Securities Exchange Act of 1934 -- Form 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report :
October 29, 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
incorporation) Number)
One Park Place, 6148 Lee Highway, Chattanooga, Tennessee 37421
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(Address of principal executive offices)
Registrant's telephone number, including area code:
(423) 855-0001
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CBL & ASSOCIATES PROPERTIES, INC.
CONFERENCE CALL OUTLINE
OCTOBER 29, 1997
10:00 a.m.
Good morning. We appreciate your participation in our conference
call to discuss the 1997 third 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 nine months of 1997 increased by 17.4% over
the first nine months of 1996 due to:
1. The nine new shopping centers and one mall expansion opened
over the last eighteen months which totals approximately 3
million square feet;
2. The acquisition of five properties, one in November 1996 and
one in January 1997, a 49% interest in a third property in
June 1997, and most recently two properties that were
acquired in August and September 1997;
3. Improved operations from our existing centers.
Primarily as a result of the addition of fifteen centers during
the last eighteen months, our expenses for the first nine months
increased by 20.1% over the nine months of 1996. Our cost recovery
ratio for the first nine months this year was 92.1% compared to
98.0% for the first nine months of 1996. The addition of
properties to our portfolio that have non recoverable ground rent
has an impact on our cost recovery ratio. Our cost recovery ratio
for the 1996 calendar year was 94.8%.
For the third quarter of 1997, the existing portfolio accounted
for 54% of FFO growth over the prior year period and the new
properties opened and acquired in the last eighteen months
accounted for 46% of the FFO growth.
For the first nine months of 1997, the existing portfolio
accounted for 24% of our 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.
One point I should make is that last year's results included .03
per share of FFO from 5 centers that were sold during 1996. The
proceeds from these sales were used to fund our development
program which, as those centers open, will provide higher yields.
This is consistent with our philosophy of redeploying our assets
to higher yielding assets.
FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
Our total funds from operations for the first nine months of 1997
on a fully converted basis was $53.5 million, or $1.61 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 nine months would have increased
by .17 to $1.78 per share.
DIVIDEND AND PAYOUT RATIO
Our payout ratio for the first nine months of 1997 was 82.5% as
compared to 83.4% for the first nine months of 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 82.5%. Our payout ratio including straight
line rents and outparcel sales in FFO would be 74.5% for the first
nine months of 1997.
CAPITAL STRUCTURE
As of September 30, 1997, our total consolidated and
unconsolidated debt was $663.6 million, with a weighted average
interest rate of 7.69% as compared to 8.27% at September 30, 1996.
This amount includes all properties under construction. Our debt
to total market capitalization ratio was 43.3%. Our EBITDA to
interest ratio increased to 2.95 for the first nine months of 1997
compared to 2.86 for 1996. Excluding outparcel sales, the EBITDA
to interest ratio increased to 2.84 for the nine months of 1997
compared to 2.75 for the same period 1996.
Our total fixed rate debt as of September 30, 1997, was $421.7
million, with a weighted average interest rate of 8.10% as
compared to 8.73% at September 30, 1996. Our total variable rate
debt as of September 30, 1997, was $241.9 million, with a weighted
average interest rate of 6.98%. Variable rate debt relating to
our projects under construction accounted for $152.2 million of
the total. The remaining $89.7 million of variable rate debt was
associated with operating properties. With $55.3 million of
applied interest rate caps and swaps, we have only$34.4 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. At the present time we are
negotiating several permanent loans to take advantage of the
favorable interest rate environment. These loans will further
reduce our variable rate debt exposure.
CAPITAL EXPENDITURES
Revenue Generating capital expenditures, or tenant allowances for
improvements, for the first nine months of 1997 were $4.4 million
which includes $1.0 million we had expected to spend in 1996. For
the balance of the year, we expect to spend $800,000 on tenant
improvements.
Revenue Enhancing capital expenditures, or remodeling and
renovation costs, were $600,000 for the first nine months. By the
end of 1997 we will have spent approximately $2.6 million for the
soon to be completed remodeling of Foothills Mall and five of our
community centers, two of which are already completed.
Revenue Neutral capital expenditures, which are recovered from the
tenants, were $2.2 million for the first nine months of 1997.
DEVELOPMENTS/ACQUISITIONS
For the first nine months we have opened 1.6 million square feet
of developed projects and acquired 1.1 million square feet of
retail space.
In the third quarter beginning In August we opened the free-standing
43,000 square foot Regal Cinema at Strawbridge Marketplace in Virginia
Beach, Virginia and the first phase of Springhurst Towne Center in
Louisville, Kentucky with the balance of the center to open next
spring. We are currently 99% leased and committed for phase I of
Springhurst Towne Center.
On October 15, we opened Bonita Lakes Mall, a 632,000 square foot
regional mall in Meridian, Mississippi anchored by Sears, JC
Penney, McRae's and Dillards. Bonita Lakes Mall is currently 93%
leased and committed. Bonita Lakes Crossing, a 110,500 square
foot associated center, opened with the mall and is currently
86.5% leased and committed.
The first phase of Cortlandt Town Center in Cortlandt, New York
will open later this week and continue through the balance of this
year and next spring. The entire project will be open by the Fall
of 1998 and we are currently 96.1% leased and committed.
In November we will also open a 10,000 square foot addition to
Chester Square in Richmond, Virginia, a 7,500 square foot
expansion to Buena Vista Plaza in Columbus, Georgia, and a 12,000
square foot expansion to Pemberton Plaza in Vicksburg,
Mississippi.
Other projects under construction include: Sterling Creek Commons
in Portsmouth, Virginia, a 65,500 square foot community center
expected to open in the summer of 1998 and a 14,000 square foot
expansion to Hamilton Crossing in Chattanooga, Tennessee expected
to open in the spring of 1998.
In August 1997 we acquired Spartan Plaza in Spartanburg, South
Carolina, a 151,000 square foot center adjacent to our WestGate
Mall in Spartanburg. We have renamed it WestGate Crossing and are
currently redeveloping and retenanting the center. In September
1997 we acquired Springdale Mall in Mobile, Alabama. The 926,000
square foot mall is anchored by Gayfers, McRae's, and Montgomery
Ward. We are redeveloping, remodeling and retenanting the
center.
The acquisition market continues to be very competitive. There is
a temptation in this market to be caught up in the buying of
properties solely for the sake of initial FFO growth rather than
properties with long term growth potential. Our company has
maintained a disciplined approach to acquisitions and we will
continue to selectively identify acquisition opportunities that
can benefit from our leasing, management and development
expertise.
OCCUPANCY/LEASING
As stated in our news release overall portfolio occupancy
decreased slightly to 92.6% at September 30, 1997, compared with
93.5% at September 30, 1996. This occupancy number is slightly
misleading as the decrease in this quarter reflects the two
acquisitions we made, Springdale Mall and WestGate Crossing. As
you can tell, our stabilized malls and community centers performed
well this quarter. Had we excluded Springdale Mall, our new mall
occupancy would have been 89.8%. Associated center occupancy
excluding WestGate Crossing would have been 93.7%. Excluding both
acquisitions, total portfolio occupancy would have been 93.7%.
During the third 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 2.6% to
a new per square foot average of $21.24; associated centers
increased 0.3% to a new per square foot average of $12.37; and
community centers increased 5.4% to a new per square foot average
of $9.05. For the first nine months of 1997 our spreads on an
average year basis are up 5.9% for malls, up 6.1% for associated
centers, and up 5.7% for community centers.
New PSF
Prior PSF Rent- New PSF % Change % Change
Rent Initial Rent-Avg. Initial Average
---------- --------- ---------- --------- ---------
Malls $20.70 $20.78 $21.24 3.1% 2.6%
Associated
Centers 12.04 12.37 12.37 2.8 2.8
Community
Centers 8.58 8.61 9.05 0.3 5.4
A comparison of both new and renewal leasing with 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 373,000 square feet at an average
rate of $20.89 per square foot with 45,000 square feet of tenants
vacating.
In the associated centers, we leased 11,000 square feet at an
average rate of $12.37 per square foot with 6,000 square feet of
tenants vacating.
In the community centers, we leased 72,000 square feet at an
average rate of $9.05 per square foot with 6,000 square feet of
tenants vacating.
SALES
Mall shop sales in our stabilized malls, for those tenants who
have reported, increased 3.4% on a comparable per square foot
basis for the first nine 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 12.7 % at September 30, 1997, compared to 13.3% at September
30, 1996.
RETAIL OUTLOOK
We noted in our conference call last quarter that we were
encouraged, and we remain encouraged by the improvement in
leasing, mall occupancy and tenant sales in our existing
portfolio.Though our existing portfolio contributed only minimally
to the FFO growth in the first quarter, it contributed 24% of the
growth in the second quarter and 54% of the growth in the third
quarter. This positive trend reflects the stabilized and
strengthening retail environment in our markets.
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: October 29, 1997
