Securities Exchange Act of 1934 -- Form10-Q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended to
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Commission File Number 1-12494
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CBL & Associates Properties, Inc.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-1545718
- ------------------------------- -------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Park Place, 6148 Lee Highway, Chattanooga, TN 37421
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)(423) 855-0001
-------------
- -----------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
The number of shares outstanding of each of the registrants
classes of common stock, as of May 6, 1999 : Common Stock, par
value $.01 per share, 24,646,756 Shares.
1
<PAGE>
CBL & Associates Properties, Inc.
INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER
ITEM 1: FINANCIAL INFORMATION 3
CONSOLIDATED BALANCE SHEETS - AS OF MARCH 31,
1999 AND DECEMBER 31, 1998 4
CONSOLIDATED STATEMENTS OF OPERATIONS - FOR
THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 21
ITEM 2: CHANGES IN SECURITIES 21
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4: SUBMISSION OF MATTERS TO HAVE
A VOTE OF SECURITY HOLDERS 21
ITEM 5: OTHER INFORMATION 21
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURE 22
2
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CBL & Associates Properties, Inc.
ITEM 1 - FINANCIAL INFORMATION
The accompanying financial statements are unaudited; however, they have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in conjunction with the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include all
of the disclosures required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring matters) necessary for a fair
presentation of the financial statements for these interim periods have been
included. The results for the interim period ended March 31, 1999 are not
necessarily indicative of the results to be obtained for the full fiscal year.
These financial statements should be read in conjunction with the CBL &
Associates Properties, Inc. (the "Company") December 31, 1998 audited financial
statements and notes thereto included in the CBL & Associates Properties, Inc.
Form 10-K for the year ended December 31, 1998.
3
<PAGE>
<TABLE>
CBL & Associates Properties, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
(UNAUDITED)
<CAPTION>
March 31, December 31,
1999 1999
------------------ -----------------
<S> <C> <C>
ASSETS
Real estate assets:
Land......................................................... $ 266,961 $ 265,521
Buildings and improvements................................... 1,628,014 1,609,831
-------------------- --------------------
1,894,975 1,875,352
Less: Accumulated depreciation............................. (189,330) (177,055)
-------------------- --------------------
1,705,645 1,698,297
Developments in progress..................................... 126,759 107,491
-------------------- --------------------
Net investment in real estate assets....................... 1,832,404 1,805,788
Cash and cash equivalents...................................... 10,172 5,827
Receivables:
Tenant....................................................... 18,467 17,337
Other........................................................ 2,184 2,076
Mortgage notes receivable...................................... 8,994 9,118
Other assets................................................... 15,157 15,201
-------------------- --------------------
$ 1,887,378 $ 1,855,347
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and other notes payable............................... $ 1,238,500 $ 1,208,204
Accounts payable and accrued liabilities....................... 44,805 62,466
-------------------- --------------------
Total liabilities............................................ 1,283,305 1,270,670
-------------------- --------------------
Distributions and losses in excess of investment
in unconsolidated affiliates.................................. 402 855
-------------------- --------------------
Minority interest.............................................. 175,177 168,040
-------------------- --------------------
Commitments and contingencies (Note 2).........................
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, 2,875,000 outstanding in 1999 and 1998 ....... 29 29
Common stock, $.01 par value, 95,000,000 shares ,
authorized 24,615,090 and 24,590,936 shares
issued and outstanding in 1999 and 1998, respectively..... 246 246
Excess stock, $.01 par value, 100,000,000 __ __
shares authorized, none issued.............................
Additional paid - in capital................................. 452,774 452,252
Accumulated deficit.......................................... (24,105) (36,235)
Deferred compensation........................................ (450) (510)
-------------------- --------------------
Total shareholders' equity................................. 428,494 415,782
-------------------- --------------------
$ 1,887,378 $ 1,855,347
==================== ====================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
4
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<TABLE>
CBL & Associates Properties, Inc.
Consolidated Statements Of Operations
(Dollars in thousands, except per share data)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1999 1998
----------------- --------------
<S> <C> <C>
REVENUES:
Rentals:
Minimum................................................... $ 47,862 $ 36,053
Percentage................................................ 3,232 1,675
Other..................................................... 814 433
Tenant reimbursements........................................ 20,674 15,451
Management, leasing and development fees.................... 1,040 696
Interest and other........................................... 926 748
---------------- -----------------
Total revenues............................................. 74,548 55,056
---------------- -----------------
EXPENSES:
Property operating........................................... 11,483 8,844
Depreciation and amortization................................ 12,676 9,155
Real estate taxes............................................ 6,955 4,962
Maintenance and repairs...................................... 4,062 3,000
General and administrative................................... 3,826 3,001
Interest..................................................... 19,771 13,775
Other........................................................ 742 6
---------------- -----------------
Total expenses............................................. 59,515 42,743
---------------- -----------------
INCOME FROM OPERATIONS....................................... 15,033 12,313
GAIN ON SALES OF REAL ESTATE ASSETS.......................... 4,801 1,931
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATES.................................................. 935 737
MINORITY INTEREST IN EARNINGS:
Operating partnership...................................... (6,658) (4,173)
Shopping center properties................................. (365) (209)
---------------- -----------------
NET INCOME................................................... 13,746 10,599
PREFERRED DIVIDENDS.......................................... (1,617) --
---------------- -----------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS.................. 12,129 10,599
================ =================
BASIC PER SHARE DATA:
NET INCOME................................................ $ 0.49 $ 0.44
================ =================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................ 24,574 24,070
================ =================
DILUTED PER SHARE DATA:
NET INCOME................................................ $ 0.49 $ 0.44
================ =================
WEIGHTED AVERAGE SHARES AND POTENTIAL
DILUTIVE COMMON SHARES OUTSTANDING .................. 24,795 24,304
================ =================
The accompanying notes are an integral part of these statements.
</TABLE>
5
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<TABLE>
CBL & Associates Properties, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(UNAUDITED)
<CAPTION>
Three Months
Ended March 31,
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $ 13,746 $ 10,599
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in earnings.................................... 7,023 4,382
Depreciation..................................................... 10,551 7,786
Amortization..................................................... 2,436 1,645
Gain on sales of real estate assets.............................. (4,801) (1,931)
Equity in earnings of unconsolidated affiliates.................. (935) (737)
Distributions from unconsolidated affiliates..................... 2,061 1,334
Issuance of stock under incentive plan........................... 100 104
Amortization of deferred compensation............................ 160 94
Write-off of development projects................................ 742 6
Distributions to minority investors.............................. (5,486) (4,348)
Changes in assets and liabilities -
Tenant and other receivables..................................... (530) (1,534)
Other assets..................................................... (65) (1,475)
Accounts payable and accrued liabilities......................... (2,891) 61
--------------- ---------------
22,111 15,986
Net cash provided by operating activities................ --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of real estate assets and land acquisition........ (34,256) (28,673)
Acquisition of real estate assets.............................. -- (146,140)
Capitalized interest........................................... (1,459) (1,161)
Other capital expenditures..................................... (4,177) (2,842)
Deposits in escrow............................................. -- 66,108
Proceeds from sales of real estate assets...................... 6,764 5,111
Additions to notes receivable.................................. 44 --
Payments received on notes receivable.......................... (168) 118
Advances and investments in unconsolidated affiliates.......... (1,522) (160)
--------------- ---------------
Net cash used in investing activities.................... (34,774) (107,639)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other notes payable................. 100,432 111,066
Principal payments on mortgage and other notes payable......... (70,136) (2,634)
Additions to deferred financing costs.......................... (658) (316)
Dividends paid................................................. (13,052) (10,648)
Proceeds from issuance of common stock......................... 96 69
Proceeds from exercise of stock options........................ 326 --
--------------- ---------------
Net cash provided by financing activities................ 17,008 97,537
--------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS............................ 4,345 5,884
CASH AND CASH EQUIVALENTS, beginning of period..................... 5,827 3,124
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period........................... $ 10,172 $ 9,008
=============== ===============
Cash paid for interest, net of amounts capitalized................. $ 19,754 $ 12,954
=============== ===============
The accompanying notes are an integral part of these statements.
</TABLE>
6
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CBL & Associates Properties, Inc.
Notes to Consolidated Financial Statements
Note 1 - Unconsolidated Affiliates
At March 31, 1999, the Company had investments in five partnerships all of
which are reflected using the equity method of accounting. Condensed combined
results of operations for the unconsolidated affiliates are presented as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Company's Share
Total For The For The
Three Months Ended Three Months Ended
March 31, March 31,
----------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues............................ $ 7,046 $ 5,992 $ 3,469 $ 2,942
---------- ---------- ---------- -----------
Depreciation and amortization....... 796 707 390 400
Interest expense.................... 2,150 2,058 1,058 1,010
Other operating expenses............ 2,199 1,722 1,086 795
---------- ---------- ---------- -----------
Net income.......................... $ 1,901 $ 1,505 $ 935 $ 737
========== ========== ========== ===========
</TABLE>
Note 2 - 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 any exposure related to environmental
cleanup will not be significant to the financial position and results of
operations of the Company.
Note 3 - Credit Agreements
The Company has credit facilities of $230 million of which $64.9 million is
available at March 31, 1999. Outstanding amounts under the credit facilities
bear interest at a weighted average interest rate of 6.23% at March 31, 1999.
The Company's variable rate debt as of March 31, 1999 was $467.9 million with a
weighted average interest rate of 6.38% as compared to 6.66% as of March 31,
1998. 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 6.55%. Of the Company's
remaining variable rate debt of $153.9 million, interest rate caps in place of
$100.0 million leaves $53.9 million of debt subject to variable rates on
construction properties and no debt subject to variable rates on operating
properties. There were no fees charged to the Company related to these swap
agreements. The
7
<PAGE>
Company's swap agreements in place at March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Swap Amount Fixed LIBOR
in Millions Component Effective Date Expiriation Date
----------- ----------- -------------- ----------------
<S> <C> <C> <C>
$65 5.72% 01/07/98 01/07/2000
81 5.54% 02/04/98 02/04/2000
50 5.70% 06/15/98 06/15/2001
38 5.73% 06/26/98 06/30/2001
80 5.49% 09/01/98 09/01/2001
</TABLE>
At March 31, 1999, the Company had an interest rate cap of 7.5% on $100
million of LIBOR-based variable rate debt.5%.
Note 4 - 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.
Rental 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>
<CAPTION>
Associated Community
Three Months Ended March 31, 1999 Malls Centers Centers All Others Total
- --------------------------------- ------------ ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 55,612 $ 2,905 $ 13,995 $ 2,036 $ 74,548
Property operating expenses (1) (19,282) (479) (3,046) 307 (22,500)
Interest expense (14,578) (626) (2,780) (1,787) (19,771)
Gain on sales of real estate assets 381 -- 404 4,016 4,801
------------ ----------- ------------ ------------ -----------
Segment profit and loss 22,133 1,800 8,573 4,572 37,078
============ =========== ============ ============
Depreciation and amortization (12,676)
General and administrative and other (4,568)
Equity in earnings and minority (6,088)
interest adjustment -----------
Net income $ 13,746
===========
Total assets (2) $ 1,243,998 $ 82,715 $ 412,423 $ 148,242 $ 1,887,378
Capital expenditures (2) $ 3,901 $ 1,674 $ 2,929 $ 30,387 $ 38,891
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Associated Community
Three Months Ended March 31, 1998 Malls Centers Centers All Others Total
- --------------------------------- ------------ ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 38,578 $ 2,175 $ 13,096 $ 1,207 $ 55,056
Property operating expenses (1) (13,115) (398) (2,635) (658) (16,806)
Interest expense (9,699) (358) (2,936) (782) (13,775)
Gain on sales of real estate assets -- -- 24 1,907 1,931
------------ ----------- ------------ ------------ -----------
Segment profit and loss 15,764 1,419 7,549 1,674 26,406
============ =========== ============ ============
Depreciation and amortization (9,155)
General and administrative and other (3,007)
Equity in earnings and minority (3,645)
interest adjustment -----------
Net income $ 10,599
===========
Total assets (2) $ 831,000 $ 63,039 $ 391,912 $ 66,436 $ 1,352,387
Capital expenditures (2) $ 153,475 $ 2,097 $ 7,626 $ 10,110 $ 173,308
<FN>
(1) Property operating includes property operating, real estate taxes, and maintenance and repairs.
(2) Developments in progress are included in the All Other category.
</FN>
</TABLE>
9
<PAGE>
CBL & Associates Properties, Inc.
Item 2: Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with CBL & Associates
Properties, Inc. Consolidated Financial Statements and Notes thereto.
Information included herein contains "forwarding-looking statements" within
the meaning of the federal securities laws. Such statements are inherently
subject to risks and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, may differ materially from the events
and results discussed in the forward-looking statements. We direct you to the
Company's other filings with the Securities and Exchange Commission, including
without limitation the Company's Annual Report on Form 10-K and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated by reference therein, for a discussion of such risks
and uncertainties.
GENERAL BACKGROUND
CBL & Associates Properties, Inc. (the "Company") Consolidated Financial
Statements and Notes thereto reflect the consolidated financial results of CBL &
Associates Limited Partnership (the "Operating Partnership") which includes at
March 31, 1999, the operations of a portfolio of properties consisting of
twenty-four regional malls, thirteen associated centers, eighty-two 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 also has one mall, one associated center, three
community centers and one expansion currently under construction and options
to acquire certain shopping center development sites. The consolidated financial
statements also include the accounts of CBL & Associates Management, Inc.
(the "Management Company").
The Company classifies its regional malls into two categories - malls which
have completed their initial lease-up ("Stabilized Malls") and malls which are
in their initial lease-up phase ("New Malls"). The New Mall category is
presently comprised of the redevelopment project Springdale Mall in Mobile,
Alabama, the recently opened Bonita Lakes Mall in Meridian, Mississippi and
Parkway Place Mall in Huntsville, Alabama which was acquired in December 1998
and is being redeveloped .
RESULTS OF OPERATIONS
Operational highlights for the three months ended March 31, 1999 as
compared to March 31, 1998 are as follows:
10
<PAGE>
SALES
Mall shop sales, for those tenants who have reported, in the twenty-five
Stabilized Malls in the Company's portfolio increased by 6.6% on a comparable
per square foot basis.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Sales per square foot $59.67 $55.99
</TABLE>
Total sales volume in the mall portfolio, including New Malls, increased
8.4% to $331.1 million for the three months ended March 31, 1999 from $305.4
million for the three months ended March 31, 1998.
Occupancy costs as a percentage of sales for the three months ended March
31, 1999 and 1998 for the Stabilized Malls were 13.7% and 13.1%, respectively.
Occupancy costs were 11.2%, 11.2% and 11.5% for the years ended December 31,
1998, 1997, and 1996, respectively. Occupancy costs as a percentage of sales are
generally higher in the first three quarters of the year as compared to the
fourth quarter due to the seasonality of retail sales.
OCCUPANCY
Occupancy for the Company's overall portfolio was as follows:
<TABLE>
<CAPTION>
At March 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Stabilized malls 92.3% 91.6%
New malls 84.3 88.2
Associated centers 91.9 90.9
Community centers 96.8 97.3
-------- --------
Total Portfolio 93.8% 93.4%
======== ========
</TABLE>
AVERAGE BASE RENT
Average base rents for the Company's three portfolio categories were as
follows:
<TABLE>
<CAPTION>
At March 31,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Malls......................... $19.78 $18.65
Associated centers............ 9.55 9.69
Community centers............. 8.23 7.85
</TABLE>
11
<PAGE>
LEASE ROLLOVERS
On spaces previously occupied, the Company achieved the following results
from rollover leasing for the three months ended March 31, 1999 compared to the
base and percentage rent previously paid:
<TABLE>
<CAPTION>
Per Square Per Square
Foot Rent Foot Rent Percentage
Prior Lease (1) New Lease (2) Increase
--------------- ---------------- -----------
<S> <C> <C> <C>
Malls.................. $22.08 $26.92 21.9%
Associated centers..... 7.75 8.76 13.0%
Community centers...... 7.87 8.15 3.6%
<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>
For the three months ended March 31, 1999, malls represented 75.6% of total
revenues from all properties; revenues from associated centers represented 3.7%;
revenues from community centers represented 18.4%; and revenues from mortgages
and the office building represented 2.3%. Accordingly, revenues and results of
operations are disproportionately impacted by the malls' achievements.
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 fiscal year.
Comparison of Results of Operations for the three months ended March 31,
1999 to the Results of Operations for the three months ended March 31, 1998
Total revenues for the three months ended March 31, 1999 increased by $19.5
million, or 35.4%, to $74.5 million as compared to $55.1 million in 1998.
Minimum rents increased by $11.8 million, or 32.7%, to $47.9 million as compared
to $36.1 million in 1998, and tenant reimbursements increased by $5.2 million,
or 33.8%, to $20.7 million in 1999 as compared to $15.5 million in 1998.
Percentage rents increased by $1.6 million, or 92.9%, to $3.2 million as
compared to $1.7 million in 1998.
Management, leasing and development fees increased by $0.3 million, or
49.4%, to $1.0 million as compared to $0.7 million in 1998. This increase is
primarily due to increases in fees earned in the co-development program and
increases in management fees.
12
<PAGE>
Approximately $16.3 million of the increase in revenues resulted from
operations at the eleven new centers opened or acquired during the past fifteen
months. These centers consist of:
<TABLE>
<CAPTION>
Opening/
Project Name Location Total GLA Type of Addition Acquisition Date
- ---------------------- --------------------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Sterling Creek Commons Portsmouth, Virginia 65,000 New Development June 1998
Fiddler's Run Morganton, North Carolina 203,000 New Development March 1999
Burnsville Center Minneapolis (Burnsville), 1,070,000 Acquisition February 1998
Minnesota
Stroud Mall Stroudsburg, Pennsylvania 427,000 Acquisition April 1998
Hickory Hollow Mall Nashville, Tennessee 1,096,000 Acquisition July 1998
Courtyard at Hickory Nashville, Tennessee 77,000 Acquisition July 1998
Hollow
Rivergate Mall Nashville, Tennessee 1,074,000 Acquisition July 1998
Village at Rivergate Nashville, Tennessee 166,000 Acquisition July 1998
Lions Head Village Nashville, Tennessee 93,000 Acquisition July 1998
Janesville Mall Janesville, Wisconsin 609,000 Acquisition August 1998
Meridian Mall Lansing, Michigan 767,000 Acquisition August 1998
</TABLE>
Approximately $3.2 million of the increase in revenues resulted from
improved operations and occupancies in the existing centers. The majority of
these increases were generated at Cortlandt Towne Center in Cortlandt, New York
and St. Clair Square in Fairview Heights, Illinois.
Property operating expenses, including real estate taxes and maintenance
and repairs increased in the first quarter of 1999 by $5.7 million or 33.9% to
$22.5 million as compared to $16.8 million in the first quarter of 1998. This
increase is primarily the result of the addition of the eleven new centers
referred to above.
Depreciation and amortization increased in the first quarter of 1999 by
$3.5 million or 38.5% to $12.7 million as compared to $9.2 million in the first
quarter of 1998. This increase is primarily due to the addition of the eleven
new centers referred to above.
Interest expense increased in the first quarter of 1999 by $6.0 million, or
43.5% to $19.8 million as compared to $13.8 million in 1998. This increase is
primarily due to the additional interest on the eleven centers added during the
last fifteen months referred to above.
The gain on sales of real estate assets increased in the first quarter of
1999 by $2.9 million, to $4.8 million as compared to $1.9 million in 1998. The
majority of gain on sales in the first quarter of 1999 were from development
activity for outparcel sales at Sand Lake Corner in Orlando, Florida and pad
sales at The Landing at Arbor Place in Douglasville, Georgia. Gain on sales in
the first quarter of 1998 were at Springhurst Towne Center in Louisville,
Kentucky.
Equity in earnings of unconsolidated affiliates increased in the first
quarter of 1999 by $0.2 million to $0.9 million from $0.7 million in the first
quarter of 1998 due to the acquisition of a 50% interest in Parkway Place in
Huntsville, Alabama and improved operations at existing equity centers.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The principal uses of the Company's liquidity and capital resources have
historically been for property development, expansion and renovation programs,
acquisitions 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 May 1, 1999, the Company had $46.1 million available in unfunded
construction and redevelopment loans to be used for completion of the
construction and redevelopment projects and replenishment of working capital
previously used for construction. Additionally, as of May 1, 1999, the Company
had obtained revolving credit lines and term loans totaling $230.0 million of
which $53.4 million was available. 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 authorizing shares of the Company's preferred
stock and common 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 remaining after the Company's preferred stock offering on June 30, 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 policy is to maintain a conservative debt to total market
capitalization ratio in order to enhance its access to the broadest range of
capital markets, both public and private. The 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 represents the 25.8% ownership in the Operating
Partnership held by the Company's executive and senior officers which may be
exchanged for approximately 9.5 million shares of common stock. Additionally,
Company executive officers and directors own approximately 1.7 million shares
of the outstanding common stock of the Company, for a combined total interest
in the Operating Partnership of approximately 30.5%. Ownership interests issued
to fund acquisitions in 1998 may be exchanged for approximately 2.4 million
shares of common stock which represents a 6.5% interest in the Operating
Partnership. Assuming the exchange of all limited partnership interests in
the Operating Partnership for common stock, there would be outstanding
approximately 36.5 million shares of common stock with a market value of
approximately $849.0 million at March 31, 1999 (based on the closing
price of $23.25 per share on March 31, 1999). The Company's total market
equity is $919.8 million which includes 2.9 million shares of preferred
stock at their closing price of $24.625 per share on March 31, 1999.
Company executive and senior officers' ownership interests had a market
value of approximately $258.6 million at March 31, 1999.
Mortgage debt consists of debt on certain consolidated properties as well
as on three properties in which the Company owns a non-controlling interest and
is accounted for under the equity method of accounting. At March 31, 1999, the
Company's share of funded mortgage debt on its consolidated
14
<PAGE>
properties adjusted for minority investors' interests in nine properties
was $1.216 billion and its pro rata share of mortgage debt on unconsolidated
properties (accounted for under the equity method) was $41.7 million for total
debt obligations of $1.258 billion with a weighted average interest rate of
7.02%.
The Company's total conventional fixed rate debt as of March 31, 1999 was
$790.1 million with a weighted average interest rate of 7.41% as compared to
8.07% as of March 31, 1998.
The Company's variable rate debt as of March 31, 1999 was $467.9 million
with a weighted average interest rate of 6.38% as compared to 6.66% as of March
31, 1998. Through the execution of swap agreements, the Company has fixed the
interest rates on $314 million of debt on operating properties at a weighted
average interest rate of 6.55%. Of the Company's remaining variable rate debt of
$153.9 million, an interest rate cap in place of $100.0 million leaves only
$53.9 million of debt subject to variable rates. Interest on this $53.9 million
of variable rate debt is capitalized to projects currently under construction
leaving no variable rate debt exposure on operating properties as of March 31,
1999. There were no fees charged to the Company related to its swap agreements.
The Company's swap and cap agreements in place at March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Swap/Cap Amount Fixed LIBOR Effective Expiration
(in millions) Component Date Date
--------------- ----------- --------- ----------
<S> <C> <C> <C>
65 5.72% 01/07/98 01/07/2000
81 5.54% 02/04/98 02/04/2000
50 5.70% 06/15/98 06/15/2001
38 5.73% 06/26/98 06/30/2001
80 5.49% 09/01/98 09/01/2001
100 7.50% 01/01/99 12/31/1999
</TABLE>
In March 1999, the Company closed on a $75 million permanent loan on St.
Clair Square in Fairview Height, Illinois at an interest rate of 7.0%. The
proceeds of the loan were used to repay existing variable rate indebtedness.
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 57.8% at March 31, 1999.
DEVELOPMENT, EXPANSIONS AND ACQUISITIONS
Development projects under construction and scheduled to open during 1999
are: Sand Lake Corners in Orlando, Florida, a 594,000-square-foot community
center, the first phase of which was opened in November 1998 with the remainder
to open in stages beginning in May 1999. Arbor Place Mall in Douglasville,
Georgia, a suburb of Atlanta, is scheduled to open in October 1999 . This
1,035,000-square- foot regional mall includes Dillard's, Parisian, Sears, and
Upton's, and big-box retailers such as Border's Books, Bed Bath & Beyond and Old
Navy. The Company will also open an adjacent 165,000-square-foot associated
center, The Landing at Arbor Place. The Company is adding a Sears department
store to Lakeshore Mall in Sebring, Florida. The Company will open a Regal
Cinema in Jacksonville, Florida, a 83,000-square-foot free-standing building, in
November 1999. The Company also has under construction
15
<PAGE>
Chesterfield Crossing in Richmond, Virginia, a 441,000-square-foot community
center. The Company also has under development The Mall of South Carolina in
Myrtle Beach, South Carolina, a 1,095,000-square-foot regional mall and Parkway
Place in Huntsville, Alabama, a 822,000-square-foot redevelopment that was
acquired in December 1998.
In March 1999, the Company opened Fiddler's Run in Morganton, North
Carolina, a 203,000- square-foot community center. The center opened 100% leased
and committed.
The Company has entered into standby purchase agreements with third-party
developers (the "Developers") for the construction, development and potential
ownership of two 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, provide for
certain requirements or contiginces to occur before the Company becomes
obligated to fund its equity contribution or purchase the Co- Development
Project. These requirements or contiginces include certain completion
requirements, rental levels, the inability of the Developers to obtain adequate
permanent financing and the inability to sell 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 either the cash flow or gains from sale on each
Co-Development Project. The outstanding amount on standby purchase agreements is
$116.4 million at March 31, 1999.
The Company has 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
material capital commitments.
It is management's expectation that the Company will continue to have
access to the capital resources necessary to expand and develop its business.
Future development and acquisition activities will be undertaken by the 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 in a manner consistent with its intention
to operate with a conservative debt to total market capitalization ratio.
OTHER CAPITAL EXPENDITURES
Management prepares an annual capital expenditure budget for each property
which is intended to provide for all necessary recurring and non-recurring
capital improvements. Management believes that its annual operating reserve for
maintenance and recurring capital improvements and reimbursements from tenants
will provide the necessary funding for such requirements. The Company intends to
distribute approximately 70% - 90% of its funds from operations with the
remaining 10% - 30% to be held as a reserve for capital expenditures and
continued growth opportunities. The Company believes that this
16
<PAGE>
reserve will be sufficient to cover (I) tenant finish costs associated with
the renewal or replacement of current tenant leases as their leases expire and
(II) capital expenditures which will not be reimbursed by tenants.
Major tenant finish costs for currently vacant space are expected to be
funded with working capital, operating reserves, or the revolving lines of
credit, and a return on the funds so invested is expected to be earned.
For the first quarter of 1999, revenue generating capital expenditures or
tenant allowances for improvements were $2.8 million. These capital expenditures
generate increased rents from these tenants over the term of their leases.
Revenue neutral capital expenditures, which are recovered from the tenants, were
$1.3 million for the first quarter of 1999.
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 evnironmental conditions are being evaluated at Parkway Place
in Huntsville, Alabama. There appears to be a high potential for adverse
environmental conditions, specifically Total Petroleum Hydrocardons, in the
vicinity of an auto service center which had underground storage tanks. The
Company ordered additional engineering studies and as part of the redevelopment
will correct the environmental conditions at the site. The Company has not
been notified by any governmental authority, or is not otherwise aware, of any
material noncompliance, liability or claim relating to hazardous or toxic
substances in connection with any of its present or former properties.
CASH FLOWS
Cash flows provided by operating activities for the first quarter of 1999,
increased by $6.1 million, or 38.3%, to $22.1 million from $16.0 million in
1998. This increase was primarily due to the eleven centers opened or acquired
over the last fifteen months, improved operations in the existing centers and
the timing of the payment of real estate taxes. Cash flows used in investing
activities for the first quarter of 1999, decreased by $72.9 million, to $34.8
million compared to $107.6 million in 1998. This decrease was due primarily to a
decrease in acquisitions as compared to the $146.1 million of acquisitions in
1998. Cash flows provided by financing activities for the first quarter of 1999,
decreased by $80.5 million, to $17.0 million compared to $97.5 million in 1998
primarily due to decreased borrowings related to the development and acquisition
program.
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 tenant's gross sales, which generally
increase as prices rise, and/or escalation clauses, which generally increase
rental rates during the terms of the leases. In addition, many of the leases are
for terms of less than ten years which may enable the Company to replace
existing leases with new leases at higher base and/or percentage rentals if
rents of the existing leases are below the then-
17
<PAGE>
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 addition, the Company has formed a Year 2000 Compliance
Team that includes senior personnel from the financial, leasing, accounting,
management information systems and operations management divisions of the
Company. These individuals are charged with the duty of determining the extent
of the Company's ongoing exposure and taking the appropriate action to minimize
any impact of the Year 2000 problem 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 Year 2000 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
18
<PAGE>
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.
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 depreciation of real estate
assets, other non-cash items (including the write-off of development projects
not being pursued) gains or losses on sales of real estate and gains or losses
on investments in marketable securities. FFO also includes the Company's share
of FFO in unconsolidated properties and excludes minority interests' share of
FFO in consolidated properties. The Company computes FFO in accordance with the
National Association of Real Estate Investments Trusts ("NAREIT") recommendation
concerning finance costs and non-real estate depreciation. Beginning with the
first quarter of 1998 the Company included straight line rent in its FFO
calculation. The Company excludes gains or losses on outparcel sales, even
though NAREIT permits their inclusion when calculating FFO. Gains or losses on
outparcel sales would have added $4.8 million in the first quarter of 1999 and
$1.9 million in 1998.
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 REIT). FFO does not represent cash flow from
operations as defined by GAAP and is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered as an
alternative to net income(loss) for purposes of evaluating the Company's
operating performance or to cash flow as a measure of liquidity.
For the three months ended March 31, 1999, FFO increased by $5.3 million,
or 24.1%, to $27.3 million as compared to $22.0 million for the same period in
1998. The increase in FFO was primarily attributable to the new developments
opened during 1998 and in the first quarter of 1999, the acquisitions during
1998 and improved operations in the existing portfolio.
19
<PAGE>
The Company's calculation of FFO is as follows: (dollars in thousands)
<TABLE>
Three Months Ended
March 31,
---------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
Income from operations............................................ $ 15,033 $ 12,313
ADD:
Depreciation & amortization from consolidated properties.......... 12,676 9,155
Income from operations of unconsolidated affiliates.............. 935 737
Depreciation & amortization from unconsolidated affiliates........ 390 346
Write-off of development costs charged to net income.............. 742 6
SUBTRACT:
Minority investors' share of income from operations in nine
properties..................................................... (365) (209)
Minority investors share of depreciation and amortization
in nine properties............................................. (232) (206)
Depreciation and amortization of non-real estate assets and
finance costs................................................... (252) (129)
Preferred dividends............................................... (1,617) --
---------------- --------------
TOTAL FUNDS FROM OPERATIONS....................................... $ 27,310 $ 22,013
================ ==============
DILUTED WEIGHTED AVERAGE SHARES AND POTENTIAL
DILUTIVE COMMON SHARES WITH OPERATING
PARTNERSHIP UNITS FULLY CONVERTED.............................. 36,697 33,780
================ ==============
</TABLE>
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matter to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on April
29, 1999. At the meeting, shareholders re-elected as
directors Charles B. Lebovitz (19,442,779 votes for and
345,748 votes against or withheld), Claude M. Ballard
(19,442,974 votes for and 345,573 votes against or withheld)
and Leo Fields (19,530,258 votes for and 258,289 votes against
or withheld), to three-year terms expiring in 2002. Other
continuing directors of the Company are, John N. Foy and
William J. Poorvu whose terms expire in 2000 and Stephen D.
Lebovitz and Winston W. Walker whose terms expire in 2001.
In addition, at the meeting, shareholders approved a proposal
to ratify the selection of Arthur Andersen LLP as independent
public accountants for the fiscal year ending December 31,
1999 (19,758,691 votes for, 29,855 votes against or withheld).
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
A. Exhibits
25.1 Promissory Note with Teachers Insurance and Annuity
Association of America and St. Clair Square Limited
Partnership Bank dated March 11, 1999.
27 Financial Data Schedule
B. Reports on Form 8-K
The following items were reported:
The outline from the Company's April 28, 1999 conference call
with analysts and investors regarding earnings (Item 5) was
filed on April 28, 1999.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBL & ASSOCIATES PROPERTIES, INC.
/s/ John N. Foy
---------------------------------------
John N. Foy
Vice Chairman of the Board, Chief Financial Officer
and Treasurer
(Authorized Officer of the Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: May 14, 1999
22
<PAGE>
EXHIBIT INDEX
Exhibit
No.
- -------
25.1 Promissory Note with Teachers Insurance and Annuity Association
of America and St. Clair Square Limited Partnership Bank dated
March 11, 1999.
27 Financial Data Schedule
23
<PAGE>
FIXED INTEREST ONLY NOTE
TIAA Appl. #IL-735
M - 000460400
PROMISSORY NOTE
$75,000,000.00 Fairview Heights, IL
Dated:_March 11, 1999_
FOR VALUE RECEIVED, ST. CLAIR SQUARE LIMITED PARTNERSHIP
("Borrower"), an Illinois limited partnership having its principal place
of business at c/o CBL & Associates Properties, Inc., One Park Place,
6148 Lee Highway, Suite 300, Chattanooga, TN 37421-6511, promises to pay
to TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA ("Lender"), a
New York corporation, or order, at Lender's offices at 730 Third Avenue,
New York, New York 10017 or at such other place as Lender designates in
writing, the principal sum of SEVENTY-FIVE MILLION DOLLARS
($75,000,000.00) (the principal sum or so much of the principal sum as
may be advanced and outstanding from time to time, the "Principal"), in
lawful money of the United States of America, with interest on the
Principal from the date of this Promissory Note (this "Note") through
and including the first day of the 121st calendar month immediately
following the date hereof (the "Maturity Date") at the fixed rate of
seven percent (7%) per annum (the "Fixed Interest Rate").
This Note is secured by, among other things, the Mortgage,
Assignment of Leases and Rents, Security Agreement, and Fixture Filing
Statement (the "Mortgage") dated the date of this Note made by Borrower
for the benefit of Lender as security for the Loan. All capitalized
terms not expressly defined in this Note will have the definitions set
forth in the Mortgage.
Section 1. Payments of Principal and Fixed Interest.
(a) Borrower will make monthly installment payments ("Debt
Service Payments") as follows:
(i) On the first day of the first calendar month immediately
following the date hereof (hereinafter called the "First Payment
Date"), a payment of accrued interest on the Principal at the
Fixed Interest Rate; and
(ii) On the first day of the second calendar month immediately
following the date hereof and on the first day of each succeeding
calendar month through and including the first day of the 120th
calendar month immediately following the date hereof, payments in
the amount of Five Hundred Thirty Thousand Eighty-Four and
40/100ths Dollars ($530,084.40), each of which will be applied
first to accrued interest on the Principal at the Fixed Interest
Rate and then to the Principal (each such payment being
hereinafter called a "Regular Monthly Payment").
(b) On the Maturity Date, Borrower will pay the Principal in full
together with accrued interest at the Fixed Interest Rate and all other
amounts due under the Loan Documents.
Section 2. Prepayment Provisions.
(a) The following definitions apply:
"Discount Rate" means the yield on a U.S. Treasury issue selected by
Lender, as published in The Wall Street Journal four days prior to
prepayment, having a maturity date corresponding (or most closely
corresponding, if not identical) to the Maturity Date, and, if
applicable, a coupon rate corresponding (or most closely corresponding,
if not identical) to the Fixed Interest Rate.
"Default Discount Rate" means the Discount Rate less 300 basis points.
"Discounted Value" means the Discounted Value of a Note Payment based on
the following formula:
NP
(1 + R/12)n = Discounted Value
NP = Amount of Note Payment
R = Discount Rate or Default Discount Rate as
the case may be.
n = The number of months between the date of
prepayment and the scheduled date of the
Note Payment being discounted rounded to
the nearest integer.
"Note Payments" means (i) the scheduled Debt Service Payments for the
period from the date of prepayment through the Maturity Date and (ii)
the scheduled repayment of Principal, if any, on the Maturity Date.
"Prepayment Date Principal" means the Principal on the date of
prepayment.
(b) Except as provided in (c) below, this Note may not be prepaid
in full or in part before the first day of the sixty-first (61st)
calendar month immediately following the date hereof. Commencing on the
first day of the sixty-first (61st) calendar month immediately following
the date hereof, provided there is no Event of Default then existing and
not cured, Borrower may prepay this Note in full, but not in part, on
the first day of any calendar month, upon 60 days prior notice to Lender
and upon payment in full of the Debt which will include a payment (the
"Prepayment Premium") equal to the greater of (i) an amount equal to
the product of 1% times the Prepayment Date Principal and (ii) the
amount by which the sum of the Discounted Values of Note Payments,
calculated at the Discount Rate, exceeds the Prepayment Date Principal.
Provided there is no Event of Default then existing and not cured, this
Note may be prepaid in full without payment of the Prepayment Premium
during the last 120 days of the Term. This Note may not be prepaid
without simultaneous prepayment in full of any other notes secured by
the Loan Documents.
(c) Notwithstanding clause (b) above, one time only, on the first
day of any calendar month prior to the thirteenth (13th) calendar month
immediately following the date hereof, Borrower may prepay the Principal
in part, in an amount not greater than $25,000,000, upon not less than
30 days prior written notice to Lender, provided i) simultaneously with
the prepayment, a transfer described in paragraph 12.2(b)(i) of the
Mortgage shall occur, which transfer shall (A) be the first transfer
made under paragraph 12.2(b)(i) of the Mortgage (and not a second or
subsequent transfer under that paragraph) and (B) be a transfer of at
least 15% of the partnership interest in Borrower; and ii) Borrower
shall simultaneously pay a prepayment premium equal to 2% of the portion
of the Principal that is prepaid. Any payments made by Borrower to
Lender under this clause (c) at a time when any interest or other sums
are due from Borrower to Lender under this Note or under any other Loan
Document shall be applied first to the payment of such interest and
other sums and second to prepayment of the Principal. From and after
the first day of the first calendar month following any such partial
prepayment (which day is hereinafter called the "Adjustment Date"), the
amount of each Regular Monthly Payment payable under this Note shall be
adjusted to equal the amount that, if paid on the first day of every
calendar month from the Adjustment Date to and including the twenty-
fifth (25th) anniversary of the First Payment Date and applied first to
accrued interest at the Fixed Interest Rate and then to amortization of
the Principal, would result in repayment of the Principal in full on
that twenty-fifth (25th) anniversary. Borrower shall make that adjusted
Regular Monthly Payment from and after the Adjustment Date. The
hypothetical amortization of the Principal on the twenty-fifth (25th)
anniversary of the First Payment Date is for the purpose only of
computing the adjusted Regular Monthly Payment; nothing herein shall
abrogate or limit Borrower's obligation to repay the Principal, all
accrued interest thereon, and all other sums due hereunder, under the
Mortgage and under the other Loan Documents on the Maturity Date.
(d) After an Acceleration or upon any other prepayment not
permitted by the Loan Documents, any tender of payment of the amount
necessary to satisfy the Debt accelerated, any judgment of foreclosure,
any statement of the amount due at the time of foreclosure (including
foreclosure by power of sale) and any tender of payment made during any
redemption period after foreclosure, will include a payment (the
"Evasion Premium") equal to the greater of (i) an amount equal to the
product of 1% plus 300 basis points times the Prepayment Date Principal,
and (ii) the amount by which the sum of the Discounted Values of the
Note Payments, calculated at the Default Discount Rate, exceeds the
Prepayment Date Principal.
(e) Borrower acknowledges that:
(i) a prepayment will cause damage to Lender;
(ii) the Evasion Premium is intended to compensate Lender for the
loss of its investment and the expense incurred and time and
effort associated with making the Loan, which will not be fully
repaid if the Loan is prepaid;
(iii) it will be extremely difficult and impractical to ascertain
the extent of Lender's damages caused by a prepayment after an
Event of Default or any other prepayment not permitted by the Loan
Documents; and
(iv) the Evasion Premium represents Lender and Borrower's
reasonable estimate of Lender's damages for the prepayment and is
not a penalty.
Section 3. Events of Default:
(a) It is an "Event of Default" under this Note:
(i) if Borrower fails to pay any amount due, as and when
required, under this Note or any other Loan Document and the
failure continues for a period of 5 days (except that, on the
first three occasions during the Term in which Borrower fails to
pay any such amount and the failure continues for such 5 day
period, an Event of Default shall not be deemed to occur unless
Borrower fails to pay the amount due within 5 days after notice of
the failure; after the third such occasion, an Event of Default
shall be deemed to occur if the failure to pay the amount due
continues for a period of 5 days whether or not notice is provided
to the Borrower); or
(ii) if an Event of Default occurs under any other Loan Document.
(b) If an Event of Default occurs, Lender may declare all or any
portion of the Debt immediately due and payable ("Acceleration") and
exercise any of the other Remedies.
Section 4. Default Rate. Interest on the Principal will accrue
at the Default Interest Rate from the date an Event of Default occurs.
Section 5. Late Charges.
(a) If Borrower fails to pay any Debt Service Payment when due or
fails to pay any amount due under the Loan Documents on the Maturity
Date (in either event, without giving consideration to any grace period
contained in the Loan Documents), Borrower agrees to pay to Lender an
amount (a "Late Charge") equal to five cents ($.05) for each one dollar
($1.00) of the delinquent payment.
(b) Borrower acknowledges that:
(i) a delinquent payment will cause damage to Lender;
(ii) the Late Charge is intended to compensate Lender for loss
of use of the delinquent payment and the expense incurred and time
and effort associated with recovering the delinquent payment;
(iii) it will be extremely difficult and impractical to ascertain
the extent of Lender's damages caused by the delinquency; and
(iv) the Late Charge represents Lender and Borrower's reasonable
estimate of Lender's damages from the delinquency and is not a
penalty.
Section 6. Limitation of Liability. This Note is subject to the
limitations on liability set forth in the Article of the Mortgage
entitled "Limitation of Liability".
Section 7. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE
ARTICLE OF THE MORTGAGE ENTITLED "WAIVERS", BORROWER WAIVES PRESENTMENT
FOR PAYMENT, DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN THE
LOAN DOCUMENTS, NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES
ANY PROTEST, LACK OF DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR
ENFORCEMENT OF THE LOAN DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES
AND GUARANTORS OF THE OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME,
RENEWALS, WAIVERS AND MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT
TO THE OBLIGATIONS AND TO THE RELEASE OF ANY SECURITY FOR THIS NOTE AND
AGREE THAT ADDITIONAL MAKERS MAY BECOME PARTIES TO THIS NOTE AND
ADDITIONAL INDORSERS, GUARANTORS OR SURETIES MAY BE ADDED WITHOUT NOTICE
AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL MAKER OR ANY
ORIGINAL INDORSER, SURETY OR GUARANTOR.
Section 8. Commercial Loan. The Loan is made for the purpose of
carrying on a business or commercial activity or acquiring real or
personal property as an investment or carrying on an investment activity
and not for personal or household purposes.
Section 9. Usury Limitations. Borrower and Lender intend to
comply with all Laws with respect to the charging and receiving of
interest. Any amounts charged or received by Lender for the use or
forbearance of the Principal to the extent permitted by Law, will be
amortized and spread throughout the Term until payment in full so that
the rate or amount of interest charged or received by Lender on account
the Principal does not exceed the Maximum Interest Rate. If any amount
charged or received under the Loan Documents that is deemed to be
interest is determined to be in excess of the amount permitted to be
charged or received at the Maximum Interest Rate, the excess will be
deemed to be a prepayment of Principal when paid, without premium, and
any portion of the excess not capable of being so applied will be
refunded to Borrower. If during the Term the Maximum Interest Rate, if
any, is eliminated, then for purposes of the Loan, there will be no
Maximum Interest Rate.
Section 10. Applicable Law. This Note is governed by and will be
construed in accordance with the Laws of the State or Commonwealth in
which the Property is located, without regard to conflict of law
provisions.
Section 11. Time of the Essence. Time is of the essence with
respect to the payment and performance of the Obligations.
Section 12. Cross-Default. A default under any other note now or
hereafter secured by the Loan Documents or under any loan document
related to such other note constitutes a default under this Note and
under the other Loan Documents. When the default under the other note
constitutes an Event of Default under that note or the related loan
document, an Event of Default also will exist under this Note and the
other Loan Documents.
Section 13. Construction. Unless expressly provided otherwise in
this Note, this Note will be construed in accordance with the Exhibit
attached to the Mortgage entitled "Rules of Construction".
Section 14. Mortgage Provisions Incorporated. To the extent not
otherwise set forth in this Note, the provisions of the Articles of the
Mortgage entitled "Expenses and Duty to Defend", "Waivers", "Notices",
and "Miscellaneous" are applicable
to this Note and deemed incorporated by reference as if set forth at
length in this Note.
Section 15. Joint and Several Liability; Successors and Assigns.
If Maker consists of more than one entity, the obligations and
liabilities of each such entity will be joint and several. This Note
binds Borrower and successors, assigns, heirs, administrators,
executors, agents and representatives and inures to the benefit of
Lender and its successors, assigns, heirs, administrators, executors,
agents and representatives.
Section 16. Absolute Obligation. Except for the Section of this
Note entitled "Limitation of Liability", no reference in this Note to
the other Loan Documents and no other provision of this Note or of the
other Loan Documents will impair or alter the obligation of Borrower,
which is absolute and unconditional, to pay the Principal, interest at
the Fixed Interest Rate and any other amounts due and payable under this
Note, as and when required.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note
as of the date first set forth above.
ST. CLAIR SQUARE LIMITED PARTNERSHIP,
an Illinois limited partnership
By: St. Clair Square, GP, Inc.,
a general partner
/s/ John N. Foy
By:_________________________
Name:_John N. Foy__________
Title:_Vice Chairman _____
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1999 (unaudited) and the
Consolidated Statement of Operations for the year ended
March 31, 1999 (unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,172
<SECURITIES> 0
<RECEIVABLES> 20,351
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 189,330
<TOTAL-ASSETS> 1,887,378
<CURRENT-LIABILITIES> 44,805
<BONDS> 0
0
29
<COMMON> 246
<OTHER-SE> 428,219
<TOTAL-LIABILITY-AND-EQUITY> 1,887,378
<SALES> 0
<TOTAL-REVENUES> 74,548
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 39,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,771
<INCOME-PRETAX> 13,746
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,129
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
