Press Release: Security Capital Group Incorporated
November 9, 2000
CHICAGO, IL -- Security Capital Group Incorporated (NYSE: SCZ) yesterday announced results for the quarter ended
September 30, 2000. Total EBDADT (earnings before depreciation, amortization and deferred taxes) for the third
quarter was $86.3 million, or $0.75 per diluted SCZ share, compared to $60.2 million, or $0.48 per diluted share,
for the same period last year. For the first nine months of 2000, total EBDADT was $219.9 million compared to $168.2
million in the same period of 1999. Per-share EBDADT for the first nine months was $1.93, compared to $1.39 for
the first nine months of 1999, an increase of 38.8%. These results do not include special items as detailed in
the supplemental information.
Third Quarter Operating Highlights
``Aggressive action taken by management to simplify the structure of the organization and focus on improving operating
efficiencies contributed to these favorable results,'' said C. Ronald Blankenship, Vice Chairman and Chief Operating
Officer. ``In addition, the ability of the management teams of our operating businesses to maximize the opportunities
presented by the excellent market fundamentals in both the United States and Europe resulted in strong per-share
growth.'' Highlights of the quarter include:
-- The Capital Division produced $80.3 million of EBDADT for the third
quarter, an increase of 60.5% over the same period a year ago. This
growth was spurred by the excellent performance of Security Capital's
public and private affiliates in the United States and Europe, as well
as reductions in interest and operating expenses. The public
affiliates overall achieved strong internal growth during the quarter,
driven by the strong market fundamentals and the solid performance of
operating properties, which continue to attain high occupancies and
rental rate increases, as well as increased contributions from the
stabilization of properties in the development pipeline. In addition,
these businesses are well-positioned to expand customer relationships
and service income opportunities. The private affiliates, the largest
of which include Homestead Village and Security Capital European
Realty, also made a significant contribution to EBDADT.
-- Homestead Village, our private extended-stay lodging company,
continues to improve its operating performance. Third quarter
2000 operating results increased 44.7% over the same period of
1999. In addition, occupancy for the quarter increased by
670 basis points to 81.9%, resulting in 11.9% growth in revenue
per available room (RevPAR) over the third quarter of 1999.
-- SC-European Realty's EBDADT contribution for the third quarter was
$5.9 million, compared to $2.7 million for the same period last
year. The performance was driven by strong operating fundamentals
in the parking business in Europe and asset sales in the office
property business, consistent with its strategy. During the
quarter, investees completed $47.7 million in asset sales for
total realized gains of $8.0 million. As of September 30, 2000,
39.8% of SC-European Realty's assets were prestabilized or under
development.
-- The Financial Services Division produced EBDADT of $6.0 million for the
third quarter, compared to $10.1 million in the third quarter a year
ago, primarily attributable to a decrease in transaction-based Capital
Markets Group revenues, which were $5.8 million or $10.6 million lower
than the same period in 1999. The Global Capital Management Group
continued to significantly outperform key industry benchmarks in its
mutual fund, separate accounts and managed accounts businesses.
Specifically, Security Capital U.S. Real Estate Shares (SUSIX),
Security Capital's mutual fund, had a total rate of return of 24.1%
through November 3. As of September 30, SUSIX was ranked by an
independent information provider in the top 2% of all real estate
mutual funds for both year to date and trailing three year performance.
At quarter end, the Global Capital Management Group's total assets
under management for its funds and separate accounts businesses grew
62.6% to $2.2 billion, compared to $1.3 billion at December 31, 1999.
-- Annualized core operating expenses, excluding expenses related to a
technology business, decreased to $74.1 million as of September 30,
2000, down 9.8% from year-end 1999. Of this amount, annualized
operating expenses related to the Financial Services Division were
$51.7 million. Capital Division annualized expenses were $0.6 million
and annualized general and administrative expenses totaled $21.8
million.
-- Cash flow from operations (after taxes, interest expense and preferred
share dividends) for the four quarters ended September 30 was
$105.5 million, an increase of 13.5% compared to the four quarters
ended June 30, 2000. For the same period, the coverage ratio improved
from 2.65 to 2.78.
-- Security Capital continues to maintain a strong balance sheet, with
significant financial flexibility. At September 30, 2000, total
long-term indebtedness was $930.4 million with an average maturity of
12.3 years at an average fixed rate of 7.2%. As of November 3, 2000,
the company had $55.2 million outstanding on its line of credit.
-- Through November 3, 2000, Security Capital repurchased 4.9 million
shares, or an aggregate of $94.0 million of SCZ shares, under the
company's third $100 million share repurchase program. Since Security
Capital initiated its share repurchase program in September 1999, the
company repurchased and retired 23.6 million shares, or approximately
17.3% of shares outstanding at the beginning of the program.
Proposed Combination of Security Capital and SC-U.S. Realty
On September 26, Security Capital and SC-U.S. Realty (NYSE: RTY - news) announced an agreement to combine the two
businesses. Under the terms of the agreement, shareholders of SC-U.S. Realty will receive 1.15 shares of SCZ Class
B common stock for each share of outstanding RTY stock. SC-U.S. Realty shareholders, if any, who vote against the
transaction will have the option to receive SCZ common stock or up to $200 million in cash based on SCZ's market
price shortly before the SC-U.S. Realty shareholder meeting, multiplied by 1.15. Security Capital will not be obligated
to proceed with the transaction should shareholder elections require cash payments in excess of $200 million.
Required filings regarding the proposed transaction have been made with the appropriate regulatory bodies and are
awaiting clearance. Special shareholder meetings of each company are expected to take place early in the first
quarter of 2001. If approved by shareholders of both companies, the transaction is expected to close that quarter.
Drivers of Future Growth
William D. Sanders, Chairman, said, ``Management continues to focus on executing the strategic plan, which is beginning
to yield tangible results in unlocking shareholder value. The proposed transaction between Security Capital Group
and SC-U.S. Realty is a major step in simplifying the organization and unleashing the inherent value of Security
Capital's potential, but there are a number of additional steps to come.'' Mr. Sanders said that the company will
continue to concentrate its capital in high-growth, leadership businesses, noting that since September of 1999,
Security Capital completed $1.2 billion of capital transactions, including significant share repurchases. Currently,
approximately $4.5 billion, or 19.9% of Security Capital's investees' assets, are prestabilized. ``As these assets
become stabilized, we expect our operating performance to benefit from not only the revenue generated by these
additional properties, but also from the anticipated income from third-party services and managed capital,'' said
Mr. Sanders. ``We remain focused on eliminating the gap between the public market price of our stock and the underlying
private market value of our assets.''
Security Capital Group Incorporated is a leading global real estate operating and investment management company.
Security Capital operates its business through two divisions. The Capital Division provides operational and capital
deployment oversight to direct and indirect investments in real estate operating companies, generating earnings
principally from its ownership of these affiliates. Currently, the Capital Division has investments in 16 real
estate operating companies. The Financial Services Division generates fees principally from capital management
and capital markets activities. The principal offices of Security Capital and its directly owned affiliates are
in Amsterdam, Atlanta, Brussels, Chicago, Denver, El Paso, Houston, London, Luxembourg, New York and Santa Fe.
Complete supplemental financial information for the third quarter as well as copies of frequently updated investor
discussion memoranda may be found on the company's web site at www.securitycapital.com.
Security Capital's senior management team will host a conference call to discuss the third quarter operating results
on Thursday, November 9, 2000, at 10 a.m. EDT. A live webcast of the call and the accompanying presentation will
be available simultaneously through a link at Security Capital's web site at www.securitycapital.com. The phone
number for the conference call is 1-800-230-1096 for domestic U.S. callers, and 1-612-332-0107 for international
participants. A taped replay of the conference call will be available until 11:59 EDT Thursday, November 16, 2000,
by logging on to the company's web site or by calling 1-800-475-6701 in the United States or 1-320-365-3844 outside
the United States and entering the access code 542016.
This press release and the attached supplemental information contain certain statements that are neither reported
financial results nor other historical information. These statements are forward-looking statements within the
meaning of the safe-harbor provisions of the U.S. federal securities laws. These statements reflect the current
views of Security Capital with respect to future events and are not guarantees of future performance. Because these
forward-looking statements are subject to risks and uncertainties, actual future results may differ materially
from those expressed in or implied by the statements. Many of these risks and uncertainties relate to factors that
are beyond the company's ability to control or estimate precisely, such as future market conditions, the behavior
of other market participants, the actions of governmental regulators and other risk factors detailed in Security
Capital's reports filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date of these materials. The company does not undertake
any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances
after the date of these materials.
Security Capital has filed a joint proxy statement/prospectus and other materials with the Securities and Exchange
Commission. Security holders are urged to read these materials when they become available because they will contain
important information. Investors and security holders may obtain a free copy of these materials when they become
available as well as other materials filed with the Securities and Exchange Commission concerning Security Capital
at the Securities and Exchange Commission's website at http://www.sec.gov. In
addition, these materials and other documents may be obtained for free from Security Capital by directing a request
to Security Capital Group Incorporated, Attention: William R. Fowler, telephone: 800 988-4304.
SECURITY CAPITAL GROUP INCORPORATED
THIRD QUARTER 2000
Statements of Earnings Before Depreciation, Amortization
and Deferred Taxes (EBDADT)(1)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Income:
Equity in Capital
Division Investees'
EBDADT (2)(3) $104,027 $85,546 $296,221 $260,807
Financial Services
Division revenues 25,945 36,136 68,129 79,168
Interest and other
income (4) 4,663 1,223 5,619 2,565
Total Income 134,635 122,905 369,969 342,540
Expenses:
Operating expenses 23,758 31,559 67,922 89,889
Interest expense 18,609 22,323 59,940 63,271
Current income
tax expense 1,425 4,356 8,663 7,666
Total Expenses 43,792 58,238 136,525 160,826
Convertible preferred
share dividends 4,509 4,509 13,526 13,526
Basic EBDADT before
special items 86,334 60,158 219,918 168,188
Realized gains (losses) 217 46 (351) 1,613
Extraordinary gain
on retirement of debt,
net of tax -- -- 6,152 --
Gain on sale of
Archstone stock,
net of tax (4) 94,101 -- 102,848 --
Homestead special
(charge) credit (5) 337 -- 1,519 (45,581)
Strategic Hotel provision -- -- -- (55,288)
Basic EBDADT after
special items $180,989 $60,204 $330,086 $68,932
Diluted EBDADT per share
before special items $0.75 $0.48 $1.93 $1.39
Realized gains (losses) -- -- -- 0.01
Extraordinary gain on
retirement of debt,
net of tax -- -- 0.05 --
Gain on sale of
Archstone stock,
net of tax 0.75 -- 0.80 --
Homestead special
(charge) credit -- -- 0.01 (0.38)
Strategic Hotel provision - - - (0.46)
Diluted EBDADT per share
after special items $1.50 $0.48 $2.79 $0.56
(1) EBDADT represents net earnings before gains/losses on dispositions of
depreciated property, plus real estate depreciation and amortization,
plus deferred tax expense, plus/minus unrealized losses/gains on
non-strategic investments. Consistent with the equity method of
accounting under generally accepted accounting principles, Security
Capital reflects in its EBDADT its share of basic EBDADT of each
investee (before their extraordinary items). EBDADT for Security
Capital U.S. Realty consists of EBDADT from its strategic investees,
net of operating expenses.
(2) 1999 equity in Capital Division EBDADT has been restated to conform
1999 results with the new definition of Funds From Operations, which
was revised by the National Association of Real Estate Investment
Trusts effective January 1, 2000.
(3) On September 10, 1999, Security Capital sold its entire ownership
position in Strategic Hotel Capital. As a result of the sale, no
equity in EBDADT of Strategic Hotel Capital was recorded for the three
and nine months ended September 30, 2000, compared to zero and
$31.1 million in the three and nine months ended September 30, 1999,
respectively.
(4) As a result of an exchange of Archstone shares for Homestead mortgages
on July 24, 2000, Security Capital recorded an extraordinary gain of
$15.7 million, as well as $3.9 million of interest income for the
three and nine months ended September 30, 2000.
(5) The special (charge) credit in 2000 represents the excess of
Homestead's 1999 original special charge over current estimates. The
special charge originally recorded by Homestead through the third
quarter of 1999 was for land write-downs, employee severances and
other expenses related to terminating its development program.
SECURITY CAPITAL GROUP INCORPORATED
THIRD QUARTER 2000
Balance Sheets (1)(2)
(In thousands)
September 30, December 31,
2000 1999
Assets:
Capital Division
Operating Company Investments:
Archstone Communities Trust $871,279 $1,118,076
BelmontCorp 101,826 78,052
Homestead Village Incorporated 492,006 (3) 221,949
Homestead Mortgage Notes 205,175 --
ProLogis Trust 1,185,216 960,648
Managed Entities:
Security Capital European Realty 440,553 440,542
Security Capital Preferred
Growth Incorporated 90,556 75,410
Security Capital U.S. Realty 649,836 431,704
Intermediate-term Investments:
Security Capital European
Real Estate Shares 10,243 10,520
Security Capital U.S. Real Estate Shares 15,651 26,285
Financial Services Division (4) -- --
Cash & Cash Equivalents 45,892 9,599
Other Assets (5) 192,719 101,183
Total Assets $4,300,952 $3,473,968
Liabilities and Shareholders' Equity:
Liabilities
Accounts Payable and Other Liabilities $115,432 $53,518
Line of Credit -- 90,900
Long-term Debt 699,658 699,606
Convertible Subordinated Debentures 230,742 278,951
Total Liabilities 1,045,832 1,122,975
Shareholders' Equity
Series B Preferred Shares 257,642 257,642
Common Shareholders' Equity 2,997,478 2,093,351
Total Shareholders' Equity 3,255,120 2,350,993
Total Liabilities and
Shareholders' Equity $4,300,952 $3,473,968
(1) These balance sheets present Security Capital's assets calculated as
follows:
-- Publicly traded investments -- all based on NYSE closing prices,
which may differ from underlying net asset value.
-- Private company investments -- at cost, or in the case of
Security Capital Preferred Growth Incorporated and the
Intermediate-term Investments, their current net asset value.
The net asset value of these entities may fluctuate from time to
time based on asset value changes. Security Capital will revalue
an investment downward if the investee experiences sustained
degradation of operating performance or if changed circumstances
indicate cost does not reflect fair value.
Deferred taxes on unrealized securities positions are not provided.
Such deferred taxes as of September 30, 2000 would be $264.5 million
if all investments were sold at the values reflected on this balance
sheet.
(2) The net asset value of Security Capital as of September 30, 2000
(which does not include a value for the Financial Services Division,
deferred taxes on unrealized gains or convertible securities which are
anti-dilutive), is $25.47 per share, computed as follows:
Common Shareholders' Equity and Dilutive
Convertible Securities = $3,228,220 = $25.47
----------------------------------------- -----------
Diluted SCZ Shares Outstanding 126,752
Using November 3, 2000 stock prices and asset holdings, the net asset
value would be $23.75 per share.
(3) On June 8, 2000 Security Capital acquired the remaining 13% of
Homestead that it did not already own for $4.10 per share, which is
the value per share reflected on this balance sheet.
(4) Does not include a value for the Financial Services Division (Capital
Markets Group, Corporate Services Group, Global Capital Management
Group and Real Estate Research Group).
(5) Other Assets as of September 30, 2000, and December 31, 1999, includes
proceeds of $113,822 and $20,043, respectively, from the assumed
exercise of outstanding options and warrants whose exercise price is
less than market value (8,652 and 3,122 SCZ Shares, respectively).
SOURCE: Security Capital Group Incorporated