Edgar Filing: CBL & ASSOCIATES PROPERTIES INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO _______________

COMMISSION FILE NO. 1-12494

CBL & ASSOCIATES PROPERTIES, INC.

(Exact Name of registrant as specified in its charter)

DELAWARE 62-1545718

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

2030 Hamilton Place Blvd., Suite 500, Chattanooga, TN 37421-6000

(Address of principal executive office, including zip code)

423.855.0001

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of November 6, 2007, there were 65,710,300 shares of common stock, par value $0.01 per share, outstanding.

CBL & Associates Properties, Inc.

Table of Contents

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Submission of Matters to a Vote of Security Holders	45

Item 5.	Other Information	45

Item 6.	Exhibits	45

	SIGNATURE	46

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

CBL & Associates Properties, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

	September 30, 2007			December 31, 2006
ASSETS
Real estate assets:
Land	$	828,905		$	779,727
Buildings and improvements		6,239,802			5,944,476
		7,068,707			6,724,203
Less accumulated depreciation		(1,053,459	)		(924,297	)
		6,015,248			5,799,906
Developments in progress		271,331			294,345
Net investment in real estate assets		6,286,579			6,094,251
Cash and cash equivalents		48,880			28,700
Cash held in escrow		33,202			—
Receivables:
Tenant, net of allowance for doubtful accounts of $1,175 in 2007 and $1,128 in 2006		70,121			71,573
Other		13,734			9,656
Mortgage and other notes receivable		34,851			21,559
Investments in unconsolidated affiliates		99,212			78,826
Intangible lease assets and other assets		228,417			214,245
	$	6,814,996		$	6,518,810

LIABILITIES AND SHAREHOLDERS’ EQUITY
Mortgage and other notes payable	$	5,052,266		$	4,564,535
Accounts payable and accrued liabilities		324,711			309,969
Total liabilities		5,376,977			4,874,504
Commitments and contingencies (Notes 3 and 8)
Minority interests		505,104			559,450
Shareholders’ equity:
Preferred stock, $.01 par value, 15,000,000 shares authorized:
8.75% Series B cumulative redeemable preferred stock, 2,000,000 shares outstanding in 2006		—			20
7.75% Series C cumulative redeemable preferred stock, 460,000 shares outstanding in 2007 and 2006		5			5
7.375% Series D cumulative redeemable preferred stock, 700,000 shares outstanding in 2007 and 2006		7			7
Common stock, $.01 par value, 180,000,000 shares authorized, 65,710,828 and 65,421,311 shares issued and oustanding in 2007 and 2006, respectively		657			654
Additional paid-in capital		984,323			1,074,450
Accumulated other comprehensive income (loss)		(4,707	)		19
Retained earnings (accumulated deficit)		(47,370	)		9,701
Total shareholders’ equity		932,915			1,084,856
	$	6,814,996		$	6,518,810

The accompanying notes are an integral part of these balance sheets.

CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
REVENUES:
Minimum rents	$	155,814		$	155,095		$	465,223		$	454,661
Percentage rents		3,506			3,447			11,840			11,554
Other rents		3,580			3,041			11,942			10,438
Tenant reimbursements		83,095			76,602			235,810			226,536
Management, development and leasing fees		1,390			1,181			6,565			3,945
Other		3,837			5,678			15,507			17,096
Total revenues		251,222			245,044			746,887			724,230
EXPENSES:
Property operating		42,080			40,965			123,997			117,914
Depreciation and amortization		58,893			62,142			176,067			170,546
Real estate taxes		24,527			20,098			65,039			59,548
Maintenance and repairs		12,544			13,715			41,856			39,716
General and administrative		8,305			9,402			29,072			28,051
Loss on impairment of real estate assets		—			—			—			274
Other		3,647			5,127			12,088			13,815
Total expenses		149,996			151,449			448,119			429,864
Income from operations		101,226			93,595			298,768			294,366
Interest income		1,990			2,009			7,618			5,687
Interest expense		(72,789	)		(63,884	)		(207,730	)		(191,474	)
Loss on extinguishment of debt		—			(935	)		(227	)		(935	)
Gain on sales of real estate assets		4,337			3,901			10,565			6,831
Equity in earnings of unconsolidated affiliates		1,086			621			2,768			3,807
Income tax provision		(2,609	)		—			(4,360	)		—
Minority interest in earnings:
Operating partnership		(13,288	)		(12,075	)		(35,886	)		(47,930	)
Shopping center properties		(2,121	)		(1,402	)		(6,418	)		(2,663	)
Income from continuing operations		17,832			21,830			65,098			67,689
Operating income from discontinued operations		754			147			1,274			3,898
Gain on disposal of discontinued operations		3,957			2			3,902			7,217
Net income		22,543			21,979			70,274			78,804
Preferred dividends		(5,455	)		(7,642	)		(24,320	)		(22,926	)
Net income available to common shareholders	$	17,088		$	14,337		$	45,954		$	55,878

Basic per share data:
Income from continuing operations, net of preferred dividends	$	0.19		$	0.22		$	0.63		$	0.70
Discontinued operations		0.07			—			0.07			0.18
Net income available to common shareholders	$	0.26		$	0.22		$	0.70		$	0.88
Weighted average common shares outstanding		65,343			64,174			65,233			63,616
Diluted per share data:
Income from continuing operations, net of preferred dividends	$	0.19		$	0.22		$	0.62		$	0.69
Discontinued operations		0.07			—			0.08			0.17
Net income available to common shareholders	$	0.26		$	0.22		$	0.70		$	0.86
Weighted average common and potential dilutive common shares outstanding		65,876			65,496			65,900			65,086

Dividends declared per common share	$	0.5050		$	0.4575		$	1.5150		$	1.3725

The accompanying notes are an integral part of these statements.

CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	70,274		$	78,804
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		116,256			104,610
Amortization		66,135			73,212
Amortization of debt premiums		(5,779	)		(5,599	)
Net amortization of above and below market leases		(8,280	)		(9,739	)
Gain on sales of real estate assets		(10,565	)		(6,831	)
Gain on disposal of discontinued operations		(3,902	)		(7,217	)
Abandoned development projects		955			294
Share-based compensation expense		4,527			4,934
Income tax benefit from stock options		4,139			—
Loss on extinguishment of debt		227			935
Equity in earnings of unconsolidated affiliates		(2,768	)		(3,807	)
Distributions of earnings from unconsolidated affiliates		6,924			6,517
Loss on impairment of real estate assets		—			274
Minority interest in earnings		42,304			50,593
Changes in:
Tenant and other receivables		(1,631	)		(9,226	)
Other assets		(4,359	)		(4,682	)
Accounts payable and accrued liabilities		35,319			(4,423	)
Net cash provided by operating activities		309,776			268,649
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets		(415,019	)		(288,569	)
Acquisitions of real estate assets and other assets		(11,506	)		—
Purchase of available-for-sale securities		(24,325	)		—
Cash placed in escrow		(33,202	)		—
Changes in other assets		(2,493	)		(8,975	)
Proceeds from sales of real estate assets		52,923			113,834
Additions to mortgage notes receivable		(2,613	)		(300	)
Payments received on mortgage notes receivable		4,584			155
Additional investments in and advances to unconsolidated affiliates		(34,934	)		(14,524	)
Distributions in excess of equity in earnings of unconsolidated affiliates		10,636			8,132
Purchase of minority interest in the Operating Partnership		(17,429	)		(3,610	)
Net cash used in investing activities		(473,378	)		(193,857	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other notes payable		825,294			742,082
Principal payments on mortgage and other notes payable		(331,784	)		(613,122	)
Additions to deferred financing costs		(4,960	)		(5,365	)
Prepayment fees on extinguishment of debt		(227	)		(557	)
Proceeds from issuance of common stock		246			291
Proceeds from exercises of stock options		5,656			6,987
Income tax benefit from stock options		(4,139	)		—
Purchase of common stock for retirement		(1,393	)		—
Redemption of preferred stock		(100,000	)		—
Contributions from minority partners		1,822			—
Distributions to minority interests		(86,721	)		(84,187	)
Dividends paid to holders of preferred stock		(20,690	)		(22,927	)
Dividends paid to common shareholders		(99,322	)		(93,272	)
Net cash provided by (used in) financing activities		185,093			(70,070	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		20,180			4,722
CASH AND CASH EQUIVALENTS, beginning of period		28,700			28,838
CASH AND CASH EQUIVALENTS, end of period	$	48,880		$	33,560
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized	$	208,300		$	189,512

The accompanying notes are an integral part of these statements.

CBL & Associates Properties, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except per share data)

Note 1 – Organization and Basis of Presentation

CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air centers and community centers. CBL’s shopping center properties are located in 26 states, but primarily in the southeastern and midwestern United States.

CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”). At September 30, 2007 the Operating Partnership owned controlling interests in 72 regional malls/open-air centers, 28 associated centers (each adjacent to a regional shopping mall), four community centers and CBL’s corporate office building. The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a variable interest entity. The Operating Partnership owned non-controlling interests in seven regional malls, four associated centers and two community centers. Because one or more of the other partners have substantive participating rights, the Operating Partnership does not control these partnerships and, accordingly, accounts for these investments using the equity method. The Operating Partnership had five mall expansions, three associated/lifestyle centers, one mixed-use center, three community centers and an office building under construction at September 30, 2007. The Operating Partnership also holds options to acquire certain development properties owned by third parties.

CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At September 30, 2007, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.6% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned a 54.9% limited partner interest for a combined interest held by CBL of 56.5%.

The minority interest in the Operating Partnership is held primarily by CBL & Associates, Inc. and its affiliates (collectively “CBL’s Predecessor”) and by affiliates of The Richard E. Jacobs Group, Inc. (“Jacobs”). CBL’s Predecessor contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993. Jacobs contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for limited partner interests when the Operating Partnership acquired the majority of Jacobs’ interests in 23 properties in January 2001 and the balance of such interests in February 2002. At September 30, 2007, CBL’s Predecessor owned a 15.0% limited partner interest, Jacobs owned a 19.7% limited partner interest and various third parties owned an 8.8% limited partner interest in the Operating Partnership. CBL’s Predecessor also owned 6.5 million shares of CBL’s common stock at September 30, 2007, for a total combined effective interest of 20.6% in the Operating Partnership.

The Operating Partnership conducts CBL’s property management and development activities through CBL & Associates Management, Inc. (the “Management Company”) to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”). The Operating Partnership owns 100% of the Management Company’s preferred stock and common stock.

CBL, the Operating Partnership and the Management Company are collectively referred to herein as “the Company”.

The accompanying condensed consolidated financial statements are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by accounting

principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. The results for the interim periods ended September 30, 2007, are not necessarily indicative of the results to be obtained for the full fiscal year. Certain prior year amounts have been reclassified for discontinued operations. See Note 11 for further discussion.

These condensed consolidated financial statements should be read in conjunction with CBL’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2006.

Note 2 – Joint Ventures

Equity Method Investments

At September 30, 2007, the Company had investments in the following 13 partnerships and joint ventures, which are accounted for using the equity method of accounting:

Joint Venture	Property Owned	Company's Interest
Governor’s Square IB	Governor’s Plaza	50.0	%
Governor’s Square Company	Governor’s Square	47.5	%
High Pointe Commons, LP	High Pointe Commons	50.0	%
Imperial Valley Mall L.P.	Imperial Valley Mall	60.0	%
Imperial Valley Peripheral L.P.	Imperial Valley Mall (vacant land)	60.0	%
Imperial Valley Commons L.P.	Imperial Valley Commons	60.0	%
Kentucky Oaks Mall Company	Kentucky Oaks Mall	50.0	%
Mall of South Carolina L.P.	Coastal Grand—Myrtle Beach	50.0	%
Mall of South Carolina Outparcel L.P.	Coastal Grand—Myrtle Beach (vacant land)	50.0	%
Mall Shopping Center Company	Plaza del Sol	50.6	%
Parkway Place L.P.	Parkway Place	45.0	%
Triangle Town Member LLC	Triangle Town Center, Triangle Town Commons and Triangle Town Place	50.0	%
York Town Center, LP	York Town Center	50.0	%

Condensed combined financial statement information for the unconsolidated affiliates is as follows:

	Total for the Three Months Ended September 30,						Company's Share for the Three Months Ended September 30
	2007			2006			2007			2006
Revenues	$	24,248		$	22,578		$	12,260		$	11,429
Depreciation and amortization expense		(6,800	)		(6,684	)		(3,425	)		(3,377	)
Interest expense		(8,364	)		(8,880	)		(4,178	)		(4,485	)
Other operating expenses		(7,535	)		(7,332	)		(3,866	)		(3,741	)
Gain on sales of real estate assets		490			1,470			295			795
Net income	$	2,039		$	1,152		$	1,086		$	621

	Total for the Nine Months Ended September 30,						Company's Share for the Nine Months Ended September 30,
	2007			2006			2007			2006
Revenues	$	71,417		$	69,573		$	36,067		$	35,075
Depreciation and amortization expense		(20,832	)		(19,807	)		(10,550	)		(10,020	)
Interest expense		(25,027	)		(25,987	)		(12,576	)		(13,154	)
Other operating expenses		(22,360	)		(20,456	)		(11,391	)		(10,396	)
Gain on sales of real estate assets		2,281			4,283			1,218			2,302
Net income	$	5,479		$	7,606		$	2,768		$	3,807

Cost Method Investments

In February 2007, the Company acquired a 6.2% minority interest in subsidiaries of Jinsheng Group (“Jinsheng”), an established mall operating and real estate development company located in Nanjing, China, for $10,125. As of September 30, 2007, Jinsheng owns controlling interests in four home decor shopping malls and two general retail shopping centers.

Jinsheng also issued to the Company a secured convertible promissory note in exchange for cash of $4,875. The note is secured by 16,565,534 Series 2 Ordinary Shares of Jinsheng. The secured note is non-interest bearing and matures upon the earlier to occur of (i) January 22, 2012, (ii) the closing of the sale, transfer or other disposition of substantially all of Jinsheng’s assets, (iii) the closing of a merger or consolidation of Jinsheng or (iv) an event of default, as defined in the secured note. In lieu of the Company’s right to demand payment on the maturity date, at any time commencing upon the earlier to occur of January 22, 2010 or the occurrence of a Final Trigger Event, as defined in the secured note, the Company may, at its sole option, convert the outstanding amount of the secured note into 16,565,534 Series A-2 Preferred Shares of Jinsheng (which equates to a 2.275% ownership interest).

Jinsheng also granted the Company a warrant to acquire 5,461,165 Series A-3 Preferred Shares for $1,875. The warrant expires upon the earlier of January 22, 2010 or the date that Jinsheng distributes, as a dividend, shares of Jinsheng’s successor should Jinsheng complete an initial public offering.

The Company accounts for its minority interest in Jinsheng using the cost method because the Company does not exercise significant influence over Jinsheng and there is no readily determinable market value of Jinsheng’s shares since they are not publicly traded. The Company recorded the secured note at its estimated fair value of $4,513, which reflects a discount of $362 due to the fact that it is non-interest bearing. The discount is amortized to interest income over the term of the secured note using the effective interest method. The minority interest and the secured note are reflected as investment in unconsolidated affiliates in the accompanying consolidated balance sheet. The Company recorded the warrant at its estimated fair value of $362, which is included in other assets in the accompanying consolidated balance sheet. There have been no significant changes to the fair values of the secured note and warrant.

Variable Interest Entities

In August 2007, the Company entered into a joint venture agreement with a third party to develop and operate Statesboro Crossing, an open-air shopping center in Statesboro, GA. The Company holds a 50% ownership interest in the joint venture. The Company determined that its investment represents a variable interest in a variable interest entity and that the Company is the primary beneficiary. As a result, the joint venture is presented in the accompanying financial statements as of September 30, 2007 on a consolidated basis, with the interests of the third party reflected as minority interest.

In May 2007, the Company entered into a joint venture agreement with certain third parties to develop and operate The Village at Orchard Hills, a lifestyle center in Grand Rapids Township, MI. The Company holds a 50% ownership interest in the joint venture. The Company determined that its investment represents a variable interest in a variable interest entity and that the Company is the primary beneficiary. As a result, the joint venture is presented in the accompanying financial statements as of September 30, 2007 on a consolidated basis, with the interests of the third parties reflected as minority interest.

In March 2007, the Company entered into an amended and restated joint venture agreement with a third party to develop and operate Settlers Ridge, an open-air shopping center in Robinson Township, PA. The Company holds a 60% ownership interest in the joint venture. The Company determined that its investment represents a variable interest in a variable interest entity and that the Company is the primary beneficiary. The joint venture is presented in the accompanying financial statements on a consolidated basis, with the interests of the third party reflected as minority interest.

In October 2006, the Company entered into a loan agreement with a third party to loan the third party up to $7,300 to fund land acquisition costs and certain predevelopment expenses for the purpose of developing a shopping center. The loan agreement provides that, in certain circumstances, the Company may convert the loan to a 25% ownership interest in the third party. As of December 31, 2006, the Company determined that its loan to the third party was a variable interest in a variable interest entity and that the Company was the primary beneficiary. As a result, the Company consolidated this entity as of December 31, 2006. During the first quarter of 2007, the Company reconsidered its status as the primary beneficiary of this variable interest entity and determined that it no longer was the primary beneficiary. Therefore, the Company ceased consolidating this variable interest entity and has recorded the loan as a mortgage note receivable. The loan bears interest at 9.0% and originally was to mature on October 31, 2007. The Company has received notice from the third party that it has exercised its option to extend the loan for an additional year.

Note 3 – Mortgage and Other Notes Payable

Mortgage and other notes payable consisted of the following at September 30, 2007 and December 31, 2006, respectively:

	September 30, 2007				December 31, 2006
	Amount		Weighted Average Interest Rate(1)		Amount		Weighted Average Interest Rate(1)
Fixed-rate debt:
Non-recourse loans on operating properties	$	4,049,524	5.93	%	$	3,517,710	5.99	%
Variable-rate debt:
Recourse term loans on operating properties		75,221	6.75	%		101,464	6.48	%
Construction loans		34,589	6.78	%		114,429	6.61	%
Lines of credit		892,932	6.28	%		830,932	6.19	%
Total variable-rate debt		1,002,742	6.33	%		1,046,825	6.26	%
Total	$	5,052,266	6.01	%	$	4,564,535	6.06	%

(1) Weighted-average interest rate including the effect of debt premiums, but excluding amortization of deferred financing costs.

During the second quarter of 2007, the Company obtained two separate ten-year, non-recourse loans totaling $207,520 that bear interest at fixed rates ranging from 5.60% to 5.66%, with a weighted average of 5.61%. The loans are secured by Gulf Coast Town Center and Eastgate Crossing. The proceeds were used to retire two variable rate loans totaling $143,258 and to reduce outstanding balances on the Company’s credit facilities.

During the first quarter of 2007, the Company obtained six separate ten-year, non-recourse loans totaling $417,040 that bear interest at fixed rates ranging from 5.67% to 5.68%, with a weighted average of 5.67%. The loans are secured by Mall of Acadiana, Citadel Mall, The Plaza at Fayette Mall, Layton Hills Mall and its associated center, Hamilton Corner and The Shoppes at St. Clair Square. The proceeds were used to retire $92,050 of mortgage notes payable that were scheduled to mature during the next twelve months and to reduce outstanding balances on the Company’s credit facilities. The mortgage notes payable that were retired consisted of two variable rate term loans totaling $51,825 and three fixed rate loans totaling $40,225. The Company recorded a loss on extinguishment of debt of $227 in the nine months ended September 30, 2007, related to prepayment fees and the write-off of unamortized deferred financing costs associated with the loans that were retired.

Unsecured Line of Credit

The Company has one unsecured credit facility that is used for construction, acquisition and working capital purposes, as well as issuances of letters of credit. The unsecured credit facility has total availability of $560,000 that bears interest at the London Interbank Offered Rate (“LIBOR”) plus a margin of 0.75% to 1.20% based on the Company’s leverage, as defined in the agreement. The credit facility matures in August 2008 and has three one-year extension options, which are at the Company’s election. At September 30, 2007, the outstanding borrowings of $283,232 under the unsecured credit facility had a weighted average interest rate of 6.53%. Additionally, the Company pays an annual fee equal to 0.1% of the amount of total availability under the unsecured credit facility.

Secured Lines of Credit

The Company has four secured lines of credit that are used for construction, acquisition, and working capital purposes, as well as issuances of letters of credit. Each of these lines is secured by mortgages on certain of the Company’s operating properties. Borrowings under the secured lines of credit bear interest at a rate of LIBOR plus a margin ranging from 0.80% to 0.90% and had a weighted average interest rate of 6.16% at September 30, 2007. The Company also pays a fee based on the amount of unused availability under its largest secured credit facility at a rate of 0.125% or 0.250%, depending on the level of unused availability. The following summarizes certain information about the secured lines of credit as of September 30, 2007:

Total Available		Total Outstanding		Maturity Date
$	525,000	$	525,000	February 2009
	100,000		47,500	June 2009
	20,000		20,000	March 2010
	17,200		17,200	April 2008
$	662,200	$	609,700

In September 2007, the Company amended the largest secured credit facility to increase the maximum availability from $476,000 to $525,000 and to substitute certain collateral under the facility.

Letters of Credit

At September 30, 2007, the Company had additional secured and unsecured lines of credit with a total commitment of $40,523 that are used only for issuing letters of credit. The letters of credit outstanding under these lines of credit totaled $31,231 at September 30, 2007.

Covenants and Restrictions

Thirty-nine malls/open-air centers, nine associated centers, three community centers and the corporate office building are owned by special purpose entities that are included in the Company’s

consolidated financial statements. The sole business purpose of the special purpose entities is to own and operate these properties, each of which is encumbered by a commercial-mortgage-backed-securities loan. The real estate and other assets owned by these special purpose entities are restricted under the loan agreements in that they are not available to settle other debts of the Company. However, so long as the loans are not under an event of default, as defined in the loan agreements, the cash flows from these properties, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.

Maturities

The weighted average remaining term of the Company’s consolidated debt was 4.9 years at September 30, 2007 and 4.8 years at December 31, 2006. The Company has six loans and two lines of credit with amounts outstanding totaling $597,734 that are scheduled to mature before September 30, 2008. The Company expects to retire or refinance these borrowings.

Note 4 – Shareholders’ Equity and Minority Interests

On August 2, 2007, the Company’s Board of Directors approved a $100,000 common stock repurchase plan effective for twelve months. Under the August 2007 plan, purchases of shares of the Company’s common stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases. Any stock repurchases are to be funded through the Company’s available cash and credit facilities. The Company is not obligated to repurchase any shares of stock under the plan and the Company may terminate the plan at any time. Repurchased shares are deemed retired and are, accordingly, cancelled and no longer considered issued. During the three and nine months ended September 30, 2007, the Company repurchased 148,500 shares at a cost of approximately $5,169. The cost of repurchased shares is recorded as a reduction in the respective components of shareholders’ equity.

On June 28, 2007, the Company redeemed its 2,000,000 outstanding shares of 8.75% Series B Cumulative Redeemable Stock (the “Series B Preferred Stock”) for $100,000, representing a liquidation preference of $50.00 per share, plus accrued and unpaid dividends of $2,139. In connection with the redemption of the Series B Preferred Stock, the Company incurred a charge of $3,630 to write off direct issuance costs that were recorded as a reduction of additional paid-in capital when the Series B Preferred Stock was issued. The charge is included in preferred dividends in the accompanying consolidated statement of operations for the nine months ended September 30, 2007.

During the nine months ended September 30, 2007, holders of 220,670 special common units of limited partnership interest in the Operating Partnership exercised their conversion rights. The Company elected to pay cash of $9,423 in exchange for the special common units. All of these units were redeemed during the first six months of 2007.

Note 5 – Segment Information

The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments. Information on the Company’s reportable segments is presented as follows:

Three Months Ended September 30, 2007	Malls			Associated Centers			Community Centers			All Other			Total
Revenues	$	230,812		$	11,320		$	3,272		$	5,818		$	251,222
Property operating expenses (1)		(84,377	)		(2,795	)		(1,021	)		9,042			(79,151	)
Interest expense		(59,002	)		(2,336	)		(1,665	)		(9,786	)		(72,789	)
Other expense		—			—			—			(3,647	)		(3,647	)
Gain (loss) on sales of real estate assets		1,668			(1	)		1,569			1,101			4,337
Segment profit and loss	$	89,101		$	6,188		$	2,155		$	2,528			99,972
Depreciation and amortization expense														(58,893	)
General and administrative expense														(8,305	)
Interest and other income														1,990
Equity in earnings of unconsolidated affiliates														1,086
Income tax provision														(2,609	)
Minority interest in earnings														(15,409	)
Income before discontinued operations													$	17,832
Capital expenditures (2)	$	66,508		$	6,298		$	39		$	81,468		$	154,313

Three Months Ended September 30, 2006	Malls			Associated Centers			Community Centers			All Other			Total
Revenues	$	226,294		$	9,696		$	1,895		$	7,159		$	245,044
Property operating expenses (1)		(77,455	)		(2,443	)		(774	)		5,894			(74,778	)
Interest expense		(53,526	)		(1,121	)		(712	)		(8,525	)		(63,884	)
Other expense		—			—			—			(5,127	)		(5,127	)
Gain (loss) on sales of real estate assets		2,229			(5	)		(15	)		1,692			3,901
Segment profit and loss	$	97,542		$	6,127		$	394		$	1,093			105,156
Depreciation and amortization expense														(62,142	)
General and administrative expense														(9,402	)
Loss on extinguishment of debt														(935	)
Interest and other income														2,009
Equity in earnings of unconsolidated affiliates														621
Minority interest in earnings														(13,477	)
Income before discontinued operations													$	21,830
Capital expenditures (2)	$	100,566		$	14,015		$	1,110		$	36,305		$	151,996

Nine Months Ended September 30, 2007	Malls			Associated Centers			Community Centers			All Other			Total
Revenues	$	685,776		$	31,933		$	7,610		$	21,568		$	746,887
Property operating expenses (1)		(243,934	)		(7,196	)		(2,419	)		22,657			(230,892	)
Interest expense		(171,865	)		(6,465	)		(3,655	)		(25,745	)		(207,730	)
Other expense		—			—			—			(12,088	)		(12,088	)
Gain (loss) on sales of real estate assets		1,496			(11	)		1,558			7,522			10,565
Segment profit and loss	$	271,473		$	18,261		$	3,094		$	13,914			306,742
Depreciation and amortization expense														(176,067	)
General and administrative expense														(29,072	)
Loss on extinguishment of debt														(227	)
Interest and other income														7,618
Equity in earnings of unconsolidated affiliates														2,768
Income tax provision														(4,360	)
Minority interest in earnings														(42,304	)
Income before discontinued operations													$	65,098
Total assets	$	5,880,107		$	350,597		$	175,467		$	408,825		$	6,814,996
Capital expenditures (2)	$	210,193		$	21,964		$	9,794		$	188,606		$	430,557

Nine Months Ended September 30, 2006	Malls			Associated Centers			Community Centers			All Other			Total
Revenues	$	669,811		$	28,109		$	5,772		$	20,538		$	724,230
Property operating expenses (1)		(226,835	)		(6,718	)		(2,033	)		18,408			(217,178	)
Interest expense		(161,435	)		(3,425	)		(2,117	)		(24,497	)		(191,474	)
Other expense		—			—			—			(13,815	)		(13,815	)
Gain on sales of real estate assets		2,224			1,054			33			3,520			6,831
Segment profit and loss	$	283,765		$	19,020		$	1,655		$	4,154			308,594
Depreciation and amortization expense														(170,546	)
General and administrative expense														(28,051	)
Loss on impairment of real estate assets														(274	)
Loss on extinguishment of debt														(935	)
Interest and other income														5,687
Equity in earnings of unconsolidated affiliates														3,807
Minority interest in earnings														(50,593	)
Income before discontinued operations													$	67,689
Total assets	$	5,805,546		$	279,228		$	54,670		$	276,767		$	6,416,211
Capital expenditures (2)	$	198,165		$	37,862		$	1,632		$	88,838		$	326,497

(1)	Property operating expenses include property operating expenses, real estate taxes and maintenance and repairs.

(2)