Expenses related to a $88.15 million lawsuit settlement were a main factor in CBL Properties recording a net loss attributable to common shareholders for the first quarter of $50.2 million.
The loss was $0.29 per diluted share, compared with a net loss of $10.3 million, or a loss of $0.06 per diluted share, for the first quarter 2018.
Officials of the Chattanooga-based firm reported:
- CBL has made tremendous progress on its anchor replacement program, with nearly two dozen anchor replacements recently opened or pending (complete list follows).
- In January 2019, CBL announced a new $1.185 billion secured credit facility maturing in July 2023.
- FFO per diluted share, as adjusted, was $0.30 for the first quarter 2019, compared with $0.42 per share for the first quarter 2018.
First quarter 2019 FFO per share was impacted by approximately $0.02 per share higher G&A expense, primarily related to legal and third party fees incurred for the $500 million term loan that closed in January and litigation expense, $0.01 per share of lower outparcel sales, $0.02 per share of dilution from asset sales completed in 2018 and year-to-date and $0.05 per share of lower property NOI.
- Total Portfolio Same-center NOI declined 5.3% for the three months ended March 31, 2019.
- Portfolio occupancy increased 20 basis points to 91.3% as of March 31, 2019, compared with 91.1% as of March 31, 2018. Same-center mall occupancy was 89.7% as of March 31, 2019, a 20 basis point improvement compared with 89.5% as of March 31, 2018.
- Same-center sales per square foot for the stabilized mall portfolio for the twelve-months ended March 31, 2019, of $377 per square foot were flat compared with the prior-year period.
- Year-to-date, CBL has completed gross asset sales totaling $51 million.
"First quarter places CBL on-track to achieve results within our full-year guidance range," commented Stephen Lebovitz, chief executive officer. "We signed new leases at an average increase of 9.3% over the previous lease, and portfolio occupancy increased 20 basis points year-over-year. Our leasing efforts are successfully diversifying our tenant mix with nearly 80% of total new leases signed in the first quarter with non-apparel tenants. We have 22 anchor replacements committed, with six already open and many more under negotiation, demonstrating tremendous progress on our anchor replacement program. This program will help stabilize our income as we replace lost revenues, mitigate co-tenancy exposure and deliver new uses that drive traffic and strengthen the entire property. Anchor replacements such as the Stadium Live! Casino at Westmoreland Mall and Shoprite Supermarket at Stroud Mall are tangible examples of how we are transforming our centers with minimal cash investment by CBL.
“We expect ongoing pressure from retail bankruptcies and certain underperforming retailers in 2019. However, the market is severely discounting the underlying strength and potential of our properties, the progress we are making on our strategy and the determination of our team. We are pushing every day to achieve our top priority of stabilizing future revenues. We have addressed our significant maturities for 2019, including the extension of our credit facility in January, which provides us with both time and flexibility to execute our plan. Given the overall environment, we have a heightened sense of urgency across our company as we work together to execute on our strategic objectives and our goal of ultimately returning CBL to its proper valuation."
Net loss attributable to common shareholders for the first quarter 2019 was $50.2 million, or a loss of $0.29 per diluted share, compared with a net loss of $10.3 million, or a loss of $0.06 per diluted share, for the first quarter 2018. Net loss for the first quarter 2019 was impacted by $88.15 million of litigation settlement expense.
FFO allocable to common shareholders, as adjusted, for the first quarter 2019 was $52.4 million, or $0.30 per diluted share, compared with $72.2 million, or $0.42 per diluted share, for the first quarter 2018. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the first quarter 2019 was $60.6 million compared with $83.8 million for the first quarter 2018.
- Same-center Net Operating Income declined $8 million, due to a $13.4 million decrease in revenues offset by a $5.4 million decline in operating expenses.
- Rental revenues declined $13.4 million, driven by a $0.2 million decline in percentage rents, a $5.9 million decline in tenant reimbursements and real estate tax reimbursements and a $7.3 million decline in minimum and other rents, including $1.6 million in uncollectable revenue. Uncollectable revenue represents amounts formerly described as bad debt expense, which were included in property operating expense in prior periods.
- Property operating expenses declined $3 million compared with the prior year, substantially related to $2.1 million in bad debt expense included in the prior year period. These amounts for the current period are included in rental revenues as uncollectable revenue. Maintenance and repair expenses increased $0.7 million. Real estate tax expenses declined $1.7 million.
Year-to-date, CBL has closed on $51 million in asset sales including 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. Additionally, in April, CBL completed the sale of Honey Creek Mall in Terre Haute, IN, for $14.6 million to Out of the Box Ventures, a subsidiary of Lionheart Capital. CBL will provide third party leasing and management services for Cary Towne Center and Honey Creek Mall.
In January 2019, CBL closed on a new $1.185 billion senior secured facility, which includes a fully-funded $500 million term loan and a revolving 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.
In January, CBL completed the transfer of Acadiana Mall in Lafayette, LA, to the holder of the note in exchange for extinguishment of the $119.8 million loan.
In April, CBL closed a new $50 million non-recourse loan secured by Volusia Mall in Daytona, FL, for a term of five years at a fixed interest rate of 4.56 percent. CBL concurrently retired the existing cross-collateralized loans secured by Honey Creek Mall in Terre Haute, IN, and Volusia Mall in Daytona, FL, which aggregated to $64.0 million and bore an interest rate of 8%. CBL used proceeds from the new loan as well as the sale of Honey Creek Mall to retire the maturing loans.
CBL has entered into discussion with the lender for the $67.2 million loan secured by Greenbrier Mall, which matures in December 2019. CBL's results for the first quarter 2019 included a $22.8 million loss on impairment of real estate related to the write down of the carrying value of Greenbrier Mall to the property's estimated fair value. The impairment was primarily the result of a change in the anticipated hold period as well as declines in the property's cash flow.
ANCHOR REPLACEMENT PROGRESS
Anchor replacements recently opened or pending include (complete list and additional information can be found in the financial supplement):
| Property |
|
|
Prior Tenant |
|
|
New Tenant(s) |
|
|
Status |
| Cherryvale Mall |
|
|
Bergner's |
|
|
Choice Home Center |
|
|
Open |
| Eastland Mall |
|
|
JCPenney |
|
|
H&M, Planet Fitness |
|
|
Open |
| Jefferson Mall |
|
|
Macy's |
|
|
Round1 |
|
|
Open |
| Northwoods Mall |
|
|
Sears |
|
|
Burlington |
|
|
Open |
| Kentucky Oaks Mall |
|
|
Sears |
|
|
Burlington, Ross Dress for Less |
|
|
Open |
| West Towne |
|
|
Sears |
|
|
Dave & Busters, Total Wine |
|
|
Open |
| Hanes Mall |
|
|
Shops |
|
|
Dave & Busters |
|
|
Opening May 2019 |
| Parkdale Mall |
|
|
Macy's |
|
|
Dick's, Five Below, HomeGoods |
|
|
Opening May 2019 |
| Brookfield Square |
|
|
Sears |
|
|
Marcus Theaters, Whirlyball |
|
|
Opening fall 2019 |
| South County Center |
|
|
Sears |
|
|
Round1 |
|
|
Construction in 2019 |
| Dakota Square |
|
|
Herberger's |
|
|
Ross Dress for Less |
|
|
Construction in 2019 |
| Imperial Valley |
|
|
Sears |
|
|
Hobby Lobby |
|
|
Construction in 2019 |
| Laurel Park Place |
|
|
Carson's |
|
|
Dunham's Sports |
|
|
Construction in 2019 |
| Kentucky Oaks Mall |
|
|
Elder Beerman |
|
|
HomeGoods |
|
|
Construction in 2019 |
| Westmoreland Mall |
|
|
BonTon |
|
|
Stadium Live! Casino |
|
|
Construction in 2019 |
| Meridian Mall |
|
|
Younkers |
|
|
High Kaliber Karts |
|
|
Construction in 2019 |
| Stroud Mall |
|
|
Boston |
|
|
Shoprite |
|
|
Construction in 2019 |
| Cherryvale Mall |
|
|
Sears |
|
|
Tilt |
|
|
Construction in 2019 |
| York Galleria |
|
|
Sears |
|
|
Penn National Casino |
|
|
Construction in 2020 |
| Hamilton Place |
|
|
Sears |
|
|
Dick's Sporting Goods, Dave & Busters,
ALoft Hotel, office
|
|
|
Opening 2020 |
| Richland Mall |
|
|
Sears |
|
|
Dillard's |
|
|
Opening 2020 |
| Hanes Mall |
|
|
Sears |
|
|
Novant Health |
|
|
Opening TBD |
|
|
|
|
|
|
|
|
|
|
LITIGATION SETTLEMENT
In April, CBL entered into a settlement agreement, which replaced and superseded the term sheet entered into in March 2019, in the class action lawsuit filed on March 16, 2016, in the United States District Court for the Middle District of Florida. The settlement agreement was preliminarily approved by the Court on April 24, 2019, but remains subject to the final approval order. CBL accrued in its financial statements for the first quarter of 2019, an amount equal to the maximum expected settlement of approximately $88.15 million. This amount will be reduced in subsequent periods to reflect amounts actually paid through the claims process and credits actually made or as CBL is relieved of liability pursuant to the terms of the settlement agreement.
OUTLOOK AND GUIDANCE
Based on year-to-date results and expectations for the first quarter 2019, CBL anticipates achieving 2019 FFO, as adjusted, within its previously issued guidance range of $1.41 - $1.46 per diluted share. Guidance incorporates 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. Based on bankruptcy and leasing activity year-to-date, including the impact of any co-tenancy, CBL currently expects to utilize approximately $6 - $8 million of the Reserve. Key assumptions underlying guidance are as follows:
|
|
|
Low |
|
|
High |
| 2019 FFO, as adjusted, per share (includes the Reserve) |
|
|
1.41 |
|
|
1.46 |
| 2019 Change in Same-Center NOI ("SC NOI") (Includes the Reserve) |
|
|
(7.75)% |
|
|
(6.25)% |
| Reserve for unbudgeted lost rents included in SC NOI and FFO |
|
|
$15.0 million |
|
|
$5.0 million |
| Gains on outparcel sales |
|
|
$10.0 million |
|
|
$15.0 million |
|
|
|
|
|
|
|
Reconciliation of GAAP net income (loss) to 2019 FFO, as adjusted, per share guidance:
|
|
|
Low |
|
|
High |
| Expected diluted earnings per common share |
|
|
$ |
(0.18 |
) |
|
|
$ |
(0.12 |
) |
| Adjust to fully converted shares from common shares |
|
|
0.03 |
|
|
|
0.02 |
|
| Expected earnings per diluted, fully converted common share |
|
|
(0.15 |
) |
|
|
(0.10 |
) |
| Add: depreciation and amortization |
|
|
1.38 |
|
|
|
1.38 |
|
| Add: loss on impairment |
|
|
0.12 |
|
|
|
0.12 |
|
| Add: noncontrolling interest in loss of Operating Partnership |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
| Expected FFO, as adjusted, per diluted, fully converted common share |
|
|
$ |
1.33 |
|
|
|
$ |
1.38 |
|
| Add: Litigation Settlement |
|
|
0.44 |
|
|
|
0.44 |
|
| Adjustment for certain significant items |
|
|
(0.36 |
) |
|
|
(0.36 |
) |
| Expected adjusted FFO per diluted, fully converted common share |
|
|
$ |
1.41 |
|
|
|
$ |
1.46 |
|
|
|
|
|
|
|
|
|
|
|