<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30,2000
or
[ ] TRANSITION REPORT PURSUANT To SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____________ to ___________________
COMMISSION FILE NUMBER: 1-14031
CORRECTIONAL PROPERTIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS DECLARATION OF TRUST)
MARYLAND 65-0823232
(State or other jurisdiction (I.R.S Employer Identification No.)
of incorporation or organization)
3300 PGA Blvd., Suite 750, PALM BEACH GARDENS, FLORIDA 33410
(Address and zip code of principal executive offices)
(561) 630-6336
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal
year if changed since last report)
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 [ ]
7,130,000
(Outstanding shares of the issuer's common shares,
$0.001 par value per share, as of August 10, 2000)
<PAGE> 2
CORRECTIONAL PROPERTIES TRUST
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
a) Consolidated Balance Sheets
as of June 30, 2000 and December 31, 1999.............. 3
b) Consolidated Statements of Income
for the three months ended June 30, 2000 and 1999...... 4
c) Consolidated Statements of Income
for the six months ended June 30, 2000 and 1999 ....... 5
d) Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 ....... 6
e) Notes to Consolidated Financial Statements ............ 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 10
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk ........................................... 13
PART II - OTHER INFORMATION
ITEMS 1-3. ...................................................... 13
ITEMS 4-5. ...................................................... 14
ITEM 6. Exhibits ................................................ 14
SIGNATURE
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS.
CORRECTIONAL PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
REAL ESTATE PROPERTIES, AT COST
CORRECTIONAL AND DETENTION FACILITIES $222,501 $207,189
LESS - ACCUMULATED DEPRECIATION (9,442) (6,774)
-------- --------
NET REAL ESTATE PROPERTIES 213,059 200,415
CASH AND CASH EQUIVALENTS 83 121
DEFERRED FINANCING COSTS 1,434 1,654
OTHER ASSETS 1,602 1,358
-------- --------
TOTAL ASSETS $216,178 $203,548
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 814 1,899
DEFERRED REVENUE 1,857 1,689
REVOLVING LINE OF CREDIT 83,500 69,200
-------- --------
TOTAL LIABILITIES 86,171 72,788
-------- --------
SHAREHOLDERS' EQUITY
PREFERRED SHARES, $.001 PAR VALUE;
50,000,000 SHARES AUTHORIZED;
NONE OUTSTANDING -- --
COMMON SHARES, $.001 PAR VALUE;
150,000,000 SHARES AUTHORIZED;
7,130,000 ISSUED AND OUTSTANDING 7 7
CAPITAL IN EXCESS OF PAR VALUE 131,185 131,112
BALANCE OF UNDISTRIBUTED INCOME (1,185) (359)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 130,007 130,760
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $216,178 $203,548
======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS
3
<PAGE> 4
CORRECTIONAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, June 30,
2000 1999
---------- ------------
REVENUES
RENTAL $5,681 $5,118
INTEREST 4 11
------ ------
5,685 5,129
------ ------
EXPENSES
DEPRECIATION 1,337 1,232
GENERAL AND ADMINISTRATIVE 381 380
INTEREST 1,820 1,310
------ ------
3,538 2,922
------ ------
NET INCOME $2,147 $2,207
====== ======
NET INCOME PER COMMON SHARE
BASIC $ 0.30 $ 0.31
====== ======
DILUTED $ 0.30 $ 0.31
====== ======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, BASIC 7,130 7,130
====== ======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, DILUTED 7,130 7,130
====== ======
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE> 5
CORRECTIONAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
--------- ----------
REVENUES
RENTAL $11,328 $ 9,979
INTEREST 6 22
------- -------
11,334 10,001
------- -------
EXPENSES
DEPRECIATION 2,668 2,400
GENERAL AND ADMINISTATIVE 738 750
INTEREST 3,550 2,432
------- -------
6,956 5,582
------- -------
NET INCOME $ 4,378 $ 4.419
======= =======
NET INCOME PER COMMON SHARE
BASIC $ 0.61 $ 0.62
======= =======
DILUTED $ 0.61 $ 0.62
======= =======
WEIGHTED AVERAGE NUMBER Of SHARES OUTSTANDING,
BASIC 7,130 7,130
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING,
DILUTED 7,130 7,130
======= =======
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE> 6
CORRECTIONAL PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE, SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 4,378 $ 4,419
ADJUSTMENTS TO NET INCOME:
DEPRECIATION OF REAL ESTATE ASSETS 2,668 2,400
OTHER AMORTIZATION 294 334
CHANGES IN ASSETS AND LIABILITIES:
OTHER ASSETS (244) (335)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (1,085) (111)
DEFERRED REVENUE 168 563
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,179 7,270
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
ACQUISITION OF REAL ESTATE INVESTMENTS (15,312) (67,702)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (15,312) (67,702)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
DIVIDENDS PAID (5,205) (4,991)
BORROWINGS UNDER LINE OF CREDIT 14,300 63,300
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,095 58,309
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (38) (2,123)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 121 2,325
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 83 $ 202
======== ========
CASH PAID FOR INTEREST $ 1,835 $ 1,992
======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
6
<PAGE> 7
CORRECTIONAL PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. General
The consolidated financial statements of the Company include all the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
The accompanying interim consolidated financial statements we unaudited.
However, the financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting solely of normal
recurring matters) necessary for a fair presentation of the financial statements
for this interim period have been included. The results of operations for the
interim period are not necessarily indicative of the results to be obtained for
the full fiscal year. These financial statements should be read in conjunction
with the prospectus filed as a part of the Company's Registration Statement
filed on Form S-11 pursuant to Rule 424 (b) of the Securities Act of 1933
(Commission File No. 333-46681) (the "Prospectus'), and the pro forma financial
statements and notes thereto included therein and the Company's Form 10-K for
the year ended December 31, 1999 filed with the Securities and Exchange
Commission. On April 28, 1998, the Company commenced operations after completing
its initial public offering ("IPO" or "Offering").
2. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an Amendment of SFAS No. 133." SFAS 138 addresses
a limited number of issues causing implementation difficulties for numerous
entities that apply SFAS No. 133 and amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and certain hedging
activities. SFAS 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. In management's opinion, the impact of adopting
SFAS 133 and 138 will not have a material impact upon the Company's results of
operations or financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition ("SAB No. 101"), which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB No. 101 outlines the basic criteria that must be met to recognize
revenue and provides guidance for disclosure related to revenue recognition
policies. An amendment in June 2000 delayed the effective date until the fourth
quarter of 2000. We believe our revenue recognition practices are in conformity
with the guidelines prescribed in SAB No. 101.
3. Acquisition
On January 7, 2000 the Company purchased the Jena Juvenile Justice Center (the
"Jena Facility") from Wackenhut Corrections Corporation ("WCC") for
approximately $15,300,000, using funds available under a $100 million secured
line of credit (the "Bank Credit Facility"). WCC will leaseback the newly
constructed 276-bed facility located in Jena, Louisiana at an initial cap rate
of 11% with 4% annual escalators for an initial term of ten years, with three
additional renewal options for terms of five years each in length. The lease
provides for fixed rental payments to the Company without regard for occupancy.
While WCC previously had an operating contract for the facility, WCC does not
presently have an operating contract with a client. However, WCC continues to
make rental payments to Correctional Properties Trust. As a result of the
termination of WCC's operating contract, the Jena Facility no longer is included
in the Company's pledge pool Borrowing Base described in the bank credit
facility. The purchase price of the Jena Facility consisted of WCC's estimated
total project costs.
7
<PAGE> 8
4. BANK CREDIT FACILITY
The Company's operating partnership subsidiary, CPT Operating Partnership, L.P.,
has a $100 million secured line of credit that may be used to finance the
acquisition of additional correctional and detention facilities from WCC and
others, to expand the Facilities and for general working capital requirements.
The Company's ability to borrow under the Bank Credit Facility is subject to the
Company's ongoing compliance with several covenants including a cash flow
covenant restricting collateralized borrowings to four times Adjusted EBITDA.
However, the Company has the ability to do additional non-recourse borrowings as
discussed in the Credit Agreement. In total, the Company had the ability to
borrow on its Bank Credit Facility approximately an additional $1 million at
June 30, 2000.
As of June 30, 2000, $83,500,000 had been drawn on the Bank Credit Facility at a
rate of 8.4% based upon LIBOR plus an applicable margin through July 31, 2000.
No Indebtedness greater than 31 days in duration existed as of June 30, 2000.
As a result of the termination of WCC's operating contract in Jena, Louisiana,
the Jena Facility no longer is included in the Company's pledge pool Borrowing
Base described in the bank credit facility.
5. Earnings Per Share
The following data show the amounts used in computing earnings per share and the
effects on income and the weighted-average number of shares of potential
dilutive common stock (in thousands, except share data):
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Basic and diluted EPS
Net income $2,147 $2,207
------ ------
Weighted average shares - Basic and diluted 7,130 7,130
------ ------
Per Share - Basic and diluted $ 0.30 $ 0.31
====== ======
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Basic and diluted EPS
Net income $4,378 $4,419
------ ------
Weighted average shares - Basic and diluted 7,130 7,130
------ ------
Per share - Basic and diluted $ 0.61 $ 0.62
====== ======
</TABLE>
8
<PAGE> 9
In conjunction with the IPO, the Company granted options with respect to an
aggregate of 590,000 common shares to officers, employees and trustees. The
exercise price of such options is the IPO price of $20 with a ten-year term from
date of grant. In general, options granted to executive officers and employees
vested immediately as to one-forth of the aggregate of 565,000 shares and vested
as to an additional one-fourth on the first and second anniversary of grant with
the remaining one-fourth vesting on the third anniversary of the date of grant.
Options with respect to an aggregate of 25,000 shares granted to the
non-employee trustees vested in full at the date of grant. In addition, the
value of options with respect to an aggregate of 240,000 shares, granted to
non-employees is being charged to compensation expense over the life of the
options.
On January 21, 1999 the Company granted options with respect to an aggregate of
51,000 shares to officers and employees and an aggregate of 10,000 shares to
non-employee trustees. Such options were granted at an exercise price of $17.31
per share.
On April 25, 2000 the Company granted options with respect to 96,000 shares to
officers and employees and 10,000 shares to non-employee trustees at an exercise
price of $11.19 per share.
None of these options were included in the computation of diluted EPS because
their effect would be anti-dilutive. All options expire in either the years
2008, 2009 or 2010 and were still outstanding at June 30, 2000. All options
were granted at the fair market value at the date of grant.
6. Subsequent Events
On July 20, 2000, the Board of Trustees declared a distribution of $0.365 per
share for the quarter ended June 30, 2000, to shareholders of record on August
3, 2000. The distribution will be paid an August 17, 2000 and represents a
distribution for the period from April 1, 2000 through June 30, 2000.
On July 20, 2000 the Company's operating partnership subsidiary, CPT Operating
Partnership L.P. ("the Operating Partnership"), initiated a $45 million notional
amount cash flow interest rate swap. On July 24, 2000 the Operating Partnership
closed the fixed-for-floating interest rate swap. The swap agreement provides
that floating rate LIBOR payments on $45 million of indebtedness will be
exchanged for fixed payments at a rate of 7.035%. In addition the Operating
Partnership will be obligated for the EuroDollar Rate Margin described in the
credit agreement based upon a ratio of outstanding borrowings to pledge pool
Borrowing Base.
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FINANCIAL CONDITION
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report.
FORWARD-LOOKING STATEMENTS: The management's discussion and analysis of
financial condition and results of operations contain forward-looking statements
that are based on current expectations, estimates and projections about the
business marketplace in which Correctional Properties Trust (the "Company")
operates. This section of the quarterly report also includes management's
beliefs and assumptions. 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.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions ("Future Factors") which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in such forward-looking statements. The Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
Future Factors include increasing price and product/service competition by
foreign and domestic competitors, including new entrants in the marketplace; the
mix of possible future tenants as it relates to other private operators and
governmental entities; governmental and public policy changes; reliance on a
single tenant for revenue; interest rate risk; continued availability of
financing at rates less than tenant lease rates; rental rates sufficient to make
acquisitions feasible; continued ability to pay a dividend; reliance upon a
single property type for the company's development or acquisitions; and
financial instruments and financial resources in the amounts, at the times and
on the terms required to support the company's future business. In addition,
such statements could be affected by general industry and market conditions and
growth rates, general domestic and international economic conditions including
interest rate fluctuations and other future factors. The Company discusses such
risks in the Company's various reports filed with the Securities and Exchange
Commission.
OVERVIEW
The Company was formed in February 1998 as a Maryland real estate investment
trust to capitalize on the growing trend toward privatization in the corrections
industry by acquiring correctional and detention facilities from both private
prison operators and governmental entities and to lease such facilities to
experienced correctional and detention facility operators under long-term,
non-cancelable, triple-net leases (leases where the tenant is required to pay
all operating expenses, taxes, insurance, structural and non-structural repairs
and other costs). On April 28, 1998, the Company completed its initial public
offering of 6,200,000 common shares of beneficial interest.
The principal business strategy of the Company is to acquire correctional and
detention facilities that meet the Company's investment criteria. The Company
may at some point in the future acquire facilities from private prison managers
and government entities, expand its existing facilities, and lease all such
facilities under long-term
10
<PAGE> 11
leases to qualified third-party operators. The Company's facilities are
privately-managed facilities that are operated by Wackenhut Corrections
Corporation.
Substantially all of the Company's revenues are derived from: (i) rents received
under triple net leases of correctional and detention facilities; and (ii)
interest earned from the temporary investment of funds in short-term
investments.
The Company incurs operating and administrative expenses including, compensation
expenses for its executive officers and other employees, office rental and
related occupancy costs, and various expenses incurred in the process of
acquiring additional properties. The Company is self-administered and managed by
its executive officers and staff, and does not engage a separate advisor or pay
an advisory fee for administrative or investment services, although the Company
does engage legal, accounting tax and financial advisors from time to time. The
primary non-cash expense of the Company is depreciation of its correctional and,
detention facilities.
The Company has leveraged and anticipates having to continue to leverage its
portfolio of real estate equity investments. As such the Company expects to
continue to incur short-term indebtedness, and related interest expense.
The Company intends to make distributions to its shareholders in amounts not
less than the amounts required to maintain REIT status under the Internal
Revenue Service Code.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
For the period from April 1, 2000 to June 30, 2000, revenues were $5.7 million
from the leasing to WCC of eleven correctional and detention facilities (eight
purchased April 28, 1998 with proceeds of the Offering, two additional
facilities purchased January 15, 1999 and one purchased January 7, 2000).
Revenues of $5.1 million were generated from April 1, 1999 to June 30, 1999 as a
result of the leaseback to WCC of ten correctional and detention facilities.
The $0.6 million increase in 2000 revenue resulted from the acquisition of the
Jena Juvenile Justice Center in January 2000.
The Company earned interest income of $4,000 during the three months ended June
30, 2000 by investing in short-term instruments bearing interest at
approximately 5%. During the three months ended June 30, 1999 the Company earned
interest income of $11,000 from short-term investments bearing interest between
5% and 6%. The decrease resulted from less cash on hand during the 2000 period
after acquisition of the Jena Facility.
Depreciation associated with the Jena Facility increased total depreciation of
real estate properties during the three months ended June 30, 2000 to $1.3
million from $1.2 million during the three months ended June 30, 1999.
General and administrative expenses incurred during the quarters ended June 30,
2000 and 1999 were approximately $.4 million, or approximately 7% of lease
revenues. These expenses consisted primarily of management salaries and
benefits, accounting, legal and other administrative costs.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
For the six months ended June 30, 2000, the Company generated rental revenues
of $11.3 million from the leaseback to WCC of eleven correctional and detention
facilities. The $1.3 million increase in revenue from $10.0 million generated
for the six months ended June 30, 1999 resulted from the acquisition of the Jena
Juvenile Justice Center in January 2000.
Interest income of $6,000 for the six months ended June 30, 2000 was earned by
investing in short-term instruments bearing interest at approximately 5%. The
decrease from $22,000 for the six months ended June 30, 1999 resulted from less
cash on hand during the 2000 period after acquisition of the Jena Facility.
Depreciation of real estate properties totaled $2.7 million for the six months
ended June 30, 2000 versus depreciation of $2.4 million for the six months ended
June 30, 1999. The increase resulted from depreciation after the acquisition of
the Jena Facility.
General and administrative expenses incurred during the period were
approximately $.7 million, or approximately 7% of lease revenues. The $.1
million decrease from the six months ended June 30, 1999 was the result of a
decrease in legal expenses.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to meet its short-term liquidity requirements generally
through its initial working capital and not cash provided by operations. The
Company believes that its net cash provided by operations will be sufficient to
allow the company to make distributions necessary to enable the Company to
qualify as a REIT. All facilities owned by the Company are leased under triple
net leases, which require the lessee to pay substantially all expenses
associated with the operation of such facilities. As a result of these
arrangements, the Company does not believe it will be responsible for any major
expenses in connection with the facilities during the terms of the Leases.
The Bank Credit Facility will enable the Company to borrow generally at floating
rates between 125 to 200 basis point spread over LIBOR. The Company's ability to
borrow under the secured line of credit is subject to the Company's compliance
with a number of covenants.
During the six months ended June 30, 2000 the Company made additional borrowings
of $14,300,000 under the Bank Credit Facility to finance the acquisition of the
Jena Juvenile Justice Center for approximately $15,300,000. Working Capital
funded the remainder of the purchase. As of June 30, 2000 $83,500,000 had been
drawn on the Bank Credit Facility.
In June 2000 the Company received an offer from its lead agent bank to syndicate
an expansion of the existing credit facility from $100 million to $130 million.
In July 2000 the Company received definitive documentation of such offer ("the
credit facility expansion offer letter") and its availability until 5:00 pm
August 7, 2000. The credit facility expansion offer letter was to be used in
conjunction with the acquisition of the Rivers Correctional Facility from WCC
under terms approved June 27, 2000 by the Executive Committee of the WCC Board
of Directors subject to approval by the Independent Committee of the WCC Board
of Directors on August 3, 2000. On Monday August 7, 2000 the Company received
notice directly from the WCC Board of Directors that the Independent Committee
did not approve the exact terms previously approved by the WCC Executive
Committee. As a result of the actions taken by the Independent Committee of the
WCC Board of Directors, the Company would not have had the ability to complete
the acquisition of the Rivers Correctional Facility under the terms of the
credit facility expansion offer letter. Therefore, the Company did not accept
the credit facility expansion offer letter and the offer expired on August 7,
2000. There can be no assurance that the Company will acquire the Rivers
Correctional Facility.
The Company has no commitments with respect to other capital expenditures. The
Company has an option to acquire, at a price of up to 105% of cost, and lease
back to WCC, any correctional or detention facility acquired or developed and
owned by WCC subject to certain limitations
The Company expects to meet its long-term liquidity requirements for the funding
of real estate property development and acquisitions by borrowing under the Bank
Craft Facility and by issuing equity or debt securities in public or private
transactions. The Company anticipates that as a result of its initially low debt
to total capitalization and its intention to maintain a moderate ratio of debt
to total capitalization, it will be able to obtain financing for its long-term
capital needs. However, there can be no assurance that such additional financing
or capital will be available an terms acceptable to the Company. The Company
may, under certain circumstances, borrow additional amounts in connection with
the renovation or expansion of facilities, the acquisition of additional
properties, or as necessary, to meet certain distribution requirements imposed
on REIT's under the Code.
FUNDS FROM OPERATIONS
Management believes Funds from Operations is helpful to investors as a measure
of the performance of an equity REIT. Along with cash flows from operating
activities, financing activities and investing activities, Funds from Operations
("FFO") provides investors with an understanding of the ability of the Company
to incur and service debt and make capital expenditures.
The Company computes Funds from Operations in accordance with standards
established by the White Paper on Funds from Operations approved by the Board
of Governors of the National Association of Real Estate Investment Trusts
(""NAREIT") in 1995, which may differ from the methodology for calculating Funds
from Operations utilized by other equity REITs, and accordingly, may not be
comparable to such other REITs. The White Paper defines Funds from Operations
as net income (loss), computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (or losses) from debt restructuring and
sales of property, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures. Further,
Funds from Operations does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties.
Funds from Operations should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's financial
performance or to cash flows from operating activities (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor is it indicative of
funds available to fund the Company's cash needs, including its ability to make
distributions.
12
<PAGE> 13
The Company believes that in order to facilitate a clear understanding of the
consolidated operating results of the Company, Funds from Operations should be
examined in conjunction with net income as presented in the consolidated
financial statements.
The following table presents the Company's Funds from Operations for the period
from January 1 to June 30, 2000 and 1999:
2000 1999
-------- --------
Funds from Operations
Net Income $ 4,378 $ 4,419
Plus real estate depreciation 2,668 2,400
-------- --------
$ 7,046 $ 6,819
======== ========
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks inherent in the Company's financial
instruments. These instruments arise from transactions entered into in the
normal course of business and relate to the Company's acquisitions of
correctional and detention facilities. The Company is subject to interest rate
risk on its existing Bank Credit Facility and any future financing requirements.
As of June 30, 2000, $83,500,000 had been drawn an the Bank Credit Facility at a
rate of 8.4% based upon LIBOR plus an applicable margin through July 31, 2000.
No Indebtedness greater than 31 days in duration existed as of June 30, 2000,
The Company's primary market risk exposure relates to (i) the interest rate
risk on short-term borrowings, (ii) its ability to refinance its Bank Credit
Facility at maturity at market rates and (iii) the impact of interest rate
movements on its ability to obtain adequate financing to fund future
acquisitions. While the Company can not predict or manage its ability to
refinance existing debt or the impact interest rate movements will have on its
existing debt, the Board of Trustees continues to evaluate its financial
position on an ongoing basis.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the Company's business results in claims or litigation against the
Corporation for damages arising from the conduct of its employees or others.
Except for routine litigation incidental to the business of the Company, there
are no pending material legal proceedings to which the Company or any of its
subsidiaries is a party or to which any of their property is subject. The
Company believes that the outcome of the proceedings to which it is currently a
party will not have a material adverse effect upon its operations or financial
condition.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held an April 25,
2000.
(b) The following matters were submitted to a vote at the Company's Annual
Meeting:
(1) Election of the following nominees as directors for a three year term:
<TABLE>
<CAPTION>
Director's Name: George R. Wackenhut Anthony P. Travinono Clarence E. Anthony
---------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
Votes in favor: 6,537,815 6,538,540 6,537,370
Votes against: -- -- --
Abstentions 19,266 18,541 19,711
</TABLE>
(2) Ratification of the Trustees adoption of the 2000 Stock Option Plan:
Votes in favor: 4,896,139
Votes against: 1,625,073
Abstentions 35,869
(3) Ratification of the appointment of Arthur Andersen LLP to serve as the
independent certified public accountants of the Trust for the fiscal year
2000, and to perform such other services as may be requested by the Trust:
Votes in favor: 6,522,106
Votes against: 25,109
Abstentions 9,866
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K - The Company did not file any reports on Form 8-K
during the quarter ending June 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CORRECTIONAL PROPERTIES TRUST
/s/ PATRICK T. HOGAN
---------------------------------
Patrick T. Hogan
VICE PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY & TREASURER
(PRINCIPAL FINANCIAL OFFICER & PRINCIPAL ACCOUNTING OFFICER)
Date: August 14, 2000
15
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EXHIBIT INDEX
27 Financial Data Schedule (for SEC use only)
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CORRECTIONAL PROPERTIES TRUST FOR THE PERIOD ENDED JUNE
30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
16
