Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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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, 2011
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 001-32649
COGDELL SPENCER INC.
(Exact name of registrant as specified in its charter)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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20-3126457
(I.R.S. Employer
Identification No.) |
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4401 Barclay Downs Drive, Suite 300
Charlotte, North Carolina
(Address of principal executive offices)
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28209
(Zip code) |
(704) 940-2900
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). YES
o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filed, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o. |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of
the Exchange Act). o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock as
of the latest practicable date: 51,047,077 shares of common stock, par value $.01 per share,
outstanding as of May 4, 2011.
PART I. FINANCIAL INFORMATION
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ITEM 1. |
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FINANCIAL STATEMENTS |
COGDELL SPENCER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(unaudited)
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March 31, |
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December 31, |
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2011 |
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2010 |
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Assets |
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Real estate properties: |
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Land |
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$ |
37,269 |
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$ |
37,269 |
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Buildings and improvements |
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604,443 |
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597,022 |
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Less: Accumulated depreciation |
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(125,610 |
) |
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(119,141 |
) |
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Net operating real estate properties |
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516,102 |
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515,150 |
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Construction in progress |
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29,985 |
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22,243 |
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Net real estate properties |
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546,087 |
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537,393 |
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Cash and cash equivalents |
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17,235 |
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12,203 |
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Restricted cash |
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6,784 |
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6,794 |
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Tenant and accounts receivable, net of allowance of $3,071 in 2011 and $3,010 in 2010 |
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10,247 |
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11,383 |
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Goodwill |
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22,882 |
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22,882 |
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Intangible assets, net of accumulated amortization of $50,329 in 2011 and $49,287 in 2010 |
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18,418 |
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18,601 |
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Other assets |
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28,162 |
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23,684 |
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Total assets |
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$ |
649,815 |
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$ |
632,940 |
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Liabilities and equity |
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Mortgage notes payable |
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$ |
319,419 |
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$ |
317,303 |
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Revolving credit facility |
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55,000 |
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45,000 |
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Accounts payable |
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11,628 |
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11,368 |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
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2,314 |
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1,930 |
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Other liabilities |
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43,558 |
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39,819 |
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Total liabilities |
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431,919 |
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415,420 |
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Commitments and contingencies |
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Equity: |
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Cogdell Spencer Inc. stockholders equity: |
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Preferred stock, $0.01 par value; 50,000 shares authorized: 8.5000% Series
A Cumulative Redeemable Perpetual Preferred Shares (liquidation
preference $25.00 per share), 2,940 and 2,600 shares issued and outstanding in 2011
and 2010, respectively |
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73,500 |
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65,000 |
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Common stock, $0.01 par value; 200,000 shares authorized, 51,042 and 50,870 shares
issued and outstanding in 2011 and 2010, respectively |
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510 |
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509 |
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Additional paid-in capital |
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418,374 |
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417,960 |
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Accumulated other comprehensive loss |
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(2,712 |
) |
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(3,339 |
) |
Accumulated deficit |
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(295,981 |
) |
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(287,798 |
) |
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Total Cogdell Spencer Inc. stockholders equity |
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193,691 |
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192,332 |
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Noncontrolling interests: |
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Real estate partnerships |
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6,772 |
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6,452 |
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Operating partnership |
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17,433 |
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18,736 |
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Total noncontrolling interests |
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24,205 |
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25,188 |
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Total equity |
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217,896 |
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217,520 |
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Total liabilities and equity |
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$ |
649,815 |
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$ |
632,940 |
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See notes to condensed consolidated financial statements.
3
COGDELL SPENCER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
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For the Three Months Ended |
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March 31, 2011 |
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March 31, 2010 |
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Revenues: |
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Rental revenue |
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$ |
23,054 |
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$ |
21,245 |
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Design-Build contract revenue and other sales |
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15,241 |
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35,436 |
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Property management and other fees |
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775 |
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818 |
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Development management and other income |
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74 |
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103 |
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Total revenues |
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39,144 |
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57,602 |
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Expenses: |
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Property operating and management |
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9,287 |
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8,198 |
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Design-Build contracts and development management |
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13,013 |
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24,619 |
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Selling, general, and administrative |
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6,208 |
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5,820 |
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Depreciation and amortization |
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7,830 |
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8,085 |
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Total expenses |
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36,338 |
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46,722 |
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Income from continuing operations before other income (expense) and income
tax expense |
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2,806 |
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10,880 |
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Other income (expense): |
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Interest and other income |
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178 |
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160 |
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Interest expense |
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(4,850 |
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(5,089 |
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Interest rate derivative expense |
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(15 |
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Equity in earnings of unconsolidated real estate partnerships |
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8 |
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3 |
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Total other income (expense) |
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(4,664 |
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(4,941 |
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Income (loss) from continuing operations before income tax expense |
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(1,858 |
) |
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5,939 |
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Income tax expense |
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(18 |
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(1,726 |
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Income (loss) from continuing operations |
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(1,876 |
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4,213 |
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Loss from discontinued operations |
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(18 |
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Net income (loss) |
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(1,876 |
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4,195 |
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Net income attributable to the noncontrolling interests in real estate partnerships |
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(200 |
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(311 |
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Net (income) loss attributable to the noncontrolling interests in operating partnership |
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508 |
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(598 |
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Dividends on preferred stock |
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(1,562 |
) |
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Net income (loss) attributable to Cogdell Spencer Inc. common shareholders |
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$ |
(3,130 |
) |
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$ |
3,286 |
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Per share data basic and diluted: |
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Income (loss) from continuing operations attributable to Cogdell Spencer Inc. common
shareholders |
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$ |
(0.06 |
) |
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$ |
0.08 |
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Loss from discontinued operations attributable to Cogdell Spencer Inc. common
shareholders |
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Net income (loss) per common share available to Cogdell Spencer Inc. common shareholders |
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$ |
(0.06 |
) |
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$ |
0.08 |
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Weighted average common shares basic and diluted |
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51,009 |
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42,768 |
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Net income (loss) attributable to Cogdell Spencer Inc. common shareholders: |
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Continuing operations, net of tax |
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$ |
(3,130 |
) |
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$ |
3,301 |
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Discontinued operations |
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(15 |
) |
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Net income (loss) attributable to Cogdell Spencer Inc. common shareholders |
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$ |
(3,130 |
) |
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$ |
3,286 |
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See notes to condensed consolidated financial statements.
4
COGDELL SPENCER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)
(unaudited)
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Cogdell Spencer Inc. Stockholders |
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Series A |
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Accumulated |
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Cumulative |
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Noncontrolling |
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Noncontrolling |
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Other |
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Redeemable |
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Additional |
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Interests in |
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Interests in |
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Total |
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Comprehensive |
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Accumulated |
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Comprehensive |
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Perpetual |
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Common |
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Paid-in |
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Operating |
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Real Estate |
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Equity |
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Loss |
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Deficit |
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Loss |
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Preferred Shares |
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Stock |
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Capital |
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Partnership |
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Partnerships |
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Balance at December 31, 2010 |
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$ |
217,520 |
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$ |
(287,798 |
) |
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$ |
(3,339 |
) |
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$ |
65,000 |
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$ |
509 |
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$ |
417,960 |
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$ |
18,736 |
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$ |
6,452 |
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Comprehensive loss: |
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Net income (loss) |
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(1,876 |
) |
|
$ |
(1,876 |
) |
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(1,568 |
) |
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(508 |
) |
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200 |
|
Unrealized gain on derivative financial
instruments |
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959 |
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959 |
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653 |
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128 |
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178 |
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Comprehensive loss |
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(917 |
) |
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$ |
(917 |
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Issuance of preferred stock, net of costs |
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8,204 |
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8,500 |
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(296 |
) |
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Conversion of operating partnership units
to common stock |
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(26 |
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1 |
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409 |
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(384 |
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Restricted stock and LTIP unit grants |
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427 |
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228 |
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199 |
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Amortization of restricted stock grants |
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73 |
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73 |
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Dividends on common stock |
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(5,053 |
) |
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(5,053 |
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Dividends on preferred stock |
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(1,562 |
) |
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(1,562 |
) |
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Distributions to noncontrolling interests |
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(921 |
) |
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(738 |
) |
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(183 |
) |
Contributed equity in real estate partnership |
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125 |
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125 |
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Balance at March 31, 2011 |
|
$ |
217,896 |
|
|
|
|
|
|
$ |
(295,981 |
) |
|
$ |
(2,712 |
) |
|
$ |
73,500 |
|
|
$ |
510 |
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$ |
418,374 |
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$ |
17,433 |
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$ |
6,772 |
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See notes to condensed consolidated financial statements.
5
COGDELL SPENCER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)
(unaudited)
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Cogdell Spencer Inc. Stockholders |
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Accumulated |
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Noncontrolling |
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Noncontrolling |
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Other |
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Additional |
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Interests in |
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Interests in |
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Total |
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Comprehensive |
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Accumulated |
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Comprehensive |
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Common |
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Paid-in |
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Operating |
|
|
Real Estate |
|
|
|
Equity |
|
|
Loss |
|
|
Deficit |
|
|
Loss |
|
|
Stock |
|
|
Capital |
|
|
Partnership |
|
|
Partnerships |
|
Balance at December 31, 2009 |
|
$ |
247,780 |
|
|
|
|
|
|
$ |
(164,321 |
) |
|
$ |
(1,861 |
) |
|
$ |
427 |
|
|
$ |
370,593 |
|
|
$ |
37,722 |
|
|
$ |
5,220 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
4,195 |
|
|
$ |
4,195 |
|
|
|
3,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
598 |
|
|
|
311 |
|
Unrealized loss on derivative financial
instruments |
|
|
(1,464 |
) |
|
|
(1,464 |
) |
|
|
|
|
|
|
(1,002 |
) |
|
|
|
|
|
|
|
|
|
|
(184 |
) |
|
|
(278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
2,731 |
|
|
$ |
2,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of operating partnership units
to common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
158 |
|
|
|
(153 |
) |
|
|
|
|
Restricted stock and LTIP unit grants |
|
|
333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
200 |
|
|
|
132 |
|
|
|
|
|
Dividends on common stock |
|
|
(4,279 |
) |
|
|
|
|
|
|
(4,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests |
|
|
(1,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(765 |
) |
|
|
(816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
244,984 |
|
|
|
|
|
|
$ |
(165,314 |
) |
|
$ |
(2,868 |
) |
|
$ |
428 |
|
|
$ |
370,951 |
|
|
$ |
37,350 |
|
|
$ |
4,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
6
COGDELL SPENCER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,876 |
) |
|
$ |
4,195 |
|
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7,830 |
|
|
|
8,083 |
|
Amortization of acquired above market leases and acquired below market
leases, net (including amounts in discontinued operations) |
|
|
(106 |
) |
|
|
(110 |
) |
Straight-line rental revenue |
|
|
(466 |
) |
|
|
(221 |
) |
Amortization of deferred finance costs and debt premium |
|
|
351 |
|
|
|
392 |
|
Provision for bad debts |
|
|
62 |
|
|
|
(116 |
) |
Deferred income taxes |
|
|
|
|
|
|
(311 |
) |
Deferred tax expense on intersegment profits |
|
|
16 |
|
|
|
(165 |
) |
Equity-based compensation |
|
|
500 |
|
|
|
260 |
|
Equity in earnings of unconsolidated real estate partnerships |
|
|
(8 |
) |
|
|
(3 |
) |
Change in fair value of interest rate swap agreements |
|
|
|
|
|
|
(274 |
) |
Interest rate derivative expense |
|
|
|
|
|
|
15 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Tenant and accounts receivable and other assets |
|
|
(390 |
) |
|
|
1,695 |
|
Accounts payable and other liabilities |
|
|
4,371 |
|
|
|
(2,836 |
) |
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
|
384 |
|
|
|
(7,836 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
10,668 |
|
|
|
2,768 |
|
Investing activities: |
|
|
|
|
|
|
|
|
Investment in real estate properties |
|
|
(15,618 |
) |
|
|
(9,393 |
) |
Proceeds from sales-type capital lease |
|
|
76 |
|
|
|
76 |
|
Purchase of corporate property, plant and equipment |
|
|
(302 |
) |
|
|
(126 |
) |
Distributions received from unconsolidated real estate partnerships |
|
|
5 |
|
|
|
4 |
|
Decrease (increase) in restricted cash |
|
|
10 |
|
|
|
(155 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(15,829 |
) |
|
|
(9,594 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from mortgage notes payable |
|
|
3,381 |
|
|
|
6,424 |
|
Repayments of mortgage notes payable |
|
|
(1,259 |
) |
|
|
(1,031 |
) |
Proceeds from revolving credit facility |
|
|
10,000 |
|
|
|
|
|
Net proceeds from sale of preferred stock |
|
|
8,204 |
|
|
|
|
|
Redemption of non-controlling interests in operating partnership |
|
|
|
|
|
|
|
|
Dividends on common stock |
|
|
(5,046 |
) |
|
|
(4,279 |
) |
Dividends on preferred stock |
|
|
(1,232 |
) |
|
|
|
|
Distributions to noncontrolling interests in Operating Partnership |
|
|
(675 |
) |
|
|
(765 |
) |
Distributions to noncontrolling interests in real estate partnerships |
|
|
(183 |
) |
|
|
(813 |
) |
Equity contributions by partners in consolidated real estate partnerships |
|
|
125 |
|
|
|
|
|
Payment of financing costs |
|
|
(3,122 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
10,193 |
|
|
|
(544 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
5,032 |
|
|
|
(7,370 |
) |
Balance at beginning of period |
|
|
12,203 |
|
|
|
25,914 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
17,235 |
|
|
$ |
18,544 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest |
|
$ |
4,622 |
|
|
$ |
5,289 |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
73 |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Investment in real estate properties included in accounts payable and
other liabilities |
|
$ |
699 |
|
|
$ |
1,916 |
|
Accrued dividends and distributions |
|
|
6,384 |
|
|
|
5,057 |
|
Operating Partnership Units converted into common stock |
|
|
409 |
|
|
|
158 |
|
See notes to condensed consolidated financial statements.
7
COGDELL SPENCER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Business
Cogdell Spencer Inc., incorporated in Maryland in 2005, together with its consolidated
subsidiaries, is a real estate investment trust (REIT) focused on planning, owning, developing,
constructing, and managing healthcare facilities. Through strategically managed, customized
facilities, we help our clients deliver superior healthcare. We operate our business through
Cogdell Spencer LP, our operating partnership subsidiary (the Operating Partnership), and our
subsidiaries. All references to we, us, our, the Company, and Cogdell Spencer refer to
Cogdell Spencer Inc. and our consolidated subsidiaries, including the Operating Partnership.
We have two segments: (1) Property Operations and (2) Design-Build and Development. Property
Operations owns and manages our properties and manages properties for third parties. Design-Build
and Development provides strategic planning, design, construction, development, and project
management services for properties owned by the Company and for third parties.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America (GAAP) and
represent our assets and liabilities and operating results. The condensed consolidated financial
statements include our accounts and our wholly-owned subsidiaries as well as our Operating
Partnership and its subsidiaries. The condensed consolidated financial statements also include any
partnerships for which we or our subsidiaries are the general partner or the managing member and
the rights of the limited partners do not overcome the presumption of control by the general
partner or managing member. We review our interests in entities to determine if the entitys
assets, liabilities, noncontrolling interests and results of activities should be included in the
consolidated financial statements. All significant intercompany balances and transactions have
been eliminated in consolidation.
Interim Financial Statements
The condensed consolidated financial statements for the three months ended March 31, 2011 and
2010 are unaudited, but include all adjustments consisting of normal recurring adjustments that, in
the opinion of management, are necessary for a fair presentation of our financial position, results
of operations, changes in equity and cash flows for such periods. Operating results for the three
months ended March 31, 2011 and 2010 are not necessarily indicative of results that may be expected
for any other interim period or for the full fiscal years of 2011 or 2010 or any other future
period. These condensed consolidated financial statements do not include all disclosures required
by GAAP for annual consolidated financial statements. Our audited consolidated financial
statements are contained in our Annual Report on Form 10-K for the year ended December 31, 2010 and
should be read in conjunction with these interim financial statements.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with GAAP requires us to make estimates
and assumptions that affect amounts reported in the financial statements and accompanying notes.
Significant estimates and assumptions used include determining the useful lives of real estate
properties and improvements, initial valuations and underlying allocations of the purchase price in
connection with business and real estate property acquisitions, percentage of completion revenue,
construction contingencies and loss provisions, deferred tax asset valuation allowance, and
projected cash flows and fair value estimates used for impairment testing. Actual results may
differ from those estimates.
8
Concentrations and Credit Risk
We maintain our cash in commercial banks. Balances on deposit are insured by the
Federal Deposit Insurance Corporation (FDIC) up to specific limits. Balances on deposit
in excess of FDIC limits are uninsured. At March 31, 2011, we had bank cash balances of
$9.7 million in excess of FDIC insured limits.
The following table shows our concentration of tenant and accounts receivable and tenant and
customer revenues as of and for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Customer balances greater than 10% of tenants and accounts receivable |
|
Two |
|
Two |
Customer revenues greater than 10% of total revenue |
|
One |
|
Two |
Fair Value of Financial Instruments
We define fair value as the exchange price that would be received for certain assets or paid
to transfer certain liabilities (an exit price) in the principal or most advantageous market for
the certain asset or liability in an orderly transaction between market participants on the
measurement date.
We utilize the fair value hierarchy which prioritizes the inputs to valuation techniques used
to measure fair value into three broad levels. Fair values determined by Level 1 inputs utilize
observable inputs such as quoted prices in active markets for identical assets or liabilities we
have the ability to access. Fair values determined by Level 2 inputs utilize inputs other than
quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active
markets and inputs other than quoted prices observable for the asset or liability. Level 3 inputs
are unobservable inputs for the asset or liability, and include situations where there is little,
if any, market activity for the asset or liability. In instances in which the inputs used to
measure fair value may fall into different levels of the fair value hierarchy, the level in the
fair value hierarchy within which the fair value measurement in its entirety has been determined is
based on the lowest level input significant to the fair value measurement in its entirety. Our
assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the asset or liability.
To obtain fair values, observable market prices are used if available. In some instances,
observable market prices are not readily available for certain financial instruments and fair value
is determined using present value or other techniques appropriate for a particular financial
instrument. These techniques involve some degree of judgment and as a result are not necessarily
indicative of the amounts we would realize in a current market exchange. The use of different
assumptions or estimation techniques may have a material effect on the estimated fair value
amounts.
We do not hold or issue financial instruments for trading purposes. We consider the carrying
amounts of cash and cash equivalents, restricted cash, tenant and accounts receivable, accounts
payable, and other liabilities to approximate fair value due to the short maturity of these
instruments. We have estimated the fair value of debt utilizing present value techniques taking
into consideration current market conditions. At March 31, 2011, the carrying amount and estimated
fair value of debt was $374.4 million and $378.0 million, respectively. At December 31, 2010, the
carrying amount and estimated fair value of debt was $362.3 million and $366.3 million,
respectively.
See Note 9 regarding the fair value of our interest rate swap agreements.
9
3. Investments in Real Estate Partnerships
We have ownership interests in limited liability companies and limited partnerships. The
following is a description of those entities as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
Real Estate Entity |
|
Entity Holdings |
|
Year Founded |
|
|
Our Ownership |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
Anchor Cogdell, LLC |
|
one property |
|
|
2011 |
|
|
|
95.0 |
% |
Bonney Lake MOB Investors, LLC |
|
one property (under construction) |
|
|
2009 |
|
|
|
61.7 |
% |
Genesis Property Holdings, LLC |
|
one property |
|
|
2007 |
|
|
|
40.0 |
% |
Cogdell Health Campus MOB, LP |
|
one property |
|
|
2006 |
|
|
|
80.9 |
% |
Mebane Medical Investors, LLC |
|
one property |
|
|
2006 |
|
|
|
35.1 |
% |
Rocky Mount MOB, LLC |
|
one property |
|
|
2002 |
|
|
|
34.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated |
|
|
|
|
|
|
|
|
|
|
Cogdell Spencer Medical Partners LLC |
|
no assets or liabilities |
|
|
2008 |
|
|
|
20.0 |
% |
BSB Health/MOB Limited Partnership No. 2 |
|
nine properties |
|
|
2002 |
|
|
|
2.0 |
% |
Shannon Health/MOB Limited Partnership No. 1 |
|
ten properties |
|
|
2001 |
|
|
|
2.0 |
% |
McLeod Medical Partners, LLC |
|
three properties |
|
|
1982 |
|
|
|
1.1 |
% |
We are the general partner or managing member for all of the real estate partnerships
listed above. We also manage the properties owned by these real estate partnerships and may
receive design-build revenue, development fees, property management fees, leasing fees, and expense
reimbursements from them in the course of our day-to-day operations. For the entities that we
consolidate, those revenues and the corresponding expenses are eliminated in our consolidated
financial statements.
The consolidated entities are included in our consolidated financial statements because the
limited partners or non-managing members do not have sufficient participation rights in the
partnerships to overcome the presumption of control by us as the general partner or managing
member. The limited partners or non-managing members may have certain protective rights such as
the ability to prevent the sale of building, the dissolution of the partnership or limited
liability company, or the incurrence of additional indebtedness, in each case subject to certain
exceptions.
We have a 2.0% ownership in Shannon Health/MOB Limited Partnership No. 1 and a 2.0% ownership
in BSB Health/MOB Limited Partnership No. 2. For both real estate entities, the partnership
agreements and tenant leases of the limited partners are designed to give preferential treatment to
the limited partners as to the operating cash flows from the partnerships. We, as the general
partner, do not generally participate in the operating cash flows from these entities other than to
receive property management fees. The limited partners can remove us as the property manager and
as the general partner. Due to the structures of the partnership agreements and tenant lease
agreements, we report the properties owned by these two joint ventures as fee managed properties
owned by third parties.
Our unconsolidated entities are accounted for under the equity method of accounting based on
our ability to exercise significant influence as the entitys managing member or general partner.
The following summary of financial information reflects the financial position and operations in
their entirety, not just our interest in the entities, of the unconsolidated limited liability
companies and limited partnerships for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Financial position: |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
53,613 |
|
|
$ |
53,755 |
|
Total liabilities |
|
|
47,109 |
|
|
|
47,272 |
|
Members equity |
|
|
6,504 |
|
|
|
6,483 |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Results of operations: |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
2,771 |
|
|
$ |
3,129 |
|
Operating and general and administrative expenses |
|
|
1,273 |
|
|
|
1,462 |
|
Net income |
|
|
334 |
|
|
|
272 |
|
10
4. Acquisitions
In January 2011, we acquired St. Elizabeth Florence Medical Office Building, located in
Florence, Kentucky, for $6.2 million. The building is located on campus at St. Elizabeth Florence
Hospital and is connected to the hospital by a covered walkway. As of March 31, 2011, the building
is 76.1% leased. We own 95% of the joint venture that acquired the building. The following table
is a preliminary allocation of the purchase price (in thousands):
|
|
|
|
|
Building and improvements |
|
$ |
5,306 |
|
Acquired in place lease value and deferred leasing costs |
|
|
807 |
|
Acquired above market leases |
|
|
53 |
|
Acquired below market leases |
|
|
(16 |
) |
|
|
|
|
Total purchase price allocated |
|
$ |
6,150 |
|
|
|
|
|
5. Business Segments
We have two identified reportable segments: (1) Property Operations and (2) Design-Build and
Development. We define business segments by their distinct customer base and service provided.
Each segment operates under a separate management group and produces discrete financial
information, which is reviewed by the chief operating decision maker to make resource allocation
decisions and assess performance. Inter-segment sales and transfers are accounted for as if the
sales and transfers were made to third parties, which involve applying a negotiated fee onto the
costs of the services performed. All inter-company balances and transactions are eliminated during
the consolidation process.
We evaluate the operating performance of our operating segments based on funds from operations
(FFO) and funds from operations modified (FFOM). FFO, as defined by the National Association
of Real Estate Investment Trusts (NAREIT), represents net income (computed in accordance with
GAAP), excluding gains from sales of property, plus real estate depreciation and amortization
(excluding amortization of deferred financing costs) and after adjustments for unconsolidated
partnerships and joint ventures. We adjust the NAREIT definition to add back noncontrolling
interests in real estate partnerships before real estate related depreciation and amortization and
dividends on preferred stock. FFOM adds back to FFO non-cash amortization of non-real estate
related intangible assets associated with purchase accounting. We consider FFO and FFOM important
supplemental measures of our operational performance. We believe FFO is frequently used by
securities analysts, investors and other interested parties in the evaluation of REITs, many of
which present FFO when reporting their results. We believe that FFOM assists securities analysts,
investors and other interested parties in evaluating current period results to results prior to our
2008 acquisition of our Design-Build segment. FFO and FFOM are intended to exclude GAAP historical
cost depreciation and amortization of real estate and related assets, which assume that the value
of real estate assets diminishes ratably over time. Historically, however, real estate values have
risen or fallen with market conditions. Because FFO and FFOM exclude depreciation and amortization
unique to real estate, gains and losses from property dispositions and extraordinary items, it
provides a performance measure that, when compared year over year, reflects the impact to
operations from trends in occupancy rates, rental rates, operating costs, development activities
and interest costs, providing perspective not immediately apparent from net income. Our
methodology may differ from the methodology for calculating FFO utilized by other equity REITs and,
accordingly, may not be comparable to such other REITs. Further, FFO and FFOM do not represent
amounts available for managements discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties.
11
The following tables represent the segment information for the three months ended March 31,
2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Design-Build |
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
and |
|
|
Intersegment |
|
|
Unallocated |
|
|
|
|
Quarter ended March 31, 2011 |
|
Operations |
|
|
Development |
|
|
Eliminations |
|
|
and Other |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue |
|
$ |
23,054 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,054 |
|
Design-Build contract revenue and other sales |
|
|
|
|
|
|
23,784 |
|
|
|
(8,543 |
) |
|
|
|
|
|
|
15,241 |
|
Property management and other fees |
|
|
775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775 |
|
Development management and other income |
|
|
|
|
|
|
879 |
|
|
|
(805 |
) |
|
|
|
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
23,829 |
|
|
|
24,663 |
|
|
|
(9,348 |
) |
|
|
|
|
|
|
39,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and management |
|
|
9,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,287 |
|
Design-Build contracts and development management |
|
|
|
|
|
|
21,488 |
|
|
|
(8,475 |
) |
|
|
|
|
|
|
13,013 |
|
Selling, general, and administrative |
|
|
|
|
|
|
3,776 |
|
|
|
|
|
|
|
|
|
|
|
3,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain operating expenses |
|
|
9,287 |
|
|
|
25,264 |
|
|
|
(8,475 |
) |
|
|
|
|
|
|
26,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,542 |
|
|
|
(601 |
) |
|
|
(873 |
) |
|
|
|
|
|
|
13,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
164 |
|
|
|
8 |
|
|
|
|
|
|
|
6 |
|
|
|
178 |
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,432 |
) |
|
|
(2,432 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,850 |
) |
|
|
(4,850 |
) |
Income tax expense applicable to funds from
operations modified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
(18 |
) |
Non-real estate related depreciation and amortization |
|
|
|
|
|
|
(278 |
) |
|
|
|
|
|
|
(44 |
) |
|
|
(322 |
) |
Earnings from unconsolidated real estate partnerships,
before real estate related depreciation and amortization |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Noncontrolling interests in real estate partnerships,
before real estate related depreciation and amortization |
|
|
(498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(498 |
) |
Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,562 |
) |
|
|
(1,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations modified (FFOM) |
|
|
14,218 |
|
|
|
(871 |
) |
|
|
(873 |
) |
|
|
(8,900 |
) |
|
|
3,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles related to purchase accounting |
|
|
(42 |
) |
|
|
(189 |
) |
|
|
|
|
|
|
|
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations (FFO) |
|
|
14,176 |
|
|
|
(1,060 |
) |
|
|
(873 |
) |
|
|
(8,900 |
) |
|
|
3,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate related depreciation and amortization |
|
|
(7,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,279 |
) |
Noncontrolling interests in real estate partnerships,
before real estate related depreciation and amortization |
|
|
498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498 |
|
Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,562 |
|
|
|
1,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
7,395 |
|
|
$ |
(1,060 |
) |
|
$ |
(873 |
) |
|
$ |
(7,338 |
) |
|
$ |
(1,876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
595,032 |
|
|
$ |
54,520 |
|
|
$ |
|
|
|
$ |
263 |
|
|
$ |
649,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Design-Build |
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
and |
|
|
Intersegment |
|
|
Unallocated |
|
|
|
|
Quarter ended March 31, 2010 |
|
Operations |
|
|
Development |
|
|
Eliminations |
|
|
and Other |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue |
|
$ |
21,268 |
|
|
$ |
|
|
|
$ |
(23 |
) |
|
$ |
|
|
|
$ |
21,245 |
|
Design-Build contract revenue and other sales |
|
|
|
|
|
|
39,200 |
|
|
|
(3,764 |
) |
|
|
|
|
|
|
35,436 |
|
Property management and other fees |
|
|
818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
818 |
|
Development management and other income |
|
|
|
|
|
|
886 |
|
|
|
(783 |
) |
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
22,086 |
|
|
|
40,086 |
|
|
|
(4,570 |
) |
|
|
|
|
|
|
57,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and management |
|
|
8,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,198 |
|
Design-Build contracts and development management |
|
|
|
|
|
|
28,648 |
|
|
|
(4,029 |
) |
|
|
|
|
|
|
24,619 |
|
Selling, general, and administrative |
|
|
|
|
|
|
3,889 |
|
|
|
(23 |
) |
|
|
|
|
|
|
3,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certain operating expenses |
|
|
8,198 |
|
|
|
32,537 |
|
|
|
(4,052 |
) |
|
|
|
|
|
|
36,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,888 |
|
|
|
7,549 |
|
|
|
(518 |
) |
|
|
|
|
|
|
20,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
146 |
|
|
|
3 |
|
|
|
|
|
|
|
11 |
|
|
|
160 |
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,954 |
) |
|
|
(1,954 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,089 |
) |
|
|
(5,089 |
) |
Interest rate derivative expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(15 |
) |
Income taxes expense applicable to funds from
operations modified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,965 |
) |
|
|
(1,965 |
) |
Non-real estate related depreciation and amortization |
|
|
|
|
|
|
(219 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
(279 |
) |
Earnings from unconsolidated real estate partnerships,
before real estate related depreciation and amortization |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Noncontrolling interests in real estate partnerships,
before real estate related depreciation and amortization |
|
|
(616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(616 |
) |
Discontinued operations |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations modified (FFOM) |
|
|
13,440 |
|
|
|
7,333 |
|
|
|
(518 |
) |
|
|
(9,106 |
) |
|
|
11,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles related to purchase accounting,
net of income tax benefit |
|
|
(42 |
) |
|
|
(570 |
) |
|
|
|
|
|
|
239 |
|
|
|
(373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations (FFO) |
|
|
13,398 |
|
|
|
6,763 |
|
|
|
(518 |
) |
|
|
(8,867 |
) |
|
|
10,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate related depreciation and amortization |
|
|
(7,197 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,197 |
) |
Noncontrolling interests in real estate partnerships,
before real estate related depreciation and amortization |
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
6,817 |
|
|
$ |
6,763 |
|
|
$ |
(518 |
) |
|
$ |
(8,867 |
) |
|
$ |
4,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
554,138 |
|
|
$ |
187,710 |
|
|
$ |
|
|
|
$ |
395 |
|
|
$ |
742,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Contracts
Revenue and billings to date on uncompleted contracts, from their inception, are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Costs and estimated earnings on uncompleted contracts |
|
$ |
61,122 |
|
|
$ |
48,394 |
|
Billings to date |
|
|
(61,483 |
) |
|
|
(49,336 |
) |
|
|
|
|
|
|
|
Net billings in excess of costs and estimated earnings |
|
$ |
(361 |
) |
|
$ |
(942 |
) |
|
|
|
|
|
|
|
The following table shows costs and estimated earnings in excess of billings and billings
in excess of costs and estimated earnings as included with the consolidated balance sheets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings (1) |
|
$ |
1,953 |
|
|
$ |
988 |
|
Billings in excess of costs and estimated earnings |
|
|
(2,314 |
) |
|
|
(1,930 |
) |
|
|
|
|
|
|
|
Net billings in excess of costs and estimated earnings |
|
$ |
(361 |
) |
|
$ |
(942 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in Other assets in the consolidated balance sheet |
At March 31, 2011, we had retainage receivables of $3.8 million, which are included in
Tenant and accounts receivable in the consolidated balance sheets.
13
7. Goodwill and Intangible Assets
We review the value of goodwill and intangible assets on an annual basis and when
circumstances indicate a potential impairment may exist. The goodwill impairment review involves a
two-step process. The first step is a comparison of the reporting units fair value to its
carrying value. Fair value is estimated by using two approaches, an income approach and a market
approach. Each approach is weighted 50% in our analysis as we believe a market participant would
consider both approaches equally. The income approach uses our projected operating results and
discounted cash flows using a weighted-average cost of capital that reflects current market
conditions. The cash flow projections use estimates of economic and market information over the
projection period, including growth rates in revenues and costs and estimates of future expected
changes in operating margins and cash expenditures. Other significant estimates and assumptions
include terminal value growth rates, future estimates of capital expenditures, and changes in
future working capital requirements. The market approach estimates fair value by
applying cash flow multiples to our operating performance. The multiples are derived from
comparable publicly traded companies with similar operating and profitability characteristics.
Additionally, we reconcile the total of the estimated fair values of all our reporting units to our
market capitalization to determine if the sum of the individual fair values is reasonable compared
to the external market indicators.
If the carrying value of the reporting unit is higher than its fair value then an indication
of impairment may exist and a second step must be performed to measure the amount of impairment.
The amount of impairment is determined by comparing the implied fair value of the reporting units
goodwill to the carrying value of the goodwill calculated in the same manner as if the reporting
unit was being acquired in a business combination. If the implied fair value of goodwill is less
than the recorded goodwill, then an impairment charge for the difference would be recorded.
For non-amortizing intangible assets, we generally estimate fair value by applying an
estimated market royalty rate to projected revenues and discounted using a weighted-average cost of
capital that reflects current market conditions.
At March 31, 2011 and 2010, we determined no interim review was necessary.
Our goodwill and trade names and trademarks, which are associated with the Design-Build and
Development business segment, are not amortized. The following table shows the change in carrying
value related to goodwill and trade names and trademarks as of March 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Net |
|
|
|
Gross Amount |
|
|
Impairment |
|
|
Carrying Value |
|
Goodwill |
|
$ |
180,438 |
|
|
$ |
(157,556 |
) |
|
$ |
22,882 |
|
Trademarks and tradenames |
|
|
75,968 |
|
|
|
(75,968 |
) |
|
|
|
|
Amortizing intangible assets consisted of the following for the periods shown (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
Accumulated |
|
|
Carrying |
|
|
|
Gross Amount |
|
|
Amortization |
|
|
Value |
|
In place lease value and deferred leasing costs |
|
$ |
44,091 |
|
|
$ |
(31,461 |
) |
|
$ |
12,630 |
|
Ground leases |
|
|
3,776 |
|
|
|
(687 |
) |
|
|
3,089 |
|
Property management contracts |
|
|
2,097 |
|
|
|
(806 |
) |
|
|
1,291 |
|
Design-build customer relationships |
|
|
1,789 |
|
|
|
(825 |
) |
|
|
964 |
|
Above market tenant leases |
|
|
1,612 |
|
|
|
(1,168 |
) |
|
|
444 |
|
Design-build signed contracts |
|
|
13,253 |
|
|
|
(13,253 |
) |
|
|
|
|
Design-build proposals |
|
|
2,129 |
|
|
|
(2,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizing intangible assets |
|
$ |
68,747 |
|
|
$ |
(50,329 |
) |
|
$ |
18,418 |
|
|
|
|
|
|
|
|
|
|
|
14
Amortization expense related to intangibles for the three months ended March 31, 2011 and
2010 was $1.0 and $1.5 million, respectively. We expect to recognize amortization expense from the
amortizing intangible assets as follows (in thousands):
|
|
|
|
|
|
|
Future |
|
|
|
Amortization |
|
For the year ending: |
|
Expense |
|
Remainder of 2011 |
|
$ |
2,680 |
|
2012 |
|
|
2,732 |
|
2013 |
|
|
1,805 |
|
2014 |
|
|
1,660 |
|
2015 |
|
|
1,190 |
|
Thereafter |
|
|
8,351 |
|
|
|
|
|
|
|
$ |
18,418 |
|
|
|
|
|
8. Mortgage Notes Payable and Borrowing Agreements
On March 1, 2011, we amended and restated the secured revolving credit facility (Credit
Facility). This $200.0 million Credit Facility is held with a syndicate of financial
institutions. The Credit Facility is available to fund working capital and for other general
corporate purposes; to finance acquisition and development activity; and to refinance existing and
future indebtedness. The Credit Facility permits us to borrow, subject to borrowing base
availability, up to $200.0 million of revolving loans, with sub-limits of $25.0 million for
swingline loans and $25.0 million for letters of credit. As of March 31, 2011, the maximum
available borrowing under the Credit Facility was $122.8 million, with $55.0 million drawn, based
on 70% of the value of the aggregate property pledged as collateral. We have the ability to
increase the availability by pledging additional unencumbered property to the Credit Facility.
The Credit Facility also allows for up to $150.0 million of increased availability (to a total
aggregate available amount of $350.0 million), at our request but subject to each lenders option
to increase its commitment. The interest rate on loans under the Credit Facility equals, at our
election, either (1) LIBOR (0.24% as of March 31, 2011) plus a margin of between 275 to 350 basis
points based on our total leverage ratio (3.00% as of March 31, 2011) or (2) the higher of the
federal funds rate plus 50 basis points or Bank of America, N.A.s prime rate (3.25% as of March
31, 2011) plus a margin of between 175 to 250 basis points based on our total leverage ratio (2.00%
as of March 31, 2011).
The Credit Facility contains customary terms and conditions for credit facilities of this
type, including, but not limited to, (1) affirmative covenants relating to our corporate structure
and ownership, maintenance of insurance, compliance with environmental laws and preparation of
environmental reports, (2) negative covenants relating to restrictions on liens, indebtedness,
certain investments (including loans and certain advances), mergers and other fundamental changes,
sales and other dispositions of property or assets and transactions with affiliates, maintenance of
our REIT qualification and listing on the NYSE or NASDAQ, and (3) financial covenants to be met at
all times including a maximum total leverage ratio (65% through March 31, 2013, and 60%
thereafter), maximum secured recourse indebtedness ratio, excluding the indebtedness under the
Credit Facility (20%), minimum fixed charge coverage ratio (1.35 to 1.00 through March 31, 2012,
and 1.50 to 1.00 thereafter), minimum consolidated tangible net worth ($237.1 million plus 80% of
the net proceeds of equity issuances issued after the closing date at March 1, 2011) and minimum
net operating income ratio from properties secured under the Credit Facility to Credit Facility
interest expense (1.50 to 1.00). Additionally, provisions in the Credit Facility indirectly
prohibit us from redeeming or otherwise repurchasing any shares of our stock, including our
preferred stock.
In April 2011, we refinanced a $5.1 million mortgage note payable on the English Road Medical
Center property. The principal balance was unchanged and the note matures in April 2016. The
interest rate decreased from 6.0% to 5.0% and with monthly principal and interest payments based
approximately on a 25-year amortization.
In March 2011, we began construction on a new project located in Duluth, Minnesota. We
obtained construction financing with a maximum principal balance of $19.0 million and an interest
rate of LIBOR plus 3.25%, with a minimum interest rate of 5.5%. Monthly payments are interest only
during the construction period and after construction completion, the monthly payments will be
principal and interest based on a 25.0 year amortization. The mortgage note payable matures in
September 2016.
15
Our mortgages are collateralized by property; principal and interest payments are generally
made monthly. Scheduled maturities of mortgages and notes payable under the Credit Facility as of
March 31, 2011, are as follows (in thousands):
|
|
|
|
|
For the year ending: |
|
Total |
|
Remainder of 2011 |
|
$ |
76,172 |
|
2012 |
|
|
20,025 |
|
2013 |
|
|
15,872 |
|
2014 |
|
|
119,127 |
|
2015 |
|
|
12,490 |
|
Thereafter |
|
|
130,675 |
|
|
|
|
|
|
|
$ |
374,361 |
|
|
|
|
|
As of March 31, 2011, we had $76.2 million of principal and maturity payments related to
mortgage notes payable due in 2011. The $76.2 million is comprised of $3.4 million for principal
amortization and $72.8 million for maturities. Of the $72.8 million in maturing mortgage notes
payable, $12.3 million relates to Alamance Regional Mebane Outpatient Center and can be extended
for one year to May 2012. We believe that we will be able to refinance or extend the remaining
$60.5 million of 2011 balloon maturities as a result of the current loan to value ratios at
individual properties and preliminary discussions with lenders. The weighted average interest rate
on the debt that matures in 2011 is approximately 3.0%. We expect upon refinancing that the
weighted average interest rate on this debt will be greater than 3.0%.
At March 31, 2011, we believe that we were in compliance with all of our loan covenants.
9. Derivative Financial Instruments
Interest rate swap and interest rate cap agreements are utilized to reduce exposure to
variable interest rates associated with certain mortgage notes payable. These agreements involve
an exchange of fixed and floating interest payments without the exchange of the underlying
principal amount (the notional amount) or a cap on the referenced rate. The interest rate swap
and interest rate cap agreements are reported at fair value in the consolidated balance sheet
within Other assets or Other liabilities and changes in the fair value, net of tax where
applicable, are reported in accumulated other comprehensive income (loss) (AOCI) exclusive of
ineffectiveness amounts. The following table summarizes the terms of our interest rate swap
agreements and their fair values at March 31, 2011 and December 31, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Notional |
|
|
|
|
|
|
|
Effective |
|
|
Expiration |
|
|
|
|
|
|
|
Entity/Property |
|
Amount |
|
|
Receive Rate |
|
Pay Rate |
|
|
Date |
|
|
Date |
|
|
Asset |
|
|
Liability |
|
|
Asset |
|
|
Liability |
|
St. Francis Community MOB LLC |
|
$ |
6,642 |
|
|
1 Month LIBOR |
|
|
3.32 |
% |
|
|
10/15/2008 |
|
|
|
6/15/2011 |
|
|
$ |
|
|
|
$ |
52 |
|
|
$ |
|
|
|
$ |
102 |
|
St. Francis Medical Plaza (Greenville) |
|
|
7,135 |
|
|
1 Month LIBOR |
|
|
3.32 |
% |
|
|
10/15/2008 |
|
|
|
6/15/2011 |
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
109 |
|
Beaufort Medical Plaza |
|
|
4,605 |
|
|
1 Month LIBOR |
|
|
3.80 |
% |
|
|
8/18/2008 |
|
|
|
8/18/2011 |
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
107 |
|
East Jefferson Medical Plaza |
|
|
11,600 |
|
|
1 Month LIBOR |
|
|
1.80 |
% |
|
|
1/15/2009 |
|
|
|
12/23/2011 |
|
|
|
|
|
|
|
135 |
|
|
|
|
|
|
|
173 |
|
River Hills Medical Plaza |
|
|
3,208 |
|
|
1 Month LIBOR |
|
|
1.78 |
% |
|
|
1/15/2009 |
|
|
|
1/31/2012 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
50 |
|
HealthPartners Medical Office Building |
|
|
11,742 |
|
|
1 Month LIBOR |
|
|
3.55 |
% |
|
|
6/1/2010 |
|
|
|
11/1/2014 |
|
|
|
|
|
|
|
770 |
|
|
|
|
|
|
|
899 |
|
Lancaster ASC MOB |
|
|
10,330 |
|
|
1 Month LIBOR |
|
|
4.03 |
% |
|
|
3/14/2008 |
|
|
|
3/2/2015 |
|
|
|
|
|
|
|
825 |
|
|
|
|
|
|
|
938 |
|
Bonney Lake MOB Investors LLC |
|
|
11,505 |
|
|
1 Month LIBOR |
|
|
3.19 |
% |
|
|
10/1/2011 |
|
|
|
10/1/2016 |
|
|
|
|
|
|
|
243 |
|
|
|
|
|
|
|
|
|
Woodlands Center for Specialized Medicine |
|
|
16,533 |
|
|
1 Month LIBOR |
|
|
4.71 |
% |
|
|
4/1/2010 |
|
|
|
10/1/2018 |
|
|
|
|
|
|
|
1,939 |
|
|
|
|
|
|
|
2,200 |
|
Medical Center Physicians Tower |
|
|
14,644 |
|
|
1 Month LIBOR |
|
|
3.69 |
% |
|
|
9/1/2010 |
|
|
|
3/1/2019 |
|
|
|
|
|
|
|
644 |
|
|
|
|
|
|
|
921 |
|
University Physicians Grants Ferry |
|
|
10,361 |
|
|
1 Month LIBOR |
|
|
3.70 |
% |
|
|
10/1/2010 |
|
|
|
4/1/2019 |
|
|
|
|
|
|
|
457 |
|
|
|
|
|
|
|
654 |
|
Cogdell Spencer LP(1) |
|
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
5,230 |
|
|
$ |
|
|
|
$ |
6,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rate swap agreement expired March 10, 2011. |
16
The following table summarizes the terms of the interest rate cap agreement and its fair
value at March 31, 2011 and December 31, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Notional |
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
Expiration |
|
|
|
|
|
|
|
Entity/Property |
|
Amount |
|
|
Reference Rate |
|
|
Cap Rate |
|
|
Date |
|
|
Date |
|
|
Asset |
|
|
Liability |
|
|
Asset |
|
|
Liability |
|
Rocky Mount Medical Park LP |
|
$ |
10,239 |
|
|
1 Month LIBOR |
|
|
3.00 |
% |
|
|
2/1/2011 |
|
|
|
10/22/2014 |
|
|
$ |
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the effect of our derivative financial instruments designated
as cash flow hedges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or |
|
|
Gain or (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Reclassified |
|
|
Reclassified from |
|
|
|
|
|
|
|
|
|
Gain or (Loss) |
|
|
from AOCI, |
|
|
AOCI, |
|
|
|
|
|
|
|
|
|
Recognized in AOCI, |
|
|
Noncontrolling |
|
|
Noncontrolling |
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
Interests in |
|
|
Interests in |
|
|
|
|
|
|
|
|
|
Interests in |
|
|
Operating |
|
|
Operating |
|
|
Location of Gain or |
|
|
Gain or (Loss) |
|
|
|
Operating |
|
|
Partnership, and |
|
|
Partnership, and |
|
|
(Loss) Recognized - |
|
|
Recognized - |
|
|
|
Partnership, and |
|
|
Noncontrolling |
|
|
Noncontrolling |
|
|
Ineffective Portion |
|
|
Ineffective Portion |
|
|
|
Noncontrolling |
|
|
Interests in Real |
|
|
Interests in Real |
|
|
and Amount |
|
|
and Amount |
|
|
|
Interests in Real |
|
|
Estate Partnerships |
|
|
Estate Partnerships |
|
|
Excluded from |
|
|
Excluded from |
|
|
|
Estate Partnerships - |
|
|
into Income - |
|
|
into Income - |
|
|
Effectiveness |
|
|
Effectiveness |
|
|
|
Effective Portion (1) |
|
|
Effective Portion |
|
|
Effective Portion (1) |
|
|
Testing |
|
|
Testing |
|
For the three months ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
$ |
959 |
|
|
Interest Expense |
|
$ |
(959 |
) |
|
Interest rate derivative expense |
|
$ |
|
|
March 31, 2010 |
|
$ |
(1,464 |
) |
|
Interest Expense |
|
$ |
(254 |
) |
|
Interest rate derivative expense |
|
$ |
(15 |
) |
|
|
|
(1) |
|
Refer to the Condensed Consolidated Statement of Changes in Equity, which
summarizes the activity in unrealized gain on derivative financial instruments, net of tax related
to the interest rate swap and interest rate cap agreements. |
The following tables present information about our assets and liabilities measured at
fair value on a recurring basis for the dates shown, and indicates the fair value hierarchy
referenced in Note 2 of these Condensed Consolidated Financial Statements of the valuation
techniques utilized by us to determine such fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of |
|
|
|
March 31, 2011 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap agreement |
|
$ |
110 |
|
|
$ |
|
|
|
$ |
110 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
$ |
(5,230 |
) |
|
$ |
|
|
|
$ |
(5,230 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of |
|
|
|
December 31, 2010 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Liabilities- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
$ |
(6,315 |
) |
|
$ |
|
|
|
$ |
(6,315 |
) |
|
$ |
|
|
The valuation of derivative financial instruments is determined using widely accepted
valuation techniques including discounted cash flow analysis on the expected cash flows of each
derivative. The fair values of variable to fixed interest rate swaps are determined using the
market standard methodology of netting the discounted future fixed cash payments and the discounted
expected variable cash receipts. The variable cash receipts are based on an expectation of future
interest rate forward curves derived from observable market interest rate curves. We incorporate
credit valuation adjustments to appropriately reflect both our nonperformance risk and the
respective counterpartys nonperformance risk in the fair value measurements. In adjusting the
fair value of our derivative contracts for the effect of nonperformance risk, we have considered
the impact of netting and any applicable credit enhancements, such as collateral postings,
thresholds, mutual puts, and guarantees.
17
10. Equity
Preferred Shares
There are 2.9 million shares of our 8.500% Series A cumulative redeemable perpetual preferred
stock (Series A preferred shares) outstanding at March 31, 2011. The Series A preferred shares
have no stated maturity and are not subject to any sinking fund or mandatory redemption. Upon
certain circumstances upon a change of control, the Series A preferred shares are convertible to
common shares. Holders of Series A preferred shares generally have no voting rights, except under
limited conditions, and holders are entitled to receive cumulative preferential dividends.
Dividends are payable quarterly in arrears on the first day of March, June, September, and
December.
The following is a summary of changes of our Series A preferred shares for the periods shown
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Preferred stock shares at beginning of period |
|
|
2,600 |
|
|
|
|
|
Issuance of preferred stock |
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock shares at end of period |
|
|
2,940 |
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares and Units
An Operating Partnership Unit (OP Unit) and a share of our common stock have essentially the
same economic characteristics as they share equally in the total net income or loss and
distributions of the Operating Partnership. An OP Unit may be tendered for redemption for cash,
however, we have sole discretion and the authorized common stock to exchange for shares of common
stock on a one-for-one basis.
Long Term Incentive Plan (LTIP) units are a special class of partnership interests in the
Operating Partnership. Each LTIP unit awarded will be deemed equivalent to an award of one common
share under the 2005 and 2010 long-term stock incentive plans, reducing the availability for other
equity awards on a one-for-one basis. The vesting period for LTIP units, if any, will be
determined at the time of issuance. Cash distributions on each LTIP unit, whether vested or not,
will be the same as those made on the OP Units. Under the terms of the LTIP units, the Operating
Partnership will revalue for tax purposes its assets upon the occurrence of certain specified
events, and any increase in valuation from the time of grant until such event will be allocated
first to the holders of LTIP units to equalize the capital accounts of such holders with the
capital accounts of OP unitholders. Subject to any agreed upon exceptions, once vested, LTIP units
are convertible into OP Units in the Operating Partnership on a one for one basis.
As of March 31, 2011, there were 58.5 million OP Units outstanding, of which 51.0 million, or
87.3%, were owned by us and 7.4 million, or 12.7%, were owned by other partners, including certain
directors, officers and other members of executive management. As of March 31, 2011, the fair
market value of the OP Units not owned by us was $44.1 million, based on a market value of $5.94
per unit, which was the closing stock price of our common shares on March 31, 2011.
The following is a summary of changes of our common stock for the periods shown (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Shares of common stock at beginning of period |
|
|
50,870 |
|
|
|
42,729 |
|
Conversion of OP Units to common stock |
|
|
134 |
|
|
|
29 |
|
Restricted stock grants |
|
|
38 |
|
|
|
35 |
|
|
|
|
|
|
|
|
Shares of common stock at end of period |
|
|
51,042 |
|
|
|
42,793 |
|
|
|
|
|
|
|
|
18
The following is net income (loss) attributable to Cogdell Spencer Inc. and the issuance
of common stock in exchange for redemptions of OP Units for the periods shown (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Net income (loss) attributable to Cogdell Spencer Inc. common shareholders |
|
$ |
(3,130 |
) |
|
$ |
3,286 |
|
Increase in Cogdell Spencer Inc. additional paid-in capital for the
conversion of OP units into common stock |
|
|
409 |
|
|
|
158 |
|
|
|
|
|
|
|
|
Change from net income (loss) attributable to Cogdell Spencer Inc.
common shareholders and transfers from noncontrolling interests |
|
$ |
(2,721 |
) |
|
$ |
3,444 |
|
|
|
|
|
|
|
|
Noncontrolling Interests in Real Estate Partnerships
Noncontrolling interests in real estate partnerships at March 31, 2011 and December 31, 2010
relate to the consolidated entities referenced in Note 3 to these Condensed Consolidated Financial
Statements. See Note 3 to these Condensed Consolidated Financial Statements for additional
information regarding our investments in real estate partnerships.
Dividends and Distributions
On March 11, 2011, we announced that our Board of Directors had declared a quarterly dividend
of $0.10 per share and OP Unit that was paid in cash on April 20, 2011 to holders of record on
March 25, 2011. The $5.0 million dividend covered our first quarter of 2011. Additionally,
distributions declared to OP Unit holders, excluding inter-company distributions, totaled $1.6
million for the first quarter of 2011.
On May 4, 2011, we announced that our Board of Directors declared a quarterly dividend of
$0.53125 per share on our Series A preferred shares for the period March 1, 2011 to May 31, 2011.
The dividend will be paid on June 1, 2011, to holders of record on May 18, 2011.
11. Incentive and Share-Based Compensation
Our 2005 and 2010 Long-Term Stock Incentive Plans (Incentive Plans) provides for the grant
of incentive awards to employees, directors and consultants to attract and retain qualified
individuals and reward them for superior performance in achieving the Companys business goals and
enhancing stockholder value. Awards issuable under the incentive award plan include stock options,
restricted stock, dividend equivalents, stock appreciation rights, LTIP units, cash performance
bonuses and other incentive awards. Only employees are eligible to receive incentive stock options
under the incentive award plan. We have reserved a total of 2,512,000 shares of common stock for
issuance pursuant to the incentive award plan, subject to certain adjustments set forth in the
plan. Each LTIP unit issued under the incentive award plan will count as one share of stock for
purposes of calculating the limit on shares that may be issued under the plan. A total of 926,861
shares of common stock are available for future grant under the Incentive Plans at March 31, 2011.
We recognized total compensation expenses of $0.2 million for the three months ended March 31,
2011 and 2010.
In September 2010, we issued 447,094 shares of restricted common stock to our President and
Chief Executive Officer, Mr. Raymond Braun, as a performance award grant. The restricted common
stock vests, subject to the satisfaction of pre-established performance measures, 100% on December
31, 2013, or earlier if Mr. Braun is terminated without cause. The grant date for accounting
purposes and the grant date fair value will be established in the future when the Compensation
Committee and Mr. Braun mutually agree upon, and subject to the approval by our Board of Directors,
the performance criteria. The grant date fair value will be determined at that time and the
related compensation expense will be amortized over the vesting period. The Compensation Committee
and Mr. Braun expect to establish the performance criteria on or before June 1, 2011.
19
The following is a summary of restricted stock and LTIP unit activity for the three months
ended March 31, 2011 (in thousands, except weighted average grant price):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Restricted |
|
|
|
|
|
|
Average |
|
|
|
Stock |
|
|
LTIP Units |
|
|
Grant Price |
|
Unvested balance at January 1, 2011 |
|
|
75 |
|
|
|
65 |
|
|
$ |
10.69 |
|
Granted |
|
|
17 |
|
|
|
54 |
|
|
|
6.01 |
|
Vested |
|
|
(17 |
) |
|
|
(38 |
) |
|
|
6.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75 |
|
|
|
81 |
|
|
$ |
10.17 |
|
Approved for grant |
|
|
447 |
|
|
|
|
|
|
|
(a |
) |
|
|
|
|
|
|
|
|
|
|
Unvested balance at March 31, 2011 |
|
|
522 |
|
|
|
81 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Grant date fair value will be determined when the related performance criteria have
been mutually agreed upon by the Compensation Committee and Mr. Braun and approved by our
Board of Directors, which is expected on or before June 1, 2011. |
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the Cogdell Spencer Inc.
Consolidated Financial Statements and Notes thereto appearing in our Annual Report on Form 10-K for
the year ended December 31, 2010 and our Condensed Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Quarterly Report on Form 10-Q. We make statements in this
section that are forward-looking statements within the meaning of the federal securities laws.
Certain risk factors may cause actual results, performance or achievements to differ materially
from those expressed or implied by the following discussion. For a discussion of such risk
factors, see the section entitled Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2010.
When used in this discussion and elsewhere in this Quarterly Report on Form 10-Q, the words
believes, anticipates, projects, should, estimates, expects, and similar expressions
are intended to identify forward-looking statements with the meaning of that term in Section 27A of
the Securities Act of 1933, as amended (the Securities Act), and in Section 21F of the Securities
Exchange Act of 1934, as amended. Actual results may differ materially due to uncertainties
including the following:
|
|
|
our business strategy; |
|
|
|
|
our ability to comply with financial covenants in our debt instruments; |
|
|
|
|
our access to capital; |
|
|
|
|
our ability to obtain future financing arrangements, including refinancing existing arrangements; |
|
|
|
|
estimates relating to our future distributions; |
|
|
|
|
our understanding of our competition; |
|
|
|
|
our ability to renew our ground leases; |
|
|
|
|
legislative and regulatory changes (including changes to laws governing the taxation of REITs and
individuals); |
|
|
|
|
increases in costs of borrowing as a result of changes in interest rates; |
|
|
|
|
our ability to maintain our qualification as a REIT due to economic, market, legal, or tax considerations; |
|
|
|
|
changes in the reimbursement available to our tenants by government or private payors; |
20
|
|
|
our tenants ability to make rent payments; |
|
|
|
|
defaults by tenants and customers; |
|
|
|
|
access to financing by customers; |
|
|
|
|
delays in project starts and cancellations by customers; |
|
|
|
|
our ability to convert design-build project opportunities into new engagements for us; |
|
|
|
|
market trends; and |
|
|
|
|
projected capital expenditures. |
Forward-looking statements are based on estimates as of the date of this report. We disclaim
any obligation to publicly release the results of any revisions to these forward-looking statements
reflecting new estimates, events or circumstances after the date of this report.
The risks included here are not exhaustive. Other sections of this report may include
additional factors that could adversely affect our business and financial performance. Moreover, we
operate in a very competitive and rapidly changing environment. New risk factors emerge from time
to time and it is not possible for management to predict all such risk factors, nor can it assess
the impact of all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements. Given these risks and uncertainties, investors should not place undue
reliance on forward-looking statements as a prediction of actual results.
Overview
We are a fully-integrated, self-administered, and self-managed REIT that invests in healthcare
facilities, including medical offices and ambulatory surgery and diagnostic centers. We focus on
the ownership, delivery, acquisition, and management of strategically located healthcare facilities
in the United States of America. We have been built around understanding and addressing the
specialized real estate needs of the healthcare industry and providing services from strategic
planning to long-term property ownership and management. Integrated delivery service offerings
include strategic planning, design, construction, development and project management services for
properties owned by us or by third parties.
We are building a national portfolio of healthcare properties primarily located on hospital
campuses. Since our initial public offering in 2005, we have grown through acquisitions and
facility development to encompass a national footprint, including seven regional offices located
throughout the United States (Atlanta, Charlotte, Dallas, Denver, Madison, Seattle, and Washington,
D.C.) and 27 property management offices. Client relationships and advance planning services give
us the ability to be included in the initial project discussions that can lead to ownership and
investment in healthcare properties.
In January 2011, we acquired St. Elizabeth Florence Medical Office Building, located in
Florence, Kentucky, for $6.2 million. The building is located on campus at St. Elizabeth Florence
Hospital and is connected to the hospital by a covered walkway. As of March 31, 2011, we had three
investment projects under construction totaling approximately 312,000 net rentable square feet with
a total estimated investment of approximately $70.2 million.
As of March 31, 2011, we owned and/or managed 114 medical office buildings and healthcare
related facilities, totaling 5.9 million net rentable square feet. Our portfolio consists of:
|
|
|
65 consolidated wholly-owned and joint venture properties, comprising a total of
approximately 3.6 million net rentable square feet, 91.0% leased; |
|
|
|
One wholly-owned property in the lease-up phase, comprising approximately 0.1 million
net rentable square feet, 75% leased and income producing with the remaining 25% leased and
under construction for a third quarter 2011 scheduled date of occupancy; |
21
|
|
|
One consolidated joint venture acquisition property in the lease-up phase, comprising
approximately 0.1 million net rentable square feet, 76.1% leased; |
|
|
|
Three unconsolidated joint venture properties comprising a total of approximately 0.2
million net rentable square feet; and |
|
|
|
44 properties managed for third party clients comprising a total of approximately 2.0
million net rentable square feet. |
At March 31, 2011, 73.3% of our wholly-owned and consolidated properties were located on
hospital campuses and an additional 10.8% were located off-campus, but were hospital anchored. We
believe that our on-campus and hospital anchored assets occupy a premier franchise location in
relation to local hospitals, providing our properties with a distinct competitive advantage over
alternative medical office space in an area. As of March 31, 2011, our 65 in-service, wholly-owned
and consolidated properties were approximately 91.0% leased, with a weighted average remaining
lease term of approximately 5.4 years.
We derive the majority of our revenues from two main sources: 1) rents received from tenants
under leases in healthcare facilities, and 2) revenue earned from design-build construction
contracts and development contracts. To a lesser degree, we have revenue from consulting and
property management agreements.
We expect that rental revenue will remain stable due to multi-year, non-cancellable leases
with annual rental increases based on the Consumer Price Index (CPI). We have been able to
maintain a high occupancy rate for our
in-service, consolidated wholly-owned and joint venture properties, due to our focus on
customer relationships. For the three months ended March 31, 2011, we renewed 92.3% of lease
expirations. Generally, our property operating revenues and expenses have remained consistent over
time except for growth due to property developments and property acquisitions.
The demand for our design-build and development services has been, and will likely continue to
be, cyclical in nature. Financial results can be affected by the amount and timing of capital
spending by healthcare systems and providers, the demand for design-build and developments
services in the healthcare facilities market, the availability of construction level financing,
changes in our market share, and weather at the construction sites. In periods of adverse economic
conditions, our design-build and development customers may be unwilling or unable to make capital
expenditures and they may be unable to obtain debt or equity financings for projects. As a result,
customers may defer projects to a later date, which could reduce our revenues.
Critical Accounting Estimates
Our discussion and analysis of financial condition and results of operations are based upon
our condensed consolidated financial statements, which have been prepared on the accrual basis of
accounting in conformity with GAAP. All significant intercompany balances and transactions have
been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires our management to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amount of revenues and expenses in the reporting
period. Our actual results may differ from these estimates. We have provided a summary of our
significant accounting policies in Note 2 in the accompanying Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.
Critical accounting policies are those judged to involve accounting estimates or assumptions that
may be material due to the levels of subjectivity and judgment necessary to account for uncertain
matters or susceptibility of such matters to change. Other companies in similar businesses may
utilize different estimation policies and methodologies, which may impact the comparability of our
results of operations and financial condition to those companies.
22
Acquisition of Real Estate
The price we pay to acquire a property is impacted by many factors, including the condition of
the buildings and improvements, the occupancy of the building, the existence of above and below
market tenant leases, the creditworthiness of the tenants, favorable or unfavorable financing,
above or below market ground leases and numerous other factors. Accordingly, we are required to
make subjective assessments to allocate the purchase price paid to acquire investments in real
estate among the assets acquired and liabilities assumed based on our estimate of the fair values
of such assets and liabilities. This includes determining the value of the buildings and
improvements, land, any ground leases, tenant improvements, in-place tenant leases, tenant
relationships, the value (or negative value) of above (or below) market leases and any debt assumed
from the seller or loans made by the seller to us. Each of these estimates requires significant
judgment and some of the estimates involve complex calculations. Our calculation methodology is
summarized in Note 2 in the accompanying Notes to Consolidated Financial Statements included in our
Annual Report on Form 10-K for the year ended December 31, 2010. These allocation assessments have
a direct impact on our results of operations because if we were to allocate more value to land
there would be no depreciation with respect to such amount or if we were to allocate more value to
the buildings as opposed to allocating to the value of tenant leases, this amount would be
recognized as an expense over a much longer period of time, since the amounts allocated to
buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to
tenant leases are amortized over the terms of the leases. Additionally, the amortization of value
(or negative value) assigned to above (or below) market rate leases is recorded as an adjustment to
rental revenue as compared to amortization of the value of in-place leases and tenant
relationships, which is included in depreciation and amortization in our consolidated statements of
operations.
Useful Lives of Assets
We are required to make subjective assessments as to the useful lives of our properties and
intangible assets for purposes of determining the amount of depreciation and amortization to record
on an annual basis with respect to our assets. These assessments have a direct impact on our net
income (loss) because if we were to shorten the expected useful lives, then we would depreciate or
amortize such assets over fewer years, resulting in more depreciation or amortization expense on an
annual basis.
Asset Impairment Valuation
We review the carrying value of our properties, investments in real estate partnerships, and
amortizing intangible assets annually and when circumstances, such as adverse market conditions,
indicate that a potential impairment may exist. We base our review on an estimate of the future
cash flows (excluding interest charges) expected to result from the assets use and potential
eventual disposition. We consider factors such as future operating income, trends and prospects, as
well as the effects of leasing demand, competition and other factors. If our evaluation indicates
that we may be unable to recover the carrying value of an investment, an impairment loss is
recorded to the extent that the carrying value exceeds the estimated fair value of the asset.
These losses have a direct impact on our net income (loss) because recording an impairment loss
results in an immediate negative adjustment to operating results. The evaluation of anticipated
cash flows is highly subjective and is based in part on assumptions regarding future sales,
backlog, occupancy, rental rates and capital requirements that could differ materially from actual
results in future periods. Because cash flows on properties considered to be long-lived assets to
be held and used are considered on an undiscounted basis to determine whether an asset has been
impaired, our strategy of holding properties over the long-term directly decreases the likelihood
of recording an impairment loss for properties. If our strategy changes or market conditions
otherwise dictate an earlier sale date, an impairment loss may be recognized and such loss could be
material. If we determine that impairment has occurred, the affected assets must be reduced to
their fair value. We estimate the fair value of rental properties utilizing a discounted cash flow
analysis that includes projections of future revenues, expenses and capital improvement costs,
similar to the income approach that is commonly utilized by appraisers.
We review the value of goodwill using an income approach and market approach on an annual
basis and when circumstances indicate a potential impairment may exist. Our methodology to review
goodwill impairment, which includes a significant amount of judgment and estimates, provides a
reasonable basis to determine whether impairment has occurred. However, many of the factors
employed in determining whether or not goodwill is impaired are outside of our control and it is
likely that assumptions and estimates will change in future periods. These changes can result in
future impairments which could be material.
The goodwill impairment review involves a two-step process. The first step is a comparison of
the reporting units fair value to its carrying value. Fair value is estimated by utilizing two
approaches, an income approach and a market approach. The income approach uses the reporting
units projected operating results and discounted cash flows using a weighted-average cost of
capital that reflects current market conditions. The cash flow projections use estimates of
economic and market information over the projection period, including growth rates in revenues and
costs and estimates of future expected changes in operating margins and cash expenditures. Other
significant estimates and assumptions include terminal value growth rates, future estimates of
capital expenditures, and changes in future working capital requirements. The market approach
estimates fair value by applying cash flow multiples to the reporting units operating performance.
The multiples are derived from comparable publicly traded companies with similar operating and
profitability characteristics. Additionally, we reconcile the total of the estimated fair values
of all our reporting units to our market capitalization to determine if the sum of the individual
fair values is reasonable compared to the external market indicators.
23
If the carrying value of the reporting unit is higher than its fair value, then an indication
of impairment may exist and a second step must be performed to measure the amount of impairment.
The amount of impairment is determined by comparing the implied fair value of the reporting units
goodwill to the carrying value of the goodwill calculated in the same manner as if the reporting
unit was being acquired in a business combination. If the implied fair value of goodwill is less
than the recorded goodwill, then an impairment charge for the difference is recorded. For
non-amortizing intangible assets, we estimate fair value by applying an estimated market royalty
rate to projected revenues and discount using a weighted-average cost of capital that reflects
current market conditions.
If market and economic conditions deteriorate and cause (1) declines in our stock price, (2)
increases in the estimated weighted-average cost of capital, (3) changes in cash flow multiples or
projections, or (4) changes in other inputs to goodwill assessment estimates, then a goodwill
impairment review may be required prior to our next annual test. It is reasonably possible that
changes in the numerous variables associated with the judgments, assumptions, and estimates could
cause the goodwill or non-amortizing intangible assets to become impaired. If goodwill or
non-amortizing intangible assets are impaired, we are required to record a non-cash charge that
could have a material adverse affect on our consolidated financial statements.
Revenue Recognition
Rental income related to non-cancelable operating leases is recognized using the straight line
method over the terms of the tenant leases. Deferred rents included in our consolidated balance
sheets represent the aggregate excess of rental revenue recognized on a straight line basis over
the rental revenue that would be recognized under the cash flow received, based on the terms of the
leases. Our leases generally contain provisions under which the tenants reimburse us for all
property operating expenses and real estate taxes we incur. Such reimbursements are recognized in
the period that the expenses are incurred. Lease termination fees are recognized when the related
leases are canceled and we have no continuing obligation to provide services to such former
tenants. We recognize amortization of the value of acquired above or below market tenant leases as
a reduction of rental income in the case of above market leases or an increase to rental revenue in
the case of below market leases.
For design-build contracts, we recognize revenue under the percentage of completion method.
Due to the volume, varying complexity, and other factors related to our design-build contracts, the
estimates required to determine percentage of completion are complex and use subjective judgments.
Changes in labor costs and material inputs can have a significant impact on the percentage of
completion calculations. We have a long history of developing reasonable and dependable estimates
related to design-build contracts with clear requirements and rights of the parties to the
contracts. As long-term design-build projects extend over one or more years, revisions in cost and
estimated earnings during the course of the work are reflected in the accounting period in which
the facts which require the revision become known. At the time a loss on a design-build project
becomes known, the entire amount of the estimated ultimate loss is recognized in our consolidated
financial statements.
We receive fees for property management and development and consulting services from time to
time from third parties which are reflected as fee revenue. Management fees are generally based on
a percentage of revenues for the month as defined in the related property management agreements.
Revenue from development and consulting agreements is recognized as earned per the agreements. Due
to the amount of control we retain, most joint venture developments will be consolidated;
therefore, those development fees will be eliminated in consolidation.
Other income shown in the statement of operations generally includes interest income,
primarily from the amortization of unearned income on a sales-type capital lease recognized in
accordance with GAAP, and other income incidental to our operations and is recognized when earned.
We must make subjective estimates as to when our revenue is earned and the collectibility of
our accounts receivable related to design-build contracts and other sales, deferred rent, expense
reimbursements, lease termination fees and other income. We specifically analyze accounts
receivable and historical bad debts, tenant and customer concentrations, tenant and customer
creditworthiness, and current economic trends when evaluating the adequacy of the allowance for bad
debts. These estimates have a direct impact on our net income because a higher bad debt allowance
would result in lower net income, and recognizing rental revenue as earned in one period versus
another would result in higher or lower net income for a particular period.
24
Income Taxes
We use certain assumptions and estimates in determining income taxes payable or refundable,
deferred income tax liabilities and assets for events recognized differently in our consolidated
financial statements and income tax returns, and income tax expense. Determining these amounts
requires analysis of certain transactions and interpretation of tax laws and regulations. We
exercise considerable judgment in evaluating the amount and timing of recognition of the resulting
income tax liabilities and assets. These judgments and estimates are re-evaluated on a continual
basis as regulatory and business factors change.
Tax returns submitted by us or the income tax reported on the consolidated financial
statements may be subject to adjustment by either adverse rulings by the U.S. Tax Court, changes in
the tax code, or assessments made by the Internal Revenue Service (IRS). We are subject to
potential adverse adjustments, including but not limited to: an increase in the statutory federal
or state income tax rates, the permanent nondeductibility of amounts currently considered
deductible either now or in future periods, and the dependency on the generation of future taxable
income, including capital gains, in order to ultimately realize deferred income tax assets.
We will only include the current and deferred tax impact of our tax positions in the financial
statements when it is more likely than not (likelihood of greater than 50%) that such positions
will be sustained by taxing authorities, with full knowledge of relevant information, based on the
technical merits of the tax position. While we support our tax positions by unambiguous tax law,
prior experience with the taxing authority, and analysis that considers all
relevant facts, circumstances and regulations, we must still rely on assumptions and estimates
to determine the overall likelihood of success and proper quantification of a given tax position.
We recognize deferred tax assets and liabilities based on differences between the financial
statement carrying amounts and the tax bases of assets and liabilities. We regularly review our
deferred tax assets for recoverability. Accounting literature states that a deferred tax asset
should be reduced by a valuation allowance if based on the weight of all available evidence, it is
more likely than not (a likelihood of more than 50%) that some portion or the entire deferred tax
asset will not be realized. The determination of whether a deferred tax asset is realizable is
based on weighting all available evidence, including both positive and negative evidence. In making
such judgments, significant weight is given to evidence that can be objectively verified.
REIT Qualification Requirements
We are subject to a number of operational and organizational requirements to qualify and then
maintain qualification as a REIT. If we do not qualify as a REIT, our income would become subject
to U.S. federal, state and local income taxes at regular corporate rates which could be substantial
and we could not re-elect to qualify as a REIT for four taxable years following the year we failed
to quality as a REIT. The resulting adverse effects on our results of operations, liquidity and
amounts distributable to stockholders may be material.
Results of Operations
Our income (loss) from operations is generated primarily from operations of our properties and
design-build services and to a lesser degree from consulting and property management agreements.
The changes in operating results from period to period reflect changes in existing property
performance, changes in the number of properties due to development, acquisition, or disposition of
properties, and the operating results of the Design-Build and Development segment.
Business Segments
We have two identified reportable segments: (1) Property Operations and (2) Design-Build and
Development. We define business segments by their distinct customer base and service provided.
While we operate as a single entity, we produce discrete financial information for each segment,
which is reviewed by the chief operating decision maker to make resource allocation decisions and
assess performance. Property Operations includes real estate investment and rental activities as
well as properly management for third parties. Design-Build and Development includes design-build
construction activities as well as development and consulting activities. For additional
information, see Note 5 in the accompanying Notes to Condensed Consolidated Financial Statements in
this Form 10-Q.
25
Property Summary
The following is an activity summary of our property portfolio (excluding unconsolidated real
estate partnerships) for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Properties at beginning of period |
|
|
66 |
|
|
|
62 |
|
Acquisitions |
|
|
1 |
|
|
|
|
|
Developments |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
Properties at end of period |
|
|
67 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
Properties at beginning of period |
|
|
62 |
|
Acquisitions |
|
|
1 |
|
Developments |
|
|
3 |
|
|
|
|
|
Properties at end of period |
|
|
66 |
|
|
|
|
|
The above table includes East Jefferson MRI, which is accounted for as a sales-type capital
lease.
A property is considered in-service upon the earlier of (1) lease-up and substantial
completion of tenant improvements, or (2) completion of the lease-up period specified within the
propertys underwriting. For portfolio
and operational data, a single in-service date is used. For GAAP reporting, a property is
placed into service in stages as construction is completed and the property and tenant space is
available for its intended use. We had two properties, Medical Center Physicians Tower located in
Jackson, Tennessee, and St. Elizabeth Florence Medical Office Building located in Florence,
Kentucky, in lease-up at March 31, 2011.
Comparison of the Three Months Ended March 31, 2011 and 2010
Funds from Operations Modified (FFOM)
For the three months ended March 31, 2011, FFOM decreased $7.6 million, or 67.9%, compared to
the same period in the prior year. The $7.6 million decrease is due to decreased Design-Build and
Development FFOM, offset by increased Property Operations FFOM.
The following is a summary of FFOM for the three months ended March 31, 2011 and 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
FFOM attributable to: |
|
|
|
|
|
|
|
|
Property operations |
|
$ |
14,218 |
|
|
$ |
13,440 |
|
Design-Build and development |
|
|
(871 |
) |
|
|
7,333 |
|
Intersegment eliminations |
|
|
(873 |
) |
|
|
(518 |
) |
Unallocated and other |
|
|
(8,900 |
) |
|
|
(9,106 |
) |
|
|
|
|
|
|
|
FFOM |
|
$ |
3,574 |
|
|
$ |
11,149 |
|
|
|
|
|
|
|
|
26
See Note 5 in the accompanying Notes to Condensed Consolidated Financial Statements in
this Form 10-Q for business segment information and managements use of FFO and FFOM to evaluate
operating performance. The following table presents the reconciliation of FFO and FFOM to net
loss, which is the most directly comparable GAAP measure to FFO and FFOM, for the three months
ended March 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,876 |
) |
|
$ |
4,195 |
|
Add: |
|
|
|
|
|
|
|
|
Real estate related depreciation and amortization: |
|
|
|
|
|
|
|
|
Wholly-owned and consolidated properties |
|
|
7,277 |
|
|
|
7,194 |
|
Unconsolidated real estate partnerships |
|
|
2 |
|
|
|
3 |
|
Less: |
|
|
|
|
|
|
|
|
Noncontrolling interests in real estate partnerships |
|
|
(498 |
) |
|
|
(616 |
) |
Dividends on preferred stock |
|
|
(1,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
Funds from Operations (FFO) |
|
|
3,343 |
|
|
|
10,776 |
|
Amortization of intangibles related to purchase
accounting, net of income tax benefit |
|
|
231 |
|
|
|
373 |
|
|
|
|
|
|
|
|
Funds from Operations Modified (FFOM) |
|
$ |
3,574 |
|
|
$ |
11,149 |
|
|
|
|
|
|
|
|
FFOM attributable to Property Operations, net of intersegment eliminations
The following is a summary of FFOM attributable to the Property Operations segment, net of
intersegment eliminations, for the three months ended March 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Rental revenue, net of intersegment eliminations of $0 in 2011 and $23 2010 |
|
$ |
23,054 |
|
|
$ |
21,245 |
|
Property management and other fee revenue |
|
|
775 |
|
|
|
818 |
|
Property operating and management expenses |
|
|
(9,287 |
) |
|
|
(8,198 |
) |
Interest and other income |
|
|
164 |
|
|
|
146 |
|
Earnings (loss) from unconsolidated real estate partnerships,
before real estate related depreciation and amortization |
|
|
10 |
|
|
|
6 |
|
Noncontrolling interests in real estate partnerships, before
real estate related depreciation and amortization |
|
|
(498 |
) |
|
|
(616 |
) |
Income from discontinued operations, before real estate
related depreciation and amortization |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
FFOM, net of intersegment eliminations |
|
|
14,218 |
|
|
|
13,417 |
|
Intersegment eliminations |
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
FFOM |
|
$ |
14,218 |
|
|
$ |
13,440 |
|
|
|
|
|
|
|
|
See Note 5 in the accompanying Notes to Condensed Consolidated Financial Statements in
this Form 10-Q for a reconciliation of above segment FFOM to net income (loss).
For the three months ended March 31, 2011, FFOM attributable to Property Operations, net of
intersegment eliminations, increased $0.8 million, or 6.0%, compared to the same period last year.
The increase in rental revenue is primarily due to the addition of four properties, Medical Center
Physicians Tower which began operations in February 2010, University Physicians Grants Ferry
medical office building which began operations in June 2010, HealthPartners Medical & Dental
Clinics medical office building which began operations in June 2010 and St. Elizabeth Florence
Medical Office Building which began operations in January 2011, as well as increases in rental
rates associated with CPI increases and reimbursable expenses. The increase in property operating
and management expenses and the increase in noncontrolling interests in real estate partnerships
before real estate related depreciation and amortization are primarily due to the addition of the
properties previously mentioned.
27
FFOM attributable to Design-Build and Development, net of intersegment eliminations
The following is a summary of FFOM attributable to the Design-Build and Development segment,
net of intersegment eliminations, for the three months ended March 31, 2011 and 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Design-Build contract revenue and other sales, net of intersegment
eliminations of $8,543 in 2011 and $3,764 in 2010 |
|
$ |
15,241 |
|
|
$ |
35,436 |
|
Development management and other income, net of intersegment
eliminations of $805 in 2011 and $783 in 2010 |
|
|
74 |
|
|
|
103 |
|
Design-Build contract and development management expenses, net of
intersegment eliminations of $8,475 in 2011 and $4,029 in 2010 |
|
|
(13,013 |
) |
|
|
(24,619 |
) |
Selling, general, and administrative expenses, net of intersegment
eliminations of $0 in 2011 and $23 in 2010 |
|
|
(3,776 |
) |
|
|
(3,866 |
) |
Interest and other income |
|
|
8 |
|
|
|
3 |
|
Depreciation and amortization |
|
|
(278 |
) |
|
|
(219 |
) |
|
|
|
|
|
|
|
FFOM, net of intersegment eliminations |
|
|
(1,744 |
) |
|
|
6,838 |
|
Intersegment eliminations |
|
|
873 |
|
|
|
495 |
|
|
|
|
|
|
|
|
FFOM |
|
$ |
(871 |
) |
|
$ |
7,333 |
|
|
|
|
|
|
|
|
See Note 5 in the accompanying Notes to Condensed Consolidated Financial Statements in this
Form 10-Q for a reconciliation of above segment FFOM to net income (loss).
For the three months ended March 31, 2011, FFOM attributable to the Design-Build and
Development segment, net of intersegment eliminations, decreased $8.6 million, or 125.5%, compared
to the same period last year. The decrease is due to fewer active revenue generating third-party
design-build construction projects and lower gross margin percentages.
Design-Build contract revenue and other sales plus development management and other income,
all net of intersegment eliminations (Design-Build Revenues) decreased $20.2 million, or 56.9%,
for the three months ended March 31, 2011 compared to the same period last year. This decrease is
due to a lower volume of activity as the number of active third party revenue generating
design-build construction projects has decreased from 11 at March 31, 2010 to nine at March 31,
2011 and the average size of the projects in 2011 is smaller than in 2010. Included in 2010
revenue was $9.8 million related to an agreement for design services only. There were no similar
design services only agreements in the current period.
Gross margin percentage (design-build and development revenues less design-build contract and
development management expenses and as a percent of revenues) decreased from 30.7% for the three
months ended March 31, 2010 to 15.0% for the three months ended March 31, 2011. This decrease is
primarily due costs being absorbed by fewer projects due to the lower volume of active projects in
2011 compared to 2010. Further, the gross margin on the $9.8 million revenue discussed in the
preceding paragraph was greater than normal because it was an analysis and design agreement that
utilized our engineering and architectural professionals and no construction sub-contractors.
Selling, general, and administrative expenses attributable to the Design-Build and Development
segment decreased $0.1 million, or 2.3%, for the three months ended March 31, 2011, compared to the
same period last year. This decrease is primarily due lower personnel costs.
Selling, general, and administrative
For the three months ended March 31, 2011, selling, general, and administrative expenses
increased $0.4 million, or 6.7%, as compared to the same period last year. Excluding the changes
attributable to the Design-Build and Development segment, which are discussed above, selling,
general and administrative expenses increased $0.5 million primarily due to the timing of
professional services incurred.
28
Depreciation and amortization
For the three months ended March 31, 2011, depreciation and amortization expenses decreased
$0.3 million, or 3.2%, as compared to the same period last year. The decrease is primarily due to
a decrease in the amortization of intangible assets due to these assets becoming fully amortized,
offset by the addition of four properties, the Medical Center Physicians Tower which began
operations in February 2010, University Physicians Grants Ferry medical office building which
began operations in June 2010, HealthPartners Medical & Dental Clinics medical office
building which began operations in June 2010, and St. Elizabeth Florence Medical Office
Building which began operations in January 2011.
Interest expense
For the three months ended March 31, 2011, interest expense decreased $0.2 million, or 4.7%,
as compared to the same period last year. This decrease is primarily due to the repayment of a
$50.0 million term loan in December 2010, offset by interest on mortgage notes payable for
properties that became operational February 2010 and June 2010.
Income tax expense
For the three months ended March 31, 2011, income tax expense decreased $1.7 million, or
99.0%, as compared to the same period last year. We record income taxes associated with our
Taxable REIT Subsidiaries (TRS), which include our Design-Build and Development business segment.
The decrease in income taxes is due to income in the prior period compared to a loss in the
current period for our TRS. Accordingly, we recorded income tax expense in the prior period and no
income tax expense (benefit) in the current period. For the three months ended March 31, 2011, the
income tax benefit associated with the loss was offset by a full deferred tax asset valuation
allowance.
Cash Flows
Cash provided by operating activities increased $7.9 million, or 285.4%, for the three months
ended March 31, 2011, as compared to the same period last year, and is summarized below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Net loss plus non-cash adjustments |
|
$ |
6,303 |
|
|
$ |
11,745 |
|
Changes in operating assets and liabilities |
|
|
4,365 |
|
|
|
(8,977 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
10,668 |
|
|
$ |
2,768 |
|
|
|
|
|
|
|
|
The net loss plus non-cash adjustments decreased $5.4 million, or 46.3%, for the three
months ended March 31, 2011, as compared to the same period last year. This decrease is primarily
due to decreased net income after non-cash adjustments for the Design-Build and Development segment
offset by increased net income after non-cash adjustments for the Property Operations segment. The
changes in operating assets and liabilities increased $13.3 million for the three months ended
March 31, 2011, as compared to the same period last year. This increase is primarily due to 1)
stabilization of active design-build projects which resulted in the stabilization of design-build
billings in excess of costs and estimated earnings on uncompleted contracts as compared to the same
period last year where there was a significant decrease in billing in excess of costs and estimated
earnings; and 2) an increase in tenant funding responsibility for development projects.
Cash used in investing activities increased $6.2 million, or 65.0%, for the three months ended
March 31, 2011, as compared to the same period last year. The increase resulted from us having
more development projects under construction in current period compared to the same period last
year.
Investment in real estate properties consisted of the following for the three months ended
March 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Development, redevelopment, and acquisitions |
|
$ |
14,257 |
|
|
$ |
9,177 |
|
Second generation tenant improvements |
|
|
1,122 |
|
|
|
208 |
|
Recurring property capital expenditures |
|
|
239 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Investment in real estate properties |
|
$ |
15,618 |
|
|
$ |
9,393 |
|
|
|
|
|
|
|
|
29
Investments in development, redevelopment, and acquisitions increased in the current
period compared to the same period last year due to the timing of projects under construction.
Cash provided by financing activities increased by $10.7 million for the three months ended
March 31, 2011, as compared to same period last year. The change is primarily due to an increase
in proceeds drawn down from the
Credit Facility of $10.0 million and equity net proceeds of $8.2 million offset by an increase
in financing costs of $3.1 million and dividends to preferred shareholders of $1.2 million.
Construction in Progress
Construction in progress consisted of the following as March 31, 2011 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
Estimated |
|
|
Net Rentable |
|
|
Investment |
|
|
Total |
|
Property |
|
Location |
|
Completion Date |
|
|
Square Feet |
|
|
to Date |
|
|
Investment |
|
|
|
|
Good Sam MOB Investors, LLC |
|
Puyallup, WA |
|
|
4Q 2011 |
|
|
|
80,000 |
|
|
$ |
12,012 |
|
|
$ |
24,700 |
|
Bonney Lake MOB Investors, LLC (1) |
|
Bonney Lake, WA |
|
|
3Q 2011 |
|
|
|
56,000 |
|
|
|
14,213 |
|
|
|
17,700 |
|
St. Lukes Medical Office Building |
|
Duluth, MN |
|
|
3Q 2012 |
|
|
|
176,000 |
|
|
|
948 |
|
|
|
27,800 |
|
Land and pre-construction developments |
|
|
|
|
|
|
|
|
|
|
|
|
2,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,000 |
|
|
$ |
29,985 |
|
|
$ |
70,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We had a 61.7% ownership
interest at March 31, 2011. |
Liquidity and Capital Resources
In addition to amounts available under the Credit Facility, as of March 31, 2011, we had
approximately $17.2 million available in cash and cash equivalents.
We have a $200.0 million secured revolving credit facility with a syndicate of financial
institutions. The Credit Facility is available to fund working capital and for other general
corporate purposes; to finance acquisition and development activity; and to refinance existing and
future indebtedness. The Credit Facility permits us to borrow, subject to borrowing base
availability, up to $200.0 million of revolving loans, with sub-limits of $25.0 million for
swingline loans and $25.0 million for letters of credit. As of March 31, 2011, the maximum
available borrowing under the Credit Facility was $122.8 million, with $55.0 million drawn, based
on 70% of the value of the aggregate property pledged as collateral. We have the ability to
increase the availability by pledging additional unencumbered property to the Credit Facility.
The Credit Facility also allows for up to $150.0 million of increased availability (to a total
aggregate available amount of $350.0 million), at our request but subject to each lenders option
to increase its commitment. The interest rate on loans under the Credit Facility equals, at our
election, either (1) LIBOR (0.24% as of March 31, 2011) plus a margin of between 275 to 350 basis
points based on our total leverage ratio (3.00% as of March 31, 2011) or (2) the higher of the
federal funds rate plus 50 basis points or Bank of America, N.A.s prime rate (3.25% as of March
31, 2011) plus a margin of between 175 to 250 basis points based on our total leverage ratio (2.00%
as of March 31, 2011).
The Credit Facility contains customary terms and conditions for credit facilities of this
type, including, but not limited to, (1) affirmative covenants relating to our corporate structure
and ownership, maintenance of insurance, compliance with environmental laws and preparation of
environmental reports, (2) negative covenants relating to restrictions on liens, indebtedness,
certain investments (including loans and certain advances), mergers and other fundamental changes,
sales and other dispositions of property or assets and transactions with affiliates, maintenance of
our REIT qualification and listing on the NYSE or NASDAQ, and (3) financial covenants to be met at
all times including a maximum total leverage ratio (65% through March 31, 2013, and 60%
thereafter), maximum secured recourse indebtedness ratio, excluding the indebtedness under the
Credit Facility (20%), minimum fixed charge coverage ratio (1.35 to 1.00 through March 31, 2012,
and 1.50 to 1.00 thereafter), minimum consolidated tangible net worth ($237.1 million plus 80% of
the net proceeds of equity issuances issued after the closing date March 1, 2011) and minimum net
operating income ratio from properties secured under the Credit Facility to Credit Facility
interest expense (1.50 to 1.00). Additionally, provisions in the Credit Facility indirectly
prohibit us from redeeming or otherwise repurchasing any shares of our stock, including our
preferred stock.
30
The Credit Facility has the following financial covenants as of March 31, 2011 (dollars in
thousands):
|
|
|
|
|
Financial Covenant |
|
March 31, 2011 |
|
Maximum total leverage ratio (0.65 to 1.00 through March 31, 2013,
and 0.60 to 1.00 thereafter) |
|
|
0.49 to 1.00 |
|
|
|
|
|
|
Maximum secured recourse indebtedness ratio (0.20 to 1.00) |
|
|
0.05 to 1.00 |
|
|
|
|
|
|
Minimum fixed charge coverage ratio (1.35 to 1.00 through March 31, 2012,
and 1.50 to 1.00 thereafter) |
|
|
1.62 to 1.00 |
|
|
|
|
|
|
Minimum consolidated tangible net worth ($237,106 plus 80% of the net
proceeds of equity issuance after March 1, 2011) |
|
|
$295,434 |
|
|
|
|
|
|
Minimum facility interest coverage ratio (1.50 to 1.00) |
|
|
12.61 to 1.00 |
|
As of March 31, 2011, we believe that we were in compliance with all of our debt
covenants.
Short-Term Liquidity Needs
We believe that we will have sufficient capital resources from cash flow from continuing
operations, cash and cash equivalents, and borrowings under the Credit Facility to fund ongoing
operations and distributions required to maintain REIT compliance. We anticipate using our cash
flow from continuing operations, cash and cash equivalents, and Credit Facility availability to
fund our business operations, cash dividends and distributions, debt amortization, and recurring
capital expenditures. Capital requirements for significant acquisitions and development projects
may require funding from borrowings and/or equity offerings.
As of March 31, 2011, we had $76.2 million of principal and maturity payments related to
mortgage notes payable due in 2011. The $76.2 million is comprised of $3.4 million for principal
amortization and $72.8 million for maturities. Of the $72.8 million in maturing mortgage notes
payable, $12.3 million relates to Alamance Regional Mebane Outpatient Center and can be extended
for one year to May 2012. We believe that we will be able to refinance or extend the remaining
$60.5 million of 2011 balloon maturities as a result of the current loan to value ratios at
individual properties and preliminary discussions with lenders. The weighted average interest rate
on the debt that matures in 2011 is approximately 3.0%. We expect upon refinancing that the
weighted average interest rate on this debt will be greater than 3.0%.
As of March 31, 2011, we had no outstanding equity commitments to unconsolidated real estate
partnerships.
On March 11, 2011, we announced that our Board of Directors had declared a quarterly dividend
of $0.10 per share and operating partnership unit that was paid in cash on April 20, 2011, to
holders of record on March 25, 2011.
On May 4, 2011, we announced that our Board of Directors had declared a quarterly dividend of
$0.53125 per share on our Series A preferred shares for the period March 1, 2011 to May 31, 2011.
The dividend will be paid on June 1, 2011, to shareholders of record on May 18, 2011.
Long-Term Liquidity Needs
Our principal long-term liquidity needs consist primarily of new property development,
property acquisitions, and principal payments under various mortgages and other credit facilities
and non-recurring capital expenditures. We do not expect that our net cash provided by operations
will be sufficient to meet all of these long-term liquidity needs. Instead, we expect to meet
long-term liquidity requirements through net cash provided by operations and through additional
equity and debt financings, including loans from banks, institutional investors or other lenders,
bridge loans, letters of credit, and other lending arrangements, most of which will be secured by
mortgages. We may also issue unsecured debt in the future.
We expect to finance new property developments through cash equity capital together with
construction loan proceeds, as well as through cash equity investments by our tenants or third
parties. We intend to have construction financing agreements in place before construction begins
on development projects.
We expect to fund property acquisitions through a combination of borrowings under our Credit
Facility, traditional secured mortgage financing, and equity offerings. In addition, we may use OP
Units issued by the Operating Partnership to acquire properties from existing owners seeking a tax
deferred transaction.
31
We do not, in general, expect to meet our long-term liquidity needs through dispositions of
our properties. In the event that we were to sell any of our properties in the future, depending
on which property were to be sold, we may need to structure the sale or disposition as a tax
deferred transaction which would require the reinvestment of the proceeds from such transaction in
another property or the proceeds that would be available from such sales may be reduced by amounts
that we may owe under the tax protection agreements entered into in connection with our formation
transactions and certain property acquisitions. In addition, our ability to sell certain of our
assets could be
adversely affected by the general illiquidity of real estate assets and certain additional
factors particular to our portfolio such as the specialized nature of its target property type,
property use restrictions and the need to obtain consents or waivers of rights of first refusal or
rights of first offers from ground lessors in the case of sales of its properties that are subject
to ground leases.
We intend to repay indebtedness incurred under our Credit Facility from time to time, for
acquisitions or otherwise, out of cash flow from operations and from the proceeds, to the extent
possible and desirable, of additional debt or equity issuances. In the future, we may seek to
increase the amount of the Credit Facility, negotiate additional credit facilities or issue
corporate debt instruments. Any indebtedness incurred or issued may be secured or unsecured,
short-, medium- or long-term, fixed or variable interest rate and may be subject to other terms and
conditions we deem acceptable. We generally intend to refinance at maturity the mortgage notes
payable that have balloon payments at maturity.
Contractual Obligations
The following table summarizes our contractual obligations as of March 31, 2011, including the
maturities and scheduled principal repayments and the commitments due in connection with our ground
leases and operating leases for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
Obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt principal
payments and maturities (1) |
|
$ |
76,172 |
|
|
$ |
20,025 |
|
|
$ |
15,872 |
|
|
$ |
119,127 |
|
|
$ |
12,490 |
|
|
$ |
130,675 |
|
|
$ |
374,361 |
|
Standby letters of credit (2) |
|
|
8,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,128 |
|
Interest payments (3) |
|
|
11,869 |
|
|
|
13,958 |
|
|
|
13,153 |
|
|
|
9,914 |
|
|
|
6,878 |
|
|
|
13,229 |
|
|
|
69,001 |
|
Purchase commitments (4) |
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608 |
|
Ground and air rights leases (5) |
|
|
910 |
|
|
|
1,008 |
|
|
|
1,008 |
|
|
|
1,009 |
|
|
|
1,010 |
|
|
|
23,137 |
|
|
|
28,082 |
|
Operating leases (6) |
|
|
3,891 |
|
|
|
4,467 |
|
|
|
3,723 |
|
|
|
3,531 |
|
|
|
3,506 |
|
|
|
21,008 |
|
|
|
40,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
101,578 |
|
|
$ |
39,458 |
|
|
$ |
33,756 |
|
|
$ |
133,581 |
|
|
$ |
23,884 |
|
|
$ |
188,049 |
|
|
$ |
520,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes notes payable under the Credit Facility. |
|
(2) |
|
As collateral for performance, we are contingently liable under standby letters of
credit, which also reduces the availability under the Credit Facility. |
|
(3) |
|
Assumes one-month LIBOR of 0.24% and a Prime Rate of 3.25%, which were the rates as
of March 31, 2011. |
|
(4) |
|
These purchase commitments are related to our development projects that are
currently under construction. We have committed construction loans that will fund the obligations. |
|
(5) |
|
Substantially all of the ground and air rights leases effectively limit our control
over various aspects of the operation of the applicable property, restrict our ability to transfer
the property and allow the lessor the right of first refusal to purchase the building and
improvements. All of the ground leases provide for the property to revert to the lessor for no
consideration upon the expiration or earlier termination of the ground or air rights lease. |
|
(6) |
|
Payments under operating lease agreements relate to equipment and office space
leases. The future minimum lease commitments under these leases are as indicated. |
Off-Balance Sheet Arrangements
We may guarantee debt in connection with certain of our development activities, including
unconsolidated joint ventures, from time to time. As of March 31, 2011, we did not have any such
guarantees or other off-balance sheet arrangements outstanding.
Real Estate Taxes
Our leases generally require the tenants to be responsible for all real estate taxes.
32
Inflation
Our leases at wholly-owned and consolidated real estate partnership properties generally
provide for either indexed escalators, based on CPI or other measures, or to a lesser extent fixed
increases in base rents. The leases also contain provisions under which the tenants reimburse us
for a portion of property operating expenses and real
estate taxes. We believe that inflationary increases in expenses will be offset, in part, by
the contractual rent increases and tenant expense reimbursements described above.
Seasonality
Business under the Design-Build and Development segment can be subject to seasonality due to
weather conditions at construction sites. In addition, construction starts and contract signings
can be impacted by the timing of budget cycles at healthcare systems and providers.
Recent Accounting Pronouncements
None.
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our future income, cash flows and fair values relevant to financial instruments are dependent
upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes
in market prices and interest rates. We use some derivative financial instruments to manage, or
hedge, interest rate risks related to our borrowings. We do not use derivatives for trading or
speculative purposes and only enter into contracts with financial institutions based on their
credit rating and other factors.
As of March 31, 2011, we had $374.4 million of consolidated debt outstanding (excluding any
discounts or premiums related to assumed debt). Of our total consolidated debt outstanding, $115.7
million, or 30.9%, was variable rate debt that is not subject to variable to fixed rate interest
rate swap agreements, and total indebtedness, $258.7 million, or 69.1%, was subject to fixed
interest rates, including variable rate debt that is subject to variable to fixed rate swap
agreements. The weighted average interest rate for fixed rate debt was 6.0% as of March 31, 2011.
If LIBOR were to increase by 100 basis points based on March 31, 2011, one-month LIBOR of
0.24%, the increase in interest expense on our March 31, 2011 variable rate debt would decrease
future annual earnings and cash flows by approximately $1.2 million. Interest rate risk amounts
were determined by considering the impact of hypothetical interest rates on our financial
instruments. These analyses do not consider the effect of any change in overall economic activity
that could occur in that environment. Further, in the event of a change of that magnitude, we may
take actions to further mitigate our exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, these analyses assume no
changes in our financial structure.
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Our Chief Executive Officer and Chief Financial Officer, based on their evaluation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule
15d-15, have concluded that as of March 31, 2011, our disclosure controls and procedures were
effective to give reasonable assurances to the timely collection, evaluation and disclosure of
information relating to the Company that would potentially be subject to disclosure under the
Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
During the three months ended March 31, 2011, there was no change in our internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can
provide only reasonable, not absolute assurance that it will detect or uncover failures within the
Company to disclose material information otherwise required to be set forth in our periodic
reports.
33
PART II. OTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS |
We are not involved in any material litigation nor, to our knowledge, is any material
litigation pending or threatened against it, other than routine litigation arising out of the
ordinary course of business or which is expected to be covered by insurance and not expected to
harm our business, financial condition or results of operations.
See our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no
significant changes to our risk factors during the three months ended March 31, 2011.
|
|
|
ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
Issuer Purchases of Equity Securities
None.
|
|
|
ITEM 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
None.
|
|
|
ITEM 4. |
|
[REMOVED AND RESERVED] |
|
|
|
ITEM 5. |
|
OTHER INFORMATION |
None.
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002. |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section
1350 as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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.
|
|
|
|
|
|
COGDELL SPENCER INC.
Registrant
|
|
Date: May 10, 2011 |
/s/ Raymond W. Braun
|
|
|
Raymond W. Braun |
|
|
President and Chief Executive Officer |
|
|
|
|
Date: May 10, 2011 |
/s/ Charles M. Handy
|
|
|
Charles M. Handy |
|
|
Executive Vice President and Chief Financial Officer |
|
34