<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended: June 30, 1999 Commission File Number: 1-13829
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CABOT INDUSTRIAL TRUST
----------------------
(Exact name of registrant as specified in its charter)
Maryland 04-3397866
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Two Center Plaza, Suite 200, Boston, Massachusetts 02108
--------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 723-0900
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date: As of August 13, 1999,
40,619,420 Common Shares of Beneficial Interest, $.01 par value, of the
Registrant were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements should be
read in conjunction with the 1998 Form 10-K/A of the registrant ("Cabot Trust").
These consolidated condensed statements have been prepared in accordance with
the instructions of the Securities and Exchange Commission for Form 10-Q and do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of Cabot Trust's management, all material adjustments (consisting
solely of items of a normal, recurring nature) considered necessary for a fair
presentation of results of operations for the interim period have been included.
The results of consolidated operations for the period from January 1, 1999
through June 30, 1999 are not necessarily indicative of the results that may be
expected for the period from January 1, 1999 through December 31, 1999.
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED BALANCE SHEET
As of June 30, 1999 and December 31, 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------- -------------------
(unaudited)
<S> <C> <C>
ASSETS:
INVESTMENT IN REAL ESTATE:
Rental Properties $ 1,242,712 $ 1,072,675
Less: Accumulated Depreciation (28,812) (17,290)
------------- -----------
Net Rental Properties 1,213,900 1,055,385
Properties under Development 46,334 23,108
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$ 1,260,234 $ 1,078,493
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OTHER ASSETS:
Cash and Cash Equivalents $ 827 $ 2,301
Rents and Other Receivables,
net of reserve for uncollectible accounts of $388 and $312
at June 30, 1999 and December 31, 1998, respectively 3,844 2,872
Deferred Rent Receivable 3,985 2,638
Deferred Lease Acquisition Costs, Net 18,999 17,362
Deferred Financing Costs, Net 3,981 1,255
Investment in and Advances to Cabot Advisors 920 582
Other Assets 4,790 5,067
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TOTAL ASSETS $ 1,297,580 $ 1,110,570
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Mortgage Debt $ 159,103 $ 48,206
Unsecured Debt 200,000 --
Line of Credit Borrowings 4,000 200,000
Accounts Payable 889 511
Accrued Real Estate Taxes 8,155 7,309
Distributions Payable 14,835 14,134
Tenant Security Deposits and Prepaid Rents 6,087 4,956
Other Liabilities 21,357 18,156
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$ 414,426 $ 293,272
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MINORITY INTEREST:
8.625% Series B Cumulative Redeemable Perpetual Preferred Units $ 63,175 $ --
Limited Partnership Units 56,642 468,311
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TOTAL MINORITY INTEREST $ 119,817 $ 468,311
------------- -----------
SHAREHOLDERS' EQUITY:
Common Shares, $0.01 par value, 150,000,000 shares authorized;
40,619,420 shares issued and outstanding at June 30, 1999,
and 18,586,764 shares issued and outstanding at December 31, 1998 $ 406 $ 186
Paid in Capital 767,776 348,912
Retained Deficit (4,845) (111)
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TOTAL SHAREHOLDERS' EQUITY $ 763,337 $ 348,987
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,297,580 $ 1,110,570
============= ===========
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Three Months ended June 30, 1999 and June 30, 1998
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
---------------------------- -------------------
<S> <C> <C>
REVENUES:
Rental Revenue $ 32,004 $ 22,813
Tenant Reimbursements 5,178 3,346
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Total Revenues 37,182 26,159
---------- ----------
EXPENSES:
Property Operating 2,749 1,474
Property Taxes 4,125 3,100
Depreciation and Amortization 7,353 5,072
General and Administrative 2,136 1,722
Interest 5,822 797
---------- ----------
Total Expenses 22,185 12,165
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Interest and Other Income 304 248
Gain on Sale of Real Estate 3,404 --
---------- ----------
3,708 248
---------- ----------
Income Before Minority Interest Expense 18,705 14,242
Minority Interest Expense (3,544) (8,161)
---------- ----------
Net Income $ 15,161 $ 6,081
========== ==========
Earnings per Share:
Basic $ .41 $ .33
========== ==========
Diluted $ .41 $ .33
========== ==========
Weighted Average Shares:
Basic 37,324 18,587
========== ==========
Diluted 37,324 18,587
========== ==========
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Six Months ended June 30, 1999 and June 30, 1998
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Six Months Ended June 30, 1998
June 30, 1999 (Note 1)
------------------ -------------
<S> <C> <C>
REVENUES:
Rental Revenue $ 61,225 $ 35,655
Tenant Reimbursements 10,095 5,237
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Total Revenue 71,320 40,892
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EXPENSES:
Property Operating 5,429 2,516
Property Taxes 7,970 4,742
Depreciation and Amortization 14,163 8,246
General and Administrative 4,321 2,790
Interest 10,137 952
Settlement of Treasury Lock 2,492 --
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Total Expenses 44,512 19,246
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Interest and Other Income 506 722
Gain on Sale of Real Estate 3,404 --
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3,910 722
---------- ---------
Income Before Minority Interest Expense 30,718 22,368
Minority Interest Expense (7,866) (12,809)
---------- ---------
Net Income $ 22,852 $ 9,559
========== =========
Earnings per Share:
Basic $ .68 $ .51
========== =========
Diluted $ .68 $ .51
========== =========
Weighted Average Shares:
Basic 33,489 18,587
========== =========
Diluted 33,489 18,587
========== =========
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the Six Months ended June 30, 1999 and June 30, 1998
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Six Months Ended June 30, 1998
June 30, 1999 (Note 1)
---------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 22,852 $ 9,559
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and Amortization 14,163 8,246
Minority Interest Expense 7,866 12,809
Straight Line Rent Adjustment (1,376) (1,090)
Amortization of Deferred Financing Costs 408 140
Gain on Sale of Real Estate (3,404) --
Increase in Rents and Other Receivables (972) (1,102)
Increase in Other Assets (268) (1,622)
Increase in Accounts Payable 475 196
Increase in Accrued Real Estate Taxes 846 5,877
Increase in Other Liabilities 4,175 4,841
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Cash Provided by Operating Activities 44,765 37,854
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and Lease Acquisition Costs (179,214) (253,189)
Improvements to Property (842) (751)
Increase in Other Assets (946) --
Advances to Cabot Advisors, net (330) --
Net Proceeds from Sale of Real Estate 10,377 --
------------ ------------
Cash Used in Investing Activities (170,955) (253,940)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Unsecured Debt 200,000 --
Discount related to Unsecured Debt (552) --
Proceeds from Issuance of Secured Debt 93,215 --
Debt Principal Repayments (1,453) (13,427)
Line of Credit (Repayments) Advances, net (196,000) 68,000
Increase in Deferred Financing Costs (2,375) (1,654)
Distributions Paid to Minority Interests (10,134) (5,035)
Distributions Paid to Common Shareholders (19,816) (3,755)
Proceeds from Issuance of Common Shares, net (1,138) 178,559
Proceeds from Issuance of Preferred Units, net 63,309 --
Increase in Other Assets (340) --
Repurchase of Partnership Units -- (1,217)
------------ ------------
Cash Provided by Financing Activities 124,716 221,471
------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (1,474) 5,385
------------ ------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,301 1
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 827 $ 5,386
============ ============
Cash paid for interest and settlement of treasury lock, net of amounts
capitalized $ 10,483 $ 640
============ ============
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (continued)
For the Six Months ended June 30, 1999 and June 30, 1998
(unaudited, in thousands)
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In conjunction with the Offering and Formation Transactions in 1998, Cabot Trust
assumed $18,413 of indebtedness and issued 33,850 Common Shares and Partnership
Units in exchange for real estate assets and the advisory business of Cabot
Partners valued at $659,021 and $77, respectively.
During the six months ended June 30, 1999, 22,033 Partnership Units were
exchanged for Common Shares.
In conjunction with real estate acquisitions, Cabot Trust assumed $19,135 of
indebtedness and issued Units valued at $2,743 during the six months ended June
30, 1999 and assumed $12,547 of indebtedness and issued Units valued at $2,268
during the six months ended June 30, 1998 (Note 1).
At June 30, 1999, accrued capital expenditures (including amounts included in
accounts payable) totaled $10,949, accrued offering costs totaled $415 and
accrued financing costs totaled $269.
At June 30, 1998, accrued capital expenditures (including amounts included in
accounts payable) totaled $8,374 and accrued offering costs totaled $1,898.
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. General
Organization
Cabot Industrial Trust (Cabot Trust), a Maryland real estate investment trust,
was formed on October 10, 1997. Cabot Trust is the managing general partner of a
limited partnership, Cabot Industrial Properties, L.P. (Cabot L.P.), and
conducts substantially all of its business through Cabot L.P. As the general
partner of Cabot L.P., Cabot Trust has the exclusive power under the agreement
of limited partnership to manage and conduct the business of Cabot L.P., and
therefore Cabot Trust consolidates the assets, liabilities and results of
operations of Cabot L.P. for financial reporting purposes. Cabot Trust is a
fully integrated, internally managed real estate company formed to continue and
expand the national real estate business of Cabot Partners Limited Partnership
(Cabot Partners). Cabot Trust expects to qualify as a real estate investment
trust (a REIT) for federal income tax purposes.
Since Cabot Trust was formed on October 10, 1997, and did not begin operations
until February 4, 1998 (see Note 2), the results for the six months ended June
30, 1998 represent activity for 147 days, or approximately 5 months.
As of June 30, 1999, Cabot Trust owned 267 industrial properties located in 21
markets throughout the United States and containing approximately 32 million
rentable square feet. These properties were approximately 97.6% leased to 534
tenants at June 30, 1999.
2. The Formation Transactions, The Offerings and Ownership
Initial Capitalization
The initial capitalization of Cabot Trust consisted of 50 common shares of
beneficial interest (Common Shares), par value $.01 per share, issued for a
total consideration of $1,000. In connection with the Formation Transactions
and Offerings (described below), Cabot Trust issued an additional 18,586,714
Common Shares.
The Formation Transactions
On February 4, 1998, under a Contribution Agreement executed by Cabot Trust,
Cabot L.P., Cabot Partners and various other contributors, 122 real estate
properties, certain real estate advisory contracts and other assets were (i)
contributed to Cabot L.P. in exchange for Units in Cabot L.P. that are
exchangeable, subject to certain restrictions, for Common Shares of Cabot Trust
or (ii) contributed to Cabot Trust in exchange for Common Shares. The properties
contributed to Cabot Trust were each contributed to Cabot L.P. in exchange for
the number of general partnership Units in Cabot L.P. equal to the number of
Common Shares exchanged for the property.
Cabot L.P. contributed the real estate advisory contracts to Cabot Advisors,
Inc. (Cabot Advisors) and received 100% of the non-voting preferred stock of
Cabot Advisors, which entitles it to 95% of Cabot Advisors' net operating cash
flow. All of the common stock of Cabot Advisors is owned by an officer of Cabot
Trust.
During the six months ended June 30, 1999, Cabot L.P. issued 143,087 Units in
conjunction with an acquisition and Cabot Trust issued 22,032,656 Common Shares
in exchange for Units of Cabot L.P. As a result, Cabot Trust owned 93.1% of the
common equity of Cabot L.P. as of June 30, 1999. The remaining 6.9%, which is
owned by investors holding Cabot L.P. Units, is considered minority interest.
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999
The Offerings
On February 4, 1998, Cabot Trust completed an offering of 8,625,000 Common
Shares at an offering price of $20.00 per share. In addition, Cabot Trust
issued 1,000,000 Common Shares to a single investor in a private offering at
$20.00 per share (collectively, the Offerings). Cabot Trust contributed the net
proceeds of the Offerings to Cabot L.P. in exchange for the number of general
partnership interests in Cabot L.P. equal to the number of Common Shares sold in
the Offerings.
Distributions
On March 10, 1999, Cabot Trust and Cabot L.P. declared distributions of $.34 per
Common Share/Unit payable on April 30, 1999 to Shareholders or Unitholders of
record as of April 9, 1999, and on June 9, 1999, Cabot Trust and Cabot L.P.
declared distributions of $.34 per Share/Unit payable on July 29, 1999, to
Shareholders or Unitholders of record as of July 9, 1999. In addition, on June
9, 1999, Cabot L.P. declared distributions of $.75468 per 8.625% Series B
Preferred Unit, payable on June 30, 1999, to Preferred Unitholders of record on
June 17, 1999. These preferred distributions are classified as minority interest
expense in the accompanying consolidated condensed statements of operations.
8.625% Series B Cumulative Redeemable Perpetual Preferred Equity
On April 29, 1999, Cabot L.P. completed a private sale of $65 million of 8.625%
Series B Cumulative Redeemable Perpetual Preferred Units at $50 per unit.
Proceeds of the offering of $63,175,000 were used to repay borrowings under
Cabot Trust's Acquisition Facility. The Preferred Units, which may be called by
Cabot Trust at par on or after April 29, 2004, have no stated maturity or
mandatory redemption and are not convertible into any other securities of Cabot
L.P.
3. Property Acquisitions
During the period from April 1, 1999 through June 30, 1999, Cabot Trust acquired
the following industrial properties:
<TABLE>
<CAPTION>
Property Location Property Type Square Feet Acquisition Cost
- -------------------------------------- -------------------------- -------------- ------------------
(000'S)
<S> <C> <C> <C>
San Fernando Road, Los Angeles, CA Multitenant Distribution 102,800 $ 34,281
Tyburn Street, Los Angeles, CA Multitenant Distribution 85,142
San Fernando Road, Los Angeles, CA Multitenant Distribution 80,500
San Fernando Road, Los Angeles, CA Workspace 66,410
San Fernando Road, Los Angeles, CA Multitenant Distribution 58,860
San Fernando Road, Los Angeles, CA Workspace 41,894
San Fernando Road, Los Angeles, CA Workspace 17,000
Sunnyslope Avenue, Tewksbury, MA Multitenant Distribution 153,641 $ 21,050
Kenwood Circle, Franklin, MA Multitenant Distribution 153,369
South Street, Hopkinton, MA Multitenant Distribution 70,600
Progress Road, Billerica, MA Multitenant Distribution 69,500
Progress Road, Billerica, MA Multitenant Distribution 57,600
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999
<TABLE>
<CAPTION>
Property Location Property Type Square Feet Acquisition Cost
- -------------------------------------- -------------------------- -------------- ------------------
(000'S)
<S> <C> <C> <C>
Penny Lane, Schaumberg, IL Workspace 27,742 $ 2,215
Penny Lane, Schaumberg, IL Workspace 20,722
Bristol Court, Jessup, MD Workspace 60,000 $ 2,796
Kellogg Avenue, Carlsbad, CA Workspace 39,900 $ 2,960
Oakridge Way, Vista, CA Workspace 53,239 $ 4,085
Commerce Boulevard, Charlotte, NC Workspace 80,640 $ 10,354
Woodpark Boulevard, Charlotte, NC Workspace 65,850
Woodpark Boulevard, Charlotte, NC Workspace 56,000
Woodpark Boulevard, Charlotte, NC Workspace 48,600
North I-85 Service Road, Charlotte, NC Workspace 44,150
Marine Drive, Rockhill, SC Bulk Distribution 471,744 $ 14,135
Williams Drive, Marietta, GA Multitenant Distribution 84,124 $ 7,357
Williams Drive, Marietta, GA Multitenant Distribution 70,164
Williams Drive, Marietta, GA Multitenant Distribution 54,032
-------------- ------------
TOTALS 2,134,223 $ 99,233
============== ============
</TABLE>
4. Debt Activity
On May 4, 1999, Cabot L.P. completed a $200.0 million unsecured debt offering.
The debt has a maturity of five years, a coupon rate of 7.125% and was priced at
99.724%, resulting in a yield to maturity of 7.192%. The net proceeds of the
offering were $197.4 million and were used in part to repay borrowings under
Cabot Trust's Acquisition Facility.
In conjunction with acquisitions made during the six months ended June
30, 1999, Cabot Trust assumed debt of $19.1 million, with coupon interest rates
ranging from 7.375% to 9.375%, secured by properties with a net book value of
approximately $33.2 million. In addition, Cabot L.P. borrowed $87.6 million in
February 1999 and borrowed an additional $5.6 million under the same agreement
in April 1999, all secured by specific properties. At June 30, 1999, these
properties had a net book value of $136.6 million. This borrowing has a fixed
interest rate of 7.25% per annum and a 10-year term. Monthly installments of
principal and interest are due based on a 25-year amortization rate, and the
remaining balance outstanding is due at the end of the 10-year term. This
borrowing is subject to various customary covenants. The proceeds from the
borrowing were used to repay a portion of the balance outstanding under Cabot
Trust's Acquisition Facility.
During 1998 Cabot Trust entered into an interest rate hedge transaction
(referred to as a Treasury Lock) involving the future sale of $100.0 million of
Treasury securities based on a rate of approximately 5.54%
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999
for such securities in anticipation of a future debt issuance of at least $100.0
million with a maturity of 10 years. At the March 31, 1999 contractual
settlement date for this transaction, Cabot Trust paid $2.5 million to its
counter party in the transaction, reflecting the decrease in Treasury security
yields since the July 1998 commencement of the transaction. Because an offering
of the size and maturity contemplated when the interest rate hedge transaction
was executed was not completed by the time of, or shortly after, the March 31,
1999 settlement date of the transaction, Cabot Trust recorded a loss of $2.5
million in the quarter ended March 31, 1999.
5. Earnings per Share
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share", basic earnings per share have been computed by dividing
net income by the weighted average number of shares outstanding during the
period subsequent to Cabot Trust's commencement of operations (see Note 1).
Diluted earnings per share have been computed considering the dilutive effect of
the exercise of Unit and Common Share options granted by Cabot Trust. Basic and
diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Six Months Ended
Six Months Ended June 30, 1998
June 30, 1999 (see Note 1)
-------------------------- --------------------
<S> <C> <C>
Basic:
Net Income $ 22,852,000 $ 9,559,000
------------- -------------
Weighted Average Shares 33,489,000 18,587,000
------------- -------------
Basic Earnings per Share $ .68 $ .51
============= =============
Diluted:
Net Income $ 22,852,000 $ 9,559,000
Effect of Unit Options (8,000) (43,000)
------------- -------------
Income available to Common Shareholders, as adjusted $ 22,844,000 $ 9,516,000
------------- -------------
Weighted Average Shares 33,489,000 18,587,000
------------- -------------
Diluted Earnings per Share $ .68 $ .51
============= =============
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this discussion and elsewhere in this report that
are not historical facts are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are based on current
expectations, estimates and projections about the industry and markets in which
Cabot Trust operates, management's beliefs and assumptions made by management.
Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and variations of such words and similar expressions are intended to
identify such forward-looking statements. Such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties.
Therefore, actual outcomes and results may differ materially from what is
expressed or suggested by such forward-looking statements. Cabot Trust
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Cabot
Trust's operating results depend primarily on income from industrial properties,
which may be affected by various factors, including changes in national and
local economic conditions, competitive market conditions, uncertainties and
costs related to and the imposition of conditions on receipt of governmental
approvals and costs of material and labor, all of which may cause actual results
to differ materially from what is expressed herein. Capital and credit market
conditions which affect Cabot Trust's cost of capital also influence operating
results.
Introduction
Cabot Trust is an internally managed, fully integrated real estate company,
focused on serving a variety of industrial space users in the country's
principal commercial markets. Cabot Trust owns and operates a diversified
portfolio of bulk distribution, multitenant distribution and "workspace" (light
industrial, R&D and similar facilities) properties throughout the United States.
At June 30, 1999, Cabot Trust owned 267 industrial properties, 60 of which
properties were acquired during the period from January 1, 1999 through June 30,
1999. Cabot Trust sold one property on June 22, 1999. Cabot Trust was formed on
October 10, 1997, but did not begin operations as a fully integrated real estate
company until the completion of its Formation Transactions and Offerings on
February 4, 1998, the date of Cabot Trust's initial public offering.
Results of Operations
Since Cabot Trust did not begin operations until February 4, 1998, the results
for the six months ended June 30, 1998 represent activity for only 147 days.
Quarter Ended June 30, 1999 compared with Quarter Ended June 30, 1998
Net income allocable to common shareholders for the quarter ended June 30, 1999,
totaled $15.2 million or $.41 per share, compared with $6.1 million or $.33 per
share for the quarter ended June 30, 1998. The increase in net income allocable
to common shareholders was due to the conversion of Units to Common Shares
discussed in Note 2 to the financial statements, which resulted in a decrease in
the allocation of income to minority interest, but has no effect on net income
per share. The increase of 24% in net income per share was primarily due to the
income realized from increased investment in real estate as well as increased
earnings from Baseline Properties.
Rental revenues were $37.2 million, including tenant reimbursements of $5.2
million, for the quarter ended June 30, 1999, compared with $26.2 million,
including tenant reimbursements of $3.3 million, for
<PAGE>
the quarter ended June 30, 1998. Total rental revenue of $26.4 million and $25.1
million was generated in 1999 and 1998, respectively, by the properties owned as
of March 31, 1998 and still owned at June 30, 1999, (the Quarterly Baseline
Properties) and total rental revenue $10.5 million and $619,000 million in 1999
and 1998, respectively, was generated by the properties acquired or developed
subsequent to March 31, 1998. The growth in rental revenue for Quarterly
Baseline Properties is primarily attributable to rental increases for new
leases, extensions and renewals. The remainder of total rental revenue relates
to properties sold in 1998 and 1999.
The operating margin (the ratio of total revenues minus property operating
and real estate tax expenses to total revenues) was relatively unchanged at
approximately 82% for the quarter ended June 30, 1999 compared to 83% for the
quarter ended June 30, 1998.
Depreciation and amortization related to real estate investments totaled $7.3
million and $5.1 million for the quarters ended June 30, 1999 and 1998,
respectively. The increase reflects the acquisition of real estate assets and
additional deferred lease acquisition costs for Baseline Properties.
General and administrative expense increased by $414,000, to $2.1 million for
the quarter ended June 30, 1999. The increase is primarily due to an increase in
personnel to service the increase in the number of Cabot Trust's properties
from 171 to 267 at the end of each period.
Interest expense grew, from $797,000 for the quarter ended June 30, 1998 to $5.8
million for the quarter ended June 30, 1999. The increase is the result of
increased debt outstanding which was used primarily to fund real estate
acquisitions. For the quarter ended June 30, 1998, Cabot Trust had $68.0 million
of debt outstanding under its Acquisition Facility and $17.5 million of
outstanding mortgage debt. For the quarter ended June 30, 1999, Cabot Trust had
$4.0 million of debt outstanding under its Acquisition Facility, $159.1 million
of outstanding mortgage debt and $200.0 million of unsecured debt outstanding,
that was issued on May 4, 1999.
Interest and other income, which consists primarily of interest earned on Cabot
Trust's invested cash balances and earnings of Cabot Advisors, increased to
$304,000 from $248,000 for the quarter ended June 30, 1999, compared to the
quarter ended June 30, 1998. The increase is primarily the result of increased
average investment balances.
On June 22, 1999, Cabot Trust sold one property located in Massachusetts
containing approximately 120,000 square feet for an aggregate sales price of
approximately $10.5 million, which resulted in a gain of approximately $3.4
million.
Minority interest expense represents net income allocable to holders of Cabot
L.P. Units and Series B Preferred Units. As of June 30, 1999, Cabot Trust owned
93.1% of the common equity of Cabot L.P.; minority interest ownership at that
date was 6.9%. As of June 30, 1998, minority interest ownership was 57.3%. As
discussed in Note 2 to the financial statements, a significant number of Units
were converted to Common Shares, resulting in a decreased minority interest
expense, which was offset by $981,000 of minority interest expense related to
the Series B Preferred Units.
<PAGE>
Six Months Ended June 30, 1999 compared with Six Months Ended June 30, 1998
Net income allocable to common shareholders for the six months ended June 30,
1999, totaled $22.9 million or $.68 per share, compared with $9.6 million or
$.51 per share for the six months ended June 30, 1998. The increase in net
income allocable to common shareholders is due to the conversion of Units to
Common Shares discussed in Note 2 to the financial statements, which resulted in
a decrease in the allocation of income to minority interest, but has no effect
on net income per share. The increase is also the result of the full six months
of operations in 1999 compared with 147 days in 1998 and increased earnings due
primarily to increased investment in real estate assets as well as increased
earnings from Baseline Properties.
Rental revenues were $71.3 million, including tenant reimbursements of $10.1
million, for the six months ended June 30, 1999, compared with $40.9 million,
including tenant reimbursements of $5.2 million, for the six months ended June
30, 1998. Total rental revenue of $41.7 million and $32.5 million was generated
in 1999 and 1998, respectively, by the 120 properties owned as of February 4,
1998 and still owned at June 30, 1999 (the Baseline Properties) and total rental
revenue of $29.2 million and $7.6 million in 1999 and 1998, respectively, was
generated by the 147 properties acquired or developed subsequent to February 4,
1998. The remainder of total rental revenue relates to properties sold in 1998
and 1999. The increase in rental revenues related to the Baseline Properties is
primarily the result of 181 compared to 147 days of activity, as well as rental
increases achieved on new leases (including extensions and renewals).
Depreciation and amortization related to real estate assets totaled $14.1
million and $8.2 million for the six months ended June 30, 1999 and 1998,
respectively. The increase reflects the acquisition of real estate assets and
181 days of operations in 1999 compared to 147 days in 1998.
General and administrative expense increased by $1.5 million, to $4.3 million
for the six months ended June 30, 1999. The increase is primarily due to a full
six months of operations in the six months ended June 30, 1999, and also
reflects an increase in personnel to service the increase in the number of
Cabot Trust's properties from 171 to 267 at the end of each period.
Interest expense for the six months ended June 30, 1999 of $10.1 million
represents interest incurred on the $200.0 million of unsecured debt and the
$159.1 million of mortgage indebtedness outstanding at June 30, 1999, and
interest on outstanding borrowings under Cabot Trust's Acquisition Facility, net
of $1.3 million of interest capitalized to development projects. Interest
expense of $1.0 million for 1998 was incurred for only 147 days, and was
incurred on $68.0 million of indebtedness under the Acquisition Facility, and
$17.5 million of secured debt outstanding on June 30, 1998.
During 1998 Cabot Trust entered into an interest rate hedge transaction
(referred to as a Treasury Lock) involving the future sale of $100.0 million of
Treasury securities based on a rate of approximately 5.54% for such securities
in anticipation of a future debt issuance of at least $100.0 million with a
maturity of 10 years. At the March 31, 1999 contractual settlement date for
this transaction, Cabot Trust paid $2.5 million to its counter party in the
transaction, reflecting the decrease in Treasury security yields since the July
1998 commencement of the transaction. Because an offering of the size and
maturity contemplated when the interest rate hedge transaction was executed was
not completed by the time of, or shortly after, the March 31, 1999 settlement
date of the transaction, Cabot Trust recorded a loss related to the Settlement
of Treasury Lock of $2.5 million in the quarter ended March 31, 1999, which is
reflected in the six months ended June 30, 1999.
Interest and other income, which consists primarily of interest earned on Cabot
Trust's invested cash balances and earnings of Cabot Advisors, decreased
$216,000 from $722,000 for the six months ended June 30, 1998 to $506,000 for
the six months ended June 30, 1999, due primarily to lower average invested cash
balances.
<PAGE>
Minority interest expense represents net income allocable to holders of Cabot
L.P. Units and Series B Preferred Units. At June 30, 1999, Cabot Trust owned
93.1% of the common equity of Cabot L.P.; minority interest ownership at that
date was 6.9%. For the six months ended June 30, 1998, minority interest
ownership was 57.3%. As discussed in Note 2 to the financial statements, during
the six months ended June 30, 1999 a significant number of Units were converted
to Common Shares, resulting in a decreased minority interest expense, which was
offset by $981,000 of minority interest expense related to the Series B
Preferred Units.
Capital Resources and Liquidity
Cabot Trust intends to rely on cash provided by operations, unsecured and
secured borrowings from institutional sources, and public debt as its primary
sources of funding for acquisition, development, expansion and renovation of
properties. Cabot Trust may also consider equity financing when such financing
is available on attractive terms.
In March 1998 Cabot Trust established a $325 million unsecured revolving line of
credit facility (the Acquisition Facility) with Morgan Guaranty Trust Company of
New York as lead agent for a syndicate of banks. The Acquisition Facility is
used to fund property acquisitions, development activities, building expansions,
tenant leasing costs and other general corporate purposes. The Acquisition
Facility contains certain limits and requirements for debt to asset ratios, debt
service coverage minimums, and other limitations. Cabot Trust believes cash
flow from operations not distributed to Shareholders and Unitholders will be
sufficient to cover tenant allowances and costs associated with renewal or
replacement of current tenants as their leases expire and recurring non-
incremental revenue generating capital expenditures.
In the normal course of operations, Cabot Trust has purchased approximately $30
million of real estate assets subsequent to June 30, 1999, and as of July 31,
1999, has commitments to purchase approximately $90 million of additional real
estate assets. Because a number of conditions must be met prior to the closing,
it is uncertain as to whether all these assets will actually be purchased.
Subsequent to June 30, 1999, Cabot Trust sold one building for an aggregate
sales price of approximately $6.6 million. This sale is expected to result in a
net loss of approximately $700,000.
As of June 30, 1999, Cabot L.P. had $159.1 million of fixed rate debt secured by
properties, $4.0 million of unsecured borrowings under its Acquisition Facility,
$200.0 million of unsecured debt, and a 27% debt-to-total market capitalization
ratio. The debt-to-total market capitalization ratio is calculated based on
Cabot Trust's total consolidated debt as a percentage of the market value of its
outstanding Common Shares and Units (excluding those held by Cabot Trust) and
the liquidation value of Perpetual Preferred Units plus total debt.
Cabot Trust entered into an interest rate cap arrangement relating to its LIBOR-
based Acquisition Facility for a notional amount of $124 million for the period
March 19, 1999 through June 19, 1999. The arrangement was intended to result in
limiting the LIBOR component of Cabot Trust's interest rate on an equivalent
amount of borrowings to 5.35% per annum.
<PAGE>
On April 29, 1999, Cabot L.P. completed a private sale of $65 million of 8.625%
Series B Cumulative Redeemable Perpetual Preferred Units at $50 per unit.
Proceeds of the offering were used to repay borrowings under Cabot Trust's
Acquisition Facility. The Preferred Units, which may be called by Cabot Trust
at par on or after April 29, 2004, have no stated maturity or mandatory
redemption and are not convertible into any other securities of Cabot L.P.
On May 4, 1999, Cabot L.P. completed a $200.0 million unsecured debt
offering. The debt has a maturity of five years, a coupon rate of 7.125% and
was priced at 99.724%, resulting in a yield to maturity of 7.192%. The net
proceeds of the offering were $197.4 million and were used in part to repay
borrowings under Cabot Trust's Acquisition Facility.
Cash and cash equivalents totaled $827,000 at June 30, 1999. Cash provided by
operating activities for the six months ended June 30, 1999, was $44.8 million.
Cabot Trust has assessed its Year 2000 readiness with respect to its internal
accounting and information systems. Cabot Trust also has contacted its
significant vendors, including banks and software providers, to determine
whether those vendors are satisfactorily addressing the Year 2000 problem with
respect to the products and services they provide to Cabot Trust. No significant
issues or costs of remediation have been identified with respect to such systems
or vendors. Cabot Trust has also completed its review of its other internal
systems (consisting primarily of property-related systems, such as elevators and
heating, ventilation and air conditioning systems) and has developed a Year 2000
remedial plan to address issues identified in that review, none of which are
considered by Cabot Trust to be material. Remediation costs to date have not
been material and Cabot Trust does not expect any significant issues or
remediation costs as a result of completion of its remedial plan due to the
relatively uncomplicated nature of its industrial real estate assets and the
general nature of its leases, which in many instances provide for the
reimbursement of costs from its tenants. Cabot Trust believes that there will be
no direct material effects on its operating performance or results of operations
from the Year 2000 problem as it relates to Cabot Trust's internal systems and
significant vendors. Cabot Trust further believes that adequate alternative
service providers will be available to it if any of its vendors experience
unexpected difficulties as a result of Year 2000 systems failures and,
accordingly, has not established any specific contingency plans in this regard.
It is not possible to quantify any potential indirect effects that may result
from the lack of Year 2000 readiness on the part of third parties, including
tenants, with whom Cabot Trust conducts its business.
<PAGE>
ITEM 3. QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Cabot Trust's exposure to market risk has not changed materially from its
exposure at December 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
On May 3, 1999, at the Annual Meeting of Shareholders, the
shareholders reelected two incumbent Trustees to three-year terms
expiring in 2002. The shareholders also elected one Trustee, Mr.
George M. Lovejoy, Jr., to serve for the two-year remainder of
the term for Class I Trustees. The Incumbent Trustees reelected
at the meeting were Mr. Ronald L. Skates and Mr. W. Nicholas
Thorndike. Mr. Skates received 38,745,043 shares voted in favor
of election and 8,765 shares withheld; Mr. Thorndike received
38,611,243 shares voted in favor of election and 143,365 shares
withheld; and Mr. George M. Lovejoy, Jr. received 38,745,543
shares voted in favor of election and 9,065 shares withheld. No
abstentions or broker non-votes were recorded on the election of
Trustees.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
On April 1, 1999, Cabot Trust filed a Form 8-K dated March 11,
1999, to report information under Items 5 and 7 of Form 8-K,
including financial statements under Rule 3-14 of Regulation S-X
of acquired and to be acquired real estate.
On April 29, 1999, Cabot Trust filed a Form 8-K dated April 28,
1999, to report information under Item 5 of Form 8-K, including
a press release related to Cabot Trust's earnings and financial
position for the first quarter of 1999.
On April 29, 1999, Cabot Trust filed a Form 8-K dated April 29,
1999, to report information under Item 5 of Form 8-K, including
documents relating to the issuance of debt securities by Cabot
Industrial Properties, L.P. pursuant to Registration Statement
No. 333-71585.
<PAGE>
On May 4, 1999, Cabot Trust filed a Form 8-K dated April 30,
1999, to report information under Item 5 of Form 8-K, including
a press release related to Cabot Trust's issuance of 8.625%
Series B Cumulative Redeemable Perpetual Preferred Units.
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 as of the 13th day of August 1999.
CABOT INDUSTRIAL TRUST
-----------------------------
Registrant
8/13/99 /s/ Neil E. Waisnor
- ----------------- -----------------------------
Date Neil E. Waisnor
Senior Vice President-Finance,
Treasurer, Secretary
8/13/99 /s/ Robert E. Patterson
- ----------------- -----------------------------
Date Robert E. Patterson
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
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