CBL & Associates Properties (CBL)

TOP CONTRIBUTORS

J.D. Thornton

Thomas Gaffney

Despite slowing consumer spending, in the first quarter of 2008 CBL increased its Funds From Operation by 2.3%. In part this can be ascribed to the regional dominance CBL achieves by only building or acquiring malls in areas without other major shopping centers. On these strong returns CBL has continued to leverage its properties (securing $400 million in loans in late April) to build and acquire new properties, with recently announced plans for new construction in Florida, Texas, Missouri, and Pennsylvania. Taking advantage of the current economic downturn to undertake development at lower prices, CBL will be ready with a number of new malls to take advantage of the upturn when it comes.

Business Overview

CBL owns interest in 150 properties in 27 states. This portfolio includes 84 regional malls/open-air shopping centers, 47 mixed commercial and residential centers, and 19 office buildings. These properties total to approximately 72 million sq. ft. of retail space, with an overall average sales per square foot of $364 and an occupancy of 93%. All of CBL's properties are built around one or more "Anchors." Anchors are major national retailers that serve as the primary attraction that brings shoppers to the mall. CBL's top anchors include: J.C. Penney (JCP), Sears Holdings (SHLD), Dillard's (DDS), Macy's Inc. (M). Other important small retailers include Foot Locker (FL), Limited Brands (LTD), Abercrombie & Fitch Company (ANF), and the Gap (GPS).

CBL's top 10 Tenants

CBL develops and acquires properties in middle sized markets under-served by existing malls and retailers. CBL does this by building malls in moderate sized cities that are surrounded by rural areas whose residents tend to go to this urban center for major purchases or other needs. Including a major retail "anchor" at every development helps to ensure these migrating shoppers go to CBL's mall.

CBL's 5 largest markets

In November of 2007, CBL paid $184.2 million to acquire 8 shopping centers and 12 office buildings in North Carolina from Starmount. Additionally, CBL has begun investing internationally by establishing joint ventures to build and acquire malls in rapidly growing economies of China and Brazil.^[5] Additionally, CBL has taken

Property Expansions Completed in 2007 and 2008

^[6]

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Total investment in "new and expanded properties opened in 2007 was $323.4 million and the total investment upon completion in the Properties under construction as of December 31, 2007 is projected to be $427.6 million."^[8]

Trends and Forces

• The liquidity crunch resulting from the Subprime lending crisis could inhibit CBL's ability to finance expansion. REITs like CBL are especially sensitive to credit availability because Federal tax requirements stipulate that they must return at least 90% of earnings to shareholders. As a result, CBL cannot use cash generated from its operations to fund expansion, rather it must obtain financing from the credit markets. In response to the credit crisis, CBL has expanded its lines of credit from several financial institutions and has refinanced several loans to take advantage of lower interest rates.

• CBL's focus on middle-markets allows it to establish regional dominance and limit competition. When developing or acquiring malls, CBL usually selects areas with few malls. This allows it to become the dominant retail space for a large region in which there is little competition. However, such areas usually experience less economic growth than more competitive markets, and as a result, CBL increases its rents more slowly than its competitors in these markets. Despite this, CBL has demonstrated strong earnings growth of the past decade.

• CBL's business is affected by demographic changes in the sun-belt and rust-belt. CBL's malls are almost exclusively in the midwest and southeastern United States. Demographic and economic trends affecting these regions will have a strong influence on the success of CBL's business. The sunbelt is experiencing a period of sustained economic and population growth as many individuals leave the northern states for the south's more moderate climate and companies relocate production there due to less regulation and a smaller union presence. Conversely, the midwest is experiencing a period of economic readjustment as many manufacturers there have struggled with high labor costs, heavy regulation, and antiquated facilities.

Competition

CBL generally seeks to have its malls serve as the primary retail facility for an entire region. This strategy has been successful in that most of CBL's properties have are in places with few other malls. Nevertheless, as other types of retailing such as discount/wholesale stores, online/television shopping, and outlet centers become more popular they have begun to compete with CBL's middle-market malls. Additionally CBL competes with the following companies, which are also national owners and operators of retail space. Like CBL several are beginning to acquire properties outside of the United States in such countries as China and Brazil.

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References

1. ↑ http://www.cblproperties.com/cbl.nsf/abo_com_foc
2. ↑ http://www.cblproperties.com/cbl.nsf/inv_sec_fil
3. ↑ http://library.corporate-ir.net/library/10/106/106929/items/278831/FebCBL4Q07Supp.pdf CBL 2007 Q4 Supplemental
4. ↑ http://www.cblproperties.com/cbl.nsf/inv_sec_fil
5. ↑ http://phx.corporate-ir.net/phoenix.zhtml?c=106929&p=irol-SECText&TEXT=aHR0cDovL2NjYm4uMTBrd2l6YXJkLmNvbS94bWwvZmlsaW5nLnhtbD9yZXBvPXRlbmsmaXBhZ2U9NTUwNDc3MiZhdHRhY2g9T04%3d CBL's 2007 Annual Report
6. ↑ http://phx.corporate-ir.net/phoenix.zhtml?c=106929&p=irol-SECText&TEXT=aHR0cDovL2NjYm4uMTBrd2l6YXJkLmNvbS94bWwvZmlsaW5nLnhtbD9yZXBvPXRlbmsmaXBhZ2U9NTUwNDc3MiZhdHRhY2g9T04%3d CBL's 2007 Annual Report
7. ↑ http://phx.corporate-ir.net/phoenix.zhtml?c=106929&p=irol-SECText&TEXT=aHR0cDovL2NjYm4uMTBrd2l6YXJkLmNvbS94bWwvZmlsaW5nLnhtbD9yZXBvPXRlbmsmaXBhZ2U9NTUwNDc3MiZhdHRhY2g9T04%3d CBL's 2007 Annual Report
8. ↑ http://phx.corporate-ir.net/phoenix.zhtml?c=106929&p=irol-SECText&TEXT=aHR0cDovL2NjYm4uMTBrd2l6YXJkLmNvbS94bWwvZmlsaW5nLnhtbD9yZXBvPXRlbmsmaXBhZ2U9NTUwNDc3MiZhdHRhY2g9T04%3d CBL's 2007 Annual Report
9. ↑ All data from 2007 Annual Reports of respective companies and yahoofinance.