<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, 2000 Commission File Number: 1-14979
------------- -------
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 11, 2000,
43,668,333 Limited Partnership Units; 1,300,000 Series B Cumulative Redeemable
Perpetual Preferred Units, $50 Liquidation value; 2,600,000 Series C Cumulative
Redeemable Perpetual Preferred Units, $25 Liquidation value; 200,000 Series D
Cumulative Redeemable Perpetual Preferred Units, $50 Liquidation value; 200,000
Series E Cumulative Redeemable Perpetual Preferred Units, $50 Liquidation value;
1,800,000 Series F Cumulative Redeemable Perpetual Preferred Units, $25
Liquidation value; 600,000 Series G Cumulative Redeemable Perpetual Preferred
Units, $25 Liquidation value; and 1,400,000 Series H Cumulative Redeemable
Perpetual Preferred Units, $25 Liquidation value.
<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 L.P.").
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, 2000
through June 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 PROPERTIES, L.P.
CONSOLIDATED CONDENSED BALANCE SHEET
As of June 30, 2000 and December 31, 1999
(in thousands)
June 30, 2000 December 31, 1999
------------- -----------------
(unaudited)
ASSETS:
INVESTMENT IN REAL ESTATE:
Rental Properties $1,661,447 $1,507,834
Less: Accumulated Depreciation (59,305) (42,543)
---------- ----------
Net Rental Properties 1,602,142 1,465,291
Properties under Development 62,174 63,938
---------- ----------
$1,664,316 $1,529,229
---------- ----------
OTHER ASSETS:
Cash and Cash Equivalents $ 3,018 $ 22,007
Rents and Other Receivables, net of allowance
for uncollectible accounts of $763 and $574
at June 30, 2000 and December 31, 1999,
respectively 3,398 3,828
Deferred Rent Receivable 8,717 6,079
Deferred Lease Acquisition Costs, net 30,019 23,913
Deferred Financing Costs, net 3,460 3,369
Investment In and Notes Receivable from
Joint Venture 7,541 --
Investment in and Advances to Cabot Advisors 308 1,105
Other Assets 7,149 3,954
---------- ----------
TOTAL ASSETS $1,727,926 $1,593,484
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
LIABILITIES:
Mortgage Debt $ 234,878 $ 163,866
Unsecured Debt 200,000 200,000
Line of Credit Borrowings 183,000 163,000
Accounts Payable 978 889
Accrued Real Estate Taxes 11,483 10,254
Distributions Payable 16,155 15,437
Tenant Security Deposits and Prepaid Rents 8,739 11,205
Other Liabilities 19,002 20,117
---------- ----------
$ 674,235 $ 584,768
---------- ----------
PARTNERS' EQUITY:
Limited Partners' Equity $ 56,931 $ 57,169
General Partner's Equity 758,555 761,742
Preferred Unitholders' Equity 238,205 189,805
---------- ----------
TOTAL PARTNERS' EQUITY $1,053,691 $1,008,716
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $1,727,926 $1,593,484
========== ==========
3
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Three Months ended June 30, 2000 and June 30, 1999
(unaudited, in thousands, except per unit data)
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------------ ------------------
REVENUES:
Rental Income $ 44,994 $ 32,004
Tenant Reimbursements 7,184 5,178
---------- ---------
Total Revenues $ 52,178 $ 37,182
---------- ---------
EXPENSES:
Property Operating $ 4,705 $ 2,749
Property Taxes 6,022 4,125
Depreciation and Amortization 10,468 7,353
Interest 10,560 5,822
General and Administrative 2,216 2,136
---------- ---------
Total Expenses $ 33,971 $ 22,185
---------- ---------
Interest and Other Income $ 471 $ 304
Earnings and Fees from Joint Venture 198 --
Gain on Sale of Real Estate -- 3,404
---------- ---------
$ 669 $ 3,708
---------- ---------
Net Income $ 18,876 $ 18,705
Preferred Unitholders' Distributions (4,905) (981)
---------- ---------
Net Income Allocable to Partnership Units $ 13,971 $ 17,724
========== =========
Earnings per Partnership Unit:
Basic $ 0.32 $ 0.41
========== =========
Diluted $ 0.32 $ 0.41
========== =========
Weighted Average Partnership Units:
Basic 43,668 43,634
========== =========
Diluted 43,714 43,716
========== =========
4
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Six Months ended June 30, 2000 and June 30, 1999
(unaudited, in thousands, except per unit data)
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------------ ------------------
REVENUES:
Rental Income $ 87,743 $ 61,225
Tenant Reimbursements 14,243 10,095
---------- ---------
Total Revenues $ 101,986 $ 71,320
---------- ---------
EXPENSES:
Property Operating $ 9,251 $ 5,429
Property Taxes 11,920 7,970
Depreciation and Amortization 20,291 14,163
Interest 20,010 10,137
General and Administrative 4,697 4,321
Settlement of Treasury Lock -- 2,492
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Total Expenses $ 66,169 $ 44,512
---------- ---------
Interest and Other Income $ 765 $ 506
Earnings and Fees from Joint Venture 198 --
Gain on Sale of Real Estate -- 3,404
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$ 963 $ 3,910
---------- ---------
Net Income $ 36,780 $ 30,718
Preferred Unitholders' Distributions (9,116) (981)
---------- ---------
Net Income Allocable to Partnership Units $ 27,664 $ 29,737
========== =========
Earnings per Partnership Unit:
Basic $ 0.63 $ 0.68
========== =========
Diluted $ 0.63 $ 0.68
========== =========
Weighted Average Partnership Units:
Basic 43,668 43,579
========== =========
Diluted 43,713 43,594
========== =========
5
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the Six Months ended June 30, 2000 and June 30, 1999
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 36,780 $ 30,718
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and Amortization 20,291 14,163
Gain on Sale of Real Estate -- (3,404)
Straight Line Rent Adjustment (2,638) (1,376)
Amortization of Deferred Financing Costs 614 408
Decrease/(Increase) in Rents and Other Receivables 430 (972)
Increase in Accounts Payable 145 475
Increase in Other Assets (3,534) (268)
Increase in Accrued Real Estate Taxes 1,229 846
Increase/(Decrease) in Other Liabilities (868) 4,175
----------- -----------
Cash Provided by Operating Activities 52,449 44,765
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and Lease Acquisition Costs (150,958) (179,214)
Improvements to Property -- (842)
Increase in Other Assets (1,299) (946)
Investment in Joint Venture (946) --
Notes Receivable from Joint Venture (6,016) --
Repayments/(Advances to) from Cabot Advisors, net 326 (330)
Net Proceeds from Sale of Real Estate -- 10,377
----------- -----------
Cash Used in Investing Activities (158,893) (170,955)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Unsecured Debt -- 199,448
Proceeds from Issuance of Secured Debt 61,900 93,215
Line of Credit Advances/(Repayments), net 20,000 (196,000)
Distributions Paid to Preferred Unitholders (9,053) (981)
Distributions Paid to Partnership Unitholders (30,349) (28,969)
Debt Principal Repayments (2,044) (1,453)
Net Proceeds from Issuance of Units/Payment of Expenses of Issuance (85) --
Increase in Deferred Financing Costs (681) (2,375)
Proceeds from Issuance of Units, net -- (1,138)
Proceeds from Issuance of Preferred Units, net 47,767 63,309
Increase in Other Assets -- (340)
----------- -----------
Cash Provided by Financing Activities 87,455 124,716
----------- -----------
Net Decrease in Cash and Cash Equivalents (18,989) (1,474)
----------- -----------
CASH AND CASH EQUIVALENTS--
BEGINNING OF PERIOD 22,007 2,301
----------- -----------
CASH AND CASH EQUIVALENTS--
END OF PERIOD $ 3,018 $ 827
=========== ===========
Cash paid for interest and settlement of treasury lock, net of amounts capitalized $ 20,290 $ 10,483
=========== ===========
</TABLE>
6
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (continued)
For the Six Months ended June 30, 2000 and June 30, 1999
(unaudited, in thousands)
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In conjunction with real estate acquisitions, Cabot L.P. assumed $11,156 of
indebtedness during the six months ended June 30, 2000 and assumed $19,135 of
indebtedness and issued Units valued at $2,743 during the six months ended June
30, 1999 (Note 2).
At June 30, 2000, accrued capital expenditures (including amounts included in
accounts payable) totaled $8,304, accrued offering costs totaled $945 and
accrued financing costs totaled $24.
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.
7
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
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 agreement of limited partnership 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). Cabot Trust qualifies as a real estate investment trust (a REIT) for
federal income tax purposes.
As of June 30, 2000, Cabot L.P. owned 350 industrial properties located in 22
markets throughout the United States, containing approximately 42 million
rentable square feet. These properties were approximately 97.1% leased to 708
tenants at June 30, 2000. Cabot L.P. also owns a 20% equity interest in and
provides acquisition, asset and property management services to a joint venture
(the Joint Venture), which invests in industrial properties.
2. The Formation Transactions, The Offerings and Ownership
The Formation Transactions
On February 4, 1998, under a Contribution Agreement executed by Cabot Trust,
Cabot L.P., Cabot Partners and various other contributors, 122 industrial real
estate properties, certain real estate advisory contracts and other assets were
(i) contributed to Cabot L.P. in exchange for general partnership units in Cabot
L.P. (Units) that may, subject to certain restrictions, be exchanged for Common
Shares of Cabot Trust (Common Shares) or (ii) contributed to Cabot Trust in
exchange for Common Shares. The properties contributed to Cabot Trust were
concurrently contributed by it to Cabot L.P. in exchange for the number of Units
in Cabot L.P. equal to the number of Common Shares exchanged for the property.
Cabot L.P. contributed the real estate advisory contracts to Cabot Advisors,
Inc. (Cabot Advisors) and received 100% of the non-voting preferred stock of
Cabot Advisors, which entitles it to 95% of Cabot Advisors' net operating cash
flow. All of the common stock of Cabot Advisors is owned by an officer of Cabot
Trust.
During the six months ended June 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 Units of Cabot
L.P.
At June 30, 2000, Cabot Trust owned 93.0% of the common equity of Cabot L.P.
Cabot Trust owned 93.1% of Cabot L.P. at June 30, 1999.
8
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
The Offerings
On February 4, 1998, Cabot Trust completed an offering of 8,625,000 Common
Shares at an offering price of $20.00 per share. In addition, Cabot Trust
issued 1,000,000 Common Shares in a private offering at $20.00 per share
(collectively, the Offerings). Cabot Trust contributed the net proceeds of the
Offerings to Cabot L.P. in exchange for the number of general partnership
interests in Cabot L.P. equal to the number of Common Shares sold in the
Offerings.
Cumulative Redeemable Perpetual Preferred Equity
During 1999 and 2000, Cabot L.P. completed private sales of the following
Cumulative Redeemable Perpetual Preferred Units (the "Preferred Units"):
<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. Property Acquisitions
During the period from April 1, 2000 through June 30, 2000, Cabot L.P. acquired
the following industrial properties:
<TABLE>
<CAPTION>
Acquisition
Property Location Property Type Square Feet Cost
----------------------------------------- -------------------------- -------------- ----------------
(000'S)
<S> <C> <C> <C>
Northmont Parkway, Duluth, GA Multitenant Distribution 145,940 $ 12,391
Evergreen Boulevard, Duluth, GA Multitenant Distribution 140,250
Brookford Street, Charlotte, NC Multitenant Distribution 122,000 $ 3,336
Capitol Avenue, Plano, TX Workspace 50,270 $ 4,993
Capitol Avenue, Plano, TX Workspace 50,270
Cherry Street, Newark, CA Multitenant Distribution 226,322 $ 28,649
Cherry Street, Newark, CA Multitenant Distribution 274,349
Cherry Street, Newark, CA Multitenant Distribution 108,170
Nations Ford Road, Charlotte, NC Bulk Distribution 259,200 $ 9,022
Northmont Parkway, Duluth, GA Multitenant Distribution 132,912 $ 7,124
-------------- -----------
TOTALS 1,509,683 $ 65,515
============== ===========
</TABLE>
9
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
4. Debt Activity
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.
Cabot L.P. 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 June 30,
2000, the Mortgage Loans totaling $234.9 million, bear coupon rates ranging from
7.25% - 9.67% and are secured by properties with a net book value of $378.7
million. Certain of the debt assumed in conjunction with the acquisition of
properties bears a coupon interest rate that differed from the fair market value
interest rate at the date of acquisition. In accordance with generally accepted
accounting principles, such debt was recorded at fair market value and interest
expense recorded in the accompanying consolidated statements of operations was
adjusted based on the fair market interest rate at the date of acquisition.
In conjunction with acquisitions made during the six months ended June 30, 2000,
Cabot L.P. 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 $16.4 million. In addition, Cabot L.P. borrowed $61.9 million on
June 30, 2000, which is secured by specific properties. At quarter end, these
properties had a net book value of approximately $91.5 million. This borrowing
has a fixed interest rate of 8.4% per annum and a 10-year term with monthly
installment payments beginning August 1, 2000. Under this agreement, the first
24 installment payments will be interest only payments with no principal
reduction. Beginning August 1, 2002, the monthly installments will consist of
both principal reduction and interest payments.
Cabot L.P. has entered into an interest rate cap arrangement relating to its
$325.0 million Acquisition Facility for a notional amount of $100.0 million for
the period from April 11, 2000 through October 11, 2000. This arrangement is
intended to result in limiting the variable nature of the LIBOR component of
Cabot L.P.'s interest rate on an equivalent amount of borrowings to 7.0% per
annum. Under the agreement, Cabot L.P.'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%.
10
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
Interest expense of $16,000 was incurred related to interest rate cap and
similar agreements during the six months ended June 30, 2000, and approximately
$38,000 was incurred for the six months ended June 30, 1999.
During 1998, Cabot L.P. also had entered into an interest rate hedge transaction
(referred to as a Treasury Lock) involving the future sale of $100.0 million of
Treasury securities based on a rate of approximately 5.54% for such securities
in anticipation of a future debt issuance of at least $100.0 million with a
maturity of 10 years. At the March 31, 1999 contractual settlement date for
this transaction, Cabot 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.
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. Diluted earnings per
unit 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, 2000 June 30, 1999
--------------------------- ---------------------
Basic:
<S> <C> <C>
Net Income Allocable to Partnership Unitholders $ 27,664,000 $ 29,737,000
------------- -------------
Weighted Average Partnership Units 43,668,000 43,579,000
------------- -------------
Basic Earnings per Partnership Unit $ 0.63 $ 0.68
============= =============
Diluted:
Net Income Allocable to Partnership Unitholders $ 27,664,000 $ 29,737,000
------------- -------------
Weighted Average Partnership Units 43,668,000 43,579,000
Effect of Unit Options 45,000 15,000
------------- -------------
Weighted Average Partnership Units, as adjusted 43,713,000 43,594,000
------------- -------------
Diluted Earnings per Partnership Unit $ 0.63 $ 0.68
============= =============
</TABLE>
Approximately 4 million and 3 million options granted are excluded from the
above calculations for 2000 and 1999, respectively, since the impact of
consideration of these options at June 30, 2000 and June 30, 1999 was anti-
dilutive.
11
<PAGE>
CABOT INDUSTRIAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
6. Investments in Joint Ventures
During the six months ended June 30, 2000, Cabot L.P. earned, in the aggregate,
approximately $178,000 in net acquisition and asset management fees from the
Joint Venture. In addition, Cabot L.P. earned income of approximately $20,000
from the Joint Venture, which is accounted for under the equity method of
accounting. These amounts are included as components of Earnings and Fees from
Joint Venture in the accompanying Consolidated Condensed Statement of
Operations. As of June 30, 2000, the Joint Venture owned three industrial
properties comprising approximately 290,000 square feet. Cabot L.P. provided
bridge financing in the form of a note receivable to the Joint Venture in the
amount of $6,016,300. This note bears interest at 9.61% per annum and is
expected to be repaid by year end from the proceeds of the Joint Venture's
permanent financing.
In the normal course of operations, as of August 11, 2000, the Joint Venture has
also purchased approximately $9.6 million of real estate assets containing
approximately 136,000 square feet subsequent to June 30, 2000.
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 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, 2000, Cabot L.P. owned 350 industrial properties, 10 of which
properties were acquired during the period from April 1, 2000 through June 30,
2000. Cabot L.P. also owns a 20% equity interest in and provides acquisition,
asset and property management services to a joint venture (the Joint Venture)
which invests in industrial properties.
Results of Operations
Quarter Ended June 30, 2000 compared with Quarter Ended June 30, 1999
Net income allocable to Partnership Units for the quarter ended June 30, 2000
totaled $14.0 million or $.32 per unit, compared with $17.7 million or $.41 per
unit for the quarter ended June 30, 1999. The 1999 results include a gain on
sale of $3.4 million, but there were no gains or losses recognized on sales in
2000. After consideration of the 1999 sale, the decrease in net income allocable
to Partnership Units in 2000 is primarily attributable to the increase in
depreciation and amortization, offset by the increased income related to
acquisitions and additional income generated by the partnership's properties.
Rental revenues were $52.2 million, including tenant reimbursements of $7.2
million, for the quarter ended June 30, 2000, compared with $37.2 million,
including tenant reimbursements of $5.2 million, for the quarter ended June 30,
1999. Total rental revenue of $36.5 million and $35.2 million was generated in
2000 and 1999, respectively, by the properties owned as of March 31, 1999, and
still owned at June 30, 2000, (the Quarterly Baseline Properties) and total
rental revenue of $15.7 million and $1.6 in 2000 and 1999, respectively, was
generated by the properties acquired or developed subsequent to March 31, 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.
13
<PAGE>
The operating margin (the ratio of total revenues minus property operating and
property tax expenses to total revenues) decreased to approximately 79% for the
quarter ended June 30, 2000 compared with 82% for the quarter ended June 30,
1999. The decrease is primarily due to a change in the composition of leases,
primarily as a result of acquisitions of multitenant and workspace properties,
to more leases where Cabot L.P. pays property and operating expenses and is
reimbursed by tenants compared to where the tenant pays these expenses directly.
Depreciation and amortization related to real estate assets totaled $10.4
million and $7.3 million for the quarters ended June 30, 2000 and 1999,
respectively. The increase reflects the acquisition of approximately $448.3
million of real estate assets in 1999 and $129.1 million for the six months
ended June 30, 2000 and additional deferred lease acquisition costs for
Quarterly Baseline Properties.
Interest expense of $10.6 million for the quarter ended June 30, 2000 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 $172.2
million of secured debt, net of $900,000 of interest capitalized to development
projects. Interest expense of $5.8 million for the quarter ended June 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
$153.7 million of secured debt, net of $746,000 of interest capitalized to
development projects.
General and administrative expense increased by $80,000, to $2.2 million for the
quarter ended June 30, 2000. The increase is primarily due to an increase in
personnel to manage the acquisition, development, asset management and financing
activity from the increase in the number of Cabot L.P.'s properties from 267 to
350 at the end of each period. As a percentage of rental revenues, general and
administrative expense decreased to 4.2% at June 30, 2000 from 5.7% at June 30,
1999.
Interest and other income, which consists primarily of interest earned on Cabot
L.P.'s invested cash balances and advances to the Joint Venture, as well as
earnings of Cabot Advisors, increased to $471,000 from $304,000 for the quarter
ended June 30, 2000, compared to the quarter ended June 30, 1999. The increase
is primarily due to interest income from advances to the Joint Venture in 2000.
The increase in Preferred Unitholders' Distributions is due to the increase in
Cummulative Redeemable Perpetual Preferred Equity as discussed within Note 2 to
the financial statements.
Six Months Ended June 30, 2000 compared with Six Months Ended June 30, 1999
Net income allocable to Partnership Units for the six months ended June 30, 2000
totaled $27.7 million or $.63 per unit, compared with $29.7 million or $.68 per
unit for the six months ended June 30, 1999. The decrease in net income
allocable to Partnership Unitholders is primarily due to the inclusion in the
1999 results of a gain on sale of $3.4 million offset by a loss related to the
settlement of the treasury lock of approximately $2.5 million during the quarter
ended March 31, 1999. There were no gains or losses recognized on sales in 2000
nor expenses related to settlement of treasury lock. After consideration of the
1999 sale and settlement of treasury lock, the decrease in net income per unit
in 2000 is primarily attributable to increased depreciation and amortization,
offset by the increased income related to acquisitions and additional income
generated by the partnership's properties.
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Rental revenues were $102.0 million, including tenant reimbursements of $14.2
million, for the six months ended June 30, 2000, compared with $71.3 million,
including tenant reimbursements of $10.1 million, for the six months ended June
30, 1999. Total rental revenue of $68.2 million and $65.8 million was generated
in 2000 and 1999, respectively, by the properties owned as of January 1, 1999,
and still owned at June 30, 2000, (the Baseline Properties) and total rental
revenue of $33.8 million and $4.7 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
six months ended June 30, 2000 compared with 81% for the six months ended June
30, 1999. The decrease is primarily due to a change in the composition of
leases, primarily as a result of acquisitions of multitenant and workspace
properties, to more leases where Cabot L.P. pays property and operating expenses
and is reimbursed by tenants compared to where the tenant pays these expenses
directly.
Depreciation and amortization related to real estate assets totaled $20.2
million and $14.1 million for the six months ended June 30, 2000 and 1999,
respectively. The increase reflects the acquisition of approximately $448.3
million of real estate assets in 1999 and $129.1 million for the six months
ended June 30, 2000 and additional deferred lease acquisition costs for Baseline
Properties.
Interest expense of $20.0 million for the six months ended June 30, 2000
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
$169.9 million of secured debt, net of $1.8 million of interest capitalized to
development projects. Interest expense of $10.1 million for the six months
ended June 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 $125.1 million of secured debt, net of $1.3 million of interest
capitalized to development projects.
General and administrative expense increased by $376,000, to $4.7 million for
the six months ended June 30, 2000. The increase is primarily due to an
increase in personnel to manage the acquisition, development, asset management,
and financing activity from the increase in the number of Cabot L.P.'s
properties from 267 to 350 at the end of each period. As a percentage of rental
revenues, general and administrative expense decreased to 4.6% at June 30, 2000
from 6.1% at June 30, 1999.
During 1998 Cabot L.P. 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 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
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
L.P. invested cash balances and advances to the Joint Venture, as well as
earnings of Cabot Advisors, increased to $765,000 from $506,000 for the six
months ended June 30, 2000, compared to the six months ended June 30, 1999. The
increase is primarily due to interest income from advances to the Joint Venture
in 2000.
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.
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.
Cabot L.P. borrowed $61.9 million on June 30, 2000, which is secured by specific
properties. At quarter end, these properties had a net book value of
approximately $91.5 million. This borrowing has a fixed interest rate of 8.4%
per annum and a 10-year term with monthly installment payments beginning August
1, 2000. Under this agreement, the first 24 installment payments will be
interest only payments with no principal reduction. Beginning August 1, 2002,
the monthly installments will consist of both principal reduction and interest
payments.
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As discussed in Note 2 to the financial statements, as of June 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 was used to pay down
outstanding balances under the Acquisition Facility. These Cumulative
Redeemable Perpetual Preferred Units are callable by Cabot L.P. at par on or
after the fifth anniversary of issuance.
In March 1998 Cabot L.P. 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 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.
As of June 30, 2000, Cabot L.P. had $234.9 million of fixed rate debt secured by
properties, $183.0 million of unsecured borrowings under its Acquisition
Facility, $200.0 million of unsecured debt and a 35.9% 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 Units and the liquidation value of Perpetual
Preferred Units plus total debt.
On April 12, 2000, Cabot L.P. entered into a joint venture agreement with Chase
Capital Partners. The Joint Venture is targeted towards investment in
industrial workspace properties. The investors have committed approximately $44
million in equity to the venture of which 20% will be funded by Cabot L.P. As
of June 30, 2000, the venture has purchased three properties for approximately
$21.8 million, containing approximately 290,000 square feet. In the normal
course of operations, the Joint Venture has purchased approximately $9.6 million
of real estate assets containing approximately 136,000 square feet, subsequent
to quarter end through August 11, 2000.
Cabot L.P. has entered into an interest rate cap arrangement relating to its
$325.0 million Acquisition Facility for a notional amount of $100.0 million for
the period from April 11, 2000 through October 11, 2000. This arrangement is
intended to result in limiting the variable nature of the LIBOR component of
Cabot L.P.'s interest rate on an equivalent amount of borrowings to 7.0% per
annum. Under the agreement, Cabot L.P.'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%.
Cash and cash equivalents totaled $3.0 million at June 30, 2000. Cash provided
by operating activities for the six months ended June 30, 2000, was $52.4
million.
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Year 2000
During 1999, Cabot L.P. 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 L.P. 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 L.P.'s vendors communicated to
Cabot L.P. that they have experienced any such effects.
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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, 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
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
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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 14th day of August 2000.
CABOT INDUSTRIAL TRUST PROPERTIES, L.P.
---------------------------------------
Registrant
By CABOT INDUSTRIAL TRUST
Its general partner
8/14/00 /s/ Neil E. Waisnor
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Date Neil E. Waisnor
Senior Vice President-Finance, Treasurer, Secretary
8/14/00 /s/ Robert E. Patterson
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Date Robert E. Patterson
President
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