CBL & Associates Properties, Inc. - Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010, filed on May 10, 2010. CBL & Associates Properties, Inc. is a self-managed, self-administered Real Estate Investment Trust (REIT) engaged in the ownership, development, acquisition, leasing, management, and operation of regional shopping malls, open-air centers, community centers, and office properties. As of March 31, 2010, the company owned controlling interests in 76 regional malls/open-air centers, 30 associated centers, 10 community centers, and 13 office buildings.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $266.2 million | $271.1 million |
| Net Income (Consolidated) | $27.2 million | $14.6 million |
| Net Income Available to Common Shareholders | $10.9 million | $1.7 million |
| Earnings Per Share (Diluted) | $0.08 | $0.03 |
| Funds From Operations (FFO) Allocable to Common | $68.0 million | $50.2 million |
| Cash Provided by Operating Activities | $88.4 million | $91.7 million |
| Total Debt (Consolidated) | $5.46 billion | $5.62 billion |
| Cash and Cash Equivalents | $50.2 million | $44.1 million |
| Dividends Declared (Common) | $0.20 per share | $0.37 per share |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by $4.9 million (1.8%) compared to Q1 2009. This was driven by a $7.2 million decrease in revenues from comparable properties, partially offset by $1.9 million from new properties. Base rents and tenant reimbursements declined due to negative leasing spreads and billing adjustments in the prior year.
- Profitability Improvement: Net income available to common shareholders increased significantly to $10.9 million from $1.7 million. This improvement was largely due to the absence of a $7.7 million impairment loss on a Chinese investment (Jinsheng Group) recorded in Q1 2009.
- Expense Reduction: Total expenses decreased by $9.3 million. Property operating expenses dropped $4.1 million due to cost containment measures, including lower promotion costs, utilities, and bad debt expense. Depreciation and amortization decreased by $6.3 million.
- Debt Reduction: Total consolidated debt decreased by approximately $158 million year-over-year. The company reduced debt levels by over $600 million compared to March 31, 2009, utilizing proceeds from a preferred stock offering and property refinancings.
- Occupancy: Total portfolio occupancy increased to 88.8% from 88.6% in the prior year. Stabilized mall occupancy rose 60 basis points to 89.7%.
Guidance, Outlook, and Risks
- Capital Markets Activity: In March 2010, the company completed an underwritten public offering of 6.3 million depositary shares of 7.375% Series D Preferred Stock, generating net proceeds of approximately $123.4 million. These proceeds were used to reduce borrowings under credit facilities.
- Refinancing Outlook: Management expects to close on refinancing for remaining 2010 loan maturities (approximately $390.6 million) on or before their respective dates. The company has obtained term sheets or commitments for these maturities.
- Leasing Trends: While leasing spreads remained negative (average decrease of 10.4% from prior gross rent), the decline was less severe than in previous quarters. Management notes that spreads on leases with terms greater than five years were positive.
- Development: The company opened The Pavilion at Port Orange in March 2010 (92% leased at opening) and began construction on The Forum at Grandview in Madison, MS.
- Risks: Key risks include the potential for further tenant bankruptcies, the impact of rising interest rates on variable-rate debt (28.4% of total pro rata debt), and the ability to refinance maturing debt in a volatile credit market. The company also faces risks related to geographic concentration in the Southeastern and Midwestern U.S.
Investor Verification Checklist
- Debt Maturities: Verify the status of the ~$390 million in loan maturities due in 2010 that must be retired or refinanced, as the company relies on term sheets to close these deals.
- Leasing Spreads: Monitor the trend of negative leasing spreads; while improving, they remain a headwind to revenue growth from comparable properties.
- Preferred Stock Dilution: Assess the impact of the new Series D preferred stock issuance on future earnings per share and cash available for common dividends (approx. $11.6 million in annual dividends).
- Variable Rate Exposure: Review the company's hedging strategy given that nearly 30% of its pro rata debt is variable-rate, exposing cash flows to interest rate fluctuations.
- International Exposure: Confirm the status of the Jinsheng Group investment in China, which previously resulted in a significant impairment charge, to ensure no further write-downs are anticipated.