Securities Exchange Act of 1934 -- Form 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report :
October 27, 1999
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CBL & ASSOCIATES PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-12494 62-1545718
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
One Park Place, 6148 Lee Highway, Chattanooga, Tennessee 37421
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(Address of principal executive offices)
Registrant's telephone number, including area code:
(423) 855-0001
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CBL & ASSOCIATES PROPERTIES, INC.
Conference Call Outline
Third Quarter 1999
October 27, 1999
10:00 a.m.
Good morning, everyone. We appreciate your participation in today's call to
discuss our results for the third quarter and the first nine months of 1999.
Before we begin, I would like to have Kelly Sargent, our Director of Investor
Relations, read our Safe Harbor disclosure.
This conference call contains "forwarding-looking" statements within the
meaning of the federal securities laws. Such statements are inherently subject
to risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, may differ materially from the events and results
discussed in the forward-looking statements. During our discussion today,
references made to per share is based upon a fully diluted converted share. We
direct you to the Company's various filings with the Securities and Exchange
Commission, including without limitation the Company's Annual Report on Form
10-K and the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference therein, for a discussion of
such risks and uncertainties.
I would like to note that a transcript of John's comments will be filed as
a form 8K later this morning and will be available upon request as well as
available for replay on the Internet through a link on our website at
www.cblproperties.com.
INCOME STATEMENT REVIEW
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Our earnings release yesterday announced a 27.3% per share increase in FFO.
Of this amount, 12.1% is attributable to a $3.1 million fee received during the
third quarter. This fee represents a one-time fee earned from the company's
co-development program. Because this is non-recurring in nature and because we
want to be conservative in our reporting, we will exclude this fee and report
only on our recurring core business throughout the call.
The 15.2% increase in FFO per share for the third quarter, which again
excluded the one-time fee of $3.1 million, consisted of the following:
1. 40% was from the opening of four new shopping centers and from the
acquisition of four malls and one community center, all of which occurred
during the last fifteen months.
2. 60% was from improved operations in our portfolio, primarily higher tenant
recoveries and rental income.
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Other financial highlights from the quarter and first nine months were:
1. Net operating income (NOI) increased 21.9% to $53.0 million in the quarter
from $43.5 million in the prior-year period and for the nine months
increased 29.8% to $149.7 million from $115.3 million a year ago.
2. In the third quarter, same-center NOI increased 5.6% over the prior-year
period and increased 5.1% for the first nine months of 1999 over the
prior-year period.
3. Our cost recovery ratio increased to 94.7% in the third quarter compared
with 94.3% a year ago. For the nine months, the cost recovery ratio was up
to 93.7% compared with 92.7% a year ago.
Our FFO calculation continues to be one of the most conservative in the
industry since we exclude outparcel sales from the calculation. The inclusion of
outparcel sales would have an impact on third quarter FFO, increasing the
earnings per share from $.76 to $.79 per share and more significantly from $2.25
to $2.51 for the nine months. Before consideration of outparcel sales, our
dividend payout ratio is 64.1%. Including outparcel sales, the payout ratio
drops even further, decreasing it to 61.7% and 58.2% for the nine months. We
expect our payout ratio to continue to trend down during the year.
CAPITAL STRUCTURE
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The details of our capital structure are listed in our release, so I will
just touch on a couple areas. We're not in the business of predicting Chairman
Greenspan's next moves, but we have done a good job of protecting ourselves
against interest rate risk. As of the end of the quarter, we had no exposure to
variable rates on operating properties. That will change somewhat in the fourth
quarter with the opening of Arbor Place, but that only should be temporary. At
the present time we are negotiating for a permanent loan for Arbor Place that
will take out the construction loan on that property. Another measure that
points to a strong capital structure is our EBITDA coverage ratio, which was up
to 2.56 times interest expense in the quarter from 2.41 times interest expense
one year ago.
We noted on last quarter's call that we had completed in July the sale of
four assets and used the gross proceeds of $30 million to pay down the debt
associated with the York Galleria acquisition. We are currently pursuing similar
transactions as well as possible joint ventures, but we do not have anything to
report to you at this time. The select disposition of assets and joint ventures
continues to be a priority for us, but we will only do so if the transaction
creates shareholder value.
CAPITAL EXPENDITURES
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During the first nine months, we spent $ 8.0 million on revenue generating,
$ 7.2 million on revenue neutral and $ 8.7 million on revenue enhancing capital
expenditures. For the full year, we expect to spend a total of $9.5 million on
revenue generating, $8.0 million on revenue neutral and $10.0 million on revenue
enhancing capital expenditures.
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The majority of the revenue enhancing capital expenditures incurred this
year were related to the renovation of Rivergate Mall and The Village at
Rivergate in Nashville, which are expected to be completed in November, and
College Square Mall in Morristown, TN, which was completed in August.
DEVELOPMENTS
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On the development front, we opened Sand Lake Corners in August at 98%
leased and committed with an initial yield of 12%, increasing to 13% at
stabilization. The Landing at Arbor Place, the associated center adjacent to the
Arbor Place Mall, also opened 90% leased and committed with an initial yield of
9.6%, which increases to 11% upon stabilization.
The grand opening of Arbor Place Mall in west Atlanta on October 13 was our
largest project this year. Despite the rain, those of you who were there saw one
of our most successful grand openings ever. Arbor Place opened at 92% leased and
committed. This project will yield 9.7% initially and 10.9% upon stabilization.
Our leasing team was thrilled with the response they received from retailers at
the ICSC idea exchange in Atlanta the week following our opening. The
outstanding sales during opening week validates our decision to develop in this
Atlanta market.
The newest additions to our construction pipelines include a
171,000-square-foot expansion to Asheville Mall in Asheville, NC and Gunbarrel
Pointe, a 282,000-square-foot associated center in Chattanooga. Our newest
regional mall development is The Lakes Mall in Muskegon, MI. This
600,000-square-foot project will be anchored by Sears, which will open in Spring
2001, and by JC Penney and Younkers, both of which will open with the mall in
Fall 2001.
We now have 1.9 million square feet under construction representing a total
investment of approximately $120 million, of which $19 million has been invested
through September 30, 1999. Initial unleveraged yields on these centers are
expected to range from 9% to 11%.
Parkway Place in Huntsville, AL, was acquired late last year in a joint
venture with Colonial Properties. Construction for Parkway Place and the Mall of
South Carolina in Myrtle Beach, a joint venture with Burroughs & Chapin, is
expected to begin by early 2000. Both of these projects are subject to tax
increment financing and other approvals.
ACQUISITIONS
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We began the quarter with the acquisition of York Galleria Mall in York, PA
for $68.9 million. Consistent with our strategy, this mall dominates the York
trade area and displays growth potential. As I mentioned earlier, we were able
to fund a sizable portion of this acquisition with the sale of four assets that
displayed less potential for growth. This represents one of the elements of our
strategy to redeploy our capital and resources to higher growth assets.
There are still acquisition opportunities available; however, we will be
very selective and opportunistic when it comes to any additional acquisitions.
We will not purchase assets merely for "spread investing". Any project we
purchase must have a value added component.
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LEASING
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Average renewal rents for the nine months were up over the prior rent and
percentage rent 13.9% in the malls, 11.2% in associated centers, and 11.4% in
the community centers. Continued strength in occupancy levels in our malls and
renewal leasing should enable us to continue to produce strong internal growth.
SALES
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Retail sales in our malls as a whole continued to increase in the third
quarter. We were up 5.2% on a comparable per square foot basis in the third
quarter over the prior-year period. Total mall sales volume for our portfolio
increased 9.3% to $1.053 billion. Occupancy costs as a percentage of sales at
our malls was 13% at September 30, 1999 compared to 12.3% at September 30, 1998.
Occupancy cost as a percentage of sales is generally higher in the first
three quarters of the year as compared to the fourth quarter as a result of the
seasonality of retail sales.
Retail trends continue to be positive in our markets, and retailers
continue to expand. As evidenced by our leasing results and NOI growth at our
existing properties, these trends are having a positive impact on the
performance of our portfolio.
TN FRANCHISE AND EXCISE TAX LAW
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One situation we are watching closely is in Tennessee. In June, legislation
was signed into law that extends franchise and excise taxes to limited liability
entities. Based on advice from our tax counsel, we expect that these taxes will
not affect us until 2000.
A NAREIT task force is working with legislators in Nashville to change this
new legislation as it pertains to REITs. Governor Sundquist has called the
legislature into special session beginning November 1, to discuss tax reform. We
expect these taxes to be discussed at that time and some relief should be
obtained. Based upon the current proposals, we estimate the worst case scenario
for us would impact us by approximately $.06 per share. We believe, however,
that current lobbying efforts by NAREIT and others will bear fruit.
RETAIL OUTLOOK
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Although retail sales continue to rise, we have seen several retailers
closing their doors. This quarter, Upton's parent company announced that it
would close all of its stores. Currently, we have two Uptons' stores in the
portfolio that we own and one that is owned by Upton's. One store was set to
open with Arbor Place earlier this month and the other is located at WestGate
Mall in Spartanburg, SC. Upton's continues to pay rent at both of these
locations, and we are working with several retailers to fill these locations.
As the holiday season approaches, we expect to hear more about e-tailing's
potential impact upon holiday sales. There is no question that the percentage
growth in e-tailing sales will appear significant. Given the small base, any
sort of increase will look big. In absolute dollars, the impact will be
insignificant on total retail sales. Distribution, shipping and returns continue
to be significant hurdles for e-tailing. Our malls are, and will continue to be,
a fun experience for our patrons providing a social, personal and entertainment
component that can't be duplicated on the Internet.
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The new buzzwords, "click and mortar," should give you an indication that
even the e-tailers are starting to realize there is real value in "bricks and
mortar."
OUTLOOK
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Our outlook remains positive for both our growth and the retail industry.
- - Retailers will continue to expand and direct us to new market
opportunities. We have the capacity and the expertise to meet the needs
of our retailers.
- - We will continue to operate our business efficiently, effectively and
conservatively to maximize long-term shareholder value. After all,
management owns over 30%.
I will now be happy to answer any questions you may have.
Renewal Leasing for the Nine Months
Prior PSF
Rent & Percentage New PSF New PSF % change % change
Rent Rent-Initial Rent-Avg. Initial Average
Malls $23.27 $25.76 $26.49 10.7% 13.9%
Associated Centers $9.51 $ 10.49 $10.58 10.3% 11.2%
Community Centers $8.18 $8.75 $ 9.11 7.0% 11.4%
Total Leasing Compared to Tenants Vacating for the Nine Months
Leased Avg. Rate Vacated Avg. Rate
Malls 523,372 $25.11 243,960 $21.47
Associated Centers 62,961 $10.73 3,096 $11.87
Community Centers 299,885 $ 9.16 55,609 $ 8.86
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBL & ASSOCIATES PROPERTIES, INC.
/c/ John N. Foy
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John N. Foy
Vice Chairman,
Chief Financial Officer and
Treasurer
(Authorized Officer of the
Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: October 27, 1999