Press Release

Results in-line; Full-Year Guidance Range Maintained

CHATTANOOGA, Tenn.--(BUSINESS WIRE)-- CBL Properties (NYSE:CBL) announced results for the third quarter ended September 30, 2018. 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 $0.40 for the third quarter 2018, compared with $0.50 per share for the third quarter 2017. Third quarter 2018 FFO per share was impacted by approximately $0.01 per share of higher G&A expense primarily due to severance expense, $0.01 per share of dilution from asset sales completed in 2017 and year-to-date, $0.05 per share of lower property NOI, $0.01 per share higher interest expense and $0.02 per share lower income tax benefit.
• Total Portfolio Same-center NOI declined 6.1% for the third quarter 2018 and 6.6% for the nine months ended September 30, 2018.
• Portfolio occupancy increased 90 basis points to 92.0% as of September 30, 2018, compared with 91.1% as of June 30, 2018, and declined 110 basis points compared with 93.1% as of September 30, 2017. Same-center mall occupancy was 90.8% as of September 30, 2018, a 120 basis point increase compared with 89.6% as of June 30, 2018, and a 90 basis point decline compared with 91.7% as of September 30, 2017.
• Year-to-date, CBL has completed gross asset sales totaling more than $89 million.
• Same-center sales per square foot for the stabilized mall portfolio for the twelve-months ended September 30, 2018, increased to $378 per square foot compared with $376 per square foot for the prior-year period.
• Construction is underway on nine redevelopment projects with three redevelopment projects opened year-to-date.

"Operational results for the quarter and year-to-date were delivered in-line with our expectations and previously issued guidance range," commented Stephen Lebovitz, chief executive officer. "Despite significant additional rent losses from unanticipated store closings, we are on-track to end the year at the mid-to-high point of our adjusted FFO per share guidance range and the mid-to-low point of the same-center NOI range. While our leasing spreads continue to be pressured, the positive sales in our portfolio year-to-date are a healthy leading indicator for an improved leasing backdrop in 2019.

"We are also making strong progress on our redevelopment program. Of the ten leased Bon Ton stores that closed in August, we have leases executed or out-for-signature for replacement users at six locations and three others in advanced negotiations. We are utilizing our capital-lite redevelopment strategy for a number of these projects and today have nine anchor replacements across our portfolio that require little to no investment by CBL and several more underway. This under-appreciated strategy allows us to replace closed anchor locations with exciting uses while preserving capital. At the same time, we are having excellent results in diversifying our offerings, with executed or pending deals for 50 restaurants, 14 entertainment operators, nine hotels, two supermarkets, five fitness operators, four self-storage locations and four multi-family projects.

"Now that the much-anticipated Sears bankruptcy is behind us, we have the opportunity to accelerate additional redevelopments to further transform our malls into suburban town centers. We anticipate minimal impact to our financial results for 2018 as a result of the six additional Sears closures announced as part of the filing. Three were stores that we had purchased in our 2017 sale-leaseback transaction with redevelopment plans already well underway.

"We also are strengthening our balance sheet by extending our maturity schedule. We closed on a 10-year, fixed loan at a rate of 5.103% secured by The Outlet Shoppes at El Paso this quarter. Our share of nearly $95 million in net proceeds from this financing and the CoolSprings Galleria refinancing completed during the second quarter, coupled with disposition proceeds of nearly $90 million year-to-date, funded the majority of the $190 million term loan paydown completed in July. We have also made significant progress with our bank group towards finalizing the recast of our lines of credit and term loans. With their strong support we remain on-track to close in or before January 2019 and will be excited to share details at that time."

Net loss attributable to common shareholders for the third quarter 2018 was $12.6 million, or a loss of $0.07 per diluted share, compared with a net loss of $2.3 million, or a loss of $0.01 per diluted share, for the third quarter 2017.

FFO allocable to common shareholders, as adjusted, for the third quarter 2018 was $68.6 million, or $0.40 per diluted share, compared with $84.7 million, or $0.50 per diluted share, for the third quarter 2017. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the third quarter 2018 was $79.2 million compared with $98.7 million for the third quarter 2017.

Major variances impacting same-center NOI for the quarter ended September 30, 2018, include:

• Same-center NOI declined $10.0 million, due to a $12.3 million decrease in revenues offset by a $2.3 million decline in operating expenses.
• Minimum rents and tenant reimbursements declined $11.4 million during the quarter, including a $3.0 million decline in real estate tax reimbursements.
• Percentage rents declined $0.5 million compared with the prior year quarter.
• Property operating expenses were relatively flat compared with the prior year. Maintenance and repair expenses increased $0.5 million. Real estate tax expenses declined $2.8 million.

DIVIDEND

“A major financial priority for CBL is to preserve liquidity and the flexibility of our balance sheet," commented Lebovitz. "As we discussed on our second quarter earnings call, we have been evaluating an adjustment to our dividend to a level that maximizes available cash flow for investing in our properties and debt reduction. In order to accomplish this goal, we are reducing the common dividend for 2019 to an annualized rate of $0.30 per share from $0.80 per share. The reduction will preserve an estimated $100 million of cash on an annual basis. This significantly enhanced liquidity will help to fund value-adding redevelopment activity and debt reduction and ultimately enhance long-term shareholder value. In addition to the funds retained through the dividend reduction, we will continue to enhance financial flexibility through a number of avenues, including efficiencies in operations, reductions to overhead and opportunistic dispositions to generate equity proceeds as well as proactively extending our debt maturity schedule to limit financing risk."

CBL’s Board of Directors has declared a quarterly cash dividend for the Company’s Common Stock of $0.075 per share for the quarter ending December 31, 2018. The dividend is payable on January 16, 2019, to shareholders of record as of December 31, 2018. The dividend represents an annualized rate of $0.30 per share.

The Board also declared a quarterly cash dividend of $0.4609375 per depositary share for the quarter ending December 31, 2018, for the Company’s 7.375% Series D Cumulative Redeemable Preferred Stock. The dividend, which equates to an annual dividend payment of $1.84375 per depositary share, is payable on December 31, 2018, to shareholders of record as of December 14, 2018.

The Board also declared a quarterly cash dividend of $0.4140625 per depositary share for the quarter ending December 31, 2018, for the Company’s 6.625% Series E Cumulative Redeemable Preferred Stock. The dividend, which equates to an annual dividend payment of $1.65625 per depositary share, is payable on December 31, 2018, to shareholders of record as of December 14, 2018.

DISPOSITIONS

Year-to-date, CBL has raised more than $89 million in gross proceeds through asset sales.

FINANCING ACTIVITY

In September, CBL closed on a $75.0 million non-recourse loan secured by The Outlet Shoppes at El Paso in El Paso, TX. The 10-year loan bears interest at a fixed rate of 5.103%.

Proceeds from the loan were used to retire a $6.5 million loan secured by the second phase of the property, which was scheduled to mature in December. CBL’s share of net proceeds of $65.0 million was utilized to reduce outstanding balances on the lines of credit.

In April, CBL, along with its 50% joint venture partner, closed on a $155.0 million ($77.5 million at CBL’s share) non-recourse loan secured by CoolSprings Galleria in Nashville, TN. The 10-year loan bears interest at a fixed rate of 4.839%.

Proceeds from the loan were used to retire the existing $97.7 million loan, which bore interest at a fixed rate of 6.98% and was scheduled to mature in June. CBL’s share of nearly $29.0 million in excess proceeds was utilized to reduce outstanding balances on its lines of credit.

In May, CBL completed the extension of the $56.7 million ($28.4 million at CBL’s share) loan secured by The Pavilion at Port Orange in Port Orange, FL, and the $58.2 million ($29.1 million at CBL’s share) loan secured by Hammock Landing in West Melbourne, FL. The loans were extended for an initial term of three years, with two one-year extensions available at the Company’s option, for a final maturity in February 2023. The new loans bear interest at 225 basis points over LIBOR, an increase of 25 bps over the prior rate.

In July, CBL repaid $190.0 million of its $490.0 million unsecured term loan using availability on its lines of credit, reducing the outstanding balance to $300 million. This loan matures in July 2021.

In October, CBL exercised its option to extend the maturity date of its $350.0 million unsecured term loan to October 2019. It also extended the $27.4 million loan secured by Hickory Point Mall to December 2019.

DEVELOPMENT

Major redevelopments completed and underway in 2018 include (complete project list can be found in the financial supplement):

Additional Replacement Activity Completed or Underway with Minimal or No Investment by CBL:

OUTLOOK AND GUIDANCE

Based on year-to-date results and expectations for the fourth quarter 2018, CBL anticipates achieving 2018 FFO, as adjusted, at the mid-to-high end of its guidance range of $1.70 - $1.80 per diluted share. Guidance incorporates a reserve in the range of $10.0 - $20.0 million (the "Reserve") for potential future unbudgeted loss in rent from tenant bankruptcies, store closures or lease modifications that may occur in 2018. Based on bankruptcy and leasing activity year-to-date, including the impact of any co-tenancy, CBL currently expects to utilize approximately $16 - $18 million of the Reserve. Key assumptions underlying guidance are as follows:

Reconciliation of GAAP net income (loss) to 2018 FFO, as adjusted, per share guidance:

INVESTOR CONFERENCE CALL AND WEBCAST

CBL Properties will host a conference call on Tuesday, October 30, 2018, at 11:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 4666560. A replay of the conference call will be available through November 6, 2018, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10123148.

The Company will also provide an online webcast and rebroadcast of its third quarter 2018 earnings release conference call. The live broadcast of the quarterly conference call will be available online at cblproperties.com on Tuesday, October 30, 2018, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call.

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

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 114 properties totaling 71.9 million square feet across 26 states, including 73 high-quality enclosed, outlet and open-air retail centers and 12 properties managed for third parties. CBL continuously strengthens 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 11 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.

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

Source: CBL Properties