<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended SEPTEMBER 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 November 9,
1999. 28,594,836 shares of common stock, $.001 par value
outstanding at November 9, 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 September 30, 1999 2
Condensed Consolidated Statements of Income for the three
and nine months ended September 30, 1998 and 1999 3
Condensed Consolidated Statements of Comprehensive Income
for the three and nine months ended September 30, 1998 and 1999 3
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1999 4
Notes to Condensed Consolidated Financial Statements 5 - 8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
Item 3. - Quantitative and Qualitative Disclosure About Market Risk 12
PART II - Other Information
- -------
Item 4. - Submission of Matters to a Vote of Security Holders 13
Item 6. - Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
* The summarized financial information contained herein is unaudited; however,
in the opinion of management, all adjustments necessary for a fair presentation
of such financial information have been included.
- 1 -
<PAGE> 3
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
----------------- -------------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS:
Land and buildings,
net of accumulated depreciation of
$9,520,197 at December 31, 1998 and
$14,130,376 at September 30, 1999 $290,253,526 $314,365,713
Net investment in direct financing leases 36,820,657 39,432,670
Equity investments 25,971,837 43,606,082
Cash and cash equivalents 37,790,505 21,119,613
Other assets 7,767,129 9,130,774
------------ -----------
Total assets $398,603,654 $427,654,852
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $109,261,349 $139,710,784
Accrued interest 907,922 919,622
Accounts payable to affiliates 1,839,533 2,357,440
Accounts payable and accrued expenses 659,750 581,666
Dividends payable 5,805,617 5,827,541
Prepaid rental income and security deposits 4,996,561 4,636,260
Deferred acquisition fees payable to an affiliate 8,876,292 8,354,579
------------ -----------
Total liabilities 132,347,024 162,387,892
------------ ------------
Minority interest 26,969,738 30,478,728
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; issued and outstanding
28,717,726 and 28,818,212 shares at
December 31, 1998 and September 30, 1999 28,717 28,818
Additional paid-in capital 257,668,301 258,673,061
Accumulated other comprehensive income 2,607,571 2,452,747
Dividends in excess of accumulated earnings (19,903,364) (24,390,759)
------------ ------------
240,401,225 236,763,867
Less: common stock in treasury at cost,
129,301 and 223,376 shares at December 31, 1998
and September 30, 1999 (1,114,333) (1,975,635)
------------ -----------
Total shareholders' equity 239,286,892 234,788,232
------------ ------------
Total liabilities and shareholders' equity $398,603,654 $427,654,852
============ ============
</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.
- 2 -
<PAGE> 4
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues :
Rental income $6,675,557 $ 9,527,443 $20,025,154 $24,507,559
Interest from direct
financing leases 1,236,193 1,201,778 3,703,066 3,496,629
Other interest income 668,327 120,911 1,954,624 509,562
---------- ----------- ----------- -----------
8,580,077 10,850,132 25,682,844 28,513,750
---------- ---------- ----------- -----------
Expenses:
Interest 2,330,675 2,494,809 6,271,101 7,083,917
Depreciation and amortization 1,353,277 1,842,452 3,856,119 4,797,707
General and administrative 440,893 704,197 1,556,873 2,137,836
Property expenses 1,091,109 1,069,658 3,013,378 3,453,419
---------- ----------- ----------- -----------
5,215,954 6,111,116 14,697,471 17,472,879
---------- ----------- ----------- -----------
Income before minority
interest, income from equity
investments, loss on sale
and extraordinary item 3,364,123 4,739,016 10,985,373 11,040,871
Minority interest in income (763,729) (763,729)
---------- ----------- ----------- -----------
Income before income from
equity investments, loss on
sale and extraordinary item 3,364,123 3,975,287 10,985,373 10,277,142
Income from equity investments 540,574 927,626 1,612,559 2,892,884
---------- ----------- ---------- -----------
Income before loss on sale
and extraordinary item 3,904,697 4,902,913 12,597,932 13,170,026
Loss on sale of land (196,323) (196,323)
---------- ----------- ---------- -----------
Income before extraordinary
item 3,904,697 4,706,590 12,597,932 12,973,703
Extraordinary loss on
extinguishment of debt (379,247)
---------- ----------- ----------- -----------
Net income $3,904,697 $ 4,706,590 $12,218,685 $12,973,703
========== =========== =========== ===========
Basic and diluted earnings per
common share before
extraordinary item $ .14 $ .16 $ .44 $ .45
Extraordinary item (.01)
----- ----- ----- -----
Basic and diluted earnings per share $ .14 $ .16 $ .43 $ .45
===== ===== ===== =====
Weighted average shares
outstanding - basic and diluted 28,523,460 28,601,803 28,366,209 28,578,396
========== =========== =========== ===========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C>
Net income $ 3,904,697 $ 4,706,590 $12,218,685 $12,973,703
Other comprehensive income:
Change in unrealized gain on
marketable securities during
the period (557,857) 285,203 (1,295,310) (154,824)
----------- ----------- ----------- -----------
Comprehensive income $ 3,346,840 $ 4,991,793 $10,923,375 $12,818,879
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 3 -
<PAGE> 5
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,218,685 $ 12,973,703
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,856,119 4,797,707
Straight-line rent adjustments and other
noncash rent adjustments (807,754) (830,128)
Income from equity investments in excess
of distributions received (371,727)
Minority interest in income 763,729
Extraordinary charge on extinguishment of debt 379,247
Loss on sale of land 196,323
Issuance of common stock in satisfaction of
current year's performance fees 495,084 1,004,861
Provision for uncollected rent 277,962 210,032
Change in operating assets and liabilities, net 22,053 (658,643)
------------ -----------
Net cash provided by operating activities 16,069,669 18,457,584
------------ -----------
Cash flows from investing activities:
Distributions from equity investments in excess of equity income 402,836
Purchases of real estate and equity investments and additional
capitalized costs (47,148,480) (48,730,162)
Proceeds from sale of land 256,315
Payment of deferred acquisition fees (1,529,131)
------------ ------------
Net cash used in investing activities (47,148,480) (49,600,142)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgages 26,000,000 32,500,000
Prepayment of mortgage payable (7,957,949)
Payments on mortgage principal (1,530,039) (2,050,565)
Distributions paid to minority partner (718,173)
Capital distributions to minority partner (15,000,000)
Capital contributions from minority partner 11,101,219 18,463,434
Deferred financing costs (502,428) (422,554)
Dividends paid (17,439,121) (17,439,174)
Payment made on extinguishment of debt (379,247)
Purchase of treasury stock (410,898) (861,302)
------------ ------------
Net cash provided by financing activities 8,881,537 14,471,666
------------ ------------
Net decrease in cash and cash equivalents (22,197,274) (16,670,892)
Cash and cash equivalents, beginning of period 72,423,221 37,790,505
------------ ------------
Cash and cash equivalents, end of period $ 50,225,947 $ 21,119,613
============ ============
Supplemental disclosure of cash flows information:
Interest paid $ 6,083,216 $ 7,072,217
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 4 -
<PAGE> 6
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. All significant
intercompany balances and transactions have been eliminated. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results of the interim
periods presented have been included. The results of operations for the interim
periods are not necessarily indicative of results for the full year. For
further information refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
Note 2. Transactions with Related Parties:
The Company incurred asset management fees of $438,648 and $434,654 for the
three months ended September 30, 1998 and 1999, respectively, and $1,277,609
and $1,439,515 for the nine months ended September 30, 1998 and 1999,
respectively, with performance fees in like amount. The Advisor has opted to
receive 100,486 restricted shares of common stock of the Company in
satisfaction of the performance fee of $1,004,861 incurred for the six months
ended June 30, 1999. In addition, the Company will issue 43,465 shares to the
Advisor in consideration for performance fees for the three months ended
September 30, 1999. General and administrative expense reimbursements were
$176,212 and $242,770 for the three months ended September 30, 1998 and 1999,
respectively, and $495,217 and $625,103 for the nine months ended September 30,
1998 and 1999, respectively.
- 5 -
<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 nine-month periods ended September 30, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Per Statements of Income:
Rental income $20,025,154 $24,507,559
Interest from direct financing leases 3,703,066 3,496,629
Adjustment:
Share of leasing revenue applicable
to minority interests (957,564)
Share of leasing revenue from equity
investments 3,313,595 7,031,374
----------- -----------
$27,041,815 $34,077,998
=========== ===========
</TABLE>
For the nine-month periods ended September 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>
Etec Systems, Inc. (b) $ 2,243,918 8% $ 3,198,729 9%
Advanced Micro Devices, Inc. (a) 2,286,375 7
Perry Graphic Communications, Inc.
and Judd's Incorporated 1,643,675 6 1,643,675 5
Scott Companies Inc. 1,455,638 5 1,455,638 4
Spectrian Corporation 1,443,750 5 1,443,750 4
Westell Technologies, Inc. 1,311,188 5 1,437,290 4
Best Buy Co., Inc. (a) 1,341,939 5 1,336,023 4
Career Education Corporation 912,156 3 1,302,606 4
QMS, Inc. 1,267,031 4 1,267,031 4
Telos Corporation 1,085,250 4 1,133,379 3
Q Clubs, Inc. 1,052,206 4 1,060,552 3
Applied Bioscience International, Inc. 976,500 4 1,043,786 3
Sicor, Inc. (a) 981,750 4 1,009,040 3
The Upper Deck Company (a) 989,906 4 989,906 3
Del Monte Corporation 964,688 4 964,688 3
Silgan Containers Corporation 847,202 3 956,250 3
The Bon Ton Stores, Inc. 953,063 4 953,063 3
Marconi Integrated Systems, Inc. 946,523 4 946,523 3
Lanxide Corporation 772,500 3
Childtime Childcare, Inc. 448,535 2 759,347 2
Garden Ridge Corporation 746,823 3 746,823 2
Intesys Technologies, Inc. (a) 744,488 2
Texas Freezer Company, Inc. 99,796 698,063 2
Compucom Systems, Inc. (a) 656,047 2
Big V Holding Corp. 620,202 2 625,298 2
Rheometric Scientific, Inc. 612,814 2 622,736 2
NutraMax Products, Inc. 431,252 2 622,679 2
The Garden Companies, Inc. 612,300 2 612,300 2
Celadon Group, Inc. 536,833 2 545,875 2
Randall International, Inc. 502,916 1
Vermont Teddy Bear Co., Inc. 489,298 2 489,298 1
Pagg Corporation 442,500 2 442,500 1
Knogo North America, Inc. 393,000 1 393,000 1
International Management Consulting, Inc. 303,652 1
Wal-Mart Stores, Inc. 297,919 1 297,919 1
Other 121,660 586,753 2
----------- ---- ----------- ----
$27,041,815 100% $34,077,998 100%
=========== ==== =========== ====
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investments.
(b) Net of amounts applicable to minority interests owned by Corporate
Property Associates 14 incorporated ("CPA(R):14")
- 6 -
<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 eight 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%; Compucom Systems, Inc., 33.33% and two
interests in Ameriserve Food Distribution, Inc., each at 40%. The interests in
the Intesys Technologies, Inc. and Compucom Systems, Inc. entities were
purchased during the quarter ended March 31, 1999. The interests in the
Ameriserve Food Distribution, Inc. entities were purchased during the quarter
ended September 30, 1999 (See Note 5). Combined summarized financial
information on the Company's equity investments is as follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Assets (primarily real estate) $184,060 $293,959
Liabilities (primarily mortgage notes
payable) 123,265 190,595
Partners' and members' equity 60,795 103,364
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenues (primarily rental revenue) $ 7,571 $ 17,982
Expenses (primarily interest on
mortgages and depreciation) (3,921) (10,707)
-------- --------
Net income $ 3,650 $ 7,275
======== ========
</TABLE>
Note 5. Ameriserve Food Distribution, Inc.:
On August 18 1999, the Company and Corporate Property Associates 14
Incorporated ("CPA(R):14"), an affiliate, formed two limited liability
companies which entered into net leases for four properties with Ameriserve
Food Distribution, Inc. ("Ameriserve") located in Burlington, New Jersey;
Shawnee, Kansas; Grand Rapids, Michigan and Manassas, Virginia. The total cost
of the transaction, including the funding of expansions and a build-to-suit
facility is expected to amount to $55,779,445. The Company holds a 40%
interest in the limited liability companies and is accounting for its
investments under the equity method of accounting.
A new facility will be built at the Shawnee property and existing facilities
will be expanded at the Burlington and Manassas properties. Completion of the
projects is scheduled to occur no later than December 1, 2000. At the earlier
of the completion of construction or December 1, 2000, a lease term of 20 years
will commence, followed by two ten-year renewal terms at Ameriserve's option.
The annual rent will be $5,769,073, subject to reduction if total project costs
are less than $55,779,445. The leases provide for increases every three years
based on a formula indexed to increases in the Consumer Price Index.
Ameriserve has purchase options that may be exercised at the end of the lease
In connection with the purchase of the Ameriserve properties, the Company and
CPA(R):14 obtained limited recourse mortgage financing of $32,000,000
collateralized by the Ameriserve properties and lease assignments. The loans
bear interest at an annual rate of 8.51% with combined monthly payments of
interest and principal of $246,279 and based on a 30-year amortization
schedule. The loans mature September 30, 2009 at which time balloon payments
will be due.
- 7 -
<PAGE> 9
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
(CONTINUED)
Note 6. Property Leased to Etec Systems, Inc.:
In February 1995, the Company purchased a property in Hayward, California for
$11,518,000 and entered into a net lease with Etec Systems, Inc. ("Etec").
Subsequent to the purchase, the Company funded the construction of another
building at the property that was completed in February 1998. In March 1998,
the Company and CPA(R):14 agreed to fund the construction of a new building at
the property for up to $52,356,000. At that time, the ownership interests in
Etec property were structured so that the Company would retain 100% of the
economic interests in the land and existing buildings and hold a 50.01%
interest in the new improvements. At that time, the initial term of the Etec
lease was extended through June 2014.
The new improvements were placed in service on July 1, 1999 at which time
annual rent applicable solely to such improvements of $5,746,531 went into
effect. On September 24, 1999, the Company obtained $30,000,000 of limited
recourse mortgage financing applicable to the new improvements. The Company
had previously received $15,000,000 of limited recourse financing on the
existing facilities. The $30,000,000 loan bears interest at the rate of 7.11%
and provides for monthly payments of interest and principal of $271,497 and
will fully amoritize through October 1, 2014.
- 8 -
<PAGE> 10
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto as of September
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 nine-month periods ended September 30,
1999 increased by $802,000 and $755,000, respectively, as compared with the
three-month and nine-month periods ended September 30, 1998. Excluding an
extraordinary charge on the extinguishment of debt of $379,000 in 1998 and a
loss on the sale of excess land at a leased property of $196,000 in 1999,
income for the comparable three-month and nine-month periods would have
reflected increases of $998,000 and 572,000, respectively. The increase in
income was due to increases in lease revenues (rental income and interest from
direct financing leases) and income from equity investments, and was offset, in
part, by increases in interest, general and administrative and property
expenses and depreciation and amortization as well as a decrease in other
interest income.
The increase in lease revenues was primarily due to the completion of
build-to-suit and expansion projects at properties leased to Randall
International, Inc., International Management Consulting, Inc., Childtime
Childcare, Inc., Balanced Care Corporation, Career Education Corporation and
Etec Systems, Inc. in 1999 and Texas Freezer Company, Inc. in the third quarter
of 1998. The increase in income from equity investments 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 remaining interests in the
Advanced Micro Devices, Intesys and Compucom properties are owned by affiliates
which have investment objectives that are similar to the Company's.
The increase in interest expense is primarily due to obtaining new
mortgage financing on the Etec properties in June 1998 on the existing
facilities, and in September 1999 on the newly completed project and obtaining
limited recourse mortgage financing on properties leased to Perry Graphics
Communication, Inc. and Texas Freezer in July 1998 and December 1998,
respectively. The increase in general and administrative expenses was due to
costs related to the implementation of the new integrated accounting and asset
management software system and the Company's annual servicing fees, payable to
broker-dealers involved in the offering of the Company's shares. The Company
has been recognizing the servicing fee expense since the fourth quarter of
1998.
The increase in property expenses was due to an increase in (i) asset
management and performance fees and (ii) an accrual for the independent
valuation of the Company 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 fees will be determined based on the
independent valuation of the Company's real estate assets. Since the
inception of the Company through December 31, 1999, asset management and
performance fees were based on the acquisition cost of properties. The
decrease in other 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 all of the net proceeds of
its equity offering for investment in net lease real estate. Accordingly, as
the net proceeds have been invested, other interest income has continued to
decrease.
- 9 -
<PAGE> 11
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FINANCIAL CONDITION:
There has been no material change in the Company's financial position
since December 31, 1998. In June 1999, the Company obtained a $40,000,000 line
of credit. The line of credit can be used to finance the acquisition of
properties on a transitional basis, until limited recourse financing is
obtained. The use of unsecured debt from the line of credit requires the
Company to meet certain financial covenants. As of September 30, 1999 the
Company has not drawn any advances from the line of credit and remains in
compliance with the financial covenants. The proceeds from such mortgage
financings will be used to purchase additional properties to further diversify
the Company's real estate portfolio. As of September 30, 1999, the Company had
$18,367,000 of cash available for investment.
Cash flow from operations and distributions received on equity investments
of $18,860,000 were sufficient to fully fund quarterly dividends to
shareholders of $17,439,000 and distributions of $718,000 to the minority
partner of the investment in the Etec net lease. 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 $48,730,000 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
and receiving $256,000 from the sale of excess land at the Rheometric
Scientific, Inc. property in Piscataway, New Jersey. The Company is currently
evaluating several additional real estate investments and has a commitment of
$2,566,000 towards completion of the Ameriserve Food Distribution, Inc.
transaction, net of mortgage financing.
In addition to obtaining the $40,000,000 credit facility, the Company's
financing activities included paying quarterly dividends, paying scheduled
mortgage principal payments of $2,051,000, obtaining limited recourse mortgage
financing of $2,500,000 and $30,000,000 collateralized by the properties leased
to Childtime Childcare and Etec, respectively, and using $18,436,000 of
contributions from the minority owner in the Etec project to fund construction.
$15,000,000 of the proceeds from the Etec financing was distributed to the
minority partner, Corporate Property Associates 14 Incorporated.
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 the accounting component is
currently functional. 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 have been
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. Management believes
that substantially all costs related to Year 2000 compliance and remediation
have been incurred.
- 10 -
<PAGE> 12
CORPORATE PROPERTY ASSOCIATES 12 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.
- 11 -
<PAGE> 13
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Approximately $112,637,000 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
September 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.
<TABLE>
<CAPTION>
(in thousands)
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $837 $5,661 $3,605 $3,903 $4,141 $94,490 $112,637 $113,215
Average
interest rate 8.88% 9.03% 8.84% 8.83% 8.85% 8.59%
Variable rate $152 $13,058 $572 $5,030 $5,421 $2,841 $27,074
</TABLE>
As of September 30, 1999, the Company had no other material exposure to market
risk.
- 12 -
<PAGE> 14
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
PART II
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1999, no matters were
submitted to a vote of the Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K:
During the quarter ended September 30, 1999, the Company was
not required to file any reports on Form 8-K
- 13 -
<PAGE> 15
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
11/09/99 By: /s/ John J. Park
-------- --------------------------------------
Date John J. Park
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
11/09/99 By: /s/ Claude Fernandez
-------- --------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 21,119,613
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,119,613
<PP&E> 367,928,759
<DEPRECIATION> 14,130,376
<TOTAL-ASSETS> 427,654,852
<CURRENT-LIABILITIES> 14,322,439
<BONDS> 139,710,784
0
0
<COMMON> 28,818
<OTHER-SE> 234,759,414
<TOTAL-LIABILITY-AND-EQUITY> 427,654,852
<SALES> 0
<TOTAL-REVENUES> 28,513,750
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,178,930
<LOSS-PROVISION> 210,032
<INTEREST-EXPENSE> 7,083,917
<INCOME-PRETAX> 12,973,703
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,973,703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,973,703
<EPS-BASIC> .45
<EPS-DILUTED> .45
</TABLE>
