CBL & Associates Properties Inc. - Q1 2002 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2002. CBL & Associates Properties, Inc. is a real estate investment trust (REIT) operating a portfolio of 46 regional malls, 16 associated centers, 65 community centers, and two office buildings. The company also holds joint venture interests in additional properties and mortgage notes. The financial statements are unaudited.
Key Financial Metrics
- Revenue: Total revenues were $142.3 million, an increase of 17.6% from $121.1 million in the prior year period.
- Net Income: Net income was $19.0 million ($0.66 per diluted share), compared to $16.8 million ($0.60 per diluted share) in Q1 2001. This includes an extraordinary loss of $1.965 million on early debt extinguishment.
- Funds From Operations (FFO): FFO increased 33.4% to $57.0 million from $42.8 million in Q1 2001.
- Cash Flow: Net cash provided by operating activities was $56.9 million. Net cash used in investing activities was $16.7 million, and net cash provided by financing activities was $(28.7) million.
- Liquidity: Cash and cash equivalents totaled $21.7 million at March 31, 2002. Available credit facilities totaled $141.5 million out of $373.9 million total capacity.
- Debt: Total debt obligations were approximately $2.27 billion. Variable rate debt was $786.4 million with a weighted average interest rate of 4.13% (down from 6.60% in Q1 2001). The debt-to-total market capitalization ratio was 53.3%.
- Occupancy: Total combined occupancy was 91.9%, down slightly from 92.3% in Q1 2001. Stabilized mall occupancy was 92.9%.
Material Changes vs. Prior Period
- Revenue Growth: Driven primarily by the inclusion of 19 consolidated centers acquired in January 2001 (providing a full quarter of operations in 2002 vs. two months in 2001) and the acquisition of a controlling interest in Columbia Mall during the quarter.
- Expense Increases: Property operating expenses rose 17.6% to $42.7 million, and depreciation increased 17.2% to $23.3 million, largely due to the new properties.
- Interest Expense: Remained flat at $36.3 million due to refinancing higher-rate long-term debt with lower-rate floating debt and favorable market rates.
- Discontinued Operations: The company sold Rhett at Remount Plaza, reporting a $1.2 million gain on disposal. This contrasts with Q1 2001 which had no such gain.
- Capital Markets: On March 15, 2002, the company issued 3.35 million shares of common stock, raising net proceeds of $115 million to repay floating-rate debt.
Outlook, Risks, and Management Commentary
- Development Pipeline: Key projects include the redevelopment of Parkway Place Mall (Huntsville, AL) scheduled to open in October 2002, and expansions at Meridian Mall and Westgate Mall.
- Recent Acquisitions: Subsequent to the quarter-end, the company acquired Richland Mall in Waco, Texas, for $43.3 million, funded by credit facilities.
- Leasing Trends: Mall shop sales in stabilized malls decreased 1.1% on a comparable basis. Lease rollovers in malls resulted in a 2.9% decrease in rent, while associated and community centers saw increases of 15.3% and 6.1%, respectively.
- Risks: The company notes standard risks regarding litigation (deemed immaterial), environmental exposure (deemed not significant), and interest rate fluctuations. Management utilizes interest rate swaps to fix rates on $220 million of variable debt.
- Accounting Change: The company reported the replacement of Arthur Andersen LLP with Deloitte & Touche LLP as its auditor.
Investor Verification Checklist
- Verify the impact of the $1.965 million extraordinary loss on early debt extinguishment on net income.
- Confirm the occupancy rates and sales trends for the "New Malls" category, which showed a decline in occupancy from 90.1% to 87.3%.
- Review the details of the $115 million equity offering and the specific debt instruments retired with the proceeds.
- Assess the status of the Parkway Place Mall redevelopment and its projected opening timeline.
- Monitor the company's variable rate debt exposure ($529.4 million on operating properties) given the reliance on interest rate swaps.