CBL & Associates Properties, Inc. — Q1 2015 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2015, compared with Q1 2014. CBL is a REIT focused on shopping malls and other retail and office properties, primarily in the southeastern and midwestern United States. At quarter-end, it had interests in 135 properties, including 112 consolidated properties. CBL conducts substantially all operations through CBL & Associates Limited Partnership (the Operating Partnership).
Key financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $260.9 million | $261.2 million |
| Income from operations | $85.0 million | $76.2 million |
| Net income | $53.2 million | $63.8 million |
| Net income attributable to common shareholders | $34.9 million; $0.21 diluted EPS | $44.1 million; $0.26 diluted EPS |
| Adjusted FFO per diluted share | $0.52 | $0.52 |
| Net cash provided by operating activities | $105.7 million | $86.9 million |
| Cash and cash equivalents at quarter-end | $38.0 million | $56.2 million |
| Consolidated mortgage and other debt at quarter-end | $4.67 billion | $4.70 billion at Dec. 31, 2014 |
- Operating margin, calculated as income from operations divided by revenue, was approximately 32.6%, compared with 29.2% in Q1 2014.
- Same-center NOI increased 0.6% to $176.6 million. Same-store sales per square foot rose 6.9% year over year; trailing-twelve-month sales reached $365 per square foot versus $355.
- Same-center stabilized mall occupancy fell to 89.5% from 92.6%, primarily reflecting bankruptcy-related store closures.
- At March 31, consolidated debt was 85% fixed-rate and 15% variable-rate, with a weighted-average interest rate of 4.94%. The company reported $214.1 million outstanding on its credit facilities and approximately $1.1 billion of remaining availability.
Material changes versus prior period
- Revenue was essentially flat. Reported net income and EPS declined, largely because Q1 2014 included a $42.7 million gain on extinguishment of debt; Q1 2015 had no comparable gain. Q1 2014 also included $17.2 million of impairment losses, while Q1 2015 had none.
- Q1 2015 included a $16.6 million gain from selling all available-for-sale securities and approximately $4.7 million of net proceeds from a litigation settlement. Excluding specified unusual items, adjusted FFO per diluted share was unchanged at $0.52.
- Operating cash flow increased $18.8 million year over year. Investing cash use narrowed to $8.0 million, partly reflecting securities-sale proceeds; financing cash use increased to $97.7 million, including dividends and debt repayments.
- Debt declined by approximately $30.7 million from year-end. The company modified a $50 million unsecured term loan in January, reducing its LIBOR spread from 190 to 155 basis points.
- Common dividends declared increased to $0.265 per share from $0.245; the Q1 2015 dividend was paid April 15.
Outlook, commentary and risks
- Management reported 10.6% average rent spreads on stabilized mall leases signed in the quarter and said leasing demand remained strong. It had executed, sent for signature, or was actively negotiating leases covering just over half of the bankruptcy-related vacancies.
- Approximately 175 bankruptcy-related store closures represented more than $16 million in annual gross rent. Management expected occupancy to remain lower through the rest of 2015, with many replacement stores opening later in 2015 and into 2016. It expected sales to remain positive for the rest of 2015; no specific full-year earnings guidance is provided in the supplied filing text.
- Management planned to refinance or retire 2015 maturities using credit facilities, unsecured debt issuance and secured refinancing for joint ventures. It reported $794.1 million of its pro rata debt scheduled to mature during the remainder of 2015; $692.5 million was identified as requiring retirement or refinancing after specified extension options. Subsequent to quarter-end, it repaid a $49.6 million property loan using credit-facility borrowings.
- Key exposures include retail tenant bankruptcies and store closures, occupancy and leasing conditions, interest-rate movements, access to refinancing and capital, and the performance of redevelopment and joint-venture projects. A 0.5 percentage-point increase in rates was estimated to raise annual interest expense by approximately $3.8 million on the company’s pro rata variable-rate debt.
- Joint-venture debt guarantees had a recorded liability of $1.4 million. A separate lease-performance guarantee had a maximum obligation of $15.6 million at quarter-end. Management said ordinary-course litigation was not expected to materially affect the business; environmental exposure was considered reasonably possible but not expected to be material.
- After quarter-end, CBL sold Madison Square for $5.0 million and expected to record an approximately $2.7 million impairment in Q2 2015. It also expected to close a community-center sale for $22.8 million, including assumption of related debt.
Important facts for investors to verify
- Progress and economics of refinancing the remaining 2015 debt maturities, including the use of credit facilities and any planned unsecured bond offering.
- Whether leasing activity converts into opened replacement stores, and the effect of closures on occupancy, rent collections and same-center NOI.
- Full-year performance against management’s qualitative outlook, especially occupancy, sales, rent spreads and adjusted FFO.
- Actual proceeds, debt assumed and any impairment from the planned property dispositions, plus the results of ongoing redevelopment projects.
- Changes in interest-rate exposure, covenant headroom and contingent obligations, including joint-venture guarantees.