CBL & ASSOCIATES PROPERTIES INC quarterly report, Q2 FY2021

CBL & Associates Properties, Inc. — Q2 2021 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in millions unless otherwise noted. CBL is a mall-focused REIT operating primarily through CBL & Associates Limited Partnership; it reported as a debtor-in-possession under Chapter 11.

Financial results and liquidity

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Total revenue	$136.6	$124.2	$269.7	$291.8
Net loss	$(9.6)	$(72.8)	$(37.8)	$(212.1)
Net loss attributable to common shareholders	$(8.9)	$(81.5)	$(35.6)	$(215.3)
Net cash provided by operating activities	Not separately provided	Not separately provided	$130.5	$38.4

• Q2 rental revenue was $131.3 million, versus $120.2 million; first-half rental revenue was $259.5 million, versus $281.4 million. Q2 revenue rose 10.0% year over year, while first-half revenue declined 7.6%.
• Same-center NOI, a non-GAAP measure, increased 18.5% to $106.9 million in Q2, but fell 1.9% to $206.9 million for the first half. Management attributed the Q2 improvement chiefly to higher collections, fewer prior-year rent concessions and stronger percentage rents.
• Occupancy was 87.0% portfolio-wide and 85.2% for malls, compared with 88.1% and 86.6%, respectively, a year earlier. Bankruptcy-related closures reduced 2021 occupancy by approximately 379 basis points, or 624,000 square feet. Stabilized mall sales per square foot increased 17.2% for the first half versus the first half of 2019.
• At June 30, cash and cash equivalents were $143.9 million, available-for-sale U.S. Treasury securities were $183.5 million, and restricted cash was $128.3 million. Cash, cash equivalents and restricted cash totaled $272.2 million. The securities had near-term maturities, generally through September 2021.
• First-half investing cash flow was $44.2 million, including $368.4 million of Treasury redemptions and $319.9 million of purchases. Financing cash flow was a $24.2 million outflow, primarily reflecting debt principal payments.
• Consolidated mortgage and other indebtedness, net, was $987.6 million, with another $2,591.7 million classified as liabilities subject to compromise. The filing reports total pro rata debt of $4.3657 billion, including unconsolidated and other debt. These debt figures have different scopes and should not be added together.

Changes, unusual items and management commentary

• Reported losses improved substantially year over year, but comparisons reflect unusual items and bankruptcy accounting. First-half 2021 included a $55.1 million gain on deconsolidation of Asheville Mall and Park Plaza after they entered receivership, and $57.2 million of impairment charges on three malls. First-half 2020 included $146.9 million of impairment charges.
• Interest expense was lower because CBL stopped accruing interest on the senior unsecured notes and secured credit facility after filing Chapter 11. Contractual interest not recognized was $45.3 million for Q2 and $90.0 million for the first half. Lower reported interest expense is therefore not equivalent to reduced contractual obligations.
• Reorganization costs were $17.1 million for Q2 and $40.0 million for the first half, mostly professional fees. Management said operating cash flow increased year over year largely because interest was not paid on the secured credit facility and unsecured notes, as well as changes in rent collections and concessions.
• Rent deferrals granted since the pandemic began totaled $40.5 million. Rent abatements were approximately $4.7 million in Q2 and $10.7 million in the first half of 2021. Management reported improving sales and traffic but said tenant bankruptcies, closures and lower occupancy and rents remained pressures.
• CBL provided no full-year 2021 guidance, citing COVID-19 uncertainty. Management expects the pandemic to continue materially affecting revenue, results and cash flows during 2021; it also noted the risk of renewed restrictions, including from COVID-19 variants.

Chapter 11, debt and principal risks

• CBL filed for Chapter 11 in November 2020 and stated that substantial doubt existed about its ability to continue as a going concern within one year, contingent on successfully implementing its restructuring plan. The Bankruptcy Court confirmed the plan on August 11, 2021, after the quarter-end; the company was required to make it effective by November 1, 2021.
• The plan contemplated eliminating more than $1.6819 billion of debt and preferred obligations, alongside $195 million in aggregate cash payments and a significant reduction in interest expense. Creditors were to receive, among other consideration, new secured debt and equity; existing common and preferred shareholders were expected to receive up to 11% of the reorganized company’s common equity, subject to plan terms and dilution.
• Chapter 11-related defaults affected the secured credit facility, unsecured notes and certain property-level loans. Two non-recourse mall loans were accelerated; the filing also describes additional property-level defaults, near-term maturities and lender negotiations. CBL said its secured facility could not be drawn further.
• COVID-19 effects, tenant failures, rent collection, refinancing and property valuations remain material risks. CBL recorded $57.2 million of first-half impairment losses; management cautioned that changed cash-flow assumptions could lead to further impairments.
• The NYSE suspended trading and began delisting proceedings for the common and preferred depositary shares in November 2020. They traded over the counter, and the company’s appeal remained in process. The common stock closed at $0.12 on June 30, 2021.
• Disclosure controls were reported ineffective due to a material weakness: turnover left the company without sufficient accounting and financial-reporting personnel. Management planned additional hiring and possible use of outside advisers.
• Dividend and preferred distributions were suspended. As of June 30, cumulative unpaid preferred dividends were $48.6 million and unpaid special common-unit distributions were $9.4 million; the company expected the reorganization to extinguish related claims.

Investor verification points

• Confirm the restructuring plan’s effective date, final treatment of each creditor and shareholder class, and actual post-emergence capitalization and debt.
• Reconcile reported cash, restricted cash, Treasury securities and availability of funds; verify subsequent maturities, reinvestments and cash restrictions.
• Review contractual versus recognized interest, total debt by scope, loan defaults and maturities, lender forbearances, and any acceleration or refinancing outcomes.
• Assess whether rent collections, concessions, occupancy, leasing spreads and same-center NOI trends are sustainable, and whether further impairments or tenant losses occur.
• Track remediation of the material weakness, the NYSE appeal and OTC trading status, and the outcome of disclosed litigation and other contingencies.