CBL & Associates Properties, Inc. - 10-Q Summary (Q2 2010)
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2010. CBL & Associates Properties, Inc. is a self-managed REIT engaged in the ownership, development, and operation of regional shopping malls, open-air centers, community centers, and office properties. As of June 30, 2010, the company owned controlling interests in 76 regional malls/open-air centers, 30 associated centers, 10 community centers, and 13 office buildings across 27 states, primarily in the Southeastern and Midwestern United States.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2010 |
|---|---|---|
| Total Revenues | $262.1 million | $528.3 million |
| Net Income (Consolidated) | $4.5 million | $31.7 million |
| Net Income Attributable to Common Shareholders | $(7.2) million (Loss) | $3.7 million |
| Funds From Operations (FFO) - Operating Partnership | $68.6 million | $162.2 million |
| FFO Allocable to Common Shareholders | $49.9 million | $117.8 million |
| Cash and Cash Equivalents | $60.6 million | $60.6 million (Ending Balance) |
| Total Debt (Consolidated) | $5.46 billion | $5.46 billion (Ending Balance) |
| Weighted Average Interest Rate (Total Debt) | 5.04% | 5.04% |
| Portfolio Occupancy | 89.6% | 89.6% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by $4.4 million (1.6%) for the quarter and $9.3 million (1.7%) for the six months compared to the prior year. This was driven by a decline in tenant reimbursements and base rents at comparable properties, partially offset by new properties.
- Impairment Charge: A significant non-cash loss on impairment of real estate of $25.4 million was recorded for the Oak Hollow Mall in High Point, NC. This charge was the primary driver of the decrease in net income and FFO.
- Net Income Volatility: Net income attributable to common shareholders turned to a loss of $7.2 million for the quarter (compared to $8.1 million profit in Q2 2009) due to the impairment charge and increased preferred dividends. For the six months, net income attributable to common shareholders was $3.7 million, down from $9.8 million in the prior year.
- Debt Reduction: The company reduced its overall debt level by approximately $233 million compared to June 30, 2009, utilizing proceeds from a preferred stock offering and refinancing activities.
- Occupancy Improvement: Total portfolio occupancy increased 160 basis points to 89.6% compared to the prior year period.
Guidance, Outlook, and Risks
Management Commentary: Management notes signs of positive results from a focus on revenue growth, with same-store sales per square foot for stabilized mall tenants increasing 2.1% year-over-year for the six months ended June 30, 2010. The company is emerging from a slow recovery with more efficient operations and an aggressive leasing strategy.
Outlook: The company expects to maintain improvements in portfolio performance. It has term sheets or availability on lines of credit to address all remaining 2010 debt maturities. Management anticipates recording a gain on extinguishment of debt of approximately $28.0 million upon the completion of the Oak Hollow Mall disposition, subject to lender agreement.
Risks and Contingencies:
- Real Estate Impairment: The company faces risks related to the carrying value of long-lived assets. The Oak Hollow Mall impairment highlights the risk of declining property values in a challenging retail environment.
- Debt Maturities: Approximately $219.6 million of debt maturities in 2010 must be retired or refinanced (excluding extensions available at the company's option).
- Leasing Spreads: Negative leasing spreads continue to impact base rents and tenant reimbursements. Rental rates for new and renewal leases were signed at an average decrease of 10.9% from prior gross rent per square foot in Q2 2010.
- Interest Rate Risk: The company has significant variable-rate debt exposure ($1.61 billion pro rata share), making it sensitive to interest rate fluctuations.
Key Facts for Investor Verification
- Oak Hollow Mall Disposition: Verify the status of the contract to sell Oak Hollow Mall and the lender's agreement to modify the $39.6 million loan to equal the net sales price, which would trigger a ~$28 million gain on debt extinguishment.
- Debt Refinancing: Confirm the company's ability to refinance the ~$220 million in 2010 debt maturities that do not have extension options, given current credit market conditions.
- Leasing Trends: Monitor the trend of negative leasing spreads and the impact of short-term leases on future revenue stability.
- Preferred Stock Dividends: Note the increase in preferred dividends following the March 2010 offering of Series D preferred stock, which reduces earnings available to common shareholders.
- FFO vs. Net Income: Recognize that Net Income is significantly depressed by the non-cash impairment charge; FFO (excluding impairment) provides a more stable view of operating performance, showing a 1.6% increase for the six-month period.