<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1996
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from______________________to_________________________
Commission file number 033-99994
_________________________________________________________
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED, A MARYLAND CORPORATION
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
MARYLAND 13-3726306
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(212) 492-1100
________________________________________________________________________________
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[X] YES [_] NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[_] YES [_] NO
8,972,057 shares of common stock; $.001 Par Value
outstanding at May 10, 1996
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
INDEX
Page No.
--------
PART I
- ------
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1995
and March 31, 1996 2
Consolidated Statements of Income for the three
months ended March 31, 1995 and 1996 3
Consolidated Statement of Cash Flows for the three months
ended March 31, 1995 and 1996 4
Notes to Consolidated Financial Statements 5-10
Item 2. - Management's Discussion of Operations 11-12
PART II
- -------
Item 4. - Submission of Matters to a Vote of Security Holders 13
Item 6. - Exhibits and Reports on Form 8-K 13
Signatures 14
* The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments necessary for a fair
presentation of such financial information have been included.
-1-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART I
------
Item 1. - FINANCIAL INFORMATION
-------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------- -------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings, net of accumulated
depreciation of $390,307 at December 31, 1995
and $569,858 at March 31, 1996 $35,058,832 $ 38,684,188
Net investment in direct financing leases 13,545,609 40,747,890
Equity investments 10,382,492 15,865,178
Cash and cash equivalents 20,239,764 14,570,877
Deferred offering costs 1,066,262 982,406
Accrued interest and rents receivable 738,102 1,608,265
Other assets 141,716 195,721
----------- ------------
Total assets $81,172,777 $112,654,525
=========== ============
LIABILITIES:
Limited recourse mortgage notes payable $18,127,538 $ 33,150,982
Accrued interest payable 136,086 188,531
Accounts payable to affiliates 2,499,284 2,867,278
Accounts payable and accrued expenses 104,141 335,392
Dividends payable 1,189,830 617,148
Security deposit 667,581 1,392,581
Prepaid rental income 217,000 413,667
Deferred acquisition fees payable to an affiliate 1,577,639 2,539,464
----------- ------------
Total liabilities 24,519,099 41,505,043
----------- ------------
Commitments and contingencies
Common stock subject to redemption
Common stock, $.001 par value;
526,921 shares issued and outstanding
at December 31, 1995 5,269,210
SHAREHOLDERS' EQUITY:
Common stock, $.001 par
value; authorized 40,000,000
shares; 6,027,868 and 8,135,902
issued and outstanding shares at
December 31, 1995 and March 31, 1996 6,028 8,136
Additional paid-in capital 52,488,567 71,843,488
Dividends in excess of accumulated earnings (1,110,127) (702,142)
----------- ------------
Total shareholders' equity 51,384,468 71,149,482
----------- ------------
Total liabilities and shareholders' equity $81,172,777 $112,654,525
=========== ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited consolidated financial statements at that date.
-2-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues:
Rental income from operating
leases $225,553 $ 930,576
Interest income from direct
financing lease 196,007 616,333
Other interest income 115,576 345,433
-------- ----------
537,136 1,892,342
-------- ----------
Expenses:
Interest on mortgage 203,174 567,996
General and administrative 159,884 360,468
Property expense 112,846 259,892
Depreciation 43,518 179,551
Amortization 1,171 6,052
-------- ----------
520,593 1,373,959
-------- ----------
Income before income
from equity investments 16,543 518,383
Income from equity
investments 338,743 507,331
-------- ----------
Net income $ 355,286 $1,025,714
========= ==========
Net income per share $ .12 $ .13
===== =====
Weighted average shares 2,867,882 7,836,032
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1995 1996
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 355,286 $ 1,025,714
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 44,689 185,603
Other noncash items (22,617) (25,483)
Income from equity investments (338,743) (507,331)
Distributions received from equity investments 306,573 351,870
Receipt of tenant security deposits 342,581 725,000
Decrease (increase) in other assets 147,010 (654,710)
Increase in accrued interest payable 94,965 52,445
Increase in prepaid rental income 196,667
Increase in accrued interest and rents receivable (126,070) (54,005)
Increase in accounts payable to affiliates (a) 197,538 507,280
(Decrease) increase in accounts payable and
accrued expenses (a) (725) 138,321
------------ ------------
Net cash provided by operating activities 1,000,487 1,941,371
------------ ------------
Cash flows from investing activities:
Purchases of real estate and additional capitalized costs (b) (15,343,546) (30,145,880)
Purchase of interest in equity investment (b) (5,201,225)
Purchase of stock warrants (124,000)
Additional contribution to equity investments (14,958)
Capital distribution from equity investment 1,375,000
------------ ------------
Net cash used in investing activities (13,983,504) (35,471,105)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 6,250,000 15,200,000
Payments on mortgage principal (13,948) (176,556)
Proceeds from stock issuance, net of costs 5,281,703 14,125,319
Deferred financing costs (97,505)
Dividends paid (345,751) (1,190,411)
------------ ------------
Net cash provided by financing activities 11,172,004 27,860,847
------------ ------------
Net decrease in cash and cash equivalents (1,811,013) (5,668,887)
Cash and cash equivalents,beginning of period 10,661,712 20,239,764
------------ ------------
Cash and cash equivalents, end of period $ 8,850,699 $ 14,570,877
============ ============
Supplemental disclosure of cash flows information:
Interest paid $ 108,209 $ 515,551
============ ===========
</TABLE>
(a) Excludes changes which relate to the raising of capital (financing
activities) rather than the Company's operations.
(b) Excludes amounts capitalized which relate to deferred acquisition fees
payable to an affiliate.
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
consolidated financial statements include the accounts of Corporate
Property Associates 12 Incorporated and its wholly-owned subsidiaries (the
"Company"). For further information refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Note 2. Organization and Offering:
-------------------------
The Company was formed on July 30, 1993 under the General Corporation Law
of Maryland for the purpose of engaging in the business of investing in and
owning industrial and commercial real estate. The Company qualifies as a
real estate investment trust and will maintain such qualification provided
it distributes at least 95% of its taxable income to shareholders and meets
other conditions. The Company is managed by Carey Property Advisors, a
Pennsylvania limited partnership (the "Advisor").
An initial offering of the Company's shares which commenced on February 18,
1994 concluded on January 26, 1996, at which time the Company issued an
aggregate of 8,139,682 shares ($81,396,820). The Company filed a post-
effective amendment on March 14, 1996, withdrawing from registration the
balance of unsold shares from such offering.
On February 2, 1996, the Company commenced a second offering for a maximum
of 20,000,000 shares of common stock. The shares are being offered to the
public on a "best efforts" basis by Carey Financial Corporation ("Carey
Financial") and other selected dealers at a price of $10 per share. It is
anticipated that approximately 87% of the funds raised in the second
offering will be invested in real estate with the remaining funds used to
establish a working capital reserve and to pay the expenses and fees
related to the offering. On April 8, 1996 the Company issued 836,155
shares ($8,361,550). Deferred offering costs of $982,406 at March 31, 1996
represent costs associated with the current offering which will be charged
to shareholders' equity upon the issuance of shares. As described in Note
3, a portion of the deferred offering costs may ultimately be reimbursable
to the Company from the Advisor.
Note 3. Commitments and Contingencies:
-----------------------------
The Company is liable for certain costs of the second offering described in
the prospectus of the Company (the "Prospectus") dated February 2, 1996,
which include but are not limited to filing, legal, accounting, printing
and escrow fees, which are to be deducted from the gross proceeds of the
offering. These costs are presently estimated to aggregate a maximum of
$7,327,000 assuming a sale of 20,000,000 shares. The Company is also
liable for selling commissions of $0.60 (6%) per share sold and a Selected
Dealer Fee of $0.10 (1%) for each share sold by certain selected dealers.
The Company will reimburse Carey Financial for its costs (including fees
and expenses of its counsel) and for the costs of sales and information
meetings of Carey Financial's employees relating to the offering. The
Company will reimburse Carey Financial for its identified expenses incurred
in connection with wholesaling
-5-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
services provided to the Company. If the aggregate of certain organization
and offering costs, including all selling commissions, exceed 10% of the
gross proceeds of the offering (plus an additional 0.5% of gross proceeds
which may be paid for bona fide due diligence expenses), such excess will
be paid by the Advisor with no recourse by or reimbursement to the Advisor.
For the three-month period ended March 31, 1996, the Company incurred costs
of $982,406 in connection with both offerings, a portion of which has been
capitalized as deferred offering costs, and made payments, including
prepayments of selling commissions, of $1,723,311 which have been charged
to shareholders' equity. Such payments include reimbursement to the
Advisor of $771,575 for payments the Advisor had made on the Company's
behalf. For the three-month period ended March 31, 1995, the Company
incurred costs of $836,146 in connection with its offering and made
payments of $612,067. Such 1995 payments include reimbursements to the
Advisor of $145,000 for payments the Advisor had made on the Company's
behalf.
As the result of selling shares of the Company between March 31, 1995
through May 9, 1995 with a prospectus that did not include updated
financial statements, the Company offered to all shareholders who purchased
a total of 526,921 shares ($5,269,210) between these dates an opportunity
to rescind such purchases. The redemption period ended May 9, 1996 at
which time the Company had received subscriptions for the redemption of a
total of 3,750 shares ($37,500). The 523,171 shares ($5,231,710) which
were not redeemed have been reclassified as shareholders' equity as of
March 31, 1996. The amounts which have subsequently been redeemed have
been reclassified as accounts payable as of March 31, 1996.
Note 4. Transactions with Related Parties:
---------------------------------
The Company has an advisory agreement with the Advisor. Pursuant to the
advisory agreement, the Advisor will perform certain services for the
Company including the identification, evaluation, negotiation, purchase and
disposition of property, the day-to-day administration and management of
the Company and the performance of certain administrative services. For
the three-month period ended March 31, 1995, the Company incurred asset
management fees of $56,423, performance fees in like amount and general and
administrative reimbursements of $122,192. For the three-month period
ended March 31, 1996, the Company incurred asset management fees of
$127,995, performance fees in like amount and general and administrative
reimbursements of $188,479.
As of December 31, 1995, accounts payable to affiliates were comprised of
deferred offering costs of $1,066,262, asset management and performance
fees of $748,795, accrued interest on deferred acquisition fees of $106,175
and amounts due for other operating costs of $578,052. As of March 31,
1996, accounts payable to affiliates were compised of deferred offering
costs of $830,512, asset management and performance fees of $1,004,784,
accrued interest on deferred acquisition fees of $141,145 and amounts due
for other operating costs of $890,837.
-6-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 5. Industry Segment Information:
----------------------------
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 below for the three-month periods ended March 31, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 225,553 $ 930,576
Interest from direct financing leases 196,007 616,333
Adjustment:
Share of leasing revenue from equity
investments 778,471 1,103,730
---------- -----------
$1,200,031 $2,650,639
========== ==========
</TABLE>
For the three-month periods ended March 31, 1995 and 1996, the Company
earned its proportionate net leasing revenues from its investments from the
following lease obligors:
<TABLE>
<CAPTION>
1995 % 1996 %
---------- ----------- ---------- ---
<S> <C> <C> <C> <C>
Best Buy Co., Inc. (a) $451,221 38% $450,315 17%
Etec Systems, Inc. 169,989 14 338,831 13
Gensia, Inc. (a) 327,250 27 327,250 12
The Upper Deck Company (a) 326,165 12
Applied Bioscience International, Inc. 325,500 12
The Garden Companies, Inc. 204,100 8
Big V Holding Corp. 196,007 16 198,874 8
Sports and Fitness Clubs, Inc. 167,000 6
Rheometric Scientific, Inc. 120,901 5
Wal-Mart Stores, Inc. 55,564 5 99,306 4
Telos Corporation 81,685 3
Lanxide Corporation 10,712
---------- ------ ---------- ----
$1,200,031 100% $2,650,639 100%
========== ====== ========== ====
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
Note 6. Dividends:
---------
Dividends declared and paid to shareholders during the three-month period
ended March 31, 1996 are summarized as follows:
Quarter Ended Total Paid Per Share
----------------- ---------- ---------
December 31, 1995 $1,190,411 $0.2005
========== =======
Dividends for the quarter ended March 31, 1996 were comprised of dividends
declared of $.086036 per share ($617,148) to shareholders of record as of
February 8, 1996 and dividends declared of $.114714 per share to
shareholders of record as of April 2, 1996. Such dividends were paid in
April 1996.
-7-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 7. Equity Investments:
------------------
The Company holds a 37% interest in BB Property Company ("BB Property"), a
general partnership which net leases 17 retail stores to Best Buy Co., Inc.
and a 50% interest in Gena Property Company ("Gena"), a general partnership
which net leases two office buildings to Gensia, Inc. On January 4, 1996,
the Company purchased a 50% interest in CARDS Limited Liability Company
("Cards LLC") which net leases two office buildings in Carlsbad, California
(see Note 8). Summarized financial information of BB Property, Gena and
Cards LLC is as follows:
<TABLE>
<CAPTION>
(in thousands)
Gena BB Property Cards LLC
------------------------------------------------------ -------------- -------------
December 31, 1995 March 31, 1996 December 31, 1995 March 31, 1996 March 31,1996
------------------------------------------------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Land $ 4,500 $ 4,500 $18,580 $18,580
Buildings 18,429 18,429
Accumulated depreciation (642) (757)
Direct financing lease 27,261 27,604 $25,821
Other assets 750
------- ------- ------- ------- -------
Total assets $22,287 $22,172 $45,841 $46,184 $26,571
======= ======= ======= ======= =======
Mortgage notes payable $12,241 $12,107 $31,235 $31,064 14,985
Other liabilities 141 140 235 233 856
------- ------- ------- ------- -------
Total liabilities 12,382 12,247 31,470 31,297 15,841
Partners' capital 9,905 9,925 14,371 14,887 10,730
------- ------- ------- ------- -------
Total liabilities and
partners' capital $22,287 $22,172 $45,841 $46,184 $26,571
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For The Three Months Ended
------------------------------------------------------------------------------
March 31, 1995 March 31, 1996
---------------------------------- -----------------------------------------
GENA BB Property GENA BB Property Cards LLC
-------------- ----------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 655 $ 1,219 $ 654 $ 1,217 $ 645
Other 7
------- ------- ------- ------- -------
655 1,219 654 1,217 652
------- ------- ------- ------- -------
Interest expense 235 716 246 701 312
Depreciation expense 115 115
------- ------ ------- ------- -------
350 716 361 701 312
------- ------- ------- ------- -------
Net income $ 305 $ 503 $ 293 $ 516 $ 340
======= ======= ======= ======= =======
</TABLE>
-8-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 8. Purchases of Real Estate:
------------------------
The Upper Deck Company
----------------------
On January 4, 1996, the Company and Carey Institutional Properties
Incorporated ("CIP"), an affiliate, through their 50% ownership interests
in Cards LLC, purchased land and two office buildings in Carlsbad,
California for $25,654,450 and entered into a net lease agreement with The
Upper Deck Company ("Upper Deck"). Cards LLC financed $15,000,000 of the
purchase price with a limited recourse mortgage loan collateralized by the
Upper Deck properties. In connection with the purchase, both the Company
and CIP made equity contributions of $5,327,225 to Cards LLC. The Company
will account for its 50% interest in Cards LLC under the equity method of
accounting.
The lease provides for an initial term of 25 years followed by four five-
year renewal terms. Annual rent is $2,639,750. The lease provides for
rent increases every five years based on a formula indexed to increases in
the Consumer Price Index ("CPI") with such increases capped at 5% for any
one year. Between the twelfth and thirteenth lease year, Upper Deck has an
option to purchase the property at fair market value as determined by an
independent appraisal process provided for in the lease.
The $15,000,000 limited recourse note is collateralized by a deed of trust
and lease assignment. The loan provides for monthly payments of principal
and interest of $120,077 based on a 25-year amortization schedule at an
annual interest rate of 8.43%. After the seventh year, the loan may be
prepaid in whole, but not in part, subject to a prepayment premium. The
loan matures on February 1, 2011, at which time a balloon payment will be
due.
Rheometric Scientific, Inc.
---------------------------
On February 23, 1996, the Company purchased land and a manufacturing and
warehouse facility in Piscataway, New Jersey for $6,300,000 with $3,000,000
of equity and $3,300,000 of limited recourse financing and entered into a
net lease with Rheometric Scientific, Inc. ("Rheometric").
The lease has an initial term of 15 years with four five-year renewal terms
at an initial annual rent of $1,180,000 with annual increases indexed to
increases in the CPI. The increase in any year is capped at 3%. If the
Company refinances the loan encumbering the property as described below,
annual rent would be equal to the total of (i) debt service due under the
refinanced loan (ii) 14.79% of the difference between $6,000,000 and the
refinanced loan amount and (iii) $15,000.
The $3,300,000 limited recourse loan is collateralized by a mortgage and a
lease assignment. The loan provides for monthly principal payments of
$42,000 and interest at a rate of 9.625% per annum with a balloon payment
of $864,000 due February 1, 2001. The loan may be prepaid in whole or in
part without a prepayment charge.
In connection with the purchase, the Company received warrants to purchase
464,160 shares of Rheometric common stock at an exercise price of $2 per
share. Of such warrants, 132,617 are exercisable at any time prior to
February 28, 2011 with such exercise extendable to the last day of any
extended lease term. The ability to exercise warrants for 331,543 shares
is contingent on the Company's paying off or refinancing the $3,300,000
loan by no later than February 23, 1997. If such condition is met, the
additional warrants would then become exercisable through the same dates as
above. The Company is currently pursuing new mortgage loan financing.
-9-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Telos Corporation
-----------------
On March 11, 1996, the Company purchased land and a building in Loudon
County, Virginia for $12,147,000 and entered into a net lease with Telos
Corporation ("Telos"). The lease has an initial term of 20 years with two
ten-year renewal terms. Annual rent is $1,447,000 with rent increases
every 3 years based on a formula indexed to increases in the CPI, capped at
12.2% for any rent increase.
On April 11, 1996 the Company obtained a $6,250,000 limited recourse
mortgage loan collateralized by the Telos property and an assignment of the
Telos lease. The loan provides for monthly principal payments of $12,970
with interest at a variable rate. A balloon payment of approximately
$5,154,000 will be due on April 10, 2003. The loan may be prepaid, in
whole or in part, at any time without a prepayment charge.
Lanxide Corporation
-------------------
On March 28, 1996, the Company purchased land and a research and
development facility in Newark, Delaware for $8,796,000 with $4,396,000 of
equity and $4,400,000 of limited recourse financing consisting of a
$4,000,000 mortgage loan and a $400,000 purchase money mortgage which is
subordinate to the $4,000,000 mortgage loan, and entered into a net lease
with Lanxide Corporation ("Lanxide"). The lease has an initial term of
twenty years and provides for four five-year renewal options. During the
first five lease years, rent is payable quarterly in advance in three
components initially consisting of (i) $113,111, plus (ii) an amount equal
to three monthly installments on the $4,000,000 loan, currently $131,263,
and (iii) $13,126, equal to the quarterly installment due on the purchase
money loan for an aggregate quarterly amount of $257,500. Quarterly rent
payments will vary based on fluctuations in the interest rate on the
$4,000,000 loan due to its variable rate. After five years, quarterly rent
will be fixed at $257,500. The lease provides for rent increases every
five years based on increases indexed to increases in the CPI with the
increase in any year capped at 4%.
In connection with the purchase, the Company was granted warrants
exercisable for 15,500 shares of Lanxide for $14 per share. As Lanxide's
shares were trading at $22 per share on the date of the purchase
transaction, $124,000 of the purchase price has been allocated to the
warrants. Additionally, Lanxide has provided a $400,000 security deposit
to the Company.
The $4,000,000 limited recourse loan provides for monthly payments
commencing May 1, 1996 of principal and interest, currently $131,263, at an
annual rate of the lender's Prime Rate plus 2% based on a 15-year
amortization schedule. Each year a monthly payment is established based on
the interest rate in effect at that time. To the extent that the lender's
Prime Rate varies, the amount applied to the principal will vary. The loan
has an initial term of five years, maturing on March 28, 2001, and may be
extended for an additional five years subject to the lender's approval.
The $400,000 purchase money loan has a 15-year term with an interest rate
of 10.25% per annum and provides for quarterly payments of principal and
interest of $13,126 commencing July 1, 1996.
Note 9. Mortgage Financing
------------------
On November 13, 1995, the Company purchased land and an office, storage and
research facility in Austin, Texas for $12,565,000 and entered into a net
lease with Pharmaco LSR International, Inc. ("Pharmaco"). Pharmaco's
obligations under the lease are guaranteed by Pharmaco's parent, Applied
Bioscience International, Inc.
In January 1996, the Company obtained a $7,500,000 limited recourse
mortgage loan on the property which is collateralized by a deed of trust
and a lease assignment. The loan provides for monthly principal and
interest payments of $63,905 at an interest rate of 8.25% per annum based
on a 20-year amortization schedule and a balloon payment of $5,238,130 on
the maturity date, February 1, 2006, for the entire unpaid principal
balance of the loan. The loan may be prepaid in full after March 1, 2001
subject to a prepayment charge.
-10-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
-----------------------------------------------
In January 1996, the Company concluded an initial offering of common stock
at which time it had raised equity of $81,359,020 (8,135,902 shares). On
February 2, 1996, the Company commenced a second public offering of
20,000,000 shares of common stock at $10 per share on a "best efforts"
basis. As of May 13, 1996 the Company issued 836,155 shares ($8,361,550)
under the second offering. The Company intends to raise capital pursuant
to this offering for approximately two years unless the full amount of
registered shares are subscribed before that time. The Company is
expanding its selected dealer network and expects the network to
participate in the sale of common stock through the term of the offering.
The Company intends to invest the net offering proceeds (except for 1% of
proceeds used to establish a working capital reserve) along with the
remaining proceeds from the initial offering in additional real estate
investments so as to further diversify the Company's portfolio of real
estate investments. As of May 10, 1996, approximately $59,000,000 of the
Company's net offering proceeds was invested in real estate and $23,700,000
of funds was available for investment. All net offering proceeds not
currently invested in real estate are invested in cash and cash
equivalents.
With the utilization of available limited recourse mortgage financing
and net offering proceeds, the Company has purchased direct or indirect
interests in commercial properties with the following lease obligors:
Date Acquired Lease Obligor
------------- -------------
May 13, 1994 Best Buy Co., Inc.
July 15, 1994 Big V Holding Corp.
October 14, 1994 Gensia, Inc.
February 10, 1995 Wal-Mart Stores, Inc.
February 16, 1995 Etec Systems, Inc.
June 8, 1995 Sports & Fitness Clubs, Inc.
June 20, 1995 The Garden Companies, Inc.
November 9, 1995 Del Monte Corporation
November 13, 1995 Applied Bioscience International,Inc.
January 4, 1996 The Upper Deck Company
February 23, 1996 Rheometric Scientific, Inc.
March 11, 1996 Telos Corporation
March 28, 1996 Lanxide Corporation
Subsequent to the completion of a build-to-suit project for buildings
leased to Del Monte Corporation ("Del Monte") which is projected to require
a total investment of $10,995,000, the Company will obtain limited recourse
mortgage financing of $6,250,000 which has been committed by a lender.
Advances on the Del Monte Corporation project currently total approximately
$6,100,000, and the Company expects to recover $1,355,000 of such advances
after construction is completed and the Company borrows the mortgage funds
committed. 526,921 shares ($5,269,210) of common stock, sold between March
31, 1995 and May 9, 1995 were subject to redemption. The redemption period
ended May 9, 1996, at which time only 3,750 of such shares ($37,500) were
redeemed. With the end of the redemption period, the Company's uncertainty
as to whether a significant amount would need to be used to fund
redemptions has been eliminated. As of May 10, 1996, the Company has
raised $89,720,570 through its offerings of common stock.
-11-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
----------------------------------------------------------
The results of operations for the three-month periods ended March 31,
1995 and 1996 are not directly comparable as the Company's direct and
indirect investment in net leased real estate has substantially increased
since March 31, 1995. Increases in lease revenues, equity income,
interest, general and administrative expenses, property expenses,
depreciation and amortization were solely due to the increase in real
estate assets and related mortgage financing. The increase in other
interest income was due to the increase in cash balances. Such interest
income will eventually decrease as cash available for investment is
utilized for additional real estate purchases, and the Company maintains
cash balances deemed to be prudent for its operations. Although there has
been an increase in general administrative expense for the comparable
three-month periods, a substantial portion are fixed rather than variable,
and the rate of increase in such costs is expected to moderate as lease
revenues increase.
-12-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART II
-------
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------
During the quarter ended March 31, 1996 no matters were
submitted to a vote of Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the quarter ended March 31, 1996, the Company filed
reports on Form 8-K dated February 2, 1996 , March 9, 1996 and
March 25, 1996 under Item 2, Acquisition and Disposition of
Assets.
-13-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
5/15/96 By: /s/ Claude Fernandez
-------------- ------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
5/15/96 By: /s/ Michael D. Roberts
-------------- -------------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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