UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended DECEMBER 31, 1995
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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
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Commission file number 0-9727
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CORPORATE PROPERTY ASSOCIATES 2
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(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3022196
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 492-1100
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
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(Title of Class)
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(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
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Item 1. Business.
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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 August 9, 1979. The General Partners of Registrant are W. P.
Carey & Co., Inc. (the "Corporate General Partner" or "W.P. Carey") and William
Polk Carey (the "Individual General Partner"). The Corporate General Partner,
the Individual General Partner and/or certain affiliates are also the General
Partners of Corporate Property Associates ("CPA(R):1"), 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 7 - a California limited partnership ("CPA(R):7"),
Corporate Property Associates 8, L.P., a Delaware limited partnership
("CPA(R):8"), Corporate Property Associates 9, L.P., a Delaware limited
partnership ("CPA(R):9") and the advisor of Corporate Property Associates 10
Incorporated ("CPA(R):10"), Carey Institutional Properties Incorporated
("CIP(TM)") and Corporate Property Associates 12 Incorporated ("CPA(R):12").
Registrant has a management agreement with Carey Corporate Property Management
Company ("Carey Management"), a division of W.P. Carey. According to the terms
of this agreement, Carey Management performs a variety of management services
for Registrant. Registrant has entered into agreements with Fifth Rock L.P., an
affiliate, for the purpose of leasing office space. Reference is made to the
Prospectus of Registrant dated January 18, 1980, as supplemented by a Supplement
dated May 7, 1980, filed pursuant to Rules 424(b) and 424(C) under the
Securities Act of 1933 and such Prospectus and such Supplement are incorporated
herein by reference (said Prospectus, as so supplemented, is hereinafter called
the "Prospectus").
Registrant has only one industry segment which consists of the
investment in and the leasing of industrial and commercial real estate. See
Selected Financial Data in Item 6 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 Properties in Item
2. Registrant's entire net proceeds from the public offering, less any return of
capital and a working capital reserve have been fully invested in net leased
commercial and industrial real estate since November 30, 1982, the date of
Registrant's final real estate acquisition.
For the year ended December 31, 1995, revenues from properties occupied
by tenants which accounted for 10% or more of operating revenue were as follows:
Gibson Greetings, Inc. ("Gibson"), 35%; Unisource Worldwide, Inc. ("Unisource"),
27% and Pre Finish, Metals, Inc, ("Pre Finish") 19%. No other property owned by
Registrant accounted for 10% or more of its total operating revenues during
1994. See Note 9 to the Financial Statements in Item 8.
Except for untenanted properties in Reno, Nevada and Greensboro, North
Carolina all of Registrant's real estate 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 for its leased
properties and primary property and liability coverage for the Reno and
Greensboro properties as well as its property in Maumelle, Arkansas which is
reimbursed by tenants. 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 properties and settle
liabilities.
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 (i.e. expenses) reportable on Registrant's leased
properties. As discussed in Registrant's Management's Discussion and Analysis in
Item
- 1 -
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. Registrant's leases have
initial lease terms which generally end between 2001 and 2013 with such leases
providing for multiple renewal terms of generally five or ten years.
Registrant's leases with Pre Finish, Unisource, Gibson and Cleo, Inc. ("Cleo")
include purchase options which provide for purchase of leased properties
exercisable at the greater of fair market value, as defined in the lease, or a
stated amount. No purchase options are exercisable until June 1998.
As Registrant's objective has been to invest in properties which are
occupied by a single corporate tenant and subject to long-term net leases with
such lease obligation backed by the credit of the corporate lessee, Registrant's
properties have not been generally subject to the competitive conditions of
local and regional real estate markets. In selecting its real estate
investments, Registrant's strategy was to identify properties which included
operations of material importance to the lessee so that the lessee may be more
likely to extend its lease beyond the initial term or exercise a purchase option
if such option was provided for in the lease agreement. Registrant believes that
this strategy reduces its exposure to the competitive conditions of the local
and regional real estate markets. Because Registrant may be affected by the
financial condition of its lessees rather than the competitive conditions of the
real estate marketplace, Registrant's strategy has been to diversify its
investments among tenants, property types and industries in addition to
achieving geographical diversification.
Registrant's strategy in acquiring long-term real estate investments
which are not greatly impacted by current competitive conditions has been
effective for leases with AT&T Corporation, Gibson, Pre Finish, Unisource and
Cleo and are not scheduled to expire until after the year 2000.
In April 1995, Registrant entered into a lease with Sports & Recreation,
Inc. ("Sports & Recreation") for Registrant's property in Moorestown, New Jersey
which it owns as a tenant-in-common with CPA(R):3. Sports & Recreation is
currently retrofitting the building for use as a retail store. At the earlier of
May 1, 1996 or the end of the construction period, a 16 year lease term will
commence. Registrant's share of annual rentals will be approximately $121,000
during the first five years with stated increases every five years thereafter.
Registrant and CPA(R):3 have an obligation to reimburse Sports & Recreation for
the costs of replacing the heating, ventilation and air conditioning systems and
installing a new roof and drainage system. Registrant's share of such costs is
estimated to be approximately $292,000.
In November 1995, Registrant and CPA(R):3 which own three properties
leased to Gibson agreed to restructure the Gibson lease and consented to
severing one of the properties from the master lease and entered into a new
lease for such property with Cleo. In connection with consenting to this
restructuring, Registrant received a one-time lump sum payment of $3,477,000. As
amended, Gibson's lease for the properties in Berea, Kentucky and Cincinnati,
Ohio were extended through November 2013 from January 2002. Registrant's share
of annual rents on the two remaining properties will be approximately $733,000,
with 20% increase every five years. In addition, Gibson will have purchase
options to purchase either or both of its leased properties in 2005 and 2010.
The Cleo lease for the property formerly leased to Gibson in Memphis, Tennessee
provides for a ten-year lease term with a rent increase in January 2001.
Registrant's current share of annual rentals is $355,000. Although annual
rentals from the three properties decreased as a result of the modification of
the leases, cash flow will increase as a mortgage loan which was collateralized
by the three properties was paid off at the time the modification agreement was
executed.
In February 1995, Maybelline Products Co. ("Maybelline") net leased 50%
of the available space at the Registrant's distribution facility property in
Maumelle for approximately two years with three two-year renewal options.
Shortly thereafter, Registrant entered into a lease with A-Pak Packaging, Inc.
("A-Pak") for the remaining space. During the fourth fiscal quarter, A-Pak
declared bankruptcy and is in the process of liquidating its assets. Registrant
is currently negotiating a lease with a new lessee which will be retroactive to
February 1996. Due to the short-term nature of the leases at this property,
Registrant's rents are based on the competitive rates for this property.
- 2 -
Registrant voluntarily performed initial environmental reviews of all of
its properties in 1993. Registrant believes, based on the results of such
reviews and Phase II environmental reviews of four of its properties in 1994,
that its properties are in substantial compliance with Federal and state
environmental statutes and regulations. Phase II reviews were performed only on
certain properties based on the recommendations of the Phase I reviews. 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 many instances, tenants are actively
engaged in the remediation process and addressing identified conditions. For
those conditions which were identified, Registrant advised its tenants of such
findings and of their obligations to perform additional investigations and any
required remediation. Tenants are generally subject to environmental statutes
and regulations regarding the discharge of hazardous materials and any related
remediation obligations. In addition, Registrant's leases generally require
tenants to indemnify Registrant from all liabilities and losses related to the
leased properties. Accordingly, Management believes that the ultimate resolution
of the aforementioned environmental matters will not have a material 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. also
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.
- 3 -
Item 2. Properties.
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Registrant's properties are as follows:
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
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GIBSON GREETINGS, Land and Manufacturing Cincinnati, Ownership of a 28.5%
INC. Warehouse Buildings Ohio and interest in land and
2 locations Berea, Kentucky buildings
CLEO, INC. Land and Manufac- Memphis, Ownership of a 28.5%
turing/Warehouse Tennessee interest in land and
Building buildings
UNISOURCE Land and Office/ City of Commerce, Ownership of land
WORLDWIDE, Warehouse/Distri- California and building (1)
INC. bution Center
NEW VALLEY Land and Bridgeton, Ownership of an
CORPORATION Centralized Missouri approximate 39%
Telephone Bureau interest in land
and buildings
SPORTS & Land and Moorestown, Ownership of an
RECREATION, Building New Jersey approximate 39%
INC. interest in land
and buildings
AT&T CORPORATION Land and a Bridgeton, Ownership of an
Computer Center Missouri approximate 39%
interest in land
and building
(2) Land and Reno, Ownership of an
Building Nevada approximate 39%
interest in land
and buildings
PRE FINISH METALS Land and Warehouse/ Walbridge, Ohio Ownership of a 40%
INCORPORATED Manufacturing Plant interest in land
and building (1)
MAYBELLINE Land and Warehouse/ Maumelle, Ownership of land
PRODUCTS CO., INC. Distribution Center Arkansas and building
WEXLER AND WEXLER Land and Retail New Orleans, Ownership of land
Stores LA and building
(2) Land and Retail Greensboro, North 0wnership of land
Stores Carolina and building
COLOR TILE, INC. Land and Retail Store Canton, Ohio Ownership of land
and KINKOS (on adjacent sites) and building
OF OHIO, INC.
(1) These properties are encumbered by mortgage notes payable.
(2) These properties are currently vacant.
- 4 -
The material terms of Registrant's leases with its significant tenants
are summarized in the following table:
Registrant'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)
- -------------- ------------ --------- ------------ ---------- ---------- --------------- ---------------- ------------
Gibson $ 733,429 1,194,840 2.59 04/2010 YES 28.5% interest Fair market $ 3,713,291
Greetings as tenant-in value as
Inc. common; remain- encumbered by
ing interest the lease.
owned by Corp-
orate Property
Associates 3
("CPA(R):3")
Cleo, Inc. 345,600 1,006,566 1.49 12/2005 YES 28.5% interest The greater of 3,152,575
as tenant-in fair market
common; remain- value or
ing interest $4,275,000. Fair
owned by market value is
CPA(R):3 capped at
$4,631,250.
Unisource 1,292,800 411,579 3.14 04/2010 YES 100% The greater of 11,548,299
Worldwide, fair market
Inc. value of the
property or
$10,744,680.
New Valley 240,684 78,080 7.86 11/2001 YES 39% interest; N/A 2,314,551
Corporation as tenant-in-
common,
remaining interest
owned by CPA(R):3
AT&T 292,588 55,810 13.37 11/2001 YES 39% interest; N/A 2,906,368
Corporation as tenant-in-
common,
remaining interest
owned by CPA(R):3
Pre Finish 960,191 (3) 313,704 7.65 06/2003 YES 40% interest; The greater of 6,875,982
Metals as tenant-in- fair market
Incorporated common, value of the
remaining property or
interest owned $5,248,817 plus
by Corporate 2 1/2% thereof per
Property annum, not
Associates compounded,
from 12/9/80 to
the closing date.
Sports & 121,000 (4) 74,066 4.17 05/2012 YES 39% interest; N/A 1,160,000
Recreation, remaining
Inc. interest owed by
CPA(R):3
(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) Partnership's share of equity rent of $27,617 (effective January 1996) plus
variable debt rent.
(4) Commencement of rent is the earlier of May 1, 1992 or completion of
construction.
-5-
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
- --------------------------------------------------------------------------------------------------------------------------------
Unisource
Worldwide,
Inc. 10.00 $5,805,829 1,113,252 05/01/96 5,539,000
Pre Finish Metals
Incorporated 9.25 (1) 1,456,891 628,787 (2) 07/01/98 (3) NO PREMIUM FOR
PREPAYMENT IN FULL OR IN
PART (MINIMUM OF
$500,000).
(1) Variable rate indexed to lender's prime rate.
(2) Estimate based on current interest rates.
(3) Fully amortizing.
Item 3. Legal Proceedings.
------------------
On April 1, 1993, New Valley Corporation, ("New Valley"), a tenant of a
property owned by Registrant and formerly a tenant of two other of Registrant's
properties, filed a petition of voluntary bankruptcy seeking reorganization
under Chapter 11 of the United States Bankruptcy Code. In connection with the
filings, Registrant and Corporate Property Associates 3, which together own the
properties as tenants-in-common, filed a bankruptcy claim in the amount of
$6,766,904. New Valley is contesting the claims and Registrant and New Valley
are now in litigation regarding this claim. The matter is expected to go to
trial in May of 1996. No prediction regarding the outcome of this litigation can
be made at this time.
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, 1995 to a vote of security holders, through the solicitation of
proxies or otherwise.
Part II
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Item 5. Market for Registrant's Common Equity and Related
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Stockholder Matters.
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Information with respect to Registrant's common equity is hereby
incorporated by reference to page 23 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.
- 6 -
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
---------------------
Management's Discussion and Analysis are hereby incorporated by
reference to pages 2 to 5 of Registrant's Annual Report contained in Appendix A.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The following financial statements and supplementary data are hereby
incorporated by reference to pages 6 to 18 of Registrant's Annual Report
--
contained in Appendix A.
(i) Report of Independent Accountants.
(ii) Balance Sheets as of December 31, 1994 and 1995.
(iii) Statements of Income for the years ended December 31, 1993, 1994
and 1995.
(iv) Statements of Partners' Capital for the years ended December 31,
1993, 1994 and 1995.
(v) Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995.
(vi) Notes to Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
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NONE
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PART III
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Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
Registrant has no officers or directors. The directors and executive
officers of the Corporate General Partner are as follows:
Has Served as a
Director and/or
Name Age Positions Held Officer Since (1)
---- --- -------------- -----------------
William Polk Carey 65 Chairman of the Board 8/79
Director
Francis J. Carey 70 President 8/79
Director
George E. Stoddard 79 Chairman of the Investment Committee 8/79
Director
Raymond S. Clark 82 Chairman of the Executive Committee 8/79
Director
Madelon DeVoe Talley 64 Vice Chairman of the Board 4/86
Director
Barclay G. Jones III 35 Executive Vice President 8/82
Director
Lawrence R. Klein 75 Chairman of the Economic Policy 4/84
Committee
Director
Claude Fernandez 43 Executive Vice President 3/83
Chief Administrative Officer
Howard J. Altmann 32 Senior Vice President 8/90
H. Augustus Carey 38 Senior Vice President 8/88
John J. Park 31 Senior Vice President 7/91
Treasurer
Michael D. Roberts 44 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 and Raymond S.
Clark is their brother-in-law. H. Augustus Carey is the nephew of William Polk
Carey and Raymond S. Clark and the son of Francis J. Carey.
A description of the business experience of each officer and director of
the Corporate General Partner is set forth below:
William Polk Carey, Chairman and Chief Executive Officer, has been
active in lease financing since 1959 and a specialist in net leasing of
corporate real estate property since 1964. Before founding W.P. Carey & Co.,
Inc. ("W.P. Carey") in 1973, he served as Chairman of the Executive Committee of
Hubbard,
- 8 -
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, 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 and its medical school, The
James A. Baker III Institute for Public Policy at Rice 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.
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. 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 and has served as a member of the Board of
Trustees of the Investment Program Association since 1990. From April 1987 until
August 1992, he served as counsel to Reed Smith Shaw & McClay, counsel for
Registrant, the General Partners, the CPA(R) Partnerships and W.P. Carey and
some of its affiliates. A real estate lawyer of more than 30 years' experience,
he holds A.B. and J.D. degrees from the University of Pennsylvania.
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.
Raymond S. Clark is former President and Chief Executive Officer of the
Canton Company of Baltimore and the Canton Railroad Company. A graduate of
Harvard College and Yale Law School, he is presently a Director and Chairman of
the Executive Committee of W.P. Carey and served as Chairman of the Board of
W.P. Carey from its founding in 1973 until 1982. He is past Chairman of the
Maryland Industrial Development Financing Authority.
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 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. Besides
her duties at W.P. Carey, Mrs. Talley is also a former Governor of the N.A.S.D.
and is 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 Affairs at Columbia University.
Barclay G. Jones III, Executive Vice President, Managing Director, and
co-head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant
to the President in July 1982 after his graduation from the Wharton School of
the University of Pennsylvania, where he majored in Finance and Economics. He
was elected to the Board of Directors of W.P. Carey in April 1992. Mr. Jones is
also a Director of the Wharton Business School Club of New York.
- 9 -
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.
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.
Howard J. Altmann, Senior Vice President, Investment Department, joined
W.P. Carey in August 1990. He was a securities analyst at Goldman Sachs & Co.
for the retail industry from 1986 to 1988. Mr. Altmann received his
undergraduate degree in economics and finance from McGill University and his
M.B.A. from the Stanford University Graduate School of Business.
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in
1988. 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.
John J. Park, Senior Vice President and Treasurer, 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, where he attained the title of audit manager. A certified public
accountant, Mr. Roberts received a B.A. from Brandeis University and an M.B.A.
from Northeastern University.
Item 11. Executive Compensation.
----------------------
Under the Amended Agreement of Limited Partnership of Registrant (the
"Agreement"), 9/10th of 1% of Distributable Cash From Operations is payable to
the Corporate General Partner and 1/10 of 1% of Distributable Cash From
Operations, as defined, is payable to the Individual General Partner. The
Corporate General Partner and the Individual General Partner received $13,425
and $1,492, respectively, from Registrant as their share of Distributable Cash
From Operations during the year ended December 31, 1995. As owner of 200
Limited Partnership Units, the Corporate General Partner received cash
distributions of $5,370 during the year ended December 31, 1995. 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 or any other affiliate of
Registrant during the year ended December 31, 1995. Although Registrant is
authorized to pay the Individual General Partner a fee of up to $15,000 in any
year beginning after December 31, 1978, no fee will be paid so long as Mr. Carey
is the Individual General Partner and no fee may be paid to any successor
Individual General Partner appointed by Mr. Carey pursuant to the Agreement.
In the future, the Corporate General Partner will continue to receive
9/10th of 1% of Distributable Cash From Operations, the Individual General
Partner will continue to receive 1/10th of 1% of Distributable Cash From
Operations and each General Partner will continue to be allocated the same
percentage of the profits and losses of Registrant as had been allocated in the
past. For a description of the subordinated interest of the Corporate General
Partner and the Individual General Partner in Cash From Sales and Cash From
Financings, reference is made to the materials contained in the Prospectus under
the heading MANAGEMENT COMPENSATION.
- 10 -
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
As of December 31, 1995, no person owned of record, or was known by
Registrant to own beneficially more than 5% of the Limited Partnership Units of
Registrant.
The following table sets forth as of March 20, 1996 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 (1) of Class
- ------------------------ ---------------------- ------------------------ ---------
Limited
Partnership Units William Polk Carey (1) 210 units .38%
Francis J. Carey
George E. Stoddard
Raymond S. Clark 26 .05
Madelon DeVoe Talley
Barclay G. Jones III
Lawrence R. Klein
Claude Fernandez
Howard J. Altmann
H. Augustus Carey 20 .04
John J. Park
Michael D. Roberts ___ ____
All executive officers
and directors as a
group (12 persons) 256 units .47%
=== ====
(1) As of March 20, 1996, the Corporate General Partner, W. P. Carey & Co.,
Inc., owned 200 Limited Partnership Units of Registrant. William Polk
Carey, the sole 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 Financial Statements in Item 8. Michael B. Pollack, First Vice
President and Secretary of the Corporate General Partner and certain of its
affiliates, 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 or any other
affiliate of Registrant or any member of the immediate family or associated
organization of any such officer or director was indebted to Registrant at any
time since the beginning of Registrant's last fiscal year.
- 11 -
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on
------------------------------------------------------
Form 8-K
--------
(a) 1. Financial Statements:
--------------------
The following financial statements are filed as a part of this Report:
Report of Independent Accountants.
Balance Sheets, December 31, 1994 and 1995.
Statements of Income for the years ended December 31, 1993, 1994 and 1995.
Statements of Partners' Capital for the years ended December 31, 1993, 1994
and 1995.
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995.
Notes to Financial Statements.
The financial statements are hereby incorporated by reference to pages 6
to 18 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, 1995.
Notes to Schedule III.
Schedule III and notes thereto are hereby incorporated by reference to pages
19 to 21 of Registrant's Annual Report contained in Appendix A.
- --------
Financial Statement Schedules other than those listed above are omitted
because the required information is given in the Financial Statements, including
the Notes thereto, or because the conditions requiring their filing do not
exist.
- 12 -
(a) 3. Exhibits:
---------
The following exhibits are filed as part of this Report. Documents
other than those designated as being filed herewith are incorporated herein by
reference.
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
3.1 Amended Agreement of Limited Partnership of Exhibit 3(B) to Regis-
Registrant dated as of November 1, 1979. tration Statement (Form
S-11) No. 2-65357
3.2 Amendment No. 1 dated April 29, 1980 to Exhibit 12 to Form 8-K
Amended Agreement of Limited Partnership filed May 12, 1980
of Registrant.
4.1 $21,000 Promissory Note dated November 30, Exhibit 4.1 to Form 8-K
1982 of Registrant to Sunkist Service filed December 14, 1982
Company.
4.6 Assignment of Lease and Rents dated Exhibit 4.6 to Form 8-K
November 30, 1982 from Registrant to dated December 14, 1982
Sunkist Service Company re: property
leased to Heekin Can Company, Inc.
in Springdale, Arkansas.
4.11 Assignment of Lease and Rents dated Exhibit 4.11 to Form 8-K
November 30, 1982 from Registrant to dated December 14, 1982
Sunkist Service Company re: property
leased to Pearle Vision Center, Inc.
(a subsidiary of G.D. Searle & Co.)
in Canton, Ohio.
4.13 Assignment of Lease and Rents dated Exhibit 4.13 to Form 8-K
November 30, 1982 from Registrant to dated December 14, 1982
Sunkist Service Company re: property
leased to Color Tile Supermarket, Inc.
in Canton, Ohio.
4.16 Assignment to furnish instruments de- Exhibit 4.7 to Form 10-K
fining the rights of holders of dated March 31, 1982
long-term debt of Registrant.
4.24 $14,200,000 Note dated April 25, 1986 from Exhibit 4.6 to Form 8-K
Registrant to Bankers Life. dated May 15, 1986
4.25 Deed of Trust, Assignment of Rents, Fixture Exhibit 4.7 to Form 8-K
Filing and Security Agreement dated April 25, dated May 15, 1986
1986 by Registrant, as Trustor, Lawyers Title
Insurance Company, as Trustee, and Bankers
Life, as Beneficiary, affecting property
located in Commerce, CA.
4.27 Clarification Agreement and Amendment of Exhibit 4.9 to Form 8-K
Mortgage Indenture and Deed of Trust of dated May 15, 1986
May 1, 1986.
- 13 -
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
4.29 Assignment of Leases and Rents dated as of Exhibit 4.11 to Form
April 25, 1986 from Registrant to Bankers 8-K dated May 15, 1986
Life (Commerce, CA Property).
4.36 $11,000,000 Note dated May 30, 1986 Exhibit 4.2 to Form 8-K
from Creditanstalt-Bankverein dated July 14, 1986
("Creditanstalt"), as Lender, to the
Registrant and CPA(R):1, as Borrower.
4.37 Note Purchase Agreement dated as of Exhibit 4.3 to Form 8-K
May 30, 1986 between Material dated July 14, 1986
Sciences Corporation ("MSC"), as
Purchaser, and Creditanstalt,
as Lender.
4.38 Letter dated June 27, 1986 from Exhibit 4.4 to Form 8-K
Registrant and CPA(R):1 to Pre Finish dated July 14, 1986
Metals Incorporated ("PFM") and MSC
regarding Note Purchase Agreement.
4.39 Mortgage and Security Agreement Exhibit 4.5 to Form 8-K
dated as of May 30, 1986 between dated July 14, 1986
Registrant and CPA(R):1, as Mortgagor,
and Creditanstalt, as Mortgagee
and Secured Party.
4.40 Assignment of Agreements dated as of Exhibit 4.6 to Form 8-K
May 30, 1986 from the Registrant and dated July 14, 1986
CPA(R):1, as Assignors, to Creditanstalt,
as Assignee.
4.41 Assignment of Sublease dated as of Exhibit 4.7 to Form 8-K
May 30, 1986 from PFM, as Assignor, dated July 14, 1986
to the Registrant and CPA(R):1, as
Assignees.
4.42 Letter Agreement dated June 26, 1986 Exhibit 4.8 to Form 8-K
among Creditanstalt, as Lender, and dated July 14, 1986
MSC and PFM.
4.43 Joint Tenancy Agreement dated Exhibit 4.9 to Form 8-K
May 30, 1986 between Registrant and CPA(R):1. dated July 14, 1986
4.44 Agreement of Sale dated July 11, 1986 Exhibit 4.1 to Form 8-K
between Registrant and General Refractories dated July 29, 1986
Company.
10.1 Management Agreement between Registrant Exhibit 12(c) to
and Carey Corporate Property Management, Registration Statement
Inc. (Form S-11)
No. 2-65357
- 14 -
Exhibit Method of
No. Description Filing
- ---------- --------------------------------------------- --------------------------
10.2 Amendment No. 1 dated April 29, 1980 to Exhibit 13 to Form 8-K
Management Agreement between Registrant dated May 12, 1980
and Carey Corporate Property Management,
Inc.
10.3 Support Agreement among Registrant, Second Exhibit 12(D) to Regis-
Carey Corporate Property, Inc. and W. P. tration Statement (Form
Carey & Co., Inc. S-11) No. 2-65357
10.5 Straw Party Agreement by and among Line 6 Exhibit 10.8 to Form 10-K
Corp., Registrant and Corporate Property dated March 31, 1982
Associates dated December 11, 1980.
10.6 Lease and Agreement between Line 6 Corp. Exhibit 10.9 to Form 10-K
and Pre Finish Metals Incorporated dated March 31, 1982
dated as of December 1, 1980.
10.7 Lease Agreement dated January 25, 1982 Exhibit 1 to Form 8-K
between Registrant and CPA(R):3, as landlord, dated February 10, 1982
and Gibson Greeting Cards, Inc., as tenants.
10.8 Indenture of Lease dated September 16, Exhibit 10(H) to Post-
1971 between Western Union Realty Effective Amendment No. 1
Corporation ("WURC"), as landlord, and to Registration Statement
The Western Union Telegraph Company (Form S-11) No. 2-70773
("WUTCO"), as tenant. of Corporate Property
Associates 3 ("CPA(R):3")
10.9 Amendment of Lease dated March 27, 1972 Exhibit 10(H)(5) to Post-
between WURC and WUTCO. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.10 Second Amendment of Lease dated Exhibit 10(H)(6) to Post-
November 16, 1981 between WURC and Effective Amendment No. 1
WUTCO. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.11 Assignment of Lease from WUTCO to CPA(R):3 Exhibit 10(H)(7) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.12 Indenture of Lease dated November 14, Exhibit 10(H)(14) to Post-
1972 between WURC, as landlord, and Effective Amendment No. 1
Western Union Corporation ("WUC"), to Registration Statement
as tenant. (Form S-11) No. 2-70773 of
CPA(R):3
- 15 -
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
10.13 Amendment of Lease dated December 12, Exhibit 10(H)(15) to Post-
1972 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.14 Amendment of Lease dated April 30, 1973 Exhibit 10(H)(16) to Post-
between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.15 Third Amendment of Lease Agreement dated Exhibit 10(H)(17) to Post-
November 12, 1981 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.16 Assignment of Lease from WURC to CPA(R):3 Exhibit 10(H)(18) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.17 Indenture of Lease dated July 12, 1972 Exhibit 10(H)(24) to Post-
between WURC, as landlord, and WUC, Effective Amendment No. 1
as tenant. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.18 Amendment of Lease dated March 1, 1973 Exhibit 10(H)(25) to Post-
between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.19 Second Amendment of Lease Agreement dated Exhibit 10(H)(26) to Post-
November 16, 1981 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.20 Assignment of Lease from WURC to CPA(R):3 Exhibit 10(H)(27) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.21 Indenture of Lease dated December 18, Exhibit 10(H)(34) to Post-
1973 between WURC, as landlord, and Effective Amendment No. 1
WUC, as tenant. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
- 16 -
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
10.22 Second Amendment of Lease Agreement dated Exhibit 10(H)(35) to Post-
November 16, 1981 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.23 Assignment of Lease from WURC to CPA(R):3 Exhibit 10(H)(36) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773 of
CPA(R):3
10.25 Contract of Sale dated November 16, 1981 Exhibit 10.11 to Form 10-K
between Western Union Realty Corporation, dated March 31, 1982
as seller, and Registrant and CPA(R):3, as
purchasers.
10.26 Letter of Intent from Registrant to Gibson Exhibit 2.1 to Form 8-K
Realty, Inc. and Wesray Packing, Inc. dated October 6, 1982
dated September 22, 1982.
10.27 First Amendment to Lease and Exhibit 10.2 to Form 8-K
Agreement dated as of May 30, 1986 dated July 14, 1986
between Registrant and CPA(R):1, as
Lessor, and PFM, as Lessee.
10.28 Memorandum of First Amendment to Exhibit 10.3 to Form 8-K
Lease and Agreement dated May 30, dated July 14, 1986
1986 between Registrant and CPA(R):1,
as Lessor, and PFM, as Lessee
10.29 Letter dated June 30, 1986 from Exhibit 10.4 to Form 8-K
Creditanstalt to PFM regarding dated July 14, 1986
Lease as amended by First Amendment
to Lease and Agreement, dated May
30, 1986.
10.30 Lease Guaranty dated as of May 30, Exhibit 10.5 to Form 8-K
1986 from MSC to Registrant and dated July 14, 1986
CPA(R):1 and Creditanstalt.
10.31 Sublease dated as of May 30, 1986 Exhibit 10.6 to Form 8-K
between PFM and Walbridge Coatings dated July 14, 1986
("Walbridge").
10.32 Memorandum of Sublease dated as of Exhibit 10.7 to Form 8-K
May 30, 1986 by and between PFM and dated July 14, 1986
Walbridge.
10.33 Letter of Agreement dated November 24, 1992 Exhibit 10.1 to Form 8-K
between Registrant and Heekin Can, Inc. dated December 10, 1992
10.34 Lease Agreement dated November 15, 1995 Filed herewith.
by and between Registrant and CPA(R):3, as
Landlord, and Cleo, Inc., as Tenant.
- 17 -
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
10.35 Lease Amendment Agreement dated
November 15, 1995 Filed herewith.
by and between Registrant and
CPA(R):3, as Landlord, and Gibson
Greetings, Inc., as Tenant.
28.1 Instruction Letters from Cigna Exhibit 28.1 to Form 8-K
Corporation dated June 25, 1986 to dated July 14, 1986
Creditanstalt and Louisville Title
Agency regarding repayment of loan.
28.2 Estoppel Certificate dated as of Exhibit 28.2 to Form 8-K
June 30, 1986 from PFM to dated July 14, 1986
Creditanstalt.
28.3 Estoppel Certificate dated as of Exhibit 28.3 to Form 8-K
June 30, 1986 from Walbridge to dated July 14, 1986
Creditanstalt.
28.4 Seller's/Lessee's Certificate dated Exhibit 28.4 to Form 8-K
as of June 30, 1986 from PFM to dated July 14, 1986
Registrant and CPA(R):1.
28.5 Bill of Sale dated as of May 30, Exhibit 28.5 to Form 8-K
1986 from PFM to Registrant and dated July 14, 1986
CPA(R):1.
28.6 Deed dated as of May 30, 1986 from Exhibit 28.6 to Form 8-K
PFM to Registrant and CPA(R):1. dated July 14, 1986
28.7 Press release regarding Letter of Exhibit 28.1 to Form 8-K
Agreement. dated December 10, 1992
28.8 Prospectus of Registrant Filed as Exhibit 28.8 to
dated January 18, 1980. Form 10-K/A dated
September 24, 1993
28.9 Supplement dated May 7, 1980 Filed as Exhibit 28.9 to
to Prospectus dated January 18, 1980. Form 10-K/A dated
September 24, 1993
28.10 Press release dated June 30, 1993 Exhibit 28.1 to Form 8-K
announcing the suspension of secondary dated July 12, 1993
market sales of Limited Partnership Units.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter of the
year ended December 31, 1995.
- 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 2
(a California limited partnership)
BY: W. P. CAREY & CO., INC.
04/08/96 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: W. P. CAREY & CO., INC.
William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
Francis J. Carey
President and Director
George E. Stoddard BY: /s/ George E. Stoddard
Chairman of the Investment -----------------------
Committee and Director George E. Stoddard
Attorney in fact
April 8, 1996
Dr. Lawrence R. Klein
Chairman of the Economic Policy
Committee and Director
Madelon DeVoe Talley
Vice Chairman of the Board of
Directors and Director
04/08/96 BY: /s/ Claude Fernandez
- -------------- -----------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
04/08/96 BY: /s/ Michael D. Roberts
-------------- -----------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 19 -
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 2
(A CALIFORNIA LIMITED PARTNERSHIP)
1995 ANNUAL REPORT
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except per unit amounts)
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
OPERATING DATA:
Revenues $ 9,756 $ 9,764 $ 6,666 $ 5,161 $ 5,186
Income before 4,991 4,967 10,711 1,732 2,596
extraordinary item (1)
Income before extraordinary
item allocated:
To General Partners 50 50 107 17 26
To Limited Partners 4,941 4,917 10,604 1,715 2,570
Per unit 89.83 89.40 192.80 31.18 46.75
Distributions attributable (2)(3):
To General Partners 38 39 21 15 15
To Limited Partners 3,808 3,873 16,352 1,447 1,495
Per unit 69.24 70.42 297.31 26.31 27.19
Payment of mortgage
principal (4) 1,818 1,985 1,675 1,617 1,490
BALANCE SHEET DATA:
Total assets 63,934 63,247 41,736 40,571 33,123
Long-term
obligations (5) 31,720 28,861 15,758 13,973 939
(1) 1993 net income includes a $7,857,000 gain on sale of properties, net of an
extraordinary loss on extinguishment of nonrecourse debt of the disposed
properties.
(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) 1993 distributions include a special distribution of $260 per Limited
Partnership Unit ($14,300,000).
(4) Represents scheduled mortgage principal amortization paid.
(5) Represents mortgage obligations due after more than one year.
- 1 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Results of Operations
---------------------
Net income for the year ended December 31, 1995 increased by $864,000 as
compared with net income for the prior year. Of such increase, $123,000 was due
to nonrecurring items which are classified as other income in the accompanying
Financial Statements. Excluding the effects of the nonrecurring items and the
$446,000 writedown of a property to net realizable value in 1994, the
Partnership would have reflected an increase in income of $295,000. The
increase in income, as adjusted, was due to decreases in interest and property
expenses and was partially offset by a modest decrease in lease revenues. The
decrease in interest expense resulted from the prepayment of three mortgage
loans on properties leased or formerly leased to New Valley Corporation ("New
Valley") in the first quarter of 1995 and the prepayment of the mortgage loan on
the Gibson Greetings, Inc. ("Gibson"), properties in November 1995 in connection
with the restructuring of the Gibson lease. The decrease in property expenses
was due to the costs incurred in 1994 in connection with the Partnership's
assessment of its liquidity alternatives which included environmental reviews
and property valuations. Lease revenues decreased by $59,000 as the result of
the restructuring of the Gibson lease, as described below, and the termination
of the New Valley lease in Reno, Nevada on December 31, 1994. The Gibson and
New Valley decreases were partially offset by the leasing of the Maumelle,
Arkansas distribution facility in 1995 to Maybelline Products Co. Inc.
("Maybelline") and A-Pak Packaging, Inc. ("A-Pak"). The substantial increase in
cash flow provided from operations was primarily due to the receipt of a lump
sum payment of $3,477,000 ($3,238,000, net of costs) in connection with the
Gibson lease restructuring.
As more fully described in Note 11 to the Financial Statements, the
Partnership received the lump sum payment of $3,477,000 in connection with the
modification of the Gibson lease. The Partnership severed one of three
properties from the Gibson master lease, modified the master lease for the
remaining two properties and entered into a new lease with a new lessee, Cleo,
Inc. ("Cleo"), at the severed property. Annual gross revenue from the three
properties subsequent to these modifications has been reduced. For financial
reporting purposes, income from this transaction has been deferred and will be
recognized over the remaining terms of the Gibson and Cleo leases.
Net income for the year ended December 31, 1994 decreased as compared
with the year ended December 31, 1993. The results of operations for the year
are not directly comparable as the year ended December 31, 1993 includes the
gain on the sale of the Heekin Can, Inc. ("Heekin") properties, the related
extraordinary charge on the prepayment of the Heekin mortgage debt as well as
$885,000 of operating income (rental income of $1,367,000 less interest expense
of $435,000 and property management fees of $47,000) from the Heekin properties
prior to the sale. Excluding the effect of income from the Heekin properties
prior to the 1993 sale, income before gains on sale and extraordinary items
would have increased by $396,000 in 1993 as compared with 1994. Accordingly,
cash provided from operations decreased by $323,000 in 1994 as compared with
1993, after adjusting for the $885,000 provided to operations by the Heekin
properties in 1993. Lease revenues for 1994 decreased by $1,582,000 as a result
of the Heekin disposition and the decrease in rentals of $234,000 from the
Maumelle, Arkansas property which was vacated by Family Dollar Stores Inc. in
March 1994.
The Partnership expects the trend of decreasing interest expense to
continue due to the satisfaction of the mortgage loans on the New Valley and
Gibson Properties in 1995 and the satisfaction of the mortgage loan on the Pre
Finish Metals Incorporated ("Pre Finish") property which is scheduled to fully
amortize in 1997. In addition, cash flow should benefit from scheduled rent
increases over the next several years. Effective January 1996, the equity
component of the Pre Finish rent has increased by $24,000 per annum. There are
also scheduled increases in 1997 on the New Valley and AT&T Corporation leases.
In May 1996, the Partnership is scheduled to start receiving rent of $121,000
per year from its lease with Sports & Recreation, Inc. ("Sports & Recreation")
on the Moorestown, New Jersey property. Sports & Recreation is in the process of
retrofitting the Moorestown property for use as a retail store. Annual rentals
on the two Gibson properties and the Cleo property which had formerly been
leased to Gibson are $733,000 and $355,000, respectively. Prior to the
modification of the Gibson lease, the Partnership's annual rentals from the
properties were $1,848,000. Although annual revenues from these properties will
be reduced by $760,000, the
- 2 -
Partnership had been paying annual debt service of $1,166,000 on the Gibson
mortgage loan which is no longer being paid. Therefore, annual cash flow from
the Gibson and Cleo properties will reflect an increase of $406,000 in spite of
the reduction in rental income. The Gibson mortgage loan had been scheduled to
mature with a balloon payment of $5,872,000 in 1996 and the Partnership would
have attempted to refinance the loan at that time. It is possible that the
Partnership would have realized a reduction in debt service on any refinancing.
In the fourth quarter of 1995, A-Pak filed a petition of bankruptcy and
vacated its space at the Maumelle facility. The Partnership is in the process of
negotiating a short-term lease (approximately two years) for the space at an
amount similar to the rent paid by A-Pak. The Partnership's lease with
Maybelline which provides annual rentals of $156,000 expires on December 31,
1996 and includes three two-year renewal terms at Maybelline's option. Although
lease revenue may decrease as a result of the Gibson modification, cash flow
from operating activities should remain stable or increase. Cash flow from
operating activities would be reduced if Maybelline does not renew its lease.
The Partnership is currently attempting to remarket the property in Reno. Annual
carrying costs for the Reno property are currently $80,000 and annual carrying
costs on the Greensboro property are estimated to be less than $10,000. The
Partnership is currently negotiating to lease the Greensboro property which
provided annual revenue of $21,000 under a prior lease which terminated in 1995.
As a result of restructuring the Gibson lease, the Partnership's annual revenues
from Gibson will decrease from 35% to approximately 17% of lease revenues
providing greater diversification; however, the impact of the restructuring will
increase lease rentals received from Unisource Worldwide, Inc. ("Unisource") to
approximately 30%. As Gibson, Pre Finish and Unisource, will represent
approximately 70% of lease revenues in 1996 and thereafter, the Partnership
would be significantly affected if any of these lessees could not meet their
lease obligations. There is no indication that any of these three lessees is
currently experiencing financial difficulties. The Partnership may incur costs
in the future in connection with a reassessment of liquidity alternatives.
Because of the long-term nature of the Partnership's net leases,
inflation and changes in prices have not unfavorably affected the Partnership's
net income or had an impact on the continuing operations of the Partnership's
properties. All of the Partnership's net leases have either periodic mandated
rent increases, sales overrides or periodic rent increases based on formulas
indexed to increases in the Consumer Price Index ("CPI"), and may have caps on
such CPI increases. Although increases in the CPI have been relatively moderate
over the past several years, the Partnership should not be significantly
impacted as several of its leases provide for stated rent increases rather than
increases based on CPI formulas.
Financial Condition
-------------------
Except for the vacant properties in Reno, Nevada and Greensboro, North
Carolina, all of the Partnership's properties are leased to corporate tenants
under net leases which generally require the tenants to pay all operating
expenses relating to the leased properties. The Partnership depends on a
relatively stable operating cash flow from its net leases to meet operating
expenses and fund quarterly distributions to partners. The capital structure of
the Partnership changed significantly during the year as its mortgage debt
decreased by approximately 54% due to the prepayment of four mortgage loans. Of
the Partnership's two remaining mortgage loans, one has a balloon payment
scheduled in 1996 with the other loan fully amortizing in 1998. Primarily as a
result of the $8,495,000 pay down of mortgage debt, the Partnership's cash
balances decreased by $3,608,000 to $578,000.
Cash provided from operations increased by $3,393,000 to $6,164,000 with
most of the increase related to the receipt of the lump sum payment from Gibson.
The net proceeds from the Gibson transaction were used to satisfy a mortgage
loan, and the remaining $2,926,000 of cash provided from operations along with
$56,000 of cash reserves were used to pay quarterly distributions to partners
and scheduled principal payments on mortgages.
Cash reserves utilized in paying distributions include cash that was
provided by operating activities in prior periods as well as cash provided by
investing activities. As the cash flow from operating and investing activities
may exceed earnings, distributions may also be in excess of net income per
Limited Partnership Unit. During the five year period ended December 31, 1995,
1993 is the only year in which distributions exceeded net income. In 1993,
limited partner distributions exceeded net income per Limited
- 3 -
Partnership Unit income by $125.02. This was primarily due to the special
distribution of $260 per Unit from proceeds of the Heekin sale. The per Unit
earnings from the gain on the sale of the Heekin properties, net of charges
related to paying off the related mortgage debt, was $141.42.
The Partnership's financing activities in 1995 consisted of the
prepayment of four of the Partnership's mortgage loans, meeting scheduled
principal payments on debt and payment of distributions to the partners of
$1,492,000. In order to take advantage of the benefits created by the
restructuring of the Gibson lease and the opportunity to retire above-market
rate mortgage debt, the Partnership used substantially all of its cash reserves
and proceeds from the Gibson lease restructuring payment to fund the retirement
of various loans. In addition, the Partnership executed a loan, payable on
demand, of $250,000 from the Corporate General Partner in order to support cash
reserves. The loan was repaid in March 1996. As a result of the modification of
the Gibson lease, and the retirement of high rate debt the Partnership expanded
its unused borrowing capacity and expects that future cash flows from operations
will increase.
The Partnership may require additional loans from the Corporate General
Partner to fund short term liquidity needs while it reviews existing loans and
unleveraged properties for appropriate refinancing opportunities. The
Partnership anticipates the payment of a special distribution to partners of $15
per Limited Partnership Unit, subject to certain conditions, in connection with
the benefits realized from the Gibson lease restructuring. Future operating cash
flows from operations are expected to remain stable or increase as a result of
the loan prepayment and lease modification transactions accomplished in 1995.
The Partnership's expected cash flows from operations are expected to be
adequate to allow it to meet its operating cash needs and satisfy its recurring
quarterly distribution objectives. In addition, the Partnership's unused
borrowing capacity should be sufficient to satisfy repayment of maturing debt
and other capital requirements, if necessary.
The Partnership's investing activity for the periods presented in the
financial statements consists primarily of proceeds from sales of real estate in
1993 and 1994. Pursuant to its lease with Sports & Recreation, the Partnership
has an obligation to reimburse Sports & Recreation for certain retrofitting
costs which are currently estimated to be $292,000. It is currently anticipated
that such costs will be funded from operating cash flow; however, as described
above, the Partnership may need to utilize certain of the additional amounts
advanced by the Corporate General Partner.
Beginning June 30, 1998, Pre Finish has an option to purchase its leased
property upon six months notice with such option period ending in 2003. The
option would be exercisable at the greater of fair marketable value or
$5,249,000 plus 2 1/2% thereof compounded from December 1998 to the closing
date. As the mortgage loan on the Pre Finish property will have amortized by the
June 30, 1998, the Partnership would retain full proceeds of a sale. Annual cash
flow (rentals less debt service on the mortgage loan) from the Pre Finish
property is $331,000. In addition, Cleo has an option to purchase its property
which is exercisable at any time with at least six months notice.
In connection with the termination of the Moorestown and Reno leases,
the Partnership expects to receive a bankruptcy settlement; however, the amount
of such settlement cannot be estimated and no amounts that the Partnership may
ultimately receive have been recorded in the accompanying financial statements.
The Partnership's mortgage loan on the Unisource property is scheduled
to mature in May 1996. The Partnership is in the process of seeking to refinance
the loan for an amount necessary to satisfy the balloon payment. In the unlikely
event that the Partnership is unable to refinance the Unisource loan, the
Partnership lacks the funds to pay such loan off from its current cash reserves
in which event it could attempt to obtain mortgage financing on unleveraged
properties. As the Unisource mortgage loan is a nonrecourse obligation, the
Partnership would be responsible for the balloon payment only to the extent of
its interest in the encumbered property because the holder of such obligation
has recourse only to the property collateralizing such debt. In the event that
the balloon payment is not made, the Partnership could seek to restructure the
debt with the existing lenders, or sell the property and use the sales proceeds
to satisfy the mortgage debt.
- 4 -
All of the Partnership's properties are subject to environmental
statutes and regulations regarding the discharge of hazardous materials and
related remediation obligations. All but two of the Partnership's properties are
currently leased to corporate tenants. The Partnership generally structures a
lease to require the tenant to comply with all laws. In addition, substantially
all of the Partnership's net leases include provisions which require tenants to
indemnify the Partnership from all liabilities and losses related to their
operations at the leased properties. If the Partnership undertakes to clean up
or remediate any of its properties, the General Partners believe that in most
cases the Partnership will be entitled to reimbursement from tenants for such
costs. In the event that the Partnership absorbs a portion of such costs because
of a tenant's failure to fulfill its obligations (or because a property
currently has no tenant), 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, the Partnership voluntarily conducted Phase II environmental
reviews of certain of its properties based on the results of Phase I
environmental reviews conducted in 1993. The Partnership believes, based on the
results of such reviews, that its properties are in substantial compliance with
Federal and state environmental statutes and regulations. Portions of certain
properties have been documented as having a limited degree of contamination,
principally in connection with either leakage from underground storage tanks or
surface spills from facility activities. For those conditions which were
identified, the Partnership advised the affected tenant of the Phase II findings
and of its obligation to perform required remediation.
Effective January 1, 1995, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("SFAS
121"). Pursuant to SFAS 121, the Partnership assesses the recoverability of its
real estate assets, including residual interests, based on projections of cash
flows over the life of such assets. In the event that such cash flows are
insufficient, the assets are adjusted to their estimated net realizable value.
The adoption of SFAS 121 did not have a material effect on the Partnership's
financial condition or results of operations.
- 5 -
REPORT of INDEPENDENT ACCOUNTANTS
To the Partners of
Corporate Property Associates 2:
We have audited the accompanying balance sheets of Corporate Property
Associates 2 (a California limited partnership) as of December 31, 1994 and
1995, and the related statements of income, partners' capital and cash flows for
each of the three years in the period ended December 31, 1995. We have also
audited the financial statement schedule included on pages 19 to 21 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Corporate Property
Associates 2 (a California limited partnership) as of December 31, 1994 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the Schedule of
Real Estate and Accumulated Depreciation as of December 31, 1995, 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 29, 1996
- 6 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
BALANCE SHEETS
December 31, 1994 and 1995
1994 1995
---- ----
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 4,850,433 $ 4,850,433
Buildings 12,548,662 12,555,513
----------- -----------
17,399,095 17,405,946
Accumulated depreciation 4,831,468 5,351,359
----------- -----------
12,567,627 12,054,587
Net investment in direct financing leases 23,265,769 20,060,127
----------- -----------
Real estate leased to others 35,833,396 32,114,714
Cash and cash equivalents 4,185,923 577,506
Accrued interest and rents receivable, net of
reserve for uncollected rents of $22,660 in 1995 461,360 348,201
Other assets, net of accumulated amortization of
$148,621 and $83,725 in 1994 and 1995 90,063 82,862
----------- -----------
Total assets $40,570,742 $33,123,283
=========== ===========
LIABILITIES:
Mortgage notes payable $15,757,586 $ 7,262,720
Note payable to affiliate 250,000
Accrued interest payable 182,839 109,632
Accounts payable and accrued expenses 249,991 74,884
Accounts payable to affiliates 53,037 57,263
Prepaid rental income 33,877
Security deposits 282,800 282,800
----------- -----------
Total liabilities 16,560,130 8,037,299
----------- -----------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners 185,844 196,888
Limited Partners (55,000 and 54,900 Limited
Partnership Units issued and outstanding at
December 31, 1994 and 1995) 23,824,768 24,889,096
----------- -----------
Total partners' capital 24,010,612 25,085,984
----------- -----------
Total liabilities and
partners' capital $40,570,742 $33,123,283
=========== ===========
The accompanying notes are an integral part of the financial statements.
- 7 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
STATEMENTS of INCOME
For the years ended December 31, 1993, 1994 and 1995
1993 1994 1995
---- ---- ----
Revenues:
Rental income $ 1,729,958 $1,513,091 $1,717,457
Interest income from direct financing leases 4,803,389 3,437,921 3,174,996
Other interest income 132,380 186,038 170,631
Other income 24,397 122,720
----------- ---------- ----------
6,665,727 5,161,447 5,185,804
----------- ---------- ----------
Expenses:
Interest 2,142,199 1,593,880 1,351,797
Depreciation 501,762 501,657 519,891
General and administrative 290,658 276,283 298,974
Property expense 533,865 618,277 402,928
Amortization 22,046 17,195 16,133
Writedown to net realizable value 841,889 445,551
----------- ---------- ----------
4,332,419 3,452,843 2,589,723
----------- ---------- ----------
Income before gains on sale of real
estate and extraordinary charge 2,333,308 1,708,604 2,596,081
Gains on sale of real estate 8,377,679 23,451
----------- ---------- ----------
Income before extraordinary charge 10,710,987 1,732,055 2,596,081
Extraordinary charge on
extinguishment of debt 520,979
----------- ---------- ----------
Net income $10,190,008 $1,732,055 $2,596,081
=========== ========== ==========
Net income allocated to:
Individual General Partner $ 10,190 $ 1,732 $ 2,596
=========== ========== ==========
Corporate General Partner $ 91,710 $ 15,589 $ 23,365
=========== ========== ==========
Limited Partners $10,088,108 $1,714,734 $2,570,120
=========== ========== ==========
Net income per Unit:
(55,000 Limited Partnership Units
in 1993 and 1994 and 54,975 weighted
average Units in 1995)
Income before extraordinary item $192.80 $31.18 $46.75
Extraordinary item (9.38)
------- ------ ------
$183.42 $31.18 $46.75
======= ====== ======
The accompanying notes are an integral part of THE FINANCIAL STATEMENTS.
- 8 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
STATEMENTS of PARTNERS' CAPITAL
For the years ended December 31, 1993, 1994 and 1995
Partners' Capital Accounts
--------------------------------------------------
Limited
Partners'
General Limited Amount Per
Total PARTNERS PARTNERS UNIT (a)
------ -------- -------- ----------
Balance, December 31, 1992 $ 30,538,862 $108,436 $ 30,430,426 $ 552
Distributions (16,991,423) (27,223) (16,964,200) (308)
Net income, 1993 10,190,008 101,900 10,088,108 184
------------ -------- ------------ -----
Balance, December 31, 1993 23,737,447 183,113 23,554,334 428
Distributions (1,458,890) (14,590) (1,444,300) (26)
Net income, 1994 1,732,055 17,321 1,714,734 32
------------ -------- ------------ -----
Balance, December 31, 1994 24,010,612 185,844 23,824,768 434
Repurchase of Limited Partner Units (29,042) (29,042)
Distributions (1,491,667) (14,917) (1,476,750) (27)
Net income, 1995 2,596,081 25,961 2,570,120 47
------------ -------- ------------ -----
Balance, December 31, 1995 $ 25,085,984 $196,888 $ 24,889,096 $ 454
============ ======== ============ =====
(a) Based on the weighted average Units issued and outstanding during all
periods.
The accompanying notes are an integral part of the financial statements.
- 9 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
STATEMENTS of CASH FLOWS
For the years ended December 31, 1993, 1994 and 1995
1993 1994 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 10,190,008 $ 1,732,055 $ 2,596,081
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 523,808 518,852 536,024
Cash receipts on direct financing leases less
than amortization of unearned income (13,969) (15,604) (32,043)
Writedown to net realizable value 841,889 445,551
Restructuring fees received, net of costs 3,237,685
Gains on sale of real estate (8,377,679) (23,451)
Extraordinary charge on extinguishment of debt 520,979
Net change in operating assets and liabilities 292,733 113,132 (173,738)
------------ ----------- -----------
Net cash provided by operating
activities 3,977,769 2,770,535 6,164,009
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate 28,377,679 124,615
Additional capitalized costs (6,851)
------------ ----------- -----------
Net cash provided by (used in)
investing activities 28,377,679 124,615 (6,851)
------------ ----------- -----------
Cash flows from financing activities:
Distributions to partners (16,991,423) (1,458,890) (1,491,667)
Repurchase of Limited Partner Units (29,042)
Proceeds from issuance of note payable to affiliate 250,000
Payments of mortgage principal (1,675,260) (1,617,464) (1,489,763)
Prepayments of mortgage payable (11,927,709) (7,005,103)
Prepayment premium on mortgage (477,108)
------------ ----------- -----------
Net cash used in
financing activities (31,071,500) (3,076,354) (9,765,575)
------------ ----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,283,948 (181,204) (3,608,417)
Cash and cash equivalents, beginning of year 3,083,179 4,367,127 4,185,923
------------ ----------- -----------
Cash and cash equivalents, end of year $ 4,367,127 $ 4,185,923 $ 577,506
============ =========== ===========
The accompanying notes are an integral part of the financial statements.
- 10 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
-------------------------------------------
Use of Estimates:
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Real Estate Leased to Others:
- -----------------------------
Real estate is leased to others on a net lease basis, whereby the tenant is
generally responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance, repairs, renewals and
improvements.
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.
Effective January 1, 1995, the Partnership adopted the provisions of Statement
of Financial Accounting Standards No. 121 - Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("SFAS 121").
Pursuant to SFAS 121, the Partnership assesses the recoverability of its real
estate assets, including residual interests, based on projections of cash
flows over the life of such assets. In the event that such cash flows are
insufficient, the assets are adjusted to their estimated net realizable value.
The adoption of SFAS 121 did not have a material effect on the Partnership's
financial condition or results of operations.
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.
Depreciation:
- ------------
Depreciation is computed using the straight-line method over the estimated
useful lives of components of the particular properties, which range from 5
to 35 years.
Cash Equivalents:
- ----------------
Corporate Property Associates 2 (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
Continued
- 11 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
equivalents include commercial paper and money market funds. Substantially
all of the Partnership's cash and cash equivalents at December 31, 1994 and
1995 were held in the custody of three and two financial institutions,
respectively.
Other Assets:
- -------------
Included in other assets are deferred charges which are costs incurred in
connection with mortgage note refinancing and are amortized on a straight-
line basis over the terms of the mortgages.
Income Taxes:
- -------------
A partnership is not liable for 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 August 9, 1979 under the Uniform Limited
Partnership Act of the State of California for the purpose of engaging
in the business of investing in and leasing industrial and commercial
real estate. The Corporate General Partner purchased 200 Limited
Partnership Units in connection with the Partnership's public offering.
The Partnership will terminate on December 31, 2017, or sooner, in
accordance with the terms of the Amended Agreement of Limited
Partnership (the "Agreement").
The Agreement provides that the General Partners are allocated 1% (1/10 of
1% to the Individual General Partner, William P. Carey, and 9/10 of 1%
to the Corporate General Partner, W. P. Carey & Co., Inc. ("W.P.
Carey")) and the Limited Partners are allocated 99% of the profits and
losses as well as distributions of distributable cash from operations,
as defined. The partners are also entitled to receive net proceeds from
the sale of the Partnership properties as defined in the Agreement. An
affiliate of the General Partners may be entitled to incentive fees in
connection with the liquidation of the Partnership. A division of W.P.
Carey is engaged in the real estate brokerage business. The Partnership
may sell properties through the division and pay subordinated real
estate commissions as provided in the Agreement. The division could
ultimately earn a real estate commission of up to $1,048,430 with
respect to the sales of properties between 1986 and 1994 which amount
will be retained by the Partnership unless the subordination provisions
of the Agreement are satisfied.
3. Transactions with Related Parties:
---------------------------------
Under the Agreement, a division of W.P. Carey, is entitled to receive a
property management fee and reimbursement of certain expenses incurred
in connection with the Partnership's operations. Property management fee
in 1995 includes the effect of a transaction described in Note 11.
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:
1993 1994 1995
-------- -------- --------
Property management fee $128,243 $ 57,148 $254,174
General and administrative
expense reimbursements 57,136 56,265 51,138
-------- -------- --------
$185,379 $113,413 $305,312
======== ======== ========
Continued
- 12 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
During 1993, 1994 and 1995, fees aggregating $79,380, 29,657 and
$39,370, 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 1993, 1994 and 1995 were $41,936, $46,172 and $51,472,
respectively.
On November 16, 1995, the Partnership borrowed $250,000 from W.P. Carey.
The loan, which is evidenced by a promissory note and bears interest
at the prime rate, requires the Partnership to pay the entire
principal amount and accrued interest thereon on demand. The
Partnership may prepay the note, in whole or in part, at any time
without penalty. The interest incurred on the loan of $2,781 is
included in interest expense for the year ended December 31, 1995.
Such amount is also included in accounts payable to affiliates as of
December 31, 1995. The Partnership repaid the loan in March 1996.
The Partnership's ownership interests in certain properties are jointly
held with affiliated entities as tenants-in-common with the
Partnership's ownership interests ranging from 28.5% to 40%. The
Partnership accounts for its assets and liabilities relating to
tenants-in-common interests on a proportional basis.
4. Real Estate Leased to Others Accounted for Under the Operating Method:
---------------------------------------------------------------------
The scheduled minimum future rentals, exclusive of renewals, under
noncancellable operating leases amount to approximately $1,589,000 in
1996; $1,433,000 in each of the years 1997 to 1999; $1,442,000 in 2000
and aggregate approximately $14,146,000 through 2010.
5. Net Investment in Direct Financing Leases:
-----------------------------------------
Net investment in direct financing leases is summarized as follows:
December 31,
------------
1994 1995
---- ----
Minimum lease payments
receivable $29,695,556 $37,321,569
Unguaranteed residual value 22,700,673 22,700,673
----------- -----------
52,396,229 60,022,242
Less, Unearned income 29,130,460 39,962,115
----------- -----------
$23,265,769 $20,060,127
=========== ===========
The scheduled minimum future rentals, exclusive of renewals, under
noncancellable direct financing leases amount to approximately
$2,485,000 in 1996; $2,509,000 in 1997; $2,485,000 in 1998, $2,473,000
in 1999, $2,543,000 in 2000 and aggregate approximately $37,322,000
through 2013.
Contingent rentals were approximately $300,000, $176,000 and $149,000 in
1993, 1994 and 1995, respectively.
Continued
- 13 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
6. Mortgage Notes Payable:
----------------------
Mortgage notes payable, all of which are nonrecourse to the Partnership
and the partners, are collateralized by the assignment of various
leases and by real property with a carrying amount as of December 31,
1995 of approximately $18,424,000, before accumulated depreciation. As
of December 31, 1995, mortgage notes payable bear interest at rates
varying from 9.25% to 10% per annum and mature from 1996 to 1998.
Scheduled principal payments during each of the next three years
following December 31, 1995 are as follows:
Year Ending December 31,
------------------------
1996 $6,323,652
1997 574,889
1998 364,179
----------
Total $7,262,720
==========
Interest paid was $2,270,264, $1,605,141 and $1,422,223 in 1993, 1994
and 1995, respectively.
7. Distributions to Partners:
-------------------------
Distributions are declared and paid to partners quarterly and are
summarized as follows:
Limited
Year Ending Distributions Paid to Distributions Paid to Partners' Per
December 31, General Partners Limited Partners Unit Amount
- ------------- ---------------------- --------------------- -------------
1993:
Quarterly distributions $26,911 $ 2,664,200 $ 48.44
Special distribution
- Note 12 312 14,300,000 260.00
------- ----------- -------
Total 1993 $27,223 $16,964,200 $308.44
======= =========== =======
1994 $14,590 $ 1,444,300 $ 26.26
======= =========== =======
1995 $14,917 $ 1,476,750 $ 26.85
======= =========== =======
Distributions of $3,856 to the General Partners and $381,700 to the Limited
Partners for the quarter ended December 31, 1995 were declared and paid in
January 1996.
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:
Continued
- 14 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
1993 1994 1995
------------ ------------ -----------
Net income per Statements of Income $10,190,008 $1,732,055 $2,596,081
Excess tax depreciation (940,921) (630,883) (612,649)
Difference in recognition of gain
from sale of real estate 13,400,014 16,786
Writedown to net realizable value 841,889 445,551
Restructuring fee 3,237,685
Other 210,923 (155,149) (106,511)
----------- ---------- ----------
Income reported for Federal
Income tax purposes $23,701,913 $1,408,360 $5,114,606
=========== ========== ==========
9. Industry Segment Information:
-----------------------------
The Partnership's operations consist of the investment in and the
leasing of industrial and commercial real estate.
In 1993, 1994 and 1995, the Partnership earned its total operating
revenues (rental income plus interest income from direct financing
leases) from the following lease obligors:
1993 % 1994 % 1995 %
---------- ---- ---------- ---- ---------- ----
Gibson Greetings, Inc. $1,847,712 28% $1,847,712 37% $1,708,392 35%
Unisource Worldwide, Inc. 1,312,053 20 1,314,240 27 1,316,677 27
Pre Finish Metals Incorporated 857,176 13 891,558 18 937,772 19
AT&T Corporation 295,155 5 295,429 6 295,728 6
New Valley Corporation 411,091 6 410,266 8 237,162 5
Other 131,055 2 113,807 2 206,959 4
Maybelline, Inc. 143,000 3
Cleo, Inc. 46,763 1
Family Dollar Stores, Inc. 312,000 5 78,000 2
Heekin Can, Inc. 1,367,105 21
---------- --- ---------- --- ---------- ---
$6,533,347 100% $4,951,012 100% $4,892,453 100%
========== === ========== === ========== ===
10. Properties Formerly Leased to New Valley Corporation:
-----------------------------------------------------
The Partnership and Corporate Property Associates 3 ("CPA(R):3"), an
affiliate, own 39% and 61% interests, respectively, in three properties
located in Reno, Nevada; Bridgeton, Missouri and Moorestown, New Jersey.
On April 1, 1993, the lessee, New Valley Corporation ("New Valley"),
filed a petition of voluntary bankruptcy seeking reorganization under
Chapter 11 of the United States Bankruptcy Code. In connection with the
bankruptcy filing, the Bankruptcy Court approved New Valley's
termination of its lease with the Partnership and CPA(R):3 for the
Moorestown, New Jersey property in May 1993. In 1993, the Partnership
wrote down the Moorestown property to its estimated net realizable value
of $1,160,000 and recognized a charge of $841,889 on the writedown. In
December 1994, the Bankruptcy Court also approved the termination of New
Valley's lease on the Reno property effective December 31, 1994. In
connection with the lease termination, the Partnership wrote down the
Reno property in 1994 to its estimated net realizable value of
$1,295,000 and recognized a charge of $445,551 on the writedown.
Continued
- 15 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
On April 7, 1995, the Partnership and CPA(R):3, entered into a net lease for the
Moorestown property with Sports & Recreation, Inc. ("Sports & Recreation")
which is retrofitting the Moorestown property into a retail store. The lease
provided for a feasibility period through September 30, 1995 which was
extended through December 31, 1995 and is followed by an initial term of 16
years. Sports & Recreation will commence paying rent at the earlier of
completion of construction or 120 days after the end of the feasibility period
(May 1, 1996). Sports & Recreation will incur all retrofitting costs; however,
the Partnership and CPA(R):3 will reimburse Sports & Recreation for the cost
of replacing the HVAC system and installing a new roof and drainage system.
The Partnership's share of the cost for replacing the HVAC system and
installing a new roof and drainage system is estimated to be approximately
$292,000. Annual rentals will initially be $308,750 (of which the
Partnership's share is approximately $121,000) during the first five lease
years with stated increases every five years thereafter.
In connection with the termination of the Moorestown and Reno leases, the
Partnership and CPA(R):3 expect to receive a bankruptcy settlement from New
Valley. The amount of such settlement cannot be estimated and no amounts that
the Partnership may ultimately receive have been recorded in the accompanying
financial statements. The Partnership and CPA(R):3 are currently remarketing
the Reno property.
11. Properties Leased to Gibson Greetings, Inc.:
-------------------------------------------
On January 25, 1982, the Partnership and CPA(R):3 entered into a net lease with
Gibson Greetings, Inc. ("Gibson"), for three properties in Memphis, Tennessee,
Berea, Kentucky and Cincinnati, Ohio. In 1988, the Partnership and CPA(R):3
consented to Gibson's sublease of the Memphis, Tennessee property to a wholly-
owned subsidiary, Cleo, Inc. ("Cleo"). The lease for the three properties had
an initial term of 20 years with two five-year renewal options and provided
for minimum annual rentals of $5,865,000 with rent increases every five years
based on a formula indexed to the CPI. The lease also provided Gibson with a
purchase option which was exercisable during the tenth year of the lease and
at the end of the initial term. Gibson declined to exercise its purchase
option during the tenth lease year in 1992.
In connection with Gibson's sale of the Cleo subsidiary to CSS Industries, Inc.
("CSS"), the Partnership, CPA(R):3 and Gibson entered into a transaction on
November 15, 1995, whereby the Memphis, Tennessee property occupied by Cleo
was severed from the Gibson master lease, the Gibson lease was amended and
Cleo entered into a separate lease for the Tennessee property with CSS as the
guarantor of Cleo's lease obligations. The Partnership and CPA(R):3 received
$12,200,000 (of which the Partnership's share was $3,477,000) as a one-time
lump sum payment in consideration for severing the Tennessee property from the
Gibson master lease. Gibson still retains certain specific obligations for any
environmental violations which may be detected and which resulted from any
pre-existing conditions and is ensuring that roof repairs or replacement are
performed on the Tennessee property. Gibson and Cleo have until May 15, 1996
to complete the roof repair.
The Gibson lease, as amended, on the two remaining properties in Kentucky and
Ohio provides for an initial term which has been extended through November 30,
2013, and provides for one renewal term of ten years. Annual rent is
$3,100,000 (of which the Partnership's share is approximately $733,000), with
stated increases of 20% every five years through the end of the renewal term.
The lease includes new purchase options exercisable on November 30, 2005 and
2010 and Gibson has the right to exercise the purchase option on one of its
leased properties or
Continued
- 16 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
both. The option is exercisable at fair market value of the properties as
encumbered by the lease.
The Cleo lease provides for a ten-year term through December 31, 2005 with two
five-year renewal terms. Annual rent is $1,500,000 (of which the Partnership's
share is approximately $355,000), a rent increase effective January 1, 2001.
The rent increase will be based on a formula indexed to the CPI; however,
increased annual rent will be at least $1,689,000 but no more than $1,898,000.
Cleo has an option to purchase the property at any time during the term of the
lease so long as there is no event of monetary default. Exercise of the
purchase option requires between six and twelve months notice. The exercise
price is the greater of (i) $15,000,000 or (ii) fair market value capped at a
maximum of $16,250,000.
In connection with the payment made by Gibson to sever the Tennessee property
from the Gibson lease, the Partnership has deferred recognition of a gain on
restructuring of $3,237,685, consisting of its $3,477,000 share of the lump
sum payment offset by costs of $239,315 including management fees of $173,000,
payable to an affiliate and will amortize such deferral over the remaining
initial terms of the Gibson and Cleo direct financing leases. The net proceeds
from the agreement as well as other available funds were used to pay off the
Partnership's share of the mortgage loan collateralized by the Gibson
properties of $6,153,000 in November 1995.
12. Gains on Sale of Real Estate:
----------------------------
A. In January 1994, the Partnership sold its property in Hammond, Louisiana
for $124,615 in cash, realizing a gain of $23,451 on the sale. The
lease had been scheduled to expire in 1995.
B. In April 1993, the Partnership sold properties in Hamilton, Ohio,
Springdale, Arkansas and Augusta, Wisconsin to its lessee, Heekin Can
Inc. ("Heekin") for $29,377,679 in cash with such amount determined
pursuant to a formula in the lease. A gain of $8,377,679 was realized
on the sale.
In connection with the sale, the Partnership paid off the nonrecourse
loan on the Heekin properties of $11,927,709. In paying off the
mortgage loan the Partnership incurred a prepayment charge of $477,108
and a charge for the writeoff of unamortized financing costs of
$43,871, resulting in an extraordinary charge on extinguishment of debt
of $520,979.
The Partnership used a portion of the net proceeds of the Heekin sale to
pay a special distribution to limited partners of $14,300,000 ($260 per
Limited Partnership Unit) and $312 to the individual general partner.
13. Environmental Matters:
----------------------
All of the Partnership's properties are subject to environmental statutes
and regulations regarding the discharge of hazardous materials and
related remediation obligations. All but two of the Partnership's
properties are currently leased to corporate tenants. The Partnership
generally structures a lease to require the tenant to comply with all
laws. In addition, substantially all of the Partnership's net leases
include provisions which require tenants to indemnify the Partnership
from all liabilities and losses related to their operations at the
leased properties. The costs for remediation, which are being performed
and paid for by the affected tenant at three of the properties, are not
expected to be material. In the event that the Partnership absorbs a
portion of such costs because of a tenant's failure to fulfill its
obligations (or because a property currently has no tenant), the General
Partners believe such expenditures will not have a material adverse
effect on the Partnership's financial condition, liquidity or results of
operations.
Continued
- 17 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
In 1994, based on the results of Phase I environmental reviews performed in
1993, the Partnership voluntarily conducted Phase II environmental reviews
on four 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 either
leakage from underground storage tanks or surface spills from facility
activities. 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 carrying amount of the Partnership's two
mortgage notes payable approximates fair value of such mortgage notes at
December 31, 1995. 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.
- 18 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1995
Initial Cost to Cost Gross Amount at which Carried
Partnership Capitalized Decrease in at Close of Period (c)(d)
------------------- Subsequent to Net --------------------------------
Description Encumbrances Land Buildings Acquisition (a) Investment (b) Land Buildings Total
- ----------- ------------ ---- --------- --------------- -------------- ---- --------- -----
Operating Method:
Retail store in
Greensboro, North Carolina $ 40,946 $ 186,926 $ 9,508 $ 40,946 $ 196,434 $ 237,380
Retail store in
New Orleans, Louisiana 129,065 188,599 15,776 129,065 204,375 333,440
Retail stores leased to
Kinko's of Ohio, Inc. and
Color Tile, Inc. 47,350 581,034 10,795 47,350 591,829 639,179
Warehouse and
distribution
center leased to,
Maybelline, Inc. 216,000 3,048,862 25,103 216,000 3,073,965 3,289,965
Land leased to Unisource
Worldwide, Inc. $ 1,931,674 3,575,000 3,575,000 3,575,000
Centralized telephone
bureaus formerly
leased to New Valley
Corporation 712,713 3,250,485 2,582 $(1,510,780) 587,672 1,867,328 2,455,000
Warehouse and Manufac-
turing plant leased to
Pre Finish Metals
Incorporated 1,456,891 254,400 6,587,930 33,652 254,400 6,621,582 6,875,982
---------- ---------- ----------- ------- ----------- ---------- ----------- -----------
$3,388,565 $4,975,474 $13,843,836 $97,416 $(1,510,780) $4,850,433 $12,555,513 $17,405,946
========== ========== =========== ======= =========== ========== =========== ===========
Life on which
Depreciation
in Latest
Statement of
Accumulated Income
Description Depreciation (d) Date Acquired is Computed
- ----------- ---------------- ------------- -------------
Operating Method:
Retail store in
Greensboro, North Carolina $ 133,291 September 2, 1990 15-35 yrs.
Retail store in
New Orleans, Louisiana 138,871 January 5, 1981 15-35 yrs.
Retail stores leased to
Kinko's of Ohio, Inc. and
Color Tile, Inc. 399,341 October 1, 1980 15-35 yrs.
Warehouse and
distribution
center leased to,
Maybelline, Inc. 1,506,396 April 9, 1981 30 yrs.
Land leased to Unisource
Worldwide, Inc. April 29, 1980
Centralized telephone
bureaus formerly
leased to New Valley
Corporation 121,702 November 24, 1981 30 yrs.
Warehouse and Manufac-
turing plant leased to
Pre Finish Metals December 11, 1980 5-30 yrs.
Incorporated 3,051,758 and June 30, 1986
----------
$5,351,359
==========
See accompanying notes to Schedule.
- 19 -
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1995
Cost Increase
Initial Cost to Capitalized (Decrease) in Gross Amount at which Carried
Partnership Subsequent to Net at Close of Period (c)
-------------- -----------------------------
Description Encumbrances Land Buildings Acquisition(a) Investment(b) Land Buildings
- ----------------------------------------------------------------------------------------------------------------------------------
Direct Financing Method:
Office, warehouse and
distribution center
leased to Unisource
Worldwide, Inc. $ 3,874,155 $ 7,170,000 $ 9,528 $ 793,771
Centralized Telephone
Bureau leased to
New Valley
Corporation $ 350,316 1,980,820 (16,585)
Computer Center
leased to
AT&T Corporation 144,958 2,739,941 1,183 20,286
Warehouse and
manufacturing
buildings
leased to Gibson
Greetings, Inc. 542,693 4,913,459 (1,742,837)
Warehouse and
manufacturing
buildings
leased to Cleo, Inc. 323,122 4,315,774 (1,486,302)
--------------------------------------------------------------------------------------
$ 3,874,155 $ 1,361,089 $ 21,119,994 $10,711 $ (2,431,667)
======================================================================================
Total Date Acquired
----- -------------
Direct Financing Method:
Office, warehouse and
distribution center
leased to Unisource
Worldwide, Inc. $ 7,973,299 April 29, 1980
Centralized Telephone
Bureau leased to
New Valley November 24,
Corporation 2,314,551 1981
Computer Center
leased to November 24,
AT&T Corporation 2,906,368 1981
Warehouse and
manufacturing
buildings
leased to Gibson January 26,
Greetings, Inc. 3,713,315 1982
Warehouse and
manufacturing
buildings January 26,
leased to Cleo, Inc. $ 3,152,594 1982
-----------
$20,060,127
===========
See accompanying notes to Schedule.
-20-
CORPORATE PROPERTY ASSOCIATES 2
(a California limited partnership)
NOTES TO SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
(a) Consists of acquisition costs, including legal fees, appraisal fees,
title costs and other related professional fees and capitalized
improvements.
(b) The increase (decrease) in net investment is due to the amortization of
unearned income producing a constant periodic rate of return on the net
investment which is greater (less) than lease payments received under the
direct financing method, the writedowns to net realizable value of the
Partnership's properties in Moorestown, New Jersey and Reno Nevada and
adjustments relating to deferred gains on lease restructurings.
(c) At December 31, 1995, the aggregate cost of real estate owned for Federal
income tax purposes is $41,408,520.
(d)
Reconciliation of Real Estate Accounted
---------------------------------------
for Under the Operating Method
------------------------------
December 31,
--------------------
1994 1995
---- ----
Balance at beginning
of period $16,322,133 $17,399,095
Activity during year:
Sale of property (218,038)
Additions 6,851
Reclassification from
investment in direct
financing leases 1,295,000
----------- -----------
Balance at close of
period $17,399,095 $17,405,946
=========== ===========
Reconciliation of Accumulated Depreciation
------------------------------------------
December 31,
--------------------
1994 1995
---- ----
Balance at beginning
of period $ 4,446,685 $ 4,831,468
Disposition during year (116,874)
Depreciation expense for
the period 501,657 519,891
----------- -----------
Balance at close of
period $ 4,831,468 $ 5,351,359
----------- -----------
- 21 -
PROPERTIES
- --------------------------------------------------------------------------------
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ---------------------- ------------------------ ----------------- ---------------------
GIBSON GREETINGS, Land and Manufac- Cincinnati, Ownership of a 28.5%
INC. turing/Warehouse Ohio; and interest in land and
Buildings - 2 locations Berea, Kentucky buildings
CLEO, INC. Land and Manufac- Memphis, Ownership of a 28.5%
turing/Warehouse Tennessee interest in land and
Buildings buildings
UNISOURCE Land and Office/ City of Commerce, Ownership of land
WORLDWIDE, Warehouse/Distri- California and building (1)
INC. bution Center
NEW VALLEY Land and Bridgeton, Ownership of an
CORPORATION Centralized Missouri approximate 39%
Telephone Bureau interest in land
and buildings
SPORTS & Land and Moorestown, Ownership of an
RECREATION, INC. Building New Jersey approximate 39%
interest in land
and building
AT&T CORPORATION Land and a Bridgeton, Ownership of an
Computer Center Missouri approximate 39%
interest in land
and building
(2) Land and Reno, Nevada Ownership of an
Building approximate 39%
interest in land
and building
PRE FINISH METALS Land and Warehouse/ Walbridge, Ohio Ownership of a 40%
INCORPORATED Manufacturing Plant interest in land
and building (1)
MAYBELLINE Land and Warehouse/ Maumelle, Ownership of land
PRODUCTS CO., INC. Distribution Center Arkansas and building
WEXLER & WEXLER LAND AND RETAIL NEW ORLEANS, OWNERSHIP OF LAND
STORE LOUISIANA AND BUILDING
(2) LAND AND RETAIL GREENSBORO, OWNERSHIP OF LAND
STORE NORTH CAROLINA AND BUILDING
COLOR TILE, INC. AND LAND AND RETAIL STORE CANTON, OHIO OWNERSHIP OF LAND
KINKOS OF OHIO, INC. (ON ADJACENT SITES) AND BUILDING
(1) These properties are encumbered by mortgage notes payable.
(2) These properties are currently vacant.
- 22 -
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, 1995, there were 1,987 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 1992:
Cash Distributions Per Unit
----------------------------
1993 1994 1995
---- ---- ----
First quarter $ 17.68 $ 6.55 6.60
Second quarter 277.73 (a) 6.56 6.66
Third quarter 6.51 6.57 6.75
Fourth quarter 6.52 6.58 6.84
------- ------ ------
$308.44 $26.26 $26.85
======= ====== ======
(a) includes a special distribution of $260 per Unit.
REPORT ON FORM 10-K
The Corporate General Partner will supply to any owner of Limited
Partnership Units, upon written request and without charge, a copy of the Annual
Report on Form 10-K for the year ended December 31, 1995 as filed with the
Securities and Exchange Commission.
- 23 -
DIRECTORS AND SENIOR OFFICERS
- --------------------------------------------------------------------------------
The Partnership has no directors or officers. The directors and senior
officers of the Corporate General Partner are as follows:
William Polk Carey Chairman of the Board
Director
Francis J. Carey President
Director
George E. Stoddard Chairman of the Investment Committee
Director
Raymond S. Clark Chairman of the Executive Committee
Director
Madelon DeVoe Talley Vice Chairman of the Board
Director
Barclay G. Jones III Executive Vice President
Director
Lawrence R. Klein Chairman of the Economic Policy
Committee
Director
Claude Fernandez Executive Vice President
Chief Administrative Officer
Howard J. Altmann Senior Vice President
H. Augustus Carey Senior Vice President
John J. Park Senior Vice President
Treasurer
Debra E. Bigler First Vice President
Ted G. Lagried First Vice President
Anthony S. Mohl First Vice President
Michael D. Roberts First Vice President
Controller
The directors and senior officers of W. P. Carey & Co., Inc. are
substantially the same as above.
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, 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, 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 and its medical
school, The James A. Baker III Institute for Public Policy at Rice 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.
- 24 -
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. 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 and has served as a member of the Board of
Trustees of the Investment Program Association since 1990. From April 1987 until
August 1992, he served as counsel to Reed Smith Shaw & McClay, counsel for
Registrant, the General Partners, the CPA(R) Partnerships and W.P. Carey and
some of its affiliates. A real estate lawyer of more than 30 years' experience,
he holds A.B. and J.D. degrees from the University of Pennsylvania.
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.
Raymond S. Clark is former President and Chief Executive Officer of the
Canton Company of Baltimore and the Canton Railroad Company. A graduate of
Harvard College and Yale Law School, he is presently a Director and Chairman of
the Executive Committee of W.P. Carey and served as Chairman of the Board of
W.P. Carey from its founding in 1973 until 1982. He is past Chairman of the
Maryland Industrial Development Financing Authority.
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 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.
Besides her duties at W.P. Carey, Mrs. Talley is also a former Governor of the
N.A.S.D. and is 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 Affairs at Columbia University.
Barclay G. Jones III, Executive Vice President, Managing Director, and
co-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.
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.
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.
Howard J. Altmann, Senior Vice President, Investment Department, joined
W.P. Carey in August 1990. He was a securities analyst at Goldman Sachs & Co.
for the retail industry from 1986 to 1988. Mr. Altmann received his
undergraduate degree in economics and finance from McGill University and his
M.B.A. from the Stanford University Graduate School of Business.
- 25 -
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in
1988. 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.
John J. Park, Senior Vice President and Treasurer, 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.
Debra E. Bigler, First Vice President, joined W.P. Carey in 1989 as an
assistant marketing director, rising to her present position where she bears
responsibility for investor services throughout the southern United States. She
was previously employed by E. F. Hutton & Company for nine years where she began
as a Marketing Associate in Private Placement, Sales and Marketing and was then
promoted to Regional Director.
Ted G. Lagreid, First Vice President, joined W.P. Carey in 1994 and is
regional director responsible for investor services in the western United
States. Prior to joining the firm, he was a Vice President with Shurgard Capital
Group, then for Sun America where he was an executive in its mutual funds group.
He earned an A.B. from the University of Washington, received an M.P.A. from the
University of Puget Sound and then spent eight years in the city of Seattle's
Office of Management and Budget and Department of Community Development. Mr.
Lagreid was a commissioner of the City of Oakland, California, serving on its
Community and Economic Advisory Commission.
Anthony S. Mohl, First Vice President, Director of Portfolio Management,
joined W.P. Carey 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.
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, where he attained the title of audit manager. A certified public
accountant, Mr. Roberts received a B.A. from Brandeis University and an M.B.A.
from Northeastern University.
- 26 -