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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, 2003
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: 333-106838
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL
INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 80-0067704
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
50 ROCKEFELLER PLAZA 10020
NEW YORK, NEW YORK 10020 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X].
CPA(R):16 - Global has no active market for common stock at March 5, 2004.
Non-affiliates held 6,386,336 shares of common stock, $.001 Par Value
outstanding at March 5, 2004.
As of March 5, 2004, there are 6,406,336 shares of common stock of
Registrant outstanding.
Registrant incorporates by reference its definitive Proxy Statement with
respect to its 2004 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.
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Item 1. Business.
Corporate Property Associates 16 - Global Incorporated ("CPA(R):16-Global") was
formed as a Maryland corporation in June, 2003. Between January 1, 2004 and
March 18, 2004, CPA(R):16-Global sold a total of 6,386,336 shares of common
stock for a total of $63,736,705 in gross offering proceeds. CPA(R):16-Global
intends to engage in the business of investing in commercial and industrial real
estate. CPA(R):16-Global intends to qualify as a Real Estate Investment Trust
("REIT") for Federal income tax purposes no later than the 2004 tax year.
CPA(R):16-Global will use the proceeds of its offering, combined with limited
recourse mortgage debt, to acquire and own commercial properties for lease to
companies nationwide and internationally. As of December 31, 2003,
CPA(R):16-Global had purchased a 0.01% interest in a facility located in Kahl am
Main, Germany, purchased from Actuant Corporation and GB Tools and Supplies,
Inc., and leased back to Actuant and GB Tools and Supplies. The remaining 99.99%
interest in this facility is owned by Corporate Property Associates 15
Incorporated ("CPA(R):15").
CPA(R):16-Global's core investment strategy is to purchase and own properties
domestically and internationally, 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):16-Global 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):16-Global for environmental and other
liabilities; and
- - guarantees from parent companies or other entities.
As a REIT, CPA(R):16-Global 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.
W .P. Carey & Co. LLC ("WPC"), CPA(R):16-Global's advisor, provides both
strategic and day-to-day management for CPA(R):16-Global, including acquisition
services, research, investment analysis, asset management, capital funding
services, disposition of assets, investor relations and administrative services.
WPC also provides office space and other facilities for CPA(R):16-Global. WPC
has dedicated senior executives in each area of its organization so that
CPA(R):16-Global functions as a fully integrated operating company.
CPA(R):16-Global will pay asset management fees and certain transactional fees
to WPC. CPA(R):16-Global will also reimburses WPC for certain expenses. WPC also
serves in this capacity for Carey Institutional Properties Incorporated,
Corporate Property Associates 12 Incorporated, Corporate Property Associates 14
Incorporated and CPA(R):15. WPC is a publicly-traded company listed on the New
York Stock Exchange and Pacific Exchange under the symbol "WPC."
CPA(R):16-Global'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, 2003, CPA(R):16-Global had no employees. WPC employs 120
individuals who perform services for CPA(R):16-Global.
DEVELOPMENTS DURING 2003
Effective December 12, 2003, CPA(R):16-Global registered for sale with the
Securities and Exchange Commission up to 110,000,000 shares of its common stock
for an aggregate gross sales price of $1,100,000,000. These shares are being
offered through Carey Financial Corporation, an affiliate.
In December 2003, CPA(R):16-Global and CPA(R):15 purchased a facility for
$16,690,366 ((euro)13,724,584) and entered into a net lease with Actuant
Corporation and GB Tools and Supplies, Inc. CPA(R):16-Global and CPA(R):15 are
in negotiations to obtain mortgage financing in connection with the acquisition.
CPA(R):16-Global has an initial ownership interest of .01%. CPA(R):16-Global has
an obligation to increase its ownership interest to 75% subject to (i)
CPA(R):16-Global raising at least $50,000,000 in net proceeds with respect to
its initial public offering and (ii) the approval by the Boards of Directors
(including a majority of the independent directors) of both CPA(R):16-Global and
CPA(R):15. As of March 3, 2004, CPA(R):16-Global had raised in excess of
$60,000,000. The purchase price of the additional interest in this facility will
be CPA(R):16-Global's proportional share of the total equity in the investment,
subject to any changes in the appraised value of the property.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
The lease has an initial term of 17 years followed by two five-year renewal
options. The initial aggregate annual rent under the lease is (euro)1,306,500
($1,640,572 using the exchange rate for the Euro as of December 31, 2003). The
lease provides for annual rent increases based on a formula indexed to increases
in the German Consumer Price Index, capped at 3.75%. Actuant Corporation is a
public-traded company and is listed on the New York Stock Exchange.
INVESTMENT OBJECTIVES, PROCEDURES AND POLICIES
CPA(R):16-Global's purpose is to provide investors with an opportunity to
diversify their investment holdings by providing an exposure to both domestic
and international income producing real estate. CPA(R):16-Global seeks to invest
in commercial real estate properties which are under development or
construction, are newly constructed or have been constructed and have operating
histories. CPA(R):16-Global's investment objectives are:
- - to own a diversified portfolio of net-leased real estate that will increase
in value;
- - provide inflation protected income;
- - to pay quarterly distributions at an increasing rate; and
- - increase the value of its shares by increasing the equity in its real
estate as a result of making regular mortgage principal payments.
INVESTMENT OPPORTUNITIES
In addition to opportunities in the domestic real estate market, including the
net lease market, CPA(R):16-Global believes that international real estate
markets provide investors with an opportunity to diversify their portfolio with
an investment that may provide returns that are less correlated to the returns
of the equity, bond and real estate markets of the United States. Although
primarily focusing international investments on properties in the European
Union, CPA(R):16-Global plans to evaluate potential acquisitions on a
case-by-case basis and have no predetermined limitations or targets for
geographical location.
Although commercial real estate markets in the European Union are quite diverse,
CPA(R):16-Global believes that there are certain characteristics that generally
differentiate these markets from the United States real estate market.
CPA(R):16-Global also believes that these factors provide an opportunity for
enhanced returns and diversification as compared to the commercial real estate
market in the United States. Differentiating factors include:
Higher Owner Occupancy. The acquisition of corporate real estate on a
net-lease basis has been a common practice in the United States for a
number of years. This has resulted in a level of owner-occupation in
the United States in the range of 24% of the total commercial real
estate market. In the European Union real estate market, the level of
owner-occupation is approximately 67%. CPA(R):16-Global believes that
these statistics support the premise that the European Union real
estate market may provide CPA(R):16-Global with a larger pool of
investment opportunities than would be available solely in the United
States.
Less Available Land and Greater Restrictions on Expansion. The economy
of the European Union is 15% smaller than the United States economy but
has 66% less available land and a 35% greater population. Furthermore,
the countries in the European Union have numerous restrictions limiting
commercial real estate development. As a result of these factors,
CPA(R):16-Global believes that long-term economic or social growth in
the European Union has the potential to increase the value of
commercial real estate rates to levels that exceed those in the United
States.
Historically, European real estate has outperformed U.S. real estate. European
real estate appears to have produced higher total returns (income plus capital
appreciation) than has real estate in the United States. While CPA(R):16-Global
believes this may prove to be the case in the future, it is important to
recognize that past results cannot guarantee future investment returns.
The commercial real estate markets of certain countries within the European
Union or other countries or geographic locations where CPA(R):16-Global may
purchase properties may have different characteristics than those described
above. CPA(R):16-Global will evaluate each transaction on a case-by-case basis
and will, as a part of this evaluation, examine current characteristics and
market conditions.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
INVESTMENT PROCEDURES
CPA(R):16-Global seeks to invest primarily in single-tenant commercial real
property, either existing or under construction. Generally, the properties are
net leased to tenants that the investment committee deems creditworthy based on
leases that will be full recourse obligations of the tenants or their
affiliates. In most cases, leases will require the initial tenant to pay all the
costs of maintenance, insurance and real estate taxes. CPA(R):16-Global may also
invest in other types of income-producing property.
In analyzing potential acquisitions, WPC will review all aspects of a
transaction, including tenant and real estate fundamentals to determine whether
a potential acquisition and lease can be structured to satisfy
CPA(R):16-Global's acquisition criteria. WPC may consider the following aspects
of each transaction:
Tenant Evaluation. WPC will evaluate each potential tenant for its
creditworthiness, typically considering factors such as: management
experience; industry position and fundamentals; operating history; and
capital structure. WPC will seek tenants it believes will have stable
or improving credit profiles and credit potential that has not been
recognized by the market. CPA(R):16-Global believes that there is
currently a shortage of capital available for companies with these
characteristics. By leasing properties to these tenants,
CPA(R):16-Global can generally charge rent that is higher than the rent
charged to tenants with recognized credit and thereby enhance 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
the lease or investment will likely increase (if all other factors
affecting value remain unchanged). Whether a prospective tenant is
creditworthy will be determined by WPC or the investment committee.
Creditworthy does not necessarily mean "investment grade."
Leases with Increasing Rent. WPC seeks to include a clause in each
lease that provides for increases in rent over the term of the lease.
These increases are fixed or tied generally to increases in indices
such as the Consumer Price Index. In the case of retail stores, the
lease may provide for participation in gross sales above a stated
level. Alternatively, a lease may provide for mandated rental increases
on specific dates or other methods that may not have been in existence
or contemplated by CPA(R):16-Global currently. WPC will seek to avoid
entering into leases that provide for contractual reductions in rents
attributable to the CPA(R):16-Global's equity investment in the
property during their primary term.
Diversification. WPC will attempt to diversify CPA(R):16-Global's
portfolio to avoid dependence on any one particular tenant, facility
type, geographic location or tenant industry. By diversifying the
portfolio, WPC reduces the adverse effect of a single under-performing
investment or a downturn in any particular industry or geographic
region.
Property Evaluation. The prospects for the seller/lessee's enterprise
and the financial strength of the seller/lessee will generally be
important aspects of the sale and leaseback of a property, particularly
a property specifically suited to the needs of the lessee. Operating
results of properties may be examined to determine whether or not
projected rental levels are likely to be met. WPC'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. Each property purchased by CPA(R):16-Global will be
appraised by an independent appraiser. CPA(R):16-Global 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.
Properties Important to Tenant Operations. WPC will generally seek to
acquire properties that it believes are essential or important to the
ongoing operations of the tenant. WPC 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.
Lease Provisions that Enhance and Protect Value. When appropriate, WPC
will attempt to include provisions in leases that require its consent
to specified tenant activity or require the tenant to satisfy specific
operating tests. These provisions include, for example, operational or
financial covenants of the
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
tenant, and indemnification from the tenant against environmental and
other contingent liabilities. These provisions protect
CPA(R):16-Global's investment from changes in the operating and
financial characteristics of a tenant that may impact its ability to
satisfy its obligations to CPA(R):16-Global or could reduce the value
of CPA(R):16-Global's properties.
Letter of Credit or Guaranty. WPC may also seek to enhance the
likelihood of a tenant's lease obligations being satisfied through a
guaranty of lease obligations from the tenant's corporate parent or a
letter of credit. This credit enhancement provides CPA(R):16-Global
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 WPC will select tenants it believes are
creditworthy, tenants will not be required to meet any minimum rating
established by an independent credit rating agency. WPC's and the
investment committee's standards for determining whether a particular
tenant is creditworthy will vary in accordance with a variety of
factors relating to specific prospective tenants. The creditworthiness
of a tenant will be determined on a tenant-by-tenant, case-by-case
basis. Therefore, general standards for credit worthiness cannot be
applied.
WPC uses a variety of other strategies in connection with its acquisitions.
These strategies include attempting to obtain equity enhancements in connection
with transactions. These equity enhancements may involve warrants to purchase
stock of the tenant to which the property is leased or the stock of the parent
of the tenant. If the value of the stock exceeds the exercise price of the
warrant, equity enhancements helps CPA(R):16-Global 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 WPC's
investment committee. Before a property is acquired, the transaction is reviewed
by the investment committee to ensure that it satisfies CPA(R):16-Global'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. WPC 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 members of the investment
committee.
CPA(R):16-Global 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 23 years.
- - Frank J. Hoenemeyer, Vice Chairman, was formerly Vice-Chairman, Director
and Chief Investment Officer of the Prudential Insurance Company of America
and had responsibility for Prudential's investment portfolio.
- - 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 was
awarded the Nobel Prize in Economic Sciences and currently advises various
governments and government agencies.
- - Ralph F. Verni, is a private investor and business consultant and formerly
Chief Investment Officer of The New England Mutual Life Insurance Company.
- - Karsten von Koller was formerly Chairman and Member of the Board of
Managing Directors of Eurohypo AG, the leading commercial real estate
financing company in Europe.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Each property purchased by CPA(R):16-Global will be appraised by an independent
appraiser. WPC selects an appraiser that is independent from WPC, and
CPA(R):16-Global's Board of Directors must approve of the selection.
CPA(R):16-Global 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):16-Global may be greater
or less than the appraised value. CPA(R):16-Global intends to exercise due
diligence to discover potential environmental liabilities prior to the
acquisition of any property, although there can be no assurance that hazardous
substances or wastes (as defined by present or future federal or state laws or
regulations) will not be discovered on the property. See "Factors Affecting
Future Operating Results -- Potential liability for environmental matters could
adversely affect CPA(R):16-Global's financial condition." CPA(R):16-Global will
also consider factors peculiar to the laws of foreign countries, in addition to
the risks normally associated with real property investments, when considering
an investment located outside the United States.
TYPES OF INVESTMENTS
Substantially all of CPA(R):16-Global's investments will be income-producing
properties, which are, upon acquisition, improved or being developed or which
will be developed within a reasonable period after their acquisition.
Investments will not be restricted as to geographical areas, but it is expected
that most of the investments will be within the United States and the remainder
will be invested outside the United States. See "Factors Affecting Future
Operating Results -- International investment risks, including currency
fluctuation, adverse political or economic developments, lack of uniform
accounting standards (including availability of information in accordance with
U.S. generally accepted accounting principles), uncertainty of foreign laws and
the difficulty of enforcing certain obligations in other countries will affect
CPA(R):16-Global 's operations and its ability to make distributions; --
Investments in properties outside of the United States subject us to foreign
currency risks which may impact distributions; -- This is the first REIT managed
by WPC that may have significant focus on international investments."
Prospective investors will not be able to evaluate the merits of
CPA(R):16-Global 's investments or the terms of any dispositions. See "Factors
Affecting Future Operating Results - CPA(R):16-Global 's success will be
dependent on the performance of WPC."
CPA(R):16-Global expects that many of its property acquisitions will be through
sale-leaseback transactions, in which it acquires properties from companies that
simultaneously lease the properties back from CPA(R):16-Global. Many of
CPA(R):16-Global's properties will be subject to long-term leases. These
sale-leaseback transactions provide the lessee company with a source of capital
that is an alternative to other financing sources such as corporate borrowing,
mortgaging real property, or selling shares of common stock.
CPA(R):16-Global anticipates that some of its sale-leasebacks will be in
conjunction with acquisitions, recapitalizations or other corporate
transactions. CPA(R):16-Global may act as one of several sources of financing
for these transactions by purchasing real property from the seller and net
leasing it to the company or its successor in interest (the lessee). See
"Factors Affecting Future Operating Results -- If CPA(R):16-Global 's tenants
are highly leveraged, they may have a higher possibility of filing for
bankruptcy or insolvency."
In some circumstances, CPA(R):16-Global grants tenants a right to purchase the
property leased by the tenant. The option purchase price is generally the
greater of the contract purchase price and the fair market value of the property
at the time the option is exercised.
Investments in Loans
An investment may be structured as a loan in situations in which a standard net
lease transaction would have an adverse impact on the seller of a property or
otherwise would be inappropriate for CPA(R):16-Global. WPC will attempt to
structure any such loan in a manner that will provide CPA(R):16-Global with an
economic return similar to that which it could expect to receive had the
investment been structured as a net lease transaction. Any transaction
structured as a loan must otherwise meet CPA(R):16-Global's investment criteria.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Some of the loans made, purchased or otherwise acquired by CPA(R):16-Global, in
addition to providing for base interest at a fixed or variable rate, may allow
CPA(R):16-Global to participate in the economic benefits of any increase in the
value of the property securing repayment of the loan as though it were an equity
owner of a portion of the property. In addition, it is possible that the
participations may take other forms where available or deemed appropriate. The
forms and extent of the participations CPA(R):16-Global receives will vary with
each transaction depending on factors such as the equity investment, if any, of
the borrower, credit support provided by the borrower, the interest rate on the
loans and the anticipated and actual cash flow from the underlying real
property. Loans may include first mortgage loans, leasehold mortgage loans and
conventional mortgage loans without equity enhancements. Loans are not expected
to comprise a significant portion of CPA(R):16-Global's portfolio.
CPA(R):16-Global will not make or invest in loans that are subordinate to any
mortgage held by WPC, the directors or their affiliates.
Any loans will be secured by various types of real property as well as personal
or mixed property connected with the real property. The loans generally will be
secured by property with a demonstrable income-producing potential. In
determining whether to make loans, WPC will analyze relevant property and
financial factors that may include the condition and use of the subject
property, its income-producing capacity and the quality, experience and
creditworthiness of the borrower.
CPA(R):16-Global will generally require that a mortgagee's title insurance
policy or commitment as to the lien priority of a mortgage or the condition of
title be obtained. CPA(R):16-Global will obtain independent appraisals for
underlying real property, which it will maintain in its records for at least
five years and make available for inspection and duplication by any shareholder
at its offices. However, WPC generally will rely on its own independent analysis
and not exclusively on appraisals in determining whether to make a particular
loan. It should be noted that appraisals are estimates of value and may differ
from true worth or realizable value. CPA(R):16-Global will not make a loan when
the amount it advances plus the amount of any existing loans that are equal or
senior to the loan exceeds 100% of the appraised value of the underlying real
property.
Joint Ventures and Wholly-Owned Subsidiaries
CPA(R):16-Global may enter into joint ventures or general partnerships and other
participations with real estate developers, owners and others for the purpose of
obtaining equity interests in a property or properties in accordance with its
investment policies. These investments permit CPA(R):16-Global to own interests
in large properties without unduly restricting the diversity of its portfolio.
CPA(R):16-Global will not enter into a joint venture to make an investment that
it would not be permitted to make on its own. In connection with such a joint
investment, both CPA(R):16-Global and its affiliates would be required to
approve any material decisions concerning the investment, including refinancing
and capital improvements. See "Factors Affecting Future Operating Results -
CPA(R):16-Global's participation in joint ventures creates additional risk."
CPA(R):16-Global may participate jointly with publicly registered investment
programs or other entities sponsored or managed by WPC in investments as
tenants-in-common or in some other joint venture arrangement. Joint ventures
with affiliated programs will be permitted only if:
- - a majority of the directors (including a majority of the independent
directors) not otherwise interested in the transaction approve the
allocation of the transaction among the affiliates;
- - the affiliated program or entity makes its investment on substantially the
same terms and conditions as CPA(R):16-Global; and
- - CPA(R):16-Global and the affiliated program or entity each have a right of
first refusal to purchase the investment if the other program wishes to
sell the investment.
CPA(R):16-Global may not have money available to exercise this right of first
refusal and can make no determination as to whether it would borrow funds or
liquidate assets in order to exercise any option. CPA(R):16-Global will not
otherwise participate in joint investments with WPC or its affiliates. The cost
of structuring joint investments will be shared ratably by CPA(R):16-Global and
participating investors.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
CPA(R):16-Global generally forms wholly-owned subsidiary corporations to
purchase properties. These subsidiary corporations are usually formed for the
sole purpose of acquiring a specific property or properties located in one or
more states or countries and would have organizational documents:
- - that are substantially similar in all relevant ways to CPA(R):16-Global's
organizational documents;
- - that comply with all applicable securities laws and regulations; and
- - that comply with the applicable terms and conditions set forth herein.
Some of the provisions of the organizational documents of wholly-owned
subsidiaries or other entities formed outside the United States may be revised
to comply with the law of the country or locality in which the entity is formed.
CPA(R):16-Global may make loans to its wholly-owned subsidiaries and it may
guarantee the obligations of these subsidiaries. CPA(R):16-Global may also
purchase properties indirectly by purchasing the interests in entities that own
real estate it wants to purchase.
Other Investments
CPA(R):16-Global may invest up to 10% of its net equity in unimproved or
non-income-producing real property and in "equity interests." Investment in
equity interests in the aggregate will not exceed five percent of
CPA(R):16-Global's net equity. Such "equity interests" are defined generally to
mean stock, warrants or other rights to purchase the stock of, or other
interests in, a tenant of a property, an entity to which CPA(R):16-Global lends
money or a parent or controlling person of a borrower or tenant.
CPA(R):16-Global may invest in unimproved or non-income-producing property,
which WPC believes will appreciate in value, or which will increase the value of
adjoining or neighboring properties CPA(R):16-Global owns. There can be no
assurance that these expectations will be realized. Often, equity interests will
be "restricted securities" as defined in Rule 144, promulgated under the
Securities Act of 1933. Under this rule, CPA(R):16-Global may be prohibited from
reselling the equity securities without limitation until it has fully paid for
and held the securities for one year. The issuer of equity interests in which
CPA(R):16-Global invests may never register the interests under the Securities
Act of 1933. Whether an issuer registers its securities under the Securities Act
of 1933 may depend on the success of its operations.
CPA(R):16-Global will exercise warrants or other rights to purchase stock
generally if the value of the stock at the time the rights are exercised exceeds
the exercise price. Payment of the exercise price shall not be deemed an
investment subject to the above described limitations. CPA(R):16-Global may
borrow funds to pay the exercise price on warrants or other rights or may pay
the exercise price from funds held for working capital and then repay the loan
or replenish the working capital upon the sale of the securities or interests
purchased. CPA(R):16-Global will not consider paying distributions out of the
proceeds of the sale of these interests until any funds borrowed to purchase the
interest have been fully repaid. CPA(R):16-Global will invest in equity
interests which WPC believes will appreciate in value. There can be no
assurance, however, that this expectation will be realized.
CPA(R):16-Global will not invest in real estate contracts of sale unless the
contracts of sale are in recordable form and are appropriately recorded in the
applicable chain of title.
There can be no assurance as to when CPA(R):16-Global's capital may be fully
invested in properties. Pending investment, cash obtained from the offering of
CPA(R):16-Global's securities will be invested in permitted temporary
investments, which include short-term U.S. Government securities, bank
certificates of deposit and other short-term liquid investments. To maintain
CPA(R):16-Global's REIT status, it also may invest in securities that qualify as
"real estate assets" and produce qualifying income under the REIT provisions of
the Internal Revenue Code. Any investments in other REITs in which WPC or any
director is an affiliate must be approved as being fair and reasonable by a
majority of the directors (including a majority of the independent directors)
who are not otherwise interested in the transaction. If all the proceeds derived
from offerings of CPA(R):16-Global's securities are not invested or committed to
be invested prior to the expiration of the later of twenty-four months after the
commencement of the offering or one year after the termination of the offering,
then the proceeds not so invested or committed will, promptly after the
expiration of such period, be distributed pro rata to the shareholders as a
return of capital, without any deductions for organizational and offering
expenses or acquisition expenses. For the purpose of this provision, funds will
be deemed to have been committed to investment as required and will not be
returned to
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
shareholders if written agreements in principle have been executed at any time
prior to the expiration of the period, regardless of whether the investments
have been made, and also to the extent any funds have been reserved to make
contingent payments in connection with any property, regardless of whether the
payments have been made.
If at any time the character of CPA(R):16-Global's investments would cause it to
be deemed an "investment company" for purposes of the Investment Company Act of
1940, it will take the necessary action to ensure that it is not deemed to be an
"investment company." WPC will continually review CPA(R):16-Global's investment
activity to attempt to ensure that CPA(R):16-Global does not come within the
application of the Investment Company Act of 1940. Among other things, WPC will
attempt to monitor the proportion of CPA(R):16-Global's portfolio that is placed
in various investments so that CPA(R):16-Global does not come within the
definition of an investment company under the Act. CPA(R):16-Global has been
advised by counsel that if it operates in accordance with the description of its
proposed business described herein, CPA(R):16-Global will not be deemed an
"investment company" for purposes of the Investment Company Act of 1940.
CPA(R):16-Global's reserves, if any, will be invested in permitted temporary
investments. WPC will evaluate the relative risks and rate of return,
CPA(R):16-Global's cash needs and other appropriate considerations when making
short-term investments on CPA(R):16-Global's behalf. The rate of return of
permitted temporary investments may be less than or greater than would be
obtainable from real estate investments.
CPA(R):16-Global may purchase property from WPC, its directors or affiliates
only if:
- - a majority of the independent directors and a majority of the directors who
otherwise are not interested in the transaction approve the transaction as
being fair and reasonable to CPA(R):16-Global;
- - the property was acquired by WPC, its director or affiliate for the purpose
of facilitating its purchase by CPA(R):16-Global, facilitating the
borrowing of money or the obtaining of financing for CPA(R):16-Global or
any other purpose related to CPA(R):16-Global's business; and
- - the property is purchased by CPA(R):16-Global for a price no greater than
the cost to the affiliate (provided, however, that the price may be greater
than the cost to the affiliate, but in no event more than the appraised
value, if the affiliate has taken significant action or has made an
additional investment with regard to the property after its purchase which
action or investment has increased the value of the property).
CPA(R):16-Global will receive all profits or losses from any property held on an
interim basis by WPC, directors or affiliates thereof other than an affiliate
that is a public program or entity.
CPA(R):16-Global will not sell properties to WPC, a director or any affiliate
except pursuant to the exercise of a right of first refusal by an affiliated
joint venture partner, or upon a determination by a majority of the Board of
Directors not otherwise interested in the transaction (including a majority of
the independent directors) that the transaction is fair and reasonable and in
the best interests of CPA(R):16-Global.
USE OF BORROWING - LIMITED RECOURSE FINANCING
CPA(R):16-Global's strategy is to borrow, generally on a non-recourse basis, in
amounts that it believes will maximize the return to shareholders. The use of
non-recourse financing allows CPA(R):16-Global to limit its exposure on any
property to the amount of equity invested in the property. CPA(R):16-Global will
generally borrow in the same currency that is used to pay rent on the property.
This will enable CPA(R):16-Global to hedge a portion of its currency risk.
Non-recourse financing generally restricts the lender's claim on the assets of
the borrower. The lender generally may only take back the property securing the
debt. This protects CPA(R):16-Global's other assets. CPA(R):16-Global expects to
borrow approximately 60% of the purchase price of its properties, however, there
is no limitation on the amount it may borrow against any single improved
property. Aggregate borrowings as of the time that the net proceeds of
CPA(R):16-Global's current offering have been fully invested and at the time of
each subsequent borrowing may not exceed 75% of the value of all properties,
unless the excess is approved by a majority of the independent directors and
disclosed to shareholders in CPA(R):16-Global's next quarterly report, along
with the reason for the excess. For purposes of determining the maximum
allowable amounts of indebtedness, "value" means the lesser of:
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
- the total appraised value of the properties as reflected in the most
recently obtained appraisal for each property, or
- the total value of CPA(R):16-Global's assets as reflected in the most
recently completed valuation.
It is expected that, by operating on a leveraged basis, CPA(R):16-Global will
have more funds available and, therefore, will make more investments than would
otherwise be possible. This is expected to result in a more diversified
portfolio. WPC will use its best efforts to obtain financing on the most
favorable terms available to CPA(R):16-Global. Lenders may have recourse to
CPA(R):16-Global's other assets in limited circumstances not related to the
repayment of the indebtedness.
Lenders may also seek to include in the terms of mortgage loans provisions
making the termination or replacement of WPC in an event of default or an event
requiring the immediate repayment of the full outstanding balance of the loan.
CPA(R):16-Global will not agree to the inclusion of these provisions and will
attempt to negotiate loan terms allowing CPA(R):16-Global to replace or
terminate WPC if the action is ordered by the board. The replacement or
termination may, however, require the prior consent of the mortgage lenders.
WPC may refinance properties during the term of a loan when a decline in
interest rates makes it profitable to prepay an existing mortgage, when an
existing mortgage matures or if an attractive investment becomes available and
the proceeds from the refinancing can be used to purchase such investment. The
benefits of the refinancing may include an increased cash flow resulting from
reduced debt service requirements, an increase in distributions from proceeds of
the refinancing, if any, and/or an increase in property ownership if some
refinancing proceeds are reinvested in real estate.
OTHER INVESTMENT POLICIES
General
CPA(R):16-Global may borrow funds or purchase properties from affiliates of WPC
if doing so is consistent with the investment procedures, CPA(R):16-Global's
objectives and policies and if other conditions are met. See "Investment
Objectives, Procedures and Policies." CPA(R):16-Global may borrow funds from WPC
or its affiliates to provide the debt portion of a particular investment or to
facilitate refinancings if CPA(R):16-Global is unable to obtain a permanent loan
at that time or, in the judgment of the board, it is not in CPA(R):16-Global's
best interest to obtain a permanent loan at the interest rates then prevailing
and the board has reason to believe that CPA(R):16-Global will be able to obtain
a permanent loan on or prior to the end of the loan term provided by WPC or the
affiliate. CPA(R):16-Global may assign, as security for borrowings made from
third parties, its right to receive up to 85% of the offering proceeds being
held in escrow (excluding interest and amounts held on behalf of qualified plans
and IRAs) pending the closing of CPA(R):16-Global's initial offering of its
securities.
These short-term loans may be fully or partially amortized, may provide for the
payment of interest only during the term of the loan or may provide for the
payment of principal and interest only upon maturity. In addition, these loans
may be secured by a first or junior mortgage on the property to be acquired or
by a pledge of or security interest in the offering proceeds that are being held
in escrow which are to be received from the sale of CPA(R):16-Global's shares.
Any short-term loan from affiliates of WPC will bear interest at a rate equal to
the lesser of one percent above the prime rate of interest published in the Wall
Street Journal or the rate that would be charged to CPA(R):16-Global by
unrelated lending institutions on comparable loans for the same purpose in the
locality of the property.
Because most leases generally will be on a "triple-net" basis, it is not
anticipated that CPA(R):16-Global will establish a permanent reserve for
maintenance and repairs. However, to the extent that CPA(R):16-Global has
insufficient funds for such purposes, WPC may, but is not required to, establish
reserves from offering proceeds, operating funds or the available proceeds of
any sales of CPA(R):16-Global's assets of up to one percent of the net offering
proceeds.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Holding Period for Investments and Application of Proceeds of Sales or
Refinancings
CPA(R):16-Global intends to hold each property it acquires for an extended
period. However, circumstances might arise which could result in the early sale
of some properties. A property may be sold before the end of the expected
holding period if in CPA(R):16-Global's judgment or in the judgment of WPC, the
sale of the property is in the best interest of shareholders.
The determination of whether a particular property should be sold or otherwise
disposed of will be made after consideration of relevant factors, including
prevailing economic conditions, with a view to achieving maximum capital
appreciation. No assurance can be given that the foregoing objective will be
realized. The selling price of a property which is net leased will be determined
in large part by the amount of rent payable under the lease. If a tenant has a
repurchase option at a formula price, CPA(R):16-Global may be limited in
realizing any appreciation. In connection with sales of properties,
CPA(R):16-Global may lend the purchaser all or a portion of the purchase price.
In these instances, CPA(R):16-Global's taxable income may exceed the cash
received in the sale.
The terms of payment will be affected by custom in the area in which the
property being sold is located and the prevailing economic conditions. To the
extent that CPA(R):16-Global receives purchase money mortgages rather than cash
in connection with sales of properties, there may be a delay in making
distributions to shareholders. A decision to provide financing to such
purchasers would be made after an investigation into and consideration of the
same factors regarding the purchaser, such as creditworthiness and likelihood of
future financial stability, as are undertaken when CPA(R):16-Global considers a
net lease transaction.
If CPA(R):16-Global has not facilitated liquidity in its shares either through
listing them for trading on a national securities exchange, including them for
quotation on Nasdaq, providing liquidity through its redemption plan or by some
other means generally within eight to twelve years after the net proceeds of its
initial offering are fully invested, CPA(R):16-Global will start selling its
properties and other assets, either on a portfolio basis or individually, or
engage in another transaction or transactions approved by the Board of
Directors, market conditions permitting. In making the decision to apply for
listing of the shares or providing other forms of liquidity, the Board will try
to determine whether listing the shares or liquidating will result in greater
value for the shareholders. It cannot be determined at this time the
circumstances, if any, under which the directors will agree to list the shares.
Even if liquidity has not been facilitated, CPA(R):16-Global is under no
obligation to liquidate its portfolio within this period since the precise
timing will depend on real estate and financial markets, economic conditions of
the areas in which the properties are located and federal income tax effects on
shareholders which may prevail in the future. Furthermore, there can be no
assurance that CPA(R):16-Global will be able to liquidate its portfolio and it
should be noted that CPA(R):16-Global will continue in existence until all
properties are sold and other assets are liquidated.
CPA(R):16-Global may continually reinvest the proceeds of property sales in
investments that it or WPC believes will satisfy CPA(R):16-Global's investment
policies. If CPA(R):16-Global has not provided some form of liquidity or if
CPA(R):16-Global's shares are not liquidated, generally within eight to twelve
years after the proceeds from CPA(R):16-Global's initial offering are fully
invested, CPA(R):16-Global will cease reinvesting capital and sell the
properties, as described above, unless the directors (including a majority of
the independent directors) determine that, in light of CPA(R):16-Global's
expected life at any given time, it is deemed to be in the best interest of the
shareholders to reinvest proceeds from property sales or refinancings.
INVESTMENT LIMITATIONS
Numerous limitations are placed on the manner in which CPA(R):16-Global may
invest its funds. These limitations cannot be changed unless the bylaws are
amended, which requires the approval of the shareholders. Unless the bylaws are
amended, CPA(R):16-Global will not:
- invest in commodities or commodity futures contracts, with this
limitation not being applicable to futures contracts when used solely
for the purpose of hedging in connection with CPA(R):16-Global's
ordinary business of investing in real estate assets and mortgages;
- invest in contracts for the sale of real estate unless the contract is
in recordable form and is appropriately recorded in the chain of
title;
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
- engage in any short sale or borrow on an unsecured basis, if the
borrowing will result in asset coverage of less than 300%. "Asset
coverage," for the purpose of this clause means the ratio which the
value of CPA(R):16-Global's total assets, less all liabilities and
indebtedness for unsecured borrowings, bears to the aggregate amount
of all of CPA(R):16-Global's unsecured borrowings;
- make investments in unimproved property or indebtedness secured by a
deed of trust or mortgage loans on unimproved property in excess of
10% of total assets. "Unimproved real property" means property which
has the following three characteristics:
- an equity interest in property which was not acquired for the
purpose of producing rental or other operating income;
- no development or construction is in process on the property; and
- no development or construction on the property is planned in good
faith to commence on the property within one year of acquisition;
- issue equity securities on a deferred payment basis or other similar
arrangement;
- issue debt securities in the absence of adequate cash flow to cover
debt service;
- issue equity securities which are non-voting or assessable;
- issue "redeemable securities" as defined in Section 2(a)(32) of the
Investment Company Act of 1940;
- grant warrants and/or options to purchase shares to WPC, directors or
affiliates thereof except on the same terms as the options or warrants
are sold to the general public and the amount of the options or
warrants does not exceed an amount equal to 10% of the outstanding
shares on the date of grant of the warrants and options;
- engage in trading, as compared with investment activities, or engage
in the business of underwriting or the agency distribution of
securities issued by other persons;
- invest more than 5% of the value of CPA(R):16-Global's assets in the
securities of any one issuer if the investment would cause
CPA(R):16-Global to fail to qualify as a REIT;
- invest in securities representing more than 10% of the outstanding
voting securities or value of any one issuer if the investment would
cause CPA(R):16-Global to fail to qualify as a REIT;
- acquire securities in any company holding investments or engaging in
activities prohibited in the foregoing clauses;
- make or invest in mortgage loans that are subordinate to any mortgage
or equity interest of WPC, its directors, or CPA(R):16-Global's
affiliates; or
- make loans where the amount advanced by CPA(R):16-Global plus the
amount of any existing loans that are equal or senior to
CPA(R):16-Global's loan exceeds 100% of the appraised value of the
property.
CHANGE IN INVESTMENT OBJECTIVES AND LIMITATIONS
CPA(R):16-Global's bylaws require that the independent directors review
CPA(R):16-Global's investment policies at least annually to determine that the
policies CPA(R):16-Global is following are in the best interest of the
shareholders. Each determination, and the basis therefore, shall be set forth in
CPA(R):16-Global's minutes. The methods of implementing CPA(R):16-Global's
investment policies also may vary as new investment techniques are developed.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
The methods of implementing CPA(R):16-Global's investment procedures, objectives
and policies, except as otherwise provided in the bylaws or articles of
incorporation, may be altered by a majority of the directors (including a
majority of the independent directors) without the approval of the shareholders.
ASSET MANAGEMENT
CPA(R):16-Global 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.
WPC will monitor, 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. WPC reviews financial statements of
CPA(R):16-Global's tenants and undertakes regular physical inspections of the
condition and maintenance of CPA(R):16-Global's properties. Additionally, WPC
periodically analyzes each tenant's financial condition, the industry in which
each tenant operates and each tenant's relative strength in its industry.
COMPETITION
CPA(R):16-Global 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):16-Global 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):16-Global believes its management's
experience in real estate, credit underwriting and transaction structuring will
allow it 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):16-Global'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):16-Global will typically undertake an investigation of potential
environmental risks when evaluating an acquisition. Phase I environmental
assessments will be performed by independent environmental consulting and
engineering firms for all properties acquired by CPA(R):16-Global. Where
warranted, Phase II environmental assessments will be performed. Phase I
assessments do not involve subsurface testing, whereas Phase II assessments
involve some degree of soil and/or groundwater testing. CPA(R):16-Global 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):16-Global normally requires property sellers to indemnify
it fully against any environmental problem existing as of the date of purchase.
Additionally, CPA(R):16-Global 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):16-Global 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
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
CPA(R):16-Global's statutory liability or preclude claims against
CPA(R):16-Global by governmental authorities or persons who are not a party to
the arrangement. Contractual arrangements in CPA(R):16-Global's leases may
provide a basis for CPA(R):16-Global to recover from the tenant damages or costs
for which it has been found liable.
INDUSTRY SEGMENT
CPA(R):16-Global operates in one industry segment, investment in net leased real
property. For the year ended December 31, 2003, CPA(R):16-Global had no
operating revenue.
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 that 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.
We wish 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.
Our future results may be affected by certain risks and uncertainties including
the following:
We may not be able to raise sufficient funds to diversify our real estate
portfolio.
Our current public offering of securities is on a best-efforts basis. Our
potential profitability and ability to diversify our investments, both
geographically and by type of properties purchased, will be limited by the
amount of funds at our disposal. 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 will have to invest will depend
on the amount raised in our offering and the amount of money we are able to
borrow. Lack of diversification will increase the potential adverse effect on us
of a single under-performing investment.
Investments in properties outside of the United States subject us to foreign
currency risks which may impact distributions.
We will be subject to foreign currency risk due to potential fluctuations in
exchange rates between foreign currencies and the U.S. dollar. We expect that
our principal currency exposures will be to the Euro and the Pound Sterling
(U.K.). Although we are not prohibited from doing so, we do not currently intend
to engage in direct hedging activities to mitigate the risks of exchange rate
fluctuations. We will attempt to mitigate the risk of currency fluctuation by
financing our properties in the local currency denominations, although there can
be no assurance that this will be effective. As a result, changes in the
relation of any such foreign currency to U.S. dollars will affect our revenues,
operating margins and distributions and may also affect the book value of our
assets and the amount of shareholders' equity. Also, if, in the future, we were
to engage in foreign currency exchange rate hedging activities, any income
recognized with respect to these hedges (as well as any foreign currency gain
recognized with respect to changes in exchange rates) will generally not qualify
as eligible income for purposes of either the 75% gross income test or the 95%
gross income test that we must satisfy annually in order to qualify and maintain
our status as a REIT. See -- "Failure to qualify as a REIT would adversely
affect our operations and ability to make distributions." Changes in foreign
currency exchange rates used to value the REIT's foreign assets would be
considered changes in the value of the REIT's assets, and therefore, may
adversely affect our status as a REIT. Further, by keeping bank accounts in
foreign currency which are not considered cash or cash equivalents may adversely
affect our status as a REIT.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
International investment risks, including currency fluctuation, adverse
political or economic developments, lack of uniform accounting standards
(including availability of information in accordance with U.S. generally
accepted accounting principles), uncertainty of foreign laws and the difficulty
of enforcing certain obligations in other countries will affect our operations
and our ability to make distributions.
Foreign real estate investments involve certain risks not generally associated
with investments in the United States. These risks include, unexpected changes
in regulatory requirements, political and economic instability in certain
geographic locations, potential imposition of adverse or confiscatory taxes,
possible currency transfer restrictions, expropriation, the difficulty in
enforcing obligations in other countries and the burden of complying with a wide
variety of foreign laws. Each of these risks might adversely impact our
performance and/or impair our ability to make expected distributions to
shareholders. In addition, there is less publicly available information about
foreign companies and a lack of uniform financial accounting standards and
practices (including the availability of information in accordance with
accounting principles generally accepted in the United States of America) which
could impair our ability to analyze transactions and receive timely and accurate
financial information from tenants necessary to meet our reporting obligations
to financial institutions or governmental or regulatory agencies. Certain of
these risks may be greater in emerging markets and less developed countries.
We were incorporated in June 2003 and have a limited operating history.
We were incorporated in June 2003 and have not yet commenced significant
property acquisitions. We cannot guarantee that we will find suitable property
investments, or that our tenants will fulfill their lease obligations. Our
failure to timely invest the proceeds of this offering, or to invest in quality
properties could diminish returns to investors.
Our success will be dependent on the performance of WPC.
Our ability to achieve our investment objectives and to pay distributions is
dependent upon the performance of WPC 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
that are not described in this prospectus. You must rely entirely on the
management ability of WPC and the oversight of the Board of Directors.
This is the first REIT managed by WPC that may have significant focus on
international investments.
We and our manager have no experience managing a REIT which may focus on making
a significant percentage of its investments outside of the United States.
International investments made by prior CPA(R) REITs and investment vehicles
managed by WPC and its affiliates have not generally exceeded 7% of the
aggregate property holdings and currently include 47 properties purchased for
$487 million in the European Union. Our lack of international investing
experience could cause a delay in investing funds, increased investment expenses
or result in lower quality investments than anticipated, and therefore could
adversely affect our revenues and distributions to shareholders.
Our Board of Directors may change our investment policies without shareholder
approval, which could alter the nature of your investment.
Our bylaws require that our independent directors review our investment policies
at least annually to determine that the policies we are following are in the
best interest of the shareholders. These policies may change over time. The
methods of implementing our investment policies may also vary, as new investment
techniques are developed. Our investment policies, the methods for their
implementation, and our other objectives, policies and procedures may be altered
by a majority of the directors (including a majority of the independent
directors), without the approval of our shareholders. As a result, the nature of
your investment could change without your consent.
We may have difficulty selling or re-leasing our properties.
Real estate investments generally lack liquidity compared to other financial
assets and this lack of liquidity 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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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
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 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 or insolvency.
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 or insolvency.
In bankruptcy or insolvency, a tenant may have 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 may have highly leveraged tenants in the future.
The bankruptcy or insolvency of tenants may cause a reduction in revenue.
Bankruptcy or insolvency 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. Those rights would not include a right to compel the tenant to timely
perform its obligations under the lease but would instead entitle us to
"adequate protection," a bankruptcy concept that applies to protect against
further decrease in the value of the property if the value of the property is
less than the balance owed to us.
As a general rule, insolvency laws outside of the United States are not as
favorable to reorganization or to the protection of a debtor's rights as tenants
under a lease as are the laws in the United States. Our rights to terminate a
lease for default are more likely to be enforceable in countries other than the
United States, while a debtor/tenant or its insolvency representative is less
likely to have rights to force continuation of lease without our consent.
Nonetheless, most such laws would permit a tenant or an appointed insolvency
representative to terminate a lease if it so chose.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
However, because the bankruptcy laws of the United States are considered to be
more favorable to debtors and to their reorganization, entities which are not
ordinarily perceived as United States entities may seek to take advantage of the
United States bankruptcy laws if they are eligible. An entity would be eligible
to be a debtor under the United States bankruptcy laws if it had a domicile
(state of incorporation or registration), place of business or assets in the
United States. If a tenant became a debtor under the United States bankruptcy
laws, then it would have the option of continuing or terminating any unexpired
lease. Prior to taking the requisite procedural steps to continue or terminate
an unexpired lease, the tenant (or its trustee if one has been appointed) must
timely perform all obligations of the tenant under the lease.
The programs managed by WPC or its affiliates have had tenants file for
bankruptcy protection and are involved in litigation (including two
international tenants). Four of the prior fourteen CPA(R) REIT programs reduced
the rate of distributions to their investors as a result of adverse developments
involving tenants.
Our tenants generally will not have access to traditional sources of credit,
which may create a higher risk of lease defaults and therefore lower revenues.
Generally, no credit rating agencies evaluate or rank the debt or the credit
risk of many of our tenants, as we seek tenants that we believe will have stable
or improving credit profiles that have not been recognized by the traditional
credit market. 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.
Liability for uninsured losses could adversely affect our financial condition.
Losses from disaster-type occurrences (such as wars, terrorist activities 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, which in
turn could cause the value of the shares and distributions to shareholders to be
reduced.
Potential liability for environmental matters could adversely affect our
financial condition.
We may own industrial and commercial properties that will cause us to be subject
to the risk of liabilities under federal, state and local environmental laws.
Some of these laws could impose the following on us:
- 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; and
- 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 approximately 60% of the purchase
price of our properties. There is no limitation
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
on the amount borrowed on a single property and the aggregate borrowings may not
exceed 75% of the value of all properties without board approval.
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 refinance the mortgage 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.
Our participation in joint ventures creates additional risk.
We may participate in joint ventures and 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 WPC or our board may owe to our partner in an
affiliated transaction may make it more difficult for us to enforce our rights.
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. Often,
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's
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 net 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.
We cannot guarantee that WPC, our Advisor, will successfully manage us.
The past performance of partnerships and REITs managed by WPC may not be
indicative of the performance of WPC with respect to our company especially as
they did not focus a significant part of their investments in properties outside
of the United States. We cannot guarantee that WPC will be able to successfully
manage and achieve liquidity for us to the extent it has done so for prior
programs.
Our Advisor may be subject to conflicts of interest.
WPC manages our business and selects our real estate investments. WPC has some
conflicts of interest in its management of us, which arise primarily from (i)
the involvement of WPC and its affiliates in other activities that may conflict
with us and (ii) the payment of fees by us to WPC and its affiliates. The
activities in which a conflict could arise between us and WPC are:
- the receipt of compensation by WPC and its affiliates for property
purchases, leases, sales and financing for us, which may cause WPC and
its affiliates to engage in transactions that generate higher fees,
rather than transactions that are more appropriate or beneficial for
our business;
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
- agreements between us and WPC or any of its affiliates, including
agreements regarding compensation of WPC 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 our 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 WPC and its affiliates to direct properties suitable for us
to other related entities; and
- disposition, incentive and termination fees, which are based on the
sale price of properties, may cause a conflict between WPC's desire to
sell a property and the possibility that a retention of the property
might be in the better interest of our shareholders.
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 WPC
and/or its affiliates and the distributions to shareholders.
We are subject to the risks of real estate ownership which could reduce the
value of our properties.
Our performance and asset value is subject to risks incidental to the ownership
and operation of net leased industrial and commercial property, 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; and
- changes in laws and governmental regulations, including those
governing real estate usage, zoning and taxes.
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. Investor suitability
standards imposed by certain states may also make it more difficult to sell your
shares to someone in those states. The shares should be purchased as a long-term
investment only.
Failure to qualify as a REIT would adversely affect our operations and ability
to make distributions.
If we fail to qualify as a REIT in any taxable year, we would be subject to
United States 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 we lost our REIT status. Failing to
obtain, or losing REIT status would reduce our net earnings available for
investment or distribution to shareholders because of the additional United
States tax liability, and we would no longer be 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.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
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 lose our REIT
status effective with the year of recharacterization.
The limit on the number of our shares a person may own may discourage a
takeover.
Our articles of incorporation restrict beneficial ownership of more than 9.8% of
the outstanding shares by one person or affiliated group in order to meet REIT
qualification rules. These restrictions may discourage a change of control 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 our management.
Maryland law could restrict a 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;
- 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, referred to as 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 our 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.
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 our shares of stock, 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 counsel that, under ERISA laws and regulations as
of December 31, 2003, our assets should not be treated as "plan assets"
following an investment in shares by benefit plans subject to ERISA and/or
Section 4975 of the Internal Revenue Code. However, that opinion is based on the
facts and assumptions described in this report, on our articles of incorporation
and on our representations to Counsel, 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
WPC and its affiliates could be considered "prohibited transactions" which could
cause us, WPC
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
and its affiliates to be subject to liabilities and excise taxes. In addition,
WPC 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.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Item 2. Properties.
In December 2003, CPA(R):16-Global and CPA(R):15 purchased a facility for
(euro)13,724,584 ($16,690,366) and entered into a net lease with Actuant
Corporation and GB Tools and Supplies, Inc. As of December 31, 2003, this is
CPA(R):16-Global's only property.
CPA(R):16-Global and CPA(R):15 are in negotiations to obtain mortgage financing
in connection with the acquisition. CPA(R):16-Global has an initial ownership
interest of .01%. CPA(R):16-Global has an obligation to purchase, on or before
December 31, 2005, up to a 75% interest in the facility from CPA(R):15. The
transaction, which has to be approved by the Board of Directors (including a
majority of the independent directors) of both CPA(R):15 and CPA(R):16-Global,
is contingent on CPA(R):16-Global raising at least $50,000,000 in net proceeds
with respect to its initial public offering. As of March 3, 2004,
CPA(R):16-Global had raised in excess of $60,000,000. If approved by the
respective Boards of Directors, CPA(R):16-Global expects to make the additional
acquisition in 2004.
Set forth below is certain information relating to CPA(R):16-Global's property
owned as of December 31, 2003.
RENT PER SHARE OF
LEASE OBLIGOR/ OWNERSHIP SQUARE SQUARE CURRENT INCREASE LEASE MAXIMUM
LOCATION INTEREST FOOTAGE FOOT ANNUAL RENTS(1) FACTOR TERM TERM
- -------- -------- ------- ---- --------------- ------ ---- ----
GB TOOLS AND SUPPLIES, INC. (1)
KAHL AM MAIN, GERMANY .01% interest 305,962 5.36 $164 German Jan. 2021 Jan. 2031
in limited CPI
partnership owning
land and buildings
1. Share of Current Annual Rents is the product of the Square
Footage, the Rent per Square Foot, and the Ownership Interest
percentage. Rents are collected in Euros, dollar amount is based
on conversion rate at December 31, 2003.
Item 3. Legal Proceedings.
As of the date hereof, CPA(R):16-Global 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,
2003 to a vote of security holders, through the solicitation of proxies or
otherwise.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information with respect to CPA(R):16-Global's common equity is hereby
incorporated by reference to page 20 of CPA(R):16-Global's Annual Report
contained in Appendix A.
(a) There is no established public trading market for the shares of
CPA(R):16-Global. As of December 31, 2003, there was one holder of record of the
shares of CPA(R):16-Global.
In June 2003, WPC purchased 20,000 shares of CPA(R):16-Global's common stock for
$200,000 cash. Since this transaction was not considered to have involved a
"public offering" within the meaning of Section 4(2) of the Securities Act of
1933, as amended, the shares issued were deemed to be exempt from registration.
In acquiring the shares, WPC represented that such interests were being acquired
by it for the purposes of investment and not with a view to the distribution
thereof.
(b) (1) Registration Statement 333-106838 was declared effective on
December 12, 2003 and post-effective amendment no. 1 thereto was declared
effective on December 31, 2003.
Item 6. Selected Financial Data.
Selected Financial Data are hereby incorporated by reference to page 1 of
CPA(R):16-Global'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 7 of CPA(R):16-Global's Annual Report contained in Appendix A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk:
As of December 31, 2003, CPA(R):16-Global had no material exposure to market
risk.
Market risk is the exposure to loss resulting from changes in interest rates,
credit spreads, foreign currency exchange rates and equity prices. In pursuing
CPA(R):16-Global's business plan, the primary market risks to which
CPA(R):16-Global are exposed are interest rate risk and currency exchange rates.
The value of CPA(R):16-Global's real estate is subject to fluctuations based on
changes in interest rates, local and regional economic conditions and changes in
the creditworthiness of lessees, and this may affect CPA(R):16-Global's ability
to refinance our debt when balloon payments are scheduled.
CPA(R):16-Global expects that its initial foreign currency exchange exposures
will be to the Euro and the Pound Sterling (U.K.) Accordingly, CPA(R):16-Global
may be subject to foreign currency exchange rate risk from the effects of
exchange rate movements of foreign currencies and this may affect its future
costs and cash flows. CPA(R):16-Global has not entered into any foreign currency
forward exchange contracts or other derivative financial instruments to hedge
the effects of adverse fluctuations in foreign currency exchange rates.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Item 8. Consolidated Financial Statements and Supplementary Data.
Attached hereto as Exhibit 1 to this Form 10-K.
The following consolidated financial statements and supplementary data of
CPA(R):16-Global are hereby incorporated by reference to pages 8 to 20 of
CPA(R):16-Global's Annual Report contained in Appendix A:
(i) Report of Independent Auditors
(ii) Consolidated Balance Sheet at December 31, 2003.
(iii) Consolidated Statement of Operations for the period from inception
(June 5, 2003) to December 31, 2003.
(iv) Consolidated Statement of Shareholder's Equity for the period from
inception (June 5, 2003) to December 31, 2003.
(v) Consolidated Statement of Cash Flows for the period from inception
(June 5, 2003) to December 31, 2003.
(vi) Notes to Consolidated Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
The Co-Chief Executive Officers and Chief Financial Officer of the Company have
conducted a review of the Company's disclosure controls and procedures as of
December 31, 2003. The Company's disclosure controls and procedures include the
Company'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 the Company's management, including its Co-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, the Company's Co-Chief Executive Officers and Chief
Financial Officer have concluded that the Company's disclosure controls (as
defined in Rule 13a-14(c) promulgated under the Exchange Act) are sufficiently
effective to ensure that the information required to be disclosed by the Company
in the reports it files under the Exchange Act is recorded, processed,
summarized and reported with adequate timeliness.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
PART III
Item 10. Directors and Executive Officers of the Registrant.
DIRECTORS AND EXECUTIVE OFFICERS OF CPA(R):16-GLOBAL
CPA(R):16-Global's directors and executive officers are as follows:
Name Office
Wm. Polk Carey Chairman, Co-CEO and Director
Gordon F. DuGan Vice Chairman, Co-CEO and Director
Francis X. Diebold III Director
Elizabeth P. Munson Director
Warren G. Wintrub Director
Thomas E. Zacharias President and Managing Director - Asset Management
John J. Park Managing Director and Chief Financial Officer
The following is a biographical summary of the experience of our directors and
executive officers, each of whom were appointed as officers or directors on June
11, 2003 with the exception of Mr. Diebold, Ms. Munson and Mr. Wintrub, each of
whom were appointed on December 10, 2003:
Wm. Polk Carey, age 73, is Chairman of the Board of Directors and Co-CEO. Mr.
Carey has served as a director of CPA(R):15 since 2001, of CPA(R):14 since 1997,
of CPA(R):12 since 1993, of CIP(R) since 1993, and WPC since 1997. Mr. Carey was
also elected Chairman of WPC in June 1997, has been active in lease financing
since 1959, and a specialist in net leasing of corporate real estate property
since 1964. Before founding W. P. Carey & Co. in 1973, he served as Chairman of
the Executive Committee of Hubbard, Westervelt & Mottelay (now Merrill Lynch
Hubbard), head of Real Estate and Equipment Financing at Loeb, Rhoades & Co.
(now Lehman Brothers) and Vice Chairman and Director of Corporate Finance of
duPont Glore Forgan Inc. Mr. Carey was educated at Princeton University and is a
graduate of the University of Pennsylvania's Wharton School. Mr. Carey served as
a Governor of the National Association of Real Estate Investment Trusts
(""NAREIT") and served as the Executive in Residence at Harvard Business School.
He currently serves on the Boards of The Johns Hopkins University and its School
of Advanced International Studies and as Chairman of the Boards of Trustees of
the St. Elmo Foundation and the W. P. Carey Foundation. The W. P. Carey
Foundation was formed to foster educational organizations and improve the
quality of education. He founded the Visiting Committee to the Economics
Department of the University of Pennsylvania and co-founded with Dr. Lawrence
Klein the Economics Research Institute at that university. With Sir John
Templeton, he helped to establish the program in management education at Oxford
University. Mr. Carey also serves as Chairman of the Board and Co-Chief
Executive officer of CIP(R), CPA(R):12, CPA(R):14, CPA(R):15 and WPC. Mr. Carey
is the brother of Francis J. Carey.
Gordon F. DuGan, age 37, is Vice Chairman, Co-CEO and Director. Mr. DuGan joined
WPC as Assistant to the Chairman in 1988, and in 1995 was elevated to Senior
Vice President in the Acquisitions Department. From October 1995 until February
1997 he was Chief Financial officer of a Colorado-based wireless communications
equipment manufacturer. In 1997 Mr. DuGan rejoined WPC as Deputy Head of
Acquisitions, was elected to Executive Vice President and Managing Director, and
was elevated to President in 1999 and Co-CEO in 2002. Mr. DuGan also serves as
Vice Chairman and Co-CEO of CIP(R), CPA(R):12, CPA(R):14 and CPA(R):15. Mr.
DuGan has served as a Trustee of the W. P. Carey Foundation since 1999. He also
serves on the Board of the New York Pops and is a member of the Young Presidents
Organization. Mr. DuGan received his BS degree in Economics from the Wharton
School of the University of Pennsylvania. Mr. DuGan also serves as Vice Chairman
and Co-CEO of CIP(R), CPA(R):12, CPA(R):14 and CPA(R):15.
Francis X. Diebold III, age 44. Mr. Diebold is a William Polk Carey Professor of
Economics, Finance and Statistics at the University of Pennsylvania, where he
has been a member of the faculty since 1989. He has also served as a Research
Associate at the National Bureau of Economic Research since 1999, and was
Director of the Institute for
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Economic Research from 1999 to 2000. From 1986 to 1989, he served as an
economist under Paul Volker and Alan Greenspan at the Board of Governors of the
Federal Reserve System in Washington, DC. Mr. Diebold has published extensively
and has served on the editorial boards of numerous journals, including
Econometrica and Review of Economics and Statistics. He is a Fellow of the
Econometric Society and the recipient of several prizes for outstanding
teaching. Mr. Diebold has held visiting appointments at several institutions,
including Princeton University, the Graduate School of Business at the
University of Chicago, and the Stern School of Business at New York University.
Mr. Diebold received his B.S. from the Wharton School at the University of
Pennsylvania in 1981 and his Ph.D. in 1986, also from the University of
Pennsylvania. He has also served as an independent director of CIP(R) and
CPA(R):15 since 2002, and of CPA(R):12 from 2002 to 2003.
Elizabeth P. Munson, age 47. Ms. Munson is the President of The Rockefeller
Trust Company (New York) and The Rockefeller Trust Company (Delaware), joining
those companies in June 2001. Ms. Munson is also a Managing Director of
Rockefeller & Co., a position she has held since December 2001. Prior to joining
Rockefeller, she was a partner in the Private Clients Group of White & Case LLP
from January 1993 to June 2001 and an associate at White & Case LLP from October
1983. Ms. Munson serves as a member of the Board of Advisors of the Wildlife
Conservation Society, Bronx, New York, a member of the Board of Managers and
Vice President of Episcopal Social Services, New York, New York and a member of
the Board of Directors and President of United Neighbors of East Midtown, New
York, New York. Ms. Munson has also served as an independent director of
CPA(R):12 and CPA(R):15 since 2002, and of CPA(R):14 from 2002 to 2003.
Warren G. Wintrub, age 69, has served as a director of CPA(R):14 since 1997 and
of CIP(R) since 2001. He also served as an independent director of CPA(R):15
from 2001 to 2003. Mr. Wintrub is also a special advisor to the W. P. Carey &
Co. LLC audit committee. He retired in 1992 from Coopers & Lybrand L.L.P., now
PricewaterhouseCoopers LLP, after 35 years. Mr. Wintrub was elected a senior
U.S. Tax partner in PricewaterhouseCoopers LLP in 1963, and specialized in tax
matters and served on that firm's Executive Committee from 1976 to 1988, and as
a chairman of its Retirement Committee from 1979 to 1992. Mr. Wintrub holds a
B.S. degree from Ohio State University and an LLB from Harvard Law School. He
currently serves as a director of Chromcraft Revington, Inc. and Getty Realty
Co.
Thomas E. Zacharias, age 50, President and Managing Director, Asset Management,
joined WPC in April 2002. Prior to joining WPC, Mr. Zacharias was a Senior Vice
President of MetroNexus North America, a Morgan Stanley Real Estate Funds
Enterprise capitalized for the development of internet data centers. Prior to
joining MetroNexus in 2000, Mr. Zacharias was a Principal at Lend Lease
Development U.S., a subsidiary of Lend Lease Corporation, a global real estate
investment management company. Between 1981 and 1998, Mr. Zacharias was a senior
officer at Corporate Property Investors (CPI) which at the time of its merger
into Simon Property Group in 1998, was the largest private equity REIT. He has
over 24 years experience in acquisitions, financing, development, leasing and
asset management in real estate. Mr. Zacharias received his undergraduate
degree, magna cum laude, from Princeton University in 1976, and a Masters in
Business Administration from Yale School of Management in 1979. He is a member
of the Urban Land Institute, International Council of Shopping Centers and
NAREIT, and currently serves as a Trustee of Groton School in Groton,
Massachusetts. Mr. Zacharias previously served as an independent director of
CIP(R) from 1997 to 2001, CPA(R):12 from 1997 to 2000, CPA(R):14 from 1997 to
2001 and CPA(R):15 in 2001.
John J. Park, age 39, joined WPC as an investment analyst in 1987 and rose to
Managing Director and Chief Financial officer in 1999. Mr. Park received a BS
from the Massachusetts Institute of Technology in 1986, and an MBA in finance
from the Stern School of Business at New York University in 1991. He is also
Managing Director and Chief Financial Officer of CIP(R), CPA(R):12, CPA(R):14
and CPA(R):15.
Some of our future directors and officers may act as directors or officers of
WPC and its affiliates and other CPA(R) funds and may own interests in those
entities.
ADDITIONAL MANAGEMENT
Name Office
Francis J. Carey Vice Chairman of WPC
George E. Stoddard Chief Investment Officer
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Anne R. Coolidge Managing Director
Claude Fernandez Managing Director and Chief Accounting officer
Stephen H. Hamrick Managing Director and National Marketing Director
Edward V. LaPuma Managing Director and Chief Acquisitions
Officer - International
W. Sean Sovak Managing Director
Benjamin P. Harris Executive Director - Acquisitions
Susan C. Hyde Executive Director, Director of Investor Relations
and Secretary
Michael D. Roberts Executive Director and Controller
Gordon J. Whiting Executive Director
Debra E. Bigler Senior Vice President and Regional Director - Marketing
David S. Eberle Senior Vice President and Regional Director - Marketing
Ted G. Lagreid Senior Vice President and Regional Director - Marketing
David W. Marvin Senior Vice President and Regional Director - Marketing
Donna M. Neiley Senior Vice President - Asset Management
Francis J. Carey, age 77. Prior to the merger of W. P. Carey & Co., Inc. and
Carey Diversified LLC in 2000, Mr. Carey served as Chairman and Chief Executive
Officer of Carey Diversified. Mr. Carey also served as a Director of WPC, Inc.
from its inception in 1973 through 1997 and later as its President from 1987
through 1997. Prior to 1987, he was a senior partner in the Philadelphia office
of Reed Smith LLP. He was head of the Real Estate Department nationally and a
member of the executive committee of the law firm of Reed Smith LLP, counsel for
WPC. He served as a member of the Executive Committee and Board of Managers of
the Western Savings Bank of Philadelphia from 1972 until its takeover by another
bank in 1982 and is a former chairman of the Real Property, Probate and Trust
Section of the Pennsylvania Bar Association. Mr. Carey served as a member of the
Board of Overseers of the School of Arts and Sciences of the University of
Pennsylvania from 1983 through 1990 and served as a member of the Board of
Trustees of the Investment Program Association from 1990 through 2000 and on the
Business Advisory Council of the Business Council for the United Nations since
1994. He holds A. B. and J. D. degrees from the University of Pennsylvania and
completed executive programs in corporate finance and accounting at Stanford
University Graduate School of Business and the Wharton School of the University
of Pennsylvania. Mr. Carey is the brother of Wm. Polk Carey. Mr. Carey is on the
board of directors of WPC and Carey Asset Management Corp., of which he is Vice
Chairman.
George E. Stoddard, age 86, has been with WPC since 1979. Mr. Stoddard has
served as a director of CIP(R) since 1997, of CPA(R):15 since 2001 and of WPC
since 2000. He is also currently a director of CPA(R):12 and CPA(R):14, and
previously was a director of CPA(R):12 from 1997 to June 2003 and of CPA(R):14
from 1997 to June 2003. He was also a director of CPA(R):10 prior to its merger
with CIP(R). Prior to joining WPC, Mr. Stoddard was officer-in-Charge of the
Direct Placement Department of The Equitable Life Assurance Society of the
United States ("Equitable"), with responsibility for all activities related to
Equitable's portfolio of corporate investments acquired through direct
negotiation. Mr. Stoddard was associated with Equitable for over 30 years. He
holds an AB degree from Brigham Young University, an MBA from Harvard Business
School and an LLB from Fordham University Law School. Mr. Stoddard serves as
Chairman of the Investment Committee of WPC and has been a Trustee of the W. P.
Carey Foundation since December 1990.
Anne R. Coolidge, age 34. Ms. Coolidge joined WPC in 1993 as Assistant to the
Chairman and was elected to Managing Director in March 2003. Ms. Coolidge
founded WPC's London office, which she headed from April 1999 to February 2001.
She received an AB from Harvard College and an M.B.A. from Columbia University's
Graduate School of Business. She also serves on the Board of Jetora, Inc., the
management company to LivingNexus, LLC, a provider of property management
software to the real estate industry. Ms. Coolidge is President of CPA(R):15 and
was also President of CPA(R):10 prior to its merger with CIP(R).
Claude Fernandez, age 51, elected Executive Vice President and Chief
Administrative officer in June 1997, joined WPC as Assistant Controller in March
1983, was elected Controller in July 1983, Vice President in April 1986, and is
now a Managing Director, Executive Vice President and Chief Administrative
officer. Prior to joining WPC, Mr. Fernandez was associated with Coldwell
Banker, Inc. in New York for two years and with Arthur Andersen & Co. in New
York for over three years. Mr. Fernandez, a Certified Public Accountant,
received his BS degree in accounting from New York University in 1975, and his
MBA in Finance from Columbia University Graduate School of Business in 1981.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Stephen H. Hamrick, age 51. Mr. Hamrick has been with WPC since 2001. After
years of service as Chairman of the Board of Carey Financial, Mr. Hamrick was
appointed National Marketing Director and Managing Director of WPC in 2001.
Prior to joining WPC, he served as CEO of a bank-based investment brokerage
business at Wall Street Investor Services. From 1988 until 1994, Mr. Hamrick
headed Private Investments for PaineWebber Incorporated (now UBS Financial
Services, Inc.), where he was a Senior Vice President and a member of the Firm's
Management Council. Mr. Hamrick has served as Chairman of the Securities
Industry Association's Direct Investment Committee and as Chairman of the
Investment Program Association. He is currently a voting member of both the
American Stock Exchange's Committee on Securities, which approves companies to
be listed or de-listed on the exchange, as well as the comparable panel at
NASDAQ. A Certified Financial Planner, Mr. Hamrick received degrees in English
and Economics from Duke University.
Edward V. LaPuma, age 30, became a Managing Director of WPC in March 2002 and
Managing Director and Chief Acquisitions officer of W. P. Carey International
LLC in 2002. Mr. LaPuma joined WPC as an Assistant to the Chairman in 1994. Mr.
LaPuma established W. P. Carey & Co.'s Institutional Department, which he heads
as President of CIP(R). Prior to joining WPC, Mr. LaPuma was a consultant with
Sol C. Snider Entrepreneurial Center where he advised small business owners on
ways to make their companies more profitable through the implementation of
appropriate financial and management strategies. A magna cum laude graduate of
the University of Pennsylvania, Mr. LaPuma received a BA in Global Economic
Strategies from The College of Arts and Sciences and a BS in Economics with a
concentration in Finance from the Wharton School. He is a member of the board of
directors of W. P. Carey International LLC. He is also a trustee for the
Rensselaerville Institute.
W. Sean Sovak, age 31, currently serves as Managing Director at WPC. He has been
with WPC since 1994 when he joined as Assistant to the Chairman. Prior to his
current appointment, he served as WPC's Managing Director of Operations &
Strategy. He graduated summa cum laude from the University of Pennsylvania's
Wharton School where he concentrated in Finance. He currently serves on the
boards of the Business Advisory Council to the Business Council of the United
Nations and the Wharton Club of New York. He also serves as Chairman of the
Young New Yorker Patron program for the New York Philharmonic.
Benjamin P. Harris, age 28, joined WPC in June 1998 and was promoted to Second
Vice President in March 2000. He became Vice President in 2001, Director and
First Vice President in 2002, and Executive Director in 2003. Mr. Harris earned
a BS in Economics and Finance from the University of Kings College in Canada and
is a Chartered Financial Analyst.
Susan C. Hyde, age 35, is an Executive Director and Deputy Director of Marketing
and Investor Relations of WPC. Ms. Hyde joined WPC, in 1990, became Second Vice
President in April 1995, and Vice President in April 1997. Ms. Hyde graduated
from Villanova University in 1990, where she received a BS degree in Business
Administration with a concentration in marketing and a BA degree in English.
Michael D. Roberts, age 52, Executive Director, joined WPC in April 1989, as
Second Vice President and Assistant Controller and was named Vice President and
Controller in October 1989, First Vice President in July 1990 and was elected
Senior Vice President in 1997. From August 1980 to February 1983, and from
September 1983 to April 1989, he was employed by Coopers & Lybrand L.L.P., now
PricewaterhouseCoopers LLP, and held the position of Audit Manager at the time
of his departure. A Certified Public Accountant, Mr. Roberts received his
undergraduate degree from Brandeis University and his MBA from Northeastern
University.
Gordon J. Whiting, age 37, Executive Director, joined WPC in May 1993, as an
Acquisitions Associate. After receiving an MBA from the Columbia University
Graduate School of Business, where he concentrated in Finance, Mr. Whiting
rejoined the firm as an Acquisitions officer in June 1994. He was elected
Executive Vice President and Portfolio Manager of CPA(R):14 in October 1998 and
President in 2000. Mr. Whiting founded an import/export company based in Hong
Kong after receiving a BS in Business Management and Marketing from Cornell
University. He is also a member of the Cornell University Council and the
Federal Retirement Thrift Investment Board, a position to which he was nominated
by President George W. Bush and confirmed by the United States Senate.
-27-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Debra E. Bigler, age 50, is Regional Marketing Director for the south and
central United States for WPC. Ms. Bigler joined WPC in March 1989 as an
Assistant Marketing Director and became Vice President in May 1993.
David S. Eberle, age 37, rejoined WPC in May 2002 as a First Vice President in
charge of Sales and Marketing in the Midwest Region. In 2003, Mr. Eberle was
promoted to Senior Vice President and Regional Marketing Director for the
Midwest Region. Prior to rejoining WPC, Mr. Eberle was Regional Sales Director
for SEI Investments located in Oaks, PA. Prior to this, Mr. Eberle was with WPC
for four years as a Vice President for Sales and Marketing in the Midwest
Region. Mr. Eberle has been in the Financial Services Industry for nearly 15
years. He has held various positions in the industry, but has been primarily
involved in the real estate fund raising business. Mr. Eberle graduated from St.
John's University in Collegeville, MN.
Ted G. Lagreid, age 51, elected Senior Vice President in June 1997, joined WPC
in 1994, and became a Senior Vice President in April 1998. Mr. Lagreid is
Regional Marketing Director responsible for the Western United States. Prior to
joining the Firm, he was employed by the Shurgard Capital Group then by
SunAmerica where he was an executive in its mutual funds group. He earned an BA
from the University of Washington and an MPA from the University of Puget Sound.
He spent eight years in the City of Seattle's Department of Community
Development. Mr. Lagreid was a commissioner of the City of Oakland, California,
having served on its Community and Economic Development Advisory Commission.
David W. Marvin, age 51, Senior Vice President of WPC, joined WPC, in 1995, as
Regional Marketing Director for the northeastern United States. Previously he
spent 15 years at Prudential-Bache and Kidder-Peabody, as well as was a National
Director of sales with Cigna Corporation. He is a registered principal with the
National Association of Securities Dealers, Inc. Mr. Marvin received his BA from
the University of Massachusetts at Amherst.
Donna M. Neiley, age 40, Senior Vice President, joined WPC in July 1999 as a
First Vice President in the asset management department. Prior to joining the
WPC, Ms. Neiley was a Senior Vice President with Morgan Stanley Dean Witter
where she worked in the real estate group from 1987 to 1999. Ms. Neiley was
previously with PricewaterhouseCoopers LLP. Ms. Neiley is a Certified Public
Accountant, and received a B.A. in Economics from Lafayette College and an
M.B.A. in Finance from Columbia University Graduate School of Business.
INVESTMENT COMMITTEE
WPC specializes in arranging private financing for major corporations,
principally net lease financings of real property. The investment committee
evaluates the structure and terms of potential property acquisition transactions
for CPA(R):16-Global and recommends acquisitions that satisfy certain investment
criteria.
The following are the members of WPC's investment committee:
George E. Stoddard Chairman
Frank J. Hoenemeyer Vice Chairman
Lawrence R. Klein Member and Chair of the Economic Policy Committee
Nathaniel S. Coolidge Member
Ralph F. Verni Member
Karsten von Koller Member
Biographical information regarding Mr. Stoddard is presented above. The
following is a biographical summary of the remaining investment committee
members:
Frank J. Hoenemeyer, age 83, elected Vice Chairman of the Investment Committee
and Director in May 1992, was Vice Chairman, Director and Chief Investment
officer of The Prudential Insurance Company of America until his retirement in
November 1984. As Chief Investment officer he was responsible for all of
Prudential's investment in stocks, bonds, private placements, leveraged buyouts,
venture capital, real estate ownership and mortgages. Mr. Hoenemeyer graduated
with a BS in Economics from Xavier University, Cincinnati, Ohio and an MBA from
the Wharton School of the University of Pennsylvania, and joined Prudential in
1947. Under his direction as Chief Investment officer, Prudential built the
world's largest real estate and securities investment portfolio and became a
leader in investments including the purchase and development of real estate,
leveraged buyouts and venture capital.
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
Mr. Hoenemeyer serves on the Boards of American International Group and Mitsui
Trust Bank (U.S.A.) and is formerly a director of Corporate Property Investors,
a private real estate investment trust. He has also been active in community
affairs and at present is Chairman of the Turrell Fund and a Trustee and
Chairman of the Finance Committee of the Robert Wood Johnson Foundation.
Dr. Lawrence R. Klein, age 82, is the Benjamin Franklin Professor Emeritus of
Economics and Finance at the University of Pennsylvania and its Wharton School,
having joined the faculty of the University in 1958. He is a holder of earned
degrees from the University of California at Berkeley, the Massachusetts
Institute of Technology and Oxford and has been awarded the Alfred Nobel
Memorial Prize in Economic Sciences as well as a number of honorary degrees.
Founder of Wharton Econometric Forecasting Associates, Inc. Dr. Klein has been
counselor to various corporations, governments and government agencies,
including the Federal Reserve Board and the President's Council of Economic
Advisers. Dr. Klein joined WPC in 1984, as Chairman of the Economic Policy
Committee and as a director.
Nathaniel S. Coolidge, age 64, former Senior Vice President of John Hancock
Mutual Life Insurance retired in 1995 after 20 years of service. From 1986 to
1995, Mr. Coolidge headed the Bond and Corporate Finance Department, which was
responsible for managing its entire fixed income investments portfolio. Prior to
1986, Mr. Coolidge served as Second Vice President and Senior Investment
officer. Mr. Coolidge is a graduate of Harvard University and served as a U. S.
naval officer.
Ralph F. Verni, age 60, is currently serving on several Boards of Directors,
including our Advisor, Commonwealth Capital, a venture capital Firm and The
MacGregor Group, the leading provider of order management systems and FIX
network services to institutional investors. He also serves on the Advisory
Boards of several start up companies, including Broad Reach Communications and
Execs Only. Starting in 2000, he served as President, CEO and Director of
Redwood Investment Systems, Inc. Redwood, a start-up software Firm, developed
web-based and wireless solutions to help investment professionals tame
information overload. In 2001, Redwood merged into Verilytics, Inc. Prior to
Redwood, Mr. Verni was President and CEO of State Street Research & Management,
MetLife's investment management subsidiary located in Boston. He was also
President and CEO of SSRM Holdings, Inc., an asset management company, and
Chairman of its subsidiary, SSR Realty. Mr. Verni joined State Street Research
in 1992 after serving 10 years as Executive Vice President, Board Member and
Chief Investment officer of The New England Mutual Life Insurance Company. While
at the New England, he founded and served as President and Chief Executive
officer of New England Investment Companies, a holding company of over ten money
management firms. Prior to joining the New England, he spent sixteen years in a
variety of investment management Firms. Prior to joining The New England, he
spent sixteen years in a variety of investment management positions at The
Equitable. Mr. Verni received a BA from Colgate University and an MBA from
Columbia University and is a Chartered Financial Analyst. Mr. Verni also serves
on the Advisory Committee of the MIT Center For Real Estate, the Board of
Trustees of Colgate University, where he also is the Vice-Chairperson of the
Endowment Committee, the Boston Economic Club, and the Commercial Club of
Boston. Mr. Verni has also served as a director of CIP(R), CPA(R):12 and
CPA(R):15 from 2001 to 2003, and as a director of WPC since December 2003.
Dr. Karsten von Koller, age 64, is the former Chairman and Member of the Board
of Managing Directors of Eurohypo AG, the leading commercial real estate
financing company in Europe. Prior to his role as Chairman of Eurohypo AG, from
1984 to 2001, Dr. von Koller was a member of the Board of Managing Directors of
RHEINHYP Rheinische Hypothekenbank AG (Commerzbank group) where he was
responsible for the bank's commercial real estate lending activities outside
Germany. He was an Executive Vice President of BHF_BANK, Frankfurt, and was
responsible for the bank's corporate customer business in northern and western
Germany and in western industrial countries from 1981 to 1984. Before holding
this position, from 1977 through 1980, he served as Senior Vice President and
co-manager of the New York branch of BHF-BANK, Frankfurt. From 1971 through
1976, he served in the syndicated loan and investment banking department of
Berliner Handels-und Frankfurter Bank (BHF-Bank), Frankfurt am Main. Dr. von
Koller studied law at the Universities of Bonn and Munich and is a graduate of
Harvard Business School.
Although CPA(R):16-Global has no employees to whom it pays salaries, it
reimburses WPC for the services of its personnel, including those who serve as
officers of CPA(R):16-Global. Wm. Polk Carey and Gordon F. DuGan serve
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CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
as co-Chief Executive Officers of CPA(R):16-Global. CPA(R):16-Global will
initially reimburse WPC for 5% of their total compensation and benefits received
from WPC. This percentage may be adjusted from year to year.
Item 11. Executive Compensation.
CPA(R):16-Global has no employees. Day-to-day management functions are performed
by WPC or its affiliates. Please see Item 13 for a description of the
contractual arrangements between the CPA(R):16-Global and WPC.
During 2003, the CPA(R):16-Global paid no cash compensation to any of its
executive officers. Wm. Polk Carey and Gordon DuGan did not receive compensation
for serving as directors.
CODE OF ETHICS
CPA(R):16-Global has adopted a code of ethics which applies to its officers and
directors, including its principal executive officers, principal financial
officer and principal accounting officer. A copy of the code of ethics can be
found on WPC's website at http://www.wpcarey.com
Item 12. Security Ownership of Certain Beneficial Owners and Management.
WPC, CPA(R):16-Global's advisor, is the sole shareholder and owns 20,000 shares.
Item 13. Certain Relationships and Related Transactions.
Wm. Polk Carey, Chairman and Co-Chief Executive Officer and Gordon DuGan, Vice
Chairman and Co-Chief Executive Officer are members of the CPA(R):16-Global's
Board of Directors. During 2003, CPA(R):16-Global's advisor, WPC, a Delaware
limited liability company of which Wm. Polk Carey is Chairman of the Board and
Co-Chief Executive Officer and Gordon DuGan is President and Co-Chief Executive
Officer, was retained by CPA(R):16-Global to provide advisory services in
connection with identifying and analyzing prospective property investments as
well as providing day-to-day management services to CPA(R):16-Global. For the
services provided to CPA(R):16-Global, WPC earns an asset management fee and a
performance fee, each equal to a percentage of the average invested assets of
CPA(R):16-Global for the preceding month, payable monthly. The payment of the
performance fee, however, is subordinated to specified returns to shareholders.
During 2003, no fees were incurred.
Item 14. Principal Accountant Fees and Services.
AUDIT FEES
The aggregate fees billed to CPA(R):16-Global by PricewaterhouseCoopers LLP for:
professional services rendered in 2003 for the audit of CPA(R):16-Global's
consolidated financial statements included in this Annual Report on Form 10-K
and other audit services were $153,700. Other audit services include SEC
registration statement review and the related issuance of comfort letters and
consents.
AUDIT RELATED FEES
No audit related fees were billed to CPA(R):16-Global by PricewaterhouseCoopers
LLP for audit related services for the year ended December 31, 2003.
TAX SERVICES FEES
The aggregate fees billed to CPA(R):16-Global by PricewaterhouseCoopers LLP for
tax compliance and consultation services for the year ended December 31, 2003
were $2,200.
-30-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
ALL OTHER FEES
No fees were billed for other services rendered by PricewaterhouseCoopers LLP
for the year ended December 31, 2003. The Audit Committee considered whether the
provision of services described above under "All Other Fees" is compatible with
maintaining PricewaterhouseCoopers LLP's independence.
-31-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
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 Auditors.
Consolidated Balance Sheet at December 31, 2003.
Consolidated Statement of Operations for the period from
inception (June 5, 2003) to December 31, 2003.
Consolidated Statement of Shareholder's Equity for the period
from inception (June 5, 2003) to December 31, 2003.
Consolidated Statement of Cash Flows for the period from
inception (June 5, 2003) to December 31, 2003.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedule:
The following schedules are filed as a part of this Report:
Financial Statement Schedules 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.
-32-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
(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. 333-106838) dated July 3, 2003
3.2 Bylaws of Registrant Exhibit 3.2 to Registration Statement Form
S-11 (No. 333-106838) dated July 3, 2003
4.1 2003 Distribution Reinvestment and Stock Purchase Exhibit 4.1 to Registration Statement Form
Plan of Registrant S-11 (No. 333-106838) dated July 3, 2003
10.1 Selected Dealer Agreement Exhibit 10.1 to Registration Statement
Form S-11 (No. 333-106838) dated July 3,
2003
10.2 Escrow Agreement Exhibit 10.2 Registration Statement Form
S-11 (No. 333-106838) dated July 3, 2003
10.3 Selected Investment Advisor Agreement Exhibit 10.3 to Registration Statement
Form S-11 (No. 333-106838) dated July 3,
2003
10.4 Sales Agency Agreement Exhibit 10.4 to Registration Statement
Form S-11 (No. 333-106838) dated July 3,
2003
10.5 Advisory Agreement Exhibit 10.5 to Registration Statement
Form S-11 (No. 333-106838) dated July 3,
2003
10.6 Wholesaling Agreement Exhibit 10.6 to Registration Statement
Form S-11 (No. 333-106838) dated July 3,
2003
21.1 Subsidiaries Filed herewith
23.1 Consent of PricewaterhouseCoopers LLP Filed Herewith
31.1 Rule 15d-14(a) Certification of Co-Chief Executive Filed Herewith
Officers
31.2 Rule 15d-14(a) Certification of Chief Financial Filed Herewith
Officer
32.1 Section 1350 Certification of Co-Chief Executive Filed Herewith
Officers
32.2 Section 1350 Certification of Chief Financial Officer Filed Herewith
(b) Reports on Form 8-K
During the quarter ended December 31, 2003 the Registrant was not
required to file any reports on Form 8-K.
-33-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
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 16-GLOBAL INCORPORATED
a Maryland corporation
3/23/04 BY: /s/ John J. Park
- --------------- ------------------------------------
Date John J. Park
Managing Director and Chief 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 16-GLOBAL INCORPORATED
3/23/04 BY: /s/ William Polk Carey
- -------------- ------------------------------------
Date William Polk Carey
Chairman of the Board Co-Chief Executive Officer
and Director
3/23/04 BY: /s/ Gordon F. DuGan
- -------------- ------------------------------------
Date Gordon F. DuGan
Vice Chairman of the Board, Co-Chief Executive
Officer, and Senior Managing Director
3/23/04 BY: /s/ Thomas E. Zacharias
- -------------- ------------------------------------
Date Thomas E. Zacharias
President
3/23/04 BY: /s/ Francis X. Diebold III
- -------------- ------------------------------------
Date Francis X. Diebold III
Director
3/23/04 BY: /s/ Elizabeth P. Munson
- -------------- ------------------------------------
Date Elizabeth P. Munson
Director
3/23/04 BY: /s/ Warren G. Wintrub
- -------------- ------------------------------------
Date Warren G. Wintrub
Director
3/23/04 BY: /s/ John J. Park
- -------------- ------------------------------------
Date John J. Park
Managing Director and Chief Financial Officer
3/23/04 BY: /s/ Claude Fernandez
- -------------- ------------------------------------
Date Claude Fernandez
Managing Director and Chief Accounting Officer
-34-
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 16-GLOBAL INCORPORATED
2003 ANNUAL REPORT
SELECTED FINANCIAL DATA
(In thousands except per share and share amounts)
2003 (1)
OPERATING DATA:
Revenues $ -
Net loss $(41,651)
Basic loss per share $ (2.08)
Dividends declared per share N/A
Weighted average shares outstanding - basic 20,000
BALANCE SHEET DATA:
Total assets $1,230,244
Long-term obligations N/A
(1) For the period from inception (June 5, 2003) through December 31, 2003.
-1-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The following discussion and analysis of financial condition and results of
operations of Corporate Property Associates 16-Global Incorporated
("CPA(R):16-Global") should be read in conjunction with the consolidated
financial statements and notes thereto for thE period from inception (June 5,
2003) to December 31, 2003. 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):16-Global.
Forward-looking statements discuss matters that are not historical facts.
Because they discuss future events or conditions, forward-looking statements may
include words such as "anticipate", "believe", "expect", "estimate", "intend",
"could", "should", "would", "may", or similar expressions. Do not unduly rely on
forward looking statements. They give CPA(R):16-Global's expectationS about the
future and are not guarantees, and speak only as of the date they are made. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievement of CPA(R):16-Global to
bE materially different from the results of operations or plan 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 CPA(R):16-Global that the results
or conditions described in such statements or objectives and plans oF
CPA(R):16-Global will be achieved.
CPA(R):16-Global was formed in June 2003 and will be using the proceeds from its
initial public offering of its common stock along witH limited recourse mortgage
financing to purchase properties and in most cases enter into long-term net
leases with corporate lessees. In December 2003, CPA(R):16-Global commenced a
"best efforts" public offering to raise up to $1,100,000,000. CPA(R):16-Global
intends TO structure its 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. When possible,
CPA(R):16-Global expects to negotiate guarantees of thE lease obligations from
parent companies. CPA(R):16-Global expects to negotiate leases that may provide
for periodic rent increases thaT are stated or based on increases in the
Consumer Price Index or, for retail properties, may provide for additional rents
based on sales in excess of a specified base amount. CPA(R):16-Global may also
acquire interests in real estate through joint ventures witH affiliates who have
similar investment objectives as CPA(R):16 - Global. 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.
CPA(R):16-Global intends to qualify as a real estate investment trust ("REIT")
for federal income tax purposes for the year endeD December 31, 2003. If
CPA(R):16-Global qualifies as a REIT, it will not be subject to federal income
taxes on amounts distributed tO shareholders provided CPA(R):16-Global meets
certain conditions including distributing at least 90% of its REIT taxable
income tO stockholders. CPA(R):16-Global's objectives are to pay quarterly
distributions at an increasing rate, to increase equity iN CPA(R):16-Global's
real estate through regular mortgage principal payments and to own a diversified
portfolio of net-leased real estatE that will increase in value.
CPA(R):16-Global is advised by W. P. Carey & Co. LLC ("WPC"), an affiliate,
pursuant to an Advisory Agreement. CPA(R):16-GlobaL'S contract with WPC is
renewable annually by independent directors who are elected by
CPA(R):16-Global's shareholders. In connection witH each renewal, WPC 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 the
asset management fee, be based on the results of these independent valuations.
Until the initial valuation is performed, the fee is based on the cost of the
properties.
Results of Operations
For the period ended December 31, 2003, CPA(R):16-Global incurred a net loss of
$41,651. CPA(R):16-Global is newly formed and has NO revenues for the period
from inception (June 5, 2003) through December 31, 2003. CPA(R):16-Global
incurred certain expenses relatinG primarily to general and administrative
expenses. The results are not expected to be representative of future periods as
proceeds from the public offering and limited
-2-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
recourse mortgage financing will be used to purchase investments in real estate
and the asset base should increase substantially.
In December 2003, CPA(R):16-Global purchased an interest in a net lease
transaction with an affiliate which is being accounted foR under the equity
method of accounting. The initial investment in the equity interest was de
minimus; however, CPA(R):16-Global has aN obligation to increase its ownership
interest up to 75% subject to (i) CPA(R):16-Global raising at least $50,000,000
in net proceedS with respect to its initial public offering and (ii) the
approval by the Boards of Directors (including a majority of the independent
directors) of both CPA(R):16-Global and the affiliate. As of March 3, 2004,
CPA(R):16-Global had raised in excess of $60,000,000. IF approved by the
respective Boards of Directors, CPA(R):16-Global intends to make the additional
acquisition in 2004, and the purchasE price of the additional interest in this
facility will be based on CPA(R):16-Global's proportional share of the total
equity in thE investment and subject to any changes in the appraised value of
the properties.
The property is net leased to Actuant Corporation and GB Tools and Supplies,
Inc. The initial term of the lease is 17 years, followed by two 5-year renewal
terms. The initial aggregate annual rent under the lease is (euro)1,306,500
($1,639,900), payABLE quarterly in advance in equal installments of
(euro)326,625 ($409,975 based on the exchange rate at December 31, 2003). The
lease provIDES rent to be increased annually based on a formula indexed to
increases in the German Consumer Price Index, capped at 3.75%. It is anticipated
that limited recourse mortgage financing of approximately (euro)9,300,000
($11,364,600), will be placed on the property aT AN annual debt service of
(euro)865,000 ($1,057,000). If CPA(R):16-Global increases its ownership interest
to 75%, its share of casH FLOW (rent less debt service) from the investment will
be approximately $437,175.
CPA(R):16-Global anticipates making substantial investments in net lease real
estate over the next several years. As the asset basE increases, revenues and
expenses will increase substantially.
Financial Condition
For the period ended December 31, 2003, $30,238 of net cash was used in
operating activities as CPA(R):16-Global did not have anY revenue.
CPA(R):16-Global projects that it will generate substantial net cash from
operations in future periods. Cash provided froM financing activities consisted
of $200,000 received in connection with the initial capitalization of
CPA(R):16-Global by WPC.
In 2003, CPA(R):16-Global commenced a "best efforts" public offering of stock to
sell up to 110,000,000 shares of common stock at aN offering price of $10 per
share. From January 1, 2004 through March 18, 2004, 6,386,336 shares
($63,736,705) have been issued. CPA(R):16-Global intends to use these proceeds,
net of the costs of raising capital and establishing and maintaining cash
balanceS necessary to support operations, along with limited recourse mortgage
financing to purchase properties. CPA(R):16-Global intends tO obtain limited
recourse financing equal to approximately 50% to 60% of the purchase cost for
its domestic properties and 75% for its foreign properties. CPA(R):16-Global
will use limited recourse financing as a substantial portion of its long-term
financing because A lender of a limited recourse mortgage loan has recourse only
to the properties collateralizing its loan and not to any of CPA(R):16-Global's
other assets. CPA(R):16-Global does not currently plan on seeking additional
sources of financing such as an unsecuRED line of credit; however, its financing
strategies could change in the future. CPA(R):16-Global anticipates that its
cash floW generated from operations and equity investments will meet its
liquidity requirements. There is no assurance that the offering will be fully
subscribed. One of CPA(R):16-Global's objectives is to fully fund dividends at
an increasing rate and principal payments oN limited recourse mortgage debt from
its cash flow from operations and equity investments. As CPA(R):16-Global raises
additionaL capital and invests such proceeds in real estate, cash flow from
operations and dividends will increase substantially.
Critical Accounting Estimates
As CPA(R):16-Global purchases investments in real estate, CPA(R):16-Global will
make certain judgments and use certain estimates AND assumptions when applying
accounting principles generally accepted in the United States of America in the
preparation of its consolidated financial statements that affect the reported
amount of assets,
-3-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
liabilities, revenues and expenses. CPA(R):16-GlobaL believes its most critical
accounting estimates will relate to its provision for uncollected amounts from
lessees, potential impairment of assets, identification of discontinued
operations, classification of real estate assets, determining the fair value of
assets and liabilities which are "marked to market" but not actively traded in a
public market and determining the interest to be capitalized in connection with
real estate under construction. CPA(R):16-Global's significant accounting
policies are described in the notes to the consolidated financial statements.
Certain policies, while significant, may not require the use of estimates.
CPA(R):16-Global must assess its ability to collect rent and other tenant-based
receivables and determine an appropriate charge for uncollected amounts. Because
CPA(R):16-Global's real estate operations will 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):16-Global expects to
recognize a provision for uncollected rents which will likely range between
0.25% and 1% of lease revenues (rental income and interest income from direct
financing leases) and will measure its allowance against actual rent arrearages
and adjust the percentage applied. For amounts in arrears, Management will make
subjective judgments based on its knowledge of a lessee's circumstances and may
reserve for the entire receivable amount from a lessee because there has been
significant or continuing deterioration in the lessee's ability to meet its
lease obligations.
Operating real estate will be stated at cost less accumulated depreciation.
Costs directly related to build-to-suit projects, primarily interest, if
applicable, will be capitalized. CPA(R):16-Global 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):16-Global will allocate 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):16-Global
will determine an interest rate to be applied for capitalizing interest based on
an average rate on its outstanding limited recourse mortgage debt.
CPA(R):16-Global will classify its directly-owned leased assets for financial
reporting purposes as either real estate leased under the operating method or
net investment in direct financing leases at the inception of a lease 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):16-Global will use 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):16-Global's leases will not necessarily differ 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. Assets classified as direct financing leases are not depreciated
and, therefore, the classification of assets may have a significant impact on
net income even though it has no effect on cash flows.
CPA(R):16-Global will also use 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 will
perform 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):16-Global's investment objective is to
hold properties on a long-term basis, holding periods will range from five to
ten years. In its evaluations, CPA(R):16-Global will 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
-4-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
estimated cash flow projected in the evaluation of long-lived assets can vary
within a range of outcomes. Because CPA(R):16-Global's properties will be leased
to single tenants, CPA(R):16-Global is more likely to incur significant
writedowns when circumstances affecting a tenant deteriorate because of the
possibility that a property will be vacated in its entirety. This makes the risk
different than 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):16-Global will perform a review of its
estimated residual value of properties at least annually to determine whether
there has been an other than temporary decline in CPA(R):16-Global's current
estimate of residual value of the underlying real estate assets of direct
financing leases. If the review indicates a decline in residual values that is
other than temporary, a loss will be recognized and the accounting for the
direct financing lease will be revised using the changed estimate, that is, a
portion of the future cash flow from the lessee will be recognized as a return
of principal rather than as revenue. While an evaluation of potential impairment
of real estate accounted for under the accounting method is determined by a
change in circumstances, the evaluation of a direct financing can be affected by
changes in long-term market conditions even though the obligations of the lessee
are being met. Changes in circumstances include, but are not limited to, vacancy
of a property not subject to a lease and termination of a lease.
CPA(R):16-Global may also assess properties for impairment because it expects a
lease not to be renewed and the lease is within one or two years of its
expiration, a lessee is experiencing financial difficulty and Management expects
that there is a reasonable probability that the lease will be terminated in a
bankruptcy organization or a property remains vacant for a period that exceeds
the period anticipated in a prior impairment evaluation.
When an asset is identified by management as held for sale, CPA(R):16-Global
will discontinue depreciating the asset and estimate the sales price, net of
selling costs, of such asset. If in Management's opinion, the net sales price of
the asset, which has been identified for sale, is less than the net book value
of the asset, an impairment charge is recognized, and a valuation allowance is
established. To the extent that a purchase and sale agreement has been entered
into, the allowance is based on the negotiated sales price. To the extent that
CPA(R):16-Global has adopted a plan to sell an asset but has not entered into a
sales agreement, it will make judgments of the net sales price based on current
market information. Accordingly, the initial assessment may be greater or less
than the purchase price subsequently committed to and may result in a further
adjustment to the fair value of the property. If circumstances arise that
previously were considered unlikely and, as a result, CPA(R):16-Global 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) its carrying amount before the
property 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, (b) the fair value at the date of the subsequent decision not to
sell, or (c) the current carrying value.
CPA(R):16-Global will measure derivative instruments, including certain
derivative instruments embedded in other contracts, if any, at fair value and
record them as an asset or liability, depending on CPA(R):16-Global's right or
obligations under the applicable derivative contract. For derivatives designated
as fair value hedges, the changes in the fair value of both the derivative
instrument and the hedged item will be recorded in earnings (i.e., the
forecasted event occurs). For derivatives designated as cash flow hedges, the
effective portions of the derivatives will be reported in other comprehensive
income and are subsequently reclassified into earnings when the hedged item
affects earnings. Changes in the fair value of derivative instruments not
designated as hedging and ineffective portions of hedges will be recognized in
earnings in the affected period. To determine the value of warrants for common
stock which are classified as derivatives, various estimates are included in the
options pricing model used to determine the value of a warrant.
In connection with the acquisition of properties, purchase costs will be
allocated to the tangible and intangible assets and liabilities acquired based
on their estimated fair values. The value of the tangible assets, consisting of
land, buildings and tenant improvements, will be determined as if vacant.
Intangible assets including the above-market or below-market value of leases,
the value of in-place leases and the value of tenant relationships will be
recorded at their relative fair values.
-5-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
The value attributed to tangible assets will be determined in part using a
discount cash flow model which is intended to approximate what a third party
would pay to purchase the property as vacant and rent at "market" rates. In
applying the model, CPA(R):16-Global will assume that the disinterested party
would sell the property at the end of a market lease term. Assumptions used in
the model are property-specific as it is available; however, when certain
necessary information isn't available, CPA(R):16-Global will use available
regional and property-type information. Assumptions and estimates include a
discount rate or internal rate of return, marketing period necessary to put a
lease in place, carrying costs during the marketing period, leasing commissions
and tenant improvements allowances, market rents and growth factors of such
rents, market lease term and a cap rate to be applied to an estimate of market
rent at the end of the market lease term.
Above-market and below-market leases intangibles will be based on the difference
between the market rent and the contractual rents and will be discounted to a
present value using an interest rate reflecting CPA(R):16-Global's assessment of
the risk associated with the lease acquired. CPA(R):16-Global will acquire
properties subject to net leases and will consider the credit of the lessee in
negotiating the initial rent.
The total amount of other intangible assets will be allocated to in-place lease
values and tenant relationship intangible values based on CPA(R):16-Global's
evaluation of the specific characteristics of each tenant's lease and
CPA(R):16-Global's overall relationshiP with each tenant. Characteristics
CPA(R):16-Global will consider in allocating these values include the nature and
extent of the existing relationship with the tenant, prospects for developing
new business with the tenant, the tenant's credit quality and the expectation of
lease renewals among other factors. The aggregate value of other intangible
assets acquired will be measured based on the difference between (i) the
property valued with an in-place lease adjusted to market rental rates and (ii)
the property valued as if vacant. Independent appraisals or CPA(R):16-Global's
estimates will be used to determine these values.
Factors to be considered in valuing other intangible assets include the
estimated carrying costs of the property during a hypothetical expected lease-up
period, current market conditions and costs to execute similar leases. Estimated
carrying costs will include real estate taxes, insurance, other property
operating costs and estimates of lost rentals at market rates during the
hypothetical expected lease-up periods, based on assessments of specific market
conditions. Estimated costs to execute leases include commissions and legal
costs to the extent that such costs are not already incurred with a new lease
that has been negotiated in connection with the purchase of the property.
For further information on CPA(R):16-Global's accounting policies see the notes
to the consolidated financial statements.
Accounting Pronouncements
In November 2002, the FASB ("Financial Accounting Standards Board") 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):16-Global 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 adoption of the
accounting provisions of FIN 45 did not have a material effect on
CPA(R):16-Global's financial statements.
In December 2002, the FASB issued SFAS ("Statement of Financial Accounting
Standards") 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
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
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 for valuing stock-based compensation of SFAS No. 148 are
to be applied for fiscal years ending after December 15, 2002. CPA(R):16-Global
does not have any employees nor any stock-based compensation plans.
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"). In December 2003, the FASB issued a revised FIN 46
which modifies and clarifies various aspects of the original Interpretation. FIN
46 applies when either (1) the equity investors (if any) lack one or more of the
essential characteristics of controlling financial interest, (2) the equity
investment at risk is insufficient to finance that entity's activities without
additional subordinated financial support or (3) the equity investors have
voting rights that are not proportionate to their economic interest. In addition
FIN 46 requires additional disclosures.
FIN 46 is effective immediately for VIEs created after January 31, 2003, and to
VIEs in which an enterprise obtains an interest after that date. For variable
interests in a VIE created or obtained prior to February 1, 2003, FIN 46 is
effective for periods ending after March 15, 2004.
CPA(R):16-Global has evaluated the potential impact and believes this
interpretation will not have a material impact on its accounting for its
investments in unconsolidated joint ventures as none of these investments are
VIEs. CPA(R):16-Global's maximum loss exposure is the carrying value of its
equity investments.
On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging under SFAS No. 133. The
statement (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative instrument discussed in
paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a
financing component, (3) amends the definition of an underlying to conform it to
language used in FIN 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others", and (4)
amends certain other existing pronouncements. SFAS No. 149 is generally
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No.
149 did not have a material effect on the financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). In particular, it requires
that mandatorily redeemable financial instruments be classified as liabilities
and reported at fair value and that changes in their fair values be reported as
interest cost.
This statement was effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for CPA(R):16-Global as of July
1, 2003. On November 7, 2003, the FASB indefinitely deferred the classification
and measurement provisions of SFAS No. 150 as they apply to certain mandatorily
redeemable non-controlling interests. This deferral is expected to remain in
effect while these provisions are further evaluated by the FASB. Based on the
FASB's deferral of this provision, the adoption of SFAS No. 150 did not have a
material effect on CPA(R):16-Global's financial statements.
-7-
REPORT of INDEPENDENT AUDITORS
To the Board of Directors and Shareholder of
Corporate Property Associates 16-Global Incorporated:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholder's equity and cash flows
present fairly, in all material respects, the financial position of Corporate
Property Associates 16-Global Incorporated at December 31, 2003, and the results
of its operations and its cash flows for the period from inception (June 5,
2003) to December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of W. P. Carey & Co. LLC (the "Advisor"); our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit 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 the Advisor, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 22, 2004
-8-
CORPORATE PROPERTY ASSOCIATES 16-GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEET
December 31, 2003
ASSETS:
Cash $169,762
Equity investments 1,678
Deferred offering costs 1,028,804
Due from affiliates 30,000
----------
Total assets $1,230,244
==========
LIABILITIES AND SHAREHOLDER'S EQUITY:
Liabilities:
Due to affiliates $1,044,473
Accounts payable and accrued expenses 27,422
----------
Total liabilities $1,071,895
----------
Commitments and contingencies
Shareholder's equity:
Common stock, $.001 par valued; 20,000 shares issued and outstanding 20
Additional paid-in capital 199,980
Accumulated loss (41,651)
----------
Total shareholder's equity 158,349
----------
Total liabilities and shareholder's equity $1,230,244
==========
The accompanying notes are an integral part of the consolidated financial
statements.
-9-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
For the period from inception (June 5, 2003) to December 31, 2003
Revenues: $ -
--------
Expenses:
General and administrative expenses $ 41,660
--------
Loss before income from equity investments (41,660)
Income from equity investments 9
--------
Net loss $(41,651)
========
Basic loss per share: $ (2.08)
========
Weighted average shares outstanding - basic 20,000
========
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
For the period from inception (June 5, 2003) to December 31, 2003
Common Additional Accumulated
stock paid-in capital loss Total
----- --------------- ---- -----
20,000 shares issued $.001 par,
at $10 per share $20 $199,980 $ 200,000
Net loss $(41,651) (41,651)
--- -------- -------- ---------
$20 $199,980 $(41,651) $ 158,349
=== ======== ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
-10-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from inception (June 5, 2003) to December 31, 2003
Cash flows from operating activities:
Net loss $(41,651)
Increase in due from affiliates (30,000)
Increase in accounts payable and accrued expenses 27,422
Increase in due to affiliates 14,000
Equity income in excess of distributions (9)
--------
Net cash used in operating activities (30,238)
--------
Cash flows from financing activities:
Proceeds from stock issuance 200,000
--------
Net cash provided by financing activities 200,000
--------
Net increase in cash and cash equivalents 169,762
Cash and cash equivalents, beginning of period -
--------
Cash and cash equivalents, end of period $169,762
========
(a) Net increase in deferred offering costs and due to affiliates excludes
amounts related to the raising of capital (financing activities) pursuant
to the Company's public offering. At December 31, 2003, the amount due to
the Company's advisor for such costs was $1,028,804.
(b) The net increase in due to affiliates also excludes the amount used to
purchase an interest in an equity investment (investing activities). An
affiliate, Corporate Property Associates 15 Incorporated, has advanced
$1,669 on behalf of the Company.
The accompanying notes are an integral part of the consolidated financial
statements.
-11-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Offering:
Corporate Property Associates 16-Global Incorporated, a Maryland
corporation (the "Company"), was formed on June 5, 2003 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
W. P. Carey & Co. LLC (the "Advisor").
On June 12, 2003, the Advisor purchased 20,000 shares of common stock
for $200,000 as the initial shareholder of the Company.
A maximum of 110,000,000 shares of common stock are being offered to
the public (the "Offering") on a "best efforts" basis by Carey
Financial Corporation ("Carey Financial"), a wholly-owned subsidiary of
the Advisor, and selected other dealers at a price of $10 per share.
From January through March 18, 2004, the Company issued 6,386,336
shares ($63,736,705) pursuant to its offering. The Company intends to
invest the net proceeds of the Offering in properties, as described in
the prospectus of the Company (the "Prospectus").
2. Summary of Significant Accounting Policies:
Basis of Consolidation:
The consolidated financial statements include the accounts of
the Company, and its wholly-owned subsidiaries. The Company is
not the primary beneficiary of any variable interest entity. 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, classification of real estate
leased to others and identification of any intangible assets
identified in connection with asset acquisitions. Actual results
could differ from those estimates.
Real Estate Leased to Others:
The Company intends to lease real estate to others on a net
lease basis, whereby the tenant is generally responsible for all
operating expenses relating to the property, including property
taxes, insurance, maintenance, repairs, renewals and
improvements. Expenditures for maintenance and repairs including
routine betterments will be charged to operations as incurred.
Significant renovations, which increase the useful life of the
properties, will be capitalized.
The Company intends to diversify its real estate investments
among various corporate tenants engaged in different industries,
by property type and geographically.
-12-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The leases will be 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 the
net investment in direct financing leases will be 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.
In connection with the Company's anticipated acquisition of
properties, purchase costs will be allocated to the tangible and
intangible assets and liabilities acquired based on their
estimated fair values. The value of the tangible assets,
consisting of land, buildings and tenant improvements, will be
determined as if vacant. Intangible assets including the
above-market or below-market value of leases, the value of
in-place leases and the value of tenant relationships will be
recorded at their relative fair values.
Above-market and below-market in-place lease values for owned
properties will be recorded based on the present value (using an
interest rate reflecting the risks associated with the leases
acquired) of the difference between (i) the contractual amounts
to be paid pursuant to the leases negotiated and in-place at the
time of acquisition of the properties and (ii) management's
estimate of fair market lease rates for the property or
equivalent property, measured over a period equal to the
remaining non-cancelable term of the lease. The capitalized
above-market lease value will be amortized as a reduction of
rental income over the remaining non-cancelable term of each
lease. The capitalized below-market lease value will be
amortized as an increase to rental income over the initial term
and any fixed rate renewal periods in the respective leases.
The total amount of other intangible assets will be allocated to
in-place lease values and tenant relationship intangible values
based on management's evaluation of the specific characteristics
of each tenant's lease and the Company's overall relationship
with each tenant. Characteristics considered in allocating these
values include the nature and extent of the existing
relationship with the tenant, prospects for developing new
business with the tenant, the tenant's credit quality and the
expectation of lease renewals among other factors. The aggregate
value of other intangible assets acquired will be measured based
on the difference between (i) the property valued with an
in-place lease adjusted to market rental rates and (ii) the
property valued as if vacant. Independent appraisals or
management's estimates will be used to determine these values.
Factors to be considered in the analysis include the estimated
carrying costs of the property during a hypothetical expected
lease-up period, current market conditions and costs to execute
similar leases. The Company will also consider information
obtained about a property in connection with its pre-
-13-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
acquisition due diligence. Estimated carrying costs will include
real estate taxes, insurance, other property operating costs and
estimates of lost rentals at market rates during the
hypothetical expected lease-up periods, based on management's
assessment of specific market conditions. Estimated costs to
execute leases, including commissions and legal costs to the
extent that such costs are not already incurred with a new lease
that has been negotiated in connection with the purchase of the
property, will also be considered.
The value of in-place leases will be amortized to expense over
the remaining initial term of each lease. The value of tenant
relationship intangibles will be amortized to expense over the
initial and renewal terms of the leases but no amortization
period for intangible assets will exceed the remaining
depreciable life of the building.
For properties to be constructed, operating expenses including
interest charges will be capitalized rather than expensed and
rentals received will be recorded as a reduction of capitalized
project (i.e., construction) costs.
Substantially all of the Company's leases will provide for
either scheduled rent increases, periodic rent increases based
on formulas indexed to increases in the Consumer Price Index
("CPI") or sales overrides. Rents from sales overrides
(percentage of sales rent) will be recognized as reported by
lessees, that is, after the level of sales requiring a rental
payment to the Company is reached.
Assets Held For Sale:
Assets held for sale will be accounted for at the lower of
carrying value or fair value, less costs to dispose. Assets are
classified as held for sale when the Company has committed to a
plan to actively market a property for sale and expects that a
sale will be completed within one year.
If circumstances arise that previously were considered unlikely
and, as a result, the Company 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) its
carrying amount before the property 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, (b) the fair value at the date of the subsequent
decision not to sell, or (c) the current carrying value.
The Company will recognize gains and losses on the sale of
properties when, among other criteria, the parties are bound by
the terms of the contract, all consideration has been exchanged
and all conditions precedent to closing have been performed. At
the time the sale is consummated, a gain or loss will be
recognized as the difference between the sale price less any
closing costs and the carrying value of the property.
Depreciation:
Depreciation will be computed using the straight-line method
over the estimated useful lives of the properties - generally 40
years. Depreciation of tenant improvements will be computed
using the straight-line method over the remaining term of the
leases.
Equity Investments:
For any investments in which the Company's interests in entities
in which the entity is not considered to be a Variable Interest
Entity ("VIE"), the Company is not deemed to be the primary
beneficiary and the Company's ownership is 50% or less, and has
the ability to exercise significant
-14-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
influence 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 at December 31, 2003 were held in the
custody of one financial institution, and which balance at times
exceeds federally insurable limits. The Company mitigates this
risk by depositing funds with major financial institutions.
Foreign Currency Translation:
The Company intends to make foreign investments outside of the
United States in which the functional currency will not be in
the U.S. Dollar. The translation from currencies other than the
U.S. Dollar will be performed for assets and liabilities using
current exchange rates in effect at the balance sheet date and
revenues and expense accounts using a weighted average exchange
rate. The gains and losses resulting from such translation will
be reported as a component of other comprehensive income as part
of shareholder's equity.
Foreign currency transactions may produce receivables or
payables that are fixed in terms of the amount of foreign
currency that will be received or paid. A change in the exchange
rates between the functional currency and the currency in which
a transaction is denominated increases or decreases the expected
amount of functional currency cash flows upon settlement of that
transaction. That increase or decrease in the expected
functional currency cash flows is a foreign currency transaction
gain or loss that generally will be included in determining net
income for the period in which the exchange rate changes.
Likewise, a transaction gain or loss (measured from the
transaction date or the most recent intervening balance sheet
date) whichever is later, realized upon settlement of a foreign
currency transaction generally will be included in net income
for the period in which the transaction is settled. Foreign
currency transactions that are (i) designated as, and are
effective as, economic hedges of a net investment and (ii)
intercompany foreign currency transactions that are of a
long-term nature (that is, settlement is not planned or
anticipated in the foreseeable future), when the entities to the
transactions are consolidated or accounted for by the equity
method in the Company's financial statements will not be
included in determining net income but will be accounted for in
the same manner as foreign currency translation adjustments and
reported as a component of other comprehensive income as part of
shareholder's equity.
Marketable Securities:
Marketable securities will be classified as available for sale
securities and reported at fair value with the Company's
interest in unrealized gains and losses on these securities
reported as a component of other comprehensive income until
realized.
Costs of Raising Capital:
Costs incurred in connection with the raising of capital through
the sale of common stock are charged to shareholder's equity
upon the issuance of shares.
-15-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Operating Segments
Accounting standards have been established for the way public
business enterprises report selected information about operating
segments and guidelines for defining the operating segment of an
enterprise. The Company expects to report its real estate
operations both domestically and internationally.
Income Taxes:
During 2003, the Company has elected C-Corp status and will file
separate federal, state and local income tax returns. The
Company intends to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, and
accordingly will not be subject to Federal income taxes on
amounts distributed to shareholders, provided it distributes at
least 90% of its REIT taxable income to its shareholders and
meets certain other conditions.
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 consolidated
financial statements.
Accounting Pronouncements:
In November 2002, the FASB ("Financial Accounting Standards
Board") 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 adoption of the accounting
provisions of FIN 45 did not have a material effect on the
Company's financial statements.
In December 2002, the FASB issued SFAS ("Statement of Financial
Accounting Standards") 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 for valuing stock-based compensation 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.
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
-16-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
entities" or "VIEs") and to determine when and which business
enterprise should consolidate the VIE (the "primary
beneficiary"). In December 2003, the FASB issued a revised FIN
46 which modifies and clarifies various aspects of the original
Interpretation. FIN 46 applies when either (1) the equity
investors (if any) lack one or more of the essential
characteristics of controlling financial interest, (2) the
equity investment at risk is insufficient to finance that
entity's activities without additional subordinated financial
support or (3) the equity investors have voting rights that are
not proportionate to their economic interest. In addition FIN 46
requires additional disclosures.
FIN 46 is effective immediately for VIEs created after January
31, 2003, and to VIEs in which an enterprise obtains an interest
after that date. For variable interests in a VIE created or
obtained prior to February 1, 2003, FIN 46 is effective for
periods ending after March 15, 2004.
The Company has evaluated the potential impact and believes this
interpretation will not have a material impact on its accounting
for its investments in unconsolidated joint ventures as none of
these investments are VIEs. The Company's maximum loss exposure
is the carrying value of its equity investments.
On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities."
SFAS No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded
in other contracts, and for hedging under SFAS No. 133. The
statement (1) clarifies under what circumstances a contract with
an initial net investment meets the characteristics of a
derivative instrument discussed in paragraph 6(b) of SFAS No.
133, (2) clarifies when a derivative contains a financing
component, (3) amends the definition of an underlying to conform
it to language used in FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", and (4) amends certain
other existing pronouncements. SFAS No. 149 is generally
effective for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30,
2003. The adoption of SFAS No. 149 did not have a material
effect on the financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity." SFAS No. 150 establishes standards for
the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some
circumstances). In particular, it requires that mandatorily
redeemable financial instruments be classified as liabilities
and reported at fair value and that changes in their fair values
be reported as interest cost.
This statement was effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective
for the Company as of July 1, 2003. On November 7, 2003, the
FASB indefinitely deferred the classification and measurement
provisions of SFAS No. 150 as they apply to certain mandatorily
redeemable non-controlling interests. This deferral is expected
to remain in effect while these provisions are further evaluated
by the FASB. Based on the FASB's deferral of this provision, the
adoption of SFAS No. 150 did not have a material effect on the
Company's financial statements.
2. Agreements and Transactions with Related Parties:
Pursuant to the Advisory Agreement, the Advisor will perform certain
services for the Company including the identification, evaluation,
negotiation, purchase and disposition of property, the day-to-day
management of the Company and the performance of certain administrative
duties. The Advisory Agreement between the Company and the Advisor
provides that the Advisor will receive asset management and performance
fees, each of which are 1/2 of 1% of Average Invested Assets, as
defined in the Advisory
-17-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Agreement. The performance fee is subordinated to the Preferred Return,
as defined in the Advisory Agreement. The asset management and
performance fees will be payable in cash or restricted stock at the
option of the Advisor. In connection with the day-to-day operations,
the Advisor will also be reimbursed for the actual cost of personnel
needed to provide administrative services to the operation of the
Company. There were no asset management fees, performance fees or
general and administrative reimbursements incurred by the Company in
2003.
The Company will be 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. The Company's share of rental occupancy and leasehold costs will
be based on its share of gross revenues of the participants in the
agreement.
In connection with structuring and negotiating acquisitions and related
mortgage financing on behalf of the Company, the Advisory Agreement
provides for acquisition fees of not more than 4.5%, based on the
aggregate cost of properties acquired of which 2% will be deferred and
payable in equal annual installment over three years with payment
subordinated to the Preferred Return. Unpaid installments bear interest
at an annual rate of 5%. The acquisition fees will be payable in cash
or restricted stock at the option of the Advisor.
In connection with the disposition of properties, the Company will
incur a subordinated disposition fee which will be the lesser of (i)
50% of the competitive real estate commission and (ii) 3% of the sales
price of the property. The subordinated disposition fee is not payable
unless or until shareholders have received a return of 100% of their
initial investment plus a 6% non-compounded cumulative annual
distribution return.
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 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 a limited partnership interest in a partnership, with
the remaining interest held by an affiliate (see Note 4).
3. Commitments and Contingencies:
The Company will be 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 has entered into a sales agency
agreement with Carey Financial, whereby Carey
-18-
CORPORATE PROPERTY ASSOCIATES 16 - GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Financial will receive a selling commission of up to $0.65 per share
sold and certain other payments. The Company will reimburse Carey
Financial for expenses (including fees and expenses of its counsel) and
for the costs of any sales and information meetings of Carey
Financial's employees relating to the Offering. The total underwriting
compensation to Carey Financial and other dealers in connection with
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 (ii) the total
underwriters compensation which exceeds 10% of the gross proceeds of
the offering and (iii) 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. At December 31, 2003, such costs due to the Advisor
totaled $1,028,804. At December 31, 2003, no reimbursements have been
paid to the Advisor.
4. Acquisitions of Real Estate Interests:
The Company has acquired, through a subsidiary, a 0.01% interest with
the remaining 99.99% interest owned by Corporate Property Associates 15
Incorporated ("CPA(R):15"), an affiliate, a property in Kahl am Main,
Germany for $16,090,366 ((euro)13,724,681) and entered into a net lease
with Actuant Corporation ("Actuant") and GB Tools and Supplies, Inc.
("GB"). The Company has an obligation to purchase, on or before
December 31, 2005, up to a 75% interest in the facility from CPA(R):15,
subject to (i) the Company raising at least $50,000,000 in net proceeds
with respect to its initial public offering and (ii) the approval by
the Boards of Director (including a majority of the independent
directors) of both the Company and CPA(R):15. As of March 3, 2004, the
Company had raised in excess of $60,000,000.
The initial term of the lease is 17 years, followed by two 5-year
renewal terms at the option of Actuant and GB. The initial aggregate
annual rent under the lease is (euro)1,306,500 ($1,640,572 using the
December 31, 2003 exchange rate) with annual rent increases based on a
formula indexed to increases in the German Consumer Price Index capped
at 3.75%.
Summarized combined financial information of the equity investee is as
follows:
(in thousands) December 31, 2003
-----------------
Assets (primarily real estate) $17,574,674
Liabilities 634,812
Partners' equity 16,939,862
For the period from
acquisition (December 11,
2003) through
December 31, 2003
-----------------
Revenues (primarily rental revenues) $93,097
-------
Net income $93,097
=======
-19-
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, 2003, there was one holder of record of the Shares of the
Company.
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 for the year ended December 31,
2003 as filed with the Securities and Exchange Commission.
-20-