CBL

CBL & Associates Properties, Inc. - Q1 2009 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009. CBL & Associates Properties, Inc. is a self-managed, self-administered Real Estate Investment Trust (REIT) engaged in the ownership, development, and operation of regional shopping malls, open-air centers, community centers, and office properties. As of the reporting date, the company owned controlling interests in 75 regional malls/open-air centers, 30 associated centers, eight community centers, one mixed-use center, and 13 office buildings across 27 U.S. states and Brazil.

Key Financial Metrics

Note: The dividend for Q1 2009 was paid in a combination of cash and shares, resulting in a 7.2% increase in shares outstanding.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased by $9.9 million (3.5%) primarily due to a $10.4 million decrease in rental revenues and tenant reimbursements from comparable properties. This was driven by reduced occupancy and lower common area maintenance (CAM) reimbursements due to tenant bankruptcies.
• Impairment Charge: The company recorded a non-cash impairment charge of $7.7 million related to its investment in Jinsheng Group, a Chinese real estate company, due to declining occupancy and sales in the Chinese market.
• Expense Reductions: Property operating expenses decreased by $6.2 million, and general and administrative expenses decreased by $1.1 million, reflecting cost containment initiatives including staff reductions and renegotiated service contracts.
• Interest Expense: Interest expense decreased by $8.3 million, largely due to lower variable interest rates (weighted average rate on variable debt declined 205 basis points).
• Occupancy: Total portfolio occupancy declined to 88.6% from 91.6% in the prior year, impacted by residual closures from 2008 bankruptcies.

Guidance, Outlook, and Risks

Liquidity and Capital Resources: Management emphasizes preserving liquidity amidst challenging capital markets. The company has refinanced or obtained extensions on over $700 million of debt during the quarter. Approximately $224 million of debt matures in 2009 that must be retired or refinanced, though the company believes it has adequate capacity to meet these obligations through refinancing, cash flows, and reduced dividends.

Dividend Policy: The quarterly common dividend was reduced from $0.545 to $0.37 per share to generate approximately $80 million in additional annual free cash flow. The Q1 2009 dividend was partially paid in stock to further conserve cash.

Development Strategy: The company has suspended development on major new projects until the retail climate improves. It is focusing on reducing capital expenditures related to renovations and delaying future renovation plans.

Risks:

• Economic Conditions: Continued economic recession, high unemployment, and consumer spending declines threaten tenant solvency and rental income.
• Refinancing Risk: Deteriorating credit markets may limit access to financing or increase costs for maturing debt.
• Tenant Bankruptcies: Recent filings by national retailers (e.g., Ritz Camera, S&K Menswear) pose risks to occupancy and lease spreads.

Investor Verification Checklist

• Debt Maturities: Verify the status of negotiations for the ~$224 million of debt maturing in 2009 that lacks extension options.
• Impairment Details: Review the specific valuation assumptions used for the $7.7 million Jinsheng Group impairment charge.
• Occupancy Trends: Monitor the re-leasing of approximately 1.8 million square feet of junior anchor space vacated due to 2008 bankruptcies.
• Dividend Sustainability: Assess the impact of the reduced dividend and stock dividend payment on future cash flow and shareholder returns.
• Leasing Spreads: Evaluate the negative leasing spreads (approx. 11-14% decline) on renewal leases and their impact on long-term revenue growth.