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, 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
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SIZELER PROPERTY INVESTORS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 72-1082589
----------------- -----------------
(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 (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 (X) 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.
8,001,106 shares of Common Stock ($.01 Par Value) were outstanding as of
November 11, 1998.
Page 1 of 11 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 7-10
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 11
SIGNATURES 11
2
PART I
FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
September 30, December 31,
1998 1997
------------- -------------
ASSETS (unaudited)
Real estate investments:
Land $ 49,504,000 $ 49,203,000
Buildings and improvements, net of
accumulated depreciation of $53,509,000
in 1998 and $46,454,000 in 1997 210,509,000 213,431,000
Construction in progress 9,340,000 1,224,000
Investment in real estate partnership 917,000 904,000
------------ ------------
270,270,000 264,762,000
Cash and cash equivalents 998,000 1,128,000
Accounts receivable and accrued revenue,
net of allowance for doubtful accounts of
$425,000 in 1998 and $281,000 in 1997 2,763,000 2,696,000
Prepaid expenses and other assets 9,241,000 7,759,000
------------ ------------
Total Assets $283,272,000 $276,345,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 90,287,000 $ 90,615,000
Notes payable 42,630,000 32,342,000
Accounts payable and accrued expenses 6,418,000 4,903,000
Tenant deposits and advance rents 870,000 871,000
Minority interest in real estate
partnerships 209,000 209,000
------------ ------------
140,414,000 128,940,000
Convertible subordinated debentures 62,878,000 62,878,000
------------ ------------
Total Liabilities 203,292,000 191,818,000
------------ ------------
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 -- 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 (41,629,000) (38,028,000)
------------ ------------
86,211,000 89,664,000
Treasury shares, at cost, 662,600 shares
in 1998, and 540,800 shares in 1997 (6,231,000) (5,146,000)
Accumulated other comprehensive income --- 9,000
Total Shareholders' Equity 79,980,000 84,527,000
------------ ------------
Commitments and contingencies --- ---
------------ ------------
Total Liabilities and Shareholders'
Equity $283,272,000 $276,345,000
============ ============
See notes to consolidated financial statements.
3
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------------
1998 1997 1998 1997
-------------- ------------ -------------- ------------------
OPERATING REVENUE
Rents and other income $11,690,000 $11,539,000 $ 35,246,000 $ 34,309,000
Equity in income of partnership 30,000 26,000 85,000 74,000
----------- ----------- ------------ ------------
11,720,000 11,565,000 35,331,000 34,383,000
----------- ----------- ------------ ------------
OPERATING EXPENSES
Management & leasing fees 637,000 590,000 1,889,000 1,780,000
Utilities 527,000 538,000 1,470,000 1,508,000
Real estate taxes 956,000 905,000 2,719,000 2,612,000
Operations & maintenance 1,747,000 1,717,000 5,278,000 5,020,000
Administrative expenses 522,000 556,000 1,775,000 1,781,000
Other operating expenses 559,000 553,000 1,791,000 1,751,000
Depreciation & amortization 2,527,000 2,444,000 7,538,000 7,198,000
----------- ----------- ------------ ------------
7,475,000 7,303,000 22,460,000 21,650,000
----------- ----------- ------------ ------------
INCOME FROM OPERATIONS 4,245,000 4,262,000 12,871,000 12,733,000
----------- ----------- ------------ ------------
OTHER INCOME (EXPENSES)
Interest, dividends, & other income 9,000 8,000 26,000 59,000
Interest expense (3,573,000) (3,650,000) (10,842,000) (10,936,000)
----------- ----------- ------------ ------------
(3,564,000) (3,642,000) (10,816,000) (10,877,000)
----------- ----------- ------------ ------------
NET INCOME $ 681,000 $ 620,000 $ 2,055,000 $ 1,856,000
=========== =========== ============ ============
BASIC AND DILUTED
EARNINGS PER SHARE DATA:
Net income $0.08 $0.07 $0.24 $0.22
=========== =========== ============ ============
See notes to consolidated financial statements.
4
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
Nine Months Ended September 30,
------------------------------
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income $ 2,055,000 $ 1,856,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,538,000 7,198,000
Decrease (increase) in accounts receivable and accrued revenue (67,000) 464,000
Increase in prepaid expenses and other assets (269,000) (117,000)
Increase in accounts payable and accrued expenses 1,515,000 1,304,000
Other, net 84,000 162,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,856,000 10,867,000
----------- -----------
INVESTING ACTIVITIES:
Improvements to real estate investments (12,550,000) (4,831,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (12,550,000) (4,831,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable and notes payable to banks 71,797,000 1,146,000
Principal payments on mortgage notes payable and notes payable to banks (61,837,000) (202,000)
Debt issuance costs and mortgage escrow deposits (1,708,000) (1,081,000)
Cash dividends and other distributions to shareholders (5,654,000) (5,560,000)
Issuance of shares pursuant to stock option plans 50,000 92,000
Minority interest in real estate partnerships --- (3,000)
Purchases of treasury shares (1,084,000) (177,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,564,000 (5,785,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents (130,000) 251,000
Cash and cash equivalents at beginning of year 1,128,000 468,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 998,000 $ 719,000
=========== ===========
See notes to consolidated financial statements.
5
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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- and nine-month periods ended September 30, 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 shareholders 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.
Three Months Ended Nine Months Ended
-------------------------------------------- ------------------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
-------------------- -------------------- -------------------- ----------------------
Shares Per Share Shares Per Share Shares Per Share Shares Per Share
--------- --------- --------- --------- --------- --------- --------- -----------
Basic EPS 8,403,000 $0.08 8,423,000 $0.07 8,426,000 $0.24 8,423,000 $0.22
Effect of dilutive
securities:
Stock options 11,000 25,000 23,000 23,000
--------- --------- --------- --------- --------- --------- --------- -----------
Diluted EPS 8,414,000 $0.08 8,448,000 $0.07 8,449,000 $0.24 8,446,000 $0.22
========= ========= ========= ========= ========= ========= ========= ===========
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 September 30, 1998, mortgage notes payable totalled $90.3
million. Individual notes ranged from $3.0 million to $22.4 million, with fixed
rates of interest ranging from 6.85% to 10.88%, and maturity dates ranging
from December 1, 1999, to January 1, 2013. Net book values of properties
securing these mortgage notes payable totalled $131.7 million at September 30,
1998, with individual property net book values ranging from $3.7 million to
$33.0 million. In the second quarter of 1998, the Company completed mortgage
refinancing on ten of its apartment properties totalling approximately $59.1
million. The refinanced loans are First Lien Fixed Rate FNMA DUS loans, with an
average interest rate of approximately 6.8% and a maturity of ten years. The
previous mortgage loans had an average interest rate of approximately 7.8%
maturing in the years 2000 and 2001. Also, in the second quarter of 1998, the
Company repaid mortgage debt on one of its retail centers, totalling $1.7
million, with an interest rate of 9.0%.
6
NOTE D -- SUBSEQUENT EVENT
Pursuant to the Company's stock repurchase program, on October 15, 1998, the
Company repurchased a block of its common stock comprising approximately 295,000
shares at $8.125 per share totalling $2.4 million.
NOTE E -- RECLASSIFICATIONS
Certain reclassifications have been made in the 1997 Consolidated Financial
Statements to conform with the 1998 financial statement presentation.
NOTE F -- 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 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 September 30, 1998 and 1997, was $677,000 and
$623,000, respectively, and for the nine months ended September 30, 1998 and
1997, was $2,046,000 and $1,860,000, respectively. Other comprehensive income
was composed of unrealized holding gains or losses 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.
On May 21, 1998, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus decision on Issue No. 98-9,
Accounting for Contingent Rent in Interim Financial Periods, which provides that
recognition of contingent (percentage) rental income in interim periods must be
deferred until the specified target (breakpoint) that triggers the percentage
rental income is achieved. Consistent with industry practice, the Company has
historically recognized percentage rental income based on a percentage of
tenants' sales ratably over the course of the year. The Company has adopted
Issue No. 98-9 and has deferred the recognition of percentage rental income
until the date that the tenants' sales exceed the breakpoint set forth in the
lease agreements. The Company has evaluated the effect of Issue No. 98-9 and
believes it will not have a material impact on the operations of the Company.
Additionally, the amount of percentage rental income recognized in each quarter
of subsequent fiscal years will differ from historical experience, with a
concentration of percentage rental income recognized in the fourth quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Operating revenue totalled $11.7 million, compared to $11.6 million reported
for the same period a year ago. Operating revenue for retail centers and
apartments were $6.6 million and $5.1 million, respectively. The increase in
operating revenue is due primarily to increases in rental rates and sustained
occupancy levels at the properties, offset by the effect of the new accounting
method for recognizing percentage rental income for the retail properties.
Income from operations before depreciation totalled $6.8 million in 1998,
compared to $6.7 million in 1997, and depreciation expense totalled $2.5 million
and $2.4 million, respectively, for the same periods. Operating expenses, net of
depreciation, has remained flat at $4.9 million in 1998 and 1997.
7
Interest expense reflects a net decrease of $77,000 resulting from the
following activity completed within the past twelve months. In December 1997,
mortgage financing was completed at one of the Company's enclosed regional malls
and has increased interest expense $453,000. In the second quarter of 1998, the
Company refinanced mortgage debt on ten of its apartment properties, and repaid
a mortgage note payable on one of its retail centers, all of which resulted in a
reduction in interest expense totalling $159,000. The mortgage proceeds derived
from the mortgage financing and refinancing mentioned above were used to pay
down bank debt and as a result, interest expense on bank debt decreased
$371,000. During the third quarter in 1998, the Company has drawn on its bank
lines to fund contract payments on the apartment property development in
Florida, and the related interest charges of $124,000 have been capitalized to
the development. The average bank borrowings were approximately $40.1 million
and $53.1 million for the third quarter of 1998 and 1997, respectively, with an
average rate of 7.2% and 7.3%, respectively.
Net income totalled $681,000, or $0.08 per share, compared to $620,000, or
$0.07 per share, for the same period in 1997.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Operating revenue totalled $35.3 million, representing a 3% increase over the
same period a year ago, which totalled $34.4 million. Operating revenue for
retail centers and apartments were $20.1 million and $15.1 million,
respectively. The increase in operating revenue is due primarily to increases
in rental rates and sustained occupancy levels at the properties, offset by the
effect of the new accounting method for recognizing percentage rental income for
the retail properties. The Company's retail and apartment properties were 95%
and 96% leased, respectively, at September 30, 1998. Income from operations,
before depreciation, totalled $20.4 million in 1998, compared to $19.9 million
in 1997, and depreciation expense totalled $7.5 million and $7.2 million,
respectively, for the same periods. Operating expenses, net of depreciation
totalled $14.9 million in 1998, compared to $14.5 million in 1997, due primarily
to increased fees resulting from improved operating performance at the Company's
properties, higher real estate taxes, higher maintenance expenses, and an
increase in franchise taxes.
Interest expense reflects a net decrease of $94,000 resulting from the
following activity completed within the past twelve months. In December 1997,
mortgage financing was completed at one of the Company's enclosed regional malls
and has increased interest expense approximately $1.4 million. In the second
quarter of 1998, the Company refinanced mortgage debt on ten of its apartment
properties, and repaid a mortgage note payable on one of its retail centers, all
of which resulted in a reduction in interest expense totalling $250,000. The
mortgage proceeds derived from the mortgage financing and refinancing mentioned
above were used to pay down bank debt and as a result, interest expense on bank
debt decreased $1.2 million. During 1998, the Company has drawn on its bank
lines to fund contract payments on the apartment property development in
Florida, and the related interest charges of $229,000 have been capitalized to
the development. The average bank borrowings were approximately $35.7 million
and $53.4 million for the nine-month periods of 1998 and 1997, respectively,
with an average rate of 7.2% in each period.
Net income totalled $2.1 million, or $0.24 per share, compared to $1.9
million, or $0.22 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 development and redevelopment activities, and
other expenditures. At September 30, 1998, the Company had $998,000 of cash and
cash equivalents and bank commitments for $100 million of lines of credit, of
which approximately $57 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.
8
Net cash flows provided by operating activities decreased $11,000 in this nine
month period of 1998 compared to the same period in 1997, attributable to
changes in operating assets and liabilities, offset by an increase in income
from operations before depreciation, as described in the previous section.
Net cash flows used in investing activities increased $7.7 million in 1998
from 1997, primarily attributable to the development of a new luxury apartment
community in Florida. During the third quarter of 1997, the Company entered
into a construction contract with a third-party construction company to build
the apartment community. This community will have approximately 240 garden-
style units, with a mix of one, two, and three bedroom units. The total
development is expected to cost approximately $14.0 million and is expected to
be completed in early 1999.
Net cash flows used in financing activities increased $7.3 million, primarily
attributable to using the Company's available bank lines, to fund contract
payments in connection with the development of the apartment community in
Florida. Also contributing to the increase was the mortgage debt refinancing
completed in the second quarter of 1998 involving ten of the Company's apartment
properties. Mortgage debt totalling $59.1 million was refinanced resulting in
new mortgage debt totalling $61.5 million, of which the net proceeds totalling
$2.4 million were used to pay down short-term variable-rate bank debt. The
Company was able to achieve a reduction in the average interest rate on the
mortgages refinanced by approximately 100 basis points, from an average rate of
approximately 7.8% down to an average rate of approximately 6.8%. Offsetting
the increase in cash flows from financing activities, the Company also repaid
mortgage debt totalling $1.7 million with an interest rate of 9.0% on one of its
retail centers in the second quarter of 1998, and has additional debt
amortization resulting from mortgage debt financing completed in 1997.
Additionally, the Company acquired treasury shares during the third quarter of
1998 totalling $1.1 million.
As of September 30, 1998, thirteen of the Company's properties, comprising
approximately 47% 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 seventeen 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 October 30, 1998,
the Company's Board of Directors declared a cash dividend with respect to the
quarter ending September 30, 1998, of $0.22 per share, payable on December 3,
1998, to shareholders of record as of November 20, 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 September 30, 1998, funds from operations
totalled $3.07 million, a 6.0% increase, compared to $2.90 million earned for
the same period in 1997. For the nine-month period ended
9
September 30, 1998, funds from operations increased $569,000, to $9.13 million
in 1998, a 6.7% increase, compared to $8.56 million earned for the same period
in 1997. The increase in funds from operations is primarily attributable to
internal growth and improved operating performance by the Company's portfolio of
both retail and apartment properties.
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; (i) year 2000 issues; and (j) 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 internal
corporate computer operating system and certain software modifications at its
apartment properties. The Company plans to complete these identified
modifications in 1998 at an estimated cost of $35,000. The Company's compliance
plan is to continue the process of conducting inquiries of its independent third
parties in order to determine if these third parties have Y2K problems and what
contingency plans they have developed to deal with identified exposures. Based
on the results of these inquiries, the Company will formulate appropriate
contingency plans to take necessary and feasible precautions against problems
not within its control. The Company is also continuing the process of reviewing
its own internal systems to ensure that they are Y2K compliant and to make
necessary and timely corrections of identified Y2K problems under its direct
control. This overall process will be on-going for the remainder of 1998 and
will likely extend into 1999 depending upon the timeliness of activities of the
Company's third parties, whom it does not control.
Pursuant to the disclosure requirements of the Securities and Exchange
Commission, the Company is attempting to identify possible worst case scenarios
concerning Y2K issues and the related risks to the Company should one or more
of these scenarios occur. It should be noted, however, that the Company has no
information as to the probability of these scenarios actually materializing.
In the Company's opinion, risks which could have a material effect on the
Company's business, results of operations, or financial statements would likely
be due to the Company's dependence on the services of independent third parties
over which the Company has no control. Such potentially material risks would
include, but are not limited to, the following: (i) failure of tenants to make
rental payments because either their internal systems or their banking
institutions will be unable to process such payments; (ii) the Company will be
unable to pay vendors and/or creditors due to the failure of tenants to pay
rents and/or the Company's banking institutions' failure to process such
payments; and (iii) the complete failure or extended interruption of utility
services to the Company's properties, which are served by various utilities, due
to the utilities' inability to provide such services.
As of the time of this report, the Company is continuing to evaluate
contingency plans for the above described scenarios. However, the Company's
plans will depend upon the assessments and contengency plans of the independent
third parties. The Company has requested such information from several thousand
independent third parties, and it is awaiting receipt of their responses.
Responses received to date indicate that independent third parties are working
on their own assessments at this time. The Company will continue to assess this
matter so as to develop appropriate plans to reasonably mitigate such risks, if
and when identified. A widespread failure of tenants (or their banks) to deliver
collectible rent payments, or a failure of the Company's principal banks of
account to credit deposits to the Company's account or process the Company's
checks, or a sustained interruption of utility services to any of the Company's
properties is likely to have a material adverse effect on the Company's revenues
(which will be extremely adverse if multiple tenants or properties are so
affected) and may subject the Company to claims by tenants and contractual
counterparties and may result in Company claims against non-performing suppliers
and service providers. If such a worse case scenario occurs, it will likely be
of catastrophic proportions impacting multiple companies and industries of all
kinds. Accordingly, the Company's ability to mitigate its exposures to such
risks will be limited to what it can control, and corrective measures will be
subject to the Company's resources and the efforts which industry and government
make to alleviate the problems.
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 and its litigation counsel has resulted or will result in
any material adverse effect on the financial position of the Company.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K filed on August 20, 1998 reporting Adoption of New
Shareholder Rights Plan
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)
By: /s/ David A. O'Flynn, Jr.
-------------------------------
David A. O'Flynn, Jr.
Controller
(Principal Accounting Officer)
Date: NOVEMBER 13, 1998
11