<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
For the quarterly period ended JUNE 30, 1999
of
CAREY DIVERSIFIED LLC
("CDC")
A DELAWARE Limited Liability Company
IRS Employer Identification No. 13-3912578
SEC File Number 001-13779
50 ROCKEFELLER PLAZA,
NEW YORK, NEW YORK 10020
(212) 492-1100
CDC has LISTED SHARES registered pursuant to Section 12(g) of the Act.
CDC is registered on the NEW YORK STOCK EXCHANGE.
CDC does not have any Securities registered pursuant to Section 12(b) of the
Act.
CDC is unaware of any delinquent filers pursuant to Item 405 of Regulation S-K.
CDC (1) has filed all reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for 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.
There are 25,627,906 Listed Shares, no par value outstanding at August 10, 1999.
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CAREY DIVERSIFIED LLC
AND SUBSIDIARIES
INDEX
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Page No.
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PART I
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Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 3-5
PART II - Other Information
Signatures 6
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*The summarized financial information contained herein is unaudited; however, in
the opinion of management, all adjustments necessary for a fair presentation of
such financial information have been included.
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CAREY DIVERSIFIED LLC
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Company's condensed consolidated financial statements and notes thereto as of
June 30, 1999 included in this quarterly report and the Company's Annual Report
on Form 10-K for the year ended December 31, 1998. This quarterly report
contains forward looking statements. Such statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievement of the Company to be materially different from the
results of operations or plans expressed or implied by such forward looking
statements. Accordingly, such information should not be regarded as
representations by the Company that the results or conditions described in such
statements or the objectives and plans of the Company will be achieved.
RESULTS OF OPERATIONS:
Net income for the three-month and six-month periods ended June 30,
1999 decreased by $367 and $254, respectively, as compared with the three-month
and six-month periods ended June 30, 1998. Excluding a gain on sale and
extraordinary charges on the extinguishment of debt, the decreases in net income
for the three-month and six-month periods were $329 and $746. The decreases were
primarily attributable to a decrease in equity income, increases in depreciation
and amortization and property expenses and, to a lesser extent, a $158 noncash
charge on a writedown to fair value on the Company's property leased to
Motorola, Inc. which is held for sale. The three-month period was also affected
by an increase in interest expense.
The decrease in equity income was due to a substantial decrease in
income from the Company's investment in the operating partnership of Meristar
Hospitality Corporation. The decrease in Meristar's earnings was due to a change
by Meristar in its method of accounting for contingent (i.e., percentage) rents
in interim financial periods. Meristar had previously accounted for contingent
rents ratably throughout the year based on its best estimates and historical
trends. In accordance with a new accounting pronouncement, Meristar is deferring
recognition of contingent rental income until specified targets on each
identified lease are met. The increase in depreciation and amortization was due
to the purchases of properties in 1998 and the completion of the America West
Holdings Corp. build-to-suit project and the renovation of the Moorestown, New
Jersey property leased to Cendant Operations, Inc. in May 1999. The increase in
property expenses was due to higher management and performance fee expenses. The
increase in interest expense for the comparable three-month periods was due to
the benefit realized during the quarter ended June 30, 1998 from using the newly
acquired credit line to pay off higher interest mortgage debt at the end of the
first quarter of 1998 and during the subsequent quarter. The Company, however,
has since that time obtained or assumed additional limited recourse mortgage
debt in connection with the acquisition of properties, including a portfolio of
properties in Houston, Texas, the property leased to Eagle Hardware & Garden,
Inc. and three properties in France in 1998. The Company also incurred increased
charges from its credit line relating to the America West property until it
obtained long-term mortgage financing in July 1999. The effects of the new
mortgage financings and interest charges from the transitional financing on the
America West property contributed to the increase in interest expense.
The decrease in hotel earnings for the comparable six-month period was
due to the transfer of the hotel operations and commencement of a lease for the
Livonia hotel effective February 1, 1999. Earnings for the remaining hotel
properties increased by 10% for the comparable six-month periods due to a 1%
increase in occupancy rates and a moderate increase in average room rental
rates. Earnings were stable for the comparable three month periods. The earnings
of the hotels are seasonal in nature with occupancy rates highest during the
third quarter.
Lease revenues (rental income and interest from direct financing
leases) have increased as the result of 1998 acquisitions and the commencement
of new leases in May 1999 with America West and Cendant Operations, Inc. Solely
as a result of these two leases annual cash flow (rent less mortgage debt
service) will increase by $1,940. In addition, the Company's share of annual
cash flow from its equity investment, purchased in June, 1999, in a property net
leased to CheckFree Corporation will initially be approximately $550. In July
1999, DeVlieg Bullard, Inc., a lessee of two properties, filed a petition of
voluntary bankruptcy. The Company has not been informed by DeVlieg Bullard as to
whether DeVlieg Bullard will seek to affirm its lease.Annual rent from the
DeVlieg Bullard lease is $954.
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CAREY DIVERSIFIED LLC
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION:
There has been no material change in the Company's financial condition
since December, 31, 1998. Cash flow from operations and distributions from
equity investments of $24,740 was sufficient to fund dividends and distributions
to minority interests of $21,111 and $1,309, respectively.
The Company's investing activities included using $43,905 to complete
construction of the America West project, to complete renovations of a property
leased to Cendant, to complete an expansion of the property leased to Orbital
Sciences Corporation, to purchase a 50% equity interest in a property leased to
CheckFree Corporation and to advance additional funds for build-to-suit projects
with Federal Express Corporation and three properties in France. The Company
also used $3,676 to purchase a mortgage receivable in which it has a
participating interest. Current capital commitments include $1,400 for capital
improvements at the hotel property leased to Livho, Inc. and the two hotel
properties operated by the Company and $28,500 toward the completion of the
build-to-suit project leased to Federal Express Corporation. In connection with
CheckFree acquisition, the Company has a commitment to fund $1,781 toward the
completion of a build-to-suit project at the CheckFree property. The Company
also paid disposition fees of $1,007 to an affiliate in connection with sales of
properties in 1998.
In addition to paying dividends to shareholders and distributions, the
Company's financing activities included prepaying mortgage balances of $3,954,
paying scheduled mortgage principal installments, refinancing its property
leased to Orbital Sciences with limited recourse mortgage financing of $15,000
and drawing additional advances of $37,000 from its line of credit to increase
the total outstanding on the line of credit to $166,000 as of June 30, 1999.
Since June 30, 1999, the Company has obtained new limited recourse mortgage
financing of $25,000 and $17,000 on the America West property and properties
leased to Autozone, Inc., respectively, and is using the such proceeds to reduce
the outstanding balance on the line of credit. As of August 9, 1999, there was
approximately $153,000 outstanding on the line of credit. The Company remains in
compliance with the financial covenants relating to the credit agreement on the
line of credit.
YEAR 2000 ISSUES:
The "Year 2000 issue" refers to the series of problems that have
resulted or may result from the inability of certain computer software and
embedded processes to properly process dates. This shortcoming could result in
the failure of major systems or miscalculations causing major disruptions to
business operations. The Company has no information technology systems of its
own, but is dependent upon systems maintained by an affiliate of its Manager,
and certain other third parties including banks and its transfer agent.
The Company and its affiliates have been evaluating their readiness
relating to Year 2000 issues since 1998. The affiliates' core information
technology systems used in administering the Company's business operations have
been upgraded or replaced, as needed, to become Year 2000 compliant. These
systems include desktop computers, network servers, operating systems and
applications software. A new, compliant, integrated accounting and asset
management system is currently being installed and is expected to be functional
in the fourth quarter of this year. Compliance of these systems with Year 2000
requirements has been determined through a combination of internal testing,
where feasible, and vendor representations. Non-core information technology
systems are currently being reviewed for compliance with Year 2000 requirements.
Such systems, although not critical to the Company's business operations, are
expected to be substantially upgraded or replaced before the end of 1999.
The Company has contacted and is evaluating documentation from its
critical third party vendors and suppliers including banks, transfer agents and
telecommunications service providers regarding their Year 2000 compliance. The
responses received have generally been positive although the Company cannot be
assured that such providers have adequately considered the impact of Year 2000
issues on their systems.
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CAREY DIVERSIFIED LLC
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company has contacted its tenants regarding Year 2000 readiness and
emphasized the need to address Year 2000 issues. Generally, tenants are
contractually required to maintain their leased properties in good working order
and to make necessary alterations, foreseen or unforeseen, to meet their
contractual obligations. Because of those obligations, the Company believes that
the risks and costs of upgrading systems related to operations of the buildings
and that contain technology affected by Year 2000 issues will generally be
absorbed by tenants rather than the Company. The major risk is that Year 2000
issues have such an adverse effect on the financial condition of a tenant that
its ability to meet its lease obligations, including the timely payment of rent,
is impaired. In such an event, the Company may ultimately incur the costs for
Year 2000 readiness at the affected properties. The potential materiality of any
impact is not known at this time.
The Company will continue to monitor critical third party vendors and
suppliers to determine its vulnerability to potential disruptions caused by year
2000 issues. Limited scope contingency plans are currently being developed to
address potential disruptions of a temporary nature that may affect the Company.
Because it is not possible to anticipate all of the possible disruptions that
may be caused by Year 2000 events, there can be no assurance that the Company
will not be adversely affected if such disruptions occur.
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CAREY DIVERSIFIED LLC
SIGNATURES
Pursuant to the requirements 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.
CAREY DIVERSIFIED LLC
08/12/99 By:/s/ John J. Park
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Date John J. Park
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
08/12/99 By:/s/ Claude Fernandez
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Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
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