1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from____________________to__________________
Commission file number 0-14551
CORPORATE PROPERTY ASSOCIATES 6, A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3247122
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 492-1100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
(Title of Class)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of deliquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of
Registrant: There is no active market for Limited Partnership Units.
2
PART II
Item 8. Consolidated Financial Statements and Supplementary Data.
(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.
(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.
3
REPORT of INDEPENDENT ACCOUNTANTS
To the Partners of
Corporate Property Associates 6
- - a California limited
partnership and Subsidiaries:
We have audited the accompanying consolidated balance sheets
of Corporate Property Associates 6 - 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 20 to 23 of this Annual Report. These
financial statements and financial statement schedule are the responsibility of
the General Partners. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the General Partners, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Corporate Property Associates 6 - 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
- 5 -
4
CORPORATE PROPERTY ASSOCIATES 6
- 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 $11,401,896 $11,502,589
Buildings 34,931,212 40,059,299
----------- -----------
46,333,108 51,561,888
Accumulated depreciation 10,653,598 11,955,764
----------- -----------
35,679,510 39,606,124
Net investment in direct financing leases 36,920,755 32,887,655
----------- -----------
Real estate leased to others 72,600,265 72,493,779
Operating real estate, net of accumulated depreciation of
$4,276,790 in 1995 and $4,639,138 in 1996 8,555,841 8,362,428
Cash and cash equivalents 3,476,915 3,338,391
Accrued interest and rents receivable, net of reserve
for uncollected rent of $119,331 in 1995 28,251 40,746
Note receivable from affiliate 1,151,000 1,151,000
Other assets net of accumulated amortization
of $797,301 in 1995 and $810,994 in 1996 2,609,407 2,767,227
----------- -----------
Total assets $88,421,679 $88,153,571
=========== ===========
LIABILITIES:
Mortgage notes payable $33,263,097 $32,057,088
Note payable 10,000,000 10,000,000
Accrued interest payable 482,195 439,078
Accounts payable and accrued expenses 353,851 372,012
Accounts payable to affiliates 75,323 131,275
Deferred rental income 3,789,785 3,544,624
Other liabilities 354,235 361,816
----------- -----------
Total liabilities 48,318,486 46,905,893
----------- -----------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners (156,867) (4,515)
Limited Partners (47,930 Limited
Partnership Units issued and outstanding) 40,260,060 41,252,193
----------- -----------
Total partners' capital 40,103,193 41,247,678
----------- -----------
Total liabilities and
partners' capital $88,421,679 $88,153,571
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 6 -
5
CORPORATE PROPERTY ASSOCIATES 6
- 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 $ 5,464,931 $ 5,195,838 $ 5,675,049
Interest income from
direct financing leases 5,251,979 5,814,312 5,613,415
Other interest income 377,800 332,480 307,947
Revenue of hotel operations 4,371,566 4,630,619 4,868,017
Other income 227,577 764,650 72,868
----------- ----------- -----------
15,693,853 16,737,899 16,537,296
----------- ----------- -----------
Expenses:
Interest expense 5,040,589 4,499,692 4,003,726
Depreciation 1,621,029 1,525,011 1,664,514
General and administrative 531,594 624,249 513,074
Operating expense of hotel
operations 3,296,063 3,596,408 3,714,173
Property expense 1,941,665 512,797 394,761
Amortization 163,748 209,074 292,530
----------- ----------- -----------
12,594,688 10,967,231 10,582,778
----------- ----------- -----------
Income before gain on sales and
extraordinary item 3,099,165 5,770,668 5,954,518
Gain on sales of real estate 70,878
----------- ----------- -----------
Income before extraordinary item 3,099,165 5,770,668 6,025,396
Extraordinary gain on extinguishment of debt 2,088,268
----------- ----------- -----------
Net income $ 3,099,165 $ 7,858,936 $ 6,025,396
=========== =========== ===========
Net income allocated to:
Individual General Partner $ 30,991 $ 78,588 $ 71,357
=========== =========== ===========
Corporate General Partner $ 154,959 $ 392,948 $ 356,792
=========== =========== ===========
Limited Partners $ 2,913,215 $ 7,387,400 $ 5,597,247
=========== =========== ===========
Net income per Unit: (47,950 Limited Partnership
Units outstanding in 1994, 47,935 weighted average
Limited Partnership Units outstanding in 1995 and
47,930 Limited Partnership Units outstanding in 1996)
Income before extraordinary gain $60.76 $113.16 $116.78
Extraordinary gain 40.95
----------- ----------- -----------
$60.76 $154.11 $116.78
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 7 -
6
CORPORATE PROPERTY ASSOCIATES 6
- 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 $38,606,142 $(250,812) $38,856,954 $809
Distributions (4,704,691) (280,823) (4,423,868) (92)
Net income, 1994 3,099,165 185,950 2,913,215 61
----------- --------- ----------- ----
Balance, December 31, 1994 37,000,616 (345,685) 37,346,301 778
Distributions (4,736,359) (282,718) (4,453,641) (93)
Purchase of Limited Partnership Units (20,000) (20,000)
Net income, 1995 7,858,936 471,536 7,387,400 154
----------- --------- ----------- ----
Balance, December 31, 1995 40,103,193 (156,867) 40,260,060 839
Distributions (4,880,911) (275,797) (4,605,114) (96)
Net income, 1996 6,025,396 428,149 5,597,247 117
----------- --------- ----------- ----
Balance, December 31, 1996 $41,247,678 $ (4,515) $41,252,193 $860
=========== ========= =========== ====
(a) Based on weighted average Units issued and outstanding.
The accompanying notes are an integral part of the consolidated financial
statements.
- 8 -
7
CORPORATE PROPERTY ASSOCIATES 6
- 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 $ 3,099,165 $ 7,858,936 $ 6,025,396
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,784,777 1,734,085 1,957,044
Extraordinary gain on extinguishment of debt (2,088,268)
Restructuring fees received 3,800,000
Amortization of deferred rental income
and straight-line rent adjustments (10,215) (286,620)
Gain on sale of real estate (70,878)
Note receivable received in connection with
bankruptcy settlement (172,414)
Net change in operating assets and liabilities 382,808 (161,502) (9,416)
----------- ------------ ------------
Net cash provided by operating activities 5,094,336 11,133,036 7,615,526
----------- ------------ ------------
Cash flows from investing activities:
Amounts received on partial prepayment of note
receivable from affiliate 144,000
Proceeds from sale of real estate 603,285
Additional capitalized costs (96,818) (418,020) (1,897,022)
----------- ------------ ------------
Net cash used in investing activities (96,818) (274,020) (1,293,737)
----------- ------------ ------------
Cash flows from financing activities:
Distributions to partners (4,704,691) (4,736,359) (4,880,911)
Purchase of Limited Partner Units (20,000)
Proceeds from issuance of note payable 10,000,000
Proceeds from mortgages 9,500,000
Prepayments of mortgage notes payable (15,400,020) (9,550,413)
Payments of mortgage principal (1,331,466) (1,356,271) (1,155,596)
Deferred financing costs (13,070) (282,320) (373,393)
----------- ------------ ------------
Net cash used in financing activities (6,049,227) (11,794,970) (6,460,313)
----------- ------------ ------------
Net decrease in cash and
cash equivalents (1,051,709) (935,954) (138,524)
Cash and cash equivalents, beginning of year 5,464,578 4,412,869 3,476,915
----------- ------------ ------------
Cash and cash equivalents, end of year $ 4,412,869 $ 3,476,915 $ 3,338,391
=========== ============ ============
(Continued)
- 9 -
8
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS, Continued
For the years ended December 31, 1994, 1995 and 1996
Supplemental disclosure of financing activities:
During the year ended December 31, 1995, the Partnership
recognized an extraordinary gain on the extinguishment of debt.
Cash payment made in connection with satisfaction
of debt obligation $(5,440,000)
Direct costs of transaction (31,085)
Mortgage note payable balance at extinguishment 6,853,966
Accrued interest on mortgage debt at extinguishment 705,387
-----------
Extraordinary gain on extinguishment of debt $ 2,088,268
===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 10 -
9
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Consolidation:
Theconsolidated financial statements include the accounts of
Corporate Property Associates 6 and two 99% owned subsidiaries,
CPA(R) Burnhaven Limited Partnership and CPA(R) Peerless Limited
Partnership, (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 betterments.
The Partnership diversifies its real estate investments among
various corporate tenants engaged in different industries and by
property type throughout the United States.
The leases are accounted for under either the direct financing or
operating methods. Such methods are described below:
Direct financing method - Leases accounted for under the
direct financing method are recorded at their net
investment (Note 5). Unearned income is deferred and
amortized to income over the lease terms so as to produce
a constant periodic rate of return on the Partnership's
net investment in the lease.
Operating method - Real estate is recorded at cost,
revenue is recognized as rentals are earned and expenses
(including depreciation) are charged to operations as
incurred.
The Partnership assesses the recoverability of its real estate
assets, including residual interests, based on projections of
undiscounted cash flows over the life of such assets. In the
event that such cash flows are insufficient, the assets are
adjusted to their estimated net realizable value.
Substantially all of the Partnership's leases provide for either
scheduled rent increases, periodic rent increases based on
formulas indexed to increases in the Consumer Price Index ("CPI")
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.
Continued
- 11 -
10
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Depreciation:
Depreciation is computed using the straight-line method over the
estimated useful lives of the components of the particular
properties, which range from 5 to 30 years.
Cash Equivalents:
The Partnership considers all short-term, highly liquid investments
that are both readily convertible to cash and have a maturity of
generally three months or less at the time of purchase to be cash
equivalents. Items classified as cash equivalents include
commercial paper and money market funds. Substantially all of the
Partnership's cash and cash equivalents at December 31, 1995 and
1996 were held in the custody of three financial institutions.
Other Assets:
Included in the assets are deferred charges incurred in connection
with mortgage note financings which are deferred and amortized on
a straight-line basis over the terms of the mortgages.
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.
Deferred Rental Income:
A lease amendment fee of $3,800,000 received in 1995 in connection
with the amendment of one of the Partnership's leases is being
amortized as deferred rental income from the date of the
amendment through the end of the initial term of the lease
(15-1/2 years).
Reclassifications:
Certain 1994 and 1995 amounts have been reclassified to conform to
the 1996 financial statement presentation.
2. Partnership Agreement:
The Partnership was organized on July 23, 1984 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, 2004, or sooner, in
accordance with the terms of the Amended Agreement of Limited
Partnership (the "Agreement").
Continued
- 12 -
11
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Agreement provides that the General Partners are allocated 6%
(1% to the Individual General Partner, William P. Carey, and 5%
to the Corporate General Partner, Carey Corporate Property, Inc.
("Carey Property"), an affiliate of the General Partner), and the
Limited Partners are allocated 94% of the profits and losses as
well as distributions of Distributable Cash From Operations, as
defined. The partners are also entitled to receive net proceeds
from the sale of the Partnership properties as defined in the
Agreement. In accordance with the Agreement, the General
Partners, were allocated the gain on the sale of real estate as
well as the related tax gain in order to reduce their negative
balances because they had negative capital balances at the
beginning of the year.
The General Partners may be entitled to receive a subordinated
preferred return, measured based upon the cumulative proceeds
arising from the sale of Partnership assets. Pursuant to the
subordination provisions of the Agreement, the preferred return
may be paid only after the limited partners receive 100% of their
initial investment from the proceeds of asset sales and a
cumulative annual return of 6% since the inception of the
Partnership. The General Partners interest in such preferred
return amounts to $18,099 based upon the cumulative proceeds from
the sale of assets since the inception of the Partnership through
December 31, 1996. The Partnership's ability to satisfy the
subordination provisions of the Agreement may not be determinable
until liquidation of a substantial portion of the Partnership's
assets has been made, formal plans of liquidation are adopted or
limited partnership units are converted to other securities which
provide the security holder with greater liquidity than a limited
partnership unit. Management believes that as of the report date,
ultimate payment of the preferred return is reasonably possible
but not probable, as defined pursuant to Statement of Financial
Accounting Standards No. 5.
3. Transactions with Related Parties:
The Partnership holds its 35% interest in hotel properties in Alpena
and Petoskey, Michigan and its 34.4828% ownership interest in a
hotel property in Livonia, Michigan as tenants-in-common with
affiliates who own the remaining interests. The Partnership's
interests in the assets and liabilities of the hotel properties
are accounted for on a proportional basis.
The Partnership holds a $1,151,000 note receivable made by Corporate
Property Associates 5 ("CPA(R):5"), an affiliate. The note bears
interest at the rate of 13.48% through August 1, 1999, at which
time the interest rate will reset to the Applicable Federal Rate
(as defined in the Internal Revenue Code of 1986) at that date.
The note matures on May 1, 2012, at which time the entire
outstanding principal balance will be due. Under certain
circumstances, the principal balance on the note may be reduced.
Under the Agreement, W.P. Carey & Co., Inc. ("W.P. Carey") and other
affiliates are entitled to receive a property management fee and
reimbursement of certain expenses incurred in connection with
the Partnership's operations. General and administrative expense
reimbursements consist primarily of the actual cost of personnel
needed in providing administrative services necessary to the
operation of the Partnership. Property management fee and general
and administrative expense reimbursements are summarized as
follows:
1994 1995 1996
---- ---- ----
Property management fee $ 97,849 $156,629 $111,048
General and administrative
expense reimbursements 154,562 152,795 115,128
-------- -------- --------
$252,411 $309,424 $226,176
======== ======== ========
Continued
- 13 -
12
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
During 1994, 1995 and 1996, fees aggregating $96,539, $102,893 and
$44,215, respectively, were incurred for legal services performed
by a firm in which the Secretary of W.P. Carey, Carey Property
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
$61,327, $94,719 and $108,362, respectively.
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
$5,700,000 in both 1997 and 1998; $5,783,000 in 1999; $5,794,000
in 2000; $4,839,000 in 2001; and aggregate approximately
$55,502,000 through 2011.
Contingent rents were approximately $262,000, $171,000 and $378,000
in 1994, 1995 and 1996, respectively.
B. Operating Real Estate:
Operating real estate, at cost, is summarized as follows:
December 31,
------------
1995 1996
---- ----
Land $ 1,337,262 $ 1,337,262
Building 9,546,639 9,723,824
Personal property 1,948,730 1,940,480
----------- -----------
12,832,631 13,001,566
Less, Accumulated depreciation 4,276,790 4,639,138
----------- -----------
$ 8,555,841 $ 8,362,428
=========== ===========
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 $ 66,850,664 $ 55,194,360
Unguaranteed residual value 36,920,755 32,887,655
------------ ------------
103,771,419 88,082,015
Less, Unearned income 66,850,664 55,194,360
------------ ------------
$ 36,920,755 $ 32,887,655
============ ============
Continued
- 14 -
13
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Scheduled future minimum rents, exclusive of renewals, under
noncancellable financing leases amount to approximately
$4,206,000 in each of the years 1997 to 2001 and aggregate
approximately $55,194,000 through the year 2011.
Contingent rents were approximately $576,000, $1,113,000 and
$1,138,000 in 1994, 1995 and 1996, respectively.
6. Mortgage Notes Payable and Note Payable:
A. Mortgage notes payable, all of which are limited recourse
obligations, are collateralized by the assignment of various
leases and by real property with a carrying amount of
approximately $61,480,000, before accumulated depreciation. As of
December 31, 1996, mortgage notes payable bear interest at rates
varying from 6.35% to 10.5% per annum and mature from 1997 to
2015.
. Scheduled principal payments, during each of the next five years
following December 31, 1996 and thereafter are as follows:
Year Ending December 31,
1997 $ 7,778,111
1998 9,410,818
1999 841,942
2000 910,103
2001 9,142,001
Thereafter 3,974,113
------------
Total $ 32,057,088
============
B. The Partnership's $10,000,000 note payable requires quarterly
payments of interest only at the variable interest rate of the
three-month London Inter-Bank Offered Rate ("LIBOR") plus
4.25% per annum and is subject to the following conditions:
The Partnership must offer as a prepayment to the lender the
proceeds from the sale of any Partnership properties; however,
the lender may decline such proceeds. The Partnership must
maintain ratios of Free Operating Cash Flow, as defined, to
debt service on the loan ranging from 3.4:1 to 3:1 over the
life of the agreement and maintain a consolidated net worth
and appraised property values of $25,000,000, as adjusted.
Under the terms of the credit agreement, the Partnership also
has agreed that it may obtain new limited recourse debt on any
of its properties only for the purpose of refinancing existing
mortgage debt. Total mortgage indebtedness may not exceed
$37,952,884, at the inception of the loan, as adjusted for
subsequent scheduled principal amortization on existing
mortgage loans plus closing costs on any new loans. At
December 31, 1996, the Partnership is in compliance with such
terms.
Continued
- 15 -
14
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
The $10,000,000 credit agreement loan is a recourse obligation of
the Partnership and matures on July 1, 1999. Except for the
application of proceeds from the sale of properties and other
limited circumstances, no loan prepayments may be made until
January 1, 1999.
Interest paid on mortgage notes payable and note payable was
$4,554,644, $4,894,003 and $4,046,843 in 1994, 1995 and 1996,
respectively.
7. Distributions to Partners:
Distributions are declared and paid to partners quarterly and are
summarized as follows:
Limited
Year Ending Distributions Paid Distributions Paid Partners' Per
December 31, to General Partners to Limited Partners Unit Amount
---------------- ------------------- ------------------- -----------
1994 $280,823 $4,423,868 $92.26
======== ========== ======
1995 $282,718 $4,453,641 $92.91
======== ========== ======
1996 $275,797 $4,605,114 $96.08
======== ========== ======
Distributions of $70,142 to the General Partners and $1,162,303 to the
Limited Partners for the quarter ended December 31, 1996 were declared
and paid in January 1997.
8. Income for Federal Tax Purposes:
Income for financial statement purposes differs from income for
Federal income tax purposes because of the difference in the
treatment of certain items for income tax purposes and financial
statement purposes.
A reconciliation of accounting differences is as follows:
1994 1995 1996
---- ---- ----
Net income per Statements of Income $ 3,099,165 $ 7,858,936 $ 6,025,396
Excess tax depreciation (2,152,351) (2,289,920) (1,608,909)
Difference in recognition of
lease amendment fee 3,101,971
Other 209,489 (799,351) (723,429)
----------- ----------- -----------
Income reported for Federal
income tax purposes $ 1,156,303 $ 7,871,636 $ 3,693,058
=========== =========== ===========
Continued
- 16 -
15
CORPORATE PROPERTY ASSOCIATES 6
- 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 its
participation in the operation of three hotels.
In 1994, 1995 and 1996, the Partnership earned its total leasing
revenues (rental income plus interest income from financing
leases) from the following lease obligors:
1994 % 1995 % 1996 %
---- --- ---- --- ---- --
Stoody Deloro Stellite, Inc. $1,711,322 16% $ 2,147,046 19% $ 2,234,191 20%
AP Parts Manufacturing
Company 1,526,387 14 1,526,387 14 1,728,527 15
Peerless Chain Company 1,269,453 12 1,279,668 12 1,611,600 14
AutoZone, Inc. 1,364,809 13 1,447,852 13 1,336,895 12
Anthony's Manufacturing
Company, Inc. 1,348,106 13 1,072,711 10 876,000 8
Wal-Mart Stores, Inc. 827,265 8 827,265 8 848,553 7
Kinney Shoe Corporation/Armel, Inc. 672,761 6 679,063 6 745,806 7
Motorola, Inc. 500,000 5 500,000 5 540,000 5
Harcourt General Corporation 467,500 4 467,500 4 467,500 4
Yale Security, Inc. 355,706 3
Lockheed Martin Corporation 293,000 3 293,000 3 304,333 3
Winn-Dixie Stores, Inc. 170,399 1 170,399 1 170,399 1
Folger Adam Company 565,908 5 599,259 5 68,954 1
----------- ---- ----------- ---- ----------- ---
$10,716,910 100% $11,010,150 100% $11,288,464 100%
=========== ==== =========== ==== =========== ====
Summarized operating results of the Partnership's share of the
operations of three hotels are:
1994 1995 1996
---- ---- ----
Revenues $ 4,371,566 $ 4,630,619 $ 4,868,017
Fees paid to hotel management
company (108,480) (94,948) (105,839)
Other operating expenses (3,187,583) (3,501,460) (3,608,334)
----------- ----------- ------------
Hotel operating income $ 1,075,503 $ 1,034,211 $ 1,153,844
=========== =========== ===========
10. Hotel Property in Livonia, Michigan:
In November 1987, the Partnership and Corporate Property Associates
7 ("CPA(R):7"), an affiliate, purchased a Holiday Inn in Livonia,
Michigan with 34.4828% and 65.5172% interests, respectively, as
tenants-in-common 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.
Continued
- 17 -
16
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
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 under the mortgage note
collateralized by the Livonia property. In August 1992, pursuant
to a letter of agreement, the Partnership and CPA(R):7 assumed
control of the hotel operations.
In March 1994, the Partnership and CPA(R):7 executed a settlement
agreement with the Hallwood Group, Inc. ("Hallwood Group"),
Integra's largest shareholder, under which the Partnership and
CPA(R):7 agreed to surrender a promissory note made by Hallwood
Group, which had been pledged by Integra to the Partnership and
CPA(R):7 as additional collateral 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):7 an amount equal
to 25% of the increase in value of the Hallwood Realty units 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):7 may, subject to certain restrictions, receive a payment
from the Hallwood Group representing the 25% appreciation of the
pledged units prior to the note maturity date. At December 31,
1996, the pledged limited partnership units had a market value of
$24 1/2 per unit. The Partnership's share of the cash proceeds
and the note receivable of $224,138 are included in other income
1994.
During 1996, the Partnership and CPA(R):7 received $221,000 (of
which the Partnership's share was $77,000) from the bankruptcy
trustee in partial settlement of the Partnership's and CPA(R):7's
claim against Integra.
11. Extraordinary Gain on Extinguishment of Debt:
In May 1995, the Partnership and Anthony's Manufacturing Company,
Inc. ("Anthony's") entered into a settlement agreement at which
time the Partnership withdrew its eviction suit against
Anthony's. The Partnership had filed an eviction notice because
Anthony's had not paid a scheduled monthly rent increase of
$10,485 which had been effective since March 1992 and had made
only two monthly rental payments between February 1994 and April
1995. In connection with the settlement agreement, Anthony's made
lump sum payments aggregating $1,550,000 in settlement of a rent
arrearage of $1,712,098. Of the $1,550,000 received $561,710 was
applied to 1995 rents receivable for the period from January 1,
1995 through May 31, 1995 with the remaining $988,290 applied to
prior period rents. The amounts related to prior periods, had
been included in the Partnership's reserve for uncollected rents.
Net of the legal costs of the settlement of $300,476, the
Partnership recognized $687,814 on the settlement which was
included as other income in 1995. Under the settlement, the
Partnership and Anthony's agreed to modify the existing lease.
Under the lease modification agreement, Anthony's monthly rental
payment decreased from $112,342 to $73,000 and the expiration of
the initial term of the lease was extended to May 2007 from
February 2002. The amended lease also provides for rental
increases in 1998, 2001 and 2005.
Continued
- 18 -
17
CORPORATE PROPERTY ASSOCIATES 6
- a California limited partnership
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In May 1995, the Partnership paid off and satisfied the mortgage
loan collateralized by the Anthony's properties. The lender
accepted a payment of $5,440,000 to satisfy an outstanding
principal balance of $6,853,966 and accrued interest thereon of
$705,387. In connection with the satisfaction of the debt, the
Partnership recognized an extraordinary gain on the
extinguishment of debt of $2,088,268, net of certain related
legal costs in 1995. To pay off the mortgage obligation, the
Partnership used the $1,550,000 received from Anthony's under the
settlement agreement and obtained $4,000,000 of financing from
its credit agreement (see Note 6B).
12. Gain on Sales of Real Estate:
On January 26, 1996 and April 26, 1996, the Partnership sold
property in Dalton, Georgia and Birmingham Alabama, respectively,
leased to AutoZone, Inc. ("AutoZone"), at an aggregate price of
$603,285, net of selling costs, realizing a gain of $70,878 on
the sales. AutoZone's leases allow it to sever properties from
its leases and purchase such properties which it judges to be
unsuitable for its retail business. The Partnership was required
to assign the proceeds of the sales to its lender as a partial
prepayment on the mortgage loan collateralized by the AutoZone
property. In connection with the sales, annual rent of the
AutoZone lease was reduced by $67,635; however, cash flow
increased as annual debt service on the mortgage loan was reduced
by $98,197 as a result of a reamortization of the loan.
13 Environmental Matters:
All of the Partnership's properties, other than the hotel
properties, are currently leased to corporate tenants. All of the
properties are subject to environmental statutes and regulations
regarding the discharge of hazardous materials and related
remediation obligations. The Partnership generally structures a
lease to require the tenant to comply with all laws. In addition,
substantially all of the Partnership's net leases include
provisions which require tenants to indemnify the Partnership
from all liabilities and losses related to their operations at
the leased properties. The costs for remediation, which are
expected to be performed and paid by the affected tenant, are not
expected to be material. In the event that the Partnership
absorbs a portion of any costs because of a tenant's failure to
fulfill its obligations, the General Partners believe such
expenditures will not have a material adverse effect on the
Partnership's financial condition, liquidity or results of
operations.
In 1994, based on the results of Phase I environmental reviews
performed in 1993, the Partnership voluntarily conducted Phase II
environmental reviews on various of its properties. The
Partnership believes, based on the results of such Phase I and
Phase II reviews, that its properties are in substantial
compliance with Federal and state environmental statutes and
regulations. Portions of certain properties have been documented
as having a limited degree of contamination, principally in
connection with leakage from underground storage tanks or surface
spills. For those conditions which were identified, the
Partnership advised the affected tenant of the Phase II findings
and of its obligation to perform required remediation.
14. Disclosures About Fair Value of Financial Instruments:
The carrying amounts of cash, receivables and accounts payable and
accrued expenses approximate fair value because of the short
maturity of these items.
The Partnership estimates that the fair value of mortgage notes
payable approximates the carrying amount of such mortgage notes
at December 31, 1996. The fair value of debt instruments was
evaluated using a discounted cash flow with discount rates which
take into account the credit of the tenants and interest rate
risk. The Partnership note payable is a variable rate obligation
indexed to the three-month LIBOR. Accordingly, the carrying
amount of the note payable approximates fair value as of December
31, 1996.
- 19 -
18
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 6
- a California limited partnership
BY: CAREY CORPORATE PROPERTY, INC.
09/3/97 BY: /s/ Steven M. Berzin
-------- --------------------
Date Claude Fernandez
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
09/3/97 BY: /s/ Claude Fernandez
-------- --------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
- 20 -