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 :
July 27, 2000
--------------------------------------------------------------------------
CBL & ASSOCIATES PROPERTIES, INC.
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-12494 62-1545718
--------------------- --------------------- ---------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
One Park Place, 6148 Lee Highway, Chattanooga, Tennessee 37421
------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code:
(423) 855-0001
-----------------------------------------------------------------------
Page 1
<PAGE>
CBL & ASSOCIATES PROPERTIES, INC.
Conference Call Outline
Second Quarter 2000
July 27, 2000
10:00 a.m.
Good morning, We appreciate your participation in today's call to
discuss our results for second quarter 2000. With me today is Stephen Lebovitz,
our President. Before we begin, I would like to have Kelly Sargent, our Director
of Investor Relations, read our Safe Harbor disclosure.
This conference call contains "forward-looking" statements within the meaning of
the federal securities laws. Such statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, financial and
otherwise, may differ materially from the events and results discussed in the
forward-looking statements. During our discussion today, references made to per
share is based upon a fully diluted converted share. 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.
I would like to note that a transcript of today's comments will be filed as a
form 8K later this morning, and will be available upon request, as well as
available for replay on the Internet through a link on our website at
cblproperties.com.
INCOME STATEMENT REVIEW
-----------------------
Second quarter 2000 results reflect our continued focus on achieving portfolio
growth through aggressive leasing resulting in increased occupancy levels, and
an ongoing program of developing alternative revenue sources. We have now
recorded our eleventh consecutive quarter of double-digit growth in FFO per
share.
The 16% increase in FFO per share for the second quarter of 2000 consisted of
the following:
1. Improved operations in our portfolio, or internal growth, accounted for
64.7% of this increase. This growth resulted primarily from improved
base and percentage rents, higher occupancy levels, increased tenant
recoveries and specialty rental income.
2. External growth accounted for 35.3% of the increase, through the
opening of one mall, one associated center, one community center, and
the acquisition of one mall and one community center, all of which
occurred during the last fifteen months.
Other financial highlights were:
1. Income from operations increased 15.8% to $18.2 million in the second
quarter, from $15.7 million in the same period a year ago.
2. Same-center NOI increased 6.7% in the quarter over the prior-year
period.
3. Our cost recovery ratio increased to 98.2% year to date compared with
93.1% for the same period one year ago. Higher occupancy levels and our
capital improvement program have had the greatest impact on the
increasing recoveries.
Our FFO calculation remains one of the most conservative in the industry as we
exclude outparcel sales from the calculation, due to the significant
fluctuations which occur in the normal course of our business. The inclusion of
outparcel sales in the second quarter 2000 would have increased FFO by $0.05 per
share to $0.92 a share, from the $0.87 reported. Before consideration of
outparcel sales, our dividend payout ratio for the quarter was 58.1%. Including
outparcel sales, the payout ratio was 54.9%. We expect our payout ratio to
continue to trend down through year-end. Also not included in the Company's FFO
calculation are gains on the sale of depreciable assets, which was $3.8 million,
or $0.10 per share, this quarter.
CAPITAL STRUCTURE
-----------------
The details of our capital structure are listed in our earnings release, so I
will highlight a couple of areas. Consistent with our strategy, we protect
ourselves against interest rate risks on our variable rate debt. Variable rate
debt at the end of the second quarter was $637 million with a weighted average
interest rate of 7.25%. Through the execution of swap agreements, we have fixed
the interest rates on $443 million of the variable rate debt on operating
properties at a weighted average interest rate of 7.1%. An additional $50
million of interest rate caps and a permanent loan commitment of $75 million,
leaves only $69 million of variable rate debt exposure, all of which is
associated with construction properties.
A good indication of the strength of our balance sheet is the fact that,
excluding normal principal amortization, we have only $253 million of debt
maturities in the next two years of which approximately two thirds will be
refinance within the next six months. Another measure is our EBITDA coverage
ratio, which was 2.64 times interest expense in the quarter compared with 2.61
times interest expense a year ago.
CAPITAL EXPENDITURES
--------------------
During the second quarter, we spent $2.1 million on revenue generating capital
expenditures, $1 million on revenue neutral expenditures and had no revenue
enhancing capital expenditures. The revenue neutral and revenue enhancing
capital expenditures are primarily remodeling and renovation costs with the
majority being recovered from tenants. For the full year, we expect to spend $12
million on revenue generating, $12.6 million on revenue neutral capital
expenditures and $8 million on revenue enhancing.
During 2000 we are continuing our proactive strategy of renovating and updating
our properties. The renovations this year include the major renovations and
expansions of Asheville Mall and Meridian Mall; as well as five community
centers. The Asheville, NC expansion and renovation will be completed this
November, and will include 88,000 new square feet of small shop space,
a new food court, a parking deck and two department store expansions,
totaling 83,000 square feet. We are also renovating and expanding Meridian Mall
in Lansing, Michigan. Improvements at Meridian include the addition of a
Jacobson's department store, which replaces the Service Merchandise store, and a
new food court. Hudson's department store is also expanding by 50,000 square
feet, with the first phase of this project scheduled to be completed in
the first quarter of next year. These expenditures are representative of our
commitment to investing in our properties which in turn should enhance
shareholder value.
IMPROVED OPERATIONS - INTERNAL GROWTH
-------------------------------------
Strong internal growth is continuing this year, as evidenced by the higher
occupancy, increased mall shop sales and continued increases in new and rollover
leasing. For the second quarter, community centers again reported the highest
occupancy at 98.2%. We were also pleased with occupancy in the total mall
portfolio, which was a combined 91.5% at the end of the second quarter compared
to 91.2% one year ago. Excluding Parkway Place, where we are not renewing
expiring leases due the current redevelopment, total mall occupancy would have
been 92.1%. As a result of our high occupancy level, we feel we have the ability
to replace underperforming tenants with those that can generate higher sales and
rents.
RETAIL OUTLOOK
--------------
The robust strength displayed by retail last year has somewhat slowed in 2000,
and a few retailers are having difficulty. This month, Fredrick's of Hollywood
announced filing for Chapter 11-bankruptcy for reorganization. Frederick's was
recently purchased by an investment group, Wilshire Partners and presently the
new owners of Frederick's do not anticipate a significant amount of store
closings. In the CBL portfolio, we have five stores totaling 6,600 square feet
and representing one-tenth of 1% of revenue, and we do not anticipate any store
closings at this time. This week, Kmart announced a series of strategic actions
including the identification of 72 stores that will close. None of the three
Kmart locations in our portfolio, has been identified to close.
THE STATE OF TENNESSEE FRANCHISE AND EXCISE TAX LAW
---------------------------------------------------
In June 1999, the state of Tennessee enacted legislation that extended franchise
and excise taxes to limited liability entities. We estimated this legislation's
impact to our FFO would be approximately $.06 per share. In late June 2000, the
Tennessee legislation passed a technical correction act amending this
legislation as it pertains to REITs. As a result, we now estimate our annual
exposure to be $0.03 per share, for which we have proportionately accrued.
And now I would like to hand the call over to Stephen to discuss leasing, retail
sales, developments and acquisitions.
LEASING
-------
Thank you John, and good morning. In the second quarter we leased approximately
306,000 square feet, with average renewal rents for the quarter up 12.5% over
the prior rent and percentage rent in the malls, 7.2% in associated centers, and
19.1% in the community centers. Continued strength in renewal leasing is an
important component of our internal growth as we re-lease the square footage
scheduled to roll over in our properties this year.
RETAIL SALES
------------
Retail sales in our malls as a whole continued to increase in the second quarter
albeit at a slower pace than the last few quarters. Sales were up 1.8% on a
comparable per square foot basis in the second quarter over the prior-year
period and total mall sales volume increased 4.2%. Sales this quarter were
certainly not at the level we have come to expect, but we have never viewed this
as the primary driver of internal growth. We consider our high occupancy levels
as one of the major factors to increasing rents. Our calculation of sales
includes all mall stores of less than 30,000 square feet, except theaters.
Even though per square foot sales could be increased substantially by reducing
this criteria to 10,000 square feet, we prefer to gauge our results from as
many tenants as possible. Occupancy costs as a percentage of sales at our
malls was 11.9% for the twelve months ending June 30, 2000 compared to 11.8%
for the twelve months ending June 30, 1999.
DEVELOPMENTS
------------
We currently have 2.6 million square feet under construction, which includes;
The Lakes Mall in Muskegon, MI; two mall expansions, Asheville Mall and Meridian
Mall; one associated center, Gunbarrel Pointe in Chattanooga, TN; and three
community centers, Chesterfield Crossing in Richmond, VA, Coastal Way Shopping
Center in Spring Hill, FL and Creekwood Crossing, in Bradenton, FL; and one
community center expansion, Sand Lake Corners in Orlando, FL. These projects
represent a total investment of approximately $168.7 million, of which $71
million has been invested through June 30, 2000. Construction loans are closed
and or committed for the remaining costs. Also under construction is the
redevelopment of Parkway Place in Huntsville, AL, a joint venture with Colonial
Properties. Initial unleveraged yields on these centers are expected to range
from 9% to 11% after management and development fees.
Excluding these fees, the yields would increase by approximately 140 basis
points.
Included in our mall development pipeline is The Mall of South Carolina in
Myrtle Beach; which is a joint venture with the landowner Burroughs &
Chapin. The schedule for this 1.3 million square foot development is
being delayed by pending litigation concerning some tax issues with the local
school board, which could push this completion to early 2003.
ACQUISITIONS/DISPOSITIONS
-------------------------
During the last twelve months we have sold assets totaling $71 million,
including the announcement in the second quarter of the $13.1 million sale of
five properties. We are currently pursuing additional dispositions of selected
community centers in "one-off' transactions, and will report on those as they
occur. We will attempt when possible to structure transactions as a 1031 like
kind exchange. These sales will have the temporary effect of reducing FFO until
these funds can be redeployed into higher yielding assets. The select
disposition of assets continues to be a priority for us, but we will only do so
if the transaction enhances shareholder value.
Acquisition opportunities remain available; however, we will continue to be
selective and opportunistic. We are aware of rumors in the marketplace. Our
policy is not to comment on rumors. Should a public announcement and disclosure
become necessary, we will of course do so. As we have said in the past, we will
not purchase assets merely for "spread investing". Any project we purchase must
have a value-added component.
E-TAILING
---------
This year we have seen the buzz of e-tailing subside. Last week, one of the
world's best known web sites, CDNOW, was sold for just $3 per share,
representing only half of CDNOW's projected revenues for the current year and an
80% discount from their February 1998 IPO. CDNOW has always been in the top
10 of e-tailing sites, but without this new cash injection, they would have been
out of capital by September.
The future of e-tailing lies in combining bricks and clicks, such as the GAP
incorporating internet lounges into their stores. At CBL our e-commerce
strategy revolves around utilizing the internet to enhance sales at
the mall and provide greater convenience for our customers. We continually
upgrade our mall web pages to provide additional functions for the shopper. We
are also finalizing a portfolio wide internet kiosk agreement. These internet
kiosks will allow shoppers access to the internet at the malls and create
additional revenue.
In addition, we continue to investigate various opportunities for wiring our
malls for high-speed connectivity thus creating additional revenue
generating opportunities.
OUTLOOK
-------
Thank you Stephen.
Our outlook is both cautious but positive for our industry.
X We see a trending down in sales by certain retailers, though demand for
retail space in our markets is strong.
X We continue to have confidence in the economic viability of the middle
markets that we serve even in light of the expected soft landing in our
economy.
X We expect growth from our existing portfolio to continue to be a large
contributor to our FFO as it has been for the past three quarters.
That concludes our conference call. We will be glad to answer questions.
<PAGE>
6
<TABLE>
Renewal Leasing for the Second Quarter 2000
<S> <C> <C> <C> <C> <C>
Prior PSF
Rent & Percentage New PSF New PSF % Change %Change
Rent Rent-Initial Rent-Avg. Initial Average
Malls $21.48 $23.41 $24.16 9.0 12.5
Associated Centers 11.72 12.57 12.57 7.2 7.2
Community Centers 10.63 12.22 12.65 15.0 19.1
</TABLE>
<TABLE>
Total Leasing Compared to Tenants Vacating for Second Quarter 2000
Leased Avg. Rate Vacated Avg. Rate
<S> <C> <C> <C> <C>
------ --------- ------- ---------
Malls 172,903 $28.18 72,771 $23.03
Associated Centers 9,494 12.57 0 0.00
Community Centers 101,064 12.65 44,231 12.57
</TABLE>
<TABLE>
Restated FFO - eliminate the add back of written off development costs
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
First Second Third Fourth Year
Quarter Quarter Quarter Quarter Ended
Reported
----------
FFO $27,310 $27,604 $31,065 $31,968 $117,947
FFO per Diluted Share 0.74 0.75 0.84 0.87 3.21
Restated
----------
FFO 26,568 27,458 30,983 31,264 116,273
FFO Per Diluted Share 0.72 0.75 0.84 0.85 3.16
Write off of development costs no
longer added back 742 146 82 704 1,674
</TABLE>
7
<PAGE>
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
------------------------------------
John N. Foy
Vice Chairman,
Chief Financial Officer and
Treasurer
(Authorized Officer of the
Registrant,
Principal Financial Officer and
Principal Accounting Officer)
Date: July 27, 2000
