<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 MARCH 31, 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
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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
16,687,326 shares of common stock;
$.001 Par Value outstanding
at May 9, 1997.
<PAGE> 2
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1996 and
March 31, 1997 2
Consolidated Statements of Income for the three
months ended March 31, 1996 and 1997 3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1997 4
Notes to Consolidated Financial Statements 5-7
Item 2. - Management's Discussion of Operations 8
PART II
Item 4. - Submission of Matters to a Vote of Security Holders 9
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
</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> 3
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31
1996 1997
---------------- -------------
(Note) (Unaudited)
ASSETS:
<S> <C> <C>
Land and buildings ,
net of accumulated depreciation of
$7,971,271 at December 31, 1996 and
$8,808,061 at March 31, 1997 $ 177,810,120 $ 183,583,927
Net investment in direct financing leases 100,535,180 94,314,394
Equity investments 22,034,005 22,234,616
Cash and cash equivalents 15,740,583 15,805,242
Other assets 4,389,640 4,609,597
------------- -------------
Total assets $ 320,509,528 $ 320,547,776
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 162,284,106 $ 161,387,376
Accrued interest payable 1,216,678 1,264,416
Accounts payable and accrued expenses 443,321 674,035
Accounts payable to affiliates 6,118,940 6,605,261
Prepaid rental income and security deposits 923,825 931,108
------------- -------------
Total liabilities 170,986,870 170,862,196
------------- -------------
Minority interest 4,749,158 4,929,343
------------- -------------
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 16,778,465 shares at March 31, 1997 16,725 16,778
Additional paid-in capital 151,143,243 151,771,962
Common stock subscribed 2,000,000 2,000,000
Receivable for common stock subscribed (2,000,000) (2,000,000)
Dividends in excess of accumulated earnings (5,488,526) (5,649,682)
Unrealized appreciation, marketable securities 73,058 81,653
------------- -------------
145,744,500 146,220,711
------------- -------------
Less common stock in treasury at cost, 100,272
shares and 141,754 shares at
December 31, 1996 and March 31, 1997 (971,000) (1,464,474)
------------- -------------
Total shareholders' equity 144,773,500 144,756,237
------------- -------------
Total liabilities and
shareholders' equity $ 320,509,528 $ 320,547,776
============= =============
</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
March 31, 1996 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Rental income from operating leases $ 4,758,720 $ 5,607,470
Interest income from direct financing leases 3,062,811 2,929,267
Other interest income 154,550 194,505
Other income 9,510 394,984
----------- -----------
7,985,591 9,126,226
----------- -----------
Expenses:
Interest 3,467,997 3,665,487
Depreciation 654,389 836,790
General and administrative 556,776 675,252
Property expenses 799,607 1,350,523
Amortization 84,453 83,602
----------- -----------
5,563,222 6,611,654
----------- -----------
Income before minority interest
income from equity investments and
loss on sales 2,422,369 2,514,572
Minority interest in income 190,788 180,056
----------- -----------
Income before income from equity
investments and loss on sales 2,231,581 2,334,516
Income from equity investments 821,850 915,437
----------- -----------
Income before loss on sales 3,053,431 3,249,953
Loss on sales of real estate 11,021
----------- -----------
Net income $ 3,042,410 $ 3,249,953
=========== ===========
Net income per common share $ .20 $ .20
=========== ===========
Weighted average number of shares outstanding 15,466,213 16,645,200
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1996 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,042,410 $ 3,249,953
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 738,842 920,392
Income from equity investments in excess of dividends
and distributions received (85,418) (200,611)
Minority interest in income in excess of distributions
(advances) paid to minority interest 190,788 180,185
Income from direct financing
leases in excess of scheduled rents (460,535) (380,466)
and straight-line adjustments on operating leases
Net loss on sales 11,021
Net change in operating assets and liabilities 1,151,800 467,747
------------ ------------
Net cash provided by operating activities 4,588,908 4,237,200
------------ ------------
Cash flows from investing activities:
Purchase of real estate and additional capitalized costs (13,825,906)
Capital contributions in equity investment (5,410,408)
Redemption of short-term investment 1,000,000
Proceeds from sale of real estate 2,044,260
------------
Net cash used in investing activities (16,192,054)
------------
Cash flows from financing activities:
Purchase of treasury stock (92,400) (493,474)
Proceeds from stock issuance, net of costs 161,664 628,772
Payments of mortgage principal (817,428) (896,730)
Dividends paid (2,942,124) (3,411,109)
Deferred financing costs (9,300)
------------ ------------
Net cash used in financing activities (3,699,588) (4,172,541)
------------ ------------
Net (decrease) increase in cash and cash equivalents (15,302,734) 64,659
Cash and cash equivalents, beginning of period 22,519,656 15,740,583
------------ ------------
Cash and cash equivalents, end of period $ 7,216,922 $ 15,805,242
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 3,568,368 $ 3,617,749
============ ============
</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. 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 the accompanying consolidated financial statements. For the
three-month periods ended March 31, 1996 and March 31, 1997, the Company
incurred asset management fees of $392,566 and $518,750, respectively, and
subordinated incentive fees, which are not currently payable, were in like
amounts. General and administrative expense reimbursements were $191,199 and
$315,372 for the three-month periods ended March 31, 1996 and 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 three-month periods ended March 31,
1996 and 1997 were $56,339 and $75,501, respectively.
Note 3. Dividends:
Dividends paid to shareholders during the three months ended March 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Paid Per Share
----------------- ---------- ---------
<S> <C> <C> <C>
December 31, 1996 $3,411,109 $.20520
</TABLE>
A dividend of $0.20540 per share for the quarter ended March 31, 1997 was
declared and paid in April 1997.
- 5 -
<PAGE> 7
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 $ 4,758,720 $ 5,607,470
Interest from direct financing leases 3,062,811 2,929,267
Adjustments:
Share of leasing revenue applicable
to minority interest (450,315) (449,307)
Share of leasing revenue from equity
investments 1,847,726 1,896,975
----------- -----------
$ 9,218,942 $ 9,984,405
=========== ===========
</TABLE>
For the three-month periods ended March 31, 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) $1,197,739 13% $1,243,560 12%
Best Buy Co., Inc. (b) 766,752 8 765,037 8
Neodata Corporation 555,827 6 587,728 6
Omnicom Group, Inc. 466,875 5 466,875 5
Lucent Technologies 463,207 5 463,207 5
Big V Holding Corp. 420,659 5 426,982 4
Wal-Mart Stores, Inc. 407,619 4 419,432 4
Garden Ridge, Inc. 356,536 4 340,251 3
Michigan Mutual Insurance Company 339,435 4 340,090 3
Gensia, Inc. (a) 327,250 4 327,250 3
Barnes & Noble, Inc. 331,620 4 327,146 3
The Upper Deck Company (a) 322,737 3 326,165 3
Merit Medical Systems, Inc. 325,823 3 325,823 3
Q Clubs, Inc. 252,016 3 322,219 3
Del Monte Corporation 321,563 3
Waban, Inc./BJ's Warehouse Club 279,589 3 279,589 3
Plexus Corp. 272,875 3 272,875 3
Lincoln Technical Institute of Arizona, Inc. 270,599 3 270,599 3
Bell Sports Corp. 252,951 3 259,636 3
Harvest Foods, Inc. 309,743 3 258,202 3
Custom Food Products, Inc. 170,402 2 216,881 2
Detroit Diesel Corporation 211,250 2
Nicholson Warehouse, L.P. 201,270 2 201,142 2
GATX Logistics, Inc. 198,723 2 198,723 2
Superior Telecommunications, Inc. 153,203 2 166,582 2
Childtime Childcare, Inc. 140,000 1 140,000 2
Petsmart, Inc. 119,078 1 119,950 1
Hibbett Sporting Goods, Inc. 62,154 1 118,946 1
Oshman Sporting Goods, Inc. 109,918 1 111,736 1
CalComp Technology, Inc. 83,442 1 110,077 1
Safeway Stores Incorporated 60,900 1 35,438 1
Kroger Co. 9,451
---------- ---------- ---------- ---
$9,218,942 100% $9,984,405 100%
========== ========== ========== ===
</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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 5. Property Leased to Harvest Foods, Inc.:
In February 1992, the Company and Corporate Property Associates 10 Incorporated
(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.
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.
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. Except as described, Harvest may
remain in possession of any of the properties until May 15, 1997.
On March 15, 1997, the Company and CPA(R):10 entered into a net lease with The
Kroger Co. for two supermarkets in Conway and North Little Rock, Arkansas. The
lease has an initial term of 20 years at an annual rent of $413,612 and grants
the lessee options for four five-year renewal terms. The Company and CPA(R):10
have also entered into net leases with Affiliated Foods Southwest, Inc.
("Affiliated") for two stores in Hope and Little Rock, Arkansas at annual
rentals of $107,352 and $31,188, respectively. The lease for the Hope store also
provides for additional rent of 1% of weekly sales in excess of $175,000. The
Affiliated leases have initial terms through March 31, 2002 and provide four
five-year renewal options.
The former Harvest properties are subject to two limited recourse mortgage loans
with balances of $4,267,387 and $1,497,590, respectively. The Company and
CPA(R):10 have entered into negotiations with the lenders and are seeking to
restructure the loans or reach settlements with the lenders. The Company and
CPA(R):10 are actively seeking to remarket the remaining properties.
Note 6. Other Income:
In September 1994, the Company entered into a net lease with Custom Food
Products, Inc. In connection with the transaction, the Company was granted
warrants to purchase 412 shares of common stock of CFP Holdings, Inc. On
December 31, 1996, the warrants were exchanged for 589 Class A nonvoting common
shares of CFP Group, Inc.("CFP") February 4, 1997, the Company received a
special dividend of $394,984 from its investment in CFP.
Note 7. 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 GENA,
Marcourt and Cards LLC is as follows:
<TABLE>
<CAPTION>
(in thousands)
Marcourt Gena Cards LLC
------------------------------------- ---------------------------------- ----------------------------------
December 31, 1996 March 31, 1997 December 31, 1996 March 31, 1997 March 31, 1997 December 31, 1996
----------------- ---------------- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Assets $149,694 $149,572 $21,826 $21,711 $26,581 $26,581
Liabilities 106,002 105,210 11,832 11,684 15,705 15,626
Owners' equity 43,692 44,362 9,994 10,027 10,876 10,955
</TABLE>
<TABLE>
<CAPTION>
For The Three Months Ended
-------------------------------------------------------------------------------------------------
March 31, 1996 March 31, 1997
------------------------------------------------- -------------------------------------------
Marcourt GENA Cards LLC Marcourt GENA Cards LLC
-------- ---- --------- -------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,062 $ 655 $ 652 $ 5,256 $ 654 $ 660
Interest (2,779) (246) (312) (2,696) (232) (312)
Depreciation (115) (115)
Other expenses (29) (16) (1)
--------- ------- -------- ------- ------ ------
Net income $ 2,254 $ 294 $ 340 $ 2,544 $ 307 $ 347
======= ======= ======== ======= ====== ======
</TABLE>
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<PAGE> 9
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Net income for the three-month period ended March 31, 1997 increased by
$207,000 as compared with the three-month period ended March 31, 1996. The
increase in net income was due to increases in leasing revenues and other income
and was partially offset by increases in interest, depreciation, general and
administrative and property expenses. The increase in lease revenues was
primarily due to revenues from new leases, (Hibbett Sporting Goods, Inc. and
Detroit Diesel Corporation) completion of construction (Del Monte Corporation)
and expansions at existing properties (Custom Food Products, Inc.) in 1996 Other
income of $395,000 was due to a special dividend from securities which were
granted to the Company in connection with structuring its initial transaction
with Custom Food in 1996. The increases in interest and depreciation expenses
were due to the acquisition and expansion of properties in 1996, a portion of
which utilized limited recourse financing. The increase in general and
administrative expenses was due, in part, to certain nonrecurring administrative
reimbursements. The increase in property expense was due to a scheduled change
in the method of calculating the of asset management and performance fees,
effective January 1, 1997. Such fees are now calculated on the basis of the
appraised value of the Company's real estate portfolio. Until December 31, 1996,
calculation of the fees was based on the cost of the properties. The Company has
established that the value of a share of common stock is $11.90 based on an
independent appraisal at December 31, 1996.
The Company is continuing its efforts to resolve the uncertainties related
to the termination of the Harvest Foods, Inc. lease for thirteen supermarkets
and two office properties. As of March 31, 1997, the Company was able to
re-lease four of the supermarket properties at an annual rent of $552,000. The
Company is actively remarketing the remaining properties and is attempting to
negotiate settlements or restructuring agreements with its limited recourse
lenders. The level of future cash flow from these properties will depend on the
outcome of these efforts. To the extent that the Company is not able to reach a
settlement with its lenders, it currently has sufficient resources to pay off
the outstanding loans, if necessary.
Financial Condition:
There was no material change in the Company's financial condition since
December 31, 1996. Cash flow from operations of $4,237,000 was sufficient to
fund distributions to shareholders of $3,411,000 and $826,000 of scheduled
principal payments on the Company's limited recourse mortgage loans. The Company
is continuing its efforts to raise additional equity capital through its private
placement to institutional investors. Accordingly, the Company believes that it
will continue to expand its asset base. As of March 31, 1997, the company had
approximately $9,800,000 of equity capital available for new investments. The
acceptance of funds from institutional investors is conditioned upon the
availability of opportunities which can be projected to benefit all
shareholders.
Management believes that its cash balances and future cash flow from
operations will be sufficient to maintain the current trend of increasing
quarterly dividends.
- 8 -
<PAGE> 10
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 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 March 31, 1997, the Company
was not required to file any reports on Form 8-K.
- 9 -
<PAGE> 11
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
05/9/97 By: /s/ Claude Fernandez
------- --------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
05/9/97 By: /s/ Michael D. Roberts
------- ----------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,805,242
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,805,242
<PP&E> 286,706,382
<DEPRECIATION> 8,808,061
<TOTAL-ASSETS> 320,547,776
<CURRENT-LIABILITIES> 9,474,820
<BONDS> 161,387,376
0
0
<COMMON> 16,778
<OTHER-SE> 144,739,459
<TOTAL-LIABILITY-AND-EQUITY> 320,547,776
<SALES> 0
<TOTAL-REVENUES> 9,126,226
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,862,565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,665,487
<INCOME-PRETAX> 3,249,953
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,249,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,249,953
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
