<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 1999.
SECURITY CAPITAL U.S. REALTY
----------------------------
(Translation of Registrant's Name Into English)
25b, boulevard Royal, L-2449, Luxembourg
----------------------------------------
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F _____________________
--------------------
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes _____________________ No X
------------------------
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_______.)
<PAGE>
Security Capital is filing the following material as an exhibit to this
Form 6-K. Each exhibit is incorporated by reference herein.
Exhibits.
99.1 Consolidated Semi-Annual Financial Report for the six months
ended 30 June 1999.
<PAGE>
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, thereunto duly authorized.
SECURITY CAPITAL U.S. REALTY
Dated: August 27, 1999 By: /s/ W. Scott Hartman
---------------------
W. Scott Hartman
Senior Vice President
<PAGE>
CONSOLIDATED SEMI-ANNUAL FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 1999
(UNAUDITED)
[LOGO SECURITY CAPTIAL U.S. REALTY APPEARS HERE]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Definition
For the purposes of this report, the term "SC-U.S. Realty" means Security
Capital U.S. Realty (the "Company") and its direct and indirect wholly owned
subsidiaries, including Security Capital Holdings S.A. (such subsidiaries
collectively referred to herein as "HOLDINGS"). All references herein to
"dollars" or "$" shall mean United States Dollars.
Introduction
The Company is a research-driven, growth-orientated real estate management
company focused on taking significant strategic investment positions (with
board representation, consultation and other rights) in value-added real
estate operating companies based in the United States. The Company's primary
capital deployment objective is to take a proactive ownership role in
businesses that it believes can potentially generate above-average rates of
return.
The Company, which was incorporated in July 1995, completed a $509.5
million initial private offering in October 1995 and has since funded the
following strategic investment positions:
<TABLE>
<CAPTION>
Initial Total Cost as of Total Value as of
Initial Commitment 30 June 1999 30 June 1999
Company Funding Date (in millions)(/1/) (in millions) (in millions)
- ------- ------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
CarrAmerica............. April 1996 $250 $ 700 $ 715(/2/)
City Center Retail...... April 1997 $150 $ 304 $ 304(/3/)
CWS Communities......... December 1997 $300 $ 224 $ 224(/3/)
Regency................. July 1996 $332(/4/) $ 760 $ 752(/2/)
Storage USA............. March 1996 $220 $ 394 $ 375(/2/)
Urban Growth Property... April 1997 $150 $ 181 $ 181(/3/)
------ ------
Total................... $2,563 $2,551
====== ======
</TABLE>
- --------
(1) See "Capital Deployment Activities" for additional information regarding
commitments.
(2) Based on the closing price on the New York Stock Exchange ("NYSE") of
common shares held on such date.
(3) Private real estate investment trust ("REIT") or real estate operating
company. See Note 2A to the Consolidated Financial Statements for the
methodology utilised to assess the value of investments in private
entities.
(4) Includes the initial commitment of $200 million to Pacific Retail which
merged with Regency on 28 February 1999.
In addition to its strategic investment positions, SC-U.S. Realty also
invests 0% to 15% of its assets through special opportunity positions
primarily in publicly traded REITs and other publicly traded U.S. real estate
companies.
As of 30 June 1999, the value of SC-U.S. Realty's special opportunity
positions of $192.0 million represented approximately 6.6% of SC-U.S. Realty's
total assets. SC-U.S. Realty has also invested in the common shares and
subordinated debentures of Security Capital Group Incorporated ("Security
Capital Group"), which in aggregate accounted for approximately 4.1% of SC-
U.S. Realty's total assets as of 30 June 1999.
As of 30 June 1999, SC-U.S. Realty had committed an aggregate of $3.1
billion to both its strategic investment and special opportunity positions, of
which $3.0 billion had been funded, as compared to an aggregate commitment of
$3.2 billion as of 31 December 1998, of which $3.0 billion had been funded.
The decrease in the aggregate commitment is the result of the decrease in
special opportunity positions held.
On 5 May 1999, SC-U.S. Realty announced that its Board of Directors had
authorised a share repurchase programme of up to $100 million of the Company's
shares and on 29 June 1999 the Company announced that its Board of Directors
authorised an increase in the Company's share repurchase programme to $200
million. SC-U.S. Realty plans to repurchase shares from time to time in open
market and privately negotiated transactions, depending on market prices and
other conditions. As of 30 June 1999, SC-U.S. Realty had repurchased 6,030,255
shares for an aggregate cost of $117,955,550, representing approximately 7.0%
of the Company's shares outstanding.
1
<PAGE>
On 17 May 1999, SC-U.S. Realty shareholders approved a one-for-two reverse
stock split. The effective date of the reverse stock split was 18 June 1999,
when every two shares of SC-U.S. Realty were automatically converted into one
share.
Operating Results
Six months ended 30 June 1999 and 1998
Net operating income decreased by $12.4 million, or 30.1%, to $28.7 million
for the six months ended 30 June 1999 as compared to $41.1 million for the six
months ended 30 June 1998. The decrease is mainly attributable to an increase
in the interest expense on the 2% Senior Unsecured Convertible Notes due 2003
($450 million aggregate principal amount at maturity) (the "Convertible
Notes") issued in May 1998. Interest on the Convertible Notes increased $11.0
million, or 416.6%, to $13.6 million for the six months ended 30 June 1999 as
compared to $2.6 million for the six months ended 30 June 1998.
Net Operating Income
Net operating income represents the difference between total revenues and
total expenses.
The following table sets forth information regarding SC-U.S. Realty's net
operating income during the six-month periods ended 30 June 1999 and 1998:
<TABLE>
<CAPTION>
Six months ended 30 June
----------------------------
1999 1998
------------- -------------
Amount % Amount %
------- ----- ------- -----
(in thousands $, except %)
<S> <C> <C> <C> <C>
Total Revenues.................................... $72,300 100.0% $73,325 100.0%
Total Expenses.................................... 43,570 60.3 32,218 43.9
------- ----- ------- -----
Net Operating Income.............................. $28,730 39.7% $41,107 56.1%
======= ===== ======= =====
</TABLE>
The net operating income margin decreased to 39.7% in the first half of
1999 from 56.1% in the first half of 1998. This is primarily due to higher
interest expense on the Convertible Notes. These increases were partially
offset by a lower average interest rate on the $400 million unsecured line of
credit of the Company which is guaranteed by HOLDINGS (the "Line of Credit").
Total Revenues. The following table sets forth information regarding SC-
U.S. Realty's total revenues during the six-month periods ended 30 June 1999
and 1998:
<TABLE>
<CAPTION>
Six months ended 30 June
------------------------------
1999 1998
-------------- --------------
Amount % Amount %
------- ----- ------- -----
(in thousands $, except %)
<S> <C> <C> <C> <C>
Gross dividends from strategic investment po-
sitions
CarrAmerica................................. $26,458 36.6% $25,541 34.8%
CWS Communities............................. 3,148 4.4 1,622 2.2
Regency(/1/)................................ 26,320 36.4 28,019 38.2
Storage USA................................. 15,766 21.8 14,874 20.3
Urban Growth Property....................... 213 0.3 -- --
------- ----- ------- -----
Subtotal.................................. $71,905 99.5% $70,056 95.5%
Gross dividends from special opportunity posi-
tions........................................ 6,311 8.7 9,602 13.1
------- ----- ------- -----
Total Gross Dividends..................... $78,216 108.2% $79,658 108.6%
Interest income from affiliate................ 1,788 2.5 1,788 2.4
Interest income from non-affiliate and other
income....................................... 1,566 2.2 579 0.8
------- ----- ------- -----
Total Gross Revenues...................... $81,570 112.9% $82,025 111.8%
Withholding tax on dividends received......... (9,270) (12.9) (8,700) (11.8)
------- ----- ------- -----
Total Revenues............................ $72,300 100.0% $73,325 100.0%
======= ===== ======= =====
</TABLE>
- --------
(1) The merger between Pacific Retail and Regency was completed on 28 February
1999. In order to align the dividend record date of the former Pacific
Retail shareholders with the dividend record date of Regency, Pacific
Retail paid a pro-rated dividend to its shareholders in the first quarter
of 1999. As a result, Pacific Retail shareholders only received 42 days
worth of dividends in the first quarter of 1999.
2
<PAGE>
As the table indicates, most of SC-U.S. Realty's total revenues during 1999
and 1998 were derived from dividends from its strategic investment positions.
"Interest income from affiliate" represents interest earned on SC-U.S.
Realty's $55 million aggregate principal investment in 6.5% convertible
subordinated debentures due 2016 issued by Security Capital Group. The
debentures were purchased by SC-U.S. Realty in April 1996 ($11 million
aggregate principal amount) and in March 1997 ($44 million aggregate principal
amount) and are currently convertible into shares of Class A common stock of
Security Capital Group, at the option of the holder.
"Interest income from non-affiliate and other income" consist of interest
earned on cash balances and convertible debt. The increase in this item
between the six months ended 30 June 1999 and the corresponding period in 1998
is attributable to higher interest earned on the increased level of
convertible debt held by SC-U.S. Realty during 1999.
Total Expenses. For the six months ended 30 June 1999, total expenses
amounted to $43.6 million, of which $16.7 million, or 38.4%, represented fees
paid to the Operating Advisor and $22.4 million, or 51.3%, represented (i)
interest on the Convertible Notes, (ii) interest on the Line of Credit and
(iii) related expenses. During the period, general and administrative expenses
were approximately $1.6 million, or 3.7% of total expenses, taxes were $2.1
million, or 4.8% of total expenses, and amortisation of Convertible Notes
deferred costs was $0.8 million, or 1.8% of total expenses.
For the six months ended 30 June 1998, total expenses amounted to $32.2
million, of which $17.7 million, or 54.8%, were accounted for by fees paid to
the Operating Advisor and $12.5 million, or 38.7%, were accounted for by
interest on the $700 million secured line of credit of HOLDINGS (the "HOLDINGS
Line"), which was replaced by the Line of Credit in December 1998, interest on
the Convertible Notes and related expenses. During the period, general and
administrative expenses were $0.6 million, or 2.1% of total expenses, taxes
were $1.2 million, or 3.9% of total expenses, and amortisation of Convertible
Notes deferred costs was $0.2 million, or 0.5% of total expenses.
Interest expense increased as a result of new borrowings in the form of the
Convertible Notes, the proceeds of which were utilised to fund a portion of
the new investments. This increase in interest expense was partially offset by
a decline in the average interest rate on the Line of Credit.
Net Realised Gains on Special Opportunity Positions
Special opportunity positions are primarily investments in publicly traded
REITs, which are generally held for an intermediate term of 12 to 18 months,
although sale of such positions may occur sooner or later, depending on market
or business conditions and on whether the return objectives have been
realised. The objective of these special opportunity positions is to realise
attractive total returns through dividends and share price appreciation and to
provide SC-U.S. Realty with an efficient method of maintaining a portion of
its assets in relatively liquid investments (which assets may be redeployed on
short notice).
During the six months ended 30 June 1999 and 1998, net realised gains on
special opportunity positions were $1.6 million and $30.6 million,
respectively. In both periods, these gains were derived exclusively from the
disposition of certain publicly traded special opportunity positions.
Decrease/Increase in Appreciation of Strategic Investment and Special
Opportunity Positions
During the six months ended 30 June 1999 and 1998, the principal factor
behind the movement in net assets resulting from operations was the change in
the unrealised appreciation of SC-U.S. Realty's strategic investment and
special opportunity positions.
During the six months ended 30 June 1999, the largest part of the increase
of $27.0 million in the unrealised appreciation was attributable to the
increase in the appreciation of SC-U.S. Realty's investment in CarrAmerica
($28.6 million, or 105.9% of the total increase), followed by the special
opportunity positions ($14.3 million, or 53.3%). This increase was partly
offset by a decrease in the appreciation of SC-U.S. Realty's investment in
Regency ($10.7 million, or 39.8%) and Storage USA ($5.2 million, or 19.4%).
During the six months ended 30 June 1998, the main factor behind the
decrease of $212.9 million in the unrealised appreciation of SC-U.S. Realty's
strategic investment and special opportunity positions was the decrease in
value of SC-U.S. Realty's investment in CarrAmerica ($90.2 million, or 42.4%
of the total decrease),
3
<PAGE>
followed by Storage USA ($57.0 million, or 26.8%), special opportunity
positions ($37.9 million, or 17.8%) and Regency ($27.7 million, or 13.0%).
Six months ended 30 June 1998 and 1997
Net operating income increased $14.8 million, or 56.3%, to $41.1 million
for the six months ended 30 June 1998 as compared to $26.3 million for the six
months ended 30 June 1997. The increase is mainly attributable to an increase
in dividends derived from a higher level of fundings to strategic investees.
Gross dividends from strategic investment positions increased $25.2 million,
or 56.2%, to $70.1 million for the six months ended 30 June 1998, as compared
to $44.8 million for the six months ended 30 June 1997. Fundings to strategic
investees increased by $0.9 billion at cost to $2.3 billion as of 30 June 1998
from $1.4 billion as of 30 June 1997.
Net Operating Income
Net operating income represents the difference between total revenues and
total expenses.
The following table sets forth information regarding SC-U.S. Realty's net
operating income during the six- month periods ended 30 June 1998 and 1997:
<TABLE>
<CAPTION>
Six months ended 30 June
----------------------------
1998 1997
------------- -------------
Amount % Amount %
------- ----- ------- -----
(in thousands $, except %)
<S> <C> <C> <C> <C>
Total Revenues.................................... $73,325 100.0% $46,016 100.0%
Total Expenses.................................... 32,218 43.9 19,671 42.7
------- ----- ------- -----
Net Operating Income.............................. $41,107 56.1% $26,345 57.3%
======= ===== ======= =====
</TABLE>
Total Revenues. The following table sets forth information regarding SC-
U.S. Realty's total operating income during the six-month periods ended 30
June 1998 and 1997:
<TABLE>
<CAPTION>
Six months ended 30 June
------------------------------
1998 1997
-------------- --------------
Amount % Amount %
------- ----- ------- -----
(in thousands $, except %)
<S> <C> <C> <C> <C>
Gross dividends from strategic investment po-
sitions
CarrAmerica................................. $25,541 34.8% $19,685 42.8%
CWS Communities............................. 1,622 2.2 -- 0.0
Pacific Retail.............................. 18,089 24.7 9,653 21.0
Regency..................................... 9,930 13.5 3,358 7.3
Storage USA................................. 14,874 20.3 12,153 26.4
------- ----- ------- -----
Subtotal.................................. $70,056 95.5% $44,849 97.5%
Gross dividends from special opportunity posi-
tions........................................ 9,602 13.1 7,682 16.7
------- ----- ------- -----
Total Gross Dividends..................... $79,658 108.6% $52,531 114.2%
Interest income from affiliate................ 1,788 2.4 1,108 2.4
Interest income from non-affiliate and other
income....................................... 579 0.8 257 0.6
------- ----- ------- -----
Total Gross Revenues...................... $82,025 111.8% $53,896 117.2%
Withholding tax on dividends received......... (8,700) (11.8) (7,880) (17.2)
------- ----- ------- -----
Total Revenues............................ $73,325 100.0% $46,016 100.0%
======= ===== ======= =====
</TABLE>
As the table indicates, most of SC-U.S. Realty's total revenues during the
periods indicated were derived from dividends from its strategic investment
positions. The increase in total revenues for the six months ended 30 June
1998 compared to the same period in 1997 is mainly attributable to an increase
in dividends derived from a higher level of average fundings to strategic
investees as well as higher dividends per share from the strategic investees
due to their improved operating results.
"Interest income from affiliate" represents interest on SC-U.S. Realty's
investment of $55 million aggregate principal amount in 6.5% convertible
subordinated debentures due 2016 issued by Security Capital Group. The
debentures were purchased by SC-U.S. Realty in April 1996 ($11 million
aggregate principal amount) and in March 1997 ($44 million aggregate principal
amount) and are currently convertible into shares of Class A common stock of
Security Capital Group, at the option of the holder.
4
<PAGE>
"Interest income from non-affiliate and other income" consist of interest
earned on cash balances and convertible debt. The increase in this item
between the six-month period ended 30 June 1998 and the corresponding period
in 1997 is attributable to interest on convertible debt of another investee
held by SC-U.S. Realty during the second half of 1997 and in 1998.
Total Expenses. For the six months ended 30 June 1998, total expenses
amounted to $32.2 million, of which $17.7 million, or 54.8%, were accounted
for by fees paid to the Operating Advisor and $12.5 million, or 38.7%, were
accounted for by interest on the HOLDINGS Line, interest on the Convertible
Notes and related expenses. During the period, general and administrative
expenses were $0.6 million, or 2.1% of total expenses, taxes were $1.2
million, or 3.9% of total expenses, and amortisation of Convertible Notes
deferred costs was $0.2 million, or 0.5% of total expenses.
During the corresponding period in 1997, total expenses amounted to $19.7
million, of which $10.6 million, or 53.7%, were accounted for by fees paid to
the Operating Advisor and $7.4 million, or 37.7%, by interest on the HOLDINGS
Line and related expenses. During that period, general and administrative
expenses were approximately $1.0 million, or 4.9% of total expenses, and taxes
were $0.7 million, or 3.7% of total expenses.
Net Realised Gains on Special Opportunity Positions
During the six-month periods ended 30 June 1998 and 1997, net realised
gains on special opportunity positions were $30.6 million and $13.6 million,
respectively. In both periods, these gains were derived exclusively from the
disposition of certain publicly traded special opportunity positions by SC-
U.S. Realty. The lower gains realised during the 1997 period were due to the
fact that SC-U.S. Realty had a lower balance in its special opportunity
positions.
Decrease/Increase in Appreciation of Strategic Investment and Special
Opportunity Positions
During the six-month periods ended 30 June 1998 and 1997, the principal
factor behind the movement in net assets resulting from operations was the
movement in the appreciation of strategic investment and special opportunity
positions (a decrease of $212.9 million, or 150.7%, and an increase of $66.2
million, or 62.4%, of the total decrease/increase in the six-month periods
ended 30 June 1998 and 1997, respectively). The decrease in the strategic
investment positions during the first six months of 1998 was the result of a
decrease in the stock prices of the investments. This was consistent with the
average declines in the REIT industry for the year to 30 June 1998.
During the six-month period ended 30 June 1998, the largest part of the
decrease was attributable to the decrease in value of SC-U.S. Realty's
investment in CarrAmerica ($90.2 million, or 42.4% of the total decrease),
followed by Storage USA ($57.0 million, or 26.8%), special opportunity
positions ($37.9 million, or 17.8%) and Regency ($27.7 million, or 13.0%).
During the six-month period ended 30 June 1997, the main factor behind the
increase in appreciation of strategic investment positions was the
appreciation of SC-U.S. Realty's investment in Regency ($40.8 million, or
61.6% of the total increase), followed by Pacific Retail ($19.9 million, or
30.1%), Storage USA ($6.5 million, or 9.8%) and CarrAmerica ($1.3 million, or
2.0%). These increases were partly offset by a decrease in appreciation of
special opportunity positions ($2.4 million, or 3.6%).
Liquidity and Capital Resources
SC-U.S. Realty's total indebtedness as of 30 June 1999 was approximately
$671.9 million and the value of SC-U.S. Realty's total assets was $2.9
billion. As of 30 June 1999, the closing share price on the Amsterdam AEX
Stock Exchange was $19.00 and the closing price of the American Depositary
Receipts ("ADRs") on the NYSE was $18.56. SC-U.S. Realty expects its principal
sources of liquidity to be from its receipt of dividends from strategic
investment and special opportunity positions, fundings from the Line of Credit
and proceeds from potential sales of its special opportunity positions. SC-
U.S. Realty expects that these sources will enable it to meet both its short-
term and long-term cash requirements for its funding commitments, working
capital and debt repayment for the next twelve months.
The lenders under the Line of Credit are Commerzbank Aktiengesellschaft and
a consortium of European and international banks. As of 30 June 1999, $294.0
million was drawn and outstanding under the Line of Credit. The earliest date
on which the Line of Credit will expire is 30 October 2000, but SC-U.S. Realty
has the right on 15 August 1999 to convert the then outstanding borrowings
into a term loan with quarterly amortisation payments to be made over a four-
year period, which would effectively extend the final loan payment to
5
<PAGE>
30 October 2003. Borrowings under the Line of Credit (and the four-year term
loan, if applicable) bear interest at (a) the sum of (x) the greater of the
federal funds rate plus 0.5% per annum or the United States prime rate and (y)
a margin of 0% to 0.625% per annum (based on SC-U.S. Realty's current senior
unsecured long-term debt rating) or (b) at SC-U.S. Realty's option, LIBOR plus
a margin of 0.85% to 1.625% per annum (also based on SC-U.S. Realty's current
senior unsecured long-term debt rating). Additionally, there is a commitment
fee of 0.15% to 0.25% per annum (based on the amount of the Line of Credit
which remains undrawn). All borrowings under the Line of Credit are subject to
covenants that SC-U.S. Realty must maintain at all times, including: (i)
unsecured liabilities may not exceed 40% of the market value of a borrowing
base of owned securities, (ii) shareholders' equity must exceed the sum of 75%
of shareholders' equity as of 8 December 1998 and 75% of the net proceeds of
sales of equity securities thereafter, (iii) a ratio of total liabilities to
net worth of not more than 1:1, (iv) a fixed-charge coverage ratio of not less
than 1.5:1, (v) an interest-coverage ratio of not less than 2:1 and (vi)
secured debt may not exceed 10% of consolidated market net worth. As of 30
June 1999, SC-U.S. Realty was in compliance with these covenants.
Average daily borrowings under the Line of Credit for the six-month period
ended 30 June 1999 were $255.3 million, at a weighted average interest rate of
6.37% per annum.
Through offerings of its shares, the Company received gross equity proceeds
aggregating $2.1 billion in the period between 1 January 1996 and 31 December
1997, of which $1.1 billion was received in 1997 and $1.0 billion in 1996. In
addition, during May 1998, the Company issued $450 million (aggregate
principal amount at maturity) of Convertible Notes. The Convertible Notes were
issued at a discount to their aggregate principal amount at maturity. SC-U.S.
Realty used the net proceeds of approximately $352.7 million to repay
borrowings under the HOLDINGS Line which were incurred principally for the
purpose of funding commitments both to existing and new strategic investment
positions. Under the terms of the Convertible Notes, the Company is not
permitted to incur Senior Indebtedness (as defined in that certain Indenture
dated as of 22 May 1998, between the Company and State Street Bank and Trust
Company, as trustee, as amended, the "Indenture") that is not subordinated to
the same extent as the Convertible Notes or to incur Secured Indebtedness (as
defined in the Indenture) that is by its terms senior in right of payment to
the Convertible Notes, except that the Company is permitted to guarantee, on a
secured and/or senior unsubordinated basis, the obligations of any wholly
owned subsidiary with respect to any Permitted Indebtedness (as defined in the
Indenture). As of and for the period ended 30 June 1999, SC-U.S. Realty was in
compliance with these covenants. The Convertible Notes are convertible into
shares at the option of the holder at any time prior to maturity, unless
previously redeemed, at a conversion rate equal to 26.39095 shares (giving
effect to the reverse stock split) per $1,000 aggregate principal amount at
maturity. The Convertible Notes may be redeemed, in whole or in part, at the
option of the Company on or after 23 May 2001 at the accreted value thereof,
together with accrued and unpaid interest. Upon a change in control of SC-U.S.
Realty, each holder of the Convertible Notes has the right, at the holder's
option, to require SC-U.S. Realty to repurchase such holder's Convertible
Notes, in whole or in part, at a purchase price equal to the accreted value
thereof, together with accrued and unpaid interest through the repurchase
date. Effective 1 January 1999, the interest rate payable on the Convertible
Notes increased from 2.0% to 2.5% per annum. The 2.5% per annum interest rate
was in effect until SC-U.S. Realty listed certain equity securities on the
NYSE and registered the Convertible Notes and related equity securities for
resale. SC-U.S. Realty completed these steps on 30 July 1999 and as of 1
August 1999, the interest rate on the Convertible Notes was reduced to 2.0%
per annum.
Capital Deployment Activities
During the six-month period ended 30 June 1999, SC-U.S. Realty deployed an
additional $95.2 million in strategic investment positions and disposed of
$103.1 million of special opportunity positions. As of 30 June 1999, SC-U.S.
Realty had outstanding contractual obligations of $97.9 million ($46.1 million
to City Center Retail and $51.8 million to CWS Communities).
SC-U.S. Realty's existing and committed fundings at cost as of 30 June 1999
were as follows:
<TABLE>
<CAPTION>
Total Total Cost
Amount (Amount Amount to
Committed Funded)(/1/) be Funded(/1/)
---------- ------------ --------------
(in thousands $)
<S> <C> <C> <C>
CarrAmerica (NYSE: CRE)........ $ 699,902 $ 699,902 $ --
City Center Retail (Private)... 350,213 304,113 46,100(/2/)
CWS Communities (Private)...... 300,329 248,488(/3/) 51,841(/2/)
Regency (NYSE: REG)(/4/)....... 759,806 759,806 --
Storage USA (NYSE: SUS)........ 394,360 394,360 --
Urban Growth Property (Pri-
vate)......................... 181,082 181,082 --
Special opportunity posi-
tions(/5/).................... 398,235 398,235 --
---------- ---------- -------
Total.......................... $3,083,927 $2,985,986 $97,941
========== ========== =======
</TABLE>
6
<PAGE>
- --------
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) The amount funded to CWS Communities includes an advance of $24 million in
the form of a promissory note that is to be repaid in September 1999.
(4) On 28 February 1999 Regency merged with Pacific Retail.
(5) Includes an aggregate of $165 million invested in common stock and
convertible subordinated debentures of Security Capital Group.
Capital deployed to additional strategic investment positions, as well as
further funding to existing strategic investees, will generally be initially
funded with borrowings under the Line of Credit. These borrowings are expected
to be reduced with internally generated free cash flow, proceeds from the sale
of special opportunity positions and the proceeds from future issuances of
debt or equity securities.
Impact of Year 2000 and the Euro
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain computer
programs that have time-sensitive software may recognise a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar business activities. It could also result in various mechanical
malfunctions occurring in the property operations of SC-U.S. Realty's
strategic investees.
SC-U.S. Realty has reviewed the impact of the Year 2000 issue on its
operations, accounting and financial reporting by interviewing Banque
Internationale a Luxembourg ("BIL"), which provides all custodial duties for
SC-U.S. Realty, such as custody of cash, securities deposits and financial
transactions, as well as certain administrative duties, such as bookkeeping
and the calculation of net asset value. In addition, the Operating Advisor
uses BIL for its accounting and financial reporting. BIL has informed SC-U.S.
Realty that its core system, on which all custodial services are reliant is
Euro compliant with effect from 1 January 1999 and was Year 2000 compliant by
30 June 1999. BIL is in the process of carrying out detailed checks to ensure
that the system is compliant and will function as designed. BIL has a separate
accounting system called "MULTIFONDS" which BIL confirmed is fully Year 2000
compliant. BIL installed an updated version of "MULTIFONDS" in October 1998 in
order to meet Euro compliance requirements. BIL's communications system,
BCS2000, is also Euro and Year 2000 compliant. SC-U.S. Realty therefore does
not expect to incur any significant Year 2000 project costs.
SC-U.S. Realty has reviewed the Year 2000 issue with each of its strategic
investees and has determined that there will be minimal, if any, financial
impact on SC-U.S. Realty. SC-U.S. Realty has initiated formal communications
with all of its significant suppliers to determine the extent to which SC-U.S.
Realty's interface systems are vulnerable to those third parties' failure to
remedy their own Year 2000 issues, but is not currently in a position to
determine what, if any, the ultimate effect of the suppliers' failure to
adequately address the Year 2000 issue will be on SC-U.S. Realty.
SC-U.S. Realty's strategic investees have been reviewing, and continue to
review, the operations of their individual properties in order to determine
whether such operations are Year 2000 compliant. In the currently expected
worst case scenarios, either a computer program or software could malfunction,
or a strategic investee's mechanical operations, such as elevators, electronic
locking or entry systems and HVAC systems, could malfunction. SC-U.S. Realty
believes that each of these problems can be temporarily corrected manually,
and repaired permanently in a short period of time. SC-U.S. Realty has not
developed any specific contingency plans to address a worst case scenario,
since even such a scenario is not expected to have a material adverse effect
on SC-U.S. Realty. SC-U.S. Realty and each of its strategic investees are
continuing to monitor their systems for Year 2000 compliance, as well as for
the likelihood of a development of a worst case scenario. In the event that
the likelihood of a further worst case scenario develops that could have a
material adverse impact on SC-U.S. Realty, it plans to develop promptly a
contingency plan to address such a scenario.
SC-U.S. Realty has reviewed the impact of the Euro and has determined that
it is limited to Euro- denominated transactions with third parties, generally
limited to administrative expenses since the Company's investments are U.S.
dollar denominated. These Euro-denominated transactions are expected to be
minimal and adequately dealt with as discussed above.
7
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED FINANCIAL STATEMENTS
AT 30 JUNE 1999
(Unaudited)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Net Assets...................................... 9
Consolidated Statements of Operations...................................... 10
Consolidated Statements of Cash Flows...................................... 11
Consolidated Statements of Changes in Net Assets........................... 12
Consolidated Statements of Changes in Shares Outstanding................... 12
Consolidated Financial Highlights.......................................... 12
Consolidated Schedules of Strategic Investment Positions................... 13
Consolidated Schedules of Special Opportunity Positions.................... 14
Notes to the Consolidated Financial Statements............................. 15
</TABLE>
8
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF NET ASSETS
AT 30 JUNE 1999 AND 31 DECEMBER 1998
(in thousands U.S. $, except per-share amounts)
<TABLE>
<CAPTION>
June December
1999 1998
----------- ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Strategic investment positions at value (Note 3):
CarrAmerica (Cost $699,902; $699,851, respectively).. $ 715,085 $ 686,482
City Center Retail (Cost $304,113; $304,035, respec-
tively)............................................. 304,113 304,035
CWS Communities (Cost $224,488; $153,563, respective-
ly)................................................. 224,488 153,563
Advance--CWS Communities............................. 24,000 --
Regency (Cost $759,806; $759,788, respectively)...... 751,869 762,580
Storage USA (Cost $394,360; $394,272, respectively).. 375,030 380,178
Urban Growth Property (Cost $181,082; $181,082, re-
spectively)......................................... 181,082 181,082
Special opportunity positions at value (Note 3):
Security Capital Group Incorporated (Cost $165,000;
$165,000 respectively).............................. 120,307 116,245
Other special opportunity positions (Cost $233,235;
$314,031, respectively)............................. 191,996 262,480
---------- ----------
Total investments...................................... $2,887,970 $2,846,645
Cash and cash equivalents.............................. 4,050 2,994
Accounts receivable and other (Note 4)................. 18,322 23,989
---------- ----------
TOTAL ASSETS........................................... $2,910,342 $2,873,628
---------- ----------
LIABILITIES
Accounts payable and accrued expenses (Note 5)......... $ 69,887 $ 13,497
Taxes payable (Note 9)................................. 2,780 1,306
Line of credit (Note 6)................................ 294,000 262,500
Convertible notes (Note 7)............................. 377,932 369,940
---------- ----------
TOTAL LIABILITIES...................................... $ 744,599 $ 647,243
---------- ----------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY)................ $2,165,743 $2,226,385
========== ==========
Authorised 250,000,000 shares of $4.00 par value,
86,561,872 shares issued and 80,531,617 outstanding at
30 June 1999 and 86,561,872 issued and outstanding at
31 December 1998 (Note 13)............................ $ 346,247 $ 346,247
Share premium account (Note 14)........................ 1,631,203 1,749,158
---------- ----------
PAID-IN CAPITAL........................................ $1,977,450 $2,095,405
Legal reserve (Note 12)................................ $ 30,375 $ 30,375
Reserve for own shares (Note 14)....................... 117,955 --
Undistributed net operating income..................... 176,882 148,152
Accumulated net realised gain.......................... 79,051 77,431
Unrealised (depreciation) of strategic investment and
special opportunity positions......................... (98,015) (124,978)
Acquisition of own shares (Note 14).................... (117,955) --
---------- ----------
SHAREHOLDERS' EQUITY................................... $2,165,743 $2,226,385
========== ==========
Net asset value per share (Note 14).................... $ 26.89 $ 25.72
</TABLE>
The accompanying notes form an integral part of the financial statements.
9
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED 30 JUNE 1999, 1998 AND 1997
(in thousands U.S. $, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998 1997
------- --------- --------
<S> <C> <C> <C>
REVENUES
Gross dividends from strategic investment posi-
tions:
CarrAmerica.................................... $26,458 $ 25,541 $ 19,685
CWS Communities................................ 3,148 1,622 --
Regency........................................ 26,320 28,019 13,011
Storage USA.................................... 15,766 14,874 12,153
Urban Growth Property.......................... 213 -- --
------- --------- --------
$71,905 $ 70,056 $ 44,849
Gross dividends from special opportunity posi-
tions: 6,311 9,602 7,682
------- --------- --------
$78,216 $ 79,658 $ 52,531
Interest income from affiliate................... 1,788 1,788 1,108
Interest income from non-affiliate and other in-
come............................................ 1,566 579 257
------- --------- --------
TOTAL GROSS REVENUES............................. $81,570 $ 82,025 $ 53,896
Withholding tax on dividends received.......... (9,270) (8,700) (7,880)
------- --------- --------
TOTAL REVENUES................................... $72,300 $ 73,325 $ 46,016
======= ========= ========
EXPENSES
Operating advisor fees........................... $16,713 $ 17,658 $ 10,555
Custodian fees................................... 236 237 256
Directors fees................................... 60 62 46
Professional expenses............................ 629 164 488
Administrative expenses.......................... 703 225 169
Amortisation of convertible notes deferred
costs........................................... 789 171 --
Taxes............................................ 2,089 1,248 735
Line of credit arrangement and commitment fees... 95 1,059 846
Interest on line of credit....................... 8,639 8,758 6,576
Interest on convertible notes.................... 13,617 2,636 --
------- --------- --------
TOTAL EXPENSES................................... $43,570 $ 32,218 $ 19,671
------- --------- --------
NET OPERATING INCOME............................. $28,730 $ 41,107 $ 26,345
NET REALISED AND UNREALISED GAIN/(LOSS) ON
STRATEGIC INVESTMENT AND SPECIAL OPPORTUNITY
POSITIONS
Net realised gain on special opportunity posi-
tions........................................... $ 1,620 $ 30,562 $ 13,620
Net increase/(decrease) in appreciation of stra-
tegic investment and special opportunity posi-
tions........................................... 26,963 (212,905) 66,200
------- --------- --------
NET GAIN/(LOSS) ON STRATEGIC INVESTMENT AND
SPECIAL OPPORTUNITY POSITIONS................... $28,583 $(182,343) $ 79,820
------- --------- --------
INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $57,313 $(141,236) $106,165
======= ========= ========
</TABLE>
The accompanying notes form an integral part of the financial statements.
10
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 1999, 1998 AND 1997
(in thousands U.S. $, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Increase/(Decrease) in net assets resulting
from operations............................. $ 57,313 $(141,236) $ 106,165
Adjustments to reconcile (decrease)/increase
in net assets resulting from operations to
net cash provided by operating activities:
Movement in unrealised gain................ (26,963) 212,905 (66,200)
Movement in accretion on convertible
notes..................................... 7,992 1,662 --
Movement in convertible notes deferred
costs..................................... 789 171 --
Changes in operating assets and liabili-
ties:
Accounts receivable and other............ 4,879 (7,587) (2,822)
Interest receivable from affiliate....... -- -- 366
Accounts payable and accrued expenses.... 62,109 2,279 (1,251)
Operating advisor fees payable........... (5,718) 1,750 3,128
Taxes payable............................ 1,475 425 149
-------- --------- ---------
Net cash provided by operating activi-
ties.................................. $101,876 $ 70,369 $ 39,535
-------- --------- ---------
Investing Activities:
Fundings in strategic investment positions:
CarrAmerica................................ $ (51) $ (63,455) $(157,289)
City Center Retail......................... (78) (110,965) (59,004)
CWS Communities............................ (70,926) (42,575) --
Advance--CWS Communities................... (24,000) -- --
Regency.................................... (18) (9,768) (169,539)
Storage USA................................ (88) (41,434) (61,382)
Urban Growth Property...................... -- (88,009) (3,675)
Fundings in Security Capital Group........... -- -- (87,500)
Fundings in other special opportunity posi-
tions, net.................................. 80,796 (120,143) (110,363)
-------- --------- ---------
Net cash used in investing activities.. $(14,365) $(476,349) $(648,752)
-------- --------- ---------
Financing Activities:
Net proceeds from shares offering............ $ -- $ -- $ 546,487
Net proceeds from convertible notes offer-
ing......................................... -- 352,666 --
Offering expenses charged against the share
premium account............................. -- (1,081) --
Acquisition of own shares.................... (117,955) -- --
Net drawdowns from line of credit............ 31,500 53,000 17,500
-------- --------- ---------
Net cash provided by financing activi-
ties.................................. $(86,455) $ 404,585 $ 563,987
-------- --------- ---------
Net increase/(decrease) in cash and cash equiv-
alents........................................ $ 1,056 $ (1,395) $ (45,230)
Cash and cash equivalents, beginning of the pe-
riod.......................................... 2,994 1,970 54,957
-------- --------- ---------
Cash and cash equivalents, end of the period... $ 4,050 $ 575 $ 9,727
======== ========= =========
Supplemental disclosure of cash flow informa-
tion:
Tax paid..................................... $ 619 $ 823 $ 586
======== ========= =========
Interest paid on borrowings.................. $ 14,264 $ 8,083 $ 6,680
======== ========= =========
</TABLE>
The accompanying notes form an integral part of the financial statements.
11
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED 30 JUNE 1999, 1998 AND 1997
(in thousands U.S. $, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATIONS:
Net operating income....................... $ 28,730 $ 41,107 $ 26,345
Realised gain on special opportunity posi-
tions..................................... 1,620 30,562 13,620
Increase/(Decrease) in appreciation of
strategic investment and special opportu-
nity positions............................ 26,963 (212,905) 66,200
---------- ---------- ----------
Increase/(Decrease) in net assets resulting
from operations........................... $ 57,313 $ (141,236) $ 106,165
CAPITAL TRANSACTIONS:
Net proceeds from offerings................ $ -- $ -- $ 546,487
(Decrease) in share premium account........ (117,955) (1,081) --
Increase in reserve for own shares......... 117,955 -- --
Acquisition of own shares during the peri-
od........................................ (117,955) -- --
---------- ---------- ----------
(Decrease)/Increase in net assets resulting
from capital transactions................. $ (117,955) $ (1,081) $ 546,487
NET ASSETS:
(Decrease)/Increase in net assets during
the period................................ $ (60,642) $ (142,317) $ 652,652
Net assets at the beginning of the period.. 2,226,385 2,758,420 1,319,099
---------- ---------- ----------
Net assets at the end of the period (in-
cludes undistributed net operating income
of $176,882 for 1999, $114,431 for 1998,
and $39,360 for 1997)..................... $2,165,743 $2,616,103 $1,971,751
========== ========== ==========
Net asset value per share.................. $ 26.89 $ 30.22 $ 28.89
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHARES OUTSTANDING
FOR THE SIX MONTHS ENDED 30 JUNE 1999, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Number of shares
---------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
At the beginning of the
period................. 86,561,872 86,561,872 48,246,355
Issued during the peri-
od..................... -- -- 20,014,743
Acquisition of own
shares during the peri-
od..................... (6,030,255) -- --
---------- ---------- ----------
At the end of the peri-
od..................... 80,531,617 86,561,872 68,261,098
========== ========== ==========
</TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED 30 JUNE 1999, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Per-share data:
Net asset value at the beginning of the period......... $25.72 $31.87 $27.34
Net operating income................................... 0.59 0.47 0.31
Net change in movement in unrealised appreciation and
realised gain on strategic investment and special
opportunity positions in the period................... 0.58 (2.12) 1.24
------ ------ ------
Net asset value per share at the end of the period....... $26.89 $30.22 $28.89
====== ====== ======
</TABLE>
The accompanying notes form an integral part of the financial statements.
12
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED SCHEDULES OF STRATEGIC INVESTMENT POSITIONS
AT 30 JUNE 1999
(in thousands U.S. $, except shares held and %)
(Unaudited)
<TABLE>
<CAPTION>
Number of Percentage
Strategic Investment Positions Security Type Shares Held Cost Value of Total Assets
- ------------------------------ --------------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
CarrAmerica............. Common Stock 28,603,417 $ 699,902 $ 715,085 24.6%
City Center Retail...... Common Stock 30,390,000 304,113 304,113 10.5%
CWS Communities......... Common Stock 22,415,858 224,488 224,488 7.7%
Advance--CWS Communi-
ties................... Promissory Note n/a 24,000 24,000 0.8%
Regency................. Common Stock 34,273,236 759,806 751,869 25.8%
Storage USA............. Common Stock 11,765,654 394,360 375,030 12.9%
Urban Growth Property... Common Stock 18,074,100 181,082 181,082 6.2%
---------- ---------- ----
Total investment in
strategic positions.... $2,587,751 $2,575,667 88.5%
========== ========== ====
</TABLE>
AT 31 DECEMBER 1998
(in thousands U.S. $, except shares held and %)
(Audited)
<TABLE>
<CAPTION>
Number of Percentage
Strategic Investment Positions Security Type Shares Held Cost Value of Total Assets
- ------------------------------ ------------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
CarrAmerica............. Common Stock 28,603,417 $ 699,851 $ 686,482 23.9%
City Center Retail...... Common Stock 30,390,000 304,035 304,035 10.6%
CWS Communities......... Common Stock 15,323,358 153,563 153,563 5.3%
Regency................. Common Stock 34,273,236 759,788 762,580 26.6%
Storage USA............. Common Stock 11,765,654 394,272 380,178 13.2%
Urban Growth Property... Common Stock 18,074,100 181,082 181,082 6.3%
---------- ---------- ----
Total investment in
strategic positions.... $2,492,591 $2,467,920 85.9%
========== ========== ====
</TABLE>
The accompanying notes form an integral part of the financial statements.
13
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED SCHEDULES OF SPECIAL OPPORTUNITY POSITIONS
AT 30 JUNE 1999
(in thousands U.S. $, except %)
(Unaudited)
<TABLE>
<CAPTION>
Percentage
Property Type Cost Value of Total Assets
- ------------- -------- -------- ---------------
<S> <C> <C> <C>
Companies in which SC-U.S. Realty owns a 5%
or greater interest:
Other..................................... $ 39,514 $ 39,514 1.4%
Companies in which SC-U.S. Realty owns less
than a 5% interest:
Office/Industrial......................... 64,248 59,696 2.1%
Hotel..................................... 78,186 43,281 1.5%
Retail.................................... 21,239 21,556 0.7%
Diversified............................... 12,043 10,230 0.4%
Storage................................... 5,730 6,580 0.2%
Other..................................... 12,275 11,139 0.4%
-------- -------- ----
Total investment in other special opportu-
nity positions............................. $233,235 $191,996 6.7%
Investment in Security Capital Group Incor-
porated.................................... 165,000 120,307 4.1%
-------- -------- ----
Total investment in special opportunity po-
sitions.................................... $398,235 $312,303 10.8%
======== ======== ====
</TABLE>
AT 31 DECEMBER 1998
(in thousands U.S. $, except %)
(Audited)
<TABLE>
<CAPTION>
Percentage
Property Type Cost Value of Total Assets
- ------------- -------- -------- ---------------
<S> <C> <C> <C>
Companies in which SC-U.S. Realty owns a 5%
or greater interest:
Retail.................................... $ 35,493 $ 37,646 1.3%
Other..................................... 14,446 14,446 0.5%
Companies in which SC-U.S. Realty owns less
than a 5% interest:
Office/Industrial......................... 107,905 97,658 3.4%
Hotel..................................... 79,600 41,356 1.4%
Multifamily............................... 29,044 28,727 1.0%
Storage................................... 10,227 11,350 0.4%
Diversified............................... 13,683 11,004 0.4%
Retail.................................... 8,406 6,949 0.2%
Other..................................... 15,227 13,344 0.5%
-------- -------- ----
Total investment in other special opportu-
nity positions............................. $314,031 $262,480 9.1%
Investment in Security Capital Group Incor-
porated.................................... 165,000 116,245 4.0%
-------- -------- ----
Total investment in special opportunity po-
sitions.................................... $479,031 $378,725 13.1%
======== ======== ====
</TABLE>
The accompanying notes form an integral part of the financial statements.
14
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT 30 JUNE 1999
NOTE 1--ORGANISATION
Security Capital U.S. Realty (the "Company") (NYSE: RTY) (Amsterdam AEX
Stock Exchange ISIN Code: LU0060100673, Bloomberg Symbol: SCUS NA, Reuters
Symbol: CAPAu.AS) was incorporated on 7 July 1995 and is a research-driven,
growth-orientated real estate management company focused on taking significant
strategic investment positions (with board representation, consultation and
other rights) in value-added real estate operating companies based in the
United States. The Company's primary capital deployment objective is to take a
proactive ownership role in businesses that it believes can potentially
generate above-average rates of return. The Company is organised in Luxembourg
as a Societe d'Investissement a Capital Fixe (a company with a fixed capital).
On 24 June 1999 the Company's American Depositary Receipts ("ADRs") began
trading on the New York Stock Exchange ("NYSE") under the ticker symbol "RTY."
The Company owns its assets through its direct and indirect wholly owned
subsidiaries, including Security Capital Holdings S.A. (such subsidiaries
collectively referred to herein as "HOLDINGS"). All accounts of HOLDINGS have
been consolidated with the Company and all significant intercompany
transactions have been eliminated upon consolidation. References herein to SC-
U.S. Realty are to the consolidated entity consisting of Security Capital U.S.
Realty and HOLDINGS, unless noted otherwise.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States and with
Luxembourg regulatory requirements. The preparation of financial statements in
accordance with GAAP requires the Company's management to make estimates of
certain reported amounts in the financial statements. Actual results may
differ from those estimates.
A. Fair Value Basis of Presentation
SC-U.S. Realty accounts for its investments at fair value in accordance
with the U.S. specialised industry accounting rules prescribed by the American
Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide
for Investment Companies (the "Guide"). Thus, SC-U.S. Realty's investments in
publicly traded companies are valued at market determined by using closing
market prices on the NYSE, or other recognised stock exchange when
appropriate, as of the balance sheet date, subject to an appropriate
adjustment for trade restrictions, if any. For privately held investments in
which SC-U.S. Realty has an ownership interest, SC-U.S. Realty will, whenever
the Board of Directors believes significant developments have occurred
affecting the value of an investment and on at least an annual basis, utilise
valuation evidence and methodologies appropriate to the nature of the
investment to derive fair value. These will include external valuations, cash
flow valuation techniques and valuation information derived through placements
of private companies' securities as well as review by management for other
specific indicators of changes in value relating to property performance
and/or significant changes in local or general market conditions. The Board of
Directors, in its discretion, may permit some other method of valuation to be
used if it determines that such valuation better reflects the fair value of
any assets of the Company.
Under fair value accounting, unrealised gains or losses are determined by
comparing the fair value of the securities held to the cost of such
securities. Unrealised gains or losses relating to changes in fair value of
SC-U.S. Realty's investments are reported as a component of net earnings.
Deferred income taxes, if any, are recorded at the applicable statutory rate
as the estimate of taxes payable as if such gains were realised. Under current
tax laws, and in light of SC-U.S. Realty's operating methods and plans, SC-
U.S. Realty's investment gains generally are not subject to income taxes.
As of 30 June 1999 (unaudited) and 31 December 1998, 26.6% and 23.0%
respectively, of SC-U.S. Realty's investments were in private or untraded
securities valued at their fair value as determined by the Board of Directors,
using the methodology described above. This value may differ from the value
that would have been used had a trading market for these securities existed.
The valuation of assets assumes that any assets disposed of would be sold in
an orderly process; any forced sale of assets under short-term pressures,
which is not foreseen, could adversely affect realisable values.
15
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
B. Accounting for Investments and Income
All purchases and sales of publicly traded securities are recorded as of
the trade date (i.e., the date that SC-U.S. Realty's broker actually executes
an order to buy or sell). All purchases and sales of privately held securities
are recorded as of the date the actual purchase or sale is made. Dividend
income is recorded on the ex-dividend date for each dividend declared by an
issuer. Dividends received are presented on a gross basis. HOLDINGS may be
entitled to refunds on a portion of the withholding tax because the
withholding tax is not levied on the portion of dividends which is a return of
capital. Interest income is recorded on the accrual basis. Interest received
is stated net of withholding taxes. Realised gains and losses on sales of
shares are determined on the average cost method.
C. Cash and Cash Equivalents
SC-U.S. Realty considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original
maturities of three months or less to be cash equivalents.
D. Interim Financial Statements
The interim financial statements as of 30 June 1999, 1998 and 1997 are
unaudited. In the opinion of SC-U.S. Realty, the interim data include all
adjustments (except for return of capital components of dividends received, as
discussed in 2B above), consisting only of normal recurring adjustments,
necessary for a fair statement of results for the interim period. Due to the
timing of investment dates and dividend record dates, dividend revenue
received on investments for a period of less than one year is not necessarily
indicative of dividend revenue to be received for an entire year.
E. Deferred Financing Costs/Discounts
Underwriting fees relating to the issuance of the $450 million aggregate
principal amount at maturity of the Company's 2% Senior Unsecured Convertible
Notes due 2003 (the "Convertible Notes") are capitalised and amortised over
the term of the obligation. Discounts on the Convertible Notes are accreted as
a component of interest expense using the effective interest method over the
term of the obligation.
F. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities". This
statement provides new accounting and reporting standards for the use of
derivative instruments. Adoption of this statement is required by the Company
effective 1 January 2000. Management intends to adopt the statement as
required in fiscal 2000. Although the Company has not historically used such
instruments, it is not precluded from doing so. Management believes that the
impact of such adoption will not be material to the financial statements.
NOTE 3--INVESTMENTS
SC-U.S. Realty aims to have 85% to 100% of its assets deployed in strategic
investment positions and 0% to 15% invested in special opportunity positions.
A. Strategic Investment Positions
Strategic investment positions represent significant (minimum of 25% of
each issuer's fully diluted common stock outstanding) equity ownership
positions in public companies or in private companies. With private companies
which SC-U.S. Realty sponsors, it expects to own substantially more than 50%
of the voting shares. SC-U.S. Realty will be the largest shareholder of its
strategic investees, have representation on their boards of directors, and
influence their operations and strategies through ongoing consultation and
research. Strategic investees are characterised by the perceived potential for
a superior market niche and the ultimate potential for market preeminence with
a focused strategy and product.
The merger of Pacific Retail and Regency occurred on 28 February 1999.
Shareholders of Pacific Retail received 0.48 shares of Regency common stock
for each common share of Pacific Retail they owned. For the six-month periods
ended 30 June 1999, 1998 and 1997 and for the year ended 31 December 1998, the
financial information for Pacific Retail has been reflected in the financial
information of Regency.
16
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
B. Special Opportunity Positions
Special opportunity positions primarily consist of ownership positions of
less than 10% of the fully diluted stock in publicly traded entities taxed as
real estate investment trusts ("REITs") under the Code and other publicly
traded U.S. real estate companies. The investments have been and will continue
to be in the form of either direct investments in, or public market purchases
of, shares of companies that SC-U.S. Realty believes possess the requisite
fundamentals to generate strong cash flow growth and/or value appreciation. In
exceptional circumstances, and to a very limited extent, SC-U.S. Realty may
make special opportunity investments in companies that are not publicly
traded. Typically such an investment would be in a company that does not at
the time of investment fulfill the criteria for a strategic investment
position, but in which SC-U.S. Realty may take a strategic investment position
in the future.
As of 30 June 1999 (unaudited) and 31 December 1998, SC-U.S. Realty had
deployed a total of $165 million in securities of Security Capital Group
Incorporated ("Security Capital Group"). This amount is made up of an
investment of $110 million (representing 52,430.9 shares of Class A common
stock and $55 million aggregate principal amount of 6.5% convertible
subordinated debentures due 2016) and an additional $55 million (representing
1,964,286 shares of Class B common stock) invested during Security Capital
Group's initial public offering in September 1997.
NOTE 4--ACCOUNTS RECEIVABLE AND OTHER
<TABLE>
<CAPTION>
At 30 June 1999 At 31 December 1998
--------------------- ---------------------
(in thousands U.S. $) (in thousands U.S. $)
<S> <C> <C>
Dividends......................... $ 7,740 $ 8,162
Receivable from brokers on invest-
ments sold....................... 433 8,219
Deferred issue costs on Convert-
ible Notes(/1/).................. 6,139 6,927
Interest.......................... 1,989 580
Refund of withholding tax......... 2,019 97
Other............................. 2 4
------- -------
$18,322 $23,989
======= =======
</TABLE>
- --------
(1) Represents the underwriting fees of $7.9 million relating to the issuance
of the Convertible Notes (see Note 7). The fees have been deferred and
will be fully amortised over a period of five years starting from the
issue date of 22 May 1998.
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
At 30 June 1999 At 31 December 1998
--------------------- ---------------------
(in thousands U.S. $) (in thousands U.S. $)
<S> <C> <C>
Operating advisor fees............ $ 2,896 $ 8,614
Interest payable on line of cred-
it............................... 121 762
Interest payable on Convertible
Notes............................ 1,219 975
Custodian fees.................... 237 110
Acquisition of own shares......... 63,854 --
Other............................. 1,560 3,036
------- -------
$69,887 $13,497
======= =======
</TABLE>
NOTE 6--LINE OF CREDIT
SC-U.S. Realty's total indebtedness under the line of credit as of 30 June
1999 (unaudited) and 31 December 1998 was $294.0 million and $262.5 million,
respectively.
In an effort to secure investment-grade credit ratings, on 8 December 1998,
SC-U.S. Realty converted its $700 million secured line of credit into a $400
million unsecured line of credit from Commerzbank Aktiengesellschaft and a
consortium of European and international banks, of which $294.0 million was
drawn and outstanding as of 30 June 1999. SC-U.S. Realty received investment-
grade ratings from each of Moody's Investor Service (Baa3), Standard & Poor's
Ratings Services (BBB-) and Duff & Phelps Credit Rating Co. (BBB-). The
earliest date on which this line of credit will expire is 30 October 2000, but
SC-U.S. Realty has
17
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the right on 15 August 1999 to convert the then outstanding borrowings into a
four-year term loan with quarterly amortisation payments to be made over the
four-year period, which would effectively extend the final loan payment to 30
October 2003. Borrowings under the line of credit (and the four-year term
loan, if applicable) bear interest at (a) the sum of (x) the greater of the
federal funds rate plus 0.5% per annum or the United States prime rate and (y)
a margin of 0% to 0.625% per annum (based on SC-U.S. Realty's current senior
unsecured long-term debt rating) or (b) at SC-U.S. Realty's option, LIBOR plus
a margin of 0.85% to 1.625% per annum (also based on SC-U.S. Realty's current
senior unsecured long-term debt). Additionally, there is a commitment fee of
0.15% to 0.25% per annum (based on the amount of the line which remains
undrawn). All borrowings under the line of credit are subject to covenants
that SC-U.S. Realty must maintain at all times, including: (i) unsecured
liabilities may not exceed 40% of the market value of a borrowing base of
owned securities, (ii) shareholders' equity must exceed the sum of 75% of
shareholders' equity as of 8 December 1998 and 75% of the net proceeds of
sales of equity securities thereafter, (iii) a ratio of total liabilities to
net worth of not more than 1:1, (iv) a fixed-charge coverage ratio of not less
than 1.5:1, (v) an interest-coverage ratio of not less than 2:1 and (vi)
secured debt may not exceed 10% of consolidated market net worth. As of 30
June 1999, SC-U.S. Realty was in compliance with these covenants.
Average daily borrowings under the line of credit were $255.3 million and
$274.4 million for the six-month period ended 30 June 1999 and for the year
ended 31 December 1998, respectively. The weighted average interest rates for
these same periods were 6.37% per annum and 6.67% per annum, respectively.
NOTE 7--CONVERTIBLE NOTES
<TABLE>
<CAPTION>
At 30 June 1999
---------------------
(in thousands U.S. $)
<S> <C>
Convertible Notes proceeds................................ $360,553
Accumulated accretion on Convertible Notes................ 17,379
--------
$377,932
========
</TABLE>
The Company completed a convertible debt offering in May 1998. The
Convertible Notes are convertible at the option of the holder at any time
prior to maturity at a conversion rate equal to 26.39095 shares (giving effect
to the reverse stock split) of the Company, each having a par value of $4.00
(the "Shares"), per $1,000 aggregate principal amount at maturity of the
Convertible Notes. Interest is payable semi-annually at the rate of 2.0% per
annum on 22 May and 22 November of each year commencing on 22 November 1998.
Effective 1 January 1999, the interest rate payable on the Convertible Notes
was increased to 2.5% per annum. The 2.5% per annum interest rate was in
effect until SC-U.S. Realty listed certain equity securities on the NYSE and
registered the Convertible Notes and related equity securities for resale. SC-
U.S. Realty completed these steps on 30 July 1999 and as of 1 August 1999, the
interest rate on the Convertible Notes was reduced to 2.0% per annum. The
Convertible Notes were sold at a discount to their principal amount at
maturity and additional interest will accrete at an annual rate of 6.75% less
the 2.0% payment, compounded semi-annually, to par by 22 May 2003. The
Convertible Notes may be redeemed, in whole or in part, at the option of the
Company on or after 23 May 2001 at the accreted value, together with accrued
and unpaid interest. Upon a change in control of the Company, each holder of
Convertible Notes shall have the right, at the holder's option, to require the
Company to repurchase such holder's Convertible Notes, in whole or in part, at
a purchase price equal to the accreted value, together with accrued and unpaid
interest through the repurchase date.
Conversion of the Convertible Notes would be anti-dilutive for the six-
month period ended 30 June 1999.
NOTE 8--ADVISORY AGREEMENT
SC-U.S. Realty has an advisory agreement with Security Capital U.S. Realty
Management S.A. (the "Operating Advisor"), a wholly owned subsidiary of
Security Capital Group. This agreement requires the Operating Advisor to
provide SC-U.S. Realty with advice with respect to strategy, investments,
financing and certain other administrative matters affecting SC-U.S. Realty.
The Operating Advisor has agreed to identify tangible capital deployment
opportunities in U.S. real estate companies and evaluate such companies'
competitive positions, management expertise, strategic direction, financial
strength and prospects for long-term sustainable per-share cash flow growth.
The Operating Advisor also advises SC-U.S. Realty on obtaining board and
committee representation and management rights from strategic investees. The
agreement automatically
18
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
renews for successive two-year periods unless either party gives notice it
will not renew. The Operating Advisor subcontracts for certain services
through affiliates based in London, United Kingdom and Chicago, Illinois,
United States. The Operating Advisor is entitled to an advisory fee, payable
monthly in arrears, at an annual rate of 1.25% of the average monthly value of
invested assets (excluding investments in Security Capital Group securities
and investments of short-term cash and cash equivalents). SC-U.S. Realty pays
its own third-party operating and administrative expenses and transaction
costs, although the Operating Advisor's fee will be reduced to the extent that
third-party operating and administrative expenses (but not transaction costs)
exceed 0.25% per annum of the average monthly value of invested assets
(excluding investments in Security Capital Group securities and investments of
short-term cash and cash equivalents). Such third-party operating and
administrative costs as a ratio of the average monthly value of assets were
0.02%, 0.05% and 0.11% for the six months ended 30 June 1999, 1998 and 1997,
respectively.
SC-U.S. Realty pays fees to (i) Banque Internationale a Luxembourg as
Administrative Agent, Corporate Agent and Paying Agent, (ii) First European
Transfer Agent S.A. as Registrar and Transfer Agent, and (iii) Security
Capital European Services S.A. as Domiciliary Agent and Service Agent, in
accordance with usual practice in Luxembourg. Such fees are payable quarterly
and are based on SC-U.S. Realty's gross assets.
NOTE 9--TAXATION
The Company, as separate from HOLDINGS, is not liable for any Luxembourg
tax on income. The Company is liable in Luxembourg for a capital tax of 0.06%
per annum of its net asset value. Cash dividends and interest received by the
Company or HOLDINGS on their investments may be subject to non-recoverable
withholding or other taxes in the countries of origin. U.S. withholding tax
rates of 15% were generally in effect for dividends received for all periods
presented.
Under the current United States-Luxembourg tax treaty, the Company believes
that HOLDINGS qualifies for a 15% rate of withholding tax on dividends of
operating income from the REIT investments currently held by HOLDINGS and from
its future REIT investments (if any). The Company also believes that HOLDINGS
will qualify for a 15% rate of withholding tax under the proposed United
States-Luxembourg tax treaty recently ratified by the United States on most,
if not all, of the REIT investments currently held by HOLDINGS and from future
REIT investments (if any). The Company's beliefs are based on the advice of
tax counsel and the manner in which management intends to operate the Company.
There can be no assurance that these favourable rates will be achieved as to
all such investments. These benefits are also dependent on HOLDINGS meeting
the "limitations on benefits" test under Article 24 of the proposed new
treaty. The tests prescribed by Article 24, particularly in terms of stock
ownership requirements, base erosion and publicly traded criteria, are
inherently factual in nature. Such tests will only need to be applied to
HOLDINGS at a future, and presently indeterminate, point in time and will be
dependent on the particular facts at such time. However, management will use
its best efforts to ensure that HOLDINGS meets the conditions for claiming the
reduced treaty withholding tax rate at the relevant times and the Company
currently believes that such conditions will be met.
HOLDINGS, an ordinary corporate taxpayer under Luxembourg law, owns all of
the consolidated group's interests in REITs and other U.S. real estate
companies. Corporations which are resident Luxembourg taxpayers are taxed on
their worldwide net income, determined on the basis of gross income less costs
incurred. Certain items of income and capital gains are excluded from the
calculation of income received for tax purposes, including income and capital
gains from certain investments which meet certain holding period (generally
one calendar year) and size requirements. HOLDINGS operates so as to have the
highest possible percentage of its investments qualify for the exclusion.
Interest accrued on advances from the Company to HOLDINGS is deducted in
determining HOLDINGS' taxable income.
Income paid from HOLDINGS to the Company is subject to various levels of
tax, including withholding taxes. Gross cash (but not accrued) interest
payments from HOLDINGS to the Company are subject to withholding tax at a rate
of 3.75%. No dividends were paid to the Company during the reporting periods.
19
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
For the six months ended
30 June
--------------------------
1999 1998 1997
-------- -------- --------
(in thousands U.S. $)
<S> <C> <C> <C>
Gross cash interest payments......................... $ 16,507 $ 11,894 $ 5,779
======== ======== =======
Capital tax.......................................... $ 1,470 $ 802 $ 518
Withholding tax...................................... 619 446 217
-------- -------- -------
$ 2,089 $ 1,248 $ 735
======== ======== =======
</TABLE>
NOTE 10--DIRECTORS SHARE OPTION EQUIVALENTS
Each of the Company's independent directors has received share option
equivalents ("SOE") of 25,000 Shares at strike prices ranging from $17.20 to
$28.88 per Share. All grants of SOEs were for services rendered by the Board
of Directors subsequent to their grant. A SOE granted prior to 30 June 1998
does not represent a right to purchase Shares from the Company, but a right to
receive a restricted cash payment equal to the excess, if any, of the net
asset value of 25,000 Shares on the day of exercise over the strike price,
which was the net asset value on the date of grant. Such payments must be
applied to the purchase of Shares to be issued at net asset value on the date
of exercise. SOEs granted after 30 June 1998 do not represent a right to
purchase Shares from the Company, but a right to receive a restricted cash
payment equal to the excess, if any, of the closing stock price of 25,000
Shares on the day of exercise over the strike price, which was the closing
stock price on the date of grant. Such payments must be applied to the
purchase of Shares to be issued at the closing stock price on the date of
exercise. Directors were granted a vested right to exercise one half of their
SOEs immediately, and rights to the balance vest on the fourth anniversary of
their issuance. The right to exercise all SOEs expires five years from the
date of grant.
<TABLE>
<CAPTION>
For the six months ended For the year ended
30 June 31 December
1999 1998
-----------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
------------ ---------------------- ----------
<S> <C> <C> <C> <C>
SOEs outstanding at beginning
of period/year................ 150,000 $ 20.94 125,000 $ 22.54
SOEs issued.................... -- -- 50,000 17.20
SOEs forfeited................. -- -- (12,500) 21.90
SOEs exercised................. -- -- (12,500) 21.90
------------ ----------- --------- --------
SOEs outstanding at end of
period/year................... 150,000 $ 20.94 150,000 $ 20.94
============ =========== ========= ========
SOEs currently exercisable..... 75,000 $ 20.94 75,000 $ 20.94
============ =========== ========= ========
</TABLE>
No SOEs have expired during the period/year represented above, except for a
SOE in respect of 12,500 Shares granted to a director in October 1998 upon his
retirement. The retiring director exercised the remaining part of such SOE in
respect of 12,500 Shares in December 1998. The Company accrues a liability for
the total SOEs granted. Since the SOEs are redeemable in cash, this accrual is
adjusted for changes in the Company's net asset value or closing stock price,
as the case may be, at each balance sheet date with the resultant change
representing a charge (reduction) to administrative expenses for the period in
the consolidated statement of operations.
20
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--COMMITMENTS
SC-U.S. Realty's existing and committed fundings at cost as of 30 June 1999
were as follows:
<TABLE>
<CAPTION>
Total Total Cost Amount
Amount (Amount to be
Committed Funded)(/1/) Funded(/1/)
---------- ------------ -----------
(in thousands U.S. $)
<S> <C> <C> <C>
CarrAmerica (NYSE: CRE)... $ 699,902 $ 699,902 $ --
City Center Retail (Pri-
vate).................... 350,213 304,113 46,100(/2/)
CWS Communities (Pri-
vate).................... 300,329 248,488(/3/) 51,841(/2/)
Regency (NYSE: REG)(/4/).. 759,806 759,806 --
Storage USA (NYSE: SUS)... 394,360 394,360 --
Urban Growth Property
(Private)................ 181,082 181,082 --
Special opportunity posi-
tions.................... 398,235 398,235 --
---------- ---------- -------
Total................... $3,083,927 $2,985,986 $97,941
========== ========== =======
</TABLE>
- --------
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) The amount funded to CWS Communities includes an advance of $24 million in
the form of a promissory note that is to be repaid in September 1999.
(4) On 28 February 1999 Regency merged with Pacific Retail.
(5) Includes an aggregate of $165 million invested in shares of common stock
and convertible subordinated debentures of Security Capital Group.
SC-U.S. Realty's existing and committed fundings at cost as of 31 December
1998 were as follows:
<TABLE>
<CAPTION>
Total Total Cost Amount
Amount (Amount to be
Committed Funded)(/1/) Funded(/1/)
---------- ------------ -----------
(in thousands U.S. $)
<S> <C> <C> <C>
CarrAmerica (NYSE: CRE)................. $ 699,851 $ 699,851 $ --
City Center Retail (Private)............ 350,135 304,035 46,100(/2/)
CWS Communities (Private)............... 300,329 153,563 146,766(/2/)
Regency (NYSE: REG)(/3/)................ 759,788 759,788 --
Storage USA (NYSE: SUS)................. 394,272 394,272 --
Urban Growth Property (Private)......... 181,082 181,082 --
Special opportunity positions(/4/)...... 479,031 479,031 --
---------- ---------- --------
Total................................. $3,164,488 $2,971,622 $192,866
========== ========== ========
</TABLE>
- --------
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) On 28 February 1999 Regency merged with Pacific Retail.
(4) Includes an aggregate of $165 million invested in common stock and
convertible subordinated debentures of Security Capital Group.
Capital deployed to additional strategic investment positions, as well as
further funding to existing strategic investees, will generally be initially
funded with borrowings under the Company's line of credit. These borrowings
are expected to be reduced by internally generated free cash flow and the
proceeds of future issuances of debt or equity securities.
NOTE 12--LEGAL RESERVE
According to Luxembourg law, an annual transfer of 5% of the net profit to
a legal reserve is required until this reserve equals 10% of the value of the
issued Share capital.
NOTE 13--REVERSE STOCK SPILT
On 17 May 1999, SC-U.S. Realty's shareholders approved a one-for-two
reverse stock split. The effective date of the reverse stock split was 18 June
1999, when every two shares of SC-U.S. Realty were automatically
21
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
converted into one share. The shares issued and outstanding as of 31 December
1998 have been restated from 173,123,743 shares to reflect the reverse stock
split.
NOTE 14--SHARE REPURCHASE PROGRAMME
On 5 May 1999, SC-U.S. Realty announced that its Board of Directors had
authorised a share repurchase programme of up to $100 million of the Company's
shares and on 29 June 1999 the Company announced that its Board of Directors
authorised an increase in the Company's share repurchase programme to $200
million. SC-U.S. Realty plans to repurchase shares from time to time in open
market and privately negotiated transactions, depending on market prices and
other conditions. As of 30 June 1999, SC-U.S. Realty had repurchased 6,030,255
shares for an aggregate cost of $117,955,550, representing approximately 7.0%
of the Company's shares outstanding. The net asset value per share has been
calculated on 80,531,617 shares.
22
<PAGE>
SECURITY CAPITAL U.S. REALTY
R.C.B. - 51654
ADMINISTRATION
BOARD OF DIRECTORS
Erich Coenen
Member of the
Board of Managing Directors
Commerzbank AG
Jeffrey A. Cozad
Managing Director
Security Capital U.S. Realty
Claude Kremer
Partner
Arendt & Medernach
Jay O. Light
Professor
Harvard University Graduate School
of Business Administration
Francois Moes
Member of the Executive Board
Banque Internationale
a Luxembourg
William D. Sanders
Chairman(/1/)
Security Capital U.S. Realty
SENIOR MANAGEMENT
Jeffrey A. Cozad
Managing Director
W. Scott Hartman
Senior Vice President and
Chief Financial Officer
Gwynne M. Murphy
Vice President, Capital Markets
/1/Non-executive
PRINCIPAL OFFICES
Security Capital U.S. Realty
25b, boulevard Royal
L-2449 Luxembourg
Telephone:(352) 46 37 56 1
Facsimile:(352) 46 37 56 5555
U.K. affiliate
Security Capital U.S. Realty
Management Ltd.
7 Clifford Street
London W1X 2US England
Telephone:(44) 171 534 5600
Facsimile:(44) 171 534 5799
U.S. affiliate
Security Capital Investment
Research Incorporated
11 South LaSalle Street
Chicago, Illinois 60603 USA
Telephone:(312) 345-5800
Facsimile:(312) 345-5888
SHAREHOLDER INFORMATION
New York Stock Exchange (NYSE)
Ticker Symbol: RTY
Amsterdam AEX Stock Exchange
Clearing Code: 45045
ISIN-Code: LU0060100673
Bloomberg Symbol: SCUS NA
Reuters Symbol: CAPAu.AS
Custodian, Paying Agent,
Domiciliary and Corporate Agent
of the Company and Holdings
Banque Internationale a Luxembourg
69, route d'Esch
L-1470 Luxembourg
Transfer Agent
First European Transfer Agent S.A.
11, boulevard Grande-Duchesse Charlotte
L-1331 Luxembourg
Telephone:(352) 25 47 01 1
Facsimile:(352) 25 47 01 500
Web Site: www.sc-usrealty.com
23
