<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 JUNE 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
(State or other jurisdiction (I.R.S. Employer
of 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
--- ---
16,718,395 shares of common stock; $.001 Par Value
outstanding at August 11, 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
June 30, 1997 2
Consolidated Statements of Income for the three and six
months ended June 30, 1996 and 1997 3
Consolidated Statements of Cash Flows for the
six months ended June 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
</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.
2
<PAGE> 3
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 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
$9,676,129 at June 30, 1997 $ 177,810,120 $ 182,715,859
Net investment in direct financing leases 100,535,180 94,058,076
Equity investments 22,034,005 22,422,143
Cash and cash equivalents 15,740,583 11,302,206
Other assets 4,389,640 5,699,003
------------- -------------
Total assets $ 320,509,528 $ 316,197,287
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 162,284,106 $ 156,225,752
Accrued interest payable 1,216,678 1,278,148
Accounts payable and accrued expenses 443,321 369,752
Accounts payable to affiliates 6,118,940 7,018,738
Prepaid rental income and security deposits 923,825 1,009,054
------------- -------------
Total liabilities 170,986,870 165,901,444
------------- -------------
Minority interest 4,749,158 4,861,604
------------- -------------
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 16,831,058 shares at June 30, 1997 16,725 16,831
Additional paid-in capital 151,143,243 152,396,046
Common stock subscribed 2,000,000
Receivable for common stock subscribed (2,000,000)
Dividends in excess of accumulated earnings (5,488,526) (5,908,403)
Unrealized appreciation, marketable securities 73,058 464,060
------------- -------------
145,744,500 146,968,534
------------- -------------
Less common stock in treasury at cost, 100,272
shares and 156,054 shares at December 31, 1996
and June 30, 1997 (971,000) (1,534,295)
------------- -------------
Total shareholders' equity 144,773,500 145,434,239
------------- -------------
Total liabilities and
shareholders' equity $ 320,509,528 $ 316,197,287
============= =============
</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.
3
<PAGE> 4
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 4,658,472 $ 5,387,975 $ 9,417,192 $ 10,995,445
Interest from direct
financing leases 3,060,647 2,762,363 6,123,458 5,691,630
Other interest income 70,244 165,316 234,304 359,821
Other income 112,314 507,298
------------ ------------ ------------ ------------
7,789,363 8,427,968 15,774,954 17,554,194
------------ ------------ ------------ ------------
Expenses:
Interest 3,425,931 3,517,132 6,893,928 7,182,619
Depreciation 673,171 868,068 1,327,560 1,704,858
General and administrative 595,147 577,125 1,123,798 1,252,377
Property expenses 888,912 1,170,110 1,732,396 2,520,633
Amortization 98,262 77,251 166,963 160,853
------------ ------------ ------------ ------------
5,681,423 6,209,686 11,244,645 12,821,340
------------ ------------ ------------ ------------
Income before minority
interest, income from
equity investments,
net gain on sales and
extraordinary item 2,107,940 2,218,282 4,530,309 4,732,854
Minority interest in income (189,051) (195,241) (379,839) (375,297)
------------ ------------ ------------ ------------
Income before income
from equity investments,
net gain on sales and
extraordinary item 1,918,889 2,023,041 4,150,470 4,357,557
Income from equity
investments 694,902 714,851 1,516,752 1,630,288
------------ ------------ ------------ ------------
Income before net gain
on sales and
extraordinary item 2,613,791 2,737,892 5,667,222 5,987,845
Gain on sale of real estate and
sales of securities, net 664,431 653,410
------------ ------------ ------------ ------------
Income before
extraordinary item 3,278,222 2,737,892 6,320,632 5,987,845
Extraordinary gain on
extinguishment of debt 427,448 427,448
------------ ------------ ------------ ------------
Net income $ 3,278,222 $ 3,165,340 $ 6,320,632 $ 6,415,293
============ ============ ============ ============
Earnings per common and
common equivalent share:
Income before extraordinary
item $ .21 $ .16 $ .41 $ .35
Extraordinary item .03 .03
------------ ------------ ------------ ------------
Net income per common and
common equivalent share $ .21 $ .19 $ .41 $ .38
============ ============ ============ ============
Weighted average common and
common equivalent shares
outstanding 15,495,036 17,046,943 15,480,572 16,847,083
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,320,632 $ 6,415,293
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,494,523 1,865,711
Income from equity investments in excess of dividends
and distributions received (267,131) (388,138)
Minority interest in income in excess of distributions
paid to minority interest 110,869 112,446
Other noncash items (190,617) (114,825)
Net gain on sales of securities and real estate (653,410)
Extraordinary gain on extinguishment of debt (427,448)
Net change in operating assets and liabilities 559,216 325,046
------------ ------------
Net cash provided by operating activities 7,374,082 7,788,085
------------ ------------
Cash flows from investing activities:
Purchase of real estate and additional capitalized costs (15,652,485)
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
Purchase of marketable securities (450,000)
------------ ------------
Net cash used in investing activities (17,183,390) (450,000)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (405,927) (563,295)
Prepayment of mortgage payable (3,850,000)
Proceeds from stock issuance, net of costs 3,367,990 1,252,909
Payments of mortgage principal (1,611,153) (1,780,906)
Dividends paid (6,096,728) (6,835,170)
Deferred financing costs (9,300)
------------ ------------
Net cash used in financing activities (4,755,118) (11,776,462)
------------ ------------
Net decrease in cash and cash equivalents (14,564,426) (4,438,377)
Cash and cash equivalents, beginning of period 22,519,656 15,740,583
------------ ------------
Cash and cash equivalents, end of period $ 7,955,230 $ 11,302,206
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 6,926,867 $ 7,121,149
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<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 likely that this
incentive fee will be earned; therefore, though such incentive fee will not be
paid until the threshold is met, it has been accrued and included in accounts
payable to affiliates in the accompanying consolidated financial statements. For
the three-month and six-month periods ended June 30, 1996, the Company incurred
asset management fees of $388,702 and $781,268, respectively. For the
three-month and six-month periods ended June 30, 1997, the Company incurred
asset management fees of $518,750 and $1,037,500, respectively. Subordinated
incentive fees, which are not payable currently, were in like amounts. General
and administrative expense reimbursements were $238,178 and $429,377 for the
three-month and six-month periods ended June 30, 1996, respectively, and
$254,714 and $570,086 for the three-month and six-month periods ended June 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 six-month periods ended June 30,
1996 and 1997 were $111,957 and $103,058, respectively.
Note 3. Dividends:
Dividends paid to shareholders during the three and six months ended June 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 $3,424,061 $.20540
</TABLE>
A dividend of $.20560 per share for the quarter ended June 30, 1997 was declared
and paid in July 1997.
6
<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 $ 9,417,192 $ 10,995,445
Interest from direct financing leases 6,123,458 5,691,630
Adjustments:
Share of leasing revenue applicable
to minority interest (899,214) (897,172)
Share of leasing revenue from equity
investments 3,550,132 3,608,298
------------ ------------
$ 18,191,568 $ 19,398,201
============ ============
</TABLE>
For the six-month periods ended June 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) $ 2,242,926 12% $ 2,293,860 12%
Best Buy Co., Inc. (b) 1,531,095 8 1,527,617 8
Neodata Corporation 1,122,287 6 1,175,456 6
Omnicom Group, Inc. 933,750 5 933,750 5
Lucent Technologies, Inc. 926,414 5 926,414 5
Big V Holding Corp. 842,828 5 855,669 5
Garden Ridge, Inc. 718,680 4 680,502 4
Michigan Mutual Insurance Company 679,027 4 680,355 4
Barnes & Noble, Inc. 664,560 4 675,798 4
The Upper Deck Company (a) 652,706 4 659,938 3
Gensia, Inc. (a) 654,500 4 654,500 3
Merit Medical Systems, Inc. 651,646 4 651,646 3
Q Clubs, Inc. 560,453 3 644,438 3
Del Monte Corporation 643,125 3
Wal-Mart Stores, Inc. 597,341 3 591,505 3
Waban, Inc./BJ's Warehouse Club 559,178 3 559,178 3
Lincoln Technical Institute of Arizona, Inc. 541,200 3 551,579 3
Plexus Corp. 545,750 3 545,750 3
Bell Sports Corp. 505,902 3 519,272 3
Custom Food Products, Inc. 338,915 2 434,674 2
Detroit Diesel Corporation 422,500 2
Nicholson Warehouse, L.P. 402,542 2 402,279 2
GATX Logistics, Inc. 397,446 2 397,446 2
Superior Telecommunications, Inc. 306,514 2 332,042 2
Harvest Foods, Inc. 619,545 3 286,966 2
Childtime Childcare, Inc. 280,000 1 280,000 1
Petsmart, Inc. 239,023 1 239,900 1
Hibbett Sporting Goods, Inc. 181,100 1 237,892 1
Oshman Sporting Goods, Inc. 220,268 1 223,966 1
Summagraphics Corporation 179,634 1 220,839 1
Safeway Stores Incorporated 96,338 1 70,875
Kroger Co. 61,152
Affiliated Foods Southwest, Inc. 17,318
----------- --- ----------- ---
$18,191,568 100% $19,398,201 100%
=========== === =========== ===
</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.
7
<PAGE> 8
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
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, 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.
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. Harvest subsequently vacated the
properties.
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
Company and CPA(R):10 also entered into net leases with Affiliated Foods
Southwest, Inc. for two stores in Hope and Little Rock, Arkansas. The Company
and CPA(R):10 are currently evaluating various offers for the lease or purchase
of the vacated properties and are continuing their efforts to remarket the
properties.
On June 24, 1997, the Company and CPA(R):10 entered into a transaction whereby
each purchased a 50% participation in the first priority mortgage loan
collateralized by the 15 properties formerly leased to Harvest. The mortgage
loan, which has an outstanding balance of $8,554,894, was purchased for
$7,700,000 (of which the Company's share was $4,277,448 and $3,850,000,
respectively). For financial reporting purposes, the purchase of the
participation has been recorded as a mortgage prepayment. In connection with
such prepayment, the Company has recognized an extraordinary gain on the
extinguishment of debt of $427,448 in the accompanying consolidated financial
statements. The Company and CPA(R):10 have entered into negotiations with the
holder of a subordinated mortgage loan of $2,995,180 (of which the Company's
share is $1,497,590) in an attempt to reach a settlement or payoff the loan. The
holder of the subordinated mortgage loan is an affiliate of Harvest.
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 GENA,
Marcourt and Cards LLC is as follows:
<TABLE>
<CAPTION>
(in thousands)
Marcourt Gena Cards LLC
--------------------------------- --------------------------------- --------------------------------
December 31, 1996 June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996 June 30, 1997
----------------- -------------- ----------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Assets $149,694 $149,495 $21,826 $21,596 $26,581 $26,581
Liabilities 106,002 104,394 11,832 11,536 15,626 15,606
Owners' equity 43,692 45,101 9,994 10,060 10,955 10,975
</TABLE>
<TABLE>
<CAPTION>
For The Six Months Ended
------------------------------------------------------------------------------------------
June 30, 1996 June 30, 1997
------------------------------------------ ---------------------------------------
Marcourt GENA Cards LLC Marcourt GENA Cards LLC
-------- ---- --------- -------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 9,480 $ 1,309 $ 1,312 $ 9,696 $1,309 $1,320
Interest (5,529) (490) (628) (5,391) (464) (624)
Depreciation (230) (230)
Other expenses (39) (5) (2) (64) (1)
-------- ------- -------- ------- ------ ------
Net income $ 3,912 $ 584 $ 682 $ 4,241 $ 614 $ 696
======== ======= ======== ======= ====== ======
</TABLE>
8
<PAGE> 9
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 7. Stock Options Granted to Affiliate:
Since September 1995, the Company has raised $26,000,000 from institutional
investors in a private placement of common stock. Such equity raising effort has
been conducted by W. P. Carey & Co., Inc. ("W.P. Carey"), an affiliate of the
Advisor. W.P. Carey did not receive any compensation at the time such capital
was raised. On June 10, 1997, the Company's Shareholders approved a proposal to
grant options in the Company's common stock to W.P. Carey in lieu of cash
compensation. Under the plan, W.P. Carey was granted 866,667 options exercisable
at $10 per share and 750,000 options exercisable at $11.50 per share as
compensation for W.P. Carey's raising $13,000,000 at $10 per share in 1995 and
$13,000,000 at $11.50 per share in 1996 on behalf of the Company. The options
are exercisable over a ten-year period commencing December 10, 1997.
The granting of the options was intended to compensate W.P. Carey in an amount
equivalent to a fee of $780,000, 3% of the capital raised. The options have been
valued pursuant to a binomial formula applied by an independent compensation
consultant. As the compensation is directly related to raising capital, such
compensation cost has been charged to additional paid-in capital. Pursuant to
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the charge for stock-based compensation has been offset by a
credit to additional paid-in capital.
9
<PAGE> 10
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
Results of Operations:
Excluding the effects of a $427,000 extraordinary gain on extinguishment
of debt and nonrecurring other income in 1997 and a gain on sales of assets in
1996, the results of operations for the three-month and six-month periods ended
June 30, 1997 would have reflected an increase of $12,000 and a decrease of
$187,000, respectively, as compared with the three-month and six-month periods
ended June 30, 1996. The decrease in earnings was primarily due to increases in
interest, depreciation and property expenses. The effect of the increases in
these expenses were partially offset by increases in lease revenues.
The increases in interest expense were the result of obtaining limited
recourse mortgage financing on the Garden Ridge Corporation, Childtime
Childcare, Inc., Del Monte Corporation and Hibbett Sporting Goods, Inc.
properties in 1996. Solely as a result of these new financings, interest expense
increased by $601,000 during the six month period ended June 30, 1997. Such
increase in interest expense was partially offset by the effect of the
continuing amortization of debt on existing mortgage loans and the prepayment of
a mortgage loan on the Custom Food Products, Inc. property in the fourth quarter
of 1996. The increase in depreciation was primarily due to the acquisition of
properties in 1996 leased to Detroit Diesel Corporation and Hibbett Sporting
Goods and the completion of the build-to-suit project in July 1996 on four
properties leased to Del Monte. The increase in property expense was due to a
scheduled change in the method of calculating the 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 pursuant to
an independent appraisal of the portfolio as required by the Advisory Agreement.
Until December 31, 1996, calculation of the fees was based on the cost of the
properties. The increase in lease revenues was due to the new leases in 1996
with Hibbett Sporting Goods and Detroit Diesel, the completion of the Del Monte
construction and an increase in Custom Food Products rent in connection with the
Company's funding an expansion of its existing facilities. Such increases in
lease revenues were negatively impacted by the termination of the Harvest Foods,
Inc. master lease for 15 properties. Four of the former Harvest properties are
currently leased to Kroger Co. and Affiliated Foods Southwest, Inc. at an
aggregate annual rental of $552,000 (of which the Company's share is $276,000).
The Company is actively remarketing the properties and currently evaluating
offers for the lease or purchase of several of the properties. Prior to the
termination of the Harvest lease, the Company's share of annual cash flow from
the properties (rents less mortgage debt service) was $607,000. Although annual
cash flow from the properties may not reach prior levels, the Company expects
cash flow to increase as it executes new leases for several of the vacated
properties.
Financial Condition:
There has been no material change in the Company's financial condition
since December 31, 1996. Cash flow from operations of $7,788,000 was sufficient
to fund payment of dividends of $6,835,000 and $935,000 of scheduled mortgage
principal installments of $1,781,000. Future operating cash flow is expected to
increase as new leases are executed for former Harvest properties. Management
believes that its cash balances and future cash from operations will be
sufficient to maintain the current trend of increasing the rate of quarterly
dividends.
The Company used $3,850,000 to purchase a participation in the first
priority mortgage loan on the former Harvest properties at a substantial
discount. In connection with the purchase of the participation, an extraordinary
gain on extinguishment of debt of $427,000 was recognized for financial
reporting purposes.
10
<PAGE> 11
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
Financial Condition (continued):
The Company is negotiating with the holder of $1,497,500 subordinated mortgage
loan on the former Harvest properties in an attempt to reach a settlement. The
holder of this debt is an affiliate of Harvest. The Company used $450,000 to
exercise warrants for the purchase of 90,000 shares of Garden Ridge Corporation,
exercisable at $5 per share, thereby increasing its holdings in Garden Ridge
common stock to 104,400 shares. At June 30, 1997, the market value of the Garden
Ridge shares was $1,305,000. The Company previously recognized gains in 1995 and
1996 totaling $1,293,000 on the sale of Garden Ridge stock warrants. The
warrants were granted in connection with the purchase of the two Garden Ridge
properties at a total price of $12,051,000, with such purchases financed by
$8,000,000 in limited recourse mortgage debt.
The Company is continuing its efforts to raise additional equity capital
through its private placement to institutional investors and has received a
commitment of $4,000,000 for the purchase of common stock at $11.90 per share.
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. As of August 12, 1997,
the Company has approximately $5,100,000 of equity capital available for new
investments. In addition, several of the Company's properties, including the
Detroit Diesel properties, are unleveraged and funds for additional investment
could be obtained through the placement of mortgage debt on such unleveraged
properties.
The Company's credit facility, under which the Company can borrow up to
$9,500,000, is scheduled to mature in November 1997. The Company is evaluating
whether to maintain such facility.
11
<PAGE> 12
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual Shareholders meeting was held on June 10, 1997,
at which the following votes were taken through the
solicitation of proxies.
The following directors were elected for a one-year term:
<TABLE>
<CAPTION>
Total Shares Shares Shares
Name Of Director Shares Voting Voting Yes Voting No Abstaining
---------------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
William P. Carey 9,824,914 9,693,143 21,964 109,807
Ralph G. Coburn 9,824,914 9,640,122 68,485 116,307
George E. Stoddard 9,824,914 9,640,871 69,735 114,308
Warren G. Wintrub 9,824,914 9,675,071 36,535 113,308
Barclay G. Jones, III 9,824,914 9,697,042 15,564 112,308
William Ruder 9,824,914 9,690,007 21,100 113,807
Charles C. Townsend, Jr. 9,824,914 9,691,232 16,064 117,618
</TABLE>
The proposal to adopt a plan to issue stock options to W.
P. Carey & Co., Inc., an affiliate of the Advisor, was
approved as follows:
<TABLE>
<S> <C> <C> <C> <C>
9,824,914 7,357,715 1,973,728 493,471
</TABLE>
No other matters were subject to a vote at this meeting.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the quarter ended June 30, 1997, the Company
was not required to file any reports on Form 8-K.
12
<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
08/12/97 By: /s/ Steven M. Berzin
- ------------------ ----------------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
08/12/97 By: /s/ Claude Fernandez
- ------------------ ----------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
08/12/97 By: /s/ Michael D. Roberts
- ------------------ ----------------------------------------
Date Michael D. Roberts
First Vice President and Controller
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30,1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,302,206
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,302,206
<PP&E> 286,450,064
<DEPRECIATION> 9,676,729
<TOTAL-ASSETS> 316,197,287
<CURRENT-LIABILITIES> 9,675,692
<BONDS> 156,225,752
0
0
<COMMON> 16,831
<OTHER-SE> 145,417,408
<TOTAL-LIABILITY-AND-EQUITY> 316,197,287
<SALES> 0
<TOTAL-REVENUES> 17,554,194
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,638,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,182,619
<INCOME-PRETAX> 5,987,845
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,987,845
<DISCONTINUED> 0
<EXTRAORDINARY> 427,448
<CHANGES> 0
<NET-INCOME> 6,415,293
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
