Item 1. Business. --------
Registrant is engaged in the business of investing in commercial and industrial properties which are net leased to commercial and industrial entities. Registrant was organized as a Delaware limited partnership on October 17, 1988. The General Partners of Registrant are Ninth Carey Corporate Property, Inc. (the "Corporate General Partner"), a Delaware corporation, and William Polk Carey (the "Individual General Partner"). The Corporate General Partner is wholly owned by the Individual General Partner. Affiliates of the Corporate General Partner and the Individual General Partner are also the General Partners of affiliates of Registrant, Corporate Property Associates ("CPA(R):1"), Corporate Property Associates 2 ("CPA(R):2"), Corporate Property Associates 3 ("CPA(R):3"), Corporate Property Associates 4, a California limited partnership ("CPA(R):4"), Corporate Property Associates 5 ("CPA(R):5"), Corporate Property Associates 6 - a California limited partnership ("CPA(R):6"), Corporate Property Associates 7 - a California limited partnership ("CPA(R):7"), Corporate Property Associates 8, L.P., a Delaware limited partnership ("CPA(R):8") 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 entered into an agreement with Fifth Rock L.P., an affiliate, for the purpose of leasing office space. Registrant has a management agreement with the Corporate General Partner. According to the terms of this agreement, the Corporate General Partner performs a variety of management services for Registrant. Reference is made to the Prospectus of Registrant dated March 21, 1989 filed pursuant to Rule 424(b), as supplemented by Supplements dated June 27, 1989, October 23, 1989, January 22, 1990 and March 9, 1990 and as amended on September 27, 1989 and December 27, 1989 under the Securities Act of 1933 and such Prospectus and such Supplements are incorporated herein by reference (said Prospectus, as so supplemented and amended, is hereinafter called the "Prospectus").
Commencing on March 21, 1989, Registrant offered to the public (the "Public Offering") 49,900 Limited Partnership Units (the "Units") through Carey Financial Corporation ("Carey Financial"), as Sales Agent, at a price of $1,000 per Unit. The Units were registered under the Securities Act of 1933 (Registration No. 33-26399). Reference is made to the Prospectus of Registrant. Under the terms of the Public Offering, as the Registrant received subscriptions for more than 49,900 Units, the Sales Agent exercised its right to sell a maximum of an additional 50,000 Units. A total of 59,918 Units were ultimately issued, including 100 Units to the Corporate General Partner for $100,000. On July 12, 1990, Registrant filed Post-Effective Amendment No. 5 to its Registration Statement with the Securities and Exchange Commission to withdraw the balance of the Units from registration.
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 and Management's Discussion and Analysis in Item 6 and Item 7, respectively, for a summary of Registrant's operations. Also see the material contained in the Prospectus under the heading INVESTMENT OBJECTIVES AND POLICIES.
The properties owned by Registrant are described in Item 2.
Item 2. Properties.
Registrant's properties are as follows:
(1) These properties are encumbered by mortgage notes payable.
The material terms of Registrant's leases with its significant tenants are summarized in the following table:
(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.
The material terms on the mortgage debt of Registrant's properties is summarized in the following table:
(1) Variable rate based on lender's prime rate. (2) Estimate based on current interest rates. (3) This loan fully amortizes. (4) Includes amount applicable to interest in properties owned by joint venture and limited partnerships.
(5) The loan has matured and is due on demand of the lender. Registrant continues to pay monthly debt service installments; however, no demand has been made.
Item 3.
Item 3. Legal Proceedings. -----------------
As of the date hereof, Registrant is not a party to any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------
No matter was submitted during the fourth quarter of the year ended December 31, 1996 to a vote of security holders, through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. -------------------------------------------------
Information with respect to Registrant's common equity is hereby incorporated by reference to page 24 of Registrant's Annual Report contained in Appendix A.
Item 6.
Item 6. Selected Financial Data. -----------------------
Selected Financial Data are hereby incorporated by reference to page 1 of Registrant's Annual Report contained in Appendix A.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. -----------------------------------------------------------
Management's Discussion and Analysis are hereby incorporated by reference to pages 2 to 4 of Registrant's Annual Report contained in Appendix A.
Item 8.
Item 8. Financial Statements and Supplementary Data. -------------------------------------------
The following financial statements and supplementary data are hereby incorporated by reference to pages 5 to 18 of Registrant's Annual Report contained in Appendix A:
(i) Report of Independent Accountants. (ii) Balance Sheets as of December 31, 1995 and 1996. (iii) Statements of Income for the years ended December 31, 1994, 1995 and 1996. (iv) Statements of Partners' Capital for the years ended December 31, 1994, 1995 and 1996. (v) Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996. (vi) Notes to Financial Statements.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure. ----------------------------------------------------
NONE
PART III --------
Item 10.
Item 10. Directors and Executive Officers of the Registrant. --------------------------------------------------
Registrant has no directors or officers. The directors and senior officers of the Corporate General Partner are as follows:
(1) Each officer and director of the Corporate General Partner will hold office until the next annual meeting of the Board of Directors and thereafter until his successor shall have been elected and shall have qualified or until his prior death, resignation or removal.
William Polk Carey and Francis J. Carey are brothers. H. Augustus Carey is the nephew of William Polk Carey and the son of Francis J. Carey.
A description of the business experience of each officer and director of the Corporate General Partner is set forth below:
William Polk Carey, Chairman and Chief Executive Officer, has been active in lease financing since 1959 and a specialist in net leasing of corporate real estate property since 1964. Before founding W.P. Carey & Co., Inc. ("W.P. Carey") in 1973, he served as Chairman of the Executive Committee of Hubbard, Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate and Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of Real Estate and Private Placements, Director of Corporate Finance and Vice Chairman of the Investment Banking Board of duPont Glore Forgan Inc. A graduate of the University of Pennsylvania's Wharton School of Finance and Commerce, Mr. Carey is a Governor of the National Association of Real Estate Investment Trusts (NAREIT). He also serves on the boards of The Johns Hopkins University, The James A. Baker III Institute for Public Policy at Rice University, Templeton College of Oxford University and other educational and philanthropic institutions. He founded the Visiting Committee to the Economics Department of the University of Pennsylvania and co-founded with Dr. Lawrence R. Klein the Economics Research Institute at that University. Mr. Carey is also a Director of CPA(R):10, CIP(TM) and CPA(R):12.
Francis J. Carey was elected President and a Managing Director of W.P. Carey in April 1987, having served as a Director since its founding in 1973. Prior to joining the firm full-time, he was a senior partner in Philadelphia, head of the Real Estate Department nationally and a member of the executive committee of the Pittsburgh based firm of Reed Smith Shaw & McClay, counsel for Registrant, the General Partners, the CPA(R) Partnerships, W.P. Carey and some of its affiliates. He served as a member of the Executive Committee and Board of Managers of the Western Savings Bank of Philadelphia from 1972 until its takeover by another bank in 1982 and is former chairman of the Real Property, Probate and Trust Section of the Pennsylvania Bar Association. Mr. Carey served as a member of the Board of Overseers of the School of Arts and Sciences of the University of Pennsylvania from 1983 through 1990. He has also served as a member of the Board of Trustees of the Investment Program Association since 1990 and on the Business Advisory Council of the Business Council for the United Nations since 1994. He holds A.B. and J.D. degrees from the University of Pennsylvania. Mr. Carey is also a Director of CPA(R):10 and CIP(TM).
George E. Stoddard, Chief Investment Officer, was until 1979 head of the bond department of The Equitable Life Assurance Society of the United States, with responsibility for all activities related to Equitable's portfolio of corporate investments acquired through direct negotiation. Mr. Stoddard was associated with Equitable for over 30 years. He holds an A.B. degree from Brigham Young University, an M.B.A. from Harvard Business School and an LL.B. from Fordham University Law School.
Madelon DeVoe Talley, Vice Chairman, is a member of the New York State Controller's Investment Committee, a Commissioner of the Port Authority of New York and New Jersey, former CIO of New York State Common Retirement Fund and a Trustee of the New York State Teachers Retirement System. She also served as a managing director of Rothschild, Inc. and as the President of its asset management division. Mrs. Talley was also a former Governor of the N.A.S.D. and a director of Biocraft Laboratories, a New York Stock Exchange company. She is an alumna of Sarah Lawrence College and the graduate school of International and Public Affairs at Columbia University.
Stephen H. Hamrick is the former Managing Director of Wall Street Investor Services, where he completed the turnaround and sale of a bank based brokerage business. Previously, he was for six years the Director of Private Investments for PaineWebber Incorporated. From 1975 until joining PaineWebber in 1988, Mr. Hamrick was associated with E.F. Hutton & Company (and the successor firm Shearson Lehman Hutton Inc.), where he held the position of First Vice President and National Director of Private Placements. Mr. Hamrick is a former Chairman of the Securities Industry Association's Direct Investment Committee and a former Chairman of the Investment Program Association. He is a Certified Financial Planner and was graduated with degrees in English and Economics from Duke University.
Lawrence R. Klein, Chairman of the Economic Policy Committee since 1984, is Benjamin Franklin Professor of Economics Emeritus at the University of Pennsylvania, having joined the faculty of Economics and the Wharton School in 1958. He holds earned degrees from the University of California at Berkeley and Massachusetts Institute of Technology and has been awarded the Nobel Prize in Economics as well as over 20 honorary degrees. Founder of Wharton Econometric Forecasting Associates, Inc., Dr. Klein has been counselor to various corporations, governments, and government agencies including the Federal Reserve Board and the President's Council of Economic Advisers.
Barclay G. Jones III, Executive Vice President, Managing Director, and head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant to the President in July 1982 after his graduation from the Wharton School of the University of Pennsylvania, where he majored in Finance and Economics. He was elected to the Board of Directors of W.P. Carey in April 1992. Mr. Jones is also a Director of the Wharton Business School Club of New York.
Claude Fernandez, Chief Administrative Officer, Managing Director, and Executive Vice President, joined W.P. Carey in 1983. Previously associated with Coldwell Banker, Inc. for two years and with Arthur Andersen & Co., he is a Certified Public Accountant. Mr. Fernandez received his B.S. degree in accounting from New York University in 1975 and his M.B.A. in finance from Columbia University Graduate School of Business in 1981.
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in 1988 and is President of W.P. Carey's broker-dealer subsidiary. Mr. Carey previously worked for W.P. Carey from 1979 to 1981 as Assistant to the President. Prior to rejoining W.P. Carey, Mr. Carey served as a loan officer of the North American Department of Kleinwort Benson Limited in London, England. He received an A.B. from Amherst College in 1979 and an M.Phil. in Management Studies from Oxford University in 1984. Mr. Carey is a trustee of the Oxford Management Centre Associates Council.
Anthony S. Mohl, Senior Vice President and Director of Portfolio Management, joined W.P. Carey & Co., in 1987 as Assistant to the President after receiving his M.B.A. from the Columbia University Graduate School of Business. Mr. Mohl was employed as an analyst in the strategic planning group at Kurt Salmon Associates after receiving an undergraduate degree from Wesleyan University.
John J. Park, Senior Vice President, Treasurer and Director of Research, joined W.P. Carey as an Investment Analyst in December 1987. Mr. Park received his undergraduate degree from Massachusetts Institute of Technology and his M.B.A. in Finance from New York University.
Michael D. Roberts joined W. P. Carey as a Second Vice President and Assistant Controller in April 1989 and is currently First Vice President and Controller. Prior to joining W.P. Carey, Mr. Roberts was employed by Coopers & Lybrand for over 8 years, where he attained the title of audit manager. A certified public accountant, Mr. Roberts received a B.A. in sociology from Brandeis University and an M.B.A. from Northeastern University.
The officers and directors of W.P. Carey are substantially the same as above.
Item 11.
Item 11. Executive Compensation.
Under the Amended Agreement of Limited Partnership of Registrant (the "Agreement"), 9% of Distributable Cash From Operations, as defined, is payable to the Corporate General Partner and 1% of Distributable Cash From Operations is payable to the Individual General Partner. The Corporate General Partner and the Individual General Partner received $508,557 and $56,506, respectively, from Registrant as their share of Distributable Cash From Operations during the year ended December 31, 1996. As owner of 100 Limited Partnership Units, the Corporate General Partner received cash distributions of $8,476 during the year ended December 31, 1996. See Item 6 for the net income allocated to the General Partners under the Agreement. Registrant is not required to pay, and has not paid, any remuneration to the officers or directors of the Corporate General Partner, W.P. Carey or any other affiliate of Registrant during the year ended December 31, 1996.
In the future, the Corporate General Partner will continue to receive 9% of Distributable Cash From Operations, the Individual General Partner will continue to receive 1% of Distributable Cash From Operations and each General Partner will continue to be allocated the same percentage of the profits and losses of Registrant. 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.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. ---------------------------------------------------
As of December 31, 1996, no person owned of record, or was known by Registrant to own beneficially more than 5% of the Limited Partnership Units of Registrant.
The following table sets forth as of March 15, 1997 certain information as to the ownership by directors and executive officers of securities of Registrant:
(1) As of March 15, 1997, the Corporate General Partner, Ninth Carey Corporate Property, Inc. ("Ninth Carey"), owned 100 Limited Partnership Units of Registrant. William Polk Carey, the sole shareholder of Ninth Carey, 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.
Item 13. Certain Relationships and Related Transactions. ----------------------------------------------
For a description of transactions and business relationships between Registrant and its affiliates and their directors and officers, see Notes 2 and 3 to the Financial Statements in Item 8. Michael B. Pollack, Senior Vice President and Secretary of the Corporate General Partner, is a partner of Reed Smith Shaw & McClay which is engaged to perform legal services for Registrant.
No officer or director of the Corporate General Partner, 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.
PART IV
Item 14.
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, 1995 and 1996.
Statements of Income for the years ended December 31, 1994, 1995 and 1996.
Statements of Partners' Capital for the years ended December 31, 1994, 1995 and 1996.
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996.
Notes to Financial Statements.
The financial statements are hereby incorporated by reference to pages 5 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, 1996.
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 or the Notes thereto, or because the conditions requiring their filing do not exist.
(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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1996.
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 9, L.P., a Delaware limited partnership
BY: NINTH CAREY CORPORATE PROPERTY, INC.
4/3/97 BY: /s/ Claude Fernandez - ----------- ---------------------------------- Date Claude Fernandez Executive Vice President and Chief Administrative Officer (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 9, L.P. - A DELAWARE LIMITED PARTNERSHIP
1996 ANNUAL REPORT
SELECTED FINANCIAL DATA - --------------------------------------------------------------------------------
(In thousands except per unit amounts)
(1) Includes distributions attributable to the fourth quarter of each fiscal year payable in the following fiscal year less distributions in the first fiscal quarter attributable to the prior year. (2) Represents scheduled mortgage principal amortization paid. (3) Represents mortgage obligations due after more than one year.
MANAGEMENT'S DISCUSSION AND ANALYSIS - --------------------------------------------------------------------------------
Results of Operations - ---------------------
Net income for the year ended December 31, 1996 increased by $1,986,000 as compared with net income for 1995. Excluding the effects of the nonrecurring charge of $1,173,000 in 1995 for the writedown of a real estate investment and the $45,000 gain on sale of real estate in 1996, income would have reflected an increase of $768,000. The increase in income, as adjusted, was primarily due to a decrease in property expenses and, to a lesser extent, a decrease in interest expense and an increase in lease revenues.
The decrease in property expenses was due to the successful resolution of the Partnership's dispute with Amerisig, Inc. ("Amerisig") and, to a lesser extent, the end of the five-year period for charging property leasing fees. In 1992, the assets of the predecessor company of Amerisig were transferred to a creditor. In connection with the transfer, a newly-formed subsidiary of the creditor entered into a short-term sublease for the property. The Partnership opposed such action, asserting that it was contrary to the lease, and, therefore not permissible. In May 1996, the Partnership reached a settlement with the creditor and Amerisig in which all litigation was withdrawn, the sublease was terminated and a new lease, with rental terms equivalent to the prior lease with the predecessor company, was executed. The Amended Agreement of Limited Partnership provides that the Partnership incur a leasing fee payable to the Corporate General Partner of 3% of all pro rata cash basis rents attributable to the first five years of each lease. Such five-year period expired on all of the Partnership's leases between 1994 and 1996. As discussed below, the full amount of the leasing fees has not yet been paid. The decrease in interest expense was due to the commencement of principal payments in December 1995 on the $20,000,000 mortgage loan on the Detroit Diesel Corporation ("Detroit Diesel") properties. The loan, which represents approximately 30% of the Partnership's mortgage indebtedness at December 31, 1996, will fully amortize over 14 1/2 years. As the principal balance on this loan decreased by $810,000 in 1996, the interest incurred decreased accordingly. Interest expense also decreased due to the continuing amortization of principal on certain other of the Partnership's mortgage loans. Lease revenues increased as a result of rent increases in the third quarter of 1995 on the Partnership's leases with Detroit Diesel and Red Bank Distribution, Inc. ("Red Bank"), and, in the first quarter of 1996, on the Partnership's lease with Furon Company ("Furon").
Net income for the year ended December 31, 1995 decreased by $238,000 as compared with net income for the year ended December 31, 1994 due to a nonrecurring charge of $1,173,000 in 1995 for the writedown of a real estate investment. The Partnership wrote off its investment in a limited partnership ("Hope St.") which owns property in Stamford, Connecticut formerly leased to Xerox Corporation ("Xerox"). Net income for the year ended December 31, 1994 also included a extraordinary charge of $480,000 on the extinguishment of debt. Excluding the effects of these nonrecurring items, income would have reflected an increase of $455,000 in 1995. This increase, as adjusted, was due to an increase in lease revenues, a decrease in interest expense and was partially offset by an increase in general and administrative expenses and a decrease in equity income. Lease revenues were higher due to rent increases on the Partnership's leases with Amerisig in January 1995 and the aforementioned rent increases with Red Bank and Detroit Diesel. The decrease in interest expense reflects the refinancing at a lower rate of interest of the mortgage loan collateralized by the Detroit Diesel property in May 1994, and to a lesser extent, the continuing amortization of the Partnership's other mortgage loans. General and administrative expenses increased due to higher partnership level franchise taxes incurred by the Partnership and an increase in office occupancy costs. Based on the taxes paid in 1995, the Partnership substantially increased its accrual for such taxes at December 31, 1995. The increase in office costs was due, in part, to certain nonrecurring costs related to the relocation of the Partnership's offices during the year. The decrease in equity income was due to the termination of the Xerox lease.
Cash flow from the NVRyan L.P. ("NVRyan") property will remain stable as a scheduled interest rate reset on the mortgage loan collateralized by the NVRyan property which will increase annual debt service by $67,000 has been offset by a scheduled rent increase of $73,000 which became effective in the fourth quarter of 1996. Cash flow from Childtime Childcare, Inc. ("Childtime") properties will increase as the result of the December 1996 refinancing of the mortgage loan on the Childtime properties which will reduce annual debt service by $18,000 and a rent increase, effective February 1, 1997, which will increase annual rent by $32,000. Cash flow will also benefit from a rent increase on the Titan Corporation lease in 1997 and
another scheduled rent increase on the NVRyan lease in 1998. As a result of the sale of two properties in 1996 which had been leased to Furon, annual rents on that lease were reduced by $116,000. A portion of the sales proceeds were used to partially prepay the mortgage loan and annual debt service decreased by $82,000. The Partnership has a 50% equity interest in a property leased to General Electric Company, ("General Electric"). The initial term of the General Electric lease ends in July 1998 and the Partnership has not received any indication as to whether General Electric will renew the lease. The Partnership's share of net cash flow from the General Electric property is $252,000.
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. Although there are indicatons that there may be legislation which considers changes to the CPI methodology, the Partnership cannot predict the outcome of any proposal relating to the CPI formula.
Financial Condition: - -------------------
Except for a property in Stamford, Connecticut, 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 relatively stable cash flow from its net leases to meet operating expenses, service its debt and fund quarterly distributions to partners. The Partnership's cash balance decreased by $221,000 in 1996 to $1,437,000.
Cash provided from operating activities combined with distributions received from equity investments aggregated $6,551,000 and was used to pay quarterly distributions to partners of $5,644,000 and mortgage principal payment installments. A portion of the $1,465,000 of scheduled mortgage principal installments were paid from cash reserves. The Partnership's cash position benefited from the Corporate General Partner's continuing its voluntary deferral of the collection of approximately $1,510,000 of leasing fees. Although the Corporate General Partner has continued to defer such collection, it has no obligation to do so. The Partnership's ability to sustain the current rate of distributions is contingent upon this continued deferral and timely collection of all annual rental amounts. Future cash flow will be negatively affected if the General Electric lease is not extended.
The Partnership's investing activities during 1996 consisted primarily of selling two properties for $928,000 in connection with the exercise of a purchase option. In accordance with generally accepted accounting principles, ("GAAP"), cash flow from equity investments in excess of equity income is classified as an investing cash flow. The ability of the investee to distribute cash in excess of earnings is due to noncash charges such as depreciation and amortization. Management considers the cash flow from its equity investments as a source for paying distributions and meeting other cash requirements regardless of GAAP classification.
The Partnership's financing activities in 1996 included paying quarterly distributions to partners of $5,644,000 and scheduled mortgage principal installments of $1,465,000. In addition, the Partnership obtained $1,289,000 in connection with refinancing the mortgage loan on the Childtime properties at which time it paid off an existing loan on the properties of $1,276,000 and used $604,000 from the sale of two Furon properties to pay a mandatory prepayment on that mortgage loan. The Partnership currently does not have sufficient cash to pay approximately $11,253,000 of mortgage debt on two loans which have currently matured or will mature in 1997. The limited recourse mortgage loan of $8,493,000 on the Furon properties which was originally scheduled to mature on January 1, 1997 has been extended until April 1, 1997. The Partnership is currently negotiating a refinancing of the Furon property. It is anticipated that the potential lender's due diligence will not be completed by April 1, 1997, so that a further extension will be requested. Although there is no assurance that the refinancing will occur, Furon has more than 10 years remaining on its initial lease term
so that the prospects for completing a refinancing of the loan are favorable. A limited recourse loan on the Red Bank property of $2,760,000 has been extended on a short-term basis a number of times over the last several years. There is no assurance that extensions of the Red Bank loan will continue; however, there has been no significant change in the status of the loan. In the case of mortgage financing which does not fully amortize over its term, the Partnership would be responsible for the balloon payment required only to the extent of its interest in the encumbered property because the holder of each such obligation has recourse only to the property collateralizing such debt. The Partnership has various alternatives including but not limited to, seeking to restructure the debt with existing lender, refinancing the loan, selling the properties and using sales proceeds to satisfy the mortgage debt or structuring recourse financing at the Partnership level.
The Partnership is not currently paying any debt service on the $6,300,000 limited recourse loan on the Stamford property. As more fully described in Note 12 to the Financial Statements, the Partnership wrote off its equity interest in the limited partnership which owns the property in 1995. In December 1996, the Boards of Directors of the Corporate General Partner and Corporate Property Associates 10 Incorporated ("CPA(R):10"), an affiliate, approved the transfer of CPA(R):10's interest in the Stamford property limited partnership to the Partnership. The lender has advised the Partnership of its intent to foreclose on the Stamford property. The Partnership has not been able to restructure the loan on the property and has agreed with the lender to cooperate in the foreclosure of the property, in return for a $10,000 payment by the lender. The transfer of the property to the lender would not have any impact on the Partnerships' cash flow as no income has been received from the Stamford property nor debt service paid on the limited recourse loan since September 1995,
In connection with the purchase of its properties, the Partnership required sellers of such properties to perform environmental reviews. Management believes, based on the results of such reviews, that the Partnership's properties were in substantial compliance with Federal and state environmental statutes at the time the properties were acquired. However, portions of certain properties have been subject to some spills from facility activities or historical on-site activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Tenants are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations. In addition, the Partnership's leases generally require tenants to indemnify the Partnership from all liabilities and losses related to the leased properties with provisions of such indemnification specifically addressing environmental matters. Accordingly, Management believes that the ultimate resolution of environmental matters will not have a material adverse effect on the Partnership's financial condition, liquidity or results of operations.
The General Partners are continuing to investigate ways to provide liquidity for limited partners on a tax-effective basis.
REPORT of INDEPENDENT ACCOUNTANTS
To the Partners of Corporate Property Associates 9, L.P.:
We have audited the accompanying balance sheets of Corporate Property Associates 9, L.P., a Delaware limited partnership, as of December 31, 1995 and 1996, and the related statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1996. We have also audited the financial statement schedule included on pages 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Corporate Property Associates 9, L.P., a Delaware limited partnership, as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the Schedule of Real Estate and Accumulated Depreciation as of December 31, 1996, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the financial information required to be included therein pursuant to Securities and Exchange Commission Regulation S-X Rule 12-28.
/s/ Coopers & Lybrand L.L.P.
New York, New York March 21, 1997
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
BALANCE SHEETS
December 31, 1995 and 1996
The accompanying notes are an integral part of the financial statements.
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
STATEMENTS of INCOME
For the years ended December 31, 1994, 1995 and 1996
The accompanying notes are an integral part of the financial statements.
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
STATEMENTS of PARTNERS' CAPITAL
For the years ended December 31, 1994, 1995 and 1996
(a) Based on 59,918 Units issued and outstanding.
The accompanying notes are an integral part of the financial statements.
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
STATEMENTS of CASH FLOWS For the years ended December 31, 1994, 1995 and 1996
The accompanying notes are an integral part of the financial statements.
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies: ------------------------------------------
Use of Estimates: ----------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Real Estate Leased to Others: ----------------------------
Real estate is leased to others on a net lease basis, whereby the tenant is generally responsible for all operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, renewals and improvements.
Corporate Property Associates 9, L.P. (the "Partnership") diversifies its real estate investments among various corporate tenants engaged in different industries and by property type throughout the United States.
The leases are accounted for under either the direct financing or operating methods. Such methods are described below:
Direct financing method - Leases accounted for under the ----------------------- direct financing method are recorded at their net investment (Note 5). Unearned income is deferred and amortized to income over the lease terms so as to produce a constant periodic rate of return on the Partnership's net investment in the lease.
Operating method - Real estate is recorded at cost, revenue is ---------------- recognized as rentals are earned and expenses (including depreciation) are charged to operations as incurred. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent.
The Partnership assesses the recoverability of its real estate assets, including residual interests, based on projections of undiscounted cash flows over the life of such assets. In the event that such cash flows are insufficient, the assets are adjusted to their estimated net realizable value.
Substantially all of the Partnership's leases provide for either scheduled rent increases, increases based on increases to the Consumer Price Index or Producer Price Index or sales overrides.
Depreciation: ------------
Depreciation is computed using the straight-line method over the estimated useful lives of the properties - 30 years.
Cash Equivalents: ----------------
The Partnership considers all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of generally three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
funds. Substantially all of the Partnership's cash and cash equivalents at December 31, 1995 and 1996 were held in the custody of three financial institutions.
Equity Investments: ------------------
The Partnership's interests in a joint venture and two limited partnerships are accounted for under the equity method; i.e. at cost, increased or decreased by the Partnership's share of earnings or loss and reduced by distributions.
Other Assets: ------------
Included in other assets are deferred rental income and deferred charges. Deferred rental income is the aggregate difference for operating method leases between scheduled rents which vary during the lease term and rents recognized on a straight-line basis. Deferred charges are costs incurred in connection with mortgage note financings and refinancings and are deferred and amortized on a straight-line basis over the terms of the mortgages.
Income Taxes: ------------
A partnership is not liable for Federal income taxes as each partner recognizes his proportionate share of the partnership income or loss in his tax return. Therefore, no provision for income taxes is made in the financial statements of the Partnership.
2. Partnership Agreement: --------------------- The Partnership was organized on October 17, 1988 under the Delaware Revised Uniform Limited Partnership Act for the purpose of engaging in the business of investing in and owning industrial and commercial real estate. In connection with the Partnership's public offering, the Corporate General Partner purchased 100 Limited Partnership Units. The Partnership will terminate on December 31, 2050, 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 10% (1% to the Individual General Partner, William P. Carey, and 9% to the Corporate General Partner, Ninth Carey Corporate Property, Inc. ("Carey Property"), and the Limited Partners are allocated 90% 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. The General Partners may be entitled to receive a subordinated preferred return, measured based upon the cumulative proceeds arising from the sale of Partnership assets. Pursuant to the subordination provisions of the Agreement, the preferred return may be paid only after the limited partners receive 100% of their initial investment from the proceeds of asset sales and a cumulative annual return of 8% since the inception of the Partnership. The General Partners interest in such preferred return amounts to $29,773 based upon the cumulative proceeds from the sale of assets since the inception of the Partnership through December 31, 1996. The Partnership's ability to satisfy the subordination provisions of the Agreement may not be determinable until liquidation of a substantial portion of the Partnership's assets has been made.
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
3. Transactions with Related Parties: ---------------------------------
Under the Agreement, Carey Property is entitled to receive a property leasing fee, generally based on rents received during the first five years of each lease, and reimbursement of certain expenses incurred in connection with the Partnership's operations. General and administrative expense reimbursements consist primarily of the actual cost of personnel needed to provide administrative services necessary to the operation of the Partnership. Property leasing fee and general and administrative expense reimbursements incurred are summarized as follows:
In 1994, 1995 and 1996 fees aggregating $44,537, $49,645 and $64,543, respectively, were incurred for legal services performed by a firm in which the Secretary of W.P. Carey, the Corporate General Partner and other affiliates, is a partner of such firm.
The Partnership is a participant in an agreement with W.P. Carey & Co. Inc. ("W.P. Carey") and other affiliates for the purpose of leasing office space used for the administration of real estate entities and W.P. Carey and for sharing the associated costs. Pursuant to the terms of the agreement, the Partnership's share of rental, occupancy and leasehold improvement costs is based on adjusted gross revenues, as defined. Net expenses incurred in 1994, 1995 and 1996 were $73,126, $119,379 and $95,490, respectively. The increase in 1995 is due, in part, to certain nonrecurring costs incurred in connection with the relocation of the Partnership's offices.
The Partnership's ownership interests in certain properties are jointly held with affiliated entities. The interests are held as tenants-in-common or joint ventures and limited partner interests with such interests in jointly held properties ranging from 18.54% to 80%. 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: ---------------------------------------------------------------------
Scheduled future minimum rents, exclusive of renewals, under noncancellable operating leases amount to approximately $7,841,000 in both 1997 and 1998; $7,732,000 in 1999; $7,665,000 in both 2000 and 2001; and aggregate approximately $101,986,000 through 2016.
Contingent rents were approximately $52,000 in 1994, $482,000 in 1995 and $527,000 in 1996.
5. Net Investment in Direct Financing Leases: -----------------------------------------
Net investment in direct financing leases is summarized as follows:
Continued
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
Scheduled future minimum rents, exclusive of renewals, under noncancellable direct financing leases amount to approximately $3,574,000 in 1997; $3,589,000 in 1998; $3,634,000 in both 1999 and 2000; $3,653,000 in 2001; and aggregate approximately $74,905,000 through 2016.
Contingent rents were approximately $3,000 in 1996.
6. Mortgage Notes Payable: ----------------------
Mortgage notes payable, all of which are limited recourse obligations, are collateralized by the assignment of various leases and by real property with a carrying amount of approximately $98,306,000, before accumulated depreciation. As of December 31, 1996, mortgage notes payable bear interest at rates ranging from 7.16% to 11.85% per annum and mature from 1997 to 2020.
Scheduled principal payments during each of the next five years following December 31, 1996 and thereafter are as follows:
Year Ending December 31, ----------------------- 1997 $12,535,478 1998 1,403,181 1999 8,961,499 2000 1,546,376 2001 5,757,007 Thereafter 27,466,434 ----------- Total $57,669,975 ===========
Interest paid was $5,744,139, $5,530,133 and $5,389,486 in 1994, 1995 and 1996 , respectively.
In addition, the Partnership's proportionate share of limited recourse mortgage notes payable at December 31, 1996 on properties leased to General Electric Company, Information Resources, Inc. and Titan Corporation and accounted for under the equity method was approximately $11,191,000 (see Note 10).
7. Distributions to Partners: -------------------------
Distributions are declared and paid to partners quarterly and are summarized as follows:
Distributions of $141,407 to the General Partners and $1,272,664 to the Limited Partners for the quarter ended December 31, 1996 were declared and paid in January 1997.
Continued
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
8. Income for Federal Tax Purposes: -------------------------------
Income for financial statement purposes differs from income for Federal income tax purposes because of the difference in the treatment of certain items for income tax purposes and financial statement purposes. A reconciliation of accounting differences is as follows:
9. Industry Segment Information: ----------------------------
The Partnership's operations consist of the investment in and the leasing of industrial and commercial real estate. The financial reporting sources of the leasing revenues are as follows:
Continued
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
In 1994, 1995 and 1996, the Partnership earned its share of net leasing revenues from its direct and indirect ownership of real estate from the following lease obligors:
(a) Represents the Partnership's proportionate share of rental revenue from an equity investment in which the above named company is the lease obligor (see Note 10).
10. Equity Investments: ------------------
The Partnership owns equity interests in a joint venture and two limited partnerships as limited partner with affiliates which own the remaining interests. An investment in a third limited partnership was written off in September 1995 (see Note 12). The joint venture and limited partnerships own land and buildings which are net leased to corporate tenants.
Summarized financial information for the joint venture and the limited partnerships is as follows:
(In thousands)
Continued
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
(a) Net of accumulated depreciation and amortization. (b) Included in the operating results is a writedown of a property to net realizable value. At that time the Partnership wrote off its investment in the limited partnership owning the property (see Note 12).
The Partnership's share of the scheduled future minimum rents of the limited partnerships and joint venture, exclusive of renewals under its noncancellable operating leases, amount to approximately $2,273,000 in 1997; $2,078,000 in 1998; $1,806,000 each of the years 1999 through 2001 and aggregate approximately $17,338,000 through 2007.
The Partnership's share of scheduled principal payments on the mortgage notes payable of the limited partnerships and joint venture for the five years following December 31, 1996 and thereafter amount to approximately $169,000 in 1997; $1,797,000 in 1998; $159,000 in 1999; $7,355,000 in 2000; $84,000 in 2001 and $1,627,000 thereafter. The mortgage notes have interest rates ranging from 9.75% to 10.70% per annum.
11. Extraordinary Charge on Extinguishment of Debt: ----------------------------------------------
In June 1990, the Partnership and Corporate Property Associates 8, L.P. ("CPA(R):8"), an affiliate, purchased, as tenants-in-common with 80% and 20% interests, respectively, 129 acres of land and six industrial buildings in Detroit and Redford, Michigan and entered into a net lease with Detroit Diesel Corporation ("Detroit Diesel"). The mortgage loan provided for quarterly interest only payments at an annual rate of 11.28% with principal payments which commenced on December 15, 1995.
In May 1994, the Partnership and CPA(R):8 prepaid the existing $24,000,000 mortgage loan and obtained $25,000,000 of new limited recourse mortgage financing. The new mortgage loan bears interest at the rate of 7.16% per annum and provided for quarterly interest only payments of $447,500 (of which the Partnership's share is $358,000) through December 15, 1995 at which time quarterly interest and principal payments of $689,601 (of which the Partnership's share is $551,681) commenced and which are payable through June 15, 2010 at which time the loan will be fully amortized. In connection with paying off the original mortgage loan, the Partnership incurred an extraordinary charge on the extinguishment of debt as a result of paying a prepayment charge of $480,000 on its $19,200,000 share of such debt.
Continued
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
12. Property in Stamford, Connecticut: --------------------------------- In January 1991, the Partnership and Corporate Property Associates 10 Incorporated ("CPA(R):10"), an affiliate, formed a limited partnership, Hope Street Connecticut Limited Partnership ("Hope Street"), for the purpose of purchasing land and an office building in Stamford, Connecticut for $11,000,000. The Partnership contributed $1,500,000 to Hope Street for a 31.915% limited partnership interest and CPA(R):10 contributed $3,200,000 for a 68.085% general partnership interest. Hope Street used this equity and assumed an existing limited recourse mortgage loan of $6,300,000 collateralized by the property and also assumed an existing net lease, as lessor, with Xerox Corporation ("Xerox"), as lessee. The Xerox lease provided for annual rent of $1,300,000 with an initial term through August 31, 1995 and two five-year renewal terms at Xerox's option. The mortgage loan was an interest only obligation with annual debt service of $639,450 and was scheduled to mature on September 1, 1995 with a balloon payment of $6,300,000 due at that time. Based on its 31.915% interest, the Partnership accounted for its investment in the limited partnership under the equity method.
In August 1995, Xerox vacated the property at the end of the initial term. Hope Street was unsuccessful in its efforts to remarket the property and find a new lessee even at a substantially lower annual rental. Given the conditions of the Stamford market in 1995, the general partner concluded that the net realizable value of the property was less than the outstanding balance of the mortgage loan. Under these circumstances, the general partner considered various alternatives, including negotiating with the lender to extend the maturity, restructure the loan or satisfy the balloon payment obligation at a substantial discount or selling the property back to the lender for $10,000 in excess of the mortgage balance; however, the lender did not agree to any of these proposals. Since the Partnership did not anticipate receiving any further cash distributions from Hope Street and the Partnership did not have any obligation to Hope Street, the Partnership wrote off its remaining equity investment in Hope Street and recognized a charge of $1,173,143 in 1995 even though the limited partnership had not been dissolved.
In December 1996, the Boards of Directors of the Corporate General Partner of the Partnership and CPA(R):10 approved a transaction which resulted in CPA(R):10 transferring its interests in Hope Street to the Partnership (with Hope St., Inc., a wholly-owned subsidiary formed for the purpose of owning a 1% general partner interest in Hope Street). The lender has advised the Partnership of its intention to foreclose on the property. The Partnership has not been able to restructure the loan on the property and has agreed with the lender to cooperate in the foreclosure of the property, in return for a $10,000 payment by the lender. As the Partnership's control over the property is temporary, Hope Street continues to be reflected on the equity method and no adjustment has been made to the Partnership's carrying value of its investment in Hope Street.
13. Gain on Sale of Real Estate: ---------------------------
In January 1990, the Partnership and CPA(R):8 purchased nine properties as tenants-in-common with 67.72% and 32.28% ownership interests, respectively, and entered into a master lease with Furon Company ("Furon"). In August 1993, the Partnership and CPA(R):8 consented to Furon's sublease of properties in Liverpool, Pennsylvania and Twinsburg, Ohio to IER Industries, Inc. ("IER") through July 2007, the end of Furon's initial lease term. On February 15, 1996, IER notified the Partnership and CPA(R):8 that it was exercising a purchase option which had been granted at the time the sublease was agreed to.
Continued
CORPORATE PROPERTY ASSOCIATES 9, L.P.,
a Delaware limited partnership
NOTES to FINANCIAL STATEMENTS, Continued
On September 9, 1996, the Partnership and CPA(R):8 sold the two properties to IER for $1,465,495, a purchase price determined pursuant to an appraisal process provided for in the lease. Net of its share of $50,790 of consideration received in 1993 in granting the purchase option and other costs of the transaction, the Partnership's share of net proceeds from the sale was $928,310 of which $604,184 was used to pay a mandatory prepayment on the mortgage loan. In connection with the sale, the Partnership recognized a gain of $45,066. As a result of the sale and a reamortization of the mortgage loan, annual rent from Furon and debt service on the Furon mortgage loan has decreased by approximately $116,000 and $81,600, respectively.
14. Debt Refinancing: ----------------
The Partnership and CPA(R):10 own 12 properties as tenants-in-common, with 33.93% and 66.07% ownership interests, respectively, leased, pursuant to a master lease, to Childtime Childcare, Inc. ("Childtime"). On December 13, 1996, the Partnership and CPA(R):10 refinanced, at a lower rate of interest, an existing mortgage loan. The new limited recourse mortgage loan of $3,800,000 (of which the Partnership's share is $1,289,000) provides for monthly installments of principal and interest of $35,546 (of which the Partnership's share is $12,061) at an annual interest rate of 9.55% based on a 20-year amortization schedule. The loan may be prepaid at any time subject to a prepayment charge and matures in December 2006 at which time a balloon payment for the entire outstanding principal balance of approximately $2,768,000 (of which the Partnership's share is $939,000) is scheduled.
The retired loan provided for monthly payments of principal and interest, of which the Partnership's share was $13,548, at an annual interest rate of 11.25% based on a 25-year amortization schedule. The loan had been scheduled to mature in February 1998 at which time a balloon payment was scheduled. Solely as a result of the refinancing, the Partnership's annual debt service will decrease by $17,844.
15. Disclosures About Fair Value of Financial Instruments: -----------------------------------------------------
The carrying amounts of cash, receivables and accounts payable and accrued expenses approximate fair value because of the short maturity of these items.
The Partnership estimates that the fair value of mortgage notes payable was $56,505,000 at December 31, 1996. The fair value of debt instruments was evaluated using a discounted cash flow model with discount rates which take into account the credit of the tenants and interest rate risk.
The Partnership holds warrants to purchase 18,540 common shares of The Titan Corporation ("Titan") at an exercise price of $5.30 per common share with such exercise period ending July 11, 1998. The quoted price of Titan's common stock, as of December 31, 1996, was $3.25. The warrants are carried on the books at a nominal cost.
Continued
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION as of December 31, 1996
See accompanying notes to Schedule.
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware limited partnership
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1996
See accompanying notes to Schedule.
CORPORATE PROPERTY ASSOCIATES 9, L.P., a Delaware 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 as well as capital expenditures for improvements on the building leased to Orbital Sciences Corporation.
(b) The increase in net investment in direct financing leases is due to the amortization of unearned income producing a periodic rate of return which is more than the lease payments received. The decrease in net investment in operating leases is due to the sale of properties.
(c) At December 31, 1996, the aggregate cost of real estate owned for Federal income tax purposes is $92,826,026.
(d)
PROPERTIES - --------------------------------------------------------------------------------
(1) These properties are encumbered by mortgage notes payable.
MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS - --------------------------------------------------------------------------------
Except for limited or sporadic transactions, there is no established public trading market for the Limited Partnership Units of the Partnership. As of December 31, 1996, there were 3,353 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 make quarterly distributions of Distributable Cash From Operations as defined in the Agreement. The following table shows the frequency and amount of distributions paid per Unit since 1993:
REPORT ON FORM 10-K - --------------------------------------------------------------------------------
The Corporate General Partner will supply to any owner of Limited Partnership Units, upon written request and without charge, a copy of the Annual Report on Form 10-K for the year ended December 31, 1996 as filed with the Securities and Exchange Commission.