CBL

Business Context and Reporting Period

Company: CBL & Associates Properties, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2001
Business Overview: A self-managed, self-administered REIT engaged in the ownership, operation, and development of regional malls, community centers, and neighborhood shopping centers. As of year-end, the portfolio consisted of 52 enclosed regional malls, 18 associated centers, and 68 community centers, primarily located in the southeastern United States.

Key Financial Metrics

Material Changes Versus Prior Period

• Revenue Growth: Total revenues increased 52.7% to $544.4 million, driven primarily by the consolidation of 21 malls and two associated centers acquired from The Richard E. Jacobs Group, Inc. on January 31, 2001. This acquisition contributed approximately $161.5 million to the revenue increase.
• Net Income Decline: Despite revenue growth, Net Income decreased 7.3% to $60.9 million. This was due to a $13.6 million extraordinary loss on the extinguishment of debt and increased interest expense ($154.4 million vs. $94.6 million) and depreciation ($87.6 million vs. $60.6 million) associated with the new portfolio.
• FFO Expansion: Funds from Operations increased 46.9% to $194.0 million, reflecting the accretive nature of the Jacobs acquisition and higher rents in the stabilized portfolio.
• Occupancy Trends: Total combined occupancy decreased from 95.7% in 2000 to 93.8% in 2001. Mall store sales per square foot decreased 1.5% to $297.70.
• Debt Load: Total debt obligations increased significantly to $2.393 billion, largely due to the assumption of $745.5 million in mortgage debt as part of the Jacobs acquisition.

Guidance, Outlook, and Risks

• Development Pipeline: As of December 31, 2001, the Company had one mall (Parkway Place) and one mall expansion (Meridian Mall) under construction, totaling approximately 700,000 square feet, scheduled to open in 2002.
• Capital Strategy: Management intends to distribute 50% to 90% of FFO as dividends, retaining the remainder for capital expenditures and growth. The Company maintains $389.4 million in revolving credit lines and term loans, with $171.8 million available.
• Key Risks:
  • Geographic Concentration: 58.9% of total assets and 59.5% of revenues are derived from properties in the southeastern United States.
  • Tenant Concentration: The Limited, Inc. accounted for 6.4% of total revenues; The Gap, Inc. accounted for 2.7%.
  • Refinancing Risk: Significant debt maturities are scheduled for 2002 and 2003. Management expects to refinance the majority of these notes.
  • Environmental Liability: While no material liabilities are currently recorded, the Company faces potential risks regarding hazardous substances and asbestos in its properties.

Investor Verification Checklist

• Acquisition Integration: Verify the performance of the 21 newly acquired Jacobs malls against pro forma projections and the timeline for the second stage of the acquisition closing in 2002.
• Debt Maturities: Review the schedule of debt maturities, specifically the $385.8 million due in 2002 and $579.5 million due in 2003, to assess refinancing risk.
• Occupancy and Sales: Monitor the trend in mall store sales per square foot, which declined 1.5% in 2001, and the ability to maintain occupancy rates above 93%.
• Dividend Coverage: Confirm that FFO continues to cover the $2.13 per share dividend rate, noting the Company's policy to distribute 50-90% of FFO.
• Construction Progress: Track the completion and lease-up of Parkway Place and the Meridian Mall expansion scheduled for 2002.