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 SEPTEMBER 30, 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 mark 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 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.
8,422,669 shares of Common Stock ($.01 Par Value) were outstanding as
of November 11, 1996.
Page 1 of 10 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
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 10
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PART I
FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
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1996 1995
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ASSETS
Real estate investments:
Land $ 48,641,000 $ 48,402,000
Buildings and improvements, net of
accumulated depreciation of $35,343,000
in 1996 and $29,041,000 in 1995 217,395,000 218,478,000
Investment in real estate partnership 950,000 963,000
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266,986,000 267,843,000
Cash and cash equivalents 398,000 1,274,000
Accounts receivable and accrued revenue,
net of allowance for doubtful accounts
of $215,000 in 1996 and $166,000 in 1995 3,049,000 3,088,000
Prepaid expenses and other assets, net 8,901,000 9,652,000
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Total Assets $279,334,000 $281,857,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 68,365,000 $ 68,317,000
Notes payable 52,139,000 51,419,000
Accounts payable and accrued expenses 4,242,000 2,762,000
Tenant deposits and advance rents 838,000 896,000
Commitments and contingencies --- ---
Minority interest in real estate
partnerships 272,000 262,000
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125,856,000 123,656,000
Convertible subordinated debentures 62,878,000 62,878,000
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Total Liabilities 188,734,000 186,534,000
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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--8,946,369
in 1996 and 8,930,069 in 1995 90,000 89,000
Additional paid-in capital 127,420,000 127,273,000
Accumulated distributions in excess of
net earnings (31,935,000) (27,580,000)
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95,575,000 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 (6,000) (5,000)
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Total Shareholders' Equity 90,600,000 95,323,000
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Total Liabilities and
Shareholders' Equity $279,334,000 $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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
OPERATING REVENUE
Rents and other income $11,142,000 $10,734,000 $32,856,000 $ 31,812,000
Equity in income of partnership 25,000 24,000 75,000 77,000
------------ ----------- ----------- ------------
11,167,000 10,758,000 32,931,000 31,889,000
------------ ----------- ----------- ------------
OPERATING EXPENSES
Management & leasing 548,000 446,000 1,619,000 1,409,000
Utilities 548,000 521,000 1,494,000 1,417,000
Real estate taxes 892,000 806,000 2,473,000 2,384,000
Operations & maintenance 1,618,000 1,557,000 4,706,000 4,641,000
Administrative expenses 517,000 424,000 1,557,000 1,464,000
Other operating expenses 591,000 529,000 1,799,000 1,684,000
Depreciation & amortization 2,303,000 2 137,000 6,781,000 6,183,000
------------ ----------- ----------- ------------
7,017,000 6,420,000 20,429,000 19,182,000
------------ ----------- ----------- ------------
INCOME FROM OPERATIONS 4,150,000 4,338,000 12,502,000 12,707,000
------------ ----------- ----------- ------------
OTHER INCOME (EXPENSES)
Interest, dividends, and other income 12,000 10,000 71,000 34,000
Interest expense (3,631,000) (3,656,000) (10,905,000) (10,733,000)
------------ ----------- ----------- ------------
(3,619,000) (3,646,000) (10,834,000) (10,699,000)
------------ ----------- ----------- ------------
INCOME BEFORE EXTRAORDINARY ITEM 531,000 692,000 1,668,000 2,008,000
------------ ----------- ----------- ------------
Extraordinary item--early
extinguishment of debt --- --- (449,000) ---
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NET INCOME $ 531,000 $ 692,000 $ 1,219,000 $ 2,008,000
============ =========== =========== ============
PER SHARE DATA:
Income before
extraordinary item $ 0.06 $ 0.08 $ 0.19 $ 0.23
============ =========== =========== ============
Extraordinary item $ --- $ --- $ (0.05) $ ---
============ =========== =========== ============
Net income $ 0.06 $ 0.08 $ 0.14 $ 0.23
============ =========== =========== ============
See notes to consolidated financial statements.
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SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
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OPERATING ACTIVITIES:
Net income $ 1,219,000 $ 2,008,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,781,000 6,183,000
Extraordinary item--early extinguishment
of debt 449,000 ---
Decrease in accounts receivable and
accrued revenue 39,000 85,000
(Increase) decrease in prepaid expenses
and other assets 580,000 (302,000)
Increase (decrease) in accounts payable
and accrued expenses 1,480,000 (541,000)
Other, net (20,000) 146,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES 10,528,000 7,579,000
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INVESTING ACTIVITIES:
Acquisitions of real estate investments, net
of debt assumed --- (4,747,000)
Improvements to real estate investments (5,445,000) (9,016,000)
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NET CASH USED IN INVESTING ACTIVITIES (5,445,000) (13,763,000)
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FINANCING ACTIVITIES:
Proceeds from mortgage notes payable and notes
payable to banks 895,000 45,008,000
Principal payments on mortgage notes payable
and notes payable to banks (127,000) (25,986,000)
Debt issuance costs and mortgage escrow deposits (739,000) (2,328,000)
Cash dividends paid (5,572,000) (7,437,000)
Issuance of shares pursuant to stock option
plans 90,000 25,000
Purchases of treasury shares (516,000) (3,642,000)
Minority interest in real estate
partnerships 10,000 15,000
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NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (5,959,000) 5,655,000
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Net decrease in cash and cash equivalents (876,000) (529,000)
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 $ 398,000 $ 894,000
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See notes to consolidated financial statements.
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SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE A -- 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 and nine-month periods ended September 30, 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.
NOTE B -- 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 Statements of Income as an extraordinary item.
NOTE C -- 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 8,423,000
and 8,557,000 for the three months ended September 30, 1996 and 1995,
respectively and 8,436,000 and 8,757,000 for the nine months ended September 30,
1996 and 1995, respectively.
NOTE D -- MORTGAGE NOTES PAYABLE
The Company's mortgage notes payable are secured by certain land, buildings, and
improvements. At September 30, 1996, mortgage notes payable totalled $68.4
million. Individual notes ranged from $2.2 million to $16.0 million, with fixed
rates of interest ranging from 7.44% to 10.88%, and maturity dates ranging from
March 1, 1997, to September 30, 2001. Net book values of properties securing
these mortgage notes payable totalled $104.2 million at September 30, 1996, with
individual property net book values ranging from $3.3 million to $27.4 million.
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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 SEPTEMBER 30, 1996 AND 1995
Income from operations for the quarters ended September 30, 1996 and 1995,
totalled $4.2 million and $4.3 million, respectively. Operating revenue from
shopping centers and apartments increased approximately $125,000 and $275,000,
respectively, resulting in a combined increase of $400,000, attributable to
higher rental rates on new and renewed leases, coupled with higher occupancy
levels. The shopping centers and apartments were 92% and 98% leased at September
30, 1996, respectively. The shopping center leased percentage of 92% does not
include a lease that has been executed between the Company and a single retail
tenant for approximately 85,000 square feet of space, subject to certain
conditions which the Company expects to be fulfilled in the fourth quarter of
1996. Operating expenses, before depreciation, increased $431,000, hence income
from operations, before depreciation, totalled $6.5 million, and is flat in
comparison to the same period a year ago. Depreciation increased $166,000
primarily due to capital improvements made to the Company's real estate
properties during 1995 and 1996.
Interest expense decreased $25,000 for the quarter ended September 30, 1996,
compared to the same period in 1995, attributable to the following: (1) a
decrease of approximately $45,000 of interest expense on bank debt (average bank
borrowings were approximately $51.3 million and $45.9 million, with an average
interest rate of 7.1% and 8.4% for the third quarter of 1996 and 1995,
respectively), offset by; (2) an increase of approximately $20,000 in mortgage
interest expense due to: (i) mortgage debt financings totalling approximately
$16.4 million completed during the fourth quarter of 1995, (ii) repayment of
approximately $25.0 million of mortgage debt during the third quarter of 1995,
and (iii) refinancing existing mortgage debt of approximately $20.0 million in
the first quarter of 1996, whereby there was a reduction in the interest rate of
approximately 200 basis points.
Net income for the quarter ended September 30, 1996, compared to the same
period a year ago, decreased in the aggregate and on a per-share basis,
primarily due to increased depreciation as explained above.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Income from operations totalled $12.5 million for the nine-month period ended
September 30, 1996, compared to $12.7 million for the same period in 1995.
Operating revenue from shopping centers and apartments increased approximately
$250,000 and $790,000, respectively, resulting in a combined total increase of
$1.0 million (3%), attributable primarily to higher rental rates coupled with
higher occupancy, and to a lesser extent, the acquisition of an apartment
property in mid-January of 1995. Operating expenses, before depreciation,
increased $649,000 (5%), and income from operations, before depreciation,
increased $393,000 (2%). Depreciation increased $598,000 (10%) due to capital
improvements made to the Company's real estate properties during 1995 and 1996.
Interest expense increased $172,000 for the nine months ended September 30,
1996, compared to that of 1995, attributable to the following: (1) an increase
of $288,000 in interest expense on bank debt (average bank borrowings were
approximately $51.8 million and $43.2 million, with an average interest rate of
7.1% and 7.6% for the nine month periods in 1996 and 1995, respectively), offset
by; (2) a net decrease of $116,000 in mortgage interest expense for the same
reasons as stated above in the discussion of the three month comparison.
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. This
refinancing resulted in an extraordinary charge of $449,000. Net income for the
nine months ended September 30, 1996, compared to that of the same period in
1995, decreased in the aggregate and on a per-share basis, due principally to
the extraordinary charge, combined with the increase in depreciation expense,
and interest expense previously explained.
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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
September 30, 1996, the Company had $400,000 of cash and cash equivalents and
bank commitments totalling $95 million in lines of credit, of which
approximately $43 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 $2.9 million in the
first nine months of 1996 compared to the same period in 1995, attributable to
an increase in income from operations before depreciation, the recognition of an
extraordinary item associated with the early extinguishment of mortgage debt,
and a net decrease in operating assets offset by a net increase in operating
liabilities.
Net cash flows used in investing activities decreased $8.3 million in 1996
from 1995, attributable to a decrease in the acquisition of and capital
improvements made to real estate properties. The decrease in improvements to
properties was the result of the completion in 1995 of renovation programs at
two of the Company's shopping centers. The Company had no material commitments
for capital improvements at September 30, 1996.
Net cash flows provided by financing activities decreased $11.6 million in the
first nine months of 1996 from that of 1995, primarily due to mortgage debt
financings completed in the first nine months of 1995, offset by a decrease in
treasury shares purchased in the first nine months of 1996 compared to 1995. In
the first nine months of 1995, the Company completed mortgage debt financing
totalling $35.8 million, which the Company utilized to reduce variable-rate bank
debt, and to fund investment activity. The principal purpose of the mortgage
debt financing was to limit exposure to rising interest rates by replacing a
substantial amount of the Company's variable-rate, short-term bank debt with
fixed-rate, long-term debt. Bank debt was subsequently increased due to the
financing of capital improvements to real estate properties.
As of September 30, 1996, thirteen of the Company's properties, comprising
approximately 38% 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 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 in accordance with Internal
Revenue Code requirements for a Real Estate Investment Trust ("REIT"), (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 most 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 November 7, 1996, the Company's Board
of Directors declared a cash dividend with respect to the period July 1, 1996,
through September 30, 1996, of $.22 per share, payable on December 10, 1996, to
shareholders of record as of November 26, 1996.
-8-
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, in keeping with the
definition established by NAREIT, 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 necessarily indicative that cash flows
are adequate to fund all cash needs. Funds from operations is not to be
considered an alternative to net income, as defined by generally accepted
accounting principles, or to cash flows as a measure of liquidity.
For each of the quarters ended September 30, 1996 and 1995, funds from
operations totalled $2.7 million. For the nine months ended September 30, 1996,
funds from operations increased approximately $210,000 (3%), from $7.8 million
in 1995 to $8.0 million in 1996. The increase in funds from operations is
attributable to the operating performance of the Company's real estate
properties which experienced overall income growth, primarily from higher rental
rates coupled with higher occupancy 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 a higher level of average borrowings.
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 nine to
twelve months.
-9-
PART II
OTHER INFORMATION
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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.
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
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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: November 13, 1996
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