CBL & Associates Properties Reports Outstanding Second Quarter 2016 Results and Increases Full-Year Guidance

CHATTANOOGA, Tenn.--(BUSINESS WIRE)--CBL & Associates Properties, Inc. (NYSE:CBL) announced results for the second quarter ended June 30, 2016. A description of each non-GAAP financial measure and the related reconciliation to the comparable GAAP measure is located at the end of this news release.

HIGHLIGHTS:

• Same-center NOI for the second quarter of 2016 increased 3.4% in the Total Portfolio and 3.2% in the Malls compared with the prior period.
• FFO per diluted share, as adjusted, increased 9.3% to $0.59 for the second quarter of 2016, compared with $0.54 in the prior-year period.
• Same-center mall occupancy increased 150 basis points to 91.7% as of June 30, 2016 compared with 90.2% as of June 30, 2015.
• Same-center sales increased 1.1% to $377 per square foot for the rolling 12-months ended June 30, 2016 over the prior-period.
• $304 million (at CBL's share) in mall and community center dispositions closed year-to-date.

CBL's President and Chief Executive Officer Stephen Lebovitz commented, "Our results for the second quarter were outstanding across the board. The same-center portfolio generated NOI growth of 3.4%, the largest increase we've seen post-recession. Adjusted FFO per share topped consensus estimates, increasing 9.3% to $0.59 per share. Occupancy increased 150 basis points and sales reached $377 per square foot.

"As last week's announcement of the sale of two tier 3 malls demonstrates, our portfolio transformation is gaining momentum. Coupled with the sale of community centers, we are reducing leverage dramatically, with total debt declining more than $300 million. Our balance sheet also benefited from the three new attractively priced secured fixed-rate financings closed this quarter. This quarter's performance clearly reflects the resiliency and opportunity in CBL and our portfolio. Our focus for the remainder of the year is to build on these excellent results, accelerate our portfolio transformation strategy and drive additional improvements to our balance sheet."

Net income attributable to common shareholders for the second quarter of 2016 was $51.7 million, or $0.30 per diluted share, compared with net income of $30.7 million, or $0.18 per diluted share, for the second quarter of 2015. One-time items impacting net income in the quarter include the impairment of certain properties classified as held-for-sale or as a lender property as well as an increase in equity in earnings related to the sale of our 50% interest in Renaissance Center and related to the completed foreclosure of Gulf Coast Town Center (owned in a 50/50 joint venture).

FFO allocable to common shareholders, as adjusted, for the second quarter of 2016 was $101.3 million, or $0.59 per diluted share, compared with $91.9 million, or $0.54 per diluted share, for the second quarter of 2015. FFO allocable to the Operating Partnership common unitholders, as adjusted, for the second quarter of 2016 was $118.6 million compared with $107.7 million for the second quarter of 2015.

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

MAJOR VARIANCES IMPACTING SAME-CENTER NOI RESULTS FOR THE QUARTER ENDED JUNE 30, 2016

• NOI increased $6.1 million, generated from a $5.6 million increase in revenue and a $0.5 million decline in operating expense.
• Minimum rents increased $4.5 million during the quarter as a result of rent growth and occupancy increases over the prior year.
• Percentage rents increased by $0.2 million due to positive sales growth.
• Tenant reimbursement and other revenues increased by $0.9 million.
• Property operating expense declined $1.1 million and maintenance and repair expense declined by $0.2 million, partially offset by a $0.8 million increase in real estate tax expense.

PORTFOLIO OPERATIONAL RESULTS

Occupancy:

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:

DISPOSITIONS

Year-to-date, CBL has completed $304 million in disposition activity at the Company's share, including interest in five malls and two community centers. These transactions generated net equity proceeds of approximately $157 million and additionally removed over $147 million of secured debt from CBL's pro rata share of Total Debt. Net proceeds from the dispositions were used to reduce outstanding balances on the Company's lines of credit.

Subsequent to quarter-end, CBL completed the sale of Fashion Square in Saginaw, MI, and The Lakes Mall in Muskegon, MI, for an aggregate sales price of $66.5 million, including the assumption of a $38.2 million loan secured by Fashion Square. CBL recorded an impairment charge of $32.1 million in the second quarter related to the sale.

In May, CBL closed on the sale of Bonita Lakes Mall and Bonita Lakes Crossing in Meridian, MS, for $27.9 million.

In April, CBL and its 50/50 joint venture partner closed on the sale of 100% of Renaissance Center, the 363,000-square-foot community shopping center located in Durham, NC. Renaissance Center was sold for a sales price of $129.2 million, including the assumption of a $16.0 million loan by the buyer and a $31.6 million loan that was retired at closing. The transaction generated net equity to CBL of $40.8 million.

In April, CBL completed the sale of The Crossings at Marshalls Creek, the 86,000-square-foot community center located in Middle Smithfield, PA, for a sales price of $22.3 million, in cash.

In March, CBL closed on the sale of a 75% interest in River Ridge in Lynchburg, VA, to Liberty University and received net cash proceeds of $33.5 million. CBL retains a 25% ownership position in the asset and is responsible for leasing and management, earning customary fees.

In February, CBL closed on a new 10/90 joint venture for Triangle Town Center, Place and Commons in Raleigh, NC, with DRA Advisors LLC (DRA). The new joint venture acquired the property from the existing 50/50 joint venture between CBL and The Richard E. Jacobs Group for a total consideration of $174.0 million, including assumption of a $171.1 million loan secured by the property. CBL holds a 10% ownership position in the asset and is responsible for leasing and managing, earning customary fees.

FINANCING ACTIVITY

In June, CBL significantly reduced its variable-rate debt exposure and locked in attractive long-term fixed interest rates with the closing of three separate non-recourse secured loans with an aggregate borrowing amount of $227.7 million. The loans have a weighted average interest rate of 3.9% and a weighted average term of 9 years.

CBL closed on a non-recourse $47.7 million loan secured by Ambassador Town Center in Lafayette, LA. The 7-year loan bears a fixed interest rate of 3.22%. Proceeds from the loan were primarily used to retire the existing construction loans with an aggregate balance of $41.9 million with excess proceeds used to fund remaining construction costs.

CBL closed on a non-recourse $73.0 million loan secured by Fremaux Town Center in Slidell, LA. The 10-year loan bears a fixed interest rate of 3.69%. Proceeds from the loan were used to retire two existing construction loans with an aggregate balance of $71.1 million.

CBL closed on a non-recourse $107.0 million loan secured by Hamilton Place in Chattanooga, TN. The 10-year loan bears an interest rate of 4.36%. Proceeds from the loan were used to retire an existing $98.2 million loan with an interest rate of 5.86% that was scheduled to mature in August 2016. CBL's share of excess proceeds were utilized to reduce outstanding balances on its lines of credit.

Additionally in June, the foreclosure of Gulf Coast Town Center in Fort Myers, FL (owned in a 50/50 joint venture) was completed, reducing debt by $95.4 million, at CBL's share.

CBL has entered into discussions to begin the foreclosure process for Wausau Center in Wausau, WI. The property is encumbered by a $17.6 million non-recourse loan. After evaluating redevelopment options, CBL determined that an appropriate risk-adjusted return was not achievable. As a result, CBL recorded a $10.7 million impairment charge during the second quarter.

OUTLOOK AND GUIDANCE

Based on results year-to-date and its current outlook, the Company is increasing its 2016 guidance for FFO, as adjusted, to a range of $2.36 - $2.40 per diluted share. The increased guidance incorporates dilution from asset sales completed year-to-date. CBL also increased its anticipated same-center NOI growth to a range of 1.5% - 2.5% in 2016.

The guidance also assumes the following:

• $4.0 million to $5.0 million of outparcel sales;
• 75-125 basis point increase in total portfolio occupancy as well as stabilized mall occupancy throughout 2016;
• G&A, net of litigation expense and non-recurring professional fees, of $58 million to $60 million; and
• No unannounced capital markets activity.

INVESTOR CONFERENCE CALL AND WEBCAST

CBL & Associates Properties, Inc. will conduct a conference call on Friday, July 29, 2016, at 11:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 8458714. A replay of the conference call will be available through August 5, 2016, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10087241. A transcript of the Company's prepared remarks will be furnished on a Form 8-K following the conference call.

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

The Company will also provide an online webcast and rebroadcast of its 2016 second quarter earnings release conference call. The live broadcast of the quarterly conference call will be available online at cblproperties.com on Friday, July 29, 2016 beginning at 11:00 a.m. ET. The online replay will follow shortly after the call.

ABOUT CBL & ASSOCIATES PROPERTIES, INC.

Headquartered in Chattanooga, TN, CBL is one of the largest and most active owners and developers of malls and shopping centers in the United States. CBL owns, holds interests in or manages 145 properties, including 89 regional malls/open-air centers. The properties are located in 31 states and total 82.9 million square feet including 8.6 million square feet of non-owned shopping centers managed for third parties. Additional information can be found at cblproperties.com.

NON-GAAP FINANCIAL MEASURES

Funds From Operations

FFO is a widely used 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 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 outstanding during the period.

FFO does not represent cash flows from operations as defined by accounting principles generally accepted in the United States, 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.

As described above, during the second quarter of 2016, the Company recognized a $29.2 million increase in equity in earnings related to the foreclosure of the loan secured by Gulf Coast Town Center and $1.1 million of nonrecurring professional fees expense. Additionally, during the six months ended June 30, 2016, the Company recognized $1.7 million of litigation expense as well as a $26.4 million increase in equity in earnings related to the sale of our 50% interest in Triangle Town Center. During the second quarter of 2015, the Company recognized $3.0 million of expense related to a litigation settlement and a $0.3 million gain on extinguishment of debt. Additionally, during the six months ended June 30, 2015, the Company recognized a $16.6 million gain on investment related to the sale of marketable securities and received income of $1.7 million, net of related expenses, as a partial settlement of ongoing litigation. Considering the significance and nature of these items, the Company believes it is important to identify their impact on its FFO measures for readers 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.

Same-center Net Operating Income

NOI is a supplemental 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. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership's pro rata share of both consolidated and unconsolidated Properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the Properties in absolute terms regardless of the ratio of ownership interests of our 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 NOI may not be comparable to that of other companies.

Since NOI includes only those revenues and expenses related to the operations of its shopping center and other properties, the Company believes that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates and operating costs and the impact of those trends on the Company's results of operations. The Company's calculation of same-center NOI also excludes lease termination income, straight-line rent adjustments, and amortization of above and below market lease intangibles in order to enhance the comparability of results from one period to another, as these items can be impacted by one-time events that may distort same-center NOI trends and may result in same-center NOI that is not indicative of the ongoing operations of the Company's shopping center and other properties. 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 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.