CBL

CBL & Associates Properties, Inc. - Q1 2003 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2003. CBL & Associates Properties, Inc. is a real estate investment trust (REIT) owning and operating a portfolio of regional malls, associated centers, and community centers. As of the reporting date, the portfolio included 54 regional malls, 20 associated centers, and 63 community centers. The financial statements are unaudited but prepared in accordance with GAAP for interim reporting.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $21.6 million (14.9%). This was driven by the inclusion of five properties opened or acquired since Q1 2002 (Richland Mall, Panama City Mall, Parkdale Crossing, Westmoreland Mall, and Westmoreland Crossing) and the consolidation of three previously unconsolidated properties (East Towne, West Towne, and West Towne Crossing).
• Expense Increases: Property operating expenses, real estate taxes, and maintenance increased by $10.4 million, largely attributable to the new properties. Depreciation and amortization rose by $3.8 million due to new assets and ongoing capital expenditures.
• Interest Expense: Despite a significant increase in total debt, interest expense remained relatively flat (up only $0.2 million) due to a decline in the weighted average interest rate from 7.37% to 6.28%.
• Discontinued Operations: The company recognized a net gain of $2.9 million on the sale of Capital Crossing, a community center in Raleigh, NC, compared to a $1.2 million gain in the prior year.
• FFO Increase: Funds From Operations increased by $11.8 million (21.3%) to $67.3 million, reflecting reduced interest costs and the performance of newly added properties.

Guidance, Outlook, and Risks

• Capital Resources: The company maintains a conservative debt-to-total-market capitalization ratio of 50.7%. It has $178.5 million available under its credit facilities and $27.4 million available under construction loans.
• Recent Financing: On February 28, 2003, the company entered into a new $255 million secured credit facility (LIBOR + 100 bps) replacing previous facilities. On February 26, 2003, it obtained an $85 million non-recourse loan for Westmoreland Mall.
• Acquisitions: On May 1, 2003 (post-period), the company acquired Sunrise Mall and Sunrise Commons in Brownsville, TX, for $80.7 million.
• Development: Several projects are under construction, including Coastal Grand (Myrtle Beach, SC) and The Shoppes at Hamilton Place (Chattanooga, TN).
• Risks: Management highlights risks including general economic conditions, interest rate fluctuations, tenant bankruptcies, and the impact of the war in Iraq and severe winter weather on tenant sales. Tenant sales in stabilized malls decreased 3.0% on a comparable basis.
• Contingencies: The company has guaranteed construction debt for Waterford Commons ($30 million commitment) and 50% of the debt for Parkway Place L.P. ($28.2 million outstanding). Management believes pending litigation and environmental exposures will not materially affect financial position.

Investor Verification Checklist

• Debt Maturities: Verify the weighted average maturity of consolidated debt (5.7 years) and the specific terms of the new $255 million credit facility.
• Occupancy Trends: Review the decline in occupancy for associated centers (90.9% vs 96.2% prior year) and non-stabilized malls (78.2% vs 87.3% prior year) and the impact of vacant anchor spaces.
• Tenant Sales: Confirm the 3.0% decline in mall shop sales per square foot and the factors cited (weather, war, Easter timing).
• FFO Calculation: Note the change in FFO calculation to include gains on sales of outparcels, aligning with SEC rules for non-GAAP measures.
• Guarantees: Assess the exposure related to the $28.2 million guarantee for Parkway Place L.P. and the $30 million commitment for Waterford Commons.