CBL & Associates Properties, Inc. - 10-Q Summary
Business Context and Reporting Period
Company: CBL & Associates Properties, Inc. (CBL)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2003
Business Overview: CBL is a self-managed, self-administered Real Estate Investment Trust (REIT) engaged in the development, acquisition, and operation of regional shopping malls and community centers. As of September 30, 2003, the Operating Partnership owned controlling interests in 52 regional malls, 20 associated centers, 61 community centers, and one office building, primarily located in the Southeast, Northeast, and Midwest United States.
Key Financial Metrics
(In thousands, except per share data)
| Metric | Three Months Ended Sep 30, 2003 | Nine Months Ended Sep 30, 2003 |
|---|---|---|
| Total Revenues | $165,476 | $496,315 |
| Net Income | $24,908 | $76,090 |
| Net Income Available to Common Shareholders | $20,225 | $64,023 |
| Diluted EPS (Common) | $0.65 | $2.06 |
| Funds From Operations (FFO) | $65,801 | $200,504 |
| Cash Flow from Operating Activities | N/A | $195,220 |
| Total Debt (Mortgage & Other Notes Payable) | $2,618,216 | $2,618,216 |
| Cash and Cash Equivalents | $25,188 | $25,188 |
| Debt-to-Total-Market Cap Ratio | 46.9% | 46.9% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 13.0% ($19.0 million) for the three months and 13.3% ($58.1 million) for the nine months ended September 30, 2003, compared to the prior year. This was driven primarily by the addition of eight new properties in the quarter and ten new properties in the nine-month period, as well as the consolidation of previously unconsolidated affiliates (East Towne, West Towne, and West Towne Crossing).
- Profitability: Net income available to common shareholders increased 15.8% ($2.8 million) for the quarter and 19.1% ($10.3 million) for the nine months. Operating income rose 13.2% for the quarter and 12.6% for the nine months.
- Expenses: Property operating expenses increased due to new acquisitions and higher occupancy costs. Depreciation and amortization increased 17.9% for the quarter and 17.4% for the nine months, reflecting capital expenditures and new assets. Interest expense increased 3.9% for the quarter and 5.5% for the nine months due to additional debt associated with new properties.
- Occupancy: Total portfolio occupancy was 92.4% at September 30, 2003, compared to 92.8% in the prior year. Stabilized mall occupancy remained steady at 92.1%.
Guidance, Outlook, and Significant Events
- Acquisitions:
- Acquired Sunrise Mall and Sunrise Commons (Brownsville, TX) on May 1, 2003, for $80.7 million.
- Acquired Cross Creek Mall (Fayetteville, NC) on September 10, 2003, for $116.7 million.
- Announced agreements to acquire four regional malls for $340 million total. Two malls (River Ridge and Valley View) closed on October 1, 2003, for $147.3 million. The fourth mall (Southpark) was scheduled to close in Q4 2003.
- Dispositions and Joint Ventures:
- Formed a joint venture with Galileo America REIT on September 24, 2003, to invest in power and community centers. The first phase, involving the sale of 41 centers for $393.9 million (including cash, debt assumption, and retained equity), closed on October 23, 2003.
- Sold three community centers during the nine months ended September 30, 2003, recognizing a net gain of $3.6 million on discontinued operations.
- Capital Markets:
- Issued 4.6 million depositary shares of 7.75% Series C Preferred Stock in August 2003, raising net proceeds to fund acquisitions and general corporate purposes.
- Repurchased 460,083 common units in the Operating Partnership from a former executive for $21.0 million in September 2003.
- Announced the redemption of all 2.675 million shares of 9.0% Series A Preferred Stock, with payment scheduled for November 28, 2003.
- Liquidity: The company maintains a conservative debt-to-market capitalization ratio. Secured credit facilities totaled $365 million with $87.8 million available as of September 30, 2003. Management expects adequate liquidity to fund capital programs and distributions.
- Risks: Risks include general economic conditions, interest rate fluctuations, tenant bankruptcies, and the ability to obtain suitable financing. The company is exposed to interest rate risk on variable-rate debt, though it utilizes caps and swaps to manage this exposure.
Investor Verification Checklist
- Acquisition Integration: Verify the performance and occupancy rates of the recently acquired malls (Sunrise, Cross Creek, River Ridge, Valley View) and the impact of the assumed debt on future interest expenses.
- Joint Venture Structure: Review the terms of the Galileo America REIT joint venture, specifically the retained 10% interest and the management fee structure, to understand future revenue streams from the disposed assets.
- Preferred Stock Redemption: Confirm the cash outflow required for the redemption of Series A Preferred Stock in November 2003 and its impact on short-term liquidity.
- Debt Maturities: Assess the schedule of debt maturities, particularly the variable-rate debt and the short-term credit facilities used for acquisitions, to evaluate refinancing risks.
- FFO vs. Net Income: Analyze the divergence between Net Income and Funds From Operations (FFO) to better understand the core operating performance excluding non-cash depreciation and asset sale gains.