CBL

Business Context and Reporting Period

Company: CBL & Associates Properties, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1997
Business Overview: A self-managed, self-administered Real Estate Investment Trust (REIT) engaged in the ownership, operation, and development of regional malls, community centers, and neighborhood shopping centers. The portfolio consists of 22 enclosed regional malls, 12 associated centers, and 81 independent community centers, primarily located in the southeastern United States. The Company conducts business through its Operating Partnership, in which it holds a 71.75% interest.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 21.0% to $177.6 million, driven by a 24.0% increase in minimum rents and a 21.0% increase in tenant reimbursements. This growth was fueled by new developments, acquisitions, and improved occupancy.
• Occupancy Rates: Stabilized Mall occupancy improved from 89.0% to 91.7%. Community Center occupancy rose from 97.2% to 97.6%. However, Associated Center occupancy dropped significantly from 99.6% to 83.3% due to tenant relocation and retenanting activities.
• Expense Increases: Property operating expenses rose 24.3% to $55.7 million, and interest expense increased 19.2% to $37.8 million, primarily due to the addition of 13 new properties and four acquisitions over the prior 24 months.
• Capital Structure: Total debt increased by $151.1 million to $741.4 million. The Company completed a $74.3 million equity offering in January 1997 to repay variable rate debt, but overall leverage increased due to aggressive acquisition and development financing.
• Gain on Sales: Gains on sales of real estate assets decreased to $6.0 million from $13.6 million in 1996, as the Company shifted focus from selling completed community centers to holding and developing larger assets.

Guidance, Outlook, and Risks

• Acquisitions: Subsequent to year-end, the Company acquired Asheville Mall ($65 million) and Burnsville Center ($81 million) in January 1998, funded by acquisition loans and credit lines.
• Development Pipeline: Approximately 1.9 million square feet of properties are under construction, scheduled to open in 1998 and 1999, including Arbor Place Mall and Sand Lake Corners.
• Liquidity: As of February 28, 1998, the Company had $36.1 million available under revolving credit lines and $12.7 million in unfunded construction loans. Management expects adequate liquidity to fund capital programs and maintain REIT distributions.
• Key Risks:
  • Geographic Concentration: 71.3% of revenues are derived from properties in the southeastern U.S., exposing the Company to regional economic downturns.
  • Tenant Concentration: The Limited, Inc. stores accounted for 8.0% of total revenues, and Food Lion accounted for 4.4%.
  • Interest Rate Risk: Approximately 45.9% of total debt is variable rate, though the Company utilizes interest rate caps and swaps to mitigate exposure.
  • Year 2000 Compliance: Management is addressing non-compliant computer systems but notes potential risks if third-party vendors fail to remediate issues.

Investor Verification Checklist

• Debt Maturities: Verify the schedule of debt maturities, noting $176.5 million due in 1998 and $205.3 million due in 1999, and the Company's refinancing strategy.
• Acquisition Integration: Monitor the performance and integration of the January 1998 acquisitions (Asheville Mall and Burnsville Center) and their impact on leverage ratios.
• Occupancy Trends: Track the recovery of occupancy rates at Associated Centers, which dropped to 83.3% in 1997.
• Variable Rate Exposure: Review the effectiveness of interest rate hedging instruments (caps and swaps) given that nearly 46% of debt is variable rate.
• FFO vs. Net Income: Analyze the divergence between Net Income ($34.9M) and Funds from Operations ($74.1M) to understand the impact of depreciation and non-cash items on reported earnings.