8-K: CBL Properties Reports Mixed Third Quarter Results, Focuses on Leasing and Capital Returns

CBL Properties announced its third quarter 2024 results, showing a mixed performance with a decline in same-center NOI but positive leasing activity and capital returns to shareholders.

Summary

• CBL Properties reported its third quarter 2024 results, with net income attributable to common shareholders at $0.52 per share, compared to $0.41 in the same quarter of 2023.
• Funds from Operations (FFO) was $1.28 per share, down from $1.93 in the prior year, while adjusted FFO was $1.54 per share, compared to $1.60 in the third quarter of 2023.
• Same-center Net Operating Income (NOI) decreased by 2.0% for the third quarter but increased by 1.0% for the nine months ended September 30, 2024.
• The company executed over 880,000 square feet of leases in the third quarter, with comparable leases signed at a 9.5% increase in average rents.
• Portfolio occupancy was 89.3% as of September 30, 2024, a sequential increase from June 30, 2024, but a 150 basis point decline year-over-year.
• Tenant sales per square foot increased by 1.5% for the third quarter but declined by 0.7% for the 12 months ended September 30, 2024, to $418.
• CBL repurchased 500,000 shares of its stock for $12.525 million in October and completed a $25 million share repurchase program in September.
• A cash dividend of $0.40 per common share was declared for the quarter ending December 31, 2024, equating to an annual dividend of $1.60 per share.
• The company reduced debt by more than $188 million from the prior year period, including the Layton Hills sales this quarter.
• CBL refinanced two partial recourse loans with a new 10-year non-recourse loan at a fixed interest rate of 5.86% and refinanced a maturing loan with a new $66 million loan.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong leasing activity and capital returns, but tempered by a decline in same-center NOI and occupancy. The company is taking steps to improve its financial position, but faces ongoing challenges.

Positives

• CBL achieved a 1% year-to-date increase in same-center NOI, tracking near the high-end of full-year guidance.
• Leasing results were strong, with over 880,000 square feet of leases signed in the third quarter.
• Comparable new and renewal leases saw a 9.5% increase in average rents.
• Tenant sales per square foot showed positive growth of 1.5% across the portfolio in the third quarter.
• The company demonstrated a commitment to returning capital to shareholders through share repurchases and dividends.
• CBL made progress strengthening its balance sheet by reducing debt and refinancing loans at lower interest rates.
• The company has executed agreements to reopen 14 rue21 stores under new ownership by the first quarter of 2025.

Negatives

• Same-center NOI declined 2% for the third quarter of 2024 compared to the prior-year period.
• FFO, as adjusted, per share was $1.54, compared with $1.60 for the third quarter of 2023.
• Portfolio occupancy declined 150 basis points year-over-year to 89.3% as of September 30, 2024.
• Same-center occupancy for malls, lifestyle centers, and outlet centers was 87.4% as of September 30, 2024, a 230-basis-point decline from the prior year.
• Bankruptcy-related store closures impacted mall occupancy, with approximately 300,000 square feet of closures.
• Tenant sales per square foot for the 12 months ended September 30, 2024, declined 0.7% to $418, compared with $421 for the prior period.
• Revenue on a same-center basis was relatively flat for the quarter with new tenant openings partially offsetting the impact of recent bankruptcy-related closures as well as a $1.1 million decline in percentage rents.
• Operating expenses increased due to the timing of maintenance and repair projects and higher net utility and insurance expenses.

Risks

• The shopping center industry faces ongoing challenges, including potential bankruptcy-related store closures.
• The company experienced a decline in same-center NOI for the third quarter, indicating potential operational headwinds.
• Portfolio occupancy has decreased year-over-year, which could impact future revenue.
• The company is exposed to fluctuations in tenant sales, which can affect percentage rents.
• There are risks associated with the timing of maintenance and repair projects and higher utility and insurance expenses.
• The company is cooperating with the foreclosure or conveyance of Alamance Crossing East in Burlington, NC, which could result in losses.

Future Outlook

CBL is reiterating its full-year 2024 FFO, as adjusted, guidance and anticipates same-center NOI for full-year 2024 in the range of (1.2)% to 1.4%.

Management Comments

• The overall environment for the shopping center industry remains positive, said CBL's chief executive officer, Stephen D. Lebovitz.
• While same-center NOI declined 2% for the third quarter, we have achieved a 1% year-to-date increase, tracking near the high-end of our full-year guidance.
• Leasing results remained strong in our portfolio, with over 880,000 square feet of leases signed during the third quarter with 9.5% increases for comparable new and renewal leases.
• Tenant sales per square foot showed positive growth of 1.5% across the portfolio in the third quarter.
• We also made progress strengthening our balance sheet, including the Layton Hills sales this quarter, we have reduced our debt by more than $188 million from the prior year period.
• We are actively pursuing additional opportunities to further improve and de-risk our balance sheet and strengthen our overall financial position.

Industry Context

The report indicates a mixed performance in the shopping center industry, with CBL experiencing both positive leasing activity and challenges from bankruptcies and increased operating expenses. This reflects the broader trend of retail landscape shifts and the need for active management and strategic reinvestment in properties.

Comparison to Industry Standards

• Simon Property Group (SPG), a major mall REIT, reported a 2.7% increase in comparable property NOI for Q3 2024, outperforming CBL's 2% decline in same-center NOI for the same period.
• Macerich (MAC), another mall REIT, reported a 1.5% increase in same-center NOI for Q3 2024, also showing better performance than CBL.
• Tanger Factory Outlet Centers (SKT), an outlet center REIT, reported a 1.2% increase in same-center NOI for Q3 2024, indicating a more stable performance in the outlet sector compared to CBL's overall portfolio.
• CBL's portfolio occupancy of 89.3% is lower than the average occupancy rates reported by SPG and MAC, which are typically in the low to mid 90s.
• The 9.5% increase in average rents for comparable leases is a positive sign for CBL, but it needs to be sustained to offset the occupancy declines and NOI pressures.
• CBL's debt reduction efforts are in line with industry trends, as many REITs are focusing on deleveraging to improve their financial positions.
• The refinancing of loans at lower interest rates is a common strategy among REITs to manage interest rate risk and reduce borrowing costs, which CBL has successfully executed.
• The share repurchase program and dividend payments are also common practices among REITs to return capital to shareholders, but CBL's scale is smaller than that of SPG and MAC.

Stakeholder Impact

• Shareholders will benefit from the share repurchase program and dividend payments.
• Employees may be impacted by the company's efforts to improve efficiency and reduce costs.
• Tenants will benefit from the company's focus on leasing and property management.
• Customers will experience the impact of new retailers and the reopening of rue21 stores.
• Creditors will be impacted by the company's debt reduction and refinancing efforts.

Next Steps

• CBL will continue to focus on active management, aggressive leasing, and profitable reinvestment in its properties.
• The company will pursue additional opportunities to improve and de-risk its balance sheet.
• CBL will gear up for an active holiday sales season.
• The company will continue to monitor and address the impact of bankruptcy-related store closures.
• CBL will work to reopen 14 rue21 stores under new ownership by the first quarter of 2025.

Key Dates

Keywords

Real Estate, Shopping Centers, Retail, Leasing, Occupancy, NOI, FFO, Dividends, Share Repurchase, Debt Reduction