SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter
ended June 30, 2000 Commission file number 1-12278
URBAN SHOPPING CENTERS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-3886885
------------------------ -------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
900 North Michigan Avenue, Suite 1500, Chicago, Illinois 60611
-------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 915-2000
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 of Common Stock and Unit Voting Common Stock, $.01 par
value, outstanding on August 9, 2000 were 17,756,018 and 407,935,
respectively.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 16
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 26
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk. . . . . . . . . . . . . . . . . . . . . . 31
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URBAN SHOPPING CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
($000's omitted, except share amounts)
ASSETS
------
JUNE 30, DECEMBER 31,
2000 1999
------------ -----------
Investment properties:
Land, including peripheral
land parcels . . . . . . . . . . . . $ 208,420 $ 209,304
Buildings and improvements . . . . . . 1,444,845 1,433,252
Equipment, furniture and fixtures. . . 6,164 5,944
Construction in progress . . . . . . . 142,294 75,568
------------ -----------
1,801,723 1,724,068
Accumulated depreciation . . . . . . . (234,087) (207,720)
------------ -----------
Investment properties, net of
accumulated depreciation . . . . . 1,567,636 1,516,348
Investment property held for sale. . . . 13,101 13,083
Investments in unconsolidated
partnerships . . . . . . . . . . . . . 229,310 230,367
Investment in the Management Company . . 51,560 49,967
Cash, cash equivalents and
short-term investments . . . . . . . . 3,753 4,125
Interest, rents and other receivables. . 18,511 20,597
Deferred expenses and other assets . . . 15,544 13,831
------------ -----------
$ 1,899,415 $ 1,848,318
============ ===========
<PAGE>
URBAN SHOPPING CENTERS, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
JUNE 30, DECEMBER 31,
2000 1999
------------ -----------
Liabilities:
Mortgage notes payable . . . . . . . . $ 1,130,339 $ 1,080,452
Land sale-leaseback proceeds . . . . . 75,000 75,000
Deferred lease accrual . . . . . . . . 23,844 22,874
Accounts payable and other
liabilities. . . . . . . . . . . . . 79,685 68,982
Investments in unconsolidated
partnerships . . . . . . . . . . . . 44,303 43,074
Commitments and contingencies
----------- -----------
Total liabilities. . . . . . . 1,353,171 1,290,382
Minority interest. . . . . . . . . . . . 240,442 245,017
Stockholders' equity:
Preferred stock, $.01 par value,
authorized 5,000,000 shares,
issued and outstanding 3,772,915
shares in 2000 and 1999 (liquida-
tion preference of $125,000) . . . . 38 38
Common stock, $.01 par value,
authorized 140,000,000 shares,
issued and outstanding 17,756,018
shares in 2000 and 17,523,484
shares in 1999 . . . . . . . . . . . 178 176
Unit voting stock, $.01 par value,
authorized 5,000,000 shares,
issued and outstanding 407,935
shares in 2000 and 1999. . . . . . . 4 4
Additional paid-in capital . . . . . . 499,718 495,196
Retained earnings (deficit). . . . . . (194,136) (182,495)
------------ -----------
Total stockholders' equity . . 305,802 312,919
------------ -----------
$ 1,899,415 $ 1,848,318
============ ===========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
URBAN SHOPPING CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
($000's omitted, except share amounts)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Shopping center revenues:
Minimum rents. . . . . . . . . . . . . . . . . . . $ 39,700 $ 34,755 $ 78,858 $ 66,007
Percentage rents . . . . . . . . . . . . . . . . . 1,017 881 1,826 1,526
Recoveries from tenants. . . . . . . . . . . . . . 22,745 19,837 43,770 36,164
Other. . . . . . . . . . . . . . . . . . . . . . . 2,646 2,535 5,541 4,022
---------- ---------- ---------- ----------
66,108 58,008 129,995 107,719
Interest income. . . . . . . . . . . . . . . . . . . 68 196 196 377
---------- ---------- ---------- ----------
66,176 58,204 130,191 108,096
---------- ---------- ---------- ----------
Expenses:
Shopping center expenses . . . . . . . . . . . . . . 22,588 20,867 45,833 39,178
Mortgage and other interest. . . . . . . . . . . . . 17,010 14,258 34,114 26,234
Ground rent. . . . . . . . . . . . . . . . . . . . . 1,169 1,142 2,300 2,229
Depreciation and amortization. . . . . . . . . . . . 14,141 12,264 28,253 23,109
General and administrative . . . . . . . . . . . . . 1,588 1,417 3,101 2,921
Write-off of assets. . . . . . . . . . . . . . . . . -- 1,393 -- 1,393
---------- ---------- ---------- ----------
56,496 51,341 113,601 95,064
---------- ---------- ---------- ----------
Operating income . . . . . . . . . . . . . . 9,680 6,863 16,590 13,032
Income from unconsolidated partnerships. . . . . . . . 4,032 2,908 7,034 5,409
Income from the Management Company . . . . . . . . . . 944 276 2,193 308
----------- ----------- ---------- ----------
Income before other gains, minority
interest and extraordinary items . . . . . 14,656 10,047 25,817 18,749
Other gains. . . . . . . . . . . . . . . . . . . . . . -- -- 259 --
Minority interest. . . . . . . . . . . . . . . . . . . (6,477) (3,348) (11,898) (5,951)
---------- ---------- ---------- ----------
Income before extraordinary items. . . . . . 8,179 6,699 14,178 12,798
<PAGE>
URBAN SHOPPING CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Extraordinary items (net of taxes and
minority interest) . . . . . . . . . . . . . . . . . -- (486) -- (1,618)
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . 8,179 6,213 14,178 11,180
Dividends on preferred stock . . . . . . . . . . . . . (2,226) (2,113) (4,452) (4,226)
---------- ---------- ---------- ----------
Income applicable to common and unit
voting common stock. . . . . . . . . . . . $ 5,953 $ 4,100 $ 9,726 $ 6,954
========== ========== ========== ==========
Basic income per common and unit voting
common share:
Before extraordinary items . . . . . . . . . . . . . $ .33 $ .26 $ .54 $ .48
Extraordinary items. . . . . . . . . . . . . . . . . -- (.03) -- (.09)
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ .33 $ .23 $ .54 $ .39
========== ========== ========== ==========
Diluted income per common and unit voting
common share:
Before extraordinary items . . . . . . . . . . . . . $ .32 $ .26 $ .53 $ .47
Extraordinary items. . . . . . . . . . . . . . . . . -- (.03) -- (.09)
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ .32 .23 $ .53 $ .38
========== ========== ========== ==========
Weighted-average common and unit voting common
shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . . . 18,125,934 17,905,975 18,088,627 17,895,881
========== ========== ========== ==========
Diluted. . . . . . . . . . . . . . . . . . . . . . 18,352,690 18,128,795 18,263,395 18,106,836
========== ========== ========== ==========
Dividends declared and paid per common and
unit voting common share . . . . . . . . . . . . . . $ .59 $ .56 $ 1.18 $ 1.12
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
URBAN SHOPPING CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
($000's omitted, except share amounts)
2000 1999
---------- ----------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . $ 14,178 $ 11,180
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization. . . . . . 28,253 23,109
Write-off of assets. . . . . . . . . . . -- 1,393
Provision for (recovery of) losses
on accounts receivable . . . . . . . . (243) 540
Income from unconsolidated
partnerships . . . . . . . . . . . . . (7,034) (5,409)
Income from the Management Company,
net of distributions . . . . . . . . . (1,593) (308)
Minority interest. . . . . . . . . . . . 11,898 5,951
Deferred lease accrual . . . . . . . . . 970 1,071
Extraordinary items. . . . . . . . . . . -- 1,618
Other gains. . . . . . . . . . . . . . . (259) --
Other, net . . . . . . . . . . . . . . . (1,448) (773)
Other changes in assets and liabilities:
Interest, rents and other
receivables. . . . . . . . . . . . . . 3,777 3,280
Deferred expenses and other assets . . . (1,766) (2,352)
Accounts payable and other
liabilities. . . . . . . . . . . . . . 4,659 8,486
----------- -----------
Net cash provided by
operating activities . . . . . . 51,392 47,786
----------- -----------
Cash flows from investing activities:
Additions to investment properties,
net of change in related payables. . . . (79,779) (43,927)
Acquisition of investment properties
and development parcels. . . . . . . . . -- (122,927)
Proceeds from the sale of development
parcels, net of selling costs. . . . . . 259 --
Cash contributions to unconsolidated
partnerships and the Management
Company. . . . . . . . . . . . . . . . . (4,706) (5,244)
Cash distributions from uncon-
solidated partnerships . . . . . . . . . 13,935 11,684
Advances from an unconsolidated entity,
net. . . . . . . . . . . . . . . . . . . 8,000 --
Decrease in restricted cash. . . . . . . . -- 832
---------- ----------
Net cash used in
investing activities . . . . . . (62,291) (159,582)
---------- ----------
<PAGE>
URBAN SHOPPING CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
2000 1999
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of debt,
net of issuance costs. . . . . . . . . . 178,132 335,432
Proceeds from issuance of Common
Stock under option plan and
incentive unit plan. . . . . . . . . . . 5,656 3,116
Proceeds from the issuance of perpetual
preferred partnership units. . . . . . . -- 38,997
Repayment of debt. . . . . . . . . . . . . (129,949) (229,088)
Cash distributions to common
unitholders. . . . . . . . . . . . . . . (10,669) (10,011)
Cash distributions to preferred
unitholders. . . . . . . . . . . . . . . (6,821) (980)
Dividends paid . . . . . . . . . . . . . . (25,819) (23,855)
Other, net . . . . . . . . . . . . . . . . (3) --
---------- ----------
Net cash provided by
financing activities . . . . . . 10,527 113,611
---------- ----------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . (372) 1,815
Cash and cash equivalents at
beginning of period. . . . . . . . . . . . 4,110 294
---------- ----------
Cash and cash equivalents at
end of period. . . . . . . . . . . . . . . $ 3,738 $ 2,109
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid for mortgage and
other interest, net of amounts
capitalized. . . . . . . . . . . . . . . $ 34,172 $ 24,043
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
URBAN SHOPPING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(UNAUDITED)
($000's omitted, except share amounts)
Readers of this quarterly report should refer to the Company's audited
financial statements for the year ended December 31, 1999, which are
incorporated by reference in the Company's 1999 annual report on Form 10-K,
as certain disclosures which would substantially duplicate those contained
in such audited financial statements have been omitted from this report.
(1) BASIS OF PRESENTATION
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements have been included. The results for the
interim periods ended June 30, 2000 and 1999 are not necessarily indicative
of the results to be obtained for the full fiscal year.
The accompanying consolidated financial statements include the
accounts of the Company, the Operating Partnership and all controlled
affiliates. The effect of all significant intercompany balances and
transactions have been eliminated in the consolidated presentation.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Company's interest in
Copley Place Associates, LLC ("Copley Place"), Coral-CS/LTD Associates
("Coral Square Mall"), S. F. Shopping Centre Associates, L.P. ("San
Francisco Shopping Centre"), South Alabama Development, L.P. ("Houston
Galleria Development Land"), Urban Retail Properties Co. (the "Management
Company"), U.W. Galleria L.P. ("Houston Galleria"), Valencia Town Center
Associates, L.P. ("Valencia Town Center"), Water Tower Joint Venture
("Water Tower Place"), West Dade County Associates ("Miami International
Mall"), Woodland Hills Mall, LLC ("Woodland Hills Mall"), WT Partners, L.P.
("Westheimer Triangle") and MerchantWired, LLC ("MerchantWired").
For the six months ended June 30, 2000 and 1999, the common units,
convertible preferred units, convertible preferred stock, stock options and
incentive units are either antidilutive or do not have a significant effect
on the computation of earnings per share.
Development costs, including interest and real estate taxes incurred
in connection with construction or expansion of certain investment
properties, are capitalized as a cost of the investment property and
depreciated over the estimated useful life of the related asset. During
the six months ended June 30, 2000 and 1999, the Company incurred interest
of $39,628 and $28,600, respectively, and capitalized interest of $5,514
and $2,366, respectively.
<PAGE>
URBAN SHOPPING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
($000's omitted, except share amounts)
(1) BASIS OF PRESENTATION (Continued)
Cash and cash equivalents (which aggregated $3,738 and $4,110 at
June 30, 2000 and December 31, 1999, respectively) include a treasury money
market fund which invests principally in U.S. Treasury notes and bills
($1,120 and none at June 30, 2000 and December 31, 1999, respectively).
Other short-term investments (generally with original maturities of one
year or less) are generally held to maturity and aggregated $15 at June 30,
2000 and December 31, 1999. Cash equivalents and other short-term
investments are held at cost which approximates market.
The Company uses interest rate swap agreements and treasury locks as
part of its interest rate risk management strategy. These off-balance
sheet derivatives are classified as synthetic alterations. The criteria
that must be satisfied by synthetic alteration accounting are as follows:
(i) the liability to be converted has exposure to interest rate risk and
(ii) the derivative is designated and effective as a synthetic alteration
of the liability.
Accrual accounting is applied for these derivatives treated as
synthetic alterations, and income and expense are recorded as adjustments
of interest expense. Fees, if any, related to these off-balance sheet
investment products are amortized on the interest method over the life of
the derivative. If the balance of the liability falls below that of the
derivative, the excess portion of the derivative is marked to market and
the resulting gain or loss included in income, as applicable. If a
derivative is terminated independent of the underlying debt, the gain or
loss is deferred and amortized over the remaining life of the derivative.
If a treasury lock is terminated, the gain or loss is deferred and
amortized over the life of the new debt.
Derivatives that do not satisfy the criteria above would be carried at
market value with changes in market value to be recognized as current
income or expense.
(2) INVESTMENT PROPERTIES
At June 30, 2000, the Company has classified Service Merchandise Plaza
as an investment property held for sale. Service Merchandise Plaza in
Columbus, Ohio, is an approximate 193,000 square foot community center
anchored by Circuit City and Office Depot. The Company is selling Service
Merchandise Plaza at this time because it is a non-core asset which is not
integral to the Company's strategy of owning and operating dominant high
quality regional malls and adjacent retail facilities. Revenues of $1,208
and $1,408, expenses of $366 and $728 and net income of $842 and $680, for
the six months ended June 30, 2000 and 1999, respectively, related to
Service Merchandise Plaza are included in the accompanying consolidated
statements of operations.
<PAGE>
URBAN SHOPPING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
($000's omitted, except share amounts)
(3) SALE OF INVESTMENT PROPERTY
On January 31, 2000, the Company completed the sale of an outparcel of
land at Wolfchase Galleria for total proceeds, net of selling expenses, of
approximately $259 and recognized a gain of $259 for financial reporting
purposes.
(4) INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
Summarized financial information for the unconsolidated partnerships
is presented below:
June 30, December 31,
2000 1999
----------- -------------
Assets:
Investment properties, net . . . . . . $ 1,167,159 $ 1,228,885
Investment property held for sale
(1). . . . . . . . . . . . . . . . . 52,428 --
Other assets . . . . . . . . . . . . . 72,427 72,418
----------- -----------
1,292,014 1,301,303
Less liabilities:
Mortgage notes payable . . . . . . . . 877,209 867,523
Other liabilities. . . . . . . . . . . 52,760 50,597
----------- -----------
Total capital . . . . . . . . . . . 362,045 383,183
Less: Outside partners' capital. . . . . 177,038 195,890
----------- -----------
Total investments in
unconsolidated partnerships . . . $ 185,007 $ 187,293
=========== ===========
Total investments in unconsolidated
partnerships are presented in the
accompanying consolidated balance
sheets as follows:
Assets - Investments in
unconsolidated partnerships. . . . $ 229,310 $ 230,367
Liabilities - Investments in
unconsolidated partnerships. . . . 44,303 43,074
----------- -----------
$ 185,007 $ 187,293
=========== ===========
(1) At June 30, 2000, the Company's unconsolidated partnership and
the outside partner have classified Valencia Town Center as an investment
property held for sale. The decision to sell is controlled by and has been
made by the outside partner. The partner anticipates the sale of this
property to be completed in 2000.
<PAGE>
URBAN SHOPPING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
($000's omitted, except share amounts)
(4) INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS (Continued)
Six Months Ended
June 30,
---------------------------
2000 1999
---------- ----------
Revenues:
Shopping centers . . . . . . . . . . . $ 122,340 $ 90,939
Interest income. . . . . . . . . . . . 761 424
Expenses:
Shopping centers . . . . . . . . . . . 52,988 41,660
Mortgage and other interest and
ground rent. . . . . . . . . . . . . 34,714 23,002
Depreciation and amortization. . . . . 18,560 13,814
Write-off of assets. . . . . . . . . . 17 --
---------- ----------
Income before other gains. . . . . . 16,822 12,887
Other gains. . . . . . . . . . . . . . . 832 --
---------- ----------
Net income . . . . . . . . . . . $ 17,654 $ 12,887
========== ==========
Company's share of:
Mortgage and other interest and
ground rent. . . . . . . . . . . . . $ 18,118 $ 10,510
Depreciation and amortization. . . . . 10,065 6,078
Write-off of assets. . . . . . . . . . 6 --
Other gains. . . . . . . . . . . . . . 416 --
Net income . . . . . . . . . . . . . . 7,034 5,409
========== ==========
(5) INVESTMENT IN THE MANAGEMENT COMPANY
The Company's consolidated financial statements present its investment
in the Management Company under the equity method of accounting.
Summarized financial information for the Management Company is
presented below.
June 30, December 31,
2000 1999
----------- -------------
Assets:
Investments in land parcels. . . . . . $ 14,221 $ 14,221
Cash, cash equivalents and
short-term investments . . . . . . . 2,853 11,551
Receivables and deferred expenses. . . 26,644 16,140
----------- -----------
$ 43,718 $ 41,912
=========== ===========
<PAGE>
URBAN SHOPPING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
($000's omitted, except share amounts)
(5) INVESTMENT IN THE MANAGEMENT COMPANY (Continued)
June 30, December 31,
2000 1999
----------- -------------
Liabilities:
Notes payable. . . . . . . . . . . . . $ 20,000 $ 20,000
Accounts payable and
other liabilities. . . . . . . . . . 6,760 5,681
----------- -----------
26,760 25,681
Owners' equity . . . . . . . . . . . . . 16,958 16,231
----------- -----------
$ 43,718 $ 41,912
=========== ===========
Six Months Ended
June 30,
--------------------------
2000 1999
---------- ----------
Revenues . . . . . . . . . . . . . . . . $ 26,478 $ 21,387
----------- -----------
Expenses:
Management, leasing and
development services . . . . . . . . 21,856 19,495
Mortgage and other interest. . . . . . 768 696
Land parcels . . . . . . . . . . . . . (13) 41
Depreciation and amortization. . . . . 657 743
---------- ----------
23,268 20,975
---------- ----------
Operating income . . . . . . . . . 3,210 412
Income tax expense . . . . . . . . . . . (890) (126)
---------- ----------
Income before extra-
ordinary items . . . . . . . . . 2,320 286
Extraordinary items (net of taxes) . . . -- (1,788)
---------- ----------
Net income (loss). . . . . . . . . $ 2,320 $ (1,502)
========== ==========
(6) MORTGAGE NOTES PAYABLE
On March 15, 2000, the Company amended its existing secured revolving
line of credit, increasing the committed amount from $107,500 to $180,000.
The amended line bears interest at LIBOR + 1.05% (7.71% at June 30, 2000)
and matures on March 15, 2003; however, it may be extended for one
additional year.
<PAGE>
URBAN SHOPPING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
($000's omitted, except share amounts)
(7) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company defines
each of its regional malls and community centers as an individual operating
segment and has determined that all of the regional malls and community
centers exhibit substantially identical economic characteristics and meet
the other criteria specified by SFAS No. 131 which permits the malls to be
aggregated into one reportable segment. The Management Company is viewed
by management as a separate segment and does not meet the quantitative
measures required for separate disclosure.
The Company separately assesses and measures the operating results of
its regional malls based on net operating income ("NOI"). NOI is
calculated as shopping center revenues less shopping center expenses
adjusted for straight-line rent and non-real estate depreciation. NOI for
the Company's unconsolidated partnerships is measured at the Company's
ownership share.
The following table summarizes the revenues, NOI and assets for the
Company's reportable segment.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
REVENUES:
Shopping center revenues . . .$ 96,390 $ 78,411 $189,900 $147,977
Company's share of
unconsolidated
partnerships . . . . . . . (30,282) (20,403) (59,905) (40,258)
Interest income. . . . . . . 68 196 196 377
-------- -------- -------- --------
Consolidated revenue . . .$ 66,176 $ 58,204 $130,191 $108,096
======== ======== ======== ========
NOI:
Shopping center NOI. . . . . .$ 59,958 $ 47,398 $116,277 $ 89,044
Unconsolidated
shopping center NOI. . . . (17,501) (10,814) (33,923) (21,558)
Interest income. . . . . . . 68 196 196 377
Straight-line rent
adjustments. . . . . . . . 882 407 1,448 773
Real estate depreciation
and amortization . . . . . (13,443) (11,617) (26,845) (22,009)
Non-shopping center
expenses . . . . . . . . . (20,284) (18,707) (40,563) (33,595)
Income from unconsolidated
partnerships and the
Management Company . . . . 4,976 3,184 9,227 5,717
-------- -------- -------- --------
Consolidated income
before other gains,
minority interest
and extraordinary
items. . . . . . . . . .$ 14,656 $ 10,047 $ 25,817 $ 18,749
======== ======== ======== ========
<PAGE>
URBAN SHOPPING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded
(UNAUDITED)
($000's omitted, except share amounts)
(7) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
- (Continued)
June 30, December 31,
2000 1999
----------- -------------
ASSETS:
Total shopping center assets . . . . . . $1,844,102 $1,794,226
Investment in the Management
Company. . . . . . . . . . . . . . . 51,560 49,967
Cash, cash equivalents and
short-term investments . . . . . . . 3,753 4,125
---------- ----------
Consolidated assets. . . . . . . $1,899,415 $1,848,318
========== ==========
Information relative to the Company's expenditures for additions to
long-lived assets has been included in the investing activities reported in
the consolidated statements of cash flows.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION. Net cash flows from operating activities
increased $3.6 million in the six months ended June 30, 2000 from the six
months ended June 30, 1999. This increase was primarily attributable to an
increase in rental operations discussed below.
Net cash flows used in investing activities decreased $97.3 million in
the six months ended June 30, 2000 from the six months ended June 30, 1999.
This decrease was primarily attributable to the acquisition of Century City
Shopping Center in June 1999, partially offset by the increase in
construction costs incurred at Galleria at Roseville and The Streets at
Southpoint.
Net cash flows from financing activities decreased $103.1 million in
the six months ended June 30, 2000 from the six months ended June 30, 1999.
This decrease was primarily attributable to proceeds from the issuance of
perpetual preferred partnership units in June 1999 and a decrease in
proceeds from the net issuance/repayment of debt.
At June 30, 2000, the Company had cash, cash equivalents and short-
term investments of $3.8 million.
On June 6, 2000, the Company paid $12.9 million to common and
preferred shareholders as a dividend of $.59 per share representing its
first quarter 2000 dividend. On June 5, 2000, the Operating Partnership
paid $5.3 million to its limited partners as a distribution of $.59 per
unit representing its first quarter 2000 distribution. On June 15, 2000,
the Operating Partnership paid $2.9 million to its preferred unit holders.
CAPITALIZATION. At June 30, 2000, the Company's debt (including the
Company's share of debt of unconsolidated partnerships and the Management
Company) totaled $1,577.7 million of which $1,382.8 million is fixed rate
debt and $194.9 million is floating rate debt. On March 15, 2000, the
Company amended its existing secured revolving line of credit, increasing
the committed amount from $107.5 million to $180.0 million. The amended
line bears interest at LIBOR + 1.05% (7.71% at June 30, 2000) and matures
on March 15, 2003; however, it may be extended for one additional year. As
of June 30, 2000, $46.0 million was outstanding on this line of credit. On
December 21, 1999, the Company closed a $101.7 million construction loan
facility for Galleria at Roseville. This facility has a two-year term with
three one-year extension options. This loan bears interest on a floating
rate basis at LIBOR + 1.65% (8.28% at June 30, 2000). As of June 30, 2000,
$58.7 million was outstanding on this loan. On June 29, 1999, the Company
secured a one-year loan with a lender with a commitment of $30.0 million,
to be used for the construction of The Plaza at Citrus Park. As of
June 30, 2000, $30.0 million was outstanding on the loan. On June 29,
2000, the loan was amended to extend the maturity to December 29, 2000.
The loan may be further extended for one six-month period. This loan bears
interest on a floating rate basis at LIBOR + 1.40% (8.22% at June 30,
2000). On November 6, 1996, the Company entered into an agreement with a
lender for a one-year $5.0 million unsecured revolving line of credit,
which on January 30, 1998 was amended to increase the line to $7.5 million
and extend the maturity to January 29, 1999. On January 29, 1999, this
line was further amended to increase the line to $10.0 million, extend the
maturity to January 28, 2000 and change the interest rate to the Reference
Rate - 1.5625% (7.93% at June 30, 2000). On January 28, 2000, this line
was further amended to increase the line to $13.0 million and extend the
maturity to January 26, 2001. As of June 30, 2000, $7.8 million was
outstanding. On January 4, 2000, Water Tower Joint Venture extended the
maturity on its indebtedness to February 1, 2001. On January 4, 2000, S.F.
Shopping Centre Associates, L.P. increased its outstanding indebtedness to
$65.8 million and extended the maturity to July 1, 2004. It may be further
extended for one additional year.
<PAGE>
Although there can be no assurances, the Company believes that
operating cash flows will be sufficient to service all Company debt and
anticipates repayment or refinancing when such amounts are due in the
ordinary course of its business. At June 30, 2000, the Company's ratio of
Company debt to total market capitalization (which includes the market
value of issued and outstanding shares of capital stock of the Company and
of partnership interests in the Operating Partnership not held by the
Company, plus Company debt) was approximately 57%, as illustrated by the
table at the end of the liquidity and capital resources section. The debt
to total market capitalization ratio is based upon the market value of the
common stock and indebtedness of the Company and, accordingly, will
fluctuate with changes in the value of the common stock (and the issuance
of additional shares of common stock, or other forms of capital, if any,
and the amount of outstanding indebtedness).
The Company believes that its cash generated from property operations
will provide the necessary funds on a short-term and long-term basis for
its operating expenses, interest expenses on outstanding indebtedness and
recurring capital expenditures and all dividends to the shareholders
necessary to satisfy the REIT requirements. Sources of capital for future
acquisitions, development and non-recurring capital expenditures, such as
major building renovations and expansions, as well as for scheduled
principal payments, including balloon payments, on the outstanding
indebtedness are expected to be obtained from the following sources: (i)
excess funds available for distribution, (ii) working capital reserves,
(iii) additional Company or property financing, (iv) proceeds from the sale
of assets, including outparcels and (v) additional equity raised in the
public or private markets (including the issuance of additional common
stock, unit voting common stock, convertible preferred stock, convertible
preferred units, perpetual preferred units and/or common units).
Accordingly, the Company expects that it may incur additional indebtedness.
In light of current economic conditions, relative costs of debt and equity
capital, market values of properties, growth and acquisition opportunities
and other factors, the Company may consider a change in its ratio of
Company debt to total market capitalization accordingly.
CAPITAL INVESTMENTS. The Company's latest development project is the
1.1 million square foot Galleria at Roseville near Sacramento, California.
Galleria at Roseville has four committed anchor tenants with JCPenney,
Macy's, Nordstrom and Sears. Galleria at Roseville is scheduled to open on
August 25, 2000.
The Company's next scheduled development project is The Streets at
Southpoint in Durham, North Carolina. The two-level 1.4 million square
foot regional mall will feature Belk, Hecht's, JCPenney, Nordstrom and
Sears as anchors. The Streets at Southpoint is currently scheduled to open
in March 2002.
The Company is continuing construction at The Plaza at Citrus Park, an
approximate 350,000 square foot community center opposite Citrus Park Town
Center. The first phase of the community center opened in fall 1999 and
the second phase of the center, which includes the majority of the
remaining space, is scheduled to open this fall.
Construction continues as planned on the expansion project at Old
Orchard Center in Skokie, Illinois for the addition of a six-screen, state-
of-the-art theater with stadium seating and two new restaurants. The new
theatre will increase the total number of screens at the center to
thirteen. In conjunction with the expansion, a new 400 car, one-level
parking deck will also be added. Work on the expansion is expected to be
completed by April 2001.
<PAGE>
The Company recently announced plans for an approximate 700,000 square
foot expansion of the retail portion of the Houston Galleria. Current
plans call for the addition of approximately 230,000 square feet of mall
shop space, a 250,000 square foot Foley's department store and an
approximate 225,000 square foot Nordstrom department store. Work on this
new development is scheduled to begin in summer 2001 with expected
completion in spring 2003.
At June 30, 2000, amounts spent on construction in progress and land
for development related to the Company's three current projects (The Plaza
at Citrus Park, Galleria at Roseville and The Streets at Southpoint)
totaled $141.8 million.
At June 30, 2000, there are approximately twenty-one, two, thirteen
and twenty-five acres of outparcel land, respectively, at Brandon
TownCenter, Citrus Park Town Center, Galleria at Roseville and Wolfchase
Galleria available for future sale or development.
<PAGE>
<TABLE>
<CAPTION>
100% Pro Rata
Balance of Share of
($000's omitted, Annual Mortgage Mortgage
except share and Maturity Interest Notes Ownership Notes
per share amounts) Date Rate Payable Interest Payable
----------------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Consolidated Entities:
Operating Partnership (1) Dec. 2000 (1) 8.22% (1) $ 30,000 100.0% $ 30,000
Operating Partnership Jan. 2001 7.93% (2) 7,750 100.0% 7,750
MainPlace Sept. 2001 (3) (3) 110,000 100.0% 110,000
Galleria at Roseville Dec. 2001 (4) (4) 58,686 100.0% 58,686
Operating Partnership Mar. 2003 (5) (5) 46,000 100.0% 46,000
Oakbrook Center Oct. 2004 6.14% 140,000 100.0% 140,000
Fox Valley Center Nov. 2006 6.75% 85,528 100.0% 85,528
Wolfchase Galleria June 2007 7.80% 77,811 100.0% 77,811
Century City Shopping Center July 2008 7.58% 160,000 100.0% 160,000
Hawthorn Center Nov. 2008 6.75% 77,864 100.0% 77,864
Penn Square Mall Mar. 2009 7.03% 74,165 100.0% 74,165
Citrus Park Town Center June 2009 6.89% 99,052 100.0% 99,052
Old Orchard Center Dec. 2009 6.98% 163,483 100.0% 163,483
-------------------------------------------------------------------------------------------------------------
1,130,339 1,130,339
Unconsolidated Entities: (6)
Coral Square Mall Dec. 2000 7.40% 53,300 50.0% 26,650
Water Tower Place Feb. 2001 (7) (7) 170,000 55.0% 93,500
Miami International Mall Dec. 2003 6.91% 45,623 40.0% 18,249
Management Company Feb. 2004 7.51% (8) 20,000 95.0% 19,000
San Francisco Shopping Centre July 2004 (9) 6.90% 65,781 50.0% 32,891
Houston Galleria Dec. 2005 7.93% 224,217 66.7% 149,486
Copley Place Aug. 2007 7.44% 189,475 33.3% 63,158
Woodland Hills Mall Jan. 2009 7.00% 88,812 50.0% 44,406
-------------------------------------------------------------------------------------------------------------
857,208 447,340
-------------------------------------------------------------------------------------------------------------
Company debt $1,577,679
-------------------------------------------------------------------------------------------------------------
Convertible preferred units
(convertible into 1,018,182
common units) $ 28,000
Convertible preferred stock
(convertible into 3,772,915
shares of common stock) $ 125,000
Perpetual preferred units $ 125,000
-------------------------------------------------------------------------------------------------------------
<PAGE>
100% Pro Rata
Balance of Share of
($000's omitted, Annual Mortgage Mortgage
except share and Maturity Interest Notes Ownership Notes
per share amounts) Date Rate Payable Interest Payable
----------------------- ---------- ---------- ---------- ---------- -----------
Market value of equity interests
as of June 30, 2000, based upon
27,205,322 common shares, unit
voting common shares and common
units at $33.67 per share/unit $ 916,055
-------------------------------------------------------------------------------------------------------------
Total market capitalization $2,771,734
-------------------------------------------------------------------------------------------------------------
Company debt to total market
capitalization 57%
-------------------------------------------------------------------------------------------------------------
<FN>
(1) This indebtedness represents outstanding borrowings under a loan, which have been used to fund the
construction of The Plaza at Citrus Park. On June 29, 2000, this loan was amended to extend its maturity to
December 29, 2000 and may be further extended for one additional six-month period. This loan currently bears
interest at LIBOR + 1.40% (8.22% at June 30, 2000).
(2) This line of credit bears interest at the Reference Rate - 1.5625% (7.93% at June 30, 2000).
(3) Subsequent to quarter-end June 30, 2000, the Company extended this loan maturity to September 29, 2001.
It may be further extended for one additional year. Of the $110,000, $80,000 bears interest at a fixed rate of
7.00% through an interest rate swap agreement and $30,000 bears interest at LIBOR + 1.30% (7.58% at June 30,
2000).
(4) This construction loan matures on December 21, 2001; however, it may be extended for three one-year
periods. This loan currently bears interest on a floating rate basis at LIBOR + 1.65% (8.28% at June 30, 2000).
(5) On March 15, 2000, this line of credit was amended to increase the committed amount to $180,000 and
extend the maturity to March 15, 2003. It may be extended one additional year. Of the $46,000, $10,000 bears
interest at a fixed rate of 6.84% through an interest rate swap agreement and $36,000 bears interest at LIBOR +
1.05% (7.71% at June 30, 2000).
(6) Excludes Valencia Town Center as the Company is a limited partner and is currently not entitled to any
cash distributions until the outside partner has received a return on and of its contributions to the partnership.
(7) On January 4, 2000, the Company extended this loan maturity to February 1, 2001. Of the total $170,000,
$160,000 bears interest at LIBOR + 1.00% (reduced from LIBOR + 1.125% on March 30, 2000) and $10,000 bears
interest at LIBOR + 1.375% (reduced from LIBOR + 1.500% on March 30, 2000) (7.08% and 7.29%, respectively, at
June 30, 2000).
(8) This loan bears interest on a floating rate basis at LIBOR + 1.20% (7.51% at June 30, 2000).
(9) On January 4, 2000, this indebtedness was increased to $65,781 and the maturity was extended to July 1,
2004. It may be further extended for one additional year.
</TABLE>
<PAGE>
REVIEW OF OPERATIONS
FUNDS FROM OPERATIONS. Funds from operations should not be considered
as an alternative to net income or any other GAAP measurement of
performance, as an indicator of operating performance or as an alternative
to cash flows from operating, investing or financing activities as a
measure of liquidity. The chart below shows the calculation of diluted
funds from operations:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Income before minority
interest and extra-
ordinary items. . . . . . . .$ 14,656 $ 10,047 $ 26,076 $ 18,749
Plus depreciation and
amortization. . . . . . . . . 13,443 11,617 26,845 22,009
Plus Company's share of
depreciation and amor-
tization from
unconsolidated
partnerships and the
Management Company. . . . . . 4,835 2,901 9,730 5,792
Plus incentive unit
dividends . . . . . . . . . . 144 139 289 278
Less perpetual preferred
unit distributions. . . . . . (2,920) (345) (5,841) (345)
-------- -------- -------- --------
Diluted funds from
operations. . . . . . . . . .$ 30,158 $ 24,359 $ 57,099 $ 46,483
======== ======== ======== ========
FUNDS AVAILABLE FOR DISTRIBUTION. The chart below shows the
calculation of diluted funds available for distribution:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Diluted funds from
operations. . . . . . . . . .$ 30,158 $ 24,359 $ 57,099 $ 46,483
Plus non-cash effect of
Oakbrook Center straight-
lined ground rent and
related interest. . . . . . . 853 862 1,700 1,716
Less adjustment to reflect
actual cash received from
the Management Company. . . . (744) (379) (1,793) (422)
Plus write-off of assets
(a) . . . . . . . . . . . . . 6 1,492 6 1,492
Less straight-line rent
adjustments (b) . . . . . . . (1,287) (597) (2,283) (1,169)
Less other gains (b) . . . . . -- -- (675) --
-------- -------- -------- --------
Diluted funds available
for distribution. . . . . . .$ 28,986 $ 25,737 $ 54,054 $ 48,100
======== ======== ======== ========
(a) Includes the Company's share of unconsolidated partnerships and
the Management Company.
(b) Includes the Company's share of unconsolidated partnerships.
<PAGE>
Weighted-average diluted shares and units outstanding, including
preferred units, preferred stock and outstanding stock options and
incentive units, were 32,400,754 and 32,071,673 for the three months ended
June 30, 2000 and 1999, respectively, and 32,296,964 and 32,036,620,
respectively, for the six months ended June 30, 2000 and 1999.
SALES. Aggregate sales volume at all the Company's regional malls for
those mall shops and anchors that report sales increased 4.7% to $878.7
million in the three months ended June 30, 2000 from $839.5 million in the
three months ended June 30, 1999. Mall tenant sales (excluding anchors and
movie theaters) increased 6.3% to $650.4 million in the three months ended
June 30, 2000 from $611.5 million in the same period for 1999. Comparable
reported mall tenant sales increased 4.0% in the six months ended June 30,
2000 compared to the same period for 1999. Sales per square foot for the
twelve months ended June 30, 2000 were $429 compared to $423 for the twelve
months ended March 31, 2000 and $405 for the twelve months ended June 30,
1999. All sales per square foot figures exclude Citrus Park Town Center,
which opened on March 3, 1999.
OCCUPANCY. The mall GLA was 90.5% occupied at June 30, 2000 compared
to 90.9% at March 31, 2000 and 90.9% at June 30, 1999. The mall GLA was
92.6% leased at June 30, 2000 compared to 93.1% at March 31, 2000 and 92.8%
at June 30, 1999.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1999
Shopping center revenues increased $22.3 million to $130.0 million in
the six months ended June 30, 2000 from $107.7 million in the six months
ended June 30, 1999. This increase was primarily a result of the Company's
acquisition of Century City Shopping Center on June 10, 1999 and due to
Citrus Park Town Center having been open for six months in 2000 as compared
to four months in 1999.
Shopping center expenses, including depreciation and amortization,
increased $11.8 million to $74.1 million in the six months ended June 30,
2000 from $62.3 million in the same period for 1999. This increase was
primarily a result of the Company's acquisition of Century City Shopping
Center on June 10, 1999 and due to Citrus Park Town Center having been open
for six months in 2000 as compared to four months in 1999.
Mortgage and other interest increased $7.9 million to $34.1 million in
the six months ended June 30, 2000 from $26.2 million in the same period
for 1999. This increase was primarily the result of (i) funding of the
permanent mortgage at Citrus Park Town Center, (ii) debt incurred in
connection with the acquisition of Century City Shopping Center on June 10,
1999 and (iii) the new mortgage obtained by the Company at Penn Square Mall
in February 1999.
Income from unconsolidated partnerships increased $1.6 million to $7.0
million in the six months ended June 30, 2000 from $5.4 million in the same
period for 1999. This increase was primarily attributable to (i) the gain
on sale of land at Coral Square Mall, (ii) an increase at San Francisco
Shopping Centre due to increased occupancy and minimum rents, and (iii) an
increase at Copley Place due to increased minimum rents and recoveries from
office tenants.
Income from the Management Company increased $1.9 million in the six
months ended June 30, 2000 as compared to the same period in 1999. This
increase was primarily due to an increase in management fees and lease
commissions as a result of new management contracts; partially offset by an
increase in salaries and related benefits.
Other gains of $.3 million for the six months ended June 30, 2000
represents the gain on sale of land at Wolfchase Galleria.
<PAGE>
The extraordinary items (net of taxes and minority interest) of $1.6
million in 1999 resulted from the prepayment penalty and the write-off of
unamortized upfront expenses related to the repayment of indebtedness at
the Management Company and the write-off of unamortized upfront expenses
related to the repayment of the construction loan at Citrus Park Town
Center.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1999
Shopping center revenues increased $8.2 million to $66.2 million in
the three months ended June 30, 2000 from $58.0 million in the three months
ended June 30, 1999. This increase was primarily a result of the Company's
acquisition of Century City Shopping Center on June 10, 1999.
Shopping center expenses, including depreciation and amortization,
increased $3.6 million to $36.7 million in the three months ended June 30,
2000 from $33.1 million in the same period for 1999. This increase was
primarily a result of the Company's acquisition of Century City Shopping
Center on June 10, 1999.
Mortgage and other interest increased $2.7 million to $17.0 million in
the three months ended June 30, 2000 from $14.3 million in the same period
for 1999. This increase was primarily the result of (i) funding on the
permanent mortgage at Citrus Park Town Center and (ii) debt incurred in
connection with the acquisition of Century City Shopping Center on June 10,
1999.
Income from unconsolidated partnerships increased $1.1 million to $4.0
million in the three months ended June 30, 2000 from $2.9 million in the
same period for 1999. This increase was attributable primarily to (i) an
increase at San Francisco Shopping Centre due to increased occupancy and
minimum rents and (ii) an increase at Copley Place due to increased minimum
rents and recoveries from office tenants.
Income from the Management Company increased $0.7 million in the three
months ended June 30, 2000 as compared to the same period in 1999. This
increase was primarily due to an increase in management fees and lease
commissions as a result of new management contracts; partially offset by an
increase in salaries and related benefits.
The extraordinary items (net of taxes and minority interest) of $.5
million in the second quarter 1999 resulted from the write-off of
unamortized upfront expenses related to the repayment of the construction
loan at Citrus Park Town Center.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("Statement 133"), was
issued by the FASB in June 1998. Statement of Financial Accounting
Standards No. 138, "Accounting for Derivative Instruments and Hedging
Activities - An Amendment of FASB Statement No. 133" ("Statement 138"), was
issued in June 2000. Statement 133, as amended, is now effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The
effective date of this statement for the Company is January 1, 2001.
Statement 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts.
Under the standard, entities will be required to carry all derivative
instruments in the balance sheet at fair value. The accounting for changes
in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, on the reason for holding it. The Company
<PAGE>
uses interest rate swap agreements and treasury locks as part of its
interest rate risk management strategy. These derivatives are used to
hedge cash flow exposure and under Statement 133 the effective portion of
the gain or loss on the derivative instrument will be reported initially as
a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the hedged transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness
as well as the ineffective portion of the gain or loss will be reported in
earnings immediately.
The Company does not anticipate early adoption of Statement 133, as
amended; however, it is estimated that adoption of Statement 133, as
amended, will result in the Company recording a derivative instrument asset
of $10.0 million and transition adjustment income of $10.0 million in other
comprehensive income at January 1, 2001.
The Company expects that the adoption of Statement 133 will increase
the volatility of reported earnings and other comprehensive income. In
general, the amount of volatility will vary with the level of derivative
activities during any period.
FORWARD LOOKING STATEMENTS
Certain statements set forth herein contain forward-looking
statements, including, without limitation, statements relating to the
timing and anticipated capital expenditures of the Company's development
programs and acquisitions. Although the Company believes that the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, the actual results may differ materially from that
set forth in the forward-looking statements. Certain factors that might
cause such differences include general economic conditions, local real
estate conditions, construction delays due to the unavailability of
construction materials, weather conditions or other delays beyond the
control of the Company. Consequently, such forward-looking statements
should be regarded solely as reflections of the Company's current operating
and development and acquisition plans and estimates. These plans and
estimates are subject to revision from time to time as additional
information becomes available, and actual results may differ from those
indicated in the referenced statements.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 11, 2000, at the Company's annual meeting of shareholders,
actions were taken on the election of directors and the ratification of
independent auditors. The results of these actions are presented below.
ELECTION OF DIRECTORS:
For Withheld
---------- ----------
Neil G. Bluhm 23,114,541 860,343
James B. Digney 23,151,116 823,768
Matthew S. Dominski 21,561,595 2,413,289
Susan Getzendanner 23,149,296 825,588
Judd D. Malkin 23,166,992 807,892
John E. Neal 23,148,221 826,663
Phillip B. Rooney 23,151,591 823,293
John G. Schreiber 23,170,541 804,343
Henry T. Segerstrom 23,146,870 828,014
Messrs. Bluhm, Malkin and Dominski have been directors since
inception. Messrs. Digney, Rooney, Segerstrom and Ms. Getzendanner have
held such positions since October 18, 1993. Messrs. Neal and Schreiber
have been directors since February 13, 1995.
<PAGE>
Each of the above directors will serve until the Company's next annual
meeting of shareholders and until their respective successors have been
elected and qualified, or until their resignation, death, termination or
removal.
RATIFICATION OF APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR
2000:
For Against Abstain
---------- ------- -------
23,708,714 20,453 245,717
No other matters were submitted to a vote of security holders during
the meeting or during the period covered by this report.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Stock Certificate is hereby incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
4.2 Mortgage, Security Agreement, Assignment of Leases and Rents
and Fixture Filing dated as of February 10, 1997 made by LaSalle National
Trust, N.A. and Water Tower Joint Venture to and with Lehman Brothers
Holdings Inc. is hereby incorporated by reference to Exhibit 4.8 to the
Registrant's Form 10-Q (File No. 1-12278) filed on May 13, 1997
4.3 Promissory Note A dated as of February 10, 1997 by and
between Water Tower Joint Venture and Lehman Brothers Holdings Inc. is
hereby incorporated by reference to Exhibit 4.9 to the Registrant's Form
10-Q (File No. 1-12278) filed on May 13, 1997
4.4 Promissory Note B dated as of February 10, 1997 by and
between Water Tower Joint Venture and Lehman Brothers Holdings Inc. is
hereby incorporated by reference to Exhibit 4.10 to the Registrant's Form
10-Q (File No. 1-12278) filed on May 13, 1997
4.5 Mortgage, Security Agreement and Assignment of Rents dated as
of November 3, 1997 made by LaSalle National Bank and Oak Brook Urban
Venture, L.P. to and with USC Oakbrook, Inc., Goldman Sachs Mitsui Marine
Derivative Products, L.P. and Teachers' Retirement System of the State of
Illinois is hereby incorporated by reference to Exhibit 4.6 to the
Registrant's Form 10-K (File no. 1-12278) filed on March 31, 1998
4.6 Fifth Amendment to Loan Agreement dated December 11, 1997 by
and among The Prudential Insurance Company of America, Old Orchard Urban
Limited Partnership and American National Bank and Trust Company of Chicago
is hereby incorporated by reference to Exhibit 4.7 to the Registrant's Form
10-K (File No. 1-12278) filed on March 31, 1998
4.7 Credit Agreement among Urban Shopping Centers, L.P., Banc One
Capital Markets, Inc., Dresdner Bank AG (New York and Grand Cayman
Branches) and the several Lenders is hereby incorporated by reference to
Exhibit 4.7 to the Registrant's Form 10-Q (File No. 1-12278) filed on May
12, 2000
10.1 Second Amended and Restated Agreement of Limited Partnership
of Urban Shopping Centers, L.P. is hereby incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
10.2 Corporate Services Agreement among the Registrant, Urban
Shopping Centers, L.P. and JMB Retail Properties Co. (now Urban Retail
Properties Co.) is hereby incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.3 JMB Realty Corporation Employee Savings Plan is hereby
incorporated by reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-11 (No. 33-64488)
<PAGE>
10.4 Retirement Plan for Employees of Amfac, Inc. and Subsidiaries
is hereby incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-11 (No. 33-64488)
10.5 Urban Shopping Centers 1993 Option Plan is hereby
incorporated by reference to Exhibit 10.6 to the Registrant's Form 10-Q
(File No. 1-12278) filed on November 19, 1993
10.6 Non-Competition Agreement between JMB Realty Corporation and
the Registrant is hereby incorporated by reference to Exhibit 10.7 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.7 Non-Competition Agreement between JMB Institutional Realty
Corporation and the Registrant is hereby incorporated by reference to
Exhibit 10.8 to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
10.8 Non-Competition Agreement between Neil G. Bluhm and the
Registrant is hereby incorporated by reference to Exhibit 10.9 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.9 Non-Competition Agreement between Judd D. Malkin and the
Registrant is hereby incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.10 Omnibus Agreement among Urban Shopping Centers, L.P., JMB
Properties Company, JMB Retail Properties Co. (now Urban Retail Properties
Co.) and the Registrant is hereby incorporated by reference to Exhibit
10.12 to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
10.11 Indemnification Agreement between the Registrant and its
Directors and Officers is hereby incorporated by reference to Exhibit 10.13
to the Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.12 Registration Rights and Lock-Up Agreement between the
Registrant and certain Investors is hereby incorporated by reference to
Exhibit 10.14 to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
10.13 Stockholders Agreement between Center Partners, Ltd., Urban
Investment & Development Co., Urban-Water Tower Associates, JMB/Miami
Investors, L.P., Island Holidays, Ltd., Celtic Funding Corporation and the
Registrant is hereby incorporated by reference to Exhibit 10.15 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.14 Lease Agreement, dated December 31, 1990, by and between
Teachers' Retirement System of the State of Illinois and LaSalle National
Trust, N.A., as Trustee for Oakbrook Urban Venture, as amended by the First
Amendment to Lease Agreement and to Restated and Amended Memorandum of
Lease is hereby incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-11 (No. 33-64488)
10.15 Second Amendment to Lease Agreement by and between Teachers'
Retirement System of the State of Illinois and LaSalle National Trust,
N.A., as Trustee for Oakbrook Urban Venture, L.P. is hereby incorporated by
reference to Exhibit 10.17 to the Registrant's Form 10-Q (File No. 1-12278)
filed on November 19, 1993
<PAGE>
10.16 Net Ground Rental Lease Agreement with respect to Penn Square
Mall, as amended by Amendment of Net Ground Rental Lease and as further
amended by Second Amendment of Net Ground Rental Lease is hereby
incorporated by reference to Exhibit 10.18 to the Registrant's Registration
Statement on Form S-11 (No. 33-64488)
10.17 Ground Lease by and between The Newhall Land and Farming
Company and Valencia Town Center Associates is hereby incorporated by
reference to Exhibit 10.19 to the Registrant's Registration Statement on
Form S-11 (No. 33-64488)
10.18 Restated Employment Agreement between Matthew S. Dominski and
the Registrant is hereby incorporated by reference to Exhibit 10.19 to the
Registrant's Form 10-K (File No. 1-12278) filed on March 25, 1994
10.19 Third Amendment to Lease Agreement by and between Teachers'
Retirement System of the State of Illinois and LaSalle National Trust,
N.A., as Trustee for Oakbrook Urban Venture, L.P. is hereby incorporated by
reference to Exhibit 10.20 to the Registrant's Form 10-K (File No. 1-12278)
filed on March 25, 1994
10.20 First Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban Shopping Centers, L.P. is hereby incorporated
by reference to Exhibit 10.21 to the Registrant's Form 10-Q (File No. 1-
12278) filed on August 9, 1995
10.21 First and Second Amendments to Urban Shopping Centers 1993
Option Plan are hereby incorporated by reference to Exhibit 10.22 to the
Registrant's Form 10-Q (File No. 1-12278) filed on August 9, 1995
10.22 Urban Shopping Centers 1996 Incentive Unit Program is hereby
incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K
filed on November 25, 1996
10.23 Second Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban Shopping Centers, L.P. is hereby incorporated
by reference to Exhibit 10.23 to the Registrant's Form 10-K (File No. 1-
12278) filed on March 31, 1997
10.24 Agreement for Purchase and Sale of Partnership Interest by
and between ZML-00 Associates Limited Partnership, Urban Shopping Centers,
L.P., USC Old Orchard, Inc., and H. Rigel Barber, Gary A. Nickele and
Jeffery A. Gluskin, as owner trustees of the Old Orchard Trust, is hereby
incorporated by reference to Exhibit 10.24 to the Registrant's Form 10-K
(File No. 1-12278) filed on March 31, 1997
10.25 Amended and Restated Agreement of Limited Partnership of Old
Orchard Urban Limited Partnership by and between USC Old Orchard, Inc. and
Urban Shopping Centers, L.P. is hereby incorporated by reference to Exhibit
10.25 to the Registrant's Form 10-K (File No. 1-12278) filed on March 31,
1997
10.26 Third Amendment to Urban Shopping Centers 1993 Option Plan is
hereby incorporated by reference to Exhibit 10.26 to the Registrant's Form
10-Q (File No. 1-12278) filed on May 13, 1997
<PAGE>
10.27 Hawthorn, L.P. Agreement of Purchase and Sale of Partnership
Interest dated November 14, 1997 is hereby incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K/A filed on December 22, 1997
10.28 Fox Valley Mall LLC Agreement of Purchase and Sale of
Membership Interest dated November 14, 1997 is hereby incorporated by
reference to Exhibit 10.2 to the Registrant's Form 8-K/A filed on December
22, 1997
10.29 Third Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban Shopping Centers, L.P. is hereby incorporated
by reference to Exhibit 10.7 to the Registrant's Form 8-K/A filed on
December 22, 1997
10.30 Urban Shopping Centers Deferred Cash Compensation Plan dated
August 1, 1998 is hereby incorporated by reference to Exhibit 10.30 to the
Registrant's Form 10-K (File No. 1-12278) filed on March 29, 1999
10.31 Fourth Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban Shopping Centers, L.P. is hereby incorporated
by reference to Exhibit 10.31 to the Registrant's Form 10-K (File No. 1-
12278) filed on March 29, 1999
10.32 Contribution Agreement dated June 10, 1999 among KPLP,
Century City Mall, LLC, a Delaware limited liability company, Urban LP, and
Chicago Deferred Exchange Corporation is hereby incorporated by reference
to Exhibit 10.1 to the Registrant's Form 8-K filed on June 16, 1999
10.33 Agreement of Purchase and Sale dated June 10, 1999 between
RREEF and USC Century, Inc. is hereby incorporated by reference to Exhibit
10.2 to the Registrant's Form 8-K filed on June 16, 1999
10.34 Registration Rights Agreement dated June 10, 1999 among KPLP,
Urban and Urban LP is hereby incorporated by reference to Exhibit 10.3 to
the Registrant's Form 8-K filed on June 16, 1999
10.35 Fifth Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban LP dated May 27, 1999 is hereby incorporated
by reference to Exhibit 10.4 to the Registrant's Form 8-K filed on June 16,
1999
10.36 Registration Rights Agreement dated May 27, 1999 between
Urban and the unit holder named therein is hereby incorporated by reference
to Exhibit 10.5 to the Registrant's Form 8-K filed on June 16, 1999
10.37 Sixth Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban LP dated October 1, 1999 is incorporated by
reference to Exhibit 10.37 to the Registrant's Form 10-Q (File No. 1-12278)
filed on November 12, 1999
10.38 Houston Galleria Amended and Restated Purchase and Sale
Agreement dated September 17, 1999 is hereby incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K (File No. 1-12278) filed on
November 30, 1999
27.1 Financial Data Schedule
<PAGE>
--------------------
Although certain additional long-term debt instruments of the
Registrant have been excluded from Exhibit 4 above, pursuant to Rule
601(b)(4)(iii), the Registrant commits to provide copies of such agreements
to the Securities and Exchange Commission upon request.
(b) No reports on Form 8-K were filed during the second quarter
of 2000.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes primarily as a result
of its indebtedness. The Company's interest rate risk management objective
is to limit the impact of interest rate changes on earnings and cash flows
and to lower its overall borrowing costs. To achieve its objective, the
Company may enter into derivative financial instruments such as interest
rate swaps, caps and treasury locks in order to mitigate its interest rate
risk on a related financial instrument. Because of the Company's
objectives discussed above, the Company limits its exposure to increases in
interest rates; however, the Company also does not benefit fully from
decreases in interest rates. Furthermore, as interest rates increase and
decrease, the implicit value of the derivative instrument rises and falls,
respectively. This rise and fall in the implicit value of an interest rate
swap agreement does not impact the fixed payment agreed to under the swap
agreement. The Company does not enter into derivative or interest rate
transactions for speculative purposes.
The Company manages its exposure to changes in floating interest rates
by limiting exposure to floating rate changes in any one year. The Company
manages liquidity risk by staggering the maturities of its indebtedness.
The Company increases its financial flexibility through the use of variable
rate debt and derivatives versus fixed rate debt. The Company manages its
exposure to counterparties by diversifying its exposure to counterparties
and entering into swap agreements and treasury locks only with certain
parties which have a specified credit rating.
The Company's interest rate risk is monitored using a variety of
techniques. Fixed rate debt matures and bears average interest rates as
follows: 2000 - $26.7 million at 7.40%; 2003 - $18.2 million at 6.91%; and
thereafter - $995.0 million at 7.24%. Variable rate debt matures and bears
average interest rates (based on the June 30, 2000 LIBOR rate) as follows:
2000 - $110.0 million at 7.85%; 2001 - $189.9 million at 7.78%; 2003 -
$78.9 million at 7.40%; and thereafter - $159.0 million at 6.86%.
The Company utilizes principally variable-to-fixed interest rate swaps
to mitigate its interest rate risk on the above variable rate debt.
Notional amounts of outstanding interest rate swaps have the following
maturities and provide for the following average fixed payment rates to
hedge the indicated underlying variable rates: 2000 - $20.0 million at
6.69% and 7.53%; 2002 - $50.0 million at 7.22% and 7.53%; 2003 - $10.0
million at 7.28% and 7.53%; and thereafter - $262.9 million at 6.52% and
7.16%.
The above average balances include the Company's share of
unconsolidated partnership's debt and swaps. The fair value of fixed and
variable rate debt at June 30, 2000 is estimated at $1.49 billion. The
fair value of interest rate swap agreements was $12.5 million at June 30,
2000.
As the above information incorporates only those exposures that exist
as of June 30, 2000, it does not consider those exposure or positions,
which could arise after that date. Moreover, because firm commitments are
not presented, the information represented therein has limited predictive
value. As a result, the Company's ultimate realized gain or loss with
respect to interest rate fluctuations will depend on the exposures that
arise during the period, the Company's hedging strategies at the time and
interest rates.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URBAN SHOPPING CENTERS, INC.
By: JAMES H. LYMAN
Executive Vice President, Chief
Financial Officer,
Director of Acquisitions and Chief
Accounting Officer
Date: August 11, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
JAMES H. LYMAN
Executive Vice President, Chief
Financial Officer,
Director of Acquisitions and Chief
Accounting Officer
Date: August 11, 2000
