<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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
(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
28,535,525 shares of common stock;
$.001 Par Value outstanding
at August 10, 1998
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of December 31, 1997
and June 30, 1998 2
Condensed Consolidated Statements of Income for the three
and six months ended June 30, 1997 and 1998 3
Condensed Consolidated Statements of Comprehensive Income
for the three and six months ended June 30, 1997 and 1998 3
Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 1997 and 1998 4
Notes to Condensed Consolidated Financial Statements 5-8
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
</TABLE>
* The summarized financial information contained herein is unaudited; however,
in the opinion of management, all adjustments necessary for a fair presentation
of such financial information have been included.
-1-
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---- ----
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$4,360,196 at December 31, 1997 and
$6,817,790 at June 30, 1998 $ 222,654,204 $ 255,857,595
Net investment in direct financing leases 40,966,665 41,032,352
Equity investments 16,635,180 16,727,355
Cash and cash equivalents 72,423,221 44,402,586
Marketable securities, at fair value 3,174,137 2,431,934
Other assets 2,839,719 5,004,716
------------- -------------
Total assets $ 358,693,126 $ 365,456,538
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 88,893,692 $ 95,020,665
Accrued interest payable 650,800 853,074
Accounts payable to affiliates 3,430,059 1,554,772
Accounts payable and accrued expenses 259,189 265,868
Prepaid rental income and security deposits 5,416,573 5,135,646
Deferred acquisition fees payable to an affiliate 6,469,146 7,016,013
------------- -------------
Total liabilities 105,119,459 109,846,038
------------- -------------
Minority interest 3,181,895
-------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 40,000,000 shares; issued and
outstanding 28,334,451 and 28,630,039 shares at
December 31, 1997 and June 30, 1998 28,334 28,630
Additional paid-in capital 253,835,934 256,791,519
Unrealized appreciation, marketable securities 3,031,300 2,293,847
Dividends in excess of accumulated earnings (2,768,966) (5,895,039)
------------- -------------
254,126,602 253,218,957
Less, common stock in treasury, at cost,
68,043 and 94,514 shares at December 31, 1997
and June 30, 1998 (552,935) (790,352)
------------- -------------
Total shareholders' equity 253,573,667 252,428,605
------------- -------------
Total liabilities and shareholders' equity $ 358,693,126 $ 365,465,538
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited 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 Six Months Ended
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
------------- -------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $3,767,074 $7,278,871 $ 6,805,023 $13,349,597
Interest from direct
financing leases 1,221,991 1,235,182 2,508,688 2,466,873
Other interest income 846,976 541,718 1,301,985 1,286,297
---------- ---------- ----------- ----------
5,836,041 9,055,771 10,615,696 17,102,767
---------- ---------- ----------- ----------
Expenses:
Interest 1,565,866 1,990,310 2,770,083 3,940,426
Depreciation 672,079 1,317,779 1,197,333 2,457,594
General and administrative 520,657 604,137 946,361 1,115,980
Property expenses 611,813 843,333 1,179,365 1,922,269
Amortization 19,819 26,164 33,578 45,248
---------- ---------- ----------- ----------
3,390,234 4,781,723 6,126,720 9,481,517
---------- ---------- ----------- ----------
Income before income
from equity investments
and extraordinary item 2,445,807 4,274,048 4,488,976 7,621,250
Income from equity investments 522,806 537,439 1,029,862 1,071,985
---------- ---------- ----------- ----------
Income before extraordinary
item 2,968,613 4,811,487 5,518,838 8,693,235
Extraordinary loss on
extinguishment of debt (379,247)
---------- ---------- ----------- ----------
Net income $2,968,613 $4,811,487 $ 5,518,838 $8,313,988
========== ========== =========== ==========
Basic earnings per common share
before extraordinary item $ .15 $ .17 $ .30 $ .30
Extraordinary item (.01)
---------- ---------- ----------- ----------
Basic earnings per share $ .15 $ .17 $ .30 $ .29
========== ========== =========== ==========
Weighted average shares
outstanding - basic and diluted 20,004,239 28,311,896 18,350,006 28,286,280
========== ========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $2,968,613 $ 4,811,487 $5,518,838 $8,313,988
Other comprehensive income:
Change in unrealized gain on
marketable securities during
the period (1,552,319) (737,453)
---------- ----------- ---------- ----------
Comprehensive income $2,968,613 $ 3,259,168 $5,518,838 $7,576,535
========== =========== ========== ==========
</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>
Six Months Ended
June 30,
--------
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,518,838 $ 8,313,988
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,230,911 2,502,842
Straight-line rent adjustments and other
noncash rent adjustments (129,097) (662,026)
Income from equity investments in excess
of distributions received (208,123) (92,175)
Extraordinary charge on extinguishment of debt 379,247
Provision for uncollected rent 118,624
Change in operating assets and liabilities, net 315,088 (433,612)
------------ ------------
Net cash provided by operating activities 6,727,617 10,126,888
------------ ------------
Cash flows from investing activities:
Purchases of real estate and additional capitalized costs (59,376,314) (35,114,118)
------------ ------------
Net cash used in investing activities (59,376,314) (35,114,118)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 32,500,000 15,000,000
Prepayment of mortgage payable (2,796,000) (7,957,949)
Payments on mortgage principal (714,973) (915,078)
Proceeds from stock issuance, net of costs 55,462,579
Capital contributions from minority interest 3,181,895
Deferred financing costs (360,955) (285,548)
Dividends paid (6,110,962) (11,440,061)
Payment made on extinguishment of debt (379,247)
Purchase of treasury stock (174,487) (237,417)
------------ ------------
Net cash provided by (used in) financing activities 77,805,202 (3,033,405)
------------ ------------
Net increase (decrease) in cash and cash equivalents 25,156,505 (28,020,635)
Cash and cash equivalents, beginning of period 50,893,314 72,423,221
------------ ------------
Cash and cash equivalents, end of period $ 76,049,819 $ 44,402,586
============ ============
Supplemental disclosure of cash flows information:
Interest paid (including capitalized interest) $ 2,397,232 $ 3,738,152
============ ============
</TABLE>
Noncash operating and financing activities:
In June 1998, the Company issued 295,588 shares of common stock to the
Advisor in settlement of $2,955,881 of performance fees that had been
voluntarily deferred by the Advisor.
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. Transactions with Related Parties:
Pursuant to the advisory agreement, the Advisor performs certain advisory and
administrative services for the Company. For the three-month and six-month
periods ended June 30, 1997, the Company incurred asset management fees of
$280,108 and $525,086, respectively, with performance fees in like amount.
General and administrative expense reimbursements for the three-month and
six-month periods ended June 30, 1997 were $264,829 and $500,884, respectively.
For the three-month and six-month periods ended June 30, 1998, the Company
incurred asset management fees of $438,223 and $838,961, respectively, with
performance fees in like amount. General and administrative expense
reimbursements for the three-month and six-month periods ended June 30, 1998
were $136,303 and $319,005, respectively.
On June 10, 1998, the Company's shareholders approved a proposal to allow the
Company to pay fees to the Advisor in Company common stock rather than cash. In
connection with such approval, the Company issued 295,588 shares of common stock
to the Advisor in settlement of accrued performance fees of $2,955,881, the
collection of which had previously been voluntarily deferred by the Advisor. The
stock is subject to certain restrictions and will vest ratably over a five year
period. For purposes of determining the number of shares to be issued, the
Company used the $10.00 per share price used in connection with its registered
offering of shares of common stock for sale. Pursuant to the prospectus of the
Company relating to the shares, no appraisal of the fair value of the Company's
assets is scheduled until December 31, 1998. Determination of a per share value
for shares issued after that date will be based on the appraised fair value.
With this issuance of stock, the Advisor's share of ownership in the Company
represents approximately 1.11% of the Company's outstanding shares of common
stock as of August 10, 1998.
The Company, in conjunction with certain affiliates, is a participant in a cost
sharing agreement for the purpose of renting and occupying office space. Under
the agreement, the Company pays its proportionate share of rent and other costs
of occupancy. Net expenses incurred for the six-months ended June 30, 1997 and
1998 were $59,875 and $71,547, respectively.
-5-
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 3. Industry Segment Information:
The Company's operations consist of the investment in and the leasing of
industrial and commercial real estate. The financial reporting sources of the
leasing revenues below for the six-month periods ended June 30, 1997 and 1998
are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
Per Statements of Income:
<S> <C> <C>
Rental income from operating leases $ 6,805,023 $13,349,597
Interest from direct financing leases 2,508,688 2,466,873
Adjustment:
Share of leasing revenue from equity
investments 2,211,610 2,209,126
----------- -----------
$11,525,321 $18,025,596
=========== ===========
</TABLE>
For the six-month periods ended June 30, 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>
Etec Systems, Inc. $ 753,953 6% $ 1,604,539 9%
Perry Graphic Communications, Inc.
and Judd's Incorporated 1,095,783 6
Scott Companies Inc. 855,644 8 970,425 5
Spectrian Corporation 962,500 8 962,500 5
Best Buy Co., Inc. (a) 897,172 8 894,687 5
Westell Technologies, Inc. 874,125 5
QMS, Inc. 609,409 5 844,688 5
Telos Corporation 723,500 6 723,500 4
Q Clubs, Inc. 690,319 6 699,804 4
The Upper Deck Company (a) 659,938 6 659,938 4
Gensia, Inc. (a) 654,500 6 654,500 4
Applied Bioscience International, Inc. 651,000 6 651,000 4
Del Monte Corporation 643,125 6 643,125 4
The Bon-Ton Stores, Inc. 285,918 2 635,375 4
GDE Systems, Inc. 631,015 3
Silgan Containers Corporation 44,660 610,303 3
Career Education Corporation 608,141 3
Lanxide Corporation 515,000 4 515,000 3
Garden Ridge Corporation 497,882 4 497,882 3
Big V Holding Corp. 405,079 4 412,468 2
The Garden Companies, Inc. 408,200 4 408,200 2
Rheometric Scientific, Inc. 456,909 4 407,705 2
Celadon Group, Inc. 350,000 3 357,889 2
Vermont Teddy Bear Co., Inc. 326,200 2
Pagg Corporation 295,000 2
Childtime Childcare, Inc. 279,892 2
Knogo North America, Inc. 262,000 2 262,000 1
NutraMax Products, Inc. 225,261 1
Wal-Mart Stores, Inc. 198,613 2 198,613 1
Sandwich Bancorp, Inc. 76,038
----------- ---- ----------
$11,525,321 100% $18,025,596 100%
=========== ==== =========== ====
</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 six months ended June 30, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Total Paid Per Share
------------- ---------- ---------
<S> <C> <C>
December 31, 1997 $5,719,178 $0.2023
========== =======
March 31, 1998 $5,720,883 $0.2025
========== =======
</TABLE>
A dividend of $.2027 per share was declared and paid in July 1998 for the
quarter ended June 30, 1998.
Note 6. Equity Investments:
The Company holds a 37% interest in BB Property Company ("BB Property"), a
general partnership that net leases 17 retail stores to Best Buy Co., Inc., a
50% interest in Gena Property Company ("Gena"), a general partnership that net
leases two office buildings to Gensia, Inc. and a 50% interest in Cards Limited
Liability Company ("Cards LLC"), a general partnership that 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 June 30, 1998 December 31, 1997 June 30, 1998 December 31, 1997 June 30, 1998
----------------- -------------- ----------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Assets $21,710 $21,135 $45,626 $45,532 $26,729 $26,596
Liabilities 11,671 10,914 29,994 29,575 15,511 15,399
Partner's capital 10,039 10,221 15,632 15,957 11,218 11,197
</TABLE>
<TABLE>
<CAPTION>
For The Six months Ended
June 30, 1997 June 30, 1998
----------------------------------------------- -----------------------------
Gena BB Property Cards LLC Gena BB Property Cards LLC
----------- ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,309 $ 2,425 $1,320 $ 1,308 $ 2,418 $ 1,319
Interest (465) (1,365) (624) (440) (1,329) (615)
Depreciation (230) (230)
Other expenses (1) (46) (1) (4) (2)
------- ------- ------ ------ ------- --------
Net income $ 613 $ 1,014 $ 696 637 $ 1,085 $ 702
======= ======= ====== ====== ======= =======
</TABLE>
Note 7. Purchases of Real Estate:
A. 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 Consumer Price Index ("CPI")
are scheduled for July 2002 and every five years thereafter.
-7-
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
B. On May 18, 1998 the Company purchased land in Ashburn, Virginia for
$676,380 upon which a facility is being constructed pursuant to a
construction agency and lease agreement with International Management
Consultant, Inc. ("IMCI"). The total purchase price and construction
costs are expected to be $6,494,000 with IMCI having the obligation to
fund any excess costs necessary to complete the project.
During the construction period, IMCI will pay monthly installments
based on amounts advanced by the Company for project costs. Upon the
earlier of completion and February 10, 1999, a lease term of 15 years
will commence beginning with a six-month rent abatement period, and
annual rent thereafter of $734,822. The lease provides for annual rent
increases based on increases in the CPI. Annual increases will be no
less than 1% and no more than 3%.
C. On June 23, 1998, the Company purchased land in Mechanicsburg,
Pennsylvania upon which an office facility will be constructed pursuant
to construction agency and net lease agreements with BCC Development
and Management Co. ("BCC"). The total purchase price and construction
costs are expected to be $4,752,880 with BCC having the obligation to
fund any excess costs necessary to complete the project. The lease
obligations of BCC are unconditionally guaranteed by Balanced Care
Corporation.
During construction, BCC will pay a monthly installment based on
amounts advanced by the Company for project costs. Upon the earlier of
completion or June 30, 1999, the Company and BCC will execute a lease
addendum setting BCC's annual rent payments in an amount equal to the
Company's total project costs multiplied by 9.9%, with rent increases
every three years based on increases in the CPI with each increase
capped at a maximum of 10.87%. The lease provides for an initial term
of 15 years with two five-year renewal options.
Note 8. Mortgage Financing:
On May 8, 1998, the Company obtained a $45,000,000 limited recourse mortgage
loan collateralized by a deed of trust on properties leased to ETEC Systems,
Inc. ("Etec") and an assignment of the Etec lease. As of June 30, 1998, the
Company received mortgage proceeds of $15,000,000. The remaining $30,000,000
will be disbursed from time to time through no later than August 31, 1999 and
after completion of the construction of a new Etec facility (the "Project II
Improvements"), for which the Company and Corporate Property Associates 14
Incorporated ("CPA(R):14"), an affiliate, are committed to fund total costs of
up to $52,356,000. Under the agreement with CPA(R):14, CPA(R):14 is committed to
acquire up to a 49.99% interest in the Project II Improvements. CPA(R):14,
however, will not contribute in excess of 10% of the gross proceeds of its
public offering which is currently in progress. As of June 30, 1998, CPA(R):14
had made contributions of $3,181,895 toward Project II Improvements, and have
been recorded in the accompanying condensed consolidated financial statements as
minority interest.
The $15,000,000 mortgage loan proceeds are evidenced by Series A Notes bearing
interest at an annual rate of 7.11% with monthly principal and interest payments
of $133,300 and a maturity date of December 1, 2013 at which time the loan will
be fully amortized. The remaining $30,000,000 mortgage proceeds will be
evidenced by Series B Notes bearing interest at an annual interest rate of 7.11%
with monthly principal and interest payments of $271,497 and a maturity date of
September 1, 2014.
-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 June 30,
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.
RESULTS OF OPERATIONS:
Net income for the three-month and six-month periods ended June 30, 1998
reflects increases of $1,843,000 and $2,795,000, respectively, as compared with
the three-month and six-month periods ended June 30, 1997. The increases in net
income were due to an increase in lease revenues (rental income and interest
from direct financing leases), and were partially offset by increases in
interest, depreciation and property expenses. The increases in the above revenue
and expense items were primarily due to the increase in the Company's real
estate portfolio and related mortgage balances for the comparable periods.
Between June 30, 1997 and June 30, 1998, the Company's direct investment in real
estate increased by over 60% from approximately $184,000,000 to approximately
$297,000,000 with mortgage balances increasing by 26% to $95,000,000. Other
interest income has decreased as cash balances have decreased. The decrease in
cash balances was due to purchases of additional properties to continue to
diversify the Company's real estate portfolio. The increase in property expenses
was due to an increase in asset management and performance fees, which are
determined solely by the value of real estate owned.
Under generally accepted accounting principles, rents received during the
construction period on build-to-suit projects are not recognized as lease
revenues nor included in cash flow from operations. Such rents are recorded as a
reduction in the cost basis of the build-to-suit projects. Only as the projects
are completed are the rents from these projects recognized as revenues in the
results of operations. The Company currently has funded costs in excess of
$15,000,000 on build-to-suit projects being constructed for Etec Systems, Inc.,
International Management Consulting, Inc., Texas Freezer Company, Inc., Balanced
Care Corporation and Randall International, Inc. These projects are scheduled
for completion between November 1998 and June 1999. The Company's annual rents
from International Management Consulting, Texas Freezer, Balanced Care and
Randall are expected to amount to approximately $2,945,000 assuming that all
committed project costs are needed to complete construction. Approximate
remaining costs for all of the projects other than Etec are expected to total
$14,280,000. The costs of the new facility being constructed at the Etec
property are estimated to amount to $52,356,000 with a 49.99% interest expected
to be owned by Corporate Property Associates 14 Incorporated, an affiliate, and
$30,000,000 to be financed by a limited recourse mortgage loan. Based on a
projected equity contribution of $11,178,000, the Company's share of annual cash
flow (rental income less mortgage debt service) is expected to be $1,243,000.
Accordingly, the Company believes that current operating performance will not be
representative of future operating performance.
FINANCIAL CONDITION:
In September 1997, the Company completed an offering of common stock after
raising $201,198,000. The Company raised $81,360,000 in a prior offering. The
Company is using its uninvested funds from the offering for purchases of
additional real estate and to complete commitments on the build-to-suit projects
described above. As of August 6,1998, the Company had $48,000,000 of cash
available for the completion of these projects and the purchase of additional
investments. The Company also has significant borrowing capacity because many of
its properties are unencumbered. The Company intends to place limited recourse
loans on many of such properties and to use the proceeds from the borrowings for
the purpose of purchasing additional properties.
-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
FINANCIAL CONDITION (continued):
Since December 31, 1997, the Company's cash balances have decreased by
$28,021,000 as it has used $35,114,000 in connection with (i) the purchase of
properties leased to Silgan Containers Corporation and NutraMax Products, Inc.
and (ii) funding build-to-suit projects including new construction agreements
entered into in June 1998 with Balanced Care and International Management
Consulting. The Company also paid off a limited recourse loan of $7,958,000 on
the properties leased to Etec and obtained $15,000,000 of new financing
subsequent to the completion of improvements on a new building at the Etec
property. The Company also has received a commitment from a lender for
$30,000,000 of limited recourse mortgage financing for the new project at Etec
that will be available after such project is completed in 1999. The Company has
also received $3,182,000 from Corporate Property Associates 14 Incorporated, an
affiliate, for a portion of its share of funding of the new Etec construction.
Since June 30, 1998, the Company has obtained $11,000,000 as a result of placing
limited recourse mortgage financing on the properties purchased in 1997 and
leased to Perry Graphic Communications, Inc. and Judd's Incorporated. The loan
provides for monthly payments of principal and interest at an interest rate of
7.01% based on a 25-year amortization schedule and matures in ten years.
Cash flow from operations of $10,127,000 was not sufficient to fully pay
dividends to shareholders of $11,440,000 and scheduled mortgage principal
payments of $915,000. The Company believes that its ability to meet its dividend
objective will be realized as build-to-suit projects are completed and the cash
flow and revenues from the lessees at these properties are included in cash flow
from operations and the results of operations, respectively. The Company has
devoted a substantial portion of its resources to build-to-suit projects as it
has concluded that they should provide a much better return on investment than
many other opportunities being evaluated by the Advisor's acquisitions team.
In June 1998, the shareholders of the Company approved a proposal to amend
the Company's Advisory Agreement to allow the Company, with the consent of the
Advisor, to pay asset management and performance fees in common stock rather
than cash. As a result of this amendment to the Advisory Agreement, the Company
was able to convert liabilities for unpaid performance fees of $2,956,000 to
equity. By paying all or a portion of such fees through the issuance of stock
rather than payment of cash, the Company's liquidity has been enhanced. The
current issuance of shares and any future issuance of shares to pay fees will
reduce the cash required by the Company to pay expenses, strengthen the
Company's balance sheet through the replacement of debt with equity and increase
the equity ownership of the Advisor which will further align the interests of
the Advisor and shareholders of the Company. With such issuance, the Advisor's
ownership in the Company has increased to more than 1%.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
accounting standards for the way that public business enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products, geographic area and major customers. The statement is effective
for financial periods beginning after December 15, 1997, however, SFAS No. 131
does not need to be applied to interim financial statements in 1998. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all quarters of fiscal years beginning after June 15, 1999. The Company is
currently evaluating the impact, if any, of SFAS No. 131 and SFAS No. 133.
The Company's Advisor has responsibility for maintaining the Company's
books and records. An affiliate of the Advisor services the computer systems
used for maintaining such books and records. In its preliminary assessment of
Year 2000 issues, the affiliate believes that such issues will not have a
material effect on the Company's operations, however, such assessment has not
been completed. The Company relies on its bank and transfer agent for certain
computer-related services and has initiated discussions to determine whether
they are addressing Year 2000 issues that may affect the Company.
-10-
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual Shareholders meeting was held on June 10, 1998, at
which time a vote was taken to elect the Company's directors
through the solicitation of proxies. The following directors
were elected for a one-year term:
<TABLE>
<CAPTION>
Total Shares Shares Shares
Name Of Director Shares Voting Voting Yes Voting No Abstaining
---------------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
William P. Carey 14,302,243 14,107,737 15,730 178,776
Ralph G. Coburn 14,302,243 14,000,216 123,251 178,776
William Ruder 14,302,243 14,077,436 46,031 178,776
George E. Stoddard 14,302,243 14,059,547 63,920 178,776
Thomas E. Zacharias 14,302,243 14,069,084 54,383 178,776
</TABLE>
An amendment to the Company's Advisory Agreement was
approved which allows the Company, with the consent of the
Advisor, to pay fees to its Advisor through issuance of
common stock.
<TABLE>
<CAPTION>
Total Shares Shares Shares
Shares Voting Voting Yes Voting No Abstaining
------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
14,302,243 12,317,824 1,033,968 950,451
</TABLE>
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 is as follows:
<TABLE>
<CAPTION>
<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: $144,954,392
Working capital reserves: $ 2,019,846
Temporary investments in cash and cash
equivalents: $ 39,253,617
</TABLE>
(b) Reports on Form 8-K:
During the quarter ended June 30, 1998, the Company filed a
report on Form 8-K/A-1 dated April 8, 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
08/10/98 By: /s/ Steven M. Berzin
-------- ----------------------------------
Date Steven M. Berzin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
08/10/98 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 financial information extracted from form 10Q for
six months ended June 30, 1998 and is qualified in its entirety by references to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 44,402,586
<SECURITIES> 2,431,934
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,834,520
<PP&E> 303,707,737
<DEPRECIATION> 6,817,790
<TOTAL-ASSETS> 365,456,538
<CURRENT-LIABILITIES> 7,809,360
<BONDS> 95,020,665
0
0
<COMMON> 28,630
<OTHER-SE> 252,428,605
<TOTAL-LIABILITY-AND-EQUITY> 365,465,538
<SALES> 0
<TOTAL-REVENUES> 17,102,767
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,038,249
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,940,426
<INCOME-PRETAX> 8,693,235
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,693,235
<DISCONTINUED> 0
<EXTRAORDINARY> (379,247)
<CHANGES> 0
<NET-INCOME> 8,313,988
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
