<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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 Identification No.)
incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 492-1100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
13,101,290 shares of common stock; $.001 Par Value
outstanding at November 11, 1996
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
INDEX
PART I Page No.
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1995
and September 30, 1996 2
Consolidated Statements of Income for the three and nine
months ended September 30, 1995 and 1996 3
Consolidated Statement of Cash Flows for the three
and nine months ended September 30, 1995 and 1996 4
Notes to Consolidated Financial Statements 5-10
Item 2. - Management's Discussion of Operations 11
PART II
Item 4. - Submission of Matters to a Vote of Security Holders 12
Item 6. - Exhibits and Reports on Form 8-K 12
Signatures 13
* The summarized financial information contained herein is unaudited; however,
in the opinion of management, all adjustments necessary for a fair presentation
of such financial information have been included.
-1-
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
----------- ------------
(Note) (Unaudited)
ASSETS:
<S> <C> <C>
Land and buildings, net of accumulated
depreciation of $390,307 at December 31, 1995
and $1,004,023 at September 30, 1996 $35,058,832 $ 53,720,952
Net investment in direct financing leases 13,545,609 40,818,616
Equity investments 10,382,492 16,134,096
Cash and cash equivalents 20,239,764 53,433,377
Deferred offering costs 1,066,262 683,153
Security deposits 325,000 1,410,250
Other assets 413,102 429,274
Accrued interest and rents receivable 141,716 348,921
----------- ------------
Total assets $81,172,777 $166,978,639
=========== ============
LIABILITIES:
Limited recourse mortgage notes payable $18,127,538 $ 42,340,683
Accrued interest payable 136,086 434,363
Accounts payable to affiliates 2,499,284 2,635,904
Accounts payable and accrued expenses 104,141 222,921
Dividends payable 1,189,830 1,818,988
Security deposits 667,581 1,628,831
Prepaid rental income 217,000 715,874
Deferred acquisition fees payable to an affiliate 1,577,639 2,800,048
----------- ------------
Total liabilities 24,519,099 52,597,612
----------- ------------
Commitments and contingencies
Common stock subject to redemption
Common stock, $.001 par value;
526,921 shares issued and outstanding 5,269,210
-----------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized
40,000,000 shares; 6,027,868 and
13,112,685 issued and outstanding shares
at December 31, 1995 and September 30, 1996 6,028 13,113
Additional paid-in capital 52,488,567 116,849,762
Dividends in excess of accumulated earnings (1,110,127) (2,378,140)
----------- ------------
51,384,468 114,484,735
Less treasury stock, 11,395 shares at
September 30, 1996 (103,708)
----------- ------------
Total shareholders' equity 51,384,468 114,381,027
----------- ------------
Total liabilities and shareholders' equity $81,172,777 $166,978,639
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1995 has been derived from the
audited consolidated financial statements at that date.
-2-
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1996 September 30, 1995 September 30, 1996
------------------ ------------------ ------------------ ------------------
Revenues:
<S> <C> <C> <C> <C>
Rental income from
operating leases $ 614,066 $1,348,443 $1,326,274 $3,206,775
Interest from direct
financing leases 401,498 1,318,792 818,801 3,239,934
Other interest income 88,595 538,439 353,826 1,240,126
---------- ---------- ---------- ----------
1,104,159 3,205,674 2,498,901 7,686,835
---------- ---------- ---------- ----------
Expenses:
Interest 361,451 1,049,295 831,567 2,521,907
Depreciation 110,690 254,674 245,186 613,716
General and administrative 226,659 366,518 597,540 1,167,689
Property expenses 164,332 339,638 413,239 908,172
Amortization 3,811 10,071 6,154 23,337
---------- ---------- ---------- ----------
866,943 2,020,196 2,093,686 5,234,821
---------- ---------- ---------- ----------
Income before
income from equity
investments 237,216 1,185,478 405,215 2,452,014
Income from equity
investments 331,156 514,020 997,807 1,526,879
---------- ---------- ---------- ----------
Net income $ 568,372 $1,699,498 $1,403,022 $3,978,893
========== ========== ========== ==========
Net income per
common share $ .15 $ .16 $ .41 $ .43
========== ========== ========== ==========
Weighted average shares 3,833,561 10,747,314 3,441,861 9,267,695
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1995 1996
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,403,022 $ 3,978,893
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 251,340 637,053
Other noncash items (69,925) (136,586)
Income from equity investments in excess
of distributions received (147,216) (336,196)
Change in security deposits, net 342,581 (124,000)
Decrease in other assets 56,511 170,035
Increase in accrued interest payable 89,357 298,277
Increase in prepaid rental income 498,874
Increase in accrued interest and rents receivable (134,370) (207,205)
Increase in accounts payable to affiliates (a) 721,720 544,729
Increase in accounts payable and accrued expenses (a) 109,535 93,780
------------ ------------
Net cash provided by operating activities 2,622,555 5,417,654
------------ ------------
Cash flows from investing activities:
Purchases of real estate and additional capitalized costs (27,588,680) (48,079,821)
Purchase of equity interest in general partnership (5,158,908)
Purchase of stock warrants (124,000)
Partial refund of real estate purchase price 2,633,473
Capital distribution from equity investment 1,375,000
------------ ------------
Net cash used in investing activities (26,213,680) (50,729,256)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 18,375,000 27,700,000
Prepayment of mortgage payable (3,313,866) (2,633,473)
Payments on mortgage principal (150,565) (853,382)
Proceeds from stock issuance, net of costs 9,004,716 59,136,570
Deferred financing costs (270,066) (85,544)
Dividends paid (1,583,600) (4,617,748)
Purchase of treasury stock (103,708)
Redemption of stock (37,500)
------------ ------------
Net cash provided by financing activities 22,061,619 78,505,215
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,529,506) 33,193,613
Cash and cash equivalents, beginning of period 10,661,712 20,239,764
------------ ------------
Cash and cash equivalents, end of period $ 9,132,206 $ 53,433,377
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid (including capitalized interest) $ 662,978 $ 2,223,630
============ ============
</TABLE>
(a) Excludes changes in accounts payable and accrued expenses and account
payable to affiliates balances which relate to the raising of capital
(financing activities) rather than the Company's real estate operations.
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE> 6
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 had issued an aggregate
of 8,135,992 shares ($81,359,920). 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 an offering (the "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, June 13, 1996 and September 19, 1996, the Company
issued 836,155 shares ($8,361,550), 1,433,466 shares ($14,334,660) and 2,707,072
shares ($27,070,720), respectively. Deferred offering costs of $683,153 at
September 30, 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 Offering described in the
prospectus of the Company (the "Prospectus"), which include but are not limited
to filing, legal, accounting, printing and escrow fees. These costs are to be
deducted from the gross proceeds of the Offering. These costs are presently
estimated to aggregate a maximum of $7,233,600 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> 7
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 nine-month
period ended September 30, 1996, the Company incurred costs of $6,088,840 in
connection with both the initial offering and the current offering, a portion of
which has been capitalized as deferred offering costs, and made payments,
including prepayments of selling commissions, of which $6,479,890 has been
charged to shareholders' equity. Such payments include reimbursement to the
Advisor of $2,263,575 for payments the Advisor had made on the Company's behalf.
For the nine-month period ended September 30, 1995, the Company incurred costs
of $3,265,703 in connection with its initial offering and made payments of
$2,158,265. Such 1995 payments include reimbursements to the Advisor of $303,500
for payments the Advisor had made on the Company's behalf.
Note 4. Transactions with Related Parties:
The Company has entered into 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 and nine-month periods ended September 30, 1996, the Company
incurred asset management fees of $163,656 and $443,228, respectively, with
performance fees in like amount and general and administrative reimbursements of
$244,025 and $617,479, respectively. For the three-month and nine-month periods
ended September 30, 1995, the Company incurred asset management fees of $78,115
and $202,461, respectively, performance fees in like amount and general and
administrative expense reimbursements of $146,382 and $393,027, respectively.
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 September 30, 1996, accounts
payable to affiliates were comprised of deferred offering costs of $658,153,
asset management and performance fees of $1,447,749, accrued interest on
deferred acquisition fees of $232,206 and amounts due for other operating costs
of $297,796.
The Company, in conjunction with certain affiliates, is a participant in a cost
sharing agreement for the purpose of renting and occupying office space. Under
the agreement, the Company pays its proportionate share of rent and other costs
of occupancy. Net expenses incurred for the nine-month period ended September
30, 1996 were $14,113.
-6-
<PAGE> 8
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 nine-month periods ended September 30, 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
Per Statements of Income:
<S> <C> <C>
Rental income from operating leases $1,326,274 $3,206,775
Interest income from direct financing leases 818,801 3,239,934
Adjustment:
Share of leasing revenue from equity
investments 2,333,582 3,313,463
---------- ----------
$4,478,657 $9,760,172
========== ==========
</TABLE>
For the nine-month periods ended September 30, 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) $1,351,832 30% $1,349,039 14%
The Upper Deck Company (a) 982,674 10
Gensia, Inc. (a) 981,750 22 981,750 10
Applied Bioscience International, Inc. 976,500 10
Etec Systems, Inc. 864,834 19 952,824 10
Telos Corporation 805,186 9
Rheometric Scientific, Inc. 710,901 7
Q Clubs, Inc. (formerly Sports
and Fitness Clubs of America) 207,263 5 634,636 6
The Garden Companies, Inc. 228,704 5 612,300 6
Big V Holding Corp. 590,097 13 598,961 6
Lanxide Corporation 512,586 5
Del Monte Corporation 321,563 4
Wal-Mart Stores, Inc. 254,177 6 297,919 3
Celadon Group, Inc. 23,333
---------- ---- ---------- ---
$4,478,657 100% $9,760,172 100%
========== ==== ========== ====
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
Note 6. Dividends:
Dividends paid to shareholders during the nine months ended September 30, 1996
are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Total Paid Per Share
------------- ---------- ---------
<S> <C> <C>
December 31, 1995 $1,190,411 $0.2005
========== =======
March 31, 1996 $1,579,063 $0.2008
========== =======
June 30, 1996 $1,848,274 $0.2010
========== =======
</TABLE>
-7-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Dividends for the quarter ended September 30, 1996 were comprised of dividends
declared of $0.175 per share ($1,818,988) to shareholders of record as of
September 18, 1996 and $0.02625 per share ($343,916) to shareholders of record
as of October 5, 1996. Such dividends were paid in October 1996. Dividends
declared prior to September 30, 1996 ($1,818,988) have been accrued as dividends
payable as of September 30, 1996.
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., a
50% interest in Gena Property Company ("Gena"), a general partnership which net
leases two office buildings to Gensia, Inc. and a 50% interest in Cards Limited
Liability Company ("Cards LLC"), a general partnership which net leases office
and manufacturing facilities to The Upper Deck Company. The interest in Cards
LLC was purchased in January 1996. Summarized financial information of Gena, BB
Property, and Cards LLC is as follows:
<TABLE>
<CAPTION>
(in thousands)
Gena BB Property Cards LLC
-------------------------------------- -------------------------------------- -----------------
December 31, 1995 September 30, 1996 December 31, 1995 September 30, 1996 September 30,1996
----------------- ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Land and buildings, net
of accumulated
depreciation $22,287 $21,941 $18,580 $18,580
Net investment in
direct financing lease 27,261 27,553 $25,831
Other assets 750
------- ------- ------- ------- -------
Total assets $22,287 $21,941 $45,841 $46,133 $26,581
======= ======= ======= ======= =======
Mortgage notes payable $12,241 $11,838 $31,235 $30,709 $14,895
Other liabilities 141 134 235 231 855
------- ------- ------- ------- -------
Total liabilities 12,382 11,972 31,470 30,940 15,750
Partners' capital 9,905 9,969 14,371 15,193 10,831
------- ------- ------- ------- -------
Total liabilities and
partners' capital $22,287 $21,941 $45,841 $46,133 $26,581
======= ======= ======= ======= =======
</TABLE>
<TABLE>
For The Nine Months Ended
---------------------------------------------------------------------------------------
September 30, 1995 September 30, 1996
----------------------------------- -------------------------------------------------
GENA BB Property GENA BB Property Cards LLC
---------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Lease revenues $1,964 $3,653 $1,964 $3,646 1,965
Other income 7
------ ------ ------ ------ ------
$1,964 $3,653 $1,964 $3,646 $1,972
------ ------ ------ ------ ------
Interest expense on
mortgages 743 2,137 733 2,091 942
Depreciation 345 346
Other 1 2 5 6 3
------ ------ ------ ------ ------
1,089 2,139 1,084 2,097 945
------ ------ ------ ------ ------
Net income $ 875 $1,514 $ 880 $1,549 $1,027
====== ====== ====== ====== ======
</TABLE>
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 8. Purchases of Real Estate:
Sports & Fitness Clubs of America, Inc.
On July 25, 1996, the Company purchased land and a health club facility in
Houston, Texas for $6,180,000 of equity and entered into a net lease agreement
with Sports & Fitness Clubs of America, Inc. ("Sports & Fitness"). The lease
obligations of Sports & Fitness are guaranteed by its parent company, Q Clubs,
Inc. ("Q Clubs"). The lease has an initial term of 20 years and provides for
four five-year renewal options. Annual rent is $694,000 with rent increases
every five years with such increases based on a formula indexed to increases in
the Consumer Price Index ("CPI").
In connection with its purchase, the Company was granted warrants exercisable
for 5,089 shares of common stock of Q Clubs at an exercise price of $275 per
share. The exercise price increases by 3% annually beginning on July 23, 1997.
Celadon Trucking Services, Inc.
On September 19, 1996, the Company purchased land and newly constructed
buildings in Indianapolis Indiana for $6,807,000 of equity and entered into a
net lease agreement with Celadon Trucking Services, Inc. ("Celadon Trucking").
The lease obligations of Celadon Trucking are guaranteed by its parent company,
Celadon Group, Inc. The lease has an initial term of 20 years and provides for
two ten-year renewal options. Annual rent is $700,000 with rent increases every
year with such increase based on a formula indexed to the annual increase in the
CPI with any increase capped at 4.25%. Celadon Trucking has been provided with
an option to purchase the property at the end of the initial term or the renewal
term for the higher of (i) $6,807,000 plus any prepayment charge on any mortgage
debt or (ii) fair market value.
Note 9. Mortgage Financing:
In November 1995, the Company and Carey Institutional Properties, ("CIP(TM)"),
an affiliate, each with 50% interests as tenants-in-common, purchased land in
Illinois, Wisconsin and Washington and subsequently constructed three warehouses
and a special purpose facility at a total cost of $21,990,000 pursuant to
construction agency and lease agreements with Del Monte Corporation ("Del
Monte"). In July 1996, the Company and CIP(TM) each made a final payment of
$2,145,000 to complete the construction project. Annual rent on the Del Monte
lease is $2,572,500 (of which the Company's share is $1,286,250).
After completion of construction, the Company and CIP(TM) obtained $12,500,000
(of which the Company's share is $6,250,000) of limited recourse financing which
had been committed to the Company and CIP(TM) by the lender when the transaction
with Del Monte was structured. The loan is collateralized by mortgages on the
Del Monte properties and a lease assignment. The loan provides for a fixed
interest rate of 10% per annum on $11,000,000 of the initial loan balance with a
variable interest rate of either the lender's prime rate plus 2% or the London
Inter-Bank Offering Rate plus 4% (10.25% at inception) of the remaining initial
loan balance of $1,500,000. Debt service is paid quarterly based on a 20-year
amortization schedule. The initial quarterly payment, based on current interest
rates, will be approximately $353,000 (of which the Company's share is
$176,500). The loan is scheduled to mature on November 30, 2000 at which time a
balloon payment of $11,450,000 will be due (of which the Company's share will be
$5,725,000).
-9-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 10. Etec Systems, Inc.:
On February 16, 1995, the Company purchased land and an office/manufacturing
facility located in Hayward, California for $11,859,000 and entered into a net
lease agreement with Etec Systems, Inc. ("Etec"). The Company contributed
$5,609,000 of equity with $6,250,000 provided by limited recourse mortgage
financing. The lease had an initial term of 15 years, with four five-year
renewal terms. The initial annual rent was $1,370,325 with such rent increased
or decreased during the first five lease years to reflect any increases or
decreases in monthly debt service payments due under the loan, which has a
variable interest rate, from debt service payments that would be paid on a loan
with a fixed rate of 8.75% per annum. The Company received warrants to purchase
212,418 shares of Etec common stock of which warrants for 53,104 shares were
assigned to the mortgage lender.
In August 1996, the Company entered into a modification agreement with Etec. In
consideration for the Company agreeing to cancel its rights for 90,546 warrants,
Etec refunded $2,633,973 of the original purchase price of the property to the
Company. The refund was applied as a prepayment to the mortgage loan. As a
result of such prepayment, the lender reamortized the loan, as described below.
In addition, the existing lease was modified to extend the initial term by
nineteen months to August 31, 2011. Annual rent for the remaining initial term
was reduced by $347,289 to $1,023,036, subject to modification as described
hereafter. The Company has also made a commitment to fund the construction of a
60,000 square foot addition at the Etec property.
The funding of the addition will consist of three installments through January
31, 1998. The lease terms will be modified upon each installment payment. Rent
will increase by $114.88 per year for each $1,000 of funding contributed during
the first installment phase and will aggregate approximately $4,000,000. For the
second and third installments, rent will increase by an amount equal to the
monthly amortization payment required to repay the installments over the
remaining initial term of the lease based on an annual interest rate of 8.28%
for contributions of up to $2,500,000 and an annual interest rate of 8.43% for
contributions in excess of $2,500,000. The second and third installments will
aggregate approximately $5,000,000.
The commitment by the Company to fund the addition is for a maximum of
$9,000,000 plus structuring, development and acquisition fees payable to an
affiliate. Of such funding, $5,000,000 will be provided by mortgage financing.
The Company has received a commitment from the existing mortgage lender on the
Etec property to provide such financing. In connection with the aforementioned
loan prepayment, the existing loan was modified to extend the maturity date by
19 months and to change the loan from a variable rate to a fixed rate of 8.03%
per annum. The modified loan currently provides for monthly payments of
principal and interest of $33,358.
Etec has also agreed to allow the Company to exercise its remaining 68,764
warrants by either paying the cash exercise price or by a cashless exercise in
which the Company would receive shares equal to the fair market value less the
exercise price of such shares.
-10-
<PAGE> 12
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 $81,359,920 (8,135,992 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 November 10, 1996
the Company had issued 4,976,693 shares ($49,766,930) 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. As of November
10, 1996, approximately $65,250,000 of the Company's net offering proceeds was
invested in real estate and $48,000,000 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 and July 25, 1996 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
September 19, 1996 Celadon Group, Inc.
Shares of company stock sold between March 31, 1995 and May 9, 1995 (526,921
shares ($5,269,210)) were subject to redemption through May 9, 1996. 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 November 10, 1996, the Company has raised
$131,126,850 through its offerings of common stock.
The results of operations for the three-month and nine-month periods ended
September 30, 1995 and 1996 are not directly comparable as the Company's direct
and indirect investment in net leased real estate has materially increased
during 1995 and 1996. Increases in lease revenues, equity income, interest,
general and administrative expenses, property expenses, depreciation and
amortization were primarily due to the increases in real estate assets and
related mortgage borrowings. The increase in other interest income was due to
the increase in cash balances. Interest income will decrease as cash available
for investment is utilized for additional real estate purchases. The cash
balances maintained after all available funds are invested will be substantially
less than the current cash balances. Although there has been an increase in
general administrative expenses for the comparable periods, a substantial
portion of such expenses are fixed rather than variable, and the rate of
increase in such costs is expected to moderate even as the Company's real estate
assets and related revenues increase.
-11-
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 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 September 30, 1996, the Company was
not required to file any reports on Form 8-K.
-12-
<PAGE> 14
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
11/12/96 By: /s/ Claude Fernandez
---------- ---------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
11/12/96 By: /s/ Michael D. Roberts
---------- ---------------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 53,433,37
<SECURITIES> 0
<RECEIVABLES> 348,921
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<CURRENT-ASSETS> 53,782,298
<PP&E> 95,543,591
<DEPRECIATION> 1,004,023
<TOTAL-ASSETS> 166,978,639
<CURRENT-LIABILITIES> 5,828,050
<BONDS> 42,340,683
0
0
<COMMON> 13,113
<OTHER-SE> 114,367,914
<TOTAL-LIABILITY-AND-EQUITY> 166,978,639
<SALES> 0
<TOTAL-REVENUES> 7,686,835
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,689,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,521,907
<INCOME-PRETAX> 3,978,893
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,978,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,978,893
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
