<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended JUNE 30, 1999
of
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
CPA(R):12
A MARYLAND Corporation
IRS Employer Identification No. 13-3726306
SEC File Number 033-68728
50 ROCKEFELLER PLAZA,
NEW YORK, NEW YORK 10020
(212) 492-1100
CPA(R):12 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the
Act.
CPA(R):12 is not registered on any exchanges.
CPA(R):12 does not have any Securities registered pursuant to Section 12(b) of
the Act.
CPA(R):12 is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-K.
CPA(R):12 (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for 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.
CPA(R):12 has no active market for common stock at August 10, 1999. 28,593,254
shares of common stock, $.001 par value outstanding at August 10, 1999.
<PAGE> 2
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of December 31, 1998
and June 30, 1999 2
Condensed Consolidated Statements of Income for the three
and six months ended June 30, 1998 and 1999 3
Condensed Consolidated Statements of Comprehensive Income
for the three and six months ended June 30, 1998 and 1999 3
Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 1998 and 1999 4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II - Other Information
Item 3 - Quantitative and Qualitative Disclosure About Market Risk 11
Item 4. - Submission of Matters to a Vote of Security Holders 11
Item 6. - Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
* The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments necessary for a fair
presentation of such financial information have been included.
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------- -------------
(Note) (Unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$9,520,197 at December 31, 1998 and
$12,398,156 at June 30, 1999 $ 290,253,526 $ 311,854,175
Net investment in direct financing leases 36,820,657 39,773,026
Equity investments 25,971,837 43,190,628
Cash and cash equivalents 37,790,505 9,717,173
Other assets 7,767,129 8,568,431
------------- -------------
Total assets $ 398,603,654 $ 413,103,433
============= =============
LIABILITIES:
Limited recourse mortgage notes payable $ 109,261,349 $ 110,413,126
Accrued interest 907,922 778,045
Accounts payable to affiliates 1,839,533 2,332,285
Accounts payable and accrued expenses 659,750 425,272
Dividends payable 5,805,617 5,822,222
Prepaid rental income and security deposits 4,996,561 5,161,115
Deferred acquisition fees payable to an affiliate 8,876,292 7,900,378
------------- -------------
Total liabilities 132,347,024 132,832,443
------------- -------------
Minority interest 26,969,738 44,702,051
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; issued and outstanding
28,717,726 and 28,767,234 shares at
December 31, 1998 and June 30, 1999 28,717 28,767
Additional paid-in capital 257,668,301 258,163,335
Accumulated other comprehensive income 2,607,571 2,167,543
Dividends in excess of accumulated earnings (19,903,364) (23,269,808)
------------- -------------
240,401,225 237,089,837
Less: common stock in treasury at cost,
129,301 and 173,980 shares at December 31, 1998
and June 30, 1999 (1,114,333) (1,520,898)
------------- -------------
Total shareholders' equity 239,286,892 235,568,939
------------- -------------
Total liabilities and shareholders' equity $ 398,603,654 $ 413,103,433
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The balance sheet at December 31, 1998 has been derived from the
audited consolidated financial statements at that date.
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 7,278,871 $ 7,623,026 $13,349,597 $14,980,116
Interest from direct
financing leases 1,235,182 1,200,739 2,466,873 2,294,851
Other interest income 541,718 101,687 1,286,297 388,651
------------ ----------- ----------- -----------
9,055,771 8,925,452 17,102,767 17,663,618
------------ ----------- ----------- -----------
Expenses:
Interest 1,990,310 2,284,548 3,940,426 4,589,108
Depreciation and amortization 1,343,943 1,523,949 2,502,842 2,955,254
General and administrative 604,137 802,724 1,115,980 1,433,640
Property expenses 843,333 1,297,537 1,922,269 2,383,761
------------ ----------- ----------- -----------
4,781,723 5,908,758 9,481,517 11,361,763
------------ ----------- ----------- -----------
Income before income
from equity investments
and extraordinary item 4,274,048 3,016,694 7,621,250 6,301,855
Income from equity investments 537,439 1,081,132 1,071,985 1,965,258
------------ ----------- ----------- -----------
Income before extraordinary
item 4,811,487 4,097,826 8,693,235 8,267,113
Extraordinary loss on
extinguishment of debt (379,247)
------------ ----------- ----------- -----------
Net income $ 4,811,487 $ 4,097,826 $ 8,313,988 $ 8,267,113
============ =========== =========== ===========
Basic and diluted earnings per
common share before
extraordinary item $ .17 .14 $ .30 $ .29
Extraordinary item (.01)
------------ ----------- ----------- -----------
Basic and diluted earnings
per share $ .17 .14 $ .29 $ .29
============ =========== =========== ===========
Weighted average shares
outstanding - basic and diluted 28,311,896 28,551,907 28,286,280 28,558,957
============ =========== =========== ===========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 4,811,487 $4,097,826 $ 8,313,988 $ 8,267,113
Other comprehensive income:
Change in unrealized gain on
marketable securities during
the period (1,552,319) 248,535 (737,453) (440,027)
----------- ---------- ----------- -----------
Comprehensive income $ 3,259,168 $4,346,361 $ 7,576,535 $ 7,827,086
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,313,988 $ 8,267,113
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,502,842 2,955,254
Straight-line rent adjustments and other
noncash rent adjustments (662,026) (580,561)
Income from equity investments in excess
of distributions received (92,175)
Extraordinary charge on extinguishment of debt 379,247
Provision for uncollected rent 118,624 129,563
Change in operating assets and liabilities, net (433,612) 418,165
------------ ------------
Net cash provided by operating activities 10,126,888 11,189,534
------------ ------------
Cash flows from investing activities:
Distributions from equity investments in excess of equity income 137,677
Purchases of real estate and equity investments and additional
capitalized costs (35,114,118) (44,164,483)
Payment of deferred acquisition fees (1,529,131)
------------ ------------
Net cash used in investing activities (35,114,118) (45,555,937)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 15,000,000 2,500,000
Prepayment of mortgage payable (7,957,949)
Payments on mortgage principal (915,078) (1,348,223)
Capital contributions from minority interest 3,181,895 17,732,313
Deferred financing costs and mortgage deposits (285,548) (567,502)
Dividends paid (11,440,061) (11,616,952)
Payment made on extinguishment of debt (379,247)
Purchase of treasury stock (237,417) (406,565)
------------ ------------
Net cash (used in) provided by financing activities (3,033,405) 6,293,071
------------ ------------
Net decrease in cash and cash equivalents (28,020,635) (28,073,332)
Cash and cash equivalents, beginning of period 72,423,221 37,790,505
------------ ------------
Cash and cash equivalents, end of period $ 44,402,586 $ 9,717,173
============ ============
Supplemental disclosure of cash flows information:
Interest paid $ 3,738,152 $ 4,718,985
============ ============
Noncash operating and financing activities:
Issuance of common stock to Advisor in satisfaction
of performance fees $ 2,955,881 $ 495,084
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. All significant intercompany
balances and transactions have been eliminated. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation of the results of the interim periods presented have
been included. The results of operations for the interim periods are not
necessarily indicative of results for the full year. For further information
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Note 2. Transactions with Related Parties:
The Company incurred asset management fees of $438,223 and $509,777 for the
three months ended June 30, 1998 and 1999, respectively, and $838,961 and
$1,004,861 for the six months ended June 30, 1998 and 1999, respectively, with
performance fees in like amount. The Advisor has opted to receive 49,508
restricted shares of common stock of the Company in satisfaction of the
performance fee of $495,084 incurred for the quarter ended March 31, 1999.
General and administrative expense reimbursements were $136,303 and $188,291 for
the three months ended June 30, 1998 and 1999, respectively, and $319,055 and
$382,333 for the six months ended June 30, 1998 and 1999, respectively.
<PAGE> 7
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 3. Lease Revenues:
The Company's operations consist of the investment in and the leasing of
industrial and commercial real estate. The financial reporting sources of the
leasing revenues below for the six-month periods ended June 30, 1998 and 1999
are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Per Statements of Income:
Rental income from operating leases $13,349,597 $14,980,116
Interest from direct financing leases 2,466,873 2,294,851
Adjustment:
Share of leasing revenue from equity
investments 2,209,126 4,519,507
----------- -----------
$18,025,596 $21,794,474
=========== ===========
</TABLE>
For the six-month periods ended June 30, 1998 and 1999, the Company earned its
proportionate net leasing revenues from its investments from the following lease
obligors:
<TABLE>
<CAPTION>
1998 % 1999 %
----------- --- ----------- ---
<S> <C> <C> <C> <C>
Advanced Micro Devices, Inc. (a) $ 1,524,250 7%
Etec Systems, Inc. $ 1,604,539 9% 1,493,855 7
Perry Graphic Communications, Inc.
and Judd's Incorporated 1,095,783 6 1,095,783 5
Scott Companies Inc. 970,425 5 970,425 5
Spectrian Corporation 962,500 5 962,500 4
Westell Technologies, Inc. 874,125 5 958,193 4
Best Buy Co., Inc. (a) 894,687 5 890,795 4
Career Education Corporation 608,141 3 868,404 4
QMS, Inc. 844,688 5 844,688 4
Telos Corporation 723,500 4 747,564 3
Q Clubs, Inc. 699,804 4 704,804 3
Applied Bioscience International, Inc. 651,000 4 695,857 3
The Upper Deck Company (a) 659,938 4 659,938 3
Sicor, Inc. (formerly Gensia, Inc.) (a) 654,500 4 654,500 3
Del Monte Corporation 643,125 4 643,125 3
Silgan Containers Corporation 610,303 3 637,500 3
The Bon-Ton Stores, Inc. 635,375 4 635,375 3
Marconi Integrated Systems, Inc. 631,015 3 631,015 3
Garden Ridge Corporation 497,882 3 497,882 2
Childtime Childcare, Inc. 279,892 2 479,347 2
Texas Freezer Company, Inc. 465,375 2
Intesys Technologies, Inc. (a) 460,144 2
Big V Holding Corp. 412,468 2 416,526 2
Rheometric Scientific, Inc. 407,705 2 414,452 2
NutraMax Products, Inc. 225,261 1 413,865 2
The Garden Companies, Inc. 408,200 2 408,200 2
Celadon Group, Inc. 357,889 2 363,917 2
Compucom Systems, Inc. (a) 329,880 2
Vermont Teddy Bear Co., Inc. 326,200 2 326,200 2
Randall International, Inc. 308,109 1
Pagg Corporation 295,000 2 295,000 1
Other 1,051,651 5 997,006 5
----------- --- ----------- ---
$18,025,596 100% $21,794,474 100%
=========== === =========== ===
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
<PAGE> 8
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Note 4. Equity Investments:
The Company holds interests in six entities in which its ownership interest is
50% or less. All of the entities were formed and are owned with affiliates that
have investment objectives that are similar to those of the Company. The
Company's ownership in entities that net lease properties to the following
tenants is as follows: Best Buy Co., Inc., 37%; Intesys Technologies, Inc., 50%;
Sicor, Inc. (formerly Gensia, Inc.), 50%; The Upper Deck Company, 50%; Advanced
Micro Devices, Inc., 33.33% and Compucom Systems, Inc., 33.33%. The interests in
the Intesys Technologies, Inc. and Compucom Systems, Inc. entities were
purchased during the quarter ended March 31, 1999. Combined summarized financial
information on the Company's equity investments is as follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1998 June 30, 1999
----------------- -------------
<S> <C> <C>
Assets (primarily real estate) $184,060 $244,873
Liabilities (primarily mortgage notes
payable) 123,265 145,856
Partners' and members' equity 60,795 99,017
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
Revenues (primarily rental revenue) $ 5,045 $ 11,519
Expenses (primarily interest on
mortgages and depreciation) (2,621) (6,663)
------- --------
Net income $ 2,424 $ 4,856
======= ========
</TABLE>
Note 5. Credit Agreement:
On June 25, 1999, the Company entered into a credit agreement with PNC Bank, N.
A. ("PNC") and The Bank of New York which provides for a $40,000,000 line of
credit. The credit agreement has a one-year term through June 23, 2000 with a
one-year extension at the Company's option providing that there are no events of
default.
Advances from the credit agreement will bear interest, at the option of the
Company, at an annual rate of either (i) the London InterBank Offered Rate plus
1.8% or (ii) the lesser of PNC's prime rate plus .25% or the Federal Fund
Effective Rate plus .50%. In addition, the Company will pay a fee of .25% per
annum on the unused portion of the credit line.
The credit agreement has financial covenants that require the Company to (i)
maintain a minimum equity value of $200,000,000 plus 85% of the cash proceeds
received by the Company from issuance of any new equity interests, (ii) maintain
cash balances of at least $2,000,000 and (iii) meet or exceed certain operating
and coverage ratios. Such operating and coverage calculations include but are
not limited to ratios of (a) earnings before interest, taxes, depreciation and
amortization to debt service payments and (b) debt leverage.
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto as of June 30,
1999 included in this quarterly report and the Company's Annual Report on Form
10-K for the year ended December 31, 1998. This quarterly report contains
forward looking statements. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievement of the Company to be materially different from the results of
operations or plan expressed or implied by such forward looking statements.
Accordingly, such information should not be regarded as representations by the
Company that the results or conditions described in such statements or the
objectives and plans of the Company will be achieved.
RESULTS OF OPERATIONS:
Net income for the three-month and six-month periods ended June 30, 1999
decreased by $714,000 and $47,000, respectively, as compared with the
three-month and six-month periods ended June 30, 1998. The results for the
six-month period ended June 30, 1998 included an extraordinary charge on the
extinguishment of a mortgage loan. The decrease in income before extraordinary
item for the comparable periods was due to increases in interest, general and
administrative and property expenses, an increase in depreciation and
amortization and a decrease in interest income. The effect of these items was
partially offset by increases in income from equity investments and lease
revenues (rental income and interest from direct financing leases).
The increase in equity income was due to the purchases of interests in the
properties leased to Advanced Micro Devices, Inc., Intesys Technologies, Inc.
and Compucom Systems, Inc. in December 1998, February 1999, and March 1999,
respectively. The increase in lease revenues was due to the completion of
several build-to-suit projects in both 1998 and 1999. The increase in lease
revenues was affected by the termination of the Lanxide Corporation lease during
the first quarter of 1999, resulting in a decrease in annual revenues of
$446,000 from the Company's property in Newark, Delaware that Lanxide had
occupied. Upon termination of the Lanxide lease, the Company assumed leases of
Lanxide's three subtenants. The increase in interest and depreciation expenses
was due to increases in mortgage loan balances and real estate investments,
respectively, as compared with the periods ended June 30, 1998, as the Company
has used the proceeds of its offering and limited recourse financing to further
diversify the Company's portfolio of properties. The decrease in interest income
was due to a decrease in average cash balances. The objective of the Company is
to only hold cash balances sufficient for working capital purposes and to use
substantially all of the net proceeds of its equity offering along with limited
recourse mortgage financings for investment in net lease real estate. The
increase in general and administrative expenses was primarily due to the
Company's annual servicing fee, payable to broker-dealers of the Company's
shareholders, as described in the Prospectus of the Company. The Company has
been recognizing the annual servicing fee expense since the fourth quarter of
1998. The increase in property expenses was due to an increase (i) in asset
management and performance fees as a result of the increase of the Company's
asset base for the comparable periods and (ii) an accrual for the independent
valuation of the Company's real estate portfolio which is required pursuant to
the Prospectus of the Company to be performed as of December 31, 1999. Beginning
January 1, 2000, the asset management and performance fee will be determined
based on the independent valuation of the Company's real estate assets.
A new building at the Etec property which is owned with an affiliate,
Corporate Property Associates 14 Incorporated has been completed, effective
August 1999. Annual cash flow (rental income less mortgage debt service) from
the new building after a $30,000,000 mortgage loan is placed on the property
will be approximately $1,234,000.
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FINANCIAL CONDITION:
There has been no material change in the Company's financial position
since December 31, 1998. On June 25, 1999, the Company obtained a $40,000,000
line of credit that can be used to purchase properties on a transitional basis.
This will allow the Company to obtain limited recourse mortgage financing
subsequent to purchases of property, and, therefore, will provide the Company
the opportunity to complete acquisitions more quickly. The use of unsecured debt
from the line of credit requires the Company to meet certain financial
covenants. The Company has several unencumbered properties on which it intends
to obtain new limited recourse mortgage debt. The proceeds from such mortgage
financings will be used to purchase additional properties to further diversify
the Company's real estate portfolio. As of June 30, 1999, the Company had
$3,630,000 of cash available for investment, including $775,000 committed to the
completion of the Balanced Care Corporation build-to-suit project.
Cash flow from operations and distributions received on equity investments
of $11,327,000 were not sufficient to fully fund quarterly dividends to
shareholders of $11,617,000. Cash flow from operations is projected to increase
with the completion of the final phase of the Etec project.
The Company's investing activities consisted of using $44,164,000 for the
purchase of three equity investments and toward the completion of build-to-suit
projects as well as making a payment of deferred acquisition fees of $1,529,000.
The Company is currently evaluating several additional real estate investments.
In addition to obtaining the $40,000,000 credit facility, the Company's
financing activities included the paying quarterly dividends, paying scheduled
mortgage principal payments of $1,348,000, obtaining limited recourse mortgage
financing of $2,500,000 collateralized by the properties leased to Childtime
Childcare, Inc. and using $17,732,000 of contributions from the minority owner
in the Etec project to fund construction. A portion of the funds provided by the
minority owner, Corporate Property Associates 14, will be repaid with proceeds
of the $30,000,000 mortgage that will be placed on the property. After the
mortgage proceeds are distributed, the Company will own an approximate 50% in
the new Etec building and will retain its 100% interests in the existing
buildings on the Etec property. Since June 30, 1999, the Company has received a
distribution of approximately $6,565,000 from its property leased to Intesys,
Inc. as a result of placing mortgage financing on the Intesys property.
YEAR 2000 ISSUES:
The "Year 2000 issue" refers to the series of problems that have
resulted or may result from the inability of certain computer software and
embedded processes to properly process dates. This shortcoming could result in
the failure of major systems or miscalculations causing major disruptions to
business operations. The Company has no information technology systems of its
own, but is dependent upon systems maintained by an affiliate of its Advisor,
and certain other third parties including banks and its transfer agent.
The Company and its affiliates have been evaluating their readiness
relating to Year 2000 issues since 1998. The affiliates' core information
technology systems used in administering the Company's business operations have
been upgraded or replaced, as needed, to become Year 2000 compliant. These
systems include desktop computers, network servers, operating systems and
applications software. A new, compliant, integrated accounting and asset
management system is currently being installed and is expected to be functional
in the fourth quarter of this year. Compliance of these systems with Year 2000
requirements has been determined through a combination of internal testing,
where feasible, and vendor representations. Non-core information technology
systems are currently being reviewed for compliance with Year 2000 requirements.
Such systems, although not critical to the Company's business operations, are
expected to be substantially upgraded or replaced before the end of 1999.
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 10 INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
The Company has contacted and is evaluating documentation from its
critical third party vendors and suppliers including banks, transfer agents and
telecommunications service providers regarding their Year 2000 compliance. The
responses received have generally been positive although the Company cannot be
assured that such providers have adequately considered the impact of Year 2000
issues on their systems.
The Company has contacted its tenants regarding Year 2000 readiness and
emphasized the need to address Year 2000 issues. Generally, tenants are
contractually required to maintain their leased properties in good working order
and to make necessary alterations, foreseen or unforeseen, to meet their
contractual obligations. Because of those obligations, the Company believes that
the risks and costs of upgrading systems related to operations of the buildings
and that contain technology affected by Year 2000 issues will generally be
absorbed by tenants rather than the Company. The major risk is that Year 2000
issues have such an adverse effect on the financial condition of a tenant that
its ability to meet its lease obligations, including the timely payment of rent,
is impaired. In such an event, the Company may ultimately incur the costs for
Year 2000 readiness at the affected properties. The potential materiality of any
impact is not known at this time.
The Company will continue to monitor critical third party vendors and
suppliers to determine its vulnerability to potential disruptions caused by year
2000 issues. Limited scope contingency plans are currently being developed to
address potential disruptions of a temporary nature that may affect the Company.
Because it is not possible to anticipate all of the possible disruptions that
may be caused by Year 2000 events, there can be no assurance that the Company
will not be adversely affected if such disruptions occur.
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART II
Item 3. - Quantitative and Qualitative disclosures about market risk
Approximately $83,168,000 of the Company's long-term debt bears
interest at fixed rates, and therefore the fair value of these instruments is
affected by changes in the market interest rates. The following table presents
principal cash flows based upon expected maturity dates of the debt obligations
and the related weighted-average interest rates by expected maturity dates for
the fixed rate debt. The interest rate on the variable rate debt as of June 30,
1999 ranged from LIBOR plus 1.97% to the lender's prime rate plus 2%. There has
been material change since December 31, 1998.
(in thousands)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total Fair Value
------ ------- ------ ------ ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $1,085 $ 4,478 $2,335 $2,540 $2,678 $70,052 $83,168 $83,595
Average
interest rate 7.83% 8.54% 7.74% 7.75% 7.75% 7.79%
Variable rate $ 323 $13,058 $ 572 $5,030 $5,421 $ 2,841 $27,245
</TABLE>
As of June 30, 1999, the Company had no other material exposure to market risk.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual Shareholders meeting was held on June 7, 1999, at
which time a vote was taken to elect the Company's directors
through the solicitation of proxies. The following directors
were elected for a one-year term:
<TABLE>
<CAPTION>
Total Shares Shares
Name Of Director Shares Voting Voting Yes Voting No
---------------- ------------- ---------- ---------
<S> <C> <C> <C>
William P. Carey 14,893,747 14,779,433 114,314
Ralph G. Coburn 14,893,747 14,671,986 221,761
William Ruder 14,893,747 14,771,583 122,164
George E. Stoddard 14,893,747 14,714,378 179,369
Thomas E. Zacharias 14,893,747 14,794,133 99,614
</TABLE>
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K:
During the quarter ended June 30, 1999, the Company was not
required to file any reports on Form 8-K
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
<TABLE>
<S> <C>
08/10/99 By: /s/ John J. Park
---------------------------------------
Date John J. Park
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
08/10/99 By: /s/ Claude Fernandez
---------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,717,173
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,568,431
<PP&E> 364,025,357
<DEPRECIATION> 12,398,156
<TOTAL-ASSETS> 413,103,433
<CURRENT-LIABILITIES> 14,518,939
<BONDS> 110,413,126
0
0
<COMMON> 28,767
<OTHER-SE> 235,540,172
<TOTAL-LIABILITY-AND-EQUITY> 413,103,433
<SALES> 0
<TOTAL-REVENUES> 17,663,618
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,643,093
<LOSS-PROVISION> 129,563
<INTEREST-EXPENSE> 4,589,108
<INCOME-PRETAX> 8,267,113
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,267,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,267,113
<EPS-BASIC> .29
<EPS-DILUTED> .29
</TABLE>
