<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: March 31, 2000 Commission File Number: 1-13829
-------------- -------
CABOT INDUSTRIAL TRUST
----------------------
(Exact name of registrant as specified in its charter)
Maryland 04-3397866
- ------------------------------- --------------------------------------
(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 May 12, 2000, 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 1999 Form 10-K 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, 2000
through March 31, 2000 are not necessarily indicative of the results that may be
expected for the period from January 1, 2000 through December 31, 2000.
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED BALANCE SHEET
As of March 31, 2000 and December 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS:
INVESTMENT IN REAL ESTATE:
Rental Properties $ 1,578,072 $ 1,507,834
Less: Accumulated Depreciation (50,679) (42,543)
------------ -------------
Net Rental Properties 1,527,393 1,465,291
Properties under Development 67,545 63,938
------------ -------------
$ 1,594,938 $ 1,529,229
------------ -------------
OTHER ASSETS:
Cash and Cash Equivalents $ 12,491 $ 22,007
Rents and Other Receivables, net of allowance for uncollectible accounts of
$705 and $574 at March 31, 2000 and December 31, 1999, respectively 4,624 3,828
Deferred Rent Receivable 7,439 6,079
Deferred Lease Acquisition Costs, net 27,594 23,913
Deferred Financing Costs, net 3,186 3,369
Investment in and Advances to Cabot Advisors 1,359 1,105
Other Assets 6,554 3,954
------------ -------------
TOTAL ASSETS $ 1,658,185 $ 1,593,484
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Mortgage Debt $ 168,950 $ 163,866
Unsecured Debt 200,000 200,000
Line of Credit Borrowings 207,000 163,000
Accounts Payable 2,069 889
Accrued Real Estate Taxes 10,486 10,254
Distributions Payable 16,082 15,437
Tenant Security Deposits and Prepaid Rents 8,794 11,205
Other Liabilities 23,550 20,117
------------ -------------
$ 636,931 $ 584,768
------------ -------------
MINORITY INTEREST:
Preferred Unitholders $ 204,230 $ 189,805
Limited Partner Unitholders 57,038 57,169
------------ -------------
$ 261,268 $ 246,974
------------ -------------
SHAREHOLDERS' EQUITY:
Common Shares, $0.01 par value, 150,000,000 shares authorized,
40,619,420 shares issued and outstanding at March 31, 2000 and
December 31, 1999 $ 406 $ 406
Paid in Capital 767,701 767,774
Retained Deficit (8,121) (6,438)
------------ -------------
TOTAL SHAREHOLDERS' EQUITY $ 759,986 $ 761,742
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,658,185 $ 1,593,484
============ =============
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months ended March 31, 2000 and March 31, 1999
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------------- ---------------------
<S> <C> <C>
REVENUES:
Rental Income $ 42,749 $ 29,221
Tenant Reimbursements 7,059 4,917
---------- ---------
Total Revenues $ 49,808 34,138
---------- ---------
EXPENSES:
Property Operating $ 4,546 $ 2,680
Property Taxes 5,898 3,845
Depreciation and Amortization 9,823 6,810
Interest 9,450 4,315
General and Administrative 2,481 2,185
Settlement of Treasury Lock -- 2,492
---------- ---------
Total Expenses $ 32,198 $ 22,327
---------- ---------
Interest and Other Income $ 294 $ 202
Income Before Minority Interest Expense $ 17,904 $ 12,013
MINORITY INTEREST EXPENSE:
Preferred Unitholders (4,211) --
Limited Partner Unitholders (956) (4,322)
---------- ---------
Net Income $ 12,737 $ 7,691
========== =========
Earnings per Common Share:
Basic $ 0.31 $ 0.28
========== =========
Diluted $ 0.31 $ 0.28
========== =========
Weighted Average Common Shares:
Basic 40,619 27,873
========== =========
Diluted 40,619 27,873
========== =========
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months ended March 31, 2000 and March 31, 1999
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,737 $ 7,691
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and Amortization 9,823 6,810
Minority Interest Expense 5,167 4,322
Straight Line Rent Adjustment (1,360) (643)
Amortization of Deferred Financing Costs 312 164
Increase in Rents and Other Receivables (796) (123)
Increase in Accounts Payable 1,169 739
Increase in Other Assets (2,308) (74)
Increase (Decrease) in Accrued Real Estate Taxes 232 (9)
Increase in Other Liabilities 2,272 1,957
---------- ----------
Cash Provided by Operating Activities 27,248 20,834
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and Lease Acquisition Costs (72,953) (71,324)
Improvements to Property -- (417)
Increase in Other Assets (1,026) --
Advances to Cabot Advisors, net (194) (229)
---------- ----------
Cash Used in Investing Activities (74,173) (71,970)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Secured Debt -- 87,617
Line of Credit Advances, net 44,000 11,000
Distributions Paid to Minority Interests (5,257) (8,093)
Distributions Paid to Common Shareholders (13,811) (6,041)
Debt Principal Repayments (1,001) (560)
Net Proceeds from Issuance of Common Shares/Payment of Expenses of
Issuance (78) (371)
Increase in Deferred Financing Costs (105) (159)
Proceeds from Issuance of Preferred Units, net 13,661 --
---------- ----------
Cash Provided by Financing Activities 37,409 83,393
---------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents (9,516) 32,257
---------- ----------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 22,007 2,301
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 12,491 $ 34,558
========== ==========
Cash paid for interest and settlement of treasury lock, net of amounts
capitalized $ 5,491 $ 5,247
========== ==========
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months ended March 31, 2000 and March 31, 1999
(unaudited, in thousands)
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1999, 21,932 Partnership Units were
exchanged for Common Shares.
In conjunction with real estate acquisitions, Cabot Trust assumed $6,085 of
indebtedness during the three months ended March 31, 2000 and assumed $14,521 of
indebtedness and issued Units valued at $2,743 during the three months ended
March 31, 1999 (Note 2).
At March 31, 2000, accrued capital expenditures (including amounts included in
accounts payable) totaled $9,736, accrued offering costs totaled $815 and
accrued financing costs totaled $24.
At March 31, 1999, accrued capital expenditures (including amounts included in
accounts payable) totaled $9,037, accrued offering costs totaled $919, and
accrued financing costs totaled $170.
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
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 qualifies as a real estate
investment trust (a REIT) for federal income tax purposes.
As of March 31, 2000, Cabot Trust owned 337 industrial properties located in 22
markets throughout the United States and containing approximately 40 million
rentable square feet. These properties were approximately 97% leased to 669
tenants at March 31, 2000.
2. The Formation Transactions, The Offerings and Ownership
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 industrial real
estate properties, certain real estate advisory contracts and other assets were
(i) contributed to Cabot L.P. in exchange for general partnership units in Cabot
L.P. (Units) that may, subject to certain restrictions, be exchanged for Common
Shares of Cabot Trust (Common Shares) or (ii) contributed to Cabot Trust in
exchange for Common Shares. The properties contributed to Cabot Trust were
concurrently contributed by it to Cabot L.P. in exchange for the number of 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 quarter ended March 31, 1999 Cabot L.P. issued 143,087 Units in
conjunction with acquisitions and Cabot Trust issued 21,931,507 Common Shares to
limited partners of Cabot L.P. in exchange for Units of Cabot L.P. For the year
ended December 31, 1999, Cabot L.P. issued a total of 177,448 Units in
conjunction with acquisitions and Cabot Trust issued a total of 22,032,656
Common Shares to limited partners of Cabot L.P. in exchange for Units of Cabot
L.P.
At March 31, 2000, Cabot Trust owned 93.0% of the common equity of Cabot L.P.
The remaining 7.0%, which is owned by investors holding Cabot L.P. Units, is
considered Minority Interest. Cabot Trust owned 92.9% of Cabot L.P. at March 31,
1999.
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2000
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 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.
Cumulative Redeemable Perpetual Preferred Equity
During 1999 and 2000, Cabot L.P. completed private sales of the following
Cumulative Redeemable Perpetual Preferred Units (the "Preferred Units"):
Sale Date Series Unit price Liquidation Value Net Proceeds
- ------------------ --------------- ---------- ----------------- ------------
April 29, 1999 8.625% Series B $ 50 $ 65,000,000 $ 63,175,000
September 3, 1999 8.625% Series C 25 65,000,000 63,175,000
September 27, 1999 8.375% Series D 50 10,000,000 9,715,000
December 9, 1999 8.375% Series E 50 10,000,000 9,715,000
December 22, 1999 8.500% Series F 25 45,000,000 44,025,000
March 23, 2000 8.875% Series G 25 15,000,000 14,425,000
-------------- ------------
$ 210,000,000 $204,230,000
============== ============
The Preferred Units, which may be called by Cabot Trust at par on or after the
fifth anniversary of issuance in each case, have no stated maturity or mandatory
redemption provisions and are not convertible into any other securities of Cabot
L.P.
Distributions
The following table summarizes distributions declared with respect to the
periods indicated:
Common Shares/Units
<TABLE>
<CAPTION>
Distribution
1999: Declaration Date Record Date Payable Date Per Share/Unit
- ---- ------------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
First Quarter March 10, 1999 April 9, 1999 April 30, 1999 $ 0.340
Second Quarter June 9, 1999 July 9, 1999 July 29, 1999 $ 0.340
Third Quarter September 15, 1999 October 8, 1999 October 27, 1999 $ 0.340
Fourth Quarter December 8, 1999 December 31, 1999 January 19, 2000 $ 0.340
2000:
- ----
First Quarter March 8, 2000 April 10, 2000 April 28, 2000 $ 0.355
Second Quarter May 10, 2000 July 10, 2000 July 28, 2000 $ 0.355
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2000
Cumulative Redeemable Perpetual Preferred Equity
<TABLE>
<CAPTION>
Distribution
1999: Declaration Date Record Date Payable Date Per Unit
- ----- ---------------- ----------- ------------ --------
<S> <C> <C> <C> <C>
First Quarter
8.625% Series B -- -- -- --
8.625% Series C -- -- -- --
8.375% Series D -- -- -- --
8.375% Series E -- -- -- --
8.500% Series F -- -- -- --
8.875% Series G -- -- -- --
Second Quarter
8.625% Series B June 9, 1999 June 17, 1999 June 30, 1999 $0.7547
8.625% Series C -- -- -- --
8.375% Series D -- -- -- --
8.375% Series E -- -- -- --
8.500% Series F -- -- -- --
8.875% Series G -- -- -- --
Third Quarter
8.625% Series B September 15, 1999 September 17, 1999 September 30, 1999 $1.0781
8.625% Series C September 15, 1999 November 17, 1999 December 1, 1999 $0.5331
8.375% Series D -- -- -- --
8.375% Series E -- -- -- --
8.500% Series F -- -- -- --
8.875% Series G -- -- -- --
Fourth Quarter
8.625% Series B December 8, 1999 December 17, 1999 December 31, 1999 $1.0781
8.625% Series C December 8, 1999 February 17, 2000 March 1, 2000 $0.5391
8.375% Series D December 8, 1999 December 17, 1999 December 27, 1999 $1.0469
8.375% Series E December 8, 1999 December 17, 1999 December 31, 1999 $0.2675
8.500% Series F December 8, 1999 March 17, 2000 March 27, 2000 $0.0236
8.875% Series G -- -- -- --
2000:
- ----
First Quarter
8.625% Series B March 8, 2000 March 30, 2000 March 31, 2000 $1.0781
8.625% Series C March 8, 2000 May 17, 2000 June 1, 2000 $0.5391
8.375% Series D March 8, 2000 March 17, 2000 March 27, 2000 $1.0469
8.375% Series E March 8, 2000 March 17, 2000 March 31, 2000 $1.0469
8.500% Series F March 8, 2000 March 17, 2000 March 27, 2000 $0.5313
8.875% Series G -- -- -- --
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2000
Cumulative Redeemable Perpetual Preferred Equity (continued)
<TABLE>
<CAPTION>
Distribution
2000: Declaration Date Record Date Payable Date Per Unit
- ---- ---------------- ------------ ------------ --------
Second Quarter
<S> <C> <C> <C> <C>
8.625% Series B May 10, 2000 June 29, 2000 June 30, 1999 $1.0781
8.625% Series C May 10, 2000 August 21, 2000 September 1, 2000 $0.5391
8.375% Series D May 10, 2000 June 19, 2000 June 26, 2000 $1.0469
8.375% Series E May 10, 2000 June 19, 2000 June 30, 2000 $1.0469
8.500% Series F May 10, 2000 June 19, 2000 June 26, 2000 $0.5313
8.875% Series G May 10, 2000 June 19, 2000 June 26, 2000 $0.5670
</TABLE>
3. Property Acquisitions
During the period from January 1, 2000 through March 31, 2000, Cabot Trust
acquired the following industrial properties:
<TABLE>
<CAPTION>
Acquisition
Property Location Property Type Square Feet Cost
- ----------------------------------------- -------------------------- -------------- ----------------
(000's)
<S> <C> <C> <C>
East University Drive, Phoenix, AZ Workspace 33,841 $ 9,009
East University Drive, Phoenix, AZ Workspace 25,321
East University Drive, Phoenix, AZ Workspace 23,362
East University Drive, Phoenix, AZ Workspace 15,633
East University Drive, Phoenix, AZ Workspace 11,441
Fulling Mill Road, Harrisburg, PA Bulk Distribution 186,000 $ 7,302
Evergreen Boulevard, Duluth, GA Bulk Distribution 180,000 $ 20,935
Northmont Parkway, Duluth, GA Multitenant Distribution 123,537
Northmont Parkway, Duluth, GA Multitenant Distribution 90,000
Northmont Parkway, Duluth, GA Workspace 40,000
Buford Highway, Duluth, GA Multitenant Distribution 210,000 $ 20,229
Summit Ridge Parkway, Duluth, GA Multitenant Distribution 173,360
Summit Ridge Parkway, Duluth, GA Multitenant Distribution 152,282
Summit Ridge Parkway, Duluth, GA Multitenant Distribution 100,800
East Collins Boulevard, Richardson, TX Workspace 56,460 $ 3,146
Aldergrove Avenue, Escondito, CA Workspace 42,333 $ 2,847
-------------- -----------
TOTALS 1,464,370 $ 63,468
============== ===========
</TABLE>
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2000
4. Debt Activity
On May 4, 1999, Cabot L.P. issued $200 million of senior unsecured redeemable
notes, due May 1, 2004. The notes have a 7.125% coupon interest rate and were
priced at 99.724%, resulting in a discount of $552,000.
Cabot Trust assumed certain loans in connection with the Formation Transactions,
entered into loan agreements during 1999, and assumed certain loans in
conjunction with several real estate acquisitions, all secured by certain
existing real estate assets (collectively, the Mortgage Loans). In conjunction
with acquisitions made during the three months ended March 31, 2000, Cabot Trust
assumed debt of $6.1 million, bearing a coupon interest rate of 8.38%, secured
by properties with a net book value of approximately $8.6 million. At March 31,
2000, the Mortgage Loans totaling $169.0 million bear coupon rates ranging from
7.25% - 9.67% and are secured by properties with a net book value of $277.8
million. Certain of the debt assumed in conjunction with the acquisition of
properties bears a coupon interest rate that differed from the fair market value
interest rate at the date of acquisition. In accordance with generally accepted
accounting principles, such debt was recorded at fair market value and interest
expense recorded in the accompanying consolidated statements of operations was
adjusted based on the fair market interest rate at the date of acquisition.
Cabot Trust has entered into an interest rate cap arrangement relating to its
$325.0 million Acquisition Facility for a notional amount of $100.0 million for
the period from April 11, 2000 through October 11, 2000. This arrangement is
intended to result in limiting the variable nature of the LIBOR component of
Cabot Trust's interest rate on an equivalent amount of borrowings to 7.0% per
annum. Under the agreement, Cabot Trust's counter party is required to pay an
amount equal to interest on that notional principal amount of borrowings to the
extent that the relevant LIBOR exceeds 7.0%.
As of March 31, 2000, Cabot Trust was a party to an interest rate cap
agreement that was intended to limit its exposure to changes in LIBOR through
April 1, 2000 on $100.0 million of borrowings on its Acquisition Facility.
Interest expense related to these interest rate cap and similar agreements was
approximately $38,000 for the quarter ended March 31, 1999. No additional
interest expense was incurred related to interest rate cap and similar
agreements during the quarter ended March 31, 2000.
As of December 31, 1998 Cabot Trust also had 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 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. 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:
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2000
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------- ------------------
<S> <C> <C>
Basic:
Net Income $ 12,737,000 $ 7,691,000
---------------- ----------------
Weighted Average Common Shares 40,619,000 27,873,000
---------------- ----------------
Basic Earnings per Common Share $ 0.31 $ 0.28
================ ================
Diluted:
Net Income $ 12,737,000 $ 7,691,000
Effect of Unit Options (9,000) --
--------------- ----------------
Income available to Common Shareholders, as adjusted $ 12,728,000 $ 7,691,000
---------------- ----------------
Weighted Average Common Shares 40,619,000 27,873,000
---------------- ----------------
Diluted Earnings per Common Share $ 0.31 $ 0.28
================ ================
</TABLE>
Approximately 4 million and 3 million options granted are excluded from the
above calculations for 2000 and 1999, respectively, since the impact of
consideration of these options at March 31, 2000 and March 31, 1999 was anti-
dilutive.
<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 March 31, 2000, Cabot Trust owned 337 industrial properties, 16 of which
properties were acquired during the period from January 1, 2000 through
March 31, 2000.
Results of Operations
Quarter Ended March 31, 2000 compared with Quarter Ended March 31, 1999
Net income allocable to common shareholders for the quarter ended March 31, 2000
totaled $12.8 million or $0.31 per share, compared with $7.7 million or $.28 per
share for the quarter ended March 31, 1999. The increase in net income allocable
to common shareholders is primarily due to Cabot Trust recording a loss related
to the settlement of the treasury lock of approximately $2.5 million during the
quarter ended March 31, 1999 and 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.
Rental revenues were $49.8 million, including tenant reimbursements of
$7.1 million, for the quarter ended March 31, 2000, compared with $34.1 million,
including tenant reimbursements of $4.9 million, for the quarter ended March 31,
1999. Total rental revenue of $34.0 million and $33.0 million was generated in
2000 and 1999, respectively, by the properties owned as of December 31, 1998,
and still owned at March 31, 2000, (the Baseline Properties) and total rental
revenue of $15.8 million and
<PAGE>
$691,000 in 2000 and 1999, respectively, was generated by the properties
acquired or developed subsequent to December 31, 1998. The growth in rental
revenue for 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 1999.
The operating margin (the ratio of total revenues minus property operating and
property tax expenses to total revenues) decreased to approximately 79% for the
quarter ended March 31, 2000 compared with 81% for the quarter ended March 31,
1999. The decrease is primarily due to a change in the composition of leases,
primarily as a result of acquisitions of multitenant and workspace properties,
to more leases where Cabot Trust pays property and operating expenses and is
reimbursed by tenants compared to where the tenant pays these expenses directly.
Depreciation and amortization related to real estate assets totaled $9.8 million
and $6.8 million for the quarters ended March 31, 2000 and 1999, respectively.
The increase reflects the acquisition of approximately $448.3 million of real
estate assets in 1999 and $63.5 million for the three months ended March 31,
2000 and additional deferred lease acquisition costs for Baseline Properties.
General and administrative expense increased by $296,000, to $2.5 million for
the quarter ended March 31, 2000. The increase is primarily due to an increase
in personnel to manage the acquisition, development, asset management, and
financing activity from the increase in the number of Cabot Trust's properties
from 242 to 337 at the end of each period. As a percentage of rental revenues,
general and administrative expense decreased to 5.0% at March 31, 2000 from
6.4% at March 31, 1999.
Interest expense of $9.5 million for the quarter ended March 31, 2000 represents
interest incurred on $200.0 million of unsecured debt issued in May 1999,
borrowings under Cabot Trust's Acquisition Facility, and an additional $19.2
million of secured debt incurred, net of $942,000 of interest capitalized to
development projects. Interest expense of $4.3 million for the quarter ended
March 31, 1999 net of interest capitalized to development projects was incurred
on average indebtedness of $204.5 for the quarter ended March 31, 1999.
During 1998 Cabot Trust entered into an interest rate hedge transaction
(referred to as the "Treasury Lock") involving the future sale of $100.0 million
of Treasury securities based on an interest 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 the treasury lock of approximately $2.5 million during the
quarter ended March 31, 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
$294,000 from $202,000 for the quarter ended March 31, 2000, compared to the
quarter ended March 31, 1999. The increase is primarily due to an increase in
Cabot Trust's share of earnings of Cabot Advisors for the quarter ended March
31, 2000 compared to 1999.
Minority interest expense represents net income allocable to holders of Cabot
L.P. Units and its Cumulative Redeemable Perpetual Preferred Units. At March 31,
2000, Cabot Trust owned 93.0% of Cabot L.P. and the minority common equity
ownership interest was 7.0%. At March 31, 1999, the minority common equity
ownership interest was 92.9%. As discussed in Note 2 to the financial
statements, during the quarter ended March 31, 1999 a significant number of
Units were converted to Common Shares, resulting in a decrease in minority
interest expense related to Limited Partner Unitholders. During the quarter
ended March 31, 2000, the average minority common equity ownership interest was
7.0%, whereas during the quarter ended March 31, 1999 it was 36.5%. Dividends
accruable to Preferred Unitholders, which totaled $4.2 million for the three
months ended March 31, 2000 are also considered minority interest expense.
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.
As discussed in Note 2 to the financial statements, as of March 31, 2000 Cabot
L.P. issued an aggregate of $210.0 million of Cumulative Redeemable Perpetual
Preferred Units in six separate transactions in 1999 and 2000. The net proceeds
from these transactions were $204.2 million which was used to pay down
outstanding balances under the Acquisition Facility. These Cumulative Redeemable
Perpetual Preferred Units are callable by Cabot L.P. at par on or after the
fifth anniversary of issuance.
<PAGE>
In March 1998 Cabot Trust established a $325.0 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.
As of March 31, 2000, Cabot Trust had $169.0 million of fixed rate debt secured
by properties, $207.0 million of unsecured borrowings under its Acquisition
Facility, $200.0 million of unsecured debt, and a 36% 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.
On April 18, 2000, Cabot Trust entered into a joint venture agreement with Chase
Capital Partners. The Joint Venture is targeted towards investment in industrial
workspace properties. The investors have committed approximately $44 million in
equity to the venture of which 20% will be funded by Cabot Trust. As of April
30, 2000, the venture has purchased one property for approximately $12.5
million.
In the normal course of operations, as of April 30, 2000 Cabot Trust has also
purchased approximately $15 million of real estate assets subsequent to March
31, 2000, and has commitments to purchase approximately $49 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.
Cabot Trust has entered into an interest rate cap arrangement relating to its
$325.0 million Acquisition Facility for a notional amount of $100.0 million for
the period from April 11, 2000 through October 11, 2000. This arrangement is
intended to result in limiting the variable nature of the LIBOR component of
Cabot Trust's interest rate on an equivalent amount of borrowings to 7.0% per
annum. Under the agreement, Cabot Trust's counter party is required to pay an
amount equal to interest on that notional principal amount of borrowings to the
extent that the relevant LIBOR exceeds 7.0%.
As of March 31, 2000, Cabot Trust was a party to an interest rate cap
agreement that was intended to limit its exposure to changes in LIBOR through
April 1, 2000 on $100.0 million of borrowings on its Acquisition Facility.
As of December 31, 1998, Cabot Trust also had a Treasury Lock agreement in place
for the purpose of setting the Treasury securities component of the interest
rate on an intended future issuance of fixed rate debt. This agreement provided
for the sale of $100.0 million of 10-year Treasury securities at a yield of
5.54% on March 31, 1999. Cabot Trust paid its counter party $2.5 million upon
the maturity of this agreement, reflecting the decrease in Treasury yields and
consequent increase in cost of the notional amount of Treasury securities to be
sold since the July 1998 commencement date of the transaction.
Cash and cash equivalents totaled $12.5 million at March 31, 2000. Cash
provided by operating activities for the three months ended March 31, 2000, was
$27.2 million.
<PAGE>
Year 2000
During 1999, Cabot Trust completed its program of determining whether its
business operations would be affected by date sensitive calculation errors that
might result from computers whose programs do not properly recognize the year
2000 (commonly referred to as the "Year 2000 Issue"). Cabot Trust has not to
date experienced any effects on its results of operations or financial position
from the Year 2000 Issue, nor have any of Cabot Trust's vendors communicated to
Cabot Trust that they have experienced any such effects.
<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, 1999.
<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.
Not Applicable
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.
None
<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 as of the 15th day of May 2000.
CABOT INDUSTRIAL TRUST
--------------------------------
Registrant
5/15/00 /s/ Neil E. Waisnor
- ---------------------------------- -------------------
Date Neil E. Waisnor
Senior Vice President-Finance,
Treasurer, Secretary
5/15/00 /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 MARCH 31, 2000, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,491
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<RECEIVABLES> 12,768
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0
204,230
<COMMON> 406
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