Press Release

CHATTANOOGA, Tenn.--(BUSINESS WIRE)--

CBL & Associates Properties, Inc. (NYSE:CBL) announced results for the second quarter ended June 30, 2017. 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.

HIGHLIGHTS:

• FFO per diluted share, as adjusted, was $0.50 for the second quarter 2017, compared with $0.59 per share for the second quarter 2016. Second quarter 2017 was impacted by approximately $0.04 per share of dilution from asset sales and $0.03 per share of abandoned projects expense related to the write-off of several new development projects CBL has elected not to pursue.
• Additional progress on our disposition program included the sale of two malls, an outlet center and two office buildings year-to-date, generating net proceeds of approximately $100 million. In August, CBL entered into a binding contract for the sale of its remaining 25% interest in River Ridge Mall to its joint venture partner for $9.0 million.
• Closed on the extension and modification of two unsecured term loans.
• Total Portfolio Same-center NOI declined 1.3% for the second quarter 2017 and 1.0% for the six months ended June 30, 2017.
• Portfolio occupancy declined 100 basis points to 91.6% compared with 92.6% as of June 30, 2016, and same-center mall occupancy declined 140 basis points to 90.6% as of June 30, 2017, compared with 92.0% as of June 30, 2016.
• Year-to-date through June 30, 2017, CBL has executed nearly two million square feet of leases. On a comparable basis for spaces under 10,000 square feet in the stabilized mall portfolio, CBL executed nearly one million square feet of leases at an average gross rent per square foot increase of 0.6%, including a 13.5% increase for new leases executed in the period.

“Taking into account the difficult retail environment, second quarter operating results were in-line with expectations, but still disappointing,” said Stephen Lebovitz, CBL’s president & CEO. “Our priority through the remainder of the year is maintaining and improving occupancy and income as we focus on reinventing our market dominant properties. We are bringing in more productive uses that appeal to today’s consumer preferences and driving increased traffic and sales. This quarter, we made the decision to write-off several potential new development projects so that we can concentrate on our program of anchor store redevelopments and the reinvention of our properties.

“We are pleased with the progress we’ve made in strengthening our balance sheet. As announced this week, we have successfully extended two bank term loans, demonstrating the ongoing confidence in CBL and our strategy by the lending community. We recently completed our portfolio transformation program with 19 transactions closed, representing over $750 million in value, including the two malls sold this quarter. Proceeds from these sales as well as our outlet center in Oklahoma contributed to total debt reduction of more than $330 million compared with the prior-year quarter. These improvements to our balance sheet provide us with the financial resources to deliver on our redevelopment program and position our properties for long-term success.”

Net income attributable to common shareholders for the second quarter 2017 was $30.2 million, or $0.18 per diluted share, compared with net income of $51.7 million, or $0.30 per diluted share, for the second quarter 2016.

FFO allocable to common shareholders, as adjusted, for the second quarter 2017 was $85.6 million, or $0.50 per diluted share, compared with $101.3 million, or $0.59 per diluted share, for the second quarter 2016. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the second quarter 2017 was $99.7 million compared with $118.6 million for the second quarter 2016. FFO, as adjusted, for the second quarter 2017 included $5.0 million, or $0.03 per diluted share, of abandoned project expense related to the write-off of several potential new development projects the Company has elected not to pursue.

Percentage change in same-center Net Operating Income (“NOI”)⁽¹⁾:

Major variances impacting same-center NOI for the quarter ended June 30, 2017, include:

• NOI declined $2.3 million, due to a $4.3 million decrease in revenue, partially offset by a $2.0 million decrease in operating expenses.
• Minimum rents increased $0.01 million during the quarter.
• Percentage rents decreased $0.7 million, impacted by relatively flat sales in the second quarter.
• Tenant reimbursements and other rents declined $3.7 million.
• Property operating expenses were flat, maintenance and repair expense declined $1.0 million, and real estate tax expenses declined $1.0 million.

PORTFOLIO OPERATIONAL RESULTS

DISPOSITIONS

CBL has entered into a binding contract for the sale of its remaining 25% interest in River Ridge Mall in Lynchburg, VA, for $9.0 million, cash. Subject to customary conditions, the sale is expected to close during the third quarter 2017. Second quarter results included a $5.3 million loss on investment related to the pending disposition.

As of June 30, 2017, CBL completed the sale of two office buildings, two malls and one outlet center for a gross sales price (at CBL’s share) of $157.25 million. Transactions completed in the second quarter included the sale of two malls, College Square in Morristown, TN (2016 sales psf $265) and Foothills Mall in Maryville, TN (2016 sales psf $283), for a total gross sales price of $53.5 million. Additionally, during the second quarter CBL closed on the sale of The Outlet Shoppes at Oklahoma City in Oklahoma City, OK for a gross sales price of $97.5 million (at CBL’s share).

FINANCING ACTIVITY

In July, CBL completed the extension and modification of two unsecured term loans expiring in 2018. The first, with a balance of $400 million, was increased to a balance of $490 million until July 2018, when it will be reduced to $300 million for the remainder of its term. New borrowings under this term loan were used to reduce outstanding balances on the Company’s unsecured lines of credit. The new term loan has an initial maturity date of July 2020 with two, one-year extension options (the 2nd option is at the lenders’ sole discretion), for a final maturity of July 2022. The term loan bears an interest rate of 150 basis points over LIBOR, based on CBL’s current investment grade rating of BBB-/Baa3/BBB-. Wells Fargo Bank National Association served as Administrative Agent.

The second unsecured term loan, which currently has a balance of $50 million and was due to mature in February 2018, was modified to a new $45 million term loan. The new loan has an initial maturity date of June 2021, with an additional one-year extension option available at CBL’s discretion, for a final maturity of June 2022. The term loan bears interest at a rate of 165 basis points over LIBOR. First Tennessee Bank NA served as Administrative Agent.

In April, the $124.2 million loan secured by Acadiana Mall in Lafayette, LA, matured. CBL has entered into a preliminary agreement with the existing lender to modify the terms of the loan to an A/B note structure and extend the maturity. The principal will be split into a $65 million A-note and a $60 million B-note. Interest will be payable on a current basis on the $65 million A-note. Interest will accrue, payable at maturity, on the $60 million B-note. The loan is expected to be extended to September 2020, with a one-year extension option for a final maturity of September 2021. The interest rate will remain at 5.67%, with amortization payments eliminated. CBL recorded a $43 million impairment of the carrying value of this center in the second quarter.

During the second quarter Chesterfield Mall in Chesterfield, MO, was conveyed to the lender in settlement of the $140 million non-recourse loan secured by the property. CBL recorded a gain on extinguishment of debt of $28.4 million related to the conveyance.

OUTLOOK AND GUIDANCE

CBL is maintaining its previously issued 2017 FFO, as adjusted, guidance in the range of $2.18 - $2.24 per diluted share. This FFO assumes a same-center NOI change in the range of (2.0)% - 0% in 2017.

The guidance also assumes the following:

• $10.0 million to $12.0 million in gains on outparcel sales;
• 75 to 125 basis points lower total portfolio occupancy as well as stabilized mall occupancy at year-end;
• G&A expense of $62 million to $64 million for the full year; and
• No unannounced capital markets activity.

INVESTOR CONFERENCE CALL AND WEBCAST

CBL & Associates Properties, Inc. will conduct a conference call on Friday, August 4, 2017, at 11:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 6011729. A replay of the conference call will be available through August 11, 2017, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10107045. 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. second 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 2017 second quarter earnings release conference call. The live broadcast of the quarterly conference call will be available online at cblproperties.com on Friday, August 4, 2017, 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 121 properties, including 78 regional malls/open-air centers. The properties are located in 27 states and total 75.5 million square feet including 6.3 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 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 earnings 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.

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CBL & Associates Properties, Inc.
Katie Reinsmidt, 423-490-8301
Executive Vice President - Chief Investment Officer
katie.reinsmidt@cblproperties.com

Source: CBL & Associates Properties, Inc.