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 June 30, 2000
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 1-13355
SECURITY CAPITAL GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland 36-3692698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Lincoln Avenue, Santa Fe, New Mexico 87501
(Address of principal executive offices) (Zip Code)
(505) 982-9292
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for the
past 90 days.
Yes X No____
The number of shares outstanding of the Registrant's common stock as
of August 9, 2000 was:
Class A Common Shares, $.01 par value - 1,102,585 shares
Class B Common Shares, $.01 par value - 52,710,070 shares
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
INDEX
Page
Number(s)
PART I. Financial Information ---------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 2000 (unaudited) and
December 31, 1999........................................... 1
Consolidated Statements of Operations and Comprehensive Income -
Three and six months ended June 30, 2000 and 1999 (unaudited) 2
Consolidated Statement of Shareholders' Equity - Six months
ended June 30, 2000 (unaudited).............................. 4
Consolidated Statements of Cash Flows - Six months ended
June 30, 2000 and 1999 (unaudited)........................... 5
Notes to Consolidated Financial Statements (unaudited).......... 7
Report of Independent Public Accountants........................ 20
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 21
Item 3. Quantitative and Qualitative Disclosure About Market Risk....... 30
PART II. Other Information
Item 1. Legal Proceedings............................................... 30
Item 4. Submission of Matters to a Vote of Security Holders............. 31
Item 6. Exhibits and Reports on Form 8-K................................ 31
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Investments, at equity:
Archstone Communities Trust $ 807,743 $ 826,957
ProLogis Trust 574,267 591,449
Security Capital European Realty 395,365 419,039
Security Capital Preferred Growth Incorporated 83,125 75,504
Security Capital U.S. Realty 838,471 746,449
SC-US Real Estate Shares 21,517 --
------------- --------------
2,720,488 2,659,398
------------- --------------
Real estate, less accumulated depreciation 985,027 1,073,474
Investments in publicly traded real estate securities, at market value 10,100 10,505
SC-US Real Estate Shares, at market value -- 49,466
------------- --------------
Total real estate investments 3,715,615 3,792,843
Cash and cash equivalents 6,537 30,567
Other assets 125,228 133,741
------------- --------------
Total assets $ 3,847,380 $ 3,957,151
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit $ 260,300 $ 216,349
Mortgage and construction notes payable 242,842 237,356
Long-term debt 699,641 699,606
Convertible debentures 230,658 278,951
Capital lease obligation 138,982 140,854
Accounts payable and accrued expenses 106,648 96,300
Deferred income taxes 16,190 12,225
------------- --------------
Total liabilities 1,695,261 1,681,641
Minority interests 10 94,723
Shareholders' Equity:
Class A Common Shares, $.01 par value; 20,000,000 shares authorized;
1,116,590 and 1,218,411 shares issued and outstanding in
2000 and 1999, respectively 11 12
Class B Common Shares, $.01 par value; 229,537,385 shares authorized;
51,984,350 and 52,695,620 shares issued and outstanding in
2000 and 1999, respectively 520 527
Series B Preferred Shares, $.01 par value; 257,642 shares issued and
outstanding in 2000 and 1999; stated liquidation preference of
$1,000 per share 257,642 257,642
Additional paid-in capital 2,215,741 2,308,274
Accumulated other comprehensive loss (30,067) (12,020)
Accumulated deficit (291,738) (373,648)
------------- --------------
Total shareholders' equity 2,152,109 2,180,787
------------- --------------
Total liabilities and shareholders' equity $ 3,847,380 $ 3,957,151
============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-1-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME:
Equity in earnings (loss) of:
Archstone Communities Trust $ 30,664 $ 19,723 $ 46,113 $ 34,309
ProLogis Trust 5,968 4,320 19,790 5,325
Security Capital European Realty (95) (425) 584 (833)
Security Capital Preferred Growth
Incorporated 7,723 9,545 10,001 5,515
Security Capital U.S. Realty 119,036 96,724 119,555 18,758
SC-US Real Estate Shares 2,863 -- 4,036 --
Strategic Hotel Capital Incorporated -- 5,999 -- 11,247
Realized capital gains, net 8,840 482 8,581 894
Change in unrealized gain (loss) on investments 210 859 (45) 946
Financial Services Division revenues from
related parties 19,729 20,557 39,920 39,737
Property revenue 70,233 54,954 132,093 104,421
SC-US Real Estate Shares income -- 9,072 -- 6,915
Other income, net 1,154 3,320 2,699 4,076
--------- --------- --------- ---------
266,325 225,130 383,327 231,310
--------- --------- --------- ---------
EXPENSES:
Financial Services Division expenses 16,979 19,742 32,803 39,734
General, administrative and other expenses 10,891 18,053 21,813 34,277
Depreciation and amortization 11,938 11,357 23,860 22,410
Interest expense 31,224 35,082 63,011 66,100
Property expenses 28,969 27,397 56,689 51,038
Provision for loss on real estate 71,000 -- 71,000 --
Homestead special charge 491 65,296 (1,182) 65,296
Provision for loss on sale of Strategic Hotel -- 55,245 -- 55,245
SC-US Real Estate Shares expenses -- 324 -- 118
--------- --------- --------- ---------
171,492 232,496 267,994 334,218
--------- --------- --------- ---------
Earnings (loss) from operations 94,833 (7,366) 115,333 (102,908)
Provision for income tax expense (benefit):
Current 3,907 (910) 7,301 3,310
Deferred 21,895 30,785 21,108 (4,131)
--------- ---------- --------- ---------
Total income tax expense (benefit) 25,802 29,875 28,409 (821)
Minority interests in net (earnings) loss of
subsidiaries (1,052) 19,049 (2,149) 20,839
--------- ---------- --------- ---------
Earnings (loss) before extraordinary item and
change in accounting principle 67,979 (18,192) 84,775 (81,248)
Extraordinary item - gain on early
extinguishment of debt, net of tax 6,074 -- 6,152 --
Change in accounting principle - cumulative
effect on prior years of expensing costs
of start-up activities, net of minority
interest -- -- -- (16,136)
--------- --------- --------- ---------
Net earnings (loss) 74,053 (18,192) 90,927 (97,384)
Less Preferred Share dividends (4,508) (4,508) (9,017) (9,017)
--------- --------- --------- ---------
Net earnings (loss) attributable to common shares $ 69,545 $ (22,700) $ 81,910 $(106,401)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-2-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME - (Continued)
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss) attributable to common shares $ 69,545 $ (22,700) $ 81,910 $(106,401)
Other comprehensive loss:
Foreign currency translation adjustments (5,849) (9,374) (18,047) (26,029)
--------- --------- --------- ---------
Comprehensive income (loss) $ 63,696 $ (32,074) $ 63,863 $(132,430)
========= ========= ========= =========
Weighted-average Class B common shares outstanding:
Basic 107,950 120,402 109,003 120,420
========= ========== ========= =========
Diluted 120,058 120,402 121,101 120,420
========= ========== ========= =========
Earnings (loss) per share:
Basic earnings (loss) before extraordinary
item and change in accounting principle $ 0.59 $ (0.19) $ 0.70 $ (0.75)
Extraordinary item - gain on early
extinguishment of debt, net of tax 0.05 -- 0.05 --
Change in accounting principle -
cumulative effect of expensing
cost of start-up activities -- -- -- (0.13)
--------- ---------- --------- ---------
Basic net earnings (loss) attributable to
common shares $ 0.64 $ (0.19) $ 0.75 $ (0.88)
========= ========== ========= =========
Diluted earnings (loss) before extraordinary
item and change in accounting principle $ 0.55 $ (0.19) $ 0.67 $ (0.75)
Extraordinary item - gain on early
extinguishment of debt, net of tax 0.05 -- 0.05 --
Change in accounting principle -
cumulative effect of expensing
cost of start-up activities -- -- -- (0.13)
--------- ---------- --------- ---------
Diluted net earnings (loss) attributable to
common shares $ 0.60 $ (0.19) $ 0.72 $ (0.88)
========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 2000
(In thousands, except shares)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------- Series B
Class A Class B Preferred Accumulated
------------------ ------------------ Stock at Additional Other Total
Shares Par Shares Par Liquidation Paid-in Comprehensive Accumulated Shareholders'
Outstanding Value Outstanding Value Value Capital Loss Deficit Equity
----------- ----- ----------- ------ ----------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 1,218,411 $ 12 52,695,620 $ 527 $ 257,642 $2,308,274 $ (12,020) $ (373,648) $ 2,180,787
Conversion of Class A Shares
to Class B Shares (76,213) (1) 3,810,645 38 -- (37) -- -- --
Conversion of Convertible
Debentures -- -- 10,699 -- -- 252 -- -- 252
Share repurchase program (29,708) -- (4,550,700) (45) -- (81,199) -- -- (81,244)
Issuance of Shares, net 4,100 -- 18,086 -- -- 2,207 -- -- 2,207
Net earnings -- -- -- -- -- -- -- 90,927 90,927
Series B Preferred Share
dividends -- -- -- -- -- -- -- (9,017) (9,017)
Effect of affiliate's sale
of Shares, net of tax -- -- -- -- -- (13,756) -- -- (13,756)
Foreign currency translation
adjustments -- -- -- -- -- -- (18,047) -- (18,047)
--------- ----- ---------- ------ ----------- ---------- ----------- --------- -----------
Balances at June 30, 2000 1,116,590 $ 11 51,984,350 $ 520 $ 257,642 $2,215,741 $ (30,067) $(291,738) $ 2,152,109
========= ===== ========== ====== =========== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended,
June 30,
-------------------------
2000 1999
--------- --------
<S> <C> <C>
Operating Activities:
Net earnings (loss) $ 90,927 $(97,384)
Adjustments to reconcile net earnings (loss) to cash flows
provided by operating activities:
Deferred income tax expense (benefit) 21,108 (4,131)
Minority interests 2,149 (20,839)
Gain on early extinguishment of debt, net of tax (6,152) --
Cumulative effect on prior years of expensing costs of
start-up activities, net of minority interests -- 16,136
Equity in earnings of unconsolidated investees (200,079) (67,780)
Distributions from unconsolidated investees 78,061 75,131
Realized capital gains, net (8,581) (894)
Change in unrealized (gain) loss on investments 45 (946)
Depreciation and amortization 23,860 22,410
Provision for loss on real estate 71,000 --
Homestead special charge -- 51,587
Provision for loss on sale of Strategic Hotel -- 55,245
Other 1,201 3,039
(Increase) decrease in other assets 1,546 (7,757)
Increase in accounts payable and accrued expenses 6,802 13,219
Net operating cash flows of SC-US Real Estate Shares -- (2,110)
--------- --------
Net cash flows provided by operating activities 81,887 34,926
--------- --------
Investing Activities:
Real estate investments (23,302) (90,264)
Proceeds from sale of land 19,622 --
Purchase of minority interest in Homestead (65,356) --
Redemptions from (investments in):
Security Capital U.S. Realty -- (1,686)
SC-US Real Estate Shares 7,250 --
Publicly traded real estate securities, net 360 5,709
Other (2,402) (3,461)
Net investing cash flows of SC-US Real Estate Shares -- 32,666
--------- --------
Net cash flows used in investing activities (63,828) (57,036)
--------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
2000 1999
------------ ---------
<S> <C> <C>
Financing Activities:
Proceeds from lines of credit $ 235,600 $ 323,130
Payments on lines of credit (191,649) (368,610)
Proceeds from mortgage notes 5,486 --
Proceeds from long-term debt offerings -- 85,335
Payments on capital leases (1,872) (122,028)
Debt issuance costs (1,556) (7,071)
Proceeds from issuance of shares to minority
interest holders -- 7,732
Proceeds from issuance of Shares, net 2,207 3,060
Repurchase of common shares (81,244) --
Preferred dividends paid (9,017) (9,017)
Sale of real estate, net -- 127,261
Other (44) (2,357)
Net financing cash flows of SC-US Real Estate Shares -- 5,407
------------ ---------
Net cash flows (used in) provided by financing
activities (42,089) 42,842
------------ ---------
Net increase (decrease) in cash and cash equivalents (24,030) 20,732
Cash and cash equivalents, beginning of period 30,567 13,209
------------ ---------
Cash and cash equivalents, end of period $ 6,537 $ 33,941
============ =========
Non-Cash Investing and Financing Activities:
Conversion of Convertible Debentures $ 252 $ 2,023
============ =========
Increase in property and equipment and lease obligation
from capital lease $ -- $ 145,000
============ =========
Effect of affiliate's sale of Shares $ 13,756 $ --
============ =========
Exchange of Convertible Debentures for Archstone shares $ 42,500 $ --
============ =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
Security Capital Group Incorporated ("Security Capital") is an
international real estate research, investment and operating management company.
Its strategy is to create the optimal organization to hold significant ownership
positions in real estate operating companies that generate substantial internal
growth and third-party service income and are able to become market leaders by
creating brand value. Security Capital operates its business through two
divisions. The Capital Division provides operational and capital deployment
oversight to direct and indirect investments in real estate investment trusts
("REITs") and real estate operating companies. The Capital Division generates
earnings principally from its ownership of these affiliates (see note 2). The
Financial Services Division generates fees principally from capital management
and capital markets activities. In addition, corporate services and research
services are provided which enable Security Capital and its affiliates to
consolidate certain activities to benefit from economies of scale. Security
Capital is a Maryland corporation.
The accompanying consolidated financial statements include the results
of Security Capital, its wholly owned Financial Services Division subsidiaries
and its majority-owned Capital Division investees, which include Belmont Corp
("Belmont"), Homestead Village Incorporated ("Homestead") and Security Capital
European Real Estate Shares ("SC-European Real Estate Shares"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of Security Capital's
consolidated financial statements for the interim periods presented. Certain
reclassifications have been made in the 1999 consolidated financial statements
and notes to consolidated financial statements in order to conform to the 2000
presentation. The results of operations for the six-month period ended June 30,
2000, are not necessarily indicative of the results to be expected for the
entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses recognized during
the reporting period. Actual results could differ from those estimates.
The consolidated financial statements of Security Capital as of June
30, 2000, are unaudited and, pursuant to the rules of the Securities and
Exchange Commission, certain information and footnote disclosures normally
included in financial statements have been omitted. While management of Security
Capital believes that the disclosures presented are adequate, these interim
consolidated financial statements should be read in conjunction with Security
Capital's 1999 audited consolidated financial statements contained in Security
Capital's 1999 Annual Report on Form 10-K.
Restatement of prior period results:
In the fourth quarter of 1999, the Board of Directors of Security
Capital European Realty ("SC-European Realty") approved a change in operating
strategy by determining to retain, in general, at least an 80% interest in its
investees and by becoming more active in the day-to-day operations of its
investees.
-7-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As a result of this change in strategy, SC-European Realty changed its
basis of accounting from fair value accounting to historical cost accounting.
Under generally accepted accounting principles ("GAAP"), such a change in
accounting requires a restatement of all prior periods so that the results of
those periods are reported as if this change had been made retroactive to the
entity's inception. Accordingly, Security Capital has restated its June 30, 1999
consolidated financial statements.
Security Capital accounts for its investment in SC-European Realty by
the equity method. The impact of this restatement on Security Capital's
financial statements for the six months ended June 30, 1999, is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
As Previously
Reported Restated
------------------ ------------------
<S> <C> <C>
Consolidated Statement of Operations and
Comprehensive Income:
Revenues, including equity in earnings (loss) $ 205,897 $ 231,310
Loss from operations (128,321) (102,908)
Net loss attributable to common shares (122,785) (106,401)
Basic loss per Class B Share $ (1.02) $ (0.88)
Diluted loss per Class B Share $ (1.02) $ (0.88)
</TABLE>
Real Estate and Depreciation
Real estate is stated at cost. Direct and certain related indirect
costs associated with the successful acquisition and development of land are
capitalized. Costs associated with unsuccessful land acquisitions are expensed
at the time the pursuit is abandoned. Maintenance and repairs are charged to
operations as incurred.
Depreciation is computed by the straight-line method principally over
the following estimated useful lives:
Buildings 20 - 40 years
Furniture, fixtures and equipment 3 - 10 years
Properties under the capital lease at Homestead are stated at the net
present value of minimum lease payments, and are being amortized over the
approximate 17 year lease term. Maintenance and repairs are charged to
operations as incurred. Renewals and improvements are funded by monies paid into
an escrow account for that purpose, and, as ownership of the leased properties
and equipment and the renewals and improvements escrow account remain with the
lessor at the end of the lease, no such amounts are capitalized.
-8-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) Real Estate Investments
Security Capital held the following investments at June 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
Security Capital's
Net Investments
% Ownership as of (Redemptions) for the
--------------------------- Six Months Ended
June 30, December 31, June 30, 2000
Investment Type of Entity 2000 1999 (in thousands)
------------------------------------ --------------------- --------- ------------- --------------------------
<S> <C> <C> <C> <C>
EQUITY-METHOD INVESTEES:
Archstone Communities Trust Apartment REIT 38.0%(b) 39.2% $ (32,690)
("Archstone") (publicly traded)
ProLogis Trust Industrial REIT 30.5% 30.8% --
("ProLogis") (publicly traded)
SC-European Realty Global real estate 34.6% 34.6% 11
investments
(private entity)
Security Capital Preferred Growth Convertible security 9.3% 9.3% 266
Incorporated investments in real
("SC-Preferred Growth") estate companies
(private REIT)
Security Capital U.S. Realty U.S. real estate 40.6% 39.6% --
("SC-U.S. Realty") investments
(publicly traded)
Security Capital U.S. Real Estate U.S. real estate 24.4% 51.6% (7,250)
Shares securities fund
("SC-US Real Estate Shares")(a) (mutual fund)
CONSOLIDATED INVESTEES:
Belmont Senior assisted living 99.9% 100% 14,857
(private entity)
Homestead Extended stay lodging 99.9%(c) 87.0% 63,735
(private entity)
SC-European Real Estate Shares European real 99.9% 99.4% --
estate securities fund
(mutual fund)
</TABLE>
(a) During the quarter ended March 31, 2000, Security Capital's ownership in
SC-US Real Estate Shares fell below 50%. As a result, Security Capital's
investment in SC-US Real Estate Shares is being accounted for under the
equity method in 2000.
(b) During the second quarter of 2000, Security Capital exchanged 1,589,776
shares of Archstone for $42,500,000 face value of 6.5% convertible
debentures which reduced its ownership in Archstone from 39.2% to 38.0%.
The gain on the sale of the shares was approximately $8,747,000.
(c) During the second quarter of 2000, Security Capital acquired substantially
all remaining Homestead shares it did not previously own, bringing its
ownership percentage in Homestead from 87.0% to 99.9%.
-9-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Security Capital received dividends and interest (Strategic Hotel only
in 1999) from its investees as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Dividends Received
-----------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Dividends:
Archstone $ 20,386 $ 20,180 $ 41,384 $ 40,360
Homestead 25,000 -- 25,000 --
ProLogis 16,718 16,329 33,436 32,213
SC-European Real Estate Shares 51 109 51 143
SC-Preferred Growth 1,323 1,298 2,646 2,558
SC-US Real Estate Shares 261 559 595 1,259
---------- ---------- ---------- ----------
63,739 38,475 103,112 76,533
---------- ---------- ---------- ----------
Interest:
Strategic Hotel -- 3,271 -- 6,541
---------- ---------- ---------- ----------
$ 63,739 $ 41,746 $ 103,112 $ 83,074
========== ========== ========== ==========
Dividend Amount Per Investee Share
-----------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- --------- ----------
Dividends:
Archstone $ 0.3850 $ 0.3700 $ 0.7700 $ 0.7400
Homestead 0.2083 -- 0.2083 --
ProLogis 0.3350 0.3272 0.6700 0.6455
SC-European Real Estate Shares 0.0501 0.0987 0.0501 0.1335
SC-Preferred Growth 0.3350 0.3300 0.6700 0.6500
SC-US Real Estate Shares 0.1238 0.1218 0.2487 0.2417
</TABLE>
-10-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Presented below is summarized earnings information for Security Capital's
equity-method investees for the six months ended June 30, 2000 and 1999 (in
thousands):
Historical cost accounting investees:
<TABLE>
<CAPTION>
SC-European Strategic
Archstone ProLogis(a) Realty Hotel
-------------------- -------------------- -------------------- ---------
2000 1999 2000 1999 2000 1999(b) 1999(c)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 361,829 $ 324,704 $ 316,491 $ 239,375 $ 74,777 $ 54,758 $ 350,133
Net earnings before extraordinary items
and change in accounting principle 132,703 100,723 93,082 43,194 1,689 (2,412) 15,462
Net earnings attributable to common shares
before change in accounting principle 119,902 88,302 64,527 15,256 1,689 (3,329) 15,462
Security Capital share of net earnings
before change in accounting principle 46,113 34,309 19,790 5,325 584 (833) 4,706
Security Capital interest income from
affiliate -- -- -- -- -- -- 6,541
</TABLE>
Fair value accounting investees:
<TABLE>
<CAPTION>
SC-US
Real
Estate
SC-Preferred Growth Shares(d) SC-U.S. Realty
-------------------------- ------------ ----------------------
2000 1999 2000 2000 1999
---------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net investment income $ 26,473 $ 27,576 $ 1,838 $ 35,212 $ 28,730
Realized gains (losses) on investments (1,964) (12,332) 130 (83,059) 1,620
Increase (decrease) in market value of
investments 83,337 41,155 9,329 342,759 26,963
Adjusted net earnings (loss)(e) 107,846 56,399 11,297 294,912 57,313
Security Capital share of adjusted net
earnings (loss) 10,001 5,515 4,036 119,555 18,758
</TABLE>
(a) Results for 2000 include Meridian Industrial Trust, Inc. for a full six
months. Meridian was acquired by ProLogis on March 30, 1999.
(b) 1999 amounts have been restated as discussed in Note 1.
(c) On September 10, 1999, Security Capital sold its entire ownership position
in Strategic Hotel.
(d) During the quarter ended March 31, 2000, Security Capital's ownership in
SC-US Real Estate Shares fell below 50%. As a result, Security Capital's
investment in SC-US Real Estate Shares is accounted for under the equity
method in 2000.
(e) SC-U.S. Realty's earnings are adjusted to exclude its realized and
unrealized losses on Security Capital securities.
-11-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At June 30, 2000 and December 31, 1999, the composition of real estate was:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------ -----------------
<S> <C> <C>
Extended stay lodging properties:
Land $ 162,181 $ 197,226
Buildings and improvements 495,694 616,187
Furniture, fixtures and equipment 65,418 88,145
------------------ -----------------
Subtotal, owned properties 723,293 901,558
Properties under a capital lease 145,000 145,000
------------------ -----------------
868,293 1,046,558
Less accumulated depreciation (68,227) (72,008)
Properties held for sale 90,721 22,960
------------------ -----------------
890,787 997,510
Senior assisted living properties 94,240 75,964
------------------ -----------------
$ 985,027 $ 1,073,474
================== =================
</TABLE>
In June 2000, certain extended stay lodging properties were classified as
held for sale and a provision for loss of $71 million was recorded to reduce the
properties' carrying value to their estimated fair value less cost to sell. The
earnings from operations for these properties, which are included in Security
Capital's earnings from operations for the three months ended June 30, 2000 and
1999, are $4.3 million and $3.4 million, respectively, and $8.4 million and $6.9
million for the six months ended June 30, 2000 and 1999, respectively.
(3) Financial Services Division
Financial Services Division revenues were earned from the following
sources (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Capital Markets Group $ 2,002 $ 3,283 $ 5,015 $ 4,183
Global Capital Management Group 14,845 14,528 29,030 28,782
Corporate Services Group 3,702 4,128 7,772 9,635
New Technology Business 85 31 139 36
Real Estate Research Group 118 167 228 396
--------- --------- --------- ---------
Total Financial Services
Division revenues 20,752 22,137 42,184 43,032
Less amounts eliminated in
consolidation (1,023) (1,580) (2,264) (3,295)
--------- --------- --------- ---------
Consolidated Financial
Services Division revenues
from related parties $ 19,729 $ 20,557 $ 39,920 $ 39,737
========= ========= ========= =========
</TABLE>
-12-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Segment Reporting
Security Capital operates its business based on two reportable
segments. These segments are managed separately due to the nature of their
operations. The first segment, the Capital Division, records revenues by
reporting its pro-rata share of its investees' earnings before depreciation,
amortization and deferred taxes ("EBDADT") and the second segment, the Financial
Services Division, records revenues based on the services provided to its
customers and includes all revenues received from affiliates. These segments are
described in notes 2 and 3 above.
Presented below is a Statement of EBDADT by reportable segment (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended, Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Capital Division:
Equity in Investees' EBDADT(1) $ 100,583 $ 91,236 $ 192,194 $ 175,263
Interest and other income 244 901 956 1,342
---------- --------- ---------- ----------
100,827 92,137 193,150 176,605
---------- --------- ---------- ----------
Operating expenses(2) 5,714 11,937 11,115 20,150
Interest expense 20,845 21,117 41,331 40,948
Current income tax expense (benefit) 2,607 (1,130) 5,753 2,739
Convertible preferred share dividends 4,508 4,508 9,017 9,017
---------- --------- ---------- ----------
Capital Division EBDADT(3) 67,153 55,705 125,934 103,751
---------- --------- ---------- ----------
Financial Services Division:
Revenues 20,752 22,137 42,184 43,032
Operating expenses(2) 16,432 18,342 33,049 38,180
Current income tax expense 1,261 220 1,485 571
---------- --------- ---------- ----------
Financial Services Division EBDADT 3,059 3,575 7,650 4,281
---------- --------- ---------- ----------
EBDADT before special items 70,212 59,280 133,584 108,032
Realized gains (losses) 226 1,573 (568) 1,567
Extraordinary gain on retirement of debt,
net of tax 6,074 -- 6,152 --
Gain on sale of Archstone stock, net of tax 8,747 -- 8,747 --
Homestead special (charge) credit(4) (491) (45,581) 1,182 (45,581)
Strategic Hotel provision -- (55,288) -- (55,288)
---------- --------- ---------- ----------
Basic EBDADT $ 84,768 $ (40,016) $ 149,097 $ 8,730
========== ========= ========== ==========
</TABLE>
(1) 1999 equity in Capital Division EBDADT has been restated to conform 1999
results with the new definition of Funds From Operations, which was revised
by the National Association of Real Estate Investment Trusts effective
January 1, 2000. In addition, SC-U.S. Realty restated its first and second
quarter 1999 results to reflect discontinued operations at one of its
investees.
(2) Included in operating expenses are allocations of general and
administrative expenses to each division based on revenues. For the
quarter, prior to such allocation, Capital Division expenses were $1,589 in
2000 and $5,019 in 1999, Financial Services Division expenses were $14,582
in 2000 and $17,711 in 1999 and general and administrative expenses were
$5,975 in 2000 and $7,549 in 1999.
(3) For purposes of calculating Capital Division EBDADT, Security Capital
applies all interest expense, preferred share dividends and similar charges
for invested capital to the Capital Division. Capital Division operating
expenses include the direct costs of personnel assigned to the Capital
Division plus a proportionate share of general and administrative costs
based on revenues.
-13-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) The special (charge) credit in 2000 represents the excess of Homestead's
1999 original special charge over current estimates. In the second quarter
of 2000, such credit was partially offset by non-capitalizable costs
incurred in conjunction with the acquisition by Security Capital of the
remaining 13% of Homestead it did not already own. The special charge
originally recorded by Homestead in the second quarter of 1999 was for land
write-downs, employee severances and other expenses related to terminating
its development program.
Presented below is a reconciliation of net earnings (loss) to EBDADT
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -----------------------------
2000 1999 2000 1999
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net earnings (loss) attributable
to common shares $ 69,545 $ (22,700) $ 81,910 $ (106,401)
Investee reconciling items:
Real estate depreciation 42,163 51,548 84,560 99,705
Gains on sale of depreciated property (14,318) (5,360) (17,605) (7,865)
Provision for loss on real estate 71,000 -- 71,000 --
Unrealized gains, including foreign currency (113,279) (101,633) (110,483) (5,808)
EBDADT, net of dividends, from strategic
investees of SC-U.S. Realty 8,341 7,770 17,702 15,610
Other (1,637) 48 762 2,141
---------- -------- --------- ------------
(7,730) (47,627) 45,936 103,783
---------- -------- --------- ------------
Security Capital reconciling items:
Deferred tax expense (benefit) 21,895 30,785 21,108 (4,131)
Change in accounting principle -- -- -- 16,136
Other 1,058 (474) 143 (657)
---------- -------- --------- ------------
22,953 30,311 21,251 11,348
---------- -------- --------- ------------
Basic EBDADT $ 84,768 $(40,016) $ 149,097 $ 8,730
========== ======== ========= ============
</TABLE>
-14-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) INDEBTEDNESS
Lines of Credit:
A summary of the lines of credit borrowings as of June 30, 2000, is as
follows (in thousands):
<TABLE>
<CAPTION>
Security
Capital Homestead Combined
--------- --------- --------
<S> <C> <C> <C>
Total lines of credit $ 470,000 $ 110,000 $ 580,000
Borrowings outstanding at June 30 175,800 84,500 260,300
</TABLE>
At June 30, 2000, Security Capital had a $470,000,000 unsecured
revolving line of credit with Wells Fargo Bank, National Association (Wells
Fargo), as agent for a group of lenders. Borrowings accrue interest at LIBOR
plus a margin (1.3% as of June 30, 2000), based upon Security Capital's credit
rating, or a Base Rate (defined as the higher of Wells Fargo prime rate or the
Federal Funds rate plus .50%). The agreement is effective through April 6, 2002,
with an option to renew for successive one-year periods with the approval of
lenders. Commitment fees on the line range from 0.125% to 0.20% per annum based
on the average unfunded line of credit balance. The line is guaranteed by SC
Realty Incorporated ("SC Realty") and SC Realty Shares Limited, each of which is
a wholly owned subsidiary of Security Capital.
On February 29, 2000, Homestead entered into an amended and restated
bank credit facility which allows for $110,000,000 of total borrowings of which
$35,000,000 is available on a revolving basis. The amended and restated line
matures February 28, 2003, bears interest at LIBOR plus 2.5%, is secured by 64
operating properties, permits payment of dividends up to 50% of free cash flow
(as defined in the agreement) and requires maintenance of financial ratio and
coverage covenants.
Each line of credit requires maintenance of certain financial
covenants. Security Capital, SC Realty, SC Realty Shares Limited and Homestead
were in compliance with all such covenants at June 30, 2000.
During a non-monetary default, no payments other than dividends paid on
Security Capital's Series B Preferred Shares, are permitted. Distributions and
dividends paid, other than those on Security Capital's Series B Preferred
Shares, cannot exceed 50% of the cash flow available for distributions, provided
no event of default has occurred and is continuing. In the event of a monetary
default, all distributions are prohibited.
Homestead Convertible Mortgage Notes Payable:
At June 30, 2000, Homestead had outstanding convertible mortgage notes
in the principal amount of $221,334,000, all of which were payable to Archstone.
The notes are collateralized by 54 Homestead properties. On July 24, 2000,
Security Capital exchanged shares of its Archstone stock for cash and the
convertible mortgage notes with Archstone (See note 9).
-15-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Belmont Construction Notes Payable:
At June 30, 2000, Belmont had $63,856,000 in commitments for
construction loans. The loans bear interest at rates of 30-day LIBOR plus 2.65%
during the construction period and 30-day LIBOR plus 2.35% after certain debt
coverage ratios are achieved. The outstanding balance and weighted average
interest rate as of June 30, 2000, was $21,508,000 and 8.86%, respectively. The
loans have a 3-year term and are secured by deeds of trust on land, building,
furniture and fixtures and assignments of rents and leases.
The terms of the construction loans require Belmont to maintain certain
financial ratios. Belmont was in compliance with all such requirements as of
June 30, 2000.
Senior Unsecured Notes:
Security Capital has the following unsecured long-term debt outstanding
as of June 30, 2000 (in thousands):
<TABLE>
<CAPTION>
Principal Maturity Semi-annual interest Balance Outstanding
Amount Interest rate Date Payment Dates June 30, 2000
--------------- ------------- ------------- ------------------------- ---------------------
<S> <C> <C> <C> <C>
$ 100,000 7.75% 11/15/03 May and November 15 $ 99,936
14,700 7.66% 12/21/04 March and September 15 14,702
5,000 7.75% 01/11/05 March and September 15 5,000
54,550 7.80% 01/12/05 March and September 15 54,550
25,750 7.80% 01/19/05 March and September 15 25,750
200,000 6.95% 06/15/05 June and December 15 199,848
100,000 7.15% 06/15/07 June and December 15 99,855
200,000 7.70% 06/15/28 June and December 15 200,000
---------------- ---------------------
$ 700,000 $ 699,641
================ =====================
</TABLE>
All of the Notes are redeemable at any time at the option of Security
Capital, in whole or in part, at a redemption price equal to the sum of the
principal amount of the Notes being redeemed plus accrued interest thereon to
the redemption date plus an adjustment, if any, based on the yield to maturity
relative to treasury security market yields available at redemption.
Convertible Debentures:
At June 30, 2000, Security Capital had $230,658,000 of 6.5% convertible
subordinated debentures due 2016 outstanding. The convertible debentures accrue
interest at 6.5% per annum and pay interest semi-annually in June and December.
The convertible debentures are convertible into Class A Shares at $1,153.90 per
share, at the option of the holder. Security Capital can redeem the convertible
debentures at par plus accrued interest at any time, upon not less than 60 days
nor more than 90 days prior written notice to the holders.
-16-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the second quarter of 2000, Security Capital exchanged, with an
unaffiliated party, 1,589,776 shares of Archstone for $42.5 million face value
of convertible debentures, resulting in an extraordinary gain of $6.1 million,
net of tax, on the retirement of the convertible debentures.
Interest:
Presented below are the interest costs incurred by Security Capital and
its consolidated subsidiaries (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total interest incurred $ 31,806 $ 37,266 $ 64,146 $ 72,724
========= ========= ========= =========
Homestead and Belmont capitalized
interest included in total interest incurred $ 582 $ 2,184 $ 1,135 $ 6,624
========= ========= ========= =========
Interest paid in cash $ 49,063 $ 53,653 $ 61,891 $ 66,802
========= ========= ========= =========
Amortization of deferred financing costs
included in interest expense $ 1,157 $ 1,834 $ 2,293 $ 3,399
========= ======== ========= =========
</TABLE>
(6) SHAREHOLDERS' EQUITY
Share Repurchase Program:
During 1999, Security Capital's Board of Directors authorized the
repurchase of up to $200,000,000 of Class A Shares and Class B Shares of
Security Capital. An additional $100,000,000 repurchase program for Class A
Shares and Class B Shares was authorized on May 10, 2000. As of June 30, 2000,
under the share repurchase programs, Security Capital had repurchased 99,413
Class A Shares and 10,152,247 Class B Shares for a combined purchase price of
$200,295,000.
Affiliate Sale of Security Capital Shares:
In March 2000, SC-U.S. Realty sold its holding in Security Capital's
common stock to an unrelated party at a loss of $52,987,000. Security Capital's
pro rata portion of this loss ($21,163,000) was recorded as a reduction to
additional paid-in capital.
-17-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Per Share Data:
The following is a reconciliation of the numerators and denominators used
to calculate basic and diluted earnings per Class B Common Share under SFAS 128
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------------
2000 1999 2000 1999
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary item
and change in accounting principle
attributable to Common Shares-Basic $ 63,471 $ (22,700) $ 75,758 $ (90,265)
Convertible debenture interest expense, net of tax 2,651 -- 5,390 --
--------- ---------- ----------- ----------
Net income (loss) before extraordinary item
and change in accounting principle
to Common Shares-Diluted $ 66,122 $ (22,700) $ 81,148 $ (90,265)
========= ========== =========== ==========
Weighted-average Class B Common
Shares outstanding-Basic 107,950 120,402 109,003 120,420
Increase in shares which would result from:
Exercise of options and warrants 1,554 -- 1,175 --
Conversion of convertible debentures 10,554 -- 10,923 --
--------- ---------- ----------- ----------
Weighted-average Class B Common
Shares outstanding-diluted 120,058 120,402 121,101 120,420
========= ========== =========== ===========
Per share net earnings (loss) attributable to:
Class B Common Shares before extraordinary
item and change in accounting principle:
Basic $ 0.59 $ (0.19) $ 0.70 $ (0.75)
========= ========== =========== ===========
Diluted $ 0.55 $ (0.19) $ 0.67 $ (0.75)
========= ========== =========== ===========
</TABLE>
For the three months and six months ended June 30, 2000, the
convertible debentures are assumed converted as the effect is dilutive. For all
periods, the convertible preferred shares are not assumed converted as the
effects are anti-dilutive. For loss periods, the options and warrants are not
assumed exercised as the effects are anti-dilutive.
(7) Commitments and Contingencies
Security Capital and its affiliates have committed to invest up to
$518,258,000 in SC-European Realty. As of June 30, 2000, $440,542,000 had been
funded by Security Capital and its affiliates. As of June 30, 2000, $92,909,000
had been funded by Security Capital to Belmont and an additional $17,046,000 of
unfunded commitments remained. At June 30, 2000, Belmont had approximately
$55,075,000 of unfunded commitments for developments under construction.
-18-
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) Homestead Merger
On June 8, 2000, Security Capital completed a cash tender offer and a
merger for substantially all the publicly-held shares of Homestead's common
stock and the associated preferred share purchase rights for $4.10 per share. In
connection therewith, Security Capital acquired 15,529,803 shares of Homestead
for a total cost of $65,294,000, including acquisition-related costs. Security
Capital's ownership in Homestead is now 99.9%.
(9) Subsequent Events
On July 24, 2000, Security Capital exchanged with Archstone
approximately 17.5 million shares of its Archstone common shares for $178.7
million in cash and $221.3 million face amount of Homestead convertible mortgage
notes held by Archstone. After completion of the transaction, Security Capital
owned approximately 29.1% of Archstone's outstanding common shares.
Security Capital recognized a gain on the exchange of the shares of
approximately $75.0 million and a gain on the extinguishment of the convertible
mortgage notes of $14.7 million, net of tax. Net proceeds of $178.7 million from
the sale were used to repay Security Capital's line of credit.
-19-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Security Capital Group Incorporated:
We have reviewed the accompanying consolidated balance sheet of Security Capital
Group Incorporated and subsidiaries (see note 1) as of June 30, 2000, and the
related consolidated statements of operations and comprehensive income for the
three month and six month periods ended June 30, 2000 and 1999, the consolidated
statement of shareholders' equity for the six month period ended June 30, 2000,
and the consolidated statements of cash flows for the six month periods ended
June 30, 2000 and 1999. These financial statements are the responsibility of the
Management of the Company. We were furnished with the reports of other
accountants on their reviews of the financial statements of Archstone
Communities Trust whose total assets represent 21% of the total assets of
Security Capital Group Incorporated and subsidiaries as of June 30, 2000, and
whose income represents 12% and 15% of the total income in the consolidated
statements of operations of Security Capital Group Incorporated and subsidiaries
for the six month period ended June 30, 2000 and 1999, respectively.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review and the reports of other accountants, we are not aware of
any material modifications that should be made to the financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Security Capital Group Incorporated
and subsidiaries as of December 31, 1999, and, in our report dated March 23,
2000, we expressed an unqualified opinion on that statement based on our audit
and reports of other auditors. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1999, is fairly
stated, in all material respects, in relation to the balance sheet from which it
has been derived.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 11, 2000
-20-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
The statements contained in this report that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are based on current expectations, management's
beliefs, and assumptions made by management. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance. Actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements. Security Capital
undertakes no obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise.
See Security Capital's 1999 Annual Report on Form 10-K for a discussion
of various risk factors associated with forward-looking statements made in this
document.
Overview
The results of operations for each of Security Capital's reportable
segments, the Capital Division and the Financial Services Division, are
discussed below. These two sections are followed by a discussion of Security
Capital's Liquidity and Capital Resources. All three of these sections should be
read in conjunction with the consolidated financial statements and accompanying
notes thereto and Security Capital's 1999 Annual Report on Form 10-K.
Results of Operations
Three and Six Months Ended June 30, 2000 Compared to Three and Six Months Ended
June 30, 1999
Capital Division
Earnings from the Capital Division are generated by its strategic
investments. The majority of these investments are not consolidated and the
Capital Division reports its share of their respective earnings. The
consolidated investments include Homestead (which is the largest consolidated
investment), Belmont and SC-European Real Estate Shares. Cash flow for the
Capital Division is generated through receipt of dividends. (See note 2 to the
consolidated financial statements for detail of dividends received.)
Equity in Earnings of Unconsolidated Investees
The equity in earnings of the Capital Division's unconsolidated
investees includes changes in unrealized gains or losses for SC-U.S. Realty,
SC-Preferred Growth and SC-US Real Estate Shares in 2000. These changes are
generated as a result of fluctuating market prices for the shares in their
underlying investments and are reflected in earnings due to these investees' use
of fair value accounting. Fluctuations in market prices do not have an impact on
cash flow. Declines in real estate equity security prices in 1999 materially
adversely affected Security Capital's equity in earnings of SC-U.S. Realty
during 1999 and rising security prices in 2000 have materially positively
affected such equity in earnings.
-21-
<PAGE>
Presented below is Security Capital's equity in earnings (loss) and
common share ownership interest in unconsolidated investees for the periods
indicated. Explanations of earnings changes at the investee level, which
materially impacted Security Capital's equity in earnings, follow the table
(dollar amounts in millions).
<TABLE>
<CAPTION>
Equity in Earnings(Loss)
----------------------------------------------
Three Months Ended Six Months Ended % Ownership
June 30, June 30, as of June 30,
---------------------- ------------------- ------------------------
2000 1999 2000 1999 2000 1999
-------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Archstone $ 30.7 $ 19.7 $ 46.1 $ 34.3 38.0% 39.1%
ProLogis 6.0 4.3 19.8 5.3 30.5% 30.9%
SC-European Realty (0.1) (0.4) 0.6 (0.8) 34.6% 34.6%
SC-Preferred Growth 7.7 9.5 10.0 5.5 9.3% 9.7%
SC-U.S. Realty 119.0 96.7 119.6 18.8 40.6% 37.8%
SC-US Real Estate
Shares 2.9 -- 4.0 -- 24.4% 75.6%
Strategic Hotel -- 6.0 -- 11.2 -- 30.4%
-------- -------- -------- --------
$ 166.2 $ 135.8 $ 200.1 $ 74.3
======== ======== ======== ========
</TABLE>
Archstone
Archstone's increase in earnings for the three months and six months
ended June 30, 2000 compared to the same periods in 1999 were due primarily to
increases in gains on dispositions of $28.2 million and $27.0 million,
respectively. In addition, for the three and six months ended June 30, 2000
compared to the same periods in 1999, rental revenues increased by $18.4 million
and $33.6 million, respectively, which were partially offset by increases in
depreciation and interest expense.
ProLogis
ProLogis' increase in earnings for the three months ended June 30, 2000
compared to the same period in 1999 was due to an increase in income from its
corporate distribution facilities business (which provides build-to-suit
services), partially offset by increased foreign currency exchange losses. In
March 1999, ProLogis merged with Meridian Industrial Trust. Security Capital
continues to be ProLogis' largest shareholder. ProLogis' improved earnings for
the six months ended June 30, 2000 over the same period in 1999 were due to
additional distribution facilities resulting from the Meridian merger, higher
occupancy and an increase in income generated by ProLogis' corporate
distribution facilities business.
SC-European Realty
SC-European Realty's current investments are primarily in operating and
development companies with significant pre-stabilized assets. The improvement in
earnings for the three months ended June 30, 2000 compared to the same period in
1999 was due to improved operating performance from its storage and parking
affiliates offset by realized losses on investment securities. For the six
months ended June 30, 2000 compared to the same period in 1999, the improvement
in earnings was due primarily to gains on sales of certain assets developed by
affiliates. It is expected that earnings for SC-European Realty will increase as
additional properties reach stabilization.
-22-
<PAGE>
SC-Preferred Growth
SC-Preferred Growth's increase in earnings for the six months ended
June 30, 2000 and a decrease in earnings for the three months ended June 30,
2000, compared to the same periods in 1999, were due primarily to changes in
unrealized gains or losses on investments as a result of overall changes in the
market prices of its investments.
SC-U.S. Realty
SC-U.S. Realty accounts for its investments at fair value; therefore,
market value fluctuations affect net income. For the three months ended June 30,
2000, the increase in market prices for its investees were comparable to the
same period in 1999. The increase in Security Capital's equity in earnings in
SC-U.S. Realty is due to Security Capital's increased ownership position. As of
June 30, 2000, Security Capital's ownership position in SC-U.S. Realty increased
to 40.6% as SC-U.S. Realty repurchased approximately 13.5% of its outstanding
shares since initiating a stock repurchase program in May 1999. SC-U.S. Realty's
increase in net earnings for the six months ended June 30, 2000 compared to 1999
is due to market prices of its investees increasing in 2000 and an increase in
dividends.
SC-US Real Estate Shares
Effective with the first quarter of 2000, Security Capital's ownership
of SC-US Real Estate Shares fell below 50% and therefore its earnings are
recorded on the equity method in 2000 compared to being consolidated in 1999.
The decrease in earnings for the three and six months ended June 30, 2000
compared to the same periods in 1999 were due to Security Capital's decrease in
ownership.
Strategic Hotel
In September 1999, Security Capital sold its entire ownership in
Strategic Hotel for net proceeds of approximately $329 million. As a result of
the sale, no equity in earnings from Strategic Hotel were recorded after
the second quarter of 1999.
-23-
<PAGE>
Consolidated Investments
Homestead
The following table sets forth the results of Homestead's operations.
<TABLE>
<CAPTION>
Homestead Total Portfolio
-------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------------
2000 1999 2000 1999
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Operating Properties 136 129 136 129
Average Occupancy 81.7% 70.9% 76.9% 66.9%
Average Weekly Rate $349 $352 $349 $352
Weekly Revenue Per Available Room $285 $250 $269 $236
Property Operating Margin* 61.0% 54.1% 59.3% 54.1%
* Management targets an operating margin of 57% to 59%, but there are
no assurances that such margins will be achieved.
</TABLE>
Overall property level results for Homestead are summarized below (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- --------- ------- --------
<S> <C> <C> <C> <C>
Total Room Revenue $ 67.3 $ 54.3 $ 126.8 $ 103.3
Total Room Expense 26.5 25.5 52.0 47.5
--------- --------- ------- --------
Net operating income $ 40.8 $ 28.8 $ 74.8 $ 55.8
========= ========= ======= ========
</TABLE>
The increase in net operating income from 1999 to 2000 was due to an
increase in occupancy and the number of operating facilities, as well as the
impact of restructuring operations in 1999.
Interest Expense
Consolidated interest expense was $31.2 million and $63.0 million for
the three and six months ended June 30, 2000, respectively, compared to $35.1
million and $66.1 million for the three and six months ended June 30, 1999,
respectively. The decrease is due to a decline in debt to $1.57 billion at June
30, 2000 compared to $1.86 billion at June 30, 1999.
EBDADT
Earnings before depreciation, amortization and deferred taxes, or
"EBDADT," is considered by management to be an additional measure of operating
performance for Security Capital and its affiliates, supplementing net earnings
as measured by GAAP. Among other things, GAAP net earnings includes the impact
of real estate depreciation. The value of the real estate assets generally
changes in response to existing market conditions and does not necessarily
diminish in value predictably over time, as historical cost depreciation
-24-
<PAGE>
implies. Therefore, consistent with real estate industry practice, EBDADT
adjusts GAAP net earnings by eliminating real estate related depreciation.
EBDADT also involves certain other adjustments (as described in note 4 to the
consolidated financial statements), the most material being the omission of
changes in unrealized gains and losses on real estate securities due to
fluctuations in market prices. EBDADT should not be considered as an alternative
to net earnings or any other GAAP measurement of performance or as an
alternative to cash flows from operating, investing or financing activities, or
as a measure of Security Capital's liquidity.
Capital Division EBDADT reflects equity in EBDADT before extraordinary
items from investees, less allocated general and administrative expenses,
interest expense, current income taxes and depreciation. The Capital Division
earned $67.2 million and $55.7 million in EBDADT for the three months ended June
30, 2000 and 1999, and earned $125.9 million and $103.8 million for the six
months ended June 30, 2000 and 1999.
Favorable EBDADT performance (before special items) of the Capital Division
for the six months ended June 30, 2000 compared to 1999 is primarily attributed
to improved operating performance by substantially all investees as described
above. Security Capital's equity in EBDADT from Homestead increased by $27.9
million to $37.5 million due to improvement in operations and an increase in
Security Capital's ownership from 87.0% at June 30, 1999 to 99.9% at June 30,
2000. In September 1999, Security Capital sold its entire ownership position in
Strategic Hotel, and as a result, no equity in EBDADT from Strategic Hotel was
recorded after the second quarter of 1999. SC-U.S. Realty's equity in EBDADT
increased by 23% in 2000 primarily due to increased operating performance of its
investees and as a result of SC-U.S. Realty's stock repurchases which increased
Security Capital's ownership from 37.8% at June 30, 1999 to 40.6% at June 30,
2000. Equity in EBDADT for SC-U.S. Realty differs from GAAP equity in earnings
because GAAP equity in earnings reflects changes in the fair value of
investments, whereas EBDADT does not (SC-U.S. Realty's EBDADT instead reflects
the EBDADT performance of its investees).
The special (charge) credit in 2000 represents the excess of Homestead's
1999 original special charge over current estimates. In the second quarter of
2000, such credit was partially offset by non-capitalizable costs incurred in
conjunction with the acquisition by Security Capital of the remaining 13% of
Homestead it did not already own. The special charge originally recorded by
Homestead in the second quarter of 1999 was for land write-downs, employee
severances and other expenses related to terminating its development program.
-25-
<PAGE>
Financial Services Division
The primary components of the Financial Services Division are the Capital
Markets Group (investment banking and capital raising) and the Global Capital
Management Group (management of investments in real estate securities). These
two groups are the Financial Services Division's primary earnings generators. In
addition, the Corporate Services Group and the Real Estate Research Group enable
Security Capital and its affiliates to consolidate certain activities to benefit
from economies of scale. All fees paid by affiliates to the Financial Services
Division are included for EBDADT purposes. Revenues for the Financial Services
Division were earned from the following sources (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Capital Markets Group $ 2.0 $ 3.3 $ 5.0 $ 4.2
Global Capital Management Group 14.8 14.5 29.0 28.8
Corporate Services Group 3.7 4.1 7.8 9.6
New Technology Business 0.1 -- 0.2 --
Real Estate Research Group 0.2 0.2 0.2 0.4
------- --------- --------- ----------
Total Financial Services
Division Revenues 20.8 22.1 42.2 43.0
Less amounts eliminated in
consolidation (1.1) (1.5) (2.3) (3.3)
------- --------- --------- ----------
Consolidated Financial Services
Division revenues from related parties $ 19.7 $ 20.6 $ 39.9 $ 39.7
======= ========= ========= ==========
</TABLE>
The decline in real estate security prices in 1999 adversely affected the
growth of assets under management and the pace of capital markets transactions.
These factors moderated revenues for the Global Capital Management Group and the
Capital Markets Group and future growth in revenues may be affected by changes
in real estate security prices.
During the later half of 1999, the Global Capital Management Group became
increasingly successful in adding new investment management clients, which has
continued in the first six months of 2000. Assets managed for separate accounts
increased from $97 million at June 30, 1999 to $764 million at June 30, 2000.
Additionally, during 2000, real estate equity prices have begun to increase,
modestly increasing the value of the asset base on which fees are earned,
partially offset by the sale of SC-U.S. Realty's special opportunity
investments. Assets under management for the Global Capital Management Group as
of June 30, 2000 and 1999 are as follows (in millions):
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
SC-European Realty $ 1,265 $ 1,127
SC-Preferred Growth 1,012 878
SC-U.S. Realty 2,590 2,888
Mutual Funds 104 84
Separate Accounts 764 97
--------- ---------
$ 5,735 $ 5,074
========= =========
</TABLE>
-26-
<PAGE>
Partially offsetting the increase in assets under management, average fees
earned have declined from 1.21% of assets at June 30, 1999, with no performance
incentives, to 1.10% of assets at June 30, 2000, with 5.8% of assets reflecting
additional fee opportunities based on performance.
EBDADT
Financial Services Division EBDADT reflects allocations of Security
Capital's G&A, current income taxes and depreciation. EBDADT results were as
follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Capital Markets Group $ (1.2) $ (0.1) $ (1.6) $ (2.8)
Global Capital Management Group 7.4 7.0 13.9 12.7
Corporate Services Group 0.2 (2.1) 0.1 (3.0)
New Technology Business (1.9) (0.2) (2.8) (0.3)
Real Estate Research Group (0.2) (0.8) (0.5) (1.7)
Current income tax expense (1.2) (0.2) (1.5) (0.6)
-------- --------- --------- ---------
EBDADT before special items $ 3.1 $ 3.6 $ 7.6 $ 4.3
======== ========= ========= =========
</TABLE>
EBDADT results for the three and six month ended June 30, 2000 and 1999 can
be attributed to the same factors that impacted Financial Services Division
revenues and expenses, as discussed above.
Other Items
The following items are not specific to either the Capital Division or
Financial Services Division, but had an impact on operations as a whole.
General, administrative and other expenses
General, administrative and other expenses decreased during the three and
six months ended June 30, 2000 to $10.9 million and $21.8 million, respectively,
compared to $18.1 million and $34.3 million for same periods in 1999,
respectively. For the three and six months ended June 30, 2000, $4.6 million and
$9.4 million, respectively, relate only to Security Capital, excluding Homestead
and Belmont compared to $9.1 million and $15.8 million for the same periods in
1999. The decrease from 1999 to 2000 resulted primarily from personnel
reductions resulting from automation of various processes and other cost
controls by Security Capital.
Annualized overhead for Security Capital, excluding Homestead, Belmont and
the New Technology Business, decreased from $84.7 million as of December 31,
1999 to $76.9 million as of June 30, 2000. The annualized amounts for the second
quarter of 2000 were $1.1 million for the Capital Division, $52.9 million for
the Financial Services Division and $22.9 million for general and
administrative.
-27-
<PAGE>
Provision for Income Taxes
The effective tax rate for the first six months of 2000 varied from the
expected corporate tax rate of 35% primarily due to reduction in the valuation
reserve relating to a capital loss carryforward due to a capital gain recognized
in the second and third quarters of 2000 and non-taxable earnings of a foreign
subsidiary.
The effective tax rate benefit for the first six months of 1999 was lower
than the expected corporate tax rate of 35% primarily due to losses in
subsidiaries which are consolidated for financial reporting purposes, but not
for tax purposes.
Security Capital's tax basis in any investee is generally equal to its
original cost basis for such asset, reduced by the portion of the cumulative
dividends received from such investee which have been characterized for tax
purposes as return on capital.
Security Capital's basis on which taxes would be calculated upon a sale of
the investments in its strategic investees at June 30, 2000, was as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Archstone(1) $724,085
ProLogis 635,638
SC-European Realty 440,548
SC-U.S. Realty 733,645
SC-Preferred Growth 78,137
Homestead(2) 619,341
Belmont 70,262
</TABLE>
(1) On June 24, 2000, Security Capital disposed of approximately 17.5
million shares of Archstone reducing the tax basis by approximately $239.2
million. See note 9 "Subsequent Events" in the Notes to Consolidated Financial
Statements.
(2) Reflects underlying estimated tax basis if assets are sold.
Liquidity and Capital Resources
Investment Activity
Security Capital's investment activity primarily consists of allocations to
and redemptions from its capital in its various affiliates. The following table
summarizes Security Capital's capital allocations to and (redemptions from) its
primary investments (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Archstone $ (32,690) $ -- $(32,690) $ --
SC-US Real Estate Shares (6,000) (6,128) (7,250) (32,666)
SC-European Real Estate Shares -- (3,381) -- (3,381)
Security Capital U.S.Realty -- 1,686 -- 1,686
Real estate investments:
Homestead 2,497 28,121 4,055 76,903
Belmont 13,082 10,451 19,247 13,361
Homestead proceeds from sale of land (9,626) -- (19,622) --
</TABLE>
Real estate investments reflect development activity at Homestead and Belmont.
-28-
<PAGE>
Financing Activity
Security Capital decreased its total debt by $0.7 million from December 31,
1999, as a result of retirements of $48.3 million face value of convertible
debentures offset by increases of $44.0 million on its lines of credit balances
and issuance of an additional $5.5 million Belmont construction notes. In
addition, Security Capital repurchased $81.2 million of common stock during 2000
as discussed below.
On February 29, 2000, Homestead entered into an amended and restated bank
credit facility, which allows for $110 million of total borrowings, of which $35
million is available on a revolving basis. The amended and restated line matures
February 28, 2003, bears interest at LIBOR plus 2.5%, is secured by 64 operating
properties, permits payment of dividends based upon a definition of free cash
flow, and requires maintenance of financial ratio and coverage covenants.
Excluding Homestead and Belmont, Security Capital's June 30, 2000,
debt-to-total-capitalization ratio was 51%. The average maturity of Security
Capital's $930.3 million of fixed rate indebtedness (excluding Homestead and
Belmont) is 12.6 years, at an average fixed rate of 7.2%. The maximum maturity
in any year is $285 million in 2005.
Cash from Operations
Cash provided by operating activities increased by $47.0 million in the
first six months of 2000 compared to the first six months of 1999. This increase
is primarily due to a $23.5 million increase in Homestead's room revenues, and
reductions in Financial Services Division expenses as well as general and
administrative and other expenses of $6.9 million and $12.5 million,
respectively.
Stock and Debenture Repurchase Programs
Security Capital's board has authorized a total expenditure of $300 million
for the common share repurchase program and $60 million for the debenture
repurchase program. As of August 1, 2000, Security Capital had repurchased $200
million of Class B common stock equivalents (comprised of Class A Shares and
Class B Shares). As of August 1, 2000, Security Capital also repurchased $60
million of 6.5% convertible subordinated debentures ($80.5 million principal
amount).
Derivative Financial Instruments
As of June 30, 2000 and 1999, Security Capital had no derivative financial
instruments.
Future Capital Commitments and Liquidity
Security Capital and its subsidiaries have a remaining funding commitment
of $77.7 million to SC-European Realty, as of June 30, 2000. In addition, as of
June 30, 2000, Security Capital has committed to invest an additional $17.0
million in Belmont.
Security Capital expects that cash flows from operations and funds
currently available under its revolving line of credit will be sufficient to
enable Security Capital to satisfy its anticipated cash requirements for
operations and currently committed investments. In the longer term, Security
Capital intends to finance its business activities through the selective sale of
assets, internally generated cash flow, its line of credit, and future issuance
-29-
<PAGE>
of equity and debt securities. The business activities to be financed may
include investments in new business initiatives, additional investments in
certain existing affiliates and additional potential repurchases of Security
Capital securities.
Homestead believes it will have adequate cash resources from cash on hand
and cash flow from operations to fund its future business needs. However, due to
the risks of operation of lodging properties, including competitive pressures,
rates, occupancies, and costs of operation, there can be no assurance of
adequate future cash flow generation. In addition, Homestead may generate cash
flow from the sale of its remaining land sites and properties held for sale, but
no assurance can be given that such sales will occur or provide significant net
proceeds.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
See Form 10-K "Item 7A. Quantitative and Qualitative Disclosures About
Market Risk" for a more complete discussion of Security Capital's exposure to
interest rate and equity price risks. As of June 30, 2000, there have been no
material changes in the fair values of assets and liabilities disclosed in "Item
7A. Quantitative and Qualitative Disclosures About Market Risk" in Security
Capital's 1999 Form 10-K, as compared to their respective book values.
PART II
Item 1. Legal Proceedings
As a result of the announcement on March 23, 2000, of Security Capital's
proposal to Homestead to purchase all shares of Homestead common stock not
already owned by Security Capital for $3.40 per share, and before the Homestead
Board of Directors took any action with respect to the proposal, several
lawsuits were filed against Homestead, Security Capital and Homestead's
directors. Homestead, Security Capital, and Homestead's directors have been
named as defendants in four purported stockholder class actions. Three of these
actions have been filed in the Circuit Court for Baltimore City, Maryland, and
are captioned Earl Joseph Maisonneuve v. Eugene B. Vesell, et al.; Robert
Merritt v. Security Capital Group Incorporated; and Harold McClintock v. C.
Ronald Blankenship, et al. One of these actions has been filed in the Circuit
Court for Montgomery County, Maryland, and is captioned Aaron Rubin v. Homestead
Village, Inc. et al. The allegations in all four cases (the "Actions") are
substantially similar, and each complaint in the Actions alleges that (a)
Security Capital's proposal of $3.40 in cash per share was unfair, (b) Security
Capital and the Homestead directors were breaching their duties to the
stockholders of Homestead not affiliated with Security Capital in connection
with the Homestead proposal, and (c) appropriate steps were not being taken to
insure that the stockholders of Homestead not affiliated with Security Capital
would receive fair value for their Homestead shares in any transaction that
might occur. As relief, the complaints in the Actions sought, among other
things, damages in an unspecified amount and rescission of the transaction, if
effected. In addition, the action brought by Harold McClintock was also filed in
a Georgia court and is captioned Harold McClintock v. C. Ronald Blankenship. The
plaintiff has filed a motion to dismiss the Georgia action; however, the court
has not yet granted the motion.
In May 2000, Security Capital increased its offer price to $4.10 per share
and Homestead and Security Capital executed an agreement of merger. On May 2,
2000, as the result of negotiations between counsel for parties in the Actions,
a memorandum of understanding was entered into among counsel for the parties
providing for the settlement of the Actions in exchange for payment of fees and
expenses of plaintiffs' counsel, subject to Court approval, among other things.
-30-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Security Capital held its annual meeting of shareholders on May 25,2000.
On the record date of March 31, 2000, there were outstanding 1,190,361.5 Class A
Shares, 50,436,681 Class B Shares and 257,642 Series B Preferred Shares. Each
Class A Share is entitled to one vote, each Class B Share is entitled to .005 of
a vote, and each Series B Preferred Share is entitled to .0641 of a vote. A
total of 746,435 Class A Shares, 38,505,530 Class B Shares, and 257,642 Series B
Preferred Shares were voted, for a total of 955,478 votes.
The shareholders of Security Capital elected the following Class I
Directors to serve three-year terms expiring in 2003 by the following votes:
952,651 votes for the election of C. Ronald Blankenship (3,017 votes against);
951,950 votes for the election of Samuel W. Bodman (3,718 votes against);
952,676 votes for the election of Hermann Buerger (2,992 votes against); and,
952,576 votes for the election of John P. Frazee, Jr. (3,092 votes against).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Purchase and Sale Agreement dated as of July 19, 2000 between
Archstone Communities Trust and Security Capital (includes
Amendment No. 2 to the Third Amended and Restated Investor
Agreement, by and between Archstone Communities Trust and
Security Capital, dated as of September 9, 1997, and amended by
Amendment No. 1, thereto dated as of July 7, 1999). (Previously
filed as Exhibit 1 to Schedule 13D Amendment No. 29 filed by
Security Capital Group Incorporated with respect to Archstone
Communities Trust on July 24, 2000).
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Share Dividends
15 Letter from Arthur Andersen LLP, dated August 11, 2000, regarding
unaudited financial information
27 Financial data schedule
(b) Reports on Form 8-K
None
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SECURITY CAPITAL GROUP INCORPORATED
/s/ Paul E. Szurek
---------------------------------------
Paul E. Szurek, Chief Financial Officer
(Principal Financial Officer)
/s/ James C. Swaim
----------------------------------------
James C. Swaim, Senior Vice President
(Principal Accounting Officer)
Date: August 14, 2000
-32-
