<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 MARCH 31, 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 033-99994
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED, A MARYLAND CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
MARYLAND 13-3726306
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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
18,539,889 shares of common stock; $.001 Par Value
outstanding at May 9, 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 March 31, 1997 2
Consolidated Statements of Income for the three
months ended March 31, 1996 and 1997 3
Consolidated Statement of Cash Flows for the three
months ended March 31, 1996 and 1997 4
Notes to Consolidated Financial Statements 5-11
Item 2. - Management's Discussion of Operations 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
<TABLE>
<CAPTION>
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
December 31, March 31
1996 1997
------------ ------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$1,337,513 at December 31, 1996 and
$1,862,767 at March 31, 1997 $ 83,661,635 $123,106,624
Net investment in direct financing leases 40,846,486 40,875,200
Equity investments 16,091,935 16,327,820
Cash and cash equivalents 50,893,314 47,736,329
Other assets 1,800,474 3,475,062
------------ ------------
Total assets $193,293,844 $231,521,035
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $ 46,286,159 $ 55,353,631
Accrued interest payable 418,035 529,705
Accounts payable to affiliates 2,258,581 3,650,692
Accounts payable and accrued expenses 256,136 200,683
Dividends payable 2,094,191 2,034,989
Prepaid rental income and security deposits 1,379,288 2,970,914
Deferred acquisition fees payable to an affiliate 3,414,097 4,238,591
------------ ------------
Total liabilities 56,106,487 68,979,205
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized
40,000,000 issued and outstanding shares;
15,668,403 shares at December 31, 1996 and
18,557,484 shares at March 31, 1997 15,668 18,557
Additional paid-in capital 139,896,651 165,414,232
Dividends in excess of accumulated earnings (2,584,954) (2,721,471)
------------ ------------
137,327,365 162,711,318
Less common stock in treasury at cost,
14,395 and 17,595 shares at December 31, 1996
and March 31, 1997 (140,008) (169,488)
------------ ------------
Total shareholders' equity 137,187,357 162,541,830
------------ ------------
Total liabilities and shareholders' equity $193,293,844 $231,521,035
============ ============
</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
March 31, 1996 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Rental income from operating
leases $ 930,576 $ 3,037,949
Interest income from direct
financing lease 616,333 1,286,677
Other interest income 345,433 455,029
---------- -----------
1,892,342 4,779,655
---------- -----------
Expenses:
Interest 567,996 1,204,217
Depreciation 179,551 525,254
General and administrative 360,468 425,704
Property expense 259,892 567,552
Amortization 6,052 13,759
---------- -----------
1,373,959 2,736,486
---------- -----------
Income before income
from equity investments 518,383 2,043,169
Income from equity
investments 507,331 507,056
---------- -----------
Net income $1,025,714 $ 2,550,225
========== ===========
Net income per share $ .13 $ .15
========== ===========
Weighted average shares 7,836,032 16,679,592
========== ===========
</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>
Three Months Ended
March 31,
--------------------------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,025,714 $ 2,550,225
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 185,603 539,013
Other noncash items (25,483) (64,114)
Income from equity investments in excess
of distributions received (155,461) (235,885)
Change in security deposits, net 725,000 1,262,500
Change in operating assets and liabilities assets (a) 185,998 226,280
------------ ------------
Net cash provided by operating activities 1,941,371 4,278,019
------------ ------------
Cash flows from investing activities:
Purchases of real estate and additional capitalized costs (30,145,880) (39,145,749)
Purchase of equity interest in general partnership (5,201,225)
Purchase of stock warrants (124,000)
------------ ------------
Net cash used in investing activities (35,471,105) (39,145,749)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 15,200,000 12,200,000
Prepayment of mortgage payable (2,796,000)
Payments on mortgage principal (176,556) (336,528)
Proceeds from stock issuance, net of costs 14,125,319 25,520,470
Deferred financing costs (97,505) (101,773)
Dividends paid (1,190,411) (2,745,944)
Purchase of treasury stock (29,480)
------------ ------------
Net cash provided by financing activities 27,860,847 31,710,745
------------ ------------
Net decrease in cash and cash equivalents (5,668,887) (3,156,985)
Cash and cash equivalents, beginning of period 20,239,764 50,893,314
------------ ------------
Cash and cash equivalents, end of period $ 14,570,877 $ 47,736,329
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 515,551 $ 1,092,547
============ ============
</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 10,421,492 shares
($104,214,920), including 2,889,081 shares, ($28,890,810) during the quarter
ended March 31, 1997. Deferred offering costs of $1,404,726 at March 31, 1997
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 Advisor performs multiple services for the Company including the management
and administration of the Company for which it is entitled to receive management
and performance fees. For the three-month period ended March 31, 1996, the
Company incurred asset management fees of $127,995, performance fees in like
amount and general and administrative reimbursements of $188,479. For the
three-month period ended March 31, 1997, the Company incurred asset management
fees of $244,978, performance fees in like amount and general and administrative
reimbursements of $236,055.
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 March 31, 1997, accounts
payable to affiliates were comprised of deferred offering costs of $1,372,726,
asset management and performance fees of $1,825,851, accrued interest on
deferred acquisition fees of $352,054 and amounts due for other operating costs
of $100,061.
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 three-month periods ended March 31,
1996 and 1997 were $14,113 and $19,381, 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 three-month periods ended March 31, 1996 and 1997
are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $ 930,576 $3,037,949
Interest from direct financing leases 616,333 1,286,677
Adjustment:
Share of leasing revenue from equity
investments 1,103,730 1,106,526
---------- ----------
$2,650,639 $5,431,152
========== ==========
</TABLE>
-6-
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
For the three-month periods ended March 31, 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 $ 481,250 9%
Best Buy Co., Inc. (a) $ 450,315 17% 449,307 8
Scott Companies Inc. 370,431 7
Telos Corporation 81,685 3 361,750 7
Etec Systems, Inc. 338,831 13 352,733 6
Q Clubs, Inc. 167,000 6 345,159 6
The Upper Deck Company (a) 326,165 12 329,969 6
Gensia, Inc. (a) 327,250 12 327,250 6
Applied Bioscience International, Inc. 325,500 12 325,500 6
Del Monte Corporation 321,563 6
Rheometric Scientific, Inc. 120,901 5 261,043 5
Lanxide Corporation 10,712 257,500 5
Garden Ridge Corporation 248,941 5
The Garden Companies, Inc. 204,100 8 204,280 4
Big V Holding Corp. 198,874 8 202,104 4
QMS, Inc. 187,066 3
Celadon Group, Inc. 175,000 3
Knogo North America, Inc. 131,000 2
Wal-Mart Stores, Inc. 99,306 4 99,306 2
---------- --- ---------- ---
$2,650,639 100% $5,431,152 100%
========== ==== ========== ====
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
Note 6. Dividends:
Dividends paid to shareholders during the three months ended March 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Total Paid Per Share
------------- ---------- ---------
<S> <C> <C>
December 31, 1996 $2,745,944 $0.2015
========== =======
</TABLE>
Dividends for the quarter ended March 31, 1997 were comprised of dividends
declared of $0.129984 per share to shareholders of record as of January 7, 1997
and $0.071716 per share to shareholders of record as of April 3, 1997. Such
dividends were paid in April 1997. Dividends declared prior to March 31, 1997
($2,034,989) have been accrued as dividends payable as of March 31, 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 March 31, 1997 December 31, 1996 March 31, 1997 December 31, 1996 March 31, 1997
----------------- --------------- ----------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Land and
buildings, net of
accumulated
depreciation $21,826 $21,711 $18,580 $18,580
Net investment in
direct financing
lease 27,159 27,209 $25,831 $25,831
Other assets 291 750 750
------- ------- ------- ------- ------- -------
Total assets $21,826 $21,711 $45,739 $46,080 $26,581 $26,581
======= ======= ======= ======= ======= =======
Mortgage notes
payable $11,696 $11,549 $30,525 $30,338 $14,848 $14,801
Other liabilities 136 135 230 270 856 825
------- ------- ------- ------- ------- -------
Total liabilities 11,832 11,684 30,755 30,608 15,704 15,626
Partners' capital 9,994 10,027 14,984 15,472 10,877 10,955
------- ------- ------- ------- ------- -------
Total liabilities
and partners'
capital $21,826 $21,711 $45,739 $46,080 $26,581 $26,581
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For The Three months Ended
--------------------------------------------------------------------------------------------
March 31, 1996 March 31, 1997
------------------------------------------------ -----------------------------------------
GENA BB Property Cards LLC GENA BB Property Cards LLC
---- ----------- --------- ---- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lease revenues $ 654 $1,217 $ 645 $ 654 $1,214 $ 660
Other income 7
------ ------ ------ ------ ------ ------
654 1,217 1,964 654 1,214 660
------ ------ ------ ------ ------ ------
Interest expense
on mortgages 246 701 312 232 685 312
Depreciation 115 115
Other 43 1
------ ------ ------ ------ ------ ------
361 701 312 347 728 313
------ ------ ------ ------ ------ ------
Net income $ 293 $ 516 $ 340 $ 307 $ 486 $ 347
====== ====== ====== ====== ====== ======
</TABLE>
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 8. Purchases of Real Estate:
Scott Companies, Inc.
- ---------------------
On January 23, 1997, the Company purchased land and a building in San Leandro,
California for $17,910,000 and entered into a net lease agreement with Scott
Company of California ("Scott"). Scott's parent company, Scott Companies, Inc.
has unconditionally guaranteed Scott's obligations under the lease. The lease
has a term of 20 years with three five-year renewal terms, at the option of the
lessee. Annual rent is $1,940,000 with rent increases scheduled every three
years based on a formula indexed to the Consumer Price Index ("CPI") with any
increase capped at 4% for any lease year.
Childtime Childcare, Inc.
- -------------------------
On January 29, 1997, the Company purchased land in Chandler, Arizona; Fleming
Island, Florida; and Sugar Land and New Territory, Texas upon which four
childcare centers are being constructed pursuant to a construction agency and
lease agreement with Childtime Childcare, Inc. ("Childtime"). Total purchase and
project costs for the four properties are estimated to be $3,930,000, with
Childtime having the obligation to fund any costs in excess of such amount
necessary to complete the project.
During the construction period, Childtime will pay monthly rent based on an
amount indexed to project costs advanced by the Company. Upon the earlier of the
completion of construction or October 1, 1997, Childtime's rental obligation
will be 11.20% of total project costs with rent increases scheduled every three
years, with such increases based on a formula indexed to increases in the CPI.
Under the purchase agreement with Childtime, the Company has agreed to purchase
up to an additional six properties at a cost not to exceed $6,048,000, plus
structuring, development and acquisition fees. After completion of construction
of all properties, annual rent will be $1,120,000 before any CPI based rent
increase. The six additional properties have not yet been selected and such
selection is subject to the approval of the Company and performance of due
diligence procedures.
QMS, Inc.
- ---------
On February 18, 1997, the Company purchased land and a building in Mobile,
Alabama for $13,874,000 and entered into a net lease agreement with QMS, Inc.
("QMS"). The lease has a term of 15 years with six five-year renewal terms, at
the option of the lessee. Annual rent is $1,689,375 with rent increases
scheduled every three years based on a formula indexed to the CPI.
In connection with the purchase, the Company obtained a $7,200,000 limited
recourse mortgage loan collateralized by the QMS property and an assignment of
the QMS lease. The loan provides for monthly principal payments of $24,303 and
annual interest at a rate equivalent to a variable rate of either the lender's
prime rate plus 1.25% or the London Interbank Offered Rate plus 2.75% at the
Company's option. A balloon payment of approximately $5,766,000 will be due in
February 2002.
The Company received warrants to purchase 100,000 shares of common stock of QMS
at a purchase price of $6.50 per share at any time through December 2001. The
warrant agreement allows for a cashless exercise by which the Company may, in
lieu of purchasing all 100,000 shares, receive fewer shares based on the
difference between the then market price of QMS stock and the exercise price.
-9-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 9. Payment of Mortgage:
On February 20, 1997, the Company prepaid an existing mortgage loan of
$2,796,000 collateralized by the Rheometric Scientific, Inc. ("Rheometric")
property . As amended, Rheometric's annual rent was reduced to $805,361 from
$1,181,000. The Company intends to obtain new limited recourse mortgage
financing on the Rheometric property at which time annual rent will consist of
an amount equal to the sum of (i) debt service payments on the mortgage loan
(ii) the difference between $6,000,000 and initial balance of the mortgage loan
multiplied by 14.7% and (iii) $35,000.
The Company was granted warrants to purchase 464,160 shares of Rheometric common
stock at an exercise price of $2 at the time the Rheometric property was
purchased in February 1996. The ability to exercise warrants for 331,543 shares
had been conditioned on the Company's paying off or refinancing the existing
mortgage loan by no later than February 23, 1997. With the prepayment, all
warrants are now exercisable at any time prior to February 2011, with such
exercises extendible to the last day of any extended lease term.
In connection with modification of annual rent and the satisfaction of the
mortgage loan, annual cash flow, (rent less mortgage debt service) from the
Rheometric property will increase by $416,000.
Note 10. Etec Systems, Inc.:
In February 1995, the Company purchased land and an office/manufacturing
facility in Hayward, California for $11,859,000 and entered into a net lease
agreement with Etec Systems, Inc. ("Etec") with $6,250,000 of the purchase price
provided by limited recourse mortgage financing. The lease had a term of 15
years, with four five-year renewal terms with annual rent of $1,370,325 with
such rent adjusted during the first five lease years to reflect any increase or
decrease in monthly debt service payments due under the loan. The Company was
granted warrants to purchase 159,314 shares of Etec common stock.
In August 1996, the Company entered into a modification agreement with Etec. In
consideration for the Company's agreeing to cancel its rights for 90,546
warrants, Etec refunded $2,633,473 of the original purchase price of the
property to the Company. The refund was applied as a prepayment to the mortgage
loan, and the lender reamortized the loan. In addition, the existing lease was
modified to extend the initial term by nineteen months to August 31, 2011.
Annual rent was reduced by $347,289 to $1,023,036, subject to modification, as
described hereafter. The Company 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 with the first installment of $5,000,000 made in February 1997. The
lease term will be modified upon each installment payment. With the February
1997 installment, annual rent increased by $574,000. 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.
-10-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
The commitment of the Company to fund the addition is for a maximum of
$9,000,000, including the $5,000,000 of mortgage financing obtained in February
1997, plus structuring, development and acquisition fees payable to an
affiliate. In connection with the August 1996 loan prepayment, the loan was
modified from interest at a variable rate to a fixed rate of 8.03%. Upon receipt
of the $5,000,000 mortgage financing for the first installment of the new
construction, the existing loan was increased to a balance of $8,220,000. The
terms of the loan were further modified to provide for $6,300,000 of the loan to
be at a fixed rate of 8.03% per annum and the remaining amount at a variable
rate with monthly principal payments based on a 15-year amortization schedule. A
balloon payment of approximately $6,479,000 will be due in February 2002.
Note 10. Subsequent Events:
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 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 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%.
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
-11-
<PAGE> 13
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 May 9, 1997 the
Company had issued 10,421,492 shares (104,214,920) 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) 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 May 9, 1997, approximately
$126,000,000 of the Company's net offering proceeds was invested in real estate
and $36,500,000 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>
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.
</TABLE>
Cash flow from operations of $4,278,000 was sufficient to fund dividends
of $2,716,000 and scheduled mortgage principal payments of $337,000. 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.
The results of operations for the three-month periods ended March 31, 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
During the quarter ended March 31, 1997, no matters were
submitted to a vote of Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
During the quarter ended March 31, 1997, the Company filed
reports on Form 8-K dated February 13, 1997 under Item 2,
Acquisition and Disposition of Assets and a report on Form
8K/A dated March 27, 1997 under Item 7b, Pro forma Financial
Information.
-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
5/9/97 By: /s/ Claude Fernandez
------ ----------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
5/9/97 By: /s/ Michael D. Roberts
------ ----------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE-MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 47,736,329
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,736,329
<PP&E> 165,844,591
<DEPRECIATION> 1,862,767
<TOTAL-ASSETS> 231,521,035
<CURRENT-LIABILITIES> 13,622,574
<BONDS> 55,353,631
0
0
<COMMON> 18,557
<OTHER-SE> 162,523,273
<TOTAL-LIABILITY-AND-EQUITY> 231,521,035
<SALES> 0
<TOTAL-REVENUES> 4,779,655
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,518,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,204,217
<INCOME-PRETAX> 2,550,225
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,550,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,550,225
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
