CBL & Associates Properties, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. CBL is a REIT focused on regional malls and other retail, mixed-use, and office properties, operating principally through CBL & Associates Limited Partnership. Financial amounts below are in millions unless noted.
Financial performance
- Revenue: $220.2, down 7.5% from $238.0 a year earlier. Minimum rents fell to $150.4 from $159.8; tenant reimbursements declined to $60.6 from $67.3.
- Profitability: Operating income was $44.1, down from $77.1. Net loss was $0.7 versus net income of $38.5; net loss attributable to common shareholders was $10.3, or $0.06 per share, versus income of $22.9, or $0.13 per share. The quarter included an $18.1 impairment charge.
- Property performance: Same-center NOI decreased 6.8% to $154.8. Management attributed the decline mainly to lower occupancy, tenant bankruptcies and rent concessions, partly offset by lower property operating costs. Cost recovery was 89.3%, down from 95.7%.
- FFO: FFO allocable to Operating Partnership common unitholders was $82.9, down 22.2%; adjusted FFO was $83.8, down 18.6%. Adjusted FFO per diluted share was $0.42 versus $0.52. These are non-GAAP measures.
- Cash flow: Operating cash flow was $98.2 versus $104.9. Investing used $28.5, compared with $119.7, principally reflecting the prior-year Macy’s and Sears acquisitions. Financing used $79.3 versus $23.2 provided. Cash, cash equivalents and restricted cash totaled $58.5 at quarter-end, including $23.3 unrestricted cash.
- Debt and liquidity: Consolidated mortgage and other debt, net, was $4,207.7, compared with $4,230.8 at year-end; weighted-average rate was 4.80%. Pro rata debt including unconsolidated affiliates was $4,721.3. Credit facilities had $115.8 outstanding and approximately $582.0 of additional availability, subject to covenant limits. Scheduled 2018 principal payments were $608.6, including $540.0 associated with term loans.
- Dividends: Common dividends declared were $0.20 per share, down from $0.265. Preferred dividends were $11.2 for the quarter.
Changes versus the prior-year quarter
- Revenue, operating income, same-center NOI and adjusted FFO declined; management linked the deterioration primarily to retail tenant closures and concessions.
- Portfolio occupancy was 91.1%, versus 92.1%; total mall occupancy was 89.3%, versus 90.5%. Same-center mall occupancy was 89.5%, versus 90.4%.
- Stabilized mall sales per square foot were $376 versus $375 for the twelve months ended March 31. However, leasing spreads remained negative: comparable small-shop new and renewal leases had average rent spreads of negative 12.9%.
- Interest expense declined to $53.8 from $56.2, as lower property-level interest costs more than offset higher corporate-level costs. The prior-year quarter included a $4.1 debt-extinguishment gain, which did not recur.
Outlook, risks and unusual items
- No formal financial guidance was provided. Management said it expected full-year sales to remain positive, but anticipated the second quarter would be the weakest for occupancy as announced closures took effect and new leasing was expected mainly in the second half.
- Management’s priorities are to backfill vacant space, diversify tenants toward non-apparel and service uses, control capital spending, and improve liquidity and debt maturities. About 70% of first-quarter new leasing was with non-apparel tenants.
- Management reported approximately 95 basis points of first-quarter mall occupancy impact from bankruptcy-related closures. It also cited 15 Teavana closures and expected 36 Best Buy Mobile closures by the end of May. Bon-Ton announced plans to wind down all stores; CBL had 16 locations representing about $7.2 million in gross annual rent.
- Debt refinancing is a key risk: a $350.0 term loan matured in October 2018 with an extension option, and management said it was pursuing refinancing. The company planned to address $190.0 due in July 2018 through dispositions and other financings. Acadiana Mall’s $122.1 non-recourse loan was already in default after maturing in 2017.
- Credit ratings were Ba1 (Moody’s, negative), BB+ (Fitch, negative), and BBB- (S&P, stable). A 0.5 percentage-point rate increase was estimated to raise annual interest expense by approximately $5.8.
- The $18.1 impairment related to Janesville Mall, written down to estimated fair value based on a signed sale contract. First-quarter property sales and outparcel transactions generated about $12.0 in net proceeds. Accounting-standard adoptions also increased opening retained earnings by $11.4 and $58.9 through separate cumulative-effect adjustments; these were accounting changes, not quarterly operating earnings.
- Management said ordinary-course litigation was not expected to materially affect the company. Environmental contingencies were considered reasonably possible, but management did not expect maximum exposure to be material.
Important facts for investors to verify
- Progress and pricing for the Janesville Mall sale, and the status of the Acadiana Mall default and other repositioning or lender properties.
- Actual refinancing, repayment, or extension outcomes for 2018 maturities and continued access to the stated credit-facility availability.
- Whether occupancy, rent spreads, same-center NOI and adjusted FFO stabilize as retailer closures occur and replacement tenants open.
- Tenant bankruptcy exposure, including Bon-Ton and Best Buy Mobile closures, and the costs and timing of backfilling space.
- Dividend sustainability relative to cash generation, capital needs and debt obligations; reported FFO is non-GAAP and is not equivalent to cash available for distributions.