CBL & Associates Properties, Inc. — Q2 2014 Form 10-Q
Business context and period. This combined filing covers CBL & Associates Properties, Inc. and its Operating Partnership for the quarter and six months ended June 30, 2014. CBL is a REIT focused on malls, outlet and other shopping centers, primarily in the southeastern and midwestern United States. Financial statements are unaudited; amounts below are in millions unless noted.
Financial results and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $256.9 | $255.6 | $518.2 | $514.1 |
| Income from operations | $97.3 | $77.1 | $173.4 | $170.7 |
| Net income attributable to CBL common shareholders | $26.7 | $0.5 | $70.8 | $19.6 |
| Diluted earnings per share | $0.16 | $0.00 | $0.42 | $0.12 |
| Same-center NOI | $177.0 | $173.7 | $350.4 | $344.0 |
- Same-center NOI increased 1.9% in both the quarter and first half. Total portfolio occupancy was 93.5%, versus 93.0% a year earlier. Comparable mall sales per square foot declined approximately 2.7% to $354.
- Six-month operating cash flow was $206.1, compared with $189.7. Investing cash use was $97.2; financing cash use was $110.9. Cash and cash equivalents ended June at $63.5.
- Consolidated mortgage and other debt was $4.811 billion, down from $4.858 billion at year-end. Including CBL’s pro rata share of unconsolidated affiliates, debt was $5.468 billion. Weighted-average interest rate on consolidated debt was 4.76%.
- Credit facilities had $1.3 billion of capacity, with $381.2 million drawn and approximately $918.8 million available. The filing reports compliance with debt covenants at June 30. Debt-to-total-market capitalization was 55.3%, compared with 52.1% a year earlier.
- Common dividends declared were $0.245 per share for Q2, versus $0.230 a year earlier.
Material changes and unusual items
- Six-month net income included a $42.7 million gain on extinguishment of debt, primarily from the January foreclosure transfer of Citadel Mall, which extinguished $68.2 million of non-recourse debt and generated a $43.9 million gain. Accordingly, reported earnings growth substantially reflects this item.
- Six-month impairment charges were $17.3 million, including $12.1 million for Chapel Hill Mall and $5.1 million for Lakeshore Mall. The prior-year quarter included a $21.0 million impairment, principally for Citadel Mall; this comparison helped lift Q2 operating income.
- Interest expense increased $2.1 million in Q2 and $2.8 million in the first half, in part because the 5.25% senior notes issued in late 2013 replaced lower-cost credit-facility borrowings.
- CBL sold Lakeshore Mall for $14.0 million gross, partly paid through a $10.0 million note that was collected in July, and sold an expansion portion of Foothills Plaza. It also completed the foreclosure transfer of Citadel Mall.
- Adjusted FFO allocable to common shareholders was $93.0 million in Q2, versus $90.8 million; for the first half it was $180.7 million, versus $176.7 million. Adjusted figures exclude specified unusual items and are non-GAAP measures.
Outlook, management commentary and risks
- Management said Q2 results were in line with expectations. It aims to generate more than 90% of mall NOI from Tier One and Tier Two malls and has a long-term same-center NOI growth goal of 2%–4%. Twenty-one malls and related centers were targeted for disposition; Lakeshore Mall was sold during the period.
- For 2014, management forecast total-portfolio and stabilized-mall occupancy improvement of 0–25 basis points versus 2013. The filing does not provide numerical full-year revenue or earnings guidance.
- Management plans to use credit-facility availability to retire the remaining $113.4 million 2014 Mall del Norte mortgage maturity, while pursuing developments, redevelopments and portfolio upgrades. Development projects underway had estimated total costs of $312.1 million, with $157.3 million incurred as of June 30.
- Credit and property concerns include the Chapel Hill Mall mortgage default ($68.6 million outstanding) and Columbia Place loan default ($27.3 million outstanding); lenders were receiving property cash flows. Management anticipated Columbia Place foreclosure in 2014. Citadel Mall had already been foreclosed.
- Retail conditions remain a risk: mall sales were down, management cited harsh winter weather and a promotional retail environment, and cost recovery ratios fell to 100.8% for Q2 and 96.8% for the first half. Other risks include tenant bankruptcies or closures, occupancy and rental-rate pressure, operating costs, capital availability and interest-rate changes.
- Approximately 18.9% of CBL’s pro rata consolidated and unconsolidated debt was variable-rate. Management estimated a 0.5 percentage-point rate increase would raise annual interest expense by about $5.1 million. The filing also discloses debt and lease guarantees for certain joint ventures and ongoing construction-related and insurance litigation.
Investor facts to verify
- Separate recurring operating performance from the $42.7 million debt-extinguishment gain and impairment charges; review adjusted FFO alongside GAAP earnings.
- Track leasing, same-center NOI, mall sales and occupancy trends, particularly at non-core and lender-controlled properties.
- Confirm refinancing or repayment of the Mall del Norte maturity and progress on Chapel Hill Mall and Columbia Place defaults.
- Assess leverage, refinancing costs, variable-rate exposure and whether planned dispositions and developments meet management’s targets.
- Review the amount and terms of joint-venture guarantees, the status of the construction and insurance litigation, and the sustainability of dividends relative to cash generation.