CBL & Associates Reports Strong Performance In 2014

CBL & Associates Properties Reports Results for Fourth Quarter and Full Year 2014
Company Release - 02/03/2015 16:01

CBL & Associates Properties, Inc. announced results for the fourth quarter and year ended Dec. 31. 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. 

		Three Months Ended December 31,								Year Ended December 31,
		2014				2013				2014				2013
Funds from Operations ("FFO") per diluted share		$	0.82			$	0.63			$	2.73			$	2.23
FFO, as adjusted, per diluted share(1)		$	0.67			$	0.63			$	2.28			$	2.22
(1) FFO, as adjusted, for the three months ended December 31, 2014 excludes a $7.0 million partial litigation settlement, net of related expenses, and a $23.8 million gain on extinguishment of debt, net of default interest expense, related to the conveyance of Columbia Place to the lender. FFO, as adjusted, for the year ended December 31, 2014 excludes an $83.2 million gain on extinguishment of debt, net of non-cash default interest expense, primarily related to the conveyance of Chapel Hill Mall and Columbia Place and the foreclosure of Citadel Mall. It also excludes a partial litigation settlement of $7.8 million, net of related expenses. FFO, as adjusted, for the year ended December 31, 2013, excludes a $9.1 million loss on extinguishment of debt, a $2.4 million gain on investment and an $8.2 million partial litigation settlement.

"We are pleased to end 2014 with such strong performance, achieving the high end of our guidance range for same-center NOI growth and FFO as well as double-digit lease spreads," said Stephen Lebovitz, president and CEO of CBL & Associates Properties, Inc. "We are not resting on these significant accomplishments with goals for 2015 of sustaining our momentum, investing to grow our core portfolio and disposing of non-core and mature properties. 

"We are making positive headway on our disposition program, with a number of transactions in various stages, including a newly executed contract on Triangle Town Center and Place. While we are cautious not to make preliminary announcements, the level of disposition activity we are involved in is encouraging and we look forward to communicating additional progress." 

Net income attributable to common shareholders for the fourth quarter 2014 was $65.3 million, or $0.38 per diluted share, compared with a net loss of $2.4 million, or a loss of $0.01 per diluted share for the fourth quarter 2013. Net income in the fourth quarter 2014 included a $23.8 million gain on extinguishment of debt, net of non-cash default interest expense, related to the conveyance of Columbia Place Mall to the lender. Net income in the fourth quarter 2013 included a $49.0 million loss on impairment. 

Net income attributable to common shareholders for 2014 was $174.3 million, or $1.02 per diluted share, compared with net income of $40.3 million, or $0.24 per diluted share for 2013. Net income for 2014 included an $83.2 million gain on extinguishment of debt, net of default interest expense, compared with a $9.1 million loss on extinguishment of debt related to the early retirement of two loans in the prior year. Net income for 2014 also included a $17.9 million loss on impairment of real estate compared with $70.0 million in the prior year. 

Percentage change in same-center Net Operating Income ("NOI")(1):
		Three Months Ended December 31,		Year Ended December 31,
		2014		2014
Portfolio same-center NOI		2.9%		2.4%
Mall same-center NOI		2.6%		2.3%
(1)CBL's definition of same-center NOI excludes the impact of lease termination fees and certain non-cash items of straight line rents and net amortization of acquired above and below market leases. NOI is for real estate properties and excludes income of the Company's subsidiary that provides maintenance, janitorial and security services.

MAJOR ITEMS IMPACTING SAME-CENTER NOI RESULTS FOR THE FOURTH QUARTER 2014

Top line revenue benefited from a $2.8 million increase in minimum rents and a $1.9 million increase in tenant reimbursements primarily due to contributions from double-digit lease spreads as well as an increase in other rents, including sponsorship and branding income. 

Percentage rents declined by $0.4 million during the fourth quarter 2014 compared with the prior-year period.
Maintenance and repair expenses declined $0.8 million, primarily due to a decline of $0.4 million in snow removal expenditures and a decline of $0.4 million in parking lot repairs and equipment maintenance in the fourth quarter 2014 compared with the prior-year period.
Operating expenses were $1.2 million lower in the fourth quarter 2014 compared with the prior-year period, primarily due to a $0.5 million positive variance in bad debt expense, a $0.4 million decline in utility and central energy expense and a $0.4 million decline in insurance expense.
Real estate taxes were $1.1 million higher in the fourth quarter compared with the prior-year period.

MAJOR ITEMS IMPACTING SAME-CENTER NOI RESULTS FOR 2014

Top line revenues for 2014 benefited from a $13.4 million increase in minimum rent, a $4.1 million increase in tenant reimbursements and a $0.6 million increase in other rents, including sponsorship and branding, partially offset by a $1.5 million decline in other revenues primarily due to litigation settlement income received in the prior year.
Percentage rents declined by $1.9 million during 2014 compared with the prior year primarily due to the 0.3% decline in sales for the full year.
Maintenance and repair expenses were relatively flat in 2014, primarily due to a decline in maintenance and supplies offset by an increase of $1.0 million in snow removal expenditures compared with 2013.
Operating expenses were $2.2 million lower in 2014 compared with 2013 primarily due to lower insurance, security and legal/consulting expense compared with the prior year, partially offset by a $0.7 million increase in bad debt expense.
Real estate taxes increased $0.6 million in 2014.
PORTFOLIO OPERATIONAL RESULTS

Occupancy:
			As of December 31,
			2014		2013
	Portfolio occupancy		94.7%		94.7%
	Mall portfolio		94.9%		94.9%
	Same-center stabilized malls		94.8%		94.8%
	Stabilized malls		94.8%		94.7%
	Non-stabilized malls(1)		98.1%		98.0%
	Associated centers		93.7%		94.5%
	Community centers		97.4%		96.7%
(1)	Includes The Outlet Shoppes at Oklahoma City, The Outlet Shoppes at Atlanta and The Outlet Shoppes of the Bluegrass as of December 31, 2014. Includes The Outlet Shoppes at Oklahoma City and The Outlet Shoppes at Atlanta as of December 31, 2013.

New and Renewal Leasing Activity of Same Small Shop Space Less Than 10,000 Square Feet:
				% Change in Average Gross Rent Per Square Foot
				Three Months Ended December 31,		Year Ended December 31,
				2014		2014
		Stabilized Malls		12.6%		12.6%
		New leases		30.4%		29.6%
		Renewal leases		8.0%		7.1%

Same-Center Sales Per Square Foot for Mall Tenants 10,000 Square Feet or Less:
					Year Ended December 31,
					2014				2013					% Change
		Stabilized mall same-center sales per square foot			$	360			$	361				(0.3)%

DIVIDEND

In November 2014, CBL's Board of Directors declared an 8.2% increase in the quarterly cash dividend for the company’s Common Stock to $0.265 per share for the quarter ending December 31, 2014. The increased quarterly dividend represents an annualized dividend rate of $1.06 per share compared with the previous annualized dividend rate of $0.98 per share. The dividend was payable on Jan. 15 to shareholders of record as of Dec. 30.

DISPOSITION ACTIVITY

In 2014, CBL completed the sale of one enclosed regional mall, a community center and an associated center expansion for an aggregate price of $18.6 million.

CBL currently has one community center under contract for sale for $22.8 million. Due diligence has expired and the buyer has committed funds in escrow. CBL anticipates closing on the sale in the second quarter, subject to customary closing conditions and approval of the loan assumption by the lender.

CBL and its 50/50 joint venture partner, The R.E. Jacobs Group, executed a contract to sell Triangle Town Center and Triangle Town Place for $181.0 million to a new partnership between CBL and an institutional investor. Following the close of the transaction, the investor will own 85% of the assets with CBL retaining 15% ownership and providing leasing and management services. The transaction is expected to close in the third quarter 2015, subject to the assumption of the $175.1 million loan secured by Triangle Town Center and Place and other customary closing conditions.

In 2014, CBL announced that it had entered into a contract to sell a mall and its associated center. In January 2015, CBL terminated the pending contract due to non-performance of the buyer. CBL is currently negotiating a contract on the mall with a new buyer, and is marketing the associated center separately.

CBL has additional transactions in various stages and will provide additional information in its conference call.

FINANCING ACTIVITY

During 2014 CBL retired more than $285.0 million of consolidated property-specific loans, adding more than $470.5 million of undepreciated book value to its unencumbered pool. Currently 36.2% of CBL's consolidated NOI is generated by unencumbered assets.

During the fourth quarter, CBL retired the $113.4 million loan secured by Mall del Norte in Laredo, TX, the $2.5 million loan secured by Janesville Mall in Janesville, WI and the $47.7 million loan secured by the community center, The Promenade in D'Iberville, MS, using availability under its lines of credit.

In October 2014, CBL's majority-owned operating partnership subsidiary completed a $300 million offering of 4.6% Senior Notes Due 2024 under its existing shelf registration statement, representing a 65 basis point (bps) improvement in rate from its inaugural offering.

In October, CBL completed the conveyance of Columbia Place in Columbia, SC, to the lender in lieu of foreclosure. The resulting $23.8 million gain on extinguishment of debt, net of default interest expense, was recorded in the fourth quarter 2014.

In November, CBL closed on a $77.5 million ($50.4 million at CBL's share) non-recourse loan secured by The Outlet Shoppes of the Bluegrass. The ten-year loan bears interest at 4.045%. A portion of the proceeds from the loan were used to retire the $42.3 million construction loan utilized for the development of the property.

In January 2015, CBL completed an amendment to its $50.0 million unsecured term loan, reducing the borrowing rate by 35 bps to 155 bps over LIBOR. No other terms of the loan changed.

OUTLOOK AND GUIDANCE

The company is providing 2015 FFO guidance in the range of $2.24 - $2.31 per share. CBL is assuming same-center NOI growth of 0% - 2.0% in 2015. The low end of the guidance range for FFO and NOI includes a provision of $10.0 million for lost income from bankruptcies and store closures as a result of increased retailer bankruptcy announcements to-date. This provision is reduced proportionally by lease-up assumptions to achieve the top end of guidance.

As is the company's normal practice, the guidance excludes future unannounced acquisition or disposition activity. While CBL maintains an active disposition program, the impact of the program on annual results will vary with the timing and scale of potential dispositions and available reinvestment opportunities. Therefore, the company believes it is more meaningful to provide a guidance range excluding the impact of potential transactions.

The guidance also assumes the following:

$2.0 million to $4.0 million of outparcel sales;
0-25 basis point increase in total portfolio occupancy as well as stabilized mall occupancy throughout 2015;
No unannounced capital markets activity