CBL & Associates Properties, Inc. — Q1 2013 Form 10-Q
Period: Three months ended March 31, 2013; unaudited. CBL is a REIT focused on malls, outlet and other shopping centers, and office properties, primarily in the southeastern and midwestern United States. It reported controlling interests in 77 regional mall/open-air and outlet centers, 28 associated centers, six community centers, and eight office buildings.
Financial performance and condition
| Metric | Q1 2013 | Q1 2012 / prior period |
|---|---|---|
| Total revenue | $266.0 million | $246.5 million; up 7.9% |
| Income from operations | $95.5 million | $91.7 million |
| Operating margin | 35.9% | 37.2% (calculated as operating income divided by revenue) |
| Net income attributable to CBL | $30.3 million | $26.0 million |
| Net income attributable to common shareholders / diluted EPS | $19.1 million / $0.12 | $15.5 million / $0.10 |
| Operating Partnership FFO / FFO allocable to common shareholders | $101.6 million / $85.9 million | $92.5 million / $72.2 million |
| Same-center NOI, excluding lease termination fees | $178.4 million | $176.6 million; up 1.0% |
| Cash provided by operating activities | $67.5 million | $91.8 million |
| Cash and cash equivalents at quarter-end | $66.6 million | $78.2 million at December 31, 2012 |
| Consolidated mortgage and other debt | $4.681 billion | $4.746 billion at December 31, 2012 |
Investing activities provided $0.03 million, while financing activities used $79.2 million. At March 31, total assets were $6.990 billion, total liabilities $4.983 billion, and total equity $1.539 billion. Consolidated debt carried a 4.77% weighted-average rate; the company’s pro rata consolidated and unconsolidated debt was $5.380 billion at a 4.79% average rate. CBL reported a 51.0% debt-to-total-market-capitalization ratio and stated it was in compliance with its unsecured credit covenants.
Material changes versus the prior comparable quarter
- Revenue rose $19.5 million, driven mainly by recently acquired/opened properties and the consolidation of the Imperial Valley properties; comparable-property rental revenue and tenant reimbursements contributed only modest growth.
- Operating expenses increased $15.7 million, including higher property costs and depreciation from the expanded portfolio. Consequently, operating margin declined despite higher operating income.
- Common-shareholder net income increased to $19.1 million from $15.5 million. Operating Partnership FFO increased to $101.6 million from $92.5 million.
- Same-center NOI excluding lease termination fees increased 1.0%, which management attributed primarily to improved occupancy and rental rates. Operating cash flow fell $24.3 million, mainly because more January 2013 rent was collected before year-end 2012.
- CBL sold five office buildings during the quarter for aggregate net proceeds of approximately $43.5 million, used to reduce credit-facility borrowings. The sales contributed to discontinued operations.
- CBL issued shares through a new at-the-market (ATM) program: 2.7 million shares generated $62.1 million net proceeds during the quarter. An additional 394,000 shares generated $9.2 million net proceeds after quarter-end and before filing.
Outlook, management commentary, and risks
- Management reported positive leasing spreads: stabilized mall leases signed during the quarter were 10.8% above prior gross rent per square foot. Total portfolio occupancy was 92.2%, up 40 basis points year over year. CBL forecast a 25–50 basis-point occupancy improvement for 2013 versus the prior year, to approximately 95%, and expected mall sales to continue improving steadily.
- Development plans included The Outlet Shoppes at Atlanta, scheduled to open in July 2013 and approximately 94% leased or committed; other developments, expansions, and redevelopments were also underway. CBL estimated approximately $29.9 million in net investment for its 2013 renovation program and had about $16.4 million remaining to fund for West County Center parking-deck work.
- CBL said it was pursuing an investment-grade rating, a process it expected could take up to two years. It converted a $100 million First Tennessee credit facility from secured to unsecured in February. The three unsecured facilities had $1.3 billion total capacity and $458.3 million outstanding at quarter-end.
- CBL disclosed $410.6 million of its pro rata debt scheduled to mature during the remainder of 2013, with $343.2 million requiring retirement or refinancing after assuming available extensions. After quarter-end, it retired a $228.0 million term loan and a $71.7 million property loan using credit-facility borrowings.
- Management anticipated redeeming Westfield’s preferred joint-venture units during mid-2013 using a combination of capital sources. The units had a $423.7 million carrying value; their preferred distribution rate could rise from 5% to 6% on July 1, 2013, and to 9% under specified circumstances. CBL said credit capacity could cover a short-term redemption, while longer-term funding could include asset sales and equity issuance.
- CBL’s share of consolidated and unconsolidated variable-rate debt was 20.4% of total pro rata debt. Management estimated that a 0.5 percentage-point rate increase would raise annual interest expense by approximately $5.4 million. Key business risks include retail demand and tenant health, occupancy and operating costs, interest rates, access to refinancing and capital, and development and acquisition execution.
- Other notable exposures include Columbia Place, whose $27.3 million non-recourse mortgage was in default and whose net operating cash flows were being remitted to the lender; loan maturity was scheduled for September 2013. CBL also guaranteed debt of certain joint ventures, including Fremaux’s construction loan (up to $46.0 million; $2.7 million drawn at quarter-end). Management said ordinary-course litigation was not expected to have a material adverse effect; environmental losses were considered reasonably possible but not expected to be material.
The quarterly common dividend declared was $0.23 per share. The filing does not provide full-year earnings or FFO guidance.
Most important facts for investors to verify
- Whether portfolio occupancy, leasing spreads, and same-center NOI continue to improve, and whether the approximately 95% 2013 occupancy outlook is achieved.
- How the company refinances or repays remaining 2013 maturities and manages its use of floating-rate debt and credit facilities.
- The timing, funding, and final terms of any Westfield preferred-unit redemption, including the potential distribution-rate increase and any additional consideration.
- The pace and price of further ATM share issuance, its effect on per-share results, and how proceeds are deployed.
- Execution, leasing, costs, and returns for development and renovation projects, alongside the status of Columbia Place and CBL’s joint-venture guarantees.