Executive Summary / Key Takeaways

• Strategic Transformation Underway: CBL Properties is actively transforming its portfolio from traditional, apparel-centric malls into diversified "suburban town centers" by integrating entertainment, dining, medical, and mixed-use components, aiming for long-term revenue stabilization and growth.
• Portfolio Optimization & Growth Acquisitions: Recent strategic acquisitions, such as four dominant regional malls from Washington Prime Group (WPG) for $178.9 million, are immediately accretive to cash flow and funded by disciplined non-core asset dispositions, demonstrating a clear capital allocation strategy.
• Strengthening Financial Position: The company has proactively managed its debt maturity schedule through new non-recourse loans and extensions, alongside a $25 million stock repurchase program and a 12.5% increase in its common dividend, reflecting growing confidence in its financial health and cash flow generation.
• Operational Resilience Amid Headwinds: Despite ongoing retail bankruptcies and increased operating expenses, CBL's Q2 2025 results show improved new lease spreads (up 39.5%), positive same-center tenant sales growth (up 3.5% TTM), and stable occupancy, indicating operational effectiveness in a challenging environment.
• Outlook for Stabilized Performance: Management's updated 2025 guidance projects adjusted FFO per share between $6.98 and $7.34 and reaffirms a same-center NOI outlook ranging from a 2% decline to a 0.5% increase, signaling an anticipated stabilization and potential for modest growth driven by strategic initiatives.

A New Blueprint for Retail Real Estate

CBL Properties, a self-managed and fully integrated REIT, has long been a fixture in the retail real estate landscape, primarily owning and managing regional shopping malls, outlet centers, lifestyle centers, and open-air centers across 20 states. The company's journey has been one of continuous adaptation, particularly in response to the profound shifts impacting traditional retail over the past decade. Following a challenging period marked by significant anchor closures and retailer bankruptcies between 2018 and 2019, CBL embarked on a strategic transformation to reposition its properties from conventional apparel-based malls into dynamic, market-dominant "suburban town centers."

This strategic pivot is CBL's core innovation, moving beyond a singular focus on traditional retail to embrace a diverse ecosystem of uses. The company's "technology" in this context is not a proprietary material or software, but rather its sophisticated, data-driven approach to property redevelopment and tenant mix curation. This involves leveraging market analytics to identify optimal non-retail uses, such as entertainment venues, diverse dining options, fitness centers, medical offices, hotels, and even self-storage facilities. The tangible benefits of this approach are multifaceted: increased foot traffic, enhanced tenant stickiness, diversified revenue streams less susceptible to apparel retail volatility, and the creation of vibrant community hubs that attract a broader demographic. For investors, this strategic innovation translates into a more resilient asset base, improved occupancy rates, and a pathway to stabilized and growing Net Operating Income (NOI), forming a crucial competitive moat in a rapidly evolving industry.

In the competitive retail REIT landscape, CBL operates alongside larger national players like Simon Property Group (SPG) and Macerich Company (MAC), as well as open-air specialists such as Kimco Realty (KIM) and Regency Centers Corporation (REG). While SPG and MAC boast greater scale and often target higher-end, urban-centric developments, CBL's strength lies in its portfolio of market-dominant properties within dynamic, growing middle markets. CBL's active management and aggressive leasing strategies allow for localized adaptability, enabling it to tailor its offerings to specific community needs more nimbly than some larger, more standardized competitors. This focus on profitable reinvestment and community integration helps CBL differentiate itself, potentially fostering stronger tenant loyalty and more efficient property management, even if it may not match the sheer growth rates or profitability margins of the largest players.

Strategic Transformation and Operational Resilience

CBL's strategic transformation is evident in its aggressive approach to redeveloping former anchor locations. Since 2018, the company has replaced over two-thirds of its anchor closures with dynamic, traffic-driving uses, with more than 76% of new mall leasing in 2019 dedicated to non-apparel tenants. This diversification continues, with ongoing projects including two multifamily developments, 14 entertainment operations (including two casinos), nine hotels, 28 restaurants, eight fitness centers, nine medical uses, and three self-storage facilities. These initiatives are often executed through a "capital light strategy," utilizing ground leases and joint ventures where CBL contributes land as equity, minimizing upfront investment while maximizing future upside.

Notable projects exemplify this strategy. At Brookfield Square in Milwaukee, a former Sears is being transformed into a mixed-use complex featuring a Movie Tavern, Whirlyball entertainment, multiple restaurants, a hotel, and medical office space. Similarly, the Sears redevelopment at Hamilton Place in Chattanooga includes Dave & Buster's (PLAY), Dick's Sporting Goods (DKS), an Aloft Hotel, self-storage, and various dining and office components. These projects are designed to create "suburban town centers" that serve as comprehensive destinations, driving new traffic and diversifying the revenue base.

The company's operational performance in the second quarter of 2025 reflects the early benefits and ongoing challenges of this transformation. Rental revenues for the three months ended June 30, 2025, increased to $136.45 million from $124.07 million in the prior-year period. Total revenues also saw a rise to $140.91 million from $129.67 million. This growth was significantly bolstered by the consolidation of CoolSprings Galleria, Oak Park Mall, and West County Center in December 2024, which added $21 million in rental revenues during the quarter.
Despite these revenue gains, net income attributable to common shareholders decreased to $2.57 million ($0.08 per share) in Q2 2025 from $4.48 million ($0.14 per share) in Q2 2024. This decline was primarily driven by higher operating expenses, including increased depreciation and amortization (up $1 million), real estate taxes (up $2 million), interest expense (up $4.6 million), maintenance and repairs (up $1.2 million), and property operating expenses (up $2.8 million). The absence of one-time state franchise tax rebates and higher non-contract exterior maintenance costs also contributed to the expense increase.

Same-center NOI experienced a modest decline of 0.5% for the three months and 1.4% for the six months ended June 30, 2025. This was largely due to the aforementioned increase in operating expenses, partially offset by higher minimum rents, percentage rents, tenant reimbursements, and a favorable variance in uncollectable revenue estimates. Portfolio occupancy edged up 10 basis points year-over-year to 88.8%, with same-center occupancy for malls, lifestyle centers, and outlet centers remaining stable at 87.3%. Leasing activity was robust, with over 1.2 million square feet of leases signed in Q2 2025. Notably, new comparable leases saw a strong 39.5% rent jump, although renewal leases were down 0.7%, reflecting ongoing negotiations to retain tenants. Same-center tenant sales per square foot rose 3.5% year-over-year for the trailing 12 months, reaching $427, indicating positive consumer engagement at its properties.

Strengthening the Balance Sheet and Future Outlook

CBL's commitment to financial discipline is as central to its strategy as its property transformation. As of June 30, 2025, the company maintained a solid liquidity position with $288 million in unrestricted cash and U.S. Treasury securities. Its total pro rata share of debt stood at $2.5989 billion, with a weighted-average remaining term of 2.00 years.

The company has been proactive in managing its debt maturities, exemplified by the new $78 million non-recourse loan for Cross Creek Mall at a significantly reduced fixed interest rate of 6.86%, a 130 basis point improvement. Furthermore, the existing open-air centers and outparcels loan was modified and extended to October 2030 (with an option to October 2032), increasing its principal balance by $110 million to include the newly acquired Washington Prime Group properties.

The acquisition of four dominant enclosed regional malls from WPG for $178.9 million in July 2025 marks a significant milestone in CBL's portfolio optimization. This move, funded partly by the $83.1 million sale of The Promenade at an attractive 8.5% cap rate, demonstrates a disciplined capital recycling strategy: divesting non-core assets to invest in market-dominant properties that generate immediate accretion to free cash flow. This strategic allocation of capital is further supported by a $25 million stock repurchase program authorized in May 2025, signaling management's belief that the stock is trading at a discount.

Management's updated 2025 guidance reflects confidence in its strategic direction. Adjusted FFO per share is projected to be in the range of $6.98 to $7.34, with projected net income between $14.7 million and $25.7 million. The company reaffirmed its same-center NOI growth outlook, expecting it to range from a 2% decline to a 0.5% increase for the full year. This guidance incorporates the partial-year benefits from the WPG acquisition, the impacts of asset sales, and higher variable interest costs. In a strong vote of confidence, CBL's board authorized a 12.5% increase in the regular common dividend to an annualized rate of $1.80 per share, supported by the incremental cash flow growth from the WPG acquisition.

Risks and Challenges

Despite the strategic progress, CBL faces inherent risks in the dynamic retail environment. International trade disputes and tariffs could increase costs for its tenants, potentially weakening demand for real estate. The company remains exposed to tenant bankruptcies, as evidenced by recent closures from Forever21, JoAnn, and Party City impacting mall occupancy. Furthermore, loan defaults, such as the Southpark Mall entering receivership and the default at The Outlet Shoppes at Laredo, highlight ongoing challenges in debt management for certain properties. While CBL has demonstrated resilience and a proactive approach to these issues, they represent a continuous headwind that requires vigilant management.

Conclusion

CBL Properties is in the midst of a profound transformation, strategically repositioning its portfolio to thrive in a new retail era. By embracing a diversified, experience-driven "suburban town center" model and executing a disciplined capital allocation strategy, the company is actively building a more resilient and valuable asset base. The recent acquisition of four dominant regional malls, coupled with proactive debt management and a significant dividend increase, underscores management's conviction in its long-term vision and the immediate benefits of its strategic initiatives. While the retail landscape remains challenging, CBL's commitment to innovation in property use, operational efficiency, and financial prudence positions it for enduring value creation for its shareholders.