<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File No. 011-13254
---------
WEEKS CORPORATION
(Exact name of Registrant as specified in its Charter)
Georgia 58-1525322
- -------------------------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
4497 Park Drive, Norcross, Georgia 30093
(Address of principal executive offices, including zip code)
(770)923-4076
(Registrant's telephone number, including area code)
N/A
---
(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 such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days. (X) YES ( ) NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date (11,181,929 shares of common
stock outstanding as of August 5, 1996)
<PAGE>
<TABLE>
<CAPTION>
INDEX PAGE
- -------------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
- -------------------------------------------------------------------------------------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
at June 30, 1996 and December 31, 1995........................ 3
Consolidated Condensed Statements of Operations
for the three and six months ended June 30, 1996 and 1995..... 4
Consolidated Condensed Statements of Cash Flows
for the six months ended June 30, 1996 and 1995............... 5
Notes to Consolidated Condensed Financial
Statements.................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 15
PART II. OTHER INFORMATION
- -----------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 29
SIGNATURES...................................................................... 30
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</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
WEEKS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
June 30, December 31,
(Unaudited; in thousands, except per share amounts) 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real Estate Assets
Land $ 43,207 $ 40,100
Buildings and improvements 272,753 253,414
Accumulated depreciation (35,029) (29,889)
- -----------------------------------------------------------------------------------------
Operating real estate assets 280,931 263,625
- -----------------------------------------------------------------------------------------
Developments in progress 28,307 21,448
Land held for future development 4,208 4,801
- -----------------------------------------------------------------------------------------
Net real estate assets 313,446 289,874
- -----------------------------------------------------------------------------------------
Cash and cash equivalents 107 982
Direct financing lease, net 5,188 5,229
Deferred costs, net 9,486 9,457
Investments in and notes receivable
from unconsolidated subsidiaries 7,639 7,751
Receivables and other assets 11,929 7,148
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $347,795 $320,441
- -----------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $112,785 $113,022
Bank Credit Facility borrowings 65,685 34,283
Accounts payable and accrued expenses 7,250 7,783
Other liabilities 1,819 1,741
- -----------------------------------------------------------------------------------------
Total liabilities 187,539 156,829
- -----------------------------------------------------------------------------------------
Minority Interests in Operating Partnership 30,034 30,663
- -----------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' equity
Common Stock, $0.01 par value; 100,000,000 shares
authorized; 11,155,867 shares issued and outstanding 112 112
Preferred Stock, $0.01 par value; 20,000,000 shares
authorized; none issued -- --
Additional paid-in capital 191,263 191,259
Accumulated deficit (61,153) (58,422)
- -----------------------------------------------------------------------------------------
Total shareholders' equity 130,222 132,949
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $347,795 $320,441
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
3
<PAGE>
WEEKS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
(Unaudited; in thousands, except per share amounts) June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Rental income $11,163 $ 6,618 $21,943 $12,694
Tenant reimbursements 959 585 2,007 1,119
Direct financing lease 192 194 384 388
Other 65 138 174 328
- --------------------------------------------------------------------------------------------------------------------------
12,379 7,535 24,508 14,529
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating and maintenance 1,393 905 2,687 1,588
Real estate taxes 1,085 611 2,153 1,191
Depreciation and amortization 3,049 1,698 6,000 3,241
Interest 2,520 1,532 4,955 2,873
Amortization of deferred financing costs 221 167 421 326
General and administrative 698 370 1,414 749
- --------------------------------------------------------------------------------------------------------------------------
8,966 5,283 17,630 9,968
- --------------------------------------------------------------------------------------------------------------------------
Operating income 3,413 2,252 6,878 4,561
Interst income 115 91 198 158
Equity in earnings of unconsolidated
subsidiaries 277 481 543 870
- --------------------------------------------------------------------------------------------------------------------------
Income before minority interests 3,805 2,824 7,619 5,589
Minority interests (713) (713) (1,426) (1,411)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,092 $ 2,111 $ 6,193 $ 4,178
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $0.28 $0.28 $0.56 $0.54
- --------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 11,156 7,675 11,156 7,675
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
WEEKS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
(Unaudited; in thousands) June 30, 1996 June 30, 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,193 $ 4,178
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 1,426 1,411
Depreciation and amortization 6,000 3,241
Amortization of deferred financing costs 421 326
Income from direct financing lease (384) (388)
Straight-line rent revenue (191) 75
Equity in earnings of unconsolidated subsidiaries,
net of distributions to Company (543) (686)
Net change in:
Receivables and other assets (892) (1,074)
Deferred costs (1,018) (899)
Accounts payable and accrued expenses 2,042 1,676
Other liabilities 78 429
- ------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,132 8,289
- ------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property acquisition, development and construction (31,317) (46,228)
Mortgage loans and deposits (3,124) (4,540)
Payments received on direct financing lease 425 411
- ------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (34,016) (50,357)
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Line of credit proceeds (repayments), net 31,402 43,900
Dividend reinvestment plan proceeds 4 --
Payments of mortgage notes payable (237) (229)
Deferred financing costs (181) --
Dividends to shareholders (8,924) (5,757)
Distributions to minority interests (2,055) (1,944)
- ------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,009 35,970
- ------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (875) (6,098)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 982 6,334
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 107 $ 236
- ------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company's property acquisitions in the second quarter of 1995 included the
assumption of mortgage notes payable of $8,341,000.
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
WEEKS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. THE COMPANY
Weeks Corporation and its subsidiaries own, operate, develop, construct, acquire
and manage industrial and suburban office buildings in Atlanta, Georgia and the
southeastern United States. As used herein, the term "Company" includes Weeks
Corporation and Weeks Realty L.P. (the "Operating Partnership") and its
subsidiaries, unless the context indicates otherwise. The Company owns an 81.3%
partnership interest in the Operating Partnership which, including the
operations of its subsidiaries, conducts substantially all of the on-going
operations of the Company. The Company has elected to qualify and operate as a
self-administered and self-managed real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the
Company will not generally be subject to corporate federal income taxes as long
as it satisfies certain technical requirements of the Code relating to the
composition of its income and assets, including the requirement to distribute
95% of its taxable income to its shareholders.
In November 1995, the Company completed an equity offering of 3,450,000 shares
of common stock (the "Offering") resulting in net proceeds of $72.8 million that
were contributed to the Operating Partnership in exchange for 3,450,000 units of
limited partnership interest in the Operating Partnership ("Units"). Subsequent
to this Offering and as of June 30, 1996, the Company had outstanding 11,155,867
shares of common stock and owned the same number of Units, and the Company's
ownership interest in the Operating Partnership increased from 74.75% prior to
the Offering to 81.3% currently. Units held by persons other than the Company
totaled 2,567,470 as of June 30, 1996, and represented an 18.7% minority
interest in the Operating Partnership. Units representing the 18.7% minority
interest in the Operating Partnership are convertible by their holders into
shares of common stock on a one-for-one basis, or into cash, at the Company's
option.
The Company conducts its third-party service businesses through two subsidiaries
(the "Subsidiaries"): Weeks Realty Services Inc. (third-party landscape,
property management and leasing services) and Weeks Construction Services Inc.
(third-party construction services). The Company holds 100% of the nonvoting
and 1% of the voting common stock of the Subsidiaries. The remaining voting
common stock is held by three executive officers of the Company. The ownership
of the common stock of the Subsidiaries entitles the Company to substantially
all (99%) of the economic benefits from the results of the Subsidiaries'
operations.
As of June 30, 1996, the Company owned and operated 127 industrial properties,
ten office properties and three retail properties comprising approximately 9.3
million square feet located primarily in the metropolitan Atlanta, Georgia,
area. In addition, 17 industrial and office properties and three property
expansions were under development or in lease-up comprising an additional
approximately 2.1 million square feet.
6
<PAGE>
2. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include the
consolidated condensed financial position of the Company and its subsidiaries at
June 30, 1996, and December 31, 1995, their results of operations for the three
and six months ended June 30, 1996 and 1995, and their cash flows for the six
months ended June 30, 1996 and 1995, respectively. The operating results of the
Subsidiaries are reflected in the accompanying financial statements on the
equity method of accounting as discussed below. All significant intercompany
balances and transactions have been eliminated in the consolidated condensed
financial statements. Certain prior year amounts have been reclassified to
conform to the 1996 presentation.
The accompanying interim unaudited financial statements have been prepared by
the Company's management in accordance with generally accepted accounting
principles for interim financial information and in conformity with the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, the interim financial statements presented herein reflect all
adjustments of a normal and recurring nature which are necessary to fairly state
the interim financial statements. The results of operations for the interim
periods are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. These financial statements should be read in
conjunction with the Company's audited financial statements and the notes
thereto included in the Company's Form 10-K for the year ended December 31,
1995.
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
In September 1995, the Emerging Issues Task Force ("EITF") reached a consensus
opinion in EITF Issue No. 95-6, "Accounting by a Real Estate Investment Trust
for an Investment in a Service Corporation," requiring the Company to change its
method of accounting, previously the cost method, for the Subsidiaries. In
accordance with the revised guidelines and effective with its December 31, 1995,
consolidated financial statements, the Company changed its method of accounting
for the Subsidiaries to the equity method. The impact of this change on the
Company's results of operations for the three and six months ended June 30,
1995, was not material. As a result, the consolidated condensed financial
statements of the Company for these periods were not restated.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, SFAS 123, "Accounting for Stock-Based Compensation" was issued
requiring the Company either to continue its current generally accepted
accounting for stock-based compensation under the intrinsic value method as
prescribed by Accounting Principle Board Opinion ("APB") No. 25 or elect the
fair value-based method of accounting prescribed by SFAS 123. Additionally,
SFAS 123, when implemented, will require additional footnote disclosures,
including pro forma net income and earnings per share under the provisions of
SFAS 123. The Company continues to account for stock-based compensation under
APB No. 25 and will implement the disclosure requirements of SFAS 123 in its
December 31, 1996, financial statements, the effective implementation date for
the Company.
7
<PAGE>
3. BANK CREDIT FACILITY AND MORTGAGE NOTES PAYABLE
The Operating Partnership, the Subsidiaries and Weeks Development Partnership
(Note 4), as co-borrowers, presently utilize a $120 million (increased from $100
million on July 1, 1996) revolving bank credit facility (the "Credit Facility")
for development and construction, acquisitions and general corporate purposes.
The Credit Facility is unsecured; however, designated properties included in the
borrowing base are subject to a negative pledge. Each co-borrower is liable for
its own borrowing; however, the entire Credit Facility is guaranteed by the
Company. Additionally, the Company and the co-borrowers are required to meet
certain financial and non-financial covenants including a restriction on the
amount of dividends and distributions to not more than 95% of "Funds from
Operations," a REIT industry measure of operating performance, unless the
additional amounts are necessary to maintain the Company's REIT status under the
Code. The Credit Facility currently matures on December 31, 1997, and renews
annually through December 31, 1999, subject to an annual renewal fee of 0.125%.
Upon an event of nonrenewal, the co-borrowers can elect to repay the Credit
Facility over two years.
The Credit Facility provides for advances and letters of credit of up to the
lesser of $120 million or 60% of the borrowing base, as defined. Maximum
available advances, governed by the existing borrowing base formula, total $120
million. As of June 30, 1996, the Credit Facility borrowings are detailed as
follows (in thousands):
<TABLE>
<CAPTION>
--------------------------------------------------------
BORROWER AMOUNT
--------------------------------------------------------
<S> <C> <C>
Operating Partnership $65,685
Weeks Development Partnership 2,190
Weeks Realty Services Inc. 1,525
Weeks Construction Services Inc. -
--------------------------------------------------------
$69,400
--------------------------------------------------------
</TABLE>
In addition, letters of credit totaling $1,323,000 at June 30, 1996, were issued
under the Credit Facility to third parties.
Effective as of April 1, 1996, interest under the Credit Facility is payable
monthly at bank prime minus 0.25% or at LIBOR plus 1.35% (previously LIBOR plus
1.50%) at the election of the co-borrowers. The weighted average interest rate
on Credit Facility borrowings was 6.85% at June 30, 1996. Fees on the unused
portion of the Credit Facility are 0.20% payable quarterly.
Interest paid, net of amounts capitalized, totaled $4,787,000 and $2,873,000 for
the six months ended June 30, 1996 and 1995, respectively. Interest costs
capitalized totaled $513,000 and $341,000 for the three months ended and
$928,000 and $461,000 for the six months ended June 30, 1996 and 1995,
respectively.
In July 1996, the Company entered into three interest rate swap agreements with
a commercial bank to effectively change the interest costs on $50,000,000 of
Credit Facility borrowings from the variable rates discussed above to fixed
rates. The agreements, with notional principal amounts of $10,000,000,
8
<PAGE>
$10,000,000 and $30,000,000, mature in July 1998, July 1999 and July 2001 with
effective fixed interest rates of 7.72%, 7.89% and 8.14%, respectively.
Mortgage notes payable at June 30, 1996, and December 31, 1995, consist of the
following (in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1996 1995
-------------------------------------------------------------------------------
<S> <C> <C>
Mortgage note, interest payable monthly at 7.13%,
due in 1999/(a)/ $ 38,000 $ 38,000
Three mortgage notes, interest payable monthly at
7.75%, due in 1998 31,170 31,170
Mortgage note, interest payable monthly at 7.625%,
due in 2000 10,300 10,300
Mortgage note, principal and interest payable
monthly at 6.71%, due in 2001 6,997 7,040
Mortgage note, interest payable monthly at 8.2%
to 1999, principal and interest payable monthly
at 8.2% to 2002 5,200 5,200
Industrial revenue bond financing, interest
payable quarterly, due in 2004/(b)/ 5,140 5,140
Two mortgage notes, interest payable monthly
at 7.75% to 1998 and 8.0% to 2001, due in 2001/(a)/ 4,400 4,400
Mortgage note, principal and interest payable
monthly at 9.5%, due in 2005 4,284 4,391
Mortgage note, principal and interest payable
monthly at 8.3%, due in 1998 3,453 3,480
Two mortgage notes, principal and interest
payable monthly at 8.42%, due in 1999 3,114 3,152
Industrial revenue bond financing, principal and
interest due monthly through 2010/(c)/ 727 749
-------------------------------------------------------------------------------
$112,785 $113,022
-------------------------------------------------------------------------------
</TABLE>
(a) Mortgage notes are partially or fully guaranteed by certain Company
officers and Unitholders.
(b) In January 1996, the industrial revenue bonds were refunded through the
issuance of new tax-exempt adjustable rate industrial revenue bonds.
Interest is payable at rates equivalent to short term tax exempt Aa2 rated
securities (3.4% at June 30, 1996). The bonds are supported by a letter of
credit issued by a bank in the amount of $5,345,000. Certain of the
Company's properties secure its obligations under the letter of credit.
(c) Interest rate is 78% of the prime rate (6.45% at June 30, 1996).
9
<PAGE>
Scheduled maturities of mortgage notes payable at June 30, 1996, are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------
YEAR AMOUNT
----------------------------------------------------
<S> <C>
Remainder of 1996 $ 247
1997 524
1998 35,037
1999 41,363
2000 10,833
2001 and thereafter 24,781
----------------------------------------------------
$112,785
----------------------------------------------------
</TABLE>
4. INVESTMENTS IN AND NOTES RECEIVABLE
FROM UNCONSOLIDATED SUBSIDIARIES
The Company conducts its third-party construction, landscape, property
management and leasing service businesses through the Subsidiaries.
Additionally, the Subsidiaries formed and jointly hold 100% of the partnership
interests in Weeks Development Partnership ("Weeks Development"). Weeks
Development primarily owns land in various business parks, either directly or
through ownership interests in real estate partnerships and joint ventures. The
Company intends to acquire land from Weeks Development and its affiliated
partnerships and joint ventures for the development of future operating
properties.
As discussed in Note 2, the Subsidiaries are accounted for on the equity method
of accounting. Under the equity method, the Company recognizes, in its
consolidated statements of operations, its economic share of the Subsidiaries'
earnings and losses. The Company holds 100% of the nonvoting and 1% of the
voting common stock of the Subsidiaries. This stock ownership entitles the
Company to substantially all (99%) of the economic benefits and losses from the
results of the Subsidiaries' operations.
10
<PAGE>
The following information summarizes the financial position, results of
operations and cash flows of the Subsidiaries and Weeks Development on a
combined basis (in thousands):
<TABLE>
<CAPTION>
--------------------------------------------------------------------
JUNE 30, DECEMBER 31,
FINANCIAL POSITION 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Real estate assets $ 8,453 $ 7,012
Investments in real estate partnerships
and joint ventures 3,115 3,417
Receivables and other assets 7,919 10,892
--------------------------------------------------------------------
$19,487 $21,321
--------------------------------------------------------------------
LIABILITIES AND EQUITY
Notes payable to the Company $10,939 $10,939
Bank credit facility borrowings 3,715 4,237
Other borrowings 1,274 1,828
Other liabilities 6,860 7,505
Total equity (3,301) (3,188)
--------------------------------------------------------------------
$19,487 $21,321
--------------------------------------------------------------------
</TABLE>
At June 30, 1996, the Company's investment in and notes receivable from the
Subsidiaries totaling $7,639,000 includes notes receivable from the Subsidiaries
of $10,939,000 and the Company's investment in the Subsidiaries of ($3,300,000).
11
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
RESULTS OF OPERATIONS JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Construction and development fees $ 446 $ 483 $ 855 $ 777
Landscape 1,345 949 2,378 1,608
Property management fees 48 146 106 308
Commissions - 112 78 291
Other 73 79 142 100
- --------------------------------------------------------------------------------------------------------
1,912 1,769 3,559 3,084
- --------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Materials and labor 1,104 779 1,922 1,336
Interest expense - Company 329 339 657 686
Interest expense - other 76 46 215 66
General and administrative 331 389 655 793
Other 139 70 230 134
- --------------------------------------------------------------------------------------------------------
1,979 1,623 3,679 3,015
- --------------------------------------------------------------------------------------------------------
Equity in earnings of partnerships
and joint ventures 15 (2) 5 117
- --------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (52) $ 144 $ (115) $ 186
========================================================================================================
Net income (loss) attributable
to Company $ (52) $ 142 $ (114) $ 184
Interest expense to Company 329 339 657 686
- --------------------------------------------------------------------------------------------------------
Equity in earnings of Subsidiaries $ 277 $ 481 $ 543 $ 870
========================================================================================================
Distributions to Company $ - $ 142 $ - $ 184
========================================================================================================
- --------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
CASH FLOWS JUNE 30, 1996 JUNE 30, 1995
========================================================================================================
Operating activities $ 3,974 $ 855
Investing activities (1,437) (195)
Financing activities (1,076) (135)
- --------------------------------------------------------------------------------------------------------
</TABLE>
Third-party service revenues detailed above include development and construction
fees, landscaping fees and lease commissions from affiliated partnerships and
joint ventures totaling $95,000, $75,000 and $0, respectively, for the three
months ended June 30, 1996, and $179,000, $88,000 and $10,000, respectively, for
the three months ended June 30, 1995. The development and construction fees,
landscaping fees and lease commissions from affiliated entities totaled
$135,000, $128,000 and $72,000, respectively, for the six months ended June 30,
1996, and $254,000, $150,000 and $84,000, respectively, for the six months ended
June 30, 1995.
12
<PAGE>
5. DIVIDENDS
The Company declared and paid quarterly dividends relating to the first quarter
of 1996 of $4,462,000 or $0.40 per share during the three months ended June 30,
1996. Additionally, the minority Unitholders in the Operating Partnership
received cash distributions totaling $1,027,000 or $0.40 per Unit during the
three months ended June 30, 1996. In July 1996, the Company declared and paid
quarterly dividends and made distributions relating to the second quarter of
1996 of $4,462,000 or $0.40 per share and $1,027,000 or $0.40 per Unit,
respectively.
6. NET INCOME PER SHARE
Net income per share is calculated using the weighted average number of common
shares outstanding of 11,156,000 and 7,675,000 for the three months ended and
11,156,000 and 7,675,000 for six months ended June 30, 1996 and 1995,
respectively. The impact of outstanding stock options was not dilutive in 1996
or 1995. An assumed conversion of Units into common stock would not affect net
income per share.
7. DEVELOPMENT LOANS
As part of certain joint development agreements entered into with third parties
executed in conjunction with the Company's 1995 acquisition activity, and upon
the approval of joint development projects, the Company may lend funds on a
secured basis to develop and construct certain properties and can be required by
its development partners to acquire the properties upon their completion based
on the terms specified in the development agreements, generally at prices equal
to the greater of capitalized costs or the property's net operating income
capitalized at specified capitalization rates, as defined. As of June 30, 1996,
the Company has funded $2,377,000 under development loan agreements relating to
three industrial buildings under development in Atlanta, Georgia. Total loan
commitments from the Company for the three approved projects are approximately
$11,600,000. Loans under these agreements are secured by the industrial
buildings under development, bear interest at rates ranging from LIBOR plus
2.35% to LIBOR plus 2.50%, mature from August 1998 to March 1999 and are
included in receivables and other assets in the accompanying consolidated
condensed balance sheet.
Additionally, at June 30, 1996, receivables and other assets include a real
estate development loan to an affiliated joint venture with an outstanding
balance of $1,809,000 ($1,309,000 at December 31, 1995). The total loan
commitment is $2,360,000 and the loan is secured by a multi-tenant industrial
building under development. Interest accrues at 9% payable monthly and the loan
matures in March 1998. The Company has an option to acquire the property upon
substantial lease-up of the building.
8. ACQUISITIONS
In the second quarter of 1996, the Company acquired three industrial buildings
totaling approximately 134,000 square feet and 9 acres of adjacent land for
future development in the Northeast submarket of Atlanta, Georgia for $9.9
million, including closing costs and acquisition expenses. These acquisitions
were funded through Credit Facility borrowings.
In August 1996, the Company acquired 12 industrial buildings totaling
approximately 627,000 square feet primarily in the Northeast submarket of
Atlanta, Georgia for $31.0 million, including closing costs and acquisition
expenses. The acquisition was funded through Credit Facility borrowings.
13
<PAGE>
On July 31, 1996, the Company announced that it had agreed to acquire a 2.2
million square foot, 23 building industrial portfolio located in Nashville,
Tennessee, owned and managed by NWI Warehouse Group L.P. and its affiliates
("NWI"). As part of the agreement, NWI will also combine its business
operations, management and employees with those of the Company. The acquisition
price is currently expected to total approximately $120.7 million (subject to
adjustment for actual operating results for certain development properties to be
acquired), comprised of the issuance of approximately $68.5 million of Units in
the Operating Partnership and the assumption of approximately $52.2 million of
indebtedness. The transaction will encompass multiple closings including an
initial purchase of 17 buildings for approximately $69.0 million (currently
expected to occur in October 1996), staged acquisitions of six development
properties over an approximately 17 month period and the staged acquisition of
147 acres of undeveloped land over an approximately six year period.
Consummation of the transaction is subject to the completion of remaining due
diligence, the execution of definitive agreements, the consent of lenders, the
final approval of the Board of Directors of the Company and the general partners
of NWI and certain other closing conditions.
On August 12, 1996, the Company announced that it had agreed to acquire a 2.1
million square foot, 29 building industrial and suburban office portfolio in the
Raleigh-Durham-Chapel Hill area of North Carolina, owned and managed by Lichtin
Properties Inc. and its affiliates ("Lichtin"). As part of the agreement,
Lichtin will also combine its business operations, management and employees with
those of the Company. The acquisition price is currently expected to total
approximately $164 million (subject to adjustment for actual operating results
for certain development properties to be acquired), comprised of the issuance of
approximately $40.6 million of Units, $10 million of cash and the assumption of
approximately $113.4 million of indebtedness. The transaction will encompass
multiple closings including an initial closing (currently expected to occur in
January 1997) involving the purchase of 19 buildings for approximately $102.7
million and the purchase for $1 million of an option to purchase 160 acres of
land, staged acquisitions of 10 completed and under development properties over
the ensuing two to four year period and the staged acquisition of 115 acres of
undeveloped land over an ensuing four year period. Consummation of the
transaction is subject to the completion of remaining due diligence, the
execution of definitive agreements, the consent of lenders, the final approval
of the Board of Directors of the Company and the partners of Lichtin and certain
other closing conditions.
14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
accompanying consolidated condensed financial statements of the Company and the
notes thereto.
GENERAL BACKGROUND
The Company was founded in 1965 and operated as a private real estate company
until August 1994, when it completed an initial public offering and elected to
be taxed as a REIT. As a self-administered and self-managed REIT, the Company
owns, develops, acquires and manages primarily high-quality industrial and
suburban office properties in Atlanta, Georgia and the southeastern United
States.
On January 1, 1995, the Company owned a 74.75% partnership interest in the
Operating Partnership. This ownership interest was subsequently increased in
November 1995 to 81.3% - see Note 1 to the consolidated condensed financial
statements. The Operating Partnership, including the operations of the
Subsidiaries, conducts substantially all of the on-going operations of the
Company. For a further description of the Company, see Note 1 to the
consolidated condensed financial statements.
RESULTS OF OPERATIONS
Operating information relating to the Company's properties for the three and six
months ended June 30, 1996 and 1995, respectively, is summarized below (in
thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED % ENDED ENDED %
JUNE 30, 1996 JUNE 30, 1995 CHANGE JUNE 30, 1996 JUNE 30, 1995 CHANGE
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Rental income $ 11,163 $ 6,618 68.7% $ 21,943 $ 12,694 72.9%
Tenant reimbursements 959 585 63.9% 2,007 1,119 79.4%
- ------------------------------------------------------------------------------------------------------------------------
Property operating revenues $ 12,122 $ 7,203 68.3% $ 23,950 $ 13,813 73.4%
========================================================================================================================
Operating and maintenance
expenses $ 1,393 $ 905 53.9% $ 2,687 $ 1,588 69.2%
Real estate taxes 1,085 611 77.6% 2,153 1,191 80.8%
Depreciation and amortization 3,049 1,698 79.6% 6,000 3,241 85.1%
- ------------------------------------------------------------------------------------------------------------------------
Property operating expenses $ 5,527 $ 3,214 72.0% $ 10,840 $ 6,020 80.1%
=======================================================================================================================
</TABLE>
To more fully understand the components of the period-to-period increases
reflected above, property operating results will be discussed herein using the
categories "core properties," "development properties" and "acquisition
properties." core properties are defined as properties which were stabilized and
operating as of January 1, 1995. The company defines a property as stabilized
for financial reporting purposes upon the earlier of substantial lease-up or one
year from building shell completion. Development properties reflect properties
completed and stabilized for financial reporting purposes subsequent to January
1, 1995. Acquisition properties are properties acquired subsequent to January 1,
1995 .
15
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THREE MONTHS ENDED JUNE 30, 1996, TO THE
THREE MONTHS ENDED JUNE 30, 1995
Property operating revenues (rental revenue plus tenant reimbursements)
increased $4,919,000 or 68.3% between periods. Of this increase, $3,526,000 was
attributable to the addition of 52 acquisition properties in 1995 and the first
half of 1996 totaling 2,698,000 square feet, and $883,000 was attributable to
the stabilization of 10 development properties and one property expansion in
1995 and the first half of 1996 totaling 1,325,000 square feet. The remainder of
the increase of $510,000 was attributable to increased property operating
revenues from core properties, which totaled 5,332,000 square feet. Core
properties operating revenues increased by $125,000 between quarters resulting
from occupancy changes at six buildings comprising 541,000 square feet. The
remaining core properties operating revenue increase of $385,000 was due
primarily to rental rate increases between periods. The core properties
operating revenue increase due to occupancy changes resulted from the re-leasing
of two buildings vacated in the first quarter of 1995 by Matsushita Electric
Corporation (Panasonic) totaling 344,000 square feet which contributed an
additional $327,000 to core properties operating revenues between periods. This
was offset by vacancies at four other industrial buildings during the second
quarter of 1996 totaling 197,000 square feet which resulted in lower property
operating revenues of $202,000 (two of these buildings totaling 120,000 square
feet were re-leased in the second quarter of 1996).
Property operating expenses increased $2,313,000 or 72.0% between periods. Of
the increase, $1,480,000 was attributable to the addition of the acquisition
properties and $267,000 was attributable to the stabilization of the development
properties discussed above. The remaining increase of $566,000 was attributable
to core properties. Core properties operating expenses increased $177,000
($81,000 excluding depreciation and amortization) relating to the six buildings
with occupancy changes discussed above and $389,000 ($88,000 excluding
depreciation and amortization) for other core properties. The $88,000 increase
in other core properties operating expenses, excluding depreciation and
amortization, is due primarily to higher repairs and maintenance expenses and
slightly higher estimated real estate tax accruals between periods.
Interest expense increased by $988,000 or 64.5% from $1,532,000 for the three
months ended June 30, 1995, to $2,520,000 for the three months ended June 30,
1996, as a result of increased mortgage interest of $686,000 due primarily to
mortgage debt assumed in conjunction with the Company's 1995 property
acquisitions, and Credit Facility interest of $302,000 in the second quarter of
1996. Interest expense of $2,520,000 in the second quarter of 1996 consisted of
mortgage interest of $2,092,000 and Credit Facility interest of $428,000.
Amortization of deferred financing costs increased $54,000 or 32.3% from
$167,000 for the three months ended June 30, 1995, to $221,000 for the three
months ended June 30, 1996, due primarily to the amortization of deferred
financing costs associated with the $5.1 million industrial revenue bond
refinancing in the first quarter of 1996 and costs associated with increasing
the availability under the Credit Facility in the third quarter of 1995.
Company general and administrative expenses increased by $328,000 or 88.6% from
$370,000 for the three months ended June 30, 1995, to $698,000 for the three
months ended June 30, 1996, due primarily to increased accounting and
administrative personnel and related costs associated with the Company's growth,
and a shift in certain general and administrative expenses relating to
properties which were fee-managed by the Subsidiaries in 1995, but which were
subsequently acquired and are owned by the Company in 1996. As a percentage of
16
<PAGE>
total revenue, general and administrative expenses have increased from 4.9% in
1995 to 5.6% in 1996 due primarily to the shift in general and administrative
expenses from the Subsidiaries to the Company discussed previously. General and
administrative expenses of the Company when combined with the general and
administrative expenses of the Subsidiaries increased $270,000 or 35.6% from
$759,000 in 1995 to $1,029,000 in 1996 for the same reasons discussed above
having to do with the Company's growth. As a percentage of the combined revenues
of the Company and the Subsidiaries, the combined general and administrative
expenses of the Company and the Subsidiaries decreased from 8.2% in 1995 to 7.2%
in 1996.
Interest income for the three months ended June 30, 1996, consists primarily of
interest earned under the development loan arrangements discussed more fully in
Note 7 to the consolidated condensed financial statements. For the three months
ended June 30, 1995, interest income represented $80,000 earned under a short-
term note arrangement made in conjunction with a 1995 property acquisition, and
$11,000 earned on short-term cash investments.
Equity in earnings of the Subsidiaries of $277,000 and $481,000 for the three
months ended June 30, 1996 and 1995, respectively, represents the Company's 99%
economic interest in the earnings of the Subsidiaries after the elimination of
interest expense to the Company (see Note 4 to the consolidated condensed
financial statements). Changes in the Subsidiaries' third-party operations
between periods are discussed below. As discussed below, subsequent to June 30,
1995, the Company acquired 37 properties which the Subsidiaries previously
managed. Additionally, the Subsidiaries provided other third-party services,
such as landscape maintenance, leasing and tenant interior work for these
managed properties. Due to the acquisition of these properties by the Company,
the Subsidiaries' third-party service revenues associated with these properties
ceased. The impact, if any, between periods is discussed below.
Construction and development fees decreased $37,000 or 7.7% from $483,000 for
the three months ended June 30, 1995, to $446,000 for the three months ended
June 30, 1996. This decrease was due to lower fees from a lower volume of tenant
interior work between periods.
Landscape revenue increased $396,000 or 41.7% from $949,000 for the three months
ended June 30, 1995, to $1,345,000 for the three months ended June 30, 1996, due
to an increase in landscape installation revenue of approximately $340,000
resulting from more landscape installation jobs in progress in the second
quarter of 1996 compared to 1995, with the remaining increase due to the growth
in the number of landscape maintenance contracts between periods.
Property management fees decreased $98,000 or 67.1% from $146,000 for the three
months ended June 30, 1995, to $48,000 for the three months ended June 30, 1996,
due primarily to the reduction in the size of the third-party management
portfolio resulting from the 1995 acquisitions by the Company of 37 properties
previously managed by the Subsidiaries.
Commission income decreased from $112,000 for the three months ended June 30,
1995, to none for the three months ended June 30, 1996, due to no third-party
leasing and renewal commissions or land sales commissions in the second quarter
of 1996. This decrease is attributable to the smaller property management
portfolio yielding fewer third-party commission opportunities and due to the
timing of brokered land sale transactions.
Labor and materials costs increased by $325,000 or 41.7% from $779,000 for the
three months ended June 30, 1995, to $1,104,000 for the three months ended June
17
<PAGE>
30, 1996, due primarily to increased costs associated with higher landscape
installation volume and higher landscape maintenance volumes in 1996 as
discussed above.
Equity in earnings of partnerships and joint ventures were relatively consistent
between years.
COMPARISON OF OPERATING RESULTS FOR SIX MONTHS ENDED JUNE 30, 1996, TO THE SIX
MONTHS ENDED JUNE 30, 1995
Property operating revenues (rental revenue plus tenant reimbursements)
increased $10,137,000 or 73.4% between periods. Of this increase, $7,263,000 was
attributable to the addition of 52 acquisition properties in 1995 and the first
half of 1996 totaling 2,698,000 square feet and $1,820,000 was attributable to
the stabilization of 10 development properties and one property expansion in
1995 and the first half of 1996 totaling 1,325,000 square feet. The remainder of
the increase of $1,054,000 was attributable to increased property operating
revenues from core properties, which totaled 5,332,000 square feet. Core
properties operating revenues increased by $300,000 between periods resulting
from occupancy changes at six buildings comprising 541,000 square feet. The
remaining core properties operating revenue increase of $754,000 was due
primarily to rental rate increases between periods. The core properties
operating revenue increase due to occupancy changes resulted from the re-leasing
of two buildings vacated in the first quarter of 1995 by Matsushita Electric
Corporation (Panasonic) totaling 344,000 square feet which contributed an
additional $723,000 to core properties operating revenues between periods. This
was offset by vacancies at four other industrial buildings during portions of
the first and second quarters of 1996 totaling 197,000 square feet which
resulted in lower property operating revenues of $423,000 (two of these
buildings totaling 120,000 square feet were re-leased in the second quarter of
1996).
Property operating expenses increased $4,820,000 or 80.1% between periods. Of
the increase, $3,133,000 was attributable to the addition of the acquisition
properties and $617,000 was attributable to the stabilization of the development
properties discussed above. The remaining increase of $1,070,000 was
attributable to core properties. Core properties operating expenses increased
$365,000 ($184,000 excluding depreciation and amortization) relating to the six
buildings with occupancy changes discussed above and $705,000 ($212,000
excluding depreciation and amortization) for other core properties. The $212,000
increase in other core properties operating expenses, excluding depreciation and
amortization, is due primarily to higher repairs and maintenance expenses and
slightly higher estimated real estate tax accruals between periods.
Interest expense increased by $2,082,000 or 72.5% from $2,873,000 for the six
months ended June 30, 1995, to $4,955,000 for the six months ended June 30,
1996, as a result of increased mortgage interest of $1,438,000 due primarily to
mortgage debt assumed in conjunction with the Company's 1995 property
acquisitions and increased Credit Facility interest of $643,000 in the first
half of 1996. Interest expense of $4,955,000 in the first half of 1996 consisted
of mortgage interest of $4,185,000 and Credit Facility interest of $770,000.
Amortization of deferred financing costs increased $95,000 or 29.1% from
$326,000 for the six months ended June 30, 1995, to $421,000 for the six
months ended June 30, 1996, due primarily to the amortization of deferred
financing costs associated with the $5.1 million industrial revenue bond
refinancing in the first quarter of 1996 and costs associated with increasing in
the availability under the Credit Facility in the third quarter of 1995.
18
<PAGE>
Company general and administrative expenses increased by $665,000 or 88.8% from
$749,000 for the six months ended June 30, 1995, to $1,414,000 for the six
months ended June 30, 1996, due primarily to increased accounting and
administrative personnel and related costs associated with the Company's growth,
and a shift in certain general and administrative expenses relating to
properties which were fee-managed by the Subsidiaries in 1995, but which were
subsequently acquired and are owned by the Company in 1996. As a percentage of
total revenue, general and administrative expenses increased from 5.2% in 1995
to 5.8% in 1996, due primarily to the shift in general and administrative
expenses from the Subsidiaries to the Company discussed previously. General and
administrative expenses of the Company when combined with the general and
administrative expenses of the Subsidiaries increased $527,000 or 34.2% from
$1,542,000 in 1995 to $2,069,000 in 1996 for the same reasons discussed above
having to do with the Company's growth. As a percentage of the combined revenues
of the Company and the Subsidiaries, the combined general and administrative
expenses of the Company and the Subsidiaires decreased from 8.8% in 1995 to 7.4%
in 1996.
Interest income for the six months ended June 30, 1996, consists primarily of
interest earned under the development loan arrangements discussed more fully in
Note 7 to the consolidated condensed financial statements. For the six months
ended June 30, 1995, interest income represented $110,000 earned under a short-
term note arrangement, made in conjunction with a 1995 property acquisition, and
$48,000 earned on short-term cash investments.
Equity in earnings of the Subsidiaries of $543,000 and $870,000 for the six
months ended June 30, 1996 and 1995, respectively, represents the Company's 99%
economic interest in the earnings of the Subsidiaries after the elimination of
interest expense to the Company (see Note 4 to the consolidated condensed
financial statements). Changes in the Subsidiaires' third-party operations
between periods are discussed below. As discussed below, subsequent to June 30,
1995, the Company acquired 37 properties which the Subsidiaries previously
managed. Additionally, the Subsidiaries provided other third-party services,
such as landscape maintenance, leasing and tenant interior work for these
managed properties. Due to the acquisition of these properties by the Company,
the Subsidiaries' third-party service revenues associated with these properties
ceased. The impact, if any, between periods is discussed below.
Construction and development fees increased $78,000 or 10.0% from $777,000 for
the six months ended June 30, 1995, to $855,000 for the six months ended June
30, 1996. This increase was due to higher fees from both tenant interior work
and general construction contracting jobs between periods.
Landscape revenue increased $770,000 or 47.9% from $1,608,000 for the six months
ended June 30, 1995, to $2,378,000 for the six months ended June 30, 1996, due
to an increase in landscape installation revenue of approximately $623,000
resulting from more and larger installation jobs in progress in the first half
of 1996 compared to 1995, with the remaining increase due to the growth in the
number of landscape maintenance contracts between periods.
Property management fees decreased $202,000 or 65.6% from $308,000 for the six
months ended June 30, 1995, to $106,000 for the six months ended June 30, 1996,
due primarily to the reduction in the size of the third-party management
portfolio resulting from the 1995 acquisitions by the Company of 37 properties
previously managed by the Subsidiaries.
Commission income decreased $213,000 or 73.2% from $291,000 for the six months
ended June 30, 1995, to $78,000 for the six months ended June 30, 1996, due to
19
<PAGE>
lower leasing and renewal commissions of $90,000 on properties managed for third
parties, and lower land sales commissions of $123,000 on land owned by
affiliated joint ventures or land managed and marketed by the Company.
Labor and materials costs increased by $586,000 or 43.9% from $1,336,000 for the
six months ended June 30, 1995, to $1,922,000 for the six months ended June 30,
1996, due primarily to increased costs associated with higher landscape
installation volume and higher landscape maintenance volumes in 1996 as
discussed above.
Equity in earnings of partnerships and joint ventures decreased from earnings of
$117,000 for the six months ended June 30, 1995, to earnings of $5,000 for the
six months ended June 30, 1996, due primarily to lower profits from underlying
partnership and joint venture land sales activities between periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities increased from
$8,289,000 for the six months ended June 30, 1995, to $13,132,000 for the six
months ended June 30, 1996, due primarily to the growth in the Company's
operating income resulting from ten development properties and one property
expansion stabilized in 1995 and the first half of 1996 and from 52 buildings
acquired since the end of the first quarter of 1995.
Net cash used in investing activities decreased from $50,347,000 for the six
months ended June 30, 1995, to $34,016,000 for the six months ended June 30,
1996, due primarily to lower property acquisition volume of approximately
$17,600,000 in 1996 offset by somewhat higher property development volume in the
first half of 1996 compared to 1995.
Net cash provided by financing activities decreased from $35,970,000 for the six
months ended June 30, 1995, to $20,009,000 for the six months ended June 30,
1996. This decrease was due primarily to lower Credit Facility borrowings
utilized to fund decreased acquisition activity between periods.
The Company's net cash flow from operations is currently sufficient to meet the
Company's current operational needs and to satisfy the Company's current
quarterly dividends. Management believes that operating cash flows will
continue to be adequate to fund these requirements in 1996. The Company
operates as and intends to maintain its qualification as a REIT under the Code.
As a REIT, the Company will generally not be subject to corporate federal income
taxes as long as it satisfies certain technical requirements of the Code,
including the requirement to distribute 95% of its taxable income to its
shareholders.
In addition to its operating cash flow, the Company has a $120 million
(increased from $100 million on July 1, 1996) revolving Credit Facility with a
commercial bank (see Note 3 to the consolidated condensed financial statements),
which may be used, among other things, to meet its operational obligations and
annual REIT dividend requirements. The Company currently intends to finance its
development, construction and acquisition activities primarily through
borrowings under the Credit Facility. The Company currently has available
capacity under the Credit Facility of approximately $49 million (Note 3). In
addition to the Company's available borrowing capacity, at June 30, 1996, the
Company has $72.4 million available, subject to the completion of a successful
offering, under an equity shelf registration filed in 1995.
20
<PAGE>
The Company's announced acquisitions of both the NWI and Lichtin property
portfolios and related business operations (see Note 8 to the consolidated
condensed financial statements) will be consummated primarily through the
assumption of indebtedness and the issuance of equity securities (Units). As a
result, these acquisition transactions are not expected to have a significant
impact on the Company's liquidity and capital resources.
The Company believes it has adequate liquidity and borrowing capacity, including
the completion of a larger, syndicated unsecured credit facility which is
expected to close in September 1996, to meet its current operational
requirements, to fund annual principal requirements under existing mortgage
notes payable and to fund its current development activity. It is management's
expectation that the Company will continue to have access to the additional
capital resources necessary to further expand and develop its business and to
refinance mortgage notes payable as they begin to mature in 1998. These
resources include long-term mortgage debt, expansion of the available borrowing
capacity under the Credit Facility and other forms of debt and equity financing,
in both public and private markets, including the use of the Company's available
capacity under its current equity shelf registration. Future development and
acquisition activities will be undertaken by the Company only as suitable
opportunities arise. Such activities are not expected to be undertaken unless
adequate sources of financing are available and a satisfactory budget with an
appropriate return on investment has been internally approved. The Company
maintains staffing levels sufficient to meet its existing construction and
leasing activities and capitalizes a portion of the costs relating to these
activities to development projects and leasing transactions, respectively. If
market conditions warrant, the Company may adjust staffing levels to avoid a
negative impact on the Company's results of operations.
Total consolidated debt amounted to $178.5 million at June 30, 1996, including
borrowings under the Credit Facility of $65.7 million and mortgage notes payable
of $112.8 million. Of the $112.8 million of mortgage indebtedness, $106.9
million is fixed rate and $5.9 million is variable rate. The weighted average
interest rate on the Company's fixed rate mortgage debt was 7.6% and on its
variable rate mortgage debt was 3.82% at June 30, 1996. The weighted average
interest rate under the Credit Facility at June 30, 1996, was 6.85%. As
discussed in Note 3 to the consolidated condensed financial statements, in July
1996, the Company entered into interest rate swap agreements to fix the
Company's interest costs on $50.0 million of the Company's Credit Facility
borrowings. The weighted average interest rate under the fixed swap
arrangements will be approximately 8.0%. If interest rates under the Credit
Facility, in excess of the $50.0 million discussed above, and under the
Company's variable rate mortgage debt fluctuated by 1%, interest costs to the
Company, before capitalization of interest, if any, based on outstanding
borrowings at June 30, 1996, would increase or decrease by approximately
$250,000 on an annualized basis.
At June 30, 1996, the Company's mortgage debt on its consolidated properties of
$112.8 million plus its pro rata share of mortgage debt of its unconsolidated
subsidiaries of $1.4 million totaled $114.2 million. Including Credit Facility
borrowings of $65.7 million for the Company and $3.7 million for the
Subsidiaries, the total debt obligations of the Company and the Subsidiaries was
$183.6 million or 34% of total market capitalization (assuming the exchange of
all Units for shares of common stock). At June 30, 1996 (based on the closing
price of the common stock of $26.00 on June 28, 1996, the last trading day of
the quarter, and assuming the exchange of all Units for shares of common stock),
there would be 13,723,337 shares of common stock outstanding with a total market
value of $356.8 million.
21
<PAGE>
CURRENT DEVELOPMENT ACTIVITY
The Company's current development activity as of July 31, 1996, is summarized
below. All of the properties are located in metropolitan Atlanta, Georgia,
unless otherwise indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
SQUARE ESTIMATED COMPLETION STABILIZATION
FEET/(1)/ COST/(2)/ DATE/(3)/ DATE/(4)/
=============================================================================================
<S> <C> <C> <C> <C>
MULTI-TENANT
5195 Southridge Pkwy. 60,000 $2,758,000 3Q95/(5)/ 3Q97
170 Parkway West
(Greenville/Spartanburg, SC) 96,000 2,810,000 4Q95/(5)/ 3Q96
8249 Parkline Blvd. (Orlando, FL) 33,600 1,734,000 4Q95/(5)/ 4Q96
3130 N. Berkeley Lake Rd. 240,000 5,640,000 1Q96/(5)/ 3Q96
5149 Southridge Pkwy. (expansion) 46,800 2,497,000 1Q96/(5)/ 3Q96
5025 Derrick Jones Rd. 89,600 4,458,000 2Q96/(5)/ 4Q96
2660 Pinemeadow Ct. 103,200 3,107,000 3Q96/(5)/ 3Q97
2500 Principal Row (Orlando, FL) 140,015 4,790,000 3Q96 3Q96
3240 Town Point Dr. 140,400 5,585,000 3Q96 3Q97
120 Declaration Dr. 180,000 4,579,000 4Q96 4Q97
2780 Crestridge Ct. 223,219 6,413,000 4Q96 4Q97
1335 Northmeadow Pkwy. 89,150 6,675,000 4Q96 4Q97
250 Hembree Park Dr. 94,500 4,942,000 4Q96 4Q97
3805 Crestwood Pkwy. 105,295 10,646,000 1Q97 1Q98
190 Parkway West
(Greenville/Spartanburg, SC) 92,400 2,799,000 1Q97 1Q98
- ---------------------------------------------------------------------------------------------
1,734,179 $69,433,000
=============================================================================================
BUILD-TO-SUIT
1630 Prime Ct. (Orlando, FL) 43,200 $ 1,870,000 3Q96 3Q96
240 Northpoint Pkwy (expansion) 95,100 2,796,000 1Q97 1Q97
3290 Summit Ridge Pkwy. 100,800 2,804,000 1Q97 1Q97
4020 Steve Reynolds Blvd. 44,260 2,174,000 1Q97 1Q97
- ---------------------------------------------------------------------------------------------
283,360 9,644,000
=============================================================================================
2,017,539 $79,077,000
============================================================================================
</TABLE>
(1) Actual leasable square feet may vary upon completion.
(2) Estimated cost information includes the Company's estimated future
capitalized costs through the development stabilization date (defined
as the earlier of 95% occupancy or one year from shell completion),
including costs incurred to acquire certain properties after completion
(see Note 7 to the consolidated condensed financial statements). There
can be no assurance that the actual capitalized cost of a building will
not exceed the estimated capitalized costs.
(3) For multi-tenant buildings, represents building shell completion. There
can be no assurance that a property will be completed by the estimated
completion date .
(4) Represents the Company's current estimate of the date the property will
reach stabilization for financial reporting purposes. Properties are
considered stabilized for financial reporting purposes upon the earlier
of substantial lease-up or one year from building shell completion.
There can be no assurance that the property will reach stabilization
for financial reporting purposes by the estimated stabilization date.
(5) Shell completed; interior tenant finish to be completed.
22
<PAGE>
The information provided above includes forward-looking data based on current
construction schedules, the status of lease negotiations with potential tenants
and other relevant factors currently available to the Company. There can be no
assurance that any of these factors will not change or that any change will not
affect the accuracy of such forward-looking information.
SUPPLEMENTAL DISCLOSURE OF FUNDS FROM OPERATION
The Company believes that funds from operations ("FFO") provides an additional
indicator of the financial performance of the Company. FFO is defined by the
National Association of Real Estate Investment Trusts ("NAREIT") to mean net
income (loss) determined in accordance with generally accepted accounting
principles ("GAAP") excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization of real property, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis. FFO is influenced not only by the
operations of the properties, but also by the capital structure of the Company.
Accordingly, management expects that FFO will be one of the factors considered
by the Board of Directors in determining the amount of cash dividends the
Company will pay to its shareholders. FFO does not represent cash flow from
operating, investing and financing activities as defined by GAAP, which are
discussed under "Liquidity and Capital Resources" in this section.
Additionally, FFO does not measure whether cash flow is sufficient to fund all
cash flow needs, including principal amortization, capital expenditures and
dividends to shareholders, and should not be considered as an alternative to net
income for purposes of evaluating the Company's operating performance or as an
alternative to cash flow, as defined by GAAP, as a measure of liquidity.
Effective for periods beginning on or after January 1, 1996, the Company
implemented the new guidelines issued by NAREIT for calculating FFO. The
primary difference between the Company's FFO under the new guidelines and prior
periods is that the Company now reduces reported FFO for the amortization of
deferred financing costs and recognizes rental income for the purposes of
computing FFO on a "straight-line" basis. The amortization of deferred
financing costs totaled $221,000 and $167,000 for the three months ended, and
$421,000 and $326,000 for the six months ended June 30, 1996 and 1995,
respectively. The "straight-line" rental adjustment increased rental revenues
by $120,000 and decreased rental revenues by $15,000 for the three months ended,
and increased rental revenues by $191,000 and decreased rental revenues by
$76,000 for the six months ended June 30, 1996 and 1995, respectively. All FFO
information detailed and discussed below relating to the three and six months
ended June 30, 1995 has been restated to reflect these differences.
23
<PAGE>
For the three months ended June 30, 1996, FFO increased by $2,200,000 or 65.1%
to $5,580,000 as compared to FFO of $3,380,000 for the three months ended June
30, 1995. For the six months ended June 30, 1996, FFO increased by $4,488,000
or 68.0% to $11,088,000 compared to FFO of $6,600,000 for the six months ended
June 30, 1995. FFO calculated under the current guidelines for the three and
six months ended June 30, 1996 and 1995, respectively, are detailed below (in
thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995/(1)/ JUNE 30, 1996 JUNE 30, 1995/(1)/
====================================================================================================================
<S> <C> <C> <C> <C>
NET INCOME $3,092 $2,111 $6,193 $4,178
Minority interests 713 713 1,426 1,411
Depreciation & amortization 3,049 1,698 6,000 3,241
Real estate depreciation at subsidiaries 10 --- 20 ---
- -------------------------------------------------------------------------------------------------------------------
Funds from operations (Operating
Partnership Units fully converted) 6,864 4,522 13,639 8,830
Ownership of Operating Partnership/(2)/ 81.3% 74.75% 81.3% 74.75%
------------------------------------------------------------------------------------------------------------------
FUNDS FROM OPERATIONS $ 5,580 $3,380 $11,088 $6,600
- ------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 11,156 7,675 11,156 7,675
==================================================================================================================
</TABLE>
(1) The calculation of funds from operations has been revised from the prior
year presentation as discussed above. Previously reported funds from
operations attributable to the Company's shareholders was $3,516,000 and
$6,901,000 for the three and six months ended June 30, 1995.
(2) Represents the Company's weighted average ownership of the Operating
Partnership for the period.
SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES AND LEASING COSTS
The following table details the Company's capital expenditures and leasing costs
for the six months ended June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
<S> <C>
Development and land activity/(1)/ $ 18,469
Building acquistions 9,411
Non-revenue-producing building improvements 284
Tenant improvement and leasing costs on
second-generation leases/(2)/ 1,445
Tenant improvement expenditures to be
reimbursed by tenants 121
- -------------------------------------------------------------------------------------------------------------------
$ 29,730/(3)/
===================================================================================================================
</TABLE>
(1) Includes leasing costs on first-generation space in development
properties totaling $554,000.
(2) Includes leasing costs on second-generation space totaling $464,000.
(3) Reflects aggregate capital expenditures and leasing costs, exclusive of
the decrease in construction accounts payable of $2,605,000, during the
period.
24
<PAGE>
The following table summarizes by period the Company's capitalized tenant
improvement and leasing costs incurred in the renewal or re-leasing of
previously occupied space for the six months ended June 30, 1996, and the year
ended December 31, 1995, respectively. The information detailed below is
presented based on the date the tenants occupy the leased space.
<TABLE>
<CAPTION>
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COSTS
- ------------------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
(In thousands except per square foot information) JUNE 30, 1996 DEC. 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL PROPERTIES
RE-LEASING
Square feet re-leased 300 317
Capitalized tenant improvements and leasing commissions $ 770 $ 462
Capitalized tenant improvements and leasing commissions
(per square foot) re-leased $ 2.56 $ 1.46
RENEWAL
Square feet renewed 521 814
Capitalized tenant improvements and leasing commissions $ 351 $ 469
Capitalized tenant improvements and leasing commissions
(per square foot) renewed $ 0.67 $ 0.58
TOTAL
Square feet 821 1,131
Capitalized tenant improvements and leasing commissions $ 1,121 $ 931
Capitalized tenant improvements and leasing commissions
(per square foot) $ 1.36 $ 0.82
- -----------------------------------------------------------------------------------------
OFFICE PROPERTIES
RE-LEASING
Square feet re-leased 16 111/(1)/
Capitalized tenant improvements and leasing commissions $ 37 $ 1,578/(1)/
Capitalized tenant improvements and leasing commissions
(per square foot) re-leased $ 2.30 $ 14.25/(1)/
RENEWAL
Square feet renewed 31 47
Capitalized tenant improvements and leasing commissions $ 108 $ 50
Capitalized tenant improvements and leasing commissions
(per square foot) renewed $ 3.48 $ 1.06
TOTAL
Square feet 47 158/(1)/
Capitalized tenant improvements and leasing commissions $ 145 $ 1,628/(1)/
Capitalized tenant improvements and leasing commissions
(per square foot) $ 3.08 $ 10.27/(1)(2)/
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Includes $1,377,000 or $15.68 per square foot to re-lease 87,845 square
feet of the Company's 94,677 square foot property which was vacated by
Matsushita Electric Corp. (Panasonic) and which was subsequently
converted from a single tenant to a multi-tenant office property.
(2) Excluding amounts incurred to re-lease the office property vacated by
Matsushita Electric Corp. (Panasonic), capitalized tenant improvements
and leasing commissions would have averaged $3.55 per square foot for
released and renewed office space during 1995.
25
<PAGE>
SUPPLEMENTAL DISCLOSURE OF TENANT AND LEASE EXPIRATION INFORMATION
TENANTS
As of June 30, 1996, the Company's properties were leased to 364 tenants
including local, regional, national and international companies. The Company's
25 largest tenants (measured by annualized base rent for leases in place in
stabilized properties and in properties under development or in lease-up where
tenants were paying rent at June 30, 1996) occupy a total of approximately 3.4
million square feet and represent 35.1% of the annualized base rent as shown in
the table below.
<TABLE>
<CAPTION>
25 LARGEST TENANTS MEASURED BY ANNUALIZED BASE RENT
- -------------------------------------------------------------------------------------------
% OF TOTAL
Square Number Annualized Annualized
Tenant Feet of Leases Base Rent/(1)/ Base Rent/(1)/
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1 Scientific Atlanta (2) 600,413 14 $ 2,620,482 5.5%
2 Honeywell Inc. 70,016 3 913,584 1.9%
3 Fisher Scientific Company 223,219 1 875,019 1.8%
4 The Athlete's Foot Group 162,651 1 871,024 1.8%
5 Intelligent Systems Corp. 137,100 1 671,790 1.4%
6 Yokohama Tire Corporation 252,092 1 665,383 1.4%
7 Equifax Healthcare
Information Services 42,770 2 662,812 1.4%
8 Ahlstrom Recovery Inc. 62,893 2 633,352 1.3%
9 The Bombay Company Inc. 253,890 2 631,344 1.3%
10 Liberty Mutual Insurance Co. 41,900 1 581,572 1.2%
11 Deutz Corporation 137,061 1 561,950 1.2%
12 Southern Multimedia
Communications Inc. 117,647 3 558,828 1.2%
13 Reckitt & Colman Inc. 256,000 1 547,840 1.2%
14 Vanstar Corporation 72,691 3 541,506 1.1%
15 Contel Cellular 57,918 1 529,960 1.1%
16 Metrahealth Insurance Co. 32,991 1 527,856 1.1%
17 Innotrac Corporation 116,481 2 525,705 1.1%
18 Komatsu America Corporation 176,820 1 518,024 1.1%
19 BOC Health Care Inc. 102,128 1 515,748 1.1%
20 Saab Cars U.S.A. Inc. 50,000 2 486,851 1.0%
21 Sally Foster Inc. 139,600 1 447,445 0.9%
22 Wang Laboratories Inc. 34,069 1 446,304 0.9%
23 Hussmann Corporation 85,200 1 440,484 0.9%
24 Burlington Air Express Inc. 71,400 2 437,040 0.9%
25 First Image Management Co. 89,612 1 411,319 0.9%
- -------------------------------------------------------------------------------------------
3,386,562 50 $ 16,623,222 35.1%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized cash base rent net of rental concessions, if any, based on
leases in place for stabilized properties and in properties under
development or in lease-up where tenants were paying rent as of June 30,
1996.
(2) Scientific Atlanta accounced plans during the second quarter of 1996 to
relocate over a period of several years certain facilities to a new,
owned corporate campus. Based on scheduled lease termination dates and
assuming the spaces were not re-leased, there would be no impact on the
Company's funds from operations and net income in 1996 and less than a
$0.01 per share impact in 1997.
26
<PAGE>
LEASE EXPIRATIONS
The following tables show scheduled lease expirations for the Company's total
property portfolio, for its industrial property portfolio and for its office
portfolio, respectively, based on leases under which tenants were paying rent in
both stabilized and pre-stabilized properties as of June 30, 1996, assuming no
exercise of renewal options or termination rights, if any:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
% OF TOTAL
YEAR OF SQUARE % OF TOTAL ANNUALIZED ANNUALIZED
EXPIRATION FEET SQUARE FEET BASE RENT/(1)/ BASE RENT/(1)/
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL PORTFOLIO
1996 411,242 4.4% $ 2,813,527 5.6%
1997 1,564,107 16.7% 8,438,775 16.7%
1998 1,706,343 18.3% 8,231,215 16.3%
1999 1,005,497 10.8% 6,075,659 12.0%
2000 1,290,161 13.8% 7,657,600 15.1%
2001 451,390 4.8% 2,299,417 4.5%
2002 263,086 2.8% 3,013,527 6.0%
2003 289,912 3.1% 1,622,403 3.2%
2004 997,200 10.7% 3,826,667 7.6%
2005 625,184 6.7% 2,616,213 5.2%
2006 282,623 3.0% 1,236,598 2.4%
2007 162,651 1.7% 1,050,409 2.1%
2011 293,819 3.1% 1,703,541 3.4%
-----------------------------------------------------------------------------------------------------------
9,343,215/(2)/ 100.0% $50,585,551 100.0%
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
1996 352,436 4.0% $ 2,007,602 4.7%
1997 1,475,763 16.8% 7,283,865 17.1%
1998 1,624,705 18.5% 7,103,270 16.7%
1999 968,341 11.0% 5, 556,536 13.0%
2000 1,182,172 13.5% 6,215,173 14.6%
2001 414,506 4.7% 1,837,836 4.3%
2002 133,194 1.5% 1,127,565 2.6%
2003 277,731 3.2% 1,429,943 3.4%
2004 982,200 11.2% 3,519,167 8.3%
2005 621,069 7.1% 2,559,426 6.0%
2006 279,933 3.2% 1,195,033 2.8%
2007 162,651 1.9% 1,050,409 2.5%
2011 293,819 3.4% 1,703,541 4.0%
-----------------------------------------------------------------------------------------------------------
8,768,520 100.0% $42,589,366 100.0%
-----------------------------------------------------------------------------------------------------------
</TABLE>
(Table continued on following page)
27
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
% OF TOTAL
YEAR OF SQUARE % OF TOTAL ANNUALIZED ANNUALIZED
EXPIRATION FEET SQUARE FEET BASE RENT/(1)/ BASE RENT/(1)/
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OFFICE PROPERTIES
1996 57,846 10.9% $ 793,925 10.5%
1997 88,344 16.7% 1,154,911 15.3%
1998 80,413 15.2% 1,113,858 14.7%
1999 35,512 6.7% 497,751 6.6%
2000 72,766 13.8% 1,158,881 15.3%
2001 36,884 7.0% 461,581 6.1%
2002 129,892 24.6% 1,885,962 24.9%
2003 12,181 2.3% 192,460 2.5%
2004 15,000 2.8% 307,500 4.1%
- ------------------------------------------------------------------------------
528,838 100.0% $7,566,829 100.0%
- ------------------------------------------------------------------------------
</TABLE>
(1) Annualized base rent represents the annualized monthly base rental at the
time of lease expiration.
(2) The total square footage as of June 30, 1996, is comprised of 9,043,082
square feet of leases in stabilized properties, and 300,133 square feet
of leases in properties under development or in lease-up where tenants
are paying rent as of June 30, 1996.
IMPACT OF INFLATION
In the last three years, inflation has not had a significant impact on the
Company because of the relatively low inflation rate. Substantially all tenant
leases do, however, contain provisions designed to protect the Company from the
impact of inflation. Most of the leases require tenants to pay their share of
operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation. In addition, many of the leases
are for terms of less than seven years, which may enable the Company to replace
existing leases with new leases at higher base rentals if rents under the
existing leases are below the then-existing market rate. However, there can be
no assurance that the Company would be able to replace existing leases with new
leases at higher base rentals.
28
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholders' meeting on May 21, 1996. The
following directors were elected to three-year terms expiring in 1999:
<TABLE>
<CAPTION>
Votes Votes
For Against Abstain
----------------------------------
<S> <C> <C> <C>
Barrington H. Branch 8,546,839 - 41,900
Thomas D. Senkbeil 8,548,489 - 40,250
</TABLE>
Five additional directors, A. Ray Weeks Jr., Forrest W. Robinson, George D.
Busbee, Charles R. Eitel and William O. McCoy, continue to serve their existing
terms through 1997 or 1998, as applicable.
Additionally, the shareholders of the Company approved an amendment to the
Company's Incentive Stock Plan to increase the number of shares of common stock
reserved for issuance under the Incentive Stock Plan to 1,000,000. The
amendment was approved with 5,316,800 votes for the amendment, 3,266,448 votes
against the amendment and 15,491 shares abstaining.
No other matters were submitted to a vote of the shareholders at the annual
meeting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Second Amendment to the Amended and Restated Revolving
Credit Agreement dated July 1, 1996, by and among Wachovia
Bank of Georgia N.A., and Weeks Realty L.P., Weeks
Construction Services Inc., Weeks Realty Services Inc.,
Weeks Development Partnership and Weeks Financing Limited
Partnership, as borrowers, and Weeks Corporation and Weeks
Realty L.P., as guarantors.
11.1 - Computation of earnings per share.
27.1 - Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1996.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEEKS CORPORATION
---------------------------
(Registrant)
August 12, 1996 /s/ A. Ray Weeks, Jr.
---------------------------
A. Ray Weeks, Jr.
Chairman of the Board and
Chief Executive Officer
August 12, 1996 /s/ David P. Stockert
---------------------------
David P. Stockert
Senior Vice President and
Chief Financial Officer
30
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Description Number
- ---------------------------------------------------------------------
<S> <C> <C>
10.1 Second Amendment to the Amended and Restated
Revolving Credit Agreement dated July 1, 1996, by
and among Wachovia Bank of Georgia, N.A., and
Weeks Realty L.P., Weeks Construction Services
Inc., Weeks Realty Services Inc., Weeks
Development Partnership and Weeks Financing
Partnership, as borrowers, and Weeks Corporation
and Weeks Realty L.P., as guarantors.
11.1 Computation of earnings per share.
27 Article 5 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 10.1
SECOND AMENDMENT TO AMENDED AND RESTATED
----------------------------------------
REVOLVING CREDIT AGREEMENT
--------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this
"AMENDMENT"), dated as of the 1st day of July, 1996, among WEEKS REALTY, L.P., a
Georgia limited partnership ("OPERATING PARTNERSHIP"), WEEKS CONSTRUCTION
SERVICES, INC., a Georgia corporation ("CONSTRUCTION"), WEEKS REALTY SERVICES,
INC., a Georgia corporation ("REALTY"), WEEKS DEVELOPMENT PARTNERSHIP, a Georgia
general partnership ("DEVELOPMENT"), WEEKS FINANCING LIMITED PARTNERSHIP, a
Georgia limited partnership ("FINANCING") (Operating Partnership, Construction,
Realty, Development and Financing, collectively, "BORROWERS", and each,
individually, a "BORROWER"); WEEKS CORPORATION, a Georgia corporation ("WEEKS
CORPORATION"), and Operating Partnership, as Guarantors (Weeks Corporation and
Operating Partnership, collectively, "GUARANTORS", and each, individually, a
"GUARANTOR"); WEEKS REALTY, L.P., a Georgia limited partnership, in its capacity
as Borrowers' Agent; and WACHOVIA BANK OF GEORGIA, N.A., a national banking
association ("LENDER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrowers, Weeks Corporation, Guarantors, Operating Partnership (in
its capacity as Borrowers' Agent), and Lender executed and delivered that
certain $60,000,000 Revolving Credit Agreement, dated August 24, 1994, as
modified and amended by that certain First Amendment to Revolving Credit
Agreement, dated June 1, 1995, and as further amended and restated in its
entirety pursuant to that certain $100,000,000 Amended and Restated Revolving
Credit Agreement, dated as of August 25, 1995, as further modified and amended
by that certain First Amendment to Amended Restated Revolving Credit Agreement,
dated as of April 1, 1996 (as amended, the "AGREEMENT"); and
WHEREAS, Borrowers have requested that the Line Commitment under the Agreement
be increased from $100,000,000 to $120,000,000 for the period commencing on July
1, 1996 and ending on April 1, 1997, and Lender has agreed to such request,
subject to the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars
($10.00), the above premises and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
Borrowers, Weeks Corporation, Guarantors, Operating Partnership (in its capacity
as Borrowers' Agent), and Lender hereby covenant and agree as follows:
1. DEFINITIONS. Unless otherwise specifically defined herein, each term
-----------
used herein which is defined in the Agreement shall have the meaning assigned to
such term
<PAGE>
in the Agreement. Each reference to "hereof," "hereunder," "herein" and
"hereby" and each other similar reference and each reference to "this Agreement"
and each other similar reference contained in the Agreement shall from and after
the date hereof refer to the Agreement as amended hereby.
2. REVOLVING MASTER NOTE. In order to further evidence the increase in the
---------------------
Line Commitment from $100,000,000 to $120,000,000 as hereinabove set forth,
Borrowers shall execute and deliver to Lender, in replacement of the Second
Amended and Restated Revolving Master Note, Borrowers' Third Amended and
Restated Revolving Master Note in the original principal face amount of ONE
HUNDRED TWENTY MILLION AND NO/100 DOLLARS ($120,000,000.00) in the form of
EXHIBIT "A" attached hereto and incorporated herein by reference (hereinafter
- -----------
referred to as the "THIRD AMENDED AND RESTATED REVOLVING MASTER NOTE"). From
and after the date hereof, any and all references in the Agreement, this
Amendment or the Guaranties to the "Revolving Master Note" shall be deemed
references to the Third Amended and Restated Revolving Master Note.
3. LINE COMMITMENT. Section 1.59 of the Agreement is hereby amended by
---------------
deleting therefrom the figure "$100,000,000" and inserting in lieu thereof the
figure "$120,000,000." Effective April 1, 1997 Section 1.59 of the Agreement
shall be further amended by deleting therefrom the figure "$120,000,000" and
inserting in lieu thereof the figure "$100,000,000." Accordingly, the Line
Commitment shall be $120,000,000 for the period commencing on July 1, 1996 and
ending on March 31, 1997, at which time the Line Commitment shall return to
$100,000,000. On April 1, 1997, Borrowers shall deliver to Lender a Borrowing
Base Certificate, evidencing that there is no Borrowing Base Deficit in
existence on such date.
4. ADDITIONAL ORIGINATION FEE; ANNUAL EXTENSION FEES. In addition to the
-------------------------------------------------
Revolving Credit Fees, as set forth in the Agreement, in consideration for
Lender entering into this Amendment, Borrowers hereby covenant and agree to pay
to Lender the sum of $50,000.00 in cash, payable as follows:
(a) $10,000.00 upon the execution of this Amendment by Lender; and
(b) the balance of $40,000.00 on or before October 30, 1996.
In the event the Revolving Master Note is paid in full on or before October 30,
1996 and the Agreement terminated with Borrowers having performed all of their
obligations thereunder, Lender agrees: (i) to waive said $40,000.00 balance of
such additional origination fee, and (ii) to waive the annual Extension Fee in
the amount of 1/8 % of the Line Commitment (as increased pursuant to this
Amendment) which would otherwise have been due on December 10, 1996, in
accordance with Section 2.19(b) of the Agreement; it being understood that,
solely for purposes of this Paragraph 4, a refinancing of the indebtedness
evidenced by the Revolving Master Note by a group of lenders, including Lender,
shall be deemed a repayment of the Revolving Master Note and termination of the
Agreement. Said additional origination fee shall be deemed earned in full upon
the execution of this Amendment by Lender whether or not any portion of the
increase in the Line Commitment set forth herein is utilized by Borrowers.
5. RESTATEMENT OF AGREEMENT. The parties hereto agree to continue the
------------------------
Agreement, as further amended by this Amendment. As a material inducement to
Lender to enter into this Amendment, Borrowers and Weeks Corporation further
<PAGE>
warrant and represent to Lender as follows: (a) that all warranties and
representations of Borrowers and Weeks Corporation set forth in the Agreement
were true and correct in all material respects when made and remain true and
correct in all material respects as of the date hereof; (b) that, as of the date
hereof, there are no Defaults or events which, with notice or passage of time or
both, would constitute Defaults under the Agreement; (c) that there exists no
right of offset, defense, counterclaim, claim or objection in favor of Borrowers
arising out of or with respect to the Agreement or the Revolving Master Note;
and (d) that they are not aware of the occurrence of any material adverse change
in their respective businesses, properties, operations or conditions (financial
or otherwise), as more particularly described in Section 12.09 of the Agreement,
since April 1, 1996, except as otherwise disclosed in writing to Lender.
6. EFFECT OF AMENDMENT. Except as set forth expressly hereinabove, all
-------------------
terms of the Agreement and the other Loan Documents shall be and remain in full
force and effect, and shall constitute the legal, valid, binding and enforceable
obligations of Borrowers. The amendments contained herein shall be effective as
of July 1, 1996 and shall be deemed to have prospective application only, unless
otherwise specifically stated herein.
7. RATIFICATION. Borrowers hereby restate, ratify and reaffirm each and
------------
every term, covenant and condition set forth in the Agreement and the other Loan
Documents effective as of the date hereof.
8. REAFFIRMATION OF WEEKS GUARANTIES. By execution hereof, Guarantors re-
---------------------------------
affirm their respective obligations under the Weeks Guaranties and acknowledge
that the Weeks Guaranties continue to guaranty, in accordance with their
respective terms, the payment of the Revolving Master Note and the performance
by Borrowers of their obligations under the Agreement, as amended hereby.
9. COUNTERPARTS. This Amendment may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
10. SECTION REFERENCES. Section titles and references used in this Amendment
------------------
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreements among the parties hereto evidenced hereby.
11. FURTHER ASSURANCES. Borrowers agree to take such further actions as
------------------
Lender shall reasonably request in connection herewith to evidence the
amendments herein contained.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and
delivered in their names and on their behalf, and their seals to be affixed and
attested, all as of the day and year first above written.
BORROWERS:
---------
WEEKS REALTY, L.P.
ATTEST: BY: WEEKS CORPORATION, its sole
General Partner
/s/ Elizabeth C. Belden By: /s/ David P. Stockert
- ----------------------- ------------------------------
Secretary Its: Senior Vice President and
-------------------------
Chief Financial Officer
-------------------------
[CORPORATE SEAL]
ATTEST: WEEKS CONSTRUCTION SERVICES, INC.
/s/ Elizabeth C. Belden By: /s/ David P. Stockert
- ----------------------- ------------------------------
Secretary Its: Treasurer
--------------------------
[CORPORATE SEAL]
ATTEST: WEEKS REALTY SERVICES, INC.
/s/ Elizabeth C. Belden By: /s/ David P. Stockert
- ----------------------- -------------------------------
Secretary Its: Treasurer
--------------------------
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
WEEKS DEVELOPMENT PARTNERSHIP
ATTEST: BY: WEEKS REALTY SERVICES,
INC., as its Managing Partner
/s/ Elizabeth C. Belden By: /s/ David P. Stockert
- --------------------------------- ---------------------------
Secretary Its: Treasurer
----------------------
[CORPORATE SEAL]
WEEKS FINANCING LIMITED PARTNERSHIP
BY: WEEKS REALTY, L.P., its sole
General Partner
ATTEST: BY: WEEKS CORPORATION,
its sole General Partner
/s/ Elizabeth C. Belden By: /s/ David P. Stockert
- --------------------------------- ---------------------------
Secretary Its: Senior Vice President
----------------------
and Chief Financial
----------------------
Officer
----------------------
[CORPORATE SEAL]
GUARANTORS:
----------
ATTEST: WEEKS CORPORATION
/s/ Eliabeth C. Belden By: /s/ David P. Stockert
- ------------------------------- ------------------------------------
Secretary Its: Senior Vice President and
------------------------------
Chief Financial Officer
------------------------------
[CORPORATE SEAL]
<PAGE>
WEEKS REALTY, L.P.
ATTEST: BY: WEEKS CORPORATION, its sole
General Partner
/s/ Elizabeth C. Belden By: /s/ David F. Stockert
- --------------------------------- -------------------------------
Secretary Its: Senior Vice President and
--------------------------
Chief Financial Officer
--------------------------
[CORPORATE SEAL]
BORROWERS' AGENT:
----------------
WEEKS REALTY, L.P.
ATTEST: BY: WEEKS CORPORATION, its sole
General Partner
/s/ Elizabeth C. Belden By: /s/ David P. Stockert
- ---------------------------------- ------------------------------
Secretary Its: Treasurer
--------------------------
[CORPORATE SEAL]
LENDER:
------
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ Steven B. Wood
------------------------------------
Its: Vice President
--------------------------------
[BANK SEAL]
<PAGE>
EXHIBIT 11.1
WEEKS CORPORATION
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
THREE MONTHS Three Months SIX MONTHS Six Months
ENDED Ended ENDED Ended
(In thousands, except per share data) JUNE 30,1996 June 30,1995 JUNE 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 11,156 7,675 11,156 7,675
Dilutive effect of outstanding stock options
(determined under the Treasury Stock Method) -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares outstanding 11,156 7,675 11,156 7,675
- ------------------------------------------------------------------------------------------------------------
Net income $ 3,092 $2,111 $ 6,193 $4,178
- ------------------------------------------------------------------------------------------------------------
Per share data:
Net income per share $ 0.28 $ 0.28 $ 0.56 $ 0.54
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 107
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 313,446
<DEPRECIATION> 35,029
<TOTAL-ASSETS> 347,795
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0
0
<COMMON> 112
<OTHER-SE> 130,110
<TOTAL-LIABILITY-AND-EQUITY> 347,795
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<CGS> 0
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<INCOME-PRETAX> 6,193
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<NET-INCOME> 6,193
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
