<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the year ended December 31, 1998
of
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
CPA(R):10
A Maryland Corporation
IRS Employer Identification No. 13-3602400
SEC File Number 0-20016
50 Rockefeller Plaza,
New York, New York 10020
(212) 492-1100
CPA(R):10 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the
Act.
CPA(R):10 is not registered on any exchanges.
CPA(R):10 does not have any Securities registered pursuant to Section 12(b) of
the Act.
CPA(R):10 is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-K.
CPA(R):10 (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for 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.
CPA(R):10 has no active market for common stock at March 24, 1999.
Non-affiliates held 7,568,508 shares of common stock, $.001 Par Value
outstanding at March 24, 1999.
<PAGE> 2
PART I
Item 1. Business.
Corporate Property Associates 10 Incorporated is a Real Estate
Investment Trust ("REIT") that acquires and owns commercial properties leased to
companies nationwide, primarily on a triple net basis. As of December 31, 1998,
CPA(R):10's portfolio consisted of 57 properties leased to 14 tenants and
totaling approximately 4.2 million square feet.
CPA(R):10's core strategy is to own and manage properties leased to
a variety of companies on a single tenant, net lease basis. These leases
generally place the economic burden of ownership on the tenant by requiring them
to pay the costs of maintenance, insurance, taxes, structural repairs and other
operating expenses.
CPA(R):10 also generally includes in its leases:
o clauses providing for mandated rent increases or periodic rent increases
tied to increases in the consumer price index or other indices or, when
appropriate, increases tied to the volume of sales at the property;
o covenants restricting the activity of the tenant to reduce the risk of a
change in credit quality;
o indemnification of CPA(R):10 for environmental and other liabilities;
o guarantees from parent companies or other entities.
CPA(R):10 was formed as a Maryland corporation on March 7, 1990.
Between June 1990 and June 1991, CPA(R):10 sold a total of 7,217,294 shares of
common stock for a total of $72,172,940 in gross offering proceeds. These
proceeds have been combined with limited recourse mortgage debt to purchase
CPA(R):10's property portfolio. As a real estate investment trust, CPA(R):10 is
not subject to federal income taxation as long as it satisfies certain
requirements relating to the nature of its income, the level of its
distributions and other factors.
Carey Property Advisors provides both strategic and day-to-day
management for CPA(R):10, including acquisition services, research, investment
analysis, asset management, capital funding services, disposition of assets,
investor relations and administrative services. Carey Property Advisors also
provides office space and other facilities for CPA(R):10. Carey Property
Advisors has dedicated senior executives in each area of its organization so
that CPA(R):10 functions as a fully integrated operating company. CPA(R):10 pays
asset management fees to Carey Property Advisor and pays certain transactional
fees. CPA(R):10 also reimburses Carey Property Advisors for certain expenses.
Carey Property Advisors also serves in this capacity for Carey Institutional
properties Incorporated, Corporate Property Associates 12 Incorporated and
Corporate Property Associates 14 Incorporated.
CPA(R):10's principal executive offices are located at 50
Rockefeller Plaza, New York, NY 10020 and its telephone number is (212)
492-1100. As of January 25, 1999, CPA(R):10 had no employees. An affiliate of
Carey Property Advisors employs 20 individuals who perform services for
CPA(R):10.
Business Objectives
CPA(R):10's objectives are to:
o pay quarterly dividends at an increasing rate that for taxable
shareholders may be partially free from current taxation;
o purchase and own a portfolio of real estate that will increase in value;
and
o increase the equity in its real estate by making regular mortgage
principal payments.
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<PAGE> 3
CPA(R):10 seeks to achieve these objectives by holding and managing
industrial and commercial properties each net leased to a single corporate
tenant. The properties owned by CPA(R):10 are described in Item 2. All net
offering proceeds not invested in real estate are invested in cash and cash
equivalents. CPA(R):10 uses these funds primarily for working capital.
Recent Developments
In 1997, CPA(R):10's master lease for fifteen properties was
terminated in connection with the bankruptcy petition of the tenant, Harvest
Foods, Inc. During 1997, the Company re-leased five properties and sold three
properties. During 1998, the Company was able to lease one of the vacant
properties and, in December 1998, paid off at a substantial discount the
remaining mortgage obligation on the properties. Management believes that, with
the properties unencumbered by mortgage debt, CPA(R):10 has greater flexibility
in remarketing the remaining six vacant properties.
CalComp Technology, Inc., a tenant of a property in Austin, Texas,
has announced its intention to liquidate and stopped paying rent in January
1999. A complaint has been filed against CalComp and the Company is seeking a
judgment for all unpaid and future rents plus associated costs. The Company has
also begun settlement discussions with CalComp in recognition of the fact that
it is likely to take several months to obtain a judgment. A potential settlement
with CalComp could offset a reduction in rent from a replacement tenant as
CalComp's rents are in excess of market rents for the property. Even though the
limited recourse mortgage is in default, CPA(R):10 has continued to pay
scheduled monthly debt service installments because management believes that the
value of the property is at least equal to its carrying value and in excess of
the current mortgage balance.
Strategy
CPA(R):10 has invested a total of $136,874,000 in net leased
properties. CPA(R):10 owns a total of 57 properties, all but six of which are
subject to net leases. These net leases generally provide that the tenant is
responsible for the payment of maintenance and repairs, insurance and real
estate taxes.
Carey Property Advisors strategy in structuring its net lease investments in
CPA(R):10's portfolio was to:
o combine the stability and security of long-term lease payments, including
rent increases, with the appreciation potential inherent in the ownership
of real estate;
o enhance current returns by utilizing varied lease structures;
o reduce credit risk by diversifying investments by tenant, type of
facility, geographic location and tenant industry; and
o increase potential returns by obtaining equity enhancements from the
tenant when possible, such as warrants to purchase tenant common stock.
Financing Strategies
Consistent with its investment policies, CPA(R):10 uses leverage
when available on favorable terms. As of December 31, 1998, CPA(R):10 has
approximately $58,749,000 in property level debt outstanding. These mortgage
obligations mature between 1999 and 2013 and have interest rates between 8.75%
and 10.7%. Carey Property Advisors continually seeks opportunities and considers
alternative financing techniques to finance properties not currently subject to
debt, refinance debt, reduce interest expense or improve its capital structure.
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<PAGE> 4
Asset Management
CPA(R):10 believes that effective management of its net lease assets
is essential to maintain and enhance property values. Important aspects of asset
management include restructuring transactions to meet the evolving needs of
current tenants, re-leasing properties, refinancing debt, selling properties and
knowledge of the bankruptcy process.
Carey Property Advisors monitors, on an ongoing basis, compliance by
tenants with their lease obligations and other factors that could affect the
financial performance of any of its properties. Monitoring involves receiving
assurances that each tenant has paid real estate taxes, assessments and other
expenses relating to the properties it occupies and confirming that appropriate
insurance coverage is being maintained by the tenant. Carey Property Advisors
reviews financial statements of its tenants and undertakes regular physical
inspections of the condition and maintenance of its properties. Additionally,
Carey Property Advisors periodically analyzes each tenant's financial condition,
the industry in which each tenant operates and each tenant's relative strength
in its industry.
Holding Period
CPA(R):10 intends to hold each property it acquires for an extended
period. The determination of whether a particular property should be sold or
otherwise disposed of will be made after consideration of relevant factors with
a view to achieving maximum capital appreciation and after-tax return for the
CPA(R):10 shareholders. If CPA(R):10's common stock is not listed for trading on
a national securities exchange or included for quotation on Nasdaq, CPA(R):10
will generally begin selling properties within ten years after the offering
proceeds were substantially invested, subject to market conditions. The board of
directors will make the decision whether to list the shares, liquidate or devise
an alternative liquidity strategy based on what is likely to result in the
greatest value for the shareholders.
Competition
CPA(R):10 faces competition for the acquisition of office and
industrial properties in general, and such properties net leased to major
corporations in particular, from insurance companies, credit companies, pension
funds, private individuals, investment companies and other REITs. CPA(R):10 also
faces competition from these same entities for financing for its properties and
for tenants for any of its vacant properties. CPA(R):10 believes its
management's experience will allow CPA(R):10 to compete effectively.
Environmental Matters
Under various federal, state and local environmental laws,
regulations and ordinances, current or former owners of real estate, as well as
certain other categories of parties, may be required to investigate and clean up
hazardous or toxic chemicals, substances or waste or petroleum product or waste
(collectively, "Hazardous Materials") releases on, under, in or from such
property, and may be held liable to governmental entities or to third parties
for certain damage and for investigation and cleanup costs incurred by such
parties in connection with the release or threatened release of Hazardous
Materials. Such laws typically impose responsibility and liability without
regard to whether the owner knew of or was responsible for the presence of
Hazardous Materials, and the liability under such laws has been interpreted to
be joint and several under certain circumstances. CPA(R):10's leases often
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
Phase I assessments are performed by independent environmental
consulting and engineering firms for all acquisitions. Where warranted, Phase II
assessments are performed. Phase I assessments do not involve subsurface
testing, whereas Phase II assessments involve some degree of soil and/or
groundwater testing. CPA(R):10 normally requires property sellers to indemnify
it fully against any environmental problem existing as of the date of purchase.
Additionally, CPA(R):10 often structures its leases to require the tenant to
assume most or all responsibility for environmental compliance or
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<PAGE> 5
environmental remediation relating to the tenants operations and to provide that
non-compliance with environmental laws is deemed a lease default. In certain
instances, CPA(R):10 may also require a cash reserve, a letter of credit or a
guarantee from the tenant, the tenant's parent company or a third party to
assure lease compliance and funding of remediation. The value of any of these
protections depends on the amount of the collateral and/or financial strength of
CPA(R):10 providing the protection. Such a contractual arrangement does not
eliminate CPA(R):10's statutory liability or preclude claims against CPA(R):10
by governmental authorities or persons who are not a party to such an
arrangement. Contractual arrangements in CPA(R):10's leases may provide a basis
for CPA(R):10 to recover from the tenant damages or costs for which CPA(R):10
has been found liable.
Industry Segment
CPA(R):10 operates in one industry segment, investment in net leased
real property. For the year ended December 31, 1998, three lessees represented
10% or more of the total operating revenue of CPA(R):10: Marriott International,
Inc.- 26%, Information Resources Incorporated- 17% and Titan Corporation - 13%.
These three tenant companies are publicly traded on the New York Stock Exchange
and file financial statements with the United States Securities and Exchange
Commission.
Factors Affecting Future Operating Results
The provisions of the Private Securities Litigation Reform Act of
1995 (the "Act") became effective in December 1995. The Act provides a "safe
harbor" for companies that make forward-looking statements providing prospective
information. The "safe harbor" under the Act relates to protection for companies
with respect to litigation filed on the basis of such forward-looking
statements.
CPA(R):10 wishes to take advantage of the "safe harbor" provisions
of the Act and is therefore including this section in its Annual Report on Form
10-K. The statements contained in this Annual Report, if not historical, are
forward-looking statements and involve risks and uncertainties which are
described below that could cause actual results to differ materially from the
results, financial or otherwise, or other expectations described in such
forward-looking statements. These statements are identified with the words
"anticipated," "expected," "intends," "seeks" or "plans" or words of similar
meaning. Therefore, forward-looking statements should not be relied upon as a
prediction of actual future results or occurrences.
CPA(R):10's future results may be affected by certain risks and
uncertainties including the following:
Single Tenant Leases Increases Exposure to Failure of Tenant
Because our net leased real properties are leased to single tenants,
the financial failure of or other default by a tenant resulting in the
termination of a lease is likely to cause a reduction in the operating cash flow
of CPA(R):10 and might decrease the value of the property leased to such tenant.
Dependence on Major Tenants
Revenues from several of our tenants and/or their guarantors
constitute a significant percentage of our consolidated rental revenues. Our
five largest tenants/guarantors, which occupy 20 properties, represent 73% of
annualized revenues. The default, financial distress or bankruptcy of any of the
tenants of such properties could cause interruptions in the receipt of lease
revenues from such tenants and/or result in vacancies in the respective
properties, which would reduce our revenues until the affected property is
re-let, and could decrease the ultimate sale value of each such property. Upon
the expiration of the leases that are currently in place, we may not be able to
re-lease the vacant property at a comparable lease rate or without incurring
additional expenditures in connection with such re-leasing.
We Can Borrow a Significant Amount of Funds
We have incurred, and may continue to incur, indebtedness (secured
and unsecured) in furtherance of our activities. Neither the certificate of
incorporation, bylaws nor any policy statement
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<PAGE> 6
formally adopted by the board of directors limits either the total amount of
indebtedness or the specified percentage of indebtedness (based upon the total
market capitalization of CPA(R):10) that may be incurred. Accordingly, we could
become more highly leveraged, resulting in increased risk of default on our
obligations and in an increase in debt service requirements which could
adversely affect our financial condition and results of operations and our
ability to pay distributions.
Possible Inability to Refinance Balloon Payment on Mortgage Debt
A significant number of our properties are subject to mortgages with
balloon payments. Scheduled balloon payments for the next five years are as
follows:
<TABLE>
<S> <C>
1999 - $ 8.4 million;
2000 - 14.4 million;
2001 - 7.2 million;
2002 - none; and
2003 - 6.5 million;
</TABLE>
Our ability to make such balloon payments will depend upon our ability either to
refinance the mortgage related thereto, invest additional equity in the property
or to sell the related property. Our ability to accomplish these goals will be
affected by various factors existing at the relevant time, such as the state of
the national and regional economies, local real estate conditions, available
mortgage rates, our equity in the mortgaged properties, our financial condition,
the operating history of the mortgaged properties and tax laws.
There are Uncertainties Relating to Lease Renewals and Re-letting of Space
We will be subject to the risks that, upon expiration of leases, the
premises may not be re-let or the terms of re-letting (including the cost of
concessions to tenants) may be less favorable than current lease terms. If we
are unable to re-let promptly all or a substantial portion of our properties or
if the rental rates upon such re-letting were significantly lower than current
rates, our net income and ability to make expected distributions to our
shareholders would be adversely affected. There can be no assurance that we will
be able to retain tenants in any of our properties upon the expiration of their
leases. Our scheduled lease expiration, as a percentage of annualized revenues
for the next five years, are as follows:
<TABLE>
<S> <C>
1999 - 0 %
2000 - 0 %
2001 - 5 %
2002 - 3 %
2003 - 0 %
</TABLE>
Possible Liability Relating to Environmental Matters
We own industrial and commercial properties and are subject to the
risk of liabilities under federal, state and local environmental laws. Some of
these laws could impose the following on CPA(R):10:
Responsibility and liability for the cost of investigation and removal or
remediation of hazardous substances released on our property, generally without
regard to our knowledge or responsibility of the presence of the contaminants;
Liability for the costs of investigation and removal or remediation of hazardous
substances at disposal facilities for persons who arrange for the disposal or
treatment of such substances; and
Potential liability for common law claims by third parties based on damages and
costs of environmental contaminants.
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<PAGE> 7
We May Suffer Uninsured Loss
We require most of our tenants to carry comprehensive liability, fire, and
extended coverage on their leased properties, with policy specifications and
insured limits customarily carried for similar properties. CPA(R):10 carries
similar insurance for those properties if the tenant is not required to do so.
In addition, CPA(R):10 carries contingent property and liability insurance.
There are certain types of losses (such as due to wars or acts of God), however,
that generally are not insured because they are either uninsurable or not
economically insurable. Should an uninsured loss or a loss in excess of insured
limits occur, we could lose capital invested in a property, as well as the
anticipated future revenues from a property, while remaining obligated for any
mortgage indebtedness or other financial obligations related to the property.
Any such loss would adversely affect our financial condition. We believe that
the properties are adequately insured in accordance with industry standards.
Changes in Market Interest Rates Could Cause Our Stock Price to Go Down
The trading prices of equity securities issued by real estate
companies have historically been affected by changes in broader market interest
rates, with increases in interest rates resulting in decreases in trading
prices, and decreases in interest rates resulting in increases in such trading
prices. An increase in market interest rates could therefore adversely affect
the trading prices of any of our equity securities.
We Face Intense Competition
The real estate industry is highly competitive. Our principal
competitors include national REITs, many of which are substantially larger and
have substantially greater financial resources than us.
The Value of our Real Estate is Subject to Fluctuation
We are subject to all of the general risks associated with the
ownership of real estate. In particular, we face the risk that rental revenue
from the properties will be insufficient to cover all corporate operating
expenses and debt service payments on indebtedness we incur. Additional real
estate ownership risks include:
o Adverse changes in general or local economic conditions;
o Changes in supply of or demand for similar or competing properties;
o Changes in interest rates and operating expenses;
o Competition for tenants;
o Changes in market rental rates;
o Inability to lease properties upon termination of existing leases;
o Renewal of leases at lower rental rates;
o Inability to collect rents from tenants due to financial hardship,
including bankruptcy;
o Changes in tax, real estate, zoning and environmental laws that may have
an adverse impact upon the value of real estate;
o Uninsured property liability;
o property damage or casualty losses;
o Unexpected expenditures for capital improvements or to bring properties
into compliance with applicable federal, state and local laws; and
o Acts of God and other factors beyond the control of our management.
Our Systems May Not Be Year 2000 Compliant
The "Year 2000 issue" refers to the series of problems that have
resulted or may result from the inability of certain computer software and
embedded processes to properly process dates. This shortcoming could result in
the failure of major systems or miscalculations causing major disruptions to
business operations. CPA(R):10 has no computer systems of its own, but is
dependent upon the systems maintained by an affiliate of its Advisor and certain
other third parties including its banks and transfer agent.
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<PAGE> 8
CPA(R):10 and its affiliates are actively evaluating their readiness
relating to the Year 2000 issue. In 1998, CPA(R):10, its Advisor, and affiliates
commenced an assessment of their local area network of personal computers and
related equipment and are in the process of replacing or upgrading the equipment
that has been identified as not being Year 2000 compliant. The program is
expected to be substantially completed in the second quarter of 1999. CPA(R):10
and its affiliates have also engaged outside consultants experienced in
diagnosing systems and software applications and addressing Year 2000 issues,
and with the help of these consultants currently are remediating as necessary.
At the same time, CPA(R):10, its Advisor, and affiliates are
evaluating their applications software, all of which are commercial "off the
shelf" programs that have not been customized. During 1998, CPA(R):10 commenced
a project to select a comprehensive integrated real estate accounting and asset
management software package to replace its existing applications. A commercial
Windows-based integrated accounting and asset management based application is
being tested and installation is scheduled to be completed during the third
quarter of 1999. This software has been designed to use four digits to define a
year. Because CPA(R):10's primary operations consist of investing in and
receiving rents on long-term net leases of real estate, while the failure of the
Advisor and its affiliates to correct fully Year 2000 issues could disrupt its
administrative operations, the resulting disruptions would not likely have a
material impact on CPA(R):10's results of operations, financial condition or
liquidity. Contingency plans to address potential disruptions are in the process
of being developed. CPA(R):10's share of costs associated with required
modifications to become Year 2000 compliant is not expected to be material to
CPA(R):10's financial position. CPA(R):10's share of the estimated total cost of
the Year 2000 project is expected to be approximately $65,000, of which $43,000
have been incurred to date.
Although CPA(R):10 believes that it will address its internal Year
2000 issues in a timely manner, there is a risk that the inability of
third-party suppliers and lessees to meet Year 2000 readiness issues could have
an adverse impact on CPA(R):10. CPA(R):10 and its affiliates have identified
their critical suppliers and are requiring that these suppliers communicate
their plans and progress in addressing Year 2000 readiness. The most critical
processes provided by third-party suppliers are CPA(R):10's bank and transfer
agent. CPA(R):10's operations may be significantly affected if such providers
are ineffective or untimely in addressing Year 2000 issues.
CPA(R):10 has contacted each of its lessees regarding Year 2000
readiness and has emphasized the need to address Year 2000 issues. Generally,
lessees are contractually required to maintain their leased properties in good
working order and to make necessary alterations, foreseen or unforeseen, to meet
their contractual obligations. Because of those obligations, CPA(R):10 believes
that the risks and costs of upgrading systems related to operations of the
buildings and that contain technology affected by Year 2000 issues will
generally be absorbed by lessees rather than CPA(R):10. The major risk to
CPA(R):10 is that Year 2000 issues have such an adverse effect on the financial
condition of a lessee that its ability to meet its lease obligations, including
the timely payment of rent, is impaired. In such an event, CPA(R):10 may
ultimately incur the costs for Year 2000 readiness at the affected properties.
The potential materiality of any impact is not known at this time.
We Depend on Key Personnel for Our Future Success
We depend on the efforts of the executive officers and key employees
of Carey Property Advisors. The loss of the services of these executive officers
and key employees could have a material adverse effect on our operations.
The risk factors may have affected, and in the future could affect,
our actual operating and financial results and could cause such results to
differ materially from those in any forward-looking statements. You should not
consider this list exhaustive. New risk factors emerge periodically, and we
cannot completely assure you that the factors we describe above list all
material risks to CPA(R):10 at any specific point in time. We have disclosed
many of the important risk factors discussed above in our previous filings with
the Securities and Exchange Commission.
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<PAGE> 9
Item 2. 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 Tuscon, 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)
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
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- -------------- ---------------- -------- -----------------
<S> <C> <C> <C>
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
Vacant Retail Stores Little Rock, Ownership of a 50%
-6 locations Hot Springs, interest in land
Texarakana and and buildings
Jonesboro, Arkansas; except as noted (1)(2)
Ruston, Louisiana;
Clarksdale,
Mississippi
KROGER CO. Supermarkets North Little Rock
- 2 locations and Conway, Arkansas Ownership of a 50%
interest in land
and buildings
except as noted (1)(2)
AFFILIATED FOODS Supermarkets Little Rock - 3, and Ownership of a 50%
SOUTHWEST, INC. - 4 locations Hope, Arkansas interest in land
and buildings
except as noted (1)(2)
CALCOMP TECH- Office/ Austin, Ownership of a 50%
NOLOGY, INC. Manufacturing Texas interest in land and
Facility buildings (1)
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> 11
The material terms of CPA(R):10's leases with its significant
tenants are summarized as of March 15, 1999 in the following table:
<TABLE>
<CAPTION>
Registrant's
Share Current Lease
Lease of Current Square Rent Per Expiration Renewal Ownership
Obligor Annual Rents Footage Sq.Ft.(1) (Mo/Year) Terms Interest
- ----------- ------------ ------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Information $2,916,014 252,000 $17.36 9/05 YES 66.67% general
Resources, partnership interest;
Inc. remaining limited
partnership interest
owned by Corporate
Property Associates 9
("CPA(R):9")
Titan 2,131,336 166,403 15.72 7/07 YES 81.46% general
Corporation partnership interest;
remaining limited
partnership interest
owned by CPA(R):9
New WAI 1,446,000 534,121 2.71 3/16 YES 100%
L.P./
Warehouse
Associates
EnviroWorks, 1,446,289 374,289 3.86 3/10 YES 100%
Inc.
Wal-Mart 1,013,389 454,251 4.46 1/08 YES 50% interest;
Stores, Inc. (2) remaining
interest owned
by CIP(TM)
Childtime 805,454 83,694 14.57 1/16 YES 66.07% interest;
Childcare remaining
Inc. interest owned
by CPA(R):9
Neodata 588,563 403,871 7.29 12/14 YES 20% interest;
Corporation remaining
interest owned
by CIP(TM)
K mart 617,844 278,839 2.22 5/01 YES 100%
Corporation (2)
</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 percentage of sales rents.
Item 3. Legal Proceedings.
As of the date hereof, CPA(R):10 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 1998 to a vote
of security holders, through the solicitation of proxies or otherwise.
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<PAGE> 12
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 29 of the Company's Annual Report contained in
Appendix A.
Item 6. Selected Financial Data.
Selected Financial Data are hereby incorporated by reference to page
1 of the Company's Annual Report contained in Appendix A.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Management's Discussion and Analysis are hereby incorporated by
reference to pages 2 to 6 of the Company's Annual Report contained in Appendix
A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk:
Approximately $56,251,000 of CPA(R):10's long-term debt bears
interest at fixed rates, and therefore the fair value of these instruments is
affected by changes in the market interest rates. The following table presents
principal cash flows based upon expected maturity dates of the debt obligations
and the related weighted-average interest rates by expected maturity dates for
the fixed rate debt. The interest rate on the variable rate debt as of December
31, 1998 ranged from the lenders prime rate plus 1% to LIBOR plus 4%.
<TABLE>
<CAPTION>
(in thousands)
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate 8,096 $22,847 $7,356 $996 $8,829 $8,127 $56,251 $59,663
Weighted
average
interest
rate 9.49% 10.65% 8.89% 9.89% 9.77% 9.94%
Variable rate 1,649 44 805 -- -- -- 2,498
</TABLE>
As of December 31, 1998, CPA(R):10 had no other material exposure to
market risk.
Item 8. Consolidated Financial Statements and Supplementary Data.
The following consolidated financial statements and supplementary
data are hereby incorporated by reference to pages 7 to 22 of the Company's
Annual Report contained in Appendix A:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1997 and 1998.
(iii) Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998.
(iv) Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1997 and 1998.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.
(vi) Notes to Consolidated Financial Statements.
- 12 -
<PAGE> 13
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
PART III
Item 10. Directors and Executive Officers of the Registrant.
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1999 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 11. Executive Compensation.
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1999 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 12. Security Ownership of Certain Beneficial Owners and Management.
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1999 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 the Company's definitive Proxy
Statement with respect to the Company's 1999 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> 14
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, 1997 and 1998.
Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1997 and 1998.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.
Notes to Consolidated Financial Statements.
The consolidated financial statements are hereby incorporated by reference
to pages 7 to 22 of the Company '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, 1997 and 1998.
Statements of Income for the years ended December 31, 1996, 1997 and 1998.
Statements of Shareholders' Equity for the years ended December 31, 1996,
1997 and 1998.
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998.
Notes to Financial Statements.
Schedule III -Real Estate and Accumulated Depreciation as of December 31,
1998 of Marcourt Investments Incorporated.
The financial statements of material equity investees is contained
herewith in Item 14 on pages 16 to 24.
The separate financial statements of material equity investees have been
audited as of December 31, 1998 and for the year then ended in accordance with
Rule 3-09 of Regulation S-X.
- 14 -
<PAGE> 15
(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,
1998.
Notes to Schedule III.
Schedule III and notes therein are hereby incorporated by reference
to pages 23 to 25 of the Company '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.
- 15 -
<PAGE> 16
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Marcourt Investments Incorporated:
In our opinion, the financial statements listed in the index appearing
under Item 14(a)(2) on page 14 present fairly, in all material respects, the
financial position of Marcourt Investments Incorporated at December 31, 1997 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the schedule of
real estate and accumulated depreciation listed in the index appearing under
Item 14(a)(2) on page 14 present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. 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 of
these statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 11, 1999
- 16 -
<PAGE> 17
MARCOURT INVESTMENTS INCORPORATED
BALANCE SHEETS
December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---- ----
ASSETS:
<S> <C> <C>
Net investment in direct
financing lease $148,698,339 $148,565,328
Cash and cash equivalents 95,864 36,034
Other assets 618,668 548,891
------------ ------------
Total assets $149,412,871 $149,150,253
============ ============
LIABILITIES:
Mortgage notes payable $101,218,909 $ 97,801,553
Accrued interest payable 1,468,491 1,410,542
Accounts payable and accrued expenses 110,259 80,774
Accounts payable to affiliates 3,500 7,000
State and local taxes payable 25,000 15,478
------------ ------------
Total liabilities 102,826,159 99,315,347
------------ ------------
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 3,700 3,700
Additional paid-in capital 36,996,300 36,996,300
Accumulated earnings in excess of dividends 9,586,712 12,834,906
------------ ------------
Total shareholders' equity 46,586,712 49,834,906
------------ ------------
Total liabilities and
shareholders' equity $149,412,871 $149,150,253
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 17 -
<PAGE> 18
MARCOURT INVESTMENTS INCORPORATED
STATEMENTS OF INCOME
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenue:
Interest income on
direct financing lease $17,722,059 $17,694,122 $17,693,839
Percentage rents 629,681 851,731 1,041,461
Other income 197,077 104,758 8,350
----------- ----------- -----------
18,548,817 18,650,611 18,743,650
----------- ----------- -----------
Expenses:
Interest on mortgages 11,055,265 10,729,644 10,391,810
General and administrative 44,019 68,238 69,812
State and local taxes (1,976) 29,426 34,718
----------- ----------- -----------
11,097,308 10,827,308 10,496,340
----------- ----------- -----------
Net income $ 7,451,509 $ 7,823,303 $ 8,247,310
=========== =========== ===========
Basic earnings per
share of common stock,
370,000 common shares
outstanding (Class A
and Class B) $20.14 $21.14 $22.29
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 18 -
<PAGE> 19
MARCOURT INVESTMENTS INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Additional Earnings in
Common Paid-in Excess of
Stock Capital Dividends Total
------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
Dividends (4,928,760) (4,928,760)
Net income 7,823,303 7,823,303
------ ----------- ----------- -----------
Balance, December 31, 1997 3,700 36,996,300 9,586,712 46,586,712
Dividends (4,999,116) (4,999,116)
Net income 8,247,310 8,247,310
------ ----------- ----------- -----------
Balance, December 31, 1998 $3,700 $36,996,300 $12,834,906 $49,834,906
====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 19 -
<PAGE> 20
MARCOURT INVESTMENTS INCORPORATED
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Rentals received from lessee $ 18,456,531 $ 18,678,581 $ 18,868,311
Interest paid on mortgage loans (11,011,673) (10,711,971) (10,379,916)
Interest received on cash and cash equivalents 6,680 6,158 2,350
General and administrative expenses paid (54,270) (60,988) (50,102)
Taxes paid, net of refunds received 35,686 (39,426) (44,240)
Other, net 48,607 (33,567) (39,761)
------------ ------------ ------------
Net cash provided by operating activities 7,481,561 7,838,787 8,356,642
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from easement 190,397 98,600
------------ ------------
Net cash provided by investing activities 190,397 98,600
------------ ------------
Cash flows from financing activities:
Dividends paid (4,793,133) (4,928,760) (4,999,116)
Payment of mortgage principal (2,785,599) (3,085,300) (3,417,356)
------------ ------------ ------------
Net cash used in financing activities (7,578,732) (8,014,060) (8,416,472)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 93,226 (76,673) (59,830)
Cash and cash equivalents, beginning of year 79,311 172,537 95,864
------------ ------------ ------------
Cash and cash equivalents, end of year $ 172,537 $ 95,864 $ 36,034
============ ============ ============
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 7,451,509 $ 7,823,303 $ 8,247,310
Adjustments to reconcile net income to net
cash provided by operating activities:
Cash receipts on direct financing lease
greater than revenues recognized 104,791 132,728 133,011
Other income from sale of easement (190,397) (98,600)
Amortization of deferred interest 74,095 72,079 69,843
Decrease (increase) in other assets 129,975 (66)
Increase (decrease) in accounts payable
and accrued expenses 35,881 (25,817) (29,485)
Decrease in accrued interest payable (30,503) (54,406) (57,949)
Decrease in state and local taxes
payable (91,290) (10,000) (9,522)
(Decrease) increase in accounts payable
to affiliates (2,500) (500) 3,500
------------ ------------ ------------
Net cash provided by operating
activities $ 7,481,561 $ 7,838,787 $ 8,356,642
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 20 -
<PAGE> 21
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. At December 31,
1998 and 1997, the Company had on deposit at two financial institutions
substantially all of its cash and cash equivalents.
Federal Income Taxes:
The Company is qualified as a REIT as defined under the Internal Revenue
Code as of December 31, 1998. 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.
- 21 -
<PAGE> 22
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.
Earnings Per Share:
The Company has a simple capital structure, that is, one with only common
stock outstanding. As a result, the Company has presented basic per-share
amounts in the statements of income.
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, 1996, 1997 and
1998, the Company incurred expenses of $5,789, $7,237 and $7,204 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, 1996, 1997 and 1998, the Company incurred expenses of $6,971,
$6,994 and $12,046 , 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>
1997 1998
---- ----
<S> <C> <C>
Minimum lease payments
receivable $249,575,900 $231,749,050
Unguaranteed residual value 146,045,268 146,045,268
------------ ------------
395,621,168 377,794,318
Less, unearned income 246,922,829 229,228,990
------------ ------------
$148,698,339 $148,565,328
============ ============
</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
1999 through 2003 and aggregate $231,749,050 through 2011.
- 22 -
<PAGE> 23
MARCOURT INVESTMENTS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
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. $62,767,271 of the mortgage notes bear interest
at a rate of 9.94% per annum with the remaining $35,034,282 bearing interest at
a rate of 11.18% per annum. The mortgage will fully amortize in November 2011.
Scheduled principal payments during the five years following December 31,
1998 and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 3,785,273
2000 4,192,937
2001 4,644,658
2002 5,145,213
2003 5,699,903
Thereafter 74,333,569
------------
Total $ 97,801,553
============
</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, 1998,
dividends paid per share were reported as follows for income tax purposes:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Ordinary income $10.38 $11.46 $12.60
Return of capital 2.57 1.86 .91
------ ------ ------
$12.95 $13.32 $13.51
====== ====== ======
</TABLE>
Dividends of $989,398 and $1,619 payable to Class A and Class B
shareholders, respectively, were declared and paid in February 1999.
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,
1997 and 1998 is approximately $115,568,000 and $113,945,000, respectively.
Based on projections of settlement costs, including prepayment charges, the
Company would not realize a benefit from refinancing the existing mortgage debt.
- 23 -
<PAGE> 24
MARCOURT INVESTMENTS INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1998
<TABLE>
<CAPTION>
Initial Cost to
Company Costs
--------------------------------- Capitalized Increase In
Personal Subsequent to Net
Description Encumbrances Land Property Buildings Acquisition (a) Investment (b) Total (c) Date Acquired
----------- ------------ ---- --------- --------- --------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Direct Financing
Method:
Hotels leased to
Marriott Inter- February 10,
national, Inc. $97,801,553 $27,559,637 $14,199,292 $104,241,071 $45,268 $2,520,060 $148,565,328 1992
=========== =========== =========== ============ ======= ========== ============
</TABLE>
(a) Consists of 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, 1998, the aggregate cost of real estate owned by Marcourt
Investments Incorporated for Federal income tax purposes is $146,045,268.
- 24 -
<PAGE> 25
(a) 3. Exhibits:
The following exhibits are filed as part of this Report. Documents
other than those designated as being filed with this Form 10-K are incorporated
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 Mountain to Registrant's Post
States Telephone and Telegraph Company ("Mountain Effective Amendment No. 1
Bell") dated December 16, 1986) from H MA to to Form S-11
Registrant dated September 18, 1990.
10.6 Agreement of Exchange and Sale ("Texas Agreement") Filed as Exhibit 10(F)(1)
by and among Joanne Talenfeld Rubinoff, both to Registrant's Post
individually and as Trustee of the Murray A. Effective Amendment No. 1
Talenfeld Residuary Trust (collectively "Denton Seller"), to Form S-11
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>
- 25 -
<PAGE> 26
<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"), a to Registrant's Post
Texas corporation and wholly-owned subsidiary of Effective Amendment No. 1
Registrant, dated October 19, 1990. to Form S-11
10.10 Purchase and Sale Agreement between HRE Properties Filed as Exhibit 10(G)(1)
("HRE") and Registrant regarding properties in to Registrant's Post
Citrus Heights, California (the "K mart California Effective Amendment No. 1
Property) and Drayton Plains, Michigan to Form S-11
(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 Agreement to Registrant's Post
between HRE and S.S. Kresge Company (n/k/a K mart Effective Amendment No. 1
Corporation) ("K mart") for property located in to Form S-11
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 England. to Registrant's Post
Effective Amendment No. 1
to Form S-11
</TABLE>
- 26 -
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
10.17 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
10.18 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. ("CPA(R):9") Effective Amendment No. 2
for the Chandler, Arizona Gerber property. to Form S-11
10.19 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
10.20 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
10.21 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
10.22 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
10.23 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
10.24 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
10.25 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
10.26 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
</TABLE>
- 27 -
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
10.27 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
10.28 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
10.29 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
10.30 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
10.31 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
10.32 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
10.33 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
10.34 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, Theodore Effective Amendment No. 2
Tumminello, Chicago Title Agency of Arizona, to Form S-11
Chicago Title Company and Pan American.
10.35 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.
</TABLE>
- 28 -
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
10.36 $11,700,000.00 Promissory Note dated July 9, 1991 Filed as Exhibit 10.2
from Torrey Pines as Borrower to The Northwestern to Registrant's Form 8-K
Mutual Life Insurance Company ("Northwestern"), as Lender. dated July 25, 1991
10.37 Deed of Trust and Security Agreement, dated July 9, 1991 Filed as Exhibit 10.3
between Torrey Pines and Northwestern. to Registrant's Form 8-K
dated July 25, 1991
10.38 Absolute Assignment of Leases and Rents, dated July 9, Filed as Exhibit 10.4
1991 from Torrey Pines as Assignor to Northwestern as to Registrant's Form 8-K
Assignee. dated July 25, 1991
10.39 Indemnity Agreement dated July 9, 1991 between Torrey Filed as Exhibit 10.5
Pines, CPA(R):9 and Registrant. to Registrant's Form 8-K
dated July 25, 1991
10.40 Amended Advisory Agreement dated September 14, 1990. Filed as Exhibit 10(B)(2)
to Registrant's Post
Effective Amendment No. 3
to Form S-11
10.41 Lease between Marcourt Investments Filed as Exhibit 10.1
Incorporated ("Marcourt") and CTYD to Registrant's Form 8-K
III Corporation ("CTYD"). dated February 24, 1992
10.42 Series A-2 9.94% Secured Note from Marcourt to the Filed as Exhibit 10.2
registered owner of note (Various Series A-1 9.94% Notes to Registrant's Form 8-K
in an aggregate amount of $38,750,000, substantially in the dated February 24, 1992
form of the Series A-1 9.94% Note attached, were issued by
Marcourt in connection with the Financing).
10.43 Series A-2 11.18% Secured Note from Marcourt to the Filed as Exhibit 10.3
registered owner of the note (Various notes in an to Registrant's Form 8-K
aggregate amount of $70,250,000, substantially in the dated February 24, 1992
form of the Series A-2 11.18% Note attached, were issued
by Marcourt in connection with the Financing.
10.44 Indenture between Marcourt, as borrower, to First Fidelity Filed as Exhibit 10.4
Bank, National Association, New Jersey, as trustee ("Trustee"). to Registrant's Form 8-K
dated February 24, 1992
10.45 Real Estate Deed of Trust from Marcourt to Albuquerque Title Filed as Exhibit 10.5
Company, as trustee for benefit of the Trustee filed in New to Registrant's Form 8-K
Mexico, securing Series A-1 9.94% Notes and Series A-2 11.18% dated February 24, 1992
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>
- 29 -
<PAGE> 30
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
10.46 Second Real Estate Deed of Trust from Marcourt to Albuquerque Filed as Exhibit 10.6
Title Company as trustee for the benefit of the Trustee, to Registrant's Form 8-K
filed in New Mexico, securing all Series A-1 9.94% Notes and dated February 24, 1992
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).
10.47 Guaranty from the Registrant, Carey Institutional Properties Filed as Exhibit 10.7
Incorporated ("CPA(R):11"), Trammell Crow Equity Partners II, to Registrant's Form 8-K
Ltd. ("TCEP II") and PA/First Plaza Limited Partnership dated February 24, 1992
("First Plaza") as guarantors, to the Trustee.
10.48 Shareholders Agreement between the Registrant, CPA(R):11, Filed as Exhibit 10.8
TCEP II and First Plaza. to Registrant's Form 8-K
dated February 24, 1992
10.49 Assignment and Assumptions of Lease Agreement for property Filed as Exhibit 10.10
located in Ft. Smith, Arkansas. to Registrant's Form 8-K
dated February 24, 1992
10.50 Assignment and Assumptions of Lease Agreement for property Filed as Exhibit 10.12
located in Broken Arrow, Oklahoma. to Registrant's Form 8-K
dated February 24, 1992
10.51 Assignment and Assumptions of Lease Agreement for property Filed as Exhibit 10.13
located in Weatherford, Oklahoma. to Registrant's Form 8-K
dated February 24, 1992
10.52 Assignment and Assumptions of Lease Agreement for property Filed as Exhibit 10.14
located in Center, Texas. to Registrant's Form 8-K
dated February 24, 1992
10.53 Assignment and Assumptions of Lease Agreement for property Filed as Exhibit 10.15
located in Groves, Texas. to Registrant's Form 8-K
dated February 24, 1992
10.54 Assignment and Assumptions of Lease Agreement for property Filed as Exhibit 10.16
located in Silsbee, Texas. to Registrant's Form 8-K
dated February 24, 1992
</TABLE>
- 30 -
<PAGE> 31
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
10.55 Assignment and Assumptions of Lease Agreement for property Filed as Exhibit 10.17
located in Vidor, Texas. to Registrant's Form 8-K
dated February 24, 1992
10.56 Lease Amendments for the Ft. Smith, Arkansas and Weatherford, Filed as Exhibit 10.18
Oklahoma properties. to Registrant's Form 8-K
dated February 24, 1992
10.57 Promissory Note from subsidiaries of the Registrant and Filed as Exhibit 10.19
CPA(R):11 to The New England Mutual Life Insurance Company to Registrant's Form 8-K
("New England"). dated February 24, 1992
10.58 Mortgage/Deed of Trust from subsidiaries of the Registrant Filed as Exhibit 10.20
and CPA(R):11 to New England encumbering the property in to Registrant's Form 8-K
Ft. Smith, Arkansas. dated February 24, 1992
10.59 Mortgage/Deed of Trust from subsidiaries of the Registrant Filed as Exhibit 10.21
and CPA(R):11 to New England encumbering the property in to Registrant's Form 8-K
Weatherford, Oklahoma. dated February 24, 1992
10.60 Mortgage/Deed of Trust from subsidiaries of the Registrant Filed as Exhibit 10.22
and CPA(R):11 to New England encumbering the properties in to Registrant's Form 8-K
Center, Groves, Silsbee, and Vidor, Texas. dated February 24, 1992
10.61 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.
10.62 Co-Tenancy Agreement between QRS 10-9 and QRS 11-2. Filed as Exhibit 10.2
to Registrant's Form 8-K
dated April 3, 1992
10.63 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
10.64 Mortgage/Deed of Trust from QRS 10-9 and QRS 11-2 Filed as Exhibit 10.8
to Second Lender for the following jurisdictions: to Registrant's Form 8-K
dated April 3, 1992
a. Arkansas
b. Louisiana
c. Mississippi
10.65 Purchase and Sale Agreement between Neoserv (CO) Filed as Exhibit 10.1
QRS 10-13, Inc. ("QRS:10") and Neoserv (CO) to Registrant's Form 8-K
QRS 11-8, Inc. ("QRS:11) as purchasers and Homart dated October 29, 1992
Development Co. ("Homart").
10.66 Co-Tenancy Agreement between QRS:10 and QRS:11. Filed as Exhibit 10.5
to Registrant's Form 8-K
dated October 29, 1992
</TABLE>
- 31 -
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
10.67 Lease from QRS:10 and QRS:11 as lessor and Neodata Filed as Exhibit 10.6
Services, Inc. ("Neodata") as lessee. to Registrant's Form 8-K
dated October 29, 1992
10.68 Guaranty Agreement from Neodata Corporation as guarantor Filed as Exhibit 10.7
to QRS:10 and QRS:11. to Registrant's Form 8-K
dated October 29, 1992
10.69 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
10.70 Deed of Trust from QRS:10 and QRS:11 for benefit of Neodata. Filed as Exhibit 10.9
to Registrant's Form 8-K
dated October 29, 1992
10.71 Construction Contract between QRS:10 and QRS:11 as owners Filed as Exhibit 10.10
and Austin Commercial, Inc. ("Austin") as contractor. to Registrant's Form 8-K
dated October 29, 1992
10.72 Guaranty from Austin to QRS:10 and QRS:11. Filed as Exhibit 10.11
to Registrant's Form 8-K
dated October 29, 1992
10.73 Construction Agency Agreement between QRS:10 and QRS:11 Filed as Exhibit 10.12
as owners and Neodata as agent. to Registrant's Form 8-K
dated October 29, 1992
10.74 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
21.1 Subsidiaries of Registrant as of March 24, 1999 Filed herewith
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 Deed from Denton Seller to Denton QRS for the Filed as Exhibit 28(B)(5)
</TABLE>
- 32 -
<PAGE> 33
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
K mart Texas Property dated October 19, 1990. to Registrant's Post
Effective Amendment No. 1
to Form S-11
28.5 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
28.6 The K mart California Lease. Filed as Exhibit 28(C)(1)
to Registrant's Post
Effective Amendment No. 1
to Form S-11
28.7 The K mart Michigan Lease. Filed as Exhibit 28(C)(2)
to Registrant's Post
Effective Amendment No. 1
to Form S-11
28.8 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
28.9 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), Inc. Effective Amendment No. 1
("QRS 10-1"), as Assignees. to Form S-11
28.10 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
28.11 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 and to Form S-11
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.
28.12 Bill of Sale dated September 25, 1990 from 564 Filed as Exhibit 28(D)(5)
Randolph to Randolph/Clinton; Bill of Sale dated to Registrant's Post
September 25, 1990 from NCC to Randolph/Clinton; Bill Effective Amendment No. 1
of Sale dated September 25, 1990 from Information to Form S-11
Resources, Inc. ("IRI") to 564 Randolph.
28.13 $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
</TABLE>
- 33 -
<PAGE> 34
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
28.14 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
28.15 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
28.16 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
28.17 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
28.18 General Warranty Deed dated July 9, 1991 from Titan Filed as Exhibit 28.1
Linkabit Corporation to Torrey Pines. to Registrant's Form 8-K
dated July 25, 1991
28.19 Bill of Sale dated July 9, 1991 from Titan Linkabit Filed as Exhibit 28.2
Corporation to Torrey Pines. to Registrant's Form 8-K
dated July 25, 1991
28.20 Guaranty from Harvest Foods, Inc., a Delaware Filed as Exhibit 28.1
corporation ("Harvest"), to QRS 10-9 and QRS 11-2. to Registrant's Form 8-K
dated April 3, 1992
28.21 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
28.22 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
28.23 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
28.24 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
</TABLE>
- 34 -
<PAGE> 35
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- -------- ----------- --------------
<S> <C> <C>
28.25 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
28.26 Deed from Harvest to QRS 10-9 and QRS 11-2 for Store 4426. Filed as Exhibit 28.7
to Registrant's Form 8-K
dated April 3, 1992
28.27 Deed of Improvements from Harvest to QRS 10-9 and Filed as Exhibit 28.8
QRS 11-2 for: to Registrant's Form 8-K
a. Store 4281 dated April 3, 1992
b. Store 4409
28.28 Leasehold Deed of Trust from Neodata for benefit of Filed as Exhibit 28.1
General Electric Capital Corporation. to Registrant's Form 8-K
dated October 29, 1992
28.29 Prospectus of Registrant Filed as Exhibit 28.38
dated June 11, 1990. to Registrant's Form 10-K/A
dated September 24, 1993
28.30 Supplement dated August 14, 1990 Filed as Exhibit 28.39
to Prospectus dated June 11, 1990. to Registrant's Form 10-K/A
dated September 24, 1993
28.31 Supplement dated January 17, 1991 Filed as Exhibit 28.40
to Prospectus dated June 11, 1990. to Registrant's Form 10-K/A
dated September 24, 1993
28.32 Supplement dated March 26, 1991 Filed as Exhibit 28.41
to Prospectus dated June 11, 1990. to Registrant's Form 10-K/A
dated September 24, 1993
</TABLE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1998 the Company was not
required to file any reports on Form 8-K.
- 35 -
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company 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
03/24/99 BY: /s/ Steven M. Berzin
- --------------- -----------------------------------------
Date Steven M. Berzin
Executive Vice President, Chief Legal
Officer and Chief Financial 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
Company and in the capacities and on the dates indicated.
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
03/24/99 BY: /s/ William P. Carey
- --------------- -----------------------------------------
Date William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
03/24/99 BY: /s/ H. Augustus Carey
- --------------- -----------------------------------------
Date H. Augustus Carey
President
03/24/99 BY: /s/ Ralph G. Coburn
- --------------- -----------------------------------------
Date Ralph G. Coburn
Director
03/24/99 BY: /s/ George E. Stoddard
- --------------- -----------------------------------------
Date George E. Stoddard
Director
03/24/99 BY: /s/ William Ruder
- --------------- -----------------------------------------
Date William Ruder
Director
03/24/99 BY: /s/ Warren G. Wintrub
- --------------- -----------------------------------------
Date Warren G. Wintrub
Director
03/24/99 BY: /s/ Steven M. Berzin
- --------------- -----------------------------------------
Date Steven M. Berzin
Executive Vice President, Chief Legal
Officer and Chief Financial Officer
(Principal Financial Officer)
03/24/99 BY: /s/ Claude Fernandez
- --------------- -----------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
- 36 -
<PAGE> 37
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
AND SUBSIDIARIES
1998 ANNUAL REPORT
- 25 -
<PAGE> 38
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 16,386 $ 16,132 $ 15,506 $ 14,666 $ 14,462
Income (loss) before
extraordinary items 5,501 (1,076) 2,990 3,735 3,842
Net income (loss) 5,248 (1,076) 2,990 7,585 5,480
Basic earnings (loss)
per share before .76 (.15) .41 .52 .52
extraordinary items (2)
Basic earnings (loss)
per share (2) .73 (.15) .41 1.05 .74
Dividends paid 5,951 5,976 5,982 5,294 5,232
Dividends declared
per share .82 .83 .83 .73 .71
Payment of mortgage
principal (1) 802 931 1,142 1,172 1,288
BALANCE SHEET DATA:
Total consolidated
assets 145,124 141,438 127,755 121,039 119,256
Long-term
obligations (3) 69,679 71,527 60,042 58,749 49,003
</TABLE>
(1) Represents scheduled mortgage principal amortization paid.
(2) The Company has a simple equity capital structure with only common stock
outstanding. As a result, the Company has presented basic per share
amounts only.
(3) Represents mortgage obligations due after more than one year.
- 1 -
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Overview
The following discussion and analysis of financial condition and results
of operations of Corporate Property Associates 10 Incorporated ("CPA(R):10")
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 1998. The following discussion
includes forward looking statements. Forward looking statements, which are based
on certain assumptions, describe future plans, strategies and expectations of
CPA(R):10. Such statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievement of
CPA(R):10 to be materially different from the results of operations or plan
expressed or implied by such forward looking statements. Accordingly, such
information should not be regarded as representations by CPA(R):10 that the
results or conditions described in such statements or objectives and plans of
CPA(R):10 will be achieved.
CPA(R):10 was formed in 1990 and used the proceeds from its public
offering of stock along with limited recourse mortgage financing to purchase
properties and enter into long-term net leases with corporate tenants. A
majority of CPA(R):10's net leases have been structured to place certain
economic burdens of ownership on these corporate tenants by requiring them to
pay the costs of maintenance and repair, insurance and real estate taxes. The
leases have generally been structured to include periodic rent increases that
are stated or based on increases in the consumer price index or, for retail
properties, provide for additional rents based on sales in excess of a specified
base amount.
As a Real Estate Investment Trust ("REIT"), CPA(R):10 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. A major objective of CPA(R):10 is to use the
cash flow from its net leases to fund dividends to shareholders at a rate in
excess of distributions needed to retain REIT status and meet its scheduled debt
service commitments on CPA(R):10's mortgage debt.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. Management evaluates the performance of
its portfolio of properties as a whole, rather than by identifying discrete
operating segments. This evaluation includes assessing CPA(R):10's ability to
meet distribution objectives, increase the dividend and increase value by
seeking opportunities such as refinancing mortgage debt at lower rates of
interest, restructuring leases or paying off lenders at a discount to the face
value of the outstanding mortgage balance.
Results of Operations
Net income for the years 1998 and 1997 is not fully comparable due to the
benefits realized from extraordinary gains in both years and other nonrecurring
items in 1997. Excluding the extraordinary items, the effect of sales and
several nonrecurring items reflected as other income in the accompanying
consolidated financial statements, income for 1998 decreased by approximately
$127,000 or 3%, compared with 1997. The decrease in income was primarily due to
increases in property and general administrative expenses, and, to a lesser
extent, a decrease in other interest income. These effects were partially offset
by a decrease in interest expense and an increase in income from CPA(R):10's
equity investment.
The increase in property expenses primarily resulted from the residual
effects of the termination of the Harvest Foods, Inc. master lease in March
1997. As of December 31, 1998, six former Harvest Foods properties remain vacant
and CPA(R):10 has absorbed certain costs, such as real estate taxes and ground
lease expense, that had been obligations of the former tenant. Because of higher
valuations for the entire portfolio, asset management fees increased and that
increase also contributed to the increase in property expenses. The increase in
general and administrative expenses reflected CPA(R):10's share of consulting
costs related to Year 2000 remediation and a
- 2 -
<PAGE> 40
project to make necessary upgrades to management information systems. The
decrease in other interest income was due to using cash balances in 1997 to
prepay the first mortgage on the Harvest Foods properties at a substantial
discount and to fund a balloon payment on a matured loan on two properties
leased to Kmart Corporation. The decrease in interest expense was due, in part,
to the benefit of from paying off the two mortgage loans in 1997 as well as to
the continuing amortization of CPA(R):10's other mortgage loans. The increase in
equity income was the result of higher percentage rents from CPA(R):10's
investment in a net lease for 13 Courtyard by Marriott hotel properties and
decreasing mortgage interest on its loans.
The extraordinary gain in 1998 resulted from the extinguishment of
debt as the result of paying off the subordinated mortgage loan on the former
Harvest Foods properties and unpaid interest thereon in December 1998 at a
substantial discount. The lender accepted a payment of $250,000 from CPA(R):10
in settlement of a $1,500,000 loan and approximately two years of unpaid
interest. By eliminating the remaining mortgages on the Harvest Foods
properties, CPA(R):10 has greater flexibility in remarketing six vacant
properties for lease or sale.
Net income for 1997 increased by $4,595,000 as compared with 1996. Of such
increase for 1997, $3,423,000 reflected an extraordinary item from the
recognition of a gain on a 1996 transaction, which gain had been deferred
pending the outcome of other events, and $427,000 was from the extinguishment of
debt resulting from paying off the first priority mortgage on the Harvest Foods
properties. The results for the year ended December 31, 1996 include the effect
of a noncash charge of $1,753,000 for the writedown of the former Harvest Foods
properties to their estimated fair value and gains of $1,052,000 from sales of
real estate. Excluding these items as well as other income of $137,000, gains on
sales of $391,000 and an accrual for subordinated disposition fees of $753,000
in 1997, income for 1997, as adjusted, would have reflected an increase of
$268,000 from 1996. The increase was attributable to lower interest expense and
the continuing trend of increased earnings from CPA(R):10's equity investment in
the Marriott hotel properties. These effects were partially offset by a decrease
in lease revenues that resulted from the termination of the Harvest Foods lease.
Lease revenues (rental income from operating leases and interest income
from direct financing leases) were stable for 1998 as compared with 1997. Annual
cash flow has benefited from the $59,000 rent increase with EnviroWorks, Inc.
that went into effect in April 1998. Rent increases are scheduled in 2000 on the
Information Resources, Inc., Childtime Childcare, Inc. and Titan Corporation
leases and in 2001 on the Warehouse Associates lease. CPA(R):10 will realize
additional operating cash flow in the future if CPA(R):10 is able to re-lease
any or all of the six vacant properties formerly leased to Harvest Foods, and if
any new leases at these properties require the tenant to pay most or all of the
property expenses. Solely as a result of paying off the subordinated mortgage on
the former Harvest Foods properties, annual interest expense will decrease by
$195,000. CalComp Technology, Inc., a tenant of a property in Austin, Texas, has
announced its intention to liquidate and stopped paying rent in January 1999. A
complaint has been filed against CalComp, and CPA(R):10 is seeking a judgment
for all unpaid and future rents plus other associated costs. CPA(R):10 has also
begun settlement discussions with CalComp in recognition of the fact that it is
likely to take several months to obtain a judgment. There is no assurance that
any settlement will be reached. Annual cash flow (rent less mortgage debt
service) from the CalComp property is approximately $223,000. A potential lease
termination settlement with CalComp could partially offset a reduction in rent
from a replacement tenant as market rates for the property are less than
CalComp's rent. CPA(R):10 expects that a substantial remarketing effort will be
needed to find a new tenant.
Because of the long-term nature of CPA(R):10's net leases, inflation and
changing prices have not unfavorably affected CPA(R):10's revenues and net
income. CPA(R):10's net leases have rent increases based on formulas indexed to
increases in the Consumer Price Index, sales overrides, or other periodic
increases which are designed to increase lease revenues in the future.
Financial Condition
CPA(R):10 uses the cash flow from its net leases to fund dividends to
shareholders and pay scheduled debt service payments on its limited recourse
mortgage debt. CPA(R):10 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 CPA(R):10's real estate portfolio. Cash
balances decreased by $838,000 in 1998. A portion of the decrease resulted from
the prepayment of a mortgage loan at a discount and the exercise of stock
warrants to purchase common stock of a tenant company.
- 3 -
<PAGE> 41
Cash provided by operations of $7,068,000, which includes the interest
component of debt service, was used to fund dividend payments of $5,232,000 and
pay scheduled mortgage principal payments of $1,288,000. During 1998, the
shareholders of CPA(R):10 approved a proposal to allow CPA(R):10, subject to the
consent of the Advisor, to pay all or a portion of its asset management and
performance fees in common stock in lieu of a cash payment. As a result of this
amendment to the Advisory Agreement, CPA(R):10 converted liabilities to equity
for unpaid performance fees of $4,371,000 that had been deferred by the Advisor.
CPA(R):10 issued the Advisor 416,264 shares of its common stock at a price of
$10.50 per share, with such per share price determined by an independent
valuation of CPA(R):10's assets. This has allowed CPA(R):10 to enhance its
liquidity by settling obligations in stock and to strengthen its balance sheet
with the effect of more strongly aligning the interests of the Advisor with
those of the shareholders. The Advisor is required to defer collection of
performance fees for any period in which the cumulative dividend return is below
8% (based on the initial issuance price of $10) and cannot collect the fee until
this cumulative return criterion is reached again. As of December 31, 1998,
deferred performance fees, which are not contractually due because the
cumulative return is below 8%, amount to $989,000.
During 1998, CPA(R):10 exercised its warrants to purchase 81,460 shares of
common stock in Titan Corporation, a tenant whose shares are publicly traded on
the New York Stock Exchange. The warrants were granted to CPA(R):10 in
connection with structuring the sale leaseback of the Titan property in 1991 and
had an exercise price of $3.50 per share ($285,110). As of March 5, 1999, the
quoted value of a share of Titan was $5 7/16. An integral part of CPA(R):10's
acquisition strategy is to seek such equity participations when structuring or
restructuring transactions. In 1997, CPA(R):10 received $286,000 in connection
with the exercise and the sale of shares in a closely held tenant company,
EnviroWorks, Inc. The exercise occurred because of a change in control in the
tenant company's ownership. The lease had been structured to require the consent
of CPA(R):10 to a change in control. An additional $254,000 from that warrant
sale remains in escrow and will be released upon satisfaction of certain
conditions.
CPA(R):10 currently has no commitments to fund major capital outlays at
its properties. CPA(R):10's leases with Kmart require that CPA(R):10 fund
certain improvements from time to time. In addition, CPA(R):10 will consider
funding tenant improvements at its six vacant properties if necessary to
complete a long-term lease.
In December 1998, CPA(R):10 used $250,000 to satisfy a $1,500,000 mortgage
debt on the former Harvest properties. As noted, CPA(R):10 expects this to
provide greater flexibility in remarketing the properties because CPA(R):10 can
consider selling the properties. A balloon payment of $6,900,000 on a limited
recourse loan collateralized by six properties leased to Wal-Mart Stores, Inc.
which had been scheduled to be paid in January 1999 has been extended until May
1999 at which time a balloon payment of $6,855,000 will be due. CPA(R):10 is
currently seeking to refinance this loan. In addition, a balloon payment of
$1,574,000 is scheduled on the mortgage loan on the CalComp Technology property
in August 1999. The CalComp loan is currently in default, but the lender has
continued to accept monthly debt service payments and has not sought to
accelerate the loan. CPA(R):10 has kept the mortgage current based on
management's conclusion that the estimated value of the property is in excess of
the loan balance.
CPA(R):10's financing strategy has been to purchase substantially all of
its properties with a combination of equity and limited recourse mortgage debt.
A lender on a limited recourse mortgage loan has recourse only to the property
collateralizing such debt and not to any of CPA(R):10's other assets. This
strategy has allowed CPA(R):10 to diversify its portfolio of properties and,
thereby, limit the risk. In the event that a balloon payment comes due,
CPA(R):10 may seek to refinance the loan, restructure the debt with existing
lenders, evaluate its ability to pay the balloon payment from its cash reserves
or sell the property and use the proceeds to satisfy the mortgage debt.
CPA(R):10 currently does not have sufficient cash reserves to pay off the loans.
It does, however, have unused borrowing capacity as several of its properties
are unleveraged, including a property leased to Safeway Stores Incorporated and
its three Kmart retail properties. If necessary, CPA(R):10 could seek recourse
financing as well.
Two tenants, Warehouse Associates and Neodata Corporation have purchase
options, exercisable in November 2000 and March 2001, respectively. Both options
are exercisable at the greater
- 4 -
<PAGE> 42
of fair market value, as defined in the leases, and CPA(R):10's purchase price
for the properties. CPA(R):10 has not received any indication whether either
tenant intends to exercise its option. Annual cash flow from the Warehouse
Associates and Neodata properties is $565,000 and $262,000, respectively.
The ability of CPA(R):10 to sustain its current level of cash flow is
subject to the ability of CPA(R):10 to successfully lease or sell six vacant
properties that were leased to Harvest Foods and re-lease the CalComp property.
In April 1997, CPA(R):10 reduced its dividend rate in order to maintain an
appropriate level of cash reserves. Since this reduction, the Board of Directors
has subsequently approved consecutive increases in the quarterly dividend rate.
Management projects that the dividend rate can continue to increase at moderate
levels. This is subject, however, to the resolution of uncertainties related to
the remarketing of the CalComp and former Harvest Foods properties.
In connection with the purchase of its properties, CPA(R):10 requires the
sellers to perform environmental reviews. Management believes, based on the
results of such reviews, that CPA(R):10'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, CPA(R):10's leases generally
require tenants to indemnify CPA(R):10 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
CPA(R):10 to extend leases until such time as a tenant has satisfied its
environmental obligations. Certain of the leases allow CPA(R):10 to require
financial assurances from tenants such as performance bonds or letters of credit
if the costs of remediating environmental conditions are, in the estimation of
CPA(R):10, in excess of specified amounts. Accordingly, Management believes that
the ultimate resolution of any environmental matter will not have a material
adverse effect on CPA(R):10's financial condition, liquidity or results of
operations.
The "Year 2000 issue" refers to the series of problems that have resulted
or may result from the inability of certain computer software and embedded
processes to properly process dates. This shortcoming could result in the
failure of major systems or miscalculations causing major disruptions to
business operations. CPA(R):10 has no computer systems of its own, but is
dependent upon the systems maintained by an affiliate of its Advisor and certain
other third parties including its banks and transfer agent.
CPA(R):10 and its affiliates are actively evaluating their readiness
relating to the Year 2000 issue. In 1998, CPA(R):10, its Advisor, and affiliates
commenced an assessment of their local area network of personal computers and
related equipment and are in the process of replacing or upgrading the equipment
that has been identified as not being Year 2000 compliant. The program is
expected to be substantially completed in the second quarter of 1999. CPA(R):10
and its affiliates have also engaged outside consultants experienced in
diagnosing systems and software applications and addressing Year 2000 issues,
and with the help of these consultants currently are remediating as necessary.
At the same time, CPA(R):10, its Advisor, and affiliates are evaluating
their applications software, all of which are commercial "off the shelf"
programs that have not been customized. During 1998, CPA(R):10 commenced a
project to select a comprehensive integrated real estate accounting and asset
management software package to replace its existing applications. A commercial
Windows-based integrated accounting and asset management based application is
being tested and installation is scheduled to be completed during the third
quarter of 1999. This software has been designed to use four digits to define a
year. Because CPA(R):10's primary operations consist of investing in and
receiving rents on long-term net leases of real estate, while the failure of the
Advisor and its affiliates to correct fully Year 2000 issues could disrupt its
administrative operations, the resulting disruptions would not likely have a
material impact on CPA(R):10's results of operations, financial condition or
liquidity. Contingency plans to address potential disruptions are in the process
of being developed. CPA(R):10's share of costs associated with required
modifications to become Year 2000 compliant is not expected to be material to
CPA(R):10's
- 5 -
<PAGE> 43
financial position. CPA(R):10's share of the estimated total cost of the Year
2000 project is expected to be approximately $65,000, of which $43,000 have been
incurred to date.
Although CPA(R):10 believes that it will address its internal Year 2000
issues in a timely manner, there is a risk that the inability of third-party
suppliers and lessees to meet Year 2000 readiness issues could have an adverse
impact on CPA(R):10. CPA(R):10 and its affiliates have identified their critical
suppliers and are requiring that these suppliers communicate their plans and
progress in addressing Year 2000 readiness. The most critical processes provided
by third-party suppliers are CPA(R):10's banks and transfer agent. CPA(R):10's
operations may be significantly affected if such providers are ineffective or
untimely in addressing Year 2000 issues.
CPA(R):10 has contacted each of its lessees regarding Year 2000 readiness
and has emphasized the need to address Year 2000 issues. Generally, lessees are
contractually required to maintain their leased properties in good working order
and to make necessary alterations, foreseen or unforeseen, to meet their
contractual obligations. Because of those obligations, CPA(R):10 believes that
the risks and costs of upgrading systems related to operations of the buildings
and that contain technology affected by Year 2000 issues will generally be
absorbed by lessees rather than CPA(R):10. The major risk to CPA(R):10 is that
Year 2000 issues have such an adverse effect on the financial condition of a
lessee that its ability to meet its lease obligations, including the timely
payment of rent, is impaired. In such an event, CPA(R):10 may ultimately incur
the costs for Year 2000 readiness at the affected properties. The potential
materiality of any impact is not known at this time.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all quarters of fiscal years beginning after June
15, 1999. CPA(R):10 believes that SFAS No. 133 will not have a material impact
on the consolidated financial statements.
- 6 -
<PAGE> 44
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Corporate Property Associates 10 Incorporated
and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of
Corporate Property Associates 10 Incorporated and Subsidiaries at December
31, 1997 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles. In addition,
in our opinion, the schedule of real estate and accumulated depreciation
presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule
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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by the Advisor, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 5, 1999
- 7 -
<PAGE> 45
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method
Land $ 19,370,043 $ 19,370,043
Buildings 81,728,919 81,728,919
------------ ------------
101,098,962 101,098,962
Accumulated depreciation 11,498,122 13,541,345
------------ ------------
89,600,840 87,557,617
Net investment in direct financing leases 16,758,447 16,758,447
------------ ------------
Real estate leased to others 106,359,287 104,316,064
Equity investment 11,657,088 12,382,287
Cash and cash equivalents 2,608,523 1,770,478
Other assets, net of accumulated amortization of
$100,712 and $145,939 in 1997 and 1998 and
reserve for uncollected rents of $107,223 and
$214,847 in 1997 and 1998 414,332 787,077
------------ ------------
Total assets $121,039,230 $119,255,906
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $ 61,536,571 $ 58,748,585
Accrued interest 678,446 472,220
Accounts payable and accrued expenses 245,126 479,388
Accounts payable to affiliates 5,523,241 1,912,233
Dividends payable 1,348,268
Prepaid rental income 27,365
------------ ------------
Total liabilities 67,983,384 62,988,059
------------ ------------
Minority interest 3,870,416 3,665,708
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; 7,217,294 and 7,633,558 shares
issued and outstanding at December 31, 1997 and 1998 7,217 7,633
Additional paid-in capital 62,160,058 66,530,408
Dividends in excess of accumulated earnings (12,893,753) (13,993,711)
Accumulated other comprehensive income 155,589
------------ ------------
49,273,522 52,699,919
Less, common stock in treasury at cost,
10,652 and 11,902 shares at
December 31, 1997 and 1998 (88,092) (97,780)
------------ ------------
Total shareholders' equity 49,185,430 52,602,139
------------ ------------
Total liabilities and
shareholders' equity $121,039,230 $119,255,906
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 8 -
<PAGE> 46
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of INCOME
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $11,812,148 $11,888,835 $12,152,866
Interest income from direct financing leases 3,362,406 2,407,527 2,196,996
Other interest income 331,194 231,946 103,928
Other income 137,314 8,611
----------- ----------- -----------
15,505,748 14,665,622 14,462,401
----------- ----------- -----------
Expenses:
Interest 7,911,209 6,467,266 6,130,144
Depreciation 2,007,557 2,023,890 2,043,223
General and administrative 965,983 1,176,887 1,334,847
Property expenses 2,008,468 2,028,904 2,339,075
Amortization 56,329 71,215 45,227
Writedown to fair value 1,753,139
----------- ----------- -----------
14,702,685 11,768,162 11,892,516
----------- ----------- -----------
Income before minority interest,
equity income, gain on sale
and extraordinary items 803,063 2,897,460 2,569,885
Minority interest in income (583,283) (607,472) (636,617)
----------- ----------- -----------
Income before equity income, gain
on sale and extraordinary items 219,780 2,289,988 1,933,268
Income from equity investment 1,718,797 1,806,760 1,908,256
----------- ----------- -----------
Income before gains on sales and
extraordinary items 1,938,577 4,096,748 3,841,524
Gain on sale of securities 285,987
Subordinated disposition fees (753,156)
Gain on sale of real estate 1,051,823 105,131
----------- ----------- -----------
Income before extraordinary items 2,990,400 3,734,710 3,841,524
Extraordinary gains 3,850,490 1,638,375
----------- ----------- -----------
Net income $ 2,990,400 $ 7,585,200 $ 5,479,899
=========== =========== ===========
Basic earnings per common share:
Income before extraordinary item $.41 $ .52 $ .52
Extraordinary Item .53 .22
---- ----- -----
Net income per common share $.41 $1.05 $ .74
==== ===== =====
Weighted average shares outstanding 7,206,642 7,206,642 7,408,957
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
- 9 -
<PAGE> 47
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Dividends In Accumulated
Additional Excess Of Other
Common Paid-in Comprehensive Accumulated Comprehensive Treasury
Stock Capital Income Earnings Income Stock Total
---------- -------------- --------------- -------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Comprehensive income:
Net income $2,990,400 2,990,400 2,990,400
------ ----------- ========== ------------ -------- -----------
Balance at
December 31, 1996 7,217 62,160,058 (15,184,953) (88,092) 46,894,230
Dividends (5,294,000) (5,294,000)
Comprehensive income:
Net income $7,585,200 7,585,200 7,585,200
------ ----------- ========== ------------ -------- -----------
Balance at
December 31, 1997 7,217 62,160,058 (12,893,753) (88,092) 49,185,430
416,264 shares issued,
$.001 par 416 4,370,350 4,370,766
Dividends (6,579,857) (6,579,857)
Repurchase of 1,250
shares (9,688) (9,688)
Comprehensive income:
Net income $5,479,899 5,479,899 5,479,899
Other comprehensive
income:
Unrealized appreciation,
of marketable
securities for 1998 155,589 $155,589 155,589
----------
$5,635,488
==========
------ ----------- ------------ -------- -------- ------------
Balance at
December 31, 1998 $7,633 $66,530,408 $(13,993,711) $155,589 $(97,780) $52,602,139
====== =========== ============ ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 10 -
<PAGE> 48
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,990,400 $ 7,585,200 $ 5,479,899
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,063,886 2,095,105 2,088,450
Straight-line adjustments and other noncash
rent adjustments 104,180 74,577 8,811
Minority interest in income 583,283 607,472 636,617
Income from equity investment in excess of
dividends received (584,527) (640,380) (725,199)
Extraordinary gains (3,850,490) (1,638,375)
Provision for uncollected rents 107,223 107,624
Writedown to fair value 1,753,139
Gain on sale of real estate and securities (1,051,823) (391,118)
Accrual of subordinated disposition fees 753,156
Net change in operating assets and liabilities 1,593,498 926,034 1,109,826
------------ ------------ ------------
Net cash provided by operating activities 7,452,036 7,266,779 7,067,653
------------ ------------ ------------
Cash flows from investing activities:
Additional capitalized costs (370,043)
Proceeds from sales of real estate and securities 13,733,825 1,480,259
Purchase of marketable securities (285,110)
Issuance of note receivable in connection with sale (560,750)
Payments received on note receivable 450,000 110,750
------------ ------------ ------------
Net cash provided by (used in)
investing activities 13,253,032 1,591,009 (285,110)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 2,510,660
Advances on line of credit 2,480,000 1,600,000
Payments on mortgage principal (1,141,876) (1,172,236) (1,287,986)
Prepayments of mortgage payable and
advances on line of credit (13,347,113) (7,050,000) (250,000)
Deferred financing costs (226,790)
Purchase of treasury stock (9,688)
Distributions paid to minority partners (795,196) (785,583) (841,325)
Dividends paid (5,981,514) (5,294,000) (5,231,589)
------------ ------------ ------------
Net cash used in financing activities (16,501,829) (12,701,819) (7,620,588)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 4,203,239 (3,844,031) (838,045)
Cash and cash equivalents, beginning of year 2,249,315 6,452,554 2,608,523
------------ ------------ ------------
Cash and cash equivalents, end of year $ 6,452,554 $ 2,608,523 $ 1,770,478
============ ============ ============
</TABLE>
(Continued)
The accompanying notes are an integral part of the consolidated financial
statements.
- 11 -
<PAGE> 49
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS, Continued
For the years ended December 31, 1996, 1997 and 1998
Schedule of noncash operating, investing and financing activity:
A. 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>
B. During the year ended December 31, 1998, the Company issued 416,264 shares of
common stock to the Advisor in settlement of $4,370,766 of performance fees that
had been voluntarily deferred by the Advisor.
The accompanying notes are an integral part of the consolidated financial
statements.
- 12 -
<PAGE> 50
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 controlling interests in two limited partnerships
(collectively, the "Company") in which the Company is general
partner with an affiliate, Corporate Property Associates 9, L.P.
("CPA(R):9") owning the minority interest as the limited partner.
All material inter-entity transactions have been eliminated.
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 dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. The most significant estimates relate to the assessment of
recoverability of real estate assets and investments. 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, rental
revenue is recognized on a straight-line basis over the term
of the leases and expenses (including depreciation) are
charged to operations as incurred.
The 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 fair value.
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.
- 13 -
<PAGE> 51
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
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, 1997 and 1998
were held in the custody of two financial institutions, and which
at times exceed federally insurable limits. The Company mitigates
this risk by depositing funds with major 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 over the terms of the
mortgages.
The Company's marketable equity securities, which consist of 81,460
shares of common stock of the Titan Corporation, are classified as
available-for-sale securities and are reported at fair value with
the Company's interest in unrealized gains and losses on these
securities reported as a separate component of shareholders' equity
(accumulated other comprehensive income) until realized. As of
December 31, 1998, the Company's cost basis in Titan Corporation
common stock was $285,110 and at fair value reflected unrealized
appreciation of $155,589 at that date.
Earnings Per Share:
The Company has a simple equity capital structure, with only common
stock outstanding. As a result, the Company has presented basic
per-share amounts only in the accompanying consolidated financial
statements.
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.
- 14 -
<PAGE> 52
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Operating Segments:
The Financial Accounting Standards Board ("FASB") issued statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS No. 131,
effective for fiscal year beginning after December 15, 1997,
establishes accounting standards for the way public business
enterprises report selected information about operating segments
and guidelines for defining the operating segment of an enterprise.
Based on the definitions of an operating segment in SFAS No. 131,
the Company has concluded that it engages in a single operating
segment.
Reclassification:
Certain 1996 and 1997 amounts have been reclassified to conform to the
1998 financial statement presentation.
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
will be entitled to certain incentive fees in the event of the
liquidation of the Company, subject to certain conditions.
3. Transactions with Related Parties:
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
of the Company. Asset management fees were $858,793, $746,250 and
$807,050 in 1996, 1997 and 1998, respectively, with performance
fees for such periods in like amounts. Payment of the performance
fee is subordinated to achievement of a cumulative dividend return
of 8% (based on an initial issuance of Company stock at $10 per
share). For the period subsequent to September 30, 1997 the
cumulative dividend return criterion has not been met and
performance fees aggregating $988,631 are not currently payable
until such time as the dividend return criterion is achieved again.
Accrued performance fees are included in accounts payable to
affiliates in the accompanying consolidated financial statements.
In June 1998, the Company's shareholders approved a proposal to allow
the Company, subject to the consent of the Advisor, to pay fees to
the Advisor in stock rather than cash. In connection with such
approval, the Company issued 416,264 shares of common stock to the
Advisor in settlement of accrued performance fees of $4,370,766,
the collection of which had previously been voluntarily deferred by
the Advisor. The stock is subject to certain restrictions and will
vest ratably over a five-year period. The Advisor receives
dividends on its restricted shares and has the right to vote its
shares currently. In issuing the shares, the Company used a per
share value of $10.50. This per share value was based on an
independent valuation of the Company's real estate assets at
December 31, 1997.
- 15 -
<PAGE> 53
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
General and administrative expense reimbursements consist primarily of
the actual cost of personnel needed in providing administrative
services necessary to the operation of the Company. General and
administrative expense reimbursements were $378,221, $600,514 and
$603,846 in 1996, 1997 and 1998, respectively.
The Advisor will be entitled to receive subordinated disposition fees
measured based upon the cumulative proceeds arising from the sale
of Company assets since the inception of the Company, subject to
certain conditions. Pursuant to the subordination provisions of the
advisory agreement, the disposition fees may be paid only after the
shareholders receive 100% of their initial investment from the
proceeds of asset sales and a cumulative annual return of 6% since
the inception of the Company. The Affiliate's interest in such
disposition fees amounts to $789,156 through December 31, 1998.
Payment of such amount, however, cannot be made until the
subordination provisions are met. In 1997, Management concluded
that payment of such disposition fees is probable. Such amount is
included in accounts payable to affiliates in the accompanying
consolidated financial statements as of December 31, 1997 and 1998.
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 the operating expenses of
the Company exceed the 2%/25% Guidelines (the greater of 2% of
Average Invested Assets and 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 refinancing of one of the Company's mortgages,
W. P. Carey & Co., Inc. ("W. P. Carey") received $54,000 in 1996
as a financing fee. No acquisition, structuring or mortgage
financing fees were paid in 1997 and 1998.
For the years ended December 31, 1996, 1997 and 1998, fees aggregating
$27,585, $52,609 and $39,602, respectively, were incurred for legal
services provided by a firm in which the Secretary, until July
1997, of the Company 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.
Expenses incurred in 1996, 1997 and 1998 were $132,207, $115,002
and $97,128, 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
its undivided interests in 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 $11,020,000
in 1999, $11,026,000 in 2000, $10,783,000 in 2001; $10,183,000 in
2002; $9,952,000 in 2003; and aggregate approximately $93,178,000
through 2016.
- 16 -
<PAGE> 54
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Contingent rents were approximately $586,000, $995,000 and $1,202,000
in 1996, 1997 and 1998, respectively.
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Minimum lease payments
receivable $37,699,586 $35,640,462
Unguaranteed residual value 16,886,552 16,886,552
----------- -----------
54,586,138 52,527,014
Less, Unearned income 37,827,691 35,768,567
----------- -----------
$16,758,447 $16,758,447
=========== ===========
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases amount to approximately
$2,059,000 in each of the years 1999 through 2003 and aggregate
approximately $35,640,000 through 2017.
Contingent rents were approximately $132,000 in each of the years 1996
and 1997 and $138,000 in 1998.
The Company is committed under long-term ground leases that have
expiration dates ranging from June 2004 to January 2011. Future
minimum ground lease rent obligations aggregate approximately
$1,434,000.
6. Mortgage Notes Payable:
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 $87,402,000. As of
December 31, 1998, mortgage notes payable have interest rates
varying from 8.75% to 10.7% per annum and mature between 1999 and
2013.
Scheduled principal payments during each of the five years following
December 31, 1998 and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 9,745,503
2000 22,890,440
2001 8,161,753
2002 995,618
2003 8,828,657
Thereafter 8,126,614
-----------
Total $58,748,585
===========
</TABLE>
Interest paid was $8,208,210, $6,342,805 and $6,142,995, in 1996, 1997
and 1998, respectively.
- 17 -
<PAGE> 55
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 years ended December 31, 1996, 1997 and 1998,
dividends paid per share reported for tax purposes were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Ordinary income $ .49 $ .59 $ .70
Capital gains .03
Return of capital .34 .11 .01
----- ----- -----
$ .83 $ .73 $ .71
===== ===== =====
</TABLE>
A dividend of $.1769 per share ($1,348,268) for the quarter ended
December 31, 1998 was declared in December 1998 and paid in January
1999.
8. Lease Revenues:
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>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Per Statements of operations:
Rental income from operating leases $11,812,148 $11,888,835 $12,152,866
Interest income from direct financing leases 3,362,406 2,407,527 2,196,996
Adjustments:
Rental income attributable to
minority interests (1,917,313) (1,927,963) (1,942,872)
Share of interest income from equity
investment's direct financing lease 4,342,921 4,387,948 4,432,772
----------- ----------- -----------
$17,600,162 $16,756,347 $16,839,762
=========== =========== ===========
</TABLE>
- 18 -
<PAGE> 56
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
For the years ended December 31, 1996, 1997 and 1998, 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>
1996 % 1997 % 1998 %
---- ---- ---- ---- ---- --
<S> <C> <C> <C> <C> <C> <C>
Marriott International, Inc. (1) $ 4,342,921 25% $ 4,387,948 26% $ 4,432,772 26%
Information Resources
Incorporated (2) 2,916,014 17 2,916,014 17 2,916,014 17
Titan Corporation (2) 2,019,033 11 2,065,826 12 2,131,336 13
New WAI, L.P./
Warehouse Associates 1,483,640 8 1,452,530 9 1,452,700 9
EnviroWorks, Inc. 1,387,757 8 1,387,757 8 1,431,656 8
Wal-Mart Stores, Inc. 994,433 6 970,948 6 1,013,389 6
Kmart Corporation 823,301 5 860,465 5 898,077 5
Childtime Childcare Inc. 742,458 4 800,205 5 805,454 5
Neodata Corporation 574,435 3 587,728 4 588,563 4
CalComp Technology, Inc. 381,412 2 443,024 3 446,366 3
US West Communications, Inc. 222,600 1 222,600 1 222,600 1
Kroger Co. (3) 164,555 1 206,806 1
Affiliated Foods Southwest,
Inc. (3) 51,953 145,679 1
Safeway Stores Incorporated 167,212 1 141,750 1 141,750 1
Harvest Foods, Inc. (3) 1,239,206 7 302,044 2
Other 305,740 2 1,000 6,600
----------- ---- ----------- ---- ----------- ----
$17,600,162 100% $16,756,347 100% $16,839,762 100%
=========== ==== =========== ==== =========== ====
</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 CPA(R):9.
(3) Net of ground lease expense of approximately $158,000 for each of the
years 1996 through 1998.
9. Equity 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,
---------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Assets $149,694 $149,413 $149,150
Liabilities 106,002 102,826 99,315
Shareholders' equity 43,692 46,587 49,835
Revenues 18,549 18,650 18,743
Interest and other expenses 11,097 10,827 10,496
Net income 7,452 7,823 8,247
Dividends paid 4,793 4,929 4,999
Cash provided from operating activities 7,482 7,839 8,357
</TABLE>
- 19 -
<PAGE> 57
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Gains on Sale of Real Estate and Securities:
1996
In January and February 1996, the Company sold properties in Glendale,
Arizona and Escondido, California leased to Safeway Stores,
Incorporated for $5,400,000 at a net loss of $11,017.
In March 1996, the Company sold a property in Buffalo, New York to its
lessee, Empire of America Realty Credit Corp. ("Empire") for
$8,500,000 pursuant to an irrevocable purchase offer. Empire was
required to make an irrevocable purchase offer because it notified
the Company of its intention to vacate the property, an event of
default under the lease. In Connection with the sale, the Company
recognized a gain of $558,665.
In May 1996, the Company sold a property in Charlotte, North Carolina
leased to Best Buy Co., Inc. for $3,250,000 and recognized a gain
of $504,175.
1997
During 1997, the Company sold three properties formerly leased to
Harvest Foods, Inc. ("Harvest") and recognized a gain on sales of
$105,131 (see Note 11).
In March 1995, the Company entered into a net lease with EnviroWorks
Inc. ("EnviroWorks") at which time it received warrants to purchase
577,000 shares of EnviroWork's common stock with an exercise price
of $1.50 per share. In connection with consenting to the
acquisition of EnviroWork's parent company in December 1997 by
Fiskars, Inc., the Company exercised the warrants and
simultaneously sold the shares for $539,867, realizing a gain on
sale of $285,987 with the remaining $253,880 of the sales proceeds
placed in an escrow account. As of December 31, 1998, the remaining
$253,880 remains in escrow and will be released to the Company upon
satisfaction of certain conditions under the acquisition agreement.
Until such funds are released, no gain on the remaining funds will
be recognized.
11. Harvest Foods, Inc.:
In February 1992, the Company and Carey Institutional Properties,
Incorporated ("CIP(R)"), an affiliate, purchased as
tenants-in-common, each with undivided 50% ownership interests, 13
supermarkets and two office buildings and entered into a master
lease with Harvest Foods, Inc. ("Harvest"), as lessee. In
connection with the purchase, the Company and CIP(R) obtained
$12,265,000 of limited recourse mortgage financing from two lenders
consisting of a first priority limited recourse mortgage loan of
$9,265,000 and a subordinated limited recourse mortgage loan of
$3,000,000 from an affiliate of Harvest (of which the Company's
share was $4,632,500 and $1,500,000).
In June 1996, Harvest filed a voluntary bankruptcy petition. In March
1997, the Bankruptcy Court approved Harvest's motion to terminate
the master lease. Under its ruling, the Bankruptcy Court allowed
the Company and CIP(R) to establish an unsecured claim for lease
rejection damages at $10,000,000. Harvest subsequently vacated the
properties. Because of the Company's expectation at that time that
future cash flow from the properties would be reduced, Management
concluded that there had been an impairment to the value of the
properties. Based on a writedown of the Company's interest in the
properties to an estimated fair value of $8,250,000, the Company
incurred a noncash charge of $1,753,139 in 1996.
- 20 -
<PAGE> 58
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
During 1997, the Company and CIP(R) entered into net leases with The
Kroger Co. for two supermarkets in Conway and North Little Rock,
Arkansas and with Affiliated Foods Southwest, Inc. ("Affiliated")
for three supermarkets in Hope and Little Rock, Arkansas. In August
1998, the Company and CIP(R) entered into a lease with Affiliated
for a fourth supermarket in Little Rock. In September 1997 the
Company and CIP(R) sold three properties for $2,400,000 (of which
the Company's share was $1,200,000). In connection with the sales,
the Company recognized a gain of $105,131.
In June 1997, the Company and CIP(R) paid off the first priority
mortgage loan. The lender accepted a payment of $7,700,000 as a
settlement of an outstanding balance of $8,554,894. In connection
with its portion of the prepayment,$3,850,000, the Company
recognized an extraordinary gain on the extinguishment of debt of
$427,448.
On December 22, 1998, the holder of the $3,000,000 subordinated
mortgage note agreed to accept a payment of $500,000 from the
Company and CIP(R) in satisfaction of the mortgage loan obligation
of $3,000,000 and accrued interest of $776,750. In connection with
its $250,000 share of the payoff of the subordinated mortgage loan,
the Company recognized an extraordinary gain on the extinguishment
of its share of the debt of $1,638,375 in 1998.
12. Accounting Pronouncement:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. SFAS No. 133 is effective for all quarters of fiscal
years beginning after June 15, 1999. The Company believes that SFAS
No. 133 will not have a material impact on the consolidated
financial statements.
- 21 -
<PAGE> 59
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Property in Stamford, Connecticut:
In January 1991, the Company and an affiliate, Corporate Property
Associates 9, L.P. ("CPA(R):9") formed a limited partnership with a
68.085% general partnership interest, and a 31.915% limited
partnership interest, respectively, and purchased a property in
Stamford Connecticut and assumed an existing net lease, as lessor,
with Xerox Corporation ("Xerox"). A limited recourse mortgage loan
assumed in connection with the purchase was scheduled to mature on
September 1, 1995 with a balloon payment due at that time.
In 1995, Xerox did not renew the lease and the Company was
unsuccessful in its efforts to remarket the property and find a new
lessee. The Company concluded that the fair value was less than the
outstanding balance of the mortgage loan, and attempted to
negotiate a restructuring of the loan, however, the lender did not
agree to any of the Company's proposals.
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 for
nominal consideration. The transfer allowed the Company to
recognize a capital loss for tax purposes in 1996, partially
offsetting gains from the sale of other properties. For financial
reporting purposes, a gain of $3,423,043 resulting from the
transfer of liabilities in excess of assets was deferred pending
the disposition of the Stamford property by CPA(R):9. In September
1997, the lender completed a foreclosure action at which time
CPA(R):9's ownership of the property was transferred to the lender
in satisfaction of the mortgage debt, and, as a result, the
conditions requiring the Company's deferral of the gain were
eliminated. Accordingly, the Company recognized an extraordinary
gain in 1997 of $3,423,043.
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, 1997 and 1998 was approximately $63,061,000 and
$62,161,000, respectively. The fair value of debt instruments was
evaluated using a discounted cash flow model with discount rates
that 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. During 1998, the Company exercised its warrants to
purchase 81,460 shares of stock of the Titan Corporation ("Titan"),
a publicly traded company, at $3.50 per share. The warrants had
been scheduled to expire in July, 1998.
- 22 -
<PAGE> 60
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
SCHEDULE of REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1998
<TABLE>
<CAPTION>
Initial Cost to Costs
Company Capitalized Decrease in
----------------------- Subsequent to Net
Description Encumbrances Land Buildings Acquisition (a) Investments(b)
----------- -------------- ---- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Method:
Office/repair facility
leased to The
US West
Communications, Inc. $ 498,557 $ 1,563,299 $ 45,465
Office buildings leased to
Information
Resources, Inc. $22,108,985 4,992,173 26,857,893 3,792,980
Retail stores leased
to Kmart Corporation 2,896,663 4,308,345 821,510
Land leased to Childtime
Childcare, Inc. 990,665 2,279,146 957
Office building leased
to Titan Corporation 10,008,387 3,906,546 15,883,454 17,948
Retail stores leased to
Wal-Mart Stores, Inc. 6,910,413 807,423 6,864,802 87,746
Supermarket leased
to Safeway Stores
Incorporated 334,595 943,790 14,621
Office/manufacturing
facilities leased to CalComp
Technology, Inc. 1,610,688 751,453 2,536,047
Manufacturing/warehouse/
office facilities leased to
Neodata Services, Inc. 2,622,446 379,917 497,114 3,159,798
Manufacturing/distribution
facility leased to
EnviroWorks, Inc. 5,360,400 1,045,856 10,135,098
Retail stores - vacant 808,800 4,246,200 1,172 $(1,071,034)
Supermarkets leased
to Affiliated Foods
Southwest, Inc. 343,120 1,801,380 497 (454,369)
----------- ----------- ----------- ----------- -----------
$ 49,611,984 $19,044,249 $65,502,324 $18,077,792 $(1,525,403)
============ =========== =========== =========== ===========
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (c) Statement of
--------------------------------------- Accumulated Operations
Description Land Buildings Total Depreciation Date Acquired is Computed
----------- ---- --------- ----- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Method:
Office/repair facility
leased to The
US West September 18,
Communications, Inc. $ 509,550 $ 1,597,771 $ 2,107,321 $ 331,121 1990 40 yrs.
Office buildings leased to
Information September 28,
Resources, Inc. 4,992,731 30,650,315 35,643,046 6,095,679 1990 40 yrs.
Retail stores leased October 19 & 29,
to Kmart Corporation 2,944,072 5,082,446 8,026,518 950,396 1990 40 yrs.
Land leased to Childtime January 4,
Childcare, Inc. 2,280,103 2,280,103 1991 N/A
Office building leased
to Titan Corporation 3,910,145 15,897,803 19,807,948 2,964,184 July 9, 1991 40 yrs.
Retail stores leased to December 19,
Wal-Mart Stores, Inc. 816,658 6,943,313 7,759,971 1,222,296 1991 40 yrs.
Supermarket leased
to Safeway Stores December 19,
Incorporated 340,274 952,732 1,293,006 167,717 1991 40 yrs.
Office/manufacturing
facilities leased to CalComp
Technology, Inc. 751,453 2,536,047 3,287,500 420,033 May 28, 1992 40 yrs.
Manufacturing/warehouse/
office facilities leased to
Neodata Services, Inc. 379,917 3,656,912 4,036,829 371,191 October 1, 1992 40 yrs.
Manufacturing/distribution
facility leased to
EnviroWorks, Inc. 1,045,856 10,135,098 11,180,954 834,034 March 22, 1995 40 yrs.
Retail stores - vacant 982,482 3,002,655 3,985,137 129,678 February 21, 1992 40 yrs.
Supermarkets leased
to Affiliated Foods
Southwest, Inc. 416,802 1,273,827 1,690,629 55,016 February 21, 1992 40 yrs.
----------- ----------- ------------ -----------
$19,370,043 $81,728,919 $101,098,962 $13,541,345
=========== =========== ============ ===========
</TABLE>
See accompanying notes to Schedule.
<PAGE> 61
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
and SUBSIDIARIES
SCHEDULE of REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1998
<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:
Daycare centers
leased to Childtime
Childcare, Inc. $ 1,427,719 $ 3,284,644 $ 1,379
Office/warehouse
facility leased
to New WAI L.P./
Warehouse Associates 7,708,882 $ 307,745 10,442,255 1,277,029
Supermarket leased
to Kroger Company. 251,760 1,321,740 $(128,105)
----------- --------- ----------- ---------- ---------
$ 9,136,601 $ 559,505 $15,048,639 $ 1,278,408 $(128,105)
=========== ========= =========== =========== =========
<CAPTION>
Gross Amount at which Carried
at Close of Period (c)
-----------------------------
Description Total Date Acquired
----------- ----- -------------
<S> <C> <C>
Direct Financing Method:
Daycare centers
leased to Childtime
Childcare, Inc. $ 3,286,023 January 4, 1991
Office/warehouse
facility leased
to New WAI L.P./
Warehouse Associates 12,027,029 March 27, 1991
Supermarket leased
to Kroger Company. 1,445,395 February 21, 1992
-----------
$16,758,447
===========
</TABLE>
See accompanying notes to Schedule.
- 24 -
<PAGE> 62
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 writedowns to fair value.
(c) At December 31, 1998, the aggregate cost of real estate owned by the
Company and its subsidiaries for Federal income tax purposes is
$64,156,194.
Reconciliation of Real Estate Accounted
for Under the Operating Method
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Balance at beginning
of year $ 95,423,196 $101,098,962
Additions
Dispositions (1,062,938)
Reclassification from investment in
direct financing lease 6,738,704
------------ ------------
Balance at close of
year $101,098,962 $101,098,962
============ ============
</TABLE>
Reconciliation of Accumulated Depreciation
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Balance at beginning
of year $ 9,484,029 $11,498,122
Depreciation expense 2,023,890 2,043,223
Dispositions (9,797)
------------ ------------
Balance at close of
year $11,498,122 $13,541,345
=========== ===========
</TABLE>
- 25 -
<PAGE> 63
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 Tuscon, 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>
- 26 -
<PAGE> 64
<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
Vacant Retail Stores Little Rock, Ownership of a 50%
-6 locations Hot Springs, interest in land
Texarakana and and buildings
Jonesboro, Arkansas; except as noted (1)(2)
Ruston, Louisiana;
Clarksdale,
Mississippi
KROGER CO. Supermarkets North Little Rock
- 2 locations and Conway, Arkansas Ownership of a 50%
interest in land
and buildings
except as noted (1)(2)
AFFILIATED FOODS Supermarkets Little Rock - 3, and Ownership of a 50%
SOUTHWEST, INC. - 4 locations Hope, Arkansas interest in land
and buildings
except as noted (1)(2)
CALCOMP TECH- Office/ Austin, Ownership of a 50%
NOLOGY, INC. Manufacturing Texas interest in land and
Facility buildings (1)
</TABLE>
- 27 -
<PAGE> 65
<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.
- 28 -
<PAGE> 66
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, 1998,
there were 4,393 holders of record of the Shares of the Company.
The Company is required to distribute annually its distributable
REIT taxable income, as 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
1995.
<TABLE>
<CAPTION>
Cash Dividends Paid Per Share
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
First quarter $.20750 $.20750 $.17610
Second quarter .20750 .17550 .17630
Third quarter .20750 .17570 .17650
Fourth quarter .20750 .17590 .17670
------- ------- -------
$.83000 $.73460 $.70560
======= ======= =======
</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, 1998 as filed with the Securities and Exchange Commission.
- 29 -
<PAGE> 1
EXHIBIT 21.1
- 37 -
<PAGE> 2
SUBSIDIARIES of the COMPANY
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.
- 38 -
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,770,478
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,770,478
<PP&E> 117,857,409
<DEPRECIATION> 13,541,345
<TOTAL-ASSETS> 119,255,906
<CURRENT-LIABILITIES> 4,239,474
<BONDS> 58,748,585
0
0
<COMMON> 7,633
<OTHER-SE> 52,594,506
<TOTAL-LIABILITY-AND-EQUITY> 119,255,906
<SALES> 0
<TOTAL-REVENUES> 14,462,401
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,654,748
<LOSS-PROVISION> 107,624
<INTEREST-EXPENSE> 6,130,144
<INCOME-PRETAX> 3,841,524
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,841,524
<DISCONTINUED> 0
<EXTRAORDINARY> 1,638,375
<CHANGES> 0
<NET-INCOME> 5,479,899
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
