-----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, LjqckgdvxIHSb+3PdcPWqEtm0Pd+XNtqFgIs8YxjsUfo/i0KgIvXvAJiIP57EDi6 w3s6NJz0q8rnmSFeepqHkw== 0000910612-97-000023.txt : 19971117 0000910612-97-000023.hdr.sgml : 19971117 ACCESSION NUMBER: 0000910612-97-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBL & ASSOCIATES PROPERTIES INC CENTRAL INDEX KEY: 0000910612 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 621545718 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12494 FILM NUMBER: 97719869 BUSINESS ADDRESS: STREET 1: ONE PARK PLACE STREET 2: 6148 LEE HWY CITY: CHATTANOOGA STATE: TN ZIP: 37421 BUSINESS PHONE: 4238550001 MAIL ADDRESS: STREET 1: 61048 LEE HIGHWAY STREET 2: ONE PARK PLACE CITY: CHATTANOOGA STATE: TN ZIP: 37421 10-Q 1 CBL & ASSOCIATES PROPERTIES, INC. FORM 10-Q, 09/30/96 Securities Exchange Act of 1934 -- Form 10-Q ============================================================== 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 September 30, 1997 --------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended to ------------- ----------- Commission File Number 1-12494 ---------------------------------- CBL & Associates Properties, Inc. --------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 62-1545718 ---------------------- ----------------- (State or other jurisdiction (IRS Employer of incorporation or Identification organization) 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 November 12, 1997: Common Stock, par value $.01 per share, 24,049,191 shares. CBL & ASSOCIATES PROPERTIES, INC. INDEX PART I FINANCIAL INFORMATION PAGE NUMBER ITEM 1: FINANCIAL INFORMATION 3 CONSOLIDATED BALANCE SHEETS - AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 4 CONSOLIDATED STATEMENTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 PART II OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS 23 ITEM 2: CHANGES IN SECURITIES 23 ITEM 3: DEFAULTS UPON SENIOR SECURITIES 23 ITEM 4: SUBMISSION OF MATTERS TO HAVE A VOTE OF SECURITY HOLDERS 23 ITEM 5: OTHER INFORMATION 23 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 23 SIGNATURE 24 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 September 30, 1997 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 "REIT") December 31, 1996 audited financial statements and notes thereto included in the CBL & Associates Properties, Inc. Form 10-K for the year ended December 31, 1996. CBL & ASSOCIATES PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) September 30, December 31, 1997 1996 (UNAUDITED) (AUDITED) ----------- ------------ ASSETS Real estate assets: Land . . . . . . . . . . . . . . . . . . . $ 152,961 $ 119,965 Buildings and improvements . . . . . . . . 942,470 883,683 ---------- ---------- 1,095,431 1,003,648 Less: Accumulated depreciation . . . . . . (137,407) (114,536) ---------- ---------- 958,024 889,112 Developments in progress . . . . . . . . . 149,083 98,148 ---------- ---------- Net investment in real estate assets . . . 1,107,107 987,260 Cash and cash equivalents. . . . . . . . . . 6,202 4,298 Receivables: Tenant . . . . . . . . . . . . . . . . . . 11,829 11,417 Other. . . . . . . . . . . . . . . . . . . 968 1,087 Notes receivable . . . . . . . . . . . . . . 16,638 14,858 Other assets . . . . . . . . . . . . . . . . 7,894 7,005 ---------- ---------- $1,150,638 $1,025,925 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage and other notes payable . . . . . . $ 643,556 $ 590,295 Accounts payable and accrued liabilities . . 30,374 39,785 ---------- ---------- Total liabilities. . . . . . . . . . . . . 673,930 630,080 ---------- ---------- Commitments and contingencies. . . . . . . . __ __ Distributions and losses in excess of investment in unconsolidated affiliates . . . . . . . . . . . . . . . . 7,142 8,616 ---------- ---------- Minority interest. . . . . . . . . . . . . . 128,096 114,425 ---------- ---------- Shareholders' Equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued . . . . . __ __ Common stock, $.01 par value, 95,000,000 shares authorized, 24,043,890 and 20,965,790 shares issued and outstanding in 1997 and 1996, respectively . . . . . 240 210 Excess stock, $.01 par value, 100,000,000 shares authorized, none issued . . . . . __ __ Additional paid - in capital . . . . . . . 359,044 293,824 Accumulated deficit. . . . . . . . . . . . (17,443) (20,855) Deferred compensation. . . . . . . . . . . (371) (375) ---------- ---------- Total shareholders' equity . . . . . . . 341,470 272,804 ---------- ---------- $1,150,638 $1,025,925 ========== ========== The accompanying notes are an integral part of these balance sheets. CBL & ASSOCIATES PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- REVENUES: Rentals: Minimum . . . . . . . . . . . $28,726 $22,804 $83,266 $67,875 Percentage. . . . . . . . . . 770 511 2,677 1,865 Other . . . . . . . . . . . . 256 250 615 689 Tenant reimbursements. . . . . . 12,225 10,235 36,622 31,555 Management, development and leasing fees . . . . . . . . 655 586 1,765 1,852 Interest and other . . . . . . . 611 1,105 1,998 3,004 ------- ------- ------- ------- Total revenues . . . . . . . . 43,243 35,491 126,943 106,840 EXPENSES: Property operating . . . . . . . 7,568 5,721 22,038 17,424 Depreciation and amortization. . 8,029 6,232 23,639 18,583 Real estate taxes. . . . . . . . 3,515 2,756 10,450 8,258 Maintenance and repairs. . . . . 2,427 2,039 7,270 6,498 General and administrative . . . 1,849 1,869 6,352 6,208 Interest . . . . . . . . . . . . 9,146 7,754 27,081 23,249 Other. . . . . . . . . . . . . . 3 185 45 450 ------- ------- ------- ------- Total expenses . . . . . . . . 32,537 26,556 98,875 80,670 Income from operations . . . . . 10,706 8,935 30,068 26,170 Gain on sales of real estate assets. . . . . . . . . . 774 1,411 4,156 8,890 Equity in earnings of unconsolidated affiliates. . . . 301 430 1,514 1,540 Minority interest in earnings: Operating partnership. . . . . (3,178) (3,044) (9,763) (10,971) Shopping center properties . . (116) (122) (405) (385) ------- ------- ------- ------- Income before extraordinary item . . . . . . . . . . . . . 8,487 7,610 25,570 25,244 Extraordinary loss on extinguishment of debt . . . . (432) (831) (928) (831) ------- ------- ------- ------- NET INCOME . . . . . . . . . . . $ 8,055 $ 6,779 $24,642 $24,413 ======= ======= ======= ======= Earnings per common share data: Income before extraordinary item . . . . . . . . . . . . $ 0.35 $ 0.36 $ 1.06 $ 1.21 Extraordinary loss on extinguishment of debt . . . $ (0.02) $ (0.04) $ (0.04) $ (0.04) NET INCOME . . . . . . . . . . $ 0.33 $ 0.32 $ 1.02 $ 1.17 ======= ======= ======= ======= Weighted average common & common equivalent shares outstanding. . . . . . . . . . 24,300 20,914 24,104 20,873 ======= ======= ======= ======= The accompanying notes are an integral part of these statements. CBL & ASSOCIATES PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) Nine Months Ended September 30, ---------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . $24,642 $24,413 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest in earnings. . . . . . . . . 10,168 11,356 Depreciation . . . . . . . . . . . . . . . . . 21,397 17,120 Amortization . . . . . . . . . . . . . . . . . 2,760 1,998 Extraordinary loss on extinguishment of debt. . . . . . . . . . . . . . . . . . . 62 831 Gain on sales of real estate assets. . . . . . (4,156) (8,890) Issuance of stock under incentive plan . . . . 127 197 Equity in earnings of unconsolidated affiliates . . . . . . . . . . . . . . . . . (1,514) (1,540) Amortization of deferred compensation. . . . . 239 218 Write-off of development projects. . . . . . . 45 450 Distribution from unconsolidated affiliates . . . . . . . . . . . . . . . . . 1,764 2,756 Distributions to minority investors. . . . . . (12,647) (11,780) Changes in assets and liabilities - Tenant and other receivables . . . . . . . (293) (707) Other assets . . . . . . . . . . . . . . . (769) (1,249) Accounts payable and accrued expenses. . . 6,207 18,283 -------- -------- Net cash provided by operating activities . . . . . . . . . . . . . . . 48,032 53,456 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Construction of real estate and land acquisition, net of payables . . . . . . . . (101,280) (105,272) Acquisition of real estate assets. . . . . . . (36,207) -- Capitalized interest . . . . . . . . . . . . . (4,702) (3,559) Other capital expenditures . . . . . . . . . . (6,580) (4,850) Proceeds from sales of real estate assets . . . . . . . . . . . . . . . . . . . 8,876 23,221 Additions to notes receivable. . . . . . . . . (3,252) (8,888) Payments received on notes receivable. . . . . 1,472 257 Additional investments in and advances to unconsolidated affiliates. . . . . . . . . . (1,724) (1,684) -------- -------- Net cash used in investing activities. . . . (143,399) (100,775) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from mortgage and other notes payable. . . . . . . . . . . . . . . . . . . 251,540 113,132 Principal payments on mortgage and other notes payable. . . . . . . . . . . . . (198,279) (31,534) Additions to deferred finance costs. . . . . . (655) (994) Refunds of finance costs . . . . . . . . . . . -- 721 Proceeds from issuance of common stock . . . . 74,465 128 Proceeds from exercise of stock options. . . . 1,104 1,352 Prepayment penalties on extinguishment of debt . . . . . . . . . . . . . . . . . . . . (866) -- Dividends paid . . . . . . . . . . . . . . . . (30,038) (25,822) --------- -------- Net cash provided by financing activities. . 97,271 56,983 --------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS. . . . . 1,904 9,664 CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . . . . . . . . . . . . . . 4,298 3,029 --------- -------- CASH AND CASH EQUIVALENTS, end of period . . . . . $ 6,202 $ 12,693 ========= ======== The accompanying notes are an integral part of these statements. CBL & ASSOCIATES PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Unconsolidated Affiliates At September 30, 1997, the REIT had investments in four partnerships and joint ventures 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): REIT's Share Total For The For The Nine Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Revenues . . . . . . . . $ 15,977 $ 15,862 $ 7,851 $ 7,784 -------- -------- -------- -------- Depreciation and amortization . . . . . 2,027 1,831 992 897 Interest expense . . . . 5,680 6,232 2,785 3,055 Other operating expenses . . . . . . . 5,197 4,633 2,560 2,292 -------- -------- -------- -------- Net income before extraordinary item . . $ 3,073 $ 3,166 $ 1,514 $ 1,540 Extraordinary loss on early extinguishment of debt. . . . . . . . -- (1,750) -- (831) -------- -------- -------- -------- Net income . . . . . . . $ 3,073 $ 1,416 $ 1,514 $ 709 ======== ======== ======== ======== NOTE 2 - CONTINGENCIES The REIT 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 REIT. Additionally, based on environmental studies completed to date on the real estate properties, management believes any exposure related to environmental cleanup will be immaterial to the financial position and results of operations of the REIT. NOTE 3 - CREDIT AGREEMENTS In February 1997, the REIT reduced the interest rate from 137 basis points over LIBOR to 120 basis points over LIBOR and added $38 million and one additional bank to its credit facility led by First Tennessee Bank N.A., bringing the total to $80 million. In February 1997, the REIT's major line bank, Wells Fargo, reduced the pricing on its $85 million credit facility from 150 basis points over LIBOR to 125 basis points over LIBOR. In April 1997, the REIT reduced the interest rate on its $10 million credit facility with SunTrust from 125 to 110 basis points over LIBOR. The REIT's total credit facilities were $175 million with $82.0 million outstanding at September 30, 1997. In April 1995, the REIT executed a three-year interest rate swap agreement with First Union National Bank of Tennessee which has a notional balance of $5.3 million at September 30, 1997. The effective date was March 16, 1995 and the interest rate is fixed at 8.5%. There was no fee for this transaction. Effective June 6, 1995, the REIT executed a three-year interest rate swap agreement on a notional principal amount of $50 million with NationsBank N.A. The base interest rate is fixed at 5.52%. This agreement effectively fixes $50 million of the REIT's variable rate debt at a rate no greater than 6.77%. There was no fee for this transaction. These transactions did not have a significant impact on interest expense for the nine months ended September 30, 1997. NOTE 4 - RECLASSIFICATIONS Certain reclassifications have been made in the 1996 Financial Statements to conform with the 1997 presentation. 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 "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. We direct you to the REIT's other filings with the Securities and Exchange Commission, including without limitation the REIT'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 "REIT") Consolidated Financial Statements and Notes thereto reflect the consolidated financial results of CBL & Associates Limited Partnership ( the "Operating Partnership") which includes at September 30, 1997, the operations of a portfolio of properties consisting of sixteen regional malls, ten associated centers, one power center, seventy- nine community centers, an office building, joint venture investments in three regional malls and one associated center, and income from six mortgages, ("the Properties"). The Operating Partnership also has one mall, one associated center, one power center, and two community centers currently under construction and options to acquire certain shopping center development sites as well as contingent contracts for the purchase of certain operating properties. The consolidated financial statements also include the accounts of CBL & Associates Management, Inc. (the "Management Company"). The REIT 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 newly acquired Springdale Mall in Mobile, Alabama which is being redeveloped, WestGate Mall in Spartanburg, South Carolina, Turtle Creek Mall in Hattiesburg, Mississippi, and Oak Hollow Mall in High Point, North Carolina. In January 1997, the REIT completed a spot offering of 3,000,000 shares of its Common Stock at $26.125 per share. Management purchased 55,000 of those shares as part of the offering. The net proceeds of $74.3 million were used to repay variable rate indebtedness incurred in the REIT's development and acquisition program. In June 1997, the REIT acquired from CBL & Associates, Inc., the predecessor company, a 49% interest in Governor's Plaza in Clarksville, Tennessee for a price of $1,512,976. The Operating Partnership issued a 0.1538% limited partner interest (65,426 share equivalents) for the partnership interest in this property. In August 1997 the REIT acquired Spartan Plaza in Spartanburg, South Carolina, a 151,000 square foot center adjacent to our WestGate Mall in Spartanburg. The purchase price was $4.5 million which was funded from the REIT's Credit Lines. It was renamed WestGate Crossing and it is currently being redeveloped and retenanted. In September 1997 the REIT acquired Springdale Mall in Mobile, Alabama. The 926,000 square foot mall is anchored by Gayfers, McRae's, and Montgomery Ward. The purchase price was $26.2 million which was funded from the REIT's Credit Lines. The mall is being redeveloped, remodeled and retenanted. RESULTS OF OPERATIONS Operational highlights for the nine months ended September 30, 1997 as compared to September 30, 1996 are as follows: SALES Mall shop sales, for those tenants who have reported, in the fifteen Stabilized Malls in the REIT's portfolio increased by 3.46% on a comparable per square foot basis. Nine Months Ended September 30, ------------------------- 1997 1996 ----------- ------------ Sales per square foot $ 163.19 $ 157.87 Total sales volume in the mall portfolio, including New Malls, increased 18.8% to $550.3 million for the nine months ended September 30, 1997 from $463.4 million for the nine months ended September 30, 1996. Occupancy costs as a percentage of sales was 12.7% for the nine months ended September 30, 1997 and 13.9% for the nine months ended September 30, 1996 for the Stabilized Malls. Occupancy costs were 11.5%, 12.3% and 12.2% for the years ended December 31, 1996, 1995, and 1994, 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 increased for the REIT's overall portfolio as follows: At September 30, --------------------- 1997 1996 -------- -------- Stabilized malls 89.0% 88.0% New malls 87.9 87.7 Associated centers* 83.1 99.6 Community centers 97.4 97.3 -------- -------- Total Portfolio 92.6% 93.3% ======== ======== * Total Portfolio occupancy without the redevelopment centers Springdale Mall and WestGate Crossing would have increased to 93.6%. AVERAGE BASE RENT Average base rents for the REIT's three portfolio categories were as follows: At September 30, --------------------- 1997 1996 -------- -------- Malls. . . . . . . . . . . . . $ 19.02 $18.44 Associated centers . . . . . . 9.46 8.57 Community centers. . . . . . . 7.30 6.77 LEASE ROLLOVERS On spaces previously occupied, the REIT achieved the following results from rollover leasing during the nine months ended September 30, 1997, over and above the base and percentage rent paid by the previous tenant: Per Square Per Square Foot Rent Foot Rent Percentage Prior Lease(1) New Lease (2) Increase -------------- ------------- ----------- Malls. . . . . . . . . . . $ 19.72 $ 20.89 5.9% Associated centers . . . . 12.40 13.16 6.1% Community centers. . . . . 7.74 8.18 5.7% (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. For the nine months ended September 30, 1997, malls represented 72.1% of total revenues from the properties; revenues from associated centers represented 3.6%; revenues from community centers represented 20.7%; and revenues from mortgages and the office building represented 3.6%. Accordingly, revenues and results of operations are disproportionately impacted by the malls' achievements. The REIT's cost recovery ratio decreased to 92.1% for the nine months ended September 30, 1997 as compared to 98.0% in 1996. 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 entire year. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 Total revenues for the three months ended September 30, 1997 increased by $7.8 million, or 21.8%, to $43.2 million as compared to $35.5 million in 1996. Of this increase, minimum rents increased by $5.9 million, or 26.0%, to $28.7 million as compared to $22.8 million in 1996, and tenant reimbursements increased by $2.0 million, or 19.4%, to $12.2 million in 1997 as compared to $10.2 million in 1996. Approximately $7.2 million of the increase in revenues resulted from operations at the fourteen new centers opened or acquired during the past eighteen months. These centers consist of: CENTER LOCATION OPENING DATE - ------ -------- ------------ Devonshire Place Cary, North Carolina September 1996 Kingston Overlook Knoxville, Tennessee November 1996 WestGate Mall Spartanburg, South Carolina October 1996 LaGrange Commons LaGrange, New York November 1996 St. Clair Square Fairview Heights, Illinions December 1996* Sutton Plaza Mt. Olive, New Jersey January 1997* The Terrace Chattanooga, Tennessee February 1997 Massard Crossing Ft. Smith, Arkansas March 1997 Hannaford Food & Drug Richmond, Virginia March 1997 Salem Crossing Virginia Beach, Virginia April 1997 Strawbridge Marketplace Virginia Beacg, Virginia August 1997 WestGate Crossing Spartanburg, South Carolina August 1997* Springdale Mall Mobile, Alabama September 1997* Springhurst Towne Center Louisville, Kentucky October 1997 * Acquisition date Improved occupancies, operations and increased rents in the REIT's operating portfolio generated approximately $1.4 million of increased revenues offset by $0.4 million of revenues lost from three centers that were sold in 1996. The majority of these increases were generated at Hamilton Place Mall in Chattanooga, Tennessee, CoolSprings Galleria in Nashville, Tennessee, and Twin Peaks Mall in Longmont, Colorado. Management, leasing and development fees increased by $0.1 million to $0.7 million in the third quarter of 1997 as compared to $0.6 million in the third quarter of 1996. Interest and other revenue decreased in the third quarter of 1997 by $0.5 million or 44.7%, to $0.6 million from $1.1 million in 1996 due to the acquisition of a mortgage property. Property operating expense, including real estate taxes and maintenance and repairs, increased in the third quarter of 1997 by $3.0 million, or 28.5%, to $13.5 million as compared to $10.5 million in the third quarter of 1996. This increase is primarily the result of the addition of the fourteen new centers referred to above. Depreciation and amortization increased in the third quarter of 1997 by $1.8 million, or 28.8%, to $8.0 million as compared to $6.2 million in the third quarter of 1996. This increase is primarily the result of the addition of the fourteen new centers referred to above. Interest expense increased in the third quarter of 1997 by $1.4 million, or 18.0%, to $9.1 million as compared to $7.8 million in 1996. This increase is primarily due to interest on the fourteen new centers opened during the last twelve months. The gain on sales of real estate assets decreased in the third quarter of 1997 by $0.6 million, or 45.1%, to $0.8 million as compared to $1.4 million in 1996. The sales in the third quarter of 1997 were for outparcels at Springhurst Towne Center in Louisville, Kentucky. The sale in the third quarter of 1996 was the sale of a free-standing Lowe's Home Improvement Center in Adrian, Michigan, and the sale of land at Oak Hollow Mall in High Point, North Carolina. Equity in earnings of unconsolidated affiliates decreased in the third quarter of 1997 by $ 0.1 million, or 30.0%, to $0.3 million as compared to $0.4 million in 1996. COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Total revenues for the nine months ended September 30, 1997 increased by $20.1 million, or 18.8%, to $126.9 million as compared to $106.8 million in 1996. Of this increase, minimum rents increased by $15.4 million, or 22.7%, to $83.3 million as compared to $67.9 million in 1996, and tenant reimbursements increased by $5.1 million, or 16.1%, to $36.6 million in 1997 as compared to $31.6 million in 1996. Approximately $19.2 million of the increase in revenues resulted from operations at the fourteen new centers opened or acquired during the past eighteen months. These centers are the same centers previously listed. Improved occupancies, operations and increased rents in the REIT's operating portfolio generated approximately $3.5 million of increased revenues offset by $1.6 million of revenues lost from three centers that were sold in 1996. The majority of these increases were generated at CoolSprings Galleria in Nashville, Tennessee, Hamilton Place Mall in Chattanooga, Tennessee and Twin Peaks Mall in Longmont, Colorado. Management, leasing and development fees decreased by $0.1 million to $1.8 million in the first nine months of 1997 as compared to $1.9 million in 1996. This decrease was primarily due to fewer outparcel sales commissions earned in 1997 and the REIT's acquisition in 1996 of a mortgage property which eliminated management fees. Interest and other revenue decreased by $1.0 million in 1997 to $2.0 million as compared to $3.0 million in 1996. This decrease was primarily due to the acquisition of the mortgage property. Property operating expense, including real estate taxes and maintenance and repairs, increased in the first nine months of 1997 by $7.6 million, or 23.5%, to $39.8 million as compared to $32.2 million in 1996. This increase is primarily the result of the addition of the fourteen new centers referred to above. Depreciation and amortization increased in the first nine months of 1997 by $5.1 million, or 27.2%, to $23.6 million as compared to $18.6 million in 1996. This increase is primarily the result of the addition of the fourteen new centers referred to above. Interest expense increased in the first nine months of 1997 by $3.8 million, or 16.5%, to $27.1 million as compared to $23.2 million in 1996. This increase is primarily the result of the addition of the fourteen new centers referred to above. The gain on sales of real estate assets decreased for the nine months ended September 30, 1997 by $4.7 million, or 53.3%, to $4.2 million as compared to $8.9 million in 1996. The sales in the first nine months of 1997 were in connection with anchor pad and outparcel sales at our developments at Cortlandt Town Center in Cortlandt, New York, Salem Crossing in Virginia Beach, Virginia, and Springhurst Towne Center in Louisville, Kentucky which were off-set by a loss on sale at Kingston Overlook in Knoxville, Tennessee. The sales in 1996 consisted of the sale of two free- standing Lowe's Home Improvement Centers in Benton Harbor, Michigan and Adrian, Michigan, the sale of property owned in Virginia Beach, Virginia, outparcel land at Oak Hollow Mall in High Point, North Carolina, and the sale of land at projects under development in Ft. Smith, Arkansas, Louisville, Kentucky, Virginia Beach, Virginia, and Chattanooga, Tennessee. LIQUIDITY AND CAPITAL RESOURCES The principal uses of the REIT's liquidity and capital resources have historically been for property development, expansion and renovation programs, and debt repayment. To maintain its qualification as a real estate investment trust under the Internal Revenue Code, the REIT 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 November 1, 1997, the REIT had $32.1 million available in unfunded construction loans to be used for completion of the construction projects and replenishment of working capital previously used for construction. Additionally, as of November 1, 1997, the REIT had obtained revolving credit facilities totaling $175 million of which $79.0 million was available. Also, as a publicly traded company, the REIT has access to capital through both the public equity and debt markets. The REIT has filed a Shelf Registration authorizing shares of the REIT's preferred stock and common stock and warrants to purchase shares of the REIT's common stock with an aggregate public offering price of up to $200 million, with $35.8 million remaining after the REIT's follow-on and spot offerings of common stock on September 25, 1995 and January 15, 1997 respectively. The REIT at this time thinks 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 four mortgage notes payable maturing over the next five years with replacement loans. The REIT'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 REIT's current capital structure includes property specific mortgages, which are generally non-recourse, credit facilities, common stock and a minority interest in the Operating Partnership. The minority interest in the Operating Partnership represents the 28.3% ownership interest in the Operating Partnership held by the REIT's executive, former executive, and senior officers which may be exchanged for approximately 9.5 million shares of common stock. Additionally, REIT executive officers and directors own approximately 1.6 million shares of the outstanding common stock of the REIT, for a combined total interest in the Operating Partnership of approximately 33.1%. Assuming the exchange of all limited partnership interests in the Operating Partnership for common stock, there would be outstanding approximately 33.5 million shares of common stock with a market value of approximately $869.4 million at September 30, 1997 (based on the closing price of $25.9375 per share on September 30, 1997). REIT executive, former executive and senior officers' ownership interests had a market value of approximately $287.5 million at September 30, 1997. Mortgage debt consists of debt on certain consolidated properties as well as on three properties in which the REIT owns a non-controlling interest and is accounted for under the equity method of accounting. At September 30, 1997, the REIT's share of funded mortgage debt on its consolidated properties adjusted for minority investors' interests in nine properties was $621.8 million and its pro rata share of mortgage debt on unconsolidated properties (accounted for under the equity method) was $41.8 million for total debt obligations of $663.6 million with a weighted average interest rate of 7.7%. Our total fixed rate debt as of September 30, 1997, was $421.7 million, with a weighted average interest rate of 8.10%. Variable rate debt accounted for $241.9 million of the total debt with a weighted average interest rate of 7.3%. Variable rate debt accounted for approximately 36.5% of the REIT's total debt and 15.8% of its total capitalization. Of this variable rate debt, $152.2 million is related to construction projects. Periodically, the REIT enters into interest rate cap and swap agreements to reduce interest rate risks on variable rate debt. The REIT has entered into interest rate swap agreements for $55.3 million of variable rate debt at an average interest rate of 7.4% through the second quarter of 1998. Therefore, the REIT's exposure to interest rate fluctuations as of September 30, 1997 is $152.2 million on construction properties and $34.4 million on operating properties. In April 1995, the REIT executed a three-year interest rate swap agreement on $5.5 million of debt with First Union National Bank. The effective date was March 16, 1995. This swap agreement effectively fixes the interest rate on what is now $5.3 million of debt at 8.5%. In June 1995 the REIT executed a $50.0 million interest rate swap with NationsBank N.A., for a three-year period at a rate of 5.52%. This agreement effectively fixes $50.0 million of the REIT's variable rate debt at a rate no greater than 6.77%. There were no fees charged to the REIT related to these transactions. In July, the REIT reduced the interest rate from 8.50% to 7.62% on a $7.0 million loan on Suburban Plaza in Knoxville, Tennessee and fixed the rate at 7.3% on an $11.0 million loan on The Terrace in Chattanooga, Tennessee. Based on the debt (including construction projects) and the market value of equity described above, the REIT's debt to total market capitalization (debt plus market value equity) ratio was 43.3% at September 30, 1997. DEVELOPMENT, EXPANSIONS AND ACQUISITIONS During the first nine months of 1997, the REIT opened a 156,713 square foot associated center, The Terrace in Chattanooga, Tennessee; a 290,717 square foot community center, Massard Crossing in Ft. Smith, Arkansas; a 60,954 square foot free-standing Hannaford Food and Drug in Richmond, Virginia; a Dillard's department store and United Artists' 10-screen cinema at Twin Peaks Mall in Longmont, Colorado; a Dillard's department store at Frontier Mall in Cheyenne, Wyoming; a 23,000 square foot expansion to Kingston Overlook in Knoxville, Tennessee; a 289,305 square foot community center, Salem Crossing in Virginia Beach, Virginia; and a 43,570 square foot free-standing Regal Cinema at Strawbridge Marketplace in Virginia Beach, Virginia. The REIT also opened subsequent to the end of the third quarter a 798,736 square foot power center, Springhurst Towne Center in Louisville, Kentucky; a 631,555 square foot mall, Bonita Lakes Mall in Meridian, Mississippi; a 110,550 square foot associated center, Bonita Lakes Crossing in Meridian, Mississippi; and the first phase of a 772,451 square foot power center, Courtlandt Towne Center in Courtlandt, New York. The REIT also acquired in January a 122,207 square foot community center, Sutton Plaza in Mt. Olive, New Jersey; in June a 49% interest in a 180,000 square foot associated center, Governor's Plaza in Clarksville, Tennessee; in August a 151,489 square foot associated center, WestGate Plaza in Spartanburg, South Carolina; and in September a 926,376 square foot mall, Springdale Mall in Mobile, Alabama. The REIT currently has approximately 1.5 million square feet of new development under construction consisting of: an approximate 65,500 square foot community center, Sterling Creek Commons in Portsmouth, Virginia; an approximate 1.4 million square foot mall, Arbor Place in Douglasville, Georgia to open in October, 1999; and a 10,000 square foot community center Chester Square in Richmond, Virginia. During the last quarter of 1997, the REIT expects to start construction on the approximate 585,000 square foot power center, Sand Lake Corners in Orlando, Florida. The REIT has entered into a number of option agreements for the development of future regional malls and community centers as well as contingent contracts for the purchase of certain properties. Except for these projects and as further described below, the REIT currently has no other capital commitments. It is management's expectation that the REIT 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 REIT 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 REIT 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 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 REIT intends to distribute approximately 75% - 90% of its funds from operations with the remaining 10% - 25% to be held as a reserve for capital expenditures and continued growth opportunities. The REIT believes that this reserve will be sufficient to cover both tenant finish costs associated with the renewal or replacement of current tenant leases as their leases expire and 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 credit facilities. For the nine months ended September 30, 1997, revenue generating capital expenditures, or tenant allowances for improvements, were $4.4 million. These capital expenditures generate increased rents from these tenants over the term of their leases. Revenue enhancing capital expenditures, or remodeling and renovation costs, were $0.6 million for the nine months ended September 30, 1997. Revenue neutral capital expenditures, which are recovered from the tenants, were $2.2 million for the nine months ended September 30, 1997. The REIT also added $1.7 million to notes receivable to fund a tenant allowance on a property which the REIT has a mortgage on and which was substantially repaid subsequent to the end of the quarter. The REIT 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. The REIT 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. The REIT has not recorded in its financial statements any material liability in connection with environmental matters. CASH FLOWS Cash flows provided by operating activities for the nine months ended September 30, 1997 decreased by $5.4 million, or 10.1%, to $48.0 million from $53.5 million in 1996. This decrease was primarily due a smaller increase in accounts payable for the nine months ended September 30, 1997 of $6.2 million compared to a greater increase in accounts payable of $18.3 million in 1996. This was primarily due to the timing of the payment of real estate taxes. Cash flows used in investing activities for the nine months ended September 30, 1997 increased by $42.6 million, or 42.3%, to $143.4 million compared to $100.8 million in 1996. This increase was due primarily to $36.2 million of acquisitions and increased investment in capital and development for the nine months ended September 30, 1997 as compared to 1996. Cash flows provided by financing activities for the nine months ended September 30, 1997, increased by $40.3 million, or 70.7%, compared to 1996 primarily due to increased borrowings related to the development and acquisition program. 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 REIT as net income (loss) before depreciation of real estate assets, other non-cash items (consisting of the effect of straight-lining of rents and 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 REIT's share of FFO in unconsolidated properties and excludes minority interests' share of FFO in consolidated properties. The REIT computes FFO in accordance with The National Association of Real Estate Investments Trusts ("NAREIT") recommendation concerning finance costs and non- real estate depreciation. The REIT however, does not include gains or losses on outparcel sales or the effect of straight-lined rents in its calculation, even though NAREIT permits their inclusion when calculating FFO. 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 REIT. 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 generally accepted accounting principles (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 REIT's operating performance or to cash flow as a measure of liquidity. For the three months ended September 30, 1997, FFO increased by $3.1 million, or 20.0%, to $18.5 million as compared to $15.4 million for 1996. For the third quarter of 1997, the existing portfolio accounted for 54% of increase in FFO over the prior year period and the new properties opened and acquired in the last eighteen months accounted for 46% of the increase in FFO. For the nine months ended September 30, 1997, FFO increased by $7.9 million, or 17.5%, to $53.5 million as compared to $45.5 million for 1996. The existing portfolio accounted for 24% of the increase in FFO over the prior year period and the new properties opened and acquired in the last eighteen months accounted for 76% of the increase in FFO. The REIT's calculation of FFO is as follows: (in thousands) Three Months Ended Nine Month Ended September 30, September 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Income from operations. . . . . $ 10,706 $ 8,935 $ 30,068 $ 26,170 ADD: Depreciation & amortization from consolidated properties . . . 8,029 6,232 23,639 18,583 Income from operations of unconsolidated affiliates . . 301 430 1,514 1,540 Depreciation & amortization from unconsolidated affiliates . . 337 271 993 897 Write-off of development costs charged to net income . . . . 3 185 45 450 SUBTRACT: Minority investors' share of income from operations in nine properties . . . . . . . (116) (122) (405) (385) Minority investors' share of depreciation and amortization in nine properties. . . . . . (199) (171) (582) (486) Preference return paid to mortgagees . . . . . . . . . -- 17 -- (331) Adjustment for straight-lining of rents: Consolidated properties . . . (510) (328) (1,528) (728) Unconsolidated affiliates . . 8 14 (2) 4 Minority investors' share of nine properties . . . . . . 22 3 57 12 Depreciation and amortization of non-real estate assets and finance costs . . . . . (107) (65) (320) (194) -------- -------- -------- -------- TOTAL FUNDS FROM OPERATIONS . . $ 18,474 $ 15,401 $ 53,479 $ 45,532 ======== ======== ======== ======== The REIT does not include gains or losses on outparcel sales (which would have added $4.2 million and $8.9 million for the nine months ended September 30, 1997 and 1996, respectively) or the effect of straight-line rents (which would have added $1.5 million and $0.7 million for the nine months ended September 30, 1997 and 1996, respectively) in its calculation of Funds From Operations. IMPACT OF INFLATION In the last four years, inflation has not had a significant impact on the REIT or CBL because of the relatively low inflation rate. Substantially all tenant leases do, however, contain provisions designed to protect the REIT from the impact of inflation. Such provisions include clauses enabling the REIT 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 REIT to replace existing leases with new leases at higher base and/or percentage rentals if rents of the existing leases are below the then-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 REIT's exposure to increases in costs and operating expenses resulting from inflation. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards("SFAS") No. 128, "Earnings Per Share" which establishes new standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. Early adoption is not permitted and upon initial application, all prior-period EPS data is required to be restated. The adoption is not permitted and upon initial application, all prior-period EPS data is required to be restate. The adoption of SFAS No. 128 will not have a material effect on the REIT's EPS amounts. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The REIT will adopt SFAS No. 130 on January 1, 1998. The adoption of SFAS No. 130 is not expected to have a material effect. In June 1997, the FASB issued SFAS 131 "Disclosures About Segments of an Enterprise & Related Information". This statement requires that segments of a business be disclosed in interim and annual financial statement. The REIT will adopt SFAS 131 in January 1998. 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 ON MATTER TO A VOTE OF SECURITY HOLDERS None ITEM 5: OTHER INFORMATION None ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K The following item was reported: The outline from the REIT's October 29, 1997 conference call with analysts and investors regarding earnings (Item 5) was filed on October 29, 1997. 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 ---------------------------------- John N. Foy Executive Vice President, Chief Financial Officer and Secretary (Authorized Officer of the Registrant, Principal Financial Officer and Principal Accounting Officer) Date: November 14, 1997 EXHIBIT INDEX Exhibit No. ---------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at September 30, 1997 (unaudited) and the Consolidated Statement of Operations for the nine months ended September 30, 1997 (unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1997 JAN-1-1997 SEP-30-1997 6,202 0 12,797 0 0 0 0 137,407 1,150,638 0 0 0 0 240 341,230 1,150,638 0 126,943 0 0 69,794 0 27,081 25,570 0 25,570 0 928 0 24,642 1.02 1.02 -----END PRIVACY-ENHANCED MESSAGE-----