CBL & Associates Properties, Inc. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. CBL is a REIT focused on owning, developing, leasing, managing and operating shopping malls and other retail and office properties, primarily in the southeastern and midwestern United States. Unless noted otherwise, financial amounts below are in millions.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 | Change / context |
|---|---|---|---|
| Total revenue | $268.2 | $261.7 | Up $6.5, or about 2.5% |
| Income from operations | $99.6 | $95.7 | Up $3.8 |
| Income from continuing operations | $36.8 | $27.7 | Up $9.1 |
| Net income attributable to common shareholders | $36.7 | $10.9 | Includes a substantial discontinued-operations gain in 2011 |
| Diluted earnings per share | $0.25 | $0.08 | Continuing-operations EPS was $0.11 and $0.08, respectively |
| Operating cash flow | $78.8 | $88.4 | Down $9.6 |
| Cash and cash equivalents | $49.3 | $50.9 at Dec. 31, 2010 | Down $1.6 during the quarter |
| Consolidated debt | $5,184.1 | $5,209.7 at Dec. 31, 2010 | Weighted-average rate 4.99% at quarter-end |
Interest expense fell to $68.2 from $72.4. CBL reported $5.7 billion of debt on a pro rata basis, including its share of unconsolidated affiliates and excluding noncontrolling investors’ share; this equaled 59.6% of market capitalization. Management reported $831.4 million available across credit facilities, a debt-to-gross-asset-value ratio of 52.7% and interest coverage of 2.38x. The filing does not provide a clear consolidated operating margin metric.
Common dividends declared were $0.21 per share, compared with $0.20 in Q1 2010. The $0.21 dividend was paid April 15, 2011. Investing cash use was $26.9 million and financing cash use was $53.5 million.
Material changes and operating trends
- Revenue growth reflected higher comparable-property base rents and improved occupancy; other revenue also rose, while management, development and leasing fees declined.
- Total portfolio occupancy increased to 90.3% from 88.8% a year earlier; stabilized mall occupancy was 90.4% versus 89.7%. Mall sales per square foot for the trailing 12 months rose 2.5% to $324.
- CBL signed more than 1.7 million square feet of leases, nearly twice the prior-year quarter’s volume. Overall comparable small-shop leasing spreads were modestly positive, but renewal spreads remained negative; new leases showed stronger increases.
- Property operating costs increased, including utilities, payroll and contracted security and maintenance. A $1.5 million note-receivable write-down contributed to higher other expense.
- Operating cash flow declined, which management primarily attributed to fewer tenants paying April rent before quarter-end compared with the prior year.
Outlook, unusual items and risks
- Management expected year-end portfolio occupancy to finish 75–100 basis points above the 92.4% level at year-end 2010, and said improving sales and consumer confidence supported continued positive trends. These are expectations, not guarantees; the filing gives no full-year earnings guidance.
- Q1 net income included $27.1 million of discontinued-operations income. CBL sold Oak Hollow Mall for $9.0 million and, under a lender agreement reducing the property’s $40.3 million loan balance and accrued interest to the net sale proceeds, recorded a $31.4 million debt-extinguishment gain and a $2.7 million real-estate impairment. The gain materially boosts reported results and FFO; management said the FFO increase to $120.0 million from $93.6 million was primarily attributable to the debt gain.
- CBL closed nine operating-property financings totaling about $389.1 million at a weighted-average rate of 5.31%, predominantly using proceeds to reduce secured-line borrowings. Management identified approximately $268.8 million of pro rata 2011 maturities requiring repayment or refinancing after available extensions, and intended to refinance or use credit-facility capacity.
- Subsequent events included two ten-year mortgage loans totaling $277 million and a planned $1.09 billion TIAA-CREF joint venture announced May 9, expected to close by Q3 2011. The joint venture was expected to provide about $210 million of net proceeds for debt reduction and transfer about $268 million of property-specific debt.
- Principal risks include substantial leverage and refinancing needs, floating-rate exposure, availability and cost of financing, tenant failures and retail competition, operating-cost recovery, geographic concentration, development execution, environmental and property impairment risks, and obligations under joint-venture guarantees. CBL reported compliance with its credit covenants at March 31, 2011.
- Contingencies include guarantees of joint-venture and third-party debt, performance bonds totaling $30.6 million, litigation concerning alleged construction-related property damage, and Westfield preferred joint-venture units with potential future redemption and distribution-rate increases. Management said ordinary-course litigation was not expected to materially affect results.
Important facts for investors to verify
- Separate recurring operating performance from the Oak Hollow debt-extinguishment gain and other discontinued-operations items; review continuing operations and FFO reconciliations.
- Track the 2011–2013 maturity schedule, available extensions, credit-facility capacity and refinancing terms, including subsequent mortgage closings.
- Monitor occupancy, comparable sales, leasing spreads—especially negative renewal spreads—and the ability to recover property operating costs.
- Confirm completion and final economics of the announced TIAA-CREF transaction, including debt assumed, net proceeds and ongoing management arrangements.
- Assess exposure under joint-venture guarantees, Westfield preferred-unit terms, and the company’s ability to maintain liquidity and dividends amid its capital needs.