CBL & Associates Properties, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; this is an annual filing, not a standalone fourth-quarter report. The company is a retail-focused REIT operating malls, shopping centers and office properties, primarily in the southeastern and midwestern United States.
Key financial results
| Metric | 2011 | 2010 |
|---|---|---|
| Total revenue | $1.067 billion | $1.063 billion |
| Income from operations | $357.7 million | $406.9 million |
| Income from continuing operations | $155.8 million | $135.2 million |
| Net income attributable to common shareholders | $91.6 million; $0.62 per diluted share | $29.5 million; $0.21 per diluted share |
| Cash from operating activities | $441.8 million | $429.8 million |
| Funds from operations (FFO), Operating Partnership | $422.7 million | $394.8 million |
| FFO excluding 2011 debt-extinguishment gain | $391.3 million | $394.8 million |
Revenue, operations and property trends
- Revenue increased 0.4%, while operating income fell about 12% as impairment expense rose sharply. Operating expenses totaled $709.7 million, including $55.8 million of impairment charges.
- Management reported positive same-center operating income growth, stabilized mall occupancy of 94.2% versus 93.2% a year earlier, and total portfolio occupancy of 93.6% versus 92.4%.
- Comparable small-shop mall sales per square foot rose 3.3% to $336. The company signed more than 7.1 million square feet of leases, compared with approximately 4.8 million in 2010.
- The 2011 common dividend was $0.84 per share, up from $0.80 in 2010. Quarterly dividends were $0.21 per share.
Debt and liquidity
- At year-end, consolidated debt was $4.49 billion; the company’s pro rata share of consolidated and unconsolidated debt was $5.27 billion. Pro rata debt was 59.7% of total market capitalization.
- Unrestricted cash was $56.1 million. Availability on credit facilities was approximately $1.12 billion. Operating cash flow was $441.8 million.
- About 17.2% of pro rata debt was variable-rate, down from 29.3% in 2010. The weighted-average rate on pro rata debt was 5.04%; the company reported $905.4 million of pro rata variable-rate debt.
- The company reported covenant compliance at December 31, 2011: debt to gross asset value 51.4% (limit below 65%), interest coverage 2.45x (minimum 1.75x), and debt service coverage 1.89x (minimum 1.50x).
- Pro rata debt maturities in 2012 were $1.06 billion before extensions; $230 million had extensions available that management intended to exercise, leaving $832.5 million to refinance or repay. Ten property loans totaling $215.4 million were retired after year-end.
Material changes and unusual items
- October 2011: TIAA-CREF acquired interests in Oak Park Mall, West County Center, CoolSprings Galleria and Pearland Town Center in a joint venture. CBL received approximately $204.2 million in net proceeds, used primarily to reduce credit-facility borrowings, and recorded a $54.3 million gain on sale.
- Net income included a $31.4 million gain on extinguishment of debt after the sale of Oak Hollow Mall for $9.0 million; the lender agreed to reduce the $40.3 million loan balance and accrued interest to the net sale proceeds. This gain materially boosted reported 2011 FFO: adjusted Operating Partnership FFO was $391.3 million, down from $394.8 million in 2010.
- Impairments included $50.7 million for Columbia Place, $4.5 million for Settlers Ridge Phase II and $0.6 million on land. Including the $0.7 million charge for Oak Hollow Square classified as held for sale, total 2011 impairment losses were approximately $59.2 million.
- Columbia Place had a $27.3 million mortgage and a carrying value of about $6.1 million at year-end. In February 2012, its lender declared the loan in default; the property’s income was insufficient to cover debt service.
- The filing states that 2010 and 2009 statements were restated to reclassify certain impairment charges to discontinued operations. Management said the adjustment did not change net income for those years and was not material to the respective statements.
Outlook, risks and contingencies
- Management expected 2012 occupancy to be flat to 50 basis points higher than the prior year and anticipated modest positive sales growth if economic conditions continued to improve. The filing provides no numerical earnings or FFO guidance.
- Planned 2012 renovations were estimated to require $41.4 million. The company also had $19.1 million remaining to fund toward West County Center parking-deck work in 2012 and 2013.
- Key risks include substantial refinancing needs, exposure to interest rates and capital-market access, retail tenant bankruptcies or closures, competition including online retail, regional economic concentration, and property-level impairment risk. A 0.5 percentage-point rate increase was estimated to raise annual interest expense and reduce cash flow by about $4.5 million.
- Ongoing litigation concerns alleged construction-related property damage at The Promenade in Mississippi, with claims and counterclaims involving contractors, Kohl’s and insurers. Management believed pending litigation would not materially affect financial position or results, but outcomes and insurance coverage remain uncertain.
- The company disclosed guarantees for certain joint-venture debt, including full guarantees on loans for Hammock Landing and The Pavilion at Port Orange. Environmental disclosures included a $3.0 million liability for potential asbestos abatement; management reported no known material hazardous-substance claim.
Most important facts for investors to verify
- Progress and final cost of refinancing the remaining 2012 maturities, including the status of extensions and post-year-end loan retirements.
- Developments in the Columbia Place default, debt balance, property operations and any potential impairment or lender action.
- Underlying recurring FFO and operating trends, separating the $31.4 million debt-extinguishment gain and $54.3 million joint-venture gain from recurring performance.
- Whether occupancy, leasing spreads and sales growth continue, and how near-term lease expirations affect rent and occupancy.
- Cash requirements for renovations, parking-deck commitments, joint-venture guarantees and dividends, alongside available liquidity.
- Effects of the 2010 and 2009 restatement and any subsequent changes to impairment estimates, legal exposures or insurance recoveries.