<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 March 31, 1997
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 (14,098,013 shares of common
stock outstanding as of May 9, 1997)
1
<PAGE>
<TABLE>
<CAPTION>
INDEX PAGE
- -------------------------------------------------------------------------------
<S> <C>
PART I. FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
at March 31, 1997 and December 31, 1996...................... 3
Consolidated Condensed Statements of Operations
for the three months ended March 31, 1997 and 1996........... 4
Consolidated Condensed Statements of Cash Flows
for the three months ended March 31, 1997 and 1996........... 5
Notes to Consolidated Condensed Financial
Statements................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 14
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 2. CHANGES IN SECURITIES........................................ 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 27
SIGNATURES................................................................. 28
- -------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
WEEKS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
March 31, December 31,
(Unaudited; in thousands, except share amounts) 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real Estate Assets
Land $ 82,857 $ 77,233
Buildings and improvements 482,744 450,002
Accumulated depreciation (46,157) (41,469)
- --------------------------------------------------------------------------------------------
Operating real estate assets 519,444 485,766
- --------------------------------------------------------------------------------------------
Developments in progress 52,495 56,571
Land held for future development 12,307 9,035
- --------------------------------------------------------------------------------------------
Net real estate assets 584,246 551,372
- --------------------------------------------------------------------------------------------
Real estate development loans 11,521 9,455
Direct financing lease, net 5,107 5,136
Cash and cash equivalents 299 260
Receivables 6,300 5,858
Deferred costs, net 11,356 10,286
Investments in and notes receivable
from unconsolidated subsidiaries 8,661 7,760
Other assets 2,602 1,722
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $630,092 $591,849
- --------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $200,768 $197,575
Credit facility borrowings 120,115 99,400
Accounts payable and accrued expenses 11,505 9,970
Other liabilities 3,486 2,963
- --------------------------------------------------------------------------------------------
Total liabilities 335,874 309,908
- --------------------------------------------------------------------------------------------
Minority interests in Operating Partnership 77,674 68,230
- --------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common Stock, $0.01 par value; 100,000,000 shares authorized;
14,097,617 and 14,048,593 shares issued and outstanding
at March 31, 1997 and December 31, 1996, respectively 141 140
Preferred Stock, $0.01 par value; 20,000,000 shares
authorized; none issued -- --
Additional paid-in capital 269,085 267,634
Deferred compensation (1,078) --
Accumulated deficit (51,604) (54,063)
- --------------------------------------------------------------------------------------------
Total shareholders' equity 216,544 213,711
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $630,092 $591,849
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
balance sheets.
3
<PAGE>
WEEKS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
(Unaudited; in thousands, except per share amounts) March 31, 1997 March 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Rental income $17,400 $10,780
Tenant reimbursements 2,157 1,048
Direct financing lease 188 192
Other 154 109
- --------------------------------------------------------------------------------------------
19,899 12,129
- --------------------------------------------------------------------------------------------
EXPENSES
Property operating and maintenance 2,223 1,294
Real estate taxes 1,699 1,068
Depreciation and amortization 5,344 2,951
Interest 5,066 2,435
Amortization of deferred financing costs 226 200
General and administrative 1,169 716
- --------------------------------------------------------------------------------------------
15,727 8,664
- --------------------------------------------------------------------------------------------
Income before equity in earnings of unconsolidated
subsidiaries and interest income 4,172 3,465
Equity in earnings of unconsolidated
subsidiaries 648 266
Interest income 238 83
- --------------------------------------------------------------------------------------------
Income before minority interests 5,058 3,814
Minority interests (1,232) (713)
- --------------------------------------------------------------------------------------------
NET INCOME $ 3,826 $ 3,101
- --------------------------------------------------------------------------------------------
NET INCOME PER SHARE $0.27 $0.28
- --------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 14,073 11,156
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
WEEKS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
(Unaudited; in thousands) March 31, 1997 March 31, 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,826 $ 3,101
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 1,232 713
Depreciation and amortization 5,344 2,951
Amortization of deferred financing costs 226 200
Amortization of deferred compensation 72 --
Income from direct financing lease (188) (192)
Straight-line rent revenue (150) (71)
Equity in earnings of unconsolidated subsidiaries (648) (266)
Net change in:
Receivables and other assets (938) (654)
Deferred costs (1,654) (290)
Accounts payable and accrued expenses 1,917 589
Other liabilities 523 444
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,562 6,525
- -------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property acquisition, development and construction (19,565) (9,962)
Real estate development loans (2,066) (1,648)
Deposits (400) (200)
Payments received on direct financing lease 217 212
- -------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (21,814) (11,598)
- -------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Stock option and dividend reinvestment plan proceeds 302 --
Line of credit proceeds, net 20,715 10,169
Payments of mortgage notes payable (1,167) (117)
Deferred financing costs (70) (165)
Dividends to shareholders (6,043) (4,462)
Distributions to minority interests (1,446) (1,027)
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,291 4,398
- -------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39 (675)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 260 982
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 299 $ 307
- -------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company's 1997 property acquisitions included the assumption of indebtedness
of $4,360,000 and the issuance of Units valued at $14,334,000.
The accompanying notes are an integral part of these consolidated 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
southeast United States. As used herein, the term "Company" includes Weeks
Corporation and its subsidiaries, including Weeks Realty, L.P. (the "Operating
Partnership"), unless the context indicates otherwise. The Company, through its
subsidiaries, is the general partner and owns a majority 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.
As of March 31, 1997, the Company had outstanding 14,097,617 shares of common
stock and owned the same number of units of partnership interest in the
Operating Partnership ("Units"), and the Company's ownership interest in the
Operating Partnership was 73.6%. Units held by persons other than the Company
totaled 5,057,836 as of March 31, 1997, and represented a 26.4% minority
interest in the Operating Partnership. Units representing the 26.4% 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's weighted average ownership interest in the Operating
Partnership was 75.6% for the three months ended March 31, 1997 and 81.3% for
the three months ended March 31, 1996.
The Company conducts its third-party service businesses through two subsidiaries
(the "Subsidiaries"): Weeks Realty Services, Inc. conducts third-party
landscape, property management and leasing services and Weeks Construction
Services, Inc. conducts 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 March 31, 1997, the Company owned 178 industrial properties, 17 suburban
office properties and three retail properties comprising 14.2 million square
feet. The Company's primary markets and the concentration of the Company's
portfolio (based on square footage) are Atlanta, Georgia (73%), Nashville,
Tennessee (12%), Raleigh-Durham-Chapel Hill, North Carolina (9%), Orlando,
Florida (3%), and Spartanburg, South Carolina (3%). In addition, 24 industrial
and suburban office properties and one property expansion were under development
or in lease-up at March 31, 1997, comprising an additional 2.7 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
March 31, 1997, and December 31, 1996, and their results of operations and cash
flows for the three months ended March 31, 1997 and 1996. The operating results
of the Subsidiaries are reflected in the accompanying financial statements on
the equity method of accounting. 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
1997 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, 1997. 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,
1996.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings per Share" was issued prescribing a new method for computing earnings
per share. When implemented, SFAS 128 will supercede Accounting Principles
Board Opinion ("APB") No. 15, "Earnings per Share," the current accounting
literature utilized in computing earnings per share under generally accepted
accounting principles. Under SFAS 128, the Company will be required to present
both basic and diluted earnings per share in its interim and annual financial
statements for periods beginning with its financial statements for the quarter
and year ended December 31, 1997. As defined by SFAS 128, basic earnings per
share shall be computed by dividing net income by the weighted average number of
common shares outstanding during the period. Diluted earnings per share shall
be computed to present the dilutive impact of all instruments or securities
which are convertible into shares of the Company's common stock, as more
specifically defined in SFAS 128.
The Company will continue to present earnings per share under the provisions of
APB No. 15 for all interim periods of 1996 until the mandated SFAS 128
implementation date in the fourth quarter of 1996. Upon the adoption of SFAS
128, all prior period earnings per share amounts will be restated. The impact
of SFAS 128 on the Company's consolidated condensed financial statements for the
three months ended March 31, 1997 and 1996 is discussed in Note 6.
7
<PAGE>
3. BANK CREDIT FACILITY AND MORTGAGE NOTES PAYABLE
The Operating Partnership, the Subsidiaries and Weeks Development Partnership
(Note 4), as co-borrowers, have a $175 million syndicated revolving credit
facility (the "Credit Facility") with four banks. The Credit Facility is
unsecured and can be used for development and construction, acquisitions and
general corporate purposes. 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 limitations on secured borrowings and 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 matures on December 31, 1999, and
may be extended annually through December 31, 2002, subject to an annual renewal
fee of 0.125%. The Credit Facility replaced the Company's previous $120 million
single-bank revolving line of credit.
The Credit Facility provides for advances of up to $175 million, subject to
certain covenants, including those governing the Company's maximum unsecured
borrowings and total leverage. Maximum available advances currently total $175
million. As of March 31, 1997, Credit Facility borrowings are detailed as
follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------
BORROWER AMOUNT
- ----------------------------------------------------
<S> <C>
Operating Partnership $120,115
Weeks Realty Services, Inc. 2,675
Weeks Development Partnership 720
Weeks Construction Services, Inc. 300
- ----------------------------------------------------
$123,810
- ----------------------------------------------------
</TABLE>
Interest under the Credit Facility is payable monthly at bank prime minus 0.25%
or at LIBOR plus 1.35% at the election of the co-borrowers. The weighted average
interest rate on Credit Facility borrowings, excluding the effect of the
interest rate swap agreements described below, was 6.98% at March 31, 1997.
Fees on the unused portion of the Credit Facility are 0.20%.
Interest paid, net of amounts capitalized, totaled $5,150,000 and $2,250,000 for
the three months ended March 31, 1997 and 1996, respectively. Interest costs
capitalized totaled $939,000 and $415,000 for the three months ended March 31,
1997 and 1996, respectively.
The Company has in place 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, $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.
8
<PAGE>
Mortgage notes payable at March 31, 1997 and December 31, 1996, specifically
listed for notes with outstanding balances in excess of $10 million, consist of
the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
FIXED RATE
Mortgage note, interest only at 7.13%,
due in 1999 $ 38,000 $ 38,000
Three mortgage notes, interest only at 7.75%,
due in 1998 (Note 5) 31,170 31,170
Mortgage note, principal and interest at 9.24%,
due in 2005 15,961 16,028
Mortgage note, principal and interest at 8.10%,
due in 2006 12,214 12,278
Mortgage note, interest only at 7.625%,
due in 2000 10,300 10,300
Other mortgage notes (21 at March 31, 1997),
principal and interest at 6.71% to 9.80%,
due in 1998 to 2006 87,291 83,956
VARIABLE RATE
Industrial revenue bonds, interest at 3.50% to 6.65%
at March 31, 1997, due in 2004 and 2010 5,832 5,843
- --------------------------------------------------------------------------------
$200,768 $197,575
- --------------------------------------------------------------------------------
</TABLE>
At March 31, 1997, fixed rate mortgage notes payable included 28 notes with a
weighted average interest rate of 7.99%. The weighted average term to maturity
of fixed rate mortgage notes payable was 5.0 years at March 31, 1997. Fixed
rate mortgage indebtedness increased by $3,204,000 in the three month period
ended March 31, 1997 due to the assumption of a $3,750,000, 8.625% mortgage loan
in conjunction with the Company's acquisitions (Note 7), net of principal
repayments and retirements. Certain Company officers and Unitholders guarantee
a portion of fixed rate mortgage notes.
Variable rate industrial revenue bonds include two separate arrangements. One
bond issue with an outstanding balance of $5,140,000 accrues interest at rates
equivalent to short-term tax-exempt Aa2 rated securities. The second bond issue
accrues interest at 78% of the prime lending rate. The weighted average
interest rate under these arrangements was 3.87% at March 31, 1997. The bonds
are supported by letters of credit totaling $5,345,000.
Exclusive of letters of credit supporting industrial revenue bond financings,
letters of credit totaling $1,840,000 at March 31, 1997, were issued to third
parties.
9
<PAGE>
Scheduled maturities of mortgage notes payable at March 31, 1997, are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------
YEAR AMOUNT
- -------------------------------
<S> <C>
Remainder of 1997 $ 1,605
1998 39,325
1999 48,582
2000 21,483
2001 10,849
2002 and thereafter 78,924
- -------------------------------
$200,768
- -------------------------------
</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. Through
Weeks Development Partnership ("Weeks Development"), wholly owned by the
Subsidiaries, the Subsidiaries also own land in various business parks, either
directly or through ownership interests in real estate partnerships and joint
ventures. The Company intends, based on market conditions, 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 (99%) of the Subsidiaries' earnings and losses.
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>
- --------------------------------------------------------------------
MARCH 31, DECEMBER 31,
FINANCIAL POSITION 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate assets $ 6,754 $ 7,200
Investments in real estate partnerships
and joint ventures 2,866 3,025
Receivables and other assets 10,341 13,113
- --------------------------------------------------------------------
$19,961 $23,338
- --------------------------------------------------------------------
LIABILITIES AND EQUITY
Notes payable to the Company $10,921 $10,921
Credit facility borrowings 3,695 3,595
Other borrowings 1,254 1,261
Other liabilities 6,345 10,725
Total equity (2,254) (3,164)
- --------------------------------------------------------------------
$19,961 $23,338
- --------------------------------------------------------------------
</TABLE>
10
<PAGE>
At March 31, 1997, the Company's investment in and notes receivable from the
Subsidiaries totaling $8,661,000 includes notes receivable from the Subsidiaries
of $10,921,000 and the Company's investment in the Subsidiaries of ($2,260,000).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
Results of Operations March 31, 1997 March 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Construction and development fees $ 536 $ 393
Landscape 1,192 1,033
Property management fees 63 58
Commissions 178 78
Other 84 69
- --------------------------------------------------------------------------------
2,053 1,631
- --------------------------------------------------------------------------------
COSTS AND EXPENSES
Direct costs 961 808
Interest expense - Company 327 328
Interest expense - other 76 139
General and administrative 440 367
Other 198 42
- --------------------------------------------------------------------------------
2,002 1,684
- --------------------------------------------------------------------------------
INCOME (LOSS) BEFORE GAIN ON SALE OF
PROPERTY AND EQUITY IN EARNINGS OF
PARTNERSHIPS AND JOINT VENTURES 51 (53)
Gain on sale of property - Company 580 --
Equity in earnings of partnerships
and joint ventures 279 (10)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ 910 $ (63)
- --------------------------------------------------------------------------------
Net income (loss) attributable
to Company $ 901 $ (62)
Interest expense - Company 327 328
Gain on sale of property - Company (580) --
- --------------------------------------------------------------------------------
Equity in earnings of Subsidiaries $ 648 $ 266
- --------------------------------------------------------------------------------
Distributions and interest paid
to Company $ -- $ --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
CASH FLOWS MARCH 31, 1997 MARCH 31, 1996
- --------------------------------------------------------------------------------
Operating activities $ (866) $1,017
Investing activities 870 (459)
Financing activities 93 195
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Third-party service revenues detailed above include development and construction
fees, landscaping fees and lease commissions from affiliated partnerships and
joint ventures totaling $114,000, $62,000 and $124,000, respectively, for the
three months ended March 31, 1997, and $40,000, $53,000 and $72,000,
respectively, for the three months ended March 31, 1996.
5. SHAREHOLDERS' EQUITY
In February 1997, restricted shares of common stock valued at $1,150,000 were
granted to certain Company officers and employees in recognition of successful
prior service and as an incentive for future service and continued financial
performance of the Company. These shares vest ratably over a four year period
provided the Company achieves 10% annual growth in per share funds from
operations, a REIT industry measure of operating performance, for each year of
the four year vesting period. Compensation expense is recognized ratably over
the four year vesting period.
On May 13, 1997, the Company completed a public offering of 3,200,000 shares of
common stock and received net proceeds of approximately $95.1 million. The
Company has granted the underwriters of the offering an option for 30 days to
purchase up to an additional 480,000 shares of common stock at a price of $31.50
per share, less the underwriting discount, to cover over-allotments. The
proceeds were used to reduce the Company's outstanding Credit Facility
borrowings (Note 3). The Company intends to use the additional Credit Facility
borrowing capacity to prepay, without penalty, three mortgage notes, totaling
$31,170,000 scheduled to mature in 1998 (Note 3).
The Company declared and paid quarterly dividends relating to the fourth quarter
of 1996 of $6,043,000 or $0.43 per share during the three months ended March 31,
1997. Additionally, the minority Unitholders in the Operating Partnership
received cash distributions totaling $1,446,000 or $0.43 per Unit during the
three months ended March 31, 1997. In April 1997, the Company declared and paid
quarterly dividends and made distributions relating to the first quarter of 1997
of $6,062,000 or $0.43 per share and $1,949,000 or $0.43 per Unit, respectively.
6. EARNINGS PER SHARE
Under APB No. 15, earnings per share is calculated using the weighted average
number of common shares outstanding of 14,073,000 and 11,156,000 for the three
months ended March 31, 1997 and 1996, respectively. The impact of outstanding
stock options was not dilutive, as defined in APB No. 15, in 1997 or 1996. An
assumed conversion of Units into common stock would not affect net income per
share.
Proforma basic and diluted earnings per share calculated under the provisions of
SFAS 128, described in Note 2 to the consolidated condensed financial
statements, would be $0.27 per share for the three months ended March 31, 1997
and $0.28 per share for the three months ended March 31, 1996.
12
<PAGE>
7. ACQUISITIONS
The Company acquired initial property portfolios and the business operations of
NWI Wharehouse Group, L.P. ("NWI") in Nashville, Tennessee, and Lichtin
Properties, Inc. and affiliates ("Lichtin") in the Raleigh-Durham-Chapel Hill
area of North Carolina, on November 1, 1996 and December 31, 1996, respectively,
in transactions accounted for under the purchase method. The Company's
consolidated condensed results of operations for the three months ended March
31, 1997, included the operating results of NWI and Lichtin for the entire
period. The unaudited pro forma information below presents the consolidated
condensed results of operations as if the initial phases of the NWI and Lichtin
acquisitions had occurred as of January 1, 1996. The unaudited pro forma
information is not necessarily indicative of the results of operations of the
Company had the acquisitions occurred as of January 1, 1996, nor is it
necessarily indicative of future results. Additionally, the unaudited pro forma
information excludes the impact of the buildings and land acquired or to be
acquired from NWI and Lichtin subsequent to the initial acquisition dates
detailed above.
<TABLE>
<CAPTION>
(Unaudited, in thousands, except per share amount) March 31, 1996
- -----------------------------------------------------------------------
<S> <C>
Revenues $16,181
Net income 2,483
Earnings per share $ 0.22
</TABLE>
On January 31, 1997 and March 31, 1997, the Company acquired a total of five
industrial buildings totaling 447,528 square feet. Three buildings totaling
154,341 square feet were acquired from Lichtin and two buildings totaling
293,187 square feet were acquired from NWI. Total acquisition consideration of
approximately $17.7 million was comprised of the assumption of approximately
$4.4 million of indebtedness and the issuance of approximately $13.3 million of
Units in the Operating Partnership. Additionally, as part of these
transactions, the Company acquired approximately five net usable acres of
development land in exchange for $1.0 million of Units.
13
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND 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. 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 months
ended March 31, 1997 and 1996, respectively, is summarized below (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED %
MARCH 31, 1997 MARCH 31, 1996 CHANGE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $17,400 $10,780 61.4%
Tenant reimbursements 2,157 1,048 105.8%
- ---------------------------------------------------------------------------
Property operating revenues 19,557 11,828 65.3%
- ---------------------------------------------------------------------------
Operating and maintenance
expenses 2,223 1,294 71.8%
Real estate taxes 1,699 1,068 59.1%
Depreciation and amortization 5,344 2,951 81.1%
- ---------------------------------------------------------------------------
Property operating expenses 9,266 5,313 74.4%
- ---------------------------------------------------------------------------
Property operating revenues less
property operating expenses $10,291 $ 6,515 58.0%
- ---------------------------------------------------------------------------
</TABLE>
Period to period comparisons of property operating revenues and expenses for
1997 and 1996 are 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, 1996.
The Company defines a property as stabilized upon the earlier of substantial
lease-up or one year from building shell completion. Development properties
reflect properties completed and stabilized, and acquisition properties are
properties acquired, subsequent to January 1, 1996.
14
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THREE MONTHS ENDED MARCH 31, 1997, TO THE
THREE MONTHS ENDED MARCH 31, 1996
Property operating revenues (rental revenue plus tenant reimbursements)
increased $7,729,000 or 65.3% between periods. Of this increase, $6,240,000,
$1,219,000 and $270,000 were attributable to acquisition, development and core
properties, respectively. The increases relating to acquisition and development
properties were due to the acquisition of 51 properties (46 in 1996 and 5 in
1997) totaling approximately 3,721,000 square feet and the stabilization of 13
development properties (8 in 1996 and 5 in 1997) and two property expansions
(one each year) totaling approximately 1,629,000 square feet. Property
operating expenses increased $3,953,000 or 74.4% between periods due primarily
to the growth in the property portfolio resulting from the acquisition and
development properties discussed above.
For the comparable periods ended March 31, 1997 and 1996, operating results of
the core properties, representing 134 properties totaling approximately
8,861,000 square feet, are summarized below (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996 % CHANGE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental revenues $10,714 $10,570 1.4%
Tenant reimbursements 1,163 1,037 12.2%
- ------------------------------------------------------------------------------
Property operating revenues 11,877 11,607 2.3%
- ------------------------------------------------------------------------------
Operating and maintenance
expenses 1,361 1,287 5.7%
Real estate taxes 1,111 1,039 6.9%
Depreciation and amortization 3,007 2,911 3.3%
- ------------------------------------------------------------------------------
Property operating expenses 5,479 5,237 4.6%
- ------------------------------------------------------------------------------
Property operating revenues less
property operating expenses $ 6,398 $ 6,370 0.4%
- ------------------------------------------------------------------------------
Average occupancy 95.9% 96.1%
- ------------------------------------------------------------------------------
</TABLE>
Property operating revenues from core properties increased 2.3% despite a slight
decrease in overall average occupancy. Adjusted for the decrease in weighted
average occupancy between periods, property operating revenues from core
properties increased approximately 3%. Property operating expenses increased
4.6% due primarily to both increased repairs and maintenance and real estate tax
expenses in 1997. Property operating revenues less property operating expenses
from core properties increased 1.3%, exclusive of depreciation and amortization
expense, and increased approximately 2% after adjusting for the decrease in
weighted average occupancy between periods.
Interest expense increased by $2,631,000 or 108.0% from $2,435,000 for the three
months ended March 31, 1996, to $5,066,000 for the three months ended March 31,
1997, as a result of increased mortgage interest of $1,846,000 due primarily to
mortgage debt assumed in conjunction with the Company's 1996 property
acquisitions, and increased Credit Facility interest of $785,000. Interest
expense of $5,066,000 for the three months ended March 31, 1997, consisted of
mortgage interest of $3,939,000 and Credit Facility interest of $1,127,000.
15
<PAGE>
Amortization of deferred financing costs increased $26,000 or 13.0% from
$200,000 for the three months ended March 31, 1996, to $226,000 for the three
months ended March 31, 1997, due primarily to the amortization of deferred
financing costs associated with increasing the availability under and
restructuring the Credit Facility in 1996.
Company general and administrative expenses increased by $453,000 or 63.3% from
$716,000 for the three months ended March 31, 1996, to $1,169,000 for the three
months ended March 31, 1997, due primarily to increased personnel and related
costs associated with the Company's southeast expansion. The majority of the
increase relates to the additional general and administrative expenses
associated with the Company's Nashville, Tennessee and Raleigh, North Carolina
operations, both of which were acquired in the fourth quarter of 1996, and to a
lesser extent expenses related to the establishment of an office in Orlando,
Florida, which also occurred in the fourth quarter of 1996. As a percentage of
total revenue, general and administrative expenses were 5.9% in both 1997 and
1996. General and administrative expenses of the Company when combined with the
general and administrative expenses of the Subsidiaries increased $526,000 or
48.6% from $1,083,000 in 1996 to $1,609,000 in 1997 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 7.9%
in 1996 to 7.3% in 1997.
Interest income increased $155,000 or 186.7% from $83,000 for the three months
ended March 31, 1996 to $238,000 for the three months ended March 31, 1997, due
primarily to increased real estate development loan balances between periods.
Real estate development loans are loans to affiliated joint ventures and other
parties, under joint development arrangements, for the development of industrial
buildings. The Company has options to acquire the developed buildings upon
their completion.
Equity in earnings of the Subsidiaries of $648,000 and $266,000 for the three
months ended March 31, 1997 and 1996, respectively, represents the Company's 99%
economic interest in the earnings of the Subsidiaries after the elimination of
interest expense and gains on property sales to the Company (see Note 4 to the
consolidated condensed financial statements). Changes in the Subsidiaries'
third-party operations between periods are discussed below.
Construction and development fees, net of associated costs, increased $143,000
or 36.4% from $393,000 for the three months ended March 31, 1996, to $536,000
for the three months ended March 31, 1997. This increase was due to higher fees
from both general construction contracting jobs and tenant interior work jobs
reflecting increased work volumes in 1997 compared to 1996.
Landscape revenue increased $159,000 or 15.4% from $1,033,000 for the three
months ended March 31, 1996, to $1,192,000 for the three months ended March 31,
1997, due to an increase in landscape installation revenue of approximately
$84,000 resulting from larger landscape installation jobs in progress in the
first quarter of 1997 compared to 1996, with the remaining increase due to the
growth in the number of landscape maintenance contracts between periods.
Commission income increased $100,000 or 128.2% from $78,000 for the three months
ended March 31, 1996, to $178,000 for the three months ended March 31, 1997, due
to both higher land sales commissions in the first quarter of 1997 due to the
timing of brokered land sales transactions between periods and higher leasing
commissions from properties managed for third parties.
16
<PAGE>
Direct costs increased by $153,000 or 18.9% from $808,000 for the three months
ended March 31, 1996, to $961,000 for the three months ended March 31, 1997, due
to increased costs associated with higher landscape installation volume and
higher landscape maintenance volumes, and higher commission costs on brokered
land sales and lease transactions in 1997 as discussed above.
Equity in earnings of partnerships and joint ventures increased from a loss of
$10,000 for the three months ended March 31, 1996 to income of $279,000 for the
three months ended March 31, 1997 due to greater land sales volumes to third-
party users in 1997 compared to 1996.
The gain on sale of property in 1997 represents the results of a sale of land to
the Operating Partnership for the development of an industrial building. This
gain was eliminated in the consolidated condensed financial statements of the
Company as reflected in Note 4 to the consolidated condensed financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities increased from
$6,525,000 for the three months ended March 31, 1996, to $9,562,000 for the
three months ended March 31, 1997, due primarily to the growth in the Company's
operating income resulting from 13 development properties (8 in 1996 and 5 in
1997) and two property expansions stabilized (one each year) and from 51
buildings acquired (46 in 1996 and 5 in 1997).
Net cash used in investing activities increased from $11,598,000 for the three
months ended March 31, 1996, to $21,814,000 for the three months ended March 31,
1997, due primarily to higher property development and land acquisition volumes
in the first three months of 1997 compared to 1996.
Net cash provided by financing activities increased from $4,398,000 for the
three months ended March 31, 1996, to $12,291,000 for the three months ended
March 31, 1997. This net increase between periods reflects higher net
borrowings to finance the Company's property portfolio growth.
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 1997. 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 $175 million unsecured
revolving Credit Facility with a syndicated bank group (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. As of March 31, 1997, the Company had available capacity under
the Credit Facility of approximately $51.2 million (Note 3).
17
<PAGE>
On May 13, 1997, the Company completed a public offering of 3,200,000 shares of
common stock, and received net proceeds of approximately $95.1 million. The net
proceeds were applied to outstanding Credit Facility borrowings, increasing the
Company's available capacity under the Credit Facility, as stated above, by
$95.1 million. The Company intends to utilize approximately $31.2 million of
the additional borrowing capacity to prepay, without penalty, three mortgage
notes scheduled to mature in 1998.
The Company believes it has adequate liquidity, borrowing capacity and sources
of capital, including available capacity under its existing Credit Facility and
remaining capacity of approximately $205 million under an equity shelf
registration, to meet its current operational requirements, to fund annual
principal requirements under existing mortgage notes payable, and to fund its
current development and acquisition 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 mature. 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. 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 $320.9 million at March 31, 1997, including
borrowings under the Credit Facility of $120.1 million and mortgage notes
payable of $200.8 million. Of the $200.8 million of mortgage indebtedness,
$195.0 million is fixed rate and $5.8 million is variable rate. The weighted
average interest rate on the Company's fixed rate mortgage debt was 7.99% and on
its variable rate mortgage debt was 3.87% at March 31, 1997. The weighted
average interest rate under the Credit Facility at March 31, 1997, (excluding
the effect of the interest rate swap agreements described below) was 6.98%.
The Company has in place 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 is
approximately 8.0%. If interest rates under the Credit Facility, in excess of
the $50.0 million discussed herein, 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 March 31,
1997, would increase or decrease by approximately $800,000 on an annualized
basis.
As discussed above, the Company substantially reduced its variable rate Credit
Facility borrowings from the proceeds of a public equity offering on May 13,
1997. Based on the outstanding balance of mortgage notes payable at March 31,
1997, the weighted average interest rate on the mortgage notes with a final
maturity in each of the next five years were 7.92% in 1998, 7.30% in 1999, 8.54%
in 2000 and 6.96% in 2001. None of the mortgage notes mature in 1997.
18
<PAGE>
At March 31, 1997, the Company's mortgage debt on its consolidated properties of
$200.8 million plus its pro rata share of mortgage debt of its unconsolidated
subsidiaries of $1.4 million, totaled $202.2 million. Including Credit Facility
borrowings of $120.1 million for the Company and $3.7 million for the
Subsidiaries, the total debt obligations of the Company and the Subsidiaries
were $326.0 million or 33% of total market capitalization (assuming the exchange
of all Units for shares of common stock). At March 31, 1997 (based on the
closing price of the common stock of $34.375 on March 31, 1997, the last trading
day of the quarter, and assuming the exchange of all Units for shares of common
stock), there would be 19,155,453 shares of common stock outstanding with a
total market value of $658.5 million. As discussed above, the Company
substantially reduced its Credit Facility borrowings from the net proceeds of
approximately $95.1 million of an equity offering completed on May 13, 1997.
Adjusted for the application of the proceeds of the equity offering, the total
debt obligations of the Company and its unconsolidated subsidiaries would have
been $230.9 million, or 23% of total market capitalization (assuming the
issuance of the 3,200,000 shares in the offering and the exchange of all Units
for shares of common stock), at March 31, 1997.
19
<PAGE>
CURRENT DEVELOPMENT ACTIVITY
The Company's current development activity as of May 1, 1997, 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/(6)/
5149 Southridge Pkwy. (expansion) 46,800 2,497,000 1Q96/(5)/ 3Q97/(6)/
5025 Derrick Jones Rd. 89,600 4,458,000 2Q96/(5)/ 2Q97
3240 Town Point Dr. 140,400 5,585,000 3Q96/(5)/ 3Q97
1335 Northmeadow Pkwy. 89,150 6,950,000 4Q96/(5)/ 4Q97
250 Hembree Park Dr. 94,500 4,942,000 4Q96/(5)/ 4Q97
120 Declaration Dr. 301,200 7,841,000 1Q97/(5)/ 4Q97
3805 Crestwood Pkwy. 105,295 10,646,000 1Q97/(5)/ 1Q98
3280 Summit Ridge Pkwy. 173,360 4,999,000 1Q97/(5)/ 1Q98
1629 Prime Ct. (Orlando, FL) 43,200 2,416,000 1Q97/(5)/ 1Q98
1750 Beaver Ruin Rd. 67,600 4,860,000 2Q97 1Q98
2490 Principal Row (Orlando, FL) 101,800 3,491,000 2Q97 2Q98
11390 Old Roswell Rd. 47,600 3,527,000 2Q97 2Q98
736 Melrose Ave. (Nashville, TN) 103,400 5,454,000 3Q97 3Q98
250 Horizon Dr. 267,619 7,661,000 3Q97 3Q98
2755 Eastside Pkwy. 80,000 3,500,000 4Q97 4Q98
Celebration Blvd. (Orlando, FL) 58,702 4,879,000 4Q97 4Q98
3300 Briley Park Blvd. (Nashville, TN) 194,750 6,374,000 4Q97 4Q98
2550 Northwinds Pkwy. 149,797 16,169,000 1Q98 1Q99
Crestwood Pkwy. 105,295 11,109,000 1Q98 1Q99
1700 Perimeter Park Dr. (Raleigh, NC) 81,000 7,947,000 1Q98 1Q99
Perimeter Park Dr. (Raleigh, NC) 146,250 9,166,000 1Q98 1Q99
- ---------------------------------------------------------------------------------------------
2,547,318 $137,229,000
- ---------------------------------------------------------------------------------------------
BUILD-TO-SUIT
2555 Northwinds Pkwy. 64,981 8,561,000 2Q97 2Q97
5755 Peachtree Industrial Blvd. 50,000 4,615,000 3Q97 3Q97
5765 Peachtree Industrial Blvd. 60,000 3,913,000 3Q97 3Q97
5775 Peachtree Industrial Blvd. 60,000 3,194,000 3Q97 3Q97
2435 Principal Row (Orlando, FL) 126,818 4,464,000 3Q97 3Q98
2850 Eastside Pkwy. 86,000 2,938,000 4Q97 4Q98
- ---------------------------------------------------------------------------------------------
447,799 27,685,000
- ---------------------------------------------------------------------------------------------
2,995,117 $164,914,000
- ---------------------------------------------------------------------------------------------
</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. 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.
(6) The Company is the developer of and has an option to acquire these
properties from affiliated joint ventures upon stabilization, as defined in
the joint venture agreement. The date above reflects the estimated
stabilization and resulting acquisition date by the Company.
20
<PAGE>
CURRENT ACQUISITION ACTIVITY
In conjunction with the NWI and Lichtin acquisition transactions (see Note 7 to
the consolidated condensed financial statements), the Company has agreed,
subject to certain closing conditions, including updating its due diligence
procedures, to the future acquisition of approximately 164 net usable acres of
undeveloped land, eight completed buildings and eight buildings under
development from NWI and Lichtin. The estimated aggregate acquisition
consideration is estimated to total approximately $100.3 million, subject to
adjustment for the actual operating results of certain properties to be acquired
as more fully discussed in the acquisition agreements. It is expected that
these future acquisitions will be consummated primarily through a combination of
the issuance of Operating Partnership Units and the assumption of indebtedness,
some of which, in amounts up to approximately $44.0 million, will be repaid
through borrowings under the Credit Facility.
Additionally, the Company has entered into an agreement to acquire 17 industrial
buildings in Atlanta, Georgia for approximately $29.6 million, payable in cash.
The acquisition is currently estimated to occur in June 1997, subject to the
completion of remaining due diligence and certain other closing conditions.
The information provided above relating to the Company's current development and
acquisition activities includes forward-looking data based on current
construction schedules, the status of lease negotiations with potential tenants,
the satisfactory completion of due diligence procedures 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.
The Company's calculation of FFO follows the guidelines issued by NAREIT,
including the recognition of rental income on the "straight-line" basis
consistent with its treatment in the Company's statement of operations under
GAAP. The "straight-line" rental adjustment increased rental revenues by
$150,000 and $71,000 for the three months ended March 31, 1997 and 1996,
respectively.
21
<PAGE>
FFO presented herein under NAREIT guidelines is not necessarily comparable to
FFO presented by other real estate companies due to the fact that not all real
estate companies use the same definition. However, the Company's FFO is
comparable to the FFO of real estate companies that use the current NAREIT
definition.
For the three months ended March 31, 1997, FFO increased by $2,368,000 or 43.0%
to $7,876,000 as compared to FFO of $5,508,000 for the three months ended March
31, 1996. FFO calculated under the current guidelines for the three months
ended March 31, 1997 and 1996, respectively, are detailed below (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 3,826 $ 3,101
Minority interests 1,232 713
Depreciation & amortization 5,344 2,951
Real estate depreciation at subsidiaries 10 10
- ---------------------------------------------------------------------------
Funds from operations (Operating
Partnership Units fully converted) 10,412 6,775
Ownership of Operating Partnership/(1)/ 75.64% 81.30%
- ---------------------------------------------------------------------------
FUNDS FROM OPERATIONS ATTRIBUTABLE TO
THE COMPANY'S SHAREHOLDERS $ 7,876 $ 5,508
- ---------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 14,073 11,156
- ---------------------------------------------------------------------------
</TABLE>
(1) 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 three months ended March 31, 1997 (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<S> <C>
Development and land activity/(1)/ $20,591
Building acquistions 17,698
Non-revenue-producing building improvements 96
Tenant improvement and leasing costs on
second-generation leases/(2)/ 933
- ------------------------------------------------------------------
$39,318/(3)/
- ------------------------------------------------------------------
</TABLE>
(1) Includes leasing costs on first-generation space in development properties
totaling $1,097,000.
(2) Includes leasing costs on second-generation space totaling $557,000.
(3) Reflects aggregate capital expenditures and leasing costs including the
assumption of indebtedness of $4,360,000, the issuance of $14,334,000 of
Units and other changes in construction and acquisition related payables,
net of receivables, of $595,000.
22
<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 three months ended March 31, 1997, and the
year ended December 31, 1996, 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
- ------------------------------------------------------------------------------------------
THREE MONTHS YEAR
ENDED ENDED
(In thousands, except per square foot information) MARCH 31, 1997 DEC. 31, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL PROPERTIES
RE-LEASING
Square feet re-leased 198 678
Capitalized tenant improvements and leasing commissions $ 412 $1,395
Capitalized tenant improvements and leasing commissions
per square foot $2.08 $ 2.06
RENEWAL
Square feet renewed 455 1,027
Capitalized tenant improvements and leasing commissions $ 373 $1,055
Capitalized tenant improvements and leasing commissions
per square foot $0.82 $ 1.03
TOTAL
Square feet 653 1,705
Capitalized tenant improvements and leasing commissions $ 785 $2,450
Capitalized tenant improvements and leasing commissions
per square foot $1.20 $ 1.44
- ------------------------------------------------------------------------------------------
SUBURBAN OFFICE PROPERTIES
RE-LEASING
Square feet re-leased 35 16
Capitalized tenant improvements and leasing commissions $ 137 $ 45
Capitalized tenant improvements and leasing commissions
per square foot $3.91 $ 2.80
RENEWAL
Square feet renewed 38 106
Capitalized tenant improvements and leasing commissions $ 20 $ 290
Capitalized tenant improvements and leasing commissions
per square foot $0.54 $ 2.74
TOTAL
Square feet 73 122
Capitalized tenant improvements and leasing commissions $ 157 $ 335
Capitalized tenant improvements and leasing commissions
per square foot $2.17 $ 2.75
- ------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
SUPPLEMENTAL DISCLOSURE OF TENANT AND LEASE EXPIRATION INFORMATION
TENANTS
As of March 31, 1997, the Company's properties were leased to 599 tenants
including local, regional, national and international companies. The Company's
30 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 March 31, 1997) occupy a total of approximately 4.4
million square feet and represent 29.7% of the annualized base rent as shown in
the table below.
<TABLE>
<CAPTION>
30 LARGEST TENANTS MEASURED BY ANNUALIZED BASE RENT
- --------------------------------------------------------------------------------------------------------------
% OF TOTAL
SQUARE NUMBER ANNUALIZED ANNUALIZED
RANK TENANT FEET OF LEASES BASE RENT/(1)/ BASE RENT/(1)/ STATE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1 Scientific Atlanta/(2)/ 600,413 11 $ 2,668,779 3.5% GA
2 GTE Mobilnet Service Corporation 126,124 3 1,320,976 1.7% GA,NC
3 Radian International LLC 90,159 2 1,170,275 1.5% NC
4 Honeywell, Inc. 70,016 3 947,995 1.2% GA
5 Fisher Scientific Company 223,219 1 875,019 1.1% GA
6 The Athlete's Foot Group, Inc. 162,651 1 871,024 1.1% GA
7 AT&T Corp. 67,551 5 747,646 1.0% GA,NC,TN
8 National Data Corporation 46,848 3 730,099 1.0% GA
9 Best Buy Stores, L.P. 222,643 1 703,552 0.9% GA
10 Intelligent Systems Corporation 137,100 1 685,500 0.9% GA
11 Sally Foster, Inc. 197,200 2 673,237 0.9% GA
12 Yokohama Tire Corporation 252,092 1 665,383 0.9% GA
13 PPD Pharmaco, Inc. 64,916 4 660,443 0.9% NC
14 Auto-Lok, Inc. 222,900 2 658,879 0.9% GA
15 Ahlstrom Recovery, Inc. 62,893 2 649,493 0.9% GA
16 Vanstar Corporation 86,880 4 642,438 0.8% GA
17 Siemens Energy & Automation, Inc. 240,000 3 637,200 0.8% GA
18 360 Degree Communications 42,557 6 631,522 0.8% NC
19 The Bombay Company, Inc. 253,890 2 631,344 0.8% GA
20 United Parcel Service, Inc. 128,275 3 594,201 0.8% GA,FL,TN
21 Liberty Mutual Insurance Company 41,900 1 581,572 0.8% GA
22 Southern Multimedia
Communications, Inc. 117,647 3 581,172 0.8% GA
23 Tekelec, Inc. 68,236 2 579,324 0.8% NC
24 Intersolv, Inc. 39,280 1 571,701 0.7% NC
25 Deutz Corporation 137,061 1 561,950 0.7% GA
26 Reckitt & Colman, Inc. 256,000 1 547,840 0.7% GA
27 BOC Health Care, Inc. 102,128 1 530,040 0.7% GA
28 Metrahealth Insurance Company 32,991 1 527,856 0.7% GA
29 Innotrac Corporation 116,481 2 525,705 0.7% GA
30 Komatsu America Corporation 176,820 1 518,022 0.7% GA
- --------------------------------------------------------------------------------------------------------------
4,386,871 74 $22,690,187 29.7%
- --------------------------------------------------------------------------------------------------------------
</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 March 31,
1997.
(2) Scientific Atlanta announced 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 less than a $0.01 per share
impact on the Company's funds from operations and net income in 1997.
24
<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 March 31, 1997, assuming no
exercise of renewal options or termination rights, if any:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SQUARE ANNUALIZED % OF TOTAL
YEAR OF FEET % OF TOTAL BASE RENT/(1)/ ANNUALIZED
EXPIRATION (IN THOUSANDS) SQUARE FEET (IN THOUSANDS) BASE RENT/(1)/
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL PORTFOLIO
1997 1,803 12.9% $10,121 12.6%
1998 2,186 15.7% 11,421 14.2%
1999 1,684 12.1% 10,613 13.2%
2000 2,303 16.6% 13,889 17.3%
2001 1,249 9.0% 6,816 8.5%
2002 946 6.8% 6,856 8.5%
2003 559 4.0% 4,963 6.2%
2004 1,266 9.1% 5,825 7.3%
2005 523 3.8% 2,606 3.2%
2006 603 4.3% 3,011 3.8%
2007 232 1.7% 1,327 1.7%
2008 223 1.6% 783 1.0%
2011 294 2.1% 1,704 2.1%
2012 44 0.3% 294 0.4%
- --------------------------------------------------------------------------------------------
13,915/(2)/ 100.0% $80,229 100.0%
- --------------------------------------------------------------------------------------------
INDUSTRIAL PROPERTIES
1997 1,717 13.3% $ 9,004 13.8%
1998 2,064 16.0% 9,643 14.7%
1999 1,605 12.5% 9,501 14.5%
2000 2,090 16.3% 11,088 17.0%
2001 1,168 9.1% 5,780 8.8%
2002 783 6.1% 4,429 6.8%
2003 395 3.1% 2,511 3.9%
2004 1,179 9.2% 4,523 6.9%
2005 493 3.8% 2,167 3.3%
2006 582 4.5% 2,642 4.0%
2007 232 1.8% 1,327 2.0%
2008 223 1.7% 783 1.2%
2011 294 2.3% 1,704 2.6%
2012 44 0.3% 294 0.5%
- --------------------------------------------------------------------------------------------
12,869 100.0% $65,396 100.0%
- --------------------------------------------------------------------------------------------
</TABLE>
(Table continued on following page)
25
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SQUARE ANNUALIZED % OF TOTAL
YEAR OF FEET % OF TOTAL BASE RENT/(1)/ ANNUALIZED
EXPIRATION (IN THOUSANDS) SQUARE FEET (IN THOUSANDS) BASE RENT/(1)/
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SURBURBAN
OFFICE PROPERTIES
1997 84 8.4% $ 1,087 7.6%
1998 121 12.2% 1,778 12.4%
1999 78 7.8% 1,090 7.5%
2000 177 17.8% 2,518 17.5%
2001 81 8.1% 1,036 7.2%
2002 163 16.4% 2,427 16.8%
2003 164 16.4% 2,453 17.1%
2004 86 8.6% 1,301 9.0%
2005 26 2.6% 382 2.7%
2006 17 1.7% 309 2.2%
- ---------------------------------------------------------------------------------------------
997 100.0% $14,381 100.0%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized base rent represents the annualized monthly base rental at the
time of lease expiration.
(2) The total square footage as of March 31, 1997, is comprised of
approximately 13,591,000 square feet of leases in stabilized properties,
and approximately 324,000 square feet of leases in properties under
development or in lease-up where tenants are paying rent as of March 31,
1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings per Share" was issued prescribing a new method for computing earnings
per share. When implemented, SFAS 128 will supercede Accounting Principles
Board Opinion ("APB") No. 15, "Earnings per Share," the current accounting
literature utilized in computing earnings per share under generally accepted
accounting principles. Under SFAS 128, the Company will be required to present
both basic and diluted earnings per share in its interim and annual financial
statements for periods beginning with its financial statements for the quarter
and year ended December 31, 1997. For the three months ended March 31, 1997 and
1996, basic and diluted earnings per share calculated under the provisions of
SFAS 128 would be the same as primary and fully diluted earnings per share
calculated under current accounting standards (see Notes 2 and 6 to the
consolidated condensed financial statements).
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.
26
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2 -- CHANGE IN SECURITIES
On March 31, 1997, the Company caused the Operating Partnership
to issue a total of 501,488 Units in the Operating Partnership, in full
consideration for the acquisition of real estate properties from NWI. The
aggregate value of the properties acquired by the Company in exchange for
such Units was approximately $12.5 million. Units 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 Units were issued pursuant to an exemption
from registration under Section 4(2) of the Securities Act in reliance, in
part, upon the representations and warranties set forth in the NWI
acquisition agreements. These Units are subject to a registration rights
and lock-up agreement which restricts the disposition of the Units for a
period of one year from the date of issuance with respect to all Units and
further restricts the disposition of Units beneficially owned by the
Company's principal executive officers in Nashville, Tennessee
(approximately 43% of the total Units issued) until November 1, 1999.
On January 31, 1997, the Company caused the Operating Partnership to issue
71,158 Units in partial consideration for the acquisition of real estate
properties from Lichtin. The aggregate value of the properties acquired by
the Company in exchange for such Units was approximately $1.8 million.
Units 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 Units and
shares of common stock were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act in reliance, in part,
upon the representations and warranties set forth in the Lichtin
acquisition agreements. The shares of common stock and Units are subject
to a registration rights and lock-up agreement which restricts the
disposition of the Units until December 31, 1999.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 - Computation of earnings per share.
27 - Financial data schedule.
(b) Reports on Form 8-K
Form 8-K dated December 31, 1996, and filed on January 15, 1997, amended
by Form 8-K/A dated December 31, 1996, and filed on March 14, 1997,
reporting the acquisition of certain properties and the operating
businesses of Lichtin Properties, Inc. on December 31, 1996.
Form 8-K dated March 25, 1997, and filed on March 26, 1997, reporting
unaudited interim financial statements and pro forma financial
information relating to the Company's acquisition of certain properties
and the operating businesses of NWI Warehouse Group.
27
<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)
May 14, 1997 /s/ A. R. Weeks, Jr.
---------------------------------------
A. R. Weeks, Jr.
Chairman of the Board and
Chief Executive Officer
May 14, 1997 /s/ David P. Stockert
----------------------------------------
David P. Stockert
Senior Vice President and
Chief Financial Officer
28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- -------------------------------------------------------------------------------
11.1 Computation of earnings per share of common stock 30
27 Financial Data Schedule
29
<PAGE>
EXHIBIT 11.1
WEEKS CORPORATION
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
(In thousands, except per share data) March 31,1997 March 31, 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Weighted average number of common
shares outstanding 14,073 11,156
Dilutive effect of outstanding stock options
(determined under the Treasury Stock Method) -- --
- ------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares outstanding 14,073 11,156
- ------------------------------------------------------------------------------
Net income $ 3,826 $ 3,101
- ------------------------------------------------------------------------------
Per share data:
Net income per share $ 0.27 $ 0.28
- ------------------------------------------------------------------------------
</TABLE>
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 299
<SECURITIES> 0
<RECEIVABLES> 6,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 584,246
<DEPRECIATION> 46,157
<TOTAL-ASSETS> 630,092
<CURRENT-LIABILITIES> 0
<BONDS> 320,883
0
0
<COMMON> 141
<OTHER-SE> 216,403
<TOTAL-LIABILITY-AND-EQUITY> 630,092
<SALES> 0
<TOTAL-REVENUES> 19,899
<CGS> 0
<TOTAL-COSTS> 15,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,066
<INCOME-PRETAX> 3,826
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,826
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
