8-K: CBL Properties Reports Mixed Results for 2023, Issues 2024 Guidance

CBL Properties announced its fourth quarter and full-year 2023 results, showing a slight decline in same-center NOI but initiating 2024 guidance with anticipated headwinds.

Summary

• CBL Properties reported its financial results for the fourth quarter and full year of 2023, with net income attributable to common shareholders at $0.37 per share for the quarter and $0.17 per share for the year.
• Funds from Operations (FFO), as adjusted, was $1.94 per share for the fourth quarter and $6.66 per share for the full year.
• Same-center Net Operating Income (NOI) decreased by 1.2% in the fourth quarter and 1.5% for the full year, which was near the high end of previous guidance.
• Portfolio occupancy remained relatively stable at 90.9% as of December 31, 2023, compared to 91.0% the previous year.
• The company executed approximately 4.4 million square feet of leases in 2023, with 2.7 million square feet at flat average rents compared to prior leases.
• Same-center tenant sales per square foot declined by 2.6% in the fourth quarter and 4.4% for the full year, reaching $416.
• CBL had $296 million in unrestricted cash and marketable securities as of December 31, 2023.
• A cash dividend of $0.40 per common share was declared for the quarter ending March 31, 2024, a 6.7% increase from the previous quarter.
• For 2024, CBL anticipates FFO, as adjusted, per share to be in the range of $6.19 to $6.63 and same-center NOI to be between $428 million and $442 million.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While CBL has made progress in leasing and refinancing, the decline in same-center NOI and sales, along with anticipated headwinds, temper the positive aspects. The company is facing challenges but is actively managing them.

Positives

• CBL achieved a record level of leasing production in 2023.
• The company successfully addressed all 2023 debt maturities.
• The corporate guarantee on the term loan was eliminated.
• CBL increased its quarterly dividend by 6.7%.
• The company has a strong cash balance and limited upcoming loan maturities.
• CBL is focused on sustaining strong leasing and operating momentum.

Negatives

• Same-center NOI declined by 1.2% in the fourth quarter and 1.5% for the full year.
• Same-center tenant sales per square foot decreased by 2.6% in the fourth quarter and 4.4% for the full year.
• Rising insurance costs are expected to increase operating expenses in 2024.
• Higher interest rates will continue to impact FFO in 2024.
• Sales declines in 2023 will put pressure on near-term percentage rent and renewal lease spreads.

Risks

• The company faces challenges from rising interest rates and their impact on financing.
• There is an anticipated decline in full-year sales, which will affect percentage rents.
• Rising insurance costs are expected to increase operating expenses.
• There is a potential for unbudgeted reserves for tenants that may file for bankruptcy or close stores.
• The company is cooperating with the foreclosure or conveyance of WestGate Mall and Alamance Crossing East.

Future Outlook

CBL anticipates 2024 FFO, as adjusted, per share to be in the range of $6.19 to $6.63 and same-center NOI to be between $428 million and $442 million. The company expects ongoing healthy tenant demand, improving specialty leasing income, and benefits from real estate tax appeals, but also anticipates headwinds from sales declines, rising insurance costs, and higher interest rates.

Management Comments

• 2023 was an excellent year for CBL, said CBL's chief executive officer, Stephen D. Lebovitz.
• Same-center NOI and FFO, as adjusted, were at the high end of our guidance ranges.
• This strong performance was driven by a record level of leasing production, which drove occupancy improvements throughout the year.
• Comparable leasing was stable with flat blended lease spreads.
• The favorable retail environment produced strong demand for new store openings and limited closings.
• While rising interest rates contributed to a challenging financing environment, we successfully addressed all of our 2023 maturities.
• Our 2024 guidance reflects the impact of operating momentum carried over from 2023, offset by certain anticipated headwinds this year.
• Our balance sheet is well-positioned with our strong cash balance and limited upcoming loan maturities.
• We are focused on sustaining strong leasing and operating momentum and generating further growth in free cash flow and shareholder value.

Industry Context

The results reflect the ongoing challenges and opportunities in the retail real estate sector, with CBL navigating a mixed environment of strong leasing demand and declining sales. The company's focus on refinancing and managing debt is consistent with industry trends, as is the emphasis on maximizing shareholder returns through dividends and stock repurchases.

Comparison to Industry Standards

• CBL's same-center NOI decline of 1.5% for the year is slightly worse than some of its peers, such as Simon Property Group, which reported a 2.9% increase in comparable property NOI for 2023.
• However, CBL's occupancy rate of 90.9% is comparable to the average occupancy rates of other mall REITs, which are generally in the 90-95% range.
• The company's focus on redevelopment and diversification of tenant mix is similar to strategies employed by other REITs to adapt to changing consumer preferences.
• The refinancing of the Outlet Shops at Atlanta is a positive step, but the foreclosure or conveyance of WestGate Mall and Alamance Crossing East highlights the risks associated with underperforming properties, a common issue in the industry.
• CBL's dividend increase is a positive sign for investors, but the company's overall financial performance is still below pre-pandemic levels, similar to many other retail REITs.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and stock repurchase program.
• Employees will be impacted by the company's efforts to improve operational performance.
• Tenants will be affected by the company's leasing strategies and redevelopment plans.
• Creditors will be impacted by the company's debt management and refinancing activities.

Next Steps

• CBL will focus on sustaining strong leasing and operating momentum.
• The company will work to offset challenges and generate positive NOI growth in 2024.
• CBL will continue to prioritize returning capital to shareholders.
• The company will continue to monitor and manage its debt maturities.

Key Dates

Keywords

CBL Properties, Real Estate, Retail, Shopping Centers, FFO, NOI, Leasing, Occupancy, Dividends, Debt, Guidance