n a third quarter report, Chattanooga mall owner CBL Properties outlined the hit the firm took from the pandemic.
Officials said Net Operating Income was down over 30 percent.
KEY TAKEAWAYS:
- Funds From Operations per diluted share, as adjusted, was $0.04 for the third quarter 2020, compared with $0.34 per share for the third quarter 2019.
FFO per diluted share, as adjusted, was $0.32 for the nine months ended September 30, 2020, compared with $0.98 per share for the prior year period.
- Major variances in third quarter 2020 FFO per share, as adjusted, compared with the prior year period included $0.22 per share of lower property Net Operating Income, which included $0.07 per share related to rent abatements and $0.07 per share of estimate for uncollectable revenues and write-offs for past due rents related to tenants that are in bankruptcy or struggling financially. FFO per share for the third quarter also included approximately $0.06 per share of incremental interest expense related to the accrual of the base rate or post default rate on outstanding balances on the company’s Credit Facility.
- Total Portfolio same-center Net Operating Income declined 30.5% for the three months ended September 30, 2020, and 23.7% for the nine months ended September 30, 2020, as compared with the prior-year periods.
- Portfolio occupancy as of September 30, 2020, was 86.8%, representing a 130-basis point decline sequentially and a 370-basis point decline compared with 90.5% as of September 30, 2019. Same-center mall occupancy was 85.2% as of September 30, 2020, representing a 140-basis point decline sequentially and a 380-basis point decline compared with 89.0% as of September 30, 2019. An estimated 250-basis points of the decline in total mall portfolio occupancy was due to store closures related to tenants in bankruptcy.
- CBL’s portfolio is now fully operational with all properties open for business. CBL continues to prioritize the safety of its employees, retailers and shoppers by maintaining strict safety protocols across its portfolio. Protocols are updated as new guidance is issued by the CDC and local or state sources.
- On November 1, 2020, CBL & Associates Properties, Inc., CBL & Associates Limited Partnership, and certain other related entities filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code, in order to implement a plan to recapitalize the Company, including restructuring portions of its debt.
“During the third quarter, the CBL portfolio fully reopened with the majority of our tenants following suit,” said Stephen Lebovitz, Chief Executive Officer. “While traffic is still at a reduced level as compared with the prior year, we are seeing sequential improvement in a number of markets as well as a more deliberate shopper, benefiting conversion rates and sales. What has been reinforced during this time, is the strength of our locations in their markets as they continue to serve as important community centers. With extensive safety protocols in place, each of our properties is able to provide tenants, advertisers and other businesses access to a traffic stream of tens of thousands of visitors per week. As large gatherings such as sporting events, concert venues and the like have been discontinued or curtailed for the near future, no other venues can currently provide this type of access, and in a safe manner. Tenants are also exploring new innovative ways to better reach their customers, utilizing curbside, delivery, buy online pick-up in-store (BOPIS) and other services. We are working with several of our tenants to open satellite in-line and kiosk locations specifically designed to meet the increased demand for BOPIS. Our leasing team is working closely with our tenants to find additional new opportunities to expand customer reach.
“Our leasing team took a proactive approach to working with our tenants on more flexible lease terms as we all navigate the pandemic together. As a result, we were able to finalize negotiations for rent deferrals or other accommodations for a majority of our top tenants. We’ve experienced a significant improvement in collections as these tenants pay past due rents. April’s collection rate improved from 27% to over 76% and May improved from 33% to 68%. We expect this trend to continue as we move later in the year and into 2021, and certain deferred rents begin coming due.
“While the portfolio has reopened, the effects of the pandemic are clearly evident in our third quarter results and will continue to have a significant impact. Store closures, including tenant bankruptcies, have contributed to occupancy declines and significant rent loss and lower sales have resulted in lower percentage rent. While we continued our programs to reduce costs both at the property and corporate levels, certain expenses necessarily resumed as the portfolio opened. We are keeping a close eye on our watch list as the pandemic has contributed to the weakened financial condition for a number of tenants, particularly in categories such as theaters and other entertainment operators that have not been able to resume operations. While many are finding creative solutions to reach their customer, we anticipate additional store closures and lost rent through the remainder of the year as the difficult operating environment continues.
“On November 1st, we filed for voluntary Chapter 11 bankruptcy protection. Through this process, we expect to eliminate more than $1.5 billion of unsecured debt and preferred obligation from our balance sheet. By reducing leverage, lengthening maturities, lowering interest costs and increasing free cash flow, upon emergence, CBL will be in an excellent position to execute on our strategic priorities and pursue future growth opportunities.”
FINANCIAL RESULTS
Net loss attributable to common shareholders for the third quarter 2020 was $54.1 million, or $0.28 per diluted share, compared with a net loss of $90.1 million, or a loss of $0.52 per diluted share, for the third quarter 2019.
Net loss attributable to common shareholders for the nine months ended September 30, 2020, was $269.4 million, or $1.43 per diluted share, compared with a net loss of $175.7 million, or a loss of $1.01 per diluted share, for the nine months ended 2019.
FFO allocable to common shareholders, as adjusted, for the third quarter 2020 was $8.6 million, or $0.04 per diluted share, compared with $58.7 million, or $0.34 per diluted share, for the third quarter 2019. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the third quarter 2020 was $9.0 million compared with $67.8 million for the third quarter 2019.
FFO allocable to common shareholders, as adjusted, for the nine months ended September 30, 2020 was $61.1 million or $0.32 per diluted share, compared with $170.5 million or $0.98 per diluted share, for the nine months ended September 30, 2019. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the nine months ended September 30, 2020, was $65.5 million compared with $196.8 million for the nine months ended September 30, 2019.
Major variances impacting same-center NOI for the three months ended September 30, 2020, include:
- Same-center NOI declined $40.1 million, due to a $46.8 million decrease in revenues offset by a $6.9 million decline in operating expenses.
- Rental revenues declined $46.1 million, including a $31.6 million decline in minimum and other rents. The decline in minimum and other rents was substantially related to $12.0 million in estimated uncollectible revenues related to tenants in bankruptcy or struggling financially, and $14.6 million related to rent abatements. Rental revenues also include a $7.5 million decline in tenant reimbursements (net of any abatements) and a $1.2 million decline in percentage rents.
- Property operating expenses declined $4.7 million compared with the prior year. Maintenance and repair expenses improved $1.4 million. Real estate tax expenses declined $0.7 million.
COVID-19 UPDATE/RENT COLLECTION UPDATE
The COVID-19 pandemic resulted in closure of the majority of CBL’s owned and managed portfolio in response to government mandates beginning in March. As of the close of third quarter 2020, all of CBL’s owned and managed mall properties have re-opened and CBL has implemented strict procedures and guidelines for our employees, tenants and property visitors based on CDC and other health agency recommendations. Our properties continue to update these policies and procedures, following any new mandates and regulations, as required.
The mandated closures resulted in nearly all our tenants closing for a period of time and/or shortening operating hours. As a result, the Company has experienced an increased level of requests for rent deferrals and abatements as well as defaults on rent obligations. While, in general, CBL believes that tenants have a clear contractual obligation to pay rent, CBL has been working with its tenants to address rent deferral requests. Based on executed or in process agreements with 25 of our top tenants representing approximately 40% of gross rents for the second and third quarter 2020, CBL now anticipates collecting over 65% of related rent for the second quarter and over 81% of related rents for the third quarter, with a majority of the remainder expected to be deferred or abated. CBL remains in negotiations with tenants and is unable to predict the outcome of those discussions.
As the Company finalizes negotiations, rent collections as a percentage of billed cash-based rents have improved with certain past-due amounts being paid, resulting in an overall collection rate for April through September of approximately 69%. October rent collections are currently over 100% of billed rents, which includes certain rents that may be applicable to prior months. The Company anticipates an improvement in the collection rate for prior months as it finalizes negotiations with retailers and additional past-due amounts are paid.
EXPENSE REDUCTION AND LIQUIDITY
As previously announced, CBL implemented comprehensive programs to halt all non-essential expenditures, reduce operating and overhead expenses and to reduce, defer or suspend capital expenditures, including redevelopment investments. In March, CBL completed a $280 million aggregate draw on its line of credit, which represented substantially all of the remaining available balance. As of September 30, 2020, the company had $258.6 million available in unrestricted cash and marketable securities.