CBL & Associates Properties, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Financial statements are unaudited. CBL is a REIT focused on shopping malls and other retail properties, primarily in the Southeast and Midwest; it reported interests in 102 properties, including consolidated and unconsolidated properties.
Financial performance and liquidity
- Revenue: $198.0 million, down 10.1% from $220.2 million in Q1 2018. Rental revenue fell $21.7 million, reflecting store closures, rent concessions, bankruptcies, and property dispositions.
- Profitability: Net loss was $46.8 million versus a $0.7 million loss a year earlier; net loss attributable to common shareholders was $50.2 million versus $10.3 million. Results included an $88.2 million litigation settlement expense and $24.8 million of impairment charges, partly offset by a $71.7 million gain on debt extinguishment. Interest expense was $54.0 million, broadly unchanged year over year.
- Operating indicators: Same-center NOI was $143.1 million, down 5.3%. Adjusted FFO attributable to Operating Partnership common unitholders was $60.5 million, down 27.8%; adjusted FFO per diluted share was $0.30 versus $0.42. These are non-GAAP measures.
- Cash flow: Operating cash flow was $55.5 million, down from $98.2 million. Investing activities provided $13.7 million, versus $28.5 million used in Q1 2018; financing activities used $81.3 million. Cash, cash equivalents, and restricted cash totaled $45.4 million at quarter-end, including $21.1 million unrestricted cash.
- Debt and liquidity: Consolidated mortgage and other indebtedness, net, was $3.90 billion; management’s pro rata share of consolidated and unconsolidated debt was $4.48 billion, with a 5.07% weighted-average interest rate. The January refinancing created a $1.185 billion secured facility, including a $500 million term loan and a $685 million revolver. The revolver had $390 million drawn and $290.2 million available after letters of credit. The facility matures in July 2023. Management reported compliance with key debt covenants.
- Dividends: The common dividend was reduced from an annualized $0.80 to $0.30 per share beginning in January 2019. The litigation settlement bars common dividends payable in Q3 and Q4 2019.
Material changes and operating developments
- Same-center NOI declined mainly because of lower rental revenue, including effects from bankrupt anchor and in-line tenants and weaker renewal rents. Bankruptcy-related closures reduced first-quarter occupancy by about 100 basis points.
- Total portfolio occupancy was 91.3%, compared with 91.1% a year earlier; mall occupancy was 89.4%, compared with 89.3%. Stabilized mall sales per square foot were $377, unchanged year over year.
- Renewals for comparable small-shop space were signed at average rents 12.3% below expiring rents; new stabilized-mall leases were 9.3% above prior rents. Nearly 80% of new leases signed in Q1 were with non-apparel tenants. CBL reported 22 anchor replacements committed, six already open.
- CBL replaced its prior unsecured bank facilities with the new secured credit facility. It also transferred Acadiana Mall to its lender and sold Cary Towne Center; together, these transactions produced the reported $71.7 million debt-extinguishment gain.
Outlook, risks, and unusual items
- Management said quarterly results were in line with expectations and stated that operating cash flows, financing availability, and disposition proceeds were expected to provide adequate liquidity for the foreseeable future. The filing does not provide a clear numerical full-year earnings or operating outlook.
- The proposed class-action settlement provides a common fund with monetary and non-monetary value of $90 million, based on aggregate damages of $60 million. CBL recorded an $88.2 million liability and expense in Q1, denies wrongdoing, and said settlement terms remain subject to court approval. Current tenants are to receive rent credits beginning no earlier than 2020; past tenants may claim cash payments.
- Other notable risks include retail tenant bankruptcies and closures, pressure on rents and occupancy, competition from online shopping and other retail formats, interest-rate changes, refinancing and capital availability, and debt covenant requirements. A 0.5 percentage-point change in variable rates was estimated to change annual cash flow and interest expense by approximately $5.2 million.
- After quarter-end, CBL reported the sale of Honey Creek Mall and The Shoppes at Hickory Point and refinancing of the Volusia Mall loan. The filing also reports a subsequent extension of the Village Square note receivable.
Investor verification points
- Confirm court approval, final settlement obligations and timing, including the 2019 common-dividend restriction and future tenant rent credits.
- Review revolver availability, scheduled debt maturities, collateral and covenant headroom, particularly the large 2023 maturity concentration.
- Track same-center NOI, occupancy, tenant bankruptcies, renewal spreads, and progress on committed anchor replacements.
- Separate recurring property performance from nonrecurring settlement, impairment, disposition, and debt-extinguishment effects; review the assumptions behind adjusted FFO.
- Verify completion proceeds and debt repayment associated with post-quarter property sales and the Volusia Mall refinancing.