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 September 30, 1996
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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Commission file number 1-12630
CENTERPOINT PROPERTIES CORPORATION
MARYLAND 36-3910279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 North Michigan Ave., Chicago, Illinois 60611
(312) 346-5600
(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
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Number of shares of Common Stock outstanding as of October 31, 1996; 14,312,195
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
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Assets:
Investment in real estate:
Land $62,717,725 $49,413,885
Buildings 259,954,150 219,911,526
Building improvements 40,110,776 39,054,302
Furniture, fixtures, and equipment 10,157,192 9,080,444
Construction in progress 9,328,800
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382,268,643 317,460,157
Less accumulated depreciation 27,290,191 21,576,209
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Net investment in real estate 354,978,452 295,883,948
Cash and cash equivalents 12,012,633 2,877,760
Restricted cash and cash equivalents 9,258,830 1,301,362
Tenant accounts receivable, net 10,136,027 8,743,344
Mortgage notes receivable 16,294,472 8,750,000
Investment in and advances to affiliate 6,508,522 5,356,526
Prepaid expenses and other assets 4,298,896 5,679,610
Deferred expenses, net 5,188,463 6,273,583
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$418,676,295 $334,866,133
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $136,387,829 $121,970,756
Convertible subordinated debentures payable 14,590,000 23,244,000
Notes payable 250,000 56,660
Distributions payable 0 4,952,274
Accounts payable 807,812 1,781,433
Accrued expenses 12,593,581 11,837,810
Rents received in advance and security deposits 3,173,598 2,703,253
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167,802,820 166,546,186
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Stockholders' equity:
Series A preferred stock, $.001 par value, 2,272,727 million shares
authorized; 0 and 2,272,727 issued and outstanding, respectively 2,273
Common stock, $.001 par value, 47,727,273 million shares authorized;
14,301,237 and 10,358,958 issued and outstanding, respectively 14,301 10,359
Class B common stock, $.001 par value, 2,272,727 million shares
authorized; 2,272,727 and 0 issued and outstanding, respectively 2,273
Additional paid-in-capital 275,964,272 187,160,773
Retained earnings (deficit) (24,761,265) (18,602,473)
Unearned compensation - restricted stock (346,106) (250,985)
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Total stockholders' equity 250,873,475 168,319,947
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$418,676,295 $334,866,133
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The accompanying notes are an integral part of these
consolidated financial statements.
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
--------------- -------------- -------------- --------------
Revenue:
Minimum rents $10,633,521 $8,461,933 $29,880,278 $24,742,952
Straight-line rents 520,475 379,034 1,289,837 965,802
Expense reimbursements 2,868,985 2,054,002 8,498,851 5,763,783
Miscellaneous tenant income 13,783 130,776 83,606 281,212
Mortgage interest income 507,774 1,007,764
Real estate fee income 1,241,387 396,504 2,773,537 1,499,310
Equity in net income (loss) of affiliate (98,982) 126,330 532,991 126,330
--------------- -------------- -------------- --------------
Total revenue 15,686,943 11,548,579 44,066,864 33,379,389
--------------- -------------- -------------- --------------
Expenses:
Real estate taxes 3,035,593 1,769,135 8,322,279 5,132,021
Repair and maintenance 400,360 361,300 1,091,612 1,010,107
Insurance 131,711 100,215 359,222 301,827
Utilities 239,245 240,479 859,918 832,635
Property operating and leasing 1,158,965 856,763 3,333,530 2,868,482
General and administrative 419,930 527,456 1,655,255 1,447,620
Depreciation and amortization 2,659,849 2,545,560 7,572,260 6,522,344
Interest expense:
Interest incurred, net 2,017,611 3,051,436 7,204,348 9,162,174
Amortization of deferred financing costs 293,453 353,021 892,397 1,008,764
--------------- -------------- -------------- --------------
Total expenses 10,356,717 9,805,365 31,290,821 28,285,974
--------------- -------------- -------------- --------------
Operating income 5,330,226 1,682,172 12,776,043 4,976,297
Other expense 27,988 (61,042) (177,253) (117,118)
--------------- -------------- -------------- --------------
Income before extraordinary item 5,358,214 1,682,172 12,598,790 4,976,297
--------------- -------------- -------------- --------------
Extraordinary item, early extinguishment of debt (1,429,866)
--------------- -------------- -------------- --------------
Net income $5,358,214 $1,682,172 $11,168,924 $4,976,297
--------------- -------------- -------------- --------------
--------------- -------------- -------------- --------------
Income before extraordinary item per share $0.32 $0.88
Extraordinary item per share (0.10)
--------------- -------------- -------------- --------------
Net income per share $0.32 $0.17 $0.78 $0.55
--------------- -------------- -------------- --------------
--------------- -------------- -------------- --------------
Distributions per share $0.405 $0.390 $1.215 $1.170
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The accompanying notes are an integral part of these
consolidated financial statements.
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
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1996 1995
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Cash flows from operating activities:
Net income $11,168,924 $4,976,297
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary item-early extinguishment of debt 1,429,866
Depreciation 7,277,380 5,912,457
Amortization of deferred financing costs 892,397 1,008,764
Other amortization 294,880 609,887
Incentive stock awards 91,404 74,321
Interest on converted debentures 72,430 74,672
Equity in net income of affiliate (532,991) (126,330)
Net changes in:
Tenant accounts receivable (1,370,119) (1,712,753)
Prepaid expenses and other assets 1,330,690 (64,790)
Rents received in advance and security deposits 114,509 158,287
Accounts payable and accrued expenses (3,053,769) (1,054,869)
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Net cash provided by operating activities 17,715,601 9,855,943
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Cash flows from investing activities:
Change in restricted cash and cash equivalents (7,957,468) (223,704)
Acquisition of real estate (58,710,807) (41,111,875)
Improvements and additions to properties (13,479,107) (4,032,989)
Disposition of real estate 19,187,431 334,924
Change in deposits on acquisitions 165,404 112,696
Issuance of mortgage notes receivable (6,609,472)
Investment in and advances to affiliate (619,005) (1,235,114)
Receivable from affiliates and employees 9,245 155,932
Addition to deferred expenses (1,819,375) (897,988)
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Net cash used in investing activities (69,833,154) (46,898,118)
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Cash flows from financing activities:
Proceeds from sale of preferred stock 50,000,000
Proceeds from sale of common stock 82,120,448 47,232,825
Offering costs paid (1,967,127) (4,259,242)
Proceeds from issuance of mortgage notes payable 28,643,117 61,815,296
Repayments of mortgage notes payable (25,464,196) (105,728,400)
Proceeds from issuance of notes payable 250,000
Repayments of notes payable (56,660) (68,675)
Distributions (22,272,750) (9,684,564)
Conversion of convertible subordinated debentures payable (406) (348)
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Net cash provided by financing activities 61,252,426 39,306,892
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Net change in cash and cash equivalents 9,134,873 2,264,717
Cash and cash equivalents, beginning of the year 2,877,760 419,667
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Cash and cash equivalents, end of period $12,012,633 $2,684,384
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The accompanying notes are an integral part of these
consolidated financial statements.
CENTERPOINT PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION:
These unaudited Consolidated Financial Statements of CenterPoint Properties
Corporation, a Maryland Corporation (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, 1995, Financial Statements
and Notes thereto included in the Company's Form 10-K. The following Notes to
Consolidated Financial Statements highlight significant changes to the Notes
included in the December 31, 1995, 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. All such
adjustments are of a normal and recurring nature. The consolidated balance
sheet as of December 31, 1995, has been derived from the Company's Audited
Financial Statements.
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. PREFERRED STOCK, COMMON STOCK AND RELATED TRANSACTIONS
Under the terms of the Company's 1995 Director Stock Plan, adopted in 1995,
certain directors were granted 2,516 unrestricted shares of the Company's
common stock in March, 1996. Shares were awarded in the name of each of
the participants, who have all the rights of other common stockholders.
Under the terms of the Company's 1995 Restricted Stock Incentive Plan,
adopted in 1995, certain key employees were granted 8,290 restricted shares
of the Company's common stock in March, 1996. Shares were awarded in the
name of each of the participants, who have all the rights of other common
stockholders, subject to certain restrictions and forfeiture provisions.
Restrictions on the shares expire no more than eight years after the date
of award, or earlier if certain performance targets are met.
Unearned compensation was recorded at the date of award based on the market
value of the shares. Unearned compensation, which is shown as a separate
component of stockholders' equity, is being amortized to expense over the
eight year vesting period.
Under the terms of Company's 1993 Stock Option Plan, options for 104,428
shares of common stock were issued in March, 1996. The options were
granted at $22.50 per share and are exercisable per the plan.
At the Annual Meeting of Stockholders on May 14, 1996, the stockholders
approved, among other things, an amendment to the Articles of Incorporation
of the Company to authorize the issuance of 2,272,727 shares of new non-
voting Class B Common Stock. The issued and outstanding shares of Series A
Preferred Stock were automatically converted, on a one for one basis, into
shares of Class B Common Stock upon the stockholders' approval of the
amendment to the Articles of Incorporation.
On June 12, 1996, the Company commenced trading its shares on the New York
Stock Exchange. The Company's stock was previously traded on the American
Stock Exchange.
On July 2, 1996, the Company completed a public offering of 3,450,000
shares of common stock at $23.75 per share under a shelf registration
statement declared effective by the Securities and Exchange Commission in
January, 1996. Net proceeds from the offering after the underwriting
discounts were approximately $80.2 million. The proceeds of the offering
were used to refund approximately $55.3 million outstanding under the
Company's lines of credit with the balance of $24.9 million to fund
investments.
Income per share amounts are based on the weighted average of common and
common equivalent (stock options and Class B common stock) shares
outstanding of 16,685,417 and 9,754,348 for the three months ended
September 30, 1996 and 1995, respectively, and 14,293,487 and 9,089,621 for
the nine months ended September 30, 1996 and 1995, respectively. The
assumed conversion of convertible subordinated debentures into common
shares for purposes of computing fully diluted earnings per share would be
anti-dilutive.
2. LONG-TERM DEBT AND LINES OF CREDIT
In April, 1996, the Company refunded its outstanding 1991 and 1993 tax
exempt and related taxable bonds by issuing new tax exempt and taxable
bonds in the aggregate principal amount of $22.22 million. The City of
Gary, Indiana, was the nominal issuer of both the refunded and the
refunding bonds.
The new bonds were issued under a flexible "multi-modal" facility
permitting the issuance of indebtedness in maturities up to five years,
with the interest rate resetting to market on the maturity date selected.
The new issuance facility is backed by a letter of credit issued by The
Royal Bank of Scotland, which issued a similar letter of credit supporting
the refunded debt.
The refunding bonds were issued in a tax exempt tranche of $20.54 million
and a $1.68 million taxable tranche. Both tranches have a nominal maturity
of March 1, 2031. The refunded bonds were issued in two series, 1991
($15.5 million) and 1993
($7.5 million), which were divided into tax exempt and taxable tranches
aggregating $20.54 million and $2.46 million, respectively. The balance
of the bonds ($0.78 million) not refunded through the reissuance of new
bonds was refunded with cash on hand.
An extraordinary charge of $1.4 million was incurred representing the
unamortized balance of deferred costs associated with the initial fundings
in 1991 and 1993. Management believes the reduction in interest expense
and the simplification of the new form outweighs this one-time charge.
In May, 1996, a mortgage note payable by the Company, with a balance of
$2,069,529 at December 31, 1995, was assumed from the Company of the
collateralized property located in Hodgkins, Illinois.
In June, 1996, a mortgage note payable for $5,704,677 was assumed with the
acquisition of a property in Itasca, Illinois and a $7,603,004 mortgage
was assumed with the acquisition of a property in Franklin Park, Illinois.
3. ACQUISITION AND DISPOSITION OF REAL ESTATE
In April, 1996, the Company acquired an industrial property located in
Hodgkins, Illinois for approximately $13.2 million, which was funded with
an advance under the Company's lines of credit and sold a retail property
in Chicago, Illinois for approximately $0.9 million.
In May, 1996, the Company acquired an industrial property located in
Milwaukee, Wisconsin for approximately $5.1 million and one located in Elk
Grove Village, Illinois for approximately $1.2 million. Both were funded
with advances under the Company's lines of credit.
Also, in May, 1996, the Company acquired a 27.14 acre site in Elk Grove
Village, Illinois for approximately $3.8 million. The site will be
utilized for a warehouse and distribution development project.
In May, 1996, the Company disposed of four properties (located in Hodgkins,
Illinois, Naperville, Illinois and, with respect to two of the properties,
Itasca, Illinois) in transactions that qualify as a tax-free exchange under
applicable provisions of the Internal Revenue Code. The aggregate
consideration for the four properties was approximately $14.8 million.
This amount was used to acquire qualified replacement property.
One other property, located in Elk Grove Village, Illinois, was sold in
May, 1996 for approximately $1.1 million through a purchase option
exercised by the tenant of the property.
In June, 1996, two industrial properties were purchased utilizing the
proceeds from the exchange properties sold in May, 1996, The two
industrial properties, located in Elk Grove Village, Illinois and Itasca,
Illinois, were purchased for approximately $2.9 million and $10.0 million,
respectively.
Two other industrial properties were purchased in June, 1996 with advances
under the Company's lines of credit, in Franklin Park, Illinois for
approximately $9.3 million and the other in Elk Grove Village, Illinois was
purchased for $5.2 million.
One industrial property, located in Alsip, Illinois, was sold in June, 1996
for approximately $0.5 million.
In September, 1996, two industrial properties were purchased. The first
property, located in Northlake, Illinois, was purchased for approximately
$22.6 million and funded in part with a $16.0 million advance under the
Company's line of credit with Lehman Brothers and in part with proceeds of
a public offering of shares of the Company's Common Stock completed on
July 2, 1996. The other property, located in Franklin Park, Illinois, was
purchased for approximately $1.9 million and funded with proceeds from the
exchange properties sold in May, 1996.
In September, 1996, the Company disposed of property located in St.
Charles, Illinois in a transaction that is intended to qualify as a tax-
free exchange under applicable provisions of the Internal Revenue Code.
Consideration for the property was approximately $5.4 million. This
amount, currently being held by a third party, must be used to acquire a
qualified replacement property within 180 days after the disposition in
order to preserve the tax-free exchange treatment for the transaction.
4. INVESTMENT IN AND ADVANCES TO AFFILIATE
The Company holds approximately 99% of the economic interest in
CenterPoint Realty Services Corporation ("CRS"). To maintain compliance
with limitations on income from business activities received by REITs and
their qualified REIT subsidiaries, the Company holds its interest in CRS as
an unconsolidated taxable subsidiary.
As of September 30, 1996, the Company had advanced to CRS
approximately $5.8 million under a demand loan with an interest rate of
8.125%. The proceeds of the loan were applied towards a development
project held for sale by CRS in the fourth quarter of 1996. Principal and
interest are due upon demand.
5. STOCK-BASED-COMPENSATION
In 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Under the
provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using
a fair-value-based method or continue measuring compensation expense for
those plans using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." SFAS 123 requires that companies electing to continue using
the intrinsic value method must make pro-forma disclosures of net income
and earnings per share as if the fair-value-based method of accounting
had been applied.
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method. As such, SFAS 123 did not have an impact
on the Company's reported results of operations or financial position. The
pro-forma information required by SFAS 123 will be included in the
footnotes to the Company's 1996 year end consolidated financial statements.
6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information for nine months ended
September 30, 1996 and 1995:
September 30, September 30,
1996 1995
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Interest paid and interest capitalized
was as follows:
Interest paid $8,302,249 $10,383,800
Interest capitalized 81,813 20,386
In conjunction with the acquisition of real estate, the Company acquired
the following asset and assumed the following liability amounts:
Purchase of real estate $75,680,743 $42,186,014
Accounts receivable 614,227 44,953
Prepaid expenses and other assets 125,374
Mortgage notes payable (13,307,681)
Accrued expenses (4,401,856) (1,119,092)
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Acquisition of real estate $58,710,807 $41,111,875
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In conjunction with the disposition of real estate, the Company disposed
of the following asset and liability amounts:
Disposal of real estate $22,662,968 $334,924
Accounts receivable 591,663
Prepaid expenses and other assets 22,432
Mortgage notes receivable (935,000)
Mortgage notes payable (2,069,529)
Accrued expenses (1,085,103)
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Disposition of real estate $19,187,431 $334,924
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Conversion of convertible subordinated debentures payable:
Convertible subordinated debentures
converted $ 8,654,000 $12,760,000
474,175 and 699,161 shares of common
stock issued at $18.25 per share,
respectively 8,653,594 12,759,652
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Cash disbursed for fractional shares $ 406 $ 348
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7. 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 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 of the
Company.
In May, 1996, the Company acquired an existing 60-year land lease for 50
acres inside Chicago's O'Hare International Airport. Under the terms of
the lease, base rent is $0.30 per square foot, escalating by $0.009 per
square foot per year. Base rent is also increased in relation to the
development of the premises. An additional amount for percentage rent is
due under the lease in an amount equal to 3.13% of net cash flow, net
financing proceeds and net residual receipts. O'Hare Express Center, being
developed on the land, will be a $60 million air freight forwarding and
warehouse complex. The 825,000 square foot complex is anticipated to be
constructed in three phases over a three year period. Two buildings
consisting of 138,000 square feet for Burlington Air Express and 129,000
square feet for a tenant yet to be identified are under construction or
development.
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 project.
At September 30, 1996, twelve of the properties owned are subject to
purchase options held by certain tenants. The purchase options are
exercisable at various intervals through 2006, each for an amount greater
than the net book value of the asset. Management does not currently
anticipate than such options will be exercised and believes that any such
exercises will not materially affect the results or prospects of the
Company.
8. RELATED PARTY TRANSACTIONS
In June, 1996, the Company acquired three properties in which Robert
Stovall, the Company's Chief Operations Officer and a director, and Michael
Mullen, the Company's Executive Vice President of Acquisitions had, or
will, in the case of two of the properties, continue to own a minority
interest in the partnership owning such properties. The three properties
were purchased for an aggregate amount of approximately $24.6 million in
transactions which satisfied the Company's investment criteria and were
approved by the Company's independent directors.
9. SUBSEQUENT EVENTS
On October 24, 1996, the Company closed a $135 million unsecured credit
facility to replace the Company's secured lines of credit. The line is co-
led by First Chicago NBD and Lehman Brothers, with participating banks
including ABN LaSalle, Bank of America, Bank of Boston and NationsBank.
The initial interest rate is LIBOR plus 1.45% for LIBOR borrowings and
First Chicago's corporate base rate plus .45% for other borrowings,
however, the margins over LIBOR and the corporate base rate are subject to
change based on the rating by Moody's Investors Service, Inc. of the long
term debt of the Company which the Company anticipates obtaining prior to
the end of the first quarter of 1997. The Company drew down $20.8 million
under the new credit facility to repay and terminate its secured line of
credit with Lehman
Brothers Holdings Inc., and the Company terminated its secured line of
credit with ABN LaSalle under which nothing was outstanding.
Due to the closing of the unsecured credit facility referred to above, an
extraordinary charge of $1.8 million will be recognized in the fourth
quarter of 1996. The unamortized balance of deferred costs on the
Company's secured lines were expensed upon repayment and termination of the
lines.
In October, 1996 three properties were purchased, one in Lemont, Illinois
for $2.3 million, one in St. Charles, Illinois for $3.3 million and the
third in Elgin, Illinois for $5.2 million. The acquisitions were funded
with proceeds of $3.0 million from the tax-free exchange properties that
occurred in May, 1996, an advance on the Company's line of credit of $4.0
million and the balance with working capital.
Since September 30, 1996, an additional $200,000 of convertible
subordinated debentures have been converted to 10,958 shares of common
stock. As of October 31, 1996, the principal amount of convertible
subordinated debentures outstanding is $14,390,000.
10. PRO FORMA FINANCIAL INFORMATION
Due to the effect of the January, 1995 public offering, the September, 1995
private offering, the July, 1996 public offering and the subsequent
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 nine months ended September 30,
1996 and 1995 is presented as if the 1995 acquisitions of properties, the
1996 acquisitions and dispositions of properties, the January, 1995 public
offering, the September, 1995 private offering, the July 2, 1996 public
offering and the corresponding repayment of certain debt had all occurred
on January 1, 1995 (or on 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 offering and related transactions, in fact,
occurred at January 1, 1995, or to project results for any future period.
Nine months ended September 30,
-------------------------------
1996 1995
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(in thousands, except for per share data)
-----------------------------------------
Revenues $49,219 $41,755
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Expenses:
Operating expenses 17,276 13,457
General and administrative 1,655 1,447
Depreciation and amortization 8,265 7,906
Interest expense, net 7,135 7,066
Amortization of financing costs 893 1,009
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Total expenses 35,224 30,885
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Net income before extraordinary item $13,995 $10,870
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Net income per common share $ 0.84 $ 0.73
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
RESULTS OF OPERATIONS - 1996 COMPARED WITH 1995:
GENERAL BACKGROUND
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
filed for the fiscal year ended December 31, 1995.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS ENDED
SEPTEMBER 30, 1995.
Total revenues in the first nine months of 1996 increased by $10.7 million
or 32.0% over the same period last year. The revenues of the Company are
derived primarily from base rents and additional rents from expense
reimbursements, pursuant to the terms of tenant leases for occupied space
at the warehouse/industrial properties. These properties represent
approximately 96% of the gross leasable area of the Company's portfolio as
of September 30, 1996.
Rental revenues increased by $8.0 million in 1996 primarily because of full
period income from properties acquired in 1995 and acquisitions in 1996 net
of disposals. In addition, mortgage interest income, which was non-
existent in 1995, contributed $1.0 million to revenue, while real estate
fee income primarily consisting of fees earned by the Company in connection
with its build-to-suit and development activities and third party
management fees increased by $1.3 million and equity in net income of
affiliate increased by $0.4 million. The Company's unconsolidated
affiliate began operations during the third quarter of 1995 and did not
recognize income from development activities until 1996.
On a "same-store" basis (comparing the results of operations, on a cash
basis, of the properties owned at September 30, 1995, with the results of
operations of the same properties at September 30, 1996), the Company
recognized a 4.2 % increase in revenues primarily due to lease up of vacant
space, rental increases on renewed leases and contractual increases in
minimum rent under leases in place.
Total operating expenses, excluding general and administrative, interest,
depreciation and amortization, increased by $3.9 million, from $10.1
million in 1995 to $14.0 million in 1996. $3.2 million of the increase is
due to real estate taxes. The majority of the increase, $2.2 million,
resulted from 1995 and 1996 acquisitions and the balance, $1.0 million from
tax increases throughout the portfolio with the largest increase in Cook
County, Illinois. Insurance, utilities and property operating and leasing
expenses, all components of operating expenses, increased at levels
comparable to the level of acquisitions.
Depreciation and other amortization increased by $1.1 million, from
$6.5 million in 1995 to $7.6 million in 1996. The increase is due to full
period depreciation on acquisitions completed during 1995 and 1996.
General and administrative expenses increased by $0.2 million, from
$1.4 million in 1995 to $1.6 million in 1996, due primarily to the growth
of the Company.
Interest incurred decreased by $2.0 million over the same period last year.
Of this decrease, $1.5 million is due to the conversion to common stock of
$8.7 million of convertible subordinated debentures through September 30,
1996 and $20.7 million through December 31, 1995 and the balance is due to
lower average loan balances and reduced borrowing rates.
Other expenses, generally non-operating items, increased by $0.1 million
from the same period last year due to the loss on disposition of three
properties totaling $102,000.
As a result of the factors described above, net income, before
extraordinary item, increased by $7.6 million from $5.0 million for the
first nine months of 1995 to $12.6 million for the first nine months of
1996, an increase of 153.2%. Earnings before interest, income taxes,
depreciation and amortization for the nine months increased by $6.8
million, from $23.1 million in 1995 to $29.9 million in 1996.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THREE MONTHS ENDED
SEPTEMBER 30, 1995,
Total revenues for the three months ended September 30, 1996 increased by
$4.1 million or 35.8% over the same period last year. Rental revenues
increased by $3.0 million in 1996 primarily because of full period income
from properties acquired in 1995 and acquisitions in 1996 net of disposals.
In addition, mortgage interest income, which was non-existent in 1995,
contributed $0.5 million to revenue, while real estate fee income primarily
consisting of fees earned by the Company in connection with its build-to-
suit and development activities and third party management fees increased
by $0.8 million and equity in net income of affiliate decreased by $0.2
million. The nine month equity is ahead of last year, but the revenue from
development is not consistent throughout quarters.
On a "same-store" basis (comparing the results of operations, on a cash
basis, of the properties owned at September 30, 1995, with the results of
operations of the same properties at September 30, 1996), the Company
recognized a 3.9 % increase in revenues primarily due to rental increases
on renewed leases and contractual increases in minimum rent under leases in
place.
Total operating expenses, excluding general and administrative, interest,
depreciation and amortization, increased by $1.6 million, from $3.3 million
in 1995 to $4.9 million in 1996. The majority of the increase in operating
expenses, $1.2 million, is due to real estate taxes,
and the balance, $0.4 million, to property operating expenses which have
increased with the growth of the Company.
Depreciation and other amortization increased by $0.1 million, from
$2.5 million in 1995 to $2.6 million in 1996. The increase is due to full
period depreciation on acquisitions completed during 1995 and 1996.
General and administrative expenses decreased by $0.1 million, from
$0.5 million in 1995 to $0.4 million in 1996, due primarily to the timing
of expenses during the year. The nine month total has increased from 1995
to 1996 due to the growth of the Company.
Interest incurred decreased by $1.0 million over the same period last year
due to primarily to the conversion to common stock of $8.7 million of
convertible subordinated debentures through September 30, 1996 and
$20.7 million through September 30, 1995.
As a result of the factors described above, net income, before
extraordinary item, increased by $3.7 million from $1.6 million for the
three months of 1995 to $5.3 million for the three months of 1996, an
increase of 218.5%. Earnings before interest, income taxes, depreciation
and amortization for the three months increased by $2.5 million, from
$8.2 million in 1995 to $10.7 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from Company operations has historically been utilized
for working capital purposes and making distributions, while proceeds from
financings and capital raises have been used to fund acquisitions and other
capital costs. For the nine months ended September 30, 1996, cash flow
from operations was $17.7 million. Cash flow during that period
contributed to payment of $17.3 million of current year distributions and
$5.0 million of distributions declared in the fourth quarter of 1995 and
paid in the first quarter of 1996.
Acquisitions and improvements and additions to properties of approximately
$72.2 million for the nine months were funded with borrowings under the
Company's lines of credit totaling $28.6 million, proceeds from the
disposition of real estate of $10.4 million and the net proceeds proceeds
of the July 2, 1996 public offering of common stock. The remaining
proceeds from disposition of real estate, $8.8 million, are invested in a
restricted cash account to be applied to acquisitions closing in the near
term.
At September 30, 1996, the Company's debt constitutes approximately 25% of
its fully diluted market capitalization. At that date, the Company's fully
diluted equity market capitalization was approximately $467 million, and
its fully diluted total market capitalization was approximately
$603 million. The Company's leverage ratios benefited in the first nine
months of 1996 from the conversion of approximately $8.7 million of its
8.22% Convertible Subordinated Debentures, due 2004, to 474,175 shares
of common stock.
As of September 30, 1996, the Company had outstanding borrowings of
approximately $20.0 million under its secured revolving lines of credit
(approximately 3.3% of the Company's fully diluted market capitalization),
and the Company had remaining availability of approximately $72 million
under its lines of credit. As of September 30, 1996, the Company had two
lines of credit, a $52 million credit facility with an affiliate of Lehman
Brothers, Inc. and a $40 million facility with ABN/LaSalle. As noted in
the Notes to Financial Statements under the caption "Subsequent Events", on
October 24, 1996, the Company closed a $135 million unsecured credit
facility to replace the Company's secured lines of credit referred to
above. The line is co-led by First Chicago NBD and Lehman Brothers with
participating banks including ABN LaSalle, Bank of America, Bank of Boston
and NationsBank.
On July 2, 1996, the Company completed a public offering of 3,450,000
shares of common stock at $23.75 per share. Net proceeds from the
offering, after the underwriting discounts, were approximately
$80.2 million. The proceeds of the offering were used to repay
approximately $55.3 million then outstanding under the Company's lines of
credit and to fund future investments. The public offering left the entire
amount on the Company's lines of credit available.
As of September 30, 1996, the Company had $9.3 million in restricted cash,
most of which was held for reinvestment in future acquisitions as part of
the Company's tax free exchange of four properties in May, 1996 and one
property in September, 1996. The Company believes that its liquidity is
adequate for operations and that positive cash flow from operations, as
supplemented by proceeds of borrowings under its lines of credit and other
financings, will be adequate to fund the Company's acquisition activities
and allow distributions to the Company's stockholders in accordance with
the requirements for qualification as a REIT.
In the first nine months of 1996, the Company declared distributions of
$17.3 million, representing an annualized distribution rate of
approximately $1.62 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 and (ii) changes in minimum
base rents attributable to replacement of existing leases with new or
replacement leases.
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
During the third quarter of 1996, no matter was submitted to a vote of
security holders.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Exhibit 10.43 - Unsecured Revolving Credit Agreement dated as of
October 23, 1996 and among The First National Bank of Chicago, as
administrative agent and lender, Lehman Brothers Holdings, Inc.,
as documentation agent and lender, the other lenders named therein
and CenterPoint Properties Corporation.
(2) Exhibit 11 - Computation of Earnings per Share.
(3) Exhibit 27 - Financial Data Schedule
(b) On July 2, 1996, the Company filed with the Commission a current
report on Form 8-K relating to the issuance and sale of up to
3,450,000 shares of the Company's Common Stock pursuant to a
Supplement to Prospectus dated June 26, 1996 under a registration
statement on Form S-3 filed with the Commission on June 5, 1995, as
amended. The Form 8-K filed the following as exhibits to the
Supplement: the form of Underwriting Agreement between the Company
and Lehman Brothers Inc., the opinion of Coffield Ungaretti & Harris
regarding the validity of the Common Stock and the opinion of
Ungaretti & Harris regarding tax matters.
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 CORPORATION
a Maryland corporation
By: /s/ Paul S. Fisher
------------------------------------------
Paul S. Fisher
Executive Vice President and
Chief Financial Officer
November 13, 1996 (Principal Accounting Officer)