CBL Properties Reports Results for Second Quarter 2020

CBL Properties (NYSE:CBL) announced results for the second quarter ended June 30, 2020. A description of each supplemental non-GAAP financial measure and the related reconciliation to the comparable GAAP financial measure is located at the end of this news release.

KEY TAKEAWAYS:

• FFO per diluted share, as adjusted, was $0.05 for the second quarter 2020, compared with $0.34 per share for the second quarter 2019. FFO per diluted share, as adjusted, was $0.30 for the six months ended June 30, 2020, compared with $0.64 per share for the prior year period.
• Major variances in second quarter 2020 FFO per share compared with the prior year period included $0.24 per share of lower property NOI, which includes an estimate for uncollectable revenues and rent abatements; $0.02 per share lower consolidated interest expense primarily due to a decline in variable interest rates and $0.02 per share lower net G&A expense resulting from Company furloughs, reductions in force and company-wide temporary salary reductions. FFO per share for the second quarter included $2.5 million ($0.01 per share) related to rent abatements on past due rents and $41.5 million ($0.21 per share) in the estimate for uncollectable revenues for past due rents related to tenants that are in bankruptcy or struggling financially, primarily as a result of mandated property closures. FFO was also impacted by a $0.08 full valuation allowance established on the deferred tax asset during the quarter.
• Total Portfolio same-center NOI declined 32.0% for the three months ended June 30, 2020, and 20.4% for the six months ended June 30, 2020, as compared with the prior-year periods.
• Portfolio occupancy as of June 30, 2020, was 88.1%, representing a 210-basis point decline compared with 90.2% as of June 30, 2019. Same-center mall occupancy was 86.6% as of June 30, 2020, a 170-basis point decline compared with 88.3% as of June 30, 2019. An estimated 370-basis points of the decline in total mall portfolio occupancy was due to store closures related to tenants in bankruptcy.
• CBL’s portfolio is now fully operational with all properties, except one, open for business. CBL continues to prioritize the safety of its employees, retailers and shoppers by maintaining strict safety protocols across its portfolio. Protocols are updated as new guidance is issued by the CDC and local or state sources.

“With all but one of our properties and the vast majority of retailers now open, we are seeing improved traffic levels,” said Stephen Lebovitz, Chief Executive Officer. “While our properties and our tenants have extensive safety protocols in place, shoppers appear to be more deliberate in their visits, resulting in lower traffic numbers compared to last year. However, retailers are reporting higher conversion rates with many equaling or exceeding pre-pandemic levels. In addition to traditional in-store shopping, retailers have innovated by adding curbside pick-up, order-online and pick-up in-store and other programs designed to ease the shopping experience. These conveniences are an increasingly important part of successful retailing.

“Our financial and operating results for the second quarter reflect the temporary closure of the CBL portfolio for a significant period due to government mandates. Revenues for the quarter were impacted by a major increase in the estimate for uncollectible revenues related to rents due from tenants that recently filed for bankruptcy or are struggling financially, as well as amounts that were abated as part of negotiations. Store closures and rent loss from prior tenant bankruptcies and lower percentage rent related to lower retail sales also impacted revenues. We offset a portion of this decline through aggressive actions to reduce costs both at the property and corporate levels, including company-wide salary reductions, furloughs, reductions-in-force and other expense reduction initiatives. However, the pandemic has accelerated a number of tenant bankruptcies, resulting in an expectation of additional store closures and lost rent through the remainder of the year. As a result of the difficulty in accurately predicting the impact to our business, we expect our visibility over the next few quarters to remain limited. Accordingly, we are continuing the suspension of full-year guidance until there are signs of more stability in our operating environment.

“Leasing activity for the quarter was muted as we shifted our focus to negotiating with existing tenants. To date, we have completed or are finalizing negotiations with retailers representing the majority of second quarter rent. These agreements generally include flexible terms on second quarter rent to certain retailers that require assistance, such as rent deferrals, while at the same time preserving current and future income to CBL. As we complete these negotiations, rent collections have improved with retailers paying all or a portion of past-due amounts as well as paying current rents.

“While the events to date in 2020 have dramatically impacted our business in the near-term, these events also underscore the importance of our portfolio transformation and tenant diversification strategy as well as the prudent actions we’ve taken to preserve and strengthen our cash position. Most traditional retailers have paused on new store plans until they can stabilize their existing store base and have better clarity on the outlook. However, a number of local and other users, primarily non-apparel, are viewing this as an opportunity to identify attractive new growth opportunities. Our leasing team is more creative than ever in pursuing these leads to continue the all-important diversification to our tenants and properties, and we are confident that, over time, our revenues will stabilize due to these efforts.

“Finally, while our corporate policy is to not comment on the unfortunate rumors and speculation reported by the media, we want to confirm that over the past few months we have been holding constructive discussions with our lenders. In June, we deliberately elected to withhold the interest payments on two issuances of senior unsecured notes that were due as part of our discussions with certain holders of our bonds as well as the lenders under our credit facility. We first entered the 30-day grace periods provided for in the indenture and subsequently entered into forbearance agreements with certain holders of our notes and lenders under our credit facility. On August 5th, we elected to make these payments, which total $30.4 million and accordingly are current on all unsecured debt service. Discussions are ongoing, and we are hopeful that a positive and mutually beneficial outcome will be reached.”

FINANCIAL RESULTS

Net loss attributable to common shareholders for the second quarter 2020 was $69.8 million, or $0.36 per diluted share, compared with a net loss of $35.4 million, or a loss of $0.20 per diluted share, for the second quarter 2019. Net loss for the second quarter 2020 was impacted by a $13.3 million loss on impairment of real estate to write down the carrying value of Asheville Mall in Asheville, NC, to the property’s estimated fair value. Net loss for the second quarter 2020 also included establishing a full valuation allowance of $15.8 million on the deferred tax asset.

Net loss attributable to common shareholders for the six months ended June 30, 2020, was $203.7 million, or $1.10 per diluted share, compared with a net loss of $85.6 million, or a loss of $0.49 per diluted share, for the six months ended 2019.

FFO allocable to common shareholders, as adjusted, for the second quarter 2020 was $9.2 million, or $0.05 per diluted share, compared with $59.4 million, or $0.34 per diluted share, for the second quarter 2019. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the second quarter 2020 was $9.7 million compared with $68.5 million for the second quarter 2019.

FFO allocable to common shareholders, as adjusted, for the six months ended June 30, 2020, was $56.5 million or $0.30 per diluted share, compared with $111.8 million, or $0.64 per diluted share, for the six months ended June 30, 2019. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the six months ended June 30, 2020, was $61.3 million compared with $129.1 million for the six months ended June 30, 2019.

Major variances impacting same-center NOI for the three months ended June 30, 2020, include:

• Same-center NOI declined $42.7 million, due to a $53.4 million decrease in revenues offset by a $10.7 million decline in operating expenses.
• Rental revenues declined $50.5 million, including a $46.9 million decline in minimum and other rents. The decline in minimum and other rents was substantially related to $37.8 million in estimated uncollectible revenues related to tenants in bankruptcy or struggling financially and $2.4 million related to rent abatements. Rental revenues also include a $1.2 million decline in tenant reimbursements and a $2.2 million decline in percentage rents.
• Property operating expenses declined $6.5 million compared with the prior year. Maintenance and repair expenses improved $4.5 million. Real estate tax expenses increased $0.1 million.

COVID-19 UPDATE/RENT COLLECTION UPDATE

The COVID-19 pandemic resulted in closure of the majority of CBL’s owned and managed portfolio in response to government mandates beginning in March. To date, all but one of CBL’s owned and managed mall properties have re-opened, and CBL has implemented strict procedures and guidelines for our employees, tenants and property visitors based on CDC and other health agency recommendations. Our properties continue to update these policies and procedures, following any new mandates and regulations, as required.

The mandated closures resulted in nearly all our tenants closing for a period of time and/or shortening operating hours. As a result, the Company has experienced an increased level of requests for rent deferrals and abatements as well as defaults on rent obligations. While, in general, CBL believes that tenants have a clear contractual obligation to pay rent, CBL has been working with its tenants to address rent deferral requests. Based on executed or in process agreements with our top 20 tenants as a percentage of total revenues, excluding tenants in bankruptcy, CBL anticipates collecting over 61% of related rent for the second quarter, with the remainder expected to be deferred or abated. CBL remains in negotiations with tenants and is unable to predict the outcome of those discussions.

As the Company finalizes negotiations, rent collections as a percentage of billed cash-based rents have increased with certain past-due amounts being paid, resulting in an overall collection rate for April through July of over 54%. July rent collections are currently estimated at 49% of billed rents; however, the Company anticipates an improvement in the collection rate as it finalizes negotiations with retailers and additional past-due amounts are paid.

EXPENSE REDUCTION AND LIQUIDITY

As previously announced, CBL has implemented comprehensive programs to halt all non-essential expenditures, reduce operating and overhead expenses and to reduce, defer or suspend capital expenditures, including redevelopment investments. In March, CBL completed a $280 million aggregate draw on its line of credit, which represented substantially all of the remaining available balance. As of June 30, 2020, the company had $275.8 million available in cash and marketable securities.

Same-Center Sales Per Square Foot for Mall Tenants 10,000 Square Feet or Less:

Due to the temporary mall and store closures that occurred during the second quarter 2020, the majority of CBL’s tenants did not report sales for the full reporting period. As a result, CBL is not able to provide a complete measure of sales per square foot for the second quarter 2020 or trailing twelve-month period.

FINANCING ACTIVITY AND LENDER DISCUSSIONS

After discussions with each respective lender for the loans separately secured by Park Plaza in Little Rock, AR ($77.6 million), Hickory Point in Forsyth, IL ($27.4 million), EastGate Mall in Cincinnati, OH ($31.9 million) and Burnsville Center in Minneapolis, MN ($64.5 million), the Company anticipates cooperating with foreclosure or conveyance proceedings.

The Company remains in discussions with the lender for a potential modification and extension of the loan secured by Greenbrier Mall in Chesapeake, VA ($64.2 million) and recently entered into discussions with the lenders for the loans secured by Asheville Mall in Ashville, NC ($63.0 million) and Oak Park Mall in Overland Park, KS ($131.5 million at CBL’s share). These discussions are ongoing and CBL is not able to predict the outcome at this time.

As previously announced, CBL elected to not pay the interest payments due on June 1, 2020 and June 15, 2020, for the 5.25% senior unsecured notes due 2023 and the 5.95% senior unsecured notes due 2026, respectively (together, “the Notes”). CBL entered into forbearance agreements with certain beneficial holders in excess of 50% of the aggregate principal amount of the Notes as well as a forbearance agreement with lenders under the Company’s credit facility in order to continue discussions with both parties. On August 5, 2020, CBL elected to make the $30.4 million in interest payments and is now current on all unsecured debt service.

DISPOSITIONS

CBL did not complete any major dispositions during the quarter.

ANCHOR REPLACEMENT PROGRESS AND REDEVELOPMENT

As part of overall cost reduction and cash preservation actions, CBL has suspended or delayed certain redevelopment projects, where possible. Detailed project information is available in CBL’s Financial Supplement for Q2 2020, which can be found in the Invest – Financial Reports section of CBL’s website at cblproperties.com.

ABOUT CBL PROPERTIES

Headquartered in Chattanooga, TN, CBL Properties owns and manages a national portfolio of market-dominant properties located in dynamic and growing communities. CBL’s portfolio is comprised of 108 properties totaling 68.2 million square feet across 26 states, including 68 high-quality enclosed, outlet and open-air retail centers and 9 properties managed for third parties. CBL seeks to continuously strengthen its company and portfolio through active management, aggressive leasing and profitable reinvestment in its properties. For more information visit cblproperties.com.

NON-GAAP FINANCIAL MEASURES

Funds From Operations

FFO is a widely used non-GAAP 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 held by noncontrolling interests during the period.

FFO does not represent cash flows from operations as defined by GAAP, 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.

The Company believes that it is important to identify the impact of certain significant items on its FFO measures for a reader 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. Please refer to the reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders on page 9 of this news release for a description of these adjustments.

Same-center Net Operating Income

NOI is a supplemental non-GAAP 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. The Company believes that presenting NOI and same-center NOI (described below) based on its Operating Partnership’s pro rata share of both consolidated and unconsolidated properties is useful since the Company 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's definition of NOI may be different than that used by other companies and, accordingly, the Company's calculation of NOI may not be comparable to that of other companies.

Since NOI includes only those revenues and expenses related to the operations of the Company’s shopping center properties, the Company believes that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on the Company’s results of operations. The Company’s calculation of same-center NOI 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. 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 condensed 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.