CBL & Associates Properties, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019; compared with the corresponding 2018 periods. Dollar amounts below are in millions unless otherwise noted. CBL is a retail-property REIT operating principally through CBL & Associates Limited Partnership.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $187.3 | $206.9 | $578.7 | $641.7 |
| Net loss | $(92.0) | $(3.0) | $(168.5) | $(33.6) |
| Net loss attributable to common shareholders | $(90.1) | $(12.6) | $(175.7) | $(57.9) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $225.2 | $280.4 |
| Adjusted FFO per diluted share | $0.34 | $0.40 | $0.98 | $1.28 |
- Revenue declined about 9.5% in Q3 and 9.8% year to date. Management attributed the weakness primarily to store closures, rent concessions for tenants with high occupancy costs, tenant bankruptcies and property sales.
- Same-center NOI fell 5.9% in Q3 and 5.5% year to date. Occupancy was 90.5% for the total portfolio versus 92.0% a year earlier; mall occupancy was 88.7% versus 90.5%.
- Impairment losses were $135.7 million in Q3 and $202.1 million for nine months, compared with $14.6 million and $84.6 million, respectively, in 2018. 2019 charges included write-downs at five malls and one community center.
- Nine-month results included a $71.7 million gain on extinguishment of debt and a net $65.5 million litigation settlement expense. Q3 included a $22.7 million reduction of the settlement accrual and an $11.2 million gain on investment/deconsolidation.
- Adjusted FFO declined 14.5% in Q3 and 23.1% year to date. Management cited lower property NOI, asset-sale dilution, and higher legal and financing-related costs. FFO is a non-GAAP measure, not a substitute for cash flow or GAAP earnings.
Debt, liquidity and cash flows
- At September 30, consolidated debt, net, was $3.70 billion, down from $4.04 billion at year-end 2018. CBL reported total pro rata debt, including its share of unconsolidated affiliates, of $4.29 billion, with a 4.95% weighted-average rate.
- Cash, cash equivalents and restricted cash totaled $63.3 million, including $34.6 million unrestricted. The secured revolving facility had $304.8 million drawn and $380.2 million available after letters of credit.
- Nine-month operating cash flow was $225.2 million. Investing activities provided $55.9 million, including property-sale proceeds; financing activities used $275.4 million. Capital expenditures were $90.4 million in cash-flow reporting, while the company’s broader capital-expenditure table reported $46.0 million excluding development, redevelopment and expansion expenditures.
- In January, CBL replaced its unsecured bank facilities with a $1.185 billion secured facility: a $500 million term loan and a $685 million revolver, maturing in July 2023. The term loan requires $35 million of annual principal reductions. Management said the refinancing addressed significant 2019 maturities and unsecured bank maturities through 2022.
- Scheduled consolidated debt principal payments included $1.19 billion in 2023. Key covenant ratios were reported within requirements, including total debt to assets of 53% against a limit below 60%, and debt-service coverage of 2.4x against a minimum 1.5x.
- Ratings on unsecured long-term debt were B- (Fitch), Caa1 (Moody’s) and BB- (S&P), each with a negative outlook. A 0.5 percentage-point rate increase was estimated to reduce annual cash flow by about $4.7 million.
Management outlook, risks and unusual items
- Management said quarterly results were in line with expectations; same-center sales increased over 3% in Q3, and new-lease spreads improved. More than 40 anchor stores had closed, with 27 replacements committed, under construction or open.
- Management estimated approximately $200 million of free cash flow and cited $128.4 million of net sale proceeds year to date to support redevelopment investment and debt reduction. It stated that operations, financing availability and dispositions should provide adequate liquidity for the foreseeable future. No formal earnings or FFO guidance is provided in the supplied filing text.
- The company reported a $90 million common fund settlement value in the Salon Adrian class action, accrued $88.2 million in Q1, and reduced the accrual by $22.7 million in Q3. The agreement barred common-share dividends payable in Q3 and Q4 2019; the prior annualized common dividend had already been cut from $0.80 to $0.30 per share beginning with the January 2019 payment. The settlement does not restrict dividends in 2020 or later.
- The company received SEC and Department of Justice document requests concerning the Salon Adrian litigation and related matters and said it was cooperating. Securities class actions and shareholder derivative suits were also pending; outcomes and potential losses were not specified.
- Other key risks include tenant closures and bankruptcies, declining mall occupancy and rents, refinancing and interest-rate risk, and the company’s ability to access capital. Management noted that it no longer qualified as a well-known seasoned issuer and could not use its existing shelf registration statement.
Important facts for investors to verify
- Debt maturities, refinancing plans and covenant compliance—particularly the 2023 maturity concentration and negative credit-rating outlooks.
- Whether occupancy, same-center NOI, rent collections and lease spreads stabilize amid continuing bankruptcies and store closures.
- Final cash and rent-credit obligations under the Salon Adrian settlement, and developments in the SEC/DOJ inquiries and related securities and derivative litigation.
- Realized proceeds from asset dispositions, use of revolver availability, and whether redevelopment commitments and management’s liquidity expectations are achieved.
- Future common-dividend decisions and the sustainability of adjusted FFO and operating cash flow; reported GAAP losses and non-GAAP FFO measures should be assessed separately.