CBL & Associates Properties, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. CBL is a REIT operating primarily through CBL & Associates Limited Partnership. Unless stated otherwise, dollar amounts below are in millions.
Financial performance and condition
- Revenue: $263.1, up 0.8% from $260.9 in Q1 2015. Rental revenue and tenant reimbursements rose, partly offset by property dispositions and lower fee and other revenue.
- Profit: Operating income was $63.8 versus $85.0; operating margin was approximately 24.3% versus 32.6%. The decline largely reflects a $19.7 non-cash impairment charge and higher other expenses. Net income was $41.9 versus $53.2; net income attributable to common shareholders was $28.9 versus $34.9. Diluted EPS was $0.17 versus $0.20.
- Key non-GAAP measure: Adjusted FFO per diluted share was $0.56, up from $0.52. Adjusted FFO excludes, among other items, $26.4 of equity-method gain from a joint-venture transaction and $1.7 of litigation-related expense in 2016.
- Cash flow: Operating cash flow was $85.8 versus $105.7. Investing used $2.1; financing used $95.5. Cash declined $11.9 to $25.0. Cash dividends paid to common shareholders and preferred holders totaled $56.4; the declared common dividend was $0.265 per share.
- Debt and liquidity: Consolidated mortgage and other debt, net, was $4.683 billion, down from $4.711 billion at year-end. The Operating Partnership reported $387.2 outstanding on $1.1 billion of credit facilities, leaving about $712.8 available. Management reported covenant compliance. Its pro-rata consolidated and unconsolidated debt was approximately $5.312 billion.
- Other operating metrics: Same-center NOI increased 2.8%; same-center mall occupancy improved to 91.0% from 89.7%; trailing-12-month same-center mall sales rose 2.4% to $378 per square foot. Comparable mall average base rent increased to $31.68 per square foot from $31.22.
Material changes versus Q1 2015
- Revenue increased modestly, but operating income and common-shareholder earnings declined, reflecting impairment expense and the prior-year period’s $16.6 gain on sale of available-for-sale securities and partial litigation settlement.
- Equity in earnings of unconsolidated affiliates rose to $32.4 from $3.8, principally due to a $26.4 gain associated with a joint-venture property transaction. This is a significant non-recurring contributor to reported results.
- Interest expense fell to $55.2 from $59.2, primarily as higher-cost secured debt was replaced with lower-cost unsecured borrowing; reduced property-level interest was partly offset by higher corporate-level interest.
- Operating cash flow was lower, mainly due to disposition-related cash flow and working-capital timing.
Outlook, commentary, risks and unusual items
- Management reported 8% growth in adjusted FFO and cited rent growth, improved occupancy, stronger sales, higher percentage rent and lower borrowing costs. It expected a positive sales environment for the remainder of 2016; no specific full-year earnings guidance is provided in the supplied filing text.
- Management said operating cash flows, financing sources and available credit were expected to provide adequate liquidity for the foreseeable future. It planned to address 2016 maturities through refinancing, credit-line borrowings, extensions, or property exits. Subsequent to quarter-end, four loans totaling $100.0 were retired using credit availability.
- At March 31, $562.4 of pro-rata debt was scheduled to mature in 2016, including joint-venture debt; certain maturities were extended or retired after quarter-end. Management planned to work with lenders to exit Midland Mall and Chesterfield Mall and anticipated refinancing or repaying other loans.
- Gulf Coast Town Center’s lender had issued a notice of default and initiated foreclosure proceedings in 2015; the property’s mortgage balance was $190.8, with CBL’s share $95.4. The lender was receiving the property’s net operating cash flow in lieu of scheduled payments.
- Q1 impairment charges included $5.3 for Bonita Lakes, $4.7 for Midland Mall and $9.5 related to River Ridge Mall; the latter included a $2.1 reserve for future work. CBL sold a 75% River Ridge interest and retained 25% through a joint venture.
- Other post-quarter-end transactions included the April sale of The Crossings at Marshalls Creek for $23.7 gross and the April sale of Renaissance Center by an unconsolidated affiliate. Management expected gains from both transactions in Q2; the Renaissance Center gain was expected to be approximately $57.0 at the affiliate level.
- Contingencies include guarantees of certain joint-venture debt and a York Town Center lease-performance guarantee with a maximum obligation of $14.8 at quarter-end. Management said ordinary-course litigation was not expected to materially affect the company; environmental exposure was considered reasonably possible but not material.
- Key business risks include retail tenant bankruptcies or closures, vacancies and rent pressure, competition and consumer-demand changes, interest-rate and refinancing risk, access to capital, and the performance of challenged or repositioning properties. The filing also notes that results are seasonal, with typically stronger retail activity in Q4.
Important facts for investors to verify
- How much of adjusted FFO growth is attributable to recurring property operations versus excluded transactions and other adjustments.
- Progress on 2016 debt maturities, credit-facility usage, refinancing costs and management’s planned exits from Midland Mall and Chesterfield Mall.
- Developments in Gulf Coast Town Center’s default and foreclosure process, and any resulting obligations or effects on the joint venture.
- Whether occupancy, rents, sales and same-center NOI gains persist, particularly given lower occupancy at some non-stabilized, associated and community-center properties.
- Actual Q2 proceeds and gains from the subsequent property sales, and the amount of any required capital spending or joint-venture support.