CBL & Associates Properties(CBL) - 2020 Q2 - Quarterly Report

Explanatory Note Combined Form 10-Q filings for CBL & Associates Properties, Inc. and its Operating Partnership reflect integrated business operations - CBL & Associates Properties, Inc. is a REIT that conducts nearly all its business through the CBL & Associates Limited Partnership, holding a 95.2% combined interest as of June 30, 2020[9][10] - The report combines the filings of the Company and the Operating Partnership to streamline disclosure and reflect how the business is managed, while providing separate financial statements to clarify differences[11][12] - The filing was delayed due to the departure of a financial reporting staff member and developments related to the Company's indebtedness[8] - In January 2019, the Operating Partnership's wholly-owned subsidiaries (Combined Guarantor Subsidiaries) guaranteed its senior secured credit facility and senior unsecured notes, with condensed combined financial statements provided as an exhibit[15][16] PART I – FINANCIAL INFORMATION Financial Statements Financial statements show significant net losses, declining revenues, and impairment charges, with notes detailing debt defaults and going concern issues for both entities CBL & Associates Properties, Inc. Financial Statements CBL & Associates Properties, Inc. reported a $212.1 million net loss for H1 2020, with declining revenues, decreased equity, and reduced operating cash flows CBL & Associates Properties, Inc. - Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $4,655,159 | $4,622,346 | | Net investment in real estate assets | $3,835,734 | $4,061,996 | | Cash and cash equivalents | $123,388 | $32,816 | | Total Liabilities | $4,001,181 | $3,758,321 | | Mortgage and other indebtedness, net | $3,774,034 | $3,527,015 | | Total Equity | $653,453 | $861,865 | CBL & Associates Properties, Inc. - Condensed Consolidated Statement of Operations Data (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $124,211 | $193,377 | $291,785 | $391,407 | | Rental revenues | $120,222 | $185,393 | $281,395 | $376,373 | | Net Loss | ($72,793) | ($29,688) | ($212,087) | ($76,497) | | Net Loss Attributable to Common Shareholders | ($81,452) | ($35,400) | ($215,348) | ($85,599) | | Net Loss Per Share (Basic & Diluted) | ($0.42) | ($0.20) | ($1.16) | ($0.49) | CBL & Associates Properties, Inc. - Condensed Consolidated Cash Flow Data (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $38,370 | $126,032 | | Net cash provided by (used in) investing activities | ($191,379) | $27,104 | | Net cash provided by (used in) financing activities | $244,079 | ($165,132) | | Net Change in Cash | $91,070 | ($11,996) | CBL & Associates Limited Partnership Financial Statements The Operating Partnership's financial results mirrored the parent company, reporting a $212.1 million net loss for H1 2020, with declining revenues and decreased partners' capital CBL & Associates Limited Partnership - Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $4,655,512 | $4,622,706 | | Net investment in real estate assets | $3,835,734 | $4,061,996 | | Total Liabilities | $4,001,252 | $3,758,392 | | Mortgage and other indebtedness, net | $3,774,034 | $3,527,015 | | Total Capital | $653,735 | $862,154 | CBL & Associates Limited Partnership - Condensed Consolidated Statement of Operations Data (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $124,211 | $193,377 | $291,785 | $391,407 | | Net Loss | ($72,793) | ($29,688) | ($212,087) | ($76,497) | | Net Loss Attributable to Common Unitholders | ($83,529) | ($40,854) | ($233,839) | ($98,811) | | Net Loss Per Unit (Basic & Diluted) | ($0.41) | ($0.20) | ($1.16) | ($0.49) | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail substantial doubt about going concern, significant impairment charges, debt defaults, and ongoing litigation, all exacerbated by COVID-19 impacts - Management has concluded there is substantial doubt about the Company's ability to continue as a going concern within one year, citing the impact of the COVID-19 pandemic, ongoing credit market weakness, and defaults on restrictive debt covenants[70] - The company received a notice from the NYSE on February 5, 2020, for non-compliance with the minimum $1.00 average closing share price requirement, with a deadline of October 14, 2020, to regain compliance[67] - Due to the COVID-19 pandemic's impact on tenants, the company recorded $40.7 million in provisions for uncollectible revenues for the six months ended June 30, 2020, and elected to use FASB relief for accounting for rent deferrals and abatements[76][73][302] Impairment Charges Recognized (Six Months Ended June 30, 2020) | Property | Location | Loss on Impairment (in thousands) | Fair Value (in thousands) | | :--- | :--- | :--- | :--- | | Burnsville Center | Burnsville, MN | $26,562 | $47,300 | | Monroeville Mall | Pittsburgh, PA | $107,082 | $67,000 | | Asheville Mall | Asheville, NC | $13,274 | $52,600 | | Total | | $146,918 | $166,900 | - The company elected not to make interest payments on its 2023 and 2026 senior notes in June 2020, leading to an "event of default," though payments were ultimately made on August 5, 2020, following forbearance agreements[127][135][136] - The company received multiple notices of default from the administrative agent of its secured credit facility for failure to comply with restrictive covenants, including the liquidity covenant, leading to the assertion of a higher base interest rate and a post-default rate[137][140] - As of June 30, 2020, six non-recourse loans secured by malls with a total balance of $328.8 million were in default[142] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses severe COVID-19 impacts, leading to property closures, increased uncollectible rent, a $212.1 million net loss, and debt restructuring efforts - The COVID-19 pandemic forced the temporary closure of nearly the entire property portfolio, leading to a major increase in uncollectible revenue estimates and numerous requests for rent deferrals and abatements[201] - The company has engaged advisors to explore alternatives for reducing leverage and extending debt maturities, which may result in a comprehensive reorganization[204] - As of early August 2020, the overall rent collection rate for April through July was over 54%, with the company estimating it will defer $17.0 million in rent for Q2 2020 based on executed or active negotiations[201][240] Comparison of Results (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total Revenues | $291,785 | $391,407 | | Net Loss | ($212,087) | ($76,497) | | Same-Center NOI | $212,348 | $266,615 | | FFO, as adjusted | $56,509 | $129,062 | - Portfolio occupancy declined to 88.1% as of June 30, 2020, from 90.2% a year prior, with same-center mall occupancy falling to 86.6% from 88.3%[247] - The company implemented significant cost-saving measures, including salary reductions, furloughs, and a reduction of $60.0 million to $80.0 million in planned 2020 capital expenditures[255] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate debt, impacting annual cash flows by approximately $6.6 million for a 0.5% change - A 0.5% increase or decrease in interest rates on variable-rate debt would decrease or increase annual cash flows by approximately $6.6 million[328] - A 0.5% increase in interest rates would decrease the fair value of the company's total debt by approximately $28.4 million, while a 0.5% decrease would increase its fair value by $36.1 million[329] Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2020, due to a material weakness from insufficient financial reporting personnel - Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2020[331] - A material weakness was identified in internal control over financial reporting due to not maintaining a sufficient complement of personnel for accounting and financial reporting requirements after recent turnover[332][333] - The remediation plan involves hiring additional personnel and potentially engaging outside advisors to strengthen financial reporting capabilities[338] PART II – OTHER INFORMATION Legal Proceedings The company is involved in significant legal matters, including a $90.0 million class-action settlement and ongoing securities and shareholder derivative lawsuits - The company is managing the payout of a $90.0 million settlement for the Wave Lengths class action lawsuit, which involves cash payments and rent credits to tenants, with the SEC and DOJ investigating related matters[341] - The company and its officers/directors are defendants in a consolidated securities class-action lawsuit and nine shareholder derivative lawsuits alleging false statements and breach of fiduciary duties, with an uncertain outcome[342][344] Risk Factors Key risks include severe COVID-19 impacts, substantial doubt about going concern, material internal control weakness, and potential NYSE delisting - The COVID-19 pandemic presents a material uncertainty and risk to the company's financial condition, results of operations, and cash flows, with impacts including tenant closures, rent collection issues, and difficulty accessing capital[345][347] - There is substantial doubt about the company's ability to continue as a going concern, stemming from debt defaults, the impact of COVID-19, and ongoing weakness in credit markets[349] - The identified material weakness in internal control over financial reporting could result in material misstatements of financial statements and cause a loss of investor confidence[350] - The company's common stock is at risk of being delisted from the NYSE for failing to maintain the minimum average share price of $1.00, which could reduce liquidity and market price[352] Unregistered Sales of Equity Securities and Use of Proceeds The company inadvertently issued 6,134 unregistered shares through its DRIP between March and May 2020 due to Form S-3 ineligibility - The company inadvertently issued 6,134 unregistered shares of common stock through its DRIP between March and May 2020, after losing Form S-3 eligibility due to preferred stock dividend arrearages[354] Defaults Upon Senior Securities The company defaulted on senior unsecured notes and its secured credit facility, with significant dividend and distribution arrearages on preferred stock and special common units - The company defaulted on interest payments for its senior unsecured notes in June 2020 and has received notices of default for breaching covenants on its senior secured credit facility[355] Cumulative Unpaid Dividends and Distributions as of June 30, 2020 (in millions) | Security | Cumulative Amount Unpaid | | :--- | :--- | | Preferred Stock (Series D & E) | $33.7 | | Special Common Units (Series K, S, L) | $6.8 | Exhibits This section lists exhibits filed with the Form 10-Q, including forbearance agreements, amendments, and executive certifications - Exhibits filed with the report include multiple forbearance agreements and their amendments related to the company's debt, as well as required executive certifications[362]