<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 033-99994
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CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
(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)
Registrant's telephone number, including area code (212) 492-1100
------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
SHARES OF COMMON STOCK
(Title of Class)
(Title of Class)
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
Indicate by check mark if disclosure of deliquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of
Registrant: There is no active market for common stock of Registrant at March
26, 1997. Non-affiliates held 18,064,089 shares of common stock, $.001 Par Value
outstanding at March 26, 1997.
<PAGE> 2
PART I
Item 1. Business.
Registrant is engaged in the business of investing in commercial and
industrial real estate properties which are net leased to commercial and
industrial entities. Registrant was organized as a Maryland corporation on July
30, 1993 and qualifies as a real estate investment trust ("REIT") for Federal
income tax purposes for the year ended December 31, 1996. Registrant's day to
day operations are managed by Carey Property Advisors, a Pennsylvania limited
partnership, (the "Advisor") in accordance with an advisory agreement between
Registrant and the Advisor. The sole general partner of the Advisor is Carey
Fiduciary Advisors, Inc., a Pennsylvania corporation ("CFA"). Affiliates of the
Advisor and CFA are the general partners of Corporate Property Associates
("CPA(R):1), Corporate Property Associates 2 ("CPA(R):2"), Corporate Property
Associates 3 ("CPA(R):3), Corporate Property Associates 4, a California limited
partnership ("CPA(R):4"), Corporate Property Associates 5 ("CPA(R):5"),
Corporate Property Associates 6 - a California limited partnership ("CPA(R):6"),
Corporate Property Associates 7 - a California limited partnership ("CPA(R):7"),
Corporate Property Associates 8, L.P., a Delaware limited partnership
("CPA(R):8") and Corporate Property Associates 9, L.P., a Delaware limited
partnership ("CPA(R):9"). The Advisor is also the advisor of Corporate Property
Associates 10 Incorporated ("CPA(R):10") and Carey Institutional Properties
Incorporated ("CIP(TM)"). Registrant has an advisory agreement with the Advisor.
According to the terms of this agreement, the Advisor performs a variety of
management services for Registrant. Registrant has entered into an agreement
with Fifth Rock, L.P., an affiliate, for the purpose of leasing office space.
Reference is made to the Prospectus of Registrant dated October 21, 1996 filed
pursuant to Rule 424(b), as supplemented by a Supplement dated January 27, 1997
under the Securities Act of 1933 and such Prospectus and such Supplement is
incorporated herein by reference (said Prospectus, as so supplemented, is
hereinafter called the "Prospectus").
In February 1994, the Registrant commenced a public offering of common
stock at $10 per share on a "best efforts" basis. Between May 1994 and January
1996, Registrant sold 8,135,992 shares ($81,359,020) including 20,000 shares
($200,000) which were purchased by Registrant's Advisor. Registrant filed a
post-effective amendment on March 14, 1996 withdrawing from registration the
balance of the unsold shares.
On February 2, 1996, Registrant commenced a second public offering of
20,000,000 shares of common stock at $10 per share on a "best efforts" basis. As
of December 31, 1996, the Company had issued 7,534,534 Shares ($75,345,340) the
second offering. An additional 2,890,081 shares ($28,900,810) were subsequently
issued in February 1997. Registrant 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 Registrant's
portfolio of real estate investments. Until May 9, 1996, pursuant to a recession
offer, the Company was required to offer shareholders who subscribed for shares
between March 31, 1995 and May 9, 1995 the opportunity to redeem their shares.
Pursuant to its recission offer, 3,750 shares ($37,500) were redeemed.
Since December 31, 1995, Registrant has:
(i) purchased on January 4, 1996, together with CIP(TM), a 50% interest
in two office buildings in Carlsbad, California net leased to The Upper Deck
Company; (ii) purchased on February 23, 1996 a manufacturing and warehouse
facility in Piscataway, New Jersey net leased to Rheometric Scientific, Inc.,
(iii) purchased on March 11, 1996 an office and manufacturing facility in Loudon
County, Virginia net leased to Telos Corporation, (iv) purchased on March 28,
1996, a research and development facility in Newark, Delaware net leased to
Lanxide Corporation, (v) purchased on September 19, 1996, a distribution and
warehouse facility in Indianapolis, Indiana net leased to Celadon Group, Inc.,
(vi) purchased on November 19, 1996, an office and research facility in
Sunnyvale, California net leased to Spectrian Corporation, (vii) purchased on
December 16, 1996, a retail store in Tulsa, Oklahoma net leased to Garden Ridge
Corporation, (viii) purchased on December 24, 1996, an office and distribution
facility in Hauppauge, New York net leased to Knogo North America, Inc., (ix)
purchased on January 23, 1997, an office and research facility in San Leandro,
California net leased to Scott Company, (x) purchased on January 29, 1997, land
net leased to
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<PAGE> 3
Childtime Childcare, Inc. in Chandler, Arizona, Fleming Island, Florida,
Sugarland and New Territory, Texas on which four child daycare centers are to be
constructed (xi) purchased on February 18, 1997, an office and research facility
in Mobile, Alabama net leased to QMS, Inc. and (xii) obtained $5,000,000 in
mortgage financing which Registrant used to fund a portion of the construction
of an addition to the Etec System, Inc. property. These transactions are
described in Item 2.
It is anticipated that a significant portion of Registrant's property
acquisitions will be made in conjunction with acquisitions, recapitalizations
and other financial restructurings. In some of these transactions, an acquiring
entity may purchase all or substantially all of the stock or assets of a company
and the acquired company or its successor in interest thereby may become
obligated on the substantial loans necessary to finance the acquisition.
Registrant may act as one of several sources of financing by purchasing real
property from the seller of the subject company and net leasing it to such
company or its successor. The lessee typically will have substantially greater
debt and substantially lower net worth than that attributable to Registrant
prior to the transaction. Consequently, the lessee may be particularly
vulnerable to adverse conditions in the lessee's business or industry, adverse
economic conditions generally and increases in interest rates, which increases
directly or indirectly may result in higher payments under the debt portion of
the lessee's lease with Registrant. In addition, the lessee's payment of lease
rentals and debt service may prevent the lessee from investing in new equipment
and from devoting resources to research and development or making other
expenditures which are necessary to keep the lessee competitive in its industry.
Furthermore, if the lessee plans to replace existing management, it will be more
difficult for the Advisor to determine the likelihood of the lessee's being
successful in its business and of being able to pay rentals throughout the term
of a lease with Registrant.
Registrant has only one industry segment which consists of the
investment in and the leasing of industrial and commercial real estate. See
Selected Financial Data in Item 6 and Management's Discussion and Analysis in
Item 7 for a summary of Registrant's operations. Also see the material contained
in the Prospectus under the heading INVESTMENT OBJECTIVES AND POLICIES.
For the year ended December 31, 1996, revenues from properties occupied
by Best Buy Co., Inc. amounted to 13% of the total operating revenues of
Registrant. No other property owned by Registrant accounted for 10% or more of
its total operating revenue during 1996. See Note 9 to the Consolidated
Financial Statements in Item 8. As Registrant continues to invest proceeds of
the Offering, these percentages can be expected to decrease.
All of Registrant's real estate properties are leased to corporate
tenants under net leases. A net lease generally requires tenants to pay all
operating expenses relating to the leased properties including maintenance, real
estate taxes, insurance and utilities which under other forms of leases are
often paid by the lessor. Lessees are required to include Registrant as an
additional insured party on all insurance policies relating to the leased
properties. In addition, substantially all of the net leases include
indemnification provisions which require the lessees to indemnify Registrant,
its directors and officers and the Advisor for liabilities on all matters
related to the leased properties. Registrant believes that the insurance and
indemnity provided on its behalf by its lessees provides adequate coverage for
property damage and any liability claims which may arise against Registrant's
ownership interests. In addition to the insurance and indemnification provisions
of the leases, Registrant has arranged for contingent property and liability
insurance coverage on the properties. To the extent that any lessees are not
financially able to satisfy indemnification obligations which exceed insurance
reimbursements, Registrant may incur the costs necessary to repair property and
settle liabilities. Currently, there are no claims pending for property damages
or liability claims.
As described above, lessees retain the obligation for the operating
expenses of their leased properties so that, other than rental income, there are
no significant operating data (i.e. expenses) reportable on Registrant's leased
properties. Current rental income is reported in Note 9 to the Consolidated
Financial Statements in Item 8. As discussed in Registrant's Management's
Discussion and Analysis in Item 7, Registrant's leases generally provide for
periodic rent increases or percentage rents based on specified sales levels. The
periodic rent increases are either fixed or based on formulas indexed to
increases in the Consumer Price Index.
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<PAGE> 4
As Registrant's objective is to invest in properties which are occupied
by a single corporate tenant which are subject to net leases with such lease
obligation backed by the credit of the corporate lessee, Registrant's properties
are not generally subject to the competitive conditions of local and regional
real estate markets. Because Registrant may be affected by the financial
conditions of its lessees rather than the competitive conditions of the real
estate marketplace, Registrant's strategy is to diversify its investments among
tenants, property types and industries in addition to achieving geographical
diversification. Registrant faces competition for acquisition of commercial and
industrial properties net leased to corporate tenants from financial
institutions and other REITs. Registrant also faces competition from
institutions that provide or arrange for other types of commercial financing
through private or public offerings of equity or debt or traditional bank
financings. Registrant believes that its expertise in credit underwriting and
transaction structuring will allow Registrant to compete effectively. In
underwriting a net lease transaction, Registrant undertakes an analysis of the
subject real estate and a credit analysis of the prospective lessee. Registrant
evaluates the prospective lessee's business and financial outlook to determine
the prospective lessee's ability to meet its ongoing obligations. In performing
this analysis, Registrant evaluates a number of factors, including, but not
limited to, the position of the prospective lessee in its industry, prospective
lessee's business franchise and the importance of the property to the
prospective lessee's business.
Registrant qualifies and intends to continue to qualify as a real
estate investment trust ("REIT") for the year ended December 31, 1996 under the
Internal Revenue Code of 1986. Registrant should not be subject to Federal
income taxes in future years, provided it distributes at least 95% of its REIT
taxable income to its shareholders and meets other conditions. Registrant
anticipates that future cash flows will be in excess of REIT taxable income and
that it will have sufficient funds to pay dividends in excess of 95% of its REIT
taxable income. Registrant anticipates that it will be able to pay dividends at
an increasing rate in future years, however, there is no assurance that its
objective of increasing the rate of distributions will be achieved.
In connection with the purchase of its properties, Registrant requires
sellers of such properties to perform environmental reviews. Management
believes, based on the results of such reviews, that Registrant's properties
were in substantial compliance with Federal and state environmental statutes at
the time the properties were acquired. In addition, Registrant's leases
generally require tenants to indemnify Registrant from all liabilities and
losses related to the leased properties with provisions of such indemnification
specifically addressing environmental matters. The leases generally include
provisions which allow for periodic environmental assessments, paid for by the
tenant, and allow Registrant to extend leases until such time as a tenant has
satisfied its environmental obligations. Certain of the leases allow Registrant
to require financial assurances from tenants such as performance bonds or
letters of credit if the costs of remediating environmental conditions, in the
estimation of Registrant, are in excess of specified amounts. Accordingly,
Management believes that the ultimate resolution of environmental matters will
not have a material adverse effect on Registrant's financial condition,
liquidity or results of operations.
Registrant does not have any employees. An affiliate of the Advisor
employs twelve individuals who perform accounting, secretarial and transfer
services for Registrant. Service Data Corporation performs certain transfer
services for Registrant and The Bank of New York performs certain banking
services for Registrant. In addition, Registrant has an agreement with the
Advisor pursuant to which the Advisor provides certain management services for
Registrant.
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<PAGE> 5
Item 2. Properties.
Registrant, through certain subsidiaries and partnerships holds fee simple
title to the following properties. The following table provides certain
information with respect to the properties.
<TABLE>
<CAPTION>
Gross
Leasable Average Primary Maximum
Tenant/Guarantor Area in Annual Rent Per Lease Lease Type of
Location of Properties Square Ft. Rent (1) Square Ft. Occupancy Term Term Property
---------------------- ---------- -------- ---------- --------- ---- ---- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BEST BUY CO., INC.(2)
Denver, CO ............ 23,987
Fort Collins, CO ...... 28,520
Bloomingdale, IL ...... 27,280
Bedford Park, IL ...... 27,466
Aurora, IL ............ 28,186
Matteson, IL .......... 27,538
Schaumberg, IL ........ 113,933
Omaha, NE ............. 28,731
Albuquerque, NM ....... 45,653
Arlington, TX ......... 46,361
Beaumont, TX .......... 28,255
Dallas, TX ............ 27,697
El Paso, TX ........... 28,179
Plano, TX ............. 28,075
Ft. Worth, TX ......... 27,460
Houston, TX ........... 28,160
Madison, WI ........... 28,025
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TOTAL ............... 593,146 $1,835,014(3) $ 8.36(3) 100% 2018 2033 Retail
BIG V SUPERMARKETS, INC.(4)
Ellenville, NY ........ 60,750
Warwick, NY ........... 72,804
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TOTAL ............... 133,554 693,563(3) 11.54(3) 100 2018 2038 Supermarket
GENSIA, INC.(5)
San Diego, CA ......... 144,311 1,309,000(3) 18.14(3) 100 2009 2049 Office/Research
ETEC SYSTEMS, INC
Hayward, CA ........... 153,531 1,023,036 6.66 100 2011 2031 Manufacturing/Office
WAL-MART STORES, INC
Greenfield, IN ........ 82,620 397,226 4.81 100 2005 2020 Warehouse/Distribution
SPORTS & FITNESS CLUBS OF
AMERICA, INC
Austin, TX ............ 43,935 686,637 15.63 100 2013 2033 HealthClub
Houston, TX ........... 46,733 694,000 14.85 100 2016 2036 HealthClub
NK LAWN & GARDEN CO
Chattanooga, TN ....... 242,317 816,400 3.37 100 2015 2035 Warehouse/Distribution
DEL MONTE CORPORATION (5)
Mendota, IL ........... 239,850 Warehouse
Plover, WI ............ 210,000 Warehouse
Toppenish, WA ......... 274,750 Warehouse
Yakima, WA ............ 11,165 RipeningRoom
TOTAL ............... 735,765 1,286,250(3) 3.50(3) 100 2016 2056
APPLIED BIOSCIENCE
INTERNATIONAL, INC
Austin, TX ............ 173,000 1,302,000 7.53 100 2010 2030 Research
THE UPPER DECK COMPANY(5)
Carlsbad, CA .......... 295,000 1,319,875(3) 8.94(3) 100 2021 2041 Manufacturing/Office
RHEOMETRIC SCIENTIFIC, INC
Piscataway, NJ ........ 104,000 805,361 7.74 100 2011 2031 Office/Industrial
TELOS CORPORATION
Loudon County, VA ..... 192,775 1,447,000 7.51 100 2016 2036 Office/Manufacturing
LANXIDE CORPORATION
Newark, DE ............ 162,220 1,030,000 6.35 100 2016 2036 Research/Development
CELADON TRUCKING
SERVICES, INC
Indianapolis, IN ...... 60,900 700,000 11.49 100 2016 2036 Distribution/Warehouse
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Gross
Leasable Average Primary Maximum
Tenant/Guarantor Area in Annual Rent Per Lease Lease Type of
Location of Properties Square Ft. Rent (1) Square Ft. Occupancy Term Term Property
---------------------- ---------- -------- ---------- --------- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
SPECTRIAN CORPORATION
Sunnyvale, CA 91,476 $1,925,000 $ 21.04 100% 2011 2026 Office/Research
GARDEN RIDGE
CORPORATION
Tulsa, OK 141,284 854,164 6.05 100 2016 2036 Retail
KNOGO NORTH AMERICA, INC
Hauppauge, NY 68,333 2,096,000 30.67 100 2016 2020 Office/Distribution
SCOTT COMPANIES, INC
San Leandro, CA 270,000 1,945,850 7.21 100 2017 2032 Office/Research
QMS, INC
Mobile, AL 277,000 1,689,375 6.10 100 2012 2042 Office/Research
CHILDTIME CHILDCARE, INC
Chandler, AZ 6,575 103,894
Fleming Island, FL 7,894 111,440
Sugarland, TX 11,331 109,920
New Territory, TX 7,894 114,856
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33,694 440,110 13.06 100 2018 2028 Daycare Centers
</TABLE>
(1) Annual rent on a cash basis.
(2) Registrant owns a 37% interest in these properties. The remaining interest
is owned by Carey Institutional Properties Incorporated ("CIP(TM)").
(3) This figure represents the rent per square foot of the property when
combined with rents payable to co-owners.
(4) Registrant owns a 45% interest in these properties. The
remaining interest is owned by CIP(TM).
(5) Registrant owns a 50% interest in this property. The
remaining interest is owned by CIP(TM).
(6) For both tax and financial reporting purposes, all improvements are
depreciated over a 40-year period on a straight-line basis.
Except as noted, Registrant's leases provide that lessees pay all
expenses of any nature relating to the use, occupancy, maintenance and repair of
the leased properties including the payment of all taxes and insurance premiums.
Registrant and its affiliates and subsidiaries have no obligation to render any
building services or to expend their own funds on behalf of its lessees or
maintain leased properties, except as noted. In the opinion of Registrant's
management, the leased properties are adequately covered by insurance.
PROPERTY LEASED TO BIG V SUPERMARKETS, INC.
In October 1993, a wholly-owned subsidiary of CIP(TM), acquired from
Big V Supermarkets, Inc. ("Big V") retail shopping centers constructed in
Ellenville and Warwick, New York for $14,422,000 and entered into anet lease
with Big V. Big V Holding Corp., the parent company of Big V, has guaranteed the
lease obligations of Big V. The Ellenville property contains a 46,000 square
foot commercial building, operated as a "ShopRite" supermarket, and
approximately 13,500 square feet of additional retail space. The Warwick
property contains a 48,164 square foot commercial building, also operated as a
"ShopRite" supermarket, and approximately 24,000 square feet of additional
retail space. On July 15, 1994, Registrant acquired a 45% interest in the Big V
properties by paying $2,790,000 to CIP(TM) and assuming a 45% interest in the
outstanding mortgage loan collateralized by the Big V properties which was
subsequently refinanced in July 1995.
On July 20, 1995, financing of $7,500,000 was provided to CIP(TM) and
Registrant through a limited recourse mortgage loan which was used to prepay an
existing limited recourse mortgage loan. The new loan has a term of 25 years and
bears interest at an initial annual interest rate of 9% for the first ten years
of the term. Thereafter, the interest rate will be adjusted annually to an
annual rate equivalent to .375% over the Moody's A Corporate Bond Index Daily
Rate. The loan requires monthly payments of principal and interest based on a
25-year amortization schedule.
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<PAGE> 7
The initial term of the lease is 25 years with four five-year renewal
options. The lease requires Big V to pay annual basic rent of $1,541,250. In
addition, for each of the first five years of the lease, Big V is required to
pay as additional basic rent an amount equal to 1% of gross sales by Big V for
such year, in the case of the Ellenville property, for gross sales in excess of
$30,000,000, and in the case of the Warwick property, for gross sales in excess
of $42,500,000. During each year thereafter (including any extensions), Big V is
required to pay annually as additional basic rent an amount equal to the greater
of (i) the amount listed below and (ii) 1% of gross sales by Big V in excess of
$30,000,000, with respect to the Ellenville property, and, $42,500,000 with
respect to the Warwick property.
MINIMUM ADDITIONAL RENT
<TABLE>
<CAPTION>
WARWICK ELLENVILLE
PROPERTY PROPERTY
YEARS AMOUNT AMOUNT
----- -------- ----------
<S> <C> <C>
6-10............................... $135,575 $ 98,175
11-15............................... 184,347 133,493
16-20............................... 266,588 193,046
21-25............................... 348,829 252,601
26-30............................... 431,071 312,155
31-35............................... 513,312 371,708
36-40............................... 595,552 431,262
41-45............................... 677,794 490,816
</TABLE>
Big V operates a chain of 32 supermarkets primarily under the
"ShopRite" trade name and located in the Hudson River Valley region of New
York, northeastern Pennsylvania, northern New Jersey and southwestern
Connecticut.
PROPERTIES LEASED TO BEST BUY CO., INC.
In April 1993, a general partnership (the "BB Partnership"), formed by
wholly-owned subsidiaries of CIP(TM) and CPA(R):10, purchased from Best Buy Co.,
Inc. ("Best Buy") 17 consumer electronics retail stores and related facilities
and entered into a net lease with Best Buy.
On May 13, 1994, Registrant, through a wholly-owned subsidiary,
acquired a 37% general partnership interest in the BB Partnership in exchange
for an investment of $4,378,210. As the result of Registrant's investment,
CPA(R):10 is no longer a partner in the BB Partnership. The aggregate purchase
price of the Best Buy properties was $46,233,000.
$32,800,000 of the purchase price was provided to the BB Partnership
pursuant to a limited recourse mortgage loan.
The loan bears interest at a rate of 9.01% per annum, and requires
monthly payments of principal and interest of $291,290 with a balloon payment of
$15,921,746 due on May 1, 2008 for the entire outstanding principal balance. The
loan may not be prepaid during the first 10 years, and thereafter may be prepaid
in full, but not in part, only upon the payment of, among other things, a
make-whole premium.
The initial term of the lease expires on April 30, 2018 with three
five-year renewal terms for all or less than all of the BB Properties. If Best
Buy elects a renewal for less than all properties, basic rent for shall be
reduced by a percentage approximately equal to the percentage of basic rent
attributable to the Best Buy properties as to which lease is not renewed. Basic
rent for the second or third renewal term shall be based on fair market rental
value.
The lease requires Best Buy to pay basic rent, which consists of a
monthly component and a semiannual component. On the first day of each month up
to and including May 1, 2008, the monthly
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<PAGE> 8
component is $291,290.14. On each November 1 and May 1 up to and including
November 1, 2007, the semi-annual component is payable as follows:
<TABLE>
<CAPTION>
SEMI-ANNUAL
PERIOD PAYMENT
--------------------------------------------- -----------
<S> <C>
May 1, 1993 to and including November 1, 1997 $ 732,007.50
May 1, 1998 to and including November 1, 2002 764,540.50
May 1, 2003 to and including November 1, 2007 797,074.00
</TABLE>
For the period from May 1, 2008 to and including May 1, 2018, Best Buy shall
make payments of the two components of basic rent such that annual basic rent is
as follows (subject to adjustment as described below):
<TABLE>
<CAPTION>
SEMI-ANNUAL
PERIOD PAYMENT
- --------------------------------------------- ------------
<S> <C>
May 1, 2008 to and including April 30, 2013 $4,119,477
May 1, 2013 to and including May 1, 2018 4,282,146
</TABLE>
The basic rent for the period May 1, 2008 through May 1, 2018 described
above, assumes that, on the basis of Best Buy's credit rating, financing will be
available to refinance the loan on or about May 1, 2008 at an interest rate of
9.01% per annum and amortizing $15,750,000 in 120 equal monthly installments. If
the rate is higher than 9.01% per annum, then the annual basic rent for the
period will be adjusted upward on a dollar-for-dollar basis by the amount of the
annual increase in the installments. No adjustment in basic rent will be made if
the rate is less than 9.01% per annum.
If, by April 15, 2008, the BB Partnership is unable to obtain such a
loan to refinance the outstanding balance of the existing loan, then the BB
Partnership shall so notify Best Buy and, on May 1, 2008, Best Buy shall prepay
the basic rent for the remaining 10 years of the initial term by making a
payment in the amount of $15,750,000 (subject to certain reductions) and, so
long as no default in the payment of rent or event of default related to certain
financial covenants and environmental matters exists under the lease on either
April 15, 2008 or May 1, 2008, no additional payments of basic rent will be
payable by Best Buy for the balance of the initial term. In lieu of making the
this rental payment, Best Buy shall have the right, so long as no default
exists, to make a rejectable offer to terminate the lease on May 1, 2008. If the
lease is terminated in accordance with such an offer, Best Buy shall pay a
termination amount equal to $16,000,000 (subject to certain reductions).
During the renewal terms, basic rent shall be affected in part by the
payment by Best Buy of the lump sum rental payment described above.
Best Buy is one of the nation's leading discount retailers, offering
brand name consumer electronics, personal computers and other home office
products, major appliances and entertainment software.
PROPERTY LEASED TO GENSIA, INC.
In December 1993, a general partnership, of which wholly-owned
subsidiaries of Registrant and CIP(TM) are the sole general partners, acquired
from Gensia, Inc. ("Gensia") approximately 5.5 acres of land in San Diego,
California, on which are constructed two buildings with office and research and
development space and entered into a net lease with Gensia.
Initially, the CIP(TM) subsidiary had a 99.99% interest in the general
partnership and Registrant's subsidiary had a 0.01% interest in the general
partnership. On October 14, 1994, Registrant acquired an additional 49.99%
interest in the general partnership in exchange for
a payment of approximately $4,840,000.
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<PAGE> 9
The cost of acquiring the Gensia property and of completing the
facility was $23,200,000. The general partnership financed a portion of the
purchase price and the cost of completing the facility with a limited recourse
mortgage loan in the amount of $13,000,000, which mortgage loan bears interest
at the rate of 8.125% per annum and is fully amortizing over a term of 15 years.
The initial term of the lease is 15 years, with four ten-year renewal
terms. The lease provides annual rent to $2,618,000, with rent increases every
five years based on a formula indexed to increases in the Consumer Price Index
(the "CPI") with a cap of 4% in any one year.
Payment of monthly installments of basic rent during the first five
years of any 10-year renewal term will be in an amount equal to 95% of the Fair
Market Rent (determined pursuant to the lease) of the property and is subject to
adjustment at the end of the fifth year of such renewal term to reflect the
percentage increase in the CPI as set forth above. In no event will the basic
rent payable during the first five years of any 10-year renewal term increase or
decrease by more than 22% from the basic rent in effect at the end of the prior
term.
Gensia is engaged in the discovery, development, manufacturing and
marketing of pharmaceutical products primarily for the treatment and diagnosis
of human diseases.
PROPERTY LEASED TO ETEC SYSTEMS, INC.
On February 9, 1995, a wholly-owned subsidiary of Registrant purchased
from Etec Systems, Inc. ("Etec") the office/ manufacturing facilities of Etec in
Hayward, California and entered into a net lease with Etec. Registrant
contributed equity of approximately $5,610,000 to the purchase of the Etec
property and obtained $6,250,000 of limited recourse mortgage financing.
Registrant also was granted warrants to purchase 159,314 shares of Etec common
stock.
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 increases or decreases in monthly debt service
payments due under the loan. In August 1996, Registrant entered into a
modification agreement with Etec. In consideration for the Registrant agreeing
to cancel its rights for 90,546 warrants, Etec refunded $2,633,973 of the
original purchase price of the property to Registrant. The refund was applied as
a prepayment to the mortgage loan, and the lender reamortized the loan. The
existing lease was modified to extend the initial term by nineteen months to
August 31, 2011 and annual rent was reduced by $347,289 to $1,023,036.
Registrant 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 a first installment of $5,000,000 made in February 1997.
The lease terms will be modified upon each installment payment. With the January
1997 installment, annual rent increased by $574,000 to $1,597,036. For the
second and third installments, rent will increase by an amount equal to the
monthly amortization payment required to repay the installments over the
remaining initial term of the lease based on an annual interest rate of 8.28%
for contributions of up to $2,500,000 and an annual interest rate of 8.43% for
contributions in excess of $2,500,000.
The commitment to fund the addition is for a maximum of $9,000,000
including the $5,000,000 of mortgage financing, 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 8.03%
per annum. 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.
In addition, Etec posted a security deposit equal to three months of
the initial annual rent, which security deposit will be applied against the last
three months rent or, if such rent has been paid, against any other amounts due
to Registrant. The security deposit may be commingled with other funds of
Registrant.
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Etec has also agreed to allow Registrant to exercise its remaining
68,764 warrants by either paying the cash exercise price or by a cashless
exercise in which Registrant would receive shares equal to the fair market value
less the exercise price of such shares.
Etec is a leading producer of electron beam and laser lithography
equipment. These systems are used in the manufacturing of masks for the
semiconductor manufacturing industry.
PROPERTY LEASED TO WAL-MART STORES, INC.
On February 10, 1995, Registrant, through a wholly-owned subsidiary,
purchased a warehouse/distribution facility in Greenfield, Indiana leased to
Wal-Mart Stores, Inc. ("Wal-Mart") for $3,584,905. Concurrently with the
acquisition of the property, the lease was assigned to Registrant. Registrant is
required to pay the cost of insurance and taxes up to the amount of $41,280 in
any lease year.
The initial term of the lease ends January 31, 2005. Wal-Mart has the
right to extend the lease for three five-year renewal terms. Annual basic rent
is $397,235, payable monthly. During each renewal term, the lease provides for
rent increases of 12% over the rent payable during the previous term.
Registrant received limited recourse mortgage financing of $2,500,000
on the property in September 1995. The loan has a term of ten years, an interest
rate of 8.23% per annum and provides for 36 monthly payments of interest and
principal of $22,223 based on an 18 year amortization schedule followed by 84
monthly payments of interest and principal in the amount of $21,270 based upon a
20-year amortization schedule, with a balloon payment for the entire outstanding
principal balance due at maturity. The mortgage loan is collateralized by a
mortgage and security agreement.
Wal-Mart operates approximately 2,000 Wal-Mart and 400 Sam's Clubs
discount department stores throughout the United States.
PROPERTY LEASED TO SPORTS & FITNESS CLUBS OF AMERICA, INC. - AUSTIN, TEXAS
On June 8, 1995, Registrant, through a wholly-owned subsidiary,
purchased a 43,935 square foot health club from Sports & Fitness Clubs of
America, Inc. ("SFCA") located in Austin, Texas for $5,497,000 and entered into
a net lease with SFCA. $2,750,000 of the purchase price was supplied by limited
recourse mortgage financing. The lease obligations of SFCA are guaranteed by Q
Clubs, Inc. (formerly known as Sports & Fitness Clubs, Inc.), the parent company
of SFCA.
The lease has an initial term of 18 years, with four five-year renewal
terms at the option of SFCA. The current annual rent is $686,637. The rent is
adjusted annually based on the lesser of (i) a formula indexed to increases in
the CPI or (ii) 4.5% of the base rent in effect immediately prior to the
adjustment. Beginning on the fifth anniversary date of the Sports Lease, SFCA
will receive an annual rent credit of $26,791.
The limited recourse mortgage loan of $2,750,000 has a term of five
years, an annual interest rate of 9.3% with monthly payments of interest and
principal of $28,385 based upon a 15-year amortization schedule.
Q Clubs, Inc. operates large, high quality health clubs under the name
"Q The Sports Club" in major metropolitan areas in the southern and western
regions of the United States.
PROPERTY LEASED TO SPORTS & FITNESS CLUBS OF AMERICA, INC. - HOUSTON, TX
On July 23, 1996, Registrant, through a wholly-owned subsidiary,
purchased a 46,700 square foot health club from SFCA located on approximately
6.24 acres of land in Houston, Texas for $6,180,000 and entered into a net lease
with SFCA. The lease obligations of SFCA are guaranteed by Q Clubs Inc.
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The initial term of the Sports Lease is 20 years, followed by four
five-year renewal terms at the option of SFCA. The initial annual rent under the
lease is $694,000 payable with rent increases every five years based on a
formula indexed to increases in the CPI with any such increase capped at 18.77%.
Registrant received warrants to purchase 5,089 shares of the common
stock of Q Clubs and may exercise at a price of $275 per share, at anytime
during the twelve month period commencing on July 23, 1996 (the "Closing Date").
Registrant may exercise at any time during each succeeding twelve month period
commencing on each anniversary of the Closing Date, for a price equal to 103% of
the exercise price on the last day of' the immediately preceding twelve-month
period.
PROPERTY LEASED TO NK LAWN & GARDEN CO.
On June 21, 1995, Registrant, through a limited liability company that
is owned by Registrant and a wholly-owned subsidiary, purchased from NK Lawn &
Garden Co. ("NK Lawn") a warehouse/distribution facility located in Chattanooga,
Tennessee for $6,950,000 and entered into a net lease with NK Lawn. The
obligations of NK Lawn under the lease are guaranteed by The Garden Companies,
Inc. ("Garden Companies"), the parent company of NK Lawn.
The initial term of the lease is 20 years, with four five-year renewal
terms at the option of NK Lawn. The initial annual rent is $816,400 with rent
increases every five years based on a formula indexed to increases in the CPI
and capped at 5% in any one year.
The limited recourse mortgage loan of $3,500,000 has a term of ten
years, an annual interest rate with monthly payments of interest and principal
of approximately $29,800 based upon a 20-year amortization schedule.
Registrant received warrants to purchase 1.25% of the capital stock of
Garden Companies. NK Lawn is the leading supplier of flower and vegetable packet
seeds to consumers of packet seeds in the United States.
PROPERTY LEASED TO DEL MONTE CORPORATION
In November 1995, Registrant and CIP(TM) purchased land in Illinois,
Wisconsin and Washington and entered into construction agency and lease
agreements with Del Monte Corporation ("Del Monte") and subsequently constructed
three warehouses and a special purpose facility at a total
cost of approximately $21,990,000.
The initial term of the lease is 20 years following completion of the
facilities, followed by four 10-year renewal terms at the option of Del Monte.
Commencing on July 1, 1996, annual rent is $2,572,000 (of which Registrant's
share is $1,286,250). Annual rent will be increased every five years based on a
formula indexed to increases in the CPI. The lease contains provisions
permitting economic abandonment of one property, a right of first refusal and a
purchase option during the 11th year of the initial term.
After completion of construction in July 1996, Registrant and CIP(TM)
obtained $12,500,000 (of which the Registrant's share is $6,250,000) of limited
recourse financing which had been committed to the Registrant and CIP(TM) by the
lender when the transaction with Del Monte was structured. The loan is
collateralized by mortgages on the Del Monte properties and a lease assignment.
The loan provides for a fixed interest rate of 10% per annum on $11,000,000 of
the initial loan balance with a variable interest rate of either the lender's
prime rate plus 2% or the London Inter-Bank Offering Rate plus 4% on the
remaining initial loan balance of $1,500,000. Debt service is paid quarterly
based on a 20-year amortization schedule. The initial quarterly payment, based
on current interest rates, is approximately $343,000 (of which the Registrant's
share is $171,500). In November 1996, Registrant and CIP paid $582,000 as a
partial prepayment to the loan. The loan is scheduled to mature on November 30,
2000 at which time a balloon payment of $10,942,000 will be due (of which the
Registrant share will be $5,471,000).
Del Monte is the largest manufacturer and distributor of canned
vegetables and canned fruit in the United States.
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PROPERTY LEASED TO PHARMACO LSR INTERNATIONAL INC. AND GUARANTEED BY APPLIED
BIOSCIENCE INTERNATIONAL, INC.
On November 13, 1995, Registrant, through a wholly-owned subsidiary,
purchased from Pharmaco LSR International Inc. ("Pharmaco") an office, chemical
supply storage and a chemical research dormitory/clinic facilities consisting of
seven buildings in Austin, Texas for $12,565,000 and entered into a new lease
with Pharmaco. The lease obligations of Pharmaco are guaranteed by Applied
Bioscience International, Inc. ("APBI"), the parent company of Pharmaco.
The initial term of the lease is 15 years, followed by four five-year
renewal terms at the option of Pharmaco. The initial annual rent under the
Pharmaco Lease is $1,302,000. The lease provides for rent increases every three
years based on a formula indexed to increases in the CPI, but in no event will
the increase exceed 13.5%. The annual rent under the Pharmaco Lease for each
year of any renewal term will be based on the fair market rental value.
In January 1996, Registrant obtained a limited recourse mortgage loan
of $7,500,000. The loan has a term of ten years at an annual interest rate of
8.25% with monthly payments of interest and principal of approximately $64,000
with the remaining principal due at the end of the tenth year.
APBI provides a broad range of research and consulting services in the
life and environmental sciences. Pharmaco, APBI's largest subsidiary, provides
contract biological safety testing designed to test pharmaceutical products,
biologicals, chemical compounds and other substances in order to produce data
required to identify, quantify and evaluate the risks resulting from the
manufacture and use of these substances.
PROPERTY LEASED TO THE UPPER DECK COMPANY
In January 1996, a Delaware Limited Liability Company (the "LLC") of
which wholly owned subsidiaries of Registrant and CIP(TM) each own 50% ownership
interests, acquired from Carlsbad Partners two properties which comprise the
corporate headquarters of The Upper Deck Company ("Upper Deck") for $25,654,450.
The Upper Deck facilities were constructed in 1991 and house Upper Deck's
manufacturing, design, production and distribution operations and corporate
offices. Concurrently with the acquisition, the LLC entered into a net lease
with Upper Deck. In connection with the purchase, Registrant and CIP(TM) each
contributed $5,327,225 to the LLC which in turn obtained $15,000,000 of limited
recourse mortgage financing.
The initial term of the lease is 25 years, followed by four five-year
renewal terms at the option of Upper Deck. The initial annual rent is $2,639,750
with rent increases every five years based on a formula indexed to increases in
the CPI.
Upper Deck has the option to purchase the leased premises on any date
mutually agreeable to LLC and Upper Deck during a period from December 26, 2007
to December 26, 2008 at a price equal to the greater of the fair market value or
the original purchase price of the Upper Deck facilities.
The limited recourse mortgage financing of $15,000,000 has a term of 15
years, an annual interest rate of 8.43% with monthly payments of interest and
principal of $120,077, based upon a 25-year amortization schedule. The loan may
not be prepaid during the first seven years, may be prepaid in years eight to
twelve subject to a yield maintenance charge and thereafter, the loan may be
prepaid with no premium.
Upper Deck is the leading manufacturer and marketer of sports trading cards in
the United States with about 25% of the sports trading card market in 1994.
PROPERTY LEASED TO RHEOMETRIC SCIENTIFIC, INC.
On February 23, 1996, Registrant, through a wholly-owned subsidiary,
purchased from Rheometric Scientific, Inc. ("Rheometric") a 104,000 square foot
office/industrial facility located on 8.5 acres in
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Piscataway, New Jersey and entered into a net lease with Rheometric. The cost to
Registrant of acquiring the Rheometric property was $6,300,000 of which
$3,300,000 was obtained through limited recourse mortgage financing. The loan
was prepaid in February 1997 at which time the lease was amended.
The initial term of the lease is 15 years, followed by four five-year
renewal terms at the option of Rheometric. Annual rent under the lease, as
adjusted by the February 1997 amendment, is $805,361. If Registrant refinances
the property, annual rent will be adjusted to an amount equal to the sum of (I)
the amount of the annual scheduled debt service payments payable on the First
Refinancing Loan, (ii) 14.7% multiplied by the difference between $6,000,000 and
the initial principal amount of the First Refinancing Loan and (iii) $35,000.
Rent will be adjusted each year by a formula indexed to increases in
the CPI, subject to a maximum increase of 3% per annum.
Registrant had been 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 Registrant's paying off or refinancing
the existing mortgage loan by no later than February 23, 1997. With the loan
prepayment, all warrants are now exercisable at any time prior to February 2011,
with the exercise date extended to the last day of any extended lease term.
Rheometric designs, manufactures, markets and services computer
controlled materials test systems used to make physical property measurements.
Rheometric's product offering, most of which is proprietary or patented,
consists of rheological and thermal analytical laboratory instruments used for
research and product development; on-line, rheological sensors for controlling
and assuring product quality in various manufacturing processes; and integrated
systems for direct on-line control of manufacturing processes.
PROPERTY LEASED TO TELOS CORPORATION
On March 11, 1996, Registrant, through a wholly-owned subsidiary,
purchased from Philips Electronics North America Corporation a 193,000 square
foot office and manufacturing facility located in Loudoun County, Virginia on
approximately 25 acres and entered into a net lease with Telos Corporation
("Telos"). The purchase price of the property was $12,147,000.
On April 11, 1996, Registrant obtained a $6,250,000 limited recourse
mortgage loan collateralized by the Telos property and an assignment of the
Telos lease. The loan provides for monthly principal payments of $12,970 with
interest at variable rate. A balloon payment of approximately $5,154,000 will be
due on April 10, 2003. The loan may be prepaid, in whole or in part, at any time
without a prepayment charge.
The initial term of the lease is 20 years, followed by two ten-year
renewal terms at the option of Telos. Annual rent is $1,447,000 with rent
increases every three years based a formula indexed to increases in the CPI,
subject to a maximum increase of 12.2%.
The lease provides Telos with an option to purchase the facilities
during the period between the beginning of the seventh month of the eighth year
and the end of the sixth month of the ninth year of the lease. If Telos
exercises its option to purchase the facilities, the purchase price will be the
greater of the fair market value of the property or the sum of the amount paid
by Registrant to acquire the property and any prepayment premium that Registrant
will be required to pay in prepaying any loan secured on the property.
Telos provides computer-related technology services for both hardware
and software systems. Telos is involved in computer software design,
development, support and hardware maintenance services.
PROPERTY LEASED TO LANXIDE CORPORATION
On March 28, 1996, Registrant, through a wholly-owned subsidiary,
purchased from Lanxide Corporation ("Lanxide") 162,220 square feet of
manufacturing and research and development facilities located
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on approximately 14 acres in Newark, Delaware for $8,796,000, of which
$4,400,000 was financed by loans, and entered into a net lease with Lanxide. The
Lanxide facility houses Lanxide's primary manufacturing and distribution center,
as well as the corporate headquarters for Lanxide and several of its joint
ventures. In connection with the transaction, Registrant was granted warrants to
purchase 15,500 shares of Lanxide common stock.
The initial term of the lease is 20 years, followed by four five-year
renewal terms at the option of Lanxide. Annual rent is approximately $1,030,000.
Quarterly payments of rent consist of three components: (i) a rent component
that is fixed at $113,112; (ii) a variable debt rent component currently
$131,263, equal to three monthly installments of principal and interest on the
$4,000,000 loan, terms of which are described below; and (iii) a promissory note
component that is fixed at $13,126, equal to principal and interest payable on
the $400,000 note payable by Registrant to Lanxide, terms of which are described
below. Commencing on April 1, 2001 and thereafter, basic rent shall be paid
quarterly in the fixed amount of $257,500.
The lease provides that on April 1, 2001, and every five years
thereafter, annual rent will be adjusted based a formula indexed to increases in
the CPI capped at 4% for any one year.
Registrant obtained a limited recourse mortgage loan of $4,000,000. The
loan has an initial term of five years (which may, at the option of the lender,
be extended for an additional term of five years), a floating interest rate of
2.0% over the lender's prime rate, and requires monthly payments of interest and
principal based upon a 15-year amortization schedule. The loan may be
accelerated by the lender if certain subleases with Lanxide joint ventures are
terminated prior to the expiration of the initial five-year term of each. In
addition, Registrant obtained a loan in the amount of $400,000 directly from
Lanxide, which has a term of 15 years, a fixed interest rate of 10.25% and
requires fixed quarterly payments of interest and principal equal to $13,126.
Registrant received warrants to purchase 15,500 shares of the common
stock of Lanxide at a price of $14 per share. The right to exercise these
warrants expires on March 31, 2001.
Lanxide is a leader in the emerging area of inorganic composites
(reinforced metals, reinforced ceramics, and ceramic-reinforced polymers).
Lanxide has invented, developed and/or patented new process technologies that
enable it to manufacture this new class of materials at relatively low cost.
PROPERTY LEASED TO CELADON TRUCKING SERVICES, INC.
On September 19, 1996, Registrant, through a wholly-owned subsidiary,
purchased an office and trucking facility of approximately 60,900 square feet of
space in three separate buildings located on approximately 30.5 acres of land in
Indianapolis, Indiana for $6,807,000 and entered into a net lease with Celadon
Trucking Services, Inc. ("Celadon"). The lease obligations of Celadon are
guaranteed by Celadon Group, Inc., the parent company of Celadon.
The initial term of the lease is 20 years, followed by two 10-year
renewal terms. Annual rent is $700,000 increased annually based on lower of (i)
a formula that would increase the annual rent by the average percentage increase
in the CPI over the three most recent months ending prior to the rent adjustment
date, or (ii) 4.25%.
Celadon has the option to purchase the property at the end of the
initial term of the lease and at the end of each of the 10-year renewal term. If
Celadon exercises its option, the purchase price will be the greater of the fair
market value of the property or the sum of the amount paid by Registrant to
acquire the property and any prepayment charge that would be incurred in
prepaying any loan on the property.
Celadon is engaged in the business of over-the-road trucking and
freight transportation.
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DESCRIPTION OF PROPERTY LEASED TO SPECTRIAN CORPORATION
On November 19, 1996, Registrant, through a wholly-owned subsidiary,
purchased from Spectrian Corporation ("Spectrian") office, research and
development and manufacturing facilities consisting of two buildings containing
approximately 141,787 square feet of space, located on two separate parcels of
land totaling approximately 9.3 acres in Sunnyvale, California for $17,643,979
and entered into a net lease with Spectrian.
The initial term of the lease is 15 years, followed by three five-year
renewal terms at the option of Spectrian. Annual rent is $1,925,000 with rent
increases every three years based on a formula indexed to increases in the CPI,
but such increase shall not exceed 4.5% for any one year during such three-year
period.
Spectrian is a leading independent supplier of highly linear amplifiers
to wireless communication infrastructure equipment manufacturers. Spectrian's
amplifiers increase the linearity and power of radio frequency signals, and are
critical components for enabling low distortion transmission of signals within
wireless communications networks. Spectrian's amplifiers improve spectrum
efficiency, allow lower capital costs per subscriber, enhance the quality and
reliability of service and help service providers achieve rapid and large scale
deployment of infrastructure equipment.
DESCRIPTION OF PROPERTY LEASED TO GARDEN RIDGE
On December 16, 1996, Registrant, through a wholly-owned subsidiary,
purchased from Butler Real Estate Inc. ("Butler") a retail sales facility
consisting of a building containing approximately 142,000 square feet of space
located on approximately 12.83 acres of land in Tulsa County, Oklahoma for
$8,062,295 and entered into a net lease with Garden Ridge Corporation ("Garden
Ridge") as lessee.
The initial term of the lease, which commenced on October 11, 1995, is
20 years, followed by four five-year renewal terms at the option of Garden
Ridge. Annual rent for the first five years is $854,164, with rent increases
every five years at the lower of a formula indexed to increases in the CPI or
10%.
On December 27, 1996, Registrant obtained a limited recourse mortgage
loan for the Garden Ridge property for $4,600,000. The loan has a term of ten
years, an annual interest rate of 8.72% with monthly payments of interest and
principal of $37,724 based upon a 30-year amortization schedule. The loan may
not be prepaid in whole or in part before December 31, 2000. Commencing January
1, 2001 and continuing through and including June 20, 2006, the loan may be
prepaid upon not less than 45 and not more than 90 days prior written notice.
Garden Ridge is an arts and crafts specialty retailer.
DESCRIPTION OF PROPERTY LEASED TO KNOGO NORTH AMERICA INC.
On December 24, 1996, Registrant, through a wholly-owned subsidiary,
purchased from Knogo North America Inc. ("Knogo") an office and warehouse
facility of approximately 49,381 square feet of space located a parcel of land
totaling approximately eight acres in Hauppauge, New York for $4,925,000 and
entered into a net lease with Knogo.
The initial term of the lease is 20 years, followed by a four-year
renewal term at the option of Knogo. Annual rent under the lease is $524,000
with rent increases every three years based on a formula indexed to increases in
the CPI.
Knogo is engaged in the design, manufacture, sale, installation and
servicing of a complete line of electronic article surveillance equipment.
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DESCRIPTION OF PROPERTY LEASED TO SCOTT COMPANIES, INC.
On January 23, 1997, Registrant, through a wholly-owned subsidiary,
purchased from Scott Co. of California ("Scott") manufacturing, office,
warehouse and parking facilities of Scott of 432,000 square feet on two separate
parcels of land totaling approximately 24 acres in San Leandro, California for
$17,910,000 and entered into a net lease with Scott. The lease obligations of
Scott are guaranteed by Scott Companies, Inc., the parent company of Scott.
The initial term of the lease is 20 years, followed by three five-year
renewal terms at the option of Scott. Annual rent under the lease is $1,94,850
payable quarterly in advance, in equal installments of $485,212 with rent
increases every three years based on a formula indexed to increases in the CPI.
Scott builds, installs and supports the entire mechanical plant of
industrial and commercial developments and retrofits. Scott works on a wide
variety of projects that include facilities for aerospace and semiconductors
refineries, power plants, hospitals, office buildings, shopping malls and
multi-residential complexes. Scott is capable of providing a total mechanical
construction project and, licensed as a general contractor, can participate as a
turn key prime contractor with the ability to engage subcontractors or can act
strictly as a subcontractor.
DESCRIPTION OF PROPERTY LEASED TO QMS, INC.
On February 19, 1997, Registrant, through a wholly-owned subsidiary,
purchased from QMS, Inc. ("QMS") its headquarters, research and manufacturing
facilities including approximately 287,544 square feet of space in three
separate buildings located on two separate parcels of land in Mobile, Alabama,
including approximately 77 acres in the aggregate for $13,874,346 and entered
into a net lease with QMS.
In connection with the purchase, Registrant was granted warrants for
100,000 share of common stock of QMS at an exercise price of $6.50 per share
which is exercisable at any time prior to December 31, 2001.
The initial term of the lease is 15 years followed by six five-year
renewal terms. Annual rent is $1,689,375 with rent increases every three-years
based on a formula indexed to increases in the CPI.
Upon execution of the lease, QMS made a security deposit of $500,000.
The lease provides that the security deposit shall be held in an interest
bearing account and that, provided that an event of default has not occurred
under the lease, all interest thereon shall be disbursed to QMS on the first
business day of each lease year, commencing with the second year of the lease
term.
Concurrently with the acquisition of the QMS properties, a limited
recourse mortgage loan of $7,200,000 was obtained. The loan has a term of five
years, an annual rate of interest at Registrant's option of either (i) 1.25% in
excess of the lender's prime rate or (ii) 2.75% per annum in excess of the
London Interbank Officer Rate for one, two, three or six months and will require
monthly payments of interest and principal of $24,303.
QMS is a recognized leader in intelligent printing and document
handling solutions. QMS's products and research efforts revolve around high-end
networkable laser printer and document handling and imaging systems. QMS
designs, writes the software for and manufactures the intelligent controllers
which enhance the performance of computer printing systems. QMS also has a
sizable base of installed machines from which it derives a revenue stream
associated with the sale of consumables and services.
DESCRIPTION OF PROPERTY LEASED TO CHILDTIME CHILDCARE, INC.
On January 29, 1997, Registrant, through a wholly-owned subsidiary,
purchased four parcels of land on which there are existing or are to be
constructed childcare facilities and entered into a net lease with Childtime
Childcare, Inc. ("Childtime") Concurrently with the acquisition and net lease
agreement, Registrant and Childtime entered into a construction agency agreement
and an agreement to purchase and lease real estate.
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The cost of constructing the four Childtime facilities is estimated to
be $3,929,551 Under the purchase agreement , Registrant has agreed to purchase
up to 6 additional sites at a cost not to exceed $6,047,595 plus structuring and
acquisition fees payable to an affiliate of the Registrant. Upon completion but
no later than October 1998, a lease term of 20 years will commence and will
provide two five-year renewal terms at the option of Childtime. After completion
of construction of all properties, annual rent will be $1,120,000 with rent
increases every three years based on a formula indexed to increases in the CPI
with the increase in any one year capped at 3.5% If Registrant obtains mortgage
financing on the properties by the later of October 1, 1998 or 60 days following
completion of construction, annual rent be increased by the positive difference,
if any, between the sum of the hypothetical monthly installment of principal and
interest necessary to amortize $6,000,000 over 25 years at the interest rate
applicable to such loan and $52,005.
Childtime operates full-service educational childcare centers
throughout the United States, and is the fifth largest childcare center operator
in the country.
Item 3. Legal Proceedings.
As of the date hereof, Registrant is not a party to any material
pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the year ended
December 31, 1996 to a vote of security holders, through the solicitation of
proxies or otherwise.
- 16 -
<PAGE> 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information with respect to Registrant's common equity is hereby
incorporated by reference to page 26 of Registrant's Annual Report contained in
Appendix A.
Item 6. Selected Financial Data.
Selected Financial Data are hereby incorporated by reference to page 1
of Registrant's Annual Report contained in Appendix A.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's Discussion and Analysis are hereby incorporated by
reference to pages 2 to 5 of Registrant's Annual Report contained in Appendix A.
Item 8. Consolidated Financial Statements and Supplementary Data.
The following consolidated financial statements and supplementary data
of Registrant are hereby incorporated by reference to pages 6 to 23 of
Registrant's Annual Report contained in Appendix A:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1994, 1995 and 1996
(iii) Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996.
(iv) Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996.
(vi) Notes to Consolidated Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
- 17 -
<PAGE> 19
PART III
Item 10. Directors and Executive Officers of the Registrant.
The directors and senior officers of Registrant and members of the
Investment Committee of the Board of Directors of the Advisor are as follows:
<TABLE>
<CAPTION>
Has Served as a
Director and/or
Name Age Positions Held Officer Since
- --------------------------- --- ---------------------------------- --------
<S> <C> <C> <C>
William P. Carey 66 Chairman of the Board 7/93
Director
Francis J. Carey 71 President 7/93
H. Cabot Lodge III 41 Vice Chairman of the Board 7/93
Director
William Ruder (1) 75 Director 7/93
George E. Stoddard 80 Senior Executive Vice President and 7/93
Chairman of Investment Committee
Charles C. Townsend, Jr.(1) 69 Director 10/95
Warren G. Wintrub (1) 62 Director 7/96
Barclay G. Jones III 36 Executive Vice President 7/93
Claude Fernandez 44 Executive Vice President 7/93
Chief Administrative Officer
H. Augustus Carey 39 Senior Vice President 7/93
Anthony S. Mohl 34 Senior Vice President 7/93
John J. Park 32 Senior Vice President 7/93
Treasurer
Michael D. Roberts 45 First Vice President 7/93
Controller
</TABLE>
- ----------
(1) Independent Director of Registrant.
William Polk Carey and Francis J. Carey are brothers. H. Augustus Carey
is the nephew of William Polk Carey and the son of Francis J. Carey.
A description of the business experience of each director of Registrant
is set forth below:
William Polk Carey, Chairman and Chief Executive Officer, has been
active in lease financing since 1959 and a specialist in net leasing of
corporate real estate property since 1964. Before founding W.P. Carey & Co.,
Inc. ("W.P. Carey") in 1973, he served as Chairman of the Executive Committee of
Hubbard, Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate
and Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of
Real Estate and Private Placements, Director of Corporate Finance and Vice
Chairman of the Investment Banking Board of duPont Glore Forgan Inc. A graduate
of the
- 18 -
<PAGE> 20
University of Pennsylvania's Wharton School of Finance and Commerce, Mr. Carey
is a Governor of the National Association of Real Estate Investment Trusts
(NAREIT). He also serves on the boards of The Johns Hopkins University, The
James A. Baker III Institute for Public Policy at Rice University, Templeton
College of Oxford University and other educational and philanthropic
institutions. He founded the Visiting Committee to the Economics Department of
the University of Pennsylvania and co-founded with Dr. Lawrence R. Klein the
Economics Research Institute at that University. Mr. Carey is also a Director of
CPA(R):10 and CIP(TM).
Francis J. Carey was elected President and a Managing Director of W.P.
Carey in April 1987, having served as a Director since its founding in 1973.
Prior to joining the firm full-time, he was a senior partner in Philadelphia,
head of the Real Estate Department nationally and a member of the executive
committee of the Pittsburgh based firm of Reed Smith Shaw & McClay, counsel for
Registrant, the General Partners, the CPA(R) Partnerships, W.P. Carey and some
of its affiliates. He served as a member of the Executive Committee and Board of
Managers of the Western Savings Bank of Philadelphia from 1972 until its
takeover by another bank in 1982 and is former chairman of the Real Property,
Probate and Trust Section of the Pennsylvania Bar Association. Mr. Carey served
as a member of the Board of Overseers of the School of Arts and Sciences of the
University of Pennsylvania from 1983 through 1990. He has also served as a
member of the Board of Trustees of the Investment Program Association since 1990
and on the Business Advisory Council of the Business Council for the United
Nations since 1994. He holds A.B. and J.D. degrees from the University of
Pennsylvania. Mr. Carey is also a Director of CPA(R):10 and CIP(TM).
H. Cabot Lodge III, Vice Chairman of the Board and Director, is the
Chairman of Superconducting Core Technologies, a position he has held since
March, 1995. Mr. Lodge joined W.P. Carey as Assistant to the Chairman in August
1983 and served as Executive Vice President and Managing Director through
September 1995. Mr. Lodge received his B.A. degree from Harvard University in
1978 and his M.B.A. from Harvard Business School in 1983. Prior to attending
business school he served as a research consultant and regional director of
Harbridge House Inc. from June 1978 to July 1981. Mr. Lodge is also a Director
of CIP(TM).
William Ruder, Independent Director of CPA(R):10 and CIP(TM), is
Chairman of the Board of William Ruder Incorporated, a consulting firm founded
in 1981. From 1948 to 1981, Mr. Ruder was Chairman of Ruder & Finn, an
international public relations company which he co-founded. He is a former
Assistant Secretary of Commerce of the United States and is on the Board of
Directors of the United Nations Association of the United States of America,
Junior Achievement and the Council on Economic Priorities. A member of the Board
of Overseers of the Wharton School at the University of Pennsylvania for a
number years, he has also served as a consultant to the Communications Advisory
Board to the White House Press Secretary, the Committee for Economic Development
and the Office of Overseas Schools for the U.S. State Department. Mr. Ruder is a
lecturer at Harvard Graduate School of Business and is associated with several
other business, civic and cultural organizations.
George E. Stoddard, Chief Investment Officer, was until 1979 head of
the bond department of The Equitable Life Assurance Society of the United
States, with responsibility for all activities related to Equitable's portfolio
of corporate investments acquired through direct negotiation. Mr. Stoddard was
associated with Equitable for over 30 years. He holds an A.B. degree from
Brigham Young University, an M.B.A. from Harvard Business School and an LL.B.
from Fordham University Law School.
Charles C. Townsend, Jr., Independent Director of CPA(R):10 and CIP(TM)
and Vice Chairman of CIP(TM)'s Board, was formerly Managing Director in charge
of the Corporate Finance Department at Morgan Stanley & Co. and Chairman of
Morgan Stanley Realty Corporation. Mr. Townsend holds a B.S.E.E. from Princeton
University and an MBA from Harvard University.
Warren G. Wintrub, Independent Director of CPA(R):10 and CIP(TM),
became a partner at Coopers and Lybrand in 1963, specializing in taxation. He
served on Coopers and Lybrand's Executive Committee from 1976 to 1988 and a
Chairman of the Retirement Committee from 1979 until his retirement from the
firm in 1992. Mr. Wintrub serves as a director of Chromcraft Revingtron, Inc.
and Getty Petroleum Corp. He received a B.S. degree from Ohio State University
and an LL.B. degree from Harvard Law School.
Barclay G. Jones III, Executive Vice President, Managing Director, and
head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant to
the President in July 1982 after his graduation from the Wharton School of the
University of Pennsylvania, where he majored in Finance and
- 19 -
<PAGE> 21
Economics. He was elected to the Board of Directors of W.P. Carey in April 1992.
Mr. Jones is also a Director of the Wharton Business School Club of New York.
Claude Fernandez, Chief Administrative Officer, Managing Director, and
Executive Vice President, joined W.P. Carey in 1983. Previously associated with
Coldwell Banker, Inc. for two years and with Arthur Andersen & Co., he is a
Certified Public Accountant. Mr. Fernandez received his B.S. degree in
accounting from New York University in 1975 and his M.B.A. in finance from
Columbia University Graduate School of Business in 1981.
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in
1988 and is President of W.P. Carey's broker-dealer subsidiary. Mr. Carey
previously worked for W.P. Carey from 1979 to 1981 as Assistant to the
President. Prior to rejoining W.P. Carey, Mr. Carey served as a loan officer of
the North American Department of Kleinwort Benson Limited in London, England. He
received an A.B. from Amherst College in 1979 and an M.Phil. in Management
Studies from Oxford University in 1984. Mr. Carey is a trustee of the Oxford
Management Centre Associates Council.
Anthony S. Mohl, Senior Vice President and Director of Portfolio
Management, joined W.P. Carey & Co., in 1987 as Assistant to the President after
receiving his M.B.A. from the Columbia University Graduate School of Business.
Mr. Mohl was employed as an analyst in the strategic planning group at Kurt
Salmon Associates after receiving an undergraduate degree from Wesleyan
University.
John J. Park, Senior Vice President, Treasurer and Director of
Research, joined W.P. Carey as an Investment Analyst in December 1987. Mr. Park
received his undergraduate degree from Massachusetts Institute of Technology and
his M.B.A. in Finance from New York University.
Michael D. Roberts joined W. P. Carey as a Second Vice President and
Assistant Controller in April 1989 and is currently First Vice President and
Controller. Prior to joining W.P. Carey, Mr. Roberts was employed by Coopers &
Lybrand for over 8 years, where he attained the title of audit manager. A
certified public accountant, Mr. Roberts received a B.A. in sociology from
Brandeis University and an M.B.A. from Northeastern University.
Item 11. Executive Compensation.
This information will be contained in Registrant's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information will be contained in Registrant's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
This information will be contained in Registrant's definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference.
- 20 -
<PAGE> 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements:
The following consolidated financial statements are filed as a part of
this Report:
Report of Independent Accountants.
Consolidated Balance Sheets, December 31, 1994, 1995 and 1996.
Consolidated Statements of Operations for the years ended December 31, 1994,
1995 and 1996.
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996.
Notes to Consolidated Financial Statements.
The consolidated financial statements are hereby incorporated by reference to
pages 6 to 23 of Registrant's Annual Report contained in Appendix A.
(a) 3. Financial Statement Schedules:
The following schedules are filed as a part of this Report:
Schedule III -Real Estate and Accumulated Depreciation as of December 31,
1996.
Schedule III of Registrant is contained on pages 29 to 31 of this Form
10-K.
Financial Statement Schedules other than those listed above are omitted
because the required information is given in the Consolidated Financial
Statements, including the Notes thereto, or because the conditions requiring
their filing do not exist.
- 21 -
<PAGE> 23
(a) 3. Exhibits:
The following exhibits are filed as part of this Report. Documents
other than those designated as being filed herewith are incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------ -------------------------------------------------------------- ----------------------
<S> <C> <C>
3.1 Articles of Incorporation of Registrant. Exhibit 3(A) to Regis-
tration Statement (Form
S-11) No. 33-68728
3.2 Bylaws of Registrant. Exhibit 3(B) to Regis-
tration Statement (Form
S-11) No. 33-68728
10.1 Advisory Agreement between Registrant and Exhibit 10(A) to
Carey Property Advisors. Registration Statement
(Form S-11) No. 33-68728
10.2 Lease Agreement dated October 8, 1993 between Filed as Exhibit 10.2
Elwa-BV (NY) QRS 11-24, Inc., as Landlord, and to Registrant's Form 10-K
Big V Supermarkets, Inc., as Tenant. dated March 30, 1995
10.3 Amendment to Lease Agreement dated July 15, 1994 by Filed as Exhibit 10.3
and between Elwa-BV (NY) QRS 11-24, Inc. and to Registrant's Form-K
Big V Supermarkets, Inc. dated March 30, 1995
10.4 Amended and Restated Mortgage and Security Agreement Filed as Exhibit 10.4
dated October 8, 1993 from Elwa-BV (NY) QRS 11-24, Inc., to Registrant's Form 10-K
as Mortgagor, to Key Bank of New York. dated March 30, 1995
10.5 $7,500,000 Amended, Restated and Consolidated Filed as Exhibit 10.5
Bonds dated October 8, 1993. to Registrant's Form 10-K
dated March 30, 1995
10.6 Modification and Assumption Agreement dated July 15, 1994 Filed as Exhibit 10.6
among Elwa-BV (NY) QRS 11-24, Inc., Elwa-BV (NY) to Registrant's Form 10-K
QRS 12-3, Inc. and Key Bank of New York, as Lender. dated March 30, 1995
10.7 Lease dated April 15, 1993 between BB Property Filed as Exhibit 10.7
Company, as Lessor, and Best Buy Co., Inc., to Registrant's Form 10-K
as Lessee. dated March 30, 1995
10.8 Note Purchase Agreement dated April 15, 1993 among Filed as Exhibit 10.8
BB Property Company, Best Buy Co., Inc., and Teachers to Registrant's Form 10-K
Insurance and Annuity Association of America. dated March 30, 1995
10.9 $32,800,000 Note dated April 20, 1993 from BB Property Filed as Exhibit 10.9
Company, as Maker, to Teachers Insurance and to Registrant's Form 10-K
Annuity Association of America, as Holder. dated March 30, 1995
10.10 Deed of Trust and Security Agreement dated April 15, 1993 Filed as Exhibit 10.10
from BB Property Company, as Grantor, to Frank E. to Registrant's Form 10-K
Stevenson, II, Esq., Thomas P. Solheim, Esq., Charles D. dated March 30, 1995
Calvin, Esq., Wallace A. Richardson. Esq., Michael D. Miselman,
Esq. and Keleher & McLeod, P.A., as Trustee, and Teachers
Insurance and Annuity Association of America, as Beneficiary.
</TABLE>
- 22 -
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------ -------------------------------------------------------------- ----------------------
<S> <C> <C>
10.11 Owner's Lien Agreement dated April 15, 1993 by Corporate Filed as Exhibit 10.11
Property Associates 10 Incorporated ("CPA(R):10") and to Registrant's Form 10-K
Carey Institutional Properties Incorporated ("CIP(TM)"), dated March 30, 1995
for the benefit of Teachers Insurance and Annuity
Association of America.
10.12 First Amendment to Owner's Lien Agreement dated Filed as Exhibit 10.12
May 27, 1994 by CPA(R):10, CIP(TM) and Registrant to Registrant's Form 10-K
for the benefit of Teachers Insurance and Annuity dated March 30, 1995
Association of America.
10.13 $3,353,745 Limited Obligation Promissory Note dated Filed as Exhibit 10.13
May 13, 1994 from BBC (NE) QRS 12-2, Inc., as Borrower, to Registrant's Form 10-K
to Registrant, as Lender. dated March 30, 1995
10.14 Lease Agreement dated December 21, 1993 by and between Filed as Exhibit 10.14
GENA Property Company, as Landlord, and Gensia, Inc., as to Registrant's Form 10-K
Tenant. dated March 30, 1995
10.15 Deed of Trust, Security Agreement and Financing Statement Filed as Exhibit 10.15
dated December 21, 1993 between GENA Property Company, to Registrant's Form 10-K
as Trustor, and The Northwestern Mutual Life Insurance Company, dated March 30, 1995
as Trustee.
10.16 $13,000,000 Promissory Note dated December 21, 1993 from Filed as Exhibit 10.16
GENA Property Company, as Obligor, to The Northwestern to Registrant's Form 10-K
Mutual Life Insurance Company, as Obligee. dated March 30, 1995
10.17 Lease Agreement dated February 1, 1995 by and between Filed as Exhibit 10.17 to
ESI (CA) QRS 12-6, Inc., as Landlord, and ETEC Systems, Registrant's Form 8-K
Inc., as Tenant. dated June 23, 1995
10.18 Deed of Trust, Assignment of Rents and Security Agreement Filed as Exhibit 10.18 to
dated February 1, 1995 by ESI (CA) QRS 12-6, Inc., as Registrant's Form 8-K
Trustor, in favor of First American Title Insurance Company, dated June 23, 1995
as Trustee, for the benefit of Creditanstalt-Bankverein,as
Beneficiary.
10.19 $6,350,000 Real Estate Note dated February 1, 1995 by Filed as Exhibit 10.19 to
ESI (CA) QRS 12-6, Inc., as Maker, to Creditanstalt- Registrant's Form 8-K
Bankverein, as Holder. dated June 23, 1995
10.20 Lease dated July 3, 1994 by and between Greenwalt Filed as Exhibit 10.20 to
Development, Inc., as Landlord, and Wal-Mart Stores, Registrant's Form 8-K
Inc., as Tenant. dated June 23, 1995
10.21 Assignment and Assumption of Lease dated February 10, Filed as Exhibit 10.21 to
1995 by and between Greenwalt Development, Inc., as Registrant's Form 8-K
Assignor, and WALS (IN) QRS 12-5, Inc., as Assignee. dated June 23, 1995
10.22 Estoppal Certificate dated February 9, 1995 from Wal-Mart Filed as Exhibit 10.22 to
Stores, Inc. to WALS (IN) QRS 12-5, Inc. Registrant's Form 8-K
dated June 23, 1995
10.23 Lease Agreement dated June 8, 1995 by and between Filed as Exhibit 10.23 to
SFC (TX) QRS 12-7, Inc., as Landlord, and Sports & Registrant's Form 8-K
Fitness Clubs of America, Inc., as Tenant. dated June 23, 1995
</TABLE>
- 23 -
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------ -------------------------------------------------------------- ----------------------
<S> <C> <C>
10.24 Loan Agreement dated June 8, 1995 by and between Filed as Exhibit 10.24 to
SFC (TX) QRS 12-7, Inc., as Borrower, and Bank One, Registrant's Form 8-K
Texas, N.A. dated June 23, 1995
10.25 $2,750,000 Note dated June 8, 1995 from Filed as Exhibit 10.25 to
SFC (TX) QRS 12-7, Inc. to Bank One, Texas, N.A. Registrant's Form 8-K
dated June 23, 1995
10.26 Deed of Trust and Security Agreement dated June 8, 1995 Filed as Exhibit 10.26 to
from SFC (TX) QRS 12-7, Inc., as Mortgagor, to Mr. Brian J. Registrant's Form 8-K
Tuerff, as Trustee, for Bank One, Texas, N.A., as Mortgagee. dated June 23, 1995
10.27 Lease Agreement dated June 20, 1995 by and between Filed as Exhibit 10.27 to
Bud Limited Liability Company, as Landlord, and NK Lawn Registrant's Form 8-K
& Garden Co., as Tenant. dated June 23, 1995
10.28 Construction Agency Agreement dated October 31, 1995 Filed as Exhibit 10.28 to
between Del Monte Corporation and DELMO (PA) QRS 11-36 Registrant's Form 8-K
and DELMO (PA) QRS 12-10. dated November 27, 1995
10.29 Lease Agreement dated October 31, 1995 by and between Filed as Exhibit 10.29 to
DELMO (PA) QRS 11-36 and DELMO (PA) QRS 12-10, Registrant's Form 8-K
collectively, as Landlord, and Del Monte Corporation, as Tenant. dated November 27, 1995
10.30 Lease Agreement dated November 13, 1995 by and between Filed as Exhibit 10.30 to
ABI (TX) QRS 12-11, Inc., as Landlord, and Pharmaco LSR Registrant's Form 8-K
International Inc., as Tenant. dated November 27, 1995
10.31 Lease Agreement dated December 26, 1995 by and between Filed as Exhibit 2.1 to
Cards Limited Liability Company, as Landlord, and The Registrant's Form 8-K
Upper Deck Company, as Tenant. dated February 2, 1996
10.32 $15,000,000 Promissory Note dated January 3, 1996 from Filed as Exhibit 2.2 to
Cards Limited Liability Company to Column Financial, Inc. Registrant's Form 8-K
dated February 2, 1996
10.33 Lease Agreement dated February 23, 1996 by and between Filed as Exhibit 2.1 to
RSI (NJ) QRS 12-13, Inc., as Landlord, and Rheometric Registrant's Form 8-K
Scientific, Inc., as Tenant. dated March 9, 1996
10.34 $3,300,000 Promissory Note dated February 23, 1996 from Filed as Exhibit 2.2 to
RSI (NJ) QRS 12-13, Inc. to NatWest Bank N.A. Registrant's Form 8-K
dated March 9, 1996
10.35 Stock Purchase Warrant for 132,617 Shares of Rheometric Filed as Exhibit 2.3 to
Scientific, Inc. Common Stock. Registrant's Form 8-K
dated March 9, 1996
10.36 Stock Purchase Warrant for 331,543 Shares of Rheometric Filed as Exhibit 2.4 to
Scientific, Inc. Common Stock. Registrant's Form 8-K
dated March 9, 1996
10.37 Lease Agreement dated March 11, 1996 by and between Filed as Exhibit 10.41 to
TEL (VA) QRS 12-15, Inc., as Landlord, and Telos Corporation, Registrant's Post-Effective
a Maryland corporation, Telos Corporation, a California Amendment No. 3
corporation, Telos Field Engineering, Inc., a Delaware dated March 6, 1997
corporation, and Telos International Corp., a Delaware
corporation, as Tenants.
</TABLE>
- 24 -
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------ -------------------------------------------------------------- ----------------------
<S> <C> <C>
10.38 Lease Agreement dated March 28, 1996 by and between Filed as Exhibit 10.42 to
LAX (DE) QRS 12-16, Inc., as Landlord, and Lanxide Registrant's Post-Effective
Corporation, as Tenants. Amendment No. 3
dated March 6, 1997
10.39 Stock Purchase Warrant for 15,500 Shares of Lanxide Filed as Exhibit 10.43 to
Corporation Common Stock. Registrant's Post-Effective
Amendment No. 3
dated March 6, 1997
10.40 Promissory Note dated March 28, 1996 given by Filed as Exhibit 10.44 to
LAX (DE) QRS 12-16, Inc. to Lanxide Corporation. Registrant's Post-Effective
Amendment No. 3
dated March 6, 1997
10.41 Lease Agreement dated July 23, 1996 by and between Filed as Exhibit 10.45 to
SFC (TX) QRS 12-18, Inc., as Landlord, and Sports & Registrant's Post-Effective
Fitness Clubs of America, Inc., as Tenant. Amendment No. 3
dated March 6, 1997
10.42 Stock Purchase Warrant for 5,089 Shares of Q Clubs, Filed as Exhibit 10.46 to
Inc. Common Stock. Registrant's Post-Effective
Amendment No. 3
dated March 6, 1997
10.43 Guaranty and Suretyship Agreement made by Celadon Filed as Exhibit 10.47 to
Group, Inc. to QRS 12-17, Inc. Registrant's Post-Effective
Amendment No. 3
dated March 6, 1997
10.44 Lease Agreement dated September 19, 1996 by and between Filed as Exhibit 10.48 to
CEL (IN) QRS 12-17, Inc., as Landlord, and Celadon Registrant's Post-Effective
Trucking Services, Inc., as Tenant. Amendment No. 3
dated March 6, 1997
10.45 Lease Agreement dated November 19, 1996 by and between Filed as Exhibit 10.49 to
SPEC (CA) QRS 12-20, Inc., as Landlord, and Spectrian Registrant's Post-Effective
Corporation, as Tenants. Amendment No. 3
dated March 6, 1997
10.46 Lease Agreement dated December 24, 1996 by and between Filed as Exhibit 10.50 to
NOG (NY) QRS 12-23, Inc., as Landlord, and Knogo North Registrant's Post-Effective
America, Inc., as Tenants. Amendment No. 3
dated March 6, 1997
10.47 Amendment to Lease dated December 14, 1996 by and between Filed as Exhibit 10.51 to
WEEDS (OK) QRS 12-22, Inc., as Landlord, and Garden Registrant's Post-Effective
Ridge, L.P., as Tenant. Amendment No. 3
dated March 6, 1997
10.48 Mortgage Assignment of Rents and Security Agreement dated Filed as Exhibit 10.52 to
December 27, 1996 between WEEDS (OK) QRS 12-22, Inc., Registrant's Post-Effective
Mortgagor, and GMAC Commercial Mortgage Corporation. Amendment No. 3
dated March 6, 1997
</TABLE>
- 25 -
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------ -------------------------------------------------------------- ----------------------
<S> <C> <C>
10.46 Lease Agreement dated January 23, 1997 by and between Filed as Exhibit 10.53 to
BUILD (CA) QRS 12-24, Inc., as Landlord, and Scott Registrant's Post-Effective
Corporation, as Tenants. Amendment No. 3
dated March 6, 1997
22.1 Subsidiaries of Registrant as of March 20, 1996. Filed as Exhibit 22.1
to Registrant's Form 10-K
dated March 28, 1996
22.2 Subsidiaries of Registrant as of March 20, 1997. Filed herewith
24.1 Consent of Coopers & Lybrand dated March 20, 1996. Filed as Exhibit 24.1
to Registrant's Form 10-K
dated March 28, 1996
24.2 Consent of Coopers & Lybrand dated March 26, 1997. Filed herewith
28.1 Limited Guaranty of Payment dated October 8, 1993 from Filed as Exhibit 28.1
CIP(TM), as Guarantor, to Key Bank of New York, as to Registrant's Form 10-K
Lender. dated March 30, 1995
28.2 Amendment to Limited Guaranty of Payment dated July 15, 1994 Filed as Exhibit 28.2
among CIP(TM) and Registrant, Guarantors, and Key Bank to Registrant's Form 10-K
of New York, as Lender. dated March 30, 1995
28.3 Guaranty and Suretyship Agreement dated June 8, 1995 by Filed as Exhibit 28.3 to
Sports & Fitness Clubs, Inc., as Guarantor, to SFC (TX) Registrant's Form 8-K
QRS 12-7, Inc., as Landlord. dated June 23, 1995
28.4 Environmental Risk Agreement dated June 8, 1995 by Filed as Exhibit 28.4 to
SFC (TX) QRS 12-7, Inc., as Indemnitor, to Bank One, Registrant's Form 8-K
Texas, N.A., as Lender. dated June 23, 1995
28.5 Guaranty and Suretyship Agreement dated June 20, 1995 by Filed as Exhibit 28.5 to
The Garden Companies, Inc., as Guarantor, to Bud Limited Registrant's Form 8-K
Liability Company. dated June 23, 1995
28.6 Guaranty and Suretyship Agreement dated October 31, 1995 Filed as Exhibit 28.6 to
by Del Monte Foods Corporation, as Guarantor, to DELMO Registrant's Form 8-K
(PA) QRS 11-36 and DELMO (PA) QRS 12-10, collectively, dated November 27, 1995
as Landlord.
28.7 Guaranty and Suretyship Agreement dated November 13, 1995 Filed as Exhibit 28.7 to
by Applied Bioscience International, Inc., as Guarantor, to Registrant's Form 8-K
ABI (TX) QRS 12-11, Inc., as Landlord. dated November 27, 1995
</TABLE>
- ----------
(b) Reports on Form 8-K
Form 8-K dated December 24, 1996 (which included a financial statement
as required by Rule 3-14 of Regulation S-X) concerned Item 2., Acquisition or
Disposition of Assets.
- 26 -
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
a Maryland corporation
3/26/97 /s/ Claude Fernandez
- ------- --------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
Charles C. Townsend, Jr.
Director
BY: /s/ George E. Stoddard
----------------------
Ralph G. Coburn George E. Stoddard
Director Attorney in fact
March 26, 1997
William Ruder
Director
3/26/97 /s/ Claude Fernandez
- ------- --------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
3/26/97 /s/ Michael D. Roberts
- ------- ----------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 27 -
<PAGE> 29
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Corporate Property Associates 12 Incorporated
and Subsidiaries:
Our report on the consolidated financial statements of Corporate
Property Associates 12 Incorporated and Subsidiaries has been incorporated by
reference in this Form 10-K from page 5 of the 1996 Annual Report to
Shareholders of Corporate Property Associates 12 Incorporated and Subsidiaries.
In connection with our audits of such financial statements, we have also audited
the related financial statement schedule on pages 29 to 31 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/Coopers & Lybrand L.L.P.
New York, New York
March 24, 1997
- 28 -
<PAGE> 30
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
SCHEDULE III - REAL ESTATE
and ACCUMULATED DEPRECIATION
as of December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to Cost
Company Capitalized
--------------------------- Subsequent to
Description Encumbrances Land Buildings Acquisition(a)
- ------------------------------------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Direct Financing Method:
Supermarkets
leased to
Big V Holding Corp. $3,324,025 $ 1,157,294 $ 5,254,309 $ 58,940
Manufacturing
facility leased to
The Garden
Companies, Inc. 3,402,705 1,544,265 5,430,735
Office/manufacturing
facility leased to
Rheometric
Scientific, Inc. 2,880,000 1,510,791 4,789,209 4,500
Office facility leased
to Telos Corporation 6,146,237 1,549,022 10,597,978 5,500
Research and develop-
ment facility leased to
Lanxide Corporation 4,326,017 1,390,122 7,281,878 7,421
----------- ----------- ----------- ----------
$20,078,984 $ 7,151,494 $33,354,109 $ 76,361
=========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried
at Close of Period (e)
Increase in -----------------------------
Description Net investment(c) Total Date Acquired
- ------------------------------------------------- ----------------- ----------------------------- -------------
<S> <C> <C> <C>
Direct Financing Method:
Supermarkets
leased to
Big V Holding Corp. $ 264,522 $ 6,735,065 July 13, 1994
Manufacturing
facility leased to
The Garden
Companies, Inc. 6,975,000 June 20, 1995
Office/manufacturing
facility leased to
Rheometric
Scientific, Inc. 6,304,500 February 23, 1996
Office facility leased
to Telos Corporation 12,152,500 March 11, 1996
Research and develop-
ment facility leased to
Lanxide Corporation 8,679,421 March 28, 1996
----------- --------------
$ 264,522 $ 40,846,486
=========== ==============
</TABLE>
See accompanying notes to Schedule.
- 29 -
<PAGE> 31
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
SCHEDULE III - REAL ESTATE
and ACCUMULATED DEPRECIATION
as of December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to Cost
Company Capitalized Decrease in
--------------------------- Subsequent to Net
Description Encumbrances Land Buildings Acquisition (a) Investment(b)
----------- -------------- ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Method:
Distribution facility leased
to Wal-Mart Stores, Inc. $ 2,425,659 $ 452,871 $ 3,325,910 $ 12,921
Office/Manufacturing
facility leased to
Etec Systems, Inc. 3,239,021 1,272,418 10,588,221 241 $ (2,633,473)
Health club facilities
leased to Q Clubs, Inc. 2,635,964 3,152,874 8,524,126
Warehouses and special
purpose facility leased
to Del Monte Corporation 5,933,844 305,733 9,922,646
Warehouse/office/
research facility leased
to Applied Bioscience
International, Inc 7,372,687 1,550,928 11,017,367 27,856
Distribution/warehouse
facility leased to
Celadon, Inc. 1,486,600 5,320,400 40,000
Office/research
facility leased to
Spectrian Corporation 5,570,775 12,073,204
Retail store leased
to Garden Ridge
Corporation 4,600,000 1,857,607 6,204,923
Office/distribution
facility leased to Knogo
North America, Inc. 1,603,488 3,321,512
----------- ------------ ------------ ----------- ------------
$26,207,175 $ 17,253,294 $ 60,375,663 $10,003,664 $(2,633,473)
=========== ============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation
Gross Amount at which Carried in Latest
at Close of Period (d)(e) Statement of
-------------------------------------------- Accumulated Operations
Description Land Buildings Total Depreciation(e) Date Acquired is Computed
- ------------------------------ ------------- ------------ ---------- --------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Method:
Distribution facility leased
to Wal-Mart Stores, Inc. $ 454,420 $ 3,337,282 $ 3,791,702 $ 156,435 February 10, 1995 40 yrs.
Office/Manufacturing
facility leased to
Etec Systems, Inc. 1,272,444 7,954,963 9,227,407 471,644 February 16, 1995 40 yrs.
Health club facilities
June 8, 1995 and
leased to Q Clubs, Inc. 3,152,874 8,524,126 11,677,000 200,174 July 25, 1996 40 yrs.
Warehouses and special
purpose facility leased
to Del Monte Corporation 376,360 9,852,019 10,228,379 112,738 November 9, 1995 40 yrs.
Warehouse/office/
research facility leased
to Applied Bioscience
International, Inc 1,550,985 11,045,166 12,596,151 310,075 November 13,1995 40 yrs.
Distribution/warehouse
facility leased to
Celadon, Inc. 1,486,600 5,360,400 6,847,000 38,795 September 19, 1996 40 yrs.
Office/research
facility leased to
Spectrian Corporation 5,570,775 12,073,204 17,643,979 37,729 November 19, 1996 40 yrs.
Retail store leased
to Garden Ridge
Corporation 1,857,607 6,204,923 8,062,530 6,463 December 16, 1996 40 yrs.
Office/distribution
facility leased to Knogo
North America, Inc. 1,603,488 3,321,512 4,925,000 3,460 December 24, 1996 40 yrs.
----------- ------------ ----------- -----------
$17,325,553 $67,673,595 $84,999,148 $ 1,337,513
=========== ============ =========== ===========
</TABLE>
See accompanying notes to Schedule.
- 30 -
<PAGE> 32
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to SCHEDULE III - REAL ESTATE
and ACCUMULATED DEPRECIATION
(a) Consists of the costs of improvements subsequent to purchase and
acquisition costs including legal fees, appraisal fees, title costs and
other related professional fees.
(b) Represents partial refund of purchase price.
(c) The increase (decrease) in net investment is due to the amortization of
unearned income producing a constant periodic rate of return on the net
investment which is more (less) than lease payments received.
(d) At December 31, 1996, the aggregate cost of real estate owned by
Registrant and its subsidiaries for Federal income tax purposes is
$125,581,113.
(e)
Reconciliation of Real Estate Accounted
for Under the Operating Method
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Balance at beginning
of year - $35,449,139
Purchase price adjustment (2,633,473)
Additions $35,449,139 52,183,482
----------- -----------
Balance at close of year $35,449,139 $84,999,148
=========== ===========
</TABLE>
Reconciliation of Accumulated Depreciation
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
--------- ----------
<S> <C> <C>
Balance at beginning
of year $ 390,307
Depreciation expense $ 390,307 947,206
--------- ----------
Balance at close of year $ 390,307 $1,337,513
========= ==========
</TABLE>
- 31 -
<PAGE> 33
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
1996 ANNUAL REPORT
<PAGE> 34
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except share amounts)
<TABLE>
<CAPTION>
1993 (1) 1994 1995 1996
-------- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 3 $ 465 $ 3,994 $ 11,434
Net (loss) income (3) (28) 2,115 6,210
Net (loss) income per share (2) (.13) (.03) .53 .60
Weighted average number
of Shares outstanding 843,911 4,016,686 10,365,828
Dividends paid (3) 289 2,351 6,780
Dividends paid per share .30 .76 .80
Payments of mortgage
principal (4) 6 262 1,192
BALANCE SHEET DATA:
Total consolidated assets 30,444 81,173 193,294
Long-term obligations (5) 3,267 19,016 47,734
</TABLE>
(1) For the period from inception (July 30, 1993) to December 31, 1993.
(2) Based on weighted average number of Shares outstanding.
(3) The Company paid two dividends in 1994 applicable to the quarters ended
June 30, 1994 and September 30, 1994.
(4) Represents scheduled mortgage principal amortization paid.
(5) Represents mortgage obligations and deferred acquisition fees due after
more than one year.
- 1 -
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Company was formed in 1993 for the purpose of engaging in
the business of investing in and owning commercial and industrial real estate.
In February 1994, the Company commenced a public offering of common stock at $10
per share on a "best efforts" basis. Between May 1994 and January 1996, when the
offering concluded, the Company had sold 8,135,992 shares ($81,359,020). 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
December 31, 1996, the Company had issued 7,534,534 Shares ($75,345,340) in the
second offering. An additional 2,890,081 shares ($28,900,810) have been issued
since December 31, 1996. 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 recently completed offering in additional
real estate investments so as to diversify the Company's portfolio of real
estate investments. Pursuant to a recission offer to shareholders who subscribed
shares between March 31, 1995 and May 9, 1995 for 526,921 shares ($5,269,210),
3,750 ($37,500) shares were redeemed.
The Company's primary objectives are to provide rising cash
flow and property values, protecting its investors from the effects of inflation
through rent escalation provisions, property appreciation, tenant credit
improvement and regular paydown of limited recourse mortgage debt. The Company
intends to meet this objective by entering into long-term net leases with
corporate lessees. The Company's leases, which usually have initial lease terms
of 15 to 25 years, typically include rent increase provisions which are either
fixed, based upon increases in the Consumer Price Index ("CPI") or, commonly
with leases for retail stores, based upon a percentage of sales. Under a net
lease, the tenants are generally required to pay all operating expenses related
to the leased property, thereby limiting the Company's exposure to the effects
of increases in real estate taxes, property maintenance and insurance costs. The
Company also negotiates lease covenants which serve to protect its lessor's
interest in the event of a lessee's reorganization or restructuring. While there
is no assurance that the Company will realize its objective, Management believes
that its ability to structure leases with rent escalations and protective
covenants is a key to meeting the Company's objective. In addition, the Company
has successfully negotiated grants of common stock warrants from selected
tenants with the objective of realizing the benefits of appreciation from those
grants.
As of December 31, 1996, the Company had invested
approximately $164,212,000 of which $90,034,000 was from the proceeds of the
offerings and $74,178,000 from limited recourse mortgage financing. Since
December 31, 1996, the Company has invested an additional $25,454,000 of equity
along with limited recourse mortgage financing of $12,200,000 to purchase three
additional real estate investments. In August 1996, the Company entered into a
modification agreement with Etec Systems, Inc. ("Etec") whereby, in
consideration for the Company's agreeing to cancel its rights for 90,546
warrants, Etec refunded $2,634,000 of the original purchase price of the Etec
property to the Company. The refund was applied as a prepayment to the mortgage
loan on the property. The Etec lease was modified and the Company made a
$9,000,000 commitment to fund an addition to the Etec property. The first
installment of this commitment was funded in February 1997 with an additional
$5,000,000 of mortgage financing received from the Etec mortgage lender. The
Company is currently committed to fund up to $2,422,000 to construct four
childcare centers leased to Childtime Childcare, Inc. ("Childtime") on
properties purchased since December 31, 1996. The Company has entered into an
agreement with Childtime to fund up to an additional $6,070,000 to construct an
additional six childcare centers. As of March 20, 1997, the Company had
$40,800,000 of cash available for investment. The Company has, since its
inception, purchased properties as follows:
- 2 -
<PAGE> 36
Date Acquired Lease Obligor
------------- -------------
May 13, 1994 Best Buy Co., Inc.
July 15, 1994 Big V Holding Corporation
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 23, 1997 Scott Companies, Inc.
January 29, 1997 Childtime Childcare, Inc.
February 18, 1997 QMS, Inc.
All of the Company's debt is limited recourse mortgage
financing. This means that the Company's mortgage lenders must look solely to
the specific properties encumbered by the mortgage and to the tenant obligations
on those same properties which are also generally assigned to the lender as
collateral. In the case of mortgage financing that does not fully amortize over
its term, the Company would be responsible for the balloon payment only to the
extent of its interest in the encumbered property because the holder of each
such obligation has recourse only to the collateral. In the event that a balloon
payment comes due, the Company would seek to refinance the loans, restructure
the debt with the existing lenders, evaluate its ability to satisfy the
obligations from its existing resources or sell the property and use the sale
proceeds to satisfy the mortgage debt. The Company believes that the ability to
refinance balloon payment obligations is enhanced if the long-term lease for the
property remains in effect. The Company also evaluates all of its outstanding
loans for refinancing opportunities which may occur as the result of changing
market rates or improvements in the credit rating of tenants whereby it can
lower the interest rate on the debt. No balloon payments on the Company's
mortgages are scheduled until 2000. In February 1997, the Company prepaid an
existing loan with a principal balance of $2,796,000 which loan was
collateralized by the property leased to Rheometric Scientific, Inc.
("Rheometric"). As a result of the prepayment, the Rheometric lease was modified
to reduce annual rent from $1,180,000 to $805,000 and the restrictions upon
certain warrants for Rheometric common stock held by the Company were released.
Solely as a result of the prepayment of the Rheometric loan and related lease
modification, annual cash flow will increase by $416,000. The Company intends to
seek new limited recourse mortgage financing on the Rheometric property.
During 1996, the Company's cash flow from operations of
$7,747,000 was sufficient to fund payments of dividends of $6,780,000 and
$967,000 of the $1,192,000 scheduled debt service principal payments on mortgage
debt. The Company's financing and investing activities in 1996, other than
paying dividends and paying scheduled mortgage principal installments primarily
consisted of the raising of equity and debt and using such funds to purchase
investments in real estate. The Company will use the cash generated by these
investments to meet its objective of using the cash flow provided from
operations to pay quarterly dividends at an increasing rate and increase the
Company's equity in real estate by making regular mortgage
- 3 -
<PAGE> 37
principal payments. While there is no assurance that this objective will be met,
Management believes that with appropriate diversification of real estate
investments, its strategy should enable the Company to meet its objective. The
Company does not currently have a line of credit and it expects to raise new
equity capital and mortgage financing to maintain its anticipated rate of
investment in new properties.
The Company's results of operations for the year ended
December 31, 1996 are not directly comparable to the results for the year ended
December 31, 1995, as the investing of property continued throughout 1996 and
1995. The Company's directly owned real estate assets (before accumulated
depreciation) increased from $48,995,000 at December 31, 1995 to $125,846,000 at
December 31, 1996. In addition, the Company's pro rata share of indirectly owned
real estate increased from $28,280,000 at December 31, 1995 to $41,195,000 at
December 31, 1996. Increases in lease revenues, equity income, interest and
general and administrative expenses, property expenses, depreciation and
amortization were primarily due to the increases in real estate assets and
related mortgage borrowings. The increase in other interest income was due to
the increase in cash balances. Interest income will decrease as cash available
for investment is utilized for additional real estate purchases. The cash
balances maintained after all funds are invested will be substantially less than
the current cash balances. The Company's earnings increased by $4,095,000 with
net income up 13% on a per share basis. The Company expects the trend of
increased lease revenues to continue over the next year. A rent increase on the
lease with Celadon Group, Inc. is scheduled to occur in 1997. In addition, rent
increases are scheduled on two leases in 1998 and three leases in 1999.
A comparison of the results of operations for the year ended
December 31, 1995 with the results of operations for the year ended December 31,
1994 is not meaningful as the Company made only three real estate investments in
1994 with the first such investment not being made until May 1994. During 1995,
the Company purchased interests in an additional six real estate investments.
Increases in lease revenues, interest expense, depreciation and amortization and
property expense are attributable to the increase in real estate assets and
related mortgage financing rather than significant changes relating to any of
the real estate investments purchased in 1994. The increase in other interest
income was solely attributable to higher cash balances.
Future rent increases and cash flow may be affected by changes
in the rate of increase in the CPI and possible changes in the method of
calculation of the CPI. Although there have been preliminary indications that
legislation may be introduced which would change the calculation of the CPI, the
Company cannot predict the outcome of any proposed legislation nor how it may
affect the Company's future cash flow.
In connection with the purchase of its properties, the Company
requires sellers of such properties to perform environmental reviews. Management
believes, based on the results of such reviews, that the Company's properties
were in substantial compliance with Federal and state environmental statutes at
the time the properties were acquired. Tenants are generally subject to
environmental statutes and regulations regarding the discharge of hazardous
materials and any related remediation obligations. In addition, the Company's
leases generally require tenants to indemnify the Company from all liabilities
and losses related to the leased properties with provisions of such
indemnification specifically addressing environmental matters. The leases
generally include provisions which allow for periodic environmental assessments,
paid for by the tenant, and allow the Company to extend leases until such time
as a tenant has satisfied its environmental obligations. The Company also
attempts to negotiate lease provisions to require financial assurances from
tenants such as performance bonds or letters of credit if the costs of
remediating environmental conditions, in the estimation of the Company, are in
excess of specified amounts. Accordingly, Management believes that the ultimate
resolution of any environmental matters would not have a material adverse effect
on the Company's financial condition, liquidity or results of operations.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"), which established standards for computing and presenting earnings per
share. SFAS No. 128 will be effective for financial statements issued for
periods ending after December 15, 1997. The impact of the adoption of this
statement is not expected to be material to the Company's Consolidated Financial
Statements.
- 4 -
<PAGE> 38
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Corporate Property Associates 12 Incorporated
and Subsidiaries:
We have audited the accompanying consolidated balance sheets
of Corporate Property Associates 12 Incorporated and Subsidiaries as of December
31, 1994, 1995 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1994, 1995
and 1996. These financial statements are the responsibility of Carey Property
Advisors, a Pennsylvania limited partnership (the "Advisor"). Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Advisor, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Corporate Property Associates 12 Incorporated and Subsidiaries as of December
31, 1994, 1995 and 1996, and the consolidated results of their operations and
their cash flows for the years ended December 31, 1994, 1995 and 1996, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 24, 1997
- 5 -
<PAGE> 39
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 5,295,898 $ 17,325,553
Buildings 30,153,241 67,673,595
----------- ------------
35,449,139 84,999,148
Accumulated depreciation 390,307 1,337,513
----------- ------------
35,058,832 83,661,635
Net investment in direct financing leases $ 6,472,639 13,545,609 40,846,486
----------- ----------- ------------
Real estate leased to others 6,472,639 48,604,441 124,508,121
Equity investments 11,671,073 10,382,492 16,091,935
Cash and cash equivalents 10,661,712 20,239,764 50,893,314
Deferred offering costs 1,401,664 1,066,262 654,402
Accrued rents and interest receivable 141,716 271,146
Other assets 236,520 738,102 874,926
----------- ----------- ------------
Total assets $30,443,608 $81,172,777 $193,293,844
=========== =========== ============
LIABILITIES:
Limited recourse mortgage notes payable $ 3,328,417 $18,127,538 $ 46,286,159
Accounts payable to affiliates 2,163,364 2,499,284 2,258,581
Accounts payable and accrued expenses 76,084 104,141 256,136
Deferred acquisition fees payable to an affiliate 712,467 1,577,639 3,414,097
Dividends payable 345,751 1,189,830 2,094,191
Accrued interest payable 28,661 136,086 418,035
Prepaid rental income and security deposits 884,581 1,379,288
----------- ----------- ------------
Total liabilities 6,654,744 24,519,099 56,106,487
----------- ----------- ------------
Common stock, $.001 par value;
526,921 shares; issued and
outstanding; subject to redemption 5,269,210
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; issued and outstanding,
2,717,263, 6,027,868 and 15,668,403 shares
at December 31, 1994, 1995 and 1996 2,717 6,028 15,668
Additional paid-in capital 23,816,551 52,488,567 139,896,651
Dividends in excess of accumulated earnings (30,404) (1,110,127) (2,584,954)
----------- ----------- ------------
23,788,864 51,384,468 137,327,365
Less treasury stock at cost, 14,395 shares at
December 31, 1996 (140,008)
----------- ----------- ------------
Total shareholders' equity 23,788,864 51,384,468 137,187,357
----------- ----------- ------------
Total liabilities and
shareholders' equity $30,443,608 $81,172,777 $193,293,844
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 6 -
<PAGE> 40
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATIONS
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Interest income from direct financing
leases $ 357,625 $ 1,221,026 $ 4,559,544
Rental income from operating leases 2,111,998 5,000,989
Other interest income 107,702 660,623 1,873,094
---------- ----------- -----------
465,327 3,993,647 11,433,627
---------- ----------- -----------
Expenses:
Interest expense 147,256 1,260,189 3,525,774
Depreciation 390,307 947,206
General and administrative 728,919 942,074 1,488,793
Property expense 164,836 596,227 1,269,968
Amortization 6,638 12,797 34,085
---------- ----------- -----------
1,047,649 3,201,594 7,265,826
---------- ----------- -----------
(Loss) income before income from
equity investments (582,322) 792,053 4,167,801
Income from equity investments 554,571 1,322,990 2,042,400
---------- ----------- -----------
Net (loss) income $ (27,751) $2,115,043 $ 6,210,201
========== ========== ===========
Net (loss) income per common share $ (.03) $ .53 $ .60
========== ========== ===========
Weighted average shares outstanding 843,911 4,016,686 10,365,828
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 7 -
<PAGE> 41
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Dividends in
Additional Excess of
Common Paid-in Accumulated Treasury
Stock Capital Earnings Stock Total
----- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 20 $ 199,980 $ (2,653) $ 197,347
2,697,263 Shares issued
at $10 per share,
net of offering costs of
$2,718,729 2,697 24,251,204 24,253,901
Dividends declared (634,633) (634,633)
Net loss (27,751) (27,751)
----------- ------------- ------------ ------------ ------------
Balance at December 31, 1994 2,717 23,816,551 (30,404) 23,788,864
3,837,526 Shares issued
at $10 per share,
net of offering costs of
$4,430,723 3,838 33,940,699 33,944,537
Common stock subject to
redemption; 526,921 shares (527) (5,268,683) (5,269,210)
Dividends declared (3,194,766) (3,194,766)
Net income 2,115,043 2,115,043
----------- ------------- ------------ ------------ ------------
Balance at December 31, 1995 6,028 52,488,567 (1,110,127) 51,384,468
9,117,364 Shares issued
at $10 per share,
net of offering costs of
$8,988,624 9,117 82,175,899 82,185,016
Dividends declared (7,684,030) (7,684,030)
Net income 6,210,201 6,210,201
Repurchase of 14,395 shares $ (140,008) (140,008)
Reclassification of common stock subject
to redemption at end of
redemption period, 523,171 shares 523 5,232,185 (998) 5,231,710
----------- ------------- ------------ ------------ ------------
Balance at December 31, 1996 $ 15,668 $ 139,896,651 $ (2,584,954) $ (140,008) $137,187,357
=========== ============= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 8 -
<PAGE> 42
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (27,751) $ 2,115,043 $ 6,210,201
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 6,638 403,104 981,291
Amortization of unearned income recognized on
direct financing leases greater than scheduled rents (5,406) (94,658) (164,456)
Income from equity investments in excess
of distributions received (71,462) (294,055)
(Increase) decrease in other assets (242,697) (240,609) 43,745
Increase in accrued rents and interest receivable (141,716) (129,430)
Increase in accounts payable and
accrued expenses (a) 48,960 49,721 59,859
Increase in accounts payable to affiliates (a) 782,903 649,658 263,293
Increase in accrued interest payable 28,661 107,425 281,949
Increase in prepaid rental income and security deposit 884,581 494,707
------------ ------------ ------------
Net cash provided by operating activities 591,308 3,661,087 7,747,104
------------ ------------ ------------
Cash flows from investing activities:
Refund of real estate purchase price 2,633,473
Purchase of stock warrants (124,000)
Capital (contributions in) distributions
from equity investments (1,219,030) 1,375,000 (5,158,908)
Distributions received from general partnerships in
excess of income from equity investments 64,866
Purchase of interests in equity investments from affiliate (9,933,092)
Purchases of real estate and other capitalized
costs (3,003,707) (41,577,236) (77,739,925)
------------ ------------ ------------
Net cash used in investing activities (14,090,963) (40,202,236) (80,389,360)
------------ ------------ ------------
</TABLE>
(Continued)
- 9 -
<PAGE> 43
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS, Continued
For the years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from stock issuance, net of costs 24,253,901 33,944,537 82,185,016
Dividends paid (288,882) (2,350,687) (6,779,669)
Payments of mortgage principal (5,999) (262,013) (1,191,750)
Prepayment of mortgage payable (3,313,866) (2,949,629)
Proceeds from issuance of mortgages 18,375,000 32,300,000
Deferred financing costs (273,770) (90,654)
Purchase of treasury stock (140,008)
Redemption of stock (37,500)
------------ ------------ -------------
Net cash provided by financing activities 23,959,020 46,119,201 103,295,806
------------ ------------ -------------
Net increase in cash and cash equivalents 10,459,365 9,578,052 30,653,550
Cash and cash equivalents, beginning of period 202,347 10,661,712 20,239,764
------------ ------------ -------------
Cash and cash equivalents, end of period $ 10,661,712 $ 20,239,764 $ 50,893,314
============ ============ =============
</TABLE>
(a) Excludes changes in accounts payable and accrued expenses and accounts
payable to affiliates balances which relate to the raising of capital
(financing activities) rather than the Company's real estate operations.
Supplemental schedule of noncash investing and financing activities:
In connection with the purchase of an interest in real estate from an
affiliate during 1994, the Company assumed a $3,334,416 interest in a mortgage
loan obligation.
The accompanying notes are an integral part of the consolidated financial
statements.
- 10 -
<PAGE> 44
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Consolidation:
The consolidated financial statements include the accounts of
Corporate Property Associates 12 Incorporated and its
wholly-owned subsidiaries (collectively, the "Company").
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Real Estate Leased to Others:
Real estate is leased to others on a net lease basis, whereby the
tenant is generally responsible for all operating expenses
relating to the property, including property taxes, insurance,
maintenance, repairs, renewals and improvements.
The Company diversifies its real estate investments among various
corporate tenants engaged in different industries and by property
type throughout the United States.
The leases are accounted for under either the direct financing or
operating methods.
Direct financing method - Leases accounted for under the
direct financing method are recorded at their net
investment (Note 5). Unearned income is deferred and
amortized to income over the lease terms so as to produce
a constant periodic rate of return on the Company's net
investment in the lease.
Operating method - Real estate is recorded at cost,
revenue is recognized as rentals are earned and expenses
(including depreciation) are charged to operations as
incurred.
For properties under construction, interest on mortgages is
capitalized rather than expensed and rentals received are
recorded as a reduction of capitalized project (i.e.,
construction) costs in accordance with Statement of Financial
Accounting Standards No. 67.
Substantially all of the Company's leases provide for either
scheduled rent increases, periodic rent increases based on
formulas indexed to increases in the Consumer Price Index ("CPI")
or sales overrides.
The Company assesses the recoverability of its real estate assets
including residual interests based on projections of undiscounted
cash flows over the life of such assets. In the event that such
cash flows are insufficient, the assets are adjusted to their
estimated net realizable value.
Depreciation:
Depreciation is computed using the straight-line method over the
estimated useful lives of properties - generally 40 years.
Cash Equivalents:
The Company considers all short-term, highly liquid investments that
are both readily convertible to cash and have a maturity of
generally three months or less at the time of purchase to be cash
equivalents. Items classified as cash equivalents include
commercial paper and money market funds. At December 31, 1994,
1995 and 1996, the Company's cash and cash equivalents were held
in the custody of four financial institutions.
Continued
- 11 -
<PAGE> 45
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Offering Costs:
Costs incurred in connection with the raising of capital through the
sale of common stock are charged to shareholders' equity upon the
issuance of shares to shareholders.
Federal Income Taxes:
The Company qualifies as a real estate investment trust ("REIT") for
the years ended December 31, 1994, 1995 and 1996 under the
Internal Revenue Code of 1986. The Company is not subject to
Federal income taxes, provided it distributes at least 95% of its
REIT taxable income to its shareholders and meets other
conditions.
Equity Investments:
The Company's interests in three general partnerships in which its
ownership interests range from 37% to 50%, are accounted for
under the equity method, i.e. at cost, increased or decreased by
the Company's share of earnings or losses, less distributions.
Other Assets:
Included in other assets are deferred charges and organization
costs. Deferred charges are costs incurred in connection with
mortgage financings and refinancing and are amortized on a
straight-line basis over the terms of the mortgages. Organization
costs incurred in connection with the formation of the Company
are deferred and amortized from the date of inception on a
straight-line basis over five years.
Deferred Acquisition Fees:
Fees are payable for services provided by Carey Property Advisors, a
Pennsylvania limited partnership (the "Advisor") of the Company
relating to the identification, evaluation, negotiation,
financing and purchase of properties. A portion of such fees are
deferred and are payable in annual installments with each
installment equal to .25% of the purchase price of the properties
over no less than eight years following the first anniversary of
the date a property was purchased. Payment of such fees is
subject to the 2%/25% guidelines (see Note 3).
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. Subject to certain restrictions and limitations, the
business of the Company is managed by 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 in
March 1996, withdrawing from registration the balance of unsold
shares from such offering.
Continued
- 12 -
<PAGE> 46
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Shareholders who purchased 526,921 shares ($5,269,210) of the
Company between March 31, 1995 and May 9, 1995 did not receive
updated financial statements of the Company within a specified
period, and the Company offered all shareholders who subscribed
shares between these dates, the opportunity to rescind such
purchases. Until the redemption period ended in May 1996, all
shares issued during that period were redeemable and, until the
end of the redemption period, were not classified as
shareholders' equity. Of the shares sold, 3,750 were redeemed.
On February 2, 1996, the Company commenced an offering (the
"Offering") for a maximum of 20,000,000 shares of common stock.
The shares are being offered to the public on a "best efforts"
basis by Carey Financial Corporation ("Carey Financial") and
other selected dealers at a price of $10 per share. It is
anticipated that approximately 87% of the funds raised in the
second offering will be invested in real estate with the
remaining funds used to establish a working capital reserve and
to pay the expenses and fees related to the Offering. In 1996,
the Company issued 7,534,534 shares ($75,345,340), pursuant to
the Offering, and since December 31, 1996 the Company has issued
an additional 2,890,081 shares ($28,900,810).
Deferred offering costs of $1,066,262 at December 31, 1995 represent
costs associated with the issuance of shares on January 5, 1996
and February 9, 1996 related to the prior offering and costs
associated with the current Offering which have been charged to
shareholders' equity upon the issuance of shares. Deferred
offering costs of $654,402 at December 31, 1996 represent costs
associated with the current Offering, including prepaid selling
commissions, which will be charged to shareholders' equity upon
the issuance of shares. (Also see Note 8).
3. Transactions with Related Parties:
Pursuant to its advisory agreement, the Advisor performs certain
services for the Company including the identification,
evaluation, negotiation, purchase and disposition of property and
the day-to-day administration and management of the Company. The
Advisor and certain affiliates receive fees and compensation in
connection with the Offering and the operation of the Company
including reimbursement for organization and offering expenses,
acquisition and structuring fees, reimbursement for expenses
incurred by the Advisor in connection with the administration of
the Company, asset management and performance fees, and loan
refinancing fees, and may ultimately receive subordinated
disposition and incentive fees, both of which are dependent on
the Company's performance. In connection with performing services
related to the Company's real estate purchases in 1994, 1995, and
1996, affiliates of the Company received structuring and
development fees of $494,769, $605,972 and $1,284,619,
respectively. Fees are paid only in connection with completed
transactions. The affiliate is entitled to receive deferred
acquisition fees of $3,414,097 over a period of no less than
eight years, subject to the 2%/25% guidelines limitation
described below.
The Company's asset management fee of 0.5% per annum of Average
Invested Assets (as defined in the Prospectus) and a performance
fee of 0.5% of Average Invested Assets are payable to the
Advisor. Asset management fees were $82,418 in 1994, $291,980 in
1995 and $631,051 in 1996 with performance fees in like amount.
General and administrative expense reimbursements consist
primarily of the actual cost of personnel needed to provide
administrative services necessary to the operation of the
Company. General and administrative expense reimbursements were
$589,385 in 1994, $618,591 in 1995 and $747,779 in 1996.
Continued
- 13 -
<PAGE> 47
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In the future, real property may be acquired by limited
partnerships, REITs or other entities formed by affiliates of the
Advisor and, accordingly, transactions with related parties may
arise between the Company and affiliated entities. The Company's
interests in properties jointly held with affiliates range from
37% to 50%. The Company accounts for assets and liabilities
relating to tenants-in-common interests on a proportional basis.
Ownership interests in general partnerships and a limited
liability company, owned with an affiliate, are accounted for
under the equity method.
The Advisor shall reimburse the Company at least annually for the
amount by which operating expenses of the Company exceed the
2%/25% Guidelines (the greater of 2% of Average Invested Assets
or 25% of Net Income) as defined in the Prospectus. To the extent
that operating expenses payable or reimbursable by the Company
exceed the 2%/25% Guidelines and the Independent Directors find
that such expenses were justified based on such unusual and
nonrecurring factors which they deem sufficient, the Advisor may
be reimbursed in future years for the full amount or any portion
of such excess expenses, but only to the extent such
reimbursement would not cause the Company's operating expenses to
exceed the 2%/25% Guidelines in any such year.
For the years ended December 31, 1994, 1995 and 1996, fees
aggregating $69,322, $35,649 and $348,733, respectively, were
incurred for legal services in connection with the Company's
operations and public offering, respectively, with such services
provided by a firm in which the Secretary of the Company and of
the Corporate General Partner of the Advisor is a partner.
For the years ended December 31, 1994, 1995 and 1996, organization
and offering costs of approximately $1,244,000, $1,520,000 and
$1,820,000, respectively, were paid by the Advisor on behalf of
the Company.
The Company's accounts payable to affiliates were as follows at
December 31, 1994 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Deferred offering costs $1,380,000 $1,066,262 $ 562,266
Asset management and performance fees 164,836 748,795 1,335,895
Interest accrued on deferred acquisition fees 106,175 285,168
Other operating costs 618,528 578,052 75,252
---------- ---------- ----------
$2,163,364 $2,499,284 $2,258,581
========== ========== ==========
</TABLE>
The Company is a participant in an agreement with W.P. Carey & Co.,
Inc. ("W.P. Carey") and certain affiliates for the purpose of
leasing office space used for the administration of real estate
entities and W.P. Carey and for sharing the associated costs.
Pursuant to the terms of the agreement, the Company's share of
rental, occupancy and leasehold improvement costs is based on
adjusted gross revenues, as defined. Net expenses incurred in
1995, the Company's first year of participation, and 1996 were
$11,248 and $26,851, respectively.
4. Real Estate Leased to Others Accounted for Under the Operating Method:
Scheduled future minimum rents, exclusive of renewals, under
noncancellable operating leases amount to approximately
$9,374,000 in each of the years 1997 through 2000; $9,431,000 in
2001 and aggregate approximately $158,301,000 through 2016.
Contingent rents were approximately $19,000 in 1995 and $9,000 in
1996.
Continued
- 14 -
<PAGE> 48
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Minimum lease payments
receivable $20,273,973 $ 35,500,209 $ 98,389,173
Unguaranteed residual value 6,467,233 13,445,545 40,581,966
----------- ------------ ------------
26,741,206 48,945,754 138,971,139
Less: Unearned income 20,268,567 35,400,145 98,124,653
----------- ------------ ------------
$ 6,472,639 $ 13,545,609 $ 40,846,486
=========== ============ ============
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases are approximately
$5,167,000 in both 1997 and 1998, $5,272,000 in each of the years
1999 through 2001 and aggregate approximately $98,389,000 through
2018.
6. Mortgage Notes Payable:
Mortgage notes payable, all of which are limited recourse to the
Company, are collateralized by an assignment of various leases
and by real property with a carrying amount of approximately
$96,430,000. As of December 31, 1996, mortgage notes payable had
interest rates ranging from 8.03% to 10.25% per annum.
Scheduled principal payments during each of the next five years
following December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 1,539,426
1998 1,624,085
1999 1,703,546
2000 9,461,112
2001 4,353,037
Thereafter 27,604,953
-----------
Total $46,286,159
===========
</TABLE>
Interest paid was $118,595 in 1994, $1,152,764 in 1995 and
$3,243,825 in 1996.
In connection with the placement of mortgages, fees of $197,908,
$276,139 and $513,847 were paid to an affiliate of the Company in
1994, 1995 and 1996, respectively.
7. Dividends:
Dividends paid to shareholders consist of ordinary income, capital
gains, return of capital or a combination thereof for income tax
purposes. For the three years ended December 31, 1996, dividends
paid per share reported for tax purposes were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Ordinary income $ 0.30 $ 0.76 $ 0.68
Return of capital 0.12
------ ------ ------
$ 0.30 $ 0.76 $ 0.80
====== ====== ======
</TABLE>
Continued
- 15 -
<PAGE> 49
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Dividends payable at December 31, 1996 was comprised of dividends
declared of $.0159886 per share ($2,094,191) to shareholders of
record as of December 12, 1996. A dividend of $.2015 per share
was paid in January 1997.
8. Commitments and Contingencies:
The Company is liable for certain costs of its offerings which
include but are not limited to filing, legal, accounting,
printing and escrow fees, which are to be deducted from the gross
proceeds of the Offering and are presently estimated to aggregate
a maximum of $7,327,000 assuming a sale of 20,000,000 shares. The
Company is also liable for selling commissions of $0.60 (6%) per
Share sold and a Selected Dealer fee of $0.10 (1%) for each
Share.
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
services provided to the Company. To the extent, if any, that
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 for bona fide due
diligence expenses), such excess will be paid by the Advisor with
no recourse by or reimbursement to the Advisor.
9. 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 1994, 1995 and 1996 lease revenues are as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Per Statements of Operations:
Interest income from direct
financing leases $ 357,625 $1,221,026 $ 4,559,544
Rental income from operating leases 2,111,998 5,000,989
Adjustment:
Share of lease revenues from
equity investments 1,404,319 3,110,209 4,419,078
---------- ---------- -----------
$1,761,944 $6,443,233 $13,979,611
========== ========== ===========
</TABLE>
Continued
- 16 -
<PAGE> 50
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In 1994, 1995 and 1996, the Company earned its share of net lease
revenues from its direct and indirect ownership of real estate
from the following lease obligors:
<TABLE>
<CAPTION>
1994 % 1995 % 1996 %
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Best Buy Co., Inc. (a) $1,143,383 65% $1,801,209 28% $ 1,797,435 13%
The Upper Deck Company (a) 1,312,643 9
Gensia, Inc. (a) 260,936 15 1,309,000 20 1,309,000 9
Applied Bioscience International, Inc. 173,600 3 1,302,000 9
Etec Systems, Inc. 1,210,652 19 1,208,583 9
Telos Corporation 1,166,936 8
Rheometric Scientific, Inc. 1,005,901 7
Q Clubs, Inc. 374,263 6 979,795 7
The Garden Companies, Inc. 432,804 7 816,400 6
Big V Holding Corporation 357,625 20 788,222 12 800,221 6
Lanxide Corporation 770,086 5
Del Monte Corporation 643,125 5
Wal-Mart Stores, Inc. 353,483 5 397,226 3
Spectrian Corporation 223,704 2
Celadon Group, Inc. 198,333 2
Garden Ridge Corporation 36,738
Knogo North America, Inc. 11,485
---------- --- ---------- --- ----------- ---
$1,761,944 100% $6,443,233 100% $13,979,611 100%
========== === ========== === =========== ===
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from
its equity investment.
10. Purchases of Real Estate:
Spectrian Corporation:
On November 19, 1996, the Company purchased land and a building in
Sunnyvale, California for $17,644,000 and entered into a net
lease with Spectrian Corporation ("Spectrian"). The lease has a
term of 15 years with three five-year renewal terms, at the
option of the lessee, with an initial annual rent of $1,925,000.
Rent increases are scheduled every three years and are based on a
formula indexed to increases in CPI with such increase in any
single year capped at 4.5%.
The Company has received a commitment from a lender for a
$10,000,000 limited recourse mortgage loan to be collateralized
by the Spectrian property. If the commitment is exercised, the
loan will provide for monthly payments of principal and interest
at an annual interest rate of 7.75% and based on a 20-year
amortization schedule. A balloon payment would be due in 10
years.
Continued
- 17 -
<PAGE> 51
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Garden Ridge Corporation:
On December 16, 1996 the Company purchased land and a building
subject to an existing net lease with Garden Ridge Corporation
("Garden Ridge") in Tulsa, Oklahoma for $8,062,000.
The lease has a remaining term of 19 years 4 months through April
2011 with four five-year renewal terms at an annual rent of
$854,164. Rent increases are scheduled every five years with the
first increase scheduled for May 2001. Each increase will be the
lower of 10% or the amount calculated based on a formula indexed
to increases in the CPI.
On December 27, 1996 the Company obtained a $4,600,000 limited
recourse mortgage loan collateralized by the Garden Ridge
property and an assignment of the Garden Ridge lease. The loan
provides for monthly principal and interest payments of $37,725
at an annual interest rate of 8.72% based on a 25-year
amortization schedule. The loan may be prepaid between January 1,
2001 and June 2006 subject to a prepayment premium. A balloon
payment of approximately $3,791,000 is due in January 2007.
Knogo North America, Inc.
On December 24, 1996, the Company purchased land and a building in
Hauppauge, New York for $4,925,000 and entered into a net lease
with Knogo North America, Inc. The lease has a term of 20 years
with a four-year renewal term, at the option of the lessee.
Annual rent is $2,096,000 and rent increases are scheduled every
three years with such increases based on a formula indexed to the
CPI.
In connection with performing services relating to the Company's
real estate purchases, affiliates of the Company received
acquisition fees of $197,908, $242,389 and $513,847 in 1994, 1995
and 1996, respectively.
Continued
- 18 -
<PAGE> 52
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. Equity Investments:
The Company holds a 37% interest in BB Property Company ("BB
Property"), a general partnership which net leases 17 retail
stores to Best Buy Co., Inc., a 50% interest in Gena Property
Company ("Gena"), a general partnership which net leases two
office buildings to Gensia, Inc. and a 50% interest in Cards
Limited Liability Company ("Cards LLC"), a general partnership
which net leases office and manufacturing facilities to The Upper
Deck Company. The interest in Cards LLC was purchased in January
1996. Summarized financial information of Gena, BB Property, and
Cards LLC is as follows:
(in thousands)
<TABLE>
<CAPTION>
GENA BB Property CARDS LLC
-------------------------------- --------------------------- ------------
December 31, December 31, December 31,
-------------------------------- --------------------------- ------------
1994 1995 1996 1994 1995 1996 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Land $ 4,500 $ 4,500 $ 4,500 $18,580 $18,580 $18,580
Buildings 18,429 18,429 18,429
Accumulated
depreciation (182) (642) (1,103)
Net investment
in direct
financing lease 27,352 27,261 27,159 $25,831
Other assets 232 750
-------- -------- -------- ------- ------- ------- -------
Total assets $ 22,979 $ 22,287 $ 21,826 $45,932 $45,841 $45,739 $26,581
======== ======== ======== ======= ======= ======= =======
Mortgage notes
payable $ 9,968 $ 12,241 $ 11,696 $31,884 $31,235 $30,525 $14,848
Other liabilities 83 141 136 240 235 230 856
-------- -------- -------- ------- ------- ------- -------
Total liabilities 10,051 12,382 11,832 32,124 31,470 30,755 15,704
Partners'
capital 12,928 9,905 9,994 13,808 14,371 14,984 10,877
-------- -------- -------- ------- ------- ------- -------
Total liabilities
and partners'
capital $ 22,979 $ 22,287 $ 21,826 $45,932 $45,841 $45,739 $26,581
======== ======== ======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------------
GENA BB Property CARDS LLC
---------------------------- ---------------------------- ---------
1994 1995 1996 1994 1995 1996 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income from
operating leases $ 964 $2,618 $2,618 $1,989 $1,989 $1,989
Interest income from direct
financing leases 2,888 2,879 2,869 $2,625
Other 1 7
------ ------ ------ ------ ------ ------ ------
965 2,618 2,618 4,877 4,868 4,858 2,632
------ ------ ------ ------ ------ ------ ------
Interest expense on
mortgages 322 994 973 2,898 2,841 2,780 1,255
Depreciation expense 182 461 461
Other 15 5 3 6 4
------ ------ ------ ------ ------ ------ ------
504 1,470 1,439 2,898 2,844 2,786 1,259
------ ------ ------ ------ ------ ------ ------
Net income $ 461 $1,148 $1,179 $1,979 $2,024 $2,072 $1,373
====== ====== ====== ====== ====== ====== ======
</TABLE>
Continued
- 19 -
<PAGE> 53
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Subsequent Events:
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 $1,945,850
with rent increases scheduled every three years based on a
formula indexed to the 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 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 commencing in the fourth
lease year and every three years thereafter, with such increases
based on a formula indexed to increases in the CPI.
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.
Rheometric Scientific, Inc.
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
Continued
- 20 -
<PAGE> 54
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
between $6,000,000 and initial balance of the mortgage loan
multiplied by 14.7% and (iii) $35,000.
The Company had been 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 extendable 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 from the Rheometric
property will increase by $416,000.
13. Etec Systems, Inc.:
In February 1995, the Company purchased land and an
office/manufacturing facility located in Hayward, California for
$11,859,000 and entered into a net lease agreement with Etec
Systems, Inc. ("Etec") 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 increases or decreases 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 terms 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.
The commitment by the Company to fund the addition is for a maximum
of $9,000,000 including the $5,000,000 of mortgage financing,
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.
Continued
- 21 -
<PAGE> 55
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Etec has also agreed to allow the Company to exercise its remaining
68,764 warrants by either paying the cash exercise price or by a
cashless exercise in which the Company would receive shares equal
to the fair market value less the exercise price of such shares.
14. Disclosures About Fair Value of Financial Instruments:
The carrying amounts of cash, receivables and accounts payable and
accrued expenses approximate fair value because of the short
maturity of these items.
The Company estimates that the fair value of mortgage notes payable
at December 31, 1996 approximates the carrying value of such
mortgage notes. The fair value of the mortgage notes payable was
evaluated using a cash flow model with a discount rate which
takes into account the credit of the tenant and interest rate
risk.
In conjunction with executing a number of its leases, the Company
was granted warrants to purchase common stock of the lessee or
lease guarantor. To the extent that the lessee is not a publicly
traded company, the warrants were judged at the time of issuance
to be speculative in nature and a nominal cost basis is
attributed to them. The Company believes it is not practicable to
estimate the fair value of its stock warrants for closely-held
companies. For publicly traded companies, fair value represents
the amount by which quoted market value of common stock exceeds
the exercise price at December 31, 1996. The Company's warrants
for 68,768 shares of Etec common stock have a fair market value
of approximately $2,597,000. The Company's warrants for 15,500
shares of Lanxide Corporation ("Lanxide") common stock have a
fair market value of $23,250. The quoted market value per share
of Rheometric common stock at December 31, 1996 was lower than
the exercise price of the Rheometric warrants. The Etec, Lanxide
and Rheometric warrants are currently exercisable.
15. New Accounting Pronouncement:
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS No. 128"), which established standards for
computing and presenting earnings per share. SFAS No. 128 will be
effective for financial statements issued for periods ending
after December 15, 1997. The impact of the adoption of this
statement is not expected to be material to the Company's
Consolidated Financial Statements.
- 22 -
<PAGE> 56
PROPERTIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------- ---------------- -------- --------
<S> <C> <C> <C>
BEST BUY CO., INC. Retail Stores Denver and Ownership of a 37%
-17 locations Fort Collins, interest in a general
Colorado; Aurora, partnership owning land
Bedford Park, and buildings (1)
Bloomingdale,
Matteson and
Schaumburg, Illinois;
Omaha, Nebraska;
Albuquerque, New Mexico;
Arlington, Beaumont,
Dallas, El Paso,
Fort Worth, Houston,
Plano, Texas and
Madison, Wisconsin
BIG V HOLDING Supermarkets Ellenville Ownership of a 45% interest in
CORPORATION -2 locations and Warwick, land and buildings (1)
New York
GENSIA, INC. Office/Research and San Diego, Ownership of a 50%
Development facility California interest in a general
partnership owning land
and buildings (1)
WAL-MART STORES, INC. Distribution Greenfield, Ownership of land
Facility Indiana and building (1)
ETEC SYSTEMS, INC. Office/Manufacturing Hayward, Ownership of land
Facility California and buildings (1)
Q CLUBS, INC. Health Clubs Austin, Texas Ownership of land
-2 locations Houston, Texas and buildings (1)
THE GARDEN Manufacturing Chattanooga, Ownership of land
COMPANIES, INC. Facility Tennessee and building (1)
DEL MONTE Warehouses and a Mendota, Illinois; Ownership of a 50%
CORPORATION Special Purpose Facility Plover, Wisconsin; interest in land
-4 locations Toppenish and and buildings (1)
Yakima, Washington
APPLIED BIOSCIENCE Office/Warehouse/ Austin, Texas Ownership of land
INTERNATIONAL, INC. Research Facility and buildings (1)
THE UPPER Manufacturing/ Carlsbad, Ownership of a 50%
DECK COMPANY Office Buildings California interest in a limited
liability company owning
land and buildings (1)
</TABLE>
- 23 -
<PAGE> 57
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
------- ---------------- -------- --------
<S> <C> <C> <C>
RHEOMETRIC Office/Manufacturing Piscataway, Ownership of land
SCIENTIFIC, INC. and Warehouse Facility New Jersey and buildings
TELOS Office Facility Loudon County, Ownership of land
CORPORATION Virginia and buildings (1)
LANXIDE Research and Newark, Ownership of land
CORPORATION Development Facility Delaware and buildings (1)
CELADON GROUP, Distribution/ Indianapolis, Ownership of land
INC. Warehouse Facility Indiana and buildings
SPECTRIAN Office/Research Sunnyvale, Ownership of land
CORPORATION Facility California and building
GARDEN RIDGE Retail Store Tulsa, Ownership of land
CORPORATION Oklahoma and building (1)
KNOGO NORTH Office/Distribution Hauppauge, Ownership of land
AMERICA, INC. Facility New York and building
SCOTT COMPANIES, INC. Office/Research San Leandro, Ownership of land
Facility California and building (2)
CHILDTIME CHILDCARE, Childcare Centers Chandler, Arizona; Ownership of land
INC. (under construction) Fleming Island, Florida; and building (2)
Sugarland and
New Territory, Texas
QMS, INC. Office/Research Mobile, Ownership of land
Facility Alabama and building (1)(2)
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
(2) Acquired in 1997.
- 24 -
<PAGE> 58
MARKET FOR THE PARTNERSHIP'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
Except for limited or sporadic transactions, there is no
established public trading market for the Shares of the Company.
As of December 31, 1996 there were 8,549 holders of record of
the Shares of the Company.
In accordance with the Prospectus of the Company, dividends
will be paid quarterly regardless of the frequency with which such dividends are
declared. The Company is required to distribute annually its Distributable REIT
Taxable Income, as defined in the Prospectus, to maintain its status as a REIT.
The following shows the frequency and amount of dividends paid since the
Company's inception commencing with the first quarterly dividend in October
1994.
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
First quarter -- $.18125 $.20050
Second quarter -- .18750 .20080
Third quarter $.120995 .19375 .20100
Fourth quarter .176750 .20025 .20125
-------- ------- -------
$.297745 $.76275 $.80355
======== ======= =======
</TABLE>
REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
The Advisor will supply to any shareholder, upon written
request and without charge, a copy of the Annual Report on Form 10-K for the
year ended December 31, 1996 as filed with the Securities and Exchange
Commission.
- 25 -
<PAGE> 59
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
22.2 Subsidiaries of Registrant as of March 20, 1997.
24.2 Consent of Coopers & Lybrand dated March 26, 1997.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 22.2
SUBSIDIARIES OF REGISTRANT
GENA (CA) QRS 12-1, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME GENA (CA) QRS 12-1, INC.
BBC (NE) QRS 12-2, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NEBRASKA AND DOING
BUSINESS UNDER THE NAME BBC (NE) QRS 12-2, INC.
ELWA-BV (NY) QRS 12-3, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK AND DOING
BUSINESS UNDER THE NAME ELWA-BV (NY) QRS 12-3, INC.
ADS (CA) QRS 12-4, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME OF ADS (CA) QRS 12-4, INC.
WALS (IN) QRS 12-5, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE WALS (IN) QRS 12-5, INC.
ESI (CA) QRS 12-6, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME OF ESI (CA) QRS 12-6, INC.
SFC (TX) QRS 12-7, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS
UNDER THE NAME SFC (TX) QRS 12-7, INC.
SEEDS (TN) QRS 12-9, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE AND DOING
BUSINESS UNDER THE NAME SEEDS (TN) QRS 12-9, INC.
DELMO (PA) QRS 12-10, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF PENNSYLVANIA AND DOING
BUSINESS UNDER THE NAME DELMO (PA) QRS 12-10, INC.
ABI (TX) QRS 12-11, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS
UNDER THE NAME ABI (TX) QRS 12-11, INC.
CARDS (CA) QRS 12-12, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME CARDS (CA) QRS 12-12, INC.
RSI (NJ) QRS 12-13, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NEW JERSEY AND DOING
BUSINESS UNDER THE NAME RSI (NJ) QRS 12-13, INC.
TEL (VA) QRS 12-15, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF VIRGINIA AND DOING
BUSINESS UNDER THE NAME TEL (VA) QRS 12-15, INC.
LAX (DE) QRS 12-16, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND DOING
BUSINESS UNDER THE NAME LAX (DE) QRS 12-16, INC.
CEL (IN) QRS 12-17, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA AND DOING
BUSINESS UNDER THE NAME CEL (IN) QRS 12-17, INC.
SFC (TX) QRS 12-18, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS
UNDER THE NAME SFC (TX) QRS 12-18, INC.
CTC (MD) QRS 12-19, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND AND DOING
BUSINESS UNDER THE NAME CTC (MD) QRS 12-19, INC.
SPEC (CA) QRS 12-20, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME SPEC (CA) QRS 12-20, INC.
<PAGE> 2
SUBSIDIARIES OF REGISTRANT
(CONTINUED)
INK (AL) QRS 12-21, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF ALABAMA AND DOING
BUSINESS UNDER THE NAME INK (AL) QRS 12-21, INC.
WEEDS (OK) QRS 12-22, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF OKLAHOMA AND DOING
BUSINESS UNDER THE NAME WEEDS (OK) QRS 12-22, INC.
NOG (NY) QRS 12-23, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK AND DOING
BUSINESS UNDER THE NAME NOG (NY) QRS 12-23, INC.
BUILD (CA) QRS 12-24, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME BUILD (CA) QRS 12-24, INC.
QRS 12-PAYING AGENT, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK AND DOING
BUSINESS UNDER THE NAME QRS 12-PAYING AGENT, INC.
<PAGE> 1
EXHIBIT 24.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Corporate Property Associates 12 Incorporated and Subsidiaries on Form S-11
(File No. 33-99994) of our reports dated March 24, 1997, on our audits of the
consolidated financial statements and financial statement schedule of Corporate
Property Associates 12 Incorporated and Subsidiaries as of December 31, 1994,
1995 and 1996, and for the years ended December 31, 1994, 1995, and 1996, which
reports are incorporated by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 50,893,314
<SECURITIES> 0
<RECEIVABLES> 271,146
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,164,460
<PP&E> 125,845,634
<DEPRECIATION> 1,337,513
<TOTAL-ASSETS> 193,293,844
<CURRENT-LIABILITIES> 6,406,231
<BONDS> 46,286,159
0
0
<COMMON> 15,668
<OTHER-SE> 137,171,689
<TOTAL-LIABILITY-AND-EQUITY> 193,293,844
<SALES> 0
<TOTAL-REVENUES> 11,433,627
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,705,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,525,774
<INCOME-PRETAX> 6,210,201
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,210,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,210,201
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
