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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000 Commission file number 0-18694
CATELLUS DEVELOPMENT
CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2953477
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
201 Mission Street
San Francisco, California 94105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(415) 974-4500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
------------------- ------------------------------
Common Stock, $.01 par value per New York and Chicago Stock Exchanges,
share and Pacific Exchange
Preferred Share Purchase Rights New York and Chicago Stock Exchanges,
and Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $1.725 billion on March 13, 2001.
As of March 13, 2001, there were 103,342,000 issued and outstanding shares
of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders are incorporated by reference in Part III.
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PART I
Item 1. Business
Catellus Development Corporation (the "Company") is a diversified real
estate operating company with a large portfolio of developable land and rental
properties. We have three primary lines of business: (1) Catellus Commercial
Group, which acquires and develops suburban commercial business parks for our
own account and the account of others; (2) Catellus Residential Group, which
identifies and develops large-scale residential communities in prime housing
markets, selling finished lots to homebuilders; and (3) Catellus Urban
Development Group, which entitles and develops urban mixed-use sites in San
Francisco, Los Angeles, and San Diego.
We have a large portfolio of developable land in the western United States,
capable of supporting up to an estimated 47.7 million square feet of
commercial development and 10,759 units of residential development.
Approximately 97% of the total commercial development potential and 99% of the
potential residential lots/units are entitled. We also own 28.8 million square
feet of rental buildings. Approximately 55% of our rental properties and 67%
of the total commercial development potential by square footage are located in
seven sub-markets in California: Silicon Valley, San Francisco, San
Francisco's East Bay Area, Los Angeles, Orange County, Inland Empire (San
Bernardino and Riverside counties), and San Diego. All of the residential
units are located in California with approximately 59% in Northern California
and 41% in Southern California.
The chart below summarizes the estimated development potential of our land
holdings as of December 31, 2000:
Development Potential of Land Inventory
Commercial Residential Hotel
------------- --------------- -------
(Square feet) (Lots or units) (Rooms)
Catellus Commercial Group--Commercial
Land................................ 32,412,000 -- --
Catellus Residential Group--
Residential Projects................ -- 6,004 --
Catellus Urban Development Group
Mission Bay (San Francisco,
California)....................... 6,357,000 4,305 500
Union Station (Los Angeles,
California)....................... 6,500,000 -- --
Santa Fe Depot (San Diego,
California)....................... 2,450,000 450 --
---------- ------ ---
Total................................ 47,719,000 10,759 500
========== ====== ===
Entitled............................. 46,392,000 10,649 500
Entitlements/Approvals In Progress... 1,327,000 110 --
The following table shows by net book value the Company's developable
properties.
Catellus Net Book Value
----------------------------
December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Catellus Commercial Group...................... $162,825 $178,523 $169,145
Catellus Residential Group..................... 110,724 163,610 132,660
Catellus Urban Development Group............... 366,136 323,858 294,084
Other.......................................... 6,023 15,431 20,531
-------- -------- --------
Subtotal..................................... 645,708 681,422 616,420
Accumulated depreciation....................... (16,051) (14,077) (13,250)
-------- -------- --------
Total........................................ $629,657 $667,345 $603,170
======== ======== ========
2
Our company was originally formed to conduct the non-railroad real estate
activities of the Santa Fe Pacific Corporation and was spun off to
stockholders in 1990. Our railroad heritage has given us a diverse base of
developable properties located near transportation corridors in major urban
areas. Over time, these properties have proven suitable for a variety of
product types (industrial, retail, office, and residential), with the larger
land sites most suitable for large-scale mixed-use projects. We are a
traditional corporation rather than a real estate investment trust ("REIT");
thus, we may reinvest our earnings without the minimum dividend requirements.
Our principal office is located at 201 Mission Street, San Francisco,
California 94105; our telephone number at that location is (415) 974-4500; and
our website address is www.catellus.com.
Catellus Commercial Group
Catellus Commercial Group ("CCG") develops, invests in, and manages suburban
commercial business parks and buildings. It is organized into four divisions:
(1) commercial development provides development services for our own account
or for third parties, and acquires and sells development properties and
commercial buildings, (2) asset management provides leasing and management
services for our buildings and leased land and to third parties, (3) other
land holdings provides management and disposition services primarily for our
desert and non-strategic land portfolio, and (4) corporate services provided
land management services for third parties and certain owned properties.
However, the primary contract for the corporate services division expired in
2000.
Following is a more detailed discussion of the activities of these four
divisions.
Commercial Development
Our commercial development activities include (1) the acquisition and
entitlement of commercial land sites, (2) the construction of buildings, on
land we own, for pre-arranged sale to users (build-to-sell), (3) the
construction of pre-leased buildings (build-to-suit) and speculative buildings
to be added to our rental portfolio, (4) the construction of buildings for
pre-arranged sales to investors (pre-sale), and (5) the sale of land to third
parties for their own development. In certain instances, we have generated
development and management fees from design-build services, construction
management services, and property management.
In 2000, we commenced construction on 4.9 million square feet of new
commercial development and completed approximately 6.0 million square feet of
construction. Of the completed development, 5.2 million square feet were added
to the rental property portfolio and the remainder was sold. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" of this Form 10-K for more information
regarding this activity.
Sales. The following table summarizes CCG's sales of property in the periods
presented:
Year Ended December 31,
------------------------------
2000 1999 1998
--------- --------- --------
(In thousands)
Sales...................................... $ 151,914 $ 171,039 $ 89,459
Cost of sales.............................. (108,574) (136,280) (67,445)
--------- --------- --------
Gain on property sales(/1/).............. 43,340 34,759 22,014
Equity in earnings of development joint
ventures.................................. 13 (23) 1,296
--------- --------- --------
Total gain on property sales............. $ 43,353 $ 34,736 $ 23,310
========= ========= ========
- --------
(/1/) Excludes depreciation recapture of $14,519 in 2000 and $4,354 in 1999.
3
In 2000, we invested approximately $32.5 million in the acquisition of land
capable of supporting approximately 10.2 million square feet of industrial
development. Following is a discussion of the development land inventory and
development projects.
Development Land Inventory
CCG's existing developable land portfolio, once entitled and approved, can
support an estimated 32.4 million square feet of new development
(approximately 31.1 million square feet of which is entitled).
The following table summarizes CCG's commercial development land inventory
activity by location as of and for the year ended December 31, 2000:
Potential Land Potential
Development Leases Development
Space Transfers and and Space
Region/State/City 12/31/99 Adjustments(/1/) Acquisitions Sales Development 12/31/00
- ----------------- ----------- ---------------- ------------ ------ ----------- -----------
(Square feet in thousands)
Southern California
City of Industry....... 33 -- -- -- -- 33
Rancho Cucamonga....... 1,392 44 -- (19) (625) 792
Ontario................ 2,905 -- -- (127) (504) 2,274
Anaheim................ 78 -- -- -- -- 78
Northridge............. -- 44 -- -- -- 44
Ontario (Kaiser)....... -- -- 6,000 -- -- 6,000
------ ------ ------ ------ ------ ------
Subtotal Southern
California............. 4,408 88 6,000 (146) (1,129) 9,221
------ ------ ------ ------ ------ ------
Northern California
Richmond............... 307 -- -- (218) -- 89
Fremont................ 7,481 20 -- -- (346) 7,155
Union City............. 481 -- -- (146) -- 335
Stockton............... 284 (284) -- -- -- --
Oakland................ 73 -- -- (73) -- --
Manteca................ 1,006 (1,006) -- -- -- --
------ ------ ------ ------ ------ ------
Subtotal Northern
California............. 9,632 (1,270) -- (437) (346) 7,579
------ ------ ------ ------ ------ ------
Total in California..... 14,040 (1,182) 6,000 (583) (1,475) 16,800
------ ------ ------ ------ ------ ------
Illinois
Woodridge.............. 2,452 13 -- (483) (1,048) 934
Glenview............... -- 925 117 -- (117) 925
Romeoville............. 979 (15) -- -- -- 964
Minooka................ -- -- 1,400 -- -- 1,400
Joliet................. -- 431 -- -- -- 431
Texas
Coppell................ 1,725 98 -- -- (105) 1,718
Garland................ 983 -- -- -- -- 983
Grand Prairie.......... -- 9 1,655 -- (850) 814
Houston................ 502 1,467 -- -- -- 1,969
Plano.................. -- 575 -- -- -- 575
Other
Denver, CO............. 1,730 -- -- -- (600) 1,130
Westminster, CO........ 943 9 -- -- (278) 674
Louisville, KY......... -- (54) 1,039 -- (383) 602
Oklahoma City, OK...... 1,235 4,142 -- (4,801) -- 576
Gresham, OR............ 1,110 -- -- (295) -- 815
Portland, OR........... 1,101 1 -- -- -- 1,102
------ ------ ------ ------ ------ ------
Total Outside of
California............. 12,760 7,601 4,211 (5,579) (3,381) 15,612
------ ------ ------ ------ ------ ------
Total................... 26,800 6,419 10,211 (6,162) (4,856) 32,412
====== ====== ====== ====== ====== ======
Entitled................ 18,374 31,085
Entitlements/approvals
in progress............ 8,426 1,327
- --------
(/1/) Includes revisions to estimates of potential development or transfers of
property between commercial development and other categories of property.
4
Entitlement depends on discretionary government decisions as well as the
results of a variety of predevelopment studies undertaken at various points in
the planning of a project. We have 1.3 million square feet of potential
development space for which entitlements or approvals are in progress. The
entitlements or approvals sought may not be received, or if received, may not
permit timely development in light of market conditions.
One of CCG's largest development projects, Pacific Commons in Fremont,
California, is also one of the largest planned business parks in Silicon
Valley. The project, which is adjacent to Interstate 880 sixteen miles north
of San Jose, consists of 810 acres, of which approximately 375 acres are
planned for development. In 2000, we finalized entitlements with the
certification of the supplemental Environmental Impact Report for the
8.3 million-square-foot business park reflecting species and wetlands
mitigation measures agreed with various government agencies. Approximately
776,000 square feet of R&D, light industrial, and warehouse properties at
Pacific Commons have been developed, constructed, sold, or leased and an
additional 345,000 square feet are currently under construction.
We also continued to acquire developable land to replenish our supply. In
August 2000, a wholly owned subsidiary acquired a former steel mill site in
Ontario, California, located in the heart of one of the nation's most active
distribution centers near the intersection of Interstates 15 and 10. The
property is served by both Union Pacific and Burlington Northern Santa Fe
railroads and is 6 miles from the Ontario International Airport. Plans for the
development, Kaiser Commerce Center, include a 6 million-square-foot
industrial park and truck plaza. The site was purchased for approximately
$21.4 million from Kaiser Ventures, Inc.
We were selected by the City of Alameda, California as the master developer
for the former 145-acre U.S. Navy Fleet Industrial Supply Center, Alameda
Annex and the adjacent 70-acre portion of the former Alameda Naval Air
Station. See the discussion of the Fleet Industrial Supply Center, Alameda
Annex and Alameda Naval Air Station, East Housing, Alameda, California in the
Catellus Residential Group section on page 14 of this Form 10-K for a more
detailed explanation of this project.
Asset Management
The asset management group manages 28.8 million square feet of industrial,
office, and retail properties, land leases, and interests in several joint
ventures. It also provided asset management services to third parties through
the end of year 2000.
Rental Properties
The following table provides information on CCG's rental properties:
Number of Property Operating
Properties Square Feet Owned Income(/1/)
-------------- -------------------- --------------------------
December 31, December 31, Year Ended December 31,
-------------- -------------------- --------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
---- ---- ---- ------ ------ ------ -------- -------- --------
(In thousands, except for number of properties)
Asset Management
Industrial............. 61 62 58 26,251 22,240 17,010 $ 98,831 $ 76,958 $ 62,432
Office................. 13 13 14 1,625 1,622 1,719 20,228 19,043 18,365
Retail................. 10 10 12 880 881 928 10,511 9,512 9,127
Land and other
leases................ -- -- -- -- -- -- 8,797 7,311 6,846
Equity in earnings of
operating joint
ventures.............. -- -- -- -- -- -- 9,809 10,668 9,368
--- --- --- ------ ------ ------ -------- -------- --------
Subtotal............. 84 85 84 28,756 24,743 19,657 148,176 123,492 106,138
Corporate Services
Land and other
leases................ -- -- -- -- -- -- 5,762 6,636 4,493
--- --- --- ------ ------ ------ -------- -------- --------
Total CCG............... 84 85 84 28,756 24,743 19,657 $153,938 $130,128 $110,631
=== === === ====== ====== ====== ======== ======== ========
- --------
(/1/Property)operating income is rental revenue less property operating costs.
5
Leasing. The following table summarizes leasing statistics for CCG's rental
properties:
As of December 31,
----------------------
2000 1999 1998
------ ------ ------
(Square feet in
thousands)
Industrial Buildings
Square feet owned................................ 26,251 22,240 17,010
Square feet leased............................... 25,143 20,824 16,200
Percent leased................................... 95.8% 93.6% 95.2%
Office Buildings
Square feet owned................................ 1,625 1,622 1,719
Square feet leased............................... 1,513 1,508 1,624
Percent leased................................... 93.1% 93.0% 94.5%
Retail Buildings
Square feet owned................................ 880 881 928
Square feet leased............................... 856 827 836
Percent leased................................... 97.3% 93.9% 90.1%
Total
Square feet owned................................ 28,756 24,743 19,657
Square feet leased............................... 27,512 23,159 18,660
Percent leased................................... 95.7% 93.6% 94.9%
Lease Expirations. The following table summarizes the lease expirations in
CCG's rental property portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 2007 2008 2009 Thereafter
----- ----- ----- ----- ----- ---- ----- ---- ----- ----------
Percent................. 13.8% 9.5% 13.6% 12.9% 14.6% 2.9% 4.1% 2.1% 4.3% 22.2%
Square feet (in
thousands)............. 3,777 2,614 3,741 3,539 4,023 809 1,128 574 1,188 6,119
Approximately 1,151,000 square feet of month-to-month leases are shown as
expiring in 2001.
Industrial Building Portfolio
At December 31, 2000, our portfolio of industrial rental properties included
61 properties aggregating 26.3 million square feet that were 95.8% leased. At
December 31, 2000, we also had 3.0 million square feet under construction, of
which approximately 2.8 million square feet are expected to be added to our
portfolio.
The following table summarizes CCG's industrial buildings by region as of or
for the year ended December 31, 2000:
Property Property
Number Operating Operating
of Properties Square Feet Revenues Costs Income
------------- ----------- -------- --------- ---------
(In thousands, except for number of properties)
Southern California..... 33 10,657 $ 55,069 $10,675 $44,394
Northern California..... 11 4,893 31,331 6,244 25,087
Illinois................ 2 4,298 17,587 4,726 12,861
Arizona................. 5 1,195 5,517 2,198 3,319
Texas................... 3 2,615 8,296 1,702 6,594
Colorado................ 1 612 3,215 865 2,350
Ohio.................... 1 965 2,846 490 2,356
Oklahoma................ 2 332 666 247 419
Oregon.................. 1 449 926 243 683
Kentucky................ 1 167 724 79 645
Kansas.................. 1 68 151 28 123
--- ------ -------- ------- -------
Total................. 61 26,251 $126,328 $27,497 $98,831
=== ====== ======== ======= =======
6
The following table summarizes the lease expirations in the industrial
portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 2007 2008 2009 Thereafter
----- ----- ----- ----- ----- ---- ---- ---- ----- ----------
Percent................. 13.6% 8.7% 13.4% 12.4% 15.7% 2.9% 4.0% 2.0% 4.3% 23.0%
Square feet (in
thousands)............. 3,432 2,190 3,362 3,131 3,936 740 997 496 1,074 5,785
Of the 3,432,000 square feet of leased industrial space that is scheduled to
expire in 2001, 62% is located in Southern California, 7% is in Northern
California, and the balance is spread throughout the other states.
Approximately 967,000 square feet of month-to-month leases are shown as
expiring in 2001.
In 2000, 4.0 million square feet of industrial buildings were added to the
portfolio. Of this total, we constructed and completed 5.1 million square feet
and sold 1.1 million square feet.
Office Building Portfolio
At December 31, 2000, our portfolio of office rental properties included 13
properties aggregating approximately 1.6 million square feet that were 93.1%
leased. At December 31, 2000, we also had 495,000 square feet under
construction, all of which is expected to be added to our portfolio.
The following table summarizes CCG's office buildings by region as of or for
the year ended December 31, 2000:
Property Property
Number Operating Operating
of Properties Square Feet Revenues Costs Income
------------- ----------- -------- --------- ---------
(In thousands, except for number of properties)
Northern California..... 3 526 $12,656 $ 3,561 $ 9,095
Southern California..... 7 575 9,189 3,821 5,367
Illinois................ 2 467 11,365 6,024 5,342
Oregon.................. 1 57 863 439 424
--- ----- ------- ------- -------
Totals.................. 13 1,625 $34,073 $13,845 $20,228
=== ===== ======= ======= =======
The following table summarizes the lease expirations in CCG's office
portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 2007 2008 2009 Thereafter
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
Percent................. 15.6% 24.8% 19.1% 19.4% 2.2% 3.5% 8.7% 2.3% 0.0% 4.4%
Square feet (in
thousands)............. 236 375 290 294 34 53 131 34 0 66
Of the 236,000 square feet of leased office space that is scheduled to
expire in 2001, 83% is located in Southern California, and 17% is in Northern
California. Approximately 28,000 square feet of month-to-month leases are
shown as expiring in 2001.
Retail Building Portfolio
At December 31, 2000, our portfolio of retail rental properties included 10
properties aggregating 880,000 square feet that were 97.3% leased.
7
The following table summarizes CCG's retail portfolio by region as of or for
the year ended December 31, 2000:
Property Property
Number Operating Operating
of Properties Square Feet Revenues Costs Income
------------- ----------- -------- --------- ---------
(In thousands, except for number of properties)
Northern California..... 3 461 $ 8,580 $2,291 $ 6,289
Southern California..... 5 282 4,124 1,174 2,950
Colorado................ 1 100 1,528 614 914
Oregon.................. 1 37 581 223 358
--- --- ------- ------ -------
Totals................ 10 880 $14,813 $4,302 $10,511
=== === ======= ====== =======
The following table summarizes the lease expirations in CCG's retail
portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 2007 2008 2009 Thereafter
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
Percent................. 12.7% 5.7% 10.4% 13.3% 6.2% 1.8% 0.0% 5.2% 13.3% 31.4%
Square feet (in
thousands)............. 109 49 89 114 53 16 0 44 114 268
Of the 109,000 square feet of leased retail space that is scheduled to
expire in 2001, 49% is in Colorado, 44% is in Southern California, and 6% is
in Northern California. Approximately 19,000 square feet of month-to-month
leases are shown as expiring in 2001.
Land and Leases Portfolio
The following table summarizes CCG's portfolio of land subject to leases by
region for the year ended December 31, 2000:
Property Property
Operating Operating
Revenues Costs Income
-------- --------- ---------
(In thousands)
Southern California........................... $7,226 $658 $6,568
Northern California........................... 597 123 473
Other states.................................. 1,966 211 1,756
------ ---- ------
Totals...................................... $9,789 $992 $8,797
====== ==== ======
8
Operating Joint Venture Portfolio
During the year the commercial group had direct or indirect equity interests
in three joint ventures that owned rental properties. These joint ventures
provided cash distributions to us of $23.0 million for the year ended December
31, 2000, and earnings of $9.8 million for the same period. As of December 31,
2000, we owned joint venture interests in the following operating properties,
except for the apartment joint venture whose assets were sold (as noted).
(Note that the term "joint venture" as used herein means that two or more
parties own an interest and not that a joint venture is the legal form of
organization.)
Equity in Earnings
----------------------
Year Ended December
31,
No. of Ownership ----------------------
Ventures Size Interest 2000 1999 1998
-------- --------------- --------- ------ ------- ------
(In thousands)
Hotel(/1/).............. 2 2,000 rooms 25-50% $9,835 $10,567 $9,072
Office.................. 1 205,000 sq. ft. 67% (26) 67 137
Apartments(/2/)......... 1 387 units 50% -- 34 159
--- ------ ------- ------
Total................. 4 $9,809 $10,668 $9,368
=== ====== ======= ======
- --------
(/1/)Excludes a hotel parking lot joint venture, which does not own rental
properties.
(/2/)Sold in February 1999.
Other Land Holdings
As of December 31, 2000, we owned approximately 363,000 acres of land in the
Southern California desert. The ownership of these desert properties is the
result of historical land grants to our railroad predecessors. Because of its
location, lack of contiguity among parcels, and other factors, much of this
land is not currently suitable for traditional development activities. We made
an assessment of the portfolio to explore the potential for agricultural,
mineral, water, telecommunications, energy, and waste management uses for this
property. We have concluded from this assessment that the land, although
valuable, does not fit within our overall corporate strategy.
We signed an agreement in February 1999 with The Wildlands Conservancy
("TWC"), a non-profit conservation group, to convey 437,000 acres of desert
holdings and 20,000 acres of severed mineral rights to the Federal government
for a total cash consideration of up to $54.6 million. The total purchase
price for the land was reduced to $45.1 million as a result of negotiations
over the amount of Federal government funding. This transaction was completed
in two phases during 2000: in January 2000 we conveyed approximately
225,000 acres to the Federal government for $25 million, and in July 2000 we
conveyed the remaining acreage and received the final $20.1 million.
Currently, TWC has an option to purchase an additional 277,000 acres of our
desert land for approximately $30.9 million. The option expires January 2002.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Gain on Non-Strategic Asset Sales" of this Form 10-K for more
information regarding the aggregate total of non-strategic asset sales.
We will continue to pursue additional sale, lease, or exchange opportunities
involving public and private buyers, as well as other arrangements to maximize
the value of this land. These arrangements are complicated and therefore may
take a significant amount of time to complete.
The number of desert properties in our portfolio declined substantially
since 1995 as a result of sales activity.
9
Sales. The following table summarizes the sales of non-strategic properties
for the periods presented.
Year Ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Sales.............................................. $50,759 $10,275 $43,349
Cost of Sales...................................... 4,480 3,581 41,010
------- ------- -------
Gain............................................. $46,279 $ 6,694 $ 2,339
======= ======= =======
Corporate Services
We have provided acquisition, disposition, leasing, permit management, and
inventory services for Burlington Northern Santa Fe ("BNSF") over the past two
years. During that time, a major source of our management fee income was from
this contract to manage and sell BNSF's non-railroad real estate assets. As
anticipated, most of the railroad's inventory of managed assets has been sold
in accordance with the customer's goals. We decided not to pursue renewal of
this contract when it expired on December 31, 2000. Consequently, we expect
management fees and the related selling, general and administrative expenses
to decline in 2001.
In 1998, we invested a total of $50.5 million ($40.1 million was seller-
financed) in the acquisition of land and other interests in real property with
the intention to sell the majority of these assets. We manage the disposition
and leasing for these owned leases. Property operating income from these
leases was $5.8 million in 2000, $6.6 million in 1999, and $4.5 million in
1998.
The following table summarizes the management and development fees earned
for the periods presented.
Year Ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Management and development fees................... $11,784 $10,523 $12,845
The following table summarizes the sales of properties for the periods
presented.
Year Ended December
31,
----------------------
2000 1999 1998
------ ------- -------
(In thousands)
Sales............................................... $6,360 $14,053 $11,636
Cost of Sales....................................... 4,770 10,529 8,238
------ ------- -------
Gain.............................................. $1,590 $ 3,524 $ 3,398
====== ======= =======
10
Catellus Residential Group
The Catellus Residential Group ("CRG") is primarily involved in community
development, which identifies and develops (through entitlement,
infrastructure, and subdivision) large-scale residential communities in prime
housing markets, selling finished lots to homebuilders. Property is either
acquired directly or through a joint venture with a third party.
CRG also owns merchant housing assets--lots available for the construction
of a variety of for-sale residential homes. A consolidation in the
homebuilding industry resulted in a focus by national homebuilders on high-
volume, lower-margin activities that we determined were not part of our
corporate strategy. As a result, and as a part of our plan to restructure the
residential group, we sold a majority of our merchant housing assets in July
2000 to a newly formed limited liability company managed by Brookfield Homes
of California for $139 million in cash and a retained interest in the new
company valued at $22.5 million. In a separate transaction, Standard Pacific
Corporation paid $23 million for an 82-lot site in San Francisco, California,
partially owned by CRG, generating a pre-tax gain of approximately $6 million
to CRG.
In previous years, we were also active in public and private ventures, which
developed and marketed affordable rental and for-sale housing, as well as
institutional housing such as faculty and student housing for universities. We
determined that the activities explored by the public and private ventures
group did not warrant the continuation of a separate group, and we changed our
organization accordingly. Responsibility for the ongoing projects in this area
was retained by CRG.
Consistent with the transition plan that was adopted when the majority of
CRG's assets were acquired from the The Akins Companies, Bruce Akins and Carl
Akins, who were president and chairman of Catellus Residential Group,
respectively, left the company during 2000 to pursue other opportunities.
11
The following table summarizes CRG's residential development land inventory
activity in 2000:
Total Lots/ Sold to Ownership
Homes Controlled/ Transfers & Home Lot BHC/ or Controlled
1/1/00 Acquired Adjustments Closings Closings Stan. Pac. 12/31/00 Interest
----------- ----------- ----------- -------- -------- ---------- -------- -------------
Community Development
Northern California
Tracy(/1/)............. 2,400 -- (2,400) -- -- -- -- 100%
Hercules............... 813 -- 5 -- (117) -- 701 100%
Serrano--Sacramento.... 3,090 -- 19 -- (874) -- 2,235 67%
7th Street, Union
City.................. 18 -- -- -- (18) -- -- 100%
BHC Residential........ -- 830 -- (306) -- -- 524 35%
Southern California
Talega--San Clemente... 3,330 -- (474) -- (867) -- 1,989 30%
Chino Hills............ 60 -- (60) -- -- -- -- 100%
Summerlane--Huntington
Beach................. 92 -- -- -- (92) -- -- 100%
Texas
Oakcliff............... 285 -- -- -- (285) -- -- 100%
------ ----- ------ ---- ------ ---- ----- ---
Subtotal Community
Development........... 10,088 830 (2,910) (306) (2,253) -- 5,449
------ ----- ------ ---- ------ ---- -----
Merchant Housing
Northern California
Rosewalk--Union City... 10 -- -- -- -- (10) -- 100%
Brittany Hills--
Martinez.............. 57 -- -- (10) (10) (37) -- 100%
Shriners--San
Francisco............. 82 -- -- -- -- (82) -- 80%
Reimal Site--Gilroy.... 110 -- -- -- -- -- 110 100%
7th Street--Union
City.................. 41 -- (2) -- -- (39) -- 100%
Southern California
Cypress I--Irvine...... 10 -- -- -- -- (10) -- 100%
Cypress II--Irvine..... 72 -- -- -- -- (72) -- 100%
Cantamar--Carlsbad..... 39 -- -- (16) -- (23) -- 100%
Westbluffs--Playa del
Rey(/2/).............. 112 -- 2 -- -- -- 114 100%
Windsong--Buena Park... 30 -- -- (30) -- -- -- 100%
Claremore--Huntington
Beach................. 51 -- -- -- -- (51) -- 100%
Ashbury--Huntington
Beach................. 87 -- -- -- -- (87) -- 100%
Citrus--Tesoro--La
Quinta................ 47 -- -- (15) -- (32) -- 90%
Citrus--Mandarina--La
Quinta................ 44 -- -- (1) (43) -- -- 90%
Terra Linda--San
Clemente.............. 68 -- -- (24) -- (44) -- 100%
San Rafael--San
Clemente.............. 80 -- -- (36) -- (44) -- 100%
Aliso Viejo--Aliso
Viejo................. 74 -- -- -- -- (74) -- 100%
Talega Village--San
Clemente.............. -- 295 (19) -- -- -- 276 50%
Los Olivos--San
Clemente.............. -- 85 -- -- -- (85) -- 100%
Miraflores--La Quinta.. 86 -- (59) (24) -- -- 3 100%
Oxnard................. 190 -- -- (138) -- -- 52 50%
------ ----- ------ ---- ------ ---- ----- ---
Subtotal Merchant
Housing............... 1,290 380 (78) (294) (53) (690) 555
------ ----- ------ ---- ------ ---- -----
Total Residential
Properties........... 11,378 1,210 (2,988) (600) (2,306) (690) 6,004
====== ===== ====== ==== ====== ==== =====
Entitled................ 6,624 5,894
Entitlements/approvals
in process............. 4,754 110
- --------
(/1/Land)was transferred to CCG.
(/2/We)have entitlements for this project; however, individuals are challenging
us under the California Environmental Quality Act "CEQA" and the Coastal
Commission.
12
The following is a brief summary of three of our most significant
residential projects followed by a potential mixed-use development project.
Talega--San Clemente, California. In 1997, we acquired a one-third interest,
since reduced to 30%, in a joint venture project, a 3,470-acre, 4,000-lot
residential and land development site in the Talega Valley in San Clemente,
California. Plans for this masterplanned project include a variety of attached
and detached homes; an 18-hole championship golf course; a seniors community;
an elementary school; community parks; and an 82-acre, 1.5 million-square-foot
mixed-use commercial area. In 2000, 867 lots were sold at the site. A total of
1,634 lots have been sold in the project since the acquisition of our interest
in the project.
Serrano--El Dorado Hills, California. In 1998, we acquired a two-thirds
interest in a 3,500-acre, 4,000-lot masterplanned community in El Dorado
Hills, California, which is located 30 miles east of Sacramento, California. A
significant amount of infrastructure was in place and approximately 800 lots
were sold or developed prior to the acquisition of our interest in the
project. Plans for the project include a variety of detached homes; an 18-hole
executive golf course; a private 18-hole Championship Golf Course and Country
Club; elementary, intermediate, and high schools; and a neighborhood retail
commercial area. In 2000, 874 lots were sold at the site. A total of 1,714
lots have been sold in the project since the acquisition of our interest.
Victoria By-The-Bay--Hercules, California. In 1997, Hercules, LLC, now a
wholly owned subsidiary, acquired the Pacific Refinery at Hercules,
California. Catellus RVL, Inc., formerly known as RVL, Inc. entered into an
agreement to provide entitlement services to Hercules, LLC, in return for an
option to buy the property after defined remediation work was completed. The
development has received approval for up to 880 residential units, a school,
commercial space, and public parks. In 2000, a total of 117 lots were sold at
this project to a home builder.
Among the factors that could affect the success of this project are (1) our
ability to manage the business successfully; (2) the accurate characterization
of environmental problems and receipt of all applicable environmental
clearances; and (3) the amount of the payment by the insurance company to
cover remediation budget overruns.
Fleet Industrial Supply Center, Alameda Annex and Alameda Naval Air Station,
East Housing, Alameda, California. In 1998, we were selected by the City of
Alameda, California as the master developer for the former 145-acre U.S. Navy
Fleet Industrial Supply Center, Alameda Annex ("FISC") and the adjacent 70-
acre portion ("East Housing") of the former Alameda Naval Air Station. In June
of 2000, we were granted entitlements to develop up to 500 single-family homes
and up to 1.3 million square feet of office and research and development space
on the site. The City of Alameda Housing Authority plans to build an
additional 39 multi-family units on 2.5 acres. Fifteen percent of all
residential units built will be affordable housing units.
The residential development and the business park are each divided into six
acquisition phases. Under our agreement with the City of Alameda, we must
purchase a minimum of 75 single-family lots annually and a minimum of 14.4
acres of business park every two years. Under the agreement, the City of
Alameda must deliver the land with environmental remediation and demolition of
existing structures completed, and the City of Alameda must build basic
infrastructure.
Construction of the housing and the business park requires approval of a
development plan, and design review, and may require further subdivision of
the property. We hope to undertake construction of the homes, buildings, and
associated site improvements by the end of 2001 or the first quarter 2002,
subject to satisfaction of these conditions.
13
Sales. The following table summarizes CRG's sales of residential development
property, which include lots and housing units. The sales shown below are for
properties which we own and consolidated joint ventures, for the periods
presented:
Year Ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Sales........................................... $292,822 $161,913 $105,346
Cost of Sales................................... 238,930 121,107 79,220
-------- -------- --------
Gain.......................................... $ 53,892 $ 40,806 $ 26,126
======== ======== ========
Unconsolidated Joint Venture Sales. We also participate in joint venture
projects in which we do not own a controlling interest and for which we
recognize income using the equity method. The following table summarizes sales
of residential development property in these unconsolidated joint venture
projects.
Year Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Sales....................................... $316,523 $115,225 $ 89,961
Cost of Sales............................... 260,975 86,918 73,120
-------- -------- --------
Gain...................................... 55,548 28,307 16,841
Venture partners' interest.................. (27,781) (18,132) (11,510)
-------- -------- --------
Equity in earnings of unconsolidated joint
ventures................................. $ 27,767 $ 10,175 $ 5,331
======== ======== ========
14
Catellus Urban Development Group
The Catellus Urban Development Group ("CUG") develops large urban mixed-use
projects. Its current portfolio consists of three major mixed-use development
sites that include planned development for residential, office, biotech, co-
location, retail, entertainment, and hotel purposes. The chart below
summarizes the estimated development potential of CUG's current land holdings
as of December 31, 2000:
CUG's Potential Development Land Inventory
Commercial Residential Hotel
------------- -------------- ------
(Square Feet) (Lots or units) (Rooms)
Mission Bay (San Francisco,
California)...................... 6,357,000 4,305 500
Union Station (Los Angeles,
California)...................... 6,500,000 -- --
Santa Fe Depot (San Diego,
California)...................... 2,450,000 450 --
---------- ----- ---
Total............................. 15,307,000 4,755 500
========== ===== ===
Entitled.......................... 15,307,000 4,755 500
Following is a summary of these three major urban mixed-use projects.
Mission Bay, San Francisco, California. We own approximately 154 acres of
property in San Francisco (the "City") adjacent to downtown, which is part of
an approximately 300-acre mixed-use development project known as Mission Bay.
The balance of the project is primarily owned by the City, the Port of San
Francisco, and the University of California San Francisco ("UCSF"). The
following chart shows our proposed development plan for Mission Bay:
Mission Bay
-----------------------------
Owned or
Company Leased by Project
Owned Others Total
--------- --------- ---------
Residential Units:
Market Rate.................................. 4,071 229 4,300
Affordable................................... 234 1,466 1,700
--------- --------- ---------
Total Residential............................ 4,305 1,695 6,000
========= ========= =========
Commercial (gross square feet):
R&D, Biotech, and Office..................... 5,557,000 -- 5,557,000
Retail and Entertainment..................... 800,000 12,000 812,000
UCSF Campus.................................. -- 2,650,000 2,650,000
--------- --------- ---------
Total Commercial............................. 6,357,000 2,662,000 9,019,000
========= ========= =========
Hotel:
Rooms........................................ 500 -- 500
========= ========= =========
In the years leading up to 1999, we obtained entitlement and redevelopment
plans for Mission Bay, and, in July 1999, we closed land transfers among the
City, the Port of San Francisco, the California State Lands Commission, UCSF,
and Catellus to result in the ownership described above in a developable
configuration. We also received regulatory permits from the U.S. Army Corps of
Engineers and the California Regional Water Quality Control Board in early
2000. Additional permits and approvals are required for the development of
individual projects at Mission Bay, including, for office projects, allocation
("Proposition M Allocation") of square footage from a limited allowance of
office space permitted to be developed in the City at any given time.
15
The following highlights activity in Mission Bay. Because these processes
require participation of a number of parties and agencies, schedules are
subject to change.
Mission Bay North, the 65-acre portion of Mission Bay north of Mission
Creek, is being developed adjacent to the newly completed Pacific Bell Park
(home of the San Francisco Giants baseball team).
Mission Bay South, the 238-acre portion of Mission Bay south of Mission
Creek, will be developed around UCSF's new 2.65 million-square-foot
biotech/research expansion campus. In accordance with agreements among us, the
Regents of the University of California, and the City, UCSF will locate the
UCSF expansion campus on a portion of Mission Bay South. We have donated
approximately 18 acres and agreed to donate approximately 11 acres in the
future for the campus, and the City contributed an additional 13.3 acres. The
UCSF campus will be developed by developers selected by UCSF (which may
include Catellus as one of the developers). UCSF broke ground on its first
building, a 400,000-square-foot research facility, in October 1999. Design is
now under way for the next two UCSF buildings.
Union Station, Los Angeles, California. We currently own approximately 43
acres surrounding and including the historic Los Angeles Union Station.
Located in downtown Los Angeles, Union Station is a transportation hub of the
region, with Amtrak rail service and commuter rail lines serving the
surrounding five-county region (Metrolink), and Los Angeles' growing subway
and surface light rail systems.
In 1996, the City of Los Angeles awarded us an entitlement package
permitting seven million square feet of office development with flexible
mixed-use development including office, hotel, residential, urban
entertainment, retail, and sports facilities. As part of this development, in
1996, we sold a 4.2-acre portion to the Los Angeles Metropolitan Water
District and entered into a design-build contract to build its new
headquarters facility. The sale generated proceeds of $13.2 million and a
commission to build the facility for a fee. We completed construction of the
500,000-square-foot, 12-story headquarters facility in 1998, with occupancy
completed in 1999. In addition to a major phase and project approval from the
Redevelopment Agency, we also completed in 1999 a revised development plan
intended to maximize the potential of the site given current and projected
market conditions.
Santa Fe Depot, San Diego, California. We own approximately 15 acres near
the waterfront in downtown San Diego, California, including the Santa Fe Depot
train station. Amtrak, a commuter rail line (Coaster), and San Diego's
expanding trolley system serve the site daily. In accordance with a
Development Agreement executed with the City in 1993, the site is currently
entitled for a mixture of office, hotel, retail, and housing development.
During 1999 we revised the plan to respond better to recovering markets in San
Diego. Subsequently, we entered into an agreement to sell to Bosa Development,
a Canadian developer, a 1.5-acre site for development of approximately 230
condominium units.
In 2000, we entered into a second sale agreement with Bosa Development for
another 1.5-acre site for development of approximately 230 condominium units
with closing scheduled for the third quarter 2001. Also, we completed
schematic plans for two office towers totaling 750,000 square feet and filed
an application with the City Center Development Committee.
Land Development Portfolio
As of December 31, 2000, CUG's interim-use land development portfolio
included 3 properties aggregating approximately 913,000 square feet. At
December 31, 2000, the portfolio was 88.4% leased. This portfolio represents
interim rental uses of properties intended for mixed-use development. We
expect that the level of income generated from this category of properties
will decline as development of the mixed-use projects occurs over the next
several years.
16
The following table summarizes CUG's interim-use land development portfolio
by region as of or for the year ended December 31, 2000:
Property Property
Number of Square Operating Operating
Properties Feet Revenues Costs Income
---------- ------ -------- --------- ---------
(In thousands, except for number of buildings)
Northern California......... 1 780 $ 9,088 $3,488 $5,600
Southern California......... 2 133 5,525 3,874 1,651
--- --- ------- ------ ------
Totals.................... 3 913 $14,613 $7,362 $7,251
=== === ======= ====== ======
Other Items
Brownfields Development
Since 1997, we have formed wholly owned subsidiaries to acquire, or to make
investments in companies formed for the purpose of acquiring properties
requiring environmental remediation, performing the necessary remediation, and
selling, leasing, or operating the remediated properties. Our subsidiaries
expect to make these investments only after investigation designed to
characterize the environmental problems and quantify the costs of remediation,
and after obtaining insurance, if appropriate, for overruns in the remediation
budget. Among the factors that could affect the success of these projects are:
(1) the ability of the managing member of the limited liability company to
manage the business successfully; (2) the accurate characterization of
environmental problems; and (3) the availability of insurance adequate to
cover remediation budget overruns.
There are two projects that we are currently proceeding with: Victoria-By-
The-Bay in Hercules, California, discussed in further detail in the
Residential Group section of this report and the Kaiser Commerce Center
discussed in further detail in the Commercial Group section of this report.
Environmental Matters
For information about environmental matters in this report, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Form 10-K.
Competition
The real estate industry is generally fragmented and characterized by
significant competition. Numerous developers, owners of industrial, office,
and retail properties, and managers compete with us in seeking properties for
acquisition, development and management opportunities, tenants, and purchasers
for homes, and for non-strategic assets. There are competitors in each area in
which we operate that have greater capital resources than we. There can be no
assurance that the existence of such competition will not have a material
adverse effect on our business, operations, and cash flow.
Employees, Contractors, and Consultants
At December 31, 2000, we had 358 employees in our consolidated company. We
engage third parties to manage multi-tenant properties and properties in
locations that are not in close proximity to our regional or field offices. In
addition, we engage outside consultants such as architects and design firms in
connection with our pre-development activities. We also employ third-party
contractors on development projects for infrastructure and building
construction, and retain consultants to assist us in a variety of areas at the
project and corporate levels.
Working with organized labor is a critical component of many of our
projects. With the high volume of construction activity in many of our
markets, labor shortages and costs could significantly influence the success
of projects. In addition, organized labor often plays a key role in community
organizations and discretionary land use decisions concerning entitlements.
17
Stock Repurchase Program
In October 1999, our Board of Directors authorized a one-year stock
repurchase program for up to $50 million of our outstanding common stock (the
"1999 Program"). Under the 1999 Program, we repurchased 1,997,300 shares at a
total cost of $28.7 million. The 1999 Program expired in October 2000. In
December 2000, our Board of Directors authorized a new one-year share
repurchase program (the "2000 Program") for up to $50 million, and in March
2001, our Board of Directors authorized an additional share repurchase program
for up to $50 million. See Note 12 of the accompanying Consolidated Financial
Statements for a discussion of share repurchase programs.
Shareholder Rights Plan and Bylaw Amendments
In December 1999, the Company authorized the issuance of 2,000,000 shares of
Series A Junior Participating Preferred Stock in connection with the adoption
of a shareholder rights plan. This series of preferred stock has a quarterly
dividend of the greater of $1.00 or 100 times the dividend paid on our common
stock, and it has a voting right of 100 votes per share. No shares of this
series of preferred stock have been issued. Also in connection with the
shareholder rights plan adopted in December 1999, the Company's Board of
Directors declared a dividend of one right to purchase 1/100th of a share of
Series A Junior Participating Preferred Stock for each share of common stock.
This right becomes exercisable on the occurrence of certain events, and it
also may entitle the holder to purchase shares of common stock at one-half its
market price on the occurrence of certain events.
Item 2. Properties
Our real estate projects are generally described in Item 1 above, which
descriptions are incorporated in this Item by reference. Our principal
executive office is located in San Francisco, California, and we have regional
or field offices in eleven other locations in the United States. We believe
that our property and equipment are generally well maintained, in good
condition, and adequate for our present needs.
Item 3. Legal Proceedings
We, our subsidiaries, and other related companies are named defendants in
many lawsuits arising from normal business activities, are named parties in
certain governmental proceedings (including environmental actions), and are
the subject of various environmental remediation orders of local governmental
agencies arising in the ordinary course of business. Although the outcome of
these lawsuits or other proceedings against us and the cost of compliance with
any governmental order cannot be predicted with certainty, management does not
expect any of these matters to have a material adverse effect on our business,
financial condition, or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 2000.
18
Executive Officers of the Company
The executive officers of the Company are listed below. There were no family
relationships among any executive officers and directors of the Company. All
officers serve at the pleasure of the Board of Directors of the Company,
subject to compliance with various employment agreements to which the Company
and the officers are parties.
Executive Officers
Name Age Position
- ---- --- --------
Nelson C. Rising........ 59 Chairman of the Board and Chief Executive Officer
Stephen P. Wallace...... 46 Executive Vice President and Chief Operating Officer
C. William Hosler....... 37 Senior Vice President and Chief Financial Officer
Kathleen Smalley........ 43 Senior Vice President, Corporate Operations, and General Counsel
Paul A. Lockie.......... 42 Vice President and Controller
Jaime L. Gertmenian..... 34 Vice President, Human Resources and Administration
Additional information concerning the business background of each executive
officer of the Company is set forth below.
MR. RISING has served as President and Chief Executive Officer and a
Director of the Company since September 1994. For more than five years prior
to joining the Company, Mr. Rising was a Senior Partner with Maguire Thomas
Partners, a Los Angeles-based commercial developer.
MR. WALLACE was elected as Executive Vice President and Chief Operating
Officer in May 1998. Before this appointment, Mr. Wallace had served as Senior
Vice President and Chief Financial Officer since July 1995. From 1993 to 1995,
Mr. Wallace served as Senior Vice President and Chief Financial Officer at
Castle & Cooke Homes, Inc.
MR. HOSLER joined the Company as Senior Vice President and Chief Financial
Officer in July 1999. From January 1998 to March 1999, Mr. Hosler served as
the Chief Financial Officer for Capital Company of America, LLC. From 1995 to
1998, Mr. Hosler served as the Chief Financial Officer for Morgan Stanley &
Co.--Morgan Stanley Real Estate Funds.
MS. SMALLEY was elected Senior Vice President, Corporate Operations, and
General Counsel in May 1998. Before this appointment, Ms. Smalley had served
as Senior Vice President, General Counsel, and Secretary since January 1997.
For more than five years before joining the Company, Ms. Smalley was General
Counsel and Investment Manager of Crow Family Holdings ("CFH"), an investment
management company that manages assets, including real estate and related
businesses, throughout the United States and abroad. During 1995-1996, 1998-
1999, and 2000-2001, Ms. Smalley held an appointment to Harvard Law School
where she lectured in real estate transactions.
CFH, during Ms. Smalley's employment, managed investments in thousands of
entities holding real estate. In connection with her duties as General Counsel
and Investment Manager for CFH, Ms. Smalley managed both legal functions and a
number of special assignments. Among those special assignments was the
management of the bankruptcy of approximately 55 affiliated entities in two
jointly administered proceedings. Ms. Smalley was not involved in the
ownership or management (other than as described here) of the properties owned
by the affected debtors before the debt-restructuring negotiations and related
filing of bankruptcy petitions. In addition, there were approximately 35 other
entities affiliated with CFH that filed for protection under federal
bankruptcy laws. In connection with her employment by CFH, Ms. Smalley served
as an officer of the direct or indirect general partner of some of these
entities.
19
MR. LOCKIE joined the Company as Vice President and Controller in February
1996. Before joining the Company, Mr. Lockie served as the Chief Financial
Officer for Kimball Small Properties, Inc. ("KSP"), a San Jose, California,
real estate development and management company, since 1987.
MS. GERTMENIAN has been with the Company since October 1995, and currently
serves as Vice President of Human Resources and Administration.
20
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock commenced trading on December 5, 1990, and is
listed on the New York Stock Exchange, the Pacific Exchange, and the Chicago
Stock Exchange under the symbol "CDX". The following table sets forth for the
periods indicated the high and low sale prices of the Company's common stock
as reported by Bloomberg Financial Markets:
Common Stock
Price
-------------
High Low
------ ------
Year ended December 31, 1999
First Quarter............................................. $16.00 $13.25
Second Quarter............................................ $16.25 $13.00
Third Quarter............................................. $16.00 $11.75
Fourth Quarter............................................ $13.50 $10.75
Year ended December 31, 2000
First Quarter............................................. $13.88 $11.50
Second Quarter............................................ $16.88 $12.63
Third Quarter............................................. $19.06 $16.31
Fourth Quarter............................................ $19.38 $16.81
The Company has never declared or paid any cash dividends on its common
stock. The Company intends to retain any earnings to support operations and to
finance development projects and does not intend to pay cash dividends on the
common stock in the foreseeable future.
On March 13, 2001, there were approximately 23,760 holders of record of the
Company's common stock.
21
Item 6. Selected Financial Data
The following income statement and selected balance sheet data with respect
to each of the years in the five-year period ended December 31, 2000, have
been derived from our annual Consolidated Financial Statements. The operating
data have been derived from our underlying financial and management records
and are unaudited. This information should be read in conjunction with the
Consolidated Financial Statements and related Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Form 10-K for a discussion of results of operations for 2000, 1999, and
1998.
Year Ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- -------- --------
(In thousands, except per share data)
Statement of Operations
Data:
Rental properties
Rental revenue........... $ 206,762 $ 172,295 $ 149,319 $128,897 $115,815
Property operating
costs................... (55,272) (46,754) (41,777) (37,653) (31,185)
Equity in earnings of
operating joint
ventures, net........... 9,809 10,668 9,368 7,436 5,993
--------- --------- --------- -------- --------
161,299 136,209 116,910 98,680 90,623
--------- --------- --------- -------- --------
Property sales and fee
services
Sales revenue............ 451,096 347,005 206,441 119,971 35,753
Cost of sales............ (337,755) (263,562) (154,903) (94,107) (8,981)
--------- --------- --------- -------- --------
Gain on property sales... 113,341 83,443 51,538 25,864 26,772
Equity in earnings of
development joint
ventures, net........... 27,780 10,152 6,627 2,123 757
Management and
development fees........ 15,460 14,968 16,792 15,895 8,462
Selling, general and
administrative
expenses................ (46,598) (27,342) (22,232) (19,528) (8,559)
Other.................... (8,554) (5,475) (662) (2,814) (15,034)
--------- --------- --------- -------- --------
101,429 75,746 52,063 21,540 12,398
--------- --------- --------- -------- --------
Interest expense.......... (50,964) (39,374) (37,384) (39,988) (42,521)
Depreciation and
amortization............. (46,505) (39,214) (34,054) (31,245) (30,561)
Corporate administrative
costs.................... (15,675) (14,760) (15,303) (9,463) (7,972)
Gain on non-strategic
asset sales.............. 46,279 6,803 18,929 5,029 24,405
Litigation and
environmental costs,
net...................... -- -- -- -- 1,093
Other, net................ 940 (4,253) (184) 1,176 (3,334)
--------- --------- --------- -------- --------
Income before minority
interests, income taxes
and extraordinary
items.................... 196,803 121,157 100,977 45,729 44,131
Minority interests........ (10,701) (3,247) (674) (3,145) (1,193)
--------- --------- --------- -------- --------
Income before income taxes
and extraordinary items.. 186,102 117,910 100,303 42,584 42,938
Income tax (expense)
benefit.................. (75,095) (47,690) (40,400) (17,343) (17,537)
--------- --------- --------- -------- --------
Income before
extraordinary items...... 111,007 70,220 59,903 25,241 25,401
Extraordinary items....... -- 26,652 (25,165) -- --
--------- --------- --------- -------- --------
Net income............... 111,007 96,872 34,738 25,241 25,401
Preferred stock
dividends............... -- -- -- (1,353) (22,173)
Premium on redemption of
preferred stock......... -- -- -- -- (1,334)
--------- --------- --------- -------- --------
Net income applicable to
common stockholders..... $ 111,007 $ 96,872 $ 34,738 $ 23,888 $ 1,894
========= ========= ========= ======== ========
Net income per share of
common stock--assuming
dilution:
Before extraordinary
items................... $ 1.02 $ 0.64 $ 0.55 $ 0.24 $ 0.03
Extraordinary items...... -- 0.25 (0.23) -- --
--------- --------- --------- -------- --------
Net income per share
after extraordinary
items--assuming
dilution................ $ 1.02 $ 0.89 $ 0.32 $ 0.24 $ 0.03
========= ========= ========= ======== ========
Average number of common
shares outstanding--
assuming dilution....... 109,017 109,146 109,420 100,768 75,835
========= ========= ========= ======== ========
22
Year Ended or as of December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands, except percentages and ratios)
Other Operating Data:
EBDDT(/1/).............. $ 159,270 $ 128,628 $ 103,394 $ 62,771 $ 25,852
EBITDA(/2/)............. $ 293,373 $ 207,643 $ 177,806 $ 117,163 $ 117,152
Buildings owned (square
feet).................. 28,756 24,743 19,657 16,874 15,217
Leased percentage....... 95.7% 93.6% 94.9% 97.7% 96.5%
Annual fixed
charges(/3/)........... $ 75,220 $ 75,024 $ 65,432 $ 55,672 $ 73,282
Debt and preferred stock
to total market
capitalization(/4/).... 37.9% 38.9% 36.4% 21.0% 46.8%
Capital
investments(/5/)....... $ 437,754 $ 540,024 $ 459,783 $ 257,984 $ 115,338
Fixed charge coverage
ratio(/6/)............. 3.90 2.77 2.72 2.10 1.60
December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands)
Balance Sheet Data:
Total properties, net... $1,705,538 $1,649,171 $1,402,096 $1,122,975 $1,024,102
Total assets............ $2,275,542 $1,854,877 $1,625,540 $1,241,019 $1,123,118
Mortgage and other
debt................... $1,134,563 $ 875,564 $ 873,207 $ 568,699 $ 496,742
Preferred stock......... $ -- $ -- $ -- $ -- $ 274,428
Total stockholders'
equity................. $ 683,245 $ 590,972 $ 490,229 $ 451,899 $ 422,453
Other Data:
Total market
capitalization(/7/).... $2,991,000 $2,249,000 $2,402,000 $2,699,000 $1,647,000
- --------
(1) We use a supplemental performance measure called Earnings Before
Depreciation and Deferred Taxes ("EBDDT"), along with net income, to
report our operating results. EBDDT is not a measure of operating results
or cash flows from operating activities as defined by generally accepted
accounting principles. Further, EBDDT is not necessarily indicative of
cash available to fund cash needs and should not be considered as an
alternative to cash flows as a measure of liquidity. We believe, however,
that EBDDT provides relevant information about our operations and is
useful, along with net income, for an understanding of our operating
results.
EBDDT is calculated by making various adjustments to net income.
Depreciation, amortization, and deferred income taxes are added back to
net income as they represent non-cash charges. Since depreciation expense
is added back to net income on arriving at EBDDT, the portion of gain on
property sales attributable to depreciation recapture is excluded from
EBDDT. In addition, gains on the sale of non-strategic assets, premium on
the redemption of preferred stock, and extraordinary items, including
their current tax effect, represent unusual and/or non-recurring items
and are excluded from the EBDDT calculation.
(2) Represents earnings before interest, taxes, depreciation and
amortization, capitalized interest in cost of sales, extraordinary items,
preferred stock dividends, and premium on the redemption of preferred
stock.
(3) Represents total interest incurred, less non-cash interest incurred (see
Note 3 to our Consolidated Financial Statements), principal amortization,
and preferred stock dividends.
(4) Represents the ratio of total debt plus the face value of preferred stock
to equity market capitalization (based on the number of common shares
outstanding at the end of the period indicated and the closing stock
price for each respective period) plus total debt and preferred stock.
(5) Represents expenditures for commercial and residential development for
projects to be developed and sold or held for rental. See "Managements
Discussion and Analysis of Financial Condition and Results of
Operations--Cash Flows From Investing Activities" in this Form 10-K.
(6) Represents the ratio of EBITDA to fixed charges.
(7) Represents the number of common shares outstanding multiplied by the
closing stock price at the end of the period indicated plus preferred
stock and total debt.
23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of financial condition and EBDDT, as
defined, should be read in conjunction with the Consolidated Financial
Statements and related Notes appearing elsewhere in this Form 10-K. This
discussion and analysis covers each of our four business segments: Commercial,
Residential, Urban Development, and Corporate. This analysis of EBDDT by
segment is used in internal reporting to management and, we believe, provides
an effective means of understanding our business and corporate structure. (For
definition of EBDDT, see Note 13 of the accompanying Consolidated Financial
Statements.)
Summary EBDDT and reconciliation to net income for the years ended December
31, 2000, 1999, and 1998
Year Ended December 31,
---------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
-------- -------- -------- ---------- ----------
(In thousands)
Pre-tax EBDDT
Commercial............... $138,872 $124,049 $100,015 $ 14,823 $ 24,034
Residential.............. 41,151 27,823 21,651 13,328 6,172
Urban Development........ 4,980 6,494 4,757 (1,514) 1,737
Corporate................ (13,194) (12,399) (10,995) (795) (1,404)
-------- -------- -------- -------- --------
Total pre-tax EBDDT........ 171,809 145,967 115,428 25,842 30,539
Current tax.............. (12,539) (17,339) (12,034) 4,800 (5,305)
-------- -------- -------- -------- --------
EBDDT...................... 159,270 128,628 103,394 30,642 25,234
Depreciation and
amortization............ (46,505) (39,214) (34,054) (7,291) (5,160)
Deferred taxes........... (62,556) (30,351) (28,366) (32,205) (1,985)
Gain on non-strategic
asset sales............. 46,279 6,803 18,929 39,476 (12,126)
Depreciation recapture... 14,519 4,354 -- 10,165 4,354
Extraordinary
gain/(expense), net of
tax..................... -- 26,652 (25,165) (26,652) 51,817
-------- -------- -------- -------- --------
Net income................. $111,007 $ 96,872 $ 34,738 $ 14,135 $ 62,134
======== ======== ======== ======== ========
24
Commercial:
The Commercial segment acquires and develops suburban commercial business
parks for our own account and the account of others. EBDDT consists primarily
of rental property operating income for buildings owned and sales gains from
properties sold.
Year Ended December 31,
------------------------------ Difference Difference
2000 1999 1998 2000/1999 1999/1998
--------- --------- -------- ---------- ----------
(In thousands)
Rental properties
Rental revenue......... $ 192,039 $ 159,843 $136,816 $ 32,196 $ 23,027
Property operating
costs................. (47,910) (40,383) (35,553) (7,527) (4,830)
Equity in earnings of
operating joint
ventures, net......... 9,809 10,668 9,368 (859) 1,300
--------- --------- -------- -------- --------
153,938 130,128 110,631 23,810 19,497
--------- --------- -------- -------- --------
Property sales and fee
services
Sales revenue.......... 158,274 185,092 101,095 (26,818) 83,997
Cost of sales(/1/)..... (113,344) (146,809) (75,683) 33,465 (71,126)
--------- --------- -------- -------- --------
Gain on property
sales............... 44,930 38,283 25,412 6,647 12,871
Equity in earnings of
development joint
ventures, net......... 13 (23) 1,296 36 (1,319)
--------- --------- -------- -------- --------
Total gain on
property sales.... 44,943 38,260 26,708 6,683 11,552
Management and
development fees...... 12,813 11,464 13,641 1,349 (2,177)
Selling, general and
administrative
expenses.............. (18,546) (9,280) (8,704) (9,266) (576)
Other.................. 2,877 1,822 (2,233) 1,055 4,055
--------- --------- -------- -------- --------
42,087 42,266 29,412 (179) 12,854
--------- --------- -------- -------- --------
Interest expense........ (50,806) (45,083) (40,028) (5,723) (5,055)
Minority interests...... (6,347) (3,262) -- (3,085) (3,262)
--------- --------- -------- -------- --------
Pre-tax EBDDT........ $ 138,872 $ 124,049 $100,015 $ 14,823 $ 24,034
========= ========= ======== ======== ========
Rental building
occupancy
(In thousands of square
feet, except
percentages)
Owned................... 28,756 24,743 19,657 4,013 5,086
Occupied................ 27,512 23,159 18,660 4,353 4,499
Occupancy percentage.... 95.7% 93.6% 94.9% 2.2% (1.4)%
- --------
(/1/) Cost of sales for 2000 and 1999 includes $14.5 million and $4.4 million,
respectively, of depreciation recapture, which is included in net income,
but not EBDDT.
25
Rental Revenue Less Property Operating Costs
Rental revenue less property operating costs has increased over the past two
years mainly because of additions of buildings, land and land leases, and
rental increases on Same Space (properties that were owned and operated for
the entire "current" year and the entire immediately preceding year are
referred to as "Same Space") partially offset by properties sold. We added a
net 4.0 million square feet in 2000, 5.1 million square feet in 1999, and 2.8
million square feet in 1998 to our rental portfolio. Rental revenue less
operating costs for 2000, 1999, and 1998 are summarized as follows:
Year Ended Year Ended
December 31, December 31,
----------------- Difference ----------------- Difference
2000 1999 2000/1999 1999 1998 1999/1998
-------- -------- ---------- -------- -------- ----------
(In thousands)
Rental revenue less
operating costs:
Same Space.............. $ 93,279 $ 90,055 $ 3,224 $ 89,162 $ 85,910 $ 3,252
Properties added to
portfolio.............. 33,619 8,955 24,664 15,794 2,369 13,425
Properties sold from
portfolio.............. 2,780 6,537 (3,757) 617 1,639 (1,022)
Land and land leases.... 14,451 13,913 538 13,887 11,345 2,542
-------- -------- ------- -------- -------- -------
$144,129 $119,460 $24,669 $119,460 $101,263 $18,197
======== ======== ======= ======== ======== =======
Because of the long-term nature of our leases and the historically low
growth in rental rates for our product, we do not expect substantial changes
in rental income from our Same Space rental portfolio. Rather, we expect
growth in overall portfolio rental income will result primarily from new
properties we add to our rental portfolio over time.
The increase in rental revenue less property operating costs also arises
because the new buildings added to our portfolio in 2000 had higher occupancy
than those added in 1999. The occupancy, at December 31, 2000, for the
buildings added in 2000 was nearly 100%, as compared to 79%, at December 31,
1999, for the buildings added in 1999.
Rental revenue less operating costs from land and land subject to leases
increased $2.5 million in 1999 primarily from the addition of land leases to
the portfolio. A majority of the land subject to leases, which we intend to
sell, was acquired during 1998.
Equity in Earnings of Operating Joint Ventures
Equity in earnings of operating joint ventures, net, decreased by $0.9
million in 2000 primarily because of higher interest expense due to a
refinancing at a joint venture (see Note 5 of the accompanying Consolidated
Financial Statements). The 1999 increase of $1.3 million was because of higher
occupancies and room rates in hotels owned by two joint ventures.
26
Sales Revenue
Our Commercial segment has increased gain from property sales over the past
few years. Gain on property sales was $44.9 million in 2000, $38.3 million in
1999, and $26.7 million in 1998 summarized as follows:
Year Ended December 31,
---------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
-------- -------- -------- ---------- ----------
(In thousands)
Commercial property
sales
Building sales:
Sales proceeds......... $106,282 $ 96,744 $ 44,364 $ 9,538 $ 52,380
Cost of sales.......... (82,288) (80,772) (38,426) (1,516) (42,346)
-------- -------- -------- -------- --------
Gain.................. 23,994 15,972 5,938 8,022 10,034
-------- -------- -------- -------- --------
Land sales:
Sales proceeds......... 45,577 34,596 37,116 10,981 (2,520)
Cost of sales.......... (26,271) (24,990) (27,007) (1,281) 2,017
-------- -------- -------- -------- --------
Gain.................. 19,306 9,606 10,109 9,700 (503)
-------- -------- -------- -------- --------
Other sales:
Sales proceeds......... 6,415 53,752 19,615 (47,337) 34,137
Cost of sales.......... (4,785) (41,047) (10,250) 36,262 (30,797)
-------- -------- -------- -------- --------
Gain.................. 1,630 12,705 9,365 (11,075) 3,340
-------- -------- -------- -------- --------
Gain on property
sales................ 44,930 38,283 25,412 6,647 12,871
Equity in earnings of
development joint
ventures, net......... 13 (23) 1,296 36 (1,319)
-------- -------- -------- -------- --------
Total gain on property
sales................ $ 44,943 $ 38,260 $ 26,708 $ 6,683 $ 11,552
======== ======== ======== ======== ========
The 2000 commercial property sales include the closings of 0.9 million
square feet of new industrial building space and the associated land, 445.8
acres of improved land capable of supporting 8.7 million square feet of
commercial development, and 1.2 million square feet of existing operating
properties. The 1999 commercial property sales include the closings of 1.3
million square feet of new industrial building space and the associated land,
171.7 acres of improved land capable of supporting 3.3 million square feet of
commercial development, and 0.4 million square feet of existing operating
properties, as compared to the closings of 1.3 million square feet of new
industrial building space and the associated land and 176.0 acres of land
capable of supporting 3.2 million square feet of commercial development in
1998.
"Other sales" in the table above include a sale of an apartment joint
venture in San Diego, California in 1999 and a sale of a development joint
venture in Texas in 1998; there were no sales of operating joint ventures in
2000. The 2000, 1999, and 1998 "Other sales" also include the sales of 1,026
acres, 1,514 acres, and 388 acres, respectively, of land subject to leases
that we had acquired during 1998.
Following is a summary of property sales under contract but not closed:
December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Sales under contract, but not closed................ $35,880 $75,647 $83,456
======= ======= =======
Management and Development Fees
Over the past two years, a major source of management fee income was a
contract to manage and sell the non-railroad real estate assets of a major
railroad company. As anticipated, most of the railroad's inventory of
27
managed assets has been sold in accordance with the customer's goals. We
decided not to pursue renewal of this contract when it expired on December 31,
2000. Consequently, we expect management fees and the related selling, general
and administrative expenses to decline in 2001. Management and development
fees increased by $1.3 million in 2000 primarily because of the development
and management fees related to a construction management contract with a
ground lessee, and higher sales commissions from the railroad customer. There
was a decrease of $2.2 million in 1999 primarily because of a management
contract with a Canadian railroad company that expired in 1998.
Selling, General and Administrative Expenses
The increases in 2000 and 1999 in selling, general and administrative
expenses of $9.3 million, of which approximately $7.4 million was employees
related and $1.9 million was administrative and office related, and $0.6
million, respectively, are primarily from additional staffing relating to
increased sales activity. Also contributing to the increase are the higher
costs to pursue new development activities, manage additions to the portfolio,
and expenses incurred on lost opportunities.
Other
"Other" increased by $1.1 million and $4.1 million in 2000 and 1999,
respectively, primarily because of interest income from restricted cash
generated by tax-deferred exchanges.
Interest
Interest expense increased $5.7 million and $5.1 million in 2000 and 1999,
respectively, primarily because of new mortgages placed on completed buildings
added to our portfolio. Increases in interest capitalized in 2000 and 1999 are
due to higher levels of development activity.
Following is a summary of interest incurred:
Year Ended December 31,
--------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
-------- -------- ------- ---------- ----------
(In thousands)
Total interest
incurred............... $ 63,365 $ 55,801 $49,613 $ 7,564 $ 6,188
Interest capitalized.... (12,559) (10,718) (9,585) (1,841) (1,133)
-------- -------- ------- ------- -------
Interest expensed....... $ 50,806 $ 45,083 $40,028 $ 5,723 $ 5,055
======== ======== ======= ======= =======
Previously capitalized
interest included in
cost of sales.......... $ 4,156 $ 5,127 $ 2,872 $ (971) $ 2,255
======== ======== ======= ======= =======
We expect interest expense to increase in 2001 as we anticipate to add new
debt collateralized by the newly completed and retained buildings.
Minority Interest
In 1999, we formed a consolidated venture and sold 10% of this consolidated
venture's stock to minority investors. The increase in 2000 was because the
venture operated for a full year in 2000, but not in 1999.
28
Residential:
In the past, the Residential segment acquired and developed mainly single-
family residential property. Because of the sale of the majority of our home-
building assets, as discussed below, this segment will concentrate
prospectively on land development of residential sites via direct investments
and joint ventures. EBDDT consists primarily of gains from sales of lots and
completed homes.
Year Ended December 31,
------------------------------ Difference Difference
2000 1999 1998 2000/1999 1999/1998
--------- --------- -------- ---------- ----------
(In thousands)
Rental properties
income.................. $ 110 $ 339 $ 641 $ (229) $ (302)
--------- --------- -------- --------- --------
Property sales and fee
services
Sales revenue........... 292,822 161,913 105,346 130,909 56,567
Cost of sales........... (238,930) (121,107) (79,220) (117,823) (41,887)
--------- --------- -------- --------- --------
Gain on property
sales................ 53,892 40,806 26,126 13,086 14,680
Equity in earnings of
development joint
ventures, net.......... 27,767 10,175 5,331 17,592 4,844
--------- --------- -------- --------- --------
Total gain on
property sales..... 81,659 50,981 31,457 30,678 19,524
Management and
development fees....... 1,498 892 1,310 606 (418)
Selling, general and
administrative
expenses............... (25,804) (17,237) (12,875) (8,567) (4,362)
Other................... (11,412) (7,133) 1,713 (4,279) (8,846)
--------- --------- -------- --------- --------
45,941 27,503 21,605 18,438 5,898
--------- --------- -------- --------- --------
Interest expense......... (546) (34) 79 (512) (113)
Minority interests....... (4,354) 15 (674) (4,369) 689
--------- --------- -------- --------- --------
Pre-tax EBDDT....... $ 41,151 $ 27,823 $ 21,651 $ 13,328 $ 6,172
========= ========= ======== ========= ========
Sales Revenue
In July 2000, we sold a majority of our home-building assets to a newly
formed limited liability company managed by Brookfield Homes of California,
Inc. for $139 million in cash and a retained interest in the new company
("BHC, LLC") at an agreed-upon value of $22.5 million. In addition, we are
entitled to a preferred return on the retained interest and 35% of additional
profits from BHC, LLC operations. Of the $22.5 million retained interest, we
have recognized $8.3 million as part of "Equity in earnings of development
joint ventures, net" in 2000. Also recognized as part of "Equity in earnings
of development joint ventures, net" was $0.8 million which represents our
share, 35%, of profits from BHC, LLC and $1 million which represents our share
of the preferred return from our investment in BHC, LLC as of December 31,
2000. We expect to recognize the remaining $14.2 million retained interest and
our share of profits from BHC, LLC as homes/lots are sold. With the exception
of BHC, LLC and any new joint ventures we may pursue, no further significant
earnings from home-building activities are expected beyond 2000.
29
Included in gain on property sales for 2000 is $13.4 million from the sale
of our home-building assets to the BHC, LLC, as well as $10.2 million, before
deduction of approximately $4 million in minority interest, from the closing
of an 80-lot site in San Francisco, and $30.3 million resulting primarily from
the closings of 512 lots and 347 homes compared to the closings of 328 homes
and 121 lots in 1999 and 244 homes and 45 lots in 1998.
Year Ended December 31,
----------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
--------- -------- -------- ---------- ----------
(In thousands)
PROPERTY SALES:
Wholly Owned
Homes:
Sales proceeds......... $ 200,319 $118,749 $ 84,377 $ 81,570 $34,372
Cost of sales.......... (176,338) (90,866) (65,175) (85,472) (25,691)
--------- -------- -------- --------- -------
Gain.................. 23,981 27,883 19,202 (3,902) 8,681
--------- -------- -------- --------- -------
Lots:
Sales proceeds......... 37,958 28,505 8,992 9,453 19,513
Cost of sales.......... (21,759) (16,347) (3,917) (5,412) (12,430)
--------- -------- -------- --------- -------
Gain.................. 16,199 12,158 5,075 4,041 7,083
--------- -------- -------- --------- -------
Joint Ventures--
Consolidated
Homes:
Sales proceeds......... 54,545 14,659 11,977 39,886 2,682
Cost of sales.......... (40,833) (13,894) (10,128) (26,939) (3,766)
--------- -------- -------- --------- -------
Gain.................. 13,712 765 1,849 12,947 (1,084)
--------- -------- -------- --------- -------
Gain on property sales.. 53,892 40,806 26,126 13,086 14,680
--------- -------- -------- --------- -------
JOINT VENTURES:
Homes:
Sales proceeds......... 130,383 16,179 40,292 114,204 (24,113)
Cost of sales.......... (121,585) (11,906) (31,882) (109,679) 19,976
--------- -------- -------- --------- -------
Gain.................. 8,798 4,273 8,410 4,525 (4,137)
--------- -------- -------- --------- -------
Lots:
Sales proceeds......... 186,140 99,046 49,669 87,094 49,377
Cost of sales.......... (139,390) (75,012) (41,238) (64,378) (33,774)
--------- -------- -------- --------- -------
Gain.................. 46,750 24,034 8,431 22,716 15,603
--------- -------- -------- --------- -------
Gain from development
joint ventures......... 55,548 28,307 16,841 27,241 11,466
Less: venture partners'
interest............... (27,781) (18,132) (11,510) (9,649) (6,622)
--------- -------- -------- --------- -------
Total equity in earnings
of development joint
ventures............... 27,767 10,175 5,331 17,592 4,844
--------- -------- -------- --------- -------
Total gain on property
sales.................. $ 81,659 $ 50,981 $ 31,457 $ 30,678 $19,524
========= ======== ======== ========= =======
30
Following is a summary of property sales under contract but not closed:
December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Owned projects and consolidated joint ventures:
Units................................................ $ 7,439 $54,782 $21,077
======= ======= =======
Lots................................................. $19,317 $16,195 $ 8,348
======= ======= =======
Joint venture projects(/1/)............................ $49,413 $ 7,638 $12,064
======= ======= =======
- --------
(/1/) The amounts shown are 100% of the gross sales price; we are entitled to
receive from 30% to 67% of the net profits from these joint ventures.
Equity in earnings of development joint ventures, net, increased $17.6
million and $4.8 million in 2000 and 1999, respectively. Of the $17.6 million
increase in 2000, $10.1 million was attributable to BHC, LLC, as mentioned
above. The remaining increase is attributable to increased sales activities at
two of our investments, Serrano in El Dorado Hills, California and Talega in
San Clemente, California; our joint ventures sold 1,741 lots in 2000 as
compared to 797 lots and 29 homes in 1999. The $4.8 million increase in 1999
was primarily because of the increased margins at Serrano. The joint ventures
closed 797 lots and 29 homes in 1999 as compared to 810 lots and 87 homes in
1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $8.6 million in 2000
and $4.4 million in 1999. The increase in 2000 is primarily attributable to
the severance expenses related to the sale of the home-building assets to BHC,
LLC during 2000. The 1999 increase was primarily attributable to an increase
in staff as a result of significant growth of the business, as demonstrated by
revenue from property sales which increased by $57 million in 1999. We expect
selling, general and administrative expenses to decrease as a result of the
sale of home-building assets as compared to 2000.
Other
"Other" (expense) increased $4.3 million and $8.8 million in 2000 and 1999,
respectively, because of the $11 million and $6.7 million reserves provided in
2000 and 1999, respectively, for estimated losses related to cost overruns on
a fixed price contract for a development project. The factors listed in the
Forward-Looking Information and Risk Factors section, including particularly
costs of materials and labor, construction conditions, performance or
nonperformance of obligations by third parties, labor strikes, construction
delays, and ability of third parties to perform their obligations, could
affect the estimate.
Interest
Following is a summary of interest incurred:
Year Ended December 31,
-------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
------- -------- ------- ---------- ----------
(In thousands)
Total interest incurred.. $ 6,529 $ 13,160 $ 9,678 $(6,631) $ 3,482
Interest capitalized..... (5,983) (13,126) (9,757) 7,143 (3,369)
------- -------- ------- ------- -------
Interest expensed........ $ 546 $ 34 $ (79) $ 512 $ 113
======= ======== ======= ======= =======
Previously capitalized
interest included in
cost of sales........... $ 5,646 $ 6,650 $ 3,203 $(1,004) $ 3,447
======= ======== ======= ======= =======
31
Interest incurred and capitalized decreased in 2000 primarily because of the
sale of the home-building assets, as part of the sale proceeds was used to pay
off certain existing debt (see Note 14). In 1999, the increase in interest
incurred was offset by an increase in capitalized interest related to higher
development activity. During 1999, the Residential segment started
construction on 473 residential units, as compared to 334 units in 1998 from
our owned and consolidated joint venture projects.
Minority Interests
Minority interests increased $4.4 million in 2000. The increase is primarily
because of the sale of an 80-lot site in San Francisco by a consolidated joint
venture (see discussion on Sales Revenue above).
Urban Development:
The Urban Development segment entitles and develops urban mixed-use sites in
San Francisco, Los Angeles, and San Diego. The principal active project of the
segment is Mission Bay in San Francisco.
Year Ended December 31,
------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
------- ------- ------- ---------- ----------
(In thousands)
Rental properties
Rental revenue........... $14,613 $12,113 $11,862 $ 2,500 $ 251
Property operating
costs................... (7,362) (6,371) (6,224) (991) (147)
------- ------- ------- ------- ------