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, 1998
--------------------
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
- ------------------------------------------------ -----------------
(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 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.
8,439,006 shares of Common Stock ($.01 Par Value) were outstanding as of
May 11, 1998.
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 6-7
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 10
2
PART I
FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1998 1997
--------- ------------
Real estate investments:
Land $ 49,203,000 $ 49,203,000
Buildings and improvements, net of
accumulated depreciation of $48,776,000
in 1998 and $46,454,000 in 1997 214,594,000 214,655,000
Investment in real estate partnership 917,000 904,000
------------ ------------
264,714,000 264,762,000
Cash and cash equivalents 801,000 1,128,000
Accounts receivable and accrued revenue,
net of allowance for doubtful accounts
of $369,000 in 1998 and $281,000 in 1997 2,870,000 2,696,000
Prepaid expenses and other assets 8,969,000 7,759,000
------------ ------------
Total Assets $277,354,000 $276,345,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 90,343,000 $ 90,615,000
Notes payable 34,967,000 32,342,000
Accounts payable and accrued expenses 4,617,000 4,903,000
Tenant deposits and advance rents 859,000 871,000
Minority interest in real estate
partnerships 209,000 209,000
------------ ------------
130,995,000 128,940,000
Convertible subordinated debentures 62,878,000 62,878,000
------------ ------------
Total Liabilities 193,873,000 191,818,000
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, 6,000,000 shares
authorized in 1998, and
3,000,000 shares authorized in 1997,
none issued --- ---
Common stock, par value $.01 per share,
30,000,000 shares authorized in 1998,
15,000,000 shares authorized in 1997,
shares issued and outstanding -- 8,979,806
in 1998 and 8,966,119 in 1997 90,000 90,000
Additional paid-in capital 127,750,000 127,602,000
Accumulated distributions in excess of
net earnings (39,222,000) (38,028,000)
------------ ------------
88,618,000 89,664,000
Treasury shares, at cost, 540,800 shares
in 1998 and 1997 (5,146,000) (5,146,000)
Accumulated other comprehensive income 9,000 9,000
------------ ------------
Total Shareholders' Equity 83,481,000 84,527,000
------------ ------------
Commitments and contingencies --- ---
------------ ------------
Total Liabilities and Shareholders'
Equity $277,354,000 $276,345,000
============ ============
See notes to consolidated financial statements.
3
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended March 31,
1998 1997
------------- ------------
OPERATING REVENUE
Rents and other income $11,750,000 $11,307,000
Equity in income of partnership 27,000 25,000
----------- -----------
11,777,000 11,332,000
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OPERATING EXPENSES
Management & leasing fees 617,000 615,000
Utilities 482,000 482,000
Real estate taxes 876,000 850,000
Operations & maintenance 1,706,000 1,602,000
Administrative expenses 668,000 617,000
Other operating expenses 628,000 581,000
Depreciation & amortization 2,503,000 2,365,000
----------- -----------
7,480,000 7,112,000
----------- -----------
INCOME FROM OPERATIONS 4,297,000 4,220,000
----------- -----------
OTHER INCOME (EXPENSES)
Interest, dividends, & other income 14,000 40,000
Interest expense (3,647,000) (3,654,000)
----------- -----------
(3,633,000) (3,614,000)
----------- -----------
NET INCOME $ 664,000 $ 606,000
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE DATA:
Net income $ 0.08 $ 0.07
=========== ===========
See notes to consolidated financial statements.
4
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
-----------------------------
1998 1997
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OPERATING ACTIVITIES:
Net Income $ 664,000 $ 606,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,503,000 2,365,000
Decrease (increase) in accounts receivable and accrued revenue (174,000) 675,000
Decrease in prepaid expenses and other assets 48,000 95,000
Decrease in accounts payable and accrued expenses (286,000) (1,365,000)
Other, net 120,000 84,000
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,875,000 2,460,000
---------- -----------
INVESTING ACTIVITIES:
Improvements to real estate investments (2,261,000) (1,645,000)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,261,000) (1,645,000)
---------- -----------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable and notes
payable to banks 2,625,000 2,514,000
Principal payments on mortgage notes payable and
notes payable to banks (272,000) (67,000)
Debt issuance costs and mortgage escrow deposits (1,487,000) (904,000)
Cash dividends paid (1,857,000) (1,855,000)
Issuance of shares pursuant to stock option plans 50,000 ---
Purchases of treasury shares --- (145,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (941,000) (457,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents (327,000) 358,000
Cash and cash equivalents at beginning of year 1,128,000 468,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 801,000 $ 826,000
=========== ===========
See notes to consolidated financial statements.
5
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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 months ended March 31, 1998, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. The consolidated balance sheet at December 31, 1997, 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, 1997.
NOTE B -- EARNINGS PER SHARE (EPS)
Basic EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
that would then share in the earnings of the Company. Below is a
reconciliation, for each reporting period, of the basic EPS computation to the
diluted EPS computation considering the effect of dilution on shares of common
stock.
March 31, 1998 March 31, 1997
--------------------------- ---------------------
Shares Per Share Shares Per Share
-------------- ---------- --------- ---------
Basic EPS 8,437,000 $ 0.08 8,426,000 $0.07
Effect of dilutive securities:
Stock options 32,000 22,000
--------- ------- --------- -----
Diluted EPS 8,469,000 $ 0.08 8,448,000 $0.07
========= ======= ========= =====
There was no effect on net income per share in the calculation of diluted EPS.
NOTE C -- MORTGAGE NOTES PAYABLE
The Company's mortgage notes payable are secured by certain land, buildings, and
improvements. At March 31, 1998, mortgage notes payable totalled $90.3 million.
Individual notes ranged from $1.7 million to $22.8 million, with fixed rates of
interest ranging from 7.44% to 10.88%, and maturity dates ranging from March
1, 1999, to January 1, 2013. Net book values of properties securing these
mortgage notes payable totalled $135.8 million at March 31, 1998, with
individual property net book values ranging from $3.3 million to $33.6 million.
(See Note E)
NOTE D -- NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. This Statement requires the
reporting of comprehensive income and its components, the purpose of which is to
report a measure of all changes in equity of an enterprise that result from
recognized transactions and other economic events of the period other than
transactions with owners in their capacity as owners. The term
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comprehensive income is used to describe the total of all components of
comprehensive income, including net income. Other comprehensive income refers to
revenues, expenses, gains, and losses that under Generally Accepted Accounting
Principles (GAAP) are included in comprehensive income, but excluded from net
income. Comprehensive income for the three months ended March 31, 1998 and 1997,
was $664,000 and $610,000, respectively. Other comprehensive income was composed
of unrealized holding gains on marketable securities.
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosure About Segments of an Enterprise
and Related Information. This Statement establishes standards for the way that
public business enterprises report information about operating segments in
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The FASB
also issued SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. This Statement revises disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. The Company has reviewed these Statements and does
not believe the pronouncements will have a material impact on its fiscal 1998
consolidated financial statements.
NOTE E -- SUBSEQUENT EVENTS
On April 30, 1998, the Company completed mortgage refinancing on nine of its
apartment properties totalling approximately $53 million. The refinanced loans
are First Lien Fixed Rate FNMA DUS loans, with an interest rate of 6.845% and a
maturity of ten years. The previous mortgage loans had an average interest rate
of 7.8% maturing in the years 2000 and 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Comparison of the Three Months Ended March 31, 1998 and 1997
Operating revenue totalled $11.8 million, representing a 4% increase over
the same period a year ago, which totalled $11.3 million. Operating revenue for
retail centers and apartments were $6.8 million and $5.0 million, respectively,
an increase of 6% and 2%, respectively. The increase in operating revenue is
due primarily to increases in rental rates and sustained high occupancy levels
at the properties. Income from operations, before depreciation, increased
$215,000, while depreciation expense increased $138,000. Operating expenses,
net of depreciation, increased $230,000 due primarily to higher maintenance
expenses and other operating expenses.
Interest expense decreased $7,000 attributable to the following: (1) an
increase of $452,000 in mortgage interest expense resulting from mortgage
financing completed at one of the Company's enclosed regional malls in December
1997; offset by (2) a decrease of $459,000 in interest expense on bank debt due
to using the mortgage proceeds from above to pay down bank debt (average bank
borrowings were approximately $34.0 million and $55.0 million for the first
quarter of 1998 and 1997, respectively, with an average rate of 7.1% in each
period.
Net income totalled $664,000, or $0.08 per share, compared to $606,000, or
$0.07 per share, for the same period in 1997.
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, 1998, the Company had $801,000 of cash and
cash equivalents and bank commitments for $80 million of lines of credit, of
which approximately $45 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.
7
Net cash flows provided by operating activities increased $415,000 in the
first three months of 1998 compared to the same period in 1997, attributable
primarily to an increase in income from operations before depreciation, as
described in the previous section, in addition to changes in operating assets
and liabilities.
Net cash flows used in investing activities increased $616,000 in 1998 from
1997, primarily attributable to the development of an apartment community in
Florida. During the third quarter in 1997, the Company entered into a
construction contract with a non-affiliated company to develop an apartment
community. This community will have approximately 240 garden-style units, with
a mix of one, two, and three bedroom units. The total development cost is
expected to be approximately $14.0 million and the development is expected to be
completed by the end of 1998 or the beginning of 1999.
Net cash flows used in financing activities increased $484,000, primarily
attributable to mortgage debt refinancing commenced in the first quarter of
1998, combined with additional debt amortization resulting from mortgage debt
financing completed in December 1997 as discussed earlier in this report.
Additionally, offsetting the above-mentioned increases, the Company did not
acquire any treasury shares during the first quarter of 1998 as it did in the
same period in 1997.
As of March 31, 1998, fourteen of the Company's properties, comprising
approximately 50% of its gross investment in real estate, were subject to a
total of $90.3 million in mortgage obligations, all of which bear fixed rates of
interest for fixed terms. The remaining fifteen properties in the portfolio are
currently unencumbered by debt. 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 and certain non-
operating items, quarterly dividends will typically be greater than net income
and may include a tax-deferred return of capital component. On May 8, 1998,
the Company's Board of Directors declared a cash dividend with respect to the
quarter ending March 31, 1998, of $0.22 per share, payable on June 4, 1998, to
shareholders of record as of May 28, 1998.
FUNDS FROM OPERATIONS
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 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.
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.
For the three-month period ended March 31, 1998, funds from operations
increased $180,000, 6.4%, totalling $2.99 million in 1998, compared to $2.81
million for the same period in 1997. The increase in funds from operations
results from internal growth and improved operating performance by the Company's
retail and apartment properties.
8
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 (a) the inability to lease currently 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; and (i) a general economic downturn resulting in lower retail sales and
causing downward pressure on occupancies and rents at retail properties.
YEAR 2000 ISSUE
The Company has been addressing the potential computer program problems
resulting from the arrival of Year 2000 (Y2K). The Company has established a Y2K
compliance review process to assess the impact on the Company's internal
financial information systems and property mechanical operations systems, as
well as the potential impact from Y2K problems of significant tenants, vendors
and suppliers of financial and other services (collectively "independent third
parties"). The Company has identified required modifications to its corporate
computer operating system and certain software modifications at its apartment
properties. The Company plans to complete these identified modifications in 1998
and at an immaterial cost. The Company will continue assessing its and its
independent third parties' exposure to the Y2K problem. It intends to make
necessary and timely corrections of Y2K problems under its control and to seek
to identify and take feasible precautions against problems not within its
control, such as those of independent third parties.
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 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/ Thomas A. Masilla, Jr.
-------------------------------
Thomas A. Masilla, Jr.
Vice Chairman and President
(Principal Operating and Chief Financial Officer)
By: /s/ David A. O'Flynn, Jr.
----------------------------------
David A. O'Flynn, Jr.
Chief Accounting Officer
Date: May 14, 1998
10