<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, 1997
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 033-68728
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
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(Exact name of registrant as specified in its charter)
MARYLAND 13-3726306
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
NONE NONE
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- ----------------------- -----------------------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
SHARES OF COMMON STOCK
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(Title of Class)
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(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 delinquent filers pursuant to Item
405 of Regulation S-K (ss. 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 April 6,
1998. Non-affiliates held 28,282,951 shares of common stock, $.001 Par Value
outstanding at April 6, 1998.
<PAGE> 2
PART I
Item 1. Business.
Registrant is engaged in the business of investing in commercial and
industrial real estate properties that 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, 1997. 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"). An affiliate of
the Advisor, Carey Diversified LLC, is the sole general partner of the nine
CPA(R) real estate limited partnerships. The Advisor is also the advisor of
Corporate Property Associates 10 Incorporated ("CPA(R):10"), Carey Institutional
Properties Incorporated ("CIP(TM)") and Corporate Property Associates 14
Incorporated ("CPA(R):14"). 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, 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.
In August 1997, Registrant registered an additional 300,000 shares under the
second offering. In September 1997, the Second Offering concluded, and
20,198,459 Shares ($201,984,590) were issued. Registrant intends to invest the
net offering proceeds (except for funds used to establish a working capital
reserve) in additional real estate investments in order to diversify further
Registrant's portfolio of real estate investments. The properties owned by
Registrant are described in Item 2.
It is anticipated that a portion of Registrant's property
acquisitions may 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 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 that
are necessary to keep the lessee competitive in its industry. Furthermore, if
the lessee replaces existing management, it will be more difficult for the
Advisor to determine the likelihood of the lessee's success in its business and
of its ability 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, 1997, no lessee represented 10% or
more of total operating revenue. See Note 8 to the Consolidated Financial
Statements in Item 8. As Registrant continues to invest proceeds of the
Offering, these percentages are expected to decrease. Lessees retain the
obligation for the operating expenses of their leased properties so that, other
than rental income, there are no significant
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operating data (i.e., expenses) reportable on Registrant's leased properties. 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.
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 that 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 provide adequate coverage for property
damage and any liability claims that 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.
Since Registrant's objective is to invest in properties that are
occupied by a single corporate tenant which are subject to net leases backed by
the credit of the corporate lessee, Registrant's properties are not initially
subject to the competitive conditions of local and regional real estate markets.
Because Registrant would 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, its business franchise and the
importance of the property to its business.
Registrant qualifies and intends to continue to qualify as a real
estate investment trust ("REIT") for the year ended December 31, 1997 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 that 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.
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Registrant's Advisor has responsibility for maintaining Registrant'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 Registrant's operations. Such assessment; however, has not
been completed. Registrant 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 might affect Registrant.
Registrant does not have any employees. Employees of an affiliate of
the Advisor perform accounting, secretarial and transfer services for
Registrant. Service Resource Phoenix Corporation performs certain transfer
services for Registrant and The Chase Manhattan Bank 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.
During 1997, Registrant purchase properties and entered into net
leases with Scott Companies, Inc. ("Scott"), Childtime Childcare, Inc.
("Childtime"), QMS, Inc. ("QMS"), The Bon-Ton Stores, Inc. ("Bon-Ton"), Silgan
Containers Corporation ("Silgan"), PAGG Corporation ("PAGG"), Vermont Teddy Bear
Co., Inc. ("Vermont Teddy Bear"), GDE Systems, Inc. ("GDE"), Texas Freezer
Company, Inc. ("Texas Freezer") and Westell Technologies, Inc. ("Westell") as
described hereafter.
On January 23, 1997, Registrant purchased from Scott Co. of
California, land and manufacturing, office, warehouse and parking facilities in
San Leandro, California for $17,910,000 and entered into a net lease. The lease
obligations are guaranteed by Scott Companies, Inc., the parent company. 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 $1,940,850 with rent
increases every three years based on increases to the Consumer Price Index
("CPI").
On February 19, 1997, Registrant purchased from QMS its
headquarters, research and manufacturing facilities in Mobile, Alabama 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, 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 increases to the CPI. Concurrently with the acquisition of
the QMS properties, a limited recourse mortgage loan of $7,200,000 was obtained.
As a result of a restructuring, QMS incurred charges that resulted in violation
of certain financial covenants relating to tangible net worth and fixed charge
coverage ratios under its lease agreement. On December 8, 1997, the Company
agreed to waive QMS's default for a one year period, in consideration for a
$1,300,000 prepayment of rent and a reduction of the exercise price of the
warrants to $4.00 per share. The $1,300,000 has been applied as a principal
prepayment on the mortgage loan, and the lender has reamortized the loan and
reduced monthly principal payments from $24,303 to $20,645.
On January 29, 1997, Registrant purchased four parcels of land on
which there are existing or were to be constructed childcare facilities and
entered into a net lease with Childtime. Concurrently with the acquisition and
net lease agreement, Registrant and Childtime entered into a construction agency
agreement and a commitment to purchase and lease up to an additional six
properties. The cost of constructing the ten Childtime facilities is estimated
to amount to up to $9,977,000 plus structuring and acquisition fees payable to
an affiliate of the Registrant. Upon completion but no later than October 1998,
an initial lease term of 20 years will commence with two five-year renewal
terms. Annual rent will be $1,120,000 with rent increases every three years
based on increases to the CPI, capped at 3.5% for any one lease year. Additional
sites in Ackworth, Georgia, Silverdale, Washington and Hauppauge, New York have
been purchased and are being developed as Childtime facilities.
On April 10, 1997, Registrant purchased land and a distribution
center in Allentown, Pennsylvania and land and a retail store in Johnstown
Pennsylvania for $12,041,885 and entered into a net lease agreement with Bon-Ton
Department Stores, Inc. ("Bon-Ton"). Bon-Ton's parent company, The Bon-Ton
Stores, Inc., has unconditionally guaranteed Bon-Ton's obligations under the
lease. The lease has an initial term of 20 years with six five-year renewal
terms, at the option of the lessee. Annual rent is $1,270,750, with rent
increases every three years during the initial term based on increases to the
CPI, capped
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<PAGE> 5
at 3% for any lease year. Registrant subsequently obtained a limited recourse
mortgage loan of $6,900,000 collateralized by Bon-Ton properties and an
assignment of the Bon Ton lease. The loan provides for monthly payments of
interest only for three years at an annual interest rate of the London
Inter-bank Offered Rate plus 1.9%. Registrant may elect to convert the loan to a
fixed rate of interest based on the five, seven or ten year U.S. Treasury
Security rate in effect at the conversion date plus 1.9% per annum with a
maturity of eight, ten or thirteen years, respectively, and would commence
paying principal installments based on a 20-year amortization schedule.
On June 13, 1997, Registrant purchased land and buildings in
Menomonie and Oconomowoc, Wisconsin for $8,515,000 and entered into a net lease
agreement with Silgan. The lease has an initial term of 15 years with three
five-year renewal terms. Annual rent is $893,200 with increases every five years
based on increases to the CPI.
On July 8, 1997, Registrant purchased land and building in Milford,
Massachusetts for $5,549,378 and entered into a net lease agreement with PAGG.
The lease has an initial term of 12 years with two five-year renewal terms at
the option of the lessee. Annual rent is $590,000 with rent increases every
three years with such increases based on increases to the CPI, with any increase
limited to 12.55%. Registrant subsequently obtained a $3,200,000 limited
recourse mortgage loan collateralized by the PAGG property. The loan provides
for an annual interest rate of 7.7% with monthly principal and interest payments
of $26,171 through November 1, 2007 at which time a balloon payment is
scheduled.
On July 18, 1997, Registrant purchased land and building in
Shelburne, Vermont for $5,863,874 and entered into a net lease with Vermont
Teddy Bear. The lease has a term of 20 years and provides for three five-year
renewal terms. Annual rent is $652,400 with rent increases every three years
based on increases to the CPI, capped at 4% for any lease year. In connection
with the purchase, Registrant obtained a $3,311,509 limited recourse mortgage
loan collateralized by the Vermont Teddy Bear property and an assignment of the
Vermont Teddy Bear lease. The loan initially provides for monthly payments of
interest and principal of $29,264 at an annual interest rate of 8.75% and is
based on a 20-year amortization schedule. Vermont Teddy Bear granted Registrant
warrants to purchase up to 150,000 shares of its common stock at an exercise
price of $1.31 per share.
On September 23, 1997, Registrant purchased land and a building in
San Diego, California for $12,748,000 and assumed an existing net lease, as
lessor, with GDE, as lessee. The lease has a remaining term of nine years and
five months through January 2007. Annual rent is currently $1,153,548 with
annual rent increases. The annual rent increases will be the greater of (a)
$22,500 and (b) an amount based on increases to the CPI.
On September 23, 1997, Registrant purchased land in Dallas, Texas
for $1,644,289 upon which a cold storage warehouse is being constructed pursuant
to a construction agency and lease agreement with Texas Freezer. Total purchase
and project costs for the property are expected to be $8,900,000 with Texas
Freezer having the obligation to fund any excess costs needed to complete the
project. During the construction period, Texas Freezer will pay monthly rent
based on project costs advanced by Registrant. Upon the earlier of the
completion and January 1, 1999, Texas Freezer's initial annual rental obligation
will be 10.95% of total project costs. The lease provides for rent increases
commencing January 1, 2002 and every year thereafter with such increases based
on increases to the CPI. Registrant received warrants to purchase 30,390 shares
of common stock of Texas Freezer at an exercise price of $5.30 per share, and
are exercisable through September 2007.
On September 29, 1997, Registrant purchased land and a building in
Aurora, Illinois for $17,435,000 and entered into a net lease with Westell.
Westell's parent company, Westell Technologies, Inc., has unconditionally
guaranteed the lease obligations. The lease has a term of 20 years and provides
two five-year renewal terms. Annual rent is $1,748,250 with stated increases
every two years.
Since September 30, 1997, Registrant has purchased properties and
entered into leases with Randall International, Inc., Career Education
Corporation, Perry Graphic Communications, Inc. and Judd's Incorporated and
Sandwich Bancorp, Inc. These transactions are described in Note 9 to the
Consolidated Financial Statement in Item 8.
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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>
Initial
Tenant/Guarantor Square Annual Rent Per Ownership Lease
Location of Properties Footage Rent Square Ft. Interest Term
- -------------------------------- ------- ------------ ---------- -------- ------
<S> <C> <C> <C> <C> <C>
BEST BUY CO., INC.
Denver, CO.................... 23,987 37% interest;
Fort Collins, CO.............. 28,520 remaining interest
Bloomingdale, IL.............. 27,280 owned by CIP(TM)
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 $ 8.36 (2) 2018
BIG V HOLDING CORPORATION (3)
Ellenville, NY................ 60,750 45% interest;
Warwick, NY................... 72,804 remaining interest
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TOTAL....................... 133,554 693,563 11.54 (2) owned by CIP(TM) 2018
GENSIA, INC.(4)
San Diego, CA................. 144,311 1,309,000 18.14 (2) 50% interest; 2009
remaining interest
owned by CIP(TM)
ETEC SYSTEMS, INC.
Hayward, CA................... 153,531 1,023,036 6.66 100% 2011
WAL-MART STORES, INC.(3)
Greenfield, IN................ 82,620 397,226 4.81 100% 2005
Q CLUBS, INC.
Austin, TX (3)................ 43,935 686,637 15.63 100% 2013
Houston, TX................... 46,733 694,000 14.85 100% 2016
THE GARDEN COMPANIES, INC.
Chattanooga, TN (3)........... 242,317 816,400 3.37 100% 2015
DEL MONTE CORPORATION (3)
Mendota, IL................... 239,850 50% interest;
Plover, WI.................... 210,000 remaining interest
Toppenish, WA................. 274,750 owned by CIP(TM)
Yakima, WA.................... 11,165
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TOTAL....................... 735,765 1,286,250 3.50 (2) 2016
APPLIED BIOSCIENCE
INTERNATIONAL, INC.
Austin, TX (3)................ 173,000 1,302,000 7.53 100% 2010
THE UPPER DECK COMPANY (3)
Carlsbad, CA.................. 295,000 1,319,875 8.94 (2) 50% interest; 2021
remaining interest
owned by CIP(TM)
</TABLE>
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<TABLE>
<CAPTION>
Initial
Tenant/Guarantor Square Annual Rent Per Ownership Lease
Location of Properties Footage Rent (2) Square Ft. Interest Term
- -------------------------------- ------- ------------- ------------ -------- ------
<S> <C> <C> <C> <C> <C>
RHEOMETRIC SCIENTIFIC, INC.
Piscataway, NJ................ 104,000 805,361 7.74 100% 2011
TELOS CORPORATION
Loudon County, VA. (4).......... 192,775 1,447,000 7.51 100% 2016
LANXIDE CORPORATION
Newark, DE (4)................ 162,220 1,030,000 6.35 100% 2016
CELADON GROUP, INC.
Indianapolis, IN.............. 60,900 700,000 11.49 100% 2016
SPECTRIAN CORPORATION
Sunnyvale, CA (4)............. 91,476 $1,925,000 $21.04 100% 2011
GARDEN RIDGE CORPORATION
Tulsa, OK (4)................. 141,284 854,164 6.05 100% 2016
KNOGO NORTH AMERICA, INC.
Hauppauge, NY................. 68,333 2,096,000 30.67 100% 2016
SCOTT COMPANIES, INC.
San Leandro, CA (4)........... 270,000 1,945,850 7.21 100% 2017
QMS, INC.
Mobile, AL (4)................ 277,000 1,689,375 6.10 100% 2012
CHILDTIME CHILDCARE, INC. (4)
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
THE BON-TON STORES, INC.
Allentown, PA (4)............. 399,175
Johnstown, PA (4)............. 80,884
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480,059 1,270,750 2.65 100% 2017
SILGAN CONTAINERS
CORPORATION
Menomonie and
Oconomowoc, WI................ 228,381 893,200 3.91 100% 2012
PAGG CORPORATION
Milford, MA (4)............... 108,125 590,000 5.46 100% 2009
VERMONT TEDDY BEAR CO, INC.
Shelburne, VT (4)............. 55,446 652,400 11.77 100% 2017
GDE SYSTEMS, INC.
San Diego, CA................. 123,200 1,174,173 9.53 100% 2007
TEXAS FREEZER COMPANY, INC.
(under construction)
Dallas, TX.................... 100%
WESTELL TECHNOLOGIES, INC.
Aurora, IL..................... 185,410 1,748,250 9.43 100% 2017
RANDALL INTERNATIONAL, INC.
(under construction)
Carlsbad, CA 100%
CAREER EDUCATION CORPORATION
Mendora Heights, MN............ 118,241 1,115,100 9.43 100% 2009
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
Initial
Tenant/Guarantor Square Annual Rent Per Ownership Lease
Location of Properties Footage Rent (2) Square Ft. Interest Term
- -------------------------------- ------- --- --------- ------------ -------- ------
<S> <C> <C> <C> <C> <C>
PERRY GRAPHIC
COMMUNICATIONS and JUDD'S
INCORPORATED
Baraboo, WI.................... 433,560
Waterloo, WI................... 461,796
-------
895,356 1,888,875 2.11 100% 2017
SANDWICH BANCORP, INC.
Bourne, MA..................... 2,083
Sandwich, MA................... 16,500
Wareham, MA.................... 3,223
-------
21,806 182,490 8.37 100% 2018
</TABLE>
(1) Annual rent on a cash basis.
(2) This figure represents the rent per square foot of the property when
combined with rents payable to co-owners.
(3) These properties are encumbered by limited recourse mortgages.
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, 1997 to a vote of security holders, through the solicitation of
proxies or otherwise.
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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 24 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 4 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 5 to 20 of
Registrant's Annual Report contained in Appendix A:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1995, 1996 and 1997
(iii) Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997.
(iv) Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.
(vi) Notes to Consolidated Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
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<PAGE> 10
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 67 Chairman of the Board 7/93
Director
Ralph G. Coburn (1) 88 Director 7/93
William Ruder 76 Director 7/93
George E. Stoddard 81 Director 7/93
Thomas E. Zacharias (1) 43 Director 10/97
Barclay G. Jones III 37 President 7/93
Steven M. Berzin 47 Executive Vice President 7/97
Chief Financial Officer
Chief Legal Officer
Gordon F. DuGan 31 Executive Vice President 2/97
Claude Fernandez 45 Executive Vice President 7/93
Chief Administrative Officer
H. Augustus Carey 40 Senior Vice President 7/93
National Marketing Director
Secretary
Anthony S. Mohl 35 Senior Vice President 7/93
Director of Portfolio Management
John J. Park 33 Senior Vice President 7/93
Director of Research
Treasurer
</TABLE>
(1) Independent Director of Registrant.
H. Augustus Carey is the nephew of William Polk Carey.
A description of the business experience of each director of
Registrant is set forth below:
William Polk Carey, Chairman of the Board and Director, 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 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
- 9 -
<PAGE> 11
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 Chairman of the Board and
Director of Corporate Property Associates 10 Incorporated ("CPA(R):10"), Carey
Institutional Properties Incorporated ("CIP(TM)") and Corporate Property
Associates 14 Incorporated ("CPA(R):14"), and a Director of Carey Diversified
LLC ("Carey Diversified").
Ralph G. Coburn, Rear Admiral USNR (Ret.), is former President and
Chief Executive Officer of Hubbard Real Estate Investments (now HRE Properties),
a $100,000,000 NYSE equity REIT, sponsored by Merrill Lynch. Admiral Coburn had
been engaged in a variety of real estate activities for over 30 years. A
graduate of Harvard College, Harvard Law School and the Naval War College,
Admiral Coburn previously served as Chief Executive Officer of the National
Association of Real Estate Investment Trusts (NAREIT), representing the
multi-billion dollar REIT industry. Admiral Coburn is also an Independent
Director of CPA(R):10 and 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 and Director, 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. Mr. Stoddard is also a Director of
CPA(R):10, CIP(TM) and CPA(R):14.
Thomas E. Zacharias, Independent Director of CIP(TM) and CPA(R):14,
is currently a Vice President of Corporate Property Investors ("CPI") and a Vice
President of Corporate Realty Consultants. Mr. Zacharias, who joined CPI in
1981, is responsible for the asset management of $1.2 billion of real estate
assets. In addition, Mr. Zacharias is the Managing Member of the Mall of
Georgia, LLC, the largest regional mall development in the Southeastern U.S.
that is scheduled to open in August 1999. Prior to joining CPI in 1981, Mr.
Zacharias worked for the New York State Urban Development Corporation between
1979 and 1981 as Project Director for a number of economic development projects
and Assistant to the Chief Operating Officer. Mr. Zacharias graduated from
Princeton University in 1976 and received a Master in Public and Private
Management from the Yale School of Management in 1979. He is a member of The
National Association of Real Estate Investment Trusts, Urban Land Institute and
International Council of Shopping Centers.
Barclay G. Jones III, President, 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 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 and Carey
Diversified.
Steven M. Berzin, Executive Vice President, Chief Financial Officer
and Chief Legal Officer, was elected Executive Vice President, Chief Financial
Officer, Chief Legal Officer and a Managing Director of W.P. Carey & Co. in July
1997. From 1993 to 1997, Mr. Berzin was Vice President - Business Development of
General Electric Capital Corporation in the office of the Executive Vice
President and, more recently, in the office of the President, where he was
responsible for business development activities and acquisitions. From 1985 to
1992, Mr. Berzin held various positions with Financial Guaranty Insurance
Company, the last two being Managing Director, Corporate Development and Senior
Vice President and Chief Financial Officer. Mr. Berzin associated with the law
firm of Cravath, Swaine & Moore from 1978 to 1985 and from 1976 to 1977, he
- 10 -
<PAGE> 12
served as law clerk to the Honorable Anthony M. Kennedy, then a United States
Circuit Judge. Mr. Berzin received a B.A. and M.A. in Applied Mathematics from
Harvard University, a B.A. in Jurisprudence and an M.A. from Oxford University
and a J.D. from Harvard Law School. Mr. Berzin is also Vice Chairman, Chief
Legal Officer and a Director of Carey Diversified.
Gordon F. DuGan, Executive President, was elected Executive Vice
President and a Managing Director of W.P. Carey in June 1997. Mr. Dugan
rejoined W.P. Carey as Deputy Head of Acquisitions in February 1997. Mr. Dugan
was until September 1995 a Senior Vice President in the Acquisitions Department
of W.P. Carey. Mr. Dugan joined W.P. Carey & Co. as Assistant to the Chairman
in May 1988, after graduating from the Wharton School at the University of
Pennsylvania where he concentrated in Finance. From October 1995 until February
1997, Mr. Dugan was Chief Financial Officer of Superconducting Core
Technologies, Inc., a Colorado-based wireless communications equipment
manufacturer. Mr. Dugan is also President and Director of Carey Diversified.
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 an B.S. degree in
accounting from New York University in 1975 and an 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 an 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.
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.
- 11 -
<PAGE> 13
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, 1996 and 1997.
Consolidated Statements of Operations for the years ended December 31, 1995,
1996 and 1997.
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1995, 1996 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997.
Notes to Consolidated Financial Statements.
The consolidated financial statements are hereby incorporated by reference to
pages 5 to 20 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,
1997.
Schedule III of Registrant is contained on pages 20 to 24 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.
- 12 -
<PAGE> 14
(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 Filed as Exhibit 10.3
by and between Elwa-BV (NY) QRS 11-24, Inc. and to Registrant's Form 10-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>
- 13 -
<PAGE> 15
<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>
- 14 -
<PAGE> 16
<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>
- 15 -
<PAGE> 17
<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>
- 16 -
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
--- ----------- ------
<S> <C> <C>
10.49 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
10.50 Lease agreement dated July 8, 1997 by and between GGAP Filed as Exhibit 10.1 to
(MA) QRS 12-31, Inc., as Landlord, and PAGG Corporation, Registrant's Form 8-K
as Tenants. Dated June 13, 1997
10.51 Lease agreement dated July 10, 1997 by and between URSA Filed as Exhibit 10.2 to
(VT) QRS 12-30, Inc., as Landlord, and The Vermont Teddy Registrant's Form 8-K
Bear Company, as Tenants. Dated June 13, 1997
10.52 Lease agreement dated April 10, 1997 by and between BT Filed as Exhibit 10.3 to
(PA) QRS 12-25, Inc., as Landlord, and The Bon-Ton Registrant's Form 8-K
Department Stores, Inc., as Tenants. Dated June 13, 1997
10.53 Lease agreement dated June 13, 1997 by and between CAN Filed as Exhibit 10.4 to
(WI) QRS 12-34, Inc., as Landlord, and Silgan Containers Registrant's Form 8-K
Corporation, as Tenants. Dated June 13, 1997
10.54 Lease agreement dated September 30, 1997 by Filed as Exhibit 10.1 to
and between CPA(R):12, Inc. as Landlord, and Westell, Registrant's Form 8-K
Inc., as Tenant. Dated March 31, 1998
10.55 Lease agreement dated November 26, 1997 by Filed as Exhibit 10.2 to
and between CPA(R):12, Inc. as Landlord, and Randall Registrant's Form 8-K
International, as Tenant. Dated March 31, 1998
10.56 Lease agreement dated December 31, 1997 by Filed as Exhibit 10.3 to
and between CPA(R):12, Inc. as Landlord, and Sandwich Registrant's Form 8-K
Cooperative Bank, as Tenant. Dated March 31, 1998
10.57 Lease agreement dated November 12, 1997 by Filed as Exhibit 10.4 to
and between CPA(R):12, Inc. as Landlord, and Brown Registrant's Form 8-K
Institute, Ltd., as Tenant. Dated March 31, 1998
10.58 Lease agreement dated September 25, 1997 by Filed as Exhibit 10.5 to
and between CPA(R):12, Inc. as Landlord, and GDE Registrant's Form 8-K
Systems, Inc., as Tenant. Dated March 31, 1998
10.59 Lease agreement dated July 8, 1997 by Filed as Exhibit 10.6 to
and between CPA(R):12, Inc. as Landlord, and PAGG Registrant's Form 8-K
Corporation, as Tenant. Dated March 31, 1998
10.60 Lease agreement dated September 23, 1997 by Filed as Exhibit 10.7 to
and between CPA(R):12, Inc. as Landlord, and Texas Registrant's Form 8-K
Freezer Company, Inc., as Tenant. Dated March 31, 1998
10.61 Lease agreement dated February 3, 1998 by and Filed as Exhibit 10.8 to
between CPA(R):12, Inc. and CPA:14, Inc., as Landlords, Registrant's Form 8-K
and Etec Systems, Inc., as Tenant. Dated March 31, 1998
10.62 Lease agreement dated December 16, 1997 by and Filed as Exhibit 10.9 to
between CPA(R):12, Inc., as Landlord, and Perry Registrant's Form 8-K
Graphic Communications, Inc., as Tenant. Dated March 31, 1998
21.3 Subsidiaries of Registrant as of March 31, 1998. Filed herewith
</TABLE>
- 17 -
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
--- ----------- ------
<S> <C> <C>
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>
- 18 -
<PAGE> 20
(b) Reports on Form 8-K
During the quarter ended December 31, 1997 the Registrant was not
required to file any reports on Form 8-K.
(c)
Pursuant to Rule 701 of Regulation S-K, the use of proceeds through
December 31, 1997 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: $117,149,832
Working capital reserves: $ 2,019,846
Temporary investments in cash and cash
equivalents: $ 67,058,177
</TABLE>
- 19 -
<PAGE> 21
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
04/06 /98 BY: /s/ Steven M. Berzin
- --------------- ----------------------------------
Date Steven M. Berzin
Executive Vice President, Chief Legal
Officer and Chief Financial 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
04/06/98 BY: /s/ William P. Carey
- --------------- ----------------------------------
Date William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
04/06/98 BY: /s/ Barclay G. Jones, III
- --------------- ----------------------------------
Date Barclay G. Jones, III
President
04/06/98 BY: /s/ Ralph G. Coburn
- --------------- ----------------------------------
Date Ralph G. Coburn
Director
04/06/98 BY: /s/ William Ruder
- --------------- ----------------------------------
Date William Ruder
Director
04/06/98 BY: /s/ George E. Stoddard
- --------------- ----------------------------------
Date George E. Stoddard
Director
04/06/98 BY: /s/ Thomas E. Zacharias
- --------------- ----------------------------------
Date Thomas E. Zacharias
Director
04/06/98 BY: /s/ Steven M. Berzin
- --------------- ----------------------------------
Date Steven M. Berzin
Executive Vice President, Chief Legal
Officer and Chief Financial Officer
(Principal Financial Officer)
04/06/98 BY: /s/ Claude Fernandez
- --------------- ----------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
- 20 -
<PAGE> 22
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 1997 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 21 to 24 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
April 6, 1998
- 21 -
<PAGE> 23
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
SCHEDULE III - REAL ESTATE
and ACCUMULATED DEPRECIATION
as of December 31, 1997
<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. $ 3,277,933 $1,157,294 $ 5,254,309 $58,940
Manufacturing
facility leased to
The Garden
Companies, Inc. 3,322,423 1,544,265 5,430,735
Office/manufacturing
facility leased to
Rheometric
Scientific, Inc. 1,510,791 4,789,209 4,500
Office facility leased
to Telos Corporation 5,990,593 1,549,022 10,597,978 5,500
Research and develop-
ment facility leased to
Lanxide Corporation 4,200,197 1,390,122 7,281,878 7,421
----------- ---------- ----------- -------
$16,791,146 $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. $384,701 $ 6,855,244 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
-------- -----------
$384,701 $40,966,665
======== ===========
</TABLE>
See accompanying notes to Schedule.
- 22 -
<PAGE> 24
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
SCHEDULE III - REAL ESTATE
and ACCUMULATED DEPRECIATION
as of December 31, 1997
<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. $ 2,356,025 $ 452,871 $ 3,325,910 $ 12,921
Office/Manufacturing
facility leased to
Etec Systems, Inc. 7,983,279 1,272,418 10,588,221 5,241,343 $(2,633,473)
Health club facilities
leased to Q Clubs, Inc. 2,539,785 3,152,874 8,524,126
Warehouses and special
purpose facility leased
to Del Monte Corporation 5,834,640 305,733 10,065,326
Warehouse/office/
research facility leased
to Applied Bioscience
International, Inc. 7,207,938 1,550,928 11,017,367 27,856
Distribution/warehouse
facility leased to
Celadon, Inc. 1,480,600 5,320,400 40,000
Office/research
facility leased to
Spectrian Corporation 9,875,018 5,570,775 12,073,204 4,119
Retail store leased
to Garden Ridge
Corporation 4,546,309 1,857,607 6,204,923
Office/distribution
facility leased to Knogo
North America, Inc. 1,603,488 3,321,512
Office/research facility leased
to Scott Companies, Inc. 10,192,006 5,734,782 12,175,218 5,356
Child care centers leased
to Childtime Childcare, Inc. 2,500,000 1,807,904 4,093,207
Office/research facility
leased to QMS, Inc. 5,681,273 1,361,073 12,513,273
Retail/distribution facility
leased to The Bon-Ton
Stores, Inc. 6,900,000 1,780,000 10,261,885
</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 February 10,
to Wal-Mart Stores, Inc. $ 454,420 $ 3,337,282 $ 3,791,702 $ 239,867 1995 40 yrs.
Office/Manufacturing
facility leased to February 16,
Etec Systems, Inc. 1,272,444 13,196,065 14,468,509 768,789 1995 40 yrs.
Health club facilities June 8, 1995 and
leased to Q Clubs, Inc. 3,152,874 8,524,126 11,677,000 413,277 July 25, 1996 40 yrs.
Warehouses and special
purpose facility leased
to Del Monte Corporation 376,360 9,994,699 10,371,059 359,429 November 9, 1995 40 yrs.
Warehouse/office/
research facility leased
to Applied Bioscience November 13, 40 yrs.
International, Inc. 1,550,985 11,045,166 12,596,151 586,204 1995
Distribution/warehouse
facility leased to September 19, 40 yrs.
Celadon, Inc. 1,480,600 5,360,400 6,841,000 172,805 1996
Office/research
facility leased to November 19, 40 yrs.
Spectrian Corporation 5,570,775 12,077,323 17,648,098 339,559 1996
Retail store leased
to Garden Ridge December 16, 40 yrs.
Corporation 1,857,607 6,204,923 8,062,530 161,586 1996
Office/distribution
facility leased to Knogo December 24, 40 yrs.
North America, Inc. 1,603,488 3,321,512 4,925,000 86,497 1996
Office/research facility leased January 23, 40 yrs.
to Scott Companies, Inc. 5,734,782 12,180,574 17,915,356 291,826 1997
Child care centers leased January 29, 40 yrs.
to Childtime Childcare, Inc. 1,807,904 4,093,207 5,901,111 49,312 1997
Office/research facility February 18, 40 yrs.
leased to QMS, Inc. 1,361,073 12,513,273 13,874,346 273,728 1997
Retail/distribution facility
leased to The Bon-Ton April 10, 40 yrs.
Stores, Inc. 1,780,000 10,261,885 12,041,885 181,721 1997
</TABLE>
(Continued)
- 23 -
<PAGE> 25
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
SCHEDULE III - REAL ESTATE
and ACCUMULATED DEPRECIATION
as of December 31, 1997
<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
(continued):
Technology/manufacturing
facility leased to Silgan
Containers Corporation 570,670 7,944,330
Office/research
facility leased
to Pagg Corporation 3,200,000 1,080,000 4,469,738
Office/manufacturing
facility leased
to Vermont Teddy
Bear Co., Inc. 3,286,273 1,465,000 4,398,874 1,640
Warehouse/special facility
leased to Texas Freezer
Company, Inc. 257,458 3,092,965
Research facility
to GDE Systems, Inc. 3,025,000 9,741,810 9,225
Office/manufacturing
facility leased to Westell
Technologies, Inc. 2,500,000 14,952,055
Office/manufacturing
facility leased to
Randall International, Inc. 2,000,000 471,454
Administration/classroom
facility leased to Career
Education Corporation 1,150,000 8,840,486
Printing facility leased to
Perry Graphic Commun-
ications, Inc. and Judd's
Incorporated 642,000 18,467,948
Office/banking facility leased
to Sandwich Bancorp, Inc. 300,000 1,520,000
----------- ----------- ------------ ----------- -----------
$72,102,546 $40,921,181 $166,132,734 $22,593,958 $(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
(continued):
Technology/manufacturing
facility leased to Silgan
Containers Corporation 570,670 7,944,330 8,515,000 107,579 June 13, 1997 40 yrs.
Office/research
facility leased
to Pagg Corporation 1,080,000 4,469,738 5,549,738 50,676 July 8, 1997 40 yrs.
Office/manufacturing
facility leased
to Vermont Teddy
Bear Co., Inc. 1,465,000 4,400,514 5,865,514 50,404 July 18 1997 40 yrs.
Warehouse/special facility
leased to Texas Freezer September 23, 40 yrs.
Company, Inc. 257,458 3,092,965 3,350,423 1997
Research facility September 28, 40 yrs.
to GDE Systems, Inc. 3,025,000 9,751,035 12,776,035 71,047 1997
Office/manufacturing
facility leased to Westell September 29, 40 yrs.
Technologies, Inc. 2,500,000 14,952,055 17,452,055 109,026 1997
Office/manufacturing
facility leased to October 17, 40 yrs.
Randall International, Inc. 2,000,000 471,454 2,471,454 1997
Administration/classroom
facility leased to Career November 12, 40 yrs.
Education Corporation 1,150,000 8,840,486 9,990,486 27,627 1997
Printing facility leased to
Perry Graphic Commun-
ications, Inc. and Judd's December 16, 40 yrs.
Incorporated 642,000 18,467,948 19,109,948 19,237 1997
Office/banking facility leased December 30, 40 yrs.
to Sandwich Bancorp, Inc. 300,000 1,520,000 1,820,000 1997
----------- ------------ ------------ ----------
$40,993,440 $186,020,960 $227,014,400 $4,360,196
=========== ============ ============ ==========
</TABLE>
See accompanying notes to Schedule.
- 24 -
<PAGE> 26
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, 1997, the aggregate cost of real estate owned by
Registrant and its subsidiaries for Federal income tax purposes is
$255,279,488.
(e)
Reconciliation of Real Estate Accounted
for Under the Operating Method
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1997
------------ -------------
<S> <C> <C>
Balance at beginning
of year $ 35,449,139 $ 84,999,148
Purchase price adjustment (2,633,473)
Additions 52,183,482 142,021,252
Dispositions -- (6,000)
------------ -------------
Balance at close of year $ 84,999,148 $ 227,014,400
============ =============
</TABLE>
Reconciliation of Accumulated Depreciation
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
Balance at beginning
of year $ 390,307 $1,337,513
Depreciation expense 947,206 3,022,683
---------- ----------
Balance at close of year $1,337,513 $4,360,196
========== ==========
</TABLE>
- 25 -
<PAGE> 27
EXHIBIT 21.3
<PAGE> 28
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.
<PAGE> 29
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> 30
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.
BT (PA) QRS 12-25, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF PENNSYLVANIA AND DOING BUSINESS
UNDER THE NAME BT (PA) QRS 12-25, INC.
RSI LOAN (NJ) QRS 12-26, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF NEW JERSEY AND DOING
BUSINESS UNDER THE NAME RSI LOAN (NJ) QRS 12-26, INC.
BAKE (TX) QRS 12-28, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS UNDER THE
NAME BAKE (TX) QRS 12-28, INC.
ICE (TX) QRS 12-29, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS UNDER THE
NAME ICE (TX) QRS 12-29, INC.
URSA (VT) QRS 12-30, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF VERMONT AND DOING BUSINESS UNDER THE
NAME URSA (VT) QRS 12-30, INC.
GGAP (MA) QRS 12-31, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF MASSACHUSETTS AND DOING BUSINESS
UNDER THE NAME GGAP (MA) QRS 12-31, INC.
CAN (WI) QRS 12-34, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN AND DOING BUSINESS UNDER
THE NAME CAN (WI) QRS 12-34, INC.
INFO (CA) QRS 12-35, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING BUSINESS UNDER
THE NAME INFO (CA) QRS 12-35, INC.
WTI (IL) QRS 12-36, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS AND DOING BUSINESS UNDER
THE NAME WTI (CA) QRS 12-36, INC.
SOAP (CA) QRS 12-37, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING BUSINESS UNDER
THE NAME SOAP (CA) QRS 12-37, INC.
BROWN (MN) QRS 12-38, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA AND DOING BUSINESS UNDER
THE NAME BROWN (MN) QRS 12-38, INC.
NUTRA (TX) QRS 12-39, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS UNDER THE
NAME NUTRA (TX) QRS 12-39, INC.
PRINT (WI) QRS 12-40, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN AND DOING BUSINESS UNDER
THE NAME PRINT (WI) QRS 12-40, INC.
<PAGE> 31
CASH (MA) QRS 12-41, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF MASSACHUSETTS AND DOING BUSINESS
UNDER THE NAME CASH (MA) QRS 12-41, 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> 32
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
1997 ANNUAL REPORT
<PAGE> 33
SELECTED FINANCIAL DATA
(In thousands except share amounts)
<TABLE>
<CAPTION>
1993 (1) 1994 1995 1996 1997
--------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 3 $ 465 $ 3,994 $ 11,434 $25,313
Net (loss) income (3) (28) 2,115 6,210 12,804
Basic earnings (loss)
per share (2)(3) (.13) (.03) .53 .60 .57
Weighted average number
of Shares outstanding-basic 843,911 4,016,686 10,365,828 22,387,928
Dividends paid (4) 289 2,351 6,780 15,082
Dividends paid per share .30 .76 .80 .81
Payments of mortgage
principal (5) 6 262 1,192 1,708
BALANCE SHEET DATA:
Total consolidated assets 30,444 81,173 193,294 358,693
Long-term obligations (6) 3,267 19,016 47,734 84,745
</TABLE>
(1) For the period from inception (July 30, 1993) to December 31, 1993.
(2) The Company has a simple capital structure, that is, one with only common
stock outstanding. As a result, the Company has presented basic per share
amounts only.
(3) Based on weighted average number of Shares outstanding.
(4) The Company paid two dividends in 1994 applicable to the quarters ended
June 30, 1994 and September 30, 1994.
(5) Represents scheduled mortgage principal amortization paid.
(6) Represents mortgage obligations and deferred acquisition fees due after
more than one year.
- 1 -
<PAGE> 34
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). In
February 1996, the Company commenced a second public offering of common stock at
$10 per share on a "best efforts" basis, which concluded in September 1997. For
this second offering, the Company issued 20,198,459 Shares ($201,984,590),
including 12,666,048 shares ($126,660,480) in 1997. The Company is using the net
offering proceeds (except for 1% of proceeds used to maintain a working capital
reserve) of this second offering along with limited recourse mortgage financing
to acquire additional real estate investments and further diversify the
Company's portfolio of real estate investments.
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 that are either fixed, based upon
increases in the Consumer Price Index or, commonly for leases for retail stores,
based upon a percentage of sales. Under a net lease, the tenants are generally
required to pay substantially 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 that serve to protect its interest in the event of a
lessee's reorganization or restructuring. While there is no assurance that the
Company will realize its objectives, Management believes that its ability to
structure leases with rent escalations and protective covenants are important to
meeting the Company's objectives. 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. During
1997, the Company exercised warrants granted by Etec Systems, Inc. for Etec
common stock. Subsequent to the Company's initial transaction with Etec, Etec
completed an initial public offering. The fair value of the Etec stock as of
December 31, 1997 as reflected in the accompanying consolidated financial
statements was approximately $3,174,000. The Company contributed $5,609,000 of
equity in its initial transaction with Etec.
Through December 31, 1997, the Company had invested approximately
$279,000,000 of which approximately $179,900,000 was from the proceeds of the
offerings and approximately $99,100,000 from limited recourse mortgage
financing. The Company has commitments totaling approximately $57,870,000 to
complete build-to-suit projects with Randall International, Inc., Texas Freezer
and Childtime Childcare, Inc. and an expansion at the Etec property. As of March
31, 1998, the Company has $35,670,000 of cash available for investment. The
Company has, since its inception, purchased properties as follows:
<TABLE>
<CAPTION>
Date Acquired Lease Obligor
------------- -------------
<S> <C>
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
</TABLE>
- 2 -
<PAGE> 35
<TABLE>
<CAPTION>
Date Acquired Lease Obligor
------------- -------------
<S> <C>
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.
April 10, 1997 The Bob-Ton Stores, Inc.
June 13, 1997 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>
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, that 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. These opportunities whereby it can lower
interest rates on debt may occur as the result of changing market rates or
improvements in the credit rating of tenants. No balloon payments on the
Company's mortgages are scheduled until 2000. During 1997, the Company obtained
$48,412,000 of limited recourse mortgage financing. Because of the high level of
uninvested cash held by the Company, mortgage financing has not always been
obtained at the time of the purchase of property. Management intends to leverage
many of its properties. The Company has received a commitment of $45,000,000 of
limited recourse mortgage financing on the Etec properties. However, given the
low short-term interest rates on univested cash available at this time,
Management has determined that it is more beneficial at present to reduce its
uninvested cash by making all cash purchases before obtaining mortgage
financing.
During 1997, the Company's cash flow from operations of $19,956,000
was sufficient to fund payments of dividends of $15,082,000 and $1,708,000 of
scheduled debt service principal payments on mortgage debt. The Company's
financing and investing activities in 1997, other than paying dividends and
paying scheduled mortgage principal installments primarily consisted of the
raising of both equity and debt capital 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 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.
- 3 -
<PAGE> 36
The Company's results of operations for the year ended December 31,
1997 are not directly comparable to the results for the year ended December 31,
1996, as the purchase of properties and increasing the Company's asset base
continued throughout 1997. The Company's directly owned real estate assets
(before accumulated depreciation) increased from $125,846,000 at December 31,
1996 to $267,981,000 at December 31, 1997. 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 $6,953,000.
A comparison of the results of operations for the year ended
December 31, 1996 with the results of operations for the year ended December 31,
1995 are not directly comparable as real estate investments increased by
approximately 115% between 1995 and 1996. 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 in existing operations. The increase in other interest
income was solely attributable to higher cash balances.
Because of the long-term nature of the Company's net leases,
inflation and changing prices have not unfavorably affected the Company's
revenues and net income. The Company's net leases have rent increases based on
formulas indexed to increase in the Consumer Price Index, sales overrides or
other periodic increases which are designed to increase lease revenues in the
future.
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 that 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.
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.
In June 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in full set general purpose
financial statements. SFAS No. 130 is required to be adopted in 1998. The
Company is currently evaluating the impact, if any, of SFAS No. 130.
- 4 -
<PAGE> 37
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, 1996 and 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for the years ended December 31, 1995, 1996
and 1997. 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 audit
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, 1996 and 1997, and the consolidated results of their operations and their
cash flows for the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
April 6, 1998
- 5 -
<PAGE> 38
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 17,325,553 $ 40,993,440
Buildings 67,673,595 186,020,960
------------- -------------
84,999,148 227,014,400
Accumulated depreciation 1,337,513 4,360,196
------------- -------------
83,661,635 222,654,204
Net investment in direct financing leases 40,846,486 40,966,665
------------- -------------
Real estate leased to others 124,508,121 263,620,869
Equity investments 16,091,935 16,635,180
Cash and cash equivalents 50,893,314 72,423,221
Marketable equity securities, at fair value 3,174,137
Other assets, net of reserve for uncollected
rents of $162,137 1,800,474 2,839,719
------------- -------------
Total assets $ 193,293,844 $ 358,693,126
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 46,286,159 $ 88,893,692
Accounts payable to affiliates 2,258,581 3,430,059
Accounts payable and accrued expenses 256,136 259,189
Deferred acquisition fees payable to an affiliate 3,414,097 6,469,146
Dividends payable 2,094,191
Accrued interest payable 418,035 650,800
Prepaid rental income and security deposits 1,379,288 5,416,573
------------- -------------
Total liabilities 56,106,487 105,119,459
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; issued and outstanding,
15,668,403 and 28,334,451 shares
at December 31, 1996 and 1997 15,668 28,334
Additional paid-in capital 139,896,651 253,835,934
Dividends in excess of accumulated earnings (2,584,954) (2,768,966)
Unrealized appreciation, marketable equity securities -- 3,031,300
------------- -------------
137,327,365 254,126,602
Less, treasury stock at cost, 14,395 and 68,043
shares at December 31, 1996 and 1997 (140,008) (552,935)
------------- -------------
Total shareholders' equity 137,187,357 253,573,667
------------- -------------
Total liabilities and
shareholders' equity $ 193,293,844 $ 358,693,126
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 6 -
<PAGE> 39
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of INCOME
For the years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Interest income from direct financing
leases $ 1,221,026 $ 4,559,544 $16,651,513
Rental income from operating leases 2,111,998 5,000,989 4,966,730
Other interest income 660,623 1,873,094 3,695,176
----------- ----------- -----------
3,993,647 11,433,627 25,313,419
----------- ----------- -----------
Expenses:
Interest expense 1,260,189 3,525,774 6,499,865
Depreciation 390,307 947,206 3,022,683
General and administrative 942,074 1,488,793 2,209,171
Property expense 596,227 1,269,968 2,786,890
Amortization 12,797 34,085 78,187
----------- ----------- -----------
3,201,594 7,265,826 14,596,796
----------- ----------- -----------
Income before income from
equity investments 792,053 4,167,801 10,716,623
Income from equity investments 1,322,990 2,042,400 2,086,993
----------- ----------- -----------
Net income $ 2,115,043 $ 6,210,201 $12,803,616
=========== =========== ===========
Basic earnings per share $ .53 $ .60 $ .57
=========== =========== ===========
Weighted average shares outstanding-basic 4,016,686 10,365,828 22,387,928
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 7 -
<PAGE> 40
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY
For the years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Dividends in
Additional Excess of
Common Paid-in Accumulated Unrealized Treasury
Stock Capital Earnings Appreciation Stock Total
------- ------------ ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
12,666,048 Shares issued
at $10 per share, net of
offering costs of $12,708,531 12,666 113,939,283 113,951,949
Unrealized appreciation --
marketable equity securities $3,031,300 3,031,300
Dividends declared (12,987,628) (12,987,628)
Net income 12,803,616 12,803,616
Repurchase of 53,648 shares (412,927) (412,927)
------- ------------ ----------- ---------- --------- -----------
Balance at December 31, 1997 $28,334 $253,835,934 $(2,768,966) $3,031,300 $(552,935) $253,573,667
======= ============ =========== ========== ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 8 -
<PAGE> 41
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
For the years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,115,043 $ 6,210,201 $ 12,803,616
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 403,104 981,291 3,100,870
Straight-line adjustments and other
noncash rent adjustments (94,658) (164,456) (491,601)
Income from equity investments in excess
of distributions received (71,462) (294,055) (543,245)
(Increase) decrease in other assets (382,325) (85,685) (1,032,332)
Increase in prepaid rental income
and security deposits 884,581 494,707 4,037,285
Provision for uncollected rents 162,137
Increase in accounts payable (a) 49,721 59,859 95,189
Increase in accounts payable to affiliates (a) 649,658 263,293 1,590,907
Increase in accrued interest payable 107,425 281,949 232,765
------------ ----------- ------------
Net cash provided by operating activities 3,661,087 7,747,104 19,955,591
------------ ----------- ------------
Cash flows from investing activities:
Refund of real estate purchase price 2,633,473
Purchase of stock warrants (124,000)
Capital distributions from (contributions in)
equity investments 1,375,000 (5,158,908)
Purchases of real estate and other capitalized
costs (41,577,236) (77,739,925) (138,960,203)
------------ ------------ ------------
Net cash used in investing activities (40,202,236) (80,389,360) (138,960,203)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from stock issuance, net of costs 33,944,537 82,185,016 113,951,949
Dividends paid (2,350,687) (6,779,669) (15,081,819)
Payments of mortgage principal (262,013) (1,191,750) (1,707,976)
Prepayment of mortgage payable (3,313,866) (2,949,629) (4,096,000)
Proceeds from issuance of mortgages 18,375,000 32,300,000 48,411,509
Deferred financing costs (273,770) (90,654) (530,217)
Purchase of treasury stock (140,008) (412,927)
Redemption of stock (37,500)
------------ ------------ ------------
Net cash provided by financing activities 46,119,201 103,295,806 140,534,519
------------ ------------ ------------
Net increase in cash and cash equivalents 9,578,052 30,653,550 21,529,907
Cash and cash equivalents, beginning of period 10,661,712 20,239,764 50,893,314
------------ ------------ ------------
Cash and cash equivalents, end of period $ 20,239,764 $ 50,893,314 $ 72,423,221
============ ============ ============
Supplemental Disclosure of noncash investing activities:
Deferred acquisition fee payable to affiliate $ 865,172 $ 1,836,458 $ 3,055,049
============ ============ ============
</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.
The accompanying notes are an integral part of the consolidated financial
statements.
- 9 -
<PAGE> 42
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"). All material interentity transactions
have been eliminated.
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. The most significant
estimates relate to the assessment of the recoverability of real
estate assets. 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, rental
revenue is recognized on a straight-line basis over the term of
the leases, 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
fair 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
Continued
- 10 -
<PAGE> 43
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
funds. At December 31, 1996 and 1997, the Company's cash and cash
equivalents were held in the custody of two financial institutions.
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.
Marketable Equity Securities:
The Company's marketable equity securities which consist of 68,261 shares
of common stock of Etec Systems, Inc. ("Etec"), are classified as
available-for-sale securities and are reported at fair value with the
Company's interest in unrealized gains and losses on these securities
reported as a separate component of Shareholder's equity until
realized. As of December 31, 1997, fair value of the Etec common
stock reflects unrealized appreciation of $3,174,137. The cost basis
in the Etec common stock is carried on the Company's books at a
nominal cost at December 31, 1997.
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 deferred rental
income. Deferred charges are costs incurred in connection with
mortgage financings and refinancing and are over the terms of the
mortgages. Deferred rental income is the aggregate difference for
operating leases between scheduled rents which vary during the lease
term and income recognized on a straight-line basis.
Deferred Acquisition Fees:
Fees are payable for services provided by Carey Property Advisors, a
Pennsylvania limited partnership (the "Advisor") to 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).
Earnings Per Share:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS No. 128") which establishes standards for computing and
presenting earnings per share. The adoption of SFAS No. 128 had no
impact on the Company's financial statements because the Company has
a simple capital structure, that is, one with only common stock
outstanding. As a result, the Company has presented basic per-share
amounts for all periods presented in the statements of income.
Continued
- 11 -
<PAGE> 44
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Federal Income Taxes:
The Company qualifies as a real estate investment trust ("REIT") for the
years ended December 31, 1995, 1996 and 1997 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.
Reclassification:
Certain 1995 and 1996 amounts have been reclassified to conform to the
1997 financial statement presentation.
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.
On February 2, 1996, the Company commenced an offering (the "Second
Offering") for a maximum of 20,000,000 shares of common stock. The
shares were 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. On August 22, 1997, the Company
registered an additional 300,000 shares under the Second Offering.
The Second Offering was concluded on September 18, 1997, at which
time 20,198,459 ($201,984,590) shares were issued, including
12,666,048 shares issued in 1997. It is anticipated that
approximately 87% of the funds raised in the Second Offering will be
invested in real estate. The remaining funds were used to establish a
working capital reserve and to pay costs related to the Second
Offering.
3. Transactions with Related Parties:
The Company's asset management and performance fees are each 1/2 of 1%
of Average Invested Assets, as defined in the Prospectus of the
Company. 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.
Asset management fees were $291,980 in 1995, $631,051 in 1996 and
$1,202,124 in 1997 with performance fees in like amount. General and
administrative expense reimbursements were $618,591 in 1995, $747,779
in 1996 and $1,121,018 in 1997.
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
Continued
- 12 -
<PAGE> 45
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
ultimately receive subordinated disposition fees, that are dependent
on the Company's performance. In connection with performing services
related to the Company's real estate purchases in 1995, 1996, and
1997, affiliates of the Company received structuring and development
fees of $605,972, $1,284,619 and $2,156,038, respectively. Fees are
paid only in connection with completed transactions. The affiliate is
entitled to receive deferred acquisition fees of $6,469,146 over a
period of no less than eight years, subject to the 2%/25% Guidelines
limitation described below.
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 its undivided interest in 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. If in any year when the
operating expenses of the Company exceed the 2%/25% Guidelines, the
Advisor will have an obligation to reimburse the Company for such
excess, subject to certain conditions. If 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, 1995, 1996 and 1997, fees aggregating
$35,649, $348,733 and $79,377, respectively, were incurred for legal
services provided by a firm in which the Secretary, until July 1997,
of the Company and of the Corporate General Partner of the Advisor is
a partner.
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. Expenses incurred in 1995, 1996 and 1997 were $11,248,
$26,851 and $69,825, 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 $23,309,000
in 1998; $23,564,000 in 1999; $23,586,000 in 2000; $23,743,000 in
2001; $23,820,000 in 2002 and aggregate approximately $391,766,000
through 2018.
Contingent rents were approximately $19,000 in 1995, $9,000 in 1996 and
$32,000 in 1997.
Continued
- 13 -
<PAGE> 46
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
---------------------------------,
1996 1997
------------ ------------
<S> <C> <C>
Minimum lease payments
receivable $ 98,389,173 $ 88,289,457
Unguaranteed residual value 40,581,966 40,581,966
------------ ------------
138,971,139 128,871,423
Less: Unearned income 98,124,653 87,904,758
------------ ------------
$ 40,846,486 $ 40,966,665
============ ============
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases are approximately $4,792,000
in 1998, $4,898,000 in each of the years 1999 through 2002 and
aggregate approximately $88,289,000 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 gross amount of approximately $174,425,000. As
of December 31, 1997, mortgage notes payable had interest rates
ranging from 7.53% to 10.5% per annum.
Scheduled principal payments during each of the next five years
following December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 $ 9,809,963
1999 1,940,171
2000 16,637,468
2001 1,949,466
2002 6,524,021
Thereafter 52,032,603
-----------
Total $88,893,692
</TABLE>
Interest paid was $1,152,764 in 1995, $3,243,825 in 1996 and $5,932,311
in 1997.
Inconnection with the placement of mortgages, fees of $276,139,
$513,847 and $862,415 were paid to an affiliate of the Company in
1995, 1996 and 1997, 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, 1997, dividends paid
per share reported for tax purposes were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Ordinary income $0.76 $0.68 $ .81
Return of capital 0.12
----- ----- -----
$0.76 $0.80 $ .81
===== ===== =====
</TABLE>
Continued
- 14 -
<PAGE> 47
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. 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 1995, 1996 and 1997 lease revenues are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Per Statements of Income:
Interest income from direct
financing leases $ 1,221,026 $ 4,559,544 $16,651,513
Rental income from operating leases 2,111,998 5,000,989 4,966,730
Adjustment:
Share of lease revenues from
equity investments 3,110,209 4,419,078 4,422,114
----------- ----------- -----------
$ 6,443,233 $13,979,611 $26,040,357
=========== =========== ===========
</TABLE>
Continued
- 15 -
<PAGE> 48
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In 1995, 1996 and 1997, 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>
1995 % 1996 % 1997 %
---- --- ---- -- ---- --
<S> <C> <C> <C> <C> <C> <C>
Spectrian Corporation $ 223,704 2% $ 1,925,000 7%
Scott Companies, Inc. 1,826,069 7
Best Buy Co., Inc. (a) $1,801,209 28% 1,797,435 13 1,793,239 7
Etec Systems, Inc. 1,210,652 19 1,208,583 9 1,556,393 6
QMS, inc. 1,454,097 6
Telos Corporation 1,166,936 8 1,447,000 5
Q Clubs, Inc. 374,263 6 979,795 7 1,390,123 5
The Upper Deck Company (a) 1,312,643 9 1,319,875 5
Gensia, Inc. (a) 1,309,000 20 1,309,000 9 1,309,000 5
Applied Bioscience International, Inc. 173,600 3 1,302,000 9 1,302,000 5
Del Monte Corporation 643,125 5 1,286,250 5
Lanxide Corporation 770,086 5 1,030,000 4
Garden Ridge Corporation 36,738 995,764 4
The Bon-Ton Stores, Inc. 921,294 4
Rheometric Scientific, Inc. 1,005,901 7 859,589 3
The Garden Companies, Inc. 432,804 7 816,400 6 816,400 3
Big V Holding Corporation 788,222 12 800,221 6 813,741 3
Celadon Group, Inc. 198,333 2 703,944 3
Knogo North America, Inc. 11,485 524,000 2
Silgan Containers Corporation 491,260 2
Westell Technologies, Inc. 441,853 2
Wal-Mart Stores, Inc. 353,483 5 397,226 3 397,226 2
GDE Systems, Inc. 334,734 1
Vermont Teddy Bear Co., Inc. 296,857 1
Pagg Corporation 284,628 1
Childtime Childcare, Inc. 218,813 1
Career Education Corporation 202,701 1
Perry Graphic Communications, Inc.
and Judd's Incorporated 82,800
Sandwich Bancorp, Inc. 15,707
---------- --- ----------- --- ----------- ---
$6,443,233 100% $13,979,611 100% $26,040,357 100%
========== === =========== === =========== ===
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investment.
Continued
- 16 -
<PAGE> 49
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Purchases of Real Estate:
Randall International, Inc.:
On October 17, 1997, the Company purchased land in Carlsbad, California
for $2,000,000 on which an 88,329 square foot manufacturing,
distribution and warehouse facility is being constructed, pursuant to
net lease and construction agency agreements with Randall
International, Inc ("Randall"). The Randall build-to-suit is expected
to be completed no later than November 30, 1998, with the Company's
total project costs not to exceed $7,102,000.
The lease provides for a primary lease term commencing November 1, 1997
through the completion date, with monthly rent payable based the
weighted average of the Company's share of project costs advanced.
The lease provides for a fifteen year initial lease term, commencing
with the completion date. During the initial lease term, annual rent
will amount to the sum of (i) the lesser of $693,072 and 10.7%
multiplied by project costs, plus (ii) 10.7% of amounts advanced, if
any, from a $250,000 allowance for any necessary changes in plans.
Career Education Corporation:
On November 12, 1997, the Company purchased land and building in Mendota
Heights, Minnesota for $9,985,799 and assumed an existing net lease
with Brown Institute Ltd., the obligations of which are
unconditionally guaranteed by its parent company, Career Education
Corporation.
The lease provides for a lease term of eleven years and five months with
two five-year renewal terms with annual rent of $1,115,100 for the
first three years, subsequent to a free-rent period ending February
28, 1998. Scheduled rents are as follows: $1,218,940 in lease years
4-6; $1,331,040 in lease years 7-9; and $1,454,845 in lease years
10-11.
Perry Graphic Communications, Inc. and Judd's Incorporated:
On December 16, 1997, the Company purchased land and six buildings in
Baraboo and Waterloo, Wisconsin for $19,027,148 and entered into a
net lease agreement with Perry Graphic Communications, Inc. and
Judd's Incorporated, as joint tenants. The lease term is for 20 years
with three five-year renewal terms and initially provides for annual
rent of $1,888,875, with scheduled rent increases of 10% every five
years.
Continued
- 17 -
<PAGE> 50
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Sandwich Bancorp, Inc.:
On December 30, 1997, the Company purchased land and the office
headquarters and two branch facilities in Bourne, Sandwich and
Wareham, Massachusetts of Sandwich Co-operative Bank ("Sandwich") for
$1,820,000 and entered into a net lease agreement with Sandwich. The
lease provides for a term of 20 years with three five-year renewal
terms with annual rent of $182,490 and annual increases based on a
formula indexed to increases in the Consumer Price Index. The lease
obligations are unconditionally guaranteed by Sandwich's parent
company, Sandwich Bancorp, Inc.
In connection with performing services relating to the Company's real
estate purchases, affiliates of the Company received acquisition fees
of $242,389, $513,847 and $862,415 in 1995, 1996 and 1997.
10. Property Leased to QMS, Inc.:
In February 1997, the Company purchased land and 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 and provides for annual rent of $1,689,375
with rent increases scheduled every three years based on a formula
indexed to increases in the CPI. In connection with the transaction,
the Company received warrants to purchase 100,000 shares of common
stock of QMS at a purchase price of $6.50 exercisable at any time
through December 2001.
As a result of a restructuring, QMS incurred certain charges that
resulted in violation of certain financial covenants for tangible net
worth and fixed charge coverage ratios under the lease agreement. On
December 8, 1997, the Company agreed to waive QMS's default for
noncompliance with these financial covenants for a one year period,
starting October 1997, in consideration for a $1,300,000 prepayment
of rent and a reduction of the exercise price of the warrants for QMS
common stock from $6.50 per share to $4.00 per share. The Company
will pay QMS interest on the $1,300,000 at an interest rate equal to
it's short term money market rate, starting March 1, 1998.
The $1,300,000 received from the prepayment of rent has been applied as
a principal prepayment on the mortgage loan collateralized by the QMS
property. The lender has reamortized the loan and reduced monthly
principal payments from $24,303 to $20,645.
Continued
- 18 -
<PAGE> 51
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 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. The interest in Cards LLC was
purchased in January 1996. Summarized financial information of Gena,
BB Property, and Cards LLC is as follows:
Summarized financial information of Gena is as follows:
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Assets $22,287 $21,826 $21,274
Liabilities 12,382 11,832 11,235
Capital 9,905 9,994 10,039
Revenues 2,618 2,618 2,618
Expenses 1,470 1,439 1,387
Net income 1,148 1,179 1,231
</TABLE>
Summarized financial information of BB Property is as follows:
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Assets $ 45,841 $ 45,739 $ 45,626
Liabilities 31,470 30,755 29,994
Shareholders' equity 14,371 14,984 15,632
Revenues 4,868 4,858 4,846
Interest and other expenses 2,844 2,786 2,756
Net income 2,024 2,072 2,090
</TABLE>
Summarized financial information of Cards LLC is as follows:
(In thousands)
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Assets $26,581 $26,729
Liabilities 15,704 15,511
Capital 10,877 11,218
Revenues 2,632 2,640
Expenses 1,259 1,244
Net income 1,373 1,396
</TABLE>
Continued
- 19 -
<PAGE> 52
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Subsequent Events:
A. In February 1995, the Company purchased land and buildings in
Heyward, 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 of 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 properties, 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. 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 for
May 1999, annual rent, assuming that entire Project II Improvement
funding commitment is needed, 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 properties. 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 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.
In September 1997, the Company elected to exercise a cashless conversion
of its remaining 68,768 Etec warrants for 68,261 shares of Etec
common stock. At December 31, 1997, based on the stock's quoted
per-share value, the Etec shares have a fair value of approximately
$3,174,000.
B. 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 CPI, capped at 5%.
Continued
- 20 -
<PAGE> 53
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. 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 and 1997 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 that 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,
1997. The Company has warrants for 15,500 shares of Lanxide
Corporation ("Lanxide") common stock, 150,000 shares of Vermont Teddy
Bear Co., Inc. ("Vermont Teddy Bear") common stock, 100,000 shares of
QMS common stock and 464,260 shares of Rheometric Scientific, Inc.
("Rheometric") common stock, all of which have publicly traded common
stock. There is no market for the stock warrant of these companies.
As of December 31, 1997, the exercise price of the warrants of these
publicly-traded companies was in excess of the quoted value of the
common stock. The warrants for Vermont Teddy Bear, Rheometric and QMS
are carried on the books at a nominal cost. The Lanxide warrants are
carried on the books for $124,000.
14. Accounting Pronouncements:
In June 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains
and losses) in full set general purpose financial statements. SFAS
No. 130 is required to be adopted in 1998. The Company is currently
evaluating the impact, if any, of SFAS No. 130.
- 21 -
<PAGE> 54
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
Facilities 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)
RHEOMETRIC Office/Manufacturing Piscataway, Ownership of land
SCIENTIFIC, INC. and Warehouse Facility New Jersey and buildings
</TABLE>
- 22 -
<PAGE> 55
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- -------------- ---------------- -------- ------------------
<S> <C> <C> <C>
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 (1)
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 (1)
SCOTT COMPANIES, INC. Office/Research San Leandro, Ownership of land
Facility California and building (1)
CHILDTIME CHILDCARE, Childcare Centers Chandler, Arizona; Ownership of land
INC. (under construction) Fleming Island, Florida; and building (1)
Ackworth, Georgia;
Hauppauge, New York;
Sugarland and
New Territory, Texas
and Silverdale, Washington
QMS, INC. Office/Research Mobile, Ownership of land
Facility Alabama and building (1)
THE BON-TON Retail and Distribution Allentown and Ownership of land
STORES, INC. Facilities Johnstown, and buildings (1)
Pennsylvania
SILGAN CONTAINERS Technology/Manufacturing Menomonie and Ownership of land
CORPORATION Facilities Oconomowoc, and buildings
Wisconsin
PAGG CORPORATION Office/Research Milford, Ownership of land
Facility Massachusetts and building (1)
VERMONT TEDDY Office/ Manufacturing Shelburne, Ownership of land
BEAR CO., INC. Facility Vermont and building (1)
GDE SYSTEMS, Research Facility San Diego, Ownership of land
INC. California and building
TEXAS FREEZER Warehouse/Special Dallas, Ownership of land
COMPANY, INC. Purpose Facility Texas and building
(Under construction)
</TABLE>
- 23 -
<PAGE> 56
<TABLE>
<CAPTION>
NAME OF LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- -------------- ---------------- -------- ------------------
<S> <C> <C> <C>
WESTELL TECH- Office/ Manufacturing Aurora, Ownership of land
NOLOGIES, INC. Facility Illinois and buildings
RANDALL Office/Manufacturing Carlsbad, Ownership of land
INTERNATIONAL, INC. and Warehouse Facility California and building
(under construction)
CAREER EDUCATION Administration/ Mendota Ownership of land
CORPORATION Classroom Facility Heights, and building
Minnesota
PERRY GRAPHIC Printing Facilities Baraboo and Ownership of land
COMMUNICATIONS, INC. Waterloo, and buildings
and JUDD'S INCORPORATED Wisconsin
SANDWICH BANCORP, Office/Banking Bourne, Ownership of land
INC. Facilities Sandwich and and buildings (2)
Wareham,
Massachusetts
</TABLE>
(1) These properties are encumbered by mortgage notes payable.
- 24 -
<PAGE> 57
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, 1997 there were 14,091 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>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
First quarter $.18125 $.20050 $. 2015
Second quarter .18750 .20080 . 2017
Third quarter .19375 .20100 . 2019
Fourth quarter .20025 .20125 . 2021
------- ------- -------
$.76275 $.80355 $. 8072
======= ======= =======
</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, 1997 as filed with the Securities and Exchange Commission.
- 25 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 72,423,221
<SECURITIES> 3,174,137
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 75,597,358
<PP&E> 267,981,065
<DEPRECIATION> 4,360,196
<TOTAL-ASSETS> 358,693,126
<CURRENT-LIABILITIES> 16,225,767
<BONDS> 88,893,692
0
0
<COMMON> 28,334
<OTHER-SE> 253,545,333
<TOTAL-LIABILITY-AND-EQUITY> 358,698,126
<SALES> 0
<TOTAL-REVENUES> 25,313,419
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,934,794
<LOSS-PROVISION> 162,137
<INTEREST-EXPENSE> 6,499,865
<INCOME-PRETAX> 12,803,616
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,803,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,803,616
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
