CBL & Associates Properties, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. CBL is a REIT owning and operating malls, outlet and lifestyle centers, open-air centers, and other properties. It reported 72 consolidated and 22 unconsolidated properties across 24 states.
Comparability caveat: CBL emerged from Chapter 11 on November 1, 2021 and adopted fresh start accounting. The 2022 “Successor” and 2021 “Predecessor” results use different accounting bases and are not directly comparable.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $137.0m | $136.6m | $277.1m | $269.7m |
| Net loss | $43.8m | $9.6m | $87.0m | $37.8m |
| Net loss attributable to common shareholders | $41.6m | $8.9m | $82.3m | $35.6m |
| Basic and diluted loss per share | $1.34 | $0.05 | $2.83 | $0.18 |
| Operating cash flow | — | — | $88.1m | $130.5m |
| Same-center NOI (non-GAAP) | $107.4m | $105.7m | $217.4m | $203.8m |
| Adjusted FFO attributable to OP common unitholders (non-GAAP) | $59.9m | $79.5m | $117.3m | $148.2m |
Revenue rose 0.3% for the quarter and 2.7% for the first half. Same-center NOI increased 1.6% and 6.7%, respectively, with higher occupancy and improved rent collection partly offset by higher operating costs. Trailing 12-month same-center sales per square foot rose 6.2% to $443. Portfolio occupancy was 89.5%, compared with 87.0% a year earlier. Leasing volume increased year over year, although reported initial and average rent spreads on comparable small-shop leases commencing in 2022 were negative.
Net loss worsened substantially, primarily reflecting higher interest expense and depreciation and amortization under fresh start accounting. First-half interest expense was $145.8m versus $46.4m; $98.2m of the 2022 expense increase related to accretion of fresh-start debt discounts on property debt approaching maturity. Adjusted FFO also declined, with management citing interest expense recognized on debt during 2022 that was not recognized in the prior-year bankruptcy period. These measures are non-GAAP and should not be treated as substitutes for GAAP earnings or cash flow.
Six-month investing cash flow was $2.7m, compared with $44.2m provided in 2021; financing cash flow used $68.1m, versus $24.2m used. Cash, cash equivalents, and restricted cash totaled $258.9m at June 30, including $177.1m of cash and $81.8m of restricted cash. CBL also held $150.1m of U.S. Treasury securities; management reported $327.1m of unrestricted cash and Treasury securities available.
Consolidated mortgage and other indebtedness, net, was $2.035bn. CBL’s pro rata consolidated, unconsolidated, and other debt was approximately $2.959bn before debt discounts and deferred financing costs, including $153.7m of loans on deconsolidated properties in receivership. The pro rata debt mix was 38.8% variable-rate, up from 32.8% at year-end. A 0.5 percentage-point interest-rate change was estimated to affect annual cash flow by approximately $6.6m.
Material changes, outlook, and risks
- Refinancing and maturity exposure: CBL completed more than $663m in financings during the quarter and redeemed all $395m of 10% senior secured notes, eliminating their recourse guaranty. The new $360m loan is secured by open-air centers and outparcels; half bears a fixed 6.95% rate and half a floating rate of 30-day SOFR plus 4.10%. CBL said $859.8m of property-level debt and related obligations would mature or be callable within 12 months of the financial statements’ issuance. Management intends to refinance or extend $791.7m; if unsuccessful, it may repay debt using available liquidity or convey properties to lenders.
- Defaults and property outcomes: Several property loans were past maturity or under lender discussions, and certain joint ventures entered forbearance agreements following defaults associated with CBL’s bankruptcy. Greenbrier Mall was deconsolidated after entering receivership, producing a $36.3m gain. After quarter-end, the Asheville Mall lender foreclosed on the property; Parkdale Mall and Crossing’s loan was extended to March 2026.
- Management outlook: Management cited improved lease spreads, sequential and year-over-year occupancy growth, redevelopment completions, and interest from non-retail uses such as hotels, multifamily, medical, entertainment, and restaurants. It expects further projects and starts, but provided no quantified earnings or revenue guidance. Management’s strategy is to diversify property uses and tenant mix while reducing debt, extending maturities, and lowering borrowing costs.
- Dividend: CBL restarted regular quarterly cash dividends, declaring $0.25 per share for Q2, paid July 20, 2022, and declaring another $0.25 for Q3. Future dividends remain at the board’s discretion and depend on cash flow, liquidity, debt restrictions, REIT requirements, and other factors.
- Other risks and unusual items: The filing identifies interest rates, capital availability, tenant bankruptcies and store closures, retail demand, operating costs, and COVID-19-related uncertainty among risks. A securities class action continues against individual defendants; the company was dismissed from the case, but discovery is ongoing. Management stated the previously reported material weakness in internal control over financial reporting was remediated as of June 30, 2022; disclosure controls were effective.
Most important facts for investors to verify
- Progress on refinancing or extending the $791.7m of near-term maturities management identified, and the status of loans already past maturity or in forbearance.
- Actual cash available for debt service after accounting for restricted cash, property-level restrictions, required capital spending, and scheduled debt payments.
- Exposure to rising rates, particularly the floating-rate portion of the new $360m loan and the overall variable-rate debt share.
- Whether occupancy, sales, leasing spreads, and same-center NOI gains persist, and how much reported rental improvement reflects prior-year collection provisions and concessions.
- The continuing effects of fresh start accounting and debt-discount accretion on reported interest expense, earnings, and FFO.
- Execution of redevelopment plans, future dividend affordability, and outcomes of foreclosure, lender, and securities-litigation matters.