<PAGE> 1
As Filed with the Securities and Exchange Commission on August 22, 1997
Registration No. 33-99994
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
POST-EFFECTIVE AMENDMENT No. 5
to
FORM S-11
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
(Exact name of registrant as specified in governing instrument)
50 Rockefeller Plaza
New York, New York 10020
(Address of principal executive offices)
------------------------
William Polk Carey
Corporate Property Associates 12 Incorporated
50 Rockefeller Plaza
New York, New York 10020
(Name and address of agent for service)
---------------------------
Copy to:
Michael B. Pollack, Esquire
Reed Smith Shaw & McClay
2500 One Liberty Place
Philadelphia, Pennsylvania 19103
Date of Commencement of Sale To Public: February 2, 1996
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to rule 415 under the Securities Act of
1933 check the following box: |X|
<PAGE> 2
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: |X| 33-99994
If this Form is a post-effective amendment filed pursuant to Rule 462(C) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Maximum Maximum
Securities Amount Being Opening Price Aggregate Amount of
Being Registered Registered Per Share Offering Price Registration Fee
- ---------------- ---------- --------- -------------- ----------------
Common Stock 20,000,000 $10.00 $200,000,000 $68,965.52
Common Stock(1) 300,000 $10.00 $ 3,000,000 $ 909.09
(1) Additional shares registered pursuant to Pursuant to Rule 462(b).
The Registrant hereby amends this registration statement on such
date or dates and this registration statement shall thereafter become effective
immediately upon acceptance by the Securities and Exchange Commission in
accordance with Rule 462(b) of the Securities Act of 1933.
<PAGE> 3
Pursuant to Rule 462 (b) Corporate Property Associates 12 Incorporated
hereby registers an additional 300,000 shares at an offering price of $10 per
Share. These additional securities are offered in an amount and at a price
together which represent less that 20% of the maximum aggregate offering price
of $200,000,000 set forth in Post-Effective Amendment No. 4.
<PAGE> 4
LOGO LOGO
CORPORATE PROPERTY ASSOCIATES 12
INCORPORATED
A Real Estate Investment Trust Offering a
Maximum of $200,000,000 in Shares
$10 per Share
Minimum Investment:
250 Shares
200 shares for IRAs and Keogh Plans
(Minimum investment may be higher in certain states)
Corporate Property Associates 12 Incorporated (the "Company") is a real
estate investment trust ("REIT") under Federal tax laws. This Prospectus
describes an investment in the Shares of the Company. The Company may sell as
much as $200,000,000 in Shares.
The Company intends to use investors' money together with borrowed money to
purchase industrial and commercial real estate properties ("Properties").
Generally, Properties will be leased to one tenant deemed to be creditworthy by
the Company's advisor under a lease that will in most cases require the tenant
to pay all of the costs of maintenance, insurance and real estate taxes. Between
approximately 86% and 87% of the total amount of the money raised in the
Offering is expected to be used to purchase this type of real estate, and the
balance is expected to be used for working capital, fees and expenses.
Purchasing the Company's Shares involves certain risks. Investors should be
aware that:
-- There are market risks associated with investments in real estate,
including the potential for a decrease in the value of the Properties.
-- The Company could lose its investment in a Property if it does not repay
the money it borrows to purchase that Property.
-- If a Shareholder must sell his or her Shares in the near future, it is
likely that a Shareholder will have to sell them for less than $10 per
Share.
-- There is a potential for a reduction in the Company's cash flow and its
rate of distributions to Shareholders in the event that a tenant becomes
subject to bankruptcy proceedings or otherwise fails to fulfill its
monetary obligations to the Company. Certain tenants of prior Corporate
Property Associates programs have become subject to bankruptcy
proceedings or have failed to fulfill their monetary obligations to
these prior programs.
SEE THE "RISK FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR
A COMPLETE DISCUSSION OF THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY.
AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THE COMPANY IS NOT PERMITTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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<TABLE>
<S> <C> <C> <C>
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PRICE SELLING PROCEEDS TO
TO PUBLIC COMMISSION(1) COMPANY(2)
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Per Share $ 10 $ 0.60 $ 9.40
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Total Maximum $200,000,000 $12,000,000 $188,000,000
====================================================================================================================
</TABLE>
(footnotes on following page)
CAREY FINANCIAL CORPORATION
The date of this Prospectus is October 21, 1996.
<PAGE> 5
Footnotes for outside front cover page:
(1) The Company will pay certain fees and expense reimbursements to the Sales
Agent and Selected Dealers in addition to the Selling Commission. See "The
Offering" section of this Prospectus for a complete description of the
amount and terms of such fees and expense reimbursements.
(2) Proceeds calculated before deducting certain Organization and Offering
Expenses (excluding selling commissions) payable by the Company, which
expenses (other than the Annual Servicing Fees payable to the Sales Agent
described in "The Offering" section of this Prospectus) are estimated to be
approximately $7,327,000 if 20,000,000 Shares are sold. To the extent all
Organization and Offering Expenses (excluding selling commissions, Servicing
Fees and fees paid or expenses reimbursed to the Selected Dealers) exceed
3.5% of the Gross Offering Proceeds, the excess expenses will be paid by
Carey Property Advisors (the "Advisor"). See "The Offering".
The money accepted by the Sales Agent and Selected Dealers from the sale of
Shares will be promptly deposited into an interest bearing escrow account at The
United States Trust Company of New York. The interest earned in this account
will be paid to investors. Money will be transferred from the escrow account to
the Company from time to time. Investors who have purchased Shares will become
Shareholders when their funds are transferred from the escrow account to the
Company's account. The Company may sell its Shares until they have all been
sold, unless it decides to stop selling them sooner. See "Terms of the Offering"
and "The Offering -- Escrow Arrangements."
2
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary........................................................................ 4
Risk Factors.............................................................................. 10
Real Estate Investment Risks......................................................... 10
Corporate Investment Risks........................................................... 15
Tax Risks............................................................................ 17
Other Investment Risks............................................................... 18
Terms of the Offering..................................................................... 19
Estimated Use of Proceeds................................................................. 21
Dividends................................................................................. 22
Management Compensation................................................................... 23
Conflicts of Interest..................................................................... 30
Prior Offerings by Affiliates............................................................. 35
Management................................................................................ 39
Directors and Executive Officers of the Company...................................... 41
The Advisor.......................................................................... 44
Directors and Principal Officers of Carey Fiduciary Advisors, Inc. .................. 44
Shareholdings........................................................................ 46
Management Decisions................................................................. 46
Limited Liability and Indemnification of Directors, Officers, Employees And Other
Agents.............................................................................. 46
The Advisory Agreement............................................................... 47
Investment Procedures, Objectives and Policies............................................ 49
Investment Procedures................................................................ 49
Investment Objectives................................................................ 52
Types of Investments................................................................. 53
Use of Borrowing..................................................................... 58
Other Investment Policies............................................................ 59
General......................................................................... 59
Holding Period for Investments and Application of Proceeds of Sales or
Refinancings..................................................................... 60
Investment Limitations............................................................... 61
Change in Investment Objectives and Limitations...................................... 62
Holders of Shares of the Company.......................................................... 62
Management Discussion and Analysis of Financial Condition................................. 62
Description of Properties................................................................. 68
Income Tax Aspects........................................................................ 100
ERISA Considerations...................................................................... 110
Description of Shares..................................................................... 113
General Description of Shares........................................................ 113
Meetings and Special Voting Requirements............................................. 114
Restriction on Ownership of Shares................................................... 115
Dividends............................................................................ 115
Repurchase of Shares................................................................. 116
Redemption of Shares................................................................. 116
Restrictions on Roll-up Transactions................................................. 117
Transfer Agent....................................................................... 118
The Offering.............................................................................. 118
Escrow Arrangements.................................................................. 121
Reports to Shareholders................................................................... 122
Legal Opinions............................................................................ 122
Experts................................................................................... 122
Sales Literature.......................................................................... 123
Further Information....................................................................... 123
Glossary.................................................................................. 123
Financial Statements...................................................................... F-1
Prior Performance Tables -- Exhibit A..................................................... A-1
Specimen CPA(R):12 Order Form -- Exhibit B................................................ B-1
Supplement dated January 27, 1997......................................................... S-1
Supplement date April 24, 1997............................................................ S-2
</TABLE>
3
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus. The more detailed information
following this summary is set forth in the same order as the topics appearing in
this summary. Investors are encouraged to read this Prospectus for a complete
explanation of an investment in the Company.
RISK FACTORS
An investment in the Company has many risks. The "Risk Factors" section of
this Prospectus contains a detailed discussion of the most important risks. The
risk factors are organized into Real Estate Investment Risks (the risks
associated with types of investments in real estate that the Company will make),
Corporate Investment Risks (the risks associated with an investment in a
corporation), Tax Risks (the risks arising from compliance with the real estate
investment trust tax laws as they apply to the Company) and Other Investment
Risks. Please refer to the "Risk Factors" section for a more detailed discussion
of the risks summarized below:
Real Estate Investment Risks
-- Risks of investing in real estate occupied by a single tenant, the
credit of which is subject to change. Certain tenants of prior CPA(R)
Programs have become subject to bankruptcy proceedings or have failed to
fulfill their monetary obligations to the affected programs. Three of
the eleven prior CPA(R) Programs have had to reduce the rate of
distributions to their partners as a result of bankruptcy filings by
tenants. The distribution rate of CPA(R):7 now exceeds the rate in
effect before the reductions while the distribution rate of CPA(R):1 and
CPA(R):5 have not reached the rate in effect before the reduction.
-- The risk that the future value of real estate cannot be predicted and
that investors cannot be sure that they will get their capital back.
-- Risks of investing in real estate that is subject to mortgage debt,
including the risk that a lender can foreclose on Properties on which it
holds a mortgage if the Company does not repay the mortgage loan or
comply with other requirements of the mortgage.
-- The risk of not being able to find suitable investments for the Company.
Corporate Investment Risks
-- The risk that an investor will not be able to sell his or her investment
because there will be no organized market for the Shares and the risk
that if a Shareholder does sell his or her Shares in the near future, it
is likely that he or she will have to sell them for less than $10 per
Share.
-- Reliance on the Advisor and the Board, which together will exercise all
management rights subject only to the ability of the Shareholders to
elect the Board.
-- Management and their affiliates will receive significant amounts of
compensation for services rendered to the Company.
-- Risk of exercise by Shareholders of certain voting rights, including the
right to elect the Board and the right to amend the Company's governing
documents, which may be exercised by Shareholders holding a majority of
the Shares even if holders of 49% of the Shares object. The Company's
investment objectives cannot be changed without the approval of the
Shareholders holding a majority of the Shares but the Board may change
the techniques used by the Company to achieve the objectives without
Shareholder approval.
Tax Risks
-- Risks of the Company not qualifying as a real estate investment trust.
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<PAGE> 8
TERMS OF THE OFFERING
The Company is offering its shares on a "best efforts" basis, which means
that no one is guaranteeing how much capital will be raised. As of September 19,
1996 the Company had raised approximately $131,137,398 (net of discounts)
(including $200,000 invested by the Advisor) from the sale of Shares in this
Offering and a previous offering. The Company may sell as much as $200,000,000
in Shares in this Offering.
Investors must satisfy certain financial requirements in order to purchase
Shares. Please refer to the section of this Prospectus entitled "Terms of the
Offering" for a detailed explanation of these requirements.
ESTIMATED USE OF PROCEEDS
The money raised in this offering will be combined with borrowed money to
purchase real estate and to pay all of the Company's expenses. Between
approximately 86% and 87% of the money raised in the Offering is expected to be
invested in real estate and the rest will be used for working capital and to pay
expenses and fees to the sponsor of the Offering and other entities. A detailed
breakdown of the Company's estimates of the use of the capital raised in the
Offering is provided in the "Estimated Use of Proceeds" section of this
Prospectus.
MANAGEMENT COMPENSATION
Carey Property Advisors is the Company's Advisor. The Advisor will manage
the business of the Company under the direction of the board of directors of the
Company (the "Board"). The Company will pay the Advisor and certain affiliated
companies certain fees for these services and will reimburse the Advisor for
certain expenses. Outlined below are the most significant items of compensation.
-- For identifying, structuring and arranging the financing for real estate
acquisitions, the Advisor or its affiliates will be paid acquisition
fees not to exceed in the aggregate 2.5% of the total purchase price of
all Properties purchased by the Company. With respect to each such
Property, the Advisor or its affiliates will also be paid a fee (the
"Subordinated Acquisition Fee") which, when aggregated with all other
Subordinated Acquisition Fees, shall not exceed 2.0% of the total
purchase price of all Properties purchased by the Company, together with
interest on the unpaid portion of such Acquisition Fee at the rate of 7%
per annum from the date of acquisition of such Property until such
portion is paid. Such Acquisition Fee and accrued interest is payable in
equal annual installments on January 1 of each of the eight calendar
years following the first anniversary of the date such Property was
purchased. The portion of any Subordinated Acquisition Fee payable in
any year, and interest thereon, shall accrue but will be withheld by the
Company for such year unless Shareholders are paid dividends
("Dividends") at a cumulative non-compounded return of at least 7% per
year. Any such withheld portion of such Acquisition Fee and interest
shall be payable in the year following the year for which Shareholders
are paid Dividends at a cumulative non-compounded return of at least 7%
per year.
-- The Advisor will be paid an annual fee, payable on a monthly basis, for
services rendered under the advisory agreement for asset management
services (the "Asset Management Fee") of .5% of the Company's Average
Invested Assets (generally, the total amount invested in real estate).
The Advisor will also be paid a subordinated annual fee, payable on a
quarterly basis, for such services (the "Performance Fee") of .5% of the
Company's Average Invested Assets, which will accrue but will be
withheld for any quarter by the Company unless Shareholders are paid
Dividends at a cumulative non-compounded return of at least 7% per year
through such quarter. Any such withheld Performance Fee shall be payable
at the end of the quarter through which Shareholders are paid Dividends
at a cumulative non-compounded return of at least 7% per year.
-- The Advisor will be paid 15% of any appreciation in the value of the
real estate when the Company sells a Property. This fee will be paid
only after the Company has returned all of the money invested by
Shareholders plus a cumulative non-compounded return of 7% per year.
5
<PAGE> 9
There are many additional conditions and restrictions on the payment of
fees to the Advisor. There are also a number of other, smaller items of
compensation and expense reimbursement that the Advisor and its affiliates may
receive during the life of the Company. For a more complete explanation of the
fees and expenses and an estimate of the dollar amount of these payments, please
see the "Management Compensation" section of this Prospectus.
CONFLICTS OF INTEREST
The Advisor will have certain conflicts of interest in its management of
the Company. These conflicts will arise primarily from the involvement of the
Advisor and its affiliates in other activities that may conflict with those of
the Company. The directors of the Company that are independent of the Advisor
are responsible for monitoring the Advisor's activities and must approve all of
the Advisor's actions that involve a potential conflict. The "Conflicts of
Interests" section of this Prospectus more fully explains the significant
conflicts of interests.
PRIOR OFFERINGS BY AFFILIATES
The Advisor and its Affiliates manage the Company and manage 11 existing
real estate investment programs, each using (or at one time using) a derivative
of the name "Corporate Property Associates" ("CPA(R)") (collectively, the
"CPA(R) Programs"), that together have purchased properties over the past 16
years costing in excess of 1.3 billion dollars. The CPA(R) Programs own real
estate that is similar to the real estate that the Company has purchased and
intends to purchase. A narrative discussion of the performance of the CPA(R)
Programs can be found in the section of this Prospectus entitled "Prior
Offerings by Affiliates." Exhibit A of this Prospectus includes tables that
provide certain statistical information as well as information on the
performance of the CPA(R) Programs.
MANAGEMENT
The Board will oversee the management of the Company. The Board will
consist of a minimum of three directors. A majority of the directors will be
independent of the Advisor and will have responsibility for reviewing the
performance of the Advisor. The directors will be elected to the Board annually
by the Shareholders.
The Company has retained the Advisor to manage the Company and to select
the Company's real estate investments. All investment decisions made by the
Advisor must be approved unanimously by the Advisor's investment committee (the
"Investment Committee"). The following people serve on the Investment Committee:
-- George E. Stoddard, Chairman, was formerly responsible for the direct
corporate investments of The Equitable Life Assurance Society of the
United States and has been involved with the CPA(R) Programs for over 12
years.
-- Frank J. Hoenemeyer, Vice Chairman, was formerly Vice Chairman, Director
and Chief Investment Officer of the Prudential Insurance Company of
America and had responsibility for Prudential's investment portfolio.
-- Madelon DeVoe Talley is a former Governor of the National Association of
Securities Dealers, Inc. ("NASD") and is a former chief investment
officer of the New York State Common Retirement Fund.
-- Dr. Lawrence R. Klein, an alternate member of the Investment Committee,
won the Nobel Prize in economics in 1980 and is Benjamin Franklin
Professor Emeritus at the University of Pennsylvania.
For the background of the individuals responsible for the management of the
Company and a more detailed description of the responsibilities of the Advisor,
please see the "Management" section of this Prospectus. For more information on
fees payable to the Advisor or its affiliates, please see the "Management
Compensation" section of this Prospectus.
6
<PAGE> 10
Both the Company and the Advisor have offices at 50 Rockefeller Plaza, New
York, New York 10020, (212) 492-1100.
INVESTMENT PROCEDURES, OBJECTIVES AND POLICIES
The Company's investment objectives are:
-- TO PAY QUARTERLY DIVIDENDS AT AN INCREASING RATE THAT FOR TAXABLE
SHAREHOLDERS MAY BE PARTIALLY FREE FROM CURRENT TAXATION. The Company's
dividend rate is calculated by dividing the Company's quarterly cash
dividend from operations by the amount raised in the Offering and
previous offerings less amounts returned to investors from the sale of
Properties and Cash from Financings. Although the cash amount of a
dividend may go down during the life of the Company, the dividend rate
may continue to increase. If the total amount received by the Company
from the sale of Properties is less than the total amount invested in
the Company, a portion of the Dividends paid by the Company will
represent a return of the money originally invested in the Company and
not a return on the investment. There can be no assurance that the
Company will pay regular dividends or that the dividend rate will
increase. The quarterly rate of increases of prior CPA(R) Programs has
generally ranged from .01% to .25% with an average quarterly increase of
.02%. While prior CPA(R) Programs have occasionally used working capital
to pay a portion of certain dividends, cash flows from operating
activities have generally exceeded dividends paid.
-- TO PURCHASE A PORTFOLIO OF REAL ESTATE THAT WILL INCREASE IN VALUE. An
individual investing directly in real estate would not have to pay the
organization and offering expenses expected to be paid by the Company
(approximately 9.84% to 10.50% of the Gross Offering Proceeds).
Therefore, the Company must realize a greater level of operating income
from, and/or appreciation in the value of, its real estate in order for
an investor to realize the same return he would realize if he invested
directly in, and operated, the real estate purchased by the Company. Of
the 53 properties sold as of December 31, 1995 by the CPA(R) Programs,
all but 14 of such properties were sold for consideration equal to or in
excess of the applicable CPA(R) Program's total investment in such
properties, including acquisition costs. The net gain realized from the
sale of these 53 properties by the CPA(R) Programs has been in excess of
$14,880,000 on total equity invested of approximately $48,669,000. This
net gain figure does not take into account organization and offering
expenses which averaged 12% of the Gross Offering Proceeds for prior
CPA(R) Programs. Please see the "Prior Performance by Affiliates" and
the Appendix A for a complete discussion of the prior performance of the
CPA(R) Programs.
-- TO INCREASE THE COMPANY'S EQUITY IN ITS REAL ESTATE BY MAKING REGULAR
MORTGAGE PRINCIPAL PAYMENTS. The Company will realize its objective of
increasing its equity in its Properties by making regular mortgage
principal payments from income generated from the Properties only if
Properties are sold by the Company for an amount equal to or greater
than the original equity investment plus the remaining mortgage balance.
The average annual mortgage amortization for the CPA(R) Programs has
been $16,360,000.
The Company will seek to achieve these objectives by purchasing industrial
and commercial properties. The amount of money raised by the Company in the
Offering and borrowed from lenders will affect the number of Properties the
Company will be able to purchase. The more Properties the Company purchases, the
more diversified it will be and the less it will be affected by any single
Property that does not perform as expected. As of September 30, 1996, the
Company had purchased interests in 43 Properties located in 15 states and leased
to 14 companies.
In most cases, at the time a Property is purchased by the Company, it will
be leased to a single corporate tenant. Sometimes, the tenant will also be the
seller of the Property and will have occupied the Property before it is
purchased by the Company. The Investment Committee will evaluate the financial
strength or creditworthiness of each of the Company's tenants. The Company's
leases will in most cases require the tenants to pay all of the Property's
maintenance, insurance and real estate tax costs.
7
<PAGE> 11
Generally, the Company will borrow a portion of the purchase price of a
Property. The Company will seek to borrow about 60% but not more than 75% of the
total appraised value of all Properties it purchases. The percentage borrowed by
the Company for any particular Property purchased may be more or less than 75%.
Higher amounts of borrowing will require higher payments and may have an adverse
effect on the Company's ability to profit from its investment in the Property.
The Company generally will borrow money on a non-recourse basis which means that
if the Company is unwilling or unable to repay such borrowed money, the lender
will be permitted to foreclose only on the Property or Properties purchased with
the borrowed money. This protects the remainder of the Properties should one
Property not perform as expected. As of September 19, 1996, the Company, through
its subsidiaries, has borrowed on a limited recourse basis approximately
$69,578,000, which represents approximately 51.6% of the total purchase price of
the Properties it has purchased.
The Company may also lend money or design a transaction in a manner that
will be treated legally as a loan by the Company. If an entity that borrows from
the Company is unable to repay the money it has borrowed, the Company will be
able to foreclose on real estate owned by the borrower. While the Company does
not expect loans to make up a significant portion of its investment portfolio,
no limit has been placed on the amount of the Company's funds which may be
invested in loans. The Company expects that all loans made will be secured by
real property.
While the Company intends to hold each Property it acquires for an extended
period of time, circumstances may require the early sale of certain Property. In
such an event, the Company may reinvest proceeds from the sales of Properties.
The Company may also reinvest proceeds of the sales of Properties in the event
the shares are listed on a National Securities Exchange or are included for
quotation on Nasdaq. If the shares are not listed, the Properties are expected
to be liquidated beginning five to ten years after the net proceeds of the
Offering are substantially invested.
The Company's investment objectives cannot be changed without the approval
of the Shareholders holding a majority of the Shares. While the Company intends
to achieve its objectives by purchasing single-tenant, net leased property, the
Company's investment policies may vary as new techniques develop. The techniques
used by the Company to achieve its objectives may, with some limitations, be
changed by the Board (including a majority of the Independent Directors) without
the approval of the Shareholders. Any such change may affect the types of
non-real estate short term investments in which the Company invests during the
interim periods in which capital is not fully invested in Properties.
DESCRIPTION OF PROPERTIES
The Company has purchased interests in 43 Properties. Please refer to the
"Description of Properties" section of this Prospectus for a description of such
Properties. The Advisor is currently evaluating other potential Property
acquisitions. When it appears likely that the Company will purchase one or more
additional Properties, a description of such Properties will be made available
to all potential investors in a document called a supplement. Investors should
not assume that transactions described in a supplement will necessarily be
completed. It is possible that after the supplement is distributed, the Company
or seller will decide not to complete the sale.
INCOME TAX ASPECTS
The section of this Prospectus entitled "Income Tax Aspects" includes a
discussion of the tax issues which may be important to investors. The section
also includes a discussion of the many rules the Company will have to follow in
order to be treated as a REIT. The Company must be treated as a REIT in order to
avoid paying federal income taxes on dividends paid to Shareholders.
ERISA CONSIDERATIONS
The section of this Prospectus entitled "ERISA Considerations" describes
the effect the purchase of Shares will have on retirement plans subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ERISA is
a federal law that regulates the operation of certain tax-advantaged
8
<PAGE> 12
retirement plans. Any retirement plan trustee or individual considering
purchasing Shares for a retirement plan should read this section very carefully.
DESCRIPTION OF SHARES
General
The Company will not issue stock certificates. A Shareholder's investment
will be recorded on the books of the Company. A Shareholder wishing to transfer
his or her Shares will be required to send only an executed form to the Company.
The Company will provide the required form upon request. The Company has paid
and expects to continue to pay dividends quarterly. The Board will determine the
amount of any dividends to be paid by the Company.
Shareholder Voting Rights and Limitations
A meeting of Shareholders is held each year for the election of directors.
Other business matters may be presented at the annual meeting or at special
Shareholder meetings. Shareholders are entitled to one vote for each Share owned
on all matters that must be voted on by Shareholders, including the election of
directors. Shareholders who are in the minority on questions presented for
Shareholder vote at a duly held meeting at which a quorum is present will be
bound by the decision of the majority on the question voted upon.
Shareholder approval is required under Maryland law and the Company's
articles of incorporation and bylaws (the "Organizational Documents") for
certain types of transactions and corporate action. Generally, the
Organizational Documents may be amended upon a vote of Shareholders holding a
majority of the Shares, although the amendment of certain provisions requires
higher than a majority vote. Shareholders holding a majority of the Shares must
approve a merger or a sale or other disposition of substantially all of the
Company's assets other than in the ordinary course of business. Shareholders
objecting to the terms of a merger, sale or other disposition of substantially
all of Company's assets have the right to petition a court for the appraisal and
payment of the fair value of their Shares in certain instances. Shareholders
holding a majority of the Shares are required to approve the voluntary
dissolution of the Company.
Limitation on Share Ownership
The articles of incorporation of the Company (the "Articles of
Incorporation") restrict ownership by one Person of more than 9.8% of the
outstanding Shares. See "Description of Shares -- Restriction on Ownership of
Shares." These restrictions are designed to facilitate compliance with certain
Share accumulation restrictions imposed on REITs by the Internal Revenue Code of
1986, as amended (the "Code").
For a more complete description of the Shares, including certain
limitations on the ownership of Shares, please refer to the "Description of
Shares" section of this Prospectus.
THE OFFERING
The section of this Prospectus called "The Offering" describes the manner
in which the Company will sell its Shares and the fees and expenses the Company
will pay in connection with the Offering. This section also describes discounts
available to investors who are interested in investing more than $250,000 in the
Company and to investors of certain CPA(R) Programs upon the occurrence of
certain events.
GLOSSARY
Words in this Prospectus that are capitalized are defined in the "Glossary"
section. In order to make this Prospectus easier to read, a simplified
definition of certain capitalized words has been provided. These simplified
definitions do not convey all of the intricacies of the defined word and
investors are encouraged to refer to the "Glossary" section for the complete
definition.
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RISK FACTORS
An investment in the Company involves various risk factors including risk
factors related to investing in real estate, risk factors related to investing
in a corporation, tax risks and other general investment risks. In addition to
the factors set forth elsewhere herein, prospective investors should consider
the following:
REAL ESTATE INVESTMENT RISKS
Risks of Real Property Investments. Real property investments are subject
to varying degrees of risk. Real estate values are affected by changes in the
general economic climate, local conditions such as an oversupply of space or
reduction in demand for real estate in the area and competition from other
available space. Real estate values are also affected by such factors as
government regulations and changes in zoning or tax laws, interest rate levels,
the availability of financing and potential liability under environmental and
other laws. These factors may cause the Properties to decrease in value and may
make it difficult for the Company to sell Properties. See "Investment
Procedures, Objectives and Policies."
Dependence on Tenants. In leases with single tenants, the financial failure
of a tenant could result in the termination of its lease with the Company which,
in turn, might cause a reduction of the cash flow of the Company and/or decrease
the value of the Property leased to such tenant. If a tenant defaults on its
lease payments to the Company, the Company would lose the net cash flow from
such tenant, but might be able to use cash generated from other Properties to
meet the mortgage payments, if any, on such Property in order to prevent a
foreclosure. If a lease is terminated, there can be no assurance that the
Company will be able to lease the Property for the rent previously received or
sell the Property without incurring a loss. The Company could also experience
delays in enforcing its rights against tenants. Certain CPA(R) Programs have
experienced adverse developments including the filing by tenants for protection
from creditors under Chapter 11 of Title 11 of the United States Code, as
amended (the "Bankruptcy Code") and involvement in litigation. Three CPA(R)
Programs have had to reduce the rate of distributions to their partners as a
result of adverse developments involving tenants. See "Prior Offerings by
Affiliates."
In addition, the Company may enter into or acquire net leases with tenants
for Properties that are specially suited to the particular needs of a tenant.
Any such Property may require renovations or lease payment concessions in order
to lease it to another tenant if the current lease is terminated or not renewed.
The Company may also have difficulty selling a special purpose Property to a
party other than the tenant for which the Property was designed.
As of December 31, 1995, revenues from Best Buy Co., Inc., Etec Systems,
Inc., Gensia, Inc., Applied BioScience International, Inc. and DelMonte
Corporation represented approximately 19%, 14%, 14%, 13% and 13% respectively of
the Company's revenue on an annualized basis.
Bankruptcy of Tenants. The financial failure of a tenant could cause the
tenant to become the subject of bankruptcy proceedings. Under bankruptcy law, a
tenant has the option of continuing or terminating any unexpired lease. If the
tenant continues its lease with the Company, the tenant must cure all defaults
under the lease and provide the Company with adequate assurance of its future
performance under the lease. If the tenant terminates the lease, the Company's
claim for breach of the lease (absent collateral securing the claim) would be
treated as a general unsecured claim. The amount of the claim would be capped at
the amount owed for unpaid pre-petition lease payments unrelated to the
termination, plus the greater of one year's lease payments or 15% of the
remaining lease payments payable under the lease (but not to exceed the amount
of three years' lease payments).
Although the Company believes that each of its net lease transactions will
be a "true lease" for purposes of bankruptcy law, depending on the terms of the
lease transaction, including the length of the lease and terms providing for the
repurchase of a Property by the tenant, it is possible that a bankruptcy court
could recharacterize a net lease transaction as a secured lending transaction.
If a transaction were recharacterized as a secured lending transaction, the
Company would not be treated as the owner of the Property, but might have
certain additional rights as a secured creditor.
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Risks Associated with Borrowing. Most of the Company's acquisitions of
Properties will be made by borrowing a portion of the purchase price thereof and
securing the loan with a mortgage on such Property. Although the use of leverage
may increase the Company's rate of return on its investments and allow the
Company to make more investments than it otherwise could, it presents an element
of risk in the event that the cash flow from lease payments on its Properties
are insufficient to meet its debt payment obligations. Certain loans may not be
fully paid by the time the net leases (not including renewal periods) on
applicable Properties expire. If a tenant does not renew its lease with respect
to any Property, the Company may not have sufficient cash flow to make the
required debt payments with respect to such Property unless it is able to
re-lease such Property. If the Company does not make its debt payments as
required, a lender could foreclose on the Property or Properties securing such
debt, and the Company could lose part or all of its investment in such
Properties.
Lenders to the Company may seek to impose restrictions on future
borrowings, distributions and operating policies of the Company. It is not
possible to ascertain in advance what restrictions may be imposed. In connection
with a mortgage loan with respect to any Property, the lender may also seek to
include as an event of default or an event requiring the immediate prepayment of
the loan the termination or replacement of the Advisor. See "Investment
Procedures, Objectives and Policies -- Use of Borrowing."
Risk of Balloon Payment Obligations. The Company has financed the
acquisition of some Properties and intends to finance the acquisition of
additional Properties in part with debt obligations that will provide for the
repayment of principal, in whole or in part, in a lump-sum or "balloon" payment
at maturity. The ability of the Company to make a balloon payment at maturity
may be dependent on the Company's ability to obtain adequate refinancing of the
balloon payment at such time or to sell the Property, both of which are
dependent on economic conditions in general and the value of the Property in
particular at such time. There is no assurance that the Company will be able to
refinance the balloon payment or that the terms of any new loan will be as
favorable as the prior loan. If the Company is unable to refinance the balloon
payment, the Company may be forced to sell the Property securing payment thereof
(or another Property). There is no assurance that the proceeds of any such sale
would be sufficient to make the balloon payment. Any such refinancing or sale
may affect the rate of return to Shareholders and such sale may affect the
projected time of disposition of the Company's assets. To the extent that
Properties are subject to balloon mortgages, the Company's objective of
increasing equity through the reduction of mortgage debt on such Properties may
be more difficult to achieve. See "Investment Procedures, Objectives and
Policies."
Delay in Investment in Real Estate. The return on an investment in the
Company will depend, in part, on how quickly the Company is able to locate and
acquire suitable Properties. The Company's acquisition of a proposed Property
could be delayed by an inability to obtain financing as a result of either the
unattractiveness of financial or other terms of such financing or the lack of
lenders providing financing on any terms. There can be no assurance that the
equity raised by the Company in this Offering will be fully committed to
Property investments in a timely manner. See "Income Tax Aspects -- Requirements
for Qualification as a REIT." Prior to acquiring Properties, the Company's
capital will be invested generally in U.S. government securities, certificates
of deposit from financial institutions having a net worth of at least
$100,000,000 or other short-term investments that are easily convertible into
cash ("Permitted Temporary Investments"). See "Investment Procedures, Objectives
and Policies." The rate of return on Permitted Temporary Investments may be less
than the returns from investments in Properties.
The Company's ability to invest the proceeds of the Offering promptly in
desirable income-producing investments may be adversely affected by a decline in
the interest rates on long-term corporate debt securities and by an increase in
corporate liquidity, as potential tenants may prefer to raise capital by issuing
debt securities or using cash rather than entering into net lease transactions.
Changes to tax laws and changes to laws affecting corporate acquisitions and
reorganizations may also reduce the number of Properties the Company can
purchase.
Through September 19, 1996, the Company had invested approximately
$134,752,000 in Properties and had approximately $49,150,000 available for
investment. The Advisor is in the process of evaluating several potential
acquisitions, completion of which is subject to various conditions. The Company
will use a
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portion of available cash for these or other such acquisitions. The Company has
also obtained mortgage financing of approximately $69,578,000 which it has used
in making Property investments.
Competition for Investments. In connection with the making of investments,
the Company may experience significant competition from banks, insurance
companies, savings and loan associations, mortgage bankers, pension funds,
limited partnerships, other REITs and other entities with objectives similar to
those of the Company (including certain Affiliates of the Company) and which may
have greater financial resources or experience. See "Conflicts of Interest." An
increase in the availability of funds for real estate investment may increase
competition in the making of investments and may reduce the yields available to
the Company. Competition for investments could reduce the return which the
Company might otherwise be able to obtain.
Risk of Purchasing Property in Connection With Acquisitions,
Recapitalizations and Other Financial Restructurings. A significant portion of
Property acquisitions are expected to be made in connection with acquisitions,
recapitalizations and other financial restructurings. In some of these
transactions, an acquiring entity may purchase all or substantially all of the
stock or assets of a company, and the acquired company or its successor may
become obligated on the substantial loans necessary to finance the acquisition.
The Company may act as one of several sources of financing by purchasing real
property from the seller or buyer of the subject company and net-leasing it to
such company or its successor in interest (the lessee) or by making Loans to
such entities secured by real estate. The lessee or borrower typically will have
substantially greater debt and a substantially lower net worth than the company
had prior to the transaction. Consequently, the lessee or borrower may be
particularly vulnerable to adverse conditions in its business or industry,
adverse economic conditions generally and increases in interest rates, which
increases may directly or indirectly result in higher payments under the debt
portion of the lessee's lease with the Company and higher debt service payments
under the lessee's loans. In addition, the lessee's payment of rent and debt
service may prevent the lessee from investing in new equipment and from devoting
resources to research and development or making other expenditures which are
necessary to keep the lessee competitive in its industry. Furthermore, if the
lessee or borrower has new management, it will be more difficult for the Advisor
to determine the likelihood of the lessee's or borrower's being successful in
its business and of being able to pay rents throughout the term of a lease with
the Company.
Risks Related to Making Loans. The Advisor may structure a Company
investment as a Loan in situations in which a standard net lease transaction
would have an adverse impact on the seller of a Property or would be otherwise
inappropriate for the Company. All Loans are subject to some degree of risk,
including the risk of a default by the borrower on the Loan which could require
the Company to foreclose on the Property in order to protect its investment.
Under certain circumstances, the Company may not be able to foreclose on a
Property subject to a Loan and therefore may be unable to acquire an equity
interest in the Property. The borrower's ability to make Loan payments and the
amount the Company may realize after a default will be dependent upon the risks
generally associated with mortgage lending including, without limitation,
general or local economic conditions, neighborhood property values, interest
rates, real estate tax rates, other operating expenses, the supply of and demand
for properties of the type involved, the inability of the borrower to obtain or
maintain full occupancy of the property, zoning laws, rent control laws, other
governmental rules and fiscal policies and acts of God. Additionally, the
principal amount of Loans made by the Company generally will be repaid, in whole
or part, in lump-sum "balloon" payments. Accordingly, the borrower's ability to
make such payment may be dependent upon its ability to obtain refinancing. See
"Investment Procedures, Objectives and Policies." In the case of a leasehold
Loan, a default under the lease could result in the loss of the Company's
investment, unless the Company has the right and ability to cure such default.
As described under "Investment Procedures, Objectives and Policies," the
Company may make some Loans which provide for, in addition to payments of base
interest, payment of a portion of the rental increases and/or the appreciation
of the Property securing repayment of the Loan (the "Underlying Real Property"),
or options to acquire an equity interest in the Underlying Real Property. See
"Income Tax Aspects -- Requirements for Qualification as a REIT." Loans of this
type are called "participating loans" or "participations." In seeking such
participations, the Company may, in some cases, accept a lower base
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rent or interest rate than that available in non-participating Loans or leases
in order to obtain such a participation and the potentially greater benefit that
could result from such portion of the increased value of the Underlying Real
Property. The value of any participation which the Company may be able to obtain
will depend upon future increases in either revenues or the value of the
Underlying Real Property and on the factors inherent in any real estate
investment, as described above. Accordingly, there can be no assurance that any
amounts will be realized from the Company's participations. The Company does not
anticipate that the amounts it will receive from any participations will be
significant in the early years of any investment.
The amount of interest which may be charged by the Company on its Loans may
be limited by state usury laws. Such laws impose penalties on the making of
loans with excessive interest rates, including making such debt unenforceable.
While the Company does not intend to make Loans at excessive interest rates,
there are uncertainties in determining the legality of interest rates, which may
be increased as a result of questions as to the treatment as interest of the
equity participations the Company may seek.
It is also possible that, as a result of the Company's interest in the
rents or proceeds from a sale, financing or refinancing, a court in a bankruptcy
or similar proceeding may treat the Company as a partner or joint venturer with
the borrower or lessee, and the Company, accordingly, would lose the priority
its security interest would otherwise have given it in such situation.
Risks of Joint Ventures. The Company may participate in joint ventures with
non-affiliated Persons. See "Investment Procedures, Objectives and Policies." An
investment by the Company in a joint venture which owns properties, rather than
the Company investing directly in such properties, may involve certain risks,
including the possibility that the Company's joint venture partner may become
bankrupt, may have economic or business interests or goals which are
inconsistent with the business interests or goals of the Company, or may be in a
position to take action contrary to the instructions or the requests of the
Company or contrary to the Company's policies or objectives. Actions by the
Company's joint venture partner might, among other things, result in subjecting
property owned by the joint venture to liabilities in excess of those
contemplated by the terms of the joint venture agreement, expose the Company to
liabilities of the joint venture in excess of its proportionate share of such
liabilities, or have other adverse consequences for the Company. In a case where
the joint venturers each own a 50% interest in a venture, they may not be able
to agree on matters relating to the properties owned by the venture. Although
each joint venturer will have a right of first refusal to purchase the other
venturer's interest in a property if a sale thereof is desired, the joint
venturer may not have sufficient resources to exercise its right of first
refusal.
The Company has participated and may from time to time participate jointly
with publicly-registered investment programs or other entities sponsored by the
Advisor or one of its Affiliates in investments as tenants-in-common or in some
other joint venture arrangement. The risks of such joint ownership may be
similar to those mentioned above for joint ventures and, in the case of a
tenancy-in-common, each co-tenant normally has the right, if an unresolvable
dispute arises, to seek partition of the property, which partition might
decrease the value of each portion of the divided property. The Company or the
Advisor may also experience difficulty in enforcing the rights of the Company in
a joint venture with an Affiliate due to the fiduciary obligation the Advisor or
the Board may owe to the other partner in such joint venture.
Potential Environmental Liabilities. Under various Federal and state
environmental laws, current or former owners of real estate may be required to
investigate and clean up hazardous or toxic substances or petroleum product
releases at such property, or may be held liable to governmental entities or to
third parties for property damage and for investigation and clean up costs
incurred by such parties in connection with the contamination. Such laws
typically impose clean-up responsibility and liability without regard to whether
the owner knew of or caused the presence of the contamination, and the liability
under such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility. The
Company will generally seek to include a provision in its leases providing that
the tenant is responsible for all environmental liabilities and for compliance
with environmental regulation. Such a provision, however, does not eliminate the
Company's statutory liability or preclude claims against the Company by
governmental authorities or persons who are not parties to the lease. The
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Company's leases may also provide a basis for the Company to recover from the
tenant damages or costs for which the Company has been found liable. The cost of
an investigation and clean up of site contamination can be substantial, and the
fact that the property is or has been contaminated, even if remediated, may
adversely affect the value of the property and the owner's ability to sell or
lease the property or to borrow using the property as collateral. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and cost that it incurs in connection with the
contamination, and certain state and environmental laws provide that such lien
has priority over all other encumbrances on the property or that a lien can be
imposed on any other property owned by the liable party. Finally, the owner of a
site may be subject to common law claims by third parties based on damages and
costs resulting from the environmental contamination emanating from the site.
Other Federal, state and local laws and regulations govern the removal or
encapsulation of asbestos-containing material when such material is in poor
condition in the event of building, remodeling, renovation or demolition. Still
other Federal, state and local statutes and regulations may require the removal
or upgrade of underground storage tanks that are out of service or are out of
compliance. In addition, Federal, state and local laws, regulations and
ordinances may impose prohibitions, limitations and operational standards on, or
require permits and approvals in connection with, the discharge of waste,
wastewater and other water pollutants, the emission of air pollutants, the
operation of air polluting equipment, the generation and management of materials
classified as hazardous waste and workplace health and safety. Non-compliance
with environmental or health and safety requirements may also result in the need
to cease or alter operations at a property, which could affect the financial
health of a tenant and its ability to make lease payments. Furthermore, if there
is a violation of such a requirement in connection with the tenant's operations,
it is possible that the Company, as the owner of the property, could be held
accountable by governmental authorities for such violation and could be required
to correct the violation.
Risk of Providing Financing to Purchasers of Company's Properties. The
Company may find it necessary or desirable to provide financing to purchasers of
Properties it wishes to sell. This financing may cause any intended liquidation
of the Company to be delayed beyond the time of the disposition of Properties
and until such time as any loans are repaid or sold. The Company may find it
necessary to provide financing in circumstances where lenders are not willing to
make loans secured by commercial real estate or may find it desirable where a
purchaser is willing to pay a higher price for the Property than it would
without the financing. See "Risks Related to Making Loans" above for a
discussion of the risks associated generally with making loans.
Risk of Incurring Uninsured Losses. The Company typically will require
tenants to maintain liability and casualty insurance of the kind that is
customarily obtained for similar properties. However, certain disaster-type
insurance (covering events of a catastrophic nature, such as earthquakes) may
not be available or may only be available at rates that, in the opinion of the
Advisor, are prohibitive. In the event that an uninsured disaster should occur,
or in the event a tenant does not maintain the required insurance and a loss
occurs, the Company could suffer a loss of the capital invested in, as well as
anticipated profits from, the damaged or destroyed Property. If the loss
involves a liability claim, the loss may extend to the other assets of the
Company or the subsidiary that owns the Property affected by the loss.
Casualty and Condemnation Related to Lease Terminations. The leases of
Properties generally permit the tenant to terminate its lease in the event of a
substantial casualty or a taking by eminent domain of a substantial portion of a
Property. Should these events occur, the Company generally will be compensated
by insurance proceeds in the case of insured casualties or a condemnation award
in the case of a taking by eminent domain. There can be no assurance that any
such insurance proceeds or condemnation award will equal the value of the
Property or the Company's investment in the Property. Any such lease termination
could adversely affect the Company's cash flow and the diversification of its
net lease investments.
Risk of Investment in Real Property Located Outside the United States. The
Company has the authority to invest proceeds of the Offering in Property located
outside the United States. Such investments may be affected by factors peculiar
to the laws of the jurisdiction in which such Property is located, including but
not limited to, land use and zoning laws, environmental laws, laws relating to
the foreign
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ownership of property and laws relating to the ability of foreign persons or
corporations to remove profits earned from activities within such country to the
person's or corporation's country of origin. These laws may expose the Company
to risks that are different from and in addition to those commonly found in the
United States. In addition, such foreign investments could be subject to the
risks of adverse market conditions due to changes in national or local economic
conditions, changes in interest rates and in the availability, cost and terms of
mortgage funds resulting from varying national economic policies, changes in
real estate and other tax rates and other operating expenses in particular
countries and changing governmental rules and policies.
Accounting for Net Lease Transactions. Under certain accounting standards,
leases are classified for financial reporting purposes as either capital leases
or operating leases, with capital leases required to appear as assets and
liabilities on a lessee's balance sheet. Transactions in which the Company
acquires a deed to a Property may or may not be recognized as a sale for
financial reporting purposes due to the inclusion of certain provisions in the
lease of the Property. These accounting standards might make sale-leaseback
transactions less desirable for the seller-tenant that wants to treat a
sale-leaseback with the Company as an operating lease and, therefore, might
reduce the prospective number of Properties available for net lease investment.
Risk of Ground Leases. In certain transactions, the Company's interest in
the land constituting part of the Property may be acquired by means of a
long-term ground lease from the tenant or an unrelated third party. The
Company's continued quiet enjoyment and possession of the land as lessee could
be affected adversely by challenges resulting from the ground lessor's financial
failure. Furthermore, the Company's interest in a Property may be acquired by
acquiring the interest as a ground sublessee under a ground sublease. The
Company's continued quiet enjoyment and possession of the land could be
adversely affected in the event the original ground lessee, from whom the
Company's interest would arise, defaulted on its obligations under the original
ground lease.
CORPORATE INVESTMENT RISKS
Risk of Unspecified Investment of Proceeds of the Offering. The Company's
ability to achieve its stated investment objectives and to continue to pay
Dividends depends upon the performance of the Advisor in the acquisition of
investments for the Company. In general, shareholders will have no opportunity
to evaluate the transaction terms and other relevant economic or financial data
concerning investments to be made by the Company other than those described
herein. There can be no assurance (i) that acquired Properties will be desirable
income-producing properties; or, (ii) that desirable income-producing properties
will be available on economically attractive terms. In addition, the
profitability of the company could be affected by the amount of available funds.
A smaller amount of Gross Offering Proceeds may result in the acquisition of
fewer properties and less diversification of the Company's real estate
portfolio, thereby increasing the potential impact of any investment which
performs below expectations.
Risk of Lack of Diversification. The potential profitability of the Company
could be affected by the amount of funds from the Offering at its disposal. As
of September 19, 1996, the Company had raised approximately $131,137,398 (net of
discounts) from the sale of Shares in this Offering and a previous offering, and
owns 43 properties in 15 states leased to 14 tenants. Although there can be no
assurance that the Company will be able to raise additional funds, the Company
will not raise more than $200,000,000 in this Offering. Furthermore, there can
be no assurance that the Company will be able to achieve its leverage objective
of borrowing approximately 60% of the aggregate purchase price of all Properties
purchased. The Company may be unable to obtain mortgage financing on
commercially attractive terms because of the decreased number of commercial
banks making mortgage loans secured by commercial real property generally and,
more specifically, loans secured by single-tenant net-leased commercial real
property of the type in which the Company intends to invest. There can be no
assurance that lending sources will continue to make loans on commercially
attractive terms. The CPA(R) Programs have had leverage goals similar to the
Company's (60%) but have achieved leverage of approximately 57%. If the Company
is unable to attain its leverage objective because financing is difficult or
costly to obtain, the Company may be limited to investing in fewer Properties.
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The investment of a smaller sum of money may result in the acquisition of
fewer Properties and, accordingly, less diversification of the Company's real
estate portfolio than the investment of a larger sum in a greater number of
Properties. Lack of diversification will increase the potential adverse effect
on the Company of a single under-performing investment.
Lack of Liquidity of Shares. Shareholders may not be able to sell their
Shares promptly at a desired price; therefore, the Shares should be considered
as a long-term investment only. Currently there is no public market for the
Shares. The Company may apply to list the Shares for trading on a national
securities exchange or include them for quotation on Nasdaq if the Board
(including a majority of the Independent Directors) deems such listing or
quotation to be in the best interests of the Shareholders. However, there can be
no assurance that the Company will apply to have the Shares listed or included
for quotation, that any such application will be made before the passage of a
significant period of time, that any application will be accepted or, even if
accepted, that a public market will develop. In any event, it is unlikely that
the Company will apply to have the Shares listed or included for quotation
before the proceeds of the Offering are fully invested. In the event the Shares
are listed, Shareholders may be able to sell their Shares only through the
national securities exchange on which the Shares are listed or through Nasdaq.
There can be no assurance that the price a Shareholder would receive in a sale
on an exchange or on Nasdaq will be representative of the value of the
Properties owned by the Company or that it will equal or exceed the amount a
Shareholder paid for the Shares. Historically, shares of real estate companies
have traded at a discount to their proportionate interest in the appraised value
of the issuer's underlying assets.
If the Board decides to list the Shares, the business of the Company may
continue indefinitely and the Company may reinvest the proceeds of the sale of
Properties instead of distributing such proceeds to the Shareholders. In that
case, the Shareholders would be totally dependent upon the securities market for
the return of their initial investment in the Company.
Under certain circumstances, the Company may prevent the transfer and/or
accumulation of Shares in order to protect the status of the Company as a REIT
and as otherwise deemed by the Board to be in the best interests of the
Shareholders. See "Description of Shares -- Restriction on Ownership of Shares."
Risk of Unspecified Investments. Except for the Properties acquired by the
Company or the Properties the Company indicates it intends to acquire and
describes in a supplement to this Prospectus, purchasers of Shares will not have
an opportunity to evaluate the terms of the transaction or the relevant economic
or financial data affecting the investments to be acquired by the Company.
Moreover, the ability of the Company to accomplish its stated investment
objectives and the timing of the receipt by Shareholders of Dividends are
dependent upon the success and timing of the Advisor's acquisition of
investments for the Company. There can be no assurance that any Properties which
have been or may be acquired will be desirable income-producing properties or
will increase in value, or that desirable income-producing properties will be
available or can be acquired on economically attractive terms.
Reliance on Management. Investors will be relying entirely on the
management ability of the Advisor and on the oversight of the Board.
Shareholders have no right or power to take part in the management of the
Company except through the exercise of their shareholder voting rights. Thus, no
prospective investor should purchase any of the Shares offered hereby unless the
prospective investor is willing to entrust all aspects of the management of the
Company to the Advisor and the Board. See "Management" for a discussion of the
experience of the directors and officers in real estate investments. Also see
"Conflicts of Interests" for a discussion of the possible realization by the
Advisor and its Affiliates of substantial commissions, fees, compensation and
other income and for a discussion of various other conflicts of interest.
The Articles of Incorporation restrict ownership of more than 9.8% of the
outstanding Shares by one Person. See "Description of Shares -- Restriction on
Ownership of Shares." These restrictions may discourage a Change of Control of
the Company and may deter individuals or entities from making tender offers for
Shares, which offers might be financially attractive to Shareholders or which
may cause a change in the management of the Company.
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Shareholders' Votes. Shareholders may take certain actions, including
approving most amendments to the Articles of Incorporation and Bylaws, by a vote
of a majority of the Shares voted. Certain provisions designed to preserve the
Company's status as a REIT cannot be amended without a "supermajority" vote of
66 2/3% of the Shares entitled to vote. All actions taken, if approved by the
holders of the requisite number of Shares at a duly held meeting at which a
quorum is present, would be binding on all Shareholders. Certain of these
provisions may discourage or make it more difficult for a Person to acquire
control of the Company or to effect a change in the operation of the Company.
The Board has the power to cause the issuance of additional Shares without
obtaining Shareholder approval.
Limited Liability of Officers and Directors. The Articles of Incorporation
provides that a director's liability to the Company for monetary damages will be
limited. In addition, the Company is obligated under the Articles of
Incorporation and Bylaws to indemnify its directors and officers and may
indemnify its employees and other agents against certain liabilities incurred in
connection with their service in such capacities. The Company will execute
indemnification agreements with each director which will indemnify the directors
against any such liabilities they incur. Each of these measures could reduce the
legal remedies available to the Company and the Shareholders against such
individuals. See "Management -- Limited Liability and Indemnification of
Directors, Officers, Employees and Other Agents."
Necessity for Updating Registration Statement. In order for the Company to
purchase shares pursuant to the redemption provisions described in this
Prospectus (see "Description of Shares -- Redemption of Shares"), the Company
will be required to maintain an effective registration statement with the SEC.
An updated registration statement is required to include updated general and
financial information contained in this Prospectus. This obligation could result
in substantial expense to the Company. Although the Company intends to maintain
an effective registration statement, there can be no assurance that the Company
will maintain an effective registration statement. If the Company does not
maintain a current registration statement, the Company may not be able to redeem
Shares.
TAX RISKS
REIT Status for Tax Purposes. The Company was organized and intends to
continue to conduct its operations to enable it to qualify as and be taxed as a
REIT. If the Company continues to qualify as a REIT, it will be entitled to a
deduction for dividends paid to Shareholders and, therefore, will not be
required to pay Federal income tax on any income it distributes to the
Shareholders. The Company will be required to pay Federal income tax on income
it retains or reinvests, certain income or gain with respect to Foreclosure
Property (generally Property the Company acquires as a result of a default by a
borrower or tenant with respect to which it files an election with the IRS),
income from Prohibited Transactions (generally, sales of certain property held
primarily for sale to customers in the ordinary course of business), and if the
Company fails certain prescribed income tests, the amount of income by which
such tests were failed. Additionally, the Company may be required to pay an
alternative minimum tax and/or an excise tax. See "Income Tax
Aspects -- Taxation of the Company."
In order to qualify as a REIT, the Company must satisfy certain highly
technical requirements. See "Income Tax Aspects -- Requirements for
Qualification as a REIT" and "Income Tax Aspects -- Statement of Stock
Ownership." Failure to satisfy these qualification requirements would prevent
the Company's qualification as a REIT, in which case the Company would be
taxable as a corporation.
In addition, should the Company have difficulties locating suitable
Properties and investing the proceeds of the Offering within one year of
receipt, the Company could be disqualified as a REIT, could be subject to tax or
could be delayed in qualifying as a REIT. See "Income Tax
Aspects -- Requirements for Qualification as a REIT." To avoid such
disqualification or delay, the Company may temporarily invest all or a portion
of the proceeds in other types of assets that generate qualifying REIT income.
See "Investment Procedures, Objectives and Policies."
To qualify as a REIT, the Company is required to distribute its
Distributable REIT Taxable Income (generally, 95% of its taxable income less its
net capital gains). See "Income Tax Aspects -- Requirements for Qualification as
a REIT -- Distribution Requirement." If in any year, the Company fails to
distribute
17
<PAGE> 21
its Distributable REIT Taxable Income, it would not qualify as a REIT and would
be taxed as a corporation unless the failure results from an adjustment by the
IRS to its REIT Taxable Income. In that event, the Company could satisfy the
distribution requirement by distributing the amount of the adjustment. It is
possible that the Company could be required to borrow funds or liquidate a
portion of its investments in order to pay its expenses, make the required
distributions to Shareholders, or satisfy its tax liabilities. There can be no
assurance that such funds will be available to the extent, and at the time,
required by the Company to maintain its REIT status. See "Income Tax
Aspects -- Requirements for Qualification as a REIT."
If the Company were to be taxed as a corporation, the Company would not be
permitted to deduct an amount equal to the Dividends paid to Shareholders and
any payment of tax by the Company could substantially reduce the funds available
for distribution to Shareholders or for reinvestment. In that event, a portion
of Dividends may be a return of capital and Shareholders may be entitled to a
refund of taxes paid on Dividends. To the extent that Dividends had been made in
anticipation of the Company's qualification as a REIT, the Company might be
required to borrow additional funds or to liquidate certain of its investments
in order to pay the applicable tax. Moreover, should the Company's election to
be taxed as a REIT be terminated or voluntarily revoked, the Company may not be
able to elect to be treated as a REIT until the fifth taxable year following the
termination of its election unless it satisfies certain conditions. See "Income
Tax Aspects -- Termination of REIT Status."
Changes in Tax Laws. The discussions of the Federal income tax aspects of
the Offering are based on current law, including the Code, the Regulations
issued thereunder, certain administrative interpretations thereof and court
decisions. Consequently, future events (including those arising from legislative
and administrative proposals that are or in the future may be under
consideration) that modify or otherwise affect those provisions may result in
treatment for Federal income tax purposes of the Company and the Shareholders
that is materially and adversely different from that described in this
Prospectus, both for taxable years arising before and after such events. There
is no assurance that future legislation and administrative interpretations will
not be retroactive in effect.
OTHER INVESTMENT RISKS
Risk of Insufficient Working Capital. There can be no assurance that the
Company will have sufficient working capital. A deficiency of working capital
might be caused by a decrease in gross revenues, by an increase in expenses, by
an uninsured casualty to a Property or by other unanticipated events. There is
no assurance that the Company will be able to borrow money for working capital
purposes. Loan covenants and other restrictions included in the Company's
financing agreements relating to the acquisition of Properties may restrict the
Company's ability to borrow for such purposes or its ability to draw funds from
working capital reserves.
Investments in Non-Real Estate Assets. The Company will invest Offering
proceeds in Permitted Temporary Investments for a period of up to one year
pending the investment of such proceeds in real estate and in assets other than
real estate which generate qualifying REIT income (which, it is anticipated,
will consist primarily of mortgage-backed securities guaranteed by GNMA, FNMA or
FHLMC and, subject to certain holding period restrictions, equity interests in
other REITs). On a permanent basis, the Company will be required to limit its
investment in qualifying "non-real estate" assets to 10% of the net proceeds of
the Offering.
Permitted Temporary Investments are generally interest rate sensitive
financial instruments and their value generally will decrease if market interest
rates increase. Thus, if the Company sells its interest in such securities when
interest rates are higher than at the time when the securities initially were
acquired, the Company would likely receive less in such a sale than the amount
it initially paid. Conversely, if market interest rates decline, the underlying
mortgages may be prepaid and the Company may not be able to reinvest the
proceeds at interest rates as favorable as previously obtained.
Investment by Pension or Profit-Sharing Trusts, Keoghs or IRAs. In
considering an investment in the Company of the assets of a pension, profit
sharing, 401(k), Keogh or other retirement plan or IRA
18
<PAGE> 22
("Benefit Plans"), a fiduciary with respect to such a Benefit Plan should
consider, among other things, (i) whether the investment is consistent with
applicable provisions of ERISA or the Code, (ii) whether the investment will
produce unrelated business taxable income, as defined in Section 512 of the Code
("UBTI"), to the Benefit Plan, and (iii) the need to value the assets of the
Benefit Plan annually.
In certain circumstances, the assets of the Company could be considered
assets of Benefit Plans subject to ERISA and Section 4975 of the Code. If that
were the case, certain contemplated transactions between the Company and the
Advisor and its Affiliates might be considered "prohibited transactions" under
the Code and ERISA. The parties engaging in such transactions could become
subject to penalties and excise taxes. Additionally, the Advisor could be
considered a fiduciary under ERISA, subject to the conditions, restrictions and
prohibitions of Part 4 of Title I of ERISA and the fiduciaries for each
investing Benefit Plan could be considered to have made an improper delegation
of fiduciary responsibilities to the Advisor. IRAs also could be said to have
permitted an improper commingling of IRA assets with other assets.
The Company has obtained an opinion of Reed Smith Shaw & McClay (which
opinion is based on the facts and assumptions described in this Prospectus, on
the Articles of Incorporation and on certain representations) that the assets of
the Company should not be treated under current ERISA law and regulations as
plan assets of a Benefit Plan which purchases Shares. The opinion is not binding
on the IRS or on the Department of Labor.
There can be no assurance that the objective of preventing the assets of
the Company from being deemed, for purposes of ERISA and the Code, plan assets
of those Benefit Plans which purchase Shares will be attained. Even if the
Company complies with such regulations and the assets of the Company are not
considered plan assets, a prohibited transaction could occur if the Company,
CFA, any Selected Dealer, the Escrow Agent or any of their Affiliates is a
fiduciary (within the meaning of ERISA) with respect to the purchase by a
Benefit Plan. Thus, unless an administrative or statutory exemption applies,
Shares should not be purchased if any of the above Persons referred to in the
immediately preceding sentence is a fiduciary (within the meaning of ERISA) with
respect to such purchase.
Plans subject to ERISA and the Code and other exempt organizations are
urged to pay particular attention to the sections of this Prospectus entitled
"Income Tax Aspects -- Taxation of Tax -- Exempt Entities" and "ERISA
Considerations" before purchasing Shares.
Investment Company Act of 1940. The Board of Directors intends to conduct
the operation of the Company so that it will not be subject to regulation under
the Investment Company Act of 1940. As a result, the Company may have to forego
certain investments which could produce a more favorable return to the Company.
If the Company fails to qualify for an exemption from registration as an
investment company, it will be subject to numerous restrictions under the
Investment Company Act of 1940. A failure to qualify for an exemption under the
Investment Company Act of 1940 could have a material adverse effect on the
Shareholders.
Dilution. Because investors will pay the same price per Share during the
Offering, the value of Shares acquired by Shareholders will be diluted upon
purchase of the Shares by Shareholders purchasing Shares subsequently if
investments previously acquired by the Company have appreciated in value.
Conversely, if investments previously acquired by the Company have depreciated
in value, the value of the Shares purchased by a Shareholder later in the
Offering will be diluted immediately upon the purchase of the Shares. The Board
may authorize the issuance of Shares in addition to Shares issued pursuant to
the Offering or may issue other types of securities, thereby resulting in
possible dilution of the equity of the Shareholders.
TERMS OF THE OFFERING
A maximum of 20,000,000 Shares are being offered to the public on a "best
efforts" basis by the Sales Agent and Selected Dealers (which means that no one
is guaranteeing the amount of capital that will be raised). The Company sold
8,139,742 Shares in a previous offering and through September 19, 1996 sold
4,976,979 in this offering. The price of the Shares is $10 per Share, subject to
certain discounts. See "The
19
<PAGE> 23
Offering." The minimum subscription is 250 Shares (200 Shares for an Individual
Retirement Account ("IRA") or a Self-Employed Retirement Plan ("Keogh Plan")
except for Minnesota investors and Iowa tax-exempt investors who must make a
minimum investment of 250 Shares). Payment in full is due on transmittal of an
order by an investor or by such investor's authorized representative. Payments
will be deposited promptly in an interest-bearing escrow account maintained with
the United States Trust Company of New York (the "Escrow Agent") until such
funds are released as described below. Such funds will be held in trust for the
benefit of investors to be used for the purposes set forth in this Prospectus.
Orders must be accepted or rejected by the Company within 30 days of their
receipt. An investor whose order for Shares has been accepted by the Company has
no right to withdraw his investment. See "The Offering." The acceptance of
orders by the Company imposes no obligation on the Company to issue Shares. The
Sales Agent and the Selected Dealers may not complete a sale of Shares to an
investor until at least five business days after the date the investor receives
a copy of this Prospectus. Each investor will be sent a confirmation of his or
her purchase.
Shares will be issued periodically (but not less often than quarterly), as
agreed between the Company and the Sales Agent, until the termination of the
Offering. Investors will receive the proportionate share of interest earned on
their funds for the period such funds are held in escrow. All such interest
earned on the escrowed funds will be paid to Shareholders within 15 days of each
issuance of Shares. The Offering will terminate at the time all Shares being
offered are sold, unless sooner terminated by the Company.
The Company has established suitability standards for initial Shareholders
and subsequent transferees. These suitability standards require that a
Shareholder have either (i) a net worth of at least $150,000 or (ii) a gross
annual income of at least $45,000 and a net worth of at least $45,000. Missouri
residents must have either (i) a net worth of at least $250,000 or (ii) a gross
annual income of $75,000 and a net worth of at least $75,000. North Carolina
residents must have either (i) a minimum net worth of at least $225,000 or (ii)
a taxable income of at least $60,000 and a net worth of at least $60,000. A
Michigan or Pennsylvania resident's investment in the Company may not exceed 10%
of such resident's net worth. Computations of net worth for purposes of each of
the above suitability standards exclude the value of a Shareholder's home,
furnishings and automobiles. In the case of sales to fiduciary accounts, the
foregoing standards must be met by the fiduciary account, by the Person who
directly or indirectly supplied the funds for the purchase of the Shares or by
the beneficiary of the account. These suitability standards are intended to
ensure that, given the long-term nature of an investment in the Company, the
Company's investment objectives and the relative illiquidity of the Shares, a
purchase of Shares is an appropriate investment for certain investors. Each
Selected Dealer must make every reasonable effort to determine that the purchase
of Shares is a suitable and appropriate investment for each Shareholder based on
information provided by the Shareholder regarding the Shareholder's financial
situation and investment objectives. Each Selected Dealer shall maintain records
of the information used to determine that an investment in the Shares is
suitable and appropriate for a shareholder. Each Selected Dealer will maintain
these records for at least six years.
20
<PAGE> 24
ESTIMATED USE OF PROCEEDS
The following table presents information about how the money raised in the
Offering will be used. Information is provided assuming the maximum number of
Shares are sold. Many of the numbers in the table are estimates because all
expenses cannot be determined precisely at this time. The actual use of the
capital raised by the Company is likely to be different than the figures
presented in the table. The Company expects that between approximately 86% and
87% of the money invested by Shareholders will be used to buy real estate, while
the remaining 13% to 14% will be used for working capital and to pay expenses
and fees, including the payment of fees to and expenses of certain Affiliates of
the Sponsor of the Company.
<TABLE>
<CAPTION>
MAXIMUM OFFERING
SALE OF 20,000,000 SHARES
--------------------------------
PERCENT OF
PUBLIC OFFERING
AMOUNT PROCEEDS
------------ ---------------
<S> <C> <C>
Public Offering Proceeds.................................. $200,000,000 100.00%
------------ ---------------
Less Offering Expenses:
Selling Commissions(1).................................. 12,000,000 6.00%
Other Organization and Offering
Expenses(2).......................................... 7,327,000 3.66%
------------ ---------------
Total Offering Expenses................................... 19,327,000 9.66%
------------ ---------------
Amount of Public Offering Proceeds
Available for Investment................................ $180,673,000 90.34%
============ =============
*Acquisition Fees(3).................................... 4,441,825 2.22%
Acquisition Expenses(4)................................... 1,000,000 0.50%
Working Capital Reserve................................... 2,000,000 1.00%
------------ ---------------
Total Proceeds to be Invested in
Real Estate............................................. $173,231,175 86.62%
============ =============
</TABLE>
- ---------------
* Subordinated Acquisition Fees, which are intended to be paid from the
Company's funds from operations and not from proceeds of the Offering, have
not been included in the table. Subordinated Acquisition Fees (excluding
interest thereon), will not exceed 2% of the aggregate purchase price of the
properties. Assuming the Company does not borrow money to purchase
Properties, the Subordinated Acquisition Fees will not exceed $3,553,000
(1.77% of the Public Offering Proceeds), in the event the Maximum Offering
is achieved, which fees, with respect to any Property, are payable in equal
amounts over an eight-year period following the acquisition of a Property,
assuming the Preferred Return has been paid. Other terms of the Subordinated
Acquisition Fees are described in the "Management Compensation" section of
this Prospectus.
(1) The Company will pay a selling commission of $0.60 per Share sold (except
that no commission will be paid with respect to any Shares sold to the
Advisor, its Affiliates, the Selected Dealers or any of their employees for
their own accounts). Such selling commissions will be reduced in the event
of volume discounts and in the event of sales to investors of certain CPA(R)
Programs under certain circumstances, in each case as further described in
"The Offering." This does not include Annual Servicing Fees payable to the
Sales Agent which will be paid from funds from operations of the Company and
not from proceeds of the Offering. See "The Offering" and "Management
Compensation."
(2) Other Organization and Offering Expenses represent all expenses incurred in
connection with the formation, qualification and registration of the Company
and in marketing and distributing the Shares under applicable Federal and
state law, and any other expenses actually incurred and directly related to
the offering and sale of the Shares, except selling commissions and
Servicing Fees. See "The Offering" for a complete description of the fees
and expense reimbursements payable to the Sales Agent and the Selected
Dealers. In no event shall the total underwriting compensation to be paid to
the Sales Agent
21
<PAGE> 25
and Selected Dealers in connection with the Offering, including selling
commissions, Annual Servicing Fees and expense reimbursements, exceed 10% of
the Gross Offering Proceeds, except that an additional 0.50% of gross
proceeds from sales made by the Sales Agent and each Selected Dealer may be
paid for bona fide due diligence expenses. See "The Offering." To the extent
all Organization and Offering Expenses (excluding selling commissions,
Annual Servicing Fees, and any fees paid and expenses reimbursed to the
Selected Dealers or paid on behalf of the Selected Dealers) exceed 3.5% of
the Gross Offering Proceeds, the excess will be paid by the Advisor with no
recourse by or reimbursement to the Advisor. See "The Offering" and
"Management Compensation."
(3) Acquisition Fees include all fees and commissions paid by any party to any
party in connection with the purchase, development or construction of
Properties, except any Development Fee or Construction Fee paid to a Person
who is not an Affiliate of the Company in connection with the actual
development and construction of a project after the Company's acquisition of
the land. See "Glossary" for complete definitions of "Acquisition Fees,"
"Development Fee" and "Construction Fee." Acquisition Fees do not include
Acquisition Expenses. For purposes of the table only, Subordinated
Acquisition Fees have not been included as part of Acquisition Fees because
such fees will be paid from funds from operations of the Company. The
presentation in the table is based on the assumption that the Company will
not borrow any money to purchase Properties. Although it is assumed that all
the foregoing fees will be paid by the sellers of Property, sellers
generally fix the selling price at a level sufficient to cover the cost of
any Acquisition Fee so that, in effect, the Company, as purchaser, will bear
such fee as part of the purchase price. The Company will not purchase any
Property that has a Total Property Cost (generally, the sum of the costs of
purchasing, developing, constructing and improving the Property plus the
Acquisition Fees paid in connection with such Property) in excess of such
Property's appraised value. See "Management Compensation" for a complete
description of the terms, conditions and limitations of the payment of fees
to the Advisor and its Affiliates.
(4) Acquisition Expenses represent an estimate of all expenses related to the
selection and acquisition of Properties by the Company, whether or not such
Properties are acquired, including but not limited to legal fees and
expenses, travel and communications expenses, costs of appraisals,
non-refundable option payments on Property not acquired, accounting fees and
expenses, title insurance and miscellaneous expenses. Acquisition Expenses
do not include Acquisition Fees.
DIVIDENDS
Since July 1994, the Company has paid the following dividends to
shareholders who held their shares for the full quarter preceding the payment of
the dividend:
<TABLE>
<CAPTION>
DATE AMOUNT
------------------------------------------------------ --------
<S> <C>
July 1994............................................. $.120995
October 1994.......................................... $.17675
January 1995.......................................... $.18125
April 1995............................................ $.1875
July 1995............................................. $.19375
October 1995.......................................... $.20025
January 1996.......................................... $.2005
April 1996............................................ $.20075
July 1996............................................. $.201
</TABLE>
Largely because of deductions for depreciation, on a GAAP basis, the
dividends paid in 1994 were a return of capital. Of the 1995 dividends paid and
the 1996 dividends paid through June 1996, $.23 and $.13 per share were return
of capital, respectively.
22
<PAGE> 26
MANAGEMENT COMPENSATION
The following table sets forth the type and, to the extent possible,
estimates of the amounts of all fees, compensation, income, distributions and
other payments that the Advisor and its Affiliates will or may receive in
connection with the Offering and the operation of the Company. Such payments
initially will result from non-arm's-length bargaining. See "Conflicts of
Interest."
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ORGANIZATION AND OFFERING STAGE
Advisor and its Affiliates Reimbursement for Organiza- The actual amounts to be paid
tion and Offering Expenses, will depend upon the actual
including identified amount of Organization and Of-
wholesaling expenses incurred fering Expenses incurred by
on behalf of the Company; the Advisor and its Affiliates
provided, however, that if the in connection with this
aggregate of all Organization Offering which is not
and Offering Expenses determinable at this time.
(excluding selling com- Such expenses (other than An-
missions, Annual Servicing nual Servicing Fees) are esti-
Fees and any fees paid or mated to be $7,327,000 if
expenses reimbursed to the 20,000,000 Shares are sold.
Selected Dealers) or paid on
behalf of the Selected Dealers
exceeds 3.5% of the Gross
Offering Proceeds, the Advisor
will be responsible for the
excess.
Sales Agent Selling commissions equal to The estimated amount payable
$0.60 per Share sold. The to the Sales Agent is
Sales Agent may, in turn, $12,000,000 if 20,000,000
reallow a selling commission Shares are sold in this
of up to the full amount of Offering, all or a portion of
such commissions to Selected which will be reallowed to the
Dealers. Selected Dealers.
ACQUISITION STAGE
Advisor or its Affiliates Interest on loans made to the The actual amount of loans
Company. On short-term loans, made to the Company by the
the interest rate will be the Advisor or its Affiliates is
lesser of (i) 1% above the not determinable at this time.
prime rate of interest charged Accordingly, the actual amount
from time to time by The Bank of interest payable to the
of New York and (ii) the rate Advisor and its Affiliates, if
that would be charged to the any, is not determinable at
Company by unrelated lending this time.
institutions on comparable
loans for the same purpose in
the locality of the Property.
See "Conflicts of Interest"
and "Investment Objectives and
Policies."
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisor or its Affiliates Acquisition Fees (other than The actual amount to be paid
Subordinated Acquisition to the Advisor and its
Fees). Total Acquisition Fees Affiliates will depend upon
(which include real estate the aggregate Total Property
brokerage fees, mortgage Cost of the Properties, which
placement fees, lease-up fees in turn is dependent upon the
and transaction structuring Gross Offering Proceeds and
fees), other than Subordi- the amount of mortgage financ-
nated Acquisition Fees, ing used by the Company in ac-
payable by either sellers of quiring the Properties, and
Property or the Company may accordingly is not
not exceed 2.5% of the determinable at this time. If
aggregate purchase price of the Properties acquired from
the Properties. (1)(2) the proceeds of this Offering
are 60% leveraged, such
Acquisition Fees payable to
the Advisor or its Affiliates
are estimated to be
approximately $10,794,000 if
20,000,000 Shares are sold.
See "Conflicts of Interest."
Advisor or its Affiliates Subordinated Acquisition Fees. The actual amount to be paid
Total Subordinated Acquisition to the Advisor and its
Fees payable by either the Affiliates will depend upon
sellers of Properties or the the aggregate Total Property
Company may not exceed 2.0% of Cost of the Properties
the aggregate purchase price acquired with the proceeds of
of the Properties and, with this Offering, which in turn
respect to each Property, are is dependent upon the Gross
payable in equal annual Offering Proceeds of this
installments on January 1 of Offering and the amount of
each of the eight calendar mortgage financing used by the
years commencing with January Company in acquiring the
1 following the first an- Properties, and accordingly is
niversary of the date such not determinable at this time.
Property was purchased. The If the Properties acquired
unpaid portion of the with the proceeds of this
Subordinated Acquisition Fee Offering are 60% leveraged,
with respect to any Property Subordinated Acquisition Fees
will bear interest at the rate payable to the Advisor or its
of 7% per annum from the date Affiliates by sellers of
of acquisition of such Prop- Properties are estimated to be
erty until such portion is approximately $8,655,000 if
paid. Such accrued interest is 20,000,000 Shares are sold.
payable on the date of each See "Conflicts of Interest."
annual installment of such
Fees. The Company's portion of
the Subordinated Acquisition
Fee payable in any year, and
accrued interest thereon, will
be subordinated to the
Preferred Return. All Subor-
dinated Acquisition Fees, and
accrued interest thereon,
shall become due and payable
at such time the Shares become
listed for trading on a
national securities exchange
or included for quotation on
Nasdaq. (1)(2)
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONAL STAGE
Advisor and its Affiliates Reimbursement for Company Not determinable at this time.
expenses incurred in From the Company's inception
connection with the through December 31, 1995, the
administration of the Company. Company had incurred expense
The amounts of any such reimbursements payable to the
reimbursement will not exceed Advisor of $1,207,976.
amounts which would be paid to
non-affiliated third parties
in the same locality for sim-
ilar products. The Operating
Expenses of the Company may
not exceed the 2%/25% Guide-
lines in any 12-month period.
To the extent that the Company
incurs Operating Expenses in
excess of the 2%/25% Guide-
lines and the Independent Di-
rectors find that such excess
expenses were the result of
unusual and nonrecurring
factors, the Advisor may be
reimbursed in future years for
the full amount of such excess
expenses, or any portion
thereof, but only to the
extent such reimbursement
would not cause the Company's
Operating Expenses to exceed
the 2%/25% Guidelines in any
such year.
Advisor Asset Management Fee, payable If the maximum number of
monthly in an amount equal to Shares is sold and the Company
one-twelfth of .5% of the achieves its borrowing goal of
Average Invested Assets for 60%, Average Invested Assets
the preceding month. The Asset as a result of this Offering
Management Fee must fall would be approximately
within the 2%/25% Guidelines. $444,183,000 and the annual
Payment of the Asset Manage- Asset Management Fee on such
ment Fee will be deferred if assets would be approximately
the Operating Expenses of the $2,221,000.
Company exceed the 2%/25%
Guidelines. (2)(3)(4)(5)
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisor Performance Fee, calculated If the maximum number of
monthly on the basis of one- Shares is sold and the Company
twelfth of .5% of the Average achieves its borrowing goal of
Invested Assets for the 60%, Average Invested Assets
preceding month, payable as a result of this Offering
quarterly. Payment of this Fee would be approximately
for any quarter will be $444,183,000 and the annual
subordinated to the Preferred Performance Fee on such assets
Return. The Performance Fee would be approximately
must fall within the 2%/25% $2,221,000.
Guidelines. Payment of this
Fee will also be deferred if
the Operating Expenses of the
Company exceed the 2%/25%
Guidelines. (2)(3) (4)(5)
Advisor Loan Refinancing Fee. Fees The actual amount to be paid
payable by either the tenant to the Advisor will depend
of a Property or the Company upon the aggregate amount of
may not exceed 1% of the the refinancing obtained by
principal amount of any the Company. As of December
refinancing obtained by the 31, 1995, the Advisor has been
Company for which the Advisor paid Loan Refinancing Fees of
renders substantial services $33,750.
and for which no fees are paid
to a third party. The Loan
Refinancing Fee will be
payable only if (i) the new
loan is approved by the Inde-
pendent Directors as being in
the best interests of the Com-
pany, (ii) payment of the fee
is approved by a majority of
the Independent Directors, and
(iii) the terms of the new
loan represent an improvement
over the terms of the
refinanced loan, the new loan
materially increases the total
debt secured by a particular
Property, or the maturity date
of the refinanced loan (which
must have had an initial term
of five years or more) is less
than one year from the date of
the refinancing. See
"Conflicts of Interest."
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Agent Annual Servicing Fee with re- The estimated amounts payable
spect to all Shares sold to to the Sales Agent for each
clients of the Sales Agent or year following the termination
Selected Dealers in this of the Offering will be
Offering payable on each April $300,000, if 20,000,000 Shares
15, commencing on April 15, are sold. The maximum
1998, in an amount equal to estimated aggregate amounts
.15% of the Gross Offering payable to the Sales Agent
Proceeds. The Company will not following termination of the
pay the portion of the Annual Offering will be approxi-
Servicing Fee for any year mately $2,140,000, if
which, if paid, would cause 20,000,000 Shares are sold.
the total underwriting
compensation paid to the Sales
Agent and Selected Dealers in
connection with the Offering
to be equal to or to exceed
10% of the Gross Offering Pro-
ceeds. No portion of the
Annual Servicing Fee will
accrue in any year in which
the Company is liquidated or
the Shares become publicly
traded. The Sales Agent may,
in turn, reallow to any
Selected Dealer the portion of
any Annual Servicing Fee at-
tributable to Shares held by
clients of such Selected
Dealer.
LIQUIDATION STAGE
Advisor or its Affiliates Subordinated Disposition Fee Not determinable at this time.
in an amount equal to the No such fee has been paid to
lesser of (i) 50% of the the Advisor or its Affiliates
Competitive Real Estate as of December 31, 1995.
Commission and (ii) 3% of the
Contract Sales Price of a
Property (if the Advisor or an
Affiliate provides a
substantial amount of services
in the sale of a Property).
The Subordinated Disposition
Fee shall be deferred until
Shareholders have received
total Dividends equal to 100%
of Initial Investor Capital
plus a 6% Cumulative Return
commencing with the Initial
Closing Date for each
Offering. To the extent that
the Subordinated Disposition
Fee is not currently paid by
the Company because of the
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Advisor and its Affiliates Subordinated Incentive Fee The actual amount to be re-
shall be payable in an amount ceived will depend upon the
equal to 15% of the balance results of the Company's
from Cash from Sales and operations and the amounts re-
Financings remaining after the ceived upon the sale or other
Shareholders have received disposition of the Properties
Dividends totaling 100% of and are not determinable at
Initial Investor Capital plus this time.
the Preferred Return. (6)
</TABLE>
- ---------------
(1) The total Acquisition Fees (not including Subordinated Acquisition Fees)
payable to the Advisor and its Affiliates or paid by the Company may not
exceed 2.5% of the aggregate Total Property Cost of all Properties purchased
by the Company with the proceeds of this Offering unless a majority of the
Board (including a majority of the Independent Directors) not otherwise
interested in any transaction approve such excess as being commercially
competitive, fair and reasonable to the Company. The total of all
Acquisition Fees (including Subordinated Acquisition Fees and interest
thereon) and Acquisition Expenses paid by the Company shall be reasonable
and shall not exceed an amount equal to 6% of the aggregate Contract
Purchase Price of all properties purchased by the Company with the proceeds
of this Offering, unless a majority of the directors (including a majority
of the Independent Directors) not otherwise interested in any transaction
approves fees in excess of this limit as being commercially competitive,
fair and reasonable to the Company.
(2) The Company's objective is to achieve total borrowings of approximately 60%
of the purchase price of all Properties. The CPA(R) Programs have had
similar leverage goals but have achieved leverage of only approximately 57%.
As of September 19, 1996, the Company had achieved leverage of 51.6%. The
actual leverage percentage achieved by the Company will impact the amount of
Acquisition Fees earned by the Advisor because such fees are based primarily
on the total dollars invested in Properties and the amount available for
such investment will be affected by the amount of the Company's total
borrowings (i.e., the higher the leverage percentage, the more funds
available for investment in Properties). If the maximum Offering of
20,000,000 Shares is sold and the Properties are 75% leveraged, Acquisition
Fees (not including Subordinated Acquisition Fees) payable to the Advisor or
its Affiliates as a result of this Offering (assuming an aggregate Total
Property Cost of all Properties of approximately $711,000,000) are estimated
to be approximately $17,270,000 and Subordinated Acquisition Fees are
estimated to be approximately $13,847,000. The Company does not expect its
Properties to be 75% leveraged. The advisory agreement between the Company
and the Advisor (the "Advisory Agreement") provides that the Advisor will
not earn Acquisition Fees or Subordinated Acquisition Fees on the
reinvestment of proceeds from the sale or refinancing of Properties, unless
the Shares are publicly-traded or are expected to be publicly-traded.
28
<PAGE> 32
(3) There are currently no specific arrangements for the provision of Property
management services to the Company by the Advisor. Such services shall be
provided by the Advisor or an Affiliate only if a Property becomes vacant or
requires more active management than contemplated at the time such Property
is acquired. However, if the Advisor deems such services to be necessary in
order to preserve the value of the Property, the Advisor or its Affiliates,
with the approval of the Board (including a majority of the Independent
Directors), may provide such services. The maximum Property management fee
which may be paid to the Advisor or an Affiliate will be 6% of gross
revenues from commercial Properties and 5% of gross revenues from
residential Properties (plus reimbursed expenses), where such entity
performs property management and leasing, re-leasing and leasing related
services, or 3% of gross revenues, where such entity provides only property
management services. In the case of industrial and commercial Properties
which are leased for ten or more years on a triple net lease basis, the
maximum Property management fee from such leases shall be 1% of the
Company's gross revenues over the term of each lease plus a one-time leasing
fee of 3% of the total base rents payable for the first five years of the
lease term payable in five equal annual installments. In no event may the
Property management fees paid to the Advisor or its Affiliates exceed the
usual and customary amounts charged for similar services in the same
geographic region.
(4) If at any time the Shares become listed on a national securities exchange or
included for quotation on Nasdaq, the Company and the Advisor will negotiate
in good faith a fee structure appropriate for an entity with a perpetual
life. A majority of the Independent Directors must approve the new fee
structure negotiated with the Advisor. In negotiating a new fee structure,
the Independent Directors shall consider all of the factors they deem
relevant, including but not limited to: (a) the size of the advisory fee in
relation to the size, composition and profitability of the Company's
portfolio; (b) the success of the Advisor in generating opportunities that
meet the investment objectives of the Company; (c) the rates charged to
other REITs and to investors other than REITs by Advisors performing similar
services; (d) additional revenues realized by the Advisor and its Affiliates
through their relationship with the Company, including loan administration,
underwriting or broker commissions, servicing, engineering, inspection and
other fees, whether paid by the Company or by others with whom the Company
does business; (e) the quality and extent of service and advice furnished by
the Advisor; (f) the performance of the investment portfolio of the Company,
including income, conservation or appreciation of capital, frequency of
problem investments and competence in dealing with distress situations; and
(g) the quality of the portfolio of the Company in relationship to the
investments generated by the Advisor for its own account. The Board,
including a majority of the Independent Directors, may not approve a new fee
structure that is, in its judgment, more favorable to the Advisor than the
current fee structure.
(5) Following the termination of the Advisory Agreement by the Company, the
Advisor shall be entitled to receive payment of any earned but unpaid
compensation and expense reimbursements, including Organization and Offering
Expenses and Subordinated Acquisition Fees, Asset Management Fees,
Performance Fees, Loan Refinancing Fees and Subordinated Disposition Fees
accrued as of such date. If the Advisory Agreement is terminated (i) in
connection with a Change of Control of the Company, (ii) by the Company for
any reason other than Cause (as defined in "Management -- The Advisory
Agreement") or (iii) by the Advisor for Good Reason (as defined in
"Management -- The Advisory Agreement"), the Advisor also shall be entitled
to the payment of the Termination Fee and any Subordinated Acquisition Fees
that have not accrued. The Advisor shall be entitled to receive all accrued
but unpaid compensation and expense reimbursements in cash within 30 days of
the effective date of the termination. All other amounts payable to the
Advisor in the event of a termination shall be evidenced by a promissory
note and shall be payable from time to time. The Termination Fee shall be
paid in 12 equal quarterly installments with interest on the unpaid balance.
Notwithstanding the preceding sentence, any amounts which may be deemed
payable at the date the obligation to pay the Termination Fee is incurred
which relate to the appreciation of the Properties (a) shall be an amount
which provides compensation to the terminated Advisor only for that portion
of the holding period for the respective Properties during which such
terminated Advisor provided services to the Company, (b) shall not be due
and payable until the Property to which such fees relate is sold or
refinanced, and (c)
29
<PAGE> 33
shall not bear interest until the Property to which such fees relate is sold
or refinanced. The Advisor shall not be entitled to payment of the
Termination Fee in the event the Advisory Agreement is terminated because of
failure of the Company and the Advisor to establish a fee structure
appropriate for a perpetual-life entity in the event the Shares are listed
on a national securities exchange or are included for quotation on Nasdaq.
(6) In the event the Shares are listed on a national securities exchange or
included for quotation on Nasdaq, the Advisor shall be paid the Subordinated
Incentive Fee in an amount equal to 12% of the excess (the "Excess Return")
of (A) the sum (the "Hypothetical Return") of (i) the market value of the
Company, measured by taking the average closing price or bid and asked
price, as the case may be, over a period, beginning 180 days after listing
of the Shares, of 30 days during which the Shares are traded (the "Market
Value") plus (ii) the total of the Dividends paid to Shareholders from the
Initial Closing Date until the date the Shares are listed or included for
quotation over (B) the sum of (i) 100% of Initial Investor Capital and (ii)
the total amount of the Dividends required to be paid to Shareholders in
order to pay the Preferred Return through the date the Market Value is
determined. The Subordinated Incentive Fee shall be increased to 13% if the
Hypothetical Return is an amount sufficient to return to investors 100% of
Initial Investor Capital plus a Cumulative Return of 8% or more but less
than 9%; 14% if the Hypothetical Return is an amount sufficient to return
100% of Initial Investor Capital plus a Cumulative Return of 9% or more but
less than 10%; and 15% if the Hypothetical Return is an amount sufficient to
return 100% of Initial Investor Capital plus a Cumulative Return of 10% or
more. The Cumulative Return shall be measured from the Initial Closing Date
through the last day on which the Market Value is determined. The
Subordinated Incentive Fee may only be paid if the average closing price of
the Shares over any consecutive three-month period ending within 24 months
of the date of listing is sufficient, when added to Dividends previously
paid from the Initial Closing Date through the end of such three-month
period, to return 100% of Initial Investor Capital plus a 6% Cumulative
Return from the Initial Closing Date through the last day of such
three-month period. The Company shall have the option to pay such fee in the
form of cash, a promissory note or any combination thereof. In the event the
Subordinated Incentive Fee is paid to the Advisor as a result of the listing
of the Shares, no Termination Fee will be paid to the Advisor if the
Advisory Agreement is terminated after such listing.
CONFLICTS OF INTEREST
Various conflicts of interest may arise in the operation of the Company's
business. The Independent Directors will determine the manner in which the
Company will participate in any transaction, will have an obligation to function
on behalf of the Company in all situations in which a conflict of interest may
arise and will have a fiduciary obligation to act on behalf of the Shareholders.
Possible conflicts of interest include the following:
Receipt of Commissions, Fees and Other Compensation by the Advisor and its
Affiliates. A transaction involving the purchase, financing, lease and sale of
any Property by the Company may result in the immediate realization by the
Advisor and its Affiliates of substantial commissions, fees, compensation and
other income. Subject to the Advisory Agreement, the Advisor has discretion with
respect to all decisions relating to any such transaction, except to the extent
such transaction involves Affiliates of the Advisor or relates to the making or
purchasing of any Loans on behalf of the Company, in which case such transaction
must be approved by a majority of the Independent Directors. Potential conflicts
may arise in connection with the determination by the Advisor (on behalf of the
Company) of whether to hold or sell a Property, as such determination could
impact the timing and amount of fees payable to the Advisor. The Company may
purchase, sell or finance Properties through certain Affiliates of the Advisor
engaged in the real estate brokerage business or through other Affiliates of the
Company.
Non-Arm's-Length Agreements. Except as otherwise provided below, all
agreements and arrangements, including those relating to compensation, between
the Company and the Advisor or any of its Affiliates will not be the result of
arm's-length negotiations. Certain provisions of the bylaws of the Company (the
30
<PAGE> 34
"Bylaws"), however, target generally potential conflicts which might otherwise
result from such agreements and arrangements by, among other things, requiring
that compensation to the Advisor and its Affiliates be approved by a majority of
the Independent Directors and that terms of future transactions with Affiliates
be no less favorable to the Company than terms which could be obtained from
unaffiliated entities providing similar services as an ongoing activity in the
same geographical location.
Purchases and Loans from Affiliates. The Company may purchase Properties
from Affiliates of the Advisor if such purchase is consistent with the
Investment Procedures, Objectives and Policies of the Company and if certain
other conditions are met. See "Investment Procedures, Objectives and Policies."
The Company also may borrow funds from the Advisor or its Affiliates (a) if, at
any time when proceeds of the Offering are being held by the Escrow Agent, the
Company does not have sufficient funds to provide the equity portion of a
particular investment and (b) to provide the debt portion of a particular
investment if (i) the Company is unable to obtain a permanent loan at such time
or, in the judgment of the Board, it is not in the best interest of the Company
to obtain a permanent loan at the interest rates then prevailing and (ii) the
Board has reason to believe that the Company will be able to obtain a permanent
loan on or prior to the end of the loan term provided by the Advisor or such
Affiliate. See "Investment Procedures, Objectives and Policies." The Company may
borrow funds on a short-term basis from the Advisor or its Affiliates.
The Company may not invest in other REITs advised or managed, directly or
through Affiliates, by the Sponsor, its subsidiaries or William P. Carey and
with respect to which the Sponsor, its subsidiaries or William P. Carey receive
separate fees, and will not sell Properties to the Sponsor, the Advisor or any
director or any of their respective Affiliates, except in the case of an
exercise of a right of first refusal by an affiliated joint venture partner.
Every transaction entered into between the Company and the Advisor or its
Affiliates is subject to an inherent conflict of interest. The Board may
encounter conflicts of interest in enforcing rights of the Company against any
Affiliate in the event of a default by or disagreement with such Affiliate or in
invoking powers, rights or options pursuant to any agreement between the Company
and such Affiliates. Each transaction between the Company and the Advisor or any
of its Affiliates must be approved by a majority of the Independent Directors
who are otherwise disinterested in the transaction as being fair and reasonable
to the Company and on terms and conditions no less favorable to the Company than
those available from unaffiliated third parties.
Competition with the Company from Affiliates of the Advisor in the
Purchase, Sale, Lease and Operation of Properties. W.P. Carey & Co., Inc. ("W.P.
Carey & Co.") specializes in providing lease financing services to major
corporations and, therefore, may be in competition with the Company with respect
to Properties, potential purchasers, sellers and lessees of Properties, and
mortgage financing for Properties. W.P. Carey & Co., its subsidiaries and
William P. Carey currently manage or advise public and private real estate
investment partnerships and REITs whose investment and rate of return objectives
are substantially similar to those of the Company. In addition, they expect to
manage or advise, directly or through Affiliates, additional REITs, public and
private investment partnerships and other investment entities.
The CPA(R) Programs have investment policies similar to those of the
Company and, therefore, may be in competition with the Company for Properties,
potential purchasers, sellers and lessees of Properties, and mortgage financing
for Properties. Affiliates of the Advisor intend to offer interests in other
REITs, partnerships or public or private investment entities, some of which may
have similar investment objectives as the Company and may be in a position to
acquire Properties at the same time as the Company. Affiliates of the Advisor
may have an ownership interest in such other REITS.
The Advisor will use best efforts to present suitable investments to the
Company consistent with the investment Procedures, Objectives and Policies of
the Company. However, the Advisor is not restricted from advising or managing
other entities, any of which may have investment objectives similar to those of
the Company. If the Advisor or any of its Affiliates is presented with a
potential investment in a Property which might be made by more than one
investment entity which it advises or manages, the decision as to the
suitability of such Property for investment by a particular entity will be based
upon a review of the
31
<PAGE> 35
investment portfolio of each such entity and upon factors such as cash flow from
the Property, the effect of the acquisition thereof on the diversification of
each entity's portfolio, rental payments during any renewal period, the
estimated income tax effects of the purchase on each entity, the amount of
equity required to make the investment, the policies of each entity relating to
leverage, the funds of each entity available for investment, the length of time
such funds have been available for investment and the manner in which the
potential investment can be structured by each entity. Consideration will be
given to joint ownership (e.g., tenancy-in-common or joint venture arrangement)
of a particular Property determined to be suitable for more than one investment
entity in order to achieve diversification of each entity's portfolio and
efficient completion of an entity's portfolio. In such joint ownership, the
investment of each entity will be on substantially similar terms and conditions,
compensation to the organizer of each investment entity will be similar and each
investment entity will have a right of first refusal to purchase the interest of
the other if a sale of that interest is contemplated. See "Risk Factors -- Real
Estate Investment Risks -- Risks of Joint Ventures." To the extent that a
particular Property might be determined to be suitable for more than one
investment entity, priority generally will be given to the investment entity
having uninvested funds for the longest period of time. It is the responsibility
of the directors (including the Independent Directors) to insure that the method
used to allocate transactions is applied fairly to the Company.
Adjacent Properties. Although it is not expected to occur, if the Advisor
or any of its Affiliates acquires Properties that are adjacent to those of the
Company, the value of such Properties may be enhanced by the interests of the
Company. It also is possible that such Properties could be in competition with
those of the Company for prospective tenants.
Competition with the Company from Affiliates of the Advisor for the Time
and Services of Officers and Directors. The Company will depend on the Board and
the Advisor for the operation of the Company and for the acquisition, operation
and disposition of its investments. Most officers of Carey Fiduciary Advisors,
Inc. ("CFA"), the general partner of the Advisor, are also officers, directors
and/or employees of W.P. Carey & Co. The general partners of the CPA(R) Programs
are Affiliates of the Advisor, and CFA is the general partner of the Advisor to
CPA(R):10 and CIP(TM). The Advisor serves in the same advisory capacity for
CPA(R):10 and CIP(TM). The Advisor has entered into the Advisory Agreement with
the Company pursuant to which it will perform certain functions relating to the
investment of the Company's funds and the day-to-day management of the Company.
See "Management -- The Advisory Agreement." Certain officers of Affiliates of
the Advisor will be performing similar services for the CPA(R) Programs and may
perform such services for REITs, partnerships or other investment entities
offered in the future by Affiliates of the Advisor. CFA, the Advisor and their
Affiliates will devote such time to the affairs of the Company as they, within
their sole discretion, exercised in good faith, determine to be necessary for
the benefit of the Company and the Shareholders. See "Management." Neither the
Sales Agent, the Advisor nor any of their Affiliates are restricted in any
manner as a result of their connection with the Company and the Offering from
acting as general partner, advisor, underwriter, selling agent or broker-dealer
in public or private offerings of securities in REITs, real estate partnerships
or other entities which may have objectives similar to those of the Company and
which are sponsored by Affiliated or non-Affiliated Persons. The Independent
Directors also serve in similar capacities on the board of directors of
CPA(R):10 and CIP(TM) (except for Mr. Lodge who serves only on the Board of
CIP(TM)).
Affiliated Sales Agent. The Sales Agent, a subsidiary of W.P. Carey & Co.
and an Affiliate of the Advisor, will receive a selling commission for each
Share sold by it (except for sales made to the Advisor, its employees or its
Affiliates) and Annual Servicing Fees with respect to Shares held by its
clients, and will receive reimbursement for certain expenses. See "The
Offering."
Common Counsel. Reed Smith Shaw & McClay, counsel for the Company in
connection with the Offering, is also counsel to the Advisor, the Sales Agent
and various Affiliates, including the CPA(R) Programs and W.P. Carey & Co. In
the event any legal controversy arises in which the interests of the Company
appear to be in conflict with those of the Advisor, the Sales Agent or their
Affiliates, other counsel will be retained for one or more parties. Michael B.
Pollack, Senior Vice President and Secretary of the Company, is a partner in
Reed Smith Shaw & McClay. See "Management" and "Legal Opinions."
32
<PAGE> 36
Advisor's and Selected Dealers' Ownership Interest in the Company. For the
purpose of providing the initial capitalization of the Company, the Advisor has
acquired 20,000 Shares, constituting approximately 0.15% of the outstanding
Shares as of September 19, 1996. If the maximum number of Shares are sold in the
Offering, the Advisor will own less than 0.1% of the Shares. The Advisor and its
Affiliates and employees, and the Selected Dealers and their employees are not
restricted from acquiring Shares and may purchase an unlimited number of Shares
on the same terms and conditions as the Shareholders except that such purchases
shall be net of commissions. In addition, if the Advisor purchases additional
Shares for investment, the Advisor could own a percentage of Shares greater than
such amounts. Any Shares owned by the Advisor or the Affiliates of the Advisor
can be expected to be voted in the Advisor's interest in matters requiring the
approval of the holders of a majority of the Shares and any other matter
submitted to a vote of the Shareholders. There are instances in which Shares
held by the Advisor, the Company's directors or their Affiliates will not be
permitted to vote. See "Management" and "Shareholders" sections of this
Prospectus for further details.
33
<PAGE> 37
The following chart shows the relationship among the Advisor, its general
partner, its Affiliates and the Company. See "Management."
[CHART]
34
<PAGE> 38
PRIOR OFFERINGS BY AFFILIATES
THE INFORMATION IN THIS SECTION AND THE TABLES REFERENCED HEREIN SHOULD NOT
BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE COMPANY. IN
ADDITION, THE INCLUSION OF THE TABLES REFERENCED HEREIN AS EXHIBITS TO THIS
PROSPECTUS DOES NOT IMPLY OR INDICATE IN ANY MANNER THAT THE COMPANY WILL MAKE
INVESTMENTS COMPARABLE TO THOSE REFLECTED IN SUCH TABLES WITH RESPECT TO CASH
FLOW, TAXABLE INCOME OR OTHER FACTORS, NOR DOES IT IMPLY OR INDICATE THAT
PURCHASERS OF SHARES WILL EXPERIENCE RETURNS COMPARABLE TO THOSE EXPERIENCED BY
INVESTORS IN THE REAL ESTATE PROGRAMS REFERRED TO IN SUCH TABLES. SHAREHOLDERS
WHO PURCHASE SHARES IN THE COMPANY WILL NOT HAVE ANY OWNERSHIP INTEREST IN ANY
OF SUCH REAL ESTATE PROGRAMS (UNLESS THEY ARE ALSO INVESTORS IN THOSE REAL
ESTATE PROGRAMS).
Affiliates of the Advisor have organized Corporate Property Associates, a
California limited partnership ("CPA(R):1"), Corporate Property Associates 2, a
California limited partnership ("CPA(R):2"), Corporate Property Associates 3, a
California limited partnership ("CPA(R):3"), Corporate Property Associates 4, a
California limited partnership ("CPA(R):4"), Corporate Property Associates 5, a
California limited partnership ("CPA(R):5"), Corporate Property Associates
6 -- a California limited partnership ("CPA(R):6"), Corporate Property
Associates 7, -- a California limited partnership ("CPA(R):7"), Corporate
Property Associates 8, L.P., a Delaware limited partnership ("CPA(R):8"),
Corporate Property Associates 9, L.P., a Delaware limited partnership
("CPA(R):9"), Corporate Property Associates 10 Incorporated, a Maryland
corporation ("CPA(R):10"), and Carey Institutional Properties Incorporated; a
Maryland corporation ("CIP(TM)"), (collectively, the "CPA(R) Programs") during
the past 18 years and continue to serve as their general partners or advisor.
The primary investment objectives of the CPA(R) Programs are similar to those of
the Company.
As of December 31, 1995, the CPA(R) Programs had raised a total of
approximately $692,769,000 from approximately 38,500 investors. Through that
date, the CPA(R) Programs originally had purchased a total of 358 properties, at
an aggregate purchase price of approximately $1,310,217,000 (including
capitalized costs of approximately $25,761,000), which consists of equity
investments of approximately $557,721,000 and mortgage financing of
approximately $752,496,000. All of the properties purchased are industrial or
commercial properties. Of the properties owned (on the basis of purchase price,
including additional capitalized costs) as of December 31, 1995: 30.06% are
manufacturing plants; 22.60% are office buildings and research facilities;
19.26% are retail stores; 15.65% are distribution centers and warehouses and
12.43% are hotels and restaurants. Of the properties currently owned by the
CPA(R) Programs: 94 are located in the Southwest; 86 are located in the Midwest;
67 are located in the Southeast; 36 are located in the Pacific coast states; 32
are located in the Northeast; and 9 are located in the Mountain states.
When acquired by the CPA(R) Programs, approximately 18.44% of the
properties had newly constructed buildings and approximately 81.56% had
previously constructed buildings (percentage determined on the basis of purchase
price, including additional capitalized costs). Substantially all of the
properties were fully constructed when purchased by the CPA(R) Programs. When
purchased by the CPA(R) Programs, all of the properties were single-tenant
commercial, industrial and governmental real property (or interests therein).
The CPA(R) Programs have made no Loans or participating Loans and have entered
into 28 joint ventures with affiliated programs (24% of all transactions entered
into by the CPA(R) Programs). More detailed information with respect to
investments by the CPA(R) Programs is separately presented in tabular form for
the CPA(R) Programs in Exhibit 99 to Part II of the Registration Statement. Upon
request, the Company will provide, at no fee, copies of such Exhibit.
35
<PAGE> 39
The CPA(R) Programs have had similar leverage goals to that of the Company
(60% of Total Property Cost of all properties purchased) but on average have
achieved leverage of approximately 57%. For fully invested CPA(R) Programs, the
approximate percentage of leverage achieved is as follows: CPA(R):1 -- 59%;
CPA(R):2 -- 56%; CPA(R):3 -- 53%; CPA(R):4 -- 54%; CPA(R):5 -- 57%;
CPA(R):6 -- 58%; CPA(R):7 -- 54%; CPA(R):8 -- 54%; CPA(R):9 -- 60%;
CPA(R):10 -- 63%; and CIP(TM) -- 61%.
Forty-four complete properties and unimproved portions of nine other
properties purchased by the CPA(R) Programs had been sold as of December 31,
1995. All but 14 of such properties were sold for consideration equal to or in
excess of the applicable CPA(R) Program's total investment in such properties,
including acquisition costs. The properties sold were originally purchased for a
total purchase price of approximately $123,015,000 and an initial equity
investment of approximately $48,669,000. Approximately $137,897,000 was received
from the sale of these properties (plus approximately $1,906,000 in additional
consideration received in connection with such sales) while net proceeds
received (after expenses and the repayment of mortgages) were approximately
$78,632,000. No purchase money obligations were received by the Company in
connection with the sale of such properties. More detailed information with
respect to the properties sold by the CPA(R) Programs between January 1, 1992
and December 31, 1995 is presented in tabular form in Table V (Sales or
Dispositions of Properties) in Exhibit A to this Prospectus.
The CPA(R) Programs have adopted investment policies which are designed to
reduce the risk of occurrence of adverse business developments as well as to
mitigate the effects of any adverse business development. In selecting
investments, factors such as the creditworthiness of a tenant, the condition and
use of the property, and geographic and industry diversification are considered
in order to reduce the risk of adverse business developments to the CPA(R)
Programs. As part of the property selection process, the CPA(R) Programs often
attempt to select properties which are necessary to the operations of a tenant
so that, in the event that such tenant undergoes a reorganization due to
bankruptcy, the lease provisions are less likely to be modified. In addition, in
order to minimize their exposure, the CPA(R) Programs also attempt to utilize
nonrecourse mortgage financing.
Certain CPA(R) Programs have experienced adverse business developments
which have included the filing by certain tenants for protection from creditors
under the Bankruptcy Code, the vacating of facilities by a tenant at the end of
an initial lease term, and litigation with tenants involving lease defaults and
sales of properties. These developments have caused a reduction in cash flow
and/or an increase in administrative expenses of the affected CPA(R) Programs
for certain periods of time, but, with three exceptions described below, have
not caused the affected CPA(R) Programs to reduce their rate of distributions to
partners. See Table III (Operating Results of Prior Programs) in Exhibit A to
this Prospectus for overall results of operations of the affected CPA(R)
Programs.
The general partners of the affected CPA(R) Programs have undertaken a
number of measures to mitigate the adverse effects of certain adverse business
developments, such as re-leasing properties vacated by initial tenants;
refinancing mortgage loans and restructuring terms of existing mortgage loans;
restructuring lease terms; selling properties; and, in the case of litigation,
vigorously defending the interests of affected CPA(R) Programs and, where
appropriate, settling litigation. Of the approximately 150 tenants with which
the CPA(R) Programs have entered into leases, 15 have subsequently sought
protection from creditors in bankruptcy. Properties formerly leased to nine of
these tenants have been re-leased or sold. Four other tenants have affirmed
their leases and the leases of the remaining two tenants are currently the
subject of negotiations described below.
Most CPA(R) Programs in which adverse developments have occurred have been
able to meet their obligations and maintain distributions to their partners,
primarily as a result of the efforts of the general partners described above and
below and the existence of a working capital reserve established at the
inception of each CPA(R) Program. Although several CPA(R) Programs have
experienced the types of adverse business developments described above, only
three CPA(R)Programs, CPA(R):1, CPA(R):5 and CPA(R):7, have had to reduce the
rate of distributions to their partners as a result of adverse developments. The
adverse developments which were primarily responsible for causing these
reductions in the rate of distributions are, in the case of CPA(R):1, the
bankruptcy filing by Storage Technology, in the case of CPA(R):5 the sale of two
36
<PAGE> 40
properties and in the case of CPA(R):7, the bankruptcy filings of Yellow Front
Stores, Inc. and NV Ryan L.P. The reductions in distribution rates in each of
CPA(R):1, CPA(R):5 and CPA(R):7 were followed by increases in the distribution
rates. The distribution rate of CPA(R):7 now exceeds the rate in effect before
the reductions while the distribution rate of CPA(R):1 and CPA(R):5 have not
reached the rate in effect before the reduction.
Most of the adverse developments which have occurred have been resolved.
These include the filings for protection from creditors under the Bankruptcy
Code by the following tenants of the following CPA(R) Programs: Saxon
Industries, Inc. (CPA(R):1 and CPA(R):2); Storage Technology Corporation
(CPA(R):1); The Leslie Fay Company (CPA(R):3); Knudsen Corporation (CPA(R):3 and
CPA(R):4); Gulf Consolidated Services, Inc. (CPA(R):4); Three Guys Inc. Ltd.
(CPA(R):4); Williams Hand Tool, Inc. (CPA(R):5); American Trim Products Inc.
(CPA(R):5); Yellow Front Stores, Inc. (CPA(R):7); NVRyan L.P. (CPA(R):7,
CPA(R):8 and CPA(R):9); Harvest Food, Inc. (CPA(R):10 and CIP(TM); and
SportsTown, Inc. (CIP(TM)). The management of these programs have addressed
these bankruptcies primarily by re-leasing the properties to new tenants or by
restructuring the original leases at a reduced rental. Certain of the properties
have been sold at a loss or transferred in exchange for a release of the related
mortgage debt. In the case of the bankruptcy filing by Saxon Industries, Inc.,
however, its two leases were affirmed in bankruptcy. In the case of the
bankruptcy filing by Knudsen Corporation, seven of the eight properties which
had been leased to Knudsen Corporation were sold at a gain, generating more than
enough cash to retire the entire mortgage debt on all eight properties. The
remaining property was leased to a new tenant. In addition, as a result of
vigorous litigation efforts pursued by the general partners, certain programs
have been awarded substantial awards from bankruptcy settlements. CPA(R):1
received a settlement of cash and securities with a market value of
approximately $2.5 million in connection with the Storage Technology Corporation
bankruptcy. CPA(R):7 and CPA(R):8 were paid a restructuring fee of $2.6 million
in exchange for amending certain leases and CPA(R):9 received approximately
$456,000, in each case in connection with settlement of bankruptcy claims
against NVRyan L.P.
In May 1995, CPA(R):3 reached a settlement resolving all outstanding issues
in its dispute with Leslie Fay and National Union (the "Settlement Agreement").
In June, 1995, the Settlement Agreement was approved by the Bankruptcy Court. As
a result of this settlement, the Partnership received a total of $18,839,749 for
the termination of Leslie Fay's interest in the Property and $2,000,000 in
exchange for the sale of the property. The Partnership made a special
distribution of $50.00 per Unit in July, 1992 and $120 in October 1995 and has
not yet determined how it will use the remaining proceeds of the settlement with
Leslie Fay and National Union and the sale of the property.
The deterioration in financial condition of certain tenants has in certain
cases caused the affected CPA(R) Programs to assume the business operations of
these tenants. Such situations include the assumption of operations for three
hotels formerly leased to affiliates of Landmark Hotel Corporation ("Landmark")
by CPA(R):5 and CPA(R):6, for two hotels formerly leased to Integra -- a Hotel
and Restaurant Company ("Integra") by CPA(R):4, CPA(R):6, CPA(R):7 and CPA(R):8,
and for a food service facility formerly leased to HL Associates ("HL") by
CPA(R):7. The leases with respect to the hotels formerly leased to Landmark and
for the food service facility formerly leased to HL have been terminated. HL and
Integra filed for protection under the Bankruptcy Code in November 1988 and July
1992, respectively. The assumption of business operations of these tenants was
undertaken in order to protect the investment in these properties for future
sales or re-leasing. Cash flow from all but two of the hotels formerly leased to
Landmark has been more than sufficient to fund the debt service on such
properties. One hotel formerly leased to Integra is currently the subject of
ongoing negotiations for a bankruptcy settlement from Integra. Business
operations of this hotel was assumed in August 1992. This hotel located in
Livonia, Michigan, owned by CPA(R):6 and CPA(R):7, has been generating cash flow
in excess of rental income from the lease when it was in effect, with the excess
accruing to the benefit of these programs. In addition, the CPA(R) Programs
involved have assumed responsibility for making capital improvements to the
hotel. The outcome of the bankruptcy negotiations cannot be predicted at this
time. The food service facility has been sold by CPA(R):7 and the hotel located
in Kenner, Louisiana owned by CPA(R):4 and CPA(R):8 has been sold.
Certain developments that have occurred are in the process of being
resolved but have not yet been finally resolved. These include the filing for
protection from creditors under the Bankruptcy Code by New
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<PAGE> 41
Valley Corporation (formerly Western Union, hereinafter "New Valley") (CPA(R):2
and CPA(R):3) and Integra. There can be no assurance that either of these
developments will be resolved satisfactorily. The ultimate impact of these
developments will not be finally determined until they have been resolved.
New Valley has agreed to affirm two of its three leases with CPA(R):2 and
CPA(R):3. New Valley ceased paying rent on the disaffirmed lease, for a property
in Moorestown, N.J., in August 1991. Rent income on the disaffirmed lease
represented approximately 8.73% and 9.06% of the lease revenues for CPA(R):2 and
CPA(R):3, respectively in 1994. A bankruptcy settlement payment is expected from
New Valley in connection with termination of the Moorestown lease.
Additional information concerning the CPA(R) Programs is set forth in
tabular form in Exhibit A to this Prospectus. See "Experience in Raising and
Investing Funds" in Table I; "Compensation to Sponsor" in Table II; "Operating
Results of Prior Programs" in Table III; and "Sales or Dispositions of
Properties" in Table V. In addition, upon request, the Company will provide, at
no fee, the most recent annual report (on Form 10-K) filed by any of the CPA(R)
Programs and, at a reasonable fee, the exhibits to such annual report.
38
<PAGE> 42
MANAGEMENT
The Company will operate under the direction of the Board, the members of
which are accountable to the Company and its Shareholders as fiduciaries. A
majority of the Independent Directors and a majority of the directors have
reviewed and ratified the Articles of Incorporation and have adopted the Bylaws.
The Board will be responsible for the management and control of the affairs of
the Company; however, the Board will retain the Advisor to manage the Company's
day-to-day affairs and the acquisition and disposition of investments, subject
to the Board's supervision. The Company currently has five directors; it must
have at least three and may have no more than nine directors.
A majority of the Board must be comprised of Independent Directors, except
for a period of 90 days after the death, removal or resignation of an
Independent Director. An Independent Director may not, directly or indirectly
(including through a member of his immediate family), own any interest in, be
employed by, have any material business or professional relationship with, or
serve as an officer or director of, the Sponsor, the Advisor or any of their
Affiliates, except that an Independent Director may serve as a director, officer
or trustee for not more than two other REITs organized by the Sponsor or advised
by the Advisor. Each of the Independent Directors serve as an Independent
Director of two previous CPA(R) Programs and one served as a director of an
affiliate of the Advisor from 1987 to 1990. The total compensation paid to the
directors during 1994 was $30,000 and in 1995 was $38,750. Except to carry out
the responsibilities of director, an Independent Director may not perform
material services for the Company. Two of the directors are Affiliates of the
Advisor and three are Independent Directors. Proposed transactions are often
discussed before being brought to a final Board of Director's vote. During these
discussions, Independent Directors often offer ideas for ways in which deals can
be changed to make them acceptable and these suggestions are taken into
consideration on structuring transactions. No Independent Director of any prior
CPA(R) program has ever voted against a property acquisition recommendation on a
final vote. Each director will hold office until the next annual meeting of
Shareholders or until his successor has been duly elected and qualified.
Although the number of directors may be increased or decreased as discussed
above, a decrease shall not have the effect of shortening the term of any
incumbent director.
Any director may resign at any time and may be removed with or without
cause by the Shareholders upon the affirmative vote of at least a majority of
all the votes entitled to be cast at a meeting called for the purpose of such
proposed removal. The notice of such meeting shall indicate that the purpose, or
one of the purposes, of such meeting is to determine if the director shall be
removed.
Unless filled by a vote of the stockholders as permitted by Maryland law, a
vacancy created by an increase in the number of directors or the death,
resignation, removal, adjudicated incompetence or other incapacity of a director
shall be filled by a vote of a majority of the remaining directors and, (a) in
the case of a director who is not an Independent Director (an "Affiliated
Director"), by a vote of a majority of the remaining Affiliated Directors, or
(b) in the case of an Independent Director, by a vote of a majority of the
remaining Independent Directors (unless, in the case of clause (a) or (b), there
are no remaining Affiliated Directors or Independent Directors, as the case may
be, to so fill a vacancy, in which case a majority vote of the remaining
directors shall be sufficient). If at any time there shall be no Independent or
Affiliated Directors in office, successor directors shall be elected by the
Shareholders. Each director will be bound by the Articles of Incorporation and
Bylaws.
The directors are not required to devote all of their time to the Company
and are only required to devote such of their time to the affairs of the Company
as their duties require. The directors will meet quarterly or more frequently if
necessary. It is not expected that the directors will be required to devote a
substantial portion of their time to discharge their duties as directors.
Consequently, in the exercise of their fiduciary responsibilities, the directors
will be relying heavily on the Advisor. The Board is empowered to fix the
compensation of all officers that it selects and shall pay remuneration to
directors for services rendered to the Company in any other capacity. Initially,
the Company intends to pay to each Independent Director a quarterly fee of
$2,750 and a meeting fee of $1,000 per meeting. The aggregate compensation
payable to the Independent Directors as a group for 1996 will be approximately
$60,000. The Company will not pay
39
<PAGE> 43
any compensation to the officers or directors of the Company who also serve as
officers or directors of the Advisor.
The general investment and borrowing policies of the Company are set forth
in this Prospectus. The directors shall establish further written policies on
investments and borrowings and shall monitor the administrative procedures,
investment operations and performance of the Company and the Advisor to assure
that such policies are in the best interest of the Shareholders and are
fulfilled. Until modified by the directors, the Company shall follow the
policies on investments and borrowings set forth in this Prospectus.
The Board is also responsible for reviewing the fees and expenses of the
Company on at least an annual basis and with sufficient frequency to determine
that the expenses incurred are in the best interests of the Shareholders. In
addition, a majority of the Independent Directors and a majority of directors
not otherwise interested in the transaction must approve all transactions with
the Advisor or its Affiliates. The Independent Directors also will be
responsible for reviewing the performance of the Advisor and determining that
compensation to be paid to the Advisor is reasonable in relation to the nature
and quality of services to be performed and that the provisions of the Advisory
Agreement are being carried out. Specifically, the Independent Directors will
consider factors such as the amount of the fee paid to the Advisor in relation
to the size, composition and performance of the Company's investments, the
success of the Advisor in generating appropriate investment opportunities, rates
charged to other REITs and other investors by advisers performing similar
services, additional revenues realized by the Advisor and its Affiliates through
their relationship with the Company, whether paid by the Company or by others
with whom the Company does business, the quality and extent of service and
advice furnished by the Advisor, the performance of the investment portfolio of
the Company and the quality of the portfolio of the Company relative to the
investments generated by the Advisor for its own account.
Neither the directors nor their Affiliates will vote or consent to the
voting of Shares they now own or hereafter acquire on matters submitted to the
shareholders regarding either (i) the removal of the Advisor, any director or
any Affiliate; or (ii) any transaction between the Company and the Advisor, any
director or any Affiliate.
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<PAGE> 44
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME OFFICE
------------------------------------------- -------------------------------------------
<S> <C>
William P. Carey........................... Chairman of the Board and Director
Francis J. Carey........................... President
Ralph G. Coburn............................ Director*
H. Cabot Lodge III......................... Director and Vice Chairman
William Ruder.............................. Director*
Charles C. Townsend........................ Director*
Warren G. Wintrub.......................... Director*
George E. Stoddard......................... Senior Executive Vice President
Barclay G. Jones III....................... Executive Vice President
Claude Fernandez........................... Executive Vice President and Chief
Administrative Officer
Michael B. Pollack......................... Senior Vice President
H. Augustus Carey.......................... Senior Vice President -- Marketing
John J. Park............................... Senior Vice President -- Finance and
Treasurer
Anthony S. Mohl............................ Senior Vice President -- Property
Management
Debra E. Bigler............................ First Vice President and Regional Director
Ted G. Lagreid............................. First Vice President and Regional Director
Michael D. Roberts......................... First Vice President and Controller
</TABLE>
- ---------------
* Independent Director
The following is a biographical summary of the experience of the directors
and executive officers of the Company.
William P. Carey, age 66, Chairman and Chief Executive Officer, has been
active in lease financing since 1959 and a specialist in net leasing of
corporate real estate property since 1964. Before founding W.P. Carey & Co.,
Inc. ("W.P. Carey & Co.") in 1973, he served as Chairman of the Executive
Committee of Hubbard, Westervelt & Motteley (now Merrill Lynch Hubbard), head of
Real Estate and Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers),
head of Real Estate and Private Placements, Director of Corporate Finance and
Vice Chairman of the Investment Banking Board of duPont Glore Forgan Inc. A
graduate of the University of Pennsylvania's Wharton School of Finance, Mr.
Carey is a Governor of the National Association of Real Estate Investment Trusts
(NAREIT). He also serves on the boards of The Johns Hopkins University and its
medical school, Templeton College of Oxford University, The James A. Baker III
Institute for Public Policy at Rice University and other educational and
philanthropic institutions. He founded the Visiting Committee to the Economics
Department of the University of Pennsylvania and co-founded with Dr. Lawrence R.
Klein the Economics Research Institute at that university. Mr. Carey also serves
as Chairman of the Board and Chief Executive Officer of CPA(R):10 and CIP(TM).
Mr. Carey is the brother of Francis J. Carey and an uncle of H. Augustus Carey.
Francis J. Carey, age 70, was elected President and Managing Director of
W.P. Carey & Co. in April 1987. He served as a member of the Executive Committee
and Board of Managers of the Western Savings Bank of Philadelphia from 1970
until its takeover by another bank in 1982 and is a former chairman of the Real
Property, Probate and Trust Section of the Pennsylvania Bar Association. Mr.
Carey has been a director of W.P. Carey & Co. since its founding in 1973. Mr.
Carey served as a member of the Board of Overseers of the School of Arts and
Sciences at the University of Pennsylvania from 1983 to 1990 and has served as a
member of the board of trustees of the Investment Program Association since
1990. A real estate lawyer with more than 35 years' experience, he holds A.B.
and J.D. degrees from the University of
41
<PAGE> 45
Pennsylvania. Mr. Carey also serves as a director and as President of CPA(R):10
and CIP(TM). Mr. Carey is the father of H. Augustus Carey and the brother of
William P. Carey.
Ralph G. Coburn, Rear Admiral USNR (Ret.), age 86, is former President and
Chief Executive Officer of Hubbard Real Estate Investments (now HRE Properties)
("Hubbard"), a $100,000,000 equity REIT sponsored by Merrill Lynch and listed on
the New York Stock Exchange. While with Hubbard, he was also Senior Vice
President and a director of Merrill Lynch Hubbard, Inc., advisor to Hubbard and
a specialist in real estate and corporate finance. With Merrill Lynch Hubbard's
predecessor corporation, Admiral Coburn had been engaged in a diversity of real
estate activity for more than 20 years. A graduate of Harvard College, Harvard
Law School and the Naval War College, Admiral Coburn previously served as
managing director of the National Association of Real Estate Investment Trusts,
Washington, DC, representing the multi-billion dollar REIT industry, and also
has been counsel to a Washington law firm and an independent consultant to a
Boston real estate firm. Admiral Coburn serves as a director of CPA(R):10 and
CIP(TM).
H. Cabot Lodge, age 40, is the Chairman of Superconducting Core
Technologies, a position he has held since March, 1995. Mr. Lodge joined W.P.
Carey & Co. as Assistant to the Chairman in August 1983 and served as Executive
Vice President and Managing Director of the Company through September 1995. Mr.
Lodge received his B.A. degree from Harvard University in 1978 and his M.B.A.
from Harvard Business School in 1983. Prior to attending business school, he
served as a research consultant and regional director of Harbridge House Inc.
from June 1978 to July 1981. Mr. Lodge also serves as a director of CIP(TM).
William Ruder, age 73, is Chairman of the Board of William Ruder
Incorporated, a consulting firm founded in 1981. From 1948 to 1981, Mr. Ruder
was in partnership with David Finn at the firm of Ruder & Finn, an international
public relations company. He is a former Assistant Secretary of Commerce of the
United States and is on the board of directors of the United Nations Association
of the United States of America, Junior Achievement and the Council on Economic
Priorities. He is a member of the Board of Overseers of the Wharton School of
the University of Pennsylvania and has also served as a consultant to the
Communications Advisory Board to the White House Press Secretary, the Committee
for Economic Development and the Office of Overseas Schools for the U.S. State
Department. Mr. Ruder is a Tobe Lecturer at Harvard Graduate School of Business
and is associated with several other business, civic and cultural organizations.
He received a B.S.S. degree from the City College of New York. Mr. Ruder served
as a director of W.P. Carey & Co. from 1987 to 1990. He also is a director of
CPA(R):10 and CIP(TM).
Charles C. Townsend, Jr., age 68, currently is an Advisory Director of
Morgan Stanley & Co., having held such position since 1979. Mr. Townsend was
Partner and Managing Director of Morgan Stanley & Co. from 1963 to 1978 and
served as Chairman of Morgan Stanley Realty Corporation from 1977 to 1982. Mr.
Townsend holds a B.S.E.E. from Princeton University and an M.B.A. from Harvard
University. Mr. Townsend also currently serves as an Independent Director of
CPA:10 and CIP(TM).
Warren G. Wintrub, age 62, retired in 1992 from Coopers & Lybrand after 35
years. Mr. Wintrub was elected a partner in Coopers & Lybrand in 1963 and
specialized in tax matters and served on that firm's Executive Committee from
1976 to 1992 and as a Chairman of its Retirement Committee from 1979 to 1992.
Mr. Wintrub holds a B.S. degree from Ohio State University and an LL.B. from
Harvard Law School. He currently serves as a director of Chromcraft Revington,
Inc. and Getty Petroleum Co. Mr. Wintrub is also a director of CPA(R):10 and
CIP(TM).
George E. Stoddard, age 79, was until 1979 officer-in-charge of the Direct
Placement Department of The Equitable Life Assurance Society of the United
States ("Equitable"), with responsibility for all activities related to
Equitable's portfolio of corporate investments acquired through direct
negotiation. Mr. Stoddard was associated with Equitable for over 30 years. He
holds an A.B. degree from Brigham Young University, an M.B.A. from Harvard
Business School and an LL.B. from Fordham University Law School. Mr. Stoddard
also serves as a Managing Director of W.P. Carey & Co.
Barclay G. Jones III, age 35, is an Executive Vice President and Managing
Director of W.P. Carey & Co. Mr. Jones joined W.P. Carey & Co. as Assistant to
the President in July 1982 after his graduation from the Wharton School of the
University of Pennsylvania where he majored in Finance and Economics.
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<PAGE> 46
Mr. Jones has served as a director of W.P. Carey & Co. since April 1992 and is a
director of the Wharton School Club of New York.
Claude Fernandez, age 44, joined W.P. Carey & Co. as Assistant Controller
in March 1983, was elected Controller in July 1983, Vice President in April 1986
and is now a Managing Director, Senior Vice President and Chief Administrative
Officer. Prior to joining W.P. Carey & Co., Mr. Fernandez was associated with
Coldwell Banker, Inc. in New York for two years and with Arthur Andersen & Co.
in New York for over three years. Mr. Fernandez, a Certified Public Accountant,
received his B.S. degree in accounting from New York University in 1975 and his
M.B.A. in Finance from Columbia University Graduate School of Business in 1981.
Michael B. Pollack, age 38, is a partner in the law firm of Reed Smith Shaw
& McClay, counsel for the Company. Mr. Pollack joined Reed Smith Shaw & McClay
in September 1983. He graduated from the Wharton School of the University of
Pennsylvania and attended Boston University Law School and the University of
Pennsylvania Law School, graduating from the former in 1983. Mr. Pollack was
elected Vice President and Secretary of W.P. Carey & Co. in April 1987, First
Vice President in July 1990 and Senior Vice President in April 1996.
H. Augustus Carey, age 39, returned to W.P. Carey & Co. as a Vice President
in August 1988 and was elected First Vice President in April 1992 and Senior
Vice President in October 1995. Mr. Carey previously worked for W.P. Carey & Co.
from 1979 to 1981 as Assistant to the President. From 1984 to 1987, Mr. Carey
served as a loan officer in the North American Department of Kleinwort Benson
Limited in London, England. He received his A.B. in Asian Studies from Amherst
College in 1979 and a M.Phil. in Management Studies from Oxford University in
1984. He is the son of Francis J. Carey and the nephew of William P. Carey.
John J. Park, age 32, became a First Vice President of W.P. Carey & Co. in
April 1993 and Senior Vice President in October, 1995. Mr. Park joined W.P.
Carey & Co. as an Investment Analyst in December 1987 and became a Vice
President in July 1991. Mr. Park received his undergraduate degree from the
Massachusetts Institute of Technology in 1986 and an M.B.A. from New York
University in 1991.
Anthony S. Mohl, age 34, became a Senior Vice President in April 1996. Mr.
Mohl joined W.P. Carey & Co. as Assistant to the President in September 1987
after receiving an M.B.A. from the Columbia University Graduate School of
Business and became a Second Vice President in January 1990. Mr. Mohl was
employed as an analyst in the strategic planning group of Kurt Salmon Associates
after receiving an undergraduate degree from Wesleyan University.
Debra E. Bigler, age 43, became Vice President and Marketing Director of
W.P. Carey & Co. in July 1991 and a First Vice President in October, 1995. A
regional marketing director responsible for investor services in the south and
south central United States, Ms. Bigler joined W.P. Carey & Co. in March 1989 as
Assistant Marketing Director. Ms. Bigler was employed as a Marketing Associate
with E.F. Hutton & Company Inc. from July 1980 to January 1989.
Ted G. Lagreid, age 43, joined W.P. Carey & Co. in 1994 and became a First
Vice President in October, 1995. Mr. Lagreid is a regional marketing director
responsible for investor services in the western United States. Prior to joining
the firm, he was employed by the Shurgard Capital Group, then for SunAmerica
where he was an executive in its mutual funds group. He earned an A.B. from the
University of Washington, received an M.P.A. from the University of Puget Sound
and then spent eight years in the city of Seattle's Department of Community
Development. Mr. Lagreid was a commissioner of the City of Oakland, California,
having served on its Community and Economic Development Advisory Commission.
Michael D. Roberts, age 44, joined W.P. Carey & Co. in April 1989 as a
Second Vice President and Assistant Controller and was named Vice President and
Controller in October 1989 and First Vice President in July 1990. From August
1980 to February 1983 and from September 1983 to April 1989, he was employed by
Coopers & Lybrand and held the position of Audit Manager at the time of his
departure. A Certified Public Accountant, Mr. Roberts received his undergraduate
degree from Brandeis University and his M.B.A. from Northeastern University.
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<PAGE> 47
Certain of the directors and officers of the Company act as directors or
officers of the general partners of other CPA(R) Programs and may own
partnership interests in such CPA(R) Programs.
THE ADVISOR
Carey Property Advisors (the "Advisor") will serve as the advisor to the
Company. The general partner of the Advisor is Carey Fiduciary Advisors, Inc.
("CFA"), a Pennsylvania corporation wholly-owned by William P. Carey. The
Company has entered into an advisory agreement with the Advisor (the "Advisory
Agreement") pursuant to which the Advisor will manage the Company's day-to-day
affairs and will monitor the Company's assets and income so that the Company
will comply with the REIT provisions of the Code. This may include the purchase
or disposition of investments of the Company as well as the structuring of the
receipt of income from these investments. The Advisor and its Affiliates will
receive certain fees and compensation from the Offering, the investment of the
proceeds therefrom and the management and disposition of the Company's assets.
See "Management Compensation."
CFA is authorized to issue 5,000 shares of common stock, $0.01 par value,
1,000 of which are outstanding. All of CFA's outstanding shares of stock are
owned by William P. Carey. As of December 31, 1994, CFA had total assets of
$302,460 and shareholder's equity of $228,537.
W.P. Carey & Co. is a private company that specializes in arranging private
financing for major corporations, principally net lease financings of real
property, and the officers of W.P. Carey & Co. have an extensive background in
this area. Properties financed with the assistance of W.P. Carey & Co. have
included office buildings, manufacturing plants, distribution and retail
facilities, warehouses, movie theaters and hotels.
DIRECTORS AND PRINCIPAL OFFICERS OF CAREY FIDUCIARY ADVISORS, INC.
The directors and principal officers of CFA are as follows:
<TABLE>
<CAPTION>
NAME OFFICE
--------------------------------- ----------------------------------------------------------
<S> <C>
William P. Carey................. Chairman of the Board and Director
Francis J. Carey................. President and Director
George E. Stoddard............... Chairman of the Investment Committee and Director
Raymond S. Clark................. Chairman of the Executive Committee and Director
Frank J. Hoenemeyer.............. Vice Chairman of the Investment Committee and Director
Lawrence R. Klein................ Chairman of the Economic Policy Committee and Director
Madelon DeVoe Talley............. Vice Chairman and Director
Barclay G. Jones III............. Executive Vice President and Director
Claude Fernandez................. Executive Vice President and Chief Administrative Officer
H. Augustus Carey................ Senior Vice President -- Marketing
Anthony S. Mohl.................. Senior Vice President -- Property Management
Michael B. Pollack............... Senior Vice President and Secretary
John J. Park..................... Senior Vice President -- Acquisitions and Treasurer
Debra E. Bigler.................. First Vice President and Regional Director
Ted G. Lagreid................... First Vice President and Regional Director
Michael D. Roberts............... First Vice President and Controller
David S. Eberle.................. Vice President and Regional Director
Mary Ann Kelly................... Vice President and Regional Director
David W. Marvin.................. Vice President and Regional Director
Gordon J. Whiting................ Vice President -- Acquisitions
</TABLE>
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Information regarding Messrs. W. P. Carey, F. J. Carey, Stoddard, Jones,
Fernandez, Roberts, H. A. Carey, Park, Altmann, Lagreid, Mohl and Roberts and
Ms. Bigler is set forth under "Management -- Directors and Principal Officers of
the Company."
Raymond S. Clark, age 82, is former President and Chief Executive Officer
of the Canton Company of Baltimore and the Canton Railroad Company. A graduate
of Harvard University and Yale Law School, he is currently a director and
Chairman of the Executive Committee of W.P. Carey & Co. and served as Chairman
of the Board of W.P. Carey & Co. from its founding in 1973 until 1987. He is
past Chairman of the Maryland Industrial Development Financing Authority. Mr.
Clark is the brother-in-law of William P. Carey and Francis J. Carey.
Frank J. Hoenemeyer, age 76, was Vice Chairman, Director and Chief
Investment Officer of The Prudential Insurance Company of America until his
retirement in November 1984. As Chief Investment Officer he was responsible for
all of Prudential's investments in stocks, bonds, private placements, leveraged
buyouts, venture capital, real estate ownership and mortgages. Mr. Hoenemeyer
was graduated with a B.S. in Economics from Xavier University, Cincinnati, Ohio
and an M.B.A. from the Wharton School of the University of Pennsylvania, and
joined Prudential in 1947. Under his direction as Chief Investment Officer,
Prudential built the world's largest real estate and securities investment
portfolio (valued at over $200 billion in 1989) and became a leader in
investments including the purchase and development of real estate, leveraged
buyouts and venture capital. Mr. Hoenemeyer serves on the Boards of American
International Group and Mitsui Trust Bank (U.S.A.) and is formerly a director of
Corporate Property Investors, a $3 billion private real estate investment trust.
He has also been active in community affairs and at present is Chairman of the
Turrell Fund and a Trustee and Chairman of the Finance Committee of the Robert
Wood Johnson Foundation.
Dr. Lawrence R. Klein, age 76, is the Benjamin Franklin Professor Emeritus
of Economics and Finance at the University of Pennsylvania and its Wharton
School, having joined the faculty of the University in 1958. He is a holder of
earned degrees from the University of California at Berkeley and the
Massachusetts Institute of Technology and has been awarded the Alfred Nobel
Memorial Prize in Economic Sciences as well as a number of honorary degrees.
Founder of Wharton Econometric Forecasting Associates, Inc., Dr. Klein has been
counselor to various corporations, governments and government agencies,
including the Federal Reserve Board and the President's Council of Economic
Advisers. Dr. Klein joined W.P. Carey & Co. in 1984 as Chairman of the Economic
Policy Committee and as a director.
Madelon DeVoe Talley, age 64, served as a managing director of Rothschild,
Inc. and as the President of its asset management division from 1982 to 1984.
From 1978 to 1982, Mrs. Talley was the chief investment officer of the
multi-billion dollar New York State Common Retirement Fund. She was Director of
International Investments for the Dreyfus Corporation as well as Vice President
of its money management division from 1975 to 1977. She is formerly a member of
the Board of Governors of the NASD, and is formerly a member of Investment Board
of the New York State Employees Retirement Systems as well as a Trustee of The
New York State Teachers Retirement Systems. She also serves on the board of
directors of Biocraft Laboratories, a New York Stock Exchange company, and as a
director of W.P. Carey & Co.
Michael B. Pollack, age 38, is a partner in the law firm of Reed Smith Shaw
& McClay, counsel for the Company. Mr. Pollack joined Reed Smith Shaw & McClay
in September 1983. He graduated from the Wharton School of the University of
Pennsylvania and attended Boston University Law School and the University of
Pennsylvania Law School, graduating from the former in 1983. Mr. Pollack was
elected Vice President and Secretary of W.P. Carey & Co. in April 1987, First
Vice President in July 1990 and Senior Vice President in April 1996.
David S. Eberle, age 29, joined W.P. Carey & Co., Inc. in 1995 as Vice
President and Regional Director for the Midwest region. Previous to joining W.P.
Carey he was Manager, Wholesale Sales for Bowen Real Estate Group located in
Portland, Oregon and was responsible for the entire United States. Mr. Eberle
received his B.S. in Management from St. John's University.
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Mary Ann Kelly, age 35, joined W.P. Carey & Co. in 1995 as a regional
marketing director for the mountain states area. She was previously employed by
Related Capital Company as a regional director in the southeastern United
States. Ms. Kelly received her B.B.A. from Hofstra University where she
concentrated in International Business.
David W. Marvin, age 43, joined W.P. Carey & Co. in 1995 as a regional
marketing director for the northeastern United States. Previously he spent 15
years at Prudential-Bache and Kidder-Peabody, as well as was a national director
of sales with Cigna Corporation. Mr. Marvin received his B.A. from the
University of Massachusetts at Amherst.
Gordon J. Whiting, age 30, became a Vice President of W.P. Carey & Co. in
October 1995. Mr. Whiting joined W.P. Carey & Co. as a Second Vice President in
September 1994 after receiving his M.B.A. from the Columbia University Graduate
School of Business where he concentrated in finance. Mr. Whiting founded an
import/export company based in Hong Kong after receiving his B.S. from Cornell
University.
The principal officers of CFA and the offices to which they have been
elected substantially are the same as those for the Company. All of the officers
and directors of CFA have been elected to serve until the next annual meeting of
CFA to be held in 1996.
SHAREHOLDINGS
The Advisor currently owns 20,000 Shares, which constituted 0.15% of the
outstanding Shares as of September 19, 1996. The Advisor may not sell any of
these Shares during the period it serves as the advisor to the Company.
Furthermore, any resale of the 20,000 Shares that the Advisor currently owns and
the resale of any Shares which may be acquired by Affiliates of the Company are
subject to the provisions of Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), which rule limits the number of shares
that may be sold at any one time and the manner of such resale. Although the
Advisor is not prohibited from acquiring additional Shares, the Advisor has no
options or warrants to acquire any additional Shares and has no current plans to
acquire additional Shares. There is no limitation on the ability of the Advisor
or its Affiliates to resell any Shares they may acquire in the future. If
20,000,000 Shares are sold, the Advisor will own less than 0.1% of the Shares.
The Advisor has agreed to abstain from voting any Shares it now owns or
hereafter acquires in any vote for the election of directors or any vote
regarding the approval or termination of any contract with the Advisor or any of
its Affiliates.
MANAGEMENT DECISIONS
All of the activities of the Advisor will be managed by CFA. The primary
responsibility for the selection of Company investments and the negotiation for
such investments will reside in William P. Carey, Francis J. Carey, George E.
Stoddard and Barclay G. Jones III, all of whom are officers or directors of CFA.
Each potential Company investment will be submitted for review to the Investment
Committee. George E. Stoddard, Chairman, Frank J. Hoenemeyer and Madelon DeVoe
Talley currently serve as members of the Investment Committee. Lawrence R. Klein
currently serves as an alternate member of the Investment Committee and may
replace another member in the event a member is absent or disqualified from any
meeting. The board of directors of CFA (the "CFA Board") has empowered the
Investment Committee to authorize and approve Company investments on behalf of
CFA between meetings of the CFA Board, provided that the members of the
committee agree unanimously on the action to be taken. However, the CFA Board
retains ultimate authority to authorize and approve Company investments on
behalf of the Advisor and may make such investments on behalf of the Company
without the approval of, and irrespective of any adverse recommendation by, the
Investment Committee or any other Person, except the Board of the Company.
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS
The Organizational Documents limit the personal liability of the Company's
directors and officers for monetary damages to the fullest extent permitted
under current Maryland law and provide that a director or officer may be
indemnified to the fullest extent required or permitted by Maryland law.
Maryland law
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allows directors and officers to be indemnified against judgments, penalties,
fines, settlements, and expenses actually incurred in a proceeding unless the
following can be established: (a) the act or omission of the director or officer
was material to the cause of action adjudicated in the proceeding, and was
committed in bad faith or was the result of active and deliberate dishonesty;
(b) the director or officer actually received an improper personal benefit in
money, property or services; or (c) with respect to any criminal proceeding, the
director or officer had reasonable cause to believe his act or omission was
unlawful. Such indemnification or any agreement to hold harmless is recoverable
only out of the assets of the Company and not from the Shareholders.
This provision does not reduce the exposure of directors and officers to
liability under Federal or state securities laws, nor does it limit the
Shareholder's ability to obtain injunctive relief or other equitable remedies
for a violation of a director's or an officer's duties to the Company or its
Shareholders, although such equitable remedies may not be an effective remedy in
certain circumstances.
Notwithstanding the foregoing, the directors, the Advisor and their
Affiliates will be indemnified by the Company for losses arising from the
operation of the Company only if all of the following conditions are met: (a)
the directors, the Advisor or their Affiliates have determined, in good faith,
that the course of conduct which caused the loss or liability was in the best
interests of the Company; (b) the directors, the Advisor or their Affiliates
were acting on behalf of or performing services for the Company; (c) such
liability or loss was not the result of negligence or misconduct by the
directors, the Advisor or their Affiliates; and (d) such indemnification or
agreement to hold harmless is recoverable only out of the Company's net assets
and not from its stockholders. The Sponsor has separately agreed to indemnify
the Independent Directors against all liabilities and expenses and to advance
expenses arising out of each Independent Director's activities on behalf of the
Company to the extent such activities satisfy the Maryland law standards for
indemnification.
In addition to any indemnification to which directors and officers shall be
entitled pursuant to the General Corporation Law of Maryland, the Organizational
Documents provide that the Company shall indemnify other employees and agents to
such extent as shall be authorized by the Directors, whether they are serving
the Company or, at the Company's request, any other entity. The Company has
agreed to indemnify and hold harmless the Advisor and its Affiliates performing
services for the Company from certain claims and liabilities arising out of the
performance of its obligations under the Advisory Agreement. As a result, the
Company and its Shareholders may be entitled to a more limited right of action
than they would otherwise have if these indemnification rights were not included
in the Advisory Agreement.
The Commission takes the position that indemnification against liabilities
arising under the Securities Act is against public policy and unenforceable.
Indemnification of the directors, officers, the Advisor or their Affiliates will
not be allowed for certain liabilities arising from or out of a violation of
state or Federal securities laws. Indemnification will be allowed for
settlements and related expenses of lawsuits alleging securities laws
violations, and for expenses incurred in successfully defending such lawsuits,
provided that a court either (a) approves the settlement and finds that
indemnification of the settlement and related costs should be made, or (b) there
has been a dismissal with prejudice or a successful adjudication on the merits
of each count involving alleged securities law violations as to the particular
indemnitee and a court approves such indemnification.
THE ADVISORY AGREEMENT
Many of the services to be performed by the Advisor and its Affiliates in
managing the day-to-day activities of the Company are summarized below. This
summary is provided to illustrate the various functions which the Advisor and
its Affiliates will perform for the Company and it is not intended to include
all of the services which may be provided by third parties to the Company.
The term of the Advisory Agreement ends on December 31, 1996 and thereafter
will be automatically renewed for successive one-year periods unless either
party shall give the other party notice of non-renewal not less than 60 days
before the end of any such period. Additionally, the Advisory Agreement may be
terminated (a) immediately by the Company for "Cause" or upon the bankruptcy of
the Advisor or a
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material breach of the Advisory Agreement by the Advisor, (b) without Cause by a
majority of the Independent Directors or Shareholders upon 60 days' notice, or
(c) immediately with Good Reason by the Advisor. "Good Reason" is defined in the
Advisory Agreement to mean either (i) any failure to obtain a satisfactory
agreement from any successor to the Company to assume and agree to perform the
Company's obligations under the Advisory Agreement, or (ii) any material breach
of the Advisory Agreement of any nature whatsoever by the Company. "Cause" is
defined in the Advisory Agreement to mean fraud, criminal conduct, willful
misconduct or willful or negligent breach of fiduciary duty by the Advisor or a
breach of the Advisory Agreement by the Advisor.
The Advisor and its Affiliates expect to engage in other business ventures
and, as such, their resources will not be dedicated exclusively to the business
of the Company. However, pursuant to the Advisory Agreement, the Advisor must
devote sufficient resources to the administration of the Company to discharge
its obligations. The Advisory Agreement is not assignable or transferable by
either party without the consent of the other party, except that the Advisor may
assign the Advisory Agreement to an Affiliate that has a net worth of $5,000,000
or more or for whom the Sponsor agrees to guarantee its obligations to the
Company and either the Advisor or the Company may assign or transfer the
Agreement to a successor entity.
Under the terms of the Advisory Agreement, the Advisor undertakes to use
its best efforts to present to the Company investment opportunities consistent
with the investment policies and objectives of the Company as adopted by the
Board. In its performance of this undertaking, the Advisor, either directly or
indirectly by engaging an Affiliate, shall (at all times subject to the
continuing and exclusive authority of the Board over the management of the
Company and to compliance with the Organizational Documents):
(i) find, present and recommend to the Company a continuing series of
real estate investment opportunities consistent with the Company's
investment policies and objectives;
(ii) provide advice to, and act on behalf of, the Company with respect
to the acquisition, financing, refinancing, holding, leasing and
disposition of real estate investments;
(iii) make investments on behalf of the Company in compliance with the
investment Procedures, Objectives and Policies of the Company;
(iv) take such action and obtain such services as may be necessary to
effectuate the acquisition, financing, refinancing, holding, leasing and
disposition of real estate investments; and
(v) provide day-to-day management of business activities of the
Company and such other administrative services for the Company as may be
requested by the Board.
The Board has authorized the Advisor to make investments in any Property on
behalf of the Company without the approval of the Board if the following
conditions are satisfied:
(a) the Advisor must obtain an appraisal for the Property indicating
that the Total Property Cost of the Property does not exceed the appraised
value of the Property; and
(b) the Advisor must provide the Company with a representation that
the Property, in conjunction with the Company's other investments and
proposed investments, is reasonably expected to fulfill the Company's
investment Procedures, Objectives and Policies as established by the Board
and then in effect.
The Advisor may not make any Loans on behalf of the Company without the
prior approval of a majority of the Independent Directors. The actual terms and
conditions of transactions involving investments in Properties shall be
determined in the sole discretion of the Advisor, subject at all times to
compliance with the foregoing requirements. The Advisor shall notify the Board
of all proposed transactions before such transactions are completed.
Certain types of transactions require the prior approval of the Board,
including a majority of the Independent Directors, including the following: (i)
investments in Properties in respect of which the requirements specified above
have not been satisfied, (ii) investments made through joint venture
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arrangements with Affiliates of the Advisor, (iii) investments which are not
contemplated by the terms of this Prospectus, (iv) transactions that present
issues which involve conflicts of interest for the Advisor (other than conflicts
involving the payment of fees or the reimbursement of expenses), (v) investments
in equity securities (other than warrants acquired in connection with net lease
transactions) and (vi) the lease of assets to the Sponsor, any director or the
Advisor.
The Company will reimburse the Advisor for all of the costs it incurs in
connection with the services it provides to the Company, including, but not
limited to: (i) Organization and Offering Expenses, which are defined to include
expenses attributable to preparing the Registration Statement, formation and
organization of the Company, qualification of the Shares for sale in the states,
escrow arrangements, Commission and NASD filing fees and expenses attributable
to selling the Shares (including but not limited to selling commissions,
advertising expenses, expense reimbursement, counsel and accounting fees), (ii)
the annual cost of goods and materials used by the Company and obtained from
entities not affiliated with the Sponsor, including brokerage fees paid in
connection with the purchase and sale of securities, (iii) administrative
services (including personnel costs, provided, however that no reimbursement
shall be made for costs of personnel to the extent that such personnel are used
in transactions for which the Advisor receives a separate fee), (iv) rent,
depreciation, leasehold improvement costs, utilities or other administrative
items generally constituting the Advisor's overhead, and (v) Acquisition
Expenses, which are defined to include expenses related to the selection and
acquisition of Properties.
The Advisor shall reimburse the Company at least annually for the amount by
which Operating Expenses of the Company exceed the 2%/25% Guidelines (2% of
Average Invested Assets or 25% of Net Income). To the extent that Operating
Expenses payable or reimbursable by the Company exceed the 2%/25% Guidelines and
the Independent Directors determine that such excess expenses were justified
based on unusual and nonrecurring factors which they deem sufficient, the
Advisor may be reimbursed in future years for the full amount of such excess
expenses, or any portion thereof, but only to the extent such reimbursement
would not cause the Company's Operating Expenses to exceed the 2%/25% Guidelines
in any such year. Within 60 days after the end of any fiscal quarter of the
Company for which total Operating Expenses (for the 12 months then ended) exceed
the 2%/25% Guidelines, there shall be sent to the Shareholders a written
disclosure of such fact, together with an explanation of the factors the
Independent Directors considered in arriving at the conclusion that such excess
expenses were justified.
The Advisor or its Affiliates will be paid certain fees in connection with
services provided to the Company. See "Management Compensation." In the event
the Advisory Agreement is not renewed by the Company or is terminated without
Cause by the Company or with Good Reason by the Advisor, the Advisor will be
paid all accrued and unpaid fees and expense reimbursements, any unaccrued
Subordinated Acquisition Fees and in certain circumstances will also be paid a
Termination Fee. See "Management Compensation." The Company will not reimburse
the Advisor or its Affiliates for services for which the Advisor or its
Affiliates are entitled to compensation in the form of a separate fee.
INVESTMENT PROCEDURES, OBJECTIVES AND POLICIES
INVESTMENT PROCEDURES
The business of the Company is to invest primarily in single-tenant
commercial, industrial and governmental real property (or interests therein),
either existing or under construction or development, and personal and mixed
property connected therewith. Generally, properties will be net leased to
entities deemed creditworthy by the Advisor, including governmental units, under
leases which will be full recourse obligations of such tenants or their
Affiliates.
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TRANSACTION ORIGINATION
In analyzing potential acquisitions, the Advisor reviews and structures
many aspects of a transaction, including the tenant, the real estate and the
lease to determine whether a potential acquisition can be structured to satisfy
the Company's acquisition criteria. The aspects of a transaction which are
reviewed and structured by the Advisor include the following:
-- Tenant Evaluation. The Advisor subjects each potential tenant to an
extensive evaluation of its credit, management, position within its
industry, operating history and profitability. The Advisor seeks tenants
it believes will have stable or improving credit. The Advisor
specializes in identifying companies whose credit will improve over
time. By leasing properties to such tenants, the Company can generally
charge rent that is higher than the rent charged to tenants with
recognized credit and thereby enhance its current return from such
properties as compared with properties leased to companies whose credit
potential has already been recognized by the market. Furthermore, if a
tenant's credit does improve, the value of the Company's properties
leased to such tenant will likely increase (if all other factors
affecting value remain unchanged). The Advisor may also seek to enhance
the likelihood of a tenant's lease obligations being satisfied, such as
through a letter of credit or a guaranty of lease obligations from the
tenant's corporate parent. Such credit enhancement provides the Company
with additional financial security.
-- Leases with Increasing Rent. The Advisor seeks to include clauses in
its leases that provide for increases in rent over the term of the
leases. These increases are generally tied to increases in certain
indices such as the consumer price index; in the case of retail stores,
participation in gross sales above a stated level; mandated rental
increases on specific dates; and by other methods. The Advisor seeks to
avoid entering into leases that provide for contractual reductions in
rents during their primary term.
-- Properties Important to Tenant Operations. The Advisor generally seeks
to acquire properties with operations that are essential or important to
the ongoing operations of the tenant. The Advisor believes that such
properties provide better protection in the event a tenant files for
bankruptcy, since leases on properties essential or important to the
operations of a bankrupt tenant are less likely to be rejected, and
thereby terminated, by a bankrupt tenant. The Advisor also seeks to
assess the income, cash flow and profitability of the business conducted
at the property so that, if the tenant is unable to operate its
business, the Company can either continue operating the business
conducted at the property or re-let the property to another entity in
the industry which can operate the property profitably.
-- Lease Provisions that Enhance and Protect Value. When appropriate, the
Advisor attempts to include provisions in its leases that require its
consent to certain tenant activity or require the tenant to satisfy
certain operating tests. These provisions include, for example,
operational and financial covenants of the tenant, prohibitions on a
change in control of the tenant and indemnification from the tenant
against environmental and other contingent liabilities. Including these
provisions in its leases protects the Company's investment from changes
in the operating and financial characteristics of a tenant that may
impact its ability to satisfy its obligations to the Company or could
reduce the value of the Company's properties.
-- Diversification. The Advisor attempts to diversify its portfolio of
properties to avoid dependence on any one particular tenant, type of
facility, geographic location and tenant industry. By diversifying its
portfolio, the Advisor reduces the adverse effect on the Company of a
single under-performing investment or a downturn in any particular
industry.
The Advisor employs a variety of other strategies in connection with its
acquisitions. These strategies include attempting to obtain equity enhancements
in connection with transactions. Typically such equity enhancements involve
warrants to purchase stock of the tenant to whom the property is leased.
Negotiating equity enhancements helps the Company to achieve its goal of
increasing funds available for the payment of Dividends. Other strategies
include performing evaluations of the physical condition of properties and
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performing environmental surveys in an attempt to determine potential
environmental liabilities associated with a property prior to its acquisition.
Occasionally, the Company grants to the tenant a right to purchase the Property
leased by the tenant, in which cases, the option purchase price is generally the
greater of the Contract Purchase Price and the fair market value of the
Property.
ACQUISITION AND UNDERWRITING PROCESS
The Advisor's Acquisition and Asset Management Department, headed by
Barclay G. Jones, has the primary responsibility for the origination and
negotiation of acquisitions of properties. Members of this Department will
identify potential acquisitions and conduct negotiations with sellers and
tenants. Members of the Acquisition and Asset Management Department generally
structure the terms of any financing that the Company may use to acquire a
property.
As a transaction is structured, it is evaluated by George E. Stoddard,
Chairman of the Advisor's Investment Committee, with respect to the potential
tenant's credit, business prospects, position within its industry and other
characteristics important to the long-term value of the property and the
capability of the tenant to meet its lease obligations. Before a property is
acquired, the transaction is reviewed by the Advisor's Investment Committee to
ensure that it satisfies the Company's investment criteria. Aspects of the
transaction that are typically reviewed by the Investment Committee include the
expected financial returns, the creditworthiness of the tenant, the real estate
characteristics and the lease terms.
An acquisition must be approved by the Investment Committee before it can
be completed by the Company. The Company believes that the Investment Committee
review process gives it a unique competitive advantage over other net lease
companies because of the substantial experience and perspective that the
Investment Committee has in evaluating the blend of corporate credit, real
estate and lease terms that combine to make an acceptable risk.
The Investment Committee is not directly involved in originating or
negotiating potential acquisitions, but instead functions as a separate and
final step in the acquisition process. The Advisor places special emphasis on
having experienced individuals serve on its Investment Committee and does not
invest in a transaction unless it is approved by the Investment Committee.
The following people serve on the Investment Committee:
-- George E. Stoddard, Chairman, was formerly responsible for the direct
corporate investments of The Equitable Life Assurance Society of the
United States and has been involved with the CPA(R) Programs for over 16
years.
-- Frank J. Hoenemeyer, Vice Chairman, was formerly Vice Chairman, Director
and Chief Investment Officer of The Prudential Insurance Company of
America. As Chief Investment Officer, Mr. Hoenemeyer was responsible for
all of Prudential's investments, including stocks, bonds, private
placements, real estate and mortgages.
-- Madelon DeVoe Talley, was formerly a member of the Board of Governors of
the NASD and was formerly Chief Investment Officer of the New York State
Employees Retirement System with responsibility for all its investments,
including stocks, bonds, real estate and mortgages. Mrs. Talley has also
served as a Trustee of the New York State Employees Retirement System
and as a member of its Investment Board. Mrs. Talley has held a variety
of senior positions in the investment and asset management business.
-- Lawrence R. Klein, alternate member, is Benjamin Franklin Professor of
Economics Emeritus at the University of Pennsylvania and its Wharton
School. Dr. Klein has been awarded the Alfred Nobel Memorial Prize in
Economic Sciences and currently advises various governments and
government agencies.
Each Property purchased by the Company will be appraised by an Independent
Appraiser and the Company will not purchase any Property that has a Total
Property Cost (the purchase price of the Property plus all Acquisition Fees)
which is in excess of its appraised value. Such appraisals may take into
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consideration, among other things, the terms and conditions of the particular
lease transaction, the quality of the lessee's credit and the conditions of the
credit markets at the time the lease transaction is negotiated. The appraised
value may be greater than the construction cost or the replacement cost of a
Property, and the actual sale price of a Property if sold by the Company may be
greater or less than the appraised value.
INVESTMENT OBJECTIVES
The Company's objectives are:
-- TO PAY QUARTERLY DIVIDENDS AT AN INCREASING RATE THAT FOR TAXABLE
SHAREHOLDERS MAY BE PARTIALLY FREE FROM CURRENT TAXATION. The Company's
dividend rate is calculated by dividing the Company's quarterly cash
dividend from operations by the amount raised in the Offering less
amounts returned to investors from the sale of Properties and Cash from
Financings. Although the cash amount of a dividend may go down during
the life of the Company, the dividend rate may continue to increase. If
the total amount received by the Company from the sale of its Properties
is less than the total amount invested in the Company, a portion of the
Dividends paid by the Company will represent a return of the money
originally invested in the Company and not a return on the investment.
There can be no assurance that the Company will pay regular dividends or
that the dividend rate will increase. The quarterly rate of increases of
prior CPA(R) Programs has generally ranged from .01% to .25% with an
average quarterly increase of .02%. While prior CPA(R) Programs have
occasionally used working capital to pay a portion of certain dividends,
cash flows from operating activities have generally exceeded dividends
paid. See "Dividends."
-- TO PURCHASE A PORTFOLIO OF REAL ESTATE THAT WILL INCREASE IN VALUE. An
individual investing directly in real estate would not have to pay the
organization and offering expenses expected to be paid by the Company
(approximately 9.62% to 10.50% of the Gross Offering Proceeds).
Therefore, the Company must realize a greater level of operating income
from, and/or appreciation in the value of, its real estate in order for
an investor to realize the same return he would realize if he invested
directly in, and operated, the real estate purchased by the Company. Of
the 53 properties sold by the CPA(R) Programs, all but 14 of such
properties were sold for consideration equal to or in excess of the
applicable CPA(R) Program's total investment in such properties,
including acquisition costs. The net gain realized from the sale of
these 52 properties by the CPA(R) Programs has been in excess of
$14,880,000 on total equity invested of approximately $44,814,000. This
net gain figure does not take into account organization and offering
expenses which averaged 12% of the Gross Offering Proceeds for prior
CPA(R) Programs. Please see the "Prior Performance by Affiliates" and
the Appendix A for a complete discussion of the prior performance of the
CPA(R) Programs.
-- TO INCREASE THE COMPANY'S EQUITY IN ITS REAL ESTATE BY MAKING REGULAR
MORTGAGE PRINCIPAL PAYMENTS. The Company will realize its objective of
increasing its equity in its Properties by making regular mortgage
principal payments from income generated from the Properties only if
Properties are sold by the Company for an amount equal to or greater
than the original equity investment plus the remaining mortgage balance.
The average annual mortgage amortization for the CPA(R) Programs is
$16,360,000.
There can be no assurance that all or any of these objectives will be
achieved or that all of these objectives will be achieved with respect to each
Property. See "Prior Offerings by Affiliates" for a description of the CPA(R)
Programs' experience in making investments similar to the investment objectives
of the Company. See "Risk Factors" for a description of risks associated with
the Company's investments. The Company also may make Loans on income-producing
Properties, which Loans may have some form of equity participation.
The primary investment objectives of the CPA(R) Programs are similar to
those of the Company. The CPA(R) Programs have not been fully liquidated so it
is not possible to fully determine whether or not the CPA(R) Programs have
satisfied the objective of purchasing real estate that will increase in value.
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All but three of the CPA(R) Programs have paid quarterly dividends at an
increasing rate since their inception. The increases have been between .01% and
4% on an annual basis in any quarter in which there has been an increase, with
the majority of increases ranging between .01% and .05%. Only CPA(R):1, CPA(R):5
and CPA(R):7 have had to reduce their distribution rates as a result of certain
adverse developments described in "Prior Offerings by Affiliates," and the
resulting reduction of cash flow. The distribution rate of CPA(R):7 now exceeds
the rate in effect before the reduction.
Each of the fully invested CPA(R) Programs have been able to make regular
mortgage principal payments. The amount of debt repaid by the fully invested
CPA(R) Programs from funds generated by operations range from approximately
$300,000 to $1,950,000 per year. The CPA(R) Programs that have owned property
for a longer period have generally repaid a greater percentage of their debt.
More detailed information with respect to the performance of the CPA(R) Programs
is separately presented in tabular form in Exhibit A to this Prospectus.
In making Property investments, the Advisor will consider such relevant
real estate and financial factors as:
-- creditworthiness of a tenant,
-- safety of principal,
-- income and cash flow expected to be generated by a particular Property,
-- terms of proposed leases, including any provision for periodic rent
increases,
-- importance of the Property to a tenant,
-- profitability of activities conducted at the Property,
-- prospects for possible long-term appreciation,
-- condition and use of the Property,
-- location of the Property,
-- current appraised value of the Property,
-- prospects for long-range liquidity,
-- geographic and industry diversification, and
-- relation of the Property to the Company's portfolio.
In evaluating a possible investment by the Company, the creditworthiness of a
tenant generally will be a more significant factor than the value of the
Property absent the lease with such tenant. While the Advisor will select
tenants it believes are creditworthy, tenants will not be required to meet any
minimum rating established by an independent credit rating agency. The Advisor's
and the Investment Committee's standards for determining whether a particular
tenant is creditworthy vary in accordance with a variety of factors relating to
specific prospective tenants. Those standards cannot be adequately described in
this Prospectus.
TYPES OF INVESTMENTS
The Company may make investments in several types of properties or other
real estate related investments. The Advisor will be responsible for the
selection of Properties for the Company, subject in some cases to the approval
of the Board. See "Management." While investments may be made in various types
of Property, the Advisor intends to make substantially all the Company's
investments in income-producing Property which is, upon acquisition, improved or
being developed or which is being or will be developed within a reasonable
period after its acquisition. Investments will not be restricted as to
geographical areas, but it is expected that most of the investments will be made
within the United States. See "Risk Factors -- Real Estate Investment
Risks -- Risks of Investment in Real Property Located
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Outside the United States." With the exception of proposed investments described
in a supplement to this Prospectus, prospective investors will not be able to
evaluate the merits of the Company's investments or the terms of any
dispositions. See "Risk Factors -- Corporate Investment Risks -- Reliance on
Management."
Investments in Properties
It is anticipated that many of the Properties purchased by the Company will
be acquired from entities that simultaneously will lease the Properties from the
Company. Such sale-leaseback transactions provide the lessee company with a
source of capital as an alternative to other financing sources such as
borrowing, mortgaging real property, issuing bonds or selling shares of common
stock. The prospects for the seller/lessee's enterprise and the financial
strength of the seller/lessee will be important aspects of the sale and
leaseback of a Property, particularly a Property specifically suited to the
needs of the lessee. The Advisor will examine the financial statements of the
lessee, if available, to evaluate the financial capability of the lessee and its
ability to perform the terms of the purchase and leaseback agreement and, where
appropriate, will examine the available operating results of Properties to
determine whether or not projected rental levels are likely to be met. Whether a
prospective tenant of the Company is creditworthy will be determined by the
Advisor or the Board. Creditworthy does not necessarily mean "investment grade."
It is also anticipated that some of the Company's sale-leasebacks will be
in conjunction with acquisitions, recapitalizations and other financial
restructurings. In some of these transactions, the acquiring entities typically
purchase all or substantially all of the stock or assets of a company, and the
acquired company or its successor in interest becomes obligated on the
substantial loans necessary to finance the acquisition. The Company may act as
one of several sources of financing for such transactions by purchasing real
property from the seller of the subject company and net leasing it to such
company or its successor in interest (the lessee). See "Risk Factors -- Real
Estate Investment Risks -- Risk of Purchasing Property in Connection with
Acquisitions, Recapitalizations and Other Financial Restructurings."
No more than 20% of the net proceeds derived from the Offering will be
applied to the purchase of land where the Company's purchase is exclusive of the
buildings and improvements thereon or to be constructed thereon. In the event
the Company purchases Property exclusive of the buildings and improvements
thereon (where such buildings and improvements are owned by unaffiliated
parties) and such land is securing a mortgage loan to the building owner, the
Company may have to make mortgage payments in order to prevent a default under
such mortgage and the foreclosure of the fee interest.
The Company intends to exercise due diligence to discover potential
environmental liabilities prior to the acquisition of any Property, although
there can be no assurance that hazardous substances or wastes (as defined by
present or future Federal or state laws or regulations) will not be discovered
on the Property. See "Risk Factors -- Real Estate Investment Risks -- Potential
Environmental Liabilities." The Company will also consider factors peculiar to
the laws of foreign countries, in addition to the risk normally associated with
real property investments, when considering an investment located outside the
United States. See "Risk Factors -- Real Estate Investment Risks -- Risk of
Investment in Real Property located Outside the United States."
In selecting Properties in which to make investments, the Advisor will
consider the extent to which a particular Property may generate depreciation.
Depreciation deductions may reduce income generated by the Company which may
enable the Company to pay Dividends which are partially free from current
taxation. The Company will depreciate its real properties for tax purposes on a
straight line basis over a 40-year period, except where the Code requires a
different depreciation period, as it may with respect to Property leased to
governments and to foreign lessees. See "Income Tax Aspects."
The Advisor may structure certain lease transactions so that such leases
will not be recognized as leases for Federal income tax purposes. To the extent
a lease is not considered a lease for Federal income tax purposes, the Company
would not be able to depreciate the Property subject to such a lease and may
lose certain other tax benefits. See "Income Tax Aspects -- Sale-Leaseback
Transactions." In structuring such
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lease transactions, the Advisor will attempt to obtain additional consideration
from the tenant to compensate the Company for any lost tax benefits; however,
there can be no assurance that any such additional consideration will be
received, or, if received, that it will be sufficient to fully compensate the
Company for lost tax benefits.
Investments in Loans
The Advisor may structure a Company investment as a Loan in situations in
which a standard net lease transaction would have an adverse impact on the
seller of a Property or otherwise would be inappropriate for the Company. The
Advisor would attempt to structure any such Loan in a manner that would provide
the Company with an economic return similar to that which the Company could
expect to receive had the investment been structured as a net lease transaction.
Any transaction structured as a Loan must otherwise meet the Company's
investment criteria. The directors (including a majority of the Independent
Directors) must approve any transaction structured as a Loan.
Some of the Loans made, purchased or otherwise acquired by the Company, in
addition to providing for base interest at a fixed or variable rate, may be
combined with provisions permitting the Company to participate in the economic
benefits of any increase in the gross revenues of the Underlying Real Property
(the property securing repayment of the Loan), usually above a base amount which
may be subject to adjustment upon an increase in real estate taxes or other
events and/or any increase in the value of the Underlying Real Property as
though the Company were an equity owner of a portion of the Property. In
addition, it is possible that the participations may take other forms where
available or deemed appropriate. See "Income Tax Aspects -- Requirements for
Qualification as a REIT." The forms and extent of the participations to be
received by the Company will vary with each transaction depending on such
factors as the equity investment, if any, of the borrower, credit support
provided by the borrower, the interest rate on the Company's Loans and the
anticipated and actual cash flow from the Underlying Real Property. The
Company's Loans may include first mortgage Loans, leasehold mortgage Loans and
conventional mortgage Loans without equity enhancements. Loans are not expected
to comprise a significant portion of the Company's portfolio. The amount of
interest which may be charged by the Company on its Loans may be limited by
state usury laws. The Company will, however, prior to investing in a Loan,
obtain an opinion of counsel that its participation in a Loan will not result in
such Loan's being made at a usurious interest rate.
The Loans will be secured by various types of real property as well as
personal or mixed property connected therewith. The Loans generally will be
secured by property with a demonstrable income-producing potential. In
determining whether to make Loans, the Advisor will analyze relevant property
and financial factors which in some cases may include such factors as the
condition and use of the subject property, its income-producing capacity and the
quality, experience and creditworthiness of the owner of the property.
The Company anticipates that its Loans will either (i) include provisions
permitting the Company to cause the entire unpaid principal amount to become due
within 15 years or (ii) be fully amortized within such period. The Company's
mortgage activity may consist of the origination of Loans or the purchase of
existing Loans. The Company may make both long-term and short-term Loans. The
Company will not make or invest in Loans that are subordinate to any mortgage
held by the Sponsor, the Advisor, the directors or their Affiliates.
The Company will require that a mortgagee's title insurance policy or
commitment as to the lien priority of a mortgage or the condition of title be
obtained. The Company will receive independent appraisals for Underlying Real
Property, which shall be maintained in the Company's records for at least five
years and shall be available for inspection and duplication by any Shareholder.
However, the Advisor generally will rely on its own independent analysis and not
exclusively on such appraisals in determining whether to make a particular Loan.
It should be noted that appraisals are estimates of value and should not be
relied upon as measures of true worth or realizable value. The Company will not
make Loans where the amount advanced by the Company plus the amount of any
existing Loans that are equal or senior to the Company's Loan exceeds 100% of
the appraised value of the Underlying Real Property. See "Income Tax
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Aspects -- Sale-Leaseback Transactions." In making Loans that exceed 85% of the
appraised value of any Underlying Real Property, the Advisor will consider such
additional underwriting criteria as the net worth of the borrower, the
borrower's credit rating, if any, the anticipated cash flow of the borrower, any
additional collateral provided by the borrower and other factors the Advisor
deems appropriate. See "Risk Factors -- Real Estate Investment Risks -- Risk
Related to Making Loans."
Joint Ventures and Wholly-Owned Subsidiaries
The Company may enter into joint ventures or general partnerships and other
participations with real estate developers, owners and others (but not involving
the Advisor or its Affiliates except as discussed below) for the purpose of
obtaining an equity interest in a particular Property or Properties in
accordance with the Company's investment policies. Such investments permit the
Company to own interests in large Properties without unduly restricting
diversification and, therefore, add flexibility in structuring the Company's
portfolio. The Company will not enter into a joint venture to make an investment
that it would not be permitted to make on its own. In making such equity
investments with third parties, the Company is prohibited from participating
with non-affiliates unless it acquires a controlling interest in such
investment. A "controlling interest" is defined in the Bylaws to mean an equity
interest possessing the power to direct or cause the direction of the management
and policies of the joint venture or general partnership. The Bylaws provide
that in transactions in which both non-affiliated entities and Affiliates of the
Company are participants, a controlling interest is determined by aggregating
the equity interests of the Company and any Affiliate participating in the
transaction, provided the Affiliate has investment objectives substantially
similar to those of the Company. See "Risk Factors -- Real Estate Investment
Risks -- Risks of Joint Ventures."
The Company has made five joint investments with CIP(TM) and may from time
to time participate jointly with publicly registered investment programs or
other entities sponsored or managed by the Advisor or one of its Affiliates in
investments as tenants-in-common or in some other joint venture arrangement.
Joint ventures with such affiliated programs will be permitted only if (i) a
majority of the directors (including a majority of the Independent Directors)
not otherwise interested in such transaction approve the transaction as being
fair and reasonable to the Company, (ii) the affiliated program or entity makes
its investment on substantially the same terms and conditions as the Company,
and (iii) the Company and the affiliated program or entity each have a right of
first refusal to purchase the investment if the other program wishes to sell the
investment. It is not likely that the Company will have money available to
exercise this right of first refusal and the Company has made no determination
as to whether it would borrow funds or liquidate assets in order to exercise any
option. The Company will not otherwise participate in joint investments with the
Advisor or its Affiliates. The cost of structuring joint investments will be
shared ratably by the participating investors and the Company.
The Company has to date formed 16 wholly-owned subsidiaries and may form
additional wholly-owned subsidiary corporations to purchase Properties in some
jurisdictions where the acquisition of Properties through the use of such an
entity would have a beneficial effect on the Company's taxable income for state
tax purposes or for other reasons deemed by the Advisor to be beneficial to the
Company. Such subsidiary corporations would be formed for the sole purpose of
acquiring a specific Property or Properties located in one or more states and
would have organizational documents (a) that are substantially similar to the
Organizational Documents of the Company, (b) that comply with all applicable
NASAA Guidelines, and (c) that comply with the applicable terms and conditions
set forth in this Prospectus. The Company may make loans to its wholly-owned
subsidiaries and guaranty the obligations of such subsidiaries.
Other Investments
The Company also may invest up to 10% of the net proceeds of the Offering
in unimproved or non-income-producing real property and in Equity Interests
(except that investment in Equity Interests in the aggregate shall not exceed 5%
of the net proceeds of the Offering). "Equity Interests" are defined generally
to mean stock, warrants or other rights to purchase the stock of, or other
interests in, a tenant of a Property, an entity to which the Company makes a
Loan, or a parent or controlling Person of a borrower or
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tenant. The Company will invest in unimproved or non-income-producing Property
which the Advisor believes will appreciate in value or the acquisition of which
will increase the value of an adjoining or neighboring properties of the
Company. There can be no assurance, however, that such expectations will be
realized. The Company anticipates that most Equity Interests will be "restricted
securities" as defined in Rule 144 promulgated under the Securities Act. Under
this rule, the Company may be prohibited from reselling restricted securities
without limitation until it has fully paid for and held the securities for three
years. The issuer of Equity Interests in which the Company invests may never
register such interests under the Securities Act. Whether an issuer registers
its securities under such Act may depend on the success of its operations.
The Company will exercise warrants or other rights to purchase stock only
if the value of the stock at the time such rights are exercised exceeds the
exercise price. Payment of the exercise price shall not be deemed an investment
subject to the above described limitations. The Company may borrow funds to pay
the exercise price on warrants or other rights or may pay such exercise price
from funds held for working capital and then repay the loan or replenish the
working capital upon the sale of the securities or interests purchased. The
Company may not pay Dividends out of the proceeds of the sale of such interests
until any funds borrowed to purchase such interest have been fully repaid. The
Advisor will invest in Equity Interests which the Advisor believes will
appreciate in value. There can be no assurance, however, that such expectation
will be realized.
The Company will not invest in real estate contracts of sale unless such
contracts of sale are in recordable form and are appropriately recorded in the
applicable chain of title, provided, however, that in no event shall investments
in such contracts exceed 1% of total assets.
There can be no assurance as to when the Company's capital may be fully
invested in Properties. See "Income Tax Aspects -- Requirements for
Qualification as a REIT." As of September 19, 1996, the Company has invested
approximately $65,174,000 and had approximately $49,150,000 in net offering
proceeds available to it for investment in Properties. The Advisor is in the
process of evaluating several potential acquisitions, completion of which is
subject to various conditions. The Company will use a portion of available cash
for these or other such acquisitions. Pending future investment, the balance of
the proceeds of the Offering will be invested in Permitted Temporary
Investments, which are defined to mean short-term U.S. Government securities,
bank certificates of deposit and other short-term liquid investments. To
maintain its REIT status, the Company also may invest in securities that qualify
as "real estate assets" and produce qualifying income under the REIT Provisions
of the Code. The Company expects that such securities will consist primarily of
shares issued by other REITs and mortgage-backed securities guaranteed by GNMA,
FNMA or FHLMC. Any investments in other REITs in which the Sponsor, Advisor or
any director is an Affiliate must be approved as being fair and reasonable by a
majority of the directors (including a majority of the Independent Directors)
who are not otherwise interested in the transaction. If all the proceeds derived
from the Offering are not invested or committed to be invested by the Company
prior to the expiration of the later of twenty-four months after the date of
this Prospectus or one year after the termination of the Offering, then the
proceeds not so invested or committed will, promptly after the expiration of
such period, be distributed pro rata to the Shareholders as a return of capital,
without any deductions for Organizational and Offering Expenses or Acquisition
Expenses. For the purpose of the foregoing provision, funds will be deemed to
have been committed to investment within such period and will not be returned to
Shareholders to the extent written agreements in principle have been executed at
any time prior to the expiration of such period, regardless of whether such
investments are consummated, and also to the extent any funds have been reserved
to make contingent payments in connection with any Property, regardless of
whether any such payments are made.
If at any time the character of the Company's investments would cause the
Company to be deemed an "investment company" for purposes of the Investment
Company Act of 1940, the Company shall take such action as is necessary in order
to ensure that the Company is not deemed to be such an "investment company." The
Advisor will continually review the Company's investment activity to attempt to
ensure that the Company does not come within the application of the Investment
Company Act of 1940. Among other things, they will attempt to monitor the
proportion of the Company's portfolio which is placed in
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various investments so that the Company does not come within the definition of
an investment company under such Act. The Company has been advised by counsel
that if it is operated in accordance with the description of its proposed
business in this Prospectus, it will not be deemed an "investment company" for
purposes of the Investment Company Act of 1940.
The Company's working capital and other reserves will be invested in
Permitted Temporary Investments. The Advisor will evaluate such factors as the
relative risks and rate of return, the Company's cash needs and other
appropriate considerations when making short-term investments on behalf of the
Company. The rate of return of Permitted Temporary Investments may be less than
or greater than would be obtainable from real estate investments.
The Company may purchase Property from the Sponsor, the Advisor, the
directors or their Affiliates only if (i) a majority of the Independent
Directors and a majority of the directors who otherwise are not interested in
the transaction approve such transaction as being fair and reasonable to the
Company, (ii) the Property was acquired by such Sponsor, Advisor, director or
Affiliate for the purpose of facilitating its purchase by the Company,
facilitating the borrowing of money or the obtaining of financing for the
Company or any other purpose related to the business of the Company, (iii) the
Property is purchased by the Company for a price no greater than the cost to
such Affiliate (provided, however, that such price may be greater than the cost
to such Affiliate, but in no event more than the appraised value, if such
Affiliate has taken significant action or has made an additional investment with
regard to the Property after its purchase which action or investment has
increased the value of the Property), and (iv) there is no adverse difference in
the interest rates of the loans secured by the Property at the time acquired by
such Sponsor, Advisor, director or Affiliate and at the time purchased by the
Company nor any other detriment arising out of such transaction to the Company.
The Company will receive all profits or losses from any Property held on an
interim basis by the Sponsor, Advisor, director or Affiliate thereof (other than
an Affiliate that is a public program or entity).
The Company will not sell Properties to the Sponsor, the Advisor, a
director or any Affiliate of any of the foregoing except pursuant to the
exercise of a right of first refusal by an affiliated joint venture partner.
USE OF BORROWING
While one of the Company's investment objectives will be diversification,
the number of different Properties the Company can acquire will be affected by
the amount of funds available to it. Since the final amount of funds the Company
will ultimately raise in this Offering is uncertain, the full extent of the
Company's actual operations cannot be determined at this time. The Company's
goal, subject to the availability of mortgage financing, is to borrow
approximately 60% of the purchase price of all Properties but there is no limit
on borrowings on individual Properties. As of September 19, 1996, the Company
had obtained approximately $69,578,000 in mortgage financing, which represents
51.6% of the approximately $134,752,000 Total Property Costs of the Company's
investments.
The ability of the Company to increase its diversification through
borrowing could be adversely impacted by the reduced availability of financing
secured by commercial real estate generally and specifically by single-tenant
net-leased real property, whether due to fewer financing sources, such as
commercial banks and insurance companies, or due to the reduced lending activity
by those sources continuing in that line of business. When interest rates on
mortgage loans are high or financing is otherwise unavailable on a timely basis,
the Company may purchase certain Properties for cash with the intention of
obtaining a mortgage loan for a portion of the purchase price at a later time if
and when interest rates fall. While the number of lenders making loans secured
by commercial real estate has decreased in recent years, the CPA(R) Programs
have not encountered significant difficulty in obtaining mortgage financing from
institutional lenders such as insurance companies to replace financing which
previously might have been obtained from commercial banks or savings and loans.
However, there can be no assurance that the Company will be able to achieve its
borrowing objective.
There is no limitation on the amount the Company may invest in any single
improved Property or on the amount the Company can borrow for the purchase of
any Property. Aggregate borrowings as of the time
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that the net proceeds of the Offering have been fully invested and at the time
of each subsequent borrowing may not exceed 75% of the value of all Properties
unless such excess is approved by a majority of the Independent Directors and
disclosed to Shareholders in the next quarterly report of the Company, along
with the reason for such excess. For purposes of determining the maximum
allowable amounts of indebtedness, "value" means the lesser of (i) the total
appraised value of the Properties as reflected in the most recently obtained
appraisal for each Property and (ii) the total value of the assets of the
Company as reflected in the most recently completed Valuation.
It is expected that, by operating on a leveraged basis, the Company will
have more funds available and, therefore, will make more investments than would
otherwise be possible, resulting in a more diversified portfolio. Although the
Company's liability for the repayment of indebtedness is expected to be limited
to the value of the Property securing such liability and the rents or profits
derived therefrom, leveraging increases risks to the Company because mortgage
principal and interest payments as well as other fixed charges must be paid in
order to prevent foreclosure on such Properties by mortgagees regardless of the
generation of income by Properties. See "Risk Factors -- Real Estate Investment
Risks -- Risks Associated with Borrowing." To the extent that the Company does
not obtain mortgage loans on its Properties, its ability to acquire additional
Properties will be restricted. The Advisor will use its best efforts to obtain
financing on the most favorable terms available to the Company. Lenders may have
recourse to other assets of the Company in certain limited circumstances not
related to the repayment of the indebtedness.
Lenders may also seek to include in the terms of mortgage loans provisions
making the termination or replacement of the Advisor an event of default or an
event requiring the immediate repayment of the full outstanding balance of the
loan. The Company will not agree to the inclusion of such provisions and will
attempt to negotiate loan terms allowing the Company to replace or terminate the
Advisor if such action is ordered by the Board. Such replacement or termination
may, however, require the prior consent of the mortgage lenders.
The Advisor will refinance Properties during the term of a loan only in
limited circumstances, such as when a decline in interest rates makes it
profitable to prepay an existing mortgage, when an existing mortgage matures or
if an attractive investment becomes available and the proceeds from the
refinancing can be used to purchase such investment. The benefits of such
refinancing may include an increased cash flow resulting from reduced debt
service requirements, an increase in distributions from proceeds of such
refinancing, if any, and/or an increase in property ownership if some
refinancing proceeds are reinvested in real estate.
OTHER INVESTMENT POLICIES
General
If at any time the Company does not have sufficient funds to provide that
portion of the Total Property Cost of any Property normally paid out of Offering
proceeds but would have sufficient funds if it could use the Offering proceeds
being held in escrow, funds may be borrowed from Affiliates of the Advisor or
from third parties on a short-term basis. Any such financing obtained from the
Advisor or its Affiliates may not have terms less advantageous to the Company
than those available from independent third parties and may not require a
prepayment charge or penalty. The interest rate charged on any such financing
obtained from the Advisor or its Affiliates will be equal to the lesser of 1%
above the prime rate of interest announced by The Bank of New York or the rate
that would be charged to the Company by unrelated lending institutions on
comparable loans for the same purpose. See "Conflicts of Interest -- Purchases
and Loans from Affiliates." The Company may assign, as security for borrowings
made from third parties, its right to receive up to 85% of the Offering proceeds
being held in escrow (excluding interest and amounts held on behalf of qualified
plans and IRAs). See "The Offering -- Escrow Arrangements."
At any time, subject to the approval of a majority of the Independent
Directors, the Company may borrow funds from Affiliates of either the Advisor or
third parties on a short-term basis sufficient to provide the portion of the
Total Property Cost of any Property not paid with net Offering proceeds (i.e.,
the debt portion) if (i) the Company is unable to obtain a permanent loan or, in
the judgment of the Company or
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the Advisor, it is not in the best interests of the Company to obtain a
permanent loan at the interest rates then prevailing and (ii) the Advisor has
reason to believe that the Company will be able to obtain a permanent loan on or
prior to the end of the loan term. Such short-term loans may be fully or
partially amortized, may provide for the payment of interest only during the
term of the loan or may provide for the payment of principal and interest only
upon maturity. In addition, such loans may be secured by a first or junior
mortgage on the Property to be acquired or by a pledge of or security interest
in the Offering proceeds that are being held in escrow which are to be received
from the sale of Shares by the Company. Any short-term loan from Affiliates of
the Advisor will bear interest at a rate equal to the lesser of 1% above the
prime rate of interest charged by The Bank of New York or the rate that would be
charged to the Company by unrelated lending institutions on comparable loans for
the same purpose in the locality of the Property. See "Conflicts of
Interest -- Loans from Affiliates."
Holding Period for Investments and Application of Proceeds of Sales or
Refinancings
The Company intends to hold each Property it acquires (including Properties
and partnership interests held by wholly-owned subsidiaries and Properties owned
by joint ventures in which the Company has an interest) for an extended period.
However, certain circumstances might arise which could result in the early sale
of certain Properties. A Property may be sold before the end of the expected
holding period of such Property if (i) the lessee has involuntarily liquidated,
(ii) in the judgment of the Advisor, the value of a Property might decline
radically, (iii) an opportunity has arisen to improve other Properties (e.g., to
buy property adjacent to or abutting another Property owned by the Company),
(iv) the Company can increase cash flow through the disposition of the Property,
(v) the lessee is in default under the lease, or (vi) in the judgment of the
Company or the Advisor, the sale of the Property is in the best interests of the
Company. The Advisor may receive real estate commissions on the sale of a
Property.
The determination of whether a particular Property should be sold or
otherwise disposed of will be made after consideration of relevant factors,
including prevailing economic conditions, with a view to achieving maximum
capital appreciation for the Company. No assurance can be given that the
foregoing objective will be realized. Also, the sales price of a Property which
is net leased will be determined in large part by the amount of rent payable
under such lease. However, to the extent that the seller of a Property to the
Company has a repurchase option at a formula price, the Company may be limited
in its realization of any appreciation by the option price. In connection with
sales of Properties by the Company, purchase money obligations (i.e., the
Company would "lend" the purchaser a portion of the purchase price by allowing
the purchaser to pay less than the full purchase price in cash) may be taken by
the Company as partial or full payment. In such instances, the Company's taxable
income may exceed the cash received in such sale. See "Income Tax
Aspects -- Taxation of the Company" and "Income Tax Aspects -- Requirements for
Qualification as a REIT -- Distribution Requirement." The terms of payment to be
accorded by the Company will be affected by custom in the area in which the
Property being sold is located and the then prevailing economic conditions. To
the extent that the Company receives purchase money mortgages rather than cash
in connection with sales of Properties, there may be a delay in making
distributions to Shareholders. A decision to provide financing to such
purchasers would be made after an investigation into and consideration of the
same factors regarding the purchaser, such as creditworthiness and likelihood of
future financial stability, as are undertaken when the Company considers a net
lease transaction. See "Income Tax Aspects -- Taxation of the Company."
If the Company's Shares are not listed for trading on a national securities
exchange or included for quotation on Nasdaq (which listing or inclusion for
quotation must be approved by the directors, a majority of the Independent
Directors and the CFA Board), the Properties generally will be liquidated
beginning five to ten years after the net proceeds of the Offering are
substantially invested. In making the decision to apply for listing of the
Shares, the Board will try to determine whether listing the Shares or
liquidating the Company will result in greater value for the Shareholders. It
cannot be determined at this time the circumstances, if any, under which the
Directors will agree to list the Shares. Such a listing is not likely to occur
during the first several years of the Company's existence. Both CPA(R):10 and
CIP(]) have a listing provision similar to provisions for the listing of the
CPA(R):12 shares and as of the date of the Prospectus
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<PAGE> 64
neither of them have listed their shares. Even if the Shares are not so listed
or included for quotation, the Company is under no obligation to liquidate its
portfolio within such period since the precise timing will depend on real estate
and financial markets, economic conditions of the areas in which the Properties
are located and Federal income tax effects on Shareholders which may prevail in
the future. Furthermore, there can be no assurance that the Company will be able
to liquidate its portfolio and it should be noted that the Company will continue
in existence until all Properties are sold and its other assets are liquidated.
The Company continually may reinvest the proceeds of Property sales in
investments that it or the Advisor believes will satisfy the Company's
investment policies; provided, however, that if the Shares are not listed for
trading on a national securities exchange or included for quotation on Nasdaq,
the Company will cease reinvesting its capital beginning five years after the
proceeds from the Offering are fully invested unless the directors (including a
majority of the Independent Directors) determine that, in light of the Company's
expected life at any given time, it is deemed to be in the best interest of the
Shareholders to reinvest Cash from Sales and Financings. See "Income Tax
Aspects -- Taxation of the Company."
INVESTMENT LIMITATIONS
Numerous limitations are placed on the manner in which the Company may
invest its funds. These limitations cannot be changed unless the Bylaws are
amended, which requires the approval of the Shareholders. Unless the Bylaws are
amended, the Company will not:
-- invest in commodities or commodity futures contracts, such limitation
not being applicable to futures contracts when used solely for the
purpose of hedging in connection with the Company's ordinary business of
investing in real estate assets and mortgages,
-- invest in contracts for the sale of real estate unless such contract is
in recordable form and is appropriately recorded in the chain of title
(provided, however, that in no event shall investments in such contracts
exceed 1% of the total assets of the Company),
-- engage in any short sale or borrow on an unsecured basis, if such
borrowing will result in asset coverage of less than 300%. "Asset
coverage," for the purpose of this clause means the ratio which the
value of the total assets of the Company, less all liabilities and
indebtedness for unsecured borrowings, bears to the aggregate amount of
all unsecured borrowings of the Company,
-- make investments in Unimproved Real Property or indebtedness secured by
a deed of trust or mortgage loans on Unimproved Real Property in excess
of 10% of the total assets of the Company. "Unimproved Real Property"
means property which has the following three characteristics: (i) an
equity interest in property which was not acquired for the purpose of
producing rental or other operating income, (ii) no development or
construction is in process on such property, and (iii) no development or
construction on such property is planned in good faith to commence on
such property within one year of acquisition,
-- issue equity securities on a deferred payment basis or other similar
arrangement,
-- issue debt securities in the absence of adequate cash flow to cover debt
service,
-- issue equity securities which are non-voting or assessable,
-- issue "redeemable securities" as defined in Section 2(a)(32) of the
Investment Company Act of 1940,
-- grant warrants or options to purchase Shares or other voting securities
of the Company unless such warrants or options (1) are issued ratably to
the holders of all Shares and voting securities or (2) are issued as
part of a financing arrangement; provided that options will be issued to
persons not connected to the Company if the issuance is part of a
financing arrangement and that any warrants or options issued are at an
exercise price greater than or equal to the fair market value of the
Shares or voting securities on the date of the grant and for
consideration (including services) that in the judgment of a majority of
the Independent Directors has a market value at least equal to the value
of the warrant or option on the date of grant, and the warrants and
options granted to the Advisor,
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<PAGE> 65
directors or Affiliates thereof are granted on the same terms as such
warrants and options are sold to the general public and do not exceed an
amount equal to 10% of the outstanding Shares on the date of grant of
such warrants and options,
-- engage in trading, as compared with investment activities, or engage in
the business of underwriting or the agency distribution of securities
issued by other Persons,
-- invest more than 5% of the value of its assets in the securities of any
one issuer if such investment would cause the Company to fail to qualify
as a REIT,
-- invest in securities representing more than 10% of the outstanding
voting securities of any one issuer if such investment would cause the
Company to fail to qualify as a REIT,
-- acquire securities in any company holding investments or engaging in
activities prohibited in the foregoing clauses,
-- lend money to or lease Property to or from the Advisor or its
Affiliates,
-- sell Property to the Sponsor, the Advisor, a director or any Affiliate
of any of the foregoing,
-- offer Shares in exchange for Property,
-- make or invest in mortgage loans that are subordinate to any mortgage or
equity interest of the Advisor, directors, Sponsor or Affiliates of the
Company, or
-- make loans where the amount advanced by the Company plus the amount of
any existing loans that are equal or senior to the Company's loan
exceeds 100% of the appraised vale of the property.
CHANGE IN INVESTMENT OBJECTIVES AND LIMITATIONS
The Bylaws require that the Independent Directors review the Company's
investment policies at least annually to determine that the policies being
followed by the Company are in the best interest of the Shareholders. Each such
determination and the basis therefor shall be set forth in the minutes of the
Company. The methods of implementing the Company's investment policies also may
vary as new investment techniques are developed. The methods of implementing the
investment Procedures, Objectives and Policies of the Company, except as
otherwise provided in the Organizational Documents, may be altered by a majority
of the directors (including a majority of the Independent Directors) without the
approval of the Shareholders.
HOLDERS OF SHARES OF THE COMPANY
As of September 19, 1996, 13,116,721 Shares have been issued by the Company
to 7,334 Shareholders.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Listed below are the Management Discussions and Analyses of the Company for
the years ended December 31, 1994 and 1995 and quarter-ended June 30, 1996 as
contained in their respective 10-K's and 10-Q.
YEAR ENDED DECEMBER 31, 1994
On February 18, 1994, the Company commenced a public offering of 20,000,000
shares of common stock ("Shares") ($10 per Share) on a "best efforts" basis.
Prior to the commencement of the offering, the Advisor purchased 20,000 Shares
for $200,000. In connection with the offering, an aggregate of 2,697,263 Shares
were issued in 1994 since the initial issuance of shares on May 12, 1994. The
Company is investing the net offering proceeds (except for proceeds used to
establish a working capital reserve) in industrial and commercial real estate.
62
<PAGE> 66
At December 31, 1994, approximately $14,150,000 of the Company's net
offering proceeds were invested in real estate. All net offering proceeds not
currently invested in real estate are invested in cash and cash equivalents. The
Company intends to invest such funds (except for a working capital reserve
representing 1% of the proceeds from the sale of Shares) in real estate. As of
March 29, 1995, funds of approximately $7,000,000, including the net proceeds
from the issuance of 589,377 Shares on March 9, 1995, are available for
investment in real estate. The Company's anticipated cash provided by operations
and cash balances are expected to be more than sufficient for the Company to
meet its anticipated rate of cash dividends to shareholders and to make its
scheduled debt service payments.
The Company's primary objective is to protect its investors from the
effects of inflation by generating an increasing cash flow while building
underlying value through property appreciation. The Company intends to meet this
objective by entering into long-term leases with corporate lessees. The
Company's leases typically include rent escalations which are either fixed,
based upon increases in the Consumer Price Index or, commonly with retail
stores, based upon percentage of sales. Under a net lease, the tenants are
generally required to pay all operating expenses related to the leased property,
thereby limiting the Company's exposure to the effects of increases in real
estate taxes, property maintenance costs and property insurance premiums. The
Company also negotiates lease covenants which serve to protect its lessor's
interest in the event of a lessee's reorganization or restructuring. While there
is no assurance that the Company will realize its objective, Management believes
that its ability to structure leases with rent escalations and protective
covenants is a key to meeting the Company's objective.
The Company had no investments until May 13, 1994, when it purchased its
first property. Operations for the period from inception (July 30, 1993) to
December 31, 1993, therefore, were primarily attributable to the preparation and
filing of the Company's registration statement with the Securities and Exchange
Commission. The operations for 1994 were primarily attributable to the raising
of capital and the acquisition of and investment in real estate. Accordingly,
the results of operations for 1994 and 1993 cannot be meaningfully compared.
Increases in revenues, interest expense on mortgages, amortization expense,
property expenses and general and administrative expenses in 1994 are due to
investment activities and related mortgage financing. Although the Company had a
net loss in 1994, cash flow from operations was sufficient to fund the payment
of dividends. With the utilization of available limited recourse financing and
net offering proceeds, the Company has purchased direct and indirect interests
in commercial properties as follows:
<TABLE>
<CAPTION>
DATE ACQUIRED LEASE OBLIGOR
---------------------------------------------------------- ----------------------
<S> <C>
May 13, 1994.............................................. Best Buy Co., Inc.
July 15, 1994............................................. Big V Holding Corp.
October 14, 1994.......................................... Gensia, Inc.
February 10, 1995......................................... Wal-Mart Stores, Inc.
February 16, 1995......................................... Etec Systems, Inc.
</TABLE>
In the case of limited recourse mortgage financing which does not
self-liquidate over its term, the Company would be responsible for the balloon
payment required but only to the extent of its interest in the encumbered
property since the holder of each such obligation has recourse only to the
property collateralizing such debt. Such payment could be funded from several
alternatives sources as determined by the Advisor to be in the best interest of
the Company at the time, including refinancing the existing mortgage or the sale
of the property, the proceeds of which could be used to make the mortgage
payment. The Company has no balloon payments scheduled until 1998.
In connection with the purchase of its properties, the Company requires
sellers of such properties to perform environmental reviews. Management
believes, based on the results of such reviews, that the Company's properties
were in substantial compliance with Federal and state environmental statutes at
the time the properties were acquired. Tenants are generally subject to
environmental statutes and regulations regarding the discharge of hazardous
materials and any related remediation obligations. In addition, the Company's
leases generally require tenants to indemnify the Company from all liabilities
and losses related to the leased properties with provisions of such
indemnification specifically addressing environmental
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<PAGE> 67
matters. The leases generally include provisions which allow for periodic
environmental assessments, paid for by the tenant, and allow the Company to
extend leases until such time as a tenant has satisfied its environmental
obligations. The Company also attempts to negotiate lease provisions to require
financial assurances from tenants such as performance bonds or letters of credit
if the costs of remediating environmental conditions, in the estimation of the
Company, are in excess of specified amounts. Accordingly, Management believes
that the ultimate resolution of any environmental matters would not have a
material adverse effect on the Partnership's financial condition or liquidity.
YEAR ENDED DECEMBER 31, 1995
The Company was formed in 1993 for the purpose of engaging in the business
of investing in and owning commercial and industrial real estate. In February
1994, the Company commenced a public offering of common stock at $10 per share
on a "best efforts" basis. Between May 1994 and December 1995, when the offering
concluded the Company had sold 6,554,789 shares ($85,547,890), including 20,000
shares ($200,000) which were purchased by the Company's Advisor. An additional
1,583,893 shares ($15,838,930) from this offering were issued subsequent to
December 31, 1995. As described below, the Company has initiated a new public
offering of common stock.
The Company's primary objectives are to provide rising cash flow and
property values, protecting its investors from the effects of inflation through
rent escalation provisions, property appreciation, tenant credit improvement and
regular paydown of limited recourse mortgage debt. The Company intends to meet
this objective by entering into long-term net leases with corporate lessees. The
Company's leases, which usually have initial lease terms of 15 to 25 years,
typically include rent increase provisions which are either fixed, based upon
increases in the Consumer Price Index ("CPI") or, commonly with retail stores,
based upon a percentage of sales. Under a net lease, the tenants are generally
required to pay all operating expenses related to the leased property, thereby
limiting the Company's exposure to the effects of increases in real estate
taxes, property maintenance and insurance costs. The Company also negotiates
lease covenants which serve to protect its lessor's interest in the event of a
lessee's reorganization or restructuring. While there is no assurance that the
Company will realize its objective, Management believes that its ability to
structure leases with rent escalations and protective covenants is a key to
meeting the Company's objective. In addition, the Company has successfully
negotiated grants of common stock warrants from selected tenants and expects to
realize the benefits of appreciation from those grants.
At December 31, 1995, the Company had invested approximately $78,223,000 in
net leased real estate through directly owned real estate and ownership
interests in two general partnerships with an affiliate, each of which was
formed for the purpose of entering into a net lease transaction with a corporate
net lessee. Of the amount invested, $41,212,000 was from the proceeds of the
offering and $37,011,000 from limited recourse mortgage financing. Since
December 31, 1995, the Company has obtained limited recourse mortgage financing
of $7,500,000 on a property purchased in 1995 and has utilized $20,474,000 of
equity and $10,800,000 from limited recourse mortgage financing to purchase
interests in three additional real estate investments. The Company is currently
committed to fund up to $9,316,000 of project costs in connection with its
build-to-suit construction of three warehouses and a special purpose facility
leased to Del Monte Corporation ("Del Monte"). Upon the completion of
construction, the Company has a commitment from a lender for mortgage financing
of $6,250,000 on the Del Monte properties. As of March
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<PAGE> 68
20, 1996, the Company had $16,602,000 of cash available for investment. The
Company has, since its inception, purchased properties as follows:
<TABLE>
<CAPTION>
DATE ACQUIRED LEASE OBLIGOR
-------------------------------------------- ---------------------------------------
<S> <C>
May 13, 1994................................ Best Buy Co., Inc.
July 15, 1994............................... Big V Holding Corp.
October 14, 1994............................ Gensia, Inc.
February 10, 1995........................... Wal-Mart Stores, Inc.
February 16, 1995........................... Etec Systems, Inc.
June 8, 1995................................ Sports & Fitness Clubs, Inc.
June 20, 1995............................... The Garden Companies, Inc.
November 9, 1995............................ Del Monte Corporation
November 13, 1995........................... Applied Bioscience International, Inc.
January 4, 1996............................. The Upper Deck Company
February 23, 1996........................... Rheometric Scientific, Inc.
March 11, 1996.............................. Telos Corporation
</TABLE>
All of the Company's debt is limited recourse mortgage financing. This
means that the Company's mortgage lenders look solely to the specific properties
encumbered by the mortgage and to the tenant obligations on those same
properties which are also generally assigned to the lender as additional
collateral. In the case of mortgage financing that does not fully amortize over
its term, the Company would be responsible for the balloon payment only to the
extent of its interest in the encumbered property because the holder of each
such obligation has recourse only to the collateral. In the event that balloon
payments come due, the Company would seek to refinance the loans, restructure
the debt with the existing lenders, evaluate its ability to satisfy the
obligations from its existing resources or sell the property and use the sale
proceeds to satisfy the mortgage debt. The Company believes that the ability to
refinance balloon payment obligations is enhanced if the long-term lease for the
property remains in effect. The Company also evaluates all of its outstanding
loans for refinancing opportunities which may occur as the result of changing
market rates or improvements in the credit rating of tenants whereby it can
lower the interest rate on the debt. No balloon payments on the Company's
mortgages are scheduled until 2000.
During 1995, the Company's cash flow from operations of $3,881,000 was more
than sufficient to fund payments of dividends of $2,350,000 and scheduled debt
service principal payments on mortgage debt of $262,000. The Company's financing
and investing cash flows in 1995 primarily consisted of the raising of equity
and debt for the purpose of purchasing investments in real estate. Over the next
several years, the Company will concentrate its efforts on raising equity and
combining such equity with mortgage financing for the purchase of real estate
investments which are intended to be structured so that they increase in value.
The Company will use the cash generated by these investments to meet its
objective of using the cash flow provided from operations to pay quarterly
dividends at an increasing rate and increase the Company's equity in real estate
by making regular mortgage principal payments. While there is no assurance that
this objective will be met, Management believes that with adequate
diversification of real estate investments its strategy should enable the
Company to meet its objective. In addition, the Company will seek to enhance
cash flow by seeking refinancing opportunities on its existing mortgage debt.
The Company does not currently have a line of credit and it expects to raise new
equity capital and mortgage financing to maintain its anticipated rate of
investment in new properties.
On February 2, 1996, the Company commenced a second public offering of
20,000,000 shares of common stock at $10 per share on a "best efforts" basis.
The Company intends to raise capital pursuant to this offering for approximately
two years unless the full amount of registered shares are subscribed before that
time. The Company is expanding its selected dealer network and expects the
network to participate in the sale of common stock through the term of the
offering. The Company intends to invest the net offering proceeds (except for 1%
of proceeds used to establish a working capital reserve) along with the
remaining proceeds from the recently completed offering in additional real
estate investments so as further to diversify the Company's portfolio of real
estate investments. The Company may be required until May 8, 1996 to
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<PAGE> 69
redeem up to 526,921 shares ($5,269,210) of common stock pursuant to a recision
offer, effective January 3, 1996, to shareholders who subscribed for shares
between March 31, 1995 and May 9, 1995 because certain investors did not receive
updated financial statements within a specified period. Since the date of the
offer, no shareholders have rescinded the purchase of their shares. After May 9,
1996, all shares which have not been redeemed will be classified as
shareholders' equity.
A comparison of the results of operations for the year ended December 31,
1995 with the results of operations for the year ended December 31, 1994 is not
meaningful as the Company made three real estate investments in 1994 with the
first such investment not being made until May 1994. During 1995, the Company
purchased interests in an additional six real estate investments. Increases in
lease revenues, interest expense, depreciation and amortization and property
expense are attributable to the increase in real estate assets and related
mortgage financing rather than significant changes relating to any of the real
estate investments purchased in 1994. The Company did refinance an existing
mortgage loan in 1995 and while it will provide a benefit to the Company's cash
flow, it had no significant effect on the change from a net loss of $28,000 in
1994 to net income of $2,115,000 in 1995. The increase in other interest income
was solely attributable to higher cash balances held in the interval between the
date when shares were issued and when the Company selected its investment of
such proceeds in a real estate acquisition. General and administrative expenses
increased as certain expenses such as printing and transfer agent fees increase
as the number of shareholders increase. As not all general and administrative
costs increase in the same proportion as increases in the number of
shareholders, the trend of increase in general and administrative expense should
moderate.
Although the Company was formed in 1993, in its first year its activities
were limited to the preparation and filing of the Company's registration with
the Securities and Exchange Commission and state securities commissions.
Accordingly, the Company had no revenue producing operations for that period and
a comparison of the results of operations with 1994 is not meaningful.
Future rent increases and cash flow may be affected by changes in the rate
of increase in the CPI and possible changes in the method of calculation of the
CPI. Although there have been preliminary indications that legislation may be
introduced which would change the calculation of the CPI, the Company cannot
predict the outcome of any proposed legislation nor how it may affect the
Company's future cash flow.
In connection with the purchase of its properties, the Company requires
sellers of such properties to perform environmental reviews. Management
believes, based on the results of such reviews, that the Company's properties
were in substantial compliance with Federal and state environmental statutes at
the time the properties were acquired. Tenants are generally subject to
environmental statutes and regulations regarding the discharge of hazardous
materials and any related remediation obligations. In addition, the Company's
leases generally required tenants to indemnify the Company from all liabilities
and losses related to the leased properties with provisions of such
indemnification specifically addressing environmental matters. The leases
generally include provisions which allow for periodic environmental assessments,
paid for by the tenant, and allow the Company to extend leases until such time
as a tenant has satisfied its environmental obligations. The Company also
attempts to negotiate lease provisions to require financial assurances from
tenants such as performance bonds or letters of credit if the costs of
remediating environmental conditions, in the estimation of the Company, are in
excess of specified amounts. Accordingly, Management believes that the ultimate
resolution of any environmental matters would not have a material adverse effect
on the Company's financial condition, liquidity or results of operations.
Effective January 1, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121 -- Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("SFAS 121"). Pursuant
to SFAS 121, the Company assesses the recoverability of its real estate assets,
including residual interests, based on projections of cash flows over the life
of such assets. In the event that such cash flows are insufficient, the assets
are adjusted to their estimated-net realizable value. The adoption of SFAS 121
did not have a material effect on the Company's financial condition or results
of operations.
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<PAGE> 70
SIX MONTHS ENDED JUNE 30, 1996
In January 1996, the Company concluded an initial offering of common stock
at which time it had raised equity of $81,359,920 (8,135,992 shares). On
February 2, 1996, the Company commenced a second public offering of 20,000,000
shares of common stock at $10 per share on a "best efforts" basis. As of August
10, 1996 the Company had issued 2,269,622 shares ($22,696,210) under the second
offering. The Company intends to raise capital pursuant to this offering for
approximately two years unless the full amount of registered shares are
subscribed before that time. The Company is expanding its selected dealer
network and expects the network to participate in the sale of common stock
through the term of the offering. The Company intends to invest the net offering
proceeds (except for 1% of proceeds used to establish a working capital reserve)
along with the remaining proceeds from the initial offering in additional real
estate investments so as to further diversify the Company's portfolio. As of
August 8, 1996, approximately $56,430,000 of the Company's net offering proceeds
was invested in real estate and $30,690,000 of funds was available for
investment. All net offering proceeds not currently invested in real estate are
invested in cash and cash equivalents.
With the utilization of available limited recourse mortgage financing and
net offering proceeds, the Company has purchased direct or indirect interests in
commercial properties with the following lease obligors:
<TABLE>
<CAPTION>
DATE ACQUIRED LEASE OBLIGOR
-------------------------------------------- ---------------------------------------
<S> <C>
May 13, 1994................................ Best Buy Co., Inc.
July 15, 1994............................... Big V Holding Corp.
October 14, 1994............................ Gensia, Inc.
February 10, 1995........................... Wal-Mart Stores, Inc.
February 16, 1995........................... Etec Systems, Inc.
June 8, 1995 and July 25, 1996.............. Sports & Fitness Clubs, Inc.
June 20, 1995............................... The Garden Companies, Inc.
November 9, 1995............................ Del Monte Corporation
November 13, 1995........................... Applied Bioscience International, Inc.
January 4, 1996............................. The Upper Deck Company
February 23, 1996........................... Rheometric Scientific, Inc.
March 11, 1996.............................. Telos Corporation
March 28, 1996.............................. Lanxide Corporation
</TABLE>
In July 1996, subsequent to the completion of a build-to-suit project for
buildings leased to Del Monte Corporation ("Del Monte") which required a total
investment of approximately $14,995,000, the Company obtained limited recourse
mortgage financing of $6,250,000. 526,921 shares ($5,269,210) of common stock,
sold between March 31, 1995 and May 9, 1995 were subject to redemption. The
redemption period ended May 9, 1996, at which time only 3,750 of such shares
($37,500) were redeemed. With the end of the redemption period, the Company's
uncertainty as to whether a significant amount would need to be used to fund
redemptions has been eliminated. As of August 8, 1996, the Company has raised
$104,056,130 through its offerings of common stock.
The results of operations for the three-month and six-month periods ended
June 30, 1995 and 1996 are not directly comparable as the Company's direct and
indirect investment in net leased real estate has materially increased during
1995 and 1996. Increases in lease revenues, equity income, interest, general and
administrative expenses, property expenses, depreciation and amortization were
solely due to the increase in real estate assets and related mortgage financing.
The increase in other interest income was due to the increase in cash balances.
Such interest income will eventually decrease as cash available for investment
is utilized for additional real estate purchases, and the Company maintains cash
balances judged by its management to be prudent for its operations. Although
there has been an increase in general administrative expense for the comparable
three-month periods, a substantial portion are fixed rather than variable, and
the rate of increase in such costs is expected to moderate even as the Company's
real estate assets and related lease revenues increase.
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<PAGE> 71
DESCRIPTION OF PROPERTIES
In addition to the Properties described below, the Advisor is evaluating
various potential Property acquisitions and is engaging in discussions with
sellers regarding the purchase of Properties for the Company. During the
continuation of the Offering, and at such time during the negotiations of a
potential Property acquisition when the Advisor believes a reasonable
probability exists that such Property will be acquired by the Company, this
Prospectus will be supplemented to disclose such potential Property acquisition.
Based on the Advisor's experience and acquisition methods, this generally will
occur upon the signing of a legally binding purchase agreement or after the
execution of a letter of intent to purchase a Property and the obtaining of a
commitment for financing, but may occur before or after such events depending on
the particular circumstances surrounding each potential acquisition. Any such
supplement to this Prospectus will set forth available data with respect to the
acquisition including the proposed terms of the purchase, a description of the
Property to be acquired, and other information considered appropriate for an
understanding of the transaction. Further data will be made available after any
acquisition has been consummated during the Offering also by means of a
supplement to this Prospectus. See "Reports to Shareholders" for a description
of other reports to Shareholders which will describe Property acquisitions.
IT SHOULD BE UNDERSTOOD THAT THE INITIAL DISCLOSURE IN THIS PROSPECTUS OR A
SUPPLEMENT OF ANY POTENTIAL ACQUISITION CANNOT BE RELIED UPON AS AN ASSURANCE
THAT THE COMPANY ULTIMATELY WILL CONSUMMATE SUCH POTENTIAL ACQUISITION OR THAT
THE INFORMATION PROVIDED CONCERNING THE POTENTIAL ACQUISITION WILL NOT CHANGE
BETWEEN THE DATE OF THIS PROSPECTUS OR SUCH SUPPLEMENT AND ACTUAL PURCHASE.
As of September 19, 1996, the Company, through certain subsidiaries and
partnerships holds fee simple title to 43 Properties. The following table
provides certain information with respect to the Properties.
<TABLE>
<CAPTION>
GROSS
LEASABLE AVERAGE PRIMARY MAXIMUM
TENANT/GUARANTOR AREA IN ANNUAL RENT PER LEASE LEASE TYPE OF
LOCATION OF PROPERTIES SQUARE FT. RENT(1) SQUARE FT.(2) OCCUPANCY TERM TERM PROPERTY
- ------------------------------- ---------- ---------- ------------- --------- ------- ------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BEST BUY CO., INC.(3)
Denver, CO................... 23,987 100% 2018 2033 Electronics -- Retail
Fort Collins, CO............. 28,520 100% 2018 2033 Electronics -- Retail
Bloomingdale, IL............. 27,280 100% 2018 2033 Electronics -- Retail
Bedford Park, IL............. 27,466 100% 2018 2033 Electronics -- Retail
Aurora, IL................... 28,186 100% 2018 2033 Electronics -- Retail
Matteson, IL................. 27,538 100% 2018 2033 Electronics -- Retail
Schaumberg, IL............... 113,933 100% 2018 2033 Electronics -- Retail
Omaha, NE.................... 28,731 100% 2018 2033 Electronics -- Retail
Albuquerque, NM.............. 45,653 100% 2018 2033 Electronics -- Retail
Arlington, TX................ 46,361 100% 2018 2033 Electronics -- Retail
Beaumont, TX................. 28,255 100% 2018 2033 Electronics -- Retail
Dallas, TX................... 27,697 100% 2018 2033 Electronics -- Retail
El Paso, TX.................. 28,179 100% 2018 2033 Electronics -- Retail
Plano, TX.................... 28,075 100% 2018 2033 Electronics -- Retail
Ft. Worth, TX................ 27,460 100% 2018 2033 Electronics -- Retail
Houston, TX.................. 28,160 100% 2018 2033 Electronics -- Retail
Madison, WI.................. 28,025 100% 2018 2033 Electronics -- Retail
----------
TOTAL...................... 593,146 $1,835,014(4) $ 8.36(5) 100%
BIG V SUPERMARKETS, INC.(6)
Ellenville, NY............... 60,750 100% 2018 2038 Supermarket -- Retail
Warwick, NY.................. 72,804 100% 2018 2038 Supermarket -- Retail
----------
TOTAL...................... 133,554 693,563(4) 11.54(5) 100%
</TABLE>
68
<PAGE> 72
<TABLE>
<CAPTION>
GROSS
LEASABLE AVERAGE PRIMARY MAXIMUM
TENANT/GUARANTOR AREA IN ANNUAL RENT PER LEASE LEASE TYPE OF
LOCATION OF PROPERTIES SQUARE FT. RENT(1) SQUARE FT.(2) OCCUPANCY TERM TERM PROPERTY
- ------------------------------- ---------- ---------- ------------- --------- ------- ------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GENSIA, INC.(7)
San Diego, CA................ 72,409 100% 2009 2049 Office/Research
San Diego, CA................ 71,902 100% 2009 2049 Office/Research
----------
TOTAL...................... 144,311 1,020,036(4) 14.13(5) 100%
ETEC SYSTEMS, INC.
Hayward, CA.................. 153,531 1,370,325 8.93 100% 2010 2030 Manufacturing/Office
WAL-MART STORES, INC.
Greenfield, IN............... 82,620 397,226 4.81 100% 2005 2020 Warehouse/Distribution
SPORTS & FITNESS CLUBS OF
AMERICA, INC.
Austin, TX................... 43,935 100% 2013 2033 Sports & Fitness Facility
Houston, TX.................. 46,733 100% 2016 2036 Sports & Fitness Facility
----------
TOTAL...................... 90,668 1,362,000 15.03 100%
NK LAWN & GARDEN CO.
Chattanooga, TN.............. 242,317 816,400 3.37 100% 2015 2035 Warehouse/Distribution
DEL MONTE CORPORATION(8)
Mendota, IL.................. 239,850 100% 2016 2056 Warehouse
Plover, WI................... 210,000 100% 2016 2056 Warehouse
Toppemish, WA................ 274,750 100% 2016 2056 Warehouse
Yakima, WA................... 11,165 100% 2016 2056 Ripening Room
----------
TOTAL...................... 735,765 1,346,888(4) 3.66(5) 100%
APPLIED BIOSCIENCE
INTERNATIONAL, INC.
Austin, TX................... 9,456 100% 2010 2030 Research
Austin, TX................... 9,425 100% 2010 2030 Research
Austin, TX................... 42,185 100% 2010 2030 Research
Austin, TX................... 26,594 100% 2010 2030 Research
Austin, TX................... 18,544 100% 2010 2030 Research
Austin, TX................... 85,160 100% 2010 2030 Research
Austin, TX................... 9,425 100% 2010 2030 Research
----------
TOTAL...................... 173,000 $1,302,000 $ 7.53 100%
THE UPPER DECK COMPANY(7)
Carlsbad, CA................. 48,111 100% 2021 2041 Manufacturing/Office
Carlsbad, CA................. 246,666 100% 2021 2041 Manufacturing/Office
----------
TOTAL...................... 294,777 1,319,875(4) 8.94(5) 100%
RHEOMETRIC SCIENTIFIC, INC.
Piscataway, NJ............... 104,120 1,180,000 11.33 100% 2011 2031 Manufacturing/Office
TELOS CORPORATION
Ashburn Junction, VA......... 192,775 1,447,000 7.51 100% 2016 2036 Office/Research
LANXIDE CORPORATION
Newark, DE................... 171,811 1,030,000 6.00 100% 2016 2036 Office/Research
CELADON GROUP
Marion County, IN............ 60,900 700,000 11.50 100% 2016 2036 Office/Trucking
</TABLE>
- ---------------
(1) Annual rent on a cash basis on the later of December 31, 1994 or the date of
acquisition.
(2) None of the properties were subject to lease prior to their acquisition by
the Company except for the property leased to Wal-Mart Stores, which
property was subject to the lease acquired by the Company for six months.
69
<PAGE> 73
(3) The Company owns a 37% interest in these properties. The remaining interest
is owned by Carey Institutional Properties Incorporated ("CIP(TM)").
(4) This figure represents the Company's share of the rent payable by this
tenant.
(5) This figure represents the rent per square foot of the property when
combined with rents payable to co-owners.
(6) The Company owns a 45% interest in these properties. The remaining interest
is owned by CIP(TM).
(7) The Company owns a 50% interest in this property. The remaining interest is
owned by CIP(TM).
(8) The Company owns a 50% interest in this property. The remaining interest is
owned by CIP(TM). The figures represent the size of buildings to be
constructed and the rent payable if the Company and CIP(TM) advances the
maximum amount contemplated.
PROPERTY LEASED TO BIG V SUPERMARKETS, INC.
DESCRIPTION OF PROPERTY
General
In October 1993, a wholly-owned subsidiary of CIP(TM) (the "ELWA
Subsidiary"), acquired from Big V Supermarkets, Inc. ("Big V") a retail shopping
center constructed on certain land located in Ellenville, New York (the
"Ellenville Property"), and a retail shopping center constructed on certain land
located in Warwick, New York (the "Warwick Property", and together with the
Ellenville Property, collectively, the "Big V Properties"). The Ellenville
Property contains a 46,000 square foot commercial building, operated as a
"ShopRite" supermarket, and approximately 13,500 square feet of additional
retail space (the "Ellenville Facility"). The Warwick Property contains a 48,164
square foot commercial building, also operated as a "ShopRite" supermarket, and
approximately 24,000 square feet of additional retail space (the "Warwick
Facility").
On July 15, 1994, the Company acquired a 45% interest in the ELWA
Subsidiary by investing $2,790,000 in the ELWA Subsidiary. The Company paid an
Acquisition Fee of $161,387 to an Affiliate of the Advisor in connection with
the acquisition. W.P. Carey & Co. will receive a subordinated Acquisition Fee of
$16,139 per year over eight years, but only if the Company satisfies the
Preferred Return.
Each of the Ellenville Facility and Warwick Facility is suitable and
adequate for the operation of a supermarket. The cost of the improvements on the
Big V Properties will be depreciated for tax purposes over a 40-year period on a
straight-line basis.
Purchase Terms
The aggregate purchase price of the Big V Properties, including the
Acquisition Fee, was $14,422,000. The purchase price was less than the leased
fee appraised value of the Big V Properties.
Financing
Financing of $7,500,000 was provided to the ELWA Subsidiary through a loan
from GNA Life Insurance Company of New York ("GNA"). The loan has a term of
twenty-five years and bears interest at an initial annual interest rate of nine
percent per year for the first ten years of the term. Thereafter, the interest
rate will be adjusted annually to a rate of .375% over the Moody's A Corporate
Bond Index Daily Rate. The loan requires monthly payments of principal and
interest based on a 25-year amortization schedule.
The loan is secured by a first priority mortgage on the Big V Properties,
an assignment of leases and rents, a stock pledge agreement pursuant to which
CIP(TM) and the Company have pledged the stock of the ELWA Subsidiary, and a
limited guaranty from CIP(TM) and the Company. Pursuant to the guaranty, CIP(TM)
and the Company have guaranteed payment of the loan in certain limited
circumstances after Key Bank has instituted a foreclosure action and payment of
any losses sustained by GNA as a result of fraud or the misuse of funds by the
ELWA Subsidiary; provided, however, that in no event is CIP(TM) or the Company
70
<PAGE> 74
liable for any amount in excess of the amount of the loan. CIP(TM) and the
Company have also agreed to indemnify GNA for certain hazardous substance
violations at the Big V Properties.
DESCRIPTION OF LEASE
General
Contemporaneously with the acquisition of the Big V Properties, the ELWA
Subsidiary leased the Big V Properties to Big V under a triple-net lease (the
"Big V Lease") pursuant to which Big V is responsible for all expenses imposed
upon or assessed against Big V, the Big V Properties or the ELWA Subsidiary
resulting from the ownership, use, occupancy, leasing, possession or sale to Big
V of the Big V Properties, including the payment of all taxes, insurance
premiums, maintenance and repair costs. Big V Holding Corp., the parent of Big V
("Big V Holding"), has guaranteed the obligations of Big V under the Big V
Lease. Big V is obligated to maintain the Big V Properties in good repair and
condition. In the opinion of the management of the Company, the Big V Properties
are adequately covered by insurance.
Term
The initial term of the Big V Lease is 25 years. The Big V Lease will be
automatically extended for each of four successive five-year terms unless Big V
gives written notice of non-renewal at least 15 months prior to the expiration
of the then current term.
Rent
The Big V Lease requires Big V to pay annual basic rent of $1,541,250. In
addition, for each of the first five years of the Big V Lease, Big V is required
to pay as additional basic rent an amount equal to 1% of gross sales by Big V
for such year, in the case of the Ellenville Property, for gross sales in excess
of $30,000,000, and in the case of the Warwick Property, for gross sales in
excess of $42,500,000. During each year thereafter (including any extensions),
Big V is required to pay annually as additional basic rent an amount equal to
the greater of (i) the amount listed below and (ii) 1% of gross sales by Big V
in excess of $30,000,000, with respect to the Ellenville Property, and,
$42,500,000 with respect to the Warwick Property.
MINIMUM ADDITIONAL RENT
<TABLE>
<CAPTION>
WARWICK ELLENVILLE
PROPERTY PROPERTY
YEARS AMOUNT AMOUNT
-------------------------------------------------------- -------- ----------
<S> <C> <C>
6-10................................................... $135,575 $ 98,175
11-15................................................... 184,347 133,493
16-20................................................... 266,588 193,046
21-25................................................... 348,829 252,601
26-30................................................... 431,071 312,155
31-35................................................... 513,312 371,708
36-40................................................... 595,552 431,262
41-45................................................... 677,794 490,816
</TABLE>
Right of First Refusal
Provided that no default exists under the Big V Lease, the Big V Lease
provides that prior to selling either or both the Ellenville Property or the
Warwick Property (the "Sale Property") to a third party, the ELWA Subsidiary,
must give written notice to Big V of any offer or contract for the sale of the
Sale Property that the ELWA Subsidiary wishes to accept. Big V may, within 15
days thereafter, elect to purchase the Sale Property upon the terms and
conditions of the third party offer or contract. This right of
71
<PAGE> 75
first refusal may be exercised upon each proposed sale of the Sale Property
prior to the tenth anniversary date of the Big V Lease and one time after such
date.
BIG V HOLDING CORP.
Big V operates a chain of 32 supermarkets primarily under the "ShopRite"
trade name and located in the Hudson River Valley region of New York,
northeastern Pennsylvania, northern New Jersey and southwestern Connecticut.
Financial statements for Big V are on file with the Securities and Exchange
Commission. The following is a summary of selected consolidated financial
information for Big V over the last three years:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
DEC. 25, DEC. 31, DEC. 30,
1993 1994 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income Statement Data:
Sales................................................... $674,969 $754,401 768,682
Gross profit............................................ 169,787 193,536 200,383
Selling, general and administrative..................... 139,637 160,068 161,746
Depreciation and amortization........................... 16,488 17,778 18,548
Operating income........................................ 13,662 15,690 20,089
Interest expense, net................................... 20,251 24,621 27,277
(Gain on sale of store)/loss on sale leaseback
transactions......................................... 3,704 -- --
Income (loss) before income taxes and extraordinary
item................................................. (11,216) (8,931) (7,188)
Net income (loss)(1).................................... (18,961) (6,160) (5,070)
</TABLE>
<TABLE>
<CAPTION>
DEC. 25, DEC. 31, DEC. 30,
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Balance Sheet Data (at end of period):
Working capital (deficiency)............................ $ 7,844 $ (6,454) (11,378)
Total assets............................................ 270,875 293,695 284,698
Total debt.............................................. 182,551 185,474 181,850
Stockholders' equity (deficit).......................... (8,673) (14,943) (20,213)
</TABLE>
- ---------------
(1) The net loss for the 52 weeks ended December 25, 1993 includes a $923 loss
related to the write-down on a note receivable and an extraordinary loss of
$11,485 (net of tax benefit) related to the early extinguishment of debt in
connection with a recapitalization.
PROPERTIES LEASED TO BEST BUY CO., INC.
DESCRIPTION OF PROPERTIES
General
In April 1993, a general partnership (the "BB Partnership") formed by
wholly-owned subsidiaries of CIP(TM) and CPA(R):10 (the "CIP(TM) Subsidiary" and
the "CPA(R):10 Subsidiary," respectively), purchased from
72
<PAGE> 76
Best Buy Co., Inc. ("Best Buy") 17 consumer electronics retail stores and
related facilities at the following locations (the "BB Properties"):
<TABLE>
<CAPTION>
APPROXIMATE ALLOCATED
APPROXIMATE LAND STORE AREA PURCHASE
LOCATION AREA (ACRES) (SQ. FT.) PRICE
------------------------------------------- ---------------- ----------- ----------
<S> <C> <C> <C>
Denver, CO (Colorado Blvd.)................ 1.75 23,987 $2,436,479
Fort Collins, CO........................... 2.85 28,520 2,075,862
Bloomingdale, IL........................... 2.79 27,280 2,385,623
Bedford Park, IL (Ford City)............... 2.44 27,466 3,892,819
Aurora, IL (Fox Valley).................... 1.23 28,186 2,542,815
Matteson, IL............................... 2.73 27,538 2,436,479
Schaumberg, IL............................. 5.86(1) 113,933 6,592,826
Omaha, NE.................................. 2.96 28,371 2,283,910
Albuquerque, NM............................ 5.29 45,653 2,126,718
Arlington, TX.............................. 4.76 46,361 2,593,671
Beaumont, TX............................... 11.47 28,255 2,126,718
Dallas, TX (Duncanville)................... 2.93 27,697 2,491,959
El Paso, TX................................ 2.76 28,179 2,126,718
Plano, TX.................................. 3.00 28,075 2,801,720
Ft. Worth, TX (Ridgmar).................... 1.96 27,460 2,593,671
Houston, TX (Willowbrook).................. 3.00 28,160 2,233,054
Madison, WI................................ 4.14 28,025 2,491,959
</TABLE>
- ---------------
(1) Best Buy currently subleases a portion of the Schaumberg property to an
unaffiliated party.
On May 13, 1994, the Company, through a wholly-owned subsidiary (the
"CPA(R):12 Subsidiary" and together with the CIP(TM) Subsidiary, the "BB
Subsidiaries"), the Company acquired a 37% interest in the BB Partnership in
exchange for an investment of $4,378,210. As the result of the Company's
investment, CPA(R):10 is no longer a partner in the BB Partnership. The Company
paid an Acquisition Fee of $432,309 to an Affiliate of the Advisor. W.P. Carey &
Co. will receive a subordinated Acquisition Fee of $43,231 annually for eight
years, but only if the Company satisfies the Preferred Return.
Each of the BB Properties is suitable and adequate for use in the operation
of a consumer electronics retail store. The cost of the improvements on each of
the BB Properties will be depreciated for tax purposes over a 40-year period on
a straight-line basis.
Purchase Terms
The aggregate purchase price of the BB Properties was $46,233,000 (the "BB
Purchase Price"), which was less than the leased fee Appraised Value. The BB
Subsidiaries contributed an aggregate equity of $13,433,000 toward the purchase
of the BB Properties, with the CIP(TM) Subsidiary contributing approximately
$8,462,790 and owning a 63% interest in the BB Partnership and the CPA(R):12
Subsidiary contributing $4,378,210 and owning a 37% interest.
Each BB Subsidiary has a right of first refusal with respect to any
interest in the BB Partnership that the other BB Subsidiary desires to sell.
Financing
Financing for $32,800,000 of the BB Purchase Price was provided to the BB
Partnership pursuant to a loan (the "BB Loan") from Teachers Insurance and
Annuity Association of America ("TIAA"). The BB Loan is recourse to the assets
of the BB Partnership. In addition, TIAA has recourse to the assets of the BB
Subsidiaries for claims arising out of certain actions such as fraud or willful
misconduct by the BB
73
<PAGE> 77
Partnership or the BB Subsidiaries, misapplication of rents and waste by the BB
Partnership upon any of the BB Properties.
The BB Loan is secured by a deed of trust on the BB Properties and an
assignment of the BB Partnership's rights in and under the BB Lease.
The BB Loan bears interest at a rate of 9.01% per annum, and requires
monthly payments of principal and interest of $291,290.14. A final payment of
$15,921,746 is due on May 1, 2008, the date the BB Loan matures. Except for
certain mandatory partial prepayments resulting from casualty or condemnation,
the BB Loan may not be prepaid during the first 10 years, and thereafter may be
prepaid in full, but not in part, only upon the payment to TIAA of, among other
things, a certain make-whole premium described in the BB Loan documents.
DESCRIPTION OF LEASE
General
The BB Partnership has leased the BB Properties to Best Buy pursuant to the
BB Lease. Under the BB Lease, Best Buy is obligated to pay all expenses of any
nature relating to the use, occupancy, maintenance and repair of the BB
Properties, including the payment of all taxes, insurance premiums and all other
expenses in connection with Best Buy's occupancy thereof. The BB Partnership has
no obligation to render any building services to, or expend any of its own funds
on behalf of, Best Buy or to maintain the BB Properties. Best Buy is obligated
to maintain the BB Properties in good repair and condition. In the opinion of
the Company's management, the BB Properties are adequately covered by insurance.
Term
The initial term of the BB Lease expires on April 30, 2018. Best Buy may
elect to extend the term of the BB Lease for three consecutive terms of five
years each (each an "Extended Term") as to all or less than all (a "Partial
Renewal") of the BB Properties. If Best Buy elects a Partial Renewal, basic rent
for the first Extended Term shall be reduced by a percentage approximately equal
to the percentage of basic rent attributable to the BB Properties as to which
the BB Lease is not renewed, which Properties may, at the option of the BB
Partnership, be sold to Best Buy or its designee for nominal consideration.
Basic rent under the BB Lease for the second or third Extended Term shall be the
fair market rental value for those BB Properties that remain subject to the BB
Lease for such Extended Term.
Rent
The BB Lease requires Best Buy to pay basic rent, which consists of a
monthly component (the "Monthly Component") and a semiannual component (the
"Semi-Annual Component"). On the first day of each month up to and including May
1, 2008, the Monthly Component is $291,290.14. On each November 1 and May 1 up
to and including November 1, 2007, the Semi-Annual Component is payable as
follows:
<TABLE>
<CAPTION>
SEMI-ANNUAL
PERIOD PAYMENT
------------------------------------------------------------------ ------------
<S> <C>
May 1, 1993 to and including November 1, 1997..................... $732,007.50
May 1, 1998 to and including November 1, 2002..................... 764,540.50
May 1, 2003 to and including November 1, 2007..................... 797,074.00
</TABLE>
For the period from May 1, 2008 to and including May 1, 2018 (the "Reset
Period"), Best Buy shall make payments of the two components of basic rent such
that annual basic rent is as follows (subject to adjustment as described below):
<TABLE>
<CAPTION>
PERIOD AMOUNT OF PAYMENT
------------------------------------------------------------ -----------------
<S> <C>
May 1, 2008 to and including April 30, 2013................. $ 4,119,477
May 1, 2013 to and including May 1, 2018.................... 4,282,146
</TABLE>
74
<PAGE> 78
The basic rent for the Reset Period described above assumes that, on the basis
of Best Buy's credit rating, financing will be available to refinance the BB
Loan on or about May 1, 2008 at an interest rate (the "Reset Rate") of 9.01% per
annum and amortizing $15,750,000 in 120 equal monthly installments (the "Reset
Installments"). If the Reset Rate is higher than 9.01% per annum, then the
annual basic rent for the Reset Period will be adjusted upward on a
dollar-for-dollar basis by the amount of the annual increase in the Reset
Installments. No adjustment in basic rent will be made if the Reset Rate is less
than 9.01% per annum.
If, by April 15, 2008, the BB Partnership is unable to obtain such a loan
to refinance the outstanding balance of the BB Loan, then the BB Partnership
shall so notify Best Buy and, on May 1, 2008, Best Buy shall prepay the basic
rent for the remaining 10 years of the initial term by making a payment in the
amount of $15,750,000 (subject to certain reductions) ("Basic Rent Prepayment")
and, so long as no default in the payment of rent or event of default related to
certain financial covenants and environmental matters (the "Specified Defaults")
exists under the BB Lease on either April 15, 2008 or May 1, 2008, no additional
payments of basic rent will be payable by Best Buy for the balance of the
initial term. In lieu of making the Basic Rent Prepayment, Best Buy shall have
the right, so long as no Specified Default exists, to make a rejectable offer to
terminate the BB Lease on May 1, 2008. If the BB Lease is terminated in
accordance with such an offer, Best Buy shall pay a termination amount equal to
$16,000,000 (subject to certain reductions).
During the Extended Terms, basic rent shall be affected in part by the
payment by Best Buy of the Basic Rent Prepayment.
Right of First Refusal
Prior to selling any BB Property (each a "Sale Premises") to a third party
purchaser, the BB Partnership must give Best Buy written notice of such proposed
sale. Within 15 days after receipt of such notice, Best Buy may elect to
purchase the Sale Premises on the terms and conditions contained in the third
party offer. If Best Buy fails to exercise this right with respect to any Sale
Premises, the BB Partnership may consummate the sale with such third party
purchaser. After the sale of any Sale Premises to a third party purchaser is
consummated, the BB Lease shall be bifurcated and basic rent shall be adjusted
in accordance with a schedule attached to the BB Lease.
DESCRIPTION OF BEST BUY CO., INC.
Best Buy is one of the nation's leading discount retailers, offering brand
name consumer electronics, personal computers and other home office products,
major appliances and entertainment software.
Financial statements for Best Buy are on file with the Securities and
Exchange Commission. The following is a summary of selected financial
information for Best Buy over the last three years:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------------------
2/26/94 2/25/95 3/2/96(1)
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating Results
Revenues....................................... $3,006,534 $5,079,557 $7,217,448
Cost of goods sold............................. 2,549,609 4,389,164 6,280,877
Gross Profit................................... 456,925 690,393 936,571
Operating Income............................... 77,178 121,927 122,583
Interest Expense (net)......................... 8,800 27,876 43,594
Net Earnings................................... 41,285 57,651 48,019
</TABLE>
75
<PAGE> 79
<TABLE>
<CAPTION>
AS OF
--------------------------------------
2/26/94 2/25/95 3/2/96(1)
-------- ---------- ----------
<S> <C> <C> <C>
Financial Position
Current Assets................................. $764,610 $1,240,667 $1,560,543
Net Property and equipment..................... 172,724 237,477 311,039
Total assets................................... 952,494 1,507,125 1,890,832
Current liabilities............................ 402,028 631,618 974,688
Long-term debt................................. 210,811 227,247 206,287
Preferred stock................................ -- 230,000 230,000
Shareholders' Equity........................... 311,444 376,122 431,614
</TABLE>
- ---------------
(1) Fiscal year 1996 contains 53 weeks. All other periods contain 52 weeks.
PROPERTY LEASED TO GENSIA, INC.
DESCRIPTION OF THE PROPERTY
General
In December 1993, a general partnership (the "Gensia Partnership") of which
wholly-owned subsidiaries of the Company and CIP(TM) are the sole general
partners, acquired from Gensia, Inc. ("Gensia") approximately 5.5 acres of land
in San Diego, California (the "Gensia Land"), on which are constructed two
buildings containing approximately 146,600 square feet of office and research
and development space (the "Gensia Facility" and together with the Gensia Land,
collectively, the "Gensia Property"). The Gensia Facility is suitable and
adequate for use as an office and research and development space. The cost of
the improvements on the Gensia Land will be depreciated for tax purposes over a
40-year period on a straight line basis.
Initially, the CIP(TM) subsidiary had a 99.99% interest in the Gensia
Partnership and the CPA(R):12 subsidiary had a 0.01% interest in the Gensia
Partnership. On October 14, 1994, the Company acquired a 50% interest in the
Gensia Partnership in exchange for an investment of approximately $4,840,000.
The Company paid an Acquisition Fee of $296,888 to an Affiliate of the Advisor.
W.P. Carey & Co. will receive a subordinated Acquisition Fee of $29,689 per year
for eight years, but only if the Company satisfies the Preferred Return.
Concurrently with the acquisition of the Gensia Property, the Gensia
Property was leased to Gensia on the terms described below.
Purchase Terms
The cost of acquiring the Gensia Property and of completing the Gensia
Facility, including Acquisition Expenses and the Acquisition Fee to an Affiliate
of the Advisor described below, was $23,200,000 (the "Gensia Purchase Price").
The Gensia Purchase Price was less than the Appraised Value of the Gensia
Property.
The Gensia Partnership financed a portion of the purchase price of the
Gensia Property and the cost of completing the Gensia Facility with a limited
recourse mortgage loan from The Northwestern Mutual Life Insurance Company
("Northwestern") in the amount of $13,000,000, which mortgage loan bears
interest at the rate of 8.125% per annum and is fully amortizing over a term of
15 years, with payments of principal and interest due monthly.
DESCRIPTION OF THE LEASE
General
The Gensia Partnership has entered into an absolute net lease with Gensia
(the "Gensia Lease") pursuant to which Gensia is obligated to pay all costs of
maintenance and repair of the Gensia Property; all
76
<PAGE> 80
fire, liability, workers' compensation and such other insurance as the Gensia
Partnership may reasonably require; all taxes (except the Gensia Partnership's
franchise, income and succession taxes); and all other expenses of whatever
description arising out of the acquisition and leasing of the Gensia Property
other than debt service. Gensia is obligated to maintain the Gensia Property in
good repair and condition. In the opinion of the Company's management, the
Gensia property is adequately covered by insurance.
Term
The initial term of the Gensia Lease is 15 years, with automatic extensions
for each of four successive 10-year renewal terms unless Gensia gives written
notice of non-renewal at least one year prior to the expiration of the then
current term.
Rent
The Gensia Lease provides for the payment of monthly installments of basic
rent in an amount equal to $2,618,000 per annum, which amount is subject to
adjustment at the end of the fifth lease year and at the end of every fifth
lease year thereafter in an amount corresponding to the percentage increase in
the Consumer Price Index (the "CPI") with a maximum increase of four percent per
annum.
The Gensia Lease provides, subject to the limitation described below, for
the payment of monthly installments of basic rent during the first five years of
any 10-year renewal term in an amount equal to 95% of the Fair Market Rent
(determined pursuant to the Gensia Lease) of the Gensia Property, which amount
is subject to adjustment at the end of the fifth year of such renewal term to
reflect the percentage increase in the CPI as set forth above. In no event will
the basic rent payable during the first five years of any 10-year renewal term
increase or decrease by more than 22% from the basic rent in effect at the end
of the prior term.
Right of First Refusal
The Gensia Lease provides that prior to selling the Gensia Property to a
third party purchaser, the Gensia Partnership must give 30 days' written notice
of such sale. Gensia may, within 30 days following such notice, elect to
purchase the Gensia Property upon the terms and conditions contained in the
third party offer. The Gensia Lease provides that Gensia shall have the right to
exercise the foregoing right of first refusal upon each proposed sale of the
Gensia Property prior to the 11th anniversary of the completion of the Gensia
Facility and one time thereafter.
DESCRIPTION OF GENSIA, INC.
Gensia is engaged in the discovery, development, manufacturing and
marketing of pharmaceutical products primarily for the treatment and diagnosis
of human diseases.
Financial statements for Gensia are on file with the Securities and
Exchange Commission. The following is a summary of selected financial
information for Gensia over the last three years:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
Product sales.................................... $ 17,106 $ 51,830 $ 53,464
Contract revenue................................. 11,910 17,956 11,062
Interest income.................................. 4,350 2,022 2,086
Other income..................................... -- -- 55,359
Total Revenues................................ 33,366 71,808 121,971
Total costs and expenses...................... 96,670 121,926 127,315
Net loss........................................... (63,304) (50,118) (5,894)
</TABLE>
77
<PAGE> 81
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital.................................. $ 78,609 $ 47,439 $ 67,687
Total assets..................................... 136,431 109,866 118,560
Long-term obligations less current maturities.... 3,119 71 13
Accumulated deficit.............................. (163,325) (213,443) (219,337)
Stockholders' equity............................. 112,859 83,778 102,303
</TABLE>
PROPERTY LEASED TO ETEC SYSTEMS, INC.
On February 9, 1995, a wholly-owned subsidiary of the Company (the
subsidiary, together with the Company is defined as the "Company") purchased
from Etec Systems, Inc. ("Etec") the office/ manufacturing facilities of Etec
(the "Etec Facilities") located on 16.92 acres in Hayward, California and
containing 150,000 square feet of space.
Concurrently with the acquisition of the Etec Facility by the Company, the
Company entered into a triple-net lease (the "Etec Lease") with Etec for the
Etec Facilities. Material terms of the Etec Lease are described below. The Etec
Facilities are suitable and adequate for the use for which they are intended.
The depreciable portions of the Etec Facilities will be depreciated for tax
purposes over a 40-year period on a straight-line basis.
PURCHASE TERMS
The cost of acquiring the Etec Facility, including Acquisition Fees to an
Affiliate of the Advisor, was $11,860,000 (the "Etec Purchase Price"), including
all fees. The Etec Purchase price was less than the leased fee Appraised Value
of the Etec Facilities. The Seller paid an Acquisition Fee of approximately
$296,466 to an Affiliate of the Advisor and an Acquisition Fee of approximately
$235,000 to the Company which will be paid in eight annual installments to W.P.
Carey & Co., but only if the Company satisfies the Preferred Return. The Company
contributed equity of approximately $5,610,000 to the purchase of the Etec
Facilities and borrowed $6,250,000 pursuant to the terms of the Loan described
below.
In August 1996, the Company and Etec entered into an agreement modifying
the purchase terms (the "Modification Agreement"). Under the Modification
Agreement, the Company agreed to reduce its holdings of warrants in Etec common
stock for a refund of $2,633,473 of the initial purchase price (see Warrants
Section below). The Company has agreed to use the return of such proceeds to
partially prepay the limited non-recourse mortgage loan on the property
discussed below.
DESCRIPTION OF THE LEASE
General
The Etec Lease is absolutely net and bondable and in normal financeable
form. Etec will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the Etec Facilities, except for
the Company's debt service, the Company's income taxes and any increases in real
estate taxes that result from any transfer of the Etec Facilities to any party
not affiliated with the Company. In the opinion of the management of the
Company, the Etec Facilities are adequately covered by insurance.
The Etec Lease will provide that Etec will have a right of first refusal to
purchase the Etec Facility during the first 10 years of the Etec Lease. In
addition, the Company will be required to accept any purchase offer made during
the period from the last six months of the ninth lease year through the first
six months of the tenth lease year if the offer price is no less than the
greater of (i) the Fair Market Value or (ii) $11,725,000 reduced by the sum of
(A) aggregate principal payments on the note (described below) through the date
of purchase, and (B) any prepayment premium. The closing of such a sale would
occur during the last 60 days of the 10th year of the Etec Lease.
78
<PAGE> 82
Term
The initial term of the Etec Lease is 15 years, followed by four five-year
renewal terms (each, a "Renewal Term").
Rent
The initial annual rent under the Etec Lease was $1,370,325 but was reduced
to $1,020,036 pursuant to the Modification Agreement discussed above. During the
term of the initial financing, the monthly installments of annual rent will be
increased or decreased, as the case may be, to reflect any increases or
decreases in interest payable on the loan from a rate of 8.75% per annum. At the
end of the third Lease year, and every three years thereafter during the initial
term, the annual rent for each of the next three years of the Lease term will be
adjusted by a formula that would increase the annual Basic Rent by the lesser of
the percentage increase in the Consumer Price Index ("CPI") over the immediately
preceding three years of the term or 12%. The first adjustment will be based on
an annual rent of $1,020,036 notwithstanding any monthly increases or decreases
in interest rate from a rate of 8.75% per annum. If there is no such percentage
increase in the CPI, the annual Basic Rent of the next three years will not
change. Annual basic rent for each renewal term shall be fair market rental,
determined by a three appraiser procedure. Rent will be payable monthly in
arrears.
In addition, Etec posted a security deposit (the "Security Deposit") equal
to three months of the initial annual rent, which security deposit will be
applied against the last three months rent or, if such rent has been paid,
against any other amounts due to the Company from Etec, including the purchase
price of the Etec Facilities should Etec purchase the Etec Facilities from the
Company. The Security Deposit may be commingled with other funds of the Company.
DESCRIPTION OF INITIAL FINANCING
Creditanstalt Bankverein (the "Lender") provided non-recourse mortgage
financing to the Company in the form of a loan in the amount of $6,250,000 with
a 5-year maturity, a floating interest rate (currently approximately 9.2%) based
on LIBOR and the Lender's prime rate and with payments made in accordance with a
15 year amortization schedule. In August of 1996, pursuant to the Modification
Agreement, the lender agreed to reamortize the loan reducing monthly debt
service to $33,358.
WARRANTS
The Company initially received warrants to purchase 212,418 shares of the
common stock of Etec at a price of $.45 per share and assigned to the Lender
warrants to purchase 53,104 shares of Etec. If, prior to February 1, 1998, the
warrants (or the stock underlying the warrants) are sold, the net proceeds in
excess of $1.5 million ($1.575 million in the case of the underlying stock) with
respect to the warrants or stock retained by the Company or $500,000 ($525,000
in the case of the underlying stock) with respect to the warrants transferred to
the Lender shall be applied to prepay the initial loan, the initial loan shall
be reamortized and the rent adjusted accordingly. Alternatively, if the warrants
can be sold without restriction and there exists a public market for the Etec
stock with reported transaction prices and either or both of the Company and the
Lender elects not to sell their respective warrants or stock, upon notice from
Etec, the warrants or stock shall be priced and the Company and/or the Lender,
as the case may be, shall return warrants (or stock) to the extent of the value
of such warrants in excess of $1,500,000 or $500,000, as the case may be. The
Company and Lender could then retain the remaining warrants (or stock) until
such time as they wish to exercise or sell such warrants or stock.
In August 1996, pursuant to the Modification Agreement, the Company agreed
to reduce its warrant holdings in Etec Common Stock from 159,314 to 68,786 in
exchange for a return of a portion of the original purchase price. In addition,
the original warrant agreement was amended to allow for a cashless exercise,
pursuant to which the warrant holder would receive the full number of shares of
stock, less that number of shares having a fair market value, determined at the
time of exercise, equal to the aggregate exercise price. On September 26, 1996
the closing price of Etec's common stock on the Nasdaq National Market was $29.
79
<PAGE> 83
DESCRIPTION OF ETEC
Etec is a leading producer of electron beam and laser lithography
equipment. These systems are used in the manufacturing of masks for the
semiconductor manufacturing industry. Etec's shareholders include DuPont, IBM,
Perkin Elmer Grumman and Micron Technology.
Financial statements for Etec are on file with the Securities and Exchange
Commission. The following is a summary of selected financial information for
Etec over the last four years.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------
1992 1993 1994 1995
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ 68,588 $ 58,582 $ 68,710 $ 82,916
Gross profit...................................... 18,251 16,644 25,481 35,297
Income (loss) from operations..................... (27,152) (4,439) 9,576 11,403
Net income (loss)................................. (34,841) (11,409) 1,612 9,936(2)
Net income (loss) per share....................... (2.76) (0.90) 0.11 0.68
Weighted average common shares and 12,609 12,611 14,447 14,594
equivalents(1)..................................
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
-----------------------------------------------
1992 1993 1994 1995
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................. $ 1,919 $ 7,234 $ 6,571 $ 23,638
Working capital................................... 18,762 9,942 6,184 23,215
Total assets...................................... 76,793 66,151 62,782 85,984
Long-term debt, less current portion.............. 49,377 46,573 31,251 16,866
Minority interest................................. 5,632 7,093 7,711 --
Mandatorily redeemable convertible preferred 41,577 44,317 54,362 76,397
stock...........................................
Accumulated deficit............................... (62,628) (76,777) (78,111) (71,267)
Total stockholders' (deficit) equity.............. (61,700) (75,575) (76,341) (67,415)
</TABLE>
- ---------------
(1) Excludes shares of Common Stock issuable upon exercise of stock options of
1,136,932 as of July 31, 1995 and 691,634 shares issuable upon exercise of
warrants. Also excludes shares issuable upon exercise of warrants to
purchase Series C Preferred Stock which will convert to warrants to purchase
111,774 shares of Common Stock upon the consummation of a public offering
and excludes 105,794 shares issuable upon the consummation of a public
offering under the terms of a warrant agreement with the senior secured note
holder.
(2) Net Income (Loss) reflects the inclusion of an extraordinary gain of $5.4
million recorded as a result of the early extinguishment of $19.7 million of
Subordinated Notes Payable and Accrued Interest.
On October 24, 1995, Etec completed its initial public offering which
raised gross proceeds of $42,000,000.
PROPERTY LEASED TO WAL-MART STORES, INC.
On February 10, 1995, the Company, through a wholly-owned subsidiary (the
"Wal-Mart Subsidiary"), purchased from Greenwalt Development, Inc. ("Seller") a
warehouse/distribution facility leased to Wal-Mart Stores, Inc. (the "Wal-Mart
Facility"). The Wal-Mart Facility, an 82,620 square foot warehousing and
distribution facility with an additional 4,860 square feet of office space, is
located on approximately 14 acres of land in Greenfield, Indiana. The Wal-Mart
Facility is suitable and adequate for use as a warehouse/distribution facility.
The costs of the depreciable portion of the Wal-Mart Facility will be
depreciated for tax purposes over a 40-year period on a straight-line basis.
80
<PAGE> 84
Concurrently with the acquisition of the Wal-Mart Facility by the Wal-Mart
Subsidiary, the lease for the Wal-Mart Facility was assigned to the Wal-Mart
Subsidiary. The lease with Wal-Mart is on the terms described below.
PURCHASE TERMS
The cost of acquiring the Wal-Mart Facility was based on the construction
cost of the Wal-Mart Facility and was approximately $3,584,905 (the "Wal-Mart
Purchase Price"). The Wal-Mart Purchase Price did not exceed the Appraised Value
of the Wal-Mart Facility. In addition to the purchase price, the Seller paid an
Acquisition Fee of $93,984 to W.P. Carey & Co., Inc., an Affiliate of the
Advisor, and the Wal-Mart Subsidiary will pay a subordinated Acquisition Fee of
$9,394 per year over an eight year period, but only if the Company satisfies the
Preferred Return.
DESCRIPTION OF THE LEASE
General
The Wal-Mart Subsidiary took an assignment from the Seller of the net lease
with Wal-Mart, dated August 3, 1994 (the "Wal-Mart Lease") pursuant to which
Wal-Mart is obligated to pay, except as described below, all costs of
maintenance and repair of the Wal-Mart Facility, all fire, liability, workers'
compensation and such other insurance and all real estate taxes and assessments
to the extent the cost of such insurance and taxes exceeds $41,280 in any lease
year and all other expenses of whatever description with respect to the use and
occupancy of the Wal-Mart Facility other than debt service of the Wal-Mart
Subsidiary. The Wal-Mart Subsidiary is required to pay the cost of insurance and
taxes up to the amount of $41,280 in any lease year. Wal-Mart is obligated to
maintain the Wal-Mart Facility in good repair and condition. In the opinion of
the management of the Company, the Wal-Mart Facility is adequately covered by
insurance.
Term
The initial term of the Wal-Mart Lease is approximately 10 years beginning
on January 29, 1995 and ending on January 31, 2005. Wal-Mart has the right to
extend the Wal-Mart Lease for three successive five-year renewal terms, upon
written notice of renewal at least one year prior to the expiration of the then
current term.
Rent
The Wal-Mart Lease requires Wal-Mart to pay annual basic rent of $397,235,
payable monthly, during the initial term of the Wal-Mart Lease. During each
renewal term, the Wal-Mart Lease provides for rent increases of 12% over the
rent payable during the previous term.
DESCRIPTION OF FINANCING
The Wal-Mart Subsidiary has received mortgage financing in the amount of
$2,500,00 for the Wal-Mart Facility from The Lincoln National Life Insurance
Company ("Lincoln National"). The Lincoln National financing has a term of ten
years, an interest rate of 8.23% per annum and provide for 36 monthly payments
of interest and principal in the amount of $22,223.21 each based upon an
eighteen-year amortization schedule followed by 84 monthly payments of interest
and principal in the amount of $21,270.27 based upon a twenty-year amortization
schedule, with the balance due and payable at maturity.
The Lincoln National financing is secured by a first priority mortgage and
security agreement on the Wal-Mart Facility. CPA(R):12 has guaranteed the
non-recourse covenants contained in the loan agreement pursuant to a Limited
Guaranty and has executed, jointly and severally with the Wal-Mart Subsidiary,
an Environmental Indemnity Agreement pursuant to which it has agreed to
indemnify Lincoln National for losses it sustains in connection with certain
environmental conditions that may occur at the Wal-Mart Facility.
81
<PAGE> 85
DESCRIPTION OF WAL-MART
Wal-Mart operates approximately 2,000 Wal-Mart and 400 Sam's Clubs discount
department stores throughout the United States.
Financial Statements for Wal-Mart are on file with the Securities and
Exchange Commission. The following is a summary of selected financial
information for Wal-Mart over the last three fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1994 1995 1996
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Operating Results
Net sales...................................................... $67,344 $82,494 $93,627
Other income -- net............................................ 614 918 1,122
Cost of sales.................................................. 53,444 65,586 74,564
Operating, selling, and general and administrative expenses.... 10,333 12,858 14,951
Interests costs:
Debt........................................................ 331 520 692
Capital leases.............................................. 186 186 196
Provision for federal and state income taxes................... 1,358 1,581 1,606
Net income..................................................... 2,333 2,681 2,740
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Financial Position
Current Assets................................................. $12,114 $15,338 $17,331
Inventories at replacement cost................................ 11,483 14,415 16,300
Less LIFO reserve.............................................. 469 351 311
Inventories at LIFO cost....................................... 11,014 14,064 15,989
Net property, plant, and equipment and capital leases.......... 13,176 15,874 18,894
Total assets................................................... 26,441 32,819 37,541
Current liabilities............................................ 7,406 9,973 11,454
Long-term debt................................................. 6,156 7,871 8,508
Long-term obligations under capital leases..................... 1,804 1,838 2,092
Preferred stock with mandatory redemption provisions........... -- -- --
Shareholders' equity........................................... 10,753 12,726 14,756
</TABLE>
PROPERTY LEASED TO SPORTS & FITNESS CLUBS OF AMERICA, INC. -- AUSTIN, TX
On June 8, 1995, the Company, through a subsidiary (the "Sports
Subsidiary"), purchased a 43,935 square foot sports and fitness facility (the
"Austin Sports Facility") from Sports & Fitness Clubs of America, Inc., an Ohio
corporation ("SFCA") located on approximately 5.75 acres of land in Austin,
Texas.
Concurrently with the acquisition of the Austin Sports Facility by the
Sports Subsidiary, the Sports Subsidiary entered into a triple-net lease (the
"Sports Lease") with SFCA for the Austin Sports Facility. The obligations of
SFCA under the Sports Lease are guaranteed by Sports & Fitness Clubs, Inc., a
Delaware corporation ("SFCI"), the parent company of SFCA. Material terms of the
Sports Lease are described below. The Austin Sports Facility is suitable and
adequate for use as a sports and fitness facility. The cost of the Austin Sports
Facility will be depreciated for tax purposes over a 40-year period on a
straight-line basis.
PURCHASE TERMS
The cost of acquiring the Austin Sports Facility, including the Acquisition
Fee payable to an Affiliate of the Advisor, was $5,497,000, which amount is less
than the leased fee Appraised Value of the Austin Sports Facility. The Company
used the $2,750,000 in proceeds from the mortgage loan described below to pay a
portion of the purchase price. An Acquisition Fee of $137,425 was paid to an
Affiliate of the Advisor and an Acquisition Fee of $109,575 was paid to the
Company and will be paid to an Affiliate of the Advisor over an eight year
period, but only if the Company satisfies the Preferred Return.
82
<PAGE> 86
DESCRIPTION OF THE LEASE
The Sports Lease is absolutely net and bondable and in normal financeable
form. SFCI will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the Austin Sports Facility,
except for the Sports Subsidiary's debt service and income taxes. In the opinion
of management of the Company, the Austin Sports Facility is adequately covered
by insurance.
The initial term of the Sports Lease is eighteen years, followed by four
5-year renewal terms at the option of SFCA.
The initial annual rent under the Sports Lease is $668,000. The base rent
is to be adjusted annually based on the lesser of (i) a formula that would
increase the annual rent by the percentage increase in the Consumer Price Index
over the immediately preceding year of the term, and (ii) 4.5% of the base rent
in effect immediately prior to the adjustment. In addition, beginning on the
fifth anniversary date of the Sports Lease, SFCA will receive an annual rent
credit of $26,791.
DESCRIPTION OF FINANCING
The Company has obtained mortgage financing in the amount of $2,750,000 for
the Austin Sports Facility from Bank One, Texas, N.A. ("Bank One"). The Bank One
financing has a term of five years, an interest rate of 9.3% per annum and
provides for monthly payments of interest and principal based upon a
fifteen-year amortization schedule. The monthly payment under the financing will
be approximately $28,385.
PROPERTY LEASED TO SPORTS & FITNESS CLUBS OF AMERICA, INC. -- HOUSTON, TX
On July 23, 1996, the Company, through a subsidiary (the "Sports
Subsidiary"), purchased a 46,700 square foot sports and fitness facility (the
"Houston Sports Facility") from Sports & Fitness Clubs of America, Inc., an Ohio
corporation ("SFCA") located on approximately 6.24 acres of land in Houston,
Texas.
Concurrently with the acquisition of the Houston Sports Facility by the
Sports Subsidiary, the Sports Subsidiary entered into a triple-net lease (the
"Sports Lease") with SFCA for the Houston Sports Facility. The obligations of
SFCA under the Sports Lease are guaranteed by Q Clubs Inc., a Delaware
corporation ("QCLUB"), the parent company of SFCA. Material terms of the Sports
Lease are described below. The Houston Sports Facility is suitable and adequate
for use as a sports and fitness facility. The cost of the Houston Sports
Facility will be depreciated for tax purposes over a 40-year period on a
straight-line basis.
PURCHASE TERMS
The cost of acquiring the Houston Sports Facility, including the
Acquisition Fee payable to an Affiliate of the Advisor, was $6,180,000, which
amount is less than the leased fee Appraised Value of the Houston Sports
Facility. An Acquisition Fee of $156,400 was paid to an Affiliate of the Advisor
and an Acquisition Fee of $123,600 was paid to the Company and will be paid to
an Affiliate of the Advisor over an eight year period, but only if the Company
satisfies the Preferred Return.
DESCRIPTION OF THE LEASE
The Sports Lease is absolutely net and bondable and in normal financeable
form. SFCA will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the Houston Sports Facility,
except for the Sports Subsidiary's debt service and income taxes. In the opinion
of management of the Company, the Houston Sports Facility is adequately covered
by insurance.
The initial term of the Sports Lease is 20 years, followed by four 5-year
renewal terms at the option of SFCA.
The initial annual rent ("Basic Rent") under the Sports Lease is $694,000
payable quarterly in advance, in equal installments of $173,500. Basic Rent is
subject to adjustment at the end of the fifth lease
83
<PAGE> 87
year and at the end of every fifth lease year thereafter, in an amount
corresponding to the percentage increase in the Consumer Price Index over the
previous five years with a maximum increase of 18.77%.
WARRANTS
The Company received warrants to purchase 5,089 shares of the common stock
of Q Clubs Inc. and may exercise at a price of $275.12 per share, at anytime
during the twelve month period commencing on the Closing Date, July 23, 1996
(the "Closing Date"). The Company may exercise at any time during each
succeeding twelve month period commencing on each anniversary of the Closing
Date, for a price equal to 103% of the exercise price on the last day of the
immediately preceding twelve-month period. Additionally, the exercise price may
be adjusted from time to time pursuant to Section 4.2 of the Warrant Agreement.
DESCRIPTION OF SPORTS & FITNESS
SFCI is an Akron, Ohio based company that operates large, high quality
health clubs under the name "Q The Sports Club" in major metropolitan areas in
the southern and western regions of the United States. The following is a
summary of the financial results of SFCI as reported in audited financial
statements provided by the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating Results
Revenue................................................ $15,012 $32,642 53,624
Costs and Expenses..................................... 10,868 26,354 45,349
Operating Income....................................... 2,349 2,952 3,836
Interest Expense....................................... 1,211 1,992 3,633
Net Income............................................. 143 577 125
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Financial Position
Current Assets........................................ $23,141 $ 8,757 $ 15,877
Long-term receivables, net............................ 1,799 10,254 14,178
Net property and equipment............................ 27,732 48,228 77,338
Total Assets.......................................... 53,698 70,165 111,017
Current Liabilities................................... 10,416 12,673 20,143
Long-term obligations................................. 32,512 42,830 51,413
Preferred Stock....................................... 4,944 4,944 5,376
Shareholders' Equity.................................. 5,351 3,918 2,788
</TABLE>
Prior to the purchase of the Sports Facility, SFCI received an equity
contribution of $24,000,000 which is not reflected in this financial
information. On May 1, 1993, SFCI changed its status from an S corporation to a
C corporation under the Code. Prior to that date, the Company had no income tax
liability due to its status as an S corporation.
PROPERTY LEASED TO NK LAWN & GARDEN CO.
On June 21, 1995, the Company purchased from NK Lawn & Garden Co. ("NK
Lawn") a 242,317 square foot warehouse/distribution facility (the "NK Lawn
Facility") located on approximately 55 acres of land in Chattanooga, Tennessee.
The Company has formed a limited liability company subsidiary (the "NK Lawn
Subsidiary") to take title to the NK Lawn Facility.
Concurrently with the acquisition of the NK Lawn Facility, the NK Lawn
Subsidiary entered into a net lease (the "NK Lawn Lease") with NK Lawn for the
NK Lawn Facility. The obligations of NK Lawn
84
<PAGE> 88
under the NK Lawn Lease are guaranteed by The Garden Companies, Inc. ("Garden
Companies"), the sole shareholder of NK Lawn. Material terms of the NK Lawn
Lease are described below. The NK Lawn Facility is suitable and adequate for use
as a warehouse/distribution facility. The cost of the NK Lawn Facility will be
depreciated for tax purposes over a 40-year period on a straight-line basis.
PURCHASE TERMS
The cost of acquiring the NK Lawn Facility, including the Acquisition Fee
payable to an Affiliate of the Advisor, was $6,950,000, which amount is less
than the leased fee Appraised Value of the NK Lawn Facility. An Acquisition Fee
of $173,750 was paid to W.P. Carey & Co., an Affiliate of the Advisor. W.P.
Carey & Co. will receive a subordinated Acquisition Fee of $16,531 per year for
eight years, but only if the Company satisfies the Preferred Return.
DESCRIPTION OF THE LEASE
The NK Lawn Lease is absolutely net and bondable and in normal financeable
form. NK Lawn will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the NK Lawn Facility, except
for the NK Lawn Subsidiary's debt service and income taxes. In the opinion of
management of the Company, the NK Lawn Facility is adequately covered by
insurance.
The initial term of the NK Lawn Lease is twenty years, followed by four
5-year renewal terms at the option of NK Lawn.
The initial annual rent under the NK Lawn Lease is $816,400. The NK Lawn
Lease provides that at the end of the fifth year, and every five years
thereafter, the annual rent for each of the next five years of the term will be
adjusted by a formula that would increase the annual rent by the percentage
increase in the Consumer Price Index over the immediately preceding five years
of the term, but not in excess of 5% per annum.
DESCRIPTION OF FINANCING
The Company has received mortgage financing in the amount of $3,500,000 for
the NK Lawn Facility from The Lincoln National Life Insurance Company ("Lincoln
National"). The Lincoln National financing has a term of ten years, an interest
rate of 8.23% per annum and provides for monthly payments of interest and
principal of approximately $29,800 based upon a twenty-year amortization
schedule.
WARRANTS
The NK Lawn Subsidiary received warrants to purchase 1.25% of the capital
stock of Garden Companies.
DESCRIPTION OF NK LAWN
NK Lawn is the leading supplier of flower and vegetable packet seeds to
consumers of packet seeds in the United States. The following is a summary of
the financial results of The Garden Company as reported in financial statements
provided by the company.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 29, 1993
(DATE OF
INCORPORATION)
TO YEAR ENDED YEAR ENDED
OCTOBER 31, 1993 OCTOBER 31, 1994 OCTOBER 31, 1995
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating Results
Net sales........................ $ 15,935 $ 32,222 $ 32,716
Operating expenses............... 19,430 32,280 32,059
Operating income................. (3,495) (58) 657
Net loss......................... (2,995) (2,135) (5,879)
</TABLE>
85
<PAGE> 89
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------------------------------------
1993 1994 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Financial Position
Current assets................... $ 22,950 $ 23,220 22,581
Net property, plant &
equipment..................... 1,377 1,690 8,314
Deferred income taxes............ 4,949 5,108 --
Total assets..................... 30,560 30,854 31,989
Current liabilities.............. 17,527 20,875 15,737
Long-term debt and capital lease
obligations................... 6,676 6,100 11,477
Stockholders' equity (deficit)... 1,562 (683) (5,443)
</TABLE>
Contemporaneously with the purchase of the NK Lawn Facility by the Company,
NK Lawn received an equity contribution of approximately $1.5 million and a loan
of $500,000. The proceeds from the equity contribution, loan and the sale of the
NK Lawn facility to the Company are not reflected in this financial information.
PROPERTY LEASED TO DEL MONTE CORPORATION
The Company and CIP(TM), each through wholly owned subsidiaries (the "Del
Monte Subsidiaries"), have purchased from Del Monte Corporation ("Del Monte")
four parcels of land upon which certain facilities are to be constructed (the
"Del Monte Facilities") as follows:
<TABLE>
<CAPTION>
USE OF
APPROXIMATE PROPOSED BUILDING PROPOSED
LOCATION ACREAGE SIZE (SQ. FT.) BUILDING
--------------------------------------- ----------- ----------------- --------------
<S> <C> <C> <C>
Mendota, Illinois...................... 14.36 239,850 Warehouse
Plover, Wisconsin...................... 8.47 210,000 Warehouse
Toppemish, Washington.................. 21.97 274,750 Warehouse
Yakima, Washington..................... .75 11,165 Ripening Room
</TABLE>
Concurrently with the acquisition of the Del Monte Facilities by the Del
Monte Subsidiaries, the Del Monte Subsidiaries have entered into a net lease
(the "Del Monte Lease") and a Construction Agency Agreement (the "Construction
Agency Agreement") with Del Monte for the Del Monte Facilities. The obligations
of Del Monte under the Del Monte Lease and under the Construction Agency
Agreement will be guaranteed by Del Monte Foods Company ("DMFC"), the sole
shareholder of Del Monte. Material terms of the Del Monte Lease are described
below.
Under the Construction Agency Agreement, Del Monte will supervise and
manage the acquisition, construction, installation and completion of the Del
Monte Facilities. Del Monte will administer the general construction contract
and the plans and deal with third parties as the exclusive agent of the Del
Monte Subsidiaries in this regard. After completion of construction, the Del
Monte Facilities are expected to be suitable and adequate for the uses for which
they are intended. The depreciable portions of the Del Monte Facilities will be
depreciated for tax purposes over a 40-year period on a straight line basis.
PURCHASE TERMS
The cost ("Landlord Project Costs") of acquiring and constructing the Del
Monte Facilities, including the Acquisition Fee payable to an Affiliate of the
Advisor, will be no greater than $21,990,000, an amount less than the leased fee
Appraised Value of the Del Monte Facilities. The Del Monte Subsidiaries will
contribute equally to the Landlord Project Costs. An Acquisition Fee of $275,000
will be paid to W.P. Carey & Co., an Affiliate of the Advisor, by the Del Monte
Subsidiary owned by the Company and an annual Acquisition Fee of $27,500 will be
paid to W.P. Carey & Co. over eight years, but only if the Company satisfies the
Preferred Return.
86
<PAGE> 90
DESCRIPTION OF THE LEASE
General
The Del Monte Lease is absolutely net and bondable and in financeable form.
Del Monte will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the Del Monte Facility, except
for the Del Monte Subsidiaries' debt service and income taxes. In the opinion of
management of the Company, the Del Monte Facilities are adequately covered by
insurance.
Term
The initial term of the Del Monte Lease is twenty years following
completion of the Del Monte Facilities, followed by four 10-year renewal terms
at the option of Del Monte.
Rent
Prior to July 1, 1996, Basic Rent is payable monthly in arrears in an
amount equal to 0.01021 multiplied by the weighted average of the amount
advanced by Del Monte Subsidiaries as Landlord Project Costs under the Lease
based on the number of days each advance is outstanding prior to the applicable
Basic Rent Payment Date. Commencing on July 1, 1996 and quarterly thereafter,
Basic Rent shall be payable in advance in an amount equal to 12.25% multiplied
by the total Landlord Project Costs.
The Del Monte Lease provides that at the end of the fifth year of the
initial term, and every five years thereafter, the annual rent for each of the
next five years of the term will be adjusted by a formula that will increase the
annual rent by the percentage increase in the Consumer Price Index over the
immediately preceding five years of the term.
The Del Monte Lease contains provisions permitting economic abandonment of
one property, a right of first refusal and a purchase option during the 11th
year of the initial term.
DESCRIPTION OF FINANCING
The Del Monte Subsidiaries have arranged for mortgage financing for the Del
Monte Facilities from Creditanstalt Corporate Finance, Inc. ("Creditanstalt").
The Company's share of the financing is $6,250,000. The Creditanstalt financing
has a term of five years, a fixed interest rate of 10% per annum on $5,500,000
of the financing and a floating interest rate of 400 basis points over LIBOR on
the remaining $750,000, and requires quarterly payments of interest and
principal based upon a twenty-year amortization schedule.
DESCRIPTION OF DEL MONTE
Del Monte is the largest manufacturer and distributor of canned vegetables
and canned fruit in the United States. Financial statements for Del Monte are on
file with the Securities and Exchange Commission. The following is a summary of
selected financial information for Del Monte over the last three years.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Results of Operations Data:
Net sales.................................................. $1,555 $1,499 $1,526
Gross Profit............................................... 229 224 237
Special charges(a)........................................... 140 -- --
------ ------ ------
Operating income (loss)...................................... (83) 67 80
Net income (loss)............................................ (188) 3 5
</TABLE>
87
<PAGE> 91
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------------
1993 1994 1995
------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital............................................. $ 92 $ 88 $ 99
Total assets................................................ 1,066 936 960
Total indebtedness.......................................... 624 569 576
Redeemable common stock..................................... 2 2 2
Redeemable preferred stock.................................. 216 215 215
Stockholders' equity........................................ $ (385) $(384) $(393)
</TABLE>
- ---------------
(a) In June 1993, the Company recorded special charges of $115 for permanent
impairment of acquisition related intangible assets, including goodwill, and
$25 for facility consolidations. In March 1992, Del Monte discontinued its
Vegetable Classics line resulting in a $15 charge to operations.
(b) In June 1995, Del Monte Foods Company refinanced its existing revolving
credit agreement Term Loan and Senior secured Floating Rate Notes. In
conjunction with the debt retirement, capitalized debt issue costs of $7
were charged to income and accounted for as an extraordinary loss.
(c) Effective July 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The Company
elected to recognize this change in accounting on the immediate recognition
basis. The cumulative effect of adopting SFAS No. 106 resulted in a charge
to fiscal 1993 net earnings of $28.
PROPERTY LEASED TO PHARMACO LSR INTERNATIONAL INC. AND GUARANTEED BY APPLIED
BIOSCIENCE INTERNATIONAL, INC.
On November 13, 1995, the Company purchased from Pharmaco LSR International
Inc. ("Pharmaco") an office, chemical supply storage and a chemical research
dormitory/clinic facility (the "Pharmaco Facility") consisting of seven
buildings including approximately 173,000 square feet of space located on
approximately nine acres of land in Austin, Texas. The Company formed a
subsidiary (the "Pharmaco Subsidiary") to take title to the Pharmaco Facility.
Concurrently with the acquisition of the Pharmaco Facility by the Pharmaco
Subsidiary, the Pharmaco Subsidiary entered into a net lease (the "Pharmaco
Lease") with Pharmaco for the Pharmaco Facilities. The obligations of Pharmaco
under the Pharmaco Lease are guaranteed by Applied Bioscience International,
Inc. ("APBI"), the sole shareholder of Pharmaco. Material terms of the Pharmaco
Lease are described below.
The Pharmaco Facility is suitable and adequate for the use for which it is
intended. The depreciable portions of the Pharmaco Facility will be depreciable
for tax purposes over a 40-year period on a straight line basis.
PURCHASE TERMS
The cost of acquiring the Pharmaco Facility, including the Acquisition Fee
paid to an Affiliate of the Advisor, was $12,565,000. The purchase price was
less than the leased fee Appraised Value of the Pharmaco Facility. An
Acquisition Fee of $314,125 was paid to W.P. Carey & Co., an Affiliate of the
Advisor, and an annual Acquisition Fee of $31,412 will be paid to W.P. Carey &
Co. over eight years, but only if the Company satisfies the Preferred Return.
DESCRIPTION OF THE LEASE
General
The Pharmaco Lease is absolutely net and bondable and in normal financeable
form. Pharmaco will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of
88
<PAGE> 92
the Pharmaco Facility, except for the Pharmaco Subsidiary's debt service, if
any, and income taxes. In the opinion of management of the Company, the Pharmaco
Facility is adequately covered by insurance.
Term
The initial term of the Pharmaco Lease is fifteen years, followed by four
5-year renewal terms at the option of Pharmaco.
Rent
The initial annual rent under the Pharmaco Lease is $1,302,000. The
Pharmaco Lease provides that at the end of the third year of the Pharmaco Lease,
and every three years thereafter, the annual rent for each of the next three
years of the term will be adjusted by a formula that would increase the annual
rent by the percentage increase in the Consumer Price Index over the immediately
preceding three years of the term, but in no event will the increase exceed
13.5%. The annual rent under the Pharmaco Lease for each year of any renewal
term is the fair market rental value of the Pharmaco Facility as of the first
day of any such renewal term.
DESCRIPTION OF FINANCING
The Company has received a commitment for a mortgage loan of $7,500,000
from MetLife Capital Financial Corporation ("MetLife"). The financing is
expected to have a term of ten years, a fixed interest rate of 8.25% per annum
and will require monthly payments of interest and principal of approximately
$54,000 with the remaining principal due at the end of the tenth year. There can
be no assurance that the Company will receive this financing or that such
financing will conform to the terms herein described.
DESCRIPTION OF PHARMACO
APBI provides a broad range of research and consulting services in the life
and environmental sciences. Pharmaco, APBI's largest subsidiary, provides
contract biological safety testing designed to test pharmaceutical products,
biologicals, chemical compounds and other substances in order to produce data
required to identify, quantify and evaluate the risks resulting from the
manufacture and use of these substances.
Financial statements for APBI are on file with the Securities and Exchange
Commission. The following is a summary of selected financial information for
APBI over the last three years:
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993(1) 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Revenues
Pharmaco LSR................................................ $115,154 $129,099 $133,970
Environmental sciences...................................... 40,190 45,763 49,283
-------- -------- --------
155,344 174,862 183,253
-------- -------- --------
Direct costs
Pharmaco LSR................................................ 88,295 92,692 93,997
Environmental sciences...................................... 27,047 30,095 33,791
-------- -------- --------
115,342 122,787 127,778
-------- -------- --------
Operating income (loss)....................................... (16,146) 7,433 18,646
Discontinued operations....................................... (12,133) (12,873) (1,716)
Net income (loss)............................................. $(26,006) $(10,008) $ (7,941)
</TABLE>
89
<PAGE> 93
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993(1) 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total Assets.................................................. $181,240 $181,680 $115,157
Working capital............................................... (2,843) 23,683 33,391
Short-term borrowings......................................... 16,929 -- --
Current maturities of long-term debt.......................... 4,204 2,406 322
Long-term debt................................................ 14,268 42,884 572
Total stockholders' equity.................................... 76,590 68,708 67,879
</TABLE>
- ---------------
(1) The loss before cumulative effect of a change in accounting principles and
discontinued operations for 1993 was affected by (i) a charge against
operating income of $9,365,000 in connection with restructuring the
Company's toxicology services division and planned improvements in the
Company's corporate management information systems and (ii) an increase in
reserves for accounts receivable of $5,857,000.
PROPERTY LEASED TO THE UPPER DECK COMPANY
DESCRIPTION OF PROPERTY
General
In January 1996, a Delaware Limited Liability Company (the "LLC") of which
wholly owned subsidiaries of the Company and CIP(TM) each have a 50% ownership
interest (the "Upper Deck Subsidiaries"), acquired from Carlsbad Partners two
properties which comprise the corporate headquarters (the "Upper Deck
Facilities") of The Upper Deck Company ("Upper Deck"). The Upper Deck
Facilities, which consist of 295,000 rentable square feet, were constructed in
1991 and house Upper Deck's manufacturing, design, production and distribution
operations and corporate offices. The properties are part of Carlsbad Oaks
Business Park Development that is situated on 17.3 acres, approximately 32 miles
north of San Diego. The Upper Deck Facilities are suitable and adequate for the
use for which they are intended. Concurrently with the acquisition of the Upper
Deck Facilities, the Upper Deck Subsidiaries, through the LLC, entered into a
net lease (the "Upper Deck Lease") with Upper Deck for the Upper Deck
Facilities. Neither the Company nor its equity investee has made an equity
investment in Upper Deck.
PURCHASE TERMS
The cost of the Upper Deck Facilities to the Company, including an
Acquisition Fee paid to an Affiliate of the Advisor, was $12,827,225 (50% of the
"Upper Deck Purchase Price"). The Upper Deck Purchase Price was less than the
leased fee Appraised Value of the Upper Deck Facilities. An Acquisition Fee of
$320,625 was also paid by Upper Deck to an Affiliate of the Advisor. W.P. Carey
& Co. will receive a Subordinated Acquisition Fee of $32,063 per year over an
eight year period, but only if the Company satisfies the Preferred Return.
DESCRIPTION OF THE LEASE
General
The Upper Deck Lease is absolutely net and bondable and in normal
financeable form. Upper Deck will pay maintenance, insurance, taxes and all
other expenses associated with the operation and maintenance of the Upper Deck
Facilities, except for the LLC's debt service and income taxes. In the opinion
of management of the Company, the Upper Deck Facilities are adequately covered
by insurance.
Term
The initial term of the Upper Deck Lease (the "Initial Term") is
twenty-five years, followed by four 5-year renewal terms (each a "Renewal Term")
at the option of Upper Deck.
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<PAGE> 94
Rent
The initial annual rent under the Upper Deck Lease is $2,639,750 of which
$1,319,875 (50%) is the Company's share. During the Initial Term of the Upper
deck Lease, rent is payable on a quarterly basis in advance. At the end of the
fifth year of the Initial Term, and every five years thereafter during the
Initial Term, the annual rent for each of the next five years of the Initial
Term will be adjusted by a formula that would increase the annual Basic Rent by
the percentage increase in the Consumer Price Index ("CPI") over the immediately
preceding five years of the Initial Term.
The Initial Term of the lease expires on December 31, 2020, Upper Deck may
elect to extend the term of the Upper Deck Lease for four consecutive terms of
five years each (each an "Extended Term"). If Upper Deck elects to extend the
Upper Deck Lease, the annual rent for each Extended Term shall be adjusted to
reflect increases in the CPI during the most recent five year period immediately
preceding each Extended Term but not in excess of 5% per annum.
Option to Purchase
Upper Deck has the option to purchase the leased premises on any date
mutually agreeable to LLC and Upper Deck during the one year period commencing
on December 26, 2007, and terminating on December 26, 2008 at a price equal to
the greater of the fair market value or the original purchase price of the Upper
Deck facilities.
DESCRIPTION OF FINANCING
The LLC has received mortgage financing for the Upper Deck Facilities in
the amount of $15,000,000 from Column Financial, Inc. ("Column"). The Column
financing, which closed on the commencement date of the Upper Deck Lease, has a
term of fifteen years, a fixed interest rate of 8.43%, and will require monthly
payments of interest and principal of $120,077.30, of which the Company's share
is $60,038.15, based upon a twenty-five year amortization schedule. The loan
will be closed to repayment for seven years and in years eight to twelve will be
subject to yield maintenance; and thereafter the loan may be prepaid with no
penalty.
DESCRIPTION OF UPPER DECK
Upper Deck is the leading manufacturer and marketer of sports trading cards
in the United States with about 25% of the sports trading card market in 1994.
Management believes that the audited financial statements of Upper Deck are not
material to a prospective investor in making an investment decision. Pursuant to
Management's current assessment of the impact of future investments in
properties on the Company's prospective financial position and results of
operations, the property net leased to Upper Deck will not be material.
Accordingly, such statements are not included. The following is a summary of
selected financial information for Upper Deck. The Statement of Operations and
Balance Sheet data for the three years ended December 31, 1992, 1993 and 1994
have been derived from audited financial statements provided by Upper Deck. Data
provided for the nine month periods ending September 30, 1994 and 1995 have been
derived from unaudited financial statements provided by Upper Deck.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1994 1995 1993 1994 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross sales................ $195,282,797 $159,761,713 $262,175,660 $252,051,949 $201,926,246
Gross profit............... 64,013,326 57,154,923 95,145,462 73,284,473 70,250,703
Income(loss) from
operations............... 23,467,482 25,610,688 38,102,013 22,207,932 28,312,764
Net income................. 20,525,661 20,191,387 31,169,862 18,201,901 21,521,538
</TABLE>
91
<PAGE> 95
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 304,945 $ 6,431,822 $ 686,050
Net accounts receivable............................. 15,430,674 18,079,567 18,592,458
Total assets........................................ 85,960,553 105,237,037 107,986,049
Total indebtedness.................................. 63,661,027 75,765,676 66,663,491
Common stock........................................ 3,500 3,500 3,500
Treasury stock...................................... -- (6,301,066) 6,771,407
Stockholders' equity................................ 22,299,526 29,471,361 41,322,558
</TABLE>
PROPERTY LEASED TO RHEOMETRIC SCIENTIFIC, INCORPORATED
On February 23, 1996, RSI (NJ) QRS 12-13, Inc., a wholly-owned subsidiary
of Corporate Property Associates 12 Incorporated (the subsidiary, together with
Corporate Property Associates 12 Incorporated is defined as the "Company")
purchased from Rheometric Scientific, Incorporated ("Rheometric") the
office/industrial facility of Rheometric (the "Rheometric Facility"). The
Rheometric Facility, a 104,000 square foot industrial facility, is located on
8.5 acres in Piscataway, New Jersey. The Rheometric Facility is suitable and
adequate for use as an office/industrial facility. The cost of the Rheometric
Facility will be depreciated for tax purposes over a 40-year period on a
straight-line basis.
Concurrently with the acquisition of the Rheometric Facility by the
Company, the Company entered into a net lease (the "Rheometric Lease") with
Rheometric for the Rheometric Facility. Material terms of the Rheometric Lease
are described below.
PURCHASE TERMS
The cost to the Company of acquiring the Rheometric Facility was $6,300,000
(the "Rheometric Purchase Price"), an amount equal to the leased fee Appraised
Value of the Rheometric Facility. An Acquisition Fee of $174,000 was paid to
W.P. Carey & Co., an Affiliate of the Advisor. W.P. Carey & Co. will receive a
Subordinated Acquisition Fee of $15,750 per year for eight years, but only if
the Company satisfies the Preferred Return. The Company contributed equity of
approximately $3,000,000 to the purchase of the Rheometric Facility and borrowed
$3,300,000 pursuant to the terms of the Loan described below.
DESCRIPTION OF THE LEASE
General
The Rheometric Lease is absolutely net and bondable and in normal
financeable form. Rheometric will pay maintenance, insurance, taxes and all
other expenses associated with the operation and maintenance of the Rheometric
Facility, except for the Company's debt service and income taxes. In the opinion
of management of the Company, the Rheometric Facility is adequately covered by
insurance.
Term
The initial term of the Rheometric Lease (the "Initial Term") is fifteen
years, followed by four 5-year renewal terms (each, a "Renewal Term") at the
option of Rheometric.
Rent
The initial annual rent ("Basic Rent") under the Rheometric Lease is
$1,180,000 payable on a quarterly basis in equal installments of $295,000. The
Rheometric Lease provides, however, that upon refinancing of the indebtedness
held by NatWest Bank, N.A. (the "First Refinancing Loan") the material terms of
which are described below, the annual rent payable ("Subsequent Basic Rent")
will be adjusted to an amount equal to the sum of (i) the amount of the annual
scheduled debt service payments payable on
92
<PAGE> 96
the First Refinancing Loan, (ii) 14.7% multiplied by the difference between
$6,000,000 and the initial principal amount of the First Refinancing Loan and
(iii) $15,000. Subsequent Basic Rent shall be payable on a quarterly basis
commencing on the date the First Refinancing Loan is funded.
As of the first anniversary of the First Refinancing Loan funding date and
thereafter on each one year anniversary during the Initial Term, the annual rent
will be adjusted by a formula that would increase the annual Subsequent Basic
Rent by the percentage increase in the Consumer Price Index ("CPI") over the
immediately preceding year of the Initial Term, subject to a maximum increase of
3% per annum.
If Rheometric elects to extend the Rheometric Lease, the annual rent for
each year of each Renewal Term shall be adjusted to reflect the percentage
increase in the CPI during the immediately preceding year of each year in each
Renewal Term, subject to a maximum increase of 3% per annum.
Right of First Refusal
The Rheometric Lease provides Rheometric with a right of first refusal to
purchase the Rheometric Facility during the period between the 10th and 11th
years of the Rheometric Lease. In the event the leased premises are contracted
for sale by the Company to a third party during the one year period commencing
on December 26, 2007, and terminating on December 26, 2008, Rheometric has the
option to elect to purchase the Rheometric Facility at a price equal to the
contract price agreed to between the Company and the third party.
DESCRIPTION OF FINANCING
The Company has received mortgage financing for the Rheometric Facility in
the amount of $3,300,000 from NatWest Bank, N.A. ("NatWest"). The NatWest
financing, which closed on the commencement date of the Rheometric Lease, has a
term of five years, a fixed interest rate of 9.625% and will require monthly
payments of principal of $42,500 commencing on March 1, 1996. The unpaid
Principal Sum, together with all accrued and unpaid interest thereon is due on
February 1, 2001. The loan may be prepaid with no penalty.
WARRANTS
The Company received warrants to purchase 132,617 shares of the common
stock of Rheometric at a price of $2.00 per share.
In addition, the Company received warrants to purchase an additional
331,543 shares of the common stock of Rheometric at a price of $2.00 per share.
However, these warrants may be exercised only if the NatWest indebtedness is
satisfied on or before February 23, 1997, unless the Company is unable to
refinance the NatWest indebtedness before such date solely as the result of any
possible environmental contamination of the excess land (as defined in the
Rheometric Lease) or adjacent stream, or as a result of the environmental
monitoring program proposed by the U.S. Department of Energy for the sampling of
sediments and water on the leased premises to determine levels of any
radioactive contamination and performing any remedial action to remove any
existing contaminated material. Presently, the Company is negotiating with a
contractor engaged by the U.S. Department of Energy to permit the contractor to
come on site to monitor and clean up any contamination that may have migrated
from an upstream site.
DESCRIPTION OF RHEOMETRIC
Rheometric designs, manufactures, markets and services computer controlled
materials test systems used to make physical property measurements. Rheometric's
product offering, most of which is proprietary or patented, consists of
rheological and thermal analytical laboratory instruments used for research and
product development; on-line, rheological sensors for controlling and assuring
product quality in various manufacturing processes; and integrated systems for
direct on-line control of manufacturing processes.
93
<PAGE> 97
Financial statements of Rheometric are on file with the Securities and
Exchange Commission. The following is a summary of selected financial data for
Rheometric over the last four years:
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Results of Operations Data:
Gross sales.................................. $23,379,000 $26,881,000 $34,571,000 $41,244,000
Gross profit................................. 11,653,000 12,294,000 15,597,000 19,107,000
Income (loss) from operations................ (2,512,000) (2,790,000) (277,000) 2,466,000
Net income (loss)............................ $(3,608,000) $(4,550,000) $(1,463,000) $ 391,000
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................... $ 541,000 $ 401,000 $ 747,000 $ 1,364,000
Net accounts receivable...................... 6,859,000 7,312,000 10,106,000 14,492,000
Total assets................................. 28,927,000 27,235,000 35,110,000 40,093,000
Total indebtedness........................... 23,218,000 22,477,000 24,557,000 29,205,000
Common stock................................. 4,500 8,000 13,000 13,000
Stockholders' equity......................... 5,709,000 4,758,000 10,553,000 10,888,000
</TABLE>
PROPERTY LEASED TO TELOS CORPORATION
On March 11, 1996, TEL (VA) QRS 12-15, Inc., a wholly-owned subsidiary of
Corporate Property Associates 12 Incorporated (the subsidiary, together with
Corporate Property Associates 12 Incorporated is defined as the "Company")
purchased from Philips Electronics North America Corporation an office and
manufacturing facility (the "Telos Facility"). The Telos Facility, a 193,000
square foot facility, is located on approximately 25 acres in Loudoun County,
Virginia. The Telos Facility is suitable and adequate for use as an office and
manufacturing facility. The cost of the Telos Facility will be depreciated for
tax purposes over a 40-year period on a straight-line basis.
Concurrently with the acquisition of the Telos Facility by the Company, the
Company entered into a net lease (the "Telos Lease") with Telos Corporation, a
Maryland Corporation, as well as several subsidiaries of Telos Corporation
(collectively "Telos") for the Telos Facility. Material terms of the Telos Lease
are described below.
PURCHASE TERMS
The cost to the Company of acquiring the Telos Facility, including
$1,300,000 deposited into an escrow account to be used by Telos to make certain
improvements to the Telos Facility, was $12,147,000 (the "Telos Purchase
Price"), an amount less than the leased fee Appraised Value of the Telos
Facility. An Acquisition Fee of $304,000 was paid to W.P. Carey & Co., an
Affiliate of the Advisor. W.P. Carey & Co. will receive a Subordinated
Acquisition Fee of $30,375 per year for eight years, but only if the Company
satisfies the Preferred Return. The Company has obtained mortgage financing in
the amount of $6,250,000, material terms of which are described below.
DESCRIPTION OF THE LEASE
General
The Telos Lease is absolutely net and bondable and in normal financeable
form. Telos will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the
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Telos Facility, except for the Company's debt service and income taxes. In the
opinion of management of the Company, the Telos Facility is adequately covered
by insurance.
Term
The initial term of the Telos Lease (the "Initial Term") is twenty years,
followed by two 10-year renewal terms (each, an "Extended Term") at the option
of Telos.
Rent
The initial annual rent ("Basic Rent") under the Telos Lease is $1,447,000,
payable on a monthly basis in equal installments of approximately $120,584. On
the third anniversary of the first Basic Rent Payment Date and thereafter on
each three year anniversary during the Initial Term, the annual rent will be
adjusted by a formula that would increase the Basic Rent for the next three year
period by the percentage increase in the Consumer Price Index ("CPI") over the
immediately preceding three years of the Initial Term, subject to a maximum
increase of 12.2%.
If Telos elects to extend the Telos Lease, rent as of the first anniversary
of the first Basic Rent Payment Date in the Extended Term and thereafter on each
three year anniversary during each Extended Term, shall be adjusted to reflect
the percentage increase in the CPI during the immediately preceding three year
period in each Extended Term, subject to a maximum increase of 12.2%.
Option to Purchase
The Telos Lease provides Telos with an option to purchase the Telos
Facility during the period between the beginning of the seventh month of the 8th
year and the end of the sixth month of the 9th year of the Initial Term of the
Telos Lease. If Telos exercises its option to purchase the Telos Facility, the
purchase price will be the greater of the fair market value of the Telos
Facility (as encumbered or not encumbered by the Lease, whichever is greater) or
the sum of the amount paid by the Company to acquire the Telos Facility and any
prepayment premium that the Company will be required to pay in prepaying any
loan secured by the Telos Facility.
DESCRIPTION OF FINANCING
The Company has obtained mortgage financing in the amount of $6,250,000 for
the Telos Facility from Creditanstalt-Bankverein ("Creditanstalt"). The
Creditanstalt financing will have a term of seven years and an interest rate of
3.5% per annum in excess of the six-month London Interbank Offered Rate. The
mortgage financing will provide for monthly payments of interest and principal
based upon a twenty-year amortization schedule.
DESCRIPTION OF TELOS
Telos provides computer-related technology services for both hardware and
software systems. Telos is involved in computer software design, development,
support and hardware maintenance services.
Financial statements of Telos are on file with the Securities and Exchange
Commission. The following is a summary of selected financial data for Telos over
the last four years:
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statement of Income Data:
Gross sales.............................. $224,751,000 $211,229,000 $175,121,000 $202,828,000
Costs and Expenses....................... 222,004,000 202,341,000 179,310,000 196,274,000
Income (loss) from operations............ 2,747,000 8,888,000 (4,189,000) 6,554,000
Net income (loss)........................ $ 1,701,000 $ 548,000 $(12,617,000) $ 1,015,000
</TABLE>
95
<PAGE> 99
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................... $ 955,000 $ 744,000 $ 441,000 $ 735,000
Net accounts receivable...................... 40,365,000 30,679,000 40,345,000 44,112,000
Total assets................................. 97,277,000 84,796,000 86,872,000 94,492,000
Senior credit facility....................... 32,753,000 22,815,000 34,000,000 32,312,000
Subordinated debt*........................... 7,957,000 -- -- 15,004,000
Other long-term liabilities.................. 5,344,000 7,315,000 2,941,000 1,108,000
Total indebtedness........................... 82,859,000 69,817,000 84,103,000 90,708,000
Preferred stock.............................. 21,753,000 24,161,000 27,952,000 33,393,000
Common stock-A............................... 65,000 65,000 65,000 65,000
Common stock-B............................... 13,000 13,000 13,000 13,000
Retained earnings (deficit).................. (24,739,000) (24,739,000) (37,356,000) (37,356,000)
Stockholders' equity......................... (7,335,000) (9,182,000) (25,183,000) (29,609,000)
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ --------------
<S> <C> <C> <C>
Sales Backlog:
Funded............................................... $ 89,800,000 $ 93,400,000 $ 65,600,000
Unfunded............................................. 86,100,000 235,000,000 1,280,900,000
------------ ------------ --------------
Total backlog........................................ $175,900,000 $328,400,000 $1,346,500,000
============ ============ ==============
</TABLE>
- ---------------
* Held by Telos shareholders.
PROPERTY LEASED TO LANXIDE CORPORATION
On March 28, 1996, LAX (DE) QRS 12-16, Inc., a wholly-owned subsidiary of
Corporate Property Associates 12 Incorporated (the subsidiary, together with
Corporate Property Associates 12 Incorporated is defined as the "Company")
purchased from Lanxide Corporation ("Lanxide") the manufacturing and research
and development facilities of Lanxide (the "Lanxide Facility"). The Lanxide
Facility, a 162,220 square foot facility, is located on approximately 14 acres
in Newark, Delaware. The Lanxide Facility houses Lanxide's primary manufacturing
and distribution center, as well as the corporate headquarters for Lanxide and
several of its commercialization ventures. The Lanxide Facility is suitable and
adequate for use as a manufacturing, research and development and office
facility. The cost of the Lanxide Facility will be depreciated for tax purposes
over a 40-year period on a straight-line basis.
Concurrently with the acquisition of the Lanxide Facility by the Company,
the Company entered into a net lease (the "Lanxide Lease") with Lanxide for the
Lanxide Facility. Concurrently with the consummation of the Lanxide Lease,
Lanxide entered into three subleases with the following entities in which it is
a joint venture partner: DuPont Lanxide Composites, L.P., Lanxide Armor Company,
L.P. and Lanxide Electronic Components, Inc. (the "DuPont Joint Ventures").
Material terms of the Lanxide Lease are described below.
PURCHASE TERMS
The cost to the Company of acquiring the Lanxide Facility and warrants to
purchase 15,500 shares of Lanxide common stock was $8,796,000 (the "Lanxide
Purchase Price"), an amount less than the leased fee Appraised Value of the
Lanxide Facility. An Acquisition Fee of $220,000 was paid to W.P. Carey & Co.,
an Affiliate of the Advisor. W.P. Carey & Co. will receive a Subordinated
Acquisition Fee of $22,000 per year for eight years, but only if the Company
satisfies the Preferred Return. The Company contributed equity of
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<PAGE> 100
approximately $4,396,000 to the purchase of the Lanxide Facility and borrowed
$4,400,000 pursuant to the terms of the Loan and the Promissory Note described
below.
DESCRIPTION OF THE LEASE
General
The Lanxide Lease is absolutely net and bondable and in normal financeable
form. Lanxide will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the Lanxide Facility, except
for the Company's debt service and income taxes. In the opinion of management of
the Company, the Lanxide Facility is adequately covered by insurance.
Term
The initial term of the Lanxide Lease (the "Initial Term") is twenty years,
followed by four 5-year renewal terms (each, an "Extended Term") at the option
of Lanxide.
Rent
The initial annual rent ("Basic Rent") under the Lanxide Lease is
approximately $1,030,000 payable on a quarterly basis in equal installments.
Quarterly payments of Basic Rent consist of three components: a rent component
("Quarterly Fixed Rent") that is fixed at $113,112, a variable debt rent
component ("Debt Rent") currently $131,263, equal to three monthly installments
of principal and interest on the $4,000,000 loan, terms of which are described
below, and a promissory note component ("Purchase Money Rent") that is fixed at
$13,126, equal to principal and interest payable on the $400,000 note payable by
the Company to Lanxide, terms of which are described below. Basic Rent payments
commence quarterly on April 1, 1996 and continue through January 1, 2001.
Commencing on April 1, 2001 and thereafter, Basic Rent shall be paid quarterly
in the fixed amount of $257,500 ("Combined Fixed Rent").
Pursuant to the three sublease agreements Lanxide has entered into with
each of the DuPont Joint Ventures, approximately $585,000 or 56% of annual Basic
Rent will be the responsibility of the Dupont Joint Ventures payable over the
term of the subleases.
Additionally, the Lanxide Lease provides on April 1, 2001, and thereafter
on each five year anniversary during the term of the Lanxide Lease and any and
all Extended Terms, the annual rent for each of the next five years of the term,
or any Extended Term, will be adjusted by a formula that would increase the
annual rent by the percentage increase in the CPI over the immediately preceding
five years of the term subject to a maximum increase of 4% per annum.
Right of First Refusal
The Lanxide Lease provides Lanxide with a right of first refusal to
purchase the Lanxide Facility. In the event the leased premises are contracted
for sale by the Company to a third party, the Company shall give written notice
to Lanxide of the Sale Contract. Lanxide has the option to elect to purchase the
Lanxide Facility for the period of 15 days following receipt of such notice, at
a price equal to the contract price agreed to between the Company and the third
party. Lanxide may, during the Initial Term of the Lanxide Lease, exercise this
right upon each proposed sale of the Lanxide Facility within the first 10 years
of the Lanxide Lease and may exercise this right once during, but in no event
after the 11th year of the Lanxide Lease.
DESCRIPTION OF FINANCING
The Company has obtained a non-recourse mortgage loan for the Lanxide
Facility in the amount of $4,000,000 from PNC Bank, Delaware ("PNC"). The PNC
financing, which closed on the commencement date of the Lanxide Lease, has an
initial term of five years (which may, at the option of PNC, be extended for an
additional term of five years), a floating interest rate of 2.0% over the Prime
Rate, and will require monthly payments of interest and principal based upon a
15 year amortization schedule. The PNC
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<PAGE> 101
financing may be accelerated by PNC if either of the subleases with Lanxide
Armor Company, L.P. or Lanxide Electronic Components, Inc. is terminated prior
to the expiration of the initial five-year term of each. In addition, the
Company obtained a loan in the amount of $400,000 directly from Lanxide (the
"Promissory Note"), which has a term of 15 years, a fixed interest rate of
10.25% and requires fixed quarterly payments of interest and principal equal to
$13,126, commencing on July 1, 1996.
WARRANTS
The Company received warrants to purchase 15,500 shares of the common stock
of Lanxide at a price of $14 per share. The right to exercise these warrants
expires on March 31, 2001. The last sale price of Lanxide common stock at close
of trading on October 9, 1996 was $16.
DESCRIPTION OF LANXIDE
Lanxide is a leader in the emerging area of inorganic composites
(reinforced metals, reinforced ceramics, and ceramic-reinforced polymers).
Lanxide has invented, developed and/or patented new process technologies that
enable it to manufacture this new class of materials at relatively low cost.
Financial statements of Lanxide are on file with the Securities and
Exchange Commission. The following is a summary of selected financial data for
Lanxide over the last four years:
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, FEBRUARY 29,
-------------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Results of Operations Data:
Gross sales.................. $ 9,091,000 $ 13,302,000 $ 9,393,000 $ 3,532,000 $1,364,000
Gross revenue................ 13,729,000 19,375,000 17,523,000 7,235,000 7,804,000
Income (loss) from
operations................. (18,906,000) (15,305,000) (16,071,000) (7,877,000) 830,000
Net income (loss)............ $(18,982,000) $(15,684,000) $(22,736,000) $(9,773,000) $ (250,000)
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
AS OF SEPTEMBER 30, FEBRUARY 29,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................. $11,453,000 $ 5,212,000 $ 8,910,000 $ 5,515,000
Net accounts receivable................... 3,754,000 1,331,000 3,079,000 1,201,000
Total assets.............................. 41,831,000 28,020,000 40,066,000 26,512,000
Total indebtedness........................ 25,096,000 33,111,000 31,286,000 29,252,000
Series A preferred stock.................. 30,000 30,000 30,000 11,000
Series B preferred stock.................. 43,000 43,000 43,000 --
Common stock.............................. 104,000 106,000 105,000 12,000
Stockholders' equity...................... 6,961,000 (14,840,000) (3,007,000) (10,623,000)
</TABLE>
PROPERTY LEASED TO CELADON TRUCKING SERVICES, INC.
DESCRIPTION OF THE PROPERTY
General
On September 19, 1996, the Company, through a wholly-owned subsidiary (the
"Celadon Subsidiary"), purchased from Celadon Real Estate Corp. an office and
trucking facility (the "Celadon Facility") including approximately 60,900 square
feet of space in three separate buildings located on approximately
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<PAGE> 102
30.5 acres of land in Marion County, Indiana. The Celadon Facility is suitable
and adequate for use as an office and trucking facility. The costs of the
depreciable portion of the Celadon Facility will be depreciated for tax purposes
over a 40-year period on a straight-line basis.
Concurrently with the acquisition of the Celadon Facility by the Celadon
Subsidiary, the Celadon Subsidiary entered into a triple-net lease (the "Celadon
Lease") with Celadon Trucking Services, Inc. ("Celadon") for the Celadon
Facility. The obligations of Celadon under the Celadon Lease will be guaranteed
by Celadon Group, Inc., the sole shareholder of Celadon. Material terms of the
Celadon Lease are described below.
Purchase Terms
The cost of acquiring the Celadon Facility, including the Acquisition Fee
payable to an Affiliate of the Advisor, was approximately $6,807,000 (the
"Celadon Purchase Price"). The Celadon Purchase Price was less than the leased
fee Appraised Value of the Celadon Facility. An Acquisition Fee of $170,860 was
paid to W.P. Carey & Co., Inc., an Affiliate of the Advisor, and an Acquisition
Fee of $136,140 was paid to the Company and will be paid to an Affiliate of the
Advisor over an eight year period, but only if the Company satisfies the
Preferred Return.
DESCRIPTION OF THE LEASE
General
The Celadon Lease is absolutely net and bondable and in normal financeable
form. Celadon will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the Celadon Facility, except
for the Celadon Subsidiary's debt service and income taxes. In the opinion of
the management of the Company, the Celadon Facility is adequately covered by
insurance.
Term
The initial term of the Celadon Lease is 20 years, followed by two 10-year
renewal terms (each, a "Renewal Term").
Rent
The initial annual rent ("Basic Rent") under the Celadon Lease is $700,000.
Basic Rent is to be adjusted annually (the "Basic Rent Adjustment Date") based
on the lesser of (i) a formula that would increase the annual rent by the
average percentage increase in the Consumer Price Index over the three (3) most
recent months ending prior to the Basic Rent Adjustment Date, and (ii) 4.25% of
the Basic Rent in effect immediately prior to the Basic Rent adjustment.
Option to Purchase
Celadon has the option to purchase the Celadon Facility at the end of the
initial term of the Celadon Lease and at the end of each of the 10-year renewal
terms. If Celadon exercises its option to purchase the Celadon Facility, the
purchase price will be the greater of the fair market value of the Celadon
Facility or the sum of the amount paid by the Celadon Subsidiary to acquire the
Celadon Facility and any prepayment premium that the Celadon Subsidiary will be
required to pay in prepaying any loan secured by the Celadon Facility.
DESCRIPTION OF CELADON GROUP, INC.
Celadon is engaged in the business of over-the-road trucking and freight
transportation.
Financial statements of Celadon are on file with the Securities and
Exchange Commission. The following is a summary of selected financial data for
Celadon over the last three years:
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<PAGE> 103
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------
6/30/94 6/30/95 6/30/96
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Statement of Operations Data:
Operating revenue........................................ $94,746 $116,360 $166,544
Operating income......................................... 11,740 12,690 5,973
Corporate expenses....................................... 3,410 3,511 4,236
Interest expenses........................................ 4,342 3,171 3,672
Other expense (income)................................... (6) 103 72
Net income (loss)........................................ 3,203 (391) (16,799)
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------
6/30/94 6/30/95 6/30/96
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital.......................................... $17,491 $ 23,801 $ 17,291
Total assets............................................. 99,265 151,624 141,921
Long-term debt........................................... 29,234 39,557 57,822
Redeemable preferred stock............................... -- -- --
Redeemable common stock.................................. -- 3,614 --
Stockholders' equity..................................... 42,079 57,839 41,962
</TABLE>
INCOME TAX ASPECTS
The following discussion is a summary of the material Federal income tax
considerations that may be relevant to prospective Shareholders and does not
purport to be an analysis of all aspects of Federal, state, local and foreign
tax law that may affect a Shareholder's investment in the Company. The following
discussion is based on the Code, existing laws and administrative regulations
(the "Regulations"), judicial decisions, administrative rulings and practice,
all of which are subject to change retroactively or prospectively and to
possibly different interpretations. The Company also may be subject to state and
local taxes in jurisdictions in which the Company is deemed to be doing business
or in which it owns Property or other interests.
Shareholders could be subject to state and local taxes in their
jurisdiction of residence. See "Income Tax Aspects -- State and Local Taxes."
This analysis is not intended as a comprehensive discussion of state or local
tax issues or as a substitute for careful tax planning, and prospective
Shareholders are urged to consult their own tax advisors, attorneys or
accountants with specific reference to their own tax situation and potential
changes in the applicable law. See "Risk Factors -- Tax Risks -- REIT Status for
Tax Purposes."
The following discussion generally is directed to the Federal income tax
treatment of a United States resident individual. Separate sections herein
describe in summary form the Federal income tax treatment of certain other
classes of potential investors including IRAs, Keogh Plans, pension and profit
sharing trusts and other tax-exempt entities, and non-resident alien and foreign
Shareholders. A separate section also describes in summary form the state and
local tax consequences to the Company and its Shareholders. BECAUSE THE TAX
IMPLICATIONS OF AN INVESTMENT IN THE COMPANY MAY VARY DEPENDING ON THE
PARTICULAR FACTS AND CIRCUMSTANCES AFFECTING EACH PROSPECTIVE INVESTOR, EACH
PROSPECTIVE INVESTOR SHOULD SATISFY HIMSELF OR HERSELF AS TO THE INCOME AND
OTHER TAX CONSIDERATIONS AND CONSEQUENCES OF HIS OR HER INVESTING IN THE COMPANY
BY CONSULTING HIS OR HER OWN TAX ADVISOR BEFORE BECOMING A SHAREHOLDER.
100
<PAGE> 104
OPINION OF COUNSEL
The Company elected to be treated as a REIT for Federal income tax purposes
for its taxable year beginning January 1, 1994 and intends to conduct its
operations in a manner that will permit it to qualify to be treated as a REIT
for each taxable year thereafter. The Company has not requested a ruling from
the IRS as to the qualification of the Company as a REIT. The Company, however,
has obtained an opinion from Reed Smith Shaw & McClay that, for Federal income
tax purposes, based on current law or interpretations thereof, (i) the Company
will qualify as a REIT provided the Company is operated in the manner described
in this Prospectus and in accordance with the representations set forth in this
Prospectus and satisfies the Share ownership tests described below, and (ii)
based on Revenue Ruling 66-109, 1966-1 C.B. 151, distributions will not
constitute UBTI to a Shareholder that is a tax-exempt entity (such as a pension
plan, IRA or charitable remainder trust) that is required to account for UBTI
even if the Company owns debt financed property as that term is defined in the
Code, provided that (i) such Shareholder does not incur any "acquisition
indebtedness" with respect to its Shares and (ii) the Company is not a pension-
held REIT as defined by the Code. See "Income Tax Aspects -- Taxation of
Tax-Exempt Entities." Each prospective investor should note that the opinions
described herein represent only Counsel's best legal judgment as to the most
likely outcome if relevant issues were litigated by the IRS and have no binding
effect or official status of any kind. Thus, in the absence of a ruling from the
IRS, there can be no assurance that the IRS will not challenge any of Counsel's
opinions. Reed Smith Shaw & McClay will not review the Company's compliance with
the requirements for qualification as a REIT on a continuing basis and although
the Board and the Advisor intend to cause the Company to operate in a manner
that will enable it to comply with the REIT Provisions, there can be no
certainty that such intention will be realized. If the IRS successfully
challenges the tax status of the Company as a REIT, many, if not all, of the tax
benefits discussed herein available to entities qualifying as REITs would not be
available to the Company or its Shareholders.
TAXATION OF THE COMPANY
For any taxable year in which the Company qualifies as a REIT, it generally
will not be subject to Federal income tax on that portion of its taxable income
that is distributed to Shareholders except certain income or gain with respect
to Foreclosure Property (generally, property the Company acquires or reenters as
a result of a default by a borrower or tenant with respect to which it files an
election with the IRS), which will be taxed at the highest corporate rate. See
"Income Tax Aspects -- Requirements for Qualification as a REIT." If the Company
were to fail to qualify as a REIT, it would be taxed at rates applicable to
corporations on all its income, whether or not distributed to its Shareholders.
Moreover, generally, the Code would not require the Company to make any
distributions. Even if it qualifies as a REIT, the Company will be taxed at
corporate rates on the portion of its taxable income that it does not distribute
to the Shareholders, such as taxable income retained as nondeductible reserves.
See "Income Tax Aspects -- Requirements for Qualification as a REIT -- Income
Tests" and "Income Tax Aspects -- Disposition of Properties."
In addition, regardless of distributions to Shareholders, if the Company
fails certain tests for qualification as a REIT or engages in Prohibited
Transactions (generally, sales of certain property held by the Company for sale
to customers in the ordinary course of its trade or business), it may retain its
REIT status but be required to pay certain taxes. See "Income Tax
Aspects -- Requirements for Qualification as a REIT -- Income Tests" and "Income
Tax Aspects -- Disposition of Properties."
The Company also will be subject to the alternative minimum tax. Since the
Company will elect to depreciate its Properties pursuant to the alternate
depreciation system, unless it recognizes gain using the installment method, it
should not realize tax preferences or adjustments subject to the alternative
minimum tax. Section 59(d) of the Code authorizes the Department of the Treasury
to issue Regulations allocating items of tax preference between a REIT and its
stockholders. Such Regulations have not yet been issued.
In addition to the tax on any undistributed income, the Company, generally,
also will be subject to a 4% excise tax on the amount, if any, by which the sum
of (i) 85% of its REIT ordinary income (as defined in
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Section 4981 of the Code), (ii) 95% of any net capital gain, and (iii) any
undistributed taxable income from prior years, exceeds the amount actually
distributed by the Company to its Shareholders during the calendar year or
declared as a Dividend during the calendar year (if distributed during the
following January). In order to satisfy this timing requirement, the Company
intends to make its fourth quarter distribution within 31, rather than 45, days
after the close of the fourth calendar quarter and will declare such Dividend
before the end of the quarter in order to avoid imposition of the excise tax.
See "Income Tax Aspects -- Taxation of Taxable Domestic Shareholders."
Imposition of any tax on the Company (including excise taxes) would reduce the
amount of cash available for distribution to Shareholders.
REQUIREMENTS FOR QUALIFICATION AS A REIT
In order to qualify as a REIT, the Company must elect to be taxed as a REIT
and satisfy a variety of complex tests relating to its organization, structure,
Share ownership, assets, income and distributions, as well as record keeping
requirements. Those tests are summarized below. See also "Income Tax Aspects --
Statement of Stock Ownership."
Organizational and Structural Requirements and Share Ownership Tests. In
order to qualify for taxation as a REIT under the Code, the Company (i) must be
a domestic corporation (or certain other forms of organization); (ii) must be
managed by one or more trustees or directors; (iii) must have transferable
shares; (iv) cannot be a financial institution or an insurance company; (v) must
have at least 100 Shareholders for at least 335 days of each taxable year of 12
months (or proportionate part of any taxable year of less than 12 months) after
its first taxable year; and (vi) must not be closely held. The Company will be
closely held only if five or fewer individuals or certain tax-exempt entities
own, directly or indirectly, more than 50% (by value) of its Shares at any time
during the last half of the taxable year of the Company after its first taxable
year. However, for purposes of the closely-held test, the Code generally permits
a look through for tax-exempt entities subject to the five or fewer rule to the
beneficiaries of such entity to determine if the REIT is closely held if the
REIT is a pension-held REIT. However, if a tax-exempt Shareholder owns more than
25 percent of the Company or one or more such Shareholders, each of whom own at
least 10 percent of the Company, in the aggregate own more than 50 percent of
the Company, such Shareholder(s) may be required to treat all or a portion of
their dividends from the Company as UBTI. See "Taxation of Tax-Exempt Entities."
As a Maryland corporation, the Company satisfies the first requirement. In
addition, the Company will be managed by a board of directors, has transferable
Shares and does not intend to operate as a financial institution or insurance
company. Additionally, the Company has more than 100 Shareholders. Furthermore,
the Company may refuse to sell or transfer Shares in the Company to any Person
if the sale or transfer would jeopardize the Company's ability to satisfy the
REIT ownership requirements; however, there can be no assurance that such a
refusal to transfer will be effective. Based on the foregoing, the Company
should satisfy the organizational and structural requirements as well as the
Share ownership tests.
Asset Tests. At the close of each calendar quarter of each taxable year,
the Company must satisfy asset tests set forth in the Code (the "Asset Tests").
At least 75% of the value of the Company's total assets must consist of: (i)
"real estate assets" including real property or interests in real property and
interests in mortgages on real property, shares in other qualifying REITs,
interests in REMICs, certain options and "new capital investments," (ii) cash
and cash items (including receivables arising in the ordinary course of the
Company's operations), and (iii) government securities. A "new capital
investment" is a debt instrument or stock but only for the one-year period
beginning on the date the Company receives such capital.
Additionally, at the end of each calendar quarter, not more than 25% of the
value of the Company's total assets may consist of securities (other than those
includible under the 75% test). Also, no more than 5% of the value of the
Company's assets may consist of the securities of any one issuer, and the
Company may not own more than 10% of the outstanding voting securities of any
one issuer. However, property owned through a "qualified REIT subsidiary," i.e.,
a corporation that is wholly owned by the REIT
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throughout the entire existence of the corporation, is treated as property owned
directly by the REIT for Federal income tax purposes.
The Company must satisfy the Asset Tests at the end of each quarter.
However, a mere change in the market value of the Company's assets alone will
not affect the Company's status as a REIT. Additionally, if, as of the close of
a calendar quarter, the Company fails to satisfy the Asset Tests, it will be
treated as if it had satisfied the Asset Tests at the end of such quarter if it
satisfies the Asset Tests within 30 days after the close of such quarter.
Income Tests. To qualify and maintain its status as a REIT, the Company
must satisfy three distinct income-based tests with respect to the sources of
its income for each taxable year; the "75% Income Test," the "95% Income Test"
and the "30% Income Test."
75% Income Test and 95% Income Test. The 75% Income Test requires that at
least 75% of the Company's gross income (excluding gross income from Prohibited
Transactions, i.e. generally, sales of certain property held primarily for sale
to customers in the ordinary course of business) be derived from: (i) "rents
from real property;" (ii) interest on obligations secured by mortgages on real
property or on interests in real property (other than interest based in whole or
in part on the income or profits unless such interest is based on gross sales or
receipts) and income derived from the ownership of interests in a REMIC; (iii)
gain from the sale or other disposition (other than in a Prohibited Transaction)
of REIT shares or of a real estate asset; (iv) dividends or other distributions
on shares in other REITs; (v) abatements and refunds of taxes on real property;
(vi) income and gain from the sale or other disposition of Foreclosure Property;
(vii) amounts (other than amounts the determination of which depend, in whole or
in part, on the income or profits of any person or entity) received or accrued
as consideration for entering into agreements to make loans secured by mortgages
on real property (e.g. commitment fees) or to purchase or lease real property
(including interests in mortgages on real property); and (viii) qualified
temporary investment income, for example, income from "new capital investments"
(as defined above).
Rents received by the Company for Properties will qualify as "rents from
real property" for purposes of the 75% Income Test if the following requirements
are satisfied:
(i) Generally, the amount of rent received must not be based on the
income or profits of a tenant but may be based on a fixed percentage of a
tenant's gross receipts or sales;
(ii) The Company may not own, actually or constructively, a 10% or
greater interest in a tenant;
(iii) The Company does not furnish or render certain services to the
tenants of such Property, other than through an independent contractor, as
defined by the Code, from whom it does not derive income. Because
Properties are expected to be leased under net leases, the Company is not
expected to furnish or render any services to tenants. The Company
currently intends to engage an Affiliate of the Advisor as an independent
contractor for any Property that is no longer operated by the tenant as a
consequence of a lease default or termination; and
(iv) Rent attributable to personal property leased in connection with
a lease of real property may not exceed 15% of the total rent received
under the lease. For this purpose, rent is attributable to real and
personal property in proportion to the relative adjusted tax bases of such
property.
If the Company acquires ownership of Property by reason of the default of a
borrower on a loan or possession of Property by reason of a tenant default, if
the Property qualifies and the Company elects to treat it as Foreclosure
Property, the income from the Property will qualify under the 75% Income Test
and the 95% Income Test notwithstanding its failure to satisfy the foregoing
requirements for two years, or if extended for good cause, up to a total of five
years. In that event, the Company must satisfy a number of complex rules, one of
which is a requirement that it operate the Property through an independent
contractor. The Company will be subject to tax on that portion of its net income
from Foreclosure Property that does not otherwise qualify under the 75% Income
Test.
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In addition to deriving 75% of its gross income from the sources described
above, the 95% Income Test requires that at least an additional 20% of the
Company's gross income (excluding income from Prohibited Transactions) must be
derived from those items described in the 75% Income Test, as well as dividends
or interest from any source, and gains from the sale or other disposition of
stock and securities.
Prior to the making of any investments in Properties, the Company may
satisfy the 75% Asset Test and the 95% Income Test by investing in liquid assets
such as government securities or certificates of deposit, but earnings from
those types of assets are qualifying income under the 75% Income Test only for
one year from the receipt of proceeds from the Offering. Accordingly, to the
extent that Offering proceeds have not been invested in Properties prior to the
expiration of this one-year period, in order to satisfy the 75% Income Test, the
Company may invest such Offering proceeds in less liquid investments such as
mortgage-backed securities guaranteed by GNMA, FHMA, or FHLMC, maturing mortgage
loans purchased from mortgage lenders or shares in other REITs. The Company
expects to receive proceeds from the Offering in a series of closings and to
trace such proceeds for purposes of determining the one-year period for "new
capital investments." No rulings or Regulations have been issued under the
provisions of the Code governing "new capital investments," so that there can be
no assurance that the IRS will agree with this method of calculation. In the
unlikely event that the Company has difficulties in investing its Offering
proceeds in Properties or other assets generating income qualifying under the
75% Income Test within this one-year period, the time when the Company is able
to qualify as a REIT could be delayed, and the Company might not qualify as a
REIT during its first or second years of operation.
If the Company fails to satisfy either the 75% Income Test or 95% Income
Test during a taxable year, it will be subject to a 100% tax on the greater of
the amount by which it fails either the 75% Income Test or the 95% Income Test.
However, it still may qualify as a REIT in such year if (i) it reports the
source and nature of each item of its gross income in its Federal income tax
return for such year; (ii) the inclusion of any incorrect information in its
return is not due to fraud with intent to evade tax; and (iii) the failure to
meet such tests is due to reasonable cause and not to willful neglect.
30% Income Test. Less than 30% of the Company's gross income may be
derived from the sale or other disposition of: (i) stock or securities held for
less than 12 months; (ii) property in a transaction that is a Prohibited
Transaction; and (iii) real property and mortgage loans secured by real property
held for less than four years other than (a) property compulsorily or
involuntarily converted and (b) Foreclosure Property. Thus, sales and other
dispositions of real property that has been held less than four years by the
Company, depending upon the amount of the Company's other income in the year of
sale, could cause the Company not to satisfy the requirements of the 30% Income
Test. See "Income Tax Aspects -- Disposition of Properties." (For the taxable
year in which a REIT completely liquidates, gain from the disposition of
property after adoption of the plan of complete liquidations is not taken into
account for purposes of the 30% Income Test.)
No mitigation provisions apply to a failure of the 30% Income Test.
Therefore, if the Company fails to satisfy the 30% Income Test, regardless of
the reason for such failure, its status as a REIT automatically terminates. See
"Income Tax Aspects -- Termination of REIT Status."
For purposes of the foregoing asset and income tests, if the Company
invests as a partner in a partnership or in a qualified REIT subsidiary, it will
be deemed to own its proportionate share of the partnership's or subsidiary's
assets and will take into account its proportionate share of the partnership's
or its subsidiary's income items and such income items will retain the same
character (e.g., rent, gain from "dealer property," (i.e., property held
primarily for sale to customers in the ordinary course of the holder's business,
etc.)) they had at the partnership or subsidiary level. Except for amounts
received with respect to certain investments in cash reserves, the Company
anticipates that substantially all of its gross income will be derived from (i)
rents from its Properties, (ii) income from mortgage-backed securities, (iii)
income from "new capital investments" (as defined above), (iv) gains from the
disposition of Properties held for four years or more, (v) gains from the
disposition of securities, and (vi) income from other qualified real estate
assets. Consequently, while the Company expects to satisfy the income tests, no
assurance can be given in this regard.
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Distribution Requirement. In order to maintain its status as a REIT, the
Company must satisfy the "95% Distribution Test." The 95% Distribution Test
requires, generally, that the Company distribute to the Shareholders its
Distributable REIT Taxable Income (generally, 95% of its taxable income less its
net capital gains). The 95% Distribution Test is based on the Company's REIT
Taxable Income rather than its available cash. As a result, while the Company
expects to meet this requirement, its ability to make the required distributions
may be impaired if it has insufficient cash flow or otherwise has excessive
noncash income or nondeductible expenditures. Furthermore, if after the close of
a taxable year, the IRS successfully adjusts the income of the Company (e.g.,
challenges a deduction taken by the Company), the 95% Distribution Test may be
determined not to have been satisfied in such a year. In such a case, the
Company may elect to make a deficiency dividend in order to satisfy the 95%
Distribution Test. See "Income Tax Aspects -- Sale-Leaseback Transactions."
In computing its REIT Taxable Income, the Company expects to use the
accrual method of accounting and depreciate depreciable Property under the
alternative depreciation system. The Company is required to file an annual
Federal income tax return, which, like other corporate returns, is subject to
IRS examination. Because the tax law requires the Company to make many judgments
regarding the proper treatment of a transaction or an item of income or
deduction, it is possible that the IRS will challenge positions taken by the
Company in computing its REIT Taxable Income and its distributions. Issues could
arise, for example, with respect to the allocation of the purchase price of
Properties between depreciable or amortizable assets and nondepreciable or
non-amortizable assets such as land and the current deductibility of fees paid
to the Advisor or its Affiliates. Were the IRS to challenge successfully the
Company's characterization of a transaction or determination of its REIT Taxable
Income, the Company could be found not to have satisfied a requirement for
qualification as a REIT and mitigation provisions might not apply. See "Income
Tax Aspects -- Sale-Leaseback Transactions." If, as a result of a challenge, the
Company is determined not to have satisfied the 95% Distribution Test, it would
be disqualified as a REIT (unless it were to pay a deficiency dividend and pay
interest and a penalty) as provided by the Code. A deficiency dividend cannot be
used to satisfy the 95% Distribution Test if the failure to meet such test was
not due to a later adjustment to the Company's income by the IRS.
For purposes of the 95% Distribution Test, dividends include not only
dividends paid during the taxable year but also dividends that are declared
before the due date of the Company's tax return for the taxable year (including
extensions) and are paid within 12 months of the end of such taxable year and no
later than the Company's next regular distribution payment. However, see "Income
Tax Aspects -- Taxation of the Company" for discussion of an excise tax
provision that could require the Company to distribute its fourth quarter
dividend in each year on or before January 31 of the following year and see
"Income Tax Aspects -- Taxation of Taxable Domestic Shareholders" for a
discussion of how taxable Shareholders are taxed on distributions.
TERMINATION OF REIT STATUS
The Company intends to satisfy all of the qualification tests and
requirements for it to be treated as a REIT for Federal income tax purposes.
However, if it fails to meet one or more of them and such failure is not
mitigated, its election to be a REIT will terminate, effective for the year of
such failure and all succeeding years. However, if (i) the Company did not
willfully fail to file a timely return with respect to the termination taxable
year, (ii) inclusion of any incorrect information in such return was not due to
fraud with intent to evade tax, and (iii) the Company establishes that failure
to meet the requirements was due to reasonable cause and not to willful neglect,
the Company could elect again to be taxed as a REIT, if it so qualified, for the
first taxable year after its election terminated provided that it had no
undistributed earnings and profits. Furthermore, while the Company has no
intention of doing so, it may revoke its election voluntarily. Except as
discussed above, in the event of a termination of the Company's election to be
taxed as a REIT, a new election may not be made by the Company for any taxable
year prior to the fifth taxable year following the year of termination.
If the Company were to reelect to qualify as a REIT after its election
terminated for any reason, in the tax year immediately prior to its reelection,
it would be required to include in its income any "net built-in
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gain" and pay corporate level income tax on such amount. Net built-in gain is
the excess of aggregate gains (including income items) over aggregate losses
that would have been realized had the Company sold all of its assets.
Alternatively, the Company could elect to treat its net built-in gains similarly
to the way certain S corporations treat net built-in gains, i.e., any net
built-in gain recognized over the ten-year period after the election would be
subject to tax at the corporate level.
SALE-LEASEBACK TRANSACTIONS
Many of the Company's investments are and will be in the form of
sale-leaseback transactions wherein the Company either will (i) purchase
Property free of encumbrances, net lease such Property back to the seller and
obtain separate mortgage financing or (ii) purchase Property subject to a
mortgage and an existing net lease. In most instances, depending on the economic
terms of the transaction, the Company will be treated for Federal income tax
purposes as either the owner of the Property or the holder of a debt secured by
the Property. The Company does not expect to request an opinion of counsel
concerning the status of any leases of Properties as true leases for Federal
income tax purposes.
The IRS may take the position that certain sale-leaseback transactions the
Company will treat as true leases are not true leases for Federal income tax
purposes but are, instead, financing arrangements or loans or the Company may
structure certain sale-leaseback transactions as such. In such event, for
purposes of the Asset Test and the 75% Income Test, each such loan likely would
be viewed as secured by real property to the extent of the fair market value of
the Underlying Real Property. It is expected that, for this purpose, the fair
market value of the Underlying Real Property would be determined without taking
into account the Company's lease. If a sale-leaseback transaction were
successfully so recharacterized, the Company might fail to satisfy the Asset
Tests or the Income Tests and consequently lose its REIT status effective with
the year of recharacterization or the amount of the Company's REIT Taxable
Income could be affected. As a consequence, the Company's Distributable REIT
Taxable Income could be determined to be greater than the amount reported by the
Company, and, therefore, the Company potentially could have failed the 95%
Distribution Test. See "Income Tax Aspects -- Requirements for Qualification as
a REIT -- Distribution Requirement."
DISPOSITION OF PROPERTIES
Gain or loss realized by the Company upon the disposition of any Property
acquired by the Company will be treated as capital gain or loss except to the
extent (i) of depreciation recapture, if any, with respect to any personal
Property sold, (ii) in the year of sale, the Company realized a net loss on the
sale of depreciable property which is real estate used in its trade or business,
(iii) the Company has net unrecaptured Code Section 1231 losses, or (iv) the
Property sold is dealer property (as defined above). If the Company disposes of
real property in a Prohibited Transaction: (a) any gains recognized by the
Company upon the disposition of the real property may be subject to a 100% tax
on resulting net income except insofar as the Company satisfies certain
statutory safe harbors. Moreover, depending on the composition of the Company's
total gross income, the Company could fail one or more of the income tests for
qualification as a REIT. Under existing law, whether a Property is held
primarily for sale to customers in the ordinary course of business must be
determined from all the facts and circumstances then surrounding the particular
Property and sale in question. The Company intends to hold all Property for
investment purposes and to make such occasional dispositions thereof as in the
opinion of the Board and the Advisor are consistent with the Company's
investment objectives and in compliance with all the rules discussed above
governing the qualification of the Company for REIT status. Accordingly, the
Company does not anticipate that it will be treated as a "dealer" with respect
to any of its assets. There can be no assurance, however, that the IRS will not
take a contrary position.
Additionally, the Code provides that sales that meet the following
requirements will not be Prohibited Transactions even if the Property sold was
held primarily for sale to customers in the ordinary course of the REIT's trade
or business: (i) the Company held the Property for four or more years, (ii)
expenditures made by the Company during the prior four-year period includible in
the basis for the Property do not exceed 30% of the net sales price of the
Property, (iii) either (a) during the Company's tax year, the
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Company does not make more than seven sales of Properties (other than
Foreclosure Property) or (b) the aggregate adjusted tax basis of Properties
(other than Foreclosure Property) sold during the tax year does not exceed 10%
of the aggregate basis of all of the Company's assets as of the beginning of its
tax year, (iv) if the Property sold consists of land or improvements which is
not Foreclosure Property, the Company held the Property for four or more years
for production of rental income, and (v) if (iii)(a) is not satisfied,
substantially all of the marketing and development expenditures made with
respect to the Property were made through an independent contractor. See "Income
Tax Aspects -- Requirements for Qualification as a REIT -- Income Tests." For
purposes of requirement (iii)(a), a sale of more than one Property to one buyer
as part of one transaction is treated as one sale.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions from the Company
(other than distributions designated as capital gain dividends) will be taxable
to Shareholders who are not tax-exempt entities as ordinary income to the extent
of the earnings and profits of the Company. Any Dividend declared by the Company
in October, November or December of any year payable to Shareholders of record
on a date in such month will be treated as if it were received by the
Shareholders on December 31, provided such Dividend actually is paid by January
31, of the following year. Consequently, any such Dividend will be taxable to a
Shareholder in such Shareholder's taxable year including December 31. (It is
possible that any portion of a Dividend made to a Shareholder after December 31
not from current or accumulated earnings and profits would be treated as a
distribution by the Company in the year it is actually made. Accordingly, if the
Company has sufficient earnings and profits in the year in which such Dividend
actually is paid, no portion of such Dividend would be a return of capital
distribution.) Dividends paid to such Shareholders will not constitute passive
activity income (such income, therefore, will not be subject to reduction by
losses from passive activities of a Shareholder who is subject to the passive
activity loss rules). Such distributions, however, will be considered investment
income, which may be offset by investment expense deductions. Dividends from the
Company that are designated as capital gains dividends by the Company will be
taxed as long-term capital gain to taxable Shareholders to the extent that they
do not exceed the Company's actual net capital gain for the taxable year. A
Shareholder that is a corporation may be required to treat up to 20% of any such
capital gains dividend as ordinary income. Such distributions, whether
characterized as ordinary income or as capital gains, are not eligible for the
70% dividends received deduction for corporations. Shareholders are not
permitted to deduct any net losses of the Company.
A Dividend that is not designated as a capital gains dividend and that is
in excess of the Company's current or accumulated earnings and profits is
treated as a return of capital to a Shareholder and reduces the tax basis of the
Shareholder's Shares (but not below zero). Any such distribution in excess of
the tax basis of a Shareholder's Shares is taxable to any such Shareholder who
is not a tax-exempt entity as gain realized from the sale of the Shares.
TAXATION OF DISPOSITION OF SHARES OF THE COMPANY
In general, any gain or loss realized upon a taxable disposition of Shares
of the Company by a Shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Shares have been held for more
than 12 months and as short-term capital gain or loss if the Shares have been
held for 12 months or less. If, however, the Shareholders have received any
capital gains dividends with respect to such Shares, any loss realized upon a
taxable disposition of Shares held for six months or less, to the extent of such
capital gains dividends received with respect to such Shares, will be treated as
long-term capital loss.
TAXATION OF TAX-EXEMPT ENTITIES
In general, a Shareholder that is a tax-exempt entity not subject to tax on
its investment income will not be subject to tax on distributions from the
Company. In Revenue Ruling 66-106, 1966-1 C.B. 151, the IRS ruled that amounts
distributed as dividends by a REIT do not constitute UBTI when received by a
qualified plan. Based on that ruling, Counsel has opined that, regardless of
whether the Company incurs
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indebtedness in connection with the acquisition of Properties, distributions
paid by the Company to a Shareholder that is a tax-exempt entity will not be
treated as UBTI, provided that (i) the tax-exempt entity has not financed the
acquisition of its Shares with "acquisition indebtedness" within the meaning of
the Code and the Shares otherwise are not used in an unrelated trade or business
of the tax-exempt entity and (ii) the Company is not a pension-held REIT. This
opinion applies to a Shareholder that is an organization that qualifies under
Code Section 401(a), an IRA or any other tax-exempt organization that would
compute UBTI, if any, in accordance with Code Section 512(a)(1). However, if the
Company is a pension-held REIT and a tax-exempt Shareholder owns more than 10
percent of the Company, such Shareholder will be required to recognize as UBTI
that percentage of the dividends that it receives from the Company as is equal
to the percentage of the Company's gross income that would be UBTI to the
Company if the Company were a tax-exempt entity required to recognize UBTI. A
REIT is a pension-held REIT if at least one qualified trust holds more than 25
percent of the value of the REIT's shares or one or more qualified trusts, each
of whom own more than 10 percent of the REIT's shares, hold more than 50 percent
of the value of the REIT's shares. A tax-exempt Shareholder also should be aware
that Congress currently is examining the taxation of investment income received
by tax-exempt entities including the treatment of income received by such
entities from REITs and other pass-through entities and is considering whether
to treat income derived from a REIT as UBTI to the extent that the REIT has
incurred debt to acquire its assets. The Congressional committee conducting this
examination has not yet concluded its study.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
Federal income taxation under Code Sections 501(c)(7), (c)(9), (c)(17) and
(c)(20), respectively, income from an investment in the Company will constitute
UBTI unless the organization is able to deduct amounts set aside or placed in
reserve for certain purposes so as to offset the UBTI generated by its
investment in the Company. Such prospective Shareholders should consult their
own tax advisors concerning these "set aside" and reserve requirements.
FOREIGN SHAREHOLDERS
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
Shareholders are complex and no attempt will be made herein to provide more than
a summary of such rules. Prospective foreign Shareholders should consult with
their own tax advisors to determine the impact of United States Federal, state
and local income tax laws with regard to an investment in Shares.
A nonresident shareholder of a REIT generally is not considered to be
engaged in a trade or business through a permanent establishment in the United
States by reason of their ownership of shares in the REIT. The taxation of
Dividends will depend generally upon whether the Dividends are attributable to
ordinary income or capital gain. To the extent the Dividends are attributable to
ordinary income, they will be treated as dividend income to the extent of the
earnings and profits of the Company and will be subject to a withholding tax
equal to 30% of the gross amount of the Dividends unless (i) an applicable tax
treaty between the United States and the country of residence for tax purposes
of the foreign Shareholder reduces or eliminates that tax, or (ii) the foreign
Shareholder is independently engaged in a United States trade or business and
the Dividends received from the Company are effectively connected with that
trade or business. The Company expects to withhold United States income tax at
the rate of 30% on the gross amount of any such distributions made to a foreign
Shareholder unless (i) a lower treaty rate applies and the Shareholder files IRS
Form 1001 or (ii) the Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is effectively connected income. Ordinary income
Dividends in excess of the Company's earnings and profits will be treated as a
nontaxable return of capital to the extent of the foreign Shareholder's cost of
his Shares, with any additional amounts treated as amounts received in exchange
for his Shares.
Capital gains Dividends paid to a foreign Shareholder will be taxed to such
foreign Shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, these distributions, to the
extent attributable to U.S. real property interests, are taxed to foreign
Shareholders as effectively connected with a United States business, thereby
subjecting such gain to United
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States income tax (at a rate of not less than 21% in the case of foreign
individuals). The Company is required by applicable Temporary Regulations, to
withhold 34% of any distribution designated or that could be designated by the
Company as a capital gains dividend. Also, capital gains dividends (net of the
amount of regular income tax) may be subject to a 30% branch profits tax in the
hands of a foreign corporate Shareholder not entitled to treaty exemption from
the branch profits tax.
Gain recognized by a foreign Shareholder upon a sale of Shares generally
will not be subject to FIRPTA taxation and withholding rules provided the
Company is a domestically controlled REIT (i.e., a REIT that is owned less than
50% by foreign Persons during a specified testing period). Such gain, however,
would be taxable to a foreign Shareholder if (i) the gain is effectively
connected with the foreign Shareholder's United States trade or business or (ii)
the foreign Shareholder is an individual who is physically present in the United
States for 183 days or more during the taxable year and has a tax home in the
United States.
Unless an applicable estate tax treaty provides otherwise, Shares owned by
a nonresident alien decedent will be included in his estate for purposes of the
United States Estate tax. Tax is imposed at progressive rates.
UNITED STATES REPORTING REQUIREMENTS
The Company is required to file an information return with the IRS setting
forth the name, address and taxpayer identification number of the payee of
dividends from the Company (whether the payee is a nominee or is the actual
beneficial owner).
BACKUP WITHHOLDING
The Company will report to its domestic Shareholders and to the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
Shareholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such Shareholder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A Shareholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the Shareholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
made to any Shareholders who fail to certify their non-foreign status to the
Company. See "Taxation of Foreign Shareholders."
STATEMENT OF STOCK OWNERSHIP
The Company is required to demand annual written statements from the record
holders of designated percentages of its Shares disclosing the actual owners of
the Shares. Any record Shareholder who, upon request by the Company, does not
provide the Company with required information concerning actual ownership of the
Shares is required to include certain specified information relating thereto in
his Federal income tax return. The Company also must maintain, within the
Internal Revenue District in which it is required to file its Federal income tax
return, permanent records showing the information it has received as to the
actual ownership of such Shares and a list of those persons failing or refusing
to comply with such demand.
STATE AND LOCAL TAXES
The Company and its Shareholders may be subject to state and/or local
taxation in various jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company and its
Shareholders may differ substantially from the Federal income tax treatment
described in this summary. CONSEQUENTLY, EACH PROSPECTIVE INVESTOR SHOULD
CONSULT WITH HIS OWN TAX ADVISOR WITH REGARD TO THE STATE AND LOCAL TAX
CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
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ERISA CONSIDERATIONS
The following is a summary of certain non-tax considerations associated
with an investment in the Company by a qualified plan, Keogh Plan or an IRA.
This summary is based on provisions of ERISA and the Code, as amended through
the date of this Prospectus, and relevant regulations and opinions issued by the
Department of Labor. No assurance can be given that legislative or
administrative changes or court decisions may not be forthcoming which would
significantly modify the statements expressed herein. Any such changes may or
may not apply to transactions entered into prior to the date of their enactment.
In considering an investment in the Company of the assets of an employee
benefit plan subject to ERISA, such as a profit-sharing, 401(k), or a pension
plan, or of any other retirement plan or account subject to Section 4975 of the
Code such as an IRA or Keogh Plan (collectively, "Benefit Plans"), a fiduciary,
taking into account the facts and circumstances of such Benefit Plan, should
consider, among other matters, (i) whether the investment is consistent with the
applicable provisions of ERISA and the Code, (ii) whether the investment will
produce UBTI to the Benefit Plan (see "Income Tax Aspects -- Taxation of
Tax-Exempt Entities") and (iii) the need to value the assets of the Benefit Plan
annually.
Under ERISA, a plan fiduciary's responsibilities include the duty (i) to
act solely in the interest of plan participants and beneficiaries and for the
exclusive purpose of providing benefits to them, as well as defraying reasonable
expenses of plan administration; (ii) to invest plan assets prudently; (iii) to
diversify the investments of the plan unless it is clearly prudent not to do so;
and (iv) to comply with plan documents insofar as they are consistent with
ERISA. ERISA also requires that the assets of an employee benefit plan be held
in trust and that the trustee (or a duly authorized investment manager) have
exclusive authority and discretion to manage and control the assets of the plan.
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit
certain transactions involving assets of a Benefit Plan and any "party in
interest" or "disqualified person" with respect to that Benefit Plan. These
transactions are prohibited regardless of how beneficial they may be for the
Benefit Plan. The prohibited transactions include the sale, exchange or leasing
of property, the lending of money or the extension of credit between a Benefit
Plan and a party in interest or disqualified person, and the transfer to, or use
by, or for the benefit of, a party in interest, or disqualified person, of any
assets of a Benefit Plan. A fiduciary of a Benefit Plan also is prohibited from
engaging in self-dealing, acting for a person who has an interest adverse to the
plan (other than in the case of most IRAs and some Keogh Plans), or receiving
any consideration for its own account from a party dealing with the plan in a
transaction involving plan assets.
Furthermore, Section 408 of the Code states that assets of an IRA trust may
not be commingled with other property except in a common trust fund or common
investment fund.
PLAN ASSETS
Neither ERISA nor the Code define the term "plan assets." However, on
November 13, 1986, the Department of Labor published a final regulation
describing what constitutes the assets of a Benefit Plan when it invests in
certain kinds of entities (29 C.F.R. Section 2510.3-101, the "Regulation"). The
Regulation was generally effective as of March 13, 1987. As discussed below, the
Company has received an opinion of counsel that, under the final regulations
issued by the Department of Labor, the assets of the Company should not be
deemed to be "plan assets" if Benefit Plans invest in Shares, assuming certain
conditions set forth in the opinion are satisfied.
Under the Regulation, the assets of corporations, partnerships, or other
entities in which a Benefit Plan makes an equity investment will be deemed to be
assets of the Benefit Plan unless the entity satisfies at least one of the
exceptions to this general rule. The Regulation provides as one such exception
that the underlying assets of entities such as the Company will not be treated
as assets of a Benefit Plan if the interest the Benefit Plan acquires is a
"publicly-offered security." A publicly-offered security must be (i) "freely
transferable," (ii) part of a class of securities that is owned by 100 or more
persons who are independent of the issuer and one another, and (iii) sold as
part of a public offering registered under the
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Securities Act and be part of a class of securities registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), within a
specified time period.
The Shares are being sold as part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act
and the Company has represented that the Shares will be part of a class
registered under the Exchange Act within the specified time frames. Any Shares
purchased, therefore, should satisfy the third criterion of the publicly offered
exemption.
The Company has over 100 shareholders. Thus, the second criterion of the
publicly offered exception will be satisfied.
Whether a security is freely transferable depends upon the particular facts
and circumstances. The Shares will be subject to restrictions intended to ensure
that the Company continues to qualify for Federal income tax treatment as a
REIT. According to the Regulation, where the minimum investment in a public
offering of securities is $10,000 or less, the presence of a restriction on
transferability intended to prohibit transfers which would result in a
termination or reclassification of the entity for state or Federal tax purposes
will not ordinarily affect a determination that such securities are freely
transferable. The minimum investment in Shares is less than $10,000. Thus, the
restrictions imposed to maintain the Company's status as a REIT should not cause
the Shares to not be freely transferable.
The Company has obtained an opinion from counsel that the Shares should
constitute "publicly-offered securities" and that the underlying assets of the
Company should not be considered plan assets under the Regulation assuming the
Offering takes place as described in this Prospectus.
In the event that the underlying assets of the Company were treated by the
Department of Labor as assets of a Benefit Plan, the management of the Company
would be treated as fiduciaries with respect to Benefit Plan Shareholders and
the prohibited transaction restrictions of ERISA and the Code would apply to any
transaction involving management and assets of the Company, unless an
administrative or statutory exemption under ERISA applies. Such restrictions
could, for example, require that the Company avoid transactions with entities
that are affiliated with the Company or its Affiliates or restructure its
activities in order to obtain an exemption from the prohibited transaction
restrictions. Alternatively, the Company might provide Benefit Plan Shareholders
with the opportunity to sell their Shares to the Company or the Company might
dissolve or terminate.
If the underlying assets of the Company were treated as assets of a Benefit
Plan, the investment in the Company also might constitute an improper delegation
of fiduciary responsibility to the Advisor and expose the fiduciary of the plan
to co-fiduciary liability under ERISA for any breach by the Advisor of its ERISA
fiduciary duties. Finally, an investment by an IRA in the Company might result
in an impermissible commingling of plan assets with other property.
If a prohibited transaction were to occur, the Code imposes an excise tax
equal to five percent of the amount involved and authorizes the IRS to impose an
additional 100% excise tax if the prohibited transaction is not "corrected."
Such taxes would be imposed on any disqualified person who participates in the
prohibited transaction. In addition, the Advisor and possibly other fiduciaries
of Benefit Plan Shareholders subject to ERISA who permitted such prohibited
transaction to occur or who otherwise breached their fiduciary responsibilities
would be required to restore to the plan any profits realized by these
fiduciaries as a result of the transaction or breach, and make good to the plan
any losses incurred by the plan as a result of such transaction or breach. With
respect to an IRA that invests in the Company, the occurrence of a prohibited
transaction involving the individual who established the IRA, or his or her
beneficiary, would cause the IRA to lose its tax-exempt status under Section
408(e)(2) of the Code.
In the opinion of counsel, as discussed above, the assets of the Company
should not constitute plan assets following an investment in Shares by Benefit
Plans. Accordingly, the problems discussed in the preceding three paragraphs are
not expected to arise.
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OTHER PROHIBITED TRANSACTIONS
Regardless of whether the Shares qualify for the "publicly-offered
security" exception of the Regulation, a prohibited transaction could occur if
the Company, CFA, any Selected Dealer, the Escrow Agent or any of their
Affiliates is a fiduciary (within the meaning of Section 3(21)) of ERISA with
respect to the purchase of the Shares. Accordingly, unless an administrative or
statutory exemption applies, Shares should not be purchased by a Benefit Plan to
which any of the above Persons is a fiduciary with respect to the purchase. A
Person is a fiduciary to a plan under Section 3(21) of ERISA if, among other
things, the Person has discretionary authority or control with respect to plan
assets or provides investment advice for a fee with respect to such assets.
Under a regulation issued by the Department of Labor, a Person would be deemed
to be providing investment advice if such Person renders advice as to the
advisability of investing in Shares and that Person regularly provides
investment advice to the plan pursuant to a mutual agreement or understanding
(written or otherwise) that (i) such advice will serve as the primary basis for
investment decisions and (ii) such advice will be individualized for the plan
based on its particular needs.
INVESTMENT IN ESCROW ACCOUNT
The Escrow Agent will establish two separate escrow accounts. Benefit Plan
funds will be deposited in one account while funds from all other investors will
be deposited in another account. Pending issuance of the Shares to a Benefit
Plan, the Escrow Agent will invest Benefit Plan funds in a money market account
maintained by the Escrow Agent. On the Initial Closing Date and each closing
date thereafter, the funds paid by each Benefit Plan will be released from the
Benefit Plan escrow account and exchanged for the applicable number of Shares.
Any interest earned by that account prior to any such closing date will be paid
to the investing Benefit Plan.
In considering an investment in the Company, a plan fiduciary should
consider whether the escrow account arrangement as well as the ultimate
investment in the Company would be consistent with fiduciary standards
applicable to that Benefit Plan.
ANNUAL VALUATION
A fiduciary of an employee benefit plan subject to ERISA is required to
determine annually the fair market value of each asset of the plan as of the end
of the plan's fiscal year and to file an Annual Return/Report on Form 5500
reflecting that value. When no fair market value of a particular asset is
available, the fiduciary is to make a good faith determination of that asset's
"fair market value" assuming an orderly liquidation at the time the
determination is made. In addition, a trustee or custodian of an IRA must
provide an IRA participant with a statement of the value of the IRA each year.
In discharging its obligation to value assets of a plan, a fiduciary subject to
ERISA must act consistently with the relevant provisions of the plan and the
general fiduciary standards of ERISA.
Unless and until the Shares are listed on a national securities exchange or
are included for quotation on Nasdaq, it is not expected that a public market
for the Shares will develop. To date, neither the IRS nor the Department of
Labor has promulgated regulations specifying how a plan fiduciary should
determine the "fair market value" of the Shares under those circumstances,
namely when the fair market value of the Shares is not determined in the
marketplace. Therefore, to assist fiduciaries in fulfilling their valuation and
annual reporting responsibilities with respect to ownership of Shares, the
directors intend to provide reports of the directors' annual determinations of
the current value of the Company's net assets per outstanding Share to those
fiduciaries (including IRA trustees and custodians) who identify themselves to
the directors as such and request the reports. Prior to and for the year ending
December 31, 1998, the directors intend to use the offering price of Shares as
the per Share net asset value. Thereafter, beginning with the year 1999, the
value of the Properties and other assets of the Company will be based on a
Valuation. Such Valuation may be, but is not required to be, performed by
Independent Appraisers.
The directors anticipate that they will provide annual reports of such
determinations (i) to IRA trustees and custodians not later than January 15 of
each year, and (ii) to other qualified plan trustees and custodians within 75
days after the end of each calendar year. Each determination may be based upon
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valuation information available as of October 31 of the preceding year, updated
for any material changes occurring between October 31 and December 31 of such
year.
The directors intend to revise these valuation procedures to conform with
any relevant guidelines that the IRS or the Department of Labor may hereafter
issue. Meanwhile, there can be no assurance (i) that such value could or will
actually be realized by the Company or by Shareholders upon liquidation (in part
because appraisal or estimated value do not necessarily indicate the price at
which assets could be sold and because no attempt will be made to estimate the
expenses of selling any assets of the Company), (ii) that Shareholders could
realize such value if they were to attempt to sell their Shares, or (iii) that
such value would comply with the ERISA or IRA requirements described above.
DESCRIPTION OF SHARES
The following description of the Shares does not purport to be complete but
contains a summary of portions of the Articles of Incorporation and is qualified
in its entirety by reference to the Articles of Incorporation.
GENERAL DESCRIPTION OF SHARES
The Company is authorized to issue 40,000,000 Shares, each Share having a
par value of $.001. Each Share is entitled to participate equally in Dividends
when and as declared by the directors and in the distribution of assets of the
Company upon liquidation. Each Share is entitled to one vote and will be fully
paid and non-assessable by the Company upon issuance and payment therefor.
Shares, other than Excess Shares, which are defined in the Organizational
Documents to mean Shares held by an investor in excess of 9.8% of the total
number of Shares issued and outstanding at the time such Shares are acquired,
are not subject to redemption by the Company. The Shares have no preemptive
rights which rights are intended to insure that a Shareholder maintains the same
ownership interest (on a percentage basis) before and after the issuance of
additional securities by the Company or cumulative voting rights (which are
intended to increase the ability of smaller groups of Shareholders to elect
directors). The Company currently does not intend to issue any securities other
than the Shares discussed in this Prospectus, although it may do so at any time.
The Company has the authority at the discretion of the directors (including a
majority of the Independent Directors) to authorize the listing, issuance and
sale of the Shares on a national securities exchange or on Nasdaq. In addition,
the Company has the authority to issue shares of any class or securities
convertible into shares of any class or classes, to classify or to reclassify
any unissued stock by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of such stock, all as determined by the
directors.
The Company plans to apply to list the Shares for trading on a national
securities exchange or to include them for quotation on Nasdaq unless the Board
of Directors (including a majority of the Independent Directors) deems such
listing or quotation not to be in the best interest of the Shareholders. There
can be no assurance that any such application will be accepted. If the Shares
are not listed or included for quotation, the Properties generally will be
liquidated beginning five to ten years after the net proceeds of the Offering
are substantially invested. In making the decision to apply for listing of the
Shares, the Board will try to determine whether listing the Shares or
liquidating the Company will result in greater value for the Shareholders. Even
if the Shares are not so listed or included for quotation, the Company is under
no obligation to liquidate its portfolio within such period since the precise
timing will depend on real estate and financial markets, economic conditions of
the areas in which the Properties are located and Federal income tax effects on
Shareholders which may prevail in the future. Furthermore, there can be no
assurance that the Company will be able to liquidate its portfolio and it should
be noted that the Company will continue its existence until all of its
Properties are sold and its other assets are liquidated.
The Company will not issue certificates. Shares will be held in
"uncertificated" form which will (a) eliminate the physical handling and
safekeeping responsibilities inherent in owning transferable stock certificates,
and (b) eliminate the need to return a duly executed stock certificate to the
transfer agent to effect a transfer. Transfers can be effected simply by mailing
a duly executed stock power to the Company.
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Upon the issuance of its Shares, the Company shall send to each Shareholder a
written statement which will include all information that is required to be
written upon stock certificates under Maryland law.
MEETINGS AND SPECIAL VOTING REQUIREMENTS
An annual meeting of the Shareholders will be held each year, not fewer
than 30 days after delivery of the Annual Report of the Company. Special
meetings of Shareholders may be called only upon the request of a majority of
the directors, a majority of the Independent Directors, the Chairman, the
President or upon the written request of Shareholders entitled to cast at least
10% of all the votes entitled to be cast at such meeting. In general, the
presence in person or by proxy of a majority of the outstanding Shares,
exclusive of Excess Shares, shall constitute a quorum. Generally, the
affirmative vote of a majority of the votes entitled to be voted at a meeting at
which a quorum is present is necessary to take Shareholder action, except that a
plurality of all votes cast at such a meeting is sufficient to elect a director.
The Company's Charter may be amended by a majority of the Board of
Directors (including a majority of the Independent Directors) and approval of a
majority of the Company's stockholders at a duly held meeting at which a quorum
is present. Charter amendments affecting the provisions on indemnification of
directors and officers, limitation of personal liability of directors and
officers, and limitation on ownership of shares of the Company, must be approved
by a vote of two-thirds of the Company's Stockholders. In general, the Company's
Bylaws may be amended by a majority vote of the Company's stockholders. The
Ownership Limit may only be amended by a two-thirds majority vote of all
outstanding Shares. Any amendment to the Bylaws that would reduce the priority
of payment or the amount payable to the Shareholders upon liquidation of the
Company or that would diminish or eliminate any voting rights require the
approval of a two-thirds majority of Shares entitled to vote. Shareholders may,
by the affirmative vote of a majority of the Shareholders entitled to vote on
such matter, elect to remove a director from the Board or dissolve the Company.
Shareholders do not have the ability to vote to replace the Advisor or to select
a new investment adviser.
The affirmative vote of a majority of all Shares entitled to be cast is
required to approve any merger or sale of substantially all of the assets of the
Company other than in the ordinary course of business. Shareholders objecting to
the approval of any merger or sale of assets are permitted under Maryland law to
petition a court for the appraisal and payment of the fair value of their
Shares. In such an appraisal proceeding, the court appoints appraisers who
attempt to determine the fair value of the stock as of the date of the
shareholder vote on the merger or sale of assets. The appraisers' report is
considered by the court which (i) makes the final determination of the fair
value to be paid to the Shareholder and (ii) decides whether the award of
interest from the date of the merger or sale of assets and costs of the
proceeding are to be awarded to the dissenting Shareholder.
Shareholders are entitled to receive a copy of the Company's Shareholder
list upon request provided that the requesting Shareholder represents to the
Company that the list will not be used to pursue commercial interests. The list
provided by the Company will include the name, address and telephone number (if
available) of, and number of Shares owned by, each Shareholder and will be in
alphabetical order, on white paper and in easily readable type size and will be
sent within ten days of the receipt by the Company of the request (or five days
if the Shareholder first requests a copy of the representation and returns it to
the Company within 30 days). A Shareholder requesting a list will be required to
pay the Company's reasonable cost of postage and duplication. The Company will
pay the costs incurred and any actual damages suffered by a Shareholder who must
compel the production of a list and is successful. Any Shareholder who breaches
the terms of the representation provided to the Company will be liable to the
Company for any costs or damages resulting from such breach. The list will be
updated at least quarterly to reflect changes in the information contained
therein.
The rights of Shareholders described above are in addition to and do not
adversely affect rights provided to investors under Rule 14a-7 promulgated under
the Exchange Act, which provides that, upon request of investors and the payment
of the expenses of the distribution, the Company is required to distribute
certain materials to Shareholders in the context of the solicitation of proxies
for voting on
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matters presented to Shareholders, or, at the option of the Company, provide
requesting Shareholders with a copy of the list of Shareholders so that the
requesting Shareholders may make the distribution themselves.
RESTRICTION ON OWNERSHIP OF SHARES
In order for the Company to qualify as a REIT, not more than 50% of its
outstanding Shares may be owned by any five or fewer individuals (including
certain tax-exempt entities) during the last half of each taxable year of the
Company, and the outstanding Shares must be owned by 100 or more Persons
independent of the Company and each other during at least 335 days of a 12-month
taxable year or during a proportionate part of a shorter taxable year for which
an election to be treated as a REIT is made. The Company, therefore, may
prohibit certain acquisitions and transfers of Shares so as to facilitate the
Company's continued qualification as a REIT under the Code. However, there can
be no assurance that such prohibition will be effective.
The Articles of Incorporation, in order to assist the Board in preserving
the Company's status as a REIT, contain an Ownership Limit which prohibits any
Person or group of Persons from acquiring, directly or indirectly, Beneficial
Ownership of more than 9.8% of the outstanding Shares. Shares owned by a Person
or a group of Persons in excess of the Ownership Limit are deemed "Excess
Shares." Shares owned by a Person who individually owns of record less than 9.8%
of outstanding Shares may nevertheless be Excess Shares if such Person is deemed
part of a group for purposes of this restriction.
The Articles of Incorporation stipulate that any purported issuance or
transfer of Shares shall be valid only with respect to those Shares that do not
result in the transferee-Shareholder owning Shares in excess of the Ownership
Limit. If the transferee-Shareholder acquires Excess Shares, such Person is
considered to have acted as an agent for the Company and holds such Excess
Shares on behalf of the ultimate Shareholder.
The Ownership Limit does not apply to offerors which, in accordance with
applicable Federal and state securities laws, make a cash tender offer, where at
least 85% of the outstanding Shares (not including Shares or subsequently issued
securities convertible into common stock which are held by the tender offeror
and/or any "affiliates" or "associates" thereof within the meaning of the
Exchange Act) are duly tendered and accepted pursuant to the cash tender offer.
The Ownership Limit also does not apply to the underwriter in a public offering
of the Shares. The Ownership Limit does not apply to a Person or Persons which
the directors so exempt from the Ownership Limit upon appropriate assurances
that the Company's qualification as a REIT is not jeopardized.
If the Company has 2,000 or more stockholders, all Persons who own 5% or
more of the outstanding Shares (or 1% or more if the Company has more than 200
but fewer than 2,000 Shareholders) during any taxable year will be asked by the
Company to deliver a statement or affidavit setting forth the number of Shares
Beneficially Owned, directly or indirectly, by such Persons. See "Income Tax
Aspects -- Statement of Stock Ownership."
DIVIDENDS
The Company intends to declare Dividends before each issuance of Shares
during the Offering and on a quarterly basis. Dividends will be paid to
investors who are Shareholders as of the record date selected by the directors.
Dividends will be paid on a quarterly basis regardless of the frequency with
which such Dividends are declared. The Company is required to distribute
annually its Distributable REIT Taxable Income to comply with the REIT
Provisions. Generally, income distributed as Dividends will not be taxable to
the Company under Federal income tax laws unless the Company fails to comply
with the REIT Provisions.
Dividends will be paid at the discretion of the directors, in accordance
with the earnings, cash flow and general financial condition of the Company. The
directors' discretion will be directed, in substantial part, by their obligation
to cause the Company to comply with the REIT Provisions. Because the Company may
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receive income from interest or rents at various times during its fiscal year,
Dividends may not reflect income earned by the Company in that particular
Dividend period but may be made in anticipation of cash flow which the Company
expects to receive during a later quarter and may be made in advance of actual
receipt in an attempt to make distributions relatively uniform. The Company can
borrow to make distributions if the borrowing is necessary to maintain the
Company's REIT status or if the borrowing is part of a liquidation strategy to
partially or completely liquidate investments in Properties by borrowing against
those Properties.
The Company is not prohibited from distributing its own securities in lieu
of making cash distributions to Shareholders, provided that such securities
distributed to Shareholders are readily marketable. Shareholders who receive
marketable securities in lieu of cash distributions may incur transaction
expenses in liquidating such securities.
REPURCHASE OF SHARES
The Company has the authority to redeem Excess Shares immediately upon
becoming aware of existence of such Excess Shares or after giving the Person in
whose hands such Shares are Excess Shares 30 days to transfer such Excess Shares
to a Person whose ownership of such Shares would not exceed the Ownership Limit
and, therefore, would no longer be considered Excess Shares. The price paid upon
redemption by the Company shall be the lesser of the price paid for such Excess
Shares by the Shareholder in whose possession the redeemed Shares were formerly
Excess Shares or the fair market value of the Excess Shares. The Company may
purchase Excess Shares or otherwise repurchase Shares if such repurchase does
not impair the capital or operations of the Company.
The Sponsor, Advisor and their Affiliates may not receive a fee on the
purchase of Shares by the Company.
REDEMPTION OF SHARES
After the termination of the Offering and prior to such time, if any, as
the Shares are listed on a national securities market, any stockholder (other
than the Advisor) that has held his or her Shares for at least one year may
present all or any portion of such stockholder's Shares to the Company for
redemption at any time, in accordance with the procedures outlined herein. At
such time, the Company may, at its option, subject to the conditions described
below, redeem such Shares presented for redemption for cash to the extent it has
sufficient funds available, as determined by the Board of Directors in its sole
discretion. There is no assurance that there will be sufficient funds available
for redemption and, accordingly, a stockholder's Shares may not be redeemed.
The Board of Directors will determine on a quarterly basis whether the
Company has sufficient excess cash to repurchase Shares. Shareholders may offer
Shares to the Company for purchase and the Company will purchase the offered
Shares if it has sufficient cash. The Company will impose a surrender charge on
repurchased shares in accordance with the following schedule:
<TABLE>
<CAPTION>
HOLDING PERIOD
OF SHARES SURRENDER CHARGE
----------------------------------------------- -----------------------
<S> <C>
1-2 years...................................... 12% of Net Asset Value
2-3 years...................................... 10% of Net Asset Value
3-4 years...................................... 8% of Net Asset Value
4-5 years...................................... 6% of Net Asset Value
5-6 years...................................... 5% of Net Asset Value
6-7 years...................................... 4% of Net Asset Value
7-8 years...................................... 3% of Net Asset Value
8-9 years...................................... 2% of Net Asset Value
9-10 years..................................... 1% of Net Asset Value
10 years or more............................... 0
</TABLE>
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The Net Asset Value, for purposes of calculating the purchase price, shall
be $10 per share until the Company begins having appraisals performed by an
independent third party as of December 31, 1999, at which time the Net Asset
Value will be as determined by such appraiser. The Board of Directors reserves
the right to adjust the Net Asset Value on a quarterly basis to account for
significant capital transactions.
If the Company has sufficient funds to purchase some but not all of the
shares offered, the Shareholders holding their Shares for the longest amount of
time will be given priority. The Company will only be able to repurchase shares
if it maintains a currently effective registration statement. While the Company
intends to maintain an effective registration statement, there can be no
assurance that it will be able to do so. Furthermore, there can be no assurance
that the Company will have sufficient funds to repurchase any Shares.
A stockholder who wishes to have his or her Shares redeemed must mail or
deliver a written request on a form provided by the Company and executed by the
stockholder, its trustee or authorized agent, to the Company. Within 30 days
following the Company's receipt of the stockholder's request, the Company will
forward to such stockholder the documents necessary to effect the redemption,
including any signature guarantee the Company may require. Any redemption to be
completed by the Company will be completed for a calendar quarter provided that
the Company receives the properly completed redemption documents relating to the
Shares to be redeemed from the stockholder at least one calendar month prior to
the last day of the current calendar quarter and has sufficient funds to redeem
such Shares. The effective date of any redemption will be the last date during a
quarter during which the Company receives the properly completed redemption
documents. As a result, the Company anticipates that, assuming sufficient funds,
the effective date of redemptions will be no later than thirty days after the
quarterly determination of the availability of funds.
A stockholder may present fewer than all his or her Shares to the Company
for redemption, provided, however, that if such stockholder retains any Shares,
he or she must retain at least 250 Shares (200 Shares for an IRA, Keogh Plan or
pension plan).
The Directors, in their sole discretion, may amend or suspend the
redemption plan at any time they determine that such amendment or suspension is
in the best interest of the Company. The Directors may suspend the redemption of
Shares if (i) they determine, in their sole discretion, that such redemption
impairs the capital or the operations of the Company; (ii) they determine, in
their sole discretion, that an emergency makes such redemption not reasonably
practical; (iii) any governmental or regulatory agency with jurisdiction over
the Company so demands for the protection of the stockholders; (iv) they
determine, in their sole discretion, that such redemption would be unlawful; or
(v) they determine, in their sole discretion, that such redemption, when
considered with all other redemptions, sales, assignments, transfers and
exchanges of Shares in the Company, could cause direct or indirect ownership of
Shares of the Company to become concentrated to an extent which would prevent
the Company from qualifying as a REIT under the Code. For a discussion of the
tax treatment of such redemptions, see "Federal Income Tax
Considerations -- Taxation of Stockholders."
RESTRICTIONS ON ROLL-UP TRANSACTIONS
In connection with any proposed transaction (as further defined in "The
Glossary," a "Roll-up Transaction") involving the acquisition, merger,
conversion or consolidation, directly or indirectly, of the Company and the
issuance of securities of an entity (a "Roll-up Entity") that would be created
or would survive after the successful completion of the Roll-up Transaction, an
appraisal of all Properties shall be obtained from a competent Independent
Appraiser. The Properties shall be appraised on a consistent basis, and the
appraisal shall be based on the evaluation of all relevant information and shall
indicate the value of the Properties as of a date immediately prior to the
announcement of the proposed Roll-up Transaction. The appraisal shall assume an
orderly liquidation of Properties over a 12-month period. The terms of the
engagement of the Independent Appraiser shall clearly state that the engagement
is for the benefit of the Company and the Shareholders. A summary of the
appraisal, indicating all material assumptions underlying the appraisal, shall
be included in a report to Shareholders in connection with a proposed Roll-up
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Transaction. In connection with a proposed Roll-up Transaction, the Person
sponsoring the Roll-up Transaction shall offer to Shareholders who vote "no" on
the proposal the choice of:
(i) accepting the securities of a Roll-up Entity offered in the
proposed Roll-up Transaction; or
(ii) one of the following:
(A) remaining as Shareholders of the Company and preserving their
interests therein on the same terms and conditions as existed
previously, or
(B) receiving cash in an amount equal to the Shareholder's pro rata
share of the appraised value of the net assets of the Company.
The Company is prohibited from participating in any proposed Roll-up
Transaction:
(a) which would result in the Shareholders having democracy rights in
a Roll-up Entity that are less than those provided in the Bylaws and
described elsewhere in this Prospectus, including rights with respect to
the election and removal of directors, annual reports, annual and special
meetings, amendment of the Articles of Incorporation, and dissolution of
the Company. See "Management," "Reports to Shareholders" and "Description
of Shares;"
(b) which includes provisions that would operate to materially impede
or frustrate the accumulation of shares by any purchaser of the securities
of the Roll-up Entity (except to the minimum extent necessary to preserve
the tax status of the Roll-up Entity), or which would limit the ability of
an investor to exercise the voting rights of its securities of the Roll-up
Entity on the basis of the number of Shares held by that investor;
(c) in which investor's rights to access of records of the Roll-up
Entity will be less than those provided in the section of this Prospectus
entitled "Description of Shares -- Meetings and Special Voting
Requirements;" or
(d) in which any of the costs of the Roll-up Transaction would be
borne by the Company if the Roll-up Transaction is not approved by the
Shareholders.
TRANSFER AGENT
The transfer agent and registrar for the Shares will be Service Data
Corporation. The transfer agent's address is 2424 South 130th Circle, Omaha,
Nebraska 68144-2596, and its phone number is (800) 782-3436.
THE OFFERING
Subject to the conditions set forth in this Prospectus and in accordance
with the terms and conditions of the Sales Agency Agreement, the Company is
offering to the public through the Sales Agent and Selected Dealers, on a best
efforts basis, a maximum of $200,000,000 of Shares of common stock consisting of
20,000,000 Shares priced at $10 per Share. The minimum subscription is 250
Shares or $2,500 (200 Shares or $2,000 for an IRA or a Keogh Plan except for
Iowa and Minnesota tax exempt investors which must make a minimum investment of
250 Shares or $2,500). See "Terms of the Offering." The Sales Agent and American
Express Financial Services, Inc. are expected to sell a significant number of
Shares.
The Sales Agent will receive a selling commission in an amount equal to
$0.60 per Share, whether sold directly by it or by one of the Selected Dealers,
all of whom must be members in good standing of the NASD. The Sales Agent may,
in turn, reallow up to the full amount of such selling commissions to Selected
Dealers for Shares they sell. The Company also will reimburse the Sales Agent
for the amount of any Selected Dealer Fee paid to Selected Dealers, which Fee
may not exceed 1% of the price of each Share sold by the Selected Dealer. The
Sales Agent has agreed to pay a Selected Dealer Fee of 1% to all Selected
Dealers and the Sales Agent will receive a Selected Dealer Fee of 1% for Shares
sold directly by the Sales Agent. In addition, the Sales Agents or Selected
Dealers, in their sole discretion, may elect not to accept any
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selling commission offered by the Company for Shares that they sell. In that
event, such Shares shall be sold to the investor net of all selling commissions,
at a price per share of $9.40. The Company has agreed to indemnify the Sales
Agent and Selected Dealers against certain liabilities, including liabilities
under the Securities Act.
In addition to the selling commission, the Company will pay to the Sales
Agent an annual servicing fee (the "Annual Servicing Fee") with respect to all
Shares sold to clients of the Sales Agent or Selected Dealers on each April 15
commencing on April 15, 1998 in an amount equal to .15% of the Gross Offering
Proceeds of all such Shares. The Annual Servicing Fee will be paid to compensate
Selected Dealers for their continuing due diligence of the Company, for expenses
incurred in maintaining and providing information about the Company to their
representatives and their clients and for the costs incurred in maintaining
CPA(R):12 investor accounts. No portion of the Annual Servicing Fee for any year
shall accrue in, or be payable for, such year in which the Company is liquidated
or the Shares become publicly traded. The Sales Agent may, in turn, reallow to
any Selected Dealer the portion of the Annual Servicing Fee for any year
attributable to Shares sold to clients of such Selected Dealer. Notwithstanding
the foregoing, the Company shall not pay the portion of the Annual Servicing Fee
for any year which, if paid, would cause the total underwriting compensation
paid to the Sales Agent and Selected Dealers in connection with the Offering,
including selling commissions, expense reimbursements and all Annual Servicing
Fees, to be equal to or to exceed 10% of the Gross Offering Proceeds.
The Company will offer a reduced Share purchase price to "single
purchasers" on orders of more than $250,000 and selling commissions paid to the
Sales Agent and Selected Dealers will be reduced by the amount of the Share
purchase price discount. The Share purchase price will be reduced for each
incremental Share purchased in the total volume ranges set forth in the table
below. Such reduced Share purchase price will not affect the amount received by
the Company for investment. The following table sets forth the reduced Share
purchase price and selling commissions payable to the Sales Agent:
<TABLE>
<CAPTION>
PURCHASE PRICE
PER SHARE FOR SELLING COMMISSION
INCREMENTAL PER SHARE
SHARE IN ON TOTAL SALE FOR
VOLUME DISCOUNT RANGE VOLUME INCREMENTAL SHARE IN
FOR A "SINGLE PURCHASER" DISCOUNT RANGE VOLUME DISCOUNT RANGE
- ------------------------------ -------------- ---------------------
<S> <C> <C>
$ 2,000--$ 250,000 $10.00 $0.60
250,001-- 500,000 9.85 0.45
500,001-- 750,000 9.70 0.30
750,001-- 1,000,000 9.60 0.20
1,000,001-- 5,000,000 9.50 0.10
</TABLE>
Selling commissions for purchases of $5,000,000 or more will, in the sole
discretion of the Company, be reduced to $0.10 per Share or less but in no event
will the proceeds to the Company be less than $9.40 per Share. Selling
Commissions paid will in all cases be the same for the same level of sales. In
the event of a sale of $5,000,000 or more, the Company will supplement this
Prospectus to include (i) the aggregate amount of the sale, (ii) the price per
Share paid by the purchaser and (iii) a statement that other investors wishing
to purchase at least the amount described in (i) will pay no more per Share than
the initial purchaser. The Initial Investor Capital will be calculated on the
basis of $10 per Share, regardless of the price actually paid pursuant to such
reduced Share purchase prices.
Orders may be combined for the purpose of determining the total commissions
payable with respect to applications made by a "single purchaser." The amount of
total commissions thus computed will be apportioned pro rata among the
individual orders on the basis of the respective amounts of the orders being
combined. As used herein, the term "single purchaser" will include (i) any
Person or entity, or Persons or entities, acquiring Shares as joint purchasers,
(ii) all profit-sharing, pension and other retirement trusts maintained by a
given corporation, partnership or other entity, (iii) all funds and foundations
maintained by a given corporation, partnership or other entity, (iv) all
profit-sharing, pension and other retirement trusts and all funds or foundations
over which a designated bank or other trustee, person or entity (except
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an investment adviser registered under the Investment Advisers Act of 1940)
exercises discretionary authority with respect to an investment in the Company,
and (v) all clients of an investment adviser registered under the Investment
Advisers Act of 1940 who have been advised by such adviser on an ongoing basis
regarding investments other than in the Company, and who have been advised by
such adviser regarding an investment in the Company.
In the event a single purchaser described in categories (ii) through (v)
above wishes to have its orders so combined, such a purchaser will be required
to request such treatment in writing to the Company, which request must set
forth the basis for such discount and identify the orders to be combined. Any
such request will be subject to the verification by the Company that all of such
orders were made by a single purchaser.
Orders also may be combined for the purpose of determining the commissions
payable in the case of orders by any purchaser described in category (i) through
(v) above who, subsequent to its initial purchase of Shares, orders additional
Shares. In such event, the commission payable with respect to the subsequent
purchase of Shares will equal the commission per Share which would have been
payable in accordance with the commission schedule set forth above if all
purchases had been made simultaneously. Any reduction of the 6% selling
commission otherwise payable to the Sales Agent or a Selected Dealer will be
credited to the purchaser as additional whole Shares. Unless investors indicate
that orders are to be combined and provide all other requested information, the
Company cannot be held responsible for failing to combine orders properly.
The Advisor, its Affiliates and their employees and the Selected Dealers
and their employees may purchase Shares net of selling commissions and the
Company will pay no selling commissions on such Shares. Any purchases by the
Advisor, its Affiliates and their employees and the Selected Dealers and their
employees will be for investment purposes only and not with the intent to resell
such Shares. There is no limit on the number of Shares such persons may
purchase. Any resale of the 20,000 Shares currently owned by the Advisor or
Shares it or Affiliates of the Company may purchase are subject to Rule 144
promulgated under the Securities Act, which limits the number of Shares which
may be resold at any one time and the manner of such resale.
The Sales Agent will receive reimbursement from the Company for its
identified expenses and for identified expenses of Selected Dealers reimbursed
by the Sales Agent, including the costs of any sales and information meetings of
the employees of the Sales Agent and the Selected Dealers (to the extent the
Sales Agent reimburses the Selected Dealers for such expenses) relating to the
Offering. Subject to the satisfactory completion of any regulatory reviews and
examinations which may be required, the rules of the NASD and the prior review
and approval by the NASD and the Sales Agent, the Selected Dealers (as
appropriate), the Company, the Advisor or any of their Affiliates may establish
sales incentive programs for associated Persons of the Sales Agent or Selected
Dealers or may reimburse the Sales Agent and Selected Dealers for sales
incentive programs established by them. Sales incentives will be deemed to be
additional underwriting compensation. The aggregate value of incentives paid by
the Company and the Advisor directly to associated Persons during the Offering
will not exceed $100 per year.
The Sales Agent or other entities will provide wholesaling services to the
Company. All entities performing wholesaling activities will be required to be
properly licensed to engage in the securities business. These services will
include developing and preparing sales material, conducting broker/dealer
seminars, holding informational meetings and providing information and answering
any questions concerning the Offering. The Company will reimburse the Sales
Agent for its identified expenses incurred in coordinating wholesaling
activities, including, but not limited to (i) travel and entertainment expenses,
(ii) compensation of employees of the Sales Agent in connection with wholesaling
activities, (iii) expenses incurred in coordinating broker-dealer seminars and
meetings, and (iv) wholesaling fees and wholesaling expense reimbursements paid
to the Sales Agent or other entities.
In no event shall the total underwriting compensation to be paid to the
Sales Agent and Selected Dealers from any source in connection with the
Offering, including selling commissions, Annual Servicing Fees, certain expense
reimbursements and payments to the Sales Agent and Selected Dealers for the
wholesaling services referred to above, exceed 10% of the Gross Offering
Proceeds of the Offering (plus 0.5%
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for bona fide due diligence expenses). The total wholesaling expenses and the
Annual Servicing Fee combined will not exceed 3% of the Gross Offering Proceeds.
The Company and the Sales Agent will monitor the payment of all fees and expense
reimbursements, including the Servicing Fees, to assure that this limit is not
exceeded.
In the event all Organization and Offering Expenses, other than selling
commissions, Annual Servicing Fees and fees paid and expenses reimbursed to or
paid on behalf of the Selected Dealers, exceed 3.5% of the Gross Offering
Proceeds, the excess will be paid by the Advisor with no recourse by or
reimbursement to the Advisor.
Every prospective investor desiring to purchase Shares will be required to
comply with the procedures for ordering Shares imposed by the Company, the Sales
Agent and the Selected Dealer from whom such investor intends to purchase
Shares. The Sales Agent and certain Selected Dealers will require an Order Form,
a specimen of which is attached to this Prospectus, to be completed and
delivered together with a check payable to the Escrow Agent for the aggregate
purchase price of the Shares ordered. (Residents of Maine, Massachusetts,
Minnesota, Michigan, Missouri, Nebraska, and North Carolina must complete and
execute an Order Form.). Selected Dealers will submit such checks directly to
the Escrow Agent by noon of the business day following receipt. Certain Selected
Dealers may offer investors alternate procedures for purchasing Shares. Under
the alternative procedures, the investor must maintain an account with such
Selected Dealers or open such an account at no charge. An investor may then
purchase Shares by contacting his or her broker and indicating the amount of his
or her desired investment in Shares. If the investor has not already received a
copy of this Prospectus, the Sales Agent or Selected Dealer will forward a copy
of this Prospectus to the investor. The Sales Agent or Selected Dealer will
notify the investor that the full amount of the purchase price payment must be
in the investor's account by a specified settlement date, which shall occur
within five business days after such notice to the investor. An investor's
account will be debited by the amount of the investment on the settlement date.
For investors in all jurisdictions, by noon of the next business day following
the date funds are debited, the funds debited from the investor's account will
be sent to the Escrow Agent for deposit in the escrow account established by the
Company for the Offering. Prior to the settlement date, the investor may
withdraw his order by notifying his broker at the Sales Agent or such Selected
Dealer.
On or after the settlement date, investors will have no right to withdraw
any funds submitted to the Escrow Agent during the Offering period. The Company
has the unconditional right in its sole discretion to accept or reject any order
or any part thereof within 30 days of receipt of such order. If the Company
rejects any order or any part thereof, it will notify the investor in writing
thereof and arrange for the Escrow Agent to promptly return to the investor the
entire purchase price or portion thereof which was rejected, along with any
interest earned thereon. Shares will be evidenced on the books and records of
the Company, which will include a list of Shareholders' names, addresses and
number of Shares owned. An investor will not receive a Share certificate or
other evidence of his interest in the Company unless the Shares are listed on a
national securities exchange or included for quotation on Nasdaq and then only
if requested by the Shareholder.
ESCROW ARRANGEMENTS
Commencing on the date of this Prospectus, all funds received by the Sales
Agent and Selected Dealers from orders for Shares will be placed promptly in an
interest-bearing escrow account with the Escrow Agent at the Company's expense
until such funds are released as described below. Separate escrow accounts will
be established for Benefit Plan funds and all other funds. Payment for Shares
are to be sent to the Escrow Agent at The United States Trust Company of New
York, 114 West 47th Street, New York, New York 10036-1532, Attention: Pat
Stermer. Such funds will be held in trust for the benefit of investors to be
used for the purposes set forth in this Prospectus. The Escrow Agent will be
given the right to invest non-Benefit Plan funds in United States government
securities, certificates of deposit or other time or demand deposits of
commercial banks which have a net worth of at least $100,000,000 or in which
such certificates or deposits are fully insured by any Federal or state
government agency. Benefit Plan funds will be invested in a money market account
maintained by the Escrow Agent. The interest, if any, earned on escrow funds
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prior to the transmittal of such proceeds to the Company will not become part of
the Company's capital. Instead, within 15 days following each issuance of
Shares, the Company will cause the Escrow Agent to make distributions to
Shareholders of all interest earned on their escrowed funds used to purchase the
Shares. The Company may, as security for borrowings made from third parties,
assign its right to receive up to 85% of the funds then held in escrow (not
including funds held on behalf of Benefit Plans).
Funds received by the Company from prospective investors will be placed in
escrow during the Offering and the Company will issue additional Shares
periodically (but not less often than quarterly) as agreed between the Company
and the Sales Agent. The Offering will terminate at the time all Shares being
offered are sold or unsold shares are withdrawn from registration by order of
the Board, but in no case later than January 26, 1998.
REPORTS TO SHAREHOLDERS
The Company provides periodic reports to Shareholders regarding the
operations of the Company over the course of the year. Financial information
contained in all reports to Shareholders will be prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles. Tax
information will be mailed to the Shareholders within 31 days following the
close of each fiscal year. The Company's annual report, which will include
financial statements audited and reported upon by independent public
accountants, will be furnished within 120 days following the close of each
fiscal year. The annual financial statements will contain or be accompanied by a
complete statement of any transactions with the Sponsor, Advisor or its
Affiliates and of compensation and fees paid or payable by the Company to the
Advisor and its Affiliates. The Annual Report will also contain a report from
the Independent Directors that the policies being followed by the Company are in
the best interests of the Shareholders and the basis therefor. Summary
information regarding the quarterly financial results of the Company will be
furnished to Shareholders on a quarterly basis.
Investors have the right under applicable Federal and Maryland laws to
obtain information about the Company and, at their expense, may obtain a list of
names and addresses of all of the Shareholders. See "Description of
Shares -- Meetings and Special Voting Requirements." Shareholders also have the
right to inspect and duplicate the Company's appraisal records. In the event
that the Commission promulgates rules and/or in the event that the applicable
NASAA Guidelines are amended so that, taking such changes into account, the
Company's reporting requirements are reduced, the Company may cease preparing
and filing certain of the aforementioned reports if the directors determine such
action to be in the best interests of the Company and if such cessation is in
compliance with the rules and regulations of the Commission and the NASAA
Guidelines, both as then amended.
LEGAL OPINIONS
Certain legal matters, including the legality of the Shares, will be passed
upon for the Company by Reed Smith Shaw & McClay, 2500 One Liberty Place,
Philadelphia, Pennsylvania 19103. Michael B. Pollack, Senior Vice President and
Secretary of the Company, W.P. Carey & Co. and CFA, is a partner in Reed Smith
Shaw & McClay. Reed Smith Shaw & McClay will rely as to all matters of Maryland
law on an opinion of Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1995 and the
consolidated statements of operations, shareholders' equity and cash flows for
the period from inception (July 30, 1993) to December 31, 1993 and for the years
ended December 31, 1994 and 1995 of Corporate Property Associates 12
Incorporated and Subsidiaries, and the balance sheets of each of BB Property
Company and GENA Property Company as of December 31, 1994 and 1995 and the
Statements of income, partners' capital and cash flows for the years ended
December 31, 1994 and 1995, all included in this prospectus, have been included
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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SALES LITERATURE
In addition to and apart from this Prospectus, the Company will use certain
sales material in connection with the Offering. This material includes an
investor sales promotion brochure, prospecting letters or mailers and seminar
invitations, media advertising inviting seminar attendance, a brochure
describing the Investment Committee, a presentation using a computer, reprints
of articles about the Company or the net lease or sale-leaseback industry, fact
sheets describing Company acquisitions, a slide presentation and studies of the
prior performance of entities managed by the Advisor and its Affiliates as well
as other net lease investment programs. In some jurisdictions such sales
material will not be available. Other than as described herein, the Company has
not authorized the use of other sales material. The Offering is made only by
means of this Prospectus. Although the information contained in such material
does not conflict with any of the information contained in this Prospectus, such
material does not purport to be complete and should not be considered as a part
of this Prospectus or the Registration Statement of which this Prospectus is a
part, or as incorporated in this Prospectus or said Registration Statement by
reference, or as forming the basis of the Offering.
FURTHER INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement and the Exhibits relating thereto which the Company has
filed with the Commission, Washington, D.C., under the Securities Act, and to
which reference is hereby made. Copies of the Exhibits are on file at the
offices of the Commission in Washington, D.C. and may be obtained, upon payment
of the fee prescribed by the Commission, or may be examined without charge at
the offices of the Commission.
All summaries contained herein of documents which are filed as Exhibits to
the Registration Statement are qualified in their entirety by this reference to
those Exhibits. The Company has not knowingly made any untrue statement of a
material fact or omitted to state any fact required to be stated in the
Registration Statement, including this Prospectus, or necessary to make the
statements therein not misleading.
GLOSSARY
As used in this Prospectus, the following terms have the definitions
hereinafter indicated:
Acquisition Expenses. Those expenses, including but not limited to legal
fees and expenses, travel and communications expenses, costs of appraisals,
non-refundable option payments on property not acquired, accounting fees and
expenses, title insurance, and miscellaneous expenses related to selection and
acquisition of properties, whether or not acquired. Acquisition Expenses shall
not include Acquisition Fees.
Acquisition Fees. The total of all fees and commissions (including any
interest thereon) paid by any party to any party in connection with the
purchase, development or construction of Properties or the making or investing
in mortgage loans by the Company. A Development Fee or a Construction Fee paid
to a Person not affiliated with the Sponsor in connection with the actual
development or construction of a project after acquisition of the Property by
the Company shall not be deemed an Acquisition Fee. Included in the computation
of such fees or commissions shall be any real estate commission, selection fee,
development fee or construction fee (other than as described above), or any fee
of a similar nature, however designated. Acquisition Fees include Subordinated
Acquisition Fees. Acquisition Fees shall not include Acquisition Expenses.
Adjusted Investor Capital. As of any date, the Initial Investor Capital
for such date reduced by any distributions on or prior to such date deemed by
the Board to be from Cash from Sales and Financings, but only to the extent such
distributions exceed the amount necessary to satisfy any accrued but unpaid
portion of the Preferred Return not satisfied by distributions of cash generated
from operations through the date Cash from Sales or Financings are distributed
by the Company.
Advisor. Carey Property Advisors or any Person appointed or employed by or
who contracts with the Company under the provisions of Article VII of the
Bylaws, and who is responsible for the day-to-day
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management of the Company, including any Person to which the Advisor
subcontracts substantially all such functions.
Advisory Agreement. The Advisory Agreement between the Company and the
Advisor pursuant to which the Advisor will act as the advisor and administrator
of the Company.
Affiliated Director. A director who is not an Independent Director.
Affiliate. An Affiliate of another Person shall mean (i) any Person
directly or indirectly owning, controlling, or holding, with power to vote ten
percent or more of the outstanding voting securities of such other Person, (ii)
any Person ten percent or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other Person, (iii) any Person directly or indirectly controlling, controlled
by, or under common control with such other Person, (iv) any executive officer,
director, trustee or general partner of such other Person, or (v) any legal
entity for which such Person acts as an executive officer, director, trustee or
general partner.
Annual Servicing Fee. Annual fee paid by the Company to the Sales Agent
with respect to Shares sold to clients of the Sales Agent or Selected Dealers in
an amount equal to .15% of the gross proceeds from the sale of such Shares,
payable beginning on April 15, 1998 and on or before April 15 of each succeeding
year.
Articles of Incorporation. Articles of Incorporation of the Company under
the General Corporation Law of Maryland, as amended from time to time, pursuant
to which the Company is organized.
Asset Management Fee. Fee paid to the Advisor for asset management
services rendered under the Advisory Agreement.
Average Invested Assets. For a specified period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in Properties and in loans secured by, real estate, before reserves
for depreciation or bad debts or other similar non-cash reserves computed by
taking the average of such values at the end of each month during such period.
Bankruptcy Code. Title 11 of the United States Code, as amended.
Beneficial Ownership, Beneficially Own or Beneficial Owner of
Shares. Ownership of such Shares for purposes of part II, subchapter M of the
Code, including the attribution of ownership provisions of Section 542 and 544
of the Code, or if, under Rule 13d-3 of the Exchange Act, such Person would be
deemed to have beneficial ownership of such Shares.
Benefit Plan. An IRA, Keogh Plan or employee benefit plan subject to Title
I of ERISA or Section 4975 of the Code.
Board or Board of Directors. The Board of Directors of the Company.
Bylaws. The Bylaws of the Company.
Cash from Financings. Net cash proceeds realized by the Company from the
financing of the Company's properties or the refinancing of any Company
indebtedness.
Cash from Sales. Net cash proceeds realized by the Company from the sale,
exchange or other disposition of any of its assets after deduction of all
expenses incurred in connection therewith. Cash from Sales shall not include
Cash from Financings.
Cash from Sales and Financings. The total sum of Cash from Sales and Cash
from Financings.
CFA. Carey Fiduciary Advisors, Inc., a Pennsylvania corporation, which is
the general partner of the Advisor.
Change of Control. A change of control of the Company of such a nature
that it would be required to be reported in response to the disclosure
requirements of Schedule 14A of Regulation 14A promulgated under the Exchange
Act, as enacted and in force on the date hereof, whether or not the Company is
then subject to such reporting requirements; provided, however, that, without
limitation, a Change of Control
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shall be deemed to have occurred if: (i) any "person" (as that term is defined
in Section 13(d) of the Exchange Act, as enacted and in force on the date
hereof) is or becomes the Beneficial Owner of securities of the Company
representing 8.5% or more of the combined voting power of the Company's
securities then outstanding; (ii) there occurs a merger, consolidation or other
reorganization of the Company which is not approved by the Board of Directors;
(iii) there occurs a sale, exchange, transfer or other disposition of
substantially all of the assets of the Company to another entity, which
disposition is not approved by the Board of Directors; or (iv) there occurs a
contested proxy solicitation of the Shareholders of the Company that results in
the contesting party electing candidates to a majority of the Board of
Directors' positions next up for election.
CIP(TM). Carey Institutional Properties Incorporated, formerly Corporate
Property Associates 11 Incorporated, a corporation organized under the laws of
the State of Maryland.
Code. Internal Revenue Code of 1986, as amended.
Commission. The Securities and Exchange Commission.
Company. Corporate Property Associates 12 Incorporated, a corporation
organized under the laws of the State of Maryland.
Competitive Real Estate Commission. The real estate or brokerage
commission paid in a competitive market for the purchase or sale of a property
that is reasonable, customary and competitive in light of the size, type and
location of the property.
Construction Fee. A fee or other remuneration for acting as general
contractor and/or construction manager to construct improvements, supervise and
coordinate projects or to provide major repairs or rehabilitation on a Property.
Contract Purchase Price. The amount actually paid for or allocated (as of
the date of purchase) to the purchase, development, construction or improvement
of a Property, exclusive of Acquisition Fees and Acquisition Expenses.
Contract Sales Price. The total consideration received by the Company from
the sale of a Property of the Company.
Counsel. Reed Smith Shaw & McClay.
CPA(R):10. Corporate Property Associates 10 Incorporated, a corporation
organized under the laws of the State of Maryland.
CPA(R):12. The Company.
CPA(R) Programs. Corporate Property Associates, a California limited
partnership, Corporate Property Associates 2, a California limited partnership,
Corporate Property Associates 3, a California limited partnership, Corporate
Property Associates 4, a California limited partnership, Corporate Property
Associates 5, a California limited partnership, Corporate Property Associates
6 -- a California limited partnership, Corporate Property Associates 7 -- a
California limited partnership, Corporate Property Associates 8, L.P., a
Delaware limited partnership Corporate Property Associates 9, L.P., a Delaware
limited partnership, Corporate Property Associates 10 Incorporated, a Maryland
corporation, Carey Institutional Properties Incorporated, a Maryland corporation
and any other real estate limited partnerships or REITs sponsored by W.P. Carey
& Co. or Affiliates with investment objectives substantially similar to the
Company.
Cumulative Return. For the period for which the calculation is being made,
the percentage resulting from dividing (i) the total Dividends paid on each
Dividend payment date during such period (not including Dividends paid out of
Cash from Sales and Financings), by (ii) the product of (a) the average Adjusted
Investor Capital for such period (calculated on a daily basis), and (b) the
number of years (including fractions thereof) elapsed during such period.
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Development Fee. A fee for the packaging of a Property including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and necessary financing for the specific Property,
either initially or at a later date.
Distributable REIT Taxable Income. An amount equal to or greater than (i)
the sum of 95% of: (a) the REIT Taxable Income for the taxable year (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain), and (b) the excess of the net income from Foreclosure Property
over the tax imposed on such income less (ii) any Excess Noncash Income.
Dividends. Dividends declared by the Board.
Equity Interest. The stock of or other interests in, or warrants or other
rights to purchase the stock of or other interests in, any entity that has
borrowed money from the Company or that is a tenant of the Company or that is a
parent or controlling Person of any such borrower or tenant.
ERISA. Employee Retirement Income Security Act of 1974, as amended.
Escrow Agent. The United States Trust Company of New York, or any other
banking institution permitted to serve as escrow agent under Rule 15c2-4 of the
Exchange Act.
Excess Noncash Income. (i) Income includable under Section 467 of the Code
and (ii) gain from a purported like-kind exchange of property which is
determined to be taxable, but only to the extent that it exceeds 5% of REIT
Taxable Income.
Excess Shares. Any Shares in excess of the Ownership Limit.
Exchange Act. The Securities Exchange Act of 1934, as amended.
FHLMC. The Federal Home Loan Mortgage Corporation.
Final Closing Date. The last date on which purchasers of Shares offered
pursuant to this Prospectus are issued such Shares.
FNMA. The Federal National Mortgage Association.
Foreclosure Property. Real property (or any interest in real property) and
any personal property incident thereto, which is acquired or reduced to
possession by the Company as a result of a bid in foreclosure, or by agreement
or legal process, following a default (or where a default was imminent) on a
lease of the property or on an indebtedness secured by such property (other than
indebtedness arising upon the sale of dealer property which was not itself
Foreclosure Property) which the Company elects to treat as foreclosure property
under the Code for a period of two years, unless such period is extended with
the permission of the IRS.
GNMA. The Government National Mortgage Association.
Gross Offering Proceeds. The aggregate purchase price of Shares sold in
the Offering.
Independent Appraiser. A qualified appraiser of real estate, as determined
by the Board, who is not affiliated, directly or indirectly with the Company,
the Advisor or affiliates of the Company or the Advisor. Membership in a
nationally recognized appraisal society such as the American Institute of Real
Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive
evidence of such qualification.
Independent Director. A director of the Company who is not associated and
has not been associated within the last two years, directly or indirectly, with
the Sponsor or the Advisor. A director shall be deemed to be associated with the
Sponsor or the Advisor if he or she (i) owns an interest in, is employed by, has
any material business or professional relationship with, or is an officer or
director of, the Sponsor, the Advisor, or any of their Affiliates, other than as
a director or trustee or officer of not more than two other REITs organized by
the Sponsor or advised by the Advisor, or (ii) performs services, other than as
a director, for the Company. An indirect relationship shall include
circumstances in which a director's spouse, parents, children, siblings,
mothers- or fathers-in-law, sons- or daughters-in-law, or brothers- or
sisters-in-law is or has been associated with the Sponsor, the Advisor, any of
their Affiliates or the Company.
126
<PAGE> 130
Individual. Any natural person and those organizations treated as natural
persons in Section 542(a) of the Code.
Initial Closing Date. The first date on which purchasers of Shares offered
pursuant to this Prospectus are issued such Shares, which shall be no later than
12 months after the date of this Prospectus.
Initial Investor Capital. The total amount of capital invested from time
to time by Shareholders (computed at the rate of $10 per Share for every Share
including those Shares for which reduced selling commissions were paid in
connection with their purchase from the Company). Upon completion of the
Offering, the Initial Investor Capital shall be equal to the Gross Offering
Proceeds.
IRA. An individual retirement account described in Section 408(a) of the
Code or an individual retirement annuity described in Section 408(b) of the
Code.
IRS. The Internal Revenue Service.
Keogh Plan. A retirement benefit plan covering a person with net earnings
from self-employment, also known as an H.R.10 plan.
Leverage. The aggregate amount of indebtedness of the Company for money
borrowed (including purchase money mortgage loans) outstanding at any time, both
secured and unsecured.
Loan Refinancing Fee. Fee paid to the Advisor for substantial services
rendered in connection with certain qualifying refinancings of Property.
Loans. The notes and other evidences of indebtedness or obligations
acquired or entered into by the Company as lender which are secured or
collateralized by personal property, or fee or leasehold interests in real
estate or other assets, including but not limited to first or subordinate
mortgage loans, construction loans, development loans, loans secured by capital
stock or any other assets or form of equity interest and any other type of loan
or financial arrangement, such as providing or arranging for letters of credit,
providing guarantees of obligations to third parties or providing commitments
for loans. The term "Loans" shall not include leases which are not recognized as
leases for Federal income tax reporting purposes.
NASAA Guidelines. The Real Estate Investment Trust Guidelines of the North
American Securities Administrators Association, Inc.
NASD. The National Association of Securities Dealers, Inc.
Nasdaq. The national automated quotation system operated by the NASD.
Net Assets. The total assets of the Company (other than intangibles) at
cost before deducting depreciation or other non-cash reserves less total
liabilities, calculated at least quarterly on a basis consistently applied.
Net Income. For any period, the total revenues applicable to such period,
less the total expenses applicable to such period excluding additions to
reserves for depreciation, bad debts or other similar non-cash reserves;
provided, however, Net Income for purposes of calculating total allowable
Operating Expenses shall exclude the gain from the sale of the Company's assets.
Offering. The offering of Shares pursuant to this Prospectus.
Operating Expenses. All operating, general and administrative expenses
paid or incurred by the Company, as determined under generally accepted
accounting principles, except the following: (i) interest and discounts and
other cost of borrowed money; (ii) taxes (including state and Federal income
tax, property taxes and assessments, franchise taxes and taxes of any other
nature); (iii) expenses of raising capital, including selling commissions
payable on the sale of Shares or other securities of the Company, Organization
and Offering Expenses, printing, engraving, and other expenses, and taxes
incurred in connection with the issuance, distribution, transfer, registration
and stock exchange listing of the Company's Shares and securities; (iv) expenses
connected with the acquisition, disposition, ownership and operation of real
estate interests, mortgage loans, or other property, including the costs of
foreclosure,
127
<PAGE> 131
insurance premiums, legal services, brokerage and sales commissions,
maintenance, repair and improvement of property; (v) the Acquisition Fee or
Subordinated Disposition Fee payable to the Advisor or any other party; and (vi)
non-cash items, such as depreciation, amortization, depletion, and additions to
reserves for depreciation, amortization, depletion, losses and bad debts.
Notwithstanding anything herein to the contrary, Operating Expenses shall
include the Asset Management Fee, the Performance Fee and the Loan Refinancing
Fee.
Organization and Offering Expenses. Those expenses payable by the Company
in connection with the formation, qualification and registration of the Company
and in marketing and distributing Shares, including, but not limited to, (i) the
preparing, printing, filing and delivery of the Registration Statement and this
Prospectus (including any amendments thereof or supplements thereto) and the
preparing and printing of contractual agreements between the Company and the
Sales Agent and the Selected Dealers (including copies thereof), (ii) the
preparing and printing of the Articles of Incorporation and Bylaws, solicitation
material and related documents and the filing and/or recording of such documents
necessary to comply with the laws of the State of Maryland for the formation of
a corporation and thereafter for the continued good standing of a corporation,
(iii) the qualification or registration of the Shares under state securities or
"Blue Sky" laws, (iv) any escrow arrangements, including any compensation to an
escrow agent, (v) the filing fees payable to the Commission and to the NASD,
(vi) reimbursement for the reasonable and identifiable out-of-pocket expenses of
the Sales Agent and the Selected Dealers, including the cost of their counsel,
(vii) the fees of the Company's counsel and independent public accountants,
(viii) all advertising expenses incurred in connection with the Offering,
including the cost of all sales literature and the costs related to investor and
broker-dealer sales and information meetings and marketing incentive programs,
and (ix) selling commissions, Annual Servicing Fees, marketing fees, incentive
fees and wholesaling fees and expenses incurred in connection with the sale of
the Shares.
Organizational Documents. The Articles of Incorporation and the Bylaws.
Ownership Limit. With respect to Shares, the percent limitation placed on
the ownership of Shares by any one Person. At the date of this Prospectus, such
limit is 9.8% of the outstanding Shares.
Performance Fee. Fee paid to the Advisor for asset management services
rendered under the Advisory Agreement. Such fee is payable on a subordinated
basis pursuant to the Advisory Agreement.
Permitted Temporary Investments. United States government securities,
certificates of deposit or other time or demand deposits of commercial banks,
savings banks, savings and loan associations or similar institutions which have
a net worth of at least $100,000,000 or in which such certificates or deposits
are fully insured by any Federal or state government agency, United States
dollar deposits in foreign branches of banks which have a net worth of at least
$100,000,000, bank repurchase agreements covering securities of the United
States government or governmental agencies, commercial paper, bankers
acceptances, public money market funds or other similar short-term highly liquid
investments.
Person. An Individual, corporation, partnership, joint venture,
association, company, trust, bank or other entity or any government or any
agency and political subdivision of a government.
Preferred Return. A Cumulative Return of 7% computed from the Initial
Closing Date through the date as of which such amount is being calculated.
Prohibited Transaction. A sale of assets held by the Company primarily for
sale to customers in the ordinary course of business other than (i) Foreclosure
Property and (ii) certain dispositions of real estate assets which satisfy
Section 857(b)(6)(C) of the Code.
Property or Properties. The Company's partial or entire interest in real
property (including leasehold interests) and personal or mixed property
connected therewith.
Prospectus. This prospectus pursuant to which the Company is offering up
to 20,000,000 Shares, as the same may at any time and from time to time be
amended or supplemented.
Registration Statement. The Registration Statement on Form S-11 of which
this Prospectus is a part.
128
<PAGE> 132
REIT. A real estate investment trust, as defined in Sections 856-860 of
the Code.
REIT Provisions of the Code or REIT Provisions. Parts II and III of
Subchapter M of Chapter 1 of the Code or successor statutes, and regulations and
rulings promulgated thereunder.
REIT Taxable Income. The taxable income of a REIT, adjusted as follows:
(i) the deduction for dividends received allowable to corporations under
Sections 241 through 247, 249 and 250 of the Code is not allowed; (ii) the
deduction for dividends paid under Section 561 of the Code is allowed, but is
computed without regard to that portion of such deduction attributable to net
income from Foreclosure Property; (iii) taxable income is computed without
regard to Section 443(b) of the Code relating to the computation of tax upon the
change of an annual accounting period; (iv) net income from Foreclosure Property
that is not qualified REIT income without regard to the foreclosure property
provisions of the Code is excluded; (v) the tax imposed for failing the 75%
Income Test and/or the 95% Income Test is deducted; and (vi) income derived from
Prohibited Transactions is excluded.
REMIC. A Real Estate Mortgage Income Conduit, as defined in Section 860D
of the Code.
Roll-up Transaction. A transaction involving the acquisition, merger,
conversion or consolidation, directly or indirectly, of the Company and the
issuance of securities of a Roll-up Entity. Such term does not include: (i) a
transaction involving securities of the Company that have been for at least 12
months listed on a national securities exchange or included for quotation on
Nasdaq National Market System (NMS); or (ii) a transaction involving the
conversion to corporate, trust, or association form of only the Company if, as a
consequence of the transaction there will be no significant adverse change in
any of the following: Shareholder voting rights; the term of existence of the
Company; compensation to the Sponsor or Advisor; or the investment objectives of
the Company.
Roll-up Entity. A partnership, real estate investment trust, corporation,
trust or similar entity that would be created or would survive after the
successful completion of the proposed Roll-up Transaction.
Sales Agent. Carey Financial Corporation.
Securities Act. The Securities Act of 1933, as amended.
Selected Dealer Fee. A due diligence and management fee payable to the
Sales Agent or Selected Dealers by the Company (through the Sales Agent) of up
to 1% of the price of each Share sold by those Selected Dealers to which the
Sales Agent agrees to pay such due diligence and management fee.
Selected Dealers. Broker-dealers who are members of the NASD and who have
executed a Selected Dealer Agreement with the Sales Agent in whom the Selected
Dealers agree to participate with the Sales Agent in the Offering.
Shareholders. Those Persons who at any particular time are shown as
holders of record of Shares on the books and records of the Company.
Shares. All of the shares of common stock of the Company, $.001 par value,
and all other shares of common stock of the Company issued in this or any
subsequent Offering.
Sponsor. W.P. Carey & Co., Inc. and any other person directly or
indirectly instrumental in organizing, wholly or in part, the Company or any
person who will manage or participate in the management of the Company, and any
Affiliate of any such person. Sponsor does not include a person whose only
relationship to the Company is as that of an independent property manager and
whose only compensation is as such. Sponsor also does not include wholly
independent third parties such as attorneys, accountants and underwriters whose
only compensation is for professional services.
Subordinated Acquisition Fee. An Acquisition Fee (including any interest
thereon) payable on a subordinated installment basis pursuant to the Advisory
Agreement.
Subordinated Disposition Fee. Fee paid to the Advisor or an Affiliate
under the Advisory Agreement for property disposition services.
129
<PAGE> 133
Subordinated Incentive Fee. Fee paid to the Advisor pursuant to the
Advisory Agreement under the circumstances described therein upon the
disposition of Property.
Termination Fee. An amount equal to 15% of the amount, if any, by which
(i) the appraised value of the Properties on the date of termination of the
Advisory Agreement (the "Termination Date"), less the amount of all indebtedness
secured by such Properties, exceeds (ii) the total of the Initial Investor
Capital on the Final Closing Date plus an amount equal to the Preferred Return
through the Termination Date reduced by the total Dividends paid by the Company
from its inception through the Termination Date.
Total Property Cost. With regard to any Property, an amount equal to the
sum of the Contract Purchase Price of such Property plus the Acquisition Fees
paid in connection with such Property.
2%/25% Guidelines. The requirement that, in any 12-month period, the
Operating Expenses not exceed the greater of 2% of the Company's Average
Invested Assets during such 12-month period or 25% of the Company's Net Income
over the same 12-month period.
UBTI. Unrelated business taxable income as defined in Section 512 of the
Code.
Underlying Real Property. The property serving as collateral for any Loan.
Unimproved Real Property. Property which has the following three
characteristics: (i) an equity interest in property which was not acquired for
the purpose of producing rental or other operating income, (ii) no development
or construction is in process on such property, and (iii) no development or
construction on such property is planned in good faith to commence on such
property within one year.
Valuation. An estimate of value of the assets of the Company as determined
by a Person approved by the Independent Directors, which Person shall be
independent of the Company and the Advisor.
W.P. Carey & Co. W.P. Carey & Co., Inc.
130
<PAGE> 134
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of June 30, 1996 (Unaudited).................... F-3
Pro Forma Consolidated Statement of Income for the year ended December 31, 1995.
(Unaudited).......................................................................... F-4
Pro Forma Consolidated Statement of Income for the six months ended June 30, 1996
(Unaudited).......................................................................... F-5
Pro Forma Consolidated Statement of Taxable Income and After Tax
Cash Flow for the year ended December 31, 1995 (Unaudited)........................... F-6
Notes to Pro Forma Consolidated Statements.............................................. F-6
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
Report of Independent Accountants....................................................... F-13
Consolidated Balance Sheets of the Company as of December 31, 1994 and 1995............. F-14
Consolidated Statements of Operations of the Company for the period from inception (July
30, 1993) to December 31, 1993 and for the years ended December 31, 1994 and 1995.... F-15
Consolidated Statements of Shareholders' Equity of the Company for the period from
inception (July 30, 1993) to December 31, 1993 and for the years ended December 31,
1994 and 1995........................................................................ F-16
Consolidated Statements of Cash Flows of the Company for the period from inception (July
30, 1993) to December 31, 1993 and for the years ended December 31, 1994 and 1995.... F-17
Notes to Consolidated Financial Statements.............................................. F-18
Schedule of Real Estate and Accumulated Depreciation.................................... F-28
Consolidated Balance Sheets of the Company, as of December 31, 1995 and June 30, 1996
(Unaudited).......................................................................... F-30
Consolidated Statements of Income (Unaudited) of the Company for the three and six
months ended June 30, 1995 and 1996.................................................. F-31
Consolidated Statement of Cash Flows (Unaudited) of the Company for the six months ended
June 30, 1995 and 1996............................................................... F-32
Notes to Consolidated Financial Statements (Unaudited).................................. F-33
BB PROPERTY COMPANY
Report of Independent Accountants....................................................... F-38
Balance Sheets of BB Property Company as of December 31, 1994 and 1995.................. F-39
Statements of Income of BB Property Company for the period from inception (April 14,
1993) to December 31, 1993 (Unaudited) and for the years ended December 31, 1994 and
1995................................................................................. F-40
Statements of Partners' Capital of BB Property Company for the period from
inception (April 14, 1993) to December 31, 1993 (Unaudited) and for the years ended
December 31, 1994 and 1995........................................................... F-41
Statements of Cash Flows of BB Property Company for the period from inception (April 14,
1993) to December 31, 1993 (Unaudited) and for the years ended December 31, 1994 and
1995................................................................................. F-42
Notes to Financial Statements........................................................... F-43
Schedule of Real Estate and Accumulated Depreciation.................................... F-45
</TABLE>
F-1
<PAGE> 135
<TABLE>
<S> <C>
GENA PROPERTY COMPANY
Report of Independent Accountants....................................................... F-46
Balance Sheets of Gena Property Company as of December 31, 1994 and 1995................ F-47
Statement of Operations of Gena Property Company for the period from inception (December
1, 1993) to December 31, 1993 (Unaudited) and for the years ended December 31, 1994
and 1995............................................................................. F-48
Statement of Partners' Capital of Gena Property Company for the period from inception
(December 1, 1993) to December 31, 1993 (Unaudited) and for the years ended December
31, 1994 and 1995.................................................................... F-49
Statements of Cash Flows of Gena Property Company for the period from inception
(December 1, 1993) to December 31, 1993 (Unaudited) and for the years ended December
31, 1994 and 1995.................................................................... F-50
Notes to Financial Statements........................................................... F-51
Schedule of Real Estate and Accumulated Depreciation.................................... F-53
</TABLE>
F-2
<PAGE> 136
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------------------
DEL ETEC
ASSETS: HISTORICAL SFC #2 (K) MONTE(J) MODIFICATION(G) CELADON(L) PRO FORMA
------------ ----------- ---------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Land and buildings....... $ 42,146,240 $ 6,180,000 $2,567,102 $(2,633,473) $ 6,807,000 $ 55,066,869
Accumulated
depreciation........... (749,349) (749,349)
------------ ----------- ---------- ----------- ------------ ------------
Real estate accounted for
under the operating
method................. 41,396,891 6,180,000 2,567,102 (2,633,473) 6,807,000 54,317,520
Net investment in direct
financing leases....... 40,781,566 40,781,566
Equity investments....... 16,031,854 16,031,854
Cash and cash
equivalents............ 37,634,830 (6,056,400) 3,682,898 (6,670,860) 28,590,468
Accrued rents and
interest receivable.... 362,482 362,482
Other assets............. 2,727,313 2,727,313
------------ ----------- ---------- ----------- ------------ ------------
Total assets...... $138,934,936 $ 123,600 $6,250,000 $(2,633,473) $ 136,140 $142,811,203
============ =========== ========== =========== ============ ============
LIABILITIES:
Limited recourse mortgage
notes payable.......... $ 39,080,505 $6,250,000 $(2,633,473) $ 42,697,032
Accounts payable and
accrued expenses....... 232,589 232,589
Accounts payable to
affiliates............. 2,587,072 2,587,072
Deferred acquisition fees
payable to an
affiliate.............. 2,539,464 $ 123,600 $ 136,140 2,799,204
Prepaid rental income and
security deposits...... 2,375,621 2,375,621
Dividends payable........ 1,433,816 1,433,816
Accrued interest
payable................ 289,802 289,802
------------ ----------- ---------- ----------- ------------ ------------
Total
liabilities.... 48,538,869 123,600 6,250,000 (2,633,473) 136,140 52,415,136
------------ ----------- ---------- ----------- ------------ ------------
SHAREHOLDERS' EQUITY:
Common stock............. 10,406 10,406
Additional paid-in
capital................ 92,229,853 92,229,853
Distributions in excess
of accumulated
earnings............... (1,844,192) (1,844,192)
------------ ------------
Total
shareholders'
equity......... 90,396,067 90,396,067
------------ ----------- ---------- ----------- ------------ ------------
Total liabilities
and
shareholders'
equity......... $138,934,936 $ 123,600 $6,250,000 $(2,633,473) $ 136,140 $142,811,203
============ =========== ========== =========== ============ ============
</TABLE>
F-3
<PAGE> 137
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------------------------------------------------------------------------
HISTORICAL WAL-MART(F) ETEC(G) SFC#1(H) NK LAWN(I) APBI(B) DEL MONTE(J) UPPER DECK(C) RSI(A)
---------- ----------- --------- -------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Rental income
from
operating
leases......... $2,111,998 $ 43,743 $(190,616) $293,737 $1,128,400 $1,286,250
Interest income
from direct
financing
leases......... 1,221,026 $383,596 $1,180,000
Other interest
income......... 660,623
---------- --------- ---------- ---------- ---------- ---------- ---------- ----------
3,993,647 43,743 (190,616) 293,737 383,596 1,128,400 1,286,250 1,180,000
---------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Interest
expense........ 1,260,189 148,636 (211,985) 105,503 159,353 613,019 619,285 295,391
Depreciation... 390,307 10,429 (32,748) 43,366 240,743 267,121
General and
administrative.. 942,074
Property
expenses....... 596,227
Amortization... 12,797
---------- --------- ---------- ---------- ---------- ---------- ---------- ----------
3,201,594 159,065 (244,733) 148,869 159,353 853,762 886,406 295,391
---------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Income before
income from
equity
investments.... 792,053 (115,322) 54,117 144,868 224,243 274,638 399,844 884,609
Equity income... 1,322,990 $ 690,714
---------- --------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income...... $2,115,043 $(115,322) $ 54,117 $144,868 $224,243 $ 274,638 $ 399,844 $ 690,714 $ 884,609
========== ========= ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
TELOS(D) LANXIDE(E) SFC#2(K) CELADON(L) OTHER(M) PRO FORMA
---------- ---------- -------- ---------- ----------- ----------
<S> <<C> <C> <C> <C> <C> <C>
Revenue:
Rental income
from
operating
leases......... $694,000 $700,000 $6,067,512
Interest income
from direct
financing
leases......... $1,447,000 $1,030,000 5,261,622
Other interest
income......... $ (660,623) --
---------- ---------- ---------- -------- ---------- ----------
1,447,000 1,030,000 694,000 700,000 (660,623) 11,329,134
---------- ---------- ---------- -------- ---------- ----------
Expenses:
Interest
expense........ 561,660 445,078 89,763 4,085,892
Depreciation... 118,474 133,010 1,170,702
General and
administrative.. 942,074
Property
expenses....... 763,557 1,359,784
Amortization... 12,797
---------- ---------- ---------- -------- ---------- ----------
561,660 445,078 118,474 133,010 853,320 7,571,249
---------- ---------- ---------- -------- ----------
Income before
income from
equity
investments.... 885,340 584,922 575,526 566,990 (1,513,943) 3,757,885
Equity income... 2,013,704
---------- ---------- ---------- -------- ---------- ----------
Net income...... $ 885,340 $ 584,922 $575,526 $566,990 $(1,513,943) $5,771,589
========== ========== ========== ======== ========== ==========
</TABLE>
F-4
<PAGE> 138
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL DEL MONTE(J) ETEC(G) APBI(B) RSI(A) TELOS(D) LANXIDE(E) SFC#2(K)
---------- ------------ --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income
from
operating
leases....... $1,858,332 $643,125 $(164,701) $347,000
Interest income
from direct
financing
leases....... 1,921,142 $174,099 $280,065 $259,914
Other interest
income......... 701,687
---------- -------- -------- ------ -------- -------- --------
4,481,161 643,125 (164,701) 174,099 280,065 259,914 347,000
---------- -------- -------- ------ -------- -------- --------
Expenses:
Interest
expense...... 1,472,612 305,640 (115,120) $ 42,958 18,428 147,740 99,198
Depreciation... 359,042 133,561 (32,918) 59,237
General and
administrative.. 801,171
Property
expenses..... 568,534
Amortization... 13,266
---------- -------- -------- -------- ------ -------- -------- --------
3,214,625 439,201 (148,038) 42,958 18,428 147,740 99,198 59,237
---------- -------- -------- -------- ------ -------- -------- --------
Income before
income from
equity
investments.... 1,266,536 203,924 (16,663) (42,958) 155,671 132,325 160,716 287,763
Income from
equity
investments.... 1,012,859
---------- -------- -------- -------- ------ -------- -------- --------
Net income..... $2,279,395 $203,924 $ (16,663) $(42,958) $155,671 $132,325 $160,716 $287,763
========== ======== ======== ======== ====== ======== ======== ========
<CAPTION>
CELADON(L) OTHER(M) PRO FORMA
-------- --------- ----------
<S> <C> <C> <C>
Revenues:
Rental income
from
operating
leases....... $350,000 $3,033,756
Interest income
from direct
financing
leases....... 2,635,220
Other interest
income......... $(701,687) --
-------- --------- ----------
350,000 (701,687) 5,668,976
-------- --------- ----------
Expenses:
Interest
expense...... 18,680 1,990,136
Depreciation... 66,505 585,427
General and
administrative.. 801,171
Property
expenses..... 114,614 683,148
Amortization... 13,266
-------- --------- ----------
66,505 133,294 4,073,148
-------- --------- ----------
Income before
income from
equity
investments.... 283,495 (834,981) 1,595,828
Income from
equity
investments.... 1,012,859
-------- --------- ----------
Net income..... $283,495 $(834,981) $2,608,687
======== ========= ==========
</TABLE>
F-5
<PAGE> 139
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF TAXABLE INCOME
AND AFTER TAX CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Consolidated pro forma net income for the year ended December 31, 1995.............. $ 5,771,589
Depreciation on direct financing leases for tax purposes (Note N)................... (828,406)
Difference between interest accrued on direct financing leases and rental revenue
recognized for tax purposes (Note O).............................................. (94,659)
Adjustment to equity income from GAAP to tax basis (Note P)......................... (501,560)
-----------
Pro forma taxable income..................................................... 4,346,964
Add: Depreciation from direct financing and operating leases (Note Q).............. 1,999,108
Distributions from equity investments in excess of share of tax earnings
(Note R).......................................................................... 338,435
Less: Principal paid (Note S)....................................................... (1,384,980)
-----------
Pro forma after tax cash flow................................................ $ 5,299,527
===========
</TABLE>
1. BASIS OF PRESENTATION
The pro forma consolidated financial statements of Corporate Property
Associates 12 Incorporated and subsidiaries (the "Company"), which are
unaudited, have been prepared based on the historical financial statements of
the Company. The pro forma consolidated balance sheet of the Company at June 30,
1996 has been prepared as if the purchase of property and Sports & Fitness Clubs
of America, Inc. ("Sports & Fitness" or "SFC") and the completion of
build-to-suit construction on a property leased to Del Monte Corporation ("Del
Monte") had been completed on December 31, 1995. The pro forma statements of
income for the year ended December 31, 1995 and the six-month period ended June
30, 1996 have been prepared as if the acquisition of the Properties and the
related mortgage financing occurred on January 1, 1995. To the extent that
certain properties had been acquired prior to January 1, 1995, lease revenues
and interest expense are based on a historical basis.
During 1994, the Company purchased general partnership interests in two
general partnerships which lease properties to Gensia, Inc. ("Gensia") and Best
Buy Co., Inc. ("Best Buy"), respectively, and an interest as a tenant-in-common
in two properties leased to Big V. In 1995, the Company purchased properties
leased to Wal-Mart Stores, Inc. ("Wal-Mart"), ETEC Systems, Inc. ("ETEC"),
Sports & Fitness, NK Lawn and Garden & Co. ("NK Lawn and Garden"), Applied Bio
Science Inc. ("APBI") and Del Monte Corporation ("Del Monte"). Since December
31, 1995 but prior to June 30, 1996, the Company purchased properties leased to
Rheometric Scientific, Inc. ("Rheometric"), Telos Corporation ("Telos"), and
Lanxide Corporation ("Lanxide") and a 50% equity interest in a property leased
to The Upper Deck Company ("Upper Deck"). In addition, since June 30, 1996, the
Company purchased a second Sports & Fitness property, completed its construction
of the Del Monte facilities and obtained mortgage funds collateralized by the
Del Monte properties and purchased properties leased to Celadon Trucking
Service, Inc. ("Celadon") which lease obligations are guaranteed by Celadon
Group, Inc. pursuant to a guaranty and suretyship agreement. To the extent that
any purchase of property was completed subsequent to December 31, 1994, the pro
forma adjustment presented is intended to reflect an adjustment for the
difference between what has been recorded in the historical consolidated
statements of income relating to that property and what the effect would have
been if the Company held its ownership interest and obtained related mortgage
financing, where applicable as of January 1, 1995. In addition, adjustments have
been presented to reflect the Company's asset management and performance fees
expense and interest accrued on subordinated acquisition fee payable. In
management's opinion, all adjustments necessary to reflect the effects of the
aforementioned acquisitions have been made. The pro forma financial information
should be read in conjunction with the historical consolidated financial
statements of the Company.
The pro forma financial results are not necessarily indicative of the
financial condition or the results of operations had the acquisitions occurred
on January 1, 1995 or prior, nor are they necessarily indicative of the
financial position or results of operations for future periods.
F-6
<PAGE> 140
2. PRO FORMA ADJUSTMENTS
A. The Rheometric lease provides for annual rent of $1,180,000. For the
six-month period ended June 30, 1996, pro forma rent is $590,000 of which
$415,901 is included in the historical results of operations. Interest expense
is based on a mortgage loan of $3,300,000 an interest rate of 9.625% per annum
and monthly principal payments of $42,000. As the Rheometric lease is classified
as a direct financing lease, no depreciation expense has been presented. For the
six-month period ended June 30, 1996, pro forma interest expense is $129,504 of
which $111,076 is included in the historical results of operations.
B. The APBI lease provides for annual rent of $1,302,000. Included in the
historical results of operations for the year ended December 31, 1995 is
$173,600 of rental income. Annual depreciation expense on the APBI property of
$275,174 per year is computed on a straight-line basis over 40 years and is
based on buildings and improvements with a depreciable basis of $11,006,940.
Included in the historical results of operations for the year ended December 31,
1995 is $34,431 of depreciation expense. In January 1996, the Company obtained
$7,500,000 of limited recourse financing collateralized by the APBI properties.
The loan will bear interest at the rate of 8.25%, based on a twenty-year
amortization schedule, with monthly debt service of $63,905. For the six-month
period ended June 30, 1996, pro forma interest expense is $301,635 of which
$258,677 is included in historical results of operations.
C. The Company has a 50% interest in a limited liability company (the
"Upper Deck LLC") which leases land and buildings to The Upper Deck Company. The
Company is accounting for this investment under the equity method. The Company's
pro forma equity income in the Upper Deck LLC is based on its share of earnings
resulting from annual rental income of $2,639,750, monthly payments of $120,077
on a $15,000,000 debt which bears interest at a rate of 8.43% and a 25-year
principal amortization schedule and certain state franchise taxes incurred. The
lease has been classified as a direct financing lease for financial reporting
purposes. Accordingly, the effect of depreciation is not reflected in earnings.
The total purchase price of the properties owned by Upper Deck LLC was
$25,654,450. The Company's 50% share of the pro forma share of earnings from the
Upper Deck LLC is $690,714 for the year ended December 31, 1995. None of these
earnings are reflected in the historical results for the year ended December 31,
1995. As the actual results for the six-month period ended June 30, 1996
approximate pro forma results for such period, no pro forma adjustment has been
made.
D. The Telos lease provides for annual rent of $1,447,000 in monthly
installments in advance. For the six-month period ended June 30, 1996, pro forma
rent is $723,500 of which $443,435 is included in the historical results of
operations. The Company received limited recourse mortgage financing of
$6,250,000. The loan provides for monthly payments of principal and interest at
a floating rate at the London Inter-Bank Offered Rate ("LIBOR") plus 3.5% per
annum and a twenty year amortization schedule. For pro forma purposes, an annual
interest rate of 9.0625% has been utilized. As the Telos lease is classified as
a direct financing lease, no depreciation expense has been presented. At such
rate, the pro forma monthly debt service payment is $56,484. For the six-month
period ended June 30, 1996, pro forma interest is $276,777 of which $129,037 is
included in the historical results of operations.
E. The Lanxide lease provides for annual rent which at the inception of the
lease is $1,030,000 paid in quarterly installments in advance. For the six-month
period ended June 30, 1996 pro forma rent is $515,000 of which $255,086 is
included in the historical results of operations. As a portion of the rent
varies based on changes in debt service on the limited recourse loans on the
property, actual rent may vary during the term of the lease. A first priority
mortgage loan on the property of $4,000,000 provides for monthly payments of
principal and interest with interest based on the lender's prime rate plus 2%
and a 15-year amortization schedule. For pro forma purposes, the monthly payment
is $43,598. At the inception of the lease, the annual interest rate on the loan
was 10.25%. A purchase money mortgage loan of $400,000 provides for quarterly
payments of principal and interest of $13,126 at 10.25% per annum and is based
on a 15-year amortization schedule with monthly payments of $47,958 were in
effect. For the six-month period ended June 30, 1996, pro forma interest is
$217,371 of which $118,173 is included in the historical results of operations
F. The Wal-Mart lease provides for annual rent of $397,226. Included in the
historical results of operations for the year ended December 31, 1995 is
$353,483 of rental income. Annual depreciation expense
F-7
<PAGE> 141
on the Wal-Mart property of $83,432 is computed on a straight-line basis over 40
years and is based on buildings and improvements with a depreciable basis of
$3,337,283. Included in the historical results of operations for the year ended
December 31, 1995 is $73,003 of depreciation expense. Interest expense on the
limited recourse loan on the Wal-Mart property is based on a mortgage loan which
had an initial balance of $2,500,000 and provides for monthly payments ($22,223)
based on an 18-year amortization schedule and an annual interest rate of 8.23%.
Based on the pro forma amortization schedule which assumes the mortgage was
obtained on January 1, 1995, pro forma interest is calculated to be $203,398, of
which $4,762 is included in the historical results of operations.
G. The Company purchased the ETEC property in February 1995 with $6,250,000
of limited recourse mortgage financing at which time it entered into a lease
which provided for annual rents of $1,370,325. In August 1996, the Company and
ETEC entered into modification agreement. Under the agreement, the Company
agreed to reduce its holding of warrants for ETEC common stock in exchange for
ETEC refunding $2,633,473 of the initial purchase price. The Company has agreed
to use the return of such proceeds to partially prepay the limited recourse
mortgage loan on the property. In addition, under the agreement, annual rent
will be lowered to $1,020,036. The lender has agreed to reamortize the loan with
monthly debt service initially being lowered to $33,358. For pro forma purposes,
the prepayment will be presented as though it occurred at the inception of the
loan and the depreciable basis in the property will be reduced to $7,954,963. In
connection with the August 1996 modification, the Company has committed to
funding up to $9,000,000 for the expansion of the ETEC Facilities. Upon
completion of the expansion, the Company will refinance the existing mortgage
loan at a fixed rate of interest. Such rate, however, has not yet been
determined. As there are various contingencies to which the commitment is
subject, no pro forma adjustments relating to such commitment have been
reflected in the accompanying consolidated pro forma financial statements.
Included in the historical results of operations for the year ended
December 31, 1995 is $1,210,652 of rental income; accordingly, a pro forma
adjustment of ($190,616) has been reflected. Annual depreciation of $198,874 is
based on the depreciable basis of $7,954,963 and computed on a straight-line
basis over 40 years. Included in the historical results of operations for the
year ended December 31, 1995 is depreciation expense of $231,622. Based on a pro
forma mortgage balance of $3,616,527 (the original balance less the payment made
in connection with August 1996 modification) with monthly debt service payments
of $33,358 at an initial annual interest rate of 8.03% (the interest rate at the
date of modification on the variable rate obligation,) pro forma interest for
the year ended December 31, 1995 is $286,271 of which $498,256 is included in
the historical results of operations for the year ended December 31, 1995. Pro
forma rent, interest and depreciation for the six month period ended June 30,
1996 is $510,018, $139,626 and $99,437, respectively, as compared with rent,
interest and depreciation of $674,719, $254,746 and $132,355, respectively,
included in the historical results of operations for such period.
H. The Company purchased two Sports & Fitness properties, the first of
which was purchased in 1995. The Sports & Fitness lease for the property
purchased in 1995 provides for annual rent of $668,000. Included in the
historical results of operations for the year ended December 31, 1995 is
$374,263 of rental income. Interest expense on the Sports & Fitness property is
based on a mortgage loan which had an initial balance of $2,750,000 and provides
for monthly payments ($28,385) based on a 15-year amortization schedule and an
annual interest rate of 9.3%. Based on the pro forma amortization schedule which
assumes the mortgage was obtained on January 1, 1995, pro forma interest is
calculated to be $252,037, of which $146,534 is included in the historical
results of operations. Annual depreciation expense on the Sports & Fitness
property of $94,617 is computed on a straight-line basis over 40 years and is
based on buildings and improvements with a depreciable basis of $3,784,684.
Included in the historical results of operations is $51,251 of depreciation
expense.
I. The NK Lawn & Garden lease provides for annual rent of $816,400.
Included in the historical results of operations for the year ended December 31,
1995 is $432,804 of interest income from direct financing leases. Interest
expense on the limited recourse loan on the NK Lawn & Garden property is based
on a mortgage loan which had an initial balance of $3,500,000 and provides for
monthly payments ($29,778) based on a 20-year amortization schedule and an
annual interest rate of 8.23%. Based on the pro forma
F-8
<PAGE> 142
amortization schedule which assumes the mortgage was obtained on January 1,
1995, pro forma interest is calculated to be $285,376 for the period of which
$126,023 is included in the historical results of operations. As the NK Lawn &
Garden lease has been classified as a direct financing lease for financial
reporting purposes, no depreciation expense has been presented.
J. Since June 30, 1996, the Company has completed the construction of
properties for Del Monte. These pro forma financial statements assume that the
Company had advanced its full commitment ($10,995,000) as of January 1, 1995.
The Del Monte lease provides for annual rent based on the total costs of
construction, which rent, for purposes of the pro forma statements, is assumed
to be $1,286,250 and $643,125 for the year ended December 31, 1995 and the
six-month period ended June 30, 1996, respectively. Total debt is based on the
$6,250,000 of debt financing obtained upon completion of construction of the Del
Monte facilities. Interest expense on a $5,500,000 portion of the debt is based
on an annual interest rate of 10%, a 20-year amortization and quarterly payments
of principal and interest of $159,643. Interest expense on the remaining
$750,000 portion of the debt is calculated on the basis of an annual interest
rate of 9.75% (the actual interest rate is indexed to LIBOR), a 20 year
amortization and quarterly payments of $21,398. Annual depreciation of $267,121
is computed on a straight line basis over 40 years and is based on buildings and
improvements of $10,684,842.
K. The Company purchased a second Sports & Fitness property on July 23,
1996. The Sports & Fitness lease provides for annual rent of $694,000. Annual
depreciation expense on the Sports & Fitness property of $118,474 is computed on
a straight-line basis over 40 years and is based on buildings and improvements
of $4,738,967. Currently, there is no mortgage debt on the property nor has a
commitment from a lender for such debt been obtained.
L. The Celadon lease provides for annual rent of $700,000. Annual
depreciation on the Celadon property of $133,010 is computed on a straight-line
basis over 40 years and is based on buildings and improvements of $5,320,400.
Currently there is no mortgage debt on the property nor has a commitment from a
lender for such debt been obtained.
M. The Company accrues interest on a deferred acquisition fee payable to an
affiliate of $2,799,119 at the rate of 7% per annum. The pro forma interest
expense of $195,938 is one year's interest on the deferred fee (7% of
$2,662,979) of which $106,175 is included in the historical results of
operations. For the six-month period ended June 30, 1996, pro forma interest is
$97,969 of which $79,289 is included in the historical results of operations.
The asset management and performance fee payable to the Advisor is based on 1/2
of 1%, respectively, of the Average Invested Assets of $134,751,611. Average
Invested Assets have been determined by (1) the total basis for directly owned
properties in which the Company has a 100% ownership interest and deducting the
noncash component representing deferred acquisition fees payable to an affiliate
and (2) the pro rata basis of all properties which are jointly owned directly
or, indirectly with affiliates, with deduction from such bases for fees paid by
the joint owner and with an increase for fees paid directly by the Company if
such fees were not paid by both parties at the time of purchase of the property.
Pro forma combined asset management and performance fee is $1,347,516, of which
$583,959 is included in the historical operating results. For the six-month
period ended June 30, 1996 pro forma fees are $673,758 of which $559,144 is
included in the historical results of operations. For pro forma purposes, other
interest income has been eliminated based on an assumption that substantially
all cash proceeds of the offering had been invested in real estate.
F-9
<PAGE> 143
<TABLE>
<CAPTION>
DEFERRED
GROSS COST FEE AVERAGE INVESTED ASSETS
----------- --------- -----------------------
<S> <C> <C> <C>
Wal-Mart............................... $ 3,791,703 $ (75,174) $ 3,716,529
ETEC -- as adjusted.................... 9,227,407 (237,173) 8,990,234
Sports & Fitness -- 2 transactions..... 11,677,000 (233,175) 11,443,825
NK Lawn & Garden....................... 6,950,000 (132,250) 6,817,750
Best Buy(1)............................ 17,292,366 (345,847) 16,946,519
Gensia(2).............................. 11,719,531 (237,510) 11,482,021
Big V Supermarkets(3).................. 6,455,498 (129,110) 6,326,388
Del Monte.............................. 10,995,000 (220,000) 10,775,000
APBI................................... 12,565,000 (251,300) 12,313,700
Upper Deck............................. 12,827,225 (256,500) 12,570,725
Rheometric Scientific Inc. ............ 6,300,000 (126,000) 6,174,000
Telos Corporation...................... 12,147,000 (242,940) 11,904,060
Lanxide Corporation.................... 8,796,000 (176,000) 8,620,000
Celadon Group, Inc..................... 6,807,000 (136,140) 6,670,860
------------
$ 134,751,611
============
</TABLE>
- ---------------
(1) Determination of Best Buy Pro Rata Basis
<TABLE>
<S> <C>
Gross Cost................................................................. $46,233,000
Initial fee paid by affiliate.............................................. (1,600,000)
-----------
$44,633,000
===========
CPA:12 share of basis in property.......................................... $16,514,210
Total fee payable by CPA:12................................................ 778,156
-----------
17,292,366
Deferred fee to be paid by CPA:12.......................................... (345,847)
-----------
$16,946,519
===========
</TABLE>
(2) Determination of Gensia Pro Rata Basis
<TABLE>
<S> <C>
Gross cost................................................................. $23,570,266
Initial fee paid by an affiliate........................................... (1,200,000)
-----------
$22,370,266
===========
CPA:12 share of basis in property.......................................... $11,185,133
Total fee payable by CPA:12................................................ 534,398
-----------
11,719,531
Deferred fee to be paid by CPA:12.......................................... (237,510)
-----------
$11,482,021
===========
</TABLE>
(3) Determination of Big V Pro Rata Basis
<TABLE>
<S> <C>
Gross Cost................................................................. $14,422,000
Initial fee paid by an affiliate........................................... (722,000)
-----------
$13,700,000
===========
CPA:12 share of basis in property.......................................... $ 6,165,000
Total fee payable by CPA:12................................................ 290,498
-----------
6,455,498
Deferred fee to be paid by CPA:12.......................................... (129,110)
-----------
$ 6,326,388
===========
</TABLE>
N. For financial reporting purposes, no depreciation is taken on leases
classified as direct financing leases; however, as such leases are classified as
operating leases for tax reporting purposes, depreciation is computed for such
properties for the purpose of determining REIT taxable income. Depreciation of
$828,406 is computed on a straight-line basis over 40 years and is based on
buildings and improvements for the six direct financing leases with a combined
depreciable basis of $33,136,255.
F-10
<PAGE> 144
O. The Company's reported interest income on its direct financing lease
with Big V is $94,609 greater than the applicable rental income reported for tax
purposes.
P. The Company's share of taxable income and GAAP income for the Gensia and
Best Buy Partnerships is based on the actual amounts reported in Federal income
tax returns and audited financial statements.
The Company's share of taxable income from the Upper Deck LLC differs from
its share of GAAP income due to its classification as a direct financing lease.
While depreciation is taken for tax purposes, no depreciation is taken for
financial reporting purposes. Depreciation expense which is computed on a
straight-line basis over 40 years is based on buildings and improvements with a
depreciable basis of $22,350,938. Rental income for tax purposes does not vary
from recognition of rental income for financial reporting purposes. The net
effect of the depreciation adjustment is $558,773 of which the Company's 50%
share is $279,386.
Q. This adjustment consists of depreciation from operating leases as
reflected on the pro forma consolidated statement of operations of $1,170,702
and the tax adjustment for depreciation on direct financing leases of $828,406.
R. The difference between tax basis income from equity investments in
general partnerships and the cash available for distribution for the Gensia and
Best Buy partnerships' equity investments is based on the difference between
amounts reported for Federal income tax purposes and actual cash distributions
received by the Company as the Company purchased such interests prior to January
1, 1995. The pro forma adjustment for Upper Deck is as follows:
<TABLE>
<S> <C>
GAAP income on a pro forma basis............................................. $1,381,429
Add: Depreciation............................................................
Less: Principal amortization................................................. (183,407)
----------
Cash available for distribution.............................................. $1,198,022
==========
Company's share of cash available............................................ $ 599,011
Company's share of taxable income............................................ 411,328
----------
Cash available in excess of taxable income................................... $ 187,683
==========
</TABLE>
S. Principal is deemed to have been paid as follows:
<TABLE>
<S> <C>
NK Lawn & Garden..................................................... $ 71,965
Sports & Fitness..................................................... 88,586
Etec................................................................. 114,024
Big V................................................................ 37,652
Del Monte............................................................ 104,879
Wal-Mart............................................................. 63,280
APBI................................................................. 153,840
Rheometric........................................................... 504,000
Telos................................................................ 116,152
Lanxide.............................................................. 130,602
----------
Total................................................................ $1,384,980
==========
</TABLE>
3. INVESTMENT IN PROPERTIES LEASED TO THE UPPER DECK COMPANY
On January 4, 1996, the Company acquired a 50% interest in a newly formed
limited liability company, which purchased land and buildings and net leased
them to Upper Deck as explained in Note 2C. Neither the Company nor its equity
investee has made an equity investment in Upper Deck. Upper Deck is the leading
manufacturer and marketer of sports trading cards in the United States with
about 25% of the sports trading card market in 1994. Management believes that
the audited financial statements of Upper Deck are not material to a prospective
investor in making an investment decision. Pursuant to Manage-
F-11
<PAGE> 145
ment's current assessment of the impact of future investments in properties on
the Company's prospective financial position and results of operations, the
property net leased to Upper Deck will not be material. The following is a
summary of selected financial information for Upper Deck. The Statement of
Operations and Balance Sheet data for the three years ended December 31, 1993,
1994 and 1995 have been derived from audited financial statements provided by
Upper Deck.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross sales................................ $262,175,660 $252,051,949 $201,926,246
Gross profit............................... 95,145,462 73,284,473 70,250,703
Income from operations..................... 38,102,013 22,207,932 28,312,764
Net income................................. 31,169,862 18,201,901 21,521,538
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 304,945 $ 6,431,822 $ 686,050
Net accounts receivable.................... 15,430,674 18,079,567 18,592,458
Total assets............................... 85,960,553 105,237,037 107,986,049
Total indebtedness......................... 63,661,027 75,765,676 66,663,491
Common stock............................... 3,500 3,500 3,500
Treasury stock............................. -- (6,301,066) (6,771,407)
Stockholders' equity....................... 22,299,526 29,471,361 41,322,558
</TABLE>
F-12
<PAGE> 146
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Corporate Property Associates 12 Incorporated and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Corporate
Property Associates 12 Incorporated and Subsidiaries as of December 31, 1994 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for the period from inception (July 30, 1993) to December
31, 1993 and for the years ended December 31, 1994 and 1995. These financial
statements are the responsibility of Carey Property Advisors, a Pennsylvania
limited partnership (the "Advisor"). Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Advisor, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Corporate
Property Associates 12 Incorporated and Subsidiaries as of December 31, 1994 and
1995, and the consolidated results of their operations and their cash flows for
the period from inception (July 30, 1993) to December 31, 1993 and for the years
ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the Schedule of Real Estate
and Accumulated Depreciation as of December 31, 1995, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the financial information required to be included therein
pursuant to Securities and Exchange Commission Regulation S-X Rule 12-28.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
March 22, 1996
F-13
<PAGE> 147
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the operating method:
Land............................................................ $ 5,295,898
Buildings....................................................... 30,153,241
-----------
35,449,139
Accumulated depreciation........................................ 390,307
-----------
35,058,832
Net investment in direct financing leases............................ $ 6,472,639 13,545,609
----------- -----------
Real estate leased to others......................................... 6,472,639 48,604,441
Equity investments................................................... 11,671,073 10,382,492
Cash and cash equivalents............................................ 10,661,712 20,239,764
Deferred offering costs.............................................. 1,401,664 1,066,262
Accrued rents and interest receivable................................ 141,716
Other assets......................................................... 236,520 738,102
----------- -----------
Total assets............................................... $30,443,608 $81,172,777
=========== ===========
LIABILITIES:
Mortgage notes payable............................................... $ 3,328,417 $18,127,538
Accounts payable to affiliates....................................... 2,163,364 2,499,284
Accounts payable and accrued expenses................................ 76,084 104,141
Deferred acquisition fees payable to an affiliate.................... 712,467 1,577,639
Security deposits.................................................... 667,581
Dividends payable.................................................... 345,751 1,189,830
Accrued interest payable............................................. 28,661 136,086
Prepaid rental income................................................ 217,000
----------- -----------
Total liabilities.......................................... 6,654,744 24,519,099
----------- -----------
Common stock, $.001 par value; 526,921 shares; issued and
outstanding; subject to redemption................................. 5,269,210
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 40,000,000 shares;
issued and outstanding, 2,717,263 and 6,027,868 shares at
December 31, 1994 and 1995......................................... 2,717 6,028
Additional paid-in capital........................................... 23,816,551 52,488,567
Dividends in excess of accumulated earnings.......................... (30,404) (1,110,127)
----------- -----------
Total shareholders' equity................................. 23,788,864 51,384,468
----------- -----------
Total liabilities and shareholders' equity................. $30,443,608 $81,172,777
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-14
<PAGE> 148
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JULY 30, 1993) TO DECEMBER 31, 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JULY 30, 1993)
TO
DECEMBER 31, 1993 1994 1995
----------------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Interest income from direct financing leases..... $ 357,625 $1,221,026
Rental income from operating leases.............. 2,111,998
Other interest income............................ $ 2,558 107,702 660,623
------- ---------- ----------
2,558 465,327 3,993,647
------- ---------- ----------
Expenses:
Interest expense................................. 147,256 1,260,189
Depreciation..................................... 390,307
General and administrative....................... 5,211 728,919 942,074
Property expense................................. 164,836 596,227
Amortization..................................... 6,638 12,797
------- ---------- ----------
5,211 1,047,649 3,201,594
------- ---------- ----------
(Loss) income before income from equity
investments............................ (2,653) (582,322) 792,053
Income from equity investments..................... 554,571 1,322,990
------- ---------- ----------
Net (loss) income........................ $ (2,653) $ (27,751) $2,115,043
======= ========== ==========
Net (loss) income per common share................. $ (.13) $ (.03) $ .53
======= ========== ==========
Weighted average shares outstanding................ 20,000 843,911 4,016,686
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-15
<PAGE> 149
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 30, 1993) TO DECEMBER 31, 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
DIVIDENDS
IN
ADDITIONAL EXCESS OF
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL EARNINGS TOTAL
------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
20,000 Shares issued at $10 per share...... $ 20 $ 199,980 $ 200,000
Net loss................................... $ (2,653) (2,653)
------ ----------- ----------- -----------
Balance at December 31, 1993............... 20 199,980 (2,653) 197,347
2,697,263 Shares issued at $10 per share,
net of offering costs of $2,718,729...... 2,697 24,251,204 24,253,901
Dividends.................................. (634,633) (634,633)
Net loss................................... (27,751) (27,751)
------ ----------- ----------- -----------
Balance at December 31, 1994............... 2,717 23,816,551 (30,404) 23,788,864
3,837,526 Shares issued at $10 per share,
net of offering costs of $4,430,723...... 3,838 33,940,699 33,944,537
Common stock subject to redemption; 526,921
shares................................... (527) (5,268,683) (5,269,210)
Dividends.................................. (3,194,766) (3,194,766)
Net income................................. 2,115,043 2,115,043
------ ----------- ----------- -----------
Balance at December 31, 1995............... $6,028 $52,488,567 $(1,110,127) $51,384,468
====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-16
<PAGE> 150
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 30, 1993) TO DECEMBER 31, 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JULY 30, 1993)
TO DECEMBER 31, 1993 1994 1995
-------------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income....................................... $ (2,653) $ (27,751) $ 2,115,043
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization......................... 6,638 403,104
Income recognized on direct financing leases in excess
of cash received.................................... (5,406) (94,658)
Security deposits received............................ 667,581
Income from equity investments in excess of
distributions received.............................. (71,462)
Increase in other assets.............................. (461) (242,697) (240,609)
Increase in accrued rents and interest receivable..... (141,716)
Increase in accounts payable (a)...................... 5,460 48,960 49,721
Increase in accounts payable to affiliates (a)........ 461 782,903 649,658
Increase in accrued interest payable.................. 28,661 107,425
Increase in prepaid rental income..................... 217,000
------- ------------ ------------
Net cash provided by operating activities........ 2,807 591,308 3,661,087
------- ------------ ------------
Cash flows from investing activities:
Distributions received from general partnerships in
excess of income from equity investments.............. 64,866
Capital distribution from equity investment............. 1,375,000
Purchase of interests in equity investments from
affiliate............................................. (460) (9,933,092)
Additional contribution in equity investment............ (1,219,030)
Purchase of real estate from affiliate and other
capitalized costs..................................... (3,003,707) (41,577,236)
------- ------------ ------------
Net cash used in investing activities............ (460) (14,090,963) (40,202,236)
------- ------------ ------------
Cash flows from financing activities:
Proceeds from stock issuance, net of costs.............. 200,000 24,253,901 33,944,537
Dividends paid.......................................... (288,882) (2,350,687)
Payments of mortgage principal.......................... (5,999) (262,013)
Prepayment of mortgage payable.......................... (3,313,866)
Proceeds from issuance of mortgages..................... 18,375,000
Deferred financing costs................................ (273,770)
------- ------------ ------------
Net cash provided by financing activities........ 200,000 23,959,020 46,119,201
------- ------------ ------------
Net increase in cash and cash equivalents........ 202,347 10,459,365 9,578,052
Cash and cash equivalents, beginning of period............ -- 202,347 10,661,712
------- ------------ ------------
Cash and cash equivalents, end of period......... $202,347 $ 10,661,712 $ 20,239,764
======= ============ ============
</TABLE>
- ---------------
(a) Excludes changes in accounts payable and accrued expenses and accounts
payable to affiliates balances which relate to the raising of capital
(financing activities) rather than the Company's real estate operations.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In connection with the purchase of an interest in real estate during 1994,
the Company assumed a $3,334,416 interest in a mortgage loan obligation.
The accompanying notes are an integral part of the consolidated financial
statements.
F-17
<PAGE> 151
CORPORATE PROPERTY ASSOCIATES 12 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 12 Incorporated and its wholly-owned subsidiaries
(collectively, the "Company").
As of December 31, 1995, the subsidiaries are: GENA (CA) QRS 12-1, Inc.;
BBC (NE) QRS 12-2, Inc.; ELWA-BV (NY) QRS 12-3, Inc.; ADS (CA) QRS 12-4, Inc.;
WALS (IN) QRS 12-5, Inc.; ESI (CA) QRS 12-6, Inc.; SFC (TX) QRS 12-7, Inc.;
SEEDS (TN) QRS 12-9, Inc.; Delmo (PA) QRS 12-10; ABI (TX) QRS 12-11, Inc.; CARDS
(CA) QRS 12-12, Inc.; QRS 12-Paying Agent, Inc. and Bud Limited Liability
Company.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Real Estate Leased to Others:
Real estate is leased to others on a net lease basis, whereby the tenant is
generally responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance, repairs, renewals and
improvements.
The Company diversifies its real estate investments among various corporate
tenants engaged in different industries and by property type throughout the
United States.
The leases are accounted for under either the direct financing or operating
methods.
Direct financing method -- Leases accounted for under the direct financing
method are recorded at their net investment (Note 5). Unearned income is
deferred and amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Company's net investment in the lease.
Operating method -- Real estate is recorded at cost, revenue is recognized
as rentals are earned and expenses (including depreciation) are charged to
operations as incurred.
Effective January 1, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121 -- Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("SFAS 121"). Pursuant
to SFAS 121, the Company assesses the recoverability of its real estate assets,
including residual interests, based on projections of cash flows over the life
of such assets. In the event that such cash flows are insufficient, the assets
are adjusted to their estimated net realizable value. The adoption of SFAS 121
did not have a material effect on the Company's financial condition or results
of operations.
For properties under construction, interest on mortgages is capitalized
rather than expensed and rentals received are recorded as a reduction of
capitalized project (i.e., construction) costs in accordance with Statement of
Financial Accounting Standards No. 67.
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 ("CPI") or sales overrides.
F-18
<PAGE> 152
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation:
Depreciation is computed using the straight-line method over the estimated
useful lives of properties -- generally 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. At December 31,
1994 and 1995, the Company's cash and cash equivalents were held in the custody
of three financial institutions.
Offering Costs:
Costs incurred in connection with the raising of capital through the sale
of common stock are charged to the shareholders' equity upon the issuance of
shares to shareholders.
Federal Income Taxes:
The Company qualifies as a real estate investment trust ("REIT") for the
year ended December 31, 1995 under the Internal Revenue Code of 1986. The
Company is not subject to Federal income taxes, provided it distributes at least
95% of its REIT taxable income to its shareholders and meets other conditions.
Equity Investments:
The Company's interests in two general partnerships in which it owns 50%
and 37% interests, respectively, are accounted for under the equity method, i.e.
at cost, increased or decreased by the Company's share of earnings or losses,
less distributions. The general partnerships employ the same significant
accounting policies as the Company.
Other Assets:
Included in other assets are deferred charges and organization costs.
Deferred charges are costs incurred in connection with mortgage financings and
refinancing and are amortized on a straight-line basis over the terms of the
mortgages. Organization costs incurred in connection with the formation of the
Company are deferred and amortized from the date of inception on a straight-line
basis over five years.
Deferred Acquisition Fees:
Fees are payable for services provided for by the Advisor of the Company
relating to the identification, evaluation, negotiation, financing and purchase
of properties. A portion of such fees are deferred and are payable in annual
installments with each installment equal to .25% of the purchase price of the
properties over no less than eight years following the first anniversary of the
date a property was purchased. Payment of such fees is subject to the 2%/25%
guidelines (see Note 3).
2. ORGANIZATION AND OFFERING:
The Company was formed on July 30, 1993 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.
F-19
<PAGE> 153
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Subject to certain restrictions and limitations, the business of the Company is
managed by Carey Property Advisors, a Pennsylvania limited partnership (the
"Advisor").
An Offering, which commenced on February 18, 1994, expired on January 26,
1996. On August 6, 1993, the Company sold 20,000 shares to the Advisor for
$200,000. During 1994 the Company issued an aggregate of 2,697,263 shares
($26,972,630). On March 9, 1995, May 9, 1995, October 10, 1995 and November 10,
1995, the Company issued 588,377 shares ($5,883,770), 526,921 shares
($5,269,210) (see Note 8), 1,671,135 shares ($16,711,350) and 1,051,093 shares
($10,510,930), respectively, for an aggregate of 3,837,526 shares ($38,375,260)
in 1995. Since December 31, 1995, the Company issued an additional 1,583,893
shares ($15,838,930). The Company filed a post-effective amendment on March 14,
1996, withdrawing from registration the balance of unsold shares.
On February 2, 1996, the Company commenced a second Offering for a maximum
of 20,000,000 Shares of common stock. The shares are being offered to the public
on a "best efforts" basis by Carey Financial Corporation ("Carey Financial") and
other selected dealers at a price of $10 per share. Approximately 87% of the
funds raised in the second Offering (the "Offering") are expected to be invested
in real estate with the remaining funds used to establish a working capital
reserve and to pay the expenses and fees related to the Offering. Deferred
offering costs of $1,066,262 at December 31, 1995 represent costs associated
with the issuance of shares on January 5, 1996 and February 9, 1996 related to
the prior offering and costs associated with the current Offering which will be
charged to shareholders' equity upon the issuance of shares. (Also see Note 8).
3. TRANSACTIONS WITH RELATED PARTIES:
A division of W. P. Carey & Co., Inc. ("W.P. Carey"), an affiliate of the
Advisor, is engaged in the real estate brokerage business. The Company may sell
properties through the division and pay subordinated real estate commissions.
The Company has entered into an advisory agreement with the Advisor.
Pursuant to the advisory agreement, the Advisor performs certain services for
the Company including the identification, evaluation, negotiation, purchase and
disposition of property and the day-to-day administration and management of the
Company. The Advisor and certain affiliates receive fees and compensation in
connection with the Offering and the operation of the Company including
reimbursement for organization and offering expenses, acquisition and
structuring fees, reimbursement for expenses incurred by the Advisor in
connection with the administration of the Company, asset management and
performance fees, and loan refinancing fees, and may ultimately receive
subordinated disposition and incentive fees, both of which are dependent on the
Company's performance. In connection with performing services related to the
Company's real estate purchases in 1994 and 1995, affiliates of the Company
received structuring and development fees of $494,769 and $605,972,
respectively; fees are only paid in connection with completed transactions. The
affiliate is entitled to receive deferred acquisition fees of $1,577,639 over a
period of no less than eight years, subject to the 2%/25% guidelines limitation
described below.
The Company's asset management fee payable to the Advisor is 1/2% per
annum of Average Invested Assets, as defined in the Prospectus, and a
performance fee of 1/2% of Average Invested Assets. The Performance Fee is
subordinated to the Preferred Return to the Shareholders. The Preferred Return,
a cumulative dividend yield of 7% on a $10 share, has already been achieved.
Asset management fees were $82,418 in 1994 and $291,980 in 1995. Performance
fees were in like amount for the respective years. General and administrative
expense reimbursements consists primarily of the actual cost of personnel needed
to provide administrative services necessary to the operation of the Company.
General and administrative expense reimbursements were $589,385 in 1994 and
$618,591 in 1995.
F-20
<PAGE> 154
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the future, real property may be acquired by limited partnerships, REITs
or other entities formed by affiliates of the Advisor and, accordingly,
transactions with related parties may arise between Company and affiliated
entities. The Company's interests in properties jointly held with affiliates
range from 37% to 50%. The Company accounts for assets and liabilities relating
to tenants-in-common interests on a proportional basis.
The Advisor shall reimburse the Company at least annually for the amount by
which operating expenses of the Company exceed the 2%/25% Guidelines (the
greater of 2% of Average Invested Assets or 25% of Net Income) as defined in the
Prospectus. To the extent that operating expenses payable or reimbursable by the
Company exceed the 2%/25% Guidelines and the Independent Directors find that
such expenses were justified based on such unusual and nonrecurring factors
which they deem sufficient, the Advisor may be reimbursed in future years for
the full amount or any portion of such excess expenses, but only to the extent
such reimbursement would not cause the Company's operating expenses to exceed
the 2%/25% Guidelines in any such year.
For the years ended December 31, 1994 and 1995 fees aggregating $69,322 and
$35,649, respectively, were incurred for legal services in connection with the
Company's operations, public offering and organization of the Company,
respectively, with such services provided by a firm in which the Secretary of
the Company and of the Corporate General Partner of the Advisor is a partner.
For the period from inception (July 30, 1993) to December 31, 1993 and for
the years ended December 31, 1994 and 1995, organization and syndication costs
of approximately $311,000, $1,244,000 and $1,520,000, respectively, were paid by
the Advisor on behalf of the Company. From inception through December 31, 1995,
$2,093,500 was reimbursed to the Advisor. A portion of the amounts paid by the
Advisor will not be reimbursed, as such reimbursement would cause the Company to
exceed certain limitations (see Note 8).
The Company's Accounts Payable to Affiliates were as follows at December
31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred offering costs........................................ $1,380,000 $1,066,262
Asset management and performance fees.......................... 164,836 748,795
Interest accrued on deferred fees.............................. 106,175
Other operating costs.......................................... 618,528 578,052
---------- ----------
$2,163,364 $2,499,284
========== ==========
</TABLE>
The Company is a participant in an agreement with W.P. Carey and certain
affiliates for the purpose of leasing office space used for the administration
of real estate entities and W.P. Carey and for sharing the associated costs.
Pursuant to the terms of the agreement, the Company's share of rental, occupancy
and leasehold improvement costs is based on adjusted gross revenues, as defined.
Net expenses incurred in 1995, the Company's first year of participation, were
$11,248.
4. REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR UNDER THE OPERATING METHOD:
The anticipated minimum future rentals, exclusive of renewals, under
noncancellable operating leases amount to approximately $3,738,000 in each of
the years 1996 through 2000, and aggregate approximately $54,133,000 through
2013.
Contingent rentals were approximately $19,000 in 1995.
F-21
<PAGE> 155
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NET INVESTMENT IN DIRECT FINANCING LEASES:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Minimum lease payments receivable............................ $20,273,973 $35,500,209
Unguaranteed residual value.................................. 6,467,233 13,445,545
----------- -----------
26,741,206 48,945,754
Less: Unearned income........................................ 20,268,567 35,400,145
----------- -----------
$ 6,472,639 $13,545,609
=========== ===========
</TABLE>
The anticipated minimum future rentals, exclusive of renewals, under
noncancellable direct financing leases are approximately $1,510,000 in each of
the years 1996 through 1998, $1,615,000 in both 1999 and 2000 and aggregate
approximately $35,500,000 through 2018.
6. MORTGAGE NOTES PAYABLE:
Mortgage notes payable, all of which are limited recourse to the Company,
are collateralized by an assignment of various leases and by real property with
a carrying amount of approximately $34,695,000. As of December 31, 1995,
mortgage notes payable had interest rates ranging from 8.23% to 9.30% per annum.
Scheduled principal payments during each of the next five years following
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
<S> <C>
1996.............................................................. $ 491,471
1997.............................................................. 536,224
1998.............................................................. 583,143
1999.............................................................. 624,169
2000.............................................................. 7,612,725
Thereafter........................................................ 8,279,806
-----------
Total................................................... $18,127,538
===========
</TABLE>
Interest paid was $118,595 in 1994 and $1,152,764 in 1995.
In connection with the placement of mortgages, fees of $197,908 and
$276,139 were paid to an affiliate of the Company in 1994 and 1995,
respectively.
7. DIVIDENDS:
For Federal income tax purposes, 100% of the dividends paid to shareholders
in 1994 and 1995 were taxable as ordinary income.
Dividends payable at December 31, 1995 was comprised of dividends declared
of $.019614 per share ($75,191) to shareholders of record as of October 5, 1995,
$.067560 per share ($371,897) to shareholders of record as of November 9, 1995
and $.113326 ($742,742) per share to shareholders of record as of December
29,1995.
F-22
<PAGE> 156
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
The Company is liable for certain costs of its offerings which include but
are not limited to filing, legal, accounting, printing and escrow fees, which
are to be deducted from the gross proceeds of the Offering and are presently
estimated to aggregate a maximum of $7,327,000 assuming a sale of 20,000,000
shares. The Company is also liable for selling commissions of $0.60 (6%) per
Share sold and a Selected Dealer fee of $0.10 (1%) for each Share.
The Company will reimburse Carey Financial for its costs (including fees
and expenses of its counsel) and for the costs of sales and information meetings
of Carey Financial's employees relating to the Offering. The Company will
reimburse Carey Financial for its identified expenses incurred in connection
with wholesaling services provided to the Company. To the extent, if any, that
all organization and offering costs, including all selling commissions, exceed
10% of the gross proceeds of the Offering (plus an additional 0.5% of gross
proceeds for bona fide due diligence expenses), such excess will be paid by the
Advisor with no recourse by or reimbursement to the Advisor. Costs of the prior
offering which exceed these limitations will not be reimbursed to Carey
Financial.
Shareholders who purchased shares of the Company between March 31, 1995 and
May 9, 1995 did not receive updated financial statements of the Company within a
specified period, and the Company has offered all shareholders who subscribed
shares between these dates, an opportunity to rescind such purchases.
Accordingly, the Company may be required to redeem up to 526,921 Shares
($5,269,210). Until the redemption period ends on May 9, 1996, the funds
received from all shares issued during that period are redeemable and, in
accordance with generally accepted accounting principles, have not been
classified as shareholders' equity in the accompanying consolidated financial
statements. After May 9, 1996, all shares which have not been redeemed will be
reclassified as shareholders' equity. As of March 20, 1996, 2,750 shares have
been redeemed.
9. INDUSTRY SEGMENT INFORMATION:
The Company's operations consist of the investment in and the leasing of
industrial and commercial real estate. The financial reporting sources of 1994
and 1995 lease revenues are as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Per Statements of Operations:
Rental income from operating leases.......................... $2,111,998
Interest income from direct financing leases................. $ 357,625 1,221,026
Adjustment:
Share of lease revenues from equity investments.............. 1,404,319 3,110,209
---------- ----------
$1,761,944 $6,443,233
========== ==========
</TABLE>
F-23
<PAGE> 157
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1994 and 1995, the Company earned its share of net lease revenues from
its direct and indirect ownership of real estate from the following lease
obligors:
<TABLE>
<CAPTION>
1994 % 1995 %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Best Buy Co., Inc.(a).................................... $1,143,383 65% $1,801,209 28%
Gensia, Inc.(a).......................................... 260,936 15 1,309,000 20
Etec Systems, Inc. ...................................... 1,210,652 19
Big V Holding Corp. ..................................... 357,625 20 788,222 12
The Garden Companies, Inc. .............................. 432,804 7
Sports and Fitness Clubs, Inc. .......................... 374,263 6
Wal-Mart Stores, Inc. ................................... 353,483 5
Applied Bioscience International, Inc. .................. 173,600 3
---------- --- ---------- ---
$1,761,944 100% $6,443,233 100%
========== === ========== ===
</TABLE>
- ---------------
(a) Represents the Company's proportionate share of lease revenues from its
equity investment.
10. PURCHASES OF REAL ESTATE:
Del Monte Foods Company:
On November 9, 1995, the Company and Carey Institutional Properties
Incorporated ("CIP(TM)"), an affiliate, each having a 50% interest as a
tenant-in-common, purchased land in Mendota, Illinois; Plover, Wisconsin and
Toppenish and Yakima, Washington upon which three warehouses and a special
purpose facility are being constructed pursuant to construction agency and lease
agreements with Del Monte Corporation ("Del Monte"). Total purchase and project
costs are estimated to be $21,990,000 with Del Monte having the obligation for
any costs in excess of such amount necessary to complete the project. Del
Monte's obligations under the construction agency and lease agreements are
guaranteed by Del Monte's parent company, Del Monte Foods Company.
During the construction period, Del Monte will pay monthly rent based on an
amount indexed to project costs advanced by the Company and CIP(TM). Upon the
earlier of the completion of construction or October 1, 1996, Del Monte's annual
rental obligation will be payable in an amount equal to 12.25% of total project
costs with rent increases every five years, such increases based on a formula
indexed to increases in the CPI. The Del Monte lease has an initial term of 20
years followed by four ten-year renewal terms. The lease provides Del Monte a
purchase option which is exercisable during the eleventh year of the initial
term at fair market value of the properties as encumbered by the lease.
The Company and CIP have arranged for limited recourse mortgage financing
of $12,500,000 which is scheduled to close upon completion of construction.
$11,000,000 of the loan will bear interest at a fixed rate of 10% per annum and
the remaining $1,500,000 will bear interest at a rate indexed to the London
Inter-Bank Offered Rate with quarterly payments of principal and interest
calculated on the basis of a 20-year amortization schedule. The mortgage loan
will have a term of five years.
Applied Bioscience International, Inc.:
On November 13, 1995, the Company purchased land and an office, storage and
research facility in Austin, Texas for $12,565,000 and entered into a net lease
with Pharmaco LSR International, Inc. ("Pharmaco"). Pharmaco's obligations under
the lease are guaranteed by Pharmaco's parent, Applied Bioscience International,
Inc.
F-24
<PAGE> 158
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The lease has an initial term of 15 years with four five-year renewal
options. The initial annual rent is $1,302,000 and the lease provides for rent
increases beginning in the fourth lease year and every three years thereafter
based on a formula indexed to the CPI with a maximum increase of 13.5% during
each period.
In January 1996, the Company obtained a $7,500,000 limited recourse
mortgage loan on the property which is collateralized by a deed of trust and a
lease assignment. The loan provides for monthly principal and interest payments
of $63,905 at an interest rate of 8.25% per annum based on a 20-year
amortization schedule commencing on March 1, 1996. A balloon payment of
$5,238,130 will be due February 1, 2006. The loan may be prepaid in full after
March 1, 2001 subject to a prepayment charge.
In connection with performing services relating to the Company's real
estate purchases, affiliates of the Company received acquisition fees of
$197,908 and $242,389 in 1994 and 1995, respectively.
11. EQUITY INVESTMENTS:
On May 13, 1994, the Company purchased a 37% interest in BB Property
Company ("BB Property"), a general partnership which net leases 17 retail stores
to Best Buy Co., Inc. On October 14, 1994, the Company purchased an additional
49.9% interest in GENA Property Company ("GENA"), a general partnership which
net leases two office buildings to Gensia, and now owns a 50% interest.
Summarized audited financial information of the Company's investments in BB
Property and GENA is as follows:
<TABLE>
<CAPTION>
GENA BB PROPERTY
----------------- -----------------
1994 1995 1994 1995
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31:
Land............................................ $ 4,500 $ 4,500 $18,580 $18,580
Buildings....................................... 18,429 18,429
Accumulated depreciation........................ (182) (642)
Net investment in direct financing lease........ 27,352 27,261
Other assets.................................... 232
------- ------- ------- -------
Total assets............................ $22,979 $22,287 $45,932 $45,841
======= ======= ======= =======
Mortgage notes payable.......................... $ 9,968 $12,241 $31,884 $31,235
Other liabilities............................... 83 141 240 235
------- ------- ------- -------
Total liabilities....................... 10,051 12,382 32,124 31,470
Partners' capital....................... 12,928 9,905 13,808 14,371
------- ------- ------- -------
Total liabilities and partners'
capital............................... $22,979 $22,287 $45,932 $45,841
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1994 1995
---- ------ ------ ------
<S> <C> <C> <C> <C>
For the year ended December 31,
Rental income from operating leases............... $964 $2,618 $1,989 $1,989
Interest income from direct financing leases...... 2,888 2,879
Other............................................. 1
---- ------ ------ ------
965 2,618 4,877 4,868
---- ------ ------ ------
Interest expense on mortgages..................... 322 994 2,898 2,841
Depreciation expense.............................. 182 461
Other............................................. 15 3
---- ------ ------ ------
504 1,470 2,898 2,844
---- ------ ------ ------
Net income................................ $461 $1,148 $1,979 $2,024
==== ====== ====== ======
</TABLE>
GENA paid its partners a return of capital distribution of $2,750,000 (of
which the Company's share was $1,375,000). Such distribution was funded from
mortgage proceeds received by GENA in 1995.
F-25
<PAGE> 159
12. SUBSEQUENT EVENTS:
Purchases of Real Estate
A. On January 4, 1996, the Company and CIP(TM) through their individual 50%
ownership interests in CARDS Limited Liability Company ("Cards LLC"), purchased
land and two office buildings in Carlsbad, California for $25,654,450 and
entered into a net lease agreement with The Upper Deck Company ("Upper Deck").
Cards LLC financed $15,000,000 of the purchase price with a limited recourse
mortgage loan collateralized by the Upper Deck properties. In connection with
the purchase, the Company and CIP(TM) each made equity contributions of
$5,327,225 to Cards LLC. The Company will account for its 50% interest in Cards
LLC under the equity method of accounting.
The lease provides for an initial term of 25 years followed by four
five-year renewal terms. Annual rent is $2,639,750 of which the Company's share
is $1,319,875. The lease provides for rent increases every five years based on a
formula indexed to increases in the CPI with such increases capped at 5% for any
one year. Upper Deck is required to maintain a $750,000 security deposit or
provide an irrevocable letter of credit for the benefit of Cards LLC in like
amount. Between the twelfth and thirteenth lease year, Upper Deck has an option
to purchase the property at fair market value as determined by an independent
appraisal process provided for in the lease.
The $15,000,000 limited recourse note is collateralized by a deed of trust
and lease assignment. The loan provides for monthly payments of principal and
interest of $120,077 based on a 25-year amortization schedule at an annual
interest rate of 8.43%. After the seventh year, the loan may be prepaid in
whole, but not in part, subject to a prepayment premium. The loan matures on
February 1, 2011, at which time a balloon payment will be due.
B. On February 23, 1996, the Company purchased land and a manufacturing and
warehouse facility in Piscataway, New Jersey for $6,300,000 with $3,000,000 of
equity and $3,300,000 of limited recourse financing and entered into a net lease
with Rheometric Scientific, Inc. ("Rheometric").
The lease has an initial term of 15 years with four five-year renewal terms
at an initial annual rent of $1,180,000 with annual increases indexed to
increases in the CPI. The increase in any year is capped at 3%. If the Company
refinances the loan encumbering the property as described below, annual rent
would be equal to the total of (i) debt service due under the refinanced loan
(ii) 14.79% of the difference between $6,000,000 and the refinanced loan amount
and (iii) $15,000.
The $3,300,000 limited recourse loan is collateralized by a mortgage and a
lease assignment. The loan provides for monthly principal payments of $42,000
and interest at a rate of 9.625% per annum with a balloon payment due February
1, 2001. The loan may be prepaid in whole or in part without a prepayment
charge.
In connection with the purchase, the Company received warrants to purchase
464,160 shares of Rheometric common stock at an exercise price of $2 per share.
Of such warrants, 132,617 are exercisable at any time prior to February 28, 2011
with such exercise extendable to the last day of any extended lease term. The
ability to exercise warrants for 331,543 shares is contingent on the Company's
paying off or refinancing the $3,300,000 loan by no later than February 23,
1997. If such condition is met, the additional warrants would then become
exercisable through the same dates as above. The Company is currently pursuing
new mortgage loan financing.
C. On March 11, 1996, the Company purchased land and building in Loudon
County, Virginia for $12,147,000 and entered into a net lease with Telos
Corporation ("Telos"). The lease has an initial term of 20 years with two
ten-year renewal terms. Annual rent is $1,447,000 with rent increases every 3
years based on a formula indexed to increases in the CPI, capped at 12.2% for
any rent increase.
The Company has received a commitment from a lender for a $6,250,000
limited recourse mortgage loan collateralized by the Telos property and an
assignment of the Telos lease. If the loan is executed, it will provide for
monthly payments of principal and interest at a variable interest rate and based
on a 20-year
F-26
<PAGE> 160
amortization schedule. A balloon payment would be due in seven years. There is
no assurance that the loan will be executed.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash, receivables and accounts payable and accrued
expenses approximate fair value because of the short maturity of these items.
The carrying amount of mortgage notes payable is a reasonable estimate of
their fair value at December 31, 1995. The fair value of the mortgage notes
payable was evaluated using a cash flow model with a discount rate which takes
into account the credit of the tenant and interest rate risk. As all outstanding
mortgage debt was issued in 1995, the Company believes that there have been no
significant changes since the dates of issuance.
In conjunction with executing two of its leases, the Company was granted
warrants to purchase common stock of the lessee or lease guarantor. To the
extent that the lessee is not a publicly traded company, the warrants were
judged at the time of issuance to be speculative in nature and a nominal cost
basis is attributed to them. One of the lessees, Etec Systems, Inc. ("Etec"),
executed an initial public offering subsequent to granting stock warrants for
159,314 of its common shares. The fair value of the Company's stock warrants as
of December 31, 1995 is approximately $1,721,000 based on the quoted share price
for Etec common stock. The Etec warrants are currently exercisable. Pursuant to
the terms of the warrant agreement, in the event the Company exercises the
warrants, the Company can retain proceeds up to $1,500,000 with any amounts in
excess of $1,500,000 used to make a mandatory partial prepayment on the loan
collateralized by the Etec property. The Company believes it is not practicable
to estimate the fair value of its stock warrants for closely-held companies.
F-27
<PAGE> 161
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
INITIAL COST TO COST
COMPANY CAPITALIZED
------------------------- SUBSEQUENT TO INCREASE IN
DESCRIPTION ENCUMBRANCES LAND BUILDINGS ACQUISITION(a) NET INVESTMENT(c)
- ------------------------------------------- ------------ ---------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Direct Financing Method:
Supermarkets leased to Big V Holding
Corp. .................................. $3,362,822 $1,157,294 $ 5,254,309 $58,940 $ 100,066
Manufacturing facility leased to The
Garden Companies........................ 3,476,664 1,544,265 5,430,735
---------- ---------- ----------- ------- --------
$6,839,486 $2,701,559 $10,685,044 $58,940 $ 100,066
========== ========== =========== ======= ========
<CAPTION>
GROSS AMOUNT
AT WHICH CARRIED
AT CLOSE OF PERIOD(b)(c)
---------------------------------------- DATE
DESCRIPTION LAND BUILDINGS TOTAL ACQUIRED
- ------------------------------------------- ---------- ----------- ----------- --------------
<S> <<C> <C> <C> <C>
Direct Financing Method:
Supermarkets leased to Big V Holding
Corp. .................................. $ 6,570,609 July 13, 1994
Manufacturing facility leased to The
Garden Companies........................ 6,975,000 June 20, 1995
-----------
$13,545,609
===========
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL COST TO COST CARRIED AT CLOSE OF
COMPANY CAPITALIZED PERIOD(b)(c)
------------------------ SUBSEQUENT TO ------------------------
DESCRIPTION ENCUMBRANCES LAND BUILDINGS ACQUISITION(a) LAND BUILDINGS
- -------------------------------------- ------------ ---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Method:
Distribution facility leased to
Wal-Mart Stores, Inc. ............. $ 2,489,810 $ 452,871 $ 3,325,910 $ 12,921 $ 454,420 $ 3,337,282
Office/Manufacturing facility leased
to Etec Systems, Inc. ............. 6,075,422 1,272,418 10,588,221 241 1,272,444 10,588,436
Health club facility leased to Sports
& Fitness Clubs, Inc. ............. 2,722,820 1,712,316 3,784,684 1,712,316 3,784,684
Warehouses and special purpose
facility leased to Del Monte Foods,
Inc. (under construction).......... 305,733 1,425,065 305,733 1,425,065
Warehouse/office/research facility
leased to Applied Bioscience
International, Inc. ............... 1,550,928 11,017,367 464 1,550,985 11,017,774
----------- ---------- ----------- ---------- ---------- -----------
$11,288,052 $5,294,266 $28,716,182 $ 1,438,691 $5,295,898 $30,153,241
=========== ========== =========== ========== ========== ===========
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
ACCUMULATED OPERATIONS
DESCRIPTION TOTAL DEPRECIATION(d) DATE ACQUIRED IS COMPUTED
- -------------------------------------- ----------- --------------- ------------------ ------------
<S> <C> <C> <C> <C>
Operating Method:
Distribution facility leased to February 10,
Wal-Mart Stores, Inc. ............. $ 3,791,702 $ 73,003 1995 40 yrs.
Office/Manufacturing facility leased February 16,
to Etec Systems, Inc. ............. 11,860,880 231,622 1995 40 yrs.
Health club facility leased to Sports
& Fitness Clubs, Inc. ............. 5,497,000 51,251 June 8, 1995 40 yrs.
Warehouses and special purpose
facility leased to Del Monte Foods, November 9,
Inc. (under construction).......... 1,730,798 1995 N/A
Warehouse/office/research facility
leased to Applied Bioscience November 13,
International, Inc. ............... 12,568,759 34,431 1995 40 yrs.
----------- --------
$35,449,139 $ 390,307
=========== ========
</TABLE>
See accompanying notes to Schedule.
F-28
<PAGE> 162
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
(a) Consists of costs of improvements subsequent to purchase and acquisition
costs including legal fees, appraisal fees, title costs and other related
professional fees.
(b) At December 31, 1995, the aggregate cost of real estate owned by Registrant
and its subsidiaries for Federal income tax purposes is $48,894,682.
(c) The increase (decrease) in net investment is due to the amortization of
unearned income producing a constant periodic rate of return on the net
investment which is more (less) than lease payments received and the sale of
a tenancy-in-common interest in properties to an affiliate.
(d)
RECONCILIATION OF REAL ESTATE ACCOUNTED FOR
UNDER THE OPERATING METHOD
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Balance at beginning of period................................................. $ --
Additions during period........................................................ 35,449,139
-----------
Balance at close of period..................................................... $35,449,139
===========
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Balance at beginning of period................................................. $ --
Depreciation expense for period................................................ 390,307
--------
Balance at close of period..................................................... $390,307
========
</TABLE>
F-29
<PAGE> 163
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, ------------
1995 (UNAUDITED)
------------
(NOTE)
<S> <C> <C>
ASSETS:
Land and buildings, net of accumulated depreciation of
$390,307 at December 31, 1995 and $749,349 at June 30, 1996...... $35,058,832 $ 41,396,891
Net investment in direct financing leases.......................... 13,545,609 40,781,566
Equity investments................................................. 10,382,492 16,031,854
Cash and cash equivalents.......................................... 20,239,764 37,634,830
Deferred offering costs............................................ 1,066,262 855,367
Security deposits.................................................. 325,000 1,499,000
Other assets....................................................... 413,102 372,946
Accrued interest and rents receivable.............................. 141,716 362,482
------------ ------------
Total assets............................................. $81,172,777 $138,934,936
============ ============
LIABILITIES:
Limited recourse mortgage notes payable............................ $18,127,538 $ 39,080,505
Accrued interest payable........................................... 136,086 289,802
Accounts payable to affiliates..................................... 2,499,284 2,587,072
Accounts payable and accrued expenses.............................. 104,141 232,589
Dividends payable.................................................. 1,189,830 1,433,816
Security deposit................................................... 667,581 1,717,581
Prepaid rental income.............................................. 217,000 658,040
Deferred acquisition fees payable to an affiliate.................. 1,577,639 2,539,464
------------ ------------
Total liabilities........................................ 24,519,099 48,538,869
------------ ------------
Commitments and contingencies
Common stock subject to redemption
Common stock, $.001 par value; 526,921 shares issued and
outstanding................................................... 5,269,210
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized 40,000,000 shares;
6,027,868 and 10,405,613 issued and outstanding shares at
December 31, 1995 and June 30, 1996.............................. 6,028 10,406
Additional paid-in capital......................................... 52,488,567 92,229,853
Dividends in excess of accumulated earnings........................ (1,110,127) (1,844,192)
------------ ------------
Total shareholders' equity............................... 51,384,468 90,396,067
------------ ------------
Total liabilities and shareholders' equity............... $81,172,777 $138,934,936
============ ============
</TABLE>
- ---------------
Note: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date.
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE> 164
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from operating
leases...................... $486,655 $ 927,756 $ 712,208 $ 1,858,332
Interest from direct financing
leases...................... 221,296 1,304,809 417,303 1,921,142
Other interest income.......... 149,655 356,254 265,231 701,687
--------- ---------- ---------- ----------
857,606 2,588,819 1,394,742 4,481,161
--------- ---------- ---------- ----------
Expenses:
Interest....................... 266,942 904,616 470,116 1,472,612
Depreciation................... 90,978 179,491 134,496 359,042
General and administrative..... 210,997 440,703 370,881 801,171
Property expenses.............. 136,061 308,642 248,907 568,534
Amortization................... 1,172 7,214 2,343 13,266
--------- ---------- ---------- ----------
706,150 1,840,666 1,226,743 3,214,625
--------- ---------- ---------- ----------
Income before income from
equity investments........ 151,456 748,153 167,999 1,266,536
Income from equity investments... 327,908 505,528 666,651 1,012,859
--------- ---------- ---------- ----------
Net income.................. $479,364 $ 1,253,681 $ 834,650 $ 2,279,395
========= ========== ========== ==========
Net income per common share...... $ .13 $ .14 $ .26 $ .27
========= ========== ========== ==========
Weighted average shares.......... 3,613,528 9,191,370 3,242,765 8,515,623
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE> 165
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 834,650 $ 2,279,395
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 136,839 372,308
Other noncash items........................................... (45,918) (109,536)
Income from equity investments in excess of distributions
received..................................................... (108,954)
Change in security deposits, net.............................. 342,581 (124,000)
Increase (decrease) in other assets........................... (122,603) 164,664
Increase in accrued interest payable.......................... 116,061 153,716
Increase in prepaid rental income............................. 441,040
Increase in accrued interest and rents receivable............. (133,334) (220,766)
Increase in accounts payable to affiliates(a)................. 501,050 348,683
Increase in accounts payable and accrued expenses(a).......... 138,063 78,448
------------ ------------
Net cash provided by operating activities................ 1,767,389 3,274,998
------------ ------------
Cash flows from investing activities:
Purchases of real estate and additional capitalized cost...... (27,573,722) (33,118,197)
Purchase of equity interest in general partnership............ (5,283,908)
Purchase of stock warrants.................................... (124,000)
Distributions received from equity investments in excess of
income from equity investments............................... 46,913
Additional contributions to equity investments................ (14,958)
Capital distribution from equity investment................... 1,375,000
------------ ------------
Net cash used in investing activities.................... (26,166,767) (38,526,105)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages....................................... 9,000,000 21,450,000
Payments on mortgage principal................................ (75,940) (497,033)
Proceeds from stock issuance, net of costs.................... 9,800,501 34,513,954
Redemption of stock........................................... (37,500)
Deferred financing costs...................................... (13,774)
Dividends paid................................................ (883,481) (2,769,474)
------------ ------------
Net cash provided by financing activities................ 17,841,080 52,646,173
------------ ------------
Net (decrease) increase in cash and cash equivalents..... (6,558,298) 17,395,066
Cash and cash equivalents, beginning of period..................... 10,661,712 20,239,764
------------ ------------
Cash and cash equivalents, beginning of period................ $ 4,103,414 $ 37,634,830
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest)..................... $ 297,172 $ 1,318,896
============ ============
</TABLE>
- ---------------
(a) Excludes changes in accounts payable and accrued expenses and account
payable to affiliates balances which relate to the raising of capital
(financing activities) rather than the Company's real estate operations.
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE> 166
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The consolidated financial statements include the accounts of
Corporate Property Associates 12 Incorporated and its wholly-owned subsidiaries
(the "Company"). For further information refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
NOTE 2. ORGANIZATION AND OFFERING:
The Company was formed on July 30, 1993 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. The Company qualifies as a real
estate investment trust and will maintain such qualification provided it
distributes at least 95% of its taxable income to shareholders and meets other
conditions. The Company is managed by Carey Property Advisors, a Pennsylvania
limited partnership (the "Advisor").
An initial offering of the Company's shares which commenced on February 18,
1994 concluded on January 26, 1996, at which time the Company had issued an
aggregate of 8,135,992 shares ($81,359,920). The Company filed a post-effective
amendment on March 14, 1996, withdrawing from registration the balance of unsold
shares from such offering.
On February 2, 1996, the Company commenced an offering for a maximum of
20,000,000 shares of common stock. The shares are being offered to the public on
a "best efforts" basis by Carey Financial Corporation ("Carey Financial") and
other selected dealers at a price of $10 per share. It is anticipated that
approximately 87% of the funds raised in the second offering will be invested in
real estate with the remaining funds used to establish a working capital reserve
and to pay the expenses and fees related to the offering. On April 8, 1996 and
June 13, 1996, the Company issued 836,155 shares ($8,361,550) and 1,433,466
shares ($14,334,660), respectively. Deferred offering costs of $855,637 at June
30 , 1996 represents costs associated with the current offering which will be
charged to shareholders' equity upon the issuance of shares. As described in
Note 3, a portion of the deferred offering costs may be ultimately be
reimbursable to the Company from the Advisor.
NOTE 3. COMMITMENTS AND CONTINGENCIES:
The Company is liable for certain costs of the Offering described in the
prospectus of the Company (the "Prospectus"), which include but are not limited
to filing, legal, accounting, printing and escrow fees, which are to be deducted
from the gross proceeds of the Offering. These costs are presently estimated to
aggregate a maximum of $7,233,600 assuming a sale of 20,000,000 shares. The
Company is also liable for selling commissions of $0.60 (6%) per Share sold and
a Selected Dealer fee of $0.10 (1%) for each Share sold by certain selected
dealers.
The Company will reimburse Carey Financial for its costs (including fees
and expenses of its counsel) and for the costs of sales and information meetings
of Carey Financial's employees relating to the Offering. The Company will
reimburse Carey Financial for its identified expenses incurred in connection
with wholesaling services provided to the Company. If the aggregate of certain
organization and offering costs, including all selling commissions, exceed 10%
of the gross proceeds of the Offering (plus an additional 0.5% of gross proceeds
which may be paid for bona fide due diligence expenses), such excess will be
paid by the
F-33
<PAGE> 167
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Advisor with no recourse by or reimbursement to the Advisor. For the six-month
period ended June 30, 1996, the Company incurred costs of $3,265,702 in
connection with both offerings, a portion of which has been capitalized as
deferred offering costs, and made payments, including prepayments of selling
commissions, of which $4,031,786 has been charged to shareholders' equity. Such
payments include reimbursement to the Advisor of $1,451,575 for payments the
Advisor had made on the Company's behalf. For the six-month period ended June
30, 1995, the Company incurred costs of $1,822,379 in connection with its
offering and made payments of $1,362,479. Such 1995 payments include
reimbursements to the Advisor of $303,500 for payments the Advisor had made on
the Company's behalf.
As the result of selling shares of the Company between March 31, 1995
through May 9, 1995 with a prospectus that did not include updated financial
statements, the Company offered to all shareholders who purchased a total of
526,921 shares ($5,269,210) between these dates an opportunity to rescind such
purchases. The redemption period ended May 9, 1996 at which time the Company had
received subscriptions for the redemption of a total of 3,750 shares ($37,500).
The 523,171 shares ($5,231,710) which were not redeemed were reclassified as
shareholders' equity as of March 31, 1996.
NOTE 4. TRANSACTIONS WITH RELATED PARTIES:
The Company has entered into an advisory agreement with the Advisor.
Pursuant to the advisory agreement, the Advisor will perform certain services
for the Company including the identification, evaluation, negotiation, purchase
and disposition of property, the day-to-day administration and management of the
Company and the performance of certain administrative services. For the
three-month and six-month periods ended June 30, 1995, the Company incurred
asset management fees of $67,923 and $124,346, respectively, with performance
fees in like amount. General and administrative expense reimbursements for
three-month and six-month periods ended June 30, 1995 were $124,633 and
$246,825, respectively, For the three-month and six-month periods ended June 30,
1996, the Company incurred asset management fees of $151,577 and $279,572,
respectively, with performance fees in like amount. General and administrative
expense reimbursements for the three-month and six-month periods ended June 30,
1996 were $184,975 and $373,454, respectively
As of December 31, 1995, accounts payable to affiliates were comprised of
deferred offering costs of $1,066,262, asset management and performance fees of
$748,795, accrued interest on deferred acquisition fees of $106,175 and amounts
due for other operating costs of $578,052. As of June 30, 1996, accounts payable
to affiliates were comprised of deferred offering costs of $805,367, asset
management and performance fees of $1,120,439, accrued interest on deferred
acquisition fees of $185,464 and amounts due for other operating costs of
$475,802.
The Company, in conjunction with certain affiliates, is a participant in a
cost sharing agreement for the purpose of renting and occupying office space.
Under the agreement, the Company pays its proportionate share of rent and other
cost of occupancy. Net expenses incurred for the six-months ended June 30, 1996
were $13,378. The Company did not incur any expenses under the agreement for the
period ended June 30, 1995.
F-34
<PAGE> 168
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 5. INDUSTRY SEGMENT INFORMATION:
The Company's operations consist of the investment in and the leasing of
industrial and commercial real estate. The financial reporting sources of the
leasing revenues below for the six-month periods ended June 30, 1995 and 1996
are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases.......................... $ 712,208 $1,858,332
Interest income from direct financing leases................. 417,303 1,921,142
Adjustment:
Share of leasing revenue from equity investments............. 1,555,552 2,206,420
---------- ----------
$2,685,063 $5,985,894
========== ==========
</TABLE>
For the six-month periods ended June 30, 1995 and 1996, the Company earned
its proportionate net leasing revenues from its investments from the following
lease obligors:
<TABLE>
<CAPTION>
1995 % 1996 %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Best Buy Co., Inc.(a)............................ $ 901,052 33% $ 899,215 15%
Etec Systems, Inc. .............................. 517,074 19 674,719 11
Gensia, Inc.(a).................................. 654,500 24 654,500 11
The Upper Deck Company(a)........................ 652,705 11
Applied Bioscience International, Inc. .......... 651,000 11
Telos Corporation................................ 443,435 7
Rheometric Scientific, Inc. ..................... 415,901 7
The Garden Companies, Inc. ...................... 24,604 1 408,200 7
Big V Holding Corp............................... 392,699 15 398,520 7
Sports and Fitness Clubs, Inc. .................. 40,263 2 334,000 6
Lanxide Corporation.............................. 255,086 4
Wal-Mart Stores, Inc. ........................... 154,871 6 198,613 3
---------- --- ---------- ---
$2,685,063 100% $5,985,894 100%
========== === ========== ===
</TABLE>
- ---------------
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
NOTE 6. DIVIDENDS:
Dividends declared and paid to shareholders during the six-month ended June
30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
QUARTER ENDED TOTAL PAID PER SHARE
----------------------------------------------------------------- ---------- ---------
<S> <C> <C>
December 31, 1995................................................ $1,190,411 $ 0.2005
========== =========
March 31, 1996................................................... $1,579,063 $ 0.2008
========== =========
</TABLE>
Dividends for the quarter ended June 30, 1996 were comprised of dividends
declared of $.015462 per share ($125,857) to shareholders of record as of April
7, 1996, $.14578 per share ($1,307,960) to shareholders of record as of June 11,
1996 and $.39758 per share ($413,706) to shareholders of record as of July 9,
1996. Such dividends were paid in July 1996. Dividends declared prior to June
30, 1996 ($1,433,817) have been accrued as dividends payable as of June 30,
1996.
F-35
<PAGE> 169
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 7. EQUITY INVESTMENTS:
The Company holds a 37% interest in BB Property Company ("BB Property"), a
general partnership which net leases 17 retail stores to Best Buy Co., Inc. and
a 50% interest in Gena Property Company ("Gena"), a general partnership which
net leases two office buildings to Gensia, Inc. and a 50% interest in Cards LLC,
a general partnership which net leases office and manufacturing facilities to
The Upper Deck Company. Summarized financial information of Gena, BB Property,
and Cards LLC is as follows:
<TABLE>
<CAPTION>
GENA BB PROPERTY CARDS LLC
------------------------- ------------------------- ---------
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1995 1996 1996
------------ ----------- ------------ ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and buildings, net of accumulated
depreciation.............................. $ 22,287 $22,056 $ 18,580 $18,580
Net investment in direct financing lease.... 27,261 27,211 $25,831
Other assets................................ 750
------- ------- ------- ------- -------
Total assets................................ $ 22,287 $22,056 $ 45,841 $45,791 $26,581
======= ======= ======= ======= =======
Mortgage notes payable...................... $ 12,241 $11,974 $ 31,235 $30,888 $$14,941
Other liabilities........................... 141 135 235 232 855
------- ------- ------- ------- -------
Total liabilities....................... 12,382 12,109 31,470 31,120 15,796
Partners' capital....................... 9,905 9,947 14,371 14,671 10,785
------- ------- ------- ------- -------
Total liabilities and partners'
capital............................... $ 22,287 $22,056 $ 45,841 $45,791 $26,581
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-----------------------------------------------------------------
JUNE 30, 1995 JUNE 30, 1996
------------------------- -------------------------------------
GENA BB PROPERTY GENA BB PROPERTY CARDS LLC
------------ ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Lease revenue............................... $ 1,309 $ 2,435 $ 1,309 $ 2,430 $ 1,312
------- ------- ------- ------- -------
Interest expense on mortgages............... 489 1,428 490 1,398 628
Depreciation................................ 230 230
Other....................................... 3 5 6 2
------- ------- ------- ------- -------
719 1,431 725 1,404 630
------- ------- ------- ------- -------
Net income.............................. $ 590 $ 1,004 $ 584 $ 1,026 $ 682
======= ======= ======= ======= =======
</TABLE>
NOTE 8. SUBSEQUENT EVENTS:
Sports & Fitness Clubs of America, Inc.
On July 25, 1996, the Company purchased land and a health club facility in
Houston, Texas for $6,180,000 of equity and entered into a net lease agreement
with Sports & Fitness Clubs of America, Inc. ("Sports & Fitness"). The lease
obligations of Sports & Fitness are guaranteed by its parent company, Q Clubs,
Inc. ("Q Clubs"). The lease has an initial term of 20 years and provides for
four five-year renewal options. Annual rent is $694,000 with rent increases
every five years with such increases based on a formula indexed to increases in
the Consumer Price Index.
In connection with its purchase, the Company was granted warrants
exercisable for 5,089 shares of common stock of Q Clubs at an exercise price of
$275. The exercise price increases by 3% annually beginning on July 23, 1997.
F-36
<PAGE> 170
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Del Monte Corporation
In November 1995, the Company and Carey Institutional Properties,
("CIP(TM)"), an affiliate, each with 50% interests as tenants-in-common,
purchased land in Illinois, Wisconsin and Washington and subsequently
constructed three warehouses and a special purpose facility at a total cost of
$21,990,000 pursuant to construction agency and lease agreements with Del Monte
Corporation ("Del Monte"). In July 1996, the Company and CIP(TM) each made a
final payment of $2,145,000 to complete the construction project. Del Monte
annual rent is $2,572,500 (of which the Company's share is $1,286,250).
After completion of construction, the Company and CIP(TM) obtained
$12,500,000 (of which the Company's share is $6,250,000) of limited recourse
financing. The loan is collateralized by mortgages on the Del Monte properties
and a lease assignment. The loan provides for a fixed interest rate of 10% per
annum on $11,000,000 with the remaining balance of $1,500,000 at a variable
interest rate of either the lender's prime rate plus 2% or the London Inter-Bank
Offering Rate plus 4% (10.25% at inception) with quarterly interest and
principal payments based on a 20-year amortization schedule. The initial
quarterly payment, based on current interest rates, will be approximately
$353,000 (of which the Company's share is $176,500). The loan is scheduled to
mature on November 30, 2000 at which time a balloon payment of $11,450,000 will
be due (of which the Company's share will be $5,725,000).
F-37
<PAGE> 171
REPORT OF INDEPENDENT ACCOUNTANTS
To the General Partners of
BB Property Company:
We have audited the accompanying balance sheets of BB Property Company as
of December 31, 1994 and 1995, and the related statements of income, partners'
capital and cash flows for the years ended December 31, 1994 and 1995. These
financial statements and financial statement schedule are the responsibility of
the General Partners. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BB Property Company as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles. In addition, in our opinion, the Schedule of Real Estate and
Accumulated Depreciation as of December 31, 1995, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the financial information required to be included therein
pursuant to Securities and Exchange Commission Regulation S-X Rule 12-28.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
March 22, 1996
F-38
<PAGE> 172
BB PROPERTY COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Land................................................................. $18,579,665 $18,579,665
Net investment in direct financing lease............................. 27,352,304 27,260,940
----------- -----------
Total assets............................................... $45,931,969 $45,840,605
=========== ===========
Mortgage note payable................................................ $31,884,348 $31,235,276
Other liabilities.................................................... 239,767 234,894
----------- -----------
Total liabilities.......................................... 32,124,115 31,470,170
Partners' capital.................................................... 13,807,854 14,370,435
----------- -----------
Total liabilities and partners' capital.................... $45,931,969 $45,840,605
=========== ===========
</TABLE>
See notes to the financial statements.
F-39
<PAGE> 173
BB PROPERTY COMPANY
STATEMENTS OF INCOME
FOR THE PERIOD FROM INCEPTION (APRIL 14, 1993) TO DECEMBER 31, 1993 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
1993 ---------- ----------
-----------
(UNAUDITED)
<S> <C> <C> <C>
Rental income from operating lease....................... $1,491,663 $1,988,884 $1,988,884
Interest income from direct financing lease.............. 1,925,965 2,888,426 2,879,249
---------- ---------- ----------
3,417,628 4,877,310 4,868,133
---------- ---------- ----------
Interest expense......................................... 2,050,879 2,897,680 2,841,537
General and administrative expense....................... 415 643 2,703
---------- ---------- ----------
2,051,294 2,898,323 2,844,240
---------- ---------- ----------
Net income..................................... $1,366,334 $1,978,987 $2,023,893
========== ========== ==========
</TABLE>
See notes to the financial statements.
F-40
<PAGE> 174
BB PROPERTY COMPANY
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (APRIL 14, 1993) TO DECEMBER 31, 1993 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<S> <C>
Capital contributions............................................................... $13,434,607
Net income, 1993.................................................................... 1,366,334
Distributions paid.................................................................. (1,508,333)
-----------
Balance, December 31, 1993................................................ 13,292,608
Net income, 1994.................................................................... 1,978,987
Distributions paid.................................................................. (1,463,741)
-----------
Balance, December 31, 1994................................................ 13,807,854
Net income, 1995.................................................................... 2,023,893
Distributions paid.................................................................. (1,461,312)
-----------
Balance, December 31, 1995................................................ $14,370,435
===========
</TABLE>
See notes to the financial statements.
F-41
<PAGE> 175
BB PROPERTY COMPANY
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (APRIL 14, 1993) TO DECEMBER 31, 1993 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
1993 ----------- -----------
-----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 1,366,334 $ 1,978,987 $ 2,023,893
Adjustments to reconcile net income to net cash
provided by operating activities:
Cash receipts on direct financing lease in excess
of interest income earned...................... 220,452 82,187 91,364
Increase (decrease) in other liabilities......... 243,853 (4,086) (4,873)
----------- ----------- -----------
Net cash provided by operating activities... 1,830,639 2,057,088 2,110,384
----------- ----------- -----------
Cash flows from investing activities:
Purchase of real estate and capitalized costs....... (46,234,608)
-----------
Net cash used in investing activities....... (46,234,608)
-----------
Cash flows from financing activities:
Capital contributions............................... 13,434,607
Proceeds from mortgage note payable................. 32,800,000
Distributions paid.................................. (1,508,333) (1,463,741) (1,461,312)
Payment of mortgage payable......................... (322,305) (593,347) (649,072)
----------- ----------- -----------
Net cash (used in) provided by financing
activities................................ 44,403,969 (2,057,088) (2,110,384)
----------- ----------- -----------
Net change in cash and cash equivalents..... -- -- --
Cash and cash equivalents, beginning of period........ -- -- --
----------- ----------- -----------
Cash and cash equivalents, end of period.............. $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See notes to the financial statements.
F-42
<PAGE> 176
BB PROPERTY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
BB Property Company (the "Partnership") is a general partnership which was
formed on April 14, 1993 for the purpose of investing in net lease real estate.
The general partners are Carey Institutional Properties Incorporated and
Corporate Property Associates 12 Incorporated. The Partnership's business
consists of the investment in 17 properties which are leased to Best Buy Co.,
Inc. pursuant to a master lease. All revenues of the Partnership are derived
from the master lease.
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:
Real estate is currently leased to one tenant on a net lease basis whereby
the tenant is responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance, repairs, renewals and
improvements. The land portion of the lease is accounted for under the operating
method. Under the operating method, revenue is recognized as rentals are earned
and expenses are charged to operations as incurred. The building portion of the
lease is accounted for under the direct financing method and recorded at its net
investment. Unearned income is deferred and amortized to income over the lease
term so as to produce a constant periodic rate of return on the Partnership's
net investment in the lease.
Effective January 1, 1995, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 121 -- Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("SFAS
121"). Pursuant to SFAS 121, the Partnership assesses the recoverability of its
real estate assets, including residual interests, based on projections of cash
flows over the life of such assets. In the event that such cash flows are
insufficient, the assets are adjusted to their estimated net realizable value.
The adoption of SFAS 121 did not have a material effect on the Partnership's
financial condition or results of operations.
Income Taxes:
A partnership is not liable for income taxes as each general partner
recognizes its proportionate share of partnership income or loss on its tax
return. Accordingly, no provision for income taxes is recognized for financial
statement purposes.
Cash and Cash Equivalents:
The Partnership considers all short-term, highly-liquid investments that
are both readily convertible to cash and have a maturity of generally three
months or less at the time of purchase to be cash equivalents. Items classified
as cash equivalents include commercial paper and money market funds. At December
31, 1994 and 1995, the Partnership held no cash or cash equivalents.
3. REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR UNDER THE OPERATING METHOD:
The anticipated minimum future rentals, exclusive of renewals, under the
Partnership's noncancellable operating lease amount to approximately $1,989,000
in each of the years 1996 through 2000 and aggregate $44,418,000 through 2018.
F-43
<PAGE> 177
BB PROPERTY COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NET INVESTMENT IN DIRECT FINANCING LEASES:
Net investment in direct financing lease is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Minimum lease payments receivable............................ $62,330,982 $59,360,369
Unguaranteed residual value.................................. 27,654,943 27,654,943
----------- -----------
89,985,925 87,015,312
Less, Unearned income........................................ 62,633,621 59,754,372
----------- -----------
$27,352,304 $27,260,940
=========== ===========
</TABLE>
The scheduled minimum future rentals, exclusive of renewal, under the
Partnership's noncancellable direct financing lease amount to approximately
$2,971,000 in both 1996 and 1997, $3,036,000 in each of the years 1998, 1999 and
2000 and aggregate $59,360,000 though 2018.
5. MORTGAGE NOTE PAYABLE:
The Partnership's mortgage loan is a limited recourse obligation and is
collateralized by an assignment of the lease and by real property with a
carrying value of $46,234,608, before adjustment for unearned income on the
direct financing lease. The mortgage note payable bears interest at the rate of
9.01% per annum and matures in 2008.
Scheduled principal payments during each of the next five years following
December 31, 1995 and thereafter are approximately as follows:
<TABLE>
<S> <C>
1996........................................................................ $ 710,000
1997........................................................................ 777,000
1998........................................................................ 850,000
1999........................................................................ 929,000
2000........................................................................ 1,017,000
Thereafter.................................................................. 26,952,000
-----------
Total............................................................. $31,235,000
===========
</TABLE>
Interest paid in 1994 and 1995 was $1,807,026 and $2,846,410, respectively.
6. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Partnership's mortgage note payable is estimated to
be $28,468,000 at December 31, 1995. The fair value of the mortgage note payable
was evaluated using a discounted cash flow model with a discount rate which
takes into account the credit of the tenant and interest rate risk.
F-44
<PAGE> 178
BB PROPERTY COMPANY
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT
INITIAL COST TO COSTS AT WHICH CARRIED
PARTNERSHIP CAPITALIZED DECREASE AT CLOSE OF PERIOD(b)(c)
------------------------- SUBSEQUENT TO IN NET -------------------------
DESCRIPTION ENCUMBRANCE LAND BUILDINGS ACQUISITION(a) INVESTMENT(b) LAND BUILDINGS
- -------------------------- ----------- ----------- ----------- -------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Method:
Retail Stores............. $12,552,092 $18,579,019 $646 $18,579,665
=========== =========== ==== ===========
Direct Financing Method:
Retail Stores............. $18,683,184 $27,653,981 $962 $(394,003)
=========== =========== ==== ===========
<CAPTION>
ACCUMU-
LATED
DEPRECI- DATE
DESCRIPTION TOTAL ATION ACQUIRED
- -------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Operating Method:
Retail Stores............. $18,579,665 N/A April 15, 1993
===========
Direct Financing Method:
Retail Stores............. $27,260,940 N/A April 15, 1993
===========
</TABLE>
- ---------------
(a) Consists of acquisition costs including legal fees, appraisal fees, title
costs and other related professional fees.
(b) The decrease in net investment is due to the amortization of unearned income
producing a constant periodic rate of return on the net investment which is
less than the lease payments received.
(c) At December 31, 1995, the aggregate cost of real estate owned by the
Partnership for Federal income tax purposes is $46,234,608.
F-45
<PAGE> 179
REPORT OF INDEPENDENT ACCOUNTANTS
To the General Partners of
GENA Property Company:
We have audited the accompanying balance sheets of GENA Property Company as
of December 31, 1994 and 1995, and the related statements of operations,
partners' capital and cash flows for the years ended December 31, 1994 and 1995.
These financial statements and financial statement schedule are the
responsibility of the General Partners. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GENA Property Company as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles. In addition, in our opinion, the Schedule of Real Estate and
Accumulated Depreciation as of December 31, 1995, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the financial information required to be included therein
pursuant to Securities and Exchange Commission Regulation S-X Rule 12-28.
/s/ COOPERS & LYBRAND
New York, New York
March 22, 1996
F-46
<PAGE> 180
GENA PROPERTY COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Land................................................................. $ 4,500,000 $ 4,500,000
Building, net of accumulated depreciation of $181,603 and $642,330
at December 31, 1994 and 1995...................................... 18,247,471 17,786,744
Accrued rent receivable.............................................. 218,167
Other assets......................................................... 13,750
----------- -----------
Total assets............................................... $22,979,388 $22,286,744
=========== ===========
Mortgage note payable................................................ $ 9,968,043 $12,240,584
Accrued interest payable............................................. 68,786 84,468
Accounts payable to affiliates....................................... 13,750
Other liabilities.................................................... 56,273
----------- -----------
Total liabilities.......................................... 10,050,579 12,381,325
----------- -----------
Partners' capital.................................................... 12,928,809 9,905,419
----------- -----------
Total liabilities and partners' capital.................... $22,979,388 $22,286,744
=========== ===========
</TABLE>
See notes to financial statements.
F-47
<PAGE> 181
GENA PROPERTY COMPANY
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1993) TO DECEMBER 31, 1993
(UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
1993 -------- ----------
-----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Rental income from operating lease...................... $964,091 $2,618,000
Other income............................................ 531
-------- ----------
964,622 2,618,000
-------- ----------
Expenses:
Interest expense........................................ 322,356 994,311
Depreciation expense.................................... 181,603 460,727
Other expenses, net..................................... $ 800 (364) 14,665
----- -------- ----------
800 503,595 1,469,703
----- -------- ----------
Net (loss) income....................................... $(800) $461,027 $1,148,297
===== ======== ==========
</TABLE>
See notes to the financial statements.
F-48
<PAGE> 182
GENA PROPERTY COMPANY
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1993) TO DECEMBER 31, 1993
(UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<S> <C>
Capital contributions............................................................... $ 4,607,110
Net loss, 1993...................................................................... (800)
----------
Balance, December 31, 1993........................................................ 4,606,310
Capital contributions............................................................... 8,328,519
Distributions, 1994................................................................. (467,047)
Net income, 1994.................................................................... 461,027
----------
Balance, December 31, 1994........................................................ 12,928,809
Return of capital................................................................... (2,750,000)
Distributions, 1995................................................................. (1,421,687)
Net income, 1995.................................................................... 1,148,297
----------
Balance, December 31, 1995........................................................ $ 9,905,419
==========
</TABLE>
See notes to the financial statements.
F-49
<PAGE> 183
GENA PROPERTY COMPANY
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1993) TO DECEMBER 31, 1993
(UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
1993 ------------ -----------
------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................. $ (800) $ 461,027 $ 1,148,297
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation................................... 181,603 460,727
(Increase) decrease in other assets............ (13,750) 13,750
Increase in accrued interest payable........... 68,786 15,682
(Increase) decrease in accrued rent
receivable................................... (218,167) 218,167
Increase (decrease) in accounts payable to
affiliates................................... 12,646 1,104 (13,750)
Decrease (increase) in other liabilities....... 800 (800) 56,273
------------ ------------ -----------
Cash provided by operating activities........ 12,646 479,803 1,899,146
------------ ------------ -----------
Cash flows from investing activities:
Purchase of real estate and capital
improvements................................... (12,869,756) (10,700,510)
Capitalized interest.............................. (404,213)
Incidental revenues applied to capitalized
costs.......................................... 1,045,405
------------ ------------
Net cash used in investing activities........ (12,869,756) (10,059,318)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgage............................ 8,250,000 2,000,000 2,750,000
Payments on mortgage principal.................... (281,957) (477,459)
Partners' capital contributions................... 4,607,110 8,328,519
Return of capital distribution.................... (2,750,000)
Distributions to partners......................... (467,047) (1,421,687)
------------ ------------ -----------
Net cash provided by (used in) financing
activities................................ 12,857,110 9,579,515 (1,899,146)
------------ ------------ -----------
Net change in cash and cash equivalents...... -- -- --
Cash and cash equivalents, beginning of year........ -- -- --
------------ ------------ -----------
Cash and cash equivalents, end of year............ $ -- $ -- $ --
============ ============ ===========
</TABLE>
See notes to the financial statements.
F-50
<PAGE> 184
GENA PROPERTY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Gena Property Company (the "Partnership") is a general partnership which
was formed on December 1, 1993 for the purpose of investing in net lease real
estate. The general partners are Carey Institutional Properties Incorporated and
Corporate Property Associates 12 Incorporated. The Partnership's business
consists of the leasing of real property pursuant to a lease with Gensia, Inc.
All revenues of the Partnership are derived from one lease contract.
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:
Real estate is currently leased to one tenant on a net lease basis whereby
the tenant is responsible for all operating expenses relating to the property
including property taxes, insurance, maintenance, repairs, renewals and
improvements and is accounted for under the operating method. Under the
operating method, revenue is recognized as rentals are earned and expenses
(including depreciation) are charged to operations as incurred. For the period
in which the property was under construction, mortgage interest was capitalized
rather than expensed and rentals received were recorded as a reduction of
capitalized project (i.e. construction) costs in accordance with Statement of
Financial Accounting Standards No. 67.
Effective January 1, 1995, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 121 -- Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("SFAS
121"). Pursuant to SFAS 121, the Partnership assesses the recoverability of its
real estate assets, including residual interests, based on projections of cash
flows over the life of such assets. In the event that such cash flows are
insufficient, the assets are adjusted to their estimated net realizable value.
The adoption of SFAS 121 did not have a material effect on the Partnership's
financial condition or results of operations.
Depreciation:
Depreciation is computed using the straight-line method over the estimated
useful life of the properties -- 40 years.
Income Taxes:
A partnership is not liable for Federal income taxes as each general
partner recognizes its proportionate share of partnership income or loss in its
tax return. Accordingly, no provision for income taxes is recognized for
financial statement purposes.
Cash and Cash Equivalents:
The Partnership considers all short-term, highly-liquid investments that
are both readily convertible to cash and have a maturity of generally three
months or less at the time of purchase to be cash equivalents. Items classified
as cash equivalents include commercial paper and money market funds. At December
31, 1994 and 1995, the Partnership held no cash or cash equivalents.
F-51
<PAGE> 185
GENA PROPERTY COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR UNDER THE OPERATING METHOD:
The scheduled minimum future rentals exclusive of renewals under the
Partnership's noncancellable operating lease amount to approximately $2,618,000
in each of the years 1996 through 2000 and aggregate $35,561,000 through 2009.
4. MORTGAGE NOTE PAYABLE:
The Partnership's mortgage loan is a limited recourse obligation and is
collateralized by an assignment of the lease and by real property with a
carrying value of approximately $22,929,000 before accumulated depreciation. The
mortgage note payable bears interest at the rate of 8.125% and fully amortizes
in 2009.
Scheduled principal payments during each of the next five years following
December 31, 1995 and thereafter are approximately as follows:
<TABLE>
<S> <C>
1996........................................................................ $ 545,000
1997........................................................................ 593,000
1998........................................................................ 643,000
1999........................................................................ 698,000
2000........................................................................ 754,000
Thereafter.................................................................. 9,008,000
-----------
Total............................................................. $12,241,000
===========
</TABLE>
No interest was paid in 1993. Interest paid in 1994 and 1995 was $657,783
and $978,629, respectively.
5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of receivables and accounts payable and accrued
expenses approximate fair value because of the short maturity of these items.
The fair value of the Partnership's mortgage note is estimated to be
$10,407,000 at December 31, 1995. The fair value of the mortgage note payable
was evaluated using a cash flow model with a discount rate which takes into
account the credit of the tenant and interest rate risk.
F-52
<PAGE> 186
GENA PROPERTY COMPANY
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT
INITIAL COST TO COSTS AT WHICH CARRIED
PARTNERSHIP CAPITALIZED AT CLOSE OF PERIOD(b)(c)
----------------------- SUBSEQUENT TO --------------------------------------
DESCRIPTION ENCUMBRANCES LAND BUILDINGS ACQUISITION(a) LAND BUILDINGS TOTAL
- --------------------------- ------------ ---------- ---------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Method:
Office and
research facility......... $12,240,584 $4,500,000 $8,357,111 $10,071,963 $4,500,000 $18,429,074 $22,929,074
========== ========== ========== =========== ========== =========== ===========
<CAPTION>
LIFE ON WHICH
DEPRECIATION IN
LATEST INCOME
ACCUMULATED DATE STATEMENT
DESCRIPTION DEPRECIATION ACQUIRED IS COMPUTED
- --------------------------- ----------- ------------------ ----------------
<S> <<C> <C> <C>
Operating Method:
Office and
research facility......... $ 642,330 December 21, 1993 40 years
======== ================= ========
</TABLE>
- ---------------
(a) Consists of costs of completion of construction and acquisition costs
including legal fees, appraisal fees, title costs and other related
professional fees.
(b) At December 31, 1995, the aggregate cost of real estate owned by the
Partnership for Federal income tax purposes is $22,929,074.
(c)
RECONCILIATION OF REAL ESTATE ACCOUNTED FOR UNDER THE OPERATING METHOD
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Balance at beginning of period............................... $12,852,947 $22,929,074
Additions during period...................................... 10,076,127
----------- -----------
Balance at close of period................................... $22,929,074 $22,929,074
=========== ===========
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Balance at beginning of period............................... $ 181,603
Depreciation expense for the period.......................... $ 181,603 460,727
------ --------
Balance at close of period................................... $ 181,603 $ 642,330
====== ========
</TABLE>
F-53
<PAGE> 187
EXHIBIT A
PRIOR PERFORMANCE TABLES
The information presented in the following tables represents the historical
experience of the CPA(R) Programs for which the Affiliates of the Advisor of the
Company serve as general partners and the record of CPA(R) Programs in meeting
their investment objectives. These tables should be carefully reviewed by a
potential investor in considering an investment in the Company. These tables are
as follows:
Table I -- Experience in Raising and Investing Funds (on a percentage
basis)
Table II -- Compensation to Sponsor
Table III -- Operating Results of Prior Programs
Table V -- Sales or Dispositions of Properties
PERSONS WHO PURCHASE SHARES IN THE COMPANY WILL NOT THEREBY ACQUIRE ANY
OWNERSHIP INTEREST IN ANY OF THE CPA(R) PROGRAMS TO WHICH THESE TABLES RELATE.
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THE COMPANY WILL EXPERIENCE RESULTS
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE CPA(R) PROGRAMS. SEE "PRIOR
OFFERINGS BY AFFILIATES" ELSEWHERE IN THIS PROSPECTUS.
The investment objectives of the Company and CPA(R) Programs are similar.
Additional information regarding prior public CPA(R) Programs can be
obtained from the Advisor by written request for a copy of the most recent
Annual Report filed on Form 10-K with the SEC or a copy of Table
VI -- Acquisition of Real Properties by Prior Public Programs included in Part
II of the Registration Statement to which this Prospectus relates, free of
charge.
The following terms used throughout the Prior Performance Tables are
defined below:
"Total acquisition cost" means the original mortgage financing at date
of purpose, cash payments (equity), and prepaid items and fees related to
purchase of property.
"GAAP" means generally accepted accounting principles.
"Cash generated from operations" means the excess or deficiency of
partnership operating cash receipts including interest on short-term
investments over partnership operating case expenditures.
<PAGE> 188
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS AS OF DECEMBER 31, 1996
ON A PERCENTAGE BASIS
Table I includes information showing how investors' funds have been dealt
with in Prior Programs, the offerings of which have closed since January 1,
1993, particularly focusing on the percentage of the amount raised available for
investment (or total acquisition cost), the percentage of leverage used in
purchasing properties and the time frame for raising and investing funds. THE
INFORMATION IN THIS TABLE SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE
PERFORMANCE OF THE COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS
WILL NOT HAVE ANY OWNERSHIP IN THE CPA(R) PROGRAMS. MORTGAGE FINANCING FOR THE
CPA(R) PROGRAMS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS
FOR INVESTMENT BY SUCH PROGRAMS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):10 CIP(TM) CPA:12
----------- ------------ ------------
<S> <C> <C> <C>
Dollar amount offered (net of discounts and
individual general partner contributions)....... $72,049,908 $141,590,601 156,609,783
Dollar amount raised.............................. 100% 100% 100%
Less offering expenses:
Selling commissions............................. 6.82% 6.94% 5.93%
Organization expenses........................... 7.17% 5.31% 4.34%
Reserves (working capital)........................ 1.00% 1.00% 1.00%
Percent available for investment in real estate... 85.01% 86.75% 88.73%
Acquisition costs:
Cash down payments.............................. 71.12% 77.44% 59.43%
Other costs capitalized......................... 0.82% 0.24% (.23)%
Acquisition fees................................ 10.05% 9.03% 4.92%
Total acquisition costs (includes debt
financing)................................... 220.44% 195.99% 106.68%
Percent leverage (mortgage financing divided by
total acquisition costs)........................ 63% 56%(1) 40%
Date offering began............................... 6/20/90(2) 8/19/91(3) 2/18/94(4)
Length of offering (in months).................... 12 mos. 24 mos. 35 mos.
Months to invest 90% of amount available for
investment (from beginning of offering)......... 30 mos. 31 mos. N/A(5)
</TABLE>
FOOTNOTES
(1) Does not represent fully invested portfolio. Leverage percentage is
applicable only to initial property acquisitions.
(2) Remaining shares withdrawn 8/14/91.
(3) Remaining shares withdrawn 11/4/93.
(4) Remainings shares withdrawn 3/14/96, includes a second offering which
commenced 2/2/96.
(5) Program has not reached investment of 90% of amount available for
investment.
A-1
<PAGE> 189
TABLE II
COMPENSATION TO SPONSOR AS OF DECEMBER 31, 1996
Table II provides information as to Prior Programs that will enable an
investor to understand the significance of compensation paid to the sponsor and
its affiliates, as well as to understand how the compensation is spread over the
cycle of the programs. The information presented below is for compensation paid
since January 1, 1994. THE INFORMATION PRESENTED IN THIS TABLE SHOULD NOT BE
CONSIDERED AS INDICATIVE OF THE COMPENSATION WHICH WILL BE RECEIVED BY THE
ADVISOR AND AFFILIATES OF THE ADVISOR. THE COMPENSATION PAYABLE TO THE GENERAL
PARTNERS AND AFFILIATES OF THE CPA(R) PARTNERSHIPS DIFFERS FROM THE ENTITLEMENT
AND ALLOCATION OF COMPENSATION TO THE ADVISOR AND AFFILIATES OF THE ADVISOR. SEE
"MANAGEMENT COMPENSATION" AND "ESTIMATED USE OF PROCEEDS". PURCHASERS OF SHARES
OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY OWNERSHIP IN THE CPA(R) PROGRAMS.
<TABLE>
<CAPTION>
CPA(R):1-
CPA(R):10 CIP(TM) CPA(R):12
--------------- ------------ ------------
<S> <C> <C> <C>
Date offering(s) commenced......................... 1/16/79-6/20/90 8/19/91 2/18/94
2/2/96
Dollar amount raised (net of discounts and
individual general partner contributions)........ $ 472,763,521 $141,590,601 $156,609,783
Amount paid to sponsor from proceeds of offering:
Underwriting fees................................
Acquisition fees-real estate commissions and
mortgage placement fees(1).................... 930,000 3,221,556 7,770,745
Other Fees.........................................
Dollar amount of cash generated from operations
before deducting payments to sponsor............. 194,437,519 51,062,659 15,966,152
Amount paid to sponsor from operations:
Property management, leasing and asset management
fees(2)....................................... 7,295,917 8,805,504 2,010,898
Reimbursements(2)................................ 3,859,421 1,815,619 1,955,755
Other (cash distributions to General
Partners)(2)..................................... 7,367,216
Dollar amount of property sales and re-financing
before deducting payments to sponsor(2).......... 171,527,937 39,223,596 3,375,000
Amount paid to sponsor from property sales and
refinancing......................................
</TABLE>
FOOTNOTES
(1) Represents acquisition fees paid to sponsor and its affiliates from January
1, 1994 through December 31, 1996.
(2) Represents actual performance or payments for the period from January 1,
1994 through December 31, 1996.
A-2
<PAGE> 190
TABLE III (1 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):1
---------------------------------------------------------------------------
1979 1980 1981 1982 1983 1984
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues.................................. $2,636,185 $3,843,588 $4,427,993 $4,376,655 $4,322,546 $4,331,105
Profit (loss) on sale of properties............. N/A N/A N/A N/A 22,180(1) N/A
Extraordinary charge on extinguishment of debt..
Write-down of property.......................... N/A N/A N/A N/A N/A N/A
Less:
Operating expenses............................. 160,387 252,758 238,058 181,922 169,613 145,516
Interest expense............................... 1,415,410 1,895,624 2,409.242 2,386,388 2,328,716 2,300,677
Depreciation................................... 821,484 1,275,778 1,275,792 1,275,792 1,275,792 1,272,999
Net income (Loss) GAAP Basis.................... 238,904 419,428 504,901 532,553 570,605 611,913
Taxable income (Loss):
-- from operations............................. 392,689 219,214 (108,663) (158,919) (173,788) (72,288)
-- from gain (loss) on sale.................... 0 0 0 0 22,180(1) 0
Cash generated from operations(6)............... 985,982 1,512,434 1,504,769 1,500,263 1,438,191 1,481,113
Cash proceeds from
sales.......................................... 0 0 0 0 60,335(1) 0
Cash generated from refinancing................. 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing.................................... 985,982 1,512,434 1,504,769 1,500,263 1,498,526 1,481,113
Less Cash distribution to investors.............
-- from operating cash flow(7)................. 591,479 1,480,000 1,501,819 1,504,648 1,504,646 1,504,646
-- from sales and refinancing.................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distribution.................................. 394,503 32,434 2,950 (4,385) (6,120) (23,533)
Less special items.............................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items............... 394,503 32,434 2,950 (4,385) (6,120) (23,533)
TAX AND DISTRIBUTION DATA PER $1000 INVESTED
Federal Income Tax Results:
Ordinary income
(loss)........................................ $23.65 $10.85 $(5.38) $(7.87) $(8.60) $(3.58)
Capital gain (loss)............................ 0 0 0 0 1.10 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income........................... 14.39 20.76 24.99 26.36 27,15 30.29
-- Return of capital........................... 21.23 52.50 49.35 48.12 47.33 44.19
Source (on cash basis):
-- Sales....................................... 0 0 0 0 0 0
-- Refinancing................................. 0 0 0 0 0 0
-- Operations.................................. 35.62 73.26 74.34 74.48 74.48 74.48
Amount (in percentage terms) remaining invested
in program properties at the end of the last
year reported in the Table (original total
acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program)..................... N/A 100% 100% 100% 100% 100%
<CAPTION>
CPA(R):1
-------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues.................................. $4,187,199 $3,513,411 $6,584,410 $4,487,838 $4,167,975 $4,162,465
Profit (loss) on sale of properties............. N/A (38,915)(2) N/A N/A (231,288)(3) N/A
Extraordinary charge on extinguishment of debt..
Write-down of property.......................... N/A N/A N/A N/A 300,000(4) N/A
Less:
Operating expenses............................. 276,287 630,225 766,707 811,685 418,278 411,712
Interest expense............................... 2,254,996 2,296,520 2,320,731 2,339,046 1,916,134 1,840,553
Depreciation................................... 1,266,962 1,507,133 1,520,842 1,318,492 1,159,216 1,044,720
Net income (Loss) GAAP Basis.................... 388,954 (959,382) 1,976,130 18,615 143,059 865,480
Taxable income (Loss):
-- from operations............................. (49,859) (1,135,524) (125,052) 482,093 1,175,040 1,199,289
-- from gain (loss) on sale.................... 0 (38,915)(2) 0 0 (538,771)(3) 0
Cash generated from operations(6)............... 1,221,045 736,214 1,078,838 1,908,203 1,964,408 1,901,459
Cash proceeds from
sales.......................................... 0 500,000(2) 0 0 0 0
Cash generated from refinancing................. 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing.................................... 1,221,045 1,238,214 1,078,838 1,908,203 1,964,408 1,901,459
Less Cash distribution to investors.............
-- from operating cash flow(7)................. 1,504,646 1,055,354 1,063,838 1,074,748 1,092,527 1,162,424
-- from sales and refinancing.................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distribution................................... (283,601) 180,860 15,000 23,455 871,881 739,035
Less special items.............................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items................ (283,601) 180,860 15,000 23,455 871,881 739,035
TAX AND DISTRIBUTION DATA PER $1000 INVESTED
Federal Income Tax Results:
Ordinary income
(loss)........................................ $(2.47) $(56.21) $(6.19) $23.86 $58.16 $59.36
Capital gain (loss)............................ 0 (1.92) 0 0 (26.67) 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income........................... 19.25 0 52.66 53.20 7.08 42.84
-- Return of capital........................... 55.23 52.24 0 0 47.00 14.70
Source (on cash basis):
-- Sales....................................... 0 0 0 0 0 0
-- Refinancing................................. 0 0 0 0 0 0
-- Operations.................................. 74.48 52.24 52.66 53.20 54.08 57.54
Amount (in percentage terms) remaining invested
in program properties at the end of the last
year reported in the Table (original total
acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program)..................... 100% 98.75% 98.75% 98.75% 83.14% 83.14%
<CAPTION>
CPA(R):1
-------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues.................................. $4,093,556 $4,102,112 $4,418,370 $4,480,460 $4,830,618 $4,589,145
Profit (loss) on sale of properties............. (13,296)(5) N/A N/A N/A N/A (22,871)(5)
Extraordinary charge on extinguishment of debt.. (255,438)(6)
Write-down of property.......................... N/A N/A N/A N/A N/A
Less:
Operating expenses............................. 298,435 302,200 465,548 666,955 374,238 388,484
Interest expense............................... 1,750,596 1,682,798 1,672,658 1,598,614 1,524,837 1,280,995
Depreciation................................... 1,041,634 1,059,255 1,120,162 1,106,712 1,089,758 969,570
Net income (Loss) GAAP Basis.................... 989,595 1,057,059 1,160,002 1,108,179 1,841,695 1,671,787
Taxable income (Loss):
-- from operations............................. 852,971 812,956 1,098,352 930,049 1,841,051 1,540,197
-- from gain (loss) on sale.................... 52,204(5) 0 0 0 0 153,615
Cash generated from operations(6)............... 2,062,138 2,046,299 2,291,177 2,216,472 2,666,179 2,826,531
Cash proceeds from
sales.......................................... 160,000(5) 0 0 0 0 355,958
Cash generated from refinancing................ 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing.................................... 2,222,138 2,046,299 2,291,177 2,216,472 2,666,179 3,182,489
Less Cash distribution to investors.............
-- from operating cash flow(7)................. 1,226,667 1,242,828 1,258,990 1,269,699 1,313,535 1,417,554
-- from sales and refinancing.................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distribution................................... 995,471 803,471 1,032,187 946,773 1,352,644 1,764,935
Less special items.............................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items................ 995,471 803,471 1,032,187 946,773 1,352,644 1,764,935
TAX AND DISTRIBUTION DATA PER $1000 INVESTED
Federal Income Tax Results:
Ordinary income
(loss)........................................ $42.22 $40.24 $54.37 $46.04 $91.13 $76.24
Capital gain (loss)............................ 0 0 0 0 0 7.60
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income........................... 48.98 52.36 57.42 54.85 65.02 70.17
-- Return of capital........................... 11.74 9.16 4.90 8.00 0 0
Source (on cash basis):
-- Sales....................................... 0 0 0 0 0 0
-- Refinancing................................. 0 0 0 0 0 0
-- Operations.................................. 60.72 61.52 62.32 62.85 65.02 70.17
Amount (in percentage terms) remaining invested
in program properties at the end of the last
year reported in the Table (original total
acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program)..................... 82.74% 82.74% 82.74% 82.74% 82.74% 82.46%
</TABLE>
FOOTNOTES
(1) Results from the sale of a one acre portion of the land which was a part of
the property net leased to Varo, Inc. The net proceeds from the sale of this
land were applied to repay a portion of the outstanding principal balance of
the mortgage loan to CPA(R):1 used to finance the acquisition of the
Property.
(2) Results from the sale of 11.37 acres of land which was a part of the
property net leased to the Gap Stores, Inc.
(3) Represents loss on disposition of the 2400 Industrial Lane Property as a
result of the transfer of the Partnership's interest in the Property.
(4) Represents write-down of the 2400 Industrial Lane Property.
(5) Results from the sale of properties net leased to Kobacker Stores, Inc.
(6) Result of refinancing mortgage loan on property leased to the Gap Inc.
A-3
<PAGE> 191
(7) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS, No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects of
changes primarily in accrued liabilities, receivables and other assets are
taken into account but other items such as principal amortization of loans
are not included. Cash from operations pursuant to the Statement of Changes
in Financial Position includes the effect of loan amortization, but excludes
the effects of changes in accrued liabilities, receivables and other assets.
(8) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations in
prior years that has not previously been distributed.
NOTES
(1) CPA(R):1 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $17.60 and April,
1997 -- $17.62.
A-4
<PAGE> 192
TABLE III (2 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):2
---------------------------------------------------------------------------
1980 1981 1982 1983 1984 1985
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues..................................... $1,658,322 $4,092,794 $6,422,836 $9,793,731 $9,895,531 $9,960,370
Profit on sale of properties....................... N/A N/A N/A N/A N/A N/A
Extraordinary charge on extinguishment of debt..... N/A N/A N/A N/A N/A N/A
Write-down of property.............................
Less:
Operating expenses................................ 181,613 291,223 290,558 307,165 346,920 364,373
Interest expense.................................. 197,038 606,089 3,341,880 6,511,201 6,349,960 6,307,664
Depreciation...................................... 14,421 127,460 157,900 154,909 154,909 155,782
Net Income-GAAP Basis.............................. 1,265,250 3,068,022 2,632,498 2,820,456 3,043,742 3,132,551
Taxable Income (Loss):
-- from operations................................ 630,885 2,003,000 (9,093) (1,168,795) (885,102) (532,969)
-- from gain on sale.............................. 0 0 0 0 0 0
-- from extraordinary charge...................... 0 0 0 0 0 0
Cash generated from operations(3).................. 1,149,636 2,853,883 2,460,169 2,574,532 2,804,385 2,881,848
Cash generated from sales.......................... 0 0 0 0 0 0
Cash generated from refinancing.................... 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing....................................... 1,149,636 2,853,883 2,460,169 2,574,532 2,804,385 2,881,848
Less: Cash distribution to investors:
-- from operating cash flow(4).................... 473,028 2,229,443 2,440,555 2,525,000 2,547,000 2,657,778
-- from sales and refinancing..................... 0 0 0 0 0 0
Cash generated after cash distributions and special
items............................................. 676,608 624,440 19,614 49,532 257,385 224,070
Less: Special items................................ 0 0 0 0 0 0
Cash generated after cash distributions and special
items............................................. 676,608 624,440 19,614 49,532 257,385 224,070
Tax and Distribution Data Per $1000 Invested
Federal Income Tax
Results:
Ordinary income (loss)........................... $ 48.95 $ 72.11 $ (.33) $ (42.08) $ (30.78) $ (19.19)
Capital gain (loss).............................. 0 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income............................. 36.70 80.25 87.86 90.90 91.70 95.68
-- Return of capital............................. 0 0 0 0 0 0
Source (on cash basis):
-- Sales......................................... 0 0 0 0 0 0
-- Refinancing................................... 0 0 0 0 0 0
-- Operations.................................... 36.70 80.25 87.86 90.90 91.70 95.68
Amount (in percentage terms) remaining invested in
program properties at the end of the last year
reported in the Table (original total acquisition
cost of properties retained divided by original
total acquisition cost of all properties in
program).......................................... N/A N/A 100% 100% 100% 100%
<CAPTION>
CPA (R):2
-----------------------------------------------------------------
1986 1987 1988 1989 1990
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues.......................................... $9,954,236 $9,694,869 $9,754,664 $10,013,889 $9,732,269
Profit on sale of properties............................ 920,577(1) N/A N/A N/A N/A
Extraordinary charge on extinguishment of debt.......... (894,945)(2) N/A N/A N/A N/A
Write-down of property..................................
Less:
Operating expenses..................................... 393,350 480,635 489,806 540,777 685,927
Interest expense....................................... 4,916,744 4,204,623 4,074,729 3,856,045 3,771,706
Depreciation........................................... 314,560 475,162 475,162 479,598 480,393
Net Income-GAAP Basis................................... 4,355,214 4,534,449 4,714,967 5,137,469 4,794,243
Taxable Income (Loss):
-- from operations..................................... 260,572 1,604,613 1,997,924 2,600,538 2,461,101
-- from gain on sale................................... 2,035,116(1) 0 0 0 0
-- from extraordinary charge........................... (239,948)(2) 0 0 0 0
Cash generated from operations(3)....................... 4,325,850 5,084,085 5,096,066 5,502,770 5,298,252
Cash generated from sales............................... 5,441,434(1) 0 0 0 0
Cash generated from refinancing......................... 0 0 0 0 0
Cash generated from operations, sales and refinancing... 9,767,234 5,084,085 5,096,066 5,502,770 5,298,252
Less: Cash distribution to investors:
-- from operating cash flow(4)......................... 3,691,774 3,435,000 3,506,667 3,645,000 3,773,333
-- from sales and refinancing.......................... 4,950,000 0 0 0 0
Cash generated after cash distributions and special
items.................................................. 1,125,510 1,649,085 1,589,399 1,857,770 1,524,919
Less: Special items..................................... 0 0 0 0 0
Cash generated after cash distributions and special
items.................................................. 1,125,510 1,649,085 1,589,399 1,857,770 1,524,919
Tax and Distribution Data Per $1000 Invested
Federal Income Tax
Results:
Ordinary income (loss)................................ $ .73 $ 57.77 $ 71.93 $ 93.62 $ 88.60
Capital gain (loss)................................... 73.27 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................................. 156.79 123.66 126.24 131.22 135.84
-- Return of capital.................................. 156.11 0 0 0 0
Source (on cash basis):
-- Sales.............................................. 180.00 0 0 0 0
-- Refinancing........................................ 0 0 0 0 0
-- Operations......................................... 132.90 123.66 126.24 131.22 135.84
Amount (in percentage terms) remaining invested in
program properties at the end of the last year reported
in the Table (original total acquisition cost of
properties retained divided by original total
acquisition cost of all properties in program)......... 93.24% 93.24% 93.24% 93.24% 93.24%
<CAPTION>
CPA(R):2
-------------------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues.......................................... $9,756,071 $9,763,695 $ 6,665,727 $5,161,447 $5,185,804
Profit on sale of properties............................ N/A N/A 8,377,679(5) 23,451(7) N/A
Extraordinary charge on extinguishment of debt.......... N/A N/A (520,979)(6) N/A N/A
Write-down of property.................................. (841,889)(8) (445,551)(9)
Less:
Operating expenses..................................... 691,505 983,060 846,569 911,755 718,035
Interest expense....................................... 3,595,406 3,337,825 2,142,199 1,593,880 1,351,797
Depreciation........................................... 478,388 476,279 501,762 501,657 519,891
Net Income-GAAP Basis................................... 4,990,772 4,966,531 10,190,008 1,732,055 2,596,081
Taxable Income (Loss):
-- from operations..................................... 2,874,398 3,574,899 1,924,220 1,368,123 5,114,606
-- from gain on sale................................... 0 0 21,777,693 40,237 0
-- from extraordinary charge........................... 0 0 0 0 0
Cash generated from operations(3)....................... 5,389,873 5,513,940 3,977,769 2,770,535 6,164,009
Cash generated from sales............................... 0 0 15,972,862 124,615 0
Cash generated from refinancing......................... 0 0 0 0 0
Cash generated from operations, sales and refinancing... 5,389,873 5,513,940 19,950,631 2,895,150 6,164,009
Less: Cash distribution to investors:
-- from operating cash flow(4)......................... 3,832,222 3,898,333 2,691,111 1,458,890 1,491,667
-- from sales and refinancing.......................... 0 0 14,300,312 0 0
Cash generated after cash distributions and special
items.................................................. 1,557,651 1,615,607 2,959,208 1,436,260 4,672,342
Less: Special items..................................... 0 0 0 0 0
Cash generated after cash distributions and special
items.................................................. 1,557,651 1,615,607 2,959,208 1,436,260 4,672,342
Tax and Distribution Data Per $1000 Invested
Federal Income Tax
Results:
Ordinary income (loss)................................ $ 103.48 $ 128.70 $ 69.27 $ 49.25 $ 184.46
Capital gain (loss)................................... 0 0 784.00 1.45 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................................. 137.96 140.34 366.84 52.52 53.72
-- Return of capital.................................. 0 0 250.04 0.00 0
Source (on cash basis):
-- Sales.............................................. 0 0 520.00 0 0
-- Refinancing........................................ 0 0 0 0 0
-- Operations......................................... 137.96 140.34 96.88 52.52 53.72
Amount (in percentage terms) remaining invested in
program properties at the end of the last year reported
in the Table (original total acquisition cost of
properties retained divided by original total
acquisition cost of all properties in program)......... 93.24% 93.24% 61.97% 61.65% 61.65%
<CAPTION>
CPA(R):2
----------
1996
----------
<S> <C>
Gross Revenues.......................................... $4,590,963
Profit on sale of properties............................ N/A
Extraordinary charge on extinguishment of debt.......... N/A
Write-down of property..................................
Less:
Operating expenses..................................... 735,018
Interest expense....................................... 731,843
Depreciation........................................... 499,320
Net Income-GAAP Basis................................... 2,624,782
Taxable Income (Loss):
-- from operations..................................... 1,967,557
-- from gain on sale................................... 0
-- from extraordinary charge........................... 0
Cash generated from operations(3)....................... 2,791,872
Cash generated from sales............................... 0
Cash generated from refinancing......................... 0
Cash generated from operations, sales and refinancing... 2,791,872
Less: Cash distribution to investors:
-- from operating cash flow(4)......................... 2,303,728
-- from sales and refinancing.......................... 0
Cash generated after cash distributions and special
items.................................................. 488,144
Less: Special items..................................... 0
Cash generated after cash distributions and special
items.................................................. 488,144
Tax and Distribution Data Per $1000 Invested
Federal Income Tax
Results:
Ordinary income (loss)................................ $ 70.96
Capital gain (loss)................................... 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................................. 83.09
-- Return of capital.................................. 0
Source (on cash basis):
-- Sales.............................................. 0
-- Refinancing........................................ 0
-- Operations......................................... 83.09
Amount (in percentage terms) remaining invested in
program properties at the end of the last year reported
in the Table (original total acquisition cost of
properties retained divided by original total
acquisition cost of all properties in program)......... 61.65%
</TABLE>
A-5
<PAGE> 193
FOOTNOTES
(1) Results from the sale of 3,441 square feet of land net leased to G.D. Searle
& Co. and sale of the property net leased to General Refractories Company.
(2) Represents unamortized balance of deferred charges in connection with
refinancing of mortgage loans on properties leased to Heekin Can Inc., Paper
Corporation of America and Gibson Greeting Cards, Inc.
(3) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects of
changes primarily in accrued liabilities, receivables and other assets are
taken into account but other items such as principal amortization of loans
are not included. Cash from operations pursuant to the Statement of Changes
in Financial Position includes the effect of loan amortization, but excludes
the effects of changes in accrued liabilities, receivables and other assets.
(4) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations in
prior years that has not previously been distributed.
(5) Results from the sale of properties leased to Heekin Can, Inc.
(6) In connection with the sale of the Heekin properties, CPA(R):2 incurred an
extraordinary charge upon paying off the related mortgage loan.
(7) Results from the sale of property in Hammond, Louisiana leased to G.D.
Searle and Company.
(8) Represents write-down of the Moorestown, N.J. property.
(9) Represents write-down of the Reno, Nevada property.
NOTES
(1) CPA(R):2 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $12.74 and April,
1997 -- $12.76.
A-6
<PAGE> 194
TABLE III (3 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase or
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):3
----------------------------------------------------------------
1981 1982 1983 1984 1985
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues........................................... $173,916 $7,746,826 $8,618,753 $8,798,595 $8,792,622
Profit on sale of properties............................. N/A N/A N/A N/A N/A
Extraordinary charges on extinguishment of debt N/A N/A N/A N/A N/A
Write-down of property................................... N/A N/A N/A N/A N/A
Other income.............................................
Less:
Operating expenses...................................... 54,011 384,169 369,246 506,660 502,561
Interest expense........................................ 60,855 4,224,538 4,341,435 3,921,936 3,845,445
Depreciation............................................ 0 0 0 0 0
Net Income-GAAP Basis.................................... 59,050 3,138,119 3,908,072 4,369,999 4,444,615
Taxable Income (Loss):
-- from operations...................................... (190,312) (516,798) (194,879) 277,458 375,653
-- from gain on sale.................................... 0 0 0 0 0
-- from extraordinary charge............................ 0 0 0 0 0
Cash generated from operations(3)........................ 41,249 2,698,796 3,523,610 3,979,272 3,995,421
Cash generated from sales................................ 0 0 0 0 0
Cash generated from refinancing.......................... 0 0 0 0 0
Cash generated from other................................ 0 0 0 0 0
Cash generated from operations, sales, refinancing and
other................................................... 41,249 2,698,796 3,523,610 3,979,272 3,995,421
Less: Cash distribution to investors:
-- from operating cash flow(4).......................... 0 1,906,688 3,388,225 3,787,592 3,889,970
-- from sales and refinancing........................... 0 0 0 0 0
-- other................................................ 0 0 0 0 0
Cash generated (deficiency) after cash distributions..... 41,249 792,108 135,385 191,680 105,451
Less: Special items...................................... 0 0 0 0 0
Cash generated (deficiency) after cash distributions and
special items........................................... 41,249 792,108 135,385 191,680 105,451
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income......................................... $ (25.06) $ (19.36) $ (5.79) $ 8.24 $ 11.16
Capital gain............................................ 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis)
-- Investment income................................... 0 71.42 100.62 112.48 116.52
-- Return of capital................................... 0 0 0 0 0
Source (on cash basis):
-- Sales................................................ 0 0 0 0 0
-- Refinancing.......................................... 0 0 0 0 0
-- Other................................................ 0 0 0 0 0
-- Operations........................................... 0 71.42 100.62 112.48 116.52
Amount (in percentage terms) remaining invested in
program properties at the end of the last year reported
in the Table (original total acquisition cost of
properties retained divided by original total
acquisition cost of all properties in program).......... N/A N/A 100% 100% 100%
<CAPTION>
CPA(R):3
---------------------------------------------------------------------
1986 1987 1988 1989 1990
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues........................................... $ 8,720,462 $ 8,394,566 $8,582,478 $8,774,232 $8,713,691
Profit on sale of properties............................. 540,765(1) N/A N/A N/A N/A
Extraordinary charges on extinguishment of debt (1,256,013)(2) N/A N/A N/A N/A
Write-down of property................................... N/A N/A N/A N/A N/A
Other income.............................................
Less:
Operating expenses...................................... 496,570 583,208 568,793 622,281 713,979
Interest expense........................................ 3,296,710 2,459,640 2,376,215 2,332,100 2,184,359
Depreciation............................................ 20,502 108,357 108,208 108,911 108,434
Net Income-GAAP Basis.................................... 4,191,432 5,243,361 5,529,262 5,710,940 5,706,919
Taxable Income (Loss):
-- from operations...................................... 708,829 2,492,141 2,938,913 3,240,014 3,295,198
-- from gain on sale.................................... 3,373,025(1) 0 0 0 0
-- from extraordinary charge............................ (852,511)(2) 0 0 0 0
Cash generated from operations(3)........................ 5,009,304 5,458,974 5,743,427 5,749,481 5,785,928
Cash generated from sales................................ 5,302,208(1) 0 0 0 0
Cash generated from refinancing.......................... 0 0 0 0 0
Cash generated from other................................ 0 0 0 0 0
Cash generated from operations, sales, refinancing and
other................................................... 10,311,512 5,458,974 5,743,427 5,749,481 5,785,928
Less: Cash distribution to investors:
-- from operating cash flow(4).......................... 4,125,001 4,073,945 3,830,020 4,131,061 4,469,143
-- from sales and refinancing........................... 0 5,280,000 0 0 0
-- other................................................ 0 0 0 0 0
Cash generated (deficiency) after cash distributions..... 6,186,511 (3,894,971) 1,913,407 1,618,420 1,316,785
Less: Special items...................................... 0 0 0 0 0
Cash generated (deficiency) after cash distributions and
special items........................................... 6,186,511 (3,894,971) 1,913,407 1,618,420 1,316,785
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income......................................... $ (3.21) $ 74.01 $ 87.28 $ 96.22 $ 97.86
Capital gain............................................ 101.19 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis)
-- Investment income................................... 122.50 155.71 113.74 122.68 132.72
-- Return of capital................................... 0 123.68 0 0 0
Source (on cash basis):
-- Sales................................................ 0 160.0 0 0 0
-- Refinancing.......................................... 0 0 0 0 0
-- Other................................................ 0 0 0 0 0
-- Operations........................................... 122.50 119.40 113.74 122.68 132.72
Amount (in percentage terms) remaining invested in
program properties at the end of the last year reported
in the Table (original total acquisition cost of
properties retained divided by original total
acquisition cost of all properties in program).......... 84.41% 84.41% 84.41% 84.41% 84.41%
<CAPTION>
CPA(R):3
---------------------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues........................................... $8,699,175 $8,478,263 $ 7,554,227 $7,391,852 $7,249,265
Profit on sale of properties............................. N/A N/A N/A N/A N/A
Extraordinary charges on extinguishment of debt N/A N/A N/A N/A N/A
Write-down of property................................... N/A N/A (1,302,318)(6) (697,325)(7) (146,184)(8)
Other income............................................. 11,499,187(9)
Less:
Operating expenses...................................... 855,729 1,533,036 1,441,186 1,719,172 1,173,053
Interest expense........................................ 2,073,632 1,936,878 1,734,434 1,602,175 1,255,047
Depreciation............................................ 108,272 108,132 147,229 158,367 198,590
Net Income-GAAP Basis.................................... 5,631,542 4,900,217 2,929,060 3,214,813 15,975,567
Taxable Income (Loss):
-- from operations...................................... 3,439,197 5,452,217 5,504,655 4,461,854 23,951,874
-- from gain on sale.................................... 0 0 0 0
-- from extraordinary charge............................ 0 0 0 0 0
Cash generated from operations(3)........................ 5,712,639 5,252,425 4,387,721 4,647,375 12,917,577
Cash generated from sales................................ 0 0 0 0 5,435,869(9)
Cash generated from refinancing.......................... 0 0 0 0
Cash generated from other................................ 0 8,533,614(5) 2,260,792 2,286,195 0
Cash generated from operations, sales, refinancing and
other................................................... 5,712,639 13,786,039 6,648,513 6,933,570 18,353,446
Less: Cash distribution to investors:
-- from operating cash flow(4).......................... 4,649,632 4,925,081 4,606,531 4,656,367 4,722,367
-- from sales and refinancing........................... 0 0 0 0 0
-- other................................................ 0 3,333,333(5) 0 0 8,000,000
Cash generated (deficiency) after cash distributions..... 1,063,007 5,527,625 2,041,982 2,277,203 5,631,079
Less: Special items...................................... 0 0 0 0 0
Cash generated (deficiency) after cash distributions and
special items........................................... 1,063,007 5,527,625 2,041,982 2,277,203 5,361,079
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income......................................... $ 102.13 $ 161.91 $ 163.47 $ 132.50 $ 711.33
Capital gain............................................ 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis)
-- Investment income................................... 138.08 145.52 86.98 95.47 376.83
-- Return of capital................................... 0 100.74 48.83 41.82 0
Source (on cash basis):
-- Sales................................................ 0 0 0 0 0
-- Refinancing.......................................... 0 0 0 0 0
-- Other................................................ 0 100.00(5) 0 0 0
-- Operations........................................... 138.08 146.26 136.80 138.28 140.24
Amount (in percentage terms) remaining invested in
program properties at the end of the last year reported
in the Table (original total acquisition cost of
properties retained divided by original total
acquisition cost of all properties in program).......... 84.41% 84.41% 84.41% 84.41% 84.41%
<CAPTION>
CPA(R):3
-----------
1996
-----------
<S> <C>
Gross Revenues........................................... 5,730,082
Profit on sale of properties............................. N/A
Extraordinary charges on extinguishment of debt N/A
Write-down of property................................... N/A
Other income............................................. N/A
Less:
Operating expenses...................................... 1,031,997
Interest expense........................................ 75,158
Depreciation............................................ 188,893
Net Income-GAAP Basis.................................... 4,434,034
Taxable Income (Loss):
-- from operations...................................... 2,988,189
-- from gain on sale.................................... 157,910
-- from extraordinary charge............................
Cash generated from operations(3)........................ 3,906,606
Cash generated from sales................................ 1,853,816(10)
Cash generated from refinancing..........................
Cash generated from other................................ 0
Cash generated from operations, sales, refinancing and
other................................................... 5,760,422
Less: Cash distribution to investors:
-- from operating cash flow(4).......................... 3,319,280
-- from sales and refinancing........................... 0
-- other................................................ 0
Cash generated (deficiency) after cash distributions..... 2,441,142
Less: Special items...................................... 0
Cash generated (deficiency) after cash distributions and
special items........................................... 2,441,142
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income......................................... $ 88.74
Capital gain............................................ 4.69
Cash Distributions to Investors:
Source (on GAAP basis)
-- Investment income................................... 98.57
-- Return of capital................................... 0
Source (on cash basis):
-- Sales................................................ 0
-- Refinancing.......................................... 0
-- Other................................................ 0
-- Operations........................................... 98.57
Amount (in percentage terms) remaining invested in
program properties at the end of the last year reported
in the Table (original total acquisition cost of
properties retained divided by original total
acquisition cost of all properties in program).......... 68.83%
</TABLE>
FOOTNOTES
(1) Results from the sale of properties net leased to Commodities Corporation
and Knudsen Corporation.
(2) Represents unamortized balance of deferred charges in connection with
refinancing of mortgage loan on property net leased to Gibson Greeting
Cards, Inc. and pay-off of mortgage loan on property net leased to The
Leslie Fay Company.
(3) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS. No. 95. In
determining Cash from Operations pursuant to the Statement of Cash Flows,
the effects of changes primarily in accrued liabilities, receivables and
other assets are taken into account but other items such as principal
amortization of loans are not included. Cash from operations pursuant to
the Statement of Changes in Financial Position includes the effect of loan
amortization, but excludes the effects of changes in accrued liabilities,
receivables and other assets.
A-7
<PAGE> 195
(4) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(5) Represents deposit received from Leslie Fay Co. in the amount of $8,533,614
for partial payment due under a purchase option for property it leases in
Wilkes Barre, Pennsylvania. $3,333,333 of this amount was distributed to
partners in July 1992.
(6) Represents write-down of the Moorestown, N.J. property.
(7) Represents write-down of the Reno, Nevada property.
(8) Represents write-down of the Leslie Fay property to net sales proceeds.
(9) Results of settlement with Leslie Fay.
(10) Represents sales proceeds of property in Wilkes Barre, Pennsylvania.
NOTES
(1) CPA(R):3 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $24.80 and April
1997 -- $24.82.
A-8
<PAGE> 196
TABLE III (4 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):4
------------------------------------
1982 1983 1984
-------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues....................................................................... $ 5,916 $ 7,136,840 $10,976,004
Profit on sale of properties......................................................... N/A N/A N/A
Extraordinary gain................................................................... N/A N/A N/A
Write-down of property............................................................... N/A N/A N/A
Extraordinary charge on extinguishment of debt....................................... N/A N/A N/A
Other................................................................................ N/A N/A N/A
Less:
Operating expenses.................................................................. 9,137 274,260 245,150
Interest expense.................................................................... 5,784 3,180,356 5,453,442
Depreciation........................................................................ 1,302 346,155 808,870
Net Income (Loss)-GAAP Basis......................................................... (10,307) 3,336,069 4,468,542
Taxable Income (Loss):
-- from operations.................................................................. (2,604) 781,413 (281,447)
-- from gain on sale................................................................ 0 0 0
-- from extraordinary charge........................................................ 0 0 0
-- other............................................................................ 0 0 0
Cash generated from operations(6).................................................... (3,135) 3,471,621 4,787,836
Cash generated from sales............................................................ 0 0 0
Cash generated from refinancing...................................................... 0 0 0
Cash generated from other............................................................ 0 0 0
Cash generated from operations, sales, refinancing and other......................... (3,135) 3,471,621 4,787,836
Less: Cash distribution to investors:
-- from operating cash flow(8)...................................................... 0 2,345,537 4,565,144
-- from sales and refinancing....................................................... 0 0 0
Cash generated (deficiency) after cash distributions................................. 0 1,126,084 222,692
Less: Special items.................................................................. 0 0 0
Cash generated (deficiency) after cash distributions and special items............... 0 1,126,084 222,692
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ 0 $ 21.01 $ (6.18)
Other............................................................................... 0 0 0
Capital gain........................................................................ 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 0 63.06 98.18
-- Return of capital................................................................ 0 0 2.12
Source (on cash basis):
-- Sales............................................................................ 0 0 0
-- Refinancing...................................................................... 0 0 0
-- Operations....................................................................... 0 63.06 100.30
Amount (in percentage terms) remaining invested in program properties at the end of
the last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)... N/A N/A 100%
<CAPTION>
CPA(R):4
-----------------------------------------
1985 1986 1987
----------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues....................................................................... $10,950,473 $10,021,241 $ 8,733,350
Profit on sale of properties......................................................... N/A 1,454,064(1) N/A
Extraordinary gain................................................................... N/A N/A N/A
Write-down of property............................................................... N/A (2,266,656)(2) N/A
Extraordinary charge on extinguishment of debt....................................... N/A N/A N/A
Other................................................................................ N/A N/A N/A
Less:
Operating expenses.................................................................. 278,838 529,941 566,780
Interest expense.................................................................... 5,395,023 5,149,287 4,101,592
Depreciation........................................................................ 828,303 1,059,071 1,628,118
Net Income (Loss)-GAAP Basis......................................................... 4,448,309 2,470,350 2,436,860
Taxable Income (Loss):
-- from operations.................................................................. (98,623) (402,328) (433,637)
-- from gain on sale................................................................ 0 4,047,994(1) 0
-- from extraordinary charge........................................................ 0 0 0
-- other............................................................................ 0 0 0
Cash generated from operations(6).................................................... 4,728,701 4,857,156 4,115,421
Cash generated from sales............................................................ 0 4,483,969(1) 0
Cash generated from refinancing...................................................... 0 0 0
Cash generated from other............................................................ 0 0 0
Cash generated from operations, sales, refinancing and other......................... 4,728,701 9,341,125 4,115,421
Less: Cash distribution to investors:
-- from operating cash flow(8)...................................................... 4,603,376 4,639,789 4,594,265
-- from sales and refinancing....................................................... 0 0 1,711,359
Cash generated (deficiency) after cash distributions................................. 125,325 4,701,336 (2,190,203)
Less: Special items.................................................................. 0 0 0
Cash generated (deficiency) after cash distributions and special items............... 125,325 4,701,336 (2,190,203)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ (2.17) $ (8.84) $ (9.52)
Other............................................................................... 0 0 0
Capital gain........................................................................ 0 88.94 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 97.73 54.28 53.53
-- Return of capital................................................................ 3.41 47.66 87.02
Source (on cash basis):
-- Sales............................................................................ 0 0 40.00
-- Refinancing...................................................................... 0 0 0
-- Operations....................................................................... 101.14 101.94 100.55
Amount (in percentage terms) remaining invested in program properties at the end of
the last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)... 100% 85.20% 85.20%
<CAPTION>
CPA(R):4
-----------------------------------------
1988 1989 1990
----------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues....................................................................... $ 9,117,527 $ 9,393,587 $ 9,694,000
Profit on sale of properties......................................................... N/A N/A N/A
Extraordinary gain................................................................... N/A N/A 2,080,304(3)
Write-down of property............................................................... N/A N/A (2,080,304)(2)
Extraordinary charge on extinguishment of debt....................................... (160,000)(4) (70,266)(5) N/A
Other................................................................................ N/A N/A N/A
Less:
Operating expenses.................................................................. 538,523 614,235 752,499
Interest expense.................................................................... 3,805,805 3,552,960 3,504,016
Depreciation........................................................................ 1,468,317 1,243,008 1,207,776
Net Income (Loss)-GAAP Basis......................................................... 3,144,882 3,913,118 4,229,709
Taxable Income (Loss):
-- from operations.................................................................. 561,034 1,408,950 1,518,550
-- from gain on sale................................................................ 0 0 0
-- from extraordinary charge........................................................ (160,000)(4) (70,266)(5) 0
-- other............................................................................ 0 0 0
Cash generated from operations(6).................................................... 4,763,309 5,289,802 5,611,039
Cash generated from sales............................................................ 0 0 0
Cash generated from refinancing...................................................... 0 0 0
Cash generated from other............................................................ 0 0 0
Cash generated from operations, sales, refinancing and other......................... 4,763,309 5,289,802 5,611,039
Less: Cash distribution to investors:
-- from operating cash flow(8)...................................................... 4,522,360 4,564,233 4,627,954
-- from sales and refinancing....................................................... 0 0 0
Cash generated (deficiency) after cash distributions................................. 240,949 725,569 983,085
Less: Special items.................................................................. 0 0 0
Cash generated (deficiency) after cash distributions and special items............... 240,949 725,569 983,085
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ 12.33 $ 29.41 $ 33.36
Other............................................................................... 0 0 0
Capital gain........................................................................ 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 69.10 85.97 92.93
-- Return of capital................................................................ 30.26 14.31 8.75
Source (on cash basis)
-- Sales............................................................................ 0 0 0
-- Refinancing...................................................................... 0 0 0
-- Operations....................................................................... 99.36 100.28 101.68
Amount (in percentage terms) remaining invested in program properties at the end of
the last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)... 85.20% 85.20% 85.20%
<CAPTION>
CPA(R):4
-----------------------------------------
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues....................................................................... $ 9,653,180 $ 9,959,144 $12,450,374
Profit on sale of properties......................................................... N/A N/A N/A
Extraordinary gain................................................................... N/A N/A 345,000(9)
Write-down of property............................................................... N/A N/A N/A
Extraordinary charge on extinguishment of debt....................................... N/A N/A N/A
Other................................................................................ N/A (44,308)(7) N/A
Less:
Operating expenses.................................................................. 790,950 1,647,627 3,375,359
Interest expense.................................................................... 3,441,293 3,309,359 2,987,868
Depreciation........................................................................ 1,184,801 1,259,693 1,346,641
Net Income (Loss)-GAAP Basis......................................................... 4,236,136 3,698,157 5,085,506
Taxable Income (Loss):
-- from operations.................................................................. 1,702,996 1,737,637 3,540,526
-- from gain on sale................................................................ 0 0 957,340
-- from extraordinary charge........................................................ 0 0 0
-- other............................................................................ 0 (14,801)(7) 0
Cash generated from operations(6).................................................... 5,479,320 5,071,063 6,231,586
Cash generated from sales............................................................ 0 0 0
Cash generated from refinancing...................................................... 0 0 0
Cash generated from other............................................................ 0 14,195(7) 0
Cash generated from operations, sales, refinancing and other......................... 5,479,320 5,085,258 6,231,586
Less: Cash distribution to investors:
-- from operating cash flow(8)...................................................... 4,729,905 4,819,116 4,854,619
-- from sales and refinancing....................................................... 0 0 0
Cash generated (deficiency) after cash distributions................................. 749,415 266,142 1,376,967
Less: Special items.................................................................. 0 0 0
Cash generated (deficiency) after cash distributions and special items............... 749,415 266,142 1,376,967
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ 37.42 $ 38.18 $ 77.79
Other............................................................................... 0 (0.33) 0
Capital gain........................................................................ 0 0 21.03
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 93.07 81.25 106.66
-- Return of capital................................................................ 10.85 24.63 0
Source (on cash basis)
-- Sales............................................................................ 0 0 0
-- Refinancing...................................................................... 0 0 0
-- Operations....................................................................... 103.92 105.88 106.66
Amount (in percentage terms) remaining invested in program properties at the end of
the last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)... 85.20% 85.20% 85.20%
<CAPTION>
CAP(R):4
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues....................................................................... $11,570,621 $11,896,324 9,322,373(12)
Profit on sale of properties......................................................... N/A 3,330,098(10) N/A
Extraordinary gain................................................................... N/A N/A N/A
Write-down of property............................................................... N/A N/A N/A
Extraordinary charge on extinguishment of debt....................................... N/A N/A N/A
Other................................................................................ N/A N/A 1,118,318(11)
Less:
Operating expenses.................................................................. 3,590,081 3,299,454 1,090,215
Interest expense.................................................................... 2,396,017 2,098,857 1,515,248
Depreciation........................................................................ 1,141,143 1,149,525 921,702
Net Income (Loss)-GAAP Basis......................................................... 4,443,380 8,678,586 6,913,526
Taxable Income (Loss):
-- from operations.................................................................. 2,462,537 7,224,511 5,049,765
-- from gain on sale................................................................ 0 9,318,375 0
-- from extraordinary charge........................................................ 0 0 0
-- other............................................................................ 0 0 0
Cash generated from operations(6).................................................... 5,772,103 6,099,480 7,167,641
Cash generated from sales............................................................ 0 9,477,492 0
Cash generated from refinancing...................................................... 0 0 0
Cash generated from other............................................................ 0 0 0
Cash generated from operations, sales, refinancing and other......................... 5,772,103 15,576,972 7,167,641
Less: Cash distribution to investors:
-- from operating cash flow(8)...................................................... 4,878,286 4,780,885 4,452,597
-- from sales and refinancing....................................................... 0 4,321,616 0
Cash generated (deficiency) after cash distributions................................. 893,817 6,474,471 2,715,044
Less: Special items.................................................................. 0 0 0
Cash generated (deficiency) after cash distributions and special items............... 893,817 6,474,471 2,715,044
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ 54.10 $ 158.73 $ 110.95
Other............................................................................... 0 0 0
Capital gain........................................................................ 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 97.62 190.68 97.83
-- Return of capital................................................................ 9.56 9.31 0
Source (on cash basis):
-- Sales............................................................................ 0 0 0
-- Refinancing...................................................................... 0 0 0
-- Operations....................................................................... 107.18 105.04 97.83
Amount (in percentage terms) remaining invested in program properties at the end of
the last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)... 85.20% 70.68% 70.68%
</TABLE>
A-9
<PAGE> 197
FOOTNOTES
(1) Results from the sale of properties net leased to Knudsen Corporation.
(2) Represents writedown of Beaumont, Texas property, formerly net leased to
Gulf Consolidated Services, Inc.
(3) Represents gain on restructuring of debt on Beaumont, Texas property
formerly net leased to Gulf Consolidated Services, Inc.
(4) Represents prepayment charge resulting from refinancing of the original
loan for property net leased to Simplicity Manufacturing, Inc.
(5) Represents prepayment charge resulting from refinancing of the original
loan for property net leased to Brodart Co.
(6) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects
of changes primarily in accrued liabilities, receivables and other assets
are taken into account, but other items such as principal amortization of
loans are not included. Cash from operations pursuant to the Statement of
Changes in Financial Position includes the effect of loan amortization, but
excludes the effects of changes in accrued liabilities, receivables and
other assets.
(7) Represents acquisition of hotel operations for a property formerly leased
to Integra-A Hotel and Restaurant Company.
(8) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(9) Represents extinguishment of debt on the property located in Beaumont,
Texas.
(10) Results from sale of property net leased to Genesco, Inc.
(11) Includes equity income and net hotel operating results for 1996.
(12) Results from the exchange of a hotel property in Kenney, Louisiana for an
investment in American General Hospitality Operating Partnership L.D.
NOTES
(1) CPA(R):4 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $24.56; April,
1997 -- $24.58.
A-10
<PAGE> 198
TABLE III (5 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase
of Prior Programs, the offerings of which have been closed since December 31,
1979. This Table is designed to provide the investor with information on the
financial operations of such Prior Programs. The results shown in this Table are
in all cases for years ended December 31. THE INFORMATION PRESENTED IN THIS
TABLE SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):5
------------------------------------------------------------
1983 1984 1985 1986 1987
-------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues................................................... $151,212 $7,692,603 $9,285,385 $12,857,025 $14,405,568
Other............................................................ N/A N/A N/A N/A N/A
Profit (loss) on sale or disposition of properties............... N/A N/A N/A N/A (457,484)(1)
Extraordinary charge on extinguishment of debt................... N/A N/A N/A N/A N/A
Write-down of property........................................... N/A N/A N/A (860,000)(4) N/A
Less:
Operating expenses.............................................. 81,016 195,585 363,490 493,702 1,327,685
Interest expenses............................................... 1,041 1,828,708 3,557,103 6,447,584 7,050,466
Depreciation.................................................... 0 90,662 890,342 2,300,987 2,506,914
Minority Interest............................................... N/A N/A N/A 80,834 165,810
Net Income-GAAP Basis............................................ 69,155 5,577,648 4,474,450 2,673,918 2,897,209
Taxable Income (Loss):
-- from operations.............................................. 83,341 4,180,317 2,173,368 277,783 (1,015,507)
-- from gain (loss) on sale or disposition...................... 0 0 0 0 (1,065,808)
-- from other................................................... 0 0 0 0 0
Cash generated from operations(10)............................... 77,254 5,612,247 5,157,259 6,550,334 5,622,209
Cash generated from sales........................................ 0 0 0 0 500,000(1)
Cash generated from refinancing.................................. 0 0 0 0 0
Cash generated from operations, sales and refinancing............ 77,254 5,612,247 5,157,259 6,550,334 6,122,209
Less: Cash distribution to investors:
-- from operating cash flow(11)................................. 0 5,150,600 5,324,013 5,481,771 5,535,961
-- from sales and refinancing................................... 0 0 0 0 0
Cash generated (deficiency) after cash distributions............. 77,254 461,647 (166,754) 1,068,563 586,248
Less: special items..............................................
Cash generated (deficiency) after cash distributions and special
items........................................................... 77,254 461,647 (166,754) 1,068,563 586,248
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).......................................... $ 1.38 $ 69.43 $ 36.09 $ 4.61 $ (16.87)
Capital gain (loss)............................................. 0 0 0 0 (17.69)
Other........................................................... 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income............................................ 0 85.54 74.31 44.41 48.12
-- Return of capital............................................ 0 0 14.11 46.63 43.82
Source (on cash basis):
-- Sales........................................................ 0 0 0 0 0
-- Refinancing.................................................. 0 0 0 0 0
-- Operations................................................... 0 85.54 88.42 91.04 91.94
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the Table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in
program......................................................... N/A N/A N/A N/A N/A
<CAPTION>
CPA(R):5
----------------------------------------------------------
1988 1989 1990 1991
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Revenues................................................... $15,061,441 $15,324,326 $14,912,517 $15,167,339
Other............................................................ N/A N/A N/A (103,595)(5)
Profit (loss) on sale or disposition of properties............... N/A 47,319(2) N/A (35,987)(6)
Extraordinary charge on extinguishment of debt................... N/A N/A (32,714)(3) N/A
Write-down of property........................................... N/A N/A N/A (300,000)(7)
Less:
Operating expenses.............................................. 758,159 1,305,074 1,503,721 3,354,854
Interest expenses............................................... 6,926,712 7,052,901 6,512,534 6,042,335
Depreciation.................................................... 2,637,104 2,632,299 2,620,793 2,622,033
Minority Interest............................................... 197,354 17,714 114,721 (174,657)
Net Income-GAAP Basis............................................ 4,542,112 4,363,657 4,128,034 2,883,192
Taxable Income (Loss):
-- from operations.............................................. 406,029 799,445 857,331 1,077,650
-- from gain (loss) on sale or disposition...................... 0 87,421(2) 488,066 (2,674)(6)
-- from other................................................... 0 0 0 (154,918)(5)
Cash generated from operations(10)............................... 6,571,710 6,911,989 5,895,617 5,278,070
Cash generated from sales........................................ 0 239,362(2) 0 120,000 (6)
Cash generated from refinancing.................................. 0 0 0 0
Cash generated from operations, sales and refinancing............ 6,571,710 7,151,351 5,895,617 5,398,070
Less: Cash distribution to investors:
-- from operating cash flow(11)................................. 5,587,744 5,635,916 5,684,084 5,732,256
-- from sales and refinancing................................... 0 0 0 0
Cash generated (deficiency) after cash distributions............. 983,966 1,515,435 211,533 (334,186)
Less: special items..............................................
Cash generated (deficiency) after cash distributions and special
items........................................................... 983,966 1,515,435 211,533 (334,186)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).......................................... $ 6.74 $ 13.28 $ 14.24 $ 17.90
Capital gain (loss)............................................. 0 1.45 0 (0.04)
Other........................................................... 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income............................................ 75.43 72.47 68.56 47.88
-- Return of capital............................................ 17.37 21.13 25.84 47.32
Source (on cash basis):
-- Sales........................................................ 0 0 0 0
-- Refinancing.................................................. 0 0 0 0
-- Operations................................................... 92.80 93.60 94.40 95.20
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the Table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in
program......................................................... 98.51% 98.51% 97.60% 97.45%
<CAPTION>
CPA(R):5
-----------------------------------------------------------
1992 1993 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Revenues................................................... $18,195,423(8) $18,260,614 $18,125,156 $15,768,137
Other............................................................ 1,872,534 214,978(12) N/A N/A
Profit (loss) on sale or disposition of properties............... (488,795)(9) N/A 1,242,614(14) 614,234(16)
Extraordinary charge on extinguishment of debt................... N/A N/A (117,619)(15) N/A
Write-down of property........................................... N/A (323,611)(13) 0 (1,980,550)(17)
Less:
Operating expenses.............................................. 6,111,874 6,417,993 7,111,014 6,927,470
Interest expenses............................................... 5,293,044 4,941,889 4,518,529 3,495,872
Depreciation.................................................... 2,317,013 2,295,887 2,181,432 2,065,781
Minority Interest............................................... N/A N/A N/A N/A
Net Income-GAAP Basis............................................ 5,857,231 4,496,212 5,439,186 1,912,698
Taxable Income (Loss):
-- from operations.............................................. 1,530,150 2,039,288 866,115 1,621,566
-- from gain (loss) on sale or disposition...................... 871,676 0 10,019,470 0
-- from other................................................... 2,617,784(8) 0 0 0
Cash generated from operations(10)............................... 6,202,200 6,241,041 6,292,833 4,688,070
Cash generated from sales........................................ 0 0 0 1,187,362(16)
Cash generated from refinancing.................................. 0 0 0 0
Cash generated from operations, sales and refinancing............ 6,202,200 6,241,041 6,292,833 5,875,432
Less: Cash distribution to investors:
-- from operating cash flow(11)................................. 5,780,425 5,828,596 5,862,314 8,054,982
-- from sales and refinancing................................... 0 0 0 0
Cash generated (deficiency) after cash distributions............. 421,775 412,445 430,519 (2,179,550)
Less: special items.............................................. 0 0 0
Cash generated (deficiency) after cash distributions and special
items........................................................... 421,775 412,445 430,519 (2,179,550)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).......................................... $ 25.41 $ 33.87 $ 14.87 $ 26.93
Capital gain (loss)............................................. 14.48 0 166.40 0
Other........................................................... 43.48 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income............................................ 96.00 74.67 90.33 31.77
-- Return of capital............................................ 0 22.13 7.03 102.01
Source (on cash basis):
-- Sales........................................................ 0 0 0 0
-- Refinancing.................................................. 0 0 0 0
-- Operations................................................... 96.00 96.80 97.36 133.78
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the Table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in
program......................................................... 94.12% 94.12% 92.97% 81.82%
<CAPTION>
1996
-----------
<S> <C>
Gross Revenues................................................... $13,204,966
Other............................................................ N/A
Profit (loss) on sale or disposition of properties............... 5,284,165(18)
Extraordinary charge on extinguishment of debt................... N/A
Write-down of property........................................... (1,300,000)(19)
Less:
Operating expenses.............................................. 6,006,397
Interest expenses............................................... 2,075,230
Depreciation.................................................... 1,331,028
Minority Interest............................................... N/A
Net Income-GAAP Basis............................................ 7,776,476
Taxable Income (Loss):
-- from operations.............................................. 1,690,288
-- from gain (loss) on sale or disposition...................... 8,338,765
-- from other................................................... 0
Cash generated from operations(10)............................... 7,901,310
Cash generated from sales........................................ 8,583,803
Cash generated from refinancing.................................. 0
Cash generated from operations, sales and refinancing............ 16,485,113
Less: Cash distribution to investors:
-- from operating cash flow(11)................................. 4,456,949
-- from sales and refinancing................................... 0
Cash generated (deficiency) after cash distributions............. 12,028,164
Less: special items.............................................. 0
Cash generated (deficiency) after cash distributions and special
items........................................................... 12,028,164
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).......................................... $ 28.07
Capital gain (loss)............................................. 141.45
Other........................................................... 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income............................................ 74.02
-- Return of capital............................................ 0
Source (on cash basis):
-- Sales........................................................ 0
-- Refinancing.................................................. 0
-- Operations................................................... 74.02
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the Table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in
program......................................................... 63.06%
</TABLE>
A-11
<PAGE> 199
FOOTNOTES
(1) Represents sale of Buffalo, New York property formerly net leased to
Williams Hand Tool, Inc.
(2) Represents exchange of property net leased to Industrial General
Corporation.
(3) Represents prepayment charge resulting from refinancing of the original
loan for property net leased to Pace Membership Warehouse, Inc.
(4) Represents write-down of Buffalo, New York property formerly net leased to
Williams Hand Tool, Inc.
(5) Represents acquisition of hotel operations for properties formerly leased
to subsidiaries of Landmark Hotel Corporation.
(6) Results from the sale of a 3.0815 acre parcel of land which was a portion
of the property net leased to Industrial General Corporation.
(7) Represents write-down of Columbus, Georgia property leased to Williams Hand
Tool, Inc.
(8) Represents a gain on release of mortgage escrow funds and related interest
income earned in the escrow reserve accounts for the hotel properties
located in Alpena and Petoskey, Michigan.
(9) Represents disposition of Columbus, Georgia property formerly leased to
Williams Hand Tool, Inc. and sale of a parcel of land in Elyria, Ohio
formerly leased to Industrial General Corporation.
(10) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects
of changes primarily in accrued liabilities, receivables and other assets
are taken into account but other items such as principal amortization of
loans are not included. Cash from operations pursuant to the Statement of
Changes in Financial Position includes the effect of loan amortization, but
excludes the effects of changes in accrued liabilities, receivables and
other assets.
(11) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(12) Results from the settlement and lease termination agreement for the hotel
properties in Michigan.
(13) Represents write-down of the preferred stock investment and the estimated
residual value of the South Boston and Kenbridge, Virginia properties.
(14) Results from sale of the Tampa, Florida and the Forrest City, Arkansas
properties.
(15) Represents the extinguishment of debt on the Tampa, Florida property and
properties located in Gordonsville, Virginia and North Bergen, NJ.
(16) Results from sale of properties in Bold Knob, Arkansas, Ballville, Ohio,
Newburyport, Massachusetts, Gardensville, Virginia and North Bergen, New
Jersey.
(17) Represents the writedown of hotel property in Rapid City, South Dakota and
the property on Elepia, Ohio; and writing off the note receivable and
preferred stock of Rochester Butten Company.
(18) Represents sale of property in Hodgkins, Illinois leased to GATX Logistics,
Inc., property in Helena, Montana and a hotel property in Rapid City, South
Dakota.
(19) Represents write-down of hotel property in Rapid City, South Dakota.
NOTES
(1) CPA(R):5 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $16.90 and
April -- $16.68.
A-12
<PAGE> 200
TABLE III (6 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):6
-----------------------------------------------------
1985 1986 1987 1988
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Gross Revenues.............................................................. $4,200,601 $6,432,252 $9,898,043 $11,197,061
Gain on sale................................................................ 0 0 0 0
Other....................................................................... 0 0 0 0
Extraordinary (charge) gain................................................. 0 0 0 0
Less:
Operating expenses......................................................... 215,852 333,030 573,786 558,887
Interest expense........................................................... 792,434 2,111,626 4,736,879 5,416,130
Depreciation............................................................... 5,709 278,305 1,095,292 1,405,857
Net Income-GAAP Basis....................................................... 3,186,606 3,709,291 3,492,083 3,816,187
Taxable Income:
-- from operations......................................................... 2,650,283 2,577,849 982,403 1,219,990
-- from gain on sale....................................................... 0 0 0 0
-- from extraordinary charge............................................... 0 0 0 0
-- from other.............................................................. 0 0 0 0
Cash generated from operations(4)........................................... 3,194,889 4,509,489 5,239,285 4,983,579
Cash generated from sales................................................... 0 0 0 0
Cash generated from refinancing............................................. 0 0 0 0
Cash generated from other................................................... 0 0 0 0
Cash generated from operations, sales, refinancing and other................ 3,194,889 4,509,489 5,239,285 4,983,579
Less: Cash distribution to investors:
-- from operating cash flow(5)............................................. 2,422,433 4,274,550 4,154,307 4,198,176
-- from sales and refinancing.............................................. 0 0 0 0
Cash generated (deficiency) after cash distributions........................ 772,456 234,939 1,084,978 785,403
Less: Special items........................................................ 0 0 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................................. 772,456 234,939 1,084,978 785,403
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................................... $ 51.96 $ 50.54 $ 19.26 $ 23.92
Other...................................................................... 0 0 0 0
Capital gain............................................................... 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income...................................................... 47.49 72.72 68.46 74.81
-- Return of capital...................................................... 0 7.85 12.98 7.49
Source (on cash basis):
-- Sales.................................................................. 0 0 0 0
-- Refinancing............................................................ 0 0 0 0
-- Operations............................................................. 47.49 80.57 81.44 82.30
Amount (in percentage terms) remaining invested in program properties at the
end of the last year reported in the Table (original total acquisition cost
of properties retained divided by original total acquisition cost of all
properties in program)..................................................... N/A N/A N/A 100%
<CAPTION>
CPA(R):6
------------------------------------------
1989 1990 1991
----------- ----------- ------------
<S> <C> <C> <C>
Gross Revenues.............................................................. $10,904,247 $11,092,133 $ 11,406,582
Gain on sale................................................................ 0 0 0
Other....................................................................... 0 0 (55,783)(1)
Extraordinary (charge) gain................................................. 0 0 (13,559)(2)
Less:
Operating expenses......................................................... 575,222 802,183 1,078,174
Interest expense........................................................... 5,388,140 5,269,354 5,222,844
Depreciation............................................................... 1,418,340 1,418,339 1,418,968
Net Income-GAAP Basis....................................................... 3,522,545 3,602,257 3,617,254
Taxable Income:
-- from operations......................................................... 1,218,257 1,338,235 1,831,848
-- from gain on sale....................................................... 0 0 0
-- from extraordinary charge............................................... 0 0 (13,559)(2)
-- from other.............................................................. 0 0 (250,032)(1)
Cash generated from operations(4)........................................... 5,032,548 5,201,952 5,719,005
Cash generated from sales................................................... 0 0 0
Cash generated from refinancing............................................. 0 0 870,913
Cash generated from other................................................... 0 0 0
Cash generated from operations, sales, refinancing and other................ 5,032,548 5,201,952 6,589,918
Less: Cash distribution to investors:
-- from operating cash flow(5)............................................. 4,247,146 4,316,026 4,421,586
-- from sales and refinancing.............................................. 0 0 0
Cash generated (deficiency) after cash distributions........................ 785,402 885,926 2,168,332
Less: Special items........................................................ 0 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................................. 785,402 885,926 2,168,332
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................................... $ 23.88 $ 26.23 $ 35.65
Other...................................................................... 0 0 0
Capital gain............................................................... 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income...................................................... 69.06 70.62 70.91
-- Return of capital...................................................... 14.20 13.99 15.77
Source (on cash basis):
-- Sales.................................................................. 0 0 0
-- Refinancing............................................................ 0 0 0
-- Operations............................................................. 83.26 84.61 86.68
Amount (in percentage terms) remaining invested in program properties at the
end of the last year reported in the Table (original total acquisition cost
of properties retained divided by original total acquisition cost of all
properties in program)..................................................... 100% 100% 100%
<CAPTION>
CPA(R):6
--------------------------------------------
1992 1993 1994
------------ ----------- -----------
<S> <C> <C> <C>
Gross Revenues.............................................................. $ 14,177,113 $15,387,180 $15,693,853
Gain on sale................................................................ 0 0 0
Other....................................................................... (75,211)(3) N/A N/A
Extraordinary (charge) gain................................................. 0 N/A N/A
Less:
Operating expenses......................................................... 2,858,645 4,706,491 5,933,070
Interest expense........................................................... 5,319,971 5,122,703 5,040,589
Depreciation............................................................... 1,668,951 1,637,678 1,621,029
Net Income-GAAP Basis....................................................... 4,254,335 3,920,308 3,099,165
Taxable Income:
-- from operations......................................................... 2,227,427 2,091,787 1,156,303
-- from gain on sale....................................................... 0 0 0
-- from extraordinary charge............................................... 0 0 0
-- from other.............................................................. 27,303(3) 0 0
Cash generated from operations(4)........................................... 6,066,705 5,531,994 5,094,336
Cash generated from sales................................................... 0 0 0
Cash generated from refinancing............................................. 2,414,076 0 0
Cash generated from other................................................... 17,008(3) 0 0
Cash generated from operations, sales, refinancing and other................ 8,497,789 5,531,994 5,094,336
Less: Cash distribution to investors:
-- from operating cash flow(5)............................................. 4,633,297 4,676,223 4,704,691
-- from sales and refinancing.............................................. 0 0 0
Cash generated (deficiency) after cash distributions........................ 3,864,492 855,771 389,645
Less: Special items........................................................ 0 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................................. 3,864,492 855,771 389,645
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................................... $ 43.67 $ 41.01 $ 22.67
Other...................................................................... 0.54 0 0
Capital gain............................................................... 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income...................................................... 83.40 76.85 60.76
-- Return of capital...................................................... 7.43 14.82 31.47
Source (on cash basis):
-- Sales.................................................................. 0 0 0
-- Refinancing............................................................ 0 0 0
-- Operations............................................................. 90.83 91.67 92.23
Amount (in percentage terms) remaining invested in program properties at the
end of the last year reported in the Table (original total acquisition cost
of properties retained divided by original total acquisition cost of all
properties in program)..................................................... 100% 100% 100%
<CAPTION>
CPA(R):6
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gross Revenues.............................................................. $16,737,899 $16,537,296
Gain on sale................................................................ 0 70,878(7)
Other....................................................................... N/A N/A
Extraordinary (charge) gain................................................. 2,088,268(6) N/A
Less:
Operating expenses......................................................... 4,942,528 4,914,538
Interest expense........................................................... 4,499,692 4,003,726
Depreciation............................................................... 1,525,011 1,664,514
Net Income-GAAP Basis....................................................... 7,858,936 6,025,396
Taxable Income:
-- from operations......................................................... 7,871,636 3,450,345
-- from gain on sale....................................................... 0 242,713
-- from extraordinary charge............................................... 0 0
-- from other.............................................................. 0 0
Cash generated from operations(4)........................................... 11,133,036 7,615,526
Cash generated from sales................................................... 0 0
Cash generated from refinancing............................................. 0 0
Cash generated from other................................................... 0 0
Cash generated from operations, sales, refinancing and other................ 11,133,036 7,615,526
Less: Cash distribution to investors:
-- from operating cash flow(5)............................................. 4,736,359 4,880,911
-- from sales and refinancing.............................................. 0
Cash generated (deficiency) after cash distributions........................ 6,396,677 2,734,615
Less: Special items........................................................ 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................................. 6,396,677 2,734,615
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................................... $ 154.38 $ 67.67
Other...................................................................... 0 0
Capital gain............................................................... 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income...................................................... 92.89 95.72
-- Return of capital...................................................... 0 0
Source (on cash basis):
-- Sales.................................................................. 0 0
-- Refinancing............................................................ 0 0
-- Operations............................................................. 92.89 95.72
Amount (in percentage terms) remaining invested in program properties at the
end of the last year reported in the Table (original total acquisition cost
of properties retained divided by original total acquisition cost of all
properties in program)..................................................... 100% 99.79%
</TABLE>
FOOTNOTES
(1) Represents acquisition of hotel operations for properties formerly leased to
subsidiaries of Landmark Hotel Corporation.
(2) Represents unamortized balance of deferred charges in connection with the
refinancing of the mortgage loan secured by a property leased to Martin
Marrietta Corporation.
(3) Represents acquisition of hotel operations for property formerly leased to
Integra-A Hotel and Restaurant Company.
(4) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects of
changes primarily in accrued liabilities, receivables and other assets are
taken into account, but other items such as principal amortization of loans
are not included. Cash from operations pursuant to the Statement of Changes
in Financial Position includes the effect of loan amortization, but excludes
the effects of changes in accrued liabilities, receivables and other assets.
A-13
<PAGE> 201
(5) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations in
prior years that has not previously been distributed.
(6) Represents gain on restructuring of debt on the property leased to Anthony's
Manufacturing Company, Inc.
(7) Result from the sale of two properties leased to Autozone, Inc.
NOTES
(1) CPA(R):6 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $24.25 and April,
1997 -- $24.27.
A-14
<PAGE> 202
TABLE III (7 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase
of Prior Programs, the offerings of which have been closed since December 31,
1979. This Table is designed to provide the investor with information on the
financial operations of such Prior Programs. The results shown in this Table are
in all cases for years ended December 31. THE INFORMATION PRESENTED IN THIS
TABLE SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):7
----------------------------------
1986 1987 1988
-------- ---------- ----------
<S> <C> <C> <C>
Gross Revenues........................................................................... $ 90,399 $4,119,934 $9,066,142
Profit (loss) on sale of properties...................................................... N/A N/A N/A
Gain on sale of securities............................................................... N/A N/A 1,766,185(3)
Extraordinary gain charge................................................................
Write-down of property................................................................... N/A N/A N/A
Other.................................................................................... N/A N/A N/A
Less:
Operating expenses...................................................................... 46,413 326,846 1,848,463
Interest expense........................................................................ 22,911 1,389,385 3,479,631
Depreciation............................................................................ 0 131,567 1,009,247
Net Income-GAAP Basis.................................................................... 21,075 2,272,136 4,494,986
Taxable Income (Loss):
-- from operations...................................................................... (51,877) 1,203,013 1,585,180
-- from gain (loss) on sales............................................................ 0 0 1,766,185(3)
-- other................................................................................ 0 0 0
Cash generated from operations........................................................... 1,550,648 1,115,274 4,136,538
Cash generated from sales................................................................ 0 0 1,766,185(3)
Cash generated from refinancing.......................................................... 0 0 0
Cash generated from other................................................................ 0 0 0
Cash generated from operations, sales, refinancing and other............................. 1,550,648 1,115,274 5,902,723
Less: Cash distribution to investors:
-- from operating cash flow(6).......................................................... 0 1,363,271 3,902,233
-- from sales and refinancing........................................................... 0 0 0
Cash generated (deficiency) after cash distributions..................................... 1,550,648 (247,997) 2,000,490
Less: Special items...................................................................... 0 0 0
Cash generated (deficiency) after cash distributions and special items................... 1,550,648 (247,997) 2,000,490
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).................................................................. $ (4.29) $ 24.98 $ 32.91
Other................................................................................... 0 0 0
Capital gain............................................................................ 0 0 36.67
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................................................................... 0 60.60 81.02
-- Return of capital.................................................................... 0 0 0
Source (on cash basis):
-- Sales................................................................................ 0 0 0
-- Refinancing.......................................................................... 0 0 0
-- Operations........................................................................... 0 60.60 81.02
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... N/A N/A N/A
<CAPTION>
CPA(R):7
---------------------------
1989 1990
----------- -----------
<S> <C> <C>
Gross Revenues........................................................................... $14,071,843 $13,725,684
Profit (loss) on sale of properties...................................................... N/A 58,172(1)
Gain on sale of securities............................................................... 48,158(3) 69,544(3)
Extraordinary gain charge................................................................
Write-down of property................................................................... N/A (500,000)(2)
Other.................................................................................... N/A N/A
Less:
Operating expenses...................................................................... 5,576,552 6,194,008
Interest expense........................................................................ 4,657,478 4,718,573
Depreciation............................................................................ 1,422,116 1,567,896
Net Income-GAAP Basis.................................................................... 2,463,855 872,923
Taxable Income (Loss):
-- from operations...................................................................... 1,195,514 3,689
-- from gain (loss) on sales............................................................ 48,158(3) 127,716(1)(3)
-- other................................................................................ 0 0
Cash generated from operations........................................................... 3,745,289 3,153,131
Cash generated from sales................................................................ 48,158(3) 245,324
Cash generated from refinancing.......................................................... 0 0
Cash generated from other................................................................ 0 0
Cash generated from operations, sales, refinancing and other............................. 3,793,447 3,398,455
Less: Cash distribution to investors:
-- from operating cash flow(6).......................................................... 3,940,765 3,992,781
-- from sales and refinancing........................................................... 0 0
Cash generated (deficiency) after cash distributions..................................... (147,318) (594,326)
Less: Special items...................................................................... 0 0
Cash generated (deficiency) after cash distributions and special items................... (147,318) (594,326)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).................................................................. $ 24.82 $ .08
Other................................................................................... 0 0
Capital gain............................................................................ 1.00 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................................................................... 51.16 18.12
-- Return of capital.................................................................... 30.66 64.78
Source (on cash basis):
-- Sales................................................................................ 0 0
-- Refinancing.......................................................................... 0 0
-- Operations........................................................................... 81.82 82.90
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... 100% 99.86%
<CAPTION>
CPA(R):7
----------------------------
1991 1992
----------- -----------
<S> <C> <C>
Gross Revenues........................................................................... $13,648,275 $14,502,032
Profit (loss) on sale of properties...................................................... 54,197(4) N/A
Gain on sale of securities............................................................... N/A N/A
Extraordinary gain charge................................................................
Write-down of property................................................................... N/A N/A
Other.................................................................................... N/A (141,723)(5)
Less:
Operating expenses...................................................................... 6,170,575 6,404,695
Interest expense........................................................................ 4,471,097 4,155,956
Depreciation............................................................................ 1,607,889 1,616,335
Net Income-GAAP Basis.................................................................... 1,452,911 2,183,323
Taxable Income (Loss):
-- from operations...................................................................... 746,150 1,534,247
-- from gain (loss) on sales............................................................ 54,197(4) 0
-- other................................................................................ 0 51,875(5)
Cash generated from operations........................................................... 3,303,198 4,489,865
Cash generated from sales................................................................ 183,430(4) 0
Cash generated from refinancing.......................................................... 978,087 0
Cash generated from other................................................................ 0 32,313(5)
Cash generated from operations, sales, refinancing and other............................. 4,464,715 4,522,178
Less: Cash distribution to investors:
-- from operating cash flow(6).......................................................... 3,303,198 3,388,324(7)
-- from sales and refinancing........................................................... 503,673 0
Cash generated (deficiency) after cash distributions..................................... 657,844 1,133,854
Less: Special items...................................................................... 0 0
Cash generated (deficiency) after cash distributions and special items................... 657,844 1,133,854
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).................................................................. $ 15.49 $ 31.85
Other................................................................................... 0 1.08
Capital gain............................................................................ 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................................................................... 30.17 45.33
-- Return of capital.................................................................... 53.03 20.86
Source (on cash basis):
-- Sales................................................................................ 0 0
-- Refinancing.......................................................................... 10.46 0
-- Operations........................................................................... 72.74 66.19
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... 99.70% 99.70%
<CAPTION>
CPA(R):7
----------------------------
1993 1994
----------- -----------
<S> <C> <C>
Gross Revenues........................................................................... $12,243,029 $13,840,052
Profit (loss) on sale of properties...................................................... (552,383)(8) 7,814,474(10)
Gain on sale of securities............................................................... N/A N/A
Extraordinary gain charge................................................................ 879,433(12) (511,503)
Write-down of property................................................................... (3,303,228)(9) (641,731)(11)
Other.................................................................................... 435,106(3) 986,155
Less:
Operating expenses...................................................................... 4,485,628 4,336,235
Interest expense........................................................................ 3,324,398 3,537,640
Depreciation............................................................................ 1,647,397 1,619,726
Net Income-GAAP Basis.................................................................... 244,534 11,993,846
Taxable Income (Loss):
-- from operations...................................................................... 11,218,042 2,452,425
-- from gain (loss) on sales............................................................ 2,093,467 10,460,324
-- other................................................................................ 283,740 682,500
Cash generated from operations........................................................... 4,135,048 5,347,231
Cash generated from sales................................................................ 283,740 14,662,004
Cash generated from refinancing.......................................................... 1,047,890 700,000
Cash generated from other................................................................ 3,578 38,281
Cash generated from operations, sales, refinancing and other............................. 5,470,256 20,747,516
Less: Cash distribution to investors:
-- from operating cash flow(6).......................................................... 2,948,590 3,246,729
-- from sales and refinancing........................................................... 0 0
Cash generated (deficiency) after cash distributions..................................... 2,521,666 17,500,787
Less: Special items...................................................................... 0 0
Cash generated (deficiency) after cash distributions and special items................... 2,521,666 17,500,787
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).................................................................. $ 232.91 $ 50.92
Other................................................................................... 5.89 14.17
Capital gain............................................................................ 43.47 217.18
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................................................................... 5.08 67.41
-- Return of capital.................................................................... 56.14 0
Source (on cash basis):
-- Sales................................................................................ 0 0
-- Refinancing.......................................................................... 0 0
-- Operations........................................................................... 61.22 67.41
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... 97.86% 83.50%
<CAPTION>
CPA(R):7
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gross Revenues........................................................................... $12,196,252 $12,731,328
Profit (loss) on sale of properties...................................................... 1,019,362(13) 74,729(17)
Gain on sale of securities............................................................... 1,323,858(13) N/A
Extraordinary gain charge................................................................ --
Write-down of property................................................................... (319,685)(14) --
Other.................................................................................... 111,226(15) (128,879)(15)
Less:
Operating expenses...................................................................... 4,986,585 5,181,249
Interest expense........................................................................ 2,456,129 1,942,737
Depreciation............................................................................ 1,361,952 1,154,088
Net Income-GAAP Basis.................................................................... 5,526,347 4,399,104
Taxable Income (Loss):
-- from operations...................................................................... 3,451,813 3,856,378
-- from gain (loss) on sales............................................................ 0 (188,980)
-- other................................................................................ 0 0
Cash generated from operations........................................................... 5,089,776 5,499,073
Cash generated from sales................................................................ 1,546,019(13) 617,867(17)
Cash generated from refinancing.......................................................... --
Cash generated from other................................................................ 31,457(16) 27,761(16)
Cash generated from operations, sales, refinancing and other............................. 6,667,252 6,144,701
Less: Cash distribution to investors:
-- from operating cash flow(6).......................................................... 10,434,626 3,483,017
-- from sales and refinancing........................................................... 0 0
Cash generated (deficiency) after cash distributions..................................... (3,767,490) 2,661,684
Less: Special items...................................................................... 0
Cash generated (deficiency) after cash distributions and special items................... (3,767,490) 2,661,684
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).................................................................. 71.77 $ 80.18
Other................................................................................... 0 0
Capital gain............................................................................ 0 (4.14)
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................................................................... 114.82 91.47
-- Return of capital.................................................................... 101.98 0
Source (on cash basis):
-- Sales................................................................................ 0
-- Refinancing.......................................................................... 0
-- Operations........................................................................... 216.80 72.42
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... 73.82% 73.16%
</TABLE>
A-15
<PAGE> 203
FOOTNOTES
(1) Results from the sale of approximately 10 acres of land which was a portion
of the property net leased to Emb-Tex Corporation.
(2) Represents write-down of 10 properties formerly net leased to Yellow Front
Stores, Inc.
(3) Represents the gain on the sale of securities of Mid-Continent Bottlers,
Inc. and income from equity investments.
(4) Results of the sale of .22 acres of land formerly part of a property
located in Scottsdale, Arizona. See Table V.
(5) Represents acquisition of hotel operations for property formerly leased to
Integra-A Hotel and Restaurant Company.
(6) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(7) Includes $200,364 of distributions paid to the Corporate General Partner
attributable to 1991.
(8) Results from sale of properties located in Travelers Rest, South Carolina
and Phoenix, Arizona.
(9) Represents write-down of the Jupiter and Plant City, Florida properties.
(10) Results from sale of properties leased to Mid-Continent, Bottlers, Inc.
(11) Represents write-down of properties located in Fredricksburg, Virginia and
Jefferson, Georgia.
(12) Represents an extraordinary gain upon extinguishment of the Yellow Front
Stores, Inc. loan.
(13) Result of sale of the Jupiter, Florida Property.
(14) Represents writedown of Monte Vista, Colorado property.
(15) Represents earnings from discontinued operations and loss from equity
investments.
(16) Represents cash distributed from equity investments.
(17) Result of sale of property in Denham Springs, Louisiana leased to AutoZone,
Inc. and a property in Monte Vista, Colorado formerly leased to Yellow
Front Stores, Inc.
NOTES
(1) CPA(R):7 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $18.28 and April,
1997 -- $18.30.
A-16
<PAGE> 204
TABLE III (8 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PROGRAMS. MORTGAGE FINANCING FOR THE CPA(R) PROGRAMS MAY
HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR INVESTMENT BY
SUCH PROGRAMS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY ALTER CERTAIN OF
THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):8
------------------------------------------
1988 1989 1990
---------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues......................................................................... $2,877,969 $11,744,379 $14,120,755
Profit on sale of properties........................................................... N/A N/A N/A
Other.................................................................................. N/A N/A N/A
Extraordinary charge................................................................... N/A N/A N/A
Less:
Operating expenses.................................................................... 322,625 934,022 912,831
Interest expense...................................................................... 939,460 4,871,609 6,917,234
Depreciation.......................................................................... 214,618 877,918 1,204,389
Minority Interest..................................................................... N/A N/A N/A
Net Income-GAAP Basis.................................................................. 1,401,266 5,060,830 5,086,301
Taxable Income (Loss):
-- from operations.................................................................... 1,043,085 3,268,042 2,910,667
-- from gain on sale..................................................................
-- from other......................................................................... 0 0 0
-- from extraordinary charge.......................................................... 0 0 0
Cash generated from operations......................................................... 1,697,043 5,752,461 6,303,966
Cash generated from sales.............................................................. 0 0 0
Cash generated from refinancing........................................................ 0 0 0
Cash generated from other.............................................................. 0 0 0
Cash generated from operations, sales, refinancing and other........................... 1,697,043 5,752,461 6,303,966
Less: Cash distribution to investors:
-- from operating cash flow(4)........................................................ 728,786 5,575,793 6,165,188
-- from sales and refinancing......................................................... 0 0 0
Cash generated (deficiency) after cash distributions................................... 968,257 176,668 138,778
Less: Special items.................................................................... 0 0 0
Cash generated (deficiency) after cash distributions and special items................. 968,257 176,668 138,778
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ 16.97 $ 43.41 $ 38.67
Other............................................................................... 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 20.91 67.23 67.57
-- Return of capital................................................................ 0 6.84 14.33
Source (on cash basis):
-- Sales............................................................................ 0 0 0
-- Refinancing...................................................................... 0 0 0
-- Operations....................................................................... 20.91 74.07 81.90
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... N/A N/A 100%
<CAPTION>
CPA(R):8
-------------------------------------------
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues......................................................................... $14,396,115 $15,176,928 $18,060,581
Profit on sale of properties........................................................... 1,736(1) N/A N/A
Other.................................................................................. N/A (51,219)(2) 21,111
Extraordinary charge................................................................... N/A N/A N/A
Less:
Operating expenses.................................................................... 1,214,634 2,227,334 4,151,151
Interest expense...................................................................... 7,095,848 6,943,303 6,737,293
Depreciation.......................................................................... 1,490,532 1,642,518 1,935,624
Minority Interest..................................................................... N/A N/A N/A
Net Income-GAAP Basis.................................................................. 4,596,837 4,312,554 5,257,624
Taxable Income (Loss):
-- from operations.................................................................... 2,819,692 3,009,471 5,060,536
-- from gain on sale..................................................................
-- from other......................................................................... 1,736(1) (17,110)(2) 0
-- from extraordinary charge.......................................................... 0 0 0
Cash generated from operations......................................................... 6,285,116 6,321,159 8,376,844
Cash generated from sales.............................................................. 7,991(1) 0 0
Cash generated from refinancing........................................................ 0 0 0
Cash generated from other.............................................................. 0 16,408(2) 253,858
Cash generated from operations, sales, refinancing and other........................... 6,293,107 6,337,567 8,630,702
Less: Cash distribution to investors:
-- from operating cash flow(4)........................................................ 6,225,409 6,285,600 6,327,785
-- from sales and refinancing......................................................... 0 0 0
Cash generated (deficiency) after cash distributions................................... 67,698 51,697 2,302,917
Less: Special items.................................................................... 0 0 0
Cash generated (deficiency) after cash distributions and special items................. 67,698 51,697 2,302,917
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ 37.46 $ 39.98 $ 67.23
Other............................................................................... 0.02(1) (0.23)(2) 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 61.07 57.29 69.84
-- Return of capital................................................................ 21.63 26.21 14.22
Source (on cash basis):
-- Sales............................................................................ 0 0 0
-- Refinancing...................................................................... 0 0 0
-- Operations....................................................................... 82.70 83.50 84.06
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... 99.99% 99.99% 99.99%
<CAPTION>
CPA(R):8
----------------------------
1994 1995
----------- -----------
<S> <C> <C>
Gross Revenues......................................................................... $18,804,769 $19,886,284
Profit on sale of properties........................................................... N/A N/A
Other.................................................................................. 83,736 (62,359)(4)
Extraordinary charge................................................................... (120,000)(3) N/A
Less:
Operating expenses.................................................................... 4,445,083 3,774,470
Interest expense...................................................................... 6,266,275 5,799,127
Depreciation.......................................................................... 1,997,946 1,912,503
Minority Interest..................................................................... N/A N/A
Net Income-GAAP Basis.................................................................. 5,892,029 8,337,825
Taxable Income (Loss):
-- from operations.................................................................... 4,565,116 7,475,178
-- from gain on sale..................................................................
-- from other......................................................................... 0 0
-- from extraordinary charge.......................................................... 0 0
Cash generated from operations......................................................... 8,627,436 10,271,234
Cash generated from sales.............................................................. 0
Cash generated from refinancing........................................................ 0 0
Cash generated from other.............................................................. 289,805 282,992(4)
Cash generated from operations, sales, refinancing and other........................... 8,917,241 10,554,226
Less: Cash distribution to investors:
-- from operating cash flow(4)........................................................ 6,357,899 6,413,927
-- from sales and refinancing......................................................... 0 0
Cash generated (deficiency) after cash distributions................................... 2,559,342 4,140,299
Less: Special items.................................................................... 0 0
Cash generated (deficiency) after cash distributions and special items................. 2,559,342 4,140,299
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ 60.64 $ 99.55
Other............................................................................... 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 78.27 85.34
-- Return of capital................................................................ 6.19 0
Source (on cash basis):
-- Sales............................................................................ 0 0
-- Refinancing...................................................................... 0 0
-- Operations....................................................................... 84.46 85.34
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... 97.69% 97.69%
<CAPTION>
CPA(R):8
-----------
1996
-----------
<S> <C>
Gross Revenues......................................................................... $16,207,400(5)
Profit on sale of properties........................................................... 21,697(6)
Other.................................................................................. 1,239,400(4)
Extraordinary charge................................................................... N/A
Less:
Operating expenses.................................................................... 1,242,655
Interest expense...................................................................... 5,232,928
Depreciation.......................................................................... 1,539,737
Minority Interest..................................................................... N/A
Net Income-GAAP Basis.................................................................. 9,453,177
Taxable Income (Loss):
-- from operations.................................................................... 7,792,097
-- from gain on sale.................................................................. 50,641
-- from other......................................................................... 0
-- from extraordinary charge.......................................................... 0
Cash generated from operations......................................................... 10,947,671
Cash generated from sales.............................................................. 154,499
Cash generated from refinancing........................................................ 0
Cash generated from other.............................................................. 161,795(4)
Cash generated from operations, sales, refinancing and other........................... 11,263,965
Less: Cash distribution to investors:
-- from operating cash flow(4)........................................................ 6,549,558
-- from sales and refinancing......................................................... 0
Cash generated (deficiency) after cash distributions................................... 4,714,407
Less: Special items.................................................................... 0
Cash generated (deficiency) after cash distributions and special items................. 4,714,407
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).............................................................. $ 103.77
Other............................................................................... 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................................................................ 87.22
-- Return of capital................................................................ 0
Source (on cash basis):
-- Sales............................................................................ 0
-- Refinancing...................................................................... 0
-- Operations....................................................................... 87.22
Amount (in percentage terms) remaining invested in program properties at the end of the
last year reported in the Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all properties in program)..... 97.25%
</TABLE>
A-17
<PAGE> 205
FOOTNOTES
(1) Results from the sale of a parcel of land which was a portion of the
property net leased to Furon Company.
(2) Represents acquisition of hotel operations for property formerly leased to
Integra-A Hotel and Restaurant Company.
(3) Results from the refinancing of property leased to Detroit Diesel
Corporation.
(4) Includes of equity income for 1993, 1994, 1995 and 1996 income (loss) and
hotel operating results for 1996.
(5) Results from the exchange of a hotel property in Kennes, Louisiana for an
investment in American General Hospitality Operating Partnership L.P.
(6) Results from the sale of two properties leased to Furon Company.
NOTES
(1) CPA(R):8 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $22.00 and April,
1997 -- $22.02.
A-18
<PAGE> 206
TABLE III (9 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PROGRAMS. MORTGAGE FINANCING FOR THE CPA(R) PROGRAMS MAY
HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR INVESTMENT BY
SUCH PROGRAMS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY ALTER CERTAIN OF
THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):9
------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues............ $2,543,943 $10,284,029 $12,514,907 $12,280,669 $12,216,612 $11,612,360
Profit on sale of
properties............... N/A N/A 1,731(1) N/A N/A N/A
Other..................... N/A N/A N/A N/A 658,052 669,020
Write-down of property....
Extraordinary charge...... N/A N/A N/A N/A N/A (480,000)(4)
Less:
Operating expenses....... 432,917 808,315 887,820 1,308,664 963,533 949,925
Interest expense......... 1,122,585 5,063,322 6,631,202 6,425,597 6,347,577 5,726,296
Depreciation............. 29,901 1,141,461 1,697,599 1,697,599 1,697,599 1,697,599
Minority Interest........ N/A N/A N/A N/A N/A N/A
Net Income-GAAP Basis..... 958,540 3,270,931 3,300,017 2,848,809 3,865,955 3,427,560
Taxable Income (Loss):
-- from operations....... 710,320 2,624,917 2,816,278 2,612,003 3,316,011 3,030,197
-- from gain on sale.....
-- from other............ 0 0 1,731(1) 0 0 0
-- from extraordinary
charge................ 0 0 0 0 0 0
Cash generated from
operations............... 1,784,343 3,895,420 5,662,385 5,211,896 5,906,190 5,807,477
Cash generated from
sales.................... 0 0 1,897 0 522,878 0
Cash generated from
refinancing.............. 0 0 0 0 0 0
Cash generated from
other.................... 0 0 0 0 0 484,044
Cash generated from
operations, sales,
refinancing and other.... 1,784,343 3,895,420 5,664,282 5,211,896 6,429,068 6,291,521
Less: Cash distribution to
investors:
-- from operating cash
flow(4)................ 551,330 4,802,863 5,476,956 5,526,795 5,562,850 5,589,709
-- from sales and
refinancing............ 0 0 0 0 0 0
Cash generated (deficiency)
after cash
distributions............ 1,233,013 (907,443) 187,326 (314,899) 866,218 701,812
Less: Special items....... 0 0 0 0 0 0
Cash generated (deficiency)
after cash distributions
and special items........ 1,233,013 (907,443) 187,326 (314,899) 866,218 701,812
Tax and Distribution Data
Per $1000 Invested
Federal Income Tax Results:
Ordinary income
(loss)................ $ 12.64 $ 39.38 $ 42.30 $ 39.24 $ 49.81 $ 45.51
Capital gain...........
Other.................. 0 0 0.03(1) 0 0 0
Cash Distributions to
Investors:
Source (on GAAP basis):
-- Investment income... 20.12 49.07 49.57 42.79 58.07 51.48
-- Return of capital... 0 22.98 32.65 40.23 25.49 32.48
Source (on cash basis):
-- Sales............... 0 0 0 0 0 0
-- Refinancing......... 0 0 0 0 0 0
-- Operations.......... 20.12 72.05 82.22 83.02 83.56 83.96
Amount (in percentage terms)
remaining invested in program
properties at the end of the
last year reported in the
Table (original total
acquisition cost of
properties retained divided
by original total acquisition
cost of all properties in
program)................. N/A N/A 99.99% 99.99% 99.99% 99.99%
<CAPTION>
CPA(R):10
----------------------------------------------------------------------------
1995 1996 1990 1991 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues................ $11,946,610 $12,074,578 $ 1,783,676 $11,169,869 $15,889,968
Profit on sale of
properties................... N/A 45,066(11) N/A N/A N/A
Other......................... (535,337)(6) 658,416(9) N/A N/A N/A
Write-down of property........
Extraordinary charge.......... N/A N/A N/A (40,818)(2) N/A
Less:
Operating expenses........... 998,762 564,905 393,287 1,358,840 2,241,255
Interest expense............. 5,525,604 5,360,760 711,223 5,149,717 7,460,861
Depreciation................. 1,697,599 1,677,253 230,176 1,242,512 1,756,126
Minority Interest............ N/A N/A 72,594 492,191 570,880
Net Income-GAAP Basis......... 3,189,308 5,175,142 376,396 2,885,791 3,860,846
Taxable Income (Loss):
-- from operations........... 3,805,214 4,431,434 452,075 2,958,235 3,059,213
-- from gain on sale......... 106,024
-- from other................ 0 0 0 0 0
-- from extraordinary
charge..................... 0 0 0 (40,818)(2) 0
Cash generated from
operations................... 5,921,560 6,162,302 496,208 4,881,135 6,071,495
Cash generated from sales..... 0 0 0
Cash generated from 0 324,126(11)
refinancing.................. 0 0 0 0 0
Cash generated from other..... 463,274(7) 388,329(7) 0 0 0
Cash generated from
operations, sales,
refinancing and other........ 6,384,834 6,874,757 496,208 4,881,135 6,071,495
Less: Cash distribution to
investors:
-- from operating cash
flow(4).................... 5,616,322 5,643,736 0 4,266,821 5,860,479
-- from sales and
refinancing................ 0 0 0 0 0
Cash generated (deficiency)
after cash distributions..... 768,512 1,231,021 496,208 614,314 211,016
Less: Special items........... 0 0 0 0 0
Cash generated (deficiency)
after cash distributions and
special items................ 768,512 1,231,021 496,208 614,314 211,016
Tax and Distribution Data Per
$1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..... $ 57.16 $ 66.56 $ 9.38 $ 40.42 $ 42.39
Capital gain............... 0
Other...................... 0 0 0 0.00 0
Cash Distributions to
Investors:
Source (on GAAP basis):
-- Investment income....... 47.90 77.73 0 45.13 53.49
-- Return of capital....... 36.45 7.04 0 21.60 27.71
Source (on cash basis):
-- Sales................... 0 0 0 0 0
-- Refinancing............. 0 0 0 0 0
-- Operations.............. 84.36 84.77 0 66.73 81.20
Amount (in percentage terms)
remaining invested in program
properties at the end of the
last year reported in the
Table (original total
acquisition cost of
properties retained divided
by original total acquisition
cost of all properties in
program)..................... 99.99% 92.90% N/A N/A N/A
<CAPTION>
CPA(R): 10
--------------------------------------------------------------------------
1993 1994 1995 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Gross Revenues................ $16,128,694 $16,386,307 $16,131,750 $15,505,748
Profit on sale of
properties................... N/A 1,177,284(5) N/A 1,051,823(13)
Other......................... 1,478,086 1,529,736 1,595,406(9) 1,718,797(9)
Write-down of property........ (7,519,431)(8) (1,753,139)(12)
Extraordinary charge.......... N/A (253,902)
Less:
Operating expenses........... 2,511,268 2,894,710 2,887,021 3,030,780
Interest expense............. 8,082,223 8,151,222 8,310,440 7,911,209
Depreciation................. 1,944,589 1,945,769 1,967,631 2,007,557
Minority Interest............ 587,472 599,839 (1,881,218) 583,283
Net Income-GAAP Basis......... 4,481,228 5,247,885 (1,076,149) 2,990,400
Taxable Income (Loss):
-- from operations........... 2,697,330 2,618,952 3,778,032 3,529,835
-- from gain on sale......... 129,811
-- from other................ 0 823,905 0
-- from extraordinary
charge..................... 0 0 0 0
Cash generated from
operations................... 6,284,822 6,311,466 6,263,624 6,656,840
Cash generated from sales..... 0 0 5,122,501(10) 7,781,582(13)
Cash generated from
refinancing.................. 0 0 0 0
Cash generated from other..... 0 0 0 0
Cash generated from
operations, sales,
refinancing and other........ 6,284,822 6,311,466 11,386,125 14,438,422
Less: Cash distribution to
investors:
-- from operating cash
flow(4).................... 5,916,386 5,950,669 5,975,481 5,981,514
-- from sales and
refinancing................ 0 0 0 0
Cash generated (deficiency)
after cash distributions..... 368,436 360,797 5,410,644 8,456,908
Less: Special items........... 0 0 0 0
Cash generated (deficiency)
after cash distributions and
special items................ 368,436 360,797 5,410,644 8,456,908
Tax and Distribution Data Per
$1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..... $ 37.37 $ 36.29 $ 52.35 $ 48.98
Capital gain............... 1.80
Other...................... 0 11.42 0 0
Cash Distributions to
Investors:
Source (on GAAP basis):
-- Investment income....... 62.09 72.71 (14.93) 41.50
-- Return of capital....... 19.88 9.74 97.81 41.50
Source (on cash basis):
-- Sales................... 0 0 0 0
-- Refinancing............. 0 0 0 0
-- Operations.............. 81.98 82.45 82.88 83.00
Amount (in percentage terms)
remaining invested in program
properties at the end of the
last year reported in the
Table (original total
acquisition cost of
properties retained divided
by original total acquisition
cost of all properties in
program)..................... 100% 93.93% 93.93% 82.27%
</TABLE>
A-19
<PAGE> 207
FOOTNOTES
(1) Results from the sale of a parcel of land which was a portion of the
property net leased to Furon Company.
(2) Represents loan prepayment charge resulting from refinancing of loan
secured by property located in Denton, Texas leased to K mart Corporation.
(3) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(4) Results from the refinancing of property leased to Detroit Diesel
Corporation.
(5) Results from sale of properties leased to Data Documents Inc. and the Pace
Membership Warehouse, Inc.
(6) Represents write-off of investment in Limited Partnership and income from
Equity investments.
(7) Represents cash distributions from Equity investments in excess of income.
(8) Represents write-down of the Stamford, Connecticut property.
(9) Results of Equity investments for 1993, 1994, 1995 and 1996.
(10) Results of sale of Data Documents property.
(11) Results from the sale of two properties leased to Furon Company.
(12) Represents write-down of the Harvest Foods, Inc. properties.
(13) Results from the sale of properties leased to Safeway Stores Incorporated,
Empire of America Realty Credit Corp. and Best Buy Co., Inc.
NOTES
(1) CPA(R):9 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $21.24 and April,
1997 -- $21.24.
(2) CPA(R):10 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $20.75 and April,
1997 -- $17.55.
A-20
<PAGE> 208
TABLE III (10 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PROGRAMS. MORTGAGE FINANCING FOR THE CPA(R) PROGRAMS MAY
HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR INVESTMENT BY
SUCH PROGRAMS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY ALTER CERTAIN OF
THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CIP(TM)
-----------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
--------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues........................... $ 92,097 $5,306,275 $17,637,235 $25,958,329 $29,238,322 $32,546,638
Profit (loss) on sale of properties...... NA 1,535,763(2) 0 (7,630)(6)
Other.................................... 1,478,086 1,613,451 2,800,337(4) 3,633,869(4)(7)
Extraordinary charge..................... NA NA (401,269)(3) (275,000)(3)
Write-down of property................... (1,753,455)
Less:
Operating expenses..................... 207,640 1,638,870 3,456,274 4,490,683 5,654,751 6,022,323
Interest expense....................... 22,790 1,338,083 6,652,011 11,027,689 13,512,254 14,241,203
Depreciation........................... 9,799 312,609 1,018,886 1,514,114 2,493,366 2,968,173
Minority Interest...................... 0 459,583 748,841 766,582
Net Income (Loss)-GAAP Basis............. (148,132) 2,016,713 7,990,823 11,615,474 9,228,178 10,146,141
Taxable Income (Loss):
-- from operations..................... (148,132) 1,880,687 6,450,406 7,806,855 9,638,818 10,048,321
-- from other.......................... 0 0 0 656,796
-- from extraordinary charge........... 0 0 0 0
Cash generated from operations........... 73,399 2,913,159 0 12,086,809 13,008,549 15,346,178
Cash generated from sales................ 0 12,008,853 5,927,217(5) 2,044,260(6)
Cash generated from refinancing.......... 0 160,000 --
Cash generated from other................ 0 0 2,003,099(4) 835,243(7)
Cash generated from operations, sales,
refinancing and other.................. 73,399 0 10,717,806 24,255,662 20,938,865 18,225,681
Less: Cash distribution to investors:
-- from operating cash flow(1)......... 2,915,819 8,122,156 11,358,858 11,452,669 12,488,221
-- from sales and refinancing.......... 0 0 0 0
Cash generated (deficiency) after cash
distributions.......................... 73,399 (2,660) 2,595,650 12,896,804 9,486,196 5,737,460
Less: Special items...................... 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items........ 73,399 (2,660) 2,595,650 12,896,804 9,486,196 5,737,460
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................. $ (84.90) 29.24 $ 52.14 $ 55.10 $ 68.09 $ 63.43
Capital Gain........................... 4.15
Other.................................. 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................... 31.35 64.59 80.17 65.19 64.05
-- Return of capital................... 13.98 1.06 0 15.71 14.79
Source (on cash basis):
-- Sales............................... 0 0 0 0
-- Refinancing......................... 0 0 0 0
-- Operations.......................... 45.33 65.65 80.17 80.90 78.84
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program)................. N/A N/A N/A N/A N/A N/A
</TABLE>
A-21
<PAGE> 209
FOOTNOTES
(1) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations in
prior years that has not previously been distributed.
(2) Results from sale of property leased to Data Documents, Inc.
(3) Result of refinancing mortgage loans on property leased to TBWA Chait/Day.
(4) Results of Equity Investments for 1993, 1994, 1995 and 1996 income (loss)
and cash distributed.
(5) Results of Sale of Data Documents property.
(6) Loss on sale of properties based to Safeway Stores, Incorporated.
(7) Gain on sale of 22,500 Garden Ridge Corporation common stock warrants.
NOTES
(1) CIP(TM) made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1996 -- $20.52; and April, 1997 --
$20.54.
A-22
<PAGE> 210
TABLE III (11 OF 11)
OPERATING RESULTS OF PRIOR PROGRAMS
<TABLE>
<CAPTION>
CPA12
------------------------------------------------------------
1993 1994 1995 1996
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Gross Revenues................................................... $ 2,558 $ 465,327 $3,993,647 $11,433,627
Profit on sale of properties..................................... --
Extraordinary charges on extinguishment of debt.................. --
Other............................................................ 554,571 1,322,990(1) 2,042,400(1)
Write-down of property........................................... --
Less:
Operating expenses............................................. 5,211 900,393 1,551,098 2,792,846
Interest expense............................................... 147,256 1,260,189 3,525,774
Depreciation................................................... 390,307 947,206
Net Income-GAAP Basis............................................ (2,653) (27,751) 2,115,043 6,210,201
Taxable Income (Loss):
-- from operations............................................. (2,653) 390,164 2,375,613 5,670,787
-- from gain on sale........................................... --
-- from extraordinary charge................................... --
Cash generated from operations(3)................................ 2,807 591,308 3,661,087 7,747,104
Cash generated from sales........................................ 1,375,000(1) --
Cash generated from refinancing..................................
Cash generated from other........................................
Cash generated from operations, sales, refinancing and other..... 2,807 591,308 5,036,087 7,747,104
Less: Cash distribution to investors:
-- from operating cash flow(4)................................. 2,350,687 6,779,669
-- from sales and refinancing.................................. --
-- other....................................................... --
Cash generated (deficiency) after cash distributions............. 2,807 591,308 2,685,400 967,435
Less: Special items.............................................. --
Cash generated (deficiency) after cash distributions and special
items.......................................................... 2,807 591,308 2,685,400 967,435
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income.............................................. (.13) 14.36 59.14 54.71
Capital gain.................................................
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income......................................... $52.66 $59.91
-- Return of capital......................................... 5.87 5.49
Source (on cash basis):
-- Sales.....................................................
-- Refinancing...............................................
-- Other.....................................................
-- Operations................................................ 58.53 65.40
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the Table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in
program)....................................................... N/A N/A N/A N/A
</TABLE>
FOOTNOTE
(1) Results of Equity Investments income (loss) and cash distributed.
NOTE
(1) CPA(R) made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1997 -- $20.15 and April,
1997 -- $20.17.
A-23
<PAGE> 211
TABLE V
SALES OR DISPOSITIONS OF PROPERTIES AS OF DECEMBER 31, 1996
Table V provides information on the sales and dispositions of property held
by Prior Programs since January 1, 1993. THE INFORMATION IN THIS TABLE SHOULD
NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE PERFORMANCE OF THE COMPANY.
PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY OWNERSHIP
IN THE CPA(R). PARTNERSHIPS.
<TABLE>
<CAPTION>
SELLING PRICE NET OF CLOSING COSTS
AND GAAP ADJUSTMENTS
-------------------------------------
PURCHASE
CASH MONEY
RECEIVED MORTGAGE MORTGAGE
NET OF BALANCE TAKEN
DATE DATE OF CLOSING AT TIME BACK BY
PROPERTY ACQUIRED SALE COSTS OF SALE PROGRAM
- ----------------------------------------------------------------- -------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Heekin Can Inc.(2)............................................... 11/30/82 4/27/93 $ 16,969,719 $11,927,709 0
Swiss M-Tex, L.P.(3)............................................. 8/26/87 8/13/93 166,600 0 0
Phoenix, Arizona(4).............................................. 1/29/88 12/2/93 881,290 0 0
G.D. Searle and Co.(5)........................................... 5/15/80 1/4/94 124,615 0 0
Plant City, Florida(6)........................................... 3/31/89 4/15/94 1,200,000 0 0
Jefferson, Georgia(7)............................................ 3/31/89 8/5/94 844,778 0 0
Mid Continental Bottlers, Inc.(8)................................ 12/31/86 10/14/94 13,904,680 3,895,320 0
Pace Membership Warehouse, Inc.(9)............................... 8/12/86 11/10/94 3,639,563 3,290,437 0
Pace Membership Warehouse, Inc.(10).............................. 12/23/92 11/10/94 3,466,100 3,500,000 0
Data Documents, Inc.(11)......................................... 3/18/93 11/28/94 7,710,740 7,721,000 0
Industrial General Corporation(12)............................... 8/30/85 12/30/94 4,062 645,938 0
Industrial General Corporation(16)............................... 8/30/85 9/14/95 466,961 2,920,401 0
Liberty Fabrics of New York(17).................................. 1/3/84 12/3/95 5,509,000 3,850,000 0
Genesco, Inc.(18)................................................ 6/2/83 6/30/95 9,477,492 5,722,508 0
Jupiter, Florida(19)............................................. 12/11/86 12/20/95 1,546,020 2,602,883 0
Leslie Fay Company(20)........................................... 4/30/82 1/10/96 14,053,816 0 0
Helena, Montana(21).............................................. 5/1/85 1/19/96 1,741,261 2,866,324 0
Autozone, Inc.(22)............................................... 5/2/86 1/26/96 0 627,106 0
Safeway Stores, Inc.(23)......................................... 12/19/91 1/26/96 4,649,270 0 0
& 2/15/96
Autozone, Inc.(24)............................................... 8/24/87 2/12/96 431,779 0 0
Monte Vista, Colorado(25)........................................ 1/29/88 2/14/96 186,090 0 0
Empire of America Credit Corp.(26)............................... 6/28/91 3/15/96 3,583,013 4,442,872 0
GATX Logistics, Inc.(27)......................................... 6/7/86 4/9/96 9,428,270 3,208,526 0
Best Buy Co. Inc.(28)............................................ 10/16/92 5/16/96 1,593,559 1,509,371 0
Furon Company(29)................................................ 1/29/90 9/9/96 478,626 892,180 0
Rapid City, South Dakota(30) 4/24/85 10/1/96 (290,728) 4,505,000 0
Kobacker Stores, Inc.(31)........................................ 1/17/79 10/17/96 216,451 139,507 0
------------ -----------
$101,983,027 $64,267,082 0
============ ===========
<CAPTION>
COST OF PROPERTIES
SELLING PRICE INCLUDING CLOSING
NET OF CLOSING COSTS AND SOFT COSTS(15)
AND GAAP ADJUSTMENTS -------------------------
-------------------------
ADJUSTMENTS
RESULTING TOTAL
FROM PROCEEDS ORIGINAL ORIGINAL
APPLICATION RECEIVED EQUITY MORTGAGE
PROPERTY OF GAAP FROM SALE INVESTMENT FINANCING
- ----------------------------------------------------------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Heekin Can Inc.(2)............................................... None $ 28,897,428 $ 0 $21,000,000
Swiss M-Tex, L.P.(3)............................................. None 166,600 10,114 0
Phoenix, Arizona(4).............................................. None 881,290 768,377 960,826
G.D. Searle and Co.(5)........................................... None 124,615 218,038 0
Plant City, Florida(6)........................................... None 1,200,000 934,075 1,370,064
Jefferson, Georgia(7)............................................ None 844,778 893,466 1,310,496
Mid Continental Bottlers, Inc.(8)................................ None 17,800,000 4,945,126 5,040,000
Pace Membership Warehouse, Inc.(9)............................... None 6,930,000 2,433,500 3,400,000
Pace Membership Warehouse, Inc.(10).............................. None 6,966,100 3,149,314 3,500,000
Data Documents, Inc.(11)......................................... None 15,431,740 5,455,634 8,000,000
Industrial General Corporation(12)............................... None 650,000 759,902 777,352
Industrial General Corporation(16)............................... None 3,387,362 3,055,324 3,124,940
Liberty Fabrics of New York(17).................................. None 9,359,000 2,500,000 4,500,000
Genesco, Inc.(18)................................................ None 15,200,000 5,102,128 6,600,000
Jupiter, Florida(19)............................................. None 4,148,903 2,766,322 4,000,000
Leslie Fay Company(20)........................................... None 14,053,816 4,000,000 5,400,000
Helena, Montana(21).............................................. None 4,607,585 4,012,908 2,937,500
Autozone, Inc.(22)............................................... None 627,106 242,508 280,136
Safeway Stores, Inc.(23)......................................... None 4,649,270 5,541,790 0
Autozone, Inc.(24)............................................... None 431,779 357,050 0
Monte Vista, Colorado(25)........................................ None 186,090 259,422 358,869
Empire of America Credit Corp.(26)............................... None 8,025,885 2,830,000 4,500,000
GATX Logistics, Inc.(27)......................................... None 12,636,796 8,780,378 3,500,000
Best Buy Co. Inc.(28)............................................ None 3,102,930 835,000 1,600,000
Furon Company(29)................................................ None 1,370,806 618,777 932,240
Rapid City, South Dakota(30) None 4,214,272 3,100,000 6,800,000
Kobacker Stores, Inc.(31)........................................ None 355,958 166,882 211,949
------------ ----------- -----------
-- $166,250,109 $63,736,035 $90,104,372
============ =========== ===========
<CAPTION>
COST OF PROPERTIES
INCLUDING CLOSING AND
SOFT COSTS(15)
---------------------
TOTAL
ACQUISITION EXCESS
COST, (DEFICIENCY)
CAPITAL OF OPERATING
IMPROVEMENT, RECEIPTS OVER
CLOSING AND CASH
PROPERTY SOFT COSTS EXPENDITURES(13)
- ----------------------------------------------------------------- ------------ ----------------
<S> <C> <C>
Heekin Can Inc.(2)............................................... $21,000,000 $ 13,385,278
Swiss M-Tex, L.P.(3)............................................. 10,114 --(14)
Phoenix, Arizona(4).............................................. 1,729,203 59,750
G.D. Searle and Co.(5)........................................... 218,038 249,998
Plant City, Florida(6)........................................... 2,304,139 964,989
Jefferson, Georgia(7)............................................ 2,203,962 855,611
Mid Continental Bottlers, Inc.(8)................................ 9,985,126 10,004,008
Pace Membership Warehouse, Inc.(9)............................... 5,833,500 2,485,104
Pace Membership Warehouse, Inc.(10).............................. 6,649,314 439,632
Data Documents, Inc.(11)......................................... 13,455,634 941,446
Industrial General Corporation(12)............................... 1,537,254 1,143,549
Industrial General Corporation(16)............................... 6,180,264 4,596,363
Liberty Fabrics of New York(17).................................. 7,000,000 6,139,226
Genesco, Inc.(18)................................................ 11,702,128 12,865,450
Jupiter, Florida(19)............................................. 7,855,572 1,207,991
Leslie Fay Company(20)........................................... 9,400,000 17,810,804
Helena, Montana(21).............................................. 6,950,408 4,923,483
Autozone, Inc.(22)............................................... 522,644 254,234
Safeway Stores, Inc.(23)......................................... 5,541,790 1,852,277
Autozone, Inc.(24)............................................... 357,050 303,583
Monte Vista, Colorado(25)........................................ 618,291 96,429
Empire of America Credit Corp.(26)............................... 7,463,792 1,571,108
GATX Logistics, Inc.(27)......................................... 12,280,378 16,661,862
Best Buy Co. Inc.(28)............................................ 2,538,839 520,071
Furon Company(29)................................................ 1,551,017 416,119
Rapid City, South Dakota(30) 10,515,701 3,470,494
Kobacker Stores, Inc.(31)........................................ 378,831 209,139
------------ ------------
$155,782,989 $103,427,998
============ ============
</TABLE>
FOOTNOTES
(1) Not used.
(2) On November 30, 1982, CPA(R):2 purchased three improved properties and net
leased them to Heekin Can, Inc., ("Heekin"). On April 27, 1993, the
properties were sold back to Heekin pursuant to a purchase option granted
to Heekin at the time of purchase. The properties were sold for
$29,377,679, representing a gain of $8,377,679 over the $21,000,000 cost
basis.
(3) On August 26, 1987, CPA(R):7 purchased 40.2 acres and net leased the land
to Emb-Tex Corporation and subsequently leased the land to Swiss M-Tex,
L.P. On August 13, 1993, an approximately .86 acre parcel of land was sold
for $166,600 net of closing costs representing a gain of $156,486 over the
$10,114 cost basis.
(4) On January 29, 1988, CPA(R):7 purchased 10 improved properties and net
leased them to Yellow Front Stores, Inc. On December 23, 1993, the Phoenix,
Arizona property was sold for $881,290, net of closing costs representing a
loss of $847,913 over the $1,729,203 cost basis of the property.
(5) On May 15, 1980, CPA(R):2 purchased an improved property and net leased it
to G.D. Searle and Co. On January 4, 1994 the property was sold for
$124,615, net of closing costs representing a loss of $93,423 over the
$218,038 cost basis of the property.
(6) On March 31, 1989 CPA(R):7 and CPA(R):8 purchased six improved properties
and net leased them to NV Ryan L.P. with 37.037% and 62.963%, respectively.
On April 15, 1994 the Plant City, Florida property was sold for $1,200,000
representing a loss of $1,104,139 over the $2,304,139 cost basis of the
property.
(7) On August 5, 1994 the Jefferson, Georgia property which was formerly leased
to NV Ryan L.P. by CPA(R):7 and CPA(R):8 was sold for $844,778, net of
closing costs representing a loss of $1,359,184 over the $2,203,962 cost
basis of the property.
(8) On December 31, 1986, CPA(R):7 purchased eight improved properties and net
leased them to Mid-Continent Bottlers, Inc. and subsequently transferred
the interest in one property to another tenant. On October 14, 1994, the
remaining seven properties were sold for $17,800,000 representing a gain of
$7,814,874 over the $9,985,126 cost basis of the property.
(9) On August 12, 1986, CPA(R):5 purchased an improved property which was
subsequently leased to Pace Membership Warehouse, Inc. On November 10,
1994, the property was sold for $6,930,000 net of closing costs
representing a gain of $1,096,500 over the $5,833,500 cost basis of the
property.
(10) On December 23, 1992, CPA(R)10 purchased an improved property and net
leased it to Pace Membership Warehouse, Inc. On November 10, 1994, the
property was sold for $6,966,100 net of closing costs, representing a gain
of $316,786 over the $6,649,314 cost basis of the property.
(11) On March 18, 1993 CPA(R):10 and CIP(]) purchased five improved properties
and net leased them to Data Documents, Inc. with 22.22% and 77.78%
interests, respectively. On November 28, 1994, the properties were sold for
$15,431,740 net of closing costs representing a gain of $1,976,706 over the
$13,455,034 cost basis of the property.
(12) On August 30, 1985, CPA(R):5 purchased seven improved properties and net
leased them to Industrial General Corporation. On December 30, 1994, the
Forrest City, Arkansas property was sold for $650,000 net of closing costs,
representing a loss of $887,254 over the $1,537,254 cost basis of the
property.
(13) Operating receipts include rental income from the properties as well as
certain receipts from the settlement of bankruptcy claims, where
applicable. The net excess (deficiency) presented is for the entire period
the property was owned by the applicable Partnership. No amounts are
presented for partial land sales since such amounts are negligible.
(14) The property sold represented only a portion of the property owned by the
partnership and no receipts or expenses have been separately allocated.
(15) The term "soft costs" refers to miscellaneous closing costs such as
accounting fees, legal fees, title insurance costs and survey costs.
A-24
<PAGE> 212
(16) On August 30, 1985, CPA(R):5 purchased seven properties and net leased them
to Industrial General Corporation. On September 14, 1995, the Bald Knob,
Belville and Newbury port properties were sold for $3,387,362 net of
closing cost, representing a loss of $2,792,902 over the $6,180,264 cost
basis of the property.
(17) On January 3, 1984, CPA(R):5 purchased properties in Gardensville, Virginia
and in North Bergen, New Jersey and leased them to Liberty Fabrics. On
December 31, 1995, CPA recognized a gain on sale of $2,359,000 in
connection with the sale.
(18) On June 2, 1983 CPA(R):4 purchased a property in Allentown, Pennsylvania
and leased it to Genesco, Inc. On June 30, 1995 the property was sold for
$15,200,000 net of closing costs representing a gain of $3,497,872 over the
$11,702,128 costs basis of the property.
(19) On December 11, 1986 CPA(R):7 purchased a food service facility. On
December 20, 1995 the facility and operations were sold for $4,148,903
representing a loss of $3,706,669 over the $7,855,572 cost basis of the
property.
(20) On April 30, 1993, CPA(R):3 purchased a warehouse property in Wilkes-Barre,
Pennsylvania and leased it to the Leslie Fay Company. On January 10, 1996
CPA(R):3 sold the property recognizing a gain of $4,653,816 over the cost
basis of the property. Cash received net of closing cost of $14,303,816,
included two lump sum payments of $7,200,000 and $5,000,000 from Leslie Fay
in connection with settlement agreement regarding a purchase option which
did not ultimately result in the sale of the property to Leslie Fay. A
third purchased the property for $1,853,816, net of selling costs.
(21) On May 1, 1985, CPA(R):5 purchased an office building in Helena, Montana
and was assigned an existing net lease with IBM Corporation which
subsequently reduced its occupancy from 100% to 40% leasable space.
CPA(R):5 subsequently leased the remaining space to various other tenants.
On January 19, 1996 CPA(R):5 recognized a loss of $2,342,023 over cost
basis of the property.
(22) On May 2, 1986 CPA(R):6 purchased property in Dalton, Georgia and
Birmingham, Alabama and leased them to Autozone, Inc. On January 26, 1996
and April 26, 1996 the properties were sold for $627,106 net of selling
cost. CPA(R):6 recognized gains on sales over the cost basis of the
properties of $104,462 in connection with sales.
(23) On December 19, 1991, CPA(R):10 and CIP purchased three supermarkets
subject to existing net leases with Safeway Stores, Inc. as
tenants-in-common, each with 50% ownership interests. On January 26, 1996
and February 15, 1996 CPA(R):10 and CIP sold the Glendale, Arizona and
Escondido, California properties, respectively. CPA(R):10 and CIP
recognized a net loss on both sales of $892,250 over the cost basis of the
properties.
(24) On August 28, 1987, CPA(R):7 purchased seven improved properties and net
leased them to Autozone, Inc. On February 12, 1996 the Denham Spring,
Louisiana property and was sold for $431,779 representing a gain of $74,729
over the $357,050 cost basis of the property.
(25) On January 29, 1988 CPA(R):7 purchased 10 improved properties and net
leased them to Yellow Front Stores, Inc. The Yellow Front lease was
ultimately terminated and the property was released. On February 14, 1996
the Monte Vista, Colorado property was sold for $186,090, net of closings
costs representing a loss of $432,201 over the $618,291 cost basis of the
property.
(26) On June 28, 1991, CPA(R):10 purchased an office building occupied by Empire
of America Realty Credit Corp. ("Empire") for $7,330,000 of which
$4,500,000 was financed by a mortgage loan. On March 15, 1996, CPA(R):10
accepted Empire's purchase offer of $8,500,000 and recognized a net gain on
sale of $562,093 over the original cost of the property.
(27) On June 7, 1985, CPA(R):5 purchased a warehouse property in Hodgkins,
Illinois which was net leased to General Motors Corporation. In November
1993, the General Motors Corporation lease terminated and CPA(R):5 entered
into a new lease with GATX Logistics, Inc. On April 4, 1996, CPA(R):5
recognized a gain on sale of $356,418 over the cost basis of the property.
(28) On October 16, 1992, CPA(R):10 purchased land and a retail store for
$2,435,000 subject to an existing net lease with Sports Town, Inc. Best Buy
Co., Inc. subsequently assumed the lease. CPA(R):10 obtained a $1,600,000
mortgage loan for this property in September 1993. On May 16, 1996,
CPA(R):10 sold the retail store for $3,250,000 and recognized a gain of
$564,091 over the original cost basis of the property.
(29) On January 29, 1990 CPA(R):8 and CPA(R):9 purchased nine properties as
tenants-in-common and leased them to the Furon Company. On September 9,
1996, two properties were sold in Liverpool, Pennsylvania and the other in
Twinsburg, Ohio, CPA 8 and 9 recognized a loss of $189,211 over the cost
basis of the two properties.
(30) On April 24, 1985, CPA(R):5 purchased a hotel in Rapid City, South Dakota
which it operated as a Holiday Inn. On October 1, 1996, the hotel property
and its operations were sold for $4,105,000. CPA(R):5 recognized a loss of
$6,301,429 over the cost basis of the property. The mortgage balance at the
time of sale of $6,800,000 is presented net of sinking fund reserves of
$2,295,000 which were applied as principal payments at the time of sale.
The net cash received on sale was $290,728 less than the amount necessary
to pay the remaining mortgage principal balance.
(31) On January 17, 1979, CPA(R):1 purchased fifteen properties located in
California, Ohio and Indiana and net leased these properties to Kobacker
Stores, Inc. On October 17, 1996, Kobacker exercised options under the
terms of its leases for properties in Eastlake and Cleveland, Ohio to
purchase such properties for stated purchase prices of $165,000 and
$200,000, respectively, resulting in a loss of $22,873 over the cost basis
of the properties.
A-25
<PAGE> 213
EXHIBIT B
INSTRUCTIONS FOR COMPLETION
OF CPA(R):12 ORDER FORM
INSTRUCTIONS TO INVESTORS
YOU MUST COMPLETE ITEMS 1-6 (AND, IF YOU ARE A RESIDENT OF MAINE,
MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSOURI, NEBRASKA OR NORTH CAROLINA OR
IF REQUESTED BY YOUR BROKER, ITEM 7). INVESTORS ARE ENCOURAGED TO READ THE
PROSPECTUS IN ITS ENTIRETY FOR A COMPLETE EXPLANATION OF AN INVESTMENT IN
THE COMPANY.
Item 1 Check the appropriate box to indicate form of ownership. If the
investor is a Custodian, Corporation, Partnership or Trust, please provide the
additional requested information and/or documents.
Item 2 Indicate the number of Shares you are purchasing (250 Shares is the
minimum for investors other than IRAs and KEOGHS; 200 Shares is the minimum for
investors who are IRAs or KEOGHS (250 shares if you are resident of Iowa or
Minnesota)) and the dollar amount of your investment. Check the appropriate box
to indicate whether this is an initial or additional investment and whether the
order is to be combined with that of another investor for the purpose of
obtaining a volume discount available to "single purchasers."
Item 3 Please print name(s) in which Shares are to be registered and
provide address and telephone numbers. Check appropriate box if you are a
non-resident alien, a U.S. citizen residing outside U.S. or subject to back up
withholding (if the latter applies to you, cross out clause (ii) in the
paragraph appearing immediately above Item 1). IRAs and KEOGHs should provide
the taxpayer identification number of the account AND the social security number
of the accountholder. Trusts should provide their taxpayer identification
number. Custodians should provide the minor's social security number. All
individuals investors should provide their social security number. Other
entities should provide their taxpayer identification number. If you have an
account with the broker/dealer named on the reverse side of the form, provide
your account number.
Item 4 Provide alternate mailing address if so desired for dividend
checks.
Item 5 Provide mailing address of beneficiary of a Trust, IRA or KEOGH if
so desired so that duplicate copies of shareholder reports can be sent to such
beneficiary.
Item 6 Print the two-letter abbreviation of your state of residence (if an
IRA or KEOGH, state of residence of beneficiary).
Item 7 If you are a resident of Maine, Massachusetts, Michigan, Minnesota,
Missouri, Nebraska or North Carolina (or if required by broker) you MUST sign
the form in Item 7. Signature(s) must be witnessed and the date of signing must
be inserted on the line provided.
AFTER FOLLOWING THE ABOVE INSTRUCTIONS, DETACH THE ORDER FORM ALONG THE
PERFORATION AND RETURN THE ORDER FORM TO THE BROKER WHO SOLICITED YOUR ORDER
TOGETHER WITH A CHECK MADE PAYABLE TO "THE U.S. TRUST COMPANY OF NEW YORK AS
ESCROW AGENT" (OR, INSTEAD OF A CHECK, A REQUEST TO THE BROKER IN THE AMOUNT OF
YOUR ORDER). TRUSTS should furnish a copy of the trust instrument and all
amendments thereto. CORPORATIONS should furnish an appropriate corporation
resolution authorizing the purchase of the Shares. PARTNERSHIPS should furnish a
copy of the partnership agreement.
INSTRUCTIONS TO BROKERS
Please be sure verify all investor information provided on the Order Form.
YOU MUST COMPLETE ITEM 8 AND SIGN THE ORDER FORM IN ORDER FOR THE ORDER TO BE
ACCEPTED.
B-1
<PAGE> 214
Please verify that investors who are residents of Maine, Massachusetts,
Michigan, Missouri, Nebraska or North Carolina have signed Item 7.
Please send check(s) payable to "The U.S. Trust Company of New York, as
Escrow Agent" and completed Order Form(s) to The U.S. Trust Company of New York,
114 West 47th Street, New York, New York 10036-1532, Attention: Pat Stermer. For
wiring instructions, contact The U.S. Trust Company of New York at 212-852-1665
prior to wiring funds.
B-2
<PAGE> 215
CORPORATE PROPERTY ASSOCIATES 12
INCORPORATED
ORDER FORM
The investor named below, under penalties of perjury, certifies that (i) the
number shown under Item 3 on this Order Form is his correct Taxpayer
Identification Number (or he is waiting for a number to be issued to him) and
(ii) he is not subject to backup withholding either because he has not been
notified by the Internal Revenue Service ("IRS") that he is subject to backup
withholding as a result of a failure to report all interest or dividends, or the
IRS has notified him that he is no longer subject to backup withholding [NOTE:
CLAUSE (ii) IN THIS CERTIFICATION SHOULD BE CROSSED OUT IF THE APPROPRIATE BOX
IN ITEM 3 BELOW HAS BEEN CHECKED].
1. FORM OF OWNERSHIP Mark only one box.
[ ] SINGLE PERSON
[ ] HUSBAND AND WIFE AS COMMUNITY PROPERTY
(if signature is required in Item 7, both signatures must appear)
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
(if signature is required in Item 7, both signatures must appear)
[ ] TENANTS IN COMMON
[ ] A MARRIED PERSON SEPARATE PROPERTY (if signature is
required in Item 7, only one signature must appear)
[ ] CUSTODIAN
Custodian for ___________________________________________________
Under Uniform Gift to Miors Act of the State of _________________
[ ] CORPORATION OR PARTNERSHIP
(Corporate Resolution or Partnership Agreement MUST be
enclosed)
[ ] IRA
[ ] KEOGH
[ ] PENSION OR PROFIT SHARING PLAN
[ ] TRUST (Trust Agreement MUST be enclosed)
ALL SECTIONS MUST BE FILLED IN
Trustee name(s) ________________________________________________
Trust date ________________
Month Day Year
[ ] For the benefit of __________________________________________
[ ] OTHER _______________________________________________________
[ ] ESTATE
[ ] CHARITABLE REMAINDER TRUST
[ ] NON-PROFIT ORGANIZATION
2. PURCHASE INFORMATION
<TABLE>
<S> <C> <C>
No. of Shares -- Minimum 250 (or Dollar Amount
200 for an IRA or KEOGH) ______________________ of $
Investment
($10 per Share)
</TABLE>
This is an (check one): [ ] Initial Investment [ ] Additional Investment in
this offering
[ ] Check box if the Shares ordered are to be combined with an order of another
investor for the purpose of obtaining volume discounts to "single purchasers."
Name of other investor(s)
3. INVESTOR INFORMATION Name(s) and address will be recorded exactly as printed
below.
Name __________________________________________________________________________
Name
of Joint ______________________________________________________________________
Investor
______________________________________________________________________
Address _______________________________________________________________________
City ________________________________ State ___________ Zip Code _________
<TABLE>
<S> <C> <C> <C> <C>
Investor Business Phone Number _________ _________ ____________ [ ] Check box if you are a non-resident alien
[ ] Check box if you are a U.S. citizen residing outside the
U.S.I
[ ] Check box if you are subject to backup withholding
Investor Home Phone Number _________ _________ ____________
_______ _____ _____________ _______ ______ ________________ ______ __________________________________________
Investor's Social Security No. Joint Investor's Taxpayer
Social Security No. ID. No.
</TABLE>
Investor's Account Number with Broker Dealer _________________________________
(if any)
(REVERSE SIDE MUST BE SIGNED BY
BROKER AND, IN SOME STATES, BY INVESTOR)
B-3
<PAGE> 216
4. CHECK ADDRESS If you would like your dividend check mailed to an address
other than the address shown in Item 3, please complete:
Company ______________________________________________________________________
Address ______________________________________________________________________
City _______________________ State ___________ Zip Code _____________
Account number (if any)____________________ Account name _____________________
5. INVESTOR MAILING ADDRESS If you are investing through a Trust, IRA or KEOGH
and want duplicate copies of shareholder reports sent to you, please complete:
Address _____________________________________________________________________
City ______________________ State ______________ Zip Code ______________
Account number (if any) _____________________ Account name ________________
6. STATE OF RESIDENCE ____(Residents of MAINE, MASSACHUSETTS, MICHIGAN,
MINNESOTA, MISSOURI, NEBRASKA OR NORTH CAROLINAMUST
sign this Order Form in Item 7 below.)
7. SIGNATURE OF INVESTOR(S)
Signature of investor is required if investor is a resident of MAINE,
MASSACHUSETTS, MICHIGAN, MISSOURI, MINNESOTA, NEBRASKA OR NORTH CAROLINA or
if requested by Broker.
<TABLE>
<S> <C> <C>
- --------------------------------- ---------------------------------- ----------------
SIGNATURE OF WITNESS SIGNATURE OF INVESTOR DATE
- --------------------------------- ---------------------------------- ----------------
SIGNATURE OF WITNESS SIGNATURE OF INVESTOR DATE
</TABLE>
================================================================================
8. BROKER/DEALER INFORMATION THE BROKER MUST SIGN BELOW TO COMPLETE ORDER.
BROKER HEREBY WARRANTS THAT IT IS A DULY LICENSED
BROKER AND MAY LAWFULLY SELL SHARES IN THE STATE
DESIGNATED AS THE INVESTOR'S RESIDENCE.
Licensed Firm Name ____________________________________________________________
Broker Name ___________________________________________________________________
Broker Mailing Address ________________________________________________________
City______________________ State __________ Zip Code _____________
Broker Number ___________________________ Telephone Number __________________
The undersigned confirms by his or her signature that he or she (i) has
reasonable grounds to believe that the information and representations
concerning the investor identified herein are true, correct and complete in all
respects; (ii) has discussed such investor's prospective purchase of Shares with
such investor; (iii) has advised such investor of all pertinent facts with
regard to the liquidity and marketability of the Shares; (iv) has delivered a
current Prospectus and related supplements, if any, to such investor; and (v)
has reasonable grounds to believe that the purchase of Shares is a suitable
investment for such investor, that such investor meets the suitability standards
applicable to such investor set forth in the Prospectus and related supplements,
if any, and that such investor is in a financial position to enable such
investor to realize the benefits of such an investment and to suffer any loss
that may occur with respect thereto.
<TABLE>
<S> <C>
----------------------------------------------- ----------------------
Broker Signature Date
</TABLE>
ALL INVESTOR AND BROKER/DEALER INFORMATION MUST BE COMPLETED OR
REGISTRATION CANNOT BE PROCESSED.
- --------------------------------------------------------------------------------
FOR COMPANY USE ONLY:
B-4
<PAGE> 217
INSTRUCTIONS FOR COMPLETION
OF CPA(R):12 ORDER FORM
FOR AMERICAN EXPRESS FINANCIAL ADVISORS, INC. SUBSCRIBERS ONLY
INSTRUCTIONS TO INVESTORS
AFTER CAREFULLY READING THE ENTIRE PROSPECTUS, YOU MUST COMPLETE ALL ITEMS
ON THE ORDER FORM
Item 1 Check the appropriate box to indicate form of ownership. If the
investor is a Custodian, Corporation, Partnership or Trust, please provide the
additional requested information and/or documents.
Item 2 Indicate the number of Shares you are purchasing (250 Shares is the
minimum for investors other than IRAs and KEOGHS (200 Shares is the minimum for
investors who are IRAs or KEOGHS (250 shares if you are a resident of Iowa or
Minnesota)) and the dollar amount of your investment. Check the appropriate box
to indicate whether this is an initial or additional investment and whether the
order is to be combined with that of another investor for the purpose of
obtaining a volume discount available to "single purchasers."
Item 3 Please print name(s) in which Shares are to be registered and
provide address and telephone numbers. Check appropriate box if you are a
non-resident alien, a U.S. citizen residing outside U.S. or subject to back up
withholding (if the latter applies to you, cross out clause (ii) in the
paragraph appearing immediately above Item 1). IRAs and KEOGHs should provide
the taxpayer identification number of the account AND the social security number
of the accountholder. Trusts should provide their taxpayer identification
number. Custodians should provide the minor's social security number. All
individual investors should provide their social security number. Other entities
should provide their taxpayer identification number. If you have an account with
the broker/dealer named on the reverse side of the form, provide your account
number.
Item 4 Provide alternate mailing address if so desired for dividend
checks.
Item 5 Provide mailing address of beneficiary of a Trust, IRA or KEOGH if
so desired so that duplicate copies of shareholder reports can be sent to such
beneficiary.
Item 6 Print the two-letter abbreviation of your state of residence (if an
IRA or KEOGH, state of residence of beneficiary).
AFTER FOLLOWING THE ABOVE INSTRUCTIONS, DETACH THE ORDER FORM ALONG THE
PERFORATION AND RETURN THE ORDER FORM TO THE PLANNER WHO SOLICITED YOUR ORDER
TOGETHER WITH A CHECK MADE PAYABLE TO IDS FINANCIAL SERVICES INC. (OR, INSTEAD
OF A CHECK, A REQUEST TO THE PLANNER TO DEBIT YOUR ACCOUNT WITH THE PLANNER IN
THE AMOUNT OF YOUR ORDER). TRUSTS should furnish a copy of the trust instrument
and all amendments thereto. CORPORATIONS should furnish an appropriate
corporation resolution authorizing the purchase of the Shares. PARTNERSHIPS
should furnish a copy of the partnership agreement.
INSTRUCTIONS TO PLANNERS
Please be sure verify all investor information provided on the Order Form.
YOU MUST COMPLETE ITEM 8 AND SIGN THE ORDER FORM IN ORDER FOR THE ORDER TO BE
ACCEPTED.
Please send check(s) payable to American Express Financial Advisors Inc.,
completed Order Form(s) and American Express Investment Application to the
American Express home office, Geographic Service Team.
<TABLE>
<S> <C>
(Regular Mail) (Overnight Mail)
American Express Financial Advisors Inc. American Express Financial Advisors Inc.
Geographic Service Team Geographic Service Team
P.O. Box 534 733 Marquette Ave.
Minneapolis, MN 55440 Minneapolis, MN 55402
</TABLE>
B-5
<PAGE> 218
CORPORATE PROPERTY ASSOCIATES 12
INCORPORATED
ORDER FORM
FOR AMERICAN EXPRESS FINANCIAL ADVISORS, INC, SUBSCRIBERS ONLY
The investor named below, under penalties of perjury, certifies that (i) the
number shown under Item 3 on this Order Form is his correct Taxpayer
Identification Number (or he is waiting for a number to be issued to him) and
(ii) he is not subject to backup withholding either because he has not been
notified by the Internal Revenue Service ("IRS") that he is subject to backup
withholding as a result of a failure to report all interest or dividends, or the
IRS has notified him that he is no longer subject to backup withholding [NOTE:
CLAUSE (ii) IN THIS CERTIFICATION SHOULD BE CROSSED OUT IF THE APPROPRIATE BOX
IN ITEM 3 BELOW HAS BEEN CHECKED].
1. FORM OF OWNERSHIP MARK only one box.
[ ] SINGLE PERSON
[ ] HUSBAND AND WIFE AS COMMUNITY PROPERTY
(if signature is required in Item 7, both signatures must appear)
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
(if signature is required in Item 7, both signatures must appear)
[ ] TENANTS IN COMMON
[ ] A MARRIED PERSON SEPARATE PROPERTY (if signature is
required in Item 7, only one signature must appear)
[ ] CUSTODIAN
Custodian for
------------------------------------------------------------
Under Uniform Gift to Miors Act of the State of
--------------------------
[ ] CORPORATION OR PARTNERSHIP
(Corporate Resolution or Partnership Agreement MUST be
enclosed)
[ ] IRA
[ ] KEOGH
[ ] PENSION OR PROFIT SHARING PLAN
[ ] TRUST (Trust Agreement MUST be enclosed)
ALL SECTIONS MUST BE FILLED IN
Trustee name(s)
----------------------------------------------------------
Trust date
----------------
Month Day Year
[ ] For the benefit of
[ ] OTHER
[ ] ESTATE
[ ] CHARITABLE REMAINDER TRUST
[ ] NON-PROFIT ORGANIZATION
<TABLE>
<S> <C> <C> <C>
Dollar Amount
2. PURCHASE INFORMATION of $
No. of Shares--Minimum 250 (or Investment ------------------------
200 for an IRA or KEOGH) ------------------------- ($10 per Share)
</TABLE>
This is an (check one): [ ] Initial Investment [ ] Additional Investment in
this offering
[ ] Check box if the Shares ordered are to be combined with an order of another
investor for the purpose of obtaining volume discounts to "single purchasers."
Name of other investor(s)
---------------------------------------------------
3. INVESTOR INFORMATION Name(s) and address will be recorded exactly as printed
below.
<TABLE>
<S> <C>
Name
-----------------------------------------------------------------------
Name
of
Joint
Investor
-------------------------------------------------------------------
Address
--------------------------------------------------------------------
City State Zip Code
--------------------------------------------------------------- ------- ----------------
AMERICAN EXPRESS TRUST COMPANY
FBO
------------------------------------------------------------------------------------------------------------
P.O. BOX 74
MINNEAPOLIS, MN 55440
TAXPAYER ID NO.: 51-6041053
</TABLE>
CPA Account Number with
American Express Financial Advisors, Inc.
(Home Office use only)
<TABLE>
<S> <C> <C>
Investor Business Phone Number [ ] Check box if you are a non-resident alien
------- ------- --------- [ ] Check box if you are a U.S. citizen residing outside the
U.S.
Investor Home Phone Number: [ ] Check box if you are subject to backup withholding
------- ------- ---------
- --------, ----- --------- ------- ----- --------- ------- ------------
Investor's Social Security No. Joint Investor's Taxpayer's ID. No.
Social Security No.
</TABLE>
(REVERSE SIDE MUST BE SIGNED BY
ADVISOR AND BY INVESTOR)
B-6
<PAGE> 219
4. CHECK ADDRESS (IF OTHER THAN THAT REPORTED IN NON-QUALIFIED
<TABLE>
<S> <C>
NON-QUALIFIED
Name
------------------------------------------------------
Name
of Joint
Investor
------------------------------------------------------
Address
------------------------------------------------------
City State Zip
--------------------------- ------ ---------
QUALIFIED PLAN
AMERICAN EXPRESS TRUST COMPANY
FBO
---------------------------------------------------------------
P.O. BOX 74
MINNEAPOLIS, MN 55440
TAXPAYER ID NO.: 51-6041053
</TABLE>
5. SHAREHOLDER REPORT ADDRESS If you are investing through a Trust, IRA or KEOGH
and want duplicate copies of shareholder reports sent to you, please
complete:
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
City State Zip Code
--------------------------------------- ------------ -------
6. STATE OF RESIDENCE
------------
7. SIGNATURE OF INVESTOR(S)
<TABLE>
<S> <C> <C>
- --------------------------------------------- --------------------------------------------- ------------------------
SIGNATURE OF WITNESS SIGNATURE OF INVESTOR DATE
- --------------------------------------------- --------------------------------------------- ------------------------
SIGNATURE OF WITNESS SIGNATURE OF INVESTOR DATE
</TABLE>
================================================================================
8. ADVISOR INFORMATION THE ADVISOR MUST SIGN BELOW TO COMPLETE ORDER.
ADVISOR HEREBY WARRANTS THAT IT IS A DULY LICENSED
ADVISOR AND MAY LAWFULLY SELL SHARES IN THE STATE
DESIGNATED AS THE INVESTOR'S RESIDENCE.
Licensed Firm Name AMERICAN EXPRESS FINANCIAL ADVISORS INC.
------------------------------------------------------------
Advisor Name
- --------------------------------------------------------------------------------
Advisor Mailing Address
- --------------------------------------------------------------------------------
City State Zip Code
--------------------------------- ------- --------------------
Broker Number Telephone Number
------------------------- -----------------------
The undersigned confirms by his or her signature that he or she (i) has
reasonable grounds to believe that the information and representations
concerning the investor identified herein are true, correct and complete in all
respects; (ii) has discussed such investor's prospective purchase of Shares with
such investor; (iii) has advised such investor of all pertinent facts with
regard to the liquidity and marketability of the Shares; (iv) has delivered a
current Prospectus and related supplements, if any, to such investor; and (v)
has reasonable grounds to believe that the purchase of Shares is a suitable
investment for such investor, that such investor meets the suitability standards
applicable to such investor set forth in the Prospectus and related supplements,
if any, and that such investor is in a financial position to enable such
investor to realize the benefits of such an investment and to suffer any loss
that may occur with respect thereto.
<TABLE>
<S> <C> <C>
----------------------------------------------- ------------------------
Advisor Signature Date
</TABLE>
ALL INVESTOR AND BROKER/DEALER INFORMATION MUST BE COMPLETED OR
REGISTRATION CANNOT BE PROCESSED.
- --------------------------------------------------------------------------------
FOR COMPANY USE ONLY:
B-7
<PAGE> 220
(This page intentionally left blank)
<PAGE> 221
============================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................... 4
Risk Factors............................... 10
Terms of the Offering...................... 19
Estimated Use of Proceeds.................. 21
Dividends.................................. 22
Management Compensation.................... 23
Conflicts of Interest...................... 30
Prior Offerings by Affiliates.............. 35
Management................................. 39
Investment Objectives and Policies......... 49
Holders of Shares of the Company........... 62
Management Discussion and Analysis of
Financial Condition...................... 62
Description of Properties.................. 68
Income Tax Aspects......................... 100
ERISA Considerations....................... 110
Description of Shares...................... 113
The Offering............................... 118
Reports to Shareholders.................... 122
Legal Opinions............................. 122
Experts.................................... 122
Sales Literature........................... 123
Further Information........................ 123
Glossary................................... 123
Financial Statements....................... F-1
Prior Performance Tables................... A-1
Specimen CPA(R): 12 Order
Form-Exhibit B........................... B-1
Supplement dated January 27, 1997.......... S-1
</TABLE>
============================================================
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS UNLESS
PRECEDED OR ACCOMPANIED BY THIS PROSPECTUS NOR HAS ANY PERSON BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. HOWEVER, IF
ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
LOGO
LOGO
CORPORATE PROPERTY
ASSOCIATES 12
Incorporated
A Maximum of 20,000,000 Shares of Common Stock
PROSPECTUS
CAREY FINANCIAL CORPORATION
OCTOBER 21, 1996
============================================================
<PAGE> 222
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Other Expenses of Issuance and Distribution.
SEC registration fee ..................................... $ 69,875
NASD filing fee .......................................... 20,500
Legal fees and expenses .................................. 405,000
Printing and engraving ................................... 250,000
Accounting fees and expenses ............................. 175,000
Blue sky expenses ........................................ 112,500
Escrow and transfer agents' fees and expenses ............ 40,000
Advertising and sales literature ......................... 375,000
Miscellaneous ............................................ 20,000
----------
TOTAL .................................................... $1,467,875
==========
Item 31. Sales to Special Parties
None.
Item 32. Recent Sales of Unregistered Securities
None.
Item 33. Indemnification of Officers and Directors.
Indemnification is provided for in Article VI of the Articles of
Incorporation of the Registrant and in Article X of the Bylaws of the
Registrant, and such provisions are incorporated herein by reference.
Item 34. Treatment of Proceeds from Stock Being Registered.
Not Applicable.
Item 35 Financial Statements and Exhibits
(a) 1. Consolidated Financial Statements
The following consolidated financial statements are filed as part of
this Report:
Pro Forma Consolidated Balance Sheet as of June 30, 1996 (Unaudited).
Pro Forma Consolidated Statement of Income for the year ended December 31, 1995
(Unaudited).
Pro Forma Consolidated Statement of Income for the six months ended June 30,
1996 (Unaudited).
<PAGE> 223
Pro Forma Consolidated Statement of Taxable Income and After Tax Cash Flow for
the year ended December 31, 1995 (Unaudited).
Notes to Pro Forma Consolidated Statements.
Corporate Property Associates 12 Incorporated
Report of Independent Accountants.
Consolidated Balance Sheets of the Company as of December 31, 1994, 1995 and
1996.
Consolidated Statements of Operations of the Company for the period from
inception (July 30, 1993) to December 31, 1993 and for the years ended
December 31, 1994, 1995 and 1996.
Consolidated Statements of Shareholders' Equity of the Company for the period
from inception (July 30, 1993) to December 31, 1993 and for the years
ended December 31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows of the Company for the period from
inception (July 30, 1993) to December 31, 1993 and for the years ended
December 31, 1994, 1995 and 1996.
Notes to Consolidated Financial Statements.
Schedule of Real Estate and Accumulated Depreciation.
Consolidated Balance Sheets of the Company as of December 31, 1995 and June 30,
1996 (Unaudited).
Consolidated Statements of Income (Unaudited) of the Company for the three and
six months ended June 30, 1995 and 1996.
Consolidated Statement of Cash Flows (Unaudited) of the Company for the three
and six months ended June 30, 1995 and 1996.
Notes to Consolidated Financial Statements (Unaudited).
BB Property Company
Report of Independent Accountants.
Balance Sheets of BB Property Company as of December 31, 1994 and 1995.
Statements of Income of BB Property Company for the period from inception (April
14, 1993) to December 31, 1993 (Unaudited) and for the years ended
December 31, 1994 and 1995.
Statement of Partners' Capital of BB Property Company for the period from
inception (April 14, 1993) to December 31, 1993 (Unaudited) and for the
years ended December 31, 1994 and 1995.
<PAGE> 224
Statement of Cash Flows of BB Property Company for the period from inception
(April 14, 1993) to December 31, 1993 (Unaudited) and for the years ended
December 31, 1994 and 1995.
Notes to Financial Statements of BB Property Company.
Schedule of Real Estate and Accumulated Depreciation.
Gena Property Company
Report of Independent Accountants.
Balance Sheet of GENA Property Company as of December 31, 1994 and 1995.
Statement of Operations of GENA Property Company for the period from inception
(December 1, 1993) to December 31, 1993 (Unaudited) and for the years
ended December 31, 1994 and 1995.
Statement of Partners' Capital of GENA Property Company for the period from
inception (December 1,1993) to December 31, 1993 (Unaudited) and for the
years ended December 31, 1994 and 1995.
Statement of Cash Flows of GENA Property Company for the period from inception
(December 1, 1993) to December 31, 1993 (Unaudited) and for the years
ended December 31, 1994 and 1995.
Note to Financial Statements of Gena Property Company.
Schedule of Real Estate and Accumulated Depreciation.
(b) Exhibits
Exhibit No. Exhibit
- ----------- -------
3.1(0) Articles of Incorporation of Registrant.
3.2(0) Form of Bylaws of Registrant.
5(5) Opinion of Piper & Marbury, L.L.P. as to legality of
securities issued.
8.1(6) Opinion of Reed Smith Shaw & McClay as to certain tax
matters.
8.2(6) Opinion of Reed Smith Shaw & McClay as to certain ERISA
matters.
10.2(1) Lease Agreement dated October 8, 1993 between ELWA-BV (NY)
QRS 11-24, Inc. as Landlord and Big V Supermarkets, Inc.,
as Tenant.
10.3(1) Amendment to Lease Agreement dated July 15, 1994 by and
between ELWA-BV (NY) QRS 11-24, Inc.
<PAGE> 225
10.4(1) Amended and Restated Mortgage and Security Agreement dated
October 8, 1993 from ELWA-BV (NY) QRS 11-24, Inc., as
Mortgagor, to Key Bank of New York.
10.5(1) $7,500,000 Amended, Restated and Consolidated Bonds dated
October 8, 1993.
10.6(1) Modification and Assumption Agreement dated July 15, 1994
among ELWA-BV (NY) QRS 11-24, Inc., ELWA-BV (NY) QRS 12-3,
Inc. and Key Bank of New York, as Lender.
10.7(1) Lease dated April 15, 1993 between BB Property Company, as
Lessor, and Best Buy Co., Inc., as Lessee.
10.8(1) Note Purchase Agreement dated April 15, 1993 among BB
Property Company, Best Buy Co., Inc., and Teachers
Insurance and Annuity Association of America.
10.9(1) $32,800,000 Note dated April 20, 1993 from BB Property
Company, as Maker, to Teachers Insurance and Annuity
Association of America, as Holder.
10.10(1) Deed of Trust and Security Agreement dated April 15, 1993
from BB Property Company, as Grantor, to Frank E.
Stevenson, II, Esq., Thomas P. Solheim, Esq., Charles D.
Calvin, Esq., Wallace A. Richardson, Esq., Michael D.
Miselamn, Esq. and Keleher & McLeod, P.A., as Trustee, and
Teachers Insurance and Annuity Association of America, as
Beneficiary.
10.11(1) Owner's Lien Agreement dated April 15, 1993 by Corporate
Property Associates 10 Incorporated ("CPA(R):10") and
Corporate Property Associates 11 Incorporated
("CPA(R):11"), Association of America.
10.12(1) First Amendment to Owner's Lien Agreement dated May 27,
1994 by CPA(R):10, CPA(R):11 and Registrant for the benefit
of Teachers Insurance and Annuity Association of America.
10.13(1) $3,353,745 Limited Obligation Promissory Note dated May 13,
1994 from BBC (NE) QRS 12-2, Inc., as Borrower, to
Registrant, as Lender.
10.14(1) Lease Agreement dated December 21, 1993 by and between GENA
Property Company, as Landlord, and Gensia, Inc., as Tenant.
10.15(1) Deed of Trust, Security Agreement and Financing Statement
dated December 21, 1993 between GENA Property Company, as
<PAGE> 226
Trustor, and The Northwestern Mutual Life Insurance
Company, as Trustee.
10.16(1) $13,000,000 Promissory Note, dated December 21, 1993 from
GENA Property Company, as Obligor, to The Northwestern
Mutual Life Insurance Company, as Obligee.
10.17(2) Lease Agreement dated February 1, 1995 by and between ESI
(CA) QRS 12-6, Inc., as Landlord, and ETEC Systems, Inc.,
as Tenant.
10.18(2) Deed of Trust, Assignment of Rents and Security Agreement
dated February 1, 1995 by ESI (CA) QRS 12-6, Inc., as
Trustor, in favor of First American Title Insurance
Company, as Trustee, for the benefit of
Creditanstalt-Bankverein, as Beneficiary.
10.19(2) $6,350,000 Real Estate Note dated February 1, 1995 by ESI
(CA) QRS 12-6, Inc., as Maker, to Creditanstalt-Bankverein,
as Holder.
10.20(2) Lease dated July 3, 1994 by and between Greenwalt
Development, Inc., as Landlord, and Wal-Mart Stores, Inc.,
as Tenant.
10.21(2) Assignment and Assumption of Lease dated February 10, 1995
by and between Greenwalt Development, Inc., as Assignor,
and WALS (IN) QRS 12-5, Inc., as Assignee.
10.22(2) Estoppel Certificate dated February 9, 1995 from Wal-Mart
Stores, Inc. to WALS (IN) QRS 12-5, Inc.
10.23(2) Lease Agreement dated June 8, 1995 by and between SFC (TX)
QRS 12-7, Inc., as Landlord, and Sports & Fitness Clubs of
America, Inc., as Tenant.
10.24(2) Loan Agreement dated June 8, 1995 by and between SFC (TX)
QRS 12-7, Inc., as Borrower, and Bank One, Texas, N.A.
10.25(2) $2,750,000 Note dated June 8, 1995 from SFC (TX) QRS 12-7,
Inc. to Bank One, Texas, N.A.
10.26(2) Deed of Trust and Security Agreement dated June 8, 1995
from SFC (TX) QRS 12-7, Inc., as Mortgagor, to Mr. Brian J.
Tuerff, as Trustee, for Bank One, Texas, N.A., as
Mortgagee.
10.27(2) Lease Agreement dated June 20, 1995, by and between Bud
Limited Liability Company, as Landlord, and NK Lawn &
Garden Co., as Tenant.
<PAGE> 227
10.28(5) Form of Sales Agency Agreement.
10.29(5) Form of Selected Dealer Agreement.
10.30(1) Advisory Agreement.
10.31(5) Form of Wholesaling Agreement.
10.32(0) Form of Escrow Agreement.
10.33(5) Lease Agreement dated October 31, 1995 by and between DELMO
(PA) QRS 11-36 and DELMO (PA) QRS 12-10, together as
Landlord, and Del Monte Corporation, as Tenant
10.34(5) Lease Agreement dated November 13, 1995 by and between ABI
(TX) QRS 12-11, Inc., as Landlord, and Pharmaco LSR
International Inc., as Tenant.
10.35(5) Lease Agreement dated December 26, 1995 by and between
Cards Limited Liability Company, as Landlord, and The Upper
Deck Company, as Tenant
10.36(5) $15,000,000 Promissory Note dated January 3, 1996 from
Cards Limited Liability Company to Column Financial, Inc.
10.37(7) Lease Agreement dated February 23, 1996 by and between RSI
(NJ) QRS 12-13, Inc., as Landlord, and Rheometric
Scientific Inc., as Tenant.
10.38(7) 3,300,000 Promissory Note dated February 23, 1996 from RSI
(NJ) QRS 12-13, Inc. To NatWest Bank NA,.
10.39(7) Stock Purchase Warrant for 132,617 Shares of Rheometric,
Scientific, Inc. Common Stock
10.40(7) Stock Purchase Warrant for 331, 543 Shares of Rheometric,
Scientific, Inc. Common Stock.
10.41(8) Lease Agreement dated March 11, 1996 by and between TEL
(VA) QRS 12-15, Inc., as Landlord, and Telos Corporation, a
Maryland
<PAGE> 228
Corporation, Telos Corporation, a California Corporation,
Telos Field Engineering, Inc., a Delaware Corporation and
Telos International Corp., a Delaware Corporation, as
Tenants.
10.42(9) Lease Agreement dated March 28, 1996 by and between LAX
(DE) QRS 12-16, Inc., as Landlord, and Lanxide Corporation,
as Tenants.
10.43(9) Stock Purchase Warrant for 15,500 Shares of Lanxide
Corporation, Common Stock.
10.44(9) Promissory Note dated March 28, 1996 given by LAX (DE) QRS
12-16, Inc. To Lanxide Corporation.
10.45(10) Lease Agreement dated July 23, 1996 by and between SFC (TX)
QRS 12-18, Inc., as Landlord, and Sports & Fitness Clubs of
America, Inc. as Tenant.
10.46(10) Stock Purchase Warrant for 5,089 Shares of Q Clubs Inc.,
Common Stock.
10.47(10) Guaranty and Suretyship Agreement Made by Celadon Group,
Inc. to QRS 12-17, Inc.
10.48(10) Lease Agreement dated September 19, 1996 by and between CEL
(IN) QRS 12-17, Inc., as Landlord, and Celadon Trucking
Services, Inc. as Tenant.
10.49(11) Lease Agreement dated November 19, 1996 by and between SPEC
(CA) QRS 12-20, Inc., as Landlord, and Spectrian
Corporation, as Tenants.
10.50(11) Lease Agreement dated December 24, 1996 by and between NOG
(NY) QRS 12-23, Inc., as Landlord, and Knogo North America
Inc., as Tenants.
10.51(11) Amendment to Lease dated December 14, 1996 by and between
Weeds (OK) QRS 12-22, Inc., as Landlord, and Garden Ridge,
L.P., as Tenant.
10.52(11) Mortgage Assignment of Rents and Security Agreement dated
December 27, 1996 between Weeds (OK) QRS 12-22, Inc.,
Mortgagor, and GMAC Commercial Mortgage Corporation.
<PAGE> 229
10.53 (11) Lease Agreement dated January 23, 1997 by and between BUILD
(CA) QRS 12-24, Inc., as Landlord, and Scott Corporation,
as Tenants.
23 Consent of Coopers & Lybrand.
28.1(1) Limited Guaranty of Payment dated October 8, 1993 from
CPA(R):11, as Guarantor, to Key Bank of New York, as
Lender.
28.2(1) Amendment to Limited Guaranty of Payment dated July 15,
1994 among CPA(R):11 and Registrant, Guarantors and Key
Bank of New York, as Lender.
28.3(2) Guaranty and Suretyship Agreement dated June 8, 1995 by
Sports & Fitness Clubs, Inc., as Guarantor, to SFC (TX)
QRS 12-7, Inc., as Landlord.
28.4(2) Environmental Risk Agreement dated June 8, 1995 by SFC (TX)
QRS 12-7, Inc., as Indemnitor, to Bank One, Texas, N.A.,
as Lender.
28.5(2) Guaranty and Suretyship Agreement dated June 20, 1995 by
The Garden Companies, Inc., as Guarantor, to Bud Limited
Liability Company.
99.1(10) Table VI: Acquisition of Properties by Prior Programs.
- ----------
(0) Filed with Form S-11 (Reg. No. 33-68728) filed on September 13, 1995.
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(2) Filed with Report on Form 8-K dated June 23, 1995.
(3) Filed with Amendment No. 1 to Post Effective Amendment No. 1 to Form
S-11 (Reg. No. 33-68728) filed on June 23, 1995.
(5) Filed with Pre-Effective Amendment No. 1 to Form S-11 (Reg. No.
33-99994) filed on January 26, 1996.
(6) Filed with Pre-Effective Amendment No. 2 to Form S-11 (Reg. No.
33-99994) filed on February 2, 1996.
<PAGE> 230
(7) Filed with Report on Form 8-K dated February 23, 1996.
(8) Filed with Report on Form 8-K dated March 11, 1996.
(9) Filed with Report on Form 8-K dated March 28, 1996.
(10) Filed with Post-Effective Ammendment No. 2 toForm S-11(Reg. No.
33-99994) filed on October 11, 1996.
(11) Will be filed by Amendment.
Item 36. Undertakings.
(a) Registrant undertakes (1) to file, during any period in which offers
or sales are being made, a post-effective amendment to this Registration
Statement: (i) to include any prospectus required by Section (10)(a)(3) of the
Securities Act, (ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement and (iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; (2) that, for
the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at this time shall be deemed to be the initial bona fide offering thereof; (3)
that all post-effective amendments will comply with the applicable forms, rules
and regulations of the Securities and Exchange Commission in effect at the time
such post-effective amendments are filed; and (4) to remove from registration by
means of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Registrant pursuant to foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant unless in the opinion of its counsel the matter has been
settled by controlling precedent, will submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) Registrant undertakes to file a sticker supplement pursuant to rule
424(c) under the Securities Act during the distribution period describing each
Property not identified in the Prospectus at such time as there arises a
reasonable probability that such Property will be acquired and to consolidate
all such stickers into a post-effective amendment filed at least once every
three months, with the information contained in such amendment provided
<PAGE> 231
simultaneously to the existing Shareholders if such information has not
previously been provided. Each sticker supplement should disclose all
compensation and fees received by the Advisor and its affiliates in connection
with any such acquisition. The post-effective amendment shall include audited
financial statements meeting the requirements of Rule 3-14 or Regulation S-X
only for properties acquired during the distribution period, if appropriate.
<PAGE> 232
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York on the 22nd day of August, 1997.
CORPORATE PROPERTY ASSOCIATES 12
INCORPORATED
By: /s/William P. Carey
-------------------------------
William P. Carey
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 to the Registration Statement has been signed
below by the following persons in the capacities indicated.
William Polk Carey Chairman of the Board and
Director
(Principal Executive Officer)
of the Registrant
Francis J. Carey President of the Registrant
Ralph G. Coburn Independent Director of the
Registrant
By /s/William P. Carey
-----------------------
William Ruder Independent Director of the William P. Carey
Registrant August 22, 1997
Barclay G. Jones III Executive Vice President of
the Registrant
Claude Fernandez Executive Vice President and
Chief Administrative Officer of the
Registrant
Michael D. Roberts First Vice President and
Controller of the Registrant
<PAGE> 233
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
- ----------- -------
3.1(0) Articles of Incorporation of Registrant.
3.2(0) Form of Bylaws of Registrant.
5(5) Opinion of Piper & Marbury, L.L.P. as to legality of
securities issued.
8.1(6) Opinion of Reed Smith Shaw & McClay as to certain tax
matters.
8.2(6) Opinion of Reed Smith Shaw & McClay as to certain ERISA
matters.
10.2(1) Lease Agreement dated October 8, 1993 between ELWA-BV (NY)
QRS 11-24, Inc. as Landlord and Big V Supermarkets, Inc.,
as Tenant.
10.3(1) Amendment to Lease Agreement dated July 15, 1994 by and
between ELWA-BV (NY) QRS 11-24, Inc.
<PAGE> 234
10.4(1) Amended and Restated Mortgage and Security Agreement dated
October 8, 1993 from ELWA-BV (NY) QRS 11-24, Inc., as
Mortgagor, to Key Bank of New York.
10.5(1) $7,500,000 Amended, Restated and Consolidated Bonds dated
October 8, 1993.
10.6(1) Modification and Assumption Agreement dated July 15, 1994
among ELWA-BV (NY) QRS 11-24, Inc., ELWA-BV (NY) QRS 12-3,
Inc. and Key Bank of New York, as Lender.
10.7(1) Lease dated April 15, 1993 between BB Property Company, as
Lessor, and Best Buy Co., Inc., as Lessee.
10.8(1) Note Purchase Agreement dated April 15, 1993 among BB
Property Company, Best Buy Co., Inc., and Teachers
Insurance and Annuity Association of America.
10.9(1) $32,800,000 Note dated April 20, 1993 from BB Property
Company, as Maker, to Teachers Insurance and Annuity
Association of America, as Holder.
10.10(1) Deed of Trust and Security Agreement dated April 15, 1993
from BB Property Company, as Grantor, to Frank E.
Stevenson, II, Esq., Thomas P. Solheim, Esq., Charles D.
Calvin, Esq., Wallace A. Richardson, Esq., Michael D.
Miselamn, Esq. and Keleher & McLeod, P.A., as Trustee, and
Teachers Insurance and Annuity Association of America, as
Beneficiary.
10.11(1) Owner's Lien Agreement dated April 15, 1993 by Corporate
Property Associates 10 Incorporated ("CPA(R):10") and
Corporate Property Associates 11 Incorporated
("CPA(R):11"), Association of America.
10.12(1) First Amendment to Owner's Lien Agreement dated May 27,
1994 by CPA(R):10, CPA(R):11 and Registrant for the benefit
of Teachers Insurance and Annuity Association of America.
10.13(1) $3,353,745 Limited Obligation Promissory Note dated May 13,
1994 from BBC (NE) QRS 12-2, Inc., as Borrower, to
Registrant, as Lender.
10.14(1) Lease Agreement dated December 21, 1993 by and between GENA
Property Company, as Landlord, and Gensia, Inc., as Tenant.
10.15(1) Deed of Trust, Security Agreement and Financing Statement
dated December 21, 1993 between GENA Property Company, as
<PAGE> 235
Trustor, and The Northwestern Mutual Life Insurance
Company, as Trustee.
10.16(1) $13,000,000 Promissory Note, dated December 21, 1993 from
GENA Property Company, as Obligor, to The Northwestern
Mutual Life Insurance Company, as Obligee.
10.17(2) Lease Agreement dated February 1, 1995 by and between ESI
(CA) QRS 12-6, Inc., as Landlord, and ETEC Systems, Inc.,
as Tenant.
10.18(2) Deed of Trust, Assignment of Rents and Security Agreement
dated February 1, 1995 by ESI (CA) QRS 12-6, Inc., as
Trustor, in favor of First American Title Insurance
Company, as Trustee, for the benefit of
Creditanstalt-Bankverein, as Beneficiary.
10.19(2) $6,350,000 Real Estate Note dated February 1, 1995 by ESI
(CA) QRS 12-6, Inc., as Maker, to Creditanstalt-Bankverein,
as Holder.
10.20(2) Lease dated July 3, 1994 by and between Greenwalt
Development, Inc., as Landlord, and Wal-Mart Stores, Inc.,
as Tenant.
10.21(2) Assignment and Assumption of Lease dated February 10, 1995
by and between Greenwalt Development, Inc., as Assignor,
and WALS (IN) QRS 12-5, Inc., as Assignee.
10.22(2) Estoppel Certificate dated February 9, 1995 from Wal-Mart
Stores, Inc. to WALS (IN) QRS 12-5, Inc.
10.23(2) Lease Agreement dated June 8, 1995 by and between SFC (TX)
QRS 12-7, Inc., as Landlord, and Sports & Fitness Clubs of
America, Inc., as Tenant.
10.24(2) Loan Agreement dated June 8, 1995 by and between SFC (TX)
QRS 12-7, Inc., as Borrower, and Bank One, Texas, N.A.
10.25(2) $2,750,000 Note dated June 8, 1995 from SFC (TX) QRS 12-7,
Inc. to Bank One, Texas, N.A.
10.26(2) Deed of Trust and Security Agreement dated June 8, 1995
from SFC (TX) QRS 12-7, Inc., as Mortgagor, to Mr. Brian J.
Tuerff, as Trustee, for Bank One, Texas, N.A., as
Mortgagee.
10.27(2) Lease Agreement dated June 20, 1995, by and between Bud
Limited Liability Company, as Landlord, and NK Lawn &
Garden Co., as Tenant.
<PAGE> 236
10.28(5) Form of Sales Agency Agreement.
10.29(5) Form of Selected Dealer Agreement.
10.30(1) Advisory Agreement.
10.31(5) Form of Wholesaling Agreement.
10.32(0) Form of Escrow Agreement.
10.33(5) Lease Agreement dated October 31, 1995 by and between DELMO
(PA) QRS 11-36 and DELMO (PA) QRS 12-10, together as
Landlord, and Del Monte Corporation, as Tenant
10.34(5) Lease Agreement dated November 13, 1995 by and between ABI
(TX) QRS 12-11, Inc., as Landlord, and Pharmaco LSR
International Inc., as Tenant.
10.35(5) Lease Agreement dated December 26, 1995 by and between
Cards Limited Liability Company, as Landlord, and The Upper
Deck Company, as Tenant
10.36(5) $15,000,000 Promissory Note dated January 3, 1996 from
Cards Limited Liability Company to Column Financial, Inc.
10.37(7) Lease Agreement dated February 23, 1996 by and between RSI
(NJ) QRS 12-13, Inc., as Landlord, and Rheometric
Scientific Inc., as Tenant.
10.38(7) 3,300,000 Promissory Note dated February 23, 1996 from RSI
(NJ) QRS 12-13, Inc. To NatWest Bank NA,.
10.39(7) Stock Purchase Warrant for 132,617 Shares of Rheometric,
Scientific, Inc. Common Stock
10.40(7) Stock Purchase Warrant for 331, 543 Shares of Rheometric,
Scientific, Inc. Common Stock.
10.41(8) Lease Agreement dated March 11, 1996 by and between TEL
(VA) QRS 12-15, Inc., as Landlord, and Telos Corporation, a
Maryland
<PAGE> 237
Corporation, Telos Corporation, a California Corporation,
Telos Field Engineering, Inc., a Delaware Corporation and
Telos International Corp., a Delaware Corporation, as
Tenants.
10.42(9) Lease Agreement dated March 28, 1996 by and between LAX
(DE) QRS 12-16, Inc., as Landlord, and Lanxide Corporation,
as Tenants.
10.43(9) Stock Purchase Warrant for 15,500 Shares of Lanxide
Corporation, Common Stock.
10.44(9) Promissory Note dated March 28, 1996 given by LAX (DE) QRS
12-16, Inc. To Lanxide Corporation.
10.45(10) Lease Agreement dated July 23, 1996 by and between SFC (TX)
QRS 12-18, Inc., as Landlord, and Sports & Fitness Clubs of
America, Inc. as Tenant.
10.46(10) Stock Purchase Warrant for 5,089 Shares of Q Clubs Inc.,
Common Stock.
10.47(10) Guaranty and Suretyship Agreement Made by Celadon Group,
Inc. to QRS 12-17, Inc.
10.48(10) Lease Agreement dated September 19, 1996 by and between CEL
(IN) QRS 12-17, Inc., as Landlord, and Celadon Trucking
Services, Inc. as Tenant.
10.49(11) Lease Agreement dated November 19, 1996 by and between SPEC
(CA) QRS 12-20, Inc., as Landlord, and Spectrian
Corporation, as Tenants.
10.50(11) Lease Agreement dated December 24, 1996 by and between NOG
(NY) QRS 12-23, Inc., as Landlord, and Knogo North America
Inc., as Tenants.
10.51(11) Amendment to Lease dated December 14, 1996 by and between
Weeds (OK) QRS 12-22, Inc., as Landlord, and Garden Ridge,
L.P., as Tenant.
10.52(11) Mortgage Assignment of Rents and Security Agreement dated
December 27, 1996 between Weeds (OK) QRS 12-22, Inc.,
Mortgagor, and GMAC Commercial Mortgage Corporation.
<PAGE> 238
10.53 (11) Lease Agreement dated January 23, 1997 by and between BUILD
(CA) QRS 12-24, Inc., as Landlord, and Scott Corporation,
as Tenants.
23 Consent of Coopers & Lybrand.
28.1(1) Limited Guaranty of Payment dated October 8, 1993 from
CPA(R):11, as Guarantor, to Key Bank of New York, as
Lender.
28.2(1) Amendment to Limited Guaranty of Payment dated July 15,
1994 among CPA(R):11 and Registrant, Guarantors and Key
Bank of New York, as Lender.
28.3(2) Guaranty and Suretyship Agreement dated June 8, 1995 by
Sports & Fitness Clubs, Inc., as Guarantor, to SFC (TX)
QRS 12-7, Inc., as Landlord.
28.4(2) Environmental Risk Agreement dated June 8, 1995 by SFC (TX)
QRS 12-7, Inc., as Indemnitor, to Bank One, Texas, N.A.,
as Lender.
28.5(2) Guaranty and Suretyship Agreement dated June 20, 1995 by
The Garden Companies, Inc., as Guarantor, to Bud Limited
Liability Company.
99.1(10) Table VI: Acquisition of Properties by Prior Programs.
- ----------
(0) Filed with Form S-11 (Reg. No. 33-68728) filed on September 13, 1995.
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(2) Filed with Report on Form 8-K dated June 23, 1995.
(3) Filed with Amendment No. 1 to Post Effective Amendment No. 1 to Form
S-11 (Reg. No. 33-68728) filed on June 23, 1995.
(5) Filed with Pre-Effective Amendment No. 1 to Form S-11 (Reg. No.
33-99994) filed on January 26, 1996.
(6) Filed with Pre-Effective Amendment No. 2 to Form S-11 (Reg. No.
33-99994) filed on February 2, 1996.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 5 to the
registration statement on Form S-11 (File No. 33-99994) of our reports dated
March 24, 1997, on our audits of the consolidated financial statements and
financial statement schedule of Corporate Property Associates 12 Incorporated
and Subsidiaries. We also consent to the reference to our Firm under the caption
"Experts."
/s/ Coopers & Lybrand LLP
New York, New York
August 20, 1997
