Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - Cole Credit Property Trust Inc | c92522exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - Cole Credit Property Trust Inc | c92522exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - Cole Credit Property Trust Inc | c92522exv32w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-51962
COLE CREDIT PROPERTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland | 20-0939158 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
2555 East Camelback Road, Suite 400 | ||
Phoenix, Arizona, 85016 | (602) 778-8700 | |
(Address of principal executive offices; zip code) | (Registrants telephone number, including area code) |
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of November 12, 2009, there were 10,090,951 shares of common stock, par value $0.01, of Cole
Credit Property Trust, Inc. outstanding.
COLE CREDIT PROPERTY TRUST, INC.
INDEX
INDEX
Item 1. Financial Statements |
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22 | ||||||||
22 | ||||||||
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23 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 |
2
Table of Contents
PART I
FINANCIAL INFORMATION
FINANCIAL INFORMATION
The accompanying condensed consolidated unaudited interim financial statements as of and for
the three and nine months ended September 30, 2009 have been prepared by Cole Credit Property
Trust, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted in the United States
of America for complete financial statements and should be read in conjunction with the audited
financial statements and related notes thereto included in the Companys annual report on Form 10-K
for the year ended December 31, 2008. The financial statements herein should also be read in
conjunction with the notes to the financial statements and Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q. The
results of operations for the three and nine months ended September 30, 2009 are not necessarily
indicative of the operating results expected for the full year. The information furnished in our
accompanying condensed consolidated unaudited balance sheets and condensed consolidated unaudited
statements of operations, stockholders equity, and cash flows reflects all adjustments that are,
in our opinion, necessary for a fair presentation of the aforementioned financial statements. Such
adjustments are of a normal recurring nature.
Forward-looking statements that were true at the time made may ultimately prove to be
incorrect or false. We caution investors not to place undue reliance on forward-looking
statements, which reflect our managements view only as of the date of this Quarterly Report on
Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes to future operating results.
3
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COLE CREDIT PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
(Dollar amounts in thousands, except share and per share amounts)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Investment in real estate assets: |
||||||||
Land |
$ | 55,317 | $ | 55,321 | ||||
Buildings and improvements, less accumulated
depreciation of $16,352 and $13,588,
respectively |
107,199 | 109,963 | ||||||
Acquired intangible lease assets, less
accumulated amortization of $8,689 and $7,246,
respectively |
19,649 | 21,092 | ||||||
Total investment in real estate assets, net |
182,165 | 186,376 | ||||||
Cash and cash equivalents |
1,194 | 923 | ||||||
Rents and tenant receivables, less allowance
for doubtful accounts of $178 and $167,
respectively |
2,556 | 2,084 | ||||||
Prepaid expenses and other assets |
108 | 104 | ||||||
Deferred financing costs, less accumulated
amortization of $1,713 and $1,415,
respectively |
857 | 1,155 | ||||||
Total assets |
$ | 186,880 | $ | 190,642 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Mortgage notes payable and line of credit |
$ | 118,727 | $ | 117,977 | ||||
Accounts payable and accrued expenses |
682 | 757 | ||||||
Due to affiliates |
40 | 167 | ||||||
Acquired below market lease intangibles, less
accumulated amortization of $967 and $814,
respectively |
1,272 | 1,425 | ||||||
Distributions payable |
589 | 589 | ||||||
Deferred rent and other liabilities |
192 | 590 | ||||||
Total liabilities |
121,502 | 121,505 | ||||||
STOCKHOLDERS EQUITY: |
||||||||
Preferred stock, $0.01 par value; 10,000,000
shares authorized, none issued and outstanding |
| | ||||||
Common stock, $0.01 par value; 90,000,000
shares authorized, 10,090,951 shares issued
and outstanding |
101 | 101 | ||||||
Capital in excess of par value |
90,424 | 90,424 | ||||||
Accumulated distributions in excess of earnings |
(25,147 | ) | (21,388 | ) | ||||
Total stockholders equity |
65,378 | 69,137 | ||||||
Total liabilities and stockholders equity |
$ | 186,880 | $ | 190,642 | ||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
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COLE CREDIT PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except share and per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues: |
||||||||||||||||
Rental income |
$ | 3,944 | $ | 3,984 | $ | 12,001 | $ | 11,954 | ||||||||
Tenant reimbursement income |
99 | 84 | 305 | 251 | ||||||||||||
Total revenue |
4,043 | 4,068 | 12,306 | 12,205 | ||||||||||||
Expenses: |
||||||||||||||||
General and administrative |
94 | 183 | 454 | 484 | ||||||||||||
Property operating expenses |
138 | 274 | 398 | 515 | ||||||||||||
Property and asset management expenses |
118 | 238 | 354 | 724 | ||||||||||||
Depreciation |
922 | 921 | 2,764 | 2,763 | ||||||||||||
Amortization |
450 | 450 | 1,351 | 1,351 | ||||||||||||
Total operating expenses |
1,722 | 2,066 | 5,321 | 5,837 | ||||||||||||
Operating income |
2,321 | 2,002 | 6,985 | 6,368 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest and other income |
1 | 4 | 13 | 19 | ||||||||||||
Interest expense |
(1,839 | ) | (1,837 | ) | (5,459 | ) | (5,470 | ) | ||||||||
Total other expense |
(1,838 | ) | (1,833 | ) | (5,446 | ) | (5,451 | ) | ||||||||
Net income |
$ | 483 | $ | 169 | $ | 1,539 | $ | 917 | ||||||||
Weighted average number of common
shares outstanding: |
||||||||||||||||
Basic and diluted |
10,090,951 | 10,090,951 | 10,090,951 | 10,090,951 | ||||||||||||
Net income per common share: |
||||||||||||||||
Basic and diluted |
$ | 0.05 | $ | 0.02 | $ | 0.15 | $ | 0.09 | ||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5
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COLE CREDIT PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS EQUITY
(Dollar amounts in thousands, except share amounts)
(Dollar amounts in thousands, except share amounts)
Common Stock | Accumulated | Total | ||||||||||||||||||
Number of | Capital in Excess in | Distributions in | Stockholders | |||||||||||||||||
Shares | Par Value | Par Value | Excess of Earnings | Equity | ||||||||||||||||
Balance, December 31, 2008 |
10,090,951 | $ | 101 | $ | 90,424 | $ | (21,388 | ) | $ | 69,137 | ||||||||||
Distributions |
| | | (5,298 | ) | (5,298 | ) | |||||||||||||
Net income |
| | | 1,539 | 1,539 | |||||||||||||||
Balance, September 30, 2009 |
10,090,951 | $ | 101 | $ | 90,424 | $ | (25,147 | ) | $ | 65,378 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6
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COLE CREDIT PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
Nine Months Ended September 30, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 1,539 | $ | 917 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation |
2,764 | 2,763 | ||||||
Amortization |
1,588 | 1,586 | ||||||
Gain on sale of easement |
(9 | ) | | |||||
Changes in assets and liabilities: |
||||||||
Rents and tenant receivables, net of allowance |
(472 | ) | (311 | ) | ||||
Prepaid expenses and other assets |
(4 | ) | (46 | ) | ||||
Accounts payable and accrued expenses |
(75 | ) | 17 | |||||
Due to affiliates |
(127 | ) | | |||||
Deferred rent and other liabilities |
(398 | ) | 113 | |||||
Net cash provided by operating activities |
4,806 | 5,039 | ||||||
Cash flows from investing activities: |
||||||||
Investments in real estate and related assets |
| (20 | ) | |||||
Proceeds from sale of easement |
13 | | ||||||
Net cash provided by (used in) investing activities |
13 | (20 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from line of credit |
750 | | ||||||
Distributions to investors |
(5,298 | ) | (5,297 | ) | ||||
Deferred financing costs paid |
| (48 | ) | |||||
Net cash used in financing activities |
(4,548 | ) | (5,345 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
271 | (326 | ) | |||||
Cash and cash equivalents, beginning of period |
923 | 913 | ||||||
Cash and cash equivalents, end of period |
$ | 1,194 | $ | 587 | ||||
Supplemental Disclosures of Non-Cash Investing and
Financing Activities: |
||||||||
Dividends declared and unpaid |
$ | 589 | $ | 589 | ||||
Supplemental Cash Flow Disclosures: |
||||||||
Interest paid |
$ | 5,178 | $ | 5,193 | ||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
7
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COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1 ORGANIZATION AND BUSINESS
Cole Credit Property Trust, Inc. (the Company) is a Maryland corporation that was formed on
March 29, 2004 that is organized and operates as a real estate investment trust (REIT) for
federal income tax purposes. Substantially all of the Companys business is conducted through Cole
Operating Partnership I, LP (Cole OP I), a Delaware limited partnership. The Company is the sole
general partner of and owns an approximately 99.99% partnership interest in Cole OP I. Cole REIT
Advisors, LLC (Cole Advisors), the affiliate advisor to the Company, is the sole limited partner
and owner of an insignificant noncontrolling partnership interest of less than 0.01% of Cole OP I.
At September 30, 2009, the Company owned 42 properties comprising approximately 1.0 million
square feet of single-tenant, retail space located in 19 states. At September 30, 2009, these
properties were 100% leased.
The Companys stock is not currently listed on a national securities exchange. The Company
may seek to list its common stock for trading on a national securities exchange only if the board
of directors believes listing would be in the best interest of its stockholders. The Company does
not intend to list its shares at this time. The Company does not anticipate that there would be
any market for its common stock until its shares are listed on a national securities exchange. In
the event it does not obtain listing prior to February 1, 2016, its charter requires that it
either: (1) seek stockholder approval of an extension or amendment of this listing deadline; or (2)
seek stockholder approval to adopt a plan of liquidation of the corporation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The condensed consolidated unaudited financial statements of the Company have been prepared in
accordance with the rules and regulations of the Securities and Exchange Commission, including the
instructions to Form 10-Q and Article 8 of Regulation S-X, and do not include all of the
information and footnotes required by accounting principles generally accepted in the United States
of America (GAAP) for complete financial statements. In the opinion of management, the
statements for the interim periods presented include all adjustments, which are of a normal and
recurring nature, necessary to present a fair presentation of the results for such periods.
Results for these interim periods are not necessarily indicative of full year results. The
information included in this Quarterly Report on Form 10-Q should be read in conjunction with the
Companys audited consolidated financial statements as of and for the year ended December 31, 2008,
and related notes thereto set forth in the Companys Annual Report on Form 10-K.
The accompanying condensed consolidated unaudited financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have
been eliminated in consolidation.
Redemptions of Common Stock
The Company will determine at the beginning of each fiscal year the maximum amount of shares
that it may redeem during that year. The Company may use up to 1.0% of its annual cash flow to
meet these redemption needs, including cash proceeds generated from new offerings, operating cash
flow not intended for dividends, borrowings, and capital transactions such as asset sales or
refinancings. On December 15, 2008, the Companys board determined that no amounts were to be made
available for redemption during the year ending December 31, 2009. The shares the Company redeems
under its share redemption program will be cancelled and return to the status of authorized but
unissued shares. The Company does not intend to resell such shares to the public unless they are
first registered with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and under appropriate state securities laws or otherwise sold in compliance with such
laws. As of September 30, 2009, the Company had redeemed a total of 7,300 shares, at an average of
$9.35 per share, under the share redemption program. During the three and nine months ended
September 30, 2009 and 2008, the Company did not redeem any shares under the share redemption
program.
8
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COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
Reportable Segments
The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
280, Segment Reporting (ASC 280), establishes standards for reporting financial and descriptive
information about an enterprises reportable segments. The Company has one reportable segment,
commercial properties, which consists of activities related to investing in real estate. The
commercial properties are geographically diversified throughout the United States, and the
Companys chief operating decision maker evaluates operating performance on an overall portfolio
level. These commercial properties have similar economic characteristics, therefore the Companys
properties have been aggregated into one reportable segment.
Investment In and Valuation of Real Estate Assets
The Company continually monitors events and changes in circumstances that could indicate that
the carrying amounts of its real estate and related intangible assets may not be recoverable. When
indicators of potential impairment are present, the Company assesses the recoverability of the
assets by determining whether the carrying value of the assets will be recovered through the
undiscounted future operating cash flows expected from the use of the assets and their eventual
disposition. In the event that such expected undiscounted future cash flows do not exceed the
carrying value, the Company will adjust the real estate and related intangible assets to their fair
value and recognize an impairment loss. The Company continues to monitor several properties for
which tenants have experienced financial difficulties. The undiscounted future operating cash
flows expected from the use of these properties and their related intangible assets and their
eventual disposition continue to exceed the carrying value of the assets as of September 30, 2009.
Should the conditions of any of these properties change, the undiscounted future operating cash
flows expected may change and adversely affect the recoverability of the carrying values related to
these properties. No impairment losses were recorded for the three and nine months ended September
30, 2009 and 2008.
NOTE 3 FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurements and Disclosures (ASC 820), defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Depending on the nature of the asset or
liability, various techniques and assumptions can be used to estimate the fair value. Financial
assets and liabilities are measured using inputs from three levels of the fair value hierarchy as
follows:
Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date. An active market
is defined as a market in which transactions for the assets or liabilities occur with sufficient
frequency and volume to provide pricing information on an ongoing basis.
Level 2 Inputs include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active
(markets with few transactions), inputs other than quoted prices that are observable for the asset
or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally
from or corroborated by observable market data correlation or other means (market corroborated
inputs).
Level 3 Unobservable inputs, only used to the extent that observable inputs are not
available, reflect the Companys assumptions about the pricing of an asset or liability.
The following describes the methods the Company uses to estimate the fair value of the
Companys financial assets and liabilities:
Cash and cash equivalents, rents and tenant receivables and accounts payable and accrued
expenses The Company considers the carrying values of these financial instruments to approximate
fair value because of the short period of time between origination of the instruments and their
expected realization. The Companys investments in highly liquid money market funds are valued
using level 1 inputs.
9
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COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
Mortgage notes payable and line of credit The fair value is estimated using a discounted
cash flow technique based on estimated borrowing rates available to the Company as of September 30,
2009. The estimated fair value of the mortgage notes payable and line of credit at September 30,
2009 was approximately $114.0 million, as compared to the carrying value of approximately $118.7
million. The estimated fair value of the mortgage notes payable at December 31, 2008 was
approximately $114.7 million, as compared to the carrying value of approximately $118.0 million.
Considerable judgment is necessary to develop estimated fair values of certain financial
instruments. Accordingly, the estimates presented herein are not necessarily indicative of the
amounts the Company could realize on disposition of the financial instruments.
NOTE 4 MORTGAGE NOTES PAYABLE AND LINE OF CREDIT
As of September 30, 2009, the Company had 38 mortgage notes payable totaling approximately
$118.0 million, with fixed interest rates ranging from 4.62% to 6.68% and a weighted average
interest rate of approximately 5.76%. The mortgage notes payable mature on various dates from
November 2009 through September 2017, with a weighted average remaining term of approximately 3.6
years. Each of the mortgage notes are secured by the respective property. The mortgage notes are
generally non-recourse to the Company and Cole OP I, but both are liable for customary non-recourse
carve-outs. The mortgage notes are collateralized by substantially all of the Companys real
estate assets.
As of September 30, 2009, the Company had $750,000 outstanding under a $1.5 million revolving
line of credit. The revolving line of credit bears interest at a variable rate equal to the
one-month LIBOR plus 175 basis points and matures in March 2011. The revolving line of credit is
secured by one property.
NOTE 5 COMMITMENTS AND CONTINGENCIES
Litigation
In the ordinary course of business, the Company may become subject to litigation or claims.
There are no material legal proceedings pending, or known to be contemplated, against the Company.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may be potentially
liable for costs and damages related to environmental matters. The Company has not been notified
by any governmental authority of any non-compliance, liability or other claim, and the Company is
not aware of any other environmental condition that it believes will have a material adverse effect
on its consolidated financial statements.
NOTE 6 RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
Certain affiliates of the Company received fees and compensation in connection with the
Companys private placement of shares of its common stock, and receive fees and compensation in
connection with the acquisition, management and sale of the assets of the Company.
If Cole Advisors provides substantial services, as determined by the Company, in connection
with the origination or refinancing of any debt financing obtained by the Company that is used to
acquire properties or to make other permitted investments, or that is assumed, directly or
indirectly, in connection with the acquisition of properties, the Company will pay Cole Advisors a
financing coordination fee equal to 1% of the amount available under such financing; provided,
however, that Cole Advisors shall not be entitled to a financing coordination fee in connection
with the refinancing of any loan secured by any particular property that was previously subject to
a refinancing in which Cole Advisors received such a fee. Financing coordination fees payable from
loan proceeds from permanent financing will be paid to Cole Advisors as the Company acquires such
permanent financing. However, no fees are paid on loan proceeds from any line of credit until such
time as all net offering proceeds have been invested by the Company. During the three and nine
months ended September 30, 2009, the Company paid no amounts to Cole Advisors for finance
coordination fees. During the three and nine months ended September 30, 2008, the Company paid
Cole Advisors $0 and approximately $15,000 for finance coordination fees, respectively.
10
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COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
The Company pays, and expects to continue to pay, Cole Realty Advisors, Inc. (Cole Realty),
its affiliated property manager, fees for the management and leasing of the Companys properties.
Property management fees are equal to 3% of gross revenues, and leasing fees are at prevailing
market rates, not to exceed the greater of $4.50 per square foot or 7.5% of the total lease
obligation. During the three and nine months ended September 30, 2009, the Company paid Cole
Realty approximately $116,000 and $356,000 for property management fees, respectively. During the
three and nine months ended September 30, 2008, the Company paid Cole Realty approximately $114,000
and $351,000 for property management fees, respectively. Cole Realty, or its affiliates, also
receives acquisition and advisory fees of up to 3% of the contract purchase price of each property.
During each of the three and nine months ended September 30, 2009 and 2008, the Company did not
pay any acquisition fees to Cole Realty. As of September 30, 2009 and December 31, 2008, the
Company had approximately $40,000 and $42,000, respectively, due to Cole Realty Advisors for
property management fees incurred.
The Company is obligated to pay Cole Advisors an annualized asset management fee of up to
0.75% of the aggregate asset value of the Companys assets. Pursuant to a waiver of the fee by
Cole Advisors, no asset management fees were paid during the three and nine months ended September
30, 2009. The Company is not obligated to pay any amounts for such periods. However, Cole
Advisors may elect to increase its asset management fees in future periods up to the 0.75% fee.
During the three and nine months ended September 30, 2008, the Company paid Cole Advisors
approximately $124,000 and $373,000 for asset management fees, respectively. As of September 30,
2009 and December 31, 2008, the Company had approximately $0 and $125,000, respectively, due to
Cole Advisors for asset management fees incurred and not yet paid.
If Cole Advisors, or its affiliates, provides a substantial amount of services, as determined
by the Company, in connection with the sale of one or more properties, the Company will pay Cole
Advisors an amount equal to 3% of the contract price of each asset sold. In no event will the
combined disposition fee paid to Cole Advisors, its affiliates and unaffiliated third parties
exceed the reasonable, customary and competitive amount for such services. In addition, after
investors have received a return of their net capital contributions and a 7.5% annual cumulative,
non-compounded return, then Cole Advisors is entitled to receive 20% of the remaining net sale
proceeds. During each of the three and nine months ended September 30, 2009 and 2008, the Company
did not pay any fees or amounts to Cole Advisors relating to the sale of properties.
In the event the Companys common stock is listed in the future on a national securities
exchange, a subordinated incentive listing fee equal to 20% of the amount by which the market value
of the Companys outstanding stock plus all distributions paid by the Company prior to listing
exceeds the sum of the total amount of capital raised from investors and the amount of cash flow
necessary to generate an 7.5% annual cumulative, non-compounded return to investors will be paid to
Cole Advisors.
The Company may reimburse Cole Advisors for expenses it incurs in connection with its
provision of administrative services, including related personnel costs. The Company does not
reimburse for personnel costs in connection with services for which Cole Advisors receives
acquisition fees or disposition fees. During the three and nine months ended September 30, 2009
and 2008, the Company did not reimburse Cole Advisors for any such costs.
NOTE 7 ECONOMIC DEPENDENCY
Under various agreements, the Company has engaged or will engage Cole Advisors and its
affiliates to provide certain services that are essential to the Company, including asset
management services, supervision of the management and leasing of properties owned by the Company,
asset acquisition and disposition decisions, the sale of shares of the Companys common stock
available for issue, as well as other administrative responsibilities for the Company including
accounting services and investor relations. As a result of these relationships, the Company is
dependent upon Cole Advisors and its affiliates. In the event that these companies were unable to
provide the Company with the respective services, the Company would be required to find alternative
providers of these services.
11
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COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTE 8 NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued Statements of Financial Accounting Standards
(SFAS) No. 141 (revised 2007), Business Combinations, codified primarily in ASC 805, Business
Combinations (ASC 805). ASC 805 clarifies and amends the accounting guidance for how an acquirer
in a business combination recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. The provisions of ASC 805 became effective for the
Company for any business combinations occurring on or after January 1, 2009. If the Company
acquires real estate properties in the future the Company expects ASC 805 will have a material
impact on its condensed consolidated unaudited financial statements. The adoption of ASC 805
requires the Company to expense acquisition costs related to real estate transactions as incurred,
compared to the former practice of capitalizing such costs and amortizing them over the estimated
useful life of the assets acquired. There were no property acquisitions during the nine months
ended September 30, 2009, therefore the adoption of ASC 805 has not had a material impact on the
Companys condensed consolidated unaudited financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an Amendment of ARB 51, codified primarily in ASC 810, Consolidation (ASC
810). This statement amends ARB 51 and revises accounting and reporting requirements for
noncontrolling interest (formerly minority interest) in a subsidiary and for the deconsolidation of
a subsidiary. ASC 810 was effective for the Company on January 1, 2009. The provisions of this
standard are applied retrospectively upon adoption. The adoption of ASC 810 has not had a material
impact on the Companys condensed consolidated unaudited financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, codified primarily in ASC 855,
Subsequent Events (ASC 855), which provides guidance to establish general standards of accounting
for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855 also requires entities to disclose
the date through which subsequent events were evaluated as well as the rationale for why that date
was selected. ASC 855 was effective for the Company beginning on April 1, 2009. The additional
disclosures required by this pronouncement are included in Note 9.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards
Codification (the Codification) will become the source of authoritative GAAP. Rules and
interpretive releases of the Securities and Exchange Commission under authority of federal
securities laws are also sources of authoritative GAAP for Securities and Exchange Commission
registrants. The Codification became effective on July 1, 2009 and superseded all then-existing
non-Securities and Exchange Commission accounting and reporting standards. All other
non-grandfathered non-Securities and Exchange Commission accounting literature not included in the
Codification is nonauthoritative. The Company adopted the Codification beginning on July 1, 2009.
Because the Codification is not intended to change GAAP, it did not have a material impact on the
Companys condensed consolidated unaudited financial statements.
In August 2009, the FASB issued Accounting Standard Update 2009-05, Fair Value Measurements
and Disclosures (ASU 2009-05), which provides alternatives to measuring the fair value of
liabilities when a quoted price for an identical liability traded in an active market does not
exist. The alternatives include using either (1) a valuation technique that uses quoted prices for
identical or similar liabilities or (2) another valuation technique, such as a present value
technique or a technique that is based on the amount paid or received by the reporting entity to
transfer an identical liability. The amended guidance will be effective for the Company beginning
October 1, 2009. The Company does not expect the adoption of ASU 2009-05 to have a material impact
on its condensed consolidated unaudited financial statements.
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COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (Continued)
September 30, 2009
NOTE 9 SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date of filing this Quarterly Report on
Form 10-Q, November 12, 2009.
Mortgage Notes Payable
On November 11, 2009, the Company elected to extend the maturity date of four mortgage loans
totaling approximately $6.5 million to November 11, 2029 in
accordance with the hyper-amortization
provisions of the respective promissory notes. Under the hyper-amortization provisions, the
maturity dates will be extended by 20 years. During such period, the
lender will apply 100% of the rents collected to the following items in the order indicated:
(i) payment of accrued interest at the original fixed interest rate, (ii) all payments for escrow
or reserve accounts, (iii) any operating expenses of the property pursuant to an approved annual
budget, (iv) any extraordinary operating or capital expenses, and (v) the balance of the rents collected will be applied
to the following in such order as the lender may determine: (1) any other amounts due in accordance
with the loan documents, (2) the reduction of the principal
balance of the promissory notes, and
(3) interest accrued at the Revised Interest Rate
but not previously paid. As used herein, Revised Interest Rate means an interest rate equal to the greater of (A) the initial fixed interest
rate as stated in the respective promissory note agreement plus 2.0% per annum or (B) the then
current Treasury Constant Maturity Yield Index plus 2.0% per annum. The Company expects the
interest rates on the extended loans to range from 7.15% to 7.36%.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our condensed consolidated unaudited financial statements, the
notes thereto, and the other unaudited financial data included elsewhere in this Quarterly Report
on Form 10-Q. The following discussion should also be read in conjunction with our audited
consolidated financial statements, and the notes thereto, and Managements Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for
the year ended December 31, 2008. The terms we, us, our, and the Company refer to Cole
Credit Property Trust, Inc.
Forward-Looking Statements
Except for historical information, this section contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, including discussion
and analysis of our financial condition and our subsidiaries, our anticipated capital expenditures,
amounts of anticipated cash distributions to our stockholders in the future and other matters.
These forward-looking statements are not historical facts but are the intent, belief or current
expectations of our management based on their knowledge and understanding of our business and
industry. Words such as may, will, anticipates, expects, intends, plans, believes,
seeks, estimates, would, could, should or comparable words, variations and similar
expressions are intended to identify forward-looking statements. All statements not based on
historical fact are forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict and could cause actual results to differ materially from those
expressed or implied in the forward-looking statements.
Forward-looking statements that were true at the time made may ultimately prove to be
incorrect or false. Investors are cautioned not to place undue reliance on forward-looking
statements, which reflect our managements view only as of the date of this Quarterly Report on
Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes to future operating results.
Factors that could cause actual results to differ materially from any forward-looking statements
made in this Quarterly Report on Form 10-Q include, among others, changes in general economic
conditions, changes in real estate conditions, difficulties in refinancing existing debt,
construction costs that may exceed estimates, construction delays, increases in interest rates,
lease-up risks, inability to obtain new tenants upon the expiration or termination of existing
leases, and the potential need to fund tenant improvements or other capital expenditures out of
operating cash flows.
Managements discussion and analysis of financial condition and results of operations are
based upon our condensed consolidated unaudited financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP).
The preparation of these financial statements requires our management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these
estimates. These estimates are based on managements historical industry experience and on various
other assumptions that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates.
Overview
We were formed on March 29, 2004, to acquire and operate commercial real estate primarily
consisting of net leased, freestanding, single-tenant, income-generating retail properties located
throughout the United States. We have no paid employees and are externally managed by Cole
Advisors, an affiliate of ours. We currently qualify, and intend to continue to elect to qualify,
as a real estate investment trust for federal income tax purposes.
Our operating results and cash flows are primarily influenced by rental income from our
commercial properties and interest expense on our property acquisition indebtedness. Rental income
accounted for approximately 98% of total revenue during the three and nine months ended September
30, 2009. As all of our properties are under lease, with a weighted average remaining lease term
of approximately 11.5 years, we believe our exposure to short-term changes in commercial rental
rates on our portfolio is substantially mitigated.
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As of September 30, 2009, the debt leverage ratio of our portfolio, which is the ratio of
mortgage notes payable and borrowings outstanding under our line of credit to total gross real
estate assets net of gross intangible lease liabilities, was approximately 58%. Approximately 99%
of our debt is subject to fixed interest rates, ranging from 4.62% to 6.68%, with a weighted
average remaining term of approximately 3.6 years. As we have little outstanding variable rate
debt, our exposure to short-term changes in interest rates is limited. However, if we refinance our
existing debt as it matures, we will be subject to new interest rates on the refinanced debt.
Recent Market Conditions
Although there are signs of recovery, the current mortgage lending and interest rate
environment for real estate in general continues to be dislocated, and the overall economic
fundamentals remain uncertain. Domestic and international financial markets experienced
significant disruptions that were brought about in large part by challenges in the world-wide
banking system. These disruptions have severely impacted the availability of credit and have
contributed to rising costs associated with obtaining credit. We have experienced and may continue
to experience more stringent lending criteria, which may affect our ability to refinance our debt
at maturity. Additionally, if we are able to refinance our existing debt as it matures it may be
at rates and terms which are less favorable than our existing debt, which may adversely affect our
results of operations and the dividend rate we are able to pay to our investors. Additionally, if
we are required to sell any of our properties to meet our liquidity requirements it will result in
lower rental revenue and it may be at a price less than our acquisition price for the property,
each of which would adversely impact our results of operations and the dividend rate we are able to
pay to our investors.
The current economic environment has lead to higher unemployment and a decline in consumer
spending. These economic trends have adversely impacted the retail and real estate markets causing
higher tenant vacancies, declining rental rates, and declining property values. As of September
30, 2009, 100% of our rentable square feet were under lease. However, if the current economic
recession persists, we may experience vacancies or be required to reduce rents on occupied space.
If we do experience vacancies, our advisor will actively seek to lease our vacant space; however,
as retailers and other tenants have been delaying or eliminating their store expansion plans, the
amount of time required to re-tenant a property has been increasing.
Results of Operations
Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008
Revenue. Revenue remained relatively constant, decreasing approximately $25,000, or
approximately 1%, to approximately $4.0 million for the three months ended September 30, 2009,
compared to approximately $4.1 million for the three months ended September 30, 2008. The decrease
was primarily due to a reduction in rental rates on one property during the three months ended
September 30, 2009 as compared to the three months ended September 30, 2008. Our revenue primarily
consists of rental income from net leased commercial properties, which accounted for approximately
98% of total revenue during each of the three months ended September 30, 2009 and 2008.
General and Administrative Expenses. General and administrative expenses decreased
approximately $89,000, or approximately 49%, to approximately $94,000 for the three months ended
September 30, 2009, compared to approximately $183,000 for the three months ended September 30,
2008. The decrease was primarily due to decreased tax preparation and advisory fees, state income
taxes and transfer agent fees, partially offset by increased legal and audit fees. The primary
general and administrative expense items are legal and accounting fees, state franchise and income
taxes, transfer agent fees and other licenses and fees.
Property Operating Expenses. Property operating expenses decreased approximately $136,000, or
approximately 50%, to approximately $138,000 for the three months ended September 30, 2009,
compared to approximately $274,000 during the three months ended September 30, 2008. The decrease
was primarily due to a decrease in bad debt expense and property repairs and maintenance, partially
offset by an increase in annual property tax expense related to several properties. The primary
property operating expense items consist of property taxes, insurance, bad debt expense and
property repairs and maintenance.
Property and Asset Management Fees. Property and asset management fees decreased approximately
$120,000, or approximately 50%, to approximately $118,000 for the three months ended September 30,
2009, compared to approximately $238,000 during the three months ended September 30, 2008. The
decrease was due to our advisor waiving asset management fees for the three months ended September
30, 2009.
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Depreciation and Amortization Expenses. Depreciation and amortization expenses remained
constant at approximately $1.4 million during each of the three months ended September 30, 2009 and
2008.
Interest and Other Income. Interest and other income decreased approximately $3,000, or
approximately 75%, to approximately $1,000 for the three months ended September 30, 2009, compared
to approximately $4,000 during the three months ended September 30, 2008. The decrease was
primarily due to a reduction in average interest rates being earned on uninvested cash for the
three months ended September 30, 2009 as compared to the three months ended September 30, 2008.
Interest Expense. Interest expense remained constant at approximately $1.8 million during the
three months ended September 30, 2009 and 2008. Substantially all of our debt bears interest at
fixed rates.
Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
Revenue. Revenue remained relatively constant, increasing approximately $101,000, or
approximately 1%, to approximately $12.3 million for the nine months ended September 30, 2009,
compared to approximately $12.2 million for the nine months ended September 30, 2008. The increase
was primarily due to contractual rent increases, offset by a reduction in rental rates on one
property. Our revenue primarily consists of rental income from net leased commercial properties,
which accounted for approximately 98% of total revenue during each of the nine months ended
September 30, 2009 and 2008.
General and Administrative Expenses. General and administrative expenses decreased
approximately $30,000, or approximately 6%, to approximately $454,000 for the nine months ended
September 30, 2009, compared to approximately $484,000 for the nine months ended September 30,
2008. The decrease was primarily due to decreased transfer agent fees and state income taxes,
offset by increased audit fees and bank service charges. The primary general and administrative
expense items are legal and accounting fees, state franchise and income taxes, transfer agent fees
and other licenses and fees.
Property Operating Expenses. Property operating expenses decreased approximately $117,000, or
approximately 23%, to approximately $398,000 for the nine months ended September 30, 2009, compared
to approximately $515,000 during the nine months ended September 30, 2008. The decrease was
primarily due to a decrease in bad debt expense and property repairs and maintenance, offset by an
increase in annual property tax expense related to several properties. The primary property
operating expense items are property taxes, insurance, property repairs and maintenance and bad
debt expense.
Property and Asset Management Fees. Property and asset management fees decreased approximately
$370,000, or approximately 51%, to approximately $354,000 for the nine months ended September 30,
2009, compared to approximately $724,000 during the nine months ended September 30, 2008. The
decrease was due to our advisor waiving asset management fees for the nine months ended September
30, 2009.
Depreciation and Amortization Expenses. Depreciation and amortization expenses remained
constant at approximately $4.1 million during each of the nine months ended September 30, 2009 and
2008.
Interest and Other Income. Interest and other income decreased approximately $6,000, or
approximately 32%, to approximately $13,000 for the nine months ended September 30, 2009, compared
to approximately $19,000 during the nine months ended September 30, 2008. The decrease was
primarily due to a reduction in average interest rates being earned on uninvested cash, partially
offset by the gain on sale as a result of an easement condemnation during the nine months ended
September 30, 2009.
Interest Expense. Interest expense remained constant at approximately $5.5 million during each
of the nine months ended September 30, 2009 and 2008. Substantially all of our debt bears interest
at fixed rates.
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Funds From Operations
We believe that funds from operations (FFO) is a useful indicator of the performance of a
REIT. Because FFO calculations exclude such factors as depreciation and amortization of real
estate assets and gains or losses from sales of operating real estate assets (which can vary among
owners of identical assets in similar conditions based on historical cost accounting and
useful-life estimates), they facilitate comparisons of operating performance between periods and
between other REITs. Our management believes that accounting for real estate assets in accordance
with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time.
Since real estate values have historically risen or fallen with market conditions, many industry
investors and analysts have considered the presentation of operating results for real estate
companies that use historical cost accounting to be insufficient by themselves. As a result, we
believe that the use of FFO, together with the required GAAP presentations, provides a more
complete understanding of our performance relative to our competitors and a more informed and
appropriate basis on which to make decisions involving operating, financing, and investing
activities. Other REITs may not define FFO in accordance with the current National Association of
Real Estate Investment Trusts (NAREIT) definition or may interpret the current NAREIT definition
differently than we do.
FFO is a non-GAAP financial measure and does not represent net income as defined by GAAP. Net
income as defined by GAAP is the most relevant measure in determining our operating performance
because FFO includes adjustments that investors may deem subjective, such as adding back expenses
such as depreciation and amortization. Accordingly, FFO should not be considered as an alternative
to net income as an indicator of our operating performance.
Our calculation of FFO is presented in the following table for the periods ended as indicated
(dollar amounts in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net income |
$ | 483 | $ | 169 | $ | 1,539 | $ | 917 | ||||||||
Add: |
||||||||||||||||
Depreciation of real estate assets |
922 | 921 | 2,764 | 2,763 | ||||||||||||
Amortization of lease related costs |
450 | 450 | 1,351 | 1,351 | ||||||||||||
Less: |
||||||||||||||||
Gain on sale of easement |
| | (9 | ) | | |||||||||||
FFO |
$ | 1,855 | $ | 1,540 | $ | 5,645 | $ | 5,031 | ||||||||
Set forth below is additional information (often considered in conjunction with FFO) that may
be helpful in assessing our operating results:
| In order to recognize revenues on a straight-line basis over the terms of the respective leases, we recognized additional revenue by straight-lining rental revenue of approximately $72,000 and $226,000 during the three and nine months ended September 30, 2009, respectively, and approximately $171,000 and $521,000 during the three and nine months ended September 30, 2008, respectively. | ||
| Amortization of deferred financing costs totaled approximately $98,000 and $298,000 during the three and nine months ended September 30, 2009, respectively, and approximately $100,000 and $296,000 during the three and nine months ended September 30, 2008, respectively. |
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Liquidity and Capital Resources
Short-term Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements through net cash provided by property
operations. We have a total of approximately $44.0 million of fixed rate debt maturing within the
next 12 months, of which approximately $9.0 million is maturing during the year ending December 31,
2009. Subsequent to September 30, 2009, we extended the maturity dates of four mortgage loans
totaling approximately $6.5 million to November 11, 2029, as further described in Note 9 to our
condensed consolidated unaudited financial statements. In accordance
with the hyper-amortization
provisions, these loans will require us to apply 100% of the rents received from the properties
securing the debt to pay interest due on the loans, reserves, if any, and principal reductions
until such balance is paid in full through the extended maturity dates, all of which will adversely
affect our results of operations and the dividend rate that we are able to pay to our investors.
We continue to evaluate the possible financing or refinancing of the $6.5 million of fixed rate
debt for which the maturity dates were extended. In addition, we are currently evaluating the
possible financing or refinancing of the remaining $2.5 million of fixed rate debt maturing during
the year ending December 31, 2009 and the remaining $37.5 million maturing within the next 12
months. If we are unable to finance or refinance the amounts maturing we expect to pay down any
remaining amounts through a combination of the use of net cash provided by property operations,
available borrowings under our $1.5 million revolving line of credit, the potential sale of certain
properties, from short term borrowings from an affiliate of our advisor or, as each of the loans
maturing contain hyper amortization provisions, we may elect to extend the maturity dates of the
mortgage notes in accordance with the hyper amortization provisions. If we are able to refinance
our existing debt as it matures it may be at rates and terms that are less favorable than our
existing debt or, if we elect to extend the maturity dates of the mortgage notes in accordance with
the hyper-amortization provisions, the interest rates charged to us will be higher, each of which
may adversely affect our results of operations and the dividend rate we are able to pay to our
investors. As of September 30, 2009 we had approximately $750,000 of available borrowings under our
revolving line of credit.
Long-term Liquidity and Capital Resources
We expect to meet our long-term liquidity requirements through proceeds from available
borrowings under our revolving line of credit, secured or unsecured financings or refinancings from
banks and other lenders, the selective and strategic sale of certain properties and net cash flows
from operations. We expect that our primary uses of capital will be for the payment of operating
expenses, for interest expense on and repayment of any outstanding indebtedness, for the payment of
tenant improvements and repairs and maintenance, for the possible reinvestment of proceeds from the
strategic sale of properties in replacement properties and for the payment of distributions or
redemptions to our stockholders.
We expect that substantially all net cash generated from operations will be used to pay
distributions to our stockholders after certain capital expenditures, including tenant improvements
and leasing commissions, are paid at the properties; however, we may use other sources to fund
distributions as necessary. To the extent that cash flows from operations are lower than our
current expectations due to lower returns on the properties, or we elect to retain cash flows from
operations to reduce current debt maturities, distributions paid to our stockholders may be lower.
During the nine months ended September 30, 2009, we paid distributions of approximately $5.3
million, which were funded by cash flows from operations of approximately $4.8 million, excess cash
flows from operations from previous periods of approximately $332,000 and proceeds from our line of
credit of approximately $160,000. During the nine months ended September 30, 2008, we paid
distributions of approximately $5.3 million, which were funded by cash flows from operations of
approximately $5.0 million, excess cash flows from operations from previous periods of
approximately $229,000 and net proceeds from notes payable of approximately $29,000.
We expect that substantially all net cash resulting from any debt refinancing will be used to
fund repayments of outstanding debt, certain capital expenditures, possible replacement properties,
or distributions to our stockholders. We did not have any material commitments for capital
expenditures as of September 30, 2009.
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As of September 30, 2009, we had cash and cash equivalents of approximately $1.2 million,
which we expect to be used primarily to pay operating expenses and stockholder distributions.
As of September 30, 2009, we had approximately $118.7 million of debt outstanding, consisting
of approximately $118.0 million of fixed rate debt, and $750,000 outstanding under our revolving
line of credit. The fixed rate debt has interest rates ranging from 4.62% to 6.68%, with a
weighted average interest rate of approximately 5.76%, which matures on various dates from November
2009 to September 2017. See Note 4 to our condensed consolidated unaudited financial statements
herein for terms of our revolving line of credit. Additionally, our debt leverage ratio, which is
the ratio of mortgage notes payable and line of credit to total gross real estate assets net of
gross intangible lease liabilities, was approximately 58%, with a weighted average remaining term
to maturity of approximately 3.6 years.
Our contractual obligations as of September 30, 2009, are as follows (dollar amounts in
thousands):
Payments due by period* | ||||||||||||||||||||
Less Than 1 | More Than 5 | |||||||||||||||||||
Total | Year | 1-3 Years | 4-5 Years | Years | ||||||||||||||||
Principal payments fixed rate debt |
$ | 117,977 | $ | 43,989 | $ | 14,455 | $ | 26,476 | $ | 33,057 | ||||||||||
Interest payments fixed rate debt |
25,894 | 5,817 | 11,213 | 7,037 | 1,827 | |||||||||||||||
Principal payments line of credit |
750 | | 750 | | | |||||||||||||||
Interest payments line of credit (1) |
23 | 15 | 8 | | | |||||||||||||||
Total |
$ | 144,644 | $ | 49,821 | $ | 26,426 | $ | 33,513 | $ | 34,884 | ||||||||||
* | The table above does not include amounts due to our advisor or its affiliates pursuant to our advisory agreement because such amounts are not fixed and determinable. | |
(1) | Based on interest rate in effect at September 30, 2009. |
Cash Flow Analysis
Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
Operating Activities. Net cash provided by operating activities decreased approximately
$233,000, or approximately 5%, to approximately $4.8 million for the nine months ended September
30, 2009, compared to approximately $5.0 million for the nine months ended September 30, 2008. The
decrease was primarily due to increased rents and tenant receivables and a decrease in the change
in deferred rents and other liabilities and due to affiliates, offset primarily by an increase in
net income.
Investing Activities. Net cash provided by investing activities was approximately $13,000 for
the nine months ended September 30, 2009, compared to net cash used in investing activities of
approximately $20,000 for the nine months ended September 30, 2008. The change was due to proceeds
from the sale of an easement during the nine months ended September 30, 2009, as well as capital
expenditures incurred during the nine months ended September 30, 2008.
Financing Activities. Net cash used in financing activities decreased approximately $797,000,
or approximately 15%, to approximately $4.5 million for the nine months ended September 30, 2009,
compared to approximately $5.3 million for the nine months ended September 30, 2008. The decrease
was primarily due to a $750,000 borrowing on our revolving line of credit during the nine months
ended September 30, 2009.
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Election as a REIT
We are taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a
REIT, we must meet certain organizational and operational requirements, including a requirement to
distribute at least 90% of our ordinary taxable income to stockholders. As a REIT, we generally
will not be subject to federal income tax on taxable income that we distribute to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income
taxes on our taxable income for four years following the year during which qualification is lost,
unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an
event could materially adversely affect our net income and net cash available for distribution to
stockholders. However, we believe that we are organized and operate in such a manner as to qualify
for treatment as a REIT for federal income tax purposes. No provision for federal income taxes has
been made in our accompanying condensed consolidated unaudited financial statements. We are
subject to certain state and local taxes related to the operations of properties in certain
locations, which have been provided for in our accompanying financial statements.
Inflation
We are exposed to inflation risk as income from long-term leases is the primary source of our
cash flows from operations. There are provisions in certain of our tenant leases that would
protect us from the impact of inflation, such as step rental increases and percentage rent
provisions. In addition, most of our leases require the tenant to pay all or a majority of the
operating expenses, including real estate taxes, special assessments and sales and use taxes,
utilities, insurance and building repairs related to the property. However, due to the long-term
nature of the leases, the leases may not reset frequently enough to adequately offset the effects
of inflation.
Critical Accounting Policies and Estimates
Our accounting policies have been established to conform to GAAP. The preparation of
financial statements in conformity with GAAP requires us to use judgment in the application of
accounting policies, including making estimates and assumptions. These judgments affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenue and expenses during the
reporting periods. If our judgment or interpretation of the facts and circumstances relating to
the various transactions had been different, it is possible that different accounting policies
would have been applied, thus, resulting in a different presentation of the financial statements.
Additionally, other companies may utilize different estimates that may impact comparability of our
results of operations to those of companies in similar businesses. We consider our critical
accounting policies to be the following:
| Investment in and Valuation of Real Estate Assets; | ||
| Allocation of Purchase Price of Acquired Assets; | ||
| Revenue Recognition; and | ||
| Income Taxes. |
A complete description of such policies and our considerations is contained in our Annual
Report on Form 10-K for the year ended December 31, 2008. The information included in this
Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial
statements as of and for the year ended December 31, 2008, and related notes thereto.
Commitments and Contingencies
We are subject to certain contingencies and commitments with regard to certain transactions.
Refer to Note 5 to our condensed consolidated unaudited financial statements accompanying this
Quarterly Report on Form 10-Q for further explanations.
Related-Party Transactions and Agreements
We have entered into agreements with Cole Advisors and its affiliates, whereby we pay certain
fees to, or reimburse certain expenses of, Cole Advisors or its affiliates for acquisition and
advisory fees and expenses, organization and offering costs, sales commissions, dealer manager
fees, asset and property management fees and reimbursement of operating costs. See Note 6 to our
condensed consolidated unaudited financial statements included in this Quarterly Report on Form
10-Q for a discussion of the various related-party transactions, agreements and fees.
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Subsequent Events
Certain events occurred subsequent to September 30, 2009 through the date of this Quarterly
Report on Form 10-Q. Refer to Note 9 to our condensed consolidated unaudited financial statements
included in this Quarterly Report on Form 10-Q for further explanation. Such events include:
| Extension of the maturity date of certain mortgage notes payable. |
New Accounting Pronouncements
Refer to Note 8 to our condensed consolidated unaudited financial statements included in this
Quarterly Report on Form 10-Q for further explanation of applicable new accounting pronouncements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not required for smaller reporting companies.
Item 4T. | Controls and Procedures |
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), our management, under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form
10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures, as of September 30, 2009, were effective for the
purpose of ensuring that information required to be disclosed by us in this Quarterly Report on
Form 10-Q is recorded, processed, summarized and reported within the time periods specified by the
rules and forms promulgated under the Exchange Act, and is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosures.
No change occurred in our internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended September 30, 2009 that
has materially affected, or is reasonably likely to materially affect, our internal controls over
financial reporting.
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PART II
OTHER INFORMATION
OTHER INFORMATION
Item 1. | Legal Proceedings |
We are not a party to, and none of our properties are subject to any material pending legal
proceedings.
Item 1A. | Risk Factors |
Not required for smaller reporting companies.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
We did not sell any unregistered securities during the three months ended September 30, 2009. No
shares were redeemed during the three months ended September 30, 2009.
Item 3. | Defaults Upon Senior Securities |
No events occurred during the three months ended September 30, 2009 that would require a
response to this item.
Item 4. | Submission of Matters to a Vote of Security Holders |
No events occurred during the three months ended September 30, 2009 that would require a
response to this item.
Item 5. | Other Information |
No events occurred during the three months ended September 30, 2009 that would require a
response to this item.
Item 6. | Exhibits |
The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly
Report on Form 10-Q) are included herewith, or incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Cole Credit Property Trust, Inc. (Registrant) |
||||
By: | /s/ Christopher H. Cole | |||
Christopher H. Cole | ||||
Chief Executive Officer, President, and Director (Principal Executive Officer) |
||||
By: | /s/ D. Kirk McAllaster, Jr. | |||
D. Kirk McAllaster, Jr. | ||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Date: November 12, 2009
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EXHIBIT INDEX
The following exhibits are included, or incorporated by reference, in this Quarterly Report on
Form 10-Q for the three months ended September 30, 2009 (and are numbered in accordance with Item
601 of Regulation S-K).
Exhibit No. | Description | |||
3.1 | Articles of Incorporation. (Incorporated by reference to the
Companys Registration Statement on Form 10-SB (File No.
000-51962) filed on May 1, 2006). |
|||
3.2 | Amended and Restated Bylaws. (Incorporated by reference to
the Companys Registration Statement on Form 10-SB (File No.
000-51962) filed on May 1, 2006). |
|||
31.1 | Certification of the Chief Executive Officer of the Company
pursuant to Securities Exchange Act Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
|||
31.2 | Certification of the Chief Financial Officer of the Company
pursuant to Securities Exchange Act Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
|||
32.1 | * | Certification of the Chief Executive Officer and Chief
Financial Officer of the Company pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (furnished herewith). |
* | In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
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