Q4 2019 Earnings Call

Detailed discussion of these risks a Reconciliation of supplemental non-gaap Financial measures to the comparable gaap. Financial measure was included in yesterday's earnings release.

And supplemental that will be furnished on form 8-k and is available in the invest section of the website at CDL properties. This call is being limited to one hour in order to provide time for everyone to ask questions. We ask that each speaker limit their questions to 2 and then return to the queue to ask additional questions. If you have questions that were not answered during today's call. Please reach out to me following the conclusion that I will now turn it over to Stephen and good morning. Everyone. The mall business is in transition and we are responding by making the changes necessary to our portfolio while we wish progress could be reflected more immediately in our results. We are confident in our strategy this time last year. We had over forty anchor closure of today. We have more than two-thirds of that space replace with Dynamic new traffic driving users. Most of these users are not traditional retail names they include Ed.

Occasionally uses fitness centers casinos Newmarket entertainment fast-casual and sit down restaurants and in-demand value retail.

Leave these projects include mix uses such as hotels multi-family medical office and storage. The creativity of the CVL team is impressive. And while the job is far from done. We have made tremendous progress over the last year. I expected 2020 will be just as productive and we'll move us further towards accomplishing our goals.

As our results for 2019 and guidance for 2020 indicate. We are facing ongoing challenges as retailers struggle to succeed in an increasingly competitive wage is changing industry despite these challenges. We ended 2019 with an answer results at the high end of our guidance range including same Center noi declining 6 and 1/2 Price and adjusted ffo of a dollar thirty-six per share revenues and occupancy were significantly impacted by retailer bankruptcies and store closings, including the liquidation or reorganization several major retailers, our 2020 guidance range incorporates the carry-over from 2019 as well as our expectation of additional retailer fall out in 2020.

in January

Macy's announced one closure in our portfolio at our property at Hanes Mall in Winston-Salem North Carolina. We've been working on plans and expect to be able to make an announcement for replacement and off earlier this week Macy's announced its new strategic 3-year plan including a Target store closure program understanding is that the definitive closure list will be finalized over time within the CVL portfolio. We expect an additional six to seven store closures to occur over the next three years. We do not anticipate any of these officers to occur in twenty-twenty. Well, this announcement is certainly a setback the extended time table provides us with Runway to line up replacements.

As a result of our Redevelopment efforts, we are diversifying our Revenue stream and working to stabilize income.

Since the bomb time and Sears bankruptcies in 2018. We have open 15 new tenants and former anchor locations adding more productive uses and we have another dozen committed choice either under construction or planning underway. We are proactively reducing our exposure to apparel retailers with more than 76% of 2019 new model leasing complete non-apparel tenants. We are currently under construction have agreements executed for an active negotiations on to multi-family projects fourteen entertainment operations, including to casinos nine hotels 28 restaurants eight fitness center, 9 medical uses three self storage facilities and several other non-wage uses.

We are minimizing.

Required capital investment while effecting transformative redevelopments will utilizing ground leases joint ventures and other creative structures. These structures have allowed us to talk excuses like the Hotel and Convention Center at Brookfield Square in Milwaukee multi-family housing to are open are centered the Pavilion in Port Orange and Daytona Beach George facilities at 3 a.m. On a parcel and and a hotel in Hamilton Place in Chattanooga. And we have a pipeline of additional projects that are in various stages of commitment and permitting we have also me take a difficult yet important steps to maintain portfolio Cash Flow by suspending our common and preferred dividend our portfolio provides us with sufficient cash flow to find a cat backs principal amortization as well as our Redevelopment and leasing programs. We also supplement our cash flow with select dispositions in 2019. We completed the same.

partial interest in two of our

Outlet centers for existing partner with the second closing during the fourth quarter this transaction generated $18 in equity and reduced our share of death by $30 off while maintaining a 50% ownership in strong assets. Our next major project opening is the Redevelopment of the former Sears at Hamilton Place here in Chattanooga Dave and Buster's life and exporting goods are opening this March joining Cheesecake Factory, which open in December 2018 the Aloft Hotel and Self Storage projects are under construction as well. We recently announced that Malone's steak and seafood will join the project are now personal pad and additional uses will be announced in the near future. This project is a prime example of the strategies that we are implementing at our centers retail is changing and a result our and as a result our shopping centers are evolving into what we call Suburban Town centres tradition.

apparel is being right size and

Hands by the new users. I mentioned earlier even with these changes 85% of retail sales still occur in stores and online retailers recognize the value of life in water facilities, the strategy We are following at our properties positions them for ongoing success in their markets. We are confident these that these steps and others we are taking now off with your positive results in the future. I will now turn the call over to Katie to discuss our operating results and investment activity Steven nineteen years in spite of the difficult environment completed nearly three point nine million square feet total leasing activity, including one point four million square feet of new leases and two and half million square feet of renewals. I compare thee same space basis for the year. We signed approximately 2.1 million square feet of new and renewal leases at an average growth rent decline of 8% spreads on new leases for stabilized malls increase 9% off.

and renewal leases were signed in an

Average of 11 and a half percent lower than the expiring rent same Center Mall occupancy improved a hundred ten basis points sequentially to 89.8% However, occupancy continues to be impacted by bankruptcy related store closures, which is evident in the 210 basis point decline compared to the prior-year. Portfolio occupancy declined 190 basis points year-over-year to 91.2% bankruptcy related store closures reduce your end Mall occupancy by approximately four hundred basis points or seven hundred thousand square feet including closures from Payless Gymboree Charming Charlie Charlotte Russe and Destination Maternity in January, the majority of Regis and MasterCuts stores that were controlled by the beautiful group closed in the Civil portfolio twenty five locations, representing approximately thirty-five thousand square feet and a million and a half dollars and gross rent were impacted for the fourth quarter Mall sales increased 3% bringing the trailing-twelve-month sales to 300 off.

$10 per square foot compared with three

And $79 for the part here categories that performed well during the holiday season included fast casual dining Electronics children and family shoes and Sporting Goods.

Sales growth resulted in several positive shifts for the tearing of our malls in our portfolio Parkway Place st. Clair Square Old Hickory and Imperial Valley all moved into tier-one due to their strong sales growth Floral Park in Northgate move to tier three at Laurel Park, which is a to Anchor mall. We just opened Dunham's Sports in the former Carson's box, which will drive new traffic to the center. We're making great progress on our anchoress placement program. You can find a complete schedule of projects underway in the supplemental, but I'll touch on a few recent updates a Mall Del Norte Laredo Texas, we downsized Forever 21 and our opening entertainment user main event this month even describe the status of our largest Redevelopment of the year the Sears Redevelopment at Hamilton Place here in Chattanooga. The project includes Dave and Buster's Aloft Hotel in Dick's Sporting Goods plus the recently-announced Melinda Steak Seafood. We are also developing a joint venture self storage facility on a parcel outside the Ring Road at Hamilton Place. This project is a similar structure to our previous storage projects in that we're contributing the land as our Equity dead.

Opening is expected later. This year tilt is under construction and will open soon at Cherryvale Mall in Rockford, Illinois in the former Sears location. We started Construction in an office building at our open-air Center Pearland Town Center in Houston, Texas. The 48,000 square-foot building will be fully leased to HCA Healthcare and will provide additional training daytime traffic to the center at Coastal Grand in Myrtle Beach a 50/50 joint venture off a construction on an expanded Dick's Sporting Goods Golf Galaxy, booster.

What entertainment operator flip and fly we'll locate in the space that dicks currently occupies at Cross Creek Mall in Fayetteville, North Carolina. We are under construction on the former Sears location to add Dave and Buster's Los additional restaurants and other users joining. The Redevelopment details are finalized. We recently opened several income replacement projects that are fifty-fifty joint venture properties in front of jokes and Paducah, Kentucky to Burlington and Ross open in the seritage owned Sears. Home gets also opened in mid-october to replace a portion of the Elder Beerman store additional value retailers are under negotiation wage. I mentioned earlier at Laurel Park Place and Livonia, Michigan Dunham's Sports open in the car since box in November rossdressforless replaced Herberger's that Dakota Square in Minot North Dakota were under we are currently own negotiations with another value retailer to take the remaining space at Frontier Mall in Cheyenne Wyoming Jax Outdoor Gear purchased an opened in the former Sears location at the new ShopRite suck.

Market which opened in October replaced the former Bond time and is exceeding sales projections. We open the furniture outlet store in the former Sears in January as well. We have a strong we have strong demand for a remaining vacant anchor locations with several others under negotiation out for Signature or with active interest. We will make additional announcements.

Plans progress I will turn the call over to Verizon and now to discuss our financial results.

Thank you Katie. We are executing on our key financial goals of maximizing free-cash-flow supplementing or liquidity with other sources such as dispositions off extending a maturity schedule and reducing leverage or Pro rata share total Pro rata share of debt at the end of 2019 was 4.25 billion. We have that new store debt Levels by forty million sequentially and $409 million from December 2018. The year-over-year reduction was primarily primarily due to disposition and amortization at the end of the of the year. We had three hundred seventy-four million available to draw on a line of credit.

During the fourth quarter. We retired twelve million dollar loan secured by the terrorists and Associated Center in Chattanooga yesterday. We retired The Loan Store by Parkway Place in Huntsville, Alabama and by Valley View Mall in Roanoke, Virginia, which had an aggregate loan balance of $84. All three properties have state wage income with that Shield above 25% of pay off and we're scheduled to mature in twenty-twenty. These three properties were added to the unencumbered pool.

Bryer mall and Hickory Point both matured in December 2019 and are currently in default for Green Briar. We are pursuing an additional restructure and we'll announce the terms of like complete. We anticipate completing a foreclosure or deed-in-lieu for the loan secured by Hickory Point Mall this year.

We closed on a new four point seven million dollar loan a 4-year loan secured by the second phase of our Atlanta outlet center replacing the four point five million dollar loan maturing a maturing loan.

We have three properties maturing in 2020 including a 65 million dollar non-recourse loan secured by Burnsville Center. We are in the process of working with the existing lender on a potential extension and restructure. We expect to refinance the remaining two loans aggregating 19.5 million. We have several secured mortgages that mature in a 2021 as well and have already begun working on refinancing opportunities. We ended the year with financial results at the higher end of a guidance range quarter adjusted the effort for share was thirty-seven cents representing a decline of eight cents per share compared with forty five cents per share for the fourth quarter 2018 factors that contributed to the variance included lower property level in Hawaii of six cents per share and two cents per share of dilution from asset sales.

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Adjusted ffo. What's a dollar $36 per share compared with a dollar seventy $0.03 for 2018 ffo for the year was impacted by Twenty cents per share lower Pok Pok. NY four cents per share low again on sale of out parcels and six cents per share and dilution from asset sales.

Fourth-quarter Samsung and same Center noi decrease 9.1% due to the full impact of bankruptcies and foreclosures and same Center in Ohio for the year declined six and a half percent.

During the quarter. We recognized eight thirty seven point four million dollar impairment on Park Plaza Mall in Little Rock, Arkansas. The mall is encumbered by $78 million loan due in April 2021. The mom has been impacted by a number of factors including several tenants bankruptcies. And as a result of net operating income declined we have been in discussions with the lender and anticipating and and anticipate restructuring the loan to allow for cash flow to fund future leasing efforts and impact Revenue. However, the current noi declined couple with the near-term long maturity resulted in a required impairment.

Don't expect ations for the rest of the year. We are providing adjusted ffo guidance for for full year twenty-twenty in the range of dollars to a dollar $13 per share which assumed you know, I decline in the range of -9 1/2 per cent to -8 per cent. We have incorporated into a budgets all known activity including the recent Regis and master wage Cuts closing closures guidance range incorporates a reserve to account for unbudgeted Revenue decline related to unanticipated additional store closures or killing bankruptcies. The reserve for 2020 is a range of eight to eighteen million are not turn the call over to Steven for concluding remarks. Thank you for Rosanna. Am focused on our major goals of stabilizing Revenue redeveloping our properties and improving our balance sheet. We are actively Transforming Our Center generating new revenue streams wage.

male Partnerships and supplement our

Capital sources and broaden our asset base. We are confident our strategy and our properties and why we wish results were more immediate. We expect to see our leasing operational and Redevelopment efforts birth folio in the near-term future. Thank you for your time today. We will now open the call to questions.

To ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to a charger question, please press star back into the first question comes from Craig Smith from Bank of America, please go ahead.

Thank you as you guys move away from a parallel tenants in your releasing efforts. Are you going to able to get a corresponding volume increased from those new tenants took volume that is

Hi Craig, good morning. So we definitely get more sales and more traffic from the new users and you know, just an example. We're replacing Sears here in Chattanooga with the Dave & Buster's index and the restaurants and the sales and the traffic volume will be three to four times at least what we had before this year's that reply to Brookfield Square in Milwaukee similar where we have Marcus Theaters and were labelled entertainment the hotel Convention Center the juice Theory Fitness. We've got a medical office building that will start construction soon. So all that activity is a huge multiple of what we're getting from them. And that's really the essence of the strategy and the challenge is that the near-term there's a lag from when Sears closed and we lost the traffic that wage.

married before until we can bring these new users online and

We're just starting to see these new users open up. And so we should continue to benefit this year. Is that occurs?

Okay, and then and are you seeing any changes in the leasing environment in 2020 versus 2019 or do you think it's pretty much similar?

Yeah, so it's it's obviously a little early the sales transferred positive. We we, you know, we had positive sales of 2% rolling 12 months and 3% for the corner and the holiday was good. So that that's that's a positive on the other hand. There are still plenty of retailers out there that are having their own unique challenges for different reasons. And so it it feels pretty similar at this point, but it's early in the year.

Okay, thank you. Thanks for the next question comes from from Stanley Morgan, please. Go ahead.

So that's pretty good.

Stanley Morgan, I haven't heard that one in a while. Good morning guys. We we changed we we changed our name. Hey guys, first of all, I want to thank you for your Bridge John the same story in Hawaii guide. That's really really helpful. And I I wish uh, some of your peers would take your lead on that. Um, so look, I want to go back to Capital allocation and maybe you can just update us June speaking about that as it relates to the right side of the balance sheet, you know, you obviously have a lot of options like refinancing loans, maybe negotiating modification buying back senior unsecured notes. Um, uh, can you just walk how you're thinking about that right now?

Sure. Well congratulations I guess or maybe not confirm but I mean that's a you know, like I said, you know the the balance sheet and looking for ways to improve it is Priority One and definitely something we're really focused on and we we have faith in new directors that joined us for their first meeting in November. We we set up our Capital allocation committee before then it we were focused on it. We're still focused on it and our new directors Michael Asher Carol and Tiffany have been great and very constructive and helpful with ideas. And we also have a really good board overall just in terms of Faith expertise. So we've got a lot of support which is we we view as a positive and there's lots of things like you say across our capital structure dead.

That we're looking at.

That they're worth looking at our immediate focus is secured debt that Persona talked about and it's a combination of and we made the decision to pay off the two loans with the 25 that yields which we think was with a smart move for various reasons and we just made those payoffs yesterday and and plus the the open-air center. So that would be $85 million dollars of of of addition to the unencumbered tool that we did through that move. So that that's an important Capital decision that we made we're also looking at all the facts maturities closely for 20 and 21 and we've had discussions with lenders for maturities that are that are coming due on both those lenders are are want to be proactive and want to get kind of ahead of the maturities and we've we've had some success that we're working through or on those and that's a big job.

priority for us from a capital point of view cuz

That's our most immediate maturity. You know, we're looking at our investments obviously every dollar counts the the decision to suspend the dividends Preferred Home in common was not something at all. We took lightly it was very difficult. But we feel it was the right move because it does preserve the cash flow that we can use for redevelopment and for Catholics and ten allowances and Leasing and what we need to do to stabilize our revenues because that's our other priority so that that's a big focus and then were looking at our other maturities. We don't have any unsecured maturities until December twenty-three. So that's 3 and 1/2 years out. So that's not something where you know, we have an immediate concern with but you know, we're talking of thinking about that. So that's a long answer, but hopefully it just gives you a sense of how phone number

We are on this.

Got it. That's that's very helpful. And I think that's all for me. Thanks guys.

Thanks, Rich. The next question comes from Christy McIlroy from Citigroup, please go ahead. Hey, thanks gud morning guys. Just wanted to follow up on Rich's question. Just with with all these restructuring talks happening. How much in total could we be should we be thinking about in terms of those efforts adding up to in terms of debt forgiveness and just beyond those individual mortgage loans that you're that you're working on. Is there an even bigger effort maybe to make a dent in your debt, you know just to follow up on your comments, whether it's you know, buy back bonds or just a month or restructuring effort on your on the secured debt that you just completed last year. Yeah. Hi Christy. So like I said, we're really dead Focus primarily on the the security maturities that are happening at this year next year. And even in the 22 the unsecured is out there, you know 3 and 1/2 years.

So, you know, I can't give any.

Any numbers as far as what you know what anything would mean but you know, we're you know, we're trying to figure out ways to improve our balance sheet and reduce leverage that's been part of our life energy and we're going to continue to do that and you know, that's that's kind of weird stands right now.

And then in regards to your debt covenants, how are you? Thinking about compliance threshold specifically in regards to the the Consolidated income to service charge coverage ratio just in light of continue with Iran. I know why and overall income levels. Where do you expect to be on that debt ratio this year? Hi Christy. I think you know, we did it went down just a little bit from last quarter due to these the eBay declining, but we still have a lot of room we will continue to talk to

Improve by reducing your debt levels. That's one way for us to improve the coverage ratio. And that's what we're trying to do. Also, when we pay off these high interest loans just recently as we did yesterday that gives us a and then borrowing on a line that's a lower cost of capital that helps. So those are the things we're doing. I mean, yeah, the interest expense is one thing and then income is on the other side. So we're trying to work both the numerator and the denominator. It's like a boilerman Steven in sounds like at least wage on the secured side. You're trying to work these payoff. Do you talk a little bit about the unsecured and whether you've approached to try to have some sort of work out on that debt? Cuz I believe if you're able to reduce debt at a discount. It would provide a little bit more Equity cushion. You can wear your stock is dead.

Hey, Michael.

Thanks. First of all, thanks to the question. I think you know, it's not something we can answer or what answer it's you know, it's really not something that like I said, you know, we're we're looking at everything in our capital structure, but the immediate focus is a secured and you know, we follow you know, what's out there. But yeah, it's not something that really there's anything to comment on and as soon as we have something to say, you know, we I think you know that, you know, when we're ready, you know, we're out there, you know, we're fully booked transparent about our plans, but on the other hand when you know when there's nothing to say, we just don't say it does your Equity market cap have from a network perspective have any implications for any of your secured or unsecured borrowings, right? I mean which is out of your control right? I mean you can't control your stock price, but argue birth.

Given how depressed it is?

Is there a minimum work test that you're potentially could reach should the shares continue to fall?

No, there's nothing none of our loan covenants and none of our loans have any minimum net worth house on the equity or they're not tied to the trading price of the equity. That's that's not something that's going to trip us up.

Okay. Thank you. Thanks, Michael.

The next question comes from Vince tabone from Green Street advisors, please go ahead.

Good morning. I just have a few more questions on the balance sheet. I'm just trying to get a sense of you know, just giving where your bonds are trading. Why wouldn't you use this more than opportunity to deliver? Whether it's putting you know even just using a line of credit to buy packs and bonds and the open market or putting some debt on your community and Associated centers, which are still readily financeable. It seems like you have this unique Arbitrage here with news, you know, $1 secured debt or you know, a different type of debt to pay down $2 of debt from the unsecured maturities. I'm just I'm just walking through your thought process on that and how you think about you know, where the bonds are trading. Is this an opportunity for you to deliver in a creative way.

Hey, Vince.

Yeah, you're you're right and you bring up really good points, and there's a lot of different places in our capital structure where there's opportunity where there's Arbitrage and we think about and we talked about it. We we want to make sure that we've got the capital available for our properties because we have to stabilize the revenues. That's that's something that that's really a priority for us in terms of accessing the capital markets going forward. So having the capital to make sure that we're getting our our leasing deals. Find that make sure we can do these redevelopments has been our our top use but you're right. There's a lot of ways we can deliver and we talked about all that and we think about it and the point you raised are are are very valid.

Okay, that makes sense and just maybe on that like what what is your forecast for free cash flow this year after all cutbacks and Redevelopment. Obviously, there's no dividend. So it just are you in a self-funding wage here or you still need to raise Capital to pay for some of the box redevelopments?

Yeah, so where we are self-funding that was a big factor in the decision to suspend both the preferred and the comment. So we've got the capital without having to to do disposition or before to access the capital markets in another way. Okay. And then one last Quick one for me just I'm just curious why you didn't sell maybe more of the outlet Shoppes of Atlanta. I mean, that's a you know Horizon did Horizon. I want to take the full things. It seems like that could be another 70 million dollars of proceeds or proceed slash, you know debt reduction that you could have could have raised their wage there would be helpful.

so it's it's

Say we wanted to maintain the 50% ownership. It had very strong growth in both sales. And noi and we we need to preserve a portfolio strong property. So we thought it was a a win-win transaction for us cuz we were able to raise Capital reduced takes him dead off our balance sheet, but then keep a month. It's going to be stable long-term and growing in the portfolio. So that was really I thought process got it. Thank you. That's all I have. Thanks.

The next question comes from Michael Miller from JPMorgan, please. Go ahead. Yeah. Hi. I was wondering excuse me. Sorry about that. I was wondering can you talk a little bit about the I guess the disconnect when we look at sales growth over the past couple of years. It's positive and you know growth is obviously gone in the other direction, but can you just took talk about how you know reach those two Dynamics a little more?

Yes, so, I mean it's you've got these two different categories of retailers and we're seeing growth from the ones that had the adjustments and into the world the way the retail World operates now and they figured out how to appeal to the Shoppers that want to walk by digitally or pick up in stores and you know, they're they're doing well and and prospering and and we have plenty of those in our portfolio. You know, you've got stores like Bath & Body Works that are doing really well in Vans and H&M is had great sales growth and they've made adjustments. So we're seeing that but you know, we're also seeing retailers that you know, we had the bankruptcies last year and the store closings. I mean we had over 200 stores closed in our portfolio nine hundred thousand square feet. So, you know, those are the wage

You know that we talked about previously Gymboree.

And pay less and Things Remembered and and Charlotte Russe and Charming Charlie and and you know, they were a drag on sales now they're out and hopefully the ones with him with are going to do better and have better sales results.

When you typically give a rank hot or an abatement or the sales there if we would, you know dig into that three, whatever it does sales per square foot number or those typically waiting on that number and it's just you have other tenants that are you know, far greater positive. It's just, you know, very just different dynamic in terms of the magnitude.

It's I mean every every read negotiations unique it depends on the retail or depends on the way. They they look at their occupancy costs money, but if their sales decreases, yeah, it's definitely going to weigh on our on our on our results and one quick question the 89.8% year and occupancy level. Where do you wish I could go to by the end of 2020. So yeah, we intentionally don't make occupancy guidance or part of our guidance. It just depends on what happens with certain retailers that you know, the jury is still out. So for now, we'll hold off. Obviously. Hopefully we'll we'll make progress and if we can continue to do the leasing volume am doing and we don't have the same range of bankruptcies will definitely make progress.

Okay, that was it. Thank you. Thanks, Michael.

The next question comes from Jim Sullivan from btig, please. Go ahead. Thank you Stephen. You've been very clear about the focus in terms of the debt the balances and looking for some kind of flexibility there or concessions there. I wonder if you would talk about wage what flexibility if any or what options if any the company might have with respect to the preferreds given that they're selling. It's such a you know, such a discount to par with I mean, they're you know, like I said, we we look at everything across the capital structure and you're right that the preferreds are trading at at Birth steep discount or low-level depending how you look at it. It's it's really, you know, in terms of our our Capital it's it's preferred. So wage.

Probably not the most immediate Focus.

But we're looking at everything.

And in terms of the guidance just to be clear the guidance. I know you're suspended the dividend on the preferred the guidance provides for the dividend on preferred because it's cumulative. Yes. It is Undeclared. So we do include it in our guidance. Okay, very good. Thank you. Thanks Jim.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Steven Lebovitz for any closing remarks off.

Thank you again for your time this morning. And if you have any further questions, feel free to reach out after have a good day.

Thursday