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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
COMMISSION FILE NUMBER: 0-20016
-------------------------
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-3602400
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
50 ROCKEFELLER PLAZA 10020
NEW YORK, NEW YORK 10020 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBERS:
INVESTOR RELATIONS (212) 492-8920
(212) 492-1100
-------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
-------------------------
CIP(R) has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the
Act.
CIP(R) HAS NO SECURITIES registered on any exchanges.
CIP(R) does not have any Securities registered pursuant to Section 12(b) of the
Act.
CIP(R) (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.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ].
CIP(R) has no active market for common stock at August 6, 2004.
CIP(R) has 28,897,983 shares of common stock, $.001 par value outstanding at
August 6, 2004.
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
INDEX
Page No.
--------
PART I
Item 1. - Financial Information*
Condensed Consolidated Balance Sheets, as of June 30, 2004
and December 31, 2003 2
Condensed Consolidated Statements of Income for the three and six
months ended June 30, 2004 and 2003 3
Condensed Consolidated Statements of Comprehensive Income
for the three and six months ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2004 and 2003 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. - Controls and Procedures 16
PART II - Other Information
Item 2. - Changes in Securities, Use of Proceeds and Issuer Purchaser of Equity Securities 17
Item 4. - Submission of Matters to a Vote of Security Holders 17
Item 6. - Exhibits and Reports on Form 8-K 17
Signatures 18
* The summarized condensed consolidated financial statements contained
herein are unaudited; however, in the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
have been included.
-1-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
PART I
Item 1. - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2004 December 31, 2003
------------- -----------------
(Unaudited) (Note)
------------- -----------------
ASSETS:
Land and buildings, net of accumulated depreciation of $41,240,409 at
June 30, 2004 and $37,705,872 at December 31, 2003 $ 303,310,813 $ 306,750,951
Net investment in direct financing leases 120,900,961 121,354,117
Assets held for sale 3,092,633 3,092,633
Equity investments 64,326,131 62,381,384
Cash and cash equivalents 17,619,441 27,414,928
Marketable securities 11,708,823 11,954,011
Other assets 11,518,041 11,998,129
------------- -------------
Total assets $ 532,476,843 $ 544,946,153
============= =============
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY:
Liabilities:
Limited recourse mortgage notes payable $ 229,855,389 $ 241,130,905
Limited recourse mortgage note payable on assets held for sale - 2,975,189
Accrued interest 2,296,338 2,325,763
Accounts payable and accrued expenses 2,588,758 2,343,509
Due to affiliates 2,531,558 2,528,398
Dividends payable 6,207,073 6,034,786
Prepaid rental income and security deposits 2,671,325 2,404,450
Other liabilities, net 3,166,372 3,391,175
------------- -------------
Total liabilities 249,316,813 263,134,175
------------- -------------
Minority interest 15,543,282 15,279,835
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; authorized, 40,000,000 shares; 30,038,443 and
29,237,375 shares issued and outstanding at June 30, 2004 and
December 31, 2003 30,038 29,237
Additional paid-in capital 317,028,518 314,143,508
Dividends in excess of accumulated earnings (37,871,578) (36,920,900)
Accumulated other comprehensive income 1,780,122 2,048,243
------------- -------------
280,967,100 279,300,088
Less, common stock in treasury at cost, 1,140,460 and 1,097,399 shares
at June 30, 2004 and December 31, 2003 (13,350,352) (12,767,945)
------------- -------------
Total shareholders' equity 267,616,748 266,532,143
------------- -------------
Total liabilities, minority interest and shareholders' equity $ 532,476,843 $ 544,946,153
============= =============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Note: The balance sheet at December 31, 2003 has been derived from the audited
consolidated financial statements at that date.
-2-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues:
Rental income $10,105,706 $ 9,507,451 $20,015,966 $19,002,111
Interest income from direct financing leases 3,744,221 3,925,516 7,331,902 7,797,358
Other operating income 101,093 138,269 170,239 206,074
----------- ----------- ----------- -----------
13,951,020 13,571,236 27,518,107 27,005,543
----------- ----------- ----------- -----------
Operating expenses:
Depreciation 1,773,487 1,733,989 3,546,831 3,444,273
General and administrative (Note 1) 870,290 944,466 2,982,853 1,936,274
Property expenses 3,060,442 2,584,332 5,756,001 4,827,832
Impairment charges on real estate - - - 674,370
----------- ---------- ----------- -----------
5,704,219 5,262,787 12,285,685 10,882,749
----------- ---------- ----------- -----------
Income from continuing operations before other
interest income, minority
interest, equity investments,
interest expense and gains and losses 8,246,801 8,308,449 15,232,422 16,122,794
Other interest income 369,926 419,271 781,835 866,083
Minority interest in income (870,880) (711,126) (1,704,959) (1,466,841)
Income from equity investments 2,614,470 2,485,964 5,591,621 5,491,028
Interest expense (4,272,729) (4,827,978) (8,994,039) (9,716,436)
----------- ---------- ----------- ----------
Income from continuing operations before gains
and losses 6,087,588 5,674,580 10,906,880 11,296,628
(Loss) gain on derivative instruments - (444) 4,673 (1,362)
Gain on foreign currency transactions, net 38,714 - 15,938 -
----------- ----------- ----------- -----------
Income from continuing operations 6,126,302 5,674,136 10,927,491 11,295,266
----------- ----------- ----------- -----------
Income from operations of discontinued properties 490,153 356,970 386,906 512,621
----------- ----------- ----------- -----------
Net income $ 6,616,455 $ 6,031,106 $11,314,397 $11,807,887
=========== =========== =========== ===========
Basic earnings per share:
Earnings from continuing operations $ .21 $ .21 $ .39 $ .40
Earnings from discontinued operations .02 .01 .01 .02
----------- ----------- ----------- -----------
Net income $ .23 $ .22 $ .40 $ .42
=========== =========== =========== ===========
Diluted earnings per share:
Earnings from continuing operations $ .21 $ .20 $ .39 $ .39
Earnings from discontinued operations .02 .01 .01 .02
----------- ----------- ----------- -----------
Net income $ .23 $ .21 $ .40 $ .41
=========== =========== =========== ===========
Weighted average shares outstanding-basic 28,578,977 27,987,525 28,406,982 27,941,653
=========== =========== =========== ===========
Weighted average shares outstanding-diluted 28,810,247 28,551,206 28,522,617 28,505,334
=========== =========== =========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income $ 6,616,455 $ 6,031,106 $ 11,314,397 $ 11,807,887
------------ ------------ ------------ ------------
Other comprehensive income (loss):
Change in unrealized (depreciation)
appreciation on marketable securities (424,776) 637,440 (151,501) 1,100,836
Change in foreign currency translation
adjustment (94,398) 515,494 (116,620) 589,062
------------ ------------ ------------ ------------
(519,174) 1,152,934 (268,121) 1,689,898
------------ ------------ ------------ ------------
Comprehensive income $ 6,097,281 $ 7,184,040 $ 11,046,276 $ 13,497,785
============ ============ ============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-4-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
----------------------------
2004 2003
------------ ------------
Cash flows from operating activities:
Net income $ 11,314,397 $ 11,807,887
Adjustments to reconcile net income to net cash provided by continuing operations:
Income from discontinued operations (386,906) (512,621)
Depreciation and amortization 3,918,029 3,650,414
Income from equity investments in excess of distributions received (2,159,526) (2,102,590)
Minority interest in income 1,704,959 1,466,841
Straight-line rent adjustments 388,408 (40,792)
Unrealized (gain) loss on derivatives, net (4,673) 1,362
Unrealized loss on foreign currency transactions, net 155,846 -
Gain on foreign currency transactions, net (171,784) -
Impairment charges on real estate - 675,466
Issuance of shares in satisfaction of performance fees 1,784,130 1,792,939
Net change in operating assets and liabilities 376,308 (1,249,078)
------------ ------------
Net cash provided by continuing operations 16,919,188 15,489,828
Net cash provided by discontinued operations 386,906 264,079
------------ ------------
Net cash provided by operating activities 17,306,094 15,753,907
------------ ------------
Cash flows from investing activities:
Distributions from operations of equity investments in excess of equity income 211,484 267,477
Proceeds from sale of assets held for sale - 2,361,741
Acquisition of real estate and additional capitalized costs (471,094) (1,575,324)
------------ ------------
Net cash (used in) provided by investing activities (259,610) 1,053,894
------------ ------------
Cash flows from financing activities:
Prepayment of mortgage payable (10,916,826) (1,264,892)
Payments of mortgage principal (2,983,885) (2,929,585)
Proceeds from mortgages - 582,522
Proceeds from issuance of shares, net of costs 1,101,678 897,015
Distributions to minority partners (1,452,308) (1,382,577)
Contributions from minority partners 59,111 -
Dividends paid (12,092,788) (11,898,663)
Purchase of treasury stock (582,407) (658,255)
------------ ------------
Net cash used in financing activities (26,867,425) (16,654,435)
------------ ------------
Effect of exchange rate changes on cash 25,454 30,809
------------ ------------
Net (decrease) increase in cash and cash equivalents (9,795,487) 184,175
Cash and cash equivalents, beginning of period 27,414,928 25,782,304
------------ ------------
Cash and cash equivalents, end of period $ 17,619,441 $ 25,966,479
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-5-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of Carey
Institutional Properties Incorporated (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Article
10 of Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. All significant intercompany balances and transactions
have been eliminated. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the results of the interim periods presented have been included. The results of
operations for the interim periods are not necessarily indicative of results for
the full year. These condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.
Approximately $1,085,000 of general and administrative expenses for the
six-month period ended June 30, 2004 results from costs incurred and accrued in
connection with evaluating liquidity alternatives. In accordance with accounting
principles generally accepted in the United States of America, costs related to
liquidity alternatives are expensed rather than capitalized.
Certain prior year amounts have been reclassified to conform to current year
financial statement presentation.
Note 2. Transactions with Related Parties:
In connection with performing services on behalf of the Company, the Advisory
Agreement between the Company and W. P. Carey & Co. LLC (the "Advisor" and "W.
P. Carey"), provides that the Advisor receive asset management and performance
fees, each of which are 1/2 of 1% of Average Invested Assets as defined in the
Advisory Agreement. The Advisor has elected at its option to receive the
performance fee in restricted shares of common stock of the Company rather than
cash. The Advisor is also reimbursed for the actual cost of personnel needed to
provide administrative services necessary to the operation of the Company. The
Company incurred asset management fees of $896,937 and $892,070 for the three
months ended June 30, 2004 and 2003, respectively, and $1,793,875 and $1,785,766
for the six months ended June 30, 2004 and 2003, respectively, with performance
fees in like amounts, both of which are included in property expense in the
accompanying condensed consolidated financial statements. The Company incurred
personnel cost reimbursements of $351,421 and $407,567 for the three months
ended June 30, 2004 and 2003 and $706,775 and $819,633 for the six months ended
June 30, 2004 and 2003, respectively, which is included in general and
administrative expenses in the accompanying condensed consolidated financial
statements.
Note 3. Equity Investments:
The Company owns an approximate 47% interest in Marcourt Investments, Inc., a
real estate investment trust which net leases 13 Courtyard by Marriott hotel
properties to a wholly-owned subsidiary of Marriott International, Inc., with
the remaining interests owned by a third-party. The Company also owns
noncontrolling interests with affiliates in properties leased to corporations
through interests in various partnerships and limited liability companies and a
tenancy-in-common interest subject to joint control. The ownership interests
range from 33.33% to 50%, and the underlying investments are owned with
affiliates that have similar investment objectives as the Company. The lessees
are Sicor Inc., The Upper Deck Company, Advanced Micro Devices, Inc., Compucom
Systems, Inc. and Del Monte Corporation.
-6-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Summarized financial information of the Company's equity investees is as
follows:
(in thousands) June 30, 2004 December 31, 2003
------------- -----------------
Assets (primarily real estate) $338,934 $340,805
Liabilities (primarily mortgage notes payable) 199,966 204,550
-------- --------
Shareholders' and members' equity $138,968 $136,255
======== ========
Company's share of equity investees' net assets $ 64,326 $ 62,381
======== ========
Six Months Ended June 30,
-------------------------
(in thousands) 2004 2003
-------- ---------
Revenues (primarily rental income and interest income from
direct financing leases) $ 21,069 $ 21,305
Expenses (primarily interest on mortgage and depreciation) (9,890) (10,347)
-------- ---------
Net income $ 11,179 $ 10,958
======== =========
Company's share of net income from equity investments $ 5,592 $ 5,491
======== =========
Note 4. Interest in Mortgage Loan Securitization:
The Company is accounting for its subordinated interest in the Carey Commercial
Mortgage Trust mortgage securitization as an available-for-sale security, which
is measured at fair value with all gains and losses from changes in fair value
reported as a component of accumulated other comprehensive income as part of
shareholders' equity. As of June 30, 2004, the fair value of the Company's
interest was $11,708,823, reflecting an aggregate unrealized gain of $1,429,572
and cumulative net amortization of $337,394 ($93,687 for the six months ended
June 30, 2004). The fair value of the Company's interests in the trust is
determined using a discounted cash flow model with assumptions of market rates
and the credit quality of the underlying lessees.
One of the key variables in determining the fair value of the subordinated
interest is current interest rates. As required by Statement of Financial
Accounting Standards ("SFAS") No. 140, "Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities," a sensitivity analysis of
the current value of the interest based on adverse changes in the market
interest rates of 1% and 2% is as follows:
Fair Value as of June 30, 2004 1% Adverse Change 2% Adverse Change
------------------------------ ----------------- -----------------
Fair value of the interests $11,708,823 $11,157,387 $10,641,230
The above sensitivity is hypothetical and changes in fair value, based on a 1%
or 2% variation, should not be extrapolated because the relationship of the
change in assumption to the change in fair value may not always be linear.
Note 5. Lease Revenues:
The Company's operations consist of the direct and indirect investment in and
the leasing of industrial and commercial real estate. The financial reporting
sources of the lease revenues for the six-month periods ended June 30, 2004 and
2003 are as follows:
2004 2003
------------ ------------
Per Statements of Income:
Rental income from operating leases $ 20,015,966 $ 19,002,111
Interest from direct financing leases 7,331,902 7,797,358
Adjustments:
Share of lease revenue applicable to minority interest (2,973,916) (2,736,073)
Share of lease revenue from equity investments 9,106,097 9,192,039
------------ ------------
$ 33,480,049 $ 33,255,435
============ ============
-7-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
For the six-month periods ended June 30, 2004 and 2003, the Company earned its
net lease revenues from its investments as follows:
2004 % 2003 %
----------- ---- ----------- ----
Marriott International, Inc. (a) $ 4,571,271 14% $ 4,657,376 14%
Omnicom Group, Inc. 2,347,786 7 2,183,018 7
Information Resources, Inc. (b) 1,741,737 5 1,709,111 5
Advanced Micro Devices, Inc. (a) 1,629,469 5 1,629,306 5
Electronic Data Systems Corporation 1,503,465 4 1,503,465 5
Best Buy Co., Inc. (b) 1,468,035 4 1,481,614 4
Titan Corporation (b) 1,165,720 3 1,113,337 3
ShopRite Supermarkets, Inc. (b) 1,057,824 3 1,050,558 3
Lucent Technologies, Inc. 1,011,804 3 1,017,652 3
EnviroWorks, Inc. 885,224 3 870,955 3
UTI Holdings, Inc. 863,764 3 883,023 3
New WAI, L.P./Warehouse Associates 860,031 3 860,031 3
Garden Ridge, Inc. (c) 826,871 2 803,603 2
Childtime Childcare, Inc. (b) 747,525 2 738,737 2
Q Clubs, Inc. 741,540 2 741,673 2
Del Monte Corporation (a) 738,857 2 738,857 2
Barnes & Noble, Inc. 736,659 2 732,508 2
Sicor, Inc. (a) 736,368 2 736,368 2
Merit Medical Systems, Inc. 732,701 2 732,701 2
The Upper Deck Company (a) 726,110 2 726,110 2
Compucom Systems, Inc. (a) 704,022 2 704,022 2
Michigan Mutual Insurance Company 680,238 2 681,254 2
Plexus Corp. 678,953 2 634,346 2
Bell Sports Corp. 607,413 2 596,111 2
Other (b) 5,716,662 19 5,729,699 18
----------- --- ----------- ---
$33,480,049 100% $33,255,435 100%
=========== === =========== ===
(a) Represents the Company's proportionate share of lease revenues from
its equity investments.
(b) Net of amounts applicable to minority interests.
(c) Tenant has filed a petition of bankruptcy and is in the process of
submitting a plan of reorganization.
Note 6. Assets Held for Sale and Discontinued Operations:
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the net income (or loss) and gain or loss on sale of real
estate for properties sold or held for sale are to be reflected in the condensed
consolidated financial statements as "Discontinued Operations" for all periods
presented.
The results of operations of the Nicholson Warehouse L.P. property in Maple
Heights, Ohio, which is held for sale as of June 30, 2004, and the operations of
properties in Broken Arrow, Oklahoma and Austin, Texas which were sold in 2003,
are included as "Discontinued Operations" and are summarized as follows:
Six Months Ended June 30,
--------------------------
2004 2003
----------- -----------
Revenues (primarily rental revenues and miscellaneous income) $ 510,243 $ 511,935
Expenses (primarily interest on mortgages, depreciation and
property expenses) (123,337) (256,913)
Gain on sale of real estate - 257,599
----------- -----------
Income from discontinued operations $ 386,906 $ 512,621
=========== ===========
As a result of classifying the properties as held for sale, no depreciation has
been incurred from the date of reclassification. The suspension had no effect on
depreciation expense for the three month and six-month periods
-8-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
ended June 30, 2004 and reduced the expense by $66,870 and $133,738 for the
three-month and six-month periods ended June 30, 2003, respectively.
Note 7. Earnings Per Share:
Basic and diluted earnings per common share for the Company for the three and
six-month periods ended June 30, 2004 and 2003 were calculated as follows:
Three Months Ended June 30,
-------------------------------
2004 2003
-------------- --------------
Income from continuing operations $ 6,126,302 $ 5,674,136
Income from discontinued operations 490,153 356,970
-------------- --------------
Net income $ 6,616,455 $ 6,031,106
============== ==============
Weighted average shares - basic 28,578,977 27,987,525
Effect of dilutive securities: Stock warrants 231,270 563,681
-------------- --------------
Weighted average shares - diluted 28,810,247 28,551,206
============== ==============
Basic earnings per share from continuing operations $ .21 $ .21
Basic earnings from discontinued operations .02 .01
-------------- --------------
Basic earnings per share $ .23 $ .22
============== ==============
Diluted earnings per share from continuing operations $ .21 $ .20
Diluted earnings from discontinued operations .02 .01
-------------- --------------
Diluted earnings per share $ .23 $ .21
============== ==============
Six Months Ended June 30,
-------------------------------
2004 2003
-------------- --------------
Income from continuing operations $ 10,927,491 $ 11,295,266
Income from discontinued operations 386,906 512,621
-------------- --------------
Net income $ 11,314,397 $ 11,807,887
============== ==============
Weighted average shares - basic 28,406,982 27,941,653
Effect of dilutive securities: Stock warrants 115,635 563,681
-------------- --------------
Weighted average shares - diluted 28,522,617 28,505,334
============== ==============
Basic earnings per share from continuing operations $ .39 $ .40
Basic earnings from discontinued operations .01 .02
-------------- --------------
Basic earnings per share $ .40 $ .42
============== ==============
Diluted earnings per share from continuing operations $ .39 $ .39
Diluted earnings from discontinued operations .01 .02
-------------- --------------
Diluted earnings per share $ .40 $ .41
============== ==============
In May 2004, warrants for 3,956,447 shares of the Company's common stock were
converted to 588,093 shares of common stock pursuant to a net exercise. The
warrants had exercise prices ranging from $10.00 to $12.80 per share. The
warrants had been granted to W. P. Carey & Co., Inc., an affiliate of the
Advisor, between 1997 and 2000 in connection with services related to raising
capital from institutional investors .
Note 8. Proposed Business Combination:
On July 2, 2004, the boards of directors of the Company and Corporate Property
Associates 15 Incorporated ("CPA(R):15"), an affiliate, announced that they each
approved a definitive agreement under which CPA(R):15 will acquire the Company's
business in a stock-for-stock merger, subject to the approval of the
shareholders of the Company and CPA(R):15. As described in the joint proxy
statement dated July 2, 2004, Company shareholders have the option of receiving
shares in CPA(R):15 or selling their interests for cash.
-9-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Prior to the proposed merger, the Company will also sell 16 properties to W. P.
Carey for cash. The sale of properties to W. P. Carey is contingent on the
approval of the merger.
In addition to the Company distributing $3.00 in cash per share to all of its
shareholders of record on June 28, 2004, each shareholder will receive $10.90
per share if he or she elects to receive cash or will receive 1.09 shares of
CPA(R):15 if he or she elects to receive shares. The sales price of properties
and value per share is based on an independent valuation of the Company as of
December 31, 2003. The Company engaged an independent investment banking firm to
provide a fairness opinion and CPA(R):15 also engaged a separate investment
banking firm to provide it with a fairness opinion.
Note 9. Accounting Pronouncements:
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). In December 2003, the FASB issued a revised FIN 46
which modifies and clarifies various aspects of the original Interpretation. FIN
46 applies when either (1) the equity investors (if any) lack one or more of the
essential characteristics of controlling financial interest, (2) the equity
investment at risk is insufficient to finance that entity's activities without
additional subordinated financial support or (3) the equity investors have
voting rights that are not proportionate to their economic interest. In addition
FIN 46 requires additional disclosures. The adoption of FIN 46 did not have a
material impact on the financial statements as none of its investments in
unconsolidated joint ventures are VIEs.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). In particular, it requires
that mandatorily redeemable financial instruments be classified as liabilities
and reported at fair value and that changes in their fair values be reported as
interest cost.
This statement was effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for the Company as of July 1,
2003. On November 7, 2003, the FASB indefinitely deferred the classification and
measurement provisions of SFAS No. 150 as they apply to certain mandatorily
redeemable non-controlling interests entered into before November 5, 2003. This
deferral is expected to remain in effect while these provisions are further
evaluated by the FASB. The Company has interests in four limited partnerships
that are consolidated and have minority interests that have finite lives and
were considered mandatorily redeemable noncontrolling interests prior to the
issuance of the deferral. Accordingly, in accordance with the deferral noted
above, these minority interests have not been reflected as liabilities. The
carrying value and fair value of these minority interests are approximately
$9,280,000 and $37,718,000 respectively, at June 30, 2004. Based on the FASB's
deferral of this provision, the adoption of SFAS No. 150 did not have a material
effect on the Company's financial statements.
-10-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion and analysis of financial condition and results of
operations of Carey Institutional Properties Incorporated ("CIP(R)") should be
read in conjunction with the condensed consolidated financial statements and
notes thereto as of June 30, 2004 included in this quarterly report and CIP(R)'s
Annual Report on Form 10-K for the year ended December 31, 2003. The following
discussion includes forward-looking statements. Forward-looking statements,
which are based on certain assumptions, describe future plans, strategies and
expectations of CIP(R). Forward-looking statements discuss matters that are not
historical facts. Because they discuss future events or conditions,
forward-looking statements may include words such as "anticipate", "believe",
"estimate", "intend", "could", "should", "would", "may", or similar expressions.
Do not unduly rely on forward-looking statements. They give our expectations
about the future and are not guarantees, and speak only as of the date they are
made. Such statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievement of CIP(R)
to be materially different from the results of operations or plan expressed or
implied by such forward looking statements. The risk factors are described in
Item 1 of the Annual Report on Form 10-K for the year ended December 31, 2003.
Accordingly, such information should not be regarded as representations by
CIP(R) that the results or conditions described in such statements or objectives
and plans of CIP(R) will be achieved. Additionally, a description of CIP(R)'s
critical accounting estimates is included in the management's discussion and
analysis in the Annual Report on Form 10-K. There has been no significant change
in such critical accounting estimates.
EXECUTIVE OVERVIEW
How CIP(R) Earns Revenue
The primary sources of CIP(R)'s revenues are earned from leasing real estate.
CIP(R) acquires and owns commercial properties that are then leased to
companies, primarily on a net lease basis. Revenue is subject to fluctuation
because of lease expirations, lease terminations, the timing of new lease
transactions and sales of property.
How Management Evaluates Results of Operations
Until the proposed merger described elsewhere in this report is approved by the
shareholders, management will continue to evaluate the results of CIP(R) with a
primary focus on the ability to generate cash flow necessary to meet its
investment objectives of increasing the distribution rate to shareholders and
overall property appreciation. As a result, Management's assessment of operating
results gives less emphasis to the effect of unrealized gains and losses which
may cause fluctuations in net income for comparable periods but has no impact on
cash flow and to other noncash charges such as depreciation and impairment
charges. Based on annual independent valuations, Management believes that there
has been a substantial increase in the value of the portfolio and that this
increase is not reflected in its financial statements. In evaluating cash flow
from operations, Management includes equity distributions that are included in
investing activities to the extent that the distributions in excess of equity
income is the result of noncash charges such as depreciation. For the six months
ended June 30, 2004, cash flow generated from operations was sufficient to fund
dividends paid and scheduled mortgage principal installments.
Current Developments and Trends
As general economic conditions continue to improve, inflation and interest rates
are expected to continue to rise as well. In addition, competition for both real
estate properties and for investors' money continues to increase. These trends
generally present challenges to the real estate leasing market. Management feels
that its objective of maintaining a diverse portfolio of properties with
long-term leases and long-term, fixed rate debt obligations provides investors
protection from these trends. In addition, the majority of lease transactions
include consumer price index escalation clauses that help our investors against
potential future inflation.
Current developments include:
On July 2, 2004, the board of directors of CIP(R) announced that it approved a
plan to provide liquidity to its shareholders. Under the plan, approved by the
boards of CIP(R) and Corporate Property Associates 15 Incorporated
("CPA(R):15"), an affiliated REIT managed by W. P. Carey & Co. LLC ("WPC"),
CIP(R) will transfer its business to CPA(R):15 in a merger. Prior to the merger,
CIP(R) will sell 16 of its properties to WPC for cash. When the merger is
completed, each CIP(R) shareholder of record as of June 28, 2004 will receive,
for each share that he or she owns, a special distribution of $3.00 and the
choice of either cash in the amount of $10.90 (which would be taxable) or 1.09
shares of newly issued CPA(R):15 common stock (which would be a tax-free
exchange). Only shareholders of record as of June 4, 2004 may elect cash.
-11-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The merger proposal is subject to approval by shareholders of CIP(R) and
CPA(R):15 at the August 24, 2004 special meeting of the shareholders. Upon
approval, management will transfer CIP(R)'s operations to CPA(R):15.
In May 2004, CIP(R) entered into a contract to sell property located in Maple
Heights, Ohio to a third party for $3,850,000 less selling costs. This
transaction is expected to be completed during the third quarter. Accordingly,
this property is classified as an asset held for sale within "Discontinued
Operations" for all periods presented in this Form 10-Q.
In June 2004, the Board of Directors of CIP(R) approved and increased the second
quarter dividend to $.2147 per share payable on July 15, 2004 to shareholders of
record as of June 30, 2004.
In July 2004, CIP(R) was awarded 3,571 shares of common stock in Kmart Holding
Corporation in settlement of our bankruptcy claims against Kmart Corporation in
connection with the termination of the lease on the Denton, Texas property in
2003. The shares currently have a fair value of approximately $250,000.
RESULTS OF OPERATIONS:
Lease Revenues - Lease revenues (rental income and interest income from direct
financing leases) for the comparable quarters ended June 30, 2004 and 2003
increased by $417,000 primarily due to scheduled rent increases at 14 properties
of $280,000, $110,000 for percentage of sales rents from two lessees, $190,000
in rent from the completion of improvements at the Holiday Inn property in
Toulouse, France in February 2003 and a new lease effective February 2004 with
Cognitive Solutions at an existing property. These increases were partially
offset by $80,000 of decreases in interest income from direct financing leases
and were attributable to changes in the rate of return on CIP(R)'s net
investment. This resulted from changes in estimated residual values associated
with such leases and had no effect on the contractual rent received from the
lessees. A decrease of $47,000 was due to lease terminations at properties in
Golden, Colorado and Denton, Texas and the negative impact of changes in foreign
currency exchange rates for the Euro also partially offset the rent increases.
Lease revenues for the comparable six-month periods ended June 30, 2004 and 2003
increased by $548,000 primarily due to the same factors as described above.
Scheduled rent increases at 16 properties contributed $491,000, percentage of
sales rent contributed $176,000, and additional rent from the Holiday Inn
property and a new lease contributed $387,000. These increases were partially
offset by reductions in rent of $289,000 related to decreases in interest income
from direct financing leases and $202,000 due to lease terminations.
Six properties have scheduled rent increases during the remainder of 2004. The
rent increases are generally determined by formulas that are indexed to
increases in the Consumer Price Index. The following represents a summary of
recent property activity:
In December 2003, CIP(R) entered into a net lease with Cognitive Solutions, Inc.
for a portion of its property in Golden, Colorado which will contribute $206,000
of annual lease revenues. The lease commenced in February 2004 and has an
initial term of ten years and six months, followed by two three-year renewal
options. CIP(R) continues to monitor the financial condition of Kmart
Corporation, a lessee of two rental properties in California and Michigan. The
Kmart leases have combined annual base rents of $390,000 and contributed
percentage of sales rent in 2003 of $381,000.
Garden Ridge, Inc. has filed a petition of bankruptcy and is in the process of
submitting its plan of reorganization to the bankruptcy court. Garden Ridge
continues to make rental payments; however, it is uncertain whether Garden Ridge
will affirm its two leases. The Garden Ridge leases provide $1,654,000 of annual
rent. The Garden Ridge properties are encumbered by mortgage debt that is
included in the Carey Commercial Mortgage Trust mortgage pool, and in the event
the leases are terminated, cash flow from CIP(R)'s subordinated interest in the
mortgage pool might be adversely affected.
Depreciation Expense - For the comparable three and six-month periods ended June
30, 2004 and 2003, depreciation increased moderately by $39,000 and $103,000,
respectively. The increase for both periods is primarily due to the impact of
foreign currency exchange rates and additional capitalized improvements at
certain properties.
-12-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
General and Administrative Expenses - For the comparable quarters ended June 30,
2004 and 2003, general and administrative expenses decreased $74,000 primarily
due to a reduction in several general and administrative expenses including
personnel cost reimbursements and investor related service costs.
For the comparable six-month periods ended June 30, 2004 and 2003, general and
administrative expenses increased $1,047,000 primarily due to professional
service fees of $1,085,000 recognized during the first quarter of 2004 directly
related to the proposed merger of CIP(R) and CPA(R):15 which was partially
offset by a reduction in several general and administrative costs including
personnel cost reimbursements and investor related service costs.
Property Expenses - For the comparable quarters ended June 30, 2004 and 2003,
property expenses increased by $476,000 primarily due to an increase in the
provision for uncollectible rent of $400,000 related to the Holiday Inn
property in Toulouse, France due to cash flow concerns at this property.
Carrying costs, primarily real estate taxes, related to the Garden Ridge
property also increased by $118,000. These increases were partially offset by
lower carrying costs on property in Golden, Colorado resulting from prior years
remediation costs.
For the comparable six-month periods ended June 30, 2004 and 2003, property
expenses increased $928,000 primarily due to the same factors as described
above. The provision for uncollected rents increased $725,000 due primarily to
rent in arrears on the Toulouse property and carrying costs at the property
described above increased $195,000. CIP(R) expects the Toulouse lessee to
reduce its arrearages over the next several months.
Minority Interest in Income - For the comparable three and six-month periods
ended June 30, 2004 and 2003, minority interest in income increased by $160,000
and $238,000, respectively, primarily due to the completion of improvements at
the Holiday Inn property which contributed additional rent of $122,000 and
$167,000 for the three and six-month periods ended June 30, 2004, respectively.
Income From Equity Investments - For the comparable three month and six-month
periods ended June 30, 2004 and 2003, income from equity investments increased
by $129,000 and $101,000, respectively. The increase is primarily due to reduced
interest expense as a result of payment of mortgage principal installments on
the loan on the Marriott properties.
Interest Expense - For the comparable quarters ended June 30, 2004 and 2003,
interest expense decreased $555,000 as a result of paying off three mortgages
and payment of mortgage principal installments, which reduced interest expense
by $426,000. Interest was also reduced $90,000 due to a loan refinancing and
changes in interest rates. As a result of paying off the mortgage loans, annual
debt service will decrease by $2,292,000.
For the comparable six-month periods ended June 30, 2004 and 2003, interest
expense decreased $722,000 primarily due to the same factors as described above.
Payoff of mortgage loans and payment of mortgage principal installments reduced
interest expense by $749,000 while the loan refinancing and changes in interest
rates reduced interest expense by $117,000. These increases were partially
offset by costs of $118,000 associated with the prepayment of a mortgage loan on
the Sears property.
Net Income - For the comparable quarters ended June 30, 2004 and 2003, net
income increased by $585,000 to $6,616,000 primarily due to increased revenues,
including equity investments and the benefit of lower interest expense as a
result of paying off three mortgages during the period.
For the comparable six-month periods ended June 30, 2004 and 2003, net income
decreased $493,000 to $11,314,000 primarily due to costs associated with the
proposed merger of CIP(R) and CPA(R):15. The costs were substantially offset by
increased revenues, including equity investments and the benefit of lower
interest expense as a result of paying off three mortgages during the period.
FINANCIAL CONDITION:
Uses of Cash During the Period
There has been no material change in CIP(R)'s financial condition since December
31, 2003. Cash and cash equivalents totaled $17,619,000 as of June 30, 2004, a
decrease of $9,795,000 from the December 31, 2003 balance. Management
-13-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
believes CIP(R) has sufficient cash balances to meet its working capital needs.
CIP(R)'s use of cash during the period is described below.
Operating Activities - For the six-month period ended June 30, 2004, cash flows
from operating activities and equity investments of $17,518,000 were sufficient
to fully pay dividends to shareholders of $12,093,000, meet scheduled principal
payment installments on mortgage debt of $2,984,000 and distribute $1,452,000 to
minority partners. Annual operating cash flow is expected to increase as a
result of scheduled rent increases at several properties over the next twelve
months, additional rent from new leases and a reduction of debt service due to
the payoff of three mortgages.
Investing Activities - CIP(R)'s investing activities are primarily comprised of
real estate purchases and capitalized property related costs. During the period,
CIP(R) used $356,000 to fund leasehold improvements at the Golden, Colorado
property in connection with the Cognitive Solutions lease.
Financing Activities - In addition to making scheduled mortgage principal
payments, paying dividends to shareholders and making distributions to minority
partners, CIP used existing cash balances to pay off mortgage loans totaling
$10,917,000 on the Lucent, Nicholson Warehouse and Sears properties. Annual debt
service on the three loans was approximately $2,292,000. The loans had been
scheduled to mature in March 2004, May 2004 and November 2005, respectively.
CIP(R) also obtained $1,102,000 as a result of issuing shares through its
dividend reinvestment plan and used $582,000 to purchase treasury shares.
Cash Resources
As of June 30, 2004, CIP(R) has $17,619,000 in cash and cash equivalents which
can be used for working capital needs and other commitments. In addition, debt
may be incurred on unleveraged properties with a carrying value of $70,134,000
as of June 30, 2004 and any proceeds may be used to finance future real estate
purchases.
Cash Requirements
During the next twelve months, cash requirements will include scheduled mortgage
principal payments (CIP(R) has no mortgage balloon payments scheduled until
December 2007), paying dividends to shareholders, making distributions to
minority partners as well as other normal recurring operating expenses. CIP(R)
may also seek to use its cash to purchase new properties to further diversify
its portfolio and maintain cash balances sufficient to meet working capital
needs. Based on the projected increase in operating cash flows paying down three
mortgages, scheduled rent increases and new leases, cash flow from operations
and distributions from operations of equity investments in excess of equity
income is expected to be sufficient to meet operating cash flow objectives.
Accordingly, CIP(R) expects to have sufficient cash flow to continue increasing
the distribution rate to its shareholders. Distributions are determined by
Management's long-term projections of cash flow.
CIP(R) would receive approximately $111,000,000 from the sale of the 16
properties to the Advisor which would be available to meet these cash
requirements. In the event that the merger with CPA(R):15 is approved, CIP(R)
will need approximately $87,000,000 to pay a special dividend of $3.00 per share
and to pay approximately $46,000,000 in disposition and incentive fees to the
Advisor. Fees payable to the Advisor are in accordance with the Company's
Advisory Agreement.
Other Matters
CIP(R) conducts business in Europe and the United Kingdom and may recognize
transaction gains and losses from its foreign operations. Foreign currency
transaction gains and losses were not material to CIP(R)'s results of operations
for the current period. CIP(R) is subject to foreign currency exchange rate risk
from the effects of changes in exchange rates. To date, CIP(R) has not entered
into any foreign currency forward exchange contracts to hedge the effects of
adverse fluctuations in foreign currency exchange rates. CIP(R) has obtained
limited recourse mortgage financing at fixed rates of interest in the local
currency. To the extent that currency fluctuations increase or decrease rental
revenues as translated to dollars, the change in debt service, as translated to
dollars, will partially offset the effect of fluctuations in revenue, and, to
some extent mitigate the risk from changes in foreign currency rates.
CIP(R) and three affiliates own subordinated interests in a mortgage pool
consisting of mortgage debt collateralized by properties and lease assignments
on properties owned by CIP(R) and its affiliates. The Garden Ridge property is
included in the mortgage pool and in the event the lease is terminated, cash
flow from this investment might be adversely affected
-14-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
as subordinated interests in the mortgage pool are only paid after all other
classes of ownership receive their stated interests and related principal
payments.
OFF-BALANCE SHEET ARRANGEMENTS, GUARANTEES AND AGGREGATE CONTRACTUAL AGREEMENTS:
A summary of CIP(R)'s contractual obligations and commitments is as follows:
(in thousands) Total 2004 2005 2006 2007 2008 Thereafter
-------- -------- -------- -------- -------- -------- ----------
Obligations:
Limited recourse mortgage notes
payable (1) $229,855 $ 2,390 $ 5,253 $ 5,630 $ 15,607 $ 6,544 $ 194,431
Subordinated disposition fees 1,164 - - - - - 1,164
Commitments:
Leasehold improvements 69 69 - - - - -
Share of minimum rents payable
under office cost-sharing
agreement 378 64 179 135 - - -
-------- -------- -------- -------- -------- -------- ----------
$231,466 $ 2,523 $ 5,432 $ 5,765 $ 15,607 $ 6,544 $ 195,595
======== ======== ======== ======== ======== ======== ==========
(1) The limited recourse mortgage notes payable were obtained in connection
with the acquisition of properties in the ordinary course of business.
-15-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates and equity prices. In pursuing its business
plan, the primary market risks to which CIP(R) is exposed are interest rate risk
and foreign currency exchange risk.
The value of CIP(R)'s real estate is subject to fluctuations based on changes in
interest rates and foreign currency exchange rates, local and regional economic
conditions, changes in the creditworthiness of lessees and may affect CIP(R)'s
ability to refinance its debt when balloon payments are scheduled.
CIP(R) owns marketable securities through its ownership interests in Carey
Commercial Mortgage Trust ("CCMT"). The value of the marketable securities is
subject to fluctuations based on changes in interest rates, economic conditions
and the creditworthiness of lessees at the mortgaged properties. As of June 30,
2004 the interests in CCMT had a fair value of approximately $11,709,000.
Approximately $220,217,000 of CIP(R)'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 annual interest rates on the fixed rate debt as of June 30, 2004
ranged from 6.08% to 10.00%. The annual interest rate on the variable rate debt
as of June 30, 2004 was 3.57%.
(in thousands) 2004 2005 2006 2007 2008 Thereafter Total Fair Value
-------- -------- -------- -------- -------- ---------- -------- ----------
Fixed rate debt $ 2,301 $ 5,046 $ 5,394 $ 15,311 $ 6,248 $ 185,917 $220,217 $ 218,335
Weighted average
interest rate 7.60% 7.68% 7.60% 8.38% 7.62% 7.39%
Variable rate debt $ 89 $ 207 $ 236 $ 296 $ 296 $ 8,514 $ 9,638 $ 9,638
Annual interest expense on CIP(R)'s variable rate debt would increase or
decrease by approximately $96,000 for each 1% change in interest rates.
CIP(R) has foreign operations. Accordingly, CIP(R) is subject to foreign
currency exchange risk from the effects of exchange rate movements of foreign
currencies and this may affect future costs and cash flows; however, exchange
rate movements to date have not had a significant effect on CIP(R)'s financial
position or results of operations. To date we have not entered into any foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of adverse fluctuations in foreign currency exchange rates.
Item 4. - CONTROLS AND PROCEDURES
The Co-Chief Executive Officers and Chief Financial Officer of the Company have
conducted a review of the Company's disclosure controls and procedures as of
June 30, 2004.
The Company's disclosure controls and procedures include the Company's controls
and other procedures designed to ensure that information required to be
disclosed in this and other reports filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act") is accumulated and communicated to the
Company's management, including its Co-Chief Executive Officers and Chief
Financial Officer, to allow timely decisions regarding required disclosure and
to ensure that such information is recorded, processed, summarized and reported,
within the required time periods.
Based upon this review, the Company's Co-Chief Executive Officers and Chief
Financial Officer have concluded that the Company's disclosure controls (as
defined in Rule 13a-14(c) promulgated under the Exchange Act) are sufficiently
effective to ensure that the information required to be disclosed by the Company
in the reports it files under the Exchange Act is recorded, processed,
summarized and reported with adequate timeliness.
-16-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
PART II
Item 2. - CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(c) For the three and six-month periods ended June 30, 2004, 66,195 and
131,670 shares, respectively, were issued to the Advisor as
consideration for performance fees and 41,256 and 81,305 shares,
respectively, were issued pursuant to the Company's Stock Purchase
and Dividend Reinvestment Plan. Shares were issued at $13.55 per
share.
(e) Issuer Purchases of Equity Securities
Total Number of Shares
Purchased as Part of
Total Number of Average Price Publicly Announced
Period Shares Purchased Paid Per Share Plans or Programs (1)
------ ---------------- -------------- ----------------------
January 1, 2004 - January 31, 2004 - - N/A
February 1, 2004 - February 29, 2004 - - N/A
March 1, 2004 - March 31, 2004 21,391 $13.50 N/A
April 1, 2004 - April 30, 2004 21,670 13.55 N/A
May 1, 2004 - May 31, 2004 - - N/A
June 1, 2004 - June 30, 2004 - - N/A
------
Total 43,061
======
(1) All shares were purchased pursuant to the Company's Redemption Plan.
The maximum amount of shares purchasable in any period depends on
the availability of funds generated by the Dividend Reinvestment
Plan and other factors at the discretion of the Company's Board of
Directors.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 2004, no matters were submitted to a
vote of Security Holders.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Certification of Co-Chief Executive Officers
31.2 Certification of Chief Financial Officer
32.1 Certification of Co-Chief Executive Officers Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None
-17-
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAREY INSTITUTIONAL PROPERTIES INCORPORATED
8/6/2004 By: /s/ John J. Park
- --------- ------------------------------------
Date John J. Park
Managing Director and
Chief Financial Officer
(Principal Financial Officer)
8/6/2004 By: /s/ Claude Fernandez
- --------- ------------------------------------
Date Claude Fernandez
Managing Director and
Chief Accounting Officer
(Principal Accounting Officer)
-18-