Business Context and Reporting Period
Company: CBL & Associates Properties, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2002
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 December 31, 2002, the portfolio included 55 enclosed regional malls, 20 associated centers, 63 community centers, and an office building, primarily located in the Southeast, Midwest, and Northeast United States.
Key Financial Metrics
| Metric (in thousands) | 2002 | 2001 |
|---|---|---|
| Total Revenues | $599,094 | $548,989 |
| Income from Operations | $144,095 | $105,826 |
| Net Income | $84,906 | $60,908 |
| Net Income Available to Common Shareholders | $73,987 | $54,440 |
| Funds From Operations (FFO) | $236,600 | $194,001 |
| FFO Applicable to Company | $126,650 | $100,773 |
| Total Assets | $3,795,114 | $3,372,851 |
| Total Debt (Mortgage & Other Notes Payable) | $2,402,079 | $2,315,955 |
| Cash Flow from Operating Activities | $273,923 | $213,075 |
| Dividends Declared per Common Share | $2.32 | $2.13 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $50.1 million (9.1%) to $599.1 million. This was driven by an additional month of operations for Jacobs properties, nine new properties opened or acquired, and improved leasing at existing properties.
- Profitability: Net income available to common shareholders rose 35.9% to $74.0 million. Income from operations increased 36.2% to $144.1 million.
- Interest Expense: Interest expense decreased by $13.5 million (8.6%) due to debt reductions funded by a March 2002 common stock offering ($114.7 million net proceeds) and a June 2002 preferred stock offering ($96.4 million net proceeds).
- Acquisitions: Significant 2002 acquisitions included Richland Mall (Waco, TX), Panama City Mall (Panama City, FL), Westmoreland Mall (Greensburg, PA), and additional interests in Columbia Place and East/West Towne Malls.
- Dispositions: The company sold five community centers and an office building in 2002 for a net gain of $0.4 million, classified as discontinued operations.
Guidance, Outlook, and Risks
- Development Pipeline: The company expects to open 770,000 square feet of new developments in 2003, including The Shoppes at Hamilton Place (Chattanooga, TN), Cobblestone Village (St. Augustine, FL), and Waterford Commons (Waterford, CT). Coastal Grand (Myrtle Beach, SC) is projected to open in Spring 2004.
- Liquidity: The company maintains a conservative debt-to-total-market capitalization ratio of 50.6%. It has $124.0 million available under lines of credit and $39.1 million available under construction loan commitments.
- Key Risks:
- Geographic Concentration: 59.4% of revenues are derived from properties in the Southeastern U.S., making results sensitive to regional economic conditions.
- Tenant Concentration: The top 25 tenants accounted for 34.2% of total revenues. The Limited Inc. was the largest single tenant at 6.35%.
- Interest Rate Risk: A 0.5% increase in interest rates on variable-rate debt would decrease annual earnings by approximately $2.3 million.
- Environmental Liability: Potential costs for hazardous substance cleanup could adversely affect cash flow, though Phase I assessments have not revealed material liabilities to date.
Investor Verification Checklist
- Debt Maturities: Verify the refinancing strategy for $433.9 million of debt scheduled to mature in 2003, noting that $390.1 million of this amount has extension options available.
- Occupancy Trends: Monitor occupancy rates for "Non-Stabilized Malls," which declined to 83.5% in 2002 (down from 89.1% in 2001), primarily due to the addition of Parkway Place.
- Dividend Coverage: Confirm that FFO continues to cover the required 90% distribution of taxable income to maintain REIT status.
- Anchor Tenants: Track the status of vacant anchor locations (e.g., Shopko, Dekor, Jacobson's) and the progress of replacements scheduled for 2003.
- Joint Venture Guarantees: Review the extent of guarantees provided for unconsolidated affiliates, including 100% of construction debt for Coastal Grand and 50% of debt for Parkway Place.