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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
of
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
CIP(R)
A MARYLAND CORPORATION
IRS Employer Identification No. 13-3602400
SEC File Number 0-20016
50 ROCKEFELLER PLAZA,
NEW YORK, NEW YORK 10020
(212) 492-1100
CIP(R) has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the
Act.
CIP(R) is not registered on any exchanges.
CIP(R) does not have any Securities registered pursuant to Section 12(b) of the
Act.
CIP(R) is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-K.
CIP(R) (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for 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.
CIP(R) has no active market for common stock at March 24, 1999.
Non-affiliates held 20,950,980 shares of common stock, $.001 Par Value
outstanding at March 24, 1999.
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PART I
Item 1. Business.
Carey Institutional Properties Incorporated ("CIP(R)") is a Real Estate
Investment Trust ("REIT") that acquires and owns commercial properties leased to
companies nationwide, primarily on a triple net basis. As of December 31, 1998,
CIP(R)'s portfolio consisted of 94 properties leased to 35 tenants and totaling
more than 8.5 million square feet.
CIP(R)'s core investment strategy is to purchase and own properties leased
to a variety of companies on a single tenant, net lease basis. These leases
generally place the economic burden of ownership on the tenant by requiring them
to pay the costs of maintenance, insurance, taxes, structural repairs and other
operating expenses.
CIP(R) also generally includes in its leases:
o clauses providing for mandated rent increases or periodic rent
increases tied to increases in the consumer price index or other
indices or, when appropriate, increases tied to the volume of sales at
the property;
o covenants restricting the activity of the tenant to reduce the risk of
a change in credit quality;
o indemnification of CIP(R) for environmental and other liabilities;
o guarantees from parent companies or other entities.
CIP(R) was formed as a Maryland corporation on February 15, 1991. Between
August 1991 and August 1993, CIP(R) sold a total of 14,167,581 shares of common
stock for a total of $141,675,810 in gross offering proceeds. In 1995, CIP(R)'s
board of directors authorized a private placement of common stock. Through
December 31, 1998, CIP(R) has issued a total of 6,250,262 shares for a total of
$74,440,000 in connection with the private placement. Through December 31, 1998,
CIP(R) has also issued 628,575 shares through its dividend reinvestment plan.
These proceeds have been combined with limited recourse mortgage debt to
purchase CIP(R)'s property portfolio. As a real estate investment trust, CIP(R)
is not subject to federal income taxation as long as it satisfies certain
requirements relating to the nature of its income, the level of its
distributions and other factors.
Carey Property Advisors provides both strategic and day-to-day management
for CIP(R), including acquisition services, research, investment analysis, asset
management, capital funding services, disposition of assets, investor relations
and administrative services. Carey Property Advisors also provides office space
and other facilities for CIP(R). Carey Property Advisors has dedicated senior
executives in each area of its organization so that CIP(R) functions as a fully
integrated operating company. CIP(R) pays asset management fees to Carey
Property Advisors and pays certain transactional fees. CIP(R) also reimburses
Carey Property Advisors for certain expenses. Carey Property Advisors also
serves in this capacity for Corporate Property Associates 10 Incorporated,
Corporate Property Associates 12 Incorporated and Corporate Property Associates
14 Incorporated.
CIP(R)'s principal executive offices are located at 50 Rockefeller Plaza,
New York, NY 10020 and its telephone number is (212) 492-1100. As of January 25,
1999, CIP(R) had no employees. An affiliate of Carey Property Advisors employs
20 individuals who perform services for CIP(R).
BUSINESS OBJECTIVES AND STRATEGY
CIP(R)'s objectives are to:
o pay quarterly dividend at an increasing rate that for taxable
shareholders may be partially free from current taxation;
o purchase and own a portfolio of real estate that will increase in
value; and
o increase the equity in its real estate by making regular mortgage
principal payments.
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CIP(R) seeks to achieve these objectives by purchasing and holding
industrial and commercial properties each net leased to a single corporate
tenant. CIP(R)'s portfolio is diversified by geography, property type and by
tenant.
RECENT DEVELOPMENTS
On March 30, 1998, CIP(R) purchased a property in Los Angeles, California,
entered into a net lease with Omnicom Group, Inc. for that property and amended
an existing lease for another property leased to Omnicom. The purchase price of
the new Omnicom property was $10,525,130 with a commitment to fund $12,000,000
of improvements. In addition, CIP(R) committed to fund tenant improvements for
$4,700,000 at the existing property. CIP(R) fulfilled these funding commitments
in October 1998. The lease for the new Omnicom property has an initial term of
20 years with two ten-year renewal terms at Omnicom's option. The term of the
existing lease was extended through September 2010 and also provides for two
ten-year renewal terms at Omnicom's option. As of October 1, 1998, annual base
rent for the two properties increased to $4,197,023. Prior to the modification,
annual rent at the existing property was $1,817,000. Rent increases on both
leases are scheduled every four years based on increases in the Consumer Price
Index, with each increase capped at 10.25%. Omnicom has been granted at option
to purchase the new property at the end of the initial term at fair value but no
less than a minimum exercise price of $26,000,000.
On December 23, 1998, CIP(R) obtained $18,400,000 of limited recourse
mortgage financing on the new property. The mortgage loan has an annual interest
rate of 6.95% and will provide initially for interest only payments through
October 2002 and will amortize fully thereafter over sixteen years.
On December 22, 1998, through a 33 1/3% interest in a limited liability
company that was formed with two affiliates, CIP(R) purchased land and buildings
in Sunnyvale, California and entered into a net lease with Advanced Micro
Devices, Inc. ("AMD"). The total purchase price of the building was $95,287,958
with $68,250,000 of the financing provided through a limited recourse mortgage
loan. CIP(R)'s equity contribution, representing the purchase price less the
mortgage financing, was $9,012,653. The AMD lease has an initial term of 20
years with two ten-year renewal terms at AMD's option. The lease provides for
annual rent of $9,145,500 with rent increases every three years, with each rent
increase capped at 6.903%. The loan has a ten-year term and provides for monthly
payments of interest and principal based on a 30-year amortization schedule and
an annual interest rate of 7.78%. CIP(R) will receive distributions from this
investment representing approximately one-third of its annual operating cash
flow (rent less mortgage debt service) which is currently estimated to be
$1,066,000.
In 1997, CIP(R)'s master lease for fifteen properties was terminated in
connection with the bankruptcy petition of the tenant, Harvest Foods, Inc.
During 1997, the Company re-leased five properties and sold three properties.
During 1998, CIP(R) was able to lease one of the vacant properties and, in
December 1998, and paid off at a substantial discount the remaining mortgage
obligation on the properties. Management believes that, with the properties
unencumbered by mortgage debt, CIP(R) has greater flexibility in remarketing the
remaining six properties.
In 1999, CalComp Technology, Inc., a tenant of a property in Austin, Texas,
announced its intention to liquidate and stopped paying rent. A complaint has
been filed against CalComp and CIP(R) is seeking a judgment for all unpaid and
future rents plus associated costs. CIP(R) has also begun settlement discussions
with CalComp in recognition of the fact that it is likely to take several months
to secure a judgment. A potential settlement with CalComp could offset a
reduction in rent from a replacement tenant as CalComp's rents are in excess of
market rents for the property. Even though the limited recourse mortgage is in
default, CIP(R) has continued to pay scheduled monthly debt service installments
because management believes that the value of the property is at least equal to
its carrying value and in excess of the current mortgage balance.
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ACQUISITION STRATEGIES
Carey Property Advisors has a well-developed process with established
procedures and systems for acquiring net leased property on behalf of CIP(R). As
a result of its reputation and experience in the industry and the contacts
maintained by its professionals, Carey Property Advisors has a presence in the
net lease market that has provided it with the opportunity to invest in a
significant number of transactions on an ongoing basis. CIP(R) takes advantage
of Carey Property Advisors' presence in the net lease market to build its
portfolio. In evaluating opportunities for CIP(R), Carey Property Advisors
carefully examines the credit, management and other attributes of the tenant and
the importance of the property under consideration to the tenant's operations.
Careful credit analysis is a crucial aspect of every transaction. CIP(R)
believes that Carey Property Advisors has one of the most extensive underwriting
processes in the industry and has an experienced staff of professionals involved
with underwriting transactions. Carey Property Advisors seeks to identify those
prospective tenants whose creditworthiness is likely to improve over time.
CIP(R) believes that the experience of Carey Property Advisors' management in
structuring sale-leaseback transactions to meet the needs of a prospective
tenant enables Carey Property Advisors to obtain a higher return for a given
level of risk than would typically be available by purchasing a property subject
to an existing lease.
Carey Property Advisors' strategy in structuring its net lease investments for
CIP(R) is to:
o combine the stability and security of long-term lease payments,
including rent increases, with the appreciation potential inherent in
the ownership of real estate;
o enhance current returns by utilizing varied lease structures;
o reduce credit risk by diversifying investments by tenant, type of
facility, geographic location and tenant industry; and
o increase potential returns by obtaining equity enhancements from the
tenant when possible, such as warrants to purchase tenant common
stock.
FINANCING STRATEGIES
Consistent with its investment policies, CIP(R) uses leverage when
available on favorable terms. As of December 31, 1998, CIP(R) had approximately
$160,255,000 in property level debt outstanding. These mortgages mature between
1999 and 2021 and have interest rates between 6.88% and 10.5%. Carey Property
Advisors continually seeks opportunities and considers alternative financing
techniques to finance properties not currently subject to debt, refinance debt,
reduce interest expense or improve its capital structure.
TRANSACTION ORIGINATION
In analyzing potential acquisitions, Carey Property Advisors reviews and
structures many aspects of a transaction, including the tenant, the real estate
and the lease, to determine whether a potential acquisition can be structured to
satisfy CIP(R)'s acquisition criteria. The aspects of a transaction which are
reviewed and structured by Carey Property Advisors include the following:
o Tenant Evaluation. Carey Property Advisors subjects each potential
tenant to an extensive evaluation of its credit, management, position
within its industry, operating history and profitability. Carey
Property Advisors seeks tenants it believes will have stable or
improving credit. By leasing properties to these types of tenants,
CIP(R)can generally charge rent that is higher than the rent charged
to tenants with recognized credit and, thereby, enhance its current
return from these properties as compared with properties leased to
companies whose credit potential has already been recognized by the
market. Furthermore, if a tenant's credit does improve, the value of
CIP(R)'s properties leased to that tenant will likely increase (if all
other factors affecting value remain unchanged). Carey Property
Advisors may also seek to enhance the likelihood of a tenant's lease
obligations being satisfied, such as through a letter of credit or a
guaranty of lease
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obligations from the tenant's corporate parent. This credit
enhancement provides CIP(R)with additional financial security.
o Leases with Increasing Rents. Carey Property Advisors seeks to include
clauses in CIP(R)'s leases that provide for increases in rent over the
term of the leases. These increases are generally tied to increases in
certain indices such as the consumer price index, in the case of
retail stores, participation in gross sales above a stated level,
mandated rental increases on specific dates and through other methods.
CIP(R) seeks to avoid entering into leases that provide for
contractual reductions in rents during their primary term (other than
reductions related to reductions in debt service).
o Properties Important to Tenant Operations. Carey Property Advisors, on
behalf of CIP(R), generally seeks to acquire properties with
operations that are essential or important to the ongoing operations
of the tenant. CIP(R) believes that these properties provide better
protection in the event that tenants file for bankruptcy, because
leases on properties essential or important to the operations of a
bankrupt tenant are less likely to be rejected and terminated by a
bankrupt tenant. Carey Property Advisors also seeks to assess the
income, cash flow and profitability of the business conducted at the
property, so that, if the tenant is unable to operate its business,
CIP(R)can either continue operating the business conducted at the
property or re-lease the property to another entity in the industry
which can operate the property profitably.
o Lease Provisions that Enhance and Protect Value. When appropriate,
Carey Property Advisors attempts to include provisions in CIP(R)'s
leases that require CIP(R)'s consent to certain tenant activity or
require the tenant to satisfy certain operating tests. These
provisions include, for example, operational and financial covenants
of the tenant, prohibitions on a change in control of the tenant and
indemnification from the tenant against environmental and other
contingent liabilities. Including these provisions in its leases
enables CIP(R) to protect its investment from changes in the operating
and financial characteristics of a tenant that may impact its ability
to satisfy its obligations to CIP(R) or could reduce the value of
CIP(R)'s properties.
o Diversification. Carey Property Advisors tries to diversify CIP(R)'s
portfolio of properties to avoid dependence on any one particular
tenant, type of facility, geographic location and tenant industry. By
diversifying its portfolio, CIP(R) reduces the adverse effect on
CIP(R) of a single underperforming investment or a downturn in any
particular industry or geographic location.
Carey Property Advisors employs a variety of other strategies and practices
in connection with CIP(R)'s acquisitions. These strategies include attempting to
obtain equity enhancements in connection with transactions. Typically, these
equity enhancements involve warrants to purchase stock of the tenant to which
the property is leased or the stock of the parent of the tenant. In certain
instances, CIP(R) grants to the tenant a right to purchase the property leased
by the tenant, but generally the option purchase price will be not less than the
fair market value of the property. Carey Property Advisors' practices include
performing evaluations of the physical condition of properties and performing
environmental surveys in an attempt to determine potential environmental
liabilities associated with a property prior to its acquisition.
As a transaction is structured, it is evaluated by the Chairman of the
Investment Committee with respect to the potential tenant's credit, business
prospects, position within its industry and other characteristics important to
the long-term value of the property and the capability of the tenant to meet its
lease obligations. Before a property is acquired, the transaction is reviewed by
the Investment Committee to ensure that it satisfies CIP(R)'s investment
criteria. Aspects of the transaction that are typically reviewed by the
Investment Committee include the expected financial returns, the
creditworthiness of the tenant, the real estate characteristics and the lease
terms.
The Investment Committee is not directly involved in originating or
negotiating potential acquisitions, but instead functions as a separate and
final step in the acquisition process. Carey Property Advisors places special
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emphasis on having experienced individuals serve on its Investment Committee and
does not invest in a transaction unless it is approved by the Investment
Committee.
CIP(R) believes that the Investment Committee review process gives it a
unique, competitive advantage over other unaffiliated net lease companies
because of the substantial experience and perspective that the Investment
Committee has in evaluating the blend of corporate credit, real estate and lease
terms that combine to make an acceptable risk.
The following people serve on the Investment Committee:
o George E. Stoddard, Chairman, was formerly responsible for the direct
corporate investments of The Equitable Life Assurance Society of the
United States and has been involved with the CPA(R) Programs for over
19 years.
o Frank J. Hoenemeyer, Vice Chairman, was formerly Vice Chairman,
Director and Chief Investment Officer of The Prudential Insurance
Company of America. As Chief Investment Officer, Mr. Hoenemeyer was
responsible for all of Prudential's investments, including stocks,
bonds, private placements, real estate and mortgages.
o Nathaniel S. Coolidge previously served as Senior Vice President -
Head of Bond & Corporate Finance Department of the John Hancock Mutual
Life Insurance Company. His responsibilities included overseeing $21
billion of Fixed income investments for Hancock, its affiliates and
outside clients.
o Lawrence R. Klein is Benjamin Franklin Professor of Economics Emeritus
at the University of Pennsylvania and its Wharton School. Dr. Klein
has been awarded the Alfred Nobel Memorial Prize in Economic Sciences
and currently advises various governments and government agencies. Dr.
Klein serves as an alternate member of the Investment Committee
ASSET MANAGEMENT
CIP(R) believes that effective management of its net lease assets is
essential to maintain and enhance property values. Important aspects of asset
management include restructuring transactions to meet the evolving needs of
current tenants, re-leasing properties, refinancing debt, selling properties and
knowledge of the bankruptcy process.
Carey Property Advisors monitors, on an ongoing basis, compliance by
tenants with their lease obligations and other factors that could affect the
financial performance of any of its properties. Monitoring involves receiving
assurances that each tenant has paid real estate taxes, assessments and other
expenses relating to the properties it occupies and confirming that appropriate
insurance coverage is being maintained by the tenant. Carey Property Advisors
reviews financial statements of its tenants and undertakes regular physical
inspections of the condition and maintenance of its properties. Additionally,
Carey Property Advisors periodically analyzes each tenant's financial condition,
the industry in which each tenant operates and each tenant's relative strength
in its industry.
HOLDING PERIOD
CIP(R) intends to hold each property it acquires for an extended period.
The determination of whether a particular property should be sold or otherwise
disposed of will be made after consideration of relevant factors with a view to
achieving maximum capital appreciation and after-tax return for the CIP(R)
shareholders. If CIP(R)'s common stock is not listed for trading on a national
securities exchange or included for quotation on Nasdaq, CIP(R) will generally
begin selling properties within ten years after the proceeds of the public
offering were substantially invested, subject to market conditions. The board of
directors will make the decision whether to list the shares, liquidate or devise
an alternative liquidation strategy which is likely to result in the greatest
value for the shareholders.
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COMPETITION
CIP(R) faces competition for the acquisition of office and industrial
properties in general, and such properties net leased to major corporations in
particular, from insurance companies, credit companies, pension funds, private
individuals, investment companies and other REITs. CIP(R) also faces competition
from institutions that provide or arrange for other types of commercial
financing through private or public offerings of equity or debt or traditional
bank financings. CIP(R) believes its management's experience in real estate,
credit underwriting and transaction structuring will allow CIP(R) to compete
effectively for office and industrial properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, as well as certain other
categories of parties, may be required to investigate and clean up hazardous or
toxic chemicals, substances or waste or petroleum product or waste
(collectively, "Hazardous Materials") releases on, under, in or from such
property, and may be held liable to governmental entities or to third parties
for certain damage and for investigation and cleanup costs incurred by such
parties in connection with the release or threatened release of Hazardous
Materials. Such laws typically impose responsibility and liability without
regard to whether the owner knew of or was responsible for the presence of
Hazardous Materials, and the liability under such laws has been interpreted to
be joint and several under certain circumstances. CIP(R)'s leases often provide
that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
CIP(R) typically undertakes an investigation of potential environmental
risks when evaluating an acquisition. Phase I assessments are performed by
independent environmental consulting and engineering firms for all acquisitions.
Where warranted, Phase II assessments are performed. Phase I assessments do not
involve subsurface testing, whereas Phase II assessments involve some degree of
soil and/or groundwater testing. CIP(R) may acquire a property which is known to
have had a release of Hazardous Materials in the past, subject to a
determination of the level of risk and potential cost of remediation. CIP(R)
normally requires property sellers to indemnify it fully against any
environmental problem existing as of the date of purchase. Additionally, CIP(R)
often structures its leases to require the tenant to assume most or all
responsibility for environmental compliance or environmental remediation
relating to the tenants operations and to provide that non-compliance with
environmental laws is deemed a lease default. In certain instances, CIP(R) may
also require a cash reserve, a letter of credit or a guarantee from the tenant,
the tenant's parent company or a third party to assure lease compliance and
funding of remediation. The value of any of these protections depends on the
amount of the collateral and/or financial strength of CIP(R) providing the
protection. Such a contractual arrangement does not eliminate CIP(R)'s statutory
liability or preclude claims against CIP(R) by governmental authorities or
persons who are not a party to such an arrangement. Contractual arrangements in
CIP(R)'s leases may provide a basis for CIP(R) to recover from the tenant
damages or costs for which CIP(R) has been found liable.
INDUSTRY SEGMENT
CIP(R) operates in one industry segment, investment in net leased real
property. For the year ended December 31, 1998, Marriott International, Inc.
represented 11% of lease revenues. No other tenant represented 10% or more of
the total operating revenue of CIP(R).
FACTORS AFFECTING FUTURE OPERATING RESULTS
The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") became effective in December 1995. The Act provides a "safe harbor" for
companies which make forward-looking statements providing prospective
information. The "safe harbor" under the Act relates to protection for companies
with respect to litigation filed on the basis of such forward-looking
statements.
CIP(R) wishes to take advantage of the "safe harbor" provisions of the Act
and is therefore including this section in its Annual Report on Form 10-K. The
statements contained in this Annual Report, if not historical, are
forward-looking statements and involve risks and uncertainties which are
described below that could cause
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actual results to differ materially from the results, financial or otherwise, or
other expectations described in such forward-looking statements. These
statements are identified with the words "anticipated," "expected," "intends,"
"seeks" or "plans" or words of similar meaning. Therefore, forward-looking
statements should not be relied upon as a prediction of actual future results or
occurrences.
CIP(R)'s future results may be affected by certain risks and uncertainties
including the following:
SINGLE TENANT LEASES INCREASES EXPOSURE TO FAILURE OF TENANT
We focus our acquisition activities on net leased real properties or
interests therein. Due to the fact that our net leased real properties are
leased to single tenants, the financial failure of or other default by a tenant
resulting in the termination of a lease is likely to cause a reduction in the
operating cash flow of CIP(R) and might decrease the value of the property
leased to such tenant.
DEPENDENCE ON MAJOR TENANTS
Revenues from several of our tenants and/or their guarantors constitute a
significant percentage of our consolidated rental revenues. Our five largest
tenants/guarantors, which occupy 34 properties, represent 36% of annualized
revenues. The default, financial distress or bankruptcy of any of the tenants of
such properties could cause interruptions in the receipt of lease revenues from
such tenants and/or result in vacancies in the respective properties, which
would reduce our revenues until the affected property is re-let, and could
decrease the ultimate sale value of each such property. Upon the expiration of
the leases that are currently in place, we may not be able to re-lease the
vacant property at a comparable lease rate or without incurring additional
expenditures in connection with such re-leasing.
WE CAN BORROW A SIGNIFICANT AMOUNT OF FUNDS
We have incurred, and may continue to incur, indebtedness (secured and
unsecured) in furtherance of our activities. Neither the certificate of
incorporation, bylaws nor any policy statement formally adopted by the board of
directors limits either the total amount of indebtedness or the specified
percentage of indebtedness (based upon the total market capitalization of
CIP(R)) that may be incurred. Accordingly, we could become more highly
leveraged, resulting in increased risk of default on our obligations and in an
increase in debt service requirements which could adversely affect our financial
condition and results of operations and our ability to pay distributions.
POSSIBLE INABILITY TO REFINANCE BALLOON PAYMENT ON MORTGAGE DEBT
A significant number of our properties are subject to mortgages with
balloon payments. Scheduled balloon payments for the next five years are as
follows:
o 1999 - 13.8 million;
o 2000 - 7.7 million;
o 2001 - 4.1 million;
o 2002 - 12.7 million; and
o 2003 - 7 million;
Our ability to make such balloon payments will depend upon our ability either to
refinance the mortgage related thereto, invest additional equity in the property
or to sell the related property. Our ability to accomplish these goals will be
affected by various factors existing at the relevant time, such as the state of
the national and regional economies, local real estate conditions, available
mortgage rates, our equity in the mortgaged properties, our financial condition,
the operating history of the mortgaged properties and tax laws.
THERE ARE UNCERTAINTIES RELATING TO LEASE RENEWALS AND RE-LETTING OF SPACE
We will be subject to the risks that, upon expiration of leases, the
premises may not be re-let or the terms of re-letting (including the cost of
concessions to tenants) may be less favorable than current lease terms. If we
are unable to re-let promptly all or a substantial portion of our properties or
if the rental rates upon
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such re-letting were significantly lower than current rates, our net income and
ability to make expected distributions to our shareholders would be adversely
affected. There can be no assurance that we will be able to retain tenants in
any of our properties upon the expiration of their leases. Our scheduled lease
expiration, as a percentage of annualized revenues for the next five years, are
as follows:
o 1999 - 0%
o 2000 - 0%
o 2001 - 0%
o 2002 - 10%
o 2003 - 0%
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS
We own industrial and commercial properties and are subject to the risk of
liabilities under federal, state and local environmental laws. Some of these
laws could impose the following on CIP(R):
o Responsibility and liability for the cost of investigation and removal
or remediation of hazardous substances released on our property,
generally without regard to our knowledge or responsibility of the
presence of the contaminants;
o Liability for the costs of investigation and removal or remediation of
hazardous substances at disposal facilities for persons who arrange
for the disposal or treatment of such substances; and
o Potential liability for common law claims by third parties based on
damages and costs of environmental contaminants.
WE MAY BE UNABLE TO MAKE ACQUISITIONS ON AN ADVANTAGEOUS BASIS
The consummation of any future acquisition will be subject to satisfactory
completion of our extensive analysis and due diligence review and to the
negotiation of definitive documentation. There can be no assurance that we will
be able to identify and acquire additional properties or that we will be able to
finance acquisitions in the future. In addition, there can be no assurance that
any such acquisition, if consummated, will be profitable for us. If we are
unable to consummate the acquisition of additional properties in the future,
there can be no assurance that we will be able to increase the cash available
for distribution to our shareholders.
WE MAY SUFFER UNINSURED LOSS
We carry comprehensive liability, fire, extended coverage on most of our
properties, with policy specifications and insured limits customarily carried
for similar properties. However, there are certain types of losses (such as due
to wars or acts of God) that generally are not insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a loss in
excess of insured limits occur, we could lose capital invested in a property, as
well as the anticipated future revenues from a property, while remaining
obligated for any mortgage indebtedness or other financial obligations related
to the property. Any such loss would adversely affect our financial condition.
We believe that the properties are adequately insured in accordance with
industry standards.
CHANGES IN MARKET INTEREST RATES COULD CAUSE OUR STOCK PRICE TO GO DOWN
The trading prices of equity securities issued by real estate companies
have historically been affected by changes in broader market interest rates,
with increases in interest rates resulting in decreases in trading prices, and
decreases in interest rates resulting in increases in such trading prices. An
increase in market interest rates could therefore adversely affect the trading
prices of any of our equity securities.
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WE FACE INTENSE COMPETITION
The real estate industry is highly competitive. Our principal competitors
include national REITs, many of which are substantially larger and have
substantially greater financial resources than us.
THE VALUE OF OUR REAL ESTATE IS SUBJECT TO FLUCTUATION
We are subject to all of the general risks associated with the ownership of
real estate. In particular, we face the risk that rental revenue from the
properties will be insufficient to cover all corporate operating expenses and
debt service payments on indebtedness we incur. Additional real estate ownership
risks include:
o Adverse changes in general or local economic conditions;
o Changes in supply of or demand for similar or competing properties;
o Changes in interest rates and operating expenses;
o Competition for tenants;
o Changes in market rental rates;
o Inability to lease properties upon termination of existing leases;
o Renewal of leases at lower rental rates;
o Inability to collect rents from tenants due to financial hardship,
including bankruptcy;
o Changes in tax, real estate, zoning and environmental laws that may
have an adverse impact upon the value of real estate;
o Uninsured property liability;
o property damage or casualty losses;
o Unexpected expenditures for capital improvements or to bring
properties into compliance with applicable federal, state and local
laws; and
o Acts of God and other factors beyond the control of our management.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
The "Year 2000 issue" refers to the series of problems that have resulted
or may result from the inability of certain computer software and embedded
processes to properly process dates. This shortcoming could result in the
failure of major systems or miscalculations causing major disruptions to
business operations. CIP(R) has no computer systems of its own, but is dependent
upon the systems maintained by an affiliate of its Advisor and certain other
third parties including its banks and transfer agent.
CIP(R) and its affiliates are actively evaluating their readiness relating
to the Year 2000 issue. In 1998, CIP(R), its Advisor, and affiliates commenced
an assessment of their local area network of personal computers and related
equipment and are in the process of replacing or upgrading the equipment that
has been identified as not being Year 2000 compliant. The program is expected to
be substantially completed in the second quarter of 1999. CIP(R) and its
affiliates have also engaged outside consultants experienced in diagnosing
systems and software applications and addressing Year 2000 issues, and with the
help of these consultants currently are remediating as necessary.
At the same time, CIP(R), its Advisor, and affiliates are evaluating their
applications software, all of which are commercial "off the shelf" programs that
have not been customized. During 1998, CIP(R) commenced a project to select a
comprehensive integrated real estate accounting and asset management software
package to replace its existing applications. A commercial Windows-based
integrated accounting and asset management based application is being tested and
is scheduled to be installed during the third quarter of 1999. This software has
been designed to use four digits to define a year. Because CIP(R)'s primary
operations consist of investing in and receiving rents on long-term net leases
of real estate, while the failure of the Advisor and its affiliates to correct
fully Year 2000 issues could disrupt CIP(R)'s administrative operations, the
resulting disruptions would not likely have a material impact on CIP(R)'s
results of operations, financial condition or liquidity. Contingency plans to
address potential disruptions are in the process of being developed. CIP(R)'s
share of costs associated with required modifications to become Year 2000
compliant is not expected to be material to CIP(R)'s financial position.
CIP(R)'s share of the estimated total cost of the Year 2000 project is expected
to be approximately $146,000, of which $97,000 has been incurred to date.
-9-
<PAGE> 11
Although CIP(R) believes that it will address its internal Year 2000 issues
in a timely manner, there is a risk that the inability of third-party suppliers
and lessees to meet Year 2000 readiness issues could have an adverse impact on
CIP(R). CIP(R) and its affiliates have identified their critical suppliers and
are requiring that these suppliers communicate their plans and progress in
addressing Year 2000 readiness. The most critical processes provided by
third-party suppliers are CIP(R)'s bank and transfer agent. CIP(R)'s operations
may be significantly affected if such providers are ineffective or untimely in
addressing Year 2000 issues.
CIP(R) contacted each of its lessees regarding Year 2000 readiness and has
emphasized the need to address Year 2000 issues. Generally, lessees are
contractually required to maintain their leased properties in good working order
and to make necessary alterations, foreseen or unforeseen, to meet their
contractual obligations. Because of those obligations, CIP(R) believes that the
risks and costs of upgrading systems related to operations of the buildings and
that contain technology affected by Year 2000 issues will generally be absorbed
by lessees rather than CIP(R). The major risk to CIP(R) is that Year 2000 issues
have such an adverse effect on the financial condition of a lessee that its
ability to meet its lease obligations, including the timely payment of rent, is
impaired. In such an event, CIP(R) may ultimately incur the costs for Year 2000
readiness at the affected properties. The potential materiality of any impact is
not known at this time.
WE DEPEND ON KEY PERSONNEL FOR OUR FUTURE SUCCESS
We depend on the efforts of the executive officers and key employees of
Carey Property Advisors. The loss of the services of these executive officers
and key employees could have a material adverse effect on our operations.
The risk factors may have affected, and in the future could affect, our
actual operating and financial results and could cause such results to differ
materially from those in any forward-looking statements. You should not consider
this list exhaustive. New risk factors emerge periodically, and we cannot
completely assure you that the factors we describe above list all material risks
to CIP(R) any specific point in time. We have disclosed many of the important
risk factors discussed above in our previous filings with the Securities and
Exchange Commission.
-10-
<PAGE> 12
Item 2. Properties.
CIP(R)'s properties are as follows:
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------------- ---------------- -------- -----------------
<S> <C> <C> <C>
WAL-MART STORES, INC. Retail Stores Center, Groves, Ownership of a 50%
- 6 locations Silsbee and Vidor, interest in land
Texas; and buildings (1)
Weatherford,
Oklahoma;
Fort Smith,
Arkansas
SAFEWAY STORES Supermarket Broken Arrow, Ownership of a 50%
INCORPORATED Oklahoma interest in land
and building
MARRIOTT Hotels Irvine, Sacramento, Ownership of a 23.69%
INTERNATIONAL, - 13 locations and San Diego, interest in a real estate
INC. California; investment trust owning
Orlando - 2, land and buildings (1)
Florida;
Des Plains, Illinois;
Indianapolis, Indiana;
Louisville,
Kentucky;
Linthicum, Maryland;
Las Vegas, Nevada;
Newark, New Jersey;
Albuquerque,
New Mexico;
Spokane,
Washington
VACANT Supermarkets and Little Rock - 1, Ownership of a 50%
Office Buildings Hot Springs, interest in land
- 6 locations Texarkana and and buildings (2)
Jonesboro, Arkansas;
Ruston, Louisiana;
Clarksdale, Mississippi
KROGER CO. Retail Stores North Little Rock Ownership of a 50%
- 2 locations and Conway, Arkansas interest in land
and buildings
except as noted (2)
AFFILIATED Retail Stores Little Rock - 3, and Ownership of a 50%
SOUTHWEST, INC. -.4. locations Hope, Arkansas interest in land
and buildings
except as noted(2)
CALCOMP TECH- Office/Manufacturing Austin, Ownership of a 50%
NOLOGY, INC. Facilities Texas interest in land and
buildings (1)
NEODATA Manufacturing/ Boulder, Ownership of a 80%
CORPORATION Distribution Facility Colorado interest in land and
building (1)
</TABLE>
-11-
<PAGE> 13
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------------- ---------------- -------- -----------------
<S> <C> <C> <C>
BELL SPORTS, INC. Warehouse/ Rantoul, Ownership of land
Manufacturing Facility Illinois and building
OSHMAN SPORTING
GOODS, INC. Retail Store Plano, Ownership of land
Texas and building (1)
MICHIGAN MUTUAL Office Complex Charleston, Ownership of land
INSURANCE COMPANY South Carolina and building (1)
GATX LOGISTICS, INC. Warehouse Jacksonville, Ownership of land
Florida and building (1)
BIG V HOLDING CORP. Supermarkets Greenport, Ownership of land and
- 3 locations Ellenville, buildings in Greenport and
and Warwick, ownership of a 55% interest in
New York land and buildings in Ellenville
and Warwick, New York
(1-Ellenville and Warwick)
LUCENT Warehouse Charlotte, Ownership of land
TECHNOLOGIES, INC. North Carolina and building (1)
BARNES & NOBLE, INC. Retail Stores Farmington, Ownership of land
- 2 locations Connecticut and buildings (1)
and Braintree,
Massachusetts
BEST BUY CO., INC. Retail Stores Denver and Ownership of a 63%
- 17 locations Fort Collins, interest in a general
Colorado; Aurora, partnership owning land
Bedford Park, and buildings (1)
Bloomingdale,
Matteson and
Schaumburg, Illinois;
Omaha, Nebraska;
Albuquerque, New Mexico;
Arlington, Beaumont,
Dallas, El Paso,
Fort Worth, Houston,
Plano, Texas; and
Madison, Wisconsin
LINCOLN TECHNICAL Technical Training Glendale Heights, Ownership of land
INSTITUTE OF Institute Illinois and buildings
ARIZONA, INC.
MERIT MEDICAL Office/Warehouse South Jordan, Utah Ownership of land
SYSTEMS, INC. and building (1)
WABAN, INC. Retail Facility Farmingdale, Ownership of land
New York and building (1)
Q CLUBS, INC. Health Clubs Memphis, Ownership of land
- 2 locations Tennessee and and buildings
Bedford, Texas
</TABLE>
-12-
<PAGE> 14
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------------- ---------------- -------- -----------------
<S> <C> <C> <C>
PETSMART, INC. Warehouse Ennis, Texas Ownership of land
and building (1)
GARDEN RIDGE Retail Stores Round Rock, Texas Ownership of land
CORPORATION and Oklahoma City, and buildings (1)
Oklahoma (under
construction)
NICHOLSON Warehouse Maple Heights, Ownership of land
WAREHOUSE, L.P. Ohio and building (1)
SUPERIOR Manufacturing Brownwood, Ownership of land
TELECOMMUNICATIONS, Texas and building (1)
INC.
GENSIA, INC. Office/Research and San Diego, Ownership of a 50%
Development Facility California interest in a general
partnership owning land
and buildings (1)
CHILDTIME Daycare Centers Newport News, Ownership of a 50%
CHILDCARE, INC. Centreville, Manassas, interest in land
and Century Oaks, VA; and buildings (1)
Napeville, IL
PLEXUS CORP. Manufacturing Neenah, WI Ownership of land
and building (1)
CFP GROUP, INC. Food Processing/ Owingsville, KY Ownership of land
Warehouse Facility and building (1)
OMNICOM GROUP, Office Buildings Venice and Ownership of land
INC. Playa Vista, CA and buildings (1)
DEL MONTE Warehouses and a Mendota, Illinois; Ownership of a 50%
CORPORATION Special Purpose Facility Plover, Wisconsin; interest in land
Toppenish and and buildings (1)
Yakima, Washington
THE UPPER Office Buildings Carlsbad, Ownership of a 50%
DECK COMPANY California interest in a limited
liability company owning
land and buildings (1)
HIBBETT SPORTING Warehouse/Office Birmingham, Ownership of land
GOODS, INC. Facility Alabama and building (1)
DETROIT DIESEL Distribution/Warehouse Orlando and Ownership of land
CORPORATION Facilities Hollywood, Florida and building
ADVANCED MICRO Sunnyvale, California Ownership of a 33 1/3%
DEVICES, INC. interest in a limited
liability company owning
land and buildings (1)
HUMCO HOLDING Manufacturing/Warehouse Texarkana, Texas Ownership of Land
GROUP, INC. Facilities and Orem, Utah and buildings (1)
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) Ownership of buildings with ground leases of land for one property in
Little Rock, Arkansas and properties in Hot Springs, North Little Rock and
Jonesboro, Arkansas.
-13-
<PAGE> 15
The material terms of CIP(R)'s leases with its significant tenants as of
March 15, 1999 are summarized in the following table:
<TABLE>
<CAPTION>
Registrant's
Share Current Lease
Lease of Current Square Rent Per Expiration Renewal Ownership
Obligor Annual Rents Footage Sq.Ft.(1) (Mo/Year) Terms Interest
- ----------- ------------ ------- --------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Wal-Mart
Stores,
Inc. (2) $1,013,389 454,251 $4.46 1/08 YES 50% interest;
remaining interest
owned by Corporate
Property Associates
10 Incorporated
("CPA(R):10")
Neodata
Corporation 2,354,252 403,871 7.29 6/13 YES 80% interest;
remaining
interest owned
by CPA(R):10
Bell
Sports,
Inc. 1,088,067 307,397 3.54 11/12 YES 100%
Michigan
Mutual
Insurance 1,362,252 137,729 9.89 12/07 YES 100%
GATX
Logistics,
Inc. 804,720 240,000 3.35 12/02 YES 100%
Big V
Holding 636,515 59,772 10.65 12/17 YES 100%
Corp. 847,688 133,554 11.54 10/18 YES 55% interest;
remaining interest
owned by Corporate
Property Associates
12 Incorporated
("CPA(R):12")
Lucent Tech-
nologies, Inc. 1,852,829 568,670 3.26 3/02 YES 100%
Best Buy
Co., Inc. 3,165,474 558,695 8.99 4/18 YES 63% general
partnership interest;
remaining interest
owned by CPA(R):12
Lincoln
Technical
Institute
of Arizona,
Inc. $1,206,953 74,410 $16.22 11/10 YES 100%
Merit
Medical
Systems,
Inc. 1,303,291 172,925 7.54 01/20 YES 100%
</TABLE>
-14-
<PAGE> 16
<TABLE>
<CAPTION>
Registrant's
Share Current Lease
Lease of Current Square Rent Per Expiration Renewal Ownership
Obligor Annual Rents Footage Sq.Ft.(1) (Mo/Year) Terms Interest
- ----------- ------------ ------- --------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Waban,
Inc. 1,183,879 114,680 10.32 01/02 YES 100%
Garden
Ridge Corporation -
Texas 656,124 152,500 4.30 12/13 YES 100%
Oklahoma 770,000 141,284 5.45 12/15 YES 100%
Nicholson
Warehouse,
L.P. 950,718 341,282 2.79 12/18 YES 100%
Superior
Telecommunications,
Inc. 641,510 307,850 2.08 12/13 YES 100%
Gensia,
Inc. 1,309,000 144,311 18.14 07/09 YES 50% general
partnership
interest; remaining
interest owned
by CPA(R):12
Plexus
Corp. 1,184,409 179,000 6.62 08/14 YES 100%
Omnicom
Group, Inc. 982,027 77,719 12.64 10/14 YES 100%
3,214,996 120,000 26.79 10/18 YES 100%
The Upper
Deck
Company 1,319,875 294,779 8.96 12/21 YES 50% interest;
remaining
interest owned
by CPA(R):12
Del Monte
Corporation 1,286,250 748,000 3.44 6/16 YES 50% interest;
remaining
interest owned
by CPA(R):12
Detroit
Diesel
Corporation 845,000 80,310 10.52 12/19 YES 100%
</TABLE>
(1) Represents rate per square foot when combined with rents applicable to
other owners.
(2) Includes percentage of sales rents.
-15-
<PAGE> 17
Item 3. Legal Proceedings.
As of the date here of, the Company is not a party of to any material
pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the year ended
December 31, 1998 to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information with respect to Registrant's common equity is hereby
incorporated by reference to page 27 of the Company's Annual Report contained in
Appendix A.
Item 6. Selected Financial Data.
Selected Financial Data are hereby incorporated by reference to page 1 of
the Company's Annual Report contained in Appendix A.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's Discussion and Analysis are hereby incorporated by reference
to pages 2 to 6 of the Company's Annual Report contained in Appendix A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk:
Approximately $132,673,000 of CIP(R)'s long-term debt bears interest at
fixed rates, and therefore the fair value of these instruments is affected by
changes in the market interest rates. The following table presents principal
cash flows based upon expected maturity dates of the debt obligations and the
related weighted-average interest rates by expected maturity dates for the fixed
rate debt. The interest rate on the variable rate debt as of December 31, 1998
ranged from LIBOR and 1.625% to LIBOR and 4%.
<TABLE>
<CAPTION>
(in thousands)
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $15,104 $3,034 $3,315 $5,537 $11,049 $94,634 132,673 135,930
Weighted
average
interest
rate 9.70% 8.83% 8.84% 8.97% 8.93% 8.54%
Variable rate 2,762 8,825 4,958 11,037 -- -- 27,582
</TABLE>
As of December 31, 1998, CIP(R) had no other material exposure to market
risk.
-16-
<PAGE> 18
Item 8. Consolidated Financial Statements and Supplementary Data.
The following consolidated financial statements and supplementary data are
hereby incorporated by reference to pages 7 to 26 of the Company's Annual Report
contained in Appendix A:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1996, 1997 and 1998.
(iii) Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998.
(iv) Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1997 and 1998.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.
(vi) Notes to Consolidated Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
PART III
Item 10. Directors and Executive Officers of the Registrant.
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1999 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
Item 11. Executive Compensation.
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1999 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1999 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1999 Annual Meeting of Shareholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference.
-17-
<PAGE> 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements:
The following consolidated financial statements are filed as a part of this
Report:
Report of Independent Accountants.
Consolidated Balance Sheets, December 31, 1996, 1997 and 1998.
Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1997 and 1998.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.
Notes to Consolidated Financial Statements.
The consolidated financial statements are hereby incorporated by reference
to pages 7 to 26 of the Company's Annual Report contained in Appendix A.
(a) 2. Financial Statement Schedule:
The following schedule is filed as a part of this Report:
Report of Independent Accountants.
Schedule III -Real Estate and Accumulated Depreciation as of December 31,
1998.
Notes to Schedule III.
Schedule III and notes thereto are contained herein on pages 39 to 43 of
this Form 10-K.
Financial Statement Schedules other than those listed above are omitted
because the required information is given in the Consolidated Financial
Statements, including the Notes thereto, or because the conditions requiring
their filing do not exist.
-18-
<PAGE> 20
(a) 3. Exhibits:
The following exhibits are filed as part of this Report. Documents other
than those designated as being filed herewith are incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
3.1 Articles of Amendment and Restatement. Exhibit 3(A) to Regis-
tration Statement (Form
S-11) No. 33-39409
3.2 Amended Bylaws of Registrant. Exhibit 3(B) to Regis-
tration Statement (Form
S-11) No. 33-39409
10.1 Amended Advisory Agreement . Exhibit 10(A)(2) to
Registration Statement
(Form S-11) No. 33-39409
10.2 Lease between Marcourt Investments Filed as Exhibit 10(D)(1)
Incorporated ("Marcourt") and CTYD to Registrant's Post
III Corporation ("CTYD"). Effective Amendment No. 1
to Form S-11
10.3 Series A-2 9.94% Secured Note from Filed as Exhibit 10(D)(2)
Marcourt to the registered owner of to Registrant's Post
note (Various Series A-1 9.94% Notes Effective Amendment No. 1
in an aggregate amount of 38,750,000 to Form S-11
substantially in the form of the Series
A-1 9.94% Note attached , were issued by
Marcourt in connection with the Financing).
10.4 Series A-2 11.18% Secured Note from Filed as Exhibit 10(D)(3)
Marcourt to the registered owner of to Registrant's Post
note (Various notes in an aggregate Effective Amendment No. 1
amount of 70,250,000 substantially to Form S-11
in the form of the Series A-2 11.18%
Note attached , were issued by Marcourt
in connection with the Financing.
10.5 Indenture between Marcourt, as Filed as Exhibit 10(D)(4)
borrower, to First Fidelity Bank, to Registrant's Post
National Association, New Jersey, as Effective Amendment No. 1
trustee ("Trustee"). to Form S-11
</TABLE>
-19-
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.6 Real Estate Deed of Trust from Filed as Exhibit 10(D)(5)
Marcourt to Albuquerque Title Company, to Registrant's Post
as trustee for benefit of the Trustee Effective Amendment No. 1
filed in New Mexico, securing Series to Form S-11
A-1 9.94% Notes and Series A-2 ll.18%
notes allocated to Albuquerque, New
Mexico Marriott property (Deeds of Trust
or Mortgages substantially similar to
this Deed of Trust were filed in all other
jurisdictions in which Marriott Properties
are located. Such other deeds of trust or
mortgages secure the principal amount of
Series A-1 9.94% Notes and Series A-2 11.18%
Notes allocated to the Marriott Properties
located in such other jurisdictions)
10.7 Second Real Estate Deed of Trust from Filed as Exhibit 10(D)(6)
Marcourt to Albuquerque Title Company as to Registrant's Post
trustee for the benefit of the Trustee, filed Effective Amendment No. 1
in New Mexico, securing all Series A-1 9.94% to Form S-11
Notes and Series A-2 11.18% Notes other than
those notes allocated to the Albuquerque, New
Mexico Marriott property (Deeds of trust or
mortgages substantially similar to this
Second Real Estate Deed of Trust were filed
in all other jurisdictions in which the
remaining Marriott Properties are located.
Such other deeds of trust or mortgages secure
the principal amount of Series A-1 9.94%
Notes and Series A-2 11.18% Notes allocated
to all Marriott Properties not located in the
jurisdiction in which such other deeds of trust
were filed for recording).
10.8 Guaranty from the Registrant, Corporate Filed as Exhibit 10(D)(7)
Property Associates 10 Incorporated, Trammell to Registrant's Post
Crow Equity Partners II, Ltd. ("TCEP II") and Effective Amendment No. 1
PA/First Plaza Limited Partnership ("First to Form S-11
Plaza") as guarantors, to the Trustee.
10.9 Shareholders Agreement between the Filed as Exhibit 10(D)(8)
Registrant, Corporate Property Associates to Registrant's Post
10 Incorporated ("CPA(R):10"), TCEP II and Effective Amendment No. 1
First Plaza. to Form S-11
10.10 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10(E)(1)(a)
for property located in Glendale, Arizona to Registrant's Post
Effective Amendment No. 1
to Form S-11
</TABLE>
-20-
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.11 Assignment and Assumptions of Lease Agreement Filed as Exhibit 10(E)(1)(b)
for property located in Ft. Smith, Arkansas to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.12 Assignment and Assumptions of Lease Agreement for Filed as Exhibit 10(E)(1)(c)
property located in Escondido, California. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.13 Assignment and Assumptions of Lease Agreement for Filed as Exhibit 10(E)(1)(d)
property located in Broken Arrow, Oklahoma. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.14 Assignment and Assumptions of Lease Agreement for Filed as Exhibit 10(E)(1)(e)
property located in Weatherford, Oklahoma. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.15 Assignment and Assumptions of Lease Agreement for Filed as Exhibit 10(E)(1)(f)
property located in Center, Texas. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.16 Assignment and Assumptions of Lease Agreement for Filed as Exhibit 10(E)(1)(g)
property located in Groves, Texas. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.17 Assignment and Assumptions of Lease Agreement for Filed as Exhibit 10(E)(1)(h)
property located in Silsbee, Texas. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.18 Assignment and Assumptions of Lease Agreement for Filed as Exhibit 10(E)(1)(i)
property located in Vidor, Texas. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.19 Lease Amendments for the Ft. Smith, Arkansas and Filed as Exhibit 10(E)(2)
Weatherford, Oklahoma properties. to Registrant's Post
Effective Amendment No. 1
to Form S-11
10.20 Promissory Note from subsidiaries of the Registrant and Filed as Exhibit 10(E)(3)
CPA(R):10 to The New England Mutual Life Insurance to Registrant's Post
Company ("New England"). Effective Amendment No. 1
to Form S-11
</TABLE>
-21-
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.21 Mortgage/Deed of Trust from subsidiaries Filed as Exhibit 10(E)(4)(a)
of the Registrant and CPA(R):10 to to Registrant's Post
New England encumbering the property Effective Amendment No. 1
in Ft. Smith, Arkansas to Form S-11
10.22 Mortgage/Deed of Trust from subsidiaries Filed as Exhibit 10(E)(4)(b)
of the Registrant and CPA(R):10 to to Registrant's Post
New England encumbering the property Effective Amendment No. 1
in Weatherford, Oklahoma to Form S-11
10.23 Mortgage/Deed of Trust from Filed as Exhibit 10(E)(4)(c)
subsidiaries of the Registrant and to Registrant's Post
CPA(R):10 to New England encumbering Effective Amendment No. 1
the properties in Center, Groves, to Form S-11
Silsbee, and Vidor, Texas.
10.24 Lease Agreement between QRS 10-9 (AR), Filed as Exhibit 10(F)(1)
Inc. ("QRS 10-9") and QRS 11-2(AR), Inc. to Registrant's Post
("QRS 11-2") as landlord and Acadia Effective Amendment No. 3
Stores 63, Inc. ("Tenant") as tenant. to Form S-11
10.25 Co-Tenancy Agreement between QRS 10-9 Filed as Exhibit 10(F)(2)
and QRS 11-2. to Registrant's Post
Effective Amendment No. 3
to Form S-11
10.26 Term Loan Agreement among The First Filed as Exhibit 10(F)(3)
National Bank of Boston ("First to Registrant's Post
Lender"), QRS 10-9 and QRS 11-2. Effective Amendment No. 3
to Form S-11
10.27 Note of QRS 10-9 and QRS 11-2 to First Filed as Exhibit 10(F)(4)
Lender. to Registrant's Post
Effective Amendment No. 3
to Form S-11
10.28 Fee and Leasehold Mortgages from QRS Filed as Exhibit 10(F)(5)
10-9 and QRS 11-2 to First Lender to Registrant's Post
for the following jurisdictions: Effective Amendment No. 3
to Form S-11
a. Arkansas (one representative fee mortgage
and leasehold mortgage included)
b. Louisiana
c. Mississippi
10.29 Term Loan Agreement among Acadia Filed as Exhibit 10(F)(6)
Partners , L.P. ("Second Lender"), to Registrant's Post
QRS 10-9 and QRS 11-2. Effective Amendment No. 3
to Form S-11
</TABLE>
-22-
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.30 Note of QRS 10-9 and QRS 11-2 to Filed as Exhibit 10(F)(7)
Second Lender. to Registrant's Post
Effective Amendment No. 3
to Form S-11
10.31 Fee Mortgages and Leasehold Mortgages Filed as Exhibit 10(F)(8)
from QRS 10-9 and QRS 11 -2 to Second to Registrant's Post
Lender for the following jurisdictions: Effective Amendment No. 3
to Form S-11
a. Arkansas (one representative fee mortgage
and leasehold mortgage included)
b. Louisiana
c. Mississippi
10.32 Guaranty from Harvest Foods, Inc., a Filed as Exhibit 10(F)(9)
Delaware corporation, to QRS 10-9 and to Registrant's Post
QRS 11-2. Effective Amendment No. 3
to Form S-11
10.33 Guaranty from Harvest Foods, Inc., an Filed as Exhibit 10(F)(10)
Arkansas corporation, to QRS 10-9 and to Registrant's Post
QRS 11-2. Effective Amendment No. 3
to Form S-11
10.34 Lease between QRS 10-12 (TX), Inc. Filed as Exhibit 10(G)(1)
("QRS 10-12"), QRS 11-5 (TX), Inc. to Registrant's Post
("QRS 11-5") and Summagraphics. Effective Amendment No. 3
to Form S-11
10.35 Co-Tenancy Agreement between QRS 10-12, Filed as Exhibit 10(G)(2)
and QRS 11-5. to Registrant's Post
Effective Amendment No. 3
to Form S-11
10.36 $3,700,000 Promissory Note from QRS Filed as Exhibit 10(H)(1)
10-12 (TX), Inc., ("QRS 10-12"), to Registrant's Post
and QRS 11-5 (TX) Inc. ("QRS 11-5"), Effective Amendment No. 4
to Creditanstalt-Bankverein ("Lender"). to Form S-11
10.37 Deed of Trust and Security Agreement Filed as Exhibit 10(H)(2)
from QRS 10- 12 and QRS 11-5 to John O. to Registrant's Post
Langdon, Trustee, for benefit of Lender. Effective Amendment No. 4
to Form S-11
10.38 Guaranty Agreement between Registrant Filed as Exhibit 10(H)(3)
and Corporate Property Associates 10 to Registrant's Post
Incorporated as guarantor and Lender. Effective Amendment No. 4
to Form S-11
10.39 Real Estate Purchase and Sale Contract Filed as Exhibit 10(I)(1)
between Belmet (IL) QRS 11-9, Inc. to Registrant's Post
("QRS 11-9") as purchaser and Mission Effective Amendment No. 4
Leasing and Bank of Rantoul (collectively, to Form S-11
"Seller").
</TABLE>
-23-
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.40 Assignment and Assumption of Lease Filed as Exhibit 10(I)(2)
between QRS 11-9 and Seller. to Registrant's Post
Effective Amendment No. 4
to Form S-11
10.41 Assignment of Permits and Warranties Filed as Exhibit 10(I)(3)
from Seller to QRS 11-9. to Registrant's Post
Effective Amendment No. 4
to Form S-11
10.42 Industrial Building Lease ("Lease") Filed as Exhibit 10(I)(4)
dated November 16, 1989 between Seller to Registrant's Post
and Bell, together with First Amendment Effective Amendment No. 4
to Lease, dated September 19, 1991. to Form S-11
10.43 Second Amendment to Lease. Filed as Exhibit 10(I)(5)
to Registrant's Post
Effective Amendment No. 4
to Form S-11
10.44 Land Purchase Agreement between MMI Filed as Exhibit 10(J)(1)
(SC) QRS 11-11 Inc. ("QRS 11-11") and to Registrant's Post
Amerisure, Inc. regarding three acre Effective Amendment No. 5
parcel. to Form S-11
10.45 Mortgage from Amerisure, Inc. to QRS Filed as Exhibit 10(J)(2)
11-11 regarding three acre parcel. to Registrant's Post
Effective Amendment No. 5
to Form S-11
10.46 Lease Agreement between QRS 11-11, Filed as Exhibit 10(J)(3)
as Landlord. and MMI, as tenant. to Registrant's Post
Effective Amendment No. 5
to Form S-11
10.47 Assignment, Reassignment and Assumption Filed as Exhibit 10(J)(4)
of Lease among Amerisure, Inc., QRS to Registrant's Post
11-11 and UIC. Effective Amendment No. 5
to Form S-11
10.48 Loan Agreement between The Penn Mutual Filed as Exhibit 10(J)(5)
Life Insurance Company ("Penn Mutual") to Registrant's Post
and QRS 11-11. Effective Amendment No. 5
to Form S-11
10.49 $9,500,000 Promissory Note from QRS Filed as Exhibit 10(J)(6)
11-11 to Penn Mutual. to Registrant's Post
Effective Amendment No. 5
to Form S-11
</TABLE>
-24-
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.50 Mortgage and Security Agreement from Filed as Exhibit 10(J)(7)
QRS 11-11 to Penn Mutual. to Registrant's Post
Effective Amendment No. 5
to Form S-11
10.51 Lease Agreement between BVS (NY) QRS Filed as Exhibit 10(K)(1)
11-10, Inc. ("QRS 11-10") as landlord, to Registrant's Post
and BVS, as tenant. Effective Amendment No. 5
to Form S-11
10.52 Reciprocal Easement and Operation Filed as Exhibit 10(K)(2)
Agreement between QRS 11-10 and Fairview to Registrant's Post
Plaza Corporation ("FPC"). Effective Amendment No. 5
to Form S-11
10.53 Lease Agreement between QRS 11-12, (FL), Filed as Exhibit 10(L)(2)
Inc., ("QRS 11-12"), as Landlord, and to Registrant's Post
Unit, as tenant. Effective Amendment No. 5
to Form S-11
10.54 Guaranty and Suretyship Agreement Filed as Exhibit 10(L)(4)
from Unit to QRS 11-12. to Registrant's Post
Effective Amendment No. 5
to Form S-11
10.55 Indemnity Agreement between GATX Filed as Exhibit 10(L)(5)
Corporation and QRS 11-12. to Registrant's Post
Effective Amendment No. 5
to Form S-11
10.56 Assignment and Assumption of Lease by Filed as Exhibit 10(M)(1)
Charlotte Telephone Associates Limited to Registrant's Post
Partnership ("CTA") to QRS 11-14 (NC), Effective Amendment No. 5
Inc. ("QRS 11-14"). to Form S-11
10.57 Purchase and Sale Agreement between Filed as Exhibit 10.1 to
Neoserv (CO) QRS 10-13, Inc. ("QRS:10") Registrant's Form 8-K dated
d Neoserv (CO) QRS 11-8, Inc. ("QRS:11") October 29, 1992
as purchasers and Homart Development Co. ("Homart").
10.58 Promissory Note of QRS:10 and QRS:11 to Filed as Exhibit 10.2 to
Homart. Registrant's Form 8-K dated
October 29, 1992
10.59 Deed of Trust from QRS:10 and QRS:11 for Filed as Exhibit 10.3 to
benefit of Homart. Registrant's Form 8-K dated
October 29, 1992
10.60 Option Agreement between QRS:10 and Filed as Exhibit 10.4 to
QRS:11 as option grantee and Homart as Registrant's Form 8-K dated
option grantor. October 29, 1992
</TABLE>
-25-
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.61 Co-Tenancy Agreement between QRS:10 and Filed as Exhibit 10.5 to
QRS:11. Registrant's Form 8-K dated
October 29, 1992
10.62 Lease from QRS:10 and QRS:11 as lessor Filed as Exhibit 10.6 to
and Neodata Services, Inc. ("Neodata") Registrant's Form 8-K dated
as lessee. October 29, 1992
10.63 Guaranty Agreement from Neodata Filed as Exhibit 10.7 to
Corporation as guarantor to QRS:10 and Registrant's Form 8-K dated
QRS:11. October 29, 1992
10.64 Promissory Note of QRS:10 and QRS:11 to Filed as Exhibit 10.8 to
Neodata. Registrant's Form 8-K dated
October 29, 1992
10.65 Deed of Trust from QRS:10 and QRS:11 for Filed as Exhibit 10.9 to
benefit of Neodata. Registrant's Form 8-K dated
October 29, 1992
10.66 Construction Contract between QRS:10 and Filed as Exhibit 10.10 to
QRS:11 as owners and Austin Commercial, Registrant's Form 8-K dated
Inc. ("Austin") as contractor. October 29, 1992
10.67 Guaranty from Austin to QRS:10 and Filed as Exhibit 10.11 to
QRS:11. Registrant's Form 8-K dated
October 29, 1992
10.68 Construction Agency Agreement between Filed as Exhibit 10.12 to
QRS:10 and QRS:11 as owners and Neodata Registrant's Form 8-K dated
as agent. October 29, 1992
10.69 Land Purchase Agreement between MMI (SC) Filed as Exhibit 10.1 to
QRS 11-11, Inc. ("QRS 11-11") and Registrant's Form 8-K dated
Amerisure, Inc. ("Amerisure") regarding January 5, 1993
three acre parcel.
10.70 Mortgage from Amerisure to QRS 11-11 Filed as Exhibit 10.2 to
regarding three acre parcel. Registrant's Form 8-K dated
January 5, 1993
10.71 Lease Agreement between QRS 11-11, as Filed as Exhibit 10.3 to
Landlord, and MMI as tenant. Registrant's Form 8-K dated
January 5, 1993
10.72 Assignment, Reassignment and Assumption Filed as Exhibit 10.4 to
of Lease among Amerisure, Inc., QRS 11-11 Registrant's Form 8-K dated
and UIC. January 5, 1993
10.73 Loan Agreement between The Penn Mutual Filed as Exhibit 10.5 to
Life Insurance Company ("Penn Mutual") Registrant's Form 8-K dated
and QRS 11-11. January 5, 1993
</TABLE>
-26-
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.74 $9,500,000 Promissory Note from QRS Filed as Exhibit 10.6 to
11-11 to Penn Mutual. Registrant's Form 8-K dated
January 5, 1993
10.75 Mortgage and Security Agreement from Filed as Exhibit 10.7 to
QRS 11-11 to Penn Mutual. Registrant's Form 8-K dated
January 5, 1993
10.76 Lease Agreement between BVS (NY) QRS Filed as Exhibit 10.8 to
11-10, Inc. ("QRS 11-10"), as landlord, Registrant's Form 8-K dated
and BVS, as tenant. January 5, 1993
10.77 Reciprocal Easement and Operation Filed as Exhibit 10.9 to
Agreement between QRS 11-10 and Fairview Registrant's Form 8-K dated
Plaza, Inc. January 5, 1993
10.78 Lease Agreement between QRS 11-12 Filed as Exhibit 10.10 to
(FL), Inc. ("QRS 11-12"), as landlord, Registrant's Form 8-K dated
and Unit, as tenant. January 5, 1993
10.79 Guaranty and Suretyship Agreement from Filed as Exhibit 10.11 to
Unit to QRS 11-12. Registrant's Form 8-K dated
January 5, 1993
10.80 Indemnity Agreement between GATX Filed as Exhibit 10.12 to
Corporation and QRS 11-12. Registrant's Form 8-K dated
January 5, 1993
10.81 Assignment and Assumption of Lease Filed as Exhibit 10.1 to
and Lease Guaranty from Oakbrook Registrant's Form 8-K dated
Development Corp. ("Oakbrook") to April 5, 1993
Books CT QRS 11-15, Inc. ("QRS 11-15").
10.82 Co-Tenancy Agreement between DDI (NE) Filed as Exhibit 10.2 to
QRS 10-15, Inc. ("QRS 10-15") and DDI Registrant's Form 8-K dated
(NE) QRS 11-13, Inc. ("QRS 11-13"). April 5, 1993
10.83 Cross Indemnity Agreement between Filed as Exhibit 10.3 to
QRS 10-15 and QRS 11-13. Registrant's Form 8-K dated
April 5, 1993
10.84 Lease Agreement between QRS 10-15 Filed as Exhibit 10.4 to
and QRS 11-13, as landlord, and Registrant's Form 8-K dated
Data Documents, Inc. ("DDI"), April 5, 1993
as tenant.
10.85 Loan Agreement between QRS 10-15 Filed as Exhibit 10.5 to
and QRS 11-13, as borrower, and Registrant's Form 8-K dated
U S West Financial Services, Inc. April 5, 1993
("US West"), as lender.
</TABLE>
-27-
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.86 $8,000,000 Promissory Note from Filed as Exhibit 10.6 to
QRS 10-15 and QRS 11-13 to Registrant's Form 8-K dated
US West. April 5, 1993
10.87 Deed of Trust from QRS 10-15 and Filed as Exhibit 10.7 to
QRS 11-13 to US West (for filing Registrant's Form 8-K dated
in the states of Colorado, Nebraska April 5, 1993
and Texas).
10.88 Mortgage from QRS 10-15 and QRS 11-13 Filed as Exhibit 10.8 to
to US West (for filing in the state of Registrant's Form 8-K dated
Kansas). April 5, 1993
10.89 Assignment of Parent Guaranty from Filed as Exhibit 10.9 to
QRS 10-15 and QRS 11-13. Registrant's Form 8-K dated
April 5, 1993
10.90 Deed of Trust Note from QRS 11-14 (NC), Filed as Exhibit 10.1 to
Inc. ("QRS 11-14") to Kredietbank N.V. Registrant's Form 8-K dated
("Kredietbank"). April 13, 1993
10.91 Deed of Trust from QRS 11-14 for the Filed as Exhibit 10.2 to
benefit of Kredietbank. Registrant's Form 8-K dated
April 13, 1993
10.92 Assignment of Leases and Rents from Filed as Exhibit 10.3 to
QRS 11-14 to Kredietbank. Registrant's Form 8-K dated
April 13, 1993
10.93 Escrow Agreement between Filed as Exhibit 10.4 to
QRS 11-14 and Kredietbank. Registrant's Form 8-K dated
April 13, 1993
10.94 Lease Agreement between BB Property Filed as Exhibit 10.1 to
Company, as lessor, and Best Buy, Registrant's Form 8-K dated
as lessee. May 6, 1993
10.95 Note Purchase Agreement among BB Filed as Exhibit 10.2 to
Property Company, Best Buy, and Registrant's Form 8-K dated
TIAA. May 6, 1993
10.96 $32,800,000 Note from BB Property Filed as Exhibit 10.3 to
Property Company to TIAA. Registrant's Form 8-K dated
May 6, 1993
10.97 Deed of Trust and Security Agreement Filed as Exhibit 10.4 to
from BB Property Company for the benefit Registrant's Form 8-K dated
of TIAA. May 6, 1993
10.98 $3,200,000 Promissory Note from BVS (NY) Filed as Exhibit 10.5 to
QRS 11-10, Inc. ("BVS") to Orix. Registrant's Form 8-K dated
May 6, 1993
</TABLE>
-28-
<PAGE> 30
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.99 Mortgage, Assignment of Leases and Rents, Filed as Exhibit 10.6 to
Security Agreement and Fixture Filing Registrant's Form 8-K dated
from BVS to Orix. May 6, 1993
10.100 Purchase Agreement between QRS 11-19, Filed as Exhibit 10.2 to
as owner, and Lincoln Technical Registrant's Form 8-K dated
Institute, as buyer. August 13, 1993
10.101 Lease Agreement between Unitech (IL) Filed as Exhibit 10(P)(1) to
QRS 11-19, Inc. ("QRS 11-19"), as Registrant's Post Effective
landlord, and UTI. Amendment No. 6 to Form S-11
10.102 Guaranty and Suretyship Agreement Filed as Exhibit 10(P)(2) to
from Lincoln Technical Institute Registrant's Post Effective
of Arizona, Inc. to QRS 11-19. Amendment No. 6 to Form S-11
10.103 Modification of Loan Documents and Filed as Exhibit 10(P)(3) to
Assumption Agreement among Chicago Registrant's Post Effective
Investment Properties Limited Partnership, Amendment No. 6 to Form S-11
the Guarantors QRS 11-19 and the
Fidelity Mutual Life
Insurance Company.
10.104 Rate Cap Transaction letter Agreement Filed as Exhibit 10(Q)(4) to
between BVS and Chemical Bank Registrant's Post Effective
("Chemical"). Amendment No. 6 to Form S-11
10.105 Consent and Agreement Filed as Exhibit 10(Q)(5) to
between Chemical, Orix and BVS. Registrant's Post Effective
Amendment No. 6 to Form S-11
10.106 Assignment of Interest Rate Filed as Exhibit 10(Q)(6) to
Protection Agreement from BVS Registrant's Post Effective
to Orix. Amendment No. 6 to Form S-11
10.107 Warrant issued by Merit to Filed as Exhibit 10(S)(1) to
the Registrant. Registrant's Post Effective
Amendment No. 6 to Form S-11
10.108 Lease Agreement between QRS 11-20 (UT), Filed as Exhibit 10(S)(2) to
Inc. ("QRS 11-20"), as landlord, and Registrant's Post Effective
Merit, as tenant. Amendment No. 6 to Form S-11
10.109 Guaranty Agreement from the Filed as Exhibit 10(S)(3) to
Registrant to Merit. Registrant's Post Effective
Amendment No. 6 to Form S-11
10.110 Construction Management Agreement Filed as Exhibit 10(S)(4) to
Merit and the Koll Company. Registrant's Post Effective
Amendment No. 6 to Form S-11
</TABLE>
-29-
<PAGE> 31
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.111 Construction Agreement between Merit Filed as Exhibit 10(S)(5) to
and Camco Construction Company, Inc. Registrant's Post Effective
Amendment No. 6 to Form S-11
10.112 Construction Agency Agreement between Filed as Exhibit 10(S)(6) to
Merit and QRS 11-20. Registrant's Post Effective
Amendment No. 6 to Form S-11
10.113 $8,250,000 Promissory Note from QRS 11-20 Filed as Exhibit 10(S)(7) to
to First Interstate Bank of Utah, N.A. Registrant's Post Effective
("Lender"). Amendment No. 6 to Form S-11
10.114 Deed of Trust, Assignment of Rents, Security Filed as Exhibit 10(S)(8) to
Agreement and Financing Statement from Registrant's Post Effective
QRS 11-20 for the benefit of Lender. Amendment No. 6 to Form S-11
10.115 Assignment of Leases and Rents made by Filed as Exhibit 10(S)(9) to
QRS 11-20 in favor of Lender. Registrant's Post Effective
Amendment No. 6 to Form S-11
10.116 Loan Agreement between QRS 11-20 and Filed as Exhibit 10(S)(10) to
Lender. Registrant's Post Effective
Amendment No. 6 to Form S-11
10.117 Assignment and Assumption of Bid dated Filed as Exhibit 10(T)(1) to
as of April 14, 1993 among QRS 11-17 (NY), Registrant's Post Effective
Inc. ("QRS 11-17"), E.B. Properties, Inc. Amendment No. 7 to Form S-11
("EB") and The Dime Savings Bank of New York, FSB ("Dime"), as
amended and supplemented by the First Supplement dated April 15,
1993 and by the Second Supplement dated April 22, 1993 and by
letters dated May 12, June 9 and June 18, 1993.
10.118 Assignment and Assumption Agreement, dated Filed as Exhibit 10(T)(2) to
March 4, 1993, as amended , between Registrant's Post Effective
Dime and EB, as assigned by Assignment Amendment No. 7 to Form S-11
dated April 14, 1993.
10.119 Lease dated as of August 1, 1986 between Filed as Exhibit 10(T)(3) to
D. Grossman and Mormax Corporation (as Registrant's Post Effective
assumed by QRS 11-21, Inc. ("QRS 11-21") Amendment No. 7 to Form S-11
by virtue of documents listed at (10)(T)(1)).
10.120 Promissory Note from QRS 11-17 to Dime Filed as Exhibit 10(T)(4) to
in the amount of $7,000,000. Registrant's Post Effective
Amendment No. 7 to Form S-11
10.121 Mortgage from QRS 11-17 to Dime. Filed as Exhibit 10(T)(5) to
Registrant's Post Effective
Amendment No. 7 to Form S-11
</TABLE>
-30-
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.122 Collateral Assignment of Leases and Rents Filed as Exhibit 10(T)(6) to
by QRS 11-17 in favor of Dime. Registrant's Post Effective
Amendment No. 7 to Form S-11
10.123 Agreement of Indemnity Filed as Exhibit 10(T)(7) to
by QRS 11-17 in favor of Dime. Registrant's Post Effective
Amendment No. 7 to Form S-11
10.124 Lease Agreement between SCF (TN) Filed as Exhibit 10(U)(1) to
QRS 11-21, as landlord, and SCM, Registrant's Post Effective
as tenant. Amendment No. 7 to Form S-11
10.125 Warrant issued by Sports & Fitness Filed as Exhibit 10(U)(2) to
Clubs Inc. ("SFC") to QRS 11-21. Registrant's Post Effective
Amendment No. 7 to Form S-11
10.126 Guaranty and Suretyship Agreement by Filed as Exhibit 10(U)(3) to
SFC and Sports and Fitness Clubs of Registrant's Post Effective
America, Inc. ("SFCA") to QRS 11-21. Amendment No. 7 to Form S-11
10.127 Purchase Agreement between QRS 11-21, Filed as Exhibit 10(U)(4) to
as owner, and SFC, as buyer. Registrant's Post Effective
Amendment No. 7 to Form S-11
10.128 Term Loan Agreement between QRS 11-21, Filed as Exhibit 10(U)(5) to
as borrower, and Union Planters National Registrant's Post Effective
Bank, as lender ("Union Planters"). Amendment No. 7 to Form S-11
10.129 Note in the amount of $2,800,000 dated Filed as Exhibit 10(U)(6) to
July 20, 1993 from QRS 11-21 for the Registrant's Post Effective
benefit of Union Planters. Amendment No. 7 to Form S-11
10.130 Deed of Trust, Assignment of Rents and Filed as Exhibit 10(U)(7) to
Security Agreement from QRS 11-21 for the Registrant's Post Effective
benefit of Union Planters. Amendment No. 7 to Form S-11
10.131 Acknowledgment of Assignment of Lease, Filed as Exhibit 10(U)(8) to
Guaranty and Purchase Agreements between Registrant's Post Effective
SCM, SFC, SFCA, QRS 11-21 and Union Planters. Amendment No. 7 to Form S-11
10.132 Real Estate Contract of Sale between Filed as Exhibit 10(V)(1) to
Abacus Capital Corporation, as seller, Registrant's Post Effective
and Registrant, or its assigns, as Buyer. Amendment No. 7 to Form S-11
10.133 Real Estate Contract of Sale between Filed as Exhibit 10.1 to
Abacus Capital Corporation ("Abacus"), as Registrant's Form 8-K
seller, and Registrant, as buyer. dated February 24, 1994
10.134 Assignment of Real Estate Contract of Filed as Exhibit 10.2 to
Sale from Registrant to the PETSMART Registrant's Form 8-K
Subsidiary. dated February 24, 1994
</TABLE>
-31-
<PAGE> 33
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.135 Assignment and Assumption of Lease Filed as Exhibit 10.3 to
between Abacus and the PETsMART Registrant's Form 8-K
Subsidiary. dated February 24, 1994
10.136 Loan Agreement between NationsBank and Filed as Exhibit 10.4 to
the PETsMART Subsidiary. Registrant's Form 8-K
dated February 24, 1994
10.137 $2,500,000 Promissory Note made by the Filed as Exhibit 10.5 to
PETsMART Subsidiary to NationsBank. Registrant's Form 8-K
dated February 24, 1994
10.138 Deed of Trust, Assignment, Security Filed as Exhibit 10.6 to
Agreement and Financing Statement from Registrant's Form 8-K
the PETsMART Subsidiary to NationsBank. dated February 24, 1994
10.139 Lease Agreement between the Braintree Filed as Exhibit 10.7 to
Subsidiary, as landlord, and Barnes Registrant's Form 8-K
& Noble, as tenant. dated February 24, 1994
10.140 Real Estate Purchase and Sale Contract Filed as Exhibit 10.8 to
between the ELWA Subsidiary, as buyer, Registrant's Form 8-K
and Big V, as seller. dated February 24, 1994
10.141 Lease Agreement between the ELWA Filed as Exhibit 10.9 to
Subsidiary, as landlord, and Registrant's Form 8-K
Big V as tenant. dated February 24, 1994
10.142 Guaranty and Suretyship Agreement Filed as Exhibit 10.10 to
executed by Big V Holding. Registrant's Form 8-K
dated February 24, 1994
10.143 Amended, Restated and Consolidated Bonds Filed as Exhibit 10.11 to
to Key Bank, as lender, from the ELWA Registrant's Form 8-K
Subsidiary, as borrower. dated February 24, 1994
10.144 Amended and Restated Mortgage and Filed as Exhibit 10.12 to
Security Agreement from the ELWA Registrant's Form 8-K
Subsidiary, to Key Bank. dated February 24, 1994
10.145 Limited Guaranty of Payment from the Filed as Exhibit 10.13 to
Company to Key Bank. Registrant's Form 8-K
dated February 24, 1994
10.146 Lease Agreement between the Brownwood Filed as Exhibit 10.14 to
Subsidiary, as landlord, and Superior, Registrant's Form 8-K
as tenant. dated February 24, 1994
10.147 Guaranty and Suretyship Agreement from Filed as Exhibit 10.15 to
Alpine to Registrant. Registrant's Form 8-K
dated February 24, 1994
</TABLE>
-32-
<PAGE> 34
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.148 $2,700,000 Real Estate Note from the Filed as Exhibit 10.16 to
Brownwood Subsidiary, as maker, to Registrant's Form 8-K
Creditanstalt, as holder. dated February 24, 1994
10.149 Deed of Trust and Security Agreement by Filed as Exhibit 10.17 to
the Brownwood Subsidiary, as guarantor Registrant's Form 8-K
to Hazen H. Dempster, as trustee. dated February 24, 1994
10.150 Guaranty and Agreement between the Filed as Exhibit 10.18 to
Company and Creditanstalt. Registrant's Form 8-K
dated February 24, 1994
10.151 Assignment of Contract from Hyde Park Filed as Exhibit 10.19 to
Holdings, Inc. to the Cleveland Registrant's Form 8-K
Subsidiary. dated February 24, 1994
10.152 Lease Agreement between the Cleveland Filed as Exhibit 10.20 to
Subsidiary, as landlord, and Nicholson, Registrant's Form 8-K
as tenant. dated February 24, 1994
10.153 $4,000,000 Cognovit Promissory Note Filed as Exhibit 10.21 to
from the Cleveland Subsidiary to Bank Registrant's Form 8-K
One. dated February 24, 1994
10.154 Mortgage Deed, Security Agreement and Filed as Exhibit 10.22 to
Assignment of Rents and Leases from the Registrant's Form 8-K
Cleveland Subsidiary to Bank One. dated February 24, 1994
10.155 Business Loan Agreement between the Filed as Exhibit 10.23 to
Cleveland Subsidiary, and Bank One. Registrant's Form 8-K
dated February 24, 1994
10.156 Guaranty from Registrant to Bank One. Filed as Exhibit 10.24 to
Registrant's Form 8-K
dated February 24, 1994
10.157 Lease Agreement between the Gensia Filed as Exhibit 10.25 to
Partnership, as landlord, and Gensia, Registrant's Form 8-K
as tenant. dated February 24, 1994
10.158 $13,000,000 Promissory Note from the Filed as Exhibit 10.26 to
Gensia Partnership to Northwestern. Registrant's Form 8-K
dated February 24, 1994
10.159 Deed of Trust, Security Agreement and Filed as Exhibit 10.27 to
Financing Statement from the Gensia Registrant's Form 8-K
Partnership to Northwestern. dated February 24, 1994
10.160 Guarantee of Recourse Obligations from Filed as Exhibit 10.28 to
Registrant and CPA(R):12 to Northwestern. Registrant's Form 8-K
dated February 24, 1994
</TABLE>
-33-
<PAGE> 35
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.161 Assignment of Earnest Money Contract Filed as Exhibit 10.29 to
from Garden Ridge to the Round Rock Registrant's Form 8-K
Subsidiary. dated February 24, 1994
10.162 Lease Agreement between the Round Rock Filed as Exhibit 10.30 to
Subsidiary, as landlord, and Garden Registrant's Form 8-K
Ridge, as tenant. dated February 24, 1994
10.163 $3,465,000 Note from the Round Rock Filed as Exhibit 10.31 to
Subsidiary to Garden Ridge. Registrant's Form 8-K
dated February 24, 1994
10.164 Deed of Trust and Security Agreement Filed as Exhibit 10.32 to
from the Round Rock Subsidiary to Garden Registrant's Form 8-K
Ridge. dated February 24, 1994
10.165 $1,700,000 Promissory Note from the Filed as Exhibit 10.33 to
Plano Subsidiary to National Western. Registrant's Form 8-K
dated February 24, 1994
10.166 Deed of Trust, Security Agreement and Filed as Exhibit 10.34 to
Financing Statement from the Plano Registrant's Form 8-K
Subsidiary to National Western. dated February 24, 1994
10.167 Lease Agreement dated June 15, 1994 between Filed as Exhibit 10.167 to
CTC (VA) QRS 11-32, Inc., as Landlord, and Registrant's Form 10-K for the
Childtime Childcare, Inc., as Tenant. year ended December 31, 1994
dated March 31, 1995
10.168 Construction Agency Agreement dated June 15, 1994 Filed as Exhibit 10.168 to
between Childtime Childcare, Inc. and Registrant's Form 10-K for the
CTC (VA) QRS 11-32, Inc. year ended December 31, 1994
dated March 31, 1995
10.169 Lease Agreement dated August 11, 1994 by and Filed as Exhibit 10.169 to
between Neenah (WI) QRS 11-31, Inc., as Landlord, Registrant's Form 10-K for the
and Exide Electronic Assembly Corporation, as Tenant. year ended December 31, 1994
dated March 31, 1995
10.170 $5,000,000 Real Estate Note dated August 11, 1994 Filed as Exhibit 10.170 to
from Neenah (WI) QRS 11-31, Inc., as Maker, Registrant's Form 10-K for the
and Creditanstalt Corporate Finance, Inc., as Holder. year ended December 31, 1994
dated March 31, 1995
10.171 Lease Agreement dated September 30, 1994 by and Filed as Exhibit 10.171 to
between CFP Associates, as Landlord, and Registrant's Form 10-K for the
Custom Foods Products, Inc., as Tenant. year ended December 31, 1994
dated March 31, 1995
10.172 Loan Agreement dated September 30, 1994 Filed as Exhibit 10.172 to
between CFP Associates, as Borrower, and Registrant's Form 10-K for the
Greyrock Capital Group Inc., as Lender. year ended December 31, 1994
dated March 31, 1995
</TABLE>
-34-
<PAGE> 36
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
10.173 $2,000,000 Note dated September 30, 1994 Filed as Exhibit 10.173 to
from CFP Associates, as Maker, and Registrant's Form 10-K for the
Greyrock Capital Group Inc., as Payee. year ended December 31, 1994
dated March 31, 1995
10.174 $200,000 Maximum Amount Promissory Note Filed as Exhibit 10.174 to
dated September 30, 1994 from CFP Associates, Registrant's Form 10-K for the
as Maker, to Custom Foods Products, Inc., as Payee. year ended December 31, 1994
dated March 31, 1995
10.175 Lease Agreement dated October 14, 1994 by and Filed as Exhibit 10.175 to
between ADS (CA) QRS 11-34, Inc., as Landlord, Registrant's Form 10-K for the
and Chiat/Day Inc. Advertising, as Tenant. year ended December 31, 1994
dated March 31, 1995
10.176 $6,000,000 Promissory Note dated October 14, 1994 Filed as Exhibit 10.176 to
from ADS (CA) QRS 11-34, Inc., as Borrower, to Registrant's Form 10-K for the
Kearneys Street Real Estate Company, L.P., as Lender. year ended December 31, 1994
dated March 31, 1995
10.177 $3,000,000 Purchase Money Promissory Note secured Filed as Exhibit 10.177 to
by Deed of Trust dated October 14, 1994 from ADS (CA) Registrant's Form 10-K for the
QRS 11-34, Inc., as Maker, to Venice Operating Corp., year ended December 31, 1994
as Holder. dated March 31, 1995
10.178 Lease Agreement dated October 31, 1995 by and between Filed as Exhibit 10.33 to
DELMO (PA) QRS 11-36 and DELMO (PA) QRS 12-10 Registrant's Form 8-K
together as Landlord and Del Monte Corporation, as Tenant. dated March 21, 1996
10.179 Lease Agreement dated December 26, 1995 by and between Filed as Exhibit 2.1 to
Cards Limited Liability Company, as Landlord, and The Upper Registrant's Form 8-K
Deck Company, as Tenant. dated March 21, 1996
10.180 $15,000,000 Promissory Note dated January 3, 1996 Filed as Exhibit 2.2 to
from Cards Limited Liability Company to Registrant's Form 8-K
Column Financial, Inc. dated March 21, 1996
21.1 Subsidiaries of Registrant as of March 24, 1999 Filed herewith
23.1 Consent of PricewaterhouseCoopers LLP dated Filed herewith
March 5, 1999
28.1 General Warranty Deed from Filed as Exhibit 28(C)(1)
Amerisure, Inc. to (SC) QRS 11-11 to Registrant's Post
Effective Amendment No. 5
to Form S-11
28.2 Amended and Restated Sublease Agreement Filed as Exhibit 28(C)(2)
between MMI, as sublandlord, and Unisun to Registrant's Post Effective
Insurance Company ("UIC"). Amendment No. 5 to Form S-11
28.3 General warranty Deed from FPC to QRS Filed as Exhibit 28(D)(1) to
11-10. Registrant's Post Effective
Amendment No. 5 to Form S-11
</TABLE>
-35-
<PAGE> 37
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
28.4 Deed from Unit to QRS 11-12. Filed as Exhibit 28(E)(1)
to Registrant's Post
Effective Amendment No. 5
to Form S-11
28.5 Lease between Unit, as landlord, and Filed as Exhibit 28(E)(2)
SLS, as tenant, as amended. to Registrant's Post
Effective Amendment No. 5
to Form S-11
28.6 Special warranty Deed from CTA, as Filed as Exhibit 28(F)(1)
Grantor to QRS 11-14, as Grantee. to Registrant's Post
Effective Amendment No. 5
to Form S-11
28.7 Lease Agreement between CTA and AT&T. Filed as Exhibit 28(F)(2)
to Registrant's Post
Effective Amendment No. 5
to Form S-11
28.8 Leasehold Deed of Trust from Neodata for Filed as Exhibit 28.1 to
benefit of General Electric Capital Registrant's Form 8-K dated
Corporation. October 29, 1992
28.9 General Warranty Deed from Amerisure Filed as Exhibit 28.1 to
QRS 11-11. Registrant's Form 8-K dated
January 5, 1993
28.10 Amended and Restated Sublease Agreement Filed as Exhibit 28.2 to
between MMI, as sublandlord, and Unisun Registrant's Form 8-K dated
Insurance Company. January 5, 1993
28.11 General Warranty Deed from Fairview Plaza Filed as Exhibit 28.3 to
Corporation to QRS 11-10. Registrant's Form 8-K dated
January 5, 1993
28.12 Deed from Unit to QRS 11-12. Filed as Exhibit 28.4 to
Registrant's Form 8-K dated
January 5, 1993
28.13 Lease between Unit, as landlord, and Filed as Exhibit 28.5 to
SLS, as tenant, as amended. Registrant's Form 8-K dated
January 5, 1993
28.14 Prospectus dated January 21, 1993 of Filed pursuant to Rule
Registrant. 424(b)(s) on January 26, 1993
(Registration No. 33-39409)
</TABLE>
-36-
<PAGE> 38
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
------- ----------- ---------
<S> <C> <C>
28.15 Supplement No. 1 dated March 17, 1993 Filed pursuant to Rule
to Prospectus dated January 21, 1993. 424(b)(s) on March 17, 1993
(Registration No. 33-39409)
28.16 Quit Claim Deed from Oakbrook to Filed as Exhibit 28.1 to Registrant's
QRS 11-15. Form 8-K dated April 5, 1993
28.17 Lease Agreement between Oakbrook and Filed as Exhibit 28.2 to Registrant's
B. Dalton Bookseller, Inc. ("B. Dalton"). Form 8-K dated April 5, 1993
28.18 First Amendment between Oakbrook and Filed as Exhibit 28.3 to Registrant's
B. Dalton Bookseller, Inc. Form 8-K dated April 5, 1993
28.19 Lease Guaranty to Oakbrook from Barnes Filed as Exhibit 28.4 to Registrant's
& Noble, Inc. Form 8-K dated April 5, 1993
28.20 Guaranty and Suretyship Agreement from Filed as Exhibit 28.5 to
Data Documents Holdings, Inc. to QRS Registrant's Form 8-K dated
10-15 and QRS 11-13. April 5, 1993
28.21 Guaranty from Corporate Property Filed as Exhibit 28.6 to
Associates 10 Incorporated and Registrant's Form 8-K dated
Registrant to US West. April 5, 1993
28.22 Guaranty from Registrant to Orix. Filed as Exhibit 28.1 to Registrant's
Form 8-K dated May 6, 1993
28.23 Special Warranty Deed from Merit Filed as Exhibit 28(G)(1) to
to QRS 11-20. Registrant's Post Effective
Amendment No. 6 to Form S-11
28.24 Table VI: Acquisitions of Properties Filed as Exhibit 28(H) to
by Prior Programs. Registrant's Post Effective
Amendment No. 6 to Form S-11
28.25 Limited Warranty Deed from Filed as Exhibit 28.1 to
the David F. Bolger Revocable Trust Registrant's Form 8-K
to the Braintree Subsidiary. dated February 24, 1994
28.26 Special Warranty Deed from Superior to Filed as Exhibit 28.2 to
the Brownwood Subsidiary. Registrant's Form 8-K
dated February 24, 1994
28.27 Corporation Grant Deed from Gensia to Filed as Exhibit 28.3 to
the Gensia Partnership. Registrant's Form 8-K
dated February 24, 1994
28.28 Supplement No. 2 dated June 15, 1993 Filed as Exhibit 28.28 to
to Prospectus dated January 21, 1993. Registrant's Form 10-K for the
year ended December 31, 1993
28.29 Supplement No. 3 dated August 11, 1993 Filed as Exhibit 28.29 to
to Prospectus dated January 21, 1993. Registrant's Form 10-K for the
year ended December 31, 1993
</TABLE>
(b) Reports on Form 8-K
During the quarter ended December 31, 1998 the Company was not required to
file any reports on Form 8-K.
-37-
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
a Maryland corporation
03/24/99 BY: /s/ Steven M. Berzin
- ----------------- ---------------------------------------
Date Steven M. Berzin
Executive Vice President, Chief Legal
Officer and Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
3/24/99 BY: /s/ William P. Carey
- ----------------- ---------------------------------------
Date William P. Carey
Chairman of the Board and Director
(Principal Executive Officer)
03/24/99 BY: /s/ H. Augustus Carey
- ----------------- ---------------------------------------
Date H. Augustus Carey
President
03/24/99 BY: /s/ Ralph G. Coburn
- ----------------- ---------------------------------------
Date Ralph G. Coburn
Director
03/24/99 BY: /s/ George E. Stoddard
- ----------------- ---------------------------------------
Date George E. Stoddard
Director
3/24/99 BY: /s/ Charles C. Townsend, Jr.
- ----------------- ---------------------------------------
Date Charles C. Townsend, Jr.
Director
03/24/99 BY: /s/ Warren G. Wintrub
- ----------------- ---------------------------------------
Date Warren G. Wintrub
Director
03/24/99 BY: /s/ Thomas E. Zacharias
- ----------------- ---------------------------------------
Date Thomas E. Zacharias
Director
03/24/99 BY: /s/ Steven M. Berzin
- ----------------- ---------------------------------------
Date Steven M. Berzin
Executive Vice President, Chief Legal
Officer and Chief Financial Officer
(Principal Financial Officer)
03/24/99 BY: /s/ Claude Fernandez
- ----------------- ---------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-38-
<PAGE> 40
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and Subsidiaries:
Our audits of the consolidated financial statements referred to in our report
dated March 5, 1999 appearing on page 7 of the 1998 Annual Report to
Shareholders of CAREY INSTITUTIONAL PROPERTIES INCORPORATED and Subsidiaries
(which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 5, 1999
-39-
<PAGE> 41
<TABLE>
<CAPTION>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1998
Initial Cost to Costs
Company Capitalized
---------------------------- Subsequent to
Description Encumbrances Land Buildings Acquisition (a)
----------- ------------ ---- --------- ---------------
<S> <C> <C> <C> <C>
Operating Method:
Retail stores leased to
Wal-Mart Stores, Inc. $ 6,910,413 $ 807,423 $ 6,864,802 $ 87,746
Supermarket leased
to Safeway Stores
Incorporated 336,426 941,959 14,621
Office/Manufacturing
facility leased to
CalComp Technology, Inc. 1,610,688 751,453 2,536,047 841
Manufacturing/Distributing
facility leased to
Neodata Corporation 10,489,787 1,515,879 503,734 15,125,189
Warehouse/Manufacturing
facility leased to
Bell Sports, Inc. 4,305,800 283,726 5,066,274 3,322,270
Warehouse leased to GATX
Logistics, Inc. 3,737,759 1,350,444 4,574,557 60,676
Warehouse leased to
Lucent Technologies, Inc. 9,100,000 1,290,631 15,937,369 232,870
Land leased to
Barnes & Noble, Inc. 2,510,610 4,759,017 47,962
Land leased to
Best Buy Co., Inc. 11,559,550 18,579,019 646
Land leased to Lincoln
Technical Institute
of Arizona, Inc. 1,569,981 2,516,671 696
Office/warehouse leased to
Merit Medical Systems, Inc. 5,948,790 380,000 10,505,349
Retail store leased
to Waban, Inc. 6,488,365 6,119,530 3,630,470 230,327
Land leased to
Q Clubs, Inc. 2,073,578 1,026
<CAPTION>
Gross Amount at which Carried
at Close of Period (b)(d)
-------------------------------------------------- Accumulated
Description Land Buildings Total Depreciation (d)
----------- ---- --------- ----- ----------------
<S> <C> <C> <C> <C>
Operating Method:
Retail stores leased to
Wal-Mart Stores, Inc. $ 816,658 $ 6,943,313 $ 7,759,971 $ 1,222,280
Supermarket leased
to Safeway Stores
Incorporated 340,274 952,732 1,293,006 167,715
Office/Manufacturing
facility leased to
CalComp Technology, Inc. 751,645 2,536,696 3,288,341 420,135
Manufacturing/Distributing
facility leased to
Neodata Corporation 1,519,885 15,624,917 17,144,802 1,562,492
Warehouse/Manufacturing
facility leased to
Bell Sports, Inc. 283,793 8,388,477 8,672,270 1,173,782
Warehouse leased to GATX
Logistics, Inc. 1,364,272 4,621,405 5,985,677 698,001
Warehouse leased to
Lucent Technologies, Inc. 1,295,387 16,165,483 17,460,870 2,431,169
Land leased to
Barnes & Noble, Inc. 4,806,979 4,806,979
Land leased to
Best Buy Co., Inc. 18,579,665 18,579,665
Land leased to Lincoln
Technical Institute
of Arizona, Inc. 2,517,367 2,517,367
Office/warehouse leased to
Merit Medical Systems, Inc. 380,000 10,505,349 10,885,349 1,028,649
Retail store leased
to Waban, Inc. 6,263,907 3,716,420 9,980,327 514,269
Land leased to
Q Clubs, Inc. 2,074,604 2,074,604
<CAPTION>
Life on which
Depreciation
in Latest
Statement of
Income
Description Date Acquired is Computed
----------- ------------- -----------
<S> <C> <C>
Operating Method:
Retail stores leased to December 19,
Wal-Mart Stores, Inc. 1991 40 yrs.
Supermarket leased
to Safeway Stores December 19,
Incorporated 1991 40 yrs.
Office/Manufacturing
facility leased to
CalComp Technology, Inc. May 28, 1992 40 yrs.
Manufacturing/Distributing
facility leased to October 1,
Neodata Corporation 1992 40 yrs.
Warehouse/Manufacturing
facility leased to November 6,
Bell Sports, Inc. 1992 40 yrs.
Warehouse leased to GATX December 23,
Logistics, Inc. 1992 40 yrs.
Warehouse leased to
Lucent Technologies, Inc. December 30, 1992 40 yrs.
Land leased to February 23, 1993
Barnes & Noble, Inc. and October 1, 1993 N/A
Land leased to
Best Buy Co., Inc. April 15, 1993 N/A
Land leased to Lincoln
Technical Institute
of Arizona, Inc. May 3, 1993 N/A
Office/warehouse leased to
Merit Medical Systems, Inc. June 3, 1993 40 yrs.
Retail store leased
to Waban, Inc. June 29, 1993 40 yrs.
Land leased to
Q Clubs, Inc. July 16, 1993 N/A
</TABLE>
(Continued)
-40-
<PAGE> 42
<TABLE>
<CAPTION>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1998
Initial Cost to Costs
Company Capitalized
---------------------------- Subsequent to
Description Encumbrances Land Buildings Acquisition (a)
----------- ------------ ---- --------- ---------------
<S> <C> <C> <C> <C>
Warehouse facility leased
to Petsmart, Inc. 2,191,254 106,603 4,444,397 42,817
Manufacturing facility
leased to Plexus Corp. 4,478,825 125,340 9,124,660 5,745
Childcare centers leased to
Childtime Childcare, Inc. 2,408,129 1,198,750 3,422,172
Office building leased to
Omnicom Group, Inc. 25,662,439 6,316,880 27,397,945 9,179,472
Retail stores leased to
Garden Ridge Corporation 7,595,007 2,197,500 4,112,500 5,054,413
Warehouses and special
purpose facility leased to
Del Monte Corporation 5,725,138 304,073 10,230,842
Health club leased to
Q Clubs, Inc. 912,855 4,323,145
Warehouse/office leased
to Hibbett Sporting
Goods, Inc. 2,751,101 660,000 4,040,000
Distribution/warehouse
leased to Detroit
Diesel Corporation. 2,782,860 6,542,140
Office buildings and
supermarkets formerly leased
to Harvest Foods, Inc. 808,800 4,246,200 1,171
Supermarkets leased
to Affiliated
Southwest, Inc. 343,120 1,801,380 497
------------ ----------- ----------- -----------
$115,043,636 $56,520,578 $106,087,479 $57,570,348
============ =========== ============ ===========
<CAPTION>
Gross Amount at which Carried
at Close of Period (b)(d)
Decrease in --------------------------------------------------
Description Net Investments(b) Land Buildings Total
----------- ------------------ ---- --------- -----
<S> <C> <C> <C> <C>
Warehouse facility leased
to Petsmart, Inc. 107,606 4,486,211 4,593,817
Manufacturing facility
leased to Plexus Corp. 125,418 9,130,327 9,255,745
Childcare centers leased to
Childtime Childcare, Inc. 1,198,750 3,422,172 4,620,922
Office building leased to
Omnicom Group, Inc. 6,319,147 36,575,150 42,894,297
Retail stores leased to
Garden Ridge Corporation 2,197,998 9,166,415 11,364,413
Warehouses and special
purpose facility leased to
Del Monte Corporation 374,698 10,160,217 10,534,915
Health club leased to
Q Clubs, Inc. 912,855 4,323,145 5,236,000
Warehouse/office leased
to Hibbett Sporting
Goods, Inc. 660,000 4,040,000 4,700,000
Distribution/warehouse
leased to Detroit
Diesel Corporation. 2,782,860 6,542,140 9,325,000
Office buildings and
supermarkets formerly leased
to Harvest Foods, Inc. (1,160,981) 982,482 2,912,708 3,895,190
Supermarkets leased
to Affiliated
Southwest, Inc. (492,527) 416,802 1,235,668 1,652,470
---------- ---------- ------------ ------------
$(1,656,508) $57,073,052 $161,448,945 $218,521,997
=========== =========== ============ ============
<CAPTION>
Life on which
Depreciation
in Latest
Statement of
Accumulated Income
Description Depreciation (d) Date Acquired is Computed
----------- ---------------- ------------- -----------
<S> <C>
Warehouse facility leased
to Petsmart, Inc. 584,142 October 26, 1993 40 yrs.
Manufacturing facility
leased to Plexus Corp. 998,630 August 11, 1994 40 yrs.
Childcare centers leased to June 15, 1994 through
Childtime Childcare, Inc. 281,616 November 18, 1994 40 yrs.
Office building leased to
Omnicom Group, Inc. 1,539,298 October 14, 1994 40 yrs.
Retail stores leased to
Garden Ridge Corporation 619,473 March 30, 1998 40 yrs.
Warehouses and special
purpose facility leased to
Del Monte Corporation 615,986 November 9, 1995 40 yrs.
Health club leased to
Q Clubs, Inc. 310,726 February 6, 1996 40 yrs.
Warehouse/office leased
to Hibbett Sporting
Goods, Inc. 290,375 February 12, 1996 40 yrs.
Distribution/warehouse
leased to Detroit
Diesel Corporation. 333,922 December 17, 1996 40 yrs.
Office buildings and
supermarkets formerly leased
to Harvest Foods, Inc. 127,431 February 21, 1992 40 yrs.
Supermarkets leased
to Affiliated
Southwest, Inc. 54,060 February 21, 1992 40 yrs.
-----------
$14,974,151
===========
</TABLE>
See accompanying notes to Schedule.
-41-
<PAGE> 43
<TABLE>
<CAPTION>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1998
Initial Cost to Costs Increase
Company Capitalized (Decrease) In
--------------------------- Subsequent to Net
Description Encumbrances Land Buildings Acquisition (a) Investment (c)(d)
----------- ------------ ---- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Direct Financing Method:
Retail store leased to
Oshman Sporting
Goods, Inc. $1,503,138 $ 700,356 $2,494,843 $37,695 $ 281,550
Office buildings leased
to Michigan Mutual
Insurance Company 9,500,000 1,965,093 11,884,907 5,919 121,593
Supermarkets leased
to Big V Holding Corp. 3,949,138 3,724,889 16,399,261 89,555 (4,967,414)
Retail stores leased to
Barnes & Noble, Inc. 2,947,239 5,525,983 49,806 916,554
Retail stores leased to
Best Buy Co., Inc. 17,339,327 27,653,981 962 (802,009)
Technical training institute
leased to Lincoln Technical
Institute of Arizona, Inc. 3,843,746 6,083,329 1,684
Health club leased to Q Clubs,
Inc. (formerly Sports &
Fitness Clubs of America) 3,511,422 1,737
Warehouse/distribution
facility leased to Nich-
olson Warehouse, Inc. 3,574,928 598,544 6,316,456 1,370 (101,629)
Manufacturing facility leased
to Superior Telecomm-
unications 2,361,949 295,032 4,704,968 1,885 (161,794)
Food processing/warehouse
facility leased to Custom
Food Products, Inc. 192,277 27,000 5,536,384
Office buildings and
supermarkets leased
to Kroger Company 251,760 1,321,740
----------- ---------- ----------- ----------- -----------
$45,211,742 $7,562,674 $85,896,890 $ 5,726,997 $(4,713,149)
=========== ========== =========== =========== ===========
<CAPTION>
Gross Amount at which
Carried at Close of Period (b)(d)
---------------------------------
Description Total Date Acquired
----------- ----- -------------
<S> <C>
Direct Financing Method:
Retail store leased to
Oshman Sporting
Goods, Inc. 3,514,444 December 10, 1992
Office buildings leased
to Michigan Mutual
Insurance Company 13,977,512 December 21, 1993
Supermarkets leased
to Big V Holding Corp. 15,246,291 December 23, 1993 and
Retail stores leased to October 8, 1993
Barnes & Noble, Inc. 6,492,343 February 23, 1993 and
Retail stores leased to October 1, 1993
Best Buy Co., Inc. 26,852,934 April 15, 1993
Technical training institute
leased to Lincoln Technical
Institute of Arizona, Inc. 6,085,013 May 3, 1993
Health club leased to Q Clubs,
Inc. (formerly Sports &
Fitness Clubs of America) 3,513,159 July 16, 1993
Warehouse/distribution
facility leased to Nich-
olson Warehouse, Inc. 6,814,741 December 13, 1993
Manufacturing facility leased
to Superior Telecomm-
unications 4,840,091 December 16, 1993
Food processing/warehouse
facility leased to Custom
Food Products, Inc. 5,563,384 September 30, 1994
Office buildings and
supermarkets leased
to Kroger Company 1,573,500 February 21, 1992
------------
$ 94,473,412
============
</TABLE>
See accompanying notes to Schedule.
-42-
<PAGE> 44
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to SCHEDULE III - REAL ESTATE
and ACCUMULATED DEPRECIATION
(a) Consists of the costs of improvements subsequent to purchase and
acquisition costs including legal fees, appraisal fees, title costs and
other related professional fees.
(b) At December 31, 1998, the aggregate cost of real estate owned by Registrant
and its subsidiaries for Federal income tax purposes is $266,914,064.
(c) The increase (decrease) in net investment is due to the amortization of
unearned income producing a constant periodic rate of return on the net
investment which is more (less) than lease payments received, the sale of a
tenancy-in-common interest to an affiliate in a prior year and a writedown
to fair value.
(d)
<TABLE>
<CAPTION>
Reconciliation of Real Estate Accounted
for Under the Operating Method
December 31, December 31,
1997 1998
------------- -------------
<S> <C> <C>
Balance at beginning
of year $ 185,781,391 $ 191,471,733
Reclassification to investment
in direct financing lease
Reclassification from investment
in direct financing lease 6,610,598
Additions 142,682 27,050,264
Dispositions (1,062,938)
------------- -------------
Balance at close of
year $ 191,471,733 $ 218,521,997
============= =============
Reconciliation of Accumulated Depreciation
December 31, December 31,
1997 1998
------------- -------------
Balance at beginning
of year $ 7,971,271 $ 11,396,602
Depreciation expense 3,435,128 3,577,549
Dispositions (9,797)
------------- -------------
Balance at close of
year $ 11,396,602 $ 14,974,151
============= =============
</TABLE>
-43-
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Method of
No. Description Filing
21.1 Subsidiaries of Registrant as of March 24, 1999 Filed herewith
23.1 Consent of PricewaterhouseCoopers LLP dated Filed herewith
March 5, 1999
27 Financial Data Schedule Filed herewith
</TABLE>
<PAGE> 46
APPENDIX A TO FORM 10-K
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
AND SUBSIDIARIES
1998 ANNUAL REPORT
<PAGE> 47
SELECTED FINANCIAL DATA
(In thousands except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 25,958 $ 29,238 $ 32,547 $ 34,247 $ 35,044
Income before
extraordinary item 11,615 9,629 10,421 10,659 12,093
Net income 11,615 9,228 10,146 11,086 13,732
Basic earnings
per share before
extraordinary item .82 .68 .66 .63 .64
Diluted earnings per share
before extraordinary
items (1) .63 .63
Basic
earnings per share .82 .65 .64 .66 .72
Diluted earnings per
share (1) .66 .71
Dividends paid 11,359 11,453 12,488 13,682 14,958
Dividends per share .80 .81 .82 .82 .83
Payments of mortgage
principal (2) 2,489 2,905 3,353 3,658 4,159
BALANCE SHEET DATA:
Total assets 276,266 299,434 320,510 320,485 372,076
Long-term obligations (3) 141,123 150,829 145,836 141,052 142,389
</TABLE>
(1) For the years prior to 1997, the Company had a simple equity structure with
only common stock outstanding.
(2) Represents scheduled mortgage principal amortization paid.
(3) Represents limited recourse mortgage and note payable obligations due after
more than one year.
-1-
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Overview
The following discussion and analysis of financial condition and results of
operations of Carey Institutional Properties Incorporated ("CIP(R)") should be
read in conjunction with the consolidated financial statements and notes thereto
for 1998. The following discussion includes forward looking statements. Forward
looking statements, which are based on certain assumptions, describe future
plans, strategies and expectations of CIP(R). Such statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievement of CIP(R) 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 CIP(R) that the results or conditions described in such
statements or objectives and plans of CIP(R) will be achieved.
CIP(R) was formed in 1991 and used the proceeds from its public offering of
stock along with limited recourse mortgage financing to purchase properties and
enter into long-term net leases with corporate tenants. A majority of CIP(R)'s
net leases have been structured to place certain economic burdens of ownership
on these corporate tenants by requiring them to pay the costs of maintenance and
repair, insurance and real estate taxes. The leases have generally been
structured to include periodic rent increases that are stated or based on
increases in the consumer price index or, for retail properties, provide for
additional rents based on sales in excess of a specified base amount.
CIP(R)'s primary objectives are to provide rising cash flow and property
values, protecting its investors from the effects of inflation through rent
escalation provisions, property appreciation, tenant credit improvement and
regular paydown of limited recourse mortgage debt. In addition, CIP(R) has
successfully negotiated grants of common stock warrants from selected tenants
and expects to realize the benefits of appreciation from those grants. While
CIP(R) cannot guarantee that its objectives will be ultimately realized, annual
independent valuations of CIP(R)'s assets have reflected significant
appreciation in property values.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information", which is effective for fiscal years beginning after
December 15, 1997. This statement requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about which
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Management evaluates the performance of its portfolio of properties
as a whole, rather than by identifying discrete operating segments. This
evaluation includes assessing CIP(R)'s ability to meet distribution objectives,
increase the dividend and increase value by evaluating potential investments in
single tenant net lease real estate and by seeking opportunities such as
refinancing mortgage debt at lower rates of interest, restructuring leases or
paying off lenders at a discount to the face value of the outstanding mortgage
balance.
Results of Operations
Net income for the years 1998 and 1997 is not fully comparable due to the
effects of extraordinary gains on the extinguishment of debt in both years and
gains from the sale of real estate in 1997. Excluding these items and other
nonrecurring items included in other income in the accompanying consolidated
financial statements, income would have reflected an increase of $1,549,000. The
increase in income was primarily due to increases in lease revenues (rental
income and interest income from direct financing leases) and other interest
income and a decrease in interest expense. These benefits were partially offset
by an increase in property expenses.
Lease revenues increased from the new lease with Omnicom Group, Inc. for a
newly constructed property in Los Angeles, California and several rent increases
on other leases during the year. The increase in other interest income reflected
higher average cash balances during the year as a result of
-2-
<PAGE> 49
issuing shares pursuant to CIP(R)'s on-going private placement offering to
institutional investors. CIP(R) is actively evaluating real estate investment
opportunities and will use this cash along with limited recourse mortgage
financing to purchase more property. CIP(R) paid off several mortgages resulting
in a decrease in interest expense. The decrease in interest expense was also
affected by the continuing amortization of CIP(R)'s mortgage debt. The increase
in property expenses reflected higher asset management and performance fees and
the carrying costs for six vacant properties formerly leased to Harvest Foods,
Inc. Asset management and performance fees are calculated based on fair value of
CIP(R)'s real estate assets, as determined pursuant to an independent valuation.
The per share value increased to $12.80 in 1998 from $11.90.
Income for 1997 as compared with 1996, and excluding the effects of
nonrecurring other income and gains and losses, reflected an increase of
$706,000. In addition, the results for 1996 reflect a noncash charge of
$1,753,000 for the writedown of properties. The increase in income, exclusive of
the nonrecurring items, was primarily due to increases in the lease revenues and
was offset, in part, by increases in depreciation and general and administrative
and property expenses. The increase in lease revenues reflected a new lease that
went into effect in the fourth quarter of 1996, the completion of an expansion
of a facility at an existing tenant, completion of the construction of a
build-to-suit transaction in 1996, and several rent increases in both 1997 and
1996. The increase in depreciation reflected the purchase of property and
completion of the expansion and build-to-suit projects during 1996. The increase
in general and administrative expenses resulted from increased administrative
reimbursements. The increase in property expenses was due primarily to the
change in the formula for calculating asset management and performance fees from
a formula based on the historical cost of properties to a formula based on
market values as provided for in CIP(R)'s Advisory Agreement. The costs for the
comprehensive valuation of the portfolio and CIP(R)'s provision for uncollected
rents also contributed to the increase in property expenses. Nonrecurring other
income items in 1997 included a special distribution of $395,000 relating to
CIP(R)'s holding of nonvoting stock of an affiliate of Custom Food. In
connection with structuring the Custom Food transaction, CIP(R) had been granted
warrants. The warrants were converted into nonvoting stock in December 1996.
CIP(R) recognized an extraordinary gain of $1,638,000 in 1998, as the
result of reaching a settlement with the holder of a subordinated mortgage loan
on the former Harvest Foods, Inc. properties. CIP(R) paid $250,000 to the
holder, in settlement of a $1,500,000 mortgage and accrued interest. The
extraordinary gain of $427,000 in 1997 reflects the payoff of the first priority
loan on the Harvest Foods properties.
Future cash flows are expected to benefit from scheduled rent increases.
Over the next three years, five or more rent increases are scheduled each year.
Most of the rent increases are based on formulas indexed to increases in the
Consumer Price Index so the rate of rent increase will be moderate unless the
trend of inflation changes significantly. Cash flow will also benefit from the
new lease with Omnicom and the February 1999 sale-leaseback with Humco Holding
Group, Inc. Annual cash flow (rent less mortgage debt service) from the Humco
lease is $444,000. In December 1998, CIP(R) and two affiliates, Corporate
Property Associates 12 Incorporated and Corporate Property Associates 14
Incorporated, purchased, through a jointly-owned limited liability company, the
headquarters of Advanced Micro Devices, Inc. CIP(R)'s share of annual cash flow
from this investment will be $1,066,000. CIP(R) generally structures leases so
that they will provide increases in cash flow over their initial terms with such
terms generally ranging from 10 to 25 years.
Cash flow will also benefit if CIP(R) is able to re-lease any or all of the
six vacant properties formerly leased to Harvest Foods, and if any new leases at
these properties require the tenant to pay most or all of the property expenses.
Solely as a result of paying off the subordinated mortgage on the former Harvest
Foods property, annual interest expense will decrease by $195,000.
CalComp Technology, Inc., a tenant of a property in Austin, Texas, has
announced its intention to liquidate and stopped paying rent in January 1999. A
complaint has been filed against CalComp, and CIP(R) is seeking a judgment for
all unpaid and future rents plus other associated costs. CIP(R) has also begun
discussions with CalComp in recognition of the fact that it is likely to take
several months to obtain a judgment. There is no assurance that any settlement
will be reached. Annual cash flow (rent less mortgage debt service) is
approximately $223,000. A potential lease termination settlement with CalComp
could partially offset the reduction in rent from a replacement tenant as market
rents for the property are less than CalComp's rent. CIP(R) expects that a
substantial remarketing effort will be needed to find a new tenant.
-3-
<PAGE> 50
Because of the long-term nature of CIP(R)'s net leases, inflation and
changing prices have not unfavorably affected CIP(R)'s revenues and net income.
CIP(R)'s net leases have rent increases based on formulas indexed to increases
in the Consumer Price Index, sales overrides, or other periodic increases that
are designed to increase lease revenues in the future.
Financial Condition
Except for six vacant properties currently being remarketed, CIP(R)'s
properties are leased to corporate tenants under long-term net leases that
generally require tenants to pay all operating expenses relating to the leased
properties. One of CIP(R)'s objectives is to use the cash flow from net leases
to meet operating expenses, service its debt, maintain adequate cash reserves
and fund an increasing rate of dividends to shareholders. A significant portion
of the cash provided from operations is distributed to the shareholders in
keeping with this objective.
Cash provided from operations of $18,608,000 was sufficient to fund
dividend payments of $14,958,000 and $3,650,000 of $4,159,000 of scheduled
mortgage principal installments. Cash flow was reduced because CIP(R) had
relatively high cash balances which earn a lower return than cash invested in
real estate. CIP(R) believes that prudent investing in net lease real estate
requires discipline that does not always allow for investment of new funds in
real estate as soon as new capital is received. On a long-term basis, and once
CIP(R) invests available cash in real estate, CIP(R) expects its operating cash
flow to fund dividends and debt service installments.
CIP(R)'s investment activities in 1998 consisted of using $35,992,000 to
purchase and complete construction of a building for Omnicom, fund tenant
improvements at an existing Omnicom property and to purchase an interest in the
Advanced Micro Devices property. CIP(R) has $34,627,000 of cash available for
investment as of March 5, 1999 that it intends to invest in new properties or to
fund expansion of existing properties. CIP(R) does not currently have any
commitments to fund major capital outlays at any of its properties.
CIP(R)'s financing activities primarily consisted of using funds provided
from operating activities to pay quarterly dividends and meet scheduled debt
service requirements. In addition, CIP(R) used $7,084,000 to pay off three
mortgage loans and to make a $1,400,000 partial prepayment on the existing
mortgage loan on one of the Omnicom properties. In December 1998, CIP(R)
obtained an $18,400,000 limited recourse mortgage loan on the newly completed
Omnicom property.
CIP(R) raised equity of $45,687,000 in 1998. $42,440,000 was raised from
five institutional investors (at $12.80 per share) pursuant to CIP(R)'s on-going
institutional offering, with the remainder representing reinvestment of
dividends. Through December 31, 1998, CIP(R) has raised $74,440,000 pursuant to
its private placement offering.
In June 1998, CIP(R)'s shareholders approved a proposal to allow CIP(R),
subject to the consent of the Advisor, to pay fees to the Advisor in Company
stock instead of cash. Stock issued to the Advisor in lieu of cash will be
subject to certain restrictions and will vest ratably over five years. In 1999,
CIP(R) met the preferred return criterion of a cumulative dividend return to
shareholders of 8%, and the Advisor has elected to receive payment for these
accrued performance fees in Company stock rather than cash. The value per share
for shares issued will be based on a per share value of $13.20 determined
pursuant to an independent appraisal of CIP(R)'s real estate assets as of
December 31, 1998. As of December 31, 1998, accrued asset management and
performance fees were approximately $9,837,000. The payment of these fees in
stock will strengthen CIP(R)'s balance sheet and further align the interests of
the shareholders and the Advisor.
In December 1998, CIP(R) used $250,000 to satisfy $1,500,000 of mortgage
debt on the former Harvest Foods properties. CIP(R) expects the payoff of this
mortgage to provide greater flexibility in remarketing the properties. A balloon
payment of $6,900,000 on a limited recourse loan collateralized by six
properties leased to Wal-Mart Stores, Inc. which had been scheduled to be paid
in January 1999 has been extended until May 1999 when a balloon payment of
$6,855,000 will be due. CIP(R) is currently seeking to refinance this loan. In
addition a balloon payment of $1,574,000 is scheduled on the mortgage loan on
the CalComp Technology property in August 1999. The CalComp loan is currently in
default, but, the lender has continued to accept
-4-
<PAGE> 51
monthly debt service payments and has not sought to accelerate the loan. CIP(R)
has kept the mortgage current based on management's conclusion that the
estimated value of the property is in excess of the loan balance.
CIP(R)'s financing strategy has been to purchase substantially all of its
properties with a combination of equity and limited recourse mortgage debt. A
lender on a limited recourse mortgage loan has recourse only to the property
collateralizing such debt and not to any of CIP(R)'s other assets. This strategy
has allowed CIP(R) to diversify its portfolio of properties and, thereby, limit
its risk. If a balloon payment comes due, CIP(R) may seek to refinance the loan,
restructure the debt with existing lenders, evaluate its ability to pay the
balloon payment from its cash reserves or sell the property and use the proceeds
to satisfy the mortgage debt. Two balloon payments totaling $7,680,000 and a
balloon payment of $4,069,000 are due in 2000 and 2001, respectively. Because
the properties collateralizing these mortgage loans are subject to long-term
leases, CIP(R) believes that the prospects for refinancing the loans are good.
CIP(R)'s lease with Neodata Corporation provides for a purchase option
exercisable in November 2000, at a purchase price equal to the greater of fair
market value and a formula based on CIP(R)'s cost for the Neodata property.
Neodata has not indicated whether it intends to exercise its option. Annual cash
flow from the Neodata property is $1,052,000. In the event the property is sold,
CIP(R) would likely use the proceeds to purchase additional real estate or pay
off higher interest mortgage debt.
In connection with the purchase of its properties, CIP(R) requires the
sellers to perform environmental reviews. Management believes, based on the
results of such reviews, that CIP(R)'s properties were in substantial compliance
with Federal and state environmental statutes at the time the properties were
acquired. However, portions of certain properties may have been subject to some
degree of contamination, principally in connection with leakage from underground
storage tanks, surface spills or historical on-site activities. In most
instances where contamination has been identified, tenants are actively engaged
in the remediation process and addressing identified conditions. Tenants are
generally subject to environmental statutes and regulations regarding the
discharge of hazardous materials and any related remediation obligations. In
addition, CIP(R)'s leases generally require tenants to indemnify CIP(R) from all
liabilities and losses related to the leased properties with provisions of such
indemnification specifically addressing environmental matters. The leases
generally include provisions that allow for periodic environmental assessments,
paid for by the tenant, and allow CIP(R) to extend leases until such time as a
tenant has satisfied its environmental obligations. Certain of the leases allow
CIP(R) to require financial assurances from tenants such as performance bonds or
letters of credit if the costs of remediating environmental conditions are, in
the estimation of CIP(R), in excess of specified amounts. Accordingly,
management believes that the ultimate resolution of any environmental matter
will not have a material adverse effect on CIP(R)'s financial condition,
liquidity or results of operations.
The "Year 2000 issue" refers to the series of problems that have resulted
or may result from the inability of certain computer software and embedded
processes to properly process dates. This shortcoming could result in the
failure of major systems or miscalculations causing major disruptions to
business operations. CIP(R) has no computer systems of its own, but is dependent
upon the systems maintained by an affiliate of its Advisor and certain other
third parties including its banks and transfer agent.
CIP(R) and its affiliates are actively evaluating their readiness relating
to the Year 2000 issue. In 1998, CIP(R), its Advisor, and affiliates commenced
an assessment of their local area network of personal computers and related
equipment and are in the process of replacing or upgrading the equipment that
has been identified as not being Year 2000 compliant. The program is expected to
be substantially completed in the second quarter of 1999. CIP(R) and its
affiliates have also engaged outside consultants experienced in diagnosing
systems and software applications and addressing Year 2000 issues, and with the
help of these consultants currently are remediating as necessary.
At the same time, CIP(R), its Advisor, and affiliates are evaluating
applications software, all of which are commercial "off the shelf" programs that
have not been customized. During 1998, CIP(R) commenced a project to select a
comprehensive integrated real estate accounting and asset management software
package to replace its existing applications. A commercial Windows-based
integrated accounting and asset management based application is being tested and
is scheduled to be installed during the third quarter of 1999. This software has
been designed to use four digits to define a year. Because CIP(R)'s primary
operations
-5-
<PAGE> 52
consist of investing in and receiving rents on long-term net leases of real
estate, while the failure of the Advisor and its affiliates to correct fully
Year 2000 issues could disrupt CIP(R)'s administrative operations, the resulting
disruptions would not likely have a material impact on CIP(R)'s results of
operations, financial condition or liquidity. Contingency plans to address
potential disruptions are in the process of being developed. CIP(R)'s share of
costs associated with required modifications to become Year 2000 compliant is
not expected to be material to CIP(R)'s financial position. CIP(R)'s share of
the estimated total cost of the Year 2000 project is expected to be
approximately $146,000, of which $97,000 has been incurred to date.
Although CIP(R) believes that it will address its internal Year 2000 issues
in a timely manner, there is a risk that the inability of third-party suppliers
and lessees to meet Year 2000 readiness issues could have an adverse impact on
CIP(R). CIP(R) and its affiliates have identified their critical suppliers and
are requiring that these suppliers communicate their plans and progress in
addressing Year 2000 readiness. The most critical processes provided by
third-party suppliers are CIP(R)'s banks and transfer agent. CIP(R)'s operations
may be significantly affected if such providers are ineffective or untimely in
addressing Year 2000 issues.
CIP(R) contacted each of its lessees regarding Year 2000 readiness and has
emphasized the need to address Year 2000 issues. Generally, lessees are
contractually required to maintain their leased properties in good working order
and to make necessary alterations, foreseen or unforeseen, to meet their
contractual obligations. Because of those obligations, CIP(R) believes that the
risks and costs of upgrading systems related to operations of the buildings and
that contain technology affected by Year 2000 issues will generally be absorbed
by lessees rather than CIP(R). The major risk to CIP(R) is that Year 2000 issues
have such an adverse effect on the financial condition of a lessee that its
ability to meet its lease obligations, including the timely payment of rent, is
impaired. In such an event, CIP(R) may ultimately incur the costs for Year 2000
readiness at the affected properties. The potential materiality of any impact is
not known at this time.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all quarters of fiscal years beginning after June
15, 1999. CIP(R) believes that SFAS No. 133 will not have a material impact on
the consolidated financial statements.
-6-
<PAGE> 53
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of CAREY
INSTITUTIONAL PROPERTIES INCORPORATED and Subsidiaries at December 31, 1996,
1997 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Carey Property Advisors, a Pennsylvania limited partnership
(the "Advisor"); our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by the Advisor, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 5, 1999
-7-
<PAGE> 54
<TABLE>
<CAPTION>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996, 1997 and 1998
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the operating method:
Land $ 51,923,768 $ 53,323,052 $ 57,073,052
Buildings 133,857,623 138,148,681 161,448,945
------------ ------------ ------------
185,781,391 191,471,733 218,521,997
Accumulated depreciation 7,971,271 11,396,602 14,974,151
----------- ------------ ------------
177,810,120 180,075,131 203,547,846
Net investment in direct financing leases 100,535,180 94,235,594 94,473,412
------------ ------------ ------------
Real estate leased to others 278,345,300 274,310,725 298,021,258
Equity investments 22,034,005 22,835,403 32,749,198
cash and cash equivalents 15,740,583 17,331,710 36,787,777
Other assets, net of accumulated amortization
of $951,470, $1,257,577 and $1,432,028,
in 1996, 1997 and 1998, and net of reserves
for uncollected rents of $248,035 and
$626,479 in 1997 and 1998 4,389,640 6,007,626 4,517,389
------------ ------------ ------------
Total assets $320,509,528 $320,485,464 $372,075,622
============ ============ ============
LIABILITIES:
Limited recourse mortgage notes payable $162,284,106 $154,348,585 $160,255,378
Accrued interest 1,216,678 1,248,886 1,088,678
Accounts payable and accrued expenses 443,321 523,821 769,381
Accounts payable to affiliates 6,118,940 8,483,741 10,565,418
Dividends payable 3,466,189 4,409,132
Prepaid rental income and security deposits 923,825 1,053,186 862,282
------------ ------------ ------------
Total liabilities 170,986,870 169,124,408 177,950,269
------------ ------------ ------------
Minority interest 4,749,158 4,988,932 5,233,926
------------ ------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; 16,724,941, 17,440,556 and
21,046,424 shares issued and outstanding at
December 31, 1996, 1997 and 1998 16,725 17,440 21,046
Additional paid-in capital 151,143,243 159,636,566 205,320,138
Common stock subscribed 2,000,000
Receivable for common stock subscribed (2,000,000)
Dividends in excess of accumulated earnings (5,488,526) (11,549,928) (13,718,867)
Accumulated other comprehensive income 73,058 638,539 121,335
------------ ------------ ------------
145,744,500 148,742,617 191,743,652
Less, common stock in treasury at cost, 100,272,
241,404 and 287,305 shares at
December 31, 1996, 1997 and 1998 (971,000) (2,370,493) (2,852,225)
------------ ------------ ------------
Total shareholders' equity 144,773,500 146,372,124 188,891,427
------------ ------------ ------------
Total liabilities and
shareholders' equity $320,509,528 $320,485,464 $372,075,622
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-8-
<PAGE> 55
<TABLE>
<CAPTION>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of INCOME
For the years ended December 31, 1996, 1997 and 1998
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $19,711,736 $21,834,831 $22,679,719
Interest income from direct financing leases 12,117,529 11,236,439 11,112,788
Other interest income 717,373 643,827 1,177,973
Other income 532,298 73,430
----------- ----------- -----------
32,546,638 34,247,395 35,043,910
----------- ----------- -----------
Expenses:
Interest 14,241,203 14,202,295 13,542,952
Depreciation 2,968,173 3,435,128 3,577,549
Amortization 340,219 306,107 174,451
Property expenses 3,656,785 5,104,762 5,711,410
General and administrative 2,025,319 2,532,011 2,399,707
Writedown to fair value 1,753,455
----------- ----------- -----------
24,985,154 25,580,303 25,406,069
----------- ----------- -----------
Income before minority interest,
income from equity investments, (loss) gain
on sale and extraordinary item 7,561,484 8,667,092 9,637,841
Minority interest in income (766,582) (773,371) (809,309)
----------- ----------- -----------
Income before income from equity
investments, (loss) gain on sale and
extraordinary item 6,794,902 7,893,721 8,828,532
Income from equity investments 2,969,438 3,109,120 3,264,738
----------- ----------- -----------
Income before (loss) gain on sale
and extraordinary item 9,764,340 11,002,841 12,093,270
Gain on sale of securities 664,431
Subordinated disposition fees (449,094)
(Loss) gain on sale of real estate (7,630) 105,131
----------- ----------- -----------
Income before extraordinary item 10,421,141 10,658,878 12,093,270
Extraordinary (charge) gain on extinguishment of debt (275,000) 427,448 1,638,375
----------- ----------- -----------
Net income $10,146,141 $11,086,326 $13,731,645
=========== =========== ===========
Basic earnings per common share:
Income before extraordinary item $ .66 $.63 $ .64
Extraordinary item (.02) .03 .08
----- ---- -----
$ .64 $.66 $ .72
===== ==== =====
Diluted earnings per common share:
Income before extraordinary item $ .63 $ .63
Extraordinary item .03 .08
----- -----
$ .66 $ .71
===== =====
Weighted average shares outstanding-basic 15,840,426 16,698,515 18,986,347
========== ========== ==========
Weighted average shares outstanding-diluted 16,790,392 19,293,039
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-9-
<PAGE> 56
<TABLE>
<CAPTION>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of
SHAREHOLDERS' EQUITY For the years
ended December 31, 1996, 1997 and 1998
Dividends Accumulated
Additional in Excess of Other
Common Paid-in Comprehensive Accumulated Comprehensive Treasury
Stock Capital Income Earnings Income Stock Total
----- ------- ------ -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $15,481 $137,046,066 $ (6,088,570) $ 220,892 $ (200,317) $ 130,993,552
1,244,404 shares issued,
$.001 par, net of costs 1,244 14,097,177 14,098,421
Repurchase of 77,347
shares (770,683) (770,683)
Dividends declared (9,546,097) (9,546,097)
Comprehensive income:
Net income $10,146,141 10,146,141 10,146,141
Other comprehensive
income:
Unrealized appreciation
of marketable
securities for 1996 (147,834) (147,834) (147,834)
-----------
$ 9,998,307
===========
Balance at
------- ------------ ------------ -------- ----------- ------------
December 31, 1996 16,725 151,143,243 (5,488,526) 73,058 (971,000) 144,773,500
715,615 shares issued,
$.001 par, net of costs 715 8,493,323 8,494,038
Cost of raising capital
issuance of stock warrants (780,000) (780,000)
Capital contributions
issuance of stock warrants 780,000 780,000
Repurchase of
141,132 shares (1,399,493) (1,399,493)
Dividends declared (17,147,728) (17,147,728)
Comprehensive income:
Net income $11,086,326 11,086,326 11,086,326
Other comprehensive
income:
Unrealized appreciation
of marketable
securities for 1997 565,481 565,481 565,481
-----------
$11,651,807
===========
Balance at
------- ------------ ------------ -------- ----------- ------------
December 31, 1997 17,440 159,636,566 (11,549,928) 638,539 (2,370,493) 146,372,124
3,605,868 shares issued,
$.001 par, net of costs 3,606 45,683,572 45,687,178
Repurchase of 45,901 shares (481,732) (481,732)
Cost of raising capital -
issuance of stock
warrants (180,000) (180,000)
Capital contributions -
issuance of stock
warrants 180,000 180,000
Dividends declared (15,900,584) (15,900,584)
Comprehensive income:
Net income $13,731,645 13,731,645 13,731,645
Other comprehensive
income:
Unrealized appreciation
of marketable
securities for 1998 (517,204) (517,204) (517,204)
-----------
$13,214,441
===========
Balance at
------- ------------ ------------ -------- ----------- ------------
December 31, 1998 $21,046 $205,320,138 $(13,718,867) $121,335 $(2,852,225) $188,891,427
======= ============ ============ ======== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-10-
<PAGE> 57
<TABLE>
<CAPTION>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
For the years ended December 31, 1996, 1997 and 1998
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,146,141 $ 11,086,326 $ 13,731,645
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,308,392 3,741,235 3,752,000
Straight-line adjustments and
other noncash rent adjustments (330,351) (262,454) (165,022)
Minority interest in income 766,582 773,371 809,309
Income from equity investments in excess of
distributions received (631,373) (801,398) (807,728)
Gains on sale of real estate and securities, net (656,801) (105,131)
Writedown to fair value 1,753,455
Extraordinary charge (gain) on extinguishment of debt 275,000 (427,448) (1,638,375)
Accrual of subordinated disposition fees 449,094
Accrual of subordinated performance fee 1,583,958 2,075,000 2,163,157
Provision for uncollected rents 248,035 431,377
Net change in operating assets and liabilities (329,348) (1,289,428) 331,678
------------ ------------ ------------
Net cash provided by operating activities 15,885,655 15,487,202 18,608,041
------------ ------------ ------------
Cash flows from investing activities:
Purchases of real estate and other capitalized costs (29,395,042) (142,683) (26,886,190)
Purchases of equity investments (5,410,407) (9,106,067)
Proceeds from sales of real estate and securities 2,879,503 1,194,272
Proceeds from repayments on note receivable 450,000 110,750
Redemption of short-term investment 1,000,000
Purchases of securities (429,750)
------------ ------------ ------------
Net cash (used in) provided by investing activities (30,475,946) 732,589 (35,992,257)
------------ ------------ ------------
</TABLE>
(Continued)
The accompanying notes are an integral part of the consolidated financial
statements.
-11-
<PAGE> 58
<TABLE>
<CAPTION>
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS, CONTINUED
For the years ended December 31, 1996, 1997 and 1998
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from mortgages 19,650,000 18,400,000
Repayments of line of credit (3,471,899)
Purchase of treasury stock (770,683) (1,399,493) (481,732)
Prepayments of mortgages (4,669,527) (3,850,000) (7,083,794)
Proceeds from issuance of shares, net of costs 14,098,421 8,494,038 45,687,178
Payments of mortgage principal (3,352,700) (3,658,073) (4,159,413)
Dividends paid (12,488,221) (13,681,539) (14,957,641)
Distributions paid to minority partners (539,477) (533,597) (564,315)
Payments made in connection with
extinguishment of debt (275,000)
Deferred financing costs (369,696)
------------ ------------- ------------
Net cash provided by (used in) financing activities 7,811,218 (14,628,664) 36,840,283
------------ ------------- ------------
Net (decrease) increase in
cash and cash equivalents (6,779,073) 1,591,127 19,456,067
Cash and cash equivalents, beginning of year 22,519,656 15,740,583 17,331,710
------------ ------------ ------------
Cash and cash equivalents, end of year $ 15,740,583 $ 17,331,710 $ 36,787,777
============ ============ ============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
A. In 1997 and 1998, the Company granted warrants to an affiliate for common
stock with a value of $780,000 and $180,000, respectively, as compensation
for services provided in raising capital.
B. In 1997, the Company converted $700,000 of accrued rents receivable from a
lessee to a note receivable.
The accompanying notes are an integral part of the consolidated financial
statements.
-12-
<PAGE> 59
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Consolidation:
The consolidated financial statements include the accounts of Carey
Institutional Properties Incorporated, its wholly-owned subsidiaries
and controlling general partnership interests (collectively, the
"Company"). All material inter-entity transactions are eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The most significant
estimates relate to the assessment of the realizability of real estate
assets and investments. Actual results could differ from those
estimates.
Real Estate Leased to Others:
Real estate is leased to others on a net lease basis, whereby the tenant
is generally responsible for all operating expenses relating to the
property, including property taxes, insurance, maintenance, repairs,
renewals and improvements.
The Company diversifies its real estate investments among various
corporate tenants engaged in different industries and by property type
throughout the United States.
The leases are accounted for under either the direct financing or the
operating methods. Such methods are described below:
Direct financing method - Leases accounted for under the direct
financing method are recorded at their net investment (Note 5).
Unearned income is deferred and amortized to income over the lease
terms so as to produce a constant periodic rate of return on the
Company's net investment in the lease.
Operating method - Real estate is recorded at cost, rental revenue is
recognized on a straight-line basis over the term of the leases and
expenses (including depreciation) are charged to operations as
incurred.
The Company assesses the recoverability of its real estate assets,
including residual interests, based on projections of undiscounted
cash flows over the life of such assets. In the event that such cash
flows are insufficient, the assets are adjusted to their estimated
fair value.
For properties under construction, interest on mortgages is capitalized
rather than expensed and rentals received are recorded as a reduction
of capitalized project (i.e., construction) costs.
Substantially all of the Company's leases provide for either scheduled
rent increases, periodic rent increases based on formulas indexed to
increases in the Consumer Price Index ("CPI") or Producer Price Index
or sales overrides.
Continued
-13-
<PAGE> 60
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Depreciation:
Depreciation is computed using the straight-line method over the
estimated useful lives of the properties - generally 40 years.
Depreciation of tenant improvements is computed using the
straight-line method over the remaining term of the leases.
Equity Investments:
The Company's ownership interests in entities; in which it owns 50% or
less, are accounted for under the equity method; i.e., at cost,
increased or decreased by the Company's share of earnings or losses,
less distributions.
Other Assets:
Included in other assets are deferred charges, deferred rental income,
marketable equity securities and other investments. Deferred charges
are costs incurred in connection with mortgage note financing and
refinancing and are deferred and amortized over the terms of the
mortgages. Deferred rental income is the aggregate difference between
scheduled rents that vary during the lease term and income recognized
on a straight-line basis.
The Company's marketable equity securities, which consist of 104,400
shares of common stock of the Garden Ridge Corporation ("Garden
Ridge"), are classified as available-for-sale securities and are
reported at fair value with the Company's interest in unrealized gains
and losses on these securities reported as a separate component of
shareholders' equity (accumulated other comprehensive income) until
realized. As of December 31, 1998, the Company's cost basis in the
Garden Ridge common stock was $819,073 and at fair value reflected
unrealized appreciation of $121,335 at that date. On March 5, 1999,
the fair value of the stock had declined from approximately $946,000
at December 31, 1998 to approximately $561,000.
Cash Equivalents:
The Company considers all short-term, highly liquid investments that are
both readily convertible to cash and have a maturity of generally
three months or less at the time of purchase to be cash equivalents.
Items classified as cash equivalents include commercial paper and
money market funds. Substantially all of the Company's cash and cash
equivalents at December 31, 1996, 1997 and 1998 were held in the
custody of two financial institutions, and which at times exceed
federally insurable limits. The Company mitigates this risk by
depositing funds with major financial institutions.
Treasury Stock:
Treasury stock is recorded at cost.
Offering Costs:
Costs incurred in connection with the raising of capital through the sale
of common stock are charged to shareholders' equity upon the issuance
of shares.
Continued
-14-
<PAGE> 61
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Federal Income Taxes:
The Company is qualified as a Real Estate Investment Trust ("REIT") under
the Internal Revenue Code of 1986 and, accordingly, is not subject to
Federal income taxes on amounts distributed to shareholders provided
it distributes at least 95% of its REIT taxable income to its
shareholders and meets other conditions necessary to retain its REIT
status.
Earnings Per Share:
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share", which establishes standards for computing and
presenting earnings per share. SFAS No. 128 requires presentation of
basic and diluted earnings per share for a company with a complex
capital structure. Prior to 1997, the adoption of SFAS No. 128 had no
impact on the Company because the Company was an entity with a simple
equity capital structure, with only common stock outstanding. As a
result, for 1996 the Company has presented basic per-share amounts
only in the consolidated financial statements.
Basic earnings per common share and diluted earnings per common share for
the Company for the years ended December 31, 1997 and 1998 were
calculated as follows:
<TABLE>
<CAPTION>
Income Available Weighted Average
to Common Shares Per-Share
Shareholders Outstanding Amount
------------ ----------- ------
<S> <C> <C> <C>
1997
Basic earnings before
extraordinary items $10,658,878 16,698,515 $.63
Basic earnings -
extraordinary items 427,448 16,698,515 .03
----------- ----
$11,086,326 16,698,515 $.66
=========== ====
Effect of dilutive
securities-stock warrants 91,877
----------
Diluted earnings
before extraordinary items 10,658,878 16,790,392 .63
Diluted earnings -
extraordinary items 427,448 16,790,392 .03
----------- ----
$11,086,326 16,790,392 $.66
=========== ====
</TABLE>
Continued
-15-
<PAGE> 62
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<S> <C> <C> <C>
1998
Basic earnings before
extraordinary items $ 12,093,270 18,986,347 $.64
Basic earnings -
extraordinary items 1,638,375 18,986,347 .08
------------ ----
$ 13,731,645 18,986,347 $.72
============ ====
Effect of dilutive
securities-stock warrants 306,692
----------
Diluted earnings
before extraordinary items 12,093,270 19,293,039 .63
Diluted earnings -
extraordinary items 1,638,375 19,293,039 .08
------------ ----
$ 13,731,645 19,293,039 $.71
============ ====
</TABLE>
Operating Segments:
The FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" effective for fiscal year beginning after
December 15, 1997. SFAS No. 131 establishes accounting standards for
the way public business enterprises report selected information about
operating segments and guidelines for defining the operating segment
of an enterprise. Based on the definition of an operating segment in
SFAS No. 131, the Company has concluded that it engages in a single
operating segment.
Reclassifications:
Certain 1996 and 1997 amounts have been reclassified to conform to the
1998 financial statement presentation.
2. Organization and Offering:
The Company was formed on February 15, 1991 for the purpose of engaging
in the business of investing in and owning industrial and commercial
real estate. Subject to certain restrictions and limitations, the
business of the Company is managed by Carey Property Advisors (the
"Advisor"). The Advisor will be entitled to certain incentive fees in
the event of the liquidation of the Company, subject to certain
conditions. Shares were offered to the public on a "best efforts"
basis by Carey Financial Corporation and other selected dealers at $10
per Share. The offering concluded in August 1993, at which time an
aggregate 14,167,581 Shares ($141,675,810) had been issued. In 1995,
the Company established a dividend reinvestment plan. Through December
31, 1998, 628,575 Shares have been issued pursuant to the dividend
reinvestment plan.
In connection with services performed relating to the identification,
evaluation, structuring and development of the Company's investments
in real estate, affiliates of the Company received structuring and
development fees of $1,077,948 and $1,474,694 in 1996 and 1998,
respectively. No such fees were paid in 1997. Fees are paid only in
connection with completed transactions.
Continued
-16-
<PAGE> 63
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Transactions with Related Parties:
The Company's asset management and performance fees are each 1/2 of 1%
per annum of Average Invested Assets, as defined in the Prospectus of
the Company. Asset management fees were $1,583,958, $2,075,000 and
$2,163,157 in 1996, 1997 and 1998, respectively, with performance fees
for such periods in like amount. Payment of the performance fee is
subordinated to achievement of a cumulative dividend return of 8%
(based on an initial issuance of Company stock at $10 per share in
accordance with the Company's advisory agreement). This cumulative
dividend criterion was initially met in January 1999. As of December
31, 1998, the Company had $9,837,195 of accrued asset management and
performance fees included in accounts payable to affiliates in the
accompanying consolidated financial statements. In June 1998, the
Company's shareholders approved a proposal to allow the Company,
subject to the consent of the Advisor, to pay fees to the Advisor in
Company stock instead of cash. Stock issued to the Advisor will be
subject to certain restrictions and will vest ratably over five years.
The Advisor will be entitled to receive dividends and will have the
right to vote its share currently. The Company intends to pay the
accrued performance fees of $9,809,038 as of December 31, 1998 in
Company stock as was agreed with the Advisor. The value per share for
shares to be issued will be based on a per share value of $13.20,
determined pursuant to an independent appraisal of the Company's real
estate assets at December 31, 1998. Effective January 1, 1997, for the
purpose of determining the asset management and performance fees,
Average Invested Assets are based on an independent valuation of the
Company's real estate assets rather than the historical cost of such
real estate assets.
General and administrative expense reimbursement consists primarily of
the actual cost of personnel needed in providing administrative
services necessary to the operations of the Company. Such
reimbursements incurred were $698,823, $1,148,113 and $805,006 in
1996, 1997 and 1998, respectively.
The Advisor will be entitled to receive subordinated disposition fees,
measured based upon the cumulative proceeds arising from the sale of
the Company's assets since the inception of the Company. Pursuant to
the subordination provisions of the advisory agreement, the
disposition fees may be paid only after the shareholders receive 100%
of their initial investment from the proceeds of asset sales and a
cumulative annual return of 6% since the inception of the Company. The
affiliate's interest in such disposition fees amounts to $485,094
through December 31, 1998. Payment of such amount, however, cannot be
made until the subordination provisions are met. In 1997, Management
concluded that the payment of such disposition fees is probable. This
amount, therefore, is included in accounts payable to affiliates in
the accompanying consolidated financial statements at December 31,
1997 and 1998.
Pursuant to an advisory agreement, the Advisor performs certain services
for the Company including the identification, evaluation, negotiation,
purchase and disposition of property, the day-to-day management of the
Company and the performance of certain administrative services. If in
any year the operating expenses exceed the 2%/25% Guidelines (the
greater of 2% of Average Invested Assets or 25% of net income) as
defined in the Prospectus, the Advisor will have an obligation to
reimburse the Company for such excess.
The Company's ownership interests in certain properties are jointly held
with affiliated entities with such interests held as tenants-in-common
and through ownership interests in a real estate investment trust,
general partnerships and limited liability companies. The Company's
interests in jointly held properties range from 23.7% to 80%. The
Company's share of its undivided interests in assets and liabilities
relating to tenants-in-common interests are accounted for on a
proportional basis.
Continued
-17-
<PAGE> 64
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In connection with performing services relating to the Company's real
estate purchases, affiliates of the Company received fees of $431,179
and $589,878 in 1996 and 1998, respectively. No such fees were paid in
1997.
In 1995, the Company's Board of Directors authorized the offering of
10,000,000 Shares in a private placement to a limited number of
institutional investors. Through December 31, 1998 the Company has
raised $74,440,000 from institutional investors, issuing 6,250,262
Shares. The offering was conducted by W. P. Carey & Co., Inc. ("W. P.
Carey"), an affiliate of the Advisor. In 1997, the Company's
shareholders approved a proposal to grant warrants for the Company's
common stock to W. P. Carey in lieu of cash compensation. Under the
plan, W. P. Carey was granted 866,667 warrants exercisable at $10 per
share and 750,000 warrants exercisable at $11.50 per share as
compensation for W. P. Carey's raising $13,000,000 in 1995, and
$13,000,000 in 1996 on behalf of the Company. The options are
exercisable over a ten-year period which period commenced December 10,
1997. In January 1998, the Company's Board of Directors granted
243,062 warrants exercisable at $11.90 per share to W. P. Carey as
compensation for an additional $6,000,000 raised in 1997. The exercise
prices are based on the share price at the time the shares were issued
to the institutional investors. The granting of the options was
intended to compensate W. P. Carey in an amount equivalent to a fee of
3% of the capital raised. The warrants have been valued by an
independent 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. The independent consultant is currently performing a
valuation relating to the warrants to be awarded to W. P. Carey for
1998 sales which will be presented for approval to the Board of
Directors.
The Company is a participant in an agreement with W. P. Carey and certain
affiliates for the purpose of leasing office space used for the
administration of real estate entities and W. P. Carey and for sharing
the associated costs. Pursuant to the terms of the agreement, the
Company's share of rental, occupancy and leasehold improvement costs
is based on adjusted gross revenues, as defined. Expenses incurred in
1996, 1997 and 1998 were $219,199, $226,616 and $230,412,
respectively.
For the years ended December 31, 1996, 1997 and 1998, fees and expenses
of $102,896, $75,032 and $48,961, respectively, were incurred for
legal services provided by a firm in which the Secretary, until July
1997, of the Company and the Corporate General Partner of the Advisor
is a partner.
4. Real Estate Leased to Others Accounted for Under the Operating Method:
Scheduled future minimum rents, exclusive of renewals, under
noncancellable operating leases amount to approximately $23,829,000 in
1999; $23,844,000 in 2000; $23,965,000 in 2001; $21,409,000 in 2002;
$19,909,000 in 2003; and aggregate approximately $348,932,000 through
2020.
Contingent rents were approximately $403,000, $551,000 and $783,000 in
1996, 1997 and 1998, respectively.
Continued
-18-
<PAGE> 65
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Minimum lease payments
receivable $225,664,559 $194,489,838 $183,949,276
Unguaranteed residual value 99,657,812 92,900,350 92,900,350
------------ ------------ ------------
325,322,371 287,390,188 276,849,626
Less: Unearned income 224,787,191 193,154,594 182,376,214
------------ ------------ ------------
$100,535,180 $ 94,235,594 $ 94,473,412
============ ============ ============
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases amount to approximately
$10,719,000 in 1999; $10,712,000 in 2000; $10,736,000 in 2001;
$10,486,000 in 2002; $10,737,000 in 2003; and aggregate approximately
$183,949,276 through 2020.
The Company is committed under long-term ground leases for certain
properties formerly occupied by Harvest Foods, Inc. ("Harvest")
through 2011. Future ground lease rental commitments aggregate
$1,434,371.
Contingent rents were approximately $277,000, $302,000 and $334,000 in
1996, 1997 and 1998, respectively.
6. Mortgage Notes Payable:
Mortgage notes payable, all of which are limited recourse obligations,
are collateralized by the assignment of various leases and by real
property with a carrying value of approximately $264,012,000. As of
December 31, 1998, mortgage notes payable have interest rates varying
from 6.88% to 10.5% per annum and mature from 1999 to 2021.
Scheduled principal payments during each of the five years following
December 31, 1997 and thereafter are as follows:
<TABLE>
<S> <C>
Year Ending December 31,
1999 $ 17,866,220
2000 11,859,605
2001 8,273,238
2002 16,574,374
2003 11,049,277
Thereafter 94,632,664
------------
Total $160,255,378
============
</TABLE>
Interest paid on mortgage notes payable and the revolving credit
agreement, excluding capitalized interest, was $14,110,088,
$14,170,087 and $13,509,785 in 1996, 1997 and 1998, respectively.
In connection with the placement of mortgages, fees of $511,179 and
$589,878 were paid to an affiliate of the Company in 1996 and 1998. No
mortgage placement fees were paid in 1997.
Continued
-19-
<PAGE> 66
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Dividends Payable:
A dividend of $.0022478 per share per day ($4,409,132) for each day in
the period from October 1, 1998 to December 31, 1998 was declared in
December 1998 and paid in January 1999.
8. Lease Revenues:
The Company's operations consist of the investment in and the leasing of
industrial and commercial real estate. The financial reporting sources
of the leasing revenues are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Per Statements of Income:
Rental income from operating leases $19,711,736 $21,834,831 $22,679,719
Interest income from direct
financing leases 12,117,529 11,236,439 11,112,788
Adjustments:
Share of leasing revenues applicable
to minority interest (1,797,435) (1,793,239) (1,787,480)
Share of leasing revenues from equity
investments 6,964,508 7,017,675 7,150,066
----------- ----------- -----------
$36,996,338 $38,295,706 $39,155,093
=========== =========== ===========
</TABLE>
Continued
-20-
<PAGE> 67
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company earned its share of net leasing revenues in 1995, 1996 and
1997 from its direct and indirect ownership of real estate from the
following lease obligors:
<TABLE>
<CAPTION>
1996 % 1997 % 1998 %
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Marriott International, Inc. (1) $ 4,342,865 12% $ 4,388,800 12% $ 4,436,519 11%
Best Buy Co., Inc. (2) 3,060,497 8 3,053,352 8 3,043,548 8
Omnicom Group, Inc. 1,867,500 5 1,867,500 5 2,412,381 6
Neodata Corporation 2,297,743 6 2,350,911 6 2,354,252 6
Lucent Technologies, Inc. 1,852,829 5 1,852,829 5 1,852,829 5
Big V Holding Corp. 1,691,883 5 1,718,359 5 1,748,210 5
Garden Ridge Corporation 1,403,512 4 1,361,004 4 1,426,128 4
Barnes & Noble, Inc. 1,334,565 4 1,357,758 4 1,385,861 4
Michigan Mutual Insurance
Company 1,358,702 4 1,361,424 4 1,362,779 4
The Upper Deck Company (1) 1,312,643 4 1,319,875 3 1,319,875 3
Gensia, Inc. (1) 1,309,000 4 1,309,000 3 1,309,000 3
Merit Medical Systems, Inc. 1,303,291 3 1,303,291 3 1,303,291 3
Q Clubs, Inc. 1,201,828 3 1,288,875 3 1,288,875 3
Del Monte Corporation 643,125 2 1,286,250 3 1,286,250 3
Lincoln Technical Institute
of Arizona, Inc. 1,082,400 3 1,155,055 3 1,206,952 3
Plexus Corp. 1,091,500 3 1,122,470 3 1,184,409 3
Waban, Inc. 1,118,356 3 1,118,251 3 1,118,356 3
Bell Sports, Inc. 1,011,804 3 1,038,545 3 1,064,328 3
Wal-Mart Stores, Inc. 994,433 3 970,948 3 1,013,389 3
Custom Food Products, Inc. 767,264 2 869,422 2 870,024 2
Detroit Diesel Corporation 34,073 845,000 2 845,000 2
Nicholson Warehouse L.P. 805,092 2 805,124 2 805,160 2
GATX Logistics, Inc. 794,893 2 794,893 2 794,893 2
Superior Telecommunications, Inc. 619,853 2 667,727 2 657,733 2
Childtime Childcare, Inc. 568,480 1 584,426 2 608,856 2
Petsmart, Inc. 478,927 1 485,113 1 492,553 1
Hibbet Sporting Goods, Inc. 418,992 1 475,784 1 475,784 1
Oshman Sporting Goods, Inc. 442,324 1 449,972 1 455,985 1
CalComp Technology, Inc. 381,412 1 443,024 1 446,366 1
Kroger Co.(3) 164,555 206,806 1
Harvest Foods, Inc. (3) 1,239,340 3 291,466 1
Safeway Stores Incorporated 167,212 141,750 141,750
Affiliated Foods Southwest, Inc.(3) 51,953 152,279
Advanced Micro Devices, Inc. (1) 84,672
Other 1,000
----------- ---- ----------- ---- ----------- ----
$36,996,338 100% $38,295,706 100% $39,155,093 100%
=========== ==== =========== ==== =========== ====
</TABLE>
(1) Represents the Company's share of revenues from its equity investment.
(2) Net of rental amount applicable to CPA(R):12's 37% minority interest
acquired from the Company in May 1994.
(3) Net of ground lease rental expense of approximately $158,000, in each of
the years 1996, 1997 and 1998.
Continued
-21-
<PAGE> 68
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Equity Investments:
The Company owns a 23.7% interest in Marcourt Investments Incorporated
("Marcourt"), which, pursuant to a master lease, net leases 13 hotel
properties to a wholly-owned subsidiary of Marriott International,
Inc., 50% equity interests in Gena Property Company ("Gena"), a
general partnership, which owns land and buildings in San Diego,
California, net leased to Gensia Inc., and Cards Limited Liability
Company ("Cards LLC"), which net leases two office buildings to The
Upper Deck Company and a 33 1/3% interest in Delaware Chip LLC
("Chip"), a limited liability company which owns land and a building
in Sunnyvale, California, net leased to Advanced Micro Devices, Inc.
("AMD"). The interest in Chip was purchased in December 1998 and is
described below.
On December 22, 1998, the Company and two of its affiliates, Corporate
Property Associates 12 Incorporated ("CPA(R):12") and Corporate
Property Associates 14 Incorporated ("CPA(R):14"), through Chip
purchased land and a building in Sunnyvale, California and entered
into a net lease agreement with AMD. The purchase price of the
property was $95,287,958 of which $68,250,000 was financed by limited
recourse debt. The Company, CPA(R):12 and CPA(R):14, each own a 33
1/3% interest in Chip.
The AMD lease provides for an initial lease term of twenty years through
December 2018 with two ten-year renewal terms at AMD's option. Annual
rent is $9,145,500, with rent increases every three years based on a
formula indexed to increases in the CPI. The $68,250,000 limited
recourse mortgage loan is collateralized by a deed of trust on the
property and an assignment of the lease. The loan bears interest at an
annual interest rate of 7.78% with monthly principal and interest
payments based on a 30-year amortization schedule. The loan matures in
January 2009, when a balloon payment will be due. The loan may not be
prepaid until three months prior to its maturity date.
Continued
-22-
<PAGE> 69
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Summarized financial information of the Company's equity investees is as
follows:
<TABLE>
<CAPTION>
(In thousands)
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
MARCOURT
Assets $149,694 $149,413 $149,150
Liabilities 106,002 102,826 99,315
Shareholders' equity 43,692 46,587 49,835
Revenues 18,549 18,650 18,743
Expenses 11,097 10,827 10,496
Net income 7,452 7,823 8,247
GENA
Assets $21,826 $21,710 $20,686
Liabilities 11,832 11,671 10,587
Capital 9,994 10,039 10,099
Revenues 2,618 2,618 2,618
Expenses 1,439 1,387 1,336
Net income 1,179 1,231 1,282
CARDS LLC
Assets $26,581 $26,729 $26,591
Liabilities 15,705 15,511 15,290
Capital 10,876 11,218 11,301
Revenues 2,632 2,640 2,640
Expenses 1,259 1,244 1,229
Net income 1,373 1,396 1,411
CHIP
Assets $91,350
Liabilities 68,251
Capital 23,099
Revenues 254
Expenses 185
Net income 69
</TABLE>
Continued
-23-
<PAGE> 70
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Sales of Real Estate and Securities:
In connection with entering into a lease agreement with Garden Ridge in
1995, the Company was granted warrants to purchase 67,500 shares of
common stock exercisable at $10 per share. In April 1996, the Company
exercised warrants for 22,500 shares and simultaneously sold such
shares realizing a gain, net of selling costs, of $664,431.
In December 1991, the Company and CPA(R):10 purchased three supermarkets
leased to Safeway Stores Incorporated as tenants in-common, each with
50% undivided ownership interests. In 1996, the Company and CPA(R):10
sold a property in Glendale, Arizona and a property in Escondido,
California. On January 26, 1996, the Glendale store was sold for
$1,950,000. On February 15, 1996, the Escondido property was sold for
$3,450,000. A net loss of $7,630 was recognized on the sales.
The 1997 gain on the sale of three properties formerly leased to Harvest
Foods, Inc. is described in Note12.
11. Extraordinary Charge on Extinguishment of Debt:
In October 1995, the Company refinanced two limited recourse mortgage
loans with an aggregate balance of $8,910,000, collateralized by a
property leased to Omnicom Group, Inc. In connection with the
prepayment of one of the loans, the Company incurred a prepayment
charge of $401,269 in 1995 as an extraordinary charge on
extinguishment of debt. In December 1995, the lender filed suit
against the Company alleging that the prepayment premium paid in
connection with the prepayment of one of two loans was understated by
approximately $400,000. The Company reached an agreement with the
lender in November 1996 to settle the dispute for $275,000. Such
payment was recognized in 1996 as an extraordinary charge on the
extinguishment of debt.
Extraordinary charges on extinguishment of debt incurred in 1997 and 1998
are described in Note 12.
Continued
-24-
<PAGE> 71
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. 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 undivided 50% ownership interests as
tenants-in-common, 13 supermarkets and two office buildings and
entered into a master lease with Harvest Foods, Inc. ("Harvest") as
lessee. In connection with the purchase, the Company and CPA(R):10
obtained $12,265,000 of limited recourse mortgage financing from two
lenders consisting of a first priority limited recourse mortgage loan
of $9,265,000 and a subordinated limited recourse mortgage loan of
$3,000,000 from an affiliate of Harvest (of which the Company's share
was $4,632,500 and $1,500,000).
In June 1996, Harvest filed a voluntary bankruptcy petition. In March
1997, the Bankruptcy Court approved Harvest's motion to terminate the
master lease. Under its ruling, the Bankruptcy Court allowed the
Company and CPA(R):10 to establish an unsecured claim for lease
rejection damages at $10,000,000. Harvest subsequently vacated the
properties. Because of the Company's expectation at that time that
future cash flow from the properties would be reduced, management
concluded that there had been an impairment to the value of the
properties. Based on a writedown of the Company's interest in the
properties to an estimated fair value of $8,250,000, the Company
incurred a noncash charge of $1,753,455 in 1996.
During 1997, the Company and CIP(R) entered into net leases with The
Kroger Co. for two supermarkets in Conway and North Little Rock,
Arkansas and with Affiliated Foods Southwest, Inc. ("Affiliated") for
three supermarkets in Hope and Little Rock, Arkansas. In August 1998,
the Company and CPA(R):10 entered into a lease with Affiliated for a
fourth supermarket in Little Rock. In 1997 the Company and CIP(R) sold
three properties for $2,400,000 (of which the Company's share was
$1,200,000). In connection with these sales, the Company recognized a
gain of $105,131.
In June 1997, the Company and CPA(R):10 paid off the first priority
mortgage loan. The lender accepted a payment of $7,700,000 in full
satisfaction of an outstanding balance of $8,554,894. In connection
with its portion of the prepayment, $3,850,000, the Company recognized
an extraordinary gain on the extinguishment of debt of $427,448.
On December 22, 1998, the holder of the $3,000,000 subordinated mortgage
note agreed to accept a payment of $500,000 from the Company and
CPA(R):10 in satisfaction of the mortgage loan obligation of
$3,000,000 and accrued interest of $776,750. In connection with its
$250,000 share of the payoff of the mortgage loan, the Company
recognized an extraordinary gain on the extinguishment of its share of
the debt of $1,638,375 in 1998.
13. Disclosures About Fair Value of Financial Instruments:
The carrying amounts of cash, receivables, and accounts payable and
accrued expenses approximate fair value because of the short maturity
of these items.
The Company estimates that the fair value of mortgage notes payable
approximated the carrying value of such mortgage notes at December 31,
1997 and was approximately $163,512,000 at December 31, 1998. The fair
value of debt instruments was evaluated using a discounted cash flow
model with discount rates which take into account the credit of the
tenants and interest rate risks.
Continued
-25-
<PAGE> 72
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In conjunction with executing several of its leases, the Company was
granted warrants to purchase common stock of the lessee or lease
guarantor. To the extent that the lessee is not a publicly traded
company, the warrants have been judged at the time of issuance to be
speculative in nature and a nominal cost basis has been attributed to
them. The Company believes it is not practicable to estimate the fair
value of its stock warrants for closely held companies. At December
31, 1997 and 1998, the Company held stock warrants to purchase 155,461
shares of the common stock of Merit Medical Systems, Inc. ("Merit"), a
publicly traded company. The fair value of the Company's stock
warrants in Merit as of December 31, 1998, based on quoted prices for
Merit's common stock, was approximately $175,000. Such warrants are
exercisable currently and are carried at a nominal value.
14. Subsequent Event:
On February 5, 1999, the Company purchased land and buildings in
Texarkana, Texas and Orem, Utah for $7,748,691 and entered into a net
lease agreement with Humco Holding Group, Inc. ("Humco"). The Company
obtained $4,200,000 of limited recourse mortgage financing in
connection with the purchase of the Humco property.
The Humco lease provides for a seventeen year lease term at an annual
rent of $825,100, with rent increases every two years based on a
formula indexed to increases in the CPI. Each increase is capped at a
maximum of 3%, as defined, for the first five years, 4%, for the next
five years, and 5% thereafter. The lease provides for a purchase
option, exercisable on the seventh, twelfth and seventeenth
anniversary dates of the lease, and is also exercisable in the event
80% or more of Humco's voting stock is acquired by a third party. The
purchase option is exercisable at the greater of the fair value of the
properties, as defined, or the Company's acquisition cost for the
properties plus any prepayment premium under the loan agreement.
The $4,200,000 limited recourse loan bears interest at an annual interest
rate of 7.75% with monthly principal and interest payments of $31,724,
based on a 25-year amortization schedule. The interest rate will reset
in the fifth loan year to 3.25% plus the average yield on Treasury
instruments adjusted to a maturity of five years. The loan matures in
March 2009 when a balloon payment will be due. The loan may be prepaid
at any time, in whole or in part, without a prepayment penalty.
15. Accounting Pronouncement:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS
No. 133 is effective for all quarters of fiscal years beginning after
June 15, 1999. The Company believes that SFAS No. 133 will not have a
material impact on the consolidated financial statements.
Continued
-26-
<PAGE> 73
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
Except for limited or sporadic transactions, there is no established public
trading market for the Shares of the Company. As of December 31, 1998, there
were 8,776 holders of record of the Shares of the Company.
The Company is required to distribute annually its Distributable REIT
Taxable Income, as defined in the Prospectus, to maintain its status as a REIT.
Quarterly dividends paid by the Company are as follows:
<TABLE>
<CAPTION>
Cash Dividends Paid Per Share
---------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
First quarter $.20350 $.20520 $.20600
Second quarter .20400 .20540 .20620
Third quarter .20450 .20560 .20622
Fourth quarter .20500 .20580 .20663
------- ------- -------
$.81700 $.82200 $.82505
======= ======= =======
</TABLE>
Dividends paid to shareholders consist of ordinary income, capital gains,
return of capital or a combination thereof for income tax purposes.
For the years ended December 31, 1996, 1997 and 1998, dividends paid
per share were reported as follows for tax purposes:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Ordinary income $.66 $.67 $.75
Capital gains .04
Return of capital .12 .15 .08
---- ---- ----
$.82 $.82 $.83
==== ==== ====
</TABLE>
REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
The Advisor will supply to any shareholder, upon written request and
without charge, a copy of the Annual Report on Form 10-K for the year ended
December 31, 1998 as filed with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES of REGISTRANT
Walsafe (CA) QRS 11-1, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of California and doing business under
the name Walsafe (CA) QRS 11-1, Inc.
QRS 11-2 (AR), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of Arkansas and doing business under the name QRS
11-2 (AR), Inc.
QRS 11-3 (MD), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of Maryland and doing business under the name ORS
11-3 (MD), Inc.
QRS 11-5 (TX), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of Texas and doing business under the name of QRS II
- -5 (TX), Inc.
Plano (TX) ORS 11-7, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Texas and doing business under the
name Plano (TX) QRS 11-7, Inc.
Neoserv (CO) ORS 11-8, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Colorado and doing business under
the name Neoserv (CO) QRS 11-8, Inc.
Belmet (IL) ORS 11-9, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Illinois and doing business under
the name Belmet (IL) QRS 11-9, Inc.
BVS (NY) QRS 11-10, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of New York and doing business under
the name BVS (NY) ORS 11-10, Inc.
MMI (SC) QRS 11-11, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of South Carolina and doing business
under the name MMI (SC) QRS 11-11, Inc.
QRS 11-12 (FL), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of Florida and doing business under the name QRS
11-12 (FL), Inc.
DDI (NE) ORS 11-13, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Nebraska and doing business under
the name DDI (NE) QRS 11-13, Inc.
QRS 11-14 (NC), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of North Carolina and doing business under the name
QRS 11-14, (NC), Inc.
Books (CT) QRS 11-16, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Connecticut and doing business under
the name Books (CT) QRS 11-15, Inc.
QRS 11-17 (NY), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of New York and doing business under the name QRS
11-17 (NY), Inc.
BBC (NE) QRS 11-18, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Nebraska and doing business under
the name BBC (NE) QRS 11-18, Inc.
Unitech (IL) QRS 11-19, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Illinois and doing business under
the name Unitech (IL) QRS 11-19, Inc.
QRS 11-20 (UT), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of Utah and doing business under the name QRS 11-20.
(UT), Inc.
SFC (TN) QRS 11-21, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Tennessee and doing business under
the name SFC (TN) QRS 11-21, Inc.
PETS (TX) QRS 11-23, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Texas and doing business under the
name PETS (TX) QRS 11-23, Inc.
ELWA-BV (NY) QRS 11-24, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of New York and doing business under
the name ELWA-BV (NY) QRS 11-24, Inc.
GENA (CA) QRS 11-25, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of California and doing business under
the name GENA (CA) QRS 11-25, Inc.
<PAGE> 2
SUBSIDIARIES of REGISTRANT
(Continued)
BN (MA) QRS 11-26, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Massachusetts and doing business
under the name BN (MA) QRS 11-26, Inc.
QRS 11-27 (OH), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of Ohio and doing business under the name QRS 11-27
(OH), Inc.
ALP (TX) QRS 11-28, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Texas and doing business under the
name ALP (TX) QRS 11-28, Inc.
QRS 11-29 (TX), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of Texas and doing business under the name QRS 11-29
(TX), Inc.
CFP (MD) ORS 11-30, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Maryland and doing business under
the name CFP (MD) QRS 11-30, Inc.
Neenah (WI) QRS 11-31, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Wisconsin and doing business under
the name Neenah (WI) QRS 11-31, Inc.
CTC (VA) QRS 11-32, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Virginia and doing business under
the name CTC (VA) QRS 11-32, Inc.
CFP (MD) QRS 11-33, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Maryland and doing business under
the name CFP (MD) ORS 11-33, Inc.
ADS (CA) QRS 11-34, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of California and doing business under
the name ADS (CA) QRS 11-34, Inc.
DELMO (PA) QRS 11-36, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Pennsylvania and doing business
under the name DELMO (PA) QRS 11-36, Inc.
CARDS (CA) QRS 11-37, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of California and doing business under
the name CARDS (CA) QRS 11-37, Inc.
SFC (TX) QRS 11-38, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Texas and doing business under the
name SFC (TX) QRS 11-38, Inc.
QRS 12-14 (AL), Inc., a wholly-owned subsidiary of Registrant incorporated
under the laws of the State of Alabama and doing business under the name QRS
12-14 (AL), Inc.
AUTO (FL) QRS 11-39, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Florida and doing business under the
name AUTO (FL) QRS 11-39, Inc.
CPFLOAN (MD) QRS 11-40, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of Maryland and doing business under
the name CPFLOAN (MD) QRS 11-40, Inc.
QRS 11-Paying Agent, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the State of New York and doing business under
the name QRS 11-Paying Agent, Inc.
ADS2 (CA) QRS 11-41, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the state of California and doing business under
the name ADS2 (CA) QRS 11-41, Inc.
MICRO (CA) QRS 11-43, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the state of Delaware and doing business under
the name MICRO (CA) QRS 11-43, Inc.
HUM (DE) QRS 11-45, Inc. a wholly-owned subsidiary of Registrant
incorporated under the laws of the state of Delaware and doing business under
the name HUM (DE) QRS 11-45, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
CAREY INSTITUTIONAL PROPERTIES INCORPORATED and Subsidiaries on Form S-3 (File
No. 33-96294) of our report dated March 5, 1999, on our audits of the
consolidated financial statements and financial statement schedule of CAREY
INSTITUTIONAL PROPERTIES INCORPORATED and Subsidiaries as of December 31, 1996,
1997 and 1998 and for the years ended December 31, 1996, 1997 and 1998, which
report is incorporated by reference in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 36,749,198
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,749,198
<PP&E> 312,995,409
<DEPRECIATION> 14,974,151
<TOTAL-ASSETS> 372,075,622
<CURRENT-LIABILITIES> 17,694,891
<BONDS> 160,255,378
0
0
<COMMON> 21,046
<OTHER-SE> 188,870,381
<TOTAL-LIABILITY-AND-EQUITY> 372,075,622
<SALES> 0
<TOTAL-REVENUES> 35,043,910
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,413,740
<LOSS-PROVISION> 431,377
<INTEREST-EXPENSE> 13,542,952
<INCOME-PRETAX> 12,093,270
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,093,270
<DISCONTINUED> 0
<EXTRAORDINARY> 1,638,375
<CHANGES> 0
<NET-INCOME> 13,731,645
<EPS-PRIMARY> .72
<EPS-DILUTED> .71
</TABLE>
