SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[_] 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 1-9349
SIZELER PROPERTY INVESTORS, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 72-1082589
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2542 WILLIAMS BOULEVARD, KENNER, LOUISIANA 70062
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (504) 471-6200
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Former name, former address and former fiscal year, if changed
since last report.
Indicate by Check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
7,908,000 shares of Common Stock ($.01 Par Value) were
outstanding as of May 1, 2000.
Page 1 of 10
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
INDEX
PAGE
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Part I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 9
Part II: OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31 December 31
2000 1999
ASSETS (Unaudited) (Audited)
------------ ------------
Real estate investments:
Land $ 50,932,000 $ 50,814,000
Buildings and improvements, net of accumulated depreciation
of $68,787,000 in 2000 and $66,162,000 in 1999 221,144,000 221,413,000
Investment in real estate partnership 919,000 917,000
------------ ------------
272,995,000 273,144,000
Cash and cash equivalents 738,000 1,337,000
Accounts receivable and accrued revenue, net of allowance for
doubtful accounts of $471,000 in 2000 and $430,000 in 1999 2,646,000 2,938,000
Prepaid expenses and other assets 9,470,000 8,642,000
------------ ------------
Total Assets $285,849,000 $286,061,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 84,264,000 $ 84,712,000
Notes payable 64,244,000 59,988,000
Accounts payable and accrued expenses 4,947,000 7,703,000
Tenant deposits and advance rents 823,000 827,000
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154,278,000 153,230,000
Convertible subordinated debentures 61,878,000 61,878,000
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Total Liabilities 216,156,000 215,108,000
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SHAREHOLDERS' EQUITY
Preferred stock, 6,000,000 shares authorized, none issued --- ---
Common stock, par value $.01 per share, 30,000,000 shares
authorized, shares issued and outstanding - 9,159,000 in 2000
and 9,085,000 in 1999 92,000 91,000
Additional paid-in capital 129,168,000 128,604,000
Accumulated distributions in excess of net earnings (48,400,000) (47,288,000)
------------ ------------
80,860,000 81,407,000
Treasury shares, at cost, 1,265,000 shares in 2000 and
1,176,000 shares in 1999 (11,167,000) (10,454,000)
------------ ------------
Total Shareholders' Equity 69,693,000 70,953,000
------------ ------------
Total Liabilities and Shareholders' Equity $285,849,000 $286,061,000
============ ============
See notes to consolidated financial statements.
3
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended March 31
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2000 1999
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OPERATING REVENUE
Rents and other income $12,634,000 $12,396,000
Equity in income of partnership 31,000 31,000
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12,665,000 12,427,000
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OPERATING EXPENSES
Management and leasing fees 706,000 671,000
Utilities 448,000 474,000
Real estate taxes 947,000 975,000
Operations and maintenance 1,864,000 1,891,000
Administrative expenses 753,000 685,000
Other operating expenses 621,000 656,000
Depreciation and amortization 2,769,000 2,639,000
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8,108,000 7,991,000
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INCOME FROM OPERATIONS 4,557,000 4,436,000
Interest expense 3,931,000 3,822,000
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NET INCOME $ 626,000 $ 614,000
=========== ===========
BASIC AND DILUTED EARNINGS
PER SHARE $0.08 $0.08
=========== ===========
WEIGHTED AVERAGE
Common shares outstanding 7,901,000 7,959,000
=========== ===========
See notes to consolidated financial statements.
4
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Quarter Ended March 31
----------------------
2000 1999
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OPERATING ACTIVITIES:
Net income $ 626,000 $ 614,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,769,000 2,639,000
Decrease (increase) in accounts receivable
and accrued revenue 292,000 (32,000)
(Increase) decrease in prepaid expenses and other assets (516,000) 211,000
Decrease in accounts payable and accrued expenses (2,756,000) (635,000)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 415,000 2,797,000
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INVESTING ACTIVITIES:
Acquisitions of and improvements to real estate investments (2,474,000) (2,096,000)
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NET CASH USED IN INVESTING ACTIVITIES (2,474,000) (2,096,000)
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FINANCING ACTIVITIES:
Proceeds from mortgage notes payable and notes
payable to banks 17,959,000 10,403,000
Principal payments on mortgage notes payable and
notes payable to banks (14,151,000) (8,306,000)
Debt issuance costs and mortgage escrow deposits (462,000) (472,000)
Cash dividends to shareholders (1,738,000) (1,750,000)
Issuance of shares of common stock pursuant to direct
stock purchase, stock option, and stock award plans 565,000 48,000
Purchases of treasury shares (713,000) (830,000)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,460,000 (907,000)
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Net decrease in cash and cash equivalents (599,000) (206,000)
Cash and cash equivalents at beginning of year 1,337,000 1,150,000
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 738,000 $ 944,000
=========== ==========
See notes to consolidated financial statements
5
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles (GAAP) for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 2000,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. The consolidated balance sheet at December 31, 1999,
has been derived from the audited consolidated financial statements at that
date, but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Sizeler Property Investors, Inc. Annual Report
on Form 10-K for the year ended December 31, 1999.
NOTE B -- RECLASSIFICATIONS
Certain reclassifications have been made in the 1999 Consolidated Financial
Statements to conform with the 2000 financial statement presentation.
NOTE C -- MORTGAGE NOTES PAYABLE
The Company's mortgage notes payable are secured by certain land, buildings and
improvements. At March 31, 2000, mortgage notes payable totalled approximately
$84.3 million. Individual notes ranged from $3.0 million to $21.0 million, with
fixed rates of interest ranging from 6.85% to 8.63% and maturity dates ranging
from September 30, 2001, to January 1, 2013. Net book values of properties
securing these mortgage notes payable totalled approximately $123.9 million at
March 31, 2000, with individual property net book values ranging from $3.7
million to $31.3 million.
In April 2000, the Company obtained a $10,750,000 long-term, non-recourse, fixed
interest rate mortgage note payable secured by land, buildings and improvements
at one of its apartment properties. The net proceeds were used to pay down bank
lines of credit facilities.
NOTE D -- SEGMENT DISCLOSURE
The Company is engaged in two operating segments, the ownership and rental of
retail shopping center properties and apartment properties. These reportable
segments offer different products or services and are managed separately as each
requires different operating strategies and management expertise. There are no
intersegment sales or transfers.
The Company assesses and measures segment operating results based on a
performance measure referred to as Income from Rental Operations and is based on
the revenues and expenses associated with the operations of the real estate
properties. Income from Rental Operations is not a measure of operating results
or cash flows from operating activities as measured by generally accepted
accounting principles, and is not necessarily indicative of cash available to
fund cash needs and should not be considered an alternative to cash flows as a
measure of liquidity.
6
The operating revenues, operating expenses, income from rental operations and
real estate investments for each of the reportable segments are summarized below
for the periods ended March 31, 2000 and 1999.
Quarter Ended March 31
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Retail: 2000 1999
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Operating Revenue $ 7,030,000 $ 7,053,000
Operating Expenses (2,684,000) (2,794,000)
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Income from Retail Rental Operations $ 4,346,000 $ 4,259,000
Apartments:
Operating Revenue $ 5,635,000 $ 5,374,000
Operating Expenses (2,655,000) (2,558,000)
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Income from Apartment Rental Operations 2,980,000 2,816,000
Total Income from Rental Operations $ 7,326,000 $ 7,075,000
Depreciation (2,769,000) (2,639,000)
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Income From Operations 4,557,000 4,436,000
Interest Expense (3,931,000) (3,822,000)
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Net Income $ 626,000 $ 614,000
============ ============
Gross Real Estate Investments:
Retail $207,182,000 $199,704,000
Apartments 134,600,000 131,783,000
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$341,782,000 $331,487,000
============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Operating revenue totalled $12.7 million, compared to $12.4 million reported for
the same period a year ago. Operating revenue for retail centers and apartments
was $7.0 million and $5.6 million, respectively. The increase in operating
revenue was due primarily to increased rental rates and market sustained
occupancy levels at the properties. Income from operations before depreciation
totalled $7.3 million in 2000, compared to $7.1 million in 1999 and depreciation
expense totalled $2.8 million and $2.6 million, respectively, for the same
periods. Operating expenses, net of depreciation, totalled $5.3 million in
2000, compared to $5.4 million in 1999.
Interest expense reflected a net increase of approximately $109,000 due to the
activity described below. During 1999, the Company drew on its bank lines to
fund the following transactions: (i) repaid a mortgage note payable on one of
its retail centers; (ii) made contract payments on the Governors Gate apartment
property and a free-standing Walgreen's store development (of which related
interest has been capitalized); and (iii) funded treasury share repurchases. As
a result of the above activity, bank line interest expense increased $255,000
and mortgage interest expense decreased $146,000, resulting in a net increase of
approximately $109,000. The average bank borrowings were approximately $61.8
million and $50.5 million for the first quarter of 2000 and 1999, respectively,
with an average rate of 7.5% and 6.7%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of working capital for the Company is net cash provided by
operating activities, from which the Company funds normal operating
requirements, debt service obligations, and distributions to shareholders. In
addition, the Company maintains unsecured credit lines with commercial banks,
which it utilizes to supplement cash provided by operating activities and to
initially finance the cost of property development and redevelopment activities,
portfolio
7
acquisitions and other expenditures. At March 31, 2000, the Company had $738,000
in cash and cash equivalents and $85 million in committed bank lines of credit
facilities, of which approximately $21 million was available. Utilization of the
bank lines is subject to certain restrictive covenants that impose maximum
borrowing levels by the Company through the maintenance of certain prescribed
financial ratios.
Net cash flows provided by operating activities decreased $2.4 million in the
first quarter of 2000 compared to the same period in 1999. The decrease was
principally attributable to a net decrease in contractor retainages relating to
development activities.
Net cash flows used in investing activities increased approximately $378,000 in
2000 from 1999, primarily attributable to increased development activities.
Net cash flows provided by financing activities increased $2.4 million in 2000
from 1999 due to (i) an increase in the utilization of bank lines ($1.7 million)
for development and redevelopment projects; (ii) and pursuant to the direct
stock purchase and dividend reinvestment plan, the issuance of common stock
increased by approximately 59,000 shares at a total amount of approximately
$517,000.
As of March 31, 2000, twelve of the Company's properties, comprising
approximately 45% of its gross investment in real estate, were subject to a
total of $84.3 million in mortgage obligations, all of which are long-term, non-
recourse and bear fixed rates of interest for fixed terms. The remaining
eighteen properties and vacant parcels of land in the portfolio are currently
unencumbered by debt. The Company anticipates that its current cash balance,
operating cash flows, and borrowing capacity (including borrowings under its
lines of credit) will be adequate to fund the Company's future (i) operating and
administrative expenses, (ii) debt service obligations, (iii) distributions to
shareholders, (iv) development activities, (v) capital improvements on existing
properties, and (vi) typical repair and maintenance expenses at its properties.
The Company's current dividend policy is to pay quarterly dividends to
shareholders, based upon funds from operations, as well as other factors. As
funds from operations excludes the deduction of certain non-cash charges,
principally depreciation on real estate assets, quarterly dividends will
typically be greater than net income and may include a tax-deferred return of
capital component. The Board of Directors, on May 12, 2000, declared a cash
dividend of $0.23 per share, a 4.5% increase from $0.22 per share from the prior
quarter. This dividend, for the period January 1, 2000 through March 31, 2000 is
payble to shareholders of record as of May 29, 2000.
FUNDS FROM OPERATIONS
Real estate industry analysts and the Company utilize the concept of funds from
operations as an important analytical measure of a Real Estate Investment
Trust's financial performance. The Company considers funds from operations in
evaluating its operating results and its dividend policy, as previously
mentioned, is also based, in part, on the concept of funds from operations.
Funds from operations (FFO) is defined by the Company and the National
Association of Real Estate Investment Trusts (NAREIT) as net income, excluding
gains or losses from sales of property and those items defined as
"extraordinary" under generally accepted accounting principles (GAAP), plus
depreciation on real estate assets and after adjustments for unconsolidated
partnerships to reflect funds from operations on the same basis. Funds from
operations do not represent cash flows from operations as defined by GAAP, nor
is it indicative that cash flows are adequate to fund all cash needs, including
distributions to shareholders. Funds from operations should not be considered
as an alternative to net income as defined by GAAP or to cash flows as a measure
of liquidity. A reconciliation of net income to basic funds from operations is
presented below (in thousands).
8
Quarter Ended March 31
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2000 1999
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($000) Shares ($000) Shares
----------------- ------------ ------------- ------------
NET INCOME $ 626 7,901 $ 614 7,959
Additions:
Depreciation 2,769 2,639
Partnership depreciation 9 9
Deductions:
Minority depreciation 12 12
Amortization costs 143 146
------ ----- ------ -----
FUNDS FROM OPERATIONS - BASIC $3,249 7,901 $3,104 7,959
====== ===== ====== =====
EFFECTS OF INFLATION
Substantially all of the Company's retail leases contain provisions designed to
provide the Company with a hedge against inflation. Most of the Company's
retail leases contain provisions which enable the Company to receive percentage
rentals based on tenant sales in excess of a stated breakpoint and/or provide
for periodic increases in minimum rent during the lease term. Also, the
majority of the Company's retail leases are for terms of less than ten years,
which allows the Company to adjust rentals to changing market conditions. In
addition, most retail leases require tenants to contribute towards property
operating expenses, thereby reducing the Company's exposure to higher costs
caused by inflation. Apartment leases are written for short terms, generally
six to twelve months.
FUTURE RESULTS
This Form 10-Q and other documents prepared and statements made by the Company,
may contain certain forward-looking statements that are subject to risk and
uncertainty. Investors and potential investors in the Company's securities are
cautioned that a number of factors could adversely affect the Company and cause
actual results to differ materially from those in the forward-looking
statements, including, but not limited to (a) the inability to lease current or
future vacant space in the Company's properties; (b) decisions by tenants and
anchor tenants who own their space to close stores at the Company's properties;
(c) the inability of tenants to pay rent and other expenses; (d) tenant
bankruptcies; (e) decreases in rental rates available from tenants; (f)
increases in operating costs at the Company's properties; (g) lack of
availability of financing for acquisition, development and rehabilitation of
properties by the Company; (h) increases in interest rates; (i) Year 2000
issues; (j) a general economic downturn resulting in lower retail sales and
causing downward pressure on occupancies and rents at retail properties; as well
as (k) the adverse tax consequences if the Company were to fail to qualify as a
REIT in any taxable year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We incorporate by reference the disclosure contained in Item 7a, Quantitative
and Qualitative Disclosures About Market Risk, of the Company's Form 10-K, for
the year ended December 31, 1999. There have been no material changes during
the first three months of 2000.
9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Company is a party
or to which any of its properties is subject, which in the opinion of
management and its litigation counsel has resulted or will result in any
material adverse effect on the financial position of the Company.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIZELER PROPERTY INVESTORS, INC.
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(Registrant)
By: /s/ Robert A. Whelan
--------------------------------
Robert A. Whelan
Chief Financial Officer
By: /s/ Ross A. Burkenstock
--------------------------------
Ross A. Burkenstock
Controller
Date: May 10, 2000
10