CBL & Associates Properties Reports Results for Fourth Quarter and Full-Year 2017

CHATTANOOGA, Tenn.--()--CBL & Associates Properties, Inc. (NYSE:CBL) announced results for the fourth quarter and year ended December 31, 2017. A description of each non-GAAP financial measure and the related reconciliation to the comparable GAAP financial measure is located at the end of this news release.

       
Three Months Ended
December 31,
Year Ended
December 31,
2017   2016   % 2017   2016   %
Net income attributable to common shareholders per diluted share $ 0.15   $ 0.34   (55.9 )% $ 0.44   $ 0.75   (41.3 )%
Funds from Operations ("FFO") per diluted share $ 0.55   $ 0.72   (23.6 )% $ 2.18   $ 2.69   (19.0 )%
FFO, as adjusted, per diluted share (1) $ 0.56   $ 0.68   (17.6 )% $ 2.08   $ 2.41   (13.7 )%
(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 attributable to common shareholders to FFO allocable to Operating Partnership common unitholders on page 10 of this earnings release.
 

KEY TAKEAWAYS:

  • FFO per diluted share, as adjusted, was $0.56 in the fourth quarter 2017 compared to $0.68 in the prior year period. Major items impacting fourth quarter 2017 FFO, as adjusted, include approximately $0.03 per share of dilution from asset sales, $0.06 lower property net operating income primarily due to retail bankruptcies and $0.04 per share due to lower gains on outparcel sales.
  • FFO per diluted share, as adjusted, was $2.08 for 2017, compared with $2.41 in the prior-year period. Major items impacting 2017 FFO, as adjusted, include approximately $0.15 per share of dilution from asset sales, $0.09 per share lower property net operating income primarily due to retail bankruptcies, $0.09 per share higher interest expense and $0.02 per share lower gains on outparcel sales.
  • Same-center NOI declined 2.9% for the year ended December 31, 2017, and 6.7% for the fourth quarter 2017, over the prior-year periods.
  • Average gross rent per square foot declined 5.4% for stabilized mall leases signed in 2017 over the prior rate.
  • Total portfolio occupancy at December 31, 2017 was 93.2%, representing a decline of 160 basis points from the prior year-end.
  • Same-center sales per square foot for 2017 were $372, a decline of 1.8% compared with $379 for 2016.
  • In 2017, CBL has completed gross asset sales of more than $190 million, including approximately $27 million in outparcel sales.
  • In 2017, CBL completed more than $1.1 billion of financing activity.

CBL's President & CEO, Stephen D. Lebovitz, commented, "Fourth quarter results and our outlook for 2018 reflect the impact of significant retailer bankruptcies, store closings and rent adjustments during 2017. Looking ahead, we are encouraged by the stronger holiday results compared to 2016 and generally more positive retail sentiment. We are also focused on effectively executing our property transformation strategy by diversifying the offerings at our centers. We are adding dining, entertainment, value retail, fitness, service and other new uses to generate additional traffic. Recently, we announced an anchor redevelopment project at Eastland Mall as well as the redevelopment of two recaptured Sears Auto Centers and will announce additional projects throughout the year.

"Our balance sheet is well-positioned to support this strategy with a longer maturity profile and minimal near-term maturities. In addition, we fund the majority of our redevelopment and capital expenditures using our significant portfolio free-cash-flow, which allows us to generate new income on a leverage neutral basis. Looking forward, we expect some continued headwinds from retailers; however, we are encouraged that many of these companies are adopting new technologies that are driving increased store traffic and sales. Our goal for 2018 is to stabilize the performance of our portfolio and accelerate the reinvention of our properties, positioning CBL for growth in 2019 and beyond."

Net income attributable to common shareholders for the fourth quarter 2017 was $25.2 million, or $0.15 per diluted share, compared with net income of $57.6 million, or $0.34 per diluted share for the fourth quarter 2016.

Net income attributable to common shareholders for 2017 was $76.0 million, or $0.44 per diluted share, compared with net income of $128.0 million, or $0.75 per diluted share, for 2016.

FFO allocable to common shareholders, as adjusted, for the fourth quarter of 2017 was $96.4 million, or $0.56 per diluted share, compared with $116.6 million, or $0.68 per diluted share, for the fourth quarter of 2016. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the fourth quarter of 2017 was $112.3 million compared with $135.9 million for the fourth quarter of 2016.

FFO allocable to common shareholders, as adjusted, for 2017 was $355.1 million, or $2.08 per diluted share, compared with $411.0 million, or $2.41 per diluted share, for 2016. FFO allocable to the Operating Partnership common unitholders, as adjusted, for 2017 was $413.7 million compared with $480.8 million for 2016.

Percentage change in same-center Net Operating Income ("NOI")(1):

     
Three Months
Ended December 31,
Year Ended
December 31,
2017 2017
Portfolio same-center NOI (6.7 )% (2.9 )%
Mall same-center NOI (7.3 )% (3.5 )%

(1) CBL's definition of same-center NOI excludes the impact of lease termination fees and certain non-cash items of straight line rents, write-offs of landlord inducements, and net amortization of acquired above and below market leases.

 

MAJOR ITEMS IMPACTING SAME-CENTER NOI RESULTS FOR 2017

  • NOI declined $20.1 million during 2017, due to a $20.6 million decrease in revenue offset by a $0.5 million decrease in expense.
  • Minimum rents, tenant reimbursements and other income and revenues declined $12.8 million, primarily related to store closures and rent concessions related to tenants in bankruptcy.
  • Other rents, including business development and short-term specialty leasing, declined $3.0 million.
  • Percentage rents declined $4.8 million, due to the decline in sales.
  • Property operating expense increased $0.3 million, real estate tax expense increased $3.3 million, offset by a $4.1 million decline in maintenance and repair expense.
 

PORTFOLIO OPERATIONAL RESULTS

 

Occupancy:

As of December 31,
2017   2016
Portfolio occupancy 93.2 % 94.8 %
Mall portfolio 92.0 % 94.1 %
Same-center malls 92.2 % 94.0 %
Stabilized malls 92.1 % 94.2 %
Non-stabilized malls (1) 88.4 % 92.8 %
Associated centers 97.9 % 96.9 %
Community centers 96.8 % 98.2 %
(1) Represents occupancy for The Outlet Shoppes at Laredo and The Outlet Shoppes of the Bluegrass as of December 31, 2017 and occupancy for The Outlet Shoppes of the Bluegrass and The Outlet Shoppes at Atlanta as of December 31, 2016.
 

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,
2017
  Year Ended
December 31,
2017
Stabilized Malls (9.8 )% (5.4 )%
New leases 0.5 % 9.0 %
Renewal leases (11.1 )% (8.7 )%
 

Same-center Sales Per Square Foot for Mall Tenants 10,000 Square Feet or Less:

   
Year Ended December 31,
2017   2016 % Change  
Stabilized mall same-center sales per square foot $ 372 $ 379 (1.8 )%
Stabilized mall sales per square foot $ 372 $ 376 (1.1 )%
 

DISPOSITIONS

In 2017, CBL completed the sale of two office buildings, interests in three malls and one outlet center for a gross sales price (at CBL's share) of $166.25 million.

CBL also completed the sale of several outparcel locations generating aggregate gross proceeds of approximately $27 million.

FINANCING ACTIVITY

In 2017, CBL completed over $1.1 billion in financing activity including the following transactions:

  • On September 1, 2017, CBL's majority-owned operating partnership subsidiary, CBL & Associates Limited Partnership (the "Operating Partnership"), closed on an offering of $225 million aggregate principal amount of its 5.950% Senior Notes Due 2026 (the "notes").
  • In July, CBL completed the extension and modification of two unsecured term loans totaling $535 million. CBL expects to reduce the outstanding balance of the $490 million term loan by $190 million in July 2018.
  • CBL retired loans totaling $350.9 million with a weighted average interest rate of 6.4%. The loans were secured separately by seven properties, each of which were added to CBL's unencumbered pool of assets.

In April, the $122.4 million loan secured by Acadiana Mall in Lafayette, LA, matured. After negotiations with the lender to seek a modification of the existing loan, CBL and the lender were not able to reach a satisfactory agreement. The property is in receivership and foreclosure proceedings have commenced.

In January 2018, CBL retired the $37.3 million loan secured by Kirkwood Mall in Bismarck, ND, using availability on its lines of credit. The loan bore an interest rate of 5.85% and was scheduled to mature in April 2018.

REDEVELOPMENT

During the fourth quarter, CBL announced details of its transformation plan for Eastland Mall in Bloomington, IL. Global fashion retailer H&M and popular fitness center Planet Fitness will join the center as part of the redevelopment of the former JCPenney store. In addition to H&M and Planet Fitness, Outback Steakhouse is also slated to join the line-up at Eastland Mall. Construction has commenced with openings planned for later this year.

OUTLOOK AND GUIDANCE

CBL is providing 2018 FFO guidance in the range of $1.70 - $1.80 per diluted share. Guidance incorporates a full-year budgeted impact of loss in rent related to 2017 tenant bankruptcies, store closures and rent adjustments net of expected new leasing as well as a reserve in the range of $10.0 - $20.0 million (the "Reserve") for potential future unbudgeted loss in rent from tenant bankruptcies, store closures or lease modifications that may occur in 2018. Detail of assumptions underlying guidance follows:

 
Low High
2018 FFO per share (Includes the Reserve) $1.70 $1.80
2018 Change in Same-Center NOI ("SC NOI") (Includes the Reserve) (6.75)% (5.25)%
Reserve for unbudgeted lost rents included in SC NOI and FFO $20.0 million $10.0 million
Gain on outparcel sales $7.0 million $10.0 million
Estimated 2018 Dividend Per Common Share (1) $0.80 $0.80
(1) Subject to Board approval
 

Assumptions underlying the change in 2018 Same-Center NOI are as follows:

       
Estimated Impact to 2018 SC NOI Explanation
New Leasing/Contractual Rent Increases 3.2 %
Store Closures/Non-renewals (3.0 )% Includes 2017 actual and budgeted 2018 store closures at natural lease maturation as well as mid-term store closures primarily related to tenants in bankruptcy
Lease Renewals (2.9 )% Impact of net lease renewals completed in 2017 and budgeted for 2018, including certain tenants in bankruptcy reorganization
Lease Modifications (1.1 )% Mid-term lease modifications completed in 2017 and budgeted for 2018
Reserve for lost rents (2.2 )% Mid-point ($15M) of reserve for future unbudgeted lost rents
Property Operating Expense %
Total 2018 SC NOI Change at Midpoint (6.0 )%
 

Reconciliation of major variances in 2017 FFO, as adjusted, per share to 2018 FFO per share guidance at mid-point:

   
2017 FFO per share, as adjusted $ 2.08
Change in SC NOI (excluding reserve for unbudgeted lost rents) (0.14 )
Reserve for unbudgeted lost rents ($15M) (0.08 )
Outparcel Sales Gains (0.05 )
Dilution from 2017 Asset Sales (0.05 )
Net Interest Expense (pro rata share of consolidated and unconsolidated) 0.01
Net Impact of Non-Core and Other Corporate Items (0.02 )
Mid-point of 2018 FFO per share guidance $ 1.75  
 

Reconciliation of GAAP net income to 2018 FFO per share guidance:

   
Low High
Expected diluted earnings per common share $ 0.11 $ 0.21
Adjust to fully converted shares from common shares (0.01 ) (0.02 )
Expected earnings per diluted, fully converted common share 0.10 0.19
Add: depreciation and amortization 1.58 1.58
Add: noncontrolling interest in earnings of Operating Partnership 0.02   0.03  
Expected FFO per diluted, fully converted common share $ 1.70   $ 1.80  
 

INVESTOR CONFERENCE CALL AND WEBCAST

CBL & Associates Properties, Inc. will conduct a conference call at 11:00 a.m. ET on Friday, February 9, 2018, to discuss its fourth quarter and full year results. The number to call for this interactive teleconference is (888) 317-6003 or (412) 317-6061 and enter the confirmation number 6695155. A replay of the conference call will be available through February 16, 2018, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number 10114768. A transcript of the Company's prepared remarks will be furnished on a Form 8-K following the conference call.

To receive the CBL & Associates Properties, Inc., fourth quarter and full year earnings release and supplemental information please visit the Investing section of our website at cblproperties.com or contact Investor Relations at (423) 490-8312.

The Company will also provide an online webcast and rebroadcast of its 2017 fourth quarter and full year earnings release conference call. The live broadcast of the quarterly conference call will be available online at cblproperties.com on Friday, February 9, 2017 beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue for three months.

ABOUT CBL & ASSOCIATES PROPERTIES, INC.

Headquartered in Chattanooga, TN, CBL is one of the largest and most active owners and developers of malls and shopping centers in the United States. CBL owns, holds interests in or manages 119 properties, including 76 regional malls/open-air centers. The properties are located in 27 states and total 74.4 million square feet including 6.2 million square feet of non-owned shopping centers managed for third parties. Additional information can be found at cblproperties.com.

NON-GAAP FINANCIAL MEASURES

Funds From Operations

FFO is a widely used 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 less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. 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 presents both FFO allocable to Operating Partnership common unitholders and FFO allocable to common shareholders, as it believes that both are useful performance measures. 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. The Company believes FFO allocable to its common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to its common shareholders.

In the reconciliation of net income 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 its Operating Partnership. The Company then applies a percentage to FFO of its Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. The percentage is computed by taking the weighted average number of common shares outstanding for the period and dividing it by the sum of the weighted average number of common shares outstanding for the period and the weighted average number of Operating Partnership units outstanding during the period.

FFO does not represent cash flows from operations as defined by accounting principles generally accepted in the United States, 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 significant 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 9 of this earnings release for a description of these adjustments.

Same-center Net Operating Income

NOI is a supplemental 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).

We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. The Company computes NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated properties. The Company's definition of NOI may be different than that used by other companies and, accordingly, the Company's NOI may not be comparable to that of other companies.

Since NOI includes only those revenues and expenses related to the operations of its shopping center and other properties, the Company believes that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates and operating costs and the impact of those trends on the Company's results of operations. The Company’s calculation of same-center NOI also excludes lease termination income, straight-line rent adjustments, and amortization of above and below market lease intangibles in order to enhance the comparability of results from one period to another, as these items can be impacted by one-time events that may distort same-center NOI trends and may result in same-center NOI that is not indicative of the ongoing operations of the Company’s shopping center and other properties. A reconciliation of same-center NOI to net income is located at the end of this earnings release.

Pro Rata Share of Debt

The Company presents debt based on its pro rata ownership share (including 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 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.

   

CBL & Associates Properties, Inc.

 Consolidated Statements of Operations

 (Unaudited; in thousands, except per share amounts)

 
Three Months Ended
December 31,
Year Ended
December 31,
2017   2016 2017   2016
REVENUES:
Minimum rents $ 155,966 $ 168,276 $ 624,161 $ 670,565
Percentage rents 4,747 7,213 11,874 17,803
Other rents 7,837 9,363 19,008 23,110
Tenant reimbursements 61,975 67,487 254,552 280,438
Management, development and leasing fees 3,235 4,100 11,982 14,925
Other 1,596   2,054   5,675   21,416  
Total revenues 235,356   258,493   927,252   1,028,257  
OPERATING EXPENSES:
Property operating 31,780 32,956 128,030 137,760
Depreciation and amortization 73,629 72,188 299,090 292,693
Real estate taxes 21,574 21,756 83,917 90,110
Maintenance and repairs 12,284 14,012 48,606 53,586
General and administrative 13,064 16,467 58,466 63,332
Loss on impairment 86 71,401 116,822
Other 29   13   5,180   20,326  
Total operating expenses 152,360   157,478   694,690   774,629  
Income from operations 82,996 101,015 232,562 253,628
Interest and other income 471 462 1,706 1,524
Interest expense (53,501 ) (53,608 ) (218,680 ) (216,318 )
Gain on extinguishment of debt 30,927
Gain (loss) on investments 7,534 (6,197 ) 7,534
Income tax benefit (provision) (2,851 ) (911 ) 1,933 2,063
Equity in earnings of unconsolidated affiliates 6,535   10,316   22,939   117,533  
Income from continuing operations before gain on sales of real estate assets 33,650 64,808 65,190 165,964
Gain on sales of real estate assets 6,888   15,064   93,792   29,567  
Net income 40,538 79,872 158,982 195,531
Net income attributable to noncontrolling interests in:
Operating Partnership (3,950 ) (9,481 ) (12,652 ) (21,537 )
Other consolidated subsidiaries (124 ) (1,561 ) (25,390 ) (1,112 )
Net income attributable to the Company 36,464 68,830 120,940 172,882
Preferred dividends (11,223 ) (11,223 ) (44,892 ) (44,892 )
Net income attributable to common shareholders $ 25,241   $ 57,607   $ 76,048   $ 127,990  
 
Basic per share data attributable to common shareholders:
Net income attributable to common shareholders $ 0.15 $ 0.34 $ 0.44 $ 0.75
Weighted-average common shares outstanding 171,098 170,793 171,070 170,762
 
Diluted per share data attributable to common shareholders:
Net income attributable to common shareholders $ 0.15 $ 0.34 $ 0.44 $ 0.75
Weighted-average common and potential dilutive common shares outstanding 171,098 171,089 171,070 170,836
     

The Company's reconciliation of net income attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows:

(in thousands, except per share data)

 
Three Months Ended
December 31,
Year Ended
December 31,
2017   2016 2017   2016
Net income attributable to common shareholders $ 25,241 $ 57,607 $ 76,048 $ 127,990
Noncontrolling interest in income of Operating Partnership 3,950 9,481 12,652 21,537
Depreciation and amortization expense of:
Consolidated properties 73,629 72,188 299,090 292,693
Unconsolidated affiliates 9,591 9,516 38,124 38,606
Non-real estate assets (936 ) (757 ) (3,526 ) (3,154 )
Noncontrolling interests' share of depreciation and amortization (2,186 ) (2,075 ) (8,977 ) (8,760 )
Loss on impairment, net of taxes 37 70,185 115,027
Gain on depreciable property, net of taxes and noncontrolling interests' share (222 ) (1,535 ) (48,983 ) (45,741 )
FFO allocable to Operating Partnership common unitholders 109,067 144,462 434,613 538,198
Litigation expense (1) 34 259 103 2,567
Nonrecurring professional fees expense reimbursement) (1) 477 (919 ) 2,258
(Gain) loss on investments, net of taxes (2) (7,034 ) 6,197 (7,034 )
Equity in earnings from disposals of unconsolidated
affiliates (3)
(3,758 ) (58,243 )
Non-cash default interest expense (4) 921 1,466 5,319 2,840
Impact of new tax law on income tax expense 2,309 2,309

(Gain) loss on extinguishment of debt, net of noncontrolling interests' share (5)

    (33,902 ) 197  
FFO allocable to Operating Partnership common unitholders, as adjusted $ 112,331   $ 135,872   $ 413,720   $ 480,783  
 
FFO per diluted share $ 0.55   $ 0.72   $ 2.18   $ 2.69  
 
FFO, as adjusted, per diluted share $ 0.56   $ 0.68   $ 2.08   $ 2.41  
 
Weighted average common and potential dilutive common shares outstanding with Operating Partnership units fully converted 199,314 199,381 199,322 199,838
(1) Litigation expense and nonrecurring professional fees expense are included in General and Administrative expense in the Consolidated Statements of Operations. Nonrecurring professional fees reimbursement is included in Interest and Other Income in the Consolidated Statements of Operations.
(2) The year ended December 31, 2017 includes a loss on investment related to the write down of our 25% interest in River Ridge Mall JV, LLC based on the contract price to sell such interest to the joint venture partner. The sale closed in August 2017. The three months and the year ended December 31, 2016 includes a gain of $10,136 related to the redemption of the Company’s 2007 investment in a Chinese real estate company, less related taxes of $500, partially offset by a $2,602 loss related to the Company’s exit from its consolidated joint venture that provided security and maintenance services to third parties.
(3) For the three months and the year ended December 31, 2016, includes $3,758 related to the sale of four office buildings. For the year ended December 31, 2016, includes $28,146 related to the foreclosure of the loan secured by Gulf Coast Town Center and $26,373 related to the sale of our 50% interest in Triangle Town Center.
(4) The three months and year ended December 31, 2017 includes default interest expense related to Acadiana Mall. The year ended December 31, 2017 also includes default interest expense related to Chesterfield Mall, Midland Mall and Wausau Center. The three months and year ended December 31, 2016 includes default interest expense relate to Chesterfield Mall, Midland Mall and Wausau Center.
(5) The year ended December 31, 2017 includes a $6,851 gain on extinguishment of debt related to the non-recourse loan secured by Wausau Center, which was conveyed to the lender in the third quarter of 2017, which was partially offset by a loss on extinguishment of debt related to a prepayment fee of $371 related to the early retirement of a mortgage loan, a gain on extinguishment of debt related to the non-recourse loan secured by Chesterfield Mall, which was conveyed to the lender in the second quarter of 2017, a loss on extinguishment of debt related to a prepayment fee on the early retirement of the loans secured by The Outlet Shoppes at Oklahoma City, which was sold in the second quarter of 2017, and a gain on extinguishment of debt related to the non-recourse loan secured by Midland Mall, which was conveyed to the lender in the first quarter of 2017.
       

The reconciliation of diluted EPS to FFO per diluted share is as follows:

 
Three Months Ended
December 31,
Year Ended
December 31,
  2017     2016   2017     2016  
Diluted EPS attributable to common shareholders $ 0.15 $ 0.34 $0.44 $0.75
Eliminate amounts per share excluded from FFO:
Depreciation and amortization expense, including amounts from consolidated properties, unconsolidated affiliates, non-real estate assets and excluding amounts allocated to noncontrolling interests 0.40 0.40 1.64 1.60
Loss on impairment, net of taxes 0.35 0.57
Gain on depreciable property, net of taxes and noncontrolling interests' share     (0.02 ) (0.25 ) (0.23 )
FFO per diluted share $ 0.55 $ 0.72   $2.18   $2.69  
 

The reconciliations of FFO allocable to Operating Partnership common unitholders to FFO allocable to common shareholders, including and excluding the adjustments noted above, are as follows:

 
Three Months Ended
December 31,
Year Ended
December 31,
2017   2016   2017   2016  
FFO allocable to Operating Partnership common unitholders $ 109,067 $ 144,462 $ 434,613 $ 538,198
Percentage allocable to common shareholders (1)   85.84 %   85.79 % 85.83 % 85.48 %
FFO allocable to common shareholders $ 93,623   $ 123,934   $ 373,028   $ 460,052  
 
FFO allocable to Operating Partnership common unitholders, as adjusted $ 112,331 $ 135,872 $ 413,720 $ 480,783
Percentage allocable to common shareholders (1)   85.84 %   85.79 % 85.83 % 85.48 %
FFO allocable to common shareholders, as adjusted $ 96,425 $ 116,565   $ 355,096   $ 410,973  
(1) Represents the weighted average number of common shares outstanding for the period divided by the sum of the weighted average number of common shares and the weighted average number of Operating Partnership units outstanding during the period. See the reconciliation of shares and Operating Partnership units outstanding on page 16.
     
Three Months Ended
December 31,
Year Ended
December 31,
  2017         2016     2017       2016  
SUPPLEMENTAL FFO INFORMATION:
Lease termination fees $ 2,042 $ 9 $ 4,036 $ 2,211
Lease termination fees per share $ 0.01 $ $ 0.02 $ 0.01
 
Straight-line rental income (including write-offs) $ (197 ) $ (1,175 ) $ 31 $ (985 )
Straight-line rental income (including write-offs) per share $ $ (0.01 ) $ $
 
Gains on outparcel sales $ 6,678 $ 13,269 $ 18,374 $ 21,621
Gains on outparcel sales per share $ 0.03 $ 0.07 $ 0.09 $ 0.11
 
Net amortization of acquired above- and below-market leases $ 903 $ 301 $ 4,365 $ 3,066
Net amortization of acquired above- and below-market leases per share $ $ $ 0.02 $ 0.02
 
Net amortization of debt (premiums) discounts $ 140 $ 519 $ (632 ) $ 2,519
Net amortization of debt (premiums) discounts per share $ $ $ $ 0.01
 
Income tax benefit (provision) prior to impact of 2017 tax law $ (542 ) $ (911 ) $ 4,242 $ 2,063
Income tax benefit (provision) prior to impact of 2017 tax law per share $ $ $ 0.02 $ 0.01
 
Impact of new tax law on income tax expense $ (2,309 ) $ $ (2,309 ) $
Impact of new tax law on income tax expense per share $ (0.01 ) $ $ (0.01 ) $
 
Abandoned projects expense $ (29 ) $ (12 ) $ (5,180 ) $ (56 )
Abandoned projects expense per share $ $ $ (0.03 ) $
 
Gain (loss) on extinguishment of debt, net of noncontrolling interests' share $ $ $ (33,902 ) $ (197 )
Gain (loss) on extinguishment of debt, net of noncontrolling interests' share, per share $ $ $ 0.17 $
 
Non cash default interest expense $ (921 ) $ (1,466 ) $ (5,319 ) $ (2,840 )
Non cash default interest expense per share $ $ (0.01 ) $ (0.03 ) $ (0.01 )
 
Gain (loss) on investments, net of tax $ $ 7,034 $ (6,197 ) $ 7,034
Gain (loss) on investments, net of tax per share $ $ 0.04 $ (0.03 ) $ 0.04
 
Equity in earnings from disposals of unconsolidated affiliates $ $ 3,758 $ $ 58,243
Equity in earnings from disposals of unconsolidated affiliates per share $ $ 0.02 $ $ 0.29
 
Interest capitalized $ 554 $ 690 $ 2,230 $ 2,302
Interest capitalized per share $ $ $ 0.01 $ 0.01
 
Litigation expenses $ (34 ) $ (259 ) $ (103 ) $ (2,567 )
Litigation expenses per share $ $ $ $ (0.01 )
 
Nonrecurring professional fees (expense) reimbursement $ $ (477 ) $ 919 $ (2,258 )
Nonrecurring professional fees (expense) reimbursement per share $ $ $ $ (0.01 )
 
As of December 31,
  2017     2016  
Straight-line rent receivable $ 61,506 $ 67,086
     

Same-center Net Operating Income

(Dollars in thousands)

 
Three Months Ended
December 31,
Year Ended
December 31,
2017     2016 2017     2016
Net income $ 40,538 $ 79,872 $ 158,982 $ 195,531
 
Adjustments:
Depreciation and amortization 73,629 72,188 299,090 292,693
Depreciation and amortization from unconsolidated affiliates 9,591 9,516 38,124 38,606
Noncontrolling interests' share of depreciation and
amortization in other consolidated subsidiaries
(2,186 ) (2,075 ) (8,977 ) (8,760 )
Interest expense 53,501 53,608 218,680 216,318
Interest expense from unconsolidated affiliates 6,268 6,296 25,083 26,083

Noncontrolling interests' share of interest expense in other consolidated subsidiaries

(1,902 ) (1,689 ) (7,062 ) (6,815 )
Abandoned projects expense 29 12 5,180 56
Gain on sales of real estate assets (6,888 ) (15,064 ) (93,792 ) (29,567 )

Gain on sales of real estate assets of unconsolidated affiliates

(12 ) (4,090 ) (201 ) (97,430 )

Noncontrolling interests' share of gain on sales of real estate assets in other consolidated subsidiaries

26,639
(Gain) loss on investments (7,534 ) 6,197 (7,534 )
(Gain) loss on extinguishment of debt (30,927 ) 197
Noncontrolling interests' share of loss on extinguishment of debt in other consolidated subsidiaries (2,975 )
Loss on impairment 86 71,401 116,822
Income tax (benefit) provision 2,851 911 (1,933 ) (2,063 )
Lease termination fees (2,042 ) (9 ) (4,036 ) (2,211 )

Straight-line rent and above- and below-market lease amortization

(711 ) 874 (4,396 ) (2,081 )

Net income attributable to noncontrolling interest in other consolidated subsidiaries

(124 ) (1,561 ) (25,390 ) (1,112 )
General and administrative expenses 13,064 16,467 58,466 63,332
Management fees and non-property level revenues (4,046 ) (3,349 ) (14,115 ) (17,026 )
Operating Partnership's share of property NOI 181,560 204,459 714,038 775,039
Non-comparable NOI (7,996 ) (18,419 ) (41,834 ) (82,703 )
Total same-center NOI (1) $ 173,564   $ 186,040   $ 672,204   $ 692,336  
Total same-center NOI percentage change (6.7 )% (2.9 )%
   

Same-center Net Operating Income

(Continued)

 
Three Months Ended
December 31,
Year Ended
December 31,
2017   2016 2017   2016
Malls $ 157,976 $ 170,383 $ 610,164 $ 632,087
Associated centers 8,120 8,631 32,509 32,792
Community centers 5,519 5,402 22,098 20,936
Offices and other 1,949   1,624   7,433   6,521
Total same-center NOI (1) $ 173,564   $ 186,040   $ 672,204   $ 692,336
 
Percentage Change:
Malls (7.3 )% (3.5 )%
Associated centers (5.9 )% (0.9 )%
Community centers 2.2 % 5.6 %
Offices and other 20.0 % 14.0 %
Total same-center NOI (1) (6.7 )% (2.9 )%

(1) CBL 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). Same-center NOI excludes lease termination income, straight-line rent adjustments, amortization of above and below market lease intangibles and write-offs of landlord inducement assets. We include a property in our same-center pool when we own all or a portion of the property as of December 31, 2017, and we owned it and it was in operation for both the entire preceding calendar year and the current year-to-date reporting period ending December 31, 2017. New properties are excluded from same-center NOI, until they meet this criteria. Properties excluded from the same-center pool that would otherwise meet this criteria are properties which are either under major redevelopment, being considered for repositioning, where we intend to renegotiate the terms of the debt secured by the related property or return the property to the lender, or minority interest properties in which we own an interest of 25% or less.

 

Company's Share of Consolidated and Unconsolidated Debt

(Dollars in thousands)

 
As of December 31, 2017
Fixed Rate   Variable
Rate
  Total per
Debt
Schedule
  Unamortized
Deferred
Financing
Costs
  Total
Consolidated debt $ 3,158,973 $ 1,090,810 $ 4,249,783 $ (18,938 ) $ 4,230,845
Noncontrolling interests' share of consolidated debt (77,155 ) (5,418 ) (82,573 ) 687 (81,886 )
Company's share of unconsolidated affiliates' debt 532,766   64,455  

597,221

  (2,441 ) 594,780  
Company's share of consolidated and unconsolidated debt $ 3,614,584   $ 1,149,847   $ 4,764,431   $ (20,692 ) $ 4,743,739  
Weighted average interest rate 5.19 % 2.93 % 4.65 %
 
As of December 31, 2016
Fixed Rate Variable
Rate
Total per
Debt
Schedule
  Unamortized
Deferred
Financing
Costs
Total
Consolidated debt $ 3,594,379 $ 888,770 $ 4,483,149 $ (17,855 ) $ 4,465,294
Noncontrolling interests' share of consolidated debt (109,162 ) (7,504 ) (116,666 ) 945 (115,721 )
Company's share of unconsolidated affiliates' debt 530,062   73,263   603,325   (2,806 ) 600,519  
Company's share of consolidated and unconsolidated debt $ 4,015,279   $ 954,529   $ 4,969,808   $ (19,716 ) $ 4,950,092  
Weighted average interest rate 5.30 % 2.18 % 4.70 %
     

Debt-To-Total-Market Capitalization Ratio as of  December 31, 2017

(In thousands, except stock price)

 
Shares

Outstanding

Stock Price (1) Value
Common stock and Operating Partnership units 199,297 $ 5.66 $ 1,128,021
7.375% Series D Cumulative Redeemable Preferred Stock 1,815 250.00 453,750
6.625% Series E Cumulative Redeemable Preferred Stock 690 250.00 172,500  
Total market equity 1,754,271
Company's share of total debt, excluding unamortized deferred financing costs 4,764,431  
Total market capitalization $ 6,518,702  
Debt-to-total-market capitalization ratio 73.1 %
 

(1) Stock price for common stock and Operating Partnership units equals the closing price of the common stock on December 29, 2017. The stock prices for the preferred stocks represent the liquidation preference of each respective series.

   

 

 

Reconciliation of Shares and Operating Partnership Units Outstanding

(In thousands)

 
Three Months Ended
December 31,
Year Ended
December 31,
2017: Basic   Diluted Basic   Diluted
Weighted average shares - EPS 171,098 171,098 171,070 171,070
Weighted average Operating Partnership units 28,216   28,216   28,252   28,252
Weighted average shares - FFO 199,314   199,314   199,322   199,322
 
2016:
Weighted average shares - EPS 170,793 171,089 170,762 170,836
Weighted average Operating Partnership units 28,292   28,292   29,002   29,002
Weighted average shares - FFO 199,085   199,381   199,764   199,838
   

Dividend Payout Ratio

 
Three Months Ended
December 31,
Year Ended
December 31,
2017   2016 2017   2016
Weighted average cash dividend per share $ 0.20888 $ 0.27283 $ 1.02731 $ 1.09121
FFO as adjusted, per diluted fully converted share $ 0.56   $ 0.68   $ 2.08   $ 2.41  
Dividend payout ratio 37.3 % 40.1 % 49.4 % 45.3 %
 
Consolidated Balance Sheets

(Unaudited; in thousands, except share data)

    As of December 31,
2017   2016
ASSETS
Real estate assets:
Land $ 813,390 $ 820,979
Buildings and improvements 6,723,194   6,942,452  
7,536,584 7,763,431
Accumulated depreciation (2,465,095 ) (2,427,108 )
5,071,489 5,336,323
Held for sale 5,861
Developments in progress 85,346   178,355  
Net investment in real estate assets 5,156,835 5,520,539
Cash and cash equivalents 32,627 18,951
Receivables:

Tenant, net of allowance for doubtful accounts of $2,011 and $1,910 in 2017 and 2016, respectively

83,552 94,676

Other, net of allowance for doubtful accounts of $838 in 2017 and 2016

7,570 6,227
Mortgage and other notes receivable 8,945 16,803
Investments in unconsolidated affiliates 249,192 266,872
Intangible lease assets and other assets 166,087   180,572  
$ 5,704,808   $ 6,104,640  
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgage and other indebtedness, net $ 4,230,845 $ 4,465,294
Accounts payable and accrued liabilities 228,650   280,498  
Total liabilities 4,459,495   4,745,792  
Commitments and contingencies
Redeemable noncontrolling interests 8,835   17,996  
Shareholders' equity:
Preferred stock, $.01 par value, 15,000,000 shares authorized:

7.375% Series D Cumulative Redeemable Preferred Stock, 1,815,000 shares outstanding

18 18

6.625% Series E Cumulative Redeemable Preferred Stock, 690,000 shares outstanding

7 7

Common stock, $.01 par value, 350,000,000 shares authorized, 171,088,778 and 170,792,645 issued and outstanding in 2017 and 2016, respectively

1,711 1,708
Additional paid-in capital 1,974,537 1,969,059
Dividends in excess of cumulative earnings (836,269 ) (742,078 )
Total shareholders' equity 1,140,004 1,228,714
Noncontrolling interests 96,474   112,138  
Total equity 1,236,478   1,340,852  
$ 5,704,808   $ 6,104,640  

Contacts

CBL & Associates Properties, Inc.
Katie Reinsmidt, 423-490-8301
EVP - Chief Investment Officer
katie.reinsmidt@cblproperties.com

Contacts

CBL & Associates Properties, Inc.
Katie Reinsmidt, 423-490-8301
EVP - Chief Investment Officer
katie.reinsmidt@cblproperties.com