CBL & Associates Properties, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Amounts below are in millions unless noted. The unaudited filing was submitted November 16, 2020, after the company commenced Chapter 11 proceedings on November 1.
Business context and reporting period
CBL is a REIT focused primarily on regional malls, with properties in 26 states. At quarter-end it reported interests in 99 properties: 77 consolidated and 22 unconsolidated. The business was severely affected by COVID-19 closures, tenant distress and rent relief. All mall properties had reopened by the end of Q3, though restrictions remained in some markets.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $129.9 | $187.3 | $421.7 | $578.7 |
| Net loss | $(44.4) | $(92.0) | $(256.5) | $(168.5) |
| Net loss attributable to common shareholders | $(54.1) | $(90.1) | $(269.4) | $(175.7) |
| Loss per common share | $(0.28) | $(0.52) | $(1.43) | $(1.01) |
| Operating cash flow | Not presented by quarter | $59.2 | $225.2 |
- Operating performance: Same-center NOI fell 30.5% in Q3 to $91.4 million and 23.7% year to date to $303.7 million. Adjusted FFO per diluted share was $0.04 for Q3 and $0.32 for nine months, versus $0.34 and $0.98, respectively, in 2019.
- Margins and occupancy: The filing does not provide a single company-wide operating margin. Portfolio occupancy was 86.8% at September 30, down from 90.5% a year earlier; mall occupancy was 85.2%, versus 88.7%.
- Cash and investments: Cash, cash equivalents and restricted cash totaled $141.2 million at September 30, including $106.8 million of cash and $34.4 million of restricted cash. The company also held $151.8 million of U.S. Treasury securities. Management described $258.6 million as available in unrestricted cash and Treasuries.
- Debt: Consolidated mortgage and other indebtedness, net, was $3.73 billion, up from $3.53 billion at year-end 2019. Total pro rata debt, including unconsolidated affiliates, was approximately $4.45 billion. The secured credit facility had $675.9 million drawn on its line and a $438.8 million term loan; both were subject to a stated 9.50% post-default rate.
- Cash flow and spending: Nine-month investing cash outflow was $201.5 million, including $153.2 million used to buy Treasuries; financing cash inflow was $224.5 million, largely reflecting borrowing. The company suspended common and preferred dividends and reduced or deferred capital spending.
Material changes versus prior comparable periods
- Revenue declined 30.6% in Q3 and 27.1% year to date, driven by property closures, rent abatements, tenant bankruptcies, uncollectible rent and lower percentage rent.
- Management recorded $54.5 million of year-to-date lease-related reserves and write-offs for potentially uncollectible rental revenue, and $14.9 million of rent abatements. Deferred tenant receivables were $22.1 million at quarter-end.
- Q3 net loss was lower than 2019 partly because 2019 included $135.7 million of impairment charges. For nine months, 2020 impairment charges were $147.0 million, compared with $202.1 million in 2019. 2020 included a $15.4 million gain on debt extinguishment from transferring Hickory Point Mall to its lender.
- Operating cash flow decreased $166.1 million year over year. Total debt rose, while the weighted-average interest rate on consolidated fixed and variable debt increased to 6.51% from 5.02% at year-end 2019.
- Five mall loans were in default at September 30. The company failed its secured-facility minimum debt-yield covenant, reporting 9.7% against a required level above 10%.
Outlook, restructuring, risks and unusual items
- Guidance: CBL had withdrawn its full-year 2020 same-center NOI and adjusted FFO guidance and stated it did not plan to reinstate guidance.
- Chapter 11 and proposed restructuring: The company and certain subsidiaries filed for Chapter 11 on November 1, 2020. An August restructuring support agreement with noteholders contemplated exchanging $1.375 billion of notes for $500 million of new secured notes, about $50 million cash and approximately 90% of new common equity; it also contemplated restructuring preferred stock. These were proposed terms, subject to the bankruptcy process and applicable conditions.
- Going concern and creditor actions: Management concluded substantial doubt existed about the company’s ability to continue as a going concern within one year. Secured lenders declared facility obligations due and exercised rights to direct rents from collateral properties and voting rights over guarantor subsidiaries; CBL disputed the lenders’ actions and obtained a temporary restraining order. Chapter 11 filing also triggered defaults under unsecured notes and certain property-level debt.
- Other major risks: COVID-19 impacts, tenant bankruptcies and rent collection, debt acceleration and refinancing, property impairments, NYSE suspension and delisting proceedings, and uncertainties over the reorganization plan. The NYSE suspended trading and began delisting proceedings November 2; the securities moved to OTC trading while CBL said it intended to appeal.
- Controls and reporting: Disclosure controls were deemed ineffective because a material weakness arose from insufficient accounting and financial-reporting personnel following turnover. The company planned to hire additional staff and potentially use outside advisers. The filing also notes a late-filing notification.
- Legal and other items: Securities and derivative litigation remained unresolved; the company reported SEC and DOJ document requests relating to prior litigation and related matters. It also disclosed 6,134 unregistered shares inadvertently issued through its dividend reinvestment plan before the plan was fully suspended.
Important facts for investors to verify
- Current bankruptcy plan terms, creditor support, court milestones and expected treatment of common and preferred equity.
- Status and effect of secured-facility acceleration, lender control over collateral rents and the temporary restraining order or any subsequent court orders.
- Cash available to the debtors, restrictions on cash and Treasuries, and liquidity needs during Chapter 11.
- Tenant rent collections, deferred and abated rent recovery, additional bankruptcies or closures, and subsequent impairment charges.
- Whether the material weakness is remediated, and developments in NYSE delisting proceedings and the disclosed litigation.