-----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, G0g5UNOeFQNqlgDgVYwHQAuOInJUAvp+70OzBRbJEC2NlRWbTGQeHULcYOGEroh8 deHF6TS0SXp+B7Uks9H58A== 0000910612-99-000006.txt : 19990517 0000910612-99-000006.hdr.sgml : 19990517 ACCESSION NUMBER: 0000910612-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623366 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 10-Q 1 CBL & ASSOCIATES PROPERTIES, INC. FORM 10-Q, 03/31/99 Securities Exchange Act of 1934 -- Form10-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 March 31, 1999 ----------------------------- 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 of (IRS Employer incorporation or organization) Identification 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 May 6, 1999 : Common Stock, par value $.01 per share, 24,646,756 Shares. 1 CBL & Associates Properties, Inc. INDEX PART I FINANCIAL INFORMATION PAGE NUMBER ITEM 1: FINANCIAL INFORMATION 3 CONSOLIDATED BALANCE SHEETS - AS OF MARCH 31, 1999 AND DECEMBER 31, 1998 4 CONSOLIDATED STATEMENTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 PART II OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS 21 ITEM 2: CHANGES IN SECURITIES 21 ITEM 3: DEFAULTS UPON SENIOR SECURITIES 21 ITEM 4: SUBMISSION OF MATTERS TO HAVE A VOTE OF SECURITY HOLDERS 21 ITEM 5: OTHER INFORMATION 21 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 21 SIGNATURE 22 2 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 March 31, 1999 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 "Company") December 31, 1998 audited financial statements and notes thereto included in the CBL & Associates Properties, Inc. Form 10-K for the year ended December 31, 1998. 3 CBL & Associates Properties, Inc. Consolidated Balance Sheets (Dollars in thousands) (UNAUDITED)
March 31, December 31, 1999 1999 ------------------ ----------------- ASSETS Real estate assets: Land......................................................... $ 266,961 $ 265,521 Buildings and improvements................................... 1,628,014 1,609,831 -------------------- -------------------- 1,894,975 1,875,352 Less: Accumulated depreciation............................. (189,330) (177,055) -------------------- -------------------- 1,705,645 1,698,297 Developments in progress..................................... 126,759 107,491 -------------------- -------------------- Net investment in real estate assets....................... 1,832,404 1,805,788 Cash and cash equivalents...................................... 10,172 5,827 Receivables: Tenant....................................................... 18,467 17,337 Other........................................................ 2,184 2,076 Mortgage notes receivable...................................... 8,994 9,118 Other assets................................................... 15,157 15,201 -------------------- -------------------- $ 1,887,378 $ 1,855,347 ==================== ==================== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage and other notes payable............................... $ 1,238,500 $ 1,208,204 Accounts payable and accrued liabilities....................... 44,805 62,466 -------------------- -------------------- Total liabilities............................................ 1,283,305 1,270,670 -------------------- -------------------- Distributions and losses in excess of investment in unconsolidated affiliates.................................. 402 855 -------------------- -------------------- Minority interest.............................................. 175,177 168,040 -------------------- -------------------- Commitments and contingencies (Note 2)......................... Shareholders' Equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, 2,875,000 outstanding in 1999 and 1998 ....... 29 29 Common stock, $.01 par value, 95,000,000 shares , authorized 24,615,090 and 24,590,936 shares issued and outstanding in 1999 and 1998, respectively..... 246 246 Excess stock, $.01 par value, 100,000,000 __ __ shares authorized, none issued............................. Additional paid - in capital................................. 452,774 452,252 Accumulated deficit.......................................... (24,105) (36,235) Deferred compensation........................................ (450) (510) -------------------- -------------------- Total shareholders' equity................................. 428,494 415,782 -------------------- -------------------- $ 1,887,378 $ 1,855,347 ==================== ==================== The accompanying notes are an integral part of these balance sheets.
4 CBL & Associates Properties, Inc. Consolidated Statements Of Operations (Dollars in thousands, except per share data) (UNAUDITED)
Three Months Ended March 31, ------------------------------------ 1999 1998 ----------------- -------------- REVENUES: Rentals: Minimum................................................... $ 47,862 $ 36,053 Percentage................................................ 3,232 1,675 Other..................................................... 814 433 Tenant reimbursements........................................ 20,674 15,451 Management, leasing and development fees.................... 1,040 696 Interest and other........................................... 926 748 ---------------- ----------------- Total revenues............................................. 74,548 55,056 ---------------- ----------------- EXPENSES: Property operating........................................... 11,483 8,844 Depreciation and amortization................................ 12,676 9,155 Real estate taxes............................................ 6,955 4,962 Maintenance and repairs...................................... 4,062 3,000 General and administrative................................... 3,826 3,001 Interest..................................................... 19,771 13,775 Other........................................................ 742 6 ---------------- ----------------- Total expenses............................................. 59,515 42,743 ---------------- ----------------- INCOME FROM OPERATIONS....................................... 15,033 12,313 GAIN ON SALES OF REAL ESTATE ASSETS.......................... 4,801 1,931 EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES.................................................. 935 737 MINORITY INTEREST IN EARNINGS: Operating partnership...................................... (6,658) (4,173) Shopping center properties................................. (365) (209) ---------------- ----------------- NET INCOME................................................... 13,746 10,599 PREFERRED DIVIDENDS.......................................... (1,617) -- ---------------- ----------------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS.................. 12,129 10,599 ================ ================= BASIC PER SHARE DATA: NET INCOME................................................ $ 0.49 $ 0.44 ================ ================= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................ 24,574 24,070 ================ ================= DILUTED PER SHARE DATA: NET INCOME................................................ $ 0.49 $ 0.44 ================ ================= WEIGHTED AVERAGE SHARES AND POTENTIAL DILUTIVE COMMON SHARES OUTSTANDING .................. 24,795 24,304 ================ ================= The accompanying notes are an integral part of these statements.
5 CBL & Associates Properties, Inc. Consolidated Statements of Cash Flows (Dollars in thousands) (UNAUDITED)
Three Months Ended March 31, -------------------------------- 1999 1998 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................................................... $ 13,746 $ 10,599 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest in earnings.................................... 7,023 4,382 Depreciation..................................................... 10,551 7,786 Amortization..................................................... 2,436 1,645 Gain on sales of real estate assets.............................. (4,801) (1,931) Equity in earnings of unconsolidated affiliates.................. (935) (737) Distributions from unconsolidated affiliates..................... 2,061 1,334 Issuance of stock under incentive plan........................... 100 104 Amortization of deferred compensation............................ 160 94 Write-off of development projects................................ 742 6 Distributions to minority investors.............................. (5,486) (4,348) Changes in assets and liabilities - Tenant and other receivables..................................... (530) (1,534) Other assets..................................................... (65) (1,475) Accounts payable and accrued liabilities......................... (2,891) 61 --------------- --------------- 22,111 15,986 Net cash provided by operating activities................ --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Construction of real estate assets and land acquisition........ (34,256) (28,673) Acquisition of real estate assets.............................. -- (146,140) Capitalized interest........................................... (1,459) (1,161) Other capital expenditures..................................... (4,177) (2,842) Deposits in escrow............................................. -- 66,108 Proceeds from sales of real estate assets...................... 6,764 5,111 Additions to notes receivable.................................. 44 -- Payments received on notes receivable.......................... (168) 118 Advances and investments in unconsolidated affiliates.......... (1,522) (160) --------------- --------------- Net cash used in investing activities.................... (34,774) (107,639) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from mortgage and other notes payable................. 100,432 111,066 Principal payments on mortgage and other notes payable......... (70,136) (2,634) Additions to deferred financing costs.......................... (658) (316) Dividends paid................................................. (13,052) (10,648) Proceeds from issuance of common stock......................... 96 69 Proceeds from exercise of stock options........................ 326 -- --------------- --------------- Net cash provided by financing activities................ 17,008 97,537 --------------- --------------- NET CHANGE IN CASH AND CASH EQUIVALENTS............................ 4,345 5,884 CASH AND CASH EQUIVALENTS, beginning of period..................... 5,827 3,124 --------------- --------------- CASH AND CASH EQUIVALENTS, end of period........................... $ 10,172 $ 9,008 =============== =============== Cash paid for interest, net of amounts capitalized................. $ 19,754 $ 12,954 =============== =============== The accompanying notes are an integral part of these statements.
6 CBL & Associates Properties, Inc. Notes to Consolidated Financial Statements Note 1 - Unconsolidated Affiliates At March 31, 1999, the Company had investments in five partnerships 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):
Company's Share Total For The For The Three Months Ended Three Months Ended March 31, March 31, ----------------------- ------------------------ 1999 1998 1999 1998 ---------- ---------- ---------- ----------- Revenues............................ $ 7,046 $ 5,992 $ 3,469 $ 2,942 ---------- ---------- ---------- ----------- Depreciation and amortization....... 796 707 390 400 Interest expense.................... 2,150 2,058 1,058 1,010 Other operating expenses............ 2,199 1,722 1,086 795 ---------- ---------- ---------- ----------- Net income.......................... $ 1,901 $ 1,505 $ 935 $ 737 ========== ========== ========== ===========
Note 2 - Contingencies The Company 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 Company. Additionally, based on environmental studies completed to date on the real estate properties, management believes any exposure related to environmental cleanup will not be significant to the financial position and results of operations of the Company. Note 3 - Credit Agreements The Company has credit facilities of $230 million of which $64.9 million is available at March 31, 1999. Outstanding amounts under the credit facilities bear interest at a weighted average interest rate of 6.23% at March 31, 1999. The Company's variable rate debt as of March 31, 1999 was $467.9 million with a weighted average interest rate of 6.38% as compared to 6.66% as of March 31, 1998. Through the execution of interest rate swap agreements, the Company has fixed the interest rates on $314 million of variable rate debt on operating properties at a weighted average interest rate of 6.55%. Of the Company's remaining variable rate debt of $153.9 million, interest rate caps in place of $100.0 million leaves $53.9 million of debt subject to variable rates on construction properties and no debt subject to variable rates on operating properties. There were no fees charged to the Company related to these swap agreements. The 7 Company's swap agreements in place at March 31, 1999 are as follows:
Swap Amount Fixed LIBOR in Millions Component Effective Date Expiriation Date ----------- ----------- -------------- ---------------- $65 5.72% 01/07/98 01/07/2000 81 5.54% 02/04/98 02/04/2000 50 5.70% 06/15/98 06/15/2001 38 5.73% 06/26/98 06/30/2001 80 5.49% 09/01/98 09/01/2001
At March 31, 1999, the Company had an interest rate cap of 7.5% on $100 million of LIBOR-based variable rate debt.5%. Note 4 - Segment Information Management of the Company measures performance and allocates resources according to property type, which are determined based on differences such as nature of tenants, capital requirements, economic risks and leasing terms. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments. Information on management's reportable segments is presented as follows (in thousands):
Associated Community Three Months Ended March 31, 1999 Malls Centers Centers All Others Total - --------------------------------- ------------ ----------- ------------ ------------ --------- Revenues $ 55,612 $ 2,905 $ 13,995 $ 2,036 $ 74,548 Property operating expenses (1) (19,282) (479) (3,046) 307 (22,500) Interest expense (14,578) (626) (2,780) (1,787) (19,771) Gain on sales of real estate assets 381 -- 404 4,016 4,801 ------------ ----------- ------------ ------------ ----------- Segment profit and loss 22,133 1,800 8,573 4,572 37,078 ============ =========== ============ ============ Depreciation and amortization (12,676) General and administrative and other (4,568) Equity in earnings and minority (6,088) interest adjustment ----------- Net income $ 13,746 =========== Total assets (2) $ 1,243,998 $ 82,715 $ 412,423 $ 148,242 $ 1,887,378 Capital expenditures (2) $ 3,901 $ 1,674 $ 2,929 $ 30,387 $ 38,891
8
Associated Community Three Months Ended March 31, 1998 Malls Centers Centers All Others Total - --------------------------------- ------------ ----------- ------------ ------------ --------- Revenues $ 38,578 $ 2,175 $ 13,096 $ 1,207 $ 55,056 Property operating expenses (1) (13,115) (398) (2,635) (658) (16,806) Interest expense (9,699) (358) (2,936) (782) (13,775) Gain on sales of real estate assets -- -- 24 1,907 1,931 ------------ ----------- ------------ ------------ ----------- Segment profit and loss 15,764 1,419 7,549 1,674 26,406 ============ =========== ============ ============ Depreciation and amortization (9,155) General and administrative and other (3,007) Equity in earnings and minority (3,645) interest adjustment ----------- Net income $ 10,599 =========== Total assets (2) $ 831,000 $ 63,039 $ 391,912 $ 66,436 $ 1,352,387 Capital expenditures (2) $ 153,475 $ 2,097 $ 7,626 $ 10,110 $ 173,308 (1) Property operating includes property operating, real estate taxes, and maintenance and repairs. (2) Developments in progress are included in the All Other category.
9 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 "forwarding-looking statements" within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements. We direct you to the Company's other 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. GENERAL BACKGROUND CBL & Associates Properties, Inc. (the "Company") Consolidated Financial Statements and Notes thereto reflect the consolidated financial results of CBL & Associates Limited Partnership (the "Operating Partnership") which includes at March 31, 1999, the operations of a portfolio of properties consisting of twenty-four regional malls, thirteen associated centers, eighty-two community centers, an office building, joint venture investments in four regional malls and one associated center, and income from six mortgages (the "Properties"). The Operating Partnership also has one mall, one associated center, three community centers and one expansion currently under construction and options to acquire certain shopping center development sites. The consolidated financial statements also include the accounts of CBL & Associates Management, Inc. (the "Management Company"). The Company 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 redevelopment project Springdale Mall in Mobile, Alabama, the recently opened Bonita Lakes Mall in Meridian, Mississippi and Parkway Place Mall in Huntsville, Alabama which was acquired in December 1998 and is being redeveloped . RESULTS OF OPERATIONS Operational highlights for the three months ended March 31, 1999 as compared to March 31, 1998 are as follows: 10 SALES Mall shop sales, for those tenants who have reported, in the twenty-five Stabilized Malls in the Company's portfolio increased by 6.6% on a comparable per square foot basis.
Three Months Ended March 31, ---------------------------- 1999 1998 ---------- ---------- Sales per square foot $59.67 $55.99
Total sales volume in the mall portfolio, including New Malls, increased 8.4% to $331.1 million for the three months ended March 31, 1999 from $305.4 million for the three months ended March 31, 1998. Occupancy costs as a percentage of sales for the three months ended March 31, 1999 and 1998 for the Stabilized Malls were 13.7% and 13.1%, respectively. Occupancy costs were 11.2%, 11.2% and 11.5% for the years ended December 31, 1998, 1997, and 1996, 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 for the Company's overall portfolio was as follows:
At March 31, ------------------------ 1999 1998 -------- -------- Stabilized malls 92.3% 91.6% New malls 84.3 88.2 Associated centers 91.9 90.9 Community centers 96.8 97.3 -------- -------- Total Portfolio 93.8% 93.4% ======== ========
AVERAGE BASE RENT Average base rents for the Company's three portfolio categories were as follows:
At March 31, --------------------------------- 1999 1998 ------------ ------------ Malls......................... $19.78 $18.65 Associated centers............ 9.55 9.69 Community centers............. 8.23 7.85
11 LEASE ROLLOVERS On spaces previously occupied, the Company achieved the following results from rollover leasing for the three months ended March 31, 1999 compared to the base and percentage rent previously paid:
Per Square Per Square Foot Rent Foot Rent Percentage Prior Lease (1) New Lease (2) Increase --------------- ---------------- ----------- Malls.................. $22.08 $26.92 21.9% Associated centers..... 7.75 8.76 13.0% Community centers...... 7.87 8.15 3.6% (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 three months ended March 31, 1999, malls represented 75.6% of total revenues from all properties; revenues from associated centers represented 3.7%; revenues from community centers represented 18.4%; and revenues from mortgages and the office building represented 2.3%. Accordingly, revenues and results of operations are disproportionately impacted by the malls' achievements. 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 fiscal year. Comparison of Results of Operations for the three months ended March 31, 1999 to the Results of Operations for the three months ended March 31, 1998 Total revenues for the three months ended March 31, 1999 increased by $19.5 million, or 35.4%, to $74.5 million as compared to $55.1 million in 1998. Minimum rents increased by $11.8 million, or 32.7%, to $47.9 million as compared to $36.1 million in 1998, and tenant reimbursements increased by $5.2 million, or 33.8%, to $20.7 million in 1999 as compared to $15.5 million in 1998. Percentage rents increased by $1.6 million, or 92.9%, to $3.2 million as compared to $1.7 million in 1998. Management, leasing and development fees increased by $0.3 million, or 49.4%, to $1.0 million as compared to $0.7 million in 1998. This increase is primarily due to increases in fees earned in the co-development program and increases in management fees. 12 Approximately $16.3 million of the increase in revenues resulted from operations at the eleven new centers opened or acquired during the past fifteen months. These centers consist of:
Opening/ Project Name Location Total GLA Type of Addition Acquisition Date - ---------------------- --------------------------- ---------- ---------------- ---------------- Sterling Creek Commons Portsmouth, Virginia 65,000 New Development June 1998 Fiddler's Run Morganton, North Carolina 203,000 New Development March 1999 Burnsville Center Minneapolis (Burnsville), 1,070,000 Acquisition February 1998 Minnesota Stroud Mall Stroudsburg, Pennsylvania 427,000 Acquisition April 1998 Hickory Hollow Mall Nashville, Tennessee 1,096,000 Acquisition July 1998 Courtyard at Hickory Nashville, Tennessee 77,000 Acquisition July 1998 Hollow Rivergate Mall Nashville, Tennessee 1,074,000 Acquisition July 1998 Village at Rivergate Nashville, Tennessee 166,000 Acquisition July 1998 Lions Head Village Nashville, Tennessee 93,000 Acquisition July 1998 Janesville Mall Janesville, Wisconsin 609,000 Acquisition August 1998 Meridian Mall Lansing, Michigan 767,000 Acquisition August 1998
Approximately $3.2 million of the increase in revenues resulted from improved operations and occupancies in the existing centers. The majority of these increases were generated at Cortlandt Towne Center in Cortlandt, New York and St. Clair Square in Fairview Heights, Illinois. Property operating expenses, including real estate taxes and maintenance and repairs increased in the first quarter of 1999 by $5.7 million or 33.9% to $22.5 million as compared to $16.8 million in the first quarter of 1998. This increase is primarily the result of the addition of the eleven new centers referred to above. Depreciation and amortization increased in the first quarter of 1999 by $3.5 million or 38.5% to $12.7 million as compared to $9.2 million in the first quarter of 1998. This increase is primarily due to the addition of the eleven new centers referred to above. Interest expense increased in the first quarter of 1999 by $6.0 million, or 43.5% to $19.8 million as compared to $13.8 million in 1998. This increase is primarily due to the additional interest on the eleven centers added during the last fifteen months referred to above. The gain on sales of real estate assets increased in the first quarter of 1999 by $2.9 million, to $4.8 million as compared to $1.9 million in 1998. The majority of gain on sales in the first quarter of 1999 were from development activity for outparcel sales at Sand Lake Corner in Orlando, Florida and pad sales at The Landing at Arbor Place in Douglasville, Georgia. Gain on sales in the first quarter of 1998 were at Springhurst Towne Center in Louisville, Kentucky. Equity in earnings of unconsolidated affiliates increased in the first quarter of 1999 by $0.2 million to $0.9 million from $0.7 million in the first quarter of 1998 due to the acquisition of a 50% interest in Parkway Place in Huntsville, Alabama and improved operations at existing equity centers. 13 LIQUIDITY AND CAPITAL RESOURCES The principal uses of the Company's liquidity and capital resources have historically been for property development, expansion and renovation programs, acquisitions and debt repayment. To maintain its qualification as a real estate investment trust under the Internal Revenue Code, the Company 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 May 1, 1999, the Company had $46.1 million available in unfunded construction and redevelopment loans to be used for completion of the construction and redevelopment projects and replenishment of working capital previously used for construction. Additionally, as of May 1, 1999, the Company had obtained revolving credit lines and term loans totaling $230.0 million of which $53.4 million was available. As a publicly traded company, the Company has access to capital through both the public equity and debt markets. The Company has filed a Shelf Registration authorizing shares of the Company's preferred stock and common stock and warrants to purchase shares of the Company's common stock with an aggregate public offering price of up to $350 million with $278 million remaining after the Company's preferred stock offering on June 30, 1998. The Company anticipates 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 majority of the mortgage notes payable maturing over the next five years with replacement loans. The Company'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 Company's current capital structure includes property specific mortgages, which are generally non-recourse, revolving lines of credit, common stock, preferred stock and a minority interest in the Operating Partnership. The minority interest in the Operating Partnership represents the 25.8% ownership in the Operating Partnership held by the Company's executive and senior officers which may be exchanged for approximately 9.5 million shares of common stock. Additionally, Company executive officers and directors own approximately 1.7 million shares of the outstanding common stock of the Company, for a combined total interest in the Operating Partnership of approximately 30.5%. Ownership interests issued to fund acquisitions in 1998 may be exchanged for approximately 2.4 million shares of common stock which represents a 6.5% interest in the Operating Partnership. Assuming the exchange of all limited partnership interests in the Operating Partnership for common stock, there would be outstanding approximately 36.5 million shares of common stock with a market value of approximately $849.0 million at March 31, 1999 (based on the closing price of $23.25 per share on March 31, 1999). The Company's total market equity is $919.8 million which includes 2.9 million shares of preferred stock at their closing price of $24.625 per share on March 31, 1999. Company executive and senior officers' ownership interests had a market value of approximately $258.6 million at March 31, 1999. Mortgage debt consists of debt on certain consolidated properties as well as on three properties in which the Company owns a non-controlling interest and is accounted for under the equity method of accounting. At March 31, 1999, the Company's share of funded mortgage debt on its consolidated 14 properties adjusted for minority investors' interests in nine properties was $1.216 billion and its pro rata share of mortgage debt on unconsolidated properties (accounted for under the equity method) was $41.7 million for total debt obligations of $1.258 billion with a weighted average interest rate of 7.02%. The Company's total conventional fixed rate debt as of March 31, 1999 was $790.1 million with a weighted average interest rate of 7.41% as compared to 8.07% as of March 31, 1998. The Company's variable rate debt as of March 31, 1999 was $467.9 million with a weighted average interest rate of 6.38% as compared to 6.66% as of March 31, 1998. Through the execution of swap agreements, the Company has fixed the interest rates on $314 million of debt on operating properties at a weighted average interest rate of 6.55%. Of the Company's remaining variable rate debt of $153.9 million, an interest rate cap in place of $100.0 million leaves only $53.9 million of debt subject to variable rates. Interest on this $53.9 million of variable rate debt is capitalized to projects currently under construction leaving no variable rate debt exposure on operating properties as of March 31, 1999. There were no fees charged to the Company related to its swap agreements. The Company's swap and cap agreements in place at March 31, 1999 are as follows:
Swap/Cap Amount Fixed LIBOR Effective Expiration (in millions) Component Date Date --------------- ----------- --------- ---------- 65 5.72% 01/07/98 01/07/2000 81 5.54% 02/04/98 02/04/2000 50 5.70% 06/15/98 06/15/2001 38 5.73% 06/26/98 06/30/2001 80 5.49% 09/01/98 09/01/2001 100 7.50% 01/01/99 12/31/1999
In March 1999, the Company closed on a $75 million permanent loan on St. Clair Square in Fairview Height, Illinois at an interest rate of 7.0%. The proceeds of the loan were used to repay existing variable rate indebtedness. Based on the debt (including construction projects) and the market value of equity described above, the Company's debt to total market capitalization (debt plus market value equity) ratio was 57.8% at March 31, 1999. DEVELOPMENT, EXPANSIONS AND ACQUISITIONS Development projects under construction and scheduled to open during 1999 are: Sand Lake Corners in Orlando, Florida, a 594,000-square-foot community center, the first phase of which was opened in November 1998 with the remainder to open in stages beginning in May 1999. Arbor Place Mall in Douglasville, Georgia, a suburb of Atlanta, is scheduled to open in October 1999 . This 1,035,000-square- foot regional mall includes Dillard's, Parisian, Sears, and Upton's, and big-box retailers such as Border's Books, Bed Bath & Beyond and Old Navy. The Company will also open an adjacent 165,000-square-foot associated center, The Landing at Arbor Place. The Company is adding a Sears department store to Lakeshore Mall in Sebring, Florida. The Company will open a Regal Cinema in Jacksonville, Florida, a 83,000-square-foot free-standing building, in November 1999. The Company also has under construction 15 Chesterfield Crossing in Richmond, Virginia, a 441,000-square-foot community center. The Company also has under development The Mall of South Carolina in Myrtle Beach, South Carolina, a 1,095,000-square-foot regional mall and Parkway Place in Huntsville, Alabama, a 822,000-square-foot redevelopment that was acquired in December 1998. In March 1999, the Company opened Fiddler's Run in Morganton, North Carolina, a 203,000- square-foot community center. The center opened 100% leased and committed. The Company has entered into standby purchase agreements with third-party developers (the "Developers") for the construction, development and potential ownership of two community centers in Georgia and Texas (the "Co-Development Projects"). The Developers have utilized these standby purchase agreements to assist in obtaining financing to fund the construction of the Co-Development Projects. The standby purchase agreements, which expire in 1999, provide for certain requirements or contiginces to occur before the Company becomes obligated to fund its equity contribution or purchase the Co- Development Project. These requirements or contiginces include certain completion requirements, rental levels, the inability of the Developers to obtain adequate permanent financing and the inability to sell the Co-Development Project In return for its commitment to purchase a Co-Development Project pursuant to a standby purchase agreement, the Company receives a fee as well as a participation interest in either the cash flow or gains from sale on each Co-Development Project. The outstanding amount on standby purchase agreements is $116.4 million at March 31, 1999. The Company has entered into a number of option agreements for the development of future regional malls and community centers. Except for these projects and as further described below, the Company currently has no other material capital commitments. It is management's expectation that the Company 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 Company 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 Company 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 and non-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 Company intends to distribute approximately 70% - 90% of its funds from operations with the remaining 10% - 30% to be held as a reserve for capital expenditures and continued growth opportunities. The Company believes that this 16 reserve will be sufficient to cover (I) tenant finish costs associated with the renewal or replacement of current tenant leases as their leases expire and (II) 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 revolving lines of credit, and a return on the funds so invested is expected to be earned. For the first quarter of 1999, revenue generating capital expenditures or tenant allowances for improvements were $2.8 million. These capital expenditures generate increased rents from these tenants over the term of their leases. Revenue neutral capital expenditures, which are recovered from the tenants, were $1.3 million for the first quarter of 1999. The Company 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. However, certain evnironmental conditions are being evaluated at Parkway Place in Huntsville, Alabama. There appears to be a high potential for adverse environmental conditions, specifically Total Petroleum Hydrocardons, in the vicinity of an auto service center which had underground storage tanks. The Company ordered additional engineering studies and as part of the redevelopment will correct the environmental conditions at the site. The Company 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. CASH FLOWS Cash flows provided by operating activities for the first quarter of 1999, increased by $6.1 million, or 38.3%, to $22.1 million from $16.0 million in 1998. This increase was primarily due to the eleven centers opened or acquired over the last fifteen months, improved operations in the existing centers and the timing of the payment of real estate taxes. Cash flows used in investing activities for the first quarter of 1999, decreased by $72.9 million, to $34.8 million compared to $107.6 million in 1998. This decrease was due primarily to a decrease in acquisitions as compared to the $146.1 million of acquisitions in 1998. Cash flows provided by financing activities for the first quarter of 1999, decreased by $80.5 million, to $17.0 million compared to $97.5 million in 1998 primarily due to decreased borrowings related to the development and acquisition program. IMPACT OF INFLATION In the last three years, inflation has not had a significant impact on the Company because of the relatively low inflation rate. Substantially all tenant leases do, however, contain provisions designed to protect the Company from the impact of inflation. Such provisions include clauses enabling the Company 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 Company to replace existing leases with new leases at higher base and/or percentage rentals if rents of the existing leases are below the then- 17 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 Company's exposure to increases in costs and operating expenses resulting from inflation. YEAR 2000 The Year 2000 problem results from the use of a two digit year date instead of a four digit date in the programs that operate computers, information processing technology and systems and other devices (i.e. non-information processing systems such as elevators, utility monitoring systems and time clocks that use computer chips). Systems with a Year 2000 problem have programs that were written to assume that the first two digits for any date used in the program would always be "19". Unless corrected, this assumption may result in computer programs misinterpreting the date January 1, 2000 as January 1, 1900. This could cause systems to incorrectly process critical financial and operational information, generate erroneous information or fail altogether. The Company's State of Readiness For Year 2000 - The Company has completed a program to identify both its information and non-information processing applications that are not year 2000 compliant. As a result of this identification program, the Company believes that its core accounting applications and the majority of non-information processing applications are Year 2000 compliant. Certain of its other information and non-information processing applications were not yet Year 2000 compliant. The Company corrected or replaced all non-compliant systems and applications including embedded systems, by the end of 1998. The Company has initiated communications with its significant suppliers and tenants to determine the extent to which the Company is vulnerable to the failure of such parties to correct their Year 2000 compliance issues. In addition, the Company has formed a Year 2000 Compliance Team that includes senior personnel from the financial, leasing, accounting, management information systems and operations management divisions of the Company. These individuals are charged with the duty of determining the extent of the Company's ongoing exposure and taking the appropriate action to minimize any impact of the Year 2000 problem on the Company's operations. Costs to Address the Company's Year 2000 Issue - The Company does not expect to incur any significant costs to ensure the Year 2000 compliance of all information processing systems and non- information processing systems including embedded systems. Risks Relating to The Year 2000 Issue And Contingency Plans - Although the Company is not currently aware of any specific significant Year 2000 problems involving third party vendors or suppliers, the Company believes that its most significant potential risk relating to the Year 2000 issue is in regard to such third parties. For example, the Company believes there could be failure in the information systems of certain service providers that the Company relies upon for electrical, telephone and data transmission and banking services. The Company believes that any service disruption with respect to these providers due to a Year 2000 issue would be of a short-term nature. The Company has existing back-up systems and procedures, developed primarily for natural disasters, that could be utilized on a short-term basis to address any service interruptions. In addition, with respect to tenants, a failure of their information systems could delay the payment of rents or even impair their ability to operate. These tenant problems are likely to be isolated and would likely not impact the operations of any particular shopping center or the Company as a whole. While it is not possible at this time to determine the likely impact of any of these potential problems, the Company will continue to evaluate these areas and develop additional contingency plans, as appropriate. Therefore, although the Company believes that its Year 2000 issues have been addressed and that suitable remediation and/or contingency procedures will be in place by December 31, 1999, there 18 can be no assurance that Year 2000 issues will not have a material adverse effect on the Company's results of operations or financial condition. 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 Company as net income (loss) before depreciation of real estate assets, other non-cash items (including 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 Company's share of FFO in unconsolidated properties and excludes minority interests' share of FFO in consolidated properties. The Company computes FFO in accordance with the National Association of Real Estate Investments Trusts ("NAREIT") recommendation concerning finance costs and non-real estate depreciation. Beginning with the first quarter of 1998 the Company included straight line rent in its FFO calculation. The Company excludes gains or losses on outparcel sales, even though NAREIT permits their inclusion when calculating FFO. Gains or losses on outparcel sales would have added $4.8 million in the first quarter of 1999 and $1.9 million in 1998. 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 Company. 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 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 Company's operating performance or to cash flow as a measure of liquidity. For the three months ended March 31, 1999, FFO increased by $5.3 million, or 24.1%, to $27.3 million as compared to $22.0 million for the same period in 1998. The increase in FFO was primarily attributable to the new developments opened during 1998 and in the first quarter of 1999, the acquisitions during 1998 and improved operations in the existing portfolio. 19 The Company's calculation of FFO is as follows: (dollars in thousands) Three Months Ended March 31, --------------------------------- 1999 1998 ---------------- -------------- Income from operations............................................ $ 15,033 $ 12,313 ADD: Depreciation & amortization from consolidated properties.......... 12,676 9,155 Income from operations of unconsolidated affiliates.............. 935 737 Depreciation & amortization from unconsolidated affiliates........ 390 346 Write-off of development costs charged to net income.............. 742 6 SUBTRACT: Minority investors' share of income from operations in nine properties..................................................... (365) (209) Minority investors share of depreciation and amortization in nine properties............................................. (232) (206) Depreciation and amortization of non-real estate assets and finance costs................................................... (252) (129) Preferred dividends............................................... (1,617) -- ---------------- -------------- TOTAL FUNDS FROM OPERATIONS....................................... $ 27,310 $ 22,013 ================ ============== DILUTED WEIGHTED AVERAGE SHARES AND POTENTIAL DILUTIVE COMMON SHARES WITH OPERATING PARTNERSHIP UNITS FULLY CONVERTED.............................. 36,697 33,780 ================ ==============
20 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 of Matter to a Vote of Security Holders The Company held its Annual Meeting of Shareholders on April 29, 1999. At the meeting, shareholders re-elected as directors Charles B. Lebovitz (19,442,779 votes for and 345,748 votes against or withheld), Claude M. Ballard (19,442,974 votes for and 345,573 votes against or withheld) and Leo Fields (19,530,258 votes for and 258,289 votes against or withheld), to three-year terms expiring in 2002. Other continuing directors of the Company are, John N. Foy and William J. Poorvu whose terms expire in 2000 and Stephen D. Lebovitz and Winston W. Walker whose terms expire in 2001. In addition, at the meeting, shareholders approved a proposal to ratify the selection of Arthur Andersen LLP as independent public accountants for the fiscal year ending December 31, 1999 (19,758,691 votes for, 29,855 votes against or withheld). ITEM 5: Other Information None ITEM 6: Exhibits and Reports on Form 8-K A. Exhibits 25.1 Promissory Note with Teachers Insurance and Annuity Association of America and St. Clair Square Limited Partnership Bank dated March 11, 1999. 27 Financial Data Schedule B. Reports on Form 8-K The following items were reported: The outline from the Company's April 28, 1999 conference call with analysts and investors regarding earnings (Item 5) was filed on April 28, 1999. 21 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. /s/ John N. Foy --------------------------------------- John N. Foy Vice Chairman of the Board, Chief Financial Officer and Treasurer (Authorized Officer of the Registrant, Principal Financial Officer and Principal Accounting Officer) Date: May 14, 1999 22 EXHIBIT INDEX Exhibit No. - ------- 25.1 Promissory Note with Teachers Insurance and Annuity Association of America and St. Clair Square Limited Partnership Bank dated March 11, 1999. 27 Financial Data Schedule 23 EX-25.1 2 ST. CLAIR LOAN AGREEMENT FIXED INTEREST ONLY NOTE TIAA Appl. #IL-735 M - 000460400 PROMISSORY NOTE $75,000,000.00 Fairview Heights, IL Dated:_March 11, 1999_ FOR VALUE RECEIVED, ST. CLAIR SQUARE LIMITED PARTNERSHIP ("Borrower"), an Illinois limited partnership having its principal place of business at c/o CBL & Associates Properties, Inc., One Park Place, 6148 Lee Highway, Suite 300, Chattanooga, TN 37421-6511, promises to pay to TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA ("Lender"), a New York corporation, or order, at Lender's offices at 730 Third Avenue, New York, New York 10017 or at such other place as Lender designates in writing, the principal sum of SEVENTY-FIVE MILLION DOLLARS ($75,000,000.00) (the principal sum or so much of the principal sum as may be advanced and outstanding from time to time, the "Principal"), in lawful money of the United States of America, with interest on the Principal from the date of this Promissory Note (this "Note") through and including the first day of the 121st calendar month immediately following the date hereof (the "Maturity Date") at the fixed rate of seven percent (7%) per annum (the "Fixed Interest Rate"). This Note is secured by, among other things, the Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing Statement (the "Mortgage") dated the date of this Note made by Borrower for the benefit of Lender as security for the Loan. All capitalized terms not expressly defined in this Note will have the definitions set forth in the Mortgage. Section 1. Payments of Principal and Fixed Interest. (a) Borrower will make monthly installment payments ("Debt Service Payments") as follows: (i) On the first day of the first calendar month immediately following the date hereof (hereinafter called the "First Payment Date"), a payment of accrued interest on the Principal at the Fixed Interest Rate; and (ii) On the first day of the second calendar month immediately following the date hereof and on the first day of each succeeding calendar month through and including the first day of the 120th calendar month immediately following the date hereof, payments in the amount of Five Hundred Thirty Thousand Eighty-Four and 40/100ths Dollars ($530,084.40), each of which will be applied first to accrued interest on the Principal at the Fixed Interest Rate and then to the Principal (each such payment being hereinafter called a "Regular Monthly Payment"). (b) On the Maturity Date, Borrower will pay the Principal in full together with accrued interest at the Fixed Interest Rate and all other amounts due under the Loan Documents. Section 2. Prepayment Provisions. (a) The following definitions apply: "Discount Rate" means the yield on a U.S. Treasury issue selected by Lender, as published in The Wall Street Journal four days prior to prepayment, having a maturity date corresponding (or most closely corresponding, if not identical) to the Maturity Date, and, if applicable, a coupon rate corresponding (or most closely corresponding, if not identical) to the Fixed Interest Rate. "Default Discount Rate" means the Discount Rate less 300 basis points. "Discounted Value" means the Discounted Value of a Note Payment based on the following formula: NP (1 + R/12)n = Discounted Value NP = Amount of Note Payment R = Discount Rate or Default Discount Rate as the case may be. n = The number of months between the date of prepayment and the scheduled date of the Note Payment being discounted rounded to the nearest integer. "Note Payments" means (i) the scheduled Debt Service Payments for the period from the date of prepayment through the Maturity Date and (ii) the scheduled repayment of Principal, if any, on the Maturity Date. "Prepayment Date Principal" means the Principal on the date of prepayment. (b) Except as provided in (c) below, this Note may not be prepaid in full or in part before the first day of the sixty-first (61st) calendar month immediately following the date hereof. Commencing on the first day of the sixty-first (61st) calendar month immediately following the date hereof, provided there is no Event of Default then existing and not cured, Borrower may prepay this Note in full, but not in part, on the first day of any calendar month, upon 60 days prior notice to Lender and upon payment in full of the Debt which will include a payment (the "Prepayment Premium") equal to the greater of (i) an amount equal to the product of 1% times the Prepayment Date Principal and (ii) the amount by which the sum of the Discounted Values of Note Payments, calculated at the Discount Rate, exceeds the Prepayment Date Principal. Provided there is no Event of Default then existing and not cured, this Note may be prepaid in full without payment of the Prepayment Premium during the last 120 days of the Term. This Note may not be prepaid without simultaneous prepayment in full of any other notes secured by the Loan Documents. (c) Notwithstanding clause (b) above, one time only, on the first day of any calendar month prior to the thirteenth (13th) calendar month immediately following the date hereof, Borrower may prepay the Principal in part, in an amount not greater than $25,000,000, upon not less than 30 days prior written notice to Lender, provided i) simultaneously with the prepayment, a transfer described in paragraph 12.2(b)(i) of the Mortgage shall occur, which transfer shall (A) be the first transfer made under paragraph 12.2(b)(i) of the Mortgage (and not a second or subsequent transfer under that paragraph) and (B) be a transfer of at least 15% of the partnership interest in Borrower; and ii) Borrower shall simultaneously pay a prepayment premium equal to 2% of the portion of the Principal that is prepaid. Any payments made by Borrower to Lender under this clause (c) at a time when any interest or other sums are due from Borrower to Lender under this Note or under any other Loan Document shall be applied first to the payment of such interest and other sums and second to prepayment of the Principal. From and after the first day of the first calendar month following any such partial prepayment (which day is hereinafter called the "Adjustment Date"), the amount of each Regular Monthly Payment payable under this Note shall be adjusted to equal the amount that, if paid on the first day of every calendar month from the Adjustment Date to and including the twenty- fifth (25th) anniversary of the First Payment Date and applied first to accrued interest at the Fixed Interest Rate and then to amortization of the Principal, would result in repayment of the Principal in full on that twenty-fifth (25th) anniversary. Borrower shall make that adjusted Regular Monthly Payment from and after the Adjustment Date. The hypothetical amortization of the Principal on the twenty-fifth (25th) anniversary of the First Payment Date is for the purpose only of computing the adjusted Regular Monthly Payment; nothing herein shall abrogate or limit Borrower's obligation to repay the Principal, all accrued interest thereon, and all other sums due hereunder, under the Mortgage and under the other Loan Documents on the Maturity Date. (d) After an Acceleration or upon any other prepayment not permitted by the Loan Documents, any tender of payment of the amount necessary to satisfy the Debt accelerated, any judgment of foreclosure, any statement of the amount due at the time of foreclosure (including foreclosure by power of sale) and any tender of payment made during any redemption period after foreclosure, will include a payment (the "Evasion Premium") equal to the greater of (i) an amount equal to the product of 1% plus 300 basis points times the Prepayment Date Principal, and (ii) the amount by which the sum of the Discounted Values of the Note Payments, calculated at the Default Discount Rate, exceeds the Prepayment Date Principal. (e) Borrower acknowledges that: (i) a prepayment will cause damage to Lender; (ii) the Evasion Premium is intended to compensate Lender for the loss of its investment and the expense incurred and time and effort associated with making the Loan, which will not be fully repaid if the Loan is prepaid; (iii) it will be extremely difficult and impractical to ascertain the extent of Lender's damages caused by a prepayment after an Event of Default or any other prepayment not permitted by the Loan Documents; and (iv) the Evasion Premium represents Lender and Borrower's reasonable estimate of Lender's damages for the prepayment and is not a penalty. Section 3. Events of Default: (a) It is an "Event of Default" under this Note: (i) if Borrower fails to pay any amount due, as and when required, under this Note or any other Loan Document and the failure continues for a period of 5 days (except that, on the first three occasions during the Term in which Borrower fails to pay any such amount and the failure continues for such 5 day period, an Event of Default shall not be deemed to occur unless Borrower fails to pay the amount due within 5 days after notice of the failure; after the third such occasion, an Event of Default shall be deemed to occur if the failure to pay the amount due continues for a period of 5 days whether or not notice is provided to the Borrower); or (ii) if an Event of Default occurs under any other Loan Document. (b) If an Event of Default occurs, Lender may declare all or any portion of the Debt immediately due and payable ("Acceleration") and exercise any of the other Remedies. Section 4. Default Rate. Interest on the Principal will accrue at the Default Interest Rate from the date an Event of Default occurs. Section 5. Late Charges. (a) If Borrower fails to pay any Debt Service Payment when due or fails to pay any amount due under the Loan Documents on the Maturity Date (in either event, without giving consideration to any grace period contained in the Loan Documents), Borrower agrees to pay to Lender an amount (a "Late Charge") equal to five cents ($.05) for each one dollar ($1.00) of the delinquent payment. (b) Borrower acknowledges that: (i) a delinquent payment will cause damage to Lender; (ii) the Late Charge is intended to compensate Lender for loss of use of the delinquent payment and the expense incurred and time and effort associated with recovering the delinquent payment; (iii) it will be extremely difficult and impractical to ascertain the extent of Lender's damages caused by the delinquency; and (iv) the Late Charge represents Lender and Borrower's reasonable estimate of Lender's damages from the delinquency and is not a penalty. Section 6. Limitation of Liability. This Note is subject to the limitations on liability set forth in the Article of the Mortgage entitled "Limitation of Liability". Section 7. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE ARTICLE OF THE MORTGAGE ENTITLED "WAIVERS", BORROWER WAIVES PRESENTMENT FOR PAYMENT, DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN THE LOAN DOCUMENTS, NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY PROTEST, LACK OF DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF THE LOAN DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF THE OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE OBLIGATIONS AND TO THE RELEASE OF ANY SECURITY FOR THIS NOTE AND AGREE THAT ADDITIONAL MAKERS MAY BECOME PARTIES TO THIS NOTE AND ADDITIONAL INDORSERS, GUARANTORS OR SURETIES MAY BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL MAKER OR ANY ORIGINAL INDORSER, SURETY OR GUARANTOR. Section 8. Commercial Loan. The Loan is made for the purpose of carrying on a business or commercial activity or acquiring real or personal property as an investment or carrying on an investment activity and not for personal or household purposes. Section 9. Usury Limitations. Borrower and Lender intend to comply with all Laws with respect to the charging and receiving of interest. Any amounts charged or received by Lender for the use or forbearance of the Principal to the extent permitted by Law, will be amortized and spread throughout the Term until payment in full so that the rate or amount of interest charged or received by Lender on account the Principal does not exceed the Maximum Interest Rate. If any amount charged or received under the Loan Documents that is deemed to be interest is determined to be in excess of the amount permitted to be charged or received at the Maximum Interest Rate, the excess will be deemed to be a prepayment of Principal when paid, without premium, and any portion of the excess not capable of being so applied will be refunded to Borrower. If during the Term the Maximum Interest Rate, if any, is eliminated, then for purposes of the Loan, there will be no Maximum Interest Rate. Section 10. Applicable Law. This Note is governed by and will be construed in accordance with the Laws of the State or Commonwealth in which the Property is located, without regard to conflict of law provisions. Section 11. Time of the Essence. Time is of the essence with respect to the payment and performance of the Obligations. Section 12. Cross-Default. A default under any other note now or hereafter secured by the Loan Documents or under any loan document related to such other note constitutes a default under this Note and under the other Loan Documents. When the default under the other note constitutes an Event of Default under that note or the related loan document, an Event of Default also will exist under this Note and the other Loan Documents. Section 13. Construction. Unless expressly provided otherwise in this Note, this Note will be construed in accordance with the Exhibit attached to the Mortgage entitled "Rules of Construction". Section 14. Mortgage Provisions Incorporated. To the extent not otherwise set forth in this Note, the provisions of the Articles of the Mortgage entitled "Expenses and Duty to Defend", "Waivers", "Notices", and "Miscellaneous" are applicable to this Note and deemed incorporated by reference as if set forth at length in this Note. Section 15. Joint and Several Liability; Successors and Assigns. If Maker consists of more than one entity, the obligations and liabilities of each such entity will be joint and several. This Note binds Borrower and successors, assigns, heirs, administrators, executors, agents and representatives and inures to the benefit of Lender and its successors, assigns, heirs, administrators, executors, agents and representatives. Section 16. Absolute Obligation. Except for the Section of this Note entitled "Limitation of Liability", no reference in this Note to the other Loan Documents and no other provision of this Note or of the other Loan Documents will impair or alter the obligation of Borrower, which is absolute and unconditional, to pay the Principal, interest at the Fixed Interest Rate and any other amounts due and payable under this Note, as and when required. IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the date first set forth above. ST. CLAIR SQUARE LIMITED PARTNERSHIP, an Illinois limited partnership By: St. Clair Square, GP, Inc., a general partner /s/ John N. Foy By:_________________________ Name:_John N. Foy__________ Title:_Vice Chairman _____ EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at March 31, 1999 (unaudited) and the Consolidated Statement of Operations for the year ended March 31, 1999 (unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1999 JAN-1-1999 MAR-31-1999 10,172 0 20,351 0 0 0 0 189,330 1,887,378 44,805 0 0 29 246 428,219 1,887,378 0 74,548 0 0 39,744 0 19,771 13,746 0 13,746 0 0 0 12,129 .49 .49
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