SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1998
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
Commission File No. 1-12494
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 of (I.R.S. Employer Identification
incorporation or organization) Number)
6148 Lee Highway, Suite 300
Chattanooga, Tennessee 37421
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 855-0001
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
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Common Stock, $.01 par New York Stock Exchange
value per share
9% Series A Cumulative New York Stock Exchange
Redeemable Preferred
Stock, par value $.01 per share,
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $ 581,505,679 based on the closing price on the
New York Stock Exchange for such stock on March 19, 1999.
As of March 19, 1999, there were 24,613,997 shares of the Registrant's
Common Stock outstanding and 2,875,000 shares of 9% Series A Cumulative
Redeemable Preferred Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference to the Registrant's
definitive proxy statement filed on March 26, 1999 in respect to the Annual
Meeting of Stockholders to be held on April 29, 1999.
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FORM 10-K
TABLE OF CONTENTS
Item No. Page
PART I
Item 1 Business. . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Properties. . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 36
Item 4 Submission of Matters to a Vote of Security Holders . . . 36
PART II
Item 5 Market for Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . 36
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . 38
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 39
Item 8 Financial Statements and Supplementary Data . . . . . . . 53
Item 9 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 53
PART III
Item 10 Directors and Executive Officers of the Registrant . . . 53
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . 53
Item 12 Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . 53
Item 13 Certain Relationships and Related Transactions . . . . . 53
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 54
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CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION OR THE PURPOSE
OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward- looking statements, Certain information contained in this
Annual Report on Form 10-K is forward- looking, such as information relating to
the Company's growth strategy, projects under construction, liquidity and
capital resources, compliance with environmental laws and regulations, and the
year 2000 compliance of the Company's computer systems. Such statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially, including, but not limited to, those set forth below. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
PART I
ITEM 1. BUSINESS.
FORMATION OF THE COMPANY
CBL & Associates Properties, Inc. (the "Company") is a self-managed,
self-administered, fully-integrated real estate company which is
engaged in the ownership, operation, marketing, management, leasing,
expansion, development, redevelopment, acquisition and financing of
regional malls and community and neighborhood centers. The Company
was incorporated on July 13, 1993 under the laws of the State of Delaware
to acquire an interest in substantially all of the real estate properties
owned by CBL & Associates, Inc. and its affiliates ("CBL") and to
provide a public vehicle for the expansion of CBL's shopping center
business.
The Company conducts substantially all of its business through CBL &
Associates limited partnership, a Delaware limited partnership (the "Operating
Partnership"), in which the Company owns an indirect 67.7% interest and of which
the Company's wholly-owned subsidiary is the sole general partner. To comply
with certain technical requirements of the Internal Revenue Code of 1986, as
amended (the "Code") applicable to Real Estate Investment Trusts' ("REIT's"),
the Company's property management and development activities, sales of
peripheral land and maintenance and security operations are carried out through
CBL & Associates Management, Inc. (the "Management Company").
On November 3, 1993, the Company completed the initial public offering,
(the "Offering"), of 15,400,000 shares of its common stock, par value $.01 per
share (the "Common Stock"). Simultaneously with the completion of the Offering,
CBL transferred to the Operating Partnership substantially all of CBL's
interests in its real estate properties and its management and development
operations in exchange for an interest in the Operating Partnership. CBL also
acquired an additional interest in the Operating Partnership for a cash payment.
Each of the partnership interests in the Operating Partnership may, at the
election of its respective holder, be exchanged for shares of Common Stock of
the Company, subject to certain limitations imposed by the Code.
The Offering and the application of proceeds therefrom, including the
Operating Partnership's acquisition of certain property interests, and the
contribution by CBL of property interests to the Operating Partnership, are
referred to herein as the "Formation."
In September 1995, the Company completed a follow-on offering of 4,163,500
shares of its Common Stock at $20.625 per share. CBL purchased 150,000 of these
shares.
In January 1997, the Company completed a follow-on offering of 3,000,000
shares of its Common Stock at $26.125 per share. CBL purchased 55,000 of
these shares as part of the offering.
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In July 1998, the Company purchased a .3565% limited partner interest
valued at $3.0 million from a former executive and minority limited partner in
the Operating Partnership.
In July 1998, the Company acquired Hickory Hollow Mall, Rivergate Mall, The
Courtyard at Hickory Hollow, The Village at Rivergate and Lions Head Village,
all located in the metropolitan Nashville, Tennessee area. The purchase price of
$247.4 million was funded with a ten-year fixed-rate loan in the amount of
$182.7 million, the issuance by the Operating Partnership of a limited partner
interest with a value of $15,292,394 and the balance funded from the Company's
credit lines.
In August 1998, the Company acquired Meridian Mall in Lansing (Oskemos),
Michigan and Janesville Mall in Janesville, Wisconsin. The purchase price of
$138 million was funded with an acquisition loan of $80 million, the assumption
of a $ 17 million loan, the issuance by the Operating Partnership of a limited
partner interest with a value of $52,964,737 and the excess loan proceeds of
12.1 million were used to pay down the Company's credit lines.
During 1998, the Company purchased from CBL parcels of land for the
expansion and development of existing properties in Nashville, Tennessee,
Chattanooga, Tennessee, Radford, Virginia, and Columbus, Georgia for a total
value of $1,583,838. The Operating Partnership issued limited partner interests
to CBL in return for the parcels of land.
After giving effect to the above transactions, CBL holds a 25.8% limited
partner interest in the Operating Partnership, the Company holds a 67.7%
general and limited partner interest in the Operating Partnership and third
parties hold a 6.5% limited partner interest. In addition, CBL holds
approximately 1.7 million of the outstanding shares of Common Stock for a total
ownership share of 30.5%.
In June 1998, the Company completed a public offering of 2,875,000 shares
of 9% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred
Stock") at a price to the public of $25.00 per share, The net proceeds of $70
million were used to repay variable rate indebtedness incurred in the Company's
development and acquisition programs.
GENERAL
The Company owns interests in a portfolio of properties, which as of
December 31, 1998 consisted of 28 enclosed regional malls (the "Malls"), 14
associated centers (the "Associated Centers"), each of which is part of a
regional shopping mall complex, and 82 independent community and neighborhood
shopping centers (the "Community Centers"). Except for ten Malls, three
Associated Centers and three Community Centers which were acquired from third
parties, each of these properties was developed by CBL or the Company.
Additionally, as of December 31, 1998, the Company owned one regional Mall,
one Associated Center, one power center and two neighborhood shopping centers
currently under construction (the "Construction Properties"). The Company also
owned as of December 31, 1998, options to acquire certain shopping center
development sites (the "Development Properties").
The Company also owned as of December 31, 1998, mortgages (the "Mortgages")
on community and neighborhood shopping centers owned by non-CBL affiliates. The
Mortgages were granted in connection with sales by CBL of certain properties
previously developed by CBL. The Company also owns an interest in a three-story
office building in Chattanooga, Tennessee, the major portion of which serves as
the Company's headquarters (the "Office Building"). The Malls, Associated
Centers, Community Centers, Construction Properties, Development Properties,
Mortgages and Office Building are collectively referred to herein as the
"Properties" and individually as a "Property".
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As of December 31, 1998 the Company had also entered into standby purchase
agreements with third-party developers for the construction, development and
potential ownership of four community centers in Georgia and Texas (the "Co-
Development Projects"). The developers have utilized these standby purchase
agreements as additional security for their lenders to fund the construction
of the Co-Development Projects. The standby purchase agreements for each of
the Co-Development Projects require the Company to purchase the related
Co-Development Project upon such Co-Development Project meeting certain
completion requirements and rental levels. In return for its commitment to
purchase a Co-Development Project pursuant to a standby purchase agreement, the
Company receives a fee as well as a participation interest in each
Co-Development Project. The outstanding amount of standby purchase agreements at
December 31, 1998 is $116.4 million.
The Company and the Operating Partnership generally own a 100% interest in
the Properties. With two exceptions, where the Company and the Operating
Partnership own less than a 100% interest in a Property, the Operating
Partnership is the sole general partner, managing general partner or managing
member of the property partnership or limited liability company which owns such
Property (each a "Property Partnership"). For one Mall and its Associated
Center, affiliates of the Operating Partnership are non-managing general
partners in the two Property Partnerships owning those Properties.
For a full description of the Properties, see Item 2 Properties
The Companies executive office are loacated at 6148 Lee Highway, Suite 300,
Chattanooga, Tn 37421-6511. The telephone number at this address is (423)
855-0001.
MANAGEMENT AND OPERATION OF PROPERTIES
MANAGEMENT COMPANY
The Company is self-managed and self-administered. To comply with certain
technical requirements of the Code, the Company's property management and
development activities, sales of peripheral land are carried out through the
Management Company.
The Operating Partnership holds 100% of the preferred stock and 5% of the
common stock of the Management Company. The remaining 95% of the common stock is
held by Charles Lebovitz, his family and the associates. Substantially all of
CBL's asset management, property management and leasing and development
operations, including CBL's executive, property, financial, legal and
administrative personnel, were transferred to the Management Company as part of
the Formation. The Management Company manages all of the Properties (except for
Governor's Square and Governor's Plaza in Clarksville, Tennessee - see below)
under a management agreement that may be terminated at any time by the
Operating Partnership upon 30 days written notice. In addition, the Management
Company manages certain properties owned by CBL that were not transferred to
the Company in the Formation as well as certain shopping centers owned by
non-CBL affiliates. Through its ownership of the Management Company's preferred
stock, the Operating Partnership enjoys substantially all of the economic
benefits of the Management Company's business. Requirements set forth in the
Management Company's Amended and Restated Certificate of Incorporation,
state that a majority of the Management Company's board of directors
are required to be independent of CBL. From November 1993 to the current
date, the board of directors of the Management Company has consisted of the
same individuals as the Company's board of directors, including the four
independent directors.
ON-SITE MANAGEMENT
The on-site property management functions at the Malls include leasing,
management, data processing, rent collection, project bookkeeping, budgeting,
marketing, and promotion. Each Mall, for itself and its Associated Centers, has
an on-site property manager who oversees the on-site staff and an on-site
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marketing director who oversees the marketing program for that Mall. District
managers, most of whom are located at the Company's headquarters, oversee the
leasing and operations at a majority of the Community Centers. The on-site Mall
managers are experienced managers with training in mall management.
Virtually all operating activities of the Company are supported by a
computer software system which is designed to provide management with operating
data necessary to make informed business decisions on a timely basis. During
1994, the Company implemented a new management information system which included
hardware and software. During 1998, the Company completed a hardware upgrade to
the accounting system and implemented a web site to publish integrated
information on the world wide web. These systems were developed to more
efficiently assist management in efforts to maintain management quality, enhance
investor relations and communications and enhance tenant relations while
minimizing operating expenses. Retail sales analysis, leasing information,
budget controls, accounts receivable/payable, operating expense variance reports
and income analysis are continually available to management. Through these
systems management also has available information that facilitates the
development and monitoring of budgets and other relevant information. See Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000.
Management pursues periodic preventative maintenance programs, which
encompass paving, roofing, HVAC and general improvements to the Properties'
common areas. The on-site property managers oversee all such work in accordance
with approved budgets with the coordination of and reporting to management.
GOVERNOR'S SQUARE
Governor's Square and Governor's Plaza are the only Properties in the
Company's portfolio in which the Company is not the sole general partner or
managing general partner. Governor's Square is owned by a Property Partnership,
the managing general partner of which is a non-CBL affiliate which owns a 47.5%
interest in the Mall. The Company is a non-managing general partner of
Governor's Plaza. Although the managing general partner of this partnership
controls the timing of distributions of cash flow, the Company's approval is
required for certain major decisions, including permanent financing, refinancing
and sale of all or substantially all of the partnership's assets. Property
management services, including accounting, auditing, maintenance, promotional
programs, leasing, collection and insurance, are performed by a property manager
affiliated with the non-CBL managing general partner for which such property
manager receives a fee.
EMPLOYEES
The Company, through the Management Company, currently employs
approximately 346 full time and 166 part time persons. None of these employees
is currently represented by any union. The Company does not have any employees
other than its statutory officers.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of petroleum, certain hazardous or toxic substances
on, under or in such real estate. Such laws typically impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such substances. The costs of remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to promptly remediate such substances, may adversely affect the owner's
or operator's ability to sell such real estate or to borrow using such real
estate as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, regardless
of whether such facility is owned or operated by such person. Certain laws also
impose requirements on conditions and activities that may affect the environment
or the impact of the environment on human health. Failure to comply with such
requirements could result in the imposition of monetary penalties (in addition
to the costs to achieve compliance) and potential liabilities to third parties.
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Among other things, certain laws require abatement or removal of friable and
certain non-friable asbestos-containing materials ("ACMs") in the event of
demolition or certain renovations or remodeling. Certain laws regarding ACMs
require building owners and lessees, among other things, to notify and train
certain employees working in areas known or presumed to contain ACMs. Certain
laws also impose liability for release of ACMs into the air and third parties
may seek recovery from owners or operators of real properties for personal
injury or property damage associated with ACMs. In connection with its ownership
and operation of the Properties, the Company, the Operating Partnership or the
relevant Property Partnership, as the case may be, may be potentially liable for
such costs or claims.
All of the Properties (but not properties for which the Company holds an
option to purchase but does not yet own) have been subject to Phase I
environmental assessments or updates of existing Phase I environmental
assessments within approximately the last six years. Such assessments generally
consisted of a visual inspection of the Properties, review of federal and state
environmental databases and certain information regarding historic uses of the
Property and adjacent areas and the preparation and issuance of written reports.
Some of the Properties contain, or contained, underground storage tanks ("UST"s)
used for storing petroleum products or wastes typically associated with
automobile service or other operations conducted at the Properties. However,
certain environmental conditions are being evaluated at the recently acquired
Parkway City Mall in Huntsville, Alabama (a 50% joint venture property). There
appears to be a high potential for adverse environmental conditions,
specifically Total Petroleum Hydrocarbons, in the vicinity of an auto service
center which had USTs. The Company has ordered additional engineering studies
and as part of the redevelopment is proceeding to correct the environmental
conditions at the site. Certain Properties contain, or contained, dry-cleaning
establishments utilizing solvents. Where believed to be warranted, samplings of
building materials or subsurface investigations were, or, with respect to one
Property, will be undertaken. At certain Properties, where warranted by the
conditions, the Company has developed and implemented an operations and
maintenance program that establishes operating procedures with respect to ACMs.
The costs associated with the development and implementation for such programs
were not material.
Although there can be no assurances that such environmental liability does
not exist, other than Parkway City in Huntsville, Alabama, none of the
environmental assessments have identified and the Company is not aware of any
environmental liability with respect to the properties in which the Company or
the Operating Partnership has or had an interest (whether as an owner or
operator) that the Company believes would have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
Nevertheless, it is possible that the environmental assessments available to the
Company do not reveal all potential environmental liabilities, that subsequent
investigations will identify material contamination, that adverse environmental
conditions have arisen subsequent to the performance of the environmental
assessments, or that there are material environmental liabilities of which
management is unaware. Moreover, no assurances can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Properties has not
been or will not be affected by tenants and occupants of the Properties, by the
condition of properties in the vicinity of the Properties or by third parties
unrelated to the Company, the Operating Partnership or the relevant Property
Partnership. The existence of any such environmental liability could have an
adverse effect on the Company's results of operations, cash flow and the funds
available to the Company to pay dividends.
The Company has not recorded in its financial statements any material
liability in connection with environmental matters.
GENERAL RISKS OF THE COMPANY'S BUSINESS
General Factors Affecting Investments in Shopping Center Properties and
Effect of Economic and Real Estate Conditions
A shopping center's revenues and value may be adversely affected by a
number of factors, including: the national and regional economic climates; local
real estate conditions (such as an oversupply of retail space); perceptions by
retailers or shoppers of the safety, convenience and attractiveness of the
shopping center; and the willingness and ability of the shopping center's owner
to provide capable management and maintenance services. In addition, other
factors may adversely affect a shopping center's value without affecting its
current revenues, including: changes in governmental regulations, zoning or tax
laws; potential environmental or other legal liabilities; availability of
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financing; and changes in interest rate levels. There are numerous shopping
facilities that compete with the Properties in attracting retailers to lease
space. In addition, retailers at the Properties face continued competition from
discount shopping centers, outlet malls, wholesale clubs, direct mail,
telemarketing, television shopping networks and shopping via the Internet.
Competition could adversely affect the Operating Partnership's revenues
and funds available for distribution to partners, which in turn will
affect the Company's revenues and funds available for distribution to
stockholders.
Geographic Concentration
The Properties are located principally in the southeastern United States in
Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South
Carolina, Tennessee and Virginia. Nineteen Malls, thirteen Associated Centers,
sixty-two Community Centers and the Office Building are located in these states.
The Company's results of operations and funds available for distribution to
stockholders therefore will be subject generally to economic conditions in the
southeastern United States. As of December 31, 1998, the Properties located in
the southeastern United States accounted for 60.5% of the Company's total
assets, and provided 69.2% of the Company's total revenues for the year ended
December 31, 1998.
Third Party Interests In Certain Properties
The Operating Partnership owns partial interests in seven Malls, five
Associated Centers, one Community Center and the Office Building. The Operating
Partnership or an affiliate of the Company is the managing general partner of
the Property Partnerships that own such Properties, except for the Governor's
Square Mall and its Associated Center, Governor's Plaza, in which affiliates of
the Operating Partnership are non-managing general partners.
Where the Operating Partnership serves as managing general partner of
Property Partnerships, it may have certain fiduciary responsibilities to the
other partners in those partnerships. In certain cases, the approval or consent
of the other partners is required before the Operating Partnership may sell,
finance, expand or make other significant changes in the operations of such
Properties. To the extent such approvals or consents are required, the Operating
Partnership may experience difficulty in, or may be prevented from implementing
its plans with respect to expansion, development, financing or other similar
transactions with respect to such Properties.
With respect to Governor's Square and Governor's Plaza, the Operating
Partnership does not have day-to-day operational control or control over certain
major decisions, including the timing and amount of distributions and decisions
relating to sales, expansions and financings, which could result in decisions by
the managing general partner that do not fully reflect the interests of the
Company, including decisions relating to the standards that the Company is
required to satisfy in order to maintain its status as a real estate investment
trust for tax purposes.
Dependence on Significant Properties
Hamilton Place and CoolSprings Galleria accounted for approximately 6.2%
and 5.9%, respectively, of total revenues of the Company for the period ended
December 31, 1998. The Company's financial position and results of operations
will therefore be disproportionately affected by the results experienced at
these Properties.
Dependence on Key Tenants
As of December 31, The Limited Inc. (including Intimate Brands, Inc.)
maintained 123 stores and in the year ended December 31, 1998 accounted for
approximately 8.8% of total revenues of the Company. As of December 31, 1998,
the Venator Group, Inc. (Champs Sports, Footlocker, Afterthoughts Boutique,
etc.) had 87 stores and in the year ended December 31, 1998, accounted for 3.3%
of the total revenues of the Company. As of December 31, 1998, Food Lion served
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as an anchor tenant in 37 of the Community Centers and for the year ended
accounted for approximately 3.1% of total revenues of the Company. Food Lion is
a publicly traded North Carolina-based operator of supermarkets. The loss or
bankruptcy of any of these or other key tenants could negatively affect the
Company's financial position and results from operations.
THE COMPANY'S STRATEGY FOR GROWTH
Management believes that per share growth in the Company's Funds from
Operations, as defined below, is one of the key factors in enhancing shareholder
value. Management also believes that Funds from Operations is a widely used
measure of the operating performance of REITs, and its consistent determination
provides a relevant basis for comparison among REITs. It is the objective of the
Company's management to achieve growth in Funds from Operations through the
aggressive management of the Company's existing Properties, the expansion and
renovation of existing Properties, the development of new properties, and select
acquisitions. Funds from Operations can also be affected by external factors,
such as inflation, fluctuations in interest rates or changes in general economic
conditions, which are beyond the control of the Company's management.
"Funds from Operations" is defined by the Company as net income (loss)
before property depreciation, other non-cash items (consisting of the write-off
of costs associated with development projects not being pursued), gains or
losses on sales of real estate assets and gains or losses on investments in
marketable securities. The cost of interest rate caps and finance costs on the
Company's lines of credit are amortized and included in interest expense and,
therefore, reduces Funds from Operations. Funds from Operations also includes
the Company's share of Funds from Operations in unconsolidated properties and
excludes minority interests' share of Funds from Operations in consolidated
properties. The Company complies with the National Association of Real Estate
Investment Trust's ("NAREIT") revised definition of Funds from Operations by not
adding back to income from operations depreciation and amortization of finance
costs and non-real estate assets. The Company excludes outparcel sales from its
Funds from Operations calculation, even though the NAREIT definition allows
their inclusion. Funds from Operations does not represent cash flow from
operations as defined by generally accepted accounting principals ("GAAP") and
is not necessarily indicative of cash available from operations to fund all cash
flow needs and should not be considered an alternative to net income (loss) for
purposes of evaluating the Company's operating performance or to cash flows as a
measure of liquidity.
The Company classifies its regional malls into two categories - stabilized
malls ("Stabilized Malls") which have completed their initial lease-up and new
malls ("New Malls") which are in their initial lease-up phase or are being
redeveloped. At year end the New Mall category was comprised of WestGate Mall
in Spartanburg, South Carolina, which was renovated and expanded and
reopened in October 1996; Oak Hollow Mall in High Point, North Carolina
which opened in August 1995; Springdale Mall in Mobile, Alabama which
was acquired in September 1997 and which is being redeveloped and
retenanted; Bonita Lakes Mall in Meridian, Mississippi which opened in
October 1997 and Parkway City Mall in Huntsville, Alabama which was
acquired in December, 1998 and which is being redeveloped.
Specifically, the Company has implemented its objective of growing its
Funds from Operations and will continue to do so by:
bullet Maximizing the cash flow from its existing portfolio of Malls,
Associated Centers and Community Centers, and other retail complexes through
aggressive leasing, management, and marketing, including:
-- an active leasing strategy which seeks to increase occupancy.
At December 31, 1998, the occupancy at the Stabilized Malls, New
Malls, Associated Centers, and Community Centers was 93.6%, 93.6%,
90.5%, and 97.0%, respectively, as compared to occupancies of 91.7%,
89.2%, 83.3%, and 97.6%, respectively, at December 31, 1997;
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-- expanded merchandising, marketing and promotional activities,
with the goal of enhancing tenant sales and thereby increasing
percentage rents. Mall store sales per square foot for the year ended
December 31, 1998 were 3.8% higher at the Stabilized Malls than for
the year ended December 31, 1997;
-- increased base rents as tenant leases expire, renegotiation of
leases and negotiation of terminations of leases of under performing
retailers. At December 31, 1998 average base rents per square foot at
the Malls, Associated Centers, and Community Centers was $19.82,
$9.68, and $8.22, respectively, as compared to average base rents per
square foot of $19.33, $9.43, and $7.42, respectively, at December 31,
1997;
-- control of operating costs. Occupancy costs as a percentage of
sales at the Stabilized Malls decreased to 11.1% (excluding malls
acquired in 1998) for the year ended December 31, 1998 as compared to
11.2% for the year ended December 31, 1997.
bullet Expanding and renovating existing properties to maintain their
competitive position.
-- Most of the Malls were designed to allow for expansion and
growth through the addition of new department stores or other
large retail stores as anchors ("Anchors"). Twenty-two of the
twenty- eight Malls have undergone expansion or renovation since
their opening, and all of the non-acquired Malls have been either
built or renovated in the last 10 years or are in the process of
being renovated in 1999. Two of the Malls had available Anchor pads
at December 31, 1998. Eighteen existing Anchors at ten Malls have
expansion potential at their existing stores. During 1998, the
Company renovated Hamilton Place and Hamilton Crossing in
Chattanooga, Tennessee and is presently renovating Governor's
Square in Clarksville, Tennessee, College Square in Morristown,
Tennessee and Rivergate Mall in Nashville, Tennessee. The
Company is also expanding Lakeshore Mall in Sebring, Florida
in 1999 by adding Sears as the fifth department store.
-- In the Community Center and Associated Center portfolios,
the Company renovated three Community Centers and expanded one
Community Center and two Associated Centers in 1998. In 1999,
the Company plans to renovate at least four Community Centers.
bullet Developing new retail properties with profitable returns on
capital, leading to growth in the future.
-10-
<PAGE>
-- In 1998, the Company opened two Community Centers, the second
phase of two power centers and expansions to three existing
centers. Summary information concerning these properties is set
forth below:
<TABLE>
SUMMARY INFORMATION CONCERNING PROPERTIES
OPENED DURING THE YEAR ENDED DECEMBER 31, 1998
<CAPTION>
Anchor Non-
Name of Center/ Total GLA Anchor Percentage Opening
Location GLA(1) (2) GLA Leased(3) Date Anchors
________________________ _________ _________ _________ __________ _____________ _________________________
COMMUNITY CENTERS
<S> <C> <C> <C> <C> <C> <C>
Sterling Creek Commons 55,500 55,500 10,000 96% Jun-1998 Hannaford Bros.
Portsmouth, VA
Sand Lake Commons (4) 165,000 165,000 0 100% Nov-1998 Lowe's(4)
Phase I
Orlando, FL
Springhurst 303,000 303,000 0 100% Apr-1998 Meijer(4),
Towne Center Office Max
Phase II
Louisville, KY
Cortlandt Town Center 297,000 297,000 0 97% Aug-1998 Wal*Mart,
Phase II Pets Mart,
Cortlandt, NY United Artist
Hamilton Crossing 14,000 0 14,000 100% Mar-1998
Chattanooga, TN
CoolSprings Crossing 12,000 0 12,000 100% Jul-1998
Nashville, TN
Girvin Plaza 15,000 0 15,000 100% Jul-1998
------ - ------
Jacksonville, FL
TOTAL PROPERTIES OPENED 871,500 820,500 51,000
======= ======= ======
<FN>
( 1) Gross Leasable Area ("GLA") includes total square footage of Anchors
(whether owned or leased by the Anchor) and Mall stores or shops.
( 2) Includes total square footage of Anchors (whether owned or leased by
the Anchor)
( 3) Percentage leased includes non-Anchor GLA and leased Anchor GLA.
( 4) Owned by Anchor.
</FN>
</TABLE>
-11-
-- The Company currently has one Mall, one Mall expansion, one
Associated Center, one power center, and two Community Centers under
construction. These properties will add approximately 2,200,000
square feet to the Company's portfolio at opening and are all
scheduled to open during 1999.
<TABLE>
SUMMARY INFORMATION CONCERNING CONSTRUCTION PROPERTIES
AS OF MARCH 18, 1999
<CAPTION>
Ownership
by Company Percentage
Non- and Pre-Leased
Name of Center/ Total Anchor Anchor Operating and Projected
Location GLA GLA GLA Partnership Committed Opening Date Anchors
- ---------------------- -------- ------- ----------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MALLS
Arbor Place Mall..... 1,032,010 554,138 477,872 100% 75% Oct-1999 Dillards(4),
Atlanta Uptons,
(Douglasville), GA Parisian(4),
Sears(4)
EXPANSION
Lakeshore Mall....... 92,000 92,000 0 100% 100% Jul-1999 Sears(4)
Sebring, FL
ASSOCIATED CENTERS
The Landing.......... 162,994 111,594 51,400 100% 59% Jul-1999 Circuit City(4)
Atlanta Toys "R" Us(4)
(Douglasville), GA
Power Centers
Sand Lake Corners.... 593,240(5) 520,170 73,070 100% 96% May-1999 Lowe's(4),
Orlando, FL Wal*Mart(4),
Bealls,
PetsMart,
Staples
COMMUNITY CENTERS
Fiddler's Run........ 203,169 165,769 37,400 100% 99% Mar-1999(6) Goody's,
Morganton, NC JCPenney, Belk,
Food Lion,
Staples
Regal Cinema 83,000 83,000 0 100% 100% Nov-1999 Regal Cinema
Jacksonville, FL ------ ------ -
TOTAL CONSTRUCTION
PROPERTIES 2,166,413 1,526,671 639,742
========= ========= =======
<FN>
( 1) Includes total square footage of Anchors (whether owned or leased by
the Anchor) and mall stores or shops after each project's final phase
is complete.
( 2) Includes total square footage of Anchors (whether owned or leased by
the Anchor).
( 3) Percentage leased and committed for Malls does not include Anchor
GLA. For the Community Centers, Associated Centers and power centers,
percentage leased and committed includes non-Anchor GLA and leased
Anchor GLA.
( 4) Owned by Tenant.
( 5) Includes 165,000 square feet already open.
( 6) The Company opened the center on March 17, 1999.
</FN>
</TABLE>
-- In addition to the Construction Properties, as of
December 31, 19998 the Company was pursuing the development
of a number of sites which the Company believes are viable
for future development as malls and community and neighborhood
shopping centers. Regional mall development sites were being
pursued in Georgia, Mississippi and South Carolina and
community shopping center sites were being pursued in
Georgia, Florida, Kentucky, Tennessee and Virginia.
-- In general, the Company seeks out development
opportunities in middle-market trade areas that it believes
are under-serviced by existing retail facilities, have
demonstrated improving demographic trends or otherwise
afford an opportunity for effective market penetration and
competitive presence.
-12-
<PAGE>
bullet Acquiring existing retail properties where cash flow can be
enhanced by improved management, leasing, redevelopment and
expansion.
-- Management believes that an opportunity for growth exists
through the acquisition of shopping centers that meet the
Company's investment criteria and targeted returns. In
general, the Company seeks to acquire well-located shopping
centers in middle-market geographic areas consistent with
management's experience where management believes significant
value can be created through its development, leasing and
management expertise.
-- On January 2, 1998, the Company purchased Asheville Mall
in Asheville, North Carolina for $65 million, which was funded
by a $51.0 million acquisition loan with the balance funded
from the Company's credit lines.
-- On January 30, 1998, the Company purchased Burnsville
Center in Minneapolis (Burnsville), Minnesota for $81 million
which was funded by a $60.8 million acquisition loan with the
balance funded from the Company's credit lines.
-- In April 1998, the Company acquired Stroud Mall in
Stroudsburg, Pennsylvania for $38 million, which was funded
from the proceeds of a $32.6 million acquisition loan and the
balance from the Company's credit lines.
-- In July 1998, the Company acquired Hickory Hollow Mall,
Rivergate Mall, The Courtyard at Hickory Hollow, The Village
at Rivergate and Lions Head Village, all located in the
metropolitan Nashville, Tennessee area. The purchase price
of $247.4 million was funded with a ten-year fixed-rate loan
in the amount of $182.7 million, 631,589 limited partnership
units in the Operating Partnership with a value of $15.3
million and the balance funded from the Company's credit lines.
-- In August 1998, the Company acquired Meridian Mall in
Lansing (Oskemos), Michigan and Janesville Mall in Janesville,
Wisconsin. The purchase price of $138 million was funded with
an acquisition loan of $80 million, 2,118,299 limited
partnership units in the Operating Partnership with a value of
$53 million, and the assumption of a $17.1 million mortgage
loan. Excess loan proceeds of $12.1 million were used to pay
down the Company's credit lines.
RISKS ASSOCIATED WITH THE COMPANY'S GROWTH STRATEGY
In connection with the implementation of this growth strategy, the Company
and the Operating Partnership will incur various risks including the risk that
development or expansion opportunities explored by the Company and the Operating
Partnership may be abandoned; the risk that construction costs of a project may
exceed original estimates, possibly making the project not profitable; the risk
that the Company and the Operating Partnership may not be able to refinance
construction loans which are generally with full recourse to the Company and the
Operating Partnership; the risk that occupancy rates and rents at a completed
project will not meet projections, and will therefore be insufficient to make
the project profitable; and the need for anchor, mortgage lender and property
partner approvals for certain expansion activities. In the event of an
unsuccessful development project, the Company's and the Operating Partnership's
loss could exceed its investment in the project.
-13-
<PAGE>
The Company has in the past elected not to proceed with certain development
projects and anticipates that it will do so again from time to time in the
future. If the Company elects not to proceed with a development opportunity, the
development costs associated therewith ordinarily will be charged against income
for the then-current period. Any such charge could have a material adverse
effect on the Company's results of operations for the period in which the charge
is taken.
COMPETITION
There are numerous shopping facilities that compete with the Properties in
attracting retailers to lease space. The Malls are generally located in middle
- -markets. Management believes that the Malls have strong competitive positions
because they generally are the only or largest enclosed malls within their
respective trade areas. In addition, retailers at the Properties face
continued competition from discount shopping centers, outlet malls, wholesale
clubs, direct mail, telemarketing, television shopping networks and shopping
via the Internet. Competition could adversely affect the Operating
Partnership's revenues and funds available for distributions to partners,
which in turn will affect the Company's revenues and funds available for
distribution to stockholders.
SEASONALITY
The Company's 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.
QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
The Company has elected to be taxed as real estate investment trust under
the Code, commencing with its taxable year ended December 31, 1993, and will
seek to maintain such status. As a qualified real estate investment trust, the
Company generally will not be subject to Federal income tax to the extent it
distributes at least 95% of its real estate investment trust taxable income to
its shareholders. If the Company fails to qualify as a real estate investment
trust in any taxable year, the Company will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates.
INSURANCE
The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all the Properties, with policy
specifications and insured limits customarily carried for similar properties.
Management believes that the Properties are adequately insured in accordance
with industry standards.
ITEM 2. PROPERTIES.
MALLS
Each of the Malls is an enclosed regional shopping complex. Each Mall
generally has at least three Anchors which own or lease their stores and
numerous non-anchor stores with GLA less than 30,000 square feet ("Mall
Stores"), most of which are national or regional retailers, located along
enclosed malls connecting the Anchors. At most of the Malls, additional
freestanding restaurants and retail stores are located on the periphery of the
Mall complex. These freestanding stores are, in most cases, owned by their
occupants. Twelve of the Mall complexes include one or more Associated Centers.
The total GLA of the 28 Malls is approximately 20.5 million square feet or
an average GLA of approximately 732,000 square feet per Mall. Mall Store GLA is
7,259,208 square feet including leased free-standing buildings at December 31,
1998. The Stabilized Mall occupancy was 93.6% at December 31, 1998.
The Company wholly owns all but seven of its Malls and manages all but one
of them.
In the years ended December 31, 1996, 1997 and 1998, Mall revenues
represented approximately 72.8%, 72.9% and 74.9%, respectively, of total
revenues from the Company's Properties.
Occupancy of mall stores in the Stabilized Malls ("Stabilized Mall
Stores") increased from 91.7% at December 31, 1997, to 93.6% at December 31,
1998. Occupancy of malls acquired during 1998, was 92.0% at December 31, 1998.
In the years ended December 31, 1996, 1997 and 1998, average Stabilized
Mall Store sales per square foot were approximately $240, $263 and $273,
respectively (computed using a monthly weighted average). Average Stabilized
Mall Store sales per square foot increased by 3.8% for the year ended December
31, 1998 as compared to the year ended December 31, 1997.
Average base rent per square foot at the Mall Stores increased from $19.33
at December 31, 1997 to $19.84 at December 31, 1998.
Occupancy costs as a percentage of sales for tenants in the Stabilized
Malls (excluding St. Clair Square and Foothills Mall acquired in 1996 and malls
acquired in 1997 and 1998) were 11.7%, 11.2% and 11.1% for the years ended
December 31, 1996, 1997, and 1998, respectively.
The Malls are generally located in middle-markets. Management believes that
the Malls have strong competitive positions because they generally are the only
or largest enclosed malls within their respective trade areas. Trade areas have
been identified by management based upon a number of sources of information,
including the location of other malls, publicly available population
information, customer surveys, surveys of customer automobile license plates,
as well as ZIP codes and third-party market studies.
The two largest revenue-producing Malls are Hamilton Place and CoolSprings
Galleria. Hamilton Place is located on a 187-acre site in Chattanooga, Tennessee
and represented, as of December 31, 1998, 3.7% of the Properties' total GLA,
4.0% of total Mall Store GLA and 6.2% of total revenues from the Company's
Properties. CoolSprings Galleria is located on a 148-acre site in metropolitan
Nashville, Tennessee and represented, as of December 31, 1998, 3.6% of the
Properties' total GLA, 4.0% of total Mall Store GLA and 5.9% of total revenues
from the Company's Properties.
-15-
<PAGE>
Twenty-two of the twenty-eight Malls have undergone an expansion or
remodeling since their opening, and all but one of the Malls have either been
built or renovated in the last 10 years, are in the process of being renovated,
or are scheduled to be renovated in 2000. The Company renovated Hamilton Place
in Chattanooga, Tennessee and is presently renovating Governor's Square in
Clarksville, Tennessee, College Square in Morristown, Tennessee and Rivergate
Mall in Nashville, Tennessee. The Company is expanding Lakeshore Mall in
Sebring, Florida, adding Sears as the fifth department store. The Company
plans on renovating Burnsville Center in Minneapolis (Burnsville), Minnesota
and Stroud Mall in Stroudsburg, Pennsylvania in 2000. Two of the Malls
have available Anchor pads providing expansion potential totaling
approximately 205,700 buildable square feet at December 31, 1998. Eighteen
existing Anchors at ten Malls have aggregate expansion potential at
their existing stores of approximately 473,000 buildable square feet.
The land underlying the Malls is owned in fee in all cases, except for
Walnut Square, WestGate Mall, St. Clair Square, Bonita Lakes Mall, Meridian
Mall and Stroud Mall which are each subject to long-term ground leases for
all or a portion of the land underlying these Malls.
The table on the following page sets forth certain information for each of
the Malls as of December 31, 1998:
-16-
<PAGE>
<TABLE>
<CAPTION>
Mall
Year Ownership by Total Store Percentage
Most Company and Mall Sales per Mall Store Fee or
Year of Recent Operating Total Store Square GLA Anchor Ground
Name of Mall/Location Opening Expansion Partnership GLA(1) GLA(2) Foot(3) Leased(4) Anchors Vacancies Lease
- --------------------- ------- --------- ------------ --------- --------- --------- --------- ------------------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Malls
Bonita Lakes Mall.(5) 1997 N/A 100% 633,047 184,620 $252 86% Goody's, Dillard's, None Ground
Meridian, MS JCPenney, Sears, Lease (6)
McRae's
Oak Hollow Mall...(5) 1995 N/A 75% 802,239 251,411 224 94% Goody's, JCPenney, None Fee
High Point, NC Belk-Beck,Sears,
Dillard's
Parkway City Mall.(5) 1957/1998 1957 50% 414,540 187,825 204 88% McRae's, Parisian None Fee
Huntsville, AL
Springdale Mall...... 1960/1997 N/A 100% 926,376 292,075 211 88% Dillard's, Montgomery None Fee
Mobile, AL Ward, McRae's, Goody's
WestGate Mall........ 1975/1995 1996 100% 1,100,513 286,044 272 96% Belk-Hudson, JCPenney, None Fee/
Spartanburg, SC Dillard's, Sears, Ground
Proffitt's, Upton's Lease (7)
TOTAL NEW MALLS ............... 3,876,715 1,201,975 94%
Stabilized Malls
Asheville Mall....... 1972/1998 1994 100% 816,755 253,420 $311 100% Dillard's, Montgomery None Fee
Asheville, NC Ward, JCPenney, Sears,
Belk
Burnsville Center.... 1977/1998 N/A 100% 1,069,887 408,844 281 94% Mervyn's, Dayton's, None Fee
Burnsville, MN JCPenney, Sears
College Square....(5) 1988 1993 100% 459,473 156,604 221 93% JCPenney, Sears, None Fee
Morristown, TN Goody's, Proffitt's
Wal*Mart,
CoolSprings
Galleria(5).......(5) 1991 1994 100% 1,129,764 374,749 317 96% Proffitt's, Sears, None Fee
Nashville, TN JCPenney, Parisian
Dillard's,
Foothills Mall....(5) 1983/1996 1997 95% 476,768 180,072 191 90% Sears, JCPenney, None Fee
Maryville, TN Proffitt's,
Proffitt's II, Goody's,
Frontier Mall.....(5) 1981 1983 100% 517,244 199,957 196 90% Dillard's, JCPenney, None Fee
Cheyenne, WY Dillard's, Sears
Georgia Square....(5) 1981 N/A 100% 677,906 256,352 228 100% Belk, JCPenney, None Fee
Athens, GA Rich's, Sears
Governor's Square.(5) 1986 1994 48% 690,437 269,966 237 94% JCPenney, Parks-Belk, None Fee
Clarksville, TN Sears, Dillard's, Goody's
Hamilton Place....(5) 1987 1992 90% 1,166,060 375,128 339 97% Dillard's, Parisian, None Fee
Chattanooga, TN Proffitt's I, Proffitt's II,
Sears, JCPenney
Hickory Hollow Mall.. 1978/1998 1991 100% 1,095,946 455,757 259 87% JCPenney, Sears, None Fee
Nashville, TN Dilliard's, Proffitt's
Janesville Mall...... 1973/1998 1998 100% 609,364 161,535 300 85% JCPenney, Kohl's, None Fee
Janesville, WS Boston Store, Sears
Lakeshore Mall....(5) 1992 N/A 100% 408,534 153,062 195 88% Kmart, Belk-Lindsey, None Fee
Sebring, FL JCPenney, Beall's(10)
Madison Square....(5) 1984 1985 50% 934,161 301,326 295 98% Dillard's, JCPenney, None Fee
Huntsville, AL McRae's, Parisian,
Sears
Meridian Mall........ 1969/1998 1987 100% 766,960 435,791 288 98% JCPenney, Mervyn's, None Fee/
Lansing, MI Service Merchandise, Ground
Dayton Hudson Lease(8)
-17-
<PAGE>
Year Ownership by Total Store Percentage
Most Company and Mall Sales per Mall Store Fee or
Year of Recent Operating Total Store Square GLA Anchor Ground
Name of Mall/Location Opening Expansion Partnership GLA(1) GLA(2) Foot(3) Leased(4) Anchors Vacancies Lease
- --------------------- ------- --------- ------------ --------- --------- --------- --------- ------------------ --------- -------
Pemberton Square..(5) 1985 1990 100% 353,300 133,685 179 88% JCPenney, McRae's, Wal*Mart (9) Fee
Vicksburg, MS Wal*Mart, Goody's
Plaza del Sol
Mall..............(5) 1979 1990 51% 245,385 89,504 168 96% Beall Bros(10), None Fee
Del Rio, TX JCPenney, Kmart
Post Oak Mall.....(5) 1982 1985 100% 776,823 318,166 246 93% Beall Bros.(10), None Fee
College Station, TX Foley's, Service
Merchandise, Sears,
Dillard's, JCPenney
Rivergate Mall....... 1971/1998 1998 100% 1,073,970 390,324 302 90% Sears, Dillard's, None Fee
Nashville, TN JCPenney, Proffitt's
St. Clair Square..... 1974/1996 N/A 100% 1,044,599 315,559 338 100% Famous Barr, Sears, None Fee/
Fairview Heights, I JCPenney, Dillard's Ground
Lease(11)
Stroud Mall.......... 1977/1998 1994 100% 427,194 177,011 307 90% JCPenney, Sears, None Ground
Stroudsburg, PA Bon-Ton Lease (12)
Turtle Creek Mall.... 1994 1995 100% 846,234 223,140 292 99% JCPenney, Sears, None Fee
Hattiesburg, MS McRae's I, Goody's,
McRae's II, Dillard's
Twin Peaks Mall...... 1985 1987 100% 556,153 242,683 228 87% JCPenney, Dillard's, None Fee
Longmont, CO Dillard's, Sears
Walnut Square........ 1980 1992 100% 450,385 171,192 199 97% Belk, JCPenney, None Ground
Dalton, GA ------- ------- --- -- Sears, Goody's, Lease(13)
Proffitt's
Total Stabilized Malls........................ 16,593,301 6,043,825 $273 94%
========== ========= ==== ==
________
<FN>
(1) Includes the total square footage of the Anchors (whether owned or leased
by the Anchor) and Mall Stores. Does not include future expansion areas.
(2) Does not include Anchors.
(3) Totals represent weighted averages.
(4) Includes tenants paying rent for executed leases as of December 31, 1998.
(5) Developed by the Company.
(6) The Company is the lessee under a ground lease for 82 acres which extends
through June 30, 2035. The average annual base rent is $35,525, increasing
by 6% each year.
(7) The Company is the lessee under several ground leases for approximately
53% of the underlying land. The leases extend through October 31,
2084, including six ten-year renewal options. Rental amount is $130,000
per year. In addition to base rent, the landlord receives 20% of the
percentage rents collected. The Company has a right of first refusal to
purchase the fee.
(8) The Company is the lessee under several ground leases in effect through
March 2067 with extention options. Fixed rent is $18,700 per year and 3%
to 4% of all rents.
(9) A replacement tenant, Dillard's, has agreed to purchase the store from the
Company and open for business in 1999.
(10)Beall Bros. operating in Texas is unrelated to Beall's operating in Florida.
(11)The Company is the lessee under a ground lease for 20 acres which
extends through January 31, 2073, including 14 five-year renewal options
and one four-year renewal option. Rental amount is $40,000 per year.
In addition to base rent, the landlord receives .25% of Dillard's sales
in excess of $16,200,000.
(12)The Company is the lessee under a ground lease which extends through
July 2089. The current rental amount is $50,000 with an additional
$100,000 paid every 10 years.
(13)The Company is the lessee under several ground leases which extend
through March 14, 2078, including six ten-year renewal options and one
eight-year renewal option. Rental amount is $149,450 per year. In
addition to base rent, the landlord receives 20% of the percentage
rents collected.
</FN>
</TABLE>
-18-
<PAGE>
The Company has a right of first refusal to purchase the fee.
Anchors.
Anchors are a critical factor in a Mall's success because the public's
identification with a property typically focuses on its Anchors. Mall Anchors
generally are department stores whose merchandise appeals to a broad range of
shoppers. Although the Malls derive a smaller percentage of their operating
income from Anchor stores than from Mall Stores, strong Anchors play an
important part in generating customer traffic and making the Malls desirable
locations for Mall Store tenants.
Anchors either own their stores together with the land under them,
sometimes with adjacent parking areas, or enter into long-term leases with
respect to their stores at rental rates that are significantly lower than the
rents charged to tenants of Mall Stores. Anchors account for approximately
8.2% of the total revenues from the Company's Properties. Each Anchor
which owns its own store has entered into a reciprocal easement agreement
with the Company covering, among other things, operating covenants, reciprocal
easements, property operations, initial construction and future expansions.
The Malls have a total of 125 Anchors. Wal*Mart at Pemberton Square in
Vicksburg, Mississippi was the only anchor vacant in the Company's Malls as of
December 31, 1998. Dillard's has agreed to purchase that building from the
Company and will open for business during 1999. Service Merchandise leases two
stores in the Company's malls. In the year ended December 31, 1998, revenues
from Service Merchandise accounted for less than 0.4% of total revenues of the
Company. The following table indicates all Mall Anchors and sets forth the
aggregate number of square feet owned or leased by Anchors in the Malls as of
December 31, 1998.
-19-
<PAGE>
<TABLE>
MALL ANCHOR SUMMARY INFORMATION
<CAPTION>
GLA GLA TOTAL
NUMBER OWNED LEASED OCCUPIED
OF ANCHOR BY BY BY
NAME STORES ANCHOR ANCHOR ANCHOR (1)
------- ------- ------- -------
<S> <C> <C> <C> <C>
JCPenney 26 875,354 1,623,642 2,498,996
Sears 22 1,565,022 1,036,568 2,601,590
Dillard's 18 2,063,065 414,101 2,477,166
Sak's
Proffitt's 10 1,203,322 0 1,203,322
McRae's 7 511,359 243,000 754,359
Parisian 4 207,520 209,920 417,440
- ------- ------- -------
Subtotal 21 1,922,201 452,920 2,375,121
Belk
Belk 4 0 426,991 426,991
Belk-Lindsey 1 0 61,029 61,029
Belk-Hudson 1 0 152,890 152,890
Parks-Belk 1 0 122,367 122,367
- ------- ------- -------
Subtotal 7 0 763,277 763,277
The May Company
Foley's 1 103,888 0 103,888
Famous Barr 1 0 236,489 236,489
- ------- ------- -------
Subtotal 2 103,888 236,489 340,377
Goody's 9 0 289,794 289,794
Montgomery Ward 2 0 245,829 245,829
Dayton-Hudson 2 323,326 0 323,326
Wal*Mart(2) 2 0 214,653 214,653
Kmart 2 0 173,940 173,940
Mervyn's 2 124,919 74,889 199,808
Rich's 1 115,623 0 115,623
Boston Store 1 0 96,000 96,000
Kohl's 1 0 88,691 88,691
The Bon Ton 1 0 87,024 87,024
Uptons 1 0 69,993 69,993
Beall Bros. (Texas) 2 0 61,916 61,916
Beall's (Florida) 1 0 45,844 45,844
Service Merchandise 2 0 90,804 90,804
- ----- ------ ------
Total 125 7,093,398 6,066,374 13,159,772
=== ========= ========= ==========
<FN>
(1) Includes all square footage owned by or leased to such Anchor including
tire, battery and automotive facilities and storage square footage.
(2) Wal*Mart is vacant at Pemberton Square but is paying rent.
</FN>
</TABLE>
Mall Stores. The Malls have approximately 4,250 Mall Stores. National or
regional chains (excluding individually franchised stores) lease approximately
84% of the occupied Mall Store GLA. Although Mall Stores occupy only 32.2% of
total Mall GLA, the Malls derived approximately 87.9% of their revenue from
Mall Stores for the year ended December 31, 1998.
Among the companies with the largest representation among Mall Stores are:
The Limited, Inc./Intimate Brands, Inc. stores (The Limited, Limited Too,
Express, Lerner New York, Lane Bryant, Structure, Victoria Secret, and Bath and
Body Works) and Venator Group, Inc. (Footlocker, Lady Footlocker, Kinney Shoes,
Champs Sports Stores, Northern Reflections, Afterthoughts Boutique and San
Francisco Music Box). As of December 31, 1998, The Limited, Inc.'s and Intimate
Brands, Inc.'s 123 stores accounted for 12.5% of total mall leased GLA and 8.8%
of total revenues from the Company's Properties. As of December 31, 1998 Venator
Group, Inc. accounted for 3.5% of total mall leased GLA and 3.3% of total
revenues.
-20-
<PAGE>
No single Mall Store retailer accounted for more than 12.5% of total leased GLA
and no single Mall Store retailer accounted for more than 8.8% of total
revenues from the Company's Properties.
The following table sets forth certain information for executed renewal
leases with current tenants or leases of previously occupied space with new
tenants at the Malls during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Prior Lease New Lease Increase Increase
Total Base and Initial Year per New Lease per
Number Square Percentage Rent Base Rent Square Average Square
of leases Feet per Square Foot per Square Foot Foot Base Rent Foot
- --------- -------- --------------- --------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
319 676,954 $20.78 $22.68 $1.90 $23.43 $2.65
</TABLE>
The following table sets forth the total Mall Store GLA, the total square
footage of leased Mall Store GLA, the percentage of Mall Store GLA leased, the
average base rent per square foot of Mall Store GLA and average Mall Store
sales per square foot as of the end of each of the past five years.
<TABLE>
STABILIZED MALL STORE SUMMARY INFORMATION
<CAPTION>
Total Percentage Average Average Mall
Total Mall Store of Mall Store Base Rent Store Sales
At Mall Store Leased GLA per Square per Square
December 31, GLA GLA Leased (1) Foot(2) Foot(3)
- ------------- -------------- ------------ ----------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
1994........ 2,576,047 2,284,987 88.7% $16.55 $226
1995........ 3,003,334 2,697,969 89.8 18.28 237
1996........ 3,452,997 3,073,190 89.0 19.03 240
1997........ 3,503,490 3,214,176 91.7 18.98 263
1998........ 7,166,498 6,707,283 93.6 19.82 273
<FN>
(1) Mall Store occupancy includes tenants with executed leases who are paying rent.
(2) Average base rent per square foot is based on Mall Store GLA occupied as
of the last day of the indicated period for the preceding twelve-month period.
(3) Calculated for the preceding twelve-month period.
</FN>
</TABLE>
Lease Expirations. The following table shows the scheduled lease
expirations for the Malls (assuming that none of the tenants exercise renewal
options) for the year ending December 31, 1999 and for the next nine years for
the Mall Stores.
<TABLE>
MALL LEASE EXPIRATION
<CAPTION>
Percentage of Total
Approximate Base Represented by
Mall Store Rent Expiring Leases
Number of Annualized Base GLA of Per -------------------------------
Year Ending Leases Rent of Expiring Expiring Square Annualized Leased Mall
December 31, Expiring Leases(1) Leases Foot Base Rent Store GLA
- ---------------- ----------- ---------------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1999............. 360 14,920,605 870,319 $17.14 11.70% 12.98%
2000............. 258 10,842,908 596,124 18.19 8.50 8.89
2001............. 229 9,761,623 463,543 21.06 7.65 6.91
2002............. 262 12,280,577 589,876 20.82 9.63 8.79
2003............. 250 13,017,770 686,415 18.96 10.20 10.23
2004............. 216 11,570,464 533,222 21.70 9.70 7.95
2005............. 225 13,607,657 638,329 21.32 10.67 9.52
2006............. 154 8,112,498 390,172 20.79 6.36 5.82
2008............. 180 12,397,968 605,844 20.46 9.72 9.03
2008............. 160 11,384,658 545,182 20.88 8.92 8.13
-21-
<PAGE>
<FN>
(1) Total annualized base rent for all leases executed as of December 31,
1998 includes rent for space that is leased but not yet occupied but
excludes (i) percentage rents, (ii) additional payments by tenants
for common area maintenance, real estate taxes and other expense
reimbursements and (iii) contractual rent escalations and cost of
living increases due after December 31, 1998.
</FN>
</TABLE>
Cost of Occupancy. Management believes that in order to maximize the
Company's Funds from Operations, tenants in Mall Stores must be able to operate
profitably. A major factor contributing to tenant profitability is the tenant's
cost of occupancy.
The following table summarizes for Stabilized Mall Store tenants the
occupancy costs under their leases as a percentage of total Mall Store sales for
the last three years.
<TABLE>
FOR THE YEAR ENDED
DECEMBER 31, (1)
--------------------------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Mall Store sales $515.1 $666.5 $1,105.5
(in millions)(2) ====== ====== ========
Minimum rents 8.0% 7.7% 7.7%
Percentage rents 0.3 0.4 0.3
Expense recoveries (3) 3.4 3.1 3.1
---- ----- -------
Mall tenant occupancy costs 11.7% 11.2% 11.1%
==== ===== =======
<FN>
(1) Excludes Malls not owned or open for full reporting period.
(2) Consistent with industry practice, sales are based on reports by
retailers (excluding theaters) leasing Mall Store GLA and occupying
space for the reporting period. Represents 100% of sales for these
Malls. In certain cases, the Company and the Operating Partnership
will own less than 100% interest in these Malls.
(3) Represents real estate tax and common area maintenance charges.
</FN>
</TABLE>
At December 31, 1998, the Company had investments in four malls in joint
ventures with third parties, all of which are reflected using the equity method
of accounting. Condensed combined results of operations for the four
unconsolidated affiliates are presented in the following table (in thousands).
<TABLE>
<CAPTION>
Company's Share
Total for the Year for the Year
Ended Ended
December 31, December 31,
------------------- -------------------
(dollars in thousands) 1998 1997 1998 1997
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $21,863 $21,295 $10,752 $10,475
Depreciation & Amortization 2,836 2,678 1,390 1,311
Interest Expense 7,935 8,044 3,899 3,951
Other Operating Expenses 6,745 6,955 3,337 3,432
------- -------- -------- --------
Net Income 4,347 3,618 2,126 1,781
===== ===== ===== =====
</TABLE>
ASSOCIATED CENTERS
The fourteen Associated Centers are each part of a Mall complex and
generally have one or two Anchor tenants and various smaller tenants. Anchor
tenants in these centers include such retailers as Books-A-Million, Target, Toys
"R" Us, TJ Maxx, and Goody's, which are category dominant retailers that benefit
from the regional draw of the Malls. The Associated Centers also increase the
draw to the total Mall complex.
-22-
<PAGE>
Total leasable GLA of the fourteen Associated Centers is approximately 1.2
million square feet, including Anchors, or an average of approximately
83,000 square feet per center. As of December 31, 1998, 90.5% of total
leasable GLA at the Associated Centers was occupied.
In the years ended December 31, 1996, 1997, and 1998, revenues from the
Associated Centers represented approximately 3.3%, 3.8% and 3.9%, respectively,
of total revenues from the Company's Properties.
In the years ended December 31, 1996, 1997 and 1998, average tenant sales
per square foot at the Associated Centers were approximately $207, $189 and
$172, respectively.
Average base rent per square foot at the Associated Centers increased from
$9.43 at December 31, 1997 to $9.68 at December 31, 1998.
Each of the Associated Centers was developed by the Company, except for
WestGate Crossing, Village at Rivergate and Courtyard at Hickory Hollow which
were acquired in August 1997, July 1998 and July 1998, respectively. All
of the land underlying the Associated Centers is owned in fee except for Bonita
Crossing.
Lease Expirations. The following table shows for the Associated Centers
(assuming that none of the tenants exercise renewal options) the scheduled lease
expirations for the year ending December 31, 1999 and for the next nine years.
<TABLE>
ASSOCIATED CENTER LEASE EXPIRATION
<CAPTION>
Percentage of Total
Approximate Base Represented by
Mall Store Rent Expiring Leases
Number of Annualized Base GLA of per --------------------------
Leases Rent of Expiring Expiring Square Annualized Leased Mall
December 31, Expiring Leases* Leases Foot Base Rent Store GLA
- -------------- --------- ---------------- ------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1999 15 $313,956 27,145 $11.57 3.67% 2.91%
2000 24 875,593 82,106 10.66 10.22 8.80
2001 13 555,107 59,173 9.38 6.48 6.34
2002 14 771,553 64,245 12.01 9.01 6.88
2003 14 858,718 87,375 9.83 10.03 9.36
2004 7 1,005,412 144,635 6.95 11.74 15.50
2005 5 634,379 68,826 9.22 7.41 7.37
2006 3 252,491 19,786 12.76 2.95 2.12
2007 4 536,315 41,396 12.96 6.26 4.44
2008 2 223,000 14,000 15.93 2.60 1.50
<FN>
(1) Total annualized base rent for all leases executed as of
December 31, 1998 includes 12 months of rent for space that is
newly leased but not yet occupied but excludes (i) percentage rents,
(ii) additional payments by tenants for common area maintenance, real
estate taxes and other expense reimbursements and (iii) contractual
rent escalations and cost of living increases due after December 31,
1998.
</FN>
</TABLE>
-23-
<PAGE>
The following table sets forth certain information for executed renewal
leases with current tenants or leases of previously occupied space with new
tenants at the Associated Centers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Prior Lease New Lease Increase Increase
Total Base and Initial Year per New Lease per
Number Square Percentage Rent Base Rent Square Average Square
of leases Feet per Square Foot per Square Foot Foot Base Rent Foot
- --------- -------- --------------- --------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
21 71,839 $9.58 $10.01 $0.43 $10.04 $0.45
</TABLE>
The following table sets forth certain information for each of the
Associated Centers as of December 31, 1998.
<TABLE>
<CAPTION>
Ownership
Year of by Company
Name of Opening/Most and Total Percentage
Associated Recent Operating Total Leasable GLA
Center/Location Expansion Partnership GLA(1) GLA(2) Leased(3) Anchors
- ---------------------- -------------- --------------- --------- ------------ -------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Bonita Crossing.......(10) 1997 100% 109,516 109,516 100% Books-A-Million,
Meridian, MS TJ Maxx, Office Max
CoolSprings Crossing..... 1992 100% 353,369 53,286 100% Target,
Nashville, TN Service Merchandise,
Toys "R" Us,
Uptons,
Carmike Cinemas
Courtyard at Hickory..... 1979(9) 100% 77,460 77,460 100% Carmike Cinemas,
Nashville, TN Baptist Book
Foothills Plaza.......... 1983/1986 100% 204,400(4) 124,400(4) 29(4) Eckerd(6),
Maryville, TN Carmike Cinemas
Frontier Square.......... 1985 100% 161,615 16,615 100% Buttrey Food & Drug,
Cheyenne, WY Target
Georgia Square Plaza..... 1984 100% 15,393 15,393 100% Carmike Cinema
Athens, GA
Governor's Square Plaza.. 1985(5) 49% 180,018 57,820 100% Office Max, Premier
Clarksville, TN Medical Group, Target
Hamilton Corner.......... 1990 90% 88,298 88,298 99% Michael's, Goody's,
Chattanooga, TN Fresh Market
Hamilton Crossing........ 1987/1994 92% 185,370 92,257 98% Service Merchandise,
Chattanooga, TN Toys "R" Us, TJ Maxx,
School Box
Madison Plaza............ 1984(7) 75% 153,085 98,690 100% Food World, TJ Maxx,
Huntsville, AL Service Merchandise
Pemberton Plaza.......... 1986 100% 77,998 27,052 91% Kroger
Vicksburg, MS
The Terrace.............. 1997 92% 155,987 116,715 100% Barnes & Noble, Home
Chattanooga, TN Place, The Gap,
Staples, Circuit City
Village at Rivergate..... 1981(9) 100% 166,366 166,366 100% Target, Just For Feet
Nashville, TN
WestGate Crossing........ 1985(8) 100% 151,489 151,489 73% Goody's, Toys "R" Us
Spartanburg, SC
---------- ---------- -----------
Total Associated
Centers............ 2,080,364 1,195,357 91%
========== ========== ===========
-24-
<PAGE>
<FN>
(1) Includes the total square footage of the Anchors (whether owned or leased
by the Anchor) and shops. Does not include future expansion areas.
(2) Includes leasable Anchors.
(3) Includes tenants with executed leases at December 31, 1998. Calculation
includes leased Anchors.
(4) Total GLA includes and Total Leasable GLA and Percentage GLA Leased
exclude a vacant former Hills Department Store (80,000 square feet of
GLA), which is owned by senior management of the Company. The Company
has a ten-year option (with approximately six years remaining) to
acquire this property for a fixed acquisition price of $3,800,000.
Carmike Cinemas is subject to a ground lease (30,000 square feet of GLA)
and is in the process of expanding.
(5) Originally opened in 1985, and was acquired by the Company in June 1997.
(6) Eckerd has closed its store but is continuing to meet its financial
obligations under its lease.
(7) Center was renovated during 1995.
(8) Originally opened in 1985, and was acquired by the Company in August 1997,
and is currently under going expansion and renovations.
(9) Acquired by the Company in July 1998.
(10)The land is ground leased through June 2015 with options to extend through
June 2035. Annual rent is $14,355, increasing by 6% each year.
</FN>
</TABLE>
COMMUNITY AND POWER CENTERS
In addition to Mall development, the Company's development activities focus
on Community Centers, and power centers. Community Centers pose fewer
development risks than Malls because they have shorter development timetables
and lower up-front costs. Community Centers also afford the Company the
opportunity to meet the needs of retailers for whom a "convenience" type of
location is more appropriate and the needs of customers whose trade areas cannot
support a regional mall. Power centers are larger than other Community Centers,
with several large anchor stores which draw shoppers from a wider geographic
area.
The Company's Community Center developments in the 1980's were generally
anchored by supermarkets, and, in certain cases, by drug stores. Management's
current focus has expanded to include the development of larger centers,
anchored by mass merchandisers and department stores, while continuing the
development of smaller centers anchored by supermarkets and drug stores.
Recently completed Community Centers include centers in Portsmouth, Virginia and
Orlando, Florida. Anchors at these new centers include, Hannaford Bros and
Lowe's. The Company sold a completed center, Surrey Square in Elkin, North
Carolina, in the last quarter of 1998.
Community Centers, other than power centers, range in size from 25,000
square feet to in excess of 286,000 square feet. Anchors in Community Centers
generally lease their store space and occupy 60-85% of a center's GLA. The
number of stores in a Community Center ranges from one to sixteen with an
average of seven stores per center.
The Company's two power centers, which were completed and opened in 1997,
average 7865,000 square feet and have an average of nine major anchor stores and
additional small shop space ranging from 38,000 square feet to 136,000 square
feet. The Company opened additional square feet in the second phase of these
centers in 1998. The projects include expansion areas for additional major
retailers. These power centers are included in the Community Center
classification in this report.
Total GLA of the 82 Community Centers is approximately 8.5 million square
feet, or an average of approximately 84,000 square feet per center. As of
December 31, 1998, 97.0% of total leasable GLA at the Community Centers was
leased.
In the years ended December 31, 1996, 1997 and 1998, revenues from the
Community Centers represented approximately 21.4%, 21.2% and 19.6%,
respectively, of total revenues from the Company's Properties.
Occupancy at the Community Centers decreased from 97.6% at December 31,
1997 to 97.0% at December 31, 1998.
Average base rent per square foot at the Community Centers increased from
$7.42 at December 31, 1997, to $8.22 at December 31, 1998.
-25-
<PAGE>
As of December 31, 1998, Food Lion, a major regional supermarket operator
with headquarters in North Carolina served as an anchor tenant in 37 of the
Company's Community Centers. For the year ended December 31, 1998, Food Lion
accounted for approximately 3.1% of the revenues generated by the Company's
Properties.
With the exception of Suburban Plaza, Sutton Plaza and Lions Head Village,
which were acquired by the Company in March 1995, January 1997 and July 1998,
respectively, each of the Community Centers was developed by the Company.
The following table summarizes the percentage of total leasable GLA leased,
average base rent per square foot (excluding percentage rent) and tenant sales
per square foot at the Community Centers for each of the last five years.
<TABLE>
COMMUNITY CENTER SUMMARY INFORMATION
<CAPTION>
Average
Percentage Base Rent Tenant
Year Ended GLA Per Square Sales Per
December 31, Leased(1) Foot(2) Square Foot(3)
- ------------------- ---------- ---------- --------------
<S> <C> <C> <C>
1994 96.5% 6.64 200
1995 96.8% 6.66 202
1996 97.2% 6.94 210
1997 97.6% 7.42 221
1998 97.0% 8.22 220
<FN>
(1) Percentage leased includes tenants who have executed leases and are
paying rent as of the specified date.
(2) Average base rent per square foot is based on GLA occupied as of the
last day of the indicated period.
(3) Consistent with industry practice, sales are based on reports by
retailers (excluding theaters) leasing GLA and occupying space for
the 12 months ending on the last day of the indicated period.
</FN>
</TABLE>
Lease Expirations. The following table shows the scheduled lease
expirations for the Community Centers (assuming that none of the tenants
exercise renewal options) for the year ending December 31, 1999, and for the
next nine years.
<TABLE>
COMMUNITY CENTER LEASE EXPIRATION
<CAPTION>
Base Percentage of Total
Approximate Rent Represented by
Number of Annualized Base GLA of per ---------------------------------
Year Ending Leases Rent of Expiring Expiring Square Annualized Leased
December 31, Expiring Leases(1) Leases Foot Base Rent GLA
- ---------------- ------------ ----------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1999............ 110 $2,357,471 318,330 $ 7.41 5.24% 5.62%
2000............ 97 2,161,111 249,433 8.66 4.80 4.41
2001............ 86 2,172,812 289,763 7.50 4.83 5.12
2002............ 91 3,047,858 387,929 7.86 6.78 6.85
2003............ 81 3,508,247 522,192 6.72 7.80 9.22
2004............ 28 1,465,897 139,866 10.48 3.26 2.47
2005............ 19 1,566,962 183,456 8.54 3.48 3.24
2006............ 11 1,472,798 221,786 6.64 3.27 3.92
2007............ 18 2,318,818 258,093 8.98 5.15 4.56
2008............ 19 2,574,935 268,418 9.59 5.72 4.74
<FN>
(1) Total annualized base rent for all leases executed as of
December 31, 1998 includes 12 months of rent for space that is newly
leased but not yet occupied but excludes (i) percentage rents, (ii)
additional payments by tenants for common area maintenance, real
estate taxes and other expense reimbursements and (iii) contractual
rent escalations and cost of living increases for periods after
December 31, 1998.
</FN>
</TABLE>
-26-
<PAGE>
The following table sets forth certain information for executed renewal
leases with current tenants or leases of previously occupied space with new
tenants at the Community Centers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Prior Lease New Lease Increase Increase
Total Base and Initial Year per New Lease per
Number Square Percentage Rent Base Rent Square Average Square
of leases Feet per Square Foot per Square Foot Foot Base Rent Foot
- --------- -------- --------------- --------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
192 375,656 $8.03 $8.71 $0.68 $8.92 $0.90
</TABLE>
The following table sets forth certain information for each of the
Company's Community Centers at December 31, 1998.
-27-
<PAGE>
<TABLE>
<CAPTION>
Year Ownership
Opening/ by Company
Most and Total Percentage Fee or Number
Name of Recent Operating Total Leasable GLA Anchor Ground of
Community Center Location Expansion Partnership GLA(1) GLA(2) Leased(3) Anchors Vacancies Lease Stores
- ---------------- ---------------- --------- ----------- -------- -------- ---------- ------------------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Anderson Plaza Greenwood, SC 1983/1994 100% 46,258 46,258 98% Food Lion, Eckerd None Fee 3
Bartow Village Bartow, FL 1990 100% 40,520 40,520 95% Food Lion, Family Do None Fee 4
Beach Crossing Myrtle Beach, SC 1984 100% 45,790 45,790 87% Food Lion(4), CVS 21,000 Fee 6
sq. ft.
Bennington Place Roanoke, VA 1994 100% 42,712 42,712 100% Food Lion None Fee 3
BJ's Plaza Portland, ME 1991 100% 104,233 104,233 100% BJ's Wholesale Club None Ground 1
Lease(5)
Briarcliff Square Oak Ridge, TN 1989 100% 41,778 41,778 100% Food Lion None Fee 10
Buena Vista Plaza Columbus, GA 1989/1994 100% 151,320 17,500 91% Wal*Mart, Winn Dixie None Fee 7
Bulloch Plaza Statesboro, GA 1986 100% 34,400 34,400 77% Food Lion, Rite Aid 6,400 Fee 3
sq. ft.
Capital Crossing Raleigh, NC 1995 100% 83,700 83,700 100% Hannaford Bros., None Fee 2
Staples
Cedar Bluff Xing Knoxville, TN 1987/1996 100% 53,050 53,050 96% Food Lion None Fee 12
Cedar Plaza Cedar Springs, MI 1988 100% 95,000 50,000 100% Quality Stores, None Fee 5
Centerview Plaza China Grove, NC 1986/1994 100% 43,720 43,720 100% Food Lion, Eckerd None Fee 6
Chester Square Richmond, VA 1997 100% 10,000 10,000 100% Hannaford Brothers None Fee 3
Chestnut Hills Murray, KY 1982 100% 68,364 68,364 96% JCPenney None Fee 10
Clark's Pond Portland, ME 1995 100% 134,920 134,920 100% Home Quarters None Fee 1
Warehouse
Colleton Square Walterboro, SC 1986 100% 31,000 31,000 96% Food Lion(4) None Fee 5
Collins Park Comm Plant City, FL 1989 100% 37,400 37,400 92% Food Lion None Ground 4
Lease(6)
Conway Plaza Conway, SC 1985 100% 33,000 33,000 96% Food Lion(7) 21,000 Ground 6
sq. ft. Lease(8)
Cosby Station Douglasville, GA 1994/1995 100% 77,811 77,811 100% Publix None Fee 9
Courtlandt Town Cortlandt, NY 1997/1998 100% 772,451 639,208 97% Marshalls, 40,200 Fee 28
Center Wal*Mart, sq. ft.
Home Depot, Home
Place, A & P Food
Store, Steinbach's(23),
Barnes & Noble,
Office Max, PetsMart
County Park Plaza Scottsboro, AL 1982 100% 47,325 47,325 100% Bi-Lo 28,875(9) Fee 3
sq. ft.
Devonshire Place Cary, NC 1996 100% 104,414 104,414 97% Hannaford Bros., 30,178 Ground 4
Kinetix(23), sq. ft. Lease(10)
Borders Books sq. ft.
Dorchester Xing Charleston, SC 1985/1997 100% 45,278 45,278 97% Food Lion None Fee 6
East Ridge Xing Chattanooga, TN 1988 100% 54,000 54,000 100% Food Lion None Fee 13
East Towne Xing Knoxville, TN 1989/1990 100% 158,751 70,011 95% Home Depot, Regal None Fee 8
Cinemas, Food Lion
58 Crossing Chattanooga, TN 1988 100% 49,984 49,984 100% Food Lion, CVS None Fee 9
Garden City Plaza Garden City, KS 1984/1991 100% 188,446 76,246 96% Sears, JCPenney None Fee 15
Genesis Square Crossville, TN 1990/1996 100% 35,344 35,344 100% Food Lion None Fee 4
Girvin Plaza Jacksonville, FL 1990 100% 85,564 40,997 100% Winn Dixie None Fee 8
-28-
<PAGE>
Year Ownership
Opening/ by Company
Most and Total Percentage Fee or Number
Name of Recent Operating Total Leasable GLA Anchor Ground of
Community Center Location Expansion Partnersh GLA(1) GLA(2) Leased(3) Anchors Vacancies Lease Stores
- ---------------- ---------------- --------- --------- -------- -------- ---------- ------------------- --------- ------- ------
Greenport towne Hudson, NY 1994 100% 191,622 75,525 100% Wal*Mart, None Fee 3
Price-Chopper
Hampton Plaza Tampa, FL 1990 100% 44,624 44,624 100% Food Lion(4) None Fee 8
Henderson Square Henderson, NC 1995 100% 268,327 164,329 99% JCPenney, None Fee 14
Belk Legget's
Goody's, Wal*Mart
Hollins Plantation Roanoke, VA 1985 100% 40,920 40,920 100% Food Lion, CVS None Fee 5
Jasper Square Jasper, AL 1986/1990 100% 95,950 50,550 67% Lowe's, Goody's None Fee 7
Jean Ribaut Beaufort, SC 1977/1993 100% 223,497 223,497 98% Belk, Kmart, Bi-Lo None Fee 17
Karns Corner Knoxville, TN 1987/1996 100% 35,000 35,000 100% Food Lion None Fee 4
Keystone Crossing Tampa, FL 1989 100% 40,400 40,400 100% Food Lion None Fee 5
Kingston Overlook Knoxville, TN 1996/1997 100% 119,350 119,350 100% Baby Superstore, None Fee/ 3
Home Place, Ground
Michael's Lease(11)
Lady's Island Beaufort, SC 1983/1993 100% 60,687 60,687 100% Winn Dixie, Eckerd None Fee 9
LaGrange Commons LaGrange, NY 1996 100% 59,799 59,799 90% A & P Food Store None Fee 6
Lakeshore Station Gainesville, GA 1994 100% 8,000 8,000 100% None Fee 5
Lions Head Plaza, Nashville, TN 1980(22) 100% 93,290 93,290 91% Steinmart None Fee 15
Longview Crossing Hickory, NC 1988 100% 29,800 29,800 96% Food Lion None Ground 3
Lease(12)
Lunenburg Crossing Lunenburg, MA 1994 100% 198,115 25,515 92% Wal*Mart, Shop'nSave None Fee 7
Massard Crossing Ft. Smith, AR 1997 100% 290,717 88,410 100% Wal*Mart, TJ Maxx None Fee 14
Goody's
North Creek Plaza Greenwood, SC 1983 100% 28,500 28,500 100% Food Lion None Fee 2
North Haven Xing North Haven, CT 1993 100% 104,612 104,612 100% Sports Authority, None Fee 6
Office Max,
Barnes & Noble
Northpark Center Richmond, VA 1997 100% 60,954 60,954 100% Hannaford Brothers, None Fee 3
Lowe's, Wal*Mart
Northridge Plaza Hilton Head, SC 1984/1988 100% 129,570 79,570 99% Winn Dixie, Eckerd None Fee 18
Northwoods Plaza Albemarle, NC 1983/1992 100% 32,705 32,705 100% Food Lion None Fee 2
Oaks Crossing Otsego, MI 1990/1993 100% 144,998 27,300 100% Wal*Mart, Rite Aid, None Fee 11
Orange Plaza Roanoke, VA 1983 100% 46,875 46,875 100% Food World (13) 24,900 Fee 9
sq. ft
Park Village Lakeland, FL 1990 100% 48,505 48,505 100% Food Lion, None Fee 8
Family Dollar
Perimeter Place Chattanooga, TN 1985/1988 100% 156,945 54,525 94% Home Depot, None Fee 16
Fred's Drugs For Less
Rawlinson Place Rock Hill, SC 1987 100% 35,750 35,750 88% Food Lion None Fee 7
Rhett at Remount Charleston, SC 1983/1994 100% 42,628 42,628 100% Food Lion, Eckerd None Fee 3
Salem Crossing Virginia Beach, V 1997 100% 289,348 92,420 100% Hannaford Brothers None Fee 16
Sattler Square Big Rapids, MI 1989 100% 132,746 94,760 91% Quality Stores, None Fee 14
Perry Drugs
Seacoast Shopping Seabrook, NH 1991 100% 208,690 91,690 97% Wal*Mart None Fee 14
Center Shaw's Supermarket
Shenandoah Crossin Roanoke, VA 1988 100% 28,600 28,600 100% Food Lion None Fee 2
-29-
<PAGE>
Year Ownership
Opening/ by Company
Most and Total Percentage Fee or Number
Name of Recent Operating Total Leasable GLA Anchor Ground of
Community Center Location Expansion Partnersh GLA(1) GLA(2) Leased(3) Anchors Vacancies Lease Stores
- ---------------- ---------------- --------- --------- -------- -------- ---------- ------------------- --------- ------- ------
Signal Hills Vill Statesville, NC 1987/1989 100% 24,100 24,100 75% (14) None Ground 6
Lease(15)
Southgate Crossing Bristol, TN 1985 100% 40,100 40,100 100% Food Lion(7) 25,000 Ground 3
sq. ft. Lease(16)
Sparta Crossing Sparta, TN 1989 100% 31,400 31,400 100% Food Lion None Fee 2
Springhurst Towne Louisville, KY 1997 100% 810,539 422,539 100% Cinemark, Books None Fee 19
Center A Million, Kohl's,
Party Source, TJ Maxx,
Meijer, Old Navy, Target,
Kitchen & Company
Springs Crossing Hickory, NC 1987/1996 100% 42,920 42,920 100% Food Lion, Rite Aid None Ground 4
Lease(17)
Statesboro Square Statesboro, GA 1986 100% 41,000 41,000 100% Food Lion(4) 25,000 Fee 6
sq. ft.
Sterling Creek Portsmonth, VA 1998 100% 65,500 65,500 100% Hannaford Bros. None Fee 1
Stone East Plaza Kingsport, TN 1983 100% 45,259 45,259 98% Food Lion(4) None Fee 10
Strawbridge Market Virginia Beach, VA1997 100% 43,764 43,764 100% Regal Cinema None Fee 1
Place
Suburban Plaza Knoxville, TN 1995 100% 129,111 129,111 93% Toys "R" Us None Fee 20
Barnes & Noble
Sutton Plaza Mt. Olive, NJ 1972(19) 100% 122,007 122,007 100% A & P Food Store, None Fee 14
Ames
34th St. Crossing St.Petersburg, FL 1989 100% 51,120 51,120 94% Food Lion, None Fee 11
Family Dollar
Townshire Shopping Bryan, TX 1988 100% 72,440 72,440 75 Blinn College 12,500 Space 2
Center sq. ft. Lease(18)
Tyler Square Radford, VA 1987 100% 48,370 48,370 100% Food Lion, CVS None Fee 8
University Xing Pueblo, CO 1986 100% 101,964 20,053 79% Wal*Mart 81,911(21) Fee 7
Uvalde Plaza Uvalde, TX 1987/1992 75% 111,160 34,000 100% Wal*Mart, Beall's None Fee 8
Valley Commons Salem, VA 1988/1994 100% 45,580 45,580 100% Food Lion None Fee 10
Valley Crossing Hickory, NC 1988/1991 100% 186,077 186,077 91% Goody's, TJ Maxx, None Fee 21
Office Depot,
Circuit City,
Factory Card Outlet
The Village at Wex Cadillac, MI 1990 100% 102,450 72,450 98% Quality Stores(20), None Fee 8
Village Square Houghton Lake, MI 1990/1993 100% 163,294 27,050 82% Wal*Mart, None Fee 11
Fashion Bug
Wildwood Plaza Salem, VA 1985/1994 100% 39,580 39,580 100% Food Lion None Fee 4
Willow Springs Plz Nashua, NH 1991/1994 100% 224,910 130,910 99% Home Depot, None Fee 10
Office Max,
JCPenney Home Store
---------- -------- ---
Total Community Centers $8,555,702 $5,928,383 97%
-30-
<PAGE>
<FN>
(1) Includes the total square footage of the Anchors (whether owned by others
or leased by the Anchor) and shops. Does not include future expansion
areas.
(2) Includes leasable Anchors.
(3) Includes tenants paying rent on executed leases on December 31, 1998.
Calculation includes leased Anchors.
(4) Tenant has closed its store but is continuing to meet its financial
obligation and is sub-leasing the space.
(5) Ground Lease term extends to 2051 including four 10-year extensions.
Lessee has an option to purchase and a right of first refusal to purchase
the fee.
(6) Ground Lease term extends to 2049 including three 10-year extensions.
Lessor receives a share of percentage rents during initial term and
extensions. Lessee has an option to purchase and a right of first refusal
to purchase the fee.
(7) Represents a tenant which has closed its store but is continuing to meet
its financial obligations under its lease.
(8) Ground Lease term extends to 2055 including two 20-year extensions.
During extension periods, lessor receives a share of percentage rents.
Lessee has a right of first refusal to purchase the fee. Lessor receives
a share of sale proceeds upon sale of the center to a third party.
(9) Bi-Lo is closed but continues to meet its financial obligations under its lease.
(10) Ground lease extends to 2097 including 12 five year options. Lessor
receives no additional rent.
(11) Ground lease for an out-parcel extends to 2046 including 4 ten year
options. Lessor receives 20% of percentage rentals.
(12) Ground Lease term extends to 2049 including three 10-year extensions.
Lessor receives a share of percentage rents during initial term and
extensions. Lessee has a right of first refusal to purchase the fee.
(13) Represents a Food World which has closed its store but is continuing to
meet its financial obligations under its lease and is sub-leasing the space.
(14) Signal Hills Village is part of Signal Hills Crossing, a Property on
which the Company holds a Mortgage.
(15) Ground Lease term extends to 2084. Rent for entire term has been
prepaid. Lessee has an option to purchase the fee under certain circumstances.
(16) Ground Lease term extends to 2055 including one 20-year extension.
Commencing in 2005, rental will be the greater of base rent or a share of
the revenue from the center. Lessee has a right of first refusal to
purchase the fee.
(17) Ground Lease term extends to 2048 including three 10-year extensions.
Lessor receives a share of percentage rents during initial term and
extensions. Lessee has a right of first refusal to purchase the fee.
(18) Represents a space lease for this center. Lease term expires in 1999
with one 10-year extension option available.
(19) Sutton Place opened in 1972 and was acquired by the Company in January, 1997.
(20) Quality Stores has an option to purchase its 56,850 square foot store
commencing in 1996 for a price based upon capitalizing minimum annual
rent being paid at the time of exercise at a rate of 8.33%.
(21) Wal*Mart who owns their store has closed.
(22) Lions Head opened in 1980 and was acquired by the Company in
July 1998.
(23) Tenant has closed and disaffirmed the lease in bankruptcy.
</FN>
</TABLE>
MORTGAGES
The Company owns certain Mortgages which were granted prior to the Offering
in connection with sales by CBL of properties which it had previously developed.
The Company also holds fee mortgages on six community centers, which
mortgages had, as of December 31, 1998, an aggregate outstanding principal
balance of $7.7 million. Such mortgages entitle the Company to receive
substantially all of such properties' current cash flow in the form of periodic
debt service payments. The encumbered properties all opened between 1981 and
1984 and one Anchor vacancy.
In the years ended December 31, 1996, 1997, and 1998, revenues from the
Mortgages represented approximately 2.2%, 2.02%, and 0.7%, respectively, of
total revenues from the Company's Properties.
-31-
<PAGE>
The following table sets forth certain additional information regarding the
Mortgages as of December 31, 1998.
<TABLE>
<CAPTION>
Mortgage Information Center Information
-------------------- ------------------
Annual Principal Annual Total Percentage Number
Name of Center/ Interest Balance as Debt Maturity Total Leasable GLA of
Location Rate of 12/31/97 Service Date GLA(1) GLA Leased(2) Anchors Stores
- ------------------- --------- ----------- --------- --------- -------- --------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BI-LO SOUTH 9.50% $1,486 $175 DEC-2006 56,557 56,557 100% BI-LO, 7
CLEVELAND, TN RITE-AID
GASTON SQUARE 11.00% 1,640 179 DEC-98(3) 33,640 33,640 100$ FOOD LION, ECKERD 4
GASTONIA, NC
INLET CROSSING 11.00% 1,691 327 DEC-98(3) 55,248 55,248 100% FOOD LION, CVS 13
MYRTLE BEACH, SC
OLDE BRAINERD CENTRE 9.50% 106 48 DEC-2006 57,293 57,293 100% BI-LO, 7
CHATTANOOGA, TN
SIGNAL HILLS CROSSING 11.00% 2,409 244 DEC-98(3) 44,220 44,220 100% FOOD LION(4), 6
STATESVILLE, NC CVS
SODDY DAISY PLAZA 9.50% 412 48 Dec-2006 100,095 47,325 100% Wal*Mart, Bi-Lo, 5
SODDY DAISY, TN CVS
------- ------- ------- ------- ---
Total $7,744 $1,021 347,053 294,283 42
====== ====== ======= ======= ==
<FN>
(1) Includes Anchors.
(2) Includes all leases executed on or before December 31, 1998. Leased
GLA includes non-Anchor GLA and leased Anchor GLA.
(3) The mortgage is on a month-to-month extension pending execution of
extension agreement.
(4) Tenant has closed but is continuing to meet its financial obligation.
</FN>
</TABLE>
OFFICE BUILDING
The Company owns a 95% interest in a 49,082 square foot office building in
Chattanooga, Tennessee in which the Company's headquarters are located. The
Company occupies 27,088 square feet or 69% of the total square footage of the
Office Building. The Office Building is 100% occupied.
-32-
<PAGE>
TOP 25 TENANTS
The following table sets forth the Company's top 25 tenants based upon a
percentage of total revenues from
the Company's Properties in 1998.
<TABLE>
% OF NUMBER OF
RANK TENANT REVENUES STORES SQUARE FEET
<S> <C> <C> <C> <C>
1 The Limited, Inc. 7.27% 88 708,881
2 Venator Group, Inc. 3.33% 87 237,500
3 Food Lion 3.10% 37 1,018,407
4 JCPenney. 2.32% 28 2,314,349
5 Gap Inc., The 2.00% 26 203,728
6 Goody's Family 1.53% 14 483,303
Clothing, Inc.
7 Intimate Brands 1.48% 35 129,199
8 Barnes & Noble, Inc. 1.18% 10 140,289
9 Carmike Cinema 1.11% 13 280,492
10 Shoe Show, The 1.06% 21 101,434
11 United Artist 1.03% 7 174,584
12 Regis Corporation, The 0.95% 55 61,307
13 Footstar Corporation 0.90% 15 69,859
14 Sears, Roebuck, & Co. 0.90% 22 2,439,227
15 Homeplace Stores Two, Inc 0.90% 3 160,161
16 Regal Cinemas, Inc. 0.89% 5 149,635
17 Consolidated Stores Corporation 0.89% 22 79,167
18 U.S. Shoe Corporation 0.88% 21 71,359
19 Camelot 0.81% 16 60,664
20 American Eagle Outfitters 0.80% 15 62,020
21 Eddie Bauer. 0.78% 10 62,616
22 OfficeMax, Inc. 0.73% 5 127,724
23 Great Atlantic and Pacific 0.73% 3 140,410
24 Belk Atlanta Group Office 0.71% 6 491,732
25 Boney Wilson & Sons, Inc. 0.67% 5 279,179
(Hannaford Brothers)
</TABLE>
MORTGAGE DEBT AND RATIO TO TOTAL MARKET CAPITALIZATION
As of December 31, 1998, the Operating Partnership's proportionate share of
indebtedness of all Properties (whether or not consolidated for financial
statement reporting purposes, including the Construction Properties) was
approximately $1.228 billion. The Company's total market capitalization (the
aggregate market value of the Company's outstanding shares of Common and
Preferred Stock, assuming the full exchange of the limited partnership interests
in the Operating Partnership for Common Stock, plus the $1.228 billion total
debt of the Operating Partnership) as of December 31, 1998 was $2.2 billion.
Accordingly, the Company's debt to total market capitalization ratio as of
December 31, 1998 was 54.7%. The debt to total market capitalization ratio,
which is based upon the Company's proportionate share of consolidated and
unconsolidated indebtedness and market values of equity, differs from
debt-to-book capitalization ratios, which are based upon consolidated
indebtedness and book values. The following table sets forth certain information
regarding the mortgages and secured lines of credit encumbering the Properties.
-33-
<PAGE>
<TABLE>
MORTGAGE DEBT
(Dollars in thousands)
MORTGAGE LOANS OUTSTANDING IN
WHOLE OR IN PART AT DECEMBER 31, 1998
<CAPTION>
Ownership
Share of Estimated Earliest
Company Balloon Date at
and Principal Annual Annual Payment Which Loans
Operating Annual Balance as of Interest Debt Maturity Due on Can Be
Center Pledged as Collateral Partnership Interest Rate 12/31/98(1) Payment(2) Service Date Maturity Prepaid(3)
- ---------------------------- ----------- ------------- ------------- ---------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MALLS:
Asheville Mall ............ 100% 6.520%(4) $51,000 $ 3,325 $3,325 Dec-1999 $51,000 --
Bonita Lakes Mall ......... 100% 6.820% 31,823 2,170 2,503 Oct-2009 22,539 Oct-2003(15)
Burnsville Center ......... 100% 6.500%(4) 60,750 3,949 3,949 Feb-2000 60,750 --
College Square ............ 100% 6.750% 16,064 1,084 1,548 Jan-2003 13,393 --(5)
Coolsprings Galleria ...... 100% 8.290% 66,998 5,554 6,636 Sep-2010 -- Oct-2000(6)
Frontier Mall ............. 100% 10.000% 5,616 561 2,220 Dec-2001 -- --(7)
Governor's Square ......... 48% 8.230% 35,696 2,938 3,476 Sep-2016 14,454 Sep-2001(8)
Hamilton Place ............ 90% 7.000% 72,938 5,106 6,361 Mar-2009 59,160 --(9)
Hickory Hollow Mall ....... 100% 6.770% 96,155 6,510 7,723 Aug-2009 81,019 --
Janesville Mall ........... 100% 8.375% 16,959 1,420 1,857 Apr-2016 -- --
Madison Square ............ 50% 9.250% 48,612 4,497 4,936 Mar-2002 46,482 Feb-1997(10)
Meridian Mall ............. 100% 6.55% (4) 80,000 5,240 5,112 Aug-2000 80,000 --
Oak Hollow Mall ........... 75% 7.310% 51,597 3,772 4,709 Feb-2008 39,567 Feb-2002(11)
Plaza del Sol..........(12) 51% 8.750%(13 1,261 110 244 Nov-1998 1,729 --
Rivergate Mall ............ 100% 6.770% 77,712 5,261 6,241 Aug-2008 65,479
Springdale Mall ........... 100% 6.770% 21,950 1,481 1,351 Nov-1999 19,950 --
St. Clair Square........(4) 100% 6.875%(14 66,000 4,538 4,739 Nov-1999 66,000 --
Stroud Mall ............... 100% 6.520%(4) 32,550 2,122 2,122 Apr-2000 32,550 --
Turtle Creek Mall ......... 100% 7.400% 33,857 2,505 2,966 Mar-2006 26,992 Mar-1999(15)
Walnut Square..........(16) 100% 9.500% 855 81 140 Feb-2008 -- --(17)
Walnut Square ............. 100% 9.250%(18 389 36 39 Jun-1998 389 --
WestGate Mall ............. 100% 6.950% 49,651 3,451 4,819 Feb-2017 44,819 Feb-2002(19)
--------
Malls Subtotal: 918,433
--------
Associated Centers:
Bonita Lakes Crossing...... 100% 6.820% 7,476 510 784 Oct-2009 -- Oct-2003(15)
Courtyard At Hickory Hollow 100% 6.770% 4,476 303 359 Aug-2008 3,772 --
The Terrace................ 92% 7.300% 10,681 780 1,047 Sep-2002 9,618 --(20)
Georgia Square Plaza....... 100% 9.000% 266 24 141 Jan-2001 -- Feb-1997(9)
Hamilton Corner............ 90% 10.125% 3,353 339 471 Aug-2011 -- --(21)
Madison Plaza.............. 75% 10.125% 2,275 230 537 Feb-2004 -- --(22)
Village at Rivergate....... 100% 6.770% 3,671 249 295 Aug-2008 --
-------
Associated Centers Subtotal: 32,198
Community Centers: -------
Bennington Place........... 100% 10.250% 566 58 83 Aug-2010 -- Jul-2000(23)
BJ's Plaza................. 100% 10.400% 3,386 352 476 Dec-2011 -- --(20)
Briarcliff Square.......... 100% 10.375% 1,672 173 226 Feb-2013(24) -- Feb-1998(25)
Cedar Bluff Crossing....... 100% 10.625% 1,327 141 230 Jan-2008 -- Jan-2008(26)
Centerview Plaza........... 100% 10.000% 1,301 130 191 Jan-2010(27) -- Jan-1999(23)
Colleton Square............ 100% 9.375% 1,014 95 143 Aug-2010(28) -- Aug-1998(23)
Collins Park Commons....... 100% 10.250% 1,382 142 202 Oct-2010 -- Sept-2000(23)
Cortland Town Center....... 100% 6.900% 53,727 3,707 4,539 Jul-2008 42,342 Aug-2003(15)
Cosby Station.............. 100% 8.500% 4,240 360 490 Sep-2014 -- Sep-2001(29)
East Ridge Crossing........ 100% 10.125% 1,148 116 324 May-2003 -- Jan-2001(30)
Fifty-Eight Crossing....... 100% 10.125% 1,107 112 312 May-2003 -- Jan-2001(30)
Genesis Square............. 100% 10.250% 1,049 108 147 Aug-2010 -- Jul-2000(31)
Greenport Towne Center..... 100% 9.000% 4,446 400 529 Sep-2014 -- --(32)
Henderson Square........... 100% 7.500% 6,825 512 750 Apr-2014 -- May-2005(33)
Jean Ribaut................ 100% 7.375% 3,977 293 477 Oct-1998 4,019 --(15)
Karns Corner............... 100% 10.250% 966 99 146 Jan-2010(34) -- Feb-1999(23)
Longview Crossing.......... 100% 10.250% 449 46 66 Aug-2010 -- Aug-2000(23)
-34-
<PAGE>
Ownership
Share of Estimated Earliest
Company Balloon Date at
and Principal Annual Annual Payment Which Loans
Operating Annual Balance as of Interest Debt Maturity Due on Can Be
Center Pledged as Collateral Partnership Interest Rate 12/31/98(1) Payment(2) Service Date Maturity Prepaid(3)
- ---------------------------- ----------- ------------- ------------- ---------- --------- -------- --------- -------------
North Haven Crossing....... 100% 9.550% $ 7,795 $ 744 $ 1,225 Oct-2008 -- Oct-1998(35)
Northwoods Plaza........... 100% 9.750% 1,279 125 171 Jun-2012 -- --(36)
Perimeter Place............ 100% 10.$25% 1,614 172 278 Jan-2008 -- Jan-2008(26)
Seacoast Shopping Center... 100% 9.750% 5,796 565 721 Sep-2002 5,110 Oct-1997(37)
Shenandoah Crossing........ 100% 10.250% 565 58 83 Aug-2010 -- Aug-2000(23)
Sparta Crossing............ 100% 10.250% 862 88 127 Aug-2010 -- Jul-2000(38)
Springhurst Towne Center... 100% 6.650% 23,804 1,583 2,179 Aug-2004 19,714 Aug-2004(41)
Suburban Plaza............. 100% 8.500% 6,788 517 682 May-1999 5,325 --
34th St. Crossing......(39) 100% 10.625% 1,585 168 234 Dec-2010 -- Dec-2000(40)
Uvalde Plaza............... 75% 10.625% 772 82 133 Feb-2008 -- Feb-2008(26)
Valley Commons............. 100% 10.250% 973 100 142 Oct-2010 -- Oct-2000(23)
Willow Springs Plaza....... 100% 9.750% 5,453 532 934 Aug-2007 601 Aug-1997(38)
--------
Community Centers Subtotal: 145,868
--------
Construction Properties:
Arbor Place 100% 6.870%(4) 26,108 1,794 1,794 Jun-2001 26,108 --
Fiddler's Run 100% 6.340%(4) 7,201 457 457 Aug-2000 7,201 --
Sand Lake Corner 100% 6.990%(4) 6,977 488 488 Jun-2000 6,977 --
--------
Construction Properties Subtotal: 40,286
--------
Other:
Park Place................. 95% 10.000% 1,608 161 459 Apr-2003 -- -(9)
--------
Credit Lines............... 100% 6.38%(42) 155,379 9,924 9,924 Various 154,800 --
--------
Total: $1,293,773
==========
Operating Partnership's Share of Total: 1,227,726 (43)
<FN>
(1) The amount listed includes 100% of the loan amount even though the
Company and the Operating Partnership may own less than 100% of the property.
(2) Interest has been computed by multiplying the annual interest rate by
the outstanding principal balance as of December 31, 1998.
(3) Unless otherwise noted, loans are prepayable at any time.
(4) The interest rate is floating at various spreads over LIBOR priced at the
rates in effect at December 31, 1998.
(5) Prepayment premium is greater of 1% or modified yield maintenance
(6) Prepayment premium is the greater of 1% or yield maintenance after
October 1, 2000.
(7) Prepayment premium is based on yield maintenance (not less than 1%) for
any prepayment prior to January, 1997; thereafter, the prepayment premium is 5%,
decreasing by 1% per year to a minimum of 1%; there is no prepayment
premium during the last 120 days of the loan term.
(8) Prepayment premium is based on the greater of yield maintenance or 2%.
(9) Prepayment premium is the greater of 1% or yield maintenance.
(10) Prepayment premium is based on yield maintenance; there is no
prepayment premium after October 1, 2001.
(11) Prepayment premium is the greater of 1% or yield maintenance.
(12) This loan can be extended for 2 one year periods, the extension fee is
1/4 point for each extension.
(13) Interest is floating at 1% over prime priced at December 31, 1998.
(14) The interest rate is floating at 125 Basis points over LIBOR. Loan may
be extended for 2 years with 90 days written notice prior to maturity date. This
loan was replaced in March 1999 with a $75 million permanent loan.
(15) Prepayment premium is the greater of 1% or yield maintenance.
(16) The loan is secured by a first mortgage lien on the land and
improvements comprising the Goody's anchor store and no other property.
(17) Prepayment premium is the greater of 1% or yield maintenance; there is
no prepayment premium after November 1, 2007.
(18) Interest is floating at 11/2% over prime priced at December 31, 1998.
The maturity date is 90 days after notice.
(19) Loan is closed to prepayment for the term. Lender shall adjust the
interest rate every 5th year of the loan. If borrower does not except the new rate
loan may
be prepaid at that time without prepayment penalty.
(20) Prepayment penalty is based on yield maintenance.
(21) Prepayment premium is the greater of 1% or yield maintenance; there is
no prepayment premium during the last 120 days of the loan term.
(22) Prepayment premium is the greater of 1% or yield maintenance; there is
no prepayment premium after November 1, 2003.
(23) Prepayment premium is 5%, decreasing by 1% per year to a minimum of 2%
there is no prepayment premium during the last 120 days of the loan term.
(24) Lender has option to accelerate loan between March 1, 2001 and February
28, 2002; March 1, 2006 and February 28, 2007; and March 1, 2011 and February 28,
2012.
(25) Prepayment premium is 7%, decreasing by 1% per year to a minimum of 3%.
(26) Loan may not be prepaid.
(27) Lender may accelerate the loan after September, 2006 upon expiration of
the primary term of the lease of either Food Lion or Eckerd, unless both leases have
been extended beyond January 1, 2010.
(28) Lender may accelerate loan on July 1, 2007 unless Food Lion exercises
an extension option.
(29) Prepayment premium of 7% decreasing by 1% per year to a minimum of 2%;
there is no prepayment premium during the last six months of the loan term.
-35-
<PAGE>
(30) Prepayment premium is 5%, decreasing 1% per year to a minimum of 1%;
there is no prepayment premium during the last two years of the loan term.
(31) Prepayment premium is 5% from July 1, 2000 to June 30, 2001; thereafter
decreasing by 1% per year to a minimum of 2%; there is no prepayment premium
after May 1, 2010.
(32) Prepayment premium is the greater of 10% or 1/12 of the annual yield
difference before Oct-2014. Thereafter the prepayment premium is 1%.
(33) Loan may be prepaid after 9 years. The prepayment premium is the
greater of 1% or yield maintenance.
(34) Lender may accelerate loan after January 1, 2008 unless Food Lion
exercises an extension option beyond January 1, 2008.
(35) Prepayment premium is the greater of 2% or yield maintenance before
October, 1998, afterwards it is the greater of 1% or yield maintenance.
(36) Prepayment premium is based on yield maintenance; there is no loan
prepayment premium during the last 120 days of the loan term.
(37) Prepayment premium is the greater of 1% or yield maintenance; there is
no loan prepayment premium during the last three months of the loan term.
(38) Prepayment premium is 5% from August 1, 2000 to July 30, 2001;
thereafter decreasing by 1% per year to a minimum of 2%; there is no
prepayment premium after May 1, 2010.
(39) The note is secured by rent payable by the Food Lion Anchor store.
(40) Prepayment premium is 5%, decreasing by 1% per year to a minimum of 2%.
There is no loan prepayment premium during the last 90 days of the loan term.
(41) The loan has a rate reset option in August of 2004, 2009 and 2014. The
loan can be prepaid in these years if the Company elects not to accept the rate
reset. The prepayment premium is the greater of 1% or yield maintenance.
(42) Interest rates on the credit lines are at various spreads over LIBOR
whose weighted average interest rate is 6.38% with various maturities
through 2001. The principal balance includes term loans of $5,079.
(43) Represents non-recourse indebtedness on Properties and reflects the
less than 100% ownership of the Company and the Operating Partnership with respect to
certain Properties subject to such indebtedness.
</FN>
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company and the Operating Partnership are not currently involved in any
material litigation nor, to management's knowledge, is any material litigation
currently threatened against the Company, the Operating Partnership, the
Property Partnerships or the Properties, other than litigation arising in the
ordinary course of business, most of which is expected to be covered under
liability insurance policies held by the Company or the Operating Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this
report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
(a) Market Information
The principal United States market in which the Common Stock is traded is
the New York Stock Exchange.
The following table sets forth the high and low sales prices for the Common
Stock for each quarter of the Company's two most recent fiscal years.
<TABLE>
1997 QUARTER ENDED HIGH LOW
------------------ ---- ---
<S> <C> <C>
March 31 $26.1250 $24.5000
June 30 25.3750 23.1250
September 30 27.6250 23.5630
December 31 26.3130 22.6250
1998 QUARTER ENDED HIGH LOW
------------------ ---- ---
March 31 $25.3125 $24.2500
June 30 24.8750 23.3750
September 30 26.8750 23.6250
December 31 26.6875 24.4375
</TABLE>
-36-
<PAGE>
(b) Holders
The approximate number of shareholders of record of the Common Stock was
635 as of March 19, 1999.
(c) Dividends
The following table sets forth the frequency and amounts of dividends
declared and paid for each quarter of
the Company's two most recent fiscal years.
<TABLE>
<CAPTION>
QUARTER ENDED 1998 1997
- -------------------- ------- -------
<S> <C> <C>
March 31 $0.4650 $0.4425
June 30 0.4650 0.4425
September 30 0.4650 0.4425
December 31 0.4650 0.4425
</TABLE>
Future dividend distributions are subject to the Company's actual results
of operations, economic conditions and such other factors as the Board of
Directors of the Company deems relevant. The Company's actual results of
operations will be affected by a number of factors, including the revenues
received from the Properties, the operating expenses of the Company, the
Operating Partnership and the Property Partnerships, interest expense, the
ability of the anchors and tenants at the Properties to meet their obligations
and unanticipated capital expenditures.
-37-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
(In thousands, except per share data)
<TABLE>
CBL & Associates Properties, Inc.
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES ......................... $ 254,640 $ 177,604 $ 146,805 $ 131,727 $ 108,094
TOTAL EXPENSES ......................... 203,001 135,200 111,012 104,128 84,091
INCOME FROM OPERATIONS ................. 51,639 42,404 35,793 27,599 24,003
GAIN ON SALES OF REAL ESTATE ASSETS .... 4,183 6,040 13,614 2,213 2,135
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATES ............................. 2,379 1,916 1,831 1,450 1,469
MINORITY INTEREST IN EARNINGS:
Operating partnership ................ (16,258) (13,819) (15,468) (10,527) (9,836)
Shopping center properties ........... (645) (508) (527) (386) (312)
--------- --------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM ....... 41,298 36,033 35,243 20,349 17,459
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF
DEBT ................................ (799) (1,092) (820) (326) --
--------- --------- --------- --------- ---------
NET INCOME ............................. 40,499 34,941 34,423 20,023 17,459
PREFERRED DIVIDENDS .................... (3,234) -- -- -- --
--------- --------- --------- --------- ---------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS ........................ $ 37,265 $ 34,941 $ 34,423 $ 20,023 $ 17,459
========= ========= ========= ========= =========
BASIC EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 1.58 $ 1.51 $ 1.69 $ 1.14 $ 1.05
Net income $ 1.55 $ 1.46 $ 1.65 $ 1.12 $ 1.05
========= ========= ========= ========= =========
Weighted average common shares
outstanding 24,079 23,895 20,890 17,827 16,625
DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 1.56 $ 1.49 $ 1.68 $ 1.14 $ 1.05
Net income $ 1.53 $ 1.45 $ 1.64 $ 1.12 $ 1.05
========= ========= ========= ========= =========
Weighted average shares and potential
dilutive common shares outstanding 24,340 24,151 21,022 17,856 16,625
Dividends declared per share $ 1.86 $ 1.77 $ 1.68 $ 1.59 % 1.50
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Net investment in real estate assets $1,805,788 $1,142,324 $987,260 $758,938 $ 679,725
Total assets ....................... 1,855,347 1,245,025 1,025,925 814,168 728,209
Total debt .......................... 1,208,204 741,413 590,295 392,754 373,300
Minority interest .................. 168,040 123,897 114,425 113,692 108,036
Shareholders' equity......... 415,782 330,853 272,804 270,804 209,338
OTHER DATA:
Cash flows provided by (used in):
Operating activities ............. $89,123 $60,852 $54,789 $28,977 $29,432
Investing activities ............. (571,332) (245,884) (218,016) (99,690) (112,608)
Financing activities ............. 484,912 183,858 164,496 71,689 72,863
Funds From Operations (FFO) (1) of
the operating partnership 93,614 76,514 63,044 52,212 44,583
FFO applicable to the Company 65,026 54,833 43,498 34,218 28,688
<FN>
(1) Please refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations for the definition of FFO. FFO does not
represent cash flow from operations as defined by generally accepted accounting
principles (GAAP) and is not necessarily indicative of the cash available to
fund all cash requirements. FFO for all periods has been restated to include
straight line rents.
</FN>
</TABLE>
-38-
<PAGE>
ITEM 7. 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 may contain "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.
GENERAL BACKGROUND
The Company is, through two wholly owned subsidiaries, the sole
general partner and majority owner of the Operating Partnership. As a
result, the CBL & Associates Properties, Inc. Consolidated Financial
Statements and Notes thereto reflect the consolidated financial results of
the Operating Partnership, which includes at December 31, 1998, the
operations of a portfolio of properties consisting of twenty-four regional
malls, thirteen associated centers, two power centers, eighty community
centers, an office building, joint venture investments in four regional
malls and one associated center, and income from six mortgages (the
"Properties"). The Operating Partnership currently has under construction
one mall, one associated center, one power center and two community centers
and owns options to acquire certain shopping center development sites. The
consolidated financial statements also include the results of CBL &
Associates Management, Inc. (the "Management Company").
The Company classifies its regional malls into two categories -
stabilized malls which have completed their initial lease-up and new malls
which are in their initial lease-up phase. The new mall category is
presently comprised of Westgate Mall in Spartanburg, South Carolina, which
was renovated and expanded and reopened in October 1996; Oak Hollow Mall
in High Point, North Carolina which opened in August 1995; Springdale Mall
in Mobile, Alabama, which was acquired in September 1997 and which is being
redeveloped and retenanted; Bonita Lakes Mall in Meridian, Mississippi,
which opened in October 1997 and Parkway Place in Huntsville, Alabama
which was acquired in December 1998 and which is being redeveloped.
In January 1998, the Company purchased Asheville Mall in Asheville,
North Carolina for $65 million, which was funded by a $51 million
acquisition loan with the balance funded from the Company's credit lines.
Also in January the Company purchased Burnsville Center in Minneapolis
(Burnsville), Minnesota for $81 million, which was funded by a $60.8 million
acquisition loan with the balance funded from the Company's credit lines.
In April 1998, the Company acquired Stroud Mall in Stroudsburg,
Pennsylvania for $38 million, which was funded from the proceeds of a
$32.6 million acquisition loan and the balance from the Company's credit
lines.
-39-
<PAGE>
In June 1998, the Company completed a public offering of 2,875,000 shares
of 9% Series A Cumulative Redeemable Preferred Stock at a price to the public of
$25 per share. The net proceeds of $70 million were used to repay variable rate
indebtedness incurred in the Company's development and acquisition program.
In July 1998, the Company acquired Hickory Hollow Mall, Rivergate Mall,
The Courtyard at Hickory Hollow, The Village at Rivergate and Lions Head
Village, all located in the metropolitan Nashville, Tennessee area. The
purchase price of $247.4 million was funded with a ten-year fixed-rate loan
in the amount of $182.7 million, 631,589 operating partnership units in the
Operating Partnership with a value of $15.3 million and the balance funded
from the Company's credit lines.
In July 1998, the Company purchased 122,008 limited partnership units
valued at $3.0 million from a former executive and minority limited partner
in the Operating Partnership.
In August 1998, the Company acquired Meridian Mall in Lansing (Oskemos),
Michigan and Janesville Mall in Janesville, Wisconsin. The purchase price
of $138 million was funded with an acquisition loan of $80 million,
2,118,299 limited partnership units in the Operating Partnership with a
value of $53 million and, the assumption of a $17.1 million mortgage loan.
Excess loan proceeds of $12.1 million were used to pay down the Company's
credit lines.
In December 1998, the Company, in a joint venture with a third party,
acquired Parkway City Mall in Huntsville, Alabama. The joint venture is
structured so that each partner retains a 50% ownership in the project. The
Company's initial investment was $5.7 million and was funded from the
Company's credit lines.
RESULTS OF OPERATIONS
SALES
Mall shop sales, for those tenants who have reported, in the twenty-three
stabilized malls in the Company's portfolio, increased by 3.8% on a
comparable per square foot basis as shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997
---------- ---------
<S> <C> <C>
Sales per square foot $273 $263
</TABLE>
Total sales volume in the mall portfolio, including new malls, increased
9.7% to $1.504 billion in 1998 from $1.371 billion in 1997.
Occupancy costs as a percentage of sales for the years ended December 31,
1998, 1997 and 1996 for the stabilized malls (excluding malls acquired in
1998 and St. Clair Square and Foothills Mall from 1996) were 11.1%, 11.2%
and 11.7%, respectively. The decrease in occupancy costs as a percentage
of sales from 1997 to 1998 was due to both increasing sales and the
Company's policy of cost containment.
-40-
<PAGE>
OCCUPANCY
Occupancy for the Company's overall portfolio increased, with a breakdown
by asset category as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------
1998 1997
----- -----
<S> <C> <C>
Stabilized malls 93.6% 91.7%
New malls 93.6 89.2
Associated centers 90.5 83.3
Community centers 97.0 97.6
----- -----
Total portfolio 94.8% 93.7%
===== =====
</TABLE>
AVERAGE BASE RENTS
Average base rents for the Company's three portfolio categories:
<TABLE>
At December 31,
----------------------------------
Percentage
1998 1997 Increase
--------- --------- -----------
<S> <C> <C> <C>
Malls. . . . . . . . . . . . $19.82 $19.33 2.5%
Associated centers . . . . . 9.68 9.43 2.7
Community centers. . . . . . 8.22 7.42 10.8
</TABLE>
LEASE ROLLOVERS
On spaces previously occupied, the Company achieved the following results
from rollover leasing for the year ended December 31, 1998 over and above
the base and percentage rent paid by the previous tenant:
<TABLE>
Per Square Per Square
Foot Rent Foot Rent Percentage
Prior Lease (1) New Lease(2) Increase
--------------- ------------ ----------
<S> <C> <C> <C>
Malls. . . . . . . . . $20.78 $23.43 12.8%
Associated centers . . 9.58 10.04 4.8
Community centers. . . 8.03 8.92 11.1
<FN>
(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.
</FN>
</TABLE>
In 1998 and 1997, respectively, revenues from the malls represented 74.9%
and 72.9% of total revenues from the properties; revenues from associated
centers represented 3.9% and 3.8%; revenues from community centers
represented 19.6% and 21.2%; and revenues from mortgages and the office
building represented 1.6% and 2.1%. Accordingly, revenues and results of
operations are disproportionately impacted by the malls' achievements.
-41-
<PAGE>
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 1998 TO THE RESULTS OF OPERATIONS
FOR 1997
Total revenues in 1998 increased by $77.0 million, or 43.4%, to $254.6
million as compared to $177.6 million in 1997. Of this increase, minimum
rents increased by $51.0 million, or 44.1%, to $166.6 million as compared
to $115.6 million in 1997, percentage rents increased by $1.1 million, or
29.8%, to $4.8 million as compared to $3.7 million in 1997, other rents
increased by $2.1 million, or 105.6%, to $4.0 million as compared to $1.9
million in 1997, tenant reimbursements increased by $22.5 million, or 43.9%,
to $73.8 million as compared to $51.3 million in 1997.
Approximately $17.5 million of the increase in revenues resulted from
twelve new centers opened during the last twenty-four months and $54.1
million of the increase in revenues resulted from the fourteen new centers
acquired during the last twenty-four months. Improved occupancies and
operations, expansions to existing properties, and increased rents in the
Company's operating portfolio generated approximately $5.4 million of the
increased revenues with the largest increases from Hamilton Place in
Chattanooga, Tennessee and Westgate Mall in Spartanburg, South Carolina
Management, development and leasing fees increased in 1998 by $0.3 million,
or 12.5%, to $2.7 million as compared to $2.4 million in 1997. Our managed
properties continue to provide the majority of this revenue augmented by an
increase in development fees. Interest and other income was $2.7 million in
both 1998 and 1997.
Property operating expenses, including real estate taxes and maintenance and
repairs, increased in 1998 by $24.5 million, or 44.0%, to $80.2 million as
compared to $55.7 million in 1997. This increase is primarily the result of
the twelve new centers opened and the acquisition of fourteen properties
over the past twenty-four months. The Company's cost recovery ratio
remained stable at 92.1% in 1998 as compared 92.2% to in 1997.
Depreciation and amortization increased in 1998 by $11.2 million, or 34.8%,
to $43.5 million as compared to $32.3 million in 1997. This increase
resulted primarily from depreciation and amortization on the twelve new
centers opened and the acquisition of fourteen properties over the past
twenty four months.
Interest expense increased in 1998 by $29.5 million, or 78.0%, to $67.3
million as compared to $37.8 million in 1997. This increase is primarily
due to increased interest expense on the twelve new centers opened and the
acquisition of fourteen properties over the past twenty-four months
partially offset by the repayment of variable rate debt with proceeds from
the preferred offering in June 1998.
General and administrative expense increased in 1998 by $2.8 million, or
30.8%, to $11.8 million as compared to $9.0 million in 1997. This increase
was due to increases in reserves for state tax expense and increases in
general overhead.
-42-
<PAGE>
Gain on sales of real estate assets was $4.2 million in 1998 as compared
to $6.0 million in 1997. The majority of the gain in 1998 is from outparcel
and pad sales at the development centers Springhurst Towne Center in
Louisville, Kentucky and Sand Lake Corner in Orlando, Florida. The gain
on sales in 1998 also includes a $0.2 million gain on the sale of one
existing center, Surrey Square in Elkin, North Carolina.
The extraordinary loss in 1998 of $.8 million was from the refinancing of
the loan on College Square Mall in Morristown, Tennessee. The Company
reduced the interest rate from 10% to 6.75% and extended the term to
fifteen years.
COMPARISON OF RESULTS OF OPERATIONS FOR 1997 TO THE RESULTS OF OPERATIONS
FOR 1996
Total revenues in 1997 increased by $30.8 million, or 21.0%, to $177.6
million as compared to $146.8 million in 1996. Of this increase, minimum
rents increased by $22.4 million, or 24.0%, to $115.6 million as compared
to $93.2 million in 1996, percentage rents increased by $1.0 million, or
37.0%, to $3.7 million as compared to $2.7 million in 1996, other rents
increased by $0.1 million, or 5.6%, to $1.9 million as compared to $1.8
million in 1996, tenant reimbursements increased by $8.9 million, or 21.0%,
to $51.3 million as compared to $42.4 million in 1996.
Approximately $7.6 million of the increase in revenues resulted from a full
year of operations at the four new centers opened during 1996 and $11.0
million from a full year of operations from St. Clair Square in Fairview
Heights, Illinois. Approximately $10.2 million of the increase in revenues
resulted from the ten new centers opened and three centers acquired during
1997 offset by $1.9 million of revenues no longer received from five centers
sold in 1996. Improved occupancies and operations, expansions to existing
properties, and increased rents in the Company's operating portfolio
generated approximately $3.9 million of the increased revenues with
stabilized malls contributing approximately $3.1 million and the associated
and community center portfolio contributing $0.8 million in increased
revenues.
Management, development and leasing fees were $2.4 million in both 1997 and
1996. Our managed properties continue to provide the majority of this
revenue augmented by an increase in development fees. Interest and other
income decreased by $1.6 million to $2.7 million in 1997 from $4.3 million
in 1996. This decrease was primarily due to the acquisition of a mortgage
property at the end of 1996 and the resulting elimination of interest
income from the property.
Property operating expenses, including real estate taxes and maintenance
and repairs, increased in 1997 by $10.9 million or 24.3%, to $55.7 million
as compared to $44.8 million in 1996. This increase is primarily the
result of the opening of the thirteen new centers over the past twenty-
four months and the acquisition of four properties. The Company's cost
recovery ratio decreased to 92.2% in 1997 as compared to 94.7% in 1996
primarily due the addition of properties with non-recoverable ground rent.
Depreciation and amortization increased in 1997 by $6.9 million or 27.2% to
$32.3 million as compared to $25.4 million in 1996. This increase resulted
primarily from depreciation and amortization on the thirteen new centers
opened and the acquisition of four properties over the past twenty four
months.
Interest expense increased in 1997 by $6.1 million or 19.2% to $37.8 million
as compared to $31.7 million in 1996. This increase is primarily due to
increased interest expense on the thirteen new centers opened and the
acquisition of four properties over the past twenty-four months offset by
the reduction of variable rate debt with proceeds from the spot offering
in January 1997.
-43-
<PAGE>
General and administrative expense was $9.0 million in 1997 as compared to
$8.5 million in 1996. This increase was primarily due to increases in
reserves for state tax expense and general increases in overhead.
Other expense was $0.3 million in 1997 and $0.6 million in 1996. These
amounts represent the write-off of development projects which the Company
has elected not to pursue.
Gain on sales of real estate assets was $6.0 million in 1997 as compared to
$13.6 million in 1996. The majority of the gain in 1997 is from outparcel
and pad sales at the development centers: Cortlandt Town Center in
Cortlandt, New York, Salem Crossing in Virginia Beach, Virginia and
Springhurst Towne Center in Louisville, Kentucky. The gain on sales in
1997 also includes a $0.7 million gain on the sale of one completed center.
The majority of gain on sales in 1996 were from sales of five completed
centers for $7.6 million. Most of the remaining $6.0 million of outparcel
sales in 1996 were in connection with the development of Springhurst Towne
Center in Louisville, Kentucky and Massard Crossing in Ft. Smith, Arkansas.
The extraordinary loss in 1997 of $1.1 million resulted from the refinancing
or extinguishment of debt on a number of properties, the largest of which
was Hamilton Place in Chattanooga, Tennessee. The reduction in the interest
rate on the refinanced debt on Hamilton Place was 2.25%. The extraordinary
loss in 1996 was from the refinancing of debt on Governor's Square in
Clarksville, Tennessee.
LIQUIDITY AND CAPITAL RESOURCES
The principal uses of the Company's liquidity and capital resources have
historically been for property development, acquisitions, expansion and
renovation programs, and debt repayment. To maintain its qualification as
a real estate investment trust under the Internal Revenue Code, the Company
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 January 31, 1999, the Company had $63.9 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 January 31, 1999, the Company had obtained revolving
credit lines and term loans totaling $230 million of which $58.4 million
was available. Also, as a publicly traded company, the Company has access
to capital through both the public equity and debt markets. The Company
has filed a shelf registration statement authorizing shares of the
Company's common stock, preferred stock, and warrants to purchase shares
of the Company's common stock with an aggregate public offering price of
up to $350 million, with $278 million available as of January 31, 1998. The
Company anticipates 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 majority of the mortgage notes payable
maturing over the next five years with replacement loans.
The Company's current capital structure includes property specific mortgages,
which are generally non-recourse, revolving lines of credit, common stock,
preferred stock and a minority interest in the Operating Partnership. The
minority interest in the Operating Partnership includes the 25.8%
ownership interest in the Operating Partnership held by the Company's
executive and senior officers which may be exchanged for approximately 9.4
million shares of common stock. Additionally, Company executive officers
and directors own approximately 1.7 million shares of
-44-
<PAGE>
the outstanding common stock of the Company, for a combined total interest
in the Operating Partnership of approximately 30.5%. Operating Partnership
interests issued to fund acquisitions in 1998, which represent, in the
aggregate a 6.5% limited partnership interest in the operating partnership,
may be exchanged for approximately 2.4 million shares of common stock.
Assuming the exchange of all limited partnership interests in the Operating
Partnership for common stock, there would be approximately 36.5 million
shares of common stock outstanding with a market value of approximately
$942.0 million at December 31, 1998 (based on the closing price of its
common stock of $25.8125 per share on December 31, 1998). The Company's
total market equity is $1.015 billion which includes 2.9 million shares of
preferred stock at their closing price of $25.25 per share on December 31,
1998. Company executive and senior officers' ownership interests had a
market value of approximately $287.4 million at December 31, 1998.
Mortgage debt consists of debt on certain consolidated properties as well as
debt on three properties in which the Company owns a non-controlling
interests, accounted for under the equity method of accounting. At
December 31, 1998, the Company's share of funded mortgage debt on its
consolidated properties adjusted for minority investors' interests in seven
properties was $677.9 million and its pro rata share of mortgage debt on
unconsolidated properties (accounted for under the equity method) was $41.3
million for total fixed rate debt obligations of $719.2 million with a
weighted average interest rate of 7.45%.
Variable rate debt accounted for $508.5 million with a weighted average
interest rate of 6.6%. Total debt obligations (including construction
loans) amounted to $1.228 billion. Variable rate debt accounted for
approximately 41.4% of the Company's total debt and 22.7% of its total
capitalization. Through the execution of interest rate swap agreements,
the Company has fixed the interest rates on $314 million of variable rate
debt on operating properties at a weighted average interest rate of 6.6%.
Of the remaining variable rate debt of $194.5 million the Company has,
interest rate caps in place of $100.0 million and a conventional
permanent loan commitment of $75.0 million, leaving $19.5 million of debt
subject to variable rates on construction properties and no debt subject
to variable rates on operating properties. The Company's current exposure
to interest rate fluctuations which could impact funds from operations has
been effectively mitigated by these interest rate cap and swap agreements
and permanent loan commitments. There were no fees charged to the Company
related to these swap agreements. The Company's swap and cap agreements in
place at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Fixed
Amount LIBOR Effective Expiration
(in millions) Swap/Cap Component Date Date
- ------------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
$65 swap 5.72% 01/07/98 01/07/2000
81 swap 5.54% 02/04/98 02/04/2000
50 swap 5.70% 06/15/98 06/15/2001
38 swap 5.73% 06/26/98 06/30/2001
80 swap 5.49% 09/01/98 09/01/2001
100 cap 7.50% 01/01/99 12/31/1999
</TABLE>
In August 1998, the Company expanded one of its credit facilities by $35
million. The Company's credit facilities have a weighted average interest
rate of 99 basis points over LIBOR at January 31, 1999. Each of the credit
facilities includes covenants that require the Company to maintain minimum
net worth levels, interest and debt coverage ratios, total obligations to
capitalized value ratios, and limitations on variable rate debt. The credit
facilities also require that the Company's senior management continue to
consist of certain individuals and to maintain certain levels of minority
ownership in the Operating Partnership. The First Tennessee Bank credit
facility provides that if the Company completes an offering of its
securities, not less than 75% of the net proceeds of any such offering will
be applied for the benefit of the Operating Partnership.
-45-
<PAGE>
The following table sets forth the Company's credit facilities at
January 31, 1999 as follows (in millions):
<TABLE>
<CAPTION>
Credit Facility Amount Current Balance Maturity
- ----------------- ----------- ---------------- -----------
<S> <C> <C> <C>
SunTrust $10 $10.0 April 2000
SouthTrust 20 20.0 March 2001
First Tennessee 80 48.8 June 2000
Wells Fargo 120 93.0 September 1999
</TABLE>
In the second half of 1998, the Company closed a $24 million conventional
mortgage loan on Springhurst Towne Center in Louisville Kentucky at an
interest rate of 6.65%; a $54 million conventional mortgage loan on
Cortlandt Town Center in Cortlandt, New York at an interest rate of 6.9%;
and a $39.4 million conventional mortgage loan on Bonita Lakes Mall and
Crossing in Meridian, Mississippi at an interest rate of 6.82%. The
proceeds from these loans were used to repay existing fixed rate and
variable rate debt. In August 1998, the Company refinanced the mortgage loan
on College Square Mall in Morristown, Tennessee, extending the term, drawing
$2 million for a planned renovation in 1999 and reducing the interest rate
from 10% to 6.75%.
In June 1998, the Company completed a public offering of 2,875,000 shares
of 9% Series A Cumulative Redeemable Preferred Stock at a price to the public of
$25 per share. The net proceeds of $70 million were used to repay variable rate
indebtedness incurred in the Company's development and acquisition programs.
Based on the debt (including construction projects) and the market
value of equity described above, the Company's debt to total market
capitalization (debt plus market value equity) ratio was 54.7% at
December 31, 1998, as compared to 47.9% at December 31, 1997.
-46-
<PAGE>
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
During 1998, the Company opened approximately 871,000 square feet of new
retail properties consisting of the following:
<TABLE>
<CAPTION>
Project Name Location Total GLA Anchors
- ---------------------------- ------------------------ -------------- ----------------------
<S> <C> <C> <C>
Springhurst Towne Center Louisville, Kentucky 303,000 Target, Meijer, TJ Maxx,
Phase II Kohl's, Cinemark, Books-
A-Million, Office Max
Cortland Town Center Phase II Cortland, New York 297,000 Wal*Mart, Home Depot,
HomePlace, Steinbach,
A&P, Office Max,
United Artist, PetsMart,
Marshalls, Barnes &
Noble
Sterling Creek Commons Portsmouth, Virginia 65,000 Hannaford Food & Drug
Sand Lake Corner Orlando, Florida 165,000 Lowe's Home Improvement
Hamilton Crossing Chattanooga, Tennessee 14,000
CoolSprings Crossing Nashville, Tennessee 12,000
Girvin Plaza Jacksonville, Florida 15,000
</TABLE>
During 1998, the Company acquired 6,611,000 square feet consisting of the
following:
<TABLE>
<CAPTION>
Project Name Location Total GLA Anchors
- ---------------------------- ------------------------ -------------- ----------------------
<S> <C> <C> <C>
Asheville Mall Asheville, North Carolina 817,000 Dillard's, Belk, JCPenney,
Sears, Montgomery Ward
Burnsville Center Minneapolis (Burnsville), 1,070,000 Dayton-Hudson, JCPenney,
Minnesota Mervyn's, Sears
Stroud Mall Stroudsburg, Pennsylvania 427,000 Sears, JCPenney, The Bon Ton
Hickory Hollow Mall Nashville, Tennessee 1,096,000 JCPenney, Sears, Dillard's,
Proffitts
Rivergate Mall Nashville, Tennessee 1,074,000 JCPenney, Sears, Dillard's,
Proffitts
Courtyard at Hickory Nashville, Tennessee 77,000 Carmike Cinema, Just for
Hollow Feet
Village at Rivergate Nashville, Tennessee 166,000 Target, Just for Feet
Lions Head Village Nashville, Tennessee 93,000 Steinmart, Carmike Cinema
Meridian Mall Lansing (Oskemos), 767,000 JCPenney, Service Merchandise,
Michigan Mervyn's, Dayton-Hudson
Janesville Mall Janesville, Wisconsin 609,000 JCPenney, Sears, Kohl's,
Boston Store
Parkway City Mall Huntsville, Alabama 415,000 Parisian, McRae's
</TABLE>
The Company currently has approximately 2,000,000 square feet under
construction consisting of:
<TABLE>
<CAPTION>
Project Name Location Total GLA Opening Date
- ---------------------------- ---------------------------- -------------- ---------------
<S> <C> <C> <C>
Arbor Place Atlanta (Douglasville), Georgia 1,035,000 October 13, 1999
The Landing at Arbor Place Atlanta (Douglasville), Georgia 163,000 July 1999
Sand Lake Corners Phase II Orlando, Florida 423,000 April 1999
Lakeshore Mall Sears Sebring, Florida 92,000 June 1998
Fiddler's Run Morganton, North Carolina 203,000 March 17, 1999
Regal Cinema Jacksonville, Florida 84,000 October 1999
</TABLE>
-47-
<PAGE>
The Company has also entered into a number of option agreements for the
development of future regional malls and community centers. Except for
these projects and as further described below, the Company currently has
no other capital commitments.
It is management's expectation that the Company will continue to have
access to the capital resources necessary to expand and grow its business.
Future development and acquisition activities will be undertaken by the
Company 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 Company 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.
OTHER CAPITAL EXPENDITURES
Management prepares an annual capital expenditure budget for each property
which is intended to provide for all necessary recurring capital
improvements and maintenance items. Management believes that its annual
operating reserve for maintenance and recurring capital improvements as
well as reimbursements from tenants will provide the necessary funding for
such requirements. The Company intends to distribute approximately 65% to
90% of its funds from operations with the remaining 10% to 35% to be held
as a reserve for capital expenditures and continued growth opportunities.
Major tenant finish costs for currently vacant space are expected to be
funded with working capital, operating reserves, or revolving lines of
credit, and a return on the funds so invested is expected to be earned.
For the year ended December 31, 1998, revenue generating capital
expenditures, or tenant allowances for improvements, were $8.1 million.
These capital expenditures generate a return by increased rents from these
tenants over the term of their leases. Revenue enhancing capital
expenditures, or remodeling and renovation costs, were $8.4 million, the
majority of which was for the renovation of Hamilton Place in Chattanooga,
Tennessee. Revenue neutral capital expenditures, such as parking lot and
roof repairs, which are recovered from the tenants, were $5.1 million
in 1998.
The Company 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. However, certain environmental conditions are being evaluated
at the recently acquired Parkway City Mall in Huntsville, Alabama. There
appears to be a high potential for adverse environmental conditions,
specifically Total Petroleum Hydrocarbons, in the vicinity of an auto
service center which had underground storage tanks. The Company has ordered
additional engineering studies and as part of the redevelopment is
proceeding to correct the environmental conditions at the site. The Company
has not been notified by any governmental authority, and 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 Company has not recorded in its financial statements
any material liability in connection with environmental matters.
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<PAGE>
Cash Flows
Cash flows provided by operating activities for 1998 increased by $28.2
million, or 46.5%, to $89.1 million from $60.9 million in 1997. This
increase was primarily due to the cash provided from the operations of
twelve new centers and the acquisition of fourteen centers in the last
twenty-four months. Cash flows used in investing activities for 1998
increased by $325.4 million, or 132.4%, to $571.3 million compared to $245.9
million in 1997. This increase was primarily due to the acquisition of
eleven centers in 1998 and the Company's development program partially
offset by a draw on escrow funds in January 1998. Cash flows provided by
financing activities for 1998 increased by $301.1 million, or 163.7%, to
$484.9 million from $183.9 million in 1997. This increase is primarily due
to increased borrowings related to the development and acquisition programs
partially offset by the proceeds from the June 1998 preferred stock offering
which were used to pay down borrowings under the Company's credit
facilities.
Impact of Inflation
In the last three years, inflation has not had a significant impact on the
Company because of the relatively low inflation rate. Substantially all
tenant leases do, however, contain provisions designed to protect the
Company from the impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' 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 Company to replace existing leases with new leases at higher
base and/or percentage rentals if rents from 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 Company's exposure to
increases in costs and operating expenses resulting from inflation.
Year 2000
The Year 2000 problem results from the use of a two digit year date
instead of a four digit date in the programs that operate computers,
information processing technology and systems and other devices (i.e. non-
information processing systems such as elevators, utility monitoring systems
and time clocks that use computer chips). Systems with a Year 2000 problem
have programs that were written to assume that the first two digits for any
date used in the program would always be "19". Unless corrected, this
assumption may result in computer programs misinterpreting the date
January 1, 2000 as January 1, 1900. This could cause systems to incorrectly
process critical financial and operational information, generate erroneous
information or fail altogether.
The Company's State of Readiness For Year 2000 - The Company has
completed a program to identify both its information and non-information
processing applications that are not year 2000 compliant. As a result of
this identification program, the Company believes that its core accounting
applications and the majority of non-information processing applications
are year 2000 compliant. Certain of its other information and non-
information processing applications were not yet year 2000 compliant. The
Company corrected or replaced all non-compliant systems and applications
including embedded systems, by the end of 1998. The Company has initiated
communications with its significant suppliers and tenants to determine the
extent to which the Company is vulnerable to the failure of such parties to
correct their year 2000 compliance issues. In
-49-
<PAGE>
addition, the Company has formed a Year 2000 Committee that includes senior
personnel from most areas of the Company. These people are charged with
the duty of determining the extent of the Company's ongoing exposure and
taking the appropriate action to minimize any impact on the Company's
operations.
Costs to Address the Company's Year 2000 Issue - The Company does
not expect to incur any significant costs to ensure the compliance of all
information processing systems and non-information processing systems
including embedded systems.
Risks Relating to The Year 2000 Issue And Contingency Plans - Although
the Company is not currently aware of any specific significant Year 2000
problems involving third party vendors or suppliers, the Company believes
that its most significant potential risk relating to the Year 2000 issue
is in regard to such third parties. For example, the Company believes there
could be failure in the information systems of certain service providers
that the Company relies upon for electrical, telephone and data transmission
and banking services.
The Company believes that any service disruption with respect to these
providers due to a Year 2000 issue would be of a short-term nature. The
Company has existing back-up systems and procedures, developed primarily
for natural disasters, that could be utilized on a short-term basis to
address any service interruptions. In addition, with respect to tenants,
a failure of their information systems could delay the payment of rents
or even impair their ability to operate. These tenant problems are likely
to be isolated and would likely not impact the operations of any particular
shopping center or the Company as a whole. While it is not possible at this
time to determine the likely impact of any of these potential problems,
the Company will continue to evaluate these areas and develop additional
contingency plans, as appropriate. Therefore, although the Company believes
that its Year 2000 issues have been addressed and that suitable remediation
and/or contingency procedures will be in place by December 31, 1999, there
can be no assurance that Year 2000 issues will not have a material adverse
effect on the Company's results of operations or financial condition.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133 requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement SFAS No. 133 as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998
and thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No.
133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantialy modified after December 31, 1997 (and, at the
company's election, before January 1, 1998).
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<PAGE>
The Company has not yet quantified the impact of adopting SFAS No. 133 on
its financial statements and has not determined the timing or method of
adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility
in earnings and other comprehensive income.
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 Company as net income (loss) before property depreciation,
other non-cash items (consisting of the write-off of costs associated with
development projects not being pursued), gains or losses on sales of real
estate assets and gains or losses on investments in marketable securities.
The cost of interest rate caps and finance costs on the Company's lines of
credit are amortized and included in interest expense and, therefore,
reduces FFO. FFO also includes the Company's share of FFO in unconsolidated
properties and excludes minority interests' share of FFO in consolidated
properties.
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 Company. 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 Company).
Management also believes that FFO is a widely used measure of the operating
performance of REITs and provides a relevant basis for comparison among
Companies. FFO does not represent cash flow from operations as, defined by
generally accepted accounting principles, is not necessarily indicative of
cash from operations available to fund all cash flow needs and should not
be considered as an alternative to net income for purposes of evaluating
the Company's operating performance or to cash flows as a measure of
liquidity.
In 1998, FFO increased by $17.1 million, or 22.3%, to $93.6 million as
compared to $76.5 million in 1997. The increase in FFO was primarily
attributable to the continuing increase in revenues and income from
operations from new developments and acquisitions.
Beginning with the first quarter of 1998 the Company amended its
calculation of FFO to include straight line rents in accordance with
NAREIT's, definition of FFO. The Company has restated prior years' FFO
to conform with the revised calculation. The Company excludes outparcel
sales (which would have added $4.0 million in 1998) from its FFO
calculation, even though the NAREIT definition allows their inclusion.
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<PAGE>
The Company's calculation of FFO is as follows (in thousands except
per share data):
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income from operations . . . . . . . . . . . . . . . . . . . $ 14,810 $ 12,336 $ 51,639 $ 42,404
ADD:
Depreciation and amortization
from consolidated properties. . . . . . . . . . . . . . 13,013 8,669 43,547 32,308
Income from operations of
unconsolidated affiliates . . . . . . . . . . . . . . . 690 402 2,379 1,916
Depreciation and amortization from
unconsolidated affiliates . . . . . . . . . . . . . . . 370 341 1,427 1,334
Write-off of development costs
charged to net income . . . . . . . . . . . . . . . . . - 285 122 330
SUBTRACT:
Minority investors' share of income
from operations in ten properties . . . . . . . . . . . (236) (103) (645) (508)
Minority investor's share of
depreciation and amortization
ten properties. . . . . . . . . . . . . . . . . . . . . (226) (252) (875) (834)
Depreciation and amortization of
non-real estate assets and
finance costs . . . . . . . . . . . . . . . . . . . . . (300) (116) (746) (436)
Preferred Dividends. . . . . . . . . . . . . . . . . . . . . (1,617) - (3,234) -
-------- -------- -------- --------
TOTAL FUNDS FROM OPERATIONS $26,504 $21,562 $93,614 $76,514
======== ======== ======== ========
BASIC PER SHARE DATA:
Funds from operation $0.73 $0.64 $2.70 $2.29
======== ======== ======== ========
Weighted average shares with operating
partnership units fully converted. . . . . . . . . . . . 36,433 33,530 34,637 33,343
======== ======== ======== ========
DILUTED PER SHARE DATA:
Funds From Operations $0.72 $0.64 $2.68 $2.28
======== ======== ======== ========
Weighted average shares and potential
dilutive common shares with operating
partnership units fully converted . . . . . . . . . . . 36,735 33,767 34,898 33,599
======== ======== ======== ========
</TABLE>
-53-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Index to Financial statements contained
in Item 14 on page 56.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference from the Company's definitive
proxy statement filed on March 26, 1999 with the Securities and
Exchange Commission (the "Commission") with respect to its Annual
Meeting of Stockholders to be held on April 29, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference from the Company's definitive
proxy statement filed on March 26, 1999 with the Commission with
respect to its Annual Meeting of Stockholders to be held on
April 29, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated herein by reference from the Company's definitive
proxy statement filed on March 26, 1999 with the Commission with
respect to its Annual Meeting of Stockholders to be held on
April 29, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference from the Company's definitive
proxy statement filed on March 26, 1999 with the Commission with
respect to its Annual Meeting of Stockholders to be held on
April 29, 1999.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(1) Financial Statements Page Number
Report of Independent Public Accountants 63
CBL & Associates Properties, Inc. Consolidated 64
Balance Sheets as of December 31, 1998 and 1997
CBL & Associates Properties, Inc. Consolidated 65
Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996
CBL & Associates Properties, Inc. Consolidated 66
Statements of Shareholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996
CBL & Associates Properties, Inc. Consolidated 67
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996
Notes to Financial Statements 68
(2) Financial Statement Schedules
Schedule II Allowance For Credit Losses 83
Schedule III Real Estate and Accumulated Depreciation 84
Schedule IV Mortgage Loans on Real Estate 93
Financial Statement Schedules not listed herein are either not
required or are is not present in amounts sufficient to require submission
of the schedule or the information required to be included therein is
included in the Company's Consolidated Financial Statements in item 14 or
are reported elsewhere.
(3) Exhibits
Exhibit
Number Description
- -------- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company(a)
3.2 Certificate of Amendment to the Amended & Restated Certificate
of Incorporation of the Company (b)
3.3 Amended and Restated Bylaws of the Company(a)
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<PAGE>
4 See Amended and Restated Certificate of Incorporation of the
Company, relating to the Common Stock(a)
10.1 Partnership Agreement of the Operating Partnership(a)
10.2 Property Management Agreement between the Operating
Partnership and the Management Company(a)
10.3 Property Management Agreement relating to Retained
Properties(a)
10.4.1 CBL & Associates Properties, Inc. 1993 Stock Incentive Plan(a)
10.4.2 Non-Qualified Stock Option Agreement, dated May 10, 1994,
for Charles B. Lebovitz
10.4.3 Non-Qualified Stock Option Agreement, dated May 10, 1994,
for James L. Wolford
10.4.4 Non-Qualified Stock Option Agreement, dated May 10, 1994,
for John N. Foy
10.4.5 Non-Qualified Stock Option Agreement, dated May 10, 1994,
for Jay Wiston
10.4.6 Non-Qualified Stock Option Agreement, dated May 10, 1994,
for Ben S. Landress
10.4.7 Non-Qualified Stock Option Agreement, dated May 10, 1994,
for Stephen D. Lebovitz
10.4.8 Stock Restriction Agreement, dated December 28, 1994,
for Charles B. Lebovitz
10.4.9 Stock Restriction Agreement, dated December 2, 1994,
for John N. Foy
10.4.10 Stock Restriction Agreement, dated December 2, 1994,
for Jay Wiston
10.4.11 Stock Restriction Agreement, dated December 2, 1994,
for Ben S. Landress
10.4.12 Stock Restriction Agreement, dated December 2, 1994,
for Stephen D. Lebovitz
10.5 Purchase Agreement relating to Frontier Mall(c)
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<PAGE>
10.6.1 Purchase Agreement relating to Georgia Square (JMB)(c)
10.6.2 Purchase Agreement Relating to Georgia Square (JCPenney)(c)
10.7 Purchase Agreement relating to Post Oak Mall(c)
10.8 Indemnification Agreements between the Company and
the Management Company and their officers and directors(a)
10.9.1 Employment Agreement for Charles B. Lebovitz(a)
10.9.2 Employment Agreement for James L. Wolford(a)
10.9.3 Employment Agreement for John N. Foy(a)
10.9.4 Employment Agreement for Jay Wiston(a)
10.9.5 Employment Agreement for Ben S. Landress(a)
10.9.6 Employment Agreement for Stephen D. Lebovitz(a)
10.10 Subscription Agreement relating to purchase of the Common
Stock and Preferred Stock of the Management Company(a)
10.11 Option Agreement relating to certain Retained Properties(a)
10.12 Option Agreement relating to Outparcels(a)
10.13.1 Property Partnership Agreement relating to Hamilton Place(a)
10.13.2 Property Partnership Agreement relating to CoolSprings
Galleria(a)
10.14.1 Acquisition Option Agreement relating to Hamilton Place(a)
10.14.2 Acquisition Option Agreement relating to the Hamilton Place
Centers(a)
10.14.3 Acquisition Option Agreement relating to the Office Building(a)
10.15 Revolving Credit Agreement between the Operating Partnership
and First Tennessee Bank, National Association, dated as of
March 2, 1994(d)
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<PAGE>
10.16 Revolving Credit Agreement, dated July 28, 1994, between the
Operating Partnership and Wells Fargo Advisors Funding, Inc.,
NationsBank of Georgia, N.A. and First Bank National
Association(e)
10.17 Revolving Credit Agreement, dated October 14, 1994, between
the Operating Partnership and American National Bank and
Trust Company of Chattanooga(f)
10.18 Revolving Credit Agreement, dated November 2, 1994, between
the Operating Partnership and First Tennessee Bank National
Association(f)
10.19 Promissory Note Agreement between the Operating Partnership
and Union Bank of Switzerland dated May 5, 1995(g)
10.20 Amended and Restated Loan Agreement between the Operating
Partnership and First Tennessee Bank National Association
dated July 12, 1995(h)
10.21 Second Amendment to Credit Agreement between the Operating
Partnership and Wells Fargo Realty Advisors Funding, Inc.
dated July 5, 1995(h)
10.22 Consolidation, Amendment, Renewal, and Restatement of Notes
between the Galleria Associates, L.P. and The Northwestern
Mutual Life Insurance Company(i)
10.23 Promissory Note Agreement between High Point Development
Limited Partnership and The Northwestern Mutual Life
Insurance Company dated January 26, 1996(j)
10.24 Promissory Note Agreement between Turtle Creek Limited
Partnership and Connecticut General Life Insurance Company
dated February 14, 1996(j)
10.25 Amended and Restated Credit Agreement between the
Operating Partnership and Wells Fargo Bank N.A. etal
dated September 26, 1996. (k)
10.26 Promissory Note Agreement between the Operating Partnership
and Compass Bank dated September 17, 1996. (k)
10.27 Promissory Note Agreement between St Clair Square Limited
Partnership and Wells Fargo National Bank dated,
December 11, 1996.(l)
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<PAGE>
10.28 Promissory Note Agreement between Lebcon Associates and
Principal Mutual Life Insurance Company dated,
March 18, 1997.(l)
10.29 Promissory Note Agreement between Westgate Mall Limited
Partnership and Principal Mutual Life Insurance Company
dated, February 16, 1997.(l)
10.30 Amended and Restated Credit Agreement between the
Operating Partnership and First Tennessee Bank etal dated
February 24, 1997.(l)
10.31 Amended and Restated Credit Agreement between the Operating
Partnership and First Tennessee Bank etal dated
July 29, 1997.(m)
10.32 Second Amended and Restated Credit Agreement between the
Operating Partnership and Wells Fargo Bank N.A. etal dated
June 5, 1997 Effective April 1,1997.(m)
10.33 First Amendment to Second Amended and Restated Credit
Agreement between the Operating Partnership and Wells
Fargo Bank N.A. etal dated November 11, 1997.(m)
10.34 Loan Agreement between Asheville LLC and Wells Fargo Bank
N.A. dated February 17, 1998(m)
10.35 Loan Agreement between Burnsville Minnesota LLC and U.S.
Bank National Association dated January 30, 1998(m)
10.36 Modification No. One to the Amended and Restated Agreement
of Limited Partnership of CBL & Associates Limited
Partnership Dated March 31, 1997.(m)
10.37 Modification No. Two to the Amended and Restated Agreement
of Limited Partnership of CBL & Associates Limited
Partnership Dated February 19, 1998.(m)
10.38 Loan agreement with South Trust Bank dated
January 15 , 1998. (n)
10.39 Loan agreement between Rivergate Mall Limited Partnership,
The Village at Rivergate Limited Partnership, Hickory
Hollow Mall Limited Partnership, and The Courtyard at
Hickory Hollow Limited Partnership and Midland Loan
Services, Inc. Dated July 1, 1998.(o)
10.40 Second Amended and Restated Agreement of Limited
Partnership of CBL & Associates Limited Partnership
dated June 30, 1998 (p)
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<PAGE>
10.41 Amended and restated Loan Agreement between CBL & Associates
Properties, Inc. and First Tennessee Bank National
Association Dated June 12, 1998 (p)
10.42 First Amendment To Third Amended And Restated Credit
Agreement and Third Amended And Restated Credit Agreement
between CBL & Associates Properties, Inc. and Wells Fargo
Bank, National Association, dated August 4, 1998 (p)
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
24 Power of Attorney
27 Financial Data Schedule
(a) Incorporated by reference to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-11 (No. 33-67372), as
filed with the Commission on January 27, 1994.
(b) Incorporated by reference to Exhibit B to the Company's Definitive
Schedule 14A, Dated April 1, 1996.
(c) Incorporated by reference to Amendment No. 2 to the Company's
Registration Statement on Form S-11 (No. 33-67372), as filed with
the Commission on October 26, 1993.
(d) Incorporated herein by reference to the Company's Annual Report in
Form 10-K for the fiscal year ended December 31, 1993.
(e) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994.
(f) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994.
(g) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995.
(h) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.
(i) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995.
(j) Incorporated by reference to the Company's Annual Report in
Form 10-K for the fiscal year ended December 31, 1995.
(k) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
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<PAGE>
(l) Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
(m) Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
(n) Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998.
(o) Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998.
(p) Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.
A management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of this report.
(4) Reports on Form 8-K
The outline from the Company's February 3, 1999 conference
call with analysts regarding earnings (Item 5) was filed on
February 3, 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /s/ Charles B. Lebovitz
------------------------
Charles B. Lebovitz
Chairman of the Board,
and Chief Executive Officer
Dated: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Charles B. Lebovitz Chairman of the Board, and Chief March 30, 1999
- ----------------------- Executive Officer (Principal
Charles B. Lebovitz Executive Officer)
/s/ John N. Foy Vice Chairman of the Board, Chief March 30, 1999
- ----------------------- Financial Officer and Treasurer
John N. Foy (Principal Financial Officer and
Principal Accounting Officer)
/s/ Stephen D. Lebovitz* Director, President and Secretary March 30, 1999
- ------------------------
Stephen D. Lebovitz
/s/ Claude M. Ballard* Director March 30, 1999
- ------------------------
Claude M. Ballard
/s/ Leo Fields* Director March 30, 1999
- ------------------------
Leo Fields
/s/ William J. Poorvu* Director March 30, 1999
- ------------------------
William J. Poorvu
/s/ Winston W. Walker* Director March 30, 1999
- ------------------------
Winston W. Walker
*By /s/ Charles B. Lebovitz Attorney-in-Fact March 30, 1999
- --------------------------
Charles B. Lebovitz
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants 63
CBL & Associates Properties, Inc. Consolidated Balance
Sheets as of December 31, 1998 and 1997 64
CBL & Associates Properties, Inc. Consolidated Statements
of Operations for the Years Ended December 31, 1998, 1997
and 1996 65
CBL & Associates Properties, Inc. Consolidated Statements
of Shareholders' Equity for the Years Ended December 31,
1998, 1997 and 1996 66
CBL & Associates Properties, Inc. Consolidated Statements
of Cash Flows for the Years Ended December 31, 1998, 1997
and 1996 67
Notes to Financial Statements 68
Schedule II Allowance For Credit Losses . . . . . . 83
Schedule III Real Estate and Accumulated
Depreciation . . . . . . . . . . . . . . . . . . . 84
Schedule IV Mortgage Loans on Real Estate. . . . . 93
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of CBL & Associates Properties, Inc.:
We have audited the accompanying consolidated balance sheets of CBL &
ASSOCIATES PROPERTIES, INC. (a Delaware corporation) and subsidiary as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CBL &
Associates Properties, Inc. and subsidiary as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
February 3, 1999
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<PAGE>
<TABLE>
CBL & Associates Properties, Inc. Consolidated Balance Sheets
(In thousands, except share and per share data)
<CAPTION>
<S> <C> <C>
December 31,
1998 1997
------------ ------------
ASSETS
REAL ESTATE ASSETS:
Land $ 265,521 $ 164,895
Building and improvements 1,609,831 1,019,283
------------ ------------
1,875,352 1,184,178
Less: Accumulated depreciation (177,055) (145,641)
------------ ------------
1,698,297 1,038,537
Developments in progress 107,491 103,787
------------ ------------
Net investment in real estate assets 1,805,788 1,142,324
CASH AND CASH EQUIVALENTS 5,827 3,124
CASH IN ESCROW - 66,108
RECEIVABLES:
Tenant, net of allowance for doubtful accounts
of $1,950 in 1998 and $1,300 in 1997 17,337 12,891
Other 2,076 1,121
MORTGAGE NOTES RECEIVABLE 9,118 11,678
OTHER ASSETS 15,201 7,779
------------ ------------
$ 1,855,347 $ 1,245,025
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
MORTGAGE AND OTHER NOTES PAYABLE $ 1,208,204 $ 741,413
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 62,466 41,978
------------ ------------
Total liabilities 1,270,670 783,391
------------ ------------
DISTRIBUTIONS AND LOSSES IN EXCESS OF
INVESTMENT IN UNCONSOLIDATED AFFILIATES 855 6,884
------------ ------------
MINORITY INTEREST 168,040 123,897
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 4 AND 13)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value 5,000,000 shares
authorized 2,875,000 issued and outstanding in
1998 and none in 1997 (Note 1) 29 -
Common stock, $.01 par value, 95,000,000 shares
authorized, 24,590,936 and 24,063,963 shares
issued and outstanding in 1998 and 1997,
respectively 246 241
Excess stock, $.01 par value, 100,000,000 shares
authorized, none issued - -
Additional paid-in capital 452,252 359,541
Accumulated deficit (36,235) (28,433)
Deferred compensation (510) (496)
------------ ------------
Total shareholders' equity 415,782 330,853
------------ ------------
$ 1,855,347 $ 1,245,025
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-64-
<PAGE>
<TABLE>
CBL & Associates Properties, Inc. Consolidated Statements of Operations
(In thousands, except per share data)
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31,
-----------------------------------------
1998 1997 1996
--------- -------- --------
REVENUES:
Rentals:
Minimum $166,630 $115,640 $93,217
Percentage 4,751 3,660 2,724
Other 4,007 1,949 1,758
Tenant reimbursements 73,837 51,302 42,447
Management, development and leasing fees 2,711 2,378 2,384
Interest and other 2,704 2,675 4,275
--------- -------- --------
Total revenues 254,640 177,604 146,805
--------- -------- --------
EXPENSES:
Property operating 41,942 30,585 24,232
Depreciation and amortization 43,547 32,308 25,439
Real estate taxes 23,360 14,859 11,587
Maintenance and repairs 14,860 10,239 8,957
General and administrative 11,841 9,049 8,467
Interest 67,329 37,830 31,684
Other 122 330 646
--------- -------- --------
Total expenses 203,001 135,200 111,012
--------- -------- --------
INCOME FROM OPERATIONS 51,639 42,404 35,793
GAIN ON SALES OF REAL ESTATE ASSETS 4,183 6,040 13,614
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATES 2,379 1,916 1,831
MINORITY INTEREST IN EARNINGS:
Operating partnership (16,258) (13,819) (15,468)
Shopping center properties (645) (508) (527)
--------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 41,298 36,033 35,243
EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT (799) (1,092) (820)
--------- -------- --------
NET INCOME 40,499 34,941 34,423
PREFERRED DIVIDENDS (3,234) - -
--------- -------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $37,265 $34,941 $34,423
========= ======== ========
BASIC EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 1.58 $ 1.51 $ 1.69
Extraordinary loss on extinguishment
of debt (0.03) (0.05) (0.04)
--------- -------- --------
Net income $ 1.55 $ 1.46 $ 1.65
========= ======== ========
Weighted average common shares
outstanding 24,079 23,895 20,890
========= ======== ========
DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 1.56 $ 1.49 $ 1.68
Extraordinary loss on extinguishment
of debt (0.03) (0.05) (0.04)
--------- -------- --------
Net income $ 1.53 $ 1.45 $ 1.64
========= ======== ========
Weighted average shares and potential
dilutive common shares outstanding 24,340 24,151 21,022
========= ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
-65-
<PAGE>
<TABLE>
CBL & Associates Properties Consolidated Statements of Shareholders' Equity
(In thousands, except share and per share data)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Additional
Preferred Common Paid-in Accumulated Deferred
Stock Stock Capital Deficit Compensation Total
--------- --------- ---------- ----------- ------------ ---------
BALANCE, December 31, 1995 $ - $208 $291,182 $(20,142) $(356) $270,892
Net income - - - 34,423 - 34,423
Dividends, $1.68 per
common share - - - (35,136) - (35,136)
Issuance of 34,891 shares
of common stock - 1 804 - (347) 458
Exercise of stock options - 1 1,838 - - 1,839
Amortization of deferred
compensation - - - - 328 328
--------- --------- ---------- ----------- ------------ ---------
BALANCE, December 31, 1996 - 210 293,824 (20,855) (375) 272,804
Net income - - - 34,941 - 34,941
Dividends, $1.77 per
common share - - - (42,519) - (42,519)
Issuance of 42,573 shares
of common stock - - 1,047 - (459) 588
Issuance of 3,000,000 shares
of common stock through a
public offering - 30 74,242 - - 74,272
Minority interest in Operating
Partnership - - (10,680) - - (10,680)
Exercise of stock options - 1 1,108 - - 1,109
Amortization of deferred
compensation - - - - 338 338
--------- --------- ---------- ----------- ------------ ---------
BALANCE, December 31, 1997 - 241 359,541 28,433) (496) 330,853
Net income - - - 40,499 - 40,499
Dividends, $1.86 per common
share - - - (45,067) - (45,067)
Dividends, $2.25 per
preferred share - - - (3,234) - (3,234)
Issuance of 439,623 shares
of common stock - 4 6,726 - (649) 6,081
Issuance of 2,875,000 shares
of preferred stock through a
public offering 29 - 69,758 - - 69,787
Minority interest in
Operating Partnership - - 14,436 - - 14,436
Exercise of stock options - 1 1,791 - - 1,792
Amortization of deferred
compensation - - - - 635 635
--------- --------- ---------- ----------- ------------ ---------
BALANCE, December 31, 1998 $29 $246 $452,252 $(36,235) $(510) $415,782
========= ========= ========== =========== ============ =========
The accompanying notes are an integral part of these statements.
</TABLE>
-66-
<PAGE>
<TABLE>
CBL & Associates Properties, Inc. Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $40,499 $34,941 $34,423
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority investors' interest in earnings 16,903 14,327 15,995
Depreciation 36,948 29,091 24,036
Amortization 7,774 3,934 2,677
Extraordinary loss on extinguishment
of debt 799 1,092 820
Gain on sales of real estate assets (4,183) (6,040) (13,614)
Equity in earnings of unconsolidated
affiliates (2,379) (1,916) (1,831)
Issuance of stock under incentive plan 287 331 146
Amortization of deferred compensation 635 338 328
Write-off of development projects 122 330 646
Distributions from unconsolidated
affiliates 3,862 2,192 3,398
Distributions to minority investors (18,543) (16,868) (15,874)
Changes in assets and liabilities:
Tenant and other receivables (4,395) (1,639) (1,051)
Other assets (4,275) (330) (487)
Accounts payable and accrued
liabilities 15,069 1,069 5,177
-------- -------- --------
Net cash provided by operating
activities 89,123 60,852 54,789
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets (110,991) (139,746) (141,842)
Acquisitions of real estate assets (503,820) (36,429) (103,464)
Capitalized interest (5,175) (9,218) (6,978)
Other capital expenditures (21,652) (15,681) (9,538)
Deposits in escrow 66,108 (66,108) -
Proceeds from sales of real estate
assets 9,596 19,341 47,968
Additions to mortgage notes receivable (1,619) (3,461) (3,697)
Payments received on mortgage notes
receivable 3,403 6,771 3,193
Additional investments in and advances
to unconsolidated affiliates (5,012) (491) (2,566)
Additions to other assets (2,170) (862) (1,092)
-------- -------- --------
Net cash used in investing activities (571,332) (245,884) (218,016)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other
notes payable 642,788 316,813 309,494
Principal payments on mortgage and
other notes payable (175,997) (165,694) (111,953)
Additions to deferred financing costs (2,665) (1,174) (1,173)
Refunds of financing costs - - 721
Proceeds from issuance of common stock 334 74,530 178
Proceeds from issuance of preferred stock 69,855 - -
Purchase of minority interest (3,012) - -
Proceeds from exercise of stock options 1,792 1,109 1,839
Prepayment penalties on extinguishment
of debt (676) (1,049) -
Dividends paid (47,507) (40,677) (34,610)
-------- -------- --------
Net cash provided by financing activities 484,912 183,858 164,496
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,703 (1,174) 1,269
CASH AND CASH EQUIVALENTS, beginning of period 3,124 4,298 3,029
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $5,827 $3,124 $4,298
======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for
interest, net of amounts capitalized $67,599 $37,791 $30,587
======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
-67-
<PAGE>
CBL & ASSOCIATES PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
CBL & Associates Properties, Inc. (the "Company"), a Delaware
corporation, is engaged in the development, acquisition and operation of
regional shopping malls and community centers, primarily in the southeast
and select markets in northeast and midwest regions of the United States.
The Company is the 100% owner of two qualified REIT subsidiaries, CBL
Holdings I, Inc. and CBL Holdings II, Inc., which are the sole general
partner and majority owner of the Operating Partnership respectively. As a
result, the Company conducts its business through the Operating Partnership,
which at December 31, 1998, owns controlling interests in a portfolio of
properties consisting of twenty-four regional malls, thirteen associated
centers, each of which is part of a regional shopping mall complex, two
power centers, eighty community centers and one office building.
Additionally, the Operating Partnership owns noncontrolling interests in
four regional malls and one associated center. The Operating Partnership
has one mall, one associated center, one power center and two community
centers currently under construction and has options to acquire certain
development properties owned by third parties. At December 31, 1998, CBL
Holdings I, Inc. owned a 2.6% general partnership interest and CBL
Holdings II, Inc. owned a 65.1% limited partnership interest in the
Operating Partnership for a combined interest held by the Company of
67.7%.
The minority interest in the Operating Partnership is held primarily
by CBL & Associates, Inc. and its affiliates (collectively "CBL") who
contributed their interests in certain real estate properties and joint
ventures to the Operating Partnership in exchange for limited partnership
interests in connection with the formation of the Operating Partnership in
November 1993. At December 31, 1998, CBL owns a 25.8% limited partnership
interest in the Operating Partnership (Note 9).
In January 1997, the Company completed a spot offering of 3,000,000
shares of its common stock at $26.125 per share. The net proceeds of $74.3
million were used to repay variable rate indebtedness incurred in the
Company's development and acquisition programs.
In June 1998, the Company completed a public offering of 2,875,000
shares of 9% Series A Cumulative Redeemable Preferred Stock (the "Series
A Preferred Stock") at a price to the public of $25.00 per share, including
715,875 shares purchased by an affiliate of Wells Fargo Bank. The net
proceeds of $70 million were used to repay variable rate indebtedness
incurred in the Company's development and acquisition programs. The
dividends on the Series A Preferred Stock are cumulative and accrue from
the date of issue and are payable quarterly in arrears commencing on
September 30, 1998 at a rate of $2.25 per share per annum. The Series A
Preferred Stock has no stated maturity, is not subject to any sinking fund
or mandatory redemption and is not redeemable prior to July 1, 2003. On or
after July 1,2003 the Company may redeem the Series A Preferred Stock,
in whole or in part, at any time for a cash redemption price of $25.00 per
share, plus dividends accrued and unpaid.
To comply with certain technical requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), the Operating Partnership carries
out the Company's property management and development activities through
CBL & Associates Management, Inc. (the "Management Company"). The
Operating Partnership holds 100% of the preferred stock and 5% of the
common stock of the Management Company, with CBL holding the remaining 95%
of the common stock. Through the ownership of the preferred stock, the
Operating Partnership receives substantially all of the cash flow, and
therefore enjoys substantially all of the economic benefits of the
Management Company's operations. Due to the Company's ability, as sole
general partner, to control the Operating Partnership and Operating
Partnership's rights to substantially all of the economic benefits of the
Management Company, the accounts of each
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<PAGE>
entity are included in the accompanying consolidated financial statements.
The Company, the Operating Partnership and the Management Company are
referred to collectively as the "Company".
All significant intercompany balances and transactions have been
eliminated in the consolidated presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate Assets
Costs directly related to the development of real estate assets,
including overhead costs directly attributable to property development,
are capitalized. Interest costs incurred during the development and
construction period are capitalized.
Ordinary repairs and maintenance are expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their
estimated useful lives. Depreciation is computed on a straight-line basis
generally over forty years for buildings and improvements and seven to ten
years for equipment and fixtures. Tenant improvements are capitalized and
depreciated on a straight-line basis over the life of the related lease.
Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived
assets to be held and used when events or changes in circumstances warrant
such a review. The carrying value of a long-lived asset is considered
impaired when the projected undiscounted future cash flow of such asset is
less than its carrying value. Management believes that no material
impairment existed at December 31, 1998, and accordingly, no loss was
recognized.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and cash equivalent
investments with original maturities of three months or less, primarily
consisting of demand deposits in banks.
Cash in Escrow
Cash in escrow includes cash deposited in escrow accounts which is
to be used for the purchase of specific real estate assets.
Deferred Financing Costs
Deferred financing costs are included in other assets in the
accompanying consolidated balance sheets and include fees and costs
incurred to obtain long-term financing and are being amortized over the
terms of the respective mortgage notes payable. Unamortized deferred
financing costs are written off when mortgage notes payable are retired
before the maturity date.
Revenue Recognition
Rental revenue attributable to operating leases is recognized on a
straight-line basis over the initial term of the related leases. Certain
tenants are required to pay additional rent if sales volume exceeds
specified amounts. The Company
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<PAGE>
recognizes this additional rent as revenue when such amounts become
determinable. A substantial portion of the Company's rental income is
derived from various national and regional retail companies.
Tenant Reimbursements
The Company receives reimbursements from tenants for certain costs as
provided in the lease agreements. These costs consist of real estate taxes,
common area maintenance and other recoverable costs. Tenant reimbursements
are recognized as revenue in the period the costs are incurred.
Management, Development and Leasing Fees
Management fees are charged as a percentage of rentals and are
recognized as revenue as they are earned. Leasing fees are charged for
newly executed leases. These fees are recognized as revenues as they are
earned. Development fees are recognized as revenue on a pro rata basis
over the development period.
Gain on Sales of Real Estate Assets
Gain on sales of real estate assets are recognized at the time title
to the asset is transferred to the buyer, subject to the adequacy of the
buyer's initial and continuing investment and the assumption by the buyer
of all future ownership risks of the property.
Income Taxes
The Company is qualified as a real estate investment trust under
Section 856 through 860 of the Code and applicable treasury regulations.
In order to maintain qualification as a real estate investment trust, the
Company is required to distribute at least 95% of its taxable income to
shareholders and meet certain other asset and income tests as well as
other requirements. As a real estate investment trust, the Company will
generally not be liable for federal corporate income taxes. Thus, no
provision for federal income taxes has been included in the accompanying
consolidated financial statements. If the Company fails to qualify as a
real estate investment trust in any taxable year, the Company will be
subject to federal income tax on its taxable income at regular corporate
tax rates. Even if the Company maintains its qualification for taxation as
a real estate investment trust, the Company may be subject to certain state
and local taxes on its income and property and to federal income and excise
taxes on its undistributed income. State income taxes were not significant
in 1998, 1997 and 1996.
Derivative Financial Instruments
Interest rate cap and swap agreements, which are principally used by
the Company in the management of interest rate exposure, are accounted for
on an accrual basis. Amounts to be paid or received under interest rate cap
and swap agreements are recorded in interest expense in the period in which
they accrue. See Note 7 for additional information.
Concentration of Credit Risk
The Company's tenants consist of national, regional and local
retailers. Financial instruments which subject the Company to
concentrations of credit risk consist primarily of tenant receivables.
The Company does not obtain collateral or other security to support
financial instruments subject to credit risk but monitors the credit
standing of tenants.
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<PAGE>
Earnings Per Common Share
Effective for the year ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," which replaces the presentation of primary earnings per share
("EPS") and fully diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS excludes dilution and is computed by dividing
earnings available to common shareholders by the weighted-average number
of unrestricted common shares outstanding for the period. Similar to
fully diluted EPS, diluted EPS assumes the issuance of common stock for
all potentially dilutive equivalent shares outstanding. The limited
partners' rights to convert their minority interest in the Operating
Partnership into shares of common stock are not dilutive (Note 9). The
difference in basic and diluted EPS was due to the assumed conversion of
outstanding stock options and restricted stock resulting in 261,000,
256,000 and 132,000 potential dilutive common shares in 1998, 1997 and
1996, respectively. All prior period EPS data have been restated.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB No. 25). Effective in 1996, the Company adopted the
disclosure option of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires companies that do not choose to
account for stock-based compensation as prescribed by the statement to
disclose the pro forma effects on net income and earnings per share as if
SFAS No. 123 had been adopted. Additionally, certain other disclosures
are required with respect to stock-based compensation and the assumptions
used to determine the pro forma effects of SFAS No. 123. See Note 11 for
the required disclosures.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
3. UNCONSOLIDATED AFFILIATES
The Company has investments in five partnerships and joint ventures, all
of which are reflected on the equity method of accounting in the
accompanying consolidated financial statements and consist of the
following at December 31, 1998:
Partnership Property Name Company's Interest
Governor's Square IB Governor's Plaza 49.0%
Governor's Square Company Governor's Square 47.5%
Madison Square Associates, Ltd. Madison Square 50.0%
Mall Shopping Center Company Plaza del Sol 50.6%
Parkway Place L.P. Parkway City Mall 50.0%
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<PAGE>
Condensed combined financial statement information of the partnerships
and joint ventures is presented as follows (in thousands):
<TABLE>
<S> <C> <C>
December 31,
-------------------------
1998 1997
--------- ---------
ASSETS:
Net investment in real estate assets $ 72,962 $ 62,624
Other assets 4,041 3,002
--------- ---------
Total assets 77,003 65,626
========= =========
LIABILITIES:
Mortgage notes payable 85,568 87,192
Other liabilities 1,636 1,204
--------- ---------
Total liabilities 87,204 88,396
========= =========
OWNERS' DEFICIT:
Company (855) (6,884)
Other investors (9,346) (15,886)
--------- ---------
Total owners' deficit (10,201) (22,770)
--------- ---------
Total liabilities and owners' deficit $ 77,003 $ 65,626
========= =========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
----------------------------------------
1998 1997 1996
--------- --------- --------
Revenues $ 22,530 $ 21,684 $ 1,014
Depreciation expense 2,913 2,724 2,592
Other operating expenses 14,784 15,066 14,668
--------- --------- --------
Operating income 4,833 3,894 3,754
Gain on sales of real estate assets - - 1
--------- --------- --------
Income before extraordinary item 4,833 3,894 3,755
Extraordinary loss on extinguishment of debt - - (1,727)
--------- --------- --------
Net income $ 4,833 $ 3,894 $ 2,028
========= ========= ========
Company's share of:
Income before extraordinary item $ 2,379 $ 1,916 $ 1,831
Extraordinary loss on extinguishment of debt - - (820)
--------- --------- --------
Net income $ 2,379 $ 1,916 $ 1,011
========= ========= ========
</TABLE>
During 1996, the mortgage note payable on Governor's Square was
refinanced with lower fixed rate debt. A prepayment penalty of
approximately $1,727,000 was incurred in connection with the
refinancing. The Company's share of this prepayment penalty has
been reflected as extraordinary loss on extinguishment of debt in
the accompanying consolidated statement of operations.
In general, contributions and distributions of capital or cash
flows and allocations of income and expense are made on a pro
rata basis in proportion to the equity interest held by each general
or limited partner.
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<PAGE>
4. MORTGAGE AND OTHER NOTES PAYABLE
Mortgage and other notes payable consist of the following at
December 31, 1998 and 1997 (in thousands):
1998 1997
------------ ------------
Permanent loans $ 1,017,038 $ 527,558
Construction loans 40,286 100,321
Lines of credit 150,880 113,534
------------ ------------
$ 1,208,204 $ 741,413
============ ============
Permanent Loans
Permanent loans consist of loans secured by properties held by the Company
at December 31, 1998 with an asset carrying amount of $1,453,829,000. At
December 31, 1998, permanent loans totaling $700,288,000 bear interest at fixed
rates ranging from 6.65% to 10.625%. Permanent loans totaling $316,750,000 bear
interest at variable interest rates indexed to the prime lending rate or LIBOR
rate (5.23% to 6.87% at December 31, 1998). Permanent loans mature at various
dates from 1999 through 2016. Extraordinary loss on extinguishment of debt
consists of prepayment penalties on extinguishment of debt before maturity and
the write off of related unamortized deferred financing costs.
Construction Loans
At December 31, 1998, the Company had construction loans on three
properties. The total commitment under the construction loans is $103,643,000,
of which $40,286,000 is outstanding at December 31, 1998. The construction loans
mature in 2000 and 2001 (extension options are available on loans maturing in
2000) and bear interest at variable interest rates indexed to the prime lending
rate or LIBOR rate (6.34% to 6.87% at December 31, 1998).
Lines of Credit
The Company maintains line of credit agreements with banks for
construction, acquisition and working capital purposes. At December 31, 1998,
the Company has $230,000,000 available under its line of credit agreements, of
which $150,880,000 is outstanding. The lines expire at various dates through
2001 and bear interest at variable rates indexed to the prime lending rate or
LIBOR rate (weighted average interest rate 6.42% at December 31, 1998). At
December 31, 1998, outstanding letters of credit issued under the line of credit
agreements, not reflected in the accompanying consolidated balance sheet, total
approximately $1,178,000. The line of credit agreements contain, among other
restrictions, certain restrictive covenants including the maintenance of certain
coverage ratios and a minimum net worth and limitations on distributions.
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<PAGE>
Debt Maturities
As of December 31, 1998, the scheduled principal payments on all mortgage
and other notes payable, including construction loans and lines of credit, are
as follows (in thousands):
1999 $ 165,668
2000 263,933
2001 131,784
2002 78,631
2003 17,561
Thereafter 550,627
-------------
$ 1,208,204
=============
5. MORTGAGE NOTES RECEIVABLE
Substantially all mortgage notes receivable are collateralized by
wrap-around mortgages which are first mortgages on the underlying real estate
and related improvements. Interest rates on these notes range from 8.75% to
11.0% at December 31, 1998.
6. MINIMUM RENTS
Tenant leases are usually for five to twenty year periods and generally
provide for renewals and annual rentals which are subject to upward adjustments
based on tenant sales volume. Future minimum rents are scheduled to be received
under noncancellable tenant leases at December 31, 1998, as follows (in
thousands):
1999 $ 178,872
2000 164,166
2001 153,385
2002 137,359
2003 124,908
-------------
Thereafter $ 628,086
=============
No single tenant collectively accounts for more than 10% of the Company's
total revenue.
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well defined interest rate risks.
Under interest rate swap agreements, the Company agrees with other parties
to exchange, at specified intervals, the difference between fixed rate and
variable rate interest amounts calculated by reference to an agreed-upon
notional amount. Under these agreements, the Company receives interest payments
at a rate equal to LIBOR (5.63% at December 31, 1998) and pays interest at fixed
rates shown below.
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<PAGE>
The Company has the following interest rate swaps in place at December 31,
1998, totaling $314 million:
<TABLE>
<S> <C> <C> <C>
Fixed
Notional Amount LIBOR Effective Expiration
(in millions) Component Date Date
- --------------- --------- --------- ----------
$65 5.72% 01/05/98 01/07/2000
81 5.54% 02/04/98 02/04/2000
50 5.52% 06/11/98 06/12/2001
38 5.73% 06/26/98 06/30/2001
80 5.49% 08/27/98 09/01/2001
</TABLE>
The Company has two $100 million interest rate caps on LIBOR based variable
rate debt, one at 7.0% for 1998 and one at 7.5% for 1999.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its interest rate swap and cap agreements and
nonderivative financial assets but has no off-balance sheet credit risk of
accounting loss. The Company anticipates, however, that counterparties will be
able to fully satisfy their obligations under the contracts. The Company does
not obtain collateral or other security to support financial instruments subject
to credit risk but monitors the credit standing of counterparties.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement SFAS No. 133 as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).
The Company has not yet quantified the impact of adopting SFAS No. 133 on
its financial statements and has not determined the timing or method of adoption
of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings and
other comprehensive income.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, cash in escrow,
receivables, accounts payable and accrued liabilities are reasonable estimates
of their fair values because of the short maturity of these financial
instruments. Based on the interest rates for similar financial instruments, the
carrying value of mortgage notes receivable is a reasonable estimation of fair
value. The carrying value of mortgage and other notes payable, based on
borrowing rates currently available to the Company, is a reasonable estimation
of fair value at December 31, 1998 and 1997. The fair value of the interest rate
-75-
<PAGE>
swap and cap agreements, which represents the cash requirement if the existing
agreements had been settled at year end, was not significant at December 31,
1998 and 1997.
9. CONVERSION RIGHTS
Pursuant to the Operating Partnership agreement, the limited partners were
granted rights to convert their limited partnership interests in the Operating
Partnership into shares of common stock, subject to certain limits, and to sell
to the Company after November 3, 1996 part or all of their limited partnership
interest in the Operating Partnership in exchange for shares of common stock or
their cash equivalent at the Company's election, as defined.
The Operating Partnership purchased properties from CBL in exchange for
63,904 and 67,850 limited partnership units in the Operating Partnership during
1998 and 1997, respectively. During 1998, the Operating Partnership issued
2,749,888 limited partnership units in the Operating Partnership valued at $68.3
million to third parties in exchange for seven properties.
In July 1998, the Company purchased 122,008 limited partnership units
valued at $3.0 million from a former executive and minority limited partner in
the Operating Partnership. Also during 1998, a third party converted 388,022
limited partnership units to common stock.
At December 31, 1998 and 1997, there remained outstanding rights to convert
CBL's minority interest in the Operating Partnership to 9,417,752 and 9,475,875
shares of common stock, respectively. At December 31, 1998, there remained
outstanding rights to convert third party minority interests in the Operating
Partnership to 2,361,866 shares of common stock.
10. 401(K) PROFIT SHARING PLAN
The Management Company maintains a 401(k) profit sharing plan, which is
qualified under Section 401(a) and Section 401(k) of the Code to cover employees
of the Management Company. All employees who have attained the age of 21 and
have completed at least one year of service are eligible to participate in the
plan. The plan provides for employer matching contributions on behalf of each
participant equal to 50% of the portion of such participant's contribution which
does not exceed 2.5% of such participant's compensation for the plan year.
Additionally, the Management Company has the discretion to make additional
profit-sharing-type contributions not related to participant elective
contributions. Total contributions by the Management Company were not
significant for 1998, 1997, and 1996.
11. STOCK INCENTIVE PLAN
The Company maintains the 1993 Stock Incentive Plan (the "Plan") which
permits the issuance of stock options and common stock to selected officers,
employees and directors of the Company, up to 2,800,000 shares of common stock.
The Plan is administered by the Compensation Committee of the Board of Directors
(the "Committee").
Stock options issued under the Plan allow for the purchase of common stock
at the fair market value of the stock at the date of grant. Stock options
granted to officers and employees under the Plan vest and become exercisable in
installments on each of the first five anniversaries of the date of grant and
expire ten years after the date of grant. Stock options granted to directors are
fully vested upon grant, but may not be sold, pledged or otherwise transferred
in any manner during the director's term or for one year thereafter.
-76-
<PAGE>
The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation expense has been recognized for stock options
granted as all employee options have been granted with an exercise price equal
to the fair value of the Company's common stock on the date of grant. For SFAS
No. 123 purposes, the fair value of each employee option grant has been
estimated as of the date of grant using the Black-Sholes option pricing model
and the following weighted average assumptions for 1998, 1997 and 1996,
respectively:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Risk-free interest rate 5.90% 6.73% 6.53%
Dividend yield 8.09% 7.87% 7.64%
Expected volatility 16.00% 16.00% 16.00%
Expected life 7.2 years 7.0 years 6.5 years
</TABLE>
Using these assumptions, the fair value of the employee stock options
granted in 1998, 1997 and 1996 is $468,000, $860,000 and $965,000, respectively,
which would be amortized as compensation expense over the vesting period of the
options. Had compensation cost for the plan been determined in accordance with
SFAS No. 123, utilizing the assumptions detailed above, the Company's pro forma
net income and net income per share would have been as follows for the years
ended December 31, 1998, 1997, and 1996, respectively:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Net income available to common
shareholders (in thousands):
As reported $ 37,265 $ 34,941 $ 34,423
Pro forma 36,692 34,442 34,117
Net income per share:
Basic as reported $ 1.55 $ 1.46 $ 1.65
Pro forma basic 1.52 1.44 1.63
Diluted as reported 1.53 1.45 1.64
Pro forma diluted 1.51 1.43 1.62
</TABLE>
The pro forma effect on net income in this disclosure is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995.
-77-
<PAGE>
A summary of the Company's stock option activity for 1998, 1997, and 1996
is as follows:
<TABLE>
<S> <C> <C> <C>
Weighted-
Average
Shares Option Price Exercise Price
---------- ------------------- --------------
Outstanding at December 31, 1995 910,400 $19.5625 - $21.6250 19.61
Granted 582,000 $20.5000 - $25.6250 20.52
Exercised (93,800) $19.5625 - $21.6250 19.60
----------
Outstanding at December 31, 1996 1,398,600 $19.5625 - $25.6250 19.99
Granted 539,000 $23.6250 23.63
Exercised (55,600) $19.5625 - $20.5000 19.95
Lapsed (190,400) $19.5625 - $23.6250 20.26
----------
Outstanding at December 31, 1997 1,691,600 $19.5625 - $25.6250 19.99
Granted 319,000 $24.0940 - $25.5938 24.10
Exercised (87,350) $19.5625 - $25.6250 20.52
----------
Outstanding at December 31, 1998 1,923,250 $19.5625 - $25.6250 $21.64
=========
</TABLE>
The weighted-average fair value of options granted during 1998, 1997, and
1996 was $1.49, $1.84 and $1.66, respectively.
Shares subject to options outstanding at December 31, 1998 have a
weighted-average remaining contractual life of 7.5 years. Of the options
outstanding at December 31, 1998, 653,450 are currently exercisable with a
weighted- average exercise price of $20.35 per share.
Under the Plan, common stock may be awarded either alone, in addition to,
or in tandem with other stock awards granted under the Plan. The Committee has
the authority to determine eligible persons to whom common stock will be
awarded, the number of shares to be awarded and the duration of the vesting
period, as defined.
During 1998, the Company issued 37,333 shares of common stock under the
Plan with a weighted-average grant-date fair value of $25.19 per share, of which
10,789 shares of common stock were immediately vested. The remaining 26,544
shares of common stock vest at various dates from 1999 to 2003.
During 1997, the Company issued 31,745 shares of common stock under the
Plan with a weighted-average grant-date fair value of $24.86 per share, of which
13,483 shares of common stock were immediately vested. The remaining 18,262
shares of common stock vest at various dates from 1998 to 1999.
During 1996, the Company issued 26,780 shares of common stock under the
Plan with a weighted-average grant-date fair value of $23.35 per share, of which
12,391 shares of common stock were immediately vested. The remaining 14,389
shares of common stock vest at various dates from 1997 to 1999.
Deferred compensation related to the common stock issued under the Plan is
reflected in the accompanying consolidated statements of shareholders' equity
based on the market value of the common stock at the date of grant and is
amortized ratably over the period the awards vest.
-78-
<PAGE>
12. RELATED PARTY TRANSACTIONS
CBL and certain officers of the Company have a significant minority
interest in the construction company that has been engaged by the Company in the
building of substantially all of the properties.
The Management Company provides management and leasing services to
affiliated partnerships and joint ventures not controlled by the Company.
Revenue recognized for these services amounted to $1,034,000 in 1998, $837,000
in 1997, and $1,537,000 in 1996.
A company that provides security, maintenance, cleaning services and
background music for certain of the real estate properties was majority owned by
officers of the Company during a portion of 1997. The company was sold to an
independent third party in 1997. Expenses related to these services were not
significant in 1997 and 1996.
An insurance agency that has served as agent with respect to the placing of
insurance on certain of the real estate properties was majority owned by certain
employees of the Management Company at December 31, 1996. Total insurance
premiums paid by the Company to the related insurance agency were $2,229,000 in
1996. Due to a change in insurance agent, no premiums were paid in 1998 or 1997
to this agency.
13. COMMITMENTS AND CONTINGENCIES
The Company 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 Company.
Additionally, based on environmental studies completed to date on the real
estate properties, management believes exposure related to environmental cleanup
will be immaterial to the consolidated financial position and consolidated
results of operations of the Company.
The Company has entered into standby purchase agreements with third-party
developers (the "Developers") for the construction, development and potential
ownership of four community centers in Georgia and Texas (the "Co-Development
Projects"). The Developers have utilized these standby purchase agreements to
assist in obtaining financing to fund the construction of the Co-Development
Projects. The standby purchase agreements, which expire in 1999 and 2000, are
dependent upon certain completion requirements, rental levels, the inability of
the Developers to obtain adequate permanent financing and the inability to sell
the Co-Development Project before the Company has to fund their equity
contribution or purchase the Co-Development Project. In return for its
commitment to purchase a Co-Development Project pursuant to a standby purchase
agreement, the Company receives a fee as well as a participation interest in
each Co-Development Project. The outstanding amount of standby purchase
agreements at December 31, 1998 is $116.4 million.
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<PAGE>
14. DIVIDENDS
The allocations of dividends declared and paid for income tax purposes are
as follows:
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
Dividends per common share $ 1.86 $ 1.77 $ 1.68
ALLOCATIONS
Ordinary income 86.86% 81.54% 89.67%
Capital gain 20% 0.30% 0.00% 0.00%
Capital gain 25% 0.30% 0.00% 0.00%
Capital gain 28% 0.00% 0.04% 8.93%
Return of capital 12.54% 18.42% 1.40%
-------- -------- --------
Total 100.00% 100.00% 100.00%
======== ======== ========
</TABLE>
15. SEGMENT INFORMATION
Management of the Company measures performance and allocates resources
according to property type, which are determined based on differences such as
nature of tenants, capital requirements, economic risks and leasing terms. Rent
income and tenant reimbursements from tenant leases provide the majority of
revenues from all segments. Information on management's reportable segments is
presented as follows (in thousands):
<TABLE>
YEAR ENDED DECEMBER 31, 1998 Mall Associated Community
Properties Properties Properties All Other Total
--------------- --------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ 185,305 $ 10,063 $ 53,890 $ 5,382 $ 254,640
Property operating expenses (1) (66,250) (1,870) (10,740) (1,302) (80,162)
Interest expense (49,616) (1,771) (11,957) (3,985) (67,329)
Gain on sales of real estate assets 42 - 151 3,990 4,183
--------------- --------------- ---------------- ----------------- ---------------
Segment profit and loss $ 69,481 $ 6,422 $ 31,344 $ 4,085 111,332
=============== =============== ================ =================
Depreciation and amortization (43,547)
General and administrative and other (11,963)
Equity in earnings and minority
interest adjustment (14,524)
--------------- --------------- ---------------- ----------------- ---------------
Income before extraordinary $ 41,298
item ===============
Total assets $ 1,249,204 $ 81,570 $ 412,228 $ 112,345 $ 1,855,347
Capital expenditures $ 577,492 $ 21,193 $ 33,695 $ 62,498 $ 694,878
-80-
<PAGE>
YEAR ENDED DECEMBER 31, 1997 Mall Associated Community
Properties Properties Properties All Other Total
--------------- --------------- ---------------- ----------------- ---------------
Revenues $ 122,450 $ 7,170 $ 43,509 $ 4,475 $ 177,604
Property operating expenses (1) (43,924) (1,389) (9,336) (1,034) (55,683)
Interest Expense (30,550) (1,070) (8,679) 2,469 (37,830)
Gain on sales of real estate assets 4 - 2,347 3,689 6,040
--------------- --------------- ---------------- ----------------- ---------------
Segment profit or loss $ 47,980 $ 4,711 $ 27,841 $ 9,599 90,131
=============== =============== ================ =================
Depreciation and amortization (32,308)
General and administrative and other (9,379)
Equity in earnings and minority interest
interest adjustment
(12,411)
---------------
Income before extraordinary $ 36,033
item ===============
Total assets $ 747,215 $ 61,298 $ 385,644 $ 50,868 $ 1,245,025
Capital expenditures $ 70,937 $ 14,253 $ 78,012 $ 22,967 $ 186,169
YEAR ENDED DECEMBER 31, 1996 Mall Associated Community
Properties Properties Properties All Other Total
--------------- --------------- ---------------- ----------------- ---------------
Revenues $ 99,153 $ 5,377 $ 35,861 $ 6,414 $ 146,805
Property operating expenses (1) (35,473) (1,030) (7,144) (1,129) (44,776)
Interest (22,058) (1,325) (9,215) 914 (31,684)
Gain on sales of real estate assets 169 327 11,820 1,298 13,614
--------------- --------------- ---------------- ----------------- ---------------
Segment profit and loss $ 41,791 $ 3,349 $ 31,322 $ 7,497 83,959
=============== =============== ================ =================
Depreciation and amortization (25,439)
General and administrative and other (9,113)
Equity in earnings and minority
interest adjustment (14,164)
---------------
Income before extraordinary $ 35,243
item ===============
Total assets $ 628,032 $ 47,583 $ 310,612 $ 39,698 $ 1,025,925
Capital expenditures $ 163,021 $ 8,774 $ 72,728 $ 8,517 $ 253,040
</TABLE>
(1) Property operating includes property operating, real estate
taxes and maintenance and repairs.
-81-
<PAGE>
16. OPERATING PARTNERSHIP
Condensed consolidated financial statement information for the Operating
Partnership is presented as follows (in thousands):
<TABLE>
<S> <C> <C>
December 31,
-------------------------------------
1998 1997
ASSETS: ------------------ ------------------
Net investment in real estate assets $ 1,805,788 $ 1,142,324
Other assets 49,219 102,578
Total assets $ 1,855,007 $ 1,244,902
LIABILITIES: ------------------ ------------------
Mortgage and other notes payable $ 1,208,204 $ 741,413
Other liabilities 51,031 31,318
Total liabilities 1,259,235 772,731
Distributions and losses in excess of investment in unconsolidated affiliates 799 6,884
Minority interest 489 310
OWNERS' EQUITY 594,484 464,977
Total liabilities and owners' equity $ 1,855,007 $ 1,244,902
================== ==================
</TABLE>
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
Revenues $ 254,640 $ 177,604 $ 146,805
Depreciation expense 43,547 32,308 25,439
Other operating expenses 159,101 102,495 85,166
------------------ ------------------ ------------------
Operating income 51,992 42,801 36,200
Gain on sales of real estate assets 4,183 6,040 13,614
Equity in earnings of unconsolidated affiliates 2,379 1,916 1,831
Minority investors' interest (645) (508) (527)
------------------ ------------------ ------------------
Income before extraordinary item 57,909 50,249 51,118
Extraordinary loss on extinguishment of debt (799) (1,092) (820)
------------------ ------------------ ------------------
Net income $ 57,110 $ 49,157 $ 50,298
================== ================== ==================
</TABLE>
17. RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
information to conform with the 1998 presentation.
-82-
<PAGE>
<TABLE>
18. QUARTERLY INFORMATION (UNAUDITED)
(in thousands, except per share amounts)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total(1)
1998 --------------- -------------- -------------- -------------- ---------------
- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 55,056 $ 57,399 $ 67,713 $ 74,472 $ 254,640
Income from operations 12,313 11,839 12,677 14,810 51,639
Income before extraordinary item 10,599 9,148 9,996 11,555 41,298
Net income available to common
shareholders 10,599 9,148 7,703 9,815 37,265
Basic per share data
Net income before extraordinary item $ 0.44 $ 0.38 $ 0.35 $ 0.41 $ 1.58
Net income $ 0.44 $ 0.38 $ 0.32 $ 0.41 $ 1.55
Diluted per share data |
$ 0.44 $ 0.38 $ 0.34 $0.41 $ 1.56
Net income before extraordinary item
Net income $ 0.44 $ 0.38 $ 0.32 $ 0.40 $ 1.54
1997
- ---------------------------------------
Total revenues $ 41,242 $ 42,458 $ 43,243 $ 50,661 $ 177,604
Income from operations 9,573 9,789 10,706 12,336 42,404
Income before extraordinary item 9,476 7,608 8,487 10,462 36,033
Net income available to common
shareholders 8,980 7,607 8,055 10,299 34,941
Basic per share data
Net income before extraordinary item $ 0.40 $ 0.32 $ 0.35 $ 0.43 $ 1.51
Net income $ 0.38 $ 0.32 $ 0.33 $ 0.43 $ 1.46
Diluted per share data
Net income before extraordinary item $ 0.40 $ 0.31 $ 0.35 $ 0.43 $ 1.49
Net income $ 0.38 $ 0.31 $ 0.33 $ 0.42 $ 1.44
</TABLE>
(1) The sum of quarterly earnings per share amounts may differ from
annual earnings per share.
Schedule II Allowance for Credit Losses (in thousands)
<TABLE>
Balance of Provision Bad Debts Balance of
Allowance at For Credit Charged Against Allowance at
Year Ended December 31, Beginning of Year Losses Allowance End of Year
- ------------------------------------- ----------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
1996.................................... $ 0 $ 812 $ (362) $ 450
1997.................................... 450 1,027 (177) 1,300
1998.................................... 1,300 941 (291) 1,950
</TABLE>
- 83 -
<PAGE>
<TABLE>
CBL & ASSOCIATES PROPERTIES, INC. SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(Dollars in Thousands)
Costs
Capitalized Gross Amounts at Which Carried at
Initial Cost(A) Subsequent Close of Period
----------------------- to ---------------------------------- (D) Date of
Encumbrances Buildings and Acquisition/ Buildings and Accumulated Construction
Description (B) Land Improvements Improvements Land Improvements Total(C) Depreciation Purchase
----------- --- ---- ------------ ------------ ---- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MALLS
Asheville Mall $ 51,000 $ 7,139 $ 58,747 $ -- $ 7,139 $ 58,747 $ 65,886 $ 1,541 1998
Asheville, NC
Georgia Square (E) -- 2,982 31,071 5,025 2,959 36,119 39,078 7,995 1982
Athens, Ga
Burnsville Center 60,750 12,804 69,167 -- 12,804 69,167 81,971 1,602 1998
Burnsville, MN
Hamilton Place 72,938 2,880 42,211 21,400 2,932 63,559 66,491 14,238 1986-1987
Chattanooga, Tn
Frontier Mall 5,616 2,681 15,858 7,382 2,681 23,240 25,921 5,162 1984-1985
Cheyenne, Wy
Post Oak Mall (E) -- 3,936 48,948 (8,024) 3,936 40,924 44,860 6,836 1984-1985
College Station, TX
Walnut Square (E) 1,244 50 15,138 4,631 50 19,769 19,819 8,105 1984-1985
Dalton,Ga
St. Clair Square 66,000 11,028 75,581 3,144 11,027 78,726 89,753 4,090 1996
Fairview Heights, Il
Turtle Creek Mall 33,858 2,345 26,418 7,241 3,535 32,469 36,004 5,190 1993-1995
Hattiesburg, Ms
Oak Hollow Mall 51,597 4,344 52,904 2,721 4,344 55,625 59,969 6,181 1994-1995
High Point, Nc
Janesville Mall 16,959 8,074 26,009 -- 8,074 26,009 34,083 371 1998
Janesville, WI
Meridian Mall 80,000 529 103,678 -- 529 103,678 104,207 865 1998
Lansing, MI
Twin Peaks (E) -- 1,873 22,022 14,886 1,828 36,953 38,781 9,925 1984
Longmont,Co
Foothills Mall -- 4,537 15,226 5,669 4,536 20,896 25,432 2,106 1996
Maryville, Tn
Foothills JCP (E) -- -- 2,650 -- -- 2,650 2,650 950 1983
Maryville, Tn
Bonita Lakes Mall 31,823 4,924 31,933 3,896 4,924 35,829 40,753 1,590 1997
Meridian, MS
Springdale Mall 21,950 19,538 6,676 3,242 19,538 9,918 29,456 223 1997
Mobile, AL
College Square 16,064 2,954 17,787 3,945 2,927 21,759 24,686 5,836 1987-1988
Morristown,Tn
-84-
<PAGE>
Costs
Capitalized Gross Amounts at Which Carried at
Initial Cost(A) Subsequent Close of Period
----------------------- to ---------------------------------- (D) Date of
Encumbrances Buildings and Acquisition/ Buildings and Accumulated Construction
Description (B) Land Improvements Improvements Land Improvements Total(C) Depreciation Purchase
----------- --- ---- ------------ ------------ ---- ------------ -------- ------------ --------
Coolsprings Galleria 66,998 13,527 86,755 20,876 14,277 106,881 121,158 17,077 1989-1991
Nashville, Tn
Hickory Hollow Mall 96,155 13,813 111,431 -- 13,813 111,431 125,244 1,408 1998
Nashville, TN
Pemberton Square -- 1,191 14,305 4,155 581 19,070 19,651 5,453 1986
Vicksburg, Ms
Rivergate Mall 77,712 17,896 86,767 -- 17,896 86,767 104,663 1,184 1998
Nashville, TN
Lakeshore Mall -- 1,443 28,819 608 1,274 29,596 30,870 5,163 1991-1992
Sebring, Fl
Westgate Mall 49,651 2,150 23,257 35,001 2,150 58,258 60,408 4,969 1995
Spartanburg, Sc
Stroud Mall 32,550 14,711 23,936 -- 14,711 23,936 38,647 400 1998
Stroudsburg, PA
ASSOCIATED CENTERS
General Cinema 266 100 1,082 14 100 1,096 1,196 520 1984
Athens, Ga
Hamilton Corner 3,353 960 3,670 405 734 4,301 5,035 987 1986-1987
Chattanooga, Tn
Hamilton Place Outpa -- 322 408 -- 322 408 730 2 1998
Chattanooga, Tn
Hamilton Crossing -- 4,014 5,906 (804) 2,644 6,472 9,116 1,525 1987
Chattanooga, Tn
Frontier Square -- 346 684 78 260 848 1,108 238 1985
Cheyenne, Wy
Madison Plaza 2,275 473 2,888 174 473 3,062 3,535 423 1984
Hunstville, Al
Bonita Crossing 7,476 794 4,786 4,227 794 9,013 9,807 210 1997
Meridian, Ms
Foothills Plaza Expa -- 137 1,960 178 148 2,127 2,275 541 1984-1988
Maryville, Tn
Foothills Plaza (E) -- 132 2,123 308 141 2,422 2,563 900 1984-1988
Maryville, Tn
Coolsprings Xing (E -- 2,803 14,985 1,007 2,804 15,991 18,795 2,425 1991-1993
Nashville, Tn
Court at Hickory 4,476 3,314 2,761 -- 3,314 2,761 6,075 34 1998
Nashville, TN
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<PAGE>
Costs
Capitalized Gross Amounts at Which Carried at
Initial Cost(A) Subsequent Close of Period
----------------------- to ---------------------------------- (D) Date of
Encumbrances Buildings and Acquisition/ Buildings and Accumulated Construction
Description (B) Land Improvements Improvements Land Improvements Total(C) Depreciation Purchase
----------- --- ---- ------------ ------------ ---- ------------ -------- ------------ --------
Village at Rivergate 3,671 2,641 2,808 -- 2,641 2,808 5,449 37 1998
Nashville, TN
Westgate Crossing -- 1,082 3,422 1,407 1,082 4,829 5,911 218 1997
Spartanburg, SC
Pemberton Plaza -- -- 662 896 -- 1,558 1,558 256 1986
Vicksburg, Ms
COMMUNITY CENTERS
Northwoods Plaza 1,279 496 1,403 96 496 1,499 1,995 249 1995
Albemarle, Nc
Bartow Plaza -- 224 2,010 230 224 2,240 2,464 453 1989
Bartow, Fl
Jean Ribaut Kmart -- 317 2,065 678 340 2,720 3,060 460 1983-1984
Beaufort, Sc
Jean Ribaut Square 3,977 505 4,007 1,357 505 5,364 5,869 1,554 1983
Beaufort, Sc
Lady's Island (E) -- 300 2,323 279 296 2,606 2,902 415 1992
Beaufort, Sc
Sattler Square (E) -- 792 4,155 230 705 4,472 5,177 1,060 1988-1989
Big Rapids, Mi
Southgate Xing -- -- 1,002 12 -- 1,014 1,014 309 1984-1985
Bristol, Tn
Townshire Center -- -- -- 27 -- 27 27 3 1997
Bryan, TX
Cadillac, Mi -- 555 3,009 43 501 3,106 3,607 688 1989-1990
Cadillac, Mi
Devonshire Place -- 371 3,449 2,489 520 5,789 6,309 357 1995-1996
Cary, Nc
Cedar Springs, Mi -- 206 1,845 121 206 1,966 2,172 483 1988
Cedar Springs, Mi
Dorchester Xing -- 493 1,483 362 443 1,895 2,338 575 1985
Charleston, Sc
Rhett @ Remount -- 67 1,877 854 67 2,731 2,798 696 1992
Charleston, Sc
Fifty Eight Xing 1,107 839 2,360 (51) 743 2,405 3,148 618 1988
Chattanooga, Tn
Park Place 1,608 -- 3,590 784 231 4,143 4,374 1,421 1984
Chattanooga, Tn
-86-
<PAGE>
Costs
Capitalized Gross Amounts at Which Carried at
Initial Cost(A) Subsequent Close of Period
----------------------- to ---------------------------------- (D) Date of
Encumbrances Buildings and Acquisition/ Buildings and Accumulated Construction
Description (B) Land Improvements Improvements Land Improvements Total(C) Depreciation Purchase
----------- --- ---- ------------ ------------ ---- ------------ -------- ------------ --------
Perimeter Place 1,614 764 2,049 332 770 2,375 3,145 822 1985
Chattanooga, Tn
The Terrace 10,681 4,166 9,729 (1) 4,166 9,728 13,894 439 1997
Chattanooga, TN
Chester Plaza 0 165 720 10 165 730 895 23 1997
Chester, VA
Centerview Plaza 1,301 246 1,584 713 197 2,346 2,543 640 1986
China Grove, Nc
Buena Vista Plaza -- 830 1,476 (208) 754 1,344 2,098 241 1988-1989
Columbus, Ga
Conway Plaza -- 110 1,071 788 -- 1,969 1,969 604 1984
Conway, Sc
Cortland Towne Cente 53,727 15,112 79,895 0 15,112 79,895 95,007 1,974 1996
Cortlandt, Ny
Genesis Square 1,049 227 1,435 971 223 2,410 2,633 360 1990
Crossville, Tn
Cosby Station 4,240 999 4,516 618 999 5,134 6,133 571 1993-1994
Douglasville, Ga
E Ridge Xing 1,148 832 2,494 4 731 2,599 3,330 659 1988
East Ridge, Tn
Massard Crossing -- 843 5,726 (226) 843 5,500 6,343 245 1997
Fort Smith,
Lakeshore Station -- 200 401 10 200 411 611 52 1993-1994
Gainesville, Ga
Garden City Plaza ( -- 1,056 2,569 377 580 3,422 4,002 1,136 1984
Garden City, Ks
Anderson Plaza -- 198 1,316 1,565 198 2,881 3,079 521 1983
Greenwood, Sc
Northcreek Plaza -- 98 1,201 46 97 1,248 1,345 209 1983
Greenwood, Sc
Henderson Square 6,825 428 8,074 80 435 8,147 8,582 809 1994-1995
Henderson, Nc
Springs Crossing -- -- 1,422 932 -- 2,354 2,354 488 1987
Hickory, Nc
Valley Crossing (E) -- 2,390 6,471 4,418 3,034 10,245 13,279 1,952 1988
Hickory, Nc
-87-
<PAGE>
Costs
Capitalized Gross Amounts at Which Carried at
Initial Cost(A) Subsequent Close of Period
----------------------- to ---------------------------------- (D) Date of
Encumbrances Buildings and Acquisition/ Buildings and Accumulated Construction
Description (B) Land Improvements Improvements Land Improvements Total(C) Depreciation Purchase
----------- --- ---- ------------ ------------ ---- ------------ -------- ------------ --------
Northridge Plaza (E) -- 1,087 2,970 2,006 1,244 4,819 6,063 1,545 1984
Hilton Head, SC
Village Square -- 750 3,591 (892) 142 3,307 3,449 763 1989-1990
Houghton Lake, Mi
Greenport Towne Cent 4,446 659 6,161 235 659 6,396 7,055 746 1993-1994
Hudson, Ny
Girvin Plaza -- 898 1,998 961 702 3,155 3,857 368 1989-1990
Jacksonville, Fl
Jasper Square (E) -- 235 1,423 613 235 2,036 2,271 595 1986
Jasper, Al
Stone East Plaza (E -- 266 1,635 184 217 1,868 2,085 646 1987
Kingsport, Tn
Cedar Bluff 1,327 412 2,128 883 412 3,011 3,423 753 1987
Knoxville, Tn
Eastowne Xing (E) -- 867 2,765 577 786 3,423 4,209 756 1989
Knoxville, Tn
Karnes Corner 966 206 1,360 793 206 2,153 2,359 510 1987
Knoxville, Tn
Kingston Overlook -- 1,693 5,664 1,983 2,105 7,235 9,340 364 1996
Knoxville, Tn
Suburban Plaza 6,788 3,223 3,796 3,106 3,223 6,902 10,125 731 1995
Knoxville, Tn
LaGrange Commons -- 835 5,765 567 835 6,332 7,167 331 1995-1996
LaGrange, Ny
Park Village -- 586 2,874 79 520 3,019 3,539 534 1990
Lakeland, Fl
Longview Xing 449 -- 1,308 11 -- 1,319 1,319 335 1988
Longview, Nc
Springhurst Towne Ce 23,804 7,424 30,672 2,551 7,424 33,223 40,647 988 1997
Louisville, kY
Lunenburg Crossing -- 1,020 2,308 (26) 1,019 2,283 3,302 247 1993-1994
Lunenburg, Ma
Sutton Plaza -- 1,042 4,671 19 1,042 4,690 5,732 234 1997
Mt. Olive, NJ
Chestnut Hills (E) -- 600 1,775 144 600 1,919 2,519 322 1992
Murray, Ky
-88-
<PAGE>
Costs
Capitalized Gross Amounts at Which Carried at
Initial Cost(A) Subsequent Close of Period
----------------------- to ---------------------------------- (D) Date of
Encumbrances Buildings and Acquisition/ Buildings and Accumulated Construction
Description (B) Land Improvements Improvements Land Improvements Total(C) Depreciation Purchase
----------- --- ---- ------------ ------------ ---- ------------ -------- ------------ --------
Beach Xing -- 725 1,749 30 623 1,881 2,504 497 1984
Myrtle Beach, Sc
Willow Springs 5,453 2,917 6,107 5,015 2,917 11,122 14,039 1,696 1991
Nashua, Nh
Lionshead Village -- 3,674 4,153 -- 3,674 4,153 7,827 52 1998
Nashville, TN
North Haven Crossing 7,795 3,229 8,061 4 3,229 8,065 11,294 1,126 1992-1993
North Haven, Ct
Briarcliff Sq 1,672 299 1,936 47 267 2,015 2,282 482 1989
Oak Ridge, Tn
Oaks Crossing -- 571 2,885 (1,341) 655 1,460 2,115 619 1988
Otsego, Mi
Collins Park Commons 1,382 25 1,858 6 25 1,864 1,889 439 1989
Plant City, Fl
BJ's Wholesale 3,386 170 4,735 -- 170 4,735 4,905 868 1991
Portland, Me
Clark's Pond -- 2,739 -- 59 2,738 60 2,798 12 1994
Portland, Me
Sterling Creek Commo -- 732 3,048 -- 732 3,048 3,780 25 1998
Portsmouth, VA
Wal*MArt Plaza -- 545 1,216 (27) 377 1,357 1,734 457 1985
Pueblo, Co
Tyler Square -- 196 2,021 (7) 149 2,061 2,210 612 1986
Radford, Va
Capital Crossing -- 1,908 756 2,264 2,544 2,384 4,928 170 1995
Raleigh, Nc
Northpark Center -- 1,465 1,581 -- 1,465 1,581 3,046 69 1997
Richmond, VA
Bennington 566 256 1,754 633 175 2,468 2,643 688 1988
Roanoke, Va
Hollins Plantation P -- 229 1,845 1,113 197 2,990 3,187 728 1985
Roanoke, Va
Orange Plaza -- 395 2,111 111 395 2,222 2,617 365 1992
Roanoke, Va
Shenandoah 565 122 1,382 24 115 1,413 1,528 366 1988
Roanoke, Va
-89-
<PAGE>
Costs
Capitalized Gross Amounts at Which Carried at
Initial Cost(A) Subsequent Close of Period
----------------------- to ---------------------------------- (D) Date of
Encumbrances Buildings and Acquisition/ Buildings and Accumulated Construction
Description (B) Land Improvements Improvements Land Improvements Total(C) Depreciation Purchase
----------- --- ---- ------------ ------------ ---- ------------ -------- ------------ --------
Rawlinson Place -- 279 1,573 66 292 1,626 1,918 467 1987
Rock Hill, SC
Valley Commons 973 342 1,819 608 342 2,427 2,769 595 1988
Salem, Va
Wildwood Plaza -- 429 1,082 1,051 357 2,205 2,562 636 1985
Salem, Va
County Park Plaza -- 196 1,500 40 140 1,596 1,736 355 1980
Scottsboro, Al
Seacoast 5,796 1,374 4,164 2,483 1,195 6,826 8,021 1,209 1991
Seabrook, Nh
Sparta Crossing 862 180 1,463 927 145 2,425 2,570 479 1989
Sparta, Tn
Bullock Plaza -- 98 1,493 15 98 1,508 1,606 470 1986
Statesboro, Ga
Statesboro Square ( -- 237 1,643 135 227 1,788 2,015 565 1986
Statesboro, Ga
Signal Hills Village -- -- 579 443 -- 1,022 1,022 261 1983-1984
Statesville, Nc
Strawbridge MK Place -- 1,969 2,492 -- 1,969 2,492 4,461 125 1997
Strawbridge, VA
34th St Xing 1,585 1,102 2,743 85 1,023 2,907 3,930 676 1989
St. Petersburg, Fl
Hampton Plaza -- 973 2,689 43 965 2,740 3,705 555 1989-1990
Tampa, Fl
Keystone -- 938 2,216 (36) 825 2,293 3,118 643 1989
Tampa, Fl
Uvalde Plaza 772 574 1,506 (234) 319 1,527 1,846 439 1987
Uvalde, Tx
Salem Crossing -- 2,385 7,564 (735) 2,385 6,829 9,214 290 1997
Virginia Beach, VA
Colleton Square 1,014 190 1,349 9 156 1,392 1,548 414 1986
Walterboro, Sc
DISPOSALS
Surrey Square (A) -- -- 1,402 (1,402) -- -- -- -- 1985
Elkin, Nc
OTHER
High Point, NC - Land -- -- -- 2,776 905 1,871 2,776 200
-90-
<PAGE>
Costs
Capitalized Gross Amounts at Which Carried at
Initial Cost(A) Subsequent Close of Period
----------------------- to ---------------------------------- (D) Date of
Encumbrances Buildings and Acquisition/ Buildings and Accumulated Construction
Description (B) Land Improvements Improvements Land Improvements Total(C) Depreciation Purchase
----------- --- ---- ------------ ------------ ---- ------------ -------- ------------ --------
Willowbrook Land 4,543 4,543 -- 4,543
Houston, TX
Developments in Progress
Consisting of Cons
and Development Pr 195,665 2,955 -- 104,536 2,955 104,536 107,491 775 --
-----------------------------------------------------------------------------------------------------------
TOTALS $1,208,204 $269,060 $1,419,505 $294,163 $268,362 $1,714,366 $1,982,728 $177,055
===========================================================================================================
<FN>
(A) Initial cost represents the total cost capitalized including carrying cost at the end of the
first fiscal year in which the property opened or was acquired.
(B) Encumbrances represent the mortgage notes payable balance at December 31, 1998.
(C) The aggregate cost of land and buildings and improvements for federal income tax purposes is
approximately $1.448 billion.
(D) Depreciation for all properties is computed over the useful life which is generally forty years.
(E) Property is pledged as collateral on the secured lines of credit used for development properties.
</FN>
</TABLE>
-91-
<PAGE>
CBL & ASSOCIATES PROPERTIES, INC.
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
The changes in real estate assets and accumulated depreciation for the years
ending December 31, 1998, 1997, and 1996 (dollars in thousands).
<TABLE>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REAL ESTATE ASSETS:
Balance at beginning of period $1,287,965 $1,101,797 $848,756
Additions during the period:
Additions and improvements 130,728 163,808 165,035
Acquisitions of real estate
assets 499,795 36,431 123,372
Acquisitions of real estate
assets with limited
partnership interests 69,889 -- --
Deductions during the period:
Cost of sales (5,412) (13,741) (34,720)
Write-off of
development projects (122) (330) (646)
---- ---- ----
Balance at end of period $1,982,843 $1,287,965 $1,101,797
========== ========== ==========
ACCUMULATED DEPRECIATION:
Balance at beginning of period $145,641 $114,536 $89,818
Accumulated depreciation on
properties sold (11,324) (777) (423)
Depreciation expense 42,738 31,882 25,141
------ ------ ------
Balance at end of period $177,055 $145,641 $114,536
======== ======== ========
</TABLE>
-92-
<PAGE>
<TABLE>
Schedule IV
CBL & ASSOCIATES PROPERTIES, INC.
MORTGAGE LOANS ON REAL ESTATE
AT DECEMBER 31, 1998
(Dollars in thousands)
<CAPTION>
Principal
Amount of
Carrying Mortgages
Monthly Balloon Face Amount Subject to
Final Payment Payment Amount of Delinquent
Interest Maturity Amount at Prior of Mortgage Principal
Name of Center/Location Rate Date (1) Maturity Liens Mortgage (2) or Interest
- ---------------------------- --------- ------------- -------- --------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMUNITY CENTERS
Bi-Lo South 9.50% 12/06 $22 $0 None $1,486 $1,486 $0
Cleveland, Tennessee
Gaston Square 11.00% 12/98(3) 15 1,640 None 1,640 1,640 0
Gastonia, North Carolina
Inlet Crossing 11.00% 12/98(3) 27 1,691 None 1,691 1,691 0
Myrtle Beach, South Carolina
Olde Brainerd Centre 9.50% 12/06 4 0 None 106 106 0
Chattanooga, Tennessee
Signal Hills Plaza 11.00% 12/98(3) 20 2,409 None 2,409 2,409 0
Statesville, North Carolina
Soddy Daisy Plaza 9.50% 12/06 4 0 None 412 412 0
Soddy Daisy, Tennessee
Other 10.00% 07/98-09/03 0 1,374 1,374 1,374 0
- ----- ----- ----- -
TOTAL $ 92 $7,114 $9,118 $9,118
===== ====== ====== ======
<FN>
(1) Equal monthly installments comprised of principal and interest unless
otherwise noted.
(2) The aggregate carrying value for federal income tax
purposes is approximately $9,118 at December 31, 1998.
(3) Mortgage has been extended on a month to month basis at the same
terms while renegotiating mortgage extension.
</FN>
</TABLE>
-93-
<PAGE>
<TABLE>
<S> <C> <C> <C>
CBL & ASSOCIATES PROPERTIES, INC.
Year Ended December 31,
1998 1997 1996
Beginning Balance $11,678 $14,858 $34,262
Additions 1,620 3,591 3,697
Other
Reductions (a) 0 0 (19,908)
Payments (4,180) (6,771) (3,193)
------ ------ ------
Ending Balance $9,118 $11,678 $14,858
====== ======= =======
</TABLE>
(a) Other reductions in 1996 represent the acqusition of Foothills Mall and
conversion of the mortgage note receivable to the basis in the acquired asset.
-94-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
3.1 Amended and Restated Certificate of Incorporation of the Company(a)
3.2 Certificate of Amendment to the Amended & Restated Certificate
of Incorporation of the Company (b)
3.3 Amended and Restated Bylaws of the Company(a)
4 See Amended and Restated Certificate of Incorporation of the Company,
relating to the Common Stock(a)
10.1 Partnership Agreement of the Operating Partnership(a)
10.2 Property Management Agreement between the Operating Partnership
and the Management Company(a)
10.3 Property Management Agreement relating to Retained Properties(a)
10.4.1 CBL & Associates Properties, Inc. 1993 Stock Incentive Plan(a)dagger
10.4.2 -Qualified Stock Option Agreement, dated May 10, 1994, for
Charles B. Lebovitz dagger
10.4.3 -Qualified Stock Option Agreement, dated May 10, 1994, for
James L. Wolford dagger
10.4.4 -Qualified Stock Option Agreement, dated May 10, 1994, for
John N. Foy dagger
10.4.5 -Qualified Stock Option Agreement, dated May 10, 1994, for
Jay Wiston dagger
10.4.6 -Qualified Stock Option Agreement, dated May 10, 1994, for
Ben S. Landress dagger
10.4.7 Qualified Stock Option Agreement, dated May 10, 1994, for
Stephen D. Lebovitz dagger
10.4.8 Charles B. Lebovitz dagger
10.4.9 John N. Foy dagger
10.4.10 Jay Wiston dagger
10.4.11 Ben S. Landress dagger
-94-
<PAGE>
10.4.12 Stephen D. Lebovitz dagger
10.5 Purchase Agreement relating to Georgia Square (JMB)(c)
10.6.2 Purchase Agreement Relating to Georgia Square (JCPenney)(c)
10.7 Purchase Agreement relating to Post Oak Mall(c)
10.8 Indemnification Agreements between the Company and the
Management Company and their officers and directors(a)
10.9.1 Employment Agreement for Charles B. Lebovitz(a)dagger
10.9.2 Employment Agreement for James L. Wolford(a)dagger
10.9.3 Employment Agreement for John N. Foy(a)dagger
10.9.4 Employment Agreement for Jay Wiston(a)dagger
10.9.5 Employment Agreement for Ben S. Landress(a)dagger
10.9.6 Employment Agreement for Stephen D. Lebovitz(a)dagger
10.10 Subscription Agreement relating to purchase of the Common
Stock and Preferred Stock of the Management Company(a)
10.11 Option Agreement relating to certain Retained Properties(a)
10.12 Option Agreement relating to Outparcels(a)
10.13.1 Property Partnership Agreement relating to Hamilton Place(a)
10.13.2 Property Partnership Agreement relating to CoolSprings
Galleria(a)
10.14.1 Acquisition Option Agreement relating to Hamilton Place(a)
10.14.2 Acquisition Option Agreement relating to the Hamilton Place
Centers(a)
10.14.3 Acquisition Option Agreement relating to the Office Building(a)
10.15 Revolving Credit Agreement between the Operating Partnership
and First Tennessee Bank, National Association, dated as of
March 2, 1994(d)
10.16 Revolving Credit Agreement, dated July 28, 1994, between the
Operating Partnership and Wells Fargo Advisors Funding, Inc.,
NationsBank of Georgia, N.A. and First Bank National
Association(e)
-95-
<PAGE>
10.17 Revolving Credit Agreement, dated October 14, 1994, between
the Operating Partnership and American National Bank and Trust
Company of Chattanooga(f)
10.18 Revolving Credit Agreement, dated November 2, 1994, between
the Operating Partnership and First Tennessee Bank National
Association(f)
10.19 Promissory Note Agreement between the Operating Partnership
and Union Bank of Switzerland dated May 5, 1995(g)
10.20 Amended and Restated Loan Agreement between the Operating
Partnership and First Tennessee Bank National Association dated
July 12, 1995(h)
10.21 Second Amendment to Credit Agreement between the Operating
Partnership and Wells Fargo Realty Advisors Funding, Inc. dated
July 5, 1995(h)
10.22 Consolidation, Amendment, Renewal, and Restatement of Notes
between the Galleria Associates, L.P. and The Northwestern
Mutual Life Insurance Company(i)
10.23 Promissory Note Agreement between High Point Development
Limited Partnership and The Northwestern Mutual Life Insurance
Company dated January 26, 1996(j)
10.24 Promissory Note Agreement between Turtle Creek Limited
Partnership and Connecticut General Life Insurance Company
dated February 14, 1996(j)
10.25 Amended and Restated Credit Agreement between the Operating
Partnership and Wells Fargo Bank N.A. etal dated
September 26, 1996. (k)
10.26 Promissory Note Agreement between the Operating Partnership
and Compass Bank dated September 17, 1996. (k)
10.27 Promissory Note Agreement between St Clair Square Limited
Partnership and and Wells Fargo National Bank dated,
December 11, 1996.(l)
10.28 Promissory Note Agreement between Lebcon Associates and
Principal Mutual Life Insurance Company dated,
March 18, 1997.(l)
10.29 Promissory Note Agreement between Westgate Mall Limited
Partnership and and Principal Mutual Life Insurance Company
dated, February 16, 1997.(l)
10.30 Amended and Restated Credit Agreement between the Operating
Partnership and First Tennessee Bank etal dated
February 24, 1997.(l)
-96-
<PAGE>
10.31 Amended and Restated Credit Agreement between the Operating
Partnership and First Tennessee Bank etal dated July 29, 1997.(m)
10.32 Second Amended and Restated Credit Agreement between the Operating
Partnership and Wells Fargo Bank N.A. etal dated June 5, 1997 (m)
Effective April 1,1997.
10.33 First Amendment to Second Amended and Restated Credit Agreement
between the Operating Partnership and Wells Fargo Bank N.A. etal
dated November 11, 1997.(m)
10.34 Loan Agreement between Asheville LLC and Wells Fargo Bank
N.A. dated February 17, 1998.(m)
10.35 Loan Agreement between Burnsville Minnesota LLC and U.S.
Bank National Association dated January 30, 1998.(m)
10.36 Modification No. One to the Amended and Restated Agreement of
Limited Partnership of CBL & Associates Limited Partnership
Dated March 31, 1997.(m)
10.37 Modification No. Two to the Amended and Restated Agreement of
Limited Partnership of CBL & Associates Limited Partnership
Dated February 19, 1998.(m)
10.38 Loan agreement with South Trust Bank dated January 15, 1998. (n)
10.39 Loan agreement between Rivergate Mall Limited Partnership,
The Village at Rivergate Limited Partnership, Hickory Hollow Mall Limited
Partnership, and The Courtyard at Hickory Hollow Limited Partnership
and Midland Loan Services, Inc. Dated July 1, 1998.(o)
10.40 Second Amended and Restated Agreement of Limited Partnership
of CBL & Associates Limited Partnership dated June 30, 1998 (p)
10.41 Amended and restated Loan Agreement between CBL & Associates
Properties , Inc. and First Tennessee Bank National
Association Dated June 12, 1998 (p)
10.42 First Amendment To Third Amended And Restated Credit Agreement and Third
Amended And Restated Credit Agreement between CBL & Associates
Properties, Inc. and Wells Fargo Bank, National Association, dated
August 4, 1998 (p)
21 Subsidiaries of the Company 99
23 Consent of Arthur Andersen LLP 103
24 Power of Attorney 104
27 Financial Data Schedule
- --------------------
(a) Incorporated by reference to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-11 (No. 33-67372),
as filed with the Commission on January 27, 1994.
-97-
<PAGE>
(b) Incorporated by reference to Exhibit B to the Company's Definitive
Schedule 14A, Dated April 1, 1996.
(c) Incorporated by reference to Amendment No. 2 to the Company's
Registration Statement on Form S-11 (No. 33-67372), as filed with the
Commission on October 26, 1993.
(d) Incorporated herein by reference to the Company's Annual Report in Form
10-K for the fiscal year ended December 31, 1993.
(e) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994.
(f) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994.
(g) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
(h) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995.
(i) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
(j) Incorporated by reference to the Company's Annual Report in Form 10-K
for the fiscal year ended December 31, 1995.
(k) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(l) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
(m) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
(n) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(o) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
(p) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998.
dagger A management contract or compensatory plan or arrangement required to
be filed pursuant to Item 14(c) of this
report.
-98-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
STATE OF
INCORPORATION OF
SUBSIDIARY FORMATION
Albemarle Partners Limited Partnership North Carolina
APWM, LLC Georgia
Arbor Place GP, Inc. Georgia
Arbor Place Limited Partnership Georgia
Asheville, LLC North Carolina
BJ/Portland Limited Partnership Maine
Bonita Lakes Mall Limited Partnership Mississippi
Brownwood Associates, L.P. Texas
Bursnville Minnesota, LLC Minnesota
Cadillac Associates Limited Partnership Tennessee
Capital Crossing Limited Partnership North Carolina
Cary Limited Partnership North Carolina
CBL & Associates Limited Partnership Delaware
CBL & Associates Management, Inc. Delaware
CBL/34th Street St. Petersburg Limited PartnershipFlorida
CBL/Bartow Limited Partnership Florida
CBL/Brushy Creek Limited Partnership Florida
CBL/Buena Vista Limited Partnership Georgia
CBL/Cedar Bluff Crossing Limited Partnership Tennessee
CBL/Foothills Plaza, L.P. Tennessee
CBL/GP, Inc. Wyoming
CBL/GP II, Inc. Wyoming
CBL/GP III, Inc. Mississippi
CBL/GP IV, Inc. Connecticut
CBL/GP V, Inc. Tennessee
CBL/GP VI, Inc. Tennessee
CBL/GP Cary, Inc. North Carolina
CBL/GP Langley, Inc. Virginia
CBL/Karns Corner Limited Partnership Tennessee
CBL/Low Limited Partnership Wyoming
CBL Morristown, LTD. Tennessee
CBL/Nashua Limited Partnership New Hampshire
CBL/North Haven, Inc. Connecticut
CBL/Perimeter Place Limited Partnership Tennessee
CBL/Plant City Limited Partnership Florida
CBL/Plantation Plaza, L.P. Virginia
-99-
<PAGE>
STATE OF
INCORPORATION OF
SUBSIDIARY FORMATION
CBL/Rawlinson Place Limited Partnership Tennessee
CBL/Springs Crossing Limited Partnership Tennessee
CBL/Suburban, Inc. Tennessee
CBL/Tampa Keystone Limited Partnership Florida
CBL Terrace Limited Partnership Tennessee
CBL/Uvalde, Ltd. Texas
Chester Square Limited Partnership Virginia
Chesterfield Crossing, LLC Virginia
College Station Partners, Ltd. Texas
CoolSprings Crossing Limited Partnership Tennessee
Cortlandt Town Center, Inc. New York
Cortlandt Town Center Limited Partnership New York
Cosby Station Limited Partnership Georgia
Costal Way LLC Florida
Courtyard at Hickory Hollow Limited PartnershipDelaware
Crossville Associates Limited Partnership Tennessee
Development Options, Inc. Wyoming
East Ridge Partners, L.P. Tennessee
East Towne Crossing Limited Partnership Tennessee
Elkin Partners, Ltd. Tennessee
Fiddler's Run Limited Partnership North Carolina
Foothills Mall, Inc. Tennessee
Fifty-Eight Partners, L.P. Tennessee
Frontier Mall Associates Limited Partnership Wyoming
Georgia Square Associates, Ltd. Georgia
Georgia Square Partnership Georgia
Governor's Square Company Ohio
Green Cove Mall Limited Partnership Alabama
Greenville Plaza GP, Inc. North Carolina
Greenville Plaza Limited Partnership North Carolina
Henderson Square Limited Partnership North Carolina
Hickory Hollow Courtyard, Inc. Delaware
Hickory Hollow Mall, Inc. Delaware
Hickory Hollow Mall Limited Partnership Delaware
High Point Development Limited Partnership North Carolina
High Point Development Limited Partnership II North Carolina
Hudson Plaza Limited Partnership New York
Houston Willowbrook LLC Texas
Jarnigan Road Limited Partnership Tennessee
-100-
<PAGE>
STATE OF
INCORPORATION OF
SUBSIDIARY FORMATION
Janesville Mall Limited Partnership Wisconsin
Janesville Wisconsin, Inc. Wisconsin
Joplin-Low Limited Partnership Missouri
Kiln Creek Limited Partnership Virginia
Kingston Overlook Limited Partnership Tennessee
LaGrange Commons Limited Partnership New York
Lakeshore Gainesville Limited Partnership Georgia
Lakeshore/Sebring Limited Partnership Florida
Langley Square Limited Partnership Virginia
Leaseco, Inc. New York
Lebcon Associates Tennessee
Lebcon I, Ltd. Tennessee
Lee Partners Tennessee
Lee Warehouse Limited Partnership Tennessee
Lion's Head Limited Partnership Tennessee
Longview Associates Limited Partnership North Carolina
Lunenburg Crossing Limited Partnership Massachusetts
Madison Plaza Associates, Ltd. Alabama
Madison Square Associates, Ltd. Alabama
Mall Shopping Center Company, L.P. Texas
Maryville Department Stores, Ltd. Tennessee
Maryville Partners, L.P. Tennessee
Meridian Mall Company, Inc. Michigan
Meridian Mall Limited Partnership Michigan
Montgomery Partners, L.P. Tennessee
Massard Crossing Limited Partnership Arkansas
Naugatuck Limited Partnership Connecticut
NewLease Corp. Tennessee
North Haven Crossing Limited Partnership Connecticut
Oak Ridge Associates Limited Partnership Tennessee
Park Village Limited Partnership Florida
Parkway Place, Inc. Alabama
Parkway Place Limited Parntership Alabama
Parham Limited Partnership Virginia
Portland/HQ Limited Partnership Maine
Post Oak Mall Associates Limited Partnership Texas
RC Jacksonville, LLC Florida
RC Strawbridge Limited Partnership Virginia
Rivergate Mall, Inc. Delaware
Rivergate Mall Limited Partnership Delaware
-101-
<PAGE>
STATE OF
INCORPORATION OF
SUBSIDIARY FORMATION
Salem Crossing Limited Partnership Virginia
Sand Lake Corners, LC Florida
Sand Lake Corners Limited Partnership Florida
Scottsboro Associates, Ltd. Alabama
Seacoast Shopping Center Limited Partnership New Hampshire
Shared Appreciation I, LTD. Tennessee
Shopping Center Finance Corp. Wyoming
Springdale/Mobile Limited Partnership Alabama
Springdale/Mobile Limited Partnership II Alabama
Springhurst Limited Partnership Kentucky
St. Clair Square GP, Inc. Illinois
St. Clair Square Limited Partnership Illinois
Sterling Creek Commons Limited Partnership Virginia
Stone East Partners, Ltd. Tennessee
Stoney Brook Landing LLC Kentucky
Stroud Mall LLC Pennsylvania
Suburban Plaza Limited Partnership Tennessee
Sutton Plaza GP, Inc. New Jersey
Sutton Plaza Limited Partnership New Jersey
The Galleria Associates, L.P. Tennessee
Turtle Creek Limited Partnership Mississippi
Twin Peaks Mall Associates, Ltd. Colorado
Valley Crossing Associates Limited Partnership North Carolina
Vicksburg Mall Associates, Ltd. Mississippi
Village at Rivergate, Inc. Delaware
Village at Rivergate Limited Partnership Delaware
Walnut Square Associates Limited Partnership Wyoming
West Broad Street Limited Partnership Virginia
Westgate Crossing Limited Partnership North Carolina
Westgate Mall Limited Partnership South Carolina
-102-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into CBL & Associates Properties,
Inc.'s previously filed Registration Statements on Form S-3 (File No. 333-47041)
and Form S-8 (File No. 33-73376).
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 24, 1999
-103-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles B. Lebovitz, John N. Foy and Stephen D.
Lebovitz and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report of CBL & Associates Properties, Inc. on
Form 10-K for the fiscal year ended December 31, 1998, including one or more
amendments to such Form 10-K, which amendments may make such changes as such
person deems appropriate, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he might or could
do in person thereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power-of-Attorney on
the date set opposite his respective
name.
Signature Title Date
/s/ Charles B. Lebovitz Chairman of the Board March 29, 1999
- ------------------------ and Chief
Charles B. Lebovitz Executive Officer
(Principal Executive Officer)
/s/ John N. Foy Vice Chairman of the Board, March 29, 1999
- ------------------------ Chief Financial Officer and
John N. Foy Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
/s/ Stephen D. Lebovitz Director, President March 29, 1999
- ------------------------ and Secretary
Stephen D. Lebovitz
/s/ Claude M.Ballard Director March 29, 1999
- ------------------------
Claude M. Ballard
/s/ Leo Fields Director March 29, 1999
- ------------------------
Leo Fields
/s/ William J.Poorvu Director March 29, 1999
- ------------------------
William J. Poorvu
/s/ Winston W. Walker Director March 29, 1999
- ------------------------
Winston W. Walker
-104-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the
Consoldiated Balance Sheet at December 31, 1998 and the Consolidated
Statement of Operations for the year ended December 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,827
<SECURITIES> 0
<RECEIVABLES> 19,413
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 177,055
<TOTAL-ASSETS> 1,855,327
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
29
<COMMON> 246
<OTHER-SE> 415,507
<TOTAL-LIABILITY-AND-EQUITY> 1,855,347
<SALES> 0
<TOTAL-REVENUES> 254,640
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 135,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,329
<INCOME-PRETAX> 37,265
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,265
<DISCONTINUED> 0
<EXTRAORDINARY> (799)
<CHANGES> 0
<NET-INCOME> 37,265
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.53
</TABLE>
