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, 1999
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
------------------------------- ------------------
(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 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.
7,886,889 shares of Common Stock ($.01 Par Value) were outstanding
as of November 8, 1999.
Page 1 of 12
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
INDEX
PAGE
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Part I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Part II: OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1999 1998
------------ ------------
ASSETS (unaudited)
Real estate investments:
Land $ 50,428,000 $ 49,814,000
Buildings and improvements, net of accumulated depreciation
of $63,565,000 in 1999 and $55,964,000 in 1998 221,087,000 222,699,000
Investment in real estate partnership 915,000 913,000
------------ ------------
272,430,000 273,426,000
Cash and cash equivalents 932,000 1,150,000
Accounts receivable and accrued revenue, net of allowance for
doubtful accounts of $406,000 in 1999 and $423,000 in 1998 2,514,000 2,829,000
Prepaid expenses and other assets 10,024,000 8,481,000
------------ ------------
Total Assets $285,900,000 $285,886,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 88,567,000 $ 89,869,000
Notes payable 54,114,000 49,178,000
Accounts payable and accrued expenses 7,412,000 6,657,000
Tenant deposits and advance rents 849,000 878,000
Minority interest in real estate partnerships 215,000 209,000
------------ ------------
151,157,000 146,791,000
Convertible subordinated debentures 62,878,000 62,878,000
------------ ------------
Total Liabilities 214,035,000 209,669,000
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, 6,000,000 shares authorized, none issued --- ---
Common stock, par value $.01 per share, 30,000,000 shares
authorized, shares issued and outstanding - 9,032,000 in 1999
and 8,980,000 in 1998 90,000 90,000
Additional paid-in capital 128,187,000 127,750,000
Accumulated distributions in excess of net earnings (46,123,000) (42,697,000)
------------ ------------
82,154,000 85,143,000
Treasury shares, at cost, 1,155,000 shares in 1999 and
990,000 shares in 1998 (10,289,000) (8,926,000)
------------ ------------
Total Shareholders' Equity 71,865,000 76,217,000
------------ ------------
Total Liabilities and Shareholders' Equity $285,900,000 $285,886,000
============ ============
See notes to consolidated financial statements.
3
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended September 30 Nine Months Ended September 30
-------------------------- ------------------------------
1999 1998 1999 1998
----------- ----------- ------------- ------------
OPERATING REVENUE
Rents and other income $12,317,000 $11,690,000 $ 36,880,000 $ 35,246,000
Equity in income of partnership 30,000 30,000 90,000 85,000
----------- ----------- ------------ ------------
12,347,000 11,720,000 36,970,000 35,331,000
----------- ----------- ------------ ------------
OPERATING EXPENSES
Management and leasing fees 653,000 637,000 1,985,000 1,889,000
Utilities 572,000 527,000 1,546,000 1,470,000
Real estate taxes 891,000 956,000 2,841,000 2,719,000
Operations and maintenance 1,878,000 1,747,000 5,460,000 5,278,000
Administrative expenses 690,000 522,000 2,054,000 1,775,000
Other operating expenses 605,000 559,000 1,898,000 1,791,000
Depreciation and amortization 2,737,000 2,527,000 8,087,000 7,538,000
----------- ----------- ------------ ------------
8,026,000 7,475,000 23,871,000 22,460,000
----------- ----------- ------------ ------------
INCOME FROM OPERATIONS 4,321,000 4,245,000 13,099,000 12,871,000
----------- ----------- ------------ ------------
OTHER INCOME (EXPENSES)
Interest, dividends, and other income 6,000 9,000 24,000 26,000
Interest expense (3,759,000) (3,573,000) (11,343,000) (10,842,000)
----------- ----------- ------------ ------------
(3,753,000) (3,564,000) (11,319,000) (10,816,000)
----------- ----------- ------------ ------------
NET INCOME $ 568,000 $ 681,000 $ 1,780,000 $ 2,055,000
=========== =========== ============ ============
BASIC AND DILUTED EARNINGS
PER SHARE $ 0.07 $ 0.08 $ 0.23 $ 0.24
=========== =========== ============ ============
See notes to consolidated financial statements.
4
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30
------------------------------
1999 1998
------------- -------------
OPERATING ACTIVITIES:
Net income $ 1,780,000 $ 2,055,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,087,000 7,538,000
Decrease (increase) in accounts receivable
and accrued revenue, net 315,000 (67,000)
Increase in prepaid expenses and other assets, net (683,000) (185,000)
Increase in accounts payable and accrued expenses 755,000 1,515,000
----------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,254,000 10,856,000
----------- -------------
INVESTING ACTIVITIES:
Acquisitions of and improvements to real estate investments (6,603,000) (12,550,000)
----------- -------------
NET CASH USED IN INVESTING ACTIVITIES (6,603,000) (12,550,000)
----------- -------------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable and notes
payable to banks 35,314,000 71,797,000
Principal payments on mortgage notes payable and
notes payable to banks (31,680,000) (61,837,000)
Mortgage escrow deposits and debt issuance costs (1,374,000) (1,708,000)
Cash dividends paid (5,203,000) (5,654,000)
Issuance of shares of common stock pursuant to direct
stock purchase, stock option, and stock award plans 437,000 50,000
Purchases of treasury shares (1,363,000) (1,084,000)
----------- -------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,869,000) 1,564,000
----------- -------------
Net decrease in cash and cash equivalents (218,000) (130,000)
Cash and cash equivalents at beginning of year 1,150,000 1,128,000
----------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 932,000 $ 998,000
=========== =============
See notes to consolidated financial statements
5
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles (GAAP) 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 GAAP 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, 1999, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999. The
consolidated balance sheet at December 31, 1998, has been derived from the
audited consolidated financial statements at that date, but does not include all
of the information and footnotes required by GAAP 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, 1998.
NOTE B -- RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 Consolidated Financial
Statements to conform with the 1999 financial statement presentation.
NOTE C -- 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 is calculated to reflect 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 participate in the earnings of the Company.
Weighted average shares totalled 7,852,000 and 8,403,000 for the three-month
periods ended September 30, 1999 and 1998, respectively, and totalled 7,887,000
and 8,426,000 for the nine-month periods ended September 30, 1999 and 1998,
respectively. There was no effect on net income per share from the calculation
of diluted EPS.
NOTE D -- MORTGAGE NOTES PAYABLE
The Company's mortgage notes payable are secured by certain land, buildings, and
improvements. At September 30, 1999, mortgage notes payable totalled
approximately $88.6 million. Individual notes ranged from $3.0 million to $21.5
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 approximately $129.4
million at September 30, 1999, with individual property net book values ranging
from $3.7 million to $31.9 million.
NOTE E - SEGMENT DISCLOSURE
The Company is engaged in two operating segments, the ownership and rental of
retail shopping center properties and apartment properties. These reportable
segments offer different products or services and are managed separately as each
requires different operating strategies and management expertise. There are no
intersegment sales or transfers.
The Company assesses and measures segment operating results based on a
performance measure referred to as Income from Rental Operations, and is based
on the revenues and expenses associated with the operations of the real estate
properties. Income from Rental Operations is not a measure of operating results
or cash flows from operating activities
6
as measured by GAAP and is not necessarily indicative of cash available to fund
cash needs and should not be considered an alternative to cash flows as a
measure of liquidity.
The operating revenues, operating expenses, income from rental operations, and
real estate investments for each of the reportable segments are summarized below
for the periods ended September 30, 1999 and 1998.
Quarter Ended September 30 Nine Months Ended September 30
---------------------------- ------------------------------
Operating revenues: 1999 1998 1999 1998
------------ ------------ ------------ ------------
Retail $ 6,803,000 $ 6,593,000 $ 20,611,000 $ 20,220,000
Apartments 5,544,000 5,127,000 16,359,000 15,111,000
------------ ------------ ------------ ------------
$ 12,347,000 $ 11,720,000 $ 36,970,000 $ 35,331,000
============ ============ ============ ============
Operating expenses:
Retail $ 2,737,000 $ 2,636,000 $ 8,231,000 $ 8,079,000
Apartments 2,552,000 2,312,000 7,553,000 6,843,000
------------ ------------ ------------ ------------
5,289,000 4,948,000 15,784,000 14,922,000
Depreciation 2,737,000 2,527,000 8,087,000 7,538,000
------------ ------------ ------------ ------------
$ 8,026,000 $ 7,475,000 $ 23,871,000 $ 22,460,000
============ ============ ============ ============
Income from rental
operations:
Retail $ 4,066,000 $ 3,957,000 $ 12,380,000 $ 12,141,000
Apartments 2,992,000 2,815,000 8,806,000 8,268,000
------------ ------------ ------------ ------------
7,058,000 6,772,000 21,186,000 20,409,000
Depreciation (2,737,000) (2,527,000) (8,087,000) (7,538,000)
------------ ------------ ------------ ------------
Income from operations 4,321,000 4,245,000 13,099,000 12,871,000
Other income/(expenses) (1) (3,753,000) (3,564,000) (11,319,000) (10,816,000)
------------ ------------ ------------ ------------
Net income $ 568,000 $ 681,000 $ 1,780,000 $ 2,055,000
============ ============ ============ ============
September 30
----------------------------
Gross real estate investments:(2) 1999 1998
------------ ------------
Retail $203,171,000 $199,505,000
Apartments 132,824,000 124,274,000
------------ ------------
$335,995,000 $323,779,000
============ ============
(1) Includes interest expense, net of interest and dividend income.
(2) Includes investments in land held for development, and an investment in a
real estate partnership, which is accounted for by the equity method.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Operating revenue totalled $12.3 million, compared to $11.7 million
reported for the same period a year ago. Operating revenue for retail centers
and apartments was $6.8 million and $5.5 million, respectively. The increase in
operating revenue was due primarily to increased rental rates and sustained
occupancy levels at the properties, as well as operating revenue derived from
Governors Gate apartments - development was completed in the first quarter of
1999. Income from operations before depreciation totalled $7.1 million in 1999,
compared to $6.8 million in 1998, and depreciation expense totalled $2.7 million
and $2.5 million, respectively, for the same periods. Operating expenses, net of
depreciation, totalled $5.3 million in 1999, compared to $4.9 million in 1998.
The increase in operating expenses was primarily attributable to Governors Gate
apartments, which became 98% leased in the third quarter of 1999. Other
operating expenses remained relatively consistent with the same period a year
ago.
Interest expense reflects a net increase of $186,000 resulting from the
activity described below. In December 1997, mortgage financing was completed on
one of the Company's enclosed regional malls, and in 1998, the Company
refinanced mortgage debt on ten of its apartment properties, resulting in a net
decrease in mortgage interest expense of $33,000. These mortgage notes payable
are long-term, fixed-rate, non-recourse instruments. The mortgage proceeds
derived from the financing and refinancings were used to pay down bank debt
resulting in lower bank line balances. Subsequently, the Company drew on its
bank lines to fund the following transactions: (i) repaid a mortgage note
payable on one of its retail centers; (ii) made contract payments on the
Governors Gate apartment property development; (iii) made contract payments on
the development of a free-standing Walgreens store (of which related interest
has been capitalized); and (iv) funded treasury share repurchases. As a result
of the above activity, bank line interest expense increased $219,000, and
mortgage interest expense decreased $33,000, resulting in a net increase of
$186,000. The average bank borrowings were approximately $53.9 million and
$40.1 million for the third quarter of 1999 and 1998, respectively, with an
average interest rate of 6.7% and 7.2%, respectively.
Net income totalled $568,000, or $0.07 per share in the third quarter of
1999, compared to $681,000, or $0.08 per share, for the same period in 1998. The
decrease in net income is primarily attributable to an increase in non-cash
depreciation charges and a net increase in interest expense.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Operating revenue totalled $37.0 million, compared to $35.3 million
reported for the same period a year ago. Operating revenue for retail centers
and apartments was $20.6 million and $16.4 million, respectively. The increase
in operating revenue was due primarily to increased rental rates and sustained
occupancy levels at the properties, and operating revenue from the completion of
the development of Governors Gate apartments during the first quarter of 1999.
Income from operations before depreciation totalled $21.2 million in 1999,
compared to $20.4 million in 1998, and depreciation expense totalled $8.1
million and $7.5 million, respectively, for the same periods. Operating
expenses, net of depreciation, totalled $15.8 million in 1999, compared to $14.9
million in 1998. The increase in operating expenses was due to costs related to
Governors Gate apartments as well as increases in utilities, management and
leasing fees, and other non-controllable costs.
Interest expense reflects a net increase of $501,000 resulting from the
activity described below. In December 1997, mortgage financing was completed on
one of the Company's enclosed regional malls, and in 1998, the Company
refinanced mortgage debt on ten of its apartment properties, resulting in a net
decrease in mortgage interest expense of $315,000. These mortgage notes payable
are long-term, fixed-rate, non-recourse instruments. The mortgage proceeds
derived from the financing and refinancings were used to pay down bank debt
resulting in lower bank line balances. Subsequently, the Company drew on its
bank lines to fund the following transactions: (i) repaid a mortgage note
payable on one of its retail centers; (ii) made contract payments on the
Governors Gate apartment property development; (iii) made contract payments on
the development of a free-standing Walgreens store (of which related interest
has been capitalized); and (iv) funded treasury share repurchases. As a result
of the above activity, bank line interest expense increased $816,000, and
mortgage interest expense decreased $315,000, resulting in a net increase of
$501,000. The
8
average bank borrowings were approximately $52.2 million and $35.7 million for
the first nine months of 1999 and 1998, respectively, with an average interest
rate of 6.6% and 7.1%, respectively.
Net income totalled $1.8 million for the nine-month period ended September
30, 1999, compared to $2.1 million for the same period in 1998. The decrease in
net income was primarily attributable to increased non-cash depreciation
charges, and a net increase in interest expense.
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
initially finance the cost of property development and redevelopment activities,
portfolio acquisitions, and other expenditures. At September 30, 1999, the
Company had $932,000 in cash and cash equivalents and $95 million in committed
bank lines of credit, of which approximately $40.9 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
certain prescribed financial ratios.
Net cash flows provided by operating activities decreased $602,000 in the
first nine months of 1999 compared to the same period in 1998. The decrease was
principally attributable to a net decrease in operating assets and liabilities
relating to decreased development activity, partially offset by an increase in
income from operations before depreciation, as described in the previous
section.
Net cash flows used in investing activities decreased approximately $5.9
million in 1999 from 1998, primarily attributable to the completion of
construction of Governors Gate apartments in March 1999. This luxury 240-unit
garden-style apartment community, located in Florida, generated positive cash
flow from operations during the third quarter of 1999. The decrease was
partially offset by the development of a freestanding Walgreens store at one of
the retail centers. The Company also acquired two parcels of land, one in
Florida and the other in Texas, which can be used for future development.
Net cash flows used in financing activities increased $5.4 million,
primarily attributable to the following: (i) a net reduction of approximately
$6.3 million in the utilization of bank lines for development projects, as the
development of Governors Gate apartments was completed during the first quarter
of 1999; (ii) pursuant to the direct stock purchase and dividend reinvestment
plan, the issuance of common stock increased by approximately 38,000 shares at a
total amount of approximately $315,000; and (iii) increase of funding for
treasury share repurchases, pursuant to the Company's stock repurchase program
initiated in 1995. During the first nine months of 1999, the Company repurchased
165,700 treasury shares at a total cost of approximately $1.4 million, compared
to 121,800 treasury shares at a total cost of approximately $1.1 million for the
same period in 1998. Although the dividends paid per share remained consistent,
fewer common shares outstanding resulted in a reduction of total cash dividends
paid of approximately $451,000 during the first nine months of 1999 as compared
to the same period a year ago.
As of September 30, 1999, thirteen of the Company's properties, comprising
approximately 47% of its gross investment in real estate, were subject to a
total of $88.6 million in mortgage obligations, all of which are non-recourse
and bear fixed rates of interest for fixed terms. The remaining seventeen
properties and vacant parcels of land in the portfolio are currently
unencumbered by debt. 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, (iv) development activities, (v) capital improvements on existing
properties, and (vi) typical repair and maintenance expenses at its properties.
The Company's current dividend policy is to pay quarterly dividends to
shareholders, based upon funds from operations, as well as other factors. As
funds from operations excludes the deduction of certain 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 November 4, 1999, the Company's
Board of Directors declared a cash dividend with respect to the quarter ending
September 30, 1999, of $0.22 per share, payable on December 2, 1999, to
shareholders of record as of November 26, 1999.
9
FUNDS FROM OPERATIONS
Real estate industry analysts utilize the concept of funds from operations
as an important analytical measure of a Real Estate Investment Trust's financial
performance. The Company considers funds from operations in evaluating its
operating results, and its dividend policy, as previously mentioned, 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, 1999, funds from operations
totalled $3.2 million, compared to $3.1 million earned for the same period in
1998. For the nine-month periods ended September 30, 1999 and 1998, funds from
operations totalled $9.4 million and $9.1 million, respectively. The increase in
funds from operations is primarily attributable to the Company's portfolio of
both retail and apartment properties experiencing internal growth resulting from
increased rental rates and market sustained occupancy levels, coupled with
revenue generated from completed development projects.
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 systems and certain software modifications at its
apartment properties. The Company has completed these identified modifications
and continues to test and monitor its systems. The Company has been working
with external consultants to evaluate its computer systems and to determine
their Y2K compliance. At September 30, 1999, this external evaluation has shown
that the Company's computer systems have been either fixed to become compliant,
or replaced with new systems which are Y2K compliant. The Company will continue
assessing its own and its independent third parties' exposure to the Y2K
problem, and developing contingency plans to deal with identified exposures.
Based on the results of these assessments, the Company will formulate
appropriate contingency back-up plans to take necessary and feasible precautions
against problems not within its control. The Company is also continuing the
process of reviewing, testing, and monitoring 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 throughout 1999 due to the dependence 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 cannot
predict the probability of these scenarios actually materializing. The risks
which could have a material effect on the Company's business, results of
operations, or financial information and 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. 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
10
will be subject to the Company's resources as well as the efforts which industry
and government make to alleviate the problems. The Company is also relying on
statements made by the President of the United States on Wednesday, November 10,
1999, that most Y2K mission critical issues have been resolved at the National
level, and that only small businesses are at risk.
Currently, the Company is continuing its Y2K compliance review process and
to evaluate contingency plans for the above-described scenarios. However, the
Company's plans will depend upon the assessments and contingency plans of the
independent third parties. The Company has requested such information from
numerous independent third parties, and it is evaluating 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.
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.
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 and maintenance 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 downward pressure on occupancies and rents at retail and
apartment properties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We incorporate by reference the disclosure contained in Item 7a,
Quantitative and Qualitative Disclosures About Market Risk, of the Company's
Form 10-K, for the year ended December 31, 1998. There have been no material
changes during the first nine months of 1999.
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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
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.
(Registrant)
By: /s/ Robert A. Whelan
----------------------------
Robert A. Whelan
Chief Financial Officer
Date: November 12, 1999
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