Press Release

CHATTANOOGA, Tenn.--(BUSINESS WIRE)-- CBL & Associates Properties, Inc. (NYSE:CBL) announced results for the fourth quarter and year ended December 31, 2018. A description of each 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:

• In January 2019, CBL announced a new $1.185 billion secured credit facility maturing in July 2023.
• In 2018, CBL completed more than $340 million of financing activity.
• In 2018, CBL completed gross asset sales of more than $100 million, including a tier 3 mall and approximately $35 million in outparcel.
• FFO per diluted share, as adjusted, was $0.45 in the fourth quarter 2018 compared to $0.56 in the prior-year period. Major items impacting fourth quarter 2018 FFO, as adjusted, include approximately $0.01 per share of dilution from asset sales, $0.07 per share lower property net operating income primarily due to retailer and anchor bankruptcies, $0.01 per share higher net interest expense and $0.02 per share due to lower gains on outparcel sales.
• FFO per diluted share, as adjusted, was $1.73 for 2018, compared with $2.08 in the prior-year period. Major items impacting 2018 FFO, as adjusted, include approximately $0.08 per share of dilution from asset sales and non-core properties, $0.20 per share lower property net operating income primarily due to retailer and anchor bankruptcies, $0.02 per share of higher G&A expense substantially related to one-time severance expense, $0.01 per share higher interest expense and $0.02 per share lower gains on outparcel sales.
• Same-center NOI improved sequentially to a decline of 4.4% for the fourth quarter 2018, over the prior-year quarter. For the full-year 2018, same-center NOI declined 6.0%, over the prior-year period.
• Average gross rent per square foot declined 10.8% for stabilized mall leases signed in 2018 over the prior rate.
• Total portfolio occupancy at December 31, 2018 was 93.1%, representing a sequential improvement of 110 basis points and a 10 basis point decline from the prior year-end.
• Same-center sales per square foot for 2018 were $377, an increase of 0.5% compared with $375 for 2017.

CBL's Chief Executive Officer, Stephen D. Lebovitz, commented, "2018 closed on a positive note with adjusted FFO and same-center NOI in-line with our guidance range and a sequential improvement in operating results. We are making significant progress on our strategic priority of transforming our properties into suburban town centers, while at the same time limiting our cash investment. In the fourth quarter, we completed replacements of four former department stores. We have a dozen replacements under construction or positioned to start construction later this year as well as leases out for signature or in negotiations on numerous other locations. We are using these opportunities to diversify our properties’ offerings to include more food, entertainment, fitness, service and non-retail uses. Over 67% of new leases executed last year were with non-apparel tenants.

"Our most exciting recent news is the closing in January of a new $1.185 billion secured credit facility. This new facility is a major vote of confidence by our bank group and a huge step forward in providing the flexibility and runway to execute our strategy. As a result, our balance sheet is stronger and our maturity schedule is extended. The enhanced retained cash flow provided by the November 2018 dividend reduction also allows us to fund redevelopments on a leverage neutral basis as well as reduce debt. As our 2019 guidance indicates, we are still facing challenges in our business primarily as a result of the more than 40 anchor closures between the Bon-Ton and Sears bankruptcies. That being said, our strategy of owning the best real estate in our markets positions us to benefit from strong demand from new users looking to locate in our markets such as the Cheesecake Factory we recently opened in Chattanooga. As we move into 2019, our top priority is stabilizing our NOI and FFO with new income from the redevelopments and anchor replacements as well as improved leasing and other revenue sources."

Net loss attributable to common shareholders for the fourth quarter 2018 was $67.0 million, or $(0.39) per diluted share, compared with net income of $25.2 million, or $0.15 per diluted share for the fourth quarter 2017. Net loss attributable to common shareholders for the fourth quarter 2018 included $91.8 million of loss on impairment of real estate, primarily related to the write downs of the carrying value of Honey Creek Mall and Eastland Mall to each property's estimated fair value.

Net loss attributable to common shareholders for 2018 was $125.3 million, or $(0.73) per diluted share, compared with net income of $76.0 million, or $0.44 per diluted share, for 2017. Net loss attributable to common shareholders for 2018 was impacted by $176.4 million of loss on impairment of real estate.

FFO allocable to common shareholders, as adjusted, for the fourth quarter of 2018 was $77.4 million, or $0.45 per diluted share, compared with $96.4 million, or $0.56 per diluted share, for the fourth quarter of 2017. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the fourth quarter of 2018 was $89.4 million compared with $112.3 million for the fourth quarter of 2017.

FFO allocable to common shareholders, as adjusted, for 2018 was $298.2 million, or $1.73 per diluted share, compared with $355.1 million, or $2.08 per diluted share, for 2017. FFO allocable to the Operating Partnership common unitholders, as adjusted, for 2018 was $345.1 million compared with $413.7 million for 2017.

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

MAJOR ITEMS IMPACTING SAME-CENTER NOI RESULTS FOR 2018

• NOI declined $40.1 million during 2018, primarily due to a $41.7 million decrease in revenue offset by a $1.8 million decrease in expense.
• Minimum rents, tenant reimbursements and other revenues declined $41.8 million, primarily due to store closures and rent concessions related to tenants in bankruptcy.
• Other rents, including business development and short-term specialty leasing, declined $0.2 million.
• Percentage rents increased $0.3 million, due to an increase in sales.
• Property operating expense declined $2.5 million and real estate tax expense declined $2.1 million. Maintenance and repairs expense increased $2.8 million, substantially due to a $1.8 million increase in snow removal expense.

PORTFOLIO OPERATIONAL RESULTS

Occupancy ⁽¹⁾:

New and Renewal Leasing Activity of Same Small Shop Space Less Than 10,000 Square Feet:

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

DISPOSITIONS

In 2018, CBL raised more than $100 million in gross proceeds through asset sales:

In January 2019, CBL completed the sale of Cary Towne Center in Cary, NC, for $31.5 million. Proceeds from the sale were used to satisfy a portion of the $43.7 million outstanding non-recourse loan secured by the property. The remaining principal balance was forgiven. CBL will provide third party leasing and management services to the new owners.

In January 2019, CBL completed the transfer of Acadiana Mall to the holder of the note in exchange for extinguishment of the $119.8 million loan.

FINANCING ACTIVITY

In 2018, CBL completed more than $340 million of financing activity.

CBL closed on two non-recourse secured loans during the year aggregating $230.0 million ($133.75 at CBL's share). The new loans included a $155.0 million ($77.5 million at CBL’s share) non-recourse loan secured by CoolSprings Galleria in Nashville, TN and a $75.0 million ($56.25 million at CBL's share) non-recourse loan secured by The Outlet Shoppes at El Paso in El Paso, TX. Both loans have 10-year terms and bear a weighted average fixed interest rate of 4.925%.

CBL completed five-year extensions of two loans including 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 January 2019, CBL closed on a new $1.185 billion senior secured facility (the “Facility”), which includes a fully-funded $500 million term loan (the “Term Loan”) and a revolving line of credit (the ”Line of Credit”) with total borrowing capacity of $685 million. The Facility matures in July 2023 and bears a floating interest rate of 225 basis points over LIBOR. The Term Loan will be reduced by $35 million per year, paid in quarterly installments. The Facility replaces all of the Company’s prior unsecured bank facilities, which totaled $1.795 billion.

REDEVELOPMENT

During the fourth quarter, CBL announced details of its transformation plan for the former Sears at Hamilton Place in Chattanooga, TN. As part of the project, Chattanooga will welcome new-to-market entertainment venue Dave & Buster’s, which will feature the latest arcade games, state-of-the-art sports viewing, chef-crafted food and innovative cocktails. In addition, the project will include Dick's Sporting Goods, an approximately 145-room boutique-style hotel, Class “A” office space and additional restaurants and specialty tenants. These new additions will join Cheesecake Factory, which opened in December 2018 on a parcel adjacent to the Sears building. Construction is expected to commence in early 2019.

OUTLOOK AND GUIDANCE

CBL is providing 2019 FFO, as adjusted, guidance in the range of $1.41 - $1.46 per diluted share. Guidance incorporates a full-year budgeted impact of loss in rent related to 2018 tenant bankruptcies, store and anchor closures and rent adjustments net of expected new leasing as well as a reserve in the range of $5.0 - $15.0 million (the "Reserve") for potential future unbudgeted loss in rent from tenant bankruptcies, store closures or lease modifications that may occur in 2019. Detail of assumptions underlying guidance follows:

Assumptions underlying the change in 2019 Same-Center NOI are as follows:

Reconciliation of major variances in 2018 FFO, as adjusted, per share to 2019 FFO per share guidance at mid-point:

Reconciliation of GAAP net income to 2019 FFO, as adjusted, per share guidance:

INVESTOR CONFERENCE CALL AND WEBCAST

CBL & Associates Properties, Inc. will conduct a conference call at 11:00 a.m. ET on Friday, February 8, 2019, to discuss its fourth quarter and full year results. The number to call for this interactive teleconference is (888) 317-6003 or (412) 317-6061 and the confirmation number is 6970542. A replay of the conference call will be available through February 15, 2019, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number 10126294. 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., fourth quarter and full year 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 2018 fourth quarter and full year earnings release conference call. The live broadcast of the quarterly conference call will be available online at cblproperties.com on Friday, February 8, 2019 beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue for three months.

ABOUT CBL & ASSOCIATES PROPERTIES, INC.

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 115 properties totaling 71.5 million square feet across 26 states, including 72 high-quality enclosed, outlet and open-air retail centers and 11 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 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 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 its Operating Partnership. The Company then applies a percentage to FFO of its Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. 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 outstanding for the period 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.

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 significant 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 10 of this earnings release for a description of these adjustments.

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).

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 computes NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated properties. 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, and amortization of above and below market lease intangibles 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.

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Katie Reinsmidt, EVP - Chief Investment Officer, 423.490.8301, katie.reinsmidt@cblproperties.com

Source: CBL & Associates Properties, Inc.