Securities Exchange Act of 1934 -- Form10-Q
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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 EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended to
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Commission File Number 1-12494
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CBL & Associates Properties, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 62-1545718
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Park Place, 6148 Lee Highway, Chattanooga, TN 37421
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)(423) 855-0001
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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The number of shares outstanding of each of the registrants classes of common
stock, as of May 5, 2000 : Common Stock, par value $.01 per share, 24,828,344
shares.
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CBL & Associates Properties, Inc.
INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER
ITEM 1: FINANCIAL INFORMATION 3
CONSOLIDATED BALANCE SHEETS - AS OF MARCH 31,
2000 AND DECEMBER 31, 1999 4
CONSOLIDATED STATEMENTS OF OPERATIONS - FOR
THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 20
ITEM 2: CHANGES IN SECURITIES 20
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4: SUBMISSION OF MATTERS TO HAVE
A VOTE OF SECURITY HOLDERS 20
ITEM 5: OTHER INFORMATION 20
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURE 21
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CBL & Associates Properties, Inc.
ITEM 1 - FINANCIAL INFORMATION
The accompanying financial statements are unaudited; however, they have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in conjunction with the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation of the
financial statements for these interim periods have been included. The results
for the interim period ended March 31, 2000 are not necessarily indicative of
the results to be obtained for the full fiscal year.
These financial statements should be read in conjunction with the CBL &
Associates Properties, Inc. (the "Company") December 31, 1999 audited financial
statements and notes thereto included in the CBL & Associates Properties, Inc.
Form 10-K for the year ended December 31, 1999.
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CBL & Associates Properties, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
(UNAUDITED)
March 31, December 31,
2000 1999
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ASSETS
Real estate assets:
Land $ 286,847 $ 284,881
Buildings and improvements 1,845,551 1,834,020
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2,132,398 2,118,901
Less: Accumulated depreciation (236,337) (223,548)
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1,896,061 1,895,353
Developments in progress 82,141 65,201
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Net investment in real estate assets 1,978,202 1,960,554
Cash and cash equivalents 8,097 7,074
Receivables:
Tenant,net of allowance 23,187 21,557
Other 2,057 1,536
Mortgage notes receivable 9,451 9,385
Other assets 17,691 18,732
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$2,038,685 $2,018,838
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and other notes payable $1,377,808 $1,360,753
Accounts payable and accrued liabilities 44,733 64,236
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Total liabilities 1,422,541 1,424,989
Distributions and losses in excess of investment
in unconsolidated affiliates 3,082 3,212
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Minority interest 177,789 170,750
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Commitments and contingencies (Note 2)
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
2,875,000 outstanding in 2000 and 1999 29 29
Common stock, $.01 par value, 95,000,000 shares authorized,
24,806,975 and 24,755,793 shares issued and outstanding
in 2000 and 1999, respectively 248 248
Additional paid - in capital 456,911 455,875
Accumulated deficit (21,915) (36,265)
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Total shareholders' equity 435,273 419,887
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$2,038,685 $2,018,838
========== ==========
The accompanying notes are an integral part of
these balance sheets.
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CBL & Associates Properties, Inc.
Consolidated Statements Of Operations
(Dollars in thousands, except per share data)
(UNAUDITED)
Three Months Ended
March 31,
--------------------------
2000 1999
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REVENUES:
Rentals:
Minimum $ 55,301 $ 47,862
Percentage 4,851 3,232
Other 1,281 814
Tenant reimbursements 24,710 20,674
Management, leasing and development fees 626 1,040
Interest and other 1,240 926
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Total revenues 88,009 74,548
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EXPENSES:
Property operating 13,690 11,483
Depreciation and amortization 14,605 12,676
Real estate taxes 7,105 6,955
Maintenance and repairs 5,122 4,062
General and administrative 4,906 3,826
Interest 23,586 19,771
Other 28 742
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Total expenses 69,042 59,515
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INCOME FROM OPERATIONS 18,967 15,033
GAIN ON SALES OF REAL ESTATE ASSETS 3,571 4,801
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATES 755 935
MINORITY INTEREST IN EARNINGS:
Operating partnership (6,946) (6,658)
Shopping center properties (380) (365)
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NET INCOME 15,967 13,746
PREFERRED DIVIDENDS (1,617) (1,617)
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NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 14,350 $ 12,129
========= =========
BASIC PER SHARE DATA:
NET INCOME $ 0.58 $ 0.49
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 24,754 24,574
========= =========
DILUTED PER SHARE DATA:
NET INCOME $ 0.58 $ 0.49
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WEIGHTED AVERAGE SHARES AND POTENTIAL
DILUTIVE COMMON SHARES OUTSTANDING 24,815 24,795
========= =========
The accompanying notes are an integral part
of these statements.
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CBL & Associates Properties, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(UNAUDITED)
Three Months
Ended March 31,
-----------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,967 $13,746
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in earnings 7,326 7,023
Depreciation 11,661 10,551
Amortization 3,252 2,436
Gain on sales of real estate assets (3,571) (4,801)
Equity in earnings of unconsolidated affiliates (755) (935)
Distributions from unconsolidated affiliates 2,108 2,061
Issuance of stock under incentive plan 673 100
Amortization of deferred compensation -- 160
Write-off of development projects 28 742
Distributions to minority investors (6,214) (5,486)
Changes in assets and liabilities -
Tenant and other receivables (2,151) (530)
Other assets 174 (65)
Accounts payable and accrued liabilities (1,892) (2,891)
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Net cash provided by operating activities 26,606 22,111
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CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of real estate assets and land acquisition (47,979) (34,256)
Capitalized interest (1,313) (1,459)
Other capital expenditures (3,176) (4,177)
Proceeds from sales of real estate assets 24,738 6,764
Additions to notes receivable (948) 44
Payments received on notes receivable 882 (168)
Advances and investments in unconsolidated affiliates (1,455) (1,522)
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Net cash used in investing activities (29,251) (34,774)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other notes payable 35,578 100,432
Principal payments on mortgage and other notes payable (18,523) (70,136)
Additions to deferred financing costs (65) (658)
Dividends paid (13,686) (13,052)
Proceeds from issuance of common stock 364 96
Proceeds from exercise of stock options -- 326
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Net cash provided by financing activities 3,668 17,008
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NET CHANGE IN CASH AND CASH EQUIVALENTS 1,023 4,345
CASH AND CASH EQUIVALENTS, beginning of period 7,074 5,827
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CASH AND CASH EQUIVALENTS, end of period $8,097 $10,172
======== =======
Cash paid for interest, net of amounts capitalized $23,559 $19,754
======== =======
The accompanying notes are an integral part
of these statements.
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CBL & ASSOCIATES PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unconsolidated Affiliates
At March 31, 2000, the Company had investments in five partnerships all
of which are reflected using the equity method of accounting. Condensed combined
results of operations for the unconsolidated affiliates are presented as follows
(dollars in thousands):
Company's Share
Total For The For The
Three Months Ended Three Months Ended
March 31, March 31,
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2000 1999 2000 1999
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Revenues $7,044 $7,046 $3,470 $3,469
------ ------ ------ ------
Depreciation and amortization 605 796 314 390
Interest expense 2,109 2,150 1,038 1,058
Other operating expenses 2,456 2,199 1,363 1,086
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Net income $1,874 $1,901 $755 $935
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Note 2 - Contingencies
The Company is currently involved in certain litigation arising in the
ordinary course of business. In the opinion of management, the pending
litigation will not materially affect the financial statements of the Company.
Additionally, based on environmental studies completed to date on the real
estate properties, management believes any exposure related to environmental
cleanup will not be significant to the financial position and results of
operations of the Company.
Note 3 - Credit Agreements
The Company has credit facilities of $230 million of which $52.9 million is
available at March 31, 2000. Outstanding amounts under the credit facilities
bear interest at a weighted average interest rate of 7.05% at March 31, 2000.
The Company's variable rate debt as of March 31, 2000 was $627.5 million with a
weighted average interest rate of 7.09% as compared to 6.38% on $467.9 million
of variable rate debt as of March 31, 1999. Through the execution of interest
rate swap agreements, the Company has fixed the interest rates on $443 million
of variable rate debt on operating properties at a weighted average interest
rate of 7.09%. Of the Company's remaining variable rate debt of $184.5 million,
interest rate caps in place of $50.0 million and a permanent loan commitment of
$74.5 million leaves $60.0 million of debt subject to variable rates on
construction properties and no debt subject to variable rates on operating
properties. There were no fees
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charged to the Company related to these swap agreements. The Company's interest
rate swap agreements in place at March 31, 2000 are as follows:
Swap Amount Fixed LIBOR
(in millions) Component Effective Date Expiration Date
------------- ------------ -------------- ---------------
$50 5.98% 11/04/1999 11/04/2000
50 5.98% 11/04/1999 11/06/2000
100 6.41% 01/27/2000 01/27/2001
75 6.61% 02/24/2000 02/24/2001
50 5.70% 06/11/1998 06/12/2001
38 5.73% 06/26/1998 06/26/2001
80 5.49% 09/01/1998 09/01/2001
At March 31, 2000, the Company had an interest rate cap at 6.5% on $50
million of LIBOR-based variable rate debt.
Note 4 - Segment Information
Management of the Company measures performance and allocates resources
according to property type, which are determined based on differences such as
nature of tenants, capital requirements, economic risks and leasing terms.
Rental income and tenant reimbursements from tenant leases provide the majority
of revenues from all segments. Information on management's reportable segments
is presented as follows (in thousands):
Associated Community
Three Months Ended March 31, 2000 Malls Centers Centers All Other Total
- ----------------------------------- ---------- ---------- --------- --------- -------
Revenues $67,106 $3,467 $16,030 $1,406 $88,009
Property operating expenses (1) (22,472) (591) (3,229) 375 (25,917)
Interest expense (18,211) (839) (3,340) (1,196) (23,586)
Gain on sales of real estate assets (26) - 2,871 726 3,571
---------- ---------- --------- --------- -------
Segment profit and loss $26,397 $2,037 $12,332 $1,311 42,077
========== ========== ========= =========
Depreciation and amortization (14,605)
General and administrative and other (4,934)
Equity in earnings and minority
interest adjustment (6,571)
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Net income $15,967
=======
Total assets (2) $1,405,196 $103,693 $440,425 $89,371 $2,038,685
Capital expenditures (2) $14,499 $2,127 $7,677 $27,834 $52,137
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Associated Community
Three Months Ended March 31, 1999 Malls Centers Centers All Other Total
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Revenues $55,612 $2,905 $13,995 $2,036 $74,548
Property operating expenses (1) (19,282) (479) (3,046) 307 (22,500)
Interest expense (14,578) (626) (2,780) (1,787) (19,771)
Gain on sales of real estate assets 381 - 404 4,016 4,801
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Segment profit and loss $22,133 $1,800 $8,573 $4,572 37,078
========== ========== ========= =========
Depreciation and amortization (12,676)
General and administrative and other (4,568)
Equity in earnings and minority
interest adjustment (6,088)
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Net income $13,746
=======
Total assets (2) $1,243,998 $82,715 $412,423 $148,242 $1,887,378
Capital expenditures (2) $3,901 $1,674 $2,929 $30,387 $38,891
(1) Property operating includes property operating, real estate taxes, and
maintenance and repairs.
(2) Developments in progress are included in the All Other category.
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CBL & Associates Properties, Inc.
Item 2: Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with CBL & Associates
Properties, Inc. Consolidated Financial Statements and Notes thereto.
Information included herein contains "forward-looking statements" within
the meaning of the federal securities laws. Such statements are inherently
subject to risks and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, may differ materially from the events
and results discussed in the forward-looking statements. We direct you to the
Company's other filings with the Securities and Exchange Commission, including
without limitation the Company's Annual Report on Form 10-K and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated by reference therein, for a discussion of such risks
and uncertainties.
GENERAL BACKGROUND
CBL & Associates Properties, Inc. (the "Company") Consolidated Financial
Statements and Notes thereto reflect the consolidated financial results of CBL &
Associates Limited Partnership (the "Operating Partnership") which includes at
March 31, 2000, the operations of a portfolio of properties consisting of
twenty-six regional malls, fourteen associated centers, eighty community
centers, an office building, joint venture investments in four regional malls
and one associated center, and income from seven mortgages (the "Properties").
The Operating Partnership also has one mall, one associated center, three
community centers and two expansions currently under construction and options to
acquire certain shopping center development sites. The consolidated financial
statements also include the accounts of CBL & Associates Management, Inc. (the
"Management Company").
The Company classifies its regional malls into two categories - malls
which have completed their initial lease-up ("Stabilized Malls") and malls which
are in their initial lease-up phase ("New Malls"). The New Mall category is
presently comprised of the redevelopment project Springdale Mall in Mobile,
Alabama, Bonita Lakes Mall in Meridian, Mississippi, which opened in October
1997, the recently opened Arbor Place Mall in Atlanta (Douglasville), Georgia
and Parkway Place Mall in Huntsville, Alabama which was acquired in December
1998 and is being redeveloped .
RESULTS OF OPERATIONS
Operational highlights for the three months ended March 31, 2000 as
compared to March 31, 1999 are as follows:
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SALES
Mall shop sales, for those tenants who have reported, in the twenty-six
Stabilized Malls in the Company's portfolio increased by 2.2% on a
comparable per square foot basis.
Three Months Ended March 31,
------------------------------------
2000 1999
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Sales per square foot $60.65 $59.37
Total sales volume in the mall portfolio, including New Malls,
increased 4.0% to $358.1 million for the three months ended March 31,
2000 from $344.5 million for the three months ended March 31, 1999.
Occupancy costs as a percentage of sales for the three months ended
March 31, 2000 and 1999 for the Stabilized Malls were 15.1% and 14.0%,
respectively. Occupancy costs were 11.4%, 10.9% and 11.2% for the years
ended December 31, 1999, 1998, and 1997, respectively. Occupancy costs
as a percentage of sales are generally higher in the first three
quarters of the year as compared to the fourth quarter due to the
seasonality of retail sales.
OCCUPANCY
Occupancy for the Company's overall portfolio was as follows:
At March 31,
----------------------------------
2000 1999
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Stabilized malls 92.2% 92.3%
New malls 84.6 84.3
Associated centers 91.9 91.9
Community centers 98.1 96.8
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Total Portfolio 94.1% 93.8%
============ ============
AVERAGE BASE RENT
Average base rents for the Company's three portfolio categories were as
follows:
At March 31,
------------------------
2000 1999
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Malls $20.56 $19.78
Associated centers 9.95 9.55
Community centers 8.47 8.23
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LEASE ROLLOVERS
On spaces previously occupied, the Company achieved the following
results from rollover leasing for the three months ended March 31,
2000 compared to the base and percentage rent previously paid:
Per Square Per Square
Foot Rent Foot Rent Percentage
Prior Lease (1) New Lease (2) Increase
--------------- ------------- ----------
Malls $23.84 $25.84 8.4%
Associated centers 12.00 14.00 16.7%
Community centers 9.55 10.07 5.4%
(1) - Rental achieved for spaces previously occupied at the end
of the lease including percentage rent.
(2) - Average base rent over the term of the lease.
For the three months ended March 31, 2000, malls represented 76.2% of
total revenues from all properties; revenues from associated centers represented
3.9%; revenues from community centers represented 18.2%; and revenues from
mortgages and the office building represented 1.7%. Accordingly, revenues and
results of operations are disproportionately impacted by the malls'
achievements.
The shopping center business is somewhat seasonal in nature with tenant
sales achieving the highest levels during the fourth quarter because of the
holiday season. The malls earn most of their "temporary" rents (rents from
short-term tenants) during the holiday period. Thus, occupancy levels and
revenue production are generally the highest in the fourth quarter of each year.
Results of operations realized in any one quarter may not be indicative of the
results likely to be experienced over the course of the fiscal year.
Comparison of Results of Operations for the three months ended March 31, 2000 to
the Results of Operations for the three months ended March 31, 1999
Total revenues for the three months ended March 31, 2000 increased by
$13.5 million, or 18.1%, to $88.0 million as compared to $74.5 million in 1999.
Minimum rents increased by $7.4 million, or 15.5%, to $55.3 million as compared
to $47.9 million in 1999, and tenant reimbursements increased by $4.0 million,
or 19.5%, to $24.7 million in 2000 as compared to $20.7 million in 1999.
Percentage rents increased by $1.7 million, or 50.1%, to $4.9 million as
compared to $3.2 million in 1999.
Management, leasing and development fees decreased by $0.4 million, or
39.8%, to $0.6 million as compared to $1.0 million in 1999. This decrease is
primarily due to decreases in fees earned in the co-development program and
offset by increases in management fees.
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Approximately $7.7 million of the increase in revenues resulted from
operations at the four new centers opened or acquired during the past fifteen
months. These centers consist of:
Opening/
Project Name Location Total GLA Type of Addition Acquisition Date
- ------------------------- ------------------------------- --------- ---------------- ----------------
Arbor Place Mall Atlanta (Douglasville), Georgia 1,035,000 New Development October 1999
The Landing @ Arbor Place Atlanta (Douglasville), Georgia 163,000 New Development July 1999
Sand Lake Corners Orlando, Florida 559,000 New Development July 1999
York Galleria York, Pennsylvania 767,000 Acquisition July 1999
Approximately $5.8 million of the increase in revenues resulted from
improved operations and occupancies in the existing centers. The majority of
these increases were generated at Georgia Square Mall in Athens, Georgia,
Hamilton Place Mall in Chattanooga, Tennessee and Burnsville Center in
Minneapolis (Burnsville), Minnesota.
Property operating expenses, including real estate taxes and
maintenance and repairs increased in the first quarter of 2000 by $3.4 million
or 15.2% to $25.9 million as compared to $22.5 million in the first quarter of
1999. This increase is primarily the result of the addition of the four new
centers referred to above.
Depreciation and amortization increased in the first quarter of 2000 by
$1.9 million or 15.2% to $14.6 million as compared to $12.7 million in the first
quarter of 1999. This increase is primarily due to the addition of the four new
centers referred to above.
Interest expense increased in the first quarter of 2000 by $3.8
million, or 19.3% to $23.6 million as compared to $19.8 million in 1999. This
increase is primarily due to the additional interest on the four centers added
during the last fifteen months referred to above.
The gain on sales of real estate assets decreased in the first quarter of
2000 by $1.2 million, to $3.6 million as compared to $4.8 million in 1999. The
majority of gain on sales in the first quarter of 2000 were from the sale of a
completed center Fiddler's Run in Morganton, North Carolina and from outparcel
sales at Sand Lake Corners in Orlando, Florida and The Landing at Arbor Place in
Atlanta (Douglasville), Georgia.
Equity in earnings of unconsolidated affiliates were $0.8 million in
the first quarter of 2000 as compared to $0.9 million in the first quarter of
1999.
LIQUIDITY AND CAPITAL RESOURCES
The principal uses of the Company's liquidity and capital resources have
historically been for property development, expansion and renovation programs,
acquisitions and debt repayment. To maintain its qualification as a real estate
investment trust under the Internal Revenue Code, the Company is required to
distribute to its shareholders at least 95% of its "Real Estate Investment Trust
Taxable Income" as defined in the Internal Revenue Code of 1986, as amended (the
"Code"). Beginning on January 1, 2001 (the Company's first taxable year
beginning after December 31, 2000), this percentage is reduced to 90%.
-13-
As of May 1, 2000, the Company had $87.6 million available in unfunded
construction and redevelopment loans to be used for completion of the
construction and redevelopment projects and replenishment of working capital
previously used for construction. Additionally, as of May 1, 2000, the Company
had obtained revolving credit lines and term loans totaling $230.0 million of
which $39.9 million was available. As a publicly traded company, the Company has
access to capital through both the public equity and debt markets. The Company
has filed a Shelf Registration authorizing shares of the Company's preferred
stock and common stock and warrants to purchase shares of the Company's common
stock with an aggregate public offering price of up to $350 million with $278
million remaining after the Company's preferred stock offering on June 30, 1998.
The Company anticipates that the combination of these sources will, for the
foreseeable future, provide adequate liquidity to enable it to continue its
capital programs substantially as in the past and make distributions to its
shareholders in accordance with the Code's requirements applicable to real
estate investment trusts.
Management expects to refinance the majority of the mortgage notes
payable maturing over the next five years with replacement loans.
The Company's policy is to maintain a conservative debt to total market
capitalization ratio in order to enhance its access to the broadest range of
capital markets, both public and private. The Company's current capital
structure includes property specific mortgages, which are generally
non-recourse, revolving lines of credit, common stock, preferred stock and a
minority interest in the Operating Partnership. The minority interest in the
Operating Partnership represents the 25.6% ownership in the Operating
Partnership held by the Company's current and former executive and senior
officers which may be exchanged for approximately 9.4 million shares of common
stock. Additionally, Company executive officers and directors own approximately
1.9 million shares of the outstanding common stock of the Company, for a
combined total interest in the Operating Partnership of approximately 30.7%.
Third party ownership interests may be exchanged for approximately 2.4 million
shares of common stock which represents a 6.6% interest in the Operating
Partnership. Assuming the exchange of all limited partnership interests in the
Operating Partnership for common stock, there would be outstanding approximately
36.8 million shares of common stock with a market value of approximately $751.9
million at March 31, 2000 (based on the closing price of $20.4375 per share on
March 31, 2000). The Company's total market equity is $808.7 million which
includes 2.9 million shares of preferred stock at their closing price of $19.755
per share on March 31, 2000. Company executive and senior officers' ownership
interests had a market value of approximately $230.5 million at March 31, 2000.
Mortgage debt consists of debt on certain consolidated properties as
well as on three properties in which the Company owns a non-controlling interest
and is accounted for under the equity method of accounting. At March 31, 2000,
the Company's share of funded mortgage debt on its consolidated properties
adjusted for minority investors' interests in eight properties was $1.356
billion and its pro rata share of mortgage debt on unconsolidated properties
(accounted for under the equity method) was $45.2 million for total debt
obligations of $1.401 billion with a weighted average interest rate of 7.37%.
The Company's total conventional fixed rate debt as of March 31, 2000
was $773.9 million with a weighted average interest rate of 7.41% as compared to
7.41% as of March 31, 1999.
The Company's variable rate debt as of March 31, 2000 was $627.5
million with a weighted average interest rate of 7.09% as compared to 6.38% as
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of March 31, 1999. Through the execution of swap agreements, the Company has
fixed the interest rates on $443 million of debt on operating properties at a
weighted average interest rate of 7.09%. Of the Company's remaining variable
rate debt of $184.5 million, an interest rate cap in place of $50.0 million and
a permanent loan commitment of $74.5 million leaves only $60.0 million of debt
subject to variable rates. Interest on this $60.0 million of variable rate debt
is capitalized to projects currently under construction leaving no variable rate
debt exposure on operating properties as of March 31, 2000. There were no fees
charged to the Company related to its swap agreements. At March 31, 2000, the
Company had an interest rate cap of 6.5% on $50 million of LIBOR-based variable
rate debt. The Company's interest rate swap agreements in place at March 31,
2000 are as follows:
Swap Amount Fixed
(in millions) LIBOR Component Effective Date Expiration Date
------------- --------------- -------------- ---------------
$50 5.98% 11/04/1999 11/04/2000
50 5.98% 11/04/1999 11/06/2000
100 6.41% 01/27/2000 01/27/2001
75 6.61% 02/24/2000 02/24/2001
50 5.70% 06/11/1998 06/12/2001
38 5.73% 06/26/1998 06/26/2001
80 5.49% 09/01/1998 09/01/2001
Based on the debt (including construction projects) and the market
value of equity described above, the Company's debt to total market
capitalization (debt plus market value equity) ratio was 63.4% at March 31,
2000.
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
Development projects under construction and scheduled to open during
2000 are: Sand Lake Corners in Orlando, Florida, an addition of
38,000-square-feet occupied by Staples and small shops scheduled to open June
2000; Coastal Way Shopping Center in Spring Hill, Florida a 233,000-square-foot
community center scheduled to open August 2000 and anchored by Sears and Belk;
Chesterfield Crossing in Richmond, Virginia, a 435,000-square-foot power center
which will open in two phases, Home Depot is already open and Wal*Mart is
scheduled to open in May 2000 and the shops will open by October 2000; Gunbarrel
Pointe in Chattanooga, Tennessee a 282,000-square-foot associated center
anchored by Target, Goodys and Kohl's and scheduled to open October 2000; an
expansion to Asheville Mall in Asheville, North Carolina of 85,000-square-feet
of retail shops and food court and is expected to open November 2000; an
expansion to Meridian Mall in Lansing, Michigan of 177,000-square-feet opening
in phases in the Fall of 2000 and 2001. The Company also has under construction
for a 2001 opening: The Lakes Mall in Muskegon, Michigan a 700,000-square foot
mall anchored by Sears, Yonkers and JCPenney and scheduled to open in August
2001 and Creekwood Crossing in Bradenton, Florida a 380,000-square-foot
community center anchored by Lowe's, Bealls and K-Mart and scheduled to open in
April 2001. The Company also has under development The Mall of South Carolina in
Myrtle Beach, South Carolina, a 1,095,000-square-foot regional mall and Parkway
Place in Huntsville, Alabama, a 822,000-square-foot redevelopment that was
acquired in December 1998. In February 2000 the Company opened an expansion of
Sutton Plaza in Mt. Olive, New Jersey occupied by A & P and in March 2000 an
8,000-square-foot expansion at Bonita Lakes Crossing in Meridian, Mississippi
occupied by Cellular South.
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In February 2000, the Company sold University Crossing in Pueblo,
Colorado a 101,000-square-foot community center and in March 2000, the Company
sold Fiddler's Run in Morganton, North Carolina, a 203,000-square-foot community
center. The aggregate proceeds of $19.1 million were used to pay-down debt and
to fund the purchase of a co-development property.
The Company has entered into a standby purchase agreement with a
third-party developer (the "Developer") for the construction, development and
potential ownership of one community center in Texas (the "Co-Development
Project"). The Developer has utilized this standby purchase agreement to assist
in obtaining financing to fund the construction of the Co-Development Project.
The standby purchase agreement, which expires in 2000, provides for certain
requirements or contingencies to occur before the Company becomes obligated to
fund its equity contribution or purchase the Co-Development Project. These
requirements or contingencies include certain completion requirements, rental
levels, the inability of the Developer to obtain adequate permanent financing
and the inability to sell the Co-Development Project. In return for its
commitment to purchase a Co-Development Project pursuant to a standby purchase
agreement, the Company receives a fee as well as a participation interest in
either the cash flow or gains from sale on each Co-Development Project. The
outstanding amount on the standby purchase agreement is $48.1 million at March
31, 2000. In March 2000, the Company acquired The Marketplace at Flower Mound in
Dallas (Flower Mound), Texas which had been under a co-development agreement.
The $11.1 million purchase was funded from the sales proceeds mentioned earlier
and the Company's credit line.
The Company has entered into a number of option agreements for the
development of future regional malls and community centers. Except for these
projects and as further described below, the Company currently has no other
material capital commitments.
It is management's expectation that the Company will continue to have
access to the capital resources necessary to expand and develop its business.
Future development and acquisition activities will be undertaken by the Company
as suitable opportunities arise. Such activities are not expected to be
undertaken unless adequate sources of financing are available and a satisfactory
budget with targeted returns on investment has been internally approved.
The Company will fund its major development, expansion and acquisition
activity with its traditional sources of construction and permanent debt
financing as well as from other debt and equity financings, including public
financings, and its credit facilities in a manner consistent with its intention
to operate with a conservative debt to total market capitalization ratio.
OTHER CAPITAL EXPENDITURES
Management prepares an annual capital expenditure budget for each
property which is intended to provide for all necessary recurring and
non-recurring capital improvements. Management believes that its annual
operating reserve for maintenance and recurring capital improvements and
reimbursements from tenants will provide the necessary funding for such
requirements. The Company intends to distribute approximately 55% - 90% of its
funds from operations with the remaining 10% - 45% to be held as a reserve for
capital expenditures and continued growth opportunities. The Company believes
that this reserve will be sufficient to cover tenant finish costs associated
with the renewal or replacement of current tenant leases as their leases expire
and capital expenditures which will not be reimbursed by tenants.
Major tenant finish costs for currently vacant space are expected to be
funded with working capital, operating reserves, or the revolving lines of
credit.
-16-
For the first quarter of 2000, revenue generating capital expenditures
or tenant allowances for improvements were $2.2 million. These capital
expenditures generate increased rents from these tenants over the term of their
leases. Revenue neutral capital expenditures, which are recovered from the
tenants, were $1.9 million for the first quarter of 2000. There were no revenue
enhancing capital expenditures in the first quarter.
The Company believes that the Properties are in compliance in all
material respects with all federal, state and local ordinances and regulations
regarding the handling, discharge and emission of hazardous or toxic substances.
At Parkway Place (which was acquired in December 1998) approximately 350 square
feet of ground in the vicinity of a former auto service center has been
identified as being contaminated with total petroleum hydrocarbons. All of the
existing building will be demolished over time as the mall is redeveloped and
this is scheduled to be remediated during the demolition process. The Company
has not been notified by any governmental authority, and is not otherwise aware,
of any material noncompliance, liability or claim relating to hazardous or toxic
substances in connection with any of its present or former properties. The
Company has not recorded in its financial statements any material liability in
connection with environmental matters.
CASH FLOWS
Cash flows provided by operating activities for the first quarter of 2000,
increased by $4.5 million, or 20.3%, to $26.6 million from $22.1 million in
1999. This increase was primarily due to improved operations in the existing
centers, the five centers opened or acquired over the last fifteen months and
the timing of the payment of real estate taxes. Cash flows used in investing
activities for the first quarter of 2000, decreased by $5.5 million, to $29.3
million compared to $34.8 million in 1999. This decrease was due primarily to an
increase in proceeds from sales in 2000 as compared to 1999 offset by an
increase in development activities over the same periods. Cash flows provided by
financing activities for the first quarter of 2000, decreased by $13.3 million,
to $3.7 million compared to $17.0 million in 1999 primarily due to decreased
borrowings related to the development and acquisition program.
IMPACT OF INFLATION
In the last three years, inflation has not had a significant impact on
the Company because of the relatively low inflation rate. Substantially all
tenant leases do, however, contain provisions designed to protect the Company
from the impact of inflation. Such provisions include clauses enabling the
Company to receive percentage rentals based on tenant's gross sales, which
generally increase as prices rise, and/or escalation clauses, which generally
increase rental rates during the terms of the leases. In addition, many of the
leases are for terms of less than ten years which may enable the Company to
replace existing leases with new leases at higher base and/or percentage rentals
if rents of the existing leases are below the then-existing market rate. Most of
the leases require the tenants to pay their share of operating expenses,
including common area maintenance, real estate taxes and insurance, thereby
reducing the Company's exposure to increases in costs and operating expenses
resulting from inflation.
-17-
FUNDS FROM OPERATIONS
Management believes that Funds from Operations ("FFO") provides an
additional indicator of the financial performance of the Properties. FFO is
defined by the Company as net income (loss) before depreciation of real estate
assets, gains or losses on sales of real estate and gains or losses on
investments in marketable securities. FFO also includes the Company's share of
FFO in unconsolidated properties and excludes minority interests' share of FFO
in consolidated properties. The Company computes FFO in accordance with the
National Association of Real Estate Investments Trusts ("NAREIT") recommendation
concerning finance costs and non-real estate depreciation. The Company excludes
gains or losses on outparcel sales, even though NAREIT permits their inclusion
when calculating FFO. Gains or losses on outparcel sales would have added $0.9
million in the first quarter of 2000 and $4.8 million in 1999.
Effective January 1, 2000, NAREIT has clarified FFO to include all
operating results - recurring and non-recurring - except those results defined
as "extraordinary items" as defined under generally accepted accounting
principles ("GAAP"). The Company implemented this clarification in the first
quarter of 2000 and will no longer add back to FFO the write-off of development
costs charged to net income. For the quarter ended March 31, 2000 this amount
was $28,000. Results for the quarter ended March 31, 1999 were restated to
reflect a reduction in FFO of $742,000.
The use of FFO as an indicator of financial performance is influenced
not only by the operations of the Properties, but also by the capital structure
of the Operating Partnership and the Company. Accordingly, management expects
that FFO will be one of the significant factors considered by the Board of
Directors in determining the amount of cash distributions the Operating
Partnership will make to its partners (including the REIT). FFO does not
represent cash flow from operations as defined by GAAP and is not necessarily
indicative of cash available to fund all cash flow needs and should not be
considered as an alternative to net income(loss) for purposes of evaluating the
Company's operating performance or to cash flow as a measure of liquidity.
For the three months ended March 31, 2000, FFO increased by $5.6
million, or 20.9%, to $32.1 million as compared to $26.6 million for the same
period in 1999. The increase in FFO was primarily attributable to improved
operations in the existing portfolio including increases in percentage rent,
occupancy and minimum rent and increases from five new properties opened and
acquired in the last fifteen months.
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The Company's calculation of FFO is as follows: (dollars in thousands)
Three Months Ended
March 31,
------------------------
2000 1999
--------- --------
Income from operations $18,967 $15,033
ADD:
Depreciation & amortization from consolidated properties 14,605 12,676
Income from operations of unconsolidated affiliates 755 935
Depreciation & amortization from unconsolidated affiliates 314 390
SUBTRACT:
Minority investors' share of income from operations in nine
properties (380) (365)
Minority investors share of depreciation and amortization
in nine properties (244) (232)
Depreciation and amortization of non-real estate assets and
finance costs (276) (252)
Preferred dividends (1,617) (1,617)
--------- --------
TOTAL FUNDS FROM OPERATIONS $32,124 $26,568
========= ========
DILUTED WEIGHTED AVERAGE SHARES AND POTENTIAL
DILUTIVE COMMON SHARES WITH OPERATING
PARTNERSHIP UNITS FULLY CONVERTED 36,797 36,697
========= ========
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PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matter to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 3, 2000.
At the meeting, shareholders re-elected as directors John N. Foy
(16,311,118 votes for and 2,943,029 votes against or withheld) and
William J. Poorvu (16,435,127 votes for and 2,819,020 votes against
or withheld), to three-year terms expiring in 2003. Other
continuing directors of the Company are, Stephen D. Lebovitz and
Winston W. Walker whose terms expire in 2001 and Charles B.
Lebovitz, Claude M. Ballard and Leo Fields whose terms expire
in 2002.
In addition, at the meeting, shareholders approved a proposal to
ratify the selection of Arthur Andersen LLP as independent public
accountants for the fiscal year ending December 31, 2000
(19,171,648 votes for, 82,499 votes against or withheld).
Also, at the meeting, shareholders approved the proposal to
amend the Corporation's 1993 Stock Incentive Plan to increase the
number of shares of the Corporation's Common Stock available for
issuance under the Plan (11,488,503 votes for and 7,765,643 votes
against or withheld).
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
The following items were reported:
The outline from the Company's April 27, 2000 conference call
with analysts and investors regarding earnings (Item 5) was
filed on April 27, 2000.
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SIGNATURE
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.
CBL & ASSOCIATES PROPERTIES, INC.
/s/ John N. Foy
---------------------------------------
John N. Foy
Vice Chairman of the Board, Chief Financial Officer
and Treasurer
(Authorized Officer of the Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: May 15, 2000
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EXHIBIT INDEX
Exhibit
No.
- -------
27 Financial Data Schedule