CBL & Associates Properties, Inc. — FY 2019 Form 10-K
Business context and reporting period
Annual report for the year ended December 31, 2019, filed March 9, 2020. CBL is a REIT operating primarily through CBL & Associates Limited Partnership. It owns, leases and manages malls and other retail, office and mixed-use properties in 26 states, concentrated in the Southeast and Midwest. The portfolio included 63 malls and 35 other properties, including joint-venture interests.
Financial and operating metrics
| Metric | FY 2019 / year-end |
|---|---|
| Total revenue | $768.7 million |
| Net loss | $131.7 million; common shareholders’ loss was $153.7 million, or $0.89 per diluted share |
| Operating cash flow | $273.4 million |
| FFO, as adjusted | $271.5 million for the Operating Partnership; $1.36 per diluted share |
| Same-center NOI | $562.1 million, down 6.5% |
| Occupancy | Total portfolio 91.2%, versus 93.1% a year earlier; mall portfolio 89.8%, versus 91.8% |
| Debt | $3.53 billion consolidated debt, net; approximately $4.23 billion pro-rata consolidated and unconsolidated debt |
| Liquidity | $32.8 million unrestricted cash and $374.1 million available under the secured line of credit, net of letters of credit |
| Distributions | Common and preferred dividends and Operating Partnership distributions suspended; preferred dividends continue to accrue |
CBL’s consolidated gross margin is not presented as a standalone metric in the filing. Stabilized mall same-center sales per square foot rose 2% to $386. Leasing spreads for comparable small-shop space in stabilized malls fell 8.6% overall: new lease spreads increased 9.1%, while renewal spreads declined 11.5%.
Material changes versus the prior comparable period
- Revenue fell 10.5% from $858.6 million in 2018. Management cited retailer bankruptcies and store closures, rent concessions, and lower rents from tenants with high occupancy costs.
- Net loss widened to $131.7 million from $99.2 million. The 2019 result included $239.5 million of real-estate impairment losses and $61.8 million of litigation settlement expense. Gains of $71.7 million on debt extinguishment and $67.2 million on investments/deconsolidation partly offset those charges.
- Operating cash flow declined $103.8 million to $273.4 million, primarily due to weaker rental receipts, dispositions and settlement-related payments. FFO, as adjusted, per diluted share fell 21.4%, to $1.36.
- Portfolio occupancy declined, while stabilized mall sales per square foot increased from $379 to $386. Average same-center mall base rent decreased from $32.64 to $31.85 per square foot.
- CBL reduced pro-rata debt by about $409 million during 2019, including through property sales and transfers to lenders. The balance sheet also contracted: total assets fell to $4.62 billion from $5.34 billion, and net real-estate investment declined to $4.06 billion from $4.79 billion.
Outlook, management commentary, risks and unusual items
- Management described continuing retail-industry challenges, including bankruptcies, store closures, rent reductions and competition from online sales. Its strategy is to redevelop former anchor space, diversify tenants toward non-apparel and experiential uses, and control costs. No specific numerical 2020 earnings or FFO guidance is provided in the supplied filing text.
- A new $1.185 billion secured credit facility replaced unsecured bank facilities in January 2019. It matures in July 2023; the line and term loan carried a 3.94% variable rate at year-end. About $951.7 million of pro-rata debt was variable-rate.
- Two mall loans, with $92.2 million outstanding at year-end, had matured and were in default; CBL was in discussions with lenders. Reported 2020 maturity figures vary by scope and extension assumptions: the debt schedule shows $191.0 million pro-rata, while the risk discussion cites about $173.4 million after available extensions. CBL subsequently used its credit facility to repay $84.8 million of loans secured by Parkway Place and Valley View Mall in January 2020.
- Year-end credit ratings were Moody’s B2, S&P B and Fitch CCC+, each with a negative outlook. CBL reported compliance with key note covenants at year-end, but its secured-debt covenant threshold tightened in 2020. The filing cites substantial leverage, refinancing risk, interest-rate exposure and limited financing flexibility.
- The Wave Lengths tenant class-action settlement established a common fund with monetary and non-monetary value of $90 million, based on agreed aggregate damages of $60 million. CBL recorded $61.8 million of settlement expense in 2019 after reductions to the initial accrual. Current tenants were to receive rent credits over five years beginning no earlier than January 2020. The company also received SEC and Department of Justice document requests relating to the litigation and related matters.
- Putative securities class-action and shareholder derivative lawsuits remained unresolved; the filing says outcomes cannot be predicted. Other notable risks include tenant concentration and anchor closures, regional concentration, joint-venture guarantees, and potential additional impairments. The 2019 impairment charges relied on significant unobservable valuation assumptions.
Important facts for investors to verify
- Current status and terms of negotiations or resolutions for the Greenbrier Mall and Hickory Point Mall defaults, and the remaining debt maturity and refinancing schedule.
- Updated unrestricted cash, secured-line availability, covenant headroom and variable-rate debt exposure after subsequent repayments and any further changes.
- Progress in restoring occupancy and NOI, the performance of redeveloped anchor spaces, and leasing spreads and rent collections amid continuing tenant closures.
- Final settlement costs, tenant rent-credit obligations, and developments in the SEC/DOJ inquiries and securities and derivative litigation.
- Conditions for any resumption of common or preferred dividends. Preferred arrears and Operating Partnership special-unit distribution shortfalls must be addressed before common distributions can resume.
- CBL reported unqualified independent-auditor opinions on its financial statements and internal controls as of December 31, 2019.