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
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
_____________________
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 April 30, 1997; 16,731,680
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31,
1997 1996
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Assets:
Investment in real estate:
Land and leasehold $80,299 $72,004
Buildings 289,867 284,626
Building improvements 45,063 43,583
Furniture, fixtures, and equipment 10,885 10,429
Construction in progress 18,522 18,392
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444,636 429,034
Less accumulated depreciation and amortization 33,328 30,206
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Net investment in real estate 411,308 398,828
Cash and cash equivalents 6,585 1,070
Restricted cash and cash equivalents 396 977
Tenant accounts receivable, net 12,440 10,193
Mortgage notes receivable 19,809 22,665
Investment in and advances to affiliate 15,664 9,673
Prepaid expenses and other assets 3,404 3,630
Deferred expenses, net 4,262 4,170
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$473,868 $451,206
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $111,917 $114,451
Line of credit 7,500 46,100
Convertible subordinated debentures payable 12,135 14,380
Notes payable 2,352 2,418
Accounts payable 3,498 4,130
Accrued expenses 16,224 17,914
Rents received in advance and security deposits 4,008 3,699
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157,634 203,092
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Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 47,727,273 million shares authorized;
16,727,297 and 14,333,231 issued and outstanding, respectively 17 14
Class B common stock, $.001 par value, 2,272,727 million shares
authorized; 2,272,727 and 2,272,727 issued and outstanding, respectively 2 2
Additional paid-in-capital 345,982 276,142
Retained earnings (deficit) (29,105) (27,726)
Unearned compensation - restricted stock (662) (318)
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Total stockholders' equity 316,234 248,114
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$473,868 $451,206
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The accompanying notes are an integral part of these consolidated financial
statements.
2
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
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Revenue:
Minimum rents $12,736 $9,468
Straight-line rents 654 387
Expense reimbursements 4,895 2,696
Miscellaneous tenant income 635 27
Mortgage interest income 655 246
Real estate fee income 202 1,133
Equity in net loss of affiliate (48) (38)
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Total revenue 19,729 13,919
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Expenses:
Real estate taxes 4,270 2,490
Repair and maintenance 901 357
Insurance 132 110
Utilities 673 333
Property operating and leasing 1,317 1,037
General and administrative 703 703
Depreciation and amortization 3,210 2,408
Interest expense:
Interest incurred, net 2,626 2,526
Amortization of deferred financing costs 192 303
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Total expenses 14,024 10,267
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Operating income 5,705 3,652
Other expense (34) (25)
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Net income $5,671 $3,627
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Net income per share $0.32 $0.28
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Distributions per share $0.420 $0.405
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The accompanying notes are an integral part of these consolidated financial
statements.
3
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
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Cash flows from operating activities:
Net income $5,671 $3,627
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,991 2,335
Amortization of deferred financing costs 192 303
Other amortization 219 73
Incentive stock awards 49 49
Interest on converted debentures 9 59
Equity in net loss of affiliate 48 38
Net changes in:
Tenant accounts receivable (2,254) (466)
Prepaid expenses and other assets 4 310
Rents received in advance and security deposits 310 331
Accounts payable and accrued expenses (2,604) (1,878)
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Net cash provided by operating activities 4,635 4,781
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Cash flows from investing activities:
Change in restricted cash and cash equivalents 581 (620)
Acquisition of real estate (6,240)
Construction in progress (5,326)
Improvements and additions to properties (3,616) (1,087)
Change in deposits on acquisitions 142 (394)
Issuance of mortgage notes receivable (1,894)
Repayment of mortgage notes receivable 4,750
Investment in and advances to affiliate (6,038) (3,154)
Receivable from affiliates and employees 80 (81)
Addition to deferred expenses (581) (189)
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Net cash used in investing activities (18,142) (5,525)
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Cash flows from financing activities:
Proceeds from sale of common stock 71,039
Offering costs paid (3,766)
Proceeds from line of credit 19,600
Proceeds from issuance of mortgage notes payable 1,573
Repayment of line of credit (58,200)
Repayments of mortgage notes payable (2,533) (355)
Repayments of notes payable (67) (57)
Distributions (7,050) (4,953)
Conversion of convertible subordinated debentures payable (1)
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Net cash provided by (used in) financing activities 19,022 (3,792)
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Net change in cash and cash equivalents 5,515 (4,536)
Cash and cash equivalents, beginning of the year 1,070 2,878
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Cash and cash equivalents, end of period $6,585 ($1,658)
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The accompanying notes are an integral part of these consolidated financial
statements.
4
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, 1996,
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, 1996, 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, 1996, 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 Restricted Stock Incentive Plan,
adopted in 1995, certain key employees were granted 12,444 restricted
shares of the Company's common stock in March, 1997. 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 226,769
shares of common stock were granted in March, 1997 at $31.50 per share.
During the first quarter of 1997, 8,624 option were exercised.
On March 6, 1997, the Company completed a public offering of 2,250,000
shares of common stock at $31.50 per share under a shelf registration
statement declared effective by the Securities and Exchange Commission in
January, 1997. Net proceeds from the offering after the underwriting
discounts were approximately
5
$67.2 million. The proceeds of the offering were used to refund
approximately $58.2 million then outstanding under the Company's
line of credit with the balance of $9.0 million to fund working
capital requirements.
Income per share amounts are based on the weighted average of common and
common equivalent (stock options) shares outstanding of 17,623,852 and
12,875,142 for the three months ended March 31, 1997 and 1996,
respectively. The assumed conversion of convertible subordinated
debentures into common shares for purposes of computing fully diluted
earnings per share would be anti-dilutive.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 128 (FAS 128), "Earnings per Share",
effective for financial statements issued after December 15, 1997. The
Company intends to adopt FAS 128 in fiscal year 1997. The Company has
determined the financial impact to be immaterial for each of the three
month periods ended March 31, 1997 and 1996.
2. ACQUISITION OF REAL ESTATE
In January, 1997, the Company acquired a 300,000 square foot industrial
property located in Waukegan, Illinois for approximately $6.4 million,
which was funded with an advance from the Company's line of credit of $5.1
million and the balance from working capital.
3. DISPOSITION OF MORTGAGE NOTE RECEIVABLE
In March, 1997, the company assigned its $4.8 million mortgage note
receivable, collateralized by a property in Bedford Park, Illinois, for a
net fee of $176,000.
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 in the
form of non-voting equity ownership which qualifies as an unconsolidated
taxable subsidiary.
As of March 31, 1997, the Company had advanced to CRS approximately $12.3
million under a demand loan with an interest rate of 8.125%. The proceeds
of the loan were applied towards development projects currently under
construction and the purchase of land held for future development.
Principal and interest are due upon demand.
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5. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Supplemental disclosures of cash flow information for three months ended
March 31, 1997 and 1996:
March 31, March 31,
1997 1996
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Interest paid and interest capitalized was as
follows:
Interest paid $3,266 $2,802
Interest capitalized 96 --
In conjunction with the acquisition of real estate, the Company acquired
thefollowing asset and assumed the following liability amounts:
Purchase of real estate $6,350 $ ---
Accrued expenses (110) ---
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Acquisition of real estate $6,240 $ ---
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Conversion of convertible subordinated debentures payable:
Convertible subordinated debentures converted $2,245 $6,469
122,998 and 354,458 shares of common stock
issued at $18.25 per share, respectively 2,244 6,469
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Cash disbursed for fractional shares $ 1 $ 0
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6. 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, 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 project.
At March 31, 1997, ten 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. The option to purchase 655 Wheat Lane, Wood Dale,
IL, was exercised by the tenant who will purchase the property in May, 1997
for a purchase price of $1,730,211. Management is not currently aware of
planned exercises of other such options and believes that any potential
exercises would not materially affect the results or prospects of the
Company.
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7. SUBSEQUENT EVENTS
In April, 1997 a 243,350 square foot industrial property was purchased in
West Allis, Wisconsin for approximately $4.7 million. The acquisition was
funded with an advance on the Company's line of credit.
Since March 31, 1997, an additional $80,000 of convertible subordinated
debentures have been converted to 4,383 shares of common stock. As of
April 30, 1997, the principal amount of convertible subordinated debentures
outstanding is $12,055,000.
8. PRO FORMA FINANCIAL INFORMATION
Due to the effect of the July, 1996 public offering, the March, 1997 public
offering and 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 three months ended
March 31, 1997 and 1996 is presented as if the 1996 acquisitions and
dispositions of properties, the 1997 acquisition of a property, the July,
1996 public offering, the March, 1997 public offering and the
corresponding repayment of certain debt had all occurred on January 1, 1996
(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, 1996, or to project results for any future period.
Three months ended March 31,
----------------------------
1997 1996
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(in thousands, except for per share data)
---------------------------------------
Revenues $19,696 $16,223
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Expenses:
Operating expenses 7,293 5,752
General and administrative 703 703
Depreciation and amortization 3,210 2,737
Interest expense, net 1,929 1,422
Amortization of financing costs 193 303
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Total expenses 13,328 10,917
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Net income $ 6,368 $ 5,306
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Net income per common share $ 0.33 $ 0.29
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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, 1996.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED
MARCH 31, 1996.
Total revenues in the first three months of 1997 increased by $5.8 million
or 41.7% 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. Warehouse/industrial properties
represent approximately 96% of the gross leasable area of the Company's
portfolio as of March 31, 1997.
Rental revenues increased by $6.3 million in 1997. Full period income from
properties acquired in 1996 and one acquisition in 1997 accounted for all
of the increase. In addition, mortgage interest income, which began in
late 1995, contributed $0.4 million in increased revenue. 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 decreased by $0.9 million.
On a "same-store" basis (comparing the results of operations, on a cash
basis, of the properties owned at March 31, 1996, with the results of
operations of the same properties at March 31, 1997), the Company
recognized a 1.9 % increase in net operating income 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 $3.0 million, from $4.3 million
in 1996 to $7.3 million in 1997. Of the increase, $1.8 million is due to
real estate taxes. The majority of the increase, $1.5 million, resulted
from 1996 and 1997 acquisitions and the balance, $0.3 million, from tax
increases throughout the portfolio. Insurance, utilities and property
operating and leasing expenses, all components of operating expenses,
increased at levels comparable to the level of acquisitions.
9
Depreciation and other amortization increased by $0.8 million, from $2.4
million in 1996 to $3.2 million in 1997. The increase is due to full
period depreciation on acquisitions completed during 1996 and 1997 of $0.7
million with the balance attributable to building improvements in 1996 and
year to date in 1997.
Interest incurred increased by only $0.1 million over the same period last
year. Continued low average loan balances and reduced borrowing rates have
contributed to interest expense remaining low.
Amortization of deferred financing costs decreased by $0.1 million due to
replacement of secured debt with unsecured debt during the fourth quarter
of 1996.
As a result of the factors described above, net income increased by $2.1
million from $3.6 million for the first three months of 1996 to $5.7
million for the first three months of 1997, an increase of 56.4%.
Earnings before interest, income taxes, depreciation and amortization for
the three months increased by $2.8 million, from $8.9 million in 1996 to
$11.7 million in 1997.
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 three months ended March 31, 1997, cash flow from
operations was $4.6 million. Increases in tenant accounts receivable of
$2.3 million and reductions in accounts payable and accrued expenses of
$2.6 million reduced operating cash flow due to the timing of the Company's
receipt and disbursement of funds. Cash flow during that period
contributed to payment of $7.1 million of current year distributions.
Acquisitions, construction in progress, improvements and additions to
properties and advances to affiliate to fund its current development
activity of approximately $21.2 million for the three months were funded
with borrowings under the Company's lines of credit totaling $19.6 million
and with a portion of the net proceeds of the March 6, 1997 public offering
of common stock.
At March 31, 1997, the Company's debt constitutes approximately 17% of its
fully diluted market capitalization. At that date, the Company's fully
diluted equity market capitalization was approximately $602 million, and
its fully diluted total market capitalization was approximately $714
million. The Company's leverage ratios benefited in the first three months
of 1997 from the conversion of approximately $2.2 million of its 8.22%
Convertible Subordinated Debentures, due 2004, to 122,998 shares of common
stock.
As of March 31, 1997, the Company had outstanding borrowings of
approximately $7.5 million from its unsecured line of credit (approximately
1.0% of the Company's fully diluted market capitalization), and the Company
had remaining availability of approximately $127.5
10
million under its line of credit. As of March 31, 1997, the Company's
line of credit consists of a $135 million unsecured credit facility co-led
by First Chicago NBD and Lehman Brothers with participating banks including
ABN LaSalle, Bank of America, Bank of Boston and NationsBank.
On March 6, 1997, the Company completed a public offering of 2,250,000
shares of common stock at $31.50 per share. Net proceeds from the
offering, after the underwriting discounts, were approximately $67.2
million. The proceeds of the offering were used to repay approximately
$58.2 million then outstanding under the Company's line of credit with the
balance of $9.0 million to fund working capital requirements. The public
offering left the entire amount on the Company's line of credit available.
As of March 31, 1997, the Company had a cash balance of $6.6 million. The
Company obtained an advance of $5.0 million late in March to fund an
acquisition which was delayed until early April causing a higher than
normal cash balance at the end of the quarter. In addition, the Company
held restricted cash of $0.4 million representing tenants' escrow and
security deposits. 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 line 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 quarter of 1997, the Company declared and paid distributions
of $7.1 million, representing an annualized distribution rate of
approximately $1.68 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.
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PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
During the first quarter of 1997, 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 11 - Computation of Earnings per Share.
(2) Exhibit 27 - Financial Data Schedule
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EXHIBIT 11
CENTERPOINT PROPERTIES CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
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Net income (A) $5,671 $3,627
Interest expense-debentures 266 426
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Adjusted net income (B) $5,937 $4,053
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Weighted average number of shares of common
stock outstanding 17,365 10,497
Additional number of common equivalent shares
outstanding:
Stock options - net (1) 259 105
Convertible preferred stock (2) 2,273
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Weighted average common and common
equivalent shares outstanding (C) 17,624 12,875
Additional weighted average shares outstanding
assuming debentures converted at issue price 710 1,136
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Weighted average shares outstanding for fully-
diluted (D) 18.334 14,011
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Net income per share:
Primary (A/C) $0.32 $0.28
Fully -diluted (3) (B/D) $0.32 $0.29
- ----------------------------
Notes:
(1) Represents stock options using the treasury stock method.
(2) Represents convertible preferred stock as if converted on a share for
share basis; prorated for the days the convertible preferred stock was
outstanding. The convertible preferred stock is considered a common
stock equivalent as it participates in dividends with common stock and
was converted into common stock upon shareholder approval in May 1996.
(3) Conversion of debentures is anti-dilutive.
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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 CORPORATION
a Maryland corporation
By: /s/ Paul S. Fisher
-------------------------------
Paul S. Fisher
Executive Vice President and
Chief Financial Officer
May 12, 1997 (Principal Accounting Officer)
14