<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 SEPTEMBER 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
incorporation or organization) Identification No.)
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.
[_] Yes [_] No
16,729,618 shares of common stock; $.001 Par Value
outstanding at November 12, 1996.
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
- ------
Item 1.-Financial Information*
Consolidated Balance Sheets, December 31, 1995 and
September 30, 1996 2
Consolidated Statements of Income for the three and
nine months ended September 30, 1995 and 1996 3
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1995 and 1996 4
Notes to Consolidated Financial Statements 5-8
Item 2.-Management's Discussion of Operations 9-10
PART II
- -------
Item 4.-Submission of Matters to a Vote of Security Holders 11
Item 6.-Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
* 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, September 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 $7,166,711 at September 30, 1996 $147,713,263 $169,584,645
Net investment in direct financing leases 105,703,258 102,674,484
Equity investments 15,992,225 21,890,658
Real estate held for sale 2,616,031
Cash and cash equivalents 22,519,656 24,381,801
Short-term investments 1,000,000
Accrued interest and rents receivable 267,779 503,464
Other assets 3,621,913 5,064,864
------------ ------------
Total assets $299,434,125 $324,099,916
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $150,656,333 $162,816,310
Note payable 3,471,899
Accrued interest payable 1,085,483 1,296,878
Accounts payable and accrued expenses 532,274 774,653
Accounts payable to affiliates 4,279,849 5,707,636
Dividends payable 2,942,124 3,228,557
Prepaid rental income and security deposits 950,558 2,047,422
------------ ------------
Total liabilities 163,918,520 175,871,456
------------ ------------
Minority interest 4,522,053 4,826,522
------------ ------------
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
16,693,247 shares at September 30, 1996 15,481 16,693
Additional paid-in capital 137,046,066 150,765,589
Common stock subscribed 2,000,000
Receivable for common stock subscribed (2,000,000)
Dividends in excess of accumulated earnings (6,088,570) (6,752,440)
Unrealized appreciation, marketable securities 220,892 189,950
------------ ------------
131,193,869 144,219,792
Less common stock in treasury, 21,975 and
74,623 shares at December 31, 1995 and
September 30, 1996 (200,317) (817,854)
------------ ------------
Total shareholders' equity 130,993,552 143,401,938
------------ ------------
Total liabilities and shareholders'
equity $299,434,125 $324,099,916
============ ============
</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 Nine Months Ended
September 30, September 30, September 30, September 30,
1995 1996 1995 1996
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 4,062,288 $ 5,084,038 $12,698,242 $14,501,230
Interest from direct
financing leases 3,168,815 3,017,831 8,625,613 9,141,289
Other interest income 90,295 176,117 381,784 410,421
----------- ----------- ----------- -----------
7,321,398 8,277,986 21,705,639 24,052,940
----------- ----------- ----------- -----------
Expenses:
Interest 3,425,332 3,671,633 10,079,532 10,565,561
Depreciation 640,860 832,667 1,903,629 2,160,227
General and
administrative 471,156 455,883 1,179,198 1,579,681
Property expenses 827,970 1,213,295 2,441,003 2,945,691
Amortization 83,773 89,735 222,601 256,698
----------- ----------- ----------- -----------
5,449,091 6,263,213 15,825,963 17,507,858
----------- ----------- ----------- -----------
Income before
minority interest
in income, income
from equity
investments, and
net gain on sales 1,872,307 2,014,773 5,879,676 6,545,082
Minority interest in
income 188,601 193,264 560,254 573,103
----------- ----------- ----------- -----------
Income before income
from equity
investments and net
gain on sales 1,683,706 1,821,509 5,319,422 5,971,979
Income from equity
investments 506,846 740,085 1,649,507 2,256,837
----------- ----------- ----------- -----------
Income before net
gain on sales 2,190,552 2,561,594 6,968,929 8,228,816
Loss on sale of real
estate (11,021)
Gain on sales of
securities 628,099 664,431
----------- ----------- ----------- -----------
Net income $ 2,190,552 $ 2,561,594 $ 7,597,028 $ 8,882,226
=========== =========== =========== ===========
Net income per common
share $ .16 $ .16 $ .54 $ .57
=========== =========== =========== ===========
Weighted average
shares outstanding 14,167,581 15,761,357 14,154,989 15,574,850
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,597,028 $ 8,882,226
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,126,230 2,416,925
Income from equity investments in excess of
dividends and distributions received (87,597) (488,025)
Minority interest in income in excess of
distributions paid to minority interest 290,412 304,469
Income recognized from operating and direct
financing leases in excess of scheduled
cash receipts (697,038) (701,856)
Net gain on sales of securities and real
estate (628,099) (653,410)
Net change in operating assets and
liabilities 156,785 1,987,793
------------ ------------
Net cash provided by operating activities 8,757,721 11,748,122
------------ ------------
Cash flows from investing activities:
Purchase of real estate and additional
capitalized costs (11,046,809) (20,365,010)
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
Capital distribution from equity investment 1,375,000
Redemption of short-term investment 1,000,000
Proceeds from sale of stock warrants 628,099 835,243
Proceeds from sale of real estate 2,044,260
Purchase of securities (560,135)
------------ ------------
Net cash used in investing activities (1,388,195) (21,895,915)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 10,930,128 17,150,000
Purchase of treasury stock (191,768) (617,537)
Draws on line of credit 1,500,000
Prepayments of mortgage payable (5,800,280) (2,553,312)
Prepayment of note payable (3,471,899)
Proceeds from stock issuance, net of costs 2,900,000 13,720,735
Payments of mortgage principal (2,098,886) (2,436,711)
Dividends paid (8,581,111) (9,259,663)
Deferred financing costs (303,622) (521,675)
------------ ------------
Net cash (used in) provided by financing
activities (1,645,539) 12,009,938
------------ ------------
Net increase in cash and cash equivalents 5,723,987 1,862,145
Cash and cash equivalents, beginning of
period 4,163,418 22,519,656
------------ ------------
Cash and cash equivalents, end of period $ 9,887,405 $ 24,381,801
============ ============
Supplemental disclosure of cash flows
information:
Interest paid (including capitalized
interest) $ 10,069,240 $ 10,388,874
============ ============
</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, pursuant to the Advisory
Agreement, 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
nine-month periods ended September 30, 1995, the Company incurred asset
management fees of $391,704 and $1,122,094, respectively, and subordinated
incentive fees, which are not currently payable, were in like amounts. For the
three-month and nine-month periods ended September 30, 1996, the Company
incurred asset management fees of $401,354 and $1,182,622, respectively, and
subordinated incentive fees, which are not currently payable, were in like
amounts. General and administrative expense reimbursements were $203,900 and
$449,366 for the three-month and nine-month periods ended September 30, 1995,
respectively, and $170,004 and $599,381 for the three-month and nine-month
periods ended September 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 nine-month periods ended September
30, 1995 and 1996 were $181,317 and $165,526, respectively.
Note 3. Dividends:
---------
Dividends paid to shareholders during the nine months ended September 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
June 30, 1996 $3,162,935 .2045
</TABLE>
A dividend of $0.2050 per share was declared September 12, 1996, payable to
shareholders of record as of September 26, 1996 and paid in October 1996 for the
quarter ended September 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 $12,698,242 $14,501,230
Interest from direct financing leases 8,625,613 9,141,289
Adjustments:
Share of leasing revenue from equity
investments 4,259,581 5,255,724
Share of leasing revenue applicable to minority
interest (1,351,832) (1,349,039)
----------- -----------
$24,231,604 $27,549,204
=========== ===========
</TABLE>
For the nine-month periods ended September 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) $ 3,277,831 14% $ 3,291,300 12%
Best Buy Co., Inc. (b) 2,301,768 10 2,297,012 8
Neodata Corporation 1,667,480 7 1,710,015 6
Omnicom Group, Inc. 1,363,125 6 1,400,625 5
Lucent Technologies 1,389,621 6 1,389,621 5
Big V Holding Corp. 1,249,209 5 1,266,545 5
Garden Ridge, Inc. 471,326 2 1,063,260 4
Michigan Mutual Insurance Company 1,016,954 4 1,018,782 4
Barnes & Noble, Inc. 983,728 4 998,860 4
The Upper Deck Company (a) 982,674 4
Gensia, Inc. (a) 981,750 4 981,750 4
Merit Medical Systems, Inc. 924,353 4 977,468 3
Harvest Foods, Inc. 928,719 3 929,411 3
Q Clubs, Inc. (formerly Sports and
Fitness Clubs of America) 492,188 3 879,609 3
Waban, Inc./BJ's Warehouse Club 838,767 3 838,767 3
Plexus Corp. 818,625 3 818,625 3
Lincoln Technical Institute of Arizona,
Inc. 811,800 3 811,800 3
Wal-Mart Stores, Inc. 786,566 3 787,062 3
Bell Sports Corp. 736,233 3 758,853 3
Nicholson Warehouse, L.P. 603,795 3 603,816 2
GATX Logistics, Inc. 596,170 2 596,170 2
Custom Food Products, Inc. 167,721 1 548,967 2
Superior Telecommunications, Inc. 472,595 2 463,381 2
ChildTime Childcare, Inc. 46,667 420,000 2
PETsMART, Inc. 352,000 2 358,978 1
Oshman Sporting Goods, Inc. 326,124 1 331,065 1
Del Monte Corporation 321,563 1
Hibbett Sporting Goods, Inc. 300,046 1
CalComp Technology, Inc. (formerly
Summagraphics Corporation) 331,177 1 271,404 1
Safeway Stores Incorporated 295,312 1 131,775
----------- --- ----------- ---
$24,231,604 100% $27,549,204 100%
=========== === =========== ===
</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)
Marcourt GENA Cards LLC
--------------------------- --------------------------- ---------------
December 31, September 30, December 31, September 30, September 30,
1995 1996 1995 1996 1996
------------ ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Assets $149,910 $149,978 $22,287 $21,941 $26,581
Liabilities 108,876 106,799 12,381 11,972 15,750
Owners' equity 41,034 43,179 9,906 9,969 10,831
</TABLE>
<TABLE>
<CAPTION>
For The Nine Months Ended
---------------------------------------------------------
September 30, 1995 September 30, 1996
-------------------------- ----------------------------
Marcourt GENA Marcourt GENA Cards LLC
------------- ------------ -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $13,852 $1,964 $14,088 $1,964 $1,972
Interest (8,494) (743) (8,282) (733) (942)
Depreciation (345) (346)
Other expenses (60) (1) (62) (5) (3)
------- ------ ------- ------ ------
Net income $ 5,298 $ 875 $ 5,744 $ 880 $1,027
======= ====== ======= ====== ======
</TABLE>
Note 6. Mortgage Financing:
------------------
In November 1995, the Company and Corporate Property Associates 12 Incorporated
("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 at a total cost of
$21,990,000 pursuant to construction agency and lease agreements with Del Monte
Corporation ("Del Monte"). In July 1996, the Company and CPA/(R)/:12 each made a
final payment of $2,145,000 to complete the construction project. Del Monte
annual rent is $2,572,500 (of which the Company's share is $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 which had been committed to the Company and CPA/(R)/:12 by the lender
when the transaction with Del Monte was structured. 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 of the
initial loan balance with 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) on the remaining initial loan balance of $1,500,000. Debt service is
paid quarterly 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).
-7-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
On July 18, 1996, the Company obtained $8,000,000 of limited recourse mortgage
financing collateralized by the Company's properties in Oklahoma City, Oklahoma
and Round Rock, Texas leased to Garden Ridge Corporation ("Garden Ridge"). 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 rental is $770,000.
Note 7. 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 has reached an agreement in
principle with the lender to settle the dispute for $275,000 in exchange for a
withdrawal of all claims. Although there is no assurance that the agreement in
principle will be finalized, the settlement amount has been accrued for in the
accompanying financial statements.
-8-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2.-MANAGEMENT'S DISCUSSION OF OPERATIONS
---------------------------------------------
Results of Operations:
- ---------------------
Net income for the three-month and nine-month periods ended September 30, 1996
increased $371,000 and $1,285,000 as compared with the similar periods ended
September 30, 1995, respectively. Excluding the effect of gains from the sale of
common stock warrants in both 1995 and 1996, a modest loss on the sale of real
estate in 1996, and a charge of $275,000 relating to a proposed settlement of a
lawsuit, income for the three-month and nine-month period increased by $646,000
and $1,535,000, respectively. The increase in income for the comparable periods
was primarily due to increases in lease revenue and income from equity
investments and was primarily offset by increases in interest, depreciation and
property expenses, and for the nine-month periods only an increase in general
and administrative expenses.
The increase in lease revenues was due to the completion of build-to-suit
projects under lease agreements with Custom Food Products, Inc. ("Custom Food"),
ChildTime Childcare, Inc. and Garden Ridge Corporation ("Garden Ridge") during
the third and fourth quarters of 1995 and the purchase of properties leased to Q
Clubs, Inc. ("Q Clubs") and Hibbett Sporting Goods, Inc. ("Hibbett"), the
completion of the Del Monte Corporation ("Del Monte") build-to-suit project and
a lease modification with Custom Food subsequent to funding an expansion of its
existing facility in 1996. Income from equity investments increased as a result
of the Company's purchase in January 1996 of a 50% interest in a limited
liability company which leases property to The Upper Deck Company ("Upper Deck")
and an increase in income earned from the Company's investment in Marcourt
Investments, Inc. ("Marcourt"). Income from the equity investment in Marcourt,
which net leases 13 Courtyard by Marriott hotels, increased due to lower
interest expense resulting from the continuing amortization of principal on its
limited recourse mortgage which is fully amortizing over 16 3/4 years and an
increase in rentals received pursuant to a sales override provision in the
Marriott lease. The increases in interest expense were due to the placement of
new limited recourse mortgage debt on previously unleveraged properties
including loans which had been committed to the Company upon completion of
build-to-suit projects. Depreciation increased as a result of the purchase of
new properties and the completion of build-to-suit projects. The increase in
property expense is due to an increase in real estate assets under management
and an accrual of $275,000 in anticipation of settling a legal dispute as more
fully described in Note 7 to the Consolidated Financial Statements. General and
administrative and property expenses increased due to the increase in the
Company's real estate asset base.
The Company's newly acquired interests in the Q Clubs, Hibbett and Upper Deck
properties and the completion of the Del Monte project and the Custom Food
expansion will increase annual cash flow (rental revenue less debt service) by
$2,138,000 and will more than offset the decrease in annual cash flow of
$252,000 which resulted from the sale of two supermarkets leased to Safeway
Stores, Inc. in the first quarter of 1996.
The 1996 and 1995 gains on sale were realized on the sale of Garden Ridge
stock warrants. In April 1996 and May 1995, the Company sold warrants for gains
on sale of $664,000 and $628,000, respectively. The Company has invested
$12,050,000 in two transactions with Garden Ridge. Garden Ridge 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 November 5, 1996, the
quoted market value of Garden Ridge common stock was $9 1/2.
-9-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2.-MANAGEMENT'S DISCUSSION OF OPERATIONS
---------------------------------------------
Financial Condition:
- -------------------
There has been no material change in the Company's financial position since
December 31, 1995. Cash flow from operations for the nine-month period ended
September 30, 1996 of $11,748,000 was sufficient to fund dividends of $9,260,000
and payments of scheduled principal installments of $2,437,000. During 1996, the
Company has utilized $25,775,000 for the acquisition of the Q Clubs and Hibbett
properties, the expansion of the Custom Food property, the completion of the Del
Monte project and an equity interest in the Upper Deck property. The purchases
were funded, in part, with $2,879,000 from asset sales of the two supermarket
properties and Garden Ridge warrants and from new equity capital which has been
raised by the Company over the past twelve months, as described below. The
Company also obtained $17,150,000 of limited recourse financing, of which
$6,025,000 was used to retire existing debt. With the funds obtained from
issuing common stock and limited recourse mortgage financing, the Company
currently has approximately $18,400,000 available for the purchase of new real
estate investments to further diversify the Company's existing portfolio.
The Company continues to actively pursue new equity capital through its
private placement offering with institutional investors. In addition to raising
$13,000,000 pursuant to the private placement offering in 1995, the Company has
obtained $13,000,000 and issued 1,130,435 shares to institutional investors at
$11.50 per common share in 1996 and has a subscription from one of the new
shareholders to invest an additional $2,000,000 in common stock. The acceptance
of funds from institutional investors is conditioned upon the availability of
investment opportunities which can be projected to benefit all shareholders. The
Company has also issued new common stock of approximately $945,000 in 1996
through its dividend reinvestment plan.
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.
-10-
<PAGE>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
PART II
-------
Item 4.-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
During the quarter ended September 30, 1996, no matters were
submitted to a vote of Security Holders.
Item 6.-EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the quarter ended September 30, 1996, the Company was not
required to file any reports on Form 8-K.
-11-
<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
11/12/96 By: /s/ Claude Fernandez
-------- --------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
11/12/96 By: /s/ Michael D. Roberts
-------- ----------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 24,381,801
<SECURITIES> 0
<RECEIVABLES> 503,464
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,885,265
<PP&E> 279,425,840
<DEPRECIATION> 7,166,711
<TOTAL-ASSETS> 324,099,916
<CURRENT-LIABILITIES> 13,055,146
<BONDS> 162,816,310
0
0
<COMMON> 16,693
<OTHER-SE> 143,385,245
<TOTAL-LIABILITY-AND-EQUITY> 324,099,916
<SALES> 0
<TOTAL-REVENUES> 24,052,940
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,685,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,565,561
<INCOME-PRETAX> 8,882,226
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,882,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,882,226
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
