Securities Exchange Act of 1934 -- Form 10-Q
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 June 30, 2001
-----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended to
--------------------
Commission File Number 1-12494
--------------------------------------------
CBL & Associates Properties, Inc.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-1545718
--------------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Park Place, 6148 Lee Highway, Chattanooga, TN 37421
--------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (423) 855-0001
--------------
------------------------------------------------------------------
(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
The number of shares outstanding of each of the registrants classes of
common stock, as of August 8, 2001 : Common Stock, par value $.01 per share,
25,547,931 shares.
1
CBL & Associates Properties, Inc.
INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER
ITEM 1: FINANCIAL INFORMATION 3
CONSOLIDATED BALANCE SHEETS - AS OF
JUNE 30, 2001 AND DECEMBER 31, 2000 4
CONSOLIDATED STATEMENTS OF OPERATIONS -
FOR THE THREE MONTHS AND THE SIX MONTHS ENDED
JUNE 30, 2001 AND 2000 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 25
ITEM 2: CHANGES IN SECURITIES 25
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 25
ITEM 4: SUBMISSION OF MATTERS TO HAVE A
VOTE OF SECURITY HOLDERS
25
ITEM 5: OTHER INFORMATION 25
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 25
SIGNATURE 26
2
<page>
CBL & Associates Properties, Inc.
ITEM 1 - FINANCIAL INFORMATION
The accompanying financial statements are unaudited; however, they have
been prepared in accordance with accounting principles generally accepted in the
United States 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 accounting principles
generally accepted in the United States 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 June 30, 2001 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, 2000 audited financial
statements and notes thereto included in the CBL & Associates Properties, Inc.
Form 10-K for the year ended December 31, 2000.
3
CBL & Associates Properties, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
June 30, December 31,
2001 2000
----------- -----------
ASSETS
Real estate assets:
Land..................................................................... $ 522,722 $ 290,366
Buildings and improvements............................................... 2,878,305 1,919,619
----------- -----------
3,401,027 2,209,985
Less: Accumulated depreciation......................................... (307,153) (271,046)
----------- -----------
3,093,874 1,938,939
Developments in progress................................................. 118,122 101,675
----------- -----------
Net investment in real estate assets................................... 3,211,996 2,040,614
Cash and cash equivalents.................................................. 8,642 5,184
Cash in escrow............................................................. 7,936 --
Receivables:
Tenant, net of allowance for doubtful accounts of $1,854 in
2001 and 2000......................................................... 35,051 29,641
Other.................................................................... 3,497 3,472
Mortgage notes receivable.................................................. 9,925 8,756
Investment in unconsolidated affiliates.................................... 68,296 --
Other assets............................................................... 34,494 27,898
----------- -----------
$3,379,837 $2,115,565
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and other notes payable........................................... $2,318,113 $1,424,337
Accounts payable and accrued liabilities................................... 67,353 78,228
----------- -----------
Total liabilities........................................................ 2,385,466 1,502,565
----------- -----------
Distributions and losses in excess of investment
in unconsolidated affiliates.............................................. -- 3,510
----------- -----------
Minority interest.......................................................... 458,454 174,665
----------- -----------
Commitments and contingencies (Note 2).....................................
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
2,875,000 outstanding in 2001 and 2000 ................................ 29 29
Common stock, $.01 par value, 95,000,000 shares authorized,
25,512,107 and 25,067,287 shares issued and outstanding
in 2001 and 2000, respectively......................................... 255 251
Additional paid - in capital............................................. 553,471 462,480
Other comprehensive loss.................................................. (3,741) --
Accumulated deficit...................................................... (14,097) (27,935)
----------- -----------
Total shareholders' equity............................................. 535,917 434,825
----------- -----------
$3,379,837 $2,115,565
=========== ===========
The accompanying notes are an integral part of these balance sheets.
4
CBL & Associates Properties, Inc.
Consolidated Statements Of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2001 2000 2001 2000
------------ -------------- ------------ -------------
REVENUES:
Rentals:
Minimum.......................................... $ 88,710 $ 56,375 $ 166,199 $ 111,676
Percentage....................................... 822 1,080 5,060 5,931
Other............................................ 1,456 648 2,938 1,929
Tenant reimbursements............................... 41,048 26,048 77,269 50,758
Management, development and leasing fees........... 1,581 1,402 2,308 2,028
Interest and other.................................. 1,205 1,304 2,203 2,544
------------ -------------- ------------ -------------
Total revenues.................................... 134,822 86,857 255,977 174,866
------------ -------------- ------------ -------------
EXPENSES:
Property operating.................................. 22,927 13,238 42,132 26,929
Depreciation and amortization....................... 22,152 15,159 42,097 29,764
Real estate taxes................................... 10,793 7,767 20,335 14,872
Maintenance and repairs............................. 7,699 4,786 15,278 9,908
General and administrative.......................... 4,761 4,184 9,624 9,090
Interest............................................ 40,846 23,504 77,124 47,090
Other............................................... -- 4 4 31
------------ -------------- ------------ -------------
Total expenses.................................... 109,178 68,642 206,594 137,684
------------ -------------- ------------ -------------
Income from operations.............................. 25,644 18,215 49,383 37,182
Gain on sales of real estate assets................. 554 5,759 4,612 9,330
Equity in earnings of unconsolidated affiliates..... 1,350 896 2,973 1,651
Minority interest in earnings:
Operating partnership............................. (11,641) (7,412) (23,728) (14,358)
Shopping center properties........................ (462) (346) (998) (726)
------------ -------------- ------------ -------------
Income before extraordinary item.................... 15,445 17,112 32,242 33,079
Extraordinary loss on extinguishment of debt........ (1,702) (137) (1,702) (137)
------------ -------------- ------------ -------------
Net income.......................................... 13,743 16,975 30,540 32,942
Preferred dividends................................. (1,617) (1,617) (3,234) (3,234)
------------ -------------- ------------ -------------
Net income available to common shareholders......... $ 12,126 $ 15,358 $ 27,306 $ 29,708
============ ============== ============ =============
Basic per share data:
Income before extraordinary item................ $ 0.55 $ 0.62 $ 1.15 $ 1.20
============ ============== ============ =============
Net income...................................... $ 0.48 $ 0.62 $ 1.08 $ 1.20
============ ============== ============ =============
Weighted average common shares
outstanding...................................... 25,312 24,827 25,222 24,790
Diluted per share data:
Income before extraordinary item................ $ 0.54 $ 0.62 $ 1.13 $ 1.20
============ ============== ============ =============
Net income...................................... $ 0.47 $ 0.61 $ 1.07 $ 1.19
============ ============== ============ =============
Weighted average common and potential 25,762 24,995 25,633 24,905
dilutive common shares outstanding..............
The accompanying notes are an integral part of these statements.
5
CBL & Associates Properties, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2001 2000
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 30,540 $ 32,942
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in earnings.............................................. 24,725 15,084
Depreciation............................................................... 34,510 23,428
Amortization............................................................... 82,835 6,925
Gain on sales of real estate assets........................................ (4,612) (9,330)
Extraordinary loss on extinguishment of debt.............................. 1,702 -
Equity in earnings of unconsolidated affiliates............................ (2,973) (1,651)
Distributions from unconsolidated affiliates............................... 7,472 3,645
Issuance of stock under incentive plan..................................... 1,086 689
Write-off of development projects.......................................... 4 31
Distributions to minority investors........................................ (18,226) (12,653)
Changes in assets and liabilities -
Tenant and other receivables............................................... (5,426) (1,550)
Other assets............................................................... (7,016) 1,277
Accounts payable and accrued liabilities................................... 14,928 2,581
-------------- --------------
Net cash provided by operating activities.......................... 84,997 61,418
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of real estate assets and land acquisition.................. (45,286) (66,348)
Acquisition of real estate assets........................................ (116,993) (11,100)
Capitalized interest..................................................... (3,018) (2,843)
Other capital expenditures............................................... (14,061) (5,947)
Deposits in escrow....................................................... (7,936) (14,543)
Proceeds from sales of real estate assets................................ 34,221 42,173
Additions to mortgage notes receivable................................... (1,524) (1,354)
Payments received on mortgage notes receivable........................... 355 998
Additions to other assets............................................... (2,242) (1,826)
Advances and investments in unconsolidated affiliates.................... (12,771) (2,533)
-------------- --------------
Net cash used in investing activities.............................. (169,255) (63,323)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other notes payable........................... 312,132 54,143
Principal payments on mortgage and other notes payable................... (197,325) (25,336)
Additions to deferred financing costs.................................... (5,296) (681)
Proceeds from issuance of common stock................................... 1,409 816
Prepayment penalities.................................................... (1,400) -
Proceeds from exercise of stock options.................................. 7,677 3,010
Dividends paid........................................................... (29,481) (27,954)
-------------- --------------
Net cash provided by financing activities.......................... 87,716 3,998
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................................... 3,458 2,093
CASH AND CASH EQUIVALENTS, beginning of period............................... 5,184 7,074
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period..................................... $ 8,642 $ 9,167
============== ==============
Cash paid for interest, net of amounts capitalized........................... $ 71,460 $ 48,879
============== ==============
The accompanying notes are an integral part of these statements.
6
CBL & Associates Properties, Inc.
Notes to Consolidated Financial Statements
Note 1 - Unconsolidated Affiliates
At June 30, 2001, the Company had investments in seven partnerships
representing seven malls and two associated centers all of which are reflected
using the equity method of accounting. During the six months ended June 30, 2001
the Company acquired interests in three partnerships representing four malls and
one associated center and discontinued the equity method of accounting for one
partnership after acquiring a controlling interest in it. Condensed combined
results of operations for the unconsolidated affiliates are presented as follows
(in thousands):
Company's Share
Total For The For The
Six Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- --------- ----------
Revenues....................................... $ 26,135 $ 13,874 $ 12,602 $ 6,834
---------- ---------- --------- ----------
Depreciation and amortization.................. 3,894 1,864 1,829 909
Interest expense............................... 7,203 4,189 3,469 2,062
Other operating expenses....................... 8,870 4,476 4,331 2,212
---------- ---------- --------- ----------
Net income..................................... $ 6,168 $ 3,345 $ 2,973 $ 1,651
========== ========== ========= ==========
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 $389.4 million of which $147.1 million
is available at June 30, 2001. Outstanding amounts under the credit facilities
bear interest at a weighted average interest rate of 5.91% at June 30, 2001. The
Company's consolidated and unconsolidated variable rate debt as of June 30, 2001
was $781.8 million with a weighted average interest rate of 5.79% as compared to
7.25% as of June 30, 2000. Through the execution of interest rate swap
agreements, the Company has fixed the interest rates on $300 million of variable
rate debt on operating properties at a weighted average interest rate of 6.35%.
There were no fees charged to the Company related to these swap agreements. Of
the Company's remaining variable rate debt of $481.8 million, interest rate caps
in place on $50 million and a permanent loan commitment of $71.3 million leaves
$360.5 million of debt subject to variable rates. Of this amount, $118.1 million
of debt is associated with properties currently under construction and $242.4
million of debt is associated with operating properties. The Company's swap
agreements in place at June 30, 2001 are as follows:
7
Swap Amount
(in millions) Fixed LIBOR Component Effective Date Expiration Date
- ------------- --------------------- --------------- ---------------
$80 5.490% 09/01/1998 09/01/2001
10 5.737% 01/03/2001 06/01/2002
5 5.737% 01/03/2001 06/01/2002
5 5.737% 01/03/2001 06/01/2002
10 5.737% 01/03/2001 06/01/2002
20 5.737% 01/03/2001 06/01/2002
20 4.670% 03/15/2001 09/26/2002
20 4.670% 03/15/2001 09/26/2002
20 4.670% 03/15/2001 09/26/2002
10 4.670% 03/15/2001 09/26/2002
10 4.670% 03/15/2001 09/26/2002
5 4.670% 03/15/2001 09/26/2002
5 4.670% 03/15/2001 09/26/2002
80 5.830% 12/22/2000 08/30/2003
At June 30, 2001, the Company had an interest rate cap at 7.5% on $50
million of LIBOR-based variable rate debt. The value of this cap is negligible
and the Company had expensed the unamortized cost of this interest rate cap in a
prior period. At January 1, 2001, the Company implemented Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended, ("SFAS No. 133") which establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Company documented and identified the swap agreements in place
at January 1, 2001 with the underlying debt and determined that with the
exception of two swaps that expired during the first quarter of 2001 the
Company's derivative instruments were effective and qualified for hedge
accounting. The Company also documented and identified new swap instruments at
inception with the underlying debt and determined that they were effective and
qualified for hedge accounting. The Company measured the effectiveness of these
instruments in place during the quarter and six months ended June 30, 2001 and
determined that the swap agreements continued to be highly effective and
continued to qualify for hedge accounting. The effective swap instruments were
recorded on the balance sheet at their fair values of $3.8 million in accrued
liabilities and in other comprehensive loss of $3.8 million. Over time, the
unrealized gains and losses held in accumulated other comprehensive loss will be
reclassified to earnings as interest expense as swap payments are made to the
swap counterparties. This reclassification is consistent with the timing of when
hedged items are recognized in earnings. Within the next twelve months, the
Company expects to reclassify to earnings as interest expense an estimated $2.6
million of the current balance held in accumulated other comprehensive loss.
8
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 June 30, 2001 Malls Centers Centers All Other Total
- ----------------------------------- ----------- ------------ ------------ ------------ ----------
Revenues $ 109,615 $ 4,081 $ 18,528 $ 2,598 $ 134,822
Property operating expenses (1) (36,952) (981) (4,311) 825 (41,419)
Interest expense (32,568) (1,119) (3,660) (3,499) (40,846)
Gain on sales of real estate assets - - 554 - 554
----------- ------------ ------------ ------------ ----------
Segment profit and loss $ 40,095 $ 1,981 $ 11,111 $ (76) 53,111
=========== ============ ============ ===========
Depreciation and amortization (22,152)
General and administrative and other (4,761)
Equity in earnings and minority
interest adjustment (10,753)
----------
Net income $ 15,445
==========
Capital expenditures (2) $ 17,992 $ 626 $ 2,087 $ 13,227 $ 33,932
Associated Community
Three Months Ended June 30, 2000 Malls Centers Centers All Other Total
- ----------------------------------- ----------- ------------ ------------ ------------ ----------
Revenues $ 63,471 $ 3,665 $ 17,257 $ 2,464 $ 86,857
Property operating expenses (1) (21,588) (614) (3,831) 242 (25,791)
Interest expense (18,198) (802) (3,267) (1,237) (23,504)
Gain on sales of real estate assets (257) - 3,821 2,195 5,759
----------- ------------ ------------ ------------ ----------
Segment profit and loss $ 23,428 $ 2,249 $ 13,980 $ 3,664 43,321
=========== ============ ============ ===========
Depreciation and amortization (15,159)
General and administrative and other (4,188)
Equity in earnings and minority
interest adjustment (6,862)
----------
Net income $ 17,112
==========
Capital expenditures (2) $ 17,666 $ 1,081 $ 17,192 $ (2,007) $ 33,932
9
Associated Community
Six Months Ended June 30, 2001 Malls Centers Centers All Other Total
- ----------------------------------- ----------- ------------ ------------ ------------ ----------
Revenues $ 207,743 $ 8,136 $ 36,042 $ 4,056 $ 255,977
Property operating expenses (1) (69,183) (1,913) (8,004) 1,355 (77,745)
Interest expense (61,165) (2,429) (7,503) (6,027) (77,124)
Gain on sales of real estate assets - - 3,480 1,132 4,612
----------- ------------ ------------ ------------ ----------
Segment profit and loss $ 77,395 $ 3,794 $ 24,015 $ 516 105,720
=========== ============ ============ ===========
Depreciation and amortization (42,097)
General and administrative and other (9,628)
Equity in earnings and minority
interest adjustment (21,753)
----------
Net income $ 32,242
==========
Total assets (2) $2,668,904 $122,783 $489,195 $98,948 $3,379,830
Capital expenditures (2) $1,229,819 $ 4,761 $ 49,248 $20,537 $1,304,365
Associated Community
Six Months Ended June 30, 2000 Malls Centers Centers All Other Total
- ----------------------------------- ----------- ------------ ------------ ------------ ----------
Revenues $ 130,576 $ 7,132 $ 33,288 $ 3,870 $ 174,866
Property operating expenses (1) (44,060) (1,206) (7,063) 620 (51,709)
Interest expense (36,408) (1,641) (6,607) (2,434) (47,090)
Gain on sales of real estate assets (283) - 6,692 2,921 9,330
----------- ------------ ------------ ------------ ----------
Segment profit and loss $ 49,825 $ 4,285 $ 26,310 $ 4,977 85,397
=========== ============ ============ ===========
Depreciation and amortization (29,764)
General and administrative and other (9,121)
Equity in earnings and minority
interest adjustment (13,433)
----------
Net income $ 33,079
==========
Total assets (2) $1,411,183 $104,226 $444,973 $107,217 $2,067,599
Capital expenditures (2) $ 32,167 $ 2,444 $ 20,579 $ 25,445 $ 80,635
<FN>
(1) Property operating expenses includes property operating expenses, real
estate taxes, and maintenance and repairs.
(2) Capital expenditures includes investment in unconsolidated affiliates.
Developments in progress are included in the "All Other" category.
</FN>
10
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
June 30, 2001, the operations of a portfolio of properties consisting of
forty-four regional malls, sixteen associated centers, seventy-one community
centers, an office building, joint venture investments in seven regional malls
and two associated centers, and income from seven mortgages (the "Properties").
The Operating Partnership also has one mall, one office building, two mall
expansions, two community center expansions and one mall in a joint venture
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 a redevelopment project Springdale Mall in Mobile,
Alabama, 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 in a joint venture with a third party.
RESULTS OF OPERATIONS
Operational highlights for the three months and six months ended June 30,
2001 as compared to June 30, 2000 are as follows:
11
SALES
Mall shop sales, for those tenants who have reported, in the
forty-eight Stabilized Malls in the Company's portfolio decreased by
1.0% on a comparable per square foot basis.
Six Months Ended June 30,
--------------------------------------
2001 2000
------------ ------------
Sales per square foot $125.22 $126.50
Total sales volume in the mall portfolio, including New Malls, but
excluding Parkway Place, decreased 1.1% to $1.313 million for the six
months ended June 30, 2001 from $1.328 million for the six months ended
June 30, 2000.
Occupancy costs as a percentage of sales for the six months ended June
30, 2001 and 2000 for the Stabilized Malls were 13.5% and 13.8%,
respectively. Occupancy costs were 11.9%, 11.5% and 11.1% for the years
ended December 31, 2000, 1999, and 1998, 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,
------------------------
2001 2000
-------- -------
Core Portfolio:
Stabilized malls................... 91.1% 92.5%
New malls.......................... 87.9 84.5
Associated centers................. 96.4 91.9
Community centers.................. 96.4 98.2
-------- -------
Total portfolio occupancy.......... 93.7 94.3
Newly-Acquired Portfolio:
Malls (21)......................... 86.5 --
Associated centers (2)............. 100.0 --
Total Combined Occupancy: 91.7 --
AVERAGE BASE RENT
Average base rents for the Company's three portfolio categories were as
follows:
At June 30,
------------------------
2001 2000
-------- --------
Stabilized and new malls........... $ 22.46 $ 20.62
Associated centers................. 9.49 9.81
Community centers.................. 9.48 8.77
12
LEASE ROLLOVERS
On spaces previously occupied, the Company achieved the following
results from rollover leasing for the six months ended June 30, 2001
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......................... $22.91 $24.68 7.7%
Associated centers............ 12.63 14.27 13.0%
Community centers............. 8.48 11.93 40.6%
<FN>
(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.
</FN>
For the six months ended June 30, 2001, malls represented 82.9% of total
revenues from all properties; revenues from associated centers represented 2.8%;
revenues from community centers represented 13.7%; and revenues from mortgages
and the office building represented 0.6%. 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 JUNE 30, 2001 TO
THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000
Total revenues for the three months ended June 30, 2001 increased by $48.0
million, or 55.2%, to $134.8 million as compared to $86.9 million in 2000.
Minimum rents increased by $32.2 million, or 57.4%, to $88.7 million as compared
to $56.4 million in 2000, and tenant reimbursements increased by $15.0 million,
or 57.6%, to $41.0 million in 2001 as compared to $26.0 million in 2000.
Percentage rents decreased by $0.3 million, or 23.9%, to $0.8 million as
compared to $1.1 million in 2000.
Management, leasing and development fees increased by $0.2 million in the
second quarter of 2001, or 12.8%, to $1.6 million as compared to $1.4 million in
2000. This increase is primarily due to increases in fees earned on new joint
venture projects.
Approximately $41.4 million of the increase in revenues resulted from
operations at the eighteen new centers which are consolidated on the financial
statements and which were acquired on January 31, 2001 from The Richard E.
Jacobs Group. These centers are described in the Development, Expansions,
Acquisitions and Dispositions section of this report:
13
Approximately $5.1 million of the increase in revenues resulted from
operations at the six new centers opened or acquired during the past fifteen
months offset by a decrease in revenues of $1.4 million from sixteen centers
sold in the last eighteen months. The six new centers consist of:
Opening/
Project Name Location Total GLA Type of Addition Acquisition Date
- ------------ -------- --------- ---------------- ----------------
Coastal Way Spring Hill, Florida 177,000 New Development August 2000
Chesterfield Crossing Richmond, Virginia 406,000 New Development October 2000
Gunbarrel Pointe Chattanooga, Tennessee 282,000 New Development October 2000
Willowbrook Plaza Houston, Texas 388,000 Acquisition February 2001
Creekwood Crossing Bradenton, Florida 404,000 New Development April 2001
Madison Square Mall Huntsville, Alabama 934,000 Acquisition of 50% January 2001
interest
Approximately $2.9 million of the increase in revenues resulted from
improved operations in the existing centers and a lease buyout of $0.6 million
at Westgate Mall in Spartanburg, South Carolina.
Property operating expenses, including real estate taxes and maintenance
and repairs increased in the second quarter of 2001 by $15.6 million or 60.6% to
$41.4 million as compared to $25.8 million in the second quarter of 2000. This
increase is primarily the result of the addition of the twenty-four new centers
referred to above.
Depreciation and amortization increased in the second quarter of 2001 by
$7.0 million or 46.1% to $22.2 million as compared to $15.2 million in the
second quarter of 2000. This increase is primarily due to the addition of the
twenty-four new centers referred to above.
Interest expense increased in the second quarter of 2001 by $17.3 million,
or 73.8% to $40.8 million as compared to $23.5 million in 2000. This increase is
primarily due to the additional interest on the twenty-four centers added during
the last eighteen months and referred to above.
The gain on sales of real estate assets decreased in the second quarter of
2001 by $5.2 million, to $0.6 million as compared to $5.8 million in 2000. The
gain in the second quarter of 2001 was from the sale of the completed center
Sand Lakes Corners in Orlando, Florida. The majority of gain on sales in the
second quarter of 2000 resulted from the of $3.8 million gain on sales of five
completed centers. The balance of the gains on sales in the second quarter of
2000 were from outparcel sales the majority of which occurred at Sand Lake
Corners in Orlando, Florida and Gunbarrel Pointe in Chattanooga, Tennessee.
Equity in earnings of unconsolidated affiliates increased in the second
quarter of 2001 by $0.5 million to $1.4 million as compared to $0.8 million in
the first quarter of 2000. This increase was the result of acquiring a
non-controlling interest in four malls and one associated center in three
partnerships, all accounted for under the equity method of accounting, The
increase was offset by the end of operations at Parkway Place Mall in
Huntsville, Alabama which is being redeveloped and by the conversion of a
property accounted for under the equity method of accounting, Madison Square
Mall in Huntsville, Alabama, to a property accounted for as a consolidated
property .The new centers accounted for under the equity method are: Columbia
Mall in Columbia, South Carolina; East Towne Mall, West Towne Mall and West
Towne Crossing in Madison Wisconsin; and Kentucky Oaks Mall in Paducah,
Kentucky.
14
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 TO
THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
Total revenues for the six months ended June 30, 2001 increased by $81.1
million, or 46.4%, to $256.0 million as compared to $174.9 million in 2000. Of
this increase, minimum rents increased by $54.5 million, or 48.8%, to $166.2
million as compared to $111.7 million in 2000, and tenant reimbursements
increased by $26.5 million, or 52.2%, to $77.3 million in 2001 as compared to
$50.8 million in 2000.
Management, leasing and development fees increased by $0.3 million in the
first six months of 2001, to $2.3million as compared to $2.0 million in 2000.
This increase is primarily due to increases in fees earned on new joint venture
projects.
Approximately $68.1 million of the increase in revenues resulted from
operations at the eighteen new centers which are consolidated on the financial
statements of the Company and which were acquired on January 31, 2001 from The
Richard E. Jacobs Group. These centers are described in the Development,
Expansions, Acquisitions and Dispositions section of this report:
New revenues of $11.1 million resulted from operations at the seven new
centers opened or acquired during the past eighteen months offset by a decrease
in revenues of $3.0 million from sixteen community centers sold in the last
eighteen months. The seven new centers are as follows:
Opening/
Project Name Location Total GLA Type of Addition Acquisition Date
- ------------ -------- --------- ---------------- ----------------
Marketplace at FlowerMound Dallas (Flowermound), Texas 119,000 Acquisition March 2000
Coastal Way Spring Hill, Florida 177,000 New Development August 2000
Chesterfield Crossing Richmond, Virginia 406,000 New Development October 2000
Gunbarrel Pointe Chattanooga, Tennessee 282,000 New Development October 2000
Willowbrook Plaza Houston, Texas 388,000 Acquisition February 2001
Creekwood Crossing Bradenton, Florida 404,000 New Development April 2001
Madison Square Mall Huntsville, Alabama 934,000 Acquisition of 50% January 2001
interest
Approximately $4.7 million of the increase in revenues resulted from
improved operations in the existing centers and a lease buyout of $0.6 million
at Westgate Mall in Spartanburg, South Carolina.
Property operating expenses, including real estate taxes and maintenance
and repairs, increased in the first six months of 2001 by $26.0 million, or
50.4%, to $77.7 million as compared to $51.7 million in 2000. This increase is
primarily the result of the addition of the twenty-five new centers referred to
above.
15
Depreciation and amortization increased in the first six months of 2001 by
$12.3 million, or 41.4%, to $42.1 million as compared to $29.8 million in 2000.
This increase is primarily the result of the addition of the twenty-five new
centers referred to above.
Interest expense increased in the first six months of 2001 by $30.0
million, or 63.8%, to $77.1 million as compared to $41.1 million in 2000. This
increase is primarily the result of interest on debt related to the addition of
the twenty-five new centers referred to above.
The gain on sales of real estate assets decreased for the six months ended
June 30, 2001 by $4.7 million to $4.6 million as compared to $9.3 million in
2000. The majority of gain on sales in the first six months of 2001 resulted
from the $3.5 million gain on sales of three completed centers. The balance of
the gains on sales were from outparcel sales at the development The Lakes Mall
in Muskegon, Michigan. The majority of gain on sales in the first six months of
2000 resulted from the $6.5 million gain on sales of seven completed centers.
The balance of the gains on sales were from outparcel sales the majority of
which occurred at Sand Lake Corners in Orlando, Florida and the development
Gunbarrel Pointe in Chattanooga, Tennessee.
Equity in earnings of unconsolidated affiliates increased in the second
quarter of 2001 by $1.3 million to $3.0 million as compared to $1.7 million in
the first quarter of 2000. This increase was the result of acquiring a
non-controlling interest in four malls and one associated center in three
partnerships, all accounted for under the equity method of accounting, The
increase was offset by the end of operations at Parkway Place Mall in
Huntsville, Alabama which is being redeveloped and by the conversion of a
property accounted for under the equity method of accounting, Madison Square
Mall in Huntsville, Alabama, to a property accounted for as a consolidated
property .The new centers accounted for under the equity method are: Columbia
Mall in Columbia, South Carolina; East Towne Mall, West Towne Mall and West
Towne Crossing in Madison Wisconsin; and Kentucky Oaks Mall in Paducah,
Kentucky.
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 90% of its "Real Estate Investment Trust
Taxable Income" as defined in the Internal Revenue Code of 1986, as amended (the
"Code").
As of June 30, 2001, the Company had $84.1 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 June 30, 2001, the Company
had obtained revolving credit lines and term loans totaling $389.4 million of
which $147.1 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.
16
During the second quarter, CBL closed a total of $276 million in financings
for six properties with a weighted average interest rate of 6.2%. The proceeds
were used to retire two maturing loans and prepay three loans for a total of
approximately $212 million with a weighted average interest rate of 8.9%. Excess
proceeds of $62.6 million were used to reduce the $212 million credit facility
used on January 21, 2001 to acquire the interests of The Richard E. Jacobs Group
in 23 properties. The Properties with new loans are Fayette Mall in Lexington,
Kentucky with a $98 million fixed rate permanent loan at 7%, Brookfield Mall in
Brookfield (Milwaukee), Wisconsin with a a fixed rate permanent loan addition of
$30 million at 6.87%, Regency Mall in Racine, Wisconsin a $28.6 million
refinancing funded with proceeds from the Company's credit facilities.
Additionally, Midland Mall in Midland Michigan, Parkdale Mall in Beaumont, Texas
and Columbia Mall in Columbia, South Carolina were refinanced with three
separate variable rate loans totaling $119.4 million for terms of up to three
years.
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 18.8% ownership interest 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
2.0 million shares of the outstanding common stock of the Company, for a
combined total interest in the Operating Partnership of approximately 22.8%.
Ownership interests issued to fund acquisitions of properties in 1998 and
January 2001 may be exchanged for approximately 15.1 million shares of common
stock which represents a 30.2% 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 50.0 million shares
of common stock with a market value of approximately $1.536 billion at June 30,
2001 (based on the closing price of $30.70 per share on June 30, 2001). The
Company's total market equity is $1.608 billion which includes 2.9 million
shares of preferred stock at the closing price of $25.05 per share on June 30,
2001. The Company's current and former executive and senior officers' ownership
interests had a market value of approximately $350.0 million at June 30, 2001.
Mortgage debt consists of debt on certain consolidated properties as well
as on seven properties in which the Company owns a non-controlling interest and
which are accounted for under the equity method of accounting. At June 30, 2001,
the Company's share of funded mortgage debt on its consolidated properties
adjusted for minority investors' interests in eight properties was $2.285
billion and its pro rata share of mortgage debt on unconsolidated properties
(accounted for under the equity method) was $100.1 million for total debt
obligations of $2.385 billion with a weighted average interest rate of 7.34%.
17
The Company's share of total conventional fixed rate debt as of June 30,
2001 was $1.603 billion with a weighted average interest rate of 7.64% as
compared to 7.41% on $776.3 million of debt as of June 30, 2000.
The Company's share of variable rate debt as of June 30, 2001 was $781.8
million with a weighted average interest rate of 5.6% as compared to 7.25% on
$636.8 million as of June 30, 2000. Through the execution of swap agreements,
the Company has fixed the interest rates on $300 million of debt on operating
properties at a weighted average interest rate of 6.5%. Of the Company's
remaining variable rate debt of $481.8 million, an interest rate cap in place of
$50.0 million and a permanent loan commitment of $71.3 million leaves $360.5
million of debt subject to variable rates. Interest on $118.1 million of this
remaining variable rate debt is capitalized to projects currently under
construction leaving $242.4 million of variable rate debt exposure on operating
properties as of June 30, 2001. There were no fees charged to the Company
related to its swap agreements. The Company's swap and cap agreements in place
at June 30, 2001 are as follows:
Swap Amount
(in millions) Fixed LIBOR Component Effective Date Expiration Date
- ------------- --------------------- --------------- ---------------
$80 5.490% 09/01/1998 09/01/2001
10 5.737% 01/03/2001 06/01/2002
5 5.737% 01/03/2001 06/01/2002
5 5.737% 01/03/2001 06/01/2002
10 5.737% 01/03/2001 06/01/2002
20 5.737% 01/03/2001 06/01/2002
20 4.670% 03/15/2001 09/26/2002
20 4.670% 03/15/2001 09/26/2002
20 4.670% 03/15/2001 09/26/2002
10 4.670% 03/15/2001 09/26/2002
10 4.670% 03/15/2001 09/26/2002
5 4.670% 03/15/2001 09/26/2002
5 4.670% 03/15/2001 09/26/2002
80 5.830% 12/22/2000 08/30/2003
cap 50 7.500% 10/01/2000 09/30/2001
At January 1, 2001, the Company implemented Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended, ("SFAS No. 133") which establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Company documented and identified the swap agreements in place
at January 1, 2001 with the underlying debt and determined that with the
exception of two swaps that expired during the first quarter of 2001, the
Company's derivative instruments were effective and qualified for hedge
18
accounting. The Company also documented and identified new swap instruments at
inception with the underlying debt and determined that they were effective and
qualified for hedge accounting. The Company measured the effectiveness of these
instruments in place during the quarter and during the six months ended June 30,
2001 and determined that the swap agreements continued to be highly effective
and continued to qualify for hedge accounting. The effective swap instruments
were recorded on the balance sheet at their fair values in accrued liabilities
and in other comprehensive loss each in the amount of $3.8 million. Over time,
the unrealized gains and losses held in accumulated other comprehensive loss
will be reclassified to earnings as interest expense as swap payments are made
to the swap counterparties. This reclassification is consistent with the timing
of when the hedged items are also recognized in earnings. Within the next twelve
months, the Company expects to reclassify to earnings as interest expense an
estimated $2.6 million of the current balance held in accumulated other
comprehensive loss.
On January 31, 2001, the Company assumed in connection with the acquisition
of twenty-three properties from The Richard E. Jacobs Group total debt
obligations of $745.5 million, including permanent debt of $661.5 million
(adjusted for minority interest in one property); variable-rate debt of $12.5
million; and its pro rata share of mortgage debt on unconsolidated Properties
(accounted for under the equity method) of $71.5 million. In addition, the
Company closed a $212 million unsecured credit facility provided by a consortium
of banks led by Wells Fargo. The outstanding balance under this facility was
$72.7 million at June 30, 2001. Of the revolving component of this facility,
$76.7 million is remaining available and will be used to fund capital needs in
certain of the acquired Properties. During the second quarter of 2001 the
Company retired $62.6 million of the term loan component of this facility.
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 59.7% at June 30, 2001.
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
On January 31, 2001, the Company acquired from The Richard E. Jacobs Group
interests in 21 malls and two associated centers. The total gross leasable area
of the twenty-three Properties was 19.2 million square feet, or an average gross
leasable area of 880,000 square feet per mall. The gross leasable area of the
mall stores in the Jacobs Properties was approximately 6.0 million square feet.
The malls are located in middle markets predominantly in the Southeast and the
Midwest. Additionally, the Company acquired the remaining 50% interest in
Madison Square Mall in Huntsville, Alabama. The centers acquired are as follows:
19
Name of Mall/Location Acquired Total GLA (1) Mall Store GLA Anchors
- ------------------------------------- -------------- ------------- -------------- ----------------------
Brookfield Square.................... 100% 1,041,000 317,000 Boston Store, Sears,
Brookfield, WI JCPenney
Cary Towne Center.................... 80% 953,000 296,000 Dillard's, Hecht's,
Cary, NC Hudson, Belk,
Cherryvale Mall...................... 100% 714,000 305,000 Bergner's, Marshall
Rockford, IL Fields, Sears
Citadel Mall......................... 100% 1,068,000 299,000 Parisian, Dillard's,
Charleston, SC Belk, Target, Sears
Columbia Mall........................ 48% 1,113,000 299,000 Dillard's, JCPenney,
Columbia, SC Rich's, Sears
Eastgate Mall.....................(1) 100% 1,099,000 270,000 JCPenney, Kohl's,
Cincinnati,OH Dillard's, Sears
East Towne Mall...................... 48% 895,000 301,000 Boston Store, Younkers,
Madison, WI Sears, JCPenney
Fashion Square....................... 100% 786,000 289,000 Hudson's, JCPenney,
Saginaw, MI Sears
Fayette Mall......................... 100% 1,096,000 309,000 Lazarus, Dillard's,
Lexington, KY JCPenney, Sears
Hanes Mall........................... 100% 1,556,000 555,000 Dillard's, Belk, Hecht's,
Winston-Salem, NC Sears, JCPenney
Jefferson Mall....................... 100% 936,000 276,000 Lazarus, Dillard's,
Louisville, KY Sears, JCPenney
Kentucky Oaks Mall................... 48% 878,000 278,000 Dillard's, Elder-
Paducah, KY Beerman, JCPenney,
Shop Ko
Midland Mall......................... 100% 514,000 197,000 Elder-Beerman,
Midland, MI JCPenney, Sears, Target
Northwoods Mall...................... 100% 833,000 314,000 Dillard's, Belk,
Charleston, SC JCPenney, Sears
Old Hickory Mall..................... 100% 556,000 161,000 Belk, Goldsmith's,
Jackson, TN Sears, JCPenney
Parkdale Mall........................ 100% 1,411,000 475,000 Dillard's, JCPenney,
Beaumont,TX Foley's, Sears
Randolph Mall........................ 100% 376,000 147,000 Belk, JCPenney,
Asheboro, NC Dillard's, Sears
Regency Mall......................... 100% 918,000 268,000 Boston Store, Younkers,
Racine, WI JCPenney, Sears
Towne Mall........................... 100% 521,000 154,000 Elder-Beerman,
Franklin, OH Dillard's, Sears
Wausau Center........................ 100% 429,000 156,000 Younkers, JCPenney,
Wausau, WI Sears
West Towne Mall...................(1) 48% 1,468,000 263,000 Boston Store, Sears,
Madison, WI JCPenney
<FN>
(1) Includes associated center.
</FN>
20
During the quarter the Company opened Creekwood Crossing in Bradenton,
Florida,a 380,000-square-foot community center anchored by Lowe's, Bealls and
K-Mart. Subsequent to the end of the quarter the Company opened the Parisian
store and Picadilly Cafeteria at Parkway Place in Huntsville Alabama and
continues the joint venture redevelopment of Parkway Place which will contain
605,000-square-feet. Dillard's and the full redevelopment is scheduled to reopen
in the fall of 2002.
The Company's other development activities include: The Lakes Mall in
Muskegon, Michigan a 558,000-square-foot mall anchored by Sears, Yonkers and
JCPenney which is scheduled to open in August, 2001. The Company has two mall
expansions under construction Springdale Mall in Mobile, Alabama where a Best
Buy is scheduled to open in November 2001 and at Meridian Mall in Lansing,
Michigan which is scheduled to open in November 2001 and the fall of 2002. The
Company also has under construction two community center expansions at
Chesterfield Crossing in Richmond, Virginia and at Costal Way in Spring Hill,
Florida. The Company also has under construction a new corporate headquarters
CBL Center in Chattanooga, Tennessee.
In May 2001, the Company sold Sand Lake Corners in Orlando, Florida a
558,000-square-foot community center that the Company had developed and opened
in July 1999. The proceeds of $22 million were used to retire variable rate debt
and pay down on the Company's credit facilities.
At June 30, 2001, the Company had no standby purchase agreements or
co-development agreement obligations. In February 2001, the Company acquired
Willowbrook Plaza in Houston, Texas pursuant to a co-development agreement.
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
activities 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.
21
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 (I) tenant finish costs associated with the renewal or
replacement of current tenant leases as their leases expire and (II) 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.
For the first six months of 2001, revenue generating capital expenditures
or tenant allowances for improvements were $11.2 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 $2.4 million for the first six months of 2001. Revenue enhancing
capital expenditures, or remodeling and renovation costs, were $0.5 million for
the first six months of 2001.
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.
Environmental assessments at Parkway Place in Huntsville, Alabama (which was
acquired in a joint venture in December 1998) identified certain asbestos
containing materials ("ACMs") all of which were remediated during the demolition
which was completed during the quarter to make way for construction of the new
mall. 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 six months of
2001, increased by $23.6 million, or 39.2%, to $85.0 million from $61.4 million
in 2000. This increase was primarily due to the twenty-three properties acquired
in January 2001 and seven properties opened or acquired in the last eighteen
months. Cash flows used in investing activities for the first six months of 2001
increased by $105.9 million, to $169.3 million compared to $63.3 million in
2000. This increase was due primarily to the acquisition of twenty-five new
Properties in the quarter. Cash flows provided by financing activities for the
first six months of 2001 increased by $83.7 million, to $87.7 million compared
to $4.0 million in 2000 primarily due to increased borrowings related to the
acquisition of twenty-five properties in the last eighteen months. During the
first six months of 2001 the Company assumed debt of $778,968,000 and issued
minority interests of $289,373,000 to acquire real estate assets. The Company
also issued minority interests of $50,603,000 and assumed debt of $71,495,000 to
acquire non-controlling interests in real estate assets accounted for under the
equity method of accounting.
22
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.
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, other non-cash items of 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. There were no gains
on outparcel sales in the second quarter of 2001 as compared to $1.9 million in
2000. In the six months ended June 30, 2001 gains on outparcel sales would have
added $1.1 million as compared to $2.8 million in 2000.
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 accounting principals generally accepted in the United
States 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 June 30, 2001, FFO increased by $14.9 million,
or 46.1%, to $47.2 million as compared to $32.3 million for the same period in
2000. For the six months ended June 30, 2001, FFO increased by $25.5 million, or
39.6%, to $89.9 million as compared to $64.4 million for the same period in
2000. The increases in FFO for both periods was primarily attributable to the
acquisition of twenty-three properties in January, 2001 and the opening or
acquisition of seven properties in the last eighteen months.
23
The Company's calculation of FFO is as follows: (in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Income from operations............................ $ 25,644 $ 18,215 $ 49,383 $ 37,182
ADD:
Depreciation & amortization from consolidated
properties........................................ 22,152 15,159 42,097 29,764
Income from operations of
unconsolidated affiliates........................ 1,350 896 2,973 1,651
Depreciation & amortization from
unconsolidated affiliates........................ 1,106 591 1,829 905
SUBTRACT:
Preferred dividends............................... (1,617) (1,617) (3,234) (3,234)
Minority investors' share of
income from operations in
nine properties.................................. (462) (346) (998) (726)
Minority investors share of
depreciation and amortization
in nine properties.............................. (338) (246) (614) (490)
Depreciation and amortization of
non-real estate assets and finance costs...... (660) (360) (1,487) (636)
-------- -------- -------- --------
TOTAL FUNDS FROM OPERATIONS....................... $ 47,175 $ 32,292 $ 89,949 $ 64,416
======== ======== ======== ========
Weighted average common and potential
dilutive common shares with operating
partnership units fully converted.............. 50,248 32,292 47,951 36,887
24
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
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
A. Exhibits
None
B. Reports on Form 8-K
The following items were reported:
The outline from the Company's July 25, 2001
conference call with analysts and investors regarding earnings
(Item 5) was filed on July 25, 2001.
25
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: August 14, 2001
26
EXHIBIT INDEX
Exhibit No.