,563,299 $ 45,465 $ 509,550 $ 1,597,771 $ 2,107,321
Office buildings leased to
Information
Resources, Inc. $22,568,367 4,992,173 26,857,893 3,792,980 4,992,731 30,650,315 35,643,046
Retail stores leased
to Kmart Corporation 1,600,000 2,896,663 4,308,345 821,510 2,944,072 5,082,446 8,026,518
Land leased to Childtime
Childcare, Inc. 1,029,371 2,279,146 957 2,280,103 2,280,103
Office building leased
to Titan Corporation 10,655,846 3,906,546 15,883,454 17,948 3,910,145 15,897,803 19,807,948
Retail stores leased to
Wal-Mart Stores, Inc. 7,147,211 807,423 6,864,802 87,746 816,658 6,943,313 7,759,971
Supermarket leased
to Safeway Stores
Incorporated 334,595 943,790 14,621 340,274 952,732 1,293,006
Office/manufacturing
facilities leased to CalComp
Technology, Inc. (formerly
Summagraphics Corporation) 1,712,100 751,453 2,536,047 751,453 2,536,047 3,287,500
Manufacturing/warehouse/
office facilities leased to
Neodata Services, Inc. 2,737,106 379,917 497,114 3,159,798 379,917 3,656,912 4,036,829
Manufacturing/distribution
facility leased to
EnviroWorks, Inc. 5,788,278 1,045,856 10,135,098 1,045,856 10,135,098 11,180,954
-------------------------------------------------------------------------------------------------
$53,238,279 $17,892,329 $59,454,744 $18,076,123 $17,970,759 $77,452,437 $ 95,423,196
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation
in Latest
Statement of
Accumulated Operations
Description Depreciation (d) Date Acquired is Computed
----------- ---------------- ------------- -----------
<S> <C> <C> <C>
Operating Method:
Office/repair facility
leased to The
US West September 18,
Communications, Inc. $ 251,232 1990 40 yrs.
Office buildings leased to
Information September 28,
Resources, Inc. 4,563,163 1990 40 yrs.
Retail stores leased October 19 & 29,
to Kmart Corporation 696,274 1990 40 yrs.
Land leased to Childtime January 4,
Childcare, Inc. 1991 N/A
Office building leased
to Titan Corporation 2,169,294 July 9, 1991 40 yrs.
Retail stores leased to December 19,
Wal-Mart Stores, Inc. 875,130 1991 40 yrs.
Supermarket leased
to Safeway Stores December 19,
Incorporated 120,081 1991 40 yrs.
Office/manufacturing
facilities leased to CalComp
Technology, Inc. (formerly
Summagraphics Corporation) 293,230 May 28, 1992 40 yrs.
Manufacturing/warehouse/
office facilities leased to
Neodata Services, Inc. 188,346 October 1, 1992 40 yrs.
Manufacturing/distribution
facility leased to
EnviroWorks, Inc. 327,279 March 22, 1995 40 yrs.
----------
$9,484,029
==========
</TABLE>
See accompanying notes to Schedule.
-22-
<PAGE> 67
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
SCHEDULE of REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to Costs
Company Capitalized Decrease In
-------------------- Subsequent to Net
Description Encumbrances Land Buildings Acquisition (a) Investment (b)
----------- ------------ ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Direct Financing Method:
Child daycare centers
leased to Childtime
Childcare, Inc. $1,481,289 $ 3,284,644 $ 1,379
Office/warehouse
facility leased
to New WAI L.P. 8,084,832 $ 307,745 10,442,255 1,277,029
Supermarket/office
buildings formerly leased
to Harvest Foods, Inc. 5,781,854 1,606,249 8,476,251 1,918 $(1,834,418)
----------- ---------- ----------- ---------- -----------
$15,347,975 $1,913,994 $22,203,150 $1,280,326 $(1,834,418)
=========== ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried
at Close of Period (c)
-----------------------------
Description Total Date Acquired
----------- ----- -------------
<S> <C> <C>
Direct Financing Method:
Child daycare centers
leased to Childtime
Childcare, Inc. $ 3,286,023 January 4, 1991
Office/warehouse
facility leased
to New WAI L.P. 12,027,029 March 27, 1991
Supermarket/office
buildings formerly leased
to Harvest Foods, Inc. 8,250,000 February 21, 1992
-----------
$23,563,052
===========
</TABLE>
See accompanying notes to Schedule.
-23-
<PAGE> 68
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to SCHEDULE of REAL ESTATE
and ACCUMULATED DEPRECIATION
(a) Consists of improvements subsequent to acquisition and acquisition
costs including legal fees, appraisal fees, title costs and other
related professional fees.
(b) The decrease in net investment is due to the amortization of unearned
income producing a constant periodic rate of return on the net
investment which is more than the lease payments received and
writedowns to net realizable value.
(c) At December 31, 1996, the aggregate cost of real estate owned by the
Company and its subsidiaries for Federal income tax purposes is
$65,465,943.
Reconciliation of Real Estate Accounted
for Under the Operating Method
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
---- ----
<S> <C> <C>
Balance at beginning
of year $ 96,860,818 $100,100,266
Additions 12,091,080 370,043
Dispositions (5,047,113)
Writedown to net realizable value (7,519,431)
Reclassification from investment in
direct financing lease 4,036,830
Reclassification to real estate
held for sale (5,369,031)
------------ ------------
Balance at close of
year $100,100,266 $ 95,423,196
============ ============
</TABLE>
Reconciliation of Accumulated Depreciation
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
---- ----
<S> <C> <C>
Balance at beginning
of year $6,874,016 $8,686,779
Depreciation expense 1,967,631 2,007,557
Reclassification to real estate
held for sale (154,868)
Dispositions (1,210,307)
---------- ----------
Balance at close of
year $8,686,779 $9,484,029
========== ==========
</TABLE>
-24-
<PAGE> 69
PROPERTIES
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------- ---------------- -------- --------
<S> <C> <C> <C>
US WEST Office/Repair Scottsdale, Ownership of land
COMMUNICATIONS, Facility Arizona and building
INC.
INFORMATION Office Buildings Chicago, Ownership of a 66.67%
RESOURCES INC. Illinois interest in a limited
partnership owning land
and buildings (1)
KMART Retail Stores Denton, Texas; Ownership of land and
CORPORATION - 3 locations Drayton Plains, buildings
Michigan; and
Citrus Heights,
California
CHILDTIME Child Daycare Westland - 2 and Ownership of a 66.07%
CHILDCARE, INC. Centers Sterling Heights, interest in land and
- 12 locations Michigan; Chandler buildings (1)
and Tucson, Arizona;
Duncanville, Carrollton
and Lewisville, Texas;
Chino, Garden Grove,
Alhambra and
Tustin/Santa Ana,
California
NEW WAI, L.P./ Office/Warehouse Lima, Ohio Ownership of land and
WAREHOUSE Facility buildings (1)
ASSOCIATES
TITAN CORPORATION Office Building San Diego, Ownership of an 81.46%
California interest in a Limited
Partnership owning land
and building (1)
</TABLE>
-25-
<PAGE> 70
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------- ---------------- -------- --------
<S> <C> <C> <C>
WAL-MART STORES, INC. Retail Stores Center, Groves, Ownership of a 50%
- 6 locations Silsbee and Vidor, interest in land
Texas; and buildings (1)
Weatherford,
Oklahoma;
Fort Smith,
Arkansas
SAFEWAY STORES Supermarket Broken Arrow, Ownership of a 50%
INCORPORATED Oklahoma interest in land
and buildings
MARRIOTT Hotels Irvine, Sacramento, Ownership of a 23.67%
INTERNATIONAL, INC. - 13 locations and San Diego, interest in a real estate
California; investment trust owning land
Orlando - 2, and buildings (1)
Florida;
Des Plains,
Illinois;
Indianapolis,
Indiana;
Louisville,
Kentucky;
Linthicum,
Maryland;
Las Vegas, Nevada;
Newark, New Jersey;
Albuquerque,
New Mexico;
Spokane,
Washington
Properties Retail Stores Little Rock - 7, Hope, Ownership of a 50%
formerly leased to and Office North Little Rock, interest in land
HARVEST FOODS, Buildings - 15 locations Conway, Hot Springs, and buildings
INCORPORATED Texarakana and except as noted (1)(2)
Jonesboro, Arkansas;
Ruston, Louisiana;
Clarksdale,
Mississippi
CALCOMP TECH- Office/ Austin, Ownership of a 50%
NOLOGY (formerly Manufacturing Texas interest in land and
SUMMAGRAPHICS Facility buildings (1)
CORPORATION)
</TABLE>
-26-
<PAGE> 71
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------- ---------------- -------- --------
<S> <C> <C> <C>
NEODATA Distribution/ Louisville, Ownership of a 20%
CORPORATION Warehouse/Office Colorado interest in land and
Facility buildings (1)
ENVIROWORKS, INC. Manufacturing/ Apopka, Florida Ownership of land
Distribution Facility and buildings (1)
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) Ownership of buildings with ground leases of land for one property in Little
Rock, Arkansas and properties in Hot Springs, North Little Rock and
Jonesboro, Arkansas.
-27-
<PAGE> 72
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Except for limited or sporadic transactions, there is no
established public trading market for the Shares of the Company. As of December
31, 1996, there were 4,504 holders of record of the Shares of the Company.
The Company is required to distribute annually its
Distributable REIT Taxable Income, as defined in the Prospectus, to maintain its
status as a REIT.
In accordance with the Prospectus of the Company, dividends
will be paid quarterly regardless of the frequency with which such dividends are
declared. The following shows the frequency and amount of dividends paid since
1993.
<TABLE>
<CAPTION>
Cash Dividends Paid Per Share
----------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C> <C>
First quarter $.20575 $.20675 $.20750
Second quarter .20600 .20700 .20750
Third quarter .20625 .20725 .20750
Fourth quarter .20650 .20750 .20750
------- ------- -------
$.82450 $.82850 $.83000
======= ======= =======
</TABLE>
REPORT ON FORM 10-K
The Advisor will supply to any shareholder, upon written
request and without charge, a copy of the Annual Report on Form 10-K for the
year ended December 31, 1996 as filed with the Securities and Exchange
Commission.
-28-
<PAGE> 1
EXHIBIT 21.7
SUBSIDIARIES OF REGISTRANT
QRS 10-1 (ILL), INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS AND DOING BUSINESS UNDER
THE NAME QRS 10-1 (ILL), INC.
DENTON (TX) QRS 10-2, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS
UNDER THE NAME DENTON (TX) QRS 10-2, INC.
QRS 10-3 (CT), INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF CONNECTICUT AND DOING BUSINESS UNDER
THE NAME QRS 10-3 (CT), INC.
QRS 10-5 (OH), INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO AND DOING BUSINESS UNDER THE
NAME QRS 10-5 (OH), INC.
TORREY PINES QRS 10-6 (CA), INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME TORREY PINES QRS 10-6 (CA), INC.
QRS 10-7 (NY), INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK AND DOING BUSINESS UNDER
THE NAME QRS 10-7 (NY), INC.
WALSAFE (CA) QRS 10-8, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME WALSAFE (CA) QRS 10-8, INC.
QRS 10-9 (AR), INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF ARKANSAS AND DOING BUSINESS UNDER
THE NAME QRS 10-9 (AR), INC.
QRS 10-11 (MD), INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND AND DOING BUSINESS UNDER
THE NAME QRS 10-11 (MD), INC.
QRS 10-12 (TX), INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS UNDER THE
NAME QRS 10-12 (TX), INC.
NEOSERV (CO) QRS 10-13, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO AND DOING
BUSINESS UNDER THE NAME NEOSERV (CO) QRS 10-13, INC.
STI (NC) QRS 10-14, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA AND DOING
BUSINESS UNDER THE NAME STI (NC) QRS 10-14, INC.
DDI (NE) QRS 10-15, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NEBRASKA AND DOING
BUSINESS UNDER THE NAME DDI (NE) QRS 10-15, INC.
PMWI (IA) QRS 10-16, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF IOWA AND DOING BUSINESS
UNDER THE NAME PMWI (IA) QRS 10-16, INC.
QRS 10-18 (FL), INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA AND DOING BUSINESS UNDER THE
NAME QRS 10-18 (FL), INC.
ORS 10-PAYING AGENT, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK AND DOING
BUSINESS UNDER THE NAME QRS 10-PAYING AGENT, INC.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
for the year ended December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,452,554
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,452,554
<PP&E> 118,986,248
<DEPRECIATION> 9,484,029
<TOTAL-ASSETS> 127,754,721
<CURRENT-LIABILITIES> 4,802,672
<BONDS> 68,586,254
0
0
<COMMON> 7,217
<OTHER-SE> 46,887,013
<TOTAL-LIABILITY-AND-EQUITY> 127,754,726
<SALES> 0
<TOTAL-REVENUES> 15,505,748
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,735,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,911,209
<INCOME-PRETAX> 2,990,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,990,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,990,400
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
