CBL & Associates Properties, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. CBL is a REIT that owns, leases, manages, develops and operates shopping malls and other retail and office properties, primarily in the southeastern and midwestern United States. It conducts substantially all operations through CBL & Associates Limited Partnership, or the Operating Partnership.
Financial and operating performance
| Metric | FY 2014 | FY 2013 | Change / note |
|---|---|---|---|
| Total revenue | $1,060.7 million | $1,053.6 million | Up 0.7% |
| Income from operations | $375.1 million | $330.8 million | Up 13.4%; operating margin was approximately 35.4%, versus 31.4% |
| Net income attributable to CBL common shareholders | $174.3 million; $1.02 per diluted share | $40.3 million; $0.24 per diluted share | Increase largely reflects a debt-extinguishment gain, not just property operations |
| Adjusted FFO, Operating Partnership | $454.6 million | $435.9 million | Up 4.3%; management’s adjusted measure excludes specified unusual items |
| Cash from operating activities | $468.1 million | $464.8 million | Up $3.3 million |
| Cash and cash equivalents | $37.9 million | $65.5 million | Down $27.6 million |
| Consolidated mortgage and other debt | $4,700.5 million | $4,857.5 million | Down $157.1 million |
- Property indicators: Same-center NOI increased 2.4%; Mall portfolio occupancy was 94.9%, compared with 94.8%. Comparable mall-store sales were $360 per square foot, down 0.3%.
- Debt and leverage: CBL’s pro rata share of consolidated and unconsolidated debt was $5,346.3 million, with a 4.91% weighted-average interest rate; 14.7% was variable-rate. Pro rata debt was 54.3% of total market capitalization.
- Liquidity and obligations: Three unsecured credit facilities had total capacity of $1.3 billion and $221.2 million outstanding at year-end, in addition to letters of credit. Management said operating cash flow, financing sources and facility availability should provide adequate liquidity. Approximately $696.0 million of pro rata debt maturities in 2015 remained to be retired or refinanced after available extensions.
- Capital returns: The common dividend declared for 2014 totaled $1.00 per share. The quarterly dividend rose 8.2% to $0.265 in Q4, payable in January 2015.
Material changes and unusual items
- Revenue rose modestly, while operating expenses fell $37.3 million, primarily because impairment charges were substantially lower than in 2013. Reported operating income and net income also benefited from property and financing events.
- CBL recorded an $87.9 million gain on extinguishment of debt, principally from transferring three malls to their lenders in settlement of $164.0 million of non-recourse debt. The transactions involved Citadel Mall foreclosure and deeds-in-lieu for Chapel Hill Mall and Columbia Place.
- Total 2014 impairment losses were approximately $18.5 million, including charges associated with property dispositions. The filing reports $17.9 million in operating expenses and additional impairment in discontinued operations.
- CBL issued $300 million of 4.60% senior unsecured notes due 2024 and used net proceeds of approximately $297.7 million to reduce credit-facility borrowings. It also retired or refinanced property loans and expanded its unencumbered asset pool.
- Cash used in investing activities was $234.9 million, including $277.6 million of development, redevelopment, renovation and expansion spending. Financing activities used $260.8 million, including dividends and distributions.
Outlook, commentary and risks
- Management reported 2.4% same-center NOI growth and 12.6% leasing spreads for Stabilized Malls, and said it planned to continue investing in the portfolio while disposing of non-core and mature properties. It had targeted 25 lower-performing assets for disposition over multiple years; one mall was sold and two were conveyed to lenders in 2014. Four additional mall sale contracts were non-binding after year-end.
- For 2015, management forecast portfolio and Stabilized Mall occupancy to be flat to 25 basis points higher than 2014. It cautioned that tenant bankruptcies announced late in 2014 could temporarily affect occupancy and leasing; the affected tenants represented approximately $15 million of annual gross rent.
- Management cited growth projects and reinvestment, including redevelopment and new retail space. Projects under construction had estimated total costs of $229.2 million, reported at 100% project cost, with the company’s share varying by joint-venture ownership.
- Principal risks include substantial debt and refinancing needs, interest-rate changes, tenant bankruptcies and store closures, retail competition including online shopping, regional concentration, joint-venture and guarantee exposure, development cost or timing overruns, and REIT qualification and dividend constraints. CBL reported compliance with debt covenants at year-end.
- The D’Iberville construction dispute produced partial settlements, including $6.0 million received in Q4 2014 and a further $4.9 million received in January 2015. Claims against other parties and insurance-coverage matters remained pending; management considered an adverse outcome on Kohl’s claims against CBL remote.
- The filing reports effective disclosure controls and internal control over financial reporting. The independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the 2015 maturities were refinanced or repaid on acceptable terms, and how much credit-facility capacity remained available after letters of credit and subsequent activity.
- Whether occupancy, same-center NOI, leasing spreads and tenant sales trends met management’s 2015 expectations, including the effect of announced tenant bankruptcies.
- How much of FY 2014 net income depended on the $87.9 million debt-extinguishment gain and other nonrecurring items; compare GAAP earnings with adjusted FFO and operating cash flow.
- Progress and actual returns on redevelopment and development commitments, and any changes to project costs, openings or joint-venture guarantees.
- Subsequent outcomes of planned non-core property sales, the D’Iberville litigation and insurance claims, and any related cash proceeds or liabilities.