<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended: September 30, 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 November 10, 2000,
40,624,833 Common Shares of Beneficial Interest, $.01 par value, of the
Registrant were outstanding.
<PAGE>
EXPLANATORY NOTE
Due to an inadvertent processing error, the version of the Form 10-Q of
Cabot Industrial Trust for the third quarter of 2000 filed on November 14, 2000
did not contain the final edits of Cabot Industrial Trust. These final edits are
set forth in this amendment. These edits consist principally of changes to the
Consolidated Condensed Statement of Cash Flows, edits to the footnotes to the
financial statements which clarify statements therein and the filing of two
additional exhibits.
<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 September 30, 2000 are not necessarily indicative of the results that
may be expected for the period from January 1, 2000 through December 31, 2000.
2
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED BALANCE SHEET
As of September 30, 2000 and December 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
----------- -----------
(unaudited)
ASSETS:
INVESTMENT IN REAL ESTATE:
<S> <C> <C>
Rental Properties $ 1,682,559 $ 1,507,834
Less: Accumulated Depreciation (68,059) (42,543)
----------- -----------
Net Rental Properties 1,614,500 1,465,291
Properties under Development 64,585 63,938
----------- -----------
$ 1,679,085 $ 1,529,229
----------- -----------
OTHER ASSETS:
Cash and Cash Equivalents $ 255 $ 22,007
Rents and Other Receivables, net of allowance for
uncollectible accounts of $1,143 and $574 at
September 30, 2000 and December 31, 1999, respectively 3,095 3,828
Deferred Rent Receivable 10,460 6,079
Deferred Lease Acquisition Costs, net 33,884 23,913
Deferred Financing Costs, net 3,565 3,369
Investment in and Advances to Cabot Advisors 852 1,105
Investment in and Notes Receivable from Joint Ventures 13,048 --
Other Assets 7,565 3,954
----------- -----------
TOTAL ASSETS $ 1,751,809 $ 1,593,484
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Mortgage Debt $ 234,354 $ 163,866
Unsecured Debt 255,000 200,000
Line of Credit Borrowings 140,000 163,000
Accounts Payable 868 889
Accrued Real Estate Taxes 13,041 10,254
Distributions Payable 18,549 15,437
Tenant Security Deposits and Prepaid Rents 9,036 11,205
Other Liabilities 27,960 20,117
----------- -----------
$ 698,808 $ 584,768
----------- -----------
MINORITY INTEREST:
Preferred Unitholders $ 238,205 $ 189,805
Limited Partner Unitholders 56,788 57,169
----------- -----------
$ 294,993 $ 246,974
----------- -----------
SHAREHOLDERS' EQUITY:
Common Shares, $0.01 par value, 150,000,000
shares authorized, 40,624,833 and 40,619,420
shares issued and outstanding at
September 30, 2000 and
December 31, 1999, respectively $ 406 $ 406
Paid in Capital 768,303 767,774
Retained Deficit (10,701) (6,438)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY $ 758,008 $ 761,742
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,751,809 $ 1,593,484
=========== ===========
</TABLE>
3
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Three Months ended September 30, 2000 and September 30, 1999
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
-------------------------- ------------------------
<S> <C> <C>
REVENUES:
Rental Income $ 46,530 $ 35,388
Tenant Reimbursements 7,947 5,452
---------- ----------
Total Revenues $ 54,477 $ 40,840
---------- ----------
EXPENSES:
Property Operating $ 4,892 $ 3,090
Property Taxes 6,165 4,564
Depreciation and Amortization 10,734 8,041
Interest 11,373 7,090
General and Administrative 2,448 2,254
---------- ----------
Total Expenses $ 35,612 $ 25,039
---------- ----------
Interest and Other Income $ 502 $ 274
Earnings and Fees from Joint Ventures 189 --
Loss on Sale of Real Estate -- (653)
---------- ----------
$ 691 $ (379)
---------- ----------
Income Before Minority Interest Expense $ 19,556 $ 15,422
MINORITY INTEREST EXPENSE:
Preferred Unitholders (5,294) (1,834)
Limited Partner Unitholders (996) (772)
---------- ----------
Net Income $ 13,266 $ 12,816
========== ==========
Earnings per Common Share:
Basic $ 0.33 $ 0.31
========== ==========
Diluted $ 0.33 $ 0.31
========== ==========
Weighted Average Common Shares:
Basic 40,624 41,155
========== ==========
Diluted 40,624 41,155
========== ==========
</TABLE>
4
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Nine Months ended September 30, 2000 and September 30, 1999
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
---------------------------- --------------------
REVENUES:
<S> <C> <C>
Rental Income $ 134,273 $ 96,613
Tenant Reimbursements 22,190 15,547
---------- -----------
Total Revenues $ 156,463 $ 112,160
---------- -----------
EXPENSES:
Property Operating $ 14,143 $ 8,519
Property Taxes 18,085 12,534
Depreciation and Amortization 31,025 22,204
Interest 31,383 17,227
General and Administrative 7,145 6,575
Settlement of Treasury Lock - 2,492
---------- -----------
Total Expenses $ 101,781 $ 69,551
---------- -----------
Interest and Other Income $ 1,267 $ 780
Earnings and Fees from Joint Ventures 387 --
Net Gain on Sales of Real Estate -- 2,751
---------- -----------
$ 1,654 $ 3,531
---------- -----------
Income Before Minority Interest Expense $ 56,336 $ 46,140
MINORITY INTEREST EXPENSE:
Preferred Unitholders (14,410) (2,815)
Limited Partner Unitholders (2,927) (7,657)
---------- -----------
Net Income $ 38,999 $ 35,668
========== ===========
Earnings per Common Share:
Basic $ 0.96 $ 0.99
========== ===========
Diluted $ 0.96 $ 0.99
========== ===========
Weighted Average Common Shares:
Basic 40,621 35,892
========== ===========
Diluted 40,621 35,892
========== ===========
</TABLE>
5
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months ended September 30, 2000 and September 30, 1999
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
---------------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 38,999 $ 35,668
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and Amortization 31,025 22,204
Minority Interest Expense 17,337 10,472
Net Gain on Sales of Real Estate -- (2,751)
Straight Line Rent (4,381) (2,365)
Amortization of Deferred Financing Costs 926 725
Decrease/(Increase) in Rents and Other Receivables 733 (1,434)
Increase in Accounts Payable 24 209
Increase in Other Assets (3,338) (110)
Increase in Accrued Real Estate Taxes 2,787 4,585
Increase in Other Liabilities 3,896 8,684
------------ ------------
Cash Provided by Operating Activities 88,008 75,887
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and Lease Acquisition Costs (175,683) (346,721)
Notes Receivable from Joint Ventures (9,600) --
Investment in Joint Venture (2,081) --
Increase in Other Assets (1,611) (496)
Advances to Cabot Advisors, net (905) (689)
Net Proceeds from Sales of Real Estate -- 16,079
Other -- 8
------------ ------------
Cash Used in Investing Activities (189,880) (331,819)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Secured Debt 62,427 93,215
Proceeds from Issuance of Unsecured Debt 55,000 199,448
Proceeds from Issuances of Preferred Units, net 47,654 136,484
Distributions Paid to Common Shareholders (42,651) (33,628)
Line of Credit Repayments, net (23,000) (109,000)
Distributions Paid to Minority Interests (15,154) (12,550)
Debt Principal Repayments (3,095) (2,331)
Increase in Deferred Financing Costs (976) (2,561)
Net Expenses of Common Share Issuance (85) (1,257)
Increase in Other Assets -- (519)
------------ ------------
Cash Provided by Financing Activities 80,120 267,301
------------ ------------
Net Decrease in Cash and Cash Equivalents (21,752) 11,369
------------ ------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 22,007 2,301
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 255 $ 13,670
============ ============
Cash paid for interest and settlement of treasury lock, net
of amounts capitalized $ 26,901 $ 13,647
============ ============
</TABLE>
6
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
For the Nine Months ended September 30, 2000 and September 30, 1999
(unaudited, in thousands)
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 1999, 22,033 Partnership Units were
exchanged for Common Shares.
In conjunction with real estate acquisitions, Cabot Trust assumed $11,156 of
indebtedness during the nine months ended September 30, 2000 and assumed $21,351
of indebtedness and issued Units valued at $2,743 during the nine months ended
September 30, 1999 (Note 2).
In conjunction with a sale of real estate during the nine months ended September
30, 1999, Cabot Trust received a promissory note in the amount of $627 as a
component of total consideration due from the buyer. This note was repaid in
full during 1999.
At September 30, 2000, accrued capital expenditures (including amounts included
in accounts payable) totaled $12,954, accrued offering costs totaled $832 and
accrued financing costs totaled $123. At September 30, 1999, accrued capital
expenditures (including amounts included in accounts payable) totaled $8,455,
accrued offering costs totaled $579 and accrued financing costs totaled $182.
In connection with the formation of a Joint Venture, Cabot Trust issued stock
warrants with an estimated value of approximately $550.
7
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 September 30, 2000, Cabot Trust owned 353 industrial properties located in
22 markets throughout the United States, containing approximately 42 million
rentable square feet. These properties were approximately 97.8% leased to 721
tenants at September 30, 2000. Cabot Trust and its affiliates also own 20%
interests in and provide acquisition, asset, and property management services
to joint ventures (the Joint Ventures) with two institutional partners, each of
which invests in industrial multitenant and workspace properties. Cabot Trust's
investment in the Joint Ventures is included in Investment in and Notes
Receivable from Joint Ventures on the accompanying Consolidated Condensed
Balance Sheet. Income earned from the Joint Ventures is accounted for under the
equity method of accounting and is included in Earnings and Fees from Joint
Ventures in the accompanying Consolidated Condensed Statement of Operations.
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 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 nine months ended September 30, 2000, Cabot Trust issued 5,000 Common
Shares to a limited partner of Cabot L.P. in exchange for the limited partner's
Units of Cabot L.P. During the nine months ended September 30, 1999, Cabot L.P.
issued 143,087 Units in conjunction with acquisitions and Cabot Trust issued
22,032,656 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 the
limited partners' Units of Cabot L.P.
8
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
At September 30, 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 93.1% of Cabot L.P. at
September 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 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"):
<TABLE>
<CAPTION>
Sale Date Series Unit price Liquidation Value Net Proceeds
----------------------- --------------------- ----------------- --------------------------- --------------------
<S> <C> <C> <C> <C>
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
May 25, 2000 8.950% Series H 25 35,000,000 33,975,000
------------------- --------------------
$ 245,000,000 $ 238,205,000
=================== ====================
</TABLE>
The Preferred Units, which may be called by Cabot L.P. 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.
3. Debt Activity
On September 7, 2000, Cabot L.P. established a Medium Term Note program eligible
to issue up to $200.0 million of notes payable. On September 12, 2000, Cabot
L.P. issued $40.0 million notes payable, with a coupon interest rate of 8.5%,
due September 15, 2010. On September 18, 2000, Cabot L.P. issued an additional
$15.0 million of notes payable with an 8.2% coupon interest rate, due September
15, 2005.
On May 4, 1999, Cabot L.P. issued $200.0 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.
9
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2000
Cabot Trust assumed certain loans in connection with the Formation Transactions,
entered into loan agreements during 1999 and 2000, and assumed certain loans in
conjunction with several real estate acquisitions, all secured by certain
existing real estate assets (collectively, the Mortgage Loans). At September
30, 2000, the Mortgage Loans totaled $234.4 million, have coupon interest rates
ranging from 7.25% - 9.67% and are secured by properties with a net book value
of $377.9 million. Certain of the debt assumed in conjunction with the
acquisition of properties has 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 was recorded in the accompanying Consolidated
Condensed Statements of Operations based on the fair market interest rate at the
date of acquisition.
In conjunction with acquisitions made during the nine months ended September 30,
2000, Cabot Trust assumed debt of $11.2 million, with coupon interest rates
ranging from 7.85% to 8.38%, secured by properties with a net book value of
approximately $16.5 million. In addition, Cabot L.P. borrowed $61.9 million on
June 30, 2000, which is secured by specific properties with a net book value of
approximately $91.9 million as of September 30, 2000. This borrowing has a fixed
interest rate of 8.4% per annum and a 10-year term. Under this agreement, the
first 24 monthly payments will be for interest only. Beginning August 1, 2002,
the monthly payments will consist of both principal and interest using a
twenty-four year amortization period.
Cabot Trust 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 was
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%. The interest rate cap arrangement
expired on October 11, 2000 and management has not entered into an additional
interest rate hedge arrangement at this time because over 75% of its debt has
fixed interest rates.
Interest expense of $16,000, during the nine months ended September 30, 2000 and
$53,000 for the nine months ended September 30, 1999 was incurred related to
interest rate cap and similar agreements.
During 1998, Cabot Trust 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
10
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2000
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.
4. 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:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
---------------------------- ---------------------
Basic:
<S> <C> <C>
Net Income $ 13,266,000 $ 12,816,000
------------- -------------
Weighted Average Common Shares 40,624,000 41,155,000
------------- -------------
Basic Earnings per Common Share $ 0.33 $ 0.31
============= =============
Diluted:
Net Income $ 13,266,000 $ 12,816,000
Effect of Unit Options (27,000) (187,000)
------------- -------------
Income available to Common Shareholders, as adjusted $ 13,239,000 $ 12,629,000
------------- -------------
Weighted Average Common Shares 40,624,000 41,155,000
------------- -------------
Diluted Earnings per Common Share $ 0.33 $ 0.31
============= =============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
-------------------- --------------------
Basic:
<S> <C> <C>
Net Income $ 38,999,000 $ 35,668,000
------------- -------------
Weighted Average Common Shares 40,621,000 35,892,000
------------- -------------
Basic Earnings per Common Share $ 0.96 $ 0.99
============= =============
Diluted:
Net Income $ 38,999,000 $ 35,668,000
Effect of Unit Options (58,000) (15,000)
------------- -------------
Income available to Common Shareholders, as adjusted $ 38,941,000 $ 35,653,000
------------- -------------
Weighted Average Common Shares 40,621,000 35,892,000
------------- -------------
Diluted Earnings per Common Share $ 0.96 $ 0.99
============= =============
</TABLE>
Approximately 4 million and 3 million options granted are excluded from the
above calculations of diluted earnings per share for both the three and nine
months ended September 30, 2000 and 1999, respectively, since the impact of
consideration of these options was anti-dilutive.
11
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2000
5. Investments in Joint Ventures
During the nine months ended September 30, 2000, Cabot Trust and its affiliates
entered into joint venture agreements (collectively, the Joint Ventures) with
two institutional partners targeted towards investment in industrial multitenant
and workspace properties. Cabot Trust and its affiliates entered into a joint
venture agreement with Chase Capital Partners on April 12, 2000. Cabot Trust
subsequently entered into a second joint venture agreement with GE Capital Real
Estate on September 5, 2000. Cabot Trust issued stock warrants to purchase
750,000 Common Shares to GE Capital Real Estate, in connection with the
formation of the joint venture. The stock warrants have an exercise price of
$27.00 per share, a term of five years and had an estimated value of
approximately $550,000 at the time of issuance. As of September 30, 2000, the
investors have committed approximately $169 million in equity to the ventures of
which 20% will be funded by Cabot L.P. As of September 30, 2000, the Joint
Ventures owned twelve industrial properties costing approximately $43 million
and comprising approximately 760,000 square feet.
Cabot Trust earned, in the aggregate, approximately $349,000 in acquisition and
asset management fees from the Joint Ventures during the nine months ended
September 30, 2000. In addition, Cabot Trust earned income of approximately
$38,000 from the Joint Ventures, which is accounted for under the equity method
of accounting. These amounts are included in Earnings and Fees from Joint
Ventures in the accompanying Consolidated Condensed Statement of Operations.
As of September 30, 2000, Cabot Trust provided financing in the form of notes
receivable to the Joint Ventures totaling $9,495,000. These notes are expected
to be repaid by year end from the proceeds of the Joint Ventures' permanent
financing. Through November 10, 2000, the Joint Ventures obtained permanent
financing totaling $15.5 million for three of the twelve properties acquired by
the Joint Ventures. The permanent financings have monthly payments due through
maturity, variable interest rates and two-year terms, each of which may be
extended for an additional three years. The monthly payments are for interest
only at interest rates ranging from 8.81% - 8.93% as of September 30, 2000.
6. Subsequent Events
On October 24, 2000, Cabot L.P. obtained a new $325.0 million unsecured line of
credit facility replacing its previous $325.0 million credit facility that was
to mature in March 2001. The new credit facility matures in October 2003, has a
one-year extension option and a $50.0 million expansion option. The new credit
facility also has certain financial and non-financial covenants. Cabot Trust is
a guarantor of the facility. The rate on the borrowings at Cabot Trust's current
credit rating is LIBOR plus 100 basis points.
On November 1, 2000, Cabot Trust sold a property located in California
containing approximately 235,000 square feet for an aggregate sales price of
$14.4 million. This sale is expected to result in a net gain of approximately
$1.5 million. Proceeds from the sale of this property are anticipated to be
used to acquire additional real estate assets.
12
<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 September 30, 2000, Cabot Trust owned 353 industrial properties. Cabot Trust
also owns 20% equity interests in and provides acquisition, asset and property
management services to two joint ventures (the Joint Ventures), which invest in
industrial properties.
Results of Operations
Quarter Ended September 30, 2000 compared with Quarter Ended September 30, 1999
Net income allocable to common shareholders for the quarter ended September 30,
2000 totaled $13.3 million or $.33 per share, compared with $12.8 million or
$.31 per share for the quarter ended September 30, 1999. The 1999 results
include a loss on sale of $653,000, but there were no significant gains or
losses on sales in 2000. After consideration of the impact of the loss on sale
of property in 1999, net income in 2000, was approximately the same as 1999
because of the increased income related to acquisitions, additional income
generated by the company's properties and fees from and income generated by the
Joint Ventures offset by the increased depreciation and amortization, interest
expense, and Minority Interest Expense related to the Preferred Unitholders'
distributions.
Rental revenues were $54.5 million, including tenant reimbursements of $7.9
million, for the quarter ended September 30, 2000, compared with $40.8 million,
including tenant reimbursements of $5.5 million, for the quarter ended September
30, 1999. Total rental revenue of $40.0 million and $39.1 million was generated
in 2000 and 1999, respectively, by the properties owned as of June 30, 1999,
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and still owned at September 30, 2000, (the Quarterly Baseline Properties) and
total rental revenue of $14.5 million and $1.6 million in 2000 and 1999,
respectively, was generated by the properties acquired or developed subsequent
to June 30, 1999. 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 1999.
The operating margin (the ratio of total revenues minus property operating and
property tax expenses to total revenues) decreased slightly to approximately 80%
for the quarter ended September 30, 2000 compared with 81% for the quarter ended
September 30, 1999. The decrease is primarily due to a change in the composition
of leases, principally with respect to acquisitions of multitenant and workspace
properties, to more leases where Cabot Trust pays property and operating
expenses and is reimbursed by tenants compared to leases where the tenants pay
these expenses directly.
Depreciation and amortization related to real estate assets totaled $10.7
million and $8.0 million for the quarters ended September 30, 2000 and 1999,
respectively. The increase is primarily due to the acquisition of approximately
$448.3 million of real estate assets in 1999 and $129.1 million for the nine
months ended September 30, 2000.
Interest expense of $11.4 million for the quarter ended September 30, 2000
represents interest incurred on $200.0 million of unsecured debt issued in May
1999, an additional $55.0 million of unsecured debt issued in September 2000,
borrowings under Cabot Trust's Acquisition Facility and an average of $234.5
million of secured debt, net of $800,000 of interest capitalized to development
projects. Interest expense of $7.1 million for the quarter ended September 30,
1999 represents interest incurred on $200.0 million of unsecured debt issued in
May 1999, borrowings under Cabot L.P.'s Acquisition Facility and an average of
$159.7 million of secured debt, net of $761,000 of interest capitalized to
development projects.
General and administrative expense increased by $194,000, to $2.4 million for
the quarter ended September 30, 2000. The increase is primarily due to an
increase in personnel to manage the acquisition, development, asset management
and financing activity caused by the increase in the number of Cabot Trust's
properties from 291 to 353 at the end of each period. As a percentage of rental
revenues, general and administrative expense decreased to 4.5% at September 30,
2000 from 5.5% at September 30, 1999.
Interest and other income, which consists primarily of interest earned on Cabot
Trust's invested cash balances and advances to the Joint Ventures, as well as
earnings of Cabot Advisors, increased to $502,000 from $274,000 for the quarter
ended September 30, 2000, compared to the quarter ended September 30, 1999. The
increase is primarily due to interest income from financing provided by Cabot
L.P. to the Joint Ventures and increased earnings from Cabot Advisors in 2000.
Minority interest expense represents net income allocable to holders of Cabot
L.P. Units and Cumulative Redeemable Perpetual Preferred Units. At September
30, 2000, Cabot Trust owned 93.0% of Cabot L.P. and the minority common equity
ownership interest was 7.0%. During the quarter ended September 30, 2000, the
average minority common equity ownership interest was 7.0%, whereas during the
quarter ended September 30, 1999, it was 6.9%. Dividends accruable to Preferred
Unitholders, totaled $5.3 million and $1.8 million for the three months ended
September 30, 2000 and September 30, 1999, respectively.
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The increase in Preferred Unitholders' Distributions is due to the increase in
Cumulative Redeemable Perpetual Preferred Equity as discussed within Note 2 to
the financial statements.
Nine Months Ended September 30, 2000 compared with Nine Months Ended September
30, 1999
Net income allocable to common shareholders for the nine months ended September
30, 2000 totaled $39.0 million or $.96 per share, compared with $35.7 million or
$.99 per share for the nine months ended September 30, 1999. The increase in
net income allocable to common shareholders is due in part 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 decrease in net income per share in 2000,
is primarily attributable to increased interest expense, depreciation and
amortization and increased distributions to Preferred Unitholders included
within Minority Interest Expense offset by income related to acquisitions,
additional income generated by the company's properties and fees from and income
generated by the Joint Ventures.
Rental revenues were $156.5 million, including tenant reimbursements of $22.2
million, for the nine months ended September 30, 2000, compared with $112.2
million, including tenant reimbursements of $15.5 million, for the nine months
ended September 30, 1999. Total rental revenue of $102.2 million and $99.4
million was generated in 2000 and 1999, respectively, by the properties owned as
of January 1, 1999, and still owned at September 30, 2000, (the Baseline
Properties) and total rental revenue of $54.3 million and $11.9 million 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
nine months ended September 30, 2000 compared with 81% for the nine months ended
September 30, 1999. The decrease is primarily due to a change in the
composition of leases, principally with respect to acquisitions of multitenant
and workspace properties, to more leases where Cabot Trust pays property and
operating expenses and is reimbursed by tenants compared to leases where the
tenants pay these expenses directly.
Depreciation and amortization related to real estate assets totaled $31.0
million and $22.2 million for the nine months ended September 30, 2000 and 1999,
respectively. The increase is primarily due to the acquisition of approximately
$448.3 million of real estate assets in 1999 and $129.1 million for the nine
months ended September 30, 2000.
Interest expense of $31.4 million for the nine months ended September 30, 2000
represents interest incurred on $200.0 million of unsecured debt issued in May
1999, an additional $55.0 million of unsecured debt issued in September 2000,
borrowings under Cabot Trust's Acquisition Facility and an average of $191.4
million of secured debt, net of $2.6 million of interest capitalized to
development projects. Interest expense of $17.2 million for the nine months
ended September 30, 1999 represents interest incurred on $200.0 million of
unsecured debt issued in May 1999, borrowings under Cabot L.P.'s Acquisition
Facility and an average of $136.8 million of secured debt, net of $2.1 million
of interest capitalized to development projects.
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General and administrative expense increased by $570,000, to $7.1 million for
the nine months ended September 30, 2000. The increase is primarily due to an
increase in personnel to manage the acquisition, development, asset management,
and financing activity caused by the increase in the number of Cabot Trust's
properties from 291 to 353 at the end of each period. As a percentage of rental
revenues, general and administrative expense decreased to 4.6% at September 30,
2000 from 5.9% at September 30, 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 advances to the Joint Ventures, as well as
earnings of Cabot Advisors, increased to $1.3 million from $780,000 for the nine
months ended September 30, 2000, compared to the nine months ended September 30,
1999. The increase is primarily due to interest income from advances to the
Joint Ventures and increased earnings from Cabot Advisors in 2000.
Minority interest expense represents net income allocable to holders of Cabot
L.P. Units and Cumulative Redeemable Perpetual Preferred Units. At September
30, 2000, Cabot Trust owned 93.0% of Cabot L.P. and the minority common equity
ownership interest was 7.0%. As discussed in Note 2 to the financial
statements, during the nine months ended September 30, 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 nine months
ended September 30, 2000, the average minority common equity ownership interest
was 7.0%, whereas during the nine months ended September 30, 1999, it was 17.7%.
Dividends accruable to Preferred Unitholders, totaled $14.4 million and $2.8
million for the nine months ended September 30, 2000 and September 30, 1999,
respectively.
The increase in Preferred Unitholders' Distributions is due to the increase in
Cumulative Redeemable Perpetual Preferred Equity as discussed in Note 2 to the
financial statements.
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.
On September 7, 2000, Cabot L.P. established a Medium Term Note program eligible
to issue up to $200.0 million of notes payable. On September 12, 2000, Cabot
L.P. issued $40.0 million notes payable with a coupon interest rate of 8.5% due
September 15, 2010. On September 18, 2000, Cabot L.P. issued an additional $15.0
million of notes payable with an 8.2% coupon interest rate, due September 15,
2005.
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Cabot L.P. borrowed $61.9 million on June 30, 2000, which is secured by specific
properties. As of September 30, 2000, these properties had a net book value of
approximately $91.9 million. The borrowing has a fixed interest rate of 8.4%
per annum and a 10-year term. Under this agreement, the first 24 monthly
payments will be payments for interest only. Beginning August 1, 2002, the
monthly payments will consist of both principal and interest using a 24-year
amortization period.
As discussed in Note 2 to the financial statements, as of September 30, 2000
Cabot L.P. issued an aggregate of $245.0 million of Cumulative Redeemable
Perpetual Preferred Units in seven separate transactions in 1999 and 2000. The
net proceeds from these transactions were $238.2 million, which were 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 their respective issuance dates.
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.
On October 24, 2000, Cabot L.P. obtained a new $325.0 million unsecured line of
credit facility replacing its previous $325.0 million credit facility that was
to mature in March 2001. The new credit facility matures in October 2003 and
has a one-year extension option and a $50.0 million expansion option. The new
credit facility also has certain financial and non-financial covenants. Cabot
Trust is a guarantor of the facility. The rate on the borrowings at Cabot
Trust's current credit rating is LIBOR plus 100 basis points.
As of September 30, 2000, Cabot Trust had $234.4 million of fixed rate debt
secured by properties, $140.0 million of unsecured borrowings under its
Acquisition Facility, $255.0 million of unsecured debt and a 36.2% 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.
During the nine months ended September 30, 2000, Cabot Trust and its affiliates
entered into joint venture agreements (collectively, the Joint Ventures) with
two institutional partners targeted towards investment in industrial multitenant
and workspace properties. Cabot Trust and its affiliates entered into a joint
venture with Chase Capital Partners on April 12, 2000. Cabot Trust subsequently
entered into a second joint venture agreement with GE
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Capital Real Estate on September 5, 2000. Stock warrants with an estimated value
of approximately $550,000 were issued to GE Capital Real Estate in connection
with the formation of the Joint Ventures. As of September 30, 2000 the investors
have committed approximately $169 million in equity to the ventures of which 20%
will be funded by Cabot Trust. As of September 30, 2000, these ventures have
purchased twelve properties for approximately $43 million, containing
approximately 760,000 square feet. In the normal course of operations, the Joint
Ventures, as of November 10, 2000, have entered into agreements to purchase
approximately an additional $34.7 million of real estate assets. Because a
number of conditions must be met prior to the closing, it is uncertain as to
whether these assets will actually be purchased.
As of November 10, 2000, Cabot Trust has commitments to purchase approximately
$22.3 million of additional real estate assets. Because a number of conditions
must be met prior to the closing, it is uncertain as to whether these assets
will actually be purchased.
On November 1, 2000, Cabot Trust sold a 235,000 square foot property, located in
California, for an aggregate sales price of $14.4 million. This sale is
expected to result in a net gain of approximately $1.5 million. Proceeds from
the sale of this property are anticipated to be used to acquire additional real
estate assets. Cabot Trust has also entered into an agreement to sell one
building for a sales price of approximately $8.3 million resulting in a net gain
of approximately $1.3 million. Because sales are subject to a number of
conditions that must be met prior to closing, it is uncertain as to whether this
sale will actually be consummated.
Cash and cash equivalents totaled $255,000 at September 30, 2000. Cash provided
by operating activities for the nine months ended September 30, 2000, was $88.0
million.
Ratio of Earnings to Fixed Charges
We have computed the ratios of earnings to fixed charges and preferred
distributions by dividing income from continuing operations, plus fixed
charges, plus amortization of capitalized interest, plus distributed income of
equity investees, less interest capitalized, less preferred distributions, by
fixed charges. Fixed charges consist of interest costs, whether expensed or
capitalized, the interest component of rental expense and amortization of debt
premiums, discounts and issuance costs and preferred distributions.
The ratio of earnings to fixed charges was 1.76x for the three months ended
September 30, 2000 compared to 2.32x for the three months ended September 30,
1999. The decrease is primarily due to an increase in distributions paid to
Preferred Unitholders and an increase in interest expense and depreciation and
amortization as discussed in the "Results of Operations" above.
The ratio of earnings to fixed charges was 1.81x for the nine months ended
September 30, 2000 compared to 2.68x for the nine months ended September 30,
1999. The decrease is primarily due to an increase in distributions paid to
Preferred Unitholders and an increase in interest expense and depreciation and
amortization as discussed in the "Results of Operations" above.
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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.
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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.
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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
10.16 Revolving Credit Agreement between Cabot L.P. and Morgan
Guaranty Trust Company of New York, dated as of
October 24, 2000.
10.17 Guaranty of Payment between Cabot Trust and Morgan
Guaranty Trust Company of New York, dated as of
October 24, 2000.
27 Financial Data Schedule
(b) Reports on Form 8-K.
On September 11, 2000, Cabot Trust filed a Form 8-K, dated
September 7, 2000, to report information under Item 5 of Form
8-K, including a press release related to Cabot L.P.'s
commencement of a program for the offer of its Series A
Medium-Term Notes due nine months or more from the date of
issue in an aggregate initial offering price of up to
$200,000,000.
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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 5th day of December 2000.
CABOT INDUSTRIAL TRUST
----------------------
Registrant
12/5/00 /s/ Neil E. Waisnor
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Date Neil E. Waisnor
Senior Vice President-Finance, Treasurer, Secretary
12/5/00 /s/ Robert E. Patterson
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Date Robert E. Patterson
President
22
