<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _____________________ to ________________________
Commission file number 033-68728
---------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED, a Maryland corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 13-3726306
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 492-1100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes |_| No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
|_| Yes |_| No
28,249,965 shares of common stock; $.001 Par Value
outstanding at May 18, 1998
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
INDEX
Page No.
--------
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of December 31,
1997 and March 31, 1998 2
Condensed Consolidated Statements of Income for the three
months ended March 31, 1997 and 1998 3
Condensed Consolidated Statements of Comprehensive Income
for the three months ended March 31, 1997 and 1998 4
Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 1997 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II - Other Information
Item 4. - Submission of Matters to a Vote of Security Holders 11
Item 6. - Exhibits and Reports on Form 8-K 11
Signatures 12
* The summarized financial information contained herein is unaudited; however,
in the opinion of management, all adjustments necessary for a fair presentation
of such financial information have been included.
-1-
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------- -------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$4,360,196 at December 31, 1997 and
$5,500,011 at March 31, 1998 $ 222,654,204 $ 244,901,695
Net investment in direct financing leases 40,966,665 40,999,019
Equity investments 16,635,180 16,860,093
Cash and cash equivalents 72,423,221 38,909,891
Marketable securities, at fair value 3,174,137 4,057,399
Other assets, net of reserve for uncollected rents
of $162,137 at December 31, 1997 and
$215,597 at March 31, 1998 2,839,719 3,846,683
------------- -------------
Total assets $ 358,693,126 $ 349,574,780
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 88,893,692 $ 80,460,041
Accrued interest payable 650,800 596,533
Accounts payable to affiliates 3,430,059 4,085,730
Accounts payable and accrued expenses 259,189 282,473
Prepaid rental income and security deposits 5,416,573 5,292,650
Deferred acquisition fees payable to an affiliate 6,469,146 6,843,468
------------- -------------
Total liabilities 105,119,459 97,560,895
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 40,000,000 shares;
issued and outstanding 28,334,451 shares at December 31, 1997
and March 31, 1998 28,334 28,334
Additional paid-in capital 253,835,934 253,835,934
Unrealized appreciation, marketable securities 3,031,300 3,846,166
Dividends in excess of accumulated earnings (2,768,966) (4,985,643)
------------- -------------
254,126,602 252,724,791
Less common stock in treasury at cost,
68,043 and 84,486 shares at December 31, 1997
and March 31, 1998 (552,935) (710,906)
------------- -------------
Total shareholders' equity 253,573,667 252,013,885
------------- -------------
Total liabilities and shareholders' equity $ 358,693,126 $ 349,574,780
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The balance sheet at December 31, 1997 has been derived from the audited
condensed consolidated financial statements at that date.
-2-
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Rental income from operating leases $ 3,037,949 $ 6,070,726
Interest income from direct financing leases 1,286,677 1,231,691
Other interest income 455,029 744,579
------------ ------------
4,779,655 8,046,996
------------ ------------
Expenses:
Interest 1,204,217 1,950,116
Depreciation 525,254 1,139,815
General and administrative 425,704 511,843
Property expense 567,552 1,078,936
Amortization 13,759 19,084
------------ ------------
2,736,486 4,699,794
------------ ------------
Income before income from equity investments
and extraordinary item 2,043,169 3,347,202
Income from equity investments 507,056 534,546
------------ ------------
Income before extraordinary item 2,550,225 3,881,748
Extraordinary loss on extinguishment of debt (379,247)
------------ ------------
Net income $ 2,550,225 $ 3,502,501
============ ============
Basic income per common share before
extraordinary item $ .15 $ .14
Extraordinary item (.02)
------------ ------------
Basic income per share $ .15 $ .12
============ ============
Weighted average shares outstanding - basic 16,679,592 28,260,379
============ ============
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1998
-------------- --------------
<S> <C> <C>
Net income $ 2,550,225 $ 3,502,501
------------ ------------
Other comprehensive income:
Unrealized gains on securities during the period 8,595 814,866
------------ ------------
Other comprehensive income 8,595 814,866
------------ ------------
Comprehensive income $ 2,558,820 $ 4,317,367
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,550,225 $ 3,502,501
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 539,013 1,158,899
Straight-line rent adjustments and other noncash rent adjustments (64,114) (470,849)
Income from equity investments in excess
of distributions received (235,885) (224,913)
Change in security deposits, net 1,262,500
Extraordinary charge on extinguishment of debt 379,247
Provision for uncollected rent 53,460
Change in operating assets and liabilities 226,280 (208,644)
------------ ------------
Net cash provided by operating activities 4,278,019 4,189,701
------------ ------------
Cash flows from investing activities:
Purchases of real estate and additional capitalized costs (39,145,749) (23,012,984)
------------ ------------
Net cash used in investing activities (39,145,749) (23,012,984)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 12,200,000
Prepayment of mortgage payable (2,796,000) (7,957,949)
Payments on mortgage principal (336,528) (475,702)
Proceeds from stock issuance, net of costs 25,520,470
Deferred financing costs (101,773)
Dividends paid (2,745,944) (5,719,178)
Payment made on extinguishment of debt (379,247)
Purchase of treasury stock (29,480) (157,971)
------------ ------------
Net cash provided by financing activities 31,710,745 (14,690,047)
------------ ------------
Net decrease in cash and cash equivalents (3,156,985) (33,513,330)
Cash and cash equivalents, beginning of period 50,893,314 72,423,221
------------ ------------
Cash and cash equivalents, end of period $ 47,736,329 $ 38,909,891
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 1,092,547 $ 2,004,383
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-4-
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. All significant intercompany
balances and transactions have been eliminated. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation of the results of the interim periods presented have
been included. The results of operations for the interim periods are not
necessarily indicative of results for the full year. For further information
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Note 2. Organization and Offering:
Corporate Property Associates 12 Incorporated (the "Company") was formed on July
30, 1993 under the General Corporation Law of Maryland for the purpose of
engaging in the business of investing in and owning industrial and commercial
real estate. The Company qualifies as a real estate investment trust and will
maintain such qualification provided it distributes at least 95% of its taxable
income to shareholders and meets other conditions. The Company is managed by
Carey Property Advisors, a Pennsylvania limited partnership (the "Advisor").
An initial offering of the Company's shares was concluded on January 26, 1996,
at which time the Company had issued 8,135,992 shares ($81,359,920). On February
2, 1996, the Company commenced a second offering of common stock. The second
offering was concluded on September 18, 1997, at which time the Company had
issued an additional 20,198,459 ($201,984,590) shares. It is anticipated that
approximately 87% of the funds raised will be invested in real estate with the
remaining funds used to establish a working capital reserve and to pay the
expenses and fees related to the offering.
Note 3. Transactions with Related Parties:
Pursuant to the advisory agreement, the Advisor performs certain advisory and
administrative services for the Company. For the three-month periods ended March
31, 1997 and 1998, the Company incurred asset management fees of $244,978 and
$400,738, respectively, with performance fees in like amount. General and
administrative expense reimbursements for three-month periods ended March 31,
1997 and 1998 were $236,055 and $182,702, respectively.
The Company, in conjunction with certain affiliates, is a participant in a cost
sharing agreement for the purpose of renting and occupying office space. Under
the agreement, the Company pays its proportionate share of rent and other costs
of occupancy. Net expenses incurred for the three-months ended March 31, 1997
and 1998 were $10,474 and $29,348, respectively.
-5-
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Industry Segment Information:
The Company's operations consist of the investment in and the leasing of
industrial and commercial real estate. The financial reporting sources of the
leasing revenues below for the three-month periods ended March 31, 1997 and 1998
are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $3,037,949 $6,070,726
Interest from direct financing leases 1,286,677 1,231,691
Adjustment:
Share of leasing revenue from equity
investments 1,106,526 1,105,406
---------- ----------
$5,431,152 $8,407,823
========== ==========
</TABLE>
For the three-month periods ended March 31, 1997 and 1998, the Company earned
its proportionate net leasing revenues from its investments from the following
lease obligors:
<TABLE>
<CAPTION>
1997 % 1998 %
---- --- ---- ---
<S> <C> <C> <C> <C>
Perry Graphic Communications, Inc.
and Judd's Incorporated $ 547,892 7%
Scott Companies Inc. $ 370,431 7% 485,213 6
Spectrian Corporation 481,250 9 481,250 6
Best Buy Co., Inc. (a) 449,307 8 448,187 5
Westell Technologies, Inc. 437,063 5
QMS, Inc. 187,066 3 422,344 5
Etec Systems, Inc. 352,733 6 401,220 5
Telos Corporation 361,750 7 361,750 4
Q Clubs, Inc. 345,159 6 349,902 4
The Upper Deck Company (a) 329,969 6 329,969 4
Gensia, Inc. (a) 327,250 6 327,250 4
Applied Bioscience International, Inc. 325,500 6 325,500 4
Del Monte Corporation 321,563 6 321,563 4
The Bon-Ton Stores, Inc. 317,688 4
GDE Systems, Inc. 315,508 4
Career Education Corporation 304,052 4
Lanxide Corporation 257,500 5 257,500 3
Garden Ridge Corporation 248,941 5 248,941 3
Silgan Containers Corporation 223,300 3
Big V Holding Corp. 202,104 4 205,744 3
The Garden Companies, Inc. 204,280 4 204,100 2
Rheometric Scientific, Inc. 261,043 5 202,596 2
Celadon Group, Inc. 175,000 3 178,944 2
Vermont Teddy Bear Co., Inc. 163,100 2
Pagg Corporation 147,500 2
Knogo North America, Inc. 131,000 2 131,000 1
Childtime Childcare, Inc. 119,241 1
Wal-Mart Stores, Inc. 99,306 2 99,306 1
Other 50,200
---------- --- ---------- ---
$5,431,152 100% $8,407,823 100%
========== === ========== ===
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
-6-
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 5. Dividends:
Dividends paid to shareholders during the three months ended March 31, 1998 are
summarized as follows::
<TABLE>
<CAPTION>
Quarter Ended Total Paid Per Share
------------- ---------- ---------
<S> <C> <C>
December 31, 1997 $5,719,178 $0.2023
========== =======
</TABLE>
A dividend of $.2025 per share was declared and paid in April 1998 for the
quarter ended March 31, 1998.
Note 6. Equity Investments:
The Company holds a 37% interest in BB Property Company ("BB Property"), a
general partnership which net leases 17 retail stores to Best Buy Co., Inc., a
50% interest in Gena Property Company ("Gena"), a general partnership which net
leases two office buildings to Gensia, Inc. and a 50% interest in Cards Limited
Liability Company ("Cards LLC"), a general partnership which net leases office
and manufacturing facilities to The Upper Deck Company. Summarized financial
information of Gena, BB Property and Cards LLC is as follows:
(in thousands)
<TABLE>
<CAPTION>
Gena BB Property Cards LLC
--------------------------------- --------------------------------- ---------------------------------
December 31, 1997 March 31, 1998 December 31, 1997 March 31, 1998 December 31, 1997 March 31, 1998
----------------- -------------- ----------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Assets $21,710 $21,250 $45,626 $45,964 $26,729 $26,581
Liabilities 11,671 11,075 29,994 29,787 15,511 15,453
Partner's capital 10,039 10,175 15,632 16,177 11,218 11,128
</TABLE>
<TABLE>
<CAPTION>
For The Three months Ended
--------------------------------------------------------------------------------------------
March 31, 1997 March 31, 1998
-------------------------------------------- --------------------------------------------
GENA BB Property Cards LLC GENA BB Property Cards LLC
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $654 $1,214 $660 $654 $1,211 $660
Interest (232) (685) (312) (220) (667) (308)
Depreciation (115) (115)
Other expenses (43) (1) (2) (2) (1)
------------ ------------ ------------ ------------ ------------ ------------
Net income $307 $ 486 $347 $317 $ 542 $351
============ ============ ============ ============ ============ ============
</TABLE>
-7-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 7. Purchases of Real Estate:
On March 23, 1998, the company purchased land and building in Houston, Texas for
$7,199,000 and assumed an existing lease with First Aid Products, Inc. ("First
Aid"), as lessee. The obligations of First Aid are unconditionally guaranteed by
its parent company, NutraMax Products, Inc. The lease has an initial term
through April 2013 with a five-year renewal term at the option of the lessee.
Annual rent is $817,773 with annual increases starting in May 1998 based on
increases in the Consumer Price Index ("CPI"), capped at 5%.
Note 8. Property Leased to Etec Systems, Inc.:
In February 1995, the Company purchased land and buildings in Hayward,
California for $11,860,000 and entered into a net lease with ETEC Systems, Inc.
("Etec"). In connection with the transaction, the Company was granted warrants
for 159,314 shares of Etec common stock, exercisable at $0.45 share. In August
1996, the Company agreed to cancel rights to 90,546 warrants in exchange for a
refund of approximately $2,634,000 of the original purchase price. At that time,
the Company entered into a commitment to construct an additional building at the
Etec property, and, in January 1997, the Company purchased such building for
$5,241,000.
In February 1998, the Company entered into a series of transactions including
paying off the existing limited recourse mortgage loan on the Etec property,
purchasing additional improvements at the Etec property of approximately
$11,518,000, entering into a commitment and construction agency agreement to
fund additional improvements of up to $52,356,000 (the "Project II
Improvements"), amended the existing lease with Etec and transferred ownership
of the Etec property to a limited liability company, ET LLC. At that time the
Company paid off the $7,957,947 existing limited recourse mortgage loan
collateralized by the Etec property. In connection with paying off the loan, the
Company incurred a prepayment charge of $379,247 which has been recorded as an
extraordinary charge on the extinguishment of debt. In addition, on April 3,
1998, ET LLC received a commitment for $45,000,000 of limited recourse mortgage
financing on the Etec property.
As amended, the initial term of the Etec lease has been extended through May
2014 with three five-year renewal terms at Etec's option. After completion of
the Project II improvements, which is anticipated in May 1999, annual rent,
assuming that the entire Project II Improvement funding commitment is used, will
be approximately $8,622,000 with increases every three years based on increases
to the CPI.
Under the ET LLC limited liability company agreement., the Company initially has
a 99.99% interest in the Project II improvements and a 100% interest in the
existing Etec property. Corporate Property Associates 14 Incorporated
("CPA(R):14"), an affiliate, initially has a .01% interest in the Project II
improvements with a commitment to increase such interest to as much as a 49.99%
interest in the Project II Improvements. CPA(R):14's equity commitment; however,
will be limited to ten percent of the gross proceeds of its public offering
which is currently in registration.
Note 9. Subsequent Event:
On June 13, 1997, the Company purchased land and buildings in Menomonie and
Oconomowoc, Wisconsin for $8,505,000 and entered into a net lease agreement with
Silgan Containers Corporation ("Silgan"). Annual rent was $893,200. On April 14,
1998, the Company purchased a property in Fort Dodge, Iowa for $3,874,000 from
Silgan and amended the existing lease to include this property. As amended, the
initial term ends March 31, 2013 and provides for three five-year renewal terms
at the option of the lessee. As amended, Silgan's annual rent increased by
$381,800 to $1,275,000. Rent increases based on the CPI are scheduled for July
2002 and every five years thereafter.
-8-
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto as of March 31,
1998 included in this quarterly report and the Company's Annual Report on Form
10-K for the year ended December 31, 1997. This quarterly report contains
forward looking statements. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievement of the Company to be materially different from the results of
operations or plan expressed or implied by such forward looking statements.
Accordingly, such information should not be regarded as representations by the
Company that the results or conditions described in such statements or the
objectives and plans of the Company will be achieved.
FINANCIAL CONDITION:
In September 1997, the Company concluded an offering of common stock at
which time it had raised $201,198,000. The Company raised $81,360,000 in an
earlier offering. The Company is using the remaining funds from the offering for
purchases of additional real estate investments. To date, the Company has used
limited recourse mortgage financing and offering proceeds to purchase direct or
indirect interests in commercial properties and entered into net leases as
follows:
<TABLE>
<CAPTION>
Date Acquired Lease Obligor
------------- -------------
<S> <C>
May 13, 1994 Best Buy Co., Inc.
July 15, 1994 Big V Holding Corp.
October 14, 1994 Gensia, Inc.
February 10, 1995 Wal-Mart Stores, Inc.
February 16, 1995 Etec Systems, Inc.
June 8, 1995 and July 25, 1996 Q Clubs, Inc.
June 20, 1995 The Garden Companies, Inc.
November 9, 1995 Del Monte Corporation
November 13, 1995 Applied Bioscience International, Inc.
January 4, 1996 The Upper Deck Company
February 23, 1996 Rheometric Scientific, Inc.
March 11, 1996 Telos Corporation
March 28, 1996 Lanxide Corporation
September 19, 1996 Celadon Group, Inc.
November 19, 1996 Spectrian Corporation
December 16, 1996 Garden Ridge Corporation
December 24, 1996 Knogo North America, Inc.
January 28, 1997 Scott Companies Inc.
January 29, 1997 Childtime Childcare, Inc.
February 18, 1997 QMS Inc.
April 10, 1997 The Bon-Ton Stores, Inc.
June 13, 1997 and April 14, 1998 Silgan Containers Corporation
July 8, 1997 Pagg Corporation
July 18, 1997 Vermont Teddy Bear Co., Inc.
September 23, 1997 GDE Systems, Inc.
September 23, 1997 Texas Freezer Company, Inc.
September 29, 1997 Westell Technologies, Inc.
October 17, 1997 Randall International, Inc.
November 12, 1997 Career Education Corporation
December 16, 1997 Perry Graphic Communications, Inc.
and Judd's Incorporated.
December 30, 1997 Sandwich Bancorp, Inc.
March 23, 1998 NutraMax Products, Inc.
</TABLE>
As of May 18, 1998, the Company has commitments to complete build-to-suit
construction on properties leased to Childtime Childcare, Inc., Randall
International, Inc., Texas Freezer Company, Inc. and Etec Systems, Inc. A
substantial portion of the remaining uninvested proceeds of the common stock
offerings along with limited recourse mortgage debt will be used to complete
these projects. As of May 18, 1998, the
-9-
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Company had $32,500,000 of cash available for funding the completion of these
projects. The Company also has significant borrowing capacity because many of
its properties are unencumbered. The Company intends to obtain funds from
placing limited recourse mortgage debt on the unencumbered properties for the
purpose of purchasing additional properties.
There has been no material change in the Company's financial condition
since December 31, 1997. The decrease in cash of $33,513,000 was primarily due
to purchases of real estate of $23,013,000 and the prepayment of a mortgage loan
of $7,958,000. Cash flow from operations of $4,190,000 and available cash was
used to pay dividends of $5,719,000 and scheduled mortgage principal payments of
$476,000.
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. The purpose of comprehensive income is to report a
measure of all changes in equity of the Company that result from recognized
transactions and other economic events other than transactions with owners
(e.g., issuance of stock, paying dividends and purchasing treasury stock) as
owners. During the three-month period ended March 31, 1998, the Company's
shareholders' equity reflected an increase of $815,000 from the increase in the
quoted fair value of the Company's investment in 68,768 shares of common stock
of Etec Systems, Inc., a publicly-traded company. The warrants for Etec common
stock were obtained in connection with structuring the Company's net lease
transaction with Etec. The Company holds warrants exercisable for common stock
from several of its lessees. The Company assesses, on an on-going basis, whether
to exercise such warrants.
As of March 31, 1998, the Company had unpaid asset management and
performance fees of $2,977,000, including a substantial portion that has been
voluntarily deferred by the Advisor. The Independent Directors of the Company
have determined that it would be in the best interests of the Company and
shareholders to permit the Company to pay the fees to the Advisor in either cash
or common stock of the Company. The Independent Directors have approved an
amendment to the Company's Advisory Agreement that would permit the Company to
pay all or any portion of the asset management and performance fees in common
stock and have submitted a proposal to the shareholders to approve such an
amendment. The Independent Directors and the Company believe that the use of
common stock to pay such fees would (i) reduce the cash required by the Company
to pay expenses, thereby strengthening the Company's balance sheet, and (ii)
increase equity ownership of the Advisor and align further the interests of the
Advisor and the Shareholders of the Company.
RESULTS OF OPERATIONS:
The results of operations for the three periods ended March 31, 1997
and 1998 are not directly comparable as the Company's direct and indirect
investment in net leased real estate has materially increased during 1997 and
1998. Increases in lease revenues, equity income, interest, general and
administrative expenses, property expenses, depreciation and amortization were
primarily due to the increases in real estate assets and related mortgage
borrowings. The increase in other interest income was due to the increase in
cash balances available for investment as a result of raising capital during
1997. Interest income will decrease as cash available for investment is used.
Although there has been an increase in general administrative expenses for the
comparable periods, the rate of increase in such costs is expected to moderate
as the Company's real estate assets and related revenues increase. The increase
in property expenses was the result of the increases in asset management and
performance fees. The increase in fees are directly related to the increase in
the Company's asset base because the fees are calculated based on the size of
the Company's real estate portfolio.
In accordance with generally accepted accounting principles, rents
received during the construction period on build-to-suit projects are not
recognized as rental revenues nor included in cash flow from operations. Such
rents are recorded as a reduction in the costs of the build-to-suit project.
When the projects are completed, rents from these properties will be recognized
as revenues in the results of operations.
-10-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 1998, no matters were submitted
to a vote of Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Pursuant to Rule 701 of Regulation S-K, the use of proceeds from the
Company's offering of common stock which commenced February 2, 1996
(File # 33-99994) is as follows:
<TABLE>
<S> <C>
Shares registered: 20,300,000
Aggregate price of offering amount registered: $203,000,000
Shares sold: 20,198,459
Aggregated offering price of amount sold: $201,984,590
Direct or indirect payments to directors,
officers, general partners of the issuer or
their associates, to persons owning ten
percent or more of any class of equity
securities of the issuer and to affiliates of
the issuer: $ 5,235,503
Direct or indirect payments to others: $ 10,521,232
Net offering proceeds to the issuer after
deducting expenses: $186,227,855
Purchases of real estate: $151,708,241
Working capital reserves: $ 2,019,846
Temporary investments in cash and cash
equivalents: $ 32,499,768
</TABLE>
(b) Reports on Form 8-K:
During the quarter ended March 31, 1998, the Company filed a report
on Form 8-K dated March 31, 1998 under Item 2, Acquisition and
Disposition of Assets.
-11-
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
05/19/98 By: /s/ Steven M. Berzin
-------- --------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
05/19/98 By: /s/ Claude Fernandez
-------- --------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE THREE-MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS ARE STATED AT HISTORICAL
COST.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 38,909,891
<SECURITIES> 4,057,399
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,846,683
<PP&E> 291,400,725
<DEPRECIATION> 5,500,011
<TOTAL-ASSETS> 349,574,780
<CURRENT-LIABILITIES> 17,100,854
<BONDS> 80,460,041
0
0
<COMMON> 28,334
<OTHER-SE> 251,985,551
<TOTAL-LIABILITY-AND-EQUITY> 349,574,780
<SALES> 0
<TOTAL-REVENUES> 8,046,996
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,590,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,950,116
<INCOME-PRETAX> 3,881,748
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,881,748
<DISCONTINUED> 0
<EXTRAORDINARY> (379,247)
<CHANGES> 0
<NET-INCOME> 3,502,501
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
