CBL & Associates Properties, Inc. - Q1 2008 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2008. CBL & Associates Properties, Inc. is a self-managed, self-administered Real Estate Investment Trust (REIT) engaged in the ownership, development, acquisition, leasing, management, and operation of regional shopping malls, open-air centers, and community shopping centers. As of the reporting date, the company owned controlling interests in 75 regional malls/open-air centers, 28 associated centers, 13 community centers, and 14 office buildings across 27 states, primarily in the southeastern and midwestern United States.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2008 | Q1 2007 |
|---|---|---|
| Total Revenues | $278,279 | $249,018 |
| Net Income | $11,626 | $25,043 |
| Net Income Available to Common Shareholders | $6,171 | $17,401 |
| Diluted EPS (Common) | $0.09 | $0.26 |
| Funds From Operations (FFO) - Operating Partnership | $92,855 | $90,757 |
| FFO Allocable to Common Shareholders | $52,510 | $51,005 |
| Net Cash Provided by Operating Activities | $92,953 | $98,314 |
| Total Debt (Consolidated) | $5,889,620 | $5,869,318 |
| Cash and Cash Equivalents | $65,742 | $46,811 |
Note: Debt figures represent consolidated balances. The company's pro-rata share of total debt (including unconsolidated affiliates) was $6.34 billion.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $29.3 million (11.8%) year-over-year, driven primarily by $26.7 million in revenue from "New Properties" acquired or opened since January 2007. Comparable property revenues decreased slightly by $1.2 million due to lease termination fees and lower percentage rents.
- Profitability Decline: Net income available to common shareholders dropped significantly by 64.5% to $6.2 million. This was largely due to a $14.1 million increase in interest expense (driven by higher debt balances on new properties and refinancing) and a $2.3 million increase in general and administrative expenses (including a $1.3 million charge for an executive retirement).
- FFO Growth: Despite the drop in GAAP net income, FFO allocable to common shareholders increased by 3.0% to $52.5 million, reflecting the company's focus on operational performance excluding depreciation.
- Occupancy: Total portfolio occupancy improved to 91.6% from 91.0% in the prior year. Stabilized mall occupancy remained steady at 91.4%.
Outlook, Risks, and Unusual Items
- Management Commentary: Management reported encouraging results despite a challenging economy, citing increases in occupancy, strong leasing spreads, and positive FFO growth. They noted that store closures and bankruptcies (e.g., Friedman's, Bombay, Linens 'n Things) are providing opportunities to enhance credit quality and increase rents.
- Capital Markets: In April 2008 (subsequent to the period end), the company secured a new unsecured term facility of $228 million to pay down existing lines of credit. The company maintains a conservative debt-to-market capitalization strategy, though the ratio increased to 67.6% due to a decline in stock price.
- Development Pipeline: The company has significant development projects underway, including Pearland Town Center (mixed-use), Hammock Landing, and The Pavilion at Port Orange. Total estimated costs for projects under development are approximately $646 million.
- Risks: Key risks include the illiquidity of real estate, potential inability to refinance debt in tight credit markets, rising interest rates, and the impact of tenant bankruptcies. The company holds significant variable-rate debt (approx. 20% of pro-rata share), though it utilizes interest rate swaps to hedge exposure.
- Unusual Items: The quarter included a $1.3 million charge related to the retirement of the Senior Vice President and Director of Corporate Leasing. Additionally, 19 properties acquired in late 2007 were classified as "held-for-sale" and reported as discontinued operations.
Investor Verification Checklist
- Debt Maturities: Verify the company's ability to refinance or extend $1.6 billion in debt scheduled to mature before March 31, 2009, including its largest secured and unsecured credit facilities.
- Tenant Bankruptcy Impact: Assess the actual financial impact of recent anchor tenant bankruptcies (Friedman's, Linens 'n Things) on future rental income and vacancy rates.
- Development Costs: Monitor capital expenditure requirements for the $646 million development pipeline against available liquidity and credit facility availability.
- Interest Rate Exposure: Review the effectiveness of interest rate swaps in mitigating the risk of rising rates on the remaining variable-rate debt.
- Discontinued Operations: Track the timing and proceeds from the sale of the 19 properties classified as held-for-sale to ensure they meet projected gain expectations.