-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CIfRcpA6AxFI3PYcDMtTXysIffQd+Z1c9wDm9gGSDGpM53XMOU8Zj6+2sjsWfXAl zHy2ZqD+wrDRyT8E9VDbJQ== 0000950123-97-007552.txt : 19970912 0000950123-97-007552.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950123-97-007552 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970904 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES CENTRAL INDEX KEY: 0000276280 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 942572215 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-09174 FILM NUMBER: 97675177 BUSINESS ADDRESS: STREET 1: 50 ROCKFELLOW PALZA SECOND FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124921100 MAIL ADDRESS: STREET 1: 50 ROCKEFELLOW CENTER CITY: NEW YORK STATE: NY ZIP: 10020 10-K405/A 1 CORPORATE PROPERTY ASSOCIATES 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the quarterly period ended DECEMBER 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-9174 CORPORATE PROPERTY ASSOCIATES (Exact name of registrant as specified in its charter) CALIFORNIA 94-2572215 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 492-1100 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered NONE NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP UNITS (Title of Class) (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of the voting stock held by non-affiliates of Registrant: There is no active market for Limited Partnership Units. 2 Part II Item 8. Financial Statements and Supplementary Data. (i) Report of Independent Accountants. (ii) Balance Sheets as of December 31, 1995 and 1996. (iii) Statements of Income for the years ended December 31, 1994, 1995 and 1996. (iv) Statements of Partners' Capital for the years ended December 31, 1994, 1995 and 1996. (v) Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996. (vi) Notes to Financial Statements. -5- 3 REPORT of INDEPENDENT ACCOUNTANTS To the Partners of Corporate Property Associates: We have audited the accompanying balance sheets of Corporate Property Associates (a California limited partnership) as of December 31, 1995 and 1996, and the related statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1996. We have also audited the financial statement schedule included on pages 16 to 17 of this Annual Report. These financial statements and financial statement schedule are the responsibility of the General Partners. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Corporate Property Associates (a California limited partnership) as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the Schedule of Real Estate and Accumulated Depreciation as of December 31, 1996, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the financial information required to be included therein pursuant to Securities and Exchange Commission Regulation S-X Rule 12-28. /s/ Coopers & Lybrand L.L.P. New York, New York March 17, 1997 -5- 4 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) BALANCE SHEETS December 31, 1995 and 1996
1995 1996 ---- ---- ASSETS: Real estate leased to others: Accounted for under the operating method: Land $ 3,546,994 $ 3,335,260 Buildings 30,785,997 29,769,093 ----------- ----------- 34,332,991 33,104,353 Accumulated depreciation 17,950,541 18,252,546 ----------- ----------- 16,382,450 14,851,807 Net investment in direct financing leases 4,895,886 4,660,571 ----------- ----------- Real estate leased to others 21,278,336 19,512,378 Real estate held for sale 434,339 Cash and cash equivalents 872,864 864,889 Escrow funds 100,000 Accrued interest and rents receivable 377,471 397,309 Other assets, net of accumulated amortization of $56,946 in 1995 and $119,157 in 1996 901,434 1,017,079 ----------- ----------- Total assets $23,530,105 $22,225,994 =========== =========== LIABILITIES: Mortgage notes payable $14,888,807 $13,429,484 Accrued interest payable 190,843 108,755 Accounts payable and accrued expenses 81,726 83,443 Prepaid rental income and security deposits 263,548 198,610 Accounts payable to affiliates 46,304 45,840 ----------- ----------- Total liabilities 15,471,228 13,866,132 ----------- ----------- Commitments and contingencies PARTNERS' CAPITAL: General Partners (98,679) (95,847) Limited Partners (40,000 Limited Partnership Units issued and outstanding) 8,157,556 8,455,709 ----------- ----------- Total partners' capital 8,058,877 8,359,862 ----------- ----------- Total liabilities and partners' capital $23,530,105 $22,225,994 =========== ===========
The accompanying notes are an integral part of the financial statements. -6- 5 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) STATEMENTS of INCOME For the years ended December 31, 1994, 1995 and 1996
1994 1995 1996 ----------- ----------- ----------- Revenues: Rental income $ 3,907,692 $ 3,994,281 $ 4,030,182 Interest income from direct financing leases 518,483 525,673 510,293 Other interest income 54,285 66,654 48,670 Other income 244,010 ----------- ----------- ----------- 4,480,460 4,830,618 4,589,145 ----------- ----------- ----------- Expenses: Interest on mortgages 1,598,614 1,524,837 1,280,995 Depreciation 1,106,712 1,089,758 969,570 General and administrative 222,086 237,800 202,551 Property expenses 428,358 109,460 123,722 Amortization 16,511 27,068 62,211 ----------- ----------- ----------- 3,372,281 2,988,923 2,639,049 ----------- ----------- ----------- Income before loss on sale and extraordinary item 1,108,179 1,841,695 1,950,096 Loss on sale of real estate 22,871 ----------- ----------- ----------- Income before extraordinary item 1,108,179 1,841,695 1,927,225 Extraordinary charge on extinguishment of debt 255,438 ----------- ----------- ----------- Net income $ 1,108,179 $ 1,841,695 $ 1,671,787 =========== =========== =========== Net income allocated to: Individual General Partner $ 1,108 $ 1,842 $ 1,672 =========== =========== =========== Corporate General Partner $ 9,974 $ 16,575 $ 15,046 =========== =========== =========== Limited Partners $ 1,097,097 $ 1,823,278 $ 1,655,069 =========== =========== =========== Net income per Unit: (40,000 Limited Partnership Units outstanding) Income before extraordinary item $ 27.43 $ 45.58 $ 47.70 Extraordinary item (6.32) ----------- ----------- ----------- $ 27.43 $ 45.58 $ 41.38 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. -7- 6 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) STATEMENTS of PARTNERS' CAPITAL For the years ended December 31, 1994, 1995 and 1996
Partners' Capital Accounts ----------------------------------------------------------- Limited Partners' General Limited Amount Per Total Partners Partners Unit (a) ----------- ----------- ----------- ----------- Balance, December 31, 1993 $ 7,690,289 $ (102,363) $ 7,792,652 $ 195 Distributions (1,269,699) (12,699) (1,257,000) (31) Net income, 1994 1,108,179 11,082 1,097,097 27 ----------- ----------- ----------- ----------- Balance, December 31, 1994 7,528,769 (103,980) 7,632,749 191 Distributions (1,313,535) (13,135) (1,300,400) (33) Change in unrealized appreciation in marketable securities 1,948 19 1,929 Net income, 1995 1,841,695 18,417 1,823,278 46 ----------- ----------- ----------- ----------- Balance, December 31, 1995 8,058,877 (98,679) 8,157,556 204 Distributions (1,417,554) (14,354) (1,403,200) (35) Change in unrealized appreciation in marketable securities 46,752 468 46,284 1 Net income, 1996 1,671,787 16,718 1,655,069 41 ----------- ----------- ----------- ----------- Balance, December 31, 1996 $ 8,359,862 $ (95,847) $ 8,455,709 $ 211 =========== =========== =========== ===========
(a) Based on 40,000 Units issued and outstanding during all periods. The accompanying notes are an integral part of the financial statements. -8- 7 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) STATEMENTS of CASH FLOWS For the years ended December 31, 1994, 1995 and 1996
1994 1995 1996 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 1,108,179 $ 1,841,695 $ 1,671,787 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,123,223 1,116,826 1,031,781 Scheduled rents on direct financing leases in excess of (less than) amortization of unearned income 38,590 23,576 (16,780) Scheduled rents on operating leases less than income recognized (67,500) (67,500) (67,500) Securities received in connection with settlement (44,561) Loss on sale of real estate 22,871 Extraordinary charge on extinguishment of debt 255,438 Net change in operating assets and liabilities 13,980 (203,857) (71,066) ----------- ----------- ----------- Net cash provided by operating activities 2,216,472 2,666,179 2,826,531 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of real estate, net 355,958 Release of escrow funds 100,000 Purchase of note receivable (77,254) ----------- ----------- Net cash (used in) provided by investing activities (77,254) 455,958 ----------- ----------- Cash flows from financing activities: Distributions to partners (1,269,699) (1,313,535) (1,417,554) Proceeds from mortgage note payable 2,400,000 6,400,000 Deferred refinancing costs (272,746) (158,149) Prepayment charges paid on extinguishment of debt (255,438) Payments of mortgage principal (1,305,967) (1,417,411) (1,424,875) Prepayment of mortgage payable (2,112,194) (6,434,448) ----------- ----------- ----------- Net cash used in financing activities (2,560,606) (2,730,946) (3,290,464) ----------- ----------- ----------- Net decrease in cash and cash equivalents (421,388) (64,767) (7,975) Cash and cash equivalents, beginning of year 1,359,019 937,631 872,864 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 937,631 $ 872,864 $ 864,889 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. -9- 8 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) NOTES to FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies: Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Leased to Others: Real estate is leased to others on a net lease basis, whereby the tenant is generally responsible for all operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, renewals and improvements. Corporate Property Associates (the "Partnership") diversifies its real estate investments among various corporate tenants engaged in different industries and by property type throughout the United States. The leases are accounted for under either the direct financing or operating methods. Such methods are described below: Direct financing method - Leases accounted for under the direct financing method are recorded at their net investment (Note 5). Unearned income is deferred and amortized to income over the lease terms so as to produce a constant periodic rate of return on the Partnership's net investment in the lease. Operating method - Real estate is recorded at cost, revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. The Partnership assesses the recoverability of its real estate assets, including residual interests, based on projections of undiscounted cash flows over the life of such assets. In the event that such cash flows are insufficient, the assets are adjusted to their estimated net realizable value. Substantially all of the Partnership's leases provide for either scheduled rent increases, periodic rent increases based on formulas indexed to increases in the Consumer Price Index or sales overrides. Depreciation: Depreciation is computed using the straight-line method over the estimated useful lives of components of the particular properties, which range from 5 to 50 years. Cash Equivalents: The Partnership considers all short-term, highly-liquid investments that are both readily convertible to cash and have a maturity of generally three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market funds. Substantially all of the Partnership's cash and cash equivalents for both years ended December 31, 1995 and 1996 were held in the custody of three financial institutions. Other Assets: Included in other assets are deferred rental income, deferred charges and marketable equity securities. Deferred rental income is the aggregate difference for operating method leases between scheduled rents which vary during the lease term and income recognized on a straight- Continued -10- 9 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued line basis. Deferred charges are primarily costs incurred in connection with mortgage note refinancing and are amortized on a straight-line basis over the terms of the mortgages. The Partnership's marketable equity securities, which consist of 1,948 shares of Storage Technology Corporation common stock are classified as available-for-sale securities and are reported at fair market value with the Partnership's interest in unrealized gains and losses on these securities reported as a separate component of partners' capital. Income Taxes: A partnership is not liable for federal income taxes as each partner recognizes his proportionate share of the partnership income or loss in his tax return. Accordingly, no provision for income taxes is recognized for financial statement purposes. Reclassification: Certain 1994 and 1995 amounts have been reclassified to conform to the 1996 financial statement presentation. 2. Partnership Agreement: The Partnership was organized on July 24, 1978 under the Uniform Limited Partnership Act of the State of California for the purpose of engaging in the business of investing in and leasing industrial and commercial real estate. The Corporate General Partner purchased 200 limited partnership units in connection with the Partnership's public offering. The Partnership will terminate on December 31, 2016, or sooner, in accordance with the terms of the Amended Agreement of Limited Partnership (the "Agreement"). The Agreement provides that the General Partners are allocated 1% (1/10 of 1% to the Individual General Partner, William P. Carey, and 9/10 of 1% to the Corporate General Partner, W. P. Carey & Co., Inc. ("W.P. Carey")) and the Limited Partners are allocated 99% of the profits and losses as well as distributions of Distributable Cash From Operations, as defined in the Agreement. The partners are also entitled to receive net proceeds from the sale of the Partnership properties as defined in the Agreement. The General Partners may be entitled to receive a subordinated preferred return, measured based upon the cumulative proceeds arising from the sale of Partnership assets. Pursuant to the subordination provisions of the Agreement, the preferred return may be paid only after the limited partners receive 100% of their initial investment from the proceeds of asset sales and a cumulative annual return ranging from 6% to 9% since the inception of the Partnership. The General Partners interest in such preferred return amounts to $144,773 based upon the cumulative proceeds from the sale of assets since the inception of the Partnership through December 31, 1996. The Partnership's ability to satisfy the subordination provisions of the Agreement may not be determinable until liquidation of a substantial portion of the Partnership's assets has been made, formal plans of liquidation are adopted or limited partnership units are converted to other securities which provide the security holder with greater liquidity than a limited partnership unit. Management believes that as of the report date, ultimate payment of the preferred return is reasonably possible but not probable, as defined pursuant to Statement of Financial Accounting Standards No. 5. 3. Transactions with Related Parties: The Partnership holds a 60% ownership interest in a property as tenants-in-common with an affiliate which holds the remaining 40% interest. The Partnership accounts for its assets and liabilities relating to tenants-in-common interests on a proportional basis. Continued -11- 10 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued Under the Agreement, a division of W.P. Carey is entitled to receive a property management fee and reimbursement of certain expenses incurred in connection with the Partnership's operations. General and administrative expense reimbursements consist primarily of the actual cost of personnel needed in providing administrative services necessary for the operation of the Partnership. Property management fees and general and administrative expense reimbursements are summarized as follows:
1994 1995 1996 ---- ---- ---- Property management fee $44,581 $ 72,881 $ 66,815 General and administrative expense reimbursements 51,607 44,250 43,956 ------- -------- -------- $96,188 $117,131 $110,771 ======= ======== ========
During 1994, 1995 and 1996, fees aggregating $97,438, $18,338 and $10,329, respectively, were incurred for legal services performed by a firm in which the Secretary of the Corporate General Partner and other affiliates is a partner. The Partnership is a participant in an agreement with W.P. Carey and certain other affiliates for the purpose of leasing office space used for the administration of real estate entities and W.P. Carey and for sharing the associated costs. Pursuant to the terms of the agreement, the Partnership's share of rental, occupancy and leasehold improvement costs is based on adjusted gross revenues, as defined. Net expenses incurred in 1994, 1995 and 1996 were $15,615, $61,243 and $30,477, respectively. 4. Real Estate Leased to Others Accounted for Under the Operating Method: Scheduled future minimum rents, exclusive of renewals, under noncancellable operating leases amount to approximately $3,708,000 in 1997; $3,804,000 in each of the years 1998 through 2001; and aggregate approximately $23,526,000 through 2006. Contingent rents were approximately $56,000 in 1995 and $89,000 in 1996. There were no contingent rents in 1994. 5. Net Investment in Direct Financing Leases: Net investment in direct financing leases is summarized as follows:
December 31, ------------ 1995 1996 ---- ---- Minimum lease payments receivable $ 6,666,724 $ 5,945,229 Unguaranteed residual value 5,075,137 4,823,041 ----------- ----------- 11,741,861 10,768,270 Less, Unearned income 6,845,975 6,107,699 ----------- ----------- $ 4,895,886 $ 4,660,571 =========== ===========
Scheduled future minimum rents, exclusive of renewals, under noncancellable direct financing leases amount to approximately $477,000 in each of the years 1997 to 1999, $492,000 in each of the years 2000 and 2001 and aggregate approximately $5,945,000 through 2009. Continued -12- 11 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued 6. Mortgage Notes Payable: Mortgage notes payable, all of which are limited recourse obligations of the Partnership or the partners, are collateralized by real property with a carrying amount as of December 31, 1996 of approximately $34,206,000, before accumulated depreciation, and the assignment of various leases. As of December 31, 1996, mortgage notes payable bear interest at rates varying from 7.25% to 10.5% per annum and mature between 1998 and 2011. Scheduled principal payments during each of the next five years following December 31, 1996 are as follows:
Year Ending December 31, ------------------------ 1997 $ 1,607,968 1998 1,361,997 1999 6,325,539 2000 658,765 2001 727,079 Thereafter 2,748,136 ----------- Total $13,429,484 ===========
Interest paid was $1,604,379, $1,536,914 and $1,363,083 in 1994, 1995 and 1996, respectively. 7. Distributions to Partners: Distributions are declared and paid to partners quarterly and are summarized as follows:
Year Ending Distributions Paid to Distributions Paid to Limited Partners' December 31, General Partners Limited Partners Per Unit Amount ------------ --------------------- --------------------- ----------------- 1994 $12,699 $1,257,000 $31.43 ======= ========== ====== 1995 $13,135 $1,300,400 $32.51 ======= ========== ====== 1996 $14,354 $1,403,200 $35.08 ======= ========== ======
Distributions of $3,556 to the General Partners and $352,000 to the Limited Partners for the quarter ended December 31, 1996 were declared and paid in January 1997. 8. Income for Federal Tax Purposes: Income for financial statement purposes differs from income for Federal income tax purposes because of the difference in the treatment of certain items for income tax purposes and financial statement purposes. A reconciliation of accounting differences is as follows:
1994 1995 1996 ---- ---- ---- Net income per Statements of Income $1,108,179 $1,841,695 $1,671,787 Excess tax depreciation (24,267) 1,115 (16,894) Other (153,863) (1,759) 38,919 ---------- ---------- ---------- Income reported for Federal income tax purposes $ 930,049 $1,841,051 $1,693,812 ========== ========== ==========
Continued -13- 12 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued 9. Industry Segment Information: The Partnership's operations consist of the investment in and the leasing of industrial and commercial real estate. In 1994, 1995 and 1996, the Partnership earned its total operating revenues (rental income plus interest income from direct financing leases) from the following lease obligors:
1994 % 1995 % 1996 % ---------- ---------- ---------- ---------- ---------- ---------- Pre Finish Metals Incorporated $1,345,442 30% $1,407,841 31% $1,441,238 32% The Gap, Inc. 1,225,994 28 1,225,994 27 1,225,994 27 IMO Industries, Inc. 846,743 19 846,743 19 846,743 19 Unisource Worldwide 332,110 8 339,300 8 329,480 7 Broomfield Tech Center Corporation 269,946 6 294,136 6 300,136 7 Kobacker Stores, Inc. 303,540 7 303,540 7 294,484 6 Winn-Dixie Stores, Inc. 102,400 2 102,400 2 102,400 2 ---------- ---------- ---------- ---------- ---------- ---------- $4,426,175 100% $4,519,954 100% $4,540,475 100% ========== ========== ========== ========== ========== ==========
10. Sale of Real Estate: On October 17, 1996, Kobacker Stores, Inc. ("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 $22,871. A portion of the net sales proceeds was assigned to the mortgage lender on the Kobacker properties as a partial prepayment. As a result of the sale and the related mortgage prepayment of $139,507, Kobacker's annual rent will decrease by $36,225 and the Partnership's debt service on the mortgage loan will decrease $23,756. 11. Real Estate Held for Sale: On September 17, 1996, the Partnership entered into a purchase and sale agreement for the sale of the Partnership's property in Louisville, Kentucky, leased to Winn-Dixie Stores, Inc. ("Winn-Dixie") for $1,100,000, less selling costs, including a 5% brokerage commission. The transaction is subject to completion of certain due diligence procedures and the ability of the buyer to obtain debt financing. Accordingly, there can be no assurance that the sale of the property will be completed. The Winn-Dixie lease, which is scheduled to expire in December 1999, provides annual rentals of $102,000. 12. Settlement Agreement: One of the Partnership's leases with IMO Industries, Inc. ("IMO") had been scheduled to terminate in March 1996. The Partnership granted IMO an extension of three months to enable IMO to meet its lease obligation to return the property in suitable condition. As IMO did not satisfy such Continued -14- 13 CORPORATE PROPERTY ASSOCIATES (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued obligation, the Partnership refused to release IMO from the lease and continued to collect monthly rental payments from IMO. On February 12, 1997, the Partnership and IMO entered into an agreement which released IMO from the lease. Under the agreement, IMO returned the property in "as is" condition to the Partnership, paid $485,766, representing estimated repair costs and construction management fees, into an escrow account held by an affiliate of the Partnership. Funds in escrow will only be released under certain conditions including, but not limited to, the payment of repairs and maintenance for the property. Rents from the terminated IMO lease contributed annual revenues of approximately $91,000. The Partnership's lease with IMO for an adjacent property currently provides for annual rent of $687,750 and has a lease term through 2002. 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 Partnership's estimate of fair value of mortgage notes payable approximates the carrying amount of such mortgage note at December 31, 1996. The fair value of debt instruments was evaluated using a discounted cash flow model with discount rates which take into account the credit of the tenants and interest rate risk. 14. Environmental Matters: The Partnership's properties are currently leased to corporate tenants, all of which are subject to environmental statutes and regulations regarding the discharge of hazardous materials and related remediation obligations. The Partnership generally structures a lease to require the tenant to comply with all laws. In addition, substantially all of the Partnership's net leases include provisions which require tenants to indemnify the Partnership from all liabilities and losses related to their operations at the leased properties. Any costs of remediation are expected to be performed and paid by the affected tenant. In the event that the Partnership absorbs a portion of any costs because of a tenant's failure to fulfill its obligations, the General Partners believe such expenditures will not have a material adverse effect on the Partnership's financial condition, liquidity or results of operations. In 1994, based on the results of Phase I environmental reviews performed in 1993, the Partnership voluntarily conducted Phase II environmental reviews on certain of its properties. The Partnership believes, based on the results of Phase I and Phase II reviews, that its properties are in substantial compliance with Federal and state environmental statutes and regulations. Portions of certain properties have been documented as having a limited degree of contamination, principally in connection with either leakage from underground storage tanks or surface spills from facility activities. For those conditions which were identified, the Partnership advised the affected tenants of the Phase II findings and of their obligations to perform required remediation. -15- 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CORPORATE PROPERTY ASSOCIATES (a California limited partnership) BY: W. P. CAREY & CO., INC. 09/3/97 BY: /s/ Steven M. Berzin - --------------- ------------------------------- Date Claude Fernandez Executive Vice President and Chief Financial Officer (Principal Financial Officer) 09/3/97 BY: /s/ Claude Fernandez - --------------- ------------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Accounting Officer) -16- -----END PRIVACY-ENHANCED MESSAGE-----