<PAGE>
================================================================================
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
_______________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[_] 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 or 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 X No
--- ---
The number of shares outstanding of the Registrant's common stock as of May
7, 1998 was:
Common Shares of Beneficial Interest, $.01 par value 122,907,744 shares
================================================================================
<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--March 31, 1998 and December
31, 1997................................................. 3
Consolidated Statements of Income and Comprehensive
Income--Three months ended March 31, 1998 and 1997....... 4
Consolidated Statements of Cash Flows--Three months ended
March 31, 1998 and 1997.................................. 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
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
ASSETS (Unaudited) (Audited)
------ ----------- ------------
<S> <C> <C>
Real Estate......................................... $3,109,808 $3,006,236
Less accumulated depreciation..................... 190,358 171,525
---------- ----------
2,919,450 2,834,711
Investments in and Advances to Unconsolidated
Subsidiaries....................................... 294,867 86,139
Cash and Cash Equivalents........................... 48,117 25,009
Accounts Receivable................................. 6,709 12,554
Other Assets........................................ 78,814 75,540
---------- ----------
Total assets.............................. $3,347,957 $3,033,953
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Line of credit.................................... $ 253,200 $ --
Long-term debt.................................... 724,076 724,052
Mortgage notes payable............................ 83,446 87,937
Securitized debt.................................. 32,959 33,197
Assessment bonds payable.......................... 11,871 11,894
Accounts payable and accrued expenses............. 43,915 62,850
Construction payable.............................. 22,045 27,221
Net amount due to a related party................. 973 1,138
Distributions payable............................. -- 33,449
Other liabilities................................. 22,476 22,174
---------- ----------
Total liabilities......................... 1,194,961 1,003,912
---------- ----------
Commitments and Contingencies
Minority Interest................................... 52,500 53,304
Shareholders' Equity:
Series A Preferred Shares, $0.01 par value;
5,400,000 shares issued and outstanding at March
31, 1998 and December 31, 1997; stated
liquidation preference of $25 per share.......... 135,000 135,000
Series B Convertible Preferred Shares, $0.01 par
value; 7,981,700 shares issued and outstanding
at March 31, 1998 and 8,000,300 shares at
December 31, 1997; stated liquidation preference
of $25 per share................................. 199,543 200,008
Series C Preferred Shares, $0.01 par value;
2,000,000 shares issued and outstanding at March
31, 1998 and December 31, 1997; stated
liquidation preference of $50 per share.......... 100,000 100,000
Common shares of beneficial interest, $0.01 par
value; 121,376,577 shares issued and outstanding
at March 31, 1998 and 117,364,148 shares at
December 31, 1997................................ 1,214 1,174
Additional paid-in capital........................ 1,869,137 1,773,465
Employee share purchase notes..................... (26,470) (27,186)
Accumulated other comprehensive income............ (7) (63)
Distributions in excess of net earnings........... (177,921) (205,661)
---------- ----------
Total shareholders' equity................ 2,100,496 1,976,737
---------- ----------
Total liabilities and shareholders'
equity................................... $3,347,957 $3,033,953
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Income:
Rental income........................................................... $ 78,565 $ 67,386
Other real estate income................................................ 5,257 1,121
Income from unconsolidated subsidiaries................................. 4,238 --
Foreign exchange gain................................................... 1,610 --
Interest income......................................................... 625 724
-------- --------
Total income.......................................................... 90,295 69,231
-------- --------
Expenses:
Rental expenses, net of recoveries of $14,384 and $9,859
for the three month periods in 1998 and 1997, respectively............. 5,938 4,920
Property management fees paid to a related party, net of recoveries of
$1,783 in 1997......................................................... -- 908
General and administrative.............................................. 4,440 307
Administrative services fee paid to a related party..................... 731 --
REIT management fee paid to a related party............................. -- 6,606
Depreciation and amortization........................................... 23,180 18,048
Interest expense........................................................ 19,645 11,375
Other expense........................................................... 903 611
-------- --------
Total expenses........................................................ 54,837 42,775
-------- --------
Net Earnings Before Minority Interest and Gain on Disposition
of Real Estate.......................................................... 35,458 26,456
Minority interest share in net earnings.................................. 979 895
-------- --------
Net Earnings Before Gain on Disposition of Real Estate................... 34,479 25,561
Gain on disposition of real estate....................................... 2,066 --
-------- --------
Net Earnings............................................................. 36,545 25,561
Less preferred share dividends........................................... 8,799 8,829
-------- --------
Net Earnings Attributable to Common Shares............................... 27,746 16,732
Other Comprehensive Income:
Foreign currency translation adjustments................................ 56 --
-------- --------
Comprehensive Income.................................................... $ 27,802 $ 16,732
======== ========
Weighted Average Common Shares Outstanding (basic)....................... 118,003 96,009
======== ========
Weighted Average Common Shares Outstanding (diluted)..................... 123,564 101,213
======== ========
Per Share Net Earnings Attributable to Common Shares:
Basic................................................................... $ 0.24 $ 0.17
======== ========
Diluted................................................................. $ 0.23 $ 0.17
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
4
</TABLE>
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
Operating Activities:
Net earnings......................................................................... $ 36,545 $ 25,561
Minority interest.................................................................... 979 895
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization..................................................... 23,180 18,048
Gain on disposition of real estate................................................ (2,066) --
Rent leveling..................................................................... (680) (1,233)
Equity in earnings of unconsolidated subsidiaries................................. 2,521 --
Foreign exchange loss on remeasurement............................................ 444 --
Amortization of deferred financing costs.......................................... 441 669
Decrease/(increase) in accounts receivable and other assets.......................... 870 (5,335)
Decrease in accounts payable and accrued expenses.................................... (18,935) (3,105)
Increase/(decrease) in other liabilities............................................. 302 (189)
Decrease in net amount due to a related party........................................ (165) --
--------- ---------
Net cash provided by operating activities.................................... 43,436 35,311
--------- ---------
Investing Activities:
Real estate investments.............................................................. (140,339) (105,024)
Investments in and advances to unconsolidated subsidiaries........................... (211,249) --
Tenant improvements and lease commissions............................................ (3,205) (2,542)
Recurring capital expenditures....................................................... (892) (834)
Proceeds from disposition of real estate............................................. 35,010 19,440
--------- ---------
Net cash used in investing activities........................................ (320,675) (88,960)
--------- ---------
Financing Activities:
Proceeds from sale of common shares, net of expenses................................. 95,733 80,450
Proceeds from dividend reinvestment and share purchase plan.......................... 99 108
Proceeds from long-term debt offering................................................ -- 100,000
Debt issuance costs.................................................................. (13) (1,168)
Proceeds from interest rate contracts................................................ -- 1,658
Distributions paid to common shareholders............................................ (33,455) (25,159)
Distributions paid to minority interest holders...................................... (1,496) (1,423)
Preferred share dividends............................................................ (8,799) (8,829)
Repurchase of common shares.......................................................... (170) --
Proceeds from line of credit and bridge loan......................................... 599,000 27,000
Payments on line of credit and bridge loan........................................... (345,800) (65,600)
Regularly scheduled principal payments on mortgage notes payable..................... (852) (780)
Balloon principal payments made upon maturity........................................ (3,900) (7,501)
--------- ---------
Net cash provided by financing activities.................................... 300,347 98,756
--------- ---------
Net Increase in Cash and Cash Equivalents.............................................. 23,108 45,107
Cash and Cash Equivalents, beginning of period......................................... 25,009 4,770
--------- ---------
Cash and Cash Equivalents, end of period............................................... $ 48,117 $ 49,877
========= =========
Supplemental Schedule of Noncash Investing and Financing Activities:
Issuance of common shares in conjunction with real estate acquired................... $ -- $ 1,000
Cumulative adjustment for translation of foreign currency, net....................... $ 7 $ --
Conversion of partnership units into common shares................................... $ 302 $ --
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. General:
The consolidated financial statements of Security Capital Industrial Trust
("SCI") as of March 31, 1998 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 1997 have been restated to conform to the 1998
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, 1997 audited consolidated financial
statements contained in Form 10K.
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-month periods ended March 31, 1998 and 1997 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 Pronouncements:
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income. SCI
adopted this statement on January 1, 1998. The application of this standard did
not have a significant impact on the financial position and results of
operations on financial statement disclosures of SCI. Other comprehensive income
in the accompanying financial statements represents unrealized gain on foreign
currency translation adjustments.
Effective December 15, 1997, SCI adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128
supersedes APB Opinion No. 15 and requires restatement of prior years' earnings
per share. SFAS No. 128 replaces the presentation of primary and fully diluted
earnings per share with a presentation of basic and diluted earnings per share.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or converted
into common shares or resulted in the issuance of common shares that then shared
in earnings (Note 8).
The Financial Accounting Standards Board has also released Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure". SCI already complied with the requirements of the statement which is
effective for periods ending after December 15, 1997.
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Real Estate:
The following summarizes real estate investments as of March 31, 1998 and
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
Land held for development......... $ 142,023 $ 159,645
Land under development............ 66,414 65,773
Improved land..................... 436,736 420,019
Buildings and improvements........ 2,304,974 2,233,585
Construction in progress.......... 105,472 114,495
Capitalized preacquisition costs.. 54,189 12,719
---------- ----------
Total real estate............ 3,109,808 3,006,236
Less accumulated depreciation..... 190,358 171,525
---------- ----------
Net real estate.............. $2,919,450 $2,834,711
========== ==========
</TABLE>
Capitalized preacquisition costs include $27.8 million and $3.6 million of
funds on deposit with title companies as of March 31, 1998 and December 31,
1997, respectively, for property acquisitions. In addition to the March 31,
1998, construction payable accrual of $22.0 million, SCI has unfunded
commitments on its contracts for developments under construction totaling $193.9
million.
SCI Development Services Incorporated ("SCI Development Services") develops
corporate distribution facilities to meet customer requirements or works on a
fee basis for customers whose space needs do not meet SCI's investment criteria
for long-term ownership or who want to own their own facilities. Through its
100% preferred stock ownership, SCI will realize substantially all economic
benefits of SCI Development Services' activities. Further, SCI advances mortgage
loans to SCI Development Services to fund acquisition, development and
construction ("AD&C") activity. In accordance with accounting guidance for AD&C
lending, SCI accounts for these loans as real estate investments, effectively
consolidating the activities of SCI Development Services. As of March 31, 1998,
the outstanding balances of development and mortgage loans made by SCI to SCI
Development Services for the purchase of distribution facilities and land for
distribution facility development aggregated $179.1 million. SCI Development
Services pays federal and state taxes at the applicable corporate rate. Other
real estate income consists primarily of gains on disposition of undepreciated
property and fees and other income from corporate distribution facilities
services generated to a large extent by SCI Development Services.
4. Investments in and Advances to Unconsolidated Subsidiaries:
As of March 31, 1998, SCI Development Services had invested $1.0 million in
a 16.67% common stock ownership interest in Insight, Inc., a privately owned
logistics optimization consulting company and is committed to invest an
additional $1.5 million over the next two years to increase its ownership to
33%. SCI Development Services has accounted for this investment on the cost
method.
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Investments in and Advances to Unconsolidated Subsidiaries: (Continued)
On April 24, 1997, SCI Logistics Services Incorporated ("SCI Logistics")
acquired a 60% interest in a refrigerated warehousing company, renamed CS
Integrated LLC ("CSI"). During the third and fourth quarters of 1997, SCI
Logistics contributed additional capital to CSI which increased its ownership to
77.1%. As of March 31, 1998, CSI owned refrigerated warehousing totaling 78.6
million cubic feet. SCI owns 100% of the non-voting preferred stock of SCI
Logistics. An unrelated third party owns 100% of the common stock of SCI
Logistics. Through its 100% preferred stock ownership, SCI will realize
substantially all economic benefits of SCI Logistics, which is accounted for on
the equity method.
On January 16, 1998, Frigoscandia SA, an unconsolidated subsidiary of SCI
based in Luxembourg, through a 100% ownership interest in Frigoscandia Holding
AB, acquired Frigoscandia AB for $395 million. Through its 100% non-voting
preferred stock ownership, SCI will realize substantially all economic benefits
of Frigoscandia AB, which is accounted for on the equity method. A subsidiary of
Security Capital Group Incorporated, SCI's largest shareholder, owns 100% of the
common stock of Frigoscandia SA. At March 31, 1998, Frigoscandia AB had 179.1
million cubic feet of refrigerated warehouse space in operation and an
additional 4.3 million cubic feet under development.
As of March 31, 1998, Investments in and Advances to Unconsolidated
Subsidiaries consists of the following items (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Investment in Insight, Inc........................ $ 1,000
Investment in preferred stock of SCI Logistics.... 5,902
Note receivable from SCI Logistics................ 78,424
Investment in preferred stock of Frigoscandia SA.. (2,381)
Note receivable from Frigoscandia Holding AB...... 176,569
Mortgage receivable from Frigoscandia Limited UK.. 30,000
Accrued interest and other receivables............ 5,353
--------
Total........................................ $294,867
========
</TABLE>
The note receivable from SCI Logistics is an unsecured loan, which bears
interest at 10% per annum, payable on April 24 of each year, commencing April
24, 1998, and matures on April 24, 2002. The note receivable from Frigoscandia
Holding AB bears interest at 8% and is due on demand. The mortgage receivable
accrues interest at 7% per annum and matures on March 20, 2018.
5. Borrowings:
Line of Credit
SCI has a $350.0 million unsecured revolving line of credit agreement with
NationsBank of Texas, N.A., ("NationsBank") (as agent for a bank group). As of
March 31, 1998, SCI is in compliance with all covenants contained in the line of
credit, and as of March 31, 1998, there were $240.0 million of borrowings
outstanding on the line of credit.
On October 1, 1997, SCI extended its $25.0 million short-term unsecured
discretionary line of credit with NationsBank through October 1, 1998. The rate
of interest and the maturity date of each advance will be determined by
agreement between SCI and NationsBank at the time of each advance. There were
$13.2 of borrowings outstanding on this credit facility at March 31, 1998.
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Borrowings: (Continued)
Mortgage Notes Payable, Assessment Bonds Payable and Securitized Debt
Mortgage notes payable of $83.4 million were secured by real estate with an
aggregate undepreciated cost of $164.7 million at March 31, 1998. Assessment
bonds payable of $11.9 million were secured by real estate with an aggregate
undepreciated cost of $224.9 million at March 31, 1998. Securitized debt of
$33.0 million was collateralized by real estate with an aggregate undepreciated
cost of $66.6 million at March 31, 1998.
Approximate principal payments due on long-term debt, mortgage notes
payable, assessment bonds payable and securitized debt during each of the years
in the five-year period ending December 31, 2003, and thereafter are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Remainder of 1998...................................... $ 19,314
1999................................................... 26,480
2000................................................... 38,887
2001................................................... 41,175
2002................................................... 45,148
2003................................................... 55,824
2004 and thereafter.................................... 626,448
--------
Total principal due.................................... 853,276
Less: original issue discount.......................... (924)
--------
Total carrying value.............................. $852,352
========
</TABLE>
For the three month periods ended March 31, 1998 and 1997, interest expense
on all borrowings was $19.6 million and $11.4 million, respectively, which was
net of capitalized interest of $4.3 million and $4.6 million, respectively. The
total interest paid in cash was $21.2 million and $12.3 million for the three-
month periods ended March 31, 1998 and 1997, respectively.
6. 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 March 31, 1998, a total of 5,069,258 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 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. For financial
reporting purposes, the assets, liabilities, results of operations and cash
flows of these partnerships are included in SCI's consolidated financial
statements and the third party investors' interests in the partnerships are
reflected as minority interest.
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 96.36% general
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 totaling 3.64% in
Partnership-IV. SCI has contributed additional funds to the partnership in 1996
through 1998 in conjunction with tax deferred exchanges of real estate which
increased SCI's interest from 96.36% to 97.46%. SCI IV, Inc., as general
partner, manages the activities of Partnership-IV and has fiduciary
responsibilities to Partnership-IV and its other partners.
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 primarily of income producing, improved real property
primarily located in Florida, Ohio and Oklahoma. 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 March 31, 1998.
Partnership-IV had $964,000 of borrowings from SCI IV, Inc. at March 31, 1998.
SCI IV, Inc. had $964,000 of borrowings from SCI and its affiliates at March 31,
1998.
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. At
March 31, 1998, there were 68,612 limited partnership units outstanding in
Partnership-IV.
7. Shareholders' Equity:
On March 18, 1998, SCI completed a public offering 4,000,000 common shares.
Net proceeds to SCI after underwriting discounts and offering costs were $95.8
million.
On March 31, 1998, SCI paid a quarterly dividend of $0.5875 per cumulative
redeemable Series A preferred share, $0.4375 per cumulative convertible Series B
preferred share ("Series B Preferred Share") and $1.0675 per cumulative
redeemable Series C preferred share to preferred shareholders of record on March
16, 1998.
8. Earnings Per Share:
Following is a reconciliation of the denominator used to calculate basic
earnings per share to the denominator used to calculate diluted earnings per
share under SFAS No. 128 for the periods indicated (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Net earnings attributable to common shares.................... $ 27,746 $ 16,732
Add: Minority interest....................................... 979 895
-------- --------
Adjusted net earnings attributable to common shares........... $ 28,725 $ 17,627
======== ========
Weighted average common shares outstanding (Basic)............ 118,003 96,009
Incremental options and warrants.............................. 490 10
Weighted average effect of conversion of partnership
units into common shares.................................... 5,071 5,194
-------- --------
Adjusted weighted average common shares outstanding
(Diluted)................................................... 123,564 101,213
======== ========
Per share net earnings attributable to common shares:
Basic....................................................... $ 0.24 $ 0.17
======== ========
Diluted (a)................................................. $ 0.23 $ 0.17
======== ========
</TABLE>
(a) For the three month periods ended March 31, 1998 and 1997, there were
10,243 and 10,320 weighted average Series B Preferred Shares outstanding on an
as-converted basis, respectively, that were not assumed to be converted into
Common Shares since they were antidilutive to earnings per share. These
securities may become dilutive to earnings per share in subsequent periods.
9. Subsequent Events:
On April 29, 1998, SCI completed a public offering of 1,493,878 common
shares. Net proceeds to SCI after underwriting discounts and expenses were $34.7
million.
On April 28, 1998, SCI declared a distribution of $0.3183 per common share,
payable on May 26, 1998, to common shareholders of record as of May 11, 1998.
On April 13, 1998, SCI issued 10,000,000 Series D Preferred Shares. The
Series D Preferred Shares have a liquidation preference of $25.00 per share for
an aggregate liquidation preference of $250 million plus accrued and unpaid
dividends. The net proceeds (after underwriting commission and other offering
costs) of the Series D Preferred Shares issued were $241.7 million. Holders of
the Series D Preferred Shares are entitled to only limited voting rights under
certain conditions. Holders of the Series D 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 7.92% of the liquidation preference per annum
(equivalent to $1.98 per share), payable quarterly in arrears on the last day of
March, June, September and December of each year. On or after April 13, 2003,
the Series D 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. The Series D Preferred Shares rank on a parity with the Series A
Preferred Shares, the Series B Preferred Shares and the Series C Preferred
Shares with respect to payment of distributions and amounts upon liquidation.
<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 March 31, 1998, and the related
consolidated statements of income and comprehensive income for the three months
ended March 31, 1998, and 1997, and the consolidated statements of cash flows
for the three months ended March 31, 1998 and 1997. 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, 1997, and in our report dated March 13,
1998, 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, 1997 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
May 12, 1998
<PAGE>
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with SCI's 1997 Form 10-
K as well as the financial statements and notes included in Item 1 of this
report. See SCI's 1997 Form 10-K for a discussion of various risk factors
associated with forward-looking statements made in this documents.
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, (iii) the extent to which SCI can sustain improved
market performance as measured by lease rates and occupancy, and (iv) the
operating performance of SCI's unconsolidated subsidiaries.
SCI's target market cities and submarkets have benefited substantially in
recent periods from demographic trends (including population and job growth)
which influence the demand for distribution properties. SCI believes its ability
to compete is significantly enhanced relative to other companies because of its
depth of management and ability to serve customers through the SCI International
Operating System(TM), which includes acquisition, development, property
management personnel, and presence in local markets. SCI expanded its operations
into Mexico and Europe in the first half of 1997 to meet the needs of its
targeted national and international customers as they expand and reconfigure
their distribution facility requirements globally. With six target market cities
identified in Mexico and 23 identified in Europe, SCI believes significant
growth opportunities exist internationally. As a result of acquisitions and
developments of distribution properties for the last nine months of 1997 and the
first three months of 1998, SCI's rentable square footage of operating
properties increased by 10.4 million square feet or 12.6% to 93.1 million square
feet as of March 31, 1998 from 82.7 million square feet as of March 31, 1997.
As of March 31, 1998, SCI owned 832,900 square feet of operating properties in
Mexico and 725,100 square feet of operating properties in Europe.
SCI frequently acquires properties that 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%) SCI has been successful in increasing occupancies on acquired
and developed properties during their initial months of operation resulting in
an occupancy rate of 95.2% and a leased rate of 96.6% for stabilized properties
owned at March 31, 1998. The average increase in rental rates for new and
renewed leases on previously leased space (9.4 million square feet) during the
first three months of 1998 was 14.0%. 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 1998. These factors should improve SCI's results of operations.
Capital and credit market conditions which affect SCI's cost of equity and debt
capital may influence future growth in operating results.
No assurance can be given that expected trends for the remainder of 1998 in
leasing rates and economic returns on acquired and developed properties will be
realized. There are risks associated with SCI's development and acquisition
activities which include future factors such as development and acquisition
opportunities explored by SCI may be abandoned; construction costs of a project
may exceed original estimates due to increased materials, labor or other
expenses; and construction and lease-up may
<PAGE>
not be completed on schedule, resulting in increased debt service expense and
construction costs. Acquisition activities entail risks that investments will
fail to perform in accordance with expectations and that analysis with respect
to the cost of improvements to bring an acquired project up to standards will
prove inaccurate, as well as general investment risks associated with any new
real estate investment. Although SCI undertakes a thorough evaluation of the
physical condition of each proposed investment before it is acquired, certain
defects or necessary repairs may not be detected until after it is acquired,
which could increase SCI's total acquisition cost. Risks include the occurrence
of any of the events described above that could adversely affect SCI's ability
to achieve its projected returns on acquisitions and projects under development
and could hinder SCI's ability to make expected distributions.
Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Net earnings attributable to common shares increased by $11.0 million or
65.9% to $27.7 million for the first three months of 1998 from $16.7 million for
the same period in 1997. The increase in net earnings is principally due to the
following: increased distribution properties in operation, resulting from 1997
and 1998 acquisition and development activity, a $4.1 million increase in other
real estate income, a $4.2 million increase in income from investments in
unconsolidated subsidiaries, and a $2.1 million increase in gains from
dispositions of real estate.
Historically, the primary components of revenue and earnings growth have
been SCI's acquisition and development activity. SCI presently owns 1,024
operating properties totaling 93.1 million square feet that were acquired or
developed through March 31, 1998 at a historical cost of $2.7 billion. A
discussion of the major components of SCI's results of operations follows. Net
earnings are expected to increase in subsequent periods due to the acquisition
and development of additional operating properties, continued increases in the
prestabilized portfolio rental and occupancy rates and in the stabilized
portfolio rental rates, and additional investments in unconsolidated
subsidiaries.
Rental Revenues
Rental revenues for the first three months of 1998 increased by $11.2
million or 16.6% to $78.6 million, as compared to $67.4 million for the same
period in 1997. Of this increase, $4.3 million was generated by the 54
properties acquired in 1997, $5.3 million was generated by the 65 development
properties completed in 1997. $86,000 was generated by the 4 properties acquired
in 1998 and $677,000 was generated by the 23 development properties completed in
1998. The remaining $800,000 increase was attributable to a $3.2 million
increase in revenues from the 941 properties owned at January 1, 1997 less a
$2.4 million decrease in revenues from the 60 properties owned at January 1,
1997 that were disposed of between January 1, 1997 and March 31, 1998. Of the
properties acquired and developed in 1997 and 1998, three have been disposed of
as of March 31, 1998.
Other Real Estate Income
Other real estate income consists primarily of gains on disposition of
undepreciated property and fees and other income from corporate distribution
facilities customers generated to a large extent by SCI Development Services
Incorporated ("SCI Development Services"). SCI Development Services develops
corporate distribution facilities or works on a fee basis for customers whose
space needs do not
<PAGE>
meet SCI's investment criteria for long-term ownership or for customers who want
to own their own facilities. 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.
Income from Unconsolidated Subsidiaries
Income from unconsolidated subsidiaries relates to SCI's 1997 investments
in SCI Logistics Services Incorporated ("SCI Logistics") and SCI's first quarter
1998 investment in Frigoscandia SA, and notes receivable from SCI Logistics, CS
Integrated LLC ("CSI") and Frigoscandia Holding AB (see "--Financial Statements,
Footnote 4: Investments in and Advances to Unconsolidated Subsidiaries"). SCI
Logistics' primary source of income is its ownership interest in CSI.
Frigoscandia SA's primary source of income is its ownership in Frigoscandia AB.
As of March 31, 1998, CSI operated 78.6 million cubic feet of refrigerated
warehousing in the United States and Frigoscandia AB operated or had under
development 183.4 million square feet of refrigerated warehousing in eight
countries in Europe.
Foreign Exchange Gain
On December 22, 1997, SCI entered into two separate contracts to (1)
exchange $373.8 million for 2.9 billion Swedish krona and (2) exchange 310.0
million German marks for $175.0 million in anticipation of the January 1998
acquisition and planned European currency denominated financing of Frigoscandia
AB. The contracts were marked to market at December 31, 1997 and SCI recognized
a net loss of $6.0 million in the December 31, 1997 consolidated financial
statements. Both contracts were settled during the first quarter of 1998 and SCI
recognized a net gain of $2.1 million for the period ended March 31, 1998. These
foreign exchange hedges were one-time, non-recurring contracts that fixed the
exchange rate between the U.S. dollar and the Swedish krona and German mark
after SCI had entered into the purchase agreement to acquire Frigoscandia AB,
which required payment in Swedish krona. The contracts were executed exclusively
for the acquisition and financing of Frigoscandia AB and were not entered into
to hedge on-going income in foreign currencies. The remeasurement of
intercompany debt on the financial statements of SCI's consolidated foreign
subsidiaries into their functional currency resulted in a foreign exchange loss
of $444,000 for the three months ended March 31, 1998. The loss was associated
with the remeasurement of intercompany loans between a wholly owned foreign
subsidiary of SCI and its associated foreign subsidiaries.
Interest Income
Interest income for the first three months of 1998 decreased $99,000 from
the same period in 1997. The decrease in interest income was a result of lower
average cash balances in the first three months of 1998 compared to the same
period in 1997.
Rental Expense
Rental expenses, including property management fees paid to a related
party, net of recoveries from customers, increased by $100,000 or 1.7% to $5.9
million for the first three months of 1998 from $5.8 million for the same period
in 1997. Gross expenses, before the deduction of amounts recovered from tenants,
were approximately 26% of rental income for both the three months periods ended
March 31, 1998 and 1997.
SCI acquired its property management company from Security Capital Group
Incorporated ("Security Capital"), its largest shareholder, on September 9,
1997, which managed approximately 96%
<PAGE>
of SCI's operating portfolio prior to the acquisition. As a result, SCI no
longer pays a property management fee on the properties managed by its property
manager; however, SCI has included actual personnel and other operating costs of
this property management function in rental expenses on its Consolidated
Statement of Income and Comprehensive Income.
Interest Expense
Interest expense increased by $8.2 million or 71.9% to $19.6 million for
the first three months of 1998 from $11.4 million for the same period in 1997.
Total interest capitalized decreased by approximately $300,000 or 6.5% to $4.3
million for the first three months of 1998 from $4.6 million for the same period
in 1997. The increase in interest expense was principally caused by an increase
in long-term debt in 1997 and the issuance of a $200 million short term bridge
loan for purposes of acquiring Frigoscandia AB which was paid off by March 31,
1998. See "--Financial Statements, Footnote 4: Investments in and Advances to
Unconsolidated Subsidiaries."
REIT Management Fee
The REIT management fee paid by SCI decreased to zero due to the
termination of the REIT management agreement upon the acquisition of its REIT
management company from Security Capital on September 9, 1997. Subsequent to
September 8, 1997, the REIT management fee was replaced with the actual
personnel and other operating costs associated with the REIT management
function. These costs are recorded as general and administrative expenses.
Direct and incremental costs related to successful development, acquisition and
leasing activities have been capitalized in accordance with GAAP.
Upon consummation of the acquisition, SCI entered into an administrative
services agreement (the "Administrative Services Agreement") with Security
Capital for services which include, but are not limited to, payroll and human
resources, cash management, accounts payable, MIS support and other computer
services, research, investor relations and insurance, legal and tax
administration. These services are provided in exchange for a fee equal to
Security Capital's direct cost of providing the service plus an overhead factor
of 20%, subject to a maximum of approximately $2.0 million during 1997 and $5.1
million for 1998. Administrative Services Agreement fees for the three months
ended March 31, 1998, aggregated $911,000 of which approximately $180,000 was
capitalized. The Administrative Services Agreement, which expires on December
31, 1998, provides for automatic renewals of consecutive one-year terms, subject
to approval by a majority of the independent Trustees.
Other Expense
Other expense increased by $292,000 or 47.8% to $903,000 for the first
three months of 1998 from $611,000 for the same period in 1997. Other expenses
consist of land holding costs and acquisition and corporate distribution
facilities services pursuit cost write-offs. Land holding costs were $712,000
for the first three months of 1998 compared to $396,000 for the same period in
1997 and acquisition and corporate distribution facilities services pursuit cost
write-offs were $191,000 for the first three months of 1998 compared to $215,000
for the same period in 1997.
Preferred Share Dividends
In the first quarter of 1998, 18,600 Series B Cumulative Convertible
Redeemable Preferred shares ("Series B Preferred Shares") were converted into
23,845 common shares. At March 31, 1998, there were 7,981,700 Series B Preferred
Shares outstanding.
<PAGE>
Liquidity and Capital Resources
Cash provided by operating activities increased by $8.1 million or 22.9%
from $35.3 million in the first three months of 1997 to approximately $43.4
million in the first three months of 1998 primarily as a result of increased
properties in operation. Cash used in investing activities increased from
approximately $89.0 million in the first three months of 1997 to approximately
$320.7 million in the first three months of 1998 primarily as a result of
investments in and advances to unconsolidated subsidiaries. Cash provided by
financing activities was approximately $300.3 million in the first three months
of 1998 compared to approximately $98.8 million in the first three months of
1997. Cash provided by financing activities for the first three months of 1998
consisted primarily of $95.8 million of net proceeds from the sale of common
shares and a net increase of $253.2 million on the line of credit. Cash provided
by financing activities for the first three months of 1997 consisted primarily
of $80.4 million of net proceeds from the sale of common shares, $98.8 million
of net proceeds from the February 1997 debt offering, $1.7 million received upon
settlement of hedges related to the February 1997 debt offering and a net
repayment on the line of credit of $38.6 million.
On April 13, 1998, SCI issued 10,000,000 Series D Preferred Shares. The
Series D Preferred Shares have a liquidation preference of $25.00 per share for
an aggregate liquidation preference of $250 million plus accrued and unpaid
dividends. The net proceeds (after underwriting commission and other offering
costs) of the Series D Preferred Shares issued were $241.7 million. Holders of
the Series D Preferred Shares are entitled to only limited voting rights under
certain conditions. Holders of the Series D 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 7.92% of the liquidation preference per annum
(equivalent to $1.98 per share), payable quarterly in arrears on the last day of
March, June, September and December of each year. On or after April 13, 2003,
the Series D 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. The Series D Preferred Shares rank on a parity with the Series A
Preferred Shares, the Series B Preferred Shares and the Series C Preferred
Shares with respect to payment of distributions and amounts upon liquidation.
On March 18, 1998, SCI completed an underwritten public offering of
4,000,000 common shares. Net proceeds to SCI after underwriting discounts and
offering costs were $95.8 million.
On April 23, 1998, SCI completed an underwritten public offering of
1,493,878 common shares. Net proceeds to SCI after underwriting discounts and
offering costs were of $34.7 million.
SCI has a $350.0 million unsecured revolving line of credit agreement with
NationsBank of Texas, N.A. (as agent for a bank group). Effective May 1, 1997,
borrowings bear interest at SCI's option, at either (a) the greater of the
federal funds rate plus 0.5% and the prime rate, or (b) LIBOR plus .95%, based
upon SCI's current senior debt ratings. Additionally, there is a commitment fee
ranging from .125% to .20% per annum of the unused line of credit balance. The
line is scheduled to mature in May 1999 and may be extended annually for an
additional year with the approval of NationsBank and the other participating
lenders (the "Bank Group"); if not extended, at SCI's election, the facility
will either (a) convert to a three year term note, 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 $1.25 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 1.75 to 1. Additionally, SCI has a
<PAGE>
$25.0 million short-term unsecured borrowing agreement with NationsBank through
October 1998. The interest rate and the maturity date of each advance on such
agreement are determined by agreement between SCI and NationsBank at the time of
each advance. As of May 12, 1998, SCI was in compliance with all covenants
contained in the line of credit and there were no borrowings outstanding on
these credit facilities.
SCI utilizes derivative instruments in anticipation of future financing
transactions in order to manage well defined interest rate risk. Through
hedging, SCI can effectively manage the risk of increases in interest rates on
future debt issuances. In anticipation of debt offerings in 1998, on October 28,
1997, SCI entered into two interest rate protection agreements. A forward
treasury lock agreement was executed with a notional amount of $75.0 million on
the 6-3/8% Treasury bond due August 2027 and a swap agreement was entered into
with a notional amount of $75.0 million on the 6-5/8% Treasury bond due February
2027. The forward treasury lock had a termination date of March 31, 1998. On
March 30, 1998, SCI rolled this contract into a new contract with a termination
date of June 30, 1998 and a notional amount of $75.0 million on the 6-1/8%
Treasury Bond. The new contract effectively locks in the 30-year treasury rate
used to price SCI's debt at 6.342%. The swap agreement has a termination date of
May 31, 1998, and carries a fixed rate of 6.721% which is a combination of the
treasury rate plus the swap spread and the forward premium.
SCI intends to also utilize derivative instruments in order to manage
currency risk exposure associated with foreign currency denominated purchase
contracts and income in excess of interest expense. SCI had no open foreign
currency contracts as of March 31, 1998. In future periods SCI will consider
using selective currency hedges through foreign exchange forwards or options in
order to minimize on-going currency gains and losses.
On January 16, 1998, Frigoscandia SA, an unconsolidated subsidiary of SCI
based in Luxembourg, through a 100% ownership interest in Frigoscandia Holding
AB, acquired Frigoscandia AB for a net cost of $395.0 million. The acquisition
of Frigoscandia AB was financed primarily with a short-term $200.0 million
bridge loan from NationsBank plus $190.0 million of borrowings on SCI's line of
credit. SCI repaid the $200.0 million bridge loan to NationsBank on March 31,
1998. At March 31, 1998, SCI had an intercompany note receivable from
Frigoscandia Holding AB in the amount of $176.6 million made in connection with
the purchase of Frigoscandia AB.
From inception through March 31, 1998, SCI had invested $2.7 billion for
the acquisition and development of 1,024 distribution properties currently in
operation. 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.
At March 31, 1998, SCI had letters of intent or contingent contracts,
subject to SCI's final due diligence, for the acquisition of 4.5 million square
feet in various target markets with an acquisition cost of $132.9 million. The
foregoing transactions are subject to a number of conditions, and SCI cannot
predict with certainty that any of them will be consummated. In addition, on
March 31, 1998, SCI had $365.9 million of budgeted development cost for
developments in process, of which $193.9 million was unfunded.
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 fixed
rate debt to finance additional acquisitions and developments.
<PAGE>
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 services, 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 and to meet REIT distribution requirements. Because depreciation is a non-
cash expense, cash flow typically will be greater than earnings from operations
and net earnings. Therefore, quarterly distributions are expected to be
consistently higher than quarterly earnings.
Pursuant to the terms of the Series A Preferred Shares, the Series B
Preferred Shares, the Series C Preferred Shares and the Series D 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.
Funds from Operations
Funds from Operations attributable to common shares increased $18.6 million
or 52.1% to $54.3 million for the first three months of 1998 from $35.7 million
for the same period in 1997.
Funds from Operations represent SCI's net earnings (computed in accordance
with GAAP) before minority interest, before gains or losses on disposition of
depreciated property, before gains or losses on the remeasurement of
debt on the financial statements of SCI's foreign subsidiaries and
before deferred tax benefits or deferred tax expenses of SCI's taxable
subsidiaries, plus real estate depreciation and amortization (exclusive of
amortization of loan costs). SCI believes that funds from operations is helpful
to a reader as a measure of the performance of an equity REIT because, along
with cash flow from operating activities, financing activities and investing
activities, it provides a reader with an indication of the ability of SCI to
incur and service debt, to make capital expenditures and to fund other cash
needs. The funds from operations measure presented by SCI, while consistent with
the NAREIT definition, will not be comparable to similarly titled measures of
other REITs which do not compute funds from operations in a manner consistent
with SCI. Funds from operations are not intended to represent cash made
available to shareholders. Funds from operations should not be considered as an
alternative to net earnings or any other 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.
STATEMENT OF FUNDS FROM OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended,
March 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
Net earnings attributable to common shares................ $27,746 $16,732
Add (Deduct):
Real estate depreciation and amortization, including
share from unconsolidated subsidiaries............. 31,076 18,048
Minority interest.................................... 979 895
Deferred tax benefit on taxable
subsidiaries....................................... (887) --
Gain on disposition of depreciated real estate....... (2,066) --
Non-recurring foreign currency exchange gain......... (2,054) --
Foreign exchange gain on remeasurement of
debt............................................... (484) --
------- -------
Funds from operations attributable to common shares....... $54,310 $35,675
======= =======
</TABLE>
<PAGE>
PART II--OTHER INFORMATION
Item 5. Other Information
On November 21, 1997, 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 share of beneficial interest.
As of May 14, 1998, SCI has approximately $183 million in securities available
to be issued under its shelf registration statement.
On or about May 14, 1998, SCI filed an additional $800 million shelf
registration statement with the SEC, which has yet to be declared effective by
the SEC.
Item 6. Exhibits and Reports on Form 8-K
Sequential
Page
(a) Exhibits Document Description Number
- ------------- -------------------- ------
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
15.2 Letter from Arthur Andersen LLP regarding unaudited financial
information
27 Financial Data Schedule
(b) Reports on Form 8-K
Financial
Date Item Reported Statements
---- ------------- ----------
March 17, 1998 7 Yes
<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/ M. GORDON KEISER
--------------------------------------------
M. Gordon Keiser
Senior Vice President
(Principal Financial Officer)
/s/ EDWARD F. LONG
--------------------------------------------
Edward F. Long
Vice President (Duly Authorized officer) and
Controller (Principal Accounting Officer)
Date: May 14, 1998
<PAGE>
EXHIBIT 12.1
SECURITY CAPITAL INDUSTRIAL TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Earnings from Operations $ 34,479 $ 25,561 $ 32,371 $ 79,384 $ 47,660 $ 25,066 $ 4,412
Add:
Interest Expense 19,645 11,375 52,704 38,819 32,005 7,568 321
-------- -------- -------- -------- -------- --------- -------
Earnings as Adjusted $ 54,124 $ 36,936 $ 85,075 $118,203 $ 79,665 $ 32,634 $ 4,733
========= ======== ======== ======== ======== ========= =======
Fixed Charges:
Interest Expense $ 19,645 $ 11,375 $ 52,704 $ 38,819 $ 32,005 $ 7,568 $ 321
Capitalized Interest 4,284 4,594 18,365 16,138 8,599 2,208 98
-------- -------- -------- -------- -------- --------- ------
Total Fixed Charges $ 23,929 $ 15,969 $ 71,069 $ 54,957 $ 40,604 $ 9,776 $ 419
======== ======== ======== ======== ======== ========= ======
Ratio of Earnings to Fixed Charges 2.3 2.3 1.2 2.2 2.0 3.3 11.3
======== ======== ======== ======== ======== ========= ======
</TABLE>
<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>
Three Months Ended
March 31, Year Ended December 31,
---------------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Earnings from Operations $ 34,479 $ 25,561 $ 32,371 $ 79,384 $ 47,660 $ 25,066 $ 4,412
Add:
Interest Expense 19,645 11,375 52,704 38,819 32,005 7,568 321
-------- -------- -------- --------- -------- -------- -------
Earnings as Adjusted $ 54,124 $ 36,936 $ 85,075 $ 118,203 $ 79,665 $ 32,634 $ 4,733
======== ======== ======== ========= ======== ======== =======
Combined Fixed Charges and
Preferred Share Dividends:
Interest Expense $ 19,645 $ 11,375 $ 52,704 $ 38,819 $ 32,005 $ 7,568 $ 321
Capitalized Interest 4,284 4,594 18,365 16,138 8,599 2,208 98
-------- -------- -------- --------- -------- -------- -------
Total Fixed Charges 23,929 15,969 71,069 54,957 40,604 9,776 419
Preferred Share Dividends (a) 8,799 8,829 35,318 25,895 6,698 - -
-------- -------- -------- --------- -------- -------- -------
Combined Fixed Charges and
Preferred Share Dividends $ 32,728 $ 24,798 $106,387 $ 80,852 $ 47,302 $ 9,776 $ 419
======== ======== ======== ========= ======== ======== =======
Ratio of Earnings to Combined Fixed
Charges and Preferred Share Dividends 1.7 1.5 (b) 1.5 1.7 3.3 11.3
======== ======== ======== ========= ======== ======== =======
</TABLE>
(a) SCI had no preferred shares prior to 1995.
(b) Earnings were insufficient to cover combined fixed charges and preferred
dividends for the year ended December 31, 1997 by $21.3 million due to a
one-time, non-recurring charge of $75.4 million relating to the costs
incurred in acquiring the REIT management and property management companies
from Security Capital Group Incorporated.
<PAGE>
Exhibit 15.2
May 12, 1998
Board of Trustees and Shareholders
of Security Capital Industrial Trust:
We are aware that Security Capital Industrial Trust has incorporated by
reference in its Registration Statement Nos. 33-91366, 33-92490, 333-4961,
333-31421, 333-39797 and 333-38515 its Form 10-Q for the quarter ended March 31,
1998, which includes our report dated May 12, 1998 covering the unaudited
interim financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933 (the "Act"), that report is not considered a part of the
registration statements prepared or certified by our firm or a report prepared
or certified by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Form 10-Q for the three months ended March 31, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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0
434,543
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