CBL Properties Reports Results for Third Quarter 2021

Third Quarter Results Demonstrate Significant Improvement in Operations

CBL Properties (NYSE: CBL) announced results for the third quarter ended September 30, 2021. 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.

KEY TAKEAWAYS:

• On November 1, CBL successfully completed its Chapter 11 reorganization. CBL emerged with a significantly improved capital structure, greater financial flexibility and a lowered cost of capital, positioning the company to pursue future growth opportunities.
• Following emergence from Bankruptcy on November 1, 2021, and $60 million redemption of 10% Notes, on a consolidated basis, the company had approximately $260 million available in unrestricted cash and marketable securities.
• Total portfolio same-center Net Operating Income (“NOI”) increased 26.5% for the three months ended September 30, 2021. Total portfolio same-center NOI for the nine months ended September 30, 2021, increased 6.7%.
• Sales for the third quarter and the nine-months ended September 30, 2021, increased 17% as compared with the third quarter and nine-months ended September 30, 2019.
• Portfolio occupancy as of September 30, 2021, was 88.4%, representing a 140-basis point improvement from the sequential quarter and a 180-basis point improvement compared with 86.6% as of September 30, 2020. Same-center mall occupancy was 86.3% as of September 30, 2021, representing a 110-basis point increase sequentially and an 80-basis point improvement compared with 85.5% as of September 30, 2020.
• FFO, as adjusted, per diluted share, was $0.47 for the third quarter 2021, compared with $0.04 per share for the third quarter 2020. The increase in FFO, as adjusted, per diluted share, as compared with the prior year period is principally a result of $0.21 per diluted share lower net interest expense and an $0.18 per diluted share positive variance in the estimate for uncollectable revenues, rent abatements and write-offs for past due rents. The positive variance in the estimate for uncollectable revenues, abatements and write-offs for past due rents was primarily a result of the tenant accommodations that were made in the prior-year period due to the impact of the pandemic. The third quarter 2021 also benefited from a $0.06 per diluted share positive variance from undeclared preferred dividends accrued in the prior year period.

“We are at an exciting time for CBL. Fresh from our successful emergence from bankruptcy, the entire CBL organization is energized to execute on our strategy and take advantage of our significantly enhanced balance sheet and free cash flow,” said Stephen Lebovitz, Chief Executive Officer. “We have seen an improving operating environment in 2021 and it is the ideal time to focus on new opportunities, including refinancing our high-interest rate secured notes and property-level loans, creating value across our portfolio from available land and new partnerships, and other growth strategies. We are primed and ready to bring to life the vision we have for the new CBL.

“Our portfolio performance in the third quarter was above expectations, as healthy traffic and sales growth fueled a strong rebound. Improvements in the leasing environment, including increasing tenant demand and lower bankruptcy-related store closures, drove healthy occupancy growth as new leases signed year-to-date took occupancy. It is worth noting that we achieved our first quarter of year-over-year occupancy growth since the first quarter of 2019. Lease spreads also improved from prior quarters. Robust sales by retailers are leading to higher levels of percentage rent, one driver of better NOI results. We have successfully held expenses in check despite inflation pressures.

“As we say on the home page of our new website, which we debuted last week in conjunction with our emergence, we are redefining what the mall means to our communities by combining retail, dining, entertainment, and other mixed uses. We made progress this quarter in bringing this vision to life through anchor redevelopments, adding new uses that drive increased traffic and new customers. Highly productive Scheel’s All Sports commenced construction on their newly expanded store at Dakota Square, following their acquisition of the former Sears last month. Entertainment user, Main Event, is under construction in a portion of the former Sears at Sunrise Mall. We completed the sale of a former Sears at Harford Mall, which will be redeveloped into a future grocery store, and we sold a parcel of excess parking at Monroeville Mall for development into a future VA Center. At York Galleria, we recently opened Hollywood Casino and Life Storage is developing a new facility in a former anchor space. As outlined in our department store update in the supplemental, we are actively in negotiation or finalizing deals that will continue this significant progress.

“Take a fresh look at CBL. Our new capital structure allows us to pursue opportunities both within our portfolio and externally to create value for stakeholders. We have a new, highly engaged Board that brings fresh perspective. And the CBL management team is more committed than ever to the success and growth of the company.”

FINANCIAL RESULTS

Net loss attributable to common shareholders for the three months ended September 30, 2021 was $41.7 million, or a loss of $0.21 per diluted share, compared with net loss of $54.1 million, or a loss of $0.28 per diluted share, for the three months ended September 30, 2020. Net loss for the third quarter 2021 was also impacted by a $63.2 million loss on impairment of real estate to write down the carrying value of Parkdale Mall and Crossing, Laurel Park and a land parcel to their estimated fair values.

Net loss attributable to common shareholders for the nine months ended September 30, 2021 was $77.4 million, or a loss of $0.39 per diluted share, compared with net loss of $269.4 million, or a loss of $1.43 per diluted share, for the nine months ended September 30, 2020.

FFO, as adjusted, allocable to common shareholders, for the three months ended September 30, 2021 was $92.9 million, or $0.47 per diluted share, compared with $8.6 million, or $0.04 per diluted share, for the three months ended September 30, 2020. FFO, as adjusted, allocable to the Operating Partnership common unitholders, for the three months ended September 30, 2021 was $95.3 million compared with $9.0 million for the three months ended September 30, 2020.

FFO, as adjusted, allocable to common shareholders, for the nine months ended September 30, 2021 was $237.3 million, or $1.21 per diluted share, compared with $61.1 million, or $0.32 per diluted share, for the nine months ended September 30, 2020. FFO, as adjusted, allocable to the Operating Partnership common unitholders, for the nine months ended September 30, 2021 was $243.5 million compared with $65.5 million for the nine months ended September 30, 2020.

Major variances impacting same-center NOI for the three months ended September 30, 2021, include:

• Same-center NOI increased $23.5 million, due to a $27.4 million increase in total revenues partially offset by a $3.9 million increase in operating expenses.
• Rental revenues increased $26.8 million, including a $25.0 million increase in minimum and other rents, a $3.1 million increase in percentage rents and a $1.3 million decline in tenant reimbursements. The increase in rental revenues for the quarter was primarily due to the $26.4 million positive variance from uncollectable revenues and abatements. The total estimate for uncollectable revenues and abatements for the third quarter 2021 was a net reversal of $0.3 million compared with a total write-off of $26.1 million in the prior year period.
• Property operating expenses increased $4.9 million compared with the prior year, primarily due to the return to full operations following the reopening of CBL’s portfolio. Maintenance and repair expenses increased $1.6 million. Real estate tax expenses declined by $2.2 million, partially offsetting the above increases.

COVID-19 RENT COLLECTION UPDATE

The Company has collected 93% of related gross rents for the period April 2020 through September 2021. As of October 2021, CBL had deferred approximately $45.8 million in rents. Of the approximately 72% of the deferred amounts billed to-date, CBL has collected nearly 97%.

LIQUIDITY

Following emergence from Bankruptcy on November 1, 2021, and $60 million redemption of 10% Notes, on a consolidated basis, the company had approximately $260 million available in unrestricted cash and marketable securities.

New and Renewal Leasing Activity of Same Small Shop Space Less Than 10,000 Square Feet:

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

Sales for the third quarter 2021 increased 17% as compared with the third quarter 2019, with all but two of CBL’s 54 reporting malls demonstrating an increase over the comparable period. For the nine months ended September 30, 2021, sales increased 17% as compared with the nine months ended September 30, 2019. Due to the temporary mall and store closures that occurred in 2020, the majority of CBL’s tenants did not report sales for the full reporting period. As a result, CBL is not able to provide a complete measure of sales for the trailing twelve-month period.

FINANCING ACTIVITY AND LENDER DISCUSSIONS

On November 1, 2021, pursuant to the Chapter 11 Plan of Reorganization, the Company issued $455 million of 10% senior secured notes (the “10% Notes”) and $150 million of 7% convertible senior secured notes (the “7% Notes”), including $50 million in notes issued in exchange for new money. CBL also entered into a new $883.7 million term loan on November 1, 2021, which replaced the Company’s previous credit facility.

On November 8, 2021, the Company completed the redemption of $60 million of 10% Notes. Following the redemption, the Company has $395 million in 10% Notes outstanding.

CBL anticipates cooperating with conveyance or foreclosure proceedings for EastGate Mall in Cincinnati, OH ($30.1 million), Asheville Mall in Asheville, NC ($62.1 million) and Parkdale Mall in Beaumont, TX ($70.5 million). Asheville Mall was deconsolidated during the first quarter 2021. CBL no longer controls the property following its transfer to receivership. EastGate Mall and Parkdale Mall are expected to be transferred into receivership in the near future. In October, the foreclosure of Park Plaza in Little Rock, AR ($76.8 million) was completed.

Subsequent to September 30, 2021, Brookfield Square Anchor S, LLC filed for bankruptcy, which is the borrower under the $27.5 million recourse term loan. The Company has entered in a confidential mediation under bankruptcy court order with the lender.

CBL is also in discussions with the lender on modification of the $36.0 million recourse loan secured by The Outlet Shoppes at Gettysburg in Gettysburg, PA, which is in default.

CBL is in the process of negotiating extensions and modifications of the remaining property level mortgage loans with maturities in 2021 and 2022.

RESTRUCTURING UPDATE

On November 1, 2021, CBL emerged from bankruptcy and entered a notice of Effective Date for the Company’s Plan of Reorganization. The notice and other documents related to the proceedings, can be found at https://dm.epiq11.com/case/cblproperties/info.

DISPOSITIONS

In July 2021, CBL completed the sale of the former Sears location at Dakota Square Mall in Minot, ND to Scheel’s for $4.0 million. Scheel’s plans to expand the former Sears building to approximately 100,000-square-feet to accommodate their new prototype and relocate from their existing location in the mall to the new store. Additionally, in July, CBL sold a former department store in Cincinnati, Ohio for $5.5 million, for redevelopment into a future grocer.

In September, CBL completed the sale of a parcel of excess parking at Monroeville Mall in Monroeville, PA, to a developer for the construction of a future VA center. The gross sales price was $3.5 million.

In October 2021, CBL completed the sale of a former Sears store at Harford Mall in Bel Air, MD, for $5.0 million and the sale of 62 residential units at Pearland Town Center in Houston, TX, for $8.75 million.

Year-to-date, CBL has generated $35.3 million in gross proceeds from asset sales.

DEVELOPMENT AND LEASING PROGRESS

During the third quarter, Hollywood Casino at York Galleria in York, PA held its grand opening. Hobby Lobby at West Towne Mall in Madison, WI, celebrated its grand opening recently and Rooms to Go at Cross Creek in Fayetteville, NC will open later this year.

Construction recently commenced on a new LifeStorage facility at York Galleria in York, PA in a former anchor location. Entertainment user, Main Event, is under construction in a portion of the former Sears at Sunrise Mall in Brownsville, TX. Scheel’s All Sports commenced construction on an expanded store at Dakota Square in Minot, ND, following their acquisition of the former Sears last month.

Additional offerings, including new restaurants, fitness, hotel and other uses are planned or under negotiation and will be announced as details are finalized.

Detailed project information is available in CBL’s Financial Supplement for Q3 2021, which can be found in the Invest – Financial Reports section of CBL’s website at cblproperties.com.

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 portfolio is comprised of 104 properties totaling 63.9 million square feet across 24 states, including 62 high-quality enclosed, outlet and open-air retail centers and five properties managed for third parties. 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 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 (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. The Company then applies a percentage to FFO of the Operating Partnership common unitholders to arrive at FFO allocable to its common shareholders. 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 and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.

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 8 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 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 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.