CBL & Associates Properties(CBL) - 2019 Q3 - Quarterly Report

Explanatory Note This report combines the quarterly filings of CBL & Associates Properties, Inc. and its Operating Partnership, reflecting their integrated business - The report is a combined Form 10-Q for CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership[12] - The Company, a REIT, held an 86.6% interest in the Operating Partnership as of September 30, 2019, which is its primary asset[12] - In January 2019, the Operating Partnership secured a new $1.185 billion senior secured credit facility, guaranteed by 36 wholly owned subsidiaries[13] PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for CBL & Associates Properties, Inc. and its Operating Partnership CBL & Associates Properties, Inc. Condensed Consolidated Financial Statements CBL & Associates Properties, Inc. - Key Financial Data (in thousands) | Metric | Sept 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Balance Sheet | | | | Total Assets | $4,769,918 | $5,340,853 | | Total Liabilities | $3,959,271 | $4,305,113 | | Total Shareholders' Equity | $772,370 | $964,137 | | Operations (Nine Months Ended) | Sept 30, 2019 | Sept 30, 2018 | | Total Revenues | $578,658 | $641,676 | | Net Loss | $(168,531) | $(33,608) | | Net Loss Attributable to Common Shareholders | $(175,715) | $(57,930) | | Diluted EPS | $(1.01) | $(0.34) | - For the nine months ended September 30, 2019, net cash provided by operating activities was $225,200 thousand, net cash provided by investing activities $55,900 thousand, and net cash used in financing activities $275,400 thousand[35][40] CBL & Associates Limited Partnership Condensed Consolidated Financial Statements CBL & Associates Limited Partnership - Key Financial Data (in thousands) | Metric | Sept 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Balance Sheet | | | | Total Assets | $4,770,279 | $5,341,217 | | Total Liabilities | $3,959,342 | $4,305,184 | | Total Partners' Capital | $800,939 | $1,020,347 | | Operations (Nine Months Ended) | Sept 30, 2019 | Sept 30, 2018 | | Total Revenues | $578,658 | $641,676 | | Net Loss | $(168,531) | $(33,608) | | Net Loss Attributable to Common Unitholders | $(202,831) | $(66,908) | | Diluted EPU | $(1.01) | $(0.34) | Notes to Unaudited Condensed Consolidated Financial Statements - As of September 30, 2019, the Operating Partnership owned interests in 98 properties, including 63 malls, 23 associated centers, and 12 other properties[70] - The Company adopted the new lease accounting standard (ASC 842) on January 1, 2019, changing presentation of rental revenues and recognition of right-of-use (ROU) assets and lease liabilities[79][97] - For the nine months ended September 30, 2019, the Company recognized impairment losses on real estate totaling $202,100 thousand related to five malls and one community center, primarily due to declines in cash flows[122][124][125] - In January 2019, the Company transferred title of Acadiana Mall and sold Cary Towne Center, resulting in the extinguishment of $163,500 thousand in non-recourse debt and a recognized gain of $71,700 thousand[134][176] - In April 2019, the Company settled a class-action lawsuit, establishing a common fund valued at $90,000 thousand. An initial expense of $88,200 thousand was recorded in Q1 2019, later reduced by $22,700 thousand[194][196] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting a net loss from store closures, impairments, and litigation, partially offset by debt extinguishment gains Results of Operations Revenue and Expense Comparison (in thousands) | (Three Months Ended) | Sept 30, 2019 | Sept 30, 2018 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $187,251 | $206,878 | $(19,627) | | Total Operating Expenses | $(245,938) | $(163,546) | $(82,392) | | (Nine Months Ended) | Sept 30, 2019 | Sept 30, 2018 | Change | | Total Revenues | $578,658 | $641,676 | $(63,018) | | Total Operating Expenses | $(689,912) | $(540,934) | $(148,978) | - Revenue declines were primarily driven by store closures and rent concessions for tenants, including those who declared bankruptcy in 2018 and 2019[243][253] - Same-center NOI (a non-GAAP measure) decreased 5.9% for the third quarter and 5.5% for the nine months ended September 30, 2019, compared to the prior-year periods, mainly due to lower rental revenues[272][273] - Total portfolio occupancy was 90.5% as of September 30, 2019, down from 92.0% a year prior. Bankruptcy-related store closures impacted Q3 occupancy by approximately 409 basis points[278][279] - For stabilized malls, leasing spreads on new leases for the nine months ended September 30, 2019, showed an average rent increase of 9.3%, while renewal leases saw an average decrease of 9.6%[281] Liquidity and Capital Resources - As of September 30, 2019, the company had $380,200 thousand of availability on its secured credit facility and $34,600 thousand in unrestricted cash[286] - In January 2019, the company replaced its unsecured bank facilities with a new $1.185 billion senior secured credit facility, comprising a $685 million line of credit and a $500 million term loan, maturing in July 2023[288] - Due to the class action settlement, no common stock dividends were paid for the third and fourth quarters of 2019. The settlement does not restrict dividends in 2020 or beyond[292][316] Pro Rata Share of Debt (in thousands) | Debt Type | Sept 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Fixed-Rate Debt | $3,351,645 | $3,603,420 | | Total Variable-Rate Debt | $938,753 | $1,055,655 | | Total Debt | $4,290,398 | $4,659,075 | Funds from Operations (FFO) FFO Reconciliation (in thousands) | Metric | Three Months Ended Sept 30, 2019 | Three Months Ended Sept 30, 2018 | | :--- | :--- | :--- | | FFO allocable to Operating Partnership common unitholders | $90,442 | $77,434 | | FFO, as adjusted | $67,754 | $79,218 | | Metric | Nine Months Ended Sept 30, 2019 | Nine Months Ended Sept 30, 2018 | | FFO allocable to Operating Partnership common unitholders | $203,017 | $252,481 | | FFO, as adjusted | $196,816 | $255,810 | - Adjusted FFO decreased 14.5% for the third quarter and 23.1% for the nine-month period year-over-year, primarily due to lower property-level NOI, dilution from asset sales, and higher G&A expenses[346] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk, where a 0.5% rate change impacts annual cash flows by approximately $4,700 thousand - A 0.5% (50 basis point) increase or decrease in interest rates on the company's proportionate share of variable-rate debt would impact annual cash flows by approximately $4,700 thousand[352] Controls and Procedures Management concluded disclosure controls were effective, with changes made to internal controls for the new lease accounting standard - The CEO and CFO concluded that the Company's and Operating Partnership's disclosure controls and procedures are effective[354] - Changes were made to internal controls over financial reporting due to the adoption of the new lease accounting standard, ASC 842, on January 1, 2019[355][358] PART II – OTHER INFORMATION Legal Proceedings This section details significant legal matters, including a $90,000 thousand class action settlement and ongoing securities lawsuits - The settlement for the Wave Lengths Hair Salons class action lawsuit received final court approval on August 22, 2019. The settlement involved a common fund valued at $90,000 thousand[359] - The Company, along with certain officers and directors, has been named as defendants in multiple securities class action and shareholder derivative lawsuits alleging violations of securities laws, including making false and misleading statements[360][362] - In the third quarter, the Company received subpoenas from the SEC and the Department of Justice regarding the Wave Lengths litigation and related matters, and is cooperating with these inquiries[359] Risk Factors No material changes to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K have occurred - No material changes to the risk factors disclosed in the 2018 Annual Report on Form 10-K have occurred[363] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[364] Exhibits This section provides an index of exhibits filed with the report, including CEO and CFO certifications and combined financial statements - The report includes required CEO and CFO certifications (Exhibits 31.1-32.4) and the combined financial statements of the Combined Guarantor Subsidiaries (Exhibit 99.1)[370]