CBL & Associates Properties, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. CBL is a REIT focused on regional malls and other retail properties; substantially all operations and debt are held by its Operating Partnership. Dollar amounts below are in millions unless noted. The statements are unaudited. The filing was delayed, and the independent auditor had not completed its review of the interim financial statements when the report was prepared.
Financial performance and condition
- Revenue: Q2 revenue was $124.2, down 35.8% from $193.4 a year earlier. First-half revenue was $291.8, down 25.5% from $391.4. Rental revenue fell to $120.2 in Q2 from $185.4.
- Losses: Q2 net loss was $72.8, versus $29.7 in Q2 2019; loss attributable to common shareholders was $81.5, or $0.42 per share, versus $35.4, or $0.20 per share. First-half net loss was $212.1, versus $76.5; loss attributable to common shareholders was $215.3, or $1.16 per share, versus $85.6, or $0.49 per share.
- Operating performance: Same-center NOI, a non-GAAP measure, declined 32.0% in Q2 to $90.7 and 20.3% in the first half to $212.3. Adjusted FFO attributable to Operating Partnership common unitholders was $4.9 in Q2 versus $68.5 a year ago, and $56.5 for the first half versus $129.1. Reported FFO was negative $5.2 in Q2 and $45.8 for the first half.
- Cash flow: First-half operating cash flow was $38.4, down from $126.0. Investing used $191.4, mainly reflecting a $153.2 Treasury-securities purchase; financing provided $244.1, principally through borrowing. Cash, cash equivalents and restricted cash totaled $150.1 at June 30, including $123.4 of unrestricted cash. Treasury securities were valued at $152.4.
- Debt and liquidity: Net consolidated debt was $3.774 billion at June 30, up from $3.527 billion at year-end 2019; pro rata consolidated and unconsolidated debt was approximately $4.488 billion. Management reported $275.8 of cash and Treasury securities, but only $4.3 of remaining secured-credit-facility availability after letters of credit. The facility had $675.9 outstanding on its revolving line and $447.5 on its term loan.
- Balance sheet: Total assets were $4.655 billion and total equity was $653.5 at June 30. Occupancy was 88.1% across the portfolio, versus 90.2% a year earlier; total mall occupancy was 86.6%, versus 88.1%.
Material changes versus the prior comparable period
- COVID-19 closures and restricted operations sharply reduced tenant rent payments and retail sales. The company recorded $40.7 of first-half rental-revenue reductions for lease reserves and write-offs, including $32.0 cited for comparable-property tenants in bankruptcy or financial distress; it also granted rent abatements.
- First-half impairment charges increased to $146.9 from $66.4, involving Burnsville Center, Monroeville Mall and Asheville Mall. Q2 impairment was $13.3, lower than the prior-year quarter’s $41.6.
- Year-over-year comparisons also reflect the 2019 $88.2 litigation-settlement expense and $71.7 debt-extinguishment gain, neither of which recurred in first-half 2020. A $15.8 valuation allowance on deferred tax assets contributed to the higher Q2 tax provision.
- CBL drew $280.0 on its secured line in March to bolster liquidity, then invested a portion in U.S. Treasury securities. It suspended common and preferred dividends in 2019; no common or preferred dividends were paid in the first half of 2020.
Outlook, risks and unusual items
- Going concern and restructuring: Management stated there is substantial doubt about the company’s ability to continue as a going concern within one year. It engaged financial and legal advisers to pursue debt and capital-structure alternatives, which could include a reorganization. The financial statements remain prepared on a going-concern basis and do not reflect possible related adjustments.
- Defaults and interest: The Operating Partnership missed June interest payments of $11.8 on 2023 Notes and $18.6 on 2026 Notes, triggering events of default and a cross-default under the secured facility. It paid both coupons on August 5, 2020, under forbearance arrangements. Separately, lenders asserted defaults, including breaches of restrictive covenants and the liquidity covenant; as of the report, they had not accelerated the facility or begun foreclosure. On August 6, the agent asserted base-rate treatment and sought about $4.8 for prior-period interest, and notified the Partnership that post-default interest would accrue at 9.50%. CBL disputes the lender’s assertions. The company warned that failure to resolve the disputes or restructure debt could lead to a Chapter 11 filing.
- Debt and property exposure: Six property-level non-recourse mall loans were in default at June 30; lenders had not accelerated them. Scheduled consolidated debt payments include $557.2 in 2021 and $1.492 billion in 2023, before any available extensions. The secured facility is collateralized by 17 malls and three associated centers.
- COVID-19 and leasing: All but one mall had reopened by August 1, subject to restrictions. Management reported rent collections of over 54% of billed cash-based rents for April–July and estimated July collections at 49% as of early August. It estimated $17.0 of rent deferrals, at its share, for April–June, with negotiations ongoing. Twelve national tenants had filed for bankruptcy year-to-date. Management withdrew 2020 same-center NOI and adjusted FFO-per-share guidance and said it would not reinstate guidance until the pandemic’s impact became clearer.
- Other risks: The NYSE had notified CBL that its common stock failed the $1 minimum-price standard; the stated cure deadline was October 14, 2020. A shareholder-approved reverse-split authorization had not yet been acted on. Preferred-dividend arrears were $33.7 and special-common-unit distribution arrears were $6.8 at June 30. The filing also reports a material weakness in financial-reporting controls due to insufficient accounting and reporting personnel, and ineffective disclosure controls. Management attributed the late filing to staff departure and debt-related developments.
- Contingencies: Securities class-action and derivative litigation remained pending, with outcomes not predictable. The company disclosed that 6,134 common shares were inadvertently issued under its dividend reinvestment plan while it was ineligible to use Form S-3; purchasers could assert claims for rescission or damages.
Important facts for investors to verify
- Whether the secured-facility covenant defaults and disputed interest charges were resolved, waived or followed by acceleration or enforcement action.
- Progress and terms of any comprehensive refinancing, restructuring or reorganization, including treatment of secured debt, unsecured Notes, preferred stock and special common units.
- Actual rent collections, deferrals, abatements, tenant bankruptcies and reopening-related operating trends after June 30.
- Liquidity available after restrictions, required debt service and maturities, and whether cash and Treasury securities can be used as management expects.
- Whether the company remedied its material weakness, completed the auditor’s review, regained NYSE listing compliance and addressed the unregistered share issuance.