-----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, C4bSkBvQqVcYOxU7f6KpnE1y6+Cl6XpHWIkUrOvQAOZsUjXvGw1jUm99h/pNDrGR 2wlEWPQizR1hsmObCPmYXg== 0000950130-97-001553.txt : 19970407 0000950130-97-001553.hdr.sgml : 19970407 ACCESSION NUMBER: 0000950130-97-001553 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970404 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE PROPERTY ASSOCIATES 7 CENTRAL INDEX KEY: 0000789459 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133327950 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15778 FILM NUMBER: 97574741 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION 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 0-15778 --------------------------------------------------------- CORPORATE PROPERTY ASSOCIATES 7, a California limited partnership - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 13-3327950 - -------------------------------------------------------------------------------- (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 deliquent filers pursuant to Item 405 of Regulation S-K ((S) 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. 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 February 3, 1986. The General Partners of Registrant are Seventh 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") and 20.1% owned by the Individual General Partner. 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 5 ("CPA(R):5"), Corporate Property Associates 6 - a California limited partnership ("CPA(R):6"), 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"). Jupiter Food Service, Inc. is a wholly-owned subsidiary of Registrant. Registrant has a management agreement with Carey 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 April 25, 1986 filed pursuant to Rule 424(b), as supplemented by Supplements dated September 2, 1986, December 18, 1986, March 30, 1987, April 27, 1987 and July 14, 1987 under the Securities Act of 1933 and such Prospectus and such Supplements are incorporated herein by reference (said Prospectus, as so supplemented, is hereinafter called the "Prospectus"). Registrant has two industry segments, the investment in and the leasing of industrial and commercial real estate and the operation of a hotel business which was assumed subsequent to a lease termination. As described hereafter, Registrant sold its food service operation in December 1995. By assuming the operation of the hotel business, Management is seeking to preserve the value of the underlying investment while generating a contribution to Registrant's cash flow. See Selected Financial Data in Item 6 and Management's Discussion and Analysis in Item 7 for a summary of Registrant's operations. 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 net proceeds from the public offering, less a working capital reserve, have been fully invested in net leased commercial and industrial real estate (except as described above) since March 31, 1989, the date of Registrant's final real estate acquisition. For the year ended December 31, 1996, revenues from property 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: Advanced System Applications, Inc. ("ASA") 23%, The Gap, Inc., 14%; KSG, Inc. ("KSG") 13% and Sybron Acquisition Company ("Sybron") 13%. No other property owned by Registrant accounted for 10% or more of its total leasing revenue during 1996. Revenues from the industrial and commercial real estate segment represent approximately 55% of total revenues. For the year ended December 31, 1996, revenue for the hotel business segment was $5,710,627 (approximately 45% of total revenues). See Note 9 to the Consolidated Financial Statements in Item 8. Policy Management Systems Corporation ("Policy Management"), a publicly traded company, was at the time it entered into its lease with Registrant known as ASA. Policy Management's audited financial statements for the year ended December 31, 1995 reported revenues of $537,302,000, net income of $3,139,000, total assets and stockholders' equity of $382,672,000. Policy Management's unaudited financial statements for the nine-month period ended September 30, 1996 reported revenues of $417,513,000, net income of $36,438,000, total assets of $548,372,000 and shareholders' equity of $351,318,000. Except for the properties in which Registrant operates a hotel business, a property formerly leased to NVRyan L.P. ("NVRyan") which is vacant and the ASA property, substantially all of 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 the properties operated by Registrant which Management believes to be 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. Three of Registrant's lessees have purchase options which are exercisable as follows: 1997 - KSG, and Swiss M-Tex, L.P. ("M-Tex") and 1998 - Sybron. The purchase options are all exercisable at the higher of (i) the Partnership's purchase cost for the properties and any prepayment charge that Registrant would incur in paying off the mortgage loans on the properties or (ii) the fair market values of the properties as encumbered by their leases. In December 1996, notified Registrant that it was excersing its option. Subject to a determination of fair market value, the sale of the property should be completed by no later than March 6, 1998. The minimum purchase is $4,697,920. Annual cash flow from the KSG property is approximately $820,000. In the event that M-Tex option is exercised, Registrant would expect to receive proceeds, net of the amount necessary to pay off the M-Tex mortgage loan of no less than $1,440,000. Annual cash flow the M-Tex property is approximately $268,000. As Registrant's objective has been to invest in properties which are occupied by a single corporate tenant 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 competitive conditions of local and regional real estate markets. In selecting its real estate investments, Registrant's strategy has been to identify properties which included operations judged to be of material importance to the lessee so that the lessee may be more likely to extend its lease beyond the initial term. Because Registrant may be affected by the financial conditions 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 in addition to achieving geographical diversification. Registrant has not been fully insulated from the competitive conditions of the real estate market due to the termination of its master lease with Yellow Front Stores, Inc. ("Yellow Front") in 1990 and the restructuring of the NVRyan lease in 1993 as discussed below. Since September 1993, two of the four NVRyan properties have been sold and one of the remaining two properties is leased. Four of Registrant's leases are scheduled to expire within the next five years; however, Registrant's other leases generally do not expire until after 2000. The ASA lease will terminate in June 1997. A portion of that property has been leased to the United States Postal Service (the "Postal Service"). The Postal service has the right of first refusal on space as it becomes available. Although there is no assurance that the Postal Service will lease additional space, Registrant has entered into preliminary discussions with the Postal Service regarding the leasing of additional space. Registrant's operation of a hotel is more strongly affected by both increasing competition and economic conditions. The hotel's occupancy rate for 1995 and 1996, was 77% and 75%, respectively. Management believes that the decrease in the occupancy rate is directly attributable to increases in average room rates of approximately 10%. As described above, lessees 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 8. As discussed in Registrant's Management's Discussion and Analysis in Item 7, Registrant's leases generally provide for periodic rent increases which are either stated and negotiated at the inception of the lease or based on formulas indexed to increases in the Consumer Price Index. The initial terms of Registrant's leases are scheduled to expire between 1997 and 2014. Except for leases to tenants of properties formerly leased to Yellow Front and NVRyan and the lease with ASA, no initial term will expire until 2003. Leases generally include renewal terms at the option of the tenant which renewals are 5 or 10 years per renewal term. - 2 - In July 1994, Registrant and CPA(R):8 entered into a lease modification agreement with ASA which consented to ASA's termination of its lease for a portion of the ASA property in Bloomingdale, Illinois in June 1997 instead of June 2003. Registrant and CPA(R):8 own the ASA property as tenants- in-common with 33.64% and 66.36% ownership interests, respectively. Under the modification agreement, annual rent was increased to $5,200,000 (of which the Partnership's share was $1,749,280) from $1,850,000 (of which Registrant's share was $622,340). In consenting to the modification, the mortgage lender required that the mortgage loan payments be substantially increased so that the loan fully amortized on March 1, 1996. Although ASA is obligated to make its lease payments through June 1997, it is in the process of vacating the property. The ASA lease was further modified in 1996. Under the 1996 modification, annual rent was reduced by $833,333 (of which Registrant's share was $280,333) and Registrant released ASA from certain obligations of its lease relating to paying the costs of property, insurance, maintenance and repairs and real estate taxes. In exchange for these concessions, Registrant and CPA(R):8 were assigned the rents from an ASA subtenant and did not have to share one-third of rents on any new tenants through the end of the ASA lease term as would have been required under the initial modification agreement. The ASA subtenant is expected to vacate the property in 1997. In January 1996, Registrant and CPA(R):8 entered into a lease agreement with the Postal Service. The Postal Service lease for a portion of the property in Bloomingdale, Illinois, has a 10-year term which commenced May 1, 1996 with annual rentals of $722,800 (of which Registrant's share will be $243,150), increasing to $822,800 after 5 years. Registrant and CPA(R):8 retain the obligation to provide maintenance and support services to the lessee. The lease provides for rent escalations beginning in 1998 based on increases in certain operating costs incurred by Registrant and CPA(R):8. In addition, the Postal Service will reimburse Registrant and CPA(R):8 for a portion of real estate taxes on the property based on the area it occupies. The lease also provides the Postal Service an option to terminate the lease after 5 years. As more space is vacated by ASA, the Postal Service has a right of first refusal for such space. Registrant and CPA(R):8 funded improvements in 1996 at the ASA property including a tenant improvement allowance of $600,000 (of which Registrant's share was approximately $202,000). The ASA subtenant is expected to vacate the property in 1997. In connection with the purchase of its properties, Registrant required sellers of such properties to perform environmental reviews. Management believes, based on the results of such reviews, that Registrant's properties were in substantial compliance with Federal and state environmental statutes at the time properties were acquired. However, portions of certain properties have been subject to a limited degree of contamination, principally in connection with either leakage from underground storage tanks or surface spills from facility activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Tenants are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations. In addition, 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 environmental matters will not have a material adverse effect on Registrant's financial condition, liquidity or results of operations. 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. Carey Management has substantially the same officers as the Corporate General Partner. In February 1995, Registrant engaged American General Hospitality Corp., a hotel management company, to manage Registrant's hotel operation. - 3 -
Item 2. Properties: --------------------- LEASE TYPE OF OWNERSHIP OBLIGOR TYPE OF PROPERTY LOCATION INTEREST - -------------------- --------------------- ------------------------ ------------------------ NYNEX Office and Service Milton, Vermont Ownership of land Facility and building THE GAP, INC. Distribution Erlanger, Kentucky Ownership of land Center and building SWISS M-TEX, L.P. Manufacturing Travelers Rest Ownership of land Facilities and Liberty, and buildings (1) South Carolina KSG, INC. Manufacturing, Hazelwood, Ownership of land Warehouse and Missouri and building Distribution Facility (2) Hotel Complex Livonia, Ownership of a Michigan 65.5172% interest in land and building (1) AUTOZONE, INC. Retail Stores Pensacola (3), Ownership of land -12 locations Panama City and and buildings, Jacksonville, except as noted Florida; Baton Rouge-2 (3), and Hammond Louisiana; St. Peters-2, Missouri; Shelby, Kannapolis (3), and Morgantown (3), North Carolina; East Ridge (3) and Knoxville (3), Tennessee Various Lease Retail Stores Scottsdale, Casa Ownership of land Obligors including -9 locations Grande, Apache and buildings CSK AUTO, INC. Junction, Glendale (formerly NORTHERN and Mesa, Arizona; AUTOMOTIVE, INC.) Silver City, New Mexico; Denver, Colorado; Colville, Washington WINN DIXIE Retail Store Bay Minette, Ownership of a STORES, INC. Alabama building and a leasehold interest in land
- 4 -
LEASE TYPE OF OWNERSHIP OBLIGOR TYPE OF PROPERTY LOCATION INTEREST - ----------------------- ---------------- ------------------- -------------------- ADVANCED SYSTEM Office Building Bloomingdale, Ownership of a APPLICATIONS, INC. Illinois 33.64% interest in and the UNITED STATES land and building POSTAL SERVICE SYBRON ACQUISITION Office and Romulus, Michigan; Ownership of a COMPANY Manufacturing Dubuque, Iowa; 24.74% interest in Facilities Portsmouth, land and buildings -5 locations New Hampshire; (1) Penfield, New York; Glendora, California NVRYAN L.P. Manufacturing Thurmont, Ownership of a Facilities Maryland and 37.037% interest in -2 locations Farmington, land and buildings New York HOTEL CORPORATION Hotel Complex Topeka, 50% ownership of a OF AMERICA Kansas limited partnership which owns land and building (1) ALLIED PLYWOOD, Manufacturing Manassas, Ownership of a INC. Facility Virginia 37.037% interest in land and buildings (4) Manufacturing Fredricksburg, Ownership of a Facility Virginia 37.037% interest in land and building
(1) These properties are encumbered by mortgage notes payable. (2) The property is operated by Registrant. (3) Ownership of building with ground lease of land. (4) This property is vacant. - 5 - The material terms of Registrant's leases with its significant tenants are summarized in the following table:
Partnership's Share Current Lease Terms of Lease of Current Square Rent Per Expiration Renewal Ownership Purchase Gross Obligor Annual Rents Footage Sq.Ft.(1) (Mo/Year) Terms Interest Option Costs (2) - ------- ------------- -------- ---------- ----------- ------- ------------ ------------ ----------- The Gap, $ 927,568 $362,750 $ 2.56 2/03 YES 100% The $8,809,212 Inc. Greater of fair market value or $8,776,600. KSG, Inc. 1,132,310 (4) 148,100 7.65 3/12 YES 100% The 4,698,024 Greater of fair market value or $4,697,920. Sybron 819,162 705,900 4.69 12/13 YES 24.74% The 6,246,319 Acquisition interest; Greater of Corp. remaining fair market interest value or owned by $6,212,214 Corporate and any Property prepayment Associates premium. (3) 8 ("CPA(R):8") Swiss 526,266 (4) 195,193 2.70 8/07 YES 100% For the 4,673,579 M-Tex, Travelers L.P. Rest property only: The Greater of fair market value or $4,800,000 and any prepayment premium. NVRyan, 270,042 179,741 4.06 3/14 YES 37.037% N/A 1,992,501 L.P. interest; remaining interest owned by CPA(R):8 AutoZone, 393,598 70,425 5.59 10/03-8/12 YES NO N/A 3,798,857 Inc. Advanced System 1,468,947 76,000 7.46 6/97 NO 33.64% N/A 5,714,144 Applications, interest; Inc. remaining interest owned by CPA(R):8 U.S. Postal 243,145 40,000 18.07 4/06 NO N/A (5) Service NYNEX 215,600 30,624 7.04 2/03 YES 100% Fair market value. 2,255,276
(1) Represents rate for rent per square foot when combined with rents applicable to tenants-in-common. (2) Includes original cost of investment and net increases or decreases to net investment subsequent to purchase. (3) Each of the five properties is subject to a separate purchase option. Amount presented represents aggregate for all options. (4) A portion of rent is variable based on changes in debt service requirements on the mortgage loan. (5) Included in gross cost of Advanced System Applications, Inc. property. - 6 - The material terms on the mortgage debt of Registrant's properties are 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 - --------------------------- --------------- --------- ----------- -------- ----------------- ------------------------------- Sybron Acquisition Company 11.25% $ 3,540,646 $467,106 01/01/99 $3,387,000 Loan may be prepaid in full or in part (in multiples of $100,000) with a prepayment premium based on U.S. Treasury yields. Swiss M-Tex, L.P. 9.25 (1) 1,714,176 262,550 09/05/97 1,652,000 Loan may be prepaid without a prepayment premium. (2) 9.03 (1) 4,598,113 527,000 11/15/97 4,923,000 Loan may be prepaid without a prepayment premium.
(1) Variable rate based on London Inter-Bank Offered Rate. (2) Operated as a hotel by Registrant. - 7 - Item 3. Legal Proceedings. ------------------ As of the date hereof, Registrant is not a party to any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- No matter was submitted during the fourth quarter of 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 29 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. Consolidated Financial Statements and Supplementary Data. --------------------------------------------------------- The following financial statements and supplementary data are hereby incorporated by reference to pages 6 to 22 of Registrant's Annual Report contained in Appendix A: (i) Report of Independent Accountants. (ii) Consolidated Balance Sheets as of December 31, 1995 and 1996. (iii) Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996. (iv) Consolidated Statements of Partners' Capital for the years ended December 31, 1994, 1995 and 1996. (v) Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996. (vi) Notes to Consolidated Financial Statements. Item 9. Disagreements on Accounting and Financial Disclosure. ----------------------------------------------------- NONE - 8 - PART III -------- Item 10. Directors and Executive Officers of the Registrant. --------------------------------------------------- Registrant has no directors or officers. 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 2/86 Director Francis J. Carey 71 President 2/86 Director George E. Stoddard 80 Chairman of the Investment Committee 2/86 Director Madelon DeVoe Talley 65 Vice Chairman of the Board 2/86 Director Stephen H. Hamrick 45 Director 2/86 Lawrence R. Klein 76 Chairman of the Economic Policy 2/86 Committee Director Barclay G. Jones III 36 Executive Vice President 2/86 Director Claude Fernandez 44 Executive Vice President 2/86 Chief Administrative Officer H. Augustus Carey 39 Senior Vice President 8/88 Anthony S. Mohl 35 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, - 9 - 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. Stephen H. Hamrick is the former Managing Director of Wall Street Investor Services, where he completed the turnaround and sale of a bank based brokerage business. Previously, he was for six years the Director of Private Investments for PaineWebber Incorporated. From 1975 until joining PaineWebber in 1988, Mr. Hamrick was associated with E.F. Hutton & Company (and the successor firm Shearson Lehman Hutton Inc.), where he held the position of First Vice President and National Director of Private Placements. Mr. Hamrick is a former Chairman of the Securities Industry Association's Direct Investment Committee and a former Chairman of the Investment Program Association. He is a Certified Financial Planner and was graduated with degrees in English and Economics from Duke 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. - 10 - 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, as defined, 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's and the Individual General Partner's share of Distributable Cash From Operations from Registrant during the year ended December 31, 1996 was $174,151 and $34,830, respectively. As owner of 100 Limited Partnership Units, the Corporate General Partner received cash distributions of $7,242 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 expect to receive 5% of Distributable Cash From Operations, the Individual General Partner will expect 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 prior years. 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. - 11 - 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. 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 of Registrant William Polk Carey (1) 110 UNITS .24% Francis J. Carey 10 .02 George E. Stoddard Madelon DeVoe Talley Stephen H. Hamrick Barclay G. Jones, III 4 .01 Lawrence R. Klein Claude Fernandez H. Augustus Carey 20 .05 Anthony S. Mohl John J. Park Michael D. Roberts All executive officers and directors as a group (12 persons) 144 UNITS .32% === ===== ===
(1) As of March 15, 1997, the Corporate General Partner, Seventh Carey Corporate Property, Inc., owned 100 Limited Partnership Units of Registrant. William Polk Carey, the majority shareholder of the Corporate General Partner, 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 Consolidated 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. - 12 - PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on ------------------------------------------------------ Form 8-K -------- (a) 1. Consolidated Financial Statements: ---------------------------------- The following consolidated financial statements are filed as a part of this Report: Report of Independent Accountants. Consolidated Balance Sheets, December 31, 1995 and 1996. Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996. Consolidated Statements of Partners' Capital for the years ended December 31, 1994, 1995 and 1996. Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996. Notes to Consolidated Financial Statements. The financial statements are hereby incorporated by reference to pages 6 to 22 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 23 to 26 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 Consolidated Financial Statements, including the Notes thereto, or because the conditions requiring their filing do not exist. - 13 - (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 Exhibit to Registration of Registrant dated as of April 10, 1986. Statement (Form S-11) No. 33-3213 4.16 Mortgage and Security Agreement dated as of Filed as Exhibit 4.1 August 24, 1987 between Registrant, as to Registrant's Form 8-K Mortgagor, and NCNB, as Mortgagee. dated September 9, 1987 4.17 Term Note dated August 24, 1987 from Filed as Exhibit 4.2 Registrant to NCNB. to Registrant's Form 8-K dated September 9, 1987 4.18 Assignment of Leases and Rents and Consent of Filed as Exhibit 4.3 Lessee dated as of August 24, 1987 between to Registrant's Form 8-K Registrant, as Assignor, and NCNB, as Assignee, dated September 9, 1987 and consented to by Emb-Tex, as Lessee. 4.19 Consent to Assignment and Sublease dated as of Filed as Exhibit 4.4 August 24, 1987 by and among American National to Registrant's Form 8-K Insurance Company, as Landlord, Auto Shack, dated September 9, 1987 as Assignor, and Registrant, as Assignee. 4.20 Agreement and Assignment of Ground Lease dated Filed as Exhibit 4.5 August 28, 1987 by and among Auto Shack, as to Registrant's Form 8-K Assignor, Registrant, as Assignee, and Henry dated September 9, 1987 and Ruby Creswell, as Fee Owners. 4.21 Agreement and Assignment of Ground Lease dated Filed as Exhibit 4.6 August 28, 1987 by and among Auto Shack, as Assignor, to Registrant's Form 8-K Registrant, as Assignee, and Commercial dated September 9, 1987 Investments of Greensboro, Inc., as Fee Owner. 4.22 Agreement and Assignment of Ground Lease dated Filed as Exhibit 4.7 August 28, 1987 by and among Auto Shack, as to Registrant's Form 8-K Assignor, Registrant, as Assignee, and K.W.W. dated September 9, 1987 Associates, as Fee Owner. 4.23 Agreement and Assignment of Ground Lease dated Filed as Exhibit 4.8 August 28, 1987 by and among Auto Shack, as to Registrant's Form 8-K Assignor, Registrant, as Assignee, and Mabel dated September 9, 1987 D. and Jimmy S. Snyder, as Fee Owner. 4.24 Agreement and Assignment of Ground Lease dated Filed as Exhibit 4.9 August 28, 1987 by and among Auto Shack, as to Registrant's Form 8-K Assignor, and Registrant, as Assignee. dated September 9, 1987 4.25 $12,000,000 Promissory Note dated Filed as Exhibit 4.1 November 16, l987 from Registrant and CPA(R):6, to Registrant's Form 8-K as Borrower, to Ford, as Holder. dated February 15, 1988
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Exhibit Method of No. Description Filing - ------- ----------- ------------------------ 4.26 Mortgage and Assignment of Leases and Rents Filed as Exhibit 4.2 and Security Agreement dated November 18, to Registrant's Form 8-K 1987 between Registrant and CPA(R):6, as dated February 15, 1988 Mortgagor, and Ford, as Mortgagee. 4.33 $5,000,000 Secured Promissory Note dated Filed as Exhibit 4.1 February 16, 1988 from Registrant, as to Registrant's Form 8-K Borrower, to Principal Mutual, as Lender. dated March 1, 1988 4.34 Mortgage dated February 16, 1988 between Filed as Exhibit 4.2 Registrant, as Mortgagor, and Principal to Registrant's Form 8-K Mutual, as Mortgagee. dated March 1, 1988 4.35 Loan Modification Agreement dated as of September 29, Filed as Exhibit 4.1 to 1988 among Prudential Insurance Company of America, Registrant's Form 8-K as Lender, American National Bank and Trust Company dated October 13, 1988 of Chicago as Trustee under Trust Agreement dated November 8, 1984 ("American National Trust No. 62782") and American National Bank and Trust Company of Chicago, as Trustee, under Trust Agreement dated September 14, 1984 ("American National Trust No. 62230")(collectively, "Trusts"), Venture ("Beneficiary"), Trusts and Beneficiary, collectively known as Borrower, and Registrant and CPA(R):8, as Purchaser. 4.36 Note Agreement dated December 21, 1988 Filed as Exhibit 4.1 to among New England Mutual Life Insurance Registrant's Form 8-K Company ("New England"), Registrant and CPA(R):8. dated January 5, 1989 4.37 $15,000,000 Secured Note from Registrant Filed as Exhibit 4.2 to and CPA(R):8 to New England dated Registrant's Form 8-K December 22, 1988. dated January 5, 1989 4.38 Deed of Trust and Security Agreement dated December 21, Filed as Exhibit 4.3(A) 1988 between Registrant and CPA(R):8, as trustor, and New to Registrant's Form 8-K England, as beneficiary, covering the California Property. dated January 5, 1989 4.39 Mortgage and Security Agreement dated December 21, 1988 Filed as Exhibit 4.3(B) between Registrant and CPA(R):8, as mortgagor, and New to Registrant's Form 8-K England, as mortgagee, covering the Iowa Property. dated January 5, 1989 4.40 Mortgage and Security Agreement dated December 21, 1988 Filed as Exhibit 4.3(C) between Registrant and CPA(R):8, as mortgagor, and New to Registrant's Form 8-K England, as mortgagee, covering the Michigan Property. dated January 5, 1989 4.41 Mortgage and Security Agreement dated December 21, 1988 Filed as Exhibit 4.3(D) between Registrant and CPA(R):8, as mortgagor, and New to Registrant's Form 8-K England, as mortgagee, covering the New Hampshire Property. dated January 5, 1989 4.42 Mortgage and Security Agreement dated December 21, 1988 Filed as Exhibit 4.3(E) between Registrant and CPA(R):8, as mortgagor, and New to Registrant's Form 8-K England, as mortgagee, covering the New York Property. dated January 5, 1989
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Exhibit Method of No. Description Filing - ---------- ----------- ------------------------ 4.43 Assignment of Leases, Rents and Guaranty dated December Filed as Exhibit 4.4(A) 21, 1988 from Registrant and CPA(R):8, as assignor to New to Registrant's Form 8-K England, as assignee, covering the California Property. dated January 5, 1989 4.44 Assignment of Leases, Rents and Guaranty dated December Filed as Exhibit 4.4(B) 21, 1988 from Registrant and CPA(R):8, as assignor to New to Registrant's Form 8-K England, as assignee, covering the Iowa Property. dated January 5, 1989 4.45 Assignment of Leases, Rents and Guaranty dated December Filed as Exhibit 4.4(C) 21, 1988 from Registrant and CPA(R):8, as assignor to New to Registrant's Form 8-K England, as assignee, covering the Michigan Property. dated January 5, 1989 4.46 Assignment of Leases, Rents and Guaranty dated December Filed as Exhibit 4.4(D) 21, 1988 from Registrant and CPA(R):8, as assignor to New to Registrant's Form 8-K England, as assignee, covering the New Hampshire Property. dated January 5, 1989 4.47 Assignment of Leases, Rents and Guaranty dated December Filed as Exhibit 4.4(E) 21, 1988 from Registrant and CPA(R):8, as assignor to New to Registrant's Form 8-K England, as assignee, covering the New York Property. dated January 5, 1989 10.6 Lease Agreement dated June 17, 1987 between Filed as Exhibit 10.1 Registrant, as Landlord and Winn-Dixie, as to Registrant's Form 8-K Tenant. dated July 1, 1987 10.7 Lease Guaranty dated as of June 17, 1987 by Filed as Exhibit 10.2 Winn-Dixie Stores, as Guarantor, to to Registrant's Form 8-K Registrant, as Lessor. dated July 1, 1987 10.8 Ground Lease dated as of November 27, 1985 Filed as Exhibit 10.3 between Hooper Brothers, an Alabama general to Registrant's Form 8-K partnership, as Landlord, and Winn-Dixie, as Tenant. dated July 1, 1987 10.9 Assignment of Rights Under Ground Lease dated Filed as Exhibit 10.4 June 15, 1987 between Winn-Dixie, as Assignor, to Registrant's Form 8-K and Registrant, as Assignor, and Registrant, as Assignee. dated July 1, 1987 10.10 Lease Agreement dated as of August 24, 1987 Filed as Exhibit 10.1 between Registrant, as Landlord, and Emb-Tex, to Registrant's Form 8-K as Tenant. dated September 9, 1987 10.11 Lease Agreement dated as of August 28, 1987 Filed as Exhibit 10.2 between Registrant, as Landlord, and Auto Shack, to Registrant's Form 8-K as Tenant for the Auto Shack Leasehold Properties. dated September 9, 1987 10.12 Lease Agreement dated as of August 28, 1987 Filed as Exhibit 10.3 between Registrant, as Landlord, and Auto to Registrant's Form 8-K Shack, as Tenant, for Pensacola, Florida property. dated September 9, 1987 10.13 Lease Agreement dated as of August 28, 1987 Filed as Exhibit 10.4 between Registrant, as Landlord, and Auto to Registrant's Form 8-K Shack, as Tenant, for Baton Rouge, Louisiana property. dated September 9, 1987 10.14 Lease Agreement dated as of August 28, 1987 Filed as Exhibit 10.5 between Registrant, as Landlord, and Auto Shack, to Registrant's Form 8-K as Tenant, for Kannapolis, North Carolina property. dated September 9, 1987
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Exhibit Method of No. Description Filing - ------- ----------- ------------------------ 10.15 Lease Agreement dated as of August 28, 1987 Filed as Exhibit 10.6 between Registrant, as Landlord, and Auto Shack, to Registrant's Form 8-K as Tenant, for Morgantown, North Carolina property. dated September 9, 1987 10.16 Lease Agreement dated as of August 28, 1987 Filed as Exhibit 10.7 between Registrant, as Landlord, and Auto to Registrant's Form 8-K Shack, as Tenant, for East Ridge, Tennessee property. dated September 9, 1987 10.17 Lease Agreement dated as of August 28, 1987 Filed as Exhibit 10.8 between Registrant, as Landlord, and Auto to Registrant's Form 8-K Shack, as Tenant, for Knoxville, Tennessee property. dated September 9, 1987 10.18 Lease Agreement dated November 16, 1987 by Filed as Exhibit 10.1 and between Registrant and CPA(R):6, as to Registrant's Form 8-K Landlord, and Brock, as Tenant. dated February 15, 1988 10.19 Lease Agreement dated January 28, 1988 by and Filed as Exhibit 10.2 between Registrant, as Landlord, and Yellow to Registrant's Form 8-K Front, as Tenant. dated February 15, 1988 10.21 Lease Agreement dated January 26, 1988 by and Filed as Exhibit 10.4 between Plotkin, as Lessor, and New England to Registrant's Form 8-K Telephone, as Lessee. dated February 15, 1988 10.22 Lease Assignment dated January 29, 1988 Filed as Exhibit 10.5 between Plotkin, as Assignor, and Registrant, to Registrant's Form 8-K as Assignee. dated February 15, 1988 10.23 Lease Agreement dated February 16, 1988 by Filed as Exhibit 10.1 and between Registrant, Landlord, and to Registrant's Form 8-K The Gap, as Tenant. dated March 1, 1988 10.24 Lease Agreement dated as of September 29, 1988 Filed as Exhibit 10.1 to among Registrant and CPA(R):8, as Landlord, and Registrant's Form 8-K ASA, as Tenant. dated October 13, 1988 10.25 Lease Agreement dated December 21, 1988 Filed as Exhibit 10.1(A) between Registrant and CPA(R):8, as Landlord, to Registrant's Form 8-K and Ormco Corporation, as Tenant. dated January 5, 1989 10.26 Lease Agreement dated December 21, 1988 Filed as Exhibit 10.1(B) between Registrant and CPA(R):8, as Landlord, to Registrant's Form 8-K and Barnstead Thermolyne Corporation, as Tenant. dated January 5, 1989 10.27 Lease Agreement dated December 21, 1988 Filed as Exhibit 10.1(C) between Registrant and CPA(R):8, as Landlord, to Registrant's Form 8-K and Kerr Manufacturing Company, as Tenant. dated January 5, 1989 10.28 Lease Agreement dated December 21, 1988 Filed as Exhibit 10.1(D) between Registrant and CPA(R):8, as Landlord, to Registrant's Form 8-K and Erie Scientific Company, as Tenant. dated January 5, 1989 10.29 Lease Agreement dated December 21, 1988 Filed as Exhibit 10.1(E) between Registrant and CPA(R):8, as Landlord, to Registrant's Form 8-K and Nalge Company, as Tenant. dated January 5, 1989
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Exhibit Method of No. Description Filing - ------- ----------- ------------------------ 10.30 Guaranty and Suretyship Agreement dated Filed as Exhibit 10.2 December 21, 1988 from Sybron Acquisition to Registrant's Form 8-K Company to Registrant and CPA(R):8 dated January 5, 1989 10.31 Co-Tenancy Agreement dated December 21, 1988 Filed as Exhibit 10.3 between Registrant and CPA(R):8 to Registrant's Form 8-K dated January 5, 1989 10.32 Seller/Lessee's Certificate dated Filed as Exhibit 28.1(A) December 21, 1988 from Ormco Corporation to Registrant's Form 8-K Registrant and CPA(R):8 dated January 5, 1989 10.33 Lease Agreement dated as of March 31, 1989 Filed as Exhibit 10.1 by and between Registrant and CPA(R):8, as to Registrant's Form 8-K Landlord, to the Ryan Tenants, as Tenants. dated May 11, 1989 10.34 Guaranty dated March 31, 1989 from NVR, as Filed as Exhibit 10.2 Guarantor, to Registrant and CPA(R):8, as to Registrant's Form 8-K Landlord. dated May 11, 1989 10.35 Guarantor's Certificate dated March 31, 1989 Filed as Exhibit 10.3 from NVR, as Guarantor, to Registrant and to Registrant's Form 8-K CPA(R):8, as Purchaser. dated May 11, 1989 28.1 Supplement dated December 18, 1986 to Exhibit 28.1 to Form 8-K Registrant's Prospectus dated April 25, 1986. dated December 24, 1986 28.15 Bill of Sale dated June 17, 1987 from Filed as Exhibit 28.1 Winn-Dixie to Registrant. to Registrant's Form 8-K dated July 1, 1987 28.16 Seller's Certificate dated June 17, 1987 from Filed as Exhibit 28.2 Winn-Dixie to Registrant to Registrant's Form 8-K dated July 1, 1987 28.17 Bill of Sale dated as of August 24, 1987 from Filed as Exhibit 28.1 E.T.C. to Registrant. to Registrant's Form 8-K dated September 9, 1987 28.18 Deed dated August 24, 1987 from E.T.C., as Filed as Exhibit 28.2 Grantor, to Registrant, as Grantee. to Registrant's Form 8-K dated September 9, 1987 28.19 Deed dated August 24, 1987 from E.T.C., as Filed as Exhibit 28.3 Grantor, to Registrant, as Grantee. to Registrant's Form 8-K dated September 9, 1987 28.20 Seller's Certificate dated August 24, 1987 Filed as Exhibit 28.4 from E.T.C. to Registrant. to Registrant's Form 8-K dated September 9, 1987
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Exhibit Method of No. Description - ---------- ----------- ------------------------ 28.21 Lessee's Certificate dated August 24, 1987 Filed as Exhibit 28.5 from Emb-Tex to Registrant. to Registrant's Form 8-K dated September 9, 1987 28.22 Bill of Sale dated as of August 28, 1987 Filed as Exhibit 28.6 from Auto Shack to Registrant. to Registrant's Form 8-K dated September 9, 1987 28.23 Warranty Deed dated August 28, 1987 between Filed as Exhibit 28.7 Auto Shack to Registrant for Jacksonville, to Registrant's Form 8-K Florida property. dated September 9, 1987 28.24 Warranty Deed dated August 28, 1987 between Filed as Exhibit 28.8 Auto Shack to Registrant for Panama City, to Registrant's Form 8-K Florida property. dated September 9, 1987 28.25 Corporate Deed dated August 28, 1987 between Filed as Exhibit 28.9 Auto Shack and Registrant for Shelby, North to Registrant's Form 8-K Carolina property. dated September 9, 1987 28.26 General Warranty Deed dated August 28, 1987 Filed as Exhibit 28.10 between Auto Shack and Registrant for Centre to Registrant's Form 8-K Point Drive, St. Peters, Missouri property. dated September 9, 1987 28.27 General Warranty Deed dated August 28, 1987 Filed as Exhibit 28.11 between Auto Shack and Registrant for W. to Registrant's Form 8-K Mexico Road, St. Peters, Missouri property. dated September 9, 1987 28.29 Deed dated August 28, 1987 from Auto Shack Filed as Exhibit 28.13 to Registrant for Hammond, Louisiana property. to Registrant's Form 8-K dated September 9, 1987 28.30 Seller's/Lessee's Certificate dated August 28, Filed as Exhibit 28.14 1987 from Auto Shack to Registrant. to Registrant's Form 8-K dated September 9, 1987 28.31 Deed dated November 12, 1987 between Filed as Exhibit 28.1 Northwestern, as Transferor, and Registrant to Registrant's Form 8-K and CPA(R):6, as Transferee. dated February 15, 1988 28.32 Bill of Sale dated November 12, 1987 from Filed as Exhibit 28.2 Northwestern, as Seller, to Registrant, as to Registrant's Form 8-K Purchaser. dated February 15, 1988 28.33 Seller's Certificate dated November 16, 1987 Filed as Exhibit 28.3 from Northwestern, as Seller, to Registrant to Registrant's Form 8-K and CPA(R):6, as Purchaser. dated February 15, 1988 28.34 Lessee's Certificate dated November 16, 1987 Filed as Exhibit 28.4 from Brock, as Lessee, to Registrant, to Registrant's Form 8-K as Lessor. dated February 15, 1988 28.35 Bill of Sale dated January 28 1988 from Filed as Exhibit 28.5 Bonanza Stores, Inc. ("Bonanza Stores"), to Registrant's Form 8-K as Seller, to Registrant, as Purchaser. dated February 15, 1988
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Exhibit Method of No. Description Filing - ------- ----------- ------------------------ 28.36 Bill of Sale dated January 28, 1988 from Filed as Exhibit 28.6 Yellow Front, as Seller, to Registrant, to Registrant's Form 8-K as Purchaser. dated February 15, 1988 28.37 Seller's Certificate dated January 28, 1988 Filed as Exhibit 28.7 from Bonanza, as Seller, to Registrant, to Registrant's Form 8-K as Purchaser. dated February 15, 1988 28.38 Seller's/Lessee's Certificate dated January Filed as Exhibit 28.8 28, 1988 from Yellow Front, as Seller, to to Registrant's Form 8-K Registrant, as Purchaser. dated February 15, 1988 28.39 Deed dated January 29, 1988 from Plotkin, Filed as Exhibit 28.9 as Grantor, to Registrant, as Grantee. to Registrant's Form 8-K dated February 15, 1988 28.40 Deed and Easement dated February 16, 1988 Filed as Exhibit 28.1 from the Gap, as Grantor, to Registrant, to Registrant's Form 8-K as Grantee. dated March 1, 1988 28.41 Bill of Sale dated February 16, 1988 from Filed as Exhibit 28.2 The Gap to Registrant. to Registrant's Form 8-K dated March 1, 1988 28.42 Seller/Lessee's Certificate dated Filed as Exhibit 28.3 February 16, 1988 from the Gap to to Registrant's Form 8-K Registrant. dated March 1, 1988 28.43 Trustee's Deed dated as of September 23, 1988 Filed as Exhibit 28.1 to between American National Trust No. 62782, as Registrant's Form 8-K Grantor, and Registrant and CPA(R):8, as Grantee. dated October 13, 1988 28.44 Trustee's Deed dated as of September 23, 1988 Filed as Exhibit 28.2 to between American National Trust No. 62230, as Registrant's Form 8-K Grantor, and Registrant and CPA(R):8, as Grantee. dated October 13, 1988 28.45 Bill of Sale dated as of September 29, 1988 Filed as Exhibit 28.3 to from Venture, as Seller, to Registrant and Registrant's Form 8-K CPA(R):8, as Purchaser. dated October 13, 1988 28.46 Seller's Certificate dated as of September 29, Filed as Exhibit 28.4 to 1988 from Venture, as Seller, to Registrant Registrant's Form 8-K and CPA(R):8, as Purchaser. dated October 13, 1988 28.47 Lessee's Certificate dated as of September 29, Filed as Exhibit 28.5 to 1988 from ASA, as Seller, to Registrant and Registrant's Form 8-K CPA(R):8, as Purchaser. dated October 13, 1988 28.48 Seller/Lessee's Certificate dated Filed as Exhibit 28.1(B) December 21, 1988 from Barnstead Thermolyne to Registrant's Form 8-K Corporation to Registrant and CPA(R):8. dated January 5, 1989 28.49 Seller/Lessee's Certificate dated Filed as Exhibit 28.1(C) December 21, 1988 from Kerr Manufacturing to Registrant's Form 8-K Corporation to Registrant and CPA(R):8. dated January 5, 1989
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Exhibit Method of No. Description Filing - ------- ----------- ------------------------ 28.50 Seller/Lessee's Certificate dated Filed as Exhibit 28.1(D) December 21, 1988 from Erie Scientific to Registrant's Form 8-K Company to Registrant and CPA(R):8. dated January 5, 1989 28.51 Seller/Lessee's Certificate dated Filed as Exhibit 28.1(E) December 21, 1988 from Nalge Company to Registrant's Form 8-K to Registrant and CPA(R):8. dated January 5, 1989 28.52 Grant Deed dated December 21, 1988 Filed as Exhibit 28.2(A) from Ormco Corporation, as grantor, to Registrant's Form 8-K to Registrant and CPA(R):8, as grantee. dated January 5, 1989 28.53 Warranty Deed dated December 21, 1988 Filed as Exhibit 28.2(B) from Barnstead Thermolyne Corporation, to Registrant's Form 8-K as grantor, to Registrant and CPA(R):8, as grantee. dated January 5, 1989 28.54 Deed dated December 21, 1988 from Kerr Filed as Exhibit 28.2(C) Manufacturing Company, as grantor, to to Registrant's Form 8-K Registrant and CPA(R):8, as grantee. dated January 5, 1989 28.55 Warranty Deed dated December 21, 1988 Filed as Exhibit 28.2(D) from Erie Scientific Company, as grantor, to Registrant's Form 8-K to Registrant and CPA(R):8, as grantee. dated January 5, 1989 28.56 Indenture dated December 21, 1988 from Filed as Exhibit 28.2(E) Nalge Company, as grantor, to Registrant to Registrant's Form 8-K and CPA(R):8, as grantee. dated January 5, 1989 28.57 Bill of Sale dated December 21, 1988 from Filed as Exhibit 28.3(A) Ormco Corporation to Registrant and CPA(R):8. to Registrant's Form 8-K dated January 5, 1989 28.58 Bill of Sale dated December 21, 1988 from Filed as Exhibit 28.3(B) Barnstead Thermolyne Corporation to to Registrant's Form 8-K Registrant and CPA(R):8. dated January 5, 1989 28.59 Bill of Sale dated December 21, 1988 from Filed as Exhibit 28.3(C) Kerr Manufacturing Company to Registrant to Registrant's Form 8-K and CPA(R):8. dated January 5, 1989 28.60 Bill of Sale dated December 21, 1988 from Filed as Exhibit 28.3(D) Erie Scientific Company to Registrant and to Registrant's Form 8-K CPA(R):8. dated January 5, 1989 28.61 Bill of Sale dated December 21, 1988 from Filed as Exhibit 28.3(E) Nalge Company to Registrant and CPA(R):8. to Registrant's Form 8-K dated January 5, 1989 28.63 Deed dated March 31, 1989 from Ryan, as Filed as Exhibit 28.2 Guarantor, to Registrant and CPA(R):8, as to Registrant's Form 8-K Grantee, for the Frederick County, Maryland property. dated May 11, 1989 28.64 Warranty Deed dated March 31, 1989 from Ryan, Filed as Exhibit 28.3 as Guarantor, to Registrant and CPA(R):8, as to Registrant's Form 8-K Grantee, for the Framington, New York property. dated May 11, 1989
- 21 -
Exhibit Method of No. Description Filing - ------- ----------- -------------------------- 28.65 Deed dated March 31, 1989 from Ryan, as Filed as Exhibit 28.4 Guarantor, to Registrant and CPA(R):8, as to Registrant's Form 8-K Grantee, for the Fredericksburg, Virginia property. dated May 11, 1989 28.66 Deed dated March 31, 1989 from NV Ryan L.P., Filed as Exhibit 28.5 as Guarantor, to Registrant and CPA(R):8, as to Registrant's Form 8-K Grantee, for the Manassas, Virginia property. dated May 11, 1989 28.67 Bill of Sale dated March 31, 1989 from Ryan, Filed as Exhibit 28.6 as Seller, to Registrant and CPA(R):8, as to Registrant's Form 8-K Purchaser, for the Plant City, Florida property. dated May 11, 1989 28.68 Bill of Sale dated March 31, 1989 from Ryan, Filed as Exhibit 28.7 as Seller, to Registrant and CPA(R):8, as to Registrant's Form 8-K Purchaser, for the Frederick County, Maryland property. dated May 11, 1989 28.69 Bill of Sale dated March 31, 1989 from Ryan, Filed as Exhibit 28.8 as Seller, to Registrant and CPA(R):8, as to Registrant's Form 8-K Purchaser, for the Fredericksburg, Virginia property. dated May 11, 1989 28.70 Bill of Sale dated March 31, 1989 from NV Homes, Filed as Exhibit 28.9 L.P., as Seller, to Registrant and CPA(R):8, as to Registrant's Form 8-K Purchaser, for the Manassas, Virginia property. dated May 11, 1989 28.71 Seller's Certificate dated March 31, 1989 Filed as Exhibit 28.10 from NVHomes, L.P., as Seller, to to Registrant's Form 8-K Registrant and CPA(R):8, as Purchaser. dated May 11, 1989 28.72 Seller's Certificate dated March 31, 1989 Filed as Exhibit 28.11 from Ryan, as Seller, to Registrant to Registrant's Form 8-K and CPA(R):8, as Purchaser. dated May 11, 1989 28.73 Lessee's Certificate dated March 31, 1989 Filed as Exhibit 28.12 from NVHomes, L.P., as Lessee, to to Registrant's Form 8-K Registrant and CPA(R):8, as Lessor. dated May 11, 1989 28.74 Lessee's Certificate dated March 31, 1989 Filed as Exhibit 28.13 from Ryan, as Lessee, to Registrant to Registrant's Form 8-K and CPA(R):8, as Lessor. dated May 11, 1989 28.75 Lessee's Certificate dated March 31, 1989 Filed as Exhibit 28.14 from Ryan Operations, G.P., as Lessee, to Registrant's Form 8-K to Registrant and CPA(R):8, as Lessor. dated May 11, 1989 28.76 Co-Tenancy Agreement dated March 31, 1989 Filed as Exhibit 28.15 Between Registrant and CPA(R):8, as to Registrant's Form 8-K tenants in common. dated May 11, 1989 28.77 Prospectus of Registrant Filed as Exhibit 28.77 dated April 25, 1986. to Registrant's Form 10-KA dated September 24, 1994 28.78 Supplement dated September 2, 1986 Filed as Exhibit 28.78 to Prospectus dated April 25, 1986. to Registrant's Form 10-KA dated September 24, 1994
- 22 -
Exhibit Method of No. Description Filing - ------- ----------- -------------------------- 28.79 Supplement dated December 18, 1986 Filed as Exhibit 28.79 to Prospectus dated April 25, 1986. to Registrant's Form 10-KA dated September 24, 1994 28.80 Supplement dated March 30, 1987 Filed as Exhibit 28.80 to Prospectus dated April 25, 1986. to Registrant's Form 10-KA dated September 24, 1994 28.81 Supplement dated April 27, 1987 Filed as Exhibit 28.81 to Prospectus dated April 25, 1986. to Registrant's Form 10-KA dated September 24, 1994 28.82 Supplement dated July 14, 1987 Filed as Exhibit 28.82 to Prospectus dated April 25, 1986. to Registrant's Form 10-KA
dated September 24, 1994 (b) Reports on Form 8-K ------------------- During the quarter ended December 31, 1996, Registrant was not required to file any reports on Form 8-K. - 23 - 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 7 - a California limited partnership and SUBSIDIARIES BY: SEVENTH CAREY CORPORATE PROPERTY, INC. 4/3/97 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: SEVENTH 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 George E. Stoddard Committee and Director Attorney in fact April 3, 1997 Dr. Lawrence R. Klein Chairman of the Economic Policy Committee and Director Madelon DeVoe Talley Vice Chairman of the Board of Directors and Director 4/3/97 BY: /s/ Claude Fernandez -------------- --------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Financial Officer) 4/3/97 BY: /s/ Michael D. Roberts -------------- ----------------------- Date Michael D. Roberts First Vice President and Controller (Principal Accounting Officer) - 24 - APPENDIX A TO FORM 10-K CORPORATE PROPERTY ASSOCIATES 7 - A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES 1996 ANNUAL REPORT SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- (In thousands except per unit amounts)
1992 1993 1994 1995 1996 ------- -------- ---------- ------- ------- OPERATING DATA: Revenues $10,123 $12,243 $13,840 $12,196 $12,731 Income (loss) from 1,885 (836) 12,049 3,956 4,399 continuing operations (1) Income (loss) from continuing operations (1): To General Partners 113 244 431 187 260 To Limited Partners 1,772 (1,080) 11,618 3,769 4,139 Per unit 39.13 (23.85) 256.62 83.31 91.55 Distributions attributable (2): To General Partners 191 178 279 206 210 To Limited Partners 2,997 2,784 10,084(3) 3,229 3,289 Per unit 60.62 61.49 222.74 71.38 72.74 Payment of mortgage principal (4) 560 740 739 1,567 614 BALANCE SHEET DATA: Total assets 77,074 73,240 66,865 56,229 55,432 Long-term obligations (5) 26,643 37,770 21,613 19,829 13,075
(1) 1993 loss includes a 3,303,000 writedown to net realizable value. 1994 income includes gains of $8,497,000. (2) 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. (3) Includes a special distribution of $150 per Limited Partnership Unit paid in January 1995. (4) Represents scheduled principal amortization paid. (5) Represents mortgage and note obligations due after more than one year. - 1 - MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- Results of Operations --------------------- Net income for the year ended December 31, 1996 decreased by $1,127,000 as compared with the prior year. The results for 1995 include an extraordinary gain on the extinguishment of debt of $1,324,000, earnings from the discontinued operations of $247,000 and a gain on the sale of a property in Jupiter, Florida of $1,019,000. Income before gains, which excludes the effect of these items, reflects an increase of $1,388,000 for the year ended December 31, 1996. The increase in income before gains was due to decreases in interest, depreciation, general and administrative expenses as well as an increase in hotel operating income. This was partially offset by an increase in property expenses. The decrease in interest expense was due to the satisfaction of the mortgage debt on the Advanced Systems Applications, Inc. ("ASA") property, which fully amortized in March 1996, as well as the satisfaction of the loan on the Jupiter, Florida property in December 1995 in connection with the sale of the property. The decrease in depreciation was due to a decrease in depreciable assets primarily as a result of the Jupiter property sale. General and administrative expense decreased due to a reduction in partnership level state franchise taxes. The increase in property expenses was due to the Partnership's assuming the contractual responsibility for the operating costs including insurance, maintenance and real estate taxes at the ASA property, as described below, as required by a modification to the ASA lease in 1996 and the new lease with the United States Postal Service (the "Postal Service") for a portion of the ASA property which commenced in May 1996. Lease revenues for the comparable years were stable. The 13% increase in hotel operating earnings resulted from a 6% increase in revenues with only a 3% increase in expenses. The increase in revenues was due to increases of 10% in overall average room rates with increases sustained in each room rate category. The ability to raise rates was due to the favorable economic and business conditions in the Detroit metropolitan area. The increases in rates contributed to a 2% decrease in the occupancy rate. Income for 1996 included the benefit of receiving a distribution of $144,000 from the bankruptcy claim against the former lessee of the hotel property in Livonia, Michigan. There may be additional distributions received on the Partnership's claim against the former lessee; however, the Partnership generally recognizes income from any settlement as distributions are received. There can be no assurance that the Partnership will receive additional amounts under its claim. Net income for the year ended December 31, 1995 reflected a decrease of $6,468,000 from the prior year due to a number of nonrecurring items which are classified as other income in 1994 in the accompanying Consolidated Financial Statements, gains and losses from asset sales and extraordinary gains on the extinguishment of mortgage debt in both years. In addition, the Partnership discontinued operating its food service business segment in December 1995. The gains on the sale of the Mid-Continent Bottlers, Inc. ("Mid- Continent") properties and of limited partnership units of a Mid-Continent affiliate contributed $8,497,000 to 1994 net income, representing 71% of 1994 earnings. After adjusting for the effects of gains and losses, other income, discontinued operations and property writedowns, income would have reflected an increase of $317,000 in 1995. The Partnership realized this increase even though its asset base was reduced after using a portion of the proceeds from the Mid-Continent sales to pay a special distribution of $150 per Limited Partnership Unit ($10,083,000). Results were favorably affected by the aforementioned sale of the Jupiter property and the extraordinary gain on the satisfaction of the Jupiter property mortgage loan. - 2 - The increase in income in 1995, as adjusted, was primarily due to decreases in both interest and depreciation expense and improved earnings from the hotel operation. This was partially offset by decreases in lease revenues and other interest income and an increase in general and administrative expense. Of the $1,082,000 decrease in interest expense, $850,000 was due to the prepayment of mortgages in December 1994 on properties which are still subject to leases. The remaining decrease was attributable to the payoff of the Mid- Continent mortgage in connection with the sale of the properties and the decline in interest expense on the ASA mortgage loan which, as noted, fully amortized in March 1996. Lease revenues decreased by $818,000. This decrease was due to the 1994 disposition of the Mid-Continent properties which contributed $1,287,000 of lease revenues in 1994. This was partially offset by an increase of $434,000 in ASA lease revenues as the result of a lease modification. The decrease in other interest income occurred because the Partnership held substantially higher cash balances between October 1994, when it sold the Mid-Continent properties, and December 1994, when a portion of that cash was used to retire mortgage debt. General and administrative expenses increased due to an increase in partnership level state franchise tax paid. Earnings for the hotel in Livonia, Michigan increased by 8% in 1995 as the result of a 2% increase in occupancy rates to 77% and an 8% increase in the average room rate. As noted, the ability to raise rates has been favorably affected by economic conditions in the Detroit metropolitan area. As more fully described in Note 14 to the Consolidated Financial Statements, the Partnership entered into a lease modification agreement with ASA in 1994 which was structured so that the Partnership would receive above-market rate rents for a three-year period in exchange for consenting to the acceleration of the expiration of the lease term. The Partnership's share of ASA's annual rent increased from $622,000 to $1,749,000 in exchange for releasing ASA from its lease obligations in June 1997 instead of June 2003. The modification required the consent of the mortgage lender on the ASA property, the Partnership was required to accelerate principal payments on the mortgage loan in order to fully amortize the loan in March 1996. Annual debt service increased by $1,078,000 during this period. The lease was further amended in 1996 and provided that the Partnership's share of ASA annual rent be decreased by $280,000 and that the Partnership pay the costs of maintenance, insurance and real estate taxes. In exchange, the Partnership received all rents from an ASA subtenant and did not have to relinquish one-third of the rents from the Postal Service lease, which would have been required under the 1994 agreement. Operating results and cash flow from operations for 1996 reflect the full benefit of the ASA agreement. The benefit to operating results and cash flow for 1994 and 1995 was not as significant as in 1996 as the Partnership was also required to pay its share of the annual debt service of $1,346,000 on the ASA loan while debt service was eliminated after the first quarter of 1996. Accordingly, rental revenues and cash flow will decrease as any new leases are not expected to sustain the level reached on the ASA lease. Prior to the ASA modifications, the Partnership's annual cash flow (rents, net of mortgage debt service from the ASA property) was $354,000. The Partnership is currently receiving annual rent of $243,000 from the Postal Service lease before operating costs. The Partnership has entered into preliminary discussions with the Postal Service regarding occupying additional space when ASA fully vacates the property; however, there is no assurance that the Postal Service will lease additional space. To the extent that either the Postal Service or other new lessees occupy available space at the ASA property, the Partnership will probably be required to fund additional improvements. It is expected that the ASA subtenant will vacate the facility at the end of the ASA lease term in June 1997. Cash flow should also benefit from rent increases scheduled on leases with Swiss M-Tex L.P. ("M-Tex") and KSG, Inc. ("KSG") in 1997, on leases with the Gap, Inc. (the "Gap") and NYNEX Corporation ("NYNEX") in 1998 and on the leases with Sybron Acquisition Company ("Sybron") and NVRyan L.P. in 1999. Interest expense will benefit from paying the balloon payment on the $1,000,000 mortgage loan on the Winn-Dixie Stores, Inc. property in September 1996. Interest expense may be affected by the outcome of the Partnership's ability to satisfy the two balloon payments which are due in 1997. The Partnership's $9,607,000 note payable is a variable rate obligation and interest will vary based on the short-term interest rate environment. The short-term interest rate has remained stable over the past several years with a slight decrease in debt service on the note in 1996. - 3 - Because of the long-term nature of the Partnership's net leases, inflation and changing prices have not unfavorably affected the Partnership's leasing revenues and net income. The Partnership's net leases generally provide for rent increases indexed to increases in the Consumer Price Index ("CPI") and may include caps on such CPI increases or other periodic mandated increases which should increase leasing revenues in the future. Future rent increases may be affected by changes in the method of calculating 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 any proposed changes relating to the CPI formula. As the rate of inflation has been moderate in recent years, Management believes that hotel operations may not be significantly impacted by changing prices. In addition, Management believes that reasonable increases in costs may be partially or entirely offset by increases in room rates. As noted, based on the conditions in its local markets, the Partnership has increased room rates by amounts in excess of increases in costs. Financial Condition ------------------- Except for the hotel property and the ASA property, substantially all of the Partnership's properties are leased to corporate tenants under long-term net leases which generally require tenants to pay all operating expenses relating to the leased properties. The Partnership depends on cash flow from its leases and hotel operations to meet operating expenses, service its debt, fund distributions and maintain adequate cash reserves. In addition, the Partnership maintains cash reserves to fund major outlays such as capital improvements 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 at December 31, 1996 of $5,592,000 increased by $624,000 during the year. In 1996, the Partnership's cash flows provided from operating activities was $5,499,000 and was sufficient to pay quarterly distributions to partners of $3,483,000 and $614,000 of scheduled principal payment installments on the Partnership's mortgage debt. As noted, with the termination of the ASA lease in 1997, cash flow from operating activities is expected to decrease in 1997. The Partnership's investing activities consisted of selling a property leased to AutoZone, Inc. ("AutoZone"), selling a property in Monte Vista, Colorado, funding $205,000 of improvements at the ASA property in connection with the requirements under the new lease with the Postal Service and funding $219,000 at the hotel for replacing furniture, fixtures and equipment in the ordinary course of business and which are necessary for the hotel to remain competitive. Included in other assets in the accompanying Consolidated Financial Statements is a furniture, fixture and equipment reserve account of $320,000 which is partially available to fund any necessary improvements or replacements of furniture, fixtures and equipment. The reserve account is funded by an allocation of 3% of hotel revenues. The Partnership does not anticipate utilizing any funds in excess of amounts set aside in the reserve account to fund improvements or replacements within the next 12 months. As of December 31, 1996, the hotel operation has met the requirements of the Holiday Inn core modernization plan and no additional improvements are expected for the purpose of complying with the plan. The Partnership should be able to fund any improvements relating to new lessees at the ASA property from its cash reserves. The Partnership's financing activities consist primarily of utilizing the cash flow from operations to pay distributions and meet scheduled principal payment obligations. Additionally, the Partnership used $1,000,000 to pay a scheduled balloon payment on the mortgage loan collateralized by the property leased to Winn-Dixie Stores, Inc. ("Winn-Dixie"). Based on current cash flow and cash balances, the Partnership expects to sustain the rate of distributions paid to its partners. This may be affected by the Partnership's ability to remarket space at the ASA property after the ASA lease ends. The Partnership has significant unused borrowing capacity as it paid off a number of mortgage loans over the past several years and has several unleveraged properties subject to long-term leases including properties leased to the Gap, NYNEX, AutoZone and Winn-Dixie. - 4 - The Partnership's three remaining mortgage loans are scheduled to mature with balloon payments over the next two years. All three loans are limited recourse obligations. The Livonia hotel and M-Tex mortgage loans have balloon payments which total approximately $6,500,000 which are due in 1997. A balloon payment on the Sybron mortgage loan is due in 1998. As the M-Tex and Sybron properties remain subject to long-term leases and the hotel generates strong operating cash flow, the Partnership believes that its prospects for refinancing the loans are good. In the case of limited recourse mortgage financing which does not fully amortize over its term, the Partnership would be responsible for the balloon payment required, but only to the extent of its interest in the encumbered property since the holder of each such obligation has recourse only to the property collateralizing the debt. The balloon payments could be funded from several alternative sources including, but not limited to, new mortgage financing, seeking an extension of the loan with the existing lender or negotiating to increase its unsecured debt. The Partnership's note payable matures in 1999 and is recourse to the Partnership's assets. The Partnership is in compliance with the loan's financial covenants as of December 31, 1996. Four of the Partnership's lessees have purchase options over the next several years: KSG and M-Tex's options are exercisable in 1997, Sybron in 1998 and the Gap in 1999. The purchase options are all exercisable at the greater of (i) the Partnership's purchase cost for the properties and any prepayment charge that the Partnership would incur in paying off an existing mortgage loan on the properties or (ii) the fair market value of the properties as encumbered by their leases. In December 1996, KSG notified the Partnership that it was exercising its purchase option. Subject to determination of fair market value, the sale of the KSG property should be completed by no later than March 6, 1998 at a purchase price of at least $4,698,000. Annual cash flow from the KSG property is approximately $820,000. In the event that the M-Tex option is exercised, the Partnership would expect to receive proceeds, net of the amount necessary to pay off the M-Tex mortgage loan, of at least $1,440,000. Annual cash flow from the M-Tex properties is approximately $268,000. The Sybron and Gap properties provide annual cash flow of $352,000 and $927,000, respectively. Sybron is the guarantor of leases of five wholly-owned subsidiaries with each lessee having its own purchase option. It is possible that some but not all of the Sybron purchase options will be exercised. In connection with the purchase of its properties, the Partnership required sellers of such properties to perform environmental reviews. Management believes, based on the results of such reviews, that the Partnership's properties were in substantial compliance with Federal and state environmental statutes at the time properties were acquired. However, portions of certain properties have been subject to a limited degree of contamination, principally in connection with either leakage from underground storage tanks or surface spills from facility activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Tenants are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations. In addition, the Partnership's net leases generally require tenants to indemnify the Partnership from all liabilities and losses related to the leased properties. Accordingly, Management believes that the ultimate resolution of environmental matters will not have a material adverse effect on the Partnership's financial condition or liquidity. The Partnership is continuing to investigate ways to provide liquidity for limited partners on a tax-effective basis. - 5 - REPORT of INDEPENDENT ACCOUNTANTS To the Partners of Corporate Property Associates 7 - a California limited partnership and Subsidiaries: We have audited the accompanying consolidated balance sheets of Corporate Property Associates 7 - a California limited partnership and Subsidiaries as of December 31, 1995 and 1996, and the related consolidated 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 23 to 25 of this Form 10-K. 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 consolidated financial position of Corporate Property Associates 7 - a California limited partnership and Subsidiaries as of December 31, 1995 and 1996, and the consolidated results of their operations and their 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 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1996
1995 1996 ----------- ----------- ASSETS: Real estate leased to others: Accounted for under the operating method: Land $ 6,552,033 $ 6,552,033 Buildings 25,296,740 25,501,944 ----------- ----------- 31,848,773 32,053,977 Accumulated depreciation 6,185,070 7,031,430 ----------- ----------- 25,663,703 25,022,547 Net investment in direct financing leases 15,542,368 15,542,368 ----------- ----------- Real estate leased to others 41,206,071 40,564,915 Operating real estate, net of accumulated depreciation of $3,762,695 in 1995 and $4,070,423 in 1996 8,343,020 8,254,274 Real estate held for sale 543,138 Cash and cash equivalents 4,968,410 5,591,985 Other assets, net of accumulated amortization of $148,276 in 1995 and $185,402 in 1996 1,167,905 1,020,950 ----------- ----------- Total assets $56,228,544 $55,432,124 =========== =========== LIABILITIES: Mortgage notes payable $11,928,751 $10,314,828 Note payable 9,606,837 9,606,837 Accrued interest payable 345,418 324,737 Accounts payable and accrued expenses 708,394 676,737 Accounts payable to affiliates 102,020 113,485 Prepaid and deferred income 428,827 371,116 ----------- ----------- Total liabilities 23,120,247 21,407,740 ----------- ----------- Commitments and contingencies PARTNERS' CAPITAL: General Partners 110,512 161,740 Limited Partners (45,209 Limited Partnership Units issued and outstanding in 1995 and 1996) 32,997,785 33,862,644 ----------- ----------- Total partners' capital 33,108,297 34,024,384 ----------- ----------- Total liabilities and partners' capital $56,228,544 $55,432,124 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. - 7 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES CONSOLIDATED STATEMENTS of INCOME For the years ended December 31, 1994, 1995 and 1996
1994 1995 1996 ----------- ----------- ----------- Revenues: Rental income $ 3,862,385 $ 4,298,952 $ 4,351,678 Interest income from direct financing leases 3,537,977 2,283,445 2,258,757 Other interest income 346,970 203,166 266,400 Other income 1,271,691 143,866 Revenues of hotel operations 4,821,029 5,410,689 5,710,627 ----------- ----------- ----------- 13,840,052 12,196,252 12,731,328 ----------- ----------- ----------- Expenses: Interest 3,537,640 2,456,129 1,942,737 Depreciation 1,619,726 1,361,952 1,154,088 General and administrative 412,173 600,271 439,399 Property expenses 317,277 299,608 550,201 Amortization 78,528 70,067 62,500 Writedown to net realizable value 641,731 319,685 Operating expenses of hotel operations 3,528,257 4,016,639 4,129,149 ----------- ----------- ----------- 10,135,332 9,124,351 8,278,074 ----------- ----------- ----------- Income before loss from equity investment, gains on sale, discontinued operations and extraordinary item 3,704,720 3,071,901 4,453,254 Loss from equity investment 152,617 135,621 128,879 ----------- ----------- ----------- Income before gains on sale, discontinued operations and extraordinary item 3,552,103 2,936,280 4,324,375 Gains on sale of real estate, net 7,814,474 1,019,362 74,729 Gains on sale of securities 682,500 ----------- ----------- ----------- Income from continuing operations 12,049,077 3,955,642 4,399,104 Earnings from discontinued operations 456,272 246,847 ----------- ----------- ----------- Income before extraordinary items 12,505,349 4,202,489 4,399,104
(Continued) -8 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES CONSOLIDATED STATEMENTS of INCOME, Continued For the years ended December 31, 1994, 1995 and 1996
1994 1995 1996 ---- ---- ---- Extraordinary gain (loss) on extinguishment of debt (511,503) 1,323,858 ------------ ----------- ----------- Net income $11,993,846 $ 5,526,347 $ 4,399,104 =========== =========== =========== Net income allocated to: Individual General Partner $ 140,990 $ 55,263 $ 43,991 =========== ========== =========== Corporate General Partner $ 286,822 $ 225,350 $ 216,218 =========== ========== =========== Limited Partners $11,566,034 $5,245,734 $4,138,895 =========== ========== =========== Net income per Unit: (45,274 Limited Partnership Units in 1994, 45,242 weighted average Limited Partnership Units in 1995 and 45,209 Limited Partnership Units in 1996): Income from continuing operations $ 256.62 $ 83.31 $ 91.55 Discontinued operations 9.47 5.13 Extraordinary items (10.62) 27.51 ------------ ----------- ----------- $ 255.47 $ 115.95 $ 91.55 =========== ========== ===========
The accompanying notes are an integral part of the consolidated financial statements. - 9 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES CONSOLIDATED STATEMENTS of PARTNERS' CAPITAL For the years ended December 31, 1994, 1995 and 1996
Partners' Capital Accounts ---------------------------------------------- Limited Partners' General Limited Amount Per Total Partners Partners Unit (a) ----- -------- -------- ---------- Balance, December 31, 1993 $ 29,311,433 $(119,976) $ 29,431,409 $ 651 Distributions (3,246,729) (194,804) (3,051,925) (67) Net income, 1994 11,993,846 427,812 11,566,034 255 ------------ --------- ------------ ----- Balance, December 31, 1994 38,058,550 113,032 37,945,518 839 Distributions (10,434,626) (283,133) (10,151,493) (224) Purchase of Limited Partner Units (41,974) (41,974) (1) Net income, 1995 5,526,347 280,613 5,245,734 116 ------------ --------- ------------ ----- Balance, December 31, 1995 33,108,297 110,512 32,997,785 730 Distributions (3,483,017) (208,981) (3,274,036) (73) Net income, 1996 4,399,104 260,209 4,138,895 92 ------------ --------- ------------ ----- Balance, December 31, 1996 $ 34,024,384 $ 161,740 $ 33,862,644 $ 749 ============ ========= ============ =====
(a) Based on weighted average Units issued and outstanding during the periods. The accompanying notes are an integral part of the consolidated financial statements. - 10 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES CONSOLIDATED STATEMENTS of CASH FLOWS For the years ended December 31, 1994, 1995 and 1996
1994 1995 1996 ------------- ------------- ------------ Cash flows from operating activities: Net income $ 11,993,846 $ 5,526,347 $ 4,399,104 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,698,254 1,432,019 1,216,588 Extraordinary (gain) loss on extinguishment of debt 511,503 (1,323,858) Net gains on sales (8,496,974) (1,019,361) (74,729) Noncash consideration received in connection with settlements (346,105) Cash receipts on operating leases greater than income recognized 40,807 170,647 170,647 Writedown to net realizable value 641,731 319,685 Amortization of deferred income (60,930) (21,514) (21,514) Loss from equity investment 152,617 135,621 128,879 Deferred rental income recognized in connection with disposition of properties (811,101) Restructuring fees collected 722,222 Net change in operating assets and liabilities, net of disposition of food service assets (698,639) (129,810) (319,902) ------------ ------------ ----------- Net cash provided by operating activities 5,347,231 5,089,776 5,499,073 ------------ ------------ ----------- Cash flows from investing activities: Additional capitalized costs (164,292) (180,758) (424,186) Proceeds from sales 19,257,324 4,148,903 617,867 Distributions received from equity investment 38,281 31,457 27,761 ------------ ------------ ----------- Net cash provided by investing activities 19,131,313 3,999,602 221,442 ------------ ------------ ----------- Cash flows from financing activities: Distributions to partners (3,246,729) (10,434,626) (3,483,017) Payments of mortgage principal (739,391) (1,567,369) (613,923) Prepayments of mortgage payable (12,763,584) (2,602,884) (1,000,000) Purchase of Limited Partnership Units (41,974) Deferred financing costs, net of reimbursement 6,292 Payments in connection with extinguishment of debt (469,550) ------------ ------------ ----------- Net cash used in financing activities (17,212,962) (14,646,853) (5,096,940) ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalents 7,265,582 (5,557,475) 623,575 Cash and cash equivalents, beginning of year 3,260,303 10,525,885 4,968,410 ------------ ------------ ----------- Cash and cash equivalents, end of year $ 10,525,885 $ 4,968,410 $ 5,591,985 ============ ============ ===========
The 1995 extraordinary gain on extinguishment of debt of $1,323,858 was comprised of $1,215,566 forgiveness of principal and $108,292 of accrual interest thereon. The accompanying notes are an integral part of the consolidated financial statements. - 11 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies: ------------------------------------------- Basis of Consolidation: ----------------------- The consolidated financial statements include the accounts of Corporate Property Associates 7, a wholly-owned subsidiary, which was dissolved in December 1995, and a 99% owned subsidiary (collectively, the "Partnership"). Use of Estimates: ----------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Leased to Others: ----------------------------- Real estate is leased to others on a net lease basis, whereby the tenant is generally responsible for all operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, renewals and improvements. The Partnership diversifies its real estate investments among various corporate tenants engaged in different industries and by property type throughout the United States. The leases are accounted for under either the direct financing or operating methods. Such methods are described below: Direct financing method - Leases accounted for under the direct ----------------------- financing method are recorded at their net investment (Note 5). Unearned income is deferred and amortized to income over the lease terms so as to produce a constant periodic rate of return on the Partnership's net investment in the lease. Operating method - Real estate is recorded at cost, revenue is ---------------- recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. 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 net realizable value. Continued - 12 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued Depreciation: ------------- Depreciation is being computed using the straight-line method over the estimated useful lives of the 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: ------------- Included in other assets are deferred rental income, deferred charges and an investment in a limited partnership. Deferred rental income is the aggregate difference for operating method leases between scheduled rents which vary during the lease term and income recognized on a straight- line basis. Deferred charges are primarily costs incurred in connection with mortgage note financings and refinancings and are deferred and amortized on a straight-line basis over the terms of the mortgages. The Partnership's 50% interest in a limited partnership is accounted for under the equity method, i.e. at cost, increased or decreased by the Partnership's share of earnings or losses, less distributions. Deferred Rental Income: ----------------------- Deferred rental income recognized in connection with consideration received in entering into lease modifications is being amortized on a straight-line basis from the date of the amendments through the end of the initial terms of the leases or date of sale, if sooner. 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. 2. Partnership Agreement: ---------------------- The Partnership was organized on February 3, 1986 under the Revised 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 100 Limited Partnership Units in connection with the Partnership's public offering. The Partnership will terminate on December 31, 2010, 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, Seventh Carey Corporate Property, Inc.) and the Limited Partners are allocated 94% of the profits and losses as well as distributions of Distributable Cash From Operations, as defined, except as described below. Continued - 13 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued The General Partners may be entitled to receive a subordinated preferred return, measured based upon the cumulative proceeds arising from the sale of Partnership assets. Pursuant to the subordination provisions of the Agreement, the preferred return may be paid only after the limited partners receive 100% of their initial investment from the proceeds of asset sales and a cumulative annual return of 8% since the inception of the Partnership. The General Partners interest in such preferred return amounts to $805,015 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 were allocated a portion of the 1993 and 1994 gains on sale as well as a portion of the related tax gains in order to eliminate their negative balances. The Partnership paid a special distribution of $6,859,697 in 1995 related to the sales which was allocated 1% to the Individual General Partner and 99% to the Limited Partners in accordance with the Agreement. 3. Transactions with Related Parties: ---------------------------------- Under the Agreement, W.P. Carey & Co., Inc. ("W.P. Carey") and other affiliates are also entitled to receive property management and leasing fees and reimbursement of certain expenses incurred in connection with the Partnership's operations. General and administrative expense reimbursements consist primarily of the actual cost of personnel needed in providing administrative services necessary for the operation of the Partnership. Property management and leasing fees and general and administrative expense reimbursements incurred are summarized as follows:
1994 1995 1996 -------- -------- -------- Property management and leasing fees $135,794 $102,753 $101,181 General and administrative expense reimbursements 113,171 123,492 110,024 -------- -------- -------- $248,965 $226,245 $211,205 ======== ======== ========
During 1994, 1995 and 1996, fees aggregating $23,426, $67,230 and $66,717 respectively, were incurred for legal services performed by a firm in which the Secretary of the Corporate General Partner and other affiliates is a partner. The Partnership is a participant in an agreement with W.P. Carey and 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 $51,874, $90,569 and $73,823, respectively. The increase in 1995 was due, in part, to certain nonrecurring costs incurred in connection with the relocation of the Partnership's offices. The Partnership's ownership interests in certain properties are jointly held with affiliated entities as tenants-in-common or limited partners with the Partnership's interests in such jointly held properties ranging from 24.74% to 65.5172%. The Partnership accounts for its assets and liabilities relating to tenants-in-common interests on a proportional basis. Continued - 14 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued 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 $3,606,000 in 1997, $2,726,000 in 1998, $2,705,000 in 1999, $2,576,000 in 2000, $2,339,000 in 2001 and aggregate approximately $20,425,000 through 2013. Contingent rents were approximately $139,000, $138,000 and $106,000 in 1994, 1995 and 1996, respectively. B. Operating Real Estate: ---------------------- Operating real estate, at cost, is summarized as follows:
December 31, ------------------------ 1995 1996 ----------- ----------- Land $ 2,050,688 $ 2,050,688 Building 8,250,352 8,651,587 Personal property 1,804,675 1,622,422 ----------- ----------- 12,105,715 12,324,697 Less, Accumulated depreciation 3,762,695 4,070,423 ----------- ----------- $ 8,343,020 $ 8,254,274 =========== ===========
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 $31,518,276 $29,710,372 Unguaranteed residual value 15,542,368 15,542,368 ----------- ----------- 47,060,644 45,252,740 Less, Unearned income 31,518,276 29,710,372 ----------- ----------- $15,542,368 $15,542,368 =========== ===========
Scheduled future minimum rents, exclusive of renewals, under noncancellable direct financing leases amount to approximately $1,890,000 in each of the years 1997 to 2001 and aggregate approximately $29,710,000 through 2014. Contingent rents were approximately $490,000, $322,000 and $344,000 in 1994, 1995 and 1996, respectively. Future minimum ground lease commitments for certain properties occupied by AutoZone, Inc. ("AutoZone") aggregate $843,000 through 2005. Continued - 15 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued 6. Mortgage Notes Payable and Note Payable: ---------------------------------------- A. Mortgage Notes Payable: ----------------------- Mortgage notes payable, all of which are nonrecourse to the Partnership and the partners, are collateralized by real property with a carrying amount of approximately $23,244,595, before accumulated depreciation and the assignment of various leases. As of December 31, 1996, mortgage notes payable bear interest at rates varying from 9.03% to 11.25% per annum and mature in 1997 and 1998. Scheduled principal payments, including balloon payments, are as follows:
Year Ending December 31, ------------------------ 1997 $ 6,846,625 1998 3,468,203 ----------- Total $10,314,828 ===========
B. Note Payable: ------------- The $9,606,837 note payable is a recourse obligation of the Partnership and provides for quarterly payments of interest at a floating rate equal to the London Inter-Bank Offered Rate ("LIBOR") plus 4.25% per annum (9.81% at December 31, 1996). The note payable matures in July 1999, at which time a balloon payment for the entire outstanding principal will be due. Covenants under the credit agreement include a requirement that the Partnership may not incur any additional debt unless the new debt replaces existing debt and does not exceed a maximum nonrecourse debt limitation at the inception of the loan of $36,897,696 less an adjustment for subsequent scheduled principal amortization on existing nonrecourse loans plus closing costs of any new nonrecourse loans. Additionally, the Partnership must maintain certain debt coverage ratios and maintain a minimum consolidated net worth and aggregate appraised property value of $15,000,000. The debt coverage ratio requires the Partnership to maintain ratios of free operating cash flow to the debt service on the note ranging from 3:1 to 3.4:1 over the term of the agreement. The Partnership is in compliance with such terms at December 31, 1996. The credit agreement requires the Partnership to offer the lender the proceeds from property sales as a prepayment of the note payable. The lender has not accepted any mandatory prepayment offers. Interest paid on all debt obligations was $3,426,650, $2,467,322 and $1,963,418 in 1994, 1995 and 1996, respectively. Continued - 16 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued 7. Distributions to Partners: -------------------------- Distributions are declared and paid to partners quarterly and are summarized as follows:
Limited Year Ending Distributions Paid Distributions Paid Partners' Per December 31, to General Partners to Limited Partners Unit Amount - ------------ ------------------- ------------------- ------------- 1994 $194,804 $ 3,051,925 $ 67.41 ======== =========== ======= 1995: Quarterly distributions $214,536 $ 3,360,393 $ 74.25 Special distribution - Note 12 68,597 6,791,100 150.00 -------- ----------- ------- $283,133 $10,151,493 $224.25 ======== =========== ======= 1996 $208,981 $ 3,274,036 $ 72.42 ======== =========== =======
Distributions of $52,750 to the General Partners and $826,421 to the Limited Partners for the quarter ended December 31, 1996 were declared and paid in January 1997. 8. Income for Federal Tax Purposes: -------------------------------- Income for financial statement purposes differs from income for Federal income tax purposes, because of the difference in the treatment of certain items for income tax purposes and financial statement purposes. A reconciliation of accounting differences is as follows:
1994 1995 1996 ------------ ------------ ----------- Net income per Consolidated Statements of Income $11,993,846 $ 5,526,347 $4,399,104 Excess tax depreciation (825,140) (549,851) (485,963) Difference in tax treatment of gains on sales of real estate 2,645,850 (1,889,176) 56,628 Writedown to net realizable value 641,731 319,685 Other (861,038) 44,808 (302,371) ----------- ----------- ---------- Net income reported for Federal income tax purposes $13,595,249 $ 3,451,813 $3,667,398 =========== =========== ==========
Continued - 17 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued 9. Industry Segment Information: ----------------------------- The Partnership's operations consist of the investment in and the leasing of industrial and commercial real estate and the operation of a food service facility and a hotel business. In 1994, 1995 and 1996, the Partnership earned its total commercial and industrial leasing revenues (rental income plus interest income from financing leases) from the following lease obligors:
1994 % 1995 % 1996 % ---------- ---- ---------- ---- ---------- ---- Advanced System Applications, Inc. $1,145,003 15% $1,578,632 24% $1,542,918 23% The Gap, Inc. 927,568 13 927,568 14 927,568 14 KSG, Inc. 785,273 11 832,566 13 820,096 13 Sybron Acquisition Company 819,162 11 819,162 13 819,162 13 Swiss M-Tex, L.P. 518,774 7 546,095 8 526,266 8 AutoZone, Inc. 462,076 6 466,473 7 441,191 7 CSK Auto, Inc. (formerly Northern Automotive, Inc.) (1) 388,763 5 388,830 6 388,830 6 Various other obligors 411,893 6 387,445 6 346,678 5 NVRyan L.P. 310,807 4 291,556 4 291,556 4 NYNEX Corporation 215,600 3 215,600 3 215,600 3 United States Postal Service 162,100 2 Winn-Dixie Stores, Inc. 128,470 2 128,470 2 128,470 2 Mid-Continent Bottlers, Inc. 1,286,973 17 ---------- --- ---------- --- ---------- --- $7,400,362 100% $6,582,397 100% $6,610,435 100% ========== === ========== === ========== ===
(1) Rental income is net of ground lease rental expense of $97,000, $101,000 and $103,000 in 1994, 1995 and 1996, respectively (see Note 5). The summarized results of the Partnership's share of the hotel operations are as follows:
1994 1995 1996 ------------ ------------ ------------ Revenues $ 4,821,029 $ 5,410,689 $ 5,710,627 Fees paid to hotel management company (136,412) (112,423) (127,474) Other operating expenses (3,391,845) (3,904,216) (4,001,675) ----------- ----------- ----------- Hotel operating income $ 1,292,772 $ 1,394,050 $ 1,581,478 =========== =========== ===========
10. Discontinued Operations: ------------------------ On December 20, 1995, the Partnership sold the food service facility in Jupiter, Florida, at which it operated a restaurant, for $4,140,000, recognizing a gain on the sale of $1,019,362. In connection with the sale, it satisfied the two mortgage note obligations on the property and recognized an extraordinary gain on extinguishment of debt of $1,323,858. Continued - 18 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued In January 1994, the terms of the loan collateralized by the property were modified by dividing the loan into two notes with balances of $2,700,000 ("Note A") and $1,082,883 ("Note B"), respectively. Under the modification, interest and principal payments on Note B were deferred. In accordance with the terms of the 1994 loan modification agreement, the $1,082,883 balance of Note B plus accrued interest thereon was forgiven upon payment of Note A, resulting in an extraordinary gain of $1,323,858 on extinguishment of debt. The Partnership used a portion of the sales proceeds to pay off the $2,603,000 balance of Note A. In connection with the sale of the Jupiter property, the Partnership did not incur any gain or loss on the disposal of the food service business. Results for the food service operation business segment for 1994 and 1995 have been presented as discontinued operations and are as follows:
1994 1995 ------------ ------------ Net sales $ 4,035,009 $ 3,821,631 Cost of goods sold (1,181,181) (1,165,386) Other operating expenses (2,397,556) (2,409,398) ----------- ----------- $ 456,272 $ 246,847 =========== ===========
11. Hotel Property in Livonia, Michigan: ------------------------------------ In November 1987, the Partnership and Corporate Property Associates 6 ("CPA(R):6"), an affiliate, purchased a Holiday Inn in Livonia, Michigan as tenants-in-common with 65.5172% and 34.4828% interests, respectively, and entered into a net lease with Brock Hotel Corporation which subsequently changed its name to Integra - A Hotel and Restaurant Company ("Integra"). Integra subsequently assigned its interest in the lease to a wholly-owned subsidiary, Livonia Inn Management, Inc., while Integra remained the guarantor of the lease. As a result of Integra's financial condition, the subsidiary stopped paying rent in May 1992 with Integra subsequently filing a voluntary bankruptcy petition in July 1992. Both of these events were defaults under the lease as well as the mortgage note collateralized by the Livonia property. In August 1992, pursuant to a letter of agreement, the Partnership and CPA(R):6 assumed control of the hotel operations. In March 1994, the Partnership and CPA(R):6, executed a settlement agreement with the Hallwood Group, Inc. ("Hallwood Group"), Integra's largest shareholder, under which the Partnership and CPA(R):6 agreed to surrender a promissory note made by Hallwood Group, which had been pledged by Integra to the Partnership and CPA(R):6 as additional security to Integra's lease obligation, in exchange for $150,000 in cash, a $500,000 promissory note from Hallwood Group and an equity participation having a potential value of up to $500,000 from the Hallwood Group. The $500,000 note bears interest at 8% per annum and matures no later than March 8, 1998 and, subject to certain conditions, is redeemable at an earlier date. The note is collateralized by the Hallwood Group's pledge of 89,269 of its limited partnership units of Hallwood Realty Partners, L.P. ("Hallwood Realty"), a publicly traded limited partnership. The pledged units represent 5.2% of all outstanding limited partnership units of Hallwood Realty. Under the settlement agreement, the Hallwood Group has the obligation to pay to the Partnership and CPA(R):6 an amount equal to 25% of the increase in value of the Hallwood Realty units of up to $500,000, from March 1994 to the note maturity date. If the price per unit increases to $45 or greater, the Partnership and CPA(R):6 may, subject to certain restrictions, receive a payment from Continued - 19 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued the Hallwood Group representing the 25% appreciation of the pledged units prior to the note maturity date. At December 31, 1996, the pledged limited partner units had a market value of $24 1/2 per unit. The Partnership's share of the cash proceeds and the note receivable of $425,862 are included in other income in 1994. During 1996, the Partnership and CPA:(R)6 received $221,000 (of which the Partnership share was $144,000) from the bankruptcy trustee in partial settlement of the Partnership's and CPA:6's claim against Integra. 12. Gains on Sales: --------------- In October 1994, the Partnership sold its properties leased to Mid- Continent Bottlers, Inc. ("Mid-Continent") to the lessee for $17,800,000 and sold its 3.29% limited partnership interest in Midcon Bottlers, L.P., an affiliate of Mid-Continent, for $700,000. In connection with the sales, the Partnership recognized gains of $7,814,474 and $682,500, respectively. The Partnership used $3,895,320 of the sales proceeds to satisfy the Mid-Continent mortgage loan. In addition, the Partnership used a portion of the proceeds to prepay certain mortgage loans on properties which remain subject to leases. In January 1995, the Partnership used a portion of the proceeds to pay a special distribution to limited partners of $6,791,100 ($150 per Limited Partnership Unit) and $68,597 to a general partner. As more fully described in Note 10, the Partnership recognized a gain of $1,019,362 on the sale of the Jupiter, Florida property in December 1995. On February 12, 1996, the Partnership sold a property located in Denham Springs, Louisiana to its lessee, AutoZone, Inc. ("AutoZone"), for $431,779, net of selling costs, realizing a gain of $74,729 on the sale. AutoZone's lease allows it to offer to sever properties from its leases and purchase such properties which it judges to be unsuitable. In connection with the sale of the property, pursuant to the lease, and severing it from the lease, annual rent from AutoZone will be reduced by $40,766. On February 14, 1996, the Partnership sold a property in Monte Vista, Colorado which had previously been leased to Yellow Front Stores, Inc. for $186,090, net of selling costs. As the property was written down to a net realizable value at December 31, 1995 to an amount equal to the net sales proceeds, no gain or loss was recognized on the sale. Annual rent from the Monte Vista property was $20,000. Continued - 20 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued In August 1994, the Partnership and Corporate Property Associates 8, L.P. ("CPA(R):8") sold a property formerly leased to NVRyan in Jefferson, Georgia for $844,778 (of which the Partnership's share was $312,880), net of costs. In addition, the Partnership and CPA(R):8 sold the property in Plant City, Florida in April 1994 to an NVRyan sublessee for $1,200,000 (of which the Partnership's share was $444,444). No gain or loss was recognized on the sales as the properties were written down prior to the sales to an amount equal to the estimated sales proceeds. A writedown of $484,296 was recognized on the Jefferson property in 1994 and a writedown was recognized on the Plant City property in 1993. In June 1994, the Partnership and CPA(R):8 an affiliate, entered into a contract to sell the vacant Fredricksburg, Virginia property for $728,500 (of which the Partnership's share was $269,815), net of costs. Subsequently, the potential buyer withdrew its offer to buy the Fredricksburg, Virginia property. Although the transaction was not consummated, the Partnership's interest in the property was written down in 1994 by $157,433 to an amount equal to the anticipated net proceeds. 13. Extraordinary Gains and Losses on Extinguishment of Debt: --------------------------------------------------------- As fully described in Note 10, in connection with the sale of the Jupiter, Florida property in December 1995, the Partnership recognized an extraordinary gain on extinguishment of debt of $1,323,858. In December 1994, the Partnership paid off $1,886,148 of the mortgage loan on the AutoZone and NYNEX Corporation properties. In connection with paying off the mortgage loan, the Partnership incurred an extraordinary charge of $136,260 on the extinguishment of debt consisting of a prepayment charge of $94,307 and the writeoff of $41,953 in unamortized financing costs. In December 1994, the Partnership, through a newly formed subsidiary, paid off mortgage loans of $4,587,600 and $1,902,158 on The Gap, Inc. ("Gap") and KSG, Inc. ("KSG") properties, respectively. In connection with the paying off of the Gap mortgage loan, the Partnership incurred a prepayment charge of $375,243, resulting in an extraordinary charge on the extinguishment of debt. 14. Properties Leased to Advanced System Applications, Inc.: -------------------------------------------------------- The Partnership and CPA(R):8 own property in Bloomingdale, Illinois, as tenants-in-common with 33.64% and 66.36% ownership interests, respectively which is leased to Advanced System Applications, Inc. ("ASA"). In July 1994 the Partnership and CPA(R):8 agreed to a lease modification agreement. Under the modification agreement, the scheduled expiration of the lease was changed to June 1997 from June 2003 in exchange for an increase in the rent to $5,200,000 from $1,850,000. As this modification required the mortgage lender's consent, the mortgage loan payments were substantially increased so that the loan fully amortized on March 1, 1996. Although ASA is obligated to make its lease payments through June 1997, it is in the process of vacating the property. ASA had been entitled to one-third of all rentals received for any new leases on space ASA had vacated; however, under a subsequent modification agreement, the Partnership and CPA(R):8 agreed to reduce ASA's annual rent by $833,333 in exchange for ASA's assignment of all subtenant rents to the Partnership and CPA(R):8 and relinquishing its rights to any of the rents on the United State Postal Service (the "Postal Service") lease. ASA was also released from bearing the costs of insurance, maintenance and real estate taxes on the property. Continued - 21 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued The Postal Service lease has a 10-year lease term which commenced May 1, 1996 at an annual rent of $722,800 (of which the Partnership's share is $243,150), increasing to $822,800 after five years. The Partnership and CPA(R):8 bear the obligation to provide maintenance and support services to the lessee. The lease also provides for rent escalations in 1998 based on increases in certain operating costs incurred by the Partnership and CPA(R):8. In addition, the Postal Service will reimburse the Partnership and CPA(R):8 for its pro rata share of real estate taxes. The Postal Service has an option to terminate the lease after five years and right of first refusal on space vacated by ASA. As provided for under the lease, the Partnership and CPA(R):8 funded a tenant improvement allowance of approximately $600,000 (of which the Partnership's share was $202,000) for improvements to the space occupied by the Postal Service. 15. Disclosures About Fair Value of Financial Instruments: ------------------------------------------------------ The carrying amounts of cash, accounts receivable and amounts 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 approximately the carrying amount of such mortgage notes at December 31, 1996. The fair value of debt instruments was evaluated using a discounted cash flow model with discount rates which take into account the credit of the tenants and interest rate risk. The Partnership's note payable is a variable rate obligation indexed to the LIBOR. Accordingly, the carrying amount of the note payable approximates fair value as of December 31, 1996. Continued - 22 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES SCHEDULE of REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1996
Initial Cost to Costs Partnership Capitalized Decrease ------------------------ Subsequent to in Net Description Encumbrances Land Buildings Acquisition (a) Investment(c) - ----------- ------------ ----------- ----------- ------------ -------------- Operating method: Retail store leased to Winn Dixie Stores, Inc. $ 1,215,000 $ 35,870 Manufacturing facilities leased to Swiss M-Tex, L.P. $1,714,176 $ 420,440 4,379,560 1,300 $ (127,721) Land leased to AutoZone, Inc. 994,740 13,949 Retail stores formerly leased to Yellow Front Stores, Inc. 4,934,160 3,897,549 329,838 (2,238,493) Office facility leased to NYNEX 275,363 1,955,820 24,093 Distribution Center leased to The Gap, Inc. 694,187 8,075,813 39,212 Land leased to Sybron Acquisition Company 106,219 183,632 1,012 Office facility leased to Advanced System Applications, Inc. and United States Postal Service 101,893 499,554 4,990,408 18,978 205,204 Manufacturing and office facility leased to Allied Plywood, Inc. 244,887 715,924 3,884 Manufacturing and office facility formerly leased to NVRyan, L.P. 32,614 410,838 1,793 (175,431) ---------- ---------- ----------- -------- ----------- $1,922,288 $8,279,577 $25,640,912 $469,929 $(2,336,441) ========== ========== =========== ======== =========== Life on which Depreciation in Latest Gross Amount at which Statement of Carried at Close of Period Accumulated Income (b)(d) --------------- ------------ ----------------------- Date Description Land Building Total Depreciation(d) Acquired is Computed - ----------- ---------- ----------- ----------- --------------- --------- ------------ Operating method: $ 1,250,870 $ 1,250,870 $ 397,845 June 17, 30 YRS. Retail store leased to 1987 Winn Dixie Stores, Inc. Manufacturing facilities leased to Swiss $ 292,719 4,380,860 4,673,579 1,362,919 August 24, 30 YRS. M-Tex, L.P. 1987 Land leased to 1,008,689 1,008,689 August 24, N/A AutoZone, Inc. 1987 Retail stores formerly leased to Yellow 3,332,294 3,590,760 6,923,054 801,945 January 29, 30 YRS. Front Stores, Inc. 1988 Office facility leased to 275,363 1,979,913 2,255,276 588,475 January 29, 30 YRS. NYNEX 1988 Distribution Center 694,187 8,115,025 8,809,212 2,400,695 February 16, 30 YRS. leased to The Gap, Inc. 1988 Land leased to Sybron 184,644 184,644 December 22, N/A Acquisition Company 1988 Office facility leased to Advanced System Applications, Inc. and 499,554 5,214,590 5,714,144 1,380,729 September 29, 30 YRS. United States Postal 1988 Service Manufacturing and office 244,887 719,808 964,695 77,979 March 31, 30 YRS. facility leased to 1989 Allied Plywood, Inc. Manufacturing and office 19,696 250,118 269,814 20,843 March 31, 30 YRS. facility formerly leased ---------- ----------- ----------- ------------ 1989 to NVRyan, L.P. $6,552,033 $25,501,944 $32,053,977 $7,031,430 ========== =========== =========== ============
See accompanying notes to Schedule. - 23 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES SCHEDULE of REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1996
Costs Initial Cost to Capitalized Partnership Personal Subsequent to ----------------------- ---------- ---------------- Description Encumbrances Land Buildings Property Acquisition (a) - ----------- ------------ ---------- ----------- ---------- ---------------- Direct financing method: Manufacturing and warehouse facility leased to KSG, Inc. $1,099,700 $ 3,598,220 $ 104 Retail stores leased to AutoZone, Inc. 2,758,373 31,795 Manufacturing and office facility leased to Sybron Acquisition Company $3,434,427 490,942 5,537,640 33,093 Manufacturing and office facility leased to NVRyan L.P. 211,382 1,684,371 96,748 ------------ ---------- ----------- ----------- $3,434,427 $1,802,024 $13,578,604 $161,740 ============ ========== =========== =========== Operating real estate (e): Hotel facility located in Livonia, Michigan $4,958,113 $2,050,688 $ 8,130,685 $1,480,689 $662,635 ============ ========== =========== ========== =========== Life on Gross Amount at Which which Carried Depreciation at Close of Period (b) in Latest ----------------------- Statement of Personal Accumulated Income Description Land Property Building Total Depreciation (e) Date Acquired Is Computed - ----------- ---------- ----------- ---------- ----------- ------------ ------------- ------------ Direct financing method: Manufacturing and warehouse facility leased to March 12, KSG, Inc. $ 4,698,024 1987 Retail stores leased to August 28, AutoZone, Inc. 2,790,168 1987 Manufacturing and office facility leased to Sybron December 22, Acquisition Company 6,061,675 1988 Manufacturing and office facility leased to NVRyan L.P. 1,992,501 March 31, 1989 ----------- $15,542,368 =========== Operating real estate (e): Hotel facility located in Livonia, Michigan $2,050,688 $1,622,422 $8,651,587 $12,324,697 $4,070,423 November 20, 1987 5-30 yrs. ========== =========== ========== =========== ===========
See accompanying notes to Schedule. - 24 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES NOTES TO SCHEDULE of REAL ESTATE AND ACCUMULATED DEPRECIATION (a) Consists of acquisition costs including legal fees, appraisal fees, title costs as well as other related professional fees and capital improvements at various properties. (b) At December 31, 1996, the aggregate cost of real estate owned for Federal income tax purposes is $60,476,529. (c) The decrease in net investment is due to the writedowns and sales of properties. (d) Reconciliation of Real Estate Accounted --------------------------------------- for Under the Operating Method ------------------------------
December 31, ------------------------- 1995 1996 ------------ ----------- Balance at beginning of year $32,572,157 $31,848,773 Additions 205,204 Reclassification to real estate held for sale (403,699) Writedown to net realizable value (319,685) ----------- ----------- Balance at close of year $31,848,773 $32,053,977 =========== ===========
Reconciliation of Accumulated Depreciation ------------------------------------------
December 31, ----------------------- 1995 1996 ----------- ---------- Accumulated depreciation at beginning of year $5,407,880 $6,185,070 Reclassification to real estate held for sale (79,787) Depreciation expense 856,977 846,360 ---------- ---------- Balance at close of year $6,185,070 $7,031,430 ========== ==========
(Continued) - 25 - CORPORATE PROPERTY ASSOCIATES 7 - a California limited partnership and SUBSIDIARIES 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 $16,880,529 $12,105,715 Additions 180,758 218,982 Sale of property (4,955,572) ----------- ----------- Balance at close of year $12,105,715 $12,324,697 =========== ===========
Reconciliation of Accumulated Depreciation for ---------------------------------------------- Operating Real Estate --------------------- December 31, ---------------- 1995 1996 ---- ---- Accumulated depreciation at beginning of year $ 5,124,728 $ 3,762,695 Depreciation expense 504,975 307,728 Writeoff resulting from sale of property (1,867,008) ___________ ------------ ----------- Balance at close of year $ 3,762,695 $ 4,070,423 =========== =========== - 26 - PROPERTIES - --------------------------------------------------------------------------------
LEASE TYPE OF OWNERSHIP OBLIGOR TYPE OF PROPERTY LOCATION INTEREST - --------------------------- --------------------- ------------------------ ------------------------- NYNEX CORPORATION Office and Service Milton, Vermont Ownership of land Facility and building THE GAP, INC. Distribution Erlanger, Kentucky Ownership of land Center and building SWISS M-TEX, L.P. Manufacturing Travelers Rest Ownership of land Facilities and Liberty, and buildings (1) South Carolina KSG, INC. Manufacturing, Hazelwood, Ownership of land Warehouse and Missouri and building Distribution Facility (2) Hotel Livonia, Ownership of a Michigan 65.5172% interest in land and building (1) AUTOZONE, INC. Retail Stores Pensacola (3), Ownership of land -12 locations Panama City, and and buildings, Jacksonville, except as noted Florida; Baton Rouge-2 (3), Hammond, Louisiana; St. Peters-2, Missouri; Shelby, Kannapolis (3), and Morgantown (3), North Carolina; East Ridge (3) and Knoxville (3), Tennessee Various Lease Retail Stores Scottsdale, Casa Ownership of land Obligors including Grande, Apache and buildings CSK AUTO, INC., (formerly Junction, Glendale, NORTHERN AUTOMOTIVE and Mesa, Arizona; INC.) Silver City, New Mexico; Denver, Colorado; Colville, Washington WINN-DIXIE Supermarket Bay Minette, Ownership of a STORES, INC. Alabama building and a leasehold interest in land
- 27 -
LEASE TYPE OF OWNERSHIP OBLIGOR TYPE OF PROPERTY LOCATION INTEREST - -------------------- ---------------- ------------------- -------------------- ADVANCED SYSTEM Office Building Bloomingdale, Ownership of a APPLICATIONS, INC. Illinois 33.64% interest in AND UNITED STATES and building POSTAL SERVICE (1) SYBRON ACQUISITION Office and Romulus, Michigan; Ownership of a COMPANY Manufacturing Dubuque, Iowa; 24.74% interest in Facilities Portsmouth, land and buildings New Hampshire; (1) Penfield, New York; Glendora, California NVRYAN L.P. Manufacturing Thurmont, Ownership of a Facilities Maryland and 37.037% interest in Farmington, land and buildings New York HOTEL CORPORATION Hotel Topeka, 50% ownership of a OF AMERICA Kansas limited partnership which owns land and building (1) ALLIED PLYWOOD, Manufacturing Manassas, Ownership of a INC. Facility Virginia 37.037% interest in land and buildings (4) Manufacturing Fredricksburg, Ownership of a Facility Virginia 37.037% interest in land and building
(1) These properties are encumbered by mortgage notes payable. (2) This property is operated as a hotel by the Partnership. (3) Ownership of building with ground lease of land. (4) This property is vacant. - 28 - 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 2,283 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") contained as Exhibit A to the Prospectus, 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 $15.50 $170.83(A) $17.96 Second quarter 15.63 17.74 18.06 Third quarter 16.25 17.81 18.17 Fourth quarter 20.03 17.87 18.23 ------ ------- ------ $67.41 $224.25 $72.42 ====== ======= ======
(a) Includes a special distribution of $150 per Limited Partnership 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. - 29 - EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 5591985 0 0 0 0 5591985 59921042 11101853 55432124 1486075 19921665 0 0 0 34024384 55432124 0 12731328 0 0 6272837 0 1942737 4399104 0 4399104 0 0 0 4399104 91.55 91.55
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