<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-11345
------------------------
CAPSTONE CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
Maryland 63-1115479
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Urban Center Drive
Suite 630
Birmingham, Alabama 35242
(Address of principal executive offices)
(205) 967-2092
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
As of August 13, 1997, 16,489,686 shares of the Registrant's Common Stock
$.001 par value, were outstanding.
<PAGE> 2
CAPSTONE CAPITAL CORPORATION
FORM 10-Q/A
June 30, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements Page
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Cash Flow 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 6. Exhibits 12
Signatures 13
</TABLE>
1
<PAGE> 3
Capstone Capital Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, 1997 Dec. 31, 1996
------------- -------------
<S> <C> <C>
Real estate properties
Land $ 35,423,145 $ 30,952,673
Land improvements 2,350,309 2,350,309
Buildings and improvements 349,369,404 269,261,047
Construction in progress 36,351,389 12,650,780
------------- -------------
423,494,247 315,214,809
Less accumulated depreciation (14,960,612) (11,217,391)
------------- -------------
Real estate properties, net 408,533,635 303,997,418
Mortgage notes receivable 88,054,922 39,325,621
Cash 734,736 1,122,241
Accrued rental income 6,000,847 4,689,976
Other assets 15,040,588 7,559,860
------------- -------------
Total assets $ 518,364,728 $ 356,695,116
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Convertible subordinated debentures- 10.5% $ 7,098,000 $ 17,657,000
Convertible subordinated debentures- 6.55% 67,934,295 --
Bank credit facility 107,727,000 68,500,000
Mortgage notes payable 40,139,323 23,228,417
Accrued expenses and other liabilities 14,753,543 5,754,180
------------- -------------
Total liabilities 237,652,161 115,139,597
------------- -------------
Stockholders' equity
Preferred stock, $0.001 par value,
10,000,000 shares authorized;
none issued 0 0
Common stock, $0.001 par value,
50,000,000 shares authorized;
16,205,672 shares and 14,247,947 shares
issued and outstanding, respectively 16,206 14,247
Additional paid-in-capital 280,890,725 240,832,943
Loans to officers to finance stock purchases (286,944) (286,944)
Cumulative net income 46,067,601 33,384,814
Cumulative dividends (45,975,021) (32,389,541)
------------- -------------
Total stockholders' equity 280,712,567 241,555,519
------------- -------------
Total liabilities and stockholders' equity $ 518,364,728 $ 356,695,116
============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE> 4
Capstone Capital Corporation
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $10,526,226 $ 7,832,186 $20,205,833 $14,351,014
Mortgage interest income 2,229,433 750,374 3,593,081 1,487,199
Gain from sale of property -- 193,672 -- 193,672
Other income 214,975 109,015 455,790 288,433
----------- ----------- ----------- -----------
Total Income 12,970,634 8,885,247 24,254,704 16,320,318
----------- ----------- ----------- -----------
Expenses:
General and administrative 715,687 480,278 1,271,546 808,906
Depreciation 2,067,683 1,467,705 3,775,594 2,658,473
Amortization 198,069 65,121 276,296 226,461
Interest 3,412,590 2,271,702 5,963,941 3,886,389
Property operations 134,780 2,157 280,430 2,157
----------- ----------- ----------- -----------
Total expenses 6,528,809 4,286,963 11,567,807 7,582,386
----------- ----------- ----------- -----------
Net income $ 6,441,825 $ 4,598,284 $12,686,897 $ 8,737,932
=========== =========== =========== ===========
Net Income Per Share $ 0.43 $ 0.42 $ 0.86 $ 0.84
=========== =========== =========== ===========
Weighted Averages Shares
Outstanding
Primary 15,044,682 10,667,440 14,784,988 10,368,160
=========== =========== =========== ===========
Fully Diluted 18,595,512 12,798,994 17,413,921 12,798,701
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement
3
<PAGE> 5
Capstone Capital Corporation
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,686,897 $ 8,737,932
Gain from sale of property -- (193,672)
Depreciation 3,775,594 2,658,473
Amortization 276,296 226,461
Amortization of debenture original
issue discount 699,270 --
Increase in accrued rental income (1,310,871) (1,132,812)
Increase in receivables and other assets (6,435,724) (322,633)
Increase (decrease) in accrued expenses and
other liabilities 6,767,627 (1,104,972)
------------- -------------
Net cash provided by operating activities 16,459,089 8,868,777
------------- -------------
Cash flows from investing activities:
Acquisition of real estate properties (108,279,439) (76,157,224)
Proceeds from sale of property -- 7,300,000
Investment in mortgage notes receivable (48,994,602) (1,213,044)
Collections on mortgage notes receivable 265,301 131,614
------------- -------------
Net cash used in investing activities (157,008,740) (69,938,654)
------------- -------------
Cash flows from financing activities:
Increase in bank credit facility 39,227,000 50,975,000
Proceeds from mortgage note payable 17,000,000 19,376,640
Proceeds from issuance of convertible
subordinated debentures 67,235,025 --
Proceeds from issuance of common stock 29,913,000 --
Financing costs related to issuance of
convertible subordinated debentures (1,761,500) --
Financing costs related to stock offering (74,439) (51,713)
Payment of dividends (13,585,480) (9,112,365)
Capital contributions from minority interests 2,230,772 684,480
Proceeds from dividend reinvestment plan 66,865 29,858
Principal payments on mortgage note payable (89,097) --
------------- -------------
Net cash provided by financing activities 140,162,146 61,901,900
------------- -------------
Increase(decrease) in cash (387,505) 832,023
Cash, beginning of period 1,122,241 675,568
------------- -------------
Cash, end of period $ 734,736 $ 1,507,591
============= =============
</TABLE>
The accompanying notes are an integral part of this financial statement
4
<PAGE> 6
CAPSTONE CAPITAL CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements which are included in the Capstone Capital
Corporation (the "Company") Annual Report on Form 10-K for the period ended
December 31, 1996. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. These financial statements should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
The Company is an indefinite life real estate investment trust
("REIT") which commenced operations on June 30, 1994 with the receipt of
proceeds from the sale of 5,980,000 shares of common stock. The Company invests
in income-producing, healthcare-related properties through acquisition or
development of facilities for lease or by provision of mortgage financing to
healthcare operators.
5
<PAGE> 7
NOTE 2. REAL ESTATE PROPERTIES
As of June 30, 1997 the Company had investments in 66 leased real
estate properties totaling $387.1 million. These real estate properties consist
of and include seventeen ancillary hospital facilities, ten physician clinics,
six ambulatory surgery facilities, ten assisted living facilities, nine skilled
nursing facilities, five inpatient rehabilitation facilities, three outpatient
rehabilitation facilities, two comprehensive mental health hospitals, two
sub-acute care facilities and two integrated delivery facilities. The properties
are located in fifteen states and are leased to fifteen healthcare-related
entities or their subsidiaries pursuant to long-term leases. In addition, the
Company has invested approximately $36.4 million in eighteen development
projects at various stages of completion. The Company has remaining commitments
of approximately $62.9 million related to the aforementioned development
projects and expects all projects to be completed by the first quarter of 1998.
The Company's properties are generally leased pursuant to fixed term
operating leases expiring principally from 2004 to 2012 and provide for options
to extend the lease terms for at least ten years. The leases generally provide
the lessees, during the terms of the leases and for a short period of time
following expiration, with the right of first refusal to purchase the leased
property on the same terms and conditions as the Company may propose to a third
party.
Each lease generally requires the lessee to pay base rent, additional
rent commencing after the first year based either on a set percentage increase
or on a percentage increase in the consumer price index, all taxes (including
property taxes), maintenance, and other operating costs associated with the
leased property.
NOTE 3. MORTGAGE NOTES RECEIVABLE
As of June 30, 1997, the Company had provided $88.1 million in mortgage
financing for 34 properties located in thirteen states. The mortgage notes
receivable are secured by the real estate of seventeen skilled nursing
facilities, fourteen assisted living facilities, two acute-care hospitals, and
one ancillary hospital facility which are operated by 23 healthcare operators.
Twelve of the facilities are under construction, and the Company has
committed a total of $60.9 million in construction and term loans for these
projects. As of June 30, 1997, the Company had advanced a total of $21.7 million
toward these financing commitments. The Company expects to disburse the
remainder of the committed funds during 1997.
The mortgage notes receivable for completed projects ("Permanent
Loans") require monthly installments of principal and interest with final
payment dates in or before 2009 and bear rates ranging from 10.00 percent to
13.39 percent at June 30, 1997. Each Permanent Loan provides for an initial
interest rate to be increased annually by either a set rate or upon an increase
in the consumer price index. For those projects under construction, the notes
receivable typically bear interest at a floating rate and require monthly
payments of interest only. Upon completion of construction, the outstanding
principal balance is converted to a Permanent Loan.
The Company had no impaired mortgage notes receivable at or during the
quarter ended June 30, 1997.
6
<PAGE> 8
NOTE 4. MORTGAGE NOTES PAYABLE
The Company has a non-recourse mortgage note payable to a life
insurance company for a principal amount of $23.1 million ("$23.1 Million
Mortgage Note"). The $23.1 Million Mortgage Note bears interest at 8.5% and is
payable in monthly payments of principal and interest based on a 30 year
amortization with the remaining unpaid balance due in a balloon payment on May
26, 2026. The $23.1 Million Mortgage Note is collateralized by an ancillary
hospital facility purchased in January 1996 for $30 million.
The Company has a non-recourse mortgage note payable to a bank for a
principal amount of $17.0 million ("$17.0 Million Mortgage Note"). The $17.0
Million Mortgage Note bears interest at 50 basis points in excess of the prime
rate, as such rate fluctuates from time to time, and is payable in monthly
payments of principal and interest based on a 25 year amortization with the
unpaid balance due in a balloon payment on June 20, 2000. The interest rate as
of June 30, 1997 was 9.0%. The $17.0 Million Mortgage Note is collateralized by
six skilled nursing facilities purchased in June 1997 for $23.8 million.
NOTE 5. BANK CREDIT FACILITY
The Company has a $170 million unsecured line of credit ("Bank Credit
Facility") which is participated in by a consortium of eight banks. At June 30,
1997, the Company had drawn $107.7 million against the Bank Credit Facility for
the purchase of real estate properties and the funding of mortgage loans. The
Bank Credit Facility is available until June 24, 2000.
NOTE 6. CONVERTIBLE SUBORDINATED DEBENTURES
As of June 30, 1997 the Company had $7,098,000 aggregate principal
amount of 10.50% convertible subordinated debentures (the "10.5% Debentures")
outstanding. The 10.5% Debentures are due on April 1, 2002 and interest is
payable semiannually on April 1 and October 1 of each year. During the quarter
ended June 30, 1997, a total of $9,902,000 of principal amount of the 10.5%
Debentures was converted into 614,077 shares of common stock of the Company at
the conversion price of $16.125 per share.
As of June 30, 1997, the Company had $74,750,000 aggregate principal
amount of 6.55% convertible subordinated debentures (the "6.55% Debentures").
The 6.55% Debentures are due on March 14, 2002 and were issued at a price of
$903 per $1,000 principal amount at maturity, which represents an original issue
discount of 9.70% from the principal amount thereof which is payable at
maturity. Interest on the 6.55% Debentures is payable March 14 and September 14
in each year, commencing September 14, 1997. Such rate of interest and accrual
of original issue discount represent a yield to maturity of 9.00% per annum
(computed on a semiannual bond equivalent basis).
The 6.55% Debentures are convertible into common stock of the Company
at any time before maturity at an initial conversion ratio of 39.4754 shares of
common stock for each $1,000 principal amount of 6.55% Debentures, subject to
adjustment in certain events. As of June 30, 1997, there had been no conversions
of the 6.55% Debentures.
7
<PAGE> 9
NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
For the 3 Mos. For the 3 Mos. For the 6 Mos. For the 6 Mos.
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash payments for bank credit
facility interest expense $ 898,145 $ 1,280,560 $ 2,123,185 $ 1,749,093
Cash payments for mortgage notes 492,134 - 985,426 -
payable
Cash payments for convertible
subordinated debentures' interest expense 893,550 2,299,763 893,500 2,299,763
Convertible subordinated debentures
converted into shares of common stock:
Convertible subordinated debentures (9,902,000) (10,008,000) (10,559,000) (10,665,000)
Financing costs (157,887) - (407,828) (396,607)
Shares of common stock 614,077 620,646 654,818 629,452
Additional paid in capital 9,743,499 10,007,379 10,150,517 10,267,763
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company has committed a total of $160.2 million towards the
acquisition and construction of real estate properties and providing mortgage
financing. As of June 30, 1997, the Company had funded approximately $58.0
million towards these commitments with the balance of $102.2 million expected to
be funded over the next nine months.
During May 1997, the Company provided a letter of credit in the amount
of $2,869,800 to a third party lender in connection with a project under
development. The lender may only draw on the letter of credit in the event that
the developer defaults on the loan. The letter of credit expires in the earlier
of one year or with payoff of the construction loan.
NOTE 9. SUBSEQUENT EVENTS
On July 23, 1997, the Company acquired a integrated delivery facility
located in Chicago Heights, Illinois. The property's acquisition price of $9.0
million was funded with a draw against the Bank Credit Facility. The property is
leased to a healthcare- related entity pursuant to a long-term operating lease.
During July 1997, the Company raised net proceeds of $3.6 million with
the sale of an additional 155,400 shares of common stock. The proceeds were used
to reduce the Bank Credit Facility. Also during July the Company filed a
registration statement ("Shelf Registration") with the Securities and Exchange
Commission to enable the Company to offer up to an aggregate of $500,000,000 in
debt securities, preferred stock, common stock, and warrants to purchase any of
the foregoing securities at prices and terms to be determined at the time of
sale.
On July 18, 1997, the Company declared a dividend of $0.475 per share
to the holders of common stock on August 1, 1997. The dividend will be paid in
cash on August 15, 1997. The dividend related to the quarter ended June 30,
1997.
For the period from July 1 through August 10, 1997, a total of
$2,074,000 of principal amount of 10.5% Debentures has been converted into
shares of common stock of the Company at the conversion price of $16.125 per
share. The conversions resulted in an increase of 128,620 shares outstanding of
common stock of the Company.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
For the quarter ended June 30, 1997 the Company reported net income of
$6.4 million or $0.43 per common share, compared to $4.6 million, or $0.42 per
common share at June 30, 1996.
Revenues for the quarter ended June 30, 1997 totaled $12.9 million, an
increase of $4.0 million over June 30, 1996 revenues of $8.9 million. The
increase in revenues is primarily attributable to additional rental and mortgage
interest income from investments made since June 30, 1996. Specifically, the
Company's investments in real estate increased by approximately $105.2 million
to $387.1 million at June 30, 1997 from $281.9 million at June 30, 1996. The
Company's investments in mortgage loans increased $60.5 million to $90.9 million
at June 30, 1997 from $30.4 million at June 30, 1996.
Interest expense for the quarter ended June 30, 1997 totaled $3.4
million, an increase of $1.1 million over June 30, 1996 interest expense of $2.3
million. The increase is primarily due to a full quarter's interest related to
the $23.3 Million Mortgage Note entered into in June 1996 and a half month's
additional interest related to the $17.0 Million Mortgage Note. The Company also
incurred a full quarter's additional interest on the 6.55% Debentures issued in
March 1997 which was slightly offset by the decrease in interest accrued on the
10.5% Debentures due to conversions into the Company's common stock.
Depreciation for the quarter ended June 30, 1997 totaled $2.1 million
an increase of $0.6 million over June 30, 1996 depreciation of $1.5 million.
This is primarily due to the acquisition of real estate properties subsequent to
June 30, 1996.
Funds from operations ("FFO") represents net income (computed in
accordance with generally accepted accounting principles), less gains from
sales of property and rental income recognized on a straight-line basis on
those leases with scheduled rent increases, plus depreciation and amortization.
Set forth below is a summary of the calculation of FFO:
<TABLE>
<CAPTION>
For The For The
Reconciliation of net income to Quarter Ended Quarter Ended
funds from operations June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net income $ 6,441,825 $ 4,598,284
Add: Depreciation and amortization 2,265,752 1,532,826
Less: Gain on sale of asset -- (193,672)
Less: Straight-line rental income (657,137) (601,700)
------------ ------------
Funds from operations $ 8,050,440 $ 5,335,738
============ ============
</TABLE>
FFO for the quarter ended June 30, 1997 totaled $8,050,440, an increase
of $2,714,702 over FFO for the same period in 1996 of $5,335,738. The increase
is attributable primarily to increases in net income and depreciation and
amortization expense.
FFO should not be considered as an alternative to net income or any
other generally accepted accounting principle measurement of performance as an
indicator of operating performance or as an alternative to cash flows from
operations, investing and financing activities as a measure of liquidity. The
Company believes that FFO is an important supplemental measure of the operating
performance of a REIT's portfolio considering the fact that historical cost
accounting implicitly assumes that the value of real estate assets diminishes
predictably over time. FFO provides an alternative measurement criteria,
exclusive of certain non-cash items included in GAAP income, by which to
evaluate the performance of such investments. Additionally, FFO is consistent
with measures used by analysts to evaluate the Company and other REITs. The
Company therefore discloses FFO, although it is a measurement that is not
defined by generally accepted accounting principles. The Company's measure may
not be comparable to similarly titled measures used by other REITs.
Consequently, the Company's FFO may not provide a meaningful measure of the
Company's performance as compared to that of other REITs.
Set forth below are amounts for operating, investing and financing
cash flows.
<TABLE>
<CAPTION>
For The For The
Quarter Ended Quarter Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 7,365,584 $ 3,721,145
Net cash used in investing activities (88,947,063) (47,343,158)
Net cash provided by financing activities 81,137,521 44,121,993
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
For the six months ended June 30, 1997 the Company reported net income
of $12.7 million or $0.86 per common share, compared to $8.7 million, or $0.84
per common share at June 30, 1996.
Revenues for the six months ended June 30, 1997 totaled $24.2 million,
increasing $7.9 million over June 30, 1996 revenues of $16.3 million. The
increase in revenues is primarily attributable to additional rental and mortgage
interest income from investments made subsequent to June 30, 1996.
Interest expense for the six months ended June 30, 1997 totaled $6.0
million, an increase of $2.1 million over June 30, 1996 interest expense of $3.9
million. The increase was due to five months' additional interest related to the
$23.3 Million Mortgage Note entered into in June 1996 and a half month's
additional interest related to the $17.0 Million Mortgage Note entered into in
June of 1997. The Company also incurred an
9
<PAGE> 11
additional three months' interest on the 6.55% Debentures issued in March 1997
which was slightly offset by the decrease in interest accrued on the 10.5%
Debentures due to conversions into the Company's common stock. Interest expense
for the six months ended June 30, 1997 was also greater than interest expense
for the same period in 1996 due to additional amounts outstanding under the Bank
Credit Facility.
Depreciation for the six months ended June 30, 1997 totaled $3.8
million an increase of $1.1 million over June 30, 1996 depreciation of $2.7
million. This is primarily due to the acquisition of real estate properties
subsequent to June 30, 1996.
Set forth below is a summary of the calculation of FFO:
<TABLE>
<CAPTION>
For The For The
Six Months Six Months
Reconciliation of net income to Ended Ended
funds from operations June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net income $ 12,686,897 $ 8,737,932
Add: Depreciation and amortization 4,051,890 2,884,934
Less: Gain on sale of asset -- (193,672)
Less: Straight-line rental income (1,310,871) (1,132,812)
------------- ------------
Funds from operations $ 15,427,916 $ 10,296,382
============= ============
</TABLE>
FFO for the six months ended June 30, 1997 totaled $15,427,916, an
increase of $5,131,534 over FFO for the same period in 1996. The increase is
attributable primarily to increases in net income and depreciation and
amortization expense.
FFO should not be considered as an alternative to net income or any
other generally accepted accounting principle measurement of performance as
an indicator of operating performance or as an alternative to cash flows from
operations, investing and financing activities as a measure of liquidity. The
Company believes that FFO is an important supplemental measure of the operating
performance of a REIT's portfolio considering the fact that historical cost
accounting implicitly assumes that the value of real estate assets diminishes
predictably over time. FFO provides an alternative measurement criteria,
exclusive of certain non-cash items included in GAAP income, by which to
evaluate the performance of such investments. Additionally, FFO is consistent
with measures used by analysts to evaluate the Company and other REITs. The
Company therefore discloses FFO, although it is a measurement that is not
defined by generally accepted accounting principles. The Company's measure may
not be comparable to similarly titled measures used by other REITs.
Consequently, the Company's FFO may not provide a meaningful measure of the
Company's performance as compared to that of other REITs.
Set forth below are amounts for operating, investing and financing
cash flows.
<TABLE>
For The For The
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 16,459,089 $ 8,868,777
Net cash used in investing activities (157,008,740) (69,938,654)
Net cash provided by financing activities 140,162,146 61,901,900
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During July 1997, the Company raised net proceeds of $29.9 million
with the sale of 1.3 million shares of common stock at $24.25. During July 1997,
the Underwriter exercised its 30-day option to purchase an additional 155,400
shares for net proceeds of $3.6 million, which was used to reduce the Bank
Credit Facility. Also during July the Company filed a registration statement
("Shelf Registration") with the Securities and Exchange Commission to enable the
Company to offer up to an aggregate of $500,000,000 in debt securities,
preferred stock, common stock, and warrants to purchase any of the foregoing
securities at prices and terms to be determined at the time of sale.
At June 30, 1997, the outstanding balance of the Bank Credit Facility
was $107.7 million, the entire balance of which was used for the acquisition of
real estate and the funding of mortgage loans. Due to acquisitions of real
estate and the funding of development projects subsequent to June 30, 1997, the
balance of the Bank Credit Facility as of August 10, 1997 was $125.1 million.
The Company's current intention is to utilize the Bank Credit
Facility on a short-term basis to finance future investments in property
acquisitions and mortgage financing. The Company is currently evaluating various
alternatives for additional equity and debt financing with which to finance
those investments on a long-term basis.
On July 18, 1997, the Company declared a dividend of $0.475 per share
to the holders of common stock on August 1, 1997. The dividend will be paid in
cash on August 15, 1997. The dividend related to the quarter ended June 30,
1997.
The Company has a dividend reinvestment and stock purchase plan
("Plan") under which participants can automatically reinvest all or a portion of
cash dividends in shares of the Company's common stock and can make voluntary
cash payments for additional shares. Under the Plan, the Company had received
$66,865 for the six months ended June 30, 1997 in exchange for 2,908 shares of
common stock.
COMMITMENTS
The Company has committed a total of approximately $160.2 million
towards the acquisition and construction of real estate properties and providing
mortgage financing. As of June 30, 1997, the Company had funded approximately
$58.0 million towards these commitments, with the balance of $102.2 million
expected to be funded during the next twelve months. Financing for these
commitments may be provided by funds from
10
<PAGE> 12
operations, borrowings under the Bank Credit Facility or private or public
offerings of debt or equity.
During May 1997, the Company provided a letter of credit in the amount
of $2,869,800 to a third party lender in connection with a project under
development. The lender may only draw on the letter of credit in the event that
the developer defaults on the loan. The letter of credit expires in the earlier
of one year or with payoff of the construction loan.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statement contained in this report which is not a historical fact,
or which might otherwise be considered an opinion or projection concerning the
Company or its business, whether expressed or implied, is meant as, and should
be considered, a forward- looking statement as that term is defined in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
based on assumptions and opinions concerning a variety of known and unknown
risks, including but not necessarily limited to changes in market conditions,
natural disasters, and other catastrophic events, increased competition, changes
in availability and cost of reinsurance, changes in governmental regulations,
and general economic conditions, as well as other risks more completely
described in the Company's filings with the Securities and Exchange Commission.
If any of these assumptions or opinions may also prove materially incorrect, any
forward-looking statements made on the basis of such assumptions or opinions may
also prove materially incorrect in one or more respects.
11
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
months ended June 30, 1996.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CAPSTONE CAPITAL CORPORATION
By /s/ MALCOLM E. McVAY
---------------------------
Malcolm E. McVay
Chief Financial Officer
Date: August 29, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF CAPSTONE CAPITAL CORPORATION FOR THE PERIOD ENDED JUNE 30, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 734,736
<SECURITIES> 0
<RECEIVABLES> 4,928,445
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,396,836
<PP&E> 387,142,858
<DEPRECIATION> 14,960,612
<TOTAL-ASSETS> 518,364,728
<CURRENT-LIABILITIES> 9,889,505
<BONDS> 82,130,295
0
0
<COMMON> 16,206
<OTHER-SE> 280,696,361
<TOTAL-LIABILITY-AND-EQUITY> 518,364,728
<SALES> 0
<TOTAL-REVENUES> 24,254,704
<CGS> 0
<TOTAL-COSTS> 11,567,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,963,941
<INCOME-PRETAX> 12,686,897
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,686,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,686,897
<EPS-PRIMARY> .086
<EPS-DILUTED> .086
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