Securities Exchange Act of 1934 -- Form 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report :
April 29, 1999
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CBL & ASSOCIATES PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-12494 62-1545718
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
One Park Place, 6148 Lee Highway, Chattanooga, Tennessee 37421
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(Address of principal executive offices)
Registrant's telephone number, including area code:
(423) 855-0001
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CBL & ASSOCIATES PROPERTIES, INC.
Conference Call Outline
First Quarter 1999
April 29, 1999
9:30 a.m.
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Good morning, everyone. This is John Foy. We appreciate your participation
in today's call to discuss first quarter results. Before we begin, I would like
to have Charlie Willett, our vice president of real estate finance, take care of
our Safe Harbor disclosure.
This conference call contains "forwarding-looking" statements within the
meaning of the federal securities laws. Such statements are inherently subject
to risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, may differ materially from the events and results
discussed in the forward-looking statements. We direct you to the Company's
various filings with the Securities and Exchange Commission, including without
limitation the Company's Annual Report on Form 10-K and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
incorporated by reference therein, for a discussion of such risks and
uncertainties.
Thank you, Charlie.
Income Statement Review
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Before I talk about the development and leasing activity for the quarter, I
would like to devote a couple minutes to the income statement and balance sheet.
The 13.8% increase in FFO per diluted, fully converted share for the first
quarter consisted of the following:
1. 10.1% was from two new shopping centers opened during the last fifteen
months, and from the acquisition of seven malls, two associated centers and one
community center in 1998; and
2. 3.7% was from improved operations in our stabilized portfolio.
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Other financial highlights from the quarter were:
1. Net operating income (NOI) increased 33.4% to $54.5 million in the quarter
from $40.8 million in the prior-year period.
2. In the first quarter, same center NOI increased 4.9% over the prior-year
period.
3. Our cost recovery ratio remained stable at 92% for the first quarter.
4. Percentage rents were up 93% in the quarter due to the centers acquired
during last year as well as strong sales at our stabilized portfolio.
28% of the increase in percentage rents was from our stabilized portfolio.
Our FFO calculation continues to be one of the most conservative in the
industry since we exclude outparcel sales from the calculation. The inclusion of
outparcel sales would have a very meaningful impact on first quarter FFO,
increasing the earnings per diluted fully converted share from $0.74 to $0.87
per share. The effect on our dividend payout ratio is even more dramatic,
decreasing from 65.9% to an adjusted 56% of FFO. We expect our payout ratio to
continue to trend down during the year.
Capital Structure
As indicated in our earnings release, our capital structure is sound
considering we have nearly doubled the size of the company in the last three
years. Our interest coverage ratio is still a very strong 2.61 times interest
expense. We have eliminated our exposure to variable rates on operating
properties and we do not have any significant debt maturities. We are
implementing a capital plan for continuing our growth that does not depend upon
issuing common equity.
For some time, we have talked about the possibility of joint ventures and
the sale of some of our centers. We do not have a time frame for either one, but
we are diligently pursuing both possibilities. We believe certain types of our
shopping centers, namely the power centers, would be attractive to joint venture
partners. We are looking at pension funds, both foreign and domestic, as
possible partners for our malls.
Capital Expenditures
During the first quarter, we spent $2.8 million on revenue generating
capital expenditures,
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and $1.3 million on revenue neutral capital expenditures. For the full
year, we expect to spend $8 million on revenue generating, $10.0 million on
revenue enhancing and $6 million on revenue neutral.
Developments and Acquisitions
We opened Fiddler's Run in Morganton, NC in March 100% leased and
committed. This center will generate an 11% return in the first year. Sand Lake
Corners will open in stages over the next month with Beall's Department Store
opening today. Sand Lake Corners is 97% leased and committed and will generate
an 11% return in its first year.
The other four projects under construction, Arbor Place and The Landing at
Arbor Place in metropolitan Atlanta, GA, a Regal Cinema in Jacksonville, FL and
a Sears addition to Lakeshore Mall in Sebring, FL represent a total investment
of approximately $141 million of which $80 million has been spent through March
31, 1999. These projects will open with initial yields in the range of 9% to
11%.
Arbor Place is our largest project for 1999 and construction is on schedule
for a grand opening of the first phase on October 13, 1999. We are currently 79%
leased and committed and are targeting 85% leased and committed at opening.
Based upon this number, we would expect Arbor Place to produce a 9% initial
return, increasing to 11% at stabilization.
Arbor Place is an exciting project in that we are combining traditional
mall anchors, such as Parisian, Dillard's, Sears, and Upton's, with big-box
retailers inside the mall, such as Border's Books, Bed Bath & Beyond, Old Navy
and an 18 screen Regal Cinema. To our knowledge, this is one of the few malls in
the country that have included this type of lineup.
In addition to the five projects under construction, we have announced
plans to open a power center in Spring 2000, and two regional malls in 2001.
During 1999, we expect to start construction on another 3 properties totaling
500,000 square feet.
The acquisition environment will be more challenging this year because of
the capital markets, but we believe the same environment will also produce some
motivated sellers. If the opportunity arises, we will be in position to
capitalize on it. Our efforts during 1999, however, will be concentrated on
maximizing our returns from the eleven properties acquired in 1998.
1998 will be a hard year to top for acquisitions, and we do not intend to
try. We will, however, continue to look for selective opportunities where we can
add value. Our underwriting criteria
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remains one of the most disciplined in the industry, and this discipline
has served us well. The properties we acquired during 1998 had an average
initial NOI yield of 8.7% and are projected to increase to returns of
approximately 9.5% in calendar year 1999. The average occupancy of the seven
stabilized malls we acquired during 1998 was 92.5% at March 31, 1999, as
compared to 89.9% at acquisition.
Leasing
We saw improvement in both the mall and associated center categories during
the quarter. Community centers were down slightly due to a vacant 30,000 square
foot anchor in our center in Cary, NC. Because of the addition of Parkway Place,
a mall in Huntsville Al that was acquired for redevelopment, new mall occupancy
decreased from 88.2% to 84.3% at March 31, 1999. Without Parkway Place the new
mall occupancy would have been 89.8%.
Our releasing results were strong during the quarter as well. All of the
detail will be included in our 8K filing today, but I will give you a few quick
highlights of our leasing.
Average renewal rents for the quarter were up 21.9% over the prior rent and
percentage rent in the malls; 13.0% in associated centers and 3.6% in the
community centers. The continued strength in our releasing spreads should enable
us to produce solid internal growth this year since we have releasing
opportunities of 774,000 square feet in the malls, 18,000 square feet in the
associated centers and 260,000 square feet in the Community Centers.
Total leasing, both new and renewals, to tenants vacating in the quarter,
will be included in detail in our 8-K filing today. We did have strong
performance which we expect to continue during the year.
Sales
One reason for our continued optimism is the strength in retail sales in
our malls and markets as a whole. We were up 6.6% on a comparable per square
foot basis in the first quarter over the prior-year period and total mall sales
volume increased 7.6%. Occupancy costs as a percentage of sales at malls open
more than two years was 13.7% at March 31, 1999 compared to 13.1% at March 31,
1998. Occupancy costs as a percentage of sales includes 8 malls not included a
year ago.
Retail trends continue to be positive in our markets, and retailers are
looking to expand. As evidenced by our leasing results and NOI growth at our
existing properties, these trends are having a positive impact on the
performance of our properties.
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Retail Outlook
In spite of the positive sales trends and retailer expansion plans, we have
seen a slight increase in bankruptcies. Several of these announcements were high
profile and, quite frankly, not a surprise. These included County Seat, Edison
Brothers and Service Merchandise. Not all of this is bad news. In the case of
County Seat and Edison Brothers, those companies are liquidating. The stores
both chains have held onto were their most productive and therefore had the best
locations. We will be happy to get these spaces back and the sooner the better.
With Service Merchandise, we only own two of their stores. These are located at
Post Oak Mall in College Station, TX and Meridian Mall in Lansing, MI. Given the
strength of these two malls, we would welcome the opportunity to release these
stores.
For 1999 and beyond, our growth strategy is very clear. We will continue
our geographic expansion through acquisitions and development and we will
redeploy certain assets to strengthen our balance sheet and maximize shareholder
value.
A transcript of my comments will be filed as a Form 8K later this morning
and will be available upon request. I would now be happy to answer any questions
you may have.
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Renewal Leasing for First Quarter
<TABLE>
<S> <C> <C> <C> <C> <C>
Prior PSF
Rent &
Percentage New PSF New PSF % change % change
Rent Rent-Initial Rent-Avg. Initial Average
Malls $22.08 $26.24 $26.92 18.8% 21.9%
Associated
Centers $7.75 $ 8.62 $ 8.76 11.2% 13.0%
Community
Centers $7.87 $8.02 $8.15 1.9% 3.6%
</TABLE>
<TABLE>
Total Leasing Compared to Tenants Vacating for First Quarter
<S> <C> <C> <C> <C>
Leased Avg. Rate Vacated Avg. Rate
Malls 168,000 $27.00 62,000 $16.30
Associated
Centers 34,000 $ 8.80 1,000 $17.00
Community
Centers 83,000 $7.90 22,000 $10.40
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBL & ASSOCIATES PROPERTIES, INC.
/c/ John N. Foy
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John N. Foy
Vice Chairman,
Chief Financial Officer and
Treasurer
(Authorized Officer of the
Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: April 29, 1999
