1
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, 1996
------------------------
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
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CBL & Associates Properties, Inc.
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(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
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(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 May 1, 1996: Common Stock, par value $.01 per share,
20,848,108 shares.
2
CBL & ASSOCIATES PROPERTIES, INC.
INDEX
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PART I FINANCIAL INFORMATION PAGE NUMBER
ITEM 1: FINANCIAL INFORMATION 3
CONSOLIDATED BALANCE SHEETS - AS OF
MARCH 31, 1996 AND DECEMBER 31, 1995 4
CONSOLIDATED STATEMENTS OF OPERATIONS - FOR
THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 24
ITEM 2: CHANGES IN SECURITIES 24
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4: SUBMISSION OF MATTERS TO HAVE A VOTE OF
SECURITY HOLDERS 24
ITEM 5: OTHER INFORMATION 25
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 25
SIGNATURE 26
3
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, 1996 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 "REIT") December 31, 1995 audited financial
statements and notes thereto included in the CBL & Associates Properties, Inc.
Form 10-K for the year ended December 31, 1995.
4
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
----------- ------------
Real estate assets:
Land ................................................................... $ 98,858 $ 98,305
Buildings and improvements.............................................. 725,575 722,178
-------- --------
824,433 820,483
Less: Accumulated depreciation........................................ (95,871) (89,818)
-------- --------
728,562 730,665
Developments in progress................................................ 43,207 28,273
-------- --------
Net investment in real estate assets.................................. 771,769 758,938
Cash and cash equivalents................................................. 2,121 3,029
Receivables:
Tenant.................................................................. 10,818 10,479
Other................................................................... 724 974
Notes receivable.......................................................... 34,440 34,262
Other assets.............................................................. 7,442 6,486
-------- --------
$827,314 $814,168
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and other notes payable.......................................... $406,970 $392,754
Accounts payable and accrued liabilities.................................. 16,728 28,035
-------- --------
Total liabilities....................................................... 423,698 420,789
-------- --------
Commitments and contingencies............................................. - -
Distributions and losses in excess of investment in
unconsolidated affiliates............................................... 8,891 8,795
-------- --------
Minority interest 116,815 113,692
-------- --------
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued - -
Common stock, $.01 par value, 95,000,000 shares authorized, 20,848,073 and
20,837,099 shares issued and outstanding in 1996 and 1995, respectively 208 208
Excess stock, $.01 par value, 100,000,000 shares authorized, none issued - -
Additional paid - in capital............................................ 291,421 291,182
Accumulated deficit..................................................... (13,424) (20,142)
Deferred compensation................................................... (295) (356)
-------- --------
Total shareholders' equity............................................ 277,910 270,892
-------- --------
$827,314 $814,168
======== ========
The accompanying notes are an integral part of these balance sheets.
5
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
-------------------
1996 1995
------ -------
REVENUES:
Rentals:
Minimum..................................................................... $22,498 $19,004
Percentage.................................................................. 1,046 997
Other....................................................................... 233 147
Tenant reimbursements.......................................................... 10,123 8,722
Management and leasing fees.................................................... 608 590
Development fees............................................................... - 249
Interest and other............................................................. 872 1,009
------- -------
Total revenues............................................................... 35,380 30,718
------- -------
EXPENSES:
Property operating............................................................. 5,418 4,898
Depreciation and amortization.................................................. 6,149 5,325
Real estate taxes.............................................................. 2,660 2,330
Maintenance and repairs........................................................ 2,256 1,910
General and administrative..................................................... 2,189 2,385
Interest....................................................................... 7,891 7,398
Other.......................................................................... 196 -
------- -------
Total expenses............................................................... 26,759 24,246
------- -------
INCOME FROM OPERATIONS......................................................... 8,621 6,472
GAIN ON SALES OF REAL ESTATE ASSETS............................................ 615 152
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES................................ 670 527
MINORITY INTEREST IN EARNINGS:
Operating partnership........................................................ (3,019) (2,535)
Shopping center properties................................................... (150) (116)
------- -------
NET INCOME..................................................................... $6,737 $4,500
======= =======
EARNINGS PER COMMON SHARE DATA:
NET INCOME..................................................................... $0.32 $0.27
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING............................................ 20,847 16,642
======= =======
The accompanying notes are an integral part of these statements.
6
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
-------------------
1996 1995
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................... $15,808 $8,384
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets............................................. (23,684) (27,539)
Acquisition of shopping center properties................................... - (22,105)
Proceeds from sales of real estate assets................................... 1,491 250
Additions to notes receivable............................................... (263) (281)
Payments received on notes receivable....................................... 85 556
-------- --------
Net cash used in investing activities........................................ (22,371) (49,119)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and notes payable.................................... 111,285 48,780
Principal payments on mortgage and notes payable............................ (97,069) (1,541)
Dividends paid.............................................................. (8,283) (6,239)
Proceeds from issuance of common stock...................................... 33 -
Additional investments in and advances to unconsolidated affiliates......... (315) (354)
-------- --------
Net cash provided by financing activities.................................... 5,651 40,646
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................................... (912) (89)
-------- --------
CASH AND CASH EQUIVALENTS, beginning of period............................... 3,029 2,053
-------- --------
CASH AND CASH EQUIVALENTS, end of period..................................... $2,117 $1,964
======== ========
The accompanying notes are an integral part of these statements.
7
CBL & ASSOCIATES PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNCONSOLIDATED AFFILIATES
At March 31, 1996, the REIT had investments in three partnerships and joint
ventures all of which are reflected using the equity method of accounting.
The REIT's investment in Brownwood Associates was transferred to the lender
on April 3, 1995. The effect on the financial statements was not material.
Condensed combined results of operations for the unconsolidated affiliates
are presented as follows (dollars in thousands):
REIT'S SHARE
TOTAL FOR THE FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues $ 5,653 $ 5,899 $ 2,772 $ 2,893
--------- --------- --------- ---------
Depreciation and amortization 650 676 318 331
Interest expense 2,085 2,270 1,022 1,115
Other operating expenses 1,548 1,870 762 920
--------- --------- --------- ---------
Net income $ 1,370 $ 1,083 $ 670 $ 527
========= ========= ========= =========
NOTE 2 - CONTINGENCIES
The REIT 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 REIT. Additionally,
based on environmental studies completed to date on the real estate
properties, management believes any exposure related to environmental cleanup
will be immaterial to the financial position and results of operations of the
REIT.
NOTE 3 - CREDIT AGREEMENTS
In March 1996, the REIT added $17 million and one additional bank to its
credit facility led by First Tennessee Bank N.A. bringing the total to
$42 million. The REIT's total revolving lines of credit were $137 million
at March 31, 1996. On April 30, 1996, the REIT reduced the pricing on the
$10 million credit facility led by SunTrust N.A. from 165 basis points to
125 basis points over LIBOR.
8
In addition, the REIT's major line bank, Wells Fargo has agreed to reduce
the pricing on its $85 million facility from 175 basis points to
150 basis points over LIBOR.
In April 1995, the REIT executed a three-year interest rate swap agreement on
a notional principal amount of $5.6 million of debt related to its shopping
center in Benton Charter Township, Michigan with First Union National Bank of
Tennessee. The effective date was March 16, 1995. The interest rate is fixed
at 8.5%. There was no fee for this transaction. Effective June 6, 1995, the
REIT executed a three-year interest rate swap agreement on a notional
principal amount of $50 million with NationsBank N.A. The base interest rate
is fixed at 5.52%. This agreement effectively fixes $50 million of the REIT's
variable rate debt at a rate no greater than 7.27%. There was no fee for this
transaction. These transactions had no significant impact on interest expense
for the three months ended March 31, 1996.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 Financial Statements to
conform with the 1996 presentation.
9
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.
GENERAL BACKGROUND
CBL & Associates Properties, Inc.(the "REIT") Consolidated Financial
Statements and Notes thereto reflect the consolidated financial results of
CBL & Associates Limited Partnership (the" Operating Partnership") which
includes at March 31, 1996, the operations of a portfolio of properties
consisting of thirteen regional malls, eight associated centers, seventy-
three community centers, an office building, joint venture investments in
three regional malls, and income from seven mortgages, including the mortgage
on Foothills Mall ("the Properties"). The Operating Partnership also owns
six community centers and one associated center 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 REIT 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 Westgate Mall in Spartanburg, South Carolina, since it
is being redeveloped and expanded, Turtle Creek Mall in Hattiesburg,
Mississippi, and Oak Hollow Mall in High Point, North Carolina.
10
In September 1995, the REIT completed a follow-on offering of 4,163,500 shares
at $20.625, including 150,000 shares purchased by management. The net
proceeds of $80.7 million were used to repay floating rate indebtedness under
the REIT's revolving lines of credit.
RESULTS OF OPERATIONS
Operational highlights for the three months ended March 31, 1996 as compared
to March 31, 1995 are as follows:
SALES
- - -----
Mall shop sales, for those tenants who have reported, in the thirteen
Stabilized Malls in the REIT's portfolio increased by 3.8% on a comparable
per square foot basis:
Quarter Ended March 31,
------------------------
1995 1994
----------- -----------
Sales per square foot $49.08 $47.30
Total sales volume in the mall portfolio, including New Malls,
increased 19.2% to $133.5 million for the three months ended
March 31, 1996 from $112.0 million for the three months ended
March 31, 1995.
Occupancy costs as a percentage of sales for the quarters ended
March 31, 1996 and 1995 for the stabilized malls were 14.3% for
both periods. Occupancy costs were 12.3%, 12.2% and 12.1% for
the years ended December 31, 1995, 1994, and 1993, 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.
11
OCCUPANCY
- - ----------
Occupancy increased for the REIT's overall portfolio as follows:
At March 31,
-----------------------
1996 1995
----------- ----------
Stabilized malls 87.7% 87.5%
New malls 84.1 82.1
Associated centers 99.0 98.6
Community centers 96.9 96.7
----------- ----------
Total Portfolio 92.8% 92.7%
=========== ==========
AVERAGE BASE RENT
- - -----------------
Average base rents for the REIT's three portfolio categories are as follows:
At MARCH 31,
-----------------------
1996 1995
---------- ----------
Malls $18.33 $17.50
Associated centers 8.47 8.24
Community centers 6.73 6.59
12
LEASE ROLLOVERS
- - ---------------
On spaces previously occupied, the REIT achieved the following results from
rollover leasing for the three months ended March 31, 1996 over and above the
base and percentage rent being paid by the previous tenant:
Per Square Per Square Percentage
Foot Rent Foot Rent Increase
Prior Lease(1) New Lease(2) (Decrease)
-------------- ------------ ----------
Malls $17.49 $17.42 (0.4)%
Associated centers 10.47 12.32 17.7
Community centers 4.81 4.86 1.0
(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.
The renewal leasing for malls was down in the first quarter. This decline
was due primarily to releasing results at Twin Peaks Mall in Longmont,
Colorado. The REIT will add a new theatre and renovate Twin Peaks
during 1996. In addition, Dillards has announced they will become
the fourth department store at Twin Peaks when they open as expected in
Spring 1997. When these improvements are completed, Twin Peaks will be
positioned to be a better producer and it is expected that leasing should
improve. If Twin Peaks was deleted from the rollover calculation, there
would be an increase in mall rollovers of 4.5% per square foot.
For the three months ended March 31, 1996 malls represented 72.0% of total
revenues from the properties; revenues from associated centers represented
3.4%; revenues from community centers represented 22.3%; and revenues from
mortgages and the office building represented 2.3%. 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 entire year.
13
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
TO THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995
Total revenues for the three months ended March 31, 1996 increased by $4.7
million, or 15.2%, to $35.4 million as compared to $30.7 million in 1995. Of
this increase, minimum rents increased by $3.5 million, or 18.4% to $22.5
million as compared to $19.0 million in 1995, and tenant reimbursements
increased by $1.4 million, or 16.1%, to $10.1 million in 1996 as compared to
$8.7 million in 1995.
Approximately $4.3 million of the increase in revenues resulted from
operations at the six new centers opened or acquired during the past fifteen
months. These centers consist of: (I) Henderson Square in Henderson, North
Carolina, which opened in March 1995; (II) Westgate Mall in Spartanburg, North
Carolina, which was acquired on March 31, 1995; (III) Suburban Plaza in
Knoxville, Tennessee, which was acquired on March 31, 1995; (IV) Oak Hollow
Mall in High Point, North Carolina, which opened in August 1995. (V) Hannaford
Bros in Richmond, Virginia, which opened in December 1995; and (VI) Capital
Crossing in Raleigh, North Carolina, which opened partially in December 1995
and the remainder in March 1996. Improved occupancies and operations and
increased rents in the REIT's operating portfolio generated approximately
$0.7 million of increased revenues. The majority of these increases were
generated at CoolSprings Galleria in Nashville, Tennessee and Turtle Creek
Mall in Hattiesburg, Mississippi.
Management, leasing and development fees decreased by $0.2 million to $0.6
million in the first quarter of 1996 as compared to $0.8 million in the first
quarter of 1995. This decrease was primarily due to zero development fees
earned in the first quarter of 1996. Interest and other income decreased by
$0.1 million in 1996 to $0.9 million as compared to $1.0 million in 1995.
This decrease was primarily due to less other miscellaneous income.
14
Property operating expense, including real estate taxes and maintenance and
repairs, increased in the first quarter of 1996 by $1.2 million or 13.1% to
$10.3 million as compared to $9.1 million in the first quarter of 1995. This
increase is primarily the result of the addition of the six new centers
referred to above.
Depreciation and amortization increased in the first quarter of 1996 by $0.8
million or 15.5% to $6.1 million as compared to $5.3 million in the first
quarter of 1995. This increase is primarily the result of the addition of
the six new centers referred to above.
Interest expense increased in the first quarter of 1996 by $0.5 million, or
6.7% to $7.9 million as compared to $7.4 million in the first quarter of 1995.
This increase is primarily due to additional interest expense attributable to
the six new centers opened or acquired during the past fifteen months offset
by lower interest expense on the corporate lines of credit. The net proceeds
of $80.7 million from the REIT's follow-on offering in September of 1995 were
used to repay variable rate indebtedness under the REIT's revolving lines of
credit.
The gain on outparcel sales was $0.6 million in the first quarter of 1996 as
compared to $0.2 million of outparcel sales during the first quarter of
1995. The majority of sales in 1996 were at Oak Hollow Mall, in High Point,
North Carolina and from property owned in Virginia Beach, Virginia. The
outparcel sale in 1995 was at Frontier Mall in Cheyenne, Wyoming.
15
LIQUIDITY AND CAPITAL RESOURCES
The principal uses of the REIT's liquidity and capital resources have
historically been for property development, expansion and renovation programs,
and debt repayment. To maintain its qualification as a real estate investment
trust under the Internal Revenue Code, the REIT 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").
As of April 30, 1996, the REIT had $18.8 million available in unfunded
construction loans to be used for completion of the construction projects and
replenishment of working capital previously used for construction.
Additionally, as of April 30, 1996, the REIT had obtained revolving credit
lines totaling $137 million of which $105.6 million was available. Also, as
a publicly traded company, the REIT has access to capital through both the
public equity and debt markets. The REIT has filed a Shelf Registration
authorizing shares of the company's preferred stock and common stock and
warrants to purchase shares of the REIT's common stock with an aggregate
public offering price of up to $200 million, with $114.1 million remaining
after the REIT's follow-on offering of common stock on September 25, 1995.
The REIT 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.
16
The REIT'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 REIT's current capital
structure includes property specific mortgages, which are generally non-
recourse, revolving lines of credit, common stock and a minority interest in
the Operating Partnership. The minority interest in the Operating Partnership
represents the 31.0% ownership in the Operating Partnership held by the REIT's
executive and senior officers which may be exchanged for approximately 9.4
million shares of common stock. Additionally, REIT executive officers and
directors own approximately 1.5 million shares of the outstanding common stock
of the REIT, for a combined total interest in the Operating Partnership of
approximately 36%. Assuming the exchange of all limited partnership interests
in the Operating Partnership for common stock, there would be outstanding
approximately 30.2 million shares of common stock with a market value of
approximately $638.4 million at March 31, 1996 (based on the closing price of
$21.125 per share on March 31, 1996). REIT executive and senior officers'
ownership interests had a market value of approximately $225.1 million at
March 31, 1996.
Mortgage debt consists of debt on certain consolidated properties as well as
on three properties in which the REIT owns a non-controlling interest and is
accounted for under the equity method of accounting. At March 31, 1996, the
REIT's share of funded mortgage debt on its consolidated properties adjusted
for minority investors' interests in seven properties was $385.5 million and
its pro rata share of mortgage debt on unconsolidated properties (accounted
for under the equity method) was $43.1 million for total debt obligations of
$428.6 million with a weighted average interest rate of 8.7%. Variable rate
debt accounted for $51.8 million with a weighted average interest rate of
7.7%. Variable rate debt accounted for approximately 12.1% of the REIT's
total debt and 4.9% of its total capitalization. Of this variable rate debt,
$44.8 million is related to construction projects. Periodically, the REIT
enters into interest rate cap and swap agreements to reduce interest rate
risks on variable rate debt. The REIT has entered into interest rate swap
agreements for $55.5 million of variable rate debt at an average interest
rate of 7.4% through the second quarter of 1998. Therefore, the REIT's
exposure to interest rate fluctuations as of March 31, 1996 is effectively
zero.
17
In April 1995, the REIT executed a three-year interest rate swap agreement on
$5.5 million of debt on its shopping center in Benton Charter Township,
Michigan with First Union National Bank, The effective date was
March 16, 1995. This swap agreement effectively fixes the interest rate on
the $5.5 million of debt at 8.5%. In June 1995 the REIT executed a $50.0
million interest rate swap with NationsBank N.A., for a three-year period at
a rate of 5.52%. This agreement effectively fixes $50.0 million of the REIT's
variable rate debt at a rate no greater than 7.27%. There were no fees
charged to the REIT related to these transactions.
In addition, in March 1996, the REIT added $17.0 million and one additional
bank to its credit facility led by First Tennessee Bank N.A., bringing the
total to $42.0 million. In May 1996, the REIT reduced the pricing on the
$10 million credit facility led by SunTrust N.A. from 165 basis points to 125
basis points over LIBOR. In addition, the REIT's major line bank, Wells Fargo,
has agreed to reduce the pricing on its $85 million facility from 175 basis
points to 150 basis points over LIBOR.
Based on the debt (including construction projects) and the market value of
equity described above, the REIT's debt to total market capitalization (debt
plus market value equity) ratio was 40.2% at March 31, 1996.
During the first quarter of 1996, the REIT closed; (I) a twelve-year permanent
loan on Oak Hollow Mall in High Point, North Carolina, owned 75% by the REIT,
in the amount of $54 million at an interest rate of 7.31%; (II) a ten-year
permanent loan on Turtle Creek Mall in Hattiesburg, Mississippi, in the amount
of $35 million at an interest rate of 7.4%; and (III) an eighteen-year
permanent loan on Henderson Square in Henderson, North Carolina, in the amount
of $7.4 million at an interest rate of 7.5%. The proceeds from these loans
were used to repay variable rate debt.
18
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
During the first quarter of 1996, the REIT added a 20,000 square foot Staples
to Capital Crossing in Raleigh, North Carolina. Subsequent to the end of the
quarter, the REIT opened a 23,000 square foot Regal Cinema at Oak Hollow Mall
in High Point, North Carolina.
The REIT currently has approximately 907,100 square feet of new developments
under construction consisting of: (I) Lowe's Home Improvement Center in
Adrian, Michigan-approximately 101,300 square feet scheduled to open in
June 1996; (II) LaGrange Commons in LaGrange, New York-approximately 59,800
square feet anchored by an A & P with 15,000 square feet of small shops
scheduled to open in November 1996; (III) Devonshire Place in Cary, North
Carolina-approximately 108,000 square feet with Hannaford Bros., Borders, and
Kinetix scheduled to open in September 1996; (IV) Chester Square in Chester,
Virginia-an approximate 64,000 square foot Hannaford Bros. scheduled to open
in September 1996; (V) The Terrace in Chattanooga, Tennessee-approximately
158,000 square feet adjacent to Hamilton Place Mall anchored by Circuit City,
Home Place, and Barnes & Noble scheduled to open in November 1996 and March
1997; (VI) Kingston Overlook in Knoxville, TN-approximately 125,000 square
feet with Baby Superstore, Homeplace and an additional anchor scheduled to
open in November 1996 and; (VII) Massard Crossing in Fort Smith, Arkansas-
approximately 291,000 square feet anchored by Wal*Mart and Goodys scheduled
to open in March 1997.
In addition, the REIT is currently redeveloping, renovating and expanding
Westgate Mall, a 676,000 square foot regional mall, located in Spartanburg,
South Carolina. The center is currently anchored by Belk, JCPenney, Sears and
Upton's. The REIT will add two new department stores - Dillard's and J.B.
White, 80,000 square feet of specialty stores and a 24,000 square foot
theatre bringing the total to approximately 1.1 million square feet. The
estimated cost of the renovation and expansion is approximately $33 million
and is scheduled to be completed by October 1996. A construction loan is in
place for this project.
19
The REIT also has two free-standing retailers, Just For Feet, adjacent to
Hamilton Place in Chattanooga, Tennessee, and Barnes & Noble, adjacent to Oak
Hollow Mall in High Point, North Carolina currently under construction. The
REIT also has a theatre expansion under construction at Plaza Del Sol Mall in
Del Rio, Texas.
The REIT has entered into a number of opton agrrement for the development of
future regional malls and community centers. Except for these projects and as
further described below, the REIT currently has no other capital commitments.
It is management's expectation that the REIT 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 REIT 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 REIT 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.
20
OTHER CAPITAL EXPENDITURES
Management prepares an annual capital expenditure budget for each property
which is intended to provide for all necessary 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 REIT intends to distribute
approximately 80% - 90% of its funds from operations with the remaining
10% - 20% to be held as a reserve for capital expenditures and continued
growth opportunities. The REIT 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 and
a return on the funds invested is expected to be earned.
For the quarter ended March 31, 1996, revenue generating capital expenditures
or tenant allowances for improvements were $0.7 million. These capital
expenditures generate a return through increased rents from these tenants over
the term of their leases. Revenue enhancing capital expenditures, or
remodeling and renovation costs, were $0.2 million for the quarter ended
March 31, 1996.
The REIT 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. The REIT has not been notified by any governmental authority, or
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.
21
The REIT has not recorded in its financial statements any material liability
in connection with environmental matters.
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 REIT as net income (loss) before depreciation of non-real estate assets
other expenses, other non-cash items (consisting of the effect of straight-
lining of rents and the write-off of development projects not being pursued),
gains or losses on sales of real estate and gains or losses on investments in
marketable securities. FFO also includes the REIT's share of FFO in
unconsolidated properties and excludes minority interests' share of FFO in
consolidated properties. The REIT computes FFO in accordance with The
National Association of Real Estate Investments Trusts ("NAREIT")
recommendation concerning finance costs and non-real estate depreciation.
However, the REIT does not include outparcel sales or the effect of straight-
lined rents in its calculation, even though NAREIT permits their inclusion
when calculating FFO.
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 REIT. 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 REIT's
operating performance or to cash flow as a measure of liquidity.
For the three months ended March 31, 1996, FFO increased by $2.9 million, or
24.2%, to $15.1 million as compared to $12.2 million for the three months
ended March 31, 1996. The increase in FFO was primarily attributable to the
continuing increase in revenues and income from operations including the
reduction of interest expense resulting from the net proceeds of $80.7 million
from the REIT's follow-on offering in September of 1995, used to repay
variable rate indebtedness under the REIT's revolving lines of credit.
22
The REIT's calculation of FFO is as follows:
Three Months Ended
March 31,
------------------------------
New Basis Old Basis
1996 1996 1995
--------- --------- ---------
Income from operations........................................................ $8,621 $8,621 $6,472
ADD:
Depreciation & amortization from consolidated properties...................... 6,149 6,326* 5,485**
Income from operations of unconsolidated affiliates........................... 670 670 527
Depreciation & amortization from unconsolidated affiliates.................... 318 318 331
Write-off of development costs charged to net income.......................... 196 196 -
SUBTRACT:
Minority investors' share of income from operations in seven properties....... (150) (150) (116)
Minority investors share of depreciation and amortization in seven properties. (159) (159) (47)
Preference return paid to mortgagees***....................................... (263) (263) (281)
Adjustment for straight-lining of rents:
Consolidated properties..................................................... (164) (164) (171)
Unconsolidated properties................................................... (7) (7) -
Minority investors share of seven properties................................ 2 2 1
Depreciation and amortization of non-real estate assets and finance costs..... (64) - -
------- ------- -------
TOTAL FUNDS FROM OPERATIONS................................................... $15,149 $15,390 $12,201
======= ======= =======
* includes $177,000 of non-real estate depreciation which is classified as property operating expense on the income
statement
** includes $160,000 of non-real estate depreciation which is classified as property operating on the income statement
*** preferred return of 7.0% and shortage in mortgage payments
23
The REIT does not include outparcel sales (which would have added $0.6 million
for the three months ended March 31, 1996) or the effect of straight-line
rents (which would have added $0.2 million for the three months ended
March 31, 1996) in its calculation of funds from operations.
IMPACT OF INFLATION
In the last three years, inflation has not had a significant impact on the
REIT or CBL because of the relatively low inflation rate. Substantially all
tenant leases do, however, contain provisions designed to protect the REIT
from the impact of inflation. Such provisions include clauses enabling the
REIT 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 REIT 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 REIT's exposure to increases in costs and operating
expenses resulting from inflation.
24
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
On May 8, 1996, the Company filed a Certificate of Amdendment (the
"Amendment") to its Amdended and Restated Certificate of
Incorporation (the "Certificate of Incorporation"), providing for
changes in the consequences of attempted transfers of capital stock
in violation of the ownership limit set forth in the Certificate
of Incorporation. A description of the Amendment is contained in
the Company's Proxy Statement for the Annual Meeting of
Shareholders held on May 1, 1996, and such description is hereby
incorporated by reference herein. The text of the Amendemnt is
contained in the restated Certificate of Incorporation filed
herewith as Exhibit 3.1(i) and incorporated by reference herein.
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 1, 1996.
At the meeting, shareholders re-elected as directors Charles B.
Lebovitz (17,162,160 votes for and 60,106 votes against or withheld),
Claude M. Ballard (17,161,860 votes for and 60,406 votes against or
withheld) and Leo Fields (17,162,860 votes for and 59,406 votes
against or withheld) to three-year terms expiring in 1999. Other
continuing directors of the Company are John N. Foy and Willaim J.
Poorvu, whose terms expire in 1997, and Stephen D. Lebovitz and
Winston W. Walker, whose terms expire in 1998.
In addition, at the meeting, shareholders approved (i) a proposal to
amend the Company's 1993 Stock Incentive Plan to increase the number
of shares of the Company's Common Stock available for issuance under
the plan (11,494,901 votes for, 3,424,832 votes against or withheld
and 2,302,533 abstentions and broker non-votes), (ii) a proposal to
amend the Company's Certificate of Incorporation to revise the
"Excess Shares" provision set forth therein (14,830,097 votes for,
94,354 votes against or withheld and 2,297,815 abstentions and
broker non-votes) and (iii) a proposal to ratify the selection of
Arthur Andersen LLP as independent public accountants for the fiscal
year ending December 31, 1996 (17,181,820 votes for, 17,371 votes
against or withheld and 23,074 abstentions and brokers non-votes).
25
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.(i) Amended and Restated Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on
May 8, 1996.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The following item were reported:
The outline from the REIT's May 1, 1996 conference call
with analysts and investors regarding earnings (Item 5)
was filed on May 1, 1996.
26
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.
John N. Foy
--------------------------------
John N. Foy
Executive Vice President,
Chief Financial Officer and Secretary
(Authorized Officer of the Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: May 14, 1996
27
EXHIBIT INDEX
Exhibit
- - -------
3.(i) Exhibit 3.(i) Amended and Restated Certificate
of Incorporation, as amended by a Certificate
of Amendment filed on May 8, 1996.
27 Financial Data Schedule