Securities Exchange Act of 1934 -- Form 10-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 September 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 November 12, 1997: Common Stock,
par value $.01 per share, 24,049,191 shares.<PAGE>
CBL & ASSOCIATES PROPERTIES, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER
ITEM 1: FINANCIAL INFORMATION 3
CONSOLIDATED BALANCE SHEETS - AS OF
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 4
CONSOLIDATED STATEMENTS OF OPERATIONS -
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1997 AND 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 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
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 September 30, 1997 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.
<PAGE>
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
September 30, December 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ------------
ASSETS
Real estate assets:
Land . . . . . . . . . . . . . . . . . . . $ 152,961 $ 119,965
Buildings and improvements . . . . . . . . 942,470 883,683
---------- ----------
1,095,431 1,003,648
Less: Accumulated depreciation . . . . . . (137,407) (114,536)
---------- ----------
958,024 889,112
Developments in progress . . . . . . . . . 149,083 98,148
---------- ----------
Net investment in real estate assets . . . 1,107,107 987,260
Cash and cash equivalents. . . . . . . . . . 6,202 4,298
Receivables:
Tenant . . . . . . . . . . . . . . . . . . 11,829 11,417
Other. . . . . . . . . . . . . . . . . . . 968 1,087
Notes receivable . . . . . . . . . . . . . . 16,638 14,858
Other assets . . . . . . . . . . . . . . . . 7,894 7,005
---------- ----------
$1,150,638 $1,025,925
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and other notes payable . . . . . . $ 643,556 $ 590,295
Accounts payable and accrued liabilities . . 30,374 39,785
---------- ----------
Total liabilities. . . . . . . . . . . . . 673,930 630,080
---------- ----------
Commitments and contingencies. . . . . . . . __ __
Distributions and losses in excess
of investment in unconsolidated
affiliates . . . . . . . . . . . . . . . . 7,142 8,616
---------- ----------
Minority interest. . . . . . . . . . . . . . 128,096 114,425
---------- ----------
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized, none issued . . . . . __ __
Common stock, $.01 par value, 95,000,000
shares authorized, 24,043,890 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 . . . . . . . 359,044 293,824
Accumulated deficit. . . . . . . . . . . . (17,443) (20,855)
Deferred compensation. . . . . . . . . . . (371) (375)
---------- ----------
Total shareholders' equity . . . . . . . 341,470 272,804
---------- ----------
$1,150,638 $1,025,925
========== ==========
The accompanying notes are an integral part of these balance sheets.
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
REVENUES:
Rentals:
Minimum . . . . . . . . . . . $28,726 $22,804 $83,266 $67,875
Percentage. . . . . . . . . . 770 511 2,677 1,865
Other . . . . . . . . . . . . 256 250 615 689
Tenant reimbursements. . . . . . 12,225 10,235 36,622 31,555
Management, development
and leasing fees . . . . . . . . 655 586 1,765 1,852
Interest and other . . . . . . . 611 1,105 1,998 3,004
------- ------- ------- -------
Total revenues . . . . . . . . 43,243 35,491 126,943 106,840
EXPENSES:
Property operating . . . . . . . 7,568 5,721 22,038 17,424
Depreciation and amortization. . 8,029 6,232 23,639 18,583
Real estate taxes. . . . . . . . 3,515 2,756 10,450 8,258
Maintenance and repairs. . . . . 2,427 2,039 7,270 6,498
General and administrative . . . 1,849 1,869 6,352 6,208
Interest . . . . . . . . . . . . 9,146 7,754 27,081 23,249
Other. . . . . . . . . . . . . . 3 185 45 450
------- ------- ------- -------
Total expenses . . . . . . . . 32,537 26,556 98,875 80,670
Income from operations . . . . . 10,706 8,935 30,068 26,170
Gain on sales of real
estate assets. . . . . . . . . . 774 1,411 4,156 8,890
Equity in earnings of
unconsolidated affiliates. . . . 301 430 1,514 1,540
Minority interest in
earnings:
Operating partnership. . . . . (3,178) (3,044) (9,763) (10,971)
Shopping center properties . . (116) (122) (405) (385)
------- ------- ------- -------
Income before extraordinary
item . . . . . . . . . . . . . 8,487 7,610 25,570 25,244
Extraordinary loss on
extinguishment of debt . . . . (432) (831) (928) (831)
------- ------- ------- -------
NET INCOME . . . . . . . . . . . $ 8,055 $ 6,779 $24,642 $24,413
======= ======= ======= =======
Earnings per common share data:
Income before extraordinary
item . . . . . . . . . . . . $ 0.35 $ 0.36 $ 1.06 $ 1.21
Extraordinary loss on
extinguishment of debt . . . $ (0.02) $ (0.04) $ (0.04) $ (0.04)
NET INCOME . . . . . . . . . . $ 0.33 $ 0.32 $ 1.02 $ 1.17
======= ======= ======= =======
Weighted average common &
common equivalent shares
outstanding. . . . . . . . . . 24,300 20,914 24,104 20,873
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
CBL & ASSOCIATES PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months
Ended September 30,
----------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . $24,642 $24,413
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest in earnings. . . . . . . . . 10,168 11,356
Depreciation . . . . . . . . . . . . . . . . . 21,397 17,120
Amortization . . . . . . . . . . . . . . . . . 2,760 1,998
Extraordinary loss on extinguishment
of debt. . . . . . . . . . . . . . . . . . . 62 831
Gain on sales of real estate assets. . . . . . (4,156) (8,890)
Issuance of stock under incentive plan . . . . 127 197
Equity in earnings of unconsolidated
affiliates . . . . . . . . . . . . . . . . . (1,514) (1,540)
Amortization of deferred compensation. . . . . 239 218
Write-off of development projects. . . . . . . 45 450
Distribution from unconsolidated
affiliates . . . . . . . . . . . . . . . . . 1,764 2,756
Distributions to minority investors. . . . . . (12,647) (11,780)
Changes in assets and liabilities -
Tenant and other receivables . . . . . . . (293) (707)
Other assets . . . . . . . . . . . . . . . (769) (1,249)
Accounts payable and accrued expenses. . . 6,207 18,283
-------- --------
Net cash provided by operating
activities . . . . . . . . . . . . . . . 48,032 53,456
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of real estate and land
acquisition, net of payables . . . . . . . . (101,280) (105,272)
Acquisition of real estate assets. . . . . . . (36,207) --
Capitalized interest . . . . . . . . . . . . . (4,702) (3,559)
Other capital expenditures . . . . . . . . . . (6,580) (4,850)
Proceeds from sales of real estate
assets . . . . . . . . . . . . . . . . . . . 8,876 23,221
Additions to notes receivable. . . . . . . . . (3,252) (8,888)
Payments received on notes receivable. . . . . 1,472 257
Additional investments in and advances to
unconsolidated affiliates. . . . . . . . . . (1,724) (1,684)
-------- --------
Net cash used in investing activities. . . . (143,399) (100,775)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other notes
payable. . . . . . . . . . . . . . . . . . . 251,540 113,132
Principal payments on mortgage and
other notes payable. . . . . . . . . . . . . (198,279) (31,534)
Additions to deferred finance costs. . . . . . (655) (994)
Refunds of finance costs . . . . . . . . . . . -- 721
Proceeds from issuance of common stock . . . . 74,465 128
Proceeds from exercise of stock options. . . . 1,104 1,352
Prepayment penalties on extinguishment of
debt . . . . . . . . . . . . . . . . . . . . (866) --
Dividends paid . . . . . . . . . . . . . . . . (30,038) (25,822)
--------- --------
Net cash provided by financing activities. . 97,271 56,983
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS. . . . . 1,904 9,664
CASH AND CASH EQUIVALENTS, beginning of
period . . . . . . . . . . . . . . . . . . . . . 4,298 3,029
--------- --------
CASH AND CASH EQUIVALENTS, end of period . . . . . $ 6,202 $ 12,693
========= ========
The accompanying notes are an integral part of these statements.
<PAGE>
CBL & ASSOCIATES PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unconsolidated Affiliates
At September 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
Nine Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues . . . . . . . . $ 15,977 $ 15,862 $ 7,851 $ 7,784
-------- -------- -------- --------
Depreciation and
amortization . . . . . 2,027 1,831 992 897
Interest expense . . . . 5,680 6,232 2,785 3,055
Other operating
expenses . . . . . . . 5,197 4,633 2,560 2,292
-------- -------- -------- --------
Net income before
extraordinary item . . $ 3,073 $ 3,166 $ 1,514 $ 1,540
Extraordinary loss on
early extinguishment
of debt. . . . . . . . -- (1,750) -- (831)
-------- -------- -------- --------
Net income . . . . . . . $ 3,073 $ 1,416 $ 1,514 $ 709
======== ======== ======== ========
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.
<PAGE>
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 from 125 to 110 basis points over LIBOR. The REIT's total
credit facilities were $175 million with $82.0 million outstanding
at September 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 September 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 nine months ended September 30, 1997.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 Financial
Statements to conform with the 1997 presentation.
<PAGE>
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 "forward-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 September 30, 1997, the
operations of a portfolio of properties consisting of sixteen
regional malls, ten associated centers, one power center, seventy-
nine 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, one power
center, 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 the newly
acquired Springdale Mall in Mobile, Alabama which is being
redeveloped, WestGate Mall in Spartanburg, South Carolina, Turtle
Creek Mall in Hattiesburg, Mississippi, and Oak Hollow Mall in High
Point, North Carolina.
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.
In August 1997 the REIT acquired Spartan Plaza in Spartanburg,
South Carolina, a 151,000 square foot center adjacent to our
WestGate Mall in Spartanburg. The purchase price was $4.5 million
which was funded from the REIT's Credit Lines. It was renamed
WestGate Crossing and it is currently being redeveloped and
retenanted.
In September 1997 the REIT acquired Springdale Mall in Mobile,
Alabama. The 926,000 square foot mall is anchored by Gayfers,
McRae's, and Montgomery Ward. The purchase price was $26.2 million
which was funded from the REIT's Credit Lines. The mall is being
redeveloped, remodeled and retenanted.
<PAGE>
RESULTS OF OPERATIONS
Operational highlights for the nine months ended September 30, 1997
as compared to September 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 3.46% on a
comparable per square foot basis.
Nine Months Ended
September 30,
-------------------------
1997 1996
----------- ------------
Sales per square foot $ 163.19 $ 157.87
Total sales volume in the mall portfolio, including New Malls,
increased 18.8% to $550.3 million for the nine months ended
September 30, 1997 from $463.4 million for the nine months
ended September 30, 1996.
Occupancy costs as a percentage of sales was 12.7% for the
nine months ended September 30, 1997 and 13.9% for the nine
months ended September 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 September 30,
---------------------
1997 1996
-------- --------
Stabilized malls 89.0% 88.0%
New malls 87.9 87.7
Associated centers* 83.1 99.6
Community centers 97.4 97.3
-------- --------
Total Portfolio 92.6% 93.3%
======== ========
* Total Portfolio occupancy without the redevelopment
centers Springdale Mall and WestGate Crossing would
have increased to 93.6%.
AVERAGE BASE RENT
Average base rents for the REIT's three portfolio categories were
as follows:
At September 30,
---------------------
1997 1996
-------- --------
Malls. . . . . . . . . . . . . $ 19.02 $18.44
Associated centers . . . . . . 9.46 8.57
Community centers. . . . . . . 7.30 6.77
LEASE ROLLOVERS
On spaces previously occupied, the REIT achieved the
following results from rollover leasing during the nine
months ended September 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. . . . . . . . . . . $ 19.72 $ 20.89 5.9%
Associated centers . . . . 12.40 13.16 6.1%
Community centers. . . . . 7.74 8.18 5.7%
(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 nine months ended September 30, 1997, malls
represented 72.1% of total revenues from the properties; revenues
from associated centers represented 3.6%; revenues from community
centers represented 20.7%; and revenues from mortgages and the
office building represented 3.6%. Accordingly, revenues and
results of operations are disproportionately impacted by the malls'
achievements. The REIT's cost recovery ratio decreased to 92.1%
for the nine months ended September 30, 1997 as compared to 98.0%
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
SEPTEMBER 30, 1997 TO THE RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1996
Total revenues for the three months ended September 30, 1997
increased by $7.8 million, or 21.8%, to $43.2 million as compared
to $35.5 million in 1996. Of this increase, minimum rents
increased by $5.9 million, or 26.0%, to $28.7 million as compared
to $22.8 million in 1996, and tenant reimbursements increased by
$2.0 million, or 19.4%, to $12.2 million in 1997 as compared to
$10.2 million in 1996.
<PAGE>
Approximately $7.2 million of the increase in revenues
resulted from operations at the fourteen new centers opened or
acquired during the past eighteen months. These centers consist
of:
CENTER LOCATION OPENING DATE
- ------ -------- ------------
Devonshire Place Cary, North Carolina September 1996
Kingston Overlook Knoxville, Tennessee November 1996
WestGate Mall Spartanburg, South Carolina October 1996
LaGrange Commons LaGrange, New York November 1996
St. Clair Square Fairview Heights, Illinions December 1996*
Sutton Plaza Mt. Olive, New Jersey January 1997*
The Terrace Chattanooga, Tennessee February 1997
Massard Crossing Ft. Smith, Arkansas March 1997
Hannaford Food & Drug Richmond, Virginia March 1997
Salem Crossing Virginia Beach, Virginia April 1997
Strawbridge Marketplace Virginia Beacg, Virginia August 1997
WestGate Crossing Spartanburg, South Carolina August 1997*
Springdale Mall Mobile, Alabama September 1997*
Springhurst Towne Center Louisville, Kentucky October 1997
* Acquisition date
Improved occupancies, operations and increased rents in the
REIT's operating portfolio generated approximately $1.4 million of
increased revenues offset by $0.4 million of revenues lost from
three centers that were sold in 1996. The majority of these
increases were generated at Hamilton Place Mall in Chattanooga,
Tennessee, CoolSprings Galleria in Nashville, Tennessee, and Twin
Peaks Mall in Longmont, Colorado.
Management, leasing and development fees increased by $0.1
million to $0.7 million in the third quarter of 1997 as compared to
$0.6 million in the third quarter of 1996. Interest and other
revenue decreased in the third quarter of 1997 by $0.5 million or
44.7%, to $0.6 million from $1.1 million in 1996 due to the
acquisition of a mortgage property.
Property operating expense, including real estate taxes and
maintenance and repairs, increased in the third quarter of 1997 by
$3.0 million, or 28.5%, to $13.5 million as compared to $10.5
million in the third quarter of 1996. This increase is primarily
the result of the addition of the fourteen new centers referred to
above.
<PAGE>
Depreciation and amortization increased in the third quarter
of 1997 by $1.8 million, or 28.8%, to $8.0 million as compared to
$6.2 million in the third quarter of 1996. This increase is
primarily the result of the addition of the fourteen new centers
referred to above.
Interest expense increased in the third quarter of 1997 by
$1.4 million, or 18.0%, to $9.1 million as compared to $7.8 million
in 1996. This increase is primarily due to interest on the
fourteen new centers opened during the last twelve months.
The gain on sales of real estate assets decreased in the third
quarter of 1997 by $0.6 million, or 45.1%, to $0.8 million as
compared to $1.4 million in 1996. The sales in the third quarter
of 1997 were for outparcels at Springhurst Towne Center in
Louisville, Kentucky. The sale in the third quarter of 1996 was
the sale of a free-standing Lowe's Home Improvement Center in
Adrian, Michigan, and the sale of land at Oak Hollow Mall in High
Point, North Carolina.
Equity in earnings of unconsolidated affiliates decreased in
the third quarter of 1997 by $ 0.1 million, or 30.0%, to $0.3
million as compared to $0.4 million in 1996.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 TO THE RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
Total revenues for the nine months ended September 30, 1997
increased by $20.1 million, or 18.8%, to $126.9 million as compared
to $106.8 million in 1996. Of this increase, minimum rents
increased by $15.4 million, or 22.7%, to $83.3 million as compared
to $67.9 million in 1996, and tenant reimbursements increased by
$5.1 million, or 16.1%, to $36.6 million in 1997 as compared to
$31.6 million in 1996.
Approximately $19.2 million of the increase in revenues
resulted from operations at the fourteen new centers opened or
acquired during the past eighteen months. These centers are the
same centers previously listed.
Improved occupancies, operations and increased rents in the
REIT's operating portfolio generated approximately $3.5 million of
increased revenues offset by $1.6 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, Hamilton Place Mall in Chattanooga, Tennessee and Twin
Peaks Mall in Longmont, Colorado.
Management, leasing and development fees decreased by $0.1
million to $1.8 million in the first nine months of 1997 as
compared to $1.9 million in 1996. This decrease was primarily due
to fewer outparcel sales commissions earned in 1997 and the REIT's
acquisition in 1996 of a mortgage property which eliminated
management fees. Interest and other revenue decreased by $1.0
million in 1997 to $2.0 million as compared to $3.0 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 nine months of 1997
by $7.6 million, or 23.5%, to $39.8 million as compared to $32.2
million in 1996. This increase is primarily the result of the
addition of the fourteen new centers referred to above.
Depreciation and amortization increased in the first nine
months of 1997 by $5.1 million, or 27.2%, to $23.6 million as
compared to $18.6 million in 1996. This increase is primarily the
result of the addition of the fourteen new centers referred to
above.
Interest expense increased in the first nine months of 1997 by
$3.8 million, or 16.5%, to $27.1 million as compared to $23.2
million in 1996. This increase is primarily the result of the
addition of the fourteen new centers referred to above.
The gain on sales of real estate assets decreased for the nine
months ended September 30, 1997 by $4.7 million, or 53.3%, to $4.2
million as compared to $8.9 million in 1996. The sales in the
first nine months of 1997 were in connection with anchor pad and
outparcel sales at our developments at Cortlandt Town Center in
Cortlandt, New York, Salem Crossing in Virginia Beach, Virginia,
and Springhurst Towne Center in Louisville, Kentucky which were
off-set by a loss on sale at Kingston Overlook in Knoxville,
Tennessee. The sales in 1996 consisted of the sale of two free-
standing Lowe's Home Improvement Centers in Benton Harbor, Michigan
and Adrian, 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.
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 November 1, 1997, the REIT had $32.1 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 November 1,
1997, the REIT had obtained revolving credit facilities totaling
$175 million of which $79.0 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
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 four 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 33.5 million
shares of common stock with a market value of approximately $869.4
million at September 30, 1997 (based on the closing price of
$25.9375 per share on September 30, 1997). REIT executive, former
executive and senior officers' ownership interests had a market
value of approximately $287.5 million at September 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 September 30, 1997, the REIT's share of
funded mortgage debt on its consolidated properties adjusted for
minority investors' interests in nine properties was $621.8 million
and its pro rata share of mortgage debt on unconsolidated
properties (accounted for under the equity method) was $41.8
million for total debt obligations of $663.6 million with a
weighted average interest rate of 7.7%. Our total fixed rate debt
as of September 30, 1997, was $421.7 million, with a weighted
average interest rate of 8.10%. Variable rate debt accounted for
$241.9 million of the total debt with a weighted average interest
rate of 7.3%. Variable rate debt accounted for approximately 36.5%
of the REIT's total debt and 15.8% of its total capitalization. Of
this variable rate debt, $152.2 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 September 30, 1997 is
$152.2 million on construction properties and $34.4 million on
operating properties.
<PAGE>
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.
In July, the REIT reduced the interest rate from 8.50% to
7.62% on a $7.0 million loan on Suburban Plaza in Knoxville,
Tennessee and fixed the rate at 7.3% on an $11.0 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
43.3% at September 30, 1997.
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
During the first nine 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; a 289,305 square foot
community center, Salem Crossing in Virginia Beach, Virginia; and
a 43,570 square foot free-standing Regal Cinema at Strawbridge
Marketplace in Virginia Beach, Virginia. The REIT also opened
subsequent to the end of the third quarter a 798,736 square foot
power center, Springhurst Towne Center in Louisville, Kentucky; a
631,555 square foot mall, Bonita Lakes Mall in Meridian,
Mississippi; a 110,550 square foot associated center, Bonita Lakes
Crossing in Meridian, Mississippi; and the first phase of a 772,451
square foot power center, Courtlandt Towne Center in Courtlandt,
New York.
The REIT also acquired in January a 122,207 square foot
community center, Sutton Plaza in Mt. Olive, New Jersey; in June a
49% interest in a 180,000 square foot associated center, Governor's
Plaza in Clarksville, Tennessee; in August a 151,489 square foot
associated center, WestGate Plaza in Spartanburg, South Carolina;
and in September a 926,376 square foot mall, Springdale Mall in
Mobile, Alabama.
<PAGE>
The REIT currently has approximately 1.5 million square feet
of new development under construction consisting of: an approximate
65,500 square foot community center, Sterling Creek Commons in
Portsmouth, Virginia; an approximate 1.4 million square foot mall,
Arbor Place in Douglasville, Georgia to open in October, 1999; and
a 10,000 square foot community center Chester Square in Richmond,
Virginia.
During the last quarter of 1997, the REIT expects to start
construction on the approximate 585,000 square foot power center,
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.
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 75% - 90% of its funds from operations
with the remaining 10% - 25% 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.
<PAGE>
For the nine months ended September 30, 1997, revenue
generating capital expenditures, or tenant allowances for
improvements, were $4.4 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 nine months ended
September 30, 1997. Revenue neutral capital expenditures, which
are recovered from the tenants, were $2.2 million for the nine
months ended September 30, 1997. The REIT also added $1.7 million
to notes receivable to fund a tenant allowance on a property which
the REIT has a mortgage on and which was substantially repaid
subsequent to the end of the quarter.
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 nine
months ended September 30, 1997 decreased by $5.4 million, or
10.1%, to $48.0 million from $53.5 million in 1996. This decrease
was primarily due a smaller increase in accounts payable for the
nine months ended September 30, 1997 of $6.2 million compared to a
greater increase in accounts payable of $18.3 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 nine months
ended September 30, 1997 increased by $42.6 million, or 42.3%, to
$143.4 million compared to $100.8 million in 1996. This increase
was due primarily to $36.2 million of acquisitions and increased
investment in capital and development for the nine months ended
September 30, 1997 as compared to 1996. Cash flows provided by
financing activities for the nine months ended September 30, 1997,
increased by $40.3 million, or 70.7%, compared to 1996 primarily
due to increased borrowings related to the development and
acquisition program.
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. The REIT however, 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 three months ended September 30, 1997, FFO increased
by $3.1 million, or 20.0%, to $18.5 million as compared to $15.4
million for 1996. For the third quarter of 1997, the existing
portfolio accounted for 54% of increase in FFO over the prior year
period and the new properties opened and acquired in the last
eighteen months accounted for 46% of the increase in FFO.
For the nine months ended September 30, 1997, FFO increased
by $7.9 million, or 17.5%, to $53.5 million as compared to $45.5
million for 1996. The existing portfolio accounted for 24% of the
increase in FFO over the prior year period and the new properties
opened and acquired in the last eighteen months accounted for 76%
of the increase in FFO.
The REIT's calculation of FFO is as follows: (in thousands)
Three Months Ended Nine Month Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Income from operations. . . . . $ 10,706 $ 8,935 $ 30,068 $ 26,170
ADD:
Depreciation & amortization from
consolidated properties . . . 8,029 6,232 23,639 18,583
Income from operations of
unconsolidated affiliates . . 301 430 1,514 1,540
Depreciation & amortization from
unconsolidated affiliates . . 337 271 993 897
Write-off of development costs
charged to net income . . . . 3 185 45 450
SUBTRACT:
Minority investors' share of
income from operations in
nine properties . . . . . . . (116) (122) (405) (385)
Minority investors' share of
depreciation and amortization
in nine properties. . . . . . (199) (171) (582) (486)
Preference return paid to
mortgagees . . . . . . . . . -- 17 -- (331)
Adjustment for straight-lining
of rents:
Consolidated properties . . . (510) (328) (1,528) (728)
Unconsolidated affiliates . . 8 14 (2) 4
Minority investors' share of
nine properties . . . . . . 22 3 57 12
Depreciation and amortization
of non-real estate assets
and finance costs . . . . . (107) (65) (320) (194)
-------- -------- -------- --------
TOTAL FUNDS FROM OPERATIONS . . $ 18,474 $ 15,401 $ 53,479 $ 45,532
======== ======== ======== ========
The REIT does not include gains or losses on outparcel sales
(which would have added $4.2 million and $8.9 million for the nine
months ended September 30, 1997 and 1996, respectively) or the
effect of straight-line rents (which would have added $1.5 million
and $0.7 million for the nine months ended September 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 is not permitted and
upon initial application, all prior-period EPS data is required to
be restate. 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 recognized 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.
In June 1997, the FASB issued SFAS 131 "Disclosures About
Segments of an Enterprise & Related Information". This statement
requires that segments of a business be disclosed in interim and
annual financial statement. The REIT will adopt SFAS 131 in
January 1998.
<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 ON 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 October 29, 1997 conference
call with analysts and investors regarding earnings
(Item 5) was filed on October 29, 1997.
<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: November 14, 1997
<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 September 30, 1997 (unaudited) and the
Consolidated Statement of Operations for the nine months ended
September 30, 1997 (unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,202
<SECURITIES> 0
<RECEIVABLES> 12,797
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 137,407
<TOTAL-ASSETS> 1,150,638
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 240
<OTHER-SE> 341,230
<TOTAL-LIABILITY-AND-EQUITY> 1,150,638
<SALES> 0
<TOTAL-REVENUES> 126,943
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 69,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,081
<INCOME-PRETAX> 25,570
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,570
<DISCONTINUED> 0
<EXTRAORDINARY> 928
<CHANGES> 0
<NET-INCOME> 24,642
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
