Attached files
| file | filename |
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| 8-K - CBL & ASSOCIATES PROPERTIES INC | form8k.htm |
| EX-99.1 - EARNINGS RELEASE - CBL & ASSOCIATES PROPERTIES INC | exhibit991.htm |
| EX-99.3 - SUPPLEMENTAL FINANCIAL AND OPERATING INFORMATION - CBL & ASSOCIATES PROPERTIES INC | exhibit993.htm |
Exhibit
99.2
CBL
& ASSOCIATES PROPERTIES, INC.
CONFERENCE
CALL, FOURTH QUARTER
FEBRUARY
4, 2010 @ 11:00 AM ET
Stephen:
Thank you
and good morning. We appreciate your participation in the CBL &
Associates Properties, Inc. conference call to discuss fourth quarter and
year-end results. Joining me today is John Foy, CBL’s Chief Financial
Officer and Katie Reinsmidt, Vice President - Corporate Communications and
Investor Relations who will begin by reading our Safe Harbor
disclosure.
Katie:
This
conference call 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 results,
financial and otherwise, may differ materially from the events and results
discussed in the forward-looking statements. We direct you 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 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included therein for a discussion of such risks and uncertainties. During our
discussion today, references made to per share amounts are based upon a fully
diluted converted share basis.
A
transcript of today’s comments, the earnings release and additional supplemental
schedules will be furnished to the SEC on Form 8-K and will be available on our
website. This call will also be available for replay on the Internet
through a link on our website at cblproperties.com. This conference
call is the property of CBL & Associates Properties, Inc. Any
redistribution, retransmission or rebroadcast of this call without the express
written consent of CBL is strictly prohibited.
During
this conference call, the Company may discuss non-GAAP financial measures as
defined by SEC Regulation G. A description of each non-GAAP measure
and a reconciliation of each non-GAAP financial measure to the comparable GAAP
financial measure will be included in the earnings release that is furnished on
the Form 8-K.
Stephen:
Thank
you, Katie.
In spite
of the difficult environment of 2009, CBL successfully met the challenges it
faced. We made significant improvements to our balance sheet and
liquidity position as well as our operational performance. The
balance sheet was enhanced through the raising of $400 million of new common
equity; the completion of more than $1.6 billion in financing, and the estimated
annual cash savings of $160 million from dividend
adjustments. Operationally, we reduced operating expense by more than
$40 million through our cost containment and reduction program while at the same
time making gains in occupancy throughout the year, leasing over five million
square feet. The efforts of the entire CBL team and the resiliency of
our portfolio resulted in a same center NOI decline of only 1.3%.
Now, I’d
like to review the quarter’s operational results in more detail.
LEASING
AND OCCUPANCY:
For the
full year we signed approximately 4.7 million square feet of leases in our
operating portfolio including 1.6 million square feet of new leases and 3.1
million square feet of renewals. We also completed 376,000 square
feet of development leasing.
As our
earnings release indicated, we experienced pressure on rent spreads through the
fourth quarter. For 2009 on a same space basis, rental rates were
signed at an average decrease of 12.2% from the prior gross rent per square
foot.
We
continued our efforts to diminish the long-term impact of these negative spreads
by limiting the lease terms on certain leases. Approximately 75% of
our renewals were for a term of three years or less. As the retail
environment improves, we will either replace these retailers with more
productive uses or re-sign at market rents. We are
maintaining normal lease terms for the better deals. In the fourth
quarter, renewal leases that were signed for terms of five years or longer
averaged a double-digit increase in the initial lease rate. Spreads
were significantly impacted by a number of portfolio deals completed in the
fourth quarter within certain categories. These categories included
books, cards, sit-down restaurants and home-goods and gifts. Together
these comprised approximately 500 basis points of the decline in average rent
spreads in the fourth quarter.
We are
also making significant progress in the re-leasing of the junior
boxes. Of the roughly 50 locations that vacated as a result of the
2008 bankruptcies and store closures, we have executed leases or LOIs totaling
more than 1.0 million square feet or approximately 45% of the available square
footage. The majority of these stores open throughout 2010,
which should positively impact occupancy in our community and associated center
portfolio.
We were
pleased that stabilized mall occupancy results were slightly better than
expected with a decline of only 130 basis points to 91.6% compared with the
prior year. Sequentially, stabilized mall occupancy was up 130 basis
points. Total portfolio occupancy increased 120 basis points
sequentially to 90.4% and declined 190 basis points from the prior
year. We have made significant improvements throughout the year in
occupancy levels including both small shop leasing and box
locations.
RETAIL
SALES:
Sales
declines moderated over the course of the holiday season with December showing
the smallest decline. For the twelve months ended December 31, 2009
sales for reporting tenants 10,000 square feet or less in stabilized malls
declined 5.4% to $313 per square foot. As retailers reformulated
their business plans in 2009 to focus on controlling inventory levels and
reducing costs, they reported improving margins and better
profitability. Despite the negative sales comps, today many of these
retailers are better able to support their current occupancy costs, which bodes
well for the easing of the rent pressure as we progress through
2010.
BANKRUPTCY
UPDATE:
To-date
in 2010 there has been no major bankruptcy filings to impact our
portfolio. We are hopeful that as retailers benefit from better
margins and cash flow, bankruptcy and store closure activity will be
limited.
During
the fourth quarter, the only bankruptcy we experienced worth noting was The
Walking Company. We have seven locations totaling approximately
10,000 square feet and annual gross rent of approximately
$500,000. One store has closed.
DEVELOPMENT
We have
one ground up development that is under construction. The Pavilion at
Port Orange is our open-air development project located near Daytona Beach,
FL. The 415,000-square-foot-first phase will open in March with a
leased or committed rate of more than 92%. The project has already
gotten off to a great start with Hollywood Theater opening in December to a very
strong reception. Additional anchors include Belk, Homegoods,
Marshalls, Michaels, PETCO and ULTA.
Going
forward we will primarily focus our development efforts on opportunities within
our existing portfolio. There continues to be significant value
available through enhancing our existing shopping centers.
I’ll now
turn it over to John for the financial review.
-2-
John:
Thank
you, Stephen.
Before we
begin the discussion of quarterly financial results, I’d like to first
congratulate Stephen on his promotion to CEO. I’d also like to make
note of our three new Executive Vice Presidents, Gus Stephas, Farzana Mitchell
and Michael Lebovitz. We are confident that in their new roles they
will continue to make many valuable contributions to CBL.
After
completing more than $1.6 billion in financing activity in 2009, we were ready
to begin 2010 with the refinancing of the loan secured by St. Clair Square mall
outside of St. Louis in Fairview Heights, IL. The loan was placed
with a new lender and achieved excess proceeds of approximately $14.0 million
after the payoff of the existing $58.0 million mortgage. The new
$72.0 million non-recourse five-year loan bears interest at a floating rate of
400 basis points over LIBOR. At the closing we concurrently entered
into a two-year LIBOR cap with a strike rate of 3%.
In
December, we repaid the $52.0 million CMBS loan secured by Eastgate Mall in
Cincinnati, OH. The property was placed in the collateral pool
securing the $560 million credit facility. We also repaid two small
revolving credit facilities in November, a $17.2 million facility and a $20.0
million facility. The properties securing these facilities were also
placed in the collateral pool for the $560 million facility.
For 2010,
we have approximately $457.4 million of remaining mortgage loans maturing,
including $181.5 million of CMBS loans. We will continue to execute
our plan of using available borrowing capacity to repay selected loans at
maturity and use the properties as collateral to secure our $560 million credit
facility. As of December 31, 2009 we had more than $430 million
in availability on our lines of credit. Our financial covenants
remained sound with a debt to GAV ratio at December 31, 2009 of 55% and an
interest coverage ratio of 2.34 times.
Improving
the balance sheet is a priority for us in 2010. While we naturally
reduce leverage through normal amortization of principal, we are also focusing
our efforts to attract new equity sources such as joint ventures.
FINANCIAL
REVIEW:
While we
are never satisfied with negative growth, we were pleased that our portfolio
continued to demonstrate resilience in the fourth quarter. Total
same-center NOI, excluding lease termination fees, declined 1.5% for the quarter
and 1.3% for the twelve months as compared with the prior year
periods. We made significant headway through 2009 in reducing
expenses and controlling costs. These improvements mitigated much of
the top line loss with significant reductions in property operating expenses
including bad debt. Major drivers of the decline in NOI included the
year-over-year decline in occupancy, lower percentage rents and continued rent
pressure as well as lower specialty leasing and sponsorship income.
In the
fourth quarter 2009, we achieved FFO excluding the impairment of real estate, of
$118 million versus $93 million in the prior year quarter. On a per
share basis FFO was $0.62 in the fourth quarter 2009, prior to the non-cash
impairment of real estate, compared with FFO of $0.80 per share for the fourth
quarter 2008. FFO excluding the impairment of real estate in the
current quarter was diluted by $0.34 per share as a result of the 66.6 million
shares issued in the June offering. One-time items impacting FFO in
the prior year quarter included the write-down of marketable securities of $5.7
million and abandoned project expense of $9.4 million.
For 2009,
FFO, excluding the impairment of real estate, was $397 million compared with
$376 million in 2008. On a per share basis FFO for 2009 was $2.52,
prior to the non-cash impairment of real estate, compared with FFO of $3.21 per
share in the prior year. FFO excluding the impairment of real estate
for the current year was diluted by $0.75 per share as a result of the June
equity offering. 2009 also included an $8.8 million impairment of
investments in foreign affiliates. You may recall that this charge
was primarily related to the write-down of our investment in China that we
recorded in the first quarter 2009. FFO in the prior year benefited
from $8.0 million of fee income received from affiliates of Centro, offset by
$17.2 million of marketable securities write-down and abandoned projects expense
of $12.4 million.
-3-
While the
overwhelming majority of our portfolio continues to demonstrate strength and
resilience, during this quarter’s normal review we determined that it was
appropriate to write down the book value of three operating centers to the
estimated fair value. The NOI from these three properties, Hickory
Hollow Mall in Nashville, TN, Pemberton Square in Vicksburg, MS and Towne Mall
in Franklin, OH, represent less than 60 basis points of the total 2009
NOI. The resulting $115 million impairment of real estate is a
non-cash item and will not impact our liquidity, financial covenants or our
coverage ratios.
Hickory
Hollow Mall has been experiencing declining NOI for the past few years as a
result of new competition and a fundamental shift in the market immediately
surrounding the center. This decline was furthered by the difficult
economic conditions. Our leasing team has been working hard to
replace vacancies and explore non-retail uses for the center, however; we felt
that it was prudent to take the write down at this time. This mall is
encumbered by a $33.4 million recourse loan. The loan matures in 2018
and is self-liquidating. The Company will continue to service the
loan.
Pemberton
Square and Towne Mall have also experienced declining property-specific market
conditions. We continue to explore redevelopment plans that seek to
maximize each property's cash flow, however; due to the uncertainty of the
timing of these projects we determined that a write down was
appropriate. Pemberton Square and Towne Mall are currently
unencumbered.
These
write-downs represent a very small fraction of our properties and are not
indicative of the strength of the remainder of the portfolio.
Other
major variances in the quarter and full year results included:
|
·
|
Bad
debt expense in the fourth quarter and twelve months 2009 of approximately
$393,000 and $5.0 million, compared with $3.8 million and $9.4 million,
respectively, for the prior year
periods.
|
|
·
|
Our
cost recovery ratio for the fourth quarter was 106%, compared with 94%, in
the prior-year period. For the full year our cost recovery
ratio was 102% compared with 96% in the prior year
period. While tenant reimbursements have declined from prior
year levels due to lower occupancy, the cost recovery ratio for 2009 was
positively impacted by the expense reductions and approximately $4.4
million of lower bad debt expense.
|
|
·
|
Variable
rate debt was 21.1% of the total market capitalization as of the end of
December 2009 versus 21.2% as of the end of the prior year
period. As of December 31, variable rate debt represented 28.4%
of CBL’s share of consolidated and unconsolidated debt compared with 24.6%
at the close of the prior year. Variable rate debt increased
from the third quarter as the result of the December 30 expiration of two
interest rate swaps totaling $400
million.
|
GUIDANCE:
We are
initiating 2010 FFO per share guidance in the range of $1.82 to
$1.90. Major assumptions in our guidance include outparcel sales of
three million dollars to six million dollars and same center NOI growth of
negative 1.5% to 3.5%. We anticipate improving retail and economic
conditions throughout 2010, and are projecting year-end occupancy to pick up by
roughly 100 bps from the year-end of 2009. However, our projections
for moderately negative internal growth reflect our expectation that operational
results will lag improvements in the overall economy. 2010 will be
challenged by the cumulative effect of the roll down in rents we experienced
throughout 2009. This will be mitigated somewhat through the junior
box replacements taking occupancy as well as improvements in our specialty
leasing and branding programs. The top line should also benefit from
contributions from the new developments.
-4-
CONCLUSION:
Given the
challenges that the industry faced in 2009, we believe our operating performance
was sound and demonstrated the value of our market dominant
strategy. We are pleased to have made significant progress on the
leasing front, improving occupancy throughout the year. As we move
forward in 2010, we remain focused on top line improvements as well as
continuing to watch expenses. We are seeing a number of positive signs, both in
the capital markets and in the retail world, which bodes well for our
performance going forward.
Thank you
for joining us today and we will now answer any questions you may
have.
-5-