CBL & Associates Properties, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; financial statements are unaudited. CBL is a REIT focused on regional malls and other retail and office properties, primarily in the southeastern and midwestern United States. At quarter-end, it held controlling interests in 74 regional malls/open-air centers, 29 associated centers, six community centers and 13 office buildings.
Financial and operating performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $250.7 million | $267.2 million |
| Income from operations | $92.6 million | $98.9 million |
| Income from continuing operations | $35.7 million | $36.1 million |
| Net income attributable to CBL | $26.0 million | $47.3 million |
| Net income attributable to common shareholders | $15.5 million; $0.10 per share | $36.7 million; $0.25 per share |
| Operating cash flow | $91.8 million | $78.8 million |
| Common dividend declared per share | $0.22 | $0.21 |
All financial amounts above are in U.S. dollars. Same-center NOI excluding lease termination fees increased 1.5% to $174.8 million. Portfolio occupancy rose 150 basis points to 91.8%; comparable mall store sales increased 5.9%, and trailing-twelve-month comparable sales reached $339 per square foot, up 3.7%.
Liquidity, debt and capital
- Cash and cash equivalents were $61.7 million at March 31, up $5.6 million from year-end. Operating cash flow was $91.8 million; investing activities provided $7.4 million and financing activities used $93.7 million.
- Consolidated mortgage and other indebtedness was $4.46 billion, down from $4.49 billion at December 31, 2011. Including CBL’s pro rata share of unconsolidated affiliate debt, total debt was approximately $5.23 billion. About 80% of debt was non-recourse and property-specific.
- CBL reported $788.4 million of available capacity across credit facilities, a 51.3% debt-to-gross-asset-value ratio, 2.47x interest coverage and 1.91x debt-service coverage. Management said it was in compliance with debt covenants.
- Approximately $580.5 million of pro rata consolidated and unconsolidated debt was scheduled to mature over the remainder of 2012 as of quarter-end. After subsequent extensions and refinancing, management said approximately $228.5 million remained to be retired or refinanced.
- Variable-rate debt represented 22.8% of pro rata debt, compared with 17.2% at year-end. CBL estimated that a 0.5 percentage-point rate increase would raise annual interest expense by approximately $5.9 million.
Changes and unusual items
- Revenue declined $16.5 million year over year, largely because three malls were deconsolidated after CBL formed a joint venture with TIAA-CREF in October 2011. Comparable-property revenue increased $1.8 million, supported by higher base rents and occupancy.
- Lower interest expense—down $8.2 million—partly offset the revenue decline. Comparable-property operating expenses also decreased, while general and administrative expense increased $2.0 million.
- Reported net income was substantially lower than Q1 2011, when discontinued operations included a $31.4 million gain from extinguishing debt on the sale of Oak Hollow Mall. CBL’s FFO of the Operating Partnership, excluding that prior-year gain, increased to $92.5 million from $90.7 million.
- CBL sold Settlers Ridge Phase II for net proceeds of $19.0 million and Oak Hollow Square for net proceeds of $13.8 million; proceeds reduced borrowings. The filing also reports a $0.3 million Q1 impairment true-up for Oak Hollow Square.
- CBL retired 15 property loans totaling $394.4 million using secured credit-facility borrowings, and closed a $73.0 million Northwoods Mall mortgage. After quarter-end, it completed additional property financing, extended loans and acquired interests in outlet-center properties in Gettysburg and El Paso.
Outlook, risks and contingencies
- CBL projected year-end portfolio occupancy to be flat to 50 basis points above 2011, based on current leasing activity, and anticipated positive sales growth for the rest of the year as the economy slowly improved. No specific full-year revenue or earnings guidance is provided in the filing text.
- Management highlighted improving occupancy, leasing spreads and sales, and continued investment in mall renovations, redevelopment and outlet-center growth. Development projects included two community-center expansions and a mall redevelopment, with expected openings in 2012 or early 2013.
- Columbia Place’s $27.3 million non-recourse mortgage was in default after the lender notified CBL in February; the property generated insufficient income to cover debt service. The lender was receiving the property’s net operating cash flow in lieu of scheduled payments.
- CBL guaranteed significant joint-venture and third-party obligations, including 100% of construction loans for West Melbourne ($45.7 million) and Port Orange ($65.0 million). The Westfield preferred joint-venture units were carried at approximately $423.8 million; distribution rates could increase to 9% under specified redemption conditions beginning in 2013.
- Pending litigation includes claims related to alleged construction damage at a Mississippi development and related insurance-coverage disputes. Management did not expect pending litigation to materially affect financial position or results. CBL also reported a $3.0 million liability for potential asbestos abatement.
- Key risks include refinancing and capital-market access, interest-rate exposure, retail tenant weakness or bankruptcies, property values and impairments, regional economic concentration, joint-venture guarantees, and maintaining REIT qualification. Management cautioned that interim results may not indicate full-year performance.
Important facts for investors to verify
- Progress on the remaining 2012 maturities and refinancing needs, including the effect of post-quarter transactions.
- Status and potential resolution of the Columbia Place loan default and property performance.
- Whether occupancy, leasing spreads and same-center NOI gains persist, and how comparable results are affected by the TIAA-CREF joint venture.
- Potential obligations and future distribution-rate increases tied to Westfield’s preferred units and CBL’s joint-venture guarantees.
- Cash available for dividends after debt service, capital spending and required REIT distributions; the board retains discretion over future dividends.