<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 01-12846
SECURITY CAPITAL INDUSTRIAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 74-2604728
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14100 EAST 35TH PLACE, AURORA, COLORADO 80011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 375-9292
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing for the past 90 days. Yes No X
The number of shares outstanding of the Registrant's common stock as of
November 13, 1996 was:
Common Shares of Beneficial Interest, $.01 par value--93,671,713 shares
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<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER(S)
---------
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--September 30, 1996 and December 31,
1995............................................................ 3
Consolidated Statements of Operations--Three and Nine Months
Ended September 30, 1996 and 1995............................... 4
Consolidated Statements of Cash Flows--Nine Months Ended
September 30, 1996 and 1995..................................... 5
Notes to Consolidated Financial Statements....................... 6-10
Report of Independent Public Accountants......................... 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 12-18
Part II. Other Information
Item 5. Other Information.......................................... 19
Item 6. Exhibits and Reports on Form 8-K........................... 19
</TABLE>
2
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS (UNAUDITED) (AUDITED)
------ ------------- ------------
<S> <C> <C>
Real Estate............................................. $2,332,547 $1,827,670
Less accumulated depreciation......................... 94,768 56,406
---------- ----------
2,237,779 1,771,264
Cash and Cash Equivalents............................... 42,282 22,235
Accounts Receivable..................................... 4,547 5,764
Other Assets............................................ 49,920 34,709
---------- ----------
Total assets........................................ $2,334,528 $1,833,972
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Line of credit........................................ $ 64,600 $ 81,000
Long-term debt........................................ 524,171 324,527
Mortgage notes payable................................ 96,570 96,013
Securitized debt...................................... 37,405 38,090
Assessment bonds payable.............................. 12,424 11,173
Accounts payable and accrued expenses................. 41,166 32,826
Construction payable.................................. 26,277 20,437
Distributions payable................................. -- 20,558
Other liabilities..................................... 15,457 14,416
---------- ----------
Total liabilities................................... 818,070 639,040
---------- ----------
Commitments and Contingencies
Minority Interest....................................... 57,465 58,741
Shareholders' Equity:
Series A Preferred Shares; $0.01 par value: 5,400,000
shares issued and outstanding at September 30, 1996
and December 31, 1995; stated liquidation preference
of $25 per share..................................... 135,000 135,000
Series B Preferred Shares; $0.01 par value; 8,050,000
shares issued and outstanding at September 30, 1996;
stated liquidation preference of $25 per share....... 201,250 --
Common shares of beneficial interest, $0.01 par value;
89,319,307 shares issued and outstanding at September
30, 1996 and 81,416,451 shares at December 31, 1995.. 937 814
Additional paid-in capital............................ 1,260,225 1,059,142
Subscriptions receivable.............................. (75,079) --
Distributions in excess of net earnings............... (63,340) (58,765)
---------- ----------
Total shareholders' equity.......................... 1,458,993 1,136,191
---------- ----------
Total liabilities and shareholders' equity.......... $2,334,528 $1,833,972
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- -----------------
1996 1995 1996 1995
------- -------- -------- --------
<S> <C> <C> <C> <C>
Income:
Rental income............................. $59,391 $ 40,372 $163,814 $108,613
Other real estate income.................. 854 715 2,034 1,000
Interest income........................... 201 355 708 689
------- -------- -------- --------
Total income............................ 60,446 41,442 166,556 110,302
------- -------- -------- --------
Expenses:
Rental expenses, net of recoveries of
$9,114 and $5,333 for the three month
periods in 1996 and 1995, respectively,
and $23,839 and $14,471 for the nine
month periods in 1996 and 1995,
respectively............................. 6,083 4,773 19,475 12,310
Depreciation and amortization............. 15,972 10,723 43,187 28,138
Interest expense.......................... 11,364 9,052 28,723 24,301
REIT management fee....................... 5,702 3,335 15,376 9,830
General and administrative................ 195 69 747 602
Other..................................... 703 369 1,903 1,100
------- -------- -------- --------
Total expenses.......................... 40,019 28,321 109,411 76,281
------- -------- -------- --------
Net Earnings Before Minority Interest and
Loss on Disposition of Real Estate......... 20,427 13,121 57,145 34,021
Minority interest share in net earnings..... 859 807 2,499 2,546
------- -------- -------- --------
Net Earnings Before Loss on Disposition of
Real Estate................................ 19,568 12,314 54,646 31,475
Loss on disposition of real estate.......... -- -- 29 --
------- -------- -------- --------
Net Earnings................................ 19,568 12,314 54,617 31,475
Less preferred share dividends.............. 6,694 3,172 18,062 3,525
------- -------- -------- --------
Net Earnings Attributable to Common Shares.. $12,874 $ 9,142 $ 36,555 $ 27,950
======= ======== ======== ========
Weighted Average Common Shares Outstanding.. 81,513 65,190 81,462 64,790
======= ======== ======== ========
Per Share Net Earnings Attributable to
Common Shares.............................. $ 0.16 $ 0.14 $ 0.45 $ 0.43
======= ======== ======== ========
Distributions Per Common Share.............. $0.2525 $0.23375 $ 0.7575 $0.70125
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Operating Activities:
Net earnings............................................. $ 54,617 $ 31,475
Minority interest........................................ 2,499 2,546
Adjustments to reconcile net earnings to cash flows
provided by operating activities:
Depreciation and amortization.......................... 43,187 28,138
Loss on disposition of real estate..................... 29 --
Rent leveling.......................................... (4,165) (3,288)
Amortization of deferred financing costs............... 1,866 1,469
Increase in accounts receivable and other assets......... (6,371) (9,366)
Increase in accounts payable, accrued expenses and other
liabilities............................................. 9,381 17,295
-------- --------
Net cash provided by operating activities............ 101,043 68,269
-------- --------
Investing Activities:
Real estate investments.................................. (475,277) (430,705)
Tenant improvements and lease commissions................ (10,461) (5,168)
Recurring capital expenditures........................... (1,580) (169)
Proceeds from disposition of real estate................. 1,092 --
-------- --------
Net cash used in investing activities................ (486,226) (436,042)
-------- --------
Financing Activities:
Proceeds from sale of shares, net of expenses............ 326,890 274,834
Proceeds from dividend reinvestment share purchase plan
and exercised warrants.................................. 487 110
Proceeds from long-term debt offerings................... 199,632 324,455
Debt issuance costs...................................... (4,715) (5,996)
Distributions paid to common shareholders................ (61,688) (45,416)
Distributions paid to minority interest holders.......... (3,934) (3,833)
Preferred share dividends................................ (18,062) (3,525)
Proceeds from line of credit............................. 362,600 280,100
Payments on line of credit............................... (379,000) (340,200)
Regularly scheduled principal payments on mortgage notes
payable................................................. (2,825) (2,276)
Balloon principal payments made upon maturity............ (14,155) (8,247)
-------- --------
Net cash provided by financing activities............ 405,230 470,006
-------- --------
Net Increase in Cash and Cash Equivalents.................. 20,047 102,233
Cash and Cash Equivalents, beginning of period............. 22,235 21,270
-------- --------
Cash and Cash Equivalents, end of period................... $ 42,282 $123,503
======== ========
Supplemental Schedule of Noncash Investing and Financing
Activities:
In conjunction with real estate acquired:
Assumption of existing mortgage notes.................. $ 18,103 $ 12,023
In conjunction with the tax deferred exchange of real
estate:
Disposition proceeds applied towards real estate
purchase.............................................. -- 1,885
Conversion of minority interest partnership units into
common shares........................................... -- 6,112
-------- --------
Total................................................ $ 18,103 $ 20,020
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. GENERAL:
The consolidated financial statements of Security Capital Industrial Trust
("SCI") as of September 30, 1996 are unaudited, and pursuant to the rules of
the Securities and Exchange Commission, certain information and footnote
disclosures normally included in financial statements have been omitted. The
consolidated financial statements for 1995 have been restated to conform to
the 1996 presentation. While management of SCI believes that the disclosures
presented are adequate, these interim consolidated financial statements should
be read in conjunction with SCI's December 31, 1995 consolidated financial
statements.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of SCI's consolidated financial
position and results of operations for the interim periods. The results of
operations for the three and nine month periods ended September 30, 1996 and
1995 are not necessarily indicative of the results to be expected for the
entire year.
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. Actual results could differ from those estimates.
2. RECENT ACCOUNTING PRONOUNCEMENT:
Effective January 1, 1996, SCI adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which had no material impact on its
consolidated financial statements. SFAS No. 121 establishes accounting
standards for the review of long-lived assets to be held and used, for
impairment whenever the carrying amount of an asset may not be recoverable,
and requires that certain long-lived assets to be disposed of be reported at
the lower of carrying amount or fair value less cost to sell.
3. REAL ESTATE:
The following summarizes real estate investments as of September 30, 1996
and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
------------- ------------
<S> <C> <C>
Land held for development...................... $ 86,934 $ 60,363
Land under development......................... 57,270 56,944
Improved land.................................. 324,441 242,015
Buildings and improvements..................... 1,763,274 1,380,389
Construction in progress....................... 95,275 80,958
Capitalized preacquisition costs............... 5,353 7,001
---------- ----------
Total real estate............................ 2,332,547 1,827,670
Less accumulated depreciation.................. 94,768 56,406
---------- ----------
Net real estate.............................. $2,237,779 $1,771,264
========== ==========
</TABLE>
6
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized preacquisition costs include $2,714,000 and $2,137,000 of funds
on deposit with title companies as of September 30, 1996 and December 31,
1995, respectively, for property acquisitions.
4. BORROWINGS:
Line of Credit
On June 1, 1995, SCI increased its line of credit agented by NationsBank of
Texas, N.A. ("NationsBank") to $350 million. The line of credit, as amended
and restated effective May 2, 1996, bears interest at SCI's option at either
(a) the greater of the federal funds rate plus 0.5% and prime, or (b) LIBOR
plus 1.25%, based upon SCI's current senior debt ratings, and is scheduled to
mature in May 1998. This line of credit may be extended annually for an
additional year with the approval of NationsBank and the other participating
lenders (the "Bank Group"). If the Bank Group elects not to extend the
revolving credit, at SCI's election, the facility will either a) convert to an
amortizing two year facility with the unamortized 50 percent of the balance
due at maturity (three year term), or b) continue on a revolving basis with
the remaining one year maturity. All debt incurrences are subject to a
covenant that SCI maintain a debt to tangible net worth ratio of not greater
than 1 to 1. Additionally, SCI is required to maintain an adjusted net worth
(as defined) of at least $1.0 billion, to maintain interest payment coverage
of not less than 2 to 1, and to maintain a fixed charge coverage ratio (as
defined) of not less than 1.4 to 1. As of September 30, 1996, SCI was in
compliance with all covenants, and as of November 13, 1996, $4.0 million of
borrowings were outstanding.
Long-Term Debt
On May 17, 1996, SCI issued $50 million of Senior Notes due 2002 (the "2002
Notes"), $100 million of Senior Notes due 2008 (the "2008 Notes"), and $50
million of Senior Notes due 2016 (the "2016 Notes" and together with the 2002
Notes and the 2008 Notes, the "May 1996 Notes"). The 2002 Notes bear interest
at 7.25% per annum and require annual principal payments of $12.5 million,
commencing May 15, 1999. The 2008 Notes bear interest at 7.95% per annum and
require annual principal payments of $25 million, commencing May 15, 2005. The
2016 Notes bear interest at 8.65% per annum and require aggregate annual
principal payments of $5 million, commencing 2010 through 2013, $7.5 million
in 2014, $10 million in 2015, and $12.5 million in 2016. Collectively, the May
1996 Notes originally had an average life to maturity of 10.8 years and an
average effective interest cost inclusive of offering discounts, issuance
costs, and interest rate protection agreements of 8.41% per annum.
On May 16, 1995, SCI issued $75 million of Senior Notes due 2009 (the "May
2009 Notes"), $17.5 million of Senior Notes due 2001 (the "2001 Notes"), $17.5
million of Senior Notes due 2000 (the "2000 Notes"), and $15 million of Senior
Notes due 1998 (the "1998 Notes"), together with the May 2009 Notes, the 2001
Notes and the 2000 Notes collectively referred to as the "May 1995 Notes").
The May 2009 Notes bear interest at 7.875% per annum, and require annual
principal payments of $9.375 million, commencing May 15, 2002. The 2001 Notes,
2000 Notes and 1998 Notes bear interest at 7.30%, 7.25% and 7.125% per annum,
respectively, with the principal payable at maturity. Collectively, the May
1995 Notes originally had an average life to maturity of 8.2 years and an
average effective interest cost, inclusive of offering discounts and issuance
costs of 7.92% per annum.
On March 2, 1995, SCI issued $150 million of Senior Notes due 2009 (the
"March 2009 Notes") and $50 million of Senior Notes due 2015 (the "2015
Notes", together with the March 2009 Notes collectively referred to as the
"March 1995 Notes"). The March 2009 Notes bear interest at 8.72% per annum and
require annual principal payments of $18.75 million, commencing March 1, 2002.
The 2015 Notes bear interest at 9.34% per annum and require aggregate annual
principal payments of $5 million in 2010, $6.25 million in 2011, $7.5 million
in 2012, $8.75 million in 2013, $10 million in 2014 and $12.5 million in 2015.
Collectively, the March 1995 Notes originally had an average life to maturity
of 12.38 years and an average effective interest cost, inclusive of offering
discounts and issuance costs of 9.04% per annum.
7
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All of the foregoing notes are redeemable at any time at the option of SCI,
in whole or in part, at a redemption price equal to the sum of the principal
amount of the notes being redeemed plus accrued interest thereon to the
redemption date plus an adjustment, if any, based on the yield to maturity
relative to market yields available at redemption. Such notes are governed by
the terms and provisions of an indenture agreement (the "Indenture") between
SCI and State Street Bank and Trust Company, as trustee.
Under the terms of the Indenture, SCI can incur additional debt only if,
after giving effect to the debt being incurred and application of proceeds
therefrom, (i) the ratio of debt to total assets, as defined in the Indenture,
does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined
in the Indenture, does not exceed 40%, and (iii) SCI's pro forma interest
coverage ratio, as defined in the Indenture, for the four preceding fiscal
quarters is not less than 1.5:1. In addition, SCI may not at any time own Total
Unencumbered Assets, as defined in the Indenture, equal to less than 150% of
the aggregate outstanding principal amount of SCI's unsecured debt. At
September 30, 1996, SCI was in compliance with all debt covenants.
Mortgage Notes Payable, Assessment Bonds Payable and Securitized Debt
Mortgage notes payable were secured by real estate with an aggregate
undepreciated cost of $172.0 million at September 30, 1996. Assessment bonds
payable were secured by real estate with an aggregate undepreciated cost of
$203.9 million at September 30, 1996. Securitized debt was collateralized by
real estate with an aggregate undepreciated cost of $69.3 million at September
30, 1996.
Approximate principal payments due on mortgage notes payable, assessment
bonds payable and securitized debt during each of the years in the five-year
period ending December 31, 2001, and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
Remainder of 1996................................................ $ 4,863
1997............................................................. 19,001
1998............................................................. 4,801
1999............................................................. 13,209
2000............................................................. 8,454
2001............................................................. 10,716
2002 and thereafter.............................................. 85,355
--------
Total.......................................................... $146,399
========
</TABLE>
For the nine month periods ended September 30, 1996 and 1995, interest
expense on all borrowings was $28,723,000 and $24,301,000, respectively, which
was net of capitalized interest of $11,512,000 and $5,613,000, respectively.
The total interest paid in cash was $33,638,000 and $24,598,000 for the nine
month periods ended September 30, 1996 and 1995, respectively.
5. MINORITY INTEREST:
Minority interest represents limited partners' interests in five real estate
partnerships controlled by SCI (Red Mountain Joint Venture, SCI Limited
Partnership-I, SCI Limited Partnership-II, SCI Limited Partnership-III, and SCI
Limited Partnership-IV). As of September 30, 1996, a total of 5,194,258 limited
partnership units were held by minority interest limited partners in the
various real estate partnerships. Limited partners are entitled to exchange
each partnership unit for one common share of SCI.
In October 1994, SCI IV, Inc., a wholly-owned subsidiary of SCI, made a $27.5
million cash contribution to SCI Limited Partnership-IV, a Delaware limited
partnership (Partnership-IV), in exchange for a 96.4% general
8
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
partnership interest in Partnership-IV, and third party investors that were
not affiliated with SCI contributed an aggregate of $1.0 million in assets to
Partnership-IV in exchange for limited partner interests totalling 3.6% in
Partnership-IV. SCI IV, Inc., as general partner, manages the activities of
Partnership-IV and has fiduciary responsibilities to Partnership-IV and its
other partners.
Both Partnership-IV and SCI IV, Inc. are legal entities that are separate
and distinct from SCI, its affiliates and each other, and each has separate
assets, liabilities, business functions and operations. The assets owned by
Partnership-IV consist of income producing, improved real property located in
Florida, Ohio, Oklahoma and Michigan. The sole assets owned by SCI IV, Inc.
are its general partner advances to and interest in Partnership-IV. SCI and
its affiliates had no borrowings from SCI IV, Inc. at September 30, 1996.
Partnership-IV had $725,000 of borrowings from SCI IV, Inc. at September 30,
1996. SCI IV, Inc. had $725,000 of borrowings from SCI and its affiliates at
September 30, 1996. For financial reporting purposes, the assets, liabilities,
results of operations and cash flows of each of Partnership-IV and SCI IV,
Inc. are included in SCI's consolidated financial statements and the third
party investors' interests in Partnership-IV are reflected as minority
interest. Limited partners are entitled to exchange each partnership unit for
one common share of beneficial interest in SCI and are entitled to receive
preferential cumulative quarterly distributions per unit equal to the
quarterly distribution in respect of common shares. At September 30, 1996,
there were 68,612 limited partnership units outstanding in Partnership-IV.
6. SHAREHOLDERS' EQUITY:
On August 21, 1996, SCI commenced a rights offering to sell 6,787,806 common
shares at $17.25 per common share and also authorized an additional 3,393,903
common shares for oversubscriptions or third party subscribers. In September
1996, SCI issued 7,865,645 common shares of the 10,181,709 common shares
subscribed for and recorded subscriptions receivable of $40.0 million. In
October 1996, 2,316,064 common shares were issued and all subscriptions
receivable were collected. Gross proceeds from the offering totaled $175.6
million.
On September 24, 1996, SCI offered 2,036,342 common shares to third party
subscribers to SCI's rights offering of August 21, 1996 that were not accepted
in whole or in part due to demand in excess of the common shares offered. All
of the common shares were subscribed for as of September 30, 1996 and
subscriptions receivable for gross proceeds of $35.1 million recorded. In
October 1996, all of such common shares were issued and all subscriptions
receivable were collected.
Security Capital Group Incorporated (SCG), an affiliate of SCI's REIT
Manager, purchased 3,734,240 common shares in connection with the September
rights offering at the same price paid by the public. After the October 1996
common share issuances described above, SCG owned 46.0% of SCI's outstanding
93,671,713 common shares.
In February 1996, SCI issued a total of 8,050,000 Series B Cumulative
Convertible Redeemable Preferred Shares, (the "Series B Preferred Shares").
The Series B Preferred Shares have a liquidation preference of $25 per share
for an aggregate liquidation preference of $201,250,000 plus any accrued and
unpaid dividends. Holders of the Series B Preferred Shares are only entitled
to limited voting rights under certain conditions. The Series B Preferred
Shares are convertible at any time, unless previously redeemed, at the option
of the holders thereof into SCI common shares at a conversion price of $19.50
per share (equivalent to a conversion rate of 1.282 common shares for each
Series B Preferred Share), subject to adjustment in certain circumstances.
Holders of the Series B Preferred Shares are entitled to receive, when, as and
if declared by the Board of Trustees, out of funds legally available for the
payment of distributions, cumulative preferential cash distributions in an
amount per share equal to the greater of 7% of the liquidation preference per
annum (equivalent to $1.75 per share) or the distribution on the common
shares, or portion thereof, into which a Series B Preferred Share is
convertible. Distributions on the Series B Preferred Shares are cumulative
from the date of original issue and payable quarterly in arrears on the last
day of March, June, September and December of each year. The Series B
Preferred Shares are redeemable at the option of SCI on or after February 21,
9
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2001. The Series B Preferred Shares rank on a parity with the Series A
Cumulative Redeemable Preferred Shares ("Series A Preferred Shares") with
respect to payment of distributions and amounts upon liquidation.
On August 16, 1996, SCI paid a distribution of $0.2525 per common share to
common shareholders of record as of August 6, 1996. On September 30, 1996 SCI
paid a quarterly dividend of $0.5875 per Series A Preferred Share to Series A
preferred shareholders of record on September 16, 1996. On September 30, 1996,
SCI paid a quarterly dividend of $0.4375 per Series B Preferred Share to
Series B preferred shareholders of record as of September 16, 1996.
7. EARNINGS PER SHARE:
Earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Exercise of outstanding warrants
and options to acquire 29,764 SCI common shares would not have a material
dilutive effect on earnings per share. The conversion of limited partnership
units into 5,194,258 SCI common shares is not assumed since the effect would
not be dilutive.
8. SUBSEQUENT EVENTS:
Prior to October 18, 1996, SCI had $78 million in securities remaining
available to be issued under its previous shelf registration statement. On
October 18, 1996, SCI's most recent shelf registration statement was declared
effective by the Securities and Exchange Commission regarding the offering
from time to time of an additional $600 million in one or more series of its
debt securities, preferred shares of beneficial interest, and common shares of
beneficial interest.
On November 13, 1996, SCI issued 2,000,000 Series C Cumulative Redeemable
Preferred Shares (the "Series C Preferred Shares"). The Series C Preferred
Shares have a liquidation preference of $50.00 per share for an aggregate
liquidation preference of $100 million plus accrued but unpaid dividends. The
net proceeds (after underwriting commission and other offering costs) of the
Series C Preferred Shares issued were $97.1 million. Holders of the Series C
Preferred Shares are entitled to receive, when, as and if declared by the
Board of Trustees, out of funds legally available for payment of
distributions, cumulative preferential cash distributions at a rate of 8.54%
of the liquidation preference per annum (equivalent to $4.27 per share). On or
after November 13, 2026, the Series C Preferred Shares may be redeemed for
cash at the option of SCI. The redemption price (other than the portion
thereof consisting of accrued and unpaid distributions) is payable solely out
of the sale proceeds of other capital shares of SCI, which may include shares
of other series of preferred shares.
After the $100 million Series C Preferred Share offering, SCI has $578
million in securities available to be issued under its shelf registration
statement.
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
Security Capital Industrial Trust
We have reviewed the accompanying consolidated balance sheet of Security
Capital Industrial Trust and subsidiaries as of September 30, 1996, and the
related consolidated statements of operations for the three and nine months
ended September 30, 1996 and 1995, and the consolidated statements of cash
flows for the nine months ended September 30, 1996 and 1995. These financial
statements are the responsibility of the Trust's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Security Capital Industrial Trust
and subsidiaries as of December 31, 1995, and in our report dated March 1,
1996, we expressed an unqualified opinion on that statement. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1995, is fairly stated in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Arthur Andersen LLP
Chicago, Illinois
November 13, 1996
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this discussion 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.
Among the important factors that could cause SCI's actual results to differ
materially from those expressed in the forward-looking statements are (i)
changes in general economic conditions in its target markets that could
adversely affect demand for SCI's properties and the creditworthiness of SCI's
customers, and (ii) changes in financial markets and interest rates that could
adversely affect SCI's cost of capital and its ability to meet its financing
needs and obligations.
OVERVIEW
SCI's operating results depend primarily upon net operating income from
distribution properties, which is substantially influenced by (i) the demand for
and supply of distribution properties in SCI's target market cities, (ii) the
pace and economic returns at which SCI can acquire and develop additional
distribution properties, and (iii) the extent to which SCI can sustain improved
market performance as measured by lease rates and occupancy. SCI's target market
cities and submarkets have benefitted substantially in recent periods from
demographic trends (including population and job growth) which influence the
demand for distribution properties. REIT management believes SCI's ability to
compete is significantly enhanced relative to other companies because of the
REIT Manager's depth of management, including the SCI National Operating
System[TM], which includes acquisition and development personnel, and presence
in local markets. The REIT Manager is Security Capital Industrial Incorporated,
a subsidiary of Security Capital Group Incorporated, SCI's largest shareholder.
As a result of acquisitions and developments for the last three months of 1995
and the first nine months of 1996, SCI's rentable square footage increased by
21.4 million square feet or 40.1% to 74.8 million square feet as of September
30, 1996 from 53.4 million square feet as of September 30, 1995. As of September
30, 1996, the portfolio was 94.37% leased. REIT management expects that SCI's
ability to acquire and develop distribution properties at favorable economic
returns will continue through the remainder of 1996. Over the longer term, SCI
expects master-planned, full service distribution park developments to
constitute an increasing percentage of SCI's growth. Additionally, SCI
Development Services Incorporated (see Other Real Estate Income) is expected to
contribute an increasing level of income in subsequent periods. As of September
30, 1996, 2.1 million square feet of SCI's 8.8 million square feet under
development consisted of build-to-suits representing a total expected investment
of $77.3 million.
SCI frequently acquires properties which are underleased and develops
properties which are not fully leased at the start of construction, which
reduces SCI's overall occupancy rate below its stabilized level but provides
opportunities to increase revenues. The term "stabilized" means that capital
improvements, repositioning, new management and new marketing programs (or
development and marketing, in the case of newly developed properties) have
been completed and in effect for a sufficient period of time (but in no case
longer than 12 months for properties acquired by SCI and 12 months after shell
completion for properties developed by SCI) to achieve stabilized occupancy
(typically 93%, but ranging from 90% to 95%, depending on the submarket and
product type) at market rents. SCI has been successful in increasing
occupancies on acquired and developed properties during their initial months
of operations resulting in an occupancy rate of 96.46% for stabilized
properties owned as of September 30, 1996. The average increase in rental
rates for new and renewed leases on previously leased space during the first
nine months of 1996 was 13.1%. As leases are renewed or new leases are
acquired, SCI expects most lease rates on renewals or new leases to increase
in the remainder of 1996. These factors should improve SCI's results of
operations.
No assurance can be given that expected trends for the remainder of 1996 in
leasing rates, occupancy rates and economic returns on acquired and developed
properties will be realized.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Net earnings attributable to common shares increased by $8.6 million or
30.7% to $36.6 million for the first nine months of 1996 from $28.0 million
for the same period in 1995.
12
<PAGE>
Net earnings are expected to increase in subsequent periods due to the
acquisition and development of additional operating properties and the
continued increase in the stabilized portfolio rental rates.
Historically, the primary components of revenue and earnings growth have been
SCI's acquisition and development activity. SCI has acquired and developed $2.1
billion of operating properties from its inception through September 30, 1996.
Projected 1996 property level earnings before interest, taxes, depreciation and
amortization ("EBITDA") for these properties is 10.24% of SCI's aggregate
costs. Aggregate cost for the properties includes the purchase price, closing
costs and budgeted capital improvements and marketing costs prior to
stabilization (and all development costs, in the case of developed properties).
Projected EBITDA is based on current lease rates for stabilized properties and
current market rates for properties being stabilized and anticipated operating
expenses. No assurance can be given that projected levels of EBITDA will be
achieved by these properties nor that future acquisitions and developments will
achieve the same level of EBITDA relative to SCI's investment basis.
Rental Revenues
Rental revenues for the first nine months of 1996 increased by $55.2 million
or 50.8% to $163.8 million, as compared to $108.6 million for the same period
in 1995. Of this increase, $24.5 million was generated by the 180 properties
acquired in 1995, $10.8 million was generated by the 48 developments completed
in 1995, $10.7 million was generated by the 91 properties acquired in 1996, and
$6.8 million was generated by the 57 developments completed in 1996. The
remaining $2.4 million increase was attributable to revenue increases in the
521 properties owned at January 1, 1995.
Other Real Estate Income
Other real estate income consists of gains on disposition of property and
fees and other income from build-to-suit customers generated primarily by SCI
Development Services Incorporated ("SCI Development Services"). SCI Development
Services is expected to generate recurring income in subsequent periods. SCI
owns a preferred stock interest representing 95% of the net operating cash flow
of SCI Development Services. SCI Development Services develops build-to-suit
distribution space facilities or works on a fee basis for customers whose space
needs do not meet SCI's strict investment criteria for long-term ownership.
Through its preferred stock ownership, SCI will realize substantially all
economic benefits of SCI Development Services activities. The activities of SCI
Development Services are consolidated with SCI. SCI Development Services pays
federal and state taxes at the applicable corporate rate.
Interest Income
Interest income for the first nine months of 1996 increased $19,000 from the
same period in 1995. The increase in interest income was a result of higher
average balances in interest bearing accounts in the first nine months of 1996
compared to the same period in 1995.
Rental Expenses
Rental expenses, net of recoveries, increased by $7.2 million or 58.5% to
$19.5 million for the first nine months of 1996 from $12.3 million for the same
period in 1995. The increase in rental expenses is primarily attributable to
acquisitions and developments for the last three months of 1995 and the first
nine months of 1996, which increased SCI's rentable square footage by 21.4
million square feet to 74.8 million square feet.
Interest Expense
Interest expense increased by $4.4 million or 18.1% to $28.7 million for the
first nine months of 1996 from $24.3 million for the same period in 1995. Total
interest capitalized increased by $5.9 million or 105.4% to $11.5 million for
the first nine months of 1996 from $5.6 million for the same period in 1995.
The increase in interest expense was principally caused by the 1995 issuance of
$325 million in Senior Notes and the issuance of $200 million in Senior Notes
in May 1996 (See "--Liquidity and Capital Resources"). The capitalized interest
increase is
13
<PAGE>
attributable to increased development activity in the first nine months of 1996
as compared to the first nine months of 1995.
REIT Management Fee
The REIT management fee paid by SCI is based on SCI's cash flow (as defined
in the REIT Management Agreement between SCI and its REIT Manager) before the
REIT management fee and therefore increased for the first nine months of 1996
as compared to the same period in 1995 because cash flow increased
substantially.
Other Expenses
Other expenses increased by $803,000 or 73.0% to $1.9 million for the first
nine months of 1996 from $1.1 million for the same period in 1995. Other
expenses consist of land holding costs and acquisition and build-to-suit
pursuit cost write-offs. Land holding costs were $1,150,000 for the first nine
months of 1996 compared to $686,000 for the same period in 1995, and
acquisition and build-to-suit pursuit cost write-offs were $753,000 for the
first nine months of 1996 compared to $414,000 for the same period in 1995. The
increase in land holding costs is principally the result of the increase in the
average balance in land holdings.
Preferred Share Dividends
In June 1995, SCI issued $135 million of Series A Cumulative Redeemable
Preferred Shares ("Series A Preferred Shares") that are entitled to receive an
annual dividend of $2.35 per share (9.4% annual dividend rate), which amounted
to $9.5 million for the first nine months of 1996 compared to $3.5 million for
the period from the June 21, 1995 issue date through September 30, 1995. In
February 1996, SCI issued $201.3 million of Series B Cumulative Convertible
Redeemable Preferred Shares ("Series B Preferred Shares") that are entitled to
receive an annual dividend of $1.75 per share (7% annual dividend rate) which
amounted to $8.5 million for the period from the February 21, 1996 issue date
through September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased from $68.3 million in the
first nine months of 1995 to approximately $101.0 million in the first nine
months of 1996. Cash used in investing activities increased from approximately
$436.0 million in the first nine months of 1995 to approximately $486.2 million
in the first nine months of 1996. Cash provided by financing activities was
approximately $405.2 million in the first nine months of 1996 compared to
approximately $470.0 million in the first nine months of 1995. Cash provided by
financing activities for the first nine months of 1996 consisted primarily of
$134.9 million of net proceeds from the sale of common shares, $192 million of
net proceeds from the sale of the Series B Preferred Shares, $199.6 million of
net proceeds from the May debt offering and a net repayment on the line of
credit of $16.4 million. Cash provided by financing activities in the first
nine months of 1995 consisted primarily of $130.4 million of net proceeds from
the sale of the Series A Preferred Shares, $324.5 million of net proceeds from
the March and May long-term debt offerings, $144.5 million of net proceeds from
the September 29, 1995 rights offering, and a $60.1 million net repayment on
the line of credit. Additionally, distributions paid to common and preferred
shareholders used $30.9 million more cash in the first nine months of 1996 as
compared to the first nine months of 1995.
On November 13, 1996, SCI issued 2,0000,000 Series C Cumulative Redeemable
Preferred Shares ("Series C Preferred Shares"). The Series C Preferred Shares
have a liquidation preference of $50.00 per share for an aggregate liquidation
preference of $100 million plus accrued but unpaid dividends. The net proceeds
(after underwriting commission and other offering costs) of the Series C
Preferred Shares issued was $97.1 million. Holders of the Series C Preferred
Shares are entitled to receive, when, as and if declared by the Board of
Trustees, out of funds legally available for payment of distributions,
cumulative preferential cash distributions at a rate of 8.54% of the
liquidation preference per annum (equivalent to $4.27 per share). On or after
November 13, 2026 the Series C Preferred Shares may be redeemed for cash at the
option of SCI. The redemption price (other than the portion thereof consisting
of
14
<PAGE>
accrued and unpaid distributions) is payable solely out of the sale proceeds
of other capital shares of SCI, which may include shares of other series of
preferred shares.
On August 21, 1996, SCI commenced a rights offering to sell 6,787,806 common
shares at $17.25 per common share and also authorized an additional 3,393,903
common shares for oversubscriptions or third party subscribers. In September
1996, SCI issued 7,865,645 common shares of the 10,181,709 common shares
subscribed for and recorded subscriptions receivable of $40.0 million. In
October 1996, 2,316,064 common shares were issued and all subscriptions
receivable were collected. Gross proceeds from the offering totaled $175.6
million.
On September 24, 1996, SCI offered 2,036,342 common shares to third party
subscribers to SCI's rights offering of August 21, 1996 that were not accepted
in whole or in part due to demand in excess of the common shares offered. All
of the common shares were subscribed for as of September 30, 1996 and
subscriptions receivable for gross proceeds of $35.1 million recorded. In
October 1996, all of such common shares were issued and all subscription
receivables were collected.
On May 17, 1996, SCI issued $50 million of Senior Notes due 2002 (the "2002
Notes"), $100 million of Senior Notes due 2008 (the "2008 Notes"), and $50
million of Senior Notes due 2016 (the "2016 Notes" and together with the 2002
Notes and the 2008 Notes, the "May 1996 Notes"). The 2002 Notes bear interest
at 7.25% per annum and require annual principal payments of $12.5 million,
commencing May 15, 1999. The 2008 Notes bear interest at 7.95% per annum and
require annual principal payments of $25 million, commencing May 15, 2005. The
2016 Notes bear interest at 8.65% per annum and require aggregate annual
principal payments of $5 million, commencing 2010 through 2013, $7.5 million
in 2014, $10 million in 2015, and $12.5 million in 2016. In order to lock in
interest rates for the 2016 notes prior to pricing of the notes, SCI entered
into an interest rate protection agreement in the form of a Forward Treasury
Lock Agreement with an investment bank on May 9, 1996. The agreement included
a determination date of May 15, 1996 and a settlement date of May 16, 1996.
The notional amount was $50 million with a reference price of 97.203%. On the
pricing date of May 14, 1996, the Forward Treasury Lock Agreement was unwound
at a price of 99.375% and SCI paid $1.086 million in settlement. The lower
interest rates obtained on the pricing date of May 14 plus the $1.086 million
settlement payment resulted in SCI achieving the equivalent of the rates that
were locked in on May 9, 1996 for the 2016 notes. In order to lock in the
interest rates on a portion of the 2008 notes prior to pricing the notes, SCI
entered into an Interest Rate Swap Agreement with an investment bank on May 9,
1996. The agreement included an effective date of May 15, 1996 and a
termination date of May 15, 2006. The notional amount of the Interest Rate
Swap Agreement was $50 million. On May 14, 1996, the Interest Rate Swap
Agreement was terminated and SCI paid $837,000 in settlement. The lower
interest rates obtained on the pricing date of May 14, 1996 plus the $837,000
settlement resulted in SCI achieving the equivalent of the rates that were
locked in on May 9, 1996 for a portion of the 2008 notes. Collectively, the
May 1996 Notes originally had an average life to maturity of 10.8 years and an
average effective interest cost, inclusive of offering discounts, issuance
costs and the interest rate protection agreements of 8.41% per annum.
In anticipation of a debt offering in January 1997, SCI locked in interest
rates on August 7, 1996 in the form of a Forward Treasury Lock Agreement with
an investment bank. The agreement includes a determination date of January 30,
1997 and a settlement date of January 31, 1997. The notional amount is $30.0
million with a reference price of 99.653 on the thirty year Treasury bond.
In February 1996, SCI issued a total of 8,050,000 Series B Preferred Shares.
The Series B Preferred Shares have a liquidation preference of $25 per share
for an aggregate liquidation preference of $201,250,000 plus any accrued and
unpaid dividends. Holders of the Series B Preferred Shares are only entitled
to limited voting rights under certain conditions. The Series B Preferred
Shares are convertible at any time, unless previously redeemed, at the option
of the holders thereof into SCI common shares at a conversion price of $19.50
per common share (equivalent to a conversion rate of 1.282 common shares for
each Series B Preferred Share), subject to adjustment in certain
circumstances. Holders of the Series B Preferred Shares are entitled to
receive, when, as and if declared by the Board of Trustees, out of funds
legally available for the payment of distributions, cumulative preferential
cash distributions in an amount per share equal to the greater of 7% of the
liquidation preference per annum (equivalent to $1.75 per share) or the
distributions on the common shares, or portion thereof, into which a Series B
Preferred Share is convertible.
15
<PAGE>
Distributions on the Series B Preferred Shares are cumulative from the date of
original issue and are payable quarterly in arrears on the last day of March,
June, September and December of each year. The Series B Preferred Shares are
redeemable at the option of SCI on or after February 21, 2001. The Series B
Preferred Shares rank on a parity with the Series A Preferred Shares and Series
C Preferred Shares with respect to payment of distributions and amounts upon
liquidation.
On September 29, and October 3, 1995, SCI completed a $250.0 million public
offering and issued a total of 16,260,163 common shares at a price of $16.375
per common share in conjunction with a rights offering.
On June 21, 1995, SCI issued 5,400,000 Series A Preferred Shares. The Series
A Preferred Shares have a liquidation preference of $25 per share for an
aggregate liquidation preference of $135 million plus any accrued but unpaid
dividends. The net proceeds (after underwriting commission and other offering
costs) of the Series A Preferred Shares issued were $130.4 million. Holders of
the Series A Preferred Shares are entitled only to limited voting rights under
certain conditions. Holders of the Series A Preferred Shares are entitled to
receive, when, as and if declared by the Board of Trustees, out of funds
legally available for the payment of distributions, cumulative preferential
cash distributions at the rate of 9.4% of the liquidation preference per annum
(equivalent to $2.35 per share). The Series A Preferred Shares are redeemable
at the option of SCI on or after June 21, 2000. The redemption price (other
than the portion thereof consisting of accrued and unpaid distributions) is
payable solely out of the sale proceeds of other capital shares of SCI, which
may include shares of other series of preferred shares.
On May 16, 1995, SCI issued $75 million of Senior Notes due 2009 (the "May
2009 Notes"), $17.5 million of Senior Notes due 2001 (the "2001 Notes"), $17.5
million of Senior Notes due 2000 (the "2000 Notes") and $15 million of Senior
Notes due 1998 (the "1998 Notes," together with the May 2009 Notes, the 2001
Notes and the 2000 Notes, collectively referred to herein as the "May 1995
Notes"). The May 2009 Notes bear interest at 7.875% per annum and require
annual principal payments of $9.375 million, commencing May 15, 2002. The 2001
Notes, 2000 Notes and 1998 Notes bear interest at 7.30%, 7.25% and 7.125% per
annum, respectively, with the principal payable at maturity. Collectively, the
May 1995 Notes originally had an average life to maturity of 8.2 years and an
average effective interest cost, inclusive of offering discount and issuance
costs of 7.92% per annum.
On March 2, 1995, SCI issued $150 million of Senior Notes due 2009 (the
"March 2009 Notes") and $50 million of Senior Notes due 2015 (the "2015 Notes,"
together with the March 2009 Notes, collectively referred to as the "March 1995
Notes"). The March 2009 Notes bear interest at 8.72% per annum and require
annual principal payments of $18.75 million, commencing March 1, 2002. The 2015
Notes bear interest at 9.34% per annum and require aggregate annual principal
payments of $5 million in 2010, $6.25 million in 2011, $7.5 million in 2012,
$8.75 million in 2013, $10 million in 2014 and $12.5 million in 2015.
Collectively, the March 1995 Notes originally had an average life to maturity
of 12.38 years and an average effective interest cost, inclusive of offering
discount and issuance costs of 9.04% per annum.
All of the foregoing notes (the May 1996 Notes, the May 1995 Notes, and the
March 1995 Notes) are redeemable at any time at the option of SCI, in whole or
in part, at a redemption price equal to the sum of the principal amount of the
notes being redeemed plus accrued interest thereon to the redemption date plus
an adjustment, if any, based on the yield to maturity relative to market yields
available at redemption. Such notes are governed by the terms and provisions of
an Indenture agreement (the "Indenture") between SCI and State Street Bank and
Trust Company, as trustee.
Under the terms of the Indenture, SCI can incur additional debt only if,
after giving effect to the debt being incurred and application of proceeds
therefrom, (i) the ratio of debt to total assets, as defined in the Indenture,
does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined
in the Indenture, does not exceed 40%, and (iii) SCI's pro forma interest
coverage ratio, as defined in the Indenture, for the four preceding fiscal
quarters is not less than 1.5:1. In addition, SCI may not at any time own Total
Unencumbered Assets, as defined in the Indenture, equal to less than 150% of
the aggregate outstanding principal amount of SCI's unsecured debt. At
September 30, 1996, SCI was in compliance with all debt covenants.
16
<PAGE>
On June 1, 1995, SCI increased its line of credit agented by NationsBank to
$350 million. The line of credit, as amended and restated effective May 2,
1996, bears interest at SCI's option at either (a) the greater of the federal
funds rate plus 0.5% and prime, or (b) LIBOR plus 1.25%, based upon SCI's
current senior debt ratings, and is scheduled to mature in May 1998. This line
may be extended annually for an additional year with the approval of
NationsBank and the other participating lenders (the "Bank Group"). If the
Bank Group elects not to extend the revolving credit, at SCI's election, the
facility will either a) convert to an amortizing two year facility with the
unamortized 50 percent of the balance due at maturity (three year term), or b)
continue on a revolving basis with the remaining one year maturity. All debt
incurrences are subject to a covenant that SCI maintain a debt to tangible net
worth ratio of not greater than 1 to 1. Additionally, SCI is required to
maintain an adjusted net worth (as defined) of at least $1.0 billion, to
maintain interest payment coverage of not less than 2 to 1, and to maintain a
fixed charge coverage ratio (as defined) of not less than 1.4 to 1. As of
September 30, 1996, SCI was in compliance with all covenants, and as of
November 13, 1996, $4.0 million of borrowings were outstanding.
From inception through September 30, 1996, SCI had invested $2.1 billion for
the acquisition and development of 897 distribution properties. These
acquisitions and developments were financed with cash on hand, the issuance of
limited partnership units, the assumption of existing mortgage debt and
borrowings under SCI's line of credit which were repaid with the proceeds from
SCI's equity and debt offerings.
On September 30, 1996, SCI had $320.3 million of budgeted development cost
for developments in process, of which $171.3 million was unfunded. In
addition, at September 30, 1996, SCI had letters of intent or contingent
contracts, subject to SCI's final due diligence, for the acquisition of 4.1
million square feet in various target market cities with an acquisition cost
of $116.6 million. The foregoing transactions are subject to a number of
conditions, and SCI cannot predict with certainty that any of them will be
consummated.
SCI expects to finance construction, development and acquisitions primarily
with cash on hand, borrowings under its line of credit and cash from future
securities offerings. When issuing debt, SCI intends primarily to arrange
fully amortizing, fixed rate, 10 year to 20 year debt to finance additional
acquisitions and developments. To a lesser extent, under certain
circumstances, SCI may arrange for debt with different maturities in order to
optimize its debt maturity schedule.
SCI considers its liquidity and ability to generate cash from operations and
financing to be adequate and expects it to continue to be adequate to meet
SCI's acquisition, development, operating, debt service, and shareholder
distribution requirements.
SCI's current distribution policy is to pay quarterly distributions to
shareholders based upon what it considers to be a reasonable percentage of
cash flow. Because depreciation is a non-cash expense, cash flow typically
will be greater than earnings from operations and net earnings. Therefore,
quarterly distributions will consistently be higher than quarterly earnings.
Pursuant to the terms of the Series A Preferred Shares, the Series B
Preferred Shares and the Series C Preferred Shares (the "Preferred Shares"),
SCI is restricted from declaring or paying any distribution with respect to
the common shares unless all cumulative distributions with respect to the
Preferred Shares have been paid and sufficient funds have been set aside for
distributions that have been declared for the then current distribution period
with respect to the Preferred Shares. The dividends on the Preferred Shares do
not reduce the amount SCI has budgeted for common share distributions, but do
increase the percentage of the common share distribution that constitutes a
non-taxable return of capital.
Funds from Operations
Funds from Operations attributable to common shares increased $23.7 million
or 40.4% from $58.6 million for the first nine months of 1995 to $82.3 million
for the same period in 1996. SCI believes that Funds from Operations is
helpful in understanding a property portfolio in that such calculation
reflects cash flow from operating activities and the properties' ability to
support interest payments and general operating expenses before the impact of
certain
17
<PAGE>
activities, such as changes in accounts receivable and accounts payable. Funds
from Operations should not be considered as an alternative to net earnings or
any other generally accepted accounting principle ("GAAP") measurement of
performance as an indicator of SCI's operating performance or as an alternative
to cash flows from operating, investing or financing activities as a measure of
liquidity.
Funds from Operations represent SCI's net earnings (computed in accordance
with GAAP) before minority interest and before gains/losses on disposition of
depreciated property, plus depreciation and amortization. In January 1995, SCI
changed to a more conservative policy of expensing loan cost amortization in
determining Funds from Operations.
STATEMENTS OF FUNDS FROM OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
-------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings attributable to common shares..... $12,874 $ 9,142 $36,555 $27,950
Add:
Depreciation and amortization.............. 15,972 10,723 43,187 28,138
Minority interest.......................... 859 807 2,499 2,546
Loss on disposition of depreciated real
estate.................................... -- -- 29 --
------- ------- ------- -------
Funds from operations attributable to common
shares........................................ $29,705 $20,672 $82,270 $58,634
======= ======= ======= =======
</TABLE>
18
<PAGE>
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On October 18, 1996, SCI's shelf registration statement was declared
effective by the Securities and Exchange Commission regarding the offering
from time to time of $678 million in one or more series of its debt
securities, preferred shares of beneficial interest and common shares of
beneficial interest. After the $100 million Series C Preferred Share offering,
SCI has $578 million in securities available to be issued under its shelf
registration statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
SEQUENTIAL
DOCUMENT DESCRIPTION PAGE NUMBER
-------------------- -----------
(a) EXHIBITS
(SEE INDEX TO EXHIBITS,
WHICH IS INCORPORATED
HEREIN BY REFERENCE.)
EXHIBITS
--------
<C> <S> <C>
12.1 Statement re: Computation of Ratio of Earnings
to Fixed Charges
12.2 Statement re: Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred Share
Dividends
27 Financial Data Schedule
99 Security Capital Industrial Trust Supplemental
Information--3rd Quarter 1996
</TABLE>
(b) REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
DATE ITEM REPORTED FINANCIAL STATEMENTS
---- ------------- --------------------
<S> <C> <C>
August 19, 1996 5 Yes
</TABLE>
19
<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.
Security Capital Industrial Trust
/s/ Edward F. Long
By __________________________________
Edward F. Long, Vice President
(Duly Authorized Officer) and
Controller
(Principal Accounting Officer)
Date: November 13, 1996
20
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS DOCUMENT DESCRIPTION PAGE NUMBER
-------- -------------------- -----------
<C> <S> <C>
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges
12.2 Statement re: Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Share Dividends
27 Financial Data Schedule
99 Security Capital Industrial Trust Supplemental
Information--3rd Quarter 1996
</TABLE>
21
<PAGE>
EXHIBIT 12.1
SECURITY CAPITAL INDUSTRIAL TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, PERIOD ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991(a)
------- ------- ------- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Earnings (Loss) from Operations $54,646 $31,475 $47,660 $25,066 $4,412 $(187) $(127)
Add:
Interest Expense 28,723 24,301 32,005 7,568 321 504 29
------- ------- ------- ------- ------ ----- -----
Earnings as Adjusted $83,369 $55,776 $79,665 $32,634 $4,733 $ 317 $ (98)
======= ======= ======= ======= ====== ===== =====
Fixed Charges:
Interest Expense $28,723 $24,301 $32,005 $ 7,568 $ 321 $ 504 $ 29
Capitalized Interest 11,512 5,613 8,599 2,208 98 124 68
------- ------- ------- ------- ------ ----- -----
Total Fixed Charges $40,235 $29,914 $40,604 $ 9,776 $ 419 $ 628 $ 97
======= ======= ======= ======= ====== ===== =====
Ratio of Earnings (Loss) to Fixed Charges 2.1 1.9 2.0 3.3 11.3 (b) (b)
======= ======= ======= ======= ====== ===== =====
</TABLE>
- ----------
(a) For the period from June 14, 1991 (the date of SCI's inception) to December
31, 1991.
(b) While SCI was researching markets and assembling its initial assets,
earnings were insufficient to cover fixed charges for the periods ended
December 31, 1991 and December 31, 1992 by $195,000 and $311,000,
respectively.
<PAGE>
EXHIBIT 12.2
SECURITY CAPITAL INDUSTRIAL TRUST
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED SHARE DIVIDENDS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, PERIOD ENDED DECEMBER 31,
------------------ -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991(a)
------- ------- ------- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Earnings (Loss) from Operations $54,646 $31,475 $47,660 $25,066 $4,412 $(187) $(127)
Add:
Interest Expense 28,723 24,301 32,005 7,568 321 504 29
------- ------- ------- ------- ------ ----- -----
Earnings as Adjusted $83,369 $55,776 $79,665 $32,634 $4,733 $ 317 $ (98)
======= ======= ======= ======= ====== ===== =====
Combined Fixed Charges and Preferred Share Dividends:
Interest Expense $28,723 $24,301 $32,005 $ 7,568 $ 321 $ 504 $ 29
Capitalized Interest 11,512 5,613 8,599 2,208 98 124 68
------- ------- ------- ------- ------ ----- -----
Total Fixed Charges 40,235 29,914 40,604 9,776 419 628 97
Preferred Share Dividends (b) 18,062 3,525 6,698 - - - -
------- ------- ------- ------- ------ ----- -----
Combined Fixed Charges and Preferred Share Dividends $58,297 $33,439 $47,302 $ 9,776 $ 419 $ 628 $ 97
======= ======= ======= ======= ====== ===== =====
Ratio of Earnings (Loss) to Fixed Charges and Preferred
Share Dividends 1.4 1.7 1.7 3.3 11.3 (c) (c)
======= ======= ======= ======= ====== ===== =====
</TABLE>
- ----------
(a) For the period from June 14, 1991 (the date of SCI's inception) to December
31, 1991.
(b) SCI had no preferred shares in any of the historical periods presented
prior to 1995.
(c) While SCI was researching markets and assembling its initial assets,
earnings were insufficient to cover fixed charges for the periods ended
December 31, 1991 and December 31, 1992 by $195,000 and $311,000,
respectively.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Form 10-Q for the nine months ended September 30, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 42,282
<SECURITIES> 0
<RECEIVABLES> 4,547
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,332,547
<DEPRECIATION> 94,768
<TOTAL-ASSETS> 2,334,528
<CURRENT-LIABILITIES> 0
<BONDS> 670,570
<COMMON> 937
0
336,250
<OTHER-SE> 1,121,806
<TOTAL-LIABILITY-AND-EQUITY> 2,334,528
<SALES> 163,814
<TOTAL-REVENUES> 166,556
<CGS> 0
<TOTAL-COSTS> 19,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,723
<INCOME-PRETAX> 36,555
<INCOME-TAX> 0
<INCOME-CONTINUING> 36,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,555
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
[LOGO OF SECURITY CAPITAL INDUSTRIAL TRUST]
SUPPLEMENTAL INFORMATION
At September 30, 1996
Page
----
Financial Highlights................................. 1
Consolidated Balance Sheets.......................... 2
Consolidated Income Statements....................... 3
Funds from Operations................................ 4
Leased and Physical Occupancy Analysis............... 5
Lease Expirations and National Customer Growth....... 6
Leasing Activity..................................... 7
Investment Summary................................... 8
Capital Structure.................................... 9
Debt Analysis........................................ 10
Exhibit 1 (Operating Markets)........................ 11
Executive Office Address:
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Selected Financial Data
(in thousands, except per share amounts and ratios)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
09/30/96 09/30/95 % Change 09/30/96 09/30/95 % Change
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Income Items:
Revenues $60,446 $41,442 45.9% $166,556 $110,302 51.0%
Net Income attributable to common shares 12,874 9,142 40.8% 36,555 27,950 30.8%
Funds from Operations attributable to common shares 29,705 20,672 43.7% 82,270 58,634 40.3%
Per share Funds from Operations attrib. to common shares (1) 0.34 0.29 17.2% 0.95 0.83 14.5%
Distributions per Common Share 0.2525 0.23375 8.0% 0.7575 0.70125 8.0%
As of Sept. 30, As of Sept. 30,
1996 1995 % Change
================================================================================================================================
Assets:
Investments in Real Estate Before Depreciation $2,332,547 $1,633,441 42.8%
Total Assets (includes depreciation) 2,334,528 1,746,655 33.7%
Market Capitalization:
Total Common Shares Outstanding at Quarter End 89,319(2) 74,571 19.8%
Price at Quarter End - Common Shares $18.25 $16.25 12.3%
Equity Value at Quarter End $2,057,773(3) $1,431,189(4) 43.8%
</TABLE>
(1) Per share amounts are calculated based on weighted average common shares
outstanding, assuming full conversion of Limited Partnership Units.
(2) See summary of capital structure on page 9. Excludes Limited Partnership
Units and excludes subscribed common shares that were issued in October
1996.
(3) Includes $135,675 of Series A Preferred Shares, $197,225 of Series B
Preferred Shares, and $94,795 of Limited Partnership Units.
(4) Includes $135,000 of Series A Preferred Shares, and $84,407 of Limited
Partnership Units.
1
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
==============================================================================
<S> <C> <C>
Assets:
Investments in Real Estate
Buildings, improvements, improved land and CIP $2,245,613 $1,767,307
Land held for development 86,934 60,363
Less accumulated depreciation 94,768 56,406
---------- ----------
Net real estate investments 2,237,779 1,771,264
Cash and cash equivalents 42,282 22,235
Accounts receivable 4,547 5,764
Other assets 49,920 34,709
---------- ----------
Total Assets $2,334,528 $1,833,972
========== ==========
Liabilities and Shareholders' Equity:
Liabilities
Line of credit $ 64,600 $ 81,000
Long term debt 524,171 324,527
Mortgage notes payable 96,570 96,013
Securitized debt 37,405 38,090
Assessment bonds payable 12,424 11,173
Accounts payable and accrued expenses 41,166 32,826
Construction payable 26,277 20,437
Distributions payable - 20,558
Other liabilities 15,457 14,416
---------- ----------
Total Liabilities 818,070 639,040
Minority Interest 57,465 58,741
Shareholders' Equity
Series A preferred shares 135,000 135,000
Series B preferred shares 201,250 -
Common shares at $.01 par value 937 814
Additional paid-in capital 1,260,225 1,059,142
Subscriptions receivable (75,079) -
Distributions in excess of net earnings (63,340) (58,765)
---------- ----------
Total Shareholders' Equity 1,458,993 1,136,191
---------- ----------
Total Liabilities and Shareholders' Equity $2,334,528 $1,833,972
========== ==========
</TABLE>
2
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Consolidated Income Statements
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ----------------------
09/30/96 09/30/95 09/30/96 09/30/95
=====================================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Rental income $59,391 $40,372 $163,814 $108,613
Other real estate income 854 715 2,034 1,000
Interest income 201 355 708 689
------- ------- -------- --------
Total Revenues 60,446 41,442 166,556 110,302
Expenses:
Rental expenses, net of recoveries 6,083 4,773 19,475 12,310
Depreciation and amortization 15,972 10,723 43,187 28,138
Interest 11,364 9,052 28,723 24,301
General and administrative 195 69 747 602
REIT management fee 5,702 3,335 15,376 9,830
Pursuit costs written off and land holding costs 703 369 1,903 1,100
------- ------- -------- --------
Total Expenses 40,019 28,321 109,411 76,281
------- ------- -------- --------
Net Earnings before minority interest 20,427 13,121 57,145 34,021
Minority Interest 859 807 2,499 2,546
------- ------- -------- --------
Net Earnings before loss on sale of depreciated real estate 19,568 12,314 54,646 31,475
Loss on sale of depreciated real estate - - 29 -
------- ------- -------- --------
Net Earnings: 19,568 12,314 54,617 31,475
Less preferred share dividends 6,694 3,172 18,062 3,525
------- ------- -------- --------
Net Earnings attributable to Common Shares $12,874 $ 9,142 $ 36,555 $ 27,950
======= ======= ======== ========
Weighted average common shares outstanding 81,513 65,190 81,462 64,790
Per Share Net Earnings attributable to Common Shares $ 0.16 $ 0.14 $ 0.45 $ 0.43
</TABLE>
3
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Funds from Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- --------------------
09/30/96 09/30/95 09/30/96 09/30/95
============================================================================================================
<S> <C> <C> <C> <C>
Net Earnings $19,568 $12,314 $ 54,617 $31,475
Add (Deduct):
Depreciation and amortization 15,972 10,723 43,187 28,138
Minority interest 859 807 2,499 2,546
(Gain) Loss on sale of depreciated real estate - - 29 -
------- ------- -------- -------
Funds from operations 36,399 23,844 100,332 62,159
Preferred share dividends (6,694) (3,172) (18,062) (3,525)
------- ------- -------- -------
Funds from operations attributable to common shares $29,705 $20,672 $ 82,270 $58,634
======= ======= ======== =======
Weighted average common shares outstanding (1) 86,708 70,443 86,657 70,373
Per share Funds from Operations attributable
to common shares (1) $ 0.34 $ 0.29 $ 0.95 $ 0.83
======= ======= ======== =======
</TABLE>
(1) Assumes conversion of all LPU's to SCI shares.
4
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Leased & Physical Occupancy Analysis
Stabilized Properties - By Region
<TABLE>
<CAPTION>
09/30/96 09/30/95
Square Feet % of Total Current ----------------- ------------------
at 9/30/96 Sq. Feet Investment Leased Occupied Leased Occupied
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Central Region 20,415,691 30.21% $ 502,654,768 97.04% 96.35% 97.47% 97.34%
Mid Atlantic Region 13,572,536 20.08% $ 370,551,719 96.06% 94.77% 97.95% 97.44%
Pacific Region 13,720,933 20.31% $ 521,968,947 99.01% 98.46% 97.77% 97.02%
Southeast Region 19,863,405 29.40% $ 492,388,376 97.36% 96.36% 96.78% 95.97%
--------------------------------------- ------------------------------------
Total Stabilized Portfolio 67,572,565 100.00% $1,887,563,810 97.34% 96.46% 97.37% 96.84%
======================================= ====================================
Total Portfolio - By Region
09/30/96 09/30/95
Square Feet % of Total Current ----------------- ------------------
at 9/30/96 Sq. Feet Investment Leased Occupied Leased Occupied
=============================================================================================================
Central Region 22,149,389 29.61% $ 543,255,970 94.51% 92.06% 93.98% 92.40%
Mid Atlantic Region 16,248,177 21.72% $ 446,480,006 93.05% 91.43% 93.90% 91.83%
Pacific Region 15,682,478 20.96% $ 583,869,139 93.46% 89.05% 96.84% 94.40%
Southeast Region 20,729,346 27.71% $ 514,109,641 95.95% 94.39% 95.96% 94.79%
---------------------------------------- ------------------------------------
Total Operating Portfolio 74,809,390 100.00% $2,087,714,756 94.37% 91.94% 95.13% 93.44%
======================================== ====================================
</TABLE>
5
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Operating Portfolio - Lease Expirations (1)
<TABLE>
<CAPTION>
Percentage of Total
Rentable Square Annual Annual Base Rents
Footage Subject to Base Rents Under Represented by
Expiring Leases (2) Expiring Leases (3) Expiring Leases
================================================================================
<S> <C> <C> <C>
1996 (4) 5,008,326 $ 16,803,600 6.7%
1997 14,089,436 44,655,354 17.7
1998 12,062,478 42,110,430 16.7
1999 10,746,702 38,270,454 15.2
2000 8,876,223 35,416,494 14.0
2001 7,739,472 31,059,744 12.3
2002 2,197,139 9,404,256 3.7
2003 2,684,866 11,028,708 4.4
2004 927,144 3,352,092 1.3
2005 1,755,813 7,984,404 3.2
Thereafter 2,691,686 12,029,784 4.8
---------- ------------ -----
Total 68,779,285 $252,115,320 100.0%
========== ============ =====
</TABLE>
(1) Assumes tenants do not exercise renewal options.
(2) Includes 958,099 sq. ft. leased on a month-to-month basis.
(3) Represents base rent at lease expiration, annualized.
(4) Represents leases expiring between 10/1/96 and 12/31/96.
Growth in National Customers
<TABLE>
<CAPTION>
09/30/96 06/30/96 03/31/96
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Total National Customers 286 259 248
Multi-Market National Customers 164 149 140
Total Square Footage Leased by
National Customers (1) 26,320,097 23,608,904 20,617,772
</TABLE>
(1) Square footage leased includes signed leases with start dates in the future.
6
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Leasing Activity
<TABLE>
<CAPTION>
Total Leasing Activity Prior Leased Space
---------------------- ------------------------------------------------
Turnover Costs (1) Rent Growth Wtd. Avg.
--------------------- ---------------------- Tenant
# Leases Sq. Feet Sq. Feet Cost Sq. Feet (2) Growth Retention
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter 1996 268 5,580,742 3,534,129 $1.24 3,096,799 12.0% 76.0%
2nd Quarter 1996 261 6,163,370 4,300,673 $0.86 3,787,124 14.2% 71.6%
3rd Quarter 1996 259 5,427,845 3,473,492 $1.03 3,252,692 12.0% 77.0%
Year to Date 788 17,171,957 11,308,294 $1.02 10,136,615 13.1% 74.5%
</TABLE>
(1) Includes reconfiguration of rented space.
(2) Square feet used in rent growth calculation is based only on space for which
SCI has leasing history.
7
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Investment Summary
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter YTD Sep 30
==================================================================================================
<S> <C> <C> <C> <C>
Acquisitions
- ------------
Square Feet 3,907,480 2,872,146 2,465,287 9,244,913
Total Expected Investment $ 88,345,532 $ 75,366,781 $84,647,790 $248,360,103
Cost Per Square Foot $22.61 $26.24 $34.34 $26.86
Replacement Cost Percentage 62.4% 70.5% 70.3% 67.0%
Development
- -----------
Starts
------
Square Feet 3,272,001 2,805,314 1,296,289 7,373,604
Total Expected Investment $115,642,369 $112,746,469 $41,997,182 $270,386,020
Cost Per Square Foot $35.34 $40.19 $32.40 $36.67
Completions
-----------
Square Feet 2,767,031 2,320,698 2,396,182 7,483,911
Total Expected Investment $ 90,598,239 $ 80,034,684 $80,323,313 $250,956,236
Cost Per Square Foot $32.74 $34.49 $33.52 $33.53
Under Development
-----------------
Square Feet 8,776,683
Total Expected Investment $320,261,355
Cost Per Square Foot $36.49
Balance Sheet $152,545,000
Land Held For Development
- -------------------------
Ending Land Inventory Investment $ 51,700,000 $ 74,500,000 $86,934,000
Acres
-----
Begining Land Inventory 877 746 982 877
+ Land Acquired in Period 55 409 172 636
- Land Sold in Period 0 (7) 0 (7)
- Land Development Begun (186) (166) (62) (414)
---- ---- ----- -----
Ending Land Inventory 746 982 1,092 1,092
</TABLE>
8
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Capital Structure
(in thousands)
Debt
<TABLE>
<CAPTION>
Aggregate Principal
Amount at Sept. 30, 1996
===============================================================
<S> <C>
7.125% notes due 1998 $ 15,000
7.25% notes due 2000 17,500
7.30% notes due 2001 17,500
7.25% notes due 2002 50,000
7.95% notes due 2008 100,000
8.72% notes due 2009 150,000
7.875% notes due 2009 75,000
9.34% notes due 2015 50,000
8.65% notes due 2016 50,000
Less Cumulative Discount (829)
--------
Total Unsecured Notes $524,171
Assessment Bonds 12,424
Mortgage Notes 96,570
Securitized Debt 37,405
Unsecured Line of Credit 64,600
--------
Total Debt $735,170
========
</TABLE>
Equity
<TABLE>
<CAPTION>
Sept. 30, 1996
------------------------------
Shares Conversion Common Stock $ Value
Outstanding Ratio Equivalents Equivalents (1)
===========================================================================================================
<S> <C> <C> <C> <C>
Series A, Cumulative Redeemable Preferred Stock 5,400 n/a n/a $ 135,675(2)
Series B, Cumulative Convertible Preferred Stock 8,050 1.282:1 10,320 188,342
Common Stock 89,319 n/a 89,319 1,630,077
Limited Partnership Units 5,194 1:1 5,194 94,795
Subscribed Common Shares issued in October 1996 4,352 1:1 4,352 79,431
------- ----------
Total Equity 109,185 2,128,320
======= ----------
Total Equity and Debt $2,863,490
==========
</TABLE>
(1) Based on the Sept. 30, 1996 closing price of $18.25.
(2) Based on the Sept. 30, 1996 closing price of $25.125
9
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Debt Analysis
<TABLE>
<CAPTION>
Long-Term Debt Maturities
(in thousands)
Year 1996 1997 1998 1999 2000 2001 Thereafter Total
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount (in thousands) $4,863 $19,001 $19,801 $25,709 $38,454 $40,716 $522,026 $670,570
</TABLE>
<TABLE>
<CAPTION>
Unsecured Line of Credit
(in thousands)
Facility Outstanding @ 9/30/96 Remaining Capacity Weighted Avg. Rate (2)
=========================================================================================================================
<S> <C> <C> <C>
$350,000 $64,600 (1) $285,400 7.00%
</TABLE>
<TABLE>
<CAPTION>
Unsecured and Secured Debt Analysis (3)
Effective Interest Weighted Average
% of all Debt Rate (2) Maturity
=========================================================================================================================
<S> <C> <C> <C>
Unsecured Debt 78.17% 8.70% 11.2
Secured Debt 21.83% 7.94% 7.0
------ ---- ----
Total Debt 100.00% 8.57% 10.2
</TABLE>
<TABLE>
<CAPTION>
Fixed Rate Debt Analysis (3)
Effective Interest Weighted Average
% of all Debt Rate (2) Maturity
=========================================================================================================================
<S> <C> <C> <C>
Fixed Rate Debt 91.21% 8.57% 10.2
</TABLE>
<TABLE>
<CAPTION>
Ratios
Three Months Ended Nine Months Ended
09/30/96 09/30/95 % Change 09/30/96 09/30/95 % Change
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest Coverage Ratio (4) 2.9 2.9 0.0% 3.1 3.1 0.0%
Dividend Payout Ratio 74.3% 80.6% -7.8% 79.7% 84.5% -5.7%
Total Debt to Total Book Capitalization (5) - - - 31.3% 32.9% -4.9%
</TABLE>
(1) Subsequent to September 30, 1996, the Line of Credit was paid off using
funds collected from common share subscriptions receivable.
(2) Excludes amortization of loan costs and original issue discounts on Line of
Credit and Unsecured Debt.
(3) All debt excluding Line of Credit.
(4) FFO plus interest expense (before capitalized interest and amortization) /
interest expense (before capitalized interest and amortization).
(5) Total Book Capitalization is the sum of total debt, minority interest, total
Shareholders' equity, and accumulated depreciation.
10
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Unaudited Financial Results
At September 30, 1996
Exhibit 1: Operating Markets
<TABLE>
<CAPTION>
Central Region Mid-Atlantic Region Pacific Region Southeast Region
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Austin Chicago Las Vegas Atlanta
Dallas/Fort Worth Cincinnati Los Angeles/Orange County Birmingham
Denver Columbus Phoenix Charlotte
El Paso Indianapolis Portland Chattanooga
Houston Kansas City Reno Ft. Lauderdale/Miami
Oklahoma City Louisville Salt Lake City Memphis
Rio Grande Valley New Jersey/I-95 Corridor San Diego Nashville
San Antonio Washington D.C./Baltimore San Francisco-East Bay Area Orlando
Tulsa San Francisco-South Bay Area Tampa
Seattle
</TABLE>
11
