<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, 1997
------------------------
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-27766
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED,
A MARYLAND CORPORATION (Exact name of
registrant as specified in its charter)
<TABLE>
<CAPTION>
MARYLAND 13-3726306
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of principal executive offices) (Zip Code)
</TABLE>
(212) 492-1100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
28,278,019 shares of common stock; $.001 Par Value
outstanding at November 11, 1997
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1996
and September 30, 1997 2
Consolidated Statements of Income for the three and nine
months ended September 30, 1996 and 1997 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1997 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
</TABLE>
* The summarized financial information contained herein is unaudited; however,
in the opinion of management, all adjustments necessary for a fair presentation
of such financial information have been included.
-1-
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
---- ----
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$1,337,513 at December 31, 1996 and
$3,350,015 at September 30, 1997 $ 83,661,635 $ 185,561,298
Net investment in direct financing leases 40,846,486 40,935,263
Equity investments 16,091,935 16,531,462
Cash and cash equivalents 50,893,314 104,947,564
Marketable securities, at fair value 3,890,877
Other assets 1,800,474 2,909,171
------------- -------------
Total assets $ 193,293,844 $ 354,775,635
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 46,286,159 $ 84,996,988
Accrued interest payable 418,035 619,116
Accounts payable to affiliates 2,258,581 4,349,663
Accounts payable and accrued expenses 256,136 223,303
Dividends payable 2,094,191 4,123,068
Prepaid rental income and security deposits 1,379,288 3,501,398
Deferred acquisition fees payable to an affiliate 3,414,097 5,659,247
------------- -------------
Total liabilities 56,106,487 103,472,783
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; issued and outstanding
15,668,403 shares at December 31, 1996 and
28,333,584 shares at September 30, 1997 15,668 28,334
Additional paid-in capital 139,896,651 254,014,826
Unrealized appreciation, marketable securities 3,715,788
Dividends in excess of accumulated earnings (2,584,954) (6,063,941)
------------- -------------
137,327,365 251,695,007
Less common stock in treasury at cost,
14,395 and 42,231 shares at December 31, 1996
and September 30, 1997 (140,008) (392,155)
------------- -------------
Total shareholders' equity 137,187,357 251,302,852
------------- -------------
Total liabilities and shareholders' equity $ 193,293,844 $ 354,775,635
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Note: The balance sheet at December 31, 1996 has been derived from the
audited consolidated financial statements at that date.
-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, 1996 September 30, 1997 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 1,348,443 $ 4,413,460 $ 3,206,775 $11,218,483
Interest from direct
financing leases 1,318,792 1,228,559 3,239,934 3,737,247
Other interest income 538,439 1,161,081 1,240,126 2,463,066
----------- ----------- ----------- -----------
3,205,674 6,803,100 7,686,835 17,418,796
----------- ----------- ----------- -----------
Expenses:
Interest 1,049,295 1,769,898 2,521,907 4,539,981
Depreciation 254,674 815,169 613,716 2,012,502
General and administrative 366,518 887,376 1,167,689 1,833,737
Property expenses 339,638 650,064 908,172 1,829,429
Amortization 10,071 25,895 23,337 59,473
----------- ----------- ----------- -----------
2,020,196 4,148,402 5,234,821 10,275,122
----------- ----------- ----------- -----------
Income before
income from equity
investments 1,185,478 2,654,698 2,452,014 7,143,674
Income from equity
investments 514,020 527,279 1,526,879 1,557,141
----------- ----------- ----------- -----------
Net income $ 1,699,498 $ 3,181,977 $ 3,978,893 $ 8,700,815
=========== =========== =========== ===========
Net income per
common share $ .16 $ .13 $ .43 $ .41
=========== =========== =========== ===========
Weighted average shares 10,747,314 24,395,776 9,267,695 21,286,481
=========== =========== =========== ===========
</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,
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,978,893 $ 8,700,815
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 637,053 2,071,975
Other noncash items (136,586) (194,977)
Income from equity investments in excess
of distributions received (336,196) (439,527)
Change in operating assets and liabilities, net (a) 1,274,490 2,440,354
------------ -------------
Net cash provided by operating activities 5,417,654 12,578,640
------------ -------------
Cash flows from investing activities:
Purchases of real estate and additional capitalized costs (48,079,821) (101,667,015)
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
------------ -------------
Net cash used in investing activities (50,729,256) (101,667,015)
------------ -------------
Cash flows from financing activities:
Proceeds from mortgages 27,700,000 42,711,509
Prepayment of mortgage payable (2,633,473) (2,796,000)
Payments on mortgage principal (853,382) (1,204,680)
Proceeds from stock issuance, net of costs 59,136,570 115,238,459
Redemption of stock (37,500)
Deferred financing costs (85,544) (403,591)
Dividends paid (4,617,748) (10,150,925)
Purchase of treasury stock (103,708) (252,147)
------------ -------------
Net cash provided by financing activities 78,505,215 143,142,625
------------ -------------
Net increase in cash and cash equivalents 33,193,613 54,054,250
Cash and cash equivalents, beginning of period 20,239,764 50,893,314
------------ -------------
Cash and cash equivalents, end of period $ 53,433,377 $ 104,947,564
============ =============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 2,223,630 $ 4,338,900
============ =============
</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, 1996.
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 concluded on January 26, 1996, at
which time the Company had issued 8,135,992 shares ($81,359,920). On February 2,
1996, the Company commenced an offering for a maximum of 20,000,000 shares of
common stock. The shares were offered to the public on a "best efforts" basis by
Carey Financial Corporation and other selected dealers at a price of $10 per
share. On August 22, 1997, the Company registered an additional 300,000 shares
under the second offering. The second offering was concluded on September 18,
1997, at which time 20,197,592 ($201,975,920) shares were issued, including
12,665,181 shares, ($126,651,810) issued in 1997. It is anticipated that
approximately 87% of the funds raised 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.
Note 3. Transactions with Related Parties:
Pursuant to the advisory agreement, the Advisor performs certain advisory and
administrative services for the Company. 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.
General and administrative expense reimbursements for three-month and nine-month
periods ended September 30, 1996 were $244,025 and $617,479, respectively. For
the three-month and nine-month periods ended September 30, 1997, the Company
incurred asset management fees of $313,973 and $839,059, respectively, with
performance fees in like amount. General and administrative expense
reimbursements for the three-month and nine-month periods ended September 30,
1997 were $504,653 and $1,005,537, respectively.
The Company, in conjunction with certain affiliates, is a participant in a cost
sharing agreement for the purpose of renting and occupying office space. Under
the agreement, the Company pays its proportionate share of rent and other costs
of occupancy. Net expenses incurred for the nine-months ended September 30, 1996
and 1997 were $14,113 and $47,951, respectively.
-5-
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. 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, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $3,206,775 $11,218,483
Interest from direct financing leases 3,239,934 3,737,247
Adjustment:
Share of leasing revenue from equity
investments 3,313,463 3,317,590
---------- -----------
$9,760,172 $18,273,320
========== ===========
</TABLE>
For the nine-month periods ended September 30, 1996 and 1997, the Company earned
its proportionate net leasing revenues from its investments from the following
lease obligors:
<TABLE>
<CAPTION>
1996 % 1997 %
---- ---- ---- --
<S> <C> <C> <C> <C>
Spectrian Corporation $ 1,443,750 8%
Best Buy Co., Inc. (a) $1,349,039 14% 1,345,934 7
Scott Companies Inc. 1,340,856 7
Etec Systems, Inc. 952,824 10 1,155,173 6
Telos Corporation 805,186 9 1,085,250 6
Q Clubs, Inc. 634,636 6 1,040,221 6
QMS, Inc. 1,031,753 6
The Upper Deck Company (a) 982,674 10 989,906 5
Gensia, Inc. (a) 981,750 10 981,750 5
Applied Bioscience International, Inc. 976,500 10 976,500 5
Del Monte Corporation 321,563 4 964,688 5
Lanxide Corporation 512,586 5 772,500 4
Garden Ridge Corporation 746,823 4
Rheometric Scientific, Inc. 710,901 7 658,249 4
The Garden Companies, Inc. 612,300 6 612,300 3
Big V Holding Corp. 598,961 6 608,948 3
The Bon-Ton Stores, Inc. 603,606 3
Celadon Group, Inc. 23,333 525,000 3
Knogo North America, Inc. 393,000 3
Wal-Mart Stores, Inc. 297,919 3 297,919 2
Silgan Containers Corporation 267,960 2
Pagg Corporation 137,129 1
Childtime Childcare, Inc. 136,426 1
Vermont Teddy Bear Co., Inc. 133,663 1
GDE Systems, Inc. 19,226
Westell Technologies, Inc. 4,790
---------- ---- ----------- ----
$9,760,172 100% $18,273,320 100%
========== ==== =========== ====
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
-6-
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 5. Dividends:
Dividends paid to shareholders during the nine months ended September 30, 1997
are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Total Paid Per Share
------------- ---------- ---------
<S> <C> <C>
December 31, 1996 $2,745,944 $0.20150
========== ========
March 31, 1997 $3,365,018 $0.20170
========== ========
June 30, 1997 $4,039,963 $0.20190
========== ========
</TABLE>
Dividends for the quarter ended September 30, 1997 were comprised of dividends
declared during the quarter of $.109837 per share to shareholders of record as
of August 19, 1997 and $.063705 per share to shareholders of record as of
September 17, 1997, and a dividend declared in October 1997 of $.028558 per
share to shareholders of record as of October 6, 1997.
Note 6. 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. Summarized financial
information of Gena, BB Property and Cards LLC is as follows:
(in thousands)
<TABLE>
<CAPTION>
Gena BB Property
December 31, 1996 September 30, 1997 December 31, 1996 September 30, 1997
----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Land and
buildings, net of
accumulated
depreciation $21,826 $21,480 $18,580 $18,580
Net investment in
direct financing
lease 27,159 27,443
Other assets
------- ------- ------- -------
Total assets $21,826 $21,480 $45,739 $46,023
======= ======= ======= =======
Mortgage notes
payable $11,696 $11,256 $30,525 $29,949
Other liabilities 136 130 230 247
------- ------- ------- -------
Total liabilities 11,832 11,386 30,755 30,196
Partners' capital 9,994 10,094 14,984 15,827
------- ------- ------- -------
Total liabilities
and partners'
capital $21,826 $21,480 $45,739 $46,023
======= ======= ======= =======
</TABLE>
(in thousands)
<TABLE>
<CAPTION>
Cards LLC
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Land and
buildings, net of
accumulated
depreciation
Net investment in
direct financing
lease $25,831 $25,831
Other assets 750 750
------- -------
Total assets $26,581 $26,581
======= =======
Mortgage notes
payable $14,848 $14,702
Other liabilities 856 849
------- -------
Total liabilities 15,704 15,551
Partners' capital 10,877 11,030
------- -------
Total liabilities
and partners'
capital $26,581 $26,581
======= =======
</TABLE>
-7-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
For The Nine Months Ended
September 30, 1996 September 30, 1997
GENA BB Property Cards LLC GENA BB Property Cards LLC
---- ----------- --------- ---- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lease revenues $1,964 $3,646 $1,965 $1,964 $3,638 $1,980
Other income 7
------ ------ ------ ------ ------ ------
1,964 3,646 1,972 1,964 3,638 1,980
------ ------ ------ ------ ------ ------
Interest expense
on mortgages 733 2,091 942 696 2,041 934
Depreciation 346 346
Other 5 6 3 1 43 2
------ ------ ------ ------ ------ ------
1,084 2,097 945 1,043 2,084 936
------ ------ ------ ------ ------ ------
Net income $ 880 $1,549 $1,027 $ 921 $1,554 $1,044
====== ====== ====== ====== ====== ======
</TABLE>
Note 7. Purchases of Real Estate:
Pagg Corporation
On July 8, 1997, the Company purchased land and building in Milford,
Massachusetts for $5,549,378 and entered into a net lease agreement with Pagg
Corporation ("Pagg"). The lease has an initial term of 12 years with two
five-year renewal terms at the option of the lessee. Annual rent is $590,000
with rent increases every three years with such increases based on a formula
indexed to increases in the CPI capped at 12.55% for each three-year period.
Vermont Teddy Bear Company, Inc.
On July 18, 1997, the Company purchased land and building in Shelburne, Vermont
for $5,863,874 and entered into a net lease with Vermont Teddy Bear Co., Inc.
("Vermont Teddy Bear"). The lease has a term of 20 years with three five-year
renewal terms at the option of the lessee. Annual rent is $652,400 with rent
increases every three years and with such increases based on a formula indexed
to increases in the CPI with the increase capped at 4% for any lease year.
In connection with the purchase, the Company obtained a $3,311,509 limited
recourse mortgage loan collateralized by the Vermont Teddy Bear property and an
assignment of the Vermont Teddy Bear lease. The loan initially provides for
monthly payments of interest and principal of $29,264 at an annual interest rate
of 8.75% and is based on a 20-year amortization schedule. In both July 2002 and
2003, the annual interest rate will increase by 0.25% and by 0.50% in each of
the three years thereafter to a maximum annual interest rate of 10.75%. The
Company may prepay the loan without a prepayment premium.
Vermont Teddy Bear has granted the Company warrants to purchase up to 150,000
shares of common stock at an exercise price of $1.31 per share. The warrants are
exercisable at any time prior to July 18, 2004.
Westell Technologies, Inc.
On September 29, 1997, the Company purchased land and a building in Aurora,
Illinois for $17,435,000 and entered into a net lease with Westell, Inc.
("Westell"). Westell's parent company, Westell Technologies, Inc., has
unconditionally guaranteed Westell's obligations under the lease. The lease has
a term of 20 years with
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
two five-year renewal terms, at the option of the lessee. Annual rent is
$1,748,250 with stated increases every two years during the initial lease term.
The lease provides Westell the option to purchase the property in September 2012
for the greater of fair market value or $17,435,000 plus the prepayment premium
on any mortgage loan encumbering the property.
Texas Freezer Company, Inc.
On September 23, 1997, the Company purchased land in Dallas, Texas for
$1,644,289 upon which a cold storage warehouse is being constructed pursuant to
a construction agency and lease agreement with Texas Freezer Company, Inc.
("Texas Freezer"). Total purchase and project costs for the property are
expected to be $8,900,524 with Texas Freezer having the obligation to fund any
excess costs needed to complete the project.
During the construction period, Texas Freezer will pay monthly rent based on an
amount indexed to project costs advanced by the Company. Upon the earlier of the
completion and January 1, 1999, Texas Freezer's initial annual rental obligation
will be 10.95% of total project costs of up to $8,900,524. The lease provides
for rent increases commencing January 1, 2002 and every year thereafter with
such increases based on a formula indexed to increases in the CPI.
The Company received warrants to purchase 30,390 shares of common stock of Texas
Freezer at an exercise price of $5.30 per share. The warrants may be exercised
at any time and expire on September 30, 2007. The warrant agreement allows for a
cashless exercise by which the Company may, in lieu of purchasing all 30,390
shares, receive fewer shares based on the difference between the then market
price of Texas Freezer stock and the exercise price.
GDE Systems, Inc.
On September 23, 1997, the Company purchased land and a building in San Diego,
California for $12,748,000 and assumed an existing net lease, as lessor, with
GDE Systems, Inc. ("GDE"), as lessee. The lease has a remaining term of nine
years and five months through January 2007. Annual rent is currently $1,153,548
with annual rent increases. The annual rent increases will be the greater of (a)
$22,500 or (b) an amount based on a formula indexed to increases in the CPI. The
lease requires the Company to fund certain repairs to the roof and parking lot.
Repair costs are estimated to be approximately $300,000, with the repairs
expected to be completed in 1998.
Note 8. Mortgage Financing:
On September 23, 1997, the Company obtained a limited recourse mortgage loan of
$6,900,000 collateralized by deeds of trust on its properties in Johnstown and
Allentown, Pennsylvania leased to Bon-Ton Stores, Inc. ("Bon-Ton") and an
assignment of the Bon Ton lease. The loan provides for monthly payments of
interest only for three years at an annual interest rate of the London
Inter-bank Offered Rate ("LIBOR") plus 1.9%. At any time during this period, the
Company may elect to convert the loan to a fixed rate of interest. The Company
may convert the loan to a fixed rate based on the five, seven or ten year U.S.
Treasury Security rate in effect at the conversion date plus 1.9% per annum with
a maturity of eight, ten or thirteen years, respectively, based on the rate
selected. If converted, monthly payments of principal and interest would be
based on a 20-year amortization schedule with a balloon payment due at the
maturity date.
-9-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 9. Exercise of Warrants for Common Stock:
In connection with its purchase of properties leased to Etec Systems, Inc.
("Etec") in February 1995, the Company was granted warrants to purchase 159,314
shares of Etec common stock. On September 15, 1997, the Company exercised its
remaining 68,768 warrants. As provided in the warrant agreement, the Company was
allowed to exercise the warrants by a cashless exercise whereby the Company
received 68,261 shares of Etec common stock, representing an amount equal to the
quoted market value for 68,768 shares less the $0.45 per share exercise price.
At September 30, 1997, the Company's 68,261 shares of Etec common stock had a
market value of $3,891,000.
-10-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS
In September 1997, the Company concluded an offering of common stock in
which time it had raised equity of $201,975,920 (20,197,592 shares) at $10 per
share. The Company had previously raised $81,359,920 (8,135,992 shares) in an
earlier offering. The Company plans to invest the net offering proceeds, (except
for 1% of proceeds used to establish a working capital reserve) in additional
real estate investments. As of November 10, 1997, approximately $153,300,000 of
the Company's net proceeds from the two offerings was invested in real estate
and $88,600,000 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:
<TABLE>
<CAPTION>
Date Acquired Lease Obligor
------------- -------------
<S> <C> <C>
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 Q 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.
November 19, 1996 Spectrian Corporation
December 16, 1996 Garden Ridge Corporation
December 24, 1996 Knogo North America, Inc.
January 28, 1997 Scott Companies Inc.
January 29, 1997 Childtime Childcare, Inc.
February 18, 1997 QMS Inc.
April 10, 1997 The Bon-Ton Stores, Inc.
June 13, 1997 Silgan Containers Corporation
July 8, 1997 Pagg Corporation
July 18, 1997 Vermont Teddy Bear Co., Inc.
September 23, 1997 GDE Systems, Inc.
September 23, 1997 Texas Freezer Company, Inc.
September 29, 1997 Westell Technologies, Inc.
</TABLE>
Cash flow from operations of $12,579,000 was sufficient to fund dividends
of $10,151,000 and $1,205,000 of scheduled mortgage principal payments. In
addition, the Company paid off a mortgage loan on the Rheometric Scientific,
Inc. property. With such prepayment, the Company met the requirement for
receiving common stock warrants of Rheometric. The Company intends to obtain new
limited recourse mortgage financing on the Rheometric property. The Company is
committed to use $19,731,000 to complete projects relating to the Etec Systems,
Inc., Childtime Childcare, Inc. and Texas Freezer Company, Inc. leases. The
Company is also obligated to fund repairs of approximately $300,000 at the GDE
Systems, Inc.
property.
-11-
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION OF OPERATIONS, Continued
The results of operations for the three and nine-month periods ended
September 30, 1996 and 1997 are not directly comparable as the Company's direct
and indirect investment in net leased real estate has materially increased
during 1996 and 1997. 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 available for investment. 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,
the rate of increase in such costs is expected to moderate as the Company's real
estate assets and related revenues increase.
-12-
<PAGE> 14
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, 1997 no matters were
submitted to a vote of Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Pursuant to Rule 701 of Regulation S-K, the use of proceeds
from the Company's offering of common stock which commenced
February 2, 1996 (File # 33-99994) is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Shares registered: 20,300,000
Aggregate price of offering amount registered: $203,000,000
Shares sold: 20,197,592
Aggregated offering price of amount sold: $201,975,920
Direct or indirect payments to directors, officers,
general partners of the issuer or their associates, to
persons owning ten percent or more of any class of equity
securities of the issuer and to affiliates of
the issuer: $5,162,742
Direct or indirect payments to others: $9,959,829
Net offering proceeds to the issuer after
deducting expenses: $186,853,349
Purchases of real estate: $90,068,917
Working capital reserves: $2,019,759
Temporary investments in cash and cash
equivalents: $94,764,673
</TABLE>
(b) Reports on Form 8-K:
During the quarter ended September 30, 1997, the Company
filed a report on Form 8-K dated August 12, 1997 under Item
2, Acquisition and Disposition of Assets.
-13-
<PAGE> 15
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
11/12/97 By: /s/ Steven M. Berzin
- -------------- ------------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11/12/97 By: /s/ Claude Fernandez
- -------------- ------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10A for
the quarter ending September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 104,947,564
<SECURITIES> 3,890,877
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 108,838,441
<PP&E> 229,846,576
<DEPRECIATION> 3,350,015
<TOTAL-ASSETS> 354,775,635
<CURRENT-LIABILITIES> 9,315,150
<BONDS> 84,996,988
0
0
<COMMON> 28,334
<OTHER-SE> 251,274,518
<TOTAL-LIABILITY-AND-EQUITY> 354,775,635
<SALES> 0
<TOTAL-REVENUES> 17,418,796
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,675,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,539,981
<INCOME-PRETAX> 8,700,815
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,700,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,700,815
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
