Securities Exchange Act of 1934 -- Form10-Q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended ___________to ____________
Commission File Number 1-12494
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CBL & Associates Properties, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 62-1545718
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Park Place, 6148 Lee Highway, Chattanooga, TN 37421
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code)(423) 855-0001
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Former name, former address and former fiscal year, if changed since
last report)___________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
The number of shares outstanding of each of the registrants classes of
common stock, as of August 1, 1996: Common Stock, par value $.01 per share,
20,896,195 shares.
CBL & ASSOCIATES PROPERTIES, INC.
INDEX
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PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS - AS OF
JUNE 30, 1996 AND DECEMBER 31, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS - FOR
THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
ITEM 2: CHANGES IN SECURITIES
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
ITEM 4: SUBMISSION OF MATTERS TO HAVE A VOTE OF
SECURITY HOLDERS
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
CBL & ASSOCIATES PROPERTIES, INC.
ITEM 1 - FINANCIAL INFORMATION
The accompanying financial statements are unaudited; however, they have been
prepared in accordance with generally accepted accounting principles for
interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting solely of normal recurring matters) necessary for
a fair presentation of the financial statements for these interim periods have
been included. The results for the interim period ended June 30, 1996 are
not necessarily indicative of the results to be obtained for the full fiscal
year.
These financial statements should be read in conjunction with the CBL &
Associates Properties, Inc. (the "REIT") December 31, 1995 audited financial
statements and notes thereto included in the CBL & Associates Properties, Inc.
Form 10-K for the year ended December 31, 1995.
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
----------- --------
<S> <C> <C>
Real estate assets:
Land ................................................................... $ 99,747 $ 98,305
Buildings and improvements.............................................. 728,801 722,178
-------- --------
828,548 820,483
Less: Accumulated depreciation........................................ (101,779) (89,818)
-------- --------
726,769 730,665
Developments in progress................................................ 75,369 28,273
-------- --------
Net investment in real estate assets.................................. 802,138 758,938
Cash and cash equivalents................................................. 4,685 3,029
Receivables:
Tenant.................................................................. 9,890 10,479
Other................................................................... 995 974
Notes receivable.......................................................... 42,792 34,262
Other assets.............................................................. 7,048 6,486
-------- --------
$867,548 $814,168
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and other notes payable.......................................... $437,275 $392,754
Accounts payable and accrued liabilities.................................. 22,184 28,035
-------- --------
Total liabilities....................................................... 459,459 420,789
-------- --------
Commitments and contingencies............................................. - -
Distributions and losses in excess of investment in
unconsolidated affiliates............................................... 9,175 8,795
-------- --------
Minority interest 117,899 113,692
-------- --------
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued - -
Common stock, $.01 par value, 95,000,000 shares authorized, 20,895,717 and
20,837,099 shares issued and outstanding in 1996 and 1995, respectively 209 208
Excess stock, $.01 par value, 100,000,000 shares authorized, none issued - -
Additional paid - in capital............................................ 292,292 291,182
Accumulated deficit..................................................... (11,265) (20,142)
Deferred compensation................................................... (221) (356)
-------- --------
Total shareholders' equity............................................ 281,015 270,892
-------- --------
$867,548 $814,168
======== ========
The accompanying notes are an integral part of these balance sheets.
</TABLE>
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Rentals:
Minimum......................................... $22,573 $20,265 $45,071 $39,269
Percentage...................................... 308 289 1,354 1,286
Other........................................... 206 161 439 308
Tenant reimbursements.............................. 11,197 9,221 21,320 17,943
Management and leasing fees........................ 651 582 1,259 1,172
Development fees................................... 7 - 7 249
Interest and other................................. 1,027 985 1,899 1,994
------- ------- ------- -------
Total revenues................................... 35,969 31,503 71,349 62,221
------- ------- ------- -------
EXPENSES:
Property operating................................. 6,285 4,836 11,703 9,734
Depreciation and amortization...................... 6,202 5,576 12,351 10,901
Real estate taxes.................................. 2,842 2,458 5,502 4,788
Maintenance and repairs............................ 2,203 2,022 4,459 3,932
General and administrative......................... 2,150 1,829 4,339 4,214
Interest........................................... 7,604 8,180 15,495 15,578
Other.............................................. 69 461 265 461
------- ------- ------- -------
Total expenses................................... 27,355 25,362 54,114 49,608
------- ------- ------- -------
INCOME FROM OPERATIONS.............................. 8,614 6,141 17,235 12,613
GAIN ON SALES OF REAL ESTATE ASSETS................. 6,864 1,432 7,479 1,584
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATES................................... 440 218 1,110 745
MINORITY INTEREST IN EARNINGS:
Operating partnership............................. (4,908) (2,795) (7,927) (5,330)
Shopping center properties........................ (113) (31) (263) (147)
------- ------- ------- -------
NET INCOME.......................................... $10,897 $ 4,965 $17,634 $ 9,465
======= ======= ======= =======
EARNINGS PER COMMON SHARE DATA:
NET INCOME.......................................... $ 0.52 $ 0.30 $ 0.85 $ 0.57
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING................. 20,847 16,645 20,853 16,644
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES......................................... $ 17,634 $ 9,465
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in earnings.............................................. 8,190 5,477
Depreciation............................................................... 11,397 10,671
Amortization............................................................... 1,401 491
Gain of sales of real estate assets........................................ (7,479) (1,584)
Issuance of stock under incentive plan..................................... 197 237
Amortization of deferred compensation...................................... 143 60
Write-off of development projects.......................................... 265 438
Distributions to minority investors........................................ (7,709) (7,386)
Changes in assets and liabilities -
Tenant and other receivables............................................... 569 (60)
Other assets............................................................... (1,701) (1,561)
Security deposits and prepaid rents........................................ 53 (82)
Accrued interest payable................................................... 98 (355)
Accounts payable and accrued expenses...................................... 13,928 (9,230)
-------- --------
Net cash provided by operating activities............................ 36,986 6,581
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of real estate and land acquisition, net of payables........... (67,210) (34,625)
Acquisition of real estate assets........................................... -- (22,105)
Capitalized interest........................................................ (2,286) (3,118)
Revenue enhancing capital expenditures...................................... (1,468) (3,576)
Other capital expenditures.................................................. (116) (700)
Proceeds from sales of real estate assets................................... 15,366 2,775
Additions to notes receivable............................................... (8,699) (1,226)
Payments received on notes receivable....................................... 167 216
Distributions from unconsolidated affiliates................................ 1,270 1,491
Advances and investments in unconsolidated affiliates....................... (890) (511)
-------- --------
Net cash used in investing activities................................ (63,866) (61,379)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and notes payable.................................... 105,579 72,104
Principal payments on mortgage and notes payable............................ (61,058) (2,881)
Additionas to deferred finance costs....................................... (573) (210)
Refunds of finance costs.................................................... 722 --
Dividends paid.............................................................. (17,039) (12,855)
Proceeds from exercise of stock options...................................... 826 --
Proceeds from dividend reinvestment......................................... 79 --
-------- --------
Net cash provided by financing activities............................ 28,536 56,158
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................................... 1,656 1,360
-------- --------
CASH AND CASH EQUIVALENTS, beginning of period............................... 3,029 2,053
-------- --------
CASH AND CASH EQUIVALENTS, end of period..................................... $4,685 $3,413
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
CBL & ASSOCIATES PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNCONSOLIDATED AFFILIATES
At June 30, 1996, the REIT had investments in three partnerships and joint
ventures all of which are reflected using the equity method of accounting.
The REIT's investment in Brownwood Associates was transferred to the lender
in April 1995. The effect on the financial statements was not material.
Condensed combined results of operations for the unconsolidated affiliates
are presented as follows (dollars in thousands):
<TABLE>
<CAPTION>
REIT'S SHARE
TOTAL FOR THE FOR THE
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $10,901 $10,732 $ 5,351 $ 5,267
--------- --------- --------- ---------
Depreciation and amortization 1,280 1,309 626 640
Interest expense 4,171 4,310 2,045 2,114
Other operating expenses 3,176 3,585 1,570 1,768
--------- --------- --------- ---------
Net income $ 2,274 $ 1,528 $ 1,110 $ 745
========= ========= ========= =========
</TABLE>
NOTE 2 - CONTINGENCIES
The REIT is currently involved in certain litigation arising in the ordinary
course of business. In the opinion of management, the pending litigation will
not materially affect the financial statements of the REIT. Additionally,
based on environmental studies completed to date on the real estate
properties, management believes any exposure related to environmental cleanup
will be immaterial to the financial position and results of operations of the
REIT.
NOTE 3 - CREDIT AGREEMENTS
In March 1996, the REIT added $17 million and one additional bank to its
credit facility led by First Tennessee Bank N. A. bringing the total to $42.0
million. In April 1996, the REIT reduced the pricing on the $10 million credit
facility led by SunTrust N.A. from 165 basis points to 125 basis points over
LIBOR. In May 1996, the REIT's major line bank, Wells Fargo, reduced the
pricing on its $85 million facility from 175 basis points to 150 basis
points over LIBOR. The REIT's total revolving lines of credit were
$137 million at June 30, 1996.
In April 1995, the REIT executed a three-year interest rate swap agreement on
a notional principal amount of $5.6 million with First Union National Bank of
Tennessee. The effective date was March 16, 1995. The interest rate is fixed
at 8.5%. There was no fee for this transaction. Effective June 6, 1995, the
REIT executed a three-year interest rate swap agreement on a notional
principal amount of $50 million with NationsBank N.A. The base interest rate
is fixed at 5.52%. This agreement effectively fixes $50 million of the REIT's
variable rate debt at a rate no greater than 7.27%. There was no fee for this
transaction. These transactions had no significant impact on interest expense
for the six months ended June 30, 1996.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 Financial Statements to
conform with the 1996 presentation.
CBL & ASSOCIATES PROPERTIES, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with CBL & Associates Properties,
Inc. Consolidated Financial Statements and Notes thereto.
GENERAL BACKGROUND
CBL & Associates Properties, Inc.(the "REIT") Consolidated Financial
Statements and Notes thereto reflect the consolidated financial results of
CBL & Associates Limited Partnership (the" Operating Partnership") which
includes at June 30, 1996, the operations of a portfolio of properties
consisting of thirteen regional malls, eight associated centers, seventy-
three community centers, an office building, joint venture investments in
three regional malls, and income from seven mortgages, including the mortgage
on Foothills Mall ("the Properties"). The Operating Partnership also has nine
community centers, one associated center, one mall, and one mall expansion
currently under construction and options to acquire certain shopping center
development sites. The consolidated financial statements also include the
accounts of CBL & Associates Management, Inc. (the "Management Company").
The REIT classifies its regional malls into two categories - malls which have
completed their initial lease-up ("Stabilized Malls") and malls which are in
their initial lease-up phase ("New Malls"). The New Mall category is
presently comprised of Westgate Mall in Spartanburg, South Carolina, since it
is being redeveloped and expanded, Turtle Creek Mall in Hattiesburg,
Mississippi, and Oak Hollow Mall in High Point, North Carolina.
In September 1995, the REIT completed a follow-on offering of 4,163,500
shares at $20.625, including 150,000 shares purchased by management. The net
proceeds of $80.7 million were used to repay floating rate indebtedness under
the REIT's revolving lines of credit.
RESULTS OF OPERATIONS
Operational highlights for the six months ended June 30, 1996 as compared
to June 30, 1995 are as follows:
SALES
- -----
Mall shop sales, for those tenants who have reported, in the thirteen
Stabilized Malls in the REIT's portfolio increased by 1.7% on a comparable
per square foot basis.
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Sales per square foot $99.55 $97.89
</TABLE>
Total sales volume in the mall portfolio, including New Malls,
increased 11.9% to $271.0 million for the six months ended
June 30, 1996 from $242.2 million for the six months ended
June 30, 1995.
Occupancy costs as a percentage of sales for the six months ended
June 30, 1996 and 1995 for the Stabilized Malls were 13.9% for
both periods. Occupancy costs were 12.3%, 12.2% and 12.1% for
the years ended December 31, 1995, 1994, and 1993, respectively.
Occupancy costs as a percentage of sales are generally higher in
the first three quarters of the year as compared to the fourth
quarter due to the seasonality of retail sales.
OCCUPANCY
- ----------
Occupancy increased for the REIT's overall portfolio as follows:
<TABLE>
<CAPTION>
At June 30,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Stabilized malls 87.9% 87.9%
New malls 85.3 83.0
Associated centers 99.0 98.7
Community centers 96.9 95.8
----------- ----------
Total Portfolio 93.0% 92.3%
=========== ==========
</TABLE>
AVERAGE BASE RENT
- -----------------
Average base rents for the REIT's three portfolio categories were as follows:
<TABLE>
<CAPTION>
At June 30,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Malls $18.21 $17.39
Associated centers 8.32 8.27
Community centers 6.74 6.66
</TABLE>
LEASE ROLLOVERS
- ---------------
On spaces previously occupied, the REIT achieved the following results from
rollover leasing for the six months ended June 30, 1996 over and above the
base and percentage rent being paid by the previous tenant:
<TABLE>
<CAPTION>
Per Square Per Square Percentage
Foot Rent Foot Rent Increase
Prior Lease(1) New Lease(2) (Decrease)
-------------- ------------ ----------
<S> <C> <C> <C>
Malls $14.50 $17.56 21.1%
Associated centers 12.21 13.28 8.8
Community centers 7.10 6.61 (6.9)
(1) - Rental achieved for spaces previously occupied at the
end of the lease including percentage rent.
(2) - Average base rent over the term of the lease.
</TABLE>
In our community centers the renewal leasing was down in the first six months
of 1996 because a total of 16,000 square feet of space at two centers was
leased to a retailer at below market rents. If these two leases were
excluded, community centers rollover lease revenues per square foot would have
increased 2.5%
For the six months ended June 30, 1996 malls represented 72.3% of total
revenues from the properties; revenues from associated centers represented
3.3%; revenues from community centers represented 22.1%; and revenues from
mortgages and the office building represented 2.3%. Accordingly, revenues
and results of operations are disproportionately impacted by the malls'
achievements.
The shopping center business is somewhat seasonal in nature with tenant sales
achieving the highest levels during the fourth quarter because of the holiday
season. The malls earn most of their "temporary" rents (rents from short-term
tenants) during the holiday period. Thus, occupancy levels and revenue
production are generally the highest in the fourth quarter of each year.
Results of operations realized in any one quarter may not be indicative of the
results likely to be experienced over the course of the entire year.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996
TO THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1995
Total revenues for the three months ended June 30, 1996 increased by $4.5
million, or 14.2%, to $36.0 million as compared to $31.5 million in 1995.
Of this increase, minimum rents increased by $2.3 million, or 11.4% to $22.6
million as compared to $20.3 million in 1995, and tenant reimbursements
increased by $2.0 million, or 21.4%, to $11.2 million in 1996 as compared to
$9.2 million in 1995.
Approximately $2.7 million of the increase in revenues resulted from
operations at the four new centers opened or acquired during the past twelve
months. These centers consist of: (I) Oak Hollow Mall in High Point, North
Carolina, which opened in August 1995. (II) Hannaford Bros in Richmond,
Virginia, which opened in December 1995; (III) Capital Crossing in
Raleigh, North Carolina, which opened partially in December 1995 and the
remainder in March 1996; and (IV) Lowe's Plaza in Adrian, Michigan which
opened in June 1996. Improved occupancies and operations and increased
rents in the REIT's operating portfolio generated approximately $1.7 million
of increased revenues. The majority of these increases were generated at
Hamilton Place in Chattanooga, Tennessee, CoolSprings Galleria in Nashville,
Tennessee, and Turtle Creek Mall in Hattiesburg, Mississippi.
Management, leasing and development fees increased by $0.1 million to $0.7
million in the second quarter of 1996 as compared to $0.6 million in the
second quarter of 1995. This increase was primarily due to new management
fee income earned in the second quarter of 1996.
Property operating expense, including real estate taxes and maintenance and
repairs, increased in the second quarter of 1996 by $2.0 million or 21.6% to
$11.3 million as compared to $9.3 million in the second quarter of 1995. This
increase is primarily the result of the addition of the four new centers
referred to above.
Depreciation and amortization increased in the second quarter of 1996 by $0.6
million or 11.2% to $6.2 million as compared to $5.6 million in the second
quarter of 1995. This increase is primarily the result of the addition of
the four new centers referred to above.
Interest expense decreased in the second quarter of 1996 by $0.6 million, or
7.0% to $7.6 million as compared to $8.2 million in the second quarter of 1995.
This decrease is primarily due to a reduction in borrowings on the corporate
lines of credit, increased capitalized interest on projects under development
funded by the REIT, offset by interest on the four new centers opened during
the last twelve months.
Other expense decreased in the second quarter of 1996 by $0.4 million, or
85.0% to $0.1 million as compared to $0.5 million in 1995. This decrease is
due to less pre-development costs being written off during this period.
The gain on sales of real estate assets increased in the second quarter of
1996 by $5.4 million, or 379.3% to $6.9 million as compared to $1.4 million
in 1995. The sales in the second quarter were the sale of a free-standing
Lowe's Home Improvement Center in Benton Harbor, Michigan, and the sale of
land at projects under development in Fort Smith, Arkansas, Louisville,
Kentucky, Virginia Beach, Virginia, and Chattanooga, Tennessee. The sales
of real estate assets in 1995 were outparcel sales at Oak Hollow Mall in
High Point, North Carolina.
Equity in earnings of unconsolidated affiliates increased in the second
quarter of 1996 by $0.2 million, or 101.8% to $0.4 million as compared to
$0.2 million in 1995. This increase is primarily the result of improved
occupancies and results of operations at Madison Square Mall in Huntsville,
Alabama, and Governor's Square Mall in Clarksville, Tennessee.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
TO THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995
Total revenues for the six months ended June 30, 1996 increased by $9.1
million, or 14.7%, to $71.3 million as compared to $62.2 million in 1995.
Of this increase, minimum rents increased by $5.8 million, or 14.8% to $45.1
million as compared to $39.3 million in 1995, and tenant reimbursements
increased by $3.4 million, or 18.8%, to $21.3 million in 1996 as compared to
$17.9 million in 1995.
Approximately $7.0 million of the increase in revenues resulted from
operations at the seven new centers opened or acquired during the past
eighteen months. These centers consist of: (I) Henderson Square in
Henderson, North Carolina, which opened in March 1995; (II) Westgate Mall
in Spartanburg, South Carolina, which was acquired in March 1995;
(III) Suburban Plaza in Knoxville, Tennessee, which was acquired in
March 1995; (IV) Oak Hollow Mall in High Point, North Carolina, which
opened in August 1995; (V) Hannaford Bros. in Richmond, Virginia, which open-
ed in December 1995; (VI) Capital Crossing in Raleigh, North Carolina, which
opened partially in December 1995 and the remainder in March 1996; and
(VII) Lowe's Plaza in Adrian, Michigan, which opened in June 1996. Improved
occupancies and operations and increased rents in the REIT's operating
portfolio generated approximately $2.3 million of increased revenues.
The majority of these increases were generated at Hamilton Place in
Chattanooga, Tennessee, CoolSprings Galleria in Nashville, Tennessee and
Turtle Creek Mall in Hattiesburg, Mississippi.
Management, leasing and development fees decreased by $0.1 million to $1.3
million in the first six months of 1996 as compared to $1.4 million in 1995.
This decrease was primarily due to less development fees earned in
1996 offset by new management fee income. Interest and other income
decreased by $0.1 million in 1996 to $1.9 million as compared to $2.0
million in 1995. This decrease was primarily due to less other miscellaneous
income.
Property operating expense, including real estate taxes and maintenance and
repairs, increased in the first six months of 1996 by $3.2 million or 17.4%
to $21.7 million as compared to $18.5 million in 1995. This increase is
primarily the result of the addition of the seven new centers referred to
above.
Depreciation and amortization increased in the first six months of 1996 by
$1.5 million or 13.3% to $12.4 million as compared to $10.9 million in 1995.
This increase is primarily the result of the addition of the seven new
centers referred to above.
Interest expense decreased in the first six months of 1996 by $0.1 million, or
0.5% to $15.5 million as compared to $15.6 million in 1995. This decrease is
primarily due to a reduction in borrowings on the corporate lines of credit,
increased capitalized interest on projects under development funded by the
REIT, offset by interest on the seven new centers opened during the last
eighteen months.
The gain on sale of real estate assets increased for the six months ended
June 30, 1996 by $5.9 million, or 372.2% to $7.5 million as compared
to $1.6 million in 1995. The sales in 1996 were the sale of a
free-standing Lowe's Home Improvement Center in Benton Harbor, Michigan,
the sale of property owned in Virginia Beach, Virginia, outparcel land at
Oak Hollow Mall in High Point, North Carolina, and the sale of land at
projects under development in Fort Smith, Arkansas, Louisville, Kentucky,
Virginia Beach, Virginia, and Chattanooga, Tennessee. The sales of real
estate assets in 1995 were outparcel sales at Oak Hollow Mall in High Point,
North Carolina, and Frontier Mall in Cheyenne, Wyoming.
Equity in earnings of unconsolidated affiliates increased in the first six
months of 1996 by $0.4 million, or 49.0% to $1.1 million as compared to $0.7
million in 1995. This increase is due primarily to improved occupancies and
result of operations at Madison Square Mall in Huntsville, Alabama, and
Governor's Square Mall in Clarksville, Tennessee.
LIQUIDITY AND CAPITAL RESOURCES
The principal uses of the REIT's liquidity and capital resources have
historically been for property development, expansion and renovation programs,
and debt repayment. To maintain its qualification as a real estate investment
trust under the Internal Revenue Code, the REIT is required to distribute to
its shareholders at least 95% of its "Real Estate Investment Trust Taxable
Income" as defined in the Internal Revenue Code of 1986, as amended (the
"Code").
As of August 1, 1996, the REIT had $20.1 million available in unfunded
construction loans to be used for completion of the construction projects and
replenishment of working capital previously used for construction.
Additionally, as of August 1, 1996, the REIT had obtained revolving credit
lines totaling $137 million of which $84.0 million was available. Also, as
a publicly traded company, the REIT has access to capital through both the
public equity and debt markets. The REIT has filed a Shelf Registration
authorizing shares of the company's preferred stock and common stock and
warrants to purchase shares of the REIT's common stock with an aggregate
public offering price of up to $200 million, with $114.1 million remaining
after the REIT's follow-on offering of common stock on September 25, 1995.
The REIT anticipates that the combination of these sources will, for the
foreseeable future, provide adequate liquidity to enable it to continue its
capital programs substantially as in the past and make distributions to its
shareholders in accordance with the Code's requirements applicable to real
estate investment trusts.
Management expects to refinance the majority of the mortgage notes payable
maturing over the next five years with replacement loans.
The REIT's policy is to maintain a conservative debt to total market
capitalization ratio in order to enhance its access to the broadest range of
capital markets, both public and private. The REIT's current capital
structure includes property specific mortgages, which are generally non-
recourse, revolving lines of credit, common stock and a minority interest in
the Operating Partnership. The minority interest in the Operating Partnership
represents the 31.0% ownership in the Operating Partnership held by the REIT's
executive and senior officers which may be exchanged for approximately 9.4
million shares of common stock. Additionally, REIT executive officers and
directors own approximately 1.5 million shares of the outstanding common stock
of the REIT, for a combined total interest in the Operating Partnership of
approximately 36%. Assuming the exchange of all limited partnership interests
in the Operating Partnership for common stock, there would be outstanding
approximately 30.2 million shares of common stock with a market value of
approximately $676.6 million at June 30, 1996 (based on the closing price of
$22.375 per share on June 30, 1996). REIT executive and senior officers'
ownership interests had a market value of approximately $243.9 million at
June 30, 1996.
Mortgage debt consists of debt on certain consolidated properties as well as
on three properties in which the REIT owns a non-controlling interest and is
accounted for under the equity method of accounting. At June 30, 1996, the
REIT's share of funded mortgage debt on its consolidated properties adjusted
for minority investors' interests in seven properties was $415.9 million and
its pro rata share of mortgage debt on unconsolidated properties (accounted
for under the equity method) was $43.0 million for total debt obligations of
$458.9 million with a weighted average interest rate of 8.5%. Variable rate
debt accounted for $78.7 million with a weighted average interest rate of
7.0%. Variable rate debt accounted for approximately 17.2% of the REIT's
total debt and 6.9% of its total capitalization. Of this variable rate debt,
$72.0 million is related to construction projects. Periodically, the REIT
enters into interest rate cap and swap agreements to reduce interest rate
risks on variable rate debt. The REIT has entered into interest rate swap
agreements for $55.2 million of variable rate debt at an average interest
rate of 7.4% through the second quarter of 1998. Therefore, the REIT's
exposure to interest rate fluctuations as of June 30, 1996 is $22.0 million
on construction properties and $1.5 million on operating properties.
In April 1995, the REIT executed a three-year interest rate swap agreement on
$5.5 million of debt with First Union National Bank. The effective date was
March 16, 1995. This swap agreement effectively fixes the interest rate on
the $5.5 million of debt at 8.5%. In June 1995 the REIT executed a $50.0
million interest rate swap with NationsBank N.A., for a three-year period at
a rate of 5.52%. This agreement effectively fixes $50.0 million of the REIT's
variable rate debt at a rate no greater than 7.27%. There were no fees
charged to the REIT related to these transactions.
In March 1996, the REIT added $17.0 million and on additional bank to its
credit facility led by First Tennessee Bank N. A. bringing the total to $42.0
million. In May 1996, the REIT reduced the pricing on the $10 million credit
facility led by SunTrust N.A. from 165 basis points to 125 basis points over
LIBOR. In May 1996, the REIT's major line bank, Wells Fargo, reduced the
pricing on its $85 million facility from 175 basis points to 150 basis points
over LIBOR.
During March 1996, the REIT closed on three permanent loans; (I) a twelve-year
loan on Oak Hollow Mall in High Point, North Carolina, owned 75% by the REIT,
in the amount of $54 million at an interest rate of 7.31%; (II) a ten-year
loan on Turtle Creek Mall in Hattiesburg, Mississippi, in the amount of $35
million at an interest rate of 7.4%; and (III) an eighteen-year loan on
Henderson Square in Henderson, North Carolina, in the amount of $7.4 million
at an interest rate of 7.5%. The proceeds from these loans were used to
repay variable rate debt.
Based on the debt (including construction projects) and the market value of
equity described above, the REIT's debt to total market capitalization (debt
plus market value equity) ratio was 40.4% at June 30, 1996.
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
During the first six months of 1996, the REIT added a 20,000 square foot
Staples to Capital Crossing in Raleigh, North Carolina, a 23,000 square foot
Regal Cinema at Oak Hollow Mall in High Point, North Carolina, and opened the
101,000 square foot Lowe's Home Improvement Center in Adrian, Michigan.
Subsequent to the end of the quarter, the REIT opened a 15,000 square foot
free-standing Just for Feet at Hamilton Place Mall in Chattanooga, Tennessee.
The REIT currently has approximately 3.8 million square feet of new
development under construction consisting of: (I) Chester Square in Richmond,
Virginia - approximately 65,000 square feet scheduled to open in September
1996; (II) Devonshire Place in Cary, North Carolina - approximately 108,000
square feet scheduled to open in September 1996; (III) Westgate Mall Phase II
- - approximately 411,000 square feet scheduled to open in October 1996; (IV)
LaGrange Commons in LaGrange, New York - approximately 60,000 square feet
scheduled to open in November 1996; (V) Kingston Overlook in Knoxville,
Tennessee - approximately 116,000 square feet scheduled to open in November
1996; (VI) The Terrace in Chattanooga, Tennessee - approximately 158,000
square feet scheduled to open in March 1997; (VII) Massard Crossing in Fort
Smith, Arkansas - approximately 291,000 square feet scheduled to open in
1997; (VIII) Salem Crossing in Virginia Beach, Virginia - approximately
289,000 square feet scheduled to open in Spring 1997; (IX) Hannaford Bros. in
Richmond, Virginia - approximately 63,000 square feet scheduled to open in
Spring 1997; (X) Springhurst Towne Center in Louisville, Kentucky -
approximately 808,000 square feet scheduled to open partially in Fall 1997
and Spring 1998; (XI) Courtlandt Town Center in Courtlandt, New York
- - approximately 766,000 square feet scheduled to open in Fall 1997; and
(XII) Bonita Lakes Mall in Meridian, Mississippi - approximately
696,000 square feet scheduled to open in Fall 1997.
The REIT has also started construction on the addition of a new Dillard's
department store and United Artists' 10-screen cinema to Twin Peaks Mall in
Longmont, Colorado, the addition of Dillard's to Frontier Mall in
Cheyenne, Wyoming, a Barnes and Noble adjacent to Oak Hollow Mall in
High Point, North Carlonia, and a Cinemark Theater expansion from three to
seven screen at Plaza Del Sol Mall in Del Rio, Texas.
The REIT has entered into a number of option agreements for the development of
future regional malls and community centers. Except for these projects and as
further described below, the REIT currently has no other capital commitments.
It is management's expectation that the REIT will continue to have access to
the capital resources necessary to expand and develop its business. Future
development and acquisition activities will be undertaken by the REIT as
suitable opportunities arise. Such activities are not expected to be
undertaken unless adequate sources of financing are available and a
satisfactory budget with targeted returns on investment has been internally
approved.
The REIT will fund its major development, expansion and acquisition activity
with its traditional sources of construction and permanent debt financing as
well as from other debt and equity financings, including public financings,
and its credit facilities in a manner consistent with its intention to
operate with a conservative debt to total market capitalization ratio.
OTHER CAPITAL EXPENDITURES
Management prepares an annual capital expenditure budget for each property
which is intended to provide for all necessary recurring capital improvements.
Management believes that its annual operating reserve for maintenance and
recurring capital improvements and reimbursements from tenants will provide
the necessary funding for such requirements. The REIT intends to distribute
approximately 80% - 90% of its funds from operations with the remaining
10% - 20% to be held as a reserve for capital expenditures and continued
growth opportunities. The REIT believes that this reserve will be sufficient
to cover (I) tenant finish costs associated with the renewal or replacement of
current tenant leases as their leases expire and (II) capital expenditures
which will not be reimbursed by tenants.
Major tenant finish costs for currently vacant space are expected to be funded
with working capital, operating reserves, or the revolving lines of credit.
For the six months ended June 30, 1996, revenue generating capital
expenditures or tenant allowances for improvements were $1.7 million.
These capital expenditures generate increased rents from these tenants over
the term of their leases. Revenue enhancing capital expenditures, or
remodeling and renovation costs, were $0.2 million for the six months ended
June 30, 1996. Revenue neutral capital expenditures, which are recovered
from the tenants, were $0.1 million for the first six months of 1996.
The REIT believes that the Properties are in compliance in all material
respects with all federal, state and local ordinances and regulations
regarding the handling, discharge and emission of hazardous or toxic
substances. The REIT has not been notified by any governmental authority, or
is not otherwise aware, of any material noncompliance, liability or claim
relating to hazardous or toxic substances in connection with any of its
present or former properties.
The REIT has not recorded in its financial statements any material liability
in connection with environmental matters.
FUNDS FROM OPERATIONS
Management believes that Funds from Operations ("FFO") provides an additional
indicator of the financial performance of the Properties. FFO is defined by
the REIT as net income (loss) before depreciation of real estate assets, other
non-cash items (consisting of the effect of straight-lining of rents and
the write-off of development projects not being pursued), gains or losses on
sales of real estate and gains or losses on investments in marketable
securities. FFO also includes the REIT's share of FFO in unconsolidated
properties and excludes minority interests' share of FFO in consolidated
properties. The REIT computes FFO in accordance with The National Association
of Real Estate Investments Trusts ("NAREIT") recommendation concerning
finance costs and non-real estate depreciation. However, the REIT does not
include gain or losses on outparcel sales or the effect of straight-lined
rents in its calculation, even though NAREIT permits their inclusion when
calculating FFO.
The use of FFO as an indicator of financial performance is influenced not only
by the operations of the Properties, but also by the capital structure of the
Operating Partnership and the REIT. Accordingly, management expects that FFO
will be one of the significant factors considered by the Board of Directors
in determining the amount of cash distributions the Operating Partnership will
make to its partners (including the REIT). FFO does not represent cash flow
from operations as defined by GAAP and is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered as an
alternative to net income(loss) for purposes of evaluating the REIT's
operating performance or to cash flow as a measure of liquidity.
For the six months ended June 30, 1996, FFO increased by $5.8 million, or
23.7%, to $30.1 million as compared to $24.4 million for 1995.
The increase in FFO was primarily attributable to the continuing increase
in revenues and income from operations.
The REIT's calculation of FFO is as follows: (dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
New Basis New Basis
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income from operations.......................................... $ 8,614 $ 6,141 $17,235 $12,613
ADD:
Depreciation & amortization from consolidated properties........ 6,202(1) 5,678(2) 12,351(3) 11,163(4)
Income from operations of unconsolidated affiliates............. 440 218 1,110 745
Depreciation & amortization from unconsolidated affiliates...... 308 309 626 640
Write-off of development costs charged to net income............ 69 461 265 461
SUBTRACT:
Minority investors' share of income from operations in
seven properties.............................................. (113) (31) (263) (147)
Minority investors share of depreciation and amortization
in seven properties........................................... (156) (50) (315) (97)
Preference return paid to mortgagees(5)......................... (85) (208) (348) (489)
Adjustment for straight-lining of rents:
Consolidated properties....................................... (236) (356) (400) (527)
Unconsolidated affiliates..................................... (3) - (10) -
Minority investors share of seven properties.................. 7 - 9 1
Depreciation and amortization of non-real estate assets
and finance costs............................................. (65) - (129) -
------- ------- ------- -------
TOTAL FUNDS FROM OPERATIONS..................................... $14,982 $12,162 $30,131 $24,363
======= ======= ======= =======
(1) Old Basis would have included $172 of non-real estate depreciation,
which now is classified as property operating expense on the income
statement, and excluded finance costs.
(2) Includes $102 of non-real estate depreciation, which now is classified
as property operating expense on the income statement.
(3) Old Basis would have included $349 of non-real estate depreciation,
which is now classified as property operating expense on the income
statement, and excluded finance costs.
(4) Includes $262 of non-real estate depreciation, which is now classified
as property operating expense on the income statement.
(5) Preferred return of 7.0% and shortage in mortgage payments.
</TABLE>
The REIT does not include gains or losses on outparcel sales (which would have
added $5.4 million in 1996 and $1.4 million in 1995) or the effect of
straight-line rents (which would have added $0.4 million in 1996 and 1995) in
its calculation of funds from operations.
IMPACT OF INFLATION
In the last three years, inflation has not had a significant impact on the
REIT or CBL because of the relatively low inflation rate. Substantially all
tenant leases do, however, contain provisions designed to protect the REIT
from the impact of inflation. Such provisions include clauses enabling the
REIT to receive percentage rentals based on tenant's gross sales, which
generally increase as prices rise, and/or escalation clauses, which generally
increase rental rates during the terms of the leases. In addition, many of
the leases are for terms of less than ten years which may enable the REIT to
replace existing leases with new leases at higher base and/or percentage
rentals if rents of the existing leases are below the then-existing market
rate. Most of the leases require the tenants to pay their share of operating
expenses, including common area maintenance, real estate taxes and insurance,
thereby reducing the REIT's exposure to increases in costs and operating
expenses resulting from inflation.
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matter to a Vote of Security Holders
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
Reports on Form 8-K
The following item was reported:
The outline from the REIT's July 31, 1996 conference call
with analysts and investors regarding earnings (Item 5) was
filed on July 31, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CBL & ASSOCIATES PROPERTIES, INC.
John N. Foy
--------------------------------
John N. Foy
Executive Vice President,
Chief Financial Officer and Secretary
(Authorized Officer of the Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: August 14, 1996
EXHIBIT INDEX
Exhibit
No.
- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1996(unaudited) and the Consolidated
Statement of Operations for the six months ended June 30, 1996(unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,685
<SECURITIES> 0
<RECEIVABLES> 10,885
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 101,779
<TOTAL-ASSETS> 867,548
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 209
<OTHER-SE> 208,806
<TOTAL-LIABILITY-AND-EQUITY> 867,548
<SALES> 0
<TOTAL-REVENUES> 71,349
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,495
<INCOME-PRETAX> 17,634
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,634
<EPS-PRIMARY> .52
<EPS-DILUTED> .52