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Securities Exchange Act of 1934 -- Form 8-K
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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 31, 1996
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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
October 31, 1996
10:00 a.m.
Good morning. Before starting with the numbers, I wanted to take
this opportunity to tell you about the exciting opening we enjoyed
last week in Spartanburg, South Carolina at our Westgate Mall. As
you will recall, we purchased the Westgate Mall in March 1995.
At the time of purchase, we had commitments from Dillard's and
J.B. White to become a part of the mall. We were able to implement
an extensive expansion and remodeling plan so that we could
complete this within twelve months after we commenced construction.
In 1994, the sales at Westgate were $274 per square foot. In 1995,
the comparable sales per square foot were $285 and we project that
1996 should come in around $300 per square foot. The amazing thing
is that these increases in 1995 and 1996 occurred while we were under
construction. Our management, development, leasing and marketing
team did an outstanding job in continuing the sales growth while
this project was under significant redevelopment and remodeling.
We will give you more details later in the call about this
property, but we wanted you to be aware of this exceptional
opportunity on which we were able to capitalize because of the
dedication and professional approach our team implemented on this
project. We continue to look for more opportunities like this
one. Now on to the numbers. Let me take a few minutes to discuss
results for the third quarter and first nine months of 1996.
REVENUE AND EXPENSE SOURCES
We would first like to discuss the reasons for our increased funds
from operations for the first nine months of 1996. Our FFO
increased by 23.7% due to:
1. The seven new shopping centers opened in the last twenty-one
months;
2. Improved operations from our existing centers and;
3. The two properties acquired on March 31, 1995.
Our expenses increased by 5.8% for the first nine months of 1996
over the prior year primarily as a result of an increase in
reimbursable expenses and depreciation associated with the addition
of the nine new development and acquisition properties opened
during the last twenty-one months offset by lower interest expense.
However, our cost recovery ratio increased to 98.1% from 95.5% in
1995.
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For the first nine months of 1996, our existing portfolio accounted
for 47% of our FFO growth over last year. The new properties
opened in the last twenty-one months accounted for 53% of the
growth. In the existing portfolio, the stabilized malls and
community centers showed the largest increases in FFO growth.
For the third quarter of 1996, our existing portfolio accounted for
55% of FFO growth and the new centers accounted for 45%. The
stabilized malls and associated centers provided the best increases
in FFO growth.
FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
Our total funds from operations for the first nine months on a
fully converted basis was $45.5 million, or $1.51 per share. We
calculated our FFO in accordance with NAREIT's recommendation
concerning finance costs and non-real estate depreciation.
However, we did not include outparcel sales or straightlined rents
in our calculation. Although NAREIT allows us to include these
items, we felt we should continue our conservative practice of
calculating FFO. Had we included outparcel sales and straightlined
rents, our FFO for the first nine months would have increased by
$.20 to $1.71 per share. The gains from the sale of the Lowe's in
Benton Harbor, Michigan and Adrian, Michigan, however, are not
included in any of our FFO or adjusted FFO calculations.
As you can see from our FFO calculation, we have made a line item
adjustment for deferred finance costs and non-real estate
depreciation. We have also made an adjustment for the depreciation
expense from equipment that is leased out to the properties. This
non-real estate depreciation is now treated as a property operating
expense and has been reclassified in prior-year periods. In the
third quarter, this amount was approximately $168,000 and in the
first nine months it was $517,000. For the calendar year 1996, we
expect that the impact from adopting NAREIT's recommendation
concerning deferred finance costs and non-real estate depreciation
will be $.03 per share.
DIVIDEND AND PAYOUT RATIO
The board of directors declared a quarterly dividend of $.42 per
share for the third quarter, which equates to an annualized
dividend of $1.68. Our payout ratio for the first nine months was
83.4% as compared to 84.6% for the first nine months of 1995.
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CAPITAL STRUCTURE
As of September 30, 1996, our total consolidated and unconsolidated
debt was $496.8 million, with a weighted average interest rate of
8.26%. This amount includes all properties under construction.
Our debt to total market capitalization ratio was 41.6% based upon
our stock price of $23 as of September 30, 1996. Our EBITDA to
interest ratio increased to 3.1 for the first nine months of 1996
compared to 2.4 for the first nine months of 1995. Had we excluded
gains on sales of real estate assets from EBITDA, the interest
coverage ratio would have increased to 2.7 in 1996 from 2.4 in
1995.
Our total fixed rate debt as of September 30, 1996 was $373.6
million, with a weighted average interest rate of 8.73%. Our total
variable rate debt as of September 30, 1996 was $123.2 million,
with a weighted average interest rate of 6.83%. Variable rate debt
related to our projects under construction accounted for $116.5
million of the total. The interest on this construction debt is
being capitalized to the projects. The remaining $6.7 million of
variable rate debt was associated with operating properties. With
$55.5 million of applied interest rate caps and swaps, we have
$66.5 million of variable rate debt exposure on our construction
properties and $1.2 million of exposure on our operating
properties.
CAPITAL EXPENDITURES
Revenue Generating capital expenditures, or tenant allowances for
improvements, for the nine months ending September 30, 1996 were
$2,350,000. For all of 1996, we expect to spend approximately
$4,000,000 in tenant improvements leaving us with an adequate
budget to spend on TI's for the fourth quarter.
Revenue Enhancing capital expenditures, or remodeling and
renovation costs, were $2,565,000 for the first nine months. For
the full year of 1996, we expect to spend approximately $4.5
million, as we complete the remodeling of Twin Peaks Mall,
Pemberton Square and Suburban Plaza.
Revenue Neutral capital expenditures, which are recovered from the
tenants, were $285,000 for the first nine months.
SALE OF ASSETS
During the third quarter, we closed on the sale of our free-standing
Lowe's Home Improvement Center in Adrian, Michigan which generated
a gain of $1.2 million. These proceeds were invested in our new mall
under construction in Meridian, Mississippi along with the proceeds
from the sale of our Lowe's in Benton Charter Township, Michigan
last quarter.<PAGE>
This transaction is consistent with our proactive
evaluation of the appreciation potential of each property in our
portfolio. We will continue with this assessment of our portfolio
to maximize the value for our shareholders.
DEVELOPMENTS/ACQUISITIONS - EXTERNAL GROWTH
During the third quarter, we opened 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. On October 23, we 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.
We opened with 82% of our small shops occupied and 87% leased and
committed. Yesterday, we opened the 26,000 square foot Barnes &
Noble on the periphery of Oak Hollow Mall in High Point, North
Carolina.
The projects scheduled to open in November of this year are:
Kingston Overlook, a 116,000 square foot center in Knoxville,
Tennessee; LaGrange Commons, a 60,000 square foot center in
LaGrange, New York; the remodeling of Twin Peaks Mall in Longmont,
Colorado and
Pemberton Square in Vicksburg, Mississippi; and the expansion of
the Cinemark theatre at Plaza del Sol in Del Rio, Texas.
The projects under construction and scheduled to open in 1997 are:
Salem Crossing, a 289,000 square foot center in Virginia Beach,
Virginia scheduled to open in April; a free-standing Hannaford
Bros. in Richmond, Virginia scheduled to open in February;
Springhurst Towne Center, an 808,000 square foot power center in
Louisville, Kentucky scheduled to open beginning in August; Bonita
Lakes Mall, a 696,000 square foot regional mall in Meridian,
Mississippi scheduled to open in October; Cortlandt Town Center,
a 766,000 square foot power center in Cortlandt, New York scheduled
to open beginning in September; a new Dillard's department store
and United Artists' 10-screen cinema scheduled to open at Twin
Peaks Mall in Longmont, Colorado in March; and the addition of
Dillard's to Frontier Mall in Cheyenne, Wyoming scheduled to open
in March.
By the end of 1996, we expect to start construction on a
freestanding Regal Cinemas in Virginia Beach, Virginia. During the
first half of 1997, we also expect to start construction on the 1.3
million square foot Arbor Place Mall in suburban Atlanta. Last
month we announced we had secured commitments from Dillard's,
Parisian, Sears, Upton's and Regal Cinemas to anchor this mall that
is scheduled for a fall of 1998 opening.
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We have become more active on the acquisition front. As we have
discussed previously, we expect to close later this year on the
power center in Cortlandt, New York on which we have already
started construction. We have been able to grade the site without
having to close on the property which has allowed us to save on
interest expense.
We are seeing several good opportunities in acquisitions today. We
view these opportunities as a complement to our development
program.
OCCUPANCY/LEASING - INTERNAL GROWTH
As mentioned in our earnings release, our overall portfolio
occupancy increased to 93.5% at September 30, 1996 as compared to
92.7% at September 30, 1995, with the new malls and associated
centers showing the best increases.
In addition to internal growth from occupancy gains, we have also
shown growth through our ability to release existing space at
higher rental rates as tenants' leases expire by renewing the lease
or re-leasing to a new tenant. During the third quarter, our
results from renewal leasing compared to the base and percentage
rent previously paid were as follows:
<TABLE>
<CAPTION>
Prior PSF New PSF New PSF % Change % Change
Rent Rent- Rent-Avg. Initial Initial
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<S> <C> <C> <C> <C> <C>
Malls $18.34 $20.72 $21.08 13.0% 14.9%
Associated
Centers 9.52 10.39 10.68 9.1% 12.2%
Community
Centers 6.15 6.29 6.35 2.2% 3.2%
</TABLE>
For the first nine months of this year, our spreads on an average
year basis are up 12.6% for malls, up 11.0% for associated centers,
and down 1.2% for community centers.
Another measure of the strength of our portfolio is a comparison of
new and renewal leasing rates and square footage to the amount of
fallout (tenants vacating) we had for the first nine months.
In the mall portfolio, we leased 245,000 square feet at an average
rate of $19.48 per square foot compared to 145,000 square feet of
fallout at an average rate of $13.35 per square foot.
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In the associated centers, we leased 38,000 square feet at an
average rate of $12.48 per square foot compared to 13,000 square
feet of fallout at an average rate of $10.41 per square foot.
In the community centers, we leased 268,000 square feet at an
average rate of $6.39 per square foot compared to 39,000 square
feet of fallout at an average rate of $7.76 per square foot.
Our spreads on renewal leasing in the malls have remained positive
and our leasing has stayed ahead of fallouts. However, the number
of fallouts has placed some pressure on our leasing efforts and has
prevented us from making occupancy gains in our stabilized malls
this quarter. We are continuing to re-emphasize our leasing efforts
in an attempt to overcome this.
SALES
Mall shop sales in our stabilized malls, for those tenants who have
reported, increased 0.7% on a comparable per square foot basis for
the first nine months of 1996 as compared to the first nine months
of 1995. Our mall shop sales declined .1% in the third quarter
following a decline of .2% in the second quarter. Sales were down
in July, up in August and down in September. For the first nine
months of 1995, we were up 4.6% on a comparable per square foot
basis over 1994. Given these strong results in 1995, we were still
able to show a slight increase in 1996. We have, however, seen
some decline in sales in particular categories in our malls, namely
footwear, software and electronics, and jewelry. ICSC has
forecasted good holiday sales for the fourth quarter. At this
point, we are cautious about sales for the balance of the year.
Occupancy costs as a percentage of sales at our stabilized malls
for the first nine months of 1996 declined to 13.3% compared to
13.6% for the first nine months of 1995. Occupancy costs as a
percentage of sales were 12.3% at December 31, 1995. Occupancy
costs are generally higher in the first three quarters of the
calendar year due to the seasonality of retail sales.
RETAIL OUTLOOK
We remain cautiously optimistic about the retail outlook for the
balance of this year and next. The software and electronics
sectors have come under pressure from big-box retailers and through
August were reported by ICSC to be down 7.3% from last year.
Neostar Retail Group, which is the largest mall-based electronic
games retailer, filed for bankruptcy protection in September.
Another large retailer which filed lately is County Seat. We have
not yet been approached by these tenants as to possible store
closings, but we expect that we will lose some.
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Economic indicators still appear to be positive with unemployment
down. The successful retailers continue selective expansions which
provides us with ongoing development opportunities as evidenced by
our 3.3 million square feet under construction today and our plans
for an additional 1.4 million square feet of new shopping centers
to be started during the first half of 1997.
I would like to note that a transcript of my comments will be filed
as a form 8K and available upon request. I would now be happy to
answer any questions you may have.
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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.
John N. Foy
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John N. Foy
Executive Vice President,
Chief Financial Officer and
Secretary
(Authorized Officer of the
Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: October 31, 1996
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