Catellus Announces Second Quarter 2004 Results

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Catellus Announces Second Quarter 2004 Results SAN FRANCISCO, July 29 /PRNewswire-FirstCall/ -- Catellus Development Corporation (NYSE:CDX) today reported earnings per fully diluted share ("EPS") for the second quarter of 2004 of $0.34, compared to $0.19 for the same period in 2003. EPS for the six months ended June 30, 2004, was $0.65, compared to $0.42 for the same period in 2003. Net income for the second quarter of 2004 was $35.3 million, compared to $19.3 million for the same period in 2003. Net income for the six months ended June 30, 2004, was $67.4 million, compared to $42.7 million for the same period in 2003. The increase in net income for the second quarter of 2004 is due primarily to a significantly reduced tax expense resulting from the company's conversion to a real estate investment trust, effective January 1, 2004, and gain from the sale of desert land. "We are pleased with our financial performance during the quarter and encouraged by improving economic indicators in general. Interest in our non-core land is particularly strong, which we attribute to, in part, the economy's recovery combined with the increase of capital flows into the real estate sector," said Nelson C. Rising, Catellus' chairman and CEO. Rental Portfolio -- For the second quarter of 2004, rental revenue less property operating costs, including equity in earnings from operating joint ventures and before adjustments for discontinued operations, was $60.1 million, compared to $56.4 million for the same period in 2003. For the first half of the year, rental revenue less property operating costs, including equity in earnings from operating joint ventures and before adjustments for discontinued operations, was $118.3 million, compared to $114.1 million for the same period in 2003. -- At June 30, 2004, the rental portfolio totaled 41.4 million square feet, 90.3 percent of which is industrial property. This represents a net increase of approximately 1.4 million square feet from March 31, 2004. -- The total rental portfolio's occupancy rate at quarter end was 95.7 percent, unchanged from March 31, 2004, and compared to 94.4 percent at June 30, 2003. -- The industrial portfolio's occupancy rate at quarter end was 96.6 percent, compared to 96.4 percent at March 31, 2004, and 95.3 percent at June 30, 2003. -- Development properties completed and added to the rental portfolio during the quarter included three industrial buildings totaling 1.5 million square feet -- two facilities at Kaiser Commerce Center in Fontana, California, at 758,000 and 617,000 square feet, respectively; and a 117,000 square foot expansion of an existing distribution facility in Woodridge, Illinois. The three buildings are 100 percent leased and represent a total investment of $52.8 million with a projected return on cost of 10.6 percent. -- During the quarter, an 84,000 square foot industrial building was sold in Portland, Oregon, to a tenant exercising a purchase option. Development and Investment Activity -- At June 30 2004, Core Segment construction in progress was 2.2 million square feet. 905,000 square feet will be added to Catellus' rental portfolio upon completion; one million square feet is development for fee; and 338,000 square feet is included in a joint venture. (See below for a definition of Core Segment.) -- For the 905,000 square feet of space under construction that will be added to Catellus' rental portfolio upon completion, the projected total cost of development is approximately $72.2 million. These buildings are 13 percent preleased, and when fully leased, they are projected to yield a return on cost of approximately 11.6 percent. -- During the quarter, construction commenced on 837,000 square feet, consisting of a 362,000 square foot industrial building in Carteret, New Jersey; a 338,000 square foot facility at Los Angeles Air Force base that is being developed in a joint venture; and 137,000 square feet of retail space at Pacific Commons in Fremont, California. -- As previously announced, Catellus is developing a retail center at Pacific Commons in Fremont, California, which when completed and fully stabilized will total 730,000 square feet and generate approximately $10.3 million of rental revenue less property operating costs, or net operating income. At June 30, 2004, leases executed and leases out for signature together represented approximately 80 percent of the retail center's projected net operating income. (Reconciliation of net operating income is provided below.) Urban, Residential & Other -- During the quarter, 99,000 acres of California desert land was sold generating approximately $16 million of non-core gain. Virtually all of the company's desert land, which came from its railroad predecessor company, has now been sold. -- At June 30, 2004, the company had $63 million of non-core land sales under contract, and is in active negotiations on over $250 million of additional urban land. Supplemental Reporting Measure -- The company provides a supplemental performance measure of Funds From Operations ("FFO"), as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), which Catellus believes provides a useful measure, along with GAAP net income, of its operating performance. (Reconciliation of FFO to net income is provided below.) -- Additionally, the company provides FFO in two segments: Core Segment and Urban, Residential, and Other Segment. The first segment, or Core Segment, reflects that part of Catellus' business it expects will be ongoing and central to its future operations. -- The second segment, or Urban, Residential, and Other Segment, reflects the company's urban and residential businesses, including residential lot development, urban development, and desert land sales, which the company intends to transition out of over time. This segment also includes REIT conversion costs, certain of which will continue for three years. These costs include third party costs, and the effects of the stock option exchange offer in 2003. -- In presenting FFO prior to beginning operations as a REIT (effective January 1, 2004), Catellus includes "hypothetical tax savings" (including the tax effects of the REIT conversion) that would have occurred had it been a REIT during the prior periods presented. -- FFO, including both segments as defined above, for the second quarter of 2004 was $54.8 million, compared to $41.2 million for the same period in 2003. FFO, including both segments as defined above, for the first half of 2004 was $101.3 million, compared to $86.2 million for the same period in 2003. -- Core Segment FFO for the second quarter of 2004 was $40.2 million, compared to $38.3 million for the same period in 2003. On a fully diluted basis, Core Segment FFO per share for the second quarter of 2004 was $0.39, compared to $0.38 for the same period in 2003. Core Segment FFO for the first half of 2004 was $86.5 million, compared to $77.0 million for the same period in 2003. On a fully diluted basis, Core Segment FFO per share for the first half of 2004 was $0.83, compared to $0.76 for the same period in 2003. Catellus Development Corporation will host a conference call on Friday, July 30 at 9:00 a.m. Pacific Time (10:00 a.m. Mountain, 11:00 a.m. Central, and Noon Eastern) to discuss second quarter results. To participate in the conference call, dial 888-482-0024 (domestic) or 617-801-9702 (international) and enter access code 79124278 prior to the beginning of the call. Access the live webcast of the conference call from the Investor Relations section of Catellus' website at http://www.catellus.com/. You may also access the live webcast through http://www.streetevents.com/. The telephonic replay will be available through August 14, 2004, at 888-286-8010 (domestic) or 617-801-6888 (international) with the access code 33337624. The webcast replay will be available through July 30, 2005, from the Investor Relations section of Catellus' website at http://www.catellus.com/ or at http://www.streetevents.com/. The second quarter 2004 Supplemental Financial Package will be available from the Home Page and the Investor Relations section of our website at http://www.catellus.com/. These materials are also available by contacting Investor Relations at 415-974-4500 or by sending an email to . Catellus Development Corporation is a publicly traded real estate development company that began operating as a real estate investment trust effective January 1, 2004. The company owns and operates approximately 41.4 million square feet of predominantly industrial property in many of the country's major distribution centers and transportation corridors. Catellus' principal objective is sustainable, long-term growth in earnings, which it seeks to achieve by applying its strategic resources: a lower-risk/ higher-return rental portfolio, a focus on expanding that portfolio through development, and the deployment of its proven land development skills to select opportunities where it can generate profits to recycle back into its business. More information on the company is available at http://www.catellus.com/. Except for historical matters, the matters discussed in this release are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements about plans, opportunities, and development. We caution you not to place undue reliance on these forward-looking statements, which reflect our current beliefs and are based on information currently available to us. We do not undertake any obligation to publicly revise these forward-looking statements to reflect future events or changes in circumstances, except as may be required by law. These forward-looking statements are subject to risks and uncertainties that could cause our actual results, performance, or achievements to differ materially from those expressed in or implied by these statements. In particular, among the factors that could cause actual results to differ materially are: changes in the real estate market or in general economic conditions, including a worsening economic slowdown or recession; product and geographical concentration; industry competition; availability of financing and changes in interest rates and capital markets; changes in insurance markets; discretionary government decisions affecting the use of land, and delays resulting therefrom; changes in the management team; weather conditions and other natural occurrences that may affect construction or cause damage to assets; changes in income taxes or tax laws; liability for environmental remediation and changes in environmental laws and regulations; failure or inability of third parties to fulfill their commitments or to perform their obligations under agreements; failure of parties to reach agreement on definitive terms or to close transactions; increases in the cost of land and construction materials and availability of properties for future development; limitations on, or challenges to, title to our properties; risks related to the financial strength of joint venture projects and co-owners; changes in policies and practices of organized labor groups; shortages or increased costs of electrical power; other risks inherent in the real estate business; and acts of war, other geopolitical events and terrorists activities that could adversely affect any of the above factors. For further information, including more detailed risk factors, you should refer to Catellus Development Corporation's annual report on Form 10-K for the fiscal year ended December 31, 2003, and its report on Form 10-Q for the quarter ended March 31, 2004, filed with the Securities and Exchange Commission. Contacts: Margan Mitchell Minnie Wright Corporate Communications Investor Relations 415-974-4616 415-974-4649 CATELLUS DEVELOPMENT CORPORATION CONSOLIDATED BALANCE SHEET (In thousands) (Unaudited) June 30, December 31, 2004 2003 ---------- ---------- Assets Properties $2,553,387 $2,498,015 Less accumulated depreciation (474,290) (446,872) ------------ ------------ 2,079,097 2,051,143 Other assets and deferred charges, net 290,681 292,312 Notes receivable, less allowance 94,743 119,202 Accounts receivable, less allowance 19,881 19,752 Assets held for sale 19,268 2,352 Restricted cash and investments 3,482 64,617 Cash and cash equivalents 40,644 45,931 ------------ ------------ Total $2,547,796 $2,595,309 ============ ============ Liabilities and stockholders' equity Mortgage and other debt $1,326,946 $1,378,054 Accounts payable and accrued expenses 120,738 157,036 Deferred credits and other liabilities 297,116 291,530 Liabilities associated with assets held for sale 19,403 2,296 Deferred income taxes 51,475 56,712 ------------ ------------ Total liabilities 1,815,678 1,885,628 ------------ ------------ Stockholders' equity Common stock - 104,328 and 103,822 shares issued, and 103,028 and 102,724 shares outstanding at June 30, 2004 and December 31, 2003, respectively 1,044 1,039 Paid-in capital 499,593 489,143 Unearned value of restricted stock and restricted stock units (1,300 and 1,098 shares at June 30, 2004 and December 31, 2003, respectively) (22,536) (22,720) Accumulated earnings 254,017 242,219 ------------ ------------ Total stockholders' equity 732,118 709,681 ------------ ------------ Total $2,547,796 $2,595,309 ============ ============ CATELLUS DEVELOPMENT CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 -------- -------- -------- -------- Revenue Rental revenue $77,107 $73,067 $153,240 $145,958 Sales revenue 7,299 24,900 44,990 32,910 Management, development and other fees 758 4,863 2,457 6,947 -------- -------- -------- -------- 85,164 102,830 200,687 185,815 -------- -------- -------- -------- Costs and expenses Property operating costs (20,156) (19,800) (41,358) (38,950) Cost of sales (4,874) (20,281) (27,964) (23,253) Selling, general and administrative expenses (12,611) (10,167) (25,562) (20,058) Depreciation and amortization (18,980) (17,443) (36,780) (33,730) -------- -------- -------- -------- (56,621) (67,691) (131,664) (115,991) -------- -------- -------- -------- Operating income 28,543 35,139 69,023 69,824 -------- -------- -------- -------- Other income Equity in earnings of operating joint ventures, net 2,379 2,136 4,793 4,659 Equity in earnings of development joint ventures, net 3,391 5,427 4,618 9,281 Gain on non-strategic asset sales 16,380 1,478 16,441 7,357 Interest income 2,461 1,796 5,238 3,713 Other 956 792 1,257 1,949 -------- -------- -------- -------- 25,567 11,629 32,347 26,959 -------- -------- -------- -------- Other expenses Interest expense (16,525) (16,913) (32,058) (33,453) REIT transition costs (208) (1,805) (420) (3,363) Other (1,819) (196) (2,249) (196) -------- -------- -------- -------- (18,552) (18,914) (34,727) (37,012) -------- -------- -------- -------- Income before income taxes and discontinued operations 35,558 27,854 66,643 59,771 Income tax expense (982) (10,651) (1,913) (22,222) -------- -------- -------- -------- Income from continuing operations 34,576 17,203 64,730 37,549 -------- -------- -------- -------- Discontinued operations, net of income tax: Gain from disposal of discontinued operations 398 1,780 2,014 4,419 Income from discontinued operations 360 271 681 697 -------- -------- -------- -------- Net gain from discontinued operations 758 2,051 2,695 5,116 -------- -------- -------- -------- Net income $35,334 $19,254 $67,425 $42,665 -------- -------- -------- -------- Income per share from continuing operations Basic $0.34 $0.17 $0.63 $0.38 -------- -------- -------- -------- Assuming dilution $0.33 $0.17 $0.62 $0.37 -------- -------- -------- -------- Income per share from discontinued operations Basic $-- $0.03 $0.03 $0.05 -------- -------- -------- -------- Assuming dilution $0.01 $0.02 $0.03 $0.05 -------- -------- -------- -------- Net income per share Basic $0.34 $0.20 $0.66 $0.43 -------- -------- -------- -------- Assuming dilution $0.34 $0.19 $0.65 $0.42 -------- -------- -------- -------- Average number of common shares outstanding - basic 103,023 98,385 102,933 98,148 -------- -------- -------- -------- Average number of common shares outstanding - diluted 104,078 101,411 104,116 101,030 -------- -------- -------- -------- Dividends declared per share $0.27 $-- $0.54 $-- -------- -------- -------- -------- CATELLUS DEVELOPMENT CORPORATION Reconciliation of Net Income to Funds from Operations (In thousands, except per share data) (Unaudited) Three Months ended June 30, 2004 -------------------------------- Urban/Res. Core & Other Segment Segment Consolidated --------- --------- --------- Net income $20,933 $14,401 $35,334 Add depreciation 19,632 181 19,813 Less gain on rental property sales (395) -- (395) --------- --------- --------- FFO $40,170 $14,582 $54,752 ========= ========= ========= FFO per share: Basic $0.39 $0.14 $0.53 ========= ========= ========= Assuming dilution $0.39 $0.14 $0.53 ========= ========= ========= Average number of common shares outstanding-basic 103,023 103,023 103,023 ========= ========= ========= Average number of common shares outstanding-diluted 104,078 104,078 104,078 ========= ========= ========= Three Months ended June 30, 2003 -------------------------------- Urban/Res. Core & Other Segment Segment Consolidated --------- --------- --------- Net income $16,319 $2,935 $19,254 Add depreciation 17,148 -- 17,148 Less gain on rental property sales (3,065) -- (3,065) --------- --------- --------- FFO 30,402 2,935 33,337 Hypothetical tax savings 7,891 -- 7,891 --------- --------- --------- FFO as adjusted for hypothetical tax savings $38,293 $2,935 $41,228 ========= ========= ========= FFO as adjusted for hypothetical tax savings per share: Basic $0.39 $0.03 $0.42 ========= ========= ========= Assuming dilution $0.38 $0.03 $0.41 ========= ========= ========= Average number of common shares outstanding-basic 98,385 98,385 98,385 ========= ========= ========= Average number of common shares outstanding-diluted 101,411 101,411 101,411 ========= ========= ========= CATELLUS DEVELOPMENT CORPORATION Reconciliation of Net Income to Funds from Operations (In thousands, except per share data) (Unaudited) Six Months ended June 30, 2004 -------------------------------- Urban/Res. Core & Other Segment Segment Consolidated --------- --------- --------- Net income $52,947 $14,478 $67,425 Add depreciation 37,882 365 38,247 Less gain on rental property sales (4,367) -- (4,367) --------- --------- --------- FFO $86,462 $14,843 $101,305 ========= ========= ========= FFO per share: Basic $0.84 $0.14 $0.98 ========= ========= ========= Assuming dilution $0.83 $0.14 $0.97 ========= ========= ========= Average number of common shares outstanding-basic 102,933 102,933 102,933 ========= ========= ========= Average number of common shares outstanding-diluted 104,116 104,116 104,116 ========= ========= ========= Six Months ended June 30, 2003 -------------------------------- Urban/Res. Core & Other Segment Segment Consolidated --------- --------- --------- Net income $33,396 $9,269 $42,665 Add depreciation 33,913 -- 33,913 Less gain on rental property sales (7,453) -- (7,453) --------- --------- --------- FFO 59,856 9,269 69,125 Hypothetical tax savings 17,106 -- 17,106 --------- --------- --------- FFO as adjusted for hypothetical tax savings $76,962 $9,269 $86,231 ========= ========= ========= FFO as adjusted for hypothetical tax savings per share: Basic $0.78 $0.10 $0.88 ========= ========= ========= Assuming dilution $0.76 $0.09 $0.85 ========= ========= ========= Average number of common shares outstanding-basic 98,148 98,148 98,148 ========= ========= ========= Average number of common shares outstanding-diluted 101,030 101,030 101,030 ========= ========= ========= CATELLUS DEVELOPMENT CORPORATION (In thousands and unaudited) Rental revenue less property operating costs (including the portion from discontinued operations) includes equity in earnings of operating joint ventures, net (as reflected in the accompanying statements of operations). Rental revenue less property operating costs is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company's rental portfolio and is calculated as follows: Three Months ended Six Months ended June 30, June 30, ----------------- ------------------ 2004 2003 2004 2003 -------- -------- -------- -------- Rental revenue $77,107 $73,067 $153,240 $145,958 Property operating costs (20,156) (19,800) (41,358) (38,950) Equity in earnings of operating joint ventures, net 2,379 2,136 4,793 4,659 Rental revenue from discontinued operations 904 1,388 1,936 3,225 Property operating costs from discontinued operations (127) (391) (341) (830) -------- -------- -------- -------- Rental revenue less property operating costs ("net operating income") $60,107 $56,400 $118,270 $114,062 ======== ======== ======== ======== DATASOURCE: Catellus Development Corporation CONTACT: Margan Mitchell, Corporate Communications, +1-415-974-4616, or Minnie Wright, Investor Relations, +1-415-974-4649, both of Catellus Development Corporation Web site: http://www.catellus.com/

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