CBL & Associates Properties, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. CBL is a REIT focused on malls, outlet and lifestyle centers, open-air centers, and other properties, primarily in the southeastern and midwestern United States. It reported interests in 71 consolidated and 20 unconsolidated properties.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $129.9 million | $137.0 million | $266.2 million | $277.1 million |
| Net loss | $22.7 million | $43.8 million | $22.1 million | $87.0 million |
| Net loss attributable to common shareholders | $21.1 million | $41.6 million | $19.1 million | $82.3 million |
| Basic and diluted loss per share | $0.67 | $1.34 | $0.61 | $2.83 |
| Interest expense | $44.2 million | $55.1 million | $87.7 million | $145.8 million |
| Operating cash flow | Not stated by quarter | Not stated by quarter | $84.2 million | $88.1 million |
Property performance: Same-center NOI, a non-GAAP measure, declined 0.8% in Q2 to $107.1 million and 2.7% in the first half to $212.6 million. Management attributed the declines mainly to lower percentage rents and an unfavorable change in estimated uncollectible revenue; first-half expenses also reflected delayed maintenance work and contract timing. Adjusted FFO, another non-GAAP measure, fell to $50.1 million in Q2 from $59.9 million and to $99.9 million for the first half from $117.3 million.
Balance sheet and liquidity at June 30, 2023: Total assets were $2.475 billion, total liabilities $2.150 billion, and total equity $325.1 million. Consolidated mortgage and other indebtedness was $2.012 billion gross and $1.942 billion net of financing costs and debt discounts. Management reported $279.8 million of available unrestricted cash and U.S. Treasury securities, including $24.9 million cash and $254.9 million in Treasuries. Cash, cash equivalents, and restricted cash totaled $113.6 million. Six-month financing cash outflow was $138.3 million, including $94.1 million of common dividends; total cash, cash equivalents, and restricted cash declined $28.4 million from year-end.
Management’s pro rata share of consolidated and unconsolidated debt, before financing-cost and discount deductions, was $2.700 billion, with a 6.39% weighted-average interest rate; 40.7% was variable-rate debt. A 0.5 percentage-point change in rates would change annual cash flows by approximately $5.4 million, based on variable-rate exposure. The consolidated debt schedule shows substantial 2025 principal payments of $908.7 million; it excludes extension options.
Changes versus prior comparable periods
- Revenue decreased 5.2% in Q2 and 3.9% in the first half. Comparable-property rental revenue was pressured by lower percentage rents and collectability estimates; first-half same-center operating expenses also rose.
- Reported net losses narrowed, primarily alongside lower interest expense and depreciation and amortization. Interest expense fell substantially in the first half partly because fresh-start debt discount accretion and interest on redeemed secured notes were lower; this does not mean borrowing costs broadly declined, as variable rates increased.
- Comparability also reflects nonrecurring deconsolidation gains: $28.2 million for Alamance Crossing East in 2023 versus $36.3 million for Greenbrier Mall in 2022. Both properties entered receivership in connection with foreclosure processes. Adjusted FFO declined despite improved reported net losses.
- Portfolio occupancy was 89.7%, compared with 89.5% a year earlier. Trailing-twelve-month same-center tenant sales per square foot declined 3.8% to $425. Small-shop initial rent spreads for leases commencing in 2023 were positive 2.9% overall; average spreads were positive 4.5%.
Outlook, risks, contingencies, and unusual items
- No quantified earnings or operating guidance was provided. Management said leasing metrics were the strongest in several years, citing positive new and renewal lease spreads and year-over-year occupancy growth. Its priorities include improving occupancy and rents, diversifying tenant uses, reducing debt, extending maturities, and lowering borrowing costs.
- Management reported extensions of four loans during the first half, with a combined balance of $320.0 million at CBL’s share. It extended Cross Creek Mall’s loan through June 2025 and said refinancing of The Outlet Shoppes at Atlanta was in process.
- WestGate Mall’s $28.7 million loan was in maturity default at June 30, 2023; CBL was discussing the matter with the lender. Management also reported $69.8 million of its share of debt that had matured before 2023 and remained outstanding, and $37.2 million maturing during the remainder of 2023 assuming available extensions. Refinancing and extension outcomes remain uncertain.
- Alamance Crossing East was deconsolidated after being placed in receivership; its loan balance was $41.1 million at June 30. The reported $28.2 million deconsolidation gain is an unusual, noncash item and should not be treated as recurring operating performance.
- A proposed settlement of the securities class action had preliminary court approval and was subject to a final fairness hearing in August 2023. The company expected directors’ and officers’ insurance to fund it, with no company or individual-defendant contribution expected, subject to policy terms and court approval. A separate Delaware shareholder action was voluntarily dismissed in February 2023.
- Other cited risks include interest-rate changes, refinancing and capital availability, tenant bankruptcies or closures, vacancies, retail demand and online shopping, operating costs, and broader economic conditions. Management said there were no material changes to the risk factors in its 2022 Form 10-K. Disclosure controls were reported effective.
Important facts for investors to verify
- Loan maturity and refinancing progress, especially the large 2025 schedule, WestGate Mall default, and other already-matured debt.
- Whether reported liquidity is available for general use: distinguish the $279.8 million of unrestricted cash and Treasuries from restricted cash and property-level funds.
- Underlying operating trends, including rent collections, percentage rents, same-center NOI, tenant sales, occupancy, and leasing spreads.
- The recurring cash-earnings picture: reconcile net losses and FFO to adjusted FFO, and separate deconsolidation gains and debt-discount accretion effects.
- Dividend sustainability and the cash impact of the 2023 regular and special distributions, given debt service and refinancing needs.
- Final resolution and insurance funding of the securities litigation settlement, and any changes in joint-venture guarantees or receiver-related obligations.