<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended: June 30, 1999 Commission File Number: 333-71585
------------- ---------
CABOT INDUSTRIAL PROPERTIES, L.P.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3397874
- -------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Two Center Plaza, Suite 200, Boston, Massachusetts 02108
--------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 723-0900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------- -------
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date: As of August 13, 1999,
43,633,559 Limited Partnership Units and 1,300,000 Series B Cumulative
Redeemable Perpetual Preferred Units, $50 Liquidation value, of the Registrant
were outstanding, none of which are publicly traded.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements should be
read in conjunction with the 1998 financial statements of the registrant ("Cabot
L.P.") and the 1998 Annual Report on Form 10K/A of Cabot Industrial 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 L.P.'s management, all material adjustments (consisting
solely of items of a normal, recurring nature) considered necessary for a fair
presentation of results of operations for the interim period have been included.
The results of consolidated operations for the period from January 1, 1999
through June 30, 1999 are not necessarily indicative of the results that may be
expected for the period from January 1, 1999 through December 31, 1999.
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED BALANCE SHEET
As of June 30, 1999 and December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------- -------------------
(unaudited)
<S> <C> <C>
ASSETS:
INVESTMENT IN REAL ESTATE:
Rental Properties $ 1,242,712 $ 1,072,675
Less: Accumulated Depreciation (28,812) (17,290)
---------------- --------------
Net Rental Properties 1,213,900 1,055,385
Properties under Development 46,334 23,108
---------------- --------------
$ 1,260,234 $ 1,078,493
---------------- --------------
OTHER ASSETS:
Cash and Cash Equivalents $ 827 $ 2,301
Rents and Other Receivables,
net of reserve for uncollectible accounts of $388 and $312
at June 30, 1999 and December 31, 1998, respectively 3,844 2,872
Deferred Rent Receivable 3,985 2,638
Deferred Lease Acquisition Costs, Net 18,999 17,362
Deferred Financing Costs, Net 3,981 1,255
Investment in and Advances to Cabot Advisors 920 582
Other Assets 4,790 5,067
---------------- --------------
TOTAL ASSETS $ 1,297,580 $ 1,110,570
================ ==============
LIABILITIES AND PARTNERS' EQUITY:
LIABILITIES:
Mortgage Debt $ 159,103 $ 48,206
Unsecured Debt 200,000 --
Line of Credit Borrowings 4,000 200,000
Accounts Payable 889 511
Accrued Real Estate Taxes 8,155 7,309
Distributions Payable 14,835 14,134
Tenant Security Deposits and Prepaid Rents 6,087 4,956
Other Liabilities 21,357 18,156
---------------- --------------
$ 414,426 $ 293,272
---------------- --------------
PARTNERS' EQUITY:
8.625% Series B Cumulative Redeemable Perpetual Preferred Equity $ 63,175 $ --
Limited Partners' Equity 56,642 468,311
General Partner's Equity 763,337 348,987
---------------- --------------
TOTAL PARTNERS' EQUITY $ 883,154 $ 817,298
---------------- --------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 1,297,580 $ 1,110,570
================ ==============
</TABLE>
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Six Months ended June 30, 1999 and June 30, 1998
(unaudited, in thousands, except per unit data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
---------------------------- -------------------------
REVENUES:
<S> <C> <C>
Rental Revenue $ 32,004 $ 22,813
Tenant Reimbursements 5,178 3,346
------------- ------------
Total Revenues 37,182 26,159
------------- ------------
EXPENSES:
Property Operating 2,749 1,474
Property Taxes 4,125 3,100
Depreciation and Amortization 7,353 5,072
General and Administrative 2,136 1,722
Interest 5,822 797
------------- ------------
Total Expenses 22,185 12,165
------------- ------------
Interest and Other Income 304 248
Gain on Sale of Real Estate 3,404 --
------------- ------------
3,708 248
------------- ------------
Net Income 18,705 14,242
Preferred Distributions (981) --
------------- ------------
Net Income Allocable to Partnership Units $ 17,724 $ 14,242
============= ============
Earnings per Partnership Unit:
Basic $ .41 $ .33
============= ============
Diluted $ .41 $ .33
============= ============
Weighted Average Partnership Units:
Basic 43,634 43,508
============= ============
Diluted 43,716 43,733
============= ============
</TABLE>
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Six Months ended June 30, 1999 and June 30, 1998
(unaudited, in thousands, except per unit data)
<TABLE>
<CAPTION>
Six Months Ended
Six Months Ended June 30, 1998
June 30, 1999 (Note 1)
------------------ ----------------
<S> <C> <C>
REVENUES:
Rental Revenues $ 61,225 $ 35,655
Tenant Reimbursements 10,095 5,237
------------- ------------
Total Revenues 71,320 40,892
------------- ------------
EXPENSES:
Property Operating 5,429 2,516
Property Taxes 7,970 4,742
Depreciation and Amortization 14,163 8,246
General and Administrative 4,321 2,790
Interest 10,137 952
Settlement of Treasury Lock 2,492 --
------------- ------------
Total Expenses 44,512 19,246
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Interest and Other Income 506 722
Gain on Sale of Real Estate 3,404 --
------------- ------------
3,910 722
------------- ------------
Net Income 30,718 22,368
Preferred Distributions (981) --
------------- ------------
Net Income Allocable to Partnership Units $ 29,737 $ 22,368
============= ============
Earnings per Partnership Unit:
Basic $ .68 $ .51
============= ============
Diluted $ .68 $ .51
============= ============
Weighted Average Partnership Units:
Basic 43,579 43,474
============= ============
Diluted 43,594 43,690
============= ============
</TABLE>
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the Six Months ended June 30, 1999 and June 30, 1998
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Six Months Ended June 30, 1998
June 30, 1999 (Note 1)
--------------------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 30,718 $ 22,368
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and Amortization 14,163 8,246
Straight Line Rent Adjustment (1,376) (1,090)
Amortization of Deferred Financing Costs 408 140
Gain on Sale of Real Estate (3,404) --
Increase in Rents and Other Receivables (972) (1,102)
Increase in Other Assets (268) (1,622)
Increase in Accounts Payable 475 196
Increase in Accrued Real Estate Taxes 846 5,877
Increase in Other Liabilities 4,175 4,841
-------------- --------------
Cash Provided by Operating Activities 44,765 37,854
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and Lease Acquisition Costs (179,214) (253,189)
Improvements to Property (842) (751)
Increase in Other Assets (946) --
Advances to Cabot Advisors, net (330) --
Net Proceeds from Sale of Real Estate 10,377 --
-------------- --------------
Cash Used in Investing Activities (170,955) (253,940)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Unsecured Debt 200,000 --
Discount related to Unsecured Debt (552) --
Proceeds from Issuance of Secured Debt 93,215 --
Debt Principal Repayments (1,453) (13,427)
Line of Credit (Repayments) Advances, net (196,000) 68,000
Increase in Deferred Financing Costs (2,375) (1,654)
Distributions Paid (29,950) (8,790)
Proceeds from Issuance of Partnership Units, net (1,138) 178,559
Proceeds from Issuance of Preferred Units, net 63,309 --
Increase in Other Assets (340) --
Repurchase of Partnership Units -- (1,217)
-------------- --------------
Cash Provided by Financing Activities 124,716 221,471
-------------- --------------
Net (Decrease) Increase in Cash and Cash Equivalents (1,474) 5,385
-------------- --------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,301 1
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 827 $ 5,386
============== ==============
Cash paid for interest and settlement of treasury lock,
net of amounts capitalized $ 10,483 $ 640
============== ==============
</TABLE>
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the Six Months ended June 30, 1999 and June 30, 1998
(unaudited, in thousands)
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In conjunction with the Offering and Formation Transactions in 1998, Cabot L.P.
assumed $18,413 of indebtedness and issued 33,850 Partnership Units in exchange
for real estate assets and the advisory business of Cabot Partners valued at
$659,021 and $77, respectively.
In conjunction with real estate acquisitions, Cabot L.P. assumed $19,135 of
indebtedness and issued Units valued at $2,743 during the six months ended
June 30, 1999 and assumed $12,547 of indebtedness and issued Units valued at
$2,268 during the six months ended June 30, 1998 (Note 1).
At June 30, 1999, accrued capital expenditures (including amounts included in
accounts payable) totaled $10,949, accrued offering costs totaled $415 and
accrued financing costs totaled $269.
At June 30, 1998, accrued capital expenditures (including amounts included in
accounts payable) totaled $8,374 and accrued offering costs totaled $1,898.
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. General
Organization
Cabot Industrial Properties, L.P. (Cabot L.P.), a Delaware limited
partnership, was formed on October 10, 1997. The general partner of Cabot L.P.
is Cabot Industrial Trust (Cabot Trust), a Maryland real estate investment
trust which was also formed on October 10, 1997. As the general partner of
Cabot L.P., Cabot Trust has the exclusive power under the Cabot L.P. limited
partnership agreement to manage and conduct the business of Cabot L.P. 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).
Since Cabot L.P. was formed on October 10, 1997, and did not begin operations
until February 4, 1998 (see Note 2), the results for the six months ended June
30, 1998 represent activity for 147 days, or approximately 5 months.
As of June 30, 1999, Cabot L.P. owned 267 industrial properties located in 21
markets throughout the United States and containing approximately 32 million
rentable square feet. These properties were approximately 97.6% leased to 534
tenants at June 30, 1999.
2. The Formation Transactions, The Offerings and Ownership
The Formation Transactions
On February 4, 1998, under a Contribution Agreement executed by Cabot Trust,
Cabot L.P., Cabot Partners and various other contributors, 122 real estate
properties, certain real estate advisory contracts and other assets were (i)
contributed to Cabot L.P. in exchange for Units in Cabot L.P. that are
exchangeable, subject to certain restrictions, for Common Shares of Cabot Trust
or (ii) contributed to Cabot Trust in exchange for Common Shares of Cabot Trust.
The properties contributed to Cabot Trust were each contributed to Cabot L.P. in
exchange for the number of general partnership Units in Cabot L.P. equal to the
number of Common Shares exchanged for the property.
Cabot L.P. contributed the real estate advisory contracts to Cabot Advisors,
Inc. (Cabot Advisors) and received 100% of the non-voting preferred stock of
Cabot Advisors, which entitles it to 95% of Cabot Advisors' net operating cash
flow. All of the common stock of Cabot Advisors is owned by an officer of Cabot
L.P.
During the six months ended June 30, 1999, Cabot L.P. issued 143,087 Units in
conjunction with an acquisition and Cabot Trust issued 22,032,656 Common Shares
in exchange for Units of Cabot L.P. As a result, Cabot Trust owned 93.1% of the
common equity of Cabot L.P. as of June 30, 1999. The remaining 6.9% is owned by
investors holding Cabot L.P. Units.
The Offerings
On February 4, 1998, Cabot Trust completed an offering of 8,625,000 Common
Shares at an offering price of $20.00 per share. In addition, Cabot Trust
issued 1,000,000 Common Shares to a single investor in a private offering at
$20.00 per share (collectively, the Offerings). Cabot Trust contributed the net
proceeds of the Offerings to Cabot L.P. in exchange for the number of general
partnership interests in Cabot L.P. equal to the number of Common Shares sold in
the Offerings.
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999
Distributions
On March 10, 1999, Cabot L.P. declared distributions of $.34 per Partnership
Unit payable on April 30, 1999 to Unitholders of record as of April 9, 1999, and
on June 9, 1999, Cabot L.P. declared distributions of $.34 per Partnership Unit
payable on July 29, 1999, to Unitholders of record as of July 9, 1999. In
addition, on June 9, 1999, Cabot L.P. declared distributions of $.75468 per
8.625% Series B Preferred Unit, payable on June 30, 1999, to Preferred
Unitholders of record on June 17, 1999.
8.625% Series B Cumulative Redeemable Perpetual Preferred Equity
On April 29, 1999, Cabot L.P. completed a private sale of $65 million of 8.625%
Series B Cumulative Redeemable Perpetual Preferred Units at $50 per unit.
Proceeds of the offering of $63,175,000 were used to repay borrowings under
Cabot L.P.'s Acquisition Facility. The Preferred Units, which may be called by
Cabot L.P. at par on or after April 29, 2004, have no stated maturity or
mandatory redemption and are not convertible into any other securities of Cabot
L.P.
3. Property Acquisitions
During the period from April 1, 1999 through June 30, 1999, Cabot L.P. acquired
the following industrial properties:
<TABLE>
<CAPTION>
Property Location Property Type Square Feet Acquisition Cost
- -------------------------------------- -------------------------- -------------- ------------------
(000'S)
<S> <C> <C> <C>
San Fernando Road, Los Angeles, CA Multitenant Distribution 102,800 $ 34,281
Tyburn Street, Los Angeles, CA Multitenant Distribution 85,142
San Fernando Road, Los Angeles, CA Multitenant Distribution 80,500
San Fernando Road, Los Angeles, CA Workspace 66,410
San Fernando Road, Los Angeles, CA Multitenant Distribution 58,860
San Fernando Road, Los Angeles, CA Workspace 41,894
San Fernando Road, Los Angeles, CA Workspace 17,000
Sunnyslope Avenue, Tewksbury, MA Multitenant Distribution 153,641 $ 21,050
Kenwood Circle, Franklin, MA Multitenant Distribution 153,369
South Street, Hopkinton, MA Multitenant Distribution 70,600
Progress Road, Billerica, MA Multitenant Distribution 69,500
Progress Road, Billerica, MA Multitenant Distribution 57,600
Penny Lane, Schaumberg, IL Workspace 27,742 $ 2,215
Penny Lane, Schaumberg, IL Workspace 20,722
Bristol Court, Jessup, MD Workspace 60,000 $ 2,796
Kellogg Avenue, Carlsbad, CA Workspace 39,900 $ 2,960
Oakridge Way, Vista, CA Workspace 53,239 $ 4,085
</TABLE>
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999
<TABLE>
<CAPTION>
Property Location Property Type Square Feet Acquisition Cost
- -------------------------------------- -------------------------- -------------- ------------------
(000'S)
<S> <C> <C> <C>
Commerce Boulevard, Charlotte, NC Workspace 80,640 $ 10,354
Woodpark Boulevard, Charlotte, NC Workspace 65,850
Woodpark Boulevard, Charlotte, NC Workspace 56,000
Woodpark Boulevard, Charlotte, NC Workspace 48,600
North I-85 Service Road, Charlotte, NC Workspace 44,150
Marine Drive, Rockhill, SC Bulk Distribution 471,744 $ 14,135
Williams Drive, Marietta, GA Multitenant Distribution 84,124 $ 7,357
Williams Drive, Marietta, GA Multitenant Distribution 70,164
Williams Drive, Marietta, GA Multitenant Distribution 54,032
-------------- ----------
TOTALS 2,134,223 $ 99,233
============== ==========
</TABLE>
4. Debt Activity
On May 4, 1999, Cabot L.P. completed a $200.0 million unsecured debt offering.
The debt has a maturity of five years, a coupon rate of 7.125% and was priced at
99.724%, resulting in a yield to maturity of 7.192%. The net proceeds of the
offering were $197.4 million and were used in part to repay borrowings under
Cabot L.P.'s Acquisition Facility.
In conjunction with acquisitions made during the six months ended June 30, 1999,
Cabot L.P. assumed debt of $19.1 million, with coupon interest rates ranging
from 7.375% to 9.375%, secured by properties with a net book value of
approximately $33.2 million. In addition, Cabot L.P. borrowed $87.6 million in
February 1999 and borrowed an additional $5.6 million under the same agreement
in April 1999, all secured by specific properties. At June 30, 1999, these
properties had a net book value of $136.6 million. This borrowing has a fixed
interest rate of 7.25% per annum and a 10-year term. Monthly installments of
principal and interest are due based on a 25-year amortization rate, and the
remaining balance outstanding is due at the end of the 10-year term. This
borrowing is subject to various customary covenants. The proceeds from the
borrowing were used to repay a portion of the balance outstanding under Cabot
L.P.'s Acquisition Facility.
During 1998 Cabot L.P. 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 L.P. 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 L.P. recorded a loss of $2.5 million in the
quarter ended March 31, 1999.
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1999
5. Earnings per Unit
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share", basic earnings per Partnership unit have been computed by
dividing net income allocable to Partnership unitholders by the weighted average
number of Partnership units outstanding during the period subsequent to Cabot
L.P.'s commencement of operations (see Note 1). Diluted earnings per share have
been computed considering the dilutive effect of the exercise of Unit options
granted by Cabot L.P. Basic and diluted earnings per Partnership unit were
calculated as follows:
<TABLE>
<CAPTION>
Six Months Ended
Six Months Ended June 30, 1998
June 30, 1999 (see Note 1)
------------------------- --------------------
Basic:
<S> <C> <C>
Net Income Allocable to Partnership Unitholders $ 29,737,000 $ 22,368,000
---------------- ----------------
Weighted Average Partnership Units 43,579,000 43,474,000
---------------- ----------------
Basic Earnings per Partnership Unit $ .68 $ .51
================ ================
Diluted:
Net Income Allocable to Partnership Unitholders $ 29,737,000 $ 22,368,000
---------------- ----------------
Weighted Average Partnership Units 43,579,000 43,474,000
Effect of Unit Options 15,000 216,000
---------------- ----------------
43,594,000 43,690,000
================ ================
Diluted Earnings per Partnership Unit $ .68 $ .51
================ ================
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this discussion and elsewhere in this report that
are not historical facts are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are based on current
expectations, estimates and projections about the industry and markets in which
Cabot L.P. 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 L.P.
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Cabot
L.P.'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 L.P.'s cost of capital also influence operating
results.
Introduction
Cabot L.P. 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 L.P. owns and operates a diversified
portfolio of bulk distribution, multitenant distribution and "workspace" (light
industrial, R&D and similar facilities) properties throughout the United States.
At June 30, 1999, Cabot L.P. owned 267 industrial properties, 60 of which
properties were acquired during the period from January 1, 1999 through June 30,
1999. Cabot L.P. sold one property on June 22, 1999. Cabot L.P. was formed on
October 10, 1997, but did not begin operations as a fully integrated real estate
company until the completion of its Formation Transactions and Offerings on
February 4, 1998, the date of Cabot Trust's initial public offering.
Results of Operations
Since Cabot L.P. did not begin operations until February 4, 1998, the results
for the six months ended June 30, 1998 represent activity for only 147 days.
Quarter Ended June 30, 1999 compared with Quarter Ended June 30, 1998
Net income allocable to Partnership unitholders for the quarter ended June 30,
1999, totaled $17.7 million or $.41 per unit, compared with $14.2 million or
$.33 per unit for the quarter ended June 30, 1998. The increase of 24% in net
income allocable to Partnership unitholders was primarily due to the income
realized from increased investment in real estate assets, as well as increased
earnings from Baseline Properties.
Rental revenues were $37.2 million, including tenant reimbursements of $5.2
million, for the quarter ended June 30, 1999, compared with $26.2 million,
including tenant reimbursements of $3.3 million, for the quarter ended June 30,
1998. Total rental revenue of $26.4 million and $25.1 million was generated in
1999 and 1998, respectively, by the properties owned as of March 31, 1998 and
still owned at June 30, 1999, (the Quarterly Baseline Properties) and total
rental revenue $10.5 million and $619,000 in 1999 and 1998, respectively, was
generated by
<PAGE>
the properties acquired or developed subsequent to March 31, 1998. The
growth in rental revenue for Quarterly Baseline Properties is primarily
attributable to rental increases for new leases (including extensions and
renewals). The remainder of total rental revenue relates to properties sold in
1998 and 1999.
The operating margin (the ratio of total revenues minus property operating and
real estate tax expenses to total revenues) was relatively unchanged at
approximately 82% for the quarter ended June 30, 1999 compared to 83% for the
quarter ended June 30, 1998.
Depreciation and amortization related to real estate assets totaled $7.3 million
and $5.1 million for the quarters ended June 30, 1999 and 1998, respectively.
The increase reflects the acquisition of real estate assets and additional
deferred lease acquisition costs for Baseline Properties.
General and administrative expense increased by $414,000, to $2.1 million for
the quarter ended June 30, 1999. The increase is primarily due to an increase in
personnel to service the increase in the number of Cabot L.P.'s properties from
171 to 267 at the end of each period.
Interest expense grew, from $797,000 for the quarter ended June 30, 1998 to $5.8
million for the quarter ended June 30, 1999. The increase is the result of
increased debt outstanding which was used primarily to fund real estate
acquisitions. For the quarter ended June 30, 1998, Cabot L.P. had $68.0 million
of debt outstanding under its Acquisition Facility and $17.5 million of
outstanding mortgage debt. For the quarter ended June 30, 1999, Cabot L.P. had
$4.0 million of debt outstanding under its Acquisition Facility, $159.1 million
of outstanding mortgage debt and $200.0 million of unsecured debt outstanding,
that was issued on May 4, 1999.
Interest and other income, which consists primarily of interest earned on Cabot
L.P.'s invested cash balances and earnings of Cabot Advisors, increased to
$304,000 from $248,000 for the quarter ended June 30, 1999, compared to the
quarter ended June 30, 1998. The increase is primarily the result of increased
average investment balances.
On June 22, 1999, Cabot L.P. sold one property located in Massachusetts
containing approximately 120,000 square feet for an aggregate sales price of
approximately $10.5 million, which resulted in a gain of approximately $3.4
million.
Six Months Ended June 30, 1999 compared with Six Months Ended June 30, 1998
Net income allocable to Partnership unitholders for the six months ended June
30, 1999, totaled $29.7 million or $.68 per unit, compared with $22.4 million or
$.51 per unit for the six months ended June 30, 1998. The increase in net income
allocable to Partnership unitholders is due to a full six months of operations
in 1999 compared with 147 days in 1998 and increased earnings due primarily to
increased investment in real estate assets, as well as increased earnings from
Baseline Properties.
Rental revenues were $71.3 million, including tenant reimbursements of $10.1
million, for the six months ended June 30, 1999, compared with $40.9 million,
including tenant reimbursements of $5.2 million, for the six months ended June
30, 1998. Total rental revenue of $41.7 million and $32.5 million was generated
in 1999 and 1998, respectively, by the 120 properties owned as of February 4,
1998 and still owned at June 30, 1999 (the Baseline Properties) and total rental
revenue of $29.2 million and $7.6 million in 1999 and 1998, respectively,
<PAGE>
was generated by the 147 properties acquired or developed subsequent to February
4, 1998. The remainder of total rental revenue relates to properties sold in
1998 and 1999. The increase in rental revenue related to the Baseline Properties
is primarily the result of 181 compared to 147 days of activity, as well as
rental increases achieved on new leases (including extensions and renewals).
Depreciation and amortization related to real estate assets totaled $14.1
million and $8.2 million for the six months ended June 30, 1999 and 1998,
respectively. The increase reflects the acquisition of real estate assets and
181 days of operations in 1999 compared to 147 days in 1998.
General and administrative expense increased by $1.5 million, to $4.3 million
for the six months ended June 30, 1999. The increase is primarily due to a full
six months of operations in the six months ended June 30, 1999, and also
reflects an increase in personnel to service the increase in the number of
Cabot L.P.'s properties from 171 to 267 at the end of each period.
Interest expense for the six months ended June 30, 1999 of $10.1 million
represents interest incurred on the $200.0 million of unsecured debt and the
$159.1 million of mortgage indebtedness outstanding at June 30, 1999, and
interest on outstanding borrowings under Cabot L.P.'s Acquisition Facility, net
of $1.3 million of interest capitalized to development projects. Interest
expense of $1.0 million for 1998 was incurred for only 147 days, and was
incurred on $68.0 million of indebtedness under the Acquisition Facility and
$17.5 million of secured debt outstanding on June 30, 1998.
During 1998 Cabot L.P. 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 L.P. 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 L.P. recorded a loss related to the Settlement of
Treasury Lock of $2.5 million in the quarter ended March 31, 1999, which is
reflected in the six months ended June 30, 1999.
Interest and other income, which consists primarily of interest earned on Cabot
L.P.'s invested cash balances and earnings of Cabot Advisors, decreased $216,000
from $722,000 for the six months ended June 30, 1998 to $506,000 for the six
months ended June 30, 1999, due primarily to lower average invested cash
balances.
Capital Resources and Liquidity
Cabot L.P. 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 L.P. may also consider equity financing when such financing is available
on attractive terms.
In March 1998 Cabot L.P. established a $325 million unsecured revolving line of
credit facility (the Acquisition Facility) with Morgan Guaranty Trust Company of
New York as lead agent for a syndicate of banks. The Acquisition Facility is
used to fund property acquisitions, development activities, building expansions,
tenant leasing costs and other general corporate purposes. The Acquisition
Facility contains certain limits and requirements for debt to asset ratios, debt
service coverage
<PAGE>
minimums, and other limitations. Cabot L.P. believes cash flow from operations
not distributed to Unitholders will be sufficient to cover tenant allowances and
costs associated with renewal or replacement of current tenants as their leases
expire and recurring non-incremental revenue generating capital expenditures.
In the normal course of operations, Cabot L.P. has purchased approximately $30
million of real estate assets subsequent to June 30, 1999, and as of July 31,
1999, has commitments to purchase approximately $90 million of additional real
estate assets. Because a number of conditions must be met prior to the closing,
it is uncertain as to whether all these assets will actually be purchased.
Subsequent to June 30, 1999, Cabot L.P. sold one building for an aggregate sales
price of approximately $6.6 million. This sale is expected to result in a net
loss of approximately $700,000.
As of June 30, 1999, Cabot L.P. had $159.1 million of fixed rate debt secured by
properties, $4.0 million of unsecured borrowings under its Acquisition Facility,
$200.0 million of unsecured debt, and a 27% debt-to-total market capitalization
ratio. The debt-to-total market capitalization ratio is calculated based on
Cabot L.P.'s total consolidated debt as a percentage of the market value of its
outstanding Partnership Units and the liquidation value of Perpetual Preferred
Units plus total debt.
Cabot L.P. entered into an interest rate cap arrangement relating to its LIBOR-
based Acquisition Facility for a notional amount of $124 million for the period
March 19, 1999 through June 19, 1999. The arrangement was intended to result in
limiting the LIBOR component of Cabot L.P.'s interest rate on an equivalent
amount of borrowings to 5.35% per annum.
On April 29, 1999, Cabot L.P. completed a private sale of $65 million of 8.625%
Series B Cumulative Redeemable Perpetual Preferred Units at $50 per unit.
Proceeds of the offering were used to repay borrowings under Cabot L.P.'s
Acquisition Facility. The Preferred Units, which may be called by Cabot L.P. at
par on or after April 29, 2004, have no stated maturity or mandatory redemption
and are not convertible into any other securities of Cabot L.P.
On May 4, 1999, Cabot L.P. completed a $200.0 million unsecured debt offering.
The debt has a maturity of five years, a coupon rate of 7.125% and was priced at
99.724%, resulting in a yield to maturity of 7.192%. The net proceeds of the
offering were $197.4 million and were used in part to repay borrowings under
Cabot L.P.'s Acquisition Facility.
Cash and cash equivalents totaled $827,000 at June 30, 1999. Cash provided by
operating activities for the six months ended June 30, 1999, was $44.8 million.
Cabot L.P. has assessed its Year 2000 readiness with respect to its internal
accounting and information systems. Cabot L.P. also has contacted its
significant vendors, including banks and software providers, to determine
whether those vendors are satisfactorily addressing the Year 2000 problem with
respect to the products and services they provide to Cabot L.P. No significant
issues or costs of remediation have been identified with respect to such systems
or vendors. Cabot L.P. has also completed its review of its other internal
systems (consisting primarily of property-related systems, such as elevators and
heating, ventilation and air conditioning systems) and has developed a Year 2000
remedial plan to address issues identified in that review, none of which are
considered by Cabot L.P. to be material. Remediation costs to date have not been
material and Cabot L.P. does not expect any significant issues or remediation
costs as a result of completion of its remedial plan due to the relatively
uncomplicated nature of its industrial real estate assets and the general nature
of its leases, which in many instances provide for the reimbursement of costs
from its tenants. Cabot L.P. believes that there will
<PAGE>
be no direct material effects on its operating performance or results of
operations from the Year 2000 problem as it relates to Cabot L.P.'s internal
systems and significant vendors. Cabot L.P. further believes that adequate
alternative service providers will be available to it if any of its vendors
experience unexpected difficulties as a result of Year 2000 systems failures
and, accordingly, has not established any specific contingency plans in this
regard. It is not possible to quantify any potential indirect effects that may
result from the lack of Year 2000 readiness on the part of third parties,
including tenants, with whom Cabot L.P. conducts its business.
<PAGE>
ITEM 3. QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Cabot L.P.'s exposure to market risk has not changed materially from its
exposure at December 31, 1998. See Item 3 of the 1998 Annual Report on Form
10K/A of Cabot Trust.
<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.
On April 29, 1999, Cabot L.P. filed a Form 8-K dated April 28,
1999, to report information under Item 5 of Form 8-K, including
a press release related to Cabot L.P.'s earnings and financial
position for the first quarter of 1999.
On April 29, 1999, Cabot L.P. filed a Form 8-K dated April 29,
1999, to report information under Item 5 of Form 8-K, including
documents relating to the issuance of debt securities by Cabot
Industrial Properties, L.P. pursuant to Registration Statement
No. 333-71585.
On May 3, 1999, Cabot L.P. filed a Form 8-K dated April 30, 1999,
to report information under Item 5 of Form 8-K, including a press
release related to Cabot L.P.'s issuance of 8.625% Series B
Cumulative Redeemable Perpetual Preferred Units.
<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 13th day of August 1999.
CABOT INDUSTRIAL PROPERTIES, L.P.
---------------------------------
Registrant
By CABOT INDUSTRIAL TRUST
Its general partner
8/13/99 /s/ Neil E. Waisnor
- ---------------------------- ------------------------------------
Date Neil E. Waisnor
Senior Vice President-Finance,
Treasurer, Secretary
8/13/99 /s/ Robert E. Patterson
- ---------------------------- ------------------------------------
Date Robert E. Patterson
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1999
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