A reader asked me today about my thoughts on CBL & Associates (CBL) – I am long – specifically, whether I am concerned about their liquidity position. In an effort to expand on my answer, I thought it might be helpful to take a deeper look at this mall REIT’s liquidity.
In the near term, the REIT has the following maturities:
(1) The company is in negotiations with the lender to restructure the loan and extend the maturity date. (2) The loan has two one-year extension options, at the unconsolidated affiliate’s election, for an outside maturity date of December 2019. (3) The unsecured term loan has two one-year extension options, at the company’s election, for an outside maturity date of October 2019.
$ 534 million is a large maturity for the REIT to have to refinance. There are three ways that maturities are typically financed: 1) cash flow 2) line of credit or new loan/bond, or 3) equity.
Let’s say that equity is out of the question at current levels, that leaves cash flow and/or debt.
The REIT has generated the following net operating income
Which has translated into the following funds from operations:
Looking at FFO ($ 400mm – Q1 annualized) and dividends paid on common ($ 180mm – Q1 annualized) and capex ($ 180mm – Q1 including development/redevelopment – $ 80mm maintenance), there would be approximately $ 40mm remaining to pay down debt, leaving a hole of $ 490mm.
As of March 31, 2017, CBL had approximately $ 252.1 million outstanding on their three unsecured credit facilities leaving approximately $ 847.9 million of availability, easily enough to cover the term loan and the remaining 2017 maturities.
Should they not be able to refinance the bulk of the amount (the $ 350mm term loan)? In the worst case, they could extend it (for up to two years). I don’t believe that it will come to that as if nothing else, the loan can be re-worked (reduced amount, higher rate and more restrictive covenants).
Digging a little deeper into the REIT’s debt, we see that CBL & Associates has the following debt outstanding as of 3/31/17:
Shown by maturity, we see the following:
Note: this includes CBL’s share of unconsolidated affiliates’ debt. The 2016 amount of $ 140,000 is secured by Chesterfield Mall, which is in default and receivership, and the principal balance of the loan secured by Wausau Center.
Or viewed without JV level debt:
The next two years are going to be a struggle to refinance if the REIT is only able to use their revolver. As a result, they are (most likely) going to attempt to refinance their term loans and extend them.
Digging a little deeper into their specific debts:
Unsecured Lines of Credit
The company has three unsecured credit facilities that are used for retirement of secured loans, repayment of term loans, working capital, construction and acquisition purposes, as well as issuances of letters of credit.
Each facility bears interest at LIBOR plus a spread of 0.875% to 1.55% based on the company’s credit ratings. As of March 31, 2017, the company’s interest rate based on their credit ratings of Baa3 from Moody’s Investors Service and BBB- from Standard & Poor’s and Fitch Ratings is LIBOR plus 120 basis points. Additionally, the company pays an annual facility fee that ranges from 0.125% to 0.300% of the total capacity of each facility based on the company’s credit ratings. As of March 31, 2017, the annual facility fee was 0.25%. The three unsecured lines of credit had a weighted-average interest rate of 2.03% at March 31, 2017.
Additional details on the LOCs:
Unsecured Term Loans
The company has a $ 350,000 unsecured term loan, which bears interest at a variable rate of LIBOR plus 1.35% based on the company’s current credit ratings. The loan matures in October 2017 and has two one-year extension options, subject to continued compliance with the terms of the loan agreement, for an outside maturity date of October 2019. At March 31, 2017, the outstanding borrowings of $ 350,000 had an interest rate of 2.13%.
The company has a $ 400,000 unsecured term loan, which bears interest at a variable rate of LIBOR plus 1.50% based on the company’s current credit ratings and has a maturity date of July 2018. At March 31, 2017, the outstanding borrowings of $ 400,000 had an interest rate of 2.28%.
The company also has a $ 50,000 unsecured term loan that matures in February 2018. The term loan bears interest at a variable rate of LIBOR plus 1.55%. At March 31, 2017, the outstanding borrowings of $ 50,000 had a weighted-average interest rate of 2.53%.
The agreements for the unsecured credit facilities and unsecured term loans also contain default provisions customary for these types of transactions. Additionally, any default in the payment of any recourse indebtedness greater than or equal to $ 50,000 or any non-recourse indebtedness greater than $ 150,000 (for the company’s ownership share) of CBL will constitute an event of default under the agreements to the credit facilities. The credit facilities also restrict the company’s ability to enter into any transaction that could result in certain changes in their ownership or structure.
Senior Unsecured Debt:
The senior unsecured debt consists of the following notes:
The notes contain the following debt covenants (and the 3/31/17 compliance):
Finally, a look at the performance of the REIT’s unsecured debt. The reason is twofold: 1) if there is a true threat to the credit, it will show up in the bonds and 2) all of the REIT’s loans come due before the bonds, which means they will be repaid first. If there is a question as to CBL’s ability to repay, the bonds will be more affected than the loans (unless it becomes truly distressed).
The CBL 5.95% due 2026.
The CBL 5.25% due 2023.
The CBL 4.60% due 2024.
As the charts above show, with the exception of the 4.60% 2024 bonds, the senior unsecured notes trade at/near par, which implies that credit investors (primarily downside risk) haven’t joined the equity market in calling the REIT all but dead.
Bottom Line: While 2017 and 2018 have larger maturities coming due, the REIT has the resources to get through them without distress. While a challenge, liquidity is not the most significant issue investors have to worry about (that would be the death of a thousand cuts retailer releases).
Disclosure: I am/we are long CBL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.