CBL & Associates Properties, Inc. - 10-Q Summary (Period Ended Sept 30, 2009)
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, with additional interests in Brazil and China. This report covers the quarterly period ended September 30, 2009.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2009 | Nine Months Ended Sept 30, 2009 | Dec 31, 2008 (Balance Sheet) |
|---|---|---|---|
| Total Revenues | $262.8 million | $800.4 million | N/A |
| Net Income (Consolidated) | $27.8 million | $67.7 million | N/A |
| Net Income Available to Common Shareholders | $11.1 million | $21.0 million | N/A |
| Funds From Operations (FFO) to Common Shareholders | $68.4 million | $182.0 million | N/A |
| Cash and Cash Equivalents | N/A | N/A | $63.5 million |
| Total Debt (Mortgage and Other Notes Payable) | N/A | N/A | $5.68 billion |
| Weighted Average Interest Rate (Total Debt) | N/A | N/A | 5.03% |
| Portfolio Occupancy | N/A | N/A | 89.2% (as of Sept 30, 2009) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 8.0% for the three months and 4.6% for the nine months ended September 30, 2009, compared to the prior year. This was driven by lower base rents, tenant reimbursements, and lease termination fees due to decreased occupancy and economic pressure.
- Expense Reductions: Property operating expenses decreased by 16.7% (three months) and 12.2% (nine months) due to cost containment initiatives, including payroll reductions and lower bad debt expense.
- Impairment Charges: The company recorded non-cash impairment charges totaling $8.8 million for the nine months ended September 30, 2009. This includes a $7.7 million charge related to its investment in Jinsheng (China) and a $1.1 million charge related to the proposed sale of Plaza Macaé (Brazil).
- Equity Offering: In June 2009, the company completed an equity offering of 66.6 million shares at $6.00 per share, raising net proceeds of approximately $381.6 million, which were used to repay outstanding borrowings.
- Dividend Reduction: The Board reduced the common stock dividend for the remainder of 2009 to the minimum level required to maintain REIT status, resulting in a third-quarter dividend of $0.05 per share.
Guidance, Outlook, and Risks
- Liquidity Strategy: Management has extended and modified its largest secured ($525 million) and unsecured ($560 million) credit facilities to address debt maturities through 2011. The unsecured facility is being converted to a secured facility over 18 months.
- Operational Outlook: While occupancy improved sequentially to 89.2% in Q3 2009, management anticipates continued pressure on rental rates due to negative leasing spreads and economic conditions. Mall store sales declined 6.5% year-over-year.
- Development: Three major development projects are under construction (Settlers Ridge, The Pavilion at Port Orange, The Promenade) with no additional equity capital currently required.
- Risks: Key risks include the illiquidity of real estate assets, potential tenant bankruptcies, rising interest rates, and the impact of the economic recession on consumer spending. The company faces significant debt maturities in 2010 and 2011, though extension options are available.
Investor Verification Checklist
- Debt Maturities: Verify the company's ability to refinance or extend the $52.5 million non-recourse loan maturing in December 2009 and the $514 million in maturities due in 2010.
- International Exposure: Assess the impact of the $7.7 million impairment on the Jinsheng investment and the pending sale of the Plaza Macaé interest in Brazil.
- Leasing Spreads: Monitor the trend of negative leasing spreads (new/renewal rents vs. expiring rents), which were down 13.0% for stabilized malls in Q3 2009.
- Covenant Compliance: Confirm continued compliance with debt covenants, specifically the debt-to-gross asset value ratio (currently 55% vs. 65% max) and interest coverage ratio (currently 2.32 vs. 1.75 min).
- Dividend Policy: Review future dividend declarations to ensure they meet the 90% taxable income distribution requirement for REIT status while preserving liquidity.