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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the year ended December 31, 1998
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 March 24, 1999.
Non-affiliates held 28,273,451 shares of common stock, $.001 Par Value
outstanding at March 24, 1999.
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PART I
Item 1 Business.
Corporate Property Associates 12 (CPA(R):12) Incorporated is a Real Estate
Investment Trust ("REIT") that acquires and owns commercial properties leased to
companies nationwide, primarily on a triple net basis. As of December 31, 1998,
CPA(R):12's portfolio consisted of 85 properties leased to 36 tenants and
totaling more than 7.9 million square feet.
CPA(R):12's core investment strategy is to purchase and own properties
leased to a variety of companies on a single tenant net lease basis. These
leases generally place the economic burden of ownership on the tenant by
requiring them to pay the costs of maintenance, insurance, taxes, structural
repairs and other operating expenses.
CPA(R):12 also generally includes in its leases:
o clauses providing for mandated rent increases or periodic rent
increases tied to increases in the consumer price index or other
indices or, when appropriate, increases tied to the volume of sales
at the property;
o covenants restricting the activity of the tenant to reduce the risk
of a change in credit quality;
o indemnification of CPA(R):12 for environmental and other
liabilities;
o guarantees from parent companies or other entities.
CPA(R):12 was formed as a Maryland corporation on July 30, 1993. Between
February 1994 and September 1997, CPA(R):12 sold a total of 28,334,451 shares of
common stock for a total of $283,344,510 in offering proceeds. These proceeds
have been combined with limited recourse mortgage debt to purchase CPA(R):12's
property portfolio. As a real estate investment trust, CPA(R):12 is not subject
to federal income taxation as long as it satisfies certain requirements relating
to the nature of its income, the level of its distributions and other factors.
Carey Property Advisors provides both strategic and day-to-day management
for CPA(R):12, including acquisition services, research, investment analysis,
asset management, capital funding services, disposition of assets, investor
relations and administrative services. Carey Property Advisors also provides
office space and other facilities for CPA(R):12. Carey Property Advisors has
dedicated senior executives in each area of its organization so that CPA(R):12
functions as a fully integrated operating company. CPA(R):12 pays asset
management fees to Carey Property Advisors and pays certain transactional fees.
CPA(R):12 also reimburses Carey Property Advisors for certain expenses. Carey
Property Advisors also serves in this capacity for Corporate Property Associates
10 Incorporated, Carey Institutional Properties Incorporated and Corporate
Property Associates 14 Incorporated.
CPA(R):12's principal executive offices are located at 50 Rockefeller
Plaza, New York, NY 10020 and its telephone number is (212) 492-1100. As of
March 24, 1999, CPA(R):12 had no employees. An affiliate of Carey Property
Advisors employs 20 individuals who perform services for CPA(R):12.
Business Objectives and Strategy
CPA(R):12's objectives are to:
o pay quarterly dividend at an increasing rate that for taxable
shareholders may be partially free from current taxation;
o purchase and own a portfolio of real estate that will increase in
value; and
o increase the equity in its real estate by making regular mortgage
principal payments.
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CPA(R):12 seeks to achieve these objectives by purchasing and holding
industrial and commercial properties each net leased to a single corporate
tenant. CPA(R):12 's portfolio is diversified by geography, property type and by
tenant.
Recent Developments
On March 23, 1998, CPA(R):12 purchased land and building in Houston, Texas
for $7,199,000 and assumed an existing net lease with First Aid Products, Inc.,
as lessee. The obligations of the lease are unconditionally guaranteed by First
Aid's parent company, NutraMax Products, Inc. The lease has an initial annual
term through April 2013 with one five-year renewal term at the tenant's option.
Annual rent, currently $823,968, provides for annual rent increases based on
increases in the Consumer Price Index, capped at 5%.
On April 14, 1998, CPA(R):12 purchased a property in Ft. Dodge, Iowa for
$3,874,000 from Silgan Containers Corporation and amended its existing lease
with Silgan to include the Ft. Dodge property with two other properties. As
amended, the initial lease term was extended through March 2013 with three
five-year renewals at Silgan's option and annual rent was increased $893,200 to
$1,275,000.
On May 18, 1998, CPA(R):12 purchased land in Ashburn, Virginia and entered
into construction and lease agreements with International Management Consultant
Inc. ("IMCI"). Construction was completed in February 1999 at which time IMCI
took occupancy of the property. After a rent abatement period of six months,
annual rent will be $754,404 with rent increases every year based on increases
in the Consumer Price Index, capped at 3%. The lease has an initial term of
fifteen years through February 2014.
On June 23, 1998, CPA(R):12 purchased land in Mechanicsburg, Pennsylvania
and entered into construction agency and lease agreements with BCC Development
and Management Co. This build-to-suit project is scheduled for completion before
the end of the second quarter of 1999. The lease provides for an initial term of
fifteen years with two five-year renewals at the option of the tenant. Annual
rent will initially be an amount representing 9.9% total project costs, which
are expected to total approximately $4,753,000.
On December 22, 1998, through a 33 1/3% interest in a limited liability
company that was formed with two affiliates, CPA(R):12 purchased land and
buildings in Sunnyvale, California and entered into a net lease with Advanced
Micro Devices, Inc. ("AMD"). The total purchase price of the building was
$95,287,958 with $68,250,000 of the financing provided through a limited
recourse mortgage loan. CPA(R):12's equity contribution, including its share of
deferred acquisition fees, representing the purchase price less the mortgage
financing was $9,012,653. The AMD lease has an initial term of 20 years with two
ten-year renewal terms at AMD's option. The lease provides for annual rent of
$9,145,500 with rent increases every three years, with each rent increase capped
at 6.903%. The loan has a ten-year term and provides for monthly payments of
interest and principal based on a 30-year amortization schedule and an annual
interest rate of 7.78%. CPA(R):12's share of annual distributions from this
investment is expected to be $1,066,000, representing approximately one-third of
the limited liability company's annual operating cash flow (rent less mortgage
debt service).
On February 3, 1999,through a 50% interest in a limited liability company
which CPA(R):12 formed with an affiliate, CPA(R):12 acquired an interest in land
and buildings in Gilbert, Arizona, and through the limited liability company
interest, entered into a net lease with Intesys Technologies, Inc. The total
purchase price of the building was $23,560,000. The Intesys lease has an initial
term of 20 years with two ten-year renewal options at the tenant's option. The
lease provides for annual rent of $2,274,750. There are rent increases every
three years based on increases in the Consumer Price Index with increases capped
at 9%.
In February 1995, CPA(R):12 purchased land and buildings in Hayward,
California for $11,860,000 and entered into a net lease with Etec Systems, Inc.
In August 1996, CPA(R):12 entered into a commitment to construct an additional
building at the Etec property, and in January 1997, the Company completed
construction of the building for $5,241,000. In February 1998, CPA:12 entered
into a series of transactions including paying off the existing limited recourse
mortgage loan on the Etec property, entering into a commitment and construction
agency agreement to fund additional improvements of up to $52,356,000, amending
the existing lease with Etec and transferring ownership of the Etec property to
a limited liability company in which, Corporate Property Associates 14
Incorporated ("CPA(R):14"), an affiliate, has an ownership interest. At that
time, CPA(R):12 paid off the $7,957,947 existing limited recourse mortgage loan
collateralized by the Etec property. Under the limited liability agreement,
CPA(R):14 will have a 49.99% interest
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in the additional improvements and will not share in the economic benefits from
the existing buildings. CPA(R):12 releveraged the existing buildings with
$15,000,000 of limited recourse mortgage financing and has received a commitment
of $30,000,000 of financing for the additional improvements. The initial
$15,000,000 of mortgage financing provides for monthly payments of principal and
interest at an annual interest rate of 7.11%, and will fully amortize in
December 2013. The remaining $30,000,000 mortgage will also bear interest at an
annual interest rate of 7.11% and will be scheduled to fully amortize over its
term.
As more fully discussed in Note 10 to the consolidated financial
statements in Item 8, Lanxide Corporation, a tenant of a property in Newark,
Delaware, has filed a petition of bankruptcy and is in the process of
liquidating. CPA(R):12 has assumed three short-term subleases at the property.
As a result, CPA(R):12 expects the annual rent from this property to decrease to
approximately $585,000, representing the subtenants rents, from $1,030,000, if
the lease is terminated pursuant to Lanxide"s bankruptcy petition. There is no
assurance that any of the subleases, which expire in 2000 and 2001, will be
renewed.
Acquisition Strategies
Carey Property Advisors has a well-developed process with established
procedures and systems for acquiring net leased property on behalf of CPA(R):12.
As a result of its reputation and experience in the industry and the contacts
maintained by its professionals, Carey Property Advisors has a presence in the
net lease market that has provided it with the opportunity to invest in a
significant number of transactions on an ongoing basis. CPA(R):12 takes
advantage of Carey Property Advisors' presence in the net lease market to build
its portfolio. In evaluating opportunities for CPA(R):12, Carey Property
Advisors carefully examines the credit, management and other attributes of the
tenant and the importance of the property under consideration to the tenant's
operations. Careful credit analysis is a crucial aspect of every transaction.
CPA(R):12 believes that Carey Property Advisors has one of the most extensive
underwriting processes in the industry and has an experienced staff of
professionals involved with underwriting transactions. Carey Property Advisors
seeks to identify those prospective tenants whose creditworthiness is likely to
improve over time. CPA(R):12 believes that the experience of Carey Property
Advisors' management in structuring sale-leaseback transactions to meet the
needs of a prospective tenant enables Carey Property Advisors to obtain a higher
return for a given level of risk than would typically be available by purchasing
a property subject to an existing lease.
Carey Property Advisors' strategy in structuring its net lease investments for
CPA(R):12 is to:
o combine the stability and security of long-term lease payments,
including rent increases, with the appreciation potential inherent
in the ownership of real estate;
o enhance current returns by utilizing varied lease structures;
o reduce credit risk by diversifying investments by tenant, type of
facility, geographic location and tenant industry; and
o increase potential returns by obtaining equity enhancements from the
tenant when possible, such as warrants to purchase tenant common
stock.
Financing Strategies
Consistent with its investment policies, CPA(R):12 uses leverage when
available on favorable terms. CPA(R):12 has approximately $109,261,000 in
property level debt outstanding. These mortgages mature between 2000 and 2020
and have interest rates between 6.85% and 10.25%. Carey Property Advisors
continually seeks opportunities and considers alternative financing techniques
to finance properties not currently subject to debt, refinance debt, reduce
interest expense or improve its capital structure.
Transaction Origination
In analyzing potential acquisitions, Carey Property Advisors reviews and
structures many aspects of a transaction, including the tenant, the real estate
and the lease, to determine whether a potential acquisition can be structured to
satisfy CPA(R):12's acquisition criteria. The aspects of a transaction which are
reviewed and structured by Carey Property Advisors include the following:
o Tenant Evaluation. Carey Property Advisors subjects each potential
tenant to an extensive evaluation of its credit, management,
position within its industry, operating history and profitability.
Carey Property Advisors seeks tenants it believes will have
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stable or improving credit. By leasing properties to these types of
tenants, CPA(R):12 can generally charge rent that is higher than the
rent charged to tenants with recognized credit and, thereby, enhance
its current return from these properties as compared with properties
leased to companies whose credit potential has already been
recognized by the market. Furthermore, if a tenant's credit does
improve, the value of CPA(R):12's properties leased to that tenant
will likely increase (if all other factors affecting value remain
unchanged). Carey Property Advisors may also seek to enhance the
likelihood of a tenant's lease obligations being satisfied, such as
through a letter of credit or a guaranty of lease obligations from
the tenant's corporate parent. This credit enhancement provides
CPA(R):12 with additional financial security.
o Leases with Increasing Rents. Carey Property Advisors seeks to
include clauses in CPA(R):12's leases that provide for increases in
rent over the term of the leases. These increases are generally tied
to increases in certain indices such as the consumer price index, in
the case of retail stores, participation in gross sales above a
stated level, mandated rental increases on specific dates and
through other methods. CPA(R):12 seeks to avoid entering into leases
that provide for contractual reductions in rents during their
primary term (other than reductions related to reductions in debt
service).
o Properties Important to Tenant Operations. Carey Property Advisors,
on behalf of CPA(R):12, generally seeks to acquire properties with
operations that are essential or important to the ongoing operations
of the tenant. CPA(R):12 believes that these properties provide
better protection in the event that tenants file for bankruptcy,
because leases on properties essential or important to the
operations of a bankrupt tenant are less likely to be rejected and
terminated by a bankrupt tenant. Carey Property Advisors also seeks
to assess the income, cash flow and profitability of the business
conducted at the property, so that, if the tenant is unable to
operate its business, CPA(R):12 can either continue operating the
business conducted at the property or re-lease the property to
another entity in the industry which can operate the property
profitably.
o Lease Provisions that Enhance and Protect Value. When appropriate,
Carey Property Advisors attempts to include provisions in
CPA(R):12's leases that require CPA(R):12's consent to certain
tenant activity or require the tenant to satisfy certain operating
tests. These provisions include, for example, operational and
financial covenants of the tenant, prohibitions on a change in
control of the tenant and indemnification from the tenant against
environmental and other contingent liabilities. Including these
provisions in its leases enables CPA(R):12 to protect its investment
from changes in the operating and financial characteristics of a
tenant that may impact its ability to satisfy its obligations to
CPA(R):12 or could reduce the value of CPA(R):12's properties.
o Diversification. Carey Property Advisors tries to diversify
CPA(R):12's portfolio of properties to avoid dependence on any one
particular tenant, type of facility, geographic location and tenant
industry. By diversifying its portfolio, CPA(R):12 reduces the
adverse effect on CPA(R):12 of a single underperforming investment
or a downturn in any particular industry or geographic location.
Carey Property Advisors employs a variety of other strategies and
practices in connection with CPA(R):12's acquisitions. These strategies include
attempting to obtain equity enhancements in connection with transactions.
Typically, these equity enhancements involve warrants to purchase stock of the
tenant to which the property is leased or the stock of the parent of the tenant.
In certain instances, CPA(R):12 grants to the tenant a right to purchase the
property leased by the tenant, but generally the option purchase price will be
not less than the fair market value of the property. Carey Property Advisors'
practices include performing evaluations of the physical condition of properties
and performing environmental surveys in an attempt to determine potential
environmental liabilities associated with a property prior to its acquisition.
As a transaction is structured, it is evaluated by the Chairman of the
Investment Committee with respect to the potential tenant's credit, business
prospects, position within its industry and other characteristics important to
the long-term value of the property and the capability of the tenant to meet its
lease obligations. Before a property is acquired, the transaction is reviewed by
the Investment Committee to ensure that it satisfies CPA(R):12's investment
criteria. Aspects of the transaction that are typically reviewed by the
Investment
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Committee include the expected financial returns, the creditworthiness of the
tenant, the real estate characteristics and the lease terms.
The Investment Committee is not directly involved in originating or
negotiating potential acquisitions, but instead functions as a separate and
final step in the acquisition process. Carey Property Advisors places special
emphasis on having experienced individuals serve on its Investment Committee and
does not invest in a transaction unless it is approved by the Investment
Committee.
CPA(R):12 believes that the Investment Committee review process gives it a
unique, competitive advantage over other unaffiliated net lease companies
because of the substantial experience and perspective that the Investment
Committee has in evaluating the blend of corporate credit, real estate and lease
terms that combine to make an acceptable risk.
The following people serve on the Investment Committee:
o George E. Stoddard, Chairman, was formerly responsible for the
direct corporate investments of The Equitable Life Assurance Society
of the United States and has been involved with the CPA(R) Programs
for over 19 years.
o Frank J. Hoenemeyer, Vice Chairman, was formerly Vice Chairman,
Director and Chief Investment Officer of The Prudential Insurance
Company of America. As Chief Investment Officer, Mr. Hoenemeyer was
responsible for all of Prudential's investments, including stocks,
bonds, private placements, real estate and mortgages.
o Nathaniel S. Coolidge previously served as Senior Vice President -
Head of Bond & Corporate Finance Department of the John Hancock
Mutual Life Insurance Company. His responsibilities included
overseeing $21 billion of Fixed income investments for Hancock, its
affiliates and outside clients.
o Lawrence R. Klein is Benjamin Franklin Professor of Economics
Emeritus at the University of Pennsylvania and its Wharton School.
Dr. Klein has been awarded the Alfred Nobel Memorial Prize in
Economic Sciences and currently advises various governments and
government agencies. Dr. Klein serves as an alternate member of the
Investment Committee
Asset Management
CPA(R):12 believes that effective management of its net lease assets is
essential to maintain and enhance property values. Important aspects of asset
management include restructuring transactions to meet the evolving needs of
current tenants, re-leasing properties, refinancing debt, selling properties and
knowledge of the bankruptcy process.
Carey Property Advisors monitors, on an ongoing basis, compliance by
tenants with their lease obligations and other factors that could affect the
financial performance of any of its properties. Monitoring involves receiving
assurances that each tenant has paid real estate taxes, assessments and other
expenses relating to the properties it occupies and confirming that appropriate
insurance coverage is being maintained by the tenant. Carey Property Advisors
reviews financial statements of its tenants and undertakes regular physical
inspections of the condition and maintenance of its properties. Additionally,
Carey Property Advisors periodically analyzes each tenant's financial condition,
the industry in which each tenant operates and each tenant's relative strength
in its industry.
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Holding Period
CPA(R):12 intends to hold each property it acquires for an extended
period. The determination of whether a particular property should be sold or
otherwise disposed of will be made after consideration of relevant factors with
a view to achieving maximum capital appreciation and after-tax return for the
CPA(R):12 shareholders. If CPA(R):12's common stock is not listed for trading on
a national securities exchange or included for quotation on Nasdaq, CPA(R):12
will generally begin selling properties within ten years after the proceeds of
the public offering are substantially invested, subject to market conditions.
The board of directors will make the decision whether to list the shares,
liquidate or devise an alternative liquidation strategy which is likely to
result in the greatest value for the shareholders.
Competition
CPA(R):12 faces competition for the acquisition of office and industrial
properties in general, and such properties net leased to major corporations in
particular, from insurance companies, credit companies, pension funds, private
individuals, investment companies and other REITs. CPA(R):12 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. CPA(R):12 believes its management's experience in
real estate, credit underwriting and transaction structuring will allow
CPA(R):12 to compete effectively for office and industrial properties.
Environmental Matters
Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, as well as certain other
categories of parties, may be required to investigate and clean up hazardous or
toxic chemicals, substances or waste or petroleum product or waste
(collectively, "Hazardous Materials") releases on, under, in or from such
property, and may be held liable to governmental entities or to third parties
for certain damage and for investigation and cleanup costs incurred by such
parties in connection with the release or threatened release of Hazardous
Materials. Such laws typically impose responsibility and liability without
regard to whether the owner knew of or was responsible for the presence of
Hazardous Materials, and the liability under such laws has been interpreted to
be joint and several under certain circumstances. CPA(R):12's leases often
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
CPA(R):12 typically undertakes an investigation of potential environmental
risks when evaluating an acquisition. Phase I assessments are performed by
independent environmental consulting and engineering firms for all acquisitions.
Where warranted, Phase II assessments are performed. Phase I assessments do not
involve subsurface testing, whereas Phase II assessments involve some degree of
soil and/or groundwater testing. CPA(R):12 may acquire a property which is known
to have had a release of Hazardous Materials in the past, subject to a
determination of the level of risk and potential cost of remediation. CPA(R):12
normally requires property sellers to indemnify it fully against any
environmental problem existing as of the date of purchase. Additionally,
CPA(R):12 often structures its leases to require the tenant to assume most or
all responsibility for environmental compliance or environmental remediation
relating to the tenants operations and to provide that non-compliance with
environmental laws is deemed a lease default. In certain instances, CPA(R):12
may also require a cash reserve, a letter of credit or a guarantee from the
tenant, the tenant's parent company or a third party to assure lease compliance
and funding of remediation. The value of any of these protections depends on the
amount of the collateral and/or financial strength of CPA(R):12 providing the
protection. Such a contractual arrangement does not eliminate CPA(R):12's
statutory liability or preclude claims against CPA(R):12 by governmental
authorities or persons who are not a party to such an arrangement. Contractual
arrangements in CPA(R):12's leases may provide a basis for CPA(R):12 to recover
from the tenant damages or costs for which CPA(R):12 has been found liable.
Industry Segment
CPA(R):12 operates in one industry segment, investment in net leased real
property. For the year ended December 31, 1998, no lessee represented 10% or
more of the total operating revenue of CPA(R):12.
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Factors Affecting Future Operating Results
The provisions of the Private Securities Litigation Reform Act of 1995
(the "Act") became effective in December 1995. The Act provides a "safe harbor"
for companies that make forward-looking statements providing prospective
information. The "safe harbor" under the Act relates to protection for companies
with respect to litigation filed on the basis of such forward-looking
statements.
CPA(R):12 wishes to take advantage of the "safe harbor" provisions of the
Act and is therefore including this section in its Annual Report on Form 10-K.
The statements contained in this Annual Report, if not historical, are
forward-looking statements and involve risks and uncertainties which are
described below that could cause actual results to differ materially from the
results, financial or otherwise, or other expectations described in such
forward-looking statements. These statements are identified with the words
"anticipated," "expected," "intends," "seeks" or "plans" or words of similar
meaning. Therefore, forward-looking statements should not be relied upon as a
prediction of actual future results or occurrences.
CPA(R):12's future results may be affected by certain risks and
uncertainties including the following:
Single Tenant Leases Increases Exposure to Failure of Tenant
We focus our acquisition activities on net leased real properties or
interests therein. Due to the fact that our net leased real properties are
leased to single tenants, the financial failure of or other default by a tenant
resulting in the termination of a lease is likely to cause a reduction in the
operating cash flow of CPA(R):12 and might decrease the value of the property
leased to such tenant.
Dependence on Major Tenants
Revenues from several of our tenants and/or their guarantors constitute a
significant percentage of our consolidated rental revenues. Our five largest
tenants/guarantors, which occupy 11 properties, represent 30% of annualized
revenues. The default, financial distress or bankruptcy of any of the tenants of
such properties could cause interruptions in the receipt of lease revenues from
such tenants and/or result in vacancies in the respective properties, which
would reduce our revenues until the affected property is re-let, and could
decrease the ultimate sale value of each such property. Upon the expiration of
the leases that are currently in place, we may not be able to re-lease the
vacant property at a comparable lease rate or without incurring additional
expenditures in connection with such re-leasing.
We Can Borrow a Significant Amount of Funds
We have incurred, and may continue to incur, indebtedness (secured and
unsecured) in furtherance of our activities. Neither the certificate of
incorporation, bylaws nor any policy statement formally adopted by the board of
directors limits either the total amount of indebtedness or the specified
percentage of indebtedness (based upon the total market capitalization of
CPA(R):12) that may be incurred. Accordingly, we could become more highly
leveraged, resulting in increased risk of default on our obligations and in an
increase in debt service requirements which could adversely affect our financial
condition and results of operations and our ability to pay distributions.
Possible Inability to Refinance Balloon Payment on Mortgage Debt
A significant number of our properties are subject to mortgages with
balloon payments. Scheduled balloon payments for the next five years are as
follows:
o 1999 - none;
o 2000 - 7.7 million;
o 2001 - 2.0 million;
o 2002 - 4.6 million; and
o 2003 - 5.1 million;
Our ability to make such balloon payments will depend upon our ability either to
refinance the mortgage related thereto, invest additional equity in the property
or to sell the related property. Our ability to accomplish these goals will be
affected by various factors existing at the relevant time, such as the state of
the national
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and regional economies, local real estate conditions, available mortgage rates,
our equity in the mortgaged properties, our financial condition, the operating
history of the mortgaged properties and tax laws.
There are Uncertainties Relating to Lease Renewals and Re-letting of Space
o We will be subject to the risks that, upon expiration of leases, the
premises may not be re-let or the terms of re-letting (including the
cost of concessions to tenants) may be less favorable than current
lease terms. If we are unable to re-let promptly all or a
substantial portion of our properties or if the rental rates upon
such re-letting were significantly lower than current rates, our net
income and ability to make expected distributions to our
shareholders would be adversely affected. There can be no assurance
that we will be able to retain tenants in any of our properties upon
the expiration of their leases. Other than the Lanxide tenants, no
leases are scheduled to expire during the next five years.
Possible Liability Relating to Environmental Matters
We own industrial and commercial properties and are subject to the risk of
liabilities under federal, state and local environmental laws. Some of these
laws could impose the following on CPA(R):12:
o Responsibility and liability for the cost of investigation and
removal or remediation of hazardous substances released on our
property, generally without regard to our knowledge or
responsibility of the presence of the contaminants;
o Liability for the costs of investigation and removal or remediation
of hazardous substances at disposal facilities for persons who
arrange for the disposal or treatment of such substances; and
o Potential liability for common law claims by third parties based on
damages and costs of environmental contaminants.
We May be Unable to Make Acquisitions on an Advantageous Basis
The consummation of any future acquisition will be subject to satisfactory
completion of our extensive analysis and due diligence review and to the
negotiation of definitive documentation. There can be no assurance that we will
be able to identify and acquire additional properties or that we will be able to
finance acquisitions in the future. In addition, there can be no assurance that
any such acquisition, if consummated, will be profitable for us. If we are
unable to consummate the acquisition of additional properties in the future,
there can be no assurance that we will be able to increase the cash available
for distribution to our shareholders.
We May Suffer Uninsured Loss
We carry comprehensive liability, fire, extended coverage on most of our
properties, with policy specifications and insured limits customarily carried
for similar properties. CPA(R):12 carries similar insurance for these properties
if the tenant is not required to do so. In addition, CPA(R):12 carries
contingent property and liability insurance. There are certain types of losses
(such as due to wars or acts of God) that generally are not insured because they
are either uninsurable or not economically insurable. Should an uninsured loss
or a loss in excess of insured limits occur, we could lose capital invested in a
property, as well as the anticipated future revenues from a property, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to the property. Any such loss would adversely affect our financial
condition. We believe that the properties are adequately insured in accordance
with industry standards.
Changes in Market Interest Rates Could Cause Our Stock Price to Go Down
The trading prices of equity securities issued by real estate companies
have historically been affected by changes in broader market interest rates,
with increases in interest rates resulting in decreases in trading prices, and
decreases in interest rates resulting in increases in such trading prices. An
increase in market interest rates could therefore adversely affect the trading
prices of any of our equity securities.
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<PAGE> 10
We Face Intense Competition
The real estate industry is highly competitive. Our principal competitors
include national REITs, many of which are substantially larger and have
substantially greater financial resources than us.
The Value of our Real Estate is Subject to Fluctuation
We are subject to all of the general risks associated with the ownership
of real estate. In particular, we face the risk that rental revenue from the
properties will be insufficient to cover all corporate operating expenses and
debt service payments on indebtedness we incur. Additional real estate ownership
risks include:
o Adverse changes in general or local economic conditions;
o Changes in supply of or demand for similar or competing
properties;
o Changes in interest rates and operating expenses;
o Competition for tenants;
o Changes in market rental rates;
o Inability to lease properties upon termination of existing
leases;
o Renewal of leases at lower rental rates;
o Inability to collect rents from tenants due to financial
hardship, including bankruptcy;
o Changes in tax, real estate, zoning and environmental laws
that may have an adverse impact upon the value of real estate;
o Uninsured property liability;
o property damage or casualty losses;
o Unexpected expenditures for capital improvements or to bring
properties into compliance with applicable federal, state and
local laws; and
o Acts of God and other factors beyond the control of our
management.
Our Systems May Not Be Year 2000 Compliant
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. CPA(R):12 has no computer systems of its own, but is
dependent upon the systems maintained by an affiliate of its Advisor and certain
other third parties including its banks and transfer agent.
CPA(R):12 and its affiliates are actively evaluating their readiness
relating to the Year 2000 issue. In 1998, CPA(R):12, its Advisor, and affiliates
commenced an assessment of their local area network of personal computers and
related equipment and are in the process of replacing or upgrading the equipment
that has been identified as not being Year 2000 compliant. The program is
expected to be substantially completed in the second quarter of 1999. CPA(R):12
and its affiliates have also engaged outside consultants experienced in
diagnosing systems and software applications and addressing Year 2000 issues,
and with the help of these consultants currently are remediating as necessary.
At the same time, CPA(R):12, its Advisor, and affiliates are
evaluating their applications software, all of which are commercial "off the
shelf" programs that have not been customized. During 1998, CPA(R):12 commenced
a project to select a comprehensive integrated real estate accounting and asset
management software package to replace its existing applications. A commercial
Windows-based integrated accounting and asset management based application is
being tested and is scheduled to be installed during the third quarter of 1999.
This software has been designed to use four digits to define a year. Because
CPA(R):12's primary operations consist of investing in and receiving rents on
long-term net leases of real estate, while the failure of the Advisor and its
affiliates to correct fully Year 2000 issues could disrupt CPA(R):12's
administrative operations, the resulting disruptions would not likely have a
material impact on CPA(R):12's results of operations, financial condition or
liquidity. Contingency plans to address potential disruptions are in the process
of being developed. CPA(R):12's share of costs associated with required
modifications to become Year 2000 compliant is not expected to be material to
CPA(R):12's financial position. CPA(R):12's share of the estimated total cost of
the Year 2000 project is expected to be approximately $105,000, of which $71,000
has been incurred to date.
-9-
<PAGE> 11
Although CPA(R):12 believes that it will address its internal Year
2000 issues in a timely manner, there is a risk that the inability of
third-party suppliers and lessees to meet Year 2000 readiness issues could have
an adverse impact on CPA(R):12 . CPA(R):12 and its affiliates have identified
their critical suppliers and are requiring that these suppliers communicate
their plans and progress in addressing Year 2000 readiness. The most critical
processes provided by third-party suppliers are CPA(R):12's bank and transfer
agent. CPA(R):12's operations may be significantly affected if such providers
are ineffective or untimely in addressing Year 2000 issues.
CPA(R):12 contacted each of its lessees regarding Year 2000
readiness and has emphasized the need to address Year 2000 issues. Generally,
lessees 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, CPA(R):12 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 lessees rather than CPA(R):12. The major risk to
CPA(R):12 is that Year 2000 issues have such an adverse effect on the financial
condition of a lessee that its ability to meet its lease obligations, including
the timely payment of rent, is impaired. In such an event, CPA(R):12 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.
We Depend on Key Personnel for Our Future Success
We depend on the efforts of the executive officers and key employees of
Carey Property Advisors. The loss of the services of these executive officers
and key employees could have a material adverse effect on our operations.
The risk factors may have affected, and in the future could affect, our
actual operating and financial results and could cause such results to differ
materially from those in any forward-looking statements. You should not consider
this list exhaustive. New risk factors emerge periodically, and we cannot
completely assure you that the factors we describe above list all material risks
to CPA(R):12 at any specific point in time. We have disclosed many of the
important risk factors discussed above in our previous filings with the
Securities and Exchange Commission.
-10-
<PAGE> 12
Item 2. Properties.
The following table provides certain information with respect to the
Company's significant properties as of March 15, 1999.
<TABLE>
<CAPTION>
Initial
Tenant/Guarantor Square Annual Rent Per Ownership Lease
Location of Properties Footage Rent (1) Square Ft. Interest Term
---------------------- ------- -------- ---------- -------- ----
<S> <C> <C> <C> <C> <C>
BEST BUY CO., INC. (3)
Denver, CO 23,987 37% interest;
Fort Collins, CO 28,520 remaining interest
Bloomingdale, IL 27,280 owned by CIP(R)
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
-------
TOTAL 593,506 $1,859,088 $ 8.47(2) 2018
BIG V HOLDING CORPORATION (3)
Ellenville, NY 60,750
Warwick, NY 72,804 45% interest;
------- remaining interest
TOTAL 133,554 693,563 11.54(2) owned by CIP(R) 2018
GENSIA, INC.(3)
San Diego, CA 144,311 1,309,000 18.14(2) 50% interest; 2009
remaining interest
owned by CIP(R)
ETEC SYSTEMS, INC.
Hayward, CA (3) 213,000 2,987,710 14.03 Interest in a limited 2014
Hayward, CA 142,000 (1) liability company
WAL-MART STORES, INC.(3)
Greenfield, IN 82,620 397,226 4.81 100% 2005
Q CLUBS, INC.
Austin, TX (3) 43,935 715,608 16.29 100% 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(R)
Yakima, WA 11,165
-------
TOTAL 735,765 1,286,250 3.50(2) 2016
APPLIED BIOSCIENCE
INTERNATIONAL, INC.
Austin, TX (3) 173,000 1,391,715 8.04 100% 2010
THE UPPER DECK COMPANY (3)
Carlsbad, CA 295,000 1,319,875 8.94(2) 50% interest; 2021
remaining interest
owned by CIP(R)
</TABLE>
-11-
<PAGE> 13
<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>
RHEOMETRIC SCIENTIFIC, INC.
Piscataway, NJ 104,000 833,137 8.01 100% 2011
TELOS CORPORATION
Loudon County, VA. (3) 192,775 1,543,258 8.00 100% 2016
VARIOUS TENANTS
Newark, DE (3) 162,220 100% 2000-
2001
CELADON GROUP, INC.
Indianapolis, IN 60,900 727,833 11.95 100% 2016
SPECTRIAN CORPORATION
Sunnyvale, CA (3) 91,476 $1,925,000 $21.04 100% 2011
GARDEN RIDGE CORPORATION
Tulsa, OK (3) 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 (3) 270,000 1,945,850 7.21 100% 2017
QMS, INC.
Mobile, AL (3) 277,000 1,689,375 6.10 100% 2012
CHILDTIME CHILDCARE, INC. (3)
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
Ackworth, GA
Siverdale, WA
Happauge, NY
Patchogue, NY
Hampton, VA
------ ------- -----
33,694 440,110 13.06 100% 2018
THE BON-TON STORES, INC.
Allentown, PA (3) 399,175
Johnstown, PA (3) 80,884
------
480,059 1,270,750 2.65 100% 2017
SILGAN CONTAINERS
CORPORATION
Menomonie and
Oconomowoc, WI
Fort Dodge, Iowa 386,265 1,275,000 3.30 100% 2013
PAGG CORPORATION
Milford, MA (3) 108,125 590,000 5.46 100% 2009
VERMONT TEDDY BEAR CO, INC.
Shelburne, VT (3) 55,446 652,400 11.77 100% 2017
MARCONI INTEGRATED
SYSTEMS, INC.
San Diego, CA 123,200 1,183,722 9.61 100% 2007
TEXAS FREEZER COMPANY, INC.
Dallas, TX (3) 219,614 930,750 4.24 100% 2019
WESTELL TECHNOLOGIES, INC.
Aurora, IL 185,410 1,748,250 9.43 100% 2017
</TABLE>
-12-
<PAGE> 14
<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>
CAREER EDUCATION CORPORATION
Mendora Heights, MN 118,241 1,115,100 9.43 100% 2009
PERRY GRAPHIC
COMMUNICATIONS and JUDD'S
INCORPORATED
Baraboo, WI (3) 433,284
Waterloo, WI (3) 466,192
-------
899,476 1,888,875 2.10 100% 2017
COMPASS BANK FOR SAVINGS
Bourne, MA 2,083
Sandwich, MA 16,500
Wareham, MA 3,223
-------
21,806 185,282 8.50 100% 2018
NUTRAMAX PRODUCTS, INC
Houston, TX 248,960 823,968 3.31 100% 2013
INTERNATIONAL MANAGEMENT
CONSULTANT, INC.
Ashburn, VA 69,983 754,404 10.78 100% 2014
BCC DEVELOPMENT AND
MANAGEMENT CO.
(under construction)
Mechanicburg, PA 42,000 100% 2013
ADVANCED MICRO DEVICES, INC.
Sunnyvale, CA (3) 362,000 3,048,500 25.27(2) 33 1/3 % interest; 2018
remaining interests
owned by CIP(R) and
CPA(R):14
INTESYS TECHNOLOGIES, INC.
Gilbert, AZ 243,370 $1,137,375 9.35 (2) 50% interest; 2019
Remaining interest
owned by CPA(R):14
</TABLE>
(1) Does not include properties under construction.
(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.
-13-
<PAGE> 15
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, 1998 to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information with respect to the Company's common equity is hereby
incorporated by reference to page 22 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 the Company'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 5 of the Company's Annual Report contained in Appendix
A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk:
Approximately $81,675,000 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 December
31, 1998 ranged from LIBOR and 1.97% to the lender's prime rate and 2%.
(in thousands)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $2,076 $4,438 $2,301 $2,486 $2,622 $67,752 $81,675 $82,094
Average
interest
rate 7.8% 8.54% 7.72% 7.73% 7.73% 7.76%
Variable rate 665 13,058 572 5,030 5,421 2,841 27,587
</TABLE>
As of December 31, 1998, CPA(R):12 had no other material exposure to market
risk.
-14-
<PAGE> 16
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 6 to 21 of the
Company's Annual Report contained in Appendix A:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1997 and 1998
(iii) Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998.
(iv) Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1996, 1997 and 1998.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.
(vi) Notes to Consolidated Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
NONE
PART III
Item 10. Directors and Executive Officers of the Registrant.
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 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.
-15-
<PAGE> 17
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, 1997 and 1998.
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1997 and 1998.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.
Notes to Consolidated Financial Statements.
The consolidated financial statements are hereby incorporated by reference
to pages 6 to 21 of the Company's Annual Report contained in Appendix A.
(a) 2. 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,
1998.
Schedule III of the Company is contained on pages 25 to 29 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.
-16-
<PAGE> 18
(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 by Filed as Exhibit 10.3
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>
-17-
<PAGE> 19
<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>
-18-
<PAGE> 20
<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>
-19-
<PAGE> 21
<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>
-20-
<PAGE> 22
<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, 1999. Filed herewith
</TABLE>
-21-
<PAGE> 23
<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>
-22-
<PAGE> 24
(b) Reports on Form 8-K
During the quarter ended December 31, 1998 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, 1998 from the Company's offering of common stock which commenced
February 2, 1996 (File # 33-99994) is as follows:
<TABLE>
<CAPTION>
<S> <C>
Shares registered: 20,300,000
Aggregate price of offering amount registered: $203,000,000
Shares sold: 20,198,459
Aggregated offering price of amount sold: $201,984,590
Direct or indirect payments to directors, officers,
general partners of the issuer or their associates, to
persons owning ten percent or more of any class of
equity securities of the issuer and to affiliates of
the issuer: $ 5,235,503
Direct or indirect payments to others: $ 10,521,232
Net offering proceeds to the issuer after
deducting expenses: $186,227,855
Purchases of real estate: $181,640,278
Working capital reserves: $ 2,019,846
Temporary investments in cash and cash
equivalents: $ 2,567,731
</TABLE>
-23-
<PAGE> 25
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
03/24/99 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
03/24/99 BY: /s/ William P. Carey
-------- -----------------------------------
Date William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
03/24/99 BY: /s/ H. Augustus Carey
-------- -----------------------------------
Date H. Augustus Carey
President
03/24/99 BY: /s/ Ralph G. Coburn
-------- -----------------------------------
Date Ralph G. Coburn
Director
03/24/99 BY: /s/ William Ruder
-------- -----------------------------------
Date William Ruder
Director
03/24/99 BY: /s/ George E. Stoddard
-------- -----------------------------------
Date George E. Stoddard
Director
03/24/99 BY: /s/ Thomas E. Zacharias
-------- -----------------------------------
Date Thomas E. Zacharias
Director
03/24/99 BY: /s/ Steven M. Berzin
-------- -----------------------------------
Date Steven M. Berzin
Executive Vice President, Chief Legal
Officer and Chief Financial Officer
(Principal Financial Officer)
03/24/99 BY: /s/ Claude Fernandez
-------- -----------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-24-
<PAGE> 26
REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Corporate Property Associates 12 Incorporated
and Subsidiaries:
Our audits of the consolidated financial statements referred to in our report
dated March 5, 1999 appearing on page 6 of the 1998 Annual Report to
Shareholders of Corporate Property Associates 12 Incorporated and Subsidiaries
(which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 5, 1999
-25-
<PAGE> 27
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED and SUBSIDIARIES
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1998
<TABLE>
<CAPTION>
Initial Cost to Company
------------------------------------- Capitalized Decrease
Personal Subsequent to in Net
Description Encumbrances Land Buildings Property Acquisition (a) Investment (b)
----------- ------------ ---- --------- -------- --------------- --------------
<S> <C> <C> <C> <C>
Operating Method:
Distribution facility leased
to Wal-Mart Stores, Inc. $ 2,282,350 $ 452,871 $ 3,325,910 $ 12,921
Office/Manufacturing
facility leased to
Etec Systems, Inc. 14,729,468 1,272,418 10,588,221 47,392,707 $(2,633,473)
Health club facilities
leased to Q Clubs, Inc. 2,434,828 3,152,874 8,524,126
Warehouses and special
purpose facility leased
to Del Monte Corporation 5,725,138 305,733 10,237,564
Warehouse/office/
research facility leased
to Applied Bioscience
International, Inc. 7,029,071 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 9,647,212 5,570,775 12,073,204 4,119
Retail store leased
to Garden Ridge
Corporation 4,487,745 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. 9,962,833 5,734,782 12,175,218 5,356
Child care centers leased
to Childtime Childcare, Inc. 2,467,782 2,581,896 5,618,699
Office/research facility
leased to QMS, Inc. 5,433,533 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
<CAPTION>
Gross Amount at which
Carried at Close of Period
---------------------------------------
Personal Accumulated
Land Buildings Property Total Depreciation(e) Date Acquired
---- --------- -------- ----- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Method:
Distribution facility leased
to Wal-Mart Stores, Inc. $ 454,420 $ 3,337,282 $ 3,791,702 $ 323,299 February 10, 1995
Office/Manufacturing
facility leased to
Etec Systems, Inc. 1,272,444 55,347,429 56,619,873 1,398,900 February 16,1995
Health club facilities June 8, 1995 and
leased to Q Clubs, Inc. 3,152,874 8,524,126 11,677,000 626,380 July 25, 1996
Warehouses and special
purpose facility leased
to Del Monte Corporation 376,360 10,166,937 10,543,297 611,473 November 9, 1995
Warehouse/office/
research facility leased
to Applied Bioscience
International, Inc. 1,550,985 11,045,166 12,596,151 862,333 November 13, 1995
Distribution/warehouse
facility leased to
Celadon, Inc. 1,480,600 5,360,400 6,841,000 306,815 September 19, 1996
Office/research
facility leased to
Spectrian Corporation 5,570,775 12,077,323 17,648,098 641,492 November 19, 1996
Retail store leased
to Garden Ridge
Corporation 1,857,607 6,204,923 8,062,530 316,709 December 16, 1996
Office/distribution
facility leased to Knogo
North America, Inc. 1,603,488 3,321,512 4,925,000 169,535 December 24, 1996
Office/research facility leased
to Scott Companies, Inc. 5,734,782 12,180,574 17,915,356 596,341 January 23, 1997
Child care centers leased
to Childtime Childcare, Inc. 2,581,896 5,618,699 8,200,595 151,849 January 29, 1997
Office/research facility
leased to QMS, Inc. 1,361,073 12,513,273 13,874,346 586,560 February 18, 1997
Retail/distribution facility
leased to The Bon-Ton
Stores, Inc. 1,780,000 10,261,885 12,041,885 438,268 April 10, 1997
<CAPTION>
Life on which
Depreciation
in Latest
Statement of
Operations
is Computed
-----------
<S> <C>
Operating Method:
Distribution facility leased
to Wal-Mart Stores, Inc. 40 yrs.
Office/Manufacturing
facility leased to
Etec Systems, Inc. 40 yrs.
Health club facilities
leased to Q Clubs, Inc. 40 yrs.
Warehouses and special
purpose facility leased
to Del Monte Corporation 40 yrs.
Warehouse/office/
research facility leased
to Applied Bioscience
International, Inc. 40 yrs.
Distribution/warehouse
facility leased to
Celadon, Inc. 40 yrs.
Office/research
facility leased to 40 yrs.
Spectrian Corporation
Retail store leased
to Garden Ridge 40 yrs.
Corporation
Office/distribution
facility leased to Knogo
North America, Inc. 40 yrs.
Office/research facility leased
to Scott Companies, Inc. 40 yrs.
Child care centers leased
to Childtime Childcare, Inc. 40 yrs.
Office/research facility
leased to QMS, Inc. 40 yrs.
Retail/distribution facility
leased to The Bon-Ton
Stores, Inc. 40 yrs.
</TABLE>
-26-
<PAGE> 28
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED and SUBSIDIARIES
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1998
<TABLE>
<CAPTION>
Initial Cost to Company
------------------------------------ Capitalized Decrease
Personal Subsequent to in Net
Description Encumbrances Land Buildings Property Acquisition (a) Investment (b)
----------- ------------ ---- --------- -------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operating Method:
(continued):
Technology/manufacturing
facility leased to Silgan
Containers Corporation 758,670 11,630,675
Office/research
facility leased
to Pagg Corporation 3,129,900 1,080,000 4,469,738
Office/manufacturing
facility leased
to Vermont Teddy
Bear Co., Inc. 3,219,795 1,465,000 4,398,874 1,640
Warehouse/special facility
leased to Texas Freezer
Company, Inc. 4,500,000 257,458 $1,109,900 7,150,544
Research facility
to GDE Systems, Inc. 3,025,000 9,741,810 446,911
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 2,066,542
Administration/classroom
facility leased to Career
Education Corporation 1,150,000 8,840,486 1,795,282
Printing facility leased to
Perry Graphic Commun-
ications, Inc. and Judd's
Incorporated 10,949,622 642,000 18,467,948 8,000
Office/banking facility leased
to Sandwich Bancorp, Inc. 300,000 1,520,000
Manufacturing/distribution
facility leased to
Nutramax Products, Inc. 1,160,000 6,127,722 40,247
Office/light assembly facility
leased to International
Management Consulting,
Inc. 668,211 4,545,328
Office facility leased to
Balance Care Corporation 558,600 1,686,795
----------- ----------- ------------ ---------- ----------- -----------
$92,899,277 $44,269,984 $175,946,801 $1,109,900 $81,080,511 $(2,633,473)
=========== =========== ============ ========== =========== ==========
<CAPTION>
Gross Amount at which
Carried at Close of Period
-------------------------------------------
Personal Accumulated
Land Buildings Property Total Depreciation (e)
---- --------- -------- ----- ----------------
<S> <C> <C> <C> <C> <C>
Operating Method:
(continued):
Technology/manufacturing
facility leased to Silgan
Containers Corporation 758,670 11,630,675 12,389,345 371,467
Office/research
facility leased
to Pagg Corporation 1,080,000 4,469,738 5,549,738 162,419
Office/manufacturing
facility leased
to Vermont Teddy
Bear Co., Inc. 1,465,000 4,400,514 5,865,514 160,417
Warehouse/special facility
leased to Texas Freezer
Company, Inc. 257,458 7,150,544 $1,109,900 8,517,902 108,196
Research facility
to GDE Systems, Inc. 3,025,000 10,188,721 13,213,721 314,962
Office/manufacturing
facility leased to Westell
Technologies, Inc. 2,500,000 14,952,055 17,452,055 482,827
Office/manufacturing
facility leased to
Randall International, Inc. 2,000,000 2,537,996 4,537,996
Administration/classroom
facility leased to Career
Education Corporation 1,150,000 10,635,768 11,785,768 249,036
Printing facility leased to
Perry Graphic Commun-
ications, Inc. and Judd's
Incorporated 642,000 18,475,948 19,117,948 481,136
Office/banking facility leased
to Sandwich Bancorp, Inc. 300,000 1,520,000 1,820,000 38,000
Manufacturing/distribution
facility leased to
Nutramax Products, Inc. 1,160,000 6,167,969 7,327,969 121,783
Office/light assembly facility
leased to International
Management Consulting,
Inc. 668,211 4,545,328 5,213,539
Office facility leased to
Balance Care Corporation 558,600 1,686,795 2,245,395
----------- ----------- ------------ ----------- --------
$44,342,243 $254,321,580 $1,109,900 $299,773,723 $9,520,197
=========== ============ ========== ============ ==========
<CAPTION>
Life on which
Depreciation
in Latest
Statement of
Operations
Date Acquired is Computed
------------- -----------
<S> <C> <C>
Operating Method:
(continued):
Technology/manufacturing
facility leased to Silgan
Containers Corporation June 13, 1997 40 yrs.
Office/research
facility leased
to Pagg Corporation July 8, 1997 40 yrs.
Office/manufacturing
facility leased
to Vermont Teddy
Bear Co., Inc. July 18 1997 7 to 40 yrs.
Warehouse/special facility
leased to Texas Freezer
Company, Inc. September 23, 1997 40 yrs.
Research facility
to GDE Systems, Inc. September 28, 1997 40 yrs.
Office/manufacturing
facility leased to Westell
Technologies, Inc. September 29, 1997 40 yrs.
Office/manufacturing
facility leased to
Randall International, Inc. October 17, 1997 40 yrs.
Administration/classroom
facility leased to Career
Education Corporation November 12,1997 40 yrs.
Printing facility leased to
Perry Graphic Commun-
ications, Inc. and Judd's 40 yrs.
Incorporated December 16, 1997
Office/banking facility leased
to Sandwich Bancorp, Inc. December 30, 1997 40 yrs.
Manufacturing/distribution
facility leased to
Nutramax Products, Inc. March 28, 1998 40 yrs.
Office/light assembly facility
leased to International
Management Consulting,
Inc. May 18, 1998 40 yrs.
Office facility leased to
Balance Care Corporation June, 23, 1998 40 yrs.
</TABLE>
See accompanying notes to Schedule.
-27-
<PAGE> 29
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1998
<TABLE>
<CAPTION>
Cost
Initial Cost to Company Capitalized
--------------------------- Subsequent to Increase in
Encumbrances Land Buildings Acquisition (a) Net Investment (c)
------------ ---- --------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Direct Financing
Method:
Supermarkets
leased to
Big V Holding Corp. $ 3,231,168 $1,157,294 $ 5,254,309 $58,940 $520,114
Manufacturing
facility leased to
The Garden
Companies, Inc. 3,235,280 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 5,834,949 1,549,022 10,597,978 5,500
Research and development
facility leased to
Lanxide Corporation 4,060,674 1,390,122 7,281,878 7,421 (4,281,421)
----------- ---------- ----------- ------- -----------
$16,362,071 $7,151,494 $33,354,109 $76,361 $(3,761,307)
=========== ========== =========== ======= ===========
<CAPTION>
Gross Amount
which Carried
at Close of Period (e)
--------------------------------
Total Date Acquired
----------------------------- -------------
<S> <C> <C>
Direct Financing
Method:
Supermarkets
leased to
Big V Holding Corp. $6,990,657 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 development
facility leased to
Lanxide Corporation 4,398,000 March 28, 1996
-----------
$36,820,657 March 28, 1996
===========
</TABLE>
See accompanying notes to Schedule
-28-
<PAGE> 30
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 in net investment is due (i) to the amortization of
unearned income producing a constant periodic rate of return on the
net investment which is more than lease payments received, (ii) the
writedown of a property to its estimated fair value.
(d) At December 31, 1998, the aggregate cost of real estate owned by
Registrant and its subsidiaries for Federal income tax purposes is
$283,736,765.
(e)
<TABLE>
<CAPTION>
Reconciliation of Real Estate Accounted
---------------------------------------
for Under the Operating Method
------------------------------
December 31,
------------
1997 1998
---- ----
Balance at beginning
of year $ 84,999,148 $ 227,014,400
Additions 142,021,252 72,759,323
Dispositions (6,000)
------------- -------------
Balance at close of year $ 227,014,400 $ 299,773,723
============= =============
<CAPTION>
Reconciliation of Accumulated Depreciation
------------------------------------------
December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Balance at beginning
of year $1,337,513 $4,360,196
Depreciation expense 3,022,683 5,160,001
---------- ----------
Balance at close of year $4,360,196 $9,520,197
========== ==========
</TABLE>
-29-
<PAGE> 31
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
1998 ANNUAL REPORT
<PAGE> 32
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except share amounts)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 465 $ 3,994 $ 11,434 $ 25,313 $ 34,563
(Loss) income before
extraordinary items (28) 2,115 6,210 12,804 12,078
Net (loss) income (28) 2,115 6,210 12,804 11,699
Basic earnings (loss)
per share before
extraordinary items (1) (.03) .53 .60 .57 .41
Basic earnings (loss)
per share (1) (.03) .53 .60 .57 .42
Weighted average
number of Shares
outstanding-basic 843,911 4,016,686 10,365,828 22,387,928 28,416,013
Dividends paid 289 2,351 6,780 15,082 23,028
Dividends paid per share .30 .76 .80 .81 .81
Payments of mortgage
principal (2) 6 262 1,192 1,708 2,174
BALANCE SHEET DATA:
Total consolidated assets 30,444 81,173 193,294 358,693 398,604
Long-term obligations (3) 3,267 19,016 47,734 84,745 113,868
</TABLE>
(1) The Company has a simple equity capital structure with only common stock
outstanding. As a result, the Company has presented basic per share
amounts only.
(2) Represents scheduled mortgage principal amortization paid.
(3) Represents mortgage obligations and deferred acquisition fees due after
more than one year.
-1-
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Overview
The following discussion and analysis of financial condition and
results of operations of Corporate Property Associates 12 Incorporated
("CPA(R):12") should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1998. The following
discussion includes forward looking statements. Forward looking statements,
which are based on certain assumptions, describe future plans, strategies and
expectations of CPA(R):12. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievement of CPA(R):12 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
CPA(R):12 that the results or conditions described in such statements or
objectives and plans of CPA(R):12 will be achieved.
CPA(R):12 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, CPA(R):12 commenced a public offering of common stock at $10 per
share on a "best efforts" basis. A second public offering of common stock at $10
per share on a "best efforts" basis concluded in September 1997. Through these
offerings, CPA(R):12 issued 28,334,451 shares of common stock raising
$283,344,510.
CPA(R):12 is using the proceeds from the public offerings along with
limited recourse mortgage financing to purchase properties and enter into
long-term net leases with corporate tenants. A majority of CPA(R):12's net
leases have been structured to place certain economic burdens of ownership on
these corporate tenants by requiring them to pay the costs of maintenance and
repair, insurance and real estate taxes. The leases have generally been
structured to include periodic rent increases that are stated or based on
increases in the consumer price index or, for retail properties, provide for
additional rents based on sales in excess of a specified base amount.
CPA(R):12'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. In addition, CPA(R):12 has
successfully negotiated grants of common stock warrants from selected tenants
and expects to realize the benefits of appreciation from those grants. CPA(R):12
cannot guarantee that its objectives will be ultimately realized.
The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments
of an Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. Management evaluates the performance of
its portfolio of properties as a whole, rather than by identifying discrete
operating segments. This evaluation includes assessing CPA(R):12's ability to
meet distribution objectives, increase the dividend and increase value by
evaluating potential investments in single tenant net lease real estate and by
seeking opportunities such as refinancing mortgage debt at lower rates of
interest, restructuring leases or paying off lenders at a discount to the face
value of the outstanding mortgage balance.
Financial Condition
One of CPA(R):12's objectives is to use its cash flow from
operations to meet operating expenses, service its mortgage debt, maintain
adequate cash reserves and fund an increasing rate of dividends to shareholders.
Cash flow from operations of $21,781,000 was not sufficient to fully pay
dividends of $23,028,000. CPA(R):12 believes that prudent investment in net
lease real estate requires a discipline that does not always allow for
investment of new funds in real estate as soon as new capital is received. As a
result, CPA(R):12 still had $34,957,000 available for investment as of December
31, 1998. Cash flow from operations was affected by higher cash balances; cash
flow will increase as the cash balance is reduced and deployed in higher
yielding real estate investments. CPA(R):12 also used $59,826,000 in 1998 to
fund several build-to-suit projects that are still under construction. The
leases on build-to-suit transactions generally require the tenant to provide a
return to CPA(R):12 based on the funds advanced. Generally accepted accounting
principles require, however, that any return received by an owner-lessor during
a construction period be
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<PAGE> 34
recorded as a reduction of an investment rather than rental income. As a result,
construction period rents received totalling $818,000 in 1998 were not recorded
in income nor included in cash flow from operations.
CPA(R):12 used $79,286,000 in 1998 for new real estate purchases,
including using $8,471,000 to purchase an interest in an equity investment owned
with two affiliates, and $59,826,000 for several build-to suit commitments that
are still under construction. Remaining commitments on properties under
construction are approximately $25,918,000 with all such existing projects
expected to be completed during 1999. After completion, revenues and cash flow
from these projects will be included in operations. CPA(R):12 has devoted a
substantial portion of its resources to build-to-suit projects as it has
concluded that these types of investments should provide a return on investment
that's superior to that of many other opportunities being evaluated by the
Advisor's acquisition team.
In addition to the payment of dividends and payment of mortgage
principal on scheduled debt service installments, CPA(R):12's financing
activities included (a) paying off an existing mortgage loan on the Etec
Systems, Inc. property and (b) obtaining $30,500,000 of limited recourse
mortgages on unleveraged properties. CPA(R):12's financing strategy is to
leverage substantially all of its properties with limited recourse mortgages so
that the portfolio will be diversified to limit risk. A lender on a limited
recourse mortgage loan has recourse only to the property collateralizing such
debt and not to any of CPA(R):12's other assets. CPA(R):12 received $26,970,000
from Corporate Property Associates 14 Incorporated ("CPA(R):14") toward its
participation in the Etec property. CPA(R):14 will ultimately be reimbursed at
least $15,000,000 of its advances when the new building is completed and the
$30,000,000 of mortgage financing is received. Completion of the project is
scheduled for the second quarter of 1999. CPA(R):12 is in the process of
negotiating a $40,000,000 credit facility that will be used to fund acquisitions
on a transitional basis. There is no assurance, however that the credit facility
agreement will be completed.
In June 1998, the shareholders of CPA(R):12 approved a proposal to
amend CPA(R):12's Advisory Agreement to allow CPA(R):12, with the consent of the
Advisor, to pay asset management and performance fees in common stock rather
than cash. As a result of this amendment to the Advisory Agreement, CPA(R):12
was able to convert a liability of $3,394,000 for unpaid performance fees to
equity (339,410 shares), which had voluntarily been deferred by the Advisor. An
additional 43,865 shares ($438,650) were issued in 1998 in satisfaction of
current year performance fees. By issuing shares rather than paying fees in
cash, CPA(R):12's liquidity has been enhanced. The issuance of shares to pay
fees increases the cash available to CPA(R):12 to pay expenses, strengthens
CPA(R):12's balance sheet and increases the equity ownership of the Advisor with
the effect of aligning more strongly the interests of the Advisor and
shareholders of the company. With such issuance, the Advisor's ownership in
CPA(R):12 has increased to more than 1%.
In connection with the purchase of its properties, CPA(R):12
requires sellers of such properties to perform environmental reviews. Management
believes, based on the results of such reviews, that CPA(R):12'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, CPA(R):12's
leases generally require tenants to indemnify CPA(R):12 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 CPA(R):12 to extend leases until such time as a tenant has
satisfied its environmental obligations. CPA(R):12 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 are, in the estimation of CPA(R):12, 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 CPA(R):12's
financial condition, liquidity or results of operations.
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. CPA(R):12 has no computer systems of its own, but is
dependent upon the systems maintained by an affiliate of its Advisor and certain
other third parties including its banks and transfer agent.
CPA(R):12 and its affiliates are actively evaluating their readiness
relating to the Year 2000 issue. In 1998, CPA(R):12, its Advisor, and affiliates
commenced an assessment of their local area network of personal computers and
related equipment and are in the process of replacing or upgrading the equipment
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that has been identified as not being Year 2000 compliant. The program is
expected to be substantially completed in the second quarter of 1999. CPA(R):12
and its affiliates have also engaged outside consultants experienced in
diagnosing systems and software applications and addressing Year 2000 issues,
and with the help of these consultants currently are remediating as necessary.
At the same time, CPA(R):12, its Advisor, and affiliates are
evaluating their applications software, all of which are commercial "off the
shelf" programs that have not been customized. During 1998, CPA(R):12 commenced
a project to select a comprehensive integrated real estate accounting and asset
management software package to replace its existing applications. A commercial
Windows-based integrated accounting and asset management based application is
being tested and is scheduled to be installed during the third quarter of 1999.
This software has been designed to use four digits to define a year. Because
CPA(R):12's primary operations consist of investing in and receiving rents on
long-term net leases of real estate, while the failure of the Advisor and its
affiliates to correct fully Year 2000 issues could disrupt its administrative
operations, the resulting disruptions would not likely have a material impact on
CPA(R):12's results of operations, financial condition or liquidity. Contingency
plans to address potential disruptions are in the process of being developed.
CPA(R):12's share of costs associated with required modifications to become Year
2000 compliant is not expected to be material to CPA(R):12's financial position.
CPA(R):12's share of the estimated total cost of the Year 2000 project is
expected to be approximately $105,000, of which $71,000 has been incurred to
date.
Although CPA(R):12 believes that it will address its internal Year
2000 issues in a timely manner, there is a risk that the inability of
third-party suppliers and lessees to meet Year 2000 readiness issues could have
an adverse impact on CPA(R):12. CPA(R):12 and its affiliates have identified
their critical suppliers and are requiring that these suppliers communicate
their plans and progress in addressing Year 2000 readiness. The most critical
processes provided by third-party suppliers are CPA(R):12 bank and transfer
agent. CPA(R):12's operations may be significantly affected if such providers
are ineffective or untimely in addressing Year 2000 issues.
CPA(R):12 contacted each of its lessees regarding Year 2000
readiness and has emphasized the need to address Year 2000 issues. Generally,
lessees 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, CPA(R):12 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 lessees rather than CPA(R):12. The major risk to
CPA(R):12 is that Year 2000 issues have such an adverse effect on the financial
condition of a lessee that its ability to meet its lease obligations, including
the timely payment of rent, is impaired. In such an event, CPA(R):12 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.
Results of Operations:
Net income for 1998 decreased by $1,105,000 as compared with 1997
because of two nonrecurring items that reduced 1998 income by $4,660,000, namely
an extraordinary charge on extinguishment of debt resulting from a prepayment
charge of $379,000 and the writedown of a property to fair value resulting in a
noncash charge of $4,281,000. Income, as adjusted for these items, would have
reflected an increase of $3,555,000.
The increase in income as adjusted was entirely due to increased
revenues, and, for the most part, reflects the increase in lease revenues
(rental income and interest income from direct financing leases) which included
a full year of rent in 1998 from twelve leases that CPA(R):12 entered into in
1997, rents from three build-to-suit projects completed in 1998 and two new
leases in 1998. CPA(R):12 also had rent increases on three leases in 1998. On an
annualized basis, such rent increases total $112,000 (of which $37,000 was
reflected in 1998 lease revenue). CPA(R):12's leases usually provide for rent
increases with intervals ranging between one and five years per increase. The
number of rent increases from the existing portfolios of properties can be
expected to increase over the next several years.
The increase in income resulting from the increase in lease revenues
was partially offset by increases in interest, depreciation, property and
general administrative expenses. The increases in interest and depreciation
expenses were due to the increase in limited recourse mortgage loan balances and
real estate asset balances, respectively. The increase in property expense was
also due to the increase in real
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<PAGE> 36
estate assets as the asset management and performances fees payable to the
Advisor are directly based on the historical cost of properties. The increase in
general and administrative expense was due solely to the accrual of a monitoring
fee payable to the sellers of the Company's common stock in accordance with
CPA(R):12's Prospectus.
In 2000, the asset management and performance fees will be based on
an independent valuation of the properties as of December 31, 1999. The fees are
expected to increase because CPA(R):12 believes there has been appreciation in
the value of its properties. The extent of any increase in value, however,
cannot be determined until the valuation is performed. Since December 31, 1998,
CPA(R):12 has purchased a 50% interest in a limited liability company with the
remaining 50% interest owned by an affiliate. The limited liability company
entered into a sale-leaseback with Intesys Technologies, Inc. This equity
investment will provide annual cash flow of $1,137,000 until a limited recourse
mortgage is placed on the property. CPA(R):12's share of proceeds from a
mortgage will be used to fund additional real estate investments. In addition,
CPA(R):12 and two affiliates, each with one-third interests, purchased the
headquarters of Advanced Micro Devices, Inc. in Sunnyvale, California in
December 1998 and entered into a net lease with AMD. CPA(R):12's share of annual
cash flow (rental less mortgage debt service) from the AMD investment will be
approximately $1,066,000. Accordingly, income and the related cash flow from
equity investments will increase substantially in 1999. Rent increases on two
leases each owned as equity investments are scheduled in 1999 and 2001. Several
build-to-suit projects are scheduled to be completed in 1999 including
properties leased to Randall International, Inc., BCC Development and Management
Co. (Balanced Care Corporation), International Management Consultant, Inc. and
expansion at the Career Education Corporation and Marconi Integrated Systems,
Inc. properties. After the completion of these projects, CPA(R):12 will
recognize the rents on these properties as current income, at which time cash
flow from operations is expected to fund fully dividends to shareholders.
Other interest income decreased during the year as cash balances
decreased. This decrease was expected as CPA(R):12 was using its cash balances
for additional real estate purchases. This trend of decrease should continue as
an objective of CPA(R):12 is to hold cash balances sufficient for a working
capital reserve.
During 1998, CPA(R):12 recognized a noncash charge of $4,281,000 for
the writedown of a property leased to Lanxide Corporation to its expected fair
value as Lanxide has vacated the property and CPA(R):12 expects Lanxide to
terminate the lease in connection with its bankruptcy petition. The Lanxide
lease was structured so that the leases of three subtenants would be assumed by
CPA(R):12 if Lanxide did not meet its lease obligations. With the expected lease
termination, annual rental income from the Lanxide property will decrease by
$445,000. The initial terms of the subleases expire in 2000 through 2001.
Results of operations for 1997 are not directly comparable to the
results for 1996, as the purchase of properties and the growth of CPA(R):12's
asset base continued throughout 1997. 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, as a substantial amount of capital was
raised in 1997 prior to the end of CPA(R):12's stock offering in September 1997.
Because of the long-term nature of CPA(R):12's net leases, inflation
and changing prices have not unfavorably affected CPA(R):12's revenues and net
income. CPA(R):12'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 June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for all quarters of fiscal years
beginning after June 15, 1999. CPA(R):12 believes adoption of SFAS No. 133 will
not have a material impact on the consolidated financial statements.
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REPORT of INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Corporate Property Associates 12 Incorporated
and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Corporate Property
Associates 12 Incorporated and Subsidiaries at December 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits 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,
assessing the accounting principles used and significant estimates made by the
Advisor, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 5, 1999
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<PAGE> 38
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---- ----
ASSETS:
<S> <C> <C>
Real estate leased to others:
Accounted for under the
operating method:
Land $ 40,993,440 $ 44,342,243
Buildings 186,020,960 255,431,480
------------ ------------
227,014,400 299,773,723
Accumulated depreciation 4,360,196 9,520,197
------------ ------------
222,654,204 290,253,526
Net investment in direct financing leases 40,966,665 36,820,657
------------ ------------
Real estate leased to others 263,620,869 327,074,183
Equity investments 16,635,180 25,971,837
Cash and cash equivalents 72,423,221 37,790,505
Marketable equity securities, at fair value 3,174,137 2,730,440
Other assets, net of reserve for uncollected
rents of $162,137 and $402,418 in 1997 and 1998 2,839,719 5,036,689
------------ ------------
Total assets $358,693,126 $398,603,654
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $ 88,893,692 $109,261,349
Accrued interest 650,800 907,922
Accounts payable to affiliates 3,430,059 1,839,533
Accounts payable and accrued expenses 259,189 659,750
Deferred acquisition fees payable to affiliate 6,469,146 8,876,292
Dividends payable 5,805,617
Prepaid rental income and security deposits 5,416,573 4,996,561
------------ ------------
Total liabilities 105,119,459 132,347,024
------------ ------------
Minority interest 26,969,738
------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized,
40,000,000 shares; issued and
outstanding, 28,334,451 and 28,717,726 shares
at December 31, 1997 and 1998 28,334 28,717
Additional paid-in capital 253,835,934 257,668,301
Dividends in excess of accumulated earnings (2,768,966) (19,903,364)
Accumulated other comprehensive income 3,031,300 2,607,571
------------ ------------
254,126,602 240,401,225
Less, treasury stock at cost, 68,043 and 129,301
shares at December 31, 1997 and 1998 (552,935) (1,114,333)
------------ ------------
Total shareholders' equity 253,573,667 239,286,892
------------ ------------
Total liabilities and
shareholders' equity $358,693,126 $398,603,654
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 39
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of INCOME
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $ 5,000,989 $ 16,651,513 $ 27,097,224
Interest income from direct financing
leases 4,559,544 4,966,730 4,940,298
Other interest income 1,873,094 3,695,176 2,525,620
------------ ------------ ------------
11,433,627 25,313,419 34,563,142
------------ ------------ ------------
Expenses:
Interest expense 3,525,774 6,499,865 8,557,890
Depreciation 947,206 3,022,683 5,160,001
General and administrative 1,488,793 2,209,171 2,566,317
Property expense 1,269,968 2,786,890 3,989,894
Amortization 34,085 78,187 108,277
Writedown to fair value 4,281,421
------------ ------------ ------------
7,265,826 14,596,796 24,663,800
------------ ------------ ------------
Income before income from
equity investments and
extraordinary item 4,167,801 10,716,623 9,899,342
Income from equity investments 2,042,400 2,086,993 2,178,813
------------ ------------ ------------
Income before extraordinary item 6,210,201 12,803,616 12,078,155
Extraordinary loss on extinguishment
of debt (379,246)
------------ ------------ ------------
Net income $ 6,210,201 $ 12,803,616 $ 11,698,909
============ ============ ============
Basic earnings per common share
before extraordinary item $ .60 $ .57 $ .42
Extraordinary item (.01)
------------ ------------ ------------
Basic earnings per share $ .60 $ .57 $ .41
============ ============ ============
Weighted average shares outstanding-basic 10,365,828 22,387,928 28,416,013
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 40
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Dividends in Accumulated
Additional Excess of Other
Common Paid-in Comprehensive Accumulated Comprehensive Treasury
Stock Capital Income Earnings Income Stock
---------- --------------------------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 6,028 $52,488,567 $(1,110,127)
9,117,364 shares issued
at $10 per share, net of
offering costs of $8,988,624 9,117 82,175,899
Dividends declared (7,684,030)
Net income $6,210,201 6,210,201
==========
Repurchase of 14,395 shares $(140,008)
Reclassification of common stock
subject to redemption at end of
redemption period, 523,171
shares 523 5,232,185 (998)
------- ------------ ----------- --------
Balance at December 31, 1996 15,668 139,896,651 (2,584,954) (140,008)
12,666,048 shares issued
at $10 per share, net of
offering costs of $12,708,531 12,666 113,939,283
Dividends declared (12,987,628)
Comprehensive income:
Net income $12,803,616 12,803,616
Other comprehensive income:
Unrealized appreciation of
marketable equity securities
for 1997 3,031,300 3,031,300
-----------
$15,834,916
Repurchase of 53,648 shares =========== (412,927)
------- ------------ ----------- --------- ---------
Balance at December 31, 1997 28,334 253,835,934 (2,768,966) 3,031,300 (552,935)
383,275 shares issued at
$10 per share 383 3,832,367
Dividends declared (28,833,307)
Comprehensive income:
Net income $11,698,909 11,698,909
Other comprehensive income:
Unrealized appreciation of
marketable equity securities
for 1998 (423,729) (423,729)
-----------
$11,275,180
===========
Repurchase of 61,258 shares (561,398)
------- ------------ ----------- --------- ---------
Balance at December 31, 1998 $28,717 $257,668,301 $(19,903,364) $2,607,571 $(1,114,333)
======= ============ ============ ========== ===========
<CAPTION>
Total
-----
<S> <C>
Balance at December 31, 1995 $51,384,468
9,117,364 shares issued
at $10 per share, net of
offering costs of $8,988,624 82,185,016
Dividends declared (7,684,030)
Net income 6,210,201
Repurchase of 14,395 shares (140,008)
Reclassification of common stock
subject to redemption at end of
redemption period, 523,171
shares 5,231,710
------------
Balance at December 31, 1996 137,187,357
12,666,048 shares issued
at $10 per share, net of
offering costs of $12,708,531 113,951,949
Dividends declared (12,987,628)
Comprehensive income:
Net income 12,803,616
Other comprehensive income:
Unrealized appreciation of
marketable equity securities
for 1997 3,031,300
Repurchase of 53,648 shares (412,927)
-----------
Balance at December 31, 1997 253,573,667
383,275 shares issued at
$10 per share 3,832,750
Dividends declared (28,833,307)
Comprehensive income:
Net income 11,698,909
Other comprehensive income:
Unrealized appreciation of
marketable equity securities
for 1998 (423,729)
Repurchase of 61,258 shares (561,398)
-----------
Balance at December 31, 1998 $239,286,892
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 41
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,210,201 $ 12,803,616 $ 11,698,909
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 981,291 3,100,870 5,268,278
Straight-line adjustments and other
noncash rent adjustments (164,456) (491,601) (1,173,220)
Income from equity investments in excess
of distributions received (294,055) (543,245) (230,590)
Provision for uncollected rents 162,137 240,281
Extraordinary loss on extinguishment of debt 379,246
Writedown to fair value 4,281,421
Change in operating assets and liabilities, net (a) 1,014,123 4,923,814 1,316,973
------------- ------------- -------------
Net cash provided by operating activities 7,747,104 19,955,591 21,781,298
------------- ------------- -------------
Cash flows from investing activities:
Refund of real estate purchase price 2,633,473
Purchase of stock warrants (124,000)
Purchases of equity investments (5,158,908) (8,470,814)
Purchases of real estate and other capitalized
costs (77,739,925) (138,960,203) (70,815,192)
------------- ------------- -------------
Net cash used in investing activities (80,389,360) (138,960,203) (79,286,006)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from stock issuance, net of costs 82,185,016 113,951,949
Dividends paid (6,779,669) (15,081,819) (23,027,690)
Payments of mortgage principal (1,191,750) (1,707,976) (2,174,394)
Prepayment of mortgage payable (2,949,629) (4,096,000) (7,957,949)
Proceeds from issuance of mortgages 32,300,000 48,411,509 30,500,000
Deferred financing costs (90,654) (530,217) (497,069)
Capital contributions from minority partners 26,969,738
Purchase of treasury stock (140,008) (412,927) (561,398)
Payment made on extinguishment of debt (379,246)
Redemption of stock (37,500)
------------- ------------- -------------
Net cash provided by financing activities 103,295,806 140,534,519 22,871,992
------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents 30,653,550 21,529,907 (34,632,716)
Cash and cash equivalents, beginning of period 20,239,764 50,893,314 72,423,221
------------- ------------- -------------
Cash and cash equivalents, end of period $ 50,893,314 $ 72,423,221 $ 37,790,505
============= ============= =============
Supplemental Disclosure of noncash operating
and investing activities:
Deferred acquisition fee payable to affiliate $ 1,836,458 $ 3,055,049 $ 2,407,146
============= ============= =============
</TABLE>
During the year ended December 31, 1998, the Company issued 383,275 shares of
common stock to the Advisor in settlement of accrued performance fees of
$3,832,750.
(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.
-10-
<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, its wholly-owned subsidiaries and
a controlling interest in a limited liability company (collectively,
the "Company"). All material inter-entity 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 and investments. 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 as described below.
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.
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
-11-
<PAGE> 43
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
funds. At December 31, 1997 and 1998, the Company's cash and cash
equivalents were held in the custody of two financial institutions, and
which balances at times exceed federally insurable limits. The Company
mitigates this risk by depositing funds with major 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.
Equity Investments:
The Company's interests in general partnerships and limited liability
companies 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.
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
(accumulated other comprehensive income) until realized. As of
December 31, 1998, fair value of the Etec common stock was $2,607,571.
The cost basis in the Etec common stock is carried on the Company's
books at a nominal cost.
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 amortized 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 rent recognized on a straight-line basis.
Treasury Stock:
Treasury stock is recorded at cost
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:
The Company has a simple equity capital structure with only common stock
outstanding. As a result, the Company has presented basic per-share
amounts only for all periods presented in the accompanying
consolidated financial statements.
Continued
-12-
<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, 1996, 1997 and 1998 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.
Operating Segments:
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS No. 131,
effective for fiscal year beginning after December 15, 1997,
establishes accounting standards for the way public business
enterprises report selected information about operating segments and
guidelines for defining the operating segment of an enterprise. Based
on the definition of an operating segment in SFAS No. 131, the Company
has concluded that it engages in a single operating segment.
Reclassification:
Certain 1996 and 1997 amounts have been reclassified to conform to the
1998 financial statement presentation.
2. Organization and Offering:
The Company was formed on July 30, 1993 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. The Advisor will be entitled
to certain incentive fees in the event of the liquidation of the
Company, subject to certain conditions.
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 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.
In connection with performing services relating to the Company's real
estate purchases, affiliates of the Company received acquisition fees
of $513,847, $862,415 and $724,763 in 1996, 1997 and 1998,
respectively.
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. Asset management fees were $631,051, $1,202,124 and
$1,751,817 in 1996, 1997 and 1998, respectively, with performance fees
in like amount. 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.
General and administrative expense reimbursements were $747,779,
$1,121,018 and $560,957 in 1996, 1997 and 1998, respectively.
Continued
-13-
<PAGE> 45
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In June 1998, the Company's shareholders approved a proposal to allow
the Company, subject to the Advisor's consent, to pay fees to the
Advisor in Company common stock rather than cash. Since the approval,
the Company has issued 383,275 shares of common stock to the Advisor
in settlement of accrued performance fees of $3,832,750. The
collection of a portion of the performance fees had previously been
voluntarily deferred by the Advisor. The stock is subject to certain
restrictions and will vest ratably over a five year period. The
Advisor receives dividends on its restricted shares and has the rights
to vote its shares currently. For purposes of determining the number
of shares to be issued, the Company used the $10.00 per share price
used in connection with its sale of common stock. The Company has been
notified by the Advisor that it has elected to receive restricted
stock for the performance fee in 1999. The shares will be based on a
share price of $10 until an independent valuation of the Company's
assets is performed. Pursuant to the Prospectus of the Company, an
independent appraisal of the fair value of the Company's assets is
required annually, beginning as of December 31, 1999. Determination of
a per share value for any shares issued after that date will be based
on the appraised fair value per share as of the end of the prior year.
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 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 1996, 1997 and 1998, affiliates of
the Company received structuring and development fees of $1,284,619,
$2,156,038 and $1,811,907, respectively. Fees are paid only in
connection with completed transactions. The affiliate is entitled to
receive deferred acquisition fees of $8,876,292 as of December 31,
1998 over a period of no less than eight years, subject to the 2%/25%
Guidelines limitation described below. A portion of such deferred
acquisition fees have been paid since December 31, 1998.
The Company's interests in properties jointly held with affiliated
entities range from 27.38% to 50% with such interests held as
tenants-in-common and through ownership interests in general
partnerships and limited liability companies. 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
when such ownership interest is 50% or less.
The Advisor must 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 any 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.
Continued
-14-
<PAGE> 46
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
For the years ended December 31, 1996, 1997 and 1998, fees aggregating
$348,733, $79,377 and $103,466, 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 1996, 1997 and 1998 were $26,851,
$69,825 and $143,003, 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 $27,530,000 in
1999; $27,552,000 in 2000; $27,710,000 in 2001; $27,787,000 in 2002;
$27,998,000 in 2003 and aggregate approximately $429,911,000 through
2019.
Contingent rents were approximately $9,000, $32,000 and $71,000 in 1996,
1997 and 1998, respectively.
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998
---- ----
<S> <C> <C>
Minimum lease payments
receivable $ 88,289,457 $ 83,497,133
Unguaranteed residual value 40,581,966 36,300,545
------------ ------------
128,871,423 119,797,678
Less: Unearned income 87,904,758 82,977,021
------------ ------------
$ 40,966,665 $ 36,820,657
============ ============
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases are approximately $4,898,000 in
each of the years 1999 through 2003 and aggregate approximately
$83,497,000 through 2018.
Contingent rents were approximately $13,000 in 1998. The Company did not
earn contingent rents in 1996 and 1997.
Continued
-15-
<PAGE> 47
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
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 carrying value of approximately $235,072,289. As
of December 31, 1998, mortgage notes payable had interest rates
ranging from 6.85% to 10.25% per annum.
Scheduled principal payments during each of the five years following
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 2,740,971
2000 17,496,806
2001 2,873,262
2002 7,515,477
2003 8,042,446
Thereafter 70,592,387
------------
Total $109,261,349
============
</TABLE>
Interest paid, excluding capitalized interest, was $3,243,825,
$5,932,311 and $7,758,956 in 1996, 1997, and 1998, respectively.
In connection with the placement of mortgages, fees of $513,847,
$862,415 and $724,763 were paid to an affiliate of the Company in
1996, 1997 and 1998, respectively.
7. Dividends Payable:
A dividend of $.0022478 per share per day in the period from October 1,
1998 through December 31, 1998 ($5,805,617) was declared in December
1998 and paid in January 1999.
8. 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 1996, 1997 and 1998 lease revenues are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Per Statements of Income:
Interest income from direct
financing leases $ 4,559,544 $ 4,966,730 $ 4,940,298
Rental income from operating leases 5,000,989 16,651,513 27,097,224
Adjustment:
Share of lease revenues from
equity investments 4,419,078 4,422,114 4,501,027
----------- ----------- -----------
$13,979,611 $26,040,357 $36,538,549
=========== =========== ===========
</TABLE>
Continued
-16-
<PAGE> 48
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In 1996, 1997 and 1998, 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>
1996 % 1997 % 1998 %
---- -- ---- ---- ---- --
<S> <C> <C> <C> <C> <C> <C>
Etec Systems, Inc. $ 1,208,583 9% $ 1,556,393 6% $ 2,857,105 8%
Perry Graphic Communications, Inc.
and Judd's Incorporated 82,800 2,191,567 6
Scott Companies, Inc. 1,826,069 7 1,940,850 5
Spectrian Corporation 223,704 2 1,925,000 7 1,925,000 5
Westell Technologies, Inc. 441,853 2 1,916,387 5
Best Buy Co., Inc. (a) 1,797,435 13 1,793,239 7 1,787,480 5
QMS, inc 1,454,097 6 1,689,375 5
Telos Corporation 1,166,936 8 1,447,000 5 1,447,000 4
Q Clubs, Inc. 979,795 7 1,390,123 5 1,404,608 4
The Upper Deck Company (a) 1,312,643 9 1,319,875 5 1,319,875 4
Applied Bioscience International, Inc. 1,302,000 9 1,302,000 5 1,309,476 4
Gensia, Inc. (a) 1,309,000 9 1,309,000 5 1,309,000 4
Del Monte Corporation 643,125 5 1,286,250 5 1,286,250 4
Marconi Integrated Systems, Inc.
(formerly GDE Systems, Inc.) 334,734 1 1,262,030 3
Career Education Corporation 202,701 1 1,220,308 3
The Bon-Ton Stores, Inc. 921,294 4 1,270,750 3
Silgan Containers Corporation 491,260 2 1,165,952 3
Lanxide Corporation 770,086 5 1,030,000 4 1,030,000 3
Garden Ridge Corporation 36,738 995,764 4 995,764 3
Big V Holding Corporation 800,221 6 813,741 3 828,976 2
Rheometric Scientific, Inc. 1,005,901 7 859,589 3 817,922 2
The Garden Companies, Inc. 816,400 6 816,400 3 816,400 2
Celadon Group, Inc. 198,333 2 703,944 3 718,791 2
Childtime Childcare, Inc. 218,813 1 670,662 2
Vermont Teddy Bear Co., Inc. 296,857 1 652,400 2
Nutramax Products, Inc. 637,244 2
Pagg Corporation 284,628 1 590,000 2
Knogo North America, Inc. 11,485 524,000 2 524,000 1
Wal-Mart Stores, Inc. 397,226 3 397,226 2 397,226 1
Texas Freezer Company, Inc. 304,196 1
Compass Bank for Savings
(formerly Sandwich
Bancorp, Inc.) 15,707 167,283
Advanced Micro Devices, Inc. (a) 84,672
----------- ----------- ----------- ----------- ----------- -----------
$13,979,611 100% $26,040,357 100% $36,538,549 100%
=========== =========== =========== =========== =========== ===========
</TABLE>
(a) Represents the Company's proportionate share of lease revenues from its
equity investment.
Continued
-17-
<PAGE> 49
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. 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., a
50% interest in Cards Limited Liability Company ("Cards LLC"), which
net leases two office buildings to The Upper Deck Company and a 33
1/3% interest in Delaware Chip LLC ("Chip"), a limited liability
company which owns land and a building in Sunnyvale, California, net
leased to Advanced Micro Devices, Inc. ("AMD"). The interest in Chip
was purchased in December 1998 and is described below.
On December 22, 1998, the Company and two affiliates, Carey
Institutional Properties Incorporated ("CIP(R)") and Corporate
Property Associates 14 Incorporated ("CPA(R):14"), purchased land and
a building in Sunnyvale, California and entered into a net lease
agreement with AMD. The purchase price of the property was $95,287,958
of which $68,250,000 was financed by limited recourse debt. The
Company, CIP(R) and CPA(R):14, each own a 33 1/3% interest in Chip.
The AMD lease provides for an initial lease term of twenty years through
December 2018 with two ten-year renewal terms at AMD's option. Annual
rent is $9,145,500, with rent increases every three years based on a
formula indexed to increases in the Consumer Price Index ("CPI"). The
$68,250,000 limited recourse mortgage loan is collateralized by a deed
of trust on the property and an assignment of the lease. The loan
bears interest at an annual interest rate of 7.78% with monthly
principal and interest payments based on a 30-year amortization
schedule. The loan matures in January 2009, when a balloon payment
will be due.
Continued
-18-
<PAGE> 50
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Summarized financial information of the Company's equity investees is as
follows:
(In thousands)
Gena
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Assets $21,826 $21,274 $20,686
Liabilities 11,832 11,235 10,587
Capital 9,994 10,039 10,099
Revenues 2,618 2,618 2,618
Expenses 1,439 1,387 1,336
Net income 1,179 1,231 1,282
BB Property
1996 1997 1998
---- ---- ----
Assets $ 45,739 $ 45,626 $ 45,433
Liabilities 30,755 29,994 29,138
Capital 14,984 15,632 16,295
Revenues 4,858 4,846 4,831
Expenses 2,786 2,756 2,644
Net income 2,072 2,090 2,187
Cards LLC
1996 1997 1998
---- ---- ----
Assets $26,581 $26,729 $ 26,591
Liabilities 15,704 15,511 15,290
Capital 10,877 11,218 11,301
Revenues 2,632 2,640 2,640
Expenses 1,259 1,244 1,229
Net income 1,373 1,396 1,411
Chip
1998
----
Assets $ 91,350
Liabilities 68,251
Capital 23,099
Revenues 254
Expenses 185
Net income 69
</TABLE>
Continued
-19-
<PAGE> 51
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Writedown to Fair Value:
In March 1996, the Company entered into a direct financing lease for a
property in Newark, Delaware with Lanxide Corporation ("Lanxide") that
was purchased for $8,679,000. The Company financed the purchase with
$4,400,000 from two limited recourse mortgages. In January 1998,
Lanxide filed a voluntary bankruptcy petition and is in the process of
liquidating. Lanxide subsequently vacated the property.
The Lanxide lease was structured to provide the Company the rights of
assignment on subleases with three Lanxide subsidiaries. During 1998,
Lanxide sold the subsidiaries. As result of Lanxide's difficulties,
the Company has assumed the leases. The initial terms of the leases
expire in 2000 and 2001. Annual rent from the three subleases is
$584,393.
Annual rent under the Lanxide lease was $1,030,000. Based on the
Company's expectation that future cash flow from the properties will
be reduced, Management concluded that there had been an impairment of
the value to the property. Based on a writedown of the Company's
interest in the property to an estimated fair value of $4,398,000, the
Company incurred a noncash charge of $4,281,421.
The Company remains current on its debt service payments under the
$4,000,000 limited recourse first priority loan which matures in March
2001 and has an outstanding balance of $3,693,000 as of December 31,
1998.
11. Extraordinary Charge on Extinguishment of Debt:
In February 1995, the Company purchased land and buildings in Hayward,
California for $11,860,000 and entered into a net lease with Etec
Systems, Inc. ("Etec"). In August 1996, the Company entered into a
commitment to construct an additional building at the Etec property,
and in January 1997, the Company completed construction of the
building for $5,241,000.
In February 1998, the Company entered into a series of transactions
including paying off the existing limited recourse mortgage loan on
the Etec property, funding 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, amending the existing lease with Etec and transferring
ownership of the Etec property to a limited liability company in which
CPA(R):14 has an ownership interest. At that time, the Company paid
off the $7,957,947 existing limited recourse mortgage loan
collateralized by the Etec property. In connection with paying off the
loan, the Company incurred a prepayment charge of $379,246 which has
been recorded in 1998 as an extraordinary charge on the extinguishment
of debt. Under the limited liability company agreement, CPA(R):14 will
have a 49.99% interest in the additional improvements and will not
share in the economic benefits from the existing buildings. The
Company has releveraged the existing property with $15,000,000 of
limited recourse mortgage financing and has received a commitment of
$30,000,000 of financing for the additional improvements.
12. Subsequent Event:
On February 3, 1999, the Company and CPA(R):14, each acquired 50%
ownership interests in a newly formed limited liability company, and
purchased land and a building in Gilbert, Arizona for $23,560,000 and
entered into a net lease with Intesys Technologies, Inc. ("Intesys").
The Intesys lease has an initial term of twenty years with two ten-year
renewal terms at the option of Intesys. The lease provides for annual
rent payments of $2,274,750 with rent increases every three years
based on a formula indexed to the increase in the CPI, with any single
increase capped at 9%.
Continued
-20-
<PAGE> 52
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
approximates the carrying value of such mortgage notes at December 31,
1997 and was approximately $109,681,000 at December 31, 1998. 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, 1998.
The Company has warrants to purchase, (a) 150,000 shares of Vermont
Teddy Bear Co., Inc. ("Vermont Teddy Bear") common stock, (b) 100,000
shares of QMS common stock and (c) 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
warrants of these companies. As of December 31, 1998, the exercise
price of the QMS and Rheometric warrants was in excess of the quoted
value for their common stock.
14. Accounting Pronouncement:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS
No. 133 is effective for all quarters of fiscal years beginning after
June 15, 1999. The Company believes that SFAS No. 133 will not have a
material impact on the consolidated financial statements.
-21-
<PAGE> 53
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, 1998 there were 14,036 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 for the past
three years.
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
First quarter $.20050 $. 2015 $.2023
Second quarter .20080 . 2017 .2025
Third quarter .20100 . 2019 .2027
Fourth quarter .20125 . 2021 .2029
------- ------- ------
$.80355 $. 8072 $.8104
======= ======= ======
</TABLE>
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, 1998, dividends paid per share reported for
tax purposes were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Ordinary income $ .68 $ .81 $ .56
Return of capital .12 .25
----- ----- -----
$ .80 $ .81 $ .81
===== ===== =====
</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, 1998 as filed with the Securities and Exchange Commission.
-22-
<PAGE> 54
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
--- ----------- ----------------------
<S> <C> <C>
21.3 Subsidiaries of Registrant as of March 31, 1999. Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
<PAGE> 1
EXHIBIT 21.3
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> 2
SUBSIDIARIES of REGISTRANT
(Continued)
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.
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.
<PAGE> 3
SUBSIDIARIES of REGISTRANT
(Continued)
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.
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.
CARE (PA) QRS 12-43, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the state of Delaware and doing business under
the name CARE (PA) QRS 12-43, Inc.
IM (DE) QRS 12-44, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the state of Delaware and doing business under
the name IM (DE) QRS 12-44, Inc.
SEMI (CA) QRS 12-45, Inc., a wholly-owned subsidiary of Registrant
incorporated under the laws of the state of Delaware and doing business under
the name SEMI (CA) QRS 12-45, Inc.
INJECTION (AZ) QRS 12-46, Inc., a wholly-owned subsidiary of
Registrant incorporated under the laws of the state of Delaware and doing
business under the name INJECTION (AZ) QRS 12-46, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,790,505
<SECURITIES> 2,730,440
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,520,945
<PP&E> 336,594,380
<DEPRECIATION> 9,520,197
<TOTAL-ASSETS> 398,603,654
<CURRENT-LIABILITIES> 14,209,383
<BONDS> 109,261,349
0
0
<COMMON> 28,717
<OTHER-SE> 239,258,175
<TOTAL-LIABILITY-AND-EQUITY> 398,603,654
<SALES> 0
<TOTAL-REVENUES> 34,563,142
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,584,208
<LOSS-PROVISION> 4,521,702
<INTEREST-EXPENSE> 8,557,890
<INCOME-PRETAX> 12,078,155
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,078,155
<DISCONTINUED> 0
<EXTRAORDINARY> (379,246)
<CHANGES> 0
<NET-INCOME> 11,698,909
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
