-----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, LRjX05ZInMjAlHztKKhIc+5fDzG63nw68uTX8fbaCRmqeGMjopOVTJ9yHl5gv+KC wMxr6MS5zOI9+0Q3q7Rl3Q== 0000950123-97-002986.txt : 19970407 0000950123-97-002986.hdr.sgml : 19970407 ACCESSION NUMBER: 0000950123-97-002986 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970404 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES 5 CENTRAL INDEX KEY: 0000718075 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133164925 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-11948 FILM NUMBER: 97574830 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 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the quarterly period ended DECEMBER 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-11948 CORPORATE PROPERTY ASSOCIATES 5 (Exact name of registrant as specified in its charter) CALIFORNIA 13-3164925 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 492-1100 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered NONE NONE Securities registered pursuant to Section 12(g) of the Act: 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 I Item 1. Business. Registrant is engaged in the business of investing in commercial and industrial real estate properties which are net leased to commercial and industrial entities. Registrant was organized as a California limited partnership on April 12, 1983. The General Partners of Registrant are Carey Corporate Property, Inc. (the "Corporate General Partner"), a Delaware corporation and William Polk Carey (the "Individual General Partner"). The Corporate General Partner is 79.9% owned by W. P. Carey & Co., Inc. ("W.P. Carey"), 10.1% owned by William P. Carey ("Carey") and 10% by Lehman Brothers, Inc. Affiliates of the Corporate General Partner and the Individual General Partner are also the General Partners of affiliates of Registrant, Corporate Property Associates ("CPA(R):1"), Corporate Property Associates 2 ("CPA(R):2"), Corporate Property Associates 3 ("CPA(R):3"), Corporate Property Associates 4, a California limited partnership ("CPA(R):4"), Corporate Property Associates 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"), and the advisor of Corporate Property Associates 10 Incorporated ("CPA(R):10"), Carey Institutional Properties Incorporated ("CIP(TM)") and Corporate Property Associates 12 Incorporated ("CPA(R):12"). Registrant has a management agreement with Carey Corporate Property Management Company ("Carey Management"), a division of W.P. Carey. According to the terms of this agreement, Carey Management performs a variety of management services for Registrant. Registrant has entered into an agreement with Fifth Rock L.P., an affiliate, for the purpose of leasing office space. Reference is made to the Prospectus of Registrant dated August 2, 1983, as supplemented by a Supplement dated September 29, 1983, filed pursuant to Rules 424(b) and 424(c), respectively, under the Securities Act of 1933 and incorporated herein by reference (said Prospectus, as so supplemented, is hereinafter called the "Prospectus"). Registrant has two industry segments consisting of the investment in and the leasing of industrial and commercial real estate and the operation of a hotel business at two properties. See Selected Financial Data in Item 6 and Management's Discussion and Analysis in Item 7 for a summary of Registrant's operations. By assuming the operation of the hotel businesses from former tenants, Management intends to preserve the value of the underlying investment while generating a contribution to Registrant's operating cash flow. Also see the material contained in the Prospectus under the heading INVESTMENT OBJECTIVES AND POLICIES. The properties owned by Registrant are described in Item 2. Registrant's entire net proceeds from the public offering, less a working capital reserve have been fully invested in net leased commercial and industrial real estate since March 17, 1988, the date of Registrant's final real estate acquisition. Except for the two hotel properties, Registrant's properties are leased to corporate tenants under net leases. A net lease generally requires tenants to pay all operating expenses relating to the leased properties including maintenance, real estate taxes, insurance and utilities which under other forms of leases are often paid by the lessor. Lessees are required to include Registrant as an additional insured party on all insurance policies relating to the leased properties. In addition, substantially all of the net leases include indemnification provisions which require the lessees to indemnify Registrant and the General Partners for liabilities on all matters related to the leased properties. Registrant believes that the insurance and indemnity provided on its behalf by its lessees provides adequate coverage for property damage and any liability claims which may arise against Registrant's ownership interests. In addition to the insurance and indemnification provisions of the leases, Registrant has contingent property and liability insurance on its leased properties and primary property and liability coverages on its two hotel properties. Management believes that its insurance is adequate. To the extent that any lessees are not financially able to satisfy indemnification obligations which exceed insurance reimbursements, Registrant may incur the costs necessary to repair property and settle liabilities. As described above, lessees generally retain the obligation for the operating expenses of their leased properties so that, other than rental income, there are no significant operating data reportable on Registrant's leased properties. Current rental income is reported in Note 9 to the Financial Statements in Item -1- 3 8. As discussed in Item 7, Management's Discussion and Analysis, Registrant's leases generally provide for periodic rent increases which are either fixed or based on formulas indexed to increases in the Consumer Price Index. Leases provide for purchase options which are exercisable between 1997 and 1999 on properties leased to Stoody Deloro Stellite, Inc. ("Stoody"), Arley Merchandise Corporation and Gould, Inc. ("Gould"), respectively. The purchase options generally provide for an exercise price based on the greater of fair market value, as defined in the lease, or a stated amount. Stoody has the option to purchase its leased property in December 1997 at a purchase price of the greater of $3,000,000 or fair market value. As Registrant's objective has been to invest in properties which are occupied by a single corporate tenant and subject to long-term net leases with such lease obligation backed by the credit of the corporate lessee, Registrant's properties are not generally subject to the competitive conditions of local and regional real estate markets. In selecting its real estate investments, Registrant's strategy was to identify properties of material importance to the lessee so that the lessee may be more likely to extend its lease beyond the initial term or exercise a purchase option if such option was provided for in the lease agreement. None of Registrant's leases expire until 1998. Registrant is more likely to be affected by the financial condition of its lessees rather than the competitive conditions of the real estate marketplace. Registrant's strategy has been to diversify its investments among tenants, property types and industries with geographical diversification being only a secondary objective. The Alpena, and Petoskey businesses are seasonal in nature with occupancy rates for the year ended December 31, 1996 of 58% and 49%, respectively. The occupancy rates increased by 6% for Alpena and 14% Petoskey from that of the prior year. Registrant sold the Rapid City hotel in October 1996. During 1996, Registrant sold a multi-tenant office building in Helena, Montana, a property formerly leased to GATX Logistics, Inc. ("GATX") and the Rapid City, South Dakota hotel. In connection with these sales, the related mortgages were either assumed by the purchaser or satisfied with sales proceeds. Additionally, Registrant paid off mortgage loans on the Gould, Exide Electronics Corporation and Stoody properties. For the year ended December 31, 1996, revenues from properties occupied by lease obligors which accounted for 10% or more of the revenues of the industrial and commercial real estate segment of Registrant were as follows: Gould 18%; Spreckels Industries, Inc., 15% and DeVlieg Bullard, Inc., 14%. No other property owned by Registrant accounted for 10% or more of its total real estate operating revenue during 1996. Revenues from the industrial and commercial real estate segment represent approximately 50% of total revenues. See Note 9 to the Financial Statements in Item 8. For the year ended December 31, 1996, gross revenues from the hotel operations business segment were $6,360,000 (approximately 48% of total revenues). The 1996 gross revenues include the operations from the hotel property in Rapid City, South Dakota through the date of sale, October 1, 1996. In 1994, Registrant voluntarily conducted Phase II reviews of certain of its properties based on the results of the Phase I environmental reviews contracted for in 1993. Registrant believes, based on the results of such reviews, that its leased 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. Phase II investigations have been recommended for some properties based upon the Phase I reports. For those conditions which were identified, Registrant advised its tenants of such findings and of their obligations, if any, to perform any required remediation. Tenants are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations. In addition, Registrant's leases generally require tenants to indemnify Registrant from all liabilities and losses related to the leased properties. Accordingly, Management believes that the ultimate resolution of the aforementioned environmental matters will not have a material effect on Registrant's financial condition, liquidity or results of operations. -2- 4 Registrant does not have any employees. The Corporate General Partner of Registrant together with its affiliates employ twelve individuals who perform accounting, secretarial and transfer services for Registrant. Gemisys, Inc. performs certain transfer services for Registrant and The Bank of New York performs certain banking services for Registrant. In addition, Registrant has entered into an agreement with Carey Management pursuant to which Carey Management provides certain management services to Registrant. W.P. Carey has substantially the same officers as the Corporate General Partner. Item 2. Properties.
LEASE TYPE OF OWNERSHIP OBLIGOR TYPE OF PROPERTY LOCATION INTEREST - ---------------- ---------------- -------- ----------------- SPRECKELS INDUSTRIES Manufacturing and Forrest City, Ownership of land INC. Office Facility Arkansas and building ARLEY MERCHANDISE Manufacturing Columbia and Ownership of land CORPORATION Facilities - Sumter, South and buildings (1) 2 locations Carolina ROCHESTER BUTTON Manufacturing Kenbridge, Ownership of land COMPANY Facilities - South Boston, and buildings (2) 2 locations Virginia PENN VIRGINIA Office and Duffield, Ownership of land CORPORATION Manufacturing Virginia and building (3) Facilities - Cuyahoga Falls, 3 locations Ohio and Broomall, Pennsylvania (4) Hotels Petoskey and Ownership of 65% Alpena, interest in land Michigan and buildings (1) EXIDE ELECTRONICS Office and Raleigh, Ownership of land CORPORATION Research Facility North Carolina and building HARCOURT GENERAL Movie Theater Canton, Ownership of land CORPORATION Michigan and building (3) INNO TECH Office, and Manufac- Elyria, Ownership of land INDUSTRIES, INC. turing Facility Ohio and buildings
-3- 5
LEASE TYPE OF OWNERSHIP OBLIGOR TYPE OF PROPERTY LOCATION INTEREST - ---------------- ---------------- -------- ----------------- GOULD, INC. Manufacturing and Oxnard, Ownership of land Research Facility California and building DEVLIEG BULLARD, INC. Manufacturing Frankenmuth, Ownership of land Facilities - Michigan and buildings (3) 2 locations McMinnville, Tennessee PENBERTHY Manufacturing Prophetstown, Ownership of land PRODUCTS, INC. Facility Illinois and building (3) STOODY DELORO Manufacturing Goshen, Ownership of land STELLITE, INC. Facility Indiana and building WINN-DIXIE Supermarket Montgomery, Ownership of land STORES, INC. Alabama and buildings (3) SUNDS DEFIBRATOR Manufacturing Carthage, Ownership of land WOODHANDLING, INC. Facility New York and buildings (formerly FMP/RAUMA, CO.)
(1) These properties are encumbered by mortgage notes payable. (2) These properties are subject to a mortgage as collateral for loans issued by unaffiliated parties to the lessee. (3) These properties are encumbered by mortgages and/or lease assignments in connection with mortgage notes payable on other of Registrant's properties. (4) Registrant operates a hotel business at these properties. -4- 6 The material terms of Registrant's leases with its significant tenants are summarized in the following table:
Registrant's Share Current Lease Lease of Current Square Rent Per Expiration Renewal Ownership Terms of Gross Obligor Annual Rents Footage Sq.Ft. (Mo/Year) Terms Interest Purchase Option Costs (1) - ------- ------------ ------- -------- ---------- ------- --------- --------------- --------- Spreckels $1,020,717 265,000 $3.85 12/12 YES 100% The greater of $5,500,000 Industries, fair market value Inc. or $5,500,000. Gould, 1,215,000 142,796 8.51 11/99 YES 100 Fair market value 9,875,087 Inc. DeVlieg 953,803 409,391 2.33 04/06 YES 100 The greater of 5,092,699 Bullard, fair market value Inc. or the sum of the purchase price, of $5,075,000, and any mortgage prepayment premium. Arley 600,000 255,600 3.56 06/02 YES 100 The greater of 7,808,555 Merchandise fair market value Corporation or the unpaid principal balance due on the mortgage loan. Penn Virginia 498,750 116,059 4.30 08/99 YES 100 The greater of 3,703,112 Corporation fair market value of $3,700,000.
(1) Includes original cost of investment and net increases or decreases to net investment subsequent to purchase. -5- 7 The material terms on the mortgage debt of Registrant's properties is summarized in the following table:
Mortgage Annual Interest Balance Annual Debt Maturity Estimated Payment Lease Obligor Rate 12/31/95 Service Date Due at Maturity Prepayment Provisions - ----------------- --------------- -------- ----------- -------- ----------------- --------------------- Arley Merchandise Corporation 10.00% $ 4,754,940 $570,000 06/95 $4,619,000 Alpena, Michigan hotel property 6.60 - 94,764,500(1) 519,591 9/97-9/15 257,250(1) Petoskey, Michigan hotel property 6.60 - 94,764,500(1) 519.591 9/97-9/15 257,250(1)
(1) Financing consists of a series of bonds maturing between 1997 and 2015 with interest rates varying from 6.6% to 9%. -6- 8 Item 3. Legal Proceedings. As of the date hereof, Registrant is not party to any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the fourth quarter of the year ended December 31, 1996 to a vote of security holders, through the solicitation of proxies or otherwise. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Information with respect to Registrant's common equity is hereby incorporated by reference to page 28 of Registrant's Annual Report contained in Appendix A. Item 6. Selected Financial Data. Selected Financial Data are hereby incorporated by reference to page 1 of Registrant's Annual Report contained in Appendix A. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's Discussion and Analysis are hereby incorporated by reference to pages 2 to 5 of Registrant's Annual Report contained in Appendix A. Item 8. Financial Statements and Supplementary Data. The following financial statements and supplementary data are hereby incorporated by reference to pages 6 to 21 of Registrant's Annual Report contained in Appendix A: (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. Item 9. Disagreements on Accounting and Financial Disclosure. NONE -7- 9 PART III Item 10. Directors and Executive Officers of the Registrant. Registrant has no officers or directors. The directors and executive officers of the Corporate General Partner are as follows:
Has Served as a Director and/or Name Age Positions Held Officer Since (1) ---- --- -------------- ----------------- William Polk Carey 66 Chairman of the Board 4/84 Director Francis J. Carey 71 President 4/84 Director George E. Stoddard 80 Chairman of the Investment Committee 4/84 Director Madelon DeVoe Talley 65 Vice Chairman of the Board 4/86 Director Lawrence R. Klein 76 Chairman of the Economic Policy 4/84 Committee Director Barclay G. Jones III 36 Executive Vice President 4/84 Director Claude Fernandez 44 Executive Vice President 4/84 Chief Administrative Officer H. Augustus Carey 39 Senior Vice President 8/88 Anthony S. Mohl 34 Senior Vice President 9/87 John J. Park 32 Senior Vice President 7/91 Treasurer Michael D. Roberts 45 First Vice President 4/89 Controller
(1) Each officer and director of the Corporate General Partner will hold office until the next annual meeting of the Board of Directors and thereafter until his successor shall have been elected and shall have qualified or until his prior death, resignation or removal. William Polk Carey and Francis J. Carey are brothers. H. Augustus Carey is the nephew of William Polk Carey and the son of Francis J. Carey. A description of the business experience of each officer and director of the Corporate General Partner is set forth below: William Polk Carey, Chairman and Chief Executive Officer, has been active in lease financing since 1959 and a specialist in net leasing of corporate real estate property since 1964. Before founding W.P. Carey & Co., Inc. ("W.P. Carey") in 1973, he served as Chairman of the Executive Committee of Hubbard, -8- 10 Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate and Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of Real Estate and Private Placements, Director of Corporate Finance and Vice Chairman of the Investment Banking Board of duPont Glore Forgan Inc. A graduate of the University of Pennsylvania's Wharton School of Finance and Commerce, Mr. Carey is a Governor of the National Association of Real Estate Investment Trusts (NAREIT). He also serves on the boards of The Johns Hopkins University, The James A. Baker III Institute for Public Policy at Rice University, Templeton College of Oxford University and other educational and philanthropic institutions. He founded the Visiting Committee to the Economics Department of the University of Pennsylvania and co-founded with Dr. Lawrence R. Klein the Economics Research Institute at that University. Mr. Carey is also a Director of CPA(R):10, CIP(TM) and CPA(R):12. Francis J. Carey was elected President and a Managing Director of W.P. Carey in April 1987, having served as a Director since its founding in 1973. Prior to joining the firm full-time, he was a senior partner in Philadelphia, head of the Real Estate Department nationally and a member of the executive committee of the Pittsburgh based firm of Reed Smith Shaw & McClay, counsel for Registrant, the General Partners, the CPA(R) Partnerships, W.P. Carey and some of its affiliates. He served as a member of the Executive Committee and Board of Managers of the Western Savings Bank of Philadelphia from 1972 until its takeover by another bank in 1982 and is former chairman of the Real Property, Probate and Trust Section of the Pennsylvania Bar Association. Mr. Carey served as a member of the Board of Overseers of the School of Arts and Sciences of the University of Pennsylvania from 1983 through 1990. He has also served as a member of the Board of Trustees of the Investment Program Association since 1990 and on the Business Advisory Council of the Business Council for the United Nations since 1994. He holds A.B. and J.D. degrees from the University of Pennsylvania. Mr. Carey is also a Director of CPA(R):10 and CIP(TM). George E. Stoddard, Chief Investment Officer, was until 1979 head of the bond department of The Equitable Life Assurance Society of the United States, with responsibility for all activities related to Equitable's portfolio of corporate investments acquired through direct negotiation. Mr. Stoddard was associated with Equitable for over 30 years. He holds an A.B. degree from Brigham Young University, an M.B.A. from Harvard Business School and an LL.B. from Fordham University Law School. Madelon DeVoe Talley, Vice Chairman, is a member of the New York State Controller's Investment Committee, a Commissioner of the Port Authority of New York and New Jersey, former CIO of New York State Common Retirement Fund and a Trustee of the New York State Teachers Retirement System. She also served as a managing director of Rothschild, Inc. and as the President of its asset management division. Mrs. Talley was also a former Governor of the N.A.S.D. and a director of Biocraft Laboratories, a New York Stock Exchange company. She is an alumna of Sarah Lawrence College and the graduate school of International and Public Affairs at Columbia University. Lawrence R. Klein, Chairman of the Economic Policy Committee since 1984, is Benjamin Franklin Professor of Economics Emeritus at the University of Pennsylvania, having joined the faculty of Economics and the Wharton School in 1958. He holds earned degrees from the University of California at Berkeley and Massachusetts Institute of Technology and has been awarded the Nobel Prize in Economics as well as over 20 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. Barclay G. Jones III, Executive Vice President, Managing Director, and head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant to the President in July 1982 after his graduation from the Wharton School of the University of Pennsylvania, where he majored in Finance and Economics. He was elected to the Board of Directors of W.P. Carey in April 1992. Mr. Jones is also a Director of the Wharton Business School Club of New York. -9- 11 Claude Fernandez, Chief Administrative Officer, Managing Director, and Executive Vice President, joined W.P. Carey in 1983. Previously associated with Coldwell Banker, Inc. for two years and with Arthur Andersen & Co., he is a Certified Public Accountant. Mr. Fernandez received his B.S. degree in accounting from New York University in 1975 and his M.B.A. in finance from Columbia University Graduate School of Business in 1981. H. Augustus Carey, Senior Vice President, returned to W.P. Carey in 1988 and is President of W.P. Carey's broker-dealer subsidiary. Mr. Carey previously worked for W.P. Carey from 1979 to 1981 as Assistant to the President. Prior to rejoining W.P. Carey, Mr. Carey served as a loan officer of the North American Department of Kleinwort Benson Limited in London, England. He received an A.B. from Amherst College in 1979 and an M.Phil. in Management Studies from Oxford University in 1984. Mr. Carey is a trustee of the Oxford Management Centre Associates Council. Anthony S. Mohl, Senior Vice President and Director of Portfolio Management, joined W.P. Carey & Co., in 1987 as Assistant to the President after receiving his M.B.A. from the Columbia University Graduate School of Business. Mr. Mohl was employed as an analyst in the strategic planning group at Kurt Salmon Associates after receiving an undergraduate degree from Wesleyan University. John J. Park, Senior Vice President, Treasurer and Director of Research, joined W.P. Carey as an Investment Analyst in December 1987. Mr. Park received his undergraduate degree from Massachusetts Institute of Technology and his M.B.A. in Finance from New York University. Michael D. Roberts joined W. P. Carey as a Second Vice President and Assistant Controller in April 1989 and is currently First Vice President and Controller. Prior to joining W.P. Carey, Mr. Roberts was employed by Coopers & Lybrand for over 8 years, where he attained the title of audit manager. A certified public accountant, Mr. Roberts received a B.A. in sociology from Brandeis University and an M.B.A. from Northeastern University. The officers and directors of W.P. Carey are substantially the same as above. Item 11. Executive Compensation. Under the Amended Agreement of Limited Partnership of Registrant (the "Agreement"), 5% of Distributable Cash From Operations is payable to the Corporate General Partner and 1% of Distributable Cash From Operations is payable to the Individual General Partner. The Corporate General Partner and the Individual General Partner received $222,847 and $44,570 respectively, from Registrant as their share of Distributable Cash From Operations during the year ended December 31, 1996. As owner of 200 Limited Partnership Units, the Corporate General Partner received cash distributions of $7,402 during the year ended December 31, 1996. See Item 6 for the net income allocated to the General Partners under the Agreement. Registrant is not required to pay, and has not paid, any remuneration to the officers or directors of the Corporate General Partner, W.P. Carey or any other affiliate of Registrant during the year ended December 31, 1996. In the future, the Corporate General Partner will continue to receive 5% of Distributable Cash From Operations, the Individual General Partner will continue to receive 1% of Distributable Cash From Operations and each General Partner will continue to be allocated the same percentage of the profits and losses of Registrant as had been allocated in the past. For a description of the subordinated interest of the Corporate General Partner and the Individual General Partner in Cash From Sales and Cash From Financings, reference is made to the materials contained in the Prospectus under the heading MANAGEMENT COMPENSATION. -10- 12 Item 12. Security Ownership of Certain Beneficial Owners and Management. As of December 31, 1996, no person owned of record or was known by Registrant to own beneficially more than 5% of the Limited Partnership Units of Registrant. The following table sets forth as of March 15, 1997 certain information as to the ownership by directors and executive officers of securities of Registrant:
Number of Units Name of and Nature of Percent Title of Class Beneficial Owner Beneficial Ownership of Class - -------------- ---------------- -------------------- -------- Limited Partnership Units William Polk Carey (1) 210 units .19% Francis J. Carey George E. Stoddard Madelon DeVoe Talley Barclay G. Jones III Lawrence R. Klein Claude Fernandez H. Augustus Carey Anthony S. Mohl John J. Park Michael D. Roberts --- --- All executive officers and directors as a group (11 persons) 210 units .19% === ===
(1) As of March 15, 1997, the Corporate General Partner, Carey Corporate Property, Inc. ("Carey Property"), owned 200 Limited Partnership Units of Registrant. William Polk Carey, the majority shareholder of Carey Property, is the beneficial owner of these Units. There exists no arrangement, known to Registrant, the operation of which may at a subsequent date result in a change of control of Registrant. Item 13. Certain Relationships and Related Transactions. For a description of transactions and business relationships between Registrant and its affiliates and their directors and officers, see Notes 2 and 3 to the Financial Statements in Item 8. Michael B. Pollack, Senior Vice President and Secretary of the Corporate General Partner, is a partner of Reed Smith Shaw & McClay which is engaged to perform legal services for Registrant. No officer or director of the Corporate General Partner, W.P. Carey or any other affiliate of Registrant or any member of the immediate family or associated organization of any such officer or director was indebted to Registrant at any time since the beginning of Registrant's last fiscal year. -11- 13 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements: The following financial statements are filed as a part of this Report: Report of Independent Accountants. Balance Sheets as of December 31, 1995 and 1996. Statements of Income for the years ended December 31, 1994, 1995 and 1996. Statements of Partners' Capital for the years ended December 31, 1994, 1995 and 1996. Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996. Notes to Financial Statements. The financial statements are hereby incorporated by reference to pages 6 to 21 of Registrant's Annual Report contained in Appendix A. (a) 2. Financial Statement Schedule: The following schedule is filed as a part of this Report: Schedule III -Real Estate and Accumulated Depreciation as of December 31, 1996. Notes to Schedule III. Schedule III and notes thereto are hereby incorporated by reference to pages 22 to 25 of Registrant's Annual Report contained in Appendix A. Financial Statement Schedules other than those listed above are omitted because the required information is given in the Financial Statements or the Notes thereto, or because the conditions requiring their filing do not exist. -12- 14 (a) 3. Exhibits: The following exhibits are filed as part of this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
Exhibit Method of No. Description Filing - ------- ----------- --------- 3.1 Amended Agreement of Limited Partnership of Exhibit 3(B) to Amendment Registrant dated as of June 1, 1983. No. 2 to Registration Statement (Form S-11) No. 2-83092 4.4 $4,500,000 Mortgage Note dated January 2, Exhibit 4.6 to Form 10-K 1984 from Registrant to Empire of America filed April 10, 1984 FSA ("Empire"). 4.5 Deed of Trust, Mortgage, Deed to Secure Exhibit 4.7 to Form 10-K Debt, Security Agreement and Assignment filed April 10, 1984 dated January 2, 1984 from Registrant to Empire. 4.6 Assignment of Rents and Lessor's Interest Exhibit 4.8 to Form 10-K in Lease dated January 2, 1984 from filed April 10, 1984 Registrant to Empire. 4.7 $2,400,000 Deed of Trust Note dated Filed as Exhibit 4.7 to April 11, 1984 from Registrant to Mellon Registrant's Report on Bank, N.A. Form 8-K dated April 25, 1984 4.8 Deed of Trust and Security Agreement dated Filed as Exhibit 4.8 to April 11, 1984 from Registrant to Registrant's Report on Robert A. Johnson and John L. Ostby, as Form 8-K dated April 25, trustees for Mellon Bank, N.A., and 1984 Mellon Bank. 4.9 Assignment of Rentals and Leases dated Filed as Exhibit 4.9 to April 11, 1984 from Registrant, as assignor, Registrant's Report on to Mellon Bank, N.A., as assignee. Form 8-K dated April 25, 1984 4.10 $3,000,000 Promissory Note dated June 29, Filed as Exhibit 4.1 to 1984 from Registrant to TRW Inc. Registrant's Report on Form 8-K dated July 26, 1984 4.11 $5,000,000 Promissory Note dated July 13, Filed as Exhibit 4.2 to 1984 from Registrant to FCA American Registrant's Report on Mortgage Corporation ("FCA"). Form 8-K dated July 26, 1984 4.16 Mortgage, Security Agreement and Filed as Exhibit 4.7 to Assignment of Leases and Rents dated Registrant's Report on July 13, 1984 by Registrant to FCA. Form 8-K dated July 26, 1984
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Exhibit Method of No. Description Filing - ------- ----------- --------- 4.17 $3,000,000 Promissory Note dated Filed as Exhibit 4.17 to April 30, 1984 from Registrant to FCA. Registrant's Annual Report on Form 10-K dated March 29, 1985 4.18 Mortgage and Security Agreement dated Filed as Exhibit 4.18 to April 30, 1984 by Registrant to FCA. Registrant's Annual Report on Form 10-K dated March 29, 1985 4.19 Collateral Assignment of Leases and Rents Filed as Exhibit 4.19 to dated April 30, 1984 from Registrant Registrant's Annual Report to FCA. on Form 10-K dated March 29, 1985 4.45 Agreement to Assign Contract of Sale Filed as Exhibit 4.1 to dated July 2, 1985 between American Registrant's Form 10-Q Industrial Warehouses, Inc. ("AIW") dated August 15, 1985 and Registrant. 4.46 Assignment of Rights in Contract of Filed as Exhibit 4.2 to Sale dated July 16, 1985 between AIW Registrant's Form 10-Q and Registrant. dated August 15, 1985 4.47 $4,600,000 Promissory Note dated Filed as Exhibit 4.1 to August 30, 1985 from Registrant to Registrant's Report on Mellon Bank, N.A. ("Mellon"). Form 8-K dated September 12, 1985 4.56 Seller's/Lessee's Certificate dated Filed as Exhibit 4.1 to November 25, 1985 from Gould Inc. to Registrant's Report on Registrant. Form 8-K dated December 9, 1985 4.57 Assignment of Rights in Purchase Filed as Exhibit 4.2 to Agreement dated November 21, 1985 Registrant's Report on between JB Properties, as Assignor, Form 8-K dated and Registrant as Assignee. December 9, 1985 4.60 Mortgage, Assignment of Leases and Filed as Exhibit 4.2 to Security Agreement dated January 30, Registrant's Report on 1986 between Registrant, as Form 8-K dated Mortgagor, and Lloyds and Texas March 4, 1986 Commerce, collectively as Mortgagee, on Broomall, PA property.
-14- 16
Exhibit Method of No. Description Filing - ------- ----------- --------- 4.61 Modification Agreement dated March 1, Exhibit 4.61 to Form 10-K 1986 in connection with the Mortgage, Filed April 18, 1986 Assignment of Leases and Security Agreement dated January 30, 1986 on Broomall, PA property. 4.62 Mortgage, Assignment of Leases and Filed as Exhibit 4.3 to Security Agreement dated January 30, Registrant's Report on 1986 between Registrant, as Form 8-K dated Mortgagor, and Lloyds and Texas March 4, 1986 Commerce, collectively as Mortgagee, on Cuyahoga Falls, OH property. 4.63 Modification Agreement dated March 1, Exhibit 4.63 to Form 10-K 1986 in connection with the Mortgage, Filed April 18, 1986 Assignment of Leases and Security Agreement dated January 30, 1986 on Cuyahoga Falls, OH property. 4.64 Deed of Trust, Assignment of Leases Filed as Exhibit 4.4 to and Security Agreement dated January Registrant's Report on 30, 1986, between Registrant, as Form 8-K dated Grantor, and Lawyers Title Insurance, March 4, 1986 as Trustee on Duffield, VA property. 4.65 Deed of Trust Modification Agreement Exhibit 4.65 to Form 10-K dated March 1, 1986 in connection Filed April 18, 1986 with the Deed of Trust, Assignment of Leases and Security Agreement dated January 30, 1986 on Duffield, VA property. 4.66 Trust Indenture dated as of January Filed as Exhibit 4.5 to 1, 1986 between Michigan Strategic Registrant's Report on Fund ("MSF") and Texas Commerce. Form 8-K dated March 4, 1986 4.74 $3,700,000 Promissory Note dated Filed as Exhibit 4.9 to January 30, 1986 from CPA(R):5, as Registrant's Report on Payee, to Registrant and CPA(R):6, Form 8-K dated March collectively as Payor. 4, 1986 4.75 Deed of Trust, Assignment of Rents, Filed as Exhibit 4.10 to dated February 14, 1986 from Form 8-K dated March Registrant, as Trustor, to Chicago 4, 1986 Title Insurance Company, as Trustee, for the benefit of New York Life Insurance Company ("New York Life"), as Beneficiary. 4.76 $7,000,000 Promissory Note Secured by Filed as Exhibit 4.11 to Deed of Trust, dated February 18, Registrant's Report on 1986 from Registrant to New York Life. Form 8-K dated March 4, 1986
-15- 17
Exhibit Method of No. Description Filing - ------- ----------- --------- 4.77 Assignment of Lessor's Interest in Filed as Exhibit 4.12 to Lease with Assignment of Rents, Registrant's Report on Income and Cash Collateral, dated Form 8-K dated March February 14, 1986, from Registrant to 4, 1986 New York Life. 4.78 $1,500,000 Promissory Note from Exhibit 4.78 to Form 10-K Registrant to First Southern Federal Filed April 18, 1986 Savings and Loan Association ("First Southern") dated March 10, 1986. 4.79 Deed of Trust, Assignment of Rents Exhibit 4.79 to Form 10-K and Security Agreement between Filed April 18, 1986 Registrant, William A. Mann, Trustee and for the benefit of First Southern dated March 10, 1986. 4.80 Estoppel Certificate and Exhibit 4.80 to Form 10-K Subordination Attornment and Filed April 18, 1986 Recognition Agreement between First Southern and Exide dated March 10, 1986. 4.92 $1,500,000 First Mortgage Note dated Filed as Exhibit 4.1 to December 22, 1986 from the Registrant, as Registrant's Report on Borrower, to 1st Source Bank ("1st Source"), Form 8-K dated as Lender. January 7, 1987 4.93 Mortgage and Security Agreement dated Filed as Exhibit 4.2 to December 22, 1986 between the Registrant, Registrant's Report on as Borrower, and 1st Source, as Lender Form 8-K dated and Secured Party. January 7, 1987 4.94 $5,000,000 Promissory Note dated December 14, Filed as Exhibit 4.1 to 1987, from Registrant, as Borrower, to Registrant's Report on Prudential, as Lender. Form 8-K dated December 28, 1987 4.95 Unconditional Guaranty of Payment and Filed as Exhibit 4.2 to Performance dated December 14, 1987 from Registrant's Report on Arley, as Guarantor, to Prudential, as Form 8-K dated Lender. December 28, 1987 4.96 Mortgage and Security Agreement dated Filed as Exhibit 4.3 to December 14, 1987 between Registrant, as Registrant's Report on Mortgagor, and Prudential, as Mortgagee. Form 8-K dated December 28, 1987 4.97 Assignment of Leases, Rents, Issues, Filed as Exhibit 4.4 to Income and Profits dated December 14, 1987 Registrant's Report on from Registrant, as Assignor, to Form 8-K dated Prudential, as Assignee. December 28, 1987 10.1 Agreement of Sale dated December 30, 1983 Exhibit 10.1 to Form 10-K between Eaton Corporation and Registrant. filed April 10, 1984
-16- 18
Exhibit Method of No. Description Filing - ------- ----------- --------- 10.2 Lease Agreement dated December 30, 1983 Exhibit 10.2 to Form 10-K between Registrant, as landlord, and Yale filed April 10, 1984 Industrial Products, Inc. ("Yale"), as tenant. 10.6 Management Agreement between Registrant and Exhibit 10(B) to Amendment Carey Corporate Property Management, Inc. No. 2 to Registration Statement (Form S-11) No. 2-83092 10.7 Support Agreement among Registrant, Exhibit 10(C) to Amendment Fifth Carey Corporate Property, Inc. No. 2 to Registration and W.P. Carey & Co., Inc. Statement (Form S-11) No. 2-83092 10.8 Lease Agreement dated April 11, 1984 Filed as Exhibit 10.5 between Registrant, as Landlord, and to Registrant's Report Rochester Button Company, Inc., on Form 8-K dated ("Rochester") as Tenant. April 25, 1984 10.13 Agreement Concerning Lease dated July 13, Filed as Exhibit 10.4 to 1984 by Shapiro & Son Bedspread Corp. as to Registrant's Report Tenant, Registrant as Borrower and FCA on Form 8-K dated as Lender. July 26, 1984 10.14 Guaranty dated July 13, 1984 from Filed as Exhibit 10.5 Hampshire Textile Corp. to Registrant. to Registrant's Report on Form 8-K dated July 26, 1984 10.15 Agreement Concerning Guaranty dated Filed as Exhibit 10.6 July 13, 1984 by Hampshire Textile to Registrant's Report Corp. as Guarantor, Registrant as on Form 8-K dated Borrower and FCA as Lender. July 26, 1984 10.16 Agreement Amending Lease Agreement Filed as Exhibit 10.16 dated April 30, 1984 between Registrant to Registrant's Annual and Yale. Report on Form 10-K dated March 29, 1985 10.17 Subordination, Non-Disturbance and Filed as Exhibit 10.17 Attornment Agreement dated April 30, to Registrant's Annual 1984 among FCA, Registrant and Yale. Report on Form 10-K dated March 29, 1985 10.18 Lease Agreement dated August 7, 1984 Filed as Exhibit 10.18 between Registrant, as Landlord and to Registrant's Annual Penn Virginia Resources Corporation Report on Form 10-K dated ("Resources") and Pennsylvania Crusher March 29, 1985 Corporation ("Crusher"), as Tenants. 10.19 Memorandum of Lease dated August 7, Filed as Exhibit 10.19 1984 between Registrant and Crusher to Registrant's Annual recorded in Summit County, Ohio. Report on Form 10-K dated March 29, 1985
-17- 19
Exhibit Method of No. Description Filing - ------- ----------- --------- 10.20 Memorandum of Lease dated August 7, Filed as Exhibit 10.20 1984 between Registrant and Crusher to Registrant's Annual recorded in Delaware County, Report on Form 10-K dated Pennsylvania. March 29, 1985 10.21 Memorandum of Lease dated August 7, Filed as Exhibit 10.21 1984 between Registrant and Resources to Registrant's Annual recorded in Scott County, Virginia. Report on Form 10-K dated March 29, 1985 10.22 Lease Guaranty dated August 7, 1984 Filed as Exhibit 10.22 by Penn Virginia Corporation ("Penn to Registrant's Annual Virginia") to Registrant. Report on Form 10-K dated March 29, 1985 10.27 Lease Agreement between Filed as Exhibit 10.1 to Registrant as Landlord and Registrant's Report on Exide Electronics Corporation Form 8-K dated July 2, ("Exide") as Tenant dated June 1985 20, 1985. 10.28 Memorandum of Lease between Filed as Exhibit 10.2 to Registrant and Exide dated Registrant's Report on June 20, 1985. Form 8-K dated July 2, 1985 10.29 Guaranty from Exide Electronics Filed as Exhibit 10.3 to Group, Inc. ("Exide Registrant's Report on Electronics") to Registrant Form 8-K dated July 2, dated June 20, 1985. 1985 10.33 Lease Agreement dated July 11, Filed as Exhibit 10.1 to 1985 between Registrant as Registrant's Form landlord and General Cinema 10-Q dated August Corp. ("GCC") as tenant. 15, 1985 10.34 Lease Guaranty dated July 16, Filed as Exhibit 10.2 to 1985 between Registrant and GCC. Registrant's Form 10-Q dated August 15, 1985 10.35 Memorandum of Lease dated Filed as Exhibit 10.3 to July 11, 1985 between Registrant's Form Registrant and GCC. 10-Q dated August 15, 1985 10.40 Lease Agreement dated November Filed as Exhibit 10.1 to 25, 1985 between Registrant, as Registrant's Report on Lessor, and Gould Inc., as Form 8-K dated December 9, Lessee. 1985
-18- 20
Exhibit Method of No. Description Filing - ------- ----------- --------- 10.41 Memorandum of Lease dated Filed as Exhibit 10.2 to November 21, 1985, between Registrant's Report on Registrant, as Landlord, and Form 8-K dated December 9, Gould Inc., as Tenant. 1985 10.42 Joint Venture Agreement dated Filed as Exhibit 10.1 to January 30, 1986 between Registrant's Report on Registrant and CPA(R):6. Form 8-K dated March 4, 1986 10.43 Lease Agreement dated as of Filed as Exhibit 10.2 to January 30, 1986 by and between Registrant's Report on Registrant and CPA(R):6, Form 8-K dated March 4, collectively as Landlord, and 1986 Great Lakes Hotel Corporation ("Great Lakes"), as Tenant. 10.44 Lease Agreement as of March 6, Exhibit 10.44 to Form 10-K 1986 by and between Registrant filed April 18, 1984 and CPA(R):6, collectively as Landlord, and Northwoods Hotel Corporation ("Northwoods"), as Tenant. 10.45 Memorandum of Lease dated Filed as Exhibit 10.3 to January 30, 1986 between Registrant's Report on Registrant and CPA(R):6, as Form 8-K dated March 4, Landlord, and Northwoods, as Tenant. 1986 10.46 Memorandum of Lease dated March Exhibit 10.46 to Form 10-K 6, 1986 between Registrant and CPA(R):6, filed April 18, 1984 as Landlord, and Northwoods, as Tenant. 10.47 Lease Guaranty dated January Filed as Exhibit 10.4 to 30, 1986 from Landmark Hotel Registrant's Report on Corporation ("Landmark"), as Form 8-K dated March 4, Guarantor, to Registrant and 1986 CPA(R):6, collectively, as Landlord. 10.48 Lease Guaranty dated March 6, Exhibit 10.48 to Form 10-K 1986 from Landmark, as filed April 18, 1984 Guarantor, to Registrant and CPA(R):6, collectively as Landlord. 10.49 Lease Agreement dated April 3, 1987 Filed as Exhibit 10.5 to by and between Registrant, as Landlord, Registrant's Report on and Stanwich, as Tenant. Form 8-K dated April 17, 1986
-19- 21
Exhibit Method of No. Description Filing - ------- ----------- --------- 10.50 Memorandum of Lease dated April 3, Filed as Exhibit 10.6 to 1986 between Registrant, as Landlord, Registrant's Report on and Stanwich, as Tenant. Form 8-K dated April 17, 1986 10.53 Lease Agreement dated December 22, 1987 Filed as Exhibit 10.1 to by and between Registrant, as Landlord, Registrant's Report on and Stoody, as Tenant. Form 8-K dated January 7, 1987 10.54 First Amendment to Lease dated December 14, Filed as Exhibit 10.1 to 1987 by and between Registrant, as Landlord, Registrant's Report on and Arley, as Tenant. Form 8-K dated December 28, 1987 10.55 Lease Subordination Agreement dated December Filed as Exhibit 10.2 to 14, 1987 by and among Registrant, as Landlord, Registrant's Report on Arley, as Tenant, and Prudential, as Lender. Form 8-K dated December 28, 1987 10.56 Lease Agreement dated March 10, 1988 by Filed as Exhibit 10.56 to and between Registrant, as Landlord, Form 10-K dated and Winn-Dixie, as Tenant. April 15, 1988 10.57 Lease Guaranty dated March 10, 1988 from Filed as Exhibit 10.57 to Winn-Dixie Stores, as Guarantor, to Form 10-K dated Registrant, as Lessor. April 15, 1988 10.58 Lease dated September 13, 1995 between G.I. Filed as Exhibit 10.1 to Pastek Limited Partnership, as Tenant, and Registrant's Form 8-K G.I. Plastek Industrial Properties Limited dated September 29, 1995 Partnership, as Landlord. 28.1 General Warranty Deed dated December 28, Filed as Exhibit 28.1 1983 from Eaton Corporation to to Registrant's Report Registrant. on Form 8-K dated April 25, 1984 28.2 Quitclaim Deed dated January 31, 1984 Filed as Exhibit 28.2 from Eaton Corporation to Registrant. to Registrant's Report on Form 8-K dated April 25, 1984 28.5 General Warranty Deeds dated April 11, Filed as Exhibit 28.5 from Rochester to Registrant. to Registrant's Report on Form 8-K dated April 25, 1984 28.6 Bill of Sale dated April 11, 1984 Filed as Exhibit 28.6 from Rochester to Registrant. to Registrant's Report on Form 8-K dated April 25, 1984 28.10 Deed dated July 13, 1984 from Shapson Filed as Exhibit 28.4 Realty Corp. to Registrant. to Registrant's Report on Form 8-K dated July 26, 1984
-20- 22
Exhibit Method of No. Description Filing - ------- ----------- --------- 28.11 Deed dated July 13, 1984 from Shapson Filed as Exhibit 28.5 Realty Corp. to Registrant. to Registrant's Report on Form 8-K dated July 26, 1984 28.12 Bill of Sale dated July 13, 1984 Filed as Exhibit 28.6 from Shapson Realty Corp. to Registrant. to Registrant's Report on Form 8-K dated July 26, 1984 28.13 Deed dated August 7, 1984 from Filed as Exhibit 28.13 Resources to Registrant. to Registrant's Annual Report on Form 10-K dated March 29, 1985 28.14 General Warranty deed dated August 7, Filed as Exhibit 28.14 1984 from Crusher to Registrant. to Registrant's Annual Report on Form 10-K dated March 29, 1985 28.15 Deed dated August 7, 1984 from Crusher Filed as Exhibit 28.15 to Registrant. to Registrant's Annual Report on Form 10-K dated March 29, 1985 28.16 Warranty Deed dated April 24, 1985 Filed as Exhibit 28.4 to between Adventure Restaurant Corp. Registrant's Report on ("Adventure") and Registrant. Form 8-K dated May 8, 1985 28.17 Bill of Sale dated April 24, 1985 Filed as Exhibit 28.5 to from Adventure to Registrant. Registrant's Report on Form 8-K dated May 8, 1985 28.27 Warranty Deed dated July 11, 1985 Filed as Exhibit 28.1 to from GCC to Registrant. Registrant's Form 10-Q dated August 15, 1985 28.28 Bill of Sale dated July 16, 1985 Filed as Exhibit 28.2 to from GCC as seller to Registrant as Registrant's Form 10-Q buyer. dated August 15, 1985 28.43 Deed dated November 25, 1985 from Filed as Exhibit 28.1 to Gould Inc. to Registrant. Registrant's Report on Form 8-K dated December 9, 1985 28.44 Bill of Sale dated November 25, Filed as Exhibit 28.2 to 1985 from Gould Inc. to Registrant. Registrant's Report on Form 8-K dated December 9, 1985
-21- 23
Exhibit Method of No. Description Filing - ------- ----------- --------- 28.45 Purchase Agreement dated July 25, Filed as Exhibit 28.3 to 1985 by Gould Inc., as Seller, with Registrant's Report on JB Properties, as Buyer. Form 8-K dated December 9, 1985 28.46 Warranty Deed dated January 30, 1986 Filed as Exhibit 28.1 to among Adventure Restaurant Corporation Registrant's Report on ("Adventure"), Registrant and CPA(R):6. Form 8-K dated March 4, 1986 28.47 Warranty Deed dated March 6, 1987 Exhibit 28.47 to Form 10-K among Adventure, Registrant and CPA(R):6. Filed April 17, 1986 28.48 Bill of Sale dated January 30, 1987 Filed as Exhibit 28.2 to from Adventure to Registrant and CPA(R):6. Registrant's Report on Form 8-K dated March 4, 1986 28.49 Bill of Sale dated March 6, 1987 Exhibit 28.49 to Form 10-K from Adventure to Registrant and CPA(R):6. Filed April 17, 1986 28.50 Bill of Sale dated April 3, 1986 from Filed as Exhibit 28.3 to Stanwich to Registrant. Registrant's Report on Form 8-K dated April 17, 1986 28.51 Warranty Deed dated April 3, 1986 from Filed as Exhibit 28.4 to Stanwich to Registrant (Frankenmuth, Registrant's Report on MI property). Form 8-K dated April 17, 1986 28.52 Warranty Deed dated April 3, 1986 from Filed as Exhibit 28.5 to Stanwich to Registrant (Prophetstown, Registrant's Report on IL property). Form 8-K dated April 17, 1986 28.53 Warranty Deed dated April 3, 1986 from Filed as Exhibit 28.6 to Stanwich to Registrant (McMinnville, Registrant's Report on TN property). Form 8-K dated April 17, 1986 28.54 Seller/Lessee's Certificate dated Filed as Exhibit 28.7 to April 3, 1986 from Stanwich, as Seller, Registrant's Report on to Registrant, as Purchaser, and Form 8-K dated April 17, Security Pacific, as Lender. 1986 28.58 Bill of Sale dated December 22, 1987 Filed as Exhibit 28.1 to from Stoody to Registrant. Registrant's Report on Form 8-K dated January 7, 1987 28.59 Corporate Warranty Deed made as of December Filed as Exhibit 28.2 to 22, 1986 by Stoody, as Grantor, and Registrant's Report on Registrant, as Grantee. Form 8-K dated January 7, 1987
-22- 24
Exhibit Method of No. Description Filing - ------- ----------- --------- 28.60 Seller/Lessee's Certificate dated Filed as Exhibit 28.3 to December 22, 1986 from Stoody, as Seller, Registrant's Report on to Registrant, as Purchaser. Form 8-K dated January 7, 1987 28.61 Indemnification Agreement by and between Filed as Exhibit 28.4 to the Registrant, as Borrower, 1st Source, Registrant's Report on as Lender, and Stoody, as Tenant. Form 8-K dated January 7, 1987 28.62 Agreement of Sale dated December 1, 1987 by Filed as Exhibit 28.1 to and between Registrant, as Seller, and Registrant's Report on Brondy, as Buyer. Form 8-K dated January 14, 1988 28.63 First Amendment to Agreement of Sale dated Filed as Exhibit 28.2 to December 1, 1987 by and between Registrant, Registrant's Report on as Seller, and Brondy, as Buyer. Form 8-K dated January 14, 1988 28.64 Bill of Sale dated December 31, 1992 from Filed as Exhibit 28.3 to Registrant to Brondy. Registrant's Report on Form 8-K dated January 14, 1988 28.65 Bargain and Sale Deed dated December 30, 1987 Filed as Exhibit 28.4 to from Registrant, as party of the first part, Registrant's Report on to Brondy, as party of the second part. Form 8-K dated January 14, 1988 28.66 Warranty Deed dated March 10, 1988 between Filed as Exhibit 28.66 Winn-Dixie, as Grantor, and Registrant, Form 10-K dated as Grantee. April 15, 1988 28.67 Bill of Sale dated March 10, 1988 from Filed as Exhibit 28.67 Winn-Dixie, as Seller, to Registrant, Form 10-K dated as Purchaser. April 15, 1988 28.68 Seller's Certificate dated March 10, 1988 Filed as Exhibit 28.68 from Winn-Dixie, as Seller, to Registrant, Form 10-K dated as Purchaser. April 15, 1988 28.69 Prospectus of Registrant Filed as Exhibit 28.69 dated August 2, 1983. to Form 10K/A dated September 24, 1993 28.70 Supplement dated September 29, 1983 Filed as Exhibit 28.70 to Prospectus dated August 2, 1983. to Form 10K/A dated September 24, 1993 28.71 Press release dated June 30, 1993 Exhibit 28.1 to Form 8-K announcing the suspension of secondary dated July 12, 1993 market sales of Limited Partnership Units.
-23- 25
Exhibit Method of No. Description Filing - ------- ----------- --------- 28.72 Agreement of Limited Partnership of G.I. Filed as Exhibit 28.1 to Plastek Limited Partnership dated September Registrant's Form 8-K 8, 1995. dated September 29, 1995
(b) Reports on Form 8-K During the quarter ended December 31, 1996 the Registrant was not required to file any reports on Form 8-K. -24- 26 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 5 (a California limited partnership) BY: CAREY CORPORATE PROPERTY, INC. 04/3/97 BY: /s/ Claude Fernandez - ------------- ---------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. BY: CAREY CORPORATE PROPERTY, INC. William P. Carey Chairman of the Board and Director (Principal Executive Officer) Francis J. Carey President and Director George E. Stoddard BY: /s/ George E. Stoddard Chairman of the Investment ---------------------- Committee and Director George E. Stoddard Attorney in fact Dr. Lawrence R. Klein April 3, 1997 Chairman of the Economic Policy Committee and Director Madelon DeVoe Talley Vice Chairman of the Board of Directors and Director 04/3/97 BY: /s/ Claude Fernandez - ------------- ---------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Financial Officer) 04/3/97 BY: /s/ Michael D. Roberts - ------------- ---------------------------- Date Michael D. Roberts First Vice President and Controller (Principal Accounting Officer) -25- 27 APPENDIX A TO FORM 10-K CORPORATE PROPERTY ASSOCIATES 5 (A CALIFORNIA LIMITED PARTNERSHIP) 1996 ANNUAL REPORT 28 SELECTED FINANCIAL DATA (In thousands except per unit amounts)
1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- OPERATING DATA: Revenues $18,195 $18,261 $18,125 $15,768 $13,205 Net income 5,857 4,496 5,557 1,913 7,776 Net income allocated: To General Partners 351 270 1,011 201 463 To Limited Partners 5,506 4,226 4,546 1,712 7,314 Per unit 48.64 37.34 40.16 15.12 64.61 Distributions attributable (1): To General Partners 348 350 352 365 244 To Limited Partners 5,445 5,489 5,516 7,635 3,816 Per unit 48.10 48.49 48.73 67.45(2) 33.71 Payment of mortgage principal (3) 915 826 725 463 365 BALANCE SHEET DATA: Total assets 95,637 93,950 92,366 72,268 52,652 Long-term obligations (4) 42,463 34,949 31,310 24,505 10,446
(1) Includes distributions attributable to the fourth quarter of each fiscal year payable in the following fiscal year less distributions in the first fiscal quarter attributable to the prior year. (2) 1995 distributions include a special distribution of $20 per Limited Partnership Unit. (3) Represents scheduled mortgage amortization paid. (4) Represents mortgage and note payable obligations due after more than one year. -1- 29 MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations Net income for the year ended December 31, 1996 increased by $5,864,000 as compared with the prior year. Such increase was primarily due to gains realized on the sale of Partnership properties. Income before gains, and excluding (i) the effects of noncash charges for writedowns of assets to their estimated net realizable values in both 1996 and 1995 and (ii) nonrecurring items in 1995 included in other income in the accompanying financial statements, would have reflected an increase of $683,000. The increase in income, as adjusted, was due to decreases in interest, depreciation, general and administrative and property expenses and was partially offset by a decrease in lease revenues. The decrease in interest expense resulted from the combination of (i) satisfying mortgage loans in connection with property dispositions and (ii) using proceeds from these property sales to pay off mortgage debt on other Partnership properties which are still subject to leases. The loans on the properties which remain occupied were paid off as the loans were scheduled to mature with substantial balloon payments in 1996 and 1997. The decrease in depreciation expense was solely due to the disposition of properties resulting in a reduction in the balances of assets subject to depreciation. The decrease in general and administrative expense was due to lower state tax and office occupancy expenses in 1996. Prior to selling the Helena, Montana office building in January 1996, the Partnership absorbed a portion of the operating expenses for that property. In 1995, such costs, net of tenant reimbursements, were approximately $82,000. Accordingly, property expense decreased due to the sale of the Helena property and because of legal costs incurred in 1995 in connection with a dispute regarding the final determination for the sales price of a property. The decrease in lease revenues is entirely due to the sale of properties in 1995 and 1996. The 1996 gain on the sale of properties resulted from the sales of the office building in Helena, Montana, a warehouse facility in Hodgkins, Illinois leased to GATX Logistics, Inc. ("GATX") and the Holiday Inn in Rapid City, South Dakota which had been operated by the Partnership. IBM Corporation, ("IBM"), the primary tenant at the Helena property, occupied 40% of the leasable space at the property with several other tenants occupying the remaining 60% of the space. The IBM lease was scheduled to expire in April 2003. A renovation, a significant portion of which had been subsidized by a local utility company, had just been completed. Management believes that the offer of $4,800,000 reflected a favorable valuation of the property. If the Partnership were to have continued to own the property, future market value could have been negatively affected by the uncertainty as to whether IBM would continue to lease space after the end of its current lease term. The GATX lease provided annual rents of $1,399,000 and was scheduled to expire in October 1999 with only one five-year renewal term, at the option of the lessee. Accordingly, Management believed the value of the property in the future would have been affected by the uncertainty as to whether the lease would be renewed in November 1999. As more fully described in Note 12 of the accompanying financial statements, the Partnership had committed in October 1995 to use its best efforts to sell the Rapid City property. Management previously concluded that investing an estimated $1,950,000 to upgrade the hotel to meet the core modernization plan of Holiday Inn and retain the Holiday Inn affiliation would not provide an adequate return on the additional investment. On the other hand, revenues and profitability of the Rapid City operation would be expected to decrease after any change in hotel chain affiliation. Earnings from the hotel operations for the year ended December 31, 1996 are not directly comparable to the results of operations for the year ended December 31, 1995 due to the sale of the Rapid City hotel in October 1996. The Rapid City hotel contributed 46% of hotel revenue and 58% of hotel earnings in 1996. Management believes that this will be representative of the decreases in revenue and earnings from the hotel operation in future periods. For the year ended December 31, 1996, revenues, excluding Rapid City, increased by 4%. Revenues from all the hotel properties, including Rapid City, are seasonal with most revenues earned during the second and third quarters. Operating income for the remaining hotels in Alpena and Petoskey, Michigan increased 7% and 11%, respectively, for the year ended December 31, 1996 as compared with 1995. Although the average room rate remained stable at the Alpena hotel, there was a 6% increase in the occupancy rate resulting in both a 5% increase in room revenue and a 4% increase in food and beverage revenue. There was a 14% increase in the occupancy rate at the Petoskey hotel; however, the average room rate decreased 9%. Petoskey also benefited from a decrease in operating expenses. The decrease in Petoskey room rates was the result of increased competition from other resorts. -2- 30 Net income for the year ended December 31, 1995 decreased by $3,526,000 as compared with net income for the year ended December 31, 1994. Income before gains in 1995 reflected a decrease of $3,016,000 when compared to 1994. Of such decrease, $1,981,000 was the result of noncash writedowns of assets. The decrease in earnings was also attributable to a decrease in lease revenues and an increase in general and administrative expenses and was partially offset by decreases in interest and property expenses and an increase in other interest income. Of the $2,890,000 decrease in lease revenues, $2,738,000 was due to the disposition of properties leased to Pace Membership Warehouse, Inc. ("Pace") and Liberty Fabrics of New York ("Liberty Fabrics") in 1994 and Industrial General Corporation ("IGC") in 1995. In addition, lease revenues also decreased as the result of lower rentals from GATX. In November 1994 a short-term lease with GATX expired at which time GATX and the Partnership replaced the short-term lease with a new five-year lease agreement. As previously described, the property was sold in 1996. The increase in general and administrative expense was due to an increase in partnership level franchise taxes and the Partnership's office costs. The increase in office expenses was due, in part, to nonrecurring costs in connection with the relocation of the Partnership's offices. The decrease in interest expense was primarily due to the payoff in 1994 of mortgages on the Pace, Liberty Fabrics and Spreckels Industries, Inc. ("Spreckels") properties in 1994 and the satisfaction of the mortgage loan on the IGC properties in 1995. The decrease in property expenses was due to costs incurred in 1994 in connection with the Partnership's assessment of its liquidity alternatives which included environmental reviews and property valuations. Other interest income increased due to higher cash balances held by the Partnership earlier in the year prior to the payment of a special distribution to partners of $2,287,000. Earnings from the Partnership's hotel operations for 1995 decreased by 7% as compared with 1994. The occupancy rate at the Petoskey, Michigan hotel declined to 43% in 1995 from 47% in 1994. As a result of this decrease which was caused by increased competition from a nearby resort area, the Partnership was only able to increase the average room rate at Petoskey by 0.6% in 1995. The occupancy rates at the Alpena, Michigan hotel property remained stable at 55% and the Partnership was able to increase the average room rate by slightly less than 5%. The Rapid City hotel's occupancy rate increased by approximately 2% to 57% with an increase in the average room rate of 2.5%. The overall increase in hotel revenues was entirely offset by an increase of 6% in operating costs. A decrease in leasing revenues can be expected as the GATX property, which was sold in the second quarter of 1996, contributed $381,000 to 1996 revenues. The lease agreement with Rochester Button Company ("RBC") will reduce annual rentals by $106,000. Management believes that such reduction may enable RBC to improve its financial position. With the stock warrants granted by RBC, the Partnership could benefit from any potential improvement in RBC's business operations. These revenue decreases will not be fully offset by the 1996 rent increases on the leases with DeVlieg Bullard, Inc. ("DeVlieg") and Penberthy Products, Inc. totaling $150,000 annually and a short-term lease for the Elyria, Ohio property which will provide annual rents of $60,000. Rent increases are scheduled for properties leased to Stoody Deloro Stellite, Inc. ("Stoody") and Arley Merchandise Corporation ("Arley") in 1997 and Spreckels and Gould, Inc. in 1998. Interest expense will decrease due to the satisfaction of mortgage debt of $18,562,000 in connection with property sales and paying balloon payments on high interest rate mortgage loans. The only mortgage loans outstanding are the mortgage loan collateralized by the properties leased to Arley and bond financings on the Alpena and Petoskey hotel properties which are cross-collateralized by eight other Partnership properties. As discussed below, the Arley loan is in default. Interest expense on these loans and the note payable to an affiliate should be approximately $1,460,000 in 1997 as compared with interest expense of $2,075,000 in 1996. Annual cash flow increased by $740,000 from the payoff of mortgage loans on properties which remain occupied. Cash flow from the GATX and Rapid City properties after payment of mortgage debt service in 1996 was $465,000. Cash flow will also benefit if Partnership receives distributions from its investment in a limited partnership, GI Plastek Limited Partnership. As the limited partnership is a start-up operation, the Partnership does not expect to receive distributions in the coming year. Because of the net and long-term nature of the Partnership's leases, inflation and changing prices have not unfavorably affected the Partnership's revenues and net income. Except for the Penn Virginia Corporation ("Penn Virginia") lease, all of the Partnership's net leases have provisions providing for rent increases based on formulas indexed to increases in the Consumer Price Index ("CPI") and may include caps on such CPI increases, sales overrides or scheduled mandatory increases which could increase operating revenues in the future. Future rent increases may be affected by changes in the method of the calculation of -3- 31 the CPI. Although there are indications that there may be legislation which considers changes to the CPI methodology, the Partnership cannot predict the outcome of proposed changes relating to the CPI formula. As the rate of inflation has been moderate in recent years, the Partnership believes that hotel operations may not be significantly impacted by changing prices. Management believes that reasonable increases in costs may be partially or entirely passed through by increases in room rates. Financial Condition Other than the two hotel properties operated by the Partnership, all of the Partnership's properties are leased to corporate tenants under net leases which generally require tenants to pay all operating expenses relating to the leased properties. The Partnership depends on relatively stable operating cash flow from its net leases and operating properties to meet operating expenses, service its debt, fund distributions and maintain adequate cash reserves. The Partnership maintains a working capital reserve to fund major outlays such as capital improvements on its properties and balloon debt payments. Such expenditures may also be funded from additional borrowing on the Partnership's real estate portfolio. The Partnership's cash and cash equivalents were $5,238,000 at December 31, 1996. As a real estate limited partnership, the Partnership has distributed, since its inception, a substantial portion of its cash flow to its partners. The Partnership's current strategy has been to utilize its cash flow from operations and its cash reserves to pay quarterly distributions and meet scheduled principal payment installments on its mortgage debt service With the disposition of the Rapid City hotel, use of cash reserves to fund necessary capital improvements is expected to decrease. Based on an evaluation of cash flow, the distribution rate was reduced in April 1996 to bring distributions more in line with cash flow from operations. In 1995, excluding a $2,287,000 special distribution, quarterly distributions exceeded operating cash flow by more than $1,000,000. Since the reduction in April 1996, the distribution rate has increased each quarter. During 1996, cash provided from operations of $5,606,000 was sufficient to fund quarterly distributions to partners of $4,457,000 and pay scheduled principal payments of $365,000 on the Partnership's mortgage debt. During the five-year period ended December 31, 1996, distributions to partners exceeded reported earnings in each year except 1996. Management gives primary consideration to projections of the Partnership's cash flow provided from operations and/or investing activities as well as current cash balances and commitments for the use of such cash in determining distributions. The Partnership's investing activities during 1996 included $172,000 of costs incurred in connection with the completion of renovations necessary to bring the Alpena and Petoskey hotels in compliance with the Holiday Inn hotel modernization plan and replacement of furniture, fixture and equipment ("FF&E") at the hotels. Alpena and Petoskey maintain a reserve of $85,000 for on-going FF&E purchases. The Partnership realized proceeds of $18,592,000 on property sales in 1996. The Partnership's financing activities primarily consisted of paying quarterly distributions to partners and meeting scheduled principal payment installments on its mortgage debt. The Partnership used $18,562,000 to satisfy mortgage loans. As a result, the leverage of the Partnership's properties has decreased substantially which provides the Partnership with increased borrowing potential and flexibility in structuring any new financing. The Partnership, however, is not currently seeking to borrow additional funds. The $4,755,000 mortgage loan on the Arley properties is currently in default and the Partnership has entered into discussions with the lender for the purpose of restructuring the loan. There is no assurance that any agreement will be reached with the lender. As the Arley loan is a nonrecourse mortgage loan, the lender's sole recourse is to the properties collateralized by such mortgage debt and an assignment of the Arley lease to the lender. If the Partnership is unable to reach an agreement with the lender, the Partnership's alternatives include, but are not limited to, seeking to refinance the mortgage on the Arley property with another lender or structuring alternative financing using the flexibility created by the overall reduction in the Partnership's leverage over the past several years. -4- 32 Stoody has an option to purchase its lease property in December 1997 at a purchase price of the greater of $3,000,000 or fair market value. The Stoody property is not encumbered by mortgage debt and provides for annual rent of $393,000. If Stoody does not exercise its option, the lease term will continue until 2010. The initial term of the Partnership's lease with Penn Virginia ends in 1999, and Penn Virginia has not indicated whether it will exercise its option to renew the lease. Annual cash flow from the Penn Virginia property is $499,000. In 1994, the Partnership voluntarily conducted Phase II reviews of certain of its properties based on the results of the Phase I environmental reviews conducted in 1993. The Partnership believes, based on the results of such reviews, that its leased 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 its tenants of such findings and of their obligations, if any, to perform any required remediation. All of the Partnership's properties are subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations. Except for the two hotel properties, all of the properties are currently net leased to corporate tenants. The Partnership normally structures its leases to require tenants to comply with all laws. In addition, substantially all of the Partnership's net leases include indemnification provisions which require tenants to indemnify the Partnership from all liabilities and losses related to their operations at the leased properties. If the Partnership undertakes to clean up or remediate any of its leased properties, the General Partners believe that in most cases the Partnership will be entitled to full reimbursement from tenants for such costs. Further, in the event that the Partnership either is responsible or becomes responsible for such costs because of a tenant's failure to fulfill its obligations the General Partners believe that the ultimate resolution of the aforementioned environmental matters will not have a material adverse effect on the Partnership's financial condition, liquidity or results of operations. The General Partners are continuing to investigate ways to provide liquidity for limited partners on a tax-effective basis. -5- 33 REPORT of INDEPENDENT ACCOUNTANTS To the Partners of Corporate Property Associates 5: We have audited the accompanying balance sheets of Corporate Property Associates 5 (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 22 to 25 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 5 (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- 34 CORPORATE PROPERTY ASSOCIATES 5 (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 $ 4,722,767 $ 3,960,767 Buildings 34,271,786 22,753,408 ------------ ------------ 38,994,553 26,714,175 Accumulated depreciation 12,371,727 9,111,827 ------------ ------------ 26,622,826 17,602,348 Net investment in direct financing leases 19,352,938 19,298,726 ------------ ------------ Real estate leased to others 45,975,764 36,901,074 Operating real estate, net of accumulated depreciation of $4,265,218 in 1995 and $4,637,421 in 1996 7,735,809 7,463,300 Real estate held for sale 10,388,398 Cash and cash equivalents 2,300,682 5,237,995 Funds in escrow 2,977,622 575,051 Other assets, net of accumulated amortization of $130,589 and reserve for uncollected rent of $165,164 in 1995 2,890,127 2,474,117 ------------ ------------ Total assets $ 72,268,402 $ 52,651,537 ============ ============ LIABILITIES: Mortgage notes payable $ 36,065,145 $ 14,283,940 Note payable to affiliate 1,151,000 1,151,000 Accrued interest payable 170,877 45,707 Accounts payable and accrued expenses 572,267 433,842 Accounts payable to affiliates 144,553 111,526 Deferred gains, net of accumulated amortization of $245,788 in 1995 and $180,278 in 1996 1,366,593 901,390 Other liabilities 1,051,904 658,542 ------------ ------------ Total liabilities 40,522,339 17,585,947 ------------ ------------ Commitments and contingencies PARTNERS' CAPITAL: General Partners (262,961) (67,666) Limited Partners (113,200 Limited Partnership Units issued and outstanding) 32,009,024 35,133,256 ------------ ------------ Total partners' capital 31,746,063 35,065,590 ------------ ------------ Total liabilities and partners' capital $ 72,268,402 $ 52,651,537 ============ ============
The accompanying notes are an integral part of the financial statements. -7- 35 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) STATEMENTS of INCOME For the years ended December 31, 1994, 1995 and 1996
1994 1995 1996 ---- ---- ---- Revenues: Rental income $ 5,606,618 $ 4,642,686 $ 3,225,129 Interest income from direct financing leases 5,805,643 3,879,125 3,409,166 Other interest income 117,325 307,951 210,913 Revenue of hotel operations 6,595,570 6,768,268 6,359,758 Other income 170,107 ----------- ----------- ----------- 18,125,156 15,768,137 13,204,966 ----------- ----------- ----------- Expenses: Interest 4,534,425 3,495,872 2,075,230 Depreciation 2,181,422 2,065,781 1,331,028 General and administrative 571,189 841,920 460,948 Property expenses 1,516,194 810,581 579,189 Amortization 63,932 33,599 13,301 Writedown to net realizable value 1,980,550 1,300,000 Operating expense of hotel operations 4,959,699 5,241,370 4,952,959 ----------- ----------- ----------- 13,826,861 14,469,673 10,712,655 ----------- ----------- ----------- Income before gains on sale 4,298,295 1,298,464 2,492,311 Gains on sale of real estate, net 1,140,891 614,234 5,284,165 ----------- ----------- ----------- Net income $ 5,439,186 $ 1,912,698 $ 7,776,476 =========== =========== =========== Net income allocated to: Individual General Partner $ 171,409 $ 52,520 $ 119,855 =========== =========== =========== Corporate General Partner $ 832,262 $ 148,208 $ 342,857 =========== =========== =========== Limited Partners $ 4,435,515 $ 1,711,970 $ 7,313,764 =========== =========== =========== Net income per Limited Partnership Unit (113,200 Units outstanding) $ 39.18 $ 15.12 $ 64.61 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. -8- 36 CORPORATE PROPERTY ASSOCIATES 5 (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 $ 38,311,475 $ (746,920) $ 39,058,395 $ 345 Distributions (5,862,314) (351,738) (5,510,576) (49) Net income, 1994 5,439,186 1,003,671 4,435,515 39 ------------ ----------- ------------ ----- Balance, December 31, 1994 37,888,347 (94,987) 37,983,334 335 Distributions (8,054,982) (368,702) (7,686,280) (68) Net income, 1995 1,912,698 200,728 1,711,970 15 ------------ ----------- ------------ ----- Balance, December 31, 1995 31,746,063 (262,961) 32,009,024 282 Distributions (4,456,949) (267,417) (4,189,532) (37) Net income, 1996 7,776,476 462,712 7,313,764 65 ------------ ----------- ------------ ----- Balance, December 31, 1996 $ 35,065,590 $ (67,666) $ 35,133,256 $ 310 ============ =========== ============ =====
(a) Based on 113,200 Units issued and outstanding during all periods. The accompanying notes are an integral part of the financial statements. -9- 37 CORPORATE PROPERTY ASSOCIATES 5 (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 $ 5,439,186 $ 1,912,698 $ 7,776,476 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,245,354 2,099,380 1,344,329 Amortization of deferred gains (71,609) (71,678) (64,974) Cash receipts on operating and financing leases greater than straight-line adjustments and amortization of unearned income 8,388 13,162 54,212 Writedown to net realizable value 1,980,550 1,300,000 Net gain on sale of real estate (1,140,891) (614,234) (5,284,165) Net change in operating assets and liabilities (187,595) (631,808) 480,432 ------------ ------------ ------------ Net cash provided by operating activities 6,292,833 4,688,070 5,606,310 ------------ ------------ ------------ Cash flows from investing activities: Issuance of note receivable (188,910) Additional capitalized costs (407,538) (1,078,951) (172,447) Proceeds on sale and transfer of real estate 16,939,000 3,387,362 18,592,329 Purchase of limited partnership interests (1,750,175) ------------ ------------ ------------ Net cash provided by investing activities 16,342,552 558,236 18,419,882 ------------ ------------ ------------ Cash flows from financing activities: Distributions to partners (5,862,314) (8,054,982) (4,456,949) Release of escrow funds in connection with mortgage prepayment 2,295,000 Prepayments of mortgage payable (10,413,985) (2,200,000) (18,561,812) Payments on mortgage principal (725,239) (463,487) (365,118) Partial prepayment of note payable to affiliate (144,000) Deferred financing costs (1,247) (10,000) ------------ ------------ ------------ Net cash used in financing activities (17,002,785) (10,872,469) (21,088,879) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 5,632,600 (5,626,163) 2,937,313 Cash and cash equivalents, beginning of year 2,294,245 7,926,845 2,300,682 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 7,926,845 $ 2,300,682 $ 5,237,995 ============ ============ ============
Supplemental Schedule of noncash investing and financing activity: In connection with the sales of properties, purchasers assumed a mortgage loan obligation of $2,854,275 and accrued interest thereon of $12,049 in 1996 and a mortgage loan obligation of $720,401 and accrued interest thereon of $5,780 in 1995 in lieu of paying cash. The accompanying notes are an integral part of the financial statements. -10- 38 CORPORATE PROPERTY ASSOCIATES 5 (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 5 (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 - Under this method, real estate is recorded at cost, revenue is recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. When scheduled rents vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent. 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. Operating Real Estate: Land, buildings 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. Real Estate Held for Sale: Real estate held for sale is accounted for at the lower of cost or fair value less cost of sale. Continued -11- 39 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued Depreciation: Depreciation is being computed using the straight-line method over the estimated useful lives of components of the particular properties, which range from 5 to 30 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 and Liabilities: Included in other assets are deferred charges incurred in connection with mortgage note financings and refinancings and an investment in a limited partnership. Deferred charges are amortized on a straight-line basis over the terms of the mortgages. The Partnership's 17.5% investment in an unaffiliated limited partnership is accounted for under the cost method, i.e., income is recorded based on distributions received from net accumulated earnings. Included in other liabilities is deferred rental income for the aggregate difference on an operating method lease between scheduled rents which vary during the lease term and rent recognized on a straight-line basis. Deferred Gains: Deferred gains consist of assets acquired in excess of liabilities assumed in connection with acquiring the operations of a hotel property in Rapid City, South Dakota and certain funds received in connection with the two loan refinancings. The deferred gain from the refinancings is being amortized on a straight-line basis over 24 years. The deferred gain on acquisition had been amortized on a straight-line basis on a 20-year schedule until sale of the property in October 1996, at which time the remaining unamortized gain was recognized. 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 to the 1996 financial statement presentation. 2. Partnership Agreement: The Partnership was organized on April 12, 1983 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. All the Units were sold prior to December 21, 1983, at which time the offering terminated. The Partnership will terminate on Continued -12- 40 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued December 31, 2005, 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 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 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 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 approximately $1,423,000 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. In accordance with the Agreement, the General Partners, due to having negative capital balances at the beginning of each year, were allocated a portion of the 1994, 1995 and 1996 gains on sale of property as well as the related tax gain in order to reduce their negative balances. The Partnership paid a special distribution in 1995 of proceeds from a property 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 holds a 65% interest as tenants-in-common in hotel properties in Alpena and Petoskey, Michigan with Corporate Property Associates 6 ("CPA(R):6"), an affiliate which owns the remaining 35% interest. The Partnership accounts for its interest in the Alpena and Petoskey properties on a proportional basis. Under the Agreement, W.P. Carey & Co., Inc. ("W.P. Carey") and other affiliates are 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 to the operation of the Partnership. Property management fee and general and administrative expense reimbursements are summarized as follows:
1994 1995 1996 ---- ---- ---- Property management fee $156,947 $116,825 $ 76,763 General and administrative expense reimbursements 178,840 117,584 113,288 -------- -------- -------- $335,787 $234,409 $190,051 ======== ======== ========
During 1994, 1995 and 1996, fees aggregating $339,112, $180,242 and $91,265 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 mortgage loans on the Alpena and Petoskey properties consist of tax-exempt bond obligations of $7,330,000 for each property of which the Partnership's share of each is $4,764,500. The bonds are also collateralized by mortgage and/or lease assignments on eight other Partnership properties. In the event of default, the bondholders have recourse to the Partnership's collateral Continued -13- 41 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued to the full extent of the outstanding balance of the bonds including the portion of the obligation applicable to CPA(R)6. In connection with restructuring the bond obligation in 1992, the Partnership received cash and other consideration from CPA(R)6. The Partnership is a participant in an agreement with W.P. Carey and 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 $76,426, $182,843 and $83,533, respectively. Net expenses in 1995 included certain nonrecurring items. 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 $2,850,000 in 1997, $2,822,000 in 1998, $2,647,000 in 1999, $1,077,000 in both of the years 2000 and 2001, and aggregate approximately $16,650,000 through 2010. Contingent rents were approximately $106,000, $5,000 and $6,000 in 1994, 1995 and 1996, respectively. B. Operating Real Estate: Operating real estate, at cost, is summarized as follows:
December 31, ---------------------- 1995 1996 ---- ---- Land $ 479,050 $ 479,050 Buildings 9,603,750 9,603,750 Personal property 1,918,227 2,017,921 ----------- ----------- 12,001,027 12,100,721 Less: Accumulated depreciation 4,265,218 4,637,421 ----------- ----------- $ 7,735,809 $ 7,463,300 =========== ===========
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 $34,887,327 $32,483,668 Unguaranteed residual value 17,495,677 17,495,677 ----------- ----------- 52,383,004 49,979,345 Less: Unearned income 33,030,066 30,680,619 ----------- ----------- $19,352,938 $19,298,726 =========== ===========
Scheduled future minimum rents, exclusive of renewals, under noncancellable financing leases amount to approximately $2,585,000 in each of the years from 1997 to 2001 and aggregate approximately $32,484,000 through 2017. Continued -14- 42 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued Contingent rents were approximately $995,000, $758,000 and $776,000 in 1994, 1995 and 1996, respectively. 6. Mortgage Notes Payable and Note Payable to Affiliate: A. Mortgage Notes Payable The Partnership's mortgage notes payable are limited recourse obligations and are collateralized by lease assignments and by real property with a carrying amount of approximately $32,914,000, before accumulated depreciation (also see Note 3). As of December 31, 1996, mortgage notes payable bear interest at rates varying from 6.6% to 10% per annum and mature from 1997 to 2015. Scheduled principal payments during each of the next five years following December 31, 1996 and thereafter, including a mortgage loan subject to acceleration, are as follows:
Year Ending December 31, ------------------------ 1997 $ 4,988,940 1998 253,500 1999 266,500 2000 286,000 2001 312,000 Thereafter 8,177,000 ----------- Total $14,283,940 ===========
B. Note Payable to Affiliate: A note payable to CPA(R):6 of $1,151,000 provides for payments of interest only at a rate of 13.48% per annum through August 1, 1999, at which time the interest rate will reset to the Applicable Federal Rate (as defined in the Internal Revenue Code of 1986). The note, which is a recourse obligation of the Partnership, matures on May 1, 2012, at which time a balloon payment for any unpaid principal is due. The note may be prepaid in part or whole at any time. Interest paid on mortgage notes payable and the note payable to affiliate was $4,642,849, $3,554,413 and $2,254,150 in 1994, 1995 and 1996, respectively. 7. Distributions to Partners: Distributions declared and paid to partners are summarized as follows:
Limited Year Ending Distributions Paid to Distributions Paid to Partners' Per December 31, General Partners Limited Partners Unit Amount ------------ ---------------- ---------------- ----------- 1994 $351,738 $5,510,576 $48.68 1995: Quarterly distributions $345,833 $5,422,280 $47.90 Special distribution 22,869 2,264,000 20.00 -------- ---------- ------ Total 1995 $368,702 $7,686,280 $67.90 ======== ========== ====== 1996 $267,417 $4,189,532 $37.01 ======== ========== ======
Distributions of $61,056 to the General Partners and $956,540 to the Limited Partners for the quarter ended December 31, 1996 were declared and paid in January 1997. Continued -15- 43 CORPORATE PROPERTY ASSOCIATES 5 (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 $ 5,439,186 $ 1,912,698 $ 7,776,476 Excess tax depreciation (2,979,063) (2,399,357) (1,980,182) Writedowns of assets 1,980,550 1,300,000 Difference in gains or losses on dispositions of property 8,776,856 (157,203) 3,475,585 Other (351,394) 284,878 (544,552) ------------ ----------- ------------ Income reported for Federal income tax purposes $ 10,885,585 $ 1,621,566 $ 10,027,327 ============ =========== ============
9. Industry Segment Information: The Partnership's operations consist primarily of the investment in and the leasing of industrial and commercial real estate and the operations of three hotel properties. In 1994, 1995 and 1996, the Partnership earned its total leasing revenues (rental income plus interest income from financing leases) from the following lease obligors:
1994 % 1995 % 1996 % ---- --- ---- --- ---- --- Gould, Inc. $ 1,125,000 10% $1,132,500 13% $1,215,000 18% Spreckels Industries, Inc. 880,264 8 1,020,717 12 1,020,717 15 DeVlieg Bullard, Inc. 830,984 7 830,984 10 912,864 14 Arley Merchandise Corporation 600,000 5 600,000 7 600,000 9 Exide Electronics Corporation 485,726 4 528,926 6 572,130 9 Penn Virginia Corporation 498,750 5 498,750 6 498,750 8 Stoody Deloro Stellite, Inc. 380,325 3 404,719 5 390,068 6 GATX Logistics, Inc. 1,834,350 16 1,398,600 16 380,730 6 Harcourt General Corporation 233,750 2 233,750 3 233,750 4 Rochester Button Company 204,743 2 199,968 2 225,706 3 Penberthy Products, Inc. 182,529 2 182,529 2 200,514 3 Winn Dixie Stores, Inc. 191,534 2 191,534 2 191,534 3 Sunds Defibrator Woodhandling, Inc. (formerly FMP/Rauma Company) 124,430 1 131,033 2 144,239 2 Other 146,342 1 212,383 2 31,602 IBM Corporation 318,097 3 318,097 4 16,691 Industrial General Corporation 1,385,643 12 637,321 8 Pace Membership Warehouse, Inc. 601,718 5 Liberty Fabrics of New York 1,388,076 12 ----------- --- ---------- --- --------- --- $11,412,261 100% $8,521,811 100% $6,634,295 100% =========== ==== ========== ==== ========== ====
Continued -16- 44 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued The Partnership's share of the operating results for the three hotel properties are as follows:
1994 1995 1996 ---- ---- ---- Revenues $ 6,595,570 $ 6,768,268 $ 6,359,758 Fees to hotel management company (131,911) (143,498) (134,872) Other operating expenses (4,827,788) (5,097,872) (4,818,087) ----------- ----------- ----------- Hotel operating income $ 1,635,871 $ 1,526,898 $ 1,406,799 =========== =========== ===========
10. Rochester Button Company: In June 1992, the Partnership and Rochester Button Company ("RBC") entered into restructuring and lease modification agreements for properties leased by RBC in South Boston and Kenbridge, Virginia. Under the restructuring agreement, the Partnership agreed to exchange a $300,000 subordinated promissory note from RBC for 300 shares of preferred stock ($1,000 par value, 5%). In January 1994, the Partnership agreed to lend $250,000 to RBC at an annual interest rate of 9% evidenced by a subordinated promissory note. In 1995, the Partnership incurred a charge of $288,910 in writing off the note receivable and preferred stock as a result of RBC experiencing financial difficulties and its inability to pay dividends and debt service installments in a timely manner. The Partnership had previously written down the investment in the preferred stock. In addition, the Partnership incurred charges on uncollected rents of $165,164 and $235,314 for the years ended December 31, 1995 and 1996, respectively. On December 30, 1996, the Partnership entered into a new lease agreement with RBC and agreed to forgive all previously uncollected rents. The lease amendment provides for a reduction of annual rent from $286,000 to $180,000. Additionally, RBC granted the Partnership warrants which are exercisable at any time prior to December 31, 2006, to purchase up to 273.5 shares of RBC common stock, representing 40% of the outstanding common stock of RBC, at an exercise price of $18.28 per share prior to December 31, 2006. The South Boston and Kenbridge properties are pledged as collateral for $400,000 of bond financings issued to RBC by industrial development authorities. Continued -17- 45 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued 11. Funds in Escrow: Funds in escrow at December 31, 1995 and 1996 consist of reserves and escrow funds for the hotel properties and related mortgage debt.
December 31, 1995 1996 ---- ---- Security reserve on Rapid City property $1,895,000 Debt service escrow account and bond reserves on Alpena and Petoskey properties 412,100 $490,100 Hotel furniture, fixture and equipment reserves 270,522 84,951 Special escrow accounts on Rapid City hotel property 400,000 ---------- --------- $2,977,622 $ 575,051 ========== =========
12. Gains and Losses on the Sale of Real Estate: Pace Membership Warehouse, Inc.: On November 10, 1994, Pace Membership Warehouse, Inc. ("Pace"), purchased its leased property in Tampa, Florida from the Partnership for $7,000,000. A portion of the Partnership's proceeds from the sale was used to satisfy the remaining $3,290,437 mortgage balance on the Tampa property. In connection with the sale, the Partnership recognized a gain of $2,027,891. Industrial General Corp.: In August 1985, the Partnership purchased from and net leased to Industrial General Corporation ("IGC") and certain of its wholly-owned subsidiaries, seven properties located in Elyria and Bellville, Ohio; Forrest City and Bald Knob, Arkansas; Carthage, New York; and Newburyport, Massachusetts. Subsequent to the purchase, the Partnership agreed to exchange the Saginaw property for an expansion of the Newburyport facility, severed the Carthage property from the lease and entered into a lease with FMP/Rauma Company ("FMP"). In December 1994, the Partnership sold the Forrest City property for $650,000 and recognized a loss of $887,000. In July 1995, IGC filed a voluntary petition of bankruptcy under Chapter 11 of the United States Bankruptcy Code. In connection with an asset acquisition of the plastics division of IGC, on September 14, 1995, the Partnership entered into a series of transactions which resulted in the termination of the IGC lease, the sale of the Bald Knob, Bellville and Newburyport properties and the full satisfaction of the mortgage loan obligation collateralized by all of the IGC properties and the FMP property which had been scheduled to mature on September 1, 1995. In connection with the sale of the Bald Knob property to IGC, the Partnership received cash of $987,362 and IGC, with the consent of the mortgage lender, assumed a mortgage obligation from the Partnership of $720,401 and accrued interest thereon of $5,780. Additionally, IGC agreed to pay an additional $200,000 in installments to the Partnership of which $185,000 had been received as of December 31, 1996. The Bellville and Newburyport properties were sold for $2,400,000 in cash to G.I. Plastek Industrial Properties Limited Partnership ("Plastek Properties"), an affiliate of G.I. Plastek Limited Partnership ("Plastek") which acquired the assets of the IGC plastics division. Continued -18- 46 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued The Partnership used $2,200,000 of the proceeds to pay off the remaining balance on the matured mortgage loan obligation on the IGC and FMP properties. In connection with the sale of the three properties, the Partnership realized a loss of $1,719,828. The Partnership also purchased limited partnership interests in Plastek. The Partnership made capital contributions of $175 and $1,750,000 for Class A and Class B limited partnership interests, respectively. The Class A interest provides for a 17.5% participation in the profits and losses of Plastek after payment of preferred returns to Class B interests. Class B interests are entitled to a cumulative preferred return of 10% on their contributions; however, it does not participate in nor receive other allocations of any gains or losses of Plastek. The Class B interest is redeemable on September 8, 2000. As of December 31, 1996, the Partnership has not received any distributions. The Partnership retains ownership of the Elyria property. In 1995, based on the appraised value of the property and the costs that would need to be incurred to prepare the property for sale or lease after IGC vacated, the Partnership wrote off the value of the property and recognized a charge of $691,640. The Elyria property is presently leased to InnoTech Industries, Inc. through April 1998 for an annual rental of $60,000. Liberty Fabrics of New York: In January 1984, the Partnership purchased properties in Gordonsville, Virginia and in North Bergen, New Jersey and entered into a net lease with Liberty Fabrics of New York ("Liberty"). In December 1993, Liberty notified the Partnership of its intention to exercise its purchase option on the properties. Pursuant to the lease, the purchase price would be the greater of $7,000,000, the Partnership's purchase price for the property, or fair market value as encumbered by the lease. On December 29, 1994, the Partnership and Liberty terminated the lease and agreed that the properties would be transferred to Liberty for $9,359,000, subject to a final determination of the fair value of the property. Liberty would have the right within 30 days of the determination to rescind the transfer, in which case all proceeds would be returned to Liberty, title of the properties transferred back to the Partnership and Liberty would pay all rents in arrears for the period from the initial transfer of title if the fair market value was determined to be greater than $9,359,000. The final determination was made with no adjustment made to the fair market value thereby completing the sale. As a result, the Partnership recognized a gain of $2,334,062 in 1995 on the sale of the properties. Rapid City Hotel: In 1985, the Partnership purchased a hotel in Rapid City, South Dakota, which it operated as a Holiday Inn, with $6,800,000 of tax-exempt bonds which were supported by a letter of credit issued by a third party. In September 1994, the Partnership was advised by Holiday Inn that it would need to upgrade the hotel's physical plant by January 1997 in order to meet the requirements of a modernization plan adopted by Holiday Inn or surrender its Holiday Inn license. As the cost of such upgrade was estimated to be $1,925,000, Management concluded that such additional investment would not justify compliance with the modernization plan. Although Management was considering an affiliation with another national hotel chain, earnings were expected to decline after any change in affiliation. Continued -19- 47 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued In 1995, under an agreement with the issuer of the letter of credit supporting the $6,800,000 tax-exempt mortgage bond on the Rapid City property, the Partnership agreed to use its best efforts to sell the hotel property in exchange for an extension of the letter of credit from October 1995 to October 1997. Annual cash flow from the hotel (hotel earnings, adjusted for depreciation and amortization, less debt service on the tax-exempt bonds) for 1995, the last full year of operations, was $305,000. In 1995, the Partnership reevaluated the net realizable value of the property and recognized a noncash charge of $1,000,000 on the writedown. In the second quarter of 1996, the Partnership charged an additional $1,300,000 as a writedown to net realizable value to an amount Management believed would approximate the proceeds from a sale. On October 1, 1996, the Partnership sold the property and the operating assets and liabilities of the hotel for $4,105,000. The Partnership recognized a gain of $784,618 on the sale. The bond was paid off by utilizing the net proceeds from the sale, $302,000 of cash and various escrow accounts which had been held by the bond trustee or issuer of the letter of credit. The gain includes the recognition of the release of unamortized deferred gains relating to the acquisition of the hotel operation in 1991 from the former lessee. Helena, Montana Office Building : In May 1985, the Partnership purchased an office building in Helena, Montana and was assigned an existing net lease with IBM Corporation ("IBM") as lessee. In 1992, the lease with IBM and the mortgage loan on the property were modified at which time IBM reduced its occupancy from 100% to 40% of the leasable space. The Partnership subsequently leased the remaining space to various other tenants. On January 19, 1996, the Partnership sold the property for $4,800,000 including the purchaser's assumption of the existing mortgage loan on the property. Net of closing costs, the Partnership received cash proceeds of $1,741,261, assigned the mortgage loan obligation of $2,854,275 and accrued interest thereon of $12,049 to the purchaser and recognized a gain of $90,356 on the sale. GATX Logistics, Inc.: In June 1985, the Partnership purchased a warehouse property in Hodgkins, Illinois leased to General Motors Corporation ("GM"). In November 1993, GM terminated its lease and the Partnership entered into a short-term lease with GATX Logistics, Inc.("GATX"). Subsequently, in November 1994, GATX and the Partnership entered into a new lease which provided for a five-year term and a renewal term of five years at GATX's option. On April 9, 1996, the Partnership sold the Hodgkins property for $13,200,000 and assigned the GATX lease, as lessor, to the purchaser. Net of costs and amounts necessary to pay the remaining $3,208,526 balance on the property's mortgage loan, the Partnership received cash proceeds of $9,428,270 and recognized a gain on sale of $4,409,191. Continued -20- 48 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES to FINANCIAL STATEMENTS, Continued 13. Environmental Matters: All of the Partnership's properties, other than the hotel 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. 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. 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 leased 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 and leakage from underground storage tanks. 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. 14. Disclosure on 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 approximates $13,914,000 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. The carrying amount of the Partnership's limited partnership investment in Plastek, which interest was purchased in September 1995 and which is accounted for under the cost method, approximates fair value. -21- 49 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1996
Initial Cost to Partnership Costs --------------------------- Capitalized Decrease Personal Subsequent to in Net Description Encumbrances Land Buildings Property Acquisition (a) Investment (b) ----------- ------------ ---- --------- -------- --------------- -------------- Operating method: Manufacturing facilities leased to Arley Merchandise Corporation $4,754,940 $ 256,000 $ 7,544,000 $ 8,555 Manufacturing and office leased to Penn Virginia Corporation 453,192 3,246,808 3,112 Land leased to Exide Electronics Corporation 1,170,000 Motion picture theater leased to Harcourt General Corporation 243,000 1,927,000 25,424 Office and research facility leased to Gould, Inc. 1,422,000 8,418,500 34,587 Retail store leased to Winn Dixie Stores, Inc. 414,700 1,525,872 21,425 Office/Manufacturing leased to Inno Tech Industries, Inc. 122,884 568,756 $(691,640) ---------- ---------- ----------- ---------- --------- $4,754,940 $4,081,776 $23,230,936 $ 93,103 $(691,640) ========== ========== =========== ---------- --------- Operating real estate (e): Hotel properties located in Alpena, Michigan $4,764,500 $ 136,500 $ 4,905,875 $482,625 $ 629,009 Petoskey, Michigan 4,764,500 342,550 4,684,875 497,575 421,712 ---------- --------- ----------- -------- ---------- $9,529,000 $ 479,050 $ 9,590,750 $980,200 $1,050,721 ========== ========= =========== ======== ========== Life on which Gross Amount at which Carried Depreciation in at Close of Period (c)(d) Latest ----------------------------- Statement Personal Accumulated of Income Description Land Buildings Property Total Depreciation(d) Date Acquired is Computed ----------- ---- --------- -------- ----- --------------- ------------- ----------- Operating method: Manufacturing facilities leased to Arley Merchandise Corporation $ 256,000 $ 7,552,555 $7,808,555 $2,391,593 July 13, 1984 30 YRS. Manufacturing and office leased to Penn Virginia Corporation 453,192 3,249,920 3,703,112 2,391,080 August 7, 1984 5-30 YRS. Land leased to Exide Electronics Corporation 1,170,000 1,170,000 June 20, 1985 Motion picture theater leased to Harcourt General Corporation 243,000 1,952,424 2,195,424 745,715 July 17, 1985 30 YRS. Office and research facility leased to Gould, Inc. 1,423,875 8,451,212 9,875,087 3,125,698 November 25, 1985 30 YRS. Retail store leased to Winn Dixie Stores, Inc. 414,700 1,547,297 1,961,997 457,741 March 17, 1988 30 YRS. Office/Manufacturing leased to Inno Tech Industries, Inc. August 30, 1995 N/A ---------- ----------- ----------- ---------- $3,960,767 $22,753,408 $26,714,175 $9,111,827 ========== =========== =========== ========== Operating real estate (e): Hotel properties located in Alpena, Michigan $ 136,500 $ 4,912,375 $1,105,134 $ 6,154,009 $2,335,883 March 6, 1987 7-30 YRS. Petoskey, Michigan 342,550 4,691,375 912,787 5,946,712 2,301,538 January 30, 1987 7-30 YRS. ---------- ----------- ---------- ----------- ---------- $ 479,050 $ 9,603,750 $2,017,921 $12,100,721 $4,637,421 ========== =========== ========== =========== ==========
See accompanying notes to Schedule. -22- 50 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1996
Gross Amount Cost at which Initial Cost to Capitalized Decrease in Carried Partnership Subsequent to Net at Close of Description Encumbrances Land Buildings Acquisition (a) Investment (b) Period (c) Date Acquired ----------- ------------ ---- --------- --------------- -------------- ------ --- ------------- Direct financing method: Manufacturing facility to Spreckels Industries, Inc. $ 444,730 $ 5,055,270 $ 5,500,000 December 30, 1983 Manufacturing facility leased to Rochester Button Company, Inc. 86,663 2,815,596 $ 4,429 $(1,003,639) 1,903,049 April 11, 1984 Office and research facility leased to Exide Electronics Corporation 2,030,000 1,500 2,031,500 June 20, 1985 Manufacturing facilities leased to DeVlieg Bullard, Inc. 310,032 4,782,667 5,092,699 April 3, 1986 Manufacturing facilities leased to Penberthy Products, Inc. 48,968 1,028,333 1,077,301 April 3, 1986 Manufacturing facilities leased to Stoody Company 200,000 2,800,000 3,000,000 December 22, 1986 Manufacturing facilities leased to Sunds Defibrator Woodhandling, Inc. 24,750 669,427 694,177 August 30, 1985 ---------- ----------- ------- ----------- ----------- $1,115,143 $19,181,293 $ 5,929 $(1,003,639) $19,298,726 ========== =========== ======= =========== ===========
See accompanying notes to Schedule. -23- 51 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES TO SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION (a) Consists of additional costs capitalized and acquisition costs, including legal fees, appraisal fees, title costs and other related professional fees, property acquired in connection with acquiring hotel assets and purchases of equipment for hotel operations. (b) The decrease in net investment is due to the amortization of unearned income producing constant periodic rate on the net investment in direct financing leases, which is less than lease payments received and the writedown of properties to net realizable value. (c) At December 31, 1996, the aggregate cost of real estate owned for Federal income tax purposes is $58,715,975. (d) Reconciliation of Real Estate Accounted for Under the Operating Method
December 31, ------------------ 1995 1996 ---- ---- Balance at beginning of year $45,541,835 $38,994,553 Additions 403,126 Sale of property (12,280,378) Reclassification to real estate held for sale (6,950,408) ----------- ----------- Balance at close of year $38,994,553 $26,714,175 =========== ===========
Reconciliation of Accumulated Depreciation
December 31, ------------------ 1995 1996 ---- ---- Balance at beginning of year $13,182,621 $12,371,727 Depreciation expense 1,359,240 840,660 Sale of property (4,100,560) Reclassification to real estate held for sale (2,170,134) ----------- ----------- Balance at close of year $12,371,727 $ 9,111,827 =========== ===========
-24- 52 CORPORATE PROPERTY ASSOCIATES 5 (a California limited partnership) NOTES TO SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION- Continued (e) Reconciliation of Operating Real Estate
December 31, ------------------ 1995 1996 ---- ---- Balance at beginning of year $21,768,149 $12,001,027 Disposals Additions 675,825 99,694 Reclassification to real estate held for sale (9,442,947) Writedown to net realizable value (1,000,000) ----------- ----------- Balance at close of year $12,001,027 $12,100,721 =========== ===========
Reconciliation of Accumulated Depreciation for Operating Real Estate
December 31, ------------------- 1995 1996 ---- ---- Balance at beginning of year $ 7,393,500 $4,265,218 Reclassification to real estate held for sale (3,834,823) (118,166) Depreciation expense 706,541 490,368 ----------- ---------- Balance at close of year $ 4,265,218 $ 4,637,420 =========== ===========
-25- 53 PROPERTIES - --------------------------------------------------------------------------------
LEASE TYPE OF OWNERSHIP OBLIGOR TYPE OF PROPERTY LOCATION INTEREST ------- ---------------- -------- ----------------- SPRECKELS INDUSTRIES Manufacturing and Forrest City, Ownership of land INC. Office Facility Arkansas and building ARLEY MERCHANDISE Manufacturing Columbia and Ownership of land CORPORATION Facilities - Sumter, South and buildings (1) 2 locations Carolina ROCHESTER BUTTON Manufacturing Kenbridge, Ownership of land COMPANY Facilities - South Boston, and buildings (2) 2 locations Virginia PENN VIRGINIA Office and Duffield, Ownership of land CORPORATION Manufacturing Virginia and building (3) Facilities - Cuyahoga Falls, 3 locations Ohio and Broomall, Pennsylvania (4) Hotels Petoskey and Ownership of 65% Alpena, interest in land Michigan and buildings (1) EXIDE ELECTRONICS Office and Raleigh, Ownership of land CORPORATION Research Facility North Carolina and building HARCOURT GENERAL Movie Theatre Canton, Ownership of land CORPORATION Michigan and building (3) INNO TECH INDUSTRIES, Office, and Elyria, Ownership of land INC. Manufacturing Ohio and building Facility GOULD, INC. Manufacturing and Oxnard, Ownership of land Research Facility California and building DEVLIEG BULLARD, INC. Manufacturing Frankenmuth, Ownership of land Facilities - Michigan and buildings (3) 2 locations McMinnville, Tennessee PENBERTHY Manufacturing Prophetsown, Ownership of land PRODUCTS, INC. Facility Illinois and building (3) STOODY DELORO Manufacturing Goshen, Ownership of land STELLITE, INC. Facility Indiana and building
-26- 54
LEASE TYPE OF OWNERSHIP OBLIGOR TYPE OF PROPERTY LOCATION INTEREST ------- ---------------- -------- ----------------- WINN-DIXIE Supermarket Montgomery, Ownership of land STORES, INC. Alabama and buildings (3) SUNDS DEFIBRATOR WOODHANDLING, INC. (formerly FMP/RAUMA, Manufacturing Carthage, Ownership of land CO.) Facility New York and buildings
(1) These properties are encumbered by mortgage notes payable. (2) These properties are subject to a mortgage as collateral for loans issued by unaffiliated parties to the lessee. (3) These properties are encumbered by mortgages and/or lease assignments in connection with mortgage notes payable on other of the Partnership's properties. (4) The Partnership operates a hotel business at these properties. -27- 55 MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS - -------------------------------------------------------------------------------- Except for limited or sporadic transactions, there is no established public trading market for the Limited Partnership Units of the Partnership. As of December 31, 1996, there were 3,577 holders of record of the Limited Partnership Units of the Partnership. In accordance with the requirements of the Partnership's Amended Agreement of Limited Partnership (the "Agreement") the Corporate General Partner expects to continue to make quarterly distributions of Distributable Cash From Operations, as defined, in the Agreement. The following table shows the frequency and amount of distributions paid per Unit since 1993:
Cash Distributions Paid Per Unit 1994 1995 1996 ---- ---- ---- First quarter $12.15 $12.20 $11.75 Second quarter 12.16 32.21 (a) 8.40 Third quarter 12.18 11.74 8.42 Fourth quarter 12.19 11.75 8.44 ------ ------ ------ $48.68 $67.90 $37.01 ====== ====== ======
(a) Includes a special distribution of $20 per Unit. REPORT ON FORM 10-K - -------------------------------------------------------------------------------- The Corporate General Partner will supply to any owner of Limited Partnership Units, upon written request and without charge, a copy of the Annual Report on Form 10-K for the year ended December 31, 1996 as filed with the Securities and Exchange Commission. -28- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K FOR THE YEAR-ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERECE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 5,237,995 0 0 0 0 5,237,995 58,113,622 13,749,248 52,651,537 591,075 15,434,940 0 0 0 35,065,590 52,651,537 0 13,204,966 0 0 7,324,124 0 2,075,230 7,776,476 0 7,776,476 0 0 0 7,776,476 64.61 64.61
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