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, 1997
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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
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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
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(State or other jurisdiction (IRS Employer
of incorporation or Identification
organization) 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, 1997: Common Stock,
par value $.01 per share, 24,025,648 shares.<PAGE>
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CBL & ASSOCIATES PROPERTIES, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER
ITEM 1: FINANCIAL INFORMATION 3
CONSOLIDATED BALANCE SHEETS - AS OF
JUNE 30, 1997 AND DECEMBER 31, 1996 4
CONSOLIDATED STATEMENTS OF OPERATIONS -
FOR THE THREE MONTHS ENDED JUNE 30,
1997 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1996 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 6
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS 7
ITEM 2: MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 23
ITEM 2: CHANGES IN SECURITIES 23
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4: SUBMISSION OF MATTERS TO HAVE A
VOTE OF SECURITY HOLDERS 23
ITEM 5: OTHER INFORMATION 23
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURE 24
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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, 1996 audited
financial statements and notes thereto included in the CBL & Associates
Properties, Inc. Form 10-K for the year ended December 31, 1996.
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<PAGE>
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ------------
ASSETS
Real estate assets:
Land . . . . . . . . . . . . . . . . . . . $ 130,370 $ 119,965
Buildings and improvements . . . . . . . . 924,895 883,683
---------- ----------
1,055,265 1,003,648
Less: Accumulated depreciation . . . . . . (129,550) (114,536)
---------- ----------
925,715 889,112
Developments in progress . . . . . . . . . 121,709 98,148
---------- ----------
Net investment in real estate assets . . . 1,047,424 987,260
Cash and cash equivalents. . . . . . . . . . 3,637 4,298
Receivables:
Tenant . . . . . . . . . . . . . . . . . . 13,466 11,417
Other. . . . . . . . . . . . . . . . . . . 1,108 1,087
Notes receivable . . . . . . . . . . . . . . 16,158 14,858
Other assets . . . . . . . . . . . . . . . . 5,696 7,005
---------- ----------
$1,087,489 $1,025,925
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and other notes payable . . . . . . $ 583,826 $ 590,295
Accounts payable and accrued liabilities . . 24,289 39,785
---------- ----------
Total liabilities. . . . . . . . . . . . . 608,115 630,080
---------- ----------
Commitments and contingencies. . . . . . . . __ __
Distributions and losses in excess
of investment in unconsolidated
affiliates . . . . . . . . . . . . . . . . 6,914 8,616
---------- ----------
Minority interest. . . . . . . . . . . . . . 129,163 114,425
---------- ----------
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized, none issued . . . . . __ __
Common stock, $.01 par value, 95,000,000
shares authorized, 24,007,416 and
20,965,790 shares issued and outstanding
in 1997 and 1996, respectively . . . . . 240 210
Excess stock, $.01 par value, 100,000,000
shares authorized, none issued . . . . . __ __
Additional paid - in capital . . . . . . . 358,279 293,824
Accumulated deficit. . . . . . . . . . . . (14,876) (20,855)
Deferred compensation. . . . . . . . . . . (346) (375)
---------- ----------
Total shareholders' equity . . . . . . . 343,297 272,804
---------- ----------
$1,087,489 $1,025,925
========== ==========
The accompanying notes are an integral part of these balance sheets.
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<PAGE>
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
REVENUES:
Rentals:
Minimum . . . . . . . . . . . $27,978 $22,573 $54,540 $45,071
Percentage. . . . . . . . . . 531 308 1,907 1,354
Other . . . . . . . . . . . . 139 206 359 439
Tenant reimbursements. . . . . . 12,681 11,197 24,397 21,320
Management, development
and leasing fees . . . . . . . . 431 658 1,110 1,266
Interest and other . . . . . . . 698 1,027 1,387 1,899
------- ------- ------- -------
Total revenues . . . . . . . . 42,458 35,969 83,700 71,349
EXPENSES:
Property operating . . . . . . . 7,397 6,285 14,470 11,703
Depreciation and amortization. . 7,922 6,202 15,610 12,351
Real estate taxes. . . . . . . . 3,570 2,842 6,935 5,502
Maintenance and repairs. . . . . 2,484 2,203 4,843 4,459
General and administrative . . . 2,286 2,150 4,503 4,339
Interest . . . . . . . . . . . . 8,995 7,604 17,935 15,495
Other. . . . . . . . . . . . . . 15 69 42 265
------- ------- ------- -------
Total expenses . . . . . . . . 32,669 27,355 64,338 54,114
Income from operations . . . . . 9,789 8,614 19,362 17,235
Gain on sales of real
estate assets. . . . . . . . . . 363 6,864 3,382 7,479
Equity in earnings of
unconsolidated affiliates. . . . 593 440 1,213 1,110
Minority interest in
earnings:
Operating partnership. . . . . (2,991) (4,908) (6,585) (7,927)
Shopping center properties . . (147) (113) (289) (263)
------- ------- ------- -------
Income before extraordinary
item . . . . . . . . . . . . . 7,607 10,897 17,083 17,634
Extraordinary loss on
extinguishment of debt . . . . -- -- (496) --
------- ------- ------- -------
NET INCOME . . . . . . . . . . . $7,607 $10,897 $16,587 $17,634
======= ======= ======= =======
Earnings per common share data:
Income before extraordinary
item . . . . . . . . . . . . $ 0.31 $ 0.52 $ 0.71 $ 0.85
NET INCOME . . . . . . . . . . $ 0.31 $ 0.52 $ 0.69 $ 0.85
======= ======= ======= =======
Weighted average common &
common equivalent shares
outstanding. . . . . . . . . . 24,213 20,847 24,005 20,853
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
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CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months
Ended June 30,
----------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . $16,587 $17,634
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest in earnings. . . . . . . . . 6,874 8,190
Depreciation . . . . . . . . . . . . . . . . . 14,093 11,397
Amortization . . . . . . . . . . . . . . . . . 2,100 1,401
Gain on sales of real estate assets. . . . . . (3,382) (7,479)
Issuance of stock under incentive plan . . . . 104 197
Equity in earnings of unconsolidated
affiliates . . . . . . . . . . . . . . . . . (1,213) (1,110)
Amortization of deferred compensation. . . . . 160 143
Write-off of development projects. . . . . . . 42 265
Distribution from unconsolidated
affiliates . . . . . . . . . . . . . . . . . 1,218 2,380
Distributions to minority investors. . . . . . (8,286) (7,709)
Changes in assets and liabilities -
Tenant and other receivables . . . . . . . 947 569
Other assets . . . . . . . . . . . . . . . (504) (1,701)
Accounts payable and accrued expenses. . . (4,002) 14,079
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Net cash provided by operating
activities . . . . . . . . . . . . . . . 24,738 38,256
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of real estate and land
acquisition, net of payables . . . . . . . . (64,651) (67,210)
Acquisition of real estate assets. . . . . . . (5,716) --
Capitalized interest . . . . . . . . . . . . . (3,192) (2,286)
Other capital expenditures . . . . . . . . . . (4,699) (1,584)
Proceeds from sales of real estate
assets . . . . . . . . . . . . . . . . . . . 6,794 15,366
Additions to notes receivable. . . . . . . . . (1,789) (8,699)
Payments received on notes receivable. . . . . 489 167
Additional investments in and advances to
unconsolidated affiliates. . . . . . . . . . (2,867) (890)
-------- --------
Net cash used in investing activities. . . . (73,050) (65,136)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other notes
payable. . . . . . . . . . . . . . . . . . . 165,899 105,579
Principal payments on mortgage and
other notes payable. . . . . . . . . . . . . (172,368) (61,058)
Additions to deferred finance costs. . . . . . (901) (573)
Refunds of finance costs . . . . . . . . . . . -- 722
Proceeds from issuance of common stock . . . . 74,398 79
Proceeds from exercise of stock options. . . . 533 (826)
Prepayment penalties on extinguishment of
debt . . . . . . . . . . . . . . . . . . . . (496) --
Dividends paid . . . . . . . . . . . . . . . . (19,414) (17,039)
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Net cash provided by financing activities. . 47,651 28,536
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NET CHANGE IN CASH AND CASH EQUIVALENTS. . . . . (661) 1,656
CASH AND CASH EQUIVALENTS, beginning of
period . . . . . . . . . . . . . . . . . . . . . 4,298 3,029
--------- --------
CASH AND CASH EQUIVALENTS, end of period . . . . . $ 3,637 $ 4,685
========= ========
The accompanying notes are an integral part of these statements.
<PAGE>
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CBL & ASSOCIATES PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unconsolidated Affiliates
At June 30, 1997, the REIT had investments in four partnerships and joint
ventures all of which are reflected using the equity method of accounting.
Condensed combined results of operations for the unconsolidated affiliates
are presented as follows (dollars in thousands):
REIT's Share
Total For The For The
Six Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues . . . . . . . . $ 10,874 $ 10,901 $ 5,342 $ 5,351
-------- -------- -------- --------
Depreciation and
amortization . . . . . 1,339 1,280 656 626
Interest expense . . . . 3,711 4,171 1,822 2,045
Other operating
expenses . . . . . . . 3,346 3,176 1,651 1,570
-------- -------- -------- --------
Net income . . . . . . . $ 2,478 $ 2,274 $ 1,213 $ 1,110
======== ======== ======== ========
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.
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NOTE 3 - CREDIT AGREEMENTS
In February 1997, the REIT reduced the interest rate from 137 basis points
over LIBOR to 120 basis points over LIBOR and added $38 million and one
additional bank to its credit facility led by First Tennessee Bank N.A.,
bringing the total to $80 million. In February 1997, the REIT's major
line bank, Wells Fargo, reduced the pricing on its $85 million credit
facility from 150 basis points over LIBOR to 125 basis points over LIBOR.
In April 1997, the REIT reduced the interest rate on its $10 million credit
facility with SunTrust to 110 basis points over LIBOR. The REIT's total
credit facilities were $175 million with $47.3 million outstanding at
June 30, 1997.
In April 1995, the REIT executed a three-year interest rate swap agreement
with First Union National Bank of Tennessee which has a notional balance of
$5.3 million at June 30, 1997. The effective date was March 16, 1995 and
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 6.77%. There was no fee for this transaction. These transactions did
not have a significant impact on interest expense for the six months ended
June 30, 1997.
Note 4 - Reclassifications
Certain reclassifications have been made in the 1996 Financial Statements to
conform with the 1997 presentation.
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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.
Information included herein contains "forwarding-looking statements"
within the meaning of the federal securities laws. Such statements are
inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated.
Future events and actual results, financial and otherwise, may differ
materially from the events and results discussed in the forward-looking
statements. We direct you to the REIT's other filings with the Securities
and Exchange Commission, including without limitation the REIT's Annual
Report on Form 10-K and the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" incorporated by reference
therein, for a discussion of such risks and uncertainties.
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, 1997, the operations of a portfolio of properties
consisting of fifteen regional malls, nine associated centers, seventy-
eight community centers, an office building, joint venture investments in
three regional malls and one associated center, and income from six
mortgages, ("the Properties"). The Operating Partnership also has one
mall, one associated center, two power centers, and two community centers
currently under construction and options to acquire certain shopping center
development sites as well as contingent contracts for the purchase of
certain operating properties. 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, having been acquired, redeveloped and expanded, Turtle Creek Mall
in Hattiesburg, Mississippi, and Oak Hollow Mall in High Point, North
Carolina.
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<PAGE>
In January 1997, the REIT completed a spot offering of 3,000,000 shares of
its Common Stock at $26.125 per share. Management purchased 55,000 of those
shares as part of the offering. The net proceeds of $74.3 million were used
to repay variable rate indebtedness incurred in the REIT's development and
acquisition program.
In June 1997, the REIT acquired from CBL & Associates, Inc., the
predecessor company, a 49% interest in Governor's Plaza in Clarksville,
Tennessee for a price of $1,512,976. The Operating Partnership issued a
0.1538% limited partner interest (65,426 share equivalents) for the
partnership interest in this property.
RESULTS OF OPERATIONS
Operational highlights for the six months ended June 30, 1997 as
compared to June 30, 1996 are as follows:
SALES
Mall shop sales, for those tenants who have reported, in the fifteen
Stabilized Malls in the REIT's portfolio increased by 3.6% on a
comparable per square foot basis.
Six Months Ended June 30,
-------------------------
1997 1996
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Sales per square foot $ 107.77 $ 104.07
Total sales volume in the mall portfolio, including New Malls, increased
19.1% to $344.3 million for the six months ended June 30, 1997 from
$289.1 million for the six months ended June 30, 1996.
Occupancy costs as a percentage of sales was 13.1% for the six months
ended June 30, 1997 and 13.9% for the six months ended June 30, 1996 for
the Stabilized Malls. Occupancy costs were 11.5%, 12.3% and 12.2% for
the years ended December 31, 1996, 1995, and 1994, 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:
At June 30,
---------------------
1997 1996
-------- --------
Stabilized malls 89.0% 87.9%
New malls 88.7 85.3
Associated centers* 91.4 99.0
Community centers 96.6 96.9
-------- --------
Total Portfolio 92.9% 93.0%
======== ========
* - The Associated center occupancy decreased due to the
relocation of one of the anchors at Foothills Plaza to
Foothills Mall in Maryville, Tennessee.
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AVERAGE BASE RENT
Average base rents for the REIT's three portfolio categories were
as follows:
At June 30,
---------------------
1997 1996
-------- --------
Malls. . . . . . . . . . . . . $ 19.10 $18.21
Associated centers . . . . . . 9.85 8.32
Community centers. . . . . . . 7.11 6.74
LEASE ROLLOVERS
On spaces previously occupied, the REIT achieved the following results
from rollover leasing for the six months ended June 30, 1997, over and
above the base and percentage rent paid by the previous tenant:
Per Square Per Square
Foot Rent Foot Rent Percentage
Prior Lease(1) New Lease (2) Increase
-------------- ------------- -----------
Malls. . . . . . . . . . . $ 19.07 $ 20.67 8.3%
Associated centers . . . . 12.50 13.38 7.0%
Community centers. . . . . 7.44 7.87 5.8%
(1) - Rental achieved for spaces previously occupied at the
end of the lease including percentage rent.
(2) - Average base rent over the term of the lease.
For the six months ended June 30, 1997, malls represented 73.1% of total
revenues from the properties; revenues from associated centers represented
3.5%; revenues from community centers represented 20.1%; and revenues from
mortgages and the office building represented 3.3%. Accordingly, revenues
and results of operations are disproportionately impacted by the malls'
achievements. The REIT's cost recovery ratio decreased to 93.0% for the
six months endedJune, 30 1997 as compared to 98.2% in 1996.
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, 1997
TO THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996
Total revenues for the three months ended June 30, 1997 increased by
$6.5 million, or 18.0%, to $42.5 million as compared to $36.0 million in
1996. Of this increase, minimum rents increased by $5.4 million, or 23.9%,
to $28.0 million as compared to $22.6 million in 1996, and tenant
reimbursements increased by $1.5 million, or 13.3%, to $12.7 million in 1997
as compared to $11.2 million in 1996.
Approximately $6.0 million of the increase in revenues resulted from
operations at the ten new centers opened or acquired during the past twelve
months. These centers consist of: (I) Devonshire Place in Cary, North
<PAGE>
Carolina, which opened in September, 1996; (II) Kingston Overlook in
Knoxville, Tennessee, which opened in November, 1996; (III) Westgate Mall in
Spartanburg, South Carolina, which was expanded and reopened in October,
1996; (IV) LaGrange Commons in LaGrange, New York, which opened in November
1996; (V) St. Clair Square in Fairview Heights, Illinois, which was acquired
in December, 1996; (VI) Sutton Plaza in Mt. Olive, New Jersey, which was
acquired in January, 1997 (VII) The Terrace in Chattanooga, Tennessee which
opened in February and March, 1997; (VIII) Massard Crossing in Ft. Smith,
Arkansas which opened in March, 1997; (IX) a free-standing Hannaford Food
and Drug in Richmond, Virginia which opened in March, 1997; and (X) Salem
Crossing in Virginia Beach, Virginia which opened in April, 1997. Improved
occupancies, operations and increased rents in the REIT's operating portfolio
generated approximately $1.0 million of increased revenues offset by $0.5
million of revenues lost from three centers that were sold in 1996. The
majority of these increases were generated at CoolSprings Galleria in
Nashville, Tennessee, and Oak Hollow Mall in High Point, North Carolina.
Management, leasing and development fees decreased by $0.2 million to
$0.5 million in the second quarter of 1997 as compared to $0.7 million in the
second quarter of 1996. This decrease was primarily due to less fees earned
in 1997 on outparcel sales and the REIT's acquisition in 1996 of a mortgage
property which eliminated management fees from that property. Interest and
other decreased in the second quarter of 1997 by $0.3 million or 32%, to $0.7
million from $1.0 million in 1996 due to the acquisition of the mortgage
property.
Property operating expense, including real estate taxes and maintenance
and repairs, increased in the second quarter of 1997 by $2.1 million, or
18.7%, to $13.5 million as compared to $11.3 million in the second quarter
of 1996. This increase is primarily the result of the addition of the ten
new centers referred to above.
Depreciation and amortization increased in the second quarter of 1997 by
$1.7 million, or 27.7%, to $7.9 million as compared to $6.2 million in the
second quarter of 1996. This increase is primarily the result of the addition
of the ten new centers referred to above.
Interest expense increased in the second quarter of 1997 by $1.4
million, or 18.3%, to $9.0 million as compared to $7.6 million in 1996.
This increase is primarily due to interest on the ten new centers opened
during the last twelve months.
The gain on sales of real estate assets decreased in the second quarter
of 1997 by $6.5 million, or 94.7%, to $0.4 million as compared to $6.9
million in 1996. The sales in the second quarter of 1997 were for out
parcels at Springhurst Towne Center in Louisville, Kentucky offset by a
loss on land sold at Kingston Overlook in Knoxville, Tennessee. The sales
in the second quarter of 1996 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.
Equity in earnings of unconsolidated affiliates increased in the second
quarter of 1997 by $0.2 million, or 34.8%, to $0.6 million as compared to
$0.4 million in 1996. This increase is primarily the result of reduced
interest expense on the refinanced permanent debt on Governor's Square
Mall in Clarksville, Tennessee.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
TO THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
Total revenues for the six months ended June 30, 1997 increased by
$12.4 million, or 17.3%, to $83.7 million as compared to $71.3 million in
1996. Of this increase, minimum rents increased by $9.5 million, or 21.0%,
to $54.5 million as compared to $45.1 million in 1996, and tenant
reimbursements increased by $3.1 million, or 14.4%, to $24.4 million in 1997
as compared to $21.3 million in 1996.
Approximately $11.6 million of the increase in revenues resulted from
operations at the ten new centers opened or acquired during the past twelve
months. These centers consist of: (I) Devonshire Place in Cary, North
<PAGE>
Carolina, which opened in September, 1996; (II) Kingston Overlook in
Knoxville, Tennessee, which opened in November, 1996; (III) Westgate Mall
in Spartanburg, South Carolina, which was expanded and reopened in October,
1996; (IV) LaGrange Commons in LaGrange, New York, which opened in November
1996; (V) St. Clair Square in Fairview Heights, Illinois, which was acquired
in December, 1996; (VI) Sutton Plaza in Mt. Olive, New Jersey, which was
acquired in January, 1997 (VII) The Terrace in Chattanooga, Tennessee which
opened in February and March, 1997; (VIII) Massard Crossing in Ft. Smith,
Arkansas which opened in March, 1997; (IX) a free-standing Hannaford Food
and Drug in Richmond, Virginia which opened in March, 1997; and (X) Salem
Crossing in Virginia Beach, Virginia which opened in April, 1997. Improved
occupancies, operations and increased rents in the REIT's operating portfolio
generated approximately $1.8 million of increased revenues offset by $1.0
million of revenues lost from three centers that were sold in 1996. The
majority of these increases were generated at CoolSprings Galleria in
Nashville, Tennessee, and Oak Hollow Mall in High Point, North Carolina.
Management, leasing and development fees decreased by $0.2 million to
$1.1 million in the first six months of 1997 as compared to $1.3 million in
1996. This decrease was primarily due to less outparcel sales commissions
earned in 1997 and the REIT's acquisition in 1996 of a mortgage property
which eliminated management fees. Interest and other decreased by $0.5
million in 1997 to $1.4 million as compared to $1.9 million in 1996. This
decrease was primarily due to the acquisition of the mortgage property.
Property operating expense, including real estate taxes and maintenance
and repairs, increased in the first six months of 1997 by $4.6 million, or
21.2%, to $26.2 million as compared to $21.7 million in 1996. This increase
is primarily the result of the addition of the ten new centers referred to
above.
Depreciation and amortization increased in the first six months of 1997
by $3.3 million, or 26.4%, to $15.6 million as compared to $12.4 million in
1996. This increase is primarily the result of the addition of the ten new
centers referred to above.
Interest expense increased in the first six months of 1997 by $2.4
million, or 15.7%, to $17.9 million as compared to $15.5 million in 1996.
This increase is primarily the result of the addition of the ten new centers
referred to above.
The gain on sales of real estate assets decreased for the six months
ended June 30, 1997 by $4.1 million, or 54.8%, to $3.4 million as compared to
$7.5 million in 1996. The sales in the first six months of 1997 were in
connection with anchor pad and outparcel sales at our developments in
Courtlandt Town Center in Courtlandt, New York, Salem Crossing in Virginia
Beach, Virginia, and Springhurst Towne Center in Louisville, Kentucky off-
set by a loss on sale at Kingston Overlook in Knoxville, Tennessee. The
sales in 1996 consisted of 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 Ft.
Smith, Arkansas, Louisville, Kentucky, Virginia Beach, Virginia, and
Chattanooga, Tennessee.
Equity in earnings of unconsolidated affiliates increased in the first
six months of 1997 by $0.1 million, or 9.3% to $1.2 million as compared to
$1.1 million in 1996. This increase is primarily the result of reduced
interest expense on the refinanced permanent debt on 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").
<PAGE>
As of August 1, 1997, the REIT had $65.1 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, 1997, the REIT had obtained revolving credit
facilities totaling $175 million of which $120.0 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 REIT'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 $35.8 million
remaining after the REIT's follow-on and spot offerings of common stock on
September 25, 1995 and January 15, 1997 respectively. The REIT at this time
thinks that the combination of these sources will, for the foreseeable
future, provide adequate liquidity to enable it to continue its capital
programssubstantially 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, credit facilities, common stock and a minority interest
in the Operating Partnership. The minority interest in the Operating
Partnership represents the 28.3% ownership interest in the Operating
Partnership held by the REIT's executive, former executive, and senior
officers which may be exchanged for approximately 9.5 million shares of
common stock. Additionally, REIT executive officers and directors own
approximately 1.6 million shares of the outstanding common stock of the
REIT, for a combined total interest in the Operating Partnership of
approximately 33.1%. Assuming the exchange of all limited partnership
interests in the Operating Partnership for common stock, there would be
outstanding approximately 33.4 million shares of common stock with a market
value of approximately $803.6 million at June 30, 1997 (based on the closing
price of $24.00 per share on June 30, 1997). REIT executive, former
executive and senior officers' ownership interests had a market value of
approximately $265.8 million at June 30, 1997.
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, 1997, the REIT's share of funded mortgage debt on its consolidated
properties adjusted for minority investors' interests in nine properties was
$561.8 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 $604.8 million with a weighted average interest
rate of 7.8%. Variable rate debt accounted for $184.2 million of the total
debt with a weighted average interest rate of 7.0%. Variable rate debt
accounted for approximately 30.5% of the REIT's total debt and 13.1% of
its total capitalization. Of this variable rate debt, $117.0 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 $55.3 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, 1997 is $117.0 million on
construction properties and $11.9 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 what is now $5.3 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 6.77%. There were no fees charged to the REIT related to these
transactions.
<PAGE>
In February 1997, the REIT reduced the interest rate from 137 basis
points over LIBOR to 120 basis points over LIBOR and added $38 million and
one additional bank to its credit facility led by First Tennessee Bank N.A.
bringing the total to $80 million. In May 1997, the REIT extended a short
term loan with Compass Bank in the amount of $12.5 million at an interest
rate of 50 basis point over LIBOR. The note matures on September 15, 1997.
In February 1997, the REIT's major line bank, Wells Fargo, reduced the
pricing on its $85 million facility from 150 basis points over LIBOR to
125 basis points over LIBOR. In April 1997, the REIT reduced the pricing on
its $10 million credit facility with SunTrust bank to 110 basis points over
LIBOR.
During the first quarter, the REIT closed on two permanent loans: a ten-
year loan on Hamilton Place Mall in Chattanooga, Tennessee, owned 90% by the
REIT, in the amount of $75 million at an interest rate of 7.0% and a twenty-
year loan with a five year rate reset option on Westgate Mall in Spartanburg,
South Carolina, in the amount of $52 million at an interest rate of 6.95%.
In July, the REIT reduced the interest rate from 8.50% to 7.62% on a $7
million loan on Suburban Plaza in Knoxville, Tennessee and fixed the rate at
7.3% on an $11 million loan on The Terrace in Chattanooga, Tennessee.
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 42.9% at June 30,
1997.
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
During the first six months of 1997, the REIT opened a 156,713 square
foot associated center, The Terrace in Chattanooga, Tennessee; a 290,717
square foot community center, Massard Crossing in Ft. Smith, Arkansas; a
60,954 square foot free-standing Hannaford Food and Drug in Richmond,
Virginia; a Dillard's department store and United Artists' 10-screen cinema
at Twin Peaks Mall in Longmont, Colorado; a Dillard's department store at
Frontier Mall in Cheyenne, Wyoming; a 23,000 square foot expansion to
Kingston Overlook in Knoxville, Tennessee; and the first phase of a 289,305
square foot community center, Salem Crossing in Virginia Beach, Virginia.
The second phase of this project was opened subsequent to the end of the
second quarter. The REIT also opened subsequent to the end of the second
quarter the 43,570 square foot free-standing Regal Cinema at Strawbridge
Marketplace in Virginia Beach, Virginia. The REIT also acquired in the first
quarter a 122,207 square foot community center Sutton Plaza in Mt. Olive, New
Jersey.
The REIT currently has approximately 2.3 million square feet of new
development under construction consisting of: Bonita Lakes Mall in Meridian,
Mississippi, an approximate 631,000 square foot mall scheduled to open in
October 1997; Bonita Lakes Crossing in Meridian, Mississippi, an
approximate 95,000 square foot associated center scheduled to open in October
1997; Springhurst Towne Center in Louisville, Kentucky, an approximate
799,000 square foot power center scheduled to open beginning in August 1997;
Courtlandt Town Center in Courtlandt, New York, an approximate 773,000 square
foot power center scheduled to open beginning in October 1997; an
approximate 10,000 square foot expansion to Chester Square in Richmond,
Virginia; and an approximate 65,500 square foot Sterling Creek Commons in
Portsmouth, Virginia.
During the latter half of 1997, the REIT expects to start construction
on the 1.0 million square foot Arbor Place Mall, in suburban Atlanta, Georgia
and the 545,000 square foot Sand Lake Corners in Orlando, Florida.
The REIT has entered into a number of option agreements for the
development of future regional malls and community centers as well as
contingent contracts for the purchase of certain properties. 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.
<PAGE>
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 both tenant finish costs associated
with the renewal or replacement of current tenant leases as their leases
expire and 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 credit facilities.
For the six months ended June 30, 1997, revenue generating capital
expenditures, or tenant allowances for improvements, were $3.6 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 $0.6 million for the six months ended
June 30, 1997. Revenue neutral capital expenditures, which are recovered
from the tenants, were $0.5 million for the six months ended June 30, 1997.
The REIT also added $1.7 million to notes receivable to fund a tenant
allowance on a mortgage property which will increase debt service payments
to the REIT.
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.
CASH FLOWS
Cash flows provided by operating activities for the six months ended
June 30, 1997 decreased by $13.5 million, or 35.3%, to $24.7 million from
$38.3 million in 1996. This decrease was primarily due to the decrease in
accounts payable for the six months ended June 30, 1997 of $4.0 million
compared to an increase in accounts payable of $14.1 million in 1996.
This was primarily due to the timing of the payment of real estate
taxes. Cash flows used in investing activities for the
six months ended June 30, 1997 increased by $7.9 million, or 12.1%, to $73.0
million compared to $65.1 million in 1996. This increase was due primarily to
a $5.7 million acquisition and increased investment in capital
and development for the six months ended June 30, 1997 as compared to 1996.
Cash flows provided by financing activities for the six months ended
June 30, 1997, increased by $19.1 million, or 67.0%, compared to 1996
primarily due to the issuance of 3 million shares of common stock in
January 1997.
<PAGE>
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 gains 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 generally
accepted accounting principles (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, 1997, FFO increased by $4.9 million,
or 16.2%, to $35.0 million as compared to $30.1 million for 1996. The
increase in FFO was directly related to the increases in and results of
operations mentioned in the three months and six months comparison mentioned
above.<PAGE>
<PAGE>
The REIT's calculation of FFO is as follows: (in thousands)
Three Months Ended Six Month Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Income from operations. . . . . $ 9,789 $ 8,614 $ 19,362 $ 17,235
ADD:
Depreciation & amortization from
consolidated properties . . . 7,922 6,202 15,610 12,351
Income from operations of
unconsolidated affiliates . . 593 440 1,213 1,110
Depreciation & amortization from
unconsolidated affiliates . . 255 308 656 626
Write-off of development costs
charged to net income . . . . 15 69 42 265
SUBTRACT:
Minority investors' share of
income from operations in
nine properties . . . . . . . (147) (113) (289) (263)
Minority investors share of
depreciation and amortization
in nine properties. . . . . . (205) (156) (383) (315)
Preference return paid to
mortgagees . . . . . . . . . -- (85) -- (348)
Adjustment for straight-lining
of rents:
Consolidated properties . . . (510) (236) (1,018) (400)
Unconsolidated affiliates . . (3) (3) (10) (10)
Minority investors share of
nine properties . . . . . . 30 7 35 9
Depreciation and amortization
of non-real estate assets
and finance costs . . . . . (119) (65) (213) (129)
-------- -------- -------- --------
TOTAL FUNDS FROM OPERATIONS . . $ 17,620 $ 14,982 $ 35,005 $ 30,131
======== ======== ======== ========
The REIT does not include gains or losses on outparcel sales (which
would have added $3.4 million and $7.5 million for the six months ended
June 30, 1997 and 1996, respectively) or the effect of straight-line rents
(which would have added $1.0 million and $0.4 million for the six months
ended June 30, 1997 and 1996, respectively) in its calculation of Funds
From Operations.
IMPACT OF INFLATION
In the last four 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.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards("SFAS") No. 128,
"Earnings Per Share" which establishes new standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Early adoption is not permitted and upon initial
application, all prior-period EPS data is required to be restated.
The adoption of SFAS No. 128 will not have a material effect on the
REIT's EPS amounts.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires that all items that are required to be
recogonized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. The REIT will adopt SFAS No. 130
on January 1, 1998. The adoption of SFAS No. 130 is not expected to have a
material effect.
<PAGE>
<PAGE>
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 30, 1997 conference
call with analysts and investors regarding earnings
(Item 5) was filed on July 30, 1997.
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBL & ASSOCIATES PROPERTIES, INC.
/c/ John N. Foy
----------------------------------
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, 1997
<PAGE>
<PAGE>
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, 1997(unaudited) and the Consolidated
Statement of Operations for the six months ended June 30, 1997(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-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,637
<SECURITIES> 0
<RECEIVABLES> 14,574
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 129,550
<TOTAL-ASSETS> 1,087,489
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 240
<OTHER-SE> 343,057
<TOTAL-LIABILITY-AND-EQUITY> 1,087,489
<SALES> 0
<TOTAL-REVENUES> 83,700
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,935
<INCOME-PRETAX> 17,083
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,083
<DISCONTINUED> 0
<EXTRAORDINARY> 496
<CHANGES> 0
<NET-INCOME> 16,587
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
