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 September 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended ____________ to _____________
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
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- -----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
The number of shares outstanding of each of the registrants classes of
common stock, as of November 1, 1996: Common Stock, par value $.01 per
share, 20,924,159 shares.
CBL & ASSOCIATES PROPERTIES, INC.
INDEX
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS - AS OF
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS
- FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
ITEM 2: CHANGES IN SECURITIES
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
ITEM 4: SUBMISSION OF MATTERS TO HAVE
VOTE OF SECURITY HOLDERS
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
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 September 30, 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 "Company") 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.
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
September 30, December 31,
1996 1995
(UNAUDITED) (AUDITED)
------------- ------------
ASSETS
Real estate assets:
Land.................................... $ 99,793 $ 98,305
Buildings and improvements.............. 732,518 722,178
--------- ----------
832,311 820,483
Less: Accumulated depreciation.......... (107,901) (89,818)
--------- ----------
724,410 730,665
Developments in progress................ 107,923 28,273
--------- ----------
Net investment in real estate assets.. 832,333 758,938
Cash and cash equivalents................. 12,694 3,029
Receivables:
Tenant.................................. 11,013 10,479
Other................................... 1,147 974
Notes receivable.......................... 42,893 34,262
Other assets.............................. 6,877 6,486
--------- ----------
$906,957 $814,168
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and other notes payable......... $474,351 $392,754
Accounts payable and accrued
liabilities............................ 26,012 28,035
--------- ----------
Total liabilities...................... 500,363 420,789
--------- ----------
Commitments and contingencies............ - -
Distributions and losses in excess of
investment in unconsolidated affiliate. 9,159 8,795
Minority interest........................ 117,775 113,692
Shareholders' Equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, none
issue................................ - -
Common stock, $.01 par value,
95,000,000 shares authorized,
20,895,717 and 20,837,099 shares
issued and outstanding in 1996 and
1995, respectively................... 209 208
Excess stock, $.01 par value,
100,000,000 shares authorized,
none issued.......................... - -
Additional paid - in capital........... 292,877 291,182
Accumulated deficit.................... (13,269) (20,142)
Deferred compensation.................. (157) (356)
--------- ----------
Total shareholders' equity........... 279,660 270,892
--------- ----------
$906,957 $814,168
========= ==========
The accompanying notes are an integral part of these balance sheets.
CBL & Associates Properties, Inc.
Consolidated Statements Of Operations
(Dollars in thousands, except per share data)
(UNAUDITED)
Three Nine
Months Ended Months Ended
September 30, September 30,
---------------- ----------------
1996 1995 1996 1995
------- ------- -------- -------
REVENUES:
Rentals:
Minimum........................... $22,804 $21,234 $67,875 $60,503
Percentage........................ 511 482 1,865 1,768
Other............................. 250 201 689 509
Tenant reimbursements................ 10,235 9,600 31,555 27,543
Management and leasing fees.......... 586 484 1,845 1,656
Development fees..................... - 22 7 271
Interest and other................... 1,105 1,104 3,004 3,098
------ ------ ------ ------
Total revenues..................... 35,491 33,127 106,840 95,348
------ ------ ------ ------
EXPENSES:
Property operating................... 5,721 5,586 17,424 15,322
Depreciation and amortization........ 6,232 5,872 18,583 16,773
Real estate taxes.................... 2,756 2,513 8,258 7,301
Maintenance and repairs.............. 2,039 2,257 6,498 6,211
General and administrative........... 1,869 1,679 6,208 5,869
Interest............................. 7,754 8,731 23,249 24,309
Other................................ 185 4 450 465
------ ------ ------ ------
Total expenses..................... 26,556 26,642 80,670 76,250
------ ------ ------ ------
INCOME FROM OPERATIONS............... 8,935 6,485 26,170 19,098
GAIN ON SALES OF REAL ESTATE ASSETS.. 1,411 651 8,890 2,235
EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES.......... 430 373 1,540 1,118
MINORITY INTEREST IN EARNINGS:
Operating partnership.............. (3,044) (2,475) (10,971) (7,805)
Shopping center properties......... (122) (172) (385) (319)
------ ------ ------ ------
Income before extraordinary item... 7,610 4,862 25,244 14,327
Extraordinary loss on early
extinguishment of debt........... (831) (326) (831) (326)
------ ------ ------ ------
NET INCOME........................... $6,779 $4,536 $24,413 $14,001
====== ====== ====== =======
EARNINGS PER COMMON SHARE DATA:
Income before extraordinary item... $ 0.32 $ 0.28 $ 1.21 $ 0.85
Extraordinary loss on early
extinguishment of debt........... (0.04) (0.02) (0.04) (0.02)
------ ------ ------ ------
NET INCOME........................... $0.32 $0.26 $1.17 $0.83
====== ====== ====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING.. 20,914 17,149 20,873 16,814
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
CBL & Associates Properties, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(UNAUDITED)
Nine Months
Ended September 30,
--------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $24,413 $14,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in earnings.................... 11,356 8,125
Depreciation..................................... 17,120 16,387
Amortization..................................... 1,998 800
Gain on sales of real estate assets.............. (8,890) (2,235)
Issuance of stock under incentive plan........... 197 251
Amortization of deferred compensation............ 218 103
Write-off of development projects................ 450 465
Distributions to minority investors.............. (11,780) (10,942)
Changes in assets and liabilities -
Tenant and other receivables.................... (707) (712)
Other assets.................................... (1,249) (2,244)
Security deposits and prepaid rents............. 14 505
Accrued interest payable........................ 303 167
Accounts payable and accrued expenses........... 17,965 1,330
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Net cash provided by operating activities.. 51,408 26,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of real estate and land
acquisition, net of payables.................... (105,272) (63,673)
Acquisition of real estate assets............... - (22,105)
Capitalized interest............................ (3,559) (2,478)
Revenue enhancing capital expenditures.......... (2,172) (4,753)
Other capital expenditures...................... (2,678) (2,344)
Proceeds from sales of real estate assets....... 23,221 7,468
Additions to notes receivable................... (8,888) (1,705)
Payments received on notes receivable........... 257 308
Distributions from unconsolidated affiliates.... 2,048 1,469
Advances and investments in unconsolidated
affiliates.................................... (1,684) (541)
--------- ---------
Net cash used in investing activities.... (98,727) (88,354)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other notes payable.. 113,132 76,366
Principal payments on mortgage and other
notes payable................................. (31,534) (74,021)
Additions to deferred finance costs............. (994) -
Refunds of finance costs........................ 721 -
Dividends paid.................................. (25,822) (19,473)
Proceeds from stock offering.................... - 81,497
Proceeds from exercise of stock options......... 1,352 -
Proceeds from dividend reinvestment............. 128 -
--------- ---------
Net cash provided by financing activities. 56,983 64,369
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS........... 9,664 2,015
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of period.... 3,029 2,053
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.......... $12,693 $4,068
========= =========
The accompanying notes are an integral part of these statements.
CBL & ASSOCIATES PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNCONSOLIDATED AFFILIATES
At September 30, 1996, the Company had investments in three partnerships
and joint ventures all of which are reflected using the equity method of
accounting. The Company's investment in Brownwood Associates was
transferred to the lender in April 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):
Company's Share
Total For The For The
Nine Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
-------- ------- -------- ---------
Revenues.......................... $15,862 $15,589 $ 7,784 $ 7,656
-------- ------- -------- -------
Depreciation and amortization..... 1,831 1,948 897 954
Interest expense.................. 6,232 6,406 3,055 2,842
Other operating expenses.......... 4,633 4,943 2,292 2,742
-------- ------- -------- -------
Net income before extraordinary
item............................ $ 3,166 $ 2,292 $ 1,540 $ 1,118
Extraordinary loss on early
extinguishment of debt.......... (1,750) - (831) -
------- ------- ------- -------
Net income........................ $ 1,324 $ 2,292 $ 709 $ 1,118
======= ======= ======= =======
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 be immaterial to the financial position
and results of operations of the Company.
NOTE 3 - CREDIT AGREEMENTS
In March 1996, the Company added $17 million and one additional bank
to its credit facility led by First Tennessee Bank N.A. bringing the
total to $42 million with $10 million unfunded at November 1, 1996.
In August 1996, the pricing on this credit facility was reduced from
165 basis point to an average menu pricing of approximately 137 basis
points over LIBOR.
In April 1996, the Company 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 May 1996, the Company's major line bank,
Wells Fargo, reduced the pricing on its $85 million facility from
175 basis points to 150 basis points over LIBOR. The Company's total
revolving lines of credit were $137 million at September 30, 1996.
In April 1995, the Company executed a three-year interest rate swap
agreement on a notional principal amount of $5.6 million 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 Company executed a three-year interest rate
swap agreement on a notional principal amount of $50 million with Nations
Bank N.A. The base interest rate is fixed at 5.52%. This agreement
effectively fixes $50 million of the Company'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 nine months ended September 30, 1996.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 Financial
Statements to conform with the 1996 presentation.
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 "Company") Consolidated
Financial Statements and Notes thereto reflect the consolidated financial
results of CBL & Associates Limited Partnership ( the" Operating
Partnership") which includes at September 30, 1996, the operations of
a portfolio of properties consisting of thirteen regional malls, eight
associated centers, seventy-four 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 Company also has seven community centers, two associated
centers, and one mall currently under construction and options to acquire
certain shopping center development sites. In order to provide a
comprehensive presentation of all company related operations 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 Westgate Mall in
Spartanburg, South Carolina, since it has been redeveloped and expanded,
Turtle Creek Mall in Hattiesburg, Mississippi, and Oak Hollow Mall in High
Point, North Carolina.
In September 1995, the Company 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 Company's revolving lines of credit.
RESULTS OF OPERATIONS
Operational highlights for the nine months ended September 30, 1996
as compared to September 30, 1995 are as follows:
SALES
Mall shop sales, for those tenants who have reported, in the
thirteen Stabilized Malls in the Company's portfolio increased
by 0.7% on a comparable per square foot basis.
Nine Months Ended September 30,
---------------------------------
1996 1995
-------- --------
Sales per square foot....... $154.35 $153.35
Total sales volume in the mall portfolio, including New
Malls, increased 7.9% to $421.8 million for the nine months
ended September 30, 1996 from $390.9 million for the nine
months ended September 30, 1995.
Occupancy costs as a percentage of sales for the nine months
ended September 30, 1996 and 1995 for the Stabilized Malls
were 13.3% and 13.6%, respectively. 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.
OCCUPANCY
Occupancy includes tenants paying rent on executed leases.
Changes for the Company's overall portfolio are as follows:
At September 30,
---------------------------------
1996 1995
-------- --------
Stabilized malls(1)......... 88.0% 89.0%
New malls(1)................ 88.1 79.4
Associated centers(2)....... 99.6 97.5
Community centers(2)........ 97.3 96.8
-------- --------
Total Portfolio............. 93.5% 92.7%
======== ========
(1) Does not include anchors
(2) Includes leased anchors
AVERAGE BASE RENT
Average base rents for the Company's three portfolio categories
based on gross leasable area on the last day of the indicated
period were as follows:
At September 30,
---------------------------------
1996 1995
-------- --------
Malls........................ $18.44 $17.47
Associated centers........... 8.57 8.20
Community centers............ 6.77 6.63
LEASE ROLLOVERS
On spaces previously occupied, the Company achieved the
following results from rollover leasing for the nine months
ended September 30, 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............... $17.09 $19.25 12.6%
Associated centers.. 11.25 12.48 11.0%
Community centers... 6.63 6.55 (1.2)%
(1) - Rental achieved for spaces previously occupied
at the end of the lease including percentage rent.
(2) - Average base rent over the term of the lease.
For the nine months ended September 30, 1996, malls represented
72.2% of total revenues from the properties; revenues from associated
centers represented 3.3%; revenues from community centers represented
22.1%; and revenues from mortgages and the office building represented
2.4%. 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.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 TO THE RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1995
Total revenues for the three months ended September 30, 1996
increased by $2.4 million, or 72.2%, to $35.5 million as compared
to $33.1 million in 1995. Of this increase, minimum rents
increased by $1.6 million, or 7.4% to $22.8 million as compared
to $21.2 million in 1995, and tenant reimbursements increased by
$0.6 million, or 6.6%, to $10.2 million in 1996 as compared to
$9.6 million in 1995.
Approximately $1.5 million of the increase in revenues
resulted from operations at the six new centers opened
during the past twelve months. These centers consist of:
(I) Oak Hollow Mall in High Point, North Carolina, which
opened in August 1995; (II) Hannaford Bros. in Richmond,
Virginia, which opened in December 1995; (III) Capital Crossing
in Raleigh, North Carolina, which opened partially in December
1995 and the remainder in March 1996; (IV) Lowe's Plaza in
Adrian, Michigan, which opened in June 1996 and was subsequently
sold in September; (V) Devonshire Place in Cary, North Carolina,
which opened in September 1996; and (VI)Chester Square in
in Richmond, Virginia, which opened in September 1996.
Improved occupancies and operations and increased rents in
the Company's operating portfolio generated approximately $0.8
million of increased revenues. The majority of these increases
were generated at Hamilton Place in Chattanooga, Tennessee,
CoolSprings Galleria in Nashville, Tennessee, College Square
Mall in Morristown, Tennessee, and Turtle Creek Mall in
Hattiesburg, Mississippi, and the community center portfolio.
Management, leasing and development fees increased by $0.1
million to $0.6 million in the third quarter of 1996 as compared
to $0.5 million in the third quarter of 1995. This increase was
primarily due to new management fee income earned in the third
quarter of 1996.
Property operating expense, including real estate taxes and
maintenance and repairs, increased in the third quarter of 1996
by $0.2 million or 1.9% to $10.5 million as compared to $10.3
million in the third 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 third quarter
of 1996 by $0.3 million or 6.1% to $6.2 million as compared to
$5.9 million in the third quarter of 1995. This increase is
primarily the result of the addition of the six new centers
referred to above.
Interest expense decreased in the third quarter of 1996 by
$1.0 million, or 11.2% to $7.7 million as compared to $8.7
million in 1995. This decrease is primarily due to a reduction
in borrowings on the corporate lines of credit, increased
capitalized interest on projects under development funded by the
Company, offset by interest on the six new centers opened during
the last twelve months.
Other expense was $0.2 in the third quarter of 1996. This
represents pre-development costs written off during this period.
The gain on sales of real estate assets increased in the
third quarter of 1996 by $0.8 million, or 116.7% to $1.4 million
as compared to $0.6 million in 1995. The sales in the third
quarter were the sale of a free-standing Lowe's Home Improvement
Center in Adrian, Michigan, and an outparcel sale at Oak Hollow
Mall in High Point, North Carolina. The sales of real estate
assets in 1996 were primarily outparcel sales at Oak Hollow Mall
in High Point, North Carolina.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 TO THE RESULTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1995
Total revenues for the nine months ended September 30, 1996
increased by $11.5 million, or 12.1%, to $106.8 million as
compared to $95.3 million in 1995. Of this increase, minimum
rents increased by $7.4 million, or 12.2% to $67.9 million as
compared to $60.5 million in 1995, and tenant reimbursements
increased by $4.0 million, or 14.6%, to $31.5 million in 1996 as
compared to $27.5 million in 1995.
Approximately $8.5 million of the increase in revenues
resulted from operations at the nine new centers opened or
acquired during the past twenty one months. These centers
consist of: (I)Henderson Square in Henderson, North Carolina,
which opened in March 1995; (II) Westgate Mall in Spartanburg,
South Carolina, which was acquired in March 1995; (III) Suburban
Plaza in Knoxville, Tennessee, which was acquired in March 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; (VI) Capital Crossing in Raleigh, North
Carolina, which opened partially in December 1995 and the
remainder in March 1996; (VII) Lowe's Plaza in Adrian, Michigan,
which opened in June 1996 and was subsequently sold in September
1996; (VIII) Devonshire Place in Cary, North Carolina, which
opened in September 1996; and (IX) Chester Square in Richmond,
Virginia, which opened in September 1996. Improved occupancies
and operations and increased rents in the Company's operating
portfolio generated approximately $3.1 million of increased
revenues. The majority of these increases were generated at
Hamilton Place in Chattanooga, Tennessee, CoolSprings Galleria
in Nashville, Tennessee, College Square in Morristown, Tennessee,
and Oak Hollow Mall in Hattiesburg, Mississippi, and the community
center portfolio.
Interest and other income decreased by $0.1 million in 1996
to $3.0 million as compared to $3.1 million in 1995. This
decrease was primarly due to less other miscellaneous income.
Property operating expense, including real estate taxes and
maintenance and repairs, increased in the first nine months of
1996 by $3.3 million or 10.4% to $32.1 million as compared to
$28.8 million in 1995. This increase is primarily the result of
the addition of the nine new centers referred to above.
Depreciation and amortization increased in the first nine
months of 1996 by $1.8 million or 10.8% to $18.6 million as
compared to $16.8 million in 1995. This increase is primarily
the result of the addition of the nine new centers referred to
above.
Interest expense decreased in the first nine months of 1996
by $1.1 million, or 4.4% to $23.2 million as compared to $24.3
million in 1995. This decrease is primarily due to a reduction
in borrowings on the corporate lines of credit, increased
capitalized interest on projects under development funded by the
Company, offset by interest on the nine new centers opened and
acquired during the last twenty-one months.
The gain on sale of real estate assets increased for the
nine months ended September 30, 1996 by $6.7 million, or 297.8%
to $8.9 million as compared to $2.2 million in 1995. The sales
in 1996 were the sale of two free-standing Lowe's Home
Improvement Centers in Benton Harbor, Michigan and Adrian,
Michigan, the sale of property owned in Virginia Beach, Virginia,
outparcel land at Oak Hollow Mall in High Point, North Carolina,
and the sale of land at projects under development in Fort Smith,
Arkansas, Louisville, Kentucky, Virginia Beach, Virginia, and
Chattanooga, Tennessee. The sales of real estate assets in 1995
were primarily outparcel sales at Oak Hollow Mall in High Point,
North Carolina, and Frontier Mall in Cheyenne Wyoming.
Equity in earnings of unconsolidated affiliates increased in
the first nine months of 1996 by $0.4 million, or 37.7% to $1.5
million as compared to $1.1 million in 1995. This increase is
due primarily to improved occupancies and results of operations
at Madison Square Mall in Huntsville, Alabama, and Governor's
Square Mall in Clarksville, Tennessee.
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, and debt repayment. To
maintain its qualification as a real estate investment trust
under the Internal Revenue Code, the Company is required to
distribute to its shareholders at least 95% of its "Real Estate
Investment Trust Taxable Income" as defined in the Internal
Revenue Code of 1986, as amended (the "Code").
As of November 1, 1996, the Company had $11.9 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 November 1, 1996, the
Company had obtained revolving credit
lines totaling $137 million of which $84.5 million was available.
The Company believes other credit lines can by arranged as necessary.
Also, 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 $200 million, with $114.1 million
remaining after the Company's follow-on offering of common stock
on September 25, 1995. The Company anticipates that the
combination of these sources will, for the foreseeable future,
provide adequate liquidity to enable it to continue its capital
programs substantially as in the past and make distributions to
its shareholders in accordance with the Code's requirements
applicable to real estate investment trusts.
Management expects to refinance the majority of the mortgage
notes payable maturing over the next five years with replacement
loans.
The Company's policy is to maintain a conservative debt to
total market capitalization ratio in order to enhance its access
to the broadest range of capital markets, both public and
private. The Company's current capital structure includes
property specific mortgages, which are generally non-recourse,
revolving lines of credit, common stock 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 Company's executive and senior
officers which may be exchanged for approximately 9.4 million
shares of common stock. Additionally, Company executive officers
and directors own approximately 1.5 million shares of the
outstanding common stock of the Company, 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 30.3 million shares of common stock
with a market value of approximately $697.6 million at September
30, 1996 (based on the closing price of $23 per share on
September 30, 1996). Company executive and senior officers'
ownership interests had a market value of approximately $250.9
million at September 30, 1996.
Mortgage debt consists of debt on certain consolidated
properties as well as on three properties in which the Company
owns a non-controlling interest and is accounted for under the
equity method of accounting. At September 30, 1996, the
Company's share of funded mortgage debt on its consolidated
properties adjusted for minority investors' interests in seven
properties was $453.1 million and its pro rata share of mortgage
debt on unconsolidated properties (accounted for under the equity
method) was $43.7 million for total debt obligations of $496.8
million with a weighted average interest rate of 8.3%. Variable
rate debt accounted for $123.2 million with a weighted average
interest rate of 6.8%. Variable rate debt accounted for
approximately 24.8% of the Company's total debt and 10.3% of its
total capitalization. Of this variable rate debt, $116.5 million
is related to construction projects. Periodically, the Company
enters into interest rate cap and swap agreements to reduce
interest rate risks on variable rate debt. The Company has
entered into interest rate swap agreements for $55.5 million of
variable rate debt at an average interest rate of 6.6% through
the second quarter of 1998. Therefore, the
Company's exposure to
interest rate fluctuations as of September 30, 1996 is $66.5
million on construction properties and $1.2 million on operating
properties.
In April 1995, the Company executed a three-year interest
rate swap agreement on $5.5 million of debt 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 Company 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 Company's variable rate debt at a rate
no greater than 7.27%. There were no fees charged to the Company
related to these transactions.
In March 1996, the Company 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 September 1996, the Company closed a loan with Compass Bank
in the amount of $25 million at an interest rate of 50 basis point
over LIBOR. The facility matures on January 15, 1997. The loan
was used to repay higher variable rate debt.
In April 1996, the Company 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 May 1996, the Company's major line bank,
Wells Fargo, reduced the pricing on its $85 million facility from
175 basis points to 150 basis points over LIBOR. In August 1996,
the Company reduced the pricing on the $42 million credit facility
led by First Tennessee Bank N.A. to average menu pricing of
approximately 137 basis points from 165 basis points over LIBOR.
During March 1996, the Company closed on three permanent
loans; (I) a twelve-year loan on Oak Hollow Mall in High Point,
North Carolina, owned 75% by the Company, in the amount of $54
million at an interest rate of 7.31%; (II) a ten-year 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 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.
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 41.6% at September 30, 1996.
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
During the first nine months of 1996, the Company opened a
20,000 square foot Staples at Capital Crossing in Raleigh, North
Carolina, a 23,000 square foot Regal Cinema at
Oak Hollow Mall in
High Point, North Carolina, the 101,000 square foot Lowe's Home
Improvement Center in Adrian, Michigan, a 15,000 square foot free-
standing Just for Feet on the periphery of Hamilton Place Mall in
Chattanooga, Tennessee, the 55,000 square foot Hannaford Bros. in
Richmond, Virginia, and the first phase of the 105,000 square foot
Devonshire Place in Cary, North Carolina, which is anchored by
Hannaford Bros. and Border's Books. The remaining anchor, Kinetix,
will open in November. Subsequent to the end of the third quarter,
the Company opened the redevelopment and expansion of the 1.1 million
square foot Westgate Mall in Spartanburg, South Carolina. Westgate is
anchored by Belk, Dillard's, J.B. White, JCPenney, Sears, and
Upton's making it the only 6-anchor regional mall in the state of
South Carolina. Westgate Mall opened with 82% of the small shops
occupied and 87% leased and committed. The Company also opened a
26,000 square foot free-standing Barnes & Noble on the periphery
of Oak Hollow Mall in High Point, North Carolina.
The Company currently has approximately 3.3 million square
feet of new development under construction consisting of: (I)
LaGrange Commons in LaGrange, New York - approximately 60,000
square feet scheduled to open in November 1996; (II) Kingston
Overlook in Knoxville, Tennessee - approximately 116,000 square
feet scheduled to open beginning in November 1996; (III) The
Terrace in Chattanooga, Tennessee - approximately 158,000 square
feet scheduled to open in March 1997; (IV) Massard Crossing in
Fort Smith, Arkansas - approximately 291,000 square feet scheduled
to open in March 1997; (V) Salem Crossing in Virginia Beach,
Virginia - approximately 289,000 square feet scheduled to open in
April 1997; (VI) Hannaford Bros. in Richmond, Virginia -
approximately 63,000 square feet scheduled to open in February
1997; (VII) Springhurst Towne Center in Louisville, Kentucky -
approximately 808,000 square feet scheduled to open beginning in
August 1997; (VIII) Cortlandt Town Center in Cortlandt, New
York - approximately 766,000 square feet scheduled to open
beginning in September 1997; (IX) Bonita Lakes Mall in Meridian,
Mississippi - approximately 632,000 square feet scheduled to open
in October 1997; and (X) Bonita Lakes Crossing in Meridian,
Mississippi - approximatley 64,000 square feet scheduled to
open in October 1997.
The Company also has under construction the addition of a
new Dillard's department store and United Artists' 10-screen
cinema to Twin Peaks Mall in Longmont, Colorado, the addition of
Dillard's to Frontier Mall in Cheyenne, Wyoming, and a Cinemark
Theater expansion from three to seven screens at Plaza Del Sol
Mall in Del Rio, Texas.
By the end of 1996, the Company expects to start
construction on a free-standing Regal Cinemas in Virginia Beach,
Virginia. During the first half of 1997, the Company expects to
start construction on the 1.3 million square foot Arbor Place
Mall, in suburban Atlanta. In September 1996, the Company
announced commitments from Dillard's, Parisian, Sears, Upton's,
and Regal Cinemas to anchor this mall that is scheduled for a
Fall 1998 opening.
During the first nine months of 1996, the Company closed on
the sale of two free-standing Lowe's Home Improvement Centers
which generated a gain of approximately $3.3 million. These
proceeds were invested in the Company's new mall under
construction in Meridian, Mississippi.
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 significant capital
commitments.
It is management's expectation that the Company will
continue to have access to the capital resources necessary to
expand and develop its business. Future development and
acquisition activities will be undertaken by the Company as
suitable opportunities arise. Such activities are not expected
to be undertaken unless adequate sources of financing are
available and a satisfactory budget with targeted returns on
investment has been internally approved.
The Company will fund its major development, expansion and
acquisition activity with its traditional sources of construction
and permanent debt financing as well as from other debt and
equity financings, including public financings, and its credit
facilities in a manner consistent with its intention to operate
with a conservative debt to total market capitalization ratio.
OTHER CAPITAL EXPENDITURES
Management prepares an annual capital expenditure budget for
each property which is intended to provide for all necessary
recurring 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 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 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 nine months ended September 30, 1996, revenue
generating capital expenditures or tenant allowances for
improvements were $2.4 million. These capital expenditures
generate increased rents from these tenants over the term of
their leases. Revenue enhancing capital expenditures, or
remodeling and renovation costs, were $2.6 million for the nine
months ended September 30, 1996. Revenue neutral capital
expenditures, which are recovered from the tenants, were $0.3
million for the first nine months of 1996.
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. The Company 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.
The Company 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 Company as net income
(loss) before depreciation of real estate assets, 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
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") recent recommendation
concerning finance costs and non-real estate depreciation, but
the Company does not include gain or losses on outparcel
sales or the effect of straight-lined rents in its calculation,
even though NAREIT permits their inclusion when calculating FFO
("New Basis"). In prior years the Company included non-real
estate depreciation and amortization of finance costs in FFO
("Old Basis").
The use of FFO as an indicator of financial performance is
influenced not only by the operations of the Properties, but also
by the capital structure of the Operating Partnership and the
Company. Accordingly, management expects that FFO will be one of
the significant factors considered by the Board of Directors in
determining the amount of cash distributions the Operating
Partnership will make to its partners (including the REIT). FFO
does not represent cash flow from operations as defined by GAAP
and is not necessarily indicative of cash available to fund all
cash flow needs and should not be considered as an alternative to
net income(loss) for purposes of evaluating the Company's
operating performance or to cash flow as a measure of liquidity.
For the nine months ended September 30, 1996, FFO increased
by $8.7 million, or 23.7%, to $45.5 million as compared to $36.8
million for 1995. The increase in FFO was primarily attributable
to the continuing increase in revenues and income from
operations.
The Company's calculation of FFO is as follows: (dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -------------------
New New
Basis Basis
1996 1995 1996 1995
-------- ------- ------- -------
Income from operations.......... $8,935 $6,485 $26,170 $19,098
ADD:
Depreciation & amortization from
consolidated properties........ 6,232(1) 6,023(2) 18,583(3) 17,186(4)
Income from operations of
unconsolidated affiliates...... 430 373 1,540 1,118
Depreciation & amortization from
unconsolidated affiliates...... 271 314 897 954
Write-off of development costs
charged to net income......... 185 4 450 465
SUBTRACT:
Minority investors' share of
income from operations in seven
properties..................... (122) (172) (385) (319)
Minority investors share of
depreciation and amortization
in seven properties............ (171) (85) (486) (182)
Preference return paid to
mortgagees (5) ................. 17(6) (246) (331) (735)
Adjustment for straight-lining
of rents:
Consolidated properties......... (328) (223) (728) (750)
Unconsolidated affiliates....... 14 (14) 4 (14)
Minority investors share of
seven properties............... 3 (1) 12 -
Depreciation and amortization of
non-real estate assets and
finance costs.................. (65) - (194) -
------- ------- ------- -------
TOTAL FUNDS FROM OPERATIONS..... $15,401 $12,458 $45,532 $36,821
======= ======= ======= =======
(1) Old Basis would have included $168 of non-real estate depreciation,
which now is classified as property operating expense on the income
statement, and excluded finance costs.
(2) Includes $151 of non-real estate depreciation, which now is classified
as property operating expense on the income statement.
(3) Old Basis would have included $517 of non-real estate depreciation,
which is now classified as property operating expense on the income
statement, and excluded finance costs.
(4) Includes $413 of non-real estate depreciation, which is now classified
as property operating expense on the income statement.
(5) Preferred return of 7.0% and shortage in mortgage payments.
(6) The Company received an additional mortgage payment in the third
quarter to reduce the shortfall in previous months.
The Company does not include gains or losses on outparcel sales
(which would have added $5.6 million in 1996 and $2.2 million in 1995)
or the effect of straight-line rents (which would have added $0.7 million
in 1996 and 1995) in its calculation of funds from operations.
IMPACT OF INFLATION
In the last three years, inflation has not had a significant impact
on the Company or CBL 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.
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
Exhibit 10.25
Amended and Restated Credit Agreement between
the Operating Partnership and Wells Fargo
Bank N.A. etal dated September 26, 1996.
Exhibit 10.26
Promissory Note Agreement between the REIT
and Compass Bank dated September 17, 1996.
Exhibit 27
Financial Data Schedule
B. Reports on Form 8-K
The following item was reported:
The outline from the Company's October 31, 1996
conference call with analysts and investors
regarding earnings (Item 5) was filed on
October 31, 1996.
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: November 13, 1996
EXHIBIT INDEX
EXHIBIT
10.25 Amended and Restated Credit Agreement
between the Operating Partnership
and Wells Fargo Bank N.A. etal dated
September 26, 1996.
10.26 Primissory Note Agreement between the
REIT and Compass Bank dated
September 17, 1996.
27 Financial Data Schedule