CBL & Associates Properties, Inc. — Q2 2013 Form 10-Q
Business and period. CBL is a REIT focused on malls, outlet and other shopping centers, and office properties, primarily in the southeastern and midwestern United States. This unaudited filing covers the three and six months ended June 30, 2013, compared with the corresponding 2012 periods.
Financial performance and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $262.4 million | $251.8 million | $528.4 million | $498.3 million |
| Income from operations | $78.9 million | $94.4 million | $174.5 million | $186.1 million |
| Net income | $18.2 million | $39.4 million | $58.1 million | $75.9 million |
| Net income attributable to common shareholders | $0.5 million; $0.00 per share | $18.8 million; $0.12 per share | $19.6 million; $0.12 per share | $34.3 million; $0.23 per share |
| Operating cash flow | Not separately presented for the quarter | Not separately presented for the quarter | $189.7 million | $219.8 million |
- Q2 revenue rose 4.2%; six-month revenue rose 6.0%. Reported operating margin was approximately 30.1% for Q2 and 33.0% for the first half, down from approximately 37.5% and 37.3%, respectively.
- Q2 operating expenses increased $26.1 million, including $21.0 million of non-cash impairment charges. The quarter also included a $9.1 million loss on debt extinguishment and a $2.4 million gain on investment.
- Adjusted funds from operations (FFO) of the Operating Partnership was $106.9 million in Q2, versus $100.8 million; first-half adjusted FFO was $208.5 million versus $193.3 million. The company’s adjusted FFO excludes the $2.4 million investment gain and $9.1 million debt-extinguishment loss; FFO is a non-GAAP measure.
- Same-center NOI, excluding lease termination fees, increased 1.8% for Q2 and 1.4% for the first half after excluding a $1.5 million 2012 bankruptcy settlement.
- At June 30, cash and equivalents were $64.4 million, down $13.8 million from year-end. Consolidated debt was $4.62 billion; CBL’s pro rata consolidated and unconsolidated debt was $5.34 billion, versus $5.45 billion at December 31, 2012. Consolidated debt’s weighted-average rate was 4.71%.
- Unsecured credit facilities totaled $1.30 billion, with $783.4 million drawn. CBL reported compliance with covenants, including debt to total asset value of 50.3% against a maximum of 60%.
- For the first half, investing activities used $148.9 million and financing activities used $54.6 million. Dividends declared were $0.23 per common share for Q2 and $0.46 per share for the first half.
Changes, outlook and material matters
- Revenue growth reflected acquisitions and newly consolidated properties, partly offset by a small Q2 decline in comparable-property rental revenue. First-half comparable-property rental revenue improved. New properties and the IV Property contributed significantly to year-over-year growth.
- Portfolio occupancy increased to 93.0% from 92.3% year over year. Q2 stabilized-mall leasing spreads were up 12.1% over prior gross rent per square foot; comparable mall sales per square foot for the trailing 12 months increased 3.2% to $356.
- Management forecast 2013 total portfolio occupancy improving 25–50 basis points from the prior year to approximately 95%, and said it anticipated mall sales would continue to improve. The filing provides no formal earnings-per-share guidance.
- Moody’s assigned CBL an investment-grade Baa3 rating with stable outlook in May; Fitch assigned BBB- ratings with stable outlook in July. CBL said the ratings lowered credit-facility pricing and broadened financing options. A July $400 million, five-year unsecured term loan was used to reduce revolver borrowings.
- CBL issued 8.4 million shares through its ATM program through June 30, generating $209.6 million net proceeds, principally used to reduce credit-facility borrowings; approximately $88.5 million remained available.
- Citadel Mall was written down by $20.4 million, classified as non-core, and its $68.3 million mortgage was in default after the lender began receiving property cash flows in lieu of scheduled payments. Columbia Place’s $27.3 million mortgage was also in default and contractually due in September 2013.
- CBL issued a June notice to redeem all Westfield preferred joint-venture units, carried at approximately $423.8 million. Management planned to fund redemption with credit lines; the distribution rate and redemption terms make the outcome and funding important to monitor.
- Construction and redevelopment continued, including outlet developments and mall projects. CBL guaranteed 100% of several unconsolidated-affiliate loans, including Fremaux’s construction loan (up to $46.0 million); other joint-venture guarantees and performance bonds also represent contingent exposure.
- Management cited interest-rate movements, access to capital and refinancing, tenant bankruptcies or store closures, occupancy, retail demand, operating costs, and credit-rating changes among the key risks. It stated ordinary-course litigation was not expected to materially affect the company; a disclosed construction-related lawsuit and related insurance disputes remained pending.
Investor verification priorities
- Track performance excluding impairments, debt-extinguishment costs, investment gains, acquisitions and changes in consolidation; reconcile GAAP earnings with adjusted FFO and same-center NOI.
- Verify the status and resolution of Citadel Mall and Columbia Place defaults, including collateral cash flows, loan balances, maturity or restructuring terms, and any further impairment.
- Confirm the Westfield preferred-unit redemption outcome, final cost and funding, and the effect on interest expense and liquidity.
- Monitor debt maturities, variable-rate exposure, revolver availability, covenant headroom, and the cost and terms of the July $400 million term loan.
- Assess share dilution from the ATM program alongside occupancy, leasing spreads, sales trends, development commitments and progress toward management’s occupancy outlook.