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, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 1-9349
SIZELER PROPERTY INVESTORS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1082589
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2542 WILLIAMS BOULEVARD, KENNER LOUISIANA 70062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (504) 471-6200
- -------------------------------------------------------------------------
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.
8,779,519 shares of Common Stock ($0.01 Par Value)
were outstanding as of May 12, 1995.
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
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 11
2
PART I
FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994
(unaudited) (Note A)
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ASSETS
Real estate investments:
Land $ 47,634,000 $ 46,918,000
Buildings and improvements, net of accumulated
depreciation of $23,119,000 in 1995 and $21,309,000
in 1994 216,078,000 210,498,000
Investment in real estate partnership 970,000 973,000
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264,682,000 258,389,000
Cash and cash equivalents 2,137,000 1,423,000
Accounts receivable and accrued revenue, net of allowance
for doubtful accounts for $352,000 in 1995 and $321,000
in 1994 2,987,000 2,931,000
Prepaid expenses and other assets 7,802,000 7,180,000
------------ ------------
Total Assets $277,608,000 $269,923,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 61,881,000 $ 42,139,000
Notes payable 44,038,000 52,987,000
Accounts payable and accrued expenses 2,905,000 4,119,000
Tenant deposits and advance rents 860,000 845,000
Minority interest in real estate partnerships 249,000 245,000
------------ ------------
109,933,000 100,335,000
Convertible subordinated debentures 62,878,000 62,878,000
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Total Liabilities 172,811,000 163,213,000
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SHAREHOLDERS' EQUITY
Preferred stock, 3,000,000 shares authorized,
none issued -- --
Common stock, par value $.01 per share, 15,000,000 shares
authorized, shares issued and outstanding--8,927,319 in
1995 and 8,922,819 in 1994 89,000 89,000
Additional paid-in-capital 127,248,000 127,199,000
Accumulated distributions in excess of net earnings (22,356,000) (20,551,000)
------------ ------------
104,981,000 106,737,000
Treasury shares, at cost, 15,000 shares in 1995 (157,000) --
Unrealized loss on securities (27,000) (27,000)
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Total Shareholders' Equity 104,797,000 106,710,000
------------ ------------
Total Liabilities and Shareholders' Equity $277,608,000 $269,923,000
============ ============
See notes to consolidated financial statements.
3
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1995 1994
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OPERATING REVENUE
Rents and other income $10,498,000 $ 7,732,000
Equity in income of partnership 22,000 9,000
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10,520,000 7,741,000
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OPERATING EXPENSES
Management and leasing 522,000 360,000
Utilities 440,000 350,000
Real estate taxes 788,000 499,000
Operations and maintenance 1,512,000 1,039,000
Other operating expenses 563,000 385,000
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3,825,000 2,633,000
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INCOME FROM RENTAL OPERATIONS 6,695,000 5,108,000
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OTHER INCOME (EXPENSES)
Interest and other income 8,000 44,000
Interest expense (3,551,000) (1,809,000)
Administrative expenses (512,000) (424,000)
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(4,055,000) (2,189,000)
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INCOME BEFORE DEPRECIATION, GAIN ON SALE
OF REAL ESTATE AND OTHER SECURITIES 2,640,000 2,919,000
----------- -----------
Depreciation (1,945,000) (1,314,000)
Gain on sale of investments in real estate
companies and other securities -- 8,000
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NET INCOME $ 695,000 $ 1,613,000
=========== ===========
Net income per share $ .08 $ 0.18
=========== ===========
See notes to consolidated financial statements.
4
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1995 1994
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OPERATING ACTIVITIES:
Net income $ 695,000 $ 1,613,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,945,000 1,314,000
Gain on sale of real estate companies and other securities -- (8,000)
Equity in depreciation of real estate partnership 2,000 16,000
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2,642,000 2,935,000
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Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and accrued revenue (56,000) 53,000
Increase in prepaid expenses and other assets (759,000) (288,000)
Increase in accounts payable and accrued expenses (1,214,000) (1,043,000)
Increase (decrease) in tenant deposits and advance rents 15,000 (51,000)
----------- -----------
(2,014,000) (1,329,000)
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Net Cash Provided by Operating Activities 628,000 1,606,000
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INVESTING ACTIVITIES:
Improvements to and acquisitions of real estate investments (8,103,000) (3,124,000)
----------- -----------
Net Cash Used In Investing Activities (8,103,000) (3,124,000)
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FINANCING ACTIVITIES:
Proceeds from mortgage notes payable and notes payable to banks 19,825,000 1,000,000
Principal payments on mortgage notes payable and notes payable
to banks (9,032,000) (2,076,000)
Cash dividends paid (2,500,000) (2,403,000)
Issuance of shares pursuant to Directors' Ownership Plan 49,000 --
Purchases of treasury shares (157,000) --
Minority interest in real estate partnerships 4,000 10,000
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Net Cash Provided By (Used in) Financing Activities 8,189,000 (3,469,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 714,000 (4,987,000)
Cash and cash equivalents at beginning of year 1,423,000 6,299,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,137,000 $ 1,312,000
=========== ===========
See notes to consolidated financial statements.
5
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles 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,
1995, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995. The consolidated balance sheet at December 31,
1994, 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, 1994.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Sizeler Property Investors, Inc., and its majority-owned
subsidiaries and partnerships (the "Company"). All significant intercompany
transactions and accounts have been eliminated in consolidation.
REAL ESTATE INVESTMENTS: Real estate investments are carried at cost.
Depreciation of buildings and improvements is provided by the straight-line
method over the estimated useful lives of the assets, ranging from ten to forty
years. Maintenance and repairs are expensed in the period incurred.
INVESTMENT IN REAL ESTATE PARTNERSHIP: An investment in a partnership for which
the Company owns a 50% interest is accounted for by use of the equity method.
RENTAL INCOME: Rental income includes rents from shopping center and apartment
properties. Minimum rents from shopping center leases are accounted for ratably
over the term of the lease. Percentage rents are recognized based upon tenant
sales that exceed specified levels. Tenant reimbursements are recognized as the
applicable services are rendered or related expenses incurred.
INCOME TAXES: The Company has elected to be taxed as a real estate investment
trust (REIT) under the Internal Revenue Code and intends to maintain its
qualification as a REIT in the future. Accordingly, no provision for federal or
state income taxes was made.
A real estate investment trust is required to distribute to shareholders at
least 95% of its ordinary taxable income. Taxable income differs from net income
for financial reporting purposes principally because of differences in the
method and timing of depreciation of the properties.
EARNINGS PER SHARE: Primary earnings per share is based upon the weighted
average number of shares outstanding. The weighted average number of shares
outstanding
6
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
were 8,924,000 and 8,902,000 for the three months ended March 31, 1995 and 1994,
respectively.
Fully-diluted per share amounts are similarly computed, but include the effect,
when dilutive, of the Company's common stock equivalents. The Company's
outstanding debentures and options are excluded in these calculations for 1995
and 1994, due to their antidilutive effect.
NOTE B--MORTGAGE NOTES PAYABLE
The Company's mortgage notes payable are secured by certain land, buildings, and
improvements. The respective book values of the mortgaged properties and related
mortgage balances at March 31, 1995, are as follows:
Interest Maturity Book Mortgage
Rate Date Value Balance
-------- -------------- ------------ ------------
9.75% Sept. 1, 1996 $ 4,633,000 $ 3,503,000
9.00% Mar. 1, 1997 3,151,000 2,255,000
8.35% Nov. 1, 1996 35,523,000 22,750,000
10.88% Dec. 1, 1999 4,607,000 3,583,000
9.00% Dec. 27, 1999 3,937,000 2,215,000
9.47% Feb. 1, 2000 17,934,000 12,025,000
9.47% Feb. 1, 2000 11,818,000 7,800,000
8.25% July 1, 2000 10,522,000 6,899,000
9.00% Nov. 10, 2000 3,896,000 271,000
8.50% July 15, 2003 4,326,000 580,000
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$100,818,000 $61,881,000
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NOTE C--ISSUANCE OF COMMON STOCK AND CONVERTIBLE SUBORDINATED DEBENTURES
On March 7, 1994, the Company filed a shelf Registration Statement (Form S-3)
with the Securities and Exchange Commission, pursuant to which it proposes to
offer for sale, from time to time, convertible subordinated debentures,
preferred stock, or common stock, with a cumulative public offering price of up
to $150 million. To date, no securities have been issued pursuant to this
Registration.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COMPARISON OF THE QUARTERS ENDED MARCH 31, 1995 AND MARCH 1994.
For the quarter ended March 31, 1995, funds from operations totalled $2.64
million, a decrease of $293,000 (10%) over the same period in 1994. Funds from
operations is defined by the Company as net income, excluding gains (or losses)
7
FINANCIAL INFORMATION (CONTINUED)
RESULTS OF OPERATIONS
from sales of property and other non-operating extraordinary items, plus
depreciation, and after adjustments for unconsolidated partnerships to reflect
funds from operations on the same basis. During the first quarter of 1995, funds
from operations were affected by several factors. The operating performance of
the Company's real estate properties reflected overall growth in income from
rental operations, in line with the Company's expectations. Rising interest
rates, combined with a higher level of borrowings, resulted in increased
interest expense, negatively impacting first quarter 1995 funds from operations.
Operating revenue from all properties in the portfolio for the quarter
ended March 31, 1995, compared to 1994, increased $2.8 million (36%), due
principally to newly-acquired properties, and to a lesser extent, higher rental
rates on properties which were a part of the Company's portfolio during both
comparative periods. Revenue from shopping centers and apartments increased $1.6
million and $1.2 million respectively. Rental operating expenses of all
properties increased $1.2 million (45%); rental operating expenses of shopping
centers and apartments increased $676,000 and $516,000, respectively. Income
from rental operations of all properties increased $1.6 million (31%); income
from rental operations of shopping centers and apartments increased $901,000 and
$687,000, respectively. Depreciation and amortization expense increased $631,000
(48%).
Operating revenue from all properties owned during both comparable periods
increased $331,000 (4%) in 1995, attributable to higher rental rates and higher
average occupancies at certain of the Company's properties. Income from rental
operations of these properties increased $181,000 (4%) for the quarter ended
March 31, 1995, compared to 1994. At March 31, 1995, the Company's shopping
center and apartment properties were 95% and 97% leased, respectively.
Interest expense increased $1.7 million for the quarter ended March 31,
1995, compared to that of 1994, attributable to the following: (1) an increase
of $880,000 in mortgage interest expense resulting from mortgage debt assumed in
the third quarter of 1994 for the term financing of the North Shore Square
Shopping Mall ($22.8 million principal amount at 8.35%); mortgage financing
completed in the first quarter of 1995 on the Lafayette Square, Hampton Park,
and Pine Bend Apartments ($19.8 million principal amount at 9.47%); and (2) $863
of interest expense on bank debt (average bank borrowings were approximately
$48.5 million and $4.5 million, with an average rate of interest of 8.7% and
6.0% for the first quarter of 1995 and 1994, respectively).
Administrative expenses, increased $88,000 (21%) for the quarter ended
March 31, 1995, compared to 1994, principally attributable to increased costs
incurred in connection with the evaluation of potential acquisitions, higher
payroll costs, professional fees, and other administrative costs associated with
the Company's increased portfolio size and capital structure.
The decrease in net income between the quarters ended March 31, 1995 and
1994, in the aggregate and on a per-share basis, was principally attributable to
increased depreciation expense relative to the Company's additional investments
in real estate properties and higher interest expense resulting from increased
borrowings and higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The principal source of working capital for the Company is cash provided by
operations. In addition, at March 31, 1995, the Company had a total of $78
million of unsecured credit lines from commercial banks, of which $34 million
was available. Utilization of the bank lines is subject to certain restrictive
covenants that impose maximum borrowing levels by the Company through the
8
maintenance of prescribed debt-to-equity or other financial ratios. The Company
anticipates that its current cash balance, operating cash flows and borrowings
(including borrowings under its lines of credit) will be adequate to fund the
Company's (i) operating and administrative expenses, (ii) debt service
obligations, (iii) distributions to shareholders, (iv) capital improvements, and
(v) normal repair and maintenance expenses at its properties, both in the short
and long term.
The national economy experienced rising interest rate levels during the
last twelve months. As interest rates rise, the cost of the Company's
borrowings from bank lines of credit also increase, since the interest charged
on these lines is principally tied to floating rate indices, including the prime
lending rate of certain national commercial banks. The Company utilizes its
credit lines to temporarily finance the cost of acquiring real estate properties
and capital improvements. The Company may, from time to time, refinance a part
or all of its short-term bank debt with fixed-rate, term mortgage debt.
As of March 31, 1995, eleven of the Company's properties, comprising
approximately 36% of its gross investment in real estate, were subject to a
total of $61.9 million in mortgage debt, all of which bears a fixed rate of
interest for a fixed term. The remainder of the portfolio would be available, if
determined appropriate, for additional debt financing.
The Company's current dividend policy is to pay quarterly dividends to
shareholders, based upon, among other factors, funds from operations as opposed
to net income. Because funds from operations excludes the deduction of non-cash
charges, principally depreciation, and non-operating items, quarterly dividends
will typically be greater than net income and may, therefore, include a
tax-deferred return of capital component. On May 5, 1995, the Company's Board of
Directors declared a cash dividend with respect to the period January 1, 1995
through March 31, 1995, of $.28 per share, to shareholders of record as of
May 24, 1995.
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.
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 has resulted or will result in any materially 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.
At the Company's Annual Meeting of Shareholders, held on May 11, 1995,
the following matters were submitted for voting by the shareholders:
(1) Election of two directors -- The shareholders elected Harold B.
Judell and Richard L. Pearlstone to serve until the annual meeting of
shareholders in 1998 and until their successors are duly elected and
qualified (the terms of office of Thomas S. Davidson, Francis L.
Fraenkel, Thomas A. Masilla, Jr., James W. McFarland, Sidney W. Lassen,
and Theodore H. Strauss continued after the meeting).
Votes Votes
Directors For Withheld
--------- ----- --------
Harold B. Judell 8,213,810.735 58,574.396
Richard L. Pearlstone 8,235,479.411 36,905.720
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Forms 8-K
None.
10
SIGNATURES
Pursuant to the requirements of the Securities and 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.
(Registrant)
BY: /s/ John J. Gilluly, Jr.
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John J. Gilluly, Jr.
Vice President/Treasurer
Principal Financial and
Accounting Officer
Date: May 12, 1995
11