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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to
Commission file number 1-9349
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SIZELER PROPERTY INVESTORS, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 72-1082589
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2542 WILLIAMS BOULEVARD, KENNER, LOUISIANA 70062
- ------------------------------------------ --------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (504) 471-6200
---------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by Check 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
13,091,000 shares of Common Stock ($.0001 Par Value) were outstanding as of
August 12, 2002.
1
Sizeler Property Investors, Inc. and Subsidiaries
INDEX
Page
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Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
Independent Accountants' Review Report 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Part II: Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Sizeler Property Investors, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30 December 31
2002 2001
ASSETS (Unaudited) (Audited)
------------- -------------
Real estate investments (Notes A and C):
Land $ 53,216,000 $ 52,859,000
Buildings and improvements, net of accumulated depreciation
of $91,945,000 in 2002 and $86,627,000 in 2001 207,949,000 209,951,000
Investment in real estate partnership 846,000 847,000
------------- -------------
262,011,000 263,657,000
Cash and cash equivalents 4,106,000 1,228,000
Accounts receivable and accrued revenue, net of allowance for
doubtful accounts of $175,000 in 2002 and $165,000 in 2001 1,922,000 2,724,000
Prepaid expenses and other assets 12,199,000 10,425,000
------------- -------------
Total Assets $ 280,238,000 $ 278,034,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable (Note D) $ 110,065,000 $ 111,223,000
Notes payable 200,000 2,390,000
Accounts payable and accrued expenses 4,605,000 6,973,000
Tenant deposits and advance rents 897,000 891,000
------------- -------------
115,767,000 121,477,000
Convertible subordinated debentures (Note F) 56,599,000 61,878,000
------------- -------------
Total Liabilities 172,366,000 183,355,000
SHAREHOLDERS' EQUITY
Series A preferred stock, 40,000 shares authorized, none issued -- --
Series B preferred stock, par value $0.0001 per share,
liquidation preference $25 per share, 2,476,000 shares authorized,
336,000 issued and outstanding in 2002, none in 2001 1,000 --
Common stock, par value $0.0001 per share, 51,484,000 shares
authorized, shares issued and outstanding - 13,091,000 in 2002
and 12,013,000 in 2001 1,000 1,000
Excess stock, par value $0.0001 per share, 16,000,000 shares
authorized, none issued -- --
Additional paid-in capital 169,682,000 152,266,000
Cumulative net income 43,516,000 41,920,000
Cumulative distributions paid (105,328,000) (99,508,000)
------------- -------------
107,872,000 94,679,000
------------- -------------
Total Liabilities and Shareholders' Equity $ 280,238,000 $ 278,034,000
============= =============
See notes to consolidated financial statements.
3
Sizeler Property Investors, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
Quarter Ended June 30 Six Months Ended June 30
-------------------------------- -------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
OPERATING REVENUE (Note A)
Rents and other income $ 13,113,000 $ 13,050,000 $ 26,209,000 $ 26,175,000
Equity in income of partnership 24,000 26,000 58,000 57,000
------------ ------------ ------------ ------------
13,137,000 13,076,000 26,267,000 26,232,000
------------ ------------ ------------ ------------
OPERATING EXPENSES
Utilities 581,000 605,000 1,067,000 1,169,000
Real estate taxes 999,000 988,000 1,998,000 1,976,000
Administrative expenses 1,395,000 1,296,000 2,810,000 2,600,000
Operations and maintenance 1,937,000 1,933,000 3,895,000 3,865,000
Other operating expenses 1,300,000 870,000 2,252,000 1,759,000
Depreciation and amortization 2,826,000 2,831,000 5,649,000 5,665,000
------------ ------------ ------------ ------------
9,038,000 8,523,000 17,671,000 17,034,000
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 4,099,000 4,553,000 8,596,000 9,198,000
Interest expense 3,543,000 3,857,000 6,849,000 7,839,000
------------ ------------ ------------ ------------
NET INCOME BEFORE EXTRAORDINARY ITEM 556,000 696,000 1,747,000 1,359,000
Extraordinary item - early
extinguishment of debt (155,000) -- (155,000) --
------------ ------------ ------------ ------------
NET INCOME $ 401,000 $ 696,000 $ 1,592,000 $ 1,359,000
============ ============ ============ ============
NET INCOME ALLOCATION:
Allocable to preferred shareholders 137,000 -- 137,000 --
Allocable to common shareholders 264,000 696,000 1,455,000 1,359,000
------------ ------------ ------------ ------------
NET INCOME $ 401,000 $ 696,000 $ 1,592,000 $ 1,359,000
============ ============ ============ ============
Net income per common share - basic
and diluted
Income before extraordinary item $ 0.03 $ 0.08 $ 0.13 $ 0.17
Extraordinary item (0.01) -- (0.01) --
------------ ------------ ------------ ------------
Net income $ 0.02 $ 0.08 $ 0.12 $ 0.17
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,990,000 8,203,000 12,615,000 8,155,000
============ ============ ============ ============
See notes to consolidated financial statements.
4
Sizeler Property Investors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended June 30
--------------------------------
2002 2001
------------ ------------
OPERATING ACTIVITIES:
Net income $ 1,592,000 $ 1,359,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item - early extinguishment of debt 155,000 --
Depreciation and amortization 5,649,000 5,665,000
Decrease in accounts receivable and accrued revenue 820,000 329,000
Increase in prepaid expenses and other assets (1,022,000) (1,196,000)
(Decrease) increase in accounts payable and accrued expenses (2,367,000) 178,000
------------ ------------
Net Cash Provided by Operating Activities 4,827,000 6,335,000
------------ ------------
INVESTING ACTIVITIES:
Acquisitions of and improvements to real estate investments (3,691,000) (3,208,000)
------------ ------------
Net Cash Used in Investing Activities (3,691,000) (3,208,000)
------------ ------------
FINANCING ACTIVITIES:
Principal payments on mortgage notes payable (1,158,000) (1,083,000)
Net payments on notes payable to banks (2,190,000) (1,655,000)
Decrease in mortgage escrow deposits 468,000 453,000
Cash dividends to shareholders (5,820,000) (3,757,000)
Cash redemption of debentures (33,811,000) --
Proceeds from debenture offering 29,300,000 --
Proceeds from preferred stock offering 7,633,000 --
Debenture issuance costs (1,967,000) --
Proceeds from issuance of shares of common stock pursuant to direct
stock purchase and dividend reinvestment, stock option,
and stock award plans 9,287,000 1,668,000
------------ ------------
Net Cash Provided by (Used in) Financing Activities 1,742,000 (4,374,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,878,000 (1,247,000)
Cash and cash equivalents at beginning of year 1,228,000 1,896,000
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 4,106,000 $ 649,000
============ ============
Cash interest payments, net of capitalized interest $ 7,737,000 $ 8,117,000
============ ============
See notes to consolidated financial statements.
5
Sizeler Property Investors, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2002
NOTE A -- BASIS OF PRESENTATION
As of June 30, 2002, the Company's real estate portfolio included interests in
fifteen shopping centers and fourteen apartment communities. The Company holds,
directly or indirectly through both wholly-owned subsidiaries and majority-owned
entities, a fee interest in twenty-seven of its properties, and long-term ground
leases on the remaining two properties - Southwood Shopping Center in Gretna,
Louisiana and Westland Shopping Center in Kenner, Louisiana. Sixteen properties
are held through partnerships and limited partnerships whereby the majority
owner is a wholly-owned subsidiary of Sizeler Property Investors, Inc. The
minority interests in these entities are held by third party corporations who
have contributed capital for their respective interests. The other thirteen
properties in the portfolio are held through wholly-owned subsidiary
corporations and limited liability companies. The Company, the wholly-owned
subsidiaries and majority-owned partnerships and limited partnerships, are
referred to collectively as the "Company", and are properly reflected on the
Company's Consolidated Balance Sheet.
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP) for interim financial information and with instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. Furthermore, the preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could materially differ from those estimates.
Operating results for the three-month and six-month periods ended June 30, 2002,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002. The consolidated balance sheet at December 31, 2001,
has been derived from the audited consolidated financial statements at that
date, but does not include all of the information and footnotes required by GAAP
for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Sizeler
Property Investors, Inc. Annual Report on Form 10-K for the year ended December
31, 2001.
NOTE B -- RECLASSIFICATIONS
Certain reclassifications have been made in the 2001 Consolidated Financial
Statements to conform with the 2002 consolidated financial statement
presentation.
NOTE C -- REAL ESTATE INVESTMENTS
On April, 2002, the Company signed a construction contract for approximately
$12.0 million for the construction of the second phase of its Governors Gate
apartment community located in Pensacola, Florida. Construction is currently
underway on the development that will add approximately 200 units to the
existing portfolio. The development is expected to be completed in early 2003.
NOTE D -- MORTGAGE NOTES PAYABLE
The Company's mortgage notes payable are secured by certain land, buildings and
improvements. At June 30, 2002, mortgage notes payable totalled approximately
$110.1 million. Individual notes ranged from $2.2 million to $18.7 million, with
fixed rates of interest ranging from 6.85% to 8.25% and maturity dates ranging
from May 1, 2008 to January 1, 2013. Net book values of properties securing
these mortgage notes payable totalled approximately $131.7 million at June 30,
2002, with individual property net book values ranging from $2.2 million to
$29.1 million.
6
NOTE E -- SEGMENT DISCLOSURE
The Company is engaged in two operating segments, the ownership and rental of
retail shopping center properties and apartment properties. These reportable
segments offer different products or services and are managed separately as each
requires different operating strategies and management expertise. Subsequent to
consolidation, there are no intersegment sales or transfers.
The Company assesses and measures segment operating results based on a
performance measure referred to as Net Operating Income and is based on the
operating revenues and operating expenses directly associated with the
operations of the real estate properties (excluding depreciation, administrative
and interest expense). Net Operating Income is not a measure of operating
results or cash flows from operating activities as measured by GAAP, and is not
necessarily indicative of cash available to fund cash needs and should not be
considered an alternative to cash flows as a measure of liquidity.
The operating revenue, operating expenses, net operating income and real estate
investments for each of the reportable segments are summarized below for the
three- and six-month periods ended June 30, 2002 and 2001.
Quarter Ended June 30 Six Months Ended June 30
-------------------------------- --------------------------------
Retail: 2002 2001 2002 2001
------------ ------------ ------------ ------------
Operating revenue $ 7,026,000 $ 7,067,000 $ 14,157,000 $ 14,344,000
Operating expenses (2,280,000) (2,215,000) (4,432,000) (4,478,000)
------------ ------------ ------------ ------------
Net operating income - retail 4,746,000 4,852,000 9,725,000 9,866,000
Apartments:
Operating revenue 6,111,000 6,009,000 12,110,000 11,888,000
Operating expenses (2,537,000) (2,181,000) (4,780,000) (4,291,000)
------------ ------------ ------------ ------------
Net operating income - apartments 3,574,000 3,828,000 7,330,000 7,597,000
Net operating income - total 8,320,000 8,680,000 17,055,000 17,463,000
Administrative expenses (1,395,000) (1,296,000) (2,810,000) (2,600,000)
Depreciation (2,826,000) (2,831,000) (5,649,000) (5,665,000)
------------ ------------ ------------ ------------
Income from operations 4,099,000 4,553,000 8,596,000 9,198,000
Interest expense (3,543,000) (3,857,000) (6,849,000) (7,839,000)
------------ ------------ ------------ ------------
Net income before extraordinary item 556,000 696,000 1,747,000 1,359,000
Extraordinary item - early
extinguishment of debt (155,000) -- (155,000) --
------------ ------------ ------------ ------------
Net income $ 401,000 $ 696,000 $ 1,592,000 $ 1,359,000
============ ============ ============ ============
June 30
--------------------------------
2002 2001
------------ ------------
Gross real estate
investments:
Retail $212,583,000 $214,921,000
Apartments 141,373,000 137,950,000
------------ ------------
$353,956,000 $352,871,000
============ ============
NOTE F -- DEBT REFINANCING
Exchange offer. On May 1, 2002, the Company completed an exchange offer for its
outstanding 8.0% convertible subordinated debentures due July 15, 2003 (Old
Debentures). As a result of the exchange offer, the Company accepted tenders
from holders of a total of $28,067,000 in aggregate principal amount of the Old
Debentures, to exchange into $27,299,000 of the Company's 9.0% convertible
subordinated debentures due July 15, 2009, and 30,720 shares of the Company's
9.75% Series B cumulative redeemable preferred stock (at $25 per share). The
exchange offer is excluded from the consolidated statement of cash flows.
7
Cash offering. On May 10, 2002, the Company closed the sale of $29,300,000 in
principal amount of its 9.0% convertible subordinated debentures due July 15,
2009, Series 5/8/02 and 305,320 shares of its 9.75% Series B cumulative
redeemable preferred stock (at $25 per share). Cash proceeds of these offerings
were $36,933,000.
After completion of the exchange offer and the application of the net proceeds
of the cash offering to redeem outstanding Old Debentures in accordance with the
Indenture governing the Old Debentures, all of the $61,878,000 principal amount
of the Old Debentures had been retired. The Company now has outstanding
$56,599,000 principal amount of its 9.0% convertible subordinated debentures due
July 15, 2009 and 336,040 shares of its 9.75% cumulative redeemable preferred
stock (with a liquidation price of $25 per share plus accumulated dividends).
NOTE G -- ACCOUNTING PRONOUNCEMENTS
Business Combinations and Goodwill. In July 2001, the Financial Accounting
Standards Board issued Statement 141, Business Combinations, and Statement 142,
Goodwill and Other Intangible Assets. Statement 141 requires that the purchase
method of accounting be used for all business combinations subsequent to June
30, 2001, as well as all purchase method business combinations completed after
June 30, 2001. In accordance with Statement 141, we are accounting for all
business combinations initiated or completed after June 30, 2001 using the
purchase method of accounting. Statement 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the provision
of Statement 142. Statement 142 was adopted by the Company effective January 1,
2002 and requires that the Company reassess the useful lives and residual values
of all intangible assets acquired, and make any necessary amortization period
adjustments. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period. No such impairment losses were recognized in the first six
months of 2002.
In August 2001, the Financial Accounting Standards Board issued Statement 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144)
which supersedes FASB Statement 121, Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of (Statement 121). Statement 144 retains the fundamental
provisions in Statement 121 for recognizing and measuring impairment losses on
long-lived assets held for use and long-lived assets to be disposed of by sale,
while also resolving significant implementation issues associated with Statement
121. Statement 144 was adopted by the Company effective January 1, 2002. Its
adoption had no material impact on the Company's financial statements because
the impairment assessment under Statement 144 is largely unchanged from
Statement 121.
NOTE H -- SUBSEQUENT EVENTS
On August 2, 2002, the Company signed a construction contract for approximately
$10.9 million for the construction of Greenbrier Estates, a new apartment
community, consisting of approximately 150 units, to be built in proximity to
the Company's North Shore Square Mall located in Slidell, Louisiana.
On August 5, 2002, the Company purchased 9.0 acres of developable land adjacent
to its new Slidell apartment community development for a purchase price of
approximately $280,000.
8
Independent Accountants' Review Report
Shareholders and Board of Directors
Sizeler Property Investors, Inc.
We have reviewed the accompanying consolidated balance sheet of Sizeler Property
Investors, Inc. and subsidiaries as of June 30, 2002, and the related
consolidated statements of income and cash flows for the three-month and
six-month periods ended June 30, 2002 and 2001. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Sizeler Property Investors, Inc. and subsidiaries as of December 31, 2001, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
January 21, 2002, except for Note I as to which the date is March 7, 2002, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2001, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG LLP
New Orleans, Louisiana
July 19, 2002
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Comparison of the Three Months Ended June 30, 2002 and 2001
Total operating revenues were approximately $13.1 million for the three-month
period ended June 30, 2002, compared to $12.9 million, on a same-store basis,
earned a year ago. Operating revenues in 2001 included the effect of Camelot
Shopping Center, which was sold in July, 2001. Operating revenues for 2001 were
$13.1 million. At June 30, 2002, retail and apartment properties were 92% and
96% leased, respectively, generating operating revenues of $7.0 million and $6.1
million, respectively. Second quarter operating costs were $4.8 million in 2002,
compared to $4.4 million in 2001. The increase in costs was primarily due to
increased property insurance costs and real estate taxes. Net operating income
totaled $8.3 million for the three months ended June 30, 2002, compared to $8.6
million, on a same-store basis, earned in 2001. Net operating income for 2001
was $8.7 million.
Interest expense for the three months ended June 30, 2002 decreased $314,000
compared to the same period last year. Interest expense was reduced due to the
Company's issuance of marketable securities which reduced the Company's floating
rate bank debt. The average credit line interest rate was 3.80% for the three
months ended June 30, 2002, compared to 6.40% in the prior year. The reduction
in bank debt interest was partially offset by increased interest expense related
to the Company's 9.0% convertible subordinated debentures due in 2009.
Comparison of the Six Months Ended June 30, 2002 and 2001
Operating revenues totaled $26.3 million for the six-month period ended June 30,
2002, compared to $25.8 million, on a same-store basis, earned a year ago.
Operating revenues in 2001 included the effect of Camelot Shopping Center, which
was sold in July, 2001. Operating revenues for 2001 were $26.2 million.
Operating costs were $9.2 million in 2002, compared to $8.8 million in 2001. The
increase in operating costs was due primarily to increased property insurance
costs and real estate taxes. Net operating income totaled $17.1 million for the
six months ended June 30, 2002, compared to $17.2 million, on a same-store
basis, earned in 2001. Net operating income for 2001 was $17.5 million. Interest
expense for the six months ended June 30, 2002 decreased approximately $1.0
million compared to 2001. Interest expense was reduced due to the Company's
issuance of marketable securities which reduced the Company's floating rate bank
debt. The average credit line interest rate was 3.92% for the six months ended
June 30, 2002, compared to 7.02% in the prior year. The reduction in bank debt
interest was partially offset by increased interest expense related to the
Company's 9.0% convertible subordinated debentures due in 2009.
Liquidity and Capital Resources
The primary source of working capital for the Company is net cash provided by
operating activities, from which the Company funds normal operating
requirements, debt service obligations, and distributions to shareholders. In
addition, the Company maintains unsecured credit lines with commercial banks,
which it utilizes to supplement cash provided by operating activities and to
initially finance the cost of property development and redevelopment activities,
portfolio acquisitions and other expenditures. At June 30, 2002, the Company had
$4.1 million in cash and cash equivalents and $50 million in committed bank
lines of credit facilities, of which approximately $49.8 million was available.
The bank lines are renewable on an annual basis and utilization is subject to
certain restrictive covenants that impose maximum borrowing levels by the
Company through the maintenance of certain prescribed financial ratios.
Net cash flows provided by operating activities decreased $1.5 million in 2002
compared to the same period in 2001. The decrease was principally attributable
to a decrease in short-term payables.
Net cash flows used in investing activities increased approximately $483,000 in
2002 from 2001, primarily attributable to increased development activities.
Net cash flows provided by financing activities increased approximately $6.1
million in 2002 from 2001 due to (i) an increase in net cash proceeds of
approximately $7.6 million from the issuance of common stock primarily pursuant
to the
10
direct stock purchase and dividend reinvestment plan; (ii) net cash proceeds of
$35.0 million from the offering for cash of debentures and preferred stock of
which $33.8 million was used to retire existing debentures and the remaining
$1.2 million is available for general corporate purposes; (iii) increased cash
dividends to shareholders of $2.1 million resulting from additional shares
outstanding and (iv) a $610,000 reduction in cash proceeds due to lower usage of
bank lines and payments on mortgage notes payable.
On May 1, 2002, the Company completed an exchange offer for its outstanding 8.0%
convertible subordinated debentures due July 15, 2003 (Old Debentures). As a
result of the exchange offer, the Company accepted tenders from holders of a
total of $28,067,000 in aggregate principal amount of the Old Debentures, to
exchange into $27,299,000 of the Company's 9.0% convertible subordinated
debentures due July 15, 2009, and 30,720 shares of the Company's 9.75% Series B
cumulative redeemable preferred stock (at $25 per share).
On May 10, 2002, the Company closed the sale of $29,300,000 in principal amount
of its 9.0% convertible subordinated debentures due July 15, 2009, Series 5/8/02
and 305,320 shares of its 9.75% Series B cumulative redeemable preferred stock
(at $25 per share). Cash proceeds of these offerings were $36,933,000.
After completion of the exchange offer and the application of the net proceeds
of the cash offering to redeem outstanding Old Debentures in accordance with the
Indenture governing the Old Debentures, all of the $61,878,000 principal amount
of the Old Debentures had been retired. The Company now has outstanding
$56,599,000 principal amount of its 9.0% convertible subordinated debentures due
July 15, 2009 and 336,040 shares of its 9.75% cumulative redeemable preferred
stock (with a liquidation price of $25 per share plus accumulated dividends).
The Board of Directors, on July 19, 2002, declared a cash dividend of $.609375
on the Company's Series B cumulative redeemable preferred stock ("preferred
stock"), payable on August 15, 2002, to shareholders of record on July 31, 2002.
The Board of Directors, on August 9, 2002, declared a cash dividend of $.609375
on the Company's preferred stock, payable on November 15, 2002, to shareholders
of record on October 31, 2002. The terms of the preferred stock will require the
Company to pay quarterly dividends of $.609375 per preferred share on a
quarterly basis. The dividend on the preferred stock must be declared before a
quarterly dividend on common stock may be declared.
As of June 30, 2002, fourteen of the Company's properties, comprising
approximately 50% of its gross investment in real estate, were subject to a
total of $110.1 million in mortgage obligations, all of which are long-term,
generally non-recourse and bear fixed rates of interest for fixed terms. The
remaining fifteen properties and vacant parcels of land in the portfolio are
currently unencumbered by debt. The Company anticipates that its current cash
balance, operating cash flows, and borrowing capacity (including borrowings
under its lines of credit) will be adequate to fund the Company's future (i)
operating and administrative expenses, (ii) debt service obligations, (iii)
distributions to shareholders, (iv) development activities, (v) capital
improvements on existing properties, and (vi) typical repair and maintenance
expenses at its properties.
The Company's current common stock dividend policy is to pay quarterly dividends
to shareholders, based upon funds from operations, as well as other factors. As
funds from operations excludes the deduction of certain non-cash charges,
principally depreciation on real estate assets, quarterly dividends will
typically be greater than net income and may include a tax-deferred return of
capital component. The Board of Directors, on August 9, 2002, declared a cash
dividend on common stock of $0.23 per share for the period April 1, 2002 through
June 30, 2002, payable on September 5, 2002 to shareholders of record as of
August 30, 2002.
Funds From Operations
Real estate industry analysts and the Company utilize the concept of funds from
operations as an important analytical measure of a Real Estate Investment
Trust's financial performance. The Company considers funds from operations in
evaluating its operating results and its dividend policy, as previously
mentioned, is also based, in part, on the concept of funds from operations.
Funds from operations (FFO) is defined by the Company as net income, excluding
gains or losses from sales of property and those items defined as extraordinary
under accounting principles generally accepted in the United States of America
(GAAP), certain non-recurring charges, plus depreciation on real estate assets
and after adjustments for unconsolidated partnerships to reflect funds from
operations on the same basis. Funds from operations do not represent cash flows
from operations as defined by GAAP, nor is it indicative that cash flows are
adequate to fund all cash needs, including
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distributions to shareholders. Funds from operations should not be considered as
an alternative to net income as defined by GAAP or to cash flows as a measure of
liquidity. A reconciliation of net income to basic and diluted funds from
operations is presented below (in thousands):
Quarter Ended June 30
---------------------------------------------
2002 2001
------------------- -------------------
($000) Shares ($000) Shares
------ ------ ------ ------
Net Income $ 401 12,990 $ 696 8,203
Additions:
Depreciation 2,826 2,831
Partnership depreciation 9 9
Early extinguishment of debt 155
Deductions:
Minority depreciation 12 13
Amortization costs 150 156
------ ------ ------ ------
Funds from Operations - Basic $3,229 12,990 $3,367 8,203
Interest on convertible debentures 1,503 1,237
Amortization of debenture
issuance costs 64 60
------ ------ ------ ------
Funds from Operations - Diluted $4,796 18,973 $4,664 13,040
====== ====== ====== ======
Six Months Ended June 30
---------------------------------------------
2002 2001
------------------- -------------------
($000) Shares ($000) Shares
------ ------ ------ ------
Net Income $1,592 12,615 $1,359 8,155
Additions:
Depreciation 5,649 5,665
Partnership depreciation 19 17
Early extinguishment of debt 155
Deductions:
Minority depreciation 27 25
Amortization costs 299 314
------ ------ ------ ------
Funds from Operations - Basic $7,089 12,615 $6,702 8,155
Interest on convertible debentures 2,741 2,475
Amortization of debenture
issuance costs 125 122
------ ------ ------ ------
Funds from Operations - Diluted $9,955 18,028 $9,299 12,992
====== ====== ====== ======
Effects of Inflation
Substantially all of the Company's retail leases contain provisions designed to
provide the Company with a hedge against inflation. Most of the Company's retail
leases contain provisions which enable the Company to receive percentage rentals
based on tenant sales in excess of a stated breakpoint and/or provide for
periodic increases in minimum rent during the lease term. The majority of the
Company's retail leases are for terms of less than ten years, which allows the
Company to adjust rentals to changing market conditions. In addition, most
retail leases require tenants to pay a contribution towards property operating
expenses, thereby reducing the Company's exposure to higher operating costs
caused by inflation. The Company's apartment leases are written for short terms,
generally six to twelve months, and are adjusted according to changing market
conditions.
New Accounting Pronouncements
During the second quarter of 2002, the FASB issued Statement 145, Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections ("Statement 145"). This statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishments of Debt, and requires that all
gains and losses from extinguishments of debt should be classified as
extraordinary items only if they meet the criteria in APB No. 30. Applying APB
No. 30 will distinguish transactions that are part of an entity's recurring
operations from those that are unusual or infrequent or
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that meet the criteria for classification as to an extraordinary item. Any gain
or loss on extinguishment of debt that was classified as an extraordinary item
in prior periods presented that does not meet the criteria in APB No. 30 for
classification as an extraordinary item must be reclassified. The Company will
adopt the provisions related to the rescission of SFAS No. 4 as of January 1,
2003.
Future Results
This Form 10-Q and other documents prepared and statements made by the Company,
may contain certain forward-looking statements that are subject to risk and
uncertainty. Investors and potential investors in the Company's securities are
cautioned that a number of factors could adversely affect the Company and cause
actual results to differ materially from those in the forward-looking
statements, including, but not limited to (a) the inability to lease current or
future vacant space in the Company's properties; (b) decisions by tenants and
anchor tenants who own their space to close stores at the Company's properties;
(c) the inability of tenants to pay rent and other expenses; (d) tenant
financial difficulties; (e) general economic and world conditions, including
threats to the United States homeland from unfriendly factions; (f) decreases in
rental rates available from tenants; (g) increases in operating costs at the
Company's properties; (h) lack of availability of financing for acquisition,
development and rehabilitation of properties by the Company; (i) possible
dispositions of mature properties since the Company is continuously engaged in
the examination of its various lines of business; (j) increases in interest
rates; (k) a general economic downturn resulting in lower retail sales and
causing downward pressure on occupancies and rents at retail properties; as well
as (l) the adverse tax consequences if the Company were to fail to qualify as a
REIT in any taxable year. Except as required under federal securities laws and
the rules and regulations of the SEC, we do not have any intention or obligation
to update or revise any forward-looking statements in this Form 10-Q, whether as
a result of new information, future events, changes in assumptions or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We incorporate by reference the disclosure contained in Item 7a, Quantitative
and Qualitative Disclosures About Market Risk, of the Company's Form 10-K, for
the year ended December 31, 2001. There have been no material changes during the
first six months of 2002.
PART II
Other Information
Item 1. Legal Proceedings.
The Company operates in various states in the Gulf South and has
subsidiaries and other affiliates domiciled in those states owning
titles to the properties in their respective states. There are no
pending legal proceedings to which the Company or any subsidiary or
affiliate is a party or to which any of its properties is subject which
in the opinion of management and its litigation counsel has resulted or
will result in any material adverse effect to the financial position of
the Company as a whole.
Item 2. Changes in Securities.
In the second quarter of 2002, the Company issued 336,040 shares of
Series B, cumulative redeemable preferred stock (NYSE:SIZPRB) and
$56,599,000 of 9.0% convertible subordinated debentures pursuant to the
refinancing of its 8.0% convertible subordinated debentures. The Company
redeemed all of its outstanding 8.0% convertible subordinated debentures
($61,878,000) due July 15, 2003 (in accordance with the Indenture
governing the Old Debentures).
Item 3. Defaults upon Senior Securities.
None.
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Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Shareholders, held on May 10, 2002,
the following matters were submitted for voting by the shareholders:
1) Election of Directors- The shareholders re-elected Francis L.
Fraenkel and Sidney W. Lassen to serve until the 2005 Annual
Meeting of Shareholders or until their successors are duly elected
and qualified (the terms of J. Terrell Brown, Harold B. Judell,
Thomas A. Masilla, Jr., James W. McFarland, Richard L. Pearlstone
and Theodore H. Strauss continued after the meeting).
Votes Votes
Directors For Withheld
--------- ---------- --------
Francis L. Fraenkel 11,204,959 321,481
Sidney W. Lassen 11,229,490 296,950
2) Proposal to amend the Company's 1996 Stock Option Plan to (i)
increase the total number of shares of common stock available under
the plan, (ii) to increase the number of shares of common stock
with respect to which options may be granted to non-employee
directors individually and as a group, and (iii) to modify the
definition of a "change of control." The shareholders approved the
proposal with 5,192,262 votes for, 1,283,545 votes against and
270,812 abstentions.
3) Proposal to amend the Company's 1994 Directors' Stock Ownership
Plan to increase the number of shares of common stock granted to
non-employee directors on an annual basis. The shareholders
approved the proposal with 10,311,122 votes for, 1,052,646 votes
against and 162,672 abstentions.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
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.
SIZELER PROPERTY INVESTORS, INC.
-------------------------------
(Registrant)
By: /S/ ROBERT A. WHELAN
---------------------------------------
Robert A. Whelan
Chief Financial Officer
Date: August 13, 2002
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