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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
COMMISSION FILE NUMBER: 333-58854
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CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-2298116
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
50 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10020 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBERS:
INVESTOR RELATIONS (212) 492-8920
(212) 492-1100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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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. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this report, 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|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|.
Registrant has no active market for its common stock as of March 14, 2003.
Non-affiliates held 39,912,539 shares at March 24, 2003.
As of March 24, 2003, there are 40,052,961 shares of common stock of
Registrant outstanding.
Registrant incorporates by reference its definitive Proxy Statement with
respect to its 2003 Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days following the end of its
fiscal year, into Part III of this Report.
Item 1. Business.
Corporate Property Associates 15 Incorporated ("CPA(R):15") was formed as a
Maryland corporation on February 26, 2001. Between November 7, 2001 and November
8, 2002, CPA(R):15 sold a total of 39,964,488 shares of common stock for a total
of $399,644,880 in gross offering proceeds. CPA(R):15 is also currently in the
process of offering an additional 69,000,000 shares of its common stock to the
public, with anticipated total gross offering proceeds of $690,000,000.
CPA(R):15 is a real estate investment trust ("REIT") engaged in the business of
investing in commercial and industrial real estate. CPA(R):15 will use the
proceeds of its original and current offering, combined with limited recourse
mortgage debt, to acquire and own commercial properties for lease to companies
nationwide and internationally.
CPA(R):15's core investment strategy is to purchase and own properties leased to
a variety of companies on a single tenant net lease basis. These leases
generally place the economic burden of ownership on the tenant by requiring the
tenant to pay the costs of maintenance, insurance, taxes, structural repairs and
other operating expenses. CPA(R):15 also generally intends to include in its
leases:
- clauses providing for mandated rent increases or periodic rent
increases tied to increases in the consumer price index or other
indices or, when appropriate, increases tied to the volume of sales
at the property;
- covenants restricting the activity of the tenant to reduce the risk
of a change in credit quality;
- indemnification of CPA(R):15 for environmental and other
liabilities; and
- when appropriate, guarantees from parent companies or other
entities.
As a REIT, CPA(R):15 will not be subject to federal income taxation as long as
it satisfies certain requirements relating to the nature of its income, the
level of its distributions and other factors.
Carey Asset Management Corp., CPA(R):15's advisor, provides both strategic and
day-to-day management for CPA(R):15, including acquisition services, research,
investment analysis, asset management, capital funding services, disposition of
assets, investor relations and administrative services. Carey Asset Management
Corp. also provides office space and other facilities for CPA(R):15. Carey Asset
Management Corp. has dedicated senior executives in each area of its
organization so that CPA(R):15 functions as a fully integrated operating
company. CPA(R):15 pays asset management fees to Carey Asset Management Corp.
and pays certain transactional fees. CPA(R):15 also reimburses Carey Asset
Management Corp. for certain expenses. Carey Asset Management Corp. also serves
in this capacity for Carey Institutional Properties Incorporated, Corporate
Property Associates 12 Incorporated ("CPA(R):12")and Corporate Property
Associates 14 Incorporated ("CPA(R):14"). Carey Asset Management Corp. is a
wholly-owned subsidiary of W. P. Carey & Co. LLC, ("W.P. Carey") a company with
shares listed on the New York Stock Exchange and Pacific Exchange under the
symbol "WPC."
CPA(R):15's principal executive offices are located at 50 Rockefeller Plaza, New
York, NY 10020 and its telephone number is (212) 492-1100. As of December 31,
2002, CPA(R):15 had no employees. Carey Asset Management Corp. employs 27
individuals who perform services for CPA(R):15. CPA(R):15's website address is
http://www.CPA15.com.
BUSINESS OBJECTIVES AND STRATEGY
CPA(R):15's objectives are to:
- pay quarterly dividends at an increasing rate that for taxable
shareholders are partially free from current taxation;
- provide inflation protected income;
- purchase and own a diversified portfolio of net-leased real estate
that will increase in value; and
- increase the value of its shares by increasing the equity in its
real estate by making regular mortgage principal payments.
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CPA(R):15 seeks to achieve these objectives by purchasing and holding industrial
and commercial properties each net leased to a single corporate tenant.
CPA(R):15 intends its portfolio to be diversified by geography, property type
and by tenant.
DEVELOPMENTS DURING 2002
CPA(R):15 was formed on February 26, 2001 under the General Corporation Law of
Maryland for the purpose of engaging in the business of investing in and owning
property net leased to creditworthy corporations and other creditworthy
entities. Subject to certain restrictions and limitations, the business of
CPA(R):15 is managed by Carey Asset Management Corp. (the "Advisor"), a
wholly-owned subsidiary of W.P. Carey.
On April 2, 2001, the Advisor purchased 20,000 shares of common stock for
$200,000 as the initial shareholder of the Company.
In October 2002, CPA(R):15 completed a "best efforts" offering of 40,000,000
shares of common stock at a price of $10 per share. During the year ended
December 31, 2002, CPA(R):15 issued 39,946,488 shares ($399,464,880). The
Company has also registered up to 10,000,000 shares for a dividend reinvestment
plan.
On October 11, 2002, CPA(R):15 filed a registration statement with the United
States Securities and Exchange Commission (the "SEC") for the purpose of
offering up to an additional 69,000,000 shares ($690,000,000) of common stock to
the public on a "best efforts" basis by Carey Financial Corporation ("Carey
Financial"), a wholly-owned subsidiary of W. P. Carey & Co. LLC ("W.P. Carey"),
at a price of $10 per share (the "Offering").
In 2001, CPA(R):15 and CPA(R):14, an affiliate, formed two limited partnerships
which entered into net leases for 13 properties with Petsmart, Inc. ("Petsmart")
and a limited partnership which entered into a net lease for three properties
with Builders Firstsource, Inc. ("Builders First"). CPA(R):15 initially
purchased a 0.001% interest in the Petsmart limited partnerships and a 1%
interest in the Builders First partnership at the time the properties were
acquired. Under the limited partnership agreements, CPA(R):15 had an obligation
to CPA(R):14 to increase its ownership interests in the Petsmart and Builders
First limited partnerships to 30% and 40%, respectively, subject to certain
conditions, which were subsequently met. On February 28, 2002, the Company paid
$10,886,369 to CPA(R):14 and purchased the additional ownership interests in the
Petsmart and Builders First limited partnerships.
On April 10, 2002, CPA(R):15 purchased land and buildings in Auburn, Indiana;
Buffton, Ohio and Milan, Tennessee for $20,955,621 and entered into a master net
lease with Tower Automotive Products Company, Inc. and Tower Automotive Tool LLC
(collectively, "Tower"). The lease obligations have been unconditionally
guaranteed by Tower Automotive, Inc., the parent company. The lease has an
initial term of 18 years followed by two 10-year renewal options. Annual rent is
initially $2,355,875 with rent increases every three years based on a formula
indexed to increases in the CPI. In connection with the purchase, CPA(R):15
obtained $12,022,870 of limited recourse mortgage financing collateralized by
the Tower properties and a lease assignment. The loan provides for monthly
payments of interest and principal of $88,052 at an annual interest rate of
7.89% and based on a 30-year amortization schedule. The loan matures in May 2012
at which time a balloon payment is scheduled.
On May 21, 2002, CPA(R):15 purchased land and building in Irvine, California for
$13,455,497 and entered into a net lease with Racal Instruments, Inc. The lease
obligations have been unconditionally guaranteed by RIG Limited, the parent
company. The lease has an initial term of 20 years followed by five five-year
renewal options. Annual rent is initially $1,301,929 with stated annual rent
increases of 2.75%. In September 2002, CPA(R):15 obtained $9,500,000 of limited
recourse mortgage financing on the property, collateralized by the property and
a lease assignment. The loan provides for monthly payments of interest and
principal of $61,050 at an annual interest rate of 6.66% and based on a 30-year
amortization schedule. The loan matures in September 2012 at which time a
balloon payment is scheduled.
On June 14, 2002, CPA(R):15 purchased land and three buildings in Mesquite,
Texas for $12,356,020 and entered into a master net lease with IntegraColor,
Ltd. The lease has an initial term of 20 years followed by two ten-year renewal
options, and grants the lessee the option to purchase the properties at the
expiration of any term at fair market value, as defined in the lease. Annual
rent is initially $1,256,700 with annual increases based on a formula indexed to
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increases in the CPI. In July 2002, CPA(R):15 obtained limited recourse mortgage
financing of $7,080,000 on the properties, collateralized by the properties and
a lease assignment. The loan provides for monthly payments of interest and
principal of $46,961 at an annual interest rate of 6.97% and based on a 30-year
amortization schedule. The loan matures in August 2012 at which time a balloon
payment is scheduled.
On June 25, 2002, CPA(R):15 purchased land and building in Alpharetta, Georgia
for $13,089,005 and entered into a net lease with Advantis Technologies, Inc.
The lease obligations have been unconditionally guaranteed by Rockwood
Specialties Group, the parent company of the lessee. The lease has an initial
term of 15 years followed by two ten-year renewal options, and provides for
initial annual rent of $1,275,000 with annual increases after the third lease
anniversary based on a formula indexed to increases in the CPI, capped at 3%. In
November 2002, CPA(R):15 obtained $8,500,000 of limited recourse mortgage
financing on the property collateralized by the property and a lease assignment.
The loan provides for monthly payments of interest and principal of $50,853 at
an annual interest rate of 5.98% and based on a 30-year amortization schedule.
The loan matures in December 2032.
On June 28, 2002, CPA(R):15 purchased land and building in Tulsa, Oklahoma for
$53,870,063 and entered into a net lease with Fleming Companies, Inc. The lease
has an initial term of 15 years followed by four five-year renewal options and
provides for initial annual rent of $5,508,000 with increases every five years
based on a formula indexed to increases in the CPI, capped at 9%. In connection
with the purchase, CPA(R):15 obtained a limited recourse mortgage loan of
$30,000,000 collateralized by a mortgage and security agreement. The loan
provides for monthly payments of interest and principal of $208,948 at an annual
interest rate of 7.46% and based on a 30-year amortization schedule. The loan
matures in July 2012, at which time a balloon payment is scheduled.
On July 22, 2002, CPA(R):15 purchased land and building in Miami, Florida for
$14,869,110 and entered into a net lease with Trends Clothing Corp. ("Trends").
In connection with the purchase, CPA(R):15 assumed a limited recourse mortgage
loan of $8,630,041. The lease has an initial term of 15 years with two ten-year
renewal options and provides Trends with an option to purchase the property at
the end of the initial term and each renewal term. Annual rent is $1,420,000
with increases every three years based on a formula indexed to increases in the
CPI. The limited recourse mortgage loan, which is collateralized by a deed of
trust and lease assignment, provides for monthly payments of interest and
principal of $70,885 at an annual interest rate of 7.4% and based on a 226-month
amortization schedule. The loan is scheduled to mature in May 2016, at which
time a balloon payment is scheduled. The loan is not prepayable until July 2006
and may be prepaid thereafter subject to a prepayment premium.
On August 16, 2002, CPA(R):15 purchased a leasehold interest in a building in
Clinton, New Jersey, subject to a long-term land lease, for $47,015,707 and
entered into a net lease with Foster Wheeler Realty Services, Inc. ("Foster
Wheeler"). The lease obligations of Foster Wheeler are unconditionally and
jointly guaranteed by Foster Wheeler Ltd., Foster Wheeler, Inc. and Foster
Wheeler International Holdings, Inc., affiliates of Foster Wheeler. The lease
has an initial term of 20 years with two ten-year renewal options. Annual rent
is $5,230,850 with increases every three years based on a formula indexed to
increases in the CPI, capped at 10.07% during each three-year period. The ground
lease has an initial term through 2100 with annual rent of $100. In connection
with the purchase, CPA(R):15 obtained a limited recourse mortgage loan of
$29,185,000, which is collateralized by a leasehold mortgage and a lease
assignment. The loan provides for monthly payments of interest and principal of
$187,744 at an annual interest rate of 6.67% and based on a 30-year amortization
schedule. The loan matures in September 2012 at which time a balloon payment is
scheduled.
On August 28, 2002, CPA(R):15 purchased land and buildings in Danbury,
Connecticut for $33,769,634 and entered into a net lease with Hologic, Inc. The
lease has an initial term of 20 years with four five-year renewal terms. Annual
rent is $3,155,940 with the first rent increase on the fifth anniversary of the
lease and every five years thereafter. Rent increases are based on a formula
indexed to increases in the CPI, capped at 5.1% for the first rent increase and
8.16% thereafter, during each five-year period. On December 17, 2002, CPA(R):15
and W. P. Carey, entered into a joint tenancy agreement and CPA(R):15 sold a 36%
interest in the Hologic properties as a tenant-in-common to W. P. Carey for
$11,614,766.
On September 12, 2002, CPA(R):15 purchased land and buildings in Miami, Florida
for $15,470,072 and entered into a net lease with BE Aerospace, Inc. The lease
has an initial term of 18 years with two ten-year renewal options. Annual rent
is $1,462,618 with scheduled increases of 1.5% each year. On October 29, 2002,
CPA(R):15 obtained a limited recourse mortgage loan of $10,500,000 which is
collateralized by a mortgage and a lease assignment. The
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loan provides for monthly payments of principal and interest of $63,697 at an
annual interest rate of 6.11% based on a 30-year amortization schedule. The loan
matures in November 2012, at which time a balloon payment is scheduled.
On September 27, 2002, CPA(R):15 purchased land and buildings in St. Petersburg,
Florida for $23,810,133 and entered into a net lease with Danka Office Imaging
Company ("Danka"). The lease obligations of Danka are unconditionally guaranteed
by Danka Holding Company and Danka Business Systems, PLC, affiliates of Danka.
CPA(R):15 has committed to fund retrofit and tenant improvement costs of
$7,700,000 with such costs scheduled to be completed by no later than July 1,
2003. Upon completion, an initial lease term of fifteen years with two ten-year
renewal terms will commence at an annual rent of $3,060,000. The lease provides
for rent increases every three years based on a formula indexed to increases in
the CPI. During the construction period, CPA(R):15 will receive annual rent of
$871,000 on the portion of the buildings that are currently occupied by the
tenant. In December 2002, CPA(R):15 obtained $12,800,000 of limited recourse
mortgage financing on the properties collateralized by the property and a lease
assignment. The loan provides for payments of interest at an annual rate of
6.63% until the completion of construction and for monthly payments of interest
and principal of $82,000 thereafter at an annual interest rate of 6.63% and
based on a 30-year amortization schedule. The loan will mature and a balloon
payment is scheduled in July 2013 if construction is completed by July 1, 2003.
On October 9, 2002, CPA(R):15 purchased land in Baton Rouge, Louisiana and
entered into construction agency and net lease agreements with Rave Motion
Pictures Baton Rouge, LLC ("Rave Motion Pictures") to construct and lease a
movie theater. The construction and lease obligations of Rave Motion Pictures
are unconditionally guaranteed by its parent company, Rave Reviews Cinemas,
L.L.C. The total cost of the build-to-suit project is expected to amount to
$11,555,239. Any excess costs to complete the project will be the obligation of
Rave Motion Pictures. Upon the earlier of completion of construction or August
31, 2003, an initial term of 20 years will commence followed by options for two
ten-year renewal terms. To the extent that all project costs are incurred,
annual rent will be $1,285,607 and will be reduced by 11.65% of any costs not
incurred. The lease provides for rent increases every two years based on a
formula indexed to increases in the CPI.
On October 15, 2002, CPA(R):15 purchased land and buildings in San Diego,
California for $30,096,836 and assumed an existing lease with Overland Storage,
Inc., as lessee. The lease has an initial term through February 2014 with one
five-year renewal option. Annual rent is $2,621,285 with rent increases of 5%,
effective March 2004 and every two years thereafter. In connection with the
purchase, CPA(R):15 obtained a limited recourse mortgage loan of $20,000,000
which is collateralized by a deed of trust and a lease assignment. The loan
provides for monthly payments of interest and principal of $122,234 at an annual
interest rate of 6.18% and based on a thirty-year amortization schedule. The
loan matures in August 2014 at which time a balloon payment is scheduled.
On November 20, 2002, CPA(R):15 purchased land and buildings in Richmond,
California for $4,967,653 and entered into a net lease with SSG Precision
Optronics, Inc. The lease obligations are unconditionally guaranteed by Tinsley
Laboratories, Inc. The lease has an initial term of 20 years with two seven-year
renewal options. Annual rent is $509,976 with annual increases based on a
formula indexed to CPI.
On December 4, 2002, CPA(R):15 purchased six properties in France for Euro
40,314,136 ($40,327,843 at the date of acquisition) and assumed net leases with
SA Medica France ("Medica"). The leases have remaining terms through June 30,
2011 and provide for aggregate annual rent of Euro 3,856,618 ($3,857,929 at the
date of acquisition), with annual rent increases based on a formula indexed to
increases in the INSEE. In connection with the purchase of the Medica
properties, CPA(R):15 obtained limited recourse mortgage loans of Euro
34,000,000 ($34,011,560 at the date of acquisition). The loans provide for
quarterly payments of interest at an annual interest rate of 5.631%. Principal
installments are payable based on an initial 1.50% annuity per annum, with
scheduled increases throughout the term of the loan. The loan matures on October
20, 2017, at which time a balloon payment is scheduled.
On December 12, 2002, CPA(R):15 and CPA(R):14 formed a limited partnership with
60% and 40% interests, respectively and, which purchased a property in New York,
New York for $152,041,885 and assumed an existing net lease with SFX
Entertainment, Inc. The lease obligations are unconditionally guaranteed by the
lessees' parent company, Clear Channel Communications, Inc. ("Clear Channel").
The lease has a remaining term through September 2020 with two ten-year renewal
options. The lease provides for an initial annual rent of $10,914,312 with
stated rent increases every five years. In connection with the purchase of the
properties, the limited partnership
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obtained limited recourse mortgage financing of $85,000,000 collateralized by a
mortgage and security agreement. The loan provides for monthly payments of
interest and principal of $481,473 at an annual interest rate of 5.52% based on
a 30-year amortization schedule. The loan matures in December 2012 at which time
a balloon payment is scheduled.
On December 26, 2002, CPA(R):15, CPA(R):12 and CPA(R):14, through three
newly-formed limited partnerships, with 50%, 15% and 35% ownership interests,
respectively, purchased land and seven buildings located in Kingman, Arizona;
Woodland, California; Jonesboro, Georgia; Kansas City, Missouri; Springfield,
Oregon; Fogelsville, Pennsylvania and Corsicana, Texas for $131,678,450 and
entered three master net leases with TruServ Corporation. The leases have
initial terms of 20 years followed by one renewal term of nine years and 11
months and a second renewal term of 10 years. The leases provide for aggregate
initial rent of $12,007,151. In connection with the purchase of the properties,
the limited partnerships obtained limited recourse mortgage loans totaling
$49,104,774, collateralized by deeds of trust on the properties and lease
assignments. Subsequent to December 31, 2002, the limited partnership obtained
additional mortgage financing of $27,550,047. The loans provide for aggregate
monthly payments of interest and principal of $451,134, at an annual interest
rate of 5.83% based on 30-year amortization schedules. The loans mature in
January and February 2013, at which time balloon payments are scheduled. The
Company is accounting for its 50% non-controlling interests in the limited
partnerships under the equity method of accounting.
On December 27, 2002, CPA(R):15 purchased seven properties in France for Euro
103,780,347 ($106,966,300 at the date of acquisition) and entered into six
separate net leases with Societe Logidis and one net lease with Societe CV
Logistique. The lease obligations are unconditionally guaranteed by their parent
companies, Carrefour France, SAS and Carrefour Hypermarches France, SAS
(collectively "Carrefour"), subsidiaries of the Carrefour Group. The leases have
nine-year terms and provide for aggregate annual rent of Euro 10,190,269
($10,503,100 at the date of acquisition), with annual rent increases based on a
formula indexed to increases in the INSEE, a French construction cost index. In
connection with the purchase of the Carrefour properties, CPA(R):15 obtained a
limited recourse mortgage loan of Euro 84,244,000 ($86,830,207 at the date of
acquisition) which provides for quarterly payments of interest at an annual
interest rate of 5.50%. The interest rate is fixed through 2012, at which time
the loan will convert to a variable rate. Principal installments are payable
based on an initial 1.60% annuity per annum, with scheduled increases throughout
the term of the loan. The loan matures on December 30, 2014, at which time a
balloon payment is scheduled.
On December 31, 2002, CPA(R):15 purchased land and five buildings in Orlando,
Florida; Macon, Georgia; Rocky Mount, North Carolina and Lewisville, Texas for
$30,415,009 and entered into a net lease with Meadowbrook Meat Company. The
lease obligations are unconditionally guaranteed by Fast Food Merchandisers,
Inc. and Proficient Food Company, Inc. The lease has an initial term of 15 years
and one month with four five-year renewal options. Annual rent is $2,660,000
with stated increases beginning on the fourth anniversary of the lease and
annually thereafter. In connection with the purchase of the properties,
CPA(R):15 obtained a limited recourse mortgage loan of $18,000,000 which is
collateralized by a mortgage and deeds of trust on the properties. The loan
provides for monthly payments of principal and interest of $108,847 at an annual
interest rate of 6.08% based on a 30-year amortization schedule. The loan
matures in January 2013, at which time a balloon payment is scheduled.
On January 28, 2003, CPA(R):15 purchased land in Birmingham, United Kingdom for
$9,038,000 and entered into a build-to-suit commitment and a net lease with
Insulated Structures, Ltd. ("ISL"). The total cost for the ISL facility is
estimated to amount to approximately $22,000,000. Upon completion, a lease with
an initial term of 35 years will commence. Annual rent under the lease is
(pound)1,033,360 (approximately $1,650,000) with annual rent increases of 2%.
On February 12, 2003, CPA(R):15 purchased land and buildings in Chattanooga,
Tennessee for $6,544,503 and entered into a master net lease with Waddington
North America Business Trust. The lease obligations are unconditionally
guaranteed by WNA American Plastic Industries, Inc. The lease has an initial
term of 19 years with two ten-year renewal options. Annual rent is $637,500 with
increases every three years based on a formula indexed to the CPI and capped at
3%.
On February 7, 2003, CPA(R):15, CPA(R):12 and CPA(R):14, through a newly-formed
limited liability company with ownership interests of 44%, 41% and 15%,
respectively purchased land and 15 health club facilities for $178,010,471 and
entered into a master net lease with Starmark Camhood, L.L.C. ("Starmark"). The
lease
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obligations of Starmark are jointly unconditionally guaranteed by seven of its
affiliates. The Starmark lease provides for an initial lease term of 20 years
with three ten-year renewal terms. Annual rent is initially $18,272,400 with
CPI-based increases scheduled in November 2006, 2010, 2014, 2018 and 2021.
$167,400 of annual rent will not be included in the determination of the future
rent increases. In connection with the purchase, the limited liability company
obtained first mortgage limited recourse financing of $88,300,000 and a
mezzanine loan of $20,000,000. The first mortgage provides for monthly payments
of interest and principal of $563,936 at an annual interest rate of 6.6% and
based on a 30-year amortization schedule. The loan matures in March 2013 at
which time a balloon payment is scheduled. The mezzanine loan provides for
monthly payments of interest and principal of $277,201 at an annual interest
rate of 11.15% and will fully amortize over its ten-year term. The limited
liability company was granted 5,276 warrants for Class C Unit interests in
Starmark and represent a 5% interest in CPA(R):15. The warrants which may be
exercised at any time through February 7, 2023 at an exercise price of $430 per
unit. The warrant agreement does not provide for a cashless exercise of units.
On February 25, 2003, CPA(R):15 purchased land and buildings in Mooresville,
North Carolina for $15,602,094 and entered into a lease agreement with Polar
Plastics (NC), Inc. at an annual rent of $1,460,200. The lease has an initial
term of 20 years with two ten-year renewal options and CPI-based rent increases
every three years. In connection with the purchase of the properties, CPA(R):15
obtained $9,500,000 of limited recourse mortgage financing collateralized by a
deed of trust and a lease assignment. The loan provides for monthly payments of
interest and principal of $70,829 at an annual interest rate of 6.5% and will
fully amortize over 20 years.
On March 12, 2003, CPA(R):15 sold a 35% interest in the limited liability
company that owns the Medica and Carrefour properties to CPA(R):12. The purchase
price was based on the appraised value of the properties (based on the current
exchange rate for the Euro), adjusted for capitalized costs incurred since the
acquisition including fees paid to the Advisor, net of mortgage debt. Based on
the formula, CPA(R):12 paid CPA(R):15 $11,916,465 and assumed CPA(R):15's
$1,031,046 of the deferred acquisition payable to an affiliate. The sale was
approved by the Independent Directors and is intended to facilitate CPA(R):15's
ability to raise capital. The continued holding of 100% of the Carrefour and
Medica interests would have required CPA(R):15 to obtain and provide financial
information on the guarantors of the leases in its 1933 and 1934 Act filings in
accordance with accounting principles generally accepted in the United States of
America, and this information is not available to CPA(R):15.
ACQUISITION STRATEGIES
Carey Asset Management Corp. has a well-developed process with established
procedures and systems for acquiring net leased property on behalf of CPA(R):15.
As a result of its reputation and experience in the industry and the contacts
maintained by its professionals, Carey Asset Management Corp. has a presence in
the net lease market that has provided it with the opportunity to invest in a
significant number of transactions on an ongoing basis. CPA(R):15 takes
advantage of Carey Asset Management Corp.'s presence in the net lease market to
build its portfolio. In evaluating opportunities for CPA(R):15, Carey Asset
Management Corp. carefully examines the credit, management and other attributes
of the tenant and the importance of the property under consideration to the
tenant's operations. Careful credit analysis is a crucial aspect of every
transaction. CPA(R):15 believes that Carey Asset Management Corp. has one of the
most extensive underwriting processes in the industry and has an experienced
staff of professionals involved with underwriting transactions. Carey Asset
Management Corp. seeks to identify those prospective tenants whose
creditworthiness is likely to improve over time. CPA(R):15 believes that the
experience of Carey Asset Management Corp.'s management in structuring
sale-leaseback transactions to meet the needs of a prospective tenant enables
Carey Asset Management Corp. to obtain a higher return for a given level of risk
than would typically be available by purchasing a property subject to an
existing lease.
Carey Asset Management Corp.'s strategy in structuring its net lease investments
for CPA(R):15 is to:
- combine the stability and security of long-term lease payments,
including rent increases, with the appreciation potential inherent
in the ownership of real estate;
- enhance current returns by utilizing varied lease structures;
- reduce credit risk by diversifying investments by tenant, type of
facility, geographic location and tenant industry; and
- increase potential returns by obtaining equity enhancements from the
tenant when possible, such as warrants to purchase tenant common
stock.
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FINANCING STRATEGIES
Consistent with its investment policies, CPA(R):15 will use leverage when
available on favorable terms. CPA(R):15 has approximately $374,788,000 in
property level debt outstanding. These mortgages mature between 2012 and 2032
and have interest rates between 5.2% and 7.98%. Carey Asset Management Corp.
will seek opportunities and consider alternative financing techniques to finance
properties not currently subject to debt, refinance debt, reduce interest
expense or improve its capital structure.
TRANSACTION ORIGINATION
In analyzing potential acquisitions, Carey Asset Management Corp. reviews and
structures many aspects of a transaction, including the tenant, the real estate
and the lease, to determine whether a potential acquisition can be structured to
satisfy CPA(R):15's acquisition criteria. The aspects of a transaction which are
reviewed and structured by Carey Asset Management Corp. include the following:
Tenant Evaluation. Carey Asset Management Corp. evaluates each potential
tenant for its credit, management, position within its industry, operating
history and profitability. Carey Asset Management Corp. seeks tenants it
believes will have stable or improving credit. By leasing properties to
these tenants, CPA(R):15 can generally charge rent that is higher than the
rent charged to tenants with recognized credit and thereby enhance its
current return from these properties as compared with properties leased to
companies whose credit potential has already been recognized by the
market. Furthermore, if a tenant's credit does improve, the value of
CPA(R):15's property will likely increase (if all other factors affecting
value remain unchanged). Carey Asset Management Corp. may also seek to
enhance the likelihood of a tenant's lease obligations being satisfied,
such as through a letter of credit or a guaranty of lease obligations from
the tenant's corporate parent. This credit enhancement provides CPA(R):15
with additional financial security. In evaluating a possible investment,
the creditworthiness of a tenant generally will be a more significant
factor than the value of the property absent the lease with such tenant.
While Carey Asset Management Corp. will select tenants it believes are
creditworthy, tenants will not be required to meet any minimum rating
established by an independent credit rating agency. Carey Asset Management
Corp.'s and the investment committee's standards for determining whether a
particular tenant is creditworthy vary in accordance with a variety of
factors relating to specific prospective tenants. The creditworthiness of
a tenant is determined on a tenant by tenant, case by case basis.
Therefore, general standards for creditworthiness cannot be applied.
Leases with Increasing Rent. Carey Asset Management Corp. typically
includes, or attempts to include a clause in each lease that provides for
increases in rent over the term of the lease. These increases are
generally tied to increases in indices such as the CPI. In the case of
retail stores, the lease may provide for participation in gross sales
above a stated level. The lease may also provide for mandated rental
increases on specific dates or other methods that may not be in existence
or contemplated by us as of the date of this report. Carey Asset
Management Corp. seeks to avoid entering into leases that provide for
contractual reductions in rents during their primary term.
Properties Important to Tenant Operations. Carey Asset Management Corp.
generally seeks to acquire properties with operations that are essential
or important to the ongoing operations of the tenant. Carey Asset
Management Corp. believes that these properties provide better protection
in the event a tenant files for bankruptcy, since leases on properties
essential or important to the operations of a bankrupt tenant are less
likely to be terminated by a bankrupt tenant. Carey Asset Management Corp.
also seeks to assess the income, cash flow and profitability of the
business conducted at the property so that, if the tenant is unable to
operate its business, CPA(R):15 can either continue operating the business
conducted at the property or re-lease the property to another entity in
the industry which can operate the property profitably.
Lease Provisions that Enhance and Protect Value. When appropriate, Carey
Asset Management Corp. attempts to include provisions in its leases that
require its consent to specified tenant activity or require the tenant to
satisfy specific operating tests. These provisions include, for example,
operational and financial covenants of the tenant, prohibitions on a
change in control of the tenant and indemnification from the tenant
against environmental and other contingent liabilities. These provisions
protect CPA(R):15's investment from
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changes in the operating and financial characteristics of a tenant that
may impact its ability to satisfy its obligations to us or could reduce
the value of CPA(R):15's properties.
Diversification. Carey Asset Management Corp. will continue to diversify
CPA(R):15's portfolio to avoid dependence on any one particular tenant,
type of facility, geographic location or tenant industry. By diversifying
CPA(R):15's portfolio, Carey Asset Management Corp. reduces the adverse
effect of a single under-performing investment or a downturn in any
particular industry or geographic region.
Carey Asset Management Corp. uses a variety of other strategies in connection
with its acquisitions. These strategies include attempting to obtain equity
enhancements in connection with transactions. Typically, these equity
enhancements involve warrants to purchase stock of the tenant or the stock of
the parent of the tenant. If the value of the stock exceeds the exercise price
of the warrant, equity enhancements help CPA(R):15 to achieve its goal of
increasing funds available for the payment of distributions.
As a transaction is structured, it is evaluated by the chairman of Carey Asset
Management Corp.'s investment committee. Before a property is acquired, the
transaction is reviewed by the investment committee to ensure that it satisfies
CPA(R):15's investment criteria. The investment committee is not directly
involved in originating or negotiating potential acquisitions, but instead
functions as a separate and final step in the acquisition process. Carey Asset
Management Corp. places special emphasis on having experienced individuals serve
on its investment committee and does not invest in a transaction unless it is
approved by the investment committee.
CPA(R):15 believes that the investment committee review process gives it a
unique competitive advantage over other net lease companies because of the
substantial experience and perspective that the investment committee has in
evaluating the blend of corporate credit, real estate and lease terms that
combine to make an acceptable risk.
The following people serve on the investment committee:
- George E. Stoddard, Chairman, was formerly responsible for the
direct corporate investments of The Equitable Life Assurance Society
of the United States and has been involved with the CPA(R) programs
for over 20 years.
- Frank J. Hoenemeyer, Vice Chairman, was formerly Vice Chairman,
Director and Chief Investment Officer of The Prudential Insurance
Company of America. As Chief Investment Officer, Mr. Hoenemeyer was
responsible for all of Prudential's investments, including stocks,
bonds, private placements, real estate and mortgages.
- Nathaniel S. Coolidge previously served as Senior Vice President --
Head of Bond & Corporate Finance Department of the John Hancock
Mutual Life Insurance Company. His responsibility included
overseeing fixed income investments for Hancock, its affiliates and
outside clients.
- Lawrence R. Klein is the Benjamin Franklin Professor of Economics
Emeritus at the University of Pennsylvania and its Wharton School.
Dr. Klein has been awarded the Alfred Nobel Memorial Prize in
Economic Sciences and currently advises various governments and
government agencies.
Each property purchased by CPA(R):15 has been and future purchases will be
appraised by an independent appraiser. CPA(R):15 will not purchase any property
that has a total property cost (the purchase price of the property plus all
acquisition fees) which is in excess of its appraised value. These appraisals
may take into consideration, among other things, the terms and conditions of the
particular lease transaction, the quality of the lessee's credit and the
conditions of the credit markets at the time the lease transaction is
negotiated. The appraised value may be greater than the construction cost or the
replacement cost of a property, and the actual sale price of a property if sold
by CPA(R):15 may be greater or less than the appraised value.
Carey Asset Management Corp.'s practices include performing evaluations of the
physical condition of properties and performing environmental surveys in an
attempt to determine potential environmental liabilities associated with a
property prior to its acquisition. CPA(R):15 will also consider factors peculiar
to the laws of foreign countries, in
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addition to the risk normally associated with real property investments, when
considering an investment located outside the United States.
ASSET MANAGEMENT
CPA(R):15 believes that effective management of its net lease assets is
essential to maintain and enhance property values. Important aspects of asset
management include restructuring transactions to meet the evolving needs of
current tenants, re-leasing properties, refinancing debt, selling properties and
knowledge of the bankruptcy process.
Carey Asset Management Corp. monitors, on an ongoing basis, compliance by
tenants with their lease obligations and other factors that could affect the
financial performance of any of its properties. Monitoring involves receiving
assurances that each tenant has paid real estate taxes, assessments and other
expenses relating to the properties it occupies and confirming that appropriate
insurance coverage is being maintained by the tenant. Carey Asset Management
Corp. reviews financial statements of its tenants and undertakes regular
physical inspections of the condition and maintenance of its properties.
Additionally, Carey Asset Management Corp. periodically analyzes each tenant's
financial condition, the industry in which each tenant operates and each
tenant's relative strength in its industry.
HOLDING PERIOD
CPA(R):15 intends to hold each property it acquires for an extended period. The
determination of whether a particular property should be sold or otherwise
disposed of will be made after consideration of relevant factors with a view to
achieving maximum capital appreciation and after-tax return for the CPA(R):15
shareholders. If CPA(R):15's common stock is not listed for trading on a
national securities exchange or included for quotation on Nasdaq, CPA(R):15 will
generally begin selling properties within eight years after the proceeds of its
public offerings are substantially invested, subject to market conditions. The
board of directors will make the decision whether to list the shares, liquidate
or devise an alternative liquidity strategy which is likely to result in the
greatest value for the shareholders.
COMPETITION
CPA(R):15 faces competition for the acquisition of office and industrial
properties in general, and such properties net leased to major corporations in
particular, from insurance companies, credit companies, pension funds, private
individuals, investment companies and other REITs. CPA(R):15 also faces
competition from institutions that provide or arrange for other types of
commercial financing through private or public offerings of equity or debt or
traditional bank financings. CPA(R):15 believes its management's experience in
real estate, credit underwriting and transaction structuring will allow
CPA(R):15 to compete effectively for office and industrial properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, as well as other parties,
may be required to investigate and clean up hazardous or toxic chemicals,
substances or waste or petroleum product or waste, releases on, under, in or
from a property. These parties may be held liable to governmental entities or to
third parties for specified damages and for investigation and cleanup costs
incurred by these parties in connection with the release or threatened release
of hazardous materials. These laws typically impose responsibility and liability
without regard to whether the owner knew of or was responsible for the presence
of hazardous materials, and the liability under these laws has been interpreted
to be joint and several under some circumstances. CPA(R):15's leases often
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
CPA(R):15 typically undertakes an investigation of potential environmental risks
when evaluating an acquisition. Phase I environmental assessments are performed
by independent environmental consulting and engineering firms for all properties
acquired by CPA(R):15. Where warranted, Phase II environmental assessments are
performed. Phase I assessments do not involve subsurface testing, whereas Phase
II assessments involve some degree of soil and/or groundwater testing. CPA(R):15
may acquire a property which is known to have had a release of hazardous
materials in the past, subject to a determination of the level of risk and
potential cost of remediation. CPA(R):15 normally requires property sellers to
indemnify it fully against any environmental problem existing as of the date of
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purchase. Additionally, CPA(R):15 often structures its leases to require the
tenant to assume most or all responsibility for compliance with the
environmental provisions of the lease or environmental remediation relating to
the tenant's operations and to provide that non-compliance with environmental
laws is a lease default. In some cases, CPA(R):15 may also require a cash
reserve, a letter of credit or a guarantee from the tenant, the tenant's parent
company or a third party to assure lease compliance and funding of remediation.
The value of any of these protections depends on the amount of the collateral
and/or financial strength of the entity providing the protection. Such a
contractual arrangement does not eliminate CPA(R):15's statutory liability or
preclude claims against CPA(R):15 by governmental authorities or persons who are
not a party to the arrangement. Contractual arrangements in CPA(R):15's leases
may provide a basis for CPA(R):15 to recover from the tenant damages or costs
for which it has been found liable.
INDUSTRY SEGMENT
CPA(R):15 operates in one industry segment, investment in net leased real
property. For the year ended December 31, 2002, Tower Automotive Company, Inc.
Fleming Companies, Inc., Petsmart, Inc. and Foster Wheeler, Ltd. represented
11%, 18%, 14% and 13%, respectively, of the total lease revenue of CPA(R):15.
All of the companies are public registrants and file financial statements with
the United States Securities and Exchange Commission.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") became effective in December 1995. The Act provides a "safe harbor" for
companies which make forward-looking statements providing prospective
information. The "safe harbor" under the Act relates to protection for companies
with respect to litigation filed on the basis of such forward-looking
statements.
CPA(R):15 wishes to take advantage of the "safe harbor" provisions of the Act
and is therefore including this section in its Annual Report on Form 10-K. The
statements contained in this Annual Report, if not historical, are
forward-looking statements and involve risks and uncertainties which are
described below that could cause actual results to differ materially from the
results, financial or otherwise, or other expectations described in such
forward-looking statements. These statements are identified with the words
"anticipated," "expected," "intends," "seeks" or "plans" or words of similar
meaning. Therefore, forward-looking statements should not be relied upon as a
prediction of actual future results or occurrences.
CPA(R):15's future results may be affected by certain risks and uncertainties
including the following:
We may not be able to diversify our real estate portfolio.
The investment of a smaller sum of money will likely result in the acquisition
of fewer properties and, accordingly, less diversification of our real estate
portfolio than the investment of a larger sum in a greater number of properties.
The amount we have to invest will depend on the amount raised in our current
offering and the amount of money we are able to borrow. Lack of diversification
will increase the potential adverse effect on us and you of a single
under-performing investment.
We are subject to the risks of real estate ownership which could reduce the
value of our properties.
Our properties may include net leased industrial and commercial property. The
performance of CPA(R):15 is subject to risks incident to the ownership and
operation of these types of properties, including:
- changes in the general economic climate;
- changes in local conditions such as an oversupply of space or
reduction in demand for real estate;
- changes in interest rates and the availability of financing;
- competition from other available space; and
- changes in laws and governmental regulations, including those
governing real estate usage, zoning and taxes.
We may have difficulty selling or re-leasing our properties.
Real estate investments are relatively illiquid compared to most financial
assets and this illiquidity will limit our ability to quickly change our
portfolio in response to changes in economic or other conditions. The net leases
we may enter into or acquire may be for properties that are specially suited to
the particular needs of our tenant. With
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these properties, if the current lease is terminated or not renewed, we may be
required to renovate the property or to make rent concessions in order to lease
the property to another tenant. In addition, in the event we are forced to sell
the property, we may have difficulty selling it to a party other than the tenant
due to the special purpose for which the property may have been designed. These
and other limitations may affect our ability to sell properties without
adversely affecting returns to our shareholders.
The inability of a tenant in a single tenant property to pay rent will reduce
our revenues.
We expect that most of our properties will each be occupied by a single tenant
and, therefore, the success of our investments is materially dependent on the
financial stability of such tenants. Lease payment defaults by tenants could
cause us to reduce the amount of distributions to shareholders. A default of a
tenant on its lease payments to us would cause us to lose the revenue from the
property and cause us to have to find an alternative source of revenue to meet
any mortgage payment and prevent a foreclosure if the property is subject to a
mortgage. In the event of a default, we may experience delays in enforcing our
rights as landlord and may incur substantial costs in protecting our investment
and reletting our property. If a lease is terminated, there is no assurance that
we will be able to lease the property for the rent previously received or sell
the property without incurring a loss.
If our tenants are highly leveraged, they may have a higher possibility of
filing for bankruptcy. Of tenants that experience downturns in their operating
results due to adverse changes to their business or economic conditions, those
that are highly leveraged may have a higher possibility of filing for
bankruptcy. In bankruptcy, a tenant has the option of vacating a property
instead of paying rent. Until such a property is released from bankruptcy, our
revenues would be reduced and could cause us to reduce distributions to
shareholders. We have highly leveraged tenants at this time, and we may have
additional highly leveraged tenants in the future.
The bankruptcy of tenants may cause a reduction in revenue.
Bankruptcy of a tenant could cause:
- the loss of lease payments;
- an increase in the costs incurred to carry the property;
- a reduction in the value of shares; and
- a decrease in distributions to shareholders.
Under bankruptcy law, a tenant who is the subject of bankruptcy proceedings has
the option of continuing or terminating any unexpired lease. If the tenant
terminates the lease, any claim we have for breach of the lease (excluding
collateral securing the claim) will be treated as a general unsecured claim. The
maximum claim will be capped at the amount owed for unpaid rent prior to the
bankruptcy unrelated to the termination, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease (but no
more than three years' lease payments). In addition, due to the long-term nature
of our leases and terms providing for the repurchase of a property by the
tenant, a bankruptcy court could recharacterize a net lease transaction as a
secured lending transaction. If that were to occur, we would not be treated as
the owner of the property, but might have additional rights as a secured
creditor.
The programs managed by W. P. Carey & Co. or its affiliates have had tenants
file for bankruptcy protection and are involved in litigation. Four of the prior
thirteen CPA(R) funds reduced the rate of distributions to their investors as a
result of adverse developments involving tenants.
Our tenants generally do not have a recognized credit rating, which may create a
higher risk of lease defaults and therefore lower revenues than if our tenants
had a recognized credit rating. Generally, no credit rating agencies evaluate or
rank the debt or the credit risk of our tenants, as we seek tenants that we
believe will have improving credit profiles. Our long-term leases with certain
of these tenants may therefore pose a higher risk of default than would long
term leases with tenants whose credit potential has already been recognized by
the market.
There is not, and may never be a public market for our shares, so it will be
difficult for shareholders to sell shares quickly.
There is no current public market for the shares and, therefore, it will be
difficult for shareholders to sell their shares promptly. In addition, the price
received for any shares sold prior to a liquidity event is likely to be less
than the proportionate value of the real estate we own.
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Liability for uninsured losses could adversely affect our financial condition.
Losses from disaster-type occurrences (such as wars or earthquakes) may be
either uninsurable or not insurable on economically viable terms. Should an
uninsured loss occur, we could lose our capital investment and/or anticipated
profits and cash flow from one or more properties.
Potential liability for environmental matters could adversely affect our
financial condition.
We intend to purchase industrial and commercial properties and are subject to
the risk of liabilities under federal, state and local environmental laws. Some
of these laws could impose the following on CPA(R):15:
- Responsibility and liability for the cost of removal or remediation
of hazardous substances released on our property, generally without
regard to our knowledge or responsibility of the presence of the
contaminants.
- Liability for the costs of removal or remediation of hazardous
substances at disposal facilities for persons who arrange for the
disposal or treatment of these substances.
- Potential liability for common law claims by third parties based on
damages and costs of environmental contaminants.
Our costs of investigation, remediation or removal of hazardous substances may
be substantial. In addition, the presence of hazardous substances on one of our
properties, or the failure to properly remediate a contaminated property, could
adversely affect our ability to sell or lease the property or to borrow using
the property as collateral.
Our use of debt to finance acquisitions could adversely affect our cash flow.
Most of our property acquisitions will be made by borrowing a portion of the
purchase price of our properties and securing the loan with a mortgage on the
property. If we are unable to make our debt payments as required, a lender could
foreclose on the property or properties securing its debt. This could cause us
to lose part or all of our investment which in turn could cause the value of the
shares and distributions to shareholders to be reduced. We generally borrow on a
non-recourse basis to limit our exposure on any property to the amount of equity
invested in the property. We expect to borrow between 55% and 65% of the
purchase price of our properties. There is no limitation on the amount borrowed
on a single property and the aggregate borrowings may not exceed 75% of the
value of all properties. Any borrowings in excess of 75% of the value of all
properties must be approved by a majority of the independent directors and
disclosed to shareholders. As of December 31, 2002, we had limited recourse
mortgage notes payable outstanding of $374,788,000.
The IRS may treat sale-leaseback transactions as loans, which could jeopardize
our REIT status.
The Internal Revenue Service may take the position that specific sale-leaseback
transactions we will treat as true leases are not true leases for federal income
tax purposes but are, instead, financing arrangements or loans. If a
sale-leaseback transaction were so recharacterized, we might fail to satisfy the
Asset Tests or the Income Tests and consequently lose our REIT status effective
with the year of recharacterization. Alternatively, the amount of our REIT
Taxable Income could be recalculated which could cause us to fail the
Distribution Test.
Balloon payment obligations may adversely affect our financial condition.
Some of our financing may require us to make a lump-sum or "balloon" payment at
maturity. Our ability to make any balloon payment is uncertain and may depend
upon our ability to obtain additional financing or our ability to sell the
property. At the time the balloon payment is due, we may or may not be able to
refinance the balloon payment on terms as favorable as the original loan or sell
the property at a price sufficient to make the balloon payment. A refinancing or
sale could affect the rate of return to shareholders and the projected time of
disposition of our assets. Currently, there are no balloon payment obligations
due prior to 2012.
Failure to qualify as a REIT could adversely affect our operations and ability
to make distributions.
If we fail to qualify as a REIT for any taxable year, we would be subject to
federal income tax on our taxable income at corporate rates. In addition, we
would generally be disqualified from treatment as a REIT for the four taxable
years following the year of losing our REIT status. Losing our REIT status would
reduce our net earnings available for investment or distribution to shareholders
because of the additional tax liability. In addition, distributions to
shareholders would no longer qualify for the distributions paid deduction and we
would no longer be
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required to make distributions. We might be required to borrow funds or
liquidate some investments in order to pay the applicable tax.
Qualification as a REIT is subject to the satisfaction of tax requirements and
various factual matters and circumstances which are not entirely within our
control. New legislation, regulations, administrative interpretations or court
decisions could change the tax laws with respect to qualification as a REIT or
the federal income tax consequences of being a REIT.
The limit on the number of shares of CPA(R):15 a person may own may discourage a
takeover.
Our articles of incorporation restrict ownership of more than 9.8% of the
outstanding shares by one person in order to meet REIT qualification rules.
These restrictions may discourage a change of control of CPA(R):15 and may deter
individuals or entities from making tender offers for shares, which offers might
be financially attractive to shareholders or which may cause a change in the
management of CPA(R):15.
We were incorporated in February 2001 and have a limited operating history.
We did not commence property acquisitions until the beginning of 2002. We can
not guaranty that we will continue to find suitable property investments, or
that all of our tenants will fulfill all of their lease obligations. Our failure
to timely invest the proceeds of our current offering or to invest in quality
properties could diminish returns to investors.
Our success will be dependent on the performance of W. P. Carey & Co.
Our ability to achieve our investment objectives and to pay distributions is
dependent upon the performance of W. P. Carey & Co. in the acquisition of
investments, the selection of tenants, the determination of any financing
arrangements, and upon the management of the assets. You will have no
opportunity to evaluate the terms of transactions or other economic or financial
data concerning our investments. You must rely entirely on the management
ability of W. P. Carey & Co. and the oversight of the board of directors.
W. P. Carey & Co. may be subject to conflicts of interest.
W. P. Carey & Co. manages our business and selects our real estate investments.
W. P. Carey & Co. has some conflicts of interest in its management of CPA(R):15,
which arise primarily from the involvement of W. P. Carey & Co. and its
affiliates in other activities that may conflict with CPA(R):15 and the payment
of fees by us to W. P. Carey & Co. and its affiliates. The activities in which a
conflict could arise between CPA(R):15 and W. P. Carey & Co. are:
- the receipt of commissions, fees and other compensation by W. P.
Carey & Co. and its affiliates for property purchases, leases, sales
and financing for CPA(R):15, which may cause W. P. Carey & Co. and
its affiliates to engage in transactions that generate higher fees,
rather than transactions that are more appropriate or beneficial for
our business;
- agreements between CPA(R):15 and W. P. Carey & Co. or any of its
affiliates, including agreements regarding compensation of W. P.
Carey & Co. and its affiliates, will not be negotiated on an arm's
length basis as would occur if the agreements were with unaffiliated
third parties;
- purchases and loans from affiliates, subject to CPA(R):15's
investment procedures, objectives and policies, which will increase
fees and interest payable to affiliates, thereby decreasing our net
income and possibly causing us to incur higher leverage levels;
- competition with certain affiliates for property acquisitions, which
may cause W. P. Carey and its affiliates to direct properties
suitable for us to other related entities;
- disposition, incentive and termination fees, which are based on the
sale price of properties, may cause a conflict between the advisor's
desire to sell a property and our plans to hold or sell the
property.
Inherent in these transactions is the conflict of interest that arises due to
the potential impact of the transaction on the amount of fees received by W. P.
Carey & Co. and/or its affiliates and the distributions to shareholders.
Maryland law could restrict change in control.
Provisions of Maryland law applicable to us prohibit business combinations with:
- any person who beneficially owns 10% or more of the voting power of
outstanding shares;
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- an affiliate who, at any time within the two-year period prior to
the date in question, was the beneficial owner of 10% or more of the
voting power of our outstanding shares ("an interested
shareholder"); or
- an affiliate of an interested shareholder.
These prohibitions last for five years after the most recent date on which the
interested shareholder became an interested shareholder. Thereafter, any
business combination must be recommended by our board of directors and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by
holders of our outstanding shares and two-thirds of the votes entitled to be
cast by holders of our shares other than shares held by the interested
shareholder. These requirements could have the effect of inhibiting a change in
control even if a change in control were in shareholders' interest. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by our board of directors prior to the time that
someone becomes an interested shareholder.
Our participation in joint ventures creates additional risk.
We may participate in joint ventures or purchase properties jointly with other
entities, some of which may be unaffiliated with us. There are additional risks
involved in these types of transactions. These risks include the potential of
our joint venture partner becoming bankrupt and the possibility of diverging or
inconsistent economic or business interests of us and our partner. These
diverging interests could result in, among other things, exposing us to
liabilities of the joint venture in excess of our proportionate share of these
liabilities. The partition rights of each owner in a jointly owned property
could reduce the value of each portion of the divided property. In addition, the
fiduciary obligation that W. P. Carey & Co. or our board may owe to our partner
in an affiliated transaction may make it more difficult for us to enforce our
rights.
A delay in investing funds may cause a delay in our ability to deliver expected
returns to investors.
We have not yet identified all of the properties to be purchased with the
proceeds of our current offering. Therefore, there could be a substantial delay
between the time a new investor invests in shares and the time all offering
proceeds are invested by us. This could cause a substantial delay in the time it
takes for an investment in us to realize its full potential return.
There are special considerations for pension or profit-sharing trusts, Keoghs or
IRAs.
If you are investing the assets of a pension, profit sharing, 401(k), Keogh or
other retirement plan, IRA or benefit plan in CPA(R):15, you should consider:
- whether your investment is consistent with the applicable provisions
of ERISA or the Internal Revenue Code,
- whether your investment will produce unrelated business taxable
income, referred to as UBTI, to the benefit plan, and
- your need to value the assets of the benefit plan annually.
We have obtained an opinion of Reed Smith LLP that, under current ERISA law and
regulations, our assets should not be treated as "plan assets" of a benefit plan
subject to ERISA and/or Section 4975 of the Internal Revenue Code which
purchases shares. However, the opinion of Reed Smith is based on the facts and
assumptions described in this prospectus, on our articles of incorporation and
on our representations to them, and is not binding on the Internal Revenue
Service or the Department of Labor. If our assets were considered to be plan
assets, our assets would be subject to ERISA and/or Section 4975 of the Internal
Revenue Code, and some of the transactions we have entered into with W. P. Carey
& Co. and its affiliates could be considered "prohibited transactions" which
could cause us, W. P. Carey & Co. and its affiliates to be subject to
liabilities and excise taxes. In addition, W. P. Carey & Co. could be deemed to
be a fiduciary under ERISA and subject to other conditions, restrictions and
prohibitions under Part 4 of Title I of ERISA. Even if our assets are not
considered to be plan assets, a prohibited transaction could occur if we, Carey
Financial, any selected dealer, the escrow agent or any of their affiliates is a
fiduciary (within the meaning of ERISA) with respect to a purchase by a benefit
plan and, therefore, unless an administrative or statutory exemption applies in
the event such persons are fiduciaries (within the meaning of ERISA) with
respect to your purchase, shares should not be purchased.
-14-
International investments involve additional risks.
We own properties in France and we may purchase additional property located
outside the United States. These investments may be affected by factors peculiar
to the laws of the jurisdiction in which the property is located. These laws may
expose us to risks that are different from and in addition to those commonly
found in the United States. Foreign investments could be subject to the
following risks:
- changing governmental rules and policies;
- enactment of laws relating to the foreign ownership of property and
laws relating to the ability of foreign persons or corporations to
remove profits earned from activities within the country to the
person's or corporation's country of origin;
- variations in the currency exchange rates;
- adverse market conditions caused by changes in national or local
economic conditions;
- changes in relative interest rates;
- change in the availability, cost and terms of mortgage funds
resulting from varying national economic policies;
- changes in real estate and other tax rates and other operating
expenses in particular countries;
- changes in land use and zoning laws; and
- more stringent environmental laws or changes in such laws.
We may incur costs to finish build-to-suit properties.
We may sometimes acquire undeveloped or partially developed land parcels for the
purpose of owning to-be-built facilities for a prospective tenant. Oftentimes,
completion risk, cost overruns and on-time delivery are the obligations of the
prospective tenant. To the extent that the tenant or the third-party developer
experiences financial difficulty or other complications during the construction
process we may be required to incur project costs to complete all or part of the
project within a specified time frame. The incurrence of these costs or the
non-occupancy by the tenant may reduce the project's and our portfolio returns.
We may face competition for acquisition of properties.
We face competition for the acquisition of office and industrial properties in
general, and such properties not leased to major corporations in particular,
from insurance companies, credit companies, pension funds, private individuals,
investment companies and other REITs. We also face competition from institutions
that provide or arrange for other types of commercial financing through private
or public offerings of equity or debt or traditional bank financings.
The loss or default of certain major tenants could adversely affect our revenues
and distributions to shareholders.
As of December 31, 2002, the value of the SFX Entertainment and Carrefour France
properties each exceeded 10% of our gross assets. Three lessees exceeded 10% of
our lease revenues. Our performance could be adversely affected in the event of
bankruptcy or insolvency of any of these companies, a downturn in their
businesses or their failure to renew their leases upon expiration.
Existing shareholders' equity interest will be diluted by our current offering.
As additional shares of our stock are sold our current offering, the equity
interest of our existing shareholders is diluted. Further, because investors
will pay the same price per share during the offering, the value of shares
previously acquired by shareholders or during the early part of the offering
will be diluted upon the purchase of shares by shareholders purchasing
subsequently if investments previously acquired have appreciated in value.
Conversely, if investments previously acquired by us have depreciated in value,
the value of the shares purchased later in the current offering will be diluted
immediately upon the purchase of the shares.
-15-
Item 2. Properties.
Set forth below is certain information relating to CPA(R):15's properties owned
as of December 31, 2002.
RENT PER SHARE OF
LESSEE (LEASE OBLIGOR)/ SQUARE SQUARE CURRENT INCREASE LEASE MAXIMUM
LOCATION OWNERSHIP INTEREST FOOTAGE FOOT ANNUAL RENTS(1) FACTOR TERM TERM
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIETE LOGIDIS AND SOCIETE CV LOGISTIQUE
(CARREFOUR FRANCE, SA AND CARREFOUR
HYPERMARCHES FRANCE, SA) (2)
Cholet, Ploufragan,
Colomiers, Crepy en Vallois, 100% 4,996,086 $2.14 $10,682,459(3) INSEE(4) Dec. 2011 None
Lens, Nimes, and Thuit
Hebert, France
SFX ENTERTAINMENT, INC.
(CLEAR CHANNEL COMMUNICATIONS, INC.) (2)
60% interest in a
limited partnership 227,685 47.94 6,548,587 Stated Sep. 2020 Sep. 2040
New York, NY owning land and
buildings
TRUSERV CORPORATION(2)
Kingman, Arizona;
Springfield, Oregon;
Fogelsville, Pennsylvania; 50% interest in three
Jonesboro, Georgia; Kansas limited partnerships
City, Missouri; Woodland, owning land and 3,443,100 3.49 6,003,575 Stated Dec. 2022 Nov. 2042
California; Corsicana, Texas buldings
FLEMING COMPANIES, INC. (2)
Tulsa, OK 100% 757,784 7.27 5,508,000 CPI Jun. 2017 Jun. 2037
FOSTER WHEELER REALTY SERVICES, INC.
(FOSTER WHEELER LTD., FOSTER WHEELER INC. AND
FOSTER WHEELER INTERNATIONAL HOLDINGS, INC.) (2)
Clinton, NJ 100% 292,000 17.91 5,230,850 CPI Aug. 2022 Aug. 2042
MEDICA-FRANCE, SA (2)
Paris, Rueil Malmaison,
Sarcelles, Poissy, Chatou,
and Rosny sous Bois, France 100% 336,766 12.01 4,042,893(3) INSEE(4) Jun. 2010 Jun. 2010
HOLOGIC, INC.
64% interest in a
Danbury, CT; Bedford MA jointly controlled
tenancy-in-common 269,042 11.73 2,019,802 CPI Aug. 2022 Aug. 2042
MEADOWBROOK MEAT COMPANY (FAST FOOD
MERCHANDISERS, INC. AND PROFICIENT
FOOD COMPANY, INC.) (2)
Orlando, FL; Macon, GA; Rocky 100% 575,858 4.62 2,660,000 Stated Jan. 2018 Jan. 2038
Mount, NC (2); Lewisville, TX
-16-
RENT PER SHARE OF
LESSEE (LEASE OBLIGOR)/ SQUARE SQUARE CURRENT INCREASE LEASE MAXIMUM
LOCATION OWNERSHIP INTEREST FOOTAGE FOOT ANNUAL RENTS(1) FACTOR TERM TERM
- ------------------------------------------------------------------------------------------------------------------------------------
OVERLAND STORAGE, INC. (2)
San Diego, CA 100% 158,585 16.53 2,621,285 Stated Feb. 2014 Feb. 2019
TOWER AUTOMOTIVE PRODUCTS, INC. AND
TOWER AUTOMOTIVE TOOL, LLC
(TOWER AUTOMOTIVE, INC.) (2)
Auburn, IN; Bluffton, OH; 100% 844,166 2.79 2,355,875 CPI Apr. 2020 Apr. 2040
Milan, TN
PETSMART, INC. (2)
Phoenix, AZ; Westlake
Village, CA; Boca Raton, Lake
Mary, Tallahassee,
Plantation, FL; Evanston, IL; 30% interest
Braintree, MA; Oxon Hill, MD; in two limited
Flint, MI; Fridley, MN; partnerships owning 946,177 7.68 2,178,825 Stated Nov. 2021 Nov. 2041
Dallas, Southlake, TX land and buildings
BE AEROSPACE, INC. (2)
Miami, FL 100% 188,065 7.78 1,462,618 Stated Sep. 2017 Sep. 2037
TRENDS CLOTHING CORP. (2)
Miami, FL 100% 247,264 5.74 1,420,000 CPI Jun. 2017 Jun. 2037
RACAL INSTRUMENTS, INC. (RIG LIMITED) (2)
Irvine, CA 100% 98,631 13.20 1,301,929 Stated May 2022 May 2052
ADVANTIS TECHNOLOGIES, INC.
(ROCKWOOD SPECIALTIES GROUP) (2)
Alpharetta, GA 100% 191,975 6.64 1,275,000 CPI Jun. 2017 Jun. 2037
INTEGRACOLOR, LTD. (2)
Mesquite, TX (3) 100% 358,987 3.50 1,256,700 CPI Jun. 2022 Jun. 2042
DANKA OFFICE IMAGING COMPANY (2),(5)
St. Petersburg, FL (3) 100% 337,727 2.58 871,200 CPI Jul. 2018 Jul. 2038
BUILDERS FIRSTSOURCE - ATLANTIC GROUP,
INC. AND BUILDERS FIRSTSOURCE -
OHIO VALLEY, INC. (BUILDERS FIRSTSOURCE, INC.) (2)
40% interest in a
Norcross, GA; Elkwood, VA; limited partnership
Cincinnati, OH owning land and buldings 389,261 3.56 553,751 CPI Dec. 2016 Dec. 2036
SSG PRECISION OPTRONICS, INC.
(TINSLEY LABORATORIES, INC.)
Wilmington, MA 100% 37,696 13.53 509,992 CPI Nov. 2022 Nov. 2036
RAVE MOTION PICTURES BATON ROUGE, L.L.C.
(RAVE MOTION PICTURES L.L.C.) (2)
Baton Rouge, LA 100% Under Construction Aug. 2023 Aug. 2043
1. Share of Current Annual Rents is the product of the Square Footage,
the Rent per Square Foot, and the Ownership Interest percentage.
2. This property is encumbered by a mortgage note payable.
3. Based on exchange rates at December 31, 2002.
4. INSEE construction index, an index published quarterly by the French
Government.
5. A portion of this property is under construction.
-17-
Item 3. Legal Proceedings.
As of the date hereof, CPA(R):14 is not a party to any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the year ended December 31,
2002 to a vote of security holders, through the solicitation of proxies or
otherwise.
-18-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information with respect to CPA(R):15's common equity is hereby incorporated by
reference to page 30 of CPA(R):15's Annual Report contained in Appendix A.
Item 6. Selected Financial Data.
Selected Financial Data are hereby incorporated by reference to page 1 of
CPA(R):15's Annual Report contained in appendix A.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's Discussion and Analysis are hereby incorporated by reference to
pages 2 to 10 of CPA(R):15's Annual Report contained in Appendix A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk:
Approximately $374,788,000 of CPA(R):15's long-term debt bears interest at fixed
rates, and therefore the fair value of these instruments is affected by changes
in the market interest rates. The following table presents principal cash flows
based upon expected maturity dates of the debt obligations and the related
weighted-average interest rates by expected maturity dates for the fixed rate
debt. The interest rate on the fixed rate debt as of December 31, 2002 ranged
from 5.52% to 7.98%. CPA(R):15 had no variable rate debt as of December 31,
2002.
(in thousands) 2003 2004 2005 2006 2007 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Fixed rate debt $ 4,882 $ 5,492 $ 6,024 $ 6,533 $ 7,140 $344,717 $374,788 $375,012
Weighted average
interest rate 5.99% 5.98% 5.97% 5.97% 5.96% 6.10%
CPA(R):15 conducts business in France. Foreign currency transaction gains and
losses from the Euro were not material to CPA(R):15's results of operations for
the year ended December 31, 2002. In January 2003, CPA(R):15 purchased a
property in the United Kingdom and the lease and debt on the property will be
denominated in British Pounds. CPA(R):15 was not subject to material foreign
currency exchange rate risk from the effects of changes in exchange rates. To
date, CPA(R):15 has not entered into any foreign currency forward exchange
contracts to hedge the effects of adverse fluctuations affect foreign currency
exchange rates. CPA(R):15 has obtained limited recourse mortgage financing at a
fixed rate of interest in the local currency. To the extent that currency
fluctuations affect rental revenues as translated to dollars, the change in debt
service, as translated to dollars, will partially offset the fluctuations in
revenue, and, to some extent mitigate the risk from changes in foreign currency
rates. Scheduled future minimum rents, exclusive of renewals, under
non-cancelable leases resulting from CPA(R):15's foreign operations are as
follows:
(in thousands) 2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Rental income(1) $14,725 $14,725 $14,725 $14,725 $14,725 $ 52,839 $126,464
Scheduled principal payments for the mortgage notes payable during each of the
next five years following December 31, 2002 and thereafter are as follows:
(in thousands) 2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Fixed rate debt (1) $ 2,183 $ 2,479 $ 2,774 $ 3,070 $ 3,449 $110,000 $123,955
(1) Based on December 31, 2002 exchange rate. The mortgage notes are denominated
in the functional currency of the country of each property.
-19-
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements and supplementary data of
CPA(R):15 are hereby incorporated by reference to pages 11 to 29 of CPA(R):15's
Annual Report contained in Appendix A:
(i) Report of Independent Accountants
(ii) Consolidated Balance Sheets at December 31, 2002 and 2001
(iii) Consolidated Statements of Operations for the year ended December 31, 2002
and the period from inception (February 26, 2001) through December 31,
2001
(iv) Consolidated Statement of Shareholders' Equity for the period from
inception (February 26, 2001) through December 31, 2001 and the year ended
December 31, 2002.
(v) Consolidated Statements of Cash Flows for the year ended December 31, 2002
and the period from inception (February 26, 2001) through December 31,
2001
(vi) Notes to Consolidated Financial Statements
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
-20-
PART III
Item 10. Directors and Executive Officers of the Registrant.
This information will be contained in CPA(R):15's definitive Proxy Statement
with respect to CPA(R):15's Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days following the end of
CPA(R):15's fiscal year, and is hereby incorporated by reference.
Item 11. Executive Compensation.
This information will be contained in CPA(R):15's definitive Proxy Statement
with respect to CPA(R):15's Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days following the end of
CPA(R):15's fiscal year, and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information will be contained in CPA(R):15's definitive Proxy Statement
with respect to CPA(R):15's Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days following the end of
CPA(R):15's fiscal year, and is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
This information will be contained in CPA(R):15's definitive Proxy Statement
with respect to CPA(R):15's Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
CPA(R):15's fiscal year, and is hereby incorporated by reference.
Item 14. Controls and Procedures
The Co-Chief Executive Officers and Chief Financial Officer of CPA(R):15 have
conducted a review of CPA(R):15's disclosure controls and procedures as of
December 31, 2002.
CPA(R):15's disclosure controls and procedures include CPA(R):15's controls and
other procedures designed to ensure that information required to be disclosed in
this and other reports filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") is accumulated and communicated to CPA(R):15's
management, including its chief executive officers and chief financial officer,
to allow timely decisions regarding required disclosure and to ensure that such
information is recorded, processed, summarized and reported, within the required
time periods. Based upon this review, CPA(R):15's chief executive officers and
chief financial officer have concluded that CPA(R):15's disclosure controls (as
defined in pursuant to Rule 13a-14(c) promulgated under the Exchange Act) are
sufficiently effective to ensure that the information required to be disclosed
by CPA(R):15 in the reports it files under the Exchange Act is recorded,
processed, summarized and reported with adequate timeliness. There have been no
significant changes in CPA(R):15's internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
evaluation referred to above.
-21-
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements:
The following consolidated financial statements are filed as a
part of this Report:
Report of Independent Accountants.
Consolidated Balance Sheets at December 31, 2002 and
2001.
Consolidated Statements of Operations for the year ended
December 31, 2002 and the period from inception
(February 26, 2001) through December 31, 2001.
Consolidated Statement of Shareholders' Equity for the
period from inception (February 26, 2001) through
December 31, 2001 and the year ended December 31, 2002.
Consolidated Statements of Cash Flows for the year ended
December 31, 2002 and the period from inception
(February 26, 2001) through December 31, 2001.
Notes to Consolidated Financial Statements.
The consolidated financial statements are hereby incorporated
by reference to pages 11 to 29 of CPA(R):15's Annual Report
contained in Appendix A.
(a) 2. Financial Statement Schedule:
The following schedules are filed as a part of this Report:
Report of Independent Accountants.
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 2002.
Schedule III of Registrant is contained on pages 33 to
36 of this Form 10-K.
Financial Statement Schedules other than those listed above
are omitted because the required information is given in the
Consolidated Financial Statements, including the Notes
thereto, or because the conditions requiring their filing do
not exist.
-22-
(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 No. Description Method of Filing
----------- ----------- ----------------
3.1 Articles of Incorporation of Registrant Exhibit 3.1 to Registration Statement
(Form S-11) No. 333-58854
3.2 Bylaws of Registrant Exhibit 3.2 to Registration Statement
(Form S-11) No. 333-58854
3.2(1) Bylaws of Registrant Exhibit 3.2 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
4.1 2001 Dividend Reinvestment and Stock Purchase Plan Exhibit 4.1 to Registration Statement
of Registrant (Form S-11) No. 333-58854
4.1(1) 2001 Dividend Reinvestment and Stock Purchase Plan Exhibit 4.1 to Amendment No. 1 to
of Registrant Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
5.1 Opinion of Reed Smith LLP Exhibit 5.1 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
5.1(1) Opinion of Reed Smith LLP Exhibit 5.1 to Registration Statement
(Form S-11) No. 333-100525
8.1 Opinion of Reed Smith LLP as to Certain Matters Exhibit 8.1 to Registration Statement
(Form S-11) No. 333-58854
8.1(1) Opinion of Reed Smith LLP Exhibit 8.1 to Registration Statement
(Form S-11) No. 333-100525
8.1(2) Opinion of Reed Smith LLP Exhibit 8.1 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-100525 dated November 21, 2002
8.2 Opinion of Reed Smith LLP Exhibit 8.2 to Registration Statement
(Form S-11) No. 333-58854
8.2(1) Opinion of Reed Smith LLP Exhibit 8.2 to Registration Statement
(Form S-11) No. 333-100525
10.1 Form of Sales Agency Agreement Exhibit 10.1 to Registration Statement
(Form S-11) No. 333-58854
10.1(1) Form of Sales Agency Agreement Exhibit 10.1 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
10.1(3) Form of Selected Dealer Agreement Exhibit 10.1 to Registration Statement
(Form S-11) No. 333-100525
-23-
Exhibit No. Description Method of Filing
----------- ----------- ----------------
10.2 Form of Selected Dealer Agreement Exhibit 10.2 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
10.2(1) Form of Selected Dealer Agreement Exhibit 10.2 to Registration Statement
(Form S-11) No. 333-58854
10.2(2) Form of Escrow Agreement Exhibit 10.2 to Registration Statement
(Form S-11) No. 333-100525
10.3 Form of Advisory Agreement Exhibit 10.3 to Registration Statement
(Form S-11) No. 333-58854
10.3(1) Form of Advisory Agreement Exhibit 10.3 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
10.3(2) Form of Investor Advisor Agreement Exhibit 10.3 to Registration Statement
(Form S-11) No. 333-100525
10.4 Form of Wholesaling Agreement Exhibit 10.4 to Registration Statement
(Form S-11) No. 333-58854
10.4(1) Form of Wholesaling Agreement Exhibit 10.4 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
10.4(2) Sales Agency Agreement Exhibit 10.4 to Registration Statement
(Form S-11) No. 333-100525
10.5 Form of Escrow Agreement Exhibit 10.5 to Registration Statement
(Form S-11) No. 333-58854
10.5(1) Form of Escrow Agreement Exhibit 10.5 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
10.5(2) Opinion of Reed Smith LLP Exhibit 5.1 to Registration Statement
(Form S-11/MEF) No. 333-100813
10.5(2) Advisory Agreement Exhibit 10.5 to Registration Statement
(Form S-11) No. 333-100525
10.6 Form of Selected Investor Adviser Agreement Exhibit 10.6 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
10.6(1) Wholesaling Agreement Exhibit 10.6 to Registration Statement
(Form S-11) No. 333-100525
10.7 Amended and Restated Sales Agency Agreement Exhibit 10.7 to Post-Effective Amendment
No. 2 to Registration Statement (Form
S-11/A) No. 333-58854 dated April 30,
2002
10.7(1) Amended and Restated Limited Partnership Agreement Exhibit 10.7 to Amendment No. 1 to
of Goldfish (DE) LP Registration Statement (Form S-11/A) No.
333-100525 dated November 21, 2002
-24-
Exhibit No. Description Method of Filing
----------- ----------- ----------------
10.8 Amended and Restated Advisory Agreement Exhibit 10.8 to Post-Effective Amendment
No. 2 to Registration Statement (Form
S-11/A) No. 333-58854 dated April 30,
2002
10.8(1) Agreement of DE Limited Partnership of Labrador (AZ) Exhibit 10.8 to Amendment No. 1 to
LP Registration Statement (Form S-11/A) No.
333-100525 dated November 21, 2002
10.9 Amended and Restated Wholesaling Agreement Exhibit 10.9 to Post-Effective Amendment
No. 2 to Registration Statement (Form
S-11/A) No. 333-58854 dated April 30,
2002
10.9(1) Agreement of DE Limited Partnership of BFS (DE) LP Exhibit 10.9 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-100525 dated November 21, 2002
10.10 Lease Agreement by and between Grocery (OK) QRS Exhibit 10.10 to Amendment No. 2 to
15-5, Inc., a Delaware corporation, as Landlord and Registration Statement (Form S-11/A) No.
Fleming Companies, Inc., an Oklahoma corporation, as 333-100525 dated December 18, 2002
Tenant
10.11 Lease Agreement by and between Module (DE) Limited Exhibit 10.11 to Amendment No. 2 to
Partnership, a Delaware limited partnership, as Registration Statement (Form S-11/A) No.
Landlord and Tower Automotive Products Company, 333-100525 dated December 18, 2002
Inc., a Delaware corporation, and Tower Automotive
Tool LLC, a Michigan limited liability company,
collectively as Tenant
10.12 Lease Agreement by and between Chassis (DE) Limited Exhibit 10.12 to Amendment No. 2 to
Partnership, a Delaware limited partnership, as Registration Statement (Form S-11/A) No.
Landlord and Tower Automotive Products Company, 333-100525 dated December 18, 2002
Inc., a Delaware corporation, and Tower Automotive
Tool LLC, a Michigan limited liability company,
collectively as Tenant
10.13 Lease Agreement by and between Energy (NJ) QRS Exhibit 10.10 to Amendment No. 2 to
15-10, Inc., a Delaware corporation, as Landlord and Registration Statement (Form S-11/A) No.
Foster Wheeler Realty Services, Inc., a Delaware 333-100525 dated December 18, 2002
corporation, as Tenant
10.14 Lease between Massachusetts Mutual Life Insurance Exhibit 10.10 to Amendment No. 2 to
Company, Landlord and SFX Entertainment, Inc., Registration Statement (Form S-11/A) No.
Tenant as assumed by Clear (NY) LP 333-100525 dated December 18, 2002
21.2 Subsidiaries of Registrant as of December 31, 2002 Filed herewith
99.1 Table VI: Acquisition of Properties by Prior Programs Exhibit 99.1 to Registration Statement
(Form S-11) No. 333-58854
-25-
Exhibit No. Description Method of Filing
----------- ----------- ----------------
99.1(1) Table VI: Acquisition of Properties by Prior Programs Exhibit 99.1 to Amendment No. 1 to
Registration Statement (Form S-11/A) No.
333-58854 dated November 1, 2001
99.1(2) Table VI: Acquisition of Properties by Prior Programs Exhibit 99.1 to Post-Effective Amendment
No. 2 to Registration Statement (Form
S-11/A) No. 333-58854 dated April 30,
2002
99.1(3) Certification of Chief Executive Officer Filed herewith
99.2 Certification of Chief Financial Officer Filed herewith
(b) Reports on Form 8-K
During the quarter ended December 31, 2002 the Registrant was not required
to file any reports on Form 8-K.
(c) Pursuant to Rule 701 of Regulation S-K, the use of proceeds through
December 31, 2002 from CPA(R):15's offering of common stock which
commenced November 7, 2001 (File #333-58854) is as follows:
Shares registered: 40,000,000
Aggregate price of offering amount registered: $400,000,000
Shares sold: 39,910,441
Aggregated offering price of amount sold: $399,104,410
Direct or indirect payments to directors,
officers, general partners of the issuer or their
associates, to persons owning ten percent or
more of any class of equity securities of the
issuer and to affiliates of the issuer: $ 4,498,640
Direct or indirect payments to others: $ 39,090,171
Net offering proceeds to the issuer after
deducting expenses: $355,515,599
Purchases of real estate: $268,224,299
Working capital reserves: $ 3,991,044
Temporary investments in cash and cash equivalents: $ 83,300,256
-26-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
a Maryland corporation
3/24/03 BY: /s/ John J. Park
- --------------- ------------------------------------
Date John J. Park
Managing Director and Chief Financial 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.
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
3/24/03 BY: /s/ William Polk Carey
- -------------- ---------------------------------------------
Date William Polk Carey
Chairman of the Board and Director
(Principal Executive Officer)
3/24/03 BY: /s/ Gordon F. DuGan
- -------------- ---------------------------------------------
Date Gordon F. DuGan
Vice Chairman of the Board, Senior
Managing Director and Chief Acquisitions
Officer
3/24/03 BY: /s/ Anne R. Coolidge
- -------------- ---------------------------------------------
Date Anne R. Coolidge
President
3/24/03 BY: /s/ Francis X. Diebold
- -------------- ---------------------------------------------
Date Francis X. Diebold
Director
3/24/03 BY: /s/ Elizabeth P. Munson
- -------------- ---------------------------------------------
Date Elizabeth P. Munson
Director
3/24/03 BY: /s/ George E. Stoddard
- -------------- ---------------------------------------------
Date George E. Stoddard
Director
3/24/03 BY: /s/ Ralph F. Verni
- -------------- ---------------------------------------------
Date Ralph F. Verni
Director
3/14/03 BY: /s/ Warren G. Wintrub
- -------------- ---------------------------------------------
Date Warren G. Wintrub
Director
3/24/03 BY: /s/ John J. Park
- -------------- ---------------------------------------------
Date John J. Park
Managing Director and Chief Financial Officer
(Principal Financial Officer)
3/24/03 BY: /s/ Claude Fernandez
- -------------- ---------------------------------------------
Date Claude Fernandez
Managing Director and Chief Accounting
Officer (Principal Accounting Officer)
-27-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
CERTIFICATIONS
We, William Polk Carey and Gordon F. DuGan, certify that:
1. We have reviewed this annual report on Form 10-K of Corporate Property
Associates 15 Incorporated (the "Registrant");
2. Based on our knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on our knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and we are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and we have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and we have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date 3/24/03 Date 3/24/03
/s/ William Polk Carey /s/ Gordon F. DuGan
--------------------------- --------------------------
William Polk Carey Gordon F. DuGan
Chairman Vice Chairman
(Co-Chief Executive Officer) (Co-Chief Executive Officer)
-28-
CERTIFICATIONS (Continued)
I, John J. Park, certify that:
1. I have reviewed this annual report on Form 10-K of Corporate Property
Associates 15 Incorporated (the "Registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date 3/24/03
/s/ John J. Park
-----------------------
John J. Park
Chief Financial Officer
-29-
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (THE "ACT") BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
THE REGISTRANT'S PROXY STATEMENT HAS NOT BEEN SENT TO SECURITY HOLDERS, AND IS
TO BE FURNISHED TO SECURITY HOLDERS SUBSEQUENT TO THE FILING OF THE ANNUAL
REPORT ON THIS FORM.
-30-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Corporate Property Associates 15 Incorporated:
Our audits of the consolidated financial statements referred to in our report
dated March 4, 2003 appearing in the 2002 Annual Report to Shareholders of
Corporate Property Associates 14 Incorporated (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 4, 2003
-31-
Corporate Property Associates 15 Incorporated
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 2002
Initial Cost to Company
-----------------------
Costs Capitalized
Subsequent to
Description Encumbrances Land Buildings Acquisition (a)
----------- ------------ ---- --------- ---------------
Operating Method:
Indusrial facilities leased to Tower Automotive,
Inc. $ 11,975,923 $ 1,180,000 $ 19,815,621 $ 16,543
Office facility leased to Racal Instruments, Inc. 3,418,441 4,930,000
Office facility leased to Advantis Technologies,
Inc. 8,491,506 1,750,000 11,339,005
Distribution and warehouse facility leased to
Fleming Companies, Inc. 29,886,354 1,000,000 52,870,063 16,378
Distribution and warehouse facility leased to
Trends Clothing Corp. 8,558,719 3,800,000 11,069,110 33,983
Leasehold interest in office facility leased to
Foster Wheeler, Ltd. 29,113,434 47,015,707 3,164
Industrial facility leased to BE Aerospace, Inc. 10,489,765 6,600,000 8,870,072 40,192
Office facilities leased to Danka Office Imaging
Company 12,800,000 1,750,000 7,408,115
Office, light engineering and warehouse facilities
leased to Overland Strorage, Inc. 19,980,766 8,050,000 22,046,836 24,257
Warehouse, distribution and office facilities
leased to SSG Precision Optronics, Inc. 870,000 4,097,653
Assisted-living facilities leased to
Medica-France, SA 35,642,200 5,329,401 35,001,068 2,932,572
Office facilities leased to Clear Channel
Communications, Inc. 85,000,000 48,000,000 104,041,885 2,668,236
Warehouse and distribution facilities leased to
Carrefour France, SA and Carrefour Hypermarches
France, SA 88,312,986 11,249,761 95,122,572 5,545,902
Warehouse, distribution and office facilities
leased to Meadowbrook Meat Company, Inc. 18,000,000 3,440,000 26,975,009
------------ ------------ ------------ -----------
$361,670,094 $ 97,949,162 $445,672,716 $11,281,227
============ ============ ============ ===========
Increases in
Description Investment (b) Land Buildings
----------- -------------- ---- ---------
Operating Method:
Indusrial facilities leased to Tower Automotive,
Inc. $ 1,180,000 $ 19,832,164
Office facility leased to Racal Instruments, Inc. 4,930,000
Office facility leased to Advantis Technologies,
Inc 1,750,000 11,339,005
Distribution and warehouse facility leased to
Fleming Companies, Inc. 1,000,000 52,886,441
Distribution and warehouse facility leased to
Trends Clothing Corp. 3,800,000 11,103,093
Leasehold interest in office facility leased to
Foster Wheeler, Ltd. 47,018,871
Industrial facility leased to BE Aerospace, Inc. 6,600,000 8,910,264
Office facilities leased to Danka Office Imaging
Company 1,750,000 7,408,115
Office, light engineering and warehouse facilities
leased to Overland Strorage, Inc. 8,050,000 22,071,093
Warehouse, distribution and office facilities
leased to SSG Precision Optronics, Inc. 870,000 4,097,653
Assisted-living facilities leased to
Medica-France, SA $ 2,071,238 5,584,549 39,749,730
Office facilities leased to Clear Channel
Communications, Inc. 48,000,000 106,710,121
Warehouse and distribution facilities leased to
Carrefour France, SA and Carrefour Hypermarches
France, SA 2,546,807 11,505,760 102,959,282
Warehouse, distribution and office facilities
leased to Meadowbrook Meat Company, Inc. 3,444,000 26,975,009
----------- ------------ ------------
$ 4,618,045 $ 98,460,309 $461,060,841
=========== ============ ============
Gross Amount at which Carried
at Close of Period (d)
----------------------
Life on which
Depreciation
in Latest
Accumulated Statement of Income
Description Total Depreciation (d) Date Acquired is Computed
----------- ----- ---------------- ------------- -----------
Operating Method:
Indusrial facilities leased to Tower Automotive,
Inc. $ 21,012,164 $ 351,035 April 10, 2002 40 years
Office facility leased to Racal Instruments, Inc. 4,930,000 May 21, 2002
Office facility leased to Advantis Technologies,
Inc 13,089,005 153,549 June 25, 2002 40 years
Distribution and warehouse facility leased to
Fleming Companies, Inc. 53,886,441 715,991 June 28, 2002 40 years
Distribution and warehouse facility leased to
Trends Clothing Corp. 14,903,093 127,337 July 22, 2002 40 years
Leasehold interest in office facility leased to
Foster Wheeler, Ltd. 47,018,871 440,776 August 16, 2002 40 years
Industrial facility leased to BE Aerospace, Inc. 15,510,264 64,971 September 12, 2002 40 years
Office facilities leased to Danka Office Imaging
Company 9,158,115 54,018 September 27, 2002 40 years
Office, light engineering and warehouse facilities
leased to Overland Strorage, Inc. 30,121,093 114,945 October 15, 2002 40 years
Warehouse, distribution and office facilities
leased to SSG Precision Optronics, Inc. 4,967,653 12,805 November 20, 2002 40 years
Assisted-living facilities leased to
Medica-France, SA 45,334,279 41,405 December 4, 2002 40 years
Office facilities leased to Clear Channel
Communications, Inc. 154,710,121 111,156 December 12, 2002 40 years
Warehouse and distribution facilities leased to
Carrefour France, SA and Carrefour Hypermarches
France, SA 114,465,042 107,249 December 27, 2002 40 years
Warehouse, distribution and office facilities
leased to Meadowbrook Meat Company, Inc. 30,415,009 28,099 December 31, 2002 40 years
------------ ----------
$559,521,150 $2,323,336
============ ==========
-32-
Gross Amount at which Carried
Initial Cost to Company at Close of Period (d)
----------------------- ----------------------
Costs
Capitalized Increase in
Subsequent to Net Investment
Description Encumbrances Land Buildings Acquisition (a) (b) Total Date Acquired
----------- ------------ ---- --------- --------------- -------------- ----- -------------
Direct Financing Method:
Office facility leased to
Racal Instruments, Inc. $ 6,058,212 $ 8,525,497 $ 69,300 $142,221 $ 8,737,018 May 21, 2002
Distribution and warehouse
facility leased to
IntegraColor Ltd. 7,059,216 $1,513,400 10,842,621 12,356,021 June 14, 2002
----------- ---------- ----------- -------- -------- -----------
$13,117,428 $1,513,400 $19,368,118 $ 69,300 $142,221 $21,093,039
=========== ========== =========== ======== ======== ===========
-33-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
(a) Consists of the costs of improvements subsequent to purchase and
acquisition costs including legal fees, appraisal fees, title costs and
other related professional fees.
(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 more (less) than lease payments received and foreign
currency translation adjustments.
(c) At December, 2002, the aggregate cost of real estate owned by CPA(R):15
and its subsidiaries for Federal income tax purposes is $465,033,000.
(d)
Reconciliation of Real Estate Accounted for Under
the Operating Method
December 31, 2002
Balance at beginning of year --
Additions $ 588,387,050
Disposition (11,614,766)
Reclassification to equity investment (21,869,179)
Foreign currency translation adjustment 4,618,045
-------------
Balance at December 31, 2002 $ 559,521,150
=============
Reconciliation of Accumulated Depreciation
December 31, 2002
Balance at beginning of year --
Depreciation expense $ 2,569,741
Reclassification to equity investment (247,910)
Foreign currency translation adjustment 1,505
-------------
Balance at December 31, 2002 $ 2,323,336
=============
-34-
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
2002 ANNUAL REPORT
SELECTED FINANCIAL DATA
(In thousands except per share and share amounts)
2002 2001 (1)
---- --------
OPERATING DATA:
Revenues $ 14,394 $ 2
Net income (loss) 5,767 (68)
Basic earnings (loss) per share .29 (3.42)
Dividends paid (2) 6,179 --
Dividends declared per share .45 --
Weighted average shares outstanding - basic 19,720,070 20,000
Payment of mortgage principal (3) 386 --
BALANCE SHEET DATA:
Total assets 806,298 2,206
Long-term obligations(4) 382,918 --
(1) For the period from inception (February 26, 2001) through December 31,
2001.
(2) The Company paid its first dividend in April 2002.
(3) Represents scheduled mortgage principal amortization paid.
(4) Represents mortgage notes payable and deferred acquisition fee
installments that are due after more than one year.
-1-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The following discussion and analysis of financial condition and results of
operations of Corporate Property Associates 15 Incorporated ("CPA(R):15") should
be read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2002. The following discussion contains
forward looking statements. Forward-looking statements, which are based on
certain assumptions, describe future plans, strategies and expectations of
CPA(R):15. Such statements include known and unknown risks, uncertainties and
other factors that may cause its actual results, performance or achievement to
be materially different from the results of operations or plans expressed or
implied by such forward looking statements. The risk factors are fully described
in Item 1 of this Annual Report on Form 10-K. Accordingly, such information
should not be regarded as representations by us that the results or conditions
described in such statements or objectives and plans will be achieved.
CPA(R):15 was formed in 2001 and is currently using the proceeds from its
$400,000,000 "best efforts" public offering which was completed in November 2002
along with limited recourse mortgage financing to purchase properties and enter
into long-term net leases with corporate lessees. As of December 31, 2002,
CPA(R):15 had raised gross proceeds of $398,904,000 and intends to raise up to
an additional $690,000,000 in a second "best efforts" public offering of stock.
CPA(R):15 structures the net leases to place certain economic burdens of
ownership on these corporate lessees by requiring them to pay the costs of
maintenance and repair, insurance and real estate taxes. The lease obligations
are unconditional. When possible, CPA(R):15 also negotiates guarantees of the
lease obligations from parent companies. CPA(R):15 negotiates leases that may
provide for periodic rent increases that are stated or based on increases in the
Consumer Price Index ("CPI") or, for retail properties, may provide for
additional rents based on sales in excess of a specified base amount. CPA(R):15
may also acquire interests in real estate through joint ventures with affiliates
who have similar investment objectives as CPA(R):15. These joint ventures, which
may be in the form of general partnerships, limited partnerships, limited
liability companies or tenancies-in-common, also enter into net leases on a
single-tenant basis. As of December 31, 2002, CPA(R):15 holds interests in seven
limited partnerships and one jointly controlled tenancy-in-common with three
affiliates, Corporate Property Associates 12 Incorporated ("CPA(R):12"),
Corporate Property Associates 14 Incorporated ("CPA(R):14") and W. P. Carey &
Co. LLC ("W. P. Carey").
As a real estate investment trust ("REIT"), CPA(R):15 is not subject to federal
income taxes on amounts distributed to shareholders provided it meets certain
conditions including distributing at least 90% of its REIT taxable income to
stockholders. CPA(R):15's objectives are to pay quarterly dividends at an
increasing rate, provide inflation-protected income through CPI-based rent
increases, own a diversified portfolio of net leased properties and increase the
equity in CPA(R):15's real estate portfolio by obtaining mortgage debt that
provides for scheduled principal payment installments.
CPA(R):15 is advised by W. P. Carey and its wholly-owned subsidiary, Carey Asset
Management Corp., pursuant to an Advisory Agreement. CPA(R):15's contract with
W. P. Carey is renewable annually by Independent Directors who are elected by
CPA(R):15's shareholders. In connection with each renewal, W. P. Carey is
required to provide the Independent Directors with a comparison of the fee
structure with several similar companies. The Advisory Agreement also provides
that an independent portfolio valuation be performed after a stated period and
annually thereafter, and Average Invested Assets, the basis for determining
asset management and performance fees, be based on the results of these
independent valuations. Until the initial valuation is performed, the fees are
based on the cost of the properties.
Critical Accounting Policies
As CPA(R):15 uses its offering proceeds to purchase investments in real estate,
it has adopted certain critical accounting policies that are crucial to an
understanding of its financial condition and results of operations. Such
policies include, but are not limited to the following:
-2-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
The preparation of financial statements requires that Management make estimates
and assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. For instance, CPA(R):15 assesses its ability to collect rent and
other tenant-based receivables and determines an appropriate charge and
allowance for uncollectable amounts. Because CPA(R):15's real estate operations
have a limited number of lessees, Management believes that it will be necessary
to evaluate specific situations rather than solely use statistical methods.
CPA(R):15 recognizes a provision for uncollected rents which typically will
range between 0.25% and 1% of lease revenues (rental income and interest income
from direct financing leases) and will measure its allowance for uncollected
rents with actual rent arrearages experience and its judgment regarding
collectibility of arrearages. Based on its actual experience in future years,
CPA(R):15 will compare its allowance for uncollected receivables to any
arrearages and adjust the percentage applied.
Real estate accounted for under the operating method is stated at cost less
accumulated depreciation. Costs directly related to build-to-suit projects
primarily interest, if applicable are capitalized. Interest capitalized in 2002
was $321,000. CPA(R):15 considers a build-to-suit project as substantially
completed upon the completion of improvements, but no later than a date that is
negotiated and stated in the lease. If portions of a project are substantially
completed and occupied and other portions have not yet reached that stage, the
substantially completed portions are accounted for separately. CPA(R):15
allocates costs incurred between the portions under construction and the
portions substantially completed and only capitalizes those costs associated
with the portion under construction.
CPA(R):15 uses estimates and judgments when evaluating whether long-lived assets
are impaired. When events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, Management performs projections of
undiscounted cash flows, and if such cash flows are insufficient, the assets
will be adjusted (i.e., written down) to their estimated fair value. An analysis
of whether a real estate asset has been impaired requires Management to make its
best estimate of market rents, residual values and holding periods. As
CPA(R):15's investment objective is to hold properties on a long-term basis,
holding period assumptions will likely range from five to ten years. In its
evaluations, CPA(R):15 will generally obtain market information from outside
sources; however, such information requires Management to determine whether the
information received is appropriate to the circumstances. Depending on the
assumptions made and estimates used, the estimated future cash flow projected in
the evaluation of long-lived assets can vary within a range of outcomes.
CPA(R):15 considers the likelihood of possible outcomes in determining the best
estimate of future cash flows. Because CPA(R):15's properties are leased to
single tenants, CPA(R):15 may be more likely to incur significant writedowns
when circumstances deteriorate because of the possibility that a property will
be vacated in its entirety. This makes the risks faced by CPA(R):15 different
from the risks faced by companies that own multi-tenant properties. Events or
changes in circumstances can result in further writedowns and impact the gain or
loss ultimately realized upon sale of the asset. For its direct financing
leases, CPA(R): 15 will perform a review of its estimated residual values of
properties at least annually to determine whether there has been an other than
temporary decline in CPA(R):15's current estimate of residual value of the real
estate of its assets subject to direct financing leases. Currently, there are no
lessees that have experienced a change in circumstances that in Management's
opinion would require an evaluation of recoverability.
Stated rental revenue is recognized on a straight-line basis, and interest
income from direct financing leases is recognized such that CPA(R):15 earns a
constant rate of interest on its net investment, over the terms of the
respective leases. Unbilled rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in accordance with
the lease agreements. CPI-based and other contingent-type rents are recognized
currently. CPA(R):15 recognizes rental income from sales overrides when reported
by lessees, that is, after the level of sales requiring a rental payment to
CPA(R):15 is reached.
CPA(R):15 and certain affiliates are investors in certain real estate ventures.
It is anticipated that additional properties will be purchased through real
estate ventures. These investments may be held through incorporated or
unincorporated jointly-held entities. Substantially all of these investments
will represent jointly purchased properties which are net leased to a single
tenant and will be structured to provide diversification and reduce
concentration of a risk from a single lessee for CPA(R):15 and the affiliate.
The placement of an investment in a jointly-held entity requires the approval of
CPA(R):15's Independent Directors. All of the jointly held investments will be
structured so that CPA(R):15 and the affiliate contribute equity, receive
distributions and are allocated profit or
-3-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
loss in amounts that are proportional to their ownership interests. All of the
jointly-held investments are subject to contractual agreements. No fees are
payable to affiliates under any of the limited partnership and joint venture
agreements. The presentation of these jointly held investments and their related
results in the accompanying consolidated financial statements is determined
based on factors including, but not limited to, controlling interest,
significant influence and whether each party has the ability to make independent
decisions. Such factors will determine whether such investments are consolidated
in the accounts of CPA(R):15 or accounted for under the equity method. Equity
method investments are reviewed for impairment in the event of a change in
circumstances that is other than temporary. An investment's value is impaired
only if Management's estimate of the net realizable value of the impairment is
less than the carrying value of the investment. To the extent an impairment loss
has occurred, the loss shall be measured as the excess of the carrying amount of
the investment over the fair value of the investment.
CPA(R):15 classifies its directly-owned leased assets for financial reporting
purposes as either real estate leased under the operating method or net
investments in direct financing leases based on several criteria, including, but
not limited to, estimates of the remaining economic life of the leased assets
and the calculation of the present value of future minimum rents. In determining
the classification of a lease, CPA(R):15 uses estimates of remaining economic
life provided by independent appraisals of the leased assets. The calculation of
the present value of future minimum rents includes determining a lease's
implicit interest rate which requires an estimate of the residual value of
leased assets as of the end of the non cancelable lease term. Different
estimates of residual value result in different implicit interest rates and
could possibly affect the financial reporting classification of leased assets.
The contractual terms of CPA(R):15 leases are not necessarily different for
operating and direct financing leases; however the classification is based on
accounting pronouncements which are intended to indicate whether the risks and
rewards of ownership are retained by the lessor or transferred to the lessee.
Management believes that it retains certain risks of ownership regardless of
accounting classification.
When assets are identified by Management as held for sale, CPA(R):15
discontinues depreciating the assets and estimates the sales price, net of
selling costs, of such assets. If, in Management's opinion , the net sales price
of the assets which have been identified for sale is less than the net book
value of the assets, an impairment charge is recognized and a valuation
allowance is established. If circumstances that previously were considered
unlikely occur and, as a result, CPA(R):15 decides not to sell a property
previously classified as held for sale, the property is reclassified as held and
used. A property that is reclassified is measured and recorded individually at
the lower of (a) the carrying value before it was classified as held for sale,
adjusted for any depreciation expense that would have been recognized had the
property been continuously classified as held and used, or (b) the fair value at
the time of the subsequent decision not to sell. As of December 31, 2002, no
assets are held for sale.
Costs incurred in connection with obtaining mortgages and debt financing are
capitalized and amortized over the term of the related debt and included in
interest expense. Unamortized financing costs are included in charges for early
extinguishment of debt if a loan is retired and the costs have not been fully
amortized. Costs incurred in connection with leases are capitalized and
amortized over the non-cancelable terms of the related leases, and included in
property expense. Unamortized leasing costs are also charged to property expense
in the event of an early termination of a lease.
Public business enterprises are required to report financial and descriptive
information about their reportable operating segments. Operating segments are
components of an enterprise about which financial information is available that
is evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Management evaluates the
performance of its portfolio of properties as a whole, rather than by
identifying discrete operating segments. This evaluation includes assessing
CPA(R):15's ability to meet distribution objectives, increase the dividend and
increase value by evaluating potential investments in single tenant net lease
real estate and by seeking opportunities such as refinancing mortgage debt at
lower rates of interest, restructuring leases or paying off lenders at a
discount to the face value of the outstanding mortgage balance.
-4-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
Results of Operations
Year Ended December 31, 2002 Compared to the Period from Inception (February 26,
2001) through December 31, 2001
The results of CPA(R):15 for the year ended December 31, 2002 are not comparable
to the results for the period ended December 31, 2001. CPA(R):15 recognized net
income of $5,767,000 in 2002 as compared with a net loss of $69,000 in 2001.
CPA(R):15 did not have any significant operating activity during 2001 and did
not begin acquiring any substantial real estate interests until February 2002.
During the year the Company's asset base increased from approximately $2,206,000
to approximately $806,298,000. During the fourth quarter of 2002, CPA(R):15's
asset base increased by $401,147,000. Accordingly, CPA(R):15 believes that the
results of operations for the year ended December 31, 2002 are not expected to
be representative of future results. During the year ended December 31, 2002,
CPA(R): 15 entered directly into net lease transactions with 17 tenants
including a build-to-suit transaction, acquired equity ownership interests with
affiliates which net lease properties to TruServ Corporation and increased its
interest in the Petsmart, Inc. and Builders FirstSource, Inc. partnerships in
which it owned de minimus interests in 2001. In connection with build-to-suit
projects, CPA(R):15 capitalizes interest cost and, in 2002, $321,000 was
capitalized. If there had been no funds applied to the development of
build-to-suit projects, the interest would have been expensed and included in
the determination of net income. The acquisitions (including the pro rata share
of equity investments) are expected to generate annual cash flow (contractual
rent less debt service on property-level mortgage debt) of approximately
$29,000,000, as follows:
(In thousands) Annual Annual Estimated
Lease Obligor Contractual Rent Debt Service Cash Flow
- ------------- ---------------- ------------ ---------
Clear Channel Communications, Inc. (1) $ 6,549 $ 3,467 $ 3,082
TruServ Corporation (2) 6,004 2,707 3,297
Fleming Companies, Inc. 5,508 2,507 3,001
Foster Wheeler, Inc. 5,231 2,253 2,978
Carrefour France, SA (3) 6,943 4,306 2,637
Hologic, Inc. (2) 2,020 -- 2,020
Meadowbrook Meat Company 2,660 1,306 1,354
Tower Automotive, Inc. 2,356 1,057 1,299
Rave Reviews Cinemas, L.L.C. (under construction) 1,286 -- 1,286
Overland Storage, Inc. 2,621 1,467 1,154
Petsmart, Inc. (2) 2,179 1,107 1,072
Danka Office Imaging Company 1,966 984 982
Medica - France, SA (3) 2,628 1,744 884
BE Aerospace, Inc. 1,468 764 704
IntegraColor, Ltd. 1,257 564 693
Advantis Technologies, Inc. 1,275 610 665
Racal Instruments, Inc. 1,323 733 590
Trends Clothing Corp. 1,420 851 569
SSG Precision Optronics, Inc. 510 -- 510
Builders FirstSource, Inc. (2) 554 271 283
------- ------- -------
$55,758 $26,698 $29,060
======= ======= =======
(1) Net of minority interest
(2) Pro rata share of equity investment
(3) Net of minority interest acquired by affiliate subsequent to December 31,
2002
The leases generally have lease terms of 15 to 20 years with the lessees having
options for renewal terms. CPA(R):15's properties in France leased to Carrefour
and Medica-France have shorter terms (ranging from 7 1/2 to 9 years) with
rolling three-year renewal terms which is a customary practice in that market.
CPA(R):15 has not hedged the risk of foreign currency fluctuations on the cash
flow from its French investments as the Company has obtained mortgage debt on
the properties so that the overall risk of fluctuation is reduced as the
currency fluctuations on revenue are partially offset by fluctuations on debt
service.
-5-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
Since December 31, 2002, CPA(R): 15 has completed four acquisitions, including
the purchase of (i) land and a build-to-suit commitment with Insulated
Structures Ltd. in the United Kingdom, (ii) a 44% equity investment in a limited
liability company which net leases 15 health clubs to Starmark Camhood LLC
pursuant to a master lease, (iii) land and buildings leased to Waddington North
America, Inc. and (iv) land and buildings leased to Polar Plastics (NC), Inc.
Upon completion of construction, which is expected in 2003, Insulated
Structures' lease will contribute annual cash flow of approximately $1,650,000
(based on the current exchange rate for the British pound), before any debt
financing is obtained. Starmark, Waddington and Polar Plastics will provide
annual cash flow of $4,846,000, net of debt service. CPA(R):15's asset base
increased substantially during the year as a result of completing its initial
"best efforts" public offering and obtaining $371,580,000 of limited recourse
mortgage financing. Management projects that CPA(R):15's asset base will
continue to increase substantially over the next several years. As the asset
base of the Company increases, general and administrative, property and
depreciation expenses will increase, while interest expense will increase as
mortgage loans are placed on newly-acquired and existing properties. Several
acquisitions, including those with Clear Channel Communications, Inc., Carrefour
France, SA, TruServ and Medica-France, SA, occurred in December 2002 and,
therefore, their contribution to the results of operations and cash flow will
increase substantially in future years as compared to 2002.
Property expense for the year ended December 31, 2002 includes primarily of fees
to the Advisor for its performing asset management services on behalf of
CPA(R):15. Pursuant to the Advisory Agreement, the fee is based on the Average
Invested Assets, that is the amounts invested in real estate. A portion of the
fee may be payable in restricted shares of common stock of CPA(R):15, at the
option of the Advisor. For 2002 and 2003, the Advisor has elected to receive the
performance component of its fees in CPA(R):15 stock. Interest income was
$1,687,000, representing a substantial portion of CPA(R):15's revenues in 2002.
As the proceeds of the offering are fully invested in real estate, interest
income will decrease and is expected to be a minor component of overall
revenues. After CPA(R):15 is fully invested, CPA(R):15 will maintain cash
balances which Management believes to be sufficient for meeting working capital
needs.
On March 12, 2003, CPA(R):15 sold a 35% interest in the limited liability
company that owns the Medica-France and Carrefour properties to CPA(R):12. The
purchase price was based on the appraised value of the properties (based on the
current exchange rate for the Euro) adjusted for capitalized costs incurred
since the acquisitions including fees paid to the Advisor, net of mortgage debt.
Based on the formula, CPA(R):12 paid CPA(R):15 $11,916,465 and assumed
$1,031,046 of CPA(R):15's deferred acquisition fee payable to an affiliate.
The sale was approved by CPA(R):15's independent directors as being in the best
interests of CPA(R):15 and is intended to facilitate CPA(R):15's ability to
raise capital. The continued holding of 100% of the Medica-France and Carrefour
interests would have required CPA(R):15 to obtain and provide financial
information in its 1933 and 1934 Act filings on the lease guarantors that is in
accordance with accounting principles generally accepted in the United States of
America and this information is not available to CPA(R):15. CPA(R):15 will
consolidate its controlling interests in the limited liability company in its
consolidated financial statements, and CPA(R):12's interest will be recognized
as a minority interest.
Period from Inception (February 26, 2001) through December 31, 2001
For the period ended December 31, 2001, CPA(R):15 incurred a net loss of
$68,479. CPA(R):15 was formed in 2001 and its revenues consisted solely of
interest income from investing its initial capital of $200,000 in interest
bearing money market instruments. CPA(R):15 incurred certain expenses relating
primarily to legal and accounting expenses and directors fees. The results
represent the period prior to raising capital from its public offering. In 2001,
CPA(R):15 purchased de minimus interests in two net lease transactions with
affiliates which are being accounted for under the equity method. In 2002,
CPA(R):15 exercised purchase options to increase ownership interests in such net
lease transactions.
-6-
Financial Condition
A major objective of CPA(R):15 is to fully invest its funds in real estate in
order to generate sufficient cash flow from operations and its equity
investments to fund dividends to shareholders at an increasing rate and pay
scheduled mortgage debt service. Cash flow from operations and equity
investments of $14,447,000 were sufficient to pay dividends of $6,179,000,
scheduled mortgage principal payments of $386,000 and distributions to minority
partners of $235,000. When evaluating cash generated from operations, Management
includes cash provided from equity investments. Under accounting principles
generally accepted in the United States of America, distributions from equity
investments in excess of income from equity investments are a return of capital
and presented as cash flows from investing activities. The ability of the equity
investees to distribute cash to CPA(R):15 in excess of an equity investee's
income is due primarily to noncash charges for depreciation. CPA(R):15 evaluates
its ability to pay dividends to shareholders by using its projections of cash
flow from both its directly-owned real estate and its equity investments, which
represent participations in single-tenant net lease real estate. Several of
CPA(R):15 leases provide for payments of rents quarterly in advance, and
$4,973,000 of operating cash flow in 2002 resulted from receiving such payments.
When CPA(R):15 is fully invested, the effect of changes in prepaid rents on
operating cash flow from period to period should not be as significant to
overall cash flows from operating activities.
During 2002, CPA(R):15 used $609,323,000 to acquire properties net leased to 17
lessees, $10,962,000 to increase its interests in the Petsmart and Builders
First Source limited partnerships and $42,571,000 to purchase a 50% interest in
the TruServe limited partnerships. Deferred acquisition fees payable to the
Advisor are capitalized to the cost of real estate invested and $13,012,000 is
payable to the Advisor over a period of no less than four years. The initial
payment of deferred fees is scheduled for January 2004 and is subordinated to
meeting a specified dividend return to shareholders.
CPA(R):15's financing activities consisted primarily of raising $355,486,000,
net of costs, from its "best efforts" public offering. As of December 31, 2002,
CPA(R):15 had cash balances of $94,762,000. CPA(R):15 intends to use this cash
to increase and diversify its real estate asset base and to maintain cash
balances sufficient to maintain its operations. CPA(R):15 is actively evaluating
potential net lease investments and is using its available cash along with
limited recourse mortgage financing to purchase properties. In connection with
purchasing properties, CPA(R):15 obtained $371,580,000 of limited recourse
mortgage debt (including $8,630,000 which was assumed) on which $386,000 of
scheduled principal payment installments have been made. Certain lenders used
$3,761,000 of mortgage proceeds to fund escrow accounts. A lender on limited
recourse mortgage debt has recourse only to the property (and lease assignments)
collateralizing such debt and not to any of CPA(R):15's other assets, while
unsecured financing provides a lender recourse to all of CPA(R): 15's assets.
The use of limited recourse debt, therefore, will allow CPA(R):15 to limit the
exposure of its assets to any one debt obligation. Management believes that the
strategy of combining equity and limited recourse mortgage debt will allow
CPA(R):15 to meet its short-term and long-term liquidity needs and will help to
diversify CPA(R):15's portfolio and, therefore, reduce concentration of risk in
any particular lessee, industry type and property type. The loans, all of which
provide for fixed rates of interest, generally do not mature for at least ten
years. After CPA(R):15 completes its public offering and fully invests in real
estate, it will evaluate on an ongoing basis whether to obtain additional
sources of funds such as lines of credit; however, no consideration is being
given to such additional sources at this time. In December 2002, CPA(R):15
received $28,340,000 from CPA(R):14 for a 40% interest in the Clear Channel
limited partnership. In accordance with the partnership agreement, CPA(R):15 has
distributed $235,000 to CPA(R):14 for its share of cash flow from the Clear
Channel property. During 2002, CPA(R):15 paid dividends to shareholders of
$6,179,000, with the initial distribution made in the second quarter.
Since December 31, 2002, CPA(R):15 has used an additional $48,302,000 to
acquire the Insulated Storage, Waddington and Polar Plastic properties and to
purchase a 44% interest in the Starmark properties. A second "best efforts"
offering for 69,000,000 shares ($690,000,000) commenced in March 2003. To the
extent that the second "best efforts" offering is fully subscribed, acquisition
and property-level financing activity can be expected to continue for several
years with total real estate assets projected to exceed $1,500,000,000. As of
February 28, 2003, CPA(R):15 had approximately $41,687,000 available for
investment and completion of build-to-suit commitments.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
Off-Balance Sheet Arrangements, Guarantees and Aggregate Contractual
Arrangements
A summary of CPA(R):15's contractual obligations, guarantees and commitments as
of December 31, 2002 is as follows:
(in thousands) Total 2003 2004 2005 2006 2007 Thereafter
-------- ------- ------ ------ ------- -------- ----------
Obligations:
Limited recourse mortgage notes
payable (1) $374,788 $ 4,882 $5,492 $6,024 $ 6,533 $ 7,140 $344,717
Notes payable 3,704 3,704
Deferred acquisition fees 13,012 3,253 3,253 3,253 3,253
Commitments:
Build-to-suit obligations 35,671 35,671
Share of minimum rents payable
under office cost-sharing
agreement 75 20 20 20 15
-------- ------- ------ ------ ------- -------- --------
$427,250 $44,277 $8,765 $9,297 $ 9,801 $ 10,393 $344,717
======== ======= ====== ====== ======= ======== ========
(1) The limited recourse mortgage notes payable were obtained in connection
with the acquisition of properties in the ordinary course of business.
In connection with the purchase of its properties, CPA(R):15 requires the
sellers to perform environmental reviews. Management believes, based on the
results of such reviews, that CPA(R):15'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 degree of contamination, principally in connection with either
leakage from underground storage tanks, surface 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, CPA(R):15's leases generally
require tenants to indemnify CPA(R):15 from all liabilities and losses related
to the leased properties with provisions of such indemnification specifically
addressing environmental matters. The leases generally include provisions which
allow for periodic environmental assessments, paid for by the tenant, and allow
CPA(R):15 to extend leases until such time as a tenant has satisfied its
environmental obligations. Certain of the leases allow CPA(R):15 to require
financial assurances from tenants such as performance bonds or letters of credit
if the costs of remediating environmental conditions are, in the estimation of
CPA(R), in excess of specified amounts. Accordingly, Management believes that
the ultimate resolution of any environmental matter will not have a material
adverse effect on CPA(R):15's financial condition, liquidity or results of
operations.
Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangibles," which establish
accounting and reporting standards for business combinations and certain assets
and liabilities acquired in business combinations.
SFAS No. 141 requires that all business combinations and asset acquisitions be
accounted for under the purchase method, establishes specific criteria for the
recognition of intangible assets separately from goodwill and requires that
unallocated negative goodwill be written off immediately as an extraordinary
gain. Use of the pooling-of-interests method for business combinations is no
longer permitted. The adoption of SFAS No. 141 did not have a material effect on
CPA(R):15's financial statements.
SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. SFAS No. 142 provides that goodwill and
indefinite-lived intangible assets are no longer amortized but are tested for
impairment at least annually. Intangible assets acquired and liabilities assumed
in business combinations are only amortized if such assets and liabilities are
capable of being separated or divided and sold, transferred, licensed, rented or
exchanged or arise from contractual or legal rights (including leases), and will
be amortized over their useful lives. The adoption of SFAS No. 142 on January 1,
2002 did not have a material effect on CPA(R):15's financial statements.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
In June 2001, FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS No. 143 was issued to establish standards for the recognition
and measurement of an asset retirement obligation. SFAS No. 143 requires
retirement obligations associated with tangible long-lived assets to be
recognized at fair value as the liability is incurred with a corresponding
increase in the carrying amount of the related long-lived asset. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. CPA(R):15 does not expect SFAS No. 143 to have a material effect on
its financial statements.
In August 2001, FASB issued SFAS No. 144 "Accounting for the Impairment of
Long-Lived Assets" which addresses the accounting and reporting for the
impairment and disposal of long-lived assets and supercedes SFAS No. 121 while
retaining SFAS No. 121's fundamental provisions for the recognition and
measurement of impairments. SFAS No. 144 removes goodwill from its scope,
provides for a probability-weighted cash flow estimation approach for analyzing
situations in which alternative courses of action to recover the carrying amount
of long-lived assets are under consideration and broadens that presentation of
discontinued operations to include a component of an entity. The adoption of
SFAS No. 144 on January 1, 2002 did not have a material effect on CPA(R):15's
financial statements; however, the revenues and expenses relating to an asset
held for sale or sold will be presented as a discontinued operation for all
periods presented. The provisions of SFAS No. 144 are effective for disposal
activities initiated by the company's commitment to a plan of disposition after
the date of adoption (January 1, 2002).
In May 2002, FASB issued SFAS No. 145 "Rescission of SFAS Nos. 4, 44 and 64,
Amendment of SFAS No. 13 and Technical Corrections" which eliminates the
requirement that gains and losses from the extinguishment of debt be classified
as extraordinary items unless it can be considered unusual in nature and
infrequent in occurrence. The provisions of SFAS No. 145 are effective for
fiscal years beginning after May 15, 2002. Early adoption is permitted. Upon
adoption, CPA(R):15 will no longer classify gains and losses for the
extinguishment of debt as extraordinary items and will adjust comparative
periods presented. CPA(R):15 has not elected early adoption.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities". SFAS No. 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. CPA(R):15 does not expect
SFAS No. 146 to have a material effect on its financial statements.
In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain Financial
Institutions" which amends SFAS No. 72, SFAS No. 144 and FASB Interpretation No.
9. SFAS No. 147 provides guidance on the accounting for the acquisitions of
certain financial institutions and includes long-term customer relationships as
intangible assets within the scope of SFAS No. 144. CPA(R): 15 does not expect
SFAS No. 147 to have a material effect on its financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amends SFAS No. 123, Accounting
for Stock Based Compensation. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock based compensation (i.e., recognition of a charge for issuance of
stock options in the determination of income.). However, SFAS No. 148 does not
permit the use of the original SFAS No. 123 prospective method of transition for
changes to the fair value based method made in fiscal years beginning after
December 15, 2003. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock based
employee compensation, description of transition method utilized and the effect
of the method used on reported results. The transition and annual disclosure
provisions of SFAS No. 148 are to be applied for fiscal years ending after
December 15, 2002. CPA(R):15 does not have any employees nor any stock-based
compensation plans.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," ("FIN 45") which changes the accounting for, and
disclosure of certain guarantees. Beginning with transactions entered into after
December 31, 2002, certain guarantees are required to be recorded at fair value,
which is different from prior practice, under which a liability was recorded
only when a loss was probable and reasonably estimable. In general, the change
applies to contracts or indemnification agreements that contingently require
CPA(R):15 to make payments to a guaranteed third-party based on changes in an
underlying asset, liability, or an equity security of the guaranteed party. The
accounting provisions only apply for certain new transactions entered into or
existing guarantee contracts modified after December 31, 2002. The adoption of
the accounting provisions of FIN 45 is not expected to have a material effect on
CPA(R):15's financial statements.
On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). This new model applies when either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entity's activities
without additional financial support. In addition, FIN 46 requires both the
primary beneficiary and all other enterprises with a significant variable
interest in a VIE to make additional disclosures. The transitional disclosure
requirements will take effect almost immediately and are required for all
financial statements initially issued after January 31, 2003. CPA(R):15 is
assessing the impact of this interpretation on its accounting for its
investments in unconsolidated joint ventures; however, it does not believe that
any of its investments will be consolidated as a result of being classified as
VIEs.
-10-
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Corporate Property Associates 15 Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related
statements of operations, shareholders' equity and cash flows present fairly, in
all material respects, the financial position of Corporate Property Associates
15 Incorporated at December 31, 2002, and 2001 and the results of its operations
and its cash flows for the period ended December 31, 2002 and for the period
from inception (February 26, 2001) to December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 4, 2003
-11-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
Consolidated Balance Sheets
December 31,
------------
ASSETS: 2002 2001
------------- -----------
Real estate leased to others:
Accounted for under the operating method:
Land $ 98,460,309 --
Buildings 461,060,841 --
-------------
559,521,150 --
Less, accumulated depreciation 2,323,336 --
-------------
557,197,814 --
Net investment in direct financing leases 21,093,039 --
Real estate under construction 20,061,425 --
Equity investments 75,606,383 $ 128,995
Cash and cash equivalents 94,762,199 188,207
Deferred offering costs 6,814,983 1,888,548
Other assets 30,762,652 --
------------- -----------
Total assets $ 806,298,495 $ 2,205,750
============= ===========
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY:
Liabilities:
Limited recourse mortgage notes payable $ 374,787,522 --
Notes payable 3,704,566 --
Accrued interest 991,064 --
Due to affiliates 7,621,814 $ 2,039,774
Accounts payable and accrued expenses 5,909,954 34,455
Prepaid rental income and security deposits 15,494,464 --
Deferred acquisition fees payable to affiliate 13,011,836 --
Dividends payable 5,789,147 --
------------- -----------
Total liabilities 427,310,367 2,074,229
------------- -----------
Minority interest 28,193,032 --
------------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par valued; authorized 120,000,000 shares; issued
and outstanding, 39,966,488 and 20,000 at December 31, 2002 and
2001 39,966 20
Additional paid-in capital 355,963,860 199,980
Dividend in excess of accumulated earnings (6,269,658) (68,479)
Accumulated other comprehensive income 1,060,928 --
------------- -----------
Total shareholders' equity 350,795,096 131,521
------------- -----------
Total liabilities and shareholders' equity $ 806,298,495 $ 2,205,750
============= ===========
The accompanying notes are an integral part of the
consolidated financial statements.
-12-
CONSOLIDATED STATEMENTS of OPERATIONS
For the year ended December 31, 2002 and the period
from inception (February 26, 2001) to December 31, 2001
2002 2001
------------ --------
Revenues:
Rental income $ 11,372,204
Interest income from direct financing leases 1,322,319
Interest and other income 1,699,116 $ 2,304
------------ --------
14,393,639 2,304
------------ --------
Expenses:
Interest expense 4,187,968
Depreciation 2,569,741
General and administrative 1,288,967 71,138
Property expense 1,558,760 --
------------ --------
9,605,436 71,138
------------ --------
Income (loss) before minority interest and income from
equity investments 4,788,203 (68,834)
Minority interest in income (88,113) --
------------ --------
Income (loss) before income from equity investments 4,700,090 (68,834)
Income from equity investments 1,066,835 355
------------ --------
Net income (loss) $ 5,766,925 $(68,479)
============ ========
Basic earnings (loss) per share $.29 $(3.42)
==== ======
Weighted average shares outstanding - basic 19,720,070 20,000
============ ========
The accompanying notes are an integral part of the
consolidated financial statements.
-13-
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the period from inception (February 26, 2001) through December 31, 2001
and for the year ended December 31, 2002
Dividends in Accumulated
Excess of Other
Common Additional Comprehensive Accumulated Comprehensive
stock paid-in capital (loss) income Earnings Income Total
20,000 shares issued $.001 par,
at $10 per share $ 20 $ 199,980 $ 200,000
Net loss $ (68,479) $ (68,479) (68,479)
=========
Balance at --------- ------------- ------------- ------------
December 31, 2001 20 199,980 (68,479) 131,521
39,946,488 shares issued $.001
par, at $10 per share, net of
offering costs 39,946 355,763,880 355,803,826
Dividends (11,968,104) (11,968,104)
Comprehensive Income:
Net income 5,766,925 5,766,925 5,766,925
Other comprehensive income:
Foreign currency translation
adjustment 1,060,928 $1,060,928 1,060,928
----------
$6,827,853
Balance at ==========
------- ------------- ----------- ----------- ------------
December 31, 2002 $39,966 $355,963,860 $(6,269,658) $1,060,928 $350,795,096
======= ============ ============ ========== ============
The accompanying notes are an integral part of the
consolidated financial statements.
-14-
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period from inception
Year Ended (February 26, 2001)
December 31, 2002 through December 31, 2001
Cash flows from operating activities:
Net income (loss) $ 5,766,925 $ (68,479)
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization of financing costs 2,582,259 --
Equity income in excess of distributions received -- (355)
Minority interest in income 88,113 --
Straight-line rent adjustments (245,051) --
Fees paid to affiliate by issuance of stock 317,489 --
Increase in other assets (2,651,082) --
Increase in accrued interest 982,676 --
Increase in accounts payable and accrued expenses 733,707 34,455
Increase in due to affiliates (a) 784,245 22,586
Increase in prepaid rent 4,973,416 --
------------- ---------
Net cash provided by (used in) operating activities 13,332,697 (11,793)
------------- ---------
Cash flows from investing activities:
Distributions from equity investments in excess of equity income 1,113,990 --
Acquisitions of real estate and equity investments and other
capitalized costs (b) (662,856,165) --
VAT taxes recoverable on purchases of real estate (4,035,763) --
Proceeds from sale of real estate 11,614,766 --
------------- ---------
Net cash used in investing activities (654,163,172) --
------------- ---------
Cash flows from financing activities:
Proceeds from stock issuance, net of costs 355,486,337 200,000
Dividends paid (6,178,957) --
Proceeds from mortgages (c) (d) 359,189,168 --
Proceeds from note payable 3,622,142 --
Mortgage principal payments (385,575) --
Distributions to minority partners (234,716) --
Contributions from minority partners 28,339,635 --
Deferred financing costs and mortgage deposits (4,511,703) --
------------- ---------
Net cash provided by financing activities 735,326,331 200,000
------------- ---------
Effect of exchange rate changes on cash 78,136 --
------------- ---------
Net increase in cash and cash equivalents 94,573,992 188,207
Cash and cash equivalents, beginning of period 188,207 --
------------- ---------
Cash and cash equivalents, end of period $ 94,762,199 $ 188,207
============= =========
Non cash investing and financing activities:
(a) Increase in due to affiliates excludes amounts which relate to
the raising of capital (financing activities) pursuant to the
Company's public offering. At December 31, 2002 and 2001, the
amount due to the Company's Advisor, Carey Asset Management
Corp., was $6,814,983 and $1,888,548, respectively.
(b) Included in the cost basis of real estate investments acquired
in 2002 are deferred acquisition fees payable of $13,011,836.
(c) Net of $3,760,529 held back by lenders to fund escrow
accounts.
(d) In connection with acquiring properties in 2002, the Company
assumed mortgage notes payable of $8,630,041.
The Company assigned a security deposit of $10,461,700 to a lender which
is included in Other assets and Prepaid rental income and security
deposits, respectively.
The accompanying notes are an integral part of the
consolidated financial statements.
-15-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Consolidation:
The consolidated financial statements include the accounts of Corporate
Property Associates 15 Incorporated, its wholly-owned subsidiaries and
controlling minority-owned partnership interests (collectively, the
"Company"). All material inter-entity transactions are eliminated.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 dates of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The most
significant estimates relate to the assessment of the realizability of
real estate assets and investments. Actual results could differ from those
estimates.
Real Estate Leased to Others:
The Company leases real estate to others on a net lease basis, whereby the
tenant is generally responsible for all operating expenses relating to the
property, including real estate taxes, insurance, maintenance, repairs,
renewals and improvements. During the year ended December 31, 2002,
lessees were responsible for the direct payment of real estate taxes of
$2,247,357. Expenditures for maintenance and repairs including routine
betterments are charged to operations as incurred. Significant renovations
which increase the useful life of the properties are capitalized.
The Company diversifies its real estate investments among various
corporate tenants engaged in different industries, by property type and
geographically.
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. Unearned
income is deferred and amortized to income over the lease terms so
as to produce a constant periodic rate of return on the Company's
net investment in the lease.
Operating method - Real estate is recorded at cost less accumulated
depreciation, rental revenue is recognized on a straight-line basis
over the term of the leases and expenses (including depreciation)
are charged to operations as incurred.
When events or changes in circumstances indicate that the carrying amount
of a long-lived asset may not be recoverable, the Company will assess the
recoverability of its long-lived assets, including residual interests of
real estate assets and investments, based on projections of undiscounted
cash flows, without interest charges, over the life of such assets. In the
event that such cash flows are insufficient, the assets will be adjusted
to their estimated fair value. Residual values of direct financing leases
are reviewed at least annually. If a decline in the estimated residual
value is other than temporary, the accounting for the direct financing
lease will be revised using the changed estimate. The resulting reduction
in the net investment in the direct financing lease is recognized as a
loss in the period in which the estimate is changed.
For properties under construction, interest is capitalized rather than
expensed and rentals received recorded as a reduction of capitalized
project (i.e., construction) costs.
-16-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Substantially all of the Company's leases provide for either scheduled
rent increases, periodic increases based on formulas indexed to the
Consumer Price Index ("CPI") or sales overrides. Rents from sales
overrides (percentage of sales rent) are recognized as reported by
lessees, that is, after the level of sales requiring a rental payment to
the Company is reached.
Depreciation:
Depreciation is computed using the straight-line method over the estimated
useful lives of the properties--generally not to exceed 40 years.
Offering Costs:
Costs incurred in connection with the raising of capital through the sale
of common stock are charged to shareholders' equity upon the issuance of
shares.
Equity Investments:
The Company's ownership interests in (i) entities in which it owns 50% or
less and has the ability to exercise significant influence and (ii)
jointly controlled tenancies-in-common are accounted for under the equity
method, i.e., at cost, increased or decreased by the Company's share of
earnings or losses, less distributions.
Cash and Cash Equivalents:
The Company considers all short-term, highly liquid investments that are
both readily convertible to cash and have a maturity of generally three
months or less at the time of purchase to be cash equivalents. Items
classified as cash equivalents include commercial paper and money-market
funds. All of the Company's cash and cash equivalents were held in the
custody of three financial institutions at December 31, 2002 and one
financial institution at December 31, 2001, and which balances at times
exceed federally insurable limits. The Company mitigates this risk by
depositing funds with major financial institutions.
Foreign Currency Translation:
The Company consolidates its real estate investments in France. The
functional currency for the investments is the Euro. The translation from
the Euro is performed for assets and liabilities using current exchange
rates in effect at the at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period.
The gains and losses resulting from such translation are reported as a
component of other comprehensive income as part of shareholders' equity.
In January 2003, the Company purchased a property in the United Kingdom
for which the functional currency is the British pound.
Other Assets:
Included in other assets are deferred charges and deferred rental income.
Deferred charges are costs incurred in connection with mortgage note
financing and are amortized over the term of the mortgage and included in
interest expense in the accompanying consolidated financial statements.
Deferred rental income is the aggregate difference between contractual
rents that vary during the term and income recognized on a straight-line
basis.
Earnings Per Share:
The Company has a simple equity capital structure with only common stock
outstanding. As a result, the Company has presented basic per-share
amounts in the accompanying financial statements.
-17-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Income Taxes:
In 2002, the Company qualified as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986. As a REIT, the Company is not
subject to Federal income taxes on amounts distributed to shareholders
(except income from foreclosure property), provided it distributes at
least 90% of its REIT taxable income to its shareholders and meets certain
other conditions.
2. Organization and Offering:
The Company was formed on February 26, 2001 under the General Corporation
Law of Maryland for the purpose of engaging in the business of investing
in and owning property net leased to creditworthy corporations and other
creditworthy entities. Subject to certain restrictions and limitations,
the business of the Company is managed by Carey Asset Management Corp.
(the "Advisor"), a wholly-owned subsidiary of W. P. Carey & Co. LLC.
On April 2, 2001, the Advisor purchased 20,000 shares of common stock for
$200,000 as the initial shareholder of the Company.
In October 2002, the Company completed a "best efforts" offering of
40,000,000 shares of common stock at a price of $10 per share. During the
year ended December 31, 2002, the Company issued 39,890,441 shares
($398,904,410). The Company has also registered up to 10,000,000 shares
for a dividend reinvestment plan.
On October 11, 2002, the Company filed a registration statement with the
United States Securities and Exchange Commission (the "SEC") for the
purpose of offering up to an additional 69,000,000 shares ($690,000,000)
of common stock to the public on a "best efforts" basis by Carey Financial
Corporation ("Carey Financial"), a wholly-owned subsidiary of W. P. Carey
& Co. LLC ("W. P. Carey"), at a price of $10 per share (the "Offering").
The filing is currently being reviewed by the SEC.
3. Agreements and Transactions with Related Parties:
In connection with performing management services on behalf of the
Company, the Advisory Agreement between the Company and the Advisor
provides that the Advisor receive asset management and performance fees,
each of which are 1/2 of 1% of Average Invested Assets, as defined in the
Advisory Agreement. The performance fee is subordinated to the Preferred
Return, a cumulative non-compounded dividend return of 6%. As of December
31, 2002, the Preferred Return has been met. The Advisor has elected at
its option to receive the performance fee in restricted shares of common
stock of the Company rather than cash. The Advisor is also reimbursed for
the actual cost of personnel needed to provide administrative services
necessary to the operation of the Company. For the year ended December 31,
2002, the Company incurred asset management fees of $736,788. Performance
fees were in like amount. For the year ended December 31, 2002, the
Company incurred personnel reimbursements of $192,700. No asset management
and performance fees nor personnel reimbursements were incurred by the
Company in 2001.
Fees are payable to the Advisor for services provided to the Company
relating to the identification, evaluation, negotiation, financing and
purchase of properties. A portion of such fees are deferred and are
payable in equal annual installments over no less than four years
following the first anniversary of the date a property was purchased. Such
deferred fees are only payable if the Preferred Return has been met. The
unpaid portion of the deferred fees bears interest at an annual rate of 6%
from the date of acquisition of a property until paid. For transactions
that were completed in 2002, current and deferred fees were $16,264,794
and $13,011,836, respectively.
The Advisor is obligated to reimburse the Company for the amount by which
operating expenses of the Company exceeds the 2%/25% Guidelines (the
greater of 2% of Average Invested Assets or 25% of Net Income) as defined
in the Advisory Agreement for any twelve-month period. If in any year the
operating expenses of the Company exceed the 2%/25% Guidelines, the
Advisor will have an obligation to reimburse the Company for such excess,
subject to certain conditions. Only if the Independent Directors find that
such
-18-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
excess expenses were justified based on any unusual and nonrecurring
factors which they deem sufficient, the Advisor may be paid in future
years for the full amount or any portion of such excess expenses, but only
to the extent that such reimbursement would not cause the Company's
operating expenses to exceed this limit in any such year. Charges related
to asset impairment, bankruptcy of lessees, lease payment defaults,
extinguishment of debt or uninsured losses are generally not considered
unusual and nonrecurring. A determination that a charge is unusual and
nonrecurring, such as the costs of significant litigation that are not
associated with day-to day operations, or uninsured losses that are beyond
the size or scope of the usual course of business based on the event
history and experience of the Advisor and Independent Directors, is made
at the sole discretion of the Independent Directors. The Company will
record any reimbursement of operating expenses as a liability until any
contingencies are resolved and will record the reimbursement as a
reduction of asset management and performance fees at such time that a
reimbursement is fixed, determinable and irrevocable. The operating
expenses of the Company have not exceeded the amount that would require
the Advisor to reimburse the Company.
The Company owns interests in limited partnerships which range from 30% to
60% and a 64% interest in jointly controlled tenancy-in-common which owns
two properties subject to a master net lease. The remaining interests in
the limited partnerships and tenancy-in-common are owned by affiliates.
Controlling interests in jointly-owned entities are consolidated and
non-controlled interests in which the Company has a significant interest
are accounted for under the equity method of accounting.
The Company is a participant in an agreement with certain affiliates for
the purpose of leasing office space used for the administration of real
estate entities and sharing the associated costs. Pursuant to the terms of
the agreement, the Company's share of rental occupancy and leasehold
improvement costs is based on gross revenues. Expenses of $2,607 were
incurred in 2002. The Company's share of future minimum lease payments as
of December 31, 2002, is $75,000 through 2006.
4. Real Estate Leased to Others Accounted for Under the Operating Method:
Scheduled future minimum rents, exclusive of renewals, under
non-cancelable operating leases amount to $50,776,000 in 2003, $52,002,000
in 2004, $52,389,000 in 2005, $53,666,000 in 2006, and $53,768,000 in 2007
and aggregate approximately $805,746,000 through 2022.
No contingent rents were realized in 2002 or 2001.
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
December 31, 2002
-----------------
Minimum lease payments
receivable $48,520,236
Unguaranteed residual value 20,950,818
-----------
69,471,054
Less: unearned income 48,378,015
-----------
$21,093,039
Scheduled future minimum rents, exclusive of renewals, under
non-cancelable direct financing leases are approximately $2,099,000 in
2003, $2,135,000 in 2004, $2,173,000 in 2005, $2,211,000 in 2006 and
$2,250,000 in 2007, and aggregate approximately $48,520,000 through 2031.
No contingent rents were realized in 2002 or 2001.
-19-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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 value of approximately $568,406,000. As of December 31,
2002, mortgage notes payable had fixed interest rates ranging from 5.52%
to 7.98% per annum. The Company had no variable rate debt as of December
31, 2002.
Scheduled principal payments during each of the five years following
December 31, 2002 and thereafter are as follows:
Year Ending December 31, Fixed Rate Debt
------------------------ ---------------
2003 $ 4,881,550
2004 5,492,189
2005 6,023,755
2006 6,533,461
2007 7,139,858
Thereafter 344,716,709
------------
Total $374,787,522
============
Interest paid, excluding capitalized interest, was $3,318,962 in 2002. No
interest was paid in 2001. Capitalized interest was $321,477 in 2002.
7. Commitments and Contingencies:
The Company is liable for certain expenses of the Offering described in
the Prospectus, which include filing, legal, accounting, printing and
escrow fees, which are to be deducted from the gross proceeds of the
Offering. The Company reimburses Carey Financial or one of its affiliates
for expenses (including fees and expenses of its counsel) and for the
costs of any sales and information meetings of Carey Financial's employees
or those of one of its affiliates relating to the Offering. Total
underwriting compensation of the Offering shall not exceed 10% of gross
proceeds of the Offering. The Advisor has agreed to be responsible for the
payment of (i) organization and offering expenses (excluding selling
commissions to Carey Financial with respect to Shares held by selected
dealers) which exceed 4% of the gross proceeds of the offering and (ii)
organization and offering expenses (including selling commissions, fees
and fees paid and expenses reimbursed to selected dealers) which exceed
15% of the gross proceeds of the Offering. The total costs paid by the
Advisor relating to the initial offering and the Offering were $12,142,173
through December 31, 2002, of which the Company has reimbursed $5,327,190.
8. Dividends:
Dividends paid to shareholders consist of ordinary income, capital gains,
return of capital or a combination thereof for income tax purposes. The
Company paid its first dividend in April 2002. Dividends per share
reported for tax purposes for the year ended December 31, 2002 were as
follows:
2002
----
Ordinary income $ .45
Return of capital --
--------
$ .45
A dividend of $.001671 per share per day in the period from October 1,
2002 through December 31, 2002 ($5,789,147) was declared in December 2002
and paid in January 2003.
-20-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Lease Revenues:
The Company's operations consist of the investment in and the leasing of
industrial and commercial real estate. The financial reporting sources of
the leasing revenues below for the year ended December 31, 2002 are as
follows:
2002
----
Per Statements of Income:
Rental income from operating leases $ 11,372,204
Interest from direct financing leases 1,322,319
Adjustment:
Share of lease revenues applicable to minority interests (234,716)
Share of leasing revenue from equity investments 2,637,426
------------
$ 15,097,233
============
For the year ended December 31, 2002, the Company earned its net leasing
revenues from its investments from the following lease obligors:
2002 %
---- ---
Fleming Companies, Inc. $ 2,799,900 19%
Petsmart, Inc. (a) 2,075,857 14
Foster Wheeler, Inc. 1,961,569 13
Tower Automotive, Inc. 1,701,465 11
Hologic, Inc. (b) 1,015,652 7
Racal Instruments, Inc. 933,762 6
IntegraColor, Ltd. 680,807 5
Advantis Technologies, Inc. 651,473 4
Trends Clothing Corp. 619,170 4
Overland Storage, Inc. 607,926 4
BE Aerospace, Inc. 479,067 3
Builders Firstsource, Inc. (a) 463,766 3
Clear Channel Communications, Inc. (c) 352,075 2
Medica - France, SA 300,143 2
Danka Office Imaging Company 226,689 2
Carrefour France, SA 147,674 1
SSG Precision Optronics, Inc. 56,569 --
TruServ Corporation (a) 16,279 --
Meadowbrook Meat Company 7,390 --
----------- ---
$15,097,233 100%
=========== ===
(a) Represents the Company's proportionate share of lease revenues from
its equity investments.
(b) As of December 17, 2002, 36% of the Company's interest in these
properties was acquired by an affiliate, W. P. Carey, and the
remaining 64% interest is accounted for as an equity investment.
(c) Net of rental amount applicable to Corporate Property Associates
14's ("CPA(R):14") 40% minority interest.
10. Acquisitions of Real Estate and Real Estate Interests:
A. On December 31, 2002, the Company purchased land and five buildings
in Orlando, Florida; Macon, Georgia; Rocky Mount, North Carolina and
Lewisville, Texas for $30,415,009 and entered into a net lease with
Meadowbrook Meat Company. The lease obligations are unconditionally
guaranteed by Fast Food Merchandisers, Inc. and Proficient Food
Company, Inc. The lease has an initial term of 15 years and one
month with four five-year renewal options. Annual rent is $2,660,000
with stated increases beginning on the fourth anniversary of the
lease and annually thereafter.
-21-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In connection with the purchase of the properties, the Company
obtained a limited recourse mortgage loan of $18,000,000 which is
collateralized by a mortgage and deeds of trust on the properties.
The loan provides for monthly payments of principal and interest of
$108,847 at an annual interest rate of 6.08% based on a 30-year
amortization schedule. The loan matures in January 2013, at which
time a balloon payment is scheduled.
B. On December 26, 2002, the Company and two affiliates, Corporate
Property Associates 12 Incorporated ("CPA(R):12") and Corporate
Property Associates 14 Incorporated ("CPA(R):14"), through three
newly-formed limited partnerships with 50%, 15% and 35% ownership
interests, respectively, purchased land and seven buildings located
in Kingman, Arizona; Woodland, California; Jonesboro, Georgia;
Kansas City, Missouri; Springfield, Oregon; Fogelsville,
Pennsylvania and Corsicana, Texas for $131,678,450 and entered into
three master net leases with TruServ Corporation. The leases have
initial terms of 20 years followed by one renewal term of nine years
and 11 months and a second renewal term of 10 years. The leases
provide for aggregate initial rent of $12,007,151.
In connection with the purchase of the properties, the limited
partnerships obtained limited recourse mortgage loans totaling
$49,104,774, collateralized by deeds of trust on the properties and
lease assignments. Subsequent to December 31, 2002, the limited
partnership obtained additional mortgage financing of $27,550,047.
The loans provide for aggregate monthly payments of interest and
principal of $451,134, at an annual interest rate of 5.83% based on
30-year amortization schedules. The loans mature in January and
February 2013, at which time balloon payments are scheduled. The
Company is accounting for its 50% non-controlling interests in the
limited partnerships under the equity method of accounting.
C. On December 27, 2002, the Company purchased seven properties in
France for Euro 103,780,347 ($106,966,300 at the date of
acquisition) and entered into six separate net leases with Societe
Logidis and one net lease with Societe CV Logistique. The lease
obligations are unconditionally guaranteed by their parent
companies, Carrefour France, SAS and Carrefour Hypermarches France,
SAS (collectively "Carrefour"). The leases have nine-year terms and
provide for aggregate annual rent of Euro 10,190,269 ($10,503,100 at
the date of acquisition), with annual rent increases based on a
formula indexed to increases in the INSEE, a French construction
cost index.
In connection with the purchase of the Carrefour properties, the
Company obtained a limited recourse mortgage loan of Euro 84,244,000
($86,830,207 at the date of acquisition) which provides for
quarterly payments of interest at an annual interest rate of 5.55%.
The interest rate is fixed through 2012, at which time the loan will
convert to a variable rate. Principal installments are payable based
on an initial 1.60% annuity per annum, with scheduled increases
throughout the term of the loan. The loan matures on December 30,
2014, at which time a balloon payment is scheduled.
On December 4, 2002, the Company purchased six properties in France
for Euro 40,314,136 ($40,327,843 at the date of acquisition) and
assumed net leases with SA Medica France ("Medica"). The leases have
remaining terms through June 30, 2011 and provide for aggregate
annual rent of Euro 3,856,618 ($3,857,929 at the date of
acquisition), with annual rent increases based on a formula indexed
to increases in the INSEE.
In connection with the purchase of the Medica properties, the
Company obtained limited recourse mortgage loans of Euro 34,000,000
($34,011,560 at the date of acquisition). The loans provide for
quarterly payments of interest at an annual interest rate of 5.631%.
Principal installments are payable based on an initial 1.50% annuity
per annum, with scheduled increases throughout the term of the loan.
The loan matures on October 20, 2017, at which time a balloon
payment is scheduled.
On March 12, 2003, the Company sold a 35% interest in the limited
liability company that owns the Medica-France and Carrefour
properties to CPA(R):12. The purchase price was based on the
appraised value of the properties (based on the current exchange
rate for the Euro) adjusted for capitalized costs incurred since the
acquisitions including fees paid to the Advisor, net of mortgage
debt. Based on the formula, CPA(R):12 paid the Company, $11,916,465
and assumed $1,031,046 of the Company's deferred acquisition fee
payable to an affiliate.
-22-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The sale was approved by the Company's independent directors as
being in the best interests of the Company and is intended to
facilitate the Company's ability to raise capital. The continued
holding of 100% of the Medica-France and Carrefour interests would
have required the Company to obtain and provide financial
information in its 1933 and 1934 Act filings on the lease guarantors
that is in accordance with accounting principles generally accepted
in the United States of America and this information is not
available to the Company. The Company will consolidate its 65%
controlling interests in the limited liability company in its
consolidated financial statements, and CPA(R):12's interest will be
recognized as a minority interest.
D. On December 12, 2002, the Company and CPA(R):14 formed a limited
partnership with 60% and 40% interests, respectively, which
purchased a property in New York, New York for $152,041,885 and
assumed an existing net lease with SFX Entertainment, Inc. The lease
obligations are unconditionally guaranteed by the lessees' parent
company, Clear Channel Communications, Inc. ("Clear Channel"). The
lease has a remaining term through September 2020 with two ten-year
renewal options. The lease provides for an initial annual rent of
$10,914,312 with stated rent increases every five years.
In connection with the purchase of the property, the limited
partnership obtained limited recourse mortgage financing of
$85,000,000 collateralized by a mortgage and security agreement. The
loan provides for monthly payments of interest and principal of
$481,473 at an annual interest rate of 5.52% based on a 30-year
amortization schedule. The loan matures in December 2012 at which
time a balloon payment is scheduled.
E. On November 20, 2002, the Company purchased land and buildings in
Richmond, California for $4,967,653 and entered into a net lease
with SSG Precision Optronics, Inc. The lease obligations are
unconditionally guaranteed by Tinsley Laboratories, Inc. The lease
has an initial term of 20 years with two seven-year renewal options.
Annual rent is $509,976 with annual increases based on a formula
indexed to CPI.
F. On October 15, 2002, the Company purchased land and building in San
Diego, California for $30,096,836 and assumed an existing net lease
with Overland Storage, Inc. ("Overland"). The lease has a remaining
term through February 2014 with one five-year renewal option. Annual
rent is $2,621,285 with stated increases beginning in March 2004 and
every two years thereafter.
In connection with the purchase of the Overland property, the
Company obtained a limited recourse mortgage loan of $20,000,000
which is collateralized by a deed of trust and lease assignment. The
loan provides for monthly payments of principal and interest of
$122,234 at an annual interest rate of 6.18% based on a 30-year
amortization schedule. The loan matures in August 2014, at which
time a balloon payment is scheduled.
G. On October 9, 2002, the Company purchased a property in Baton Rouge,
Louisiana on which a building is being constructed on a
build-to-suit basis and entered into a net lease with Rave Motion
Pictures Baton Rouge, LLC. The lease obligations are unconditionally
guaranteed by Rave Reviews Cinemas, LLC ("Rave Reviews"). The total
purchase price including construction costs is estimated to be
$11,555,239, with Rave Reviews having the obligation to fund any
additional costs necessary to complete the project. Upon the earlier
of completion or August 31, 2003, a lease term of 20 years with two
ten-year renewal terms will commence with annual rent of $1,285,607
if the entire estimated funding of the build-to-suit project is
required. The lease provides for rent increases every two years
based on a formula indexed to increases in the CPI.
-23-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
H. Properties acquired prior to September 30, 2002 are described as
follows:
Original
Initial Mortgage Annual
Lease Obligor: Cost Location Annual Rent Financing Debt Service Date Acquired
- ---------------------------- ----------- ------------------ ---------- ----------- ------------ -----------------
Danka Office Imaging Company $23,810,133 St. Petersburg, FL $3,060,000 $12,800,000 $ 984,026 September 27, 2002
BE Aerospace, Inc. 15,470,072 Miami, FL 1,462,618 10,500,000 764,364 September 12, 2002
Hologic, Inc. (1) 33,769,634 Bedford, MA 3,155,940 -- -- August 28, 2002
Foster Wheeler Realty Services, Inc. 47,015,707 Clinton, NJ 5,230,850 29,185,000 2,252,928 August 16, 2002
Trends Clothing Corp. 14,869,110 Miami, FL 1,420,000 8,630,041 850,620 July 22, 2002
Fleming Companies, Inc. 53,870,063 Tulsa, OK 5,508,000 30,000,000 2,507,376 June 28, 2002
Advantis Technologies, Inc. 13,089,005 Alpharetta, GA 1,275,000 8,500,000 610,231 June 25, 2002
IntegraColor Ltd. 12,356,020 Mesquite, TX 1,256,700 7,080,000 563,530 June 14, 2002
Racal Instruments, Inc. 13,455,497 Irvine, CA 1,301,929 9,500,000 732,600 May 21, 2002
Tower Automotives, Inc. 20,995,621 Auburn, IN; 2,355,875 12,022,870 1,056,624 April 10, 2002
Buffton, OH and
Milan, TN
a. Subsequent to acquisition, a 36% interest was sold to an affiliate
(see Note 1).
11. Equity Investments:
In 2001, the Company and Corporate Property Associates 14 Incorporated
("CPA(R):14"), an affiliate, formed two limited partnerships which entered
into net leases for 13 properties with Petsmart, Inc. ("Petsmart") and a
limited partnership which entered into a net lease for three properties
with Builders Firstsource, Inc. ("Builders First") with CPA(R):14 as the
general partner. The Company initially purchased a 0.001% interest in the
Petsmart limited partnerships and a 1% interest in the Builders First
partnership at the time the properties were acquired. In February 2002,
the Company increased its ownership interests in the Petsmart and Builders
First limited partnerships to 30% and 40%, respectively, in accordance
with the limited partnership agreements. On February 28, 2002, the Company
satisfied the conditions for increasing its interests and paid $10,961,939
to CPA(R):14 to purchase the additional ownership interests in the
Petsmart and Builders First limited partnerships. The amounts paid to
CPA(R):14 were based on the fair value of the underlying properties, less
mortgage debt and reimbursements of $626,820, representing its share of
structuring and acquisition fees. The reimbursement is equal to the fee
that the Company would have incurred if it had purchased 30% and 40%
interests when the Petsmart and Builders First properties were acquired.
On December 17, 2002, the Company sold 36% of its interest in two
properties leased to Hologic, Inc. ("Hologic") to W. P. Carey, an
affiliate. The Company's remaining 64% interest is accounted for under the
equity method as the Hologic properties are a jointly controlled
tenancy-in-common. The amount paid to the Company was based on the fair
value of the Hologic properties. No gain or loss was recognized on this
transaction.
On December 26, 2002, the Company and CPA(R):14 and CPA(R):12, through
three newly-formed limited partnerships entered into net leases for seven
properties with TruServ Corporation, of which the Company's interests are
50%.
The interests in the partnerships are accounted for under the equity
method as the Company's ownership interests are 50% or less and the
Company exercises significant influence, but does not control.
Distributions and allocations of income or loss from the equity investees
are based on ownership percentages, and no fees are paid by the Company or
the partnerships to any of the general partners of the limited
partnerships.
-24-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Summarized combined financial information of the equity investees is as
follows:
December 31, 2002 December 31, 2001
----------------- -----------------
(in thousands)
Assets (primarily real estate) $255,845 $87,325
Liabilities (primarily mortgage notes payable) 102,022 43,824
Partners' capital 153,823 43,501
For the period from
inception (February 26,
Year Ended 2001) through
December 31, 2002 December 31, 2001
----------------- -----------------
Revenues (primarily rental revenues) $10,795 $ 681
Expenses (primarily interest on mortgages and
depreciation) (6,064) (491)
------- -----
Net income $ 4,731 $ 190
======= =====
12. Segment Information:
The Company has determined that it operates in one business segment with
domestic and foreign investments. The Company acquired its first foreign
real estate investments in December 2002 and has investments in France.
For 2002, geographic information for the real estate operations segment is
as follows:
Domestic Foreign Total
-------- ------- -----
Revenues $ 13,945,821 $ 447,818 $ 14,393,639
Expenses 9,211,308 394,128 9,605,436
Income from equity investments 1,066,835 -- 1,066,835
Net operating income 5,713,235 53,690 5,766,925
Total assets 633,824,101 172,474,394 806,298,495
Total long-lived assets 514,307,995 159,650,666 673,958,661
13. Disclosure About Fair Value of Financial Instruments:
The Company estimates that the fair value of mortgage notes payable at
December 31, 2002 was $375,012,000. The fair value of debt instruments was
evaluated using discounted cash flow model with rates which take into
account the credit of the tenants and interest rates risks.
14. Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangibles," which
establish accounting and reporting standards for business combinations and
certain assets and liabilities acquired in business combinations.
SFAS No. 141 requires that all business combinations and asset
acquisitions be accounted for under the purchase method, establishes
specific criteria for the recognition of intangible assets separately from
goodwill and requires that unallocated negative goodwill be written off
immediately as an extraordinary gain. Use of the pooling-of-interests
method for business combinations is no longer permitted. The adoption of
SFAS No. 141 did not have a material effect on the Company's financial
statements.
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CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
SFAS No. 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their acquisition. SFAS No. 142 provides
that goodwill and indefinite-lived intangible assets are no longer
amortized but are tested for impairment at least annually. Intangible
assets acquired and liabilities assumed in business combinations are only
amortized if such assets and liabilities are capable of being separated or
divided and sold, transferred, licensed, rented or exchanged or arise from
contractual or legal rights (including leases), and are amortized over
their useful lives. The adoption of SFAS No. 142 on January 1, 2002 did
not have a material effect on the Company's financial statements.
In June 2001, FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS No. 143 was issued to establish standards for the
recognition and measurement of an asset retirement obligation. SFAS No.
143 requires retirement obligations associated with tangible long-lived
assets to be recognized at fair value as the liability is incurred with a
corresponding increase in the carrying amount of the related long-lived
asset. SFAS No. 143 is effective for financial statements issued for
fiscal years beginning after June 15, 2002. The Company does not expect
SFAS No. 143 to have a material effect on its financial statements.
In October 2001, FASB issued SFAS No. 144 "Accounting for the Impairment
of Long-Lived Assets" which addresses the accounting and reporting for the
impairment and disposal of long-lived assets and supercedes SFAS No. 121
while retaining SFAS No. 121's fundamental provisions for the recognition
and measurement of impairments. SFAS No. 144 removes goodwill from its
scope, provides for a probability-weighted cash flow estimation approach
for analyzing situations in which alternative courses of action to recover
the carrying amount of long-lived assets are under consideration and
broadens that presentation of discontinued operations to include a
component of an entity. The adoption of SFAS No. 144 on January 1, 2002
did not have a material effect on the Company's financial statements;
however, the revenues and expenses relating to an asset held for sale or
sold will be presented as a discontinued operation for all periods
presented. The provisions of SFAS No. 144 are effective for disposal
activities initiated by the Company's commitment to a plan of disposition
after the date of adoption (January 1, 2002).
In May 2002, FASB issued SFAS No. 145 "Rescission of SFAS Nos. 4, 44 and
64, Amendment of SFAS No. 13 and Technical Corrections" which eliminates
the requirement that gains and losses from the extinguishment of debt be
classified as extraordinary items unless it can be considered unusual in
nature and infrequent in occurrence. The provisions of SFAS No. 145 are
effective for fiscal years beginning after May 15, 2002. Early adoption is
permitted. Upon adoption, the Company will no longer classify gains and
losses for the extinguishment of debt as extraordinary items and will
adjust comparative periods presented. The Company has not elected early
adoption.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Exit or
Disposal Activities". SFAS No. 146 addresses significant issues regarding
the recognition, measurement, and reporting of costs that are associated
with exit and disposal activities, including restructuring activities that
are currently accounted for pursuant to the guidance that the Emerging
Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The provisions of this Statement are effective for exit
or disposal activities that are initiated after December 31, 2002, with
early application encouraged. The Company does not expect SFAS No. 146 to
have a material effect on the Company's financial statements.
In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain
Financial Institutions" which amends SFAS No. 72, SFAS No. 144 and FASB
Interpretation No. 9. SFAS No. 147 provides guidance on the accounting for
the acquisitions of certain financial institutions and includes long-term
customer relationships as intangible assets within the scope of SFAS No.
144. The Company does not expect SFAS No. 147 to have a material effect on
its financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which amends SFAS
No. 123, Accounting for Stock Based Compensation. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock based compensation (i.e., recognition
of a charge for issuance of stock options in the determination of
income.). However, SFAS No. 148 does not permit the use of the original
SFAS No. 123 prospective method of transition for changes to the fair
value based method made in fiscal years beginning after December 15, 2003.
In addition, this Statement amends the disclosure requirements of SFAS No.
123 to require prominent
-26-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
disclosures in both annual and interim financial statements about the
method of accounting for stock based employee compensation, description of
transition method utilized and the effect of the method used on reported
results. The transition and annual disclosure provisions of SFAS No. 148
are to be applied for fiscal years ending after December 15, 2002. The
Company does not have any employees nor any stock-based compensation
plans.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," ("FIN 45") which changes the
accounting for, and disclosure of certain guarantees. Beginning with
transactions entered into after December 31, 2002, certain guarantees are
required to be recorded at fair value, which is different from prior
practice, under which a liability was recorded only when a loss was
probable and reasonably estimable. In general, the change applies to
contracts or indemnification agreements that contingently require the
Company to make payments to a guaranteed third-party based on changes in
an underlying asset, liability, or an equity security of the guaranteed
party. The accounting provisions only apply for certain new transactions
entered into or existing guarantee contracts modified after December 31,
2002. The adoption of the accounting provisions of FIN 45 is not expected
to have a material effect on the Company's financial statements.
On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), the primary objective of which
is to provide guidance on the identification of entities for which control
is achieved through means other than voting rights ("variable interest
entities" or "VIEs") and to determine when and which business enterprise
should consolidate the VIE (the "primary beneficiary"). This new model
applies when either (1) the equity investors (if any) do not have a
controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entity's activities without additional
financial support. In addition, FIN 46 requires both the primary
beneficiary and all other enterprises with a significant variable interest
in a VIE to make additional disclosures. The transitional disclosures
requirements will take effect almost immediately and are required for all
financial statements initially issued after January 31, 2003. The Company
is assessing the impact of this interpretation on its accounting for its
investments in unconsolidated joint ventures; however, it does not believe
that any of its investments will be classified as VIEs.
15. Selected Quarterly Financial Data (unaudited):
Three Months Ended
------------------
March 31, 2002 June 30, 2002 September 30, 2002 December 31, 2002
-------------- ------------- ------------------ -----------------
Revenues $116,637 $1,182,772 $4,813,187 $8,281,043
Expenses 120,863 759,017 3,102,135 5,623,420
Net income 108,808 739,230 2,022,688 2,896,200
Net income per share -
Basic and diluted .03 .06 .08 .08
Dividends declared per share .1499 .1513 .1525 .1537
Three Months Ended
------------------
September 30, 2001 December 31, 2001
------------------ -----------------
Revenues $1,118 $1,186
Expenses -- 71,138
Net income (loss) 1,118 (69,952)
Basic earnings per share
Basic and diluted .06 (3.48)
Dividends declared per share -- --
The Company had no activity from the period of inception (February 26,
2001) to June 30, 2001.
-27-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
16. Subsequent Events:
A. On January 28, 2003, the Company purchased land in Birmingham,
United Kingdom for $9,038,000 and entered into a build-to-suit
commitment and a net lease with Insulated Structures, Ltd. ("ISL").
The total cost for the ISL facility is estimated to amount to
approximately $22,000,000. Upon completion, a lease with an initial
term of 30 years will commence. Annual rent under the lease is
(pound)1,033,330 (approximately $1,650,000) with annual rent
increases of 2%.
B. On February 7, 2003, the Company, CPA(R):12 and CPA(R):14, through a
newly-formed limited liability company with ownership interests of
44%, 41% and 15%, respectively purchased land and 15 health club
facilities for $178,010,471 and entered into a master net lease with
Starmark Camhood, L.L.C. ("Starmark"). The lease obligations of
Starmark are jointly unconditionally guaranteed by seven of its
affiliates.
The Starmark lease provides for an initial lease term of 20 years
with three ten-year renewal terms. Annual rent is initially
$18,272,400 with CPI-based increases scheduled in November 2006,
2010, 2014, 2018 and 2021. $167,400 of annual rent will not be
included in the determination of the future rent increases.
In connection with the purchase, the limited liability company
obtained first mortgage limited recourse financing of $88,300,000
and a mezzanine loan of $20,000,000. The first mortgage provides for
monthly payments of interest and principal of $563,936 at an annual
interest rate of 6.6% and based on a 30-year amortization schedule.
The loan matures in March 2013 at which time a balloon payment is
scheduled. The mezzanine loan provides for monthly payments of
interest and principal of $277,201 at an annual interest rate of
11.15% and will fully amortize over its ten-year term.
The limited liability company was granted 5,276 warrants for Class C
Unit interests in Starmark and represent a 5% interest in the
Company. The warrants may be exercised at any time through February
7, 2023 at an exercise price of $430 per unit. The warrant agreement
does not provide for a cashless exercise of units.
C. On February 12, 2003, the Company purchased land and buildings in
Chattanooga, Tennessee for $6,544,503 and entered into a master net
lease with Waddington North America Business Trust. The lease
obligations are unconditionally guaranteed by WNA American Plastic
Industries, Inc. The lease has an initial term of 19 years with two
ten-year renewal options. Annual rent is $637,500 with increases
every three years based on a formula indexed to the CPI and capped
at 3%.
D. On February 25, 2003, the Company purchased land and buildings in
Mooresville, North Carolina for $15,602,094 and entered into a lease
agreement with Polar Plastics (NC), Inc. at an annual rent of
$1,460,200. The lease has an initial term of 20 years with two
ten-year renewal options and CPI-based rent increases every three
years.
In connection with the purchase of the properties, the Company
obtained $9,500,000 of limited recourse mortgage financing
collateralized by a deed of trust and a lease assignment. The loan
provides for monthly payments of interest and principal of $69,826
at an annual interest rate of 6.32% and will fully amortize over 20
years.
E. Two proposed transactions have been approved by the Investment
Committee of the Advisor and are currently subject to negotiations
with the proposed lessees. There is no assurance that these
acquisitions will be completed, and, if completed, that the actual
terms will not differ from the proposed terms.
The Company is seeking to purchase land and building in Yardley,
Pennsylvania for $24,250,000 and to enter into a net lease with
MediMedia USA, Inc. The lease, as proposed, would have an initial
lease term of fifteen years. Annual rent would initially be
approximately $2,135,000 with stated increases of 10.4% every five
years. In the event that the purchase of the property is completed,
the Company intends to seek limited recourse mortgage financing of
approximately $14,500,000.
-28-
CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company is seeking to purchase land in Birmingham, Alabama and enter
into a build-to-suit commitment and a net lease with Oxford Automotive
Alabama, Inc. The estimated total costs of the project, including the
purchase of the land, are $15,707,000. The lease, as proposed, would have
an initial lease term of fifteen years. Annual rent would initially be
approximately $1,575,000 with rent increases every three years based on a
formula indexed to increases in the CPI. The Company intends to obtain
financing upon the completion of construction.
-29-
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Shares of the Company. As
of December 31, 2002, there were 13,858 holders of record of the Shares of the
Company.
The Company is required to distribute annually 90% of its Distributable REIT
Taxable Income to maintain its status as a REIT. Quarterly dividends paid by the
Company since its inception are as follows:
Cash Dividends Paid Per Share
-----------------------------
2002
----
First quarter --
Second quarter $.1499
Third quarter .1513
Fourth quarter .1525
------
$.4537
======
REPORT ON FORM 10-K
The Advisor will supply to any shareholder, upon written request and without
charge, a copy of the Annual Report on Form 10-K ("10-K") for the year ended
December 31, 2002 as filed with the Securities and Exchange Commission ("SEC").
The 10-K may also be obtained through the SEC's EDGAR database at www.sec.gov.
-30-