CBL & Associates Properties, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The filing combines CBL & Associates Properties, Inc. and its operating partnership, which conducts substantially all of the business. CBL is a retail-focused REIT operating malls and other properties, primarily in the Southeast and Midwest. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise.
Financial performance and key metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $193.4 | $214.6 | $391.4 | $434.8 |
| Rental revenue | $185.4 | $207.6 | $376.4 | $420.3 |
| Net loss | $29.7 | $30.0 | $76.5 | $30.6 |
| Net loss attributable to common shareholders | $35.4 | $35.0 | $85.6 | $45.3 |
| Loss per common share | $0.20 | $0.20 | $0.49 | $0.26 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $126.0 | $179.9 |
- Revenue fell about 9.9% in Q2 and 10.0% for the first half. Management attributed comparable-property rental declines chiefly to store closures, tenant bankruptcies and rent concessions for tenants with high occupancy costs.
- Six-month results included an $88.2 million litigation settlement expense and a $71.7 million gain on debt extinguishment. The settlement expense was partly offset by the debt gain; the company also recorded $66.4 million of impairment losses in the first half.
- Same-center NOI, a company-defined non-GAAP measure, declined 5.7% in Q2 to $143.0 million and 5.3% for the first half to $285.4 million. FFO allocable to Operating Partnership common unitholders declined 25.6% in Q2 to $68.5 million and 35.7% in the first half to $112.6 million. Adjusted first-half FFO was $129.1 million versus $176.6 million.
- Occupancy was 90.2% versus 91.1% a year earlier; mall occupancy was 88.1% versus 89.2%. Stabilized mall sales per square foot over the 12 months ended June 30 were $381, up 0.8% year over year. Management said Q2 sales increased more than 4%; leasing spreads remained negative on comparable space, though management reported improvement from recent quarters.
Balance sheet, cash flow and debt
- At June 30, net consolidated debt was $3.866 billion, down from $4.043 billion at December 31, 2018. The company’s pro rata share of consolidated and unconsolidated debt was approximately $4.4 billion. Total assets were $5.048 billion and total equity was $918.6 million.
- Cash, cash equivalents and restricted cash totaled $45.5 million, including $20.5 million of unrestricted cash. The secured credit line had $383.1 million drawn and $301.9 million available after letters of credit.
- First-half operating cash flow was $126.0 million; investing activities provided $27.1 million, principally reflecting property-sale proceeds; financing activities used $165.1 million. Cash flow from operations decreased $53.9 million year over year, mainly from lower rents and dispositions.
- In January, CBL replaced prior unsecured bank facilities with a $1.185 billion secured facility: a fully funded $500 million term loan and a $685 million revolver. At quarter-end, the term loan balance was $482.5 million and the revolver balance was $383.1 million; both bore a 4.69% variable rate. Pro rata variable-rate debt represented 23.2% of total pro rata debt.
- Scheduled consolidated principal payments, excluding optional extensions, include $1.269 billion in 2023. Management reported covenant compliance at June 30: total debt to assets 52% against a limit below 60%; secured debt to assets 34% against a limit below 40%; unencumbered assets to unsecured debt 191% against a minimum 150%; and debt-service coverage 2.3x against a minimum 1.5x.
Material changes, outlook and risks
- Management said the new secured facility addressed significant 2019 maturities and unsecured debt maturities through 2022. The company refinanced Volusia Mall’s loan, extending it to 2024 and reducing its rate from 8.00% to 4.56%, and extended the Outlet Shoppes at Laredo loan to 2021 with a $10.8 million paydown.
- Common dividends were reduced to an annualized $0.30 per share beginning with the January 2019 payment, from $0.80. Under the class-action settlement, no common dividends will be paid for the third and fourth quarters of 2019. Preferred dividends continued. The filing provides no formal earnings or FFO guidance.
- The settlement provides for a common fund with monetary and non-monetary value of $90 million, based on aggregate damages of $60 million; the company accrued $88.15 million of expense. Current tenants are scheduled to receive rent credits beginning no earlier than January 2020 over five years, while eligible former tenants may receive cash. Court approval is required for specified fees and costs. CBL denies wrongdoing.
- Retail and occupancy risks include store closures and bankruptcies. Ascena planned to close its 12 Dressbarn stores in CBL’s portfolio by year-end 2019, representing $1.3 million in annual rent; Charming Charlie planned to close its 11 stores by August 31, representing $0.9 million in annual rent. Bankruptcy-related closures reduced Q2 occupancy by approximately 322 basis points, according to management.
- The company recorded impairments on Greenbrier Mall and EastGate Mall due to weaker cash flows, store closures and rent reductions; other first-half impairments included Honey Creek Mall and The Forum at Grandview. Four properties classified as held for sale at quarter-end were sold in July for aggregate gross proceeds of $46.6 million. The lender also foreclosed on Triangle Town Center after quarter-end.
- Two securities class actions and shareholder derivative litigation were pending after quarter-end; outcomes and potential losses were not predictable. Other cited risks include tenant failures, competition and online shopping, refinancing and capital availability, interest-rate movements, and property operating performance. A 0.5 percentage-point change in rates was estimated to affect annual cash flows by approximately $5.1 million.
Important facts for investors to verify
- Whether the settlement receives court approval and how its cash, rent-credit and dividend restrictions affect liquidity and distributions.
- Near-term refinancing needs and the company’s ability to meet the 2023 maturity concentration while maintaining covenant compliance and revolver availability.
- Ongoing occupancy, rent collections, tenant bankruptcies, replacement-anchor progress and comparable-property NOI and FFO trends.
- Proceeds and debt reduction from asset sales, and any further property transfers, foreclosures or impairments.
- Developments in the securities and derivative lawsuits, including any change in the company’s assessment of exposure.