CBL & Associates Properties, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. CBL is a REIT operating malls, outlet and open-air centers, community centers and office properties, primarily in the southeastern and midwestern United States. It reported 133 properties, including 110 consolidated and 23 unconsolidated properties. Unless noted, financial amounts below are in millions.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $262.6 | $258.7 | $777.4 | $776.9 |
| Income from operations | $94.0 | $97.4 | $268.9 | $270.8 |
| Net income | $44.4 | $57.3 | $146.0 | $165.2 |
| Common EPS | $0.15 | $0.22 | $0.54 | $0.64 |
| Operating cash flow | — | $359.9 | $329.3 | |
| Adjusted FFO per diluted share | $0.56 | $0.55 | $1.61 | $1.61 |
- Revenue was nearly flat year to date. Q3 growth reflected new properties and same-center revenue increases, partly offset by dispositions. Same-center NOI was essentially flat in Q3 and up 0.3% year to date.
- Net income and EPS fell year over year, partly because 2014 included substantial gains on extinguishment of debt: $18.3 million in Q3 and $60.9 million for the nine-month period. In 2015, reported results included a $16.6 million gain on sale of marketable securities and $18.2 million of real-estate sale gains for the nine months.
- Q3 general and administrative expense increased to $13.0 million from $9.5 million; year-to-date expense increased to $46.4 million from $35.6 million, reflecting payroll, legal and litigation-related costs, consulting and bonuses.
- Nine-month net cash used in investing was $299.6 million, including the $192.0 million Mayfaire acquisition. Financing used $65.8 million. Cash and cash equivalents ended at $32.4 million, down $5.5 million from year-end 2014.
Debt, liquidity and capital
- Consolidated mortgage and other debt was $4.82 billion at September 30, up from $4.70 billion at December 31, 2014. Its weighted-average rate was 4.47%; pro rata consolidated and unconsolidated debt was $5.49 billion at a 4.49% weighted-average rate.
- Variable-rate debt was 26.1% of pro rata debt, versus 14.7% at year-end. The company estimated a 0.5 percentage-point rate increase would raise annual interest expense by about $7.0 million after capitalized interest.
- At quarter-end, $832.1 million was drawn on $1.3 billion of unsecured credit facilities, leaving about $467.9 million available. October amendments increased aggregate facility and term-loan capacity to $1.45 billion; management said post-transaction line borrowings were about $580 million, with over $600 million available. Current ratings implied improved pricing on the refinanced facilities.
- Management reported compliance with debt covenants. Key actual ratios included debt to total asset value of 50% against a maximum of 60%, and EBITDA to fixed charges of 2.2x against a minimum of 1.5x. Debt-to-total-market capitalization was 61.9%, up from 56.2% a year earlier, reflecting a lower share price and higher variable-rate borrowing.
- The 2015 maturity schedule included $265.99 million of consolidated debt. After subsequent refinancing and extensions, management identified $113.7 million of pro rata 2015 maturities still requiring repayment or refinancing, subject to available extension options.
Operating performance, outlook and notable items
- Same-center mall sales per square foot rose 4.2% to $371 for the trailing twelve months. Stabilized mall occupancy was 91.6% at September 30, down from 93.4% a year earlier, but above 89.9% at the prior quarter end. Leasing spreads on comparable stabilized mall space were positive.
- About 70% of the 175 bankruptcy-related closed stores were leased, committed or under active negotiation. Management said many replacement tenants would open in late 2015 or 2016. It forecast year-end occupancy of 92.7%–93.2%, 150–200 basis points below prior-year levels. No full-year earnings or FFO guidance is provided in the supplied filing text.
- Gulf Coast Town Center Phases I and II, held in a 50/50 joint venture, generated insufficient cash flow for debt service. The lender issued a default notice and began foreclosure proceedings in September; the $190.8 million loan was non-recourse, and the lender began receiving property cash flows instead of scheduled payments. Management anticipated possible foreclosure before year-end.
- CBL acquired Mayfaire Town Center and Community Center for $192.0 million in June. It also sold properties and outparcels, with $33.4 million of consolidated real-estate sale proceeds reported in investing cash flows. A $200 million share repurchase authorization was approved in July; no shares had been repurchased by September 30.
- Management described ongoing ordinary-course litigation as not expected to materially affect the company. It received $4.9 million as a partial lawsuit settlement during the first nine months. Environmental losses were considered reasonably possible but not expected to be material; guarantees and performance bonds create additional contingent exposure.
Most important facts for investors to verify
- Progress and ultimate resolution of Gulf Coast Town Center foreclosure proceedings, and potential effects on joint-venture earnings, guarantees and property ownership.
- Completion and terms of the October credit-facility and term-loan transactions, actual available liquidity, and repayment or refinancing of remaining 2015 maturities.
- Whether mall occupancy recovers as bankruptcy-related replacement tenants open, and whether sales growth translates into same-center NOI growth.
- Debt exposure to rising rates, leverage measures and covenant headroom; distinguish consolidated debt from the company’s pro rata share of unconsolidated affiliate debt.
- Durability of adjusted FFO and cash available for dividends, given higher G&A costs, capital spending, debt needs and the authorized but discretionary stock repurchase program.