Lawsuit Settlement Leads CBL Properties To $50.2 Million 1st Quarter Loss

Tuesday, April 30, 2019

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


AG Slatery Responds To DOJ Settlement With Purdue Pharma

September Unemployment Rates Decrease In Every Tennessee County

Georgia Issues Over $15 Billion In Unemployment Benefits


Attorney General Herbert H. Slatery III on Thursday released the following statement following the U.S. Department of Justice’s settlement with Purdue Pharma. “DOJ has continued to show its ... (click for more)

The unemployment rates in each of Tennessee’s 95 counties decreased in September, according to new data released by the Tennessee Department of Labor and Workforce Development. Twenty-seven ... (click for more)

The Georgia Department of Labor (GDOL) announced on Thursday that Georgians have received more than $15 billion in unemployment insurance benefits since March of this year, more than the past ... (click for more)



Business

AG Slatery Responds To DOJ Settlement With Purdue Pharma

Attorney General Herbert H. Slatery III on Thursday released the following statement following the U.S. Department of Justice’s settlement with Purdue Pharma. “DOJ has continued to show its commitment to fighting the opioid crisis by allowing the States to dedicate the majority of the Purdue settlement funds to abating the opioid crisis in their hardest hit communities. Having ... (click for more)

September Unemployment Rates Decrease In Every Tennessee County

The unemployment rates in each of Tennessee’s 95 counties decreased in September, according to new data released by the Tennessee Department of Labor and Workforce Development. Twenty-seven counties recorded unemployment rates below 5 percent, while 68 counties have a rate of 5 percent or higher. There are no counties with an unemployment rate higher than 10 percent in September. ... (click for more)

Breaking News

Tennessee Has 3,606 New COVID Cases, 65 Deaths; Hamilton County Has 104 New Cases

Hamilton County had no new deaths from the coronavirus on Friday, as the toll remained at 106. There were 104 new cases, compared to 131 on Thursday, bringing the total to 11,732. There have been 10,675 people recover from the virus in the county, 91 percent, and there are 951active cases, up seven since Thursday. There are currently 80 people hospitalized in Hamilton County, ... (click for more)

Man Killed On I-75 After Vehicle Hits Deer, Then He Is Struck By Multiple Vehicles After Re-Entering Freeway; Several Others Hurt

A man was killed in the 1000 block of I-75 north after his car struck a deer, then he was hit by multiple vehicles after re-entering the freeway. Several others involved in the wreck were injured. The Chattanooga Police Traffic Division on Friday responded to the multiple-vehicle crash with injuries. Police said a Chevy Silverado was traveling north on I-75 near ... (click for more)

Opinion

The Courts' Role In Protecting Voting Rights

Nov. 3, Election Day, is right around the corner. Of course, voting is fundamental to elections. It is through voting we both give our consent to those we entrust to govern us and hold those governing us accountable. From our right to vote come many of our rights and freedoms. Every day seems to bring new stories about disputes over voting, many of which are pursued through lawsuits. ... (click for more)

Roy Exum: Faith, Family & Football

The most heralded player in any college football huddle is the one who got there via a “battlefield promotion.” These were always my personal favorites in the nearly 40 years I covered college football because, unlike a kid who head is swollen because some unknowing source decreed they were a “five star recruit” or a punk clown who changes his “commit” three times before his last ... (click for more)