Positive Operational Trends Contribute to Fourth Quarter and Full-Year Financial Results Above Expectation
CHATTANOOGA, Tenn.–(BUSINESS WIRE)–CBL Properties (NYSE: CBL) announced results for the fourth quarter and year ended December 31, 2022. Financial results for the periods from January 1, 2021, through October 31, 2021, and for the month ended October 31, 2021, are referred to as those of the “Predecessor” period. Financial results for the periods from November 1, 2021 through December 31, 2021; and, from January 1, 2022, through December 31, 2022, are referred to as those of the “Successor” period. Results of operations as reported in the consolidated financial statements for these periods are prepared in accordance with GAAP. A description of each supplemental non-GAAP financial measure and the related reconciliation to the comparable GAAP financial measure is located at the end of this news release.
Successor
Predecessor
Three Months Ended December 31,
For the Period November 1, through December 31,
For the Period October 1, through October 31,
2022
2021
2021
Net income (loss) attributable to common shareholders
$
811
$
(151,545
)
$
(393,262
)
Funds from Operations (“FFO”)
$
63,214
$
(92,968
)
$
(360,265
)
FFO, as adjusted (1)
$
67,173
$
63,178
$
43,163
Successor
Predecessor
Year Ended December 31,
For the Period November 1, through December 31,
For the Period January 1, through October 31,
2022
2021
2021
Net loss attributable to common shareholders
$
(96,019
)
$
(151,545
)
$
(470,627
)
Funds from Operations (“FFO”)
$
178,616
$
(92,968
)
$
(144,738
)
FFO, as adjusted (1)
$
243,521
$
63,178
$
286,649
(1)
For a reconciliation of FFO to FFO, as adjusted, for the periods presented, please refer to the footnotes to the Company’s reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders on page 10 of this news release.
For the Predecessor periods, FFO, as adjusted, allocable to Operating Partnership common unitholders, did not include interest expense related to the senior secured notes and credit facility. Interest payments on these loans were not required to be made during the Predecessor periods due to the Company’s bankruptcy filing on November 1, 2020.
KEY TAKEAWAYS:
Consistent strong occupancy increases, higher percentage and other rents contributed to improvement in 2022 same-center NOI to $443.4 million. FFO, as adjusted for the year, for 2022 was $243.5 million, which was above previously issued guidance.
CBL’s Board of Directors declared a 50% increase in the regular quarterly dividend rate for the first quarter 2023 to $0.375 per share. During 2022, CBL’s Board of Directors declared a total of $2.95 per share in dividends on its common stock, including $0.75 per share in regular quarterly dividends as well as a special all-cash dividend of $2.20 per share, demonstrating CBL’s commitment to returning value to shareholders.
Portfolio occupancy as of December 31, 2022, was 91.0%, representing a 170-basis-point increase from occupancy of 89.3% as of December 31, 2021 and an increase of 50-basis-points from occupancy of 90.5% as of September 30, 2022. Same-center occupancy for malls, lifestyle centers and outlet centers was 89.6% as of December 31, 2022, a 170-basis-point increase from 87.9% as of December 31, 2021.
Fourth quarter new and renewal comparable space leases were signed at 4.5% lower average rents versus the prior leases. The decline was driven by 10 renewal leases with one tenant. Excluding these 10 renewal leases, average renewal and total lease spreads were flat.
Same-center tenant sales per square foot for the 12-months ended December 31, 2022, declined 2.6% to $435, compared with $447 for the prior period.
As of December 31, 2022, the Company had $337.1 million of unrestricted cash and marketable securities.
CBL issues 2023 FFO, as adjusted, per share, guidance in the range of $5.85 – $6.47 and 2023 same-center NOI guidance in the range of $418 million – $440 million. Guidance assumes that positive trends in occupancy and operations are offset by lower percentage rent, an unfavorable variance in the estimate for uncollectable revenues due to lower recoveries, and the net impact of lease spreads. FFO, as adjusted is also impacted by higher interest expense, primarily related to floating rate debt. More details outlined below.
“CBL enjoyed a strong and successful 2022 in all respects,” said Stephen D. Lebovitz, CBL’s chief executive officer. “We are pleased with our excellent fourth quarter and full-year 2022 operational and financial results, highlighted by adjusted FFO and NOI above expectations. This performance was driven primarily by strong occupancy growth both sequentially and year-over-year with portfolio occupancy improving 170 basis points over year-end 2021. Our results also benefited from higher specialty income and percentage rents and disciplined expense management. We were cautious going into the year given the macro-economic challenges, including interest rate hikes and inflationary pressure. Despite these headwinds, we enjoyed healthy tenant demand and limited store bankruptcies or closings. Traffic at our properties confirmed the consumers’ ongoing support of in-person shopping and experiences with full-year sales per square foot just 2.6% lower than 2021 levels, while remaining more than 12% above pre-pandemic levels in 2019.
“Our guidance for 2023 reflects our expectation for additional occupancy gains as new tenant demand remains at a high level. We are adding new restaurants, entertainment users and successful regional and local retailers. Additionally, expenses are expected to remain relatively in-line despite inflationary pressures. However, we expect a greater impact from bankruptcies and store closures in 2023 based on recent tenant announcements and reviews of tenant credit risk, and a lower contribution from percentage rents with the expectation that sales will moderate. Generally, new leasing demand remains healthy, and we have significant activity occurring across our portfolio that will contribute to our cash flows in 2023 and going forward.
“Our 2022 results and significant free cash flow has contributed to our strong cash balance, which funded the return of significant value to shareholders in 2022 through more than $91 million in cash dividends. We further demonstrated our commitment to our shareholders with the recently announced 50% increase in our regular quarterly dividend and are committed to pursuing opportunities that would meaningfully contribute to shareholder value in the future. The strength and flexibility of our balance sheet improved materially in 2022, with over $1.1 billion in financing activity completed. Major milestone achievements include refinancing our 10% Notes with non-recourse mortgage debt at favorable spreads to the prior rate, as well as several other notable financings through the year. As a result, we enjoy a balance sheet comprised almost-exclusively of non-recourse mortgage debt with significant ongoing amortization reducing leverage further.”
Same-center Net Operating Income (“NOI”) (1):
Successor
Predecessor
Three months ended December 31, 2022
For the Period November 1, 2021 through December 31, 2021
For the Period October 1, 2021 through October 31, 2021
Total Revenues
$
176,091
$
122,799
$
53,643
Total Expenses
$
55,665
$
36,981
$
17,964
Total portfolio same-center NOI
$
120,426
$
85,818
$
35,679
Estimate for uncollectable revenues (recovery)
$
(416
)
$
(784
)
$
(782
)
(1)
CBL’s definition of same-center NOI excludes the impact of lease termination fees and certain non-cash items such as straight-line rents and reimbursements, write-offs of landlord inducements and net amortization of acquired above and below market leases.
Same-Center NOI growth in the fourth quarter benefited from new rent related to occupancy improvements and higher percentage rents, offset by the impact of negative renewal lease spreads and a lower recovery of uncollectable revenues.
Successor
Predecessor
Year Ended December 31, 2022
For the Period November 1, 2021 through December 31, 2021
For the Period January 1, 2021 through October 31, 2021
Total Revenues
$
661,091
$
122,799
$
525,059
Total Expenses
$
217,732
$
36,981
$
172,019
Total portfolio same-center NOI
$
443,359
$
85,818
$
353,040
Estimate for uncollectable revenues (recovery)
$
(4,339
)
$
(784
)
$
2,882
(1)
CBL’s definition of same-center NOI excludes the impact of lease termination fees and certain non-cash items such as straight-line rents and reimbursements, write-offs of landlord inducements and net amortization of acquired above and below market leases.
Same-Center NOI growth for the full-year 2022 benefited from new rent related to occupancy improvements, higher percentage rents and a positive variance due to the recovery of uncollectable revenues partially offset by the impact of negative renewal lease spreads and a moderate increase in operating expenses primarily related to inflationary pressure.
PORTFOLIO OPERATIONAL RESULTS
Occupancy(1):
As of December 31,
2022
2021
Total portfolio
91.0%
89.3%
Malls, Lifestyle Centers and Outlet Centers:
Total malls
89.1%
87.2%
Total lifestyle centers
92.7%
86.7%
Total outlet centers
90.8%
93.6%
Total same-center malls, lifestyle centers and outlet centers
89.6%
87.9%
All Other:
Total open-air centers
95.3%
94.8%
Total other
93.0%
90.5%
(1)
Occupancy for malls, lifestyle centers and outlet centers represent percentage of in-line gross leasable area under 20,000 square feet occupied. Occupancy for open-air centers represents percentage of gross leasable area occupied.
New and Renewal Leasing Activity of Same Small Shop Space Less Than 10,000 Square Feet:
% Change in Average Gross Rent Per Square Foot:
Three Months Ended
December 31,
Year Ended
December 31,
2022
2022
Stabilized Malls, Lifestyle Centers and Outlet Centers
(5.0)%
(5.9)%
New leases
34.8%
15.8%
Renewal leases
(5.8)%
(8.0)%
Same-Center Sales Per Square Foot for In-line Tenants 10,000 Square Feet or Less:
Sales Per Square Foot for the Trailing
Twelve Months Ended December 31,
2022
2021
Mall, Lifestyle Center and Outlet Center same-center sales per square foot
$
435
$
447
Same-center tenant sales per square foot for the twelve months ended December 31, 2022, declined 2.6% as compared with prior year.
DIVIDEND
On February 16, 2023, CBL’s Board of Directors declared a regular quarterly cash dividend for the three months ended March 31, 2023, of $0.375 per share, representing an increase of 50%. The dividend, which equates to an annual dividend payment of $1.50 per share, is payable on March 31, 2023, to shareholders of record as of March 15, 2023.
FINANCING ACTIVITY
In 2022, CBL completed more than $1.1 billion in financing activity. Details of financings completed in the fourth quarter 2022 and year-to-date 2023 are outlined below.
In October, CBL finalized the modification of the loan secured by Southpark Mall in Richmond, VA ($54.4 million). The loan was extended through June 2026 at the existing interest rate of 4.85%.
Additionally in October, the modification of the $35.2 million recourse loan secured by The Outlet Shoppes at Gettysburg in Gettysburg, PA was completed. The loan balance was reduced to $21.0 million ($10.5 million at CBL’s share), and the loan was converted to non-recourse.
In October, the foreclosure of Greenbrier Mall in Chesapeake, VA ($61.6 million) was completed. CBL is cooperating with the foreclosure or conveyance of Westgate Mall in Spartanburg, SC, ($29.0 million) and Alamance Crossing East in Burlington, NC, ($41.4 million) and anticipates that the properties will be placed into receivership imminently. CBL does not recognize earnings or receive cash flow from the properties in receivership.
In October, CBL completed a short-term extension to January 2023 for the loan secured by Cross Creek Mall in Fayetteville, NC ($97.4 million). CBL is in discussions with the lender for a two-year extension/modification of the loan, which it anticipates closing within 90 days. CBL is also in discussions with the lender for a potential extension/modification of the loan secured by West County Center located in St. Louis, MO ($80.9 million at CBL’s share).
DISPOSITIONS
During the fourth quarter 2022, CBL completed the sale of five land parcels generating $4.5 million in gross proceeds at CBL’s share. Year-to-date, CBL has generated more than $13.4 million from dispositions, at its share.
DEVELOPMENT AND REDEVELOPMENT ACTIVITY
In January 2023, CBL Properties and Vision Hospitality Group, Inc. announced a 50/50 joint venture to develop a 139-room Element by Westin at Mayfaire Town Center in Wilmington, North Carolina. The new hotel marks the brand’s entrance into the Wilmington market. The 83,000-square-foot hotel will be located on International Drive.
Detailed project information is available in CBL’s Financial Supplement for Q4 2022, which can be found in the Invest – Financial Reports section of CBL’s website at cblproperties.com.
OUTLOOK AND GUIDANCE
CBL is providing the following guidance for FFO, as adjusted, and Same-Center NOI for full-year 2023:
Low
High
2023 FFO, as adjusted
$188 million
$208 million
2023 FFO, as adjusted, per share
$
5.85
$
6.47
Weighted Average Common Shares Outstanding
32.1 million
32.1 million
2023 Same-Center NOI (“SC NOI”)
$418 million
$440 million
2023 Change in Same-Center NOI
(5.6
)%
(0.7
)%
Assumptions driving the projected change in 2023 Same-Center NOI:
2023 SC NOI Low End
(in millions)
2023 SC NOI High End
(in millions)
Category Explanation
2022 Same-Center NOI
$
443.0
$
443.0
Rent from new leases and contractual rent increases
$
22.0
$
25.0
New gross rent contribution from stores that opened in 2022 or expected to open in 2023 and net increases from existing tenants from contractual rent bumps.
Percentage Rent
$
(7.0
)
$
(5.0
)
Lower percentage rent resulting from an anticipated decline in full-year sales.
Specialty Leasing, Branding and Other Misc. Rents
$
(7.0
)
$
(3.0
)
Represents an assumption of lower temporary and specialty leasing rents and lower branding and advertising revenue.
Store Closures/Non-Renewals
$
(11.0
)
$
(9.0
)
Represents gross rent loss in 2023 related to stores that closed for a partial year in 2022 or are expected to close before year-end 2023.
Lease Renewals/Modifications
$
(7.0
)
$
(5.0
)
Impact of net gross rent spreads related to renewals or lease modifications completed in 2022 and budgeted for 2023.
Operating Expense
$
(5.0
)
$
0.0
Low end represents potential increase in operating expenses driven by increases in wage expense and impact of inflation on materials.
Credit Loss
$
(3.0
)
$
(1.0
)
Unbudgeted reserve for tenants that may file for bankruptcy/close stores.
Uncollectable Revenue Variance
$
(7.0
)
$
(5.0
)
Represents the estimated impact of an unfavorable variance in the estimate for Uncollectable Revenues. 2022 NOI included a reversal of the estimate for Uncollectable Revenues related to collected revenues that were previously written off.
Total Variance
$
(25.0
)
$
(3.0
)
2023 SC NOI Guidance
$
418.0
$
440.0
% Variance
(5.6
)%
(0.7
)%
Reconciliation of GAAP Earnings Per Share to 2023 FFO, as Adjusted, Per Share:
Low
High
Expected diluted earnings per common share
$
(3.20
)
$
(2.58
)
Depreciation and amortization
7.16
7.16
Debt discount accretion, net of noncontrolling interests’ share
1.89
1.89
Expected FFO, as adjusted, per diluted, fully converted common share
$
5.85
$
6.47
2023 Estimate of Capital Items:
Low
High
2023 Estimated deferred maintenance/tenant allowances
$40 million
$55 million
2023 Estimated development/redevelopment expenditures
$15 million
$22 million
2023 Estimated principal amortization (including est. term loan ECF)
$75 million
$85 million
Total Estimate
$130 million
$162 million
ABOUT CBL PROPERTIES
Headquartered in Chattanooga, TN, CBL Properties owns and manages a national portfolio of market-dominant properties located in dynamic and growing communities. CBL’s owned and managed portfolio is comprised of 94 properties totaling 58.5 million square feet across 22 states, including 56 high-quality enclosed malls, outlet centers and lifestyle retail centers as well as more than 30 open-air centers and other assets. CBL seeks to continuously strengthen its company and portfolio through active management, aggressive leasing and profitable reinvestment in its properties. For more information visit cblproperties.com.
NON-GAAP FINANCIAL MEASURES
Funds From Operations
FFO is a widely used non-GAAP measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT. The Company’s method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
The Company believes that FFO provides an additional indicator of the operating performance of its properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of well-maintained real estate assets have historically risen with market conditions, the Company believes that FFO enhances investors’ understanding of its operating performance. The use of FFO as an indicator of financial performance is influenced not only by the operations of the Company’s properties and interest rates, but also by its capital structure.
The Company believes FFO allocable to Operating Partnership common unitholders is a useful performance measure since it conducts substantially all of its business through its Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of the Company’s common shareholders and the noncontrolling interest in the Operating Partnership.
In the reconciliation of net income (loss) attributable to the Company’s common shareholders to FFO allocable to Operating Partnership common unitholders, located in this earnings release, the Company makes an adjustment to add back noncontrolling interest in income (loss) of its Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders.
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating the Company’s operating performance or to cash flow as a measure of liquidity.
The Company believes that it is important to identify the impact of certain significant items on its FFO measures for a reader to have a complete understanding of the Company’s results of operations. Therefore, the Company has also presented adjusted FFO measures excluding these items from the applicable periods. Please refer to the reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders on page 10 of this news release for a description of these adjustments.
Same-center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of the Company’s shopping centers and other properties. The Company defines NOI as property operating revenues (rental revenues, tenant reimbursements and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
The Company computes NOI based on the Operating Partnership’s pro rata share of both consolidated and unconsolidated properties. The Company believes that presenting NOI and same-center NOI (described below) based on its Operating Partnership’s pro rata share of both consolidated and unconsolidated properties is useful since the Company conducts substantially all of its business through its Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of the Company’s common shareholders and the noncontrolling interest in the Operating Partnership. The Company’s definition of NOI may be different than that used by other companies and, accordingly, the Company’s calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of the Company’s shopping center properties, the Company believes that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on the Company’s results of operations. The Company’s calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, amortization of above and below market lease intangibles and write-off of landlord inducement assets in order to enhance the comparability of results from one period to another. A reconciliation of same-center NOI to net income (loss) is located at the end of this earnings release.
Pro Rata Share of Debt
The Company presents debt based on the carrying value of its pro rata ownership share (including the carrying value of the Company’s pro rata share of unconsolidated affiliates and excluding noncontrolling interests’ share of consolidated properties) because it believes this provides investors a clearer understanding of the Company’s total debt obligations which affect the Company’s liquidity. A reconciliation of the Company’s pro rata share of debt to the amount of debt on the Company’s condensed consolidated balance sheet is located at the end of this earnings release.
Information included herein contains “forward-looking statements” within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual events, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements. The reader is directed to the Company’s various filings with the Securities and Exchange Commission, including without limitation the Company’s Annual Report on Form 10-K, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included therein, for a discussion of such risks and uncertainties.
Consolidated Statements of Operations
(Unaudited; in thousands, except per share amounts)
Successor
Predecessor
Three Months Ended December 31,
Period from November 1, through December 31,
Period from October 1, through October 31,
2022
2021
2021
REVENUES:
Rental revenues
$
143,441
$
103,252
$
45,892
Management, development and leasing fees
1,820
1,500
755
Other
4,350
4,094
1,263
Total revenues
149,611
108,846
47,910
EXPENSES:
Property operating
(23,080
)
(15,258
)
(7,492
)
Depreciation and amortization
(61,841
)
(49,504
)
(16,483
)
Real estate taxes
(14,550
)
(9,598
)
(5,169
)
Maintenance and repairs
(11,417
)
(7,581
)
(3,440
)
General and administrative
(16,066
)
(9,175
)
(5,779
)
Loss on impairment
—
—
(26,439
)
Litigation settlement
122
118
43
Other
—
(3
)
(354
)
Total expenses
(126,832
)
(91,001
)
(65,113
)
OTHER INCOME (EXPENSES):
Interest and other income
3,722
510
16
Interest expense
(33,914
)
(195,488
)
(6,947
)
Gain on extinguishment of debt
7,344
—
—
Gain on deconsolidation
—
19,126
—
Gain (loss) on sales of real estate assets
1,798
(3
)
3,695
Reorganization items, net
36
(1,403
)
(383,148
)
Income tax (provision) benefit
(328
)
5,885
(856
)
Equity in earnings (losses) of unconsolidated affiliates
3,488
797
(1,248
)
Total other expenses
(17,854
)
(170,576
)
(388,488
)
Net income (loss)
4,925
(152,731
)
(405,691
)
Net (income) loss attributable to noncontrolling interests in:
Operating Partnership
—
—
460
Other consolidated subsidiaries
(2,003
)
1,186
11,969
Net income (loss) attributable to the Company
2,922
(151,545
)
(393,262
)
Dividends allocable to unvested restricted stock
(2,111
)
—
—
Net income (loss) attributable to common shareholders
$
811
$
(151,545
)
$
(393,262
)
Basic and diluted per share data attributable to common shareholders:
Net income (loss) attributable to common shareholders
$
0.03
$
(7.50
)
$
(1.99
)
Weighted-average common and potential dilutive common shares outstanding
30,999
20,208
197,625
Contacts
Katie Reinsmidt, Executive Vice President – Chief Investment Officer, 423.490.8301, katie.reinsmidt@cblproperties.com
