UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
----------------------
Commission file number 1-12630
CENTERPOINT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 36-3910279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1808 Swift Road, Oak Brook, Illinois 60523-1501
(Address of principal executive offices)
(630) 586-8000
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Number of Common Shares of Beneficial Interest outstanding as of May 12, 1999:
20,108,528 Number of Class B Common Shares of Beneficial Interest outstanding as
of May 12, 1999: 76,802.
PART 1. FINANCIAL INFORMATION
This Form 10-Q/A reflects the Company's revision of earnings as announced in our
September 28, 1999 press release, attached as Exhibit 99 to this Form 10-Q/A.
ITEM 1. FINANCIAL STATEMENTS
CENTERPOINT PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS REVISED AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
Assets:
Investment in real estate:
Land and leasehold $ 136,311 $ 132,270
Buildings 522,430 504,895
Building improvements 99,852 94,474
Furniture, fixtures, and equipment 18,855 18,817
Construction in progress 27,432 18,401
----------- -----------
804,880 768,857
Less accumulated depreciation and amortization 67,821 62,257
----------- -----------
Net investment in real estate 737,059 706,600
Cash and cash equivalents 45,577 475
Restricted cash and cash equivalents 29,324 33,056
Tenant accounts receivable, net 19,884 18,067
Mortgage notes receivable 896 901
Investment in and advances to affiliate 43,473 43,796
Prepaid expenses and other assets 6,466 4,030
Deferred expenses, net 12,434 10,681
----------- -----------
$ 895,113 $817,606
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 103,256 $ 103,520
Senior unsecured debt 200,000 100,000
Tax-exempt debt 75,540 75,540
Line of credit 52,900 77,600
Convertible subordinated debentures payable 7,878 8,058
Preferred dividends payable 1,060 1,060
Accounts payable 6,705 7,986
Accrued expenses 32,694 31,060
Rents received in advance and security deposits 6,241 5,323
--------- ---------
486,274 410,147
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest, $.001 par value, 10,000,000 shares
authorized; 3,000,000 issued and outstanding having a liquidation
preference of $25 per share ($75,000) 3 3
Common shares of beneficial interest, $.001 par value, 47,727,273 shares
authorized; 20,095,058 and 18,753,474 issued and outstanding, respectively 20 19
Class B common shares of beneficial interest, $.001 par value, 2,727,727
shares authorized; 76,802 and 1,398,088 issued and outstanding, respectively 1
Additional paid-in-capital 449,612 449,229
Retained earnings (deficit) (40,512) (41,497)
Unearned compensation - restricted stock (284) (296)
--------- ---------
Total shareholders' equity 408,839 407,459
--------- ---------
$ 895,113 $ 817,606
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
2
CENTERPOINT PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AS REVISED FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------
1999 1998
--------- ---------
Revenue:
Operating and investment revenue:
Minimum rents $ 21,343 $ 17,803
Straight-line rents 844 1,364
Expense reimbursements 6,568 5,458
Mortgage interest income 44 555
--------- ---------
Total operating and investment revenue 28,799 25,180
--------- ---------
Other Revenue:
Real estate fee income 4,389 1,711
Equity in net income (loss) of affiliate 408 (105)
---------- -------------
Total other revenue 4,797 1,606
---------- ---------
Total revenue 33,596 26,786
--------- --------
Expenses:
Real estate taxes 6,565 5,948
Property operating and leasing 3,581 3,542
General and administrative 905 990
Depreciation and amortization 5,997 4,696
Interest expense:
Interest incurred, net 4,359 2,928
Amortization of deferred financing costs 458 486
---------- ----------
Total expenses 21,865 18,590
-------- --------
Operating income 11,731 8,196
Other income (expenses):
Gain on sale of real estate 448 1,391
Other income (expenses) (20) (16)
----------- -----------
Net income 12,159 9,571
Preferred dividends (1,590) (1,590)
-------- ---------
Net income available to common shareholders $ 10,569 $ 7,981
========= ========
Per share net income available to common shareholders:
Basic $0.52 $0.42
Diluted $0.52 $0.41
Distributions per common share $0.475 $0.438
The accompanying notes are an integral part of these consolidated
financial statements.
3
CENTERPOINT PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS REVISED FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
---------- ---------
Cash flows from operating activities:
Net income $ 12,159 $ 9,571
Adjustments to reconcile net income to net cash provided
by operating activities:
Bad debts 100
Depreciation 5,645 4,427
Amortization of deferred financing costs 458 486
Other amortization 352 269
Straight-line rents (844) (1,364)
Incentive stock awards 12 48
Interest on converted debentures (1) 2
Equity in net (income) loss of affiliate (408) 105
Gain on disposal of real estate (448) (1,391)
Net changes in:
Tenant accounts receivable (1,000) (1,738)
Prepaid expenses and other assets (201) 98
Rents received in advance and security deposits 941 1,294
Accounts payable and accrued expenses 112 1,259
---------- ---------
Net cash provided by operating activities 16,777 13,166
---------- ---------
Cash flows from investing activities:
Change in restricted cash and cash equivalents 3,732 (21,256)
Acquisition of real estate (16,868) (6,706)
Additions to construction in progress (7,035) (9,296)
Improvements and additions to properties (14,367) (9,747)
Disposition of real estate 2,867 29,104
Change in deposits on acquisitions (2,221) (1,176)
Issuance of mortgage notes receivable (16,760)
Repayment of mortgage notes receivable 5 15,125
Investment in and advances to affiliate 730 (245)
Receivables from affiliates and employees (19) 77
Additions to deferred expenses (2,563) (1,075)
---------- ---------
Net cash used in investing activities (35,739) (21,955)
---------- ---------
Cash flows from financing activities:
Proceeds from sale of common shares 207 11,875
Offering costs paid (3) (12)
Proceeds from issuance of unsecured notes payable 100,000
Proceeds from line of credit 85,600 35,900
Repayment of mortgage notes payable (265)
Repayment of line of credit (110,300) (30,100)
Repayment of notes payable (33)
Distributions (11,175) (9,856)
---------- ---------
Net cash provided by financing activities 64,064 7,774
---------- ---------
Net change in cash and cash equivalents 45,102 (1,015)
Cash and cash equivalents, beginning of the year 475 1,652
---------- ---------
Cash and cash equivalents, end of period $ 45,577 $ 637
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
4
CENTERPOINT PROPERTIES TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION:
These unaudited Consolidated Financial Statements of CenterPoint Properties
Trust, a Maryland real estate investment trust, and Subsidiaries (the
"Company"), have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction
with the December 31, 1998, Financial Statements and Notes thereto included
in the Company's Form 10-K/A. References herein to the "Company" shall mean
CenterPoint Properties Trust and Subsidiaries. The following Notes to
Consolidated Financial Statements highlight significant changes to the Notes
included in the December 31, 1998, Audited Financial Statements and present
interim disclosures as required by the SEC. The accompanying Consolidated
Financial Statements reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the interim financial statements. Except
as referred to below, all such adjustments are of a normal and recurring
nature. The consolidated balance sheet as of December 31, 1998 has been
derived from the Company's audited Financial Statements. Certain amounts in
the financial statements have been revised as described in Note 12.
The consolidated statements of operations and statements of cash flows for
prior periods have been reclassified to conform with current classifications
with no effect on results of operations or cash flows.
1. CASH AND CASH EQUIVALENTS
As of March 31, 1999, the Company had approximately $33.9 million in cash and
cash equivalents on hand to advance to an affiliate for the purchase of a
property, which was expected to close before the end of the quarter. The
proceeds were borrowed on the Company's unsecured line of credit co-led by
The First National Bank of Chicago and Lehman Brothers Holdings Inc ("the
Company's unsecured line of credit"). The funds were advanced and the
property was purchased on April 2, 1999 and is further explained in note 9.
2. PREFERRED SHARES, COMMON SHARES OF BENEFICIAL INTEREST AND RELATED
TRANSACTIONS
In January and February, 1999, 536,981 and 784,305 of the Company's Class B
common shares, respectively, were converted by the holder of the Class B
common shares into 536,981 and 784,305 common shares.
3. RECENT PRONOUNCEMENTS
5
In May, 1998, the FASB issued SFAS Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement, effective for
financial statements for fiscal years beginning after June 15, 1999, provides
a comprehensive and consistent standard for the recognition and measurement
of derivatives and hedging activities. The Company currently has no
derivatives outstanding.
4. ACQUISITION AND DISPOSITION OF REAL ESTATE
In February, 1999, the Company disposed of a property, located in Chicago,
Illinois, for approximately $3.7 million. The disposition of the property
qualified for treatment as a tax-free exchange under the Internal Revenue
Code. Also in February, 1999, the Company purchased a property for
approximately $4.3 million with borrowings from the Company's unsecured line
of credit.
In March, 1999, the Company purchased three properties. The first property,
located in Yorkville, Wisconsin, was purchased for approximately $3.8 million
with proceeds from the tax-free exchange account. The second property,
located in Willowbrook, Illinois, was purchased for approximately $4.2
million with proceeds from the tax-free exchange account. The third property,
located in Munster, Indiana, was purchased for approximately $9.6 million
with borrowings from the Company's unsecured line of credit.
5. INVESTMENT IN AND ADVANCES TO AFFILIATE
The Company holds approximately 99% of the economic interest in CenterPoint
Realty Services Corporation ("CRS"), an unconsolidated taxable subsidiary, in
the form of non-voting common equity. CRS and its subsidiaries engage in
businesses and services which compliment the Company's business, including
the provision of services and commodities to tenants of the Company, the
development of real property and the management of properties owned by third
parties. Income from these activities, received by REITs and their qualified
REIT subsidiaries, is limited under current REIT tax regulations.
As of March 31, 1999, the Company had advanced to CRS approximately $37.7
million under a series of demand loans with interest rates ranging from 8.0%
to 11.1%. CRS used the proceeds of the loans towards development projects
currently under construction and the purchase of land held for future
development. Principal and interest are due upon demand.
The Company typically purchases development projects upon completion of
construction on a turnkey basis or develops the property under guaranteed
maximum price contracts, substantially eliminating any construction risk.
6
6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Supplemental disclosures of cash flow information for the three months ended
March 31, 1999 and 1998:
1999 1998
------------ ------------
Interest paid $ 2,024 $ 3,761
Interest capitalized 297 594
In conjunction with the acquisition of real estate, for the three months ended
March 31, 1999 and 1998 the Company acquired the following asset and assumed the
following liability amounts:
1999 1998
------------ ------------
Purchase of real estate $ 17,694 $ 6,909
Liabilities, net of other assets (826) (203)
------------ ------------
Acquisition of real estate $ 16,868 $ 6,706
============ ============
In conjunction with the disposition of real estate, the Company disposed of the
following asset and liability amounts for the three months ended March 31, 1999
and 1998:
1999 1998
------------ ------------
Disposal of real estate $ 3,173 $ 29,575
Liabilities, net of other assets (306) (471)
------------ ------------
Disposition of real estate $ 2,867 $ 29,104
============ ============
Conversion of convertible subordinated debentures payable for the three months
ended March 31, 1999 and 1998:
1999 1998
------------ ------------
Convertible subordinated debentures
converted $ 180 $ 577
Common shares issued at $18.25 per
share 9,861 and 31,614,
respectively 180 577
------------ ------------
Cash disbursed for fractional shares $ - $ -
============ ============
7. SENIOR UNSECURED DEBT
On March 15, 1999 the Company issued $100 million, 7.142 percent senior
unsecured notes due March 15, 2004. The net proceeds of $99.3 million were used
to repay substantially all amounts then outstanding under the Company's line of
credit co-led by The First National Bank of Chicago and Lehman Brothers Holdings
Inc.
8. COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, the Company is involved in
legal actions relating to the ownership and operations of its properties. In
management's
7
opinion, the liabilities, if any, that may ultimately result from such legal
actions are not expected to have a materially adverse effect on the
consolidated financial position, results of operations and liquidity of the
Company.
The Company has entered into other contracts for the acquisition of
properties. Each acquisition is subject to satisfactory completion of due
diligence and, in the case of development projects, completion and occupancy
of the projects.
At March 31, 1999, six of the properties owned by the Company are subject to
purchase options held by certain tenants. The purchase options are
exercisable at various intervals through 2006 for amounts that are greater
than the net book value of the assets. Management is not currently aware of
planned exercises of options and believes that any potential exercises would
not materially affect the results or prospects of the Company.
9. SUBSEQUENT EVENTS
On April 2, 1999, the Company advanced approximately $33.9 million to CRS for
the purchase of a property in Cincinnati, Ohio. The proceeds for the advance
were drawn from the Company's line of credit co-led by The First National
Bank of Chicago and Lehman Brothers Holdings Inc.
10. EARNINGS PER COMMON SHARE
The following are the reconciliations of the numerators and denominators of
the basic and diluted EPS for the three months ended March 31, 1999 and 1998.
THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
----------- ----------
(in thousands, except for share data)
Numerators:
Net income $ 12,159 $ 9,571
Dividends on preferred shares (1,590) (1,590)
----------- ----------
Net income available to common shareholders - for
basic and diluted EPS $ 10,569 $ 7,981
=========== ==========
Denominators:
Weighted average common shares outstanding - for
basic EPS 20,161,803 19,215,431
Effect of dilutive securities - options 206,141 243,288
----------- ----------
Weighted average common shares outstanding - for
diluted EPS 20,367,944 19,458,654
=========== ==========
The assumed conversion of the convertible subordinated debentures into common
shares for purposes of computing diluted EPS by adding interest expense for the
debentures to the numerators, and adding assumed share conversions to the
denominators for the three months ended March 31, 1999 and 1998 would be
anti-dilutive.
8
11. PRO FORMA FINANCIAL INFORMATION
Due to the effect of securities offerings in March, 1998, and April 1998, and
the 1998 and 1999 acquisitions and dispositions of properties, the historical
results are not indicative of the future results of operations. The following
unaudited pro forma information for the three months ended March 31, 1999 and
1998 is presented as if the 1998 and 1999 acquisitions and dispositions, the
1998 securities offerings, and the corresponding repayment of certain debt had
all occurred on January 1, 1998 (or the date the property first commenced
operations with a third party tenant, if later). The pro forma information is
based upon historical information and does not purport to present what actual
results would have been had the offerings and related transactions, in fact,
occurred at January 1, 1998, or to project results for any future period.
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
--------- ---------
(in thousands, except for per share data)
Total revenues $ 34,096 $ 28,814
Total expenses 21,835 18,758
--------- ---------
Net income 12,261 10,056
Preferred dividends (1,590) (1,590)
--------- ---------
Net income available to common
shareholders $ 10,671 $ 8,466
========= =========
Per share income available to common shareholders:
Basic $ 0.53 $ 0.42
Diluted $ 0.52 $ 0.42
12. REVISION
During the third quarter of 1999, the Company determined that it had recognized
certain participation, assignment, consulting and financing fees in periods in
advance of that permitted and has revised previously issued financial statements
accordingly. In addition, the Company revised previously issued financial
statements to recognize, for financial reporting purposes, certain gains in
connection with tax-deferred exchanges that had not been previously recognized.
The financial statement revisions effect only the timing of fee revenue and HAVE
NO EFFECT ON PREVIOUSLY REPORTED CASH FLOW or on the total fee revenue to be
recognized.
9
The effect of this revised reporting on the Company's condensed balance sheets,
condensed statements of operations, net income and earnings per share is as
follows:
(in thousands, except for per share data)
For the three months ended
March 31,
---------
1999 1998
---- ----
Previously As Previously As
Reported Revised Reported Revised
-------- ------- -------- -------
Condensed Balance Sheets:
Investment in real estate, net $715,487 $737,059 $586,632 $605,743
Mortgage notes receivable 20,348 896 27,887 10,167
Other assets 161,048 157,158 96,609 95,708
-------- -------- -------- --------
Total assets $896,883 $895,113 $711,128 $711,618
======== ======== ======== ========
Long term debt $439,574 $439,574 $275,958 $275,958
Other liabilities 46,700 46,700 35,872 35,872
Shareholders' equity 410,609 408,839 399,298 399,788
-------- -------- -------- --------
Total liabilities and
shareholders' equity $896,883 $895,113 $711,128 $711,618
======== ======== ======== ========
Condensed Statements of Operations:
Operating and investment revenue $ 28,779 $ 28,799 $ 25,225 $ 25,180
Other revenue 2,455 4,797 2,092 1,606
-------- -------- -------- --------
Total revenue 31,234 33,596 27,317 26,786
Operating expenses (21,865) (21,865) (18,590) (18,590)
Other income (expense) (20) 428 (16) 1,375
-------- --------- -------- --------
Net income $ 9,349 $ 12,159 $ 8,711 $ 9,571
======== ========= ======== ========
Net income available to common shareholders per share:
Net income per share- basic $ .38 $ .52 $ .37 $ .42
Net income per share- diluted $ .38 $ .52 $ .37 $ .41
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
The following is a discussion of the historical operating results of the
Company. The discussion should be read in conjunction with the Form 10-K/A
filed for the fiscal year ended December 31, 1998 and the unaudited Financial
Statements presented with this Form 10-Q/A.
The Company announced in the 3rd quarter 1999 that it was restating
previously audited and unaudited financial statements for the years 1997,
1998 and 1999. See Exhibit 99 to this Form 10-Q/A.
The revision reflects the recognition of gains, for financial reporting
purposes, on certain completed sales structured as tax-deferred exchanges
under Section 1031 of the Internal Revenue Code, where gains are not
recognized for tax purposes. Secondly, the revision reflects the timing of
gain recognition from other property sales related to the Company's
development activity. While the timing of the reported gains from these
latter transactions has been shifted, the aggregate gain remains unchanged
and no cash or tax effect has resulted. As of the 3rd quarter 1999, all gains
have been recognized.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH 31,
1998.
REVENUES
Total revenues increased by $6.8 million or 25.4% over the same period last
year.
In the first quarter of 1999, 85.7% of total revenues of the Company were
derived primarily from base rents, straight-line rents, expense
reimbursements and mortgage income (operating and investment revenue),
pursuant to the terms of tenant leases and mortgages held for space at the
warehouse/industrial properties.
Operating and investment revenues increased by $3.6 million in the first
quarter of 1999. A portion of the increase from the prior year is due to
income from four properties acquired in the first three months of 1999,
totaling 0.7 million square feet, net of one disposition as of March 31,
1999. The remainder of the increase was attributable to a full period of
income from the 1998 acquisition of thirty properties and two completed
build-to-suit properties, totaling 4.0 million square feet, net of six
property dispositions.
Other revenues increased $3.2 million due to increased real estate fee income
earned by the Company in connection with build-to-suit, development and
leasing activities which was partially offset by decreased property and
build-to suit sales by the Company's unconsolidated affiliate.
11
OPERATING AND NONOPERATING EXPENSES
Real estate tax expense and property operating and leasing expense increased
by $0.7 million from period to period. The majority of the increase, $0.6
million, resulted from a full period of real estate taxes on 1998
acquisitions and a partial period of real estate taxes on 1999 acquisitions,
net of dispositions. Property operating and leasing costs increased slightly.
However, property operating and leasing costs as a percentage of total
revenues decreased from 13.2% to 10.7% when comparing the first quarter of
1998 to the first quarter of 1999 due mainly to "economies of scale" realized
by the Company.
General and administrative expenses decreased slightly when comparing periods
despite the growth of the Company. As a percentage of total revenues, general
and administrative expenses decreased from 3.7% to 2.7% when comparing the
first quarter of 1998 to the first quarter of 1999 due to efficiencies
realized by the Company.
Depreciation and amortization increased by $1.3 million due to a full period
of depreciation on 1998 acquisitions and partial period depreciation on 1999
acquisitions.
Interest incurred increased by approximately $1.4 million over the same
period last year due to higher average balances outstanding in the first
quarter of 1999 compared to 1998.
Other income (expenses) decreased when comparing periods. In the first
quarter of 1998, the Company incurred gains on the sale of four properties.
In the first quarter of 1999, the Company sold only one property resulting in
a much lower gain than in the prior period.
NET INCOME AND OTHER MEASURES OF OPERATIONS
Net income increased $4.0 million or 48.4% due to the growth of the Company
through the net acquisition of warehouse/industrial real estate.
Funds from operations (FFO) increased 39.5% from $11.9 million to $16.6 from
the first quarter of 1998 to the first quarter of 1999. The National
Association of Real Estate Investment Trusts (NAREIT) defines funds from
operations as net income before extraordinary items plus depreciation and
amortization less the amortization of deferred financing costs. The Company
considers FFO and FFO growth to be one relevant measure of financial
performance of equity REITs that provides a relevant basis for comparison
among REITs, and it is presented to assist investors in analyzing the
performance of the Company.
When comparing the first quarter results of operations of properties owned at
January 1, 1998 with the results of operations of the same properties for the
first quarter 1999 (the "same property" portfolio), the Company recognized an
increase of approximately 8.4% in net operating income. This same property
increase was due to the timely lease up of vacant space, rental increases on
renewed leases and contractual increases in minimum rent under leases in
place.
12
The Company assesses its operating results, in part, by comparing the Net
Revenue Margin between periods. Net Revenue Margin is calculated for the "in
service" portfolio by dividing net revenue (total operating and investment
revenue less real estate taxes and property operating and leasing expense) by
adjusted operating and investment revenue (operating and investment revenue
less expense reimbursements, adjusted for leases containing expense stops).
This margin indicates the percentage of revenue actually retained by the
Company or, alternatively, the amount of property related expenses not
recovered by tenant reimbursements. The margin for the first quarter of 1999
was 88.4% compared with 87.9% for the same period last year. The first
quarter margin was in line with the Company's expectations.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING AND INVESTMENT CASH FLOW
Cash flow generated from Company operations has historically been utilized
for working capital purposes and distributions, while proceeds from
financings and capital raises have been used to fund acquisitions and other
capital costs. However, cash flow from operations during the first three
months of 1999 of $16.8 million net of $11.2 million of 1999 distributions
provided $5.6 million of retained capital. The Company expects retained
capital to fund a portion of future investment activities.
As of March 31, 1999, the Company had approximately $33.9 million in cash and
cash equivalents on hand to advance to an affiliate for the purchase of a
property, which was expected to close before the end of the quarter. The
proceeds were borrowed on the Company's unsecured line of credit. On April 2,
1999, the Company advanced the funds to CRS for the purchase of a property in
Cincinnati, Ohio.
For the first three months of 1999, the Company's investment activities
include acquisitions of $16.9 million, advances for construction in progress
of $7.0 million, and improvements and additions to properties of $14.4
million. These activities were funded with dispositions of real estate of
$2.9 million, advances on the company's line of credit and a portion of the
Company's retained capital.
EQUITY AND SHARE ACTIVITY
During the first three months of 1999, the Company paid distributions on
common shares of $9.2 million or $0.475 per share and on class B common
shares of $0.4 million or $0.487 per share. Also, in January, 1999, the
Company paid dividends on preferred shares of $1.59 million or $0.53 per
share. The following factors, among others, will affect the future
availability of funds for distribution: (i) scheduled increases in base rents
under existing leases, (ii) changes in minimum base rents attributable to
replacement of existing leases with new or replacement leases and (iii)
restrictions under certain covenants of the Company's unsecured line of
credit.
DEBT CAPACITY
13
The Company has a $250 million unsecured credit facility co-led by The First
National Bank of Chicago and Lehman Brothers Holdings Inc. As of May 12,
1999, the Company had outstanding borrowings of approximately $103.9 million
under the Company's unsecured line of credit (approximately 8.0% of the
Company's fully diluted total market capitalization), and the Company had
remaining availability of approximately $146.1 million under its unsecured
line of credit.
At March 31, 1999, the Company's debt constituted approximately 37.7% of its
fully diluted total market capitalization. Also, the Company's debt service
coverage ratio remained high at 4.8 to 1, and the Company's fixed charge
coverage ratio was 3.5 to 1 due to preferred dividends. The Company's fully
diluted common equity market capitalization was approximately $644 million,
and its fully diluted total market capitalization exceeded $1.1 billion. The
Company's leverage ratios benefited during the first three months of 1999
from the conversion of approximately $0.2 million of its 8.22% Convertible
Subordinated Debentures, due 2004, to 9,861 common shares.
Duff & Phelps Credit Rating Co. and Moody's Investors Service's have assigned
an investment grade rating to the Company's convertible subordinated notes
and senior unsecured debt and preferred stock issuable under the Company's
shelf registration statement.
The Company has considered it's short-term (one year or less) capital needs,
in conjunction with its estimated future cash flow from operations and other
expected sources. The Company believes that its ability to fund operating
expenses, building improvements, debt service requirements and the minimum
distribution required to maintain the Company's REIT qualification under the
Internal Revenue Code, will be met by recurring operating and investment
revenue and other real estate income.
Long-term (greater than one year) capital needs for property acquisitions,
scheduled debt maturities, major redevelopment projects, expansions, and
construction of build-to-suit properties will be supported, initially, by
draws on the Company's unsecured line of credit, followed by the issuance of
long-term unsecured indebtedness and the issuance of equity securities.
Management expects that a significant portion of the Company's investment
funds will be supplied by the proceeds of property dispositions.
INFLATION
Inflation has not had a significant impact on the Company because of the
relatively low inflation rates in the Company's markets of operation. Most of
the Company's leases require the 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
remaining terms less than five years which may enable the Company to replace
existing leases with new leases at higher base rental rates if rents of
existing leases are below the then-existing market rate.
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YEAR 2000 COMPLIANCE
In response to the Year 2000 issue, the Company initiated a project in early
1997 to identify, evaluate and implement a new computerized real estate
management system. The Company is addressing the issue through a combination
of modifications to existing programs and conversion to Year 2000 compliant
software. In addition, the Company is discussing with its tenants, vendors,
and other service providers the possibility of any interface difficulties
relating to the Year 2000 issue which may affect the Company. If the Company
and those it conducts business with do not make modifications or conversions
in a timely manner, the Year 2000 issue may have a material adverse effect on
the Company's business, financial condition, and results of operations. The
total cost associated with the required modifications is not expected to be
material to the Company's consolidated results of operations, liquidity and
financial position, and is being expensed as incurred.
RECENT PRONOUNCEMENTS
In May, 1998, the FASB issued SFAS Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement, effective for
financial statements for fiscal years beginning after June 15, 1999, provides
a comprehensive and consistent standard for the recognition and measurement
of derivatives and hedging activities. The Company currently has no
derivatives outstanding.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q/A contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's actual results could differ materially from those set forth in the
forward looking statements as a result of various factors, including, but not
limited to, uncertainties affecting real estate businesses generally (such as
entry into new leases, renewals of leases and dependence on tenants' business
operations), risks relating to acquisition, construction and development
activities, possible environmental liabilities, risks relating to leverage,
debt service and obligations with respect to the payment of dividends
(including availability of financing terms acceptable to the Company and
sensitivity of the Company's operations to fluctuations in interest rates),
the potential for the need to use borrowings to make distributions necessary
for the Company to qualify as a REIT, dependence on the primary market in
which the Company's properties are located, the existence of complex
regulations relating to the Company's status as a REIT, the failure of the
Company and entities the Company does business with to make necessary
modifications and conversions to Year 2000 compliant software in a timely
manner and the potential adverse impact of the market interest rates on the
cost of borrowings by the Company and on the market price for the Company's
securities.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Exhibit 27 - Financial Data Schedule
(2) Exhibit 99 - Press release dated September 28, 1999.
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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.
CENTERPOINT PROPERTIES TRUST
a Maryland Company
By: /s/ Paul S. Fisher
------------------------------------
Paul S. Fisher
Executive Vice President and
Chief Financial Officer
December 29, 1999 (Principal Accounting Officer)
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