-----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, NGGOrI9ZHvYePGF7GC7VqeixlKQ4oSb8oVP1nJMKGSvgS30sUcDROiNQNXnVzXk5 031tyL7pMV8oWZM29XFBVA== 0000950123-97-007555.txt : 19970912 0000950123-97-007555.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950123-97-007555 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 4 CENTRAL INDEX KEY: 0000706005 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 133126150 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-11982 FILM NUMBER: 97675189 BUSINESS ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124921100 MAIL ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 10-K405/A 1 CORPORATE PROPERTY ASSOCIATES 4 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2 (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 0-11982 CORPORATE PROPERTY ASSOCIATES 4, A CALIFORNIA LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) CALIFORNIA 13-3126150 (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 deliquent 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. -7- 3 REPORT of INDEPENDENT ACCOUNTANTS To the Partners of Corporate Property Associates 4, a California limited partnership We have audited the accompanying balance sheets of Corporate Property Associates 4, 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 20 to 22 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 4, 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 21, 1997 -6- 4 CORPORATE PROPERTY ASSOCIATES 4, 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 $ 4,294,809 $ 4,294,809 Buildings 22,770,152 22,770,152 ------------ ------------ 27,064,961 27,064,961 Accumulated depreciation 12,626,558 13,487,845 ------------ ------------ 14,438,403 13,577,116 Net investment in direct financing leases 18,224,428 18,193,555 ------------ ------------ Real estate leased to others 32,662,831 31,770,671 Operating real estate, net of accumulated depreciation of $735,950 in 1995 7,033,830 Cash and cash equivalents 7,579,071 4,668,645 Accrued interest and rents receivable 203,651 269,543 Other assets, net of accumulated amortization of $435,047 in 1995 and $399,342 in 1996 1,028,692 1,358,488 Equity investment 3,999,632 ------------ ------------ Total assets $ 48,508,075 $ 42,066,979 ============ ============ LIABILITIES: Mortgage notes payable $ 19,486,882 $ 10,699,799 Accrued interest payable 136,087 82,827 Accounts payable and accrued expenses 435,977 288,509 Accounts payable to affiliates 87,461 146,447 Prepaid rental income 46,800 ------------ ------------ Total liabilities 20,146,407 11,264,382 ------------ ------------ Commitments and contingencies PARTNERS' CAPITAL: General Partners 62,061 (210,626) Limited Partners (85,568 and 85,528 Limited Partnership Units issued and outstanding in 1995 and 1996) 28,299,607 30,591,971 ------------ ------------ Total partners' capital 28,361,668 30,802,597 ------------ ------------ Total liabilities and partners' capital $ 48,508,075 $ 42,066,979 ============ ============
The accompanying notes are an integral part of the financial statements. -7- 5 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership STATEMENTS of INCOME For the years ended December 31, 1994, 1995 and 1996
1994 1995 1996 ---------- ---------- ---------- Revenues: Rental income $2,921,429 $3,260,022 $5,546,662 Interest income from direct financing leases 5,414,500 4,362,928 3,310,601 Other interest income 106,798 254,935 370,765 Other income 183,768 94,345 ---------- ---------- ---------- 8,442,727 8,061,653 9,322,373 ---------- ---------- ---------- Expenses: Interest on mortgages 2,396,017 2,098,857 1,515,248 Depreciation 1,141,143 1,149,525 921,702 General and administrative 444,307 454,000 447,901 Property expense 983,409 327,528 551,785 Amortization 124,601 113,835 90,529 ---------- ---------- ---------- 5,089,477 4,143,745 3,527,165 ---------- ---------- ---------- Income before income from equity investments and gain on sale 3,353,250 3,917,908 5,795,208 Hotel operating income 1,090,130 1,430,580 853,262 Income from equity investment 265,056 ---------- ---------- ---------- Income before gain on sale 4,443,380 5,348,488 6,913,526 Gain on sale of real estate 3,330,098 ---------- ---------- ---------- Net income $4,443,380 $8,678,586 $6,913,526 ========== ========== ========== Net income allocated to: Individual General Partner $ 44,434 $ 205,754 $ 69,135 ========== ========== ========== Corporate General Partner $ 222,169 $ 672,659 $ 345,676 ========== ========== ========== Limited Partners $4,176,777 $7,800,173 $6,498,715 ========== ========== ========== Net income per Limited Partnership Unit (85,568 Units outstanding in 1994 and 1995 and 85,548 weighted average Limited Partnership Units in 1996): $ 48.81 $ 91.16 $ 75.97 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. -8- 6 CORPORATE PROPERTY ASSOCIATES 4, 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 $ 29,220,489 $ (460,188) $ 29,680,677 $ 347 Distributions (4,878,286) (292,697) (4,585,589) (54) Net income, 1994 4,443,380 266,603 4,176,777 49 ------------ ------------ ------------ ------------ Balance, December 31, 1994 28,785,583 (486,282) 29,271,865 342 Distributions (9,102,501) (330,070) (8,772,431) (102) Net income, 1995 8,678,586 878,413 7,800,173 91 ------------ ------------ ------------ ------------ Balance, December 31, 1995 28,361,668 62,061 28,299,607 331 Distributions (4,452,597) (266,246) (4,186,351) (49) Purchase of Limited Partner Units (20,000) (20,000) Net income, 1996 6,913,526 414,811 6,498,715 76 ------------ ------------ ------------ ------------ Balance, December 31, 1996 $ 30,802,597 $ (210,626) $ 30,591,971 $ 358 ============ ============ ============ ============
(a) Based on weighted average Units issued and outstanding during all periods. The accompanying notes are an integral part of the financial statements. -9- 7 CORPORATE PROPERTY ASSOCIATES 4, 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 $ 4,443,380 $ 8,678,586 $ 6,913,526 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,265,744 1,263,360 1,012,231 Cash receipts on operating and direct financing leases greater (less) than straight line adjustments and amortization of unearned income 21,994 9,808 (945,667) Equity income in excess of distributions received (147,800) Gain on sale of real estate (3,330,098) Net change in operating assets and liabilities 40,985 (522,176) 335,351 ------------ ------------ ------------ Net cash provided by operating activities 5,772,103 6,099,480 7,167,641 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sale of real estate 15,200,000 Purchase of equity investment and related costs (198,969) Additional capitalized costs (845,935) (246,658) (8,182) ------------ ------------ ------------ Net cash (used in) provided by investing activities (845,935) 14,953,342 (207,151) ------------ ------------ ------------ Cash flows from financing activities: Distributions to partners (4,878,286) (9,102,501) (4,452,597) Payments of mortgage principal (1,168,014) (1,158,193) (898,319) Prepayments of mortgages payable (5,722,508) (4,500,000) Deferred financing costs (366) Purchase of Limited Partner Units (20,000) ------------ ------------ ------------ Net cash used in financing activities (6,046,666) (15,983,202) (9,870,916) ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (1,120,498) 5,069,620 (2,910,426) Cash and cash equivalents, beginning of year 3,629,949 2,509,451 7,579,071 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 2,509,451 $ 7,579,071 $ 4,668,645 ============ ============ ============
Supplemental disclosure of noncash investing and financing activities: In July 1996, the Partnership exchanged its interest in a hotel property and related assets and liabilities for 427,008 units in the operating partnership of a publicly-traded real estate investment trust. The assets and liabilities transferred are as follows: Real estate, net of accumulated depreciation $ 6,981,597 Mortgage note payable (3,388,764) Other assets and liabilities transferred, net 60,030 ------------ Equity investment $ 3,652,863 ============
The accompanying notes are an integral part of the financial statements. -10- 8 CORPORATE PROPERTY ASSOCIATES 4, 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 generally leased to others on a net lease basis. In a net lease 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 4 (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 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. Operating Real Estate: Land, building and personal property are carried at cost. Major renewals and improvements are capitalized to the property accounts, while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed currently. As more fully described in Note 11, the Partnership transferred operating real estate in 1996 in connection with an exchange transaction. Continued -11- 9 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES to FINANCIAL STATEMENTS, Continued Depreciation: Depreciation is computed using the straight-line method over the estimated useful lives of components of the particular properties, which range from 10 to 40 years. Cash Equivalents: The Partnership considers all short-term, highly-liquid investments that are both readily convertible to cash and have a maturity of generally three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market funds. Substantially all of the Partnership's cash and cash equivalents at December 31, 1995 and 1996 were held in the custody of three financial institutions. Other Assets: Included in other assets are deferred rental income and deferred charges. Deferred rental income is the aggregate difference for operating leases between scheduled rents which vary during the lease term and income recognized on a straight-line basis. Deferred costs incurred in connection with mortgage note refinancings are amortized over the terms of the mortgages. Equity Investment: The Partnership's interest in American General Hospitality Operating Partnership, L.P. is accounted for under the equity method; i.e. at cost, increased by the Partnership's share of earnings or loss and reduced by distributions received (see Note 11). Income Taxes: A partnership is not liable for Federal income taxes as each partner recognizes his proportionate share of the partnership income or loss in his tax return. Accordingly, no provision for income taxes is recognized for financial statement purposes. Reclassifications: Certain 1994 and 1995 amounts have been reclassified to conform with the 1996 presentation. 2. Partnership Agreement: The Partnership was organized on August 10, 1982 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, 2020, or sooner, in accordance with the terms of the Amended Agreement of Limited Partnership (the "Agreement"). Continued -12- 10 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES to FINANCIAL STATEMENTS, Continued The Agreement provides that the General Partners are allocated 6% (1% to the Individual General Partner, William P. Carey, and 5% to the Corporate General Partner, Carey Corporate Property, Inc.) and the Limited Partners are allocated 94% of the profits and losses, except as described below, as well as distributions of Distributable Cash From Operations, as defined. 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 of 6% since the inception of the Partnership. The General Partners interest in such preferred return amounts to $857,754 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. The Agreement provides that profits from asset dispositions are allocated to partners with negative capital balances until such negative balances are eliminated. Accordingly, the General Partners were allocated a portion of the 1995 gain on sale of property as well as the related tax gain in order to eliminate their negative balances. The Partnership paid a special distribution of $4,321,618 in 1995 related to such sale which distribution was allocated 1% to the Individual General Partner and 99% to the Limited Partners in accordance with the Agreement. 3. Transactions with Related Parties: The Partnership's ownership interest in certain properties are jointly held with affiliates as tenants-in-common. The Partnership has an 83.24% ownership interest in a property which is jointly held. Under the Agreement, a division of W. P. Carey & Co., Inc. ("W.P. Carey") is also entitled to receive a property management fee and reimbursement of certain expenses incurred in connection with the Partnership's operations. General and administrative expense reimbursements consist primarily of the actual cost of personnel needed in providing administrative services necessary 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 $ 98,187 $ 91,564 $210,254 General and administrative expense reimbursements 160,125 95,644 148,728 -------- -------- -------- $258,312 $187,208 $358,982 ======== ======== ========
During 1994, 1995 and 1996, fees aggregating $172,675, $28,683 and $68,895, 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 affiliates for the purpose of leasing office space used for the administration of the real estate entities and W.P. Carey and for sharing the associated costs. Pursuant to the terms of the agreement, the Continued -13- 11 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES to FINANCIAL STATEMENTS, Continued 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 $56,446, $130,986 and $72,775, respectively. The 1995 amount included certain nonrecurring costs incurred in connection with the relocation of the Partnership's offices. 4. Real Estate Leased to Others Accounted for Under the Operating Method and Operating Real Estate: A. Real Estate Leased to Others Scheduled future minimum rents, exclusive of renewals, under noncancellable operating leases amount to approximately $4,667,000 in 1997, $4,939,000 in 1998; and $145,000 in each of the years 1999 through 2001 and aggregate approximately $10,371,000 through 2004. Contingent rents were approximately $181,000 in 1994, $195,000 in 1995 and $91,000 in 1996. B. Operating Real Estate: Operating real estate, at cost, as of December 31, 1995 is summarized as follows: Land $ 850,000 Building 6,818,635 Personal property 101,145 ---------- 7,769,780 Less: Accumulated depreciation 735,950 ---------- $7,033,830 ==========
The Partnership disposed of its operating real estate in 1996 (see Note 11). 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 $28,653,756 $26,038,257 Unguaranteed residual value 13,382,979 13,382,979 ----------- ----------- 42,036,735 39,421,236 Less: Unearned income 23,812,307 21,227,681 ----------- ----------- $18,224,428 $18,193,555 =========== ===========
Scheduled future minimum rents, exclusive of renewals, under noncancellable direct financing leases amount to approximately $2,616,000 in each of the years 1997 to 2001; and aggregate approximately $26,038,000 through 2008. Contingent rents were approximately $1,253,000, $990,000 and $726,000 in 1994, 1995 and 1996, respectively. Continued -14- 12 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES to FINANCIAL STATEMENTS, Continued 6. Mortgage Notes Payable: The Partnership's mortgage loans are limited recourse obligations and are collateralized by lease assignments and by real property. The encumbered properties have an aggregate carrying amount of $34,208,000, before accumulated depreciation. As of December 31, 1996, mortgage notes payable bear interest at rates varying from 7.60% to 10.52% per annum and mature from 1998 to 2004. Scheduled principal payments during each of the next five years following December 31, 1996 and thereafter are as follows:
Year Ending December 31, ------------------------ 1997 $ 903,766 1998 6,918,837 1999 191,464 2000 206,750 2001 223,256 Thereafter 2,255,726 ----------- Total $10,699,799 ===========
Interest paid was $2,408,669, $2,156,609 and $1,568,508 for 1994, 1995 and 1996, respectively. 7. Distributions to Partners: Distributions are declared and paid to partners quarterly and are summarized as follows:
Limited Year Ending Distributions Paid to Distributions Paid to Partners' Per December 31, General Partners Limited Partners Unit Amount ------------ --------------------- --------------------- ------------- 1994 $ 292,697 $4,585,589 $ 53.59 ========== ========== ======= 1995: Quarterly distributions $ 286,854 $4,494,031 $ 52.52 Special distribution - Note 10 43,216 4,278,400 50.00 ---------- ---------- ------- $ 330,070 $8,772,431 $102.52 ========== ========== ======= 1996 $ 266,246 $4,186,351 $ 48.93 ========== ========== =======
Distributions of $67,039 to the General Partners and $1,050,284 to the Limited Partners for the quarter ended December 31, 1996 were declared and paid in January 1997. Continued -15- 13 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES to FINANCIAL STATEMENTS, Continued 8. Income for Federal Tax Purposes: Income for financial statement purposes differs from income for Federal income tax purposes because of the difference in the treatment of certain items for income tax purposes and financial statement purposes. A reconciliation of accounting differences is as follows:
1994 1995 1996 ------------ ------------ ------------ Net income per Statements of Income $ 4,443,380 $ 8,678,586 $ 6,913,526 Excess tax depreciation (1,746,077) (1,242,601) (877,624) Excess tax gain related to sale of property 9,318,375 Cash receipts on operating and direct financing leases greater (less) than income recognized 9,808 (945,667) Other (234,766) (221,282) (40,470) ------------ ------------ ------------ Income reported for Federal income tax purposes $ 2,462,537 $ 16,542,886 $ 5,049,765 ============ ============ ============
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 leasing revenues (rental income plus interest income from direct financing leases) from the following lease obligors:
1994 % 1995 % 1996 % ---------- ---------- ---------- ---------- ---------- ---------- Hughes Markets, Inc. $1,429,421 17 $1,443,715 19 $3,714,792 42 Simplicity Manufacturing, Inc. 1,996,710 24% 1,996,710 26 1,996,710 22 Brodart Co. 1,322,770 16 1,318,708 17 1,313,891 15 Continental Casualty Company 709,027 9 755,614 10 759,849 9 Family Dollar Stores, Inc. 280,800 3 547,200 7 556,800 6 Petrocon Engineering, Inc. 357,468 4 368,780 5 370,508 4 Winn-Dixie Stores, Inc. 144,713 2 144,713 2 144,713 2 Genesco, Inc. 2,095,020 25 1,047,510 14 ---------- ---------- ---------- ---------- ---------- ---------- $8,335,929 100% $7,622,950 100% $8,857,263 100% ========== ========== ========== ========== ========== ==========
Continued -16- 14 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES to FINANCIAL STATEMENTS, Continued 10. Gain on Sale of Real Estate: On June 30, 1995, the Partnership sold a property to Genesco, Inc. ("Genesco"), the lessee, for $15,200,000. The Partnership recognized a gain on the sale of $3,330,098, net of certain costs. In connection with the sale, the Partnership paid off the limited recourse mortgage loan on the property for $5,722,508. The Partnership used a portion of the net proceeds of $9,477,492 to pay a special distribution to Limited Partners of $4,278,400 ($50 per Limited Partnership Unit) and $43,216 to the Individual General Partner. The special distribution was declared and paid in July 1995. 11. Hotel Property in Kenner, Louisiana: The Partnership and Corporate Property Associates 8 ("CPA(R):8"), an affiliate, purchased a hotel property in Kenner, Louisiana, in June 1988 as tenants-in-common with 46.383% and 53.617% interests, respectively. The Partnership and CPA(R):8 assumed operating control of the hotel in 1992 after evicting the lessee due to its financial difficulties. On July 30, 1996, the Partnership and CPA(R):8 completed a transaction with American General Hospitality Operating Partnership L.P. (the "Operating Partnership"), the operating partnership of a newly-formed real estate investment trust, American General Hospitality Corporation, ("AGH"), in which the Partnership and CPA(R):8 received 920,672 limited partnership units (of which the Partnership's share was 427,008 units) in exchange for the hotel property and its operations. In connection with the transfer, the Partnership and CPA(R):8 paid a cash contribution of $391,221 (of which the Partnership's share was $181,460) and the Operating Partnership's assumed the mortgage loan obligation collateralized by the hotel property (of which the Partnership's share was $3,388,764). AGH owns an 81.3% equity interest in the Operating Partnership The exchange of the hotel property for limited partnership units has been treated as a nonmonetary exchange for tax and financial reporting purposes. The Partnership's interest in the Operating Partnership is being accounted for under the equity method. After one year, the Partnership will have the right to convert its Operating Partnership Units to shares of common stock in AGH on a one-for-one basis. AGH completed an initial public offering during 1996. The Partnership's carrying value for the limited partnership units at the time of the exchange of $3,851,832 was based on the historical basis of assets transferred, net of liabilities assumed by the Operating Partnership; cash contributed and costs incurred to complete the exchange. As of September 30, 1996, the audited consolidated financial statements of AGH reported total assets of $187,870,000 and shareholders' equity of $127,408,000 and for the period from inception (July 31, 1996) through September 30, 1996, revenues of $5,251,000, income before minority interest of $2,850,000 and net income of $2,302,000. As of March 15, 1997, AGH's quoted per share market value was $28 resulting in an aggregate value of approximately $11,956,000. The carrying value of the equity interest in the Operating Partnership as of December 31, 1996 was approximately $4,000,000. For the period from July 31, 1996 to December 31, 1996, the Partnership's share of Operating Partnership earnings was $265,056. Between January 1995 and July 1996, the Partnership and CPA(R):8 had engaged an affiliate of AGH to manage the operations of Kenner on their behalf. Continued -17- 15 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES to FINANCIAL STATEMENTS, Continued Summarized operating results of the Partnership's share of the hotel operation through the date of disposal (July 30,1996) are as follows:
1994 1995 1996 ----------- ----------- ----------- Revenues $ 3,127,894 $ 3,834,671 $ 2,314,569 Fees paid to hotel management company (95,660) (112,713) (83,062) Other operating expenses (1,942,104) (2,291,378) (1,378,245) ----------- ----------- ----------- Hotel operating income $ 1,090,130 $ 1,430,580 $ 853,262 =========== =========== ===========
12. Property Leased to Hughes Markets, Inc.: The Partnership and Corporate Property Associates 3 ("CPA(R):3"), an affiliate, own a dairy processing facility in Los Angeles, California as tenants-in-common with 83.24% and 16.76% ownership interests, respectively. On May 1, 1996, the Partnership and CPA(R):3 entered into a lease amendment agreement with the lessee, Hughes Markets, Inc. ("Hughes"), to extend the lease term from April 30, 1996 to April 30, 1998. Under the extension agreement, Hughes' monthly rent increased to $336,166 (of which the Partnership's share is $279,825) from $151,686 (of which the Partnership's share was $126,266). At the end of the lease term, Hughes is obligated to pay a lump sum rental payment of $3,500,000 (of which the Partnership's share will be approximately $2,913,000). Hughes has an option to extend the lease on a month-to-month basis for up to six months at a rental of $500,000 per month. In accordance with the lease amendment agreement, Hughes has provided the Partnership and CPA(R):3 with an irrevocable letter of credit in the amount of $3,500,000, an amount equal to Hughes' lump sum payment obligation. For financial reporting purposes, the Partnership's share of the $3,500,000 lump sum rental payment due at the end of the lease term is being recognized on a straight-line basis over the lease extension term. For the year ended December 31, 1996, the difference between scheduled rents under the lease and rent recognized for financial reporting purposes with the adjustment for the lump sum payment was $971,133. 13. Environmental Matters: 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 in 1994. 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 surface spills from facility activities. For the conditions that were identified, the Partnership has advised the affected tenants of the Phase II findings and of their obligations to perform required remediation. Continued -18- 16 CORPORATE PROPERTY ASSOCIATES 4, a California limited partnership NOTES to FINANCIAL STATEMENTS, Continued All of the Partnership's properties are subject to environmental statutes and regulations regarding the discharge of hazardous materials and related remediation obligations. All of the Partnership's properties are currently leased to corporate tenants. The Partnership generally structures a lease to require the tenant to comply with all laws. In addition, substantially all of the Partnership's net leases include provisions which require tenants to indemnify the Partnership from all liabilities and losses related to their operations at the leased properties. The costs for remediation, which are expected to be performed and paid by the affected tenant, are not expected to be material. In the event that the Partnership absorbs a portion of any costs 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. 14. 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 estimates that the fair value of mortgage notes payable at December 31, 1996 approximates the carrying value of such mortgage notes 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. -19- 17 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 4 (a California limited partnership) BY: CAREY CORPORATE PROPERTY, INC. 09/03/97 BY: /s/ Steven M. Berzin - -------------- --------------------------------- Date Claude Fernandez Executive Vice President and Chief Financial Officer (Principal Financial Officer) 09/03/97 BY: /s/ Claude Fernandez - -------------- --------------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Accounting Officer) -20- -----END PRIVACY-ENHANCED MESSAGE-----