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 :
February 4, 1998
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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
February 4, 1998
10:00 a.m.
Good morning. We appreciate your participation in our conference
call to discuss the 1997 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.
Growth
1997 was definitely a successful year for our company. We enjoyed
growth, not only internally from our existing portfolio, but
externally from new developments and acquisitions. We increased
the total overall square footage in our portfolio by 22%, while at
the same time increasing our funds from operations by 25.1%. The
internal growth in our portfolio is evidenced by the increased
occupancy levels at both our stabilized malls as well as our new
malls. The positive impact of this increased occupancy will be
fully experienced during 1998 as the leasing results occurred
throughout 1997.
We had our greatest year of new developments in 1997, completing
3.2 million square feet of new projects and expanding four
shopping centers by 200,000 square feet. In addition,
our acquisition program completed 1.2 million square feet of
acquisitions in 1997 and has delivered 1.9 million square feet of
new acquisitions in the first month of 1998.
Let us examine the components of this growth.
Our FFO for 1997 increased by 25.15% over 1996 primarily due to:
1. The one new mall and one major mall expansion, two associated
centers, two power centers and seven new community centers
opened over the last twenty-four months totaling
approximately 4.4 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 two properties that were acquired in August
and September 1997;
3. Improved operations and 200,000 square feet of expansions in
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our existing centers.
As a result of the addition of eighteen centers developed and
acquired during the last twenty four months, our expenses for
1997 increased by 24.4% over 1996. These eighteen centers at
December 31, 1997 had an average occupancy of 92.2%. The initial
returns on these properties, at opening, range from 8.5% to 12.0%.
Please remember that these returns are calculated on rents in
place rather than straight line rents and after deducting a 5%
management fee.
Our cost recovery ratio for this year was 92.2% compared to 94.8%
for 1996. The addition of properties to our portfolio that have
non recoverable ground rent had an impact on our cost recovery
ratio. We are focused on cutting expenses and maximizing our
recoveries to improve our overall recovery ratio.
We increased the total square footage of our portfolio by 22%
during 1997, and even with this substantial increase our existing
portfolio accounted for 18% of FFO growth over 1996. The new
properties opened and acquired in the last twenty-four months
accounted for 82% of the FFO growth.
For the fourth quarter of 1997, the existing portfolio accounted
for 12% of our FFO growth over the prior year period and the new
properties opened and acquired in the last twenty-four months
accounted for 88% of this quarter's FFO growth.
One point I should make is that 1996 results included $.035 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 these centers opened, have provided higher
yields. This is consistent with our philosophy of redeploying our
capital to higher yielding assets.
Funds from Operations and Adjusted Funds from Operations
Our total funds from operations for 1997 on a diluted fully
converted basis rose to $2.21 per share or $73.1 million.
Although NAREIT allows it we do not include outparcel sales or
straight-lined rents in our conservative practice of calculating
FFO. Had we included these two items, our FFO for 1997 would have
increased by an additional $.07 for straight line rents and $.16
for outparcel sales to $2.44 per diluted fully converted share.
Dividend and Payout Ratio
Our payout ratio for 1997 was 79.7% as compared to 82.0% 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 79.7%. Our payout ratio
calculated as NAREIT allows with straight line rents and outparcel
sales in FFO would have been 72% for 1997.
Capital Structure
As of December 31, 1997, our total consolidated and unconsolidated
debt was $761.4 million, with a weighted average interest rate of
7.59% as compared to 8.04% at December 31, 1996. Our debt to
total market capitalization ratio was 47.9%. Our EBITDA to
interest ratio was 2.97 for 1997 compared to 3.12 for 1996.
Excluding outparcel sales, the EBITDA to interest ratio increased
to 2.83 for 1997 compared to 2.74 for 1996.
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Our total fixed rate debt as of December 31, 1997, was $411.7
million, with a weighted average interest rate of 8.07% as
compared to 8.74% at December 31, 1996. Our total variable rate
debt as of December 31, 1997 was $349.7 million, with a weighted
average interest rate of 7.01%. Variable rate debt relating to
our projects under construction accounted for $159.5 million of
the total. The remaining $190.2 million of variable rate debt was
associated with operating properties. With $155.3 million of
applied interest rate caps and swaps, we had $34.7 million of
exposure on our operating properties at year end. In the first
week of 1998 an additional $65 million swap eliminated our FFO
Interest expense exposure to floating rate debt.
Capital Expenditures
Revenue Generating capital expenditures, or tenant allowances for
improvements, for 1997 were $5.9 million which includes $1.0
million we had expected to spend in 1996.
Revenue Enhancing capital expenditures, or remodeling and
renovation costs, were $3.8 in 1997.
Revenue Neutral capital expenditures, which are recovered from the
tenants, were $6.1 million for 1997.
Developments/Acquisitions/Expansions
In 1997 we opened 3.2 million square feet and acquired another 1.2
million square feet of retail space, and completed 200,000 square
feet of expansions increasing the size of our portfolio by 4.6
million square feet, or 22%.
Developments
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
was opened on November 15,1997. The entire project will be open by
the Fall of 1998 and we are currently 96.1% leased and committed.
In November we also opened 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.
During the fourth quarter we started construction on Arbor Place
Mall in Douglasville, Georgia a suburb of Atlanta. The 1.3 million
square foot mall is scheduled to open in October 1999. Included in
plans for the development of the mall is an associated center The
Landing at Arbor Place. In December we closed on the land for Sand
Lake Corner a 538,733 square foot power center in Orlando,
Florida. Other projects under construction include: Sterling Creek
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Commons in Portsmouth, Virginia, a 65,500 square foot community
center expected to open in the summer of 1998.
Acquisitions
In January 1997 we acquired the 122,000 square foot Sutton Plaza
in Mt Olive, New Jersey. 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.
January 1998 was a big month for acquisitions. On January 2, 1998
we acquired Asheville Mall in Asheville, North Carolina which is
a 820,044 square foot mall anchored by Belk, Dillard's, JC Penney,
Montgomery Ward and Sears. Asheville Mall is currently 98.5%
leased. On January 30, 1998 we acquired Burnsville Center in
Burnsville Minnesota. The mall located in a suburb of Minneapolis
is a 1,078,568 square foot super regional mall anchored by
Dayton's, JC Penney, Mervyn's and Sears.
We are pleased that our conservative disciplined approach to
acquisitions has yielded two quality properties so far this year
with impressive growth potential. We expect the performance of
these two new acquisition properties to parallel the performance
of St Clair Square in Fairview Heights, Illinois. Our yield on St
Claire Square increased from an initial 8.9% at acquisition in
November, 1996 to a 9.8% return 12 months later with an increase
of 52% in FFO. We will continue to selectively identify
acquisition opportunities that can benefit in a similar way from
our leasing, management and development expertise.
Expansions
During 1997 we added 7,500 square feet of retail space at Buena
Vista Plaza in Columbus Georgia and increased the retail space at
Pemberton Plaza in Vicksburg, Mississippi by 80% adding 12,000
square feet.
We currently have under construction a 23,645 square foot
expansion to Gervin Plaza in Jacksonville, Florida and 14,000
square foot expansion to an associated center Hamilton Crossing in
Chattanooga, Tennessee.
During the first quarter of 1997 we added a 94,000 square foot
Dillard's to Twin Peaks Mall in Longmont Colorado and a 85,000
square foot Dillard's to Frontier Mall in Cheyenne, Wyoming. This
past November we also announced the planned addition of a 92,000
square foot Sears department store to Lakeshore Mall in Sebring
Florida which will be the fifth anchor store.
Occupancy/Leasing
As stated in our news release overall portfolio occupancy
increased to 93.7% at December 31, 1997, compared with 93.3% at
December 31, 1996. This occupancy increase is more impressive
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considering that it includes Springdale Mall and Westgate Crossing
which are redevelopment centers, currently being retenanted.
During the fourth 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 malls and associated centers. Malls increased
9.8% to a new per square foot average of $22.24; associated
centers increased 10.1% to a new per square foot average of
$14.85; and community centers increased 8.7% to a new per square
foot average of $8.37. For 1997 our spreads on an average year
basis are up 6.9% for malls, up 6.9% for associated centers, and
up 6.4% for community centers.
4th Quarter Leasing Performance
New PSF
Prior PSF Rent- New PSF % Change % Change
Rent Initial Rent-Avg. Initial Average
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Malls $20.26 $21.54 $22.24 6.4% 9.8%
Associated
Centers 13.50 14.73 14.85 9.2% 10.1%
Community
Centers 7.70 8.15 8.37 5.8% 8.7%
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 improvement in leasing overall.
In the mall portfolio, we leased 481,826 square feet at an average
rate of $21.59 per square foot with 173,829 square feet of
tenants vacating.
In the associated centers, we leased 56,055 square feet at an
average rate of $13.75 per square foot with 50.535 square feet of
tenants vacating.
In the community centers, we leased 331,476 square feet at an
average rate of $8.24 per square foot with 42,411 square feet of
tenants vacating.
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Sales
Mall shop sales in our stabilized malls, for those tenants who
have reported, increased 4.7% on a comparable per square foot
basis for 1997 as compared to 1996 which is significantly above
the industry average. Occupancy costs as a percentage of sales
at our stabilized malls, was 11.2% at December 31, 1997, compared
to 11.5% at December 31, 1996.
Retail Outlook
Though FFO growth in our existing portfolio was overshadowed by
the growth from a record number of openings and acquisitions, we
remain encouraged by the improvement in leasing, mall occupancy
and tenant sales in our existing portfolio. 1997 was a record year
for adding square feet and properties and we expect that 1998 will
be a record year for FFO growth as we maximize our returns on
those 1997 additions.
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: February 4, 1997
