CBL & Associates Properties, Inc. - 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended September 30, 2006. 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 centers. As of the reporting date, the company owned controlling interests in 72 regional malls, 27 associated centers, two community centers, and one office building, primarily located in the southeastern and midwestern United States.
Key Financial Metrics (Nine Months Ended Sept 30, 2006)
- Total Revenues: $728.8 million (up from $645.5 million in the prior year).
- Net Income Available to Common Shareholders: $55.9 million (down from $106.2 million in the prior year).
- Funds From Operations (FFO) Allocable to Common Shareholders: $152.6 million (down 2.8% from $157.1 million).
- Operating Cash Flow: $268.6 million provided by operating activities.
- Total Debt: $4.46 billion (consolidated mortgage and other notes payable).
- Cash and Cash Equivalents: $33.6 million.
- Dividends Declared per Common Share: $1.3725 for the nine-month period.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by $83.3 million year-over-year, driven primarily by $74.5 million in revenue from "New Properties" (acquisitions and developments opened since Jan 1, 2005) and $19.3 million from comparable properties.
- Net Income Decline: Net income available to common shareholders decreased significantly ($50.4 million) compared to the prior year. This was largely due to a $46.5 million gain on the sale of management contracts and redemption of ownership interest in Galileo America recorded in the prior year, which did not recur in 2006.
- Expense Increases: Interest expense rose by $39.7 million due to higher debt levels associated with new properties and refinancing activities. Depreciation and amortization increased by $41.8 million, partly due to revisions in estimated useful lives of acquired assets.
- Occupancy: Total portfolio occupancy decreased to 92.6% from 93.3% in the prior year, negatively impacted by store closures of Casual Corner and Musicland in the first quarter of 2006.
Outlook, Risks, and Management Commentary
- Refinancing Activity: In July 2006, the company obtained four new ten-year non-recourse loans totaling $317 million to retire maturing debt and pay down credit facilities. In August 2006, the unsecured credit facility was amended to increase availability to $560 million and extend the maturity date.
- Development Pipeline: The company has multiple projects under construction, including mall expansions, open-air center expansions, and community centers. Significant capital expenditures were made for tenant allowances ($31.1 million) and renovations ($48.2 million) in the first nine months.
- Risks: Key risks include the impact of tenant bankruptcies (specifically Casual Corner and Musicland), rising interest rates affecting variable-rate debt, and the potential failure to qualify as a REIT. The company notes that a 0.5% increase in interest rates would decrease annual cash flows by approximately $5.0 million.
- Discontinued Operations: The company sold five community centers in May 2006, recognizing a gain of $7.2 million. These operations are now classified as discontinued.
Investor Verification Checklist
- Verify the re-leasing progress and rent rates for the vacant spaces left by Casual Corner and Musicland closures.
- Confirm the company's compliance with financial covenants on its $1.3 billion in credit facilities (secured and unsecured).
- Review the timeline and funding sources for the $390 million in development costs for properties currently under construction.
- Assess the impact of the $134.8 million in debt maturing before September 30, 2007, and the company's refinancing strategy for this amount.
- Monitor the adoption of new accounting standards (FIN 48, SFAS 157, SAB 108) and their potential impact on future financial statements.