CBL & Associates Properties, Inc. — 2015 Form 10-K
Business context and period. The filing covers the fiscal year ended December 31, 2015, not a standalone fourth-quarter report. CBL is a REIT operating primarily through CBL & Associates Limited Partnership, with a portfolio of malls, outlet and open-air centers, community centers, associated centers, and offices across 27 states, concentrated in the Southeast and Midwest.
Financial and operating results
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $1,055.0 million | $1,060.7 million |
| Income from operations | $277.6 million | $375.1 million |
| Net income | $119.0 million | $253.0 million |
| Net income attributable to common shareholders | $58.5 million; $0.34 per share | $174.3 million; $1.02 per share |
| Cash from operating activities | $495.0 million | $468.1 million |
| Cash and cash equivalents at year-end | $36.9 million | $37.9 million |
| Pro rata consolidated and unconsolidated debt | $5,407.2 million | $5,346.3 million |
- Revenue was nearly flat year over year. Interest expense fell to $229.3 million from $239.8 million.
- Operating cash flow improved by $26.9 million. Investing and financing activities used $259.8 million and $236.2 million, respectively.
- Same-center NOI increased 0.7%; comparable mall sales per square foot rose 3.9% to $374. Adjusted FFO allocable to Operating Partnership common unitholders increased 1.8% to $462.9 million, while reported FFO fell 11.7% to $481.1 million. Adjusted FFO per diluted share was $2.32 versus $2.28. FFO is a non-GAAP measure, not a substitute for cash flow.
- Portfolio occupancy was 93.6%, down from 94.7%; same-center stabilized mall occupancy was 93.3%, down from 94.9%. Stabilized mall leasing spreads were positive 9.2% on average gross rent.
- Debt was 63.6% of total market capitalization, versus 54.3% a year earlier, largely reflecting the lower year-end share price. Variable-rate debt was $1,369.4 million, or 25.3% of pro rata debt; weighted-average debt interest rate was 4.50%.
Material changes and unusual items
- Net income declined substantially, with operating income also lower. The 2015 results included $105.9 million of real estate impairment losses, principally a $100.0 million write-down of Chesterfield Mall to an estimated $125.0 million fair value. The impairment was non-cash.
- Other 2015 items included a $16.6 million gain from selling all marketable securities and $32.2 million of gains on real estate sales. In 2014, results included an $87.9 million gain on extinguishment of debt after three malls were transferred to lenders; this makes year-over-year net income comparisons less representative of recurring performance.
- CBL acquired Mayfaire Town Center and Community Center for $192.0 million in June, then sold the community center for $56.3 million in December. It also sold several other properties and apartment interests; proceeds were used primarily to reduce credit-facility balances.
- Retailer bankruptcies caused 175 store closures and an estimated 310-basis-point occupancy impact. Management said it had addressed more than 70% of the affected space by year-end.
Outlook, risks, and contingencies
- Management described redevelopment, expansion, tenant-mix improvement, selective dispositions, and debt reduction as priorities. It expected to achieve higher rents on 2016 mall leases that could be renewed or re-leased, but the filing provides no clear quantified earnings or FFO guidance.
- Management projected $15.0 million of 2016 renovation investment. At year-end, $87.2 million of CBL-share development projects were under construction, with $54.9 million incurred to date.
- Approximately $621.2 million of CBL’s pro rata debt was scheduled to mature in 2016, in addition to $113.1 million associated with two loans that matured in December 2015. Management planned to use credit-facility capacity and refinancing, while identifying Chesterfield Mall as an intended lender exit and Hickory Point as under restructuring discussions. Several loans were modified or extended after year-end.
- Unsecured credit facilities had $1.1 billion of total capacity and $398.9 million outstanding at year-end. The company reported compliance with debt covenants and received a BBB- corporate rating from S&P in 2015. Liquidity remains exposed to refinancing availability, interest rates, property cash flows, and the ability to access capital markets.
- Gulf Coast Town Center’s lender initiated foreclosure proceedings in 2015; the property’s cash flow was insufficient to cover debt service, and the lender began receiving its operating cash flows. This is a material joint-venture and property-level risk.
- Other principal risks include tenant failures and anchor closures, retail competition including online sales, geographic concentration, property impairment, joint-venture control limitations, and substantial leverage. A 0.5-percentage-point rate increase was estimated to raise annual interest expense by about $6.7 million after capitalized interest.
- Common dividends declared were $1.06 per share for 2015. Future distributions are discretionary and depend on operating results, liquidity, debt restrictions, and REIT requirements.
Important facts for investors to verify
- Track 2016 maturities and confirm completion and terms of the disclosed refinancings, extensions, and planned Chesterfield Mall exit.
- Assess Chesterfield Mall’s valuation and operating outlook, and whether additional impairments or lender actions occur.
- Monitor occupancy recovery, leasing spreads, tenant bankruptcies, and same-center NOI against management’s expectations.
- Reconcile recurring performance using adjusted FFO and cash flow, excluding the significant impairments, securities gain, property-sale gains, and prior-year debt-extinguishment gain.
- Evaluate the effect of leverage, floating-rate exposure, credit-facility availability, and the dividend on liquidity and future investment capacity.