<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, 1998
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)
<TABLE>
<S> <C>
MARYLAND 13-3602400
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
</TABLE>
(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
17,313,820 shares of common stock; $.001 Par Value
outstanding at May 14, 1998.
<PAGE> 2
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of December 31, 1997
and March 31, 1998 2
Condensed Consolidated Statements of Income for the three
months ended March 31, 1997 and 1998 3
Condensed Consolidated Statements of Comprehensive Income
for the three months ended March 31, 1997 and 1998 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1998 4
Notes to Condensed Consolidated Financial Statements 5-8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II - Other Information
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> 3
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------- -------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$11,396,602 at December 31, 1997 and
$12,260,213 at March 31, 1998 $ 180,075,131 $ 191,736,647
Net investment in direct financing leases 94,235,594 94,684,891
Equity investments 22,835,403 23,043,789
Cash and cash equivalents 17,331,710 6,124,027
Other assets 6,007,626 6,510,240
------------- -------------
Total assets $ 320,485,464 $ 322,099,594
============= =============
LIABILITIES:
Mortgage notes payable $ 154,348,585 $ 153,393,021
Accrued interest payable 1,248,886 1,281,617
Accounts payable and accrued expenses 523,821 547,787
Accounts payable to affiliates 8,483,741 9,570,408
Dividends payable 3,466,189
Prepaid rental income and security deposits 1,053,186 1,147,574
------------- -------------
Total liabilities 169,124,408 165,940,407
------------- -------------
Minority interest 4,988,932 5,190,455
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value;
authorized, 40,000,000 shares; issued and
outstanding, 17,440,556 shares at December 31,
1997 and 17,496,406 shares at March 31, 1998 17,440 17,496
Additional paid-in capital 159,636,566 160,304,121
Dividends in excess of accumulated earnings (11,549,928) (8,356,233)
Unrealized appreciation, marketable securities 638,539 1,373,841
------------- -------------
148,742,617 153,339,225
Less common stock in treasury at cost, 241,404
shares at December 31, 1997 and March 31, 1998 (2,370,493) (2,370,493)
------------- -------------
Total shareholders' equity 146,372,124 150,968,732
------------- -------------
Total liabilities and
shareholders' equity $ 320,485,464 $ 322,099,594
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The balance sheet at December 31, 1997 has been derived from the
audited condensed consolidated financial statements at that date.
- 2 -
<PAGE> 4
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Rental income from operating leases $ 5,607,470 $ 5,694,507
Interest income from direct financing leases 2,929,267 2,774,632
Other interest income 194,505 253,714
Other income 394,984 9,197
------------ ------------
9,126,226 8,732,050
------------ ------------
Expenses:
Interest 3,665,487 3,460,762
Depreciation 836,790 863,611
General and administrative 675,252 494,754
Property expenses 1,350,523 1,462,918
Amortization 83,602 48,403
------------ ------------
6,611,654 6,330,448
------------ ------------
Income before minority interest and
income from equity investments 2,514,572 2,401,602
Minority interest in income (180,056) (201,523)
------------ ------------
Income before income from equity
investments 2,334,516 2,200,079
Income from equity investments 915,437 993,616
------------ ------------
Net income $ 3,249,953 $ 3,193,695
============ ============
Basic earnings per common share $ .20 $ .19
============ ============
Diluted earnings per common share $ .20 $ .18
============ ============
Weighted average of shares outstanding-basic 16,645,200 17,246,314
============ ============
Weighted average of shares outstanding-diluted 16,645,200 17,512,069
============ ============
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1998
-------------- --------------
<S> <C> <C>
Net income $3,249,953 $3,193,695
---------- ----------
Other comprehensive income:
Unrealized gains on securities during the period 8,595 735,302
---------- ----------
Other comprehensive income 8,595 735,302
---------- ----------
Comprehensive income $3,258,548 $3,928,997
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 3 -
<PAGE> 5
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,249,953 $ 3,193,695
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 920,392 912,014
Income from equity investments in excess of dividends
and distributions received (200,611) (208,386)
Minority interest in income in excess of distributions
paid to minority interest 180,185 201,523
Straight-line rent adjustments and other noncash
rent adjustments (380,466) (430,460)
Provision for uncollected rents 63,519
Net change in operating assets and liabilities 467,747 1,339,681
------------ ------------
Net cash provided by operating activities 4,237,200 5,071,586
------------ ------------
Cash flows from investing activities:
Purchase of real estate and additional capitalized costs (12,525,127)
------------
Net cash used in investing activities (12,525,127)
------------
Cash flows from financing activities:
Purchase of treasury stock (493,474)
Proceeds from stock issuance, net of costs 628,772 667,611
Payments of mortgage principal (896,730) (955,564)
Dividends paid (3,411,109) (3,466,189)
------------ ------------
Net cash used in financing activities (4,172,541) (3,754,142)
------------ ------------
Net increase (decrease) in cash and cash equivalents 64,659 (11,207,683)
Cash and cash equivalents, beginning of period 15,740,583 17,331,710
------------ ------------
Cash and cash equivalents, end of period $ 15,805,242 $ 6,124,027
============ ============
Supplemental disclosure of cash flows information:
Interest paid $ 3,617,749 $ 3,428,031
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 4 -
<PAGE> 6
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
The accompanying unaudited condensed 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 Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. All significant
intercompany balances and transactions have been eliminated. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the results of the interim periods
presented have been included. The results of operations for the interim periods
are not necessarily indicative of results for the full year. 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, 1997.
Note 2. Earnings Per Share:
Basic and diluted earnings per common share for the Company for the three-month
period ended March 31, 1998 were calculated as follows:
<TABLE>
<CAPTION>
Income Available Weighted Average Per-Share
to Common Shareholders Shares Outstanding Amount
---------------------- ------------------ ---------
<S> <C> <C> <C>
Basic earnings per common share $ 3,193,695 17,246,314 $.19
============ ====
Effect of dilutive securities-stock warrants 265,755
----------
Diluted earnings per common share $ 3,193,695 17,512,069 $.18
============ ========== ====
</TABLE>
During the three-month period ended March 31, 1997, the Company was an entity
with a simple capital structure, that is, one with only common stock
outstanding. As a result, no reconciliation of basic and diluted weighted
average shares and per-share amounts have been presented.
Note 3. 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 asset
management and performance fees and certain reimbursements. For the three-month
periods ended March 31, 1997 and 1998, the Company incurred asset management
fees of $518,750 and $533,750, respectively. Subordinated performance fees,
which are not payable currently, were in like amounts. Until Shareholders have
received a cumulative dividend return of 8%, which threshold has not yet been
met, the Advisor will not be entitled to receive the performance fee. Management
believes it is more likely than not the performance fee threshold will be met.
Accordingly, the performance fee has been accrued and included in accounts
payable to affiliates in the accompanying condensed consolidated financial
statements. General and administrative expense reimbursements were $315,372, and
$167,389 for the three-month periods ended March 31, 1997 and 1998,
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,
1997 and 1998 were $75,501 and $72,677, respectively.
Note 4. Dividends:
Dividends paid to shareholders during the three months ended March 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Paid Per Share
----------------- ---------- ---------
<S> <C> <C>
December 31, 1997 $3,466,189 $.206
</TABLE>
A dividend of $ 0.2062 per share was declared and paid in April 1998 for the
quarter ended March 31, 1998.
- 5 -
<PAGE> 7
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
(CONTINUED)
Note 5. 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>
1997 1998
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 5,607,470 $ 5,694,507
Interest from direct financing leases 2,929,267 2,774,632
Adjustments:
Share of leasing revenue applicable
to minority interest (449,307) (448,187)
Share of leasing revenue from equity
investments 1,896,975 1,942,101
----------- -----------
$ 9,984,405 $ 9,963,053
=========== ===========
</TABLE>
For the three-month periods ended March 31, 1997 and 1998, the Company earned
its proportionate net lease revenues from its investments from the following
lease obligors:
<TABLE>
<CAPTION>
1997 % 1998 %
---- ---- ---- ----
<S> <C> <C> <C> <C>
Marriott International, Inc. (a) $ 1,243,560 12% $ 1,284,882 13%
Best Buy Co., Inc. (b) 765,037 8 763,129 8
Neodata Corporation 587,728 6 587,728 6
Omnicom Group, Inc. 466,875 5 454,375 5
Lucent Technologies 463,207 5 463,207 5
Wal-Mart Stores, Inc. 419,432 4 444,224 5
Big V Holding Corp. 426,982 4 434,113 4
Garden Ridge, Inc. 340,251 3 356,532 4
Barnes & Noble, Inc. 327,146 3 343,359 3
Michigan Mutual Insurance Company 340,090 3 340,690 3
The Upper Deck Company (a) 326,165 3 329,969 3
Gensia, Inc. (a) 327,250 3 327,250 3
Merit Medical Systems, Inc. 325,823 3 325,823 3
Q Clubs, Inc. 322,219 3 322,219 3
Del Monte Corporation 321,563 3 321,563 3
Lincoln Technical Institute of Arizona, Inc. 270,599 3 301,738 3
Plexus Corp. 272,875 3 296,102 3
Waban, Inc./BJ's Warehouse Club 279,589 3 279,589 3
Bell Sports Corp. 259,636 3 266,082 3
Custom Food Products, Inc. 216,881 2 217,297 2
Detroit Diesel Corporation 211,250 2 211,250 2
Nicholson Warehouse, L.P. 201,142 2 201,286 2
GATX Logistics, Inc. 198,723 2 198,723 2
Superior Telecommunications, Inc. 166,582 2 163,877 2
Childtime Childcare, Inc. 140,000 2 152,214 1
Petsmart, Inc. 119,950 1 123,138 1
Hibbett Sporting Goods, Inc. 118,946 1 118,946 1
Oshman Sporting Goods, Inc. 111,736 1 113,692 1
CalComp Technology, Inc. 110,077 1 111,249 1
Kroger Co. 9,451 51,701 1
Safeway Stores Incorporated 35,438 1 35,438 1
Affiliated Foods Southwest, Inc. 21,668
Harvest Foods, Inc. 258,202 3
----------- --- ----------- ---
$ 9,984,405 100% $ 9,963,053 100%
=========== === =========== ===
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
- 6 -
<PAGE> 8
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
(CONTINUED)
(b) Net of amounts applicable to Corporate Property Associates 12
Incorporated's ("CPA(R):12") minority interest.
Note 6. Affiliated Foods Southwest, 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 March 1997, the
Bankruptcy Court, pursuant to Harvest's voluntary bankruptcy petition, approved
Harvest's motion to terminate the master lease. During 1997, the Company sold
three properties, including the office buildings, and net leased five
supermarkets; two to the Kroger Co. and three to Affiliated Foods Southwest,
Inc. ("Affiliated").
On April 13, 1998, the Company and CPA(R):10 entered into another net lease with
Affiliated for a property in Little Rock, Arkansas previously leased to Harvest.
The lease provides for an initial term through January 2009 with three five-year
renewal options at an initial annual rent of $257,432 (of which the Company's
share will be $128,716) commencing subsequent to a three-month free rent period.
During the initial term, stated rent increases are scheduled in February 2004
and 2006.
Note 7. Equity Investments:
The Company owns an approximate 23.68% interest in Marcourt Investments
Incorporated ("Marcourt"), a real estate investment trust, that net leases 13
Courtyard by Marriott hotels to a wholly-owned subsidiary of Marriott
International, Inc., a 50% interest in Gena Property Company ("GENA"), a general
partnership which net leases two office buildings to Gensia, Inc. and a 50%
interest 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, 1997 March 31, 1998 December 31, 1997 March 31, 1998 December 31, 1997 March 31, 1998
----------------- -------------- ----------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Assets $149,413 $149,334 $21,710 $ 21,250 $ 26,729 $26,581
Liabilities 102,826 101,911 11,671 11,075 15,511 15,453
Owners' equity 46,587 47,423 10,039 10,175 11,218 11,128
</TABLE>
<TABLE>
<CAPTION>
For The Three Months Ended
----------------------------------------------------------------------------------------------
March 31, 1997 March 31, 1998
------------------------------------------------- -------------------------------------------
Marcourt GENA Cards LLC Marcourt GENA Cards LLC
--------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,256 $ 654 $ 660 $ 5,431 $ 654 $ 660
Interest (2,696) (232) (312) (2,576) (220) (308)
Depreciation (115) (115)
Other expenses (16) (1) (13) (2) (1)
------- ------ ------ ------- ------ ------
Net income $ 2,544 $ 307 $ 347 $ 2,842 $ 317 $ 351
======= ====== ====== ======= ====== ======
</TABLE>
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<PAGE> 9
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
(CONTINUED)
Note 8. Omnicom Group, Inc.:
In October 1994, the Company purchased land and a building in Los Angeles,
California and entered into a net lease with Chiat/Day, Inc. The lease was
subsequently guaranteed by Omincom Group, Inc. ("Omnicom"). Annual rent at this
property is currently $1,817,000.
On March 30, 1998, the Company purchased a property in Los Angeles, California
and entered into a net lease with Omnicom for such property and amended the
existing lease on the property purchased in 1994. The purchase price for the new
property was $10,525,130 plus an advance of $2,000,000 to Omnicom as a tenant
improvement allowance. The Company has an obligation to fund an additional
tenant improvement allowance of up to $10,000,000 on the new property. The 1994
lease for the existing property was amended so that, effective October 1, 1998,
the Company will provide Omnicom a one-time tenant improvement allowance of
$4,700,000 to be used for alterations and improvements.
The lease for the new property has an initial term of 20 years and six months
and provides for two ten-year renewal terms. As amended, the initial term of the
1994 lease at the existing property ends September 30, 2010 and provides for two
ten-year renewal terms. Until October 1, 1998, Omnicom will pay construction
rent at the new property based on the weighted average of amounts advanced
(i.e., the net purchase price plus advances from the tenant improvement
allowance). Such construction rents will be recorded as a reduction in the
Company's basis in the Omnicom property rather than as rental revenue. Beginning
October 1, 1998, assuming the entire tenant improvement allowance has been used,
annual base rent for the two properties will be $4,197,023, with each rent
increase indexed to increases in the Consumer Price Index ("CPI"), capped at
10.25%. Such rent increases are scheduled every four years at the existing
property, with the first increase at the new property scheduled for October 2003
and every four years thereafter. Beginning on October 1, 2003, Omnicom will pay
an additional annual rent of $150,000 at the new property. In the last year of
the initial term, the base rent will be reduced by the product of (a) $900,000
and (b) a formula indexed to changes in the CPI between October 1998 and October
2015. Omnicom has been granted a purchase option at the new property,
exercisable at the end of the initial term, to purchase its leased property at
the greater of fair value and $26,000,000.
- 8 -
<PAGE> 10
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto as of March 31,
1998 included in this quarterly report and the Company's Annual Report on Form
10-K for the year ended December 31, 1997. This quarterly report contains
forward looking statements. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievement of the Company to be materially different from the results of
operations or plan expressed or implied by such forward looking statements.
Accordingly, such information should not be regarded as representations by the
Company that the results or conditions described in such statements or the
objectives and plans of the Company will be achieved.
RESULTS OF OPERATIONS:
Net income for the three-month period ended March 31, 1998 decreased by
$56,000 as compared with the three-month period ended March 31, 1997. In 1997,
the Company recognized nonrecurring other income of $395,000 from a special
dividend from securities that had been obtained previously in connection with
structuring a sale-leaseback transaction. Excluding this special dividend from
the prior year three-month period, income would have reflected an increase of
$339,000. The increase in income as adjusted, was due to decreases in interest
and general and administrative expenses and increases in equity income and other
interest income. These items were partially offset by a decrease in lease
revenues (rental income and interest income from direct financing leases).
The decrease in interest expense reflected the effect of paying off the
first priority mortgage loan on the Harvest Foods, Inc. properties in June 1997
and lower principal balances on the Company's remaining limited recourse
mortgage loans. The decrease in general and administrative expenses resulted
from lower general and administrative reimbursements to the Advisor. The
increase in equity income was primarily due to increased income from the
Company's investment in a real estate investment trust which net leases 13
Courtyard by Marriott hotels. The improved earnings of this real estate
investment trust resulted from higher percentage rents in 1998 and lower
interest expense on the limited recourse mortgage loans which are amortizing
over 16-3/4 years and are collateralized by the Courtyard by Marriott
properties. Lease revenues decreased solely as a result of the termination of
the Harvest lease in March 1997 by the Bankruptcy Court, pursuant to Harvest's
voluntary bankruptcy petition. The decrease resulting from the termination of
the Harvest lease was partially offset by various rent increases and the leasing
of four former Harvest properties in March 1997 to the Kroger Co. and Affiliated
Foods Southwest, Inc.
FINANCIAL CONDITION:
There has been no material change in the Company's financial condition
since December 31, 1997. Cash flow from operations of $5,072,000 was sufficient
to pay quarterly dividends of $3,466,000 and scheduled mortgage principal
installments of $956,000.
During the quarter ended March 31, 1998, cash balances decreased by
$11,208,000. Such decrease was due to using $12,525,000 in connection with the
purchase of a property leased to Omnicom Group, Inc. in Los Angeles, California
which is currently under construction. The Company has a commitment to fund an
additional tenant improvement allowance of up to $10,000,000 on this property.
The Company also entered into a commitment to provide Omnicom a one-time tenant
improvement allowance of $4,700,000 to be used for alterations and improvements
on a property that the Company has been leasing to Omnicom since 1994. The
Company may obtain limited recourse financing to fund the Omnicom commitment,
use additional equity raised from institutional investors under the Company's
private placement or a combination of such debt and equity. Upon completion of
such improvements, assuming the entire tenant improvement allowance has been
used, annual base rent from Omnicom will increase by $2,380,000.
- 9 -
<PAGE> 11
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
Continued
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. The purpose of comprehensive income is to report a
measure of all changes in equity of the Company that result from recognized
transactions and other economic events other than transactions with owners
(e.g., issuance of stock, paying dividends and purchasing treasury stock) as
owners. During the three-month period ended March 31, 1998, the Company's
shareholders' equity reflected an increase of $735,000 from the increase in the
quoted fair value of the Company's investment in 104,400 shares of common stock
of Garden Ridge Corporation, a publicly-traded company. As previously disclosed,
warrants for Garden Ridge common stock were obtained in connection with
structuring two net lease transactions with Garden Ridge. The Company holds
warrants exercisable for common stock from several of its lessees. The Company
assesses, on an on-going basis, whether to exercise such warrants.
In April 1998, the Company entered into a lease with Affiliated Foods
Southwest, Inc. for a property in Little Rock, Arkansas. When rental payments
commence in July 1998, the lease will contribute approximately $129,000 to
annual cash flow. The lease will also reduce property expenses because
Affiliated has assumed the obligation for paying insurance, real estate taxes
and maintenance costs at the leased property. To the extent that the Company is
able to re-lease the six former Harvest properties that are vacant, operating
cash flow will increase. The Company continues its remarketing efforts to lease
or sell the former Harvest properties.
A mortgage loan of $3,200,000 collateralized by property leased to Big V
Holding Corp. matures in July 1998. As the Big V lease has a remaining term of
15 years, the Company believes the prospects for refinancing the loan are good.
The Company has received commitments of $8,000,000, pursuant to its
private placement offering to institutional investors, from two institutional
investors for purchases of the Company's common stock at $12.80 per share, the
appraised per share value based on a valuation of the Company's portfolio as of
December 31, 1997. Such appraisal value reflects an increase of $.90 per share
from the prior year's valuation, an increase of approximately 7.5%.
As of March 31, 1998, the Company had unpaid asset management and
performance fees of $8,188,000. A substantial portion of that amount represents
performance fees that will not be payable by the Company until a cumulative
dividend return to Shareholders of 8% is achieved. The Independent Directors of
the Company have determined that it would be in the best interests of the
Company and Shareholders to permit the Company to pay the fees to the Advisor in
either cash or common stock of the Company. The Independent Directors have
approved an amendment to the Company's Advisory Agreement that would permit the
Company to pay all or any portion of the asset management and performance fees
in common stock and have submitted a proposal to the shareholders to approve
such an amendment. The Independent Directors and the Company believe that the
use of common stock to pay such fees would (i) reduce the cash required by the
Company to pay expenses, thereby strengthening the Company's balance sheet, and
(ii) increase equity ownership of the Advisor and align further the interests of
the Advisor and the Shareholders of the Company.
- 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 March 31, 1998, 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, 1998, 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
05/18/98 By: /s/ Steven M. Berzin
-------- ----------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
05/18/98 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 THE FORM
10-Q FOR THE THREE-MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS ARE STATED AT HISTORICAL
COST.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,124,027
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,510,240
<PP&E> 286,421,538
<DEPRECIATION> 12,260,213
<TOTAL-ASSETS> 322,099,594
<CURRENT-LIABILITIES> 12,547,386
<BONDS> 153,393,021
0
0
<COMMON> 17,496
<OTHER-SE> 150,951,236
<TOTAL-LIABILITY-AND-EQUITY> 322,099,594
<SALES> 0
<TOTAL-REVENUES> 8,732,050
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,957,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,460,762
<INCOME-PRETAX> 3,193,695
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,193,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,193,695
<EPS-PRIMARY> .19
<EPS-DILUTED> .18
</TABLE>
