Securities Exchange Act of 1934 -- Form 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report :
February 4, 1998
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CBL & ASSOCIATES PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-12494 62-1545718
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
One Park Place, 6148 Lee Highway, Chattanooga, Tennessee 37421
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(Address of principal executive offices)
Registrant's telephone number, including area code:
(423) 855-0001
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CBL & ASSOCIATES PROPERTIES, INC.
Conference Call Outline
FEBRUARY 4, 1999
10:00 A.M.
Good morning, everyone. This is Charles Lebovitz. I am really
excited to "kick off" today's conference call. We are very proud
of our 1998 earnings and also very proud of the two senior
executive promotions announced earlier this week. We appreciate
your participation in our conference call to discuss the 1998
results. Before we begin, I would like to have Beth Strauss, our
Director of Investor Relations, take care of our Safe Harbor
disclosure.
Thank you, Charles.
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.
Charles...
As hopefully many of you saw on Monday, we announced the promotion
of John Foy to Vice Chairman and Treasurer and Stephen Lebovitz to
President. John and Stephen have played major, vital roles in the
growth and success of our Company, and they both personify the true
meaning of dedication. These promotions are well deserved and
fully earned.
Since becoming a publicly held company a little over five years
ago, our portfolio has grown by 114% in terms of gross leasable
area and by 137% in funds from operations. We are poised today to
continue and exceed these impressive results.
John will retain his position as Director and Chief Financial
Officer and will continue to lead our capital markets and investor
relations efforts. In addition to continuing to head up our
development and acquisition programs, Stephen will assume a broader
corporate role and will become more involved in leasing and
management as well as in our investor relations activities. He
will continue to reside in Boston, but will be spending even more
time in the home office to enable him to work with our total
organization.
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John and Stephen have the ability and the commitment to take our
Company to the next level, and I am looking forward to continuing
to be fully involved with them as Chairman and Chief Executive
Officer. With the promotion of Stephen to President, I obviously
have one less title, but I assure you that my plate will still be
full. As a final comment, I will say that there is no one in whom
I have more confidence to assume these senior leadership positions
for our Company.
With that, I'll turn the call over to our Vice-Chairman and CFO,
John Foy.
GROWTH
During 1998, we achieved outstanding FFO growth by delivering on
our goals of maximizing growth from our existing properties,
penetrating new markets and enhancing our franchise position in
existing markets. In doing so, we achieved our fifth consecutive
quarter of double-digit FFO growth.
Our 17.5% increase in FFO per diluted, fully converted share for
1998 over 1997 breaks down as follows:
1. 2.4% from the 12 new shopping centers opened during the last
twenty-four months, representing 3.2 million square feet of
new developments in operation for 1998;
2. 10.1% from the acquisition of one mall and two associated
centers in 1997 and eight malls, two associated centers and
one community center in 1998; and
3. 5.0% from improved operations in our stabilized portfolio.
Our 17.5% increase in FFO per diluted, fully converted share for
1998 includes adjustments necessary to comply with changes in FASB
policies regarding diluted shares and capitalization of internal
acquisition costs.
Our NOI increased 44.5% to $174.8 million. Our revenues were $255
million, an increase of 43.4%, and property operating expenses were
$80.2 million, an increase of 44.0%, for 1998 over 1997, in large
part due to the 25 new development and acquisition centers opened
or acquired during the last twenty-four months. Our cost recovery
ratio for 1998 was 92% consistent with the prior year period.
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FUNDS FROM OPERATIONS
Our total FFO for 1998 was $93.7 million, or $2.68 per diluted,
fully converted share. In order to be consistent with industry
practice, beginning with the first quarter of 1998, FFO included
straight-line rents. As indicated in our earnings release, the
impact on FFO from straight-line rents was an increase of .12cent per
diluted, fully converted share for 1998.
We continue, however, to exclude outparcel sales in our
calculation, although NAREIT would allow us to include this item.
The addition of outparcel sales would add another .12cent per share,
increasing FFO per diluted, fully converted share to $2.80.
FFO per diluted, fully converted share adjusted to give effect to
the addition of straight line rents for 1997 will be reported in
the transcript of this conference call to be filed as a Form 8-K
today.
<TABLE>
<S> <C> <C> <C> <C> <C>
Per Share Data 1 Q 97 2 Q 97 3 Q 97 4 Q 97 Year Ended
- ---------------------- ------ ------ ------ ------ ----------
Basic FFO as Reported $0.53 $0.53 $0.55 $0.61 $2.22
Diluted FFO $0.52 $0.52 $0.55 $0.61 $2.21
Diluted FFO with
Straight Line Rents $0.54 $0.54 $0.56 $0.64 $2.28
</TABLE>
Effective January 1, 1998, in accordance with the new accounting
policy issued by the FASB's emerging issues task force, we no
longer capitalize internal costs related to acquisitions. We
capitalized approximately $406,000 of internal acquisition costs in
1997.
On May 21, 1998, the FASB's emerging issues task force issued EITF
98-9 which outlines the proper accounting treatment for contingent
rental income, such as percentage rental income. This EITF was
subsequently reversed. The issuance and subsequent reversal of
this EITF had no effect on our earnings.
DEVELOPMENTS - EXTERNAL GROWTH
As you can tell from the development activity listed in our
release, we had a very active year. We opened over 871,000 square
feet of new developments. We currently have six new projects under
construction totaling 2.0 million square feet. These projects are
listed in the release and are on schedule to meet their opening
dates. These six projects, which include one regional mall and its
adjacent associated center, a free-standing theatre, a department
store addition to an existing mall and two power centers, represent
an investment of approximately $166 million with initial yields in
the range of 9% - 11%.
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The largest of these projects under construction is Arbor Place, a
two-level, super-regional mall that will contain approximately 1.2
million square feet at full build-out. The first phase is
scheduled to open in October 1999 and will have four anchors,
Parisian, Dillard's, Sears and Upton's. Junior anchors committed
at Arbor Place include Regal Cinemas, Border's Books, Bed Bath and
Beyond and Old Navy. Arbor Place is 72% leased and committed
today.
During the quarter, we also announced development plans for a power
center in Richmond, VA that is expected to open in Spring 2000. We
should start construction during the second quarter. We have
previously announced development plans for two new regional malls,
one in Myrtle Beach, South Carolina and the redevelopment of
Parkway City Mall in Huntsville, AL, which we acquired in December
in a joint venture with Colonial Properties. Both malls are
expected to open in 2001.
ACQUISITIONS - EXTERNAL GROWTH
1998 was a phenomenal year for our acquisition team. We acquired
over 6.5 million square feet for a total investment of $574 million
at an average NOI yield of 8.6%. Excluding property management
fees and structural reserves, the average initial NOI yield is
9.0%. We are pleased that our conservative and disciplined
approach to acquisitions has yielded eleven quality properties with
excellent growth potential. Our efforts during 1999 will be
concentrated on maximizing our returns from these eleven
properties. As you know, we do not budget for acquisitions but we
will consider exceptional opportunities if we can add value to
those assets.
We would like to point out that in keeping with our conservative
reporting practices, our calculations of initial yields on our
acquisitions are based on income in place at the time of closing.
We do not include straight-line rents or projected rents from lease
ups in revenues. In addition, our underwriting includes an
allowance for structural reserves and management fees.
IMPROVED OPERATIONS - INTERNAL GROWTH
As mentioned in our earnings release, our overall portfolio
occupancy was 94.8% at December 31, 1998 as compared to 93.7% at
December 31, 1997, with the malls and associated centers showing
the best increases. The occupancy of the combined stabilized and
new mall portfolio, increased to 93.6% at year end 1998 from 91.1%
at year end 1997.
The average occupancy of the eight malls we acquired during 1998 is
92%. We believe that this lower occupancy percentage provides
opportunities for significant upside. We will utilize our leasing
expertise to increase the occupancy at these centers to be in line
with that of our stabilized malls, translating into both increased
FFO and returns on investments.
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We are very pleased with our portfolio occupancy percentages,
especially in our malls. The 93.6% occupancy percentage of our
combined new and stabilized mall portfolio is one of the highest in
our peer group. At these high occupancy levels, we believe that
the demand for space will allow us to generate higher rentals as we
replace underperforming tenants.
During 1998, our results from renewal leasing compared to the base
and percentage rent previously paid were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Prior PSF
Rent &
Percenage New PSF New PSF % Change % Change
Rent Rent-Initial Rent-Avg. Initial Average
---------- ------------ --------- -------- ---------
Malls $20.78 $22.68 $23.43 9.2% 12.8%
Associated
Centers $ 9.58 $10.01 $10.04 4.5% 4.7%
Community
Centers $ 8.03 $8.71 $8.92 8.5% 11.2%
</TABLE>
Another measure of the strength of our portfolio is a comparison of
new and renewal leasing rates and square footage to the amount of
fallout (tenants vacating) we had for 1998.
In the mall portfolio, we leased 671,000 square feet at an average
rate of $23.40 per square foot compared to 149,000 square feet of
fallout at an average rate of $21.90 per square foot.
In the associated centers, we leased 75,000 square feet at an
average rate of $10.30 per square foot compared to 31,000 square
feet of fallout at an average rate of $10.70 per square foot.
In the community centers, we leased 356,000 square feet at an
average rate of $9.30 per square foot compared to 133,000 square
feet of fallout at an average rate of $8.50 per square foot.
SALES
As indicated in our press release, mall shop sales increased 3.8%
on a comparable per square foot basis for 1998 as compared to 1997
and total mall shop sales volume increased 9.7%. In our markets,
retail trends are positive and retailers continue to look for
expansion opportunities.
The occupancy costs as a percentage of sales at our stabilized
malls at December 31, 1998 decreased to 11.1% compared to 11.2% at
December 31, 1997.
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CAPITAL STRUCTURE
Our earnings release describes in great detail where we stood with
our capital structure at the end of the quarter, but I would like
to highlight the fact that through a combination of swap
agreements, interest rate caps and a conventional permanent loan
commitment, we have no variable rate debt exposure on operating
properties. I would also like to point out that all of our swaps
and caps are attached to outstanding debt and that we have no
treasury locks outstanding. We have no derivative exposure.
As part of our capital plan, we have been very cognizant of our
debt maturities. The average maturity on our fixed-rate debt is 9.4
years.
CAPITAL EXPENDITURES
Revenue generating capital expenditures, or tenant allowances for
improvements, in 1998 were $8.1 million. During 1999, we expect to
spend a total of approximately $8 million on revenue generating
capital expenditures.
Revenue enhancing capital expenditures, or remodeling and
renovation costs, were $8.4 million for 1998, the majority of which
represents remodeling costs on our flagship mall, Hamilton Place
here in Chattanooga. During 1999, we expect to spend a total of
approximately $9 million for the remodeling of Rivergate Mall in
Nashville, Tennessee and College Square in Morristown, Tennessee as
well as three community centers.
Revenue neutral capital expenditures, which are recovered from the
tenants, were $5.1 million for 1998. During 1999, we expect to
spend a total of approximately $5 million on revenue neutral
capital expenditures.
DIVIDEND INCREASE AND PAYOUT RATIO
The board of directors declared a quarterly dividend of $.465 per
share, which equates to an annualized dividend of $1.86. Our
payout ratio for 1998 was 69.4% as compared to 79.7% for 1997. Had
outparcel sales been included in FFO per diluted, fully converted
share, as NAREIT allows, our payout ratio would have been 66.4% for
1998 as compared to 72% for 1997.
For the fifth consecutive year, the board of directors expects to
increase the annual cash dividend for our common stock by $0.09 a
share, or 4.8%, to $1.95 per share effective for the first quarter
of 1999.
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ECONOMIC OUTLOOK
For 1999 and beyond, we see many opportunities both within our
existing portfolio and through external growth, but the basic
tenets of our growth strategy will remain continuing our geographic
expansion in markets similar to those we have dominated for years,
further strengthening our balance sheet to continue our growth,
maximizing the returns from existing properties and continuing our
development program.
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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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 Secretary
(Authorized Officer of the Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: February 4, 1999
