-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bcp2x626AEh4VIx7uvjdLvY13Xysys9Zhxv7HZsMMXmlfT0seZ2TYyXNhuQpTHRO BOKGqIgF+TOjL13OKcdltw== 0000950123-04-013873.txt : 20041118 0000950123-04-013873.hdr.sgml : 20041118 20041118162829 ACCESSION NUMBER: 0000950123-04-013873 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040901 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041118 DATE AS OF CHANGE: 20041118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAREY W P & CO LLC CENTRAL INDEX KEY: 0001025378 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133912578 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13779 FILM NUMBER: 041155264 BUSINESS ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA STREET 2: 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2124921100 MAIL ADDRESS: STREET 1: 50 ROCKEFELLER PLAZA STREET 2: 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: CAREY DIVERSIFIED LLC DATE OF NAME CHANGE: 19971017 FORMER COMPANY: FORMER CONFORMED NAME: CAREY DIVERSIFIED PROPERTIES LLC DATE OF NAME CHANGE: 19961017 8-K/A 1 y68970a1e8vkza.txt AMENDMENT NO.1 TO FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) September 1, 2004 ----------------- W. P. Carey & Co. LLC ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware ---------------------------------------------- (State or Other Jurisdiction of Incorporation) 001-13779 13-3912578 ------------------------ --------------------------------- (Commission File Number) (IRS Employer Identification No.) 50 Rockefeller Plaza, New York, NY 10020 ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) 212-492-1100 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Explanatory Note: On September 8, 2004, the registrant filed a Current Report on Form 8-K to report the acquisition of 17 properties from Carey Institutional Properties Incorporated. The purpose of this amendment to the Current Report is to include the financial statements of the acquired assets and the pro forma financial information required by Article 11 of Regulation S-X, which are attached as Exhibits 99.1 and 99.2, respectively, hereto. W. P. CAREY & CO. LLC Section 2 - Financial Information Item 2.01. Completion of Acquisition or Disposition of Assets On September 1, 2004, the Registrant completed the acquisition of 17 properties from Carey Institutional Properties Incorporated ("CIP(R)"). The purchase price was approximately $142 million, including the assumption of approximately $28 million in debt. These properties, totaling 2.4 million square feet, consist of office, industrial, retail and warehouse facilities located in nine states. A summary of the properties follows below. The price paid for the properties was based on an appraisal performed by an independent third party appraiser. The acquisition was made in connection with acquisition of CIP(R)'s remaining interests in properties by Corporate Property Associates 15 Incorporated ("CPA(R):15"), constituting 82 properties located in 28 states, totaling approximately 7.6 million square feet, for approximately $571 million in cash, stock and assumption of debt. These properties have lease terms that average 12 years. CIP(R) and CPA(R):15 are each managed by the Registrant. In connection with the acquisition of the properties by the Registrant and the acquisition by CPA(R):15 of the other CIP(R) properties, the Registrant received approximately $47.3 million in disposition and other management fees paid by CIP(R), including approximately $1 million in accrued fees attributable to normal operations unrelated to the above described transactions and payable at the time of the closing. Property Summary
- ---------------------------------------------------------------------------------------------------------------------------- Fair Value Property Appraised of Debt Annual Lease Lease Obligor Location Value ($) Assumed ($) Rent ($) Term(1) - ---------------------------------------------------------------------------------------------------------------------------- Hibbett Sporting Goods, Inc. Birmingham, AL 10,950,000 4,881,011 784,224 Dec 2014 - ---------------------------------------------------------------------------------------------------------------------------- Qwest Communications, Inc. Scottsdale, AZ 1,130,000 1,589,439 270,270 Feb 2007 - ---------------------------------------------------------------------------------------------------------------------------- Xerox Corporation Hot Springs, AR 1,650,000 164,660 May 2011 - ---------------------------------------------------------------------------------------------------------------------------- Affiliated Foods Southwest, Inc. Little Rock, AR 1,545,000 263,432 Feb 2009 (Cantrell Road) - ---------------------------------------------------------------------------------------------------------------------------- Affiliated Foods Southwest, Inc. Little Rock, AR 510,000 34,745 Mar 2007 (12th Street) - ---------------------------------------------------------------------------------------------------------------------------- Affiliated Foods Southwest, Inc. Hope, AR 980,000 85,882 Mar 2007 - ---------------------------------------------------------------------------------------------------------------------------- (vacant) Denton, TX 3,550,000 - ---------------------------------------------------------------------------------------------------------------------------- K-Mart Corporation Drayton Plains, MI 4,750,000 210,000 Mar 2006 - ---------------------------------------------------------------------------------------------------------------------------- K-Mart Corporation Citrus Heights, CA 2,650,000 180,000 May 2006 - ---------------------------------------------------------------------------------------------------------------------------- Titan Corporation(2) San Diego, CA 26,727,026 2,331,441 Jul 2007 - ---------------------------------------------------------------------------------------------------------------------------- Sicor, Inc.(3) San Diego, CA 17,268,675 2,808,339 1,472,736 Jul 2009 - ----------------------------------------------------------------------------------------------------------------------------
- -------------- (1) Not including renewal terms. (2) Represents 81.46% ownership interest in the property. (3) Represents 50.00% ownership interest in two properties.
- ---------------------------------------------------------------------------------------------------------------------------- Fair Value Property Appraised of Debt Annual Lease Lease Obligor Location Value ($) Assumed ($) Rent ($) Term(1) - ---------------------------------------------------------------------------------------------------------------------------- Omnicom Group, Inc. Venice, CA 13,540,000 4,804,927 1,082,685 Sep 2010 - ---------------------------------------------------------------------------------------------------------------------------- Fiskars Corporation Apopka, FL 15,880,000 3,813,566 1,564,389 Mar 2010 - ---------------------------------------------------------------------------------------------------------------------------- Sears Logistics, Inc. Jacksonville, FL 8,180,000 932,640 Sep 2004 - ---------------------------------------------------------------------------------------------------------------------------- Lucent Technologies, Inc. Charlotte, NC 17,870,000 2,035,304 Mar 2005 - ---------------------------------------------------------------------------------------------------------------------------- Michigan Mutual Insurance Charleston, SC 14,980,000 9,858,591 1,382,256 Dec 2007 Company - ---------------------------------------------------------------------------------------------------------------------------- Totals 142,160,701 27,755,873 12,794,664 - ----------------------------------------------------------------------------------------------------------------------------
Section 9 - Financial Statements and Exhibits Item 9.01. Financial Statements and Exhibits (a) Financial Statements of Business Acquired The financial statements of the acquired assets, required pursuant to Rule 3-14 of Regulation S-X, are attached as Exhibit 99.1 hereto. (b) Pro Forma Financial Information The pro forma financial information required pursuant to Article 11 of Regulation S-X, is attached as Exhibit 99.2 hereto. (c) Exhibits There is no single plan of acquisition. Each of the properties was acquired pursuant to individual agreements, none of which are material individually. The Registrant agrees to furnish copies of the agreements supplementally to the Commission, upon request pursuant to Regulation S-K, Item 601(b)(2). Exhibit Index - ------------- Exhibit No. Exhibit - ----------- ------- 23.1 Consent of PricewaterhouseCoopers LLP 99.1 Financial Statements of Acquired Assets 99.2 Pro Forma Financial Information SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. W. P. CAREY & CO. LLC By: /s/ Claude Fernandez ----------------------------- Claude Fernandez, Managing Director and Chief Accounting Officer (Principal Accounting Officer) Date: November 18, 2004 EX-23.1 2 y68970a1exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-58854) of Corporate Property Associates 15 Incorporated of our report dated November 12, 2004 relating to the financial statements of Carey Institutional Properties Incorporated, which appears in the Current Report on Form 8-K of Corporate Property Associates 15 Incorporated dated November 18, 2004 /s/ PricewaterhouseCoopers LLP New York, New York November 17, 2004 EX-99.1 3 y68970a1exv99w1.txt FINANCIAL STATEMENTS OF ACQUIRED ASSETS Exhibit 99.1 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of W. P. Carey & Co. LLC: We have audited the accompanying combined statements of revenues and certain expenses of the properties acquired by W. P. Carey & Co. LLC from Carey Institutional Properties Incorporated (the Properties) for the years ended December 31, 2003, 2002 and 2001 (the Statement). This Statement is the responsibility of the management of W. P. Carey & Co. LLC. Our responsibility is to express an opinion on the Statement based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Statement. We believe that our audits provide a reasonable basis for our opinion. The accompanying Statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Form 8-K of W. P. Carey & Co. LLC. Material amounts, as described in Note 1 to the Statement, that would not be comparable to those resulting from the proposed future operations of the Properties are excluded and the Statement is not intended to be a complete presentation of the revenues and expenses of the Properties. In our opinion, the Statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Properties for the years ended December 31, 2003, 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ PricewaterhouseCoopers LLP New York, New York November 12, 2004 1 W. P. CAREY & CO. LLC COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (in thousands) For the Six Months For the Year Ended Ended June 30, December 31, ---------------------------------- --------------------------------------------- 2004 2003 2003 2002 2001 ------- ------- ------- ------- ------- (Unaudited)
Revenues: Rental revenues ................................. $ 6,582 $ 6,607 $13,289 $12,804 $12,756 Other ........................................... 17 58 87 1 372 ------- ------- ------- ------- ------- 6,599 6,665 13,376 12,805 13,128 ------- ------- ------- ------- ------- Certain expenses: Property ........................................ 189 243 428 342 273 Other ........................................... 2 -- -- -- 21 ------- ------- ------- ------- ------- 191 243 428 342 294 ------- ------- ------- ------- ------- Revenues in excess of certain expenses ........................................ $ 6,408 $ 6,422 $12,948 $12,463 $12,834 ======= ======= ======= ======= =======
The accompanying notes are an integral part of these statements. 2 W.P. CAREY & CO. NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (in thousands) 1. ACQUISITION OF PROPERTIES, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Acquisition of properties: - ------------------------- On September 1, 2004, W. P. Carey & Co. LLC (the "Company") acquired 17 properties from Carey Institutional Properties Incorporated ("CIP"), an affiliate, in connection with CIP's merger with Corporate Property Associates 15 Incorporated, an affiliate. Except for one property which is vacant, the properties acquired are generally commercial and industrial properties net leased on a single tenant basis. Basis of presentation: - --------------------- The accompanying combined statements of revenues and certain expenses have been prepared for the purpose of complying with certain rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the properties for the periods presented. Certain items may not be comparable to the future operations of the properties. Excluded items consist of interest expense, depreciation and amortization, and other costs not directly related to the future operations of the properties. In the future there may be interest expense, depreciation and/or amortization expenses associated with these properties. The combined statements of revenues and certain expenses for the six months ended June 30, 2004 and 2003 are unaudited. In the opinion of management, such financial statements reflect all necessary adjustments for a presentation of the revenues and certain expenses of the respective interim periods. All such adjustments are of a normal recurring nature. Revenue recognition: - ------------------- The properties recognize rental revenue in accordance with the contractual provisions of the leases over their respective terms. The properties also recognize revenue for late fees and reimbursable costs that are included in other revenue as earned. Use of estimates: - ---------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. 2. REVENUES Revenue is principally obtained from tenant rentals on a net lease basis whereby the tenant is responsible for substantially all operating expenses relating to the property including real estate 3 W. P. CAREY & CO. LLC NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (Continued) (in thousands) taxes, insurance and maintenance and repairs. The leases have remaining current lease terms that expire between September 2004 and December 2014. For the purpose of these financial statements, rental revenues include lease revenues from leases classified as operating leases, interest income from direct financing leases and the Company's proportionate share of lease revenues from its equity investments. Rental revenues are comprised as follows:
For the Six Months For the Year Ended Ended June 30, December 31, ------------------------ ---------------------------------------- 2004 2003 2003 2002 2001 ------- ------- ------- ------- ------- (Unaudited) Rental income ...................................... $ 5,155 $ 5,180 $10,435 $ 9,970 $ 9,922 Interest income from direct financing leases ................................ 691 691 1,382 1,362 1,362 Income from equity investments ..................... 736 736 1,472 1,472 1,472 ------- ------- ------- ------- ------- $ 6,582 $ 6,607 $13,289 $12,804 $12,756 ======= ======= ======= ======= ======= Future minimum rents to be received under noncancelable leases in effect are as follows: Year Ending December 31: ------------------------ 2004 $12,813 2005 12,799 2006 12,300 2007 18,755 2008 5,471 Thereafter 10,176
4 EX-99.2 4 y68970a1exv99w2.txt PRO FORMA FINANCIAL INFORMATION Exhibit 99.2 W. P. CAREY & CO. LLC The pro forma consolidated financial statements of W. P. Carey & Co. LLC (the "Company"), which are unaudited have been prepared based on the historical financial statements of the Company. There are no differences from the historical consolidated balance sheet of the Company at September 30, 2004 because a transaction relating to the acquisition of interests in 17 properties was completed on September 1, 2004 and the effects of such transaction are reflected in the historical balance sheet. The pro forma consolidated statements of income for the year ended December 31, 2003 and the nine months ended September 30, 2004 have been prepared as if the acquisition of the interests in the properties and the related assumption of mortgage debt had occurred on January 1, 2003. Pro forma adjustments are intended to reflect what the effect would have been if the Company held its ownership interest and assumed mortgage debt, where applicable, as of January 1, 2003 less amounts which have been recorded in the historical consolidated statements of income. In management's opinion, all adjustments necessary to reflect the effects of its acquisitions of real estate have been made. The pro forma financial information should be read in conjunction with the historical financial statements of the Company. The unaudited pro forma consolidated statements of income are not necessarily indicative of the financial condition or results of operations had the acquisition occurred on January 1, 2003, nor are they necessarily indicative of the financial position or results of operations of future periods. 5 W.P. CAREY & CO. LLC PRO FORMA CONSOLIDATED STATEMENT OF INCOME (Unaudited) For the Nine Months Ended September 30, 2004 (in thousands, except per share and share amounts)
Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- (Note 2) Revenues: Management income from affiliates $ 89,156 $ - $ 89,156 Incentive and subordinated disposition fees 42,095 - 42,095 Rental income 33,245 6,507 39,752 Interest income from direct financing leases 15,876 709 16,585 Other operating income 5,347 17 5,364 Revenue from other business operations 4,060 - 4,060 -------- ------ -------- 189,779 7,233 197,012 -------- ------ -------- Operating expenses: Depreciation 8,223 1,330 9,553 Amortization 7,871 2,982 10,853 General and administrative 39,684 - 39,684 Impairment charges and loan losses 9,300 - 9,300 Property expenses 4,477 229 4,706 Operating expenses from other business operations 4,761 - 4,761 -------- ------ -------- 74,316 4,541 78,857 -------- ------ -------- Income from continuing operations before other interest income, minority interest, equity income, gains, interest expense and income taxes 115,463 2,692 118,155 Other interest income 2,221 - 2,221 Minority interest in income (1,340) - (1,340) Income (loss) from equity investments 3,885 (654) 3,231 Gain on foreign currency transactions 569 - 569 Interest expense (10,632) (1,266) (11,898) -------- ------ -------- Income from continuing operations before income taxes 110,166 772 110,938 Provision for income taxes (44,746) - (44,746) -------- ---------- -------- Income from continuing operations $ 65,420 $ 772 $ 66,192 ======== ====== ======== Basic earnings per share: Earnings from continuing operations $1.75 $1.77 ===== ===== Diluted earnings per share: Earnings from continuing operations $1.69 $1.71 ===== ===== Weighted average shares outstanding: Basic 37,398,280 37,398,280 ========== ========== Diluted 38,761,745 38,761,745 ========== ==========
The accompanying notes are an integral part of the pro forma consolidated financial statements. 6 W.P. CAREY & CO. LLC PRO FORMA CONSOLIDATED STATEMENT of INCOME For the Year Ended December 31, 2003
Pro Forma (In thousands except share and per share amounts) Historical Adjustments Pro Forma ---------- ----------- --------- (Note) (Unaudited) (Unaudited) (Note 2) Revenues: Management income from affiliates ............................................... $ 88,060 $ - $ 88,060 Rental income ................................................................... 44,296 10,078 54,374 Interest income from direct financing leases .................................... 20,655 1,087 21,742 Other income .................................................................... 5,288 87 5,375 Revenues of other business operations ........................................... 1,298 - 1,298 ------------ ------------ ----------- 159,597 11,252 170,849 ------------ ------------ ----------- Expenses: Depreciation .................................................................... 10,494 1,878 12,372 Amortization .................................................................... 7,280 4,209 11,489 General and administrative ...................................................... 43,698 - 43,698 Property expenses ............................................................... 5,998 428 6,426 Impairment charge on real estate and investments ................................ 1,480 - 1,480 Operating expenses of other business operations ................................. - - - ------------ ------------ ----------- 68,950 6,515 75,465 ------------ ------------ ----------- Income from continuing operations before other interest income, minority interest, equity investments, gains and income taxes ..................... 90,647 4,737 95,384 Other interest income, interest expense ............................................ 2,581 2,581 Minority interest in income ........................................................ (370) - (370) Income (loss) from equity investments .............................................. 4,008 (929) 3,079 Gain on foreign currency transactions and sale of securities ....................... 108 - 108 Interest expense ................................................................... (15,058) (1,971) (17,029) ------------ ------------ ----------- Income from continuing operations before income taxes ....................... 81,916 1,837 83,753 Provision for income taxes ......................................................... (19,116) - (19,116) ------------ ------------ ----------- Income from continuing operations ........................................... $ 62,800 $ 1,837 $ 64,637 ============ ============ =========== Basic earnings per share: Income from continuing operations .............................................. $1.72 $1.77 ============ =========== Diluted earnings per share Income from continuing operations .............................................. $1.65 $1.70 ============ =========== Weighted average shares outstanding: Basic ........................................................................ 36,566,338 36,566,338 ============ =========== Diluted ...................................................................... 38,008,762 38,008,762 ============ ===========
The accompanying notes are an integral part of the pro forma consolidated financial statements. Note: The historical Statement of Income for the year ended December 31, 2003 has been derived from the audited consolidated financial statements at that date. 7 W.P. CAREY & CO. LLC NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (in thousands) Note 1. Basis of Presentation: --------------------- The pro forma consolidated statement of income for the nine months ended September 30, 2004 was derived from the historical unaudited condensed consolidated statement of income for the nine-months ended September 30, 2004. The pro forma consolidated statement of income for the year ended December 31, 2003 was derived from the historical audited consolidated statement of income for the year ended December 31, 2003. Certain amounts in the historical audited consolidated statement of income for the year ended December 31, 2003 have been reclassified to conform to the current period presentation. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. The purchase cost of real estate assets acquired are allocated to tangible and intangible assets as well as to liabilities (mortgage notes payable) based on their estimated fair values. The value of tangible assets, consisting of land and buildings were determined as if vacant. Intangibles consisting of above-market or below-market value of leases, the value of in-place leases and the value of tenant relationships were recorded at their relative fair values. Such allocation is reflected in the historical balance sheet as of September 30, 2004. Above-market and below-market lease values are recorded based on the present value (using an interest rate reflecting the risks associated with the leases acquired) of the difference between the contractual amounts of rents from the acquired leases and management's estimate of fair value lease rates for the property or equivalent property, measured over a period equal to the remaining non-cancelable term of each lease. Above-market lease value is amortized as a reduction of rental income over the remaining non-cancelable term of each lease. The capitalized below-market lease value is amortized as an increase to rental income over the initial term and any fixed rate renewal periods in the respective leases. In-place lease values and tenant relationship values are based on management's evaluation of the specific characteristics of each tenant's lease. Factors considered include the estimated carrying costs of the property during a hypothetical lease-up period, current market conditions and costs to execute similar leases. Estimated carrying costs include real estate taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypothetical lease up periods. Estimated costs to execute leases include commissions, tenant improvement allowances and free rental period incentives. Leases accounted for under the direct financing method are recorded at their net investment. Unearned income is deferred and amortized to income over the lease terms so as to produce a constant periodic rate of return on the net investment in the lease. Minimum rental revenue on real estate leased to others under the operating method is recognized on a straight-line basis over 8 W. P. CAREY & CO. LLC NOTES TO CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (Continued) (in thousands) the term of the related leases and expenses (including depreciation) are charged to operations as incurred. The interests in equity investments were allocated by determining the fair value of the underlying pro rata assets and liabilities. Differences between such fair value and the underlying equity in the net assets of the equity investee are amortized over the remaining non-cancelable term of the lease of the equity investee as a reduction of income from equity investments. The fair value of mortgage notes payable was evaluated using a discount cash flow model with rates that take into account the credit of the tenant and interest rate risk. Differences between the fair value and the underlying balance outstanding on the related mortgage note assumed are amortized as an adjustment to interest expense over the remaining term of the mortgage note. Note 2. Pro Forma Adjustments: --------------------- On September 1, 2004, W.P. Carey & Co. LLC (the "Company") acquired interests in 17 properties from Carey Institutional Properties Incorporated, an affiliate, for $142,161 for approximately $115,158 and the assumption of $27,003 in limited recourse mortgage debt (the "Acquisition") based on the pro rata interests acquired and liabilities assumed (i.e., mortgage notes payable). The purchase price of the properties was based on a third party valuation of the properties. Property interests acquired consist of (i) 100% interests in properties leased to Omnicom Group, Inc; Fiskars Corporation; Michigan Mutual Life Insurance Corporation; Sears Logistics, Inc.; Hibbett Sporting Goods, Inc.; Qwest Communications, Inc.; Xerox Corporation; Kmart Corporation; Lucent Technologies, Inc. and Affiliated Foods Southwest, Inc., (ii) a 100% interest in a vacant property in Denton, Texas (iii) a 50% noncontrolling interest in a limited partnership which leases property to Sicor, Inc. and (iv) an 81.46% interest in a limited partnership which leases property to Titan Corporation ("Titan"). The noncontrolling interests, which consist of ownership in joint ventures which own properties leased on a net lease basis to a single tenant, are accounted for under the equity method. Prior to the Acquisition, the Company owned an 18.54% noncontrolling interest in the Titan property limited partnership and it was accounted for under the equity method. As a result of obtaining the remaining 81.54% interest, the amounts relating to the 18.54% Titan interests in the historical results of operations have been reclassified from income from equity investments; however, the amounts reclassified were not adjusted to fair value. The Acquisition is more fully described in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004. Pro forma adjustments represent the revenues, expenses and income from equity investments from the interests acquired in the Acquisition, less amounts included in the historical results of operations (for the nine months ended September 30, 2004) and the effect of reclassifying amounts relating to the 18.54% interest in the Titan limited partnership held by the Company prior to the Acquisition. 9 W. P. CAREY & CO. LLC PRO FORMA CONSOLIDATED STATEMENT OF TAXABLE INCOME AND AFTER-TAX CASH FLOW For the year ended September 30, 2004 (Unaudited) (in thousands)
Consolidated pro forma income from continuing operations for the year ended September 30, 2004 .................... $ 82,351 Adjustment to interest income on direct financing lease, rental income and interest expense for tax purposes (1A) .............................................................................................. (5,867) Depreciation adjustment for tax purposes (1B) ..................................................................... (1,182) REIT taxable income (1C) .......................................................................................... 627 Adjustment for variable interest entity consolidated for financial reporting purposes under Financial Interpretation No. 46 (1D)............................................................................ 1,166 Adjustment to equity income for tax purposes....................................................................... 301 -------- Pro forma taxable income ................................................................................. 77,396 Add: Tax basis depreciation ....................................................................................... 17,892 Distributions to minority interests in excess of minority interest in tax earnings, net of distributions from equity investments in excess of tax earnings (1E) ........................................ (2,061) Company's share of principal paid on mortgage loans (1F) ....................................................... (9,956) Taxes accrued for financial reporting purposes but not currently payable (1G) .................................. 13,025 -------- Pro forma after-tax cash flow ............................................................................ $ 96,296 ========
The accompanying notes are an integral part of the consolidated financial statements 10 W. P. CAREY & CO. LLC NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF TAXABLE INCOME AND AFTER-TAX CASH FLOW (In thousands) Note 1. Pro Forma Adjustments: --------------------- The Pro Forma Consolidated Statement of Taxable Income and After-Tax Cash Flow has been prepared based on pro forma net income for the twelve-month period ended September 30, 2004 with adjustments to derive pro forma taxable income and pro forma after-tax cash flow. A. For tax purposes, rents are recognized on a contractual basis and differences between contractual rent and rent recognized on a straight-line basis and interest income recognized at a constant rate of interest are eliminated. Mortgage assumed in connection with the Acquisition have been recorded for financial reporting purposes at fair value and for tax purposes on a carryover basis (i.e., historical cost). The difference between the fair value and the carryover basis is amortized to interest expense for financial reporting purposes over the remaining terms of the mortgages and eliminated for tax purposes. For tax purposes, certain changes for equity grants which have no cash effect and are not currently taxable have been added back. Certain fee revenue which is not currently collectible has been eliminated and the cash amount received from such deferred fees have been added back. B. The Company's real estate assets are being depreciated for tax purposes over various lives and methods of depreciation. The Company was formed in 1998 through the merger of various partnerships at which time, for financial reporting purposes, assets and liabilities were accounted for under the purchase method of accounting and depreciable assets were recorded at fair value. For tax purposes, the tax basis of the real estate assets acquired were carried over with no adjustment. In connection with the acquisition, the real estate assets will have a new tax basis based on their respective purchase prices with depreciation recognized on a straight-line basis over 39 or 40 years; however, this does not apply to three properties leased to two lessees which are owned through limited partnerships interests. For financial reporting purposes, no depreciation is recorded on direct financing leases. Depreciation is recorded for the purpose of determining taxable income. Annual taxable depreciation is computed based on the tax basis of building and improvements. For financial reporting purposes, a portion of the underlying assets of the operating leases have been classified as intangible assets and are being amortized on a straight-line basis over the initial term or renewable terms of the leases. Such assets are classified as buildings and improvements for tax purposes and are being depreciated on a straight-line basis over 39 or 40 years. C. The Company holds interests in two properties through controlling interests in real estate investment trusts and which are consolidated for financial reporting purposes. For tax purposes, REIT taxable income is based on the taxable portion of dividends received and may differ from the net income recorded for financial reporting purposes. 11 W. P. CAREY & CO. LLC NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF TAXABLE INCOME AND AFTER-TAX CASH FLOW (Continued) (In thousands) D. The Company consolidates an entity, Livho, Inc., ("Livho") for financial reporting purposes in accordance with Financial Interpretation No. 46 "Consolidation of Variable Interest Entities." For tax purposes, the Company has no ownership interest in Livho and does not recognize any of Livho's taxable income. The Company leases property to Livho and recognizes rental income from the lease. For financial reporting purposes such rental income is eliminated and the revenue from the lease is added back. E. Difference between taxable income from equity investments or applicable minority interests was computed by adding back depreciable expense on a taxable basis and deducting scheduled principal amortization and computing the pro rata share. F. Principal paid on mortgage loans includes actual scheduled principal payments made by the Company for the twelve-months ended September 30, 2004 with pro forma adjustments for mortgage loans assumed in the acquisition. G. Represents deferred taxes and amounts deducted for tax purposes for equity grants which are credited directly to Members' Equity for financial reporting purposes. The charge for deferred taxes is a noncash item and the credit to Members' Equity reflects an amount which reduces actual tax payments made by the Company. 12 -----END PRIVACY-ENHANCED MESSAGE-----