CBL & Associates Properties, Inc. - 10-Q Summary (Q2 2009)
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 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 June 30, 2009, 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
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $537.6 million | $553.4 million |
| Net Income (Consolidated) | $39.9 million | $51.3 million |
| Net Income Available to Common Shareholders | $9.8 million | $15.8 million |
| Diluted EPS (Common) | $0.13 | $0.22 |
| Funds From Operations (FFO) Allocable to Common | $110.4 million | $108.1 million |
| Net Cash Provided by Operating Activities | $199.1 million | $190.5 million |
| Total Debt (Mortgage and Other Notes Payable) | $5.69 billion | $6.10 billion |
| Cash and Cash Equivalents | $50.8 million | $51.2 million |
| Weighted Average Interest Rate (Variable Debt) | 1.66% | 3.57% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by $15.8 million (2.9%) year-over-year. This was driven by a $22.8 million decrease in revenues from comparable properties due to lower occupancy and base rents, partially offset by $8.6 million in revenue from new properties.
- Expense Reductions: Property operating expenses decreased by $12.0 million, and general and administrative expenses decreased by $1.3 million, reflecting successful cost containment initiatives and lower bad debt expense.
- Impairment Charge: The company recognized a non-cash impairment loss of $7.7 million related to its investment in Jinsheng Group, a Chinese real estate company, due to declining occupancy and sales in China.
- Interest Expense: Interest expense decreased by $12.0 million primarily due to lower variable interest rates (weighted average dropped from 3.57% to 1.66% for variable debt).
- Discontinued Operations: The company recognized a loss of $0.1 million on discontinued operations in 2009, compared to income of $4.4 million in 2008, as several properties sold in 2008 are no longer in the portfolio.
Guidance, Outlook, and Management Commentary
- Liquidity and Capital Markets: In June 2009, the company completed an equity offering of 66.6 million shares at $6.00 per share, raising net proceeds of approximately $381.6 million. These proceeds were used to repay outstanding borrowings under credit facilities.
- Debt Maturities: Management has secured commitments for the extension and modification of its $524.9 million secured line of credit and $560.0 million unsecured line of credit. The company intends to retire a $52.8 million non-recourse loan maturing in December 2009 using availability from its unsecured credit facility.
- Dividend Policy: The Board of Directors reduced the dividend for the remainder of 2009 to the minimum level required to distribute 100% of estimated taxable income. A quarterly dividend of $0.11 per share was declared for Q2 2009. This policy is expected to generate cash savings of approximately $160 million annually.
- Occupancy and Leasing: Total portfolio occupancy was 88.0% as of June 30, 2009, down from 91.4% in the prior year. Mall store sales declined 6.0% year-over-year. The company signed approximately 1.1 million square feet of leases in Q2 2009.
- Development: Four major development projects are under construction. The company is not pursuing additional new developments beyond the current slate.
Investor Verification Checklist
- Debt Refinancing Status: Verify the closing of the extension and modification of the $524.9 million secured and $560.0 million unsecured credit facilities, scheduled for Q3 2009.
- Authorized Share Capital: Confirm the outcome of the special stockholder meeting (planned for Q3 2009) to increase authorized common shares from 180 million to 1 billion, which is critical for satisfying exchange rights of Operating Partnership unit holders.
- International Exposure: Monitor the performance and potential further impairment of the investment in Jinsheng Group (China) and the Macapa project (Brazil).
- Tenant Bankruptcies: Track the impact of retailer bankruptcies (e.g., Eddie Bauer, Garfields) on occupancy and rent collections, noting that some leases were acquired by third parties at auction.
- Dividend Composition: Watch for future dividends paid partially in stock, which could impact cash flow and shareholder tax liabilities.