CBL CBL and Associates Properties Inc

Results in-line; Full-Year Guidance Range Maintained

CBL Properties (NYSE:CBL) announced results for the third quarter ended September 30, 2018. 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.

        Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2018     2017 2018     2017 Net income (loss) attributable to common shareholders per diluted share $ (0.07 ) $ (0.01 ) $ (0.34 ) $ 0.30 Funds from Operations ("FFO") per diluted share $ 0.39   $ 0.52   $ 1.26   $ 1.63 FFO, as adjusted, per diluted share (1) $ 0.40   $ 0.50   $ 1.28   $ 1.51 (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 (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders on page 11 of this news release.  

KEY TAKEAWAYS:

• FFO per diluted share, as adjusted, was $0.40 for the third quarter 2018, compared with $0.50 per share for the third quarter 2017. Third quarter 2018 FFO per share was impacted by approximately $0.01 per share of higher G&A expense primarily due to severance expense, $0.01 per share of dilution from asset sales completed in 2017 and year-to-date, $0.05 per share of lower property NOI, $0.01 per share higher interest expense and $0.02 per share lower income tax benefit.
• Total Portfolio Same-center NOI declined 6.1% for the third quarter 2018 and 6.6% for the nine months ended September 30, 2018.
• Portfolio occupancy increased 90 basis points to 92.0% as of September 30, 2018, compared with 91.1% as of June 30, 2018, and declined 110 basis points compared with 93.1% as of September 30, 2017. Same-center mall occupancy was 90.8% as of September 30, 2018, a 120 basis point increase compared with 89.6% as of June 30, 2018, and a 90 basis point decline compared with 91.7% as of September 30, 2017.
• Year-to-date, CBL has completed gross asset sales totaling more than $89 million.
• Same-center sales per square foot for the stabilized mall portfolio for the twelve-months ended September 30, 2018, increased to $378 per square foot compared with $376 per square foot for the prior-year period.
• Construction is underway on nine redevelopment projects with three redevelopment projects opened year-to-date.

"Operational results for the quarter and year-to-date were delivered in-line with our expectations and previously issued guidance range," commented Stephen Lebovitz, chief executive officer. "Despite significant additional rent losses from unanticipated store closings, we are on-track to end the year at the mid-to-high point of our adjusted FFO per share guidance range and the mid-to-low point of the same-center NOI range. While our leasing spreads continue to be pressured, the positive sales in our portfolio year-to-date are a healthy leading indicator for an improved leasing backdrop in 2019.

"We are also making strong progress on our redevelopment program. Of the ten leased Bon Ton stores that closed in August, we have leases executed or out-for-signature for replacement users at six locations and three others in advanced negotiations. We are utilizing our capital-lite redevelopment strategy for a number of these projects and today have nine anchor replacements across our portfolio that require little to no investment by CBL and several more underway. This under-appreciated strategy allows us to replace closed anchor locations with exciting uses while preserving capital. At the same time, we are having excellent results in diversifying our offerings, with executed or pending deals for 50 restaurants, 14 entertainment operators, nine hotels, two supermarkets, five fitness operators, four self-storage locations and four multi-family projects.

"Now that the much-anticipated Sears bankruptcy is behind us, we have the opportunity to accelerate additional redevelopments to further transform our malls into suburban town centers. We anticipate minimal impact to our financial results for 2018 as a result of the six additional Sears closures announced as part of the filing. Three were stores that we had purchased in our 2017 sale-leaseback transaction with redevelopment plans already well underway.

"We also are strengthening our balance sheet by extending our maturity schedule. We closed on a 10-year, fixed loan at a rate of 5.103% secured by The Outlet Shoppes at El Paso this quarter. Our share of nearly $95 million in net proceeds from this financing and the CoolSprings Galleria refinancing completed during the second quarter, coupled with disposition proceeds of nearly $90 million year-to-date, funded the majority of the $190 million term loan paydown completed in July. We have also made significant progress with our bank group towards finalizing the recast of our lines of credit and term loans. With their strong support we remain on-track to close in or before January 2019 and will be excited to share details at that time."

Net loss attributable to common shareholders for the third quarter 2018 was $12.6 million, or a loss of $0.07 per diluted share, compared with a net loss of $2.3 million, or a loss of $0.01 per diluted share, for the third quarter 2017.

FFO allocable to common shareholders, as adjusted, for the third quarter 2018 was $68.6 million, or $0.40 per diluted share, compared with $84.7 million, or $0.50 per diluted share, for the third quarter 2017. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the third quarter 2018 was $79.2 million compared with $98.7 million for the third quarter 2017.

   

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

  Three Months EndedSeptember 30, 2018

Nine Months Ended

September 30, 2018

Portfolio same-center NOI (6.1)% (6.6)% Mall same-center NOI (6.4)% (6.8)%

(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 variances impacting same-center NOI for the quarter ended September 30, 2018, include:

• Same-center NOI declined $10.0 million, due to a $12.3 million decrease in revenues offset by a $2.3 million decline in operating expenses.
• Minimum rents and tenant reimbursements declined $11.4 million during the quarter, including a $3.0 million decline in real estate tax reimbursements.
• Percentage rents declined $0.5 million compared with the prior year quarter.
• Property operating expenses were relatively flat compared with the prior year. Maintenance and repair expenses increased $0.5 million. Real estate tax expenses declined $2.8 million.

       

PORTFOLIO OPERATIONAL RESULTS

          Occupancy(1):

  As of June 30,     As of September 30, 2018     2018     2017 Portfolio occupancy 91.1% 92.0% 93.1% Mall portfolio 89.2% 90.5% 91.6% Same-center malls 89.6% 90.8% 91.7% Stabilized malls 89.5% 90.8% 91.7% Non-stabilized malls (2) 71.9% 73.6% 87.9% Associated centers 97.9% 97.2% 98.2% Community centers 96.9% 96.8% 98.2% (1) Occupancy for malls represents percentage of mall store gross leasable area under 20,000 square feet occupied. Occupancy for associated and community centers represents percentage of gross leasable area occupied. (2) Represents occupancy for The Outlet Shoppes at Laredo as of September 30, 2018. Represents occupancy for The Outlet Shoppes of the Bluegrass and The Outlet Shoppes at Laredo as of September 30, 2017.  

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 September 30, 2018 Nine Months EndedSeptember 30, 2018 Stabilized Malls (13.1 )% (11.3 )% New leases (1) (9.5 )% (3.1 )% Renewal leases (13.8 )% (12.9 )%

(1)  Excluding three leases executed during Q3 2018, average new lease spreads would have been 0.6% and (0.2)% for the three and nine months ended September 30, 2018, respectively.

         

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

  Twelve Months Ended September 30, 2018     2017 % Change

Stabilized mall same-center sales per square foot

$ 378 $ 376 0.5% Stabilized mall sales per square foot $ 378 $ 373 1.3%  

DIVIDEND

“A major financial priority for CBL is to preserve liquidity and the flexibility of our balance sheet," commented Lebovitz. "As we discussed on our second quarter earnings call, we have been evaluating an adjustment to our dividend to a level that maximizes available cash flow for investing in our properties and debt reduction. In order to accomplish this goal, we are reducing the common dividend for 2019 to an annualized rate of $0.30 per share from $0.80 per share. The reduction will preserve an estimated $100 million of cash on an annual basis. This significantly enhanced liquidity will help to fund value-adding redevelopment activity and debt reduction and ultimately enhance long-term shareholder value. In addition to the funds retained through the dividend reduction, we will continue to enhance financial flexibility through a number of avenues, including efficiencies in operations, reductions to overhead and opportunistic dispositions to generate equity proceeds as well as proactively extending our debt maturity schedule to limit financing risk."

CBL’s Board of Directors has declared a quarterly cash dividend for the Company’s Common Stock of $0.075 per share for the quarter ending December 31, 2018. The dividend is payable on January 16, 2019, to shareholders of record as of December 31, 2018. The dividend represents an annualized rate of $0.30 per share.

The Board also declared a quarterly cash dividend of $0.4609375 per depositary share for the quarter ending December 31, 2018, for the Company’s 7.375% Series D Cumulative Redeemable Preferred Stock. The dividend, which equates to an annual dividend payment of $1.84375 per depositary share, is payable on December 31, 2018, to shareholders of record as of December 14, 2018.

The Board also declared a quarterly cash dividend of $0.4140625 per depositary share for the quarter ending December 31, 2018, for the Company’s 6.625% Series E Cumulative Redeemable Preferred Stock. The dividend, which equates to an annual dividend payment of $1.65625 per depositary share, is payable on December 31, 2018, to shareholders of record as of December 14, 2018.

DISPOSITIONS

Year-to-date, CBL has raised more than $89 million in gross proceeds through asset sales.

            Property Location Date Closed Gross Sales Price (M) Various Outparcels Various Various $ 24.3 Phase III Gulf Coast Town Center Ft. Myers, FL March $ 9.0 Janesville Mall Janesville, WI July $ 18.0 Statesboro Crossing Statesboro, GA August $ 21.5 Parkway Plaza Ft. Oglethorpe, GA October $ 16.5 Total $ 89.3  

FINANCING ACTIVITY

In September, CBL closed on a $75.0 million non-recourse loan secured by The Outlet Shoppes at El Paso in El Paso, TX. The 10-year loan bears interest at a fixed rate of 5.103%.

Proceeds from the loan were used to retire a $6.5 million loan secured by the second phase of the property, which was scheduled to mature in December. CBL’s share of net proceeds of $65.0 million was utilized to reduce outstanding balances on the lines of credit.

In April, CBL, along with its 50% joint venture partner, closed on a $155.0 million ($77.5 million at CBL’s share) non-recourse loan secured by CoolSprings Galleria in Nashville, TN. The 10-year loan bears interest at a fixed rate of 4.839%.

Proceeds from the loan were used to retire the existing $97.7 million loan, which bore interest at a fixed rate of 6.98% and was scheduled to mature in June. CBL’s share of nearly $29.0 million in excess proceeds was utilized to reduce outstanding balances on its lines of credit.

In May, CBL completed the extension of the $56.7 million ($28.4 million at CBL’s share) loan secured by The Pavilion at Port Orange in Port Orange, FL, and the $58.2 million ($29.1 million at CBL’s share) loan secured by Hammock Landing in West Melbourne, FL. The loans were extended for an initial term of three years, with two one-year extensions available at the Company’s option, for a final maturity in February 2023. The new loans bear interest at 225 basis points over LIBOR, an increase of 25 bps over the prior rate.

In July, CBL repaid $190.0 million of its $490.0 million unsecured term loan using availability on its lines of credit, reducing the outstanding balance to $300 million. This loan matures in July 2021.

In October, CBL exercised its option to extend the maturity date of its $350.0 million unsecured term loan to October 2019. It also extended the $27.4 million loan secured by Hickory Point Mall to December 2019.

DEVELOPMENT

Major redevelopments completed and underway in 2018 include (complete project list can be found in the financial supplement):

        Property     Prior Tenant New Tenant(s) Brookfield Square Sears Marcus Theaters, Whirlyball Eastland Mall JCPenney H&M, Outback, Planet Fitness Frontier Mall Sports Authority Planet Fitness Jefferson Mall Macy's Round 1 York Galleria JCPenney Marshalls Hanes Mall Shops Dave & Busters Parkdale Mall Macy's Dick's, Five Below, HomeGoods  

Additional Replacement Activity Completed or Underway with Minimal or No Investment by CBL:

        Property     Prior Tenant New Tenant(s) Layton Hills Mall Macy's Dillard's (Opened Q4 '17) Stroud Mall BonTon Shoprite ('19 Opening) Westmoreland Mall BonTon Casino ('19 Construction) Kentucky Oaks Sears (Seritage) Burlington (Opened fall '18)   West Towne Mall Sears (Seritage) Dave & Buster's/Total Wine (Opened summer '18) Northwood Mall Sears (Seritage) Burlington (Opened spring '18) Honey Creek Mall Carson's Vendor Village (Est. Open Q4 '18) Hanes Mall Sears Novant Health (Opening TBD) CherryVale Mall Bergner's ChoiceHome (Est. Open Q4 '18)  

OUTLOOK AND GUIDANCE

Based on year-to-date results and expectations for the fourth quarter 2018, CBL anticipates achieving 2018 FFO, as adjusted, at the mid-to-high end of its guidance range of $1.70 - $1.80 per diluted share. Guidance incorporates 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. Based on bankruptcy and leasing activity year-to-date, including the impact of any co-tenancy, CBL currently expects to utilize approximately $16 - $18 million of the Reserve. Key assumptions underlying guidance are as follows:

        Low High 2018 FFO, as adjusted, 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 Gains on outparcel sales $ 12.0 million $ 14.0 million  

Reconciliation of GAAP net income (loss) to 2018 FFO, as adjusted, per share guidance:

        Low High Expected diluted earnings per common share $ (0.32 ) $ (0.23 ) Adjust to fully converted shares from common shares 0.04   0.04   Expected earnings per diluted, fully converted common share (0.28 ) (0.19 ) Add: depreciation and amortization 1.61 1.61 Less: gain on depreciable property (0.03 ) (0.03 ) Add: loss on impairment 0.42 0.42 Add: noncontrolling interest in loss of Operating Partnership (0.04 ) (0.03 ) Expected FFO, as adjusted, per diluted, fully converted common share $ 1.68 $ 1.78 Adjustment for certain significant items 0.02   0.02   Expected adjusted FFO per diluted, fully converted common share $ 1.70 $ 1.80  

INVESTOR CONFERENCE CALL AND WEBCAST

CBL Properties will host a conference call on Tuesday, October 30, 2018, at 11:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 4666560. A replay of the conference call will be available through November 6, 2018, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10123148.

The Company will also provide an online webcast and rebroadcast of its third quarter 2018 earnings release conference call. The live broadcast of the quarterly conference call will be available online at cblproperties.com on Tuesday, October 30, 2018, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call.

To receive the CBL Properties third quarter earnings release and supplemental information, please visit the Invest section of our website at cblproperties.com or contact Investor Relations at (423) 490-8312.

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 114 properties totaling 71.9 million square feet across 26 states, including 73 high-quality enclosed, outlet and open-air retail centers and 12 properties managed for third parties. CBL continuously strengthens 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 11 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.

  CBL & Associates Properties, Inc. Consolidated Statements of Operations (Unaudited; in thousands, except per share amounts)       Three Months EndedSeptember 30,     Nine Months EndedSeptember 30, 2018     2017 2018     2017 REVENUES: Minimum rents $ 142,248 $ 150,836 $ 441,097 $ 468,195 Percentage rents 2,429 3,000 6,610 7,127 Other rents 2,347 3,790 6,898 11,171 Tenant reimbursements 55,374 63,055 172,601 192,577 Management, development and leasing fees 2,658 2,718 8,022 8,747 Other 1,822   1,251   6,448   4,079   Total revenues 206,878   224,650   641,676   691,896   OPERATING EXPENSES: Property operating 30,004 31,295 92,357 96,250 Depreciation and amortization 71,945 71,732 217,261 225,461 Real estate taxes 19,433 21,573 61,737 62,343 Maintenance and repairs 11,475 11,254 36,713 36,322 General and administrative 16,051 13,568 47,845 45,402 Loss on impairment 14,600 24,935 84,644 71,401 Other 38   132   377   5,151   Total operating expenses 163,546   174,489   540,934   542,330   Income from operations 43,332 50,161 100,742 149,566 Interest and other income (loss) 283 (200 ) 714 1,235 Interest expense (55,194 ) (53,913 ) (163,164 ) (165,179 ) Gain on extinguishment of debt — 6,452 — 30,927 Gain (loss) on investments — (354 ) 387 (6,197 ) Income tax benefit (provision) (1,034 ) 1,064 1,846 4,784 Equity in earnings of unconsolidated affiliates 1,762   4,706   9,869   16,404  

Income (loss) from continuing operations before gain on sales of real estate assets

(10,851 ) 7,916 (49,606 ) 31,540 Gain on sales of real estate assets 7,880   1,383   15,998   86,904   Net income (loss) (2,971 ) 9,299 (33,608 ) 118,444 Net (income) loss attributable to noncontrolling interests in: Operating Partnership 1,628 81 8,978 (8,702 ) Other consolidated subsidiaries (24 ) (415 ) 369   (25,266 ) Net income (loss) attributable to the Company (1,367 ) 8,965 (24,261 ) 84,476 Preferred dividends (11,223 ) (11,223 ) (33,669 ) (33,669 ) Net income (loss) attributable to common shareholders $ (12,590 ) $ (2,258 ) $ (57,930 ) $ 50,807     Basic and diluted per share data attributable to common shareholders: Net income (loss) attributable to common shareholders $ (0.07 ) $ (0.01 ) $ (0.34 ) $ 0.30

Weighted-average common and potential dilutive common shares outstanding

172,665 171,096 172,426 171,060   Dividends declared per common share $ 0.200 $ 0.265 $ 0.600 $ 0.795           The Company's reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows:

(in thousands, except per share data)

  Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2018     2017 2018     2017 Net income (loss) attributable to common shareholders $ (12,590 ) $ (2,258 ) $ (57,930 ) $ 50,807 Noncontrolling interest in income (loss) of Operating Partnership (1,628 ) (81 ) (8,978 ) 8,702 Depreciation and amortization expense of: Consolidated properties 71,945 71,732 217,261 225,461 Unconsolidated affiliates 10,438 9,633 31,177 28,533 Non-real estate assets (910 ) (934 ) (2,748 ) (2,590 ) Noncontrolling interests' share of depreciation and amortization (2,136 ) (2,170 ) (6,424 ) (6,791 ) Loss on impairment, net of taxes 14,600 24,935 84,644 70,185 Loss on impairment of unconsolidated affiliates 1,022 — 1,022 — Gain on depreciable property, net of taxes and noncontrolling interests' share (3,307 ) 1,995   (5,543 ) (48,761 ) FFO allocable to Operating Partnership common unitholders 77,434 102,852 252,481 325,546 Litigation expenses (1) — 17 — 69 Nonrecurring professional fees reimbursement (1) — — — (919 ) (Gain) loss on investments, net of taxes (2) — 354 (287 ) 6,197 Non-cash default interest expense (3) 1,784 1,904 3,616 4,398 Gain on extinguishment of debt, net of noncontrolling interests' share (4) —   (6,452 ) —   (33,902 ) FFO allocable to Operating Partnership common unitholders, as adjusted $ 79,218   $ 98,675   $ 255,810   $ 301,389     FFO per diluted share $ 0.39   $ 0.52   $ 1.26   $ 1.63     FFO, as adjusted, per diluted share $ 0.40   $ 0.50   $ 1.28   $ 1.51     Weighted-average common and potential dilutive common shares outstanding with Operating Partnership units fully converted 199,432 199,321 199,630 199,325   (1) Litigation expense is 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 nine months ended September 30, 2018 includes a gain on investment related to the land contributed by the Company to the Self Storage at Mid Rivers 50/50 joint venture. The three months and nine months ended September 30, 2017 represents a loss on investment related to the write down of the Company's 25% interest in River Ridge Mall based on the contract price to sell such interest to its joint venture partner. The sale closed in August 2017. (3) The three months and nine months ended September 30, 2018 includes default interest expense related to Acadiana Mall and Cary Town Center. The three months and nine months ended September 30, 2017 includes default interest expense related to Acadiana Mall and Wausau Center. The nine months ended September 30, 2017 also includes default interest expense related to Chesterfield Mall and Midland Mall. (4) The three months ended September 30, 2017 primarily represents 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. Additionally, the nine months ended September 30, 2017 also includes 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 EndedSeptember 30, Nine Months EndedSeptember 30, 2018     2017 2018     2017 Diluted EPS attributable to common shareholders $ (0.07 ) $ (0.01 ) $ (0.34 ) $ 0.30 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 1.20 1.23 Loss on impairment, net of taxes 0.08 0.13 0.43 0.35 Gain on depreciable property, net of taxes and noncontrolling interests' share (0.02 ) —   (0.03 ) (0.25 ) FFO per diluted share $ 0.39   $ 0.52   $ 1.26   $ 1.63            

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 EndedSeptember 30, Nine Months EndedSeptember 30, 2018     2017 2018     2017 FFO allocable to Operating Partnership common unitholders $ 77,434 $ 102,852 $ 252,481 $ 325,546 Percentage allocable to common shareholders (1) 86.58 % 85.84 % 86.37 % 85.82 % FFO allocable to common shareholders $ 67,042   $ 88,288   $ 218,068   $ 279,384     FFO allocable to Operating Partnership common unitholders, as adjusted $ 79,218 $ 98,675 $ 255,810 $ 301,389 Percentage allocable to common shareholders (1) 86.58 % 85.84 % 86.37 % 85.82 % FFO allocable to common shareholders, as adjusted $ 68,587   $ 84,703   $ 220,943   $ 258,652     (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 17.           SUPPLEMENTAL FFO INFORMATION: Three Months EndedSeptember 30, Nine Months EndedSeptember 30,   2018     2017     2018     2017   Lease termination fees $ 783 $ 879 $ 9,788 $ 1,990 Lease termination fees per share $ — $ — $ 0.05 $ 0.01   Straight-line rental income $ 388 $ (409 ) $ (3,923 ) $ 223 Straight-line rental income per share $ — $ — $ (0.02 ) $ —   Gains on outparcel sales $ 4,548 $ 3,605 $ 11,033 $ 11,696 Gains on outparcel sales per share $ 0.02 $ 0.02 $ 0.06 $ 0.06   Net amortization of acquired above- and below-market leases $ (1,210 ) $ 1,046 $ 982 $ 3,462 Net amortization of acquired above- and below-market leases per share $ (0.01 ) $ 0.01 $ — $ 0.02   Net amortization of debt premiums and discounts $ 314 $ (369 ) $ 727 $ (772 ) Net amortization of debt premiums and discounts per share $ — $ — $ — $ —   Income tax benefit (provision) $ (1,034 ) $ 1,064 $ 1,846 $ 4,784 Income tax benefit (provision) per share $ (0.01 ) $ 0.01 $ 0.01 $ 0.02   Gain on extinguishment of debt, net of noncontrolling interests' share $ — $ 6,452 $ — $ 33,902 Gain on extinguishment of debt, net of noncontrolling interests' share per share $ — $ 0.03 $ — $ 0.17   Gain (loss) on investments, net of taxes $ — $ (354 ) $ 287 $ (6,197 ) Gain (loss) on investments, net of taxes per share $ — $ — $ — $ (0.03 )   Non-cash default interest expense $ (1,784 ) $ (1,904 ) $ (3,616 ) $ (4,398 ) Non-cash default interest expense per share $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.02 )   Abandoned projects expense $ (38 ) $ (132 ) $ (377 ) $ (5,151 ) Abandoned projects expense per share $ — $ — $ — $ (0.03 )   Interest capitalized $ 1,198 $ 452 $ 2,736 $ 1,676 Interest capitalized per share $ 0.01 $ — $ 0.01 $ 0.01   Litigation expenses $ — $ (17 ) $ — $ (69 ) Litigation expenses per share $ — $ — $ — $ —   Nonrecurring professional fees reimbursement $ — $ — $ — $ 919 Nonrecurring professional fees reimbursement per share $ — $ — $ — $ —   As of September 30,   2018     2017   Straight-line rent receivable $ 57,284 $ 62,681  

Same-center Net Operating Income

(Dollars in thousands)

      Three Months EndedSeptember 30,     Nine Months EndedSeptember 30, 2018     2017 2018     2017 Net income (loss) $ (2,971 ) $ 9,299 $ (33,608 ) $ 118,444   Adjustments: Depreciation and amortization 71,945 71,732 217,261 225,461 Depreciation and amortization from unconsolidated affiliates 10,438 9,633 31,177 28,533 Noncontrolling interests' share of depreciation and amortization in other consolidated subsidiaries (2,136 ) (2,170 ) (6,424 ) (6,791 ) Interest expense 55,194 53,913 163,164 165,179 Interest expense from unconsolidated affiliates 6,551 6,244 18,849 18,815 Noncontrolling interests' share of interest expense in other consolidated subsidiaries (1,875 ) (1,584 ) (5,912 ) (5,160 ) Abandoned projects expense 38 132 377 5,151 Gain on sales of real estate assets (7,880 ) (1,383 ) (15,998 ) (86,904 ) (Gain) loss on sales of real estate assets of unconsolidated affiliates 28 (227 ) (564 ) (189 ) Noncontrolling interests' share of gain on sales of real estate assets in other consolidated affiliates — — — 26,639 (Gain) loss on investment — 354 (387 ) 6,197 Gain on extinguishment of debt — (6,452 ) — (30,927 ) Noncontrolling interests' share of loss on extinguishment of debt in other consolidated subsidiaries — — — (2,975 ) Loss on impairment 14,600 24,935 84,644 71,401 Income tax (benefit) provision 1,034 (1,064 ) (1,846 ) (4,784 ) Lease termination fees (783 ) (879 ) (9,788 ) (1,990 ) Straight-line rent and above- and below-market lease amortization 822 (637 ) 2,941 (3,685 ) Net (income) loss attributable to noncontrolling interests in other consolidated subsidiaries (24 ) (415 ) 369 (25,266 ) General and administrative expenses 16,051 13,568 47,845 45,402 Management fees and non-property level revenues (2,293 ) (2,762 ) (9,642 ) (10,312 ) Operating Partnership's share of property NOI 158,739 172,237 482,458 532,239 Non-comparable NOI (5,623 ) (9,145 ) (20,112 ) (37,291 ) Total same-center NOI (1) $ 153,116   $ 163,092   $ 462,346   $ 494,948   Total same-center NOI percentage change (6.1)% (6.6)%        

 

Same-center Net Operating Income

(Continued)

  Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2017       2016 2018       2017 Malls $ 137,973 $ 147,449 $ 416,452 $ 446,926 Associated centers 8,016 7,899 23,788 24,390 Community centers 5,784 5,994 17,387 18,148 Offices and other 1,343   1,750   4,719   5,484 Total same-center NOI (1) $ 153,116   $ 163,092   $ 462,346   $ 494,948   Percentage Change: Malls (6.4 )% (6.8 )% Associated centers 1.5 % (2.5 )% Community centers (3.5 )% (4.2 )% Offices and other (23.3 )% (13.9 )% Total same-center NOI (1) (6.1 )% (6.6 )%  

 

(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 September 30, 2018, 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 September 30, 2018.  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 September 30, 2018 Fixed Rate    

VariableRate

   

Total per Debt

Schedule

   

Unamortized

Deferred

Financing

Costs

    Total Consolidated debt $ 3,160,776 $ 970,508   $ 4,131,284   $ (15,476 ) $ 4,115,808 Noncontrolling interests' share of consolidated debt (94,787 ) — (94,787 ) 611 (94,176 ) Company's share of unconsolidated affiliates' debt 553,339   96,598   649,937   (2,826 ) 647,111   Company's share of consolidated and unconsolidated debt $ 3,619,328   $ 1,067,106   $ 4,686,434   $ (17,691 ) $ 4,668,743   Weighted-average interest rate 5.16 % 4.01 % 4.90 %   As of September 30, 2017 Fixed Rate

VariableRate

 

Total per Debt

Schedule

 

Unamortized

Deferred

Financing

Costs

Total Consolidated debt $ 3,170,000 $ 1,065,450 $ 4,235,450 $ (19,272 ) $ 4,216,178 Noncontrolling interests' share of consolidated debt (77,494 ) (5,434 ) (82,928 ) 719 (82,209 ) Company's share of unconsolidated affiliates' debt 535,134   58,692   593,826     (2,357 ) 591,469   Company's share of consolidated and unconsolidated debt $ 3,627,640   $ 1,118,708   $ 4,746,348   $ (20,910 ) $ 4,725,438   Weighted-average interest rate 5.19 % 2.79 % 4.63 %            

Debt-To-Total-Market Capitalization Ratio as of September 30, 2018

(In thousands, except stock price)

 

SharesOutstanding

Stock

Price (1)

Value Common stock and Operating Partnership units 199,430 $ 3.99 $ 795,726 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 1,421,976 Company's share of total debt, excluding unamortized deferred financing costs 4,686,434   Total market capitalization $ 6,108,410   Debt-to-total-market capitalization ratio 76.7 %  

 

(1)  Stock price for common stock and Operating Partnership units equals the closing price of the common stock on September 28, 2018.  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 EndedSeptember 30, Nine Months EndedSeptember 30, Basic     Diluted Basic     Diluted

2018:

Weighted-average shares - EPS 172,665 172,665 172,426 172,426 Weighted-average Operating Partnership units 26,767   26,767   27,204   27,204 Weighted-average shares - FFO 199,432   199,432   199,630   199,630   2017: Weighted-average shares - EPS 171,096 171,096 171,060 171,060 Weighted-average Operating Partnership units 28,225   28,225   28,265   28,265 Weighted-average shares - FFO 199,321   199,321   199,325   199,325        

 

Dividend Payout Ratio

 

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2018     2017 2018     2017 Weighted-average cash dividend per share $ 0.20888 $ 0.27281 $ 0.62661 $ 0.81843 FFO, as adjusted, per diluted fully converted share $ 0.40   $ 0.50   $ 1.28   $ 1.51   Dividend payout ratio 52.2 % 54.6 % 49.0 % 54.2 %   Consolidated Balance Sheets

(Unaudited; in thousands, except share data)

    As of September 30, 2018     December 31, 2017 ASSETS Real estate assets: Land $ 818,436 $ 813,390 Buildings and improvements 6,543,965   6,723,194   7,362,401 7,536,584 Accumulated depreciation (2,514,904 ) (2,465,095 ) 4,847,497 5,071,489 Held for sale 14,807 — Developments in progress 71,319   85,346   Net investment in real estate assets 4,933,623 5,156,835 Cash and cash equivalents 20,695 32,627 Receivables:

Tenant, net of allowance for doubtful accounts of $2,214 and $2,011 in 2018 and 2017, respectively

77,095 83,552 Other, net of allowance for doubtful accounts of $838 in 2017 7,109 7,570 Mortgage and other notes receivable 8,171 8,945 Investments in unconsolidated affiliates 275,884 249,192 Intangible lease assets and other assets 170,184   166,087   $ 5,492,761   $ 5,704,808     LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY Mortgage and other indebtedness, net $ 4,115,808 $ 4,230,845 Accounts payable and accrued liabilities 249,232   228,650   Total liabilities 4,365,040   4,459,495   Commitments and contingencies Redeemable noncontrolling interests 6,228   8,835   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, 172,663,873 and 171,088,778 issued and outstanding in 2018 and 2017, respectively

1,727 1,711 Additional paid-in capital 1,967,882 1,974,537 Dividends in excess of cumulative earnings (927,416 ) (836,269 ) Total shareholders' equity 1,042,218 1,140,004 Noncontrolling interests 79,275   96,474   Total equity 1,121,493   1,236,478   $ 5,492,761   $ 5,704,808  

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CBL PropertiesKatie Reinsmidt, 423-490-8301Executive Vice President - Chief Investment Officerkatie.reinsmidt@cblproperties.com