FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For quarterly period ended September 30, 1995
[ ] 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 0-10421
CORNERSTONE PROPERTIES INC.
(Exact name of registrant as specified in its charter)
Nevada 74-2170858
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
31 West 52nd Street, Suite 1600
New York, New York 10019
(Address of principal executive offices)
(212) 474-7100
(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 [ ]
ARICO America Realestate Investment Company
(Former name)
Number of shares of Common Stock outstanding as of
September 30, 1995: 19,710,255
Total pages = 14
Exhibit Index located on page 13
<PAGE>
<TABLE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 30,December 31,
1995 1994
<S> (Unaudited)
ASSETS <C> <C>
Investment Property, at cost: (Notes 2, 3 and 4)
Land $ 42,073 $ 42,073
Buildings and improvements 449,719 449,477
Deferred lease costs 85,902 85,584
577,694 577,134
Less: Accumulated depreciation and amortization 175,708 159,264
Total investment property 401,986 417,870
Cash and cash equivalents (Note 1) 85,071 12,506
Restricted cash 2,905 4,732
Other deferred costs, net of accumulated amortization of
$5,152 and $10,093 2,783 5,392
Deferred tenant receivables (Note 1) 31,279 29,596
Tenant and other receivables 3,346 955
Notes receivable 5,294 6,029
Other assets 6,839 916
Total Assets $ 539,503 $ 477,996
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Long-term debt (Note 5) $ 319,600 $ 130,500
Borrowings under lines of credit (Note 6) - 236,467
Accrued interest payable 1,490 7,469
Accrued real estate taxes payable 10,829 9,027
Shareholders' distribution payable - 3,840
Accounts payable and accrued expenses 2,581 3,219
Unearned revenue and other liabilities 6,868 10,190
Total Liabilities 341,368 400,712
Minority Interest (6,664) (6,642)
Commitments and Contingencies (Notes 2, 3, 4, 5, 6 and 7)
Shareholders' Investment
Preferred Stock, $16.50 stated value, 15,000,000 shares
authorized;3,030,303 shares issued and
outstanding(Note 8) 50,000 -
Common stock, authorized shares (1995-100,000,0000;
1994-40,000,000); shares issued and outstanding
(1995-19,710,255; 1994-13,240,500) (Note 8)
Paid-in capital 187,704 110,2371
Accumulated deficit (31,008) (26,311)
Deferred compensation (Note 9) (1,897) -
Total Shareholders' Investment 204,799 83,926
Total Liabilities and Shareholders' Investment $ 539,503 $ 477,996
<FN>
The accompanying notes are an integral part of these
consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES
Office and parking rentals $ 22,132 $ 20,916 $ 64,211 $ 62,660
Interest and other income 1,135 589 2,707 1,532
Total Revenues 23,267 21,505 66,918 64,192
EXPENSES
Building operating expenses 4,431 5,046 13,631 13,992
Real estate taxes 2,943 2,801 8,565 8,243
Interest expense 6,717 7,653 22,033 23,125
Depreciation and amortization 5,566 6,030 16,787 17,486
Advisory fee - 525 1,050 1,575
Professional fees 525 75 940 332
General and administrative 901 46 1,461 431
Directors' fees 16 27 64 84
Total Expenses 21,099 22,203 64,531 65,268
Minority Interest 781 787 2,557 2,750
Income (loss) before
extraordinary item 1,387 (1,485) (170) (3,826)
Extraordinary loss (646) - (4,527) -
NET INCOME (LOSS) $ 741 $ (1,485) $ (4,697) $ (3,826)
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM PER SHARE $ 0.06 $ (0.11) $ (0.05) $ (0.29)
INCOME (LOSS) PER SHARE $ 0.01 $ (0.11) $ (0.36) $ (0.29)
<FN>
The accompanying notes are an integral part of these
consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
<S> 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net loss $ (4,697) $ (3,826)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 16,787 17,486
Deferred compensation amortization 173 -
Extraordinary loss 4,527 -
Unbilled rental revenue (1,177) (549)
Write-off of deferred financing costs 1,355 -
Interest accretion on zero coupon notes - 1,154
Decrease in accrued interest payable (5,979) (6,066)
Minority interest share of income 2,557 2,750
(Increase) decrease in tenant and other receivables (2,140) 2,453
Decrease in accounts payable, accrued expenses and (6,000) (2,429)
Total adjustments 10,103 14,799
Net cash provided by operating activities 5,406 10,973
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment property (626) (1,367)
Earnest deposits (5,791) -
Deferred costs incurred on investments (344) (3)
Repayment of notes receivable from a related party 983 660
Loan to a related party (247) (308)
Net cash used in investing (6,025) (1,018)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under lines of credit (236,467) 1,640
Proceeds from preferred stock offering 50,000 -
Proceeds from common stock offering 90,448 -
Payments for swap terminations (4,094) -
Stock issuance costs (6,047) -
Borrowings under mortgage loans 189,100 -
Decrease in restricted cash 1,827 1,036
Distribution to minority partners (2,579) (10,742)
Distributions to shareholders (9,004) (11,519)
Net cash provided by (used)
in financing activities 73,184 (19,585)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 72,565 (9,630)
CASH AND CASH EQUIVALENTS, beginning of period 12,506 18,441
CASH AND CASH EQUIVALENTS, end of period $ 85,071 $ 8,811
<FN>
Cash paid for interest for the nine months ended September 30, 1995 and 1994
was approximately $28,012,000 and $27,988,000, respectively.
The accompanying notes are an integral part of these
consolidated financial statements
</TABLE>
<PAGE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(1) NATURE OF THE COMPANY'S BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES
Nature of the Company's Business: Cornerstone Properties Inc.
(formerly ARICO America Realestate Investment Company, until
September 18, 1995), a Nevada Corporation (Cornerstone or the
Company), was formed on May 5, 1981, to invest in major commercial
real estate projects in North America. At September 30, 1995,
Cornerstone has, through its wholly-owned subsidiary ARICO-Denver,
Inc. (ARICO-Denver), a 90 percent general partnership interest in 1700
Lincoln Limited (Lincoln) (Note 2), which operates One Norwest Center
in Denver, Colorado; through its wholly-owned subsidiary ARICO-
Minneapolis, Inc. (ARICO-Minneapolis), a 50 percent general partnership
interest in NWC Limited Partnership (NWC) (Note 3), which operates
Norwest Center in Minneapolis, Minnesota; and through its wholly-owned
subsidiary ARICO-Seattle, Inc. (ARICO-Seattle), a 50 percent general
partnership interest in Third and University Limited Partnership (Third
Partnership) (Note 4), which operates Washington Mutual Tower in
Seattle, Washington. Certain wholly-owned subsidiaries, One United
Realty Corporation (OURC), NWC Funding Corporation and TULP
Funding Corporation, were organized to provide financing for
Cornerstone's investments in Lincoln, NWC and Third Partnership.
General: The consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. In the opinion
of management of the Company, all adjustments, consisting only of
normal recurring accruals, necessary to summarize fairly the unaudited
results of operations for the nine and three month periods presented have
been included. Results for the nine and three months ended September 30,
1995 are not necessarily indicative of results which may be expected for
any other interim period or for the year as a whole. It is suggested that
these financial statements be read in conjunction with the audited financial
statements and notes thereto included in the Company's latest annual
report.
Principles of Consolidation: The accompanying financial
statements include the accounts of Cornerstone and its wholly-owned
qualified REIT subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Deferred Tenant Receivables: Rental revenue is recognized
ratably as earned over the terms of the leases. Deferred tenant receivables
result from rental revenues which have been earned but will be received in
future periods as a result of rent concessions provided to tenants and
scheduled future rent increases.
Interest Rate Swap: Cornerstone is a party to an interest rate
swap used to hedge its interest rate exposure. The differential to be paid is
recognized in the period incurred and included in interest expense.
Income (Loss) per Share: Income (Loss) per share is computed
based on the weighted average number of common shares outstanding of
14,561,104 for 1995 and 13,240,500 for 1994. For 1995, the dividends in
arrears applicable to the preferred stock have been deducted from the net
loss in computing earnings per share. (See Note 8)
Item 1. Financial Statements (continued)
Cash Equivalents: For purposes of reporting cash flows, cash and
cash equivalents include investments with original maturities of three
months or less from the date of purchase. At September 30, 1995,
Cornerstone had commercial paper investments totaling approximately
$76,600,000. The commercial paper is rated A1+P1. At September 30,
1995 and December 31, 1994 Cornerstone had on deposit with Deutsche
Bank AG New York Branch (DBNY) substantially all of its cash and cash
equivalents, excluding the commercial paper investment for 1995. In
addition, Lincoln, NWC and Third Partnership had on deposit with major
financial institutions substantially all of their cash and cash equivalents.
Cornerstone believes it mitigates its risk by investing in or through a major
financial institution. Recoverability of investments is dependent upon the
performance of the issuer.
(2) 1700 LINCOLN LIMITED
Partnership Matters and Operations: Cornerstone , through
ARICO-Denver, holds a 90 percent general partnership interest in Lincoln
while Hines Colorado Limited holds a 9 percent managing general
partnership interest and a 1 percent limited partnership interest. Lincoln
was formed on February 5, 1981, and is the owner of the fee interest in the
land located in Denver, Colorado, upon which it constructed One Norwest
Center, a 50-story office tower with related improvements.
(3) NWC LIMITED PARTNERSHIP
Partnership Matters and Operations: Cornerstone, through
ARICO-Minneapolis, holds a 50 percent general partnership interest in
NWC. Sixth & Marquette Limited Partnership, the managing general
partner, has a 49 percent general partnership interest and 1 percent limited
partnership interest. NWC is the owner of the fee interest in a tract of land
and a 55-story office tower, garage and improvements located in
Minneapolis, Minnesota, known as Norwest Center.
(4) THIRD AND UNIVERSITY LIMITED PARTNERSHIP
Partnership Matters and Operations: Cornerstone, through
ARICO-Seattle, holds a 50 percent general partnership interest in Third
Partnership with 1212 Second Avenue Limited Partnership (1212
Partnership), the limited partner and the managing general partner. Third
Partnership was formed in October 1986, and owns, leases and operates a
55-story office building and related improvements known as Washington
Mutual Tower located in Seattle, Washington.
As of September 30, 1995, Cornerstone is due a cumulative
preference deficit, including accrued interest, of approximately $7,112,000
which will be reduced as cash flow becomes available. This preference
deficit is not included in these financial statements. The preference period
ends when certain performance levels have been achieved for two
consecutive years. At the end of the preference period, Cornerstone will
become a 60 percent general partner and will be entitled to 60 percent of
the cash flow of the partnership after debt service.
On September 28, 1995, Cornerstone contributed an additional
$47,000,000 of equity to Third Partnership so that Third Partnership could
prepay the remaining debt outstanding under the credit facility with
Deutsche Bank AG (See Note 5). The preferred return on this additional
equity is 9.53 percent to Cornerstone.
(5) LONG-TERM DEBT
Interest Bearing Notes $ 98,000,000
Term Loan 32,500,000
NWC Mortgage Loan 110,000,000
Third Partnership Mortgage Loan 79,100,000
Total Long Term Debt $319,600,000
Interest Bearing Notes: On February 17, 1987, Cornerstone,
through its wholly-owned subsidiary OURC, issued notes under a private
placement offering and received $107,000,000 in proceeds, as follows:
Interest-bearing notes $ 98,000,000
Zero coupon notes 9,000,000
$ 107,000,000
The interest-bearing notes mature on February 17, 1997, and bear
interest from February 17, 1987, at 8.893 percent, payable semi-annually.
On November 4, 1994, Cornerstone entered into an amending
agreement with the holders of the above mentioned notes in order to
prepay the outstanding balance of the zero coupon notes. The total
payment of approximately $18,529,000 was composed of approximately
$17,948,000 of accreted principal on the notes and approximately
$581,000 in prepayment penalties, which was recorded as an extraordinary
loss in the fourth quarter of 1994. The zero coupon notes had a yield to
maturity of 9.141 percent, compounded semi-annually, and such yield was
recognized as interest expense and accreted to the balance of the zero
coupon notes.
All the notes are collateralized by a non-recourse mortgage on
One Norwest Center and an assignment of all leases and rents, and certain
other property, rights and interests related to One Norwest Center. (Note 2)
Additionally, Cornerstone will pay to DBNY, for an interest rate
swap used to fix the interest rates on the notes, an amount equal to 0.752
percent on a notional amount of $107,000,000 throughout the term of the
notes. This amount has been treated as a yield adjustment on the long-
term debt and has been included in interest expense. Payments on the
swap are due January 30 and July 30 each year until the termination date
of July 30, 1998.
As protection against market interest rates rising prior to the
maturity of the above stated notes, on September 29, 1993, Cornerstone
entered into an interest rate swap agreement with Deutsche Bank AG with
an effective starting date of February 18, 1997. The interest rate swap
agreement is for a fixed rate of 7.14 percent on a notional amount of
$98,000,000 for a period of ten years. The swap agreement contains a
mutual termination clause by which either party may terminate the swap
on February 18, 1997 at its then current market value.
Term Loan: In order to facilitate the above mentioned
prepayment of the zero coupon debt, Cornerstone increased the principal
on its term loan with DBNY and Deutsche Bank Cayman Islands Branch
(DBCI) from $27,000,000 to $33,000,000. The term loan matures on
February 17, 1997 and bears interest at a rate of LIBOR, plus 1.50 percent,
a portion of which has been fixed over the term of the loan at a rate of 9.66
percent with an interest rate swap agreement with DBNY. The term loan
is collateralized by the Company's pledge of its partnership interest in
Lincoln and all of its stock in ARICO-Denver. The balance of the term
loan at September 30, 1995 and December 31, 1994 was $32,500,000. On
August 8, 1995, the term loan was extended through December 31, 2003,
at an interest rate of 5.00 percent. The loan must be prepaid at par upon
the sale of either Norwest Center or Washington Mutual Tower.
Mortgage Loans: On April 7, 1995, the Third Amended and
Restated Promissory Note, dated as of August 5, 1986, made by NWC
Limited Partnership payable to the order of NWC Funding Corporation in
the original principal amount of $110,000,000 was assigned to Norwest
Corporation. The Loan matures December 31, 2005 and bears interest at
the rate of 8.74 percent.
On September 28, 1995, Third Partnership, through Teacher's
Insurance and Annuity Association, refinanced $79,100,000 of
outstanding debt collateralized by Washington Mutual Tower. These
proceeds in addition to the preferred stock proceeds (Note 8) were used to
prepay the outstanding credit facility TULP Funding Corporation had with
Deutsche Bank. The loan matures September 30, 2005 and bears interest
at the rate of 7.53 percent with the principal due at maturity.
(6) BORROWINGS UNDER LINES OF CREDIT
DBNY has provided Cornerstone with a $12,000,000 revolving
credit line which is available for general corporate purposes at a rate
equivalent to LIBOR, plus 0.625 percent, or, at Cornerstone's option, the
then prime interest rate, as well as for the issuance of standby letters of
credit at a rate of 0.375 percent. At September 30, 1995, none of the credit
line has been drawn on. The revolving credit line was renewed for a one
year term on June 30, 1995.
(7) EXTRAORDINARY LOSS
The extraordinary loss at September 30, 1995, consists of costs
relating to the early refinancing of Company indebtedness, principally the
cost for the cancellation of an interest rate swap agreement between TULP
Funding Corporation and Deutsche Bank AG in the amount of
approximately $3,700,000.
(8) CAPITAL STOCK
On June 19, 1995, the Company increased the number of
authorized shares from 40,000,000 shares of common stock, without par
value, to 115,000,000 shares of capital stock, without par value, of which
15,000,000 shares shall be preferred stock and 100,000,000 shares shall be
common stock.
On August 4, 1995, the Company received $90,447,500 gross
proceeds from the placement of 6,325,000 new shares of common stock at
a price of $14.30 per share with retail investors in Germany through
underwriters led by Deutsche Bank. The net proceeds are intended for
new property acquisitions.
On August 4, 1995, 3,030,303 preferred shares were issued to
Deutsche Bank for gross proceeds of $50,000,000. The preferred shares
are 7% cumulative and convertible into common stock at $16.50 per share
any time after August 4, 2000. At September 30, 1995 there was $554,167
or $0.18 per share in dividends in arrears on these preferred shares. The
net proceeds from the preferred share issuance were used to retire existing
indebtedness.
(9) LONG-TERM INCENTIVE COMPENSATION
During June 1995, the Board of Directors approved a non-
qualified stock option plan for officers, covering 1,000,000 shares of
common stock. Under the terms of this plan, the purchase price of shares
subject to each option granted will equal their fair market value at the date
of grant. The options have a ten-year term and are exercisable after one
year from the date of grant, at the rate of 20% per year. At September 30,
1995, 287,500 shares were available for granting further options and
options for 712,500 shares were outstanding at $14.30 per share, of which
none were exercisable.
On August 7, 1995, 144,755 restricted stock grants were awarded
to officers. The grants vest over a five year period - 13.333% on June 30
of 1996, 1997, 1998, and 1999; with the balance of 46.668% vesting on
June 30, 2000. Deferred compensation of $2,069,997, or $14.30 per grant,
is being amortized according to the vesting percentages above, with the
unamortized balance shown as a deduction from shareholders' equity.
(10) SUBSEQUENT EVENTS
On November 1, 1995, the Company completed the acquisition of
125 Summer Street in Boston, Massachusetts, for $105,000,000 from
Lincoln Summer Realty Trust. The purchase price of $105,000,000 was
paid to the extent of $85,000,000 from available cash, with the balance
supplied by bridge loan financing from Bankers Trust Company.
(11) IMPACT OF NEW ACCOUNTING STANDARDS
In 1995 the Financial Accounting Standards Board issued SFAS
#121, "Accounting for Impairment of Long Lived Assets and Long Lived
Assets to be Disposed Of" and SFAS #123, "Accounting for Stock-Based
Compensation." Cornerstone is currently assessing the impact of these
statements which will be effective for fiscal years beginning on or after
December 15, 1995.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1995
RESULTS OF OPERATIONS
Principles of Consolidation: Cornerstone's principal source of
income is rental revenues received through its investment in three real
estate partnerships: 1700 Lincoln Limited, NWC Limited Partnership and
Third and University Limited Partnership. The Company's investments in
1700 Lincoln Limited, NWC Limited Partnership and Third and
University Limited Partnership are accounted for using the consolidation
method of accounting.
Net Earnings and Losses: On a consolidated basis, for the nine
month period ended September 30, 1995 compared to the same period in
1994, Cornerstone's share in net earnings and losses of the partnerships
increased to $9,303,000 from $6,493,000. For the three month period
ended September 30, 1995 compared to the same period in 1994,
Cornerstone's share in net earnings and losses of the partnerships increased
to $3,216,000 from $1,831,000. The increase is primarily attributable to
increased income at 1700 Lincoln Limited.
Interest and Other Income: Interest and other income primarily
consists of interest earned from short-term investments. The increase in
interest and other income in the 1995 periods is primarily due to the
commercial paper investments in the third quarter of 1995. (See Note 1)
Also included in interest and other income is interest earned on notes
receivable from Hines Colorado Limited (HCL) in the amount of $387,000
and $469,000 for the nine months ended September 30, 1995 and 1994,
respectively.
Interest Expense: Interest expense incurred by Cornerstone
relating to its financing activities decreased in 1995 primarily due to debt
refinancings and a lower interest rate environment.
Administrative Expenses: Aggregate administrative expenses for
the nine months ended September 30, 1995 and September 30, 1994 were
$3,515,000 and $2,422,00, respectively. For the three month periods
ended September 30, 1995 and September 30, 1994 aggregate
administrative expenses were $1,442,000 and $673,000, respectively. The
increased administrative expenses are due to an increase in professional
fees and administrative expenses resulting from the Company's self
advisement effective July 1, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Funds From Operations: The Company calculates Funds from
Operations (FFO) based upon guidance from the National Association of
Real Estate Investment Trusts. FFO is defined as net income, excluding
gains or losses from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
joint ventures. Due to the unique nature of Cornerstone's leases, a further
adjustment to the standard definition of FFO will be made to reduce FFO
by the amount of free and deferred rental revenue which has been
recognized in the financial statements. In the opinion of management,
these amounts relate to benefits which will not be realized, in the form of
increased cash flow, until future periods and would distort the FFO
calculation.
Industry analysts generally consider FFO to be an appropriate
measure of performance of an equity Real Estate Investment Trust such as
Cornerstone. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and,
therefore, should not be considered a substitute for net income as a
measure of performance or for cash flow from operations as a measure of
liquidity calculated in accordance with generally accepted accounting
principles.
The table below illustrates the adjustments which were made to
the net loss of Cornerstone in the calculation of FFO for the nine months
ended September 30, 1995 and 1994, respectively (in thousands):
<TABLE>
Funds From Operations
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
<S> <C> <C>
Net loss ($4,697) ($3,826)
Plus:
Depreciation and amortization 16,787 17,486
Amortization on rent notes 733 575
Extraordinary loss 4,527 -
Less:
Free rent and deferred rents (1,249) (2,634)
Minority adjustments (703) (8)
Funds From Operations $15,398 $11,593
</TABLE>
The increase in FFO is due to higher rental income resulting from
contractual increases in tenant rentals.
Indebtedness: In 1991, Cornerstone consolidated its borrowings
under two lines of credit into a term loan with DBNY. The term loan pays
interest only at a rate of LIBOR, plus 1.25 percent, a portion of which has
been fixed over the term of the loan at a rate of 9.66 percent with an
interest rate swap agreement with DBNY. The term loan matures on
February 17, 1997. On August 8, 1995, the term loan was extended
through December 31, 2003, at an interest rate of 5.00 percent. The loan
must be prepaid at par upon the sale of either Norwest Center or
Washington Mutual Tower. The term loan had a $32,500,000 balance at
September 30, 1995. At September 30, 1995, Cornerstone had a
$12,000,000 line of credit with DBNY. The line is available for general
corporate purposes at a rate equivalent to LIBOR, plus 0.625 percent or, at
Cornerstone's option, the prime interest rate. At September 30, 1995, none
of the credit line had been drawn upon.
In addition to the term loan, the Company, through One United
Realty Corporation, had $98,000,000 in long-term debt outstanding at
September 30, 1995. Interest only is due on these notes, which mature on
February 17, 1997, at a rate of 8.893 percent.
As protection against market interest rates rising prior to the
maturity of the above stated notes, on September 29, 1993, Cornerstone
entered into an interest rate swap agreement with Deutsche Bank AG with
an effective date of February 18, 1997. The interest rate swap agreement
is for a fixed rate of 7.14 percent per annum on a notional amount of
$98,000,000 for a period of ten years. The swap agreement contains a
mutual termination clause by which either party may terminate the swap
on February 18, 1997 at its then current market value.
On April 7, 1995, the Third Amended and Restated Promissory
Note, dated as of August 5, 1986, made by NWC Limited Partnership
payable to the order of NWC Funding Corporation in the original principal
amount of $110,000,000 was assigned to Norwest Corporation. The Loan
matures December 31, 2005 and bears interest at the rate of 8.74 percent.
On September 27, 1995, Third and University Limited
Partnership, through Teacher's Insurance and Annuity Association,
refinanced $79,100,000 of outstanding debt collateralized by Washington
Mutual Tower. These proceeds, in addition to the preferred stock
proceeds were used to prepay the outstanding credit facility TULP
Funding Corporation had with Deutsche Bank. The loan matures
September 30, 2005 and bears interest at the rate of 7.53 percent with the
principal due at maturity.
Other Matters: The Company is not aware of any environmental
issues at any of its properties. The Company does not believe inflation
will have a significant effect on its results. The Company believes it has
sufficient insurance coverage at each of its three properties.
Shareholders' Distributions: Cornerstone intends to distribute at
least 95 percent of its taxable income to maintain its qualification as a Real
Estate Investment Trust. Currently, Cornerstone has no taxable income
and anticipates that FFO will exceed taxable income for the foreseeable
future. Cornerstone's distribution policy is to pay distributions based upon
FFO, less prudent reserves. For 1995, Cornerstone so far has paid
distributions from its contributed capital to its shareholders of $0.68 per
share on August 31, 1995 (to shareholders of record on July 31, 1995).
For 1994, Cornerstone paid distributions from its contributed capital to its
shareholders of $0.58 per share on August 31, 1994 (to shareholders of
record on June 30, 1994), $0.29 per share on October 17, 1994 (to
shareholders of record on September 30, 1994) and $0.29 per share on
January 31, 1995 (to shareholders of record as of December 31, 1994).
Liquidity: At September 30, 1995, the Company had
$85,071,000 in cash and cash equivalents and $2,905,000 in restricted
cash. Restricted cash is being held by the trustee for the OURC notes. In
addition, Cornerstone anticipates it will receive distributions from real
estate partnerships on a monthly basis which will be used to cover normal
operating expenses and pay distributions to its shareholders. Based upon
its cash reserves and other sources of funds, Cornerstone has sufficient
liquidity to meet its cash requirements for the foreseeable future.
Impact of new accounting standards: In 1995 the Financial
Accounting Standards Board issued SFAS #121, "Accounting for
Impairment of Long Lived Assets and Long Lived Assets to be Disposed
of" and SFAS #123, "Accounting for Stock-Based Compensation."
Cornerstone is currently assessing the impact of these statements which
will be effective for fiscal years beginning on or after December 15, 1995.
<PAGE>
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
See Note (10) of the notes to consolidated financial statements above.
On November 13, 1995, the Board of Directors of the Company increased the size
of the Board from nine to ten members and elected Mr. Blake Eagle, Chairman of
The Center for Real Estate at the Massachusetts
Institute of Technology, to the Board.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1) Purchase and Sale Agreement dated September 27, 1995 between Michael C.
Fong, Osama El Haddad, and Mark S. James as Trustees of Lincoln Summer
Realty Trust, and not individually (Seller) and Cornerstone Properties Inc.
(Buyer).
2) Exhibit 11.1: Statement of Computation of Earnings Per Share
3) For EDGAR filing purposes only, this report contains Exhibit 27,
Financial Data Schedule.
(b) Reports on Form 8-K:
1) Form 8-K dated October 11, 1995
Item 5 - Other Events.
Board of Directors approval to acquire 125 Summer Street in Boston,
Massachusetts for approximately $105 million.
2) Form 8-K dated November 6, 1995
Item 2 - Acquisition or Disposition of Assets.
Completion of the acquisition of 125 Summer Street in Boston,
Massachusetts for approximately $105 million.
<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.
CORNERSTONE PROPERTIES INC.
(Registrant)
By: _______________________________________
John S. Moody, President and CEO
Date: November 13, 1995
By: _______________________________________
Thomas P. Loftus, Vice President and Controller
(Principal Financial Officer)
Date: November 13, 1995
<TABLE>
Exhibit 11.1 Statement of Computation of Earnings Per Share
for the Nine Months Ended September 30, 1995
<CAPTION>
Earnings Per Share
Primary Fully Diluted
<S> <C> <C>
1. Proceeds upon exercise of options 10,188,750 10,188,750
2. Proceeds upon exercise of
convertible preferred stock - 50,000,000
3. Market price of shares
Closing - -
Average (Options) $ 15.18 -
Average (Convertible preferred stock) - $ 15.07
4. Treasury shares that could
be repurchased (Options) 671,195 671,195
5. Option shares outstanding 712,500 712,500
6. Common stock equivalent shares (Excess 41,305 41,305
shares under option over Treasury
shares that could be repurchased)
7. Treasury shares that could be
repurchased (Preferred) - 3,317,850
8. Convertible preferred shares outstanding - 3,030,303
9. Common stock equivalent shares (Excess - antidilutive
shares under convertible preferred over
Treasury shares that could be repurchased)
10. Weighted average number of shares
outstanding* 14,598,815 14,598,815
11. Net loss for the period $ (4,697,000) $ (4,697,000)
12. Less: Dividends in arrears
applicable to $ (554,000) $ (554,000)
the preferred stock
13. Net loss applicable to common shares $ (5,251,000) $ (5,251,000)
14. Loss per share $ (0.36) $ (0.36)
15. Reported loss per share $ (0.36) $ (0.36)
</TABLE>
[FN]
* Weighted as follows: 12/31/94 - 13,240,500 Common outstanding
8/1/95 - 41,305 Common stock equivalent options
per above
8/4/95 - 6,325,000 Common share offering
8/7/95 - 144,755 Restricted stocks granted
