<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
(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, 1998
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 12, 1998, 22,433,161 shares of the Registrant's Common Stock,
$.001 par value, were outstanding.
<PAGE> 2
CAPSTONE CAPITAL CORPORATION
FORM 10-Q
June 30, 1998
TABLE OF CONTENTS
Part I - Financial Information
<TABLE>
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements Page
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II - Other Information
Item 6. Exhibits 13
Signatures 15
</TABLE>
1
<PAGE> 3
Capstone Capital Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
ASSETS
Real estate properties
Land $ 49,117,758 $ 46,655,843
Land improvements 2,350,309 2,350,309
Buildings and improvements 512,981,791 435,836,254
Personal property 1,264,201 1,264,201
Construction in progress 38,188,624 59,864,216
------------- -------------
603,902,683 545,970,823
Less accumulated depreciation (25,997,368) (19,924,089)
------------- -------------
Real estate properties, net 577,905,315 526,046,734
Mortgage notes receivable 198,833,561 170,065,886
Cash 3,676,281 1,970,081
Accrued rental income 10,351,605 7,873,485
Other assets 24,314,552 17,334,741
------------- -------------
Total assets $ 815,081,314 $ 723,290,927
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Convertible subordinated debentures- 10.5% $ 3,780,000 $ 4,025,000
Convertible subordinated debentures- 6.55% 69,371,445 68,659,370
Bank credit facility 174,600,000 172,950,000
Mortgage notes payable 61,138,170 56,944,397
Short term credit facility -- 27,500,000
Accrued expenses and other liabilities 18,953,567 20,979,093
------------- -------------
Total liabilities 327,843,182 351,057,860
------------- -------------
Stockholders' equity
Preferred stock, $0.001 par value,
10,000,000 shares authorized;
3,000,000 shares issued 3,000 3,000
Common stock, $0.001 par value,
50,000,000 shares authorized;
22,432,541 shares and 17,337,608 shares
issued and outstanding, respectively 22,432 17,337
Additional paid-in-capital 494,456,001 376,891,745
Loans to officers to finance stock purchases (190,763) (190,763)
Cumulative net income 83,831,326 62,265,967
Cumulative dividends (85,480,493) (62,855,219)
Unearned restricted stock compensation (2,043,371) (539,000)
490,598,132 375,593,067
Less Treasury stock; 140,000 shares (3,360,000) (3,360,000)
------------- -------------
Total stockholders' equity 487,238,132 372,233,067
------------- -------------
Total liabilities and stockholders' equity $ 815,081,314 $ 723,290,927
============= =============
</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,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $17,047,246 $10,526,226 $ 32,534,957 $ 20,205,833
Mortgage interest income 5,166,009 2,229,433 9,882,546 3,593,081
Other income 359,353 214,975 792,383 455,790
----------- ----------- ------------ ------------
Total Income 22,572,608 12,970,634 43,209,886 24,254,704
=========== =========== ============ ============
Expenses:
General and administrative 1,161,638 715,687 2,333,677 1,271,546
Depreciation 3,295,767 2,067,683 6,159,216 3,775,594
Amortization 100,244 198,069 318,096 276,296
Interest 5,436,382 3,412,590 10,423,515 5,963,941
Property operations 1,205,395 134,780 2,410,022 280,430
----------- ----------- ------------ ------------
Total expenses 11,199,426 6,528,809 21,644,526 11,567,807
----------- ----------- ------------ ------------
Net income $11,373,182 $6,441,825 $ 21,565,360 $ 12,686,897
=========== =========== ============ ============
Net income per share $0.43 $0.43 $0.85 $0.86
=========== =========== ============ ============
Weighted averages shares
outstanding 22,523,885 15,044,682 21,433,326 14,784,988
=========== =========== ============ ============
</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,
-------------------------------
1998 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,565,360 $ 12,686,897
Depreciation 6,159,216 3,775,594
Amortization 318,096 276,296
Amortization of debenture original issue discount 725,074 699,270
Earned compensation for restricted stock 411,576 --
Increase in accrued rental income (2,478,120) (1,310,871)
Increase in receivables and other assets (7,393,549) (6,435,724)
Increase(decrease) in accrued expenses and
other liabilities (2,056,260) 6,767,627
------------ -------------
Net cash provided by operating activities 17,251,393 16,459,089
------------ -------------
Cash flows from investing activities:
Acquisition of real estate properties (57,931,859) (108,279,439)
Investment in mortgage notes receivable (58,653,541) (48,994,602)
Collections on mortgage notes receivable 29,885,866 265,301
------------ -------------
Net cash used by investing activities (86,699,534) (157,008,740)
------------ -------------
Cash flows from financing activities:
Increase in bank credit facilities 1,650,000 39,227,000
Proceeds from mortgage note payable 4,617,490 17,000,000
Principal payments on mortgage notes payable (423,718) (89,097)
Payoff of short-term credit facility (27,500,000) --
Proceeds from issuance of common stock 122,187,500 29,913,000
Proceeds from issuance of convertible
subordinated debentures -- 67,235,025
Financing costs related to issuance
of convertible subordinated debentures -- (1,761,500)
Financing costs related to stock offering (6,892,186) (74,439)
Payment of dividends (22,625,276) (13,585,480)
Capital contributions from minority interests 30,734 2,230,772
Proceeds from dividend reinvestment plan 109,797 66,865
------------ -------------
Net cash provided by financing activities 71,154,341 140,162,146
------------ -------------
Increase(decrease) in cash 1,706,200 (387,505)
Cash, beginning of period 1,970,081 1,122,241
------------ -------------
Cash, end of period $ 3,676,281 $ 734,736
============ =============
</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, 1998
(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, 1997. 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, 1997.
The Company is an indefinite life real estate investment trust ("REIT")
which commenced operations on June 30, 1994. 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.
NOTE 2. REAL ESTATE PROPERTIES
As of June 30, 1998 the Company had investments in 95 leased real
estate properties totaling $565.7 million. These real estate properties consist
of and include twenty-six assisted living facilities, eighteen ancillary
hospital facilities, eighteen physician clinics, nine skilled nursing
facilities, six ambulatory surgery facilities, six inpatient rehabilitation
facilities, five integrated delivery facilities, three outpatient rehabilitation
facilities, two comprehensive mental health hospitals, and two sub-acute care
facilities. The properties are located in seventeen states and are leased to
eighteen healthcare-related entities or their subsidiaries pursuant to long-term
leases. In addition, the Company has invested approximately $38.2 million in
thirteen development projects at various stages of completion. The Company has
remaining commitments of approximately $47.5 million for development projects
and expects all projects to be completed by the third quarter of 1999.
The Company's properties are generally leased pursuant to fixed term
operating leases expiring from 2001 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 acquire the Company's interest at
fair market value.
5
<PAGE> 7
Substantially all of the leases are triple net leases which require the
lessees to pay, in addition to base rent, any additional rent and all additional
charges, including any fines, penalties, interest and costs which may be levied
for nonpayment or late payment thereof, all operating expenses, taxes,
environmental clean-up costs, association dues, insurance premiums, assessments,
levies, fees, water and sewer rents and charges and all governmental charges
with respect to the applicable leased property.
NOTE 3. MORTGAGE NOTES RECEIVABLE
As of June 30, 1998, the Company had provided $198.8 million in
mortgage financing for 74 properties located in 27 states. The mortgage notes
receivable are secured by the real estate of 41 assisted living facilities, 27
skilled nursing facilities, two ancillary hospital facilities, one integrated
delivery facility, one ambulatory surgery facility, one specialty hospital
facility and one acute care hospital which are operated by 36 healthcare
operators.
Thirty of the facilities are under construction, and the Company has
committed a total of $133 million in construction and term loans for these
projects. As of June 30, 1998, the Company had advanced a total of $89.5 million
toward these financing commitments. The Company expects to disburse the
remainder of the committed funds during 1998 and 1999.
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 9.40 percent to
11.90 percent at June 30, 1998. 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, 1998.
NOTE 4. MORTGAGE NOTES PAYABLE
The Company has a mortgage note payable to a life insurance company for
an original principal amount of $23.3 million ("$23.3 million Mortgage Note").
The $23.3 million Mortgage Note bears interest at 8.5% and is payable in monthly
installments of principal and interest based on a 30-year amortization with the
final payment due May 26, 2026. The $23.3 million Mortgage Note is
collateralized by an ancillary hospital facility purchased in January 1996 for
$30.0 million.
The Company has a non-recourse mortgage note payable to a bank for an
original 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
installments of principal and interest based on a 25-year amortization with the
unpaid balance due in a balloon
6
<PAGE> 8
payment on June 20, 2000. The interest rate as of June 30, 1998 was 9.0%. The
$17.0 million Mortgage Note is collateralized by six skilled nursing facilities
purchased in June 1997 for $23.8 million.
The Company has three non-recourse mortgage notes payable to a life
insurance company for a combined original principal sum of $17.1 million ("$17.1
million Mortgage Notes"). The $17.1 million Mortgage Notes bear interest at
8.125% and are payable in monthly installments of principal and interest based
on a 25-year amortization with the remaining unpaid balance due in a balloon
payment on September 1, 2004. The $17.1 million Mortgage Notes are
collateralized by two ambulatory surgery facilities and one ancillary hospital
facility.
The Company has a non-recourse mortgage note payable to a life
insurance company for an original principal sum of $4.75 million ("$4.75 million
Mortgage Note"). The $4.75 million Mortgage Note bears interest at 7.625% and is
payable in monthly installments of principal and interest based on a 20 year
amortization. The $4.75 million Mortgage Note was assumed by the Company with
the purchase of an ancillary hospital facility in March 1998.
NOTE 5. BANK CREDIT FACILITY
The Company has a $180 million unsecured line of credit ("Bank Credit
Facility") which is participated in by a consortium of eight banks led by
NationsBank, N.A. ("NationsBank"). At June 30, 1998, the Company had drawn
$174.6 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.
Borrowings under the Bank Credit Facility bear an interest rate chosen
by the Company from either the prime rate or the Eurodollar rate plus a
percentage rate ranging from 1.00 percent to 1.625 percent, depending upon the
Company's senior debt to consolidated total capital ratio for the preceding
fiscal quarter.
NOTE 6. CONVERTIBLE SUBORDINATED DEBENTURES
As of June 30, 1998, the Company had $3,780,000 aggregate principal
amount of 10.5% Convertible Subordinated Debentures (the "10.5% Debentures")
outstanding. The 10.5% Debentures are due on April 1, 2002, unless redeemed
earlier by the Company or converted by the holders. Payments of interest to the
holders of the 10.5% Debentures are required April 1 and October 1 of each year.
As of June 30, 1998, the Company had $69,371,445 aggregate principal
amount of 6.55% Convertible Subordinated Debentures (the "6.55% Debentures")
outstanding. The 6.55% Debentures are due 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. 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).
7
<PAGE> 9
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. The 6.55% Debentures are redeemable at the option
of the Company, in whole or in part, after March 14, 2000 at redemption prices
of $989.48 in the year 2000, or $994.14 in the year 2001.
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, 1998 June 30, 1997 June 30, 1998 June 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash payments for bank credit facility
interest expense 2,563,011 $ 898,145 $ 5,459,672 $ 2,123,185
Cash payments for mortgage notes payable
interest expense 1,352,176 492,134 2,593,220 985,426
Cash payments for convertible subordinated
debenture interest expense 1,684,798 893,550 3,367,316 893,500
Non-cash distribution to minority interest 15,802 - 30,734 -
Convertible subordinated debentures
converted into shares of common stock:
Convertible subordinated debentures (163,000) (9,902,000) (258,000) (10,559,000)
Financing costs (6,486) (157,887) (9,634) (407,828)
Shares of common stock 10,107 614,077 15,704 654,818
Additional paid in capital 156,504 9,743,499 248,350 10,150,517
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company has committed a total of $218.7 million towards the
acquisition and construction of real estate properties and providing mortgage
financing. As of June 30, 1998, the Company had funded approximately $127.7
million towards these commitments with the balance of $91.0 million expected to
be funded over the next 12 months.
NOTE 9. MERGER AGREEMENT
On June 8, Healthcare Realty Trust Incorporated ("Healthcare Realty")
NYSE: HR, and the Company executed a definitive plan and agreement of merger in
which Healthcare Realty will acquire the Company in a stock-for-stock merger in
which the stockholders of the Company will receive a fixed ratio of .8518 share
of Healthcare Realty common stock in exchange for each share of the Company's
common stock. In
8
<PAGE> 10
addition, holders of the Company's preferred stock will receive one share of
Healthcare Realty voting preferred stock in exchange for each share of the
Company's preferred stock. The transaction is expected to be completed during
the fourth quarter.
NOTE 10. CHANGES IN ACCOUNTING PRINCIPLES
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. Statement 130 is effective for interim and annual periods
beginning after December 15, 1997. Comprehensive income encompasses all changes
in shareholders' equity (except those arising from transactions with owners) and
includes net income, net unrealized capital gains or losses on available for
sale securities and foreign currency translation adjustments. Comprehensive
income is the same as net income for the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
Statement No. 131 is effective for annual periods beginning after December 15,
1997. Management of the Company is currently evaluating the applicability of
Statement No. 131, which may result in expanded segment disclosures.
NOTE 11. SUBSEQUENT EVENTS
On July 24, 1998, the Company declared a dividend of $0.495 per share
to the holders of common stock on August 3, 1998. The dividend will be paid in
cash on August 17, 1998. The dividend related to the quarter ended June 30,
1998.
On July 22, 1998, the Company obtained a $40 million short-term credit
facility from NationsBank primarily for purposes of funding investments.
Borrowings under the short-term credit facility bear interest at the Eurodollar
rate plus a percentage that varies from 1.00% to 1.625% and are payable on or
before October 31, 1998.
In addition, on July 22, 1998, a total of $10,000 of principal amount
of 10.5% Debentures was 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 620 in the shares of common stock of the Company, an increase of
$10,000 in stockholders' equity and a decrease of $10,000 in the outstanding
balance of the 10.5% Debentures.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997
For the quarter ended June 30, 1998 the Company reported basic net
income of $9.7 million (after preferred dividends paid of $1.7 million), or
$0.43 basic net income per common share, compared to $6.4 million, or $0.43
basic net income per common share at June 30, 1997.
Revenues for the quarter ended June 30, 1998 totaled $22.6 million,
increasing $9.7 million over revenues for the quarter ended June 30, 1997 of
$12.9 million. The increase in revenues is primarily attributable to additional
rental and mortgage interest income from investments made since June 30, 1997.
Specifically, the Company's investments in real estate increased approximately
$178.6 million with the addition of 29 properties from $387.1 million at June
30, 1997 to $565.7 million at June 30, 1998. The Company's investments in
mortgage loans increased $110.7 million from $88.1 million at June 30, 1997 to
$198.8 million at June 30, 1998. These amounts include the payoff of
approximately $3.7 million in mortgage loans in June 1998.
Interest expense for the quarter ended June 30, 1998 totaled $5.4
million, increasing $2.0 million over interest expense for the quarter ended
June 30, 1997 of $3.4 million. The increase is primarily due to the recognition
of a quarter's interest on the $17.1 million Mortgage Notes issued in August of
1997 and the $4.75 million Mortgage Note issued in March 1998 and to the
additional amounts outstanding under the Bank Credit Facility.
Depreciation for the quarter ended June 30, 1998 totaled $3.3 million,
increasing $1.2 million over depreciation for the quarter ended June 30, 1997 of
$2.1 million. This is due to the acquisition of the 29 real estate properties
subsequent to June 30, 1997.
Historically, the Company has made material investments in assisted
living facilities, skilled nursing facilities, and construction and development
projects, which are investment activities not compatible with Healthcare
Realty's investment strategies. The definitive merger agreement prohibits the
Company from making new commitments for these types of investments. As a result
of these restrictions and as a further result of the requisite commitment of
time and effort by the management of the Company to the merger process, the
Company's level of development activity during the second and third quarters has
declined significantly from historical levels. This decreased level of
development activity did not materially affect results of operations for the
second quarter, but revenue growth could be adversely affected in future
periods.
10
<PAGE> 12
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
For the six months ended June 30, 1998, the Company reported basic net
income of $18.2 million (after preferred dividends paid of $3.3 million), or
$0.85 per common share, compared to $12.7 million, or $0.86 per common share at
June 30, 1997.
Revenues for the six months ended June 30, 1998 totaled $43.2 million,
increasing $19.0 million over revenues for the six months ended June 30, 1997 of
$24.2 million. The increase in revenues is primarily attributable to additional
rental and mortgage interest income from investments made subsequent to June 30,
1997.
Interest expense for the six months ended June 30, 1998 totaled $10.4
million, increasing $4.4 million over interest expense for the six months ended
June 30, 1997 of $6.0 million. The increase was due to additional interest
related to the $17.1 million Mortgage Note issued in August 1997, the $4.75
million Mortgage Note issued in March 1998 and the $17.0 million Mortgage Note
issued in June 1997, as well as an increase in the amounts outstanding under the
Bank Credit Facility. In addition, the Company recognized a full quarter's
interest on the 6.55 Debenture issued in March 1997 which was offset by the
decrease in interest on the 10.5% Debentures due to conversions into the
Company's common stock.
Depreciation for the six months ended June 30, 1998 totaled $6.2
million increasing $2.4 million over depreciation for the six months ended June
30,1997 of $3.8 million. This is primarily due to the acquisition of real estate
properties subsequent to June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the outstanding balance of the Bank Credit Facility
was $174.6 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 mortgage loans subsequent to June 30, 1998, the
balance of the Bank Credit Facility as of July 22, 1998 was $180,000,000. As
discussed more fully in Note 11, the Company has secured a short-term line of
credit with NationsBank for up to $40 million.
Borrowings under the Bank Credit Facility bear interest at a rate
chosen by the Company from either the Bank's base rate or the Eurodollar rate
plus a percentage ranging from 1.00 % to 1.625%, depending upon the Company's
senior debt to consolidated total capital ratio for the preceding quarter. The
Company has an interest rate swap ("Swap") agreement with NationsBank which
effectively fixes the base rate at 5.959% on a $50 million notional amount of
borrowings under the Bank Credit Facility. The Swap will be in effect until
March 2003, unless NationsBank elects to cancel at the three year anniversary of
the Swap in March 2001.
On July 24, 1998, the Company declared a dividend of $0.495 per share
to the holders of common stock on August 3, 1998. The dividend will be paid in
cash on August 17, 1998. The dividend related to the quarter ended June 30,
1998.
11
<PAGE> 13
COMMITMENTS
The Company has committed a total of approximately $218.7 million
towards the acquisition and construction of real estate properties and providing
mortgage financing. As of June 30, 1998, the Company had funded approximately
$127.7 million towards these commitments, with the balance of $91 million
expected to be funded during the next 12 months. Financing for these commitments
may be provided by funds from operations, borrowings under the Bank Credit
Facility or private or public offerings of debt or equity.
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 1996. 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.
12
<PAGE> 14
PART II - OTHER INFORMATION
<TABLE>
<S> <C> <C>
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
A report on Form 8-K was filed by the Company on June 15, 1998
reporting the signing of a definitive merger agreement between
Healthcare Realty and the Company.
</TABLE>
13
<PAGE> 15
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 14, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF CAPSTONE CAPITAL CORPORATION FOR THE QUARTER ENDED JUNE 30, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
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