CBL

CBL & Associates Properties, Inc. - 2003 Annual Report (10-K) Summary

Business Context and Reporting Period

Company: CBL & Associates Properties, Inc.
Filing Type: Form 10-K
Period Ended: December 31, 2003
Business Overview: CBL is a self-managed, self-administered Real Estate Investment Trust (REIT) engaged in the development, acquisition, and operation of regional shopping malls and community centers. As of year-end 2003, the Company owned controlling interests in 56 regional malls, 21 associated centers, and 17 community centers, primarily located in the Southeast and Midwest United States.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $80.6 million (13.7%) compared to 2002. This was driven by $44.7 million from new properties, $23.6 million from newly consolidated properties, and organic growth at existing centers.
• Acquisitions: The Company acquired six malls and two associated centers in 2003 for a total purchase price of $494.6 million, including the assumption of $209.8 million in debt.
• Dispositions (Galileo Transaction): The Company sold interests in 41 community centers to Galileo America LLC in October 2003. This transaction generated a net gain of $71.9 million and provided $250.7 million in cash proceeds, which were used to reduce debt and fund acquisitions.
• Equity Transactions: Issued 4.6 million depositary shares of 7.75% Series C Preferred Stock, raising $111.2 million. Redeemed all remaining shares of 9.0% Series A Preferred Stock.
• Interest Expense: Increased by $10.3 million due to debt associated with new acquisitions and refinancing variable-rate debt into higher-rate fixed-rate debt.

Guidance, Outlook, and Risks

Management Commentary: Management highlighted strong performance in the regional mall portfolio, citing high occupancy levels and increased rental rates. The Galileo transaction was described as a strategic move to access new capital markets and focus on higher-return assets, despite short-term earnings dilution.

Outlook: The Company expects to continue its capital program of acquisitions and developments, funded by operating cash flows, credit facilities, and equity/debt markets. It anticipates refinancing the majority of debt maturing over the next five years.

Risks and Contingencies:

• Tenant Bankruptcies: Bankruptcies resulted in 63 store closings in 2003 ($5.1 million in annual gross rentals). Post-year-end, KB Toys, Gadzooks, One Price Clothing, and Footstar filed for bankruptcy, with $4.2 million in annual gross rentals at risk.
• Interest Rate Risk: A 0.5% increase in interest rates on variable-rate debt would decrease annual earnings by approximately $2.7 million.
• Environmental Liability: Potential costs for investigation and cleanup of hazardous substances at properties, though Phase I assessments have not revealed material liabilities to date.
• Accounting Changes: Potential impact of FASB Interpretation No. 46 (Variable Interest Entities) and SFAS No. 150 on the classification of minority interests.

Investor Verification Checklist

• Galileo Transaction Impact: Verify the long-term revenue contribution from the retained 10% interest in Galileo America versus the loss of direct cash flow from the sold community centers.
• Debt Maturities: Confirm the refinancing status of the $238.3 million in debt scheduled to mature in 2004.
• Tenant Concentration: Review the financial health of top tenants, specifically Limited Brands (5.32% of revenue) and The Gap Inc. (2.68% of revenue), and the impact of recent bankruptcies (KB Toys, Footstar).
• Occupancy Trends: Monitor occupancy rates for Associated Centers, which declined to 88.6% in 2003 due to specific anchor vacancies.
• Capital Expenditures: Assess the funding sources for the $137.3 million investment in properties currently under construction.