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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 September 30, 2000 |
/ / |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission file number 1-12630
CENTERPOINT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland (State or other jurisdiction of incorporation or organization) |
36-3910279 (I.R.S. Employer Identification No.) |
1808 Swift Road, Oak Brook, Illinois 60523-1501
(Address of principal executive offices)
(630) 586-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Number of Common Shares of Beneficial Interest outstanding as of November , 2000: 20,774,945.
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Page |
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PART I. FINANCIAL INFORMATION | ||||
Item 1. |
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Financial Statements |
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3 |
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Consolidated Balance Sheets |
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3 |
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Consolidated Statements of Operations |
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4 |
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Consolidated Statements of Cash Flows |
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5 |
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Notes to Consolidated Financial Statements |
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6 |
Item 2. |
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Management's Discussion and Analysis of Results of Operations and Financial Condition |
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13 |
Item 3. |
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Qualitative and Quantitative Disclosures about Market Risk |
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19 |
PART II. OTHER INFORMATION |
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Item 6. |
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Exhibits and Reports on Form 8-K |
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20 |
2
CENTERPOINT PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share information)
(UNAUDITED)
|
September 30, 2000 |
December 31, 1999 |
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---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||
Assets: | ||||||||||
Investment in real estate: | ||||||||||
Land and leasehold | $ | 180,910 | $ | 159,233 | ||||||
Buildings | 717,249 | 620,224 | ||||||||
Building improvements | 128,752 | 127,306 | ||||||||
Furniture, fixtures, and equipment | 24,098 | 22,083 | ||||||||
Construction in progress | 15,067 | 43,051 | ||||||||
1,066,076 | 971,897 | |||||||||
Less accumulated depreciation and amortization | (101,421 | ) | (85,408 | ) | ||||||
Real estate held for sale, net | 25,099 | | ||||||||
Net investment in real estate | 989,754 | 886,489 | ||||||||
Cash and cash equivalents | 2,131 | 3,505 | ||||||||
Restricted cash and cash equivalents | 21,390 | 31,963 | ||||||||
Tenant accounts receivable, net | 27,527 | 18,962 | ||||||||
Mortgage notes receivable | 6,169 | 6,270 | ||||||||
Investment in and advances to affiliate | 62,602 | 114,083 | ||||||||
Prepaid expenses and other assets | 3,491 | 6,909 | ||||||||
Deferred expenses, net | 17,901 | 15,246 | ||||||||
$ | 1,130,965 | $ | 1,083,427 | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||
Liabilities: | ||||||||||
Mortgage notes payable and other debt | $ | 82,182 | $ | 77,648 | ||||||
Senior unsecured debt | 350,000 | 200,000 | ||||||||
Tax-exempt debt | 44,100 | 55,000 | ||||||||
Line of credit | 120,500 | 221,700 | ||||||||
Preferred dividends payable | 1,060 | 1,060 | ||||||||
Accounts payable | 4,270 | 16,957 | ||||||||
Accrued expenses | 51,767 | 37,864 | ||||||||
Rents received in advance and security deposits | 8,332 | 6,594 | ||||||||
662,211 | 616,823 | |||||||||
Commitments and contingencies | ||||||||||
Shareholders' equity: | ||||||||||
Preferred shares of beneficial interest, $.001 par value, 10,000,000 shares authorized; | ||||||||||
Series A shares; 3,000,000 issued and outstanding having a liquidation preference of $25 per share ($75,000) | 3 | 3 | ||||||||
Series B convertible shares; 1,000,000 issued and outstanding having a liquidation preference of $50 per share ($50,000) | 1 | 1 | ||||||||
Common shares of beneficial interest, $.001 par value, 47,727,273 shares authorized; 20,773,077 and 20,649,801 issued and outstanding, respectively | 21 | 21 | ||||||||
Additional paid-in-capital | 510,205 | 506,456 | ||||||||
Retained earnings (deficit) | (38,866 | ) | (39,630 | ) | ||||||
Unearned compensationrestricted shares | (2,610 | ) | (247 | ) | ||||||
Total shareholders' equity | 468,754 | 466,604 | ||||||||
$ | 1,130,965 | $ | 1,083,427 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CENTERPOINT PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share information)
(UNAUDITED)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2000 |
1999 |
2000 |
1999 |
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Revenue: | |||||||||||||||||
Operating and investment revenue: | |||||||||||||||||
Minimum rents | $ | 28,884 | $ | 23,810 | $ | 83,306 | $ | 66,751 | |||||||||
Straight-line rents | 890 | 1,402 | 3,047 | 3,667 | |||||||||||||
Expense reimbursements | 8,625 | 7,228 | 26,522 | 20,025 | |||||||||||||
Mortgage interest income | 82 | 43 | 391 | 450 | |||||||||||||
Total operating and investment revenue |
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38,481 |
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32,483 |
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113,266 |
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90,893 |
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Other Revenue: |
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Real estate fee income | 2,941 | 6,057 | 6,052 | 12,424 | |||||||||||||
Equity in net income of affiliate | 518 | 1,506 | 431 | 2,379 | |||||||||||||
Total other revenue |
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3,459 |
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7,563 |
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6,483 |
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14,803 |
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Total revenue |
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41,940 |
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40,046 |
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119,749 |
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105,696 |
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Expenses: |
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Real estate taxes | 8,732 | 7,685 | 26,070 | 21,377 | |||||||||||||
Property operating and leasing | 4,204 | 3,455 | 13,422 | 10,318 | |||||||||||||
General and administrative | 1,135 | 932 | 3,418 | 2,777 | |||||||||||||
Depreciation and amortization | 8,150 | 6,774 | 24,589 | 19,993 | |||||||||||||
Interest expense: | |||||||||||||||||
Interest incurred, net | 8,334 | 4,766 | 23,005 | 14,144 | |||||||||||||
Amortization of deferred financing costs | 531 | 527 | 1,539 | 1,489 | |||||||||||||
Total expenses |
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31,086 |
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24,139 |
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92,043 |
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70,098 |
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Operating income |
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10,854 |
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15,907 |
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27,706 |
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35,598 |
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Other income (expense): |
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Gain on sale of real estate | 3,762 | 246 | 11,881 | 694 | |||||||||||||
Other income (expense) | 2 | 32 | 38 | 5 | |||||||||||||
Income before extraordinary item |
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14,618 |
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16,185 |
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39,625 |
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35,715 |
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Extraordinary item |
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(582 |
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Net income |
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14,618 |
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16,185 |
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39,625 |
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35,715 |
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Preferred dividends |
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(2,528 |
) |
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(2,539 |
) |
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(7,583 |
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(5,791 |
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Net income available to common shareholders |
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$ |
12,090 |
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$ |
13,646 |
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$ |
32,042 |
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$ |
29,924 |
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Per share income before extraordinary item: |
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Basic | $ | 0.58 | $ | 0.67 | $ | 1.55 | $ | 1.51 | |||||||||
Diluted | $ | 0.57 | $ | 0.66 | $ | 1.52 | $ | 1.49 | |||||||||
Per share net income available to common shareholders: |
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Basic | $ | 0.58 | $ | 0.67 | $ | 1.55 | $ | 1.48 | |||||||||
Diluted | $ | 0.57 | $ | 0.66 | $ | 1.52 | $ | 1.46 | |||||||||
Distributions per common share |
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$ |
0.5025 |
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$ |
0.475 |
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$ |
1.508 |
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$ |
1.425 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
CENTERPOINT PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
|
Nine Months Ended September 30, |
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2000 |
1999 |
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Cash flows from operating activities: | ||||||||||
Net income | $ | 39,625 | $ | 35,715 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Extraordinary item | 582 | |||||||||
Bad debts | 300 | 439 | ||||||||
Depreciation | 22,724 | 18,579 | ||||||||
Amortization of deferred financing costs | 1,539 | 1,489 | ||||||||
Other amortization | 1,865 | 1,415 | ||||||||
Straight-line rents | (3,047 | ) | (3,667 | ) | ||||||
Incentive stock awards | 326 | 37 | ||||||||
Interest on converted debentures | 108 | |||||||||
Equity in net (income) of affiliate | (431 | ) | (2,379 | ) | ||||||
Gain on disposal of real estate | (11,881 | ) | (694 | ) | ||||||
Net changes in: | ||||||||||
Tenant accounts receivable | (4,172 | ) | (1,337 | ) | ||||||
Prepaid expenses and other assets | (960 | ) | (391 | ) | ||||||
Rents received in advance and security deposits | 1,704 | 388 | ||||||||
Accounts payable and accrued expenses | 7,700 | 9,075 | ||||||||
Net cash provided by operating activities | 55,292 | 58,359 | ||||||||
Cash flows from investing activities: | ||||||||||
Change in restricted cash and cash equivalents | 10,640 | 10,371 | ||||||||
Acquisition of real estate | (115,877 | ) | (118,824 | ) | ||||||
Additions to construction in progress | (28,093 | ) | (28,106 | ) | ||||||
Improvements and additions to properties | (61,987 | ) | (38,407 | ) | ||||||
Proceeds from sale of real estate | 82,291 | 24,798 | ||||||||
Change in deposits on acquisitions | 4,393 | (1,567 | ) | |||||||
Issuance of mortgage notes receivable | (2,050 | ) | ||||||||
Repayment of mortgage notes receivable | 7,301 | 18 | ||||||||
Investment in and advances to affiliate | 51,913 | (53,462 | ) | |||||||
Receivables from affiliates and employees | (20 | ) | 39 | |||||||
Additions to deferred expenses | (6,810 | ) | (7,565 | ) | ||||||
Net cash used in investing activities | (56,249 | ) | (214,755 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Proceeds from sale of preferred shares | 50,000 | |||||||||
Proceeds from sale of common shares | 1,060 | 760 | ||||||||
Offering costs paid | (2,332 | ) | ||||||||
Proceeds from issuance of unsecured notes payable | 150,000 | 100,000 | ||||||||
Proceeds from issuance of mortgage notes payable | 21,605 | |||||||||
Proceeds from line of credit | 308,200 | 262,000 | ||||||||
Repayment of mortgage notes payable | (515 | ) | (32,590 | ) | ||||||
Repayment of revenue bonds | (10,900 | ) | (20,540 | ) | ||||||
Repayment of line of credit | (409,400 | ) | (183,300 | ) | ||||||
Distributions | (38,861 | ) | (34,571 | ) | ||||||
Conversion of convertible subordinated debentures payable | (1 | ) | ||||||||
Net cash (used in) provided by financing activities | (417 | ) | 161,031 | |||||||
Net change in cash and cash equivalents | (1,374 | ) | 5,635 | |||||||
Cash and cash equivalents, beginning of the year | 3,505 | 475 | ||||||||
Cash and cash equivalents, end of period | $ | 2,131 | $ | 6,110 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CENTERPOINT PROPERTIES TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION:
These unaudited Consolidated Financial Statements of CenterPoint Properties Trust, a Maryland real estate investment trust, and subsidiaries (the "Company"), have been prepared pursuant to the Securities and Exchange Commission ("SEC") rules and regulations and should be read in conjunction with the December 31, 1999 Financial Statements and Notes thereto included in the Company's annual report on Form 10-K. The following Notes to Consolidated Financial Statements highlight significant changes from the Notes included in the December 31, 1999 Audited Financial Statements included in the Company's annual report on Form 10-K and present interim disclosures as required by the SEC. The accompanying Consolidated Financial Statements reflect, in the opinion of management, all normal recurring adjustments necessary for a fair statement of the interim financial statements.
The consolidated statements of operations and statements of cash flows for prior periods have been reclassified to conform with current classifications with no effect on results of operations or cash flows.
1. Preferred Shares, Common Shares and Related Transactions
Under the terms of the Company's Restricted Stock Incentive Plan, adopted in 1995, employees were granted 76,609 restricted shares of the Company on March 8, 2000. Shares were awarded in the name of each of the participants, who have all rights of other common shareholders, subject to certain restrictions and forfeiture provisions. Restrictions on the shares expire no more than eight years after the date of award, or earlier if certain performance targets are met. Unearned compensation was recorded at the date of award based on the market value of the shares. The unearned compensation is being amortized over the eight-year vesting period unless the restriction is sooner lifted.
Under the terms of the 1993 Stock Option Plan, as amended, options for 215,803 common shares were issued on March 8, 2000. The options were granted at $34.9375 per share and vest according to the plan over a period of 5 years.
Under the terms of the 1995 Director Stock Plan, 2,640 common shares were issued on May 10, 2000. In connection with the issuance of such shares, $0.1 million was charged against expense in 2000.
2. Acquisition and Disposition of Real Estate
In the first nine months of 2000, the Company purchased 13 properties from unrelated third parties for an aggregate cost of approximately $66.5 million. The Company's unconsolidated subsidiary, CenterPoint Realty Services ("CRS"), purchased for approximately $53.5 million. In addition, the Company disposed of 15 operating properties and one land parcel for an aggregate sales price of approximately $84.4 million. The land parcel was sold to CRS at cost, approximately $0.7 million. The acquisitions were funded first with proceeds from the dispositions and then from advances on the Company's lines of credit.
On August 10, 2000, the Company purchased a portion of the former Joliet Arsenal, an Army munitions manufacturing facility closed in 1976, from the United States Army for redevelopment. The 2,242 acre project will be one the nation's largest private developments. Over the next 12 years, the Company plans to build as much as 17 million square feet of distribution and manufacturing space in an industrial park adjacent to a major multi-modal rail facility to be operated by the Burlington Northern and Santa Fe Railway Company (BNSF). BNSF has agreed to lease, approximately, 560 acres in a phased take down over four years at an initial rent of $0.19 per foot, escalating at 2.5% per annum and has additionally agreed to acquire 56 acres for development of the multi-modal facility.
6
During the first nine months of 2000, the Company's unconsolidated affiliate, CRS, purchased seven properties from unrelated third parties for an aggregate cost of approximately $22.6 million, and one land parcel purchased from the Company. CRS disposed of 13 properties for an aggregate sales price of approximately $80.6 million, which included three properties sold to the Company. These acquisitions were funded first with proceeds from dispositions and then from advances on the Company's lines of credit.
3. Real Estate Held for Sale
The Company classifies properties under contract for sale as of the end of quarter as real estate held for sale. The assets are stated at cost net of accumulated depreciation, and depreciation expense is halted until the consummation of the sale or the contract lapses.
At September 30, 2000, the Company had approximately 0.7 million square feet of warehouse/industrial properties held for sale. Net income (property revenues less real estate taxes, property operating and leasing expenses, and depreciation and amortization) related to the properties held for sale at September 30, 2000 was approximately $1.4 million and $1.0 million for the nine months ended September 30, 2000 and 1999 respectively. There can be no assurance that such properties held for sale will be sold.
4. Investment in and Advances to Affiliate
The Company holds approximately 99% of the economic interest in CRS. To maintain compliance with limitations on income from business activities received by REITs and their qualified REIT subsidiaries, the Company holds its interest in CRS in the form of non-voting equity ownership, which qualifies CRS as an unconsolidated taxable subsidiary.
Since its inception in 1995, CRS and its subsidiaries have engaged in businesses and services which compliment the Company's business, including the purchase and sale of warehouse/industrial real estate, the provision of services and commodities to tenants of the Company, the development of real property and the management of properties owned by third parties. Income from these activities, received by REITs and their qualified REIT subsidiaries, is limited under current REIT tax regulations.
Summarized financial information of CRS is shown below. Certain items in the 1999 CRS financial statements have been reclassified to conform with 2000 presentation with no effect on net income.
7
Balance Sheets:
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September 30, 2000 |
December 31, 1999 |
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(in thousands) |
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Assets: | |||||||||
Land | $ | 10,945 | $ | 17,556 | |||||
Buildings | 26,451 | 44,832 | |||||||
Construction in progress | 24,051 | 34,375 | |||||||
61,447 | 96,763 | ||||||||
Less accumulated depreciation | (512 | ) | (861 | ) | |||||
Real estate held for sale, net of depreciation | 1,320 | 2,511 | |||||||
62,255 | 98,413 | ||||||||
Other assets |
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7,924 |
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4,730 |
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Investment in CenterPoint Venture, LLC | 1,982 | ||||||||
Mortgage notes receivable | 1,563 | 17,968 | |||||||
$ | 73,724 | $ | 121,111 | ||||||
Liabilities: | |||||||||
Note payable to affiliateCenterPoint Properties Trust | $ | 60,342 | $ | 108,584 | |||||
Construction line of credit | 3,569 | ||||||||
Participation interest due CenterPoint Properties Trust | 989 | ||||||||
Other liabilities | 7,530 | 6,983 | |||||||
71,441 | 116,556 | ||||||||
Stockholders' equity |
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2,283 |
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4,555 |
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$ | 73,724 | $ | 121,111 | ||||||
Statements of Operations:
|
Nine Months Ended September 30, |
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2000 |
1999 |
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(in thousands) |
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Income: | ||||||||
Property sales | $ | 80,588 | $ | 67,380 | ||||
Rental income | 4,591 | 3,385 | ||||||
Equity in net (loss) of CenterPoint Venture LLC | (155 | ) | ||||||
Other income | 762 | 604 | ||||||
85,786 | 71,368 | |||||||
Operating expenses: |
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Cost of property sales | 74,945 | 54,199 | ||||||
Participation interest | 6,147 | 7,631 | ||||||
Other expenses | 2,219 | 1,235 | ||||||
Depreciation and amortization | 1,237 | 774 | ||||||
Interest | 4,953 | 3,568 | ||||||
89,501 | 67,407 | |||||||
Provision for income taxes |
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(1,442 |
) |
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1,558 |
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Net (loss) income |
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$ |
(2,273 |
) |
$ |
2,404 |
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8
Included in participation interest is a $2.7 million payment made to the Company relating to an intercompany property transfer. The Company has classified 99% of this $2.7 million as an increase in net income of affiliate to eliminate the effect of the transaction on the Company's Consolidated Statement of Operations.
CRS owned 11 warehouse/industrial properties, totaling 0.9 million square feet, as of September 30, 2000, which were 81% leased. CRS also had one property under redevelopment and three warehouse/ industrial properties under construction as of September 30, 2000 and December 31, 1999, and owned seven and ten land parcels for future developments as of September 30, 2000, and December 31, 1999, respectively.
CRS had an outstanding balance due to the Company of $60.3 million as of September 30, 2000, under a series of demand loans with interest rates ranging from 8.0% to 11.1%. The proceeds of the loans were required for development projects and property purchases.
5. Supplemental Information to Statements of Cash Flows (in thousands)
Supplemental disclosures of cash flow information for the nine months ended September 30, 2000 and 1999:
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2000 |
1999 |
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Interest paid | $ | 23,739 | $ | 11,511 | ||
Interest capitalized | 2,560 | 1,351 |
In conjunction with the acquisition of real estate, for the nine months ended September 30, 2000 and 1999 the Company acquired the following assets and assumed the following liability amounts:
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2000 |
1999 |
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Purchase of real estate | $ | 119,621 | $ | 121,586 | ||||
Mortgage notes payable | (5,049 | ) | ||||||
Liabilities, net of other assets | 1,305 | (2,762 | ) | |||||
Acquisition of real estate | $ | 115,877 | $ | 118,824 | ||||
In conjunction with the disposition of real estate, the Company disposed of the following asset and liability amounts for the nine months ended September 30, 2000 and 1999:
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2000 |
1999 |
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Net basis of real estate sold | $ | 72,473 | $ | 24,529 | ||||
Mortgage notes receivable | (7,200 | ) | ||||||
Liabilities, net of other assets | 5,137 | (425 | ) | |||||
Gain on sale of properties | 11,881 | 694 | ||||||
Proceeds from real estate sold | $ | 82,291 | $ | 24,798 | ||||
There were no remaining convertible subordinated debentures as of the end of 1999, and therefore, there were no conversions in 2000. For the first nine months of 1999, the conversions of convertible subordinated debentures payable are summarized below:
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1999 |
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Convertible subordinated debentures converted | $ | 8,058 | ||
Common shares issued at $18.25 per share, 441,513 | 8,057 | |||
Cash disbursed for fractional shares | $ | 1 | ||
9
6. Senior Unsecured Debt
On January 12, 2000 the Company issued $150 million 7.9% senior unsecured notes due January 15, 2003. The notes were underwritten by Lehman Brothers Holdings, with A.G. Edwards & Sons, Inc., Banc of America Securities LLC, Bank One Capital Markets, Inc., and First Union Securities acting as co-managers. The net proceeds of issuance of approximately $149.1 million were used to pay down the Company's lines of credit.
7. Tax-exempt Debt
On August 14, 2000 the Company repaid $10.9 million of tax-exempt City of Chicago Revenue Bonds with proceeds from the unused construction escrow established at the inception of the bonds.
8. Line of Credit
In September, 2000, the Company expanded its unsecured revolving line of credit facility from $250 million to $350 million. The unsecured facility is led by Bank One, Lead Arranger and Administrative Agent. Other banks participating in the facility are Bank of America, N.A., Syndication Agent; First Union National Bank, Documentation Agent; U.S. Bank National Association, Managing Agent; Commerzbank AG, Managing Agent; AmSouth Bank, Managing Agent; LaSalle National Bank; Citizens Bank; South Trust Bank; Firstar Bank; ErsteBank; The Northern Trust Company; Comerica Bank; and Key Bank. The new maturity date has been extended to October 24, 2003 and the line will be at an interest rate of LIBOR + 100 basis points.
9. Commitments and Contingencies
In the normal course of business, from time to time the Company is involved in legal actions relating to the ownership and operations of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations and liquidity of the Company.
The Company has entered into contracts for the acquisition and disposition of properties. Each acquisition transaction is subject to satisfactory completion of due diligence and, in the case of development projects, completion and occupancy of the projects.
At September 30, 2000, three of the properties owned by the Company were subject to purchase options held by certain tenants. The purchase options were exercisable at various intervals through 2006 for amounts that are greater than the net book value of each property.
10
10. Earnings Per Common Share
The following are the reconciliations of the numerators and denominators of the basic and diluted earnings per share for the three months ended September 30, 2000 and 1999.
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2000 |
1999 |
2000 |
1999 |
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(in thousands, except for share data) |
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Numerators: | |||||||||||||||
Income before extraordinary item |
|
$ |
14,618 |
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$ |
16,185 |
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$ |
39,625 |
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$ |
36,297 |
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Dividends on preferred shares | (2,528 | ) | (2,539 | ) | (7,583 | ) | (5,791 | ) | |||||||
Income before extraordinary itemfor basic and diluted EPS | $ | 12,090 | $ | 13,646 | $ | 32,042 | $ | 30,506 | |||||||
Net income |
|
$ |
14,618 |
|
$ |
16,185 |
|
$ |
39,625 |
|
$ |
35,715 |
|
||
Dividends on preferred shares | (2,528 | ) | (2,539 | ) | (7,583 | ) | (5,791 | ) | |||||||
Net income available to common shareholdersfor basic and diluted EPS | $ | 12,090 | $ | 13,646 | $ | 39,042 | $ | 29,924 | |||||||
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Weighted average common shares outstandingfor basic EPS |
|
|
20,768,700 |
|
|
20,285,963 |
|
|
20,737,825 |
|
|
20,211,684 |
|
||
Effect of share options | 524,519 | 257,497 | 394,419 | 244,638 | |||||||||||
Weighted average common shares outstandingfor diluted EPS | 21,293,219 | 20,543,460 | 21,132,244 | 20,456,322 | |||||||||||
The assumed conversion of the convertible preferred shares and convertible subordinated debentures into common shares for purposes of computing diluted earnings per share by adding preferred distributions and interest expense, respectively, to the numerators, and adding the assumed share conversions to the denominators for the three and nine months ended September 30, 2000 and 1999 would be anti-dilutive.
11. Pro Forma Financial Information
Due to the effect of a securities offering in June, 1999 and acquisitions (related to properties with operating history) and dispositions of properties in 2000 and 1999, the historical results are not indicative of the future results of operations. The following unaudited pro forma information for the nine months ended September 30, 2000 and 1999 is presented as if the 1999 and 2000 acquisitions (with operating history) and dispositions, the 1999 securities offering, and the corresponding repayment of certain debt had all occurred on January 1, 1999 (or the date the property first commenced operations with a third party tenant, if later). The pro forma information is based upon historical
11
information and does not purport to present what actual results would have been had the offerings and related transactions, in fact, occurred at January 1, 1999, or to project results for any future period.
|
Nine Months Ended September 30, |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
|||||||
|
(in thousands, except for share and per share data) |
||||||||
Total revenues | $ | 114,792 | $ | 99,953 | |||||
Total expenses | 74,976 | 63,452 | |||||||
Net income | 39,816 | 36,501 | |||||||
Preferred dividends | (7,583 | ) | (7,591 | ) | |||||
Net income available to common shareholders | $ | 32,233 | $ | 28,910 | |||||
Per share net income available to common shareholders: |
|
|
|
|
|
|
|
||
Basic | $ | 1.55 | $ | 1.43 | |||||
Diluted | $ | 1.53 | $ | 1.41 | |||||
Weighted average common shares outstandingbasic |
|
|
20,737,825 |
|
|
20,211,684 |
|
||
Weighted average common shares outstandingdiluted | 21,132,244 | 20,456,322 |
12. Recent Pronouncements
In June, 1998, the FASB issued SFAS Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement, effective for financial statements for fiscal years beginning after June 15, 2000, provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The Company has no derivative positions as of September 30, 2000.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which outlines basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the SEC. We believe that adopting SAB 101 will not have a material impact on our financial position or results of operations. The Company will adopt SAB 101 in the fourth quarter of 2000 and the Company believes it will have no effect on earnings.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving Stock Compensation," which is an interpretation of Accounting Principles Board Opinion No. 25. This interpretation clarifies:
This interpretation is effective July 1, 2000, but certain conclusions in this interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this interpretation are recognized on a prospective basis from July 1, 2000. The adoption of FIN 44 does not have a material impact on our financial statements.
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The following is a discussion of the historical operating results of the Company. The discussion should be read in conjunction with the Company's Form 10-K filed for the fiscal year ended December 31, 1999 and the unaudited financial statements presented with this Form 10-Q.
Results of Operations
Comparison of Three Months Ended September 30, 2000 to Three Months Ended September 30, 1999.
Revenues
Total revenues increased by $1.9 million or 4.7% over the same period last year.
In the third quarter of 2000, 91.8% of total revenues of the Company were derived primarily from base rents, straight-line rents, expense reimbursements and mortgage income (operating and investment revenue), pursuant to the terms of tenant leases and mortgages for warehouse/industrial properties.
Operating and investment revenues increased by $6.0 million in the third quarter of 2000. A portion of the increase from the prior year is due to income from 17 acquired operating properties and completed developments in the first nine months of 2000, totaling 3.5 million square feet, net of 15 Company-owned property dispositions as of September 30, 2000. The remainder of the increase was attributable to a full period of income from the 1999 acquisitions and completion of development of 64 properties, totaling 5.1 million square feet, net of nine property dispositions.
Other revenues decreased $4.1 million partly due to the structuring of 2000's merchant transactions as gains on the sale of properties rather than real estate fee income.
Operating and Nonoperating Expenses
Real estate tax expense and property operating and leasing expense increased by $1.8 million from period to period. The majority of the increase, $1.0 million, resulted from a full period of real estate taxes on 1999 acquisitions and a partial period of real estate taxes on 2000 acquisitions, net of dispositions. Property operating and leasing costs also increased. When comparing the third quarter of 1999 to the third quarter of 2000, property operating and leasing costs as a percentage of total revenues increased from 8.6% to 10.0% due in part to current and future growth of the Company's operating team and operating activity on 2000 and 1999 acquisitions and developments.
General and administrative expenses increased 21.8% when comparing periods, but as a percentage of total revenues, these expenses increased only slightly from 2.3% to 2.7% when comparing the third quarter of 1999 to the third quarter of 2000 due to Company growth.
Depreciation and amortization increased by $1.4 million due to a full period of depreciation on 1999 acquisitions and partial period depreciation on 2000 acquisitions.
Interest incurred increased by approximately $3.6 million over the same period last year due to higher average balances outstanding in the third quarter of 2000 compared to 1999 from increased investments in real estate.
Gains on the sale of real estate increased in the third quarter of 2000 due to the sale of five properties, while the Company sold one property in the third quarter of 1999. The Company continues its focus on property dispositions in order to recycle capital.
Net Income and Other Measures of Operations
Net income decreased $1.6 million. A full period of 1999 and a partial period of 2000 warehouse/ industrial investments was offset by decreased merchant activities.
13
Funds from operations ("FFO") (including gains and losses resulting from disposition activities) decreased 12.6% from $21.5 million to $18.8 million when comparing the third quarter of 1999 to the third quarter of 2000. The National Association of Real Estate Investment Trusts ("NAREIT") defines funds from operations as net income before extraordinary items plus depreciation and non-financing amortization, less gains (losses) on the sale of real estate. The Company includes in its calculation of FFO the gains (or losses) realized from its disposition activity, measured as the sale price, net of selling costs, less book value after adding back accumulated depreciation. The disposition of stabilized properties, and the recycling of capital and profits to new "value added" investments, is fundamental to the Company's business focus and funding strategy. In the Company's view, FFO is appropriately adjusted by results of this core, regular and recurring activity, although period to period variability is possible because of changing market conditions and the progress of individual disposition negotiations. FFO exclusive of gains and losses from disposition activities decreased 17.8% for $21.4 million to $17.6 million when comparing periods FFO does not represent cash flow from operations as defined by generally accepted accounting principles ("GAAP"), should not be considered by the reader as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity, and is not indicative of cash available to fund all cash flow needs.
When comparing the third quarter results of operations of properties owned at January 1, 1999 with the results of operations of the same properties for the third quarter 2000 (the "same store" portfolio), the Company recognized an increase of approximately 6.7% in net operating income. This same store increase was due to the timely lease up of vacant space, rental increases on renewed leases and contractual increases in minimum rent under leases in place.
The Company assesses its operating results, in part, by comparing the net revenue margin between periods. Net revenue margin is calculated for the "in service" portfolio by dividing net revenue (total operating and investment revenue less real estate taxes and property operating and leasing expense) by adjusted operating and investment revenue (operating and investment revenue less expense reimbursements, adjusted for leases containing expense stops). This margin indicates the percentage of revenue actually retained by the Company or, alternatively, the amount of property related expenses not recovered by tenant reimbursements. The margin for the third quarter of 2000 was 88.5% which was unchanged from the same period last year
Comparison of Nine Months Ended September 30, 2000 to Nine Months Ended September 30, 1999.
Revenues
Total revenues increased by $14.1 million or 13.3% over the same period last year.
In the first nine months of 2000, 94.6% of total revenues of the Company were derived primarily from base rents, straight-line rents, expense reimbursements and mortgage income (operating and investment revenue), pursuant to the terms of tenant leases and mortgages held for space at the warehouse/ industrial properties.
Operating and investment revenues increased by $22.4 million in the first nine months of 2000. A portion of the increase from the prior year is due to income from 17 acquired operating properties in the first nine months of 2000, totaling 3.5 million square feet, net of 15 Company-owned property dispositions as of June 30, 2000. The remainder of the increase was attributable to a full period of income from the 1999 acquisition and completion of development of 64 properties, totaling 5.1 million square feet, net of nine property dispositions.
Other revenues decreased $8.3 million due to decreased merchant activity structured as fees in 2000 when compared to 1999. In 2000, the Company has structured many of its transactions as straight sales with corresponding gains.
14
Operating and Nonoperating Expenses
Real estate tax expense and property operating and leasing expense increased by $7.8 million from period to period. The majority of the increase, $4.7 million, resulted from a full period of real estate taxes on 1999 acquisitions and a partial period of real estate taxes on 2000 acquisitions, net of dispositions. Property operating and leasing costs increased by $3.1 million and as a percentage of total revenues increased from 9.8% to 11.2% when comparing the first nine months of 1999 to the first nine months of 2000. Growth of the Company's operations team and operating activity on 2000 and 1999 acquisition and developments accounted for the increase.
General and administrative expenses increased by $0.6 million when comparing periods, but as a percentage of total revenues, were relatively unchanged increasing from 2.6% to 2.9% when comparing the first nine months of 1999 to the first nine months of 2000.
Depreciation and amortization increased by $4.6 million due to a full period of depreciation on 1999 acquisitions and partial period depreciation on 2000 acquisitions.
Interest incurred increased by approximately $8.9 million over the same period last year due to higher average balances outstanding in the first nine months of 2000 compared to 1999 due to real estate investment activity.
With the Company's focus on recycling capital through property dispositions, gains on the sale of real estate increased in the first nine months of 2000 from the sale of 15 properties and one land parcel, while the Company sold only two properties in the first nine months of 1999.
Net Income and Other Measures of Operations
Net income increased $3.9 million or 10.8% due to income from operations of net new investments in warehouse/industrial real estate and the increased income from property sales, leasing and other merchant activity.
FFO (including gains and losses resulting from disposition activities) increased 3.7% from $52.0 million to $53.9 million from the first nine months of 1999 to the first nine months of 2000. FFO exclusive of gain and losses from disposition activity decreased 6.4% from $51.6% million to $48.3 million when comparing periods.
When comparing the first nine months results of operations of properties owned at January 1, 1999 with the results of operations of the same properties for the first nine months of 2000 (the "same store" portfolio), the Company recognized an increase of approximately 6.4% in net operating income. This same store increase was due to the timely lease up of vacant space, rental increases on renewed leases and contractual increases in minimum rent under leases in place.
The net revenue margin for the first nine months of 2000 was 88.1% compared with 87.4% for the same period last year. The margin was in line with the Company's expectations.
Liquidity and Capital Resources
Operating and Investment Cash Flow
Cash flow generated from Company operations has historically been utilized for working capital purposes and distributions, while proceeds from stabilized asset dispositions, supplemented by unsecured financings and periodic capital raises, have been used to fund, on a long term basis, acquisitions and other capital costs. Cash flow from operations during the first nine months of 2000 was $55.3 million, providing $16.4 million of retained capital after distributions of $38.9 million. The Company expects retained capital to fund a portion of future investment activities.
For the first nine months of 2000, the Company's investment activities include acquisitions of $115.9 million, advances for construction in progress of $28.1 million, and improvements and additions
15
to properties of $62.0 million. These activities were funded with dispositions of real estate of $82.3 million, advances on the Company's lines of credit and a portion of the Company's retained capital.
Equity and Share Activity
During the first nine months of 2000, the Company paid distributions on common shares of $31.3 million or $1.5075 per share. Also, in 2000, the Company paid dividends on Series A Preferred Shares of $4.8 million or $1.59 per share and $1.9 million for dividends on Series B Convertible Preferred Shares or $2.8125 per share. The following factors, among others, will affect the future availability of funds for distribution: (i) scheduled increases in base rents under existing leases, (ii) changes in minimum base rents attributable to replacement of existing leases with new or replacement leases and (iii) restrictions under certain covenants of the Company's unsecured line of credit.
Debt Capacity
In September, 2000, the Company expanded its unsecured revolving line of credit facility from $250 million to $350 million. The unsecured facility is led by Bank One, Lead Arranger and Administrative Agent. Other banks participating in the facility are Bank of America, N.A., Syndication Agent; First Union National Bank, Documentation Agent; U.S. Bank National Association, Managing Agent; Commerzbank AG, Managing Agent; AmSouth Bank, Managing Agent; LaSalle National Bank; Citizens Bank; South Trust Bank; Firstar Bank; ErsteBank; The Northern Trust Company; Comerica Bank; and Key Bank. The new maturity date has been extended to October 24, 2003 and the line will be at an interest rate of LIBOR + 100 basis points.
As of November 13, 2000, the Company had outstanding borrowings of approximately $138.0 million under the Company's unsecured line of credit (approximately 8.3% of the Company's fully diluted total market capitalization), and the Company had remaining availability of approximately $21.2 million under its unsecured line of credit.
On January 12, 2000 the Company issued $150 million 7.9% senior unsecured notes due January 15, 2003. The notes were underwritten by Lehman Brothers Holdings, with A.G. Edwards & Sons, Inc., Banc of America Securities LLC, Bank One Capital Markets, Inc., and First Union Securities acting as co-managers. The net proceeds of issuance of approximately $149.1 million were used to pay down the Company's lines of credit.
At September 30, 2000, the Company's debt constituted approximately 35.6% of its fully diluted total market capitalization. Also, the Company's nine-month earnings before interest, taxes, depreciation and amortization, ("EBITDA") to debt service coverage ratio decreased from the prior year, but remained high at 3.9 to 1, and the Company's EBITDA to fixed charge coverage ratio was 2.9 to 1 due to preferred dividends. The Company's fully diluted common equity market capitalization was approximately $956.9 million, and its fully diluted total market capitalization of approximately $1.7 billion.
Standard and Poors, Duff & Phelps Credit Rating Co. and Moody's Investors Service's have assigned investment grade ratings to the Company's senior unsecured debt and preferred stock. As of November 13, 2000, Standard and Poors reaffirmed the Company's investment grade rating.qaq.
The Company has considered it's short-term (one year or less) capital needs, in conjunction with its estimated future cash flow from operations and other expected sources. The Company believes that it is able to fund operating expenses, building improvements, debt service requirements and the minimum distribution required to maintain the Company's REIT qualification under the Internal Revenue Code.
16
Long-term (greater than one year) capital needs for property acquisitions, scheduled debt maturities, major redevelopment projects, expansions, and construction of build-to-suit properties will be supported, initially, by draws on the Company's unsecured line of credit, followed by the issuance of long-term unsecured indebtedness and, to the extent required to sustain the Company's investment grade rating, equity capital derived from a variety of sources including joint ventures or the issuance of equity securities. However, management expects that the majority of its capital needs will be supplied by the proceeds of dispositions of stabilized assets, which is dependent on market conditions which presently remain favorable. Finally, the Company expects have available proceeds from tax increment financing and other public grant funds related to certain investments.
Recent Pronouncements
In June, 1998, the FASB issued SFAS Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement, effective for financial statements for fiscal years beginning after June 15, 2000, provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The Company has no derivative positions as of June 30, 2000.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which outlines basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the SEC. We believe that adopting SAB 101 will not have a material impact on our financial position or results of operations. The Company will not adopt SAB 101 in the fourth quarter of 2000 and the Company believes it will have no effect on earnings.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving Stock Compensation," which is an interpretation of Accounting Principles Board Opinion No. 25. This interpretation clarifies:
This interpretation is effective July 1, 2000, but certain conclusions in this interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this interpretation are recognized on a prospective basis from July 1, 2000. The adoption of FIN 44 does not have a material impact on our financial statements.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company's actual results could differ materially from those set forth in the forward looking statements as a result of various factors, including, but not limited to, uncertainties affecting real estate businesses generally (such as entry into new leases, renewals of leases and dependence on tenants' business operations), risks relating to acquisition, construction and development activities, possible environmental liabilities, risks relating to leverage, debt service and obligations with respect to the payment of dividends (including availability of financing terms acceptable to the
17
Company and sensitivity of the Company's operations to fluctuations in interest rates), the potential for the need to use borrowings to make distributions necessary for the Company to qualify as a REIT, dependence on the primary market in which the Company's properties are located, the existence of complex regulations relating to the Company's status as a REIT and the potential adverse impact of the market interest rates on the cost of borrowings by the Company and on the market price for the Company's securities. See also, Item 3 of Part I of this report.
18
Item 3. Qualitative and Quantitative Disclosures about Market Risk
The Company assesses its risk in relation to market conditions, and a discussion about the Company's exposure to possible changes in market conditions follows. This discussion involves the effect on earnings, cash flows and the value of the Company's financial instruments as a result of possible future market condition changes. The discussions below include "forward looking statements" regarding market risk, but management is not forecasting the occurrence of these market changes. The actual earnings and cash flows of the Company may differ materially from these projections discussed below.
At September 30, 2000, $164.6 million or 27.6% of the Company's debt was variable rate debt (inclusive of tax exempt debt at a rate of 5.7% as of September 30, 2000) and $432.2 million or 72.4% of the debt was fixed rate debt. Based on the amount of variable debt outstanding as of June 30, 2000, a 10% increase or decrease in the Company's interest rate on the Company's variable rate debt would decrease or increase, respectively, future earnings and cash flows by approximately $1.2 million per year. A similar change in interest rates on the Company's fixed rate debt would not increase or decrease the future earnings of the Company during the term of the debt, but would effect the fair value of the debt. An increase in interest rates would decrease the fair value of the Company's fixed rate debt.
The Company is subject to other non-quantifiable market risks due to the nature of its business. The business of owning and investing in real estate is highly competitive. Several factors may adversely affect the economic performance and value or our properties and the Company. These factors include:
19
Item 6. Exhibits and Reports on Form 8-K
Exhibit Number |
Description |
|
---|---|---|
27 | Financial Data Schedule |
20
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.
CENTERPOINT PROPERTIES TRUST a Maryland Company |
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November 13, 2000 |
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By: |
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/s/ PAUL S. FISHER Paul S. Fisher Executive Vice President and Chief Financial Officer (Principal Accounting Officer) |
21
|