UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 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
______ _______
Number of shares of Common Stock outstanding as of July 31, 1997;
19,022,483
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
(UNAUDITED)
ASSETS
JUNE 30, DECEMBER 31,
1997 1996
----------- -------------
Assets:
Investment in real estate:
Land and leasehold $86,407 $72,004
Buildings 321,846 284,626
Building improvements 50,029 43,583
Furniture, fixtures, and equipment 11,284 10,429
Construction in progress 19,812 18,392
-------- --------
489,378 429,034
-------- --------
Less accumulated depreciation
and amortization 36,404 30,206
Net investment in real estate 452,974 398,828
Cash and cash equivalents 2,006 1,070
Restricted cash and cash equivalents 866 977
Tenant accounts receivable, net 13,153 10,193
Mortgage notes receivable 20,225 22,665
Investment in and advances to affiliate 15,120 9,673
Prepaid expenses and other assets 3,412 3,630
Deferred expenses, net 4,481 4,170
-------- --------
$512,237 $451,206
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $111,892 $114,451
Line of credit 42,550 46,100
Convertible subordinated debentures payable 12,055 14,380
Notes payable 2,045 2,418
Accounts payable 5,163 4,130
Accrued expenses 19,621 17,914
Rents received in advance and
security deposits 3,483 3,699
--------- --------
196,809 203,092
--------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 47,727,273 million
shares authorized; 16,735,236 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 issued
and outstanding 2 2
Additional paid-in-capital 345,906 276,142
Retained earnings (deficit) (29,964) (27,726)
Unearned compensation - restricted stock (533) (318)
--------- --------
Total stockholders' equity 315,428 248,114
--------- --------
$512,237 $451,206
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
------ ------ ------ ------
Revenue:
Operating and investment revenue
Minimum rents $13,540 $ 9,821 $26,311 $19,317
Straight-line rents 633 383 1,287 769
Expense reimbursements 4,480 2,934 9,375 5,630
Mortgage interest income 524 247 1,179 500
------ ------ ------ ------
Total operating and investment revenue 19,177 13,385 38,152 26,216
------ ------ ------ ------
Other Revenue:
Real estate fee income 813 399 1,615 1,532
Equity in net income of affiliate 140 670 92 632
------ ------ ------ ------
Total other revenue 953 1,069 1,707 2,164
------ ------ ------ ------
Total revenue 20,130 14,454 39,859 28,380
Expenses:
Real estate taxes 4,097 2,796 8,367 5,287
Property operating and leasing 2,424 1,878 5,447 3,714
General and administrative 739 532 1,442 1,235
Depreciation and amortization 3,379 2,505 6,589 4,912
Interest expense:
Interest incurred, net 2,246 2,654 4,872 5,187
Amortization of deferred financing costs 203 296 395 599
------ ------ ------ ------
Total expenses 13,088 10,661 27,112 20,934
------ ------ ------ ------
Operating income 7,042 3,793 12,747 7,446
Other income(expense) 101 (180) 67 (205)
------ ------ ------ ------
Income before extraordinary item 7,143 3,613 12,814 7,241
Extraordinary item, early extinguishment of debt (1,430) (1,430)
------ ------ ------ ------
Net income $ 7,143 $ 2,183 $ 12,814 $ 5,811
======== ======== ======== ========
Income before extraordinary item per share $0.37 $0.28 $0.69 $0.56
Extraordinary item per share (0.11) (0.11)
------ ------ ------ ------
Net income per share $0.37 $0.17 $0.69 $0.45
======== ======== ======== ========
Distributions per share $0.420 $0.405 $0.840 $0.810
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
CENTERPOINT PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1997 1996
------ ------
Cash flows from operating activities:
Net income $12,814 $ 5,811
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item-early extinguishment of debt 1,430
Depreciation 6,152 4,757
Amortization of deferred financing costs 395 599
Other amortization 437 155
Incentive stock awards 178 55
Interest on converted debentures 11 61
Equity in net income of affiliate (92) (632)
Gain on disposal of real estate (140)
Net changes in:
Tenant accounts receivable (3,109) (1,211)
Prepaid expenses and other assets (1,104) (1,079)
Rents received in advance and security deposits (232) 198
Accounts payable and accrued expenses (377) 1,094
------- ------
Net cash provided by operating activities 14,933 11,238
------- ------
Cash flows from investing activities:
Change in restricted cash and cash equivalents 111 (4,607)
Acquisition of real estate (36,346) (35,377)
Additions to construction in progress (5,308)
Improvements and additions to properties (16,180) (10,417)
Disposition of real estate 1,615 13,807
Change in deposits on acquisitions 706 (2,346)
Issuance of mortgage notes receivable (2,352) (658)
Repayment of mortgage notes receivable 4,792
Investment in and advances to affiliate (5,356) 5,225
Receivable from affiliates and employees 43 (141)
Addition to deferred expenses (1,246) (879)
------- ------
Net cash used in investing activities (59,521) (35,393)
------- ------
Cash flows from financing activities:
Proceeds from sale of common stock 71,070 148
Offering costs paid (4,009)
Proceeds from issuance of mortgage notes payable 53,370
Proceeds from issuance of line of credit 62,650
Repayments of mortgage notes payable (2,559) (23,370)
Repayments of line of credit (66,200)
Repayments of notes payable (373) (57)
Distributions (15,054) (10,235)
Conversion of convertible subordinated
debentures payable (1)
------- ------
Net cash provided by financing activities 45,524 19,856
------- ------
Net change in cash and cash equivalents 936 (4,299)
Cash and cash equivalents, beginning of the year 1,070 2,878
------- ------
Cash and cash equivalents, end of period $ 2,006 $ (1,421)
======= ========
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, 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 the Company's 1995 Director Stock Plan, adopted in
1995, certain directors were granted 1,921 unrestricted shares of the
Company's common stock in May, 1997. Shares were awarded in the name of
each of the participants, who have all the rights of other common
stockholders.
Under the terms of Company's 1993 Stock Option Plan, options for 226,769
shares of common stock were granted to officers and employees in March,
1997 at $31.50 per share and 15,000 shares of common stock were granted to
directors in May, 1997 at $30.625 per share. During the first quarter of
1997, 8,624 options were exercised. During the second quarter, an
additional 1,635 options 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 $66.9 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 $8.7 million to fund the
acquisition of additional properties.
Income per share amounts are based on the weighted average of common and
common equivalent (stock options) shares outstanding of 19,271,375 and
13,151,237 for the three months ended June 30, 1997 and 1996,
respectively, and 18,456,493 and 13,033,295 for the six months ended June
30, 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 and the six month period ended June 30, 1997 and 1996.
Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of
Information about Capital Structure," was also issued in February 1997 and
is effective for periods ending after December 15, 1997. This statement
establishes standards for disclosing information about an entity's capital
structure by superseding and consolidating previously issued accounting
standards. The financial standards of the Company are prepared in
accordance with the requirements of SFAS No. 129.
In June, 1997, the FASB issued SFAS Statement No. 130, "Reporting
Comprehensive Income." This statement, effective for fiscal years
beginning after December 15, 1997, would require the Company to report
components of comprehensive income in a financial statement that is
displayed with the same prominence as other financial statements.
comprehensive income is defined by Concepts Statement No. 6, "Elements of
Financial Statements" as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity distributions to
owners. The Company has not yet determined its comprehensive income.
In June, 1997, the FASB issued SFAS Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement,
effective for financial statements for periods beginning after December
15, 1997, requires that a public business enterprise report financial and
descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis
that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. This Company has not yet
determined the impact of this statement on it's financial statements.
2. ACQUISITION AND DISPOSITION 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.
In April, 1997, the Company acquired a 243,000 square foot industrial
property located in West Allis, Wisconsin for approximately $4.7 million,
which was funded entirely with an advance from the Company's line of
credit.
The company acquired an aggregate of 1,664,500 square feet of industrial
property during May, 1997. Four buildings totaling 635,300 square feet
located in Bedford Park, Illinois were acquired for approximately $13.8
million, a 21,000 square foot property located in Downers Grove, Illinois
was acquired for approximately $1.4 million, and a 1,008,000 square foot
property located in Montgomery, Illinois was acquired for approximately
$12.3 million. The transactions were funded with advances from the
Company's line of credit totaling of $12.3 million and the balance from
working capital.
A property, located in Wood Dale, Illinois was sold in June, 1997 for
approximately $1.7 million upon the execution of a tenant purchase option.
3. MORTGAGE NOTES 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 CRS as an
unconsolidated taxable subsidiary.
As of June 30, 1997, the Company had advanced to CRS approximately $13.8
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.
The Company typically purchases development projects upon completion of
construction on a turn-key basis or develops the property under guaranteed
maximum price contracts, substantially eliminating any construction risk.
5. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Supplemental disclosures of cash flow information for six months ended June 30,
1997 and 1996:
1997 1996
------- -------
Interest paid $ 5,120 $ 5,552
Interest capitalized 208 82
In conjunction with the acquisition of real estate, the Company acquired
the following asset and assumed the following liability amounts:
1997 1996
------- -------
Purchase of real estate $ 37,498 $ 50,793
Accounts receivable 614
Prepaid expenses and other assets 68
Mortgage notes payable (13,308)
Accrued expenses (1,152) (2,790)
------- -------
Acquisition of real estate $ 36,346 $ 35,377
======= =======
In conjunction with the disposition of real estate, the Company disposed
of the following asset and liability amounts:
1997 1996
------- -------
Disposal of real estate $ 1,510 $ 17,421
Tenant accounts receivable 18
Prepaid expenses and other assets 2
Mortgage notes receivable (935)
Mortgage notes payable (2,070)
Accounts payable and accrued
expenses (55) (609)
Gain on disposal of assets 140
------- -------
Disposition of real estate $ 1,615 $ 13,807
======= =======
Conversion of convertible subordinated debentures payable:
1997 1996
------- -------
Convertible subordinated
debentures converted $ 2,325 $ 6,544
127,381 and 358,563 shares
of common stock issued at
$18.25 per share, respectively 2,324 6,544
------- -------
Cash disbursed for fractional
shares $ 1 $ 0
======== ==========
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 June 30, 1997, nine 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 purchased the property in June, 1997
for a purchase price of $1.7 million. 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.
7. SUBSEQUENT EVENTS
In July, 1997, a 161,000 square foot industrial property in Oakbrook,
Illinois was purchased for approximately $5.8 million. The acquisition was
funded with an advance on the Company's line of credit. This property will
be redeveloped for the eventual location of the Company's corporate
offices.
Since June 30, 1997, an additional $265,000 of convertible subordinated
debentures have been converted to 14,520 shares of common stock. As of
July 31, 1997, the principal amount of convertible subordinated debentures
outstanding is $11,790,000.
8. PRO FORMA FINANCIAL INFORMATION
Due to the effect of the May, 1996 refinancing of long term bonds, 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 six months ended June 30, 1997 and
1996 is presented as if the 1996 acquisitions of properties, the 1997
acquisitions and dispositions of properties, the May, 1996 bond
refinancing, 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.
SIX MONTHS ENDED JUNE 30,
1997 1996
------- -------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Revenues $ 40,712 $ 33,949
---------- --------
Expenses:
Operating expenses 14,180 12,219
General and administrative 1,442 1,235
Depreciation and amortization 6,749 5,742
Interest expense, net 3,493 3,358
Amortization of financing costs 395 599
Other expense (67) 205
---------- --------
Total expenses 26,192 23,358
---------- --------
Net income $ 14,520 $ 10,591
========== ========
Net income per common share $ 0.76 $ 0.57
========== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
RESULTS OF OPERATIONS - 1997 COMPARED WITH 1996:
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 SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30,
1996
Total revenues in the first six months of 1997 increased by $11.4 million,
or 40.5%, 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 June 30, 1997.
Operating and investment revenues increased by $11.9 million in 1997.
Full period income from properties acquired in 1996 and eight acquisitions
in 1997 accounted for most of the increase. Also, mortgage interest
income contributed $0.6 million in increased operating and investment
revenue from new mortgages receivable acquired in the second half of 1996.
Equity in net income of affiliate was lower in the first six months of
1997 than for the same period in 1996 due to the lower volume of
transactions in the Company's unconsolidated subsidiary.
Real estate taxes increased $3.0 million, or 58.3%, due to full period
expenses for 1996 acquisitions and expenses related to 1997 acquisitions.
Property operating and leasing expense, which includes insurance,
utilities, repairs and maintenance and property management costs,
increased by $1.7 million, or 46%. The majority of the increase, $1.6
million, resulted from full period expenses for 1996 acquisitions and
expenses related to 1997 acquisitions. The balance, $0.1 million, was
from other operating cost increases throughout the portfolio.
General and administrative expenses increased by $0.2 million, or 16.8%,
due to the growth of the Company, but decreased from 4.4% to 3.6% of
revenue.
Depreciation and other amortization increased by $1.7 million, from $4.9
million in 1996 to $6.6 million in 1997. $1.5 million of the increase is
due to the full period of depreciation on acquisitions completed during
1996 and eight acquisitions in 1997, with the balance attributable to
building improvements in 1996.
Interest incurred decreased by $0.3 million over the same period last year
due to lower average loan balances and reduced borrowing rates.
Amortization of financing costs decreased by $0.2 million due to the
replacement of secured debt with unsecured debt during the fourth quarter
of 1996.
Other income (expense), generally non-operating items, increased by $0.2
million from the same period last year largely due to a $140,000 gain on
the disposition of a property in the second quarter of 1997.
In 1996, an extraordinary charge of $1.4 million was incurred representing
the unamortized balance of deferred costs associated with the initial
funding of the Company's 1991 and 1993 tax exempt bonds. The bonds were
refunded by issuing new tax exempt and taxable bonds in 1996.
As a result of the factors described above, net income increased 120.5%,
or $7.0 million, from $5.8 million for the first six months of 1996 to
$12.8 million for the first six months of 1997. Earnings before interest,
income taxes, depreciation and amortization for the six months increased
by $4.8 million, from $19.9 million in 1996 to $24.7 million in 1997.
The Company reviews its operating results by comparing Net Revenue Margin
between periods. Net Revenue Margin is calculated 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 operating expenses not recovered
by tenant reimbursements. The margin for the first six months of 1997 was
89.8% compared to 88.8% for the first six month of 1996, an increase of
1.0%.
On a "same-store" basis (comparing the first half year's results of
operations of 1997, on a cash basis, of the properties owned at January 1,
1996, with the results of operations of the same properties at June 30,
1996), the Company recognized a 2.8 % increase in net operating income
primarily due to the lease-up of vacant spaces, rental increases on
renewed leases and contractual increases in minimum rent under leases in
place.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 TO THREE MONTHS ENDED
JUNE 30, 1996
Total revenues for the three months ended June 30, 1997 increased by $5.7
million or 39.3%, over the same period last year. Operating and
investment revenues increased by $5.7 million for the same period in 1997.
Full period income from properties acquired in 1996 and eight acquisitions
in 1997 accounted for most of the increase. In addition, mortgage
interest income contributed $0.2 million in increased operating and
investment revenue from new mortgages acquired in the second half of 1996.
Fee income for the three months ended June 30, 1997 increased by $0.4
million over the same period in 1996 due to an assignment fee for one of
the Company's development projects.
Equity in net income of affiliate was lower in the second quarter of
1997 than for the same period in 1996 due to the lower volume of
transactions in the Company's unconsolidated subsidiary.
Real estate taxes increased $1.3 million, or 46.5%, due to full period
expenses for 1996 acquisitions and expense related to 1997 acquisitions.
Property operating and leasing expenses, which includes insurance,
utilities, repairs and maintenance and property management costs,
increased by $0.5 million, or 29.1%. The increase resulted from full
period expenses for 1996 acquisitions and expenses related to 1997
acquisitions and other operating cost increases throughout the
portfolio.
General and administrative expenses increased by $0.2 million, or
39.0%, due to the growth of the Company, but decreased from 4.0% to 3.9%
of revenue.
Depreciation and other amortization increased by $0.8 million, from $2.5
million in 1996 to $3.3 million in 1997. $0.7 of the increase is due to
the full period of depreciation on 1996 acquisitions and expense related
to 1997 acquisitions, with the balance attributable to building
improvements in 1996.
Interest incurred decreased by $0.4 million over the same period last
year due to lower average loan balances and reduced borrowing rates.
Amortization of financing costs decreased by $0.1 million due to the
replacement of secured debt with unsecured debt during the fourth
quarter of 1996.
Other income (expense), generally non-operating items, increased by $0.3
million from the same period last year largely due to a $140,000 gain on
disposition of a property in the second quarter of 1997.
In 1996, an extraordinary charge of $1.4 million was incurred
representing the unamortized balance of deferred costs associated with
the initial funding of the Company's 1991 and 1993 tax exempt bonds.
The bonds were refunded by issuing new tax exempt and taxable bonds in
1996.
As a result of the factors described above, net income increased 227.2%,
or $4.9 million, from $2.2 million for the second quarter of 1996 to
$7.1 million for the second quarter of 1997. Earnings before interest,
income taxes, depreciation and amortization for the three months
increased by $4.0 million, from $9.0 million in 1996 to $13.0 million in
1997.
The Company reviews its operating results by comparing Net Revenue
Margin between periods. Net Revenue Margin is calculated 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 operating expenses not
recovered by tenant reimbursements. The margin for the second quarter
of 1997 was 91.3% compared to 88.4% for the second quarter of 1996, an
increase of 2.9%.
On a "same-store" basis (comparing the second quarter results of
operations for 1997, on a cash basis, of the properties owned at April 1,
1996, with the results of operations of the same properties for the
second quarter of 1996), the Company recognized a 5.4% increase in net
operating income primarily due to the lease-up of vacant spaces, rental
increases on renewed leases and contractual increases in minimum rent
under leases in place.
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 six months ended June 30,
1997, cash flow from operations was $14.9 million. Cash flow during
that period and cash on hand was used to pay $15.1 million of
distributions.
Acquisitions, construction in progress, advances to affiliate, increases
to mortgage notes receivable, and improvements and additions to
properties of approximately $65.5 million for the six months ended June
30,01997 were funded with a net increase in borrowings under the
Company's line of credit totaling $52.1 million, repayment of mortgage
notes receivable of $4.8 million, and the balance with net proceeds of
the public offering of common stock.
An increase on the line of credit of $2.6 million were used to repay a
portion of the Company's mortgage notes payable in March of 1997.
At June 30, 1997, the Company's debt constitutes approximately 22% of
its fully diluted market capitalization. At that date, the Company's
fully diluted equity market capitalization was approximately $615
million, and its fully diluted total market capitalization was
approximately $769 million. The Company's leverage ratios benefited in
the first six months of 1997 from the conversion of approximately $2.3
million of its 8.22% Convertible Subordinated Debentures, due 2004, to
127,381 shares of common stock.
At June 30, 1997, the Company had outstanding borrowings of
approximately $42.6 million under its revolving lines of credit
(approximately 6% of the Company's fully diluted market capitalization),
with current remaining availability of approximately $92.4 million. As
of June 30, 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 $66.9
million. The proceeds of the offering were used to repay approximately
$58.2 million in borrowings then outstanding under the Company's lines
of credit, with the balance of $8.7 million to fund working capital
requirements. The public offering left the entire amount of the
Company's line of credit available.
As of June 30, 1997, the Company had a cash balance of $2.0 million.
The Company believes that its liquidity is adequate for operations and
that positive cash flow from operations, 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 six months of 1997, the Company declared distributions of
$15.1 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.
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Registrant held its annual meeting of stockholders on May 15, 1997. The
voting results of the annual meeting were as follows:
1. 14,630,806 shares were voted in the election of directors and the
following persons received the number of votes set opposite their
respective names:
FOR DIRECTORS VOTED IN FAVOR VOTE WITHHELD
Nicholas C. Babson 14,627,902 32,742
Martin Barber 14,631,806 28,838
Alan D. Feld 14,630,606 30,038
John S. Gates, Jr. 14,630,606 30,038
John J. Kinsella 14,627,302 33,342
Thomas E. Robinson 14,630,606 30,038
Robert L. Stovall 14,629,280 31,364
2. In addition to the election of directors, the following matters were
approved by the vote of the stockholders at the annual meeting:
- Ratification of the appointment of Coopers & Lybrand as the
Company's independent auditors for the year ending December 31,
1997:
VOTED IN FAVOR VOTED AGAINST ABSTAINED
14,614,527 27,302 18,818
- Approval of charter amendment regarding settlement of transactions
on the NYSE:
VOTED IN FAVOR VOTED AGAINST ABSTAINED NON-VOTE
14,570,667 29,767 34,643 25,567
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Exhibit 3.1 - Amended and Restated Articles of Incorporation
(2) Exhibit 3.2 - Amended and Restated By-Laws
(3) Exhibit 11 - Computation of Earnings per Share
(4) Exhibit 27 - Financial Data Schedule
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
August 13, 1997 (Principal Accounting Officer)