<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 JUNE 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)
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
21,891,477 SHARES OF COMMON STOCK; $.001 PAR VALUE
OUTSTANDING AT AUGUST 12, 1997
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
INDEX
Page No.
--------
PART I
------
Item 1. - Financial Information*
Consolidated Balance Sheets, December 31, 1996
and June 30, 1997 2
Consolidated Statements of Income for the three and six
months ended June 30, 1996 and 1997 3
Consolidated Statements of Cash Flows for the six
months ended June 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
* 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, JUNE 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
$2,534,846 at June 30, 1997 $ 83,661,635 $143,077,088
Net investment in direct financing leases 40,846,486 40,904,783
Equity investments 16,091,935 16,300,058
Cash and cash equivalents 50,893,314 76,049,819
Other assets 1,800,474 5,033,806
------------ ------------
Total assets $193,293,844 $281,365,554
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $ 46,286,159 $ 75,275,186
Accrued interest payable 418,035 645,649
Accounts payable to affiliates 2,258,581 3,697,270
Accounts payable and accrued expenses 256,136 250,513
Dividends payable 2,094,191 2,098,049
Prepaid rental income and security deposits 1,379,288 2,868,851
Deferred acquisition fees payable to an affiliate 3,414,097 4,650,569
------------ ------------
Total liabilities 56,106,487 89,486,087
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 40,000,000 shares; issued and
outstanding shares, 15,668,403 shares at December 31, 1996 and
21,925,041 shares at June 30, 1997 15,668 21,925
Additional paid-in capital 139,896,651 195,352,973
Dividends in excess of accumulated earnings (2,584,954) (3,180,936)
------------ ------------
137,327,365 192,193,962
Less common stock in treasury at cost,
14,395 and 33,431 shares at December 31, 1996
and June 30, 1997 (140,008) (314,495)
------------ ------------
Total shareholders' equity 137,187,357 191,879,467
------------ ------------
Total liabilities and shareholders' equity $193,293,844 $281,365,554
============ ============
</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 SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 927,756 $ 3,767,074 $ 1,858,332 $ 6,805,023
Interest from direct
financing leases 1,304,809 1,221,991 1,921,142 2,508,688
Other interest income 356,254 846,976 701,687 1,301,985
---------- ----------- ----------- -----------
2,588,819 5,836,041 4,481,161 10,615,696
---------- ----------- ----------- -----------
Expenses:
Interest 904,616 1,565,866 1,472,612 2,770,083
Depreciation 179,491 672,079 359,042 1,197,333
General and administrative 440,703 520,657 801,171 946,361
Property expenses 308,642 611,813 568,534 1,179,365
Amortization 7,214 19,819 13,266 33,578
---------- ----------- ----------- -----------
1,840,666 3,390,234 3,214,625 6,126,720
---------- ----------- ----------- -----------
Income before
income from equity
investments 748,153 2,445,807 1,266,536 4,488,976
Income from equity
investments 505,528 522,806 1,012,859 1,029,862
---------- ----------- ----------- -----------
Net income $1,253,681 $ 2,968,613 $ 2,279,395 $ 5,518,838
========== =========== =========== ===========
Net income per
common share $ .14 $ .15 $ .27 $ .30
========== =========== =========== ===========
Weighted average shares 9,191,370 20,004,239 8,515,623 18,350,006
========== =========== =========== ===========
</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>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,279,395 $ 5,518,838
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 372,308 1,230,911
Other noncash items (109,536) (129,097)
Income from equity investments in excess
of distributions received (108,954) (208,123)
Change in operating assets and liabilities, net (a) 841,785 315,088
------------ ------------
Net cash provided by operating activities 3,274,998 6,727,617
------------ ------------
Cash flows from investing activities:
Purchases of real estate and additional capitalized costs (33,118,197) (59,376,314)
Purchase of equity interest in general partnership (5,283,908)
Purchase of stock warrants (124,000)
------------ ------------
Net cash used in investing activities (38,526,105) (59,376,314)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 21,450,000 32,500,000
Prepayment of mortgage payable (2,796,000)
Payments on mortgage principal (497,033) (714,973)
Proceeds from stock issuance, net of costs 34,513,954 55,462,579
Redemption of stock (37,500)
Deferred financing costs (13,774) (360,955)
Dividends paid (2,769,474) (6,110,962)
Purchase of treasury stock (174,487)
------------ ------------
Net cash provided by financing activities 52,646,173 77,805,202
------------ ------------
Net increase in cash and cash equivalents 17,395,066 25,156,505
Cash and cash equivalents, beginning of period 20,239,764 50,893,314
------------ ------------
Cash and cash equivalents, end of period $ 37,634,830 $ 76,049,819
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 1,318,896 $ 2,397,232
============ ============
</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, 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 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. Since
the commencement of the Offering, the Company has issued 13,789,049 shares
($137,890,490), including 6,256,638 shares, ($62,566,380) during the six months
ended June 30, 1997. Included in other assets at June 30, 1997 are deferred
offering costs of $1,318,868 which represent costs associated with the current
Offering which will be charged to shareholders' equity upon the issuance of
additional 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.
Note 4. Transactions with Related Parties:
The Company has entered into an advisory agreement with the Advisor. Pursuant to
the advisory agreement, the Advisor performs certain advisory and administrative
services for the Company. For the three-month and six-month periods ended June
30, 1996, the Company incurred asset management fees of $151,577 and $279,572,
respectively, with performance fees in like amount. General and administrative
expense reimbursements for three-month and six-month periods ended June 30, 1996
were $184,975 and $373,454, respectively. For the three-month and six-month
periods ended June 30, 1997, the Company incurred asset management fees of
$280,108 and $525,086, respectively, with performance fees in like amount.
General and administrative expense reimbursements for the three-month and
six-month periods ended June 30, 1997 were $264,829 and $500,884, respectively.
As of December 31, 1996, accounts payable to affiliates were comprised of
deferred offering costs of $562,266, asset management and performance fees of
$1,335,895, accrued interest on deferred acquisition fees of $285,168 and
amounts due for other operating costs of $75,252. As of June 30, 1997, accounts
payable to affiliates were comprised of deferred offering costs of $1,267,908,
asset management and performance fees of $1,825,610, accrued interest on
deferred acquisition fees of $430,405 and amounts due for other operating costs
of $173,347.
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 six-months ended June 30, 1996 and
1997 were $13,378 and $59,875, respectively.
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 six-month periods ended June 30, 1996 and 1997
are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 1,858,332 $ 6,805,023
Interest from direct financing leases 1,921,142 2,508,688
Adjustment:
Share of leasing revenue from equity
investments 2,206,420 2,211,610
----------- -----------
$ 5,985,894 $11,525,321
=========== ===========
</TABLE>
-6-
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
For the six-month periods ended June 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 $ 962,500 8%
Best Buy Co., Inc. (a) $ 899,215 15% 897,172 8
Scott Companies Inc. 855,644 8
Etec Systems, Inc. 674,719 11 753,953 6
Telos Corporation 443,435 7 723,500 6
Q Clubs, Inc. 334,000 6 690,319 6
The Upper Deck Company (a) 652,705 11 659,938 6
Gensia, Inc. (a) 654,500 11 654,500 6
Applied Bioscience International, Inc. 651,000 11 651,000 6
Del Monte Corporation 643,125 6
QMS, Inc. 609,409 5
Lanxide Corporation 255,086 4 515,000 4
Garden Ridge Corporation 497,882 4
Rheometric Scientific, Inc. 415,901 7 456,909 4
The Garden Companies, Inc. 408,200 7 408,200 4
Big V Holding Corp. 398,520 7 405,079 4
Celadon Group, Inc. 350,000 3
The Bon-Ton Stores, Inc. 285,918 2
Knogo North America, Inc. 262,000 2
Wal-Mart Stores, Inc. 198,613 3 198,613 2
Silgan Containers Corporation 44,660
---------- ----------- ----------- ---
$5,985,894 100% $11,525,321 100%
========== =========== =========== ===
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
Note 6. Dividends:
Dividends paid to shareholders during the six months ended June 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 $0.71716
========== ========
</TABLE>
Dividends for the quarter ended June 30, 1997 were comprised of dividends
declared of $.113153 per share to shareholders of record as of May 21, 1997 and
$.088747 per share to shareholders of record as of July 9, 1997. Such dividends
were paid in July 1997. Dividends declared prior to June 30, 1997 ($2,098,049)
have been accrued as dividends payable as of June 30, 1997.
-7-
<PAGE> 9
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., 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 CARDS LLC
--------------------------------- --------------------------------- --------------------------------
DECEMBER 31, 1996 JUNE 30, 1997 DECEMBER 31, 1996 JUNE 30, 1997 DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------- ----------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Land and
buildings, net of
accumulated
depreciation $21,826 $21,596 $18,580 $18,580
Net investment in
direct financing
lease 27,159 27,102 $25,831 $25,831
Other assets 750 750
------- ------- ------- ------- ------- -------
Total assets $21,826 $21,596 $45,739 $45,682 $26,581 $26,581
======= ======= ======= ======= ======= =======
Mortgage notes
payable $11,696 $11,404 $30,525 $30,146 $14,848 $14,752
Other liabilities 136 132 230 248 856 854
------- ------- ------- ------- ------- -------
Total liabilities 11,832 11,536 30,755 30,394 15,704 15,606
Partners' capital 9,994 10,060 14,984 15,288 10,877 10,975
------- ------- ------- ------- ------- -------
Total liabilities
and partners'
capital $21,826 $21,596 $45,739 $45,682 $26,581 $26,581
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-----------------------------------------------------------------------------------------
JUNE 30, 1996 JUNE 30, 1997
---------------------------------------- ---------------------------------------
GENA BB PROPERTY CARDS LLC GENA BB PROPERTY CARDS LLC
---- ----------- --------- ---- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lease revenues $1,309 $2,430 $1,312 $1,309 $2,425 $1,320
Other income
1,309 2,430 1,312 1,309 2,425 1,320
------ ------ ------ ------ ------ ------
Interest expense
on mortgages 490 1,398 628 465 1,365 624
Depreciation 230 230
Other 5 6 2 1 46
------ ------ ------ ------ ------ ------
725 1,404 630 696 1,411 624
------ ------ ------ ------ ------ ------
Net income $ 584 $1,026 $ 682 $ 613 $1,014 $ 696
====== ====== ====== ====== ====== ======
</TABLE>
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 8. Purchases of Real Estate:
Bon-Ton Stores, Inc.
On April 10, 1997, the Company purchased land and a distribution center in
Allentown, Pennsylvania and land and a retail store in Johnstown Pennsylvania
for $12,041,885 and entered into a net lease agreement with Bon-Ton Department
Stores, Inc. ("Bon-Ton"). Bon-Ton's parent company, The Bon-Ton Stores, Inc.,
has unconditionally guaranteed Bon-Ton's obligations under the lease. The lease
has an initial term of 20 years with six five-year renewal terms, at the option
of the lessee. Annual rent is $1,270,750,with rent increases every three years
during the initial term based on a formula indexed to the Consumer Price Index
("CPI") with any increase capped at 3% for any lease year. During any renewal
term, rent for the Allentown property will continue to be subject to increases
every three and six years pursuant to the CPI formula, and the rent for the
Johnstown property will be a fixed rent plus an amount based on 1.5% of annual
gross sales, as defined, in excess of $12,000,000.
If the Company obtains a mortgage loan on the properties at an annual interest
rate of less than 8.15%, annual rent will be reduced by the difference between
the debt service payable on such loan and the amount that would be paid on a
loan of $6,900,000 payable at an annual interest rate of 8.15% and based on a
20-year amortization schedule. If the Company obtains a mortgage loan on the
properties at an annual interest rate of greater than 8.15%, annual rent will be
increased accordingly. A maximum adjustment will be based on a loan of
$6,900,000 payable at an annual interest rate of 8.50% based on a 20-year
amortization schedule in the event that the annual interest rate on the loan is
greater than 8.50%.
Silgan Containers Corporation
On June 13, 1997, the Company purchased land and buildings in Menomonie and
Oconomowoc, Wisconsin for $8,505,000 and entered into a net lease agreement with
Silgan Containers Corporation ("Silgan"). The lease has an initial term of 15
years with three five-year renewal terms at the option of the lessee. Annual
rent is $893,200 with increases every five years based on a formula indexed to
increases in the CPI.
Note 9. Mortgage Financings:
On April 14, 1997, the Company obtained a limited recourse mortgage loan of
$10,000,000 collateralized by a deed of trust on the Company's property in
Sunnyvale, California leased to Spectrian Corporation ("Spectrian") and an
assignment of the Spectrian lease. The loan provides for monthly payments of
interest and principal of $82,095 at an annual interest rate of 7.75% and is
based on a 20-year amortization schedule. The loan matures in May 2007 at which
time a balloon payment of $6,841,000, will be due. Subject to limited
exceptions, the loan may not be prepaid before May 1, 2002 and is subject to a
prepayment charge for any prepayments made prior to March 1, 2007.
On May 14, 1997, the Company obtained a limited recourse mortgage loan of
$10,300,000 collateralized by a deed of trust on the Company's property in San
Leandro, California leased to Scott Companies Inc. ("Scott") and an assignment
of the Scott leases. The loan provides for monthly payments of interest and
principal of $85,513 at an annual interest rate of 7.9% commencing July 1, 1997
and is based on a 20-year amortization. The loan matures in June 2007 at which
time a balloon payment of $7,973,156 will be due. The loan may not be prepaid
before May 2000, and there is a prepayment charge for any prepayment made prior
to the maturity date.
-9-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 10. Subsequent Events:
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%.
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 with such increases based on a formula indexed to
increases in the CPI with CPI 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 July 2002 and July
2003, the 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 payment of a premium.
Vermont Teddy Bear has granted the Company warrants to purchase up to 150,000
shares of common stock at an exercise price equal to the average closing price
of Vermont Teddy Bear common stock as quoted on the NASDAQ for a thirty day
period commencing July 3, 1997 and are exercisable at any time prior to July 18,
2004.
-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 August 12, 1997
the Company had issued 13,788,916 shares ($137,889,160) under the second
offering. The Company intends to invest the net offering proceeds (except for 1%
of proceeds used to establish a working capital reserve) in additional real
estate investments so as to further diversify the Company's portfolio. As of
August 8, 1997, approximately $131,212,000 of the Company's net offering
proceeds was invested in real estate and $59,300,000 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 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.
Cash flow from operations of $6,728,000 was sufficient to fund dividends
of $6,111,000 and $617,000 of the scheduled mortgage principal payments of
$715,000. In addition, the Company paid off a mortgage loan on the Rheometric
Scientific, Inc. property. With such prepayment, the Company met a requirement
for the release of common stock warrants of Rheometric to the Company. The
Company intends to obtain new limited recourse mortgage financing on the
Rheometric property. Of cash available for investment, the Company is committed
to complete projects relating to the Etec Systems, Inc. and Childtime Childcare,
Inc. leases.
-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 six-month periods ended June
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, 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.
-12-
<PAGE> 14
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual Shareholders meeting was held on June 10, 1997, at
which time a vote was taken to elect the Company's directors
through the solicitation of proxies. The following directors
were elected for a one-year term:
<TABLE>
<CAPTION>
Total Shares Shares Shares
Name Of Director Shares Voting Voting Yes Voting No Abstaining
---------------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
William P. Carey 9,440,973 9,320,615 29,310 91,048
Ralph G. Coburn 9,440,973 9,291,228 58,497 91,248
George E. Stoddard 9,440,973 9,293,733 55,992 91,248
Warren G. Wintrub 9,440,973 9,324,115 25,810 91,048
Barclay G. Jones, III 9,440,973 9,326,615 23,310 91,048
William Ruder 9,440,973 9,307,183 42,742 91,048
Charles C. Townsend, Jr. 9,440,973 9,325,977 23,948 91,048
</TABLE>
No other matters were subject to a vote at this meeting.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the quarter ended June 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
08/12/97 By: /s/ Steven M. Berzin
-------- ----------------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
08/12/97 By: /s/ Claude Fernandez
-------- ----------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
08/12/97 By: /s/ Michael D. Roberts
-------- ----------------------------------------
Date Michael D. Roberts
First Vice President and Controller
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX-MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 76,049,819
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 76,049,819
<PP&E> 186,516,717
<DEPRECIATION> 2,534,846
<TOTAL-ASSETS> 281,365,554
<CURRENT-LIABILITIES> 9,560,332
<BONDS> 75,275,186
0
0
<COMMON> 21,925
<OTHER-SE> 191,857,542
<TOTAL-LIABILITY-AND-EQUITY> 281,365,554
<SALES> 0
<TOTAL-REVENUES> 10,615,696
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,356,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,770,083
<INCOME-PRETAX> 5,518,838
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,518,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,518,838
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
