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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the year ended DECEMBER 31, 1999
of
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
CPA(R):12
A MARYLAND Corporation
IRS Employer Identification No. 13-3726306
SEC File Number 033-68728
50 ROCKEFELLER PLAZA,
NEW YORK, NEW YORK 10020
(212) 492-1100
CPA(R):12 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the
Act.
CPA(R):12 is not registered on any exchanges.
CPA(R):12 does not have any Securities registered pursuant to Section 12(b) of
the Act.
CPA(R):12 is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-K.
CPA(R):12 (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
CPA(R):12 has no active market for common stock at March 31, 2000.
Non-affiliates held 27,981,770 shares of common stock, $.001 Par Value
outstanding at March 31, 2000.
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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, 1999, CPA(R):12's portfolio consisted of 91 properties leased to 39
tenants and totaling more than 9.4 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:
- 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;
- covenants restricting the activity of the tenant to reduce the
risk of a change in credit quality;
- indemnification of CPA(R):12 for environmental and other
liabilities; and
- 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 REIT, 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 ("CIP(R)" and Corporate Property Associates 14 Incorporated
("CPA(R):14"). On November 29, 1999, the Board of Directors of CPA(R):12
approved a pending change of control of Carey Property Advisors. If the change
in control is effectuated, Carey Property Advisors will become a wholly-owned
subsidiary of W.P. Carey & Co. LLC (currently known as Carey Diversified LLC), a
publicly-traded company on the New York Stock Exchange and Pacific Exchange
under the symbol "WPC" ("CDC" prior to the change of control). This change of
control will be completed upon the approval of the shareholders of Carey
Diversified LLC.
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 December 31, 2000, 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:
- pay quarterly dividend at an increasing rate that for taxable
shareholders may be partially free from current taxation;
- purchase and own a portfolio of real estate that will increase
in value; and
- 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.
DEVELOPMENTS DURING 1999
On February 3, 1999, through a 50% interest in a limited liability
company which CPA(R):12 formed with CPA(R):14, 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
("CPI") with increases capped at 9%.
On March 31, 1999 CPA(R):12 and two affiliates, CIP(R) and
CPA(R):14, through a newly-formed entity in which CPA(R):12 and the two
affiliates each own 1/3 interests, purchased land and building in Dallas, Texas
for $39,790,500 and entered into a net lease with Compucom Systems, Inc. The
Compucom Systems lease has an initial term of 20 years with two five-year
renewal terms at Compucom's option. The lease initially provides for annual rent
of $3,914,000 with rent increases every three years based on a formula indexed
to increases in the CPI, with each increase capped at a maximum increase of
13.3%. In connection with the Compucom purchase, the newly-formed entity
obtained a limited recourse mortgage loan of $23,000,000. The loan is
collateralized by the Compucom property and an assignment of the Compucom lease
and bears interest at an annual interest rate of 7.215% with monthly payments of
interest and principal of $165,727 based on a 25-year amortization schedule. The
loan matures in April 2009 when a balloon payment will be due. A prepayment
premium will apply if the loan is prepaid prior to six months before maturity.
On August 18 1999, CPA(R):12 and CPA(R):14 formed two limited
liability companies which entered into net leases for four properties with
Ameriserve Food Distribution, Inc. located in Burlington, New Jersey; Shawnee,
Kansas; Grand Rapids, Michigan and Manassas, Virginia. The total cost of the
transaction, including the funding of expansions and a build-to-suit facility is
expected to amount to $55,779,445. CPA(R):12 holds a 40% interest in the
limited liability companies. A new facility will be built at the Shawnee
property and existing facilities will be expanded at the Burlington and Manassas
properties. Completion of the projects is scheduled to occur no later than
December 1, 2000. At the earlier of the completion of construction or December
1, 2000, a lease term of 20 years will commence, followed by two ten-year
renewal terms at Ameriserve's option. The annual rent will be $5,769,073,
subject to reduction if total project costs are less than $55,779,445. The
leases provide for increases every three years based on a formula indexed to
increases in the CPI. Ameriserve has purchase options that may be exercised at
the end of the lease. In connection with the purchase of the Ameriserve
properties, the limited liability companies obtained limited recourse mortgage
financing of $32,000,000 collateralized by the Ameriserve properties and lease
assignments. The loans bear interest at an annual rate of 8.51% with combined
monthly payments of interest and principal of $246,279 and based on a 30-year
amortization schedule. The loans mature September 30, 2009 at which time balloon
payments will be due. In February 2000, Ameriserve filed for bankruptcy
protection under Chapter 11 of the bankruptcy code in the Bankruptcy Court for
the District of Delaware. As of February 17, 2000, Ameriserve is current in its
payment obligations to CPA(R):12 and CPA(R):14, however there is no
assurance that this will continue and it is possible that the lease terms could
be amended as a result of a plan of reorganization.
In February 1995, CPA(R):12 purchased a property in Hayward,
California for $11,860,000 and entered into a net lease with Etec Systems, Inc.
Subsequent to the purchase, CPA(R):12 funded the construction of another
building at the property that was completed in February 1998. In March 1998,
CPA(R):12 and CPA(R):14 agreed to fund the construction of a new building
at the property for up to $52,356,000. At that time, the ownership interests in
Etec property were structured so that CPA(R):12 would retain 100% of the
economic interests in the land and existing buildings and hold a 50.01% interest
in the new improvements. The initial term of the Etec lease was extended through
June 2014. The new improvements were placed in service on July 1, 1999 at which
time annual rent applicable solely to such improvements of $5,746,531 went into
effect. On September 24, 1999, CPA(R):12 and CPA(R):14 obtained
$30,000,000 of limited recourse mortgage financing applicable to the new
improvements. CPA(R):12 had previously obtained $15,000,000 of limited
recourse financing on the existing facilities. The $30,000,000 loan bears
interest at the rate of 7.11% and provides for monthly payments of interest and
principal of $271,497 and will fully amortize through October 1, 2014.
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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:
- combine the stability and security of long-term lease
payments, including rent increases, with the appreciation
potential inherent in the ownership of real estate;
- enhance current returns by utilizing varied lease structures;
- reduce credit risk by diversifying investments by tenant, type
of facility, geographic location and tenant industry; and
- 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 $138,361,000
in property level debt outstanding. These mortgages mature between 2000 and 2020
and have interest rates between 6.5% and 10.5%. CPA(R):12 also has available
to it a line of credit up to $40,000,000, of which no balance was outstanding on
December 31, 1999. 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:
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 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.
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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 certain 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).
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.
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.
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
under-performing 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 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
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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:
- 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 20 years.
- 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.
- 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.
- 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.
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.
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 other
parties, may be required to investigate and clean up hazardous or toxic
chemicals, substances or waste or petroleum product or waste, releases on,
under, in or from a property. These parties may be held liable to governmental
entities or to third parties for specified damages and for investigation and
cleanup costs incurred
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by these parties in connection with the release or threatened release of
hazardous materials. These 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 these laws has been interpreted
to be joint and several under some circumstances. CPA:12(R)'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:12(R) typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Phase I environmental
assessments are performed by independent environmental consulting and
engineering firms for all properties acquired by CPA:12(R). Where warranted,
Phase II environmental 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:12(R) 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:12(R) normally requires property sellers to indemnify it fully against
any environmental problem existing as of the date of purchase. Additionally,
CPA:12(R) often structures its leases to require the tenant to assume most or
all responsibility for compliance with the environmental provisions of the lease
or environmental remediation relating to the tenant's operations and to provide
that non-compliance with environmental laws is a lease default. In some cases,
CPA:12(R) 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 the entity
providing the protection. Such a contractual arrangement does not eliminate
CPA:12(R)'s statutory liability or preclude claims against CPA:12(R) by
governmental authorities or persons who are not a party to the arrangement.
Contractual arrangements in CPA:12(R)'s leases may provide a basis for
CPA:12(R) to recover from the tenant damages or costs for which it 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, 1999, no lessee represented 10%
or more of the total operating revenue of CPA(R):12.
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 INCREASE OUR EXPOSURE IN THE EVENT OF A 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.
WE DEPEND 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,
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which would reduce our revenues until the affected property is re-let, and could
decrease the ultimate sale value of each such property.
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.
WE MAY NOT BE ABLE TO REFINANCE BALLOON PAYMENTS ON OUR MORTGAGE DEBTS.
A significant number of our properties are subject to mortgages with
balloon payments. Scheduled balloon payments for the next five years are as
follows:
- 2000 - $8 million;
- 2001 - $2 million;
- 2002 - $5 million;
- 2003 - $5 million; and
- 2004 - None
Our ability to make such balloon payments will depend upon our ability
either to refinance the obligation when due, 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 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.
WE MAY BE UNABLE TO RENEW LEASES OR RE-LET VACATED SPACES.
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.
WE ARE SUBJECT TO POSSIBLE LIABILITIES 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:
- 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;
- 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
- 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.
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WE MAY SUFFER UNINSURED LOSSES.
There are certain types of losses (such as due to wars or some natural
disasters) that generally are not insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of the
limits of our insurance 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 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:
- Adverse changes in general or local economic conditions;
- Changes in supply of or demand for similar or competing
properties;
- Changes in interest rates and operating expenses;
- Competition for tenants;
- Changes in market rental rates;
- Inability to lease properties upon termination of existing
leases;
- Renewal of leases at lower rental rates;
- Inability to collect rents from tenants due to financial
hardship, including bankruptcy;
- Changes in tax, real estate, zoning and environmental laws
that may have an adverse impact upon the value of real estate;
- Uninsured property liability;
- Property damage or casualty losses;
- Unexpected expenditures for capital improvements or to bring
properties into compliance with applicable federal, state and
local laws; and
- Acts of God and other factors beyond the control of our
management.
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.
YEAR 2000 ISSUES.
In 1999, CPA(R):12 and its affiliates formed a task force to
identify year 2000 problems. The task force developed and implemented a plan
that included inventory, assessment, remediation, testing and contingency
planning. CPA(R):12 experienced no significant disruptions as a result of the
year end date change. The task force intends to monitor other critical dates in
the future, such as quarter-end dates. The impact of the year 2000 issues on the
company will continue to depend on the way the issues have been addressed by
third parties that provide services to CPA(R):12. To date, CPA(R):12 has not
been adversely impacted to any significant extent by the failure of third
parties to address year 2000 issues. The task force has developed contingency
plans to address risks associated with year 2000 issues that may arise. There
can be no assurance that these plans will fully mitigate any problems, if any
arise. The foregoing year 2000 discussions constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Readiness and Disclosure and
Disclosure Act of 1998.
-8-
<PAGE> 10
Item 2. Properties.
The following table provides certain information with respect to the
Company's significant properties as of March 31, 2000.
<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 45% interest;
Warwick, NY 72,804 remaining interest
-------
TOTAL 133,554 855,563 14.24(2) owned by CIP(R) 2024
GENSIA, INC.(3)
San Diego, CA 144,311 1,472,736 20.41(2) 50% interest; 2009
remaining interest
owned by CIP(R)
ETEC SYSTEMS, INC.
Hayward, CA (3) 213,000 2,987,710 14.03 majority interest in a 2014
limited
Hayward, CA 142,000 2,873,841 40.47 liability company
WAL-MART STORES, INC.(3)
Greenfield, IN 82,620 397,226 4.81 100% 2005
Q CLUBS, INC.
Austin, TX (3) 43,935 728,991 16.59 100% 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
PPD DEVELOPMENT, 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>
-9-
<PAGE> 11
<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 104,000 854,986 8.22 100% 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 60,900 742,866 12.20 100% 2016
SPECTRIAN CORPORATION
Sunnyvale, CA (3) 91,476 2,015,521 22.03 100% 2011
GARDEN RIDGE CORPORATION
Tulsa, OK (3) 141,284 854,164 6.05 100% 2016
SENTURY TECHNOLOGY CORPORATION
Hauppauge, NY 68,333 2,096,000 30.67 100% 2016
SCOTT COMPANIES, INC.
San Leandro, CA (3) 270,000 2,062,281 7.64 100% 2017
QMS, INC.
Mobile, AL (3) 277,000 1,793,473 6.47 100% 2012
CHILDTIME CHILDCARE, INC. (3)
Chandler, AZ 6,575
Fleming Island, FL 7,894
Sugarland, TX 11,331
New Territory, TX 7,894
Ackworth, GA 8,106
Siverdale, WA 7,001
Happauge, NY 7,894
Patchogue, NY 7,900
Hampton, VA 6,783
--------- ---------
71,378 1,190,074 16.67 100% 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
VIASYSTEMS, NEW ENGLAND
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
BAE SYSTEMS
San Diego, CA 128,000 2,081,052 16.26 100% 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>
-10-
<PAGE> 12
<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 1,450,782 12.27 100% 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 69,983 777,036 11.10 100% 2014
BCC DEVELOPMENT AND
MANAGEMENT CO.
Mechanicburg, PA
42,000 484,034 11.52 100% 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
COMPUCOM SYSTEMS, INC. 497,714 1,304,667 7.86 33 1/3 % interest, 2020
Dallas, TX remaining interest
owned
by CIP(R) and CPA(R):14
AMERISERVE FOOD DISTRIBUTION, INC. 40% interest; 2020
Burlington, NJ 184,819 remaining interest
Shawnee, KS 244,272 owned by CPA(R):14
Grand Rapids, MI 176,941
Manassas, VA 100,337
-------
706,369 1,690,841 5.98
</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.
-11-
<PAGE> 13
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, 1999 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 20 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 $118,436,000 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, 1999 ranged from the sum of LIBOR and 2.75% to the sum of the
lender's prime rate and 2.0%.
(in thousands)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $5,754 $3,804 $4,116 $4,426 $5,072 $95,264 $118,436 $115,923
Average
interest
rate 8.24% 7.54% 7.54% 7.55% 7.69% 7.63%
Variable rate 6,123 620 5,087 5,480 2,615 -- 19,925 19,925
</TABLE>
As of December 31, 1999, CPA(R):12 had no other material exposure to market
risk.
-12-
<PAGE> 14
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 19 of the Company's Annual Report contained in Appendix A:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of December 31, 1998 and 1999
(iii) Consolidated Statements of Income for the years ended December 31, 1997,
1998 and 1999.
(iv) Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1998 and 1999.
(v) Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999.
(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.
-13-
<PAGE> 15
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, 1998 and 1999.
Consolidated Statements of Operations for the years ended December 31, 1997,
1998 and 1999.
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1997, 1998 and 1999.
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1998 and 1999.
Notes to Consolidated Financial Statements.
The consolidated financial statements are hereby incorporated by reference to
pages 6 to 19 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, 1999.
Schedule III of the Company is contained on pages 23 to
27 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.
-14-
<PAGE> 16
(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>
-15-
<PAGE> 17
<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>
-16-
<PAGE> 18
<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>
-17-
<PAGE> 19
<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>
-18-
<PAGE> 20
<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, 2000. Filed herewith
</TABLE>
-19-
<PAGE> 21
<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>
-20-
<PAGE> 22
(b) Reports on Form 8-K
During the quarter ended December 31, 1999 the Registrant was
not required to file any reports on Form 8-K.
-21-
<PAGE> 23
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
4/7/2000 BY: /s/ John J. Park
------------------------------------------
Date John J. Park
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
4/7/2000 BY: /s/ William P. Carey
------------------------------------------
Date William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
4/7/2000 BY: /s/ H. Augustus Carey
------------------------------------------
Date H. Augustus Carey
President
4/7/2000 BY: /s/ Ralph G. Coburn
------------------------------------------
Date Ralph G. Coburn
Director
4/7/2000 BY: /s/ William Ruder
------------------------------------------
Date William Ruder
Director
4/7/2000 BY: /s/ George E. Stoddard
------------------------------------------
Date George E. Stoddard
Director
4/7/2000 BY: /s/ Thomas E. Zacharias
------------------------------------------
Date Thomas E. Zacharias
Director
4/7/2000 BY: /s/ John J. Park
------------------------------------------
Date John J. Park
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
4/7/2000 BY: /s/ Claude Fernandez
------------------------------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Accounting Officer)
-22-
<PAGE> 24
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 April 7, 2000 appearing on page 6 of the 1999 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
April 7, 2000
-23-
<PAGE> 25
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED and SUBSIDIARIES
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<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:
Distribution facility
leased
to Wal-Mart Stores, Inc. $ 2,206,246 $ 452,871 $ 3,325,910 $ 12,921
Office/Manufacturing
facility leased to
Etec Systems, Inc. 43,875,060 1,272,418 10,588,221 65,873,156 $(2,633,473)
Health club facilities
leased to Q Clubs, Inc. 2,309,003 3,152,874 8,524,126
Warehouses and special
purpose facility leased
to Del Monte Corporation 5,572,140 305,733 10,237,564
Warehouse/office/
research facility leased
to PPD Development, Inc. 6,817,961 1,550,928 11,017,367 27,856
Research and development
facility leased to
Lanxide Corporation 3,890,420 1,390,120 7,281,878 7,421 (4,281,421)
Distribution/warehouse
facility leased to
Celadon, Inc. 1,480,600 5,320,400 40,000
Office/research
facility leased to
Spectrian Corporation 9,379,732 5,570,775 12,073,204 4,119
Retail store leased
to Garden Ridge
Corporation 4,423,864 1,857,607 6,204,923
Office/distribution
facility leased to
Sentury
Technology Corporation 1,603,488 3,321,512
Office/research facility
leased
to Scott Companies, Inc. 9,693,329 5,734,782 12,175,218 5,356
Child care centers leased
to Childtime Childcare,
Inc. 4,915,953 2,581,896 7,459,165
Office/research facility
leased to QMS, Inc. 5,165,148 1,361,073 12,513,273
Retail/distribution
facility leased
to The Bon-Ton
Stores, Inc. 6,711,960 1,780,000 10,261,885
</TABLE>
<TABLE>
<CAPTION>
Life on which
Gross Amount at which Depreciation
Carried at Close of Period in Latest
--------------------------------- Statement of
Personal Accumulated Operations
Description Land Buildings Property Total Depreciation (e) Date Acquired is Computed
----------- ---- --------- -------- ----- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Method:
Distribution facility
leased
to Wal-Mart Stores, Inc. $ 454,420 $ 3,337,282 $ 3,791,702 $ 406,731 February 10, 1995 40 yrs.
Office/Manufacturing
facility leased to
Etec Systems, Inc. 1,272,444 73,827,878 75,100,322 2,592,137 February 16,1995 40 yrs.
Health club facilities June 8, 1995 and
leased to Q Clubs, Inc. 3,152,874 8,524,126 11,677,000 839,483 July 25, 1996 40 yrs.
Warehouses and special
purpose facility leased
to Del Monte Corporation 376,360 10,166,937 10,543,297 865,563 November 9, 1995 40 yrs.
Warehouse/office/
research facility leased
to PPD Development, Inc. 1,550,985 11,045,166 12,596,151 1,138,462 November 13, 1995 40 yrs.
Research and development
facility leased to
Lanxide Corporation 1,391,311 3,006,687 4,397,998 182,203 March 28, 1996 40 yrs.
Distribution/warehouse
facility leased to
Celadon, Inc. 1,480,600 5,360,400 6,841,000 440,825 September 19, 1996 40 yrs.
Office/research
facility leased to
Spectrian Corporation 5,570,775 12,077,323 17,648,098 943,425 November 19, 1996 40 yrs.
Retail store leased
to Garden Ridge
Corporation 1,857,607 6,204,923 8,062,530 471,833 December 16, 1996 40 yrs.
Office/distribution
facility leased to
Sentury
Technology Corporation 1,603,488 3,321,512 4,925,000 252,573 December 24, 1996 40 yrs.
Office/research facility
leased
to Scott Companies, Inc. 5,734,782 12,180,574 17,915,356 900,855 January 23, 1997 40 yrs.
Child care centers leased
to Childtime Childcare,
Inc. 2,581,896 7,459,165 10,041,061 305,440 January 29, 1997 40 yrs.
Office/research facility
leased to QMS, Inc. 1,361,073 12,513,273 13,874,346 899,392 February 18, 1997 40 yrs.
Retail/distribution
facility leased
to The Bon-Ton
Stores, Inc. 1,780,000 10,261,885 12,041,885 694,815 April 10, 1997 40 yrs.
</TABLE>
-24-
<PAGE> 26
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED and SUBSIDIARIES
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<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 11,630,675 111,090
Office/research
facility leased
to ViaSystems, New England 3,047,633 1,080,000 4,469,738
Office/manufacturing
facility leased
to Vermont Teddy
Bear Co., Inc. 3,147,236 1,465,000 4,398,874 1,640
Warehouse/special facility
leased to Texas Freezer
Company, Inc. 4,429,557 257,458 $1,109,900 7,150,544
Research facility
to BAE Systems, Inc. 3,025,000 9,741,810 7,372,483
Office/manufacturing
facility leased to Westell
Technologies, Inc. 2,500,000 14,952,055
Administration/classroom
facility leased to Career
Education Corporation 1,150,000 8,840,486 2,788,170
Printing facility leased to
Perry Graphic Communica-
tions, Inc. and Judd's 10,788,851 642,000 18,467,948 8,000
Office/banking facility
leased
to Compass Bank for
Savings 300,000 1,520,000
Manufacturing/distribution
facility leased to
Nutramax Products, Inc. 1,160,000 6,127,722 527,777
Office/light assembly
facility
leased to International
Management Consulting,
Inc. 668,211 5,994,089
Office facility leased to
Balance Care Corporation 558,600 4,261,335
------------ ----------- ------------ ---------- ------------ -----------
$126,374,093 $43,660,104 $182,757,225 $1,109,900 $111,882,686 $(6,914,894)
============ =========== ============ ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Life on which
Gross Amount at which Depreciation
Carried at Close of Period in Latest
---------------------------------- Statement of
Personal Accumulated Operations
Description Land Buildings Property Total Depreciation (e) Date Acquired is Computed
----------- ---- --------- -------- ----- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Method:
(continued):
Technology/manufacturing
facility leased to Silgan
Containers Corporation 758,670 11,741,765 12,500,435 662,234 June 13, 1997 40 yrs.
Office/research
facility leased
to ViaSystems, New England 1,080,000 4,469,738 5,549,738 274,163 July 8, 1997 40 yrs.
Office/manufacturing
facility leased
to Vermont Teddy
Bear Co., Inc. 1,465,000 4,400,514 5,865,514 270,429 July 18 1997 7 to 40 yrs.
Warehouse/special facility
leased to Texas Freezer
Company, Inc. 257,458 7,150,544 $1,109,900 8,517,902 445,517 September 23, 1997 40 yrs.
Research facility
to BAE Systems, Inc. 3,025,000 17,114,293 20,139,293 575,972 September 28, 1997 40 yrs.
Office/manufacturing
facility leased to Westell
Technologies, Inc. 2,500,000 14,952,055 17,452,055 856,628 September 29, 1997 40 yrs.
Administration/classroom
facility leased to Career
Education Corporation 1,150,000 11,628,656 12,778,656 526,342 November 12,1997 40 yrs.
Printing facility leased to
Perry Graphic Commun-
ications, Inc. and Judd's 642,000 18,475,948 19,117,948 943,035 December 16, 1997
Office/banking facility
leased
to Compass Bank for
Savings 300,000 1,520,000 1,820,000 76,000 December 30, 1997 40 yrs.
Manufacturing/distribution
facility leased to
Nutramax Products, Inc. 1,160,000 6,655,499 7,815,499 280,833 March 28, 1998 40 yrs.
Office/light assembly
facility
leased to International
Management Consulting,
Inc. 668,211 5,994,089 6,662,300 130,669 May 18, 1998 40 yrs.
Office facility leased to
Balance Care Corporation 558,600 4,261,335 4,819,935 26,633 June, 23, 1998 40 yrs.
----------- ------------ ---------- ------------ -----------
$43,733,554 $287,651,567 $1,109,900 $332,495,021 $16,002,192
=========== ============ ========== ============ ===========
</TABLE>
See accompanying notes to Schedule.
-25-
<PAGE> 27
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company
------------------------
Encumbrances Land Buildings
------------ ---- ---------
<S> <C> <C> <C>
Direct Financing
Method:
Supermarkets
leased to
Big V Holding Corp. $ 3,180,016 $1,157,294 $ 5,254,309
Manufacturing
facility leased to
The Garden
Companies, Inc. 3,140,687 1,544,265 5,430,735
Office/manufacturing
facility leased to
Rheometric
Scientific, Inc. 1,510,791 4,789,209
Office facility leased
to Telos Corporation 5,666,335 1,549,022 10,597,978
Office/Manufacturing
facility leased to
Randall
International, Inc. 2,000,000 471,454
----------- ---------- -----------
$11,987,038 $7,761,372 $26,543,685
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount
Cost which Carried
Capitalized at Close of Period (e)
Subsequent to Increase in ---------------------
Acquisition (a) Net Investment (c) Total Date Acquired
--------------- ------------------ ---------------------- -------------
<S> <C> <C> <C> <C>
Direct Financing
Method:
Supermarkets
leased to
Big V Holding Corp. $1,048,013 $656,591 $ 8,116,207 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. 4,500 (444,949) 5,859,551 February 23,1996
Office facility leased
to Telos Corporation 5,500 12,152,500 March 11, 1996
Office/Manufacturing
facility leased to
Randall
International, Inc. 4,904,678 7,376,132 October 17, 1997
---------- -------- -----------
$5,962,691 $211,642 $40,479,390
========== ======== ===========
</TABLE>
See accompanying notes to Schedule
-26-
<PAGE> 28
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 (i) partial refund of purchase price and (ii)
writedown to fair value.
(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, 1999, the aggregate cost of real estate owned
by Registrant and its subsidiaries for Federal income tax
purposes is $301,499,870
(e)
<TABLE>
<CAPTION>
Reconciliation of Real Estate Accounted
for Under the Operating Method
December 31,
------------------------
1998 1999
---- ----
<S> <C> <C>
Balance at beginning
of year $227,014,400 $299,773,723
Additions 72,759,323 33,329,987
Dispositions (608,689)
------------ ------------
Balance at close of year $299,773,723 $332,495,021
============ ============
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Accumulated Depreciation
December 31,
------------------------
1998 1999
---- ----
<S> <C> <C>
Balance at beginning
of year $4,360,196 $9,520,197
Depreciation expense 5,160,001 6,481,995
---------- ----------
Balance at close of year $9,520,197 $16,002,192
========== ===========
</TABLE>
-27-
<PAGE> 29
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
AND SUBSIDIARIES
1999 ANNUAL REPORT
<PAGE> 30
SELECTED FINANCIAL DATA
(In thousands except share amounts)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 3,994 $ 11,434 $ 25,313 $ 34,563 $ 39,276
Income before
extraordinary items 2,115 6,210 12,804 12,078 $ 19,871
Net income 2,115 6,210 12,804 11,699 $ 19,871
Basic earnings
per share before
extraordinary items (1) .53 .60 .57 .42 .69
Basic earnings
per share (1) .53 .60 .57 .41 .69
Weighted average
number of Shares
outstanding-basic 4,016,686 10,365,828 22,387,928 28,416,013 28,615,971
Dividends paid 2,351 6,780 15,082 23,028 23,268
Dividends paid
per share .76 .80 .81 .81 .81
Payments of mortgage
principal (2) 262 1,192 1,708 2,174 3,400
BALANCE SHEET DATA:
Total consolidated assets 81,173 193,294 358,693 398,604 418,088
Long-term obligations (3) 19,016 47,734 84,745 113,868 133,351
</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> 31
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, 1999. 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 used 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 certain 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 to protect 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.
Public business enterprises are required to report financial
and descriptive information about their 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.
Results of Operations:
Net income for 1999 increased by $8,172,000 as compared with
1998. Excluding the effect of net gains from the sale of securities and real
estate of $2,309,000 in 1999 and an extraordinary charge on the early
extinguishment of debt of $379,000 and a noncash writedown of a property of
$4,281,000 in 1998, income, as adjusted, would have reflected an increase of
$1,203,000, or 7%, from the prior year. The increase in income was due to
increases in lease revenues (rental income and interest income from direct
financing leases) and income from equity investments and was partially offset by
increases in depreciation and amortization and interest and property expenses.
-2-
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The increase in lease revenues was primarily due to the
completion of build-to-suit projects in 1999 and the commencement of lease terms
at those properties. For financial reporting purposes, any rents received during
the construction and development period are not recognized as lease revenues or
in the results of operations. The projects completed in 1999 included the new
building at the Etec Systems, Inc. property and new buildings or expansions for
Career Education Corporation, Randall International, Inc., Balanced Care
Corporation, Childtime Childcare, Inc. and International Management Consulting,
Inc. and the completions in 1998 of construction of a cold storage facility
leased to Texas Freezer Company and two other build-to-suit projects. Solely as
a result of completing these projects, annual lease revenue will increase by
$7,278,000 of which $5,265,000 was realized in 1999. The increase in income from
equity investments was attributable to acquiring interests in properties net
leased to Advanced Micro Devices, Inc., Intesys Technologies, Inc. and Compucom
Systems, Inc. in December 1998, February 1999 and March 1999, respectively. The
equity investment in the net lease with Ameriserve Food Distribution, Inc.
currently has not resulted in any significant contribution to the results of
operations as three of the four Ameriserve properties are currently either under
construction or being expanded. The increase in depreciation and amortization,
noncash charges, was attributable to the completion of build-to-suit projects
and new debt financing. No depreciation is recorded on projects under
development until construction is completed. The increase in interest expense
was due to new limited recourse mortgage debt placed on the new Etec building of
$30,000,000 and additional mortgage financing of $2,500,000 on the Childtime
properties as well as $30,500,000 of mortgage financing obtained during 1998.
The increase in property expenses was due to the increase in asset management
and performance fees. This increase was solely the result of the increase in the
Company's real estate base. Effective in 2000, the asset management and
performance fees will be based on the appraised value of CPA(R):12's real estate
assets (including equity investments) as of December 31, 1999 rather than the
historical cost basis of the properties. The change in calculating the fees is
in accordance with the Advisory Agreement between CPA(R):12 and Carey Property
Advisors. The appraised value has been determined pursuant to an independent
valuation and the change in value from the appraisal will not significantly
increase asset management fees in 2000. A valuation will be performed annually.
During 1999, CPA(R):12 recognized a gain of $2,505,000 on the
sale of 57,000 shares of Etec. In connection with structuring its initial
transaction with Etec, CPA(R):12 had been granted warrants for the Etec common
stock at an exercise price of $0.45 per share. Etec subsequently became a
publicly-traded company. Etec has agreed to be acquired by Applied Materials,
Inc. a publicly-traded company with a market capitalization in excess of
$75,000,000,000. CPA(R):12 has recently completed negotiations that require
Applied Materials to provide an unconditional guaranty of Etec's lease
obligations.
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 or 61%. The increase in
income as adjusted was entirely due to increased revenues, and, for the most
part, reflects the increase in lease revenues 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. 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 estate assets as the asset management and
performances fees payable to the Advisor are directly based on the value 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 the selling agreements with these broker-dealers.
Other interest income decreased in both 1998 and 1999 as cash
balances decreased. This decrease was expected as CPA(R):12 used 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 vacated the property and CPA(R):12 expected
Lanxide to terminate the lease in connection with its bankruptcy. 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 lease
termination, annual rental income from the Lanxide property decreased by
approximately $445,000.
-3-
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
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.
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, meet
distribution requirements to minority interests, maintain adequate cash reserves
and fund an increasing rate of dividends to shareholders. During 1999, cash flow
from operations increased by 29% to $28,032,000 and was substantially comparable
to the aggregate amount used to pay dividends of $23,268,000, mortgage principal
installments of $3,400,000 and distributions to holders of minority interests of
$1,436,000. In comparison, cash flow from operations in 1998 was not sufficient
to fund dividends, and the results for 1999 reflect the benefit to operating
cash flow of completing build-to-suit projects and increasing CPA(R):12's
investment in real estate. CPA(R):12 has properties still under construction and
Management expects operating cash flow to continue to increase as these
build-to-suit projects are completed.
CPA(R):12's investing activities included using $55,188,000
for investment in real estate including completing several build-to-suit
commitments and purchasing equity investment interests. CPA(R):12 received
$1,767,000 on asset dispositions, primarily sales of securities. In addition,
CPA(R):12 received $942,000 in January 2000 on a sale of Etec shares that was
executed in December 1999. CPA(R):12 currently has a commitment to fund an
additional $1,441,000 for its investment in Ameriserve which includes three
buildings under construction. Since December 31, 1999, Ameriserve filed a
petition of voluntary bankruptcy. Ameriserve is expected to prepare a plan of
reorganization and under such a plan could seek to terminate its lease
obligations. There is no assurance that Ameriserve will affirm its leases.
Ameriserve continues to meet its lease obligations and Management believes that
the properties acquired and being constructed are necessary to Ameriserve's
operation. Accordingly, Management expects Ameriserve to continue to lease the
properties during the reorganization and thereafter. CPA(R):12 has no other
commitments to fund major outlays at its properties. CPA(R):12 paid its Advisor
deferred acquisition fees of $1,529,000 relating to purchases completed prior to
1998. As intended, CPA(R):12 has reduced its cash balances by making additional
investments in real estate during the year. CPA(R):12 continues to evaluate
potential investments for acquisition and has the ability to provide additional
funding for investment by obtaining funds from the placement of mortgage debt on
several unleveraged properties.
In addition to paying dividends, making distributions to
holders of minority interests and mortgage principal installments CPA(R):12
obtained $32,500,000 of limited recourse mortgage debt. CPA(R):12's financing
strategy is to leverage substantially all of its properties with limited
recourse mortgage debt 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 the loan and not to any of CPA(R):12's other assets. Balloon
payments of $14,626,000 are scheduled in 2000, including $6,900,000 that
CPA(R):12 has an option to extend. CPA(R):12 expects to refinance the other
maturing loans as the properties are subject to long-term leases with
creditworthy tenants. Scheduled balloon payments in 2001 are approximately
$2,000,000. In 1999, CPA(R):12 entered into a credit agreement for a $40,000,000
credit facility that will allow it to fund acquisitions on a transitional basis.
No advances have yet been made under the facility. Any advances under the
facility are recourse obligations of CPA(R):12 and subject CPA(R):12 to meeting
specific financial covenants. CPA(R):12 is in compliance with its financial
covenants. The term of the credit agreement ends in June 2000, and CPA(R):12
expects to exercise its option to extend the term through June 2001.
During 1999, the Advisor elected to receive performance fees
of $1,914,000 in restricted shares of CPA(R):12 rather than cash. The issuance
of shares to pay fees increases the cash available to CPA(R):12 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.
-4-
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
In connection with the purchase of its properties, CPA(R):12
requires the sellers 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. However, portions of certain properties have been
subject to some degree of contamination, principally in connection with either
leakage from underground storage tanks, surface spills from facility activities
or historical on-site activities. In most instances where contamination has been
identified, tenants are actively engaged in the remediation process and
addressing identified conditions. 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 which
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. Certain of the leases allow CPA(R):12 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, in excess of specified amounts. Accordingly, Management believes that
the ultimate resolution of any environmental matter will not have a material
adverse effect on CPA(R):12's financial condition, liquidity or results of
operations.
In 1999, CPA(R):12 and its affiliates formed a task force to
identify year 2000 problems. The task force developed and implemented a plan
that included inventory, assessment, remediation, testing and contingency
planning. CPA(R):12 experienced no significant disruptions as a result of the
year end date change. The task force intends to monitor other critical dates in
the future, such as quarter-end dates. In connection with the procedures,
CPA(R):12 incurred expenses of approximately $75,000. The impact of the year
2000 issues on CPA(R):12 will continue to depend on the way the issues have been
addressed by third parties that provide services to CPA(R):12. To date,
CPA(R):12 has not been adversely impacted to any significant extent by the
failure of third parties to address year 2000 issues. The task force has
developed contingency plans to address risks associated with year 2000 issues
that may arise. There can be no assurance that these plans will fully mitigate
any problems, if any arise. The foregoing year 2000 discussions constitute a
Year 2000 Readiness Disclosure within the meaning of the Year 2000 Readiness and
Disclosure and Disclosure Act of 1998.
-5-
<PAGE> 35
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, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally accepted in the United States,
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
April 7, 2000
-6-
<PAGE> 36
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 44,342,243 $ 43,733,554
Buildings 255,431,480 288,761,467
----------- ------------
299,773,723 332,495,021
Accumulated depreciation 9,520,197 16,002,192
------------ ------------
290,253,526 316,492,829
Net investment in direct financing leases 36,820,657 40,479,390
------------ ------------
Real estate leased to others 327,074,183 356,972,219
Equity investments 25,971,837 45,068,997
Cash and cash equivalents 37,790,505 8,847,449
Other assets, net of reserve for uncollected
rents of $402,418 and $691,396 in 1998 and 1999 7,767,129 7,199,306
------------ ------------
Total assets $398,603,654 $418,087,971
============ ============
LIABILITIES:
Limited recourse mortgage notes payable $109,261,349 $138,361,131
Accrued interest 907,922 422,598
Accounts payable to affiliates 1,839,533 2,885,052
Accounts payable and accrued expenses 659,750 487,020
Deferred acquisition fees payable to affiliate 8,876,292 7,911,752
Dividends payable 5,805,617 5,852,519
Prepaid rental income and security deposits 4,996,561 5,520,543
------------ ------------
Total liabilities 132,347,024 161,440,615
------------ ------------
Minority interest 26,969,738 22,397,277
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 40,000,000
shares; issued and
outstanding, 28,717,726 and 28,909,098 shares
at December 31, 1998 and 1999 28,717 28,909
Additional paid-in capital 257,668,301 259,581,829
Dividends in excess of accumulated earnings (19,903,364) (23,346,983)
Accumulated other comprehensive income 2,607,571 483,269
------------ ------------
240,401,225 236,747,024
Less, treasury stock at cost, 129,301 and 285,051
shares at December 31, 1998 and 1999 (1,114,333) (2,496,945)
------------ -----------
Total shareholders' equity 239,286,892 234,250,079
------------ ------------
Total liabilities and
shareholders' equity $398,603,654 $418,087,971
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
<PAGE> 37
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of INCOME
For the year ended December 31,
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income $16,651,513 $27,097,224 $33,774,608
Interest income from direct financing
leases 4,966,730 4,940,298 4,755,787
Other interest income 3,695,176 2,525,620 746,045
----------- ----------- -----------
25,313,419 34,563,142 39,276,440
----------- ----------- -----------
Expenses:
Interest expense 6,499,865 8,557,890 9,975,624
Depreciation and amortization 3,100,870 5,268,278 6,997,430
General and administrative 2,209,171 2,566,317 2,926,870
Property expense 2,786,890 3,989,894 4,897,155
Writedown to fair value 4,281,421
----------- ----------- -----------
14,596,796 24,663,800 24,797,079
----------- ----------- -----------
Income before minority
interest in income, income from
equity investments, gain on sale
and extraordinary item 10,716,623 9,899,342 14,479,361
Minority interest in income (1,043,103)
----------- ----------- -----------
Income before income from equity
investments, gain on sale
and extraordinary item 10,716,623 9,899,342 13,436,258
Income from equity investments 2,086,993 2,178,813 4,126,251
----------- ----------- -----------
Income before gain (loss) on sale
and extraordinary item 12,803,616 12,078,155 17,562,509
Gain on sale of securities 2,504,878
Loss on sale of real estate (196,323)
----------- ----------- -----------
Income before extraordinary item 12,803,616 12,078,155 19,871,064
Extraordinary loss on extinguishment
of debt (379,246)
----------- ----------- -----------
Net income $12,803,616 $11,698,909 $19,871,064
=========== =========== ===========
Basic earnings per common share
before extraordinary item $.57 $.42 $.69
Extraordinary item (.01)
----------- ----------- -----------
Basic earnings per share $.57 $.41 $.69
=========== =========== ===========
Weighted average shares outstanding-basic 22,387,928 28,416,013 28,615,971
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-8-
<PAGE> 38
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY
For the year ended December 31,
<TABLE>
<CAPTION>
Dividends in Accumulated
Additional Excess of Other
Common Paid-in Comprehensive Accumulated Comprehensive Treasury
Stock Capital Income Earnings Income Stock Total
------- ------------ ------------- --------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $15,668 $139,896,651 $ (2,584,954) $(140,008) $137,187,357
12,666,048 shares issued
at $10 per share, net
of offering costs
of $12,708,531 12,666 113,939,283 113,951,949
Dividends declared (12,987,628) (12,987,628)
Comprehensive income:
Net income $12,803,616 12,803,616 12,803,616
Other comprehensive income:
Unrealized appreciation
of marketable equity
securities for 1997 3,031,300 3,031,300 3,031,300
-----------
$15,834,916
===========
Repurchase of 53,648 shares (412,927) (412,927)
------- ------------ ----------- --------- --------- -----------
Balance at December 31, 1997 28,334 253,835,934 (2,768,966) 3,031,300 (552,935) 253,573,667
383,275 shares issued at
$10 per share 383 3,832,367 3,832,750
Dividends declared (28,833,307) (28,833,307)
Comprehensive income:
Net income $11,698,909 11,698,909 11,698,909
Other comprehensive income:
Unrealized appreciation
of marketable equity
securities for 1998 (423,729) (423,729) (423,729)
-----------
$11,275,180
===========
Repurchase of 61,258 shares (561,398) (561,398)
------- ------------ ----------- --------- --------- -----------
Balance at December 31, 1998 28,717 257,668,301 (19,903,364) 2,607,571 (1,114,333) 239,286,892
191,372 shares issued
at $10 per share 191 1,913,529 1,913,720
Dividends declared (23,314,683) (23,314,683)
Comprehensive income:
Net income $19,871,064 19,871,064 19,871,064
-----------
Other comprehensive income:
Change in unrealized
appreciation resulting
from sale of securities (2,177,400)
Unrealized appreciation of
marketable securities
for 1999 53,098
-----------
(2,124,302) (2,124,302) (2,124,302)
-----------
$17,746,762
===========
Repurchase of 155,750 shares (1,382,612) (1,382,612)
------- ------------ ----------- --------- --------- -----------
Balance at December 31, 1999 $28,908 $259,581,830 $(23,346,983) $ 483,269 $(2,496,945) $234,250,079
======= ============ ============= ========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-9-
<PAGE> 39
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
For the year ended December 31,
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,803,616 $ 11,698,909 $ 19,871,064
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,100,870 5,268,278 6,997,430
Straight-line adjustments and other
noncash rent adjustments (491,601) (1,173,220) (1,119,519)
Minority interest in income 1,043,103
Income from equity investments in excess
of distributions received (543,245) (230,590) (32,552)
Issuance of stock in satisfaction of
performance fees 1,913,720
Provision for uncollected rents 162,137 240,281 288,978
Extraordinary loss on extinguishment of debt 379,246
Gain on sales, net (2,308,555)
Writedown to fair value 4,281,421
Change in operating assets and liabilities, net (a) 4,923,814 1,316,973 1,378,764
------------ ------------ ------------
Net cash provided by operating activities 19,955,591 21,781,298 28,032,433
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales 1,767,389
Payment of deferred acquisition fees (1,529,131)
Purchases of real estate and equity investments
and other capitalized costs (138,960,203) (79,286,006) (55,188,520)
------------ ------------ ------------
Net cash used in investing activities (138,960,203) (79,286,006) (54,950,262)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from stock issuance, net of costs 113,951,949
Dividends paid (15,081,819) (23,027,690) (23,267,781)
Payments of mortgage principal (1,707,976) (2,174,394) (3,400,218)
Prepayment of mortgage payable (4,096,000) (7,957,949)
Proceeds from issuance of mortgages 48,411,509 30,500,000 32,500,000
Deferred financing costs (530,217) (497,069) (859,052)
Capital contributions from (distributions to)
minority partner 26,969,738 (4,179,218)
Distribution to minority interests (1,436,346)
Purchase of treasury stock (412,927) (561,398) (1,382,612)
Payment made on extinguishment of debt (379,246)
------------ ------------ ------------
Net cash provided by financing activities 140,534,519 22,871,992 (2,025,227)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 21,529,907 (34,632,716) (28,943,056)
Cash and cash equivalents, beginning of year 50,893,314 72,423,221 37,790,505
------------ ------------ ------------
Cash and cash equivalents, end of year $ 72,423,221 $ 37,790,505 $ 8,847,449
============ ============ ============
Noncash operating and investing activities:
Deferred acquisition fee payable to affiliate $ 3,055,049 $ 2,407,146 $ 964,540
============ ============ ============
</TABLE>
(a) Excludes changes in accounts payable and accrued expenses and accounts
payable to affiliates balances which relate to the raising of capital
(financing activities) rather than the Company's real estate operations.
The accompanying notes are an integral part of the consolidated financial
statements.
-10-
<PAGE> 40
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
accounting principles generally accepted in the United States
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. Such methods are 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 or, for
certain leases for retail properties, 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.
Equity Investments:
The Company's interests in general partnerships and limited
liability companies in which its ownership interests range from
33 1/3% 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.
-11-
<PAGE> 41
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Cash and 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 funds. At December 31, 1998 and
1999, 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.
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.
The Company's marketable equity securities at December 31, 1998 and
1999 consist of 68,261 and 11,261 shares of common stock of Etec
Systems, Inc. ("Etec"), respectively, and 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 and 1999, fair value of the Etec common
stock was $2,607,571 and $483,269, respectively. The Company sold
57,000 shares of Etec in 1999 at a gain of $2,356,001. The
Company sold the remaining 11,261 in January 2000 at a gain of
approximately $775,000.
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.
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.
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.
-12-
<PAGE> 42
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
Federal Income Taxes:
The Company qualifies and intends to continue to qualify as a real
estate investment trust ("REIT") 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:
Accounting standards have been established for the way public
business enterprises report selected information about operating
segments and guidelines for defining the operating segments of an
enterprise. Based on the standards' definition, the Company has
concluded that it engages in a single operating segment.
Reclassification:
Certain 1997 and 1998 amounts have been reclassified to conform to
the 1999 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.
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). On February 2, 1996, the Company commenced an
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. The second offering was
concluded on September 18, 1997, by 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 $862,415, $724,763 and $305,783 in 1997, 1998
and 1999, 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 Advisory
Agreement between the Company and the Advisor. Asset management
fees were $1,202,124, $1,751,817 and $2,084,495 in 1997, 1998 and
1999, 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 $1,121,018, $560,957
and $794,930 in 1997, 1998 and 1999, respectively.
In connection with performing services related to the Company's real
estate purchases in 1997, 1998 and 1999, affiliates of the
Company received structuring and development fees of $2,156,038,
$1,811,907 and $764,458, respectively. The affiliate is entitled
to receive deferred acquisition fees of $9,440,586 as of December
31, 1999 over a period of no less than eight years, subject to
the 2%/25% Guidelines limitation described below. During 1999
deferred acquisition fees of $1,529,131 were paid to the Advisor.
-13-
<PAGE> 43
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company's interests in properties jointly held with affiliated
entities range from 27.38% to 50.1% 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 limited liability
companies, owned with an affiliate, are accounted for under the
equity method when such ownership interest is 50% or less.
Ownership interests in general partnership and limited liability
companies which are greater than 50% are consolidated with the
ownership interest of the affiliate accounted for as a minority
interest.
The Advisor is obligated to reimburse the Company 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 Advisory Agreement. 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.
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 gross revenues. Expenses incurred in 1997, 1998 and
1999 were $69,825, $143,003 and $208,046, 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
$35,795,000 in 2000; $35,958,000 in 2001; $36,035,000 in 2002;
$36,246,000 in 2003, $36,353,000 in 2004 and aggregate
approximately $519,938,000 through 2020.
Contingent rents were approximately $32,000, $71,000 and $189,000 in
1997, 1998 and 1999, respectively.
5. Net Investment in Direct Financing Leases:
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Minimum lease payments
receivable $ 83,497,133 $ 85,854,794
Unguaranteed residual value 36,300,545 39,822,801
------------ ------------
119,797,678 125,677,595
Less: unearned income 82,977,021 85,198,205
------------ ------------
$ 36,820,657 $ 40,479,390
============ ============
</TABLE>
Scheduled future minimum rents, exclusive of renewals, under
noncancellable direct financing leases are approximately
$4,857,000 in each of the years 2000 through 2003; and $4,897,000
in 2004 and aggregate approximately $85,855,000 through 2024.
Contingent rents were approximately $13,000 in 1998 and $77,000 in
1999. The Company did not earn contingent rents in 1997.
-14-
<PAGE> 44
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Mortgage Notes Payable and Line of Credit:
-----------------------------------------
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
$251,811,000. As of December 31, 1999, mortgage notes payable had
interest rates ranging from 6.5% to 10.5% per annum.
Scheduled principal payments during each of the five years following
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000 $ 11,877,668
2001 4,424,209
2002 9,202,225
2003 9,905,894
2004 7,688,179
Thereafter 95,262,956
------------
Total $138,361,131
============
</TABLE>
On June 25, 1999, the Company entered into a credit agreement with
PNC Bank, N. A. ("PNC") and The Bank of New York which provides
for a $40,000,000 line of credit. The credit agreement has a
one-year term through June 23, 2000 with a one-year extension at
the Company's option providing that there are no events of
default. As of December 31, 1999, the Company had not drawn any
advances from the line of credit.
Advances from the credit agreement will bear interest, at the option
of the Company, at an annual rate of either (i) the London
InterBank Offered Rate plus 1.8% or (ii) the lesser of PNC's
prime rate plus .25% or the Federal Fund Effective Rate plus
.50%. In addition, the Company will pay a fee of .25% per annum
on the unused portion of the credit line.
The credit agreement has financial covenants that require the
Company to (i) maintain a minimum equity value of $200,000,000
plus 85% of the cash proceeds received by the Company from
issuance of any new equity interests, (ii) maintain cash balances
of at least $2,000,000 and (iii) meet or exceed certain operating
and coverage ratios. Such operating and coverage calculations
include but are not limited to (a) maintaining a ratio of
earnings before interest, taxes, depreciation and amortization to
debt service payments of no less than 2:1, (b) debt leverage not
to exceed 55% of Total Market Value and (c) a limitation on
build-to-suit properties under construction to no more than 20%
of Total Market Value. As of December 31, 1999, the Company was
in compliance with the financial covenants.
Interest paid, excluding capitalized interest, was $5,932,311,
$7,758,956 and $10,460,588 in 1997, 1998, and 1999, respectively.
In connection with the placement of mortgages, fees of $862,415,
$724,763 and $705,783 were paid to an affiliate of the Company in
1997, 1998 and 1999, respectively.
-15-
<PAGE> 45
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Dividends Payable:
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, 1999, dividends paid per share
reported for tax purposes were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Ordinary income $ .81 $ .56 $ .56
Capital gains -- -- .09
Return of capital -- .25 .16
----- ----- -----
$ .81 $ .81 $ .81
===== ===== =====
</TABLE>
A dividend of $.2039 per share for the quarter ended December
31,1999 ($5,852,519) was declared in December 1999 and paid in
January 2000.
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 1997, 1998 and 1999 lease revenues are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Per Statements of Income:
Interest income from direct
financing leases $ 4,966,730 $ 4,940,298 $ 4,755,787
Rental income from operating leases 16,651,513 27,097,224 33,774,608
Adjustment:
Share of leasing revenue applicable
To minority interests (1,675,736)
Share of lease revenues from
equity investments 4,422,114 4,501,027 9,914,975
----------- ----------- -----------
$26,040,357 $36,538,549 $46,769,634
=========== =========== ===========
</TABLE>
-16-
<PAGE> 46
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
In 1997, 1998 and 1999, 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>
1997 % 1998 % 1999 %
----------- -------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Etec Systems, Inc. (a) $ 1,556,393 6% $ 2,857,105 8% $ 4,664,118 10%
Advanced Micro Devices, Inc. (b) 84,672 3,048,500 7
Perry Graphic Communications, Inc.
and Judd's Incorporated 82,800 2,191,567 6 2,191,567 5
Spectrian Corporation 1,925,000 7 1,925,000 5 1,947,630 4
Scott Companies, Inc. 1,826,069 7 1,940,850 5 1,940,850 4
Westell Technologies, Inc. 441,853 2 1,916,387 5 1,916,387 4
Best Buy Co., Inc. (b) 1,793,239 7 1,787,480 5 1,779,485 4
Career Education Corporation 202,701 1 1,220,308 3 1,736,808 4
QMS, Inc. 1,454,097 6 1,689,375 5 1,689,375 4
Telos Corporation 1,447,000 5 1,447,000 4 1,519,193 3
Q Clubs, Inc. 1,390,123 5 1,404,608 4 1,416,300 3
PPD Development, Inc. 1,302,000 5 1,309,476 4 1,391,715 3
Sicor, Inc. (b) 1,309,000 5 1,309,000 4 1,377,223 3
The Upper Deck Company (b) 1,319,875 5 1,319,875 4 1,319,875 3
Del Monte Corporation 1,286,250 5 1,286,250 4 1,286,250 3
Silgan Containers Corporation 491,260 2 1,165,952 3 1,275,000 3
The Bon-Ton Stores, Inc. 921,294 4 1,270,750 3 1,270,750 3
BAE Systems, Inc. 334,734 1 1,262,030 3 1,262,030 3
Childtime Childcare, Inc. 218,813 1 670,662 2 1,039,347 2
Intesys Technologies, Inc. (b) 1,028,831 2
Garden Ridge Corporation 995,764 4 995,764 3 995,764 2
Compucom Systems, Inc. (b) 982,213 2
Texas Freezer Company, Inc. 304,196 1 930,750 2
Big V Holding Corporation 813,741 3 828,976 2 891,449 2
Nutramax Products, Inc. 637,244 2 831,493 2
Rheometric Scientific, Inc. 859,589 3 817,922 2 831,020 2
The Garden Companies, Inc. 816,400 3 816,400 2 816,400 2
Celadon Group, Inc. 703,944 3 718,791 2 731,592 2
Randall International, Inc. 697,724 1
Vermont Teddy Bear Co., Inc. 296,857 1 652,400 2 652,400 1
Lanxide Corporation 1,030,000 4 1,030,000 3 618,976 1
Viasystems, New England 284,628 1 590,000 2 590,000 1
Sentury Technology Corporation 524,000 2 524,000 1 524,000 1
International Management
Consulting, Inc. 492,253 1
Wal-Mart Stores, Inc. 397,226 2 397,226 1 397,226 1
Ameriserve Food Distribution, Inc. (b) 378,849
Compass Bank for Savings 15,707 167,283 185,282
Balanced Care Corporation 121,009
----------- -------- ----------- --------- ----------- ---------
$26,040,357 100% $36,538,549 100% $46,769,634 100%
=========== ======== =========== ========= =========== =========
</TABLE>
(a) Net of amounts applicable to minority interests owned by Corporate
Property Associates 14 Incorporated ("CPA(R): 14") (b) Represents the
Company's proportionate share of lease revenues from its equity
investment.
-17-
<PAGE> 47
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Equity Investments:
The Company owns equity interests with affiliates in eight
partnerships and limited liability companies. The affiliates have
investment objectives that are similar to those of the Company.
These ownership interests consist of a 37% interest in a general
partnership which net leases 17 retail stores to Best Buy Co.,
Inc., a 50% interest in a general partnership that net leases two
office buildings to Sicor, Inc., a 50% interest in a limited
liability company that net leases two office buildings to The
Upper Deck Company, a 33 1/3% interest in a limited liability
company that net leases a building to Advanced Micro Devices,
Inc., a 33 1/3 % interest in a limited liability company that net
leases a building to Compucom Systems, Inc. ("Compucom"), a 50%
interest in a limited liability company that net leases a
building to Intesys Technologies, Inc. ("Intesys") and 40%
interests in two limited liability companies that own four
properties leased to Ameriserve Food Distribution, Inc.
("Ameriserve"). Two of the buildings net leased to Ameriserve are
being expanded and another is under construction. The interests
in the Intesys, Compucom and Ameriserve properties were acquired
in 1999.
Summarized combined financial information of the Company's equity
investees is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Assets (primarily real estate) $184,060 $296,378
Liabilities (primarily mortgage
notes payable) 123,266 189,151
-------- --------
Capital $ 60,794 $107,227
======== ========
Revenues (primarily rental revenues) $10,104 $ 10,343 $ 25,338
Expenses (primarily interest on
mortgages and depreciation) 5,387 5,394 15,010
------- -------- --------
Net income $ 4,717 $ 4,949 $ 10,328
======= ======== ========
</TABLE>
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 subsequently vacated the property. Based on the
Company's expectation that future cash flow from the properties
would 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 in 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 $52,356,000, completed in 1999, 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.
-18-
<PAGE> 48
CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Gains (Losses) on Sale of Real Estate and Securities:
In February 1995, the Company was granted warrants for 159,314
shares of Etec Systems, Inc. ("Etec") common stock, exercisable
at $0.45 share in connection with structuring its net lease with
ETEC. The Company agreed, subsequently to cancel its rights to
90,546 warrants for $2,634,000 and used such funds to prepay a
portion of the then outstanding mortgage loan on the Etec
property. In September 1997, the Company exercised a cashless
conversion of its remaining 68,768 Etec warrants for which it
received 68,261 Etec shares. In December 1999, the Company sold
57,000 shares of its Etec stock at a gain of $2,356,001. The
Company sold its remaining Etec shares in January 2000. The
Company also recognized a gain of $148,877 in connection with the
redemption of warrants that had been granted by Q Clubs, Inc in
connection with structuring net leases with the Company.
In February 1996, the Company purchased land and building in
Piscataway, New Jersey for $6,300,000 and entered into a net
lease transaction with Rheometric Scientific, Inc.
("Rheometric"). The property included excess land which under the
lease could be disposed of at Rheometric's option with the
proceeds divided equally between the Company and Rheometric. In
July 1998, Rheometric agreed that its share of any proceeds be
held in an interest bearing escrow account, and be released to
Rheometric only upon Rheometric's satisfaction of certain
financial covenants under the lease. On July 14, 1999, the
Company sold the excess land and recognized a loss on sale of
$196,323. The Company currently holds $256,315 in an interest
bearing account on behalf of Rheometric. Annual revenue from the
Rheometric lease has not changed as a result of the sale of land.
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 was
approximately $109,681,000 and $135,848,000 at December 31, 1998
and 1999, respectively. 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, 1999. 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) 464,160 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, 1999, 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 Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities",
effective January 1, 2000, which establishes accounting and
reporting standards for derivative instruments. The Company
believes that upon adoption SFAS will not have a material impact
on the consolidated financial statements.
-19-
<PAGE> 49
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, 1999 there were 13,968 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>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
First quarter $.2015 $.2023 $.2031
Second quarter .2017 .2025 .2033
Third quarter .2019 .2027 .2035
Fourth quarter .2021 .2029 .2037
------ ------ ------
$.8072 $.8104 $.8136
====== ====== ======
</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, 1999 as filed with the Securities and Exchange
Commission.
-20-
<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.
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.
<PAGE> 2
SUBSIDIARIES OF REGISTRANT
(CONTINUED)
ICE (TX) QRS 12-29, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS
UNDER THE NAME ICE (TX) QRS 12-29, INC.
URSA (VT) QRS 12-30, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF VERMONT AND DOING
BUSINESS UNDER THE NAME URSA (VT) QRS 12-30, INC.
GGAP (MA) QRS 12-31, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF MASSACHUSETTS AND DOING
BUSINESS UNDER THE NAME GGAP (MA) QRS 12-31, INC.
CAN (WI) QRS 12-34, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN AND DOING
BUSINESS UNDER THE NAME CAN (WI) QRS 12-34, INC.
INFO (CA) QRS 12-35, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME INFO (CA) QRS 12-35, INC.
WTI (IL) QRS 12-36, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS AND DOING
BUSINESS UNDER THE NAME WTI (CA) QRS 12-36, INC.
SOAP (CA) QRS 12-37, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA AND DOING
BUSINESS UNDER THE NAME SOAP (CA) QRS 12-37, INC.
BROWN (MN) QRS 12-38, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA AND DOING
BUSINESS UNDER THE NAME BROWN (MN) QRS 12-38, INC.
NUTRA (TX) QRS 12-39, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS AND DOING BUSINESS
UNDER THE NAME NUTRA (TX) QRS 12-39, INC.
PRINT (WI) QRS 12-40, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN AND DOING
BUSINESS UNDER THE NAME PRINT (WI) QRS 12-40, INC.
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.
COLD (DE) QRS 12-50, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND DOING
BUSINESS UNDER THE NAME COLD (DE) QRS 12-50, INC.
COMP (TX) QRS 12-47, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND DOING
BUSINESS UNDER THE NAME COMP (TX) QRS 12-47, INC.
FOOD (DE) QRS 12-49, INC., A WHOLLY-OWNED SUBSIDIARY OF REGISTRANT
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND DOING BUSINESS UNDER
THE NAME FOOD (DE) QRS 12-49, 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.
VCR (DE) QRS 12-48, INC., A WHOLLY-OWNED SUBSIDIARY OF
REGISTRANT INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND DOING
BUSINESS UNDER THE NAME VCR (DE) QRS 12-48, INC.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,847,449
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,847,449
<PP&E> 372,974,411
<DEPRECIATION> 16,002,192
<TOTAL-ASSETS> 418,087,971
<CURRENT-LIABILITIES> 15,167,732
<BONDS> 138,361,131
0
0
<COMMON> 28,909
<OTHER-SE> 234,221,170
<TOTAL-LIABILITY-AND-EQUITY> 418,087,971
<SALES> 0
<TOTAL-REVENUES> 39,276,440
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,532,477
<LOSS-PROVISION> 288,978
<INTEREST-EXPENSE> 9,975,624
<INCOME-PRETAX> 19,871,064
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,871,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,871,064
<EPS-BASIC> .69
<EPS-DILUTED> .69
</TABLE>
