<PAGE> 1
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, 1997
------------------------------------
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
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(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.
|_| Yes |_| No
16,694,625 shares of common stock; $.001 Par Value
outstanding at November 10, 1997.
<PAGE> 2
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
INDEX
Page No.
--------
PART I
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1996 and
September 30, 1997 2
Consolidated Statements of Income for the three and nine
months ended September 30, 1996 and 1997 3
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1997 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
* 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> 3
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
(Note) (Unaudited)
------------ ------------
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$7,971,271 at December 31, 1996 and
$10,533,496 at September 30, 1997 $177,810,120 $180,795,554
Net investment in direct financing leases 100,535,180 94,530,166
Equity investments 22,034,005 22,653,676
Cash and cash equivalents 15,740,583 11,337,989
Other assets 4,389,640 5,771,576
------------ ------------
Total assets $320,509,528 $315,088,961
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $162,284,106 $155,294,734
Accrued interest payable 1,216,678 1,229,125
Accounts payable and accrued expenses 443,321 355,481
Accounts payable to affiliates 6,118,940 7,649,761
Prepaid rental income and security deposits 923,825 801,345
------------ ------------
Total liabilities 170,986,870 165,330,446
------------ ------------
Minority interest 4,749,158 5,060,996
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value;
authorized, 40,000,000 shares; issued and
outstanding, 16,724,941 shares at December 31,
1996 and 16,883,000 shares at September 30, 1997 16,725 16,883
Additional paid-in capital 151,143,243 153,004,676
Common stock subscribed 2,000,000
Receivable for common stock subscribed (2,000,000)
Dividends in excess of accumulated earnings (5,488,526) (6,618,501)
Unrealized appreciation, marketable securities 73,058 675,927
------------ ------------
145,744,500 147,078,985
------------ ------------
Lesscommon stock in treasury at cost, 100,272
shares and 241,257 shares at December 31, 1996
and September 30, 1997 (971,000) (2,381,466)
------------ ------------
Total shareholders' equity 144,773,500 144,697,519
------------ ------------
Total liabilities and
shareholders' equity $320,509,528 $315,088,961
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date.
-2-
<PAGE> 4
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1997 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $5,084,038 $5,413,361 $14,501,230 $16,408,806
Interest from direct
financing leases 3,017,831 2,770,775 9,141,289 8,462,405
Other interest income 176,117 90,135 410,421 449,956
Other income 5,000 512,298
---------- ---------- ----------- -----------
8,277,986 8,279,271 24,052,940 25,833,465
---------- ---------- ----------- -----------
Expenses:
Interest 3,671,633 3,521,131 10,565,561 10,703,750
Depreciation 832,667 867,163 2,160,227 2,572,021
General and administrative 455,883 668,702 1,579,681 1,921,079
Property expenses 1,213,295 1,136,218 2,945,691 3,656,851
Amortization 89,735 81,185 256,698 242,038
---------- ---------- ----------- -----------
6,263,213 6,274,399 17,507,858 19,095,739
---------- ---------- ----------- -----------
Income before minority
interest, income from
equity investments,
net gain on sales and
extraordinary item 2,014,773 2,004,872 6,545,082 6,737,726
Minority interest in income (193,264) (199,293) (573,103) (574,590)
---------- ---------- ----------- -----------
Income before income
from equity investments,
net gain on sales and
extraordinary item 1,821,509 1,805,579 5,971,979 6,163,136
Income from equity
investments 740,085 751,593 2,256,837 2,381,881
---------- ---------- ----------- -----------
Income before net gain
on sales and
extraordinary item 2,561,594 2,557,172 8,228,816 8,545,017
Gain on sale of real estate and
sales of securities, net 141,131 653,410 141,131
---------- ---------- ----------- -----------
Income before
extraordinary item 2,561,594 2,698,303 8,882,226 8,686,148
Extraordinary gain on
extinguishment of debt 427,448
---------- ---------- ----------- -----------
Net income $2,561,594 $2,698,303 $ 8,882,226 $ 9,113,596
========== ========== =========== ===========
Earnings per common and
common equivalent share:
Income before extraordinary
item $.16 $.16 $.57 $.52
Extraordinary item .03
---- ---- ---- ----
Net income per common and
common equivalent share $.16 $.16 $.57 $.55
==== ==== ==== ====
Weighted average common and
common equivalent shares
outstanding 15,761,357 16,841,048 15,574,856 16,733,273
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE> 5
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,882,226 $ 9,113,596
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,416,925 2,814,059
Income from equity investments in excess of dividends
and distributions received (488,025) (619,671)
Minority interest in income in excess of distributions
paid to minority interest 304,469 311,838
Other noncash items (701,856) (575,863)
Net gain on sales of securities and real estate (653,410) (141,131)
Extraordinary gain on extinguishment of debt (427,448)
Net change in operating assets and liabilities 1,987,793 711,873
------------ ------------
Net cash provided by operating activities 11,748,122 11,187,253
------------ ------------
Cash flows from investing activities:
Purchase of real estate and additional capitalized costs (20,365,010)
Capital contributions in equity investment (5,410,408)
Redemption of short-term investment 1,000,000
Proceeds from sales of securities 835,243
Proceeds from sale of real estate 2,044,260 1,194,273
Purchase of marketable securities (429,750)
------------ ------------
Net cash (used in) provided by investing activities (21,895,915) 764,523
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 17,150,000
Purchase of treasury stock (617,537) (1,410,466)
Prepayment of mortgage payable (2,553,312) (3,850,000)
Prepayment of note payable (3,471,899)
Proceeds from stock issuance, net of costs 13,720,735 1,861,591
Payments of mortgage principal (2,436,711) (2,711,924)
Dividends paid (9,259,663) (10,243,571)
Deferred financing costs (521,675)
------------ ------------
Net cash provided by (used in) financing activities 12,009,938 (16,354,370)
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,862,145 (4,402,594)
Cash and cash equivalents, beginning of period 22,519,656 15,740,583
------------ ------------
Cash and cash equivalents, end of period $ 24,381,801 $ 11,337,989
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 10,388,874 $ 10,691,303
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE> 6
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, 1996.
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 and certain reimbursements. 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 probable that this
incentive fee will be earned. Accordingly, though such incentive fee is not
payable until the threshold is met, it has been accrued and included in accounts
payable to affiliates in the accompanying Consolidated Financial Statements. 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. For the
three-month and nine-month periods ended September 30, 1997, the Company
incurred asset management fees of $518,750 and $1,556,250, respectively.
Subordinated incentive fees, which are not payable currently, were in like
amounts. General and administrative expense reimbursements were $170,004 and
$599,381 for the three-month and nine-month periods ended September 30, 1996,
respectively, and $265,599 and $835,685 for the three-month and nine-month
periods ended September 30, 1997, 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, 1996 and 1997 were $165,526 and $170,855, respectively.
Note 3. Dividends:
Dividends paid to shareholders during the three and nine months ended September
30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Paid Per Share
------------- ---- ---------
<S> <C> <C>
December 31, 1996 $3,411,109 $.20520
March 31, 1997 $3,412,654 $.20540
June 30, 1997 $3,419,808 $.20560
</TABLE>
A dividend of $0.2058 per share was declared and paid in October 1997 for the
quarter ended September 30, 1997.
-5-
<PAGE> 7
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>
1996 1997
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $14,501,230 $16,408,806
Interest from direct financing leases 9,141,289 8,462,405
Adjustments:
Share of leasing revenue applicable
to minority interest (1,349,039) (1,345,934)
Share of leasing revenue from equity
investments 5,255,724 5,313,094
----------- -----------
$27,549,204 $28,838,371
=========== ===========
</TABLE>
For the nine-month periods ended September 30, 1996 and 1997, the Company earned
its proportionate net lease revenues from its investments from the following
lease obligors:
<TABLE>
<CAPTION>
1996 % 1997 %
---- ---- ---- ----
<S> <C> <C> <C> <C>
Marriott International, Inc. (a) $ 3,291,300 12% $ 3,341,438 12%
Best Buy Co., Inc. (b) 2,297,012 8 2,291,725 8
Neodata Corporation 1,710,015 6 1,763,183 6
Omnicom Group, Inc. 1,400,625 5 1,400,625 5
Lucent Technologies, Inc. 1,389,621 5 1,389,621 5
Big V Holding Corp. 1,266,545 5 1,286,109 5
Michigan Mutual Insurance Company 1,018,782 4 1,020,798 4
Garden Ridge, Inc. 1,063,260 4 1,020,753 4
Barnes & Noble, Inc. 998,860 4 1,015,984 4
The Upper Deck Company (a) 982,674 4 989,906 3
Gensia, Inc. (a) 981,750 4 981,750 3
Merit Medical Systems, Inc. 977,468 3 977,468 3
Q Clubs, Inc. 879,609 3 966,656 3
Del Monte Corporation 321,563 1 964,688 3
Lincoln Technical Institute of Arizona, Inc. 811,800 3 853,318 3
Waban, Inc./BJ's Warehouse Club 838,767 3 838,767 3
Plexus Corp. 818,625 3 826,367 3
Wal-Mart Stores, Inc. 787,062 3 781,227 3
Bell Sports Corp. 758,853 3 778,909 3
Custom Food Products, Inc. 548,967 2 651,216 2
Detroit Diesel Corporation 633,750 2
Nicholson Warehouse, L.P. 603,816 2 603,415 2
GATX Logistics, Inc. 596,170 2 596,170 2
Superior Telecommunications, Inc. 463,381 2 499,458 2
Childtime Childcare, Inc. 420,000 2 432,214 2
Petsmart, Inc. 358,978 1 361,975 1
Hibbett Sporting Goods, Inc. 300,046 1 356,838 1
Oshman Sporting Goods, Inc. 331,065 1 336,706 1
CalComp Technology, Inc. 271,404 1 331,775 1
Harvest Foods, Inc. 929,411 3 291,760 1
Kroger Co. 112,854
Safeway Stores Incorporated 131,775 106,313
Affiliated Foods Southwest, Inc. 34,635
----------- --- ----------- ---
$27,549,204 100% $28,838,371 100%
=========== === =========== ===
</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> 8
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 5. Properties Formerly Leased to Harvest Foods, Inc.:
In February 1992, the Company and Corporate Property Associates 10 Incorporated
(CPA(R):10), an affiliate, purchased, through wholly-owned subsidiaries, 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.
In June 1996, Harvest filed a voluntary bankruptcy petition and, in March 1997,
the Bankruptcy Court approved Harvest's motion to disaffirm the master lease.
Harvest subsequently vacated the properties. Under its ruling, the Bankruptcy
Court allowed the Company and CPA(R):10 to establish its unsecured claim for
lease rejection damages at $10,000,000 and ordered Harvest to pay $150,000 in
full satisfaction and settlement of any post-petition obligation for real estate
taxes. The bankruptcy claim is pending and the Company and CPA(R):10 may not
realize the full amount of the bankruptcy claim.
In March 1997, the Company and CPA(R):10 entered into a net leases with The
Kroger Co. and Affiliated Foods Southwest, Inc. for four supermarkets in Conway
and North Little Rock, Arkansas. In September 1997, the Company and CPA(R):10
sold three properties at an aggregate price of $2,400,000 (of which the
Company's share was $1,200,000). In connection with the sale, The Company
recognized a gain of $141,131. The Company and CPA(R):10 are currently
evaluating various offers for the lease or purchase of the vacated properties
and are continuing their remarketing efforts.
Note 6. Equity Investments:
The Company owns an approximate 23.68% interest in Marcourt Investments
Incorporated ("Marcourt"), a real estate investment trust, which net leases 13
Courtyard by Marriott hotels 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. Summarized financial information of
Marcourt, GENA and Cards LLC is as follows:
(in thousands)
<TABLE>
<CAPTION>
Marcourt Gena Cards LLC
------------------------------------- ------------------------------------- -------------------------------------
December 31, 1996 September 30, 1997 December 31, 1996 September 30, 1997 December 31, 1996 September 30, 1997
----------------- ------------------ ----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Assets $149,694 $149,572 $21,826 $21,480 $26,581 $26,581
Liabilities 106,002 103,620 11,832 11,387 15,626 15,551
Owners'
equity 43,692 49,952 9,994 10,093 10,955 11,030
</TABLE>
<TABLE>
<CAPTION>
For The Nine Months Ended
-------------------------------------------------------------------------------------------------
September 30, 1996 September 30, 1997
------------------------------------------------- ----------------------------------------------
Marcourt GENA Cards LLC Marcourt GENA Cards LLC
--------------- ------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $14,088 $ 1,964 $ 1,972 $14,223 $1,964 $1,980
Interest (8,282) (733) (942) (8,046) (695) (934)
Depreciation (346) (346)
Other expenses (62) (5) (3) (88) (2) (2)
-------- ------- -------- ------- ------ ------
Net income $ 5,744 $ 880 $ 1,027 $ 6,089 $ 921 $1,044
======== ======= ======== ======= ====== ======
</TABLE>
-7-
<PAGE> 9
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 7. New Accounting Pronouncement:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"),
which established standards for computing and presenting earnings per share.
SFAS No. 128 will be effective for financial statements issued for periods
ending after December 15, 1997. The impact of the adoption of this statement is
not expected to be material to the Company's Consolidated Financial Statements.
-8-
<PAGE> 10
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,
1997 increased by 5% and 3%, respectively, as compared with the three-month and
nine-month periods ended September 30, 1996. The results for the current
nine-month period benefited from an extraordinary gain of $427,000 in connection
with prepaying a mortgage loan at a substantial discount in the second quarter
and other income of $395,000 from the receipt of a special dividend in the first
quarter on nonvoting common stock in the parent company of a lessee. The
Company's ownership of the stock resulted from the conversion of warrants
granted at the time the lease was negotiated. Income for the prior year
nine-month period benefited from a gain of $664,000 on the sale of common stock
warrants granted to the Company by a lessee. Negotiating the grant of warrants
or other equity interests from lessees in connection with structuring
sale-leaseback transactions has been an integral part of the Company's
acquisition strategy. For the nine-month period, the increase in income before
gains was due to the special dividends. Excluding the special dividend,
operating income for the nine-month periods was stable. The effect of lease
revenue increases were offset by increases in interest, depreciation, general
and administrative and property expenses. Income before gains for the
three-month period was stable, with an increase in lease revenues of 1%, an
increase in general and administrative expenses and a decrease in property
expenses.
The increase in lease revenues for the nine-month period was due to the
acquisition in 1996 of properties leased to Detroit Diesel Corporation and
Hibbett Sporting Goods, Inc., the completion of the Del Monte Corporation
build-to-suit project and the Custom Food Products, Inc. expansion in July 1996
and rent increases on the Company's leases with Q Clubs, Inc., Lincoln Technical
Institute, Inc., Plexus Corp., Bell Sports Corp., Superior Telecommunications,
Inc., Childtime Childcare, Inc. and Custom Food. The benefit to lease revenues
from the rent increases was partially offset by the March 1997 termination of
the Harvest Foods, Inc. master lease for 15 properties. Because of the Harvest
lease termination, lease revenues for the current three-month period only
increased by 1%. The increase in interest expense was due to mortgage loans
obtained in connection with the Hibbett and Del Monte transactions and financing
properties leased to Garden Ridge Corporation and Childtime Childcare. Such
increase; however, was moderated by the effect of the prepayment of the first
priority mortgage loans on the Harvest Foods and Custom Food properties in June
1997 and December 1996, respectively, and the continuing amortization of the
Company's other mortgage loan obligations. The increase in depreciation expense
was due solely to the new properties placed in service in 1996. The increase in
general and administrative expenses was due, in part, to an increase in
administrative reimbursements as a result of costs incurred in connection with
the Harvest Food workout. The increases in property expenses were attributable
to the change, effective January 1, 1997, in calculating the asset management
and performance fees. The fees, as required by the Advisory Agreement, are now
calculated on the basis of the appraised value of the Company's real estate
portfolio as determined pursuant to an independent appraisal. Prior to 1997, the
fees were calculated on the basis of the Company's acquisition cost of the
Company's real estate portfolio. Property expenses decreased for the comparable
three-month periods as the Company incurred a $275,000 charge in 1996 relating
to the litigation settlement on the prepayment of the mortgage loan on the
Omnicom Group, Inc. property.
The Company realized a gain of $141,000 on the sale of three of the
Harvest Foods properties. In addition, the Company has leased four properties at
an aggregate annual rental of $276,000. Annual cash flow from the former Harvest
properties is not likely to reach prior levels, but it is expected to increase
from current levels as the Company executes leases on properties that are
currently vacant. The Company is currently remarketing the remaining properties.
-9-
<PAGE> 11
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
Financial Condition:
There has been no material change in the Company's financial condition
since December 31, 1996. As a result of the termination of the Harvest lease,
cash flow from operations of $11,187,000 was not sufficient to fully fund
payment of dividends to shareholders of $10,244,000 and scheduled mortgage
principal installments of $2,712,000. Future operating cash flow is expected to
increase as the Company completes its remarketing of the Harvest properties and
uses the cash it has available for the purchase of properties. The Company is
currently performing due diligence on several proposed transactions. Management
believes that future operating cash will be sufficient to pay an increasing rate
of quarterly dividends and meet scheduled principal payment installments on the
Company's limited recourse mortgage debt.
The Company used $3,850,000 to satisfy the first priority mortgage loan on
the Harvest properties at a substantial discount during the second quarter, and
is attempting to negotiate a settlement with the holder of the $1,500,000
subordinated mortgage loan on the Harvest properties at a substantial discount.
There is no assurance that a settlement will be reached.
During the third quarter, the Company used $430,000 to exercise its
warrants for the purchase of 90,000 shares of Garden Ridge. The value of these
shares, based on the quoted market value per share at September 30, 1997, is
approximately $1,300,000. The Company had previously converted warrants for
14,400 shares, which it still holds, in addition to recognizing gains of
approximately $1,293,000 on sales of Garden Ridge securities.
The Company is continuing its efforts to raise additional equity capital
through private placements with institutional investors and anticipates that it
will receive commitments of $7,000,000 from two institutional investors for
purchases of common stock at $11.90 per share. The per share price is based on
the independent appraisal of the Company's real estate portfolio as of December
31, 1996. As of November 7, 1997, the Company has approximately $6,300,000 of
cash available for additional investments. In addition, several of the Company's
properties, including the Detroit Diesel properties, are unleveraged. Funds for
investment could be obtained through the placement of mortgage debt on such
unleveraged properties.
The Company's credit facility is scheduled to mature in November 1997. The
Company is in the process of completing negotiations for the renewal of the
credit facility.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"), which established standards for computing and presenting earnings per
share. SFAS No. 128 will be effective for financial statements issued for
periods ending after December 15, 1997. The impact of the adoption of this
statement is not expected to be material to the Company's Consolidated Financial
Statements.
-10-
<PAGE> 12
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, 1997, 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, 1997, the
Company was not required to file any reports on Form
8-K.
-11-
<PAGE> 13
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
11/10/97 By: /s/ Steven M. Berzin
-------- -------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11/10/97 By: /s/ Claude Fernandez
-------- -------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the Quarter Ended September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,337,989
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,337,989
<PP&E> 285,859,216
<DEPRECIATION> 10,533,496
<TOTAL-ASSETS> 315,088,961
<CURRENT-LIABILITIES> 9,234,367
<BONDS> 155,294,734
0
0
<COMMON> 16,883
<OTHER-SE> 144,680,636
<TOTAL-LIABILITY-AND-EQUITY> 315,088,961
<SALES> 0
<TOTAL-REVENUES> 25,833,465
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,149,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,703,750
<INCOME-PRETAX> 8,686,148
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,686,148
<DISCONTINUED> 0
<EXTRAORDINARY> 427,448
<CHANGES> 0
<NET-INCOME> 9,113,596
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
