<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
--------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _____________________ to _____________________
Commission file number 0-20016
---------------------------------------------------------
CAREY INSTITUTIONAL PROPERTIES INCORPORATED, a Maryland corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 13-3602400
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 492-1100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[X] Yes [ ] No
15,818,357 shares of common stock; $.001 Par Value
outstanding at August 8, 1996.
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
INDEX
Page No.
--------
PART I
- -------
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1995 and
June 30, 1996 2
Consolidated Statements of Income for the three and
six months ended June 30, 1995 and 1996 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1995 and 1996 4
Notes to Consolidated Financial Statements 5-9
Item 2. - Management's Discussion of Operations 10-11
PART II
-------
Item 4. - Submission of Matters to a Vote of Security Holders 12
Item 6. - Exhibits and Reports on Form 8-K 12
Signatures 13
* 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.
-1-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
-------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---- ----
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of accumulated
depreciation of $5,006,484 at December 31, 1995
and $6,334,044 at June 30, 1996 $ 147,713,263 $ 163,103,802
Net investment in direct financing leases 105,703,258 105,851,187
Equity investments 15,992,225 21,669,764
Real estate held for sale 2,616,031
Cash and cash equivalents 22,519,656 7,955,230
Short-term investments 1,000,000
Accrued interest and rents receivable 267,779 334,514
Other assets 3,621,913 4,799,828
------------- -------------
Total assets $ 299,434,125 $ 303,714,325
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 150,656,333 $ 149,045,180
Note payable 3,471,899 3,471,899
Accrued interest payable 1,085,483 1,087,251
Accounts payable and accrued expenses 532,274 329,732
Accounts payable to affiliates 4,279,849 6,280,246
Dividends payable 2,942,124 3,162,934
Prepaid rental income and security deposits 950,558 1,664,659
------------- -------------
Total liabilities 163,918,520 165,041,901
------------- -------------
Minority interest 4,522,053 4,632,922
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 40,000,000 shares; issued and
outstanding, 15,480,537 shares at December 31,
1995 and 15,787,789 shares at June 30, 1996 15,481 15,789
Additional paid-in capital 137,046,066 140,413,748
Common stock subscribed 2,000,000
Receivable for common stock subscribed (2,000,000)
Dividends in excess of accumulated earnings (6,088,570) (6,085,476)
Unrealized appreciation, marketable securities 220,892 301,685
------------- -------------
131,193,869 134,645,746
Less treasury stock, 21,975 and 60,245 Shares
at December 31, 1995 and June 30, 1996 (200,317) (606,244)
------------- -------------
Total shareholders' equity 130,993,552 134,039,502
------------- -------------
Total liabilities and
shareholders' equity $ 299,434,125 $ 303,714,325
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date.
-2-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 4,267,505 $ 4,658,472 $ 8,635,954 $ 9,417,192
Interest from direct
financing leases 2,728,059 3,060,647 5,456,798 6,123,458
Other interest income 174,398 70,244 291,489 234,304
------------ ------------ ------------ ------------
7,169,962 7,789,363 14,384,241 15,774,954
------------ ------------ ------------ ------------
Expenses:
Interest 3,392,269 3,425,931 6,654,200 6,893,928
Depreciation 685,945 673,171 1,262,769 1,327,560
General and administrative 362,420 595,147 684,645 1,123,798
Property expenses 877,761 888,912 1,636,430 1,732,396
Amortization 76,130 98,262 138,828 166,963
------------ ------------ ------------ ------------
5,394,525 5,681,423 10,376,872 11,244,645
------------ ------------ ------------ ------------
Income before minority
interest in income, income
from equity investments
and net gain on sales 1,775,437 2,107,940 4,007,369 4,530,309
Minority interest in income 185,414 189,051 371,653 379,839
------------ ------------ ------------ ------------
Income before income
from equity investments
and net gain on sales 1,590,023 1,918,889 3,635,716 4,150,470
Income from equity investments 499,559 694,902 1,142,661 1,516,752
------------ ------------ ------------ ------------
Income before net gain
on sales 2,089,582 2,613,791 4,778,377 5,667,222
Loss on sale of real estate (11,021)
Gain on sales of securities 628,099 664,431 628,099 664,431
------------ ------------ ------------ ------------
Net income $ 2,717,681 $ 3,278,222 $ 5,406,476 $ 6,320,632
============ ============ ============ ============
Net income per common share $ .19 $ .21 $ .38 $ .41
============ ============ ============ ============
Weighted average shares
outstanding 14,148,934 15,495,036 14,156,594 15,480,572
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
<TABLE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,406,476 $ 6,320,632
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,401,597 1,494,523
Income from equity investments in excess of dividends
and distributions received (267,131)
Minority interest in income in excess of distributions
paid to minority interest 101,810 110,869
Cash receipts on operating and financing leases
less than income recognized (167,803) (190,617)
Net gain on sales of securities and real estate (628,099) (653,410)
Net change in operating assets and liabilities (201,634) 559,216
------------ ------------
Net cash provided by operating activities 5,912,347 7,374,082
------------ ------------
Cash flows from investing activities:
Purchase of real estate and additional capitalized costs (7,449,322) (15,652,485)
Capital contributions in equity investment (5,410,408)
Release of construction escrow funds 2,288,433
Funds released in connection with sale of properties
in prior year 5,927,217
Cash distributions in excess of equity income 46,824
Capital distribution from equity investment 1,375,000
Redemption of short-term investment 1,000,000
Proceeds from sale of securities 628,099 835,243
Proceeds from sale of real estate 2,044,260
Purchases of stock and stock warrants (560,135)
------------
Net cash provided by (used in) investing activities 2,256,116 (17,183,390)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 6,805,128
Purchase of treasury stock (191,768) (405,927)
Mandatory prepayment of mortgage payable on
conversion from construction financing (1,750,000)
Proceeds from stock issuance, net of costs 3,367,990
Payments of mortgage principal (1,368,703) (1,611,153)
Dividends paid (5,716,626) (6,096,728)
Deferred financing costs (162,184) (9,300)
------------ ------------
Net cash used in financing activities (2,384,153) (4,755,118)
------------ ------------
Net increase (decrease) in cash and cash equivalents 5,784,310 (14,564,426)
Cash and cash equivalents, beginning of period 4,163,418 22,519,656
------------ ------------
Cash and cash equivalents, end of period $ 9,947,728 $ 7,955,230
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 6,659,658 $ 6,926,867
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Note 2. Transactions with Related Parties:
---------------------------------
The Advisor performs multiple services including providing the management and
administration of the Company for which it is entitled to receive management and
incentive fees. Pursuant to the Advisory Agreement, asset management fees
currently due the Advisor are equal to 0.5% of Average Invested Assets, as
defined. When Shareholders have received a cumulative dividend return of 8%,
which threshold has not yet been met, the Advisor will also be entitled to
receive an incentive fee of 0.5% of Average Invested Assets. Based upon
portfolio projections, Management believes it is likely that this incentive fee
will be earned; therefore, though such incentive fee will not be paid until the
threshold is met, it has been accrued and included in accounts payable to
affiliates and property expenses in the accompanying consolidated financial
statements. For the three-month and six-month periods ended June 30, 1995, the
Company incurred asset management fees of $366,848 and $730,390, respectively.
For the three-month and six-month periods ended June 30, 1996, the Company
incurred asset management fees of $388,702 and $781,268, respectively.
Subordinated incentive fees, which are not payable currently, were in like
amounts. General and administrative expense reimbursements were $145,001 and
$245,466 for the three-month and six-month periods ended June 30, 1995,
respectively, and $238,178 and $429,377 for the three-month and six-month
periods ended June 30, 1996, respectively.
The Company, in conjunction with certain affiliates, is a participant in a cost
sharing agreement for the purpose of renting and occupying office space. Under
the agreement, the Company pays its proportionate share of rent and other costs
of occupancy. Net expenses incurred for the six-month periods ended June 30,
1995 and 1996 were $137,996 and $111,957 respectively.
Note 3. Dividends:
---------
Dividends paid to shareholders during the six months ended June 30, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Paid Per Share
------------------- ----------------- ---------
<S> <C> <C>
December 31, 1995 $ 2,942,124 $ .2035
March 31, 1996 $ 3,154,604 .2040
</TABLE>
A dividend of $0.2045 per share was declared in June 1996 and paid in July 1996
for the quarter ended June 30, 1996.
-5-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
----------------------------
The Company's operations consist of the direct and indirect investment in and
the leasing of industrial and commercial real estate. The financial reporting
sources of the lease revenues are as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 8,635,954 $ 9,417,192
Interest from direct financing leases 5,456,798 6,123,458
Adjustments:
Share of leasing revenue from equity
investments 2,886,634 3,550,132
Share of leasing revenue applicable
to minority interest (901,052) (899,214)
------------ ------------
$ 16,078,334 $ 18,191,568
============ ============
</TABLE>
For the six-month periods ended June 30, 1995 and 1996, the Company earned its
proportionate net lease revenues from its investments from the following lease
obligors:
<TABLE>
<CAPTION>
1995 % 1996 %
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Marriott International, Inc. (a) $ 2,232,134 14% $ 2,242,926 12%
Best Buy Co., Inc. (b) 1,534,223 10 1,531,095 8
Neodata Corporation 1,111,653 7 1,122,287 6
Omnicom Group, Inc. 908,750 6 933,750 5
Lucent Technologies (formerly AT&T
Resource Management Corp.) 926,414 6 926,414 5
Big V Holding Corp. 831,439 5 842,828 5
Garden Ridge, Inc. 304,716 2 718,680 4
Michigan Mutual Insurance Company 677,824 4 679,027 4
Barnes & Noble, Inc. 654,628 4 664,560 4
Gensia, Inc. (a) 654,500 4 654,500 4
The Upper Deck Company (a) 652,706 4
Merit Medical Systems, Inc. 577,721 4 651,646 4
Harvest Foods, Inc. 619,091 4 619,545 3
Wal-Mart Stores, Inc. 596,844 4 597,341 3
Sports and Fitness Clubs of America 328,125 2 560,453 3
Waban, Inc./BJ's Warehouse Club 559,178 3 559,178 3
Plexus Corp. 545,750 3 545,750 3
Lincoln Technical Institute of Arizona, Inc. 541,200 3 541,200 3
Bell Sports Corp. 490,822 3 505,902 3
Nicholson Warehouse, L.P. 402,529 3 402,542 2
GATX Logistics, Inc. 397,446 2 397,446 2
Custom Food Products, Inc. 338,915 2
Superior Teletec Transmission Products, Inc. 314,221 2 306,514 2
ChildTime Childcare, Inc. 280,000 1
PETsMART, Inc. 234,667 2 239,023 1
Oshman Sporting Goods, Inc. 217,029 1 220,268 1
Summagraphics Corporation 220,555 1 179,634 1
Hibbett Sporting Goods, Inc. 181,100 1
Safeway Stores Incorporated 196,875 1 96,338 1
----------- ----------- ----------- -----------
$16,078,334 100% $18,191,568 100%
=========== =========== =========== ===========
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
(b) Net of amounts applicable to Corporate Property Associates 12
Incorporated's ("CPA(R):12") minority interest.
-6-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 5. Equity Investments:
------------------
The Company owns an approximate 23.68% interest in Marcourt Investments
Incorporated ("Marcourt"), a real estate investment trust, which net leases 13
hotel properties to a wholly-owned subsidiary of Marriott International, Inc.,
and 50% interests in Gena Property Company ("GENA"), a general partnership which
net leases two office buildings to Gensia, Inc. and in Cards Limited Liability
Company ("Cards LLC"), which net leases two office buildings to The Upper Deck
Company. The interest in Cards LLC was purchased in January 1996. Summarized
financial information of GENA, Marcourt and Cards LLC is as follows:
<TABLE>
<CAPTION>
(in thousands)
Gena Marcourt Cards LLC
-------------------------------------- ----------------------------------- -------------
December 31, 1995 June 30, 1996 December 31, 1995 June 30, 1996 June 30, 1996
----------------- ------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets $22,287 $22,056 $149,910 $149,817 $26,581
Liabilities 12,381 12,109 108,876 107,488 15,796
Owners' equity 9,906 9,947 41,034 42,329 10,785
</TABLE>
<TABLE>
<CAPTION>
For The Six Months Ended
--------------------------------------------------------------------------------
June 30, 1995 June 30, 1996
-------------------------- ---------------------------------------------
GENA Marcourt GENA Marcourt Cards LLC
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $1,309 $9,433 $1,309 $9,480 $1,312
Interest 489 5,675 490 5,529 628
Depreciation 230 230
Other expenses 60 5 39 2
------ ------ ------ ------ ------
Net income $ 590 $3,698 $ 584 $3,912 $ 682
====== ====== ====== ====== ======
</TABLE>
Note 6. Litigation:
----------
In connection with the Company's satisfaction of a mortgage loan in October
1995, the lender of the retired loan filed suit in December 1995 which claims
that the prepayment charge of $401,000 paid by the Company was understated by
approximately $400,000. Although the lender acknowledges that the calculation of
the prepayment charge was determined by the lender, the lender is seeking
damages based on its allegations that the Company was aware of the lender's
error and failed to correct the error and affirmatively misrepresented to the
lender that the calculation was correct. The Company is vigorously contesting
the lender's claim. Management believes that it is unlikely that the outcome of
this case will have a material adverse effect on the Company's results of
operations, financial position or liquidity.
-7-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 7. Garden Ridge Company:
--------------------
In connection with entering into the lease agreement with Garden Ridge
Corporation ("Garden Ridge") in 1995, Garden Ridge granted the Company warrants
to purchase 67,500 shares of Garden Ridge common stock exercisable at $10 per
share. On April 30, 1996, the Company exercised warrants for 22,500 shares,
realizing net proceeds of $835,243 and a gain on sale of $664,431. In 1995, the
Company realized net proceeds and a gain of $628,099 in connection with the
exercise of warrants for 90,000 shares which had been granted in connection with
a previous transaction in 1993 with Garden Ridge.
On July 18, 1996, the Company obtained $8,000,000 of limited recourse mortgage
financing collateralized by the Company's Garden Ridge properties in Oklahoma
City, Oklahoma and Round Rock, Texas. The loan provides for monthly payments of
principal and interest of $68,166 based on a 20-year amortization schedule at an
annual interest rate of 8.25%. The loan is scheduled to mature in August 2006,
at which time a balloon payment of $5,532,962 will be due. A portion of the
mortgage proceeds was used to pay off an existing mortgage loan obligation of
$2,553,312 on the Round Rock property and $3,472,000 was used to pay off the
outstanding balance under the Company's revolving credit agreement which was
used to fund the construction of the Oklahoma City property.
In connection with the financing, the Round Rock lease was amended with annual
rent reduced by approximately $19,000 to $591,000. As required under the
Oklahoma City lease, annual rents were to be determined at the end of the
construction period. The initial annual rentals is $770,000.
The Company's total purchase and project costs related to the construction on
the Company's Oklahoma City and Round Rock properties and the acquisition of
Garden Ridge warrants were $12,051,000.
Note 8. Harvest Foods, Inc.:
-------------------
On February 21, 1992, the Company and Corporate Property Associates 10
("CPA(R):10"), an affiliate, purchased as tenants-in-common, each with 50%
ownership interests, 13 supermarkets and two office buildings and entered into a
master lease with Harvest Foods, Inc. ("Harvest"), as lessee. The total purchase
price of the Harvest properties was $20,165,000. The Company and CPA(R):10 each
contributed $3,950,000 of equity and obtained $12,265,000 of limited recourse
mortgage financing (of which the Company's share was $6,132,500).
On June 18, 1996 Harvest filed a voluntary bankruptcy petition under Chapter 11
of the United States Bankruptcy Code. Harvest did not pay a portion of
post-petition rent of $132,000 of which the Company's share is $66,000. The
Company and CPA(R):10 are currently pursuing their legal remedies.
-8-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 9. Subsequent Events:
-----------------
In November 1995, the Company and CPA(R):12, an affiliate, each with 50%
interests as tenants-in-common, purchased land in Illinois, Wisconsin and
Washington and subsequently constructed three warehouses and a special purpose
facility pursuant to construction agency and lease agreements with Del Monte
Corporation ("Del Monte"). In July 1996, the Company made a final payment of
$3,210,000 to complete funding of its share of project costs. Del Monte annual
rent is $2,572,500 (of which the Company's share will be $1,286,250).
After completion of construction, the Company and CPA(R):12 obtained $12,500,000
(of which the Company's share is $6,250,000) of limited recourse financing. The
loan is collateralized by mortgages on the Del Monte properties and a lease
assignment. The loan provides for a fixed interest rate of 10% per annum on
$11,000,000 with the remaining balance of $1,500,000 at a variable interest rate
of either the lender's prime rate plus 2% or the London Inter-Bank Offering Rate
plus 4% (10.25% at inception) with quarterly interest and principal payments
based on a 20-year amortization schedule. The initial quarterly payment, based
on current interest rates, will be approximately $353,000 (of which the
Company's share is $176,500). The loan is scheduled to mature on November 30,
2000 at which time a balloon payment of $11,450,000 will be due (of which the
Company's share will be $5,725,000).
On July 11, 1996, the Company purchased a 10,380 square foot expansion to the
Owingsville, Kentucky property leased to Custom Food Products, Inc. ("CFP") for
$1,570,681 and amended the existing lease. CFP's annual rent will increase by
$187,506.
On August 8, 1996, the Company obtained $2,900,000 of mortgage financing on the
property leased to Hibbett Sporting Goods, Inc. ("Hibbett"). The loan is
collateralized by the Hibbett property and a lease assignment and will initially
bear interest at 8.125% with monthly payments of principal and interest of
$24,483 based on a twenty-year amortization schedule. On September 1, 2006 and
every year thereafter until the loan's maturity date, the interest rate will be
adjusted to a rate equal to Moody's A Corporate Bond Index Daily Rate plus
.375%. The loan is scheduled to fully amortize on September 1, 2016 but is
subject to the lender's option to call the loan during the tenth loan year. The
loan may be prepaid in whole or in part subject to a prepayment premium.
-9-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
- ---------------------
Net income for the three-month and six-month periods ended June 30, 1996
increased by $561,000 and $914,000 as compared with net income for the similar
periods ended June 30, 1995, respectively. Excluding the effect of the net gain
on sales, income for the three-month and six-month periods increased by $524,000
and $889,000, respectively. Cash flow from operating activities increased by
25%. The increase in income before gain was primarily due to increases in lease
revenues and income from equity investments which were partially offset by an
increase in general and administrative expense. The comparable six-month periods
also reflected increases in interest and depreciation expenses.
The increase in lease revenues was primarily due to the commencement of
rent upon completion of build-to-suit projects. Such completions include
properties leased to Custom Food Products, Inc. ("CFP"), Childtime Childcare,
Inc. and the Garden Ridge Corporation ("Garden Ridge") retail store in Oklahoma
City, during the third and fourth quarters of 1995. The Company also acquired
two properties and executed new leases with Sports & Fitness Clubs of America,
Inc. ("Sports & Fitness") and Hibbett Sporting Goods, Inc. ("Hibbett") in the
first quarter of 1996. The increase in equity income was due to the purchase of
a 50% interest in a limited liability company which entered into a lease with
The Upper Deck Company ("Upper Deck") in January 1996. The completion of
construction also increased depreciation expense. Interest expense increased as
a result of mortgage financings on various properties which were previously
unleveraged or recently acquired. The increase in general and administrative
expenses was due to increases in printing costs, personnel costs and the timing
of certain expense accruals in 1995.
The 1996 and 1995 gains on sale were realized on the sale of Garden Ridge
Corporation ("Garden Ridge") stock warrants. In April 1996 and May 1995, the
Company sold warrants for a gain on sale of $664,000 and $628,000, respectively.
The Company has invested $12,050,000 in two transactions with Garden Ridge.
Garden Ridge has completed an initial public offering in 1995. The Company has
been able to use the enhancement of Garden Ridge's credit quality since its
public offering to obtain $8,000,000 of mortgage financing in July 1996 on the
Garden Ridge properties at an annual interest rate of 8.25% and has realized
$1,463,000 in cash proceeds from the sale of warrants. The Company still holds
14,400 shares of common stock and 90,000 warrants exercisable at $5 per share.
As of August 8, 1996, the quoted market value of Garden Ridge common stock was
$13 7/8.
Solely as a result of the Company's acquiring interests in Sports &
Fitness, Hibbett and Upper Deck properties, annual cash flow (rental revenue
less debt service) will increase by approximately $1,370,000. Annual cash flow
will also increase by approximately $580,000 as a result of the completion of
the Del Monte project in July 1996 and the related commencement of rent. The
additional cash flow from these new leases will more than replace the reduction
in annual cash flow of $252,000 from the sale of the two supermarkets formerly
leased to Safeway Stores, Incorporated.
Financial Condition:
- -------------------
There has been no material change in the Company's financial condition
since December 31, 1995. For the six-month period ended June 30, 1996, cash flow
from operating activities of $7,374,000 and cash reserves of $334,000 were used
to fund dividends of $6,097,000 and scheduled principal payment installments of
$1,611,000.
-10-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
----------------------------------------------------------
Funds provided from the Company's investing activities include $835,000
and $2,044,000 of proceeds from the sale of Garden Ridge securities and two
Safeway properties, respectively. The Company used $21,063,000 to acquire
interests in properties leased to Sports & Fitness, Hibbett and Upper Deck
during 1996 and to complete the Del Monte project. Since June 30, 1996, the
Company has obtained limited recourse financing of $8,000,000 and $2,900,000 on
properties leased to Garden Ridge and Hibbett, respectively. In addition, the
Company funded $3,210,000 as its final cash contribution to the Del Monte
projects in July 1996 and upon completion of the project obtained $6,250,000 of
limited recourse financing collateralized by the Del Monte properties. The
Company utilized a portion of the proceeds from the Garden Ridge loan to pay off
an existing mortgage loan of $2,553,000 and $3,472,000 outstanding under the
Company's revolving credit agreement. The Company intends to use the remaining
funds from these mortgage financing transactions to make additional real estate
acquisitions. The Company also has $12,750,000 available under the revolving
credit agreement which can be used to purchase real estate and fund
build-to-suit projects.
The Company has continued to actively pursue new equity capital through
its private placement offering with institutional investors. In June 1996, the
Company issued 260,870 shares of common stock at $11.50 per share ($3,000,000)
to an institutional investor. Under its $5,000,000 subscription agreement with
this investor, an additional $2,000,000 will be invested with the Company over
time. To date, the Company has obtained $16,000,000 from three institutional
investors and is actively seeking to increase the number of institutional
shareholders. The acceptance of funds from institutional investors is
conditioned upon the availability of investment opportunities which can be
projected to benefit all shareholders.
Management believes that its cash balances and its projection of
increases in cash provided from operations will be sufficient to sustain the
current trend of increasing the rate of quarterly dividends and paying scheduled
principal installments.
-11-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
PART II
-------
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
An annual Shareholders meeting was held on June 6, 1996, at which time
a vote was taken to elect the Company's directors through the
solicitation of proxies. 15,463,746 were eligible to vote. The
following directors were re-elected for a one-year term:
<TABLE>
<CAPTION>
Total Shares Shares Shares
Name Of Director Shares Voting Voting Yes Voting No Abstaining
---------------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
William P. Carey 8,659,748 8,560,565 99,183 0
Francis J. Carey 8,621,195 8,528,565 92,630 0
Charles C. Townsend, Jr 8,622,445 8,530,065 92,380 0
Ralph G. Coburn 8,579,327 8,465,327 114,000 0
Donald E. Nickelson 8,612,417 8,524,537 87,880 0
William Ruder 8,624,692 8,526,565 98,127 0
Warren G. Wintrub 8,596,895 8,507,565 89,330 0
H. Cabot Lodge, III 8,629,748 8,522,465 107,283 0
</TABLE>
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the quarter ended June 30, 1996, the Company filed a report on
Form 8-K dated May 9, 1996 for Item 7b, Pro forma financial
information.
-12-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
8/9/96 By: /s/ Claude Fernandez
------ -----------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
8/9/96 By: /s/ Michael D. Roberts
------ -----------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form
10-Q of Carey Institutional Properties for the quarter ended June 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,955,230
<SECURITIES> 0
<RECEIVABLES> 334,514
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,289,744
<PP&E> 275,289,033
<DEPRECIATION> 6,334,044
<TOTAL-ASSETS> 303,714,325
<CURRENT-LIABILITIES> 12,524,822
<BONDS> 152,517,079
0
0
<COMMON> 15,789
<OTHER-SE> 134,023,713
<TOTAL-LIABILITY-AND-EQUITY> 303,714,325
<SALES> 0
<TOTAL-REVENUES> 15,774,954
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,350,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,893,928
<INCOME-PRETAX> 6,320,632
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,320,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,320,632
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
