-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SQWF6OSA+zWQ08EypuMTvCSegHoE1H+T3cPLg58vtTReJ81FzJYiON+iYOvODRdE gYSmzIC411Bb6m1E5Qm1ug== /in/edgar/work/0000899140-00-000401/0000899140-00-000401.txt : 20000928 0000899140-00-000401.hdr.sgml : 20000928 ACCESSION NUMBER: 0000899140-00-000401 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000925 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000926 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBL & ASSOCIATES PROPERTIES INC CENTRAL INDEX KEY: 0000910612 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 621545718 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12494 FILM NUMBER: 728893 BUSINESS ADDRESS: STREET 1: ONE PARK PLACE STREET 2: 6148 LEE HWY SUITE 300 CITY: CHATTANOOGA STATE: TN ZIP: 37421 BUSINESS PHONE: 4238550001 MAIL ADDRESS: STREET 1: 61048 LEE HIGHWAY SUITE 300 STREET 2: ONE PARK PLACE CITY: CHATTANOOGA STATE: TN ZIP: 37421 8-K 1 0001.txt CURRENT REPORT ON FORM 8-K Securities and Exchange Commission Washington, D.C. 20549 Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) September 25, 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 No.) incorporation) One Park Place, 6148 Lee Highway, Chattanooga, Tennessee 37421 -------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: (423) 855-0001 -------------- N/A ------------------------------- (Former name or former address, if changed since last report) Item 5. Other Events. On September 25, 2000, the Registrant announced that it had entered into a definitive Master Contribution Agreement (the "Agreement") with an affiliate of The Richard E. Jacobs Group, Inc. ("Jacobs"), pursuant to which the Registrant will acquire a portfolio of 21 regional malls and two associated centers for a purchase price of approximately $1.2 billion. The purchase price includes approximately $106 million in cash, the assumption of approximately $733.8 million in primarily fixed rate non-recourse debt at an average interest rate of 8.25% and the issuance of 11.932 million SCUs (special common units) of the Registrant's operating partnership. Closing of the transaction, which is subject to CBL stockholder approval and the obtaining of certain Jacobs partner and lender consents, is expected to occur in the first quarter of 2001. In addition, under the Agreement, the Registrant agreed to seek stockholder approval of an amendment to its certificate of incorporation to modify the ownership limits with respect to ownership of CBL shares by the Lebovitz and Jacobs families. This stockholder approval, however, is not a condition of closing. A copy of the Registrant's press release announcing the transaction on September 25, 2000 and a transcript of the Registrant's conference call relating to the transaction held on September 26, 2000 are filed herewith as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by reference. Item 7. Financial Statements and Exhibits. (c) Exhibits: The following exhibits are filed as part of this report: 99.1 Press Release of the Registrant, dated September 25, 2000. 99.2 Transcript of the Registrant's Conference Call, held September 26, 2000. 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 hereunto duly authorized. CBL & ASSOCIATES PROPERTIES, INC. By: /s/ John N. Foy ------------------------------ John N. Foy Vice Chairman, Chief Financial Officer and Treasurer Dated: September 26, 2000 Exhibit Index ------------- Exhibit No. Description - ----------- ----------- 99.1 Press Release of the Registrant, dated September 25, 2000. 99.2 Transcript of the Registrant's Conference Call, held September 26, 2000. EX-99.1 2 0002.txt PRESS RELEASE Exhibit 99.1 ------------ Contact: John Foy Vice Chairman and CFO (423) 855-0001 CBL & ASSOCIATES PROPERTIES TO ACQUIRE 21 MALLS FROM JACOBS GROUP FOR $1.2 BILLION ========================================= Solidifies Dominant Position in Southeast Accelerates Expansion into Midwest CHATTANOOGA, Tenn. (September 25, 2000) -- CBL & Associates Properties, Inc. (NYSE:CBL) and The Richard E. Jacobs Group, Inc. ("Jacobs") today announced they have signed a definitive agreement for CBL to acquire Jacobs interests in 21 regional malls and two associated centers for a purchase price of approximately $1.2 billion. The portfolio, totaling approximately 19.2 million square feet, includes five malls in Wisconsin, three each in North Carolina, Kentucky and South Carolina, two each in Michigan and Ohio, one each in Illinois, Tennessee and Texas and an associated center in both Ohio and Wisconsin. The transaction is expected to yield on an unleveraged basis a return of approximately 10.7% on projected first 12 months net operating income (NOI). Excluding property management fees and structural reserves, the yield is expected to be 11.3%. The agreement has been approved by CBL's Board of Directors and is subject to CBL shareholder approval as well as certain Jacobs lender and partner consents. The acquisition is expected to close in the first quarter of 2001. The purchase price includes approximately $106 million in cash, including closing and transaction costs of approximately $12 million; assumption of $733.8 million in primarily fixed rate non-recourse debt at an average interest rate of 8.25%; and the issuance of 11.932 million SCUs (special common units) of CBL's operating partnership with a par value of $384.8 million. The SCUs will be entitled to receive an initial annual dividend of $2.90 per SCU and will be exchangeable on a one-for-one basis for shares of CBL's common stock following a three-year lockout period. After 10 years, CBL will have the right to force exchange of the SCUs for common units in CBL's operating partnership. The cash portion of the purchase price will be funded through a $212 million unsecured acquisition loan from Wells Fargo Bank that will allow for payment of closing and transaction costs. The loan will also allow for the draw down of funds for additional investment in the properties. The transaction is immediately accretive to funds from operation (FFO). Based on the first full 12 months of NOI, the transaction is accretive by approximately $0.20 per share. In calendar year 2001, the company estimates it will realize approximately $0.08 per share of accretion. The difference of $0.12 per share, representing the impact from generally accepted accounting principles (GAAP) treatment of first year's percentage rents from these properties, will be recognized in 2002 earnings. When the acquisition is concluded, CBL's portfolio will total 161 properties, including 51 enclosed malls, representing 55 million square feet in 26 states, making it one of the top five owners of shopping centers in the United States based on national surveys published in January of this year. Charles B. Lebovitz, CBL's chairman and chief executive officer, said, "This acquisition is truly an exciting and unique opportunity for our company. Our interest in the Jacobs properties was driven by the significant growth potential and synergies that would result from combining our assets with their portfolio as well as the strengthening of our geographic dominance in the market areas where we currently operate. "The most compelling reason for adding these centers to our portfolio is not size but rather the tremendous opportunities to apply the proven redevelopment, management and leasing expertise of our experienced team to maximize the internal growth from these properties. We are committed to continuing to add value for the benefit of our shareholders." "We are delighted with this transaction with CBL," stated Richard E. Jacobs, chairman and chief executive officer of The Richard E. Jacobs Group, Inc. "The combination of these properties with the CBL portfolio will create real value for all CBL investors, including us. This transaction further endorses our belief in CBL's management team, its financial strength, and the growth opportunities and synergies that will be created by the combination of our two portfolios." John N. Foy, CBL's vice chairman and chief financial officer, added, "We have stated for some time that we would only acquire a large portfolio of shopping centers if the economics and structure of the deal provided long-term growth potential greater than we could achieve through individual acquisitions. We believe this transaction meets our stringent criteria and, more importantly, creates value for our shareholders with properties that will be accretive to FFO from day one. We expect this transaction will accelerate our FFO and dividend growth over the next several years." "These properties are consistent with our focus on malls that have a dominant franchise in their respective market areas," said Stephen D. Lebovitz, president of CBL. "We expect to enhance their franchise value through our leasing and specialty leasing programs, aggressive marketing and property management, and renovation and redevelopment of the projects where needed." Stephen Lebovitz further noted, "This transaction clearly defines CBL as the leading mall owner in the Southeast and accelerates our previous expansion into the Midwest. With our knowledge of these markets and our dominant position in the Southeast region, we believe this transaction will add significant value to our company." Upon approval of the transaction, CBL's board of directors will increase by two members to nine. Jacobs will be entitled to nominate two independent directors, one of whom is a current member of Jacobs management. Investor Conference Call and Web Simulcast ------------------------------------------ CBL & Associates Properties will conduct a conference call on September 26, 2000, at 10:30 a.m. EDT to further discuss this announcement and will provide an online Web simulcast and rebroadcast of this conference call. The number to call for this interactive teleconference is (719) 457-2633. A replay of the conference call will be available until September 29, 2000, by dialing (719) 957-0820 and entering the passcode, 626956. The live broadcast of CBL's conference call will be available online at www.cblproperties.com, www.streetevents.com or www.vcall.com on September 26, 2000, beginning at 10:30 a.m. EDT. The online replay will follow shortly after the call and continue through October 26, 2000. CBL & Associates Properties, Inc. is a real estate investment trust that owns regional malls and community shopping centers, primarily in the Southeast and select markets in the Northeast and Midwest. The Company currently has a portfolio of 138 properties in 25 states totaling 35.8 million square feet, including 1.8 million square feet of non-owned shopping centers managed for third parties. The Company has under construction seven new projects totaling approximately 2.2 million square feet, including two malls, one associated center, two community centers and two mall expansions. Merrill Lynch acted as advisor for the company in this transaction. In addition to its headquarters in Chattanooga, TN, CBL has a regional office in Boston (Waltham), MA. The Company can be found on the Internet at www.cblproperties.com. The Richard E. Jacobs Group is widely acknowledged as one of the pioneer companies of the modern shopping center industry, having grown to become the largest privately held regional shopping center ownership, development, and management firm in the United States. The company engaged The Goldman Sachs Group, Inc., to explore the potential disposition of the majority of its assets as an estate planning measure by its co-founder and chairman, Richard E. Jacobs, and other related family trusts. The CBL acquisitions represent approximately 40 percent of the 46 million square feet of shopping center, office, and hotel developments in the total Jacobs Group portfolio. Information included herein 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 events, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements. The reader is directed 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, and the Company's current report on Form 8-K being filed in connections with the transaction described herein, for a discussion of such risks and uncertainties. The shop
- ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Mall (Market) Total GLA Mall Store Anchors Percentage to GLA be Acquired - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Illinois Cherryvale Mall (Rockford) 714,000 300,000 Bergner's, Marshall Field, Sears 84% - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Kentucky Fayette Mall (Lexington) 1,096,000 298,000 Dillard's, JC Penney, Lazarus, 100 Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Jefferson Mall (Louisville) 936,000 275,000 Dillard's, JC Penney, Lazarus, 87(1) Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Kentucky Oaks (Paducah) 878,000 298,000 Dillard's(2), Elder-Beerman, 40(2) JC Penney, Sears, ShopKo - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Michigan Midland Mall (Midland) 514,000 196,000 Elder-Beerman, JC Penney, 40(1) Sears, Target - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Fashion Square Mall (Saginaw) 786,000 287,000 Hudson's, JC Penney, Sears 100 - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- North Carolina Randolph Mall (Asheboro) 376,000 147,000 Belk, JC Penney, Sears 100 - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Cary Towne Center (Cary) 953,000 294,000 Hudson Belk, Dillard's, Hecht's, 80 JC Penney, Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Hanes Mall (Winston-Salem) 1,556,000 548,000 Belk, Dillard's, Hecht's, 100 JC Penney, Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Ohio Eastgate Mall (Cincinnati) 905,000 268,000 Dillard's, JC Penney, Kohl's, 54(1) Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Eastgate Crossing (Cincinnati) 194,000 Border's, Circuit City, Kids 'R 54(1) Us, Kroger - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Towne Mall (Franklin) 521,000 152,000 Dillard's, Elder-Beerman, Sears 100 - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- South Carolina Citadel Mall (Charleston) 1,068,000 294,000 Belk, Dillard's, JC Penney, 100 Parisian, Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Columbia Mall (Columbia) 1,113,000 297,000 Dillard's, JC Penney, Rich's, 79(1) Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Northwoods Mall (North Charleston) 833,000 312,000 Belk, Dillard's, JC Penney, Sears 100 - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Tennessee Old Hickory Mall (Jackson) 555,000 159,000 Belk, Goldsmith's, JC Penney, 100 Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Texas Parkdale Mall (Beaumont) 1,411,000 462,000 Dillard's (2), JC Penney, 100 Montgomery Ward, Sears - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Wisconsin East Towne Mall (Madison) 895,000 295,000 Boston Store, JC Penney, Sears, 65(1) Younkers - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- West Towne Mall (Madison) 1,021,000 260,000 Boston Store, JC Penney, Sears, 65(1) Younkers - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- West Towne Crossing (Madison) 447,000 Barnes & Noble, Best Buy, Cub 65(1) Foods, Ganders Mountain, Kohl's, Office Max, ShopKo - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Brookfield Square Mall (Milwaukee) 1,041,000 316,000 Boston Store, JC Penney, Sears 100 - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Regency Mall (Racine) 918,000 268,000 Boston Store, JC Penney, Sears, 100 Younkers - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- Wausau Center (Wausau) 429,000 156,000 JC Penney, Sears, Younkers 100 - ------------------------------------- ------------ ------------- ----------------------------------- ---------------- (1) CBL will potentially acquire additional interests through an offer to purchase outside partner interests (2) Managed by a third party
EX-99.2 3 0003.txt TRANSCRIPT OF REGISTRANT'S CONFERENCE CALL Exhibit 99.2 ------------ CBL & ASSOCIATES PROPERTIES, INC. Transcript of Conference Call September 26, 2000 10:30 a.m. Good morning everyone. This is Charles Lebovitz. We appreciate your participation in today's call to discuss yesterday's announcement of the acquisition of 21 malls and two associated centers from The Richard E. Jacobs Group. With me today is John Foy, Vice-Chairman and Chief Financial Officer, and 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. In addition, we direct you to the current report on Form 8-K being filed by us today with the SEC, which includes a copy of our press release yesterday and the major documents relating to the transaction and the transcript of our comments this morning. I would like to note that in addition to our filing with the SEC a transcript of today's comments on our Form 8-K, a recording of this call, including any questions and answers which may follow at the end of our comments, will be available for replay on our web site at www.cblproperties.com beginning shortly after this call and running through October 24, 2000. Overall Rationale - ----------------- Today we announced that we have signed a definitive agreement with The Richards E. Jacobs Group to acquire 21 malls and 2 associated centers for a purchase price of approximately $1.2 billion. Since we presume that you have read a copy of the press release and have reviewed the details announced, we will get right into the rationale for this transaction. As our track record indicates, we have not acquired assets simply for the sake of spread investing, becoming bigger or doing a deal. Given our long and proven record of growth through development and the returns associated with development, we have been cautious and set high standards and expectations when it comes to growth through acquisition. We have never judged potential acquisitions based upon just their current yield or short-term prospects. We have always wanted to ensure that the returns from an acquisition are accretive in both the short and long term. Prior to this transaction, we have satisfied these standards through individual property transactions rather than portfolio transactions. Unlike the other portfolios we reviewed over the last several years, the Jacobs portfolio meets our stringent criteria. These properties afford us a tremendous opportunity to use our expertise through redevelopment and expansion and to apply our aggressive leasing, management and marketing skills to achieve significant internal growth for these malls. There are also important strategic considerations to this transaction. It solidifies our position as the largest and most dominant mall owner in the Southeast which we believe is extremely important from the perspective of maintaining and enhancing relationships with retailers, vendors and potential partners. It also accelerates our previous expansion in the Midwest. While the scale of this transaction is significantly larger than our past acquisitions, our approach will be similar to that taken with our individual acquisitions. We believe the Jacobs portfolio affords us the opportunity to increase returns significantly. For example, the average occupancy of the 21 Jacobs malls was 87% at June 30, 2000, with occupancy costs of 9.5%. By comparison, the average occupancy of CBL's 26 stabilized malls was 92.5% on that date, and 11.5% in occupancy costs. With the lower occupancy rates and tenant costs at the Jacobs malls, we believe there is an opportunity to add value to the portfolio through redevelopment, expansions, leasing and other strategies that we have successfully employed in our previous acquisitions and throughout our existing portfolio. Over the long term, we see tremendous opportunity to utilize our development expertise and experienced management team to create even greater added value at these malls for our company and our shareholders. Now I would like to turn the call over to John Foy to discuss the financial aspects of the transactions. Financial Strategy and Opportunities - ------------------------------------ While there are many strategic reasons to this transaction that Charles has touched on and which Stephen will discuss in more detail, we pursued this acquisition because we see significant financial benefits to the company and our shareholders. We believe that as we walk through the financial details of the transaction, you will agree with us that this is a very favorable transaction for our shareholders. Cap Rate - -------- On an unleveraged basis the transaction cap rate is 10.7% on projected first 12 months net operating income (NOI). This cap rate was calculated by assuming the transaction value includes special common units, or SCUs at par value. Excluding a 3% management fee and a $0.40 per square foot structural reserve, the transaction is expected to yield a return of approximately 11.3%. We believe this cap rate indicates a very favorable transaction for CBL even before accounting for the opportunities for improving the performance of the properties. FFO Impact - ---------- This transaction is immediately accretive to FFO. For the first full twelve months of NOI, the transaction is 5.6% accretive, or approximately $0.20 per share, based upon a simultaneous closing of the entire transaction. In calendar year 2001, we estimate that we will realize approximately $0.08 per share of accretion. The difference of $0.12 per share represents the first year's percentage rents to be recognized in 2002 earnings. The GAAP-based recognition of percentage rent allows property owners to record revenue only after tenants have exceeded the sales threshold necessary for the percentage rent under their leases to take effect. Since the majority of Jacobs leases have a percentage rent reporting year that ends in January, only a portion of percentage rents will likely be recognized in 2001. While this accounting rule reduces accretion during calendar 2001, this transaction will have a meaningful positive impact on our FFO. SCUs - ---- The negotiation of the SCUs was another critical aspect of this transaction. We felt it was absolutely essential for the Company to issue securities at a price greater than the market price of the Company's common stock. We are issuing 11.932 million SCUs with a par value of $384.8 million, or $32.25 per share with an initial dividend of $2.90 per unit. Our current annualized common dividend is $2.04 per share, which is expected to increase in 2001. The dividend on the SCUs will remain at $2.90 per unit until the common stock dividend reaches $2.90 per share, after which the SCUs will increase equally with the common stock dividend, or pari passu with the common units and shares. In the event the common stock dividend is reduced below $1.75 per share for four consecutive quarters, the SCU dividend will decrease proportionately with the common stock dividend in the fifth quarter. It is important to note that the SCUs are not a preferred security. We have presented the SCUs at the par value of $384.8 million, or $32.25 per unit. Our advisors have determined that the current estimated market value of the SCUs ranges from 82% to 83.5% of the par value, after giving consideration to the incremental dividend agreed to as part of the transaction. In addition, there is a lock-up on conversion to common operating partnership units and shares for three years, after which the SCUs are exchangeable on a one-for-one basis into common OPUs or shares. The Company also has a call option to force the exchange to common OPUs at the end of ten years. Finally, there are significant restrictions on the transferability of the SCUs. Outside Partners - ---------------- Nine of the 21 malls have outside partners whose interests range from 13% to 60%. In only one case we are not managing the property. In conjunction with this transaction, we will be offering to acquire most of these interests to consolidate 100% ownership of these malls. If all of these offers are accepted, the total purchase price could increase by approximately $47 million, which would be financed with additional SCUs and the assumption of up to $84 million in property-level debt. Furthermore, for those malls where the joint venture partners are not bought out, the acquisitions of the Jacobs interest will occur in two stages over fifteen months to allow both parties to take advantage of certain tax benefits. Debt - ---- Of the assumed debt, our portion of the four loans that will be refinanced in 2001 totals approximately $127 million. Our existing portfolio has $14 million of debt to be refinanced in 2001. Including the Jacobs debt the total refinancing in 2001 is $141 million. As of June 30, 2000, our total debt was $1.4 billion, of which $69 million was subject to variable rate debt exposure. After this transaction our total debt will be $2.2 billion, of which $188 million will be subject to variable rate debt exposure. Capital Expenditures - -------------------- In underwriting these properties, we spent considerable time evaluating their physical condition in terms of future capital expenditures. While the properties have been well maintained in general, the Jacobs organization has not been as proactive in renovating and upgrading their properties as CBL. We have budgeted for improvements necessary to enhance the value of the Jacobs portfolio. This will include improvements to mall entrances and exteriors, interior upgrades, signage and graphics, lighting and parking lot improvements. In addition, certain malls have been identified for comprehensive interior and exterior renovations that will occur over the next few years. We are also developing plans for additional redevelopments and expansions. We have budgeted a total of approximately $220 million for improvements over the next four years. This includes $36 million in tenant improvements, $98 million of revenue enhancing and $86 million of revenue neutral expenditures. The revenue neutral and revenue enhancing capital expenditures are primarily remodeling and renovation costs with the majority being recovered from tenants. This is similar to what we have done in our existing malls. We believe it is necessary to have the ability to reinvest in these properties in order to maximize their value. A large portion of these expenditures will be funded by the additional Wells Fargo credit line. We will finance the remainder of these expenditures from cash flow generated from the portfolio and property-specific refinancing. We will also pursue possible joint-ventures, but only at terms that would benefit our shareholders. Financial Ratios - ---------------- As a result of the additional debt and capital expenditures required for the acquired properties, our interest coverage ratio will be impacted by the transaction in the short term. Prior to this transaction our 1999 EBITDA to interest coverage ratio was 2.5x. After this transaction, this ratio will decrease to 1.8x initially in 2001 but is projected to increase to approximately 2.3x in 2003. Similarly, the EBITDA to debt service ratio pre-transaction was 1.8x and is projected to decrease to 1.55x in 2001. However, by 2003, this ratio should increase to 1.9x. We will retain enough room under our bank covenants to continue the growth of the company and our development program. These EBITDA ratio projections are based on conservative portfolio lease-up, rent increases and tenant recoveries. Based on the stock price at June 30, 2000, our debt-to-market capitalization ratio was 59%. On a proforma basis at closing, using our June 30 numbers, that ratio would be 62.5%. Equity Financings - ----------------- We do not need to go to the equity market as a result of this transaction. We will explore opportunities to form joint ventures for certain of the properties as a means of reducing our debt ratios. We also intend to continue our program of selling community centers and redeploying that capital, as we have been able to do quite successfully in the past 18 months. I will now turn the call over to Stephen Lebovitz who will discuss the strategic and operational aspects of this transaction. Strategic Highlights - -------------------- Of the 32 malls Jacobs was marketing, we were already familiar with the 11 located in the South. The other ten we are acquiring are located in trade areas that compliment malls we have previously acquired in the Midwest. This was a critical element in our decision to pursue this acquisition. The Jacobs malls also represent an excellent fit with our existing portfolio. The average Jacobs mall is 875,000 square feet while the average CBL mall measures 750,000 square feet. In 1999, the Jacobs malls reported average mall store sales of $303 per square foot, versus $285 per square foot at CBL malls. Jacobs reports on a comparable store basis whereas CBL reports sales on a comparable mall basis. In both cases, sales excluded theaters and stores over 30,000 square feet. The malls that we are acquiring are the dominant malls in their respective markets and enjoy a strong competitive position. The Jacobs malls will enable us to create stronger clusters of malls leading to leasing and operational synergies. With this acquisition, approximately 87% of our projected 2001 revenues, up from 76% as of June 30, will be from regional malls. Total revenues from the Southeast properties are projected to be approximately 61%, compared to 67% pre-transaction. The malls in the Midwest will enable us to accelerate our strategy of expanding into that geographic area and will create new opportunities for our company in these markets. This transaction will create additional economies of scale for our company. In 1999 CBL earned $16 million in specialty income while Jacobs earned $9 million in their malls, or approximately 25% less per mall. Currently, Jacobs malls do not have sponsorship programs similar to the ones we have with Coca-Cola, Foxmark or Skytron. We expect to initiate these programs in the Jacobs malls and believe they will provide us with additional sources of revenue. Integrating Operations - ---------------------- CBL has more than doubled in size in the past seven years, and this growth has given us the confidence and allowed us to develop the organizational capabilities to make this acquisition a success. We have spent a significant amount of time planning for the integration of the 21 Jacobs malls and upon acquisition we intend to integrate all management, financial, and accounting functions into the existing CBL organization. While Jacobs has operated their malls on a centralized basis from their headquarters, we intend to implement our decentralized management approach at the properties. In our financial model we incorporated a management fee to cover additional G&A associated with expanding the corporate leasing team, property management, marketing and finance departments. We believe this is more than adequate. Furthermore, we expect this transaction to reduce G&A as a percent of total revenues from 5.2% at June 30, 2000, to a range of approximately 4.6% to 4.9%. Additional Points - ----------------- There are a few other important aspects of the transaction that are worth noting. The proposed acquisition will involve two separate shareholder votes. The first vote is to approve the transaction, which requires a simple majority vote from our shareholders. The second vote, which is not a condition of the transaction, will require a super majority approval of two-thirds of all our shareholders to amend the charter of the company. The purpose of the second vote is to make changes necessary to the company charter as a result of the ownership that Jacobs will have in the company following the transaction. This will allow Jacobs the ability to convert a substantial portion of their ownership to common shares in the future. Specifically, this vote would amend the current Lebovitz family share ownership limit in our charter from 23% to a combined share ownership limit by the Lebovitz and Jacobs families of 37.99%. If the vote is not approved, the Board will set this combined ownership limit at 31.99%. This will ensure that the REIT will not violate the REIT ownership limitations imposed by the Internal Revenue Code's "five or fewer" test. These ownership limits apply only to REIT stock, not interests in our operating partnership The agreement between CBL and Jacobs specifies certain breakup reimbursements for each party. If the CBL shareholders do not approve the acquisition, the cost to CBL is $2.5 million. If the company receives shareholder approval and the transaction does not close, CBL's cost is $15 million. If Jacobs does not obtain certain lender approvals, their cost will be $2.5 million. In all other cases, if Jacobs does not proceed with this transaction, they must pay CBL $15 million. While the intent of the parties is to close on all 21 properties in the first quarter of 2001, CBL is not required to close on the transaction unless Jacobs can deliver a minimum portfolio of 14 properties, which must include the five most productive assets. Upon approval of the transaction, CBL's board of directors will increase by two members to nine. Jacobs will be entitled to nominate two independent directors, one of whom is a current member of Jacobs' management. Jacobs' share ownership will be subject to a 12-year voting and standstill agreement, and Richard Jacobs will be subject to a 10-year non-compete agreement in markets where CBL owns malls. CBL has a 12-year lockout on transactions involving these assets that would result in a taxable event for the Jacobs Group. Pre-transaction, CBL's management and former associates own an approximate 30% equity interest in the company, calculated on a fully-converted basis. Upon closing of the transaction, this interest will be 23.2%. The Jacobs Group's total ownership will be 24.3%, of which 20.7% will be owned by the Jacobs family and 3.6% by associates and former associates. I will now turn the call back to Charles Lebovitz to conclude. Summary - ------- In summary, we are very enthusiastic about this transaction and see it as a monumental event in the history of CBL. This transaction offers tremendous opportunities for our company to create significant value for our shareholders. The deal is a terrific real estate acquisition for our company with favorable initial pricing and upside potential through leasing, management, specialty leasing, other revenue sources, redevelopment and expansions. We see this transaction accelerating the growth of our company in terms of all of the different financial metrics including NOI and FFO and providing for additional future increases in our dividend. Retailers and others have asked us whether we will continue with our active development program. Our answer is unequivocally yes. We will continue the active development of regional malls and community centers and maintain a robust development pipeline. Development always has and will continue be the trademark of CBL. Following this transaction, our company will have a portfolio of 51 regional malls and 110 other properties. We will be the most dominant owner of malls in the Southeast and a growing presence in the Midwest. Based on yesterday's stock price, we will have a total market capitalization of $3.7 billion, an increase of roughly 50%. As both the REIT and regional mall industries continue to consolidate, we see CBL well positioned to take advantage of future opportunities with our experienced management team and our successful track record. We will now be happy to answer any questions you may have. -----END PRIVACY-ENHANCED MESSAGE-----