CBL & Associates Properties, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 10, 2023. CBL is a REIT focused on malls, outlet and lifestyle centers, open-air centers, and related properties, primarily in the southeastern and midwestern United States. It reported interests in 91 properties, including unconsolidated joint ventures.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $136.4 million | $140.1 million |
| Net income (loss) | $0.5 million | $(43.2) million |
| Net income (loss) attributable to common shareholders | $2.0 million; $0.06 per share | $(40.7) million; $(1.45) per share |
| Operating cash flow | $33.2 million | $42.4 million |
| Adjusted FFO allocable to Operating Partnership common unitholders | $49.9 million | $57.5 million |
| Same-center NOI | $105.2 million | $110.1 million |
Same-center NOI declined 4.5%. Portfolio occupancy was 89.8%, up 150 basis points year over year; small-shop same-center sales per square foot were $433, down from $447. CBL signed approximately 1.275 million square feet of leases, including 286,000 square feet of new leases. Comparable small-shop leasing spreads were 2.3% on initial rent and 3.5% on average rent for leases commencing in 2023.
At March 31, 2023, consolidated mortgage and other indebtedness, net, was $1.946 billion. CBL’s pro rata consolidated and unconsolidated debt before financing-cost and debt-discount deductions was $2.714 billion, with a 5.99% weighted-average interest rate; 40.9% was variable-rate. Pro rata debt included $2.556 billion of non-recourse debt and $158.3 million of recourse debt. Unrestricted cash and U.S. Treasury securities totaled approximately $282.0 million; balance-sheet cash and cash equivalents were $22.6 million, with restricted cash of $72.4 million.
Changes versus the prior-year quarter
- Revenue decreased $3.7 million, primarily reflecting lower percentage rents and an unfavorable change in estimated uncollectible revenues, partly offset by higher fees and other revenue.
- Net results improved substantially, but comparability benefited from $47.1 million less interest expense and $15.7 million less depreciation and amortization. Lower debt-discount accretion and the absence of interest on secured notes redeemed in 2022 drove much of the interest reduction.
- Adjusted FFO fell from $57.5 million to $49.9 million, reflecting lower percentage rents, higher variable-rate interest costs, and property expense increases.
- Operating cash flow decreased $9.3 million. Financing cash outflow rose to $110.0 million, primarily due to payment of regular and special dividends; the special dividend was $2.20 per share.
- Reported income included a $28.2 million gain from deconsolidating Alamance Crossing East after it entered receivership, and a $1.6 million gain primarily from land parcel sales. These items are not indicative of recurring property operations.
Outlook, risks, and unusual items
- Management provided no specific numerical earnings or operating guidance in the supplied filing text. Its stated priorities are improving occupancy and rent growth, enhancing free cash flow, reducing debt, extending maturities, and disciplined capital allocation.
- Management reported portfolio occupancy improvement and higher rents and lease spreads, while noting moderated sales that remained above 2019 levels. It attributed expense pressure to delayed maintenance work and timing of third-party contracts.
- Debt refinancing remains a key concern. Pro rata debt had a 2.2-year weighted-average remaining term. Scheduled consolidated principal and balloon payments totaled $180.2 million for the remainder of 2023 and $828.6 million in 2025. WestGate Mall’s $28.7 million loan was in maturity default; CBL said it was negotiating with the lender. Cross Creek Mall’s loan received only a short extension through May 20, 2023, with longer-term discussions ongoing.
- After quarter-end, CBL and a joint venture partner entered into a $148 million Friendly Center loan at a fixed 6.44%, maturing in May 2028. The Operating Partnership also entered into a swap fixing the rate on $32 million of variable-rate debt at 7.3975% through June 2027.
- Alamance Crossing East was deconsolidated following receivership; its $41.1 million loan remained outstanding at quarter-end. The filing also describes an unconsolidated-affiliate portfolio with $1.359 billion of debt and a combined owners’ deficit.
- A securities class action settlement received preliminary court approval in April 2023, subject to a final fairness hearing. The settlement is expected to be funded by D&O insurance, with no company or individual-defendant contribution expected, subject to policy terms and court approval. A separate Delaware action was voluntarily dismissed in February 2023.
- Principal disclosed risks include interest-rate movements, access to refinancing and capital, tenant bankruptcies and vacancies, retail demand and online competition, operating costs, and broader economic conditions. A 0.5 percentage-point rate increase was estimated to reduce annual cash flows by approximately $5.5 million.
Important facts for investors to verify
- Progress and terms of refinancing or extensions for 2023 maturities, WestGate Mall, and Cross Creek Mall, and the company’s ability to address the 2025 maturity concentration.
- Whether occupancy and leasing gains translate into sustained rental growth and improved same-center NOI, given lower sales and percentage rents.
- Cash available for operations and debt service after dividends, and whether dividend levels remain compatible with liquidity and refinancing needs.
- Actual performance and debt exposure of unconsolidated affiliates, guarantees, and properties in receivership or excluded from operating metrics.
- Final approval, insurance coverage, and funding of the securities litigation settlement.