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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 31, 1995
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
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(Exact name of Registrant as specified in charter)
MARYLAND 0-20116 13-3602400
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(State of organization) (Commission File No.) (IRS Employer
Identification No.)
50 Rockefeller Plaza, 2nd Floor
New York, New York 10020
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(Address of principal executive offices)
(212) 492-1100
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(Registrant's telephone number)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION
Pro Forma Annualized Statement of Taxable Operations and Cash Generated
(Unaudited).
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PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements for
the Company have been prepared based upon certain pro forma adjustments to the
historical financial statements of the Company (see note 1 to Pro Forma
Financial Statements).
The statment covers only the properties or interests in entities owning
properties which have been acquired by the Company and its wholly-owned
subsidiaries which are net leased to Hibbett Sporting Goods, Inc., Sports &
Fitness Clubs of America, The Upper Deck Company and Del Monte Corporation and
does not cover any properties which the Company may acquire in the future or any
future financings of these properties.
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CAREY INSTITUTIONAL PROPERTIES INCORPORATED
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Pro Forma
---------- --------------------- ---------
Sports & Fitness Upper Deck Hibbetts Del Monte
<S> <C> <C> <C> <C> <C> <C>
Assets:
Land $ 46,359,430 $ 912,855 $ 660,000 $ (304,073) $ 47,932,285
Building 106,360,317 4,323,145 4,040,000 (1,366,725) 114,723,462
Accumulated depreciation (5,006,484) (5,006,484)
------------ ----------- ------------ ----------- ----------- ------------
Real estate accounted for under the
operating method 147,713,263 5,236,000 4,700,000 (1,670,798) 157,649,263
Net investment in direct financing 105,703,258 10,995,000 105,703,258
Equity investments 15,992,225 $ 5,327,225 21,319,450
Real estate held for sale 2,616,031 2,616,031
Cash and cash equivalents 22,519,656 (5,236,000) (5,327,225) (4,700,000) (3,074,202) 7,256,431
Short-term investments 1,000,000 1,000,000
Accrued rents and interest receivable 267,779 267,779
Other assets 3,621,913 3,621,913
------------ ----------- ------------ ----------- ----------- ------------
Total assets $299,434,125 - - - 6,250,000 $305,684,125
============ =========== ============ =========== =========== ============
Liabilities and Shareholders' Equity:
Liabilities
Mortgage notes payable $150,656,333 $ 6,250,000 $156,906,333
Note payable 3,471,899
Accounts payable to affiliates 4,279,849 4,279,849
Accounts payable and accrued expenses 532,274 532,274
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Prepaid rent and security deposits 950,558 950,558
Dividends payable 2,942,124 2,942,124
Accrued interest payable 1,085,483 1,085,483
------------ ----------- ------------ ----------- ----------- ------------
Total liabilities 163,918,520 - - - 6,250,000 170,168,520
------------ ----------- ------------ ----------- ----------- ------------
Minority interest 4,522,053 4,522,053
------------ ----------- ------------ ----------- ----------- ------------
Shareholders' Equity
Common stock 15,481 15,481
Additional paid-in capital 137,046,066 137,046,066
Unrealized appreciation 220,892 220,892
Distributions in excess of accumulated
earnings (6,088,570) (6,088,570)
------------ ----------- ------------ ----------- ----------- ------------
131,193,869 131,193,869
Treasury stock (200,317) (200,317)
------------ ----------- ------------ ----------- ----------- ------------
Total shareholders' equity 130,993,552 130,993,552
------------ ----------- ------------ ----------- ----------- ------------
Total liabilites and
shareholders' equity $299,434,125 - - - $ 6,250,000 $305,684,125
============ =========== ============ =========== =========== ============
</TABLE>
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CAREY INSTITUTIONAL PROPERTIES INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Pro Forma
---------- --------------------- ---------
Sports & Fitness Upper Deck Hibbett Del Monte
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Interest income from direct financing leases $11,693,250 $ 1,286,250 $12,979,500
Rental income from operating leases 16,926,079 $ 577,500 $ 475,784 17,979,363
Other interest income 618,993 618,993
----------- ---------- ---------- ---------- ----------- -----------
29,238,322 577,500 475,784 1,286,250 31,577,856
----------- ---------- ---------- ---------- ----------- -----------
Expenses:
Interest expense 13,512,254 619,285 14,131,539
Depreciation 2,493,366 108,079 101,000 2,702,445
General and adminstrative 1,931,493 1,931,493
Property expense 3,415,448 52,360 $ 128,272 47,000 109,950 3,753,030
Amortization 307,810 307,810
----------- ---------- ---------- ---------- ----------- -----------
21,660,371 160,439 128,272 148,000 729,235 22,826,317
----------- ---------- ---------- ---------- ----------- -----------
Income before minority interest in income,
income from equity investments, gains on sale
and extraordinary item 7,577,951 417,061 (128,272) 327,784 557,015 8,751,539
Minority interest in income (748,841) (748,841)
----------- ---------- ---------- ---------- ----------- -----------
Income before income from equity investments,
gains on sale and extraordinary item 6,829,110 417,061 (128,272) 327,7784 557,015 8,002,698
Income from equity investments 2,172,238 690,714 2,862,952
----------- ---------- ---------- ---------- ----------- -----------
Income before gains on sale and extraordinary item 9,001,348 417,061 562,442 327,784 557,015 10,865,650
Gains on sale 628,099 628,099
----------- ---------- ---------- ---------- ----------- -----------
Income before extraordinary item 9,629,447 417,061 562,442 327,784 557,015 11,493,749
Extraordinary charge on extinguishment of debt (401,269) (401,269)
----------- ---------- ---------- ---------- ----------- -----------
Net income $ 9,228,178 $ 417,061 $ 562,442 $ 327,784 $ 557,015 $11,092,480
=========== ========== ========== ========== =========== ===========
</TABLE>
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PRO FORMA CONSOLIDATED STATEMENT OF TAXABLE INCOME
AND AFTER TAX CASH FLOW (UNAUDITED)
<TABLE>
<S> <C>
Net income per pro forma consolidated statement of income for year
ended December 31, 1995 $ 11,092,480
Depreciation on direct financing leases for tax purposes (Note E) (1,757,707)
Difference between interest on direct financing leases and straight-line on operating leases
and rentals recognized for tax purposes (Note F) (423,510)
Adjustments to equity income for tax purposes (Note G) (1,093,617)
Adjustments to minority interest in income for tax purposes (Note H) 222,004
Incentive fees not deducted for tax purposes (Note I) 1,645,845
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Pro forma taxable income 9,685,495
Add: Depreciation expense on direct financing and operating leases (Note J) 4,460,152
Distributions from equity investments in excess of taxable earnings
from equity ivestments (Note K) 757,757
Distributions to minority interests in excess of minority interest
in taxable income (13,849)
Less: Principal payments on mortgage loans (Note L) (3,010,117)
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Pro forma after-tax cash flow $ 11,879,438
=============
</TABLE>
1. Basis of Presentation
The unaudited pro forma consolidated financial statements of Carey
Institutional Properties Incorporated and subsidiaries (the "Company") have been
prepared based on the historical financial statements of the Company. The pro
forma consolidated balance sheet of the Company at December 31, 1995 has been
prepared as if the purchase of properties leased to Hibbett Sporting Goods, Inc.
("Hibbett"), Sports & Fitness Clubs of America ("Sports & Fitness") and the
Upper Deck Company ("Upper Deck") and the completion of construction of
buildings for Del Monte Corporation ("Del Monte") had been completed at December
31, 1995. The pro forma statement of income for the year ended December 31,
1995 has been prepared as if the acquisitions of the Hibbett, Sports & Fitness
and Upper Deck properties and the completion of construction of the Del Monte
facility and the related mortgage financing had occurred on January 1, 1995.
The pro forma financial information should be read in conjunction with the
historical financial statements of the Company. The pro forma financial results
are not necessarily indicative of the financial position or the results of
operations had the acquisitions occurred on January 1, 1995 nor are they
necessarily indicative of the financial position or results of operations for
future periods.
2. Pro Forma Adjustments
A. Sports & Fitness lease provides for annual rentals of $577,500.
Annual depreciation expense of $108,079 is computed on a 40-year straight-line
basis on buildings and improvements with a depreciable basis of $4,323,145.
Included in property expenses are an accrual of an asset management fee of
$26,180 and a performance fee of $26,180 which will be payable to the Advisor
and total 1% of the $5,236,000 purchase price for the Sports & Fitness property.
The performance fee of $26,180 cannot be paid until certain performance criteria
are met. Accordingly, the Company will retain such fee until the criteria are
met and cannot deduct the performance fee component of such fees for income tax
purposes until it is paid.
B. The Company has a 50% interest in a limited liability company (the "UD
LLC") which leases land and buildings to Upper Deck. The Company accounts for
its 50% interest in UD LLC on the equity method with its share of pro forma
earnings based its share of UD LLC's net income. UD LLC's earnings are based on
annual rental income of $2,639,700, interest expense on a $15,000,000 limited
recourse mortgage loan which bears interest at a rate of 8.43% per annum and
provides for monthly payments of principal and interest of $120,077 on a 25-year
amortization schedule and statutory California franchise taxes As the lease
has been classified as a direct financing lease, no depreciation is taken for
financial reporting purposes. However, annual depreciation of $558,773 will be
recognized for tax reporting purposes computed on a 40-year straight-line basis
on buildings and improvements with a tax basis of $22,350,938. The purchase
cost of the Upper Deck property was $25,654,450 and was financed through equity
contributions of $10,654,450, of which the Company's share was $5,327,225, and
limited recourse
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mortgage financing of $15,000,000. Such debt is the obligation of UD LLC and the
Company has not provided any guarantees nor has it made any commitments to
satisfy the debt obligations of UD LLC. Accordingly, the Company has recorded
its interest in the UD LLC on the accompanying pro forma consolidated balance
sheet based on the cash contribution to the limited liability company. The
Company's share of the asset management fee of $64,136 and performance fee of
$64,136 are based on the 1% of the Company's pro rata share of the entire
property cost of $25,654,450. The performance fee of $64,136 cannot be paid
until certain performance criteria are met. Accordingly, the Company will retain
such fee until the criteria are met and cannot deduct the performance fee
component of such fees for income tax purposes until it is paid.
C. The Hibbett lease provides for annual rentals of $475,784. Depreciation
expense of $101,000 is computed on a 40-year straight-line basis on buildings
and improvements of $4,040,000. Included in property expenses are an accrual of
an asset management fee of $23,500 and a performance fee of $23,500 which will
be payable to the Advisor and total 1% of the $4,700,000 purchase price for the
Hibbett property. The performance fee of $23,500 cannot be paid until certain
performance criteria are met. Accordingly, the Company will retain such fee
until the criteria are met and will not deduct such fee for income tax purposes
until it is paid.
D. The Company is committed to finance the construction of the properties
for Del Monte. The accompanying pro forma consolidated financial statements
assume that the Company has advanced its full commitment ($10,995,000) as of the
beginning of the year. The Del Monte lease provides for annual rent based on
the total costs of construction, which rent, for the purposes of the pro forma
statements, is assumed to be $1,286,250. Total debt is based on the commitment
of $6,250,000 of limited recourse financing to the Company upon completion of
construction of the Del Monte facilities. Interest expense on a $5,500,000
portion of the debt is based on an annual interest rate of 10%, a 20-year
amortization schedule and quarterly principal and interest payments of $159,643.
Interest expense on the remaining $750,000 portion of the debt is calculated on
an annual interest rate of 9.75% (which approximates the London Inter-Bank
Offered Rate plus 4%), a 20-year amortization schedule and quarterly payments of
interest and principal of $21,398. For pro forma purposes, the Del Monte lease
has been accounted for as a direct financing lease so that no depreciation
expense has been taken for financial reporting purposes. However, for tax
purposes, annual depreciation of $267,273 based on projected building and
improvements with a tax basis of $10,690,927. Included in property expenses are
an accrual of an asset management fee of $54,975 and a performance fee of
$54,975 which will be payable to the Advisor and total 1% of the $10,995,000
projected costs of completion for the Del Monte properties. The performance fee
of $54,975 cannot be paid until certain performance criteria are met.
Accordingly, the Company will retain such fee until the criteria are met and
cannot deduct the performance fee component of such fees for income tax purposes
until such fee is paid. For historical reporting purposes, the Del Monte land
and costs attributed to building have not been classified as direct financing
lease assets. Upon completion of construction, the Company will perform an
evaluation of the Del Monte lease in accordance with Statement of Financial
Accounting Standards No. 13 and classify the lease based on facts and
circumstances which may vary from a classification which would have occurred if
the properties had been purchased and construction completed on January 1, 1995.
Accordingly, the ultimate classification of the Del Monte lease cannot be
determined at this time. For historical reporting purposes, rental revenues
received during the year ended December 31, 1995 have been applied as a
reduction of basis in the Del Monte properties and are not reflected in the
historical consolidated statement of operations.
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E. For tax purposes, depreciation is deducted on properties which have been
classified as direct financing leases for financial reporting purposes. Pro
forma tax depreciation expense of $1,757,707 is calculated based on the 40-year
straight line method on land and buildings with a tax basis of $70,308,298.
Such depreciable basis includes a projected depreciable basis of $10,690,927 for
the Del Monte properties.
F. For tax purposes, rental revenues are based on contractual amounts
rather than amounts recorded for financial reporting purposes. Accordingly,
straight-line adjustments on operating leases and amortization of unearned
income on direct financing leases in excess of amounts contractually due as
reflected on the Company's historical basis consolidated statement of cash flows
have been deducted from taxable income.
G. An adjustment for equity income is primarily attributable to differences
in the tax and GAAP accounting for the Company's interests in Marcourt
Investments Incorporated, a real estate investment trust which net leases 13
Courtyard by Marriott hotels to Marriott International, Inc. ("Marriott") and UD
LLC. For financial reporting purposes, the Company recognized equity income of
$1,598,089 and had taxable dividends of $783,858. The difference is primarily
attributable to Marcourt's classification of its lease with Marriott as a direct
financing lease. Marcourt's amortization of unearned income on the direct
financing lease is greater than the rent recognized for tax purposes. In
addition, Marcourt recognizes no depreciation for financial reporting purposes.
For tax purposes, the Company recognizes income based on taxable dividends
received rather than on a pro rata portion of Marcourt's taxable income. The
Company's projected share of taxable income from UD LLC is due to the effect of
recognizing depreciation for tax purposes (see Note 2B) of which the portion
attributable to the Company would be $279,386.
H. An adjustment for minority interest in income is attributable to
differences in tax accounting and GAAP accounting for the Company's 37% interest
in a general partnership which leases land and a building to Best Buy Co., Inc.
("Best Buy") For financial reporting purposes, the building and improvements
portion of the Best Buy lease have been classified as a direct financing lease.
Accordingly, no depreciation is taken for tax purposes and as a result, the
minority interest in tax basis income is lower than the minority interest in
income as reported for financial reporting purposes, thereby reducing the
portion of income attributable to the minority interest.
I. Incentive fees are not yet contractually due to the Advisor and are not
be deductible for tax purposes until such contractual conditions are met and the
fees are paid. For historical financial reporting purposes, incentive fees of
$1,477,054 have been included in property expenses for the year ended December
31, 1995. In addition, $168,791 of pro forma adjustments apply to the incentive
fees.
J. Total tax basis depreciation is based on the aggregate of pro forma
depreciation of $2,702,445 on operating leases and the adjustment for tax basis
depreciation on direct financing leases of $1,757,707
K. Distributions from equity investments in excess of taxable earnings from
equity investments consist of nontaxable distributions received from Marcourt of
$435,169, distributions in excess of taxable income from the Company's general
partnership interest in GENA Property Company which net leases property to
Gensia, Inc. of $136,905 and projected distributions from UD LLC which would
exceed taxable income by $187,683. Projected funds available for distribution
from UD LLC are projected by assuming that all cash generated by the investment
will be distributed to its owners. Taxable income for UD LLC has been
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projected to $822,656 of which $558,773 represents the noncash expense of
depreciation and represents $1,381,429 of cash provided from operations and is
offset by projected principal amortization on the UD LLC mortgage loan of
$183,407. On a pro forma basis, this would provide distributions of $1,198,022
of which the Company's share would be $599,011, which is $187,683 in excess of
the Company's share of taxable earnings from the investment in UD LLC.
L. Principal paid for historical purposes was reported as $2,905,238. In
addition, pro forma principal paid on the Del Monte mortgage obligations is
projected to be $104,879. The effect of principal payment on the Upper Deck
mortgage loans has been reflected in the distributions attributable to the
Company's investment in UD LLC.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAREY INSTITUTIONAL PROPERTIES,
INCORPORATED
By: /s/ Michael D. Roberts
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Michael D. Roberts
First Vice President and
Controller
Dated: May 8, 1996
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