CBL & Associates Properties Reports Outstanding Third Quarter 2016 Results

CBL & Associates Properties Reports Outstanding Third Quarter 2016 Results

CBL & Associates Properties, Inc. (NYSE:CBL) announced results for the third quarter ended September 30, 2016. A description of each non-GAAP financial measure and the related reconciliation to the comparable GAAP measure is located at the end of this news release.

HIGHLIGHTS:

• Closed on the sale of two Tier 3 malls and entered into a binding contract for the sale of three additional Tier 3 malls.
• Same-center NOI for the third quarter of 2016 increased 2.6% in the Total Portfolio and 2.3% in the Malls compared with the prior period, primarily driven by top-line revenue growth.
• FFO per diluted share, as adjusted, of $0.57 for the third quarter of 2016, increased 1.8% compared with the prior-year period.
• Same-center mall occupancy increased 90 basis points to 92.7% as of September 30, 2016 compared with 91.8% as of September 30, 2015.
• Stabilized Mall leases were signed at an average increase of 10.2% over the expiring gross rent per square foot.

CBL's President and Chief Executive Officer Stephen Lebovitz commented, "Our strong third quarter results and outstanding operating performance year-to-date is further evidence that our portfolio transformation strategy is working. Same-center NOI growth at the high-end of our guidance range was driven by top-line revenue growth as same-center mall occupancy increased 90 basis points and lease spreads improved to average 10.2%.

"We have made tremendous progress on our disposition program this year with 17 mall transactions completed or in process. These include the two Tier 3 malls sold during the quarter as well as a portfolio of three Tier 3 malls under binding contract. Our portfolio and our company are stronger today than they have ever been. We are utilizing our free cash flow and disposition proceeds to reinvest in accretive redevelopments and high-growth developments, while at the same time we are reducing debt. With $460 million lower total debt compared with the prior-year period and healthy coverage ratios, our balance sheet is only getting better. As we close out 2016 and begin to look to 2017, we are focused on building on these portfolio and balance sheet enhancements and positioning CBL for even greater success in the future."

Net loss attributable to common shareholders for the third quarter of 2016 was $10.2 million, or $(0.06) per diluted share, compared with net income of $26.3 million, or $0.15 per diluted share, for the third quarter of 2015. Net loss in the quarter included the $53.6 million impairment of properties classified as held-for-sale or properties that the Company intends to dispose of before the end of their useful lives.

FFO allocable to common shareholders, as adjusted, for the third quarter of 2016 was $98.1 million, or $0.57 per diluted share, compared with $95.0 million, or $0.56 per diluted share, for the third quarter of 2015. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the third quarter of 2016 was $114.9 million compared with $111.3 million for the third quarter of 2015.

Major variances impacting same-center NOI for the quarter ended September 30, 2016 include:

• NOI increased $4.4 million, generated from a $3.4 million increase in revenue and a $1.0 million decline in operating expense.
• Minimum rents increased $4.0 million during the quarter as a result of rent growth and occupancy increases over the prior year.
• Percentage rents declined $0.2 million as sales softened in the third quarter.
• Tenant reimbursement and other revenues declined $0.4 million.
• Property operating expense declined $0.7 million, maintenance and repair expense declined $0.2 million, and real estate tax expense declined $0.1 million.

PORTFOLIO OPERATIONAL RESULTS

DISPOSITIONS

During the quarter, CBL entered into a contract for a portfolio of three Tier 3 enclosed malls for an aggregate sales price of $32.25 million. The buyer, Hull Property Group, has completed due diligence and posted a significant non-refundable deposit. The portfolio includes Randolph Mall in Asheboro, NC; Regency Mall in Racine, WI; and Walnut Square in Dalton, GA. The transaction is expected to close prior to year-end 2016. CBL recorded an impairment charge of $43.3 million to write down the depreciated book value of the malls to their net sales price.

In September, CBL and its joint venture partner closed on the assignment of 100% of the partnership interests in High Pointe Commons in Harrisburg, PA for a total consideration of $33.8 million. Proceeds from the transaction were used to retire existing secured loans aggregating to $17.4 million with CBL’s share of net proceeds used to reduce outstanding balances on the Company’s lines of credit.

In September, CBL completed the sale of a wholly owned office building in Greensboro, NC for a total sales price of $2.4 million.

In July, CBL completed the sale of Fashion Square in Saginaw, MI and The Lakes Mall in Muskegon, MI for an aggregate sales price of $66.5 million, including the assumption of a $38.2 million loan secured by Fashion Square. CBL recorded an impairment charge of $32.1 million in the second quarter related to the sale.

In May, CBL closed on the sale of Bonita Lakes Mall and Bonita Lakes Crossing in Meridian, MS for $27.9 million.

In April, CBL and its 50/50 joint venture partner closed on the sale of 100% of Renaissance Center, the 363,000-square-foot community shopping center located in Durham, NC. Renaissance Center was sold for a sales price of $129.2 million, including the assumption of a $16.0 million loan by the buyer and a $31.6 million loan that was retired at closing. The transaction generated net equity to CBL of $40.8 million.

In April, CBL completed the sale of The Crossings at Marshalls Creek, the 86,000-square-foot community center located in Middle Smithfield, PA, for a sales price of $22.3 million, in cash.

In March, CBL closed on the sale of a 75% interest in River Ridge in Lynchburg, VA, to Liberty University and received net cash proceeds of $33.5 million. CBL retains a 25% ownership position in the asset and is responsible for leasing and management, earning customary fees.

In February, CBL formed a new 10/90 joint venture for Triangle Town Center, Place and Commons in Raleigh, NC, with DRA Advisors LLC (DRA). The new joint venture acquired the property from the existing 50/50 joint venture between CBL and The Richard E. Jacobs Group for a total consideration of $174.0 million, including assumption of a $171.1 million loan secured by the property. CBL holds a 10% ownership position in the asset and is responsible for leasing and managing, earning customary fees.

FINANCING ACTIVITY

During the quarter, CBL retired three loans totaling $71.9 million (at CBL's share) and added the properties to its unencumbered pool of assets. The loans were secured by Dakota Square Mall in Minot, ND and two unconsolidated joint venture properties, Kentucky Oaks in Paducah, KY and Governor's Square in Clarksville, TN. Subsequent to the quarter-end, CBL retired the $38.3 million loan secured by Southaven Town Center in Southaven, MS.

OUTLOOK AND GUIDANCE

Based on results year-to-date and its current outlook, the Company anticipates achieving 2016 FFO, as adjusted, near the high-end of its guidance range of $2.36 - $2.40 per diluted share. CBL also anticipates achieving same-center NOI growth near the high-end of its guidance range of 1.5% - 2.5% in 2016.

The guidance also assumes the following:

• $8.0 million to $10.0 million in gains on outparcel sales;
• 75-125 basis point increase in total portfolio occupancy as well as stabilized mall occupancy;
• G&A, net of litigation expense and non-recurring professional fees, of $58 million to $60 million; and
• No unannounced capital markets activity.

INVESTOR CONFERENCE CALL AND WEBCAST

CBL & Associates Properties, Inc. will conduct a conference call on Friday, October 28, 2016, at 11:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 9239777. A replay of the conference call will be available through November 4, 2016, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10091791. A transcript of the Company's prepared remarks will be furnished on a Form 8-K following the conference call.

To receive the CBL & Associates Properties, Inc. third quarter earnings release and supplemental information, please visit the Investing section of our website at cblproperties.com or contact Investor Relations at (423) 490-8312.

The Company will also provide an online webcast and rebroadcast of its 2016 third quarter earnings release conference call. The live broadcast of the quarterly conference call will be available online at cblproperties.com on Friday, October 28, 2016 beginning at 11:00 a.m. ET. The online replay will follow shortly after the call.

ABOUT CBL & ASSOCIATES PROPERTIES, INC.

Headquartered in Chattanooga, TN, CBL is one of the largest and most active owners and developers of malls and shopping centers in the United States. CBL owns, holds interests in or manages 139 properties, including 87 regional malls/open-air centers. The properties are located in 31 states and total 81.1 million square feet including 7.1 million square feet of non-owned shopping centers managed for third parties. Additional information can be found at cblproperties.com.

NON-GAAP FINANCIAL MEASURES

Funds From Operations

FFO is a widely used measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. The Company’s method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

The Company believes that FFO provides an additional indicator of the operating performance of its properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of well-maintained real estate assets have historically risen with market conditions, the Company believes that FFO enhances investors’ understanding of its operating performance. The use of FFO as an indicator of financial performance is influenced not only by the operations of the Company’s properties and interest rates, but also by its capital structure. The Company presents both FFO allocable to Operating Partnership common unitholders and FFO allocable to common shareholders, as it believes that both are useful performance measures. The Company believes FFO allocable to Operating Partnership common unitholders is a useful performance measure since it conducts substantially all of its business through its Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of the Company’s common shareholders and the noncontrolling interest in the Operating Partnership. The Company believes FFO allocable to its common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to its common shareholders.

In the reconciliation of net income (loss) attributable to the Company's common shareholders to FFO allocable to Operating Partnership common unitholders, located in this earnings release, the Company makes an adjustment to add back noncontrolling interest in income (loss) of its Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. The Company then applies a percentage to FFO of the Operating Partnership common unitholders to arrive at FFO allocable to its common shareholders. The percentage is computed by taking the weighted average number of common shares outstanding for the period and dividing it by the sum of the weighted average number of common shares and the weighted average number of Operating Partnership units outstanding during the period.

FFO does not represent cash flows from operations as defined by accounting principles generally accepted in the United States, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating the Company’s operating performance or to cash flow as a measure of liquidity.

As described above, during the third quarter of 2016, the Company recognized $0.7 million of nonrecurring professional expense, $0.6 million of litigation expense, $1.1 million of equity in losses from the disposals of unconsolidated affiliates and $1.4 million of non-cash default interest expense. For the nine months ended September 30, 2016, the Company recognized a $54.5 million increase in equity in earnings, of which $27.9 million related to the foreclosure of the loan secured by Gulf Coast Town Center and $26.4 million related to the sale of our 50% interest in Triangle Town Center; $2.3 million of litigation expense and $1.8 million of nonrecurring professional fees expense. During the third quarter of 2015, the Company recognized $0.3 million of expense related to a litigation settlement. Additionally, during the nine months ended September 30, 2015, the Company recognized a $16.6 million gain on investment related to the sale of marketable securities, a $0.3 million gain on extinguishment of debt and received income of $1.3 million, net of related expense, as a partial settlement of ongoing litigation. Considering the significance and nature of these items, the Company believes it is important to identify their impact on its FFO measures for readers to have a complete understanding of the Company's results of operations. Therefore, the Company has also presented adjusted FFO measures excluding these items from the applicable periods.

Same-center Net Operating Income

NOI is a supplemental measure of the operating performance of the Company's shopping centers and other properties. The Company defines NOI as property operating revenues (rental revenues, tenant reimbursements and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).

The Company computes NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated properties. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated Properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the Properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. The Company's definition of NOI may be different than that used by other companies and, accordingly, the Company's NOI may not be comparable to that of other companies.

Since NOI includes only those revenues and expenses related to the operations of its shopping center and other properties, the Company believes that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates and operating costs and the impact of those trends on the Company's results of operations. The Company’s calculation of same-center NOI also excludes lease termination income, straight-line rent adjustments, amortization of above and below market lease intangibles and write-off of landlord inducement assets in order to enhance the comparability of results from one period to another, as these items can be impacted by one-time events that may distort same-center NOI trends and may result in same-center NOI that is not indicative of the ongoing operations of the Company’s shopping center and other properties. A reconciliation of same-center NOI to net income is located at the end of this earnings release.

Pro Rata Share of Debt

The Company presents debt based on its pro rata ownership share (including the Company's pro rata share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties) because it believes this provides investors a clearer understanding of the Company's total debt obligations which affect the Company's liquidity. A reconciliation of the Company's pro rata share of debt to the amount of debt on the Company's consolidated balance sheet is located at the end of this earnings release.

Information included herein contains "forward-looking statements" within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual events, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements. The reader is directed to the Company's various filings with the Securities and Exchange Commission, including without limitation the Company's Annual Report on Form 10-K, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included therein, for a discussion of such risks and uncertainties.

CBL & Associates Properties, Inc.
Katie Reinsmidt, 423-490-8301
Senior Vice President - Investor Relations/Corporate Investments
katie.reinsmidt@cblproperties.com

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