Executive Summary / Key Takeaways

• A Transformation Proving Itself in the Numbers: CBL has fundamentally re-engineered its business from apparel-based enclosed malls to market-dominant suburban town centers, with 74% of new mall leasing now going to non-apparel tenants and same-center tenant sales per square foot rising 4.8% in Q3 2025, demonstrating that the strategy is driving tangible traffic and revenue gains.

• Operational Momentum Despite Headwinds: Portfolio occupancy improved to 90.2% in Q3 2025 (up 90 basis points year-over-year), while new lease spreads on small shop space hit 13% for initial gross rent and 28.5% year-to-date, indicating strong pricing power and tenant demand for CBL's repositioned properties.

• Capital Allocation Pivot Signals Confidence: The company resumed dividends in 2025 ($0.45/share in Q3) and authorized a new $25 million share repurchase program in November, while simultaneously acquiring four dominant malls for $179.7 million in July, showing management believes the stock is undervalued and cash flows are stable enough to return capital.

• Balance Sheet Repair Meets Refinancing Reality: Post-bankruptcy, CBL has made progress with $313 million in unrestricted cash and strategic asset sales generating $172.3 million in proceeds year-to-date, but high leverage (6.4x debt-to-equity) and a $615 million term loan due November 2026 create a ticking clock that management must address to avoid rating pressure.

• Valuation Disconnect Offers Asymmetric Risk/Reward: Trading at 4.1x 2026 estimated AFFO and 8.94x P/E—massive discounts to retail REIT peers averaging 24-27x—the market appears to price CBL as a melting ice cube, yet improving same-center NOI, strong lease spreads, and a capital-light redevelopment model suggest the business has stabilized and could re-rate higher if refinancing risks are managed.

Setting the Scene: From Mall Operator to Suburban Town Center Developer

CBL Properties, a self-managed, self-administered REIT headquartered in Chattanooga, Tennessee, owns interests in 69 consolidated properties totaling over 65 million square feet across 25 states, primarily in the Southeast and Midwest. The company makes money by leasing space to retailers, restaurants, entertainment venues, medical offices, hotels, and other tenants across four segments: malls (71% of revenue), lifestyle centers (8%), outlet centers (5%), and open-air centers (11%). This portfolio composition reveals CBL's strategic pivot away from traditional enclosed malls toward diversified, community-focused properties that serve as suburban town centers.

The retail REIT industry has faced existential threats from e-commerce disruption and retailer bankruptcies, but CBL's response has been more radical than most. Beginning in 2018, after losing approximately 40 anchors to Bon-Ton and Sears bankruptcies, management recognized that apparel-dependent enclosed malls were dying. They made a deliberate choice to transform these assets into mixed-use destinations featuring dining, entertainment, fitness, medical, and even residential components. This wasn't a cosmetic repositioning—it was a fundamental reimagining of what a shopping center could be. By 2019, over 76% of new mall leasing was with non-apparel tenants, a trend that has accelerated and sustained through 2025.

CBL's competitive positioning sits between two worlds. Unlike Simon Property Group (SPG), which dominates premium malls in affluent urban markets with international reach, CBL focuses on mid-tier, community-dominant properties in growing secondary markets where it can be the only game in town. This geographic focus creates a moat: in smaller markets, CBL's properties become essential infrastructure, giving it pricing power despite its smaller scale. Compared to grocery-anchored open-air specialists like Kimco (KIM) and Regency Centers (REG), CBL's enclosed mall exposure appears riskier, but its aggressive diversification into experiential and non-retail uses creates a differentiated value proposition that pure open-air centers cannot match.

Strategic Differentiation: The Capital-Light Transformation Engine

CBL's core competitive advantage lies in its "capital-light" redevelopment strategy, which minimizes upfront investment while maximizing returns. Rather than spending hundreds of millions to redevelop anchor spaces internally, the company utilizes pad sales, ground leases, and joint venture structures to bring in hotels, self-storage facilities, medical offices, and multifamily housing with minimal capital outlay. This allows CBL to transform its properties without straining its balance sheet or diluting shareholders. Management has sourced replacements for 27 anchor spaces, with more than a dozen in the pipeline requiring under $5 million in investment each—a fraction of what traditional redevelopment would cost.

The diversification into non-retail uses is not just defensive; it's offensive. By adding hotels, medical offices, and entertainment venues, CBL creates multiple traffic drivers that reinforce each other. A medical office brings daytime professionals, a hotel brings overnight visitors, and a Dave & Buster's brings evening entertainment seekers. This ecosystem approach makes CBL's properties more resilient than single-use retail centers. The company is actively negotiating on 15 entertainment operations (including two casinos), nine hotels, 31 restaurants, eight fitness centers, eight medical uses, and two self-storage facilities. Each addition extracts value from underutilized parking areas and creates valuable outparcels that generate stable, long-term income.

This strategy directly addresses the e-commerce threat. While online retailers can sell apparel and electronics, they cannot replicate the experiential and service-oriented offerings that define CBL's repositioned properties. Management correctly notes that 85% of retail sales still occur in stores, and online retailers increasingly recognize the value of brick-and-mortar for fulfillment and customer experience. CBL's transformation creates the kind of physical infrastructure that even digital natives need, turning a perceived weakness into a potential strength.

Financial Performance: Evidence of a Stabilizing Business

CBL's Q3 2025 results provide compelling evidence that the transformation is working. Net income surged to $75.1 million from $15.8 million in the prior-year period, driven by $14.8 million in higher rental revenues from consolidating three malls in December 2024 and acquiring four more in July 2025, plus $33.9 million in deconsolidation gains and $38.4 million in asset sale gains. While the gains are non-recurring, the underlying operational metrics tell a more important story.

Same-center NOI increased 1.1% in Q3 2025, the first positive quarterly reading in recent memory, driven by a $0.7 million revenue increase and $0.4 million expense decrease. This demonstrates that the core portfolio—excluding acquisitions and dispositions—is finally growing again after years of decline. For the nine months, same-center NOI declined only 0.6%, a dramatic improvement from the mid-single-digit declines that characterized the 2018-2021 period. The trajectory is clear: the bleeding has stopped.

Occupancy trends reinforce this stabilization. Total portfolio occupancy reached 90.2% in Q3 2025, up from 89.3% a year ago. Mall occupancy improved to 87.6% (up 120 basis points), while lifestyle centers hit 93.3% (up 210 basis points). These gains are not accidental; they result from the company's aggressive leasing of non-apparel tenants who are expanding while traditional retailers contract. The leasing velocity is impressive: 527,553 square feet of new leases and 2.23 million square feet of renewals in the first nine months of 2025.

Lease spreads provide the most compelling evidence of pricing power. New leases on small shop space (under 10,000 square feet) achieved 13% higher initial gross rent per square foot in Q3 and 28.5% year-to-date. Renewal spreads were positive 6.9% in Q3. Tenants are willing to pay premium rents for space in CBL's repositioned properties, validating the transformation strategy. When you can raise rents by double digits while increasing occupancy, you have a viable business model.

Segment performance reveals a mixed but improving picture. The mall segment, representing 71% of revenue, saw Q3 revenue decline 1.4% to $115.9 million but NOI actually grew 0.7% to $73.0 million, demonstrating expense control and higher-margin leasing. Lifestyle centers, the star performer, grew revenue 9.9% and NOI 13.1%, showing the power of open-air, grocery-anchored formats. Outlet centers held steady with modest growth, while open-air centers declined 15.8% in revenue and 17.1% in NOI, reflecting the company's active disposition of non-core assets in this category.

Balance Sheet and Capital Allocation: The Refinancing Tightrope

CBL's balance sheet reflects both progress and persistent risk. As of September 30, 2025, the company held $313 million in unrestricted cash and U.S. Treasury securities, with restricted cash of $88 million primarily for mortgage escrows. Total pro rata debt stood at $2.68 billion, resulting in a debt-to-equity ratio of 6.4x. This high leverage amplifies returns in good times but creates existential risk if refinancing cannot be executed.

The company has been actively managing its debt stack. In 2025, CBL completed the foreclosure on Alamance Crossing East, satisfying $41.1 million of non-recourse debt, and modified its 2032 non-recourse bank loan to include acquired properties, increasing the principal by $110 million to $443 million while extending maturity to October 2030. These moves demonstrate creative liability management, but they also highlight the ongoing need to negotiate with lenders.

The most critical near-term risk is the $615 million secured term loan due November 2026. S&P Global Ratings explicitly warned in October 2025 that CBL faces liquidity pressure and refinancing risk, noting the company lacks sufficient liquidity to repay the loan and could face a rating downgrade if it does not develop a credible paydown plan. A downgrade would increase borrowing costs and potentially trigger covenant violations across the portfolio. Management exercised a one-year extension option in November 2025, but this merely delays the inevitable need to refinance or repay.

Capital allocation in 2025 reflects management's confidence in the business model's stability. The company paid regular dividends of $0.40/share in Q1-Q2 and $0.45/share in Q3, plus a special $0.80/share dividend in Q1 to maintain REIT status. More significantly, CBL authorized a new $25 million share repurchase program in November 2025, replacing a prior program. This signals that management believes the stock is undervalued and that cash flows are stable enough to return capital to shareholders while simultaneously investing in acquisitions.

The acquisition strategy itself shows disciplined capital deployment. In July 2025, CBL acquired four dominant enclosed malls (Ashland Town Center, Mesa Mall, Paddock Mall, Southgate Mall) for $179.7 million, funded by proceeds from non-core asset sales. These properties are located in markets where CBL can leverage its operating platform and redevelopment expertise, representing a "tuck-in" strategy that grows the core portfolio without overpaying.

Competitive Context: The Nimble Niche Player

CBL's competitive position is best understood by comparing it to the retail REIT spectrum. Simon Property Group, with $93.6 billion in enterprise value and 5.8% ROA, dominates premium malls in top-tier markets. Its scale allows it to negotiate favorable terms with luxury retailers and invest heavily in experiential redevelopments. However, SPG's size makes it less agile in secondary markets where CBL thrives. CBL's 3.2% ROA reflects its smaller scale but also its focus on markets where it can be the dominant player.

Kimco Realty and Regency Centers, with their grocery-anchored open-air centers, offer more defensive profiles. Kimco's 2.2% ROA and Regency's 3.1% ROA are supported by essential retail tenants that are e-commerce resistant. CBL's mall-heavy portfolio appears riskier by comparison, but its diversification into non-retail uses creates a hybrid model that pure open-air REITs cannot replicate. The lifestyle center segment's 13% NOI growth in Q3 demonstrates CBL can compete effectively in open-air formats when it chooses to.

Macerich (MAC), with -15.6% ROE and negative profit margins, represents the downside of being a pure-play mall REIT without a clear transformation strategy. CBL's positive 38.6% ROE and 22.6% profit margins show that its repositioning efforts have created a viable business model while Macerich continues to struggle with legacy assets.

The key differentiator is CBL's capital-light approach. While peers invest heavily in redevelopments, CBL's ground lease and joint venture strategy allows it to transform properties with minimal capital. This reduces risk and improves returns on invested capital, a crucial advantage for a highly leveraged company. More than a dozen anchor replacements in the pipeline require under $5 million in investment, compared to the $50-100 million a traditional redevelopment might cost.

Outlook and Execution Risk: Can the Momentum Continue?

Management's guidance for 2025 reflects cautious optimism. CBL reaffirmed its full-year FFO guidance of $6.98-$7.34 per share and same-center NOI guidance of -2.0% to +0.5%. This wide range acknowledges the uncertainty in retail real estate while still projecting potential growth. The guidance embeds a reserve for unbudgeted revenue declines from unexpected store closures, a practice management refined during the 2018-2019 bankruptcy wave.

The company faces several execution risks. First, the transformation requires continuous leasing success. While 2025 leasing spreads are strong, any economic downturn could pressure tenant demand and rent growth. Second, the capital-light model, while efficient, requires finding willing partners for ground leases and joint ventures. If capital markets tighten, these deals could become harder to execute.

Third, and most critically, is the refinancing risk. With 28.3% of debt floating rate and the $615 million term loan due in November 2026, CBL must generate sufficient cash flow to amortize the loan or secure replacement financing. Fed rate cuts provide a tailwind—each 0.5% cut boosts quarterly AFFO by $0.03 per share—but this is insufficient to fully address the maturity wall.

Management's commentary suggests they are proactively addressing these risks. The capital-allocation committee, chaired by Michael Ashner, reviews financial plans and strategies, indicating board-level oversight of the balance sheet. The decision to suspend dividends in 2019 and now resume them in 2025 shows a willingness to make tough capital decisions based on business conditions.

Valuation Context: The Discount That Doesn't Add Up

At $35.74 per share, CBL trades at a fraction of its retail REIT peers' valuations. The company's 8.94x P/E ratio compares to Simon Property Group at 26.6x, Kimco at 24.3x, and Regency Centers at 31.5x. This 65-70% discount is stark for a company that has emerged from bankruptcy, stabilized operations, and returned to growth.

The price-to-operating cash flow ratio of 5.12x and free cash flow yield of approximately 19% (based on $202 million in annual FCF) suggest the market prices CBL as a distressed asset despite generating substantial cash.

Enterprise value of $3.23 billion represents just 5.84x revenue, compared to 15.21x for SPG, 10.28x for KIM, and 11.56x for REG. Even accounting for CBL's higher risk profile, this gap appears excessive.

The debt-to-equity ratio of 6.4x explains part of the discount, as leverage amplifies downside risk. However, CBL's ROE of 38.6% demonstrates that leverage is being used productively, generating returns well above its cost of debt. The company's 4.76% dividend yield is competitive with peers, and the new share repurchase program signals management's belief that the stock is undervalued.

Analyst consensus price targets of $45.00 imply 26% upside from current levels, but this may understate the potential if CBL successfully refinances its 2026 debt maturity and continues its operational improvement. The market appears to be pricing in a high probability of financial distress that may not materialize given the company's liquidity position and cash-generating ability.

Conclusion: A Transformation at an Inflection Point

CBL Properties has executed a remarkable transformation from a bankrupt mall REIT to a diversified suburban town center operator with improving operational metrics and a clear capital allocation strategy. The evidence is in the numbers: same-center NOI has stabilized, occupancy is rising, lease spreads are strong, and the company is returning capital to shareholders while making accretive acquisitions.

The central thesis hinges on two variables. First, can CBL maintain its leasing momentum and continue driving rent growth in a challenging retail environment? The 13% new lease spreads and 90.2% occupancy suggest yes, but this requires flawless execution. Second, and more critically, can management address the 2026 term loan maturity without a dilutive equity raise or distressed asset sales? The company's $313 million in cash and cash-generating ability provide options, but the clock is ticking.

The valuation discount appears to price in a high probability of failure that may be overstated. While leverage creates real risk, CBL's capital-light transformation model and focus on market-dominant properties in growing communities have created a viable, cash-generating business. For investors willing to accept the refinancing risk, the potential reward is substantial: a 65-70% valuation re-rating toward peer levels would imply a stock price above $90, while the 19% free cash flow yield provides downside protection if the turnaround stalls. The market still doesn't believe the mall turnaround story, but the evidence suggests it should start paying attention.