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 March 31, 1997
[ ] 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.)
126 East 56th Street
New York, New York 10022
(Address of principal executive offices)
(212) 605-7100
(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 [ ]
Number of shares of Common Stock outstanding as of May 12, 1997: 37,198,186
Total pages = 14
Exhibit Index located on page 13
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(Unaudited)
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
ASSETS
<S> <C> <C>
Investments, at cost:
Land $ 89,835 $ 68,395
Buildings and improvements 659,176 612,567
Deferred lease costs 121,489 118,700
--------- ---------
870,500 799,662
Less: Accumulated depreciation and amortization 205,478 198,686
--------- ---------
Total investments 665,022 600,976
Cash and cash equivalents 8,410 114,803
Restricted cash 7,275 4,426
Other deferred costs, net of accumulated amortization of $1,266 and $1,140 4,175 3,562
Deferred tenant receivables 35,297 34,747
Tenant and other receivables 4,748 2,405
Notes receivable 2,691 2,911
Other assets 4,728 2,350
--------- ---------
Total Assets $ 732,346 $ 766,180
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Long-term debt (Note 3) $ 367,371 $ 400,142
Accrued interest payable 1,592 1,082
Accrued real estate taxes payable 16,180 13,222
Common Stockholders' distribution payable 6,287 12,366
Accounts payable and accrued expenses 6,884 6,468
Unearned revenue and other liabilities 10,497 9,095
--------- ---------
Total Liabilities 408,811 442,375
--------- ---------
Minority Interest (Note 1) (17,420) (17,478)
--------- ---------
Redeemable Preferred Stock, $166,500,000
redemption value (Note 5) 162,517 162,743
--------- ---------
Stockholders' Investment (Note 6)
7% Cumulative Convertible Preferred Stock, $16.50 stated value 50,000 50,000
15,000,000 shares authorized; 3,030,303 shares issued and outstanding
Common stock, no par value; 100,000,000 authorized shares;
shares issued and outstanding (1997-20,956,453; 1996-20,609,754)
Paid-in capital 156,356 160,577
Accumulated deficit (25,179) (30,789)
Deferred compensation (2,739) (1,248)
--------- ---------
Total Stockholders' Investment 178,438 178,540
--------- ---------
Total Liabilities and Stockholders' Investment $ 732,346 $ 766,180
========= =========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
---------- ----------
<S> <C> <C>
Revenues
Office and parking rentals $ 33,478 $ 25,919
Interest and other income 1,509 1,505
---------- ----------
Total Revenues 34,987 27,424
---------- ----------
Expenses
Building operating expenses 7,375 5,667
Real estate taxes 5,663 3,891
Interest expense 7,543 7,815
Depreciation and amortization 6,780 5,991
General and administrative 1,613 1,409
---------- ----------
Total Expenses 28,974 24,773
---------- ----------
6,013 2,651
---------- ----------
Other income (expenses)
Net gain on interest rate swaps (Note 1) 99 4,794
Minority Interest (476) (464)
---------- ----------
Income before extraordinary item 5,636 6,981
Extraordinary loss (26) -
---------- ----------
Net income $ 5,610 $ 6,981
========== ==========
Net income applicable to common stock $ 1,405 $ 6,106
========== ==========
Income before extraordinary item per share (Note 1) $ 0.07 $ 0.30
========== ==========
Net income per share (Note 1) $ 0.07 $ 0.30
========== ==========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollar amounts in thousands)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,610 $ 6,981
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,780 5,991
Deferred compensation amortization 147 212
Net gain on interest rate swaps (99) (4,794)
Extraordinary loss 26 -
Unbilled rental revenue (389) (557)
Increase (decrease) in accrued interest payable 510 (1,765)
Minority interest share of income 476 464
Increase in tenant and other receivables and other assets (4,672) (2,114)
Increase in accounts payable, accrued expenses and other liabilities 4,101
-------- --------
Total adjustments 6,880 649
-------- --------
Net cash provided by operating activities 12,490 7,630
-------- --------
Cash flows from investing activities:
Additions to investment property (69,923) (588)
Repayment of notes receivable 220 198
-------- --------
Net cash used in investing activities (69,703) (390)
-------- --------
Cash flows from financing activities:
Repayment of term loan (32,500) -
Repayments under mortgage loans (271) -
Proceeds from dividend reinvestment plan 3,717 -
Net payments for swap terminations and prepayment costs (188) -
(Increase) decrease in restricted cash (2,849) 1,488
Stock/debt issue costs (975) (188)
Distribution to minority partners (418) (374)
Distribution to preferred stockholders (3,330) -
Distribution to common stockholders (12,366) -
-------- --------
Net cash (used in) provided by financing activities (49,180) 926
-------- --------
(Decrease) increase in cash and cash equivalents (106,393) 8,166
Cash and cash equivalents, beginning of period 114,803 7,740
-------- --------
Cash and cash equivalents, end of period $ 8,410 $ 15,906
======== ========
<FN>
The acconpanying notes are an integral part of these
consolidated financial statements
</FN>
</TABLE>
<PAGE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. NATURE OF COMPANY'S BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES
Nature of the Company's Business
Cornerstone Properties Inc. ("Cornerstone" or the "Company") is a
self-advised equity real estate investment trust which owns, through
subsidiaries, interests in eight Class A office properties ("Properties")
encompassing approximately 4.9 million rentable square feet. The Company was
formed in May 1981 as ARICO America Realestate Investment Company, a Nevada
corporation, to invest in major commercial real estate projects in North
America.
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 three month periods presented
have been included. Results for the three months ended March 31, 1997 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,
its wholly-owned qualified REIT subsidiaries and controlled partnerships. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Interest rate swap agreements
The Company accounts for its interest rate swap agreements as hedges in
accordance with SFAS No. 80 "Accounting for Futures Contracts" if the swap is
designated as a hedge and effectively reduces the exposure to the Company of
market interest rate changes. Changes in the market value of these interest
rate swap agreements are deferred and recognized in income at the expiration
or termination of the underlying debt. Forward interest rate swap agreements
that do not meet hedge criteria are accounted for using mark-to-market
accounting, recognizing any unrealized gain or loss on the instrument in the
period in which it is outstanding. When swaps are extinguished at the same
time as the underlying debt instrument, the cost to extinguish the swap is
treated as extraordinary gain or loss. When a swap remains in place after the
underlying instrument matures, it is accounted for on a mark-to-market basis.
The swap termination is accounted for as ordinary gain or loss when it is
extinguished with no underlying debt instrument in place. Currently, the
Company is party to no interest rate swap agreements.
Income per share
Income per share is computed based on the weighted average number of common
shares outstanding of 20,789,491 for 1997 and 20,309,165 for 1996. For 1997
and 1996, dividends applicable to preferred stock of $4,205,000 and $875,000
respectively, have been deducted from the net income in computing income per
share.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
The most significant estimates and assumptions are related to the
recoverability and depreciable lives of investment property and the
recoverability of deferred tenant receivables. Actual results could differ
from those estimates.
<TABLE>
2. PROPERTIES
The following schedule summarizes Cornerstone's interest in real estate
investments at March 31, 1997:
<CAPTION>
Net
Completed/ Rentable Ownership
Property Location Acquired square feet %Leased Interest Notes
- ---------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
One Norwest Center Denver, CO 1983 1,188,000 99% 100%
Norwest Center Minneapolis, MN 1988 1,118,000 100% 50%
Washington Mutual Tower Seattle, WA 1988 1,155,000 98% 50%
125 Summer Street Boston, MA 1989/1995 464,000 95% 100%
Tower 56 New York, NY 1983/1996 162,000 97% 100%
One Lincoln Centre Oakbrook Terrace, IL 1986/1996 297,000 92% 100%
The Frick Building Pittsburgh, PA 1902/1996 341,000 87% 100%
527 Madison Avenue New York, NY 1986/1997 216,000 96% 100% A
<FN>
(A)Effective February 14, 1997, Cornerstone, through its wholly-owned
qualified REIT subsidiary, CStone-527 Madison, Inc., purchased 527 Madison
Avenue in Midtown Manhattan, New York for approximately $67 million. 527
Madison Avenue is a twenty-six story, 96% leased, Class A office building
with approximately 211,000 square feet of office space, 5,000 square feet
of first floor retail space and an underground parking facility for
approximately 50 vehicles. The acquisition was financed with the proceeds
from the Company's offering of Preferred Stock, completed in November
1996. Louis Dreyfus Property Group manages the building under a management
agreement that expires December 31, 1998.
</FN>
</TABLE>
<TABLE>
3. LONG-TERM DEBT
<CAPTION>
Principal Balance
3/31/97 12/31/96 Collateral Interest Rate Maturity Amortization Notes
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 12,926,000 $ 12,926,000 Rent Notes Lesser of 8.11% 01/01/01 None A
or LIBOR + 50bp
97,481,000 97,706,000 One Norwest Center 7.50% 08/01/01 30 years
110,000,000 110,000,000 Norwest Center 8.74% 12/31/05 None
79,100,000 79,100,000 Washington Mutual Tower 7.53% 11/01/05 None
50,000,000 50,000,000 125 Summer Street 7.20% 01/01/03 25 years beginning
02/01/01
17,864,000 17,910,000 Tower 56 7.67% 04/24/03 30 years
- 32,500,000 None 5.0% B
- ------------------------------------
$ 367,371,000 $ 400,142,000
<FN>
(A)At maturity of the debt, Cornerstone has the right to redeem the note in exchange
for common shares of the Company at the lower of market price or $14.30 per share.
(B)On March 19, 1997, the $32,500,000 term loan was repaid to Deutsche Bank AG.
</FN>
</TABLE>
4. LINE OF CREDIT
Bankers Trust Company has provided Cornerstone with a $10,000,000 revolving
credit line which is available for general corporate and acquisition purposes
at a rate equivalent to an Adjusted Eurodollar Rate (as defined), as well as
for the issuance of standby letters of credit at a rate of 0.15 percent. At
March 31, 1997, none of the credit line had been drawn. The line of credit
expires on November 7, 1997.
The Company has received a commitment from Bankers Trust Company and The
Chase Manhattan Bank for a $200 million line of credit for future
acquisitions. The interest rate on the line of credit will be at a spread of
1.25% to 1.625% over the Adjusted Eurodollar Rate (as defined) depending on
the Company's leverage ratio.
<PAGE>
<TABLE>
5. REDEEMABLE PREFERRED STOCK
<CAPTION>
Redemption/ Shares Shares Carrying Value Common Stock
Title Stated Value Authorized Outstanding Net of issue Cost Conversion Price
---------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
8% Cum. Convertible $145.00/Share 1,034,483 689,655 $97,610,000 $14.50
8% Cum. Convertible, Series A $145.00/Share 458,621 458,621 $64,907,000 $14.50
--------------
$162,517,000
<FN>
Each holder of the 8% Cumulative Convertible and 8% Cumulative Convertible,
Series A, Preferred Stock, has the right to require the redemption of its
stock by the Company at the stated value upon the occurrence of a "Change in
Control"(as defined).
</FN>
</TABLE>
6. STOCKHOLDERS' INVESTMENT
The 7% Cumulative Convertible Preferred Stock is convertible into common
stock at $16.50 per share at any time after August 4, 2000.
The following tables summarize the long-term incentive plans for certain
officers of the Company as of March 31, 1997
Date of Options Granted Exercise Price Options Options
Grant (No. of Shares) (per share) Vesting Exercisable Exercised
- -------------------------------------------------------------------------------
June, 1995 787,500 $14.30 20%/yr, 157,500 0
10yr term
March, 1997 880,000 $14.50 20%/yr, 0 0
10yr term
Restricted Stock Grants
Shares Value at
Date of Granted (No. Date
Granted of shares) (per share) Vesting (A)
- --------------------------------------------------------------------------------
August, 1995 167,622 $14.30 The grant will fully vest with respect
to 13.333% on June 30, 1996, 1997,
1998, 1999 and with respect to 46.668%
on June 30, 2000.
March, 1997 100,000 $16.40 The grant will fully vest with respect
to 13.333% on June 30, 1998, 1999,
2000, 2001 and with respect to 46.668%
on June 30, 2002.
(A)Deferred compensation of approximately $4,037,000 is being amortized
according to the respective amortization schedule for each vesting period
noted above, with the unamortized balance shown as a deduction from
stockholders' investment. Regular dividends are paid on restricted stock.
Stockholders' Distributions
Dividends of $0.30 per share were declared for the first quarter of 1997, to
be paid on April 30, 1997, to Common Stockholders of record as of March 21,
1997.
7. NEW PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
("SFAS 128") and No. 129 "Disclosure of Information About Capital Structure"
("SFAS 129") are to be adopted by the Company for the year ended
December 31, 1997.
SFAS 128 specifies the computation, presentation and disclosure requirements
for earnings per share. SFAS 129 establishes standards for disclosing
information about an entity's capital structure, such as information about
securities and liquidation preference of preferred stock and redeemable
stock.
The Company believes the impact of adopting SFAS 128 and SFAS 129 to be
insignificant.
<PAGE>
8. SUBSEQUENT EVENTS
On April 16, 1997, Cornerstone Properties Inc. announced its initial U.S.
public offering of 14 million shares of common stock at a price of $14 per
share for gross proceeds of $196 million. Cornerstone's stock began trading
on the New York Stock Exchange under the symbol CPP.
The offering was underwritten by Merrill Lynch & Co. and includes Lazard
Freres & Co. LLC, Lehman Brothers, Morgan Stanley & Co. Inc., Smith Barney
Inc., and BT Securities Corporation as co-managers. The underwriters have
exercised their option to purchase 2.1 million additional shares of common
stock solely to cover over-allotments. The Company intends to use the net
proceeds of this offering for potential acquisitions, working capital and
other general corporate purposes.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
Consolidation
Cornerstone's principal source of income is rental revenues received through its
investment in six fee simple investments and two real estate partnerships held
by nine wholly-owned subsidiaries: 1700 Lincoln Limited owned 90 percent by
ARICO-Denver, Inc. and 10 percent by 1700 Lincoln Inc., NWC Limited Partnership
owned by ARICO-Minneapolis, Inc., Third and University Limited Partnership owned
by ARICO-Seattle, Inc., 125 Summer Street owned by CStone-Boston Inc., Tower 56
owned by CStone-New York Inc., One Lincoln Centre owned by CStone-Oakbrook,
Inc., 527 Madison Avenue owned by CStone-527 Madison, Inc. and the Frick
Building owned by CStone-Pittsburgh Trust, respectively. NWC Limited Partnership
and Third and University Limited Partnership have been consolidated since
Cornerstone has a majority interest in the economic benefits and has the right
to become managing general partner at its sole discretion.
Property Results
For the quarter ended March 31, 1997 and 1996 property results can be
summarized as follows (000's):
For the quarter For the quarter
ended ended
March 31, 1997 March 31, 1996
- -------------------------------------------------------------------------------
Office and Parking Rentals $33,478 $25,919
Less:
Building Operating Expenses 7,375 5,667
Real Estate Taxes 5,663 3,891
Depreciation and Amortization 6,664 5,829
------- --------
Total Operating Expenses 19,702 15,387
------- --------
Total Property Income $13,776 $10,532
======= ========
The increase in property income from 1996 to 1997 of $3.25 million was due to
the acquisition of Tower 56 ($0.7 million), One Lincoln Centre ($0.9 million),
527 Madison Avenue ($0.9 million) and the Frick Building ($0.6 million) during
1996; the other properties contributed approximately $150,000 of additional
earnings.
Interest and Other Income
Interest and other income was $1,509,000 in 1997 and $1,505,000 in 1996. These
amounts primarily consist of interest earned from short-term investments,
interest earned on the Tower 56 mortgage notes receivable in 1996, notes
receivable from partners, and income from the advisory contracts in 1997 and
1996. Included in interest and other income is interest earned on notes
receivable from Hines Colorado Limited (HCL) in the amounts of approximately
$74,000 and $107,000 for 1997 and 1996, respectively.
Interest Expense
Interest expense incurred by Cornerstone relating to its financing activities
was $7,543,000 and $7,815,000 for 1997 and 1996, respectively. The decrease was
mainly due to the refinancing of the One Norwest Center debt resulting in
savings of $546,000, which is offset by the $338,000 of interest expense on
Tower 56 which was financed in the second quarter of 1996. Additionally, the
Company had approximately $23,000 of savings resulting from the repayment of the
$32.5 million term loan.
Interest Rate Swaps
During the period analyzed the Company had the following interest rate swaps
outstanding:
The $107 million interest rate swap agreement with a maturity date of July 30,
1998, was accounted for as a hedge since it was comprised of two offsetting
swaps, resulting in a fixed payment from Cornerstone to its counterparties
through the term of the swaps. Upon the refinancing of the One Norwest Center
debt in August 1996, the swap was terminated and the cost to terminate the swap
was recorded as an extraordinary loss.
For the three month period March 31, 1996, interest expense of the Company
included approximately $201,000, of expense related to interest rate swap
agreements. Since the $98 million swap was a forward swap and accounted for on a
mark to market basis, it had no effect on the reported interest expense of the
Company. This swap was terminated during the first quarter of 1997 at a gain of
$99,000 compared to the mark to market gain in the first quarter of 1996 of $4.8
million. The Company currently is party to no interest rate swap agreements.
General and Administrative Expenses
The aggregate amount of Cornerstone's general and administrative expenses have
increased to $1,613,000 in 1997 from $1,409,000 in 1996. The increase in 1997
from 1996 of $204,000 was due to the write off of certain expenses related to
the State Street Bank Building of $100,000, and increased salaries and benefits,
due to the hiring of additional staff and the timing of incentive compensation
payments.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
For the three months For the three months
Cash flow provided by ended March 31, 1997 ended March 31, 1996
(used in):
- ----------------------------------------------------------------------------
Operating activities $12,490 $7,630
Investing activities (69,703) (390)
Financing activities (49,180) 926
Earnings to fixed charges 1.12 1.70
ratio
Cash provided by operating activities increased from $7.6 million for the three
months ended March 31, 1996 to $12.5 million for the three months ended March
31, 1997. This increase was mainly due to the increase in net rental revenues
(before depreciation and amortization) from the properties of $4.1 million, plus
approximately $700,000 of short term adjustments in accounts payable and
receivables.
Cash used in investing activities increased to $69.7 million for the three
months ended March 31, 1997 from $390,000 for the three months ended March 31,
1996 due to acquisition of 527 Madison Avenue during 1997 for a total cost of
$67 million.
Cash used in financing activities increased to $49.1 million for the three
months ended March 31, 1997 from cash provided of $926,000 as of March 31, 1996.
The increase was mainly due to the common and preferred stockholder
distributions and the repayment of the $32.5 million term loan.
Earnings to fixed charges decreased to 1.12 times at March 31, 1997 from 1.70
times at March 31, 1996 due to the recognition of a large unrealized gain on the
forward swap during the first quarter of 1996.
Funds From Operations
The Company calculates Funds from Operations (FFO) based upon guidance from the
National Association of Real Estate Investment Trusts (NAREIT). 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. The Company has adjusted FFO by the net gain on
interest rate swap previously discussed due to the non-cash nature of this item.
Since the Company is no longer a party to any interest rate swap agreements, the
adjustment in the first quarter of 1997 will be the final adjustment for this
item.
Industry analysts generally consider FFO to be an appropriate measure of
performance of an equity Real Estate Investment Trust (REIT) 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 Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
an understanding of the ability of the Company to incur and service debt and to
make capital expenditures. For cash flows from operating, financing and
investing activities, see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements which are part of this report.
The Company no longer reports free and deferred rents as an adjustment to FFO
since this is not part of the industry standard. Therefore, included in FFO for
the three months ended March 31, 1997 and 1996, is approximately $280,000 and
$305,000, respectively, of free and deferred rents (after adjustment for
minority interest).
<PAGE>
The table below sets forth the adjustments which were made to the net income of
the Company in the calculation of FFO for the three months ended March 31, 1997
and 1996, respectively (in thousands):
Funds From Operations (A)
---------------------
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
---- ----
Net income $ 5,610 $ 6,981
NAREIT Adjustments:
Depreciation and amortization (B) 6,664 5,829
Realized/Unrealized gain (99) (7,919)
Minority adjustments (370) (369)
Extraordinary Losses/Swap Losses 26 3,125
Other Adjustments:
Amortization on rent notes 220 198
Real estate tax adjustment - 62
------- ------
Funds From Operations 12,051 7,907
------- ------
Accrued Preferred Dividend (4,205) (875)
------- -------
Funds From Operations
Available For Common Shares $ 7,846 $ 7,032
======= =======
(A) Although the Company believes that this table is a full and
fair presentation of the Company's FFO, similarly captioned items
may be defined differently by other REITs, in which case direct
comparisons may not be possible.
(B) The depreciation and amortization adjustment does not include
amortization of deferred financing costs and depreciation of
non-real estate assets in accordance with guidance from NAREIT.
The increase in FFO available for common shares is due to the $4.1 million
increase in net real estate revenues (before depreciation and amortization)
discussed above which is offset by the $3.3 million of increased Preferred
Dividends due to the issuance of additional preferred stock.
The Company will seek to continue increasing FFO and the value of its property
portfolio by acquiring additional properties that the Company believes will
produce favorable returns. As part of its ongoing business, the Company
periodically engages in discussions with public and private real estate entities
regarding possible portfolio or asset acquisitions or business combinations.
Capital Stock Transactions
On April 22, 1997, the Company completed its initial public offering of 16.1
million shares at a price of $14.00 per share. The proceeds from the offering
will be used to acquire new assets and for general corporate purposes. The
Company is listed on the New York Stock Exchange under the symbol CPP.
Long Term Debt
The Company was required under the terms of its $32.5 million term loan with
Deutsche Bank AG to repay the loan upon the completion of its Initial Public
Offering (IPO) in the United States. In anticipation of the IPO and listing on
the New York Stock Exchange, the Company repaid this loan on March 19, 1997. The
Company has no long-term debt maturing until 2001 when the debt on One Norwest
Center and the note from Hines matures.
Other Matters
The Company is not aware of any environmental issues at any of its properties.
The Company believes it has sufficient insurance coverage at each of its
properties. The Company's leases with the majority of its tenants require the
tenants to pay most operating expenses and increase in common area maintenance
expenses, which reduces the Company's exposure to increases in costs and
operating expenses resulting from inflation.
Stockholders' 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. The Company declared a
dividend of $0.30 per common share, payable to all stockholders of record as of
March 21, 1997 on April 30, 1997.
At the present time the Company is current in the payment of all preferred
stockholder dividends.
Liquidity
At March 31, 1997, the Company had $8,410,000 in cash and cash equivalents and
$7,275,000 in restricted cash. Restricted cash is being held by escrow agents
for the One Norwest Center and Washington Mutual Tower loans. Cornerstone also
had available $10 million under its working capital line of credit for general
corporate purposes. In addition, Cornerstone anticipates it will receive
distributions from its real estate partnerships and rental income from its fee
owned properties on a monthly basis which will be used to cover normal operating
expenses and pay distributions to its stockholders. Based upon its cash reserves
and other sources of funds, Cornerstone has sufficient liquidity to meet its
cash requirements for the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1) Exhibit 11.1: Statement of Computation of Earnings Per Share
2) For EDGAR filing purposes only, this report contains Exhibit 27,
Financial Data Schedule.
(b) Reports on Form 8-K:
1) Form 8-K/A dated January 22, 1997
Item 7 - Financial Statements and Exhibits:Financial statements
reflecting the acquisition of Tower 56 and One Lincoln Centre
2) Form 8-K dated January 29, 1997
Item 5 - Other Events:Board of Directors approval to acquire 527
Madison for approximately $67 million
Item 7 - Financial Statements and Exhibits: Agreement of Sale and
Purchase of 527 Madison
3) Form 8-K/A dated February 21, 1997
Item 2 - Acquisition or Disposition of Assets: Clarification on the
Frick Building acquisition.
Item 7 - Financial Statements and Exhibits: Clarification on the pro
forma financial statements of One Lincoln Centre and Tower 56.
4) Form 8-K/A dated February 24, 1997
Item 7 - Financial Statements and Exhibits: Financial statements
reflecting the acquisition of 527 Madison
<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: /s/ John S. Moody.
John S. Moody, President and CEO
Date: May 12, 1997
By: /s/ Thomas P. Loftus.
Thomas P. Loftus, Vice President
and Controller
(Principal Financial Officer)
Date: May 12, 1997
<TABLE>
Exhibit 11.1
Statement of Computation of Earnings Per Share
for the threee months ended March 31, 1997
<CAPTION>
Earnings Per Share
Primary Fully Diluted
------------ --------------
<S> <C> <C>
1. Proceeds upon exercise of options $ 11,261,250 $ 11,261,250
2. Market price of shares
Closing: 3/31/97 $ - $ 16.13
Average: 1/01/97-3/31/97 $ 15.97 $ -
3. Treasury shares that could be repurchased (Options) 705,150 698,156
4. Option shares outstanding 787,500 787,500
5. Common stock equivalent shares (Excess 82,350 89,344
shares under option over Treasury
shares that could be repurchased)
6. Weighted average number of shares outstanding 20,789,491 20,893,656
7. Net income for the period $ 5,610,000 $ 5,610,000
8. Less: Dividends applicable to
the preferred stock $ (4,205,000) $ (4,205,000)
Plus: Interest expense on convertible note $ - $ -
9. Net income applicable to common shares $ 1,405,000 $ 1,405,000
10.Income per share $ 0.07 $ 0.07
11.Reported income per share $ 0.07 $ 0.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,410
<SECURITIES> 0
<RECEIVABLES> 42,736
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,433
<PP&E> 749,011
<DEPRECIATION> 205,478
<TOTAL-ASSETS> 732,346
<CURRENT-LIABILITIES> 30,943
<BONDS> 0
162,517
50,000
<COMMON> 156,356
<OTHER-SE> (27,918)
<TOTAL-LIABILITY-AND-EQUITY> 732,346
<SALES> 0
<TOTAL-REVENUES> 34,987
<CGS> 0
<TOTAL-COSTS> 28,974
<OTHER-EXPENSES> 377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,543
<INCOME-PRETAX> 5,610
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,610
<DISCONTINUED> 0
<EXTRAORDINARY> 26
<CHANGES> 0
<NET-INCOME> 5,610
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
