CBL

CBL & Associates Properties, Inc. - 10-Q Summary (Period Ended June 30, 2011)

Business Context and Reporting Period

CBL & Associates Properties, Inc. is a self-managed, self-administered Real Estate Investment Trust (REIT) engaged in the ownership, development, and operation of regional shopping malls, open-air centers, community centers, and office properties. The portfolio is primarily located in the southeastern and midwestern United States. This report covers the quarterly period ended June 30, 2011.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $11.9 million (2.3%) year-over-year, driven by a $7.8 million increase in base rents due to improved leasing spreads and higher occupancy levels.
• Profitability: Net income attributable to common shareholders surged to $46.5 million from $3.7 million. This significant improvement was largely due to a $31.4 million gain on the extinguishment of debt related to the sale of Oak Hollow Mall in discontinued operations, which was not present in the prior year's comparable period.
• Impairment Charges: The Company recorded a non-cash loss on impairment of real estate of $4.5 million in Q2 2011 related to the Settlers Ridge development. This contrasts with a $25.4 million impairment charge in the prior year period related to Oak Hollow Mall.
• Interest Expense: Interest expense decreased by $5.7 million year-over-year due to reduced debt levels and lower weighted average interest rates.
• Occupancy: Total portfolio occupancy increased 100 basis points to 90.6% compared to 89.6% in the prior year.

Guidance, Outlook, and Risks

• Outlook: Management anticipates total portfolio occupancy to end the year 75 to 100 basis points higher than the prior year-end level of 92.4%. Leasing spreads remain positive, with new leases signed at a 9.8% increase over prior gross rent per square foot in Q2.
• Strategic Transactions: In May 2011, the Company announced a $1.09 billion joint venture with TIAA-CREF involving four properties, expected to close in Q3 2011. This transaction is projected to generate approximately $220 million in net proceeds to pay down lines of credit.
• Debt Management: The Company successfully modified secured credit facilities to remove LIBOR floors, significantly reducing borrowing costs. Approximately $147 million of debt maturities remain in 2011 that must be retired or refinanced, though extension options are available for a significant portion of the remaining maturities.
• Risks: Key risks include the illiquidity of real estate assets, potential impairment charges if market conditions deteriorate, and the impact of rising interest rates on variable-rate debt. The Company is also involved in litigation regarding property damage at a development in D'Iberville, Mississippi, though management does not believe it will materially affect financial position.

Investor Verification Checklist

• Debt Maturities: Verify the refinancing status of the approximately $147 million in debt maturing in 2011 that lacks extension options.
• Joint Venture Closing: Monitor the closing of the $1.09 billion TIAA-CREF joint venture and the actual proceeds used to reduce leverage.
• Impairment Trends: Review future quarters for additional impairment charges, particularly regarding the Settlers Ridge development and other non-stabilized assets.
• Occupancy Metrics: Track the realization of the projected year-end occupancy increase of 75-100 basis points.
• Legal Proceedings: Monitor the status of the litigation involving The Promenade D'Iberville and potential insurance recoveries.