e10vqza
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the quarterly period ended March 31, 2005
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from
to .
Commission
File Number: 001-16765
TRIZEC PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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33-0387846 |
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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10 South Riverside Plaza
Chicago, IL
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60606 |
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(Address of Principal Executive Offices)
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(Zip Code) |
312-798-6000
(Registrants 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 (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes þ No o
As of April 29, 2005, 154,431,799 shares of common stock, par value $0.01 per share, were issued
and outstanding.
Table of Contents
EXPLANATORY PARAGRAPH
This Form 10-Q/A for the quarterly period ended March 31, 2005 is being filed for the purpose of
restating the Corporations unaudited consolidated statement of cash flows for the three months
ended March 31, 2004. In the three months ended March 31, 2004, changes in escrows and restricted
cash in an amount of approximately $21,759,000 resulting from property acquisition and disposition
activities designated to qualify as tax deferred transactions under Section 1031 of the Internal
Revenue Code were previously included in net cash provided by operating activities and should have
been included in net cash provided by investing activities. This restatement does not affect the
total net change in cash and cash equivalents for the three months ended March 31, 2004 and has no
impact on the Corporations consolidated balance sheet, consolidated statement of operations or the
related per share amounts. This restatement also has no impact on the non-GAAP measure of funds
from operations, which is described on page 46. Conforming changes have been made to managements
discussion and analysis of financial condition and results of operations included in this Form
10-Q/A. See footnote 11 in the notes to the consolidated financial statements for further
information relating to this restatement. This Form 10-Q/A has not been updated for events or
information subsequent to May 6, 2005, the date of filing of the original Form 10-Q, except in
connection with the foregoing. Accordingly, this Form 10-Q/A should be read in conjunction with
the Corporations filings made with the SEC subsequent to the filing of the original Form 10-Q.
Forward-Looking Statements
This Form 10-Q/A contains forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the Exchange Act), relating to our business and financial
outlook which are based on our current expectations, beliefs, projections, forecasts, future plans
and strategies, and anticipated events or trends. In some cases, you can identify forward-looking
statements by terms such as may, will, should, expects, plans, anticipates, believes,
estimates, predicts, potential or the negative of these terms or other comparable
terminology. We intend these forward-looking statements, which are not guarantees of future
performance and financial condition, to be covered by the safe harbor provisions for
forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking
statements are not historical facts. Instead, such statements reflect estimates and assumptions
and are subject to certain risks and uncertainties that are difficult to predict or anticipate.
Therefore, actual outcomes and results may differ materially from those projected or anticipated in
these forward-looking statements. You should not place undue reliance on these forward-looking
statements, which speak only as of May 6, 2005, the date the original Form 10-Q was filed with the
Securities and
2
Exchange Commission. A number of important factors could cause actual results to differ materially
from those indicated by the forward-looking statements, including, without limitation, the risks
described in our annual report on Form 10-K filed with the Securities and Exchange Commission
(SEC) on March 11, 2005, as the same may be supplemented from time to time. These factors
include, without limitation, the following:
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changes in national and local economic conditions, including those economic conditions
in our seven core markets; |
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the extent, duration and strength of any economic recovery; |
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our ability to maintain occupancy and to timely lease or re-lease office space; |
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the extent of any tenant bankruptcies and insolvencies; |
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our ability to sell our non-core office properties in a timely manner; |
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our ability to acquire office properties selectively in our core markets; |
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our ability to maintain real estate investment trust (REIT) qualification and changes
to U.S. tax laws that affect REITs; |
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Canadian tax laws that affect treatment of investment in U.S. real estate companies; |
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the competitive environment in which we operate; |
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the cost and availability of debt and equity financing; |
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the effect of any impairment charges associated with changes in market conditions; |
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the sale or other disposition of shares of our common stock owned by Trizec Canada Inc.; |
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our ability to obtain, at a reasonable cost, adequate insurance coverage for
catastrophic events, such as earthquakes and terrorist acts; and |
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other risks and uncertainties detailed from time to time in our filings with the SEC. |
3
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Trizec Properties, Inc.
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Consolidated Balance Sheets (unaudited) |
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PART
I FINANCIAL STATEMENTS
Item 1. Financial Statements
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March 31, |
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December 31, |
$ in thousands, except per share amounts |
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2005 |
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2004 |
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Assets |
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Real estate |
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$ |
4,344,121 |
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$ |
4,335,159 |
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Less: accumulated depreciation |
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(641,384 |
) |
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(619,010 |
) |
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Real estate, net |
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3,702,737 |
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3,716,149 |
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Cash and cash equivalents |
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157,196 |
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194,265 |
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Escrows and restricted cash |
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87,655 |
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83,789 |
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Investment in unconsolidated real estate joint ventures |
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118,574 |
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119,641 |
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Office tenant receivables (net of allowance for doubtful
accounts of $5,182 and $6,677 at March 31, 2005 and December
31, 2004, respectively) |
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11,233 |
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9,306 |
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Deferred rent receivables (net of allowance for doubtful
accounts of $954 and $831 at March 31, 2005 and December 31,
2004, respectively) |
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140,013 |
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137,561 |
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Other receivables (net of allowance for doubtful accounts of
$2,618 and $2,473 at March 31, 2005 and December 31, 2004,
respectively) |
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9,265 |
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9,914 |
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Deferred charges (net of accumulated amortization of $74,277
and $68,802 at March 31, 2005 and December 31, 2004,
respectively) |
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116,057 |
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|
115,669 |
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Prepaid expenses and other assets |
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136,175 |
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139,118 |
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Total Assets |
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$ |
4,478,905 |
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$ |
4,525,412 |
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Liabilities and Stockholders Equity |
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Liabilities |
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Mortgage debt and other loans |
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$ |
2,035,178 |
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$ |
2,069,282 |
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Unsecured credit facility |
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150,000 |
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150,000 |
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Trade, construction and tenant improvements payables |
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26,627 |
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25,386 |
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Accrued interest expense |
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9,787 |
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8,116 |
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Accrued operating expenses and property taxes |
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63,719 |
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|
86,713 |
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Other accrued liabilities |
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129,231 |
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135,201 |
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Dividends payable |
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32,247 |
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32,407 |
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Taxes payable |
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38,017 |
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51,406 |
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Total Liabilities |
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2,484,806 |
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2,558,511 |
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Commitments and Contingencies |
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Minority Interest |
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7,196 |
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7,348 |
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Special Voting and Class F Convertible Stock |
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200 |
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200 |
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Stockholders Equity |
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Preferred stock, 50,000,000 shares authorized, $0.01 par value, none issued and
outstanding |
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Common stock, 500,000,000 shares authorized, $0.01 par value, 154,113,347 and
152,164,471 issued at March 31, 2005 and December 31, 2004, respectively, and
154,081,733 and 152,132,857 outstanding at March 31, 2005 and December 31, 2004,
respectively |
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1,541 |
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1,521 |
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Additional paid in capital |
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2,240,792 |
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2,211,545 |
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Accumulated deficit |
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(238,707 |
) |
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(232,965 |
) |
Treasury stock, at cost, 31,614 shares at March 31, 2005 and December 31, 2004,
respectively |
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(415 |
) |
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(415 |
) |
Unearned compensation |
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(805 |
) |
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(798 |
) |
Accumulated other comprehensive loss |
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(15,703 |
) |
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(19,535 |
) |
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Total Stockholders Equity |
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1,986,703 |
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1,959,353 |
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Total Liabilities and Stockholders Equity |
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$ |
4,478,905 |
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$ |
4,525,412 |
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See accompanying notes to the financial statements.
4
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Trizec Properties, Inc.
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Consolidated Statements of Operations (unaudited) |
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For the three months ended |
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March 31, |
$ in thousands, except per share amounts |
|
2005 |
|
2004 |
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Revenues |
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Rentals |
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$ |
131,142 |
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$ |
122,452 |
|
Recoveries from tenants |
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27,490 |
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25,584 |
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Parking and other |
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26,990 |
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|
22,653 |
|
Fee income |
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1,610 |
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|
3,147 |
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Total Revenues |
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187,232 |
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173,836 |
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Expenses |
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Operating |
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63,597 |
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59,881 |
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Property taxes |
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|
23,356 |
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|
19,287 |
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General and administrative |
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|
9,008 |
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|
4,277 |
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Depreciation and amortization |
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41,339 |
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|
34,599 |
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|
|
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Total Expenses |
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|
137,300 |
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|
118,044 |
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|
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Operating Income |
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|
49,932 |
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|
55,792 |
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|
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|
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|
|
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Other Income (Expense) |
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Interest and other income |
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1,215 |
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|
955 |
|
Foreign currency exchange gain |
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3,340 |
|
(Loss) Gain on early debt retirement |
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(14 |
) |
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|
246 |
|
Recovery on insurance claims |
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|
206 |
|
Interest expense |
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(35,692 |
) |
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(36,347 |
) |
Derivative loss |
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(2,011 |
) |
Lawsuit settlement |
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760 |
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94 |
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Total Other Expense |
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(33,731 |
) |
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(33,517 |
) |
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Income before Income Taxes, Minority Interest, Income from
Unconsolidated Real Estate Joint Ventures, Discontinued
Operations and Gain on Disposition of Real Estate, Net |
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16,201 |
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22,275 |
|
Provision for income and other corporate taxes, net |
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(421 |
) |
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(1,490 |
) |
Minority interest |
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(35 |
) |
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(1,079 |
) |
Income from unconsolidated real estate joint ventures |
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4,073 |
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6,239 |
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Income from Continuing Operations |
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19,818 |
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25,945 |
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Discontinued Operations |
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Income from discontinued operations |
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6,471 |
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11,495 |
|
Gain on disposition of discontinued real estate, net |
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|
207 |
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32,396 |
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Income Before Gain on Disposition of Real Estate, Net |
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26,496 |
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|
69,836 |
|
Gain on disposition of real estate, net |
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14,771 |
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Net Income |
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26,496 |
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|
84,607 |
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Special voting and Class F convertible stockholders dividends |
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(1,209 |
) |
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(1,304 |
) |
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Net Income Available to Common Stockholders |
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$ |
25,287 |
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$ |
83,303 |
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See accompanying notes to the financial statements.
5
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Trizec Properties, Inc.
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Consolidated Statements of
Operations (unaudited) (Continued) |
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For the three months ended |
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March 31, |
$ in thousands, except per share amounts |
|
2005 |
|
2004 |
|
Earnings per common share |
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Income from Continuing Operations Available to Common
Stockholders per Weighted Average Common Share Outstanding: |
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Basic |
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$ |
0.12 |
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$ |
0.26 |
|
Diluted |
|
$ |
0.12 |
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$ |
0.26 |
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Net Income Available to Common Stockholders per Weighted
Average Common Share Outstanding: |
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Basic |
|
$ |
0.17 |
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$ |
0.55 |
|
Diluted |
|
$ |
0.16 |
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$ |
0.55 |
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Weighted average shares outstanding |
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Basic |
|
|
153,090,527 |
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|
151,124,515 |
|
Diluted |
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|
155,122,317 |
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|
152,767,608 |
|
See accompanying notes to the financial statements.
6
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Trizec Properties, Inc.
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Consolidated Statements of
Comprehensive Income (unaudited) |
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For the three months ended |
|
|
March 31, |
$ in thousands |
|
2005 |
|
2004 |
|
Net income |
|
$ |
26,496 |
|
|
$ |
84,607 |
|
|
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Other comprehensive income (loss): |
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Unrealized losses on investments in securities: |
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|
Unrealized foreign currency exchange losses arising
during the period |
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|
(24 |
) |
|
|
(22 |
) |
Unrealized foreign currency exchange gains (losses) on
foreign operations |
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|
88 |
|
|
|
(226 |
) |
Realized foreign currency exchange gain on foreign operations |
|
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|
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|
(3,340 |
) |
Unrealized derivative gains (losses): |
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|
Effective portion of interest rate contracts |
|
|
3,501 |
|
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|
(2,728 |
) |
Ineffective portion of interest rate contracts |
|
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|
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|
2,011 |
|
Amortization of forward rate contracts |
|
|
267 |
|
|
|
92 |
|
Settlement of forward rate contracts |
|
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(3,767 |
) |
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|
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|
|
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|
|
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|
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Total other comprehensive income (loss) |
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3,832 |
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(7,980 |
) |
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Net comprehensive income |
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$ |
30,328 |
|
|
$ |
76,627 |
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See accompanying notes to the financial statements.
7
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Trizec Properties, Inc.
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Consolidated Statements of Cash
Flows (unaudited) |
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For the three months ended |
|
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March 31, |
|
|
|
|
|
|
2004 |
|
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|
|
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|
(As Restated, see |
$ in thousands |
|
2005 |
|
Note 11) |
|
Cash Flows from Operating Activities |
|
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|
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|
|
|
Net Income |
|
$ |
26,496 |
|
|
$ |
84,607 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
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Income from unconsolidated real estate joint ventures |
|
|
(4,073 |
) |
|
|
(6,239 |
) |
Distributions from unconsolidated real estate joint ventures |
|
|
4,073 |
|
|
|
4,456 |
|
Depreciation and amortization expense (including discontinued operations) |
|
|
41,339 |
|
|
|
43,361 |
|
Amortization of financing costs |
|
|
1,401 |
|
|
|
2,187 |
|
Amortization of value of acquired operating leases to rental revenue |
|
|
(702 |
) |
|
|
(110 |
) |
Provision for bad debt |
|
|
1,201 |
|
|
|
2,019 |
|
Gain on disposition of real estate (including discontinued operations) |
|
|
(207 |
) |
|
|
(47,167 |
) |
Foreign currency exchange gain |
|
|
|
|
|
|
(3,340 |
) |
Derivative loss |
|
|
|
|
|
|
2,011 |
|
Loss (Gain) on early debt retirement |
|
|
9 |
|
|
|
(246 |
) |
Lawsuit settlement |
|
|
|
|
|
|
(94 |
) |
Minority interest |
|
|
35 |
|
|
|
1,079 |
|
Amortization of equity compensation |
|
|
1,111 |
|
|
|
366 |
|
Stock option grant expense |
|
|
59 |
|
|
|
202 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Escrows and restricted cash |
|
|
(5,124 |
) |
|
|
6,018 |
|
Office tenant receivables |
|
|
(2,880 |
) |
|
|
1,006 |
|
Other receivables |
|
|
666 |
|
|
|
(11,220 |
) |
Deferred rent receivables |
|
|
(2,717 |
) |
|
|
(5,788 |
) |
Prepaid expenses and other assets |
|
|
(697 |
) |
|
|
2,330 |
|
Accounts payable, accrued liabilities and other liabilities |
|
|
(33,367 |
) |
|
|
(26,260 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
26,623 |
|
|
|
49,178 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
Tenant improvements and capital expenditures |
|
|
(20,388 |
) |
|
|
(18,166 |
) |
Tenant leasing costs |
|
|
(8,015 |
) |
|
|
(9,890 |
) |
Dispositions |
|
|
175 |
|
|
|
256,975 |
|
Payment of minority interest |
|
|
(187 |
) |
|
|
(5,066 |
) |
Escrows and restricted cash |
|
|
(27,446 |
) |
|
|
20,993 |
|
Unconsolidated real estate joint ventures: |
|
|
|
|
|
|
|
|
Investments |
|
|
(1,634 |
) |
|
|
(20,064 |
) |
Distributions |
|
|
3,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(54,242 |
) |
|
|
224,782 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Mortgage debt and other loans: |
|
|
|
|
|
|
|
|
Property financing |
|
|
|
|
|
|
120,000 |
|
Principal repayments |
|
|
(34,104 |
) |
|
|
(260,523 |
) |
Repaid on dispositions |
|
|
|
|
|
|
(238,343 |
) |
Draws on credit line |
|
|
|
|
|
|
154,000 |
|
Paydowns on credit line |
|
|
|
|
|
|
(120,000 |
) |
Financing expenditures |
|
|
|
|
|
|
(343 |
) |
Escrows and restricted cash |
|
|
28,704 |
|
|
|
|
|
Settlement of forward contracts |
|
|
|
|
|
|
(3,767 |
) |
Issuance of common stock |
|
|
28,348 |
|
|
|
7,927 |
|
Dividends |
|
|
(32,398 |
) |
|
|
(31,562 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(9,450 |
) |
|
|
(372,611 |
) |
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents |
|
|
(37,069 |
) |
|
|
(98,651 |
) |
Cash and Cash Equivalents, beginning of period |
|
|
194,265 |
|
|
|
129,299 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, end of period |
|
$ |
157,196 |
|
|
$ |
30,648 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements.
8
|
|
|
Trizec Properties, Inc.
|
|
Consolidated Statements of Cash
Flows (unaudited) (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
$ in thousands |
|
2005 |
|
2004 |
|
|
|
|
|
|
(As
Restated, see Note
11) |
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
32,649 |
|
|
$ |
39,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes |
|
$ |
13,329 |
|
|
$ |
1,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of accounts receivable |
|
$ |
2,428 |
|
|
$ |
2,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of retired assets |
|
$ |
11,460 |
|
|
$ |
4,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends payable on common stock, special
voting stock and Class F convertible stock |
|
$ |
32,247 |
|
|
$ |
31,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage debt and other loans assumed by
purchasers upon property dispositions |
|
$ |
|
|
|
$ |
41,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness of debt upon property disposition |
|
$ |
|
|
|
$ |
1,237 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements.
9
|
|
|
|
|
Notes to the Financial Statements
$ in thousands, except per share amounts |
|
1. |
|
ORGANIZATION AND DESCRIPTION OF THE BUSINESS |
|
|
|
Trizec Properties, Inc. (Trizec Properties or the Corporation, formerly known as
TrizecHahn (USA) Corporation) is a corporation organized under the laws of the State of
Delaware and is approximately 39% indirectly owned by Trizec Canada Inc. Effective January
1, 2001, Trizec Properties elected to be taxed as a real estate investment trust (REIT)
pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
Code). On February 14, 2002, the amended registration statement on Form 10 of Trizec
Properties was declared effective by the Securities and Exchange Commission (SEC) and,
accordingly, Trizec Properties became subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. Prior to that, Trizec Properties was a
substantially owned subsidiary of TrizecHahn Corporation (TrizecHahn), an indirect
whollyowned subsidiary of Trizec Canada Inc. A plan of arrangement (the Reorganization)
was approved by the TrizecHahn shareholders on April 23, 2002, and on May 8, 2002, the
effective date of the Reorganization, the common stock of Trizec Properties commenced
trading on the New York Stock Exchange. |
|
|
|
On December 22, 2004, Trizec Properties completed the reorganization of its operating
structure by converting to an umbrella partnership real estate investment trust, or UPREIT,
structure (the UPREIT Conversion). In connection with the UPREIT Conversion, the
Corporation formed a new operating entity, Trizec Holdings Operating LLC, a Delaware limited
liability company (the Operating Company), and entered into a contribution agreement and
an assignment and assumption agreement with the Operating Company pursuant to which the
Corporation contributed substantially all of its assets to the Operating Company in exchange
for (a) a combination of common units, special voting units and Series F convertible units
of limited liability company interest in the Operating Company and (b) the assumption by the
Operating Company of substantially all of the Corporations liabilities. The Corporation
now conducts and intends to continue to conduct its business, and owns and intends to
continue to own substantially all of its assets, through the Operating Company. As the sole
managing member of the Operating Company, the Corporation generally has the exclusive power
under the limited liability company agreement to manage and conduct the business of the
Operating Company, subject to certain limited approval and voting rights of other members
that may be admitted in the future. Currently, the Operating Company is wholly-owned by the
Corporation. |
|
|
|
Trizec Properties is a self-managed, publicly traded REIT, headquartered in Chicago,
Illinois. At March 31, 2005, the Corporation had ownership interests in a portfolio of 52
office properties concentrated in the metropolitan areas of seven major U.S. cities,
comprising approximately 37.3 million square feet of total area. Of the 52 office
properties, 45 office properties comprising approximately 30.3 million square feet are
consolidated and seven office properties comprising approximately 7.0 million square feet
are unconsolidated real estate joint venture properties. Based on owned area, the
Corporations 52 office properties comprise approximately 33.8 million square feet. At
March 31, 2005, the occupancy of the Corporations 52 office properties was approximately
88.0% based on total area. Occupancy of the Corporations 45 consolidated office properties
was approximately 88.6% and occupancy of the Corporations seven unconsolidated real estate
joint venture properties was approximately 85.7%. Based on owned area, the Corporations 52
office properties were approximately 88.3% occupied. Owned area reflects the Corporations
consolidated office properties and its pro rata share of its unconsolidated real estate
joint venture properties based on its economic ownership interest in those unconsolidated
real estate joint ventures. |
|
2. |
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
Basis of Presentation |
|
|
|
The accompanying interim consolidated financial statements as of March 31, 2005 and December
31, 2004 and for the three months ended March 31, 2005 and 2004 include the accounts and
operating results of the Corporation and its subsidiaries. All significant intercompany
transactions have been eliminated. |
|
|
|
The Corporation consolidates certain entities in which it owns less than a 100% equity
interest if it is deemed to be the primary beneficiary in a variable interest entity (VIE),
as defined in Financial Accounting Standards Board Interpretation No. 46R, Consolidation of
Variable Interest Entities an interpretation of ARB 51 (FIN No. 46R). The Corporation
also consolidates entities in which it has a |
10
|
|
|
|
|
Notes to the Financial Statements
$ in thousands, except per share amounts |
|
2. |
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Continued |
|
|
|
Basis of Presentation, Continued |
|
|
|
controlling direct or indirect voting interest. The equity method of accounting is applied
to entities in which the Corporation does not have a controlling direct or indirect voting
interest, but can exercise influence over the entity with respect to its operations and major
decisions. The cost method is applied to entities when (i) the Corporations investment is
minimal (typically less than 5%) and (ii) the Corporations investment is passive. |
|
|
|
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual amounts will differ
from those estimates used in the preparation of these financial statements. |
|
|
|
Interim Financial Statements |
|
|
|
The accompanying interim financial statements and related notes are unaudited; however, the
financial statements have been prepared in accordance with GAAP for interim financial
information and the rules and regulations of the SEC. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with GAAP have
been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of
management, such financial statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations and cash flows of the
Corporation for the interim periods presented. All such adjustments are of a normal
recurring nature. The results of operations for the interim periods presented are not
necessarily indicative of the results to be obtained for other interim periods or for the
full fiscal year. These financial statements should be read in conjunction with the
Corporations financial statements and notes thereto contained in the Corporations 2004
Annual Report on Form 10-K filed with the SEC on March 11, 2005. |
|
|
|
Stock Based Compensation |
|
|
|
Effective July 1, 2003, the Corporation adopted Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based Compensation (SFAS No. 123), as amended by Statement
of Financial Accounting Standards No. 148, Accounting for Stock Based Compensation
Transition and Disclosure (SFAS No. 148). The Corporation is applying the fair value
recognition provisions of SFAS No. 123, as amended by SFAS No. 148, prospectively to all
employee stock options granted after December 31, 2002. For employee stock option grants
accounted for under SFAS No. 123, compensation cost is measured as the fair value of the
stock option at the date of grant. This compensation cost is expensed over the vesting
period. For employee stock options issued prior to January 1, 2003, the Corporation will
continue to account for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB No. 25), and related interpretations. For employee stock option grants accounted for
under APB No. 25, compensation cost is measured as the excess, if any, of the fair value of
the Corporations common stock at the date of grant over the exercise price of the options
granted. This compensation cost, if any, is expensed over the vesting period. Except as
detailed in Note 19 of the Corporations 2004 Annual Report on Form 10-K with respect to
employee stock options that were granted in connection with the Reorganization, the
Corporations policy is to grant options with an exercise price equal to the fair value of
the Corporations common stock at the date of the grant. Stock option grant expense of $59
and $202 was recognized for the three months ended March 31, 2005 and 2004, respectively. |
|
|
|
In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123(R)). SFAS
No. 123(R) is a revision of SFAS No. 123 and also supercedes APB No. 25 and its related
implementation guidance. SFAS No. 123(R) requires that compensation cost is measured as the
fair value of the stock option at the date of grant, eliminates the alternative to use the
intrinsic value method of accounting prescribed in APB No. 25, |
11
|
|
|
|
|
Notes to the Financial Statements
$ in thousands, except per share amounts |
|
2. |
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Continued |
|
|
|
Stock Based Compensation, Continued |
|
|
|
and clarifies and expands the guidance of SFAS No. 123 in several areas. SFAS No. 123(R) is
effective as of the beginning of the first annual reporting period that begins after June 15,
2005. SFAS No. 123(R) applies to all awards granted, modified, repurchased, or cancelled
after the effective date and the cumulative effect of initially applying SFAS No. 123(R), if
any, is to be recognized as of the required effective date. The Corporation will adopt SFAS
No. 123(R) commencing as of January 1, 2006 using the modified prospective application
method. The Corporation does not expect the requirements of SFAS No. 123(R) to have a
material impact on its results of operations, financial position or liquidity. |
|
|
|
The following reconciles net income available to common stockholders to pro forma net income
available to common stockholders and presents reported earnings per share (EPS) and pro
forma EPS, in each case, as if the fair value based method of accounting for employee stock
options as prescribed under the provisions of SFAS No. 123 had been applied to all
outstanding and unvested employee stock options. |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
|
|
2005 |
|
2004 |
Net income available to common stockholders, as
reported |
|
$ |
25,287 |
|
|
$ |
83,303 |
|
Add back: |
|
|
|
|
|
|
|
|
Stock option grant expense, as reported |
|
|
59 |
|
|
|
202 |
|
Deduct: |
|
|
|
|
|
|
|
|
Stock option grant expense, pro forma |
|
|
(59 |
) |
|
|
(315 |
) |
|
|
|
|
|
|
|
|
|
Net income available to common stockholders,
pro forma |
|
$ |
25,287 |
|
|
$ |
83,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders per
weighted average common share outstanding: |
|
|
|
|
|
|
|
|
Basic, as reported |
|
$ |
0.17 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
Basic, pro forma |
|
$ |
0.17 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted, as reported |
|
$ |
0.16 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
Diluted, pro forma |
|
$ |
0.16 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications |
|
|
|
Certain reclassifications have been made to the consolidated balance sheet and consolidated
statements of operations and cash flows. These reclassifications have not changed the
Corporations financial position as of December 31, 2004 or consolidated results of
operations or cash flows for the three months ended March 31, 2004. |
|
3. |
|
REAL ESTATE |
|
|
|
The Corporations investment in real estate is comprised of: |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2005 |
|
2004 |
Properties: |
|
|
|
|
|
|
|
|
Held for the long term, net |
|
$ |
3,607,931 |
|
|
$ |
3,621,634 |
|
Held for disposition, net |
|
|
94,806 |
|
|
|
94,515 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,702,737 |
|
|
$ |
3,716,149 |
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
Notes to the Financial Statements
$ in thousands, except per share amounts |
|
3. |
|
REAL ESTATE, Continued |
|
|
|
Properties Held for the Long Term |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2005 |
|
2004 |
Rental properties: |
|
|
|
|
|
|
|
|
Land |
|
$ |
510,662 |
|
|
$ |
510,662 |
|
Buildings and improvements |
|
|
3,400,714 |
|
|
|
3,399,132 |
|
Tenant improvements |
|
|
284,464 |
|
|
|
278,794 |
|
Furniture, fixtures and equipment |
|
|
10,888 |
|
|
|
9,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,206,728 |
|
|
|
4,198,057 |
|
Less: accumulated depreciation |
|
|
(623,227 |
) |
|
|
(600,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
3,583,501 |
|
|
|
3,597,204 |
|
|
|
|
|
|
|
|
|
|
Properties held for development |
|
|
24,430 |
|
|
|
24,430 |
|
|
|
|
|
|
|
|
|
|
Properties held for the long term, net |
|
$ |
3,607,931 |
|
|
$ |
3,621,634 |
|
|
|
|
|
|
|
|
|
|
|
|
Properties Held for Disposition |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2005 |
|
2004 |
Rental properties, net |
|
$ |
94,806 |
|
|
$ |
94,515 |
|
|
|
|
|
|
|
|
|
|
Properties held for disposition, net |
|
$ |
94,806 |
|
|
$ |
94,515 |
|
|
|
|
|
|
|
|
|
|
(i) |
|
At December 31, 2003, 151 Front Street in Toronto, Ontario was held for
disposition subject to the transition rules of Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144) and, accordingly, the Corporation accounted for this property
pursuant to Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets to be Disposed Of (SFAS No. 121). On January 15,
2004, the Corporation sold 151 Front Street. Therefore, no properties were held for
disposition in accordance with SFAS No. 121 at March 31, 2005 and 2004. |
|
|
|
In accordance with SFAS No. 121, the results of operations of 151 Front Street are
included, for all periods presented, in the revenues and expenses of the
Corporation. The following summarizes the combined condensed results of operations
for 151 Front Street through January 15, 2004. |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
Total revenues |
|
$ |
|
|
|
$ |
484 |
|
Operating expenses |
|
|
|
|
|
|
(419 |
) |
Property taxes |
|
|
|
|
|
|
(75 |
) |
Interest expense |
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
Loss before gain on disposition of real estate, net |
|
$ |
|
|
|
$ |
(110 |
) |
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
Notes to the Financial Statements
$ in thousands, except per share amounts |
|
3. |
|
REAL ESTATE, Continued |
|
|
|
Properties Held for Disposition, Continued |
|
(ii) |
|
The table below summarizes the Corporations properties designated as held
for disposition pursuant to SFAS No. 144. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date |
|
|
|
|
|
|
|
|
Designated |
|
|
|
|
|
|
|
|
as Held for |
|
Provision |
|
Date |
Property |
|
Location |
|
Disposition |
|
Taken |
|
Disposed |
Hollywood & Highland Retail
|
|
Los Angeles, CA
|
|
Feb-04
|
|
$ |
142,431 |
|
|
Feb-04 |
Hollywood & Highland Hotel
|
|
Los Angeles, CA
|
|
Feb-04
|
|
|
|
|
|
Feb-04 |
1441 Main Street
|
|
Columbia, SC
|
|
Jun-04
|
|
|
|
|
|
Jun-04 |
St. Louis Place
|
|
St. Louis, MO
|
|
Jun-04
|
|
|
|
|
|
Jun-04 |
Borden Building
|
|
Columbus, OH
|
|
Jun-04
|
|
|
22,095 |
|
|
Jul-04 |
Park Central I
|
|
Dallas, TX
|
|
Jun-04
|
|
|
2,703 |
|
|
Aug-04 |
1333 Main Street
|
|
Columbia, SC
|
|
Jun-04
|
|
|
7,023 |
|
|
Aug-04 |
3700 Bay Area Blvd.
|
|
Houston, TX
|
|
Jun-04
|
|
|
|
|
|
Sep-04 |
Lakeside
Centre and New Market Business Park
|
|
Atlanta, GA
|
|
Jun-04
|
|
|
10,261 |
|
|
Dec-04 |
Bank of America-Columbia
|
|
Columbia, SC
|
|
Jun-04
|
|
|
3,525 |
|
|
Dec-04 |
Williams Center I & II
|
|
Tulsa, OK
|
|
Jun-04
|
|
|
23,051 |
|
|
N/A |
Capital Center II & III
|
|
Sacramento, CA
|
|
Sep-04
|
|
|
|
|
|
Sep-04 |
Silver Spring Centre
|
|
Silver Spring, MD
|
|
Sep-04
|
|
|
|
|
|
Nov-04 |
Gateway Center
|
|
Pittsburgh, PA
|
|
Sep-04
|
|
|
40,330 |
|
|
Dec-04 |
110 William Street
|
|
New York, NY
|
|
Sep-04
|
|
|
|
|
|
Dec-04 |
250 West Pratt Street
|
|
Baltimore, MD
|
|
Sep-04
|
|
|
|
|
|
Dec-04 |
Shoreline Square
|
|
Long Beach, CA
|
|
Sep-04
|
|
|
|
|
|
N/A |
|
|
In accordance with SFAS No. 144, the results of operations and gains or losses on
disposition, if any, for the sixteen properties previously designated as held for
disposition and sold prior to March 31, 2005, for all periods presented, have been
reported as discontinued operations. In addition, in accordance with SFAS No. 144,
the results of operations of the two properties designated as held for disposition
and not sold, for all periods presented, have been reported as discontinued
operations. |
|
|
|
The following summarizes the combined condensed results of operations, excluding
any gains or losses on disposition, of the sixteen properties previously designated
as held for disposition and sold prior to March 31, 2005 and the two properties
designated as held for disposition and not sold, through the earlier of their
respective disposition dates or the three months ended March 31, 2005 and 2004,
respectively. |
14
Notes to the Financial Statements
$ in thousands, except per share amounts
3. |
|
REAL ESTATE, Continued |
Properties Held for Disposition, Continued
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
Total revenues |
|
$ |
4,910 |
|
|
$ |
46,722 |
|
|
Operating expenses |
|
|
(2,559 |
) |
|
|
(19,677 |
) |
Property taxes |
|
|
3,893 |
|
|
|
(3,827 |
) |
Depreciation and amortization |
|
|
|
|
|
|
(8,762 |
) |
Interest and other income |
|
|
256 |
|
|
|
3,204 |
|
Interest expense |
|
|
(29 |
) |
|
|
(6,165 |
) |
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
6,471 |
|
|
$ |
11,495 |
|
|
|
|
|
|
|
|
|
|
4. |
|
UNCONSOLIDATED REAL ESTATE JOINT VENTURES |
The Corporation participates in unconsolidated real estate joint ventures in various
operating properties which are accounted for using the equity method. In most instances,
these projects are managed by the Corporation.
The following is a summary of the Corporations ownership in unconsolidated real estate
joint ventures at March 31, 2005 and December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Interest(1) |
|
|
|
|
March 31, |
|
December 31, |
Entity |
|
Property and Location |
|
2005 |
|
2004 |
|
Marina Airport Building, Ltd. |
|
Marina Towers, Los Angeles, CA |
|
|
50 |
% |
|
|
50 |
% |
Dresser Cullen Venture |
|
Kellogg, Brown & Root Tower, Houston, TX |
|
|
50 |
% |
|
|
50 |
% |
Main Street Partners, L.P. |
|
Bank One Center, Dallas, TX |
|
|
50 |
% |
|
|
50 |
% |
1114 TrizecHahn-Swig, L.L.C. |
|
The Grace Building, New York, NY |
|
|
50 |
% |
|
|
50 |
% |
1411 TrizecHahn-Swig, L.L.C. |
|
1411 Broadway, New York, NY |
|
|
50 |
% |
|
|
50 |
% |
1460 Leasehold TrizecHahn Swig
L.L.C./1460 Fee TrizecHahn Swig
L.L.C. |
|
1460 Broadway, New York, NY |
|
|
50 |
% |
|
|
50 |
% |
Trizec Plaza of the Americas, L.P. |
|
Plaza of the Americas, Dallas, TX(2) |
|
|
50 |
% |
|
|
50 |
% |
Waterview L.P. |
|
Waterview Development, Arlington, VA(3) |
|
|
25 |
% |
|
|
25 |
% |
|
|
|
(1) |
|
The amounts shown above approximate the Corporations legal ownership interest
as of March 31, 2005 and December 31, 2004. Cash flows from operations, capital transactions
and net income are allocated to the joint venture partners in accordance with their respective
partnership agreements. The Corporations share of these items is subject to change based on,
among other things, the operations of the property and the timing and amount of capital
transactions. |
|
(2) |
|
On May 18, 2004, the Corporation sold a 50% interest in Plaza of the
Americas and formed Trizec Plaza of the Americas L.P. joint venture. |
|
(3) |
|
On April 30, 2004 the members of the JBG/TrizecHahn Waterview Venture L.L.C.
sold the property to a newly formed joint venture, Waterview L.P., in which the Corporation
acquired a 25% interest. |
15
Notes to the Financial Statements
$ in thousands, except per share amounts
4. |
|
UNCONSOLIDATED REAL ESTATE JOINT VENTURES, Continued |
Unconsolidated Real Estate Joint Venture Financial Information
The following represents combined summarized financial information of the Corporations
unconsolidated real estate joint ventures:
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2005 |
|
2004 |
Assets |
|
|
|
|
|
|
|
|
Real estate, net |
|
$ |
523,058 |
|
|
$ |
521,761 |
|
Other assets |
|
|
215,191 |
|
|
|
214,453 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
738,249 |
|
|
$ |
736,214 |
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
Mortgage debt and other loans |
|
$ |
850,478 |
|
|
$ |
850,908 |
|
Other liabilities |
|
|
36,655 |
|
|
|
33,646 |
|
Partners equity |
|
|
(148,884 |
) |
|
|
(148,340 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
738,249 |
|
|
$ |
736,214 |
|
|
|
|
|
|
|
|
|
|
Corporations share of equity |
|
$ |
(92,606 |
) |
|
$ |
(91,486 |
) |
Net excess of cost of investments
over the net book value of
underlying assets |
|
|
167,837 |
|
|
|
167,939 |
|
Reclassification of distributions
in excess of investment in an
unconsolidated joint venture |
|
|
43,343 |
|
|
|
43,188 |
|
|
|
|
|
|
|
|
|
|
Carrying value of Corporations
investment in unconsolidated real
estate joint ventures |
|
$ |
118,574 |
|
|
$ |
119,641 |
|
|
|
|
|
|
|
|
|
|
Corporations share of mortgage debt |
|
$ |
419,920 |
|
|
$ |
420,160 |
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2005, the Corporation made cash contributions
to its unconsolidated real estate joint ventures in the aggregate amount of approximately
$1,634, and received distributions from its unconsolidated real estate joint ventures in the
aggregate amount of approximately $7,326. During the three months ended March 31, 2004, the
Corporation made contributions and advances to its unconsolidated real estate joint ventures
in the aggregate amount of approximately $20,064, and received distributions from its
unconsolidated real estate joint ventures in the aggregate amount of approximately $4,456.
The Corporation has received net distributions in excess of its investments in 1114
TrizecHahn-Swig, L.L.C. and 1411 TrizecHahn-Swig, L.L.C. (the Swig Joint Ventures). At
March 31, 2005 and December 31, 2004, such excess net distributions totaled approximately
$43,343 and $43,188, respectively, and have been recorded in other accrued liabilities as
the Corporation is committed to provide financial support to the Swig Joint Ventures in the
future.
16
Notes to the Financial Statements
$ in thousands, except per share amounts
4. |
|
UNCONSOLIDATED REAL ESTATE JOINT VENTURES, Continued |
|
|
|
Unconsolidated Real Estate Joint Venture Financial Information, Continued |
|
|
|
Income Statement Information |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
Total Revenues |
|
$ |
52,200 |
|
|
$ |
49,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Operating and other |
|
|
24,862 |
|
|
|
20,973 |
|
Depreciation and amortization |
|
|
6,885 |
|
|
|
5,736 |
|
|
|
|
|
|
|
|
|
|
Total Expenses |
|
|
31,747 |
|
|
|
26,709 |
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
Interest and other income |
|
|
303 |
|
|
|
79 |
|
Interest expense |
|
|
(11,381 |
) |
|
|
(8,236 |
) |
|
|
|
|
|
|
|
|
|
Total Other Expense |
|
|
(11,078 |
) |
|
|
(8,157 |
) |
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
9,375 |
|
|
$ |
14,221 |
|
|
|
|
|
|
|
|
|
|
Corporations share of net income |
|
$ |
4,073 |
|
|
$ |
6,239 |
|
|
|
|
|
|
|
|
|
|
5. |
|
CONSOLIDATED REAL ESTATE JOINT VENTURES |
Although the financial condition and results of operations of the following real estate
joint ventures are consolidated, there are unaffiliated parties that own an interest in
these real estate joint ventures. The Corporation consolidates these real estate joint
ventures because it owns at least 50% of the respective ownership entities and controls
major decisions. The following is a summary of the Corporations ownership in consolidated
real estate joint ventures at March 31, 2005 and December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Interest(1) |
|
|
|
|
|
|
March 31, |
|
December 31, |
|
Entity |
|
Property and Location |
|
2005 |
|
2004 |
|
TrizecHahn 1065 Avenue of the Americas L.L.C. |
|
1065 Avenue of the Americas, New York, NY |
|
|
99.0 |
% |
|
|
99.0 |
% |
Trizec 2001 M Street Holdings L.L.C. |
|
2001 M Street, Washington, D.C. |
|
|
98.0 |
% |
|
|
98.0 |
% |
TrizecHahn Mid-Atlantic I Limited Partnership |
|
Various |
|
|
98.0 |
% |
|
|
98.0 |
% |
|
|
|
(1) |
|
The amounts shown above approximate the Corporations legal ownership
interest as of March 31, 2005 and December 31, 2004. Cash flows from operations,
capital transactions and net income are allocated to the joint venture partners in
accordance with their respective partnership agreements. The Corporations share of
these items is subject to change based on, among other things, the operations of the
property and the timing and amount of capital transactions. |
TrizecHahn Mid-Atlantic I Limited Partnership
The Corporation owned 100% of the general partner units and approximately 98% of the
limited partnership units (Units) of TrizecHahn Mid-Atlantic I Limited Partnership at
March 31, 2005 and December 31, 2004. The remaining Units are held by unrelated limited
partners who have a right to redeem their Units before 2012, at a redemption value equal to
the fair market value of an equivalent number of shares of common stock of Trizec
Properties. Upon redemption of the Units, the TrizecHahn Mid-Atlantic I Limited
Partnership is required to pay cash to the holder in an amount equal to the redemption
value, or the Corporation has the option to trigger the effective issuance of freely
tradable shares of common stock of Trizec Properties. The redemption value of the
outstanding Units was approximately $4,562 and $4,543 at March 31, 2005 and December 31,
2004, respectively. The change in redemption value is recorded as an allocation to
minority interest in the consolidated statements of operations.
17
Notes to the Financial Statements
$ in thousands, except per share amounts
6. |
|
MORTGAGE DEBT, OTHER LOANS AND CREDIT FACILITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt |
|
|
March 31, 2005 |
|
December 31, 2004 |
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
Average Interest |
|
Principal |
|
Average Interest |
|
Principal |
|
|
Rates |
|
Balance |
|
Rates |
|
Balance |
|
|
|
|
|
Collateralized property loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fixed rates |
|
|
6.31 |
% |
|
$ |
2,018,546 |
|
|
|
6.31 |
% |
|
$ |
2,024,055 |
|
Other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fixed rates |
|
|
5.93 |
% |
|
|
16,632 |
|
|
|
6.43 |
% |
|
|
45,227 |
|
|
|
|
|
|
Total collateralized property loans |
|
|
6.31 |
% |
|
$ |
2,035,178 |
|
|
|
6.32 |
% |
|
$ |
2,069,282 |
|
|
|
|
|
|
Unsecured credit facility: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fixed rates |
|
|
7.12 |
% |
|
$ |
41,229 |
|
|
|
7.12 |
% |
|
$ |
41,229 |
|
At variable rates |
|
|
4.32 |
% |
|
|
108,771 |
|
|
|
3.87 |
% |
|
|
108,771 |
|
|
|
|
|
|
Total unsecured credit facility |
|
|
5.09 |
% |
|
$ |
150,000 |
|
|
|
4.76 |
% |
|
$ |
150,000 |
|
|
|
|
|
|
|
|
|
6.23 |
% |
|
$ |
2,185,178 |
|
|
|
6.21 |
% |
|
$ |
2,219,282 |
|
|
|
|
|
|
Certain of the Corporations loans are cross-collateralized with, or subject to
cross-default or cross-acceleration provisions in, other loans.
Collateralized Property Loans
Property loans are collateralized by deeds of trust or mortgages on properties and mature at
various dates between May 2006 and December 2014.
At March 31, 2005 and December 31, 2004, the Corporation had outstanding interest rate swap
contracts in the notional amount of $150,000, bearing a weighted average interest rate of
6.02% and maturing on March 15, 2008. The Corporation recorded an unrealized derivative gain
of approximately $3,501 and an unrealized derivative loss of approximately $2,728, related
to interest rate swap contracts, through other comprehensive income for the three months
ended March 31, 2005 and March 31, 2004, respectively. At March 31, 2005 and December 31,
2004, the debt hedged by the interest rate swap contracts was classified as fixed in the
above table. The aggregate cost to unwind these interest rate swap contracts was
approximately $5,736 and $9,239 at March 31, 2005 and December 31, 2004, respectively.
Early Debt Retirement
In December 2004, in conjunction with the sale of 250 West Pratt Street, located in
Baltimore, Maryland, the Corporation and the lender of the mortgage loan collateralized by
such property, agreed to modify certain terms of the mortgage loan. The lender of the
mortgage loan agreed to release the property as collateral for the mortgage loan in
consideration of the establishment of an escrow, for the benefit of the lender, in the
amount of approximately $28,704. The escrow was comprised of funds to be used to repay the
full outstanding principal balance of the mortgage loan as well as interest payments through
January 3, 2005. The escrow funds of approximately $28,704 were included in restricted cash
on the Corporations balance sheet at December 31, 2004. On January 3, 2005, the funds held
in escrow were released to the lender. In conjunction with the repayment and retirement of
the mortgage loan, the Corporation recorded a loss on early debt retirement of approximately
$14, comprised primarily of the write-off of unamortized deferred financing costs.
Unsecured Credit Facility
The Corporations unsecured credit facility consists of a $600,000 revolving component and a
$150,000 term component, bears interest at LIBOR plus a spread of 1.15% to 2.0% based on the
Corporations total leverage, and matures in June 2007 (the 2004 Unsecured Credit
Facility). The financial covenants, as defined in the 2004 Unsecured Credit Facility,
include the quarterly requirements for the total leverage ratio not to exceed 65.0% during
year one, 62.5% during year two and 60.0% during year three; a requirement that the interest
coverage ratio be greater than 2.0 times; a requirement that the fixed charge coverage ratio
be greater than 1.5 times; and a requirement that the net worth be in excess of $1.5
billion. The Corporations financial covenants also include a restriction on dividends or
distributions of more than 90% of its funds from operations (as defined in the 2004
Unsecured Credit Facility agreement). If the
18
Notes to the Financial Statements
$ in thousands, except per share amounts
6. |
|
MORTGAGE DEBT, OTHER LOANS AND CREDIT FACILITY, Continued |
Unsecured Credit Facility, Continued
Corporation is in default in respect of its obligations under the 2004 Unsecured Credit
Facility agreement, dividends will be limited to the amount necessary to maintain the
Corporations REIT status. At March 31, 2005, the Corporation was in compliance with these
financial covenants.
At March 31, 2005, the amount eligible to be borrowed under the Corporations 2004 Unsecured
Credit Facility was approximately $458,148, of which $150,000 was drawn and outstanding. At
December 31, 2004, the amount eligible to be borrowed under the Corporations 2004 Unsecured
Credit Facility was approximately $484,928, of which $150,000 was drawn and outstanding.
Certain conditions of the 2004 Unsecured Credit Facility may restrict the amount eligible to
be borrowed at any time.
Dividends
On March 10, 2005, the Corporation declared a quarterly dividend of $0.20 per share of its
common stock, payable on April 15, 2005, to the holders of record at the close of business
on March 31, 2005. The aggregate amount of dividends paid on April 15, 2005 totaled
approximately $31,029.
On March 10, 2005, the Corporation declared an aggregate annual dividend of approximately $5
for the Class F convertible stock, payable on April 15, 2005, to the holders of record at
the close of business on March 31, 2005. The Corporation accrued an additional $1 dividend
for the Class F convertible stock on March 31, 2005.
On March 10, 2005, the Corporation declared an aggregate quarterly dividend of approximately
$1,208 for the special voting stock, payable on April 15, 2005, to the holders of record at
the close of business on March 31, 2005.
Restricted Stock Rights
During the three months ended March 31, 2005, the Corporation awarded 384,532 restricted
stock rights and 103,583 performance based restricted stock rights to certain employees.
These restricted stock rights and performance based restricted stock rights had fair values
of approximately $7,389 and $1,993, respectively, on the date of grant. The restricted
stock rights vest ratably over periods of one to five years, except for 4,492 restricted
stock rights which vested immediately. The performance based restricted stock rights vest
ratably over a period of five years provided that specific performance objectives are
achieved. The fair value of the restricted stock rights will be charged to earnings as
compensation expense over the vesting period, except for the fair value of the 4,492
restricted stock rights that vested immediately which was charged to earnings as
compensation expense immediately.
During the three months ended March 31, 2005, the Corporation awarded 19,159 restricted
stock rights to certain directors of the Corporation. These restricted stock rights had a
fair value of approximately $336 on the date of grant. The restricted stock rights vested
immediately and the fair value of the restricted stock rights was charged to earnings as
compensation expense immediately.
Employee Stock Purchase Plan
During the three months ended March 31, 2005, 62,918 shares were issued to employees under
the Corporations Employee Stock Purchase Plan.
19
Notes to the Financial Statements
$ in thousands, except per share amounts
7. |
|
STOCKHOLDERS EQUITY, Continued |
Stock Options
During the three months ended March 31, 2005, certain employees of the Corporation exercised
1,174,079 non-qualified employee stock options. Proceeds to the Corporation from the
exercise of such non-qualified employee stock options were approximately $17,225.
Warrants
During the three months ended March 31, 2005, certain employees of the Corporation exercised
675,000 warrants. Proceeds to the Corporation from the exercise of such warrants were
approximately $10,037.
For the three months ended March 31, 2005, basic and dilutive weighted average shares
outstanding were 153,090,527 and 155,122,317, respectively. In computing weighted average
dilutive shares outstanding, basic weighted average shares outstanding were increased by
2,031,790 in respect to stock options, warrants, restricted stock and restricted stock
rights that had a dilutive effect. Not included in the computation of diluted net income
available to common stockholders per share, as they would have had an anti-dilutive effect,
were 1,708,624 stock options, 26,500 warrants and 488,113 shares of restricted stock and
restricted stock rights. The dilutive shares were calculated based on $18.29 per share,
which represents the average daily trading price for the three months ended March 31, 2005.
For the three months ended March 31, 2004, basic and dilutive weighted average shares
outstanding were 151,124,515 and 152,767,608, respectively. In computing weighted average
dilutive shares outstanding, basic weighted average shares outstanding were increased by
1,643,093 in respect to stock options, warrants, restricted stock and restricted stock
rights that had a dilutive effect. Not included in the computation of diluted net income
available to common stockholders per share, as they would have had an anti-dilutive effect,
were 3,389,598 stock options, 707,000 warrants and 521,650 restricted stock rights. The
dilutive shares were calculated based on $16.14 per share, which represents the average
daily trading price for the three months ended March 31, 2004.
20
Notes to the Financial Statements
$ in thousands, except per share amounts
8. |
|
EARNINGS PER SHARE, Continued |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
Income from continuing operations |
|
$ |
19,818 |
|
|
$ |
25,945 |
|
Gain on disposition of real estate, net |
|
|
|
|
|
|
14,771 |
|
Less: Special voting and Class F convertible stockholders dividends |
|
|
(1,209 |
) |
|
|
(1,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Available to Common Stockholders |
|
|
18,609 |
|
|
|
39,412 |
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
6,678 |
|
|
|
43,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Stockholders |
|
$ |
25,287 |
|
|
$ |
83,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Common Share |
|
|
|
|
|
|
|
|
Income from continuing operations available to common stockholders |
|
$ |
0.12 |
|
|
$ |
0.26 |
|
Discontinued operations |
|
|
0.04 |
|
|
|
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Stockholders per Weighted Average
Common Share Outstanding Basic |
|
$ |
0.17 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Common Share |
|
|
|
|
|
|
|
|
Income from continuing operations available to common stockholders |
|
$ |
0.12 |
|
|
$ |
0.26 |
|
Discontinued operations |
|
|
0.04 |
|
|
|
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Stockholders per Weighted Average
Common Share Outstanding Diluted |
|
$ |
0.16 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
153,090,527 |
|
|
|
151,124,515 |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
155,122,317 |
|
|
|
152,767,608 |
|
|
|
|
|
|
|
|
|
|
Litigation
The Corporation is contingently liable under guarantees that are issued in the normal course
of business and with respect to litigation and claims arising from time to time. While the
final outcome with respect to claims and litigation pending at March 31, 2005 cannot be
predicted with certainty, in the opinion of management, any liability which may arise from
such contingencies would not have a material adverse effect on the consolidated financial
position, results of operations or liquidity of the Corporation.
Concentration of Credit Risk
The Corporation maintains its cash and cash equivalents at financial institutions. The
combined account balances at each institution typically exceed Federal Deposit Insurance
Corporation (FDIC) insurance coverage and, as a result, there is a concentration of credit
risk related to amounts on deposit in excess of FDIC insurance coverage. Management
believes that this risk is not significant.
The Corporation performs ongoing credit evaluations of tenants and may require tenants to
provide some form of credit support, such as corporate guarantees and/or other financial
guarantees. Although the Corporations properties are geographically diverse and tenants
operate in a variety of industries, to the
21
Notes to the Financial Statements
$ in thousands, except per share amounts
9. |
|
CONTINGENCIES, Continued |
Concentration of Credit Risk, Continued
extent the Corporation has a significant concentration of rental revenue from any single
tenant, the inability of that tenant to make its lease payments could have an adverse effect
on the Corporation.
Environmental
The Corporation, as an owner of real estate, is subject to various federal, state and local
laws and regulations relating to environmental matters. Under these laws, the Corporation
is exposed to liability primarily as an owner or operator of real property and, as such, may
be responsible for the cleanup or other remediation of contaminated property. Contamination
for which the Corporation may be liable could include historic contamination, spills of
hazardous materials in the course of its tenants regular business operations and spills or
releases of hydraulic or other toxic oils. An owner or operator can be liable for
contamination or hazardous or toxic substances in some circumstances whether or not the
owner or operator knew of, or was responsible for, the presence of such contamination or
hazardous or toxic substances. In addition, the presence of contamination or hazardous or
toxic substances on property, or the failure to properly clean up or remediate such
contamination or hazardous or toxic substances when present, may materially and adversely
affect the ability to sell or lease such contaminated property or to borrow using such
property as collateral.
Asbestos-containing material (ACM) is present in some of the Corporations properties.
Environmental laws govern the presence, maintenance and removal of asbestos. The
Corporation believes that it manages ACM in accordance with applicable laws and plans to
continue managing ACM as appropriate and in accordance with applicable laws and believes
that the cost to do so will not be material.
The cost of compliance with existing environmental laws has not had a material adverse
effect on the Corporations financial condition and results of operations, and the
Corporation does not believe it will have such an impact in the future. In addition, the
Corporation has not incurred, and does not expect to incur, any material costs or
liabilities due to environmental contamination at properties it currently owns or has owned
in the past. However, the Corporation cannot predict the impact of new or changed laws or
regulations on its properties or on properties that it may acquire in the future. The
Corporation has no current plans for substantial capital expenditures with respect to
compliance with environmental laws.
Insurance
The Corporation carries insurance on its properties of types and in amounts that it
believes are in line with coverage customarily obtained by owners of similar
properties. The Corporation believes all of its properties are adequately insured.
The property insurance that has been maintained historically has been on an all risk
basis, which, until 2003, included losses caused by acts of terrorism. Following the
terrorist activity of September 11, 2001 and the resulting uncertainty in the insurance
market, insurance companies generally excluded insurance against acts of terrorism from
their all risk policies. As a result, the Corporations all risk insurance
coverage contained specific exclusions for losses attributable to acts of terrorism.
In light of this development, for 2003 the Corporation purchased stand-alone terrorism
insurance on a portfolio-wide basis with annual aggregate limits that it considers
commercially reasonable, considering the availability and cost of such coverage. Such
terrorism coverage carried an aggregate limit of $250,000 on a portfolio-wide basis.
Effective December 31, 2003, the Corporation amended its insurance coverage for acts of
terrorism as a result of the Terrorism Risk Insurance Act of 2002 (TRIA) enacted by
Congress and signed into law by President Bush in November 2002. Effective December
31, 2003, the Corporation formed a wholly-owned taxable REIT subsidiary, Concord
Insurance Limited (Concord), to act as a captive insurance company and be the primary
carrier with respect to its terrorism insurance program. The Corporations expired
terrorism insurance program that provided a limit of $250,000 in the aggregate per year
was replaced with a terrorism insurance program with a limit of $500,000 per
occurrence, as prescribed under the provisions of TRIA. This current terrorism
insurance program provides coverage for certified nuclear, chemical and biological
exposure, whereas the previous insurance program did not cover such exposure. Under
TRIA, the Corporation has a per occurrence
22
Notes to the Financial Statements
$ in thousands, except per share amounts
9. |
|
CONTINGENCIES, Continued |
Insurance, Continued
deductible of $100 and retains responsibility for 10% of the cost of each nuclear, chemical
and biological certified event up to a maximum of $50,000 per occurrence. If the certified
terrorism event is not found to be a nuclear, chemical or biological event, the
Corporations 10% exposure is limited to the $100 deductible. The federal government is
obligated to cover the remaining 90% of the loss above the deductible up to $100,000,000 in
the aggregate annually. Since the limit with respect to the Corporations portfolio may be
less than the value of the affected properties, terrorist acts could result in property
damage in excess of its current coverage, which could result in significant losses to the
Corporation due to the loss of capital invested in the property, the loss of revenues from
the impacted property and the capital that would have to be invested in that property. Any
such circumstance could have a material adverse effect on the Corporations financial
condition and results of operations. In the future, the Corporation may obtain different
coverage depending on the availability and cost of third party insurance in the marketplace.
During 2003, the Corporation received notices to the effect that its insurance coverage
against acts of terrorism may not comply with loan covenants under certain debt agreements.
The Corporation reviewed its coverage and believes that it complied with these documents and
that its insurance coverage adequately protected the lenders interests. The Corporation
initiated discussions with these lenders to satisfy their concerns and assure that their
interests and the Corporations interests are adequately protected. As a result of the
Corporations discussions, the lenders who sent such notices in 2003 accepted the insurance
coverage that the Corporation provided, one of whom did so with a formal irrevocable waiver
for the 2003 policies. The Corporation did not receive any such notices or waivers in 2004
or the first quarter of 2005.
The new terrorism insurance program described above became effective on December 31, 2003.
Because the program relies upon TRIA, which was not signed into law until November 2002, it
may not conform to the formal insurance requirements of the loan covenants that pre-dated
TRIA. While the Corporation believes it is in compliance with its loan covenants, a lender
may take the position that the Corporations insurance program is not in compliance with
covenants in a debt agreement and the Corporation could be deemed to be in default under the
agreement. In that case, the Corporation may decide to obtain insurance to replace or
supplement its insurance program in order to fulfill the lenders request. While the
Corporation believes its terrorism insurance coverage meets the formal and substantive
provisions of its loan agreements, a lender under one of its loan agreements has verbally
indicated that the Corporations terrorism insurance may not meet the precise requirements
of a loan agreement. The Corporation has not received, nor does it expect to receive, a
notice of default from the lender. Furthermore, the lender has stated that a written waiver
will be provided to the Corporation or that the loan will be amended to ensure that the
Corporations coverage will be compliant. In the future, the Corporations ability to
obtain debt financing, and/or the terms of such financing, may be adversely affected if
lenders insist upon additional requirements or greater insurance coverage against acts of
terrorism than may be available to the Corporation in the marketplace at rates, or on terms,
that are commercially reasonable.
Effective May 1, 2004, the Corporation elected to also utilize Concord to underwrite its
general liability and workers compensation insurance programs. Under such insurance
programs, the Corporation is generally responsible for up to $250 per claim for both general
liability and workers compensation. The Corporation maintains excess liability insurance
with independent insurance carriers to minimize risks related to catastrophic claims.
Liabilities associated with the risks that are retained by the Corporation are estimated, in
part, by considering historical claims experience, demographic factors, severity factors and
other actuarial assumptions. The estimated accruals for these liabilities could be
significantly affected if future occurrences and claims differ from these assumptions and
historical trends.
Insofar as the Corporation owns Concord, it is responsible for its liquidity and capital
resources, and the accounts of Concord are part of the Corporations consolidated financial
statements. If the Corporation experiences a loss and Concord is required to pay under its
insurance policies, the Corporation would ultimately record the loss to the extent of
Concords required payment.
23
Notes to the Financial Statements
$ in thousands, except per share amounts
9. |
|
CONTINGENCIES, Continued |
Insurance, Continued
Effective December 31, 2004, the Corporation formed Concordia Insurance L.L.C. and Chapman
Insurance L.L.C. to underwrite terrorism, general liability and workers compensation
insurance programs for its wholly-owned and joint venture properties, respectively.
Effective December 31, 2004, Concord will underwrite terrorism, general liability and
workers compensation insurance programs only for properties with respect to which the
Corporation has third party management agreements.
The Corporation has earthquake insurance on its properties located in areas known to be
subject to earthquakes in an amount and subject to deductibles that the Corporation believes
are commercially reasonable. However, the amount of earthquake insurance coverage may not
be sufficient to cover all losses from earthquakes. Since the limit with respect to the
Corporations portfolio may be less than the value of the affected properties, earthquakes
could result in property damage in excess of its current coverage, which could result in
significant losses to the Corporation due to the loss of capital invested in the property,
the loss of revenues from the impacted property and the capital that would have to be
invested in that property. Any such circumstances could have a material adverse effect on
the Corporations financial condition and results of operations. As a result of increased
costs of coverage and decreased availability, the amounts of the third party earthquake
insurance the Corporation may be able to purchase on commercially reasonable terms may be
reduced. In addition, the Corporation may discontinue earthquake insurance on some or all
of its properties in the future if the premiums exceed the Corporations estimate of the
value of the coverage.
There are other types of losses, such as from acts of war, acts of bio-terrorism or the
presence of mold at the Corporations properties, for which coverage is not available in the
market to the Corporation or other purchasers of commercial insurance policies. With
respect to such losses and losses from acts of terrorism, earthquakes or other catastrophic
events, if the Corporation experiences a loss that is uninsured or that exceeds policy
limits, it could lose the capital invested in the damaged properties, as well as the
anticipated future revenues from those properties. Depending on the specific circumstances
of each affected property, it is possible that the Corporation could be liable for mortgage
indebtedness or other obligations related to the property. Any such loss could materially
and adversely affect the Corporations business and financial condition and results of
operations.
Additionally, although the Corporation generally obtains owners title insurance policies
with respect to its properties, the amount of coverage under such policies may be less than
the full value of such properties. If a loss occurs resulting from a title defect with
respect to a property where there is no title insurance or the loss is in excess of insured
limits, the Corporation could lose all or part of its investment in, and anticipated income
and cash flows from, such property.
24
Notes to the Financial Statements
$ in thousands, except per share amounts
The Corporation has determined that its reportable segments are those that are based on the
Corporations method of internal reporting, which classifies its office operations by
regional geographic area. This reflects a management structure with dedicated regional
leasing and property management teams. The Corporations reportable segments by major
metropolitan area for office operations in the United States are: Atlanta, Chicago, Dallas,
Houston, Los Angeles, New York, Washington D.C. and secondary markets. The Corporation
primarily evaluates operating performance based on internal operating income, which is
defined as total revenue including tenant recoveries, parking, fee and other income less
operating expenses and property taxes, and includes properties that have been designated as
held for disposition and reported as discontinued operations. Of the properties reported as
discontinued operations, two remained unsold at March 31, 2005. Properties included in
discontinued operations at March 31, 2005 and March 31, 2004 included: two in Atlanta, GA;
one in Dallas, TX; one in Houston, TX; one in Los Angeles, CA; one in New York, NY; one in
Washington, D.C.; and nine in the secondary markets of Columbia, SC; St. Louis, MO;
Columbus, OH; Tulsa, OK; Sacramento, CA; Pittsburgh, PA; and Baltimore, MD. In addition,
two retail properties, located in Los Angeles, CA, were included in corporate and other.
Internal operating income excludes property related depreciation and amortization expense.
The accounting policies for purposes of internal reporting are the same as those described
for the Corporation in Note 2 from the Corporations 2004 Annual Report on Form 10-K,
Significant Accounting Policies, except that real estate operations conducted through
unconsolidated joint ventures are consolidated on a proportionate line-by-line basis, as
opposed to the equity method of accounting. All key financing, investing, capital
allocation and human resource decisions are managed at the corporate level.
25
Notes to the Financial Statements
$ in thousands, except per share amounts
10. |
|
SEGMENT INFORMATION, Continued |
The following presents internal operating income by reportable segment for the three
months ended March 31, 2005 and 2004.
For the three months ended March 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Properties |
|
|
Atlanta |
|
|
Chicago |
|
|
Dallas |
|
|
Houston |
|
|
Los Angeles |
|
|
2005 |
|
2004 |
|
|
2005 |
|
2004 |
|
|
2005 |
|
2004 |
|
|
2005 |
|
2004 |
|
|
2005 |
|
2004 |
Property Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenue |
|
$ |
19,689 |
|
|
$ |
22,156 |
|
|
|
$ |
19,291 |
|
|
$ |
18,484 |
|
|
|
$ |
21,259 |
|
|
$ |
22,504 |
|
|
|
$ |
27,874 |
|
|
$ |
30,568 |
|
|
|
$ |
26,625 |
|
|
$ |
14,168 |
|
Total property expense |
|
|
(8,314 |
) |
|
|
(8,885 |
) |
|
|
|
(8,576 |
) |
|
|
(9,170 |
) |
|
|
|
(11,318 |
) |
|
|
(11,546 |
) |
|
|
|
(14,440 |
) |
|
|
(14,986 |
) |
|
|
|
(11,463 |
) |
|
|
(6,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Operating Income |
|
$ |
11,375 |
|
|
$ |
13,271 |
|
|
|
$ |
10,715 |
|
|
$ |
9,314 |
|
|
|
$ |
9,941 |
|
|
$ |
10,958 |
|
|
|
$ |
13,434 |
|
|
$ |
15,582 |
|
|
|
$ |
15,162 |
|
|
$ |
7,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Property Assets |
|
$ |
403,184 |
|
|
|
|
|
|
|
$ |
383,223 |
|
|
|
|
|
|
|
$ |
499,153 |
|
|
|
|
|
|
|
$ |
427,173 |
|
|
|
|
|
|
|
$ |
746,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Properties, continued |
|
|
New York |
|
|
Washington D.C. |
|
|
Secondary Markets |
|
|
Corporate & Other |
|
|
Total |
|
|
2005 |
|
2004 |
|
|
2005 |
|
2004 |
|
|
2005 |
|
2004 |
|
|
2005 |
|
2004 |
|
|
2005 |
|
2004 |
Property Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenue |
|
$ |
49,768 |
|
|
$ |
53,013 |
|
|
|
$ |
33,005 |
|
|
$ |
29,183 |
|
|
|
$ |
18,034 |
|
|
$ |
36,157 |
|
|
|
$ |
2,625 |
|
|
$ |
18,950 |
|
|
|
$ |
218,170 |
|
|
$ |
245,183 |
|
Total property expense |
|
|
(24,410 |
) |
|
|
(24,319 |
) |
|
|
|
(12,327 |
) |
|
|
(11,330 |
) |
|
|
|
(10,735 |
) |
|
|
(19,901 |
) |
|
|
|
3,502 |
|
|
|
(6,840 |
) |
|
|
|
(98,081 |
) |
|
|
(113,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Operating Income |
|
$ |
25,358 |
|
|
$ |
28,694 |
|
|
|
$ |
20,678 |
|
|
$ |
17,853 |
|
|
|
$ |
7,299 |
|
|
$ |
16,256 |
|
|
|
$ |
6,127 |
|
|
$ |
12,110 |
|
|
|
$ |
120,089 |
|
|
$ |
131,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal Property Assets |
|
$ |
936,633 |
|
|
|
|
|
|
|
$ |
831,971 |
|
|
|
|
|
|
|
$ |
413,423 |
|
|
|
|
|
|
|
$ |
228,804 |
|
|
|
|
|
|
|
$ |
4,870,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Notes to the Financial Statements
$ in thousands, except per share amounts
10. |
|
SEGMENT INFORMATION, Continued |
|
|
|
The following is a reconciliation of internal operating income to income from continuing
operations. |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
Internal property revenue |
|
$ |
218,170 |
|
|
$ |
245,183 |
|
Less: Real estate joint venture property revenue |
|
|
(26,028 |
) |
|
|
(24,625 |
) |
Less: Discontinued operations |
|
|
(4,910 |
) |
|
|
(46,722 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
187,232 |
|
|
|
173,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal property operating expenses |
|
|
98,081 |
|
|
|
113,378 |
|
Less: Real estate joint venture operating expenses |
|
|
(12,462 |
) |
|
|
(10,706 |
) |
Less: Discontinued operations |
|
|
1,334 |
|
|
|
(23,504 |
) |
|
|
|
|
|
|
|
|
|
Total operating expenses and property taxes |
|
|
86,953 |
|
|
|
79,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
(9,008 |
) |
|
|
(4,277 |
) |
Depreciation and amortization |
|
|
(41,339 |
) |
|
|
(34,599 |
) |
Interest and other income |
|
|
1,215 |
|
|
|
955 |
|
Foreign currency exchange gain |
|
|
|
|
|
|
3,340 |
|
(Loss) Gain on early debt retirement |
|
|
(14 |
) |
|
|
246 |
|
Recovery on insurance claims |
|
|
|
|
|
|
206 |
|
Interest expense |
|
|
(35,692 |
) |
|
|
(36,347 |
) |
Derivative loss |
|
|
|
|
|
|
(2,011 |
) |
Lawsuit settlement |
|
|
760 |
|
|
|
94 |
|
Provision for income and other corporate taxes, net |
|
|
(421 |
) |
|
|
(1,490 |
) |
Minority interest |
|
|
(35 |
) |
|
|
(1,079 |
) |
Income from unconsolidated real estate joint ventures |
|
|
4,073 |
|
|
|
6,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
19,818 |
|
|
$ |
25,945 |
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of internal property assets to consolidated total assets.
|
|
|
|
|
|
|
March 31, |
|
|
2005 |
Internal property assets |
|
$ |
4,870,116 |
|
Less: Pro rata real estate joint venture
assets |
|
|
(509,785 |
) |
Add: Investment in unconsolidated real
estate joint ventures |
|
|
118,574 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
4,478,905 |
|
|
|
|
|
|
27
Notes to the Financial Statements
$ in thousands, except per share amounts
11. |
|
RESTATEMENT |
|
|
|
Subsequent to the issuance of the Corporations unaudited consolidated financial statements
for the three months ended March 31, 2005, on July 29, 2005, management of the Corporation,
in consultation with the Audit Committee of the Board of Directors of the Corporation,
concluded that the Corporations unaudited quarterly financial statements for the three
months ended March 31, 2004 included in the Corporations
Form 10-Q for the three months ended March 31, 2005, as
previously
filed with the SEC on May 6, 2005, should no
longer be relied upon due to an error in the classification between cash flows from
operating and investing activities in the unaudited consolidated statements of cash flows
related to the change in escrows and restricted cash. The Corporation determined that
changes in escrows and restricted cash resulting from property acquisition and disposition
activities designated to qualify as tax deferred transactions under Section 1031 of the
Internal Revenue Code were reflected erroneously in operating activities instead of
investing activities in the Corporations previously reported unaudited consolidated
statement of cash flows for the three months ended March 31, 2004. This restatement does
not affect the previously reported net change in cash and cash equivalents for the three
months ended March 31, 2004, and has no impact on the Corporations previously reported
unaudited consolidated balance sheet, consolidated statement of operations or the related
per share amounts as of, or for the three months ended, March 31, 2004. The following table
shows the Corporations previously reported and restated cash flows from operating
activities, investing activities and financing activities for the three months ended March
31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2004 |
|
|
As Reported |
|
Adjustment |
|
As Restated |
Provided by/(Used in) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Escrows and Restricted Cash |
|
$ |
27,777 |
|
|
$ |
(21,759 |
) |
|
$ |
6,018 |
|
Net Cash Provided by Operating Activities |
|
|
70,937 |
|
|
|
(21,759 |
) |
|
|
49,178 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Escrows and Restricted Cash |
|
|
(766 |
) |
|
|
21,759 |
|
|
|
20,993 |
|
Net Cash Provided by Investing Activities |
|
|
203,023 |
|
|
|
21,759 |
|
|
|
224,782 |
|
Net Cash
Used in Financing Activities |
|
|
(372,611 |
) |
|
|
|
|
|
|
(372,611 |
) |
Net Decrease in Cash and Cash Equivalents |
|
|
(98,651 |
) |
|
|
|
|
|
|
(98,651 |
) |
12. |
|
RELATED PARTY TRANSACTIONS |
|
|
|
In March 2005, Trizec Canada Inc. paid the Corporation approximately $760 as
reimbursement for legal expenses that it incurred in connection with a litigation
matter in which the Corporation, Trizec Canada Inc. and Peter Munk were co-plaintiffs.
As of March 24, 2005, Trizec Canada Inc. owned, together with its affiliates,
approximately 39% of the Corporations common stock and all of its outstanding special
voting stock and Class F convertible stock. Mr. Munk is the Chairman and Chief
Executive Officer of Trizec Canada Inc. and indirectly has majority voting power with
respect to the election of Trizec Canada Inc.s board of directors and certain other
matters. |
|
13. |
|
SUBSEQUENT EVENTS |
|
|
|
In April 2005, the Corporation sold Shoreline Square, located in Long Beach, California,
which was designated as held for sale pursuant to SFAS No. 144 at March 31, 2005, for a
gross sale price of approximately $87,400. |
|
|
|
In April 2005, the Corporation acquired 1200 K Street, located in Washington, DC, for
approximately $190,000. |
28
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
In the remainder of this Form 10-Q, the terms we, us, our and our company refer to
Trizec Properties, Inc. and its consolidated subsidiaries.
The following discussion should be read in conjunction with Forward-Looking Statements and
the consolidated interim financial statements and the notes thereto that appear elsewhere in this
Form 10-Q.
Subsequent to the issuance of our unaudited consolidated financial statements for the three
months ended March 31, 2005, on July 29, 2005, management, in consultation with the Audit Committee
of the Board of Directors, concluded that our unaudited quarterly financial statements for the
three months ended March 31, 2004 included in our Form 10-Q for
the three months ended March 31, 2005, as previously filed with the SEC
on May 6, 2005, should no longer be relied upon due to an
error in the classification between cash flows from operating and investing activities in the
unaudited consolidated statements of cash flows related to the change in escrows and restricted
cash. We determined that changes in escrows and restricted cash resulting from property
acquisition and disposition activities designated to qualify as tax deferred transactions under
Section 1031 of the Internal Revenue Code were reflected erroneously in operating activities
instead of investing activities in our previously reported unaudited consolidated statement of cash
flows for the three months ended March 31, 2004. This restatement does not affect the previously
reported net change in cash and cash equivalents for the three months ended March 31, 2004, and has
no impact on our previously reported unaudited consolidated balance sheet, consolidated statement
of operations or the related per share amounts as of, or for the three months ended, March 31,
2004. This restatement also has no impact on the non-GAAP measure of funds from operations, which
is described on page 46. This Form 10-Q/A has not been updated for events or information
subsequent to the date of filing of the original Form 10-Q except in connection with the foregoing.
Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC
subsequent to the filing of the original Form 10-Q.
As a result of this restatement, the discussion of cash flows in the Liquidity and Capital
Resources section of Managements Discussion and Analysis of Financial Condition and Results of
Operations for the three months ended March 31, 2004 has been restated.
Overview
We are one of the largest fully integrated and self-managed, publicly traded office real
estate investment trusts, or REITs, in the United States. We are engaged in owning and managing
office properties in the United States. At March 31, 2005, we had total assets of approximately
$4.5 billion and owned interests in 52 U.S. office properties containing approximately 37.3 million
square feet of total area. Of our 52 office properties, 45 office properties comprising
approximately 30.3 million square feet are consolidated and seven office properties comprising
approximately 7.0 million square feet are unconsolidated real estate joint venture properties.
Based on owned area, our 52 office properties comprise approximately 33.8 million square feet.
Owned area reflects the sum of the total square footage of all of our consolidated office
properties and our pro rata share of the square footage of our unconsolidated real estate joint
venture properties calculated based on our economic ownership interest in those unconsolidated real
estate joint ventures. Our office properties are concentrated in seven core markets in the United
States located in the following major metropolitan areas: Atlanta, Chicago, Dallas, Houston, Los
Angeles, New York and Washington, D.C.
We were launched as a publicly traded U.S. office REIT in May 2002, as part of the
reorganization of Canadian-based TrizecHahn Corporation. As part of its reorganization, TrizecHahn
Corporation formed Trizec Canada Inc., a Canadian company that, as of March 24, 2005, owned,
together with its affiliates, approximately 39% of our common stock and all of our outstanding
special voting stock and Class F convertible stock.
On December 22, 2004, we completed the reorganization of our operating structure by converting
to an umbrella partnership real estate investment trust, or UPREIT, structure (the UPREIT
Conversion). In connection with the UPREIT Conversion, we formed a new operating entity, Trizec
Holdings Operating LLC, a Delaware limited liability company (the Operating Company), and entered
into a contribution agreement and an assignment and assumption agreement with the Operating Company
pursuant to which we contributed substantially all of our assets to the Operating Company in
exchange for (a) a combination of common units, special voting units and Series
29
F convertible units of limited liability company interest in the Operating Company and (b) the
assumption by the Operating Company of substantially all of our liabilities. We now conduct and
intend to continue to conduct our business, and own and intend to continue to own substantially all
of our assets, through the Operating Company. As the sole managing member of the Operating
Company, we generally have the exclusive power under the limited liability company agreement to
manage and conduct the business of the Operating Company, subject to certain limited approval and
voting rights of the other members that may be admitted in the future. Currently, the Operating
Company is wholly-owned by us.
During the three months ended March 31, 2005, we completed the following key transactions:
|
|
|
In January 2005, we announced the appointment of Brian K. Lipson as Executive Vice
President and Chief Investment Officer. |
|
|
|
|
In February 2005, we announced the completion of a 15-year lease extension with
prominent international law firm Fried, Frank, Harris, Shriver & Jacobson, LLP at One
New York Plaza. Under the lease agreement, which will extend through February 2024,
the firm will expand its space from approximately 338,000 square feet to approximately
380,000 square feet. |
|
|
|
|
In February 2005, we announced the approval of Morgan Stanleys 450,000 square foot
sublease agreement with existing tenant Wachovia at One New York Plaza. The term of
the sublease runs through December 2014, which is the remaining term of the Wachovia
lease. |
Subsequent to March 31, 2005, we completed the following key transactions:
|
|
|
In April 2005, we sold Shoreline Square, located in Long Beach, California, which
was designated as held for sale pursuant to SFAS No. 144 at March 31, 2005, for a gross
sale price of approximately $87.4 million. |
|
|
|
|
In April 2005, we acquired 1200 K Street, located in Washington, DC, for
approximately $190.0 million. |
|
|
|
|
In April 2005, we announced the commencement of construction at Waterview, a
one-million square foot mixed-use development that will include two 300-foot high
towers in Rosslyn, Virginia. The 633,000 square foot, 24-story office building has
been leased by The Corporate Executive Board for 20 years. Another 29-story tower will
feature 136 condominium residences and a 155-room hotel. |
Critical Accounting Policies
Refer to our Annual Report on Form 10-K for the year ended December 31, 2004 for a discussion
of our critical accounting policies, which include revenue recognition, allowance for doubtful
accounts, impairment of real estate assets and investments, investments in unconsolidated joint
ventures, derivative instruments, fair value of financial instruments, internal leasing costs,
insurance and tax liabilities. During the three months ended March 31, 2005, there were no changes
to these policies.
Results of Operations
The following discussion is based on our consolidated financial statements for the three
months ended March 31, 2005 and 2004.
Trends in Occupancy
The macroeconomic conditions that negatively affected employment levels for office workers,
which, in turn, affected the demand for office space, have not significantly changed since the end
of 2004. This stagnant demand for office space has resulted in relatively flat occupancy rates,
however, we believe that it is likely that demand for office space will gradually improve during
the remainder of the year. Despite our belief that office market conditions will improve gradually
throughout the remainder of 2005, we anticipate continued downward
30
pressure on market rents, however, not to the extent of the recent past. Our focus for the
remainder of the year will be to renew or release expiring space. The table below reflects the
occupancy rates at March 31, 2005 compared to December 31, 2004 and shows the percentage of the
square feet that will expire during the remainder of the year for our U.S. office portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
OWNED AREA |
|
|
|
|
|
|
|
|
|
|
Percentage of space |
|
|
Occupancy Rates At |
|
expiring during the |
|
|
March 31, 2005 |
|
December 31, 2004 |
|
remainder of 2005 |
Core Markets |
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta |
|
|
89.5 |
% |
|
|
89.0 |
% |
|
|
9.0 |
% |
Chicago |
|
|
89.3 |
% |
|
|
94.0 |
% |
|
|
3.6 |
% |
Dallas |
|
|
86.1 |
% |
|
|
85.2 |
% |
|
|
7.8 |
% |
Houston |
|
|
84.5 |
% |
|
|
84.4 |
% |
|
|
4.4 |
% |
Los Angeles |
|
|
87.7 |
% |
|
|
88.4 |
% |
|
|
4.5 |
% |
New York |
|
|
92.0 |
% |
|
|
96.8 |
% |
|
|
5.0 |
% |
Washington, D.C. |
|
|
94.9 |
% |
|
|
95.0 |
% |
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Markets |
|
|
89.1 |
% |
|
|
90.2 |
% |
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secondary Markets |
|
|
82.3 |
% |
|
|
83.9 |
% |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Office Properties |
|
|
88.3 |
% |
|
|
89.5 |
% |
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL AREA |
|
|
|
|
|
|
|
|
|
|
Percentage of space |
|
|
Occupancy Rates At |
|
expiring during the |
|
|
March 31, 2005 |
|
December 31, 2004 |
|
remainder of 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Properties |
|
|
88.6 |
% |
|
|
89.8 |
% |
|
|
7.0 |
% |
Unconsolidated JV
Properties |
|
|
85.7 |
% |
|
|
86.9 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Office Properties |
|
|
88.0 |
% |
|
|
89.3 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2005, we leased approximately 1.4 million square
feet of new and renewal space on a consolidated basis. Occupancy for our consolidated portfolio
was approximately 88.6% at March 31, 2005, compared to approximately 89.8% at December 31, 2004.
In addition, for the three months ended March 31, 2005, leases expired at an average gross rent of
approximately $24.45 per square foot and were generally being signed at an average gross rent of
approximately $23.59 per square foot.
For the three months ended March 31, 2005, we leased approximately 1.5 million square feet of
owned area new and renewal space. Occupancy for our portfolio based on owned area was
approximately 88.3% at March 31, 2005, compared to approximately 89.5% at December 31, 2004. In
addition, for the three months ended March 31, 2005, based upon our owned area, leases expired at
an average gross rent of approximately $25.42 per square foot and were generally being signed at an
average gross rent of approximately $24.57 per square foot.
In an environment of relatively stagnant economic conditions, it is normal to experience
increased rental delinquencies and tenant failures. We monitor the financial strength of our key
tenants and, therefore, their ability to pay rent and the likelihood that they will continue to pay
rent, through a watch list process applied at the local, regional and corporate property management
levels. This monitoring process is designed to help us identify significant credit risks. At the
end of March 2005, we were closely monitoring tenants with leases representing approximately 1.7%
of the leaseable area of our U.S. office portfolio and approximately 1.5% of our annual gross rent
for the U.S. office portfolio.
31
Acquisition and Disposition Activities
The table that follows is a summary of our acquisition and disposition activity from January
1, 2004 to March 31, 2005 and reflects our total portfolio at March 31, 2005. The buildings and
total square feet shown include properties that we own in joint ventures with other partners and
reflect the total square footage of the properties and the square footage owned by us based on our
pro rata economic ownership in the respective joint ventures or managed properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office |
|
Retail |
|
|
|
|
|
|
|
|
|
|
Pro rata |
|
|
|
|
|
|
|
|
|
Pro rata |
|
|
|
|
|
|
Total |
|
Owned |
|
|
|
|
|
Total |
|
Owned |
Properties as of: |
|
Properties |
|
Sq. Ft. |
|
Sq. Ft. |
|
Properties |
|
Sq. Ft. |
|
Sq. Ft. |
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
December 31, 2003 |
|
|
65 |
|
|
|
42,759 |
|
|
|
39,828 |
|
|
|
2 |
|
|
|
1,245 |
|
|
|
1,191 |
|
Acquisitions |
|
|
2 |
|
|
|
1,651 |
|
|
|
1,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions |
|
|
(15 |
) |
|
|
(7,091 |
) |
|
|
(7,091 |
) |
|
|
(2 |
) |
|
|
(1,245 |
) |
|
|
(1,191 |
) |
Sale of interest to a joint venture |
|
|
|
|
|
|
|
|
|
|
(588 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Re-measurements |
|
|
|
|
|
|
(11 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
52 |
|
|
|
37,308 |
|
|
|
33,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-measurements |
|
|
|
|
|
|
18 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2005 |
|
|
52 |
|
|
|
37,326 |
|
|
|
33,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the financial information that follows, property revenues include rental revenue,
recoveries from tenants, parking and other income. Property operating expenses include costs that
are recoverable from our tenants (including but not limited to real estate taxes, utilities,
insurance, repairs and maintenance and cleaning) and other non-recoverable property-related
expenses and exclude depreciation and amortization expense.
32
Comparison of Three Months Ended March 31, 2005 to Three Months Ended March 31, 2004
The following is a table comparing our summarized operating results for the periods, including
other selected information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
|
|
|
March 31, |
|
Increase |
|
% |
|
|
2005 |
|
2004 |
|
(Decrease) |
|
Change |
|
|
(dollars in thousands) |
Total Property Revenues |
|
$ |
187,232 |
|
|
$ |
173,836 |
|
|
$ |
13,396 |
|
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
86,953 |
|
|
|
79,168 |
|
|
|
7,785 |
|
|
|
9.8 |
% |
General and administrative |
|
|
9,008 |
|
|
|
4,277 |
|
|
|
4,731 |
|
|
|
110.6 |
% |
Depreciation and amortization |
|
|
41,339 |
|
|
|
34,599 |
|
|
|
6,740 |
|
|
|
19.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses |
|
|
137,300 |
|
|
|
118,044 |
|
|
|
19,256 |
|
|
|
16.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
49,932 |
|
|
|
55,792 |
|
|
|
(5,860 |
) |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
1,215 |
|
|
|
955 |
|
|
|
260 |
|
|
|
27.2 |
% |
Foreign currency exchange gain |
|
|
|
|
|
|
3,340 |
|
|
|
(3,340 |
) |
|
|
|
|
(Loss) Gain on early debt retirement |
|
|
(14 |
) |
|
|
246 |
|
|
|
(260 |
) |
|
|
105.7 |
% |
Recovery on insurance claims |
|
|
|
|
|
|
206 |
|
|
|
(206 |
) |
|
|
|
|
Interest expense |
|
|
(35,692 |
) |
|
|
(36,347 |
) |
|
|
655 |
|
|
|
1.8 |
% |
Derivative loss |
|
|
|
|
|
|
(2,011 |
) |
|
|
2,011 |
|
|
|
|
|
Lawsuit settlement |
|
|
760 |
|
|
|
94 |
|
|
|
666 |
|
|
|
708.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense |
|
|
(33,731 |
) |
|
|
(33,517 |
) |
|
|
(214 |
) |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes, Minority Interest, Income from
Unconsolidated Real Estate Joint Ventures, Discontinued
Operations and Gain on Disposition of Real Estate, Net |
|
|
16,201 |
|
|
|
22,275 |
|
|
|
(6,074 |
) |
|
|
27.3 |
% |
Provision for income and other corporate taxes, net |
|
|
(421 |
) |
|
|
(1,490 |
) |
|
|
1,069 |
|
|
|
71.7 |
% |
Minority interest |
|
|
(35 |
) |
|
|
(1,079 |
) |
|
|
1,044 |
|
|
|
96.8 |
% |
Income from unconsolidated real estate joint ventures |
|
|
4,073 |
|
|
|
6,239 |
|
|
|
(2,166 |
) |
|
|
34.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
19,818 |
|
|
|
25,945 |
|
|
|
(6,127 |
) |
|
|
23.6 |
% |
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
6,471 |
|
|
|
11,495 |
|
|
|
(5,024 |
) |
|
|
43.7 |
% |
Gain on disposition of discontinued real estate, net |
|
|
207 |
|
|
|
32,396 |
|
|
|
(32,189 |
) |
|
|
99.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Gain on Disposition of Real Estate, Net |
|
|
26,496 |
|
|
|
69,836 |
|
|
|
(43,340 |
) |
|
|
62.1 |
% |
Gain on disposition of real estate, net |
|
|
|
|
|
|
14,771 |
|
|
|
(14,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
26,496 |
|
|
|
84,607 |
|
|
|
(58,111 |
) |
|
|
68.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special voting and Class F convertible stockholders
dividends |
|
|
(1,209 |
) |
|
|
(1,304 |
) |
|
|
95 |
|
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Stockholders |
|
$ |
25,287 |
|
|
$ |
83,303 |
|
|
$ |
(58,016 |
) |
|
|
69.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Straight-Line Revenue (excluding discontinued operations) |
|
$ |
2,987 |
|
|
$ |
4,162 |
|
|
$ |
(1,175 |
) |
|
|
28.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Termination Fees (excluding discontinued operations) |
|
$ |
2,090 |
|
|
$ |
1,429 |
|
|
$ |
661 |
|
|
|
46.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Property Revenues
Property revenues increased by approximately $13.4 million for the three months ended March
31, 2005 compared to the three months ended March 31, 2004. Property revenues increased
approximately $12.1 million due to the acquisition of Bank of America Plaza, located in Los
Angeles, California, in the third quarter of 2004 and by approximately $2.4 million due to the
acquisition of an interest in 2001 M Street, located in Washington D.C., in the fourth quarter of
2004. Rental revenues increased by approximately $2.8 million for the three months ended March 31,
2005 compared to the three months ended March 31, 2004. The increase is primarily due to an
increase in average rental rates in the New York and Washington D.C. markets as well as an overall
increase in average occupancy for the three months ended March 31, 2005 compared to the three
months ended March 31, 2004. In addition, parking and other income increased by approximately $2.5
million for the three months ended March 31, 2005 compared to the three months ended March 31,
2004. This increase is primarily due to an increase in parking and other income of approximately
$1.8 million and an increase in termination fees of approximately $0.7 million. These increases
were partially offset by a decrease in property revenues of approximately $0.6 million due to the
sale of 151 Front Street, located in Toronto, Ontario, in the first quarter of 2004 and by
approximately $4.0 million due to the sale of a 50% interest in Plaza of the Americas, located in
Dallas, Texas, in the second quarter of 2004. In addition, there was a decrease of approximately
$1.8 million in tenant recoveries and management fee income for the three months ended March 31,
2005 compared to the three months ended March 31, 2004. This decrease is primarily due to a
decrease in management fees and tenant recoveries of approximately $3.0 million from managed
properties, partially offset by an increase in tenant recoveries of approximately $1.2 million due
to an increase in recoverable operating expenses.
Lease termination fees are an element of ongoing real estate ownership. Included in the
property revenue analysis above, for the three months ended March 31, 2005, we recognized
approximately $2.1 million of termination fees compared to approximately $1.4 million for the three
months ended March 31, 2004.
Property Operating Expenses
Property operating expenses increased by approximately $7.8 million for the three months ended
March 31, 2005 compared to the three months ended March 31, 2004. The acquisition of Bank of
America Plaza resulted in an increase in property operating expenses of approximately $5.3 million
and the acquisition of an interest in 2001 M Street resulted in an increase of approximately $0.9
million. Property operating expenses increased by approximately $0.7 million due to an increase in
insurance expense and by approximately $2.9 million due to an increase in property taxes. In
addition, repairs and maintenance, security, and other recoverable expenses increased by
approximately $1.7 million and bad debt expense increased by approximately $0.4 million. These
increases were partially offset by a decrease in property operating expenses of approximately $0.5
million due to the sale of 151 Front Street and a decrease of approximately $2.7 million due to the
sale of a 50% interest in Plaza of the Americas. In addition, a decrease in building management
expenses resulted in a decrease in property operating expenses of approximately $0.9 million for
the three months ended March 31, 2005 compared to the three months ended March 31, 2004.
Excluding the impact of lease termination fees on revenues, our gross margin (property
revenues, excluding lease termination fees, less property operating expenses) decreased to
approximately 53.0% for the three months ended March 31, 2005 from approximately 54.1% for the
three months ended March 31, 2004, primarily reflecting an increase in operating expenses.
General and Administrative
General and administrative expense includes expenses for corporate and portfolio asset
management functions. Expenses for property management and fee-based services are recorded as
property operating expenses.
General and administrative expense increased by approximately $4.7 million for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004. This increase is
primarily due to an increase in employee compensation, including equity based compensation, as well
as separation costs incurred for a departed officer during the three months ended March 31, 2005
compared to the three months ended March 31, 2004 and a reversal of bonus accruals for the three
months ended March 31, 2004.
34
Depreciation and Amortization
Depreciation and amortization expense increased by approximately $6.7 million for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004. The acquisition of
Bank of America Plaza and the acquisition of an interest in 2001 M Street resulted in an increase
in depreciation and amortization expense of approximately $6.5 million. In addition, depreciation
and amortization expense increased by approximately $1.3 million primarily due to accelerated
depreciation of tenant improvements resulting from early termination of leases and additional
depreciation related to tenant improvements incurred subsequent to January 1, 2004. These
increases in depreciation and amortization expense were partially offset by a decrease in
depreciation and amortization expense of approximately $1.1 million due to the disposition of a 50%
interest in Plaza of the Americas in the second quarter of 2004.
Interest and Other Income
Interest and other income increased by approximately $0.3 million for the three months ended
March 31, 2005 compared to the three months ended March 31, 2004 primarily due to an increase in
average cash balances for the three months ended March 31, 2005 compared to the three months ended
March 31, 2004.
Foreign Currency Exchange Gain
During the three months ended March 31, 2004, we sold 151 Front Street in Toronto, Ontario,
recognizing a foreign currency exchange gain of approximately $3.3 million.
(Loss) Gain on Early Debt Retirement
In December 2004, in conjunction with the sale of 250 West Pratt Street, located in Baltimore,
Maryland, we and the lender of the mortgage loan collateralized by such property agreed to modify
certain terms of the mortgage loan. The lender of the mortgage loan agreed to release the property
as collateral for the mortgage loan in consideration of the establishment of an escrow, for the
benefit of the lender, in the amount of approximately $28.7 million. The escrow was comprised of
funds to be used to repay the full outstanding principal balance of the mortgage loan as well as
interest payments through January 3, 2005. The escrow funds of approximately $28.7 million were
included in restricted cash on our balance sheet at December 31, 2004. On January 3, 2005, the
funds held in escrow were released to the lender. In conjunction with the repayment and retirement
of the mortgage loan, we recorded a minimal loss on early debt retirement, comprised primarily of
the write-off of unamortized deferred financing costs.
During the three months ended March 31, 2004, we recorded an aggregate gain on early debt
retirement of approximately $0.2 million. We recorded a gain on early debt retirement of
approximately $0.9 million related to the sale of Hollywood and Highland Hotel comprised primarily
of the forgiveness of debt of approximately $1.2 million, partially offset by the write-off of
unamortized deferred financing costs of approximately $0.3 million. This gain on early debt
retirement is partially offset by the write-off of unamortized deferred financing costs of
approximately $0.4 million resulting from the repayment of secured mortgages coinciding with the
sale of the underlying properties, as well as the write-off of unamortized deferred financing costs
of approximately $0.3 million due to the refinancing of a $120.0 million mortgage loan.
Recovery on Insurance Claims
During the three months ended March 31, 2004, we received approximately $0.2 million in
insurance proceeds related to window replacements at 550 W. Washington in Chicago that were damaged
in 2003.
Interest Expense
Interest expense decreased by approximately $0.7 million for the three months ended March 31,
2005 compared to the three months ended March 31, 2004. Lower average debt balances outstanding
due to early debt retirements, regular principal amortization and lump sum repayments resulted in a
decrease in interest expense of approximately $3.2 million. In addition, interest expense
decreased by approximately $1.9 million primarily due to
35
certain interest rate swap contracts that were unwound during the fourth quarter of 2004.
Additionally, the retirement of debt due to the disposition of 151 Front Street in the first
quarter of 2004 decreased interest expense by approximately $0.1 million. These decreases were
partially offset by an increase in interest expense of approximately $1.2 million due to a higher
outstanding balance on our credit facility. In addition, in conjunction with the acquisition of
Bank of America Plaza and the acquisition of an interest in 2001 M Street, we entered into mortgage
loans totaling, in the aggregate, approximately $286.5 million which resulted in an increase in
interest expense of approximately $3.3 million during the three months ended March 31, 2005.
Derivative Loss
During the three months ended March 31, 2004, we recorded a derivative loss of approximately
$2.0 million in connection with the ineffective portion of certain interest rate swap agreements
that were used to hedge variable rate debt that has been repaid and retired.
Provision for Income and Other Corporate Taxes, Net
Income and other taxes include franchise, capital, alternative minimum and foreign taxes
related to ongoing real estate operations. Income and other taxes decreased by approximately $1.1
million for the three months ended March 31, 2005 compared to the three months ended March 31, 2004
primarily due to lower taxes as a result of property dispositions made during the year ended 2004
and restructuring in connection with the UPREIT Conversion.
Minority Interest
Minority interest loss decreased by approximately $1.0 million for the three months ended
March 31, 2005 compared to the three months ended March 31, 2004. Approximately $0.4 million of
the decrease is due to a decrease in the change in the redemption value of the TrizecHahn
Mid-Atlantic I Partnerships redeemable units for the three months ended March 31, 2005 compared to
the three months ended March 31, 2004. In addition, preferred returns to the minority interest
partner upon the sale of the Hollywood and Highland Hotel in Los Angeles, California resulted in a
minority interest loss of approximately $0.6 million during the first quarter of 2004.
Income from Unconsolidated Real Estate Joint Ventures
Income from unconsolidated real estate joint ventures decreased by approximately $2.2 million
for the three months ended March 31, 2005 compared to the three months ended March 31, 2004.
Income from unconsolidated real estate joint ventures decreased by approximately $2.3 million due
to a decrease in the net income on the Grace Building and 1411 Broadway, both of which are located
in New York, New York. This decrease primarily resulted from an increase in interest expense
related to the refinancing of certain mortgage loans in June 2004 that encumbered these two
unconsolidated joint venture properties. This decrease was partially offset by an increase in
aggregate net income of approximately $0.1 million for our other unconsolidated real estate joint
ventures for the three months ended March 31, 2005 compared to the three months ended March 31,
2004.
Discontinued Operations
Income from properties classified as discontinued operations decreased by approximately $5.0
million for the three months ended March 31, 2005 compared to the three months ended March 31,
2004. Income from discontinued operations for the three months ended March 31, 2004 includes the
net income of properties sold subsequent to December 31, 2003, whereas income from discontinued
operations for the three months ended March 31, 2005 includes only the net income of the two
properties which were designated as held for disposition but had not been sold subsequent to
December 31, 2004. In addition, on September 8, 2004, we and the Los Angeles County Assessors
Office presented to the Los Angeles County Assessment Appeals Board a written stipulation agreeing
to the base year value in 2000, and the 2001, 2002, 2003 and 2004 assessed values of the Hollywood
& Highland Complex, located in Los Angeles, California. The stipulation provided for substantial
reductions in the assessed value of the Hollywood & Highland Complex for all years. The Los
Angeles County Assessment Appeals Board approved the stipulation and adopted the values as set
forth in the stipulation, which resulted in a real estate
36
tax refund. During the three months ended March 31, 2005, we received approximately $4.3
million of the real estate tax refund, resulting in a decrease in real estate tax for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004.
During the three months ended March 31, 2004, we recognized a gain on disposition of
discontinued real estate of approximately $32.4 million, net of related tax effect, due to the sale
of the Hollywood & Highland Complex.
Gain on Disposition of Real Estate, Net
During the three months ended March 31, 2004, we recognized a gain on disposition of real
estate, net of the related tax effect, of approximately $14.8 million due to the sale of 151 Front
Street in Toronto, Ontario which was subject to the transition rules of SFAS No. 144.
Liquidity and Capital Resources
Our objective is to ensure, in advance, that there are ample resources to fund ongoing
operating expenses, capital expenditures, debt service requirements and the distributions required
to maintain our REIT status.
We expect to meet our liquidity requirements over the next twelve months for normal recurring
expenditures, non-recurring capital expenditures, potential future acquisitions and developments,
major renovations, expansions, scheduled debt maturities, ground lease payments, operational tax
obligations, settlement of pre-REIT tax issues and distributions required to maintain our REIT
status through cash flows from operations, asset sales, entering into joint venture arrangements or
partnerships with equity providers, current cash and credit availability, refinancing of existing
mortgage debt, incurrence of secured debt, proceeds from the possible sale of our capital stock or
a combination of these sources. Our net cash flow from operations is dependent upon the occupancy
levels of our properties, net effective rental rates on current and future leases, collectibility
of rent from our tenants, the level of operating and other expenses, as well as other factors.
Material changes in these factors may adversely affect our net cash flow from operations.
We expect to meet our liquidity requirements beyond twelve months for normal recurring
expenditures, non-recurring capital expenditures, potential future acquisitions and developments,
major renovations, expansions, scheduled debt maturities, ground lease payments, operational tax
obligations, settlement of pre-REIT tax issues and distributions required to maintain our REIT
status through cash flows from operations, asset sales, entering into joint venture arrangements or
partnerships with equity providers, current cash and credit availability, refinancing of existing
mortgage debt, incurrence of secured debt, proceeds from the possible sale of our capital stock or
a combination of these sources. Our net cash flow from operations is dependent upon the occupancy
levels of our properties, net effective rental rates on current and future leases, collectibility
of rent from our tenants, the level of operating and other expenses, as well as other factors.
Material changes in these factors may adversely affect our net cash flow from operations.
We have a $750.0 million unsecured credit facility, which matures in June 2007. The amount
available for us to borrow under the unsecured credit facility at any time is determined by certain
properties that we, or our subsidiaries that may from time to time guarantee the unsecured credit
facility, own that satisfy certain conditions of eligibility. These conditions are not uncommon
for unsecured credit facilities of this nature. During the remainder of its term, the amount
available for us to borrow under the unsecured credit facility will likely fluctuate. The capacity
under the unsecured credit facility may decrease as we sell or place permanent financing on assets
currently supporting the unsecured credit facility. In addition, the capacity under the unsecured
credit facility may decrease if assets no longer meet certain eligibility requirements. Likewise,
the capacity under the unsecured credit facility may increase as certain assets otherwise meet the
eligibility requirements. As of March 31, 2005, the amount available for us to borrow under the
unsecured credit facility was approximately $458.1 million, of which $150.0 million was
outstanding. During the remainder of the term of the unsecured credit facility, we expect the
outstanding balance to fluctuate. The balance under the unsecured credit facility will likely
increase from time to time as we use funds from the unsecured credit facility to meet a variety of
liquidity requirements such as dividend payments, tenant installation costs, future tax payments
and acquisitions that may not be fully met through operations. The balance
37
under the unsecured credit facility will also likely be reduced as a result of proceeds
generated from asset sales, secured borrowings, operating cash flows and other sources of
liquidity.
Under our unsecured credit facility, we are subject to covenants, including financial
covenants, restrictions on other indebtedness, restrictions on encumbrances of properties that we
use in determining our borrowing capacity and certain customary investment restrictions. The
financial covenants include the quarterly requirements for the total leverage ratio not to exceed
65.0% during year one, 62.5% during year two and 60.0% during year three; a requirement that the
interest coverage ratio be greater than 2.0 times; a requirement that the fixed charge coverage
ratio be greater than 1.5 times; and a requirement that the net worth be in excess of $1.5 billion.
Our financial covenants also include a restriction on dividends or distributions of more than 90%
of our funds from operations (as defined in the unsecured credit facility agreement). If we are in
default in respect of our obligations under the unsecured credit facility agreement, dividends will
be limited to the amount necessary to maintain REIT status. At March 31, 2005, we were in
compliance with these financial covenants.
We also have available an effective shelf registration statement under which we may offer and
sell up to an aggregate amount of $750.0 million of common stock, preferred stock, depositary
shares representing shares of our preferred stock and warrants exercisable for common stock or
preferred stock. However, our ability to raise funds through sales of common stock, preferred
stock, depositary shares representing shares of our preferred stock and common and preferred stock
warrants is dependent upon, among other things, general market conditions for REITs, market
perceptions about our company, the current trading price of our stock, and the current interest
rates. The proceeds from the sale of shares of common stock, preferred stock, depositary shares
representing shares of our preferred stock or common and preferred stock warrants, if any, would be
used for general corporate purposes, which may include, among other things, the acquisition of
additional properties or the repayment of outstanding indebtedness.
After dividend distributions, our remaining cash from operations may not be sufficient to
allow us to retire all of our debt as it comes due. Accordingly, we may be required to refinance
maturing debt or repay it utilizing proceeds from property dispositions or issuance of equity
securities. Our ability to refinance maturing debt will be dependent on our financial position, the
cash flow from our properties, the value of our properties, liquidity in the debt markets and
general economic and real estate market conditions. There can be no assurance that such
refinancing or proceeds will be available or be available on economical terms when necessary in the
future.
Contractual Obligations
Due to the repayment and retirement of a mortgage loan that formerly collateralized 250 West
Pratt Street, located in Baltimore, Maryland, we are no longer liable for future mortgage
obligations of approximately $28.7 million, which was previously disclosed in the contractual
obligations table in our Annual Report on Form 10-K for the year ended December 31, 2004. No other
material changes outside the ordinary course of business occurred affecting our contractual
obligations during the three months ended March 31, 2005.
Cash Flow Activity
At March 31, 2005, we had approximately $157.2 million in cash and cash equivalents as
compared to approximately $194.3 million at December 31, 2004. The increases in cash for the three
months ended March 31, 2005 and 2004 are a result of the following cash flows:
38
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
|
|
|
|
2004 |
|
|
2005 |
|
(As
Restated) |
|
|
(dollars in thousands) |
Cash provided by operating activities |
|
$ |
26,623 |
|
|
$ |
49,178 |
|
Cash (used in) provided by investing activities |
|
|
(54,242 |
) |
|
|
224,782 |
|
Cash used in financing activities |
|
|
(9,450 |
) |
|
|
(372,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
(37,069 |
) |
|
$ |
(98,651 |
) |
|
|
|
|
|
|
|
|
|
Operating Activities
Cash provided by operating activities for the three months ended March 31, 2005 was
approximately $26.6 million compared to approximately $49.2 million for the three months ended
March 31, 2004. Cash flows from operations depends primarily on cash generated from lease payments
for leased spaces at our office properties. The change in cash flows from operating activities is
primarily attributable to the factors discussed in our analysis of results of operations for the
three months ended March 31, 2005 compared to the three months ended March 31, 2004 as well as the
timing of receipt of revenues and the payment of expenses.
Investing Activities
Net cash used by investing activities reflects the net impact of the acquisition and
disposition of certain properties, investments in, and distributions from, our unconsolidated real
estate joint ventures and the ongoing impact of expenditures on tenant installations costs and
capital expenditures. During the three months ended March 31, 2005, approximately $54.2 million of
cash was used in our investing activities compared to approximately $224.8 million of cash
generated in our investing activities during the three months ended March 31, 2004, which are
described below.
Tenant Installation Costs
Our office properties require periodic investments of capital for tenant installation costs
related to new and renewal leasing. As noted above, relatively stagnant market conditions for the
three months ended March 31, 2005 resulted in a modest decrease in vacancies over the same period
in the prior year. The stagnant market conditions, combined with sublet space inventory in our
major markets, has continued the downward pressure on rental rates and the upward pressure on
tenant installation costs. For comparative purposes, the absolute total dollar amount of tenant
installation costs in any given period is less relevant than the cost on a per square foot basis.
This is because the total is impacted by the square footage both leased and occupied in any given
period. Tenant installation costs consist of tenant allowances and leasing costs. Leasing costs
include leasing commissions paid to third-party brokers representing tenants and costs associated
with dedicated regional leasing teams who represent us and deal with tenant representatives. The
following table reflects tenant installation costs for the total office portfolio we owned at March
31, 2005 and for the total office portfolio we owned at March 31, 2004, including our share of such
costs incurred by unconsolidated real estate joint ventures, for both new and renewal office leases
that commenced during the respective periods, regardless of when such costs were actually paid.
The square feet leased data in the table represents our pro rata owned share of square feet leased.
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
|
|
(in thousands) |
Square feet leased |
|
|
|
|
|
|
|
|
- new leasing |
|
|
475 |
|
|
|
767 |
|
- renewal leasing |
|
|
1,050 |
|
|
|
1,160 |
|
Total square feet leased |
|
|
1,525 |
|
|
|
1,927 |
|
Tenant installation costs |
|
$ |
34,058 |
|
|
$ |
35,436 |
|
39
Capital Expenditures
To maintain the quality of our properties and preserve competitiveness and long-term value, we
pursue an ongoing program of capital expenditures, certain of which are not recoverable from
tenants. For the three months ended March 31, 2005 and 2004, capital expenditures for the total
office portfolio, including our share of such expenditures incurred by unconsolidated real estate
joint ventures, was approximately $3.5 million and approximately $2.0 million, respectively.
Recurring capital expenditures include, for example, the cost of roof replacement and the cost of
replacing heating, ventilation, air conditioning and other building systems. In addition to
recurring capital expenditures, expenditures are made in connection with non-recurring events such
as asbestos abatement or removal costs, major mechanical attribute or system replacement, and
redevelopment or reconstruction costs directly attributable to extending or preserving the useful
life of the base building. Furthermore, as part of our office property acquisitions, we have
routinely acquired and repositioned properties in their respective markets, many of which have
required significant capital improvements due to deferred maintenance and the existence of shell
space requiring initial tenant build-out at the time of acquisition. Some of these properties
required substantial renovation to enable them to compete effectively. We take these capital
improvement and new leasing tenant inducement costs into consideration when negotiating our
purchase price at the time of acquisition.
Reconciliation to Combined Consolidated Statements of Cash Flows
The above information includes tenant installation costs granted, including leasing costs, and
capital expenditures for the total portfolio, including our share of such costs granted by
unconsolidated real estate joint ventures, for leases that commenced during the periods presented.
The amounts included in our consolidated statements of cash flows represent the actual cash spent
during the periods, excluding our share of such costs and expenditures incurred by unconsolidated
real estate joint ventures. The reconciliation between the above amounts and our consolidated
statements of cash flows is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
|
|
(dollars in thousands) |
Tenant installation costs,
including leasing costs for the owned
office portfolio |
|
$ |
34,058 |
|
|
$ |
35,436 |
|
Capital expenditures |
|
|
3,503 |
|
|
|
1,971 |
|
Pro rata joint venture activity |
|
|
(1,668 |
) |
|
|
(983 |
) |
Timing differences |
|
|
(7,490 |
) |
|
|
(8,518 |
) |
Retail activity |
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of tenant improvements, leasing
costs and capital expenditures per
consolidated statements of cash flows |
|
$ |
28,403 |
|
|
$ |
28,056 |
|
|
|
|
|
|
|
|
|
|
Dispositions
During the three months ended March 31, 2004, we sold one office property and two retail
properties generating net proceeds of approximately $257.0 million, or approximately $18.6 million
after debt repayment.
Unconsolidated Real Estate Joint Ventures
During the three months ended March 31, 2005, we made cash contributions to our unconsolidated
real estate joint ventures in the aggregate amount of approximately $1.6 million, and received
distributions from our unconsolidated real estate joint ventures in the aggregate amount of
approximately $7.3 million. During the three months ended March 31, 2004, we made contributions
and advances to our unconsolidated real estate joint ventures in the aggregate amount of
approximately $20.1 million, and received distributions from our unconsolidated real estate joint
ventures in the aggregate amount of approximately $4.5 million. We have received net distributions
in excess of our investments in 1114 TrizecHahn-Swig, L.L.C. and 1411 TrizecHahn-Swig, L.L.C. (the
Swig Joint Ventures). At March 31, 2005 and December 31, 2004, such excess net distributions
totaled approximately $43.3
40
million and $43.2 million, respectively, and have been recorded in other accrued liabilities
as we have committed to provide financial support to the Swig Joint Ventures in the future.
Financing Activities
During the three months ended March 31, 2005, we used approximately $9.5 million in our
financing activities due primarily to approximately $34.1 million of principal repayments on
mortgage debt and paid approximately $32.4 million in dividends to our stockholders. These uses
were offset by approximately $28.7 million released from an escrow established for repayment of the
mortgage loan of 250 W. Pratt, located in Baltimore, Maryland and proceeds of approximately $28.3
million from the issuance of our common stock.
During the three months ended March 31, 2004, we used approximately $372.6 million in our
financing activities, due primarily to approximately $260.5 million of principal repayments on
mortgage debt and approximately $238.3 million of mortgage debt and other loans repaid upon
property dispositions. Additionally, we incurred and paid approximately $3.8 million in settlement
of forward rate contracts. We also paid approximately $31.6 million in dividends to our
stockholders. These uses were partially offset by net proceeds from mortgage debt refinancings,
net draws on our line of credit and proceeds from the issuance of our common stock.
Mortgage Debt, Other Loans and Unsecured Credit Facility
At March 31, 2005, our consolidated debt was approximately $2.2 billion. The weighted average
interest rate on our debt was approximately 6.23% and the weighted average maturity was
approximately 4.8 years.
The following table sets forth information concerning mortgage debt, other loans and unsecured
credit facility as of March 31, 2005. The economic interest of our owning entity is 100% unless
otherwise noted.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity |
|
|
Current |
|
|
Principal |
|
|
Term to |
|
Property/(Ownership) (1) |
|
F/V(2) |
|
|
Date |
|
|
Rate |
|
|
Balance |
|
|
Maturity |
|
(At March 31, 2005) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($000s |
) |
|
(Years) |
CMBS Transaction
Class A-2 |
|
|
F |
|
|
May-11 |
|
|
6.09 |
% |
|
$ |
56,500 |
|
|
|
6.1 |
|
Class A-3 FL |
|
|
V |
|
|
Mar-08 |
|
|
2.97 |
% |
|
|
91,884 |
|
|
|
3.0 |
|
Class A-3 |
|
|
F |
|
|
Mar-08 |
|
|
6.21 |
% |
|
|
78,900 |
|
|
|
3.0 |
|
Class A-4 |
|
|
F |
|
|
May-11 |
|
|
6.53 |
% |
|
|
240,600 |
|
|
|
6.1 |
|
Class B-3 FL |
|
|
V |
|
|
Mar-08 |
|
|
3.12 |
% |
|
|
16,886 |
|
|
|
3.0 |
|
Class B-3 |
|
|
F |
|
|
Mar-08 |
|
|
6.36 |
% |
|
|
14,500 |
|
|
|
3.0 |
|
Class B-4 |
|
|
F |
|
|
May-11 |
|
|
6.72 |
% |
|
|
47,000 |
|
|
|
6.1 |
|
Class C-3 |
|
|
F |
|
|
Mar-08 |
|
|
6.52 |
% |
|
|
101,400 |
|
|
|
3.0 |
|
Class C-4 |
|
|
F |
|
|
May-11 |
|
|
6.89 |
% |
|
|
45,600 |
|
|
|
6.1 |
|
Class D-3 |
|
|
F |
|
|
Mar-08 |
|
|
6.94 |
% |
|
|
106,100 |
|
|
|
3.0 |
|
Class D-4 |
|
|
F |
|
|
May-11 |
|
|
7.28 |
% |
|
|
40,700 |
|
|
|
6.1 |
|
Class E-3 |
|
|
F |
|
|
Mar-08 |
|
|
7.25 |
% |
|
|
73,300 |
|
|
|
3.0 |
|
Class E-4 |
|
|
F |
|
|
May-11 |
|
|
7.60 |
% |
|
|
32,300 |
|
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-swap: |
|
|
|
|
|
|
6.27 |
% |
|
$ |
945,670 |
|
|
|
4.5 |
|
|
|
Post-swap: (3) |
|
|
|
|
|
|
6.61 |
% |
|
$ |
945,670 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renaissance Tower |
|
|
F |
|
|
Jan-10 |
|
|
4.98 |
% |
|
$ |
92,000 |
|
|
|
4.8 |
|
Ernst & Young Plaza |
|
|
F |
|
|
Feb-14 |
|
|
5.07 |
% |
|
|
118,172 |
|
|
|
8.8 |
|
One New York Plaza |
|
|
F |
|
|
May-06 |
|
|
7.27 |
% |
|
|
231,291 |
|
|
|
1.1 |
|
2000 L Street, N.W. |
|
|
F |
|
|
Aug-07 |
|
|
6.26 |
% |
|
|
56,100 |
|
|
|
2.3 |
|
Watergate Office Building |
|
|
F |
|
|
Feb-07 |
|
|
8.02 |
% |
|
|
16,707 |
|
|
|
1.9 |
|
1400 K Street, N.W. |
|
|
F |
|
|
May-06 |
|
|
7.20 |
% |
|
|
21,149 |
|
|
|
1.1 |
|
2001 M Street (98%)(4) |
|
|
F |
|
|
Dec-14 |
|
|
5.25 |
% |
|
|
44,500 |
|
|
|
9.7 |
|
Bethesda Crescent |
|
|
F |
|
|
Jan-08 |
|
|
7.10 |
% |
|
|
32,313 |
|
|
|
2.8 |
|
Bethesda Crescent |
|
|
F |
|
|
Jan-08 |
|
|
6.70 |
% |
|
|
2,677 |
|
|
|
2.8 |
|
Twinbrook Metro Plaza |
|
|
F |
|
|
Sep-08 |
|
|
6.65 |
% |
|
|
16,205 |
|
|
|
3.4 |
|
Two Ballston Plaza |
|
|
F |
|
|
Jun-08 |
|
|
6.91 |
% |
|
|
26,325 |
|
|
|
3.2 |
|
Sunrise Tech Park |
|
|
F |
|
|
Jan-06 |
|
|
6.75 |
% |
|
|
22,710 |
|
|
|
0.8 |
|
Metropolitan Square |
|
|
F |
|
|
Jan-08 |
|
|
7.05 |
% |
|
|
82,461 |
|
|
|
2.8 |
|
Bank of America Plaza (Los Angeles) |
|
|
F |
|
|
Sep-14 |
|
|
5.31 |
% |
|
|
242,000 |
|
|
|
9.4 |
|
One Alliance Center |
|
|
F |
|
|
Jul-13 |
|
|
4.78 |
% |
|
|
68,266 |
|
|
|
8.3 |
|
Unsecured Credit Facility |
|
|
V |
(5) |
|
Jun-07 |
|
|
5.09 |
% |
|
|
150,000 |
|
|
|
2.2 |
|
Other Fixed |
|
|
F |
|
|
Various |
|
|
5.93 |
% |
|
|
16,632 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated Debt |
|
|
|
|
|
|
|
|
|
|
6.23 |
% |
|
$ |
2,185,178 |
|
|
|
4.8 |
|
|
Bank One Center (50%) |
|
|
V |
|
|
Dec-05 |
|
|
4.52 |
% |
|
$ |
54,290 |
|
|
|
0.7 |
|
Marina Towers (50%) |
|
|
F |
|
|
Aug-07 |
|
|
7.92 |
% |
|
|
15,061 |
|
|
|
2.3 |
|
The Grace Building (50%) |
|
|
F |
|
|
Jul-14 |
|
|
5.54 |
% |
|
|
190,119 |
|
|
|
9.3 |
|
1411 Broadway (50%) |
|
|
F |
|
|
Jul-14 |
|
|
5.50 |
% |
|
|
109,281 |
|
|
|
9.3 |
|
1460 Broadway (50%) |
|
|
V |
|
|
May-06 |
|
|
4.25 |
% |
|
|
12,475 |
|
|
|
1.2 |
|
Waterview (25%) |
|
|
V |
|
|
Sept-05 |
|
|
6.25 |
% |
|
|
4,694 |
|
|
|
0.4 |
|
Plaza of the Americas (50%) |
|
|
F |
|
|
Jul-11 |
|
|
5.12 |
% |
|
|
34,000 |
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Real Estate Joint Venture Mortgage Debt |
|
|
5.42 |
% |
|
$ |
419,920 |
|
|
|
7.3 |
|
|
(1) |
|
The economic interest of our owning entity in the associated asset
is 100% unless otherwise noted. |
(2) |
|
F refers to fixed rate debt, V refers to variable rate debt. References
to V represent the underlying loan, some of which have been fixed through hedging
instruments. |
(3) |
|
$108.8 million of the seven-year floating rate tranche of the CMBS
loan has been swapped from one-month LIBOR plus various spreads to 5.99% fixed
rate. |
|
(4) |
|
Consolidated entity. |
(5) |
|
Reflects notional allocation of $41.2 million of the floating rate
unsecured credit facility debt that has been swapped from one-month LIBOR plus
spread to 7.12% fixed rate. |
42
The table that follows summarizes the mortgage and other loan debt at March 31, 2005 and
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
Debt Summary |
|
2005 |
|
|
2004 |
|
|
|
(dollars in thousands) |
|
Balance: |
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
2,076,407 |
|
|
$ |
2,110,511 |
|
Variable rate |
|
|
108,771 |
|
|
|
108,771 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,185,178 |
|
|
$ |
2,219,282 |
|
|
|
|
|
|
|
|
|
|
Collateralized property |
|
$ |
2,018,546 |
|
|
$ |
2,024,055 |
|
Unsecured credit facility |
|
|
150,000 |
|
|
|
150,000 |
|
Other loans |
|
|
16,632 |
|
|
|
45,227 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,185,178 |
|
|
$ |
2,219,282 |
|
|
|
|
|
|
|
|
|
|
Percent of total debt: |
|
|
|
|
|
|
|
|
Fixed rate |
|
|
95.0 |
% |
|
|
95.1 |
% |
Variable rate |
|
|
5.0 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Weighted average interest rate at period end: |
|
|
|
|
|
|
|
|
Fixed rate |
|
|
6.33 |
% |
|
|
6.33 |
% |
Variable rate |
|
|
4.32 |
% |
|
|
3.87 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
6.23 |
% |
|
|
6.21 |
% |
|
|
|
|
|
|
|
|
|
Leverage ratio: |
|
|
|
|
|
|
|
|
Net debt to net debt plus book equity |
|
|
52.4 |
% |
|
|
53.1 |
% |
|
|
|
|
|
|
|
|
|
The variable rate debt shown above bears interest based primarily on various spreads over
LIBOR. The leverage ratio is the ratio of mortgage and other debt to the sum of mortgage and other
debt and the book value of stockholders equity.
Unsecured Credit Facility
Our unsecured credit facility consists of a $600.0 million revolving component and a $150.0
million term component, bears interest at LIBOR plus a spread of 1.15% to 2.0% based on our total
leverage, and matures in June 2007 (the 2004 Unsecured Credit Facility). The financial
covenants, as defined in the 2004 Unsecured Credit Facility, include the quarterly requirements for
the total leverage ratio not to exceed 65.0% during year one, 62.5% during year two and 60.0%
during year three; a requirement that the interest coverage ratio be greater than 2.0 times; a
requirement that the fixed charge coverage ratio be greater than 1.5 times; and a requirement that
the net worth be in excess of $1.5 billion. Our financial covenants also include a restriction on
dividends or distributions of more than 90% of our funds from operations (defined in the 2004
Unsecured Credit Facility agreement). If we are in default in respect of our obligations under the
2004 Unsecured Credit Facility agreement, dividends will be limited to the amount necessary to
maintain REIT status. At March 31, 2005, we were in compliance with these financial covenants.
At March 31, 2005, the amount eligible to be borrowed under the 2004 Unsecured Credit Facility
was approximately $458.1 million, of which $150.0 million was drawn and outstanding. At December
31, 2004, the amount eligible to be borrowed under the 2004 Unsecured Credit Facility was
approximately $484.9 million, of which $150.0 million was drawn and outstanding. Certain
conditions of the 2004 Unsecured Credit Facility may restrict the amount eligible to be borrowed at
any time.
Early Debt Retirement
In December 2004, in conjunction with the sale of 250 West Pratt Street, located in Baltimore,
Maryland, we and the lender of the mortgage loan collateralized by such property agreed to modify
certain terms of the mortgage loan. The lender of the mortgage loan agreed to release the property
as collateral for the mortgage loan in consideration of the establishment of an escrow, for the
benefit of the lender, in the amount of approximately $28.7 million. The escrow was comprised of
funds to be used to repay the full outstanding principal balance of the
43
mortgage loan as well as interest payments through January 3, 2005. The escrow funds of
approximately $28.7 million were included in restricted cash on our balance sheet at December 31,
2004. On January 3, 2005, the funds held in escrow were released to the lender. In conjunction with
the repayment and retirement of the mortgage loan, we recorded a loss on early debt retirement of
approximately $0.01 million, comprised primarily of the write-off of unamortized deferred financing
costs.
Hedging Activities
At March 31, 2005 and December 31, 2004, we had outstanding interest rate swap contracts in
the notional amount of $150.0 million, bearing a weighted average interest rate of 6.02% and
maturing on March 15, 2008. We recorded an unrealized derivative gain of approximately $3.5 million
and an unrealized derivative loss of approximately $2.7 million, related to interest rate swap
contracts, through other comprehensive income for the three months ended March 31, 2005 and March
31, 2004, respectively. At March 31, 2005 and December 31, 2004, the debt hedged by the interest
rate swap contracts was classified as fixed in the above table. The aggregate cost to unwind these
interest rate swap contracts was approximately $5.7 million and $9.2 million at March 31, 2005 and
December 31, 2004, respectively.
Unconsolidated Real Estate Joint Venture Mortgage Debt
The consolidated mortgage and other debt information presented above does not reflect
indebtedness secured by property owned in joint venture partnerships as they are accounted for
under the equity method of accounting. At March 31, 2005 and December 31, 2004, our pro rata share
of this debt amounted to approximately $419.9 million and approximately $420.2 million in the
aggregate, respectively.
Principal Repayments
The table below presents the schedule of maturities of the collateralized property loans and
other loans:
Some of our collateralized loans are cross-collateralized or subject to cross-default or
cross-acceleration provisions with other loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt (1) |
|
|
Office |
|
Other |
|
Total |
|
|
(dollars in thousands) |
Balance of 2005 |
|
$ |
16,744 |
|
|
$ |
279 |
|
|
$ |
17,023 |
|
2006 |
|
|
429,286 |
|
|
|
386 |
|
|
|
429,672 |
|
2007 |
|
|
95,814 |
|
|
|
272 |
|
|
|
96,086 |
|
2008 |
|
|
512,347 |
|
|
|
276 |
|
|
|
512,623 |
|
2009 |
|
|
14,876 |
|
|
|
295 |
|
|
|
15,171 |
|
Subsequent to 2009 |
|
|
949,479 |
|
|
|
15,124 |
|
|
|
964,603 |
|
|
|
|
Total |
|
$ |
2,018,546 |
|
|
$ |
16,632 |
|
|
$ |
2,035,178 |
|
|
|
|
Weighted average interest rate at March 31, 2005 |
|
|
6.31 |
% |
|
|
5.93 |
% |
|
|
6.31 |
% |
|
|
|
Weighted average term to maturity, in years |
|
|
4.9 |
|
|
|
6.0 |
|
|
|
4.9 |
|
|
|
|
Percentage of fixed rate debt including variable rate debt
subject to interest rate caps and interest rate swap
agreements |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
(1) |
|
Excludes unsecured credit facility |
Dividends
On March 10, 2005, we declared a quarterly dividend of $0.20 per share of common stock,
payable on April 15, 2005, to the holders of record at the close of business on March 31, 2005.
The aggregate amount of dividends paid on April 15, 2005 totaled approximately $31.0 million.
44
On March 10, 2005, we declared an aggregate annual dividend of approximately $0.005 million
for the Class F convertible stock, payable on April 15, 2005, to the holders of record at the close
of business on March 31, 2005. We accrued an additional $0.001 million dividend for the Class F
convertible stock on March 31, 2005.
On March 10, 2005, we declared an aggregate quarterly dividend of approximately $1.2 million
for the special voting stock, payable on April 15, 2005, to the holders of record at the close of
business on March 31, 2005.
Market
Risk Quantitative and Qualitative Information
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our
future earnings, cash flows and fair values relevant to financial instruments are dependent upon
prevailing market interest rates. The primary market risk facing us is long-term indebtedness,
which bears interest at fixed and variable rates. The fair value of our long-term debt obligations
is affected by changes in market interest rates. We manage our market risk by matching long-term
leases on our properties with long-term fixed rate non-recourse debt of similar durations. At
March 31, 2005, approximately 95.0%, or approximately $2.1 billion, of our outstanding debt had
fixed interest rates (including variable rate debt subject to interest rate caps and interest rate
swap agreements), which minimizes the interest rate risk until the maturity of such outstanding
debt.
We utilize certain derivative financial instruments at times to limit interest rate risk.
Interest rate protection agreements are used to convert variable rate debt to a fixed rate basis or
to hedge anticipated financing transactions. Derivatives are used for hedging purposes rather than
speculation. We do not enter into financial instruments for trading purposes. We have entered
into hedging arrangements with financial institutions we believe to be creditworthy counterparties.
Our primary objective when undertaking hedging transactions and derivative positions is to reduce
our floating rate exposure, which, in turn, reduces the risks that variable rate debt imposes on
our cash flows. Our strategy partially protects us against future increases in interest rates. At
March 31, 2005, we had hedge contracts totaling $150.0 million. Hedge contracts totaling $150.0
million convert variable rate debt at LIBOR plus various spreads to a fixed rate of 6.02% and
mature on March 15, 2008. We may consider entering into additional hedging agreements with respect
to all or a portion of our variable rate debt. We may borrow additional money with variable rates
in the future. Increases in interest rates could increase interest expense in unhedged variable
rate debt, which, in turn, could affect cash flows and our ability to service our debt. As a
result of the hedging agreements, decreases in interest rates could increase interest expense as
compared to the underlying variable rate debt and could result in us making payments to unwind such
agreements.
At March 31, 2005, our total outstanding debt was approximately $2.2 billion, of which
approximately $108.8 million was variable rate debt after the impact of the hedge agreement. At
March 31, 2005, the average interest rate on variable rate debt was approximately 4.32%. Taking the
hedging agreements into consideration, if market interest rates on our variable rate debt were to
increase by 10% (or approximately 43 basis points), the increase in interest expense on the
variable rate debt would decrease future earnings and cash flows by approximately $0.5 million
annually. If market rates of interest increase by 10%, the fair value of the total debt
outstanding would decrease by approximately $44.4 million.
Taking the hedging agreements into consideration, if market rates of interest on the variable
rate debt were to decrease by 10% (or approximately 43 basis points), the decrease in interest
expense on the variable rate debt would increase future earnings and cash flows by approximately
$0.5 million annually. If market rates of interest decrease by 10%, the fair value of the total
outstanding debt would increase by approximately $46.0 million.
These amounts were determined solely by considering the impact of hypothetical interest rates
on our financial instruments. These analyses do not consider the effect of the reduced level of
overall economic activity that could exist in an environment with significantly fluctuating
interest rates. Further, in the event of significant change, management would likely take actions
to further mitigate our exposure to the change. Due to the uncertainty of specific actions we may
undertake to minimize possible effects of market interest rate increases, this analysis assumes no
changes in our financial structure.
45
Gain Contingencies
Beginning in late 2001 and during 2002, we replaced a chiller at One New York Plaza, located
in New York, New York, that was damaged in 2001. Total remediation and improvement costs were
approximately $19.1 million. Through March 31, 2005, we have received approximately $12.1 million
in insurance proceeds related to this incident. We have filed a claim for additional proceeds of
approximately $7.0 million; however, we cannot provide assurance that we will be successful in
collecting the additional proceeds. We will recognize the additional proceeds, if any, during the
period in which we receive the insurance proceeds.
Subsequent Events
In April 2005, we sold Shoreline Square, located in Long Beach, California, which was
designated as held for sale pursuant to SFAS No. 144 at March 31, 2005, for a gross sale price of
approximately $87.4 million.
In April 2005, we acquired 1200 K Street, located in Washington, DC, for approximately $190.0
million.
Competition
The leasing of real estate is highly competitive. We compete for tenants with lessors,
sublessors and developers of similar properties located in our respective markets primarily on the
basis of location, rent charged, concessions offered, services provided, and the design and
condition of our buildings. We also experience competition when attempting to acquire real estate,
including competition from domestic and foreign financial institutions, other REITs, life insurance
companies, pension trusts, trust funds, partnerships and individual investors. The competition is
particularly strong in the current economic environment as office building owners attempt to
attract new tenants, or retain existing tenants, with competitive rental rates and other financial
incentives, such as tenant improvement allowances.
Environmental Matters
We believe, based on our internal reviews and other factors, that the future costs relating to
environmental remediation and compliance will not have a material adverse effect on our financial
position, results of operations or liquidity. For a discussion of environmental matters, see Item
1. Business Environmental Matters and Item 1.
Business Risk Factors Environmental problems
at our properties are possible and may be costly in our Annual Report on Form 10-K for the year
ended December 31, 2004.
Inflation
Substantially all of our leases provide for separate property tax and operating expense
escalations over a base amount. In addition, many of our leases provide for fixed base rent
increases or indexed increases. We believe that inflationary increases may be at least partially
offset by these contractual rent increases.
Funds from Operations
Funds from operations is a non-GAAP financial measure. Funds from operations is defined by
the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, as
net income, computed in accordance with accounting principles generally accepted in the United
States, or GAAP, excluding gains or losses from sales of properties and cumulative effect of a
change in accounting principle, plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on
the same basis.
We believe that funds from operations is helpful to investors as one of several measures of
the performance of an equity REIT. We further believe that by excluding the effect of
depreciation, amortization and gains or losses from sales of real estate, all of which are based on
historical costs and which may be of limited relevance in evaluating current performance, funds
from operations can facilitate comparisons of operating performance between
46
periods and between other equity REITs. Investors should review funds from operations, along
with GAAP net income and cash flows from operating activities, investing activities and financing
activities, when trying to understand an equity REITs operating performance. As discussed above,
we compute funds from operations in accordance with current standards established by NAREIT, which
may not be comparable to funds from operations reported by other REITs that do not define the term
in accordance with the current NAREIT definition or that interpret the current NAREIT definition
differently than we do. While funds from operations is a relevant and widely used measure of
operating performance of equity REITs, it does not represent cash generated from operating
activities in accordance with GAAP, nor does it represent cash available to pay distributions and
should not be considered as an alternative to net income, determined in accordance with GAAP, as an
indication of our financial performance, or to cash flows from operating activities, determined in
accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to
fund our cash needs, including our ability to make cash distributions.
The following table sets forth the reconciliation of funds from operations from net income
available to common stockholders for the three months ended March 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
March 31, |
|
|
(dollars in thousands) |
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
25,287 |
|
|
$ |
83,303 |
|
|
|
|
|
|
|
|
|
|
Add/(deduct): |
|
|
|
|
|
|
|
|
Gain on disposition of real estate, net |
|
|
|
|
|
|
(14,771 |
) |
Gain on disposition of discontinued real estate, net |
|
|
(207 |
) |
|
|
(32,396 |
) |
Depreciation and amortization (real estate related)
including share of unconsolidated real estate joint
ventures and discontinued operations |
|
|
44,733 |
|
|
|
46,593 |
|
|
|
|
|
|
|
|
|
|
Funds from operations available to common stockholders |
|
$ |
69,813 |
|
|
$ |
82,729 |
|
|
|
|
|
|
|
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about quantitative and qualitative disclosure about market risk is incorporated
herein by reference from Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations Market Risk Quantitative and Qualitative Information.
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our
disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation,
our management concluded that our disclosure controls and procedures were effective as of the end
of the period covered by this quarterly report.
47
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART
II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
We did not sell any securities in the three months ended March 31, 2005 that were not
registered under the Securities Act of 1933, as amended.
Use of Proceeds
On May 8, 2002, we commenced an offering of up to 8,700,000 shares of our common stock that
holders of our warrants may acquire upon exercise thereof. The warrants were issued in connection
with the corporate reorganization of TrizecHahn Corporation to (1) certain holders of then
outstanding TrizecHahn Corporation stock options in replacement of such options and (2) TrizecHahn
Office Properties Ltd., an indirect, wholly-owned subsidiary of Trizec Canada Inc., in an amount
sufficient to allow TrizecHahn Office Properties Ltd. to purchase one share of our common stock for
each Trizec Canada Inc. stock option granted in the corporate reorganization.
The shares of common stock to be sold in the offering were registered under the Securities Act
of 1933, as amended, on a Registration Statement on Form S-11 (Registration No. 333-84878) that was
declared effective by the Securities and Exchange Commission on May 2, 2002. The Registration
Statement was amended by a Post-Effective Amendment No. 1 to Form S-11 on Form S-3 (Registration
No. 333-84878), which was declared effective on October 21, 2003. The shares of common stock are
being offered on a continuing basis pursuant to Rule 415 under the Securities Act of 1933, as
amended. We did not engage an underwriter for the offering and the aggregate price of the offering
amount registered was $143,115,000.
During the period from May 8, 2002 to March 31, 2005, 1,875,237 shares of our common stock
registered under the Registration Statement were acquired pursuant to the exercise of warrants.
All of the shares of common stock were issued or sold by us and there were no selling stockholders
in the offering.
During the period from May 8, 2002 to March 31, 2005, the aggregate net proceeds from the
shares of common stock issued or sold by us pursuant to the offering were approximately $834,649.
There have been no expenses incurred in connection with the offering to date. These proceeds were
used for general corporate purposes.
None of the proceeds from the offering were paid, directly or indirectly, to any of our
officers or directors or any of their associates, or to any persons owning ten percent or more of
our outstanding common stock or to any of our affiliates.
Item 5. Other Information
On August 4, 2005, the Corporation filed a Current Report on Form 8-K under Item 4.02 to
report that on July 29, 2005, management of the Corporation, in consultation with the Audit
Committee of the Board of Directors of the Corporation, had concluded that the Corporations
unaudited quarterly financial statements for the three months ended March 31, 2004, June 30, 2004
and September 30, 2004 included in the Corporations previously filed Form 10-Q for each of such
periods should no longer be relied upon due to an error in the classification between cash flows
from operating and investing activities in the unaudited consolidated statements of cash flows
related to the change in escrows and restricted cash. To the extent that such conclusion could be
deemed to have been made
48
during the first quarter of 2005 and required a filing of a Current Report on Form 8-K, the
Corporation hereby incorporates by reference into this Form 10-Q/A the disclosure contained under
Item 4.02 of its Current Report on Form 8-K, filed with the SEC on
August 4, 2005, in its entirety.
Item 6. Exhibits
The exhibits required by this item are set forth on the Exhibit Index attached hereto.
49
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.
|
|
|
|
|
|
|
TRIZEC PROPERTIES, INC. |
|
|
|
|
|
Date: August 9, 2005
|
|
By:
|
|
/s/ Michael C. Colleran
Michael C. Colleran |
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
(On behalf of the Registrant and as the Registrants |
|
|
|
|
principal financial and principal accounting officer) |
50
EXHIBIT INDEX
|
|
|
|
|
Description
|
|
|
|
10.1*
|
|
Employment Agreement, dated as of January 4, 2005, by and between
Trizec Properties, Inc. and Brian Lipson (incorporated by
reference to Exhibit 10.1 of Trizec Properties, Inc.s Current
Report on Form 8-K dated January 4, 2005). |
|
|
|
10.2*
|
|
Employment Agreement, dated as of January 4, 2005, by and between
Trizec Properties, Inc. and Michael Colleran (incorporated by
reference to Exhibit 10.2 of Trizec Properties, Inc.s Current
Report on Form 8-K dated January 4, 2005). |
|
|
|
10.3*
|
|
Employment Agreement, dated as of January 4, 2005, by and between
Trizec Properties, Inc. and William Tresham (incorporated by
reference to Exhibit 10.3 of Trizec Properties, Inc.s Current
Report on Form 8-K dated January 4, 2005). |
|
|
|
10.4*
|
|
Form of Bonus Restricted Stock Rights Award Agreement under the
Trizec Properties, Inc. 2002 Long Term Incentive Plan (as amended
and restated effective May 29, 2003, and as further amended, the
LTIP) (incorporated by reference to Exhibit 10.1 to Trizec
Properties, Inc.s Current Report on Form 8-K dated February 18,
2005). |
|
|
|
10.5*
|
|
Form of Long-Term Incentive Restricted Stock Rights Award
Agreement under the LTIP (incorporated by reference to Exhibit
10.2 to Trizec Properties, Inc.s Current Report on Form 8-K
dated February 18, 2005). |
|
|
|
10.6
|
|
Registration Rights Agreement, dated as of May 2, 2002, by and
between Trizec Properties, Inc., Trizec Canada Inc. and Emerald
Blue Kft. (incorporated by reference to Exhibit 10.6 to Trizec
Properties, Inc.s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2005 filed on May 6, 2005). |
|
|
|
10.7*
|
|
2004 Non-Employee Director Fees and Other Compensation
(incorporated by reference to Exhibit 10.27 of Trizec Properties,
Inc.s Annual Report on Form 10-K for the year ended December 31,
2004). |
|
|
|
10.8*
|
|
2004 Compensation for Named Executive Officers (incorporated by
reference to Exhibit 10.28 of Trizec Properties, Inc.s Annual
Report on Form 10-K for the year ended December 31, 2004). |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|
|
|
32.1
|
|
Section 1350 Certification of the Chief Executive Officer. |
|
|
|
32.2
|
|
Section 1350 Certification of the Chief Financial Officer. |
|
|
|
* |
|
Denotes a management contract or compensatory plan, contract or
arrangement. |
|
|
|
Filed herewith |
51