SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
___________
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, 1996
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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
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SIZELER PROPERTY INVESTORS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 72-1082589
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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
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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 [X] No
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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.
8,422,369 shares of Common Stock ($.01 Par Value) were outstanding as
of May 6, 1996.
Page 1 of 13 Pages
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
INDEX
PAGE
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Part I: FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
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 8-10
Part II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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PART I
FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
March 31, December 31,
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1996 1995
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ASSETS
Real estate investments:
Land $ 48,434,000 $ 48,402,000
Buildings and improvements, net of
accumulated depreciation of $31,103,000
in 1996 and $29,041,000 in 1995 218,397,000 218,478,000
Investment in real estate partnership 958,000 963,000
------------ ------------
267,789,000 267,843,000
Cash and cash equivalents 1,129,000 1,274,000
Accounts receivable and accrued revenue,
net of allowance for doubtful accounts
of $187,000 in 1996 and $166,000 in 1995 2,765,000 3,088,000
Prepaid expenses and other assets 9,269,000 9,652,000
------------ ------------
Total Assets $280,952,000 $281,857,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 68,445,000 $ 68,317,000
Notes payable 52,879,000 51,419,000
Accounts payable and accrued expenses 2,378,000 2,762,000
Tenant deposits and advance rents 878,000 896,000
Commitments and contingencies --- ---
Minority interest in real estate
partnerships 262,000 262,000
------------ ------------
124,842,000 123,656,000
Convertible subordinated debentures 62,878,000 62,878,000
------------ ------------
Total Liabilities 187,720,000 186,534,000
------------ ------------
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--8,946,069
in 1996 and 8,930,069 in 1995 90,000 89,000
Additional paid-in capital 127,417,000 127,273,000
Accumulated distributions in excess of
net earnings (29,305,000) (27,580,000)
------------ ------------
98,202,000 99,782,000
Treasury shares, at cost, 523,700 shares
in 1996 and 460,900 in 1995 (4,969,000) (4,454,000)
Unrealized loss on securities (1,000) (5,000)
------------ ------------
Total Shareholders' Equity 93,232,000 95,323,000
------------ ------------
Total Liabilities and
Shareholders' Equity $280,952,000 $281,857,000
============ ============
See notes to consolidated financial statements.
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SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Quarter Ended Mar. 31,
1996 1995
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OPERATING REVENUE
Rents and other income $10,824,000 $10,498,000
Equity in income of partnership 25,000 22,000
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10,849,000 10,520,000
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OPERATING EXPENSES
Management & leasing fees 534,000 522,000
Utilities 448,000 440,000
Real estate taxes 792,000 788,000
Operations & maintenance 1,504,000 1,512,000
Administrative expenses 524,000 512,000
Other operating expenses 612,000 563,000
Depreciation & amortization 2,218,000 1,945,000
----------- -----------
6,632,000 6,282,000
----------- -----------
INCOME FROM OPERATIONS 4,217,000 4,238,000
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OTHER INCOME (EXPENSES)
Interest, dividends, and other income 46,000 8,000
Interest expense (3,672,000) (3,551,000)
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(3,626,000) (3,543,000)
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INCOME BEFORE EXTRAORDINARY ITEM 591,000 695,000
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Extraordinary item--early extinguishment
of debt (449,000) ---
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NET INCOME $ 142,000 $ 695,000
=========== ===========
PER SHARE DATA:
Income before extraordinary item $ 0.07 $ 0.08
=========== ===========
Extraordinary item (0.05) ---
=========== ===========
Net income $ 0.02 $ 0.08
=========== ===========
See notes to consolidated financial statements.
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SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
THREE MONTHS ENDED MARCH 31,
1996 1995
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OPERATING ACTIVITIES:
Net income $ 142,000 $ 695,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,218,000 1,945,000
Extraordinary item--early extinguishment
of debt 449,000 ---
(Increase) decrease in accounts receivable
and accrued revenue 323,000 (56,000)
Decrease in prepaid expenses and other
assets 12,000 125,000
Decrease in accounts payable and accrued
expenses (384,000) (1,214,000)
Other, net 26,000 66,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,786,000 1,561,000
----------- -----------
INVESTING ACTIVITIES:
Acquisitions of real estate investments, net
of debt assumed --- (4,747,000)
Improvements to real estate investments (2,008,000) (3,356,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,008,000) (8,103,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable and notes
payable to banks 1,635,000 19,825,000
Principal payments on mortgage notes payable
and notes payable to banks (47,000) (9,032,000)
Debt issuance costs and mortgage escrow deposits (217,000) (884,000)
Cash dividends paid (1,866,000) (2,500,000)
Issuance of shares pursuant to stock option
plans 88,000 ---
Purchases of treasury shares (516,000) (157,000)
Minority interest in real estate
partnerships --- 4,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES (923,000) 7,256,000
----------- -----------
Net increase (decrease) in cash and cash
equivalents (145,000) 714,000
Cash and cash equivalents at
beginning of year 1,274,000 1,423,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,129,000 $ 2,137,000
=========== ===========
See notes to consolidated financial statements.
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SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying 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, 1996,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. The consolidated balance sheet at December 31, 1995,
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, 1995.
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. The Company's investment in a
real estate partnership at March 31, 1996 and 1995 represents a 50% interest in
a partnership which owns a community shopping center and is accounted for by the
equity method.
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. Betterments and major replacements are capitalized and the replaced
asset and accumulated depreciation is removed from the accounts. Tenant
improvement costs are depreciated using the straight-line method over the term
of the related leases. Maintenance and repairs are expensed in the period
incurred.
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 specific levels. Tenant reimbursements are recognized as the
applicable services are rendered or related expenses incurred.
FEDERAL 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. As a REIT, the Company is
allowed to reduce taxable income by all or a portion of its distribution to
shareholders. As distributions have exceeded taxable income, no provision for
federal or state income taxes has been recorded.
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.
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SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE: Primary earnings per share is based upon the weighted
average number of shares outstanding. The weighted average number of shares
outstanding were 8,463,000 and 8,924,000 for the three months ended March 31,
1996 and 1995, 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 1996
and 1995, due to their antidilutive effect.
EXTRAORDINARY ITEM: Unamortized financing costs in connection with the early
extinguishment of two mortgage notes payable, totalling approximately $20
million, are reflected in the Consolidated Statement of Income as an
extraordinary item.
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, 1996, are as follows:
Interest Maturity Book Mortgage
Rate Date Value Balance
- - -------- -------------- ------------ -----------
9.75% Sep. 1, 1996 $ 4,544,000 $ 3,452,000
9.00% Mar. 1, 1997 3,344,000 2,220,000
10.88% Dec. 1, 1999 4,499,000 3,553,000
7.44% Feb. 1, 2001 19,035,000 12,200,000
7.44% Feb. 1, 2001 12,397,000 7,800,000
8.35% May 1, 2000 27,671,000 16,000,000
8.25% Jul. 1, 2000 10,499,000 6,835,000
7.70% Nov. 1, 2000 3,764,000 3,000,000
7.70% Nov. 1, 2000 4,002,000 3,600,000
7.70% Nov. 1, 2000 4,387,000 3,250,000
7.70% Nov. 1, 2000 5,062,000 3,220,000
7.70% Nov. 1, 2000 4,900,000 3,315,000
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$104,104,000 $68,445,000
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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 may 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.
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Financial Information (continued)
RESULTS OF OPERATIONS
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Income from operations totalled $4.22 million for the period ended March 31,
1996, compared to $4.24 million for the same period in 1995. Income from
operations before depreciation increased $263,000 (4%), due principally to the
operating performance of the Company's real estate properties experiencing
overall income growth, and, to a lesser extent, the acquisition of an apartment
property in mid-January of 1995. Operating revenue from shopping centers and
apartments increased $70,000 and $260,000, respectively, a combined total
increase of $330,000 (3%), and were 92% and 97% leased, respectively. Operating
expenses before depreciation experienced a slight increase of $67,000 (2%).
Depreciation increased $273,000 (14%) primarily due to capital improvements made
to the Company's real estate portfolio during 1995.
Interest expense increased $121,000 for the quarter ended March 31, 1996,
compared to that of 1995, attributable to the following: (1) an increase of
$80,000 in mortgage interest expense resulting from mortgage financings
completed after the first quarter of 1995 ($32.6 million principal amount at an
average interest rate of 7.9%), offset by a reduction in mortgage debt resulting
from repaying $25.8 million after the first quarter of 1995; and (2) an
increase of $41,000 of interest expense on bank debt (average bank borrowings
were approximately $52.1 million and $41.0 million, with an average rate of
interest of 7.2% and 8.7% for the first quarter of 1996 and 1995, respectively).
In January of 1996, the Company completed the refinancing of two mortgages,
totalling approximately $20 million, whereby the Company realized a reduction in
the interest rate on those borrowings of approximately 200 basis points. As a
result thereof, net income for the three months ended March 31, 1996, compared
to that of the same period in 1995, decreased in the aggregate and on a per-
share basis, principally attributable to an extraordinary charge of $449,000,
resulting from expensing deferred financing costs associated with the
refinancing of mortgage debt, and also attributable to increased depreciation
expense due to additional investment in real estate properties, and interest
expense resulting from increased borrowings from capital improvements to real
estate properties.
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
and distributions to shareholders. In addition, the Company maintains unsecured
credit lines with commercial banks, which it utilizes to temporarily finance the
cost of portfolio growth, property improvements, and other expenditures. At
March 31, 1996, the Company had $1.1 million of cash and cash equivalents and
bank commitments for a total of $95.0 million of lines of credit, of which
approximately $42 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 prescribed debt-to-equity or other
financial ratios.
Net cash flows provided by operating activities increased $1.2 million in the
first quarter of 1996 compared to the same period in 1995, attributable to an
increase in income from operations before depreciation, as described in the
previous section, in addition to changes in operating assets; offset by a
decrease in accrued payables primarily from the payment of six months' accrued
interest on the Company's convertible subordinated debentures in January 1996.
Net cash flows used in investing activities decreased $6.1 million in 1996 from
1995, attributable to a decrease in the acquisition of real estate property,
and, to a lesser extent, a decrease in improvements to existing properties. The
decrease in improvements to existing properties was the result of the completion
of renovation programs at two of the Company's shopping centers during 1995.
These renovation programs were under non-cancellable construction contracts with
non-affiliated companies. The Company had no major commitments for capital
improvements at March 31, 1996.
- 8 -
Net cash flows provided by financing activities decreased $8.2 million in the
first three months of 1996 from that of 1995, primarily attributable to mortgage
debt financing completed in the first quarter of 1995, and treasury shares
repurchased in the first quarter of 1996. In 1995, the Company completed
mortgage debt financing totalling $19.8 million, from which the Company paid
down variable-rate bank debt, and funded investing activity and other
requirements, with the remaining proceeds. Bank lines were also used to finance
capital improvements and other investments, which resulted in subsequent
increases in bank debt. The principal purpose of the debt financing was to
limit exposure to rising interest rates by replacing a substantial amount of the
Company's variable-rate, short-term debt with fixed-rate, long-term debt.
As of March 31, 1996, thirteen of the Company's properties, comprising
approximately 37% of its gross investment in real estate, were subject to a
total of $68.4 million in mortgage debt, all of which bears a fixed rate of
interest for a fixed term. The remainder of the portfolio may be available for
additional debt financing, if determined appropriate. 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
future (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.
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 on real estate assets, quarterly dividends
will typically be greater than net income and may include a tax-deferred return
of capital component. On May 10, 1996, the Company's Board of Directors declared
a cash dividend with respect to the period January 1, 1996 through March 31,
1996, of $.22 per share, payable on June 6, 1996, to shareholders of record as
of May 24, 1996.
FUNDS FROM OPERATIONS
On January 1, 1996, the Company adopted a new definition of funds from
operations, in keeping with industry guidelines as established by the National
Association of Real Estate Investment Trusts (NAREIT). Real estate industry
analysts utilize the concept of funds from operations as an important analytical
measure of a REIT's financial performance. The Company considers funds from
operations in evaluating its operating results, and its dividend policy is also
based, in part, on the concept of funds from operations.
Funds from operations is defined by the Company as net income, excluding gains
(or losses) from sales of property and other non-operating extraordinary items,
plus depreciation on real estate assets, and after adjustments for
unconsolidated partnerships to reflect funds from operations on the same basis.
Funds from operations does not represent cash flows from operations as defined
by generally accepted accounting principles, nor is it indicative that cash
flows are adequate to fund all cash needs. Funds from operations is not to be
considered as an alternative to net income as defined by generally accepted
accounting principles or to cash flows as a measure of liquidity.
For the quarter ended March 31, 1996, funds from operations totalled $2.65
million, compared to $2.52 million for the same period in 1995, an increase of
$130,000 (5.0%). The increase in funds from operations is the result of an
increase in income from operations before depreciation, attributable to the
operating performance of the Company's real estate properties which experienced
overall income growth, primarily from higher rental rates and, to a lesser
extent, the acquisition of an apartment property in mid-January 1995; offset by
a slight increase in interest expense due to higher average borrowings. Under
the new
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definition of funds from operations, the Company's funds from operations for the
three months ended March 31, 1996 and 1995, is calculated as follows:
1996 1995
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Net Income $ 142,000 $ 695,000
Adjustments:
Depreciation 2,218,000 1,945,000
Extraordinary item 449,000 ---
Equity in depreciation of real estate
partnerships (3,000) 2,000
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Funds From Operations (old definition) 2,806,000 2,642,000
---------- ----------
Adjustments:
Depreciation and amortization* (154,000) (123,000)
---------- ----------
Funds From Operations (new definition) $2,652,000 $2,519,000
========== ==========
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* includes depreciation and/or amortization on deferred financing costs and
non-real estate assets.
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.
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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 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.
At the Company's Annual Meeting of Shareholders, held on May 10,
1996, the following matters were submitted for voting by the shareholders:
(1) Election of Two Directors - The shareholders re-elected Francis
L. Fraenkel and Sidney W. Lassen to serve until the Annual Meeting of
Shareholders in 1999 or until their successors are duly elected and qualified
(the terms of office of J. Terrell Brown, Harold B. Judell, James W. McFarland,
Thomas A. Masilla, Jr., Richard L. Pearlstone, and Theodore H. Strauss continued
after the meeting).
Votes Votes
Directors For Withheld
--------- ----- --------
Francis L. Fraenkel 7,006,670.713 200,027.157
Sidney W. Lassen 7,006,370.713 200,327.157
(2) Ratification of the 1996 Stock Option Plan -
Votes Votes Votes
For Against Abstaining
----- ------- ----------
6,570,706.75 371,930.024 264,061.096
(3) Ratification of an Amendment to the 1994 Directors' Stock
Ownership Plan -
Votes Votes Votes
For Against Abstaining
----- ------- ----------
6,560,652.081 377,683.589 268,362.2
ITEM 5. OTHER INFORMATION.
None.
- 11 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
- 12 -
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.
--------------------------------------
(Registrant)
BY: /s/ Thomas A. Masilla, Jr.
-----------------------------------
Thomas A. Masilla, Jr.
Vice Chairman and President
(Principal Operating and
Financial Officer)
Date: May 14, 1996
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