Cogdell Spencer Announces Fourth Quarter 2010 Results and Completion of Strategic Plan

Mar 03, 2011, 16:01 ET from Cogdell Spencer Inc.

CHARLOTTE, N.C., March 3, 2011 /PRNewswire/ --

Recent Highlights

  • Strategic plan completed and approved
  • Corporate governance changes announced
  • Term loan repaid
  • Revolving line of credit renewed
  • Additional reporting metrics released
  • Fourth quarter 2010 financial results announced

Cogdell Spencer Inc. (the "Company" or "we") (NYSE: CSA), healthcare's preferred real estate partner, is a REIT focused on planning, owning, developing, constructing, and managing medical facilities.  Through strategically managed, customized facilities, we help our clients deliver superior healthcare.

Strategic Plan Completed and Approved

Through a defined and disciplined process, we completed our strategic plan.

Corporate Governance Changes Announced

We announced the 2011 slate of Directors nominees are John R. Georgius, Richard B. Jennings, Christopher E. Lee, David J. Lubar, Richard C. Neugent, Randolph D. Smoak, Jr. M.D., and Raymond W. Braun.  We also adopted a minimum stock ownership plan for management and Directors.

Term Loan Repaid

In December 2010, we completely repaid the $50.0 million Term Loan.

Revolving Line of Credit Renewed

On March 1, 2011, we amended and restated our Revolving Line of Credit and it now matures in March 2014 with a one-year extension option.

Additional Reporting Metrics Released

We released metrics for same store net operating income and our design-build pipeline.  These metrics are in our Supplemental Operating and Financial Data located in the Investor Relations section of our Web site.

Recent highlights will be covered in detail on our Fourth Quarter 2010 Earnings Call and Webcast.  We encourage people to access the webcast for our slide show presentation.  

Conference Call and Webcast

The webcast is accessible live via the Internet at www.cogdell.com through the "Fourth Quarter 2010 Earnings Call" link on the Investor Relations homepage.  In addition to webcast access, you may attend the Fourth Quarter 2010 Earnings Call on Friday, March 4, 2011 at 10:00 a.m. Eastern Time (ET) via teleconference.  The number to call is (877) 317-6789 (domestic) or +1 (412) 317-6789 (international).  A conference identification number is not required.  

An audio playback will be available until March 28, 2011 at 9:00 a.m. ET.  To access the playback, please dial (877) 344-7529 (domestic) or +1 (412) 317-0088 (international) and enter the passcode: 447535.  The replay can also be accessed for one year via the Internet at www.cogdell.com through the "Fourth Quarter 2010 Earnings Call" link on the Investor Relations page, under Press Releases and News and Audio Archives.

Fourth Quarter 2010 Financial Results

Results for the three months and year ended December 31, 2010

Funds from Operations Modified ("FFOM") and FFOM per share and operating partnership unit for the three months and year ended December 31, 2010, are as follows (in thousands, except per share and operating partnership unit data):

For the Three Months Ended

For the Year Ended

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

FFOM

$                  (98,878)

$                      8,812

$                  (89,243)

$                  (71,132)

Non-recurring events and impairment charges (summarized below)

105,872

(905)

119,265

102,361

FFOM, excluding non-recurring events and impairment charges

$                      6,994

$                      7,907

$                    30,022

$                    31,229

Per share and operating partnership unit data:

FFOM

$                      (1.69)

$                        0.17

$                      (1.62)

$                      (1.75)

Non-recurring events and impairment charges (summarized below)

1.81

(0.01)

2.16

2.52

FFOM, excluding non-recurring events and impairment charges

0.12

0.16

0.54

0.77

FFOM adds back to traditionally defined Funds from Operations (FFO) non-cash amortization of non-real estate related intangible assets associated with purchase accounting.  A reconciliation of net income (loss) to FFOM and FFO for the three months and year ended December 31, 2010 and 2009 is set forth as an attachment to this press release.

FFO and FFO per share and operating partnership unit for the three months and year ended December 31, 2010, are as follows (in thousands, except per share and operating partnership unit data):

For the Three Months Ended

For the Year Ended

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

FFO

$                  (99,252)

$                      8,782

$                  (90,738)

$                  (73,897)

Non-recurring events and impairment charges (summarized below)

105,872

(905)

119,265

102,361

FFO, excluding non-recurring events and impairment charges

$                      6,620

$                      7,877

$                    28,527

$                    28,464

Per share and operating partnership unit data:

FFO

$                      (1.70)

$                        0.17

$                      (1.64)

$                      (1.82)

Non-recurring events and impairment charges (summarized below)

1.81

(0.01)

2.16

2.52

FFO, excluding non-recurring events and impairment charges

0.11

0.16

0.52

0.70

Net income (loss) attributable to our common shareholders and net income (loss) attributable to our common shareholders per share for the three months and year ended December 31, 2010, are as follows (in thousands, except per share data):

For the Three Months Ended

For the Year Ended

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

Net income (loss) attributable to Cogdell Spencer Inc. common shareholders

$                  (92,469)

$                      1,556

$                (103,043)

$                  (69,728)

Non-recurring events and impairment charges (summarized below) attributable to Cogdell Spencer Inc. common shareholders

92,003

(766)

103,454

82,298

Net income (loss) attributable to Cogdell Spencer Inc. common shareholders, excluding non-recurring events and impairment charges

$                       (466)

$                         790

$                         411

$                    12,570

Per share data:

Net income (loss) attributable to Cogdell Spencer Inc. common shareholders

$                      (1.82)

$                        0.04

$                      (2.17)

$                      (2.14)

Non-recurring events and impairment charges (summarized below) attributable to Cogdell Spencer Inc. common shareholders

1.81

(0.02)

2.18

2.52

Net income (loss) attributable to Cogdell Spencer Inc. common shareholders, excluding non-recurring events and impairment charges

(0.01)

0.02

0.01

0.38

As of December 31, 2010, we owned and/or managed 113 medical office buildings and healthcare related facilities, totaling 5.9 million net rentable square feet.  Our portfolio consists of:

  • 65 consolidated wholly-owned and joint venture properties, comprising a total of approximately 3.6 million net rentable square feet, 90.6% leased;
  • One wholly-owned property in the lease-up phase, comprising approximately 0.1 million net rentable square feet, 75% leased and income producing with the remaining 25% leased and under construction for a third quarter 2011 scheduled date of occupancy;
  • Three unconsolidated joint venture properties comprising a total of approximately 0.2 million net rentable square feet; and
  • 44 properties managed for third party clients comprising a total of approximately 2.0 million net rentable square feet.

Non-Recurring Events and Impairment Charges

The following table summarizes our non-recurring events and impairment charges for the three months and year ended December 31, 2010 (in thousands):

For the Three Months Ended

For the Year Ended

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

Goodwill and intangible asset impairment charges, net of income tax benefit

$          93,826

$                  -

$        104,674

$        101,746

Deferred tax asset valuation allowance

10,553

-

10,553

-

Mr. Cogdell's retirement compensation expense

1,493

-

1,493

-

Mr. Spencer's retirement compensation expense, net of income tax benefit

-

-

2,545

-

Strategic planning professional fees

-

2,641

-

2,641

Debt extinguishment and interest rate derivative expense, net  of tax benefit

-

-

-

1,520

Impairment of real estate property held for sale

-

1,359

-

1,359

Gain on settlement from MEA Holdings, Inc. transaction

-

(4,905)

-

(4,905)

For the three months ended December 31, 2010, we recorded goodwill and intangible asset impairment charges, a deferred tax asset valuation allowance, and retirement compensation expense related to Mr. Cogdell.  The impairment and the deferred tax asset valuation allowance primarily related to the Design-Build and Development business segment.

For the year ended December 31, 2010, in addition to the charges discussed above, we also recorded a second quarter goodwill and intangible asset impairment charges and retirement compensation expense related to the retirement of the Company's former Chief Executive Officer, Frank Spencer.  The impairment related to the Design-Build and Development business segment.

Preferred Stock Issuance

In December 2010, we issued approximately 2.6 million shares of Series A 8.500% cumulative redeemable perpetual preferred stock, resulting in net proceeds of approximately $62.6 million.  The net proceeds were used to repay the senior secured term facility (the "Term Loan"), to reduce borrowings under the Credit Facility, to fund build to suit development projects, and for working capital and other general corporate purposes.

Mortgage Note Payable

In November 2010, we entered into a mortgage note payable on the St. Francis Outpatient Surgery Center property.  The $13.0 million note matures in November 2011, has an interest rate of LIBOR plus 3.25%, and requires monthly principal and interest payments based on a 30-year amortization.

Dividend

On December 17, 2010, we announced our Board of Directors declared a quarterly dividend of $0.10 per share and operating partnership unit that was paid in cash on January 19, 2011 to holders of record on December 27, 2010.  The dividend covered the fourth quarter of 2010.

On February 1, 2011, we announced that our Board of Directors declared a quarterly dividend of $0.419 per share on our Series A cumulative redeemable perpetual preferred shares for the period from December 20, 2010, the date of original issue, to February 28, 2011.  The dividend was paid on March 1, 2011, to holders of record on February 15, 2011.

Outlook

Our management team expects that FFOM per share and operating partnership unit for the year ending December 31, 2011 will be in a range of $0.33 to $0.40.  Our guidance assumes the following: (i) acquisitions of $5.0 million to $25.0 million; (ii) no dispositions; (iii) developments of $40.0 million to $60.0 million; (iv) third party design-build revenue of $90.0 million to $120.0 million; (v) design-build gross margins of 13.0% to 17.0%; and (vi) corporate general and administrative expenses of $9.5 million to $10.5 million.  Our guidance excludes any additional capital transaction or impairments.  

A reconciliation of the range of projected net income (loss) to projected FFO and FFOM for the year ending December 31, 2011 is set forth below:

Guidance Range for the

Year Ending December 31, 2011

Low

High

(In thousands, except per share and operating partnership unit data)

Net income (loss)

$    (500)

- -

$   1,500

Plus real estate related depreciation and amortization

28,500

- -

30,500

Less noncontrolling interests in real estate partnerships, before real estate

  related depreciation and amortization

(2,500)

- -

(2,500)

Less dividends on preferred stock

(6,300)

(6,300)

     Funds from Operations (FFO)

19,200

- -

23,200

Plus amortization of intangibles related to purchase accounting, net of income tax benefit

500

- -

500

     Funds from Operations Modified (FFOM)

$ 19,700

- -

$ 23,700

FFO per share and unit - diluted

$     0.32

- -

$     0.39

FFOM per share and unit - diluted

$     0.33

- -

$     0.40

Weighted average shares and units outstanding - basic and diluted

59,500

- -

59,500

Supplemental operating and financial data are available in the Investor Relations section of our Web site at www.cogdell.com.  

FFO is a supplemental non-GAAP financial measure used by the real estate industry to measure the operating performance of real estate companies.  FFOM adds back to traditionally defined FFO non-cash amortization of non-real estate related intangible assets associated with purchase accounting.  We present FFO and FFOM because we consider them important supplemental measures of operational performance.  We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results.  We believe that FFOM allows securities analysts, investors and other interested parties to evaluate current period results to results prior to the acquisition of MEA Holdings, Inc.  FFO and FFOM are intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time.  Historically, however, real estate values have risen or fallen with market conditions.  Because FFO and FFOM excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, they provide performance measures that, when compared year over year, reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing a perspective not immediately apparent from net income.  We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO and FFOM utilized by other equity REITs and, accordingly, may not be comparable to such other REITs.  We adjust the NAREIT definition to add back noncontrolling interests in consolidated real estate partnerships before real estate related depreciation and amortization and deduct dividends on preferred stock.  Further, FFO and FFOM do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties.  FFO and FFOM should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our performance, nor are they indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.  A reconciliation from GAAP net loss to FFO and FFOM is included as an attachment to this press release.  

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements reflect our views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ materially.  Factors that may contribute to these differences include, but are not limited to the following: our business strategy; our ability to comply with financial covenants in our debt instruments; our access to capital; our ability to obtain future financing arrangements; estimates relating to our future distributions; our understanding of our competition; our ability to renew our ground leases; legislative and regulatory changes (including changes to laws governing the taxation of REITs and individuals); increases in costs of borrowing as a result of changes in interest rates and other factors; our ability to maintain our qualification as a REIT due to economic, market, legal, tax or other considerations; changes in the reimbursement available to our tenants by government or private payors; our tenants' ability to make rent payments; defaults by tenants and customers; customers' access to financing; delays in project starts and cancellations by customers; market trends; and projected capital expenditures.  For a further list and description of such risks and uncertainties, see our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2009 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.  Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be realized. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Cogdell Spencer Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(unaudited)

December 31, 2010

December 31, 2009

Assets

Real estate properties:

  Operating real estate properties

$                  635,663

$                  561,124

  Less: Accumulated depreciation

(119,141)

(93,247)

     Total operating real estate properties, net

516,522

467,877

  Construction in progress

22,075

43,338

        Total real estate properties, net

538,597

511,215

Cash and cash equivalents

12,203

25,914

Restricted cash

6,794

3,060

Tenant and accounts receivable, net

11,383

12,993

Goodwill

22,882

108,683

Trade names and trademarks

-

41,240

Intangible assets, net

18,601

21,742

Other assets

23,684

25,599

Other assets - held for sale

-

2,217

  Total assets

$                  634,144

$                  752,663

Liabilities and Equity

Mortgage notes payable

$                  317,303

$                  280,892

Revolving credit facility

45,000

80,000

Term loan

-

50,000

Accounts payable

11,368

15,293

Billings in excess of costs and estimated earnings on uncompleted contracts

1,930

13,189

Deferred income taxes

-

15,993

Other liabilities

39,819

47,312

Other liabilities - held for sale

-

2,204

  Total liabilities

415,420

504,883

Commitments and contingencies

Equity:

  Cogdell Spencer Inc. stockholders' equity:

     Preferred stock, $0.01 par value; 50,000 shares authorized:

        8.5000% Series A Cumulative Redeemable Perpetual Preferred Shares (liquidation preference $25.00          per share), 2,600 and zero shares issued and          outstanding in 2010 and 2009, respectively

65,000

-

     Common stock, $0.01 par value, 200,000 shares authorized, 50,870 and 42,729 shares issued and      outstanding in 2010 and 2009, respectively

509

427

     Additional paid-in capital

417,960

370,593

     Accumulated other comprehensive loss

(3,339)

(1,861)

     Accumulated deficit

(286,752)

(164,321)

        Total Cogdell Spencer Inc. stockholders' equity

193,378

204,838

  Noncontrolling interests:

     Real estate partnerships

6,452

5,220

     Operating partnership

18,894

37,722

        Total noncontrolling interests

25,346

42,942

Total equity

218,724

247,780

  Total liabilities and equity

$                  634,144

$                  752,663

Cogdell Spencer Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(unaudited)

For the Three Months Ended

For the Year Ended

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

Revenues:

Rental revenue

$          22,799

$          20,375

$          87,803

$          79,486

Design-Build contract revenue and other sales

24,850

30,016

91,256

143,416

Property management and other fees

824

807

3,212

3,336

Development management and other income

25

98

146

3,363

Total revenues

48,498

51,296

182,417

229,601

Expenses:

Property operating and management

8,012

8,021

33,664

31,810

Design-Build contracts and development management

22,169

21,388

72,001

113,961

Selling, general, and administrative

8,561

11,067

30,411

32,285

Depreciation and amortization

8,283

7,470

32,841

34,502

Impairment charges

113,406

-

127,041

120,920

Total expenses

160,431

47,946

295,958

333,478

Income (loss) from continuing operations before other income (expense) and  income tax benefit

(111,933)

3,350

(113,541)

(103,877)

Other income (expense):

Interest and other income

210

164

655

620

Gain on settlement from MEA Holdings, Inc. transaction

-

4,905

-

4,905

Interest expense

(5,662)

(5,123)

(21,994)

(21,711)

Debt extinguishment and interest rate derivative expense

(339)

(10)

(371)

(2,511)

Equity in earnings of unconsolidated real estate partnerships

7

10

13

15

Total other income (expense)

(5,784)

(54)

(21,697)

(18,682)

Loss from continuing operations before income tax benefit

(117,717)

3,296

(135,238)

(122,559)

Income tax benefit

11,815

60

17,556

22,124

Loss from continuing operations

(105,902)

3,356

(117,682)

(100,435)

Discontinued operations:

Income (loss) from discontinued operations

-

(41)

6

(168)

Impairment of real estate property

-

(1,359)

-

(1,359)

Gain on sale of discontinued operations

-

-

264

-

Total discontinued operations

-

(1,400)

270

(1,527)

Net loss

(105,902)

1,956

(117,412)

(101,962)

Net income attributable to the noncontrolling interests in real estate partnerships

(171)

(131)

(831)

(288)

Net loss attributable to the noncontrolling interests in operating partnership

13,812

(269)

15,408

32,522

Dividends on preferred stock

(208)

-

(208)

-

Net loss attributable to Cogdell Spencer Inc. common shareholders

$         (92,469)

$            1,556

$       (103,043)

$         (69,728)

Per share data - basic and diluted

Loss from continuing operations attributable to Cogdell Spencer Inc.    common shareholders

$             (1.82)

$              0.06

$             (2.18)

$             (2.10)

Income (loss) from discontinued operations attributable to Cogdell Spencer Inc. common shareholders

-

(0.02)

0.01

(0.04)

Net loss per common share available to Cogdell Spencer Inc. common shareholders

$             (1.82)

$              0.04

$             (2.17)

$             (2.14)

Weighted average common shares - basic and diluted

50,745

42,615

47,456

32,655

Net loss attributable to Cogdell Spencer Inc. common shareholders:

Continuing operations, net of tax

$         (92,469)

$            2,956

$       (103,275)

$         (68,500)

Discontinued operations

-

(1,400)

232

(1,228)

Net loss attributable to Cogdell Spencer Inc. common shareholders

$         (92,469)

$            1,556

$       (103,043)

$         (69,728)

Cogdell Spencer Inc.

Business Segment Reporting

(In thousands)

(unaudited)

Three months ended December 31, 2010:

Property Operations

Design-Build and Development

Intersegment Eliminations

Unallocated and Other

Total

Revenues:

  Rental revenue

$      22,821

$                 -

$                (22)

$              -

$    22,799

  Design-Build contract revenue and other sales

-

31,640

(6,790)

-

24,850

  Property management and other fees

824

-

-

-

824

  Development management and other income

-

419

(394)

-

25

     Total revenues

23,645

32,059

(7,206)

-

48,498

Certain operating expenses:

  Property operating and management

8,012

-

-

-

8,012

  Design-Build contracts and development    management

-

29,007

(6,838)

-

22,169

  Selling, general, and administrative

-

4,651

(22)

-

4,629

  Impairment charges

-

113,406

-

-

113,406

     Total certain operating expenses

8,012

147,064

(6,860)

-

148,216

15,633

(115,005)

(346)

-

(99,718)

Interest and other income

178

-

-

32

210

Corporate general and administrative expenses

-

-

-

(3,932)

(3,932)

Interest expense

-

-

-

(5,662)

(5,662)

Interest rate derivative expense

-

-

-

(339)

(339)

Benefit from income taxes applicable to funds from operations modified

-

-

-

11,576

11,576

Non-real estate related depreciation and amortization

-

(292)

-

(51)

(343)

Earnings from unconsolidated real estate partnerships, before real estate related depreciation and amortization

10

-

-

-

10

Noncontrolling interests in real estate partnerships, before real estate related depreciation and amortization

(472)

-

-

-

(472)

Dividends on preferred stock

-

-

-

(208)

(208)

     Funds from operations modified (FFOM)

15,349

(115,297)

(346)

1,416

(98,878)

Amortization of intangibles related to purchase accounting, net of income tax benefit

(42)

(571)

-

239

(374)

     Funds from operations (FFO)

15,307

(115,868)

(346)

1,655

(99,252)

Real estate related depreciation and amortization

(7,330)

-

-

-

(7,330)

Noncontrolling interests in real estate partnerships, before real estate related depreciation and amortization

472

-

-

-

472

Dividends on preferred stock

-

-

-

208

208

     Net income (loss)

$        8,449

$      (115,868)

$              (346)

$        1,863

$ (105,902)

Cogdell Spencer Inc.

Business Segment Reporting

(In thousands)

(unaudited)

Year ended December 31, 2010:

Property Operations

Design-Build and Development

Intersegment Eliminations

Unallocated and Other

Total

Revenues:

  Rental revenue

$      87,895

$                 -

$                (92)

$              -

$    87,803

  Design-Build contract revenue and other sales

-

113,997

(22,741)

-

91,256

  Property management and other fees

3,212

-

-

-

3,212

  Development management and other income

-

5,861

(5,715)

-

146

     Total revenues

91,107

119,858

(28,548)

-

182,417

Certain operating expenses:

  Property operating and management

33,664

-

-

-

33,664

  Design-Build contracts and development   management

-

97,561

(25,560)

-

72,001

  Selling, general, and administrative

-

17,373

(92)

-

17,281

  Impairment charges

-

127,041

-

-

127,041

     Total certain operating expenses

33,664

241,975

(25,652)

-

249,987

57,443

(122,117)

(2,896)

-

(67,570)

Interest and other income

607

3

-

45

655

Corporate general and administrative expenses

-

-

-

(13,130)

(13,130)

Interest expense

-

-

-

(21,994)

(21,994)

Interest rate derivative expense

-

-

-

(371)

(371)

Benefit from income taxes applicable to funds from operations modified

-

-

-

16,600

16,600

Non-real estate related depreciation and amortization

-

(997)

-

(229)

(1,226)

Earnings from unconsolidated real estate partnerships, before real estate related depreciation and amortization

26

-

-

-

26

Noncontrolling interests in real estate partnerships, before real estate related depreciation and amortization

(2,031)

-

-

-

(2,031)

Discontinued operations

9

-

-

(3)

6

Dividends on preferred stock

-

-

-

(208)

(208)

     Funds from operations modified (FFOM)

56,054

(123,111)

(2,896)

(19,290)

(89,243)

Amortization of intangibles related to purchase accounting, net of income tax benefit

(169)

(2,282)

-

956

(1,495)

     Funds from operations (FFO)

55,885

(125,393)

(2,896)

(18,334)

(90,738)

Real estate related depreciation and amortization

(29,177)

-

-

-

(29,177)

Gain on sale of real estate property

264

-

-

-

264

Noncontrolling interests in real estate partnerships, before real estate related depreciation and amortization

2,031

-

-

-

2,031

Dividends on preferred stock

-

-

-

208

208

     Net income (loss)

$      29,003

$      (125,393)

$           (2,896)

$     (18,126)

$ (117,412)

Cogdell Spencer Inc.

Reconciliation of Net Income (Loss) to Funds from Operations Modified (FFOM) (1)

(In thousands, except per share and unit amounts)

(unaudited)

For the Three Months Ended

For the Year Ended

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

Net income (loss)

$       (105,902)

$            1,956

$       (117,412)

$       (101,962)

Add:

  Real estate related depreciation and   amortization:

    Wholly-owned and consolidated properties,     including amounts in discontinued     operations

7,327

7,197

29,164

29,102

Unconsolidated real estate partnerships

3

3

13

12

Less:

Gain on sale of real estate property

-

-

(264)

-

Dividends on preferred stock

(208)

-

(208)

-

  Noncontrolling interests in real estate   partnerships, before real estate related   depreciation and amortization

(472)

(374)

(2,031)

(1,049)

Funds from Operations (FFO) (1)

(99,252)

8,782

(90,738)

(73,897)

  Amortization of intangibles related to   purchase accounting, net of income tax   benefit

374

30

1,495

2,765

Funds from Operations Modified (FFOM) (1)

$         (98,878)

$            8,812

$         (89,243)

$         (71,132)

FFO per share and unit - basic and diluted

$             (1.70)

$              0.17

$             (1.64)

$             (1.82)

FFOM per share and unit - basic and diluted

$             (1.69)

$              0.17

$             (1.62)

$             (1.75)

Weighted average shares and units outstanding - basic and diluted

58,389

50,386

55,206

40,616

(1) FFO is a supplemental non-GAAP financial measure used by the real estate industry to measure the operating performance of real estate companies.  FFOM adds back to traditionally defined FFO non-cash amortization of non-real estate related intangible assets associated with purchase accounting.  We present FFO and FFOM because we consider them important supplemental measures of operational performance.  We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results.  We believe that FFOM allows securities analysts, investors and other interested parties to evaluate current period results to results prior to the acquisition of MEA Holdings, Inc.  FFO and FFOM are intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time.  Historically, however, real estate values have risen or fallen with market conditions.  Because FFO and FFOM excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, they provide performance measures that, when compared year over year, reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing a perspective not immediately apparent from net income.  We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO and FFOM utilized by other equity REITs and, accordingly, may not be comparable to such other REITs.  We adjust the NAREIT definition to add back noncontrolling interests in consolidated real estate partnerships before real estate related depreciation and amortization and deduct dividends on preferred stock.  Further, FFO and FFOM do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties.  FFO and FFOM should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our performance, nor are they indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

SOURCE Cogdell Spencer Inc.



RELATED LINKS

http://www.cogdellspencer.com