Securities Exchange Act of 1934 -- Form 8-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report :
July 30, 1997
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CBL & ASSOCIATES PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-12494 62-1545718
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number
incorporation)
One Park Place, 6148 Lee Highway, Chattanooga, Tennessee 37421
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(Address of principal executive offices)
Registrant's telephone number, including area code:
(423) 855-0001
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CBL & ASSOCIATES PROPERTIES, INC.
Conference Call Outline
July 30, 1997
10:00 a.m.
Good morning. We appreciate your participation in our conference call to
discuss the 1997 second quarter results. Before we begin, I would like
to remind everyone that this conference call contains "forwarding-looking
statements" within the meaning of the federal securities laws. Such
statements are inherently subject to risks and uncertainties, many of
which cannot be predicted with accuracy and some of which might not even
be anticipated. Future events and actual results, financial and
otherwise, may differ materially from the events and results discussed in
the forward-looking statements. We direct you to the Company's various
filings with the Securities and Exchange Commission, including without
limitation the Company's Annual Report on Form 10-K and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
incorporated by reference therein, for a discussion of such risks and
uncertainties.
REVENUE AND EXPENSE SOURCES
Our FFO for the first six months of 1997 increased by 16.2% over the
first six months of 1996 due to:
1. The seven new shopping centers and one mall expansion opened over
the last eighteen months; and
2. The acquisition of two properties and a 49% interest in a third
property, which were acquired in November 1996, January 1997 and
June 1997, respectively.
Our expenses for the first six months increased by 23% over the first
half of 1996 primarily as a result of an increase in property operating
expenses, real estate taxes and maintenance and repairs which are
reimbursed by tenants, as well as interest expense and depreciation all
of which are associated with the addition of the ten centers during the
last eighteen months. Our cost recovery ratio for the first six months
this year was 93.0% compared to 98.4% for the first six months of 1996,
up from 91.6% for the first quarter of 1997.
For the first six months of 1997, the existing portfolio accounted for 8%
of our FFO growth over the prior year period and the new properties
opened and acquired in the last eighteen months accounted for 92% of the
FFO growth.
For the second quarter of 1997, the existing portfolio accounted for 24%
of FFO growth over the prior year period and the new properties opened
and acquired in the last eighteen months accounted for 76% of the FFO
growth.
FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
Our total funds from operations for the first six months of 1997 on a
fully converted basis was $35.0 million, or $1.06 per share. We do not
include outparcel sales and straight-lined rents in our conservative
practice of calculating FFO. Had we included these two items, our FFO
for the first six months would have increased by $ .13 to $1.19 per share.
DIVIDEND INCREASE AND PAYOUT RATIO
The board of directors declared a quarterly dividend of $.4425 per share,
which equates to an annualized dividend of $1.77 per share. Our payout
ratio for the first six months of 1997 was 83.4% as compared to 84.0% for
1996. Although our dividend has increased at a compounded annual rate of
5.7% since our IPO, our payout ratio has declined from 98% in our first
year to its current level of 83.4%.
CAPITAL STRUCTURE
As of June 30, 1997, our total consolidated and unconsolidated debt was
$604.8 million, with a weighted average interest rate of 7.81% as
compared to 8.48% at June 30, 1996. This amount includes all properties
under construction. Our debt to total market capitalization ratio was
42.9%. Our EBITDA to interest ratio decreased to 3.0 for the first six
months of 1997 compared to 3.2 for 1996. Excluding outparcel sales, the
EBITDA to interest ratio increased to 2.83 for the first half of 1997
compared to 2.77 for 1996.
Our total fixed rate debt as of June 30, 1997 was $420.6 million, with a
weighted average interest rate of 8.17% as compared to 8.77% at June 30,
1996. Our total variable rate debt as of June 30, 1997 was $184.2
million, with a weighted average interest rate of 6.99%. Variable rate
debt related to our projects under construction accounted for $117.0
million of the total. The remaining $67.2 million of variable rate debt
was associated with operating properties. With $55.3 million of applied
interest rate caps and swaps, we only have $11.9 million of exposure on
our operating properties that could have an impact on FFO as the interest
expense on construction properties is capitalized in accordance with
GAAP. Subsequent to the end of the second quarter we fixed the interest
rate on $11 million of this variable rate debt further reducing our
variable rate debt exposure.
CAPITAL EXPENDITURES
Revenue Generating capital expenditures, or tenant allowances for
improvements, for the first six months of 1997 were $3.6 million which
includes $1.0 million we had expected to spend in 1996. For the balance
of the year, we expect to spend $2.4 million on tenant improvements.
Revenue Enhancing capital expenditures, or remodeling and renovation
costs, were $600,000 for the first six months. For the balance of the
year, we expect to spend approximately $2.9 million for the remodeling of
Foothills Mall and six of our community centers, two of which are already
completed.
Revenue Neutral capital expenditures, which are recovered from the
tenants, were $500,000 for the first six months.
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DEVELOPMENTS/ACQUISITIONS
During the second quarter, we opened the first phase of the 289,000-
square-foot Salem Crossing in Virginia Beach, Virginia. The second phase
opened in July 1997. This center is anchored by Wal*Mart and Hannaford
Food & Drug.
In the next few months, we will open our largest development projects for
1997. The first phase of Springhurst Towne Center in Louisville,
Kentucky will open in August with the balance of the center opening
through the rest of this year and next spring. We are currently 99%
leased and committed for phase I and 83% for the total project.
The first phase of Cortlandt Town Center in Cortlandt, New York will
begin opening in October and continue through the balance of this year
and next spring. The entire project will be open by the Fall of 1998. We
are currently 96.1% leased and committed on Cortlandt.
On October 15, Bonita Lakes Mall, a 632,000 square foot regional mall in
Meridian, Mississippi anchored by Sears, JC Penney, McRaes and Dillards,
will hold its grand opening. Bonita Lakes Mall is currently 88.9% leased
and committed. Opening with the mall will be Bonita Lakes Crossing, a
96,000-square-foot associated center, which is currently 84.4% leased and
committed.
We also have a freestanding 43,000 square foot Regal Cinemas that will
open on Friday in Virginia Beach, Virginia and a 10,000 square foot
addition to Chester Square in Richmond, Virginia that will open this
fall.
Yesterday we closed on the land for development of a new community center
in Portsmouth, Virginia that will be anchored by Hannaford Bros. Food &
Drug. We should start construction on this project in the next few days
and expect to open it in the second quarter of 1998.
We continue to work diligently on possible acquisitions. We retain very
selective criteria for acquisitions and will look to complement our
development program with opportunities that we think will provide the
best long-term returns to our shareholders. There is a temptation in
today's acquisition market to chase after deals solely for the sake of
doing a deal. We believe our disciplined approach to acquisitions, will
provide for the best success. There are opportunities still available
that others have overlooked that can benefit from our leasing, management
and development expertise.
OCCUPANCY/LEASING
We saw some good improvement in occupancy this quarter. As mentioned in
our earnings release, our overall portfolio occupancy remained
essentially the same as last year, 92.9% at June 30, 1997, compared to
93.0% at June 30, 1996. Our mall portfolio, both new and stabilized
malls, showed significant improvement this quarter over last year.
Stabilized malls increased to 89% at June 30, 1997 from 87.9% and new
malls increased to 88.7% at June 30, 1997 from 85.3% at June 30, 1996.
Our associated center occupancy increased slightly from first quarter to
91.4%, but we are still below last year's level due to the relocation of
one of the anchors at Foothills Plaza to Foothills Mall in Maryville,
Tennessee. Excluding this relocation, our associated center
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occupancy would have been 97.6% at June 30, 1997 and our total portfolio
occupancy would have been 93.5%.
This relocation at Foothills Plaza is part of our remerchandising of
Foothills Mall. Although there has been some impact to our associated
center occupancy, overall this has been the best move to revitalize
Foothills Mall. We have commenced a renovation of Foothills Mall that
will be completed by the end of this year which will bring this center
up to date and help reestablish it in its marketplace. Since we took
control of this property in the fourth quarter of 1996, occupancy has
improved to 82.5% from 68.5%. In addition per square foot sales have
increased by 7.1% over the prior year. In the process, we have also
eliminated the preference return previously associated with this property
that had been a drag on FFO for several years. As you can see from our
earnings release, this has saved us almost $350,000 year to date.
During the second quarter, our results from renewal leasing, which
compares rent achieved on new leases with the base and percentage rent
previously paid in that space, were encouraging with the best results being
in our community centers. Malls increased 4.7% to a new per square foot
average of $21.60; associated centers increased 2.2% to a new per square
foot average of $11.81; and community centers increased 7.7% to a new per
square foot average of $7.45. Year to date, our spreads on an average
year basis are up 8.3% for malls, up 7.0% for associated centers, and up
5.8% for community centers.
Prior PSF New PSF New PSF % Change % Change
Rent Rent-Initial Rent-Avg. Initial Initial
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Malls $20.63 $21.25 $21.60 3.0% 4.7%
Associated
Centers $11.56 $11.48 $11.81 -.7% 2.2%
Community
Centers $ 6.92 $ 7.19 $ 7.45 4.0% 7.7%
A comparison of both new and renewal leasing vs. the tenants who have
vacated year to date reveals that in addition to occupancy gains, we have
also shown some improvement in leasing overall.
In the mall portfolio, we leased 214,000 square feet at an average rate
of $21.05 per square foot compared to 112,000 square feet of tenants
vacating at an average rate of $13.43 per square foot.
In the associated centers, we leased 34,000 square feet at an average
rate of $13.83 per square foot compared to 43,000 square feet of tenants
vacating at an average rate of $7.18 per square foot. Although occupancy
is down in this category, we were able to significantly increase rental
rates on new leases.
In the community centers, we leased 181,000 square feet at an average
rate of $7.92 per square foot compared to 15,000 square feet of tenants
vacating at an average rate of $7.03 per square foot.
SALES
Mall shop sales in our stabilized malls, for those tenants who have
reported, increased 3.6% on a comparable per square foot basis for the
first six months of 1997 as compared to 1996. Occupancy costs as a
percentage of sales at our stabilized malls, which are normally higher
the first three quarters of the year, were 13.1% at June 30, 1997,
compared to 13.9% at June 30, 1996.
RETAIL OUTLOOK
Overall we are encouraged by the improvement in leasing, mall occupancy
and sales in our existing portfolio. Although new developments and
acquisitions are expected to provide most of our growth for the balance
of this year, continued improvement in the leasing environment, fewer
retailer bankruptcies and a sustained turnaround in retail sales should
result in increased growth from our existing portfolio.
I would like to note that a transcript of my comments will be filed as a
form 8-K and will be available upon request. This concludes our prepared
remarks for today. I would now be happy to answer any questions you may
have.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBL & ASSOCIATES PROPERTIES, INC.
/c/ John N. Foy
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John N. Foy
Executive Vice President,
Chief Financial Officer and
Secretary
(Authorized Officer of the
Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: July 30, 1997
