UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

 

 

 

 

 

FORM 10-Q

 

 

 

 

 

 


 

 

x

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

OR

 

 

o

TRANSITION 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o (Do not check if smaller reporting company)

 

Smaller Reporting Company 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 August 5, 2009, there were 137,859,925 shares of common stock, par value $0.01 per share, outstanding.

1




CBL & Associates Properties, Inc.

Table of Contents

 

 

 

 

 

PART I

 

FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2009 and 2008

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Equity for the Six Months Ended June 30, 2009 and 2008

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008

 

8

 

 

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

10

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

31

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

53

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

53

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

54

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

54

 

 

 

 

 

Item 1A.

 

Risk Factors

 

54

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

70

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

70

 

 

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

71

 

 

 

 

 

Item 5.

 

Other Information

 

71

 

 

 

 

 

Item 6.

 

Exhibits

 

71

 

 

 

 

 

 

 

SIGNATURE

 

72

2



PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Real estate assets:

 

 

 

 

 

 

 

Land

 

$

926,588

 

$

902,504

 

Buildings and improvements

 

 

7,567,502

 

 

7,503,334

 

 

 

   

 

   

 

 

 

 

8,494,090

 

 

8,405,838

 

Accumulated depreciation

 

 

(1,433,863

)

 

(1,310,173

)

 

 

   

 

   

 

 

 

 

7,060,227

 

 

7,095,665

 

Developments in progress

 

 

217,207

 

 

225,815

 

 

 

   

 

   

 

Net investment in real estate assets

 

 

7,277,434

 

 

7,321,480

 

Cash and cash equivalents

 

 

50,789

 

 

51,227

 

Cash held in escrow

 

 

 

 

2,700

 

Receivables:

 

 

 

 

 

 

 

Tenant, net of allowance for doubtful accounts of $2,133 in 2009 and $1,910 in 2008

 

 

69,386

 

 

74,402

 

Other

 

 

12,725

 

 

12,145

 

Mortgage and other notes receivable

 

 

51,380

 

 

58,961

 

Investments in unconsolidated affiliates

 

 

196,106

 

 

207,618

 

Intangible lease assets and other assets

 

 

285,712

 

 

305,802

 

 

 

   

 

   

 

 

 

$

7,943,532

 

$

8,034,335

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

 

 

Mortgage and other notes payable

 

$

5,688,602

 

$

6,095,676

 

Accounts payable and accrued liabilities

 

 

291,152

 

 

329,991

 

 

 

   

 

   

 

Total liabilities

 

 

5,979,754

 

 

6,425,667

 

 

 

   

 

   

 

Commitments and contingencies (Notes 3, 5 and 11)

 

 

 

 

 

 

 

Redeemable noncontrolling interests:

 

 

 

 

 

 

 

Redeemable noncontrolling partnership interests

 

 

91,792

 

 

18,393

 

Redeemable noncontrolling preferred joint venture interest

 

 

421,457

 

 

421,279

 

 

 

   

 

   

 

Total redeemable noncontrolling interests

 

 

513,249

 

 

439,672

 

 

 

   

 

   

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 15,000,000 shares authorized:

 

 

 

 

 

 

 

7.75% Series C cumulative redeemable preferred stock, 460,000 shares outstanding in 2009 and 2008

 

 

5

 

 

5

 

7.375% Series D cumulative redeemable preferred stock, 700,000 shares outstanding in 2009 and 2008

 

 

7

 

 

7

 

Common Stock, $.01 par value, 180,000,000 shares authorized, 137,855,513 and 66,394,844 issued and outstanding in 2009 and 2008, respectively

 

 

1,378

 

 

664

 

Additional paid-in capital

 

 

1,420,214

 

 

993,941

 

Accumulated other comprehensive loss

 

 

(6,968

)

 

(12,786

)

Accumulated deficit

 

 

(223,202

)

 

(193,307

)

 

 

   

 

   

 

Total shareholders’ equity

 

 

1,191,434

 

 

788,524

 

Noncontrolling interests

 

 

259,095

 

 

380,472

 

 

 

   

 

   

 

Total equity

 

 

1,450,529

 

 

1,168,996

 

 

 

   

 

   

 

 

 

$

7,943,532

 

$

8,034,335

 

 

 

   

 

   

 

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

3



CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

170,491

 

$

177,943

 

$

342,428

 

$

352,474

 

Percentage rents

 

 

1,604

 

 

1,610

 

 

6,408

 

 

6,606

 

Other rents

 

 

4,142

 

 

4,204

 

 

8,422

 

 

9,218

 

Tenant reimbursements

 

 

81,695

 

 

79,952

 

 

163,179

 

 

166,375

 

Management, development and leasing fees

 

 

1,615

 

 

2,484

 

 

4,080

 

 

5,422

 

Other

 

 

6,977

 

 

6,290

 

 

13,067

 

 

13,320

 

 

 

   

 

   

 

   

 

   

 

Total revenues

 

 

266,524

 

 

272,483

 

 

537,584

 

 

553,415

 

 

 

   

 

   

 

   

 

   

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

 

39,355

 

 

44,094

 

 

83,372

 

 

92,386

 

Depreciation and amortization

 

 

75,793

 

 

73,064

 

 

154,104

 

 

148,144

 

Real estate taxes

 

 

24,449

 

 

23,898

 

 

48,603

 

 

48,077

 

Maintenance and repairs

 

 

13,416

 

 

15,003

 

 

29,410

 

 

32,919

 

General and administrative

 

 

10,893

 

 

11,114

 

 

22,372

 

 

23,645

 

Other

 

 

5,914

 

 

6,541

 

 

11,071

 

 

13,540

 

 

 

   

 

   

 

   

 

   

 

Total expenses

 

 

169,820

 

 

173,714

 

 

348,932

 

 

358,711

 

 

 

   

 

   

 

   

 

   

 

Income from operations

 

 

96,704

 

 

98,769

 

 

188,652

 

 

194,704

 

Interest and other income

 

 

1,362

 

 

2,182

 

 

2,943

 

 

4,909

 

Interest expense

 

 

(72,842

)

 

(76,455

)

 

(144,727

)

 

(156,679

)

Impairment of investment

 

 

 

 

 

 

(7,706

)

 

 

Gain (loss) on sales of real estate assets

 

 

72

 

 

4,269

 

 

(67

)

 

7,345

 

Equity in earnings (losses) of unconsolidated affiliates

 

 

62

 

 

(186

)

 

1,596

 

 

793

 

Income tax provision

 

 

(152

)

 

(3,838

)

 

(755

)

 

(4,195

)

 

 

   

 

   

 

   

 

   

 

Income from continuing operations

 

 

25,206

 

 

24,741

 

 

39,936

 

 

46,877

 

Operating income of discontinued operations

 

 

86

 

 

1,053

 

 

20

 

 

1,335

 

Gain (loss) on discontinued operations

 

 

(12

)

 

3,112

 

 

(72

)

 

3,112

 

 

 

   

 

   

 

   

 

   

 

Net income

 

 

25,280

 

 

28,906

 

 

39,884

 

 

51,324

 

Net income attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

(5,109

)

 

(7,385

)

 

(6,415

)

 

(12,127

)

Other consolidated subsidiaries

 

 

(6,580

)

 

(6,402

)

 

(12,711

)

 

(12,451

)

 

 

   

 

   

 

   

 

   

 

Net income attributable to the Company

 

 

13,591

 

 

15,119

 

 

20,758

 

 

26,746

 

Preferred dividends

 

 

(5,454

)

 

(5,454

)

 

(10,909

)

 

(10,909

)

 

 

   

 

   

 

   

 

   

 

Net income available to common shareholders

 

$

8,137

 

$

9,665

 

$

9,849

 

$

15,837

 

 

 

   

 

   

 

   

 

   

 

The accompanying notes are an integral part of these statements.

4



CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Basic per share data attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of preferred dividends

 

$

0.10

 

$

0.10

 

$

0.13

 

$

0.19

 

Discontinued operations

 

 

 

 

0.04

 

 

 

 

0.03

 

 

 

   

 

   

 

   

 

   

 

Net income available to common shareholders

 

$

0.10

 

$

0.14

 

$

0.13

 

$

0.22

 

 

 

   

 

   

 

   

 

   

 

Weighted average common shares outstanding

 

 

82,918

 

 

71,062

 

 

77,072

 

 

71,027

 

Diluted per share data attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of preferred dividends

 

$

0.10

 

$

0.10

 

$

0.13

 

$

0.19

 

Discontinued operations

 

 

 

 

0.04

 

 

 

 

0.03

 

 

 

   

 

   

 

   

 

   

 

Net income available to common shareholders

 

$

0.10

 

$

0.14

 

$

0.13

 

$

0.22

 

 

 

   

 

   

 

   

 

   

 

Weighted average common and potential dilutive common shares outstanding

 

 

82,957

 

 

71,250

 

 

77,109

 

 

71,209

 

Amounts attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of preferred dividends

 

$

8,092

 

$

7,259

 

$

9,880

 

$

13,269

 

Discontinued operations

 

 

45

 

 

2,406

 

 

(31

)

 

2,568

 

 

 

   

 

   

 

   

 

   

 

Net income available to common shareholders

 

$

8,137

 

$

9,665

 

$

9,849

 

$

15,837

 

 

 

   

 

   

 

   

 

   

 

 

Dividends declared per common share

 

$

0.1100

 

$

0.5450

 

$

0.4800

 

$

1.0900

 

5



CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

Shareholders’ Equity

 

 

Redeemable
Noncontrolling
Partnership
Interests

 

Preferred
Stock

 

Common
Stock

 

Additional
Paid-In Capital

 

Accumulated
Other
Comprehensive
Loss

 

Accumulated
Deficit

 

Total
Shareholders’
Equity

 

Noncontrolling
Interests

 

Total

 

Comprehensive
Income

 

 

 

                                 

 

 

 

 

Balance, January 1, 2008

 

$

43,145

 

$

12

 

$

662

 

$

964,676

 

$

(13

)

$

(70,154

)

$

895,183

 

$

482,217

 

$

1,377,400

 

$

 

Net income

 

 

2,654

 

 

 

 

 

 

 

 

 

 

26,746

 

 

26,746

 

 

11,999

 

 

38,745

 

 

41,400

 

Net unrealized loss on available-for-sale securities

 

 

(62

)

 

 

 

 

 

 

 

(2,631

)

 

 

 

(2,631

)

 

(1,958

)

 

(4,589

)

 

(4,651

)

Unrealized loss on hedging instruments

 

 

(41

)

 

 

 

 

 

 

 

(1,752

)

 

 

 

(1,752

)

 

(1,305

)

 

(3,057

)

 

(3,098

)

Unrealized gain on foreign currency translation adjustment

 

 

21

 

 

 

 

 

 

 

 

892

 

 

 

 

892

 

 

664

 

 

1,556

 

 

1,577

 

Dividends declared - common stock

 

 

 

 

 

 

 

 

 

 

 

 

(72,199

)

 

(72,199

)

 

 

 

(72,199

)

 

 

Dividends declared - preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

(10,909

)

 

(10,909

)

 

 

 

(10,909

)

 

 

Issuance of common stock and restricted common stock

 

 

 

 

 

 

1

 

 

327

 

 

 

 

 

 

328

 

 

 

 

328

 

 

 

Cancellation of restricted common stock

 

 

 

 

 

 

 

 

(507

)

 

 

 

 

 

(507

)

 

 

 

(507

)

 

 

 

Exercise of stock options

 

 

 

 

 

 

 

 

583

 

 

 

 

 

 

583

 

 

 

 

583

 

 

 

Accelerated vesting of share-based compensation

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

 

 

 

35

 

 

 

Accrual under deferred compensation arrangements

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

53

 

 

 

 

53

 

 

 

Amortization of deferred compensation

 

 

 

 

 

 

 

 

2,487

 

 

 

 

 

 

2,487

 

 

 

 

2,487

 

 

 

Additions to deferred financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

23

 

 

 

 

Income tax benefit from share-based compensation

 

 

67

 

 

 

 

 

 

1,590

 

 

 

 

 

 

1,590

 

 

2,079

 

 

3,669

 

 

 

Distributions to noncontrolling interests

 

 

(3,401

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(55,328

)

 

(55,328

)

 

 

Contributions from noncontrolling interest in Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,567

 

 

2,567

 

 

 

Adjustment for noncontrolling interests

 

 

(617

)

 

 

 

 

 

525

 

 

 

 

 

 

525

 

 

92

 

 

617

 

 

 

Reclassification of noncontrolling interests related to deconsolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,257

)

 

(3,257

)

 

 

Adjustment to record redeemable noncontolling partnership interest at redemption value

 

 

(113

)

 

 

 

 

 

113

 

 

 

 

 

 

113

 

 

 

 

113

 

 

 

 

 

   

 

                                             

 

   

 

Balance, June 30, 2008

 

$

41,653

 

$

12

 

$

663

 

$

969,882

 

$

(3,504

)

$

(126,516

)

$

840,537

 

$

437,793

 

$

1,278,330

 

$

35,228

 

 

 

   

 

                                             

 

   

 

6



CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable
Noncontrolling
Partnership
Interests

 

Preferred
Stock

 

Common
Stock

 

Additional
Paid-In Capital

 

Accumulated
Other
Comprehensive
Loss

 

Accumulated
Deficit

 

Total
Shareholders’
Equity

 

Noncontrolling
Interests

 

Total

 

Comprehensive
Income

 

 

 

 

                             

 

 

 

Balance, January 1, 2009

 

$

18,393

 

$

12

 

$

664

 

$

993,941

 

$

(12,786

)

$

(193,307

)

$

788,524

 

$

380,472

 

$

1,168,996

 

$

Net income

 

 

2,688

 

 

 

 

 

 

 

 

 

 

20,758

 

 

20,758

 

 

6,095

 

 

26,853

 

 

29,541

Net unrealized gain (loss) on available-for-sale securities

 

 

193

 

 

 

 

 

 

 

 

192

 

 

 

 

192

 

 

(249

)

 

(57

)

 

136

Unrealized gain on hedging instruments

 

 

342

 

 

 

 

 

 

 

 

3,053

 

 

 

 

3,053

 

 

1,728

 

 

4,781

 

 

5,123

Realized loss on foreign currency translation adjustment

 

 

3

 

 

 

 

 

 

 

 

44

 

 

 

 

44

 

 

28

 

 

72

 

 

75

Unrealized gain on foreign currency translation adjustment

 

 

350

 

 

 

 

 

 

 

 

2,529

 

 

 

 

2,529

 

 

1,300

 

 

3,829

 

 

4,179

Dividends declared - common stock

 

 

 

 

 

 

 

 

 

 

 

 

(39,744

)

 

(39,744

)

 

 

 

(39,744

)

 

Dividends declared - preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

(10,909

)

 

(10,909

)

 

 

 

(10,909

)

 

Issuance of common stock and restricted common stock

 

 

 

 

 

 

 

 

414

 

 

 

 

 

 

414

 

 

 

 

414

 

 

Issuance of common stock for dividend

 

 

 

 

 

 

48

 

 

14,691

 

 

 

 

 

 

14,739

 

 

 

 

14,739

 

 

Issuance of common stock in equity offering

 

 

 

 

 

 

666

 

 

380,936

 

 

 

 

 

 

381,602

 

 

 

 

381,602

 

 

Cancellation of restricted common stock

 

 

 

 

 

 

 

 

(117

)

 

 

 

 

 

(117

)

 

 

 

(117

)

 

Accrual under deferred compensation arrangements

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

39

 

 

 

 

39

 

 

Amortization of deferred compensation

 

 

 

 

 

 

 

 

1,515

 

 

 

 

 

 

1,515

 

 

 

 

1,515

 

 

Additions to deferred financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

23

 

 

Transfer from noncontrolling interests to redeemable noncontrolling interests

 

 

82,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(82,970

)

 

(82,970

)

 

Issuance of noncontrolling interests for distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,140

 

 

4,140

 

 

Distributions to noncontrolling interests

 

 

(6,262

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,062

)

 

(29,062

)

 

Purchase of noncontrolling interests in other consolidated subsidiaries

 

 

 

 

 

 

 

 

217

 

 

 

 

 

 

217

 

 

(717

)

 

(500

)

 

Adjustment for noncontrolling interests

 

 

(6,238

)

 

 

 

 

 

27,931

 

 

 

 

 

 

27,931

 

 

(21,693

)

 

6,238

 

 

Adjustment to record redeemable noncontrolling partnership interest at redemption value

 

 

(647

)

 

 

 

 

 

647

 

 

 

 

 

 

647

 

 

 

 

647

 

 

 

 

   

 

                                             

 

   

Balance, June 30, 2009

 

$

91,792

 

$

12

 

$

1,378

 

$

1,420,214

 

$

(6,968

)

$

(223,202

)

$

1,191,434

 

$

259,095

 

$

1,450,529

 

$

39,054

 

 

   

 

                                             

 

   

7



CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

39,884

 

$

51,324

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

96,393

 

 

89,193

 

Amortization

 

 

62,142

 

 

64,255

 

Net amortization of debt premiums and discounts

 

 

(3,742

)

 

(3,936

)

Net amortization of above- and below-market leases

 

 

(3,112

)

 

(5,108

)

(Gain) loss on sales of real estate assets

 

 

67

 

 

(7,345

)

Realized foreign currency loss

 

 

75

 

 

 

(Gain) loss on discontinued operations

 

 

72

 

 

(3,112

)

Issuance of stock under incentive plan

 

 

332

 

 

 

Write-off of development projects

 

 

143

 

 

2,911

 

Share-based compensation expense

 

 

1,543

 

 

2,727

 

Income tax benefit from share-based compensation

 

 

 

 

3,736

 

Impairment of investment

 

 

7,706

 

 

 

Equity in earnings of unconsolidated affiliates

 

 

(1,596

)

 

(793

)

Distributions of earnings from unconsolidated affiliates

 

 

6,020

 

 

6,943

 

Changes in:

 

 

 

 

 

 

 

Tenant and other receivables

 

 

4,436

 

 

4,277

 

Other assets

 

 

729

 

 

(430

)

Accounts payable and accrued liabilities

 

 

(11,947

)

 

(14,149

)

 

 

   

 

   

 

Net cash provided by operating activities

 

 

199,145

 

 

190,493

 

 

 

   

 

   

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Additions to real estate assets

 

 

(115,718

)

 

(252,909

)

Cash placed in escrow

 

 

2,699

 

 

(2,650

)

Proceeds from sales of real estate assets

 

 

4,722

 

 

42,113

 

Additions to mortgage notes receivable

 

 

(4,437

)

 

(9,741

)

Payments received on mortgage notes receivable

 

 

7,437

 

 

103,964

 

Additional investments in and advances to unconsolidated affiliates

 

 

(42,012

)

 

(71,119

)

Distributions in excess of equity in earnings of unconsolidated affiliates

 

 

45,464

 

 

23,365

 

Purchase of noncontrolling interests in other consolidated subsidiary

 

 

(500

)

 

 

Changes in other assets

 

 

15,439

 

 

(10,389

)

 

 

   

 

   

 

Net cash used in investing activities

 

 

(86,906

)

 

(177,366

)

 

 

   

 

   

 

The accompanying notes are an integral part of these statements.

8



CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from mortgage and other notes payable

 

$

347,017

 

$

764,387

 

Principal payments on mortgage and other notes payable

 

 

(750,349

)

 

(622,553

)

Additions to deferred financing costs

 

 

(4,075

)

 

(2,870

)

Proceeds from issuances of common stock

 

 

381,686

 

 

171

 

Proceeds from exercises of stock options

 

 

 

 

584

 

Income tax benefit from share-based compensation

 

 

 

 

(3,736

)

Contributions from noncontrolling interests in other consolidated subsidiaries

 

 

 

 

2,567

 

Distributions to noncontrolling interests

 

 

(41,349

)

 

(67,938

)

Dividends paid to holders of preferred stock

 

 

(10,909

)

 

(10,909

)

Dividends paid to common shareholders

 

 

(34,405

)

 

(72,206

)

 

 

   

 

   

 

Net cash used in financing activities

 

 

(112,384

)

 

(12,503

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

 

 

(293

)

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(145

)

 

624

 

CASH AND CASH EQUIVALENTS, beginning of period

 

 

51,227

 

 

65,826

 

 

 

   

 

   

 

CASH AND CASH EQUIVALENTS, end of period

 

$

50,789

 

$

66,450

 

 

 

   

 

   

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

 

Cash paid for interest, net of amounts capitalized

 

$

148,309

 

$

162,076

 

 

 

   

 

   

 

The accompanying notes are an integral part of these statements.

9



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, community centers and office properties. CBL’s shopping center properties are located in 27 states and in Brazil, but are primarily in the southeastern and midwestern United States.

          CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”). At June 30, 2009, the Operating Partnership owned controlling interests in 75 regional malls/open-air centers, 30 associated centers (each adjacent to a regional mall), eight community centers, one mixed-use center and 13 office buildings, including 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. At June 30, 2009, the Operating Partnership owned noncontrolling interests in nine regional malls/open-air centers, three associated centers, five community centers and six office buildings. Because one or more of the other partners have substantive participating rights, the Operating Partnership does not control these partnerships and joint ventures and, accordingly, accounts for these investments using the equity method. The Operating Partnership had four community/open-air centers (three of which are owned in joint ventures) under construction at June 30, 2009. 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 June 30, 2009, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.0% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned a 71.6% limited partner interest for a combined interest held by CBL of 72.6%.

          The noncontrolling 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 June 30, 2009, CBL’s Predecessor owned a 9.8% limited partner interest, Jacobs owned a 12.1% limited partner interest and third parties owned a 5.5% limited partner interest in the Operating Partnership. CBL’s Predecessor also owned 7.2 million shares of CBL’s common stock at June 30, 2009, for a total combined effective interest of 13.6% 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 both 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 (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the

10



Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP 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. Material intercompany transactions have been eliminated. The results for the interim period ended June 30, 2009, are not necessarily indicative of the results to be obtained for the full fiscal year.

          Certain historical amounts have been reclassified to conform to the current year presentation. Certain properties for which the financial results were originally reported as discontinued operations in the condensed consolidated financial statements for the three and six month periods ended June 30, 2008 no longer meet the criteria to be classified as held for sale and are, thus, currently reflected in continuing operations for all periods presented. Except where noted, the information presented in the Notes to Unaudited Condensed Consolidated Financial Statements excludes discontinued operations. See Note 6 for further discussion. Also see Notes 4 and 8 for discussion regarding the impact on the presentation of the condensed consolidated financial statements and share information related to the adoption of certain accounting pronouncements as of January 1, 2009.

          In April 2009, the Company paid its first quarter dividend on its common stock. The Company issued 4,754,355 shares of its common stock in connection with the dividend, which resulted in an increase of 7.2% in the number of shares outstanding. The Company elected to treat the issuance of its common stock as a stock dividend for earnings per share purposes. Therefore, all share and per share information related to earnings per share for all periods presented have been increased proportionately to reflect the additional common stock issued. See Note 8 for further discussion.

          The Company has evaluated subsequent events through August 10, 2009, which is the date these financial statements were issued.

          These condensed consolidated financial statements should be read in conjunction with CBL’s audited consolidated financial statements and notes thereto included in its Current Report on Form 8-K dated July 27, 2009. 

Note 2 – Recent Accounting Pronouncements

Accounting Pronouncements Adopted

          Effective January 1, 2009, the Company adopted the previously deferred portion of Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which applies to fair value measurements of nonfinancial assets and liabilities. The adoption of these provisions did not have an impact on the Company’s condensed consolidated financial statements. See Note 3 for further information.

          Effective January 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51. See Noncontrolling Interests in Note 4 for further information regarding the adoption of this standard, which did have an impact on the Company’s condensed consolidated financial statements.

          Effective January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. The adoption of this standard did not have an impact on the Company’s condensed consolidated financial statements, but did require additional disclosures regarding the Company’s hedging activities. See Interest Rate Hedge Instruments in Note 5 for further information.

11



          Effective January 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. The adoption did not have a material impact on the Company’s earnings per share. See Note 8 for further information.

          Effective January 1, 2009, the Company adopted SFAS No. 141(R), Business Combinations, which changes certain aspects of current business combination accounting for business combinations entered into subsequent to December 31, 2008. SFAS No. 141(R) requires, among other things, that entities generally recognize 100 percent of the fair values of assets acquired, liabilities assumed and noncontrolling interests in acquisitions of less than a 100 percent controlling interest when the acquisition constitutes a change in control of the acquired entity. Shares issued as consideration for a business combination are to be measured at fair value on the acquisition date and contingent consideration arrangements are to be recognized at their fair values on the date of acquisition, with subsequent changes in fair value generally reflected in earnings. Pre-acquisition gain and loss contingencies generally are to be recognized at their fair values on the acquisition date and any acquisition-related transaction costs are to be expensed as incurred. We will apply the provisions of SFAS No. 141(R) to future business combinations.

          Effective January 1, 2009, the Company adopted FSP Financial Accounting Standard (“FAS”) 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP FAS 141(R)-1 amends the guidance of SFAS No. 141(R) related to accounting for pre-acquisition contingencies to more closely resemble the guidance originally issued under SFAS No. 141, Business Combinations. According to the provisions of FSP FAS 141(R)-1, an acquirer is required to recognize assets or liabilities arising from contingencies at fair value if fair value can be reasonably estimated. Otherwise, the asset or liability would generally be recognized in accordance with SFAS No. 5, Accounting for Contingencies. The provisions of FSP FAS 141(R)-1 are prospectively applied to business combinations completed subsequent to December 31, 2008. We will apply the provisions of SFAS No. 141(R)-1 to future business combinations.

          Effective April 1, 2009, the Company adopted FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS 157-4 provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly decreased or when circumstances indicate that a transaction is not orderly. The adoption of FSP FAS 157-4 did not have an impact on the Company’s condensed consolidated financial statements.

          Effective April 1, 2009, the Company adopted FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments to improve the presentation and disclosure of other-than-temporary impairments of debt and equity securities in an entity’s financial statements. FSP FAS 115-2 and FAS 124-2 does not amend the existing recognition and measurement guidance on other-than-temporary impairments of debt and equity securities. The adoption did not have an impact on the Company’s condensed consolidated financial statements, but did require additional disclosures regarding the Company’s other-than-temporary impairments. See Notes 3 and 4 for further information.

          Effective April 1, 2009, the Company adopted FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. The pronouncement amends existing fair value disclosure and interim reporting requirements to require disclosures about fair value of financial instruments for interim reporting periods. The adoption did not have an impact on the Company’s condensed consolidated financial statements, but did require additional disclosures regarding the fair value of the Company’s financial instruments. See Note 3 for further information.

          Effective April 1, 2009, the Company adopted SFAS No. 165, Subsequent Events. SFAS No. 165 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet

12



date, but before the issuance of the financial statements. The pronouncement requires entities to disclose the date through which an entity has evaluated subsequent events, which for public companies, shall be the date the financial statements are issued. The adoption did not have an impact on the Company’s condensed consolidated financial statements.

Accounting Pronouncements Not Yet Effective

          In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets – an Amendment of FASB Statement No. 140, which requires additional information regarding transfers of financial assets. SFAS No. 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional related disclosures. SFAS No. 166 is effective for fiscal years beginning after November 15, 2009. The Company is currently assessing the potential impact, if any, of the adoption of SFAS No. 166 on its condensed consolidated financial statements.

          In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting, or similar, rights should be consolidated. SFAS No. 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS No. 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS No. 167 also requires additional disclosure about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. The Company is currently assessing the potential impact of the adoption of SFAS No. 167 on its condensed consolidated financial statements.

          In June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP. The Codification does not result in changes to current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one area. All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered nonauthoritative. The Codification is effective for interim periods and fiscal years ending after September 15, 2009. The Codification will not have an impact on the Company’s condensed consolidated financial statements.

Note 3 – Fair Value Measurements

          Pursuant to the provisions of SFAS No. 157, the Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:

Level 1 – Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.

Level 2 – Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.

Level 3 – Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.

13



          The following tables set forth information regarding the Company’s financial instruments that are measured at fair value in the condensed consolidated balance sheets as of June 30, 2009 and December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at June 30, 2009 Using

 

 

 

 

 

 

 

 

 

 

Fair Value at
June 30, 2009

 

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

4,345

 

$

4,345

 

$

 

$

 

Privately held debt and equity securities

 

 

2,475

 

 

 

 

 

 

2,475

 

Interest rate cap

 

 

43

 

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

10,431

 

$

 

$

10,431

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2008 Using

 

 

 

 

 

 

 

 

 

 

Fair Value at
December 31,
2008

 

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

4,209

 

$

4,209

 

$

 

$

 

Privately held debt and equity securities

 

 

4,875

 

 

 

 

 

 

4,875

 

Interest rate cap

 

 

30

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

15,570

 

$

 

$

15,570

 

$

 

          Other assets in the condensed consolidated balance sheets include marketable securities consisting of corporate equity securities that are classified as available for sale. Net unrealized gains and losses on available-for-sale securities that are deemed to be temporary in nature are recorded as a component of accumulated other comprehensive loss in redeemable noncontrolling interests, shareholders’ equity and noncontrolling interests. If a decline in the value of an investment is deemed to be other than temporary, the investment is written down to fair value and an impairment loss is recognized in the current period to the extent of the decline in value. During the three and six months ended June 30, 2009, the Company did not recognize any realized gains or losses related to sales or disposals of marketable securities or other-than-temporary impairments. The fair value of the Company’s available-for-sale securities is based on quoted market prices and, thus, is classified under Level 1. The following is a summary of the available-for-sale securities held by the Company as of June 30, 2009 and December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Cost

 

Gains

 

Losses

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

$

4,207

 

$

139

 

$

(1

)

$

4,345

 

December 31, 2008

 

$

4,207

 

$

2

 

$

 

$

4,209

 

          The Company holds a secured convertible promissory note from, and a warrant to acquire shares of, Jinsheng Group (“Jinsheng”), an established mall operating and real estate development company located in Nanjing, China, in which the Company also holds a cost-method investment. The secured

14



convertible note is non-interest bearing and is secured by shares of Jinsheng. Since the secured convertible note is non-interest bearing and there is no active market for Jinsheng’s debt, the Company performed an analysis on the note considering credit risk and discounting factors to determine the fair value. The warrant was initially valued using estimated share price and volatility variables in a Black Scholes model. Due to the significant estimates and assumptions used in the valuation of the note and warrant, the Company has classified these under Level 3. As part of its investment review as of March 31, 2009, the Company determined that its investment in Jinsheng was impaired on an other-than-temporary basis due to a decline in expected future cash flows as a result of declining occupancy and sales related to the downturn of the real estate market in China. An impairment charge of $2,400 is recorded in the Company’s condensed consolidated statement of operations for the six month period ended June 30, 2009 to reduce the carrying values of the secured convertible note and warrant to their estimated fair values. The Company performed a quantitative and qualitative analysis of its investment as of June 30, 2009 and determined that the current balance of the secured convertible note and warrant of $2,475 is not impaired. A rollforward of the Company’s secured convertible note and warrant is as follows:

 

 

 

 

 

Balance at January 1, 2009

 

$

4,875

 

Impairment loss recognized in earnings

 

 

(2,400

)

 

 

   

 

Balance at June 30, 2009

 

$

2,475

 

 

 

   

 

See Note 4 for further discussion.

          The Company uses interest rate swaps to mitigate the effect of interest rate movements on its variable-rate debt. The interest rate swaps are accounted for in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related amendments. The Company currently has four interest rate swap agreements included in Accounts Payable and Accrued Liabilities that qualify as hedging instruments and are designated as cash flow hedges. The swaps have met the effectiveness test criteria since inception and changes in the fair values of the swaps are, thus, reported in other comprehensive income (loss) and will be reclassified into earnings in the same period or periods during which the hedged item affects earnings. The fair values of the Company’s interest rate swaps, classified under Level 2, are determined using a proprietary model which is based on prevailing market data for contracts with matching durations, current and anticipated London Interbank Offered Rate (“LIBOR”) information, consideration of the Company’s credit standing, credit risk of the counterparties and reasonable estimates about relevant future market conditions.

          The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. Based on the interest rates for similar financial instruments, the carrying value of mortgage notes receivable is a reasonable estimate of fair value. The estimated fair value of mortgage and other notes payable was $5,227,981 and $5,506,725 at June 30, 2009 and December 31, 2008, respectively. The estimated fair value was calculated by discounting future cash flows for the notes payable using estimated market rates at which similar loans would be made currently.

          SFAS No. 157 requires separate disclosure of assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a nonrecurring basis. As of June 30, 2009, no assets or liabilities were measured at fair value on a nonrecurring basis.

          In February 2008, the FASB issued FSP 157-2 which delayed the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. Effective January 1, 2009, the Company adopted this portion of SFAS No. 157. The adoption had no impact on the Company’s condensed consolidated financial statements. The provisions of SFAS No. 157 will be applied at such time a fair value measurement of a nonfinancial asset or nonfinancial liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of SFAS No. 157.

15



Note 4 – Unconsolidated Affiliates, Noncontrolling Interests and Other Partially Owned Investments

Unconsolidated Affiliates

          At June 30, 2009, the Company had investments in the following 22 entities, which are accounted for using the equity method of accounting:

 

 

 

 

 

 

Joint Venture

 

Property Name

 

Company's Interest

 

 

 

 

 

 

 

CBL Brazil

 

Plaza Macae

 

60.0%

 

CBL Macapa

 

Macapa Shopping

 

60.0%

 

CBL-TRS Joint Venture, LLC

 

Friendly Center, The Shops at Friendly Center and a portfolio of six office buildings

 

50.0%

 

CBL-TRS Joint Venture II, LLC

 

Renaissance Center

 

50.0%

 

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%

 

High Pointe Commons II-HAP, LP

 

High Pointe Commons - Christmas Tree Shop

 

50.0%

 

Imperial Valley Mall L.P.

 

Imperial Valley Mall

 

60.0%

 

Imperial Valley Peripheral L.P.

 

Imperial Valley Mall (vacant land)

 

60.0%

 

JG Gulf Coast Town Center

 

Gulf Coast Town Center

 

50.0%

 

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

 

50.0%

 

Port Orange I, LLC

 

The Pavilion at Port Orange Phase I

 

50.0%

 

Port Orange II, LLC

 

The Pavilion at Port Orange Phase II

 

50.0%

 

Triangle Town Member LLC

 

Triangle Town Center, Triangle Town Commons and Triangle Town Place

 

50.0%

 

 

 

 

 

 

 

West Melbourne I, LLC

 

Hammock Landing Phase I

 

50.0%

 

West Melbourne II, LLC

 

Hammock Landing Phase II

 

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 June 30,

 

Company’s Share for the
Three Months
Ended June 30,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

40,547

 

$

39,633

 

$

23,124

 

$

20,575

 

Depreciation and amortization of real estate assets

 

 

(13,238

)

 

(13,003

)

 

(7,555

)

 

(6,694

)

Interest expense

 

 

(12,831

)

 

(14,273

)

 

(7,497

)

 

(7,208

)

Other operating expenses

 

 

(13,786

)

 

(13,223

)

 

(8,092

)

 

(6,859

)

Gain (loss) on sales of real estate assets

 

 

701

 

 

(6

)

 

82

 

 

 

 

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

1,393

 

$

(872

)

$

62

 

$

(186

)

 

 

   

 

   

 

   

 

   

 

16



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total for the Six Months
Ended June 30,

 

Company’s Share for the
Six Months
Ended June 30,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

82,379

 

$

77,919

 

$

47,992

 

$

40,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real estate assets

 

 

(25,874

)

 

(26,003

)

 

(15,064

)

 

(13,371

)

Interest expense

 

 

(25,519

)

 

(27,279

)

 

(15,362

)

 

(13,834

)

Other operating expenses

 

 

(27,662

)

 

(24,566

)

 

(16,616

)

 

(12,805

)

Gain on sales of real estate assets

 

 

1,689

 

 

466

 

 

646

 

 

429

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,013

 

$

537

 

$

1,596

 

$

793

 

 

 

   

 

   

 

   

 

   

 

          In September 2008, the Company entered into a condominium partnership agreement with several individual investors, to acquire a 60% interest in a new retail development in Macapa, Brazil. In February 2009, the Company negotiated a divestment agreement with its Macapa partners obligating the Company to fund an additional $592 to reimburse the other partners for previously incurred land acquisition costs in exchange for the termination of any future obligations on the part of the Company to fund development costs, and to provide the other partners the option to purchase the Company’s interest in this partnership for an amount equal to its investment balance. As of June 30, 2009, the Company had incurred total funding of $825, including the $592 of reimbursements noted above.

          In April 2008, the Company entered into a 50/50 joint venture, TENCO-CBL Servicos Imobiliarios S.A., with TENCO Realty S.A. to form a property management services organization in Brazil. The Company had contributed $2,000 and, in February 2009, negotiated the exercise of its put option right to divest of its portion of the investment in the TENCO-CBL Servicos Imobiliarios S.A. pursuant to the joint venture’s governing agreement. Under the terms of the agreement, TENCO Realty S.A. agreed to pay the Company $250 on March 31, 2009, and will pay monthly installments beginning January 2010 totaling $250 annually with an interest rate of 10% and a balloon payment of $1,250 on December 31, 2011.

Noncontrolling Interests

          Effective January 1, 2009, the Company adopted the provisions of SFAS No. 160. SFAS No. 160 requires that a noncontrolling interest, previously referred to as a minority interest, in a consolidated subsidiary be reported as a separate component of equity and the amount of consolidated net income specifically attributable to a noncontrolling interest be presented separately, net of tax, below net income on the Company’s condensed consolidated statements of operations. These changes are to be applied on a retrospective basis. As a result, the adoption of SFAS No. 160 resulted in certain presentation reclassifications and adjustments in the Company’s condensed consolidated financial statements for all periods presented. Any previous minority interests for which the related partnership agreements either do not include redemption provisions or may be redeemed with the Company’s stock, at its election, were reclassified to noncontrolling interests in the equity section of the Company’s condensed consolidated balance sheets at their carrying value. The presentation of net income attributable to noncontrolling interests was reclassified in the condensed consolidated statements of operations for all periods presented and is included as a reduction to net income to derive net income attributable to the Company.

          On a prospective basis, SFAS No. 160 also requires that after control of an investment or subsidiary is obtained, a change in ownership interest that does not result in a loss of control should be accounted for as an equity transaction. A change in ownership of a consolidated subsidiary that results in a loss of control and deconsolidation is a significant event that triggers gain or loss recognition, with the establishment of a new fair value basis in any remaining ownership interests. During the second quarter

17



of 2009, the Company purchased the outstanding ownership interest of a noncontrolling investor for $500. This purchase did not result in a loss of control and, thus, was accounted for as an equity transaction.

          The FASB has amended EITF Topic D-98 (“EITF D-98”), Classification and Measurement of Redeemable Securities, to reflect the issuance of SFAS No. 160. In connection with the Company’s retrospective adoption of SFAS No. 160, a concurrent review of the measurement provisions of EITF D-98 was performed and retrospectively adopted. The Company initially identified one limited partner in the Operating Partnership and partners in five other consolidated subsidiaries that can require the Company to redeem their interests in the future with cash or real property. Accordingly, pursuant to the provisions of EITF D-98, the Company’s redeemable noncontrolling interests were recorded for all periods presented at the higher of their redemption values or their values pursuant to ARB No. 51 as of the end of the period, with any changes in value being reflected in retained earnings, or in the event of a deficit, in additional paid-in capital, and continue to be reported within temporary equity in the Company’s condensed consolidated balance sheets. Subsequent adjustments to the carrying amounts of these redeemable noncontrolling interests to reflect any changes in their redemption values at the end of each reporting period are to be recorded in the same manner. Adoption of the standard resulted in a decrease to additional paid-in capital of $14,942 as of December 31, 2008.

          In contemplation of the common stock offering (see Note 8), certain holders of units in the Operating Partnership, including certain affiliates of CBL’s Predecessor and certain affiliates of Jacobs (collectively, the “Deferring Holders”), entered into a Forbearance and Waiver Agreement, dated June 2, 2009 (the “Forbearance Agreement”), with the Company. The Deferring Holders agreed to defer their right to exchange an aggregate of 37,000,000 of their Operating Partnership units for shares of our common stock or cash (at our election), until the earlier of (A) the close of business on the date upon which the Company effectively amends its Certificate of Incorporation to increase its authorized share capital to include at least 217,000,000 shares of common stock (the “Replenishment Date”) or (B) December 31, 2009. The Deferring Holders also agreed to waive the Company’s obligation under the Operating Partnership Agreement to reserve a sufficient number of shares of common stock to satisfy the Operating Partnership exchange rights with respect to such units until the Replenishment Date, regardless of when such date occurs.

          The Company plans to convene a special meeting of stockholders during the third quarter of 2009 for the purpose of seeking stockholder approval to increase the number of its authorized shares of common stock from 180,000,000 shares to 1,000,000,000 shares.

          If, following the deferral period described above, the Deferring Holders were to exercise their exchange rights before the Company had available a sufficient number of authorized shares of its common stock to deliver in satisfaction of such exchange rights, the Company would be compelled to satisfy such rights with cash payments to the extent it did not have sufficient shares of common stock available. As a result, the portion of the noncontrolling interests in the Operating Partnership attributable to the Deferring Holders’ Operating Partnership units that are in excess of the current authorized number of shares of common stock has been reclassified to redeemable noncontrolling interests as of June 30, 2009 and recorded pursuant to the provisions of EITF D-98.

          The total redeemable noncontrolling interest in the Operating Partnership was $85,505 and $12,072 at June 30, 2009 and December 31, 2008, respectively. The total noncontrolling interest in the Operating Partnership was $258,499 and $379,408 at June 30, 2009 and December 31, 2008, respectively.

          The redeemable noncontrolling partnership interests includes the third party interest in the Company’s investment interest in an entity that provides security and maintenance services. The redeemable noncontrolling preferred joint venture interest includes the perpetual preferred joint venture units (“PJV units”) issued to Westfield Group (“Westfield”) for the acquisition of certain properties as more fully described in Note 9. Activity related to the redeemable noncontrolling preferred joint venture interest represented by the PJV units is as follows:

18



 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Beginning Balance

 

$

421,279

 

$

420,300

 

Net income attributable to redeemable noncontrolling preferred joint venture interest

 

 

10,343

 

 

9,925

 

Distributions to redeemable noncontrolling preferred joint venture interest

 

 

(10,165

)

 

(9,209

)

 

 

   

 

   

 

Ending Balance

 

$

421,457

 

$

421,016

 

 

 

   

 

   

 

Cost Method Investments

          In February 2007, the Company acquired a 6.2% minority interest in subsidiaries of Jinsheng for $10,125. As of June 30, 2009, Jinsheng owns controlling interests in four home decoration shopping centers, two general retail shopping centers and four development sites.

          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 noncontrolling 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 initially 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 and recognized as interest income over the term of the secured note using the effective interest method. The noncontrolling interest and the secured note are reflected as investment in unconsolidated affiliates in the accompanying condensed consolidated balance sheets. The Company initially recorded the warrant at its estimated fair value of $362, which is included in other assets in the accompanying condensed consolidated balance sheets. See Note 3 for information regarding the current fair value of the secured note and warrant.

          As part of its investment review as of March 31, 2009, the Company determined that its noncontrolling interest in Jinsheng was impaired on an other-than-temporary basis due to a decline in expected future cash flows. The decrease resulted from declining occupancy rates and sales due to the then downturn of the real estate market in China. An impairment charge of $5,306 is recorded in the Company’s condensed consolidated statement of operation for the six months ended June 30, 2009 to reduce the carrying value of the Company’s cost-method investment to its estimated fair value. The Company performed a quantitative and qualitative analysis of its noncontrolling investment as of June 30, 2009 and determined that the current balance of its investment is not impaired. A rollforward of the Company’s noncontrolling interest is as follows:

19



 

 

 

 

 

Balance at January 1, 2009

 

$

10,125

 

Impairment loss recognized in earnings

 

 

(5,306

)

 

 

   

 

Balance at June 30, 2009

 

$

4,819

 

 

 

   

 

Note 5 – Mortgage and Other Notes Payable

          Mortgage and other notes payable consisted of the following at June 30, 2009 and December 31, 2008, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 

 

 

 

 

 

 

Amount

 

Weighted
Average
Interest
Rate (1)

 

Amount

 

Weighted
Average
Interest
Rate (1)

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt:

 

 

 

 

 

 

 

 

 

 

 

Non-recourse loans on operating properties

 

$

3,978,747

 

6.18%

 

$

4,046,653

 

6.14%

 

Recourse loans on operating properties (2)

 

 

162,301

 

5.72%

 

 

161,694

 

5.71%

 

Secured line of credit (3)

 

 

400,000

 

4.45%

 

 

400,000

 

4.45%

 

 

 

   

 

 

 

   

 

 

 

Total fixed-rate debt

 

 

4,541,048

 

6.01%

 

 

4,608,347

 

5.99%

 

 

 

   

 

 

 

   

 

 

 

Variable-rate debt:

 

 

 

 

 

 

 

 

 

 

 

Recourse term loans on operating properties

 

 

292,858

 

1.63%

 

 

262,946

 

2.49%

 

Unsecured line of credit

 

 

202,500

 

1.37%

 

 

522,500

 

1.92%

 

Secured lines of credit

 

 

115,050

 

1.12%

 

 

149,050

 

1.45%

 

Unsecured term facilities

 

 

437,494

 

1.80%

 

 

437,494

 

1.88%

 

Construction loans

 

 

99,652

 

2.33%

 

 

115,339

 

1.74%

 

 

 

   

 

 

 

   

 

 

 

Total variable-rate debt

 

 

1,147,554

 

1.66%

 

 

1,487,329

 

1.95%

 

 

 

   

 

 

 

   

 

 

 

Total

 

$

5,688,602

 

5.13%

 

$

6,095,676

 

5.01%

 

 

 

   

 

 

 

   

 

 

 


 

 

(1)

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

(2)

The Company has entered into interest rate swaps on notional amounts totaling $127,500 as of June 30, 2009 and December 31, 2008 related to two of its variable-rate recourse loans on operating properties to effectively fix the interest rates on those loans. Therefore, these amounts are currently reflected in fixed-rate debt.

(3)

The Company has entered into interest rate swaps on notional amounts totaling $400,000 as of June 30, 2009 and December 31, 2008 related to its largest secured credit facility to effectively fix the interest rate on that portion of the line of credit. Therefore, this amount is currently reflected in fixed-rate debt.

Unsecured Line of Credit

          The Company has an unsecured credit facility with total capacity of $560,000 that bears interest at LIBOR plus a margin of 0.75% to 1.20% based on the Company’s leverage ratio, as defined in the agreement to the facility. Additionally, the Company pays an annual fee of 0.1% of the amount of total capacity of the unsecured credit facility. The credit facility matures in August 2010 and has a one-year extension option, which is at the Company’s election, for an outside maturity date of August 2011. At June 30, 2009, the outstanding borrowings of $202,500 under the unsecured credit facility had a weighted average interest rate of 1.37%. The Company has received extension commitments from lenders representing 100% of the unsecured credit facility amount. The commitments provide that the unsecured facility will be converted over an 18-month period into a secured facility, and that the maturity of the facility will be extended from August 2011 to April 2014.  The conversion of the unsecured facility to a secured facility will take place as the Company uses availability under the unsecured facility to retire several non-recourse, property-specific commercial mortgage-backed securities mortgages that mature in 2009, 2010 and 2011. The Company intends to retire these mortgages at their scheduled maturity dates in order to avoid any prepayment fees. The real estate assets securing these mortgages will then be pledged as collateral to secure the facility. The Company anticipates closing on the extension and modification of the line of credit in the third quarter of 2009.

20


         

Unsecured Term Facilities

          In April 2008, the Company entered into an unsecured term facility with total capacity of $228,000 that bears interest at LIBOR plus a margin of 1.50% to 1.80% based on the Company’s leverage ratio, as defined in the agreement to the facility. At June 30, 2009, the outstanding borrowings of $228,000 under the unsecured term facility had a weighted average interest rate of 2.02%. The facility matures in April 2011 and has two one-year extension options, which are at the Company’s election, for an outside maturity date of April 2013.

The Company has an unsecured term facility that was obtained for the exclusive purpose of acquiring certain properties from the Starmount Company or its affiliates. At June 30, 2009, the outstanding borrowings of $209,494 under this facility had a weighted average interest rate of 1.56%. The Company completed its acquisition of the properties in February 2008 and, as a result, no further draws can be made against the facility. The unsecured term facility bears interest at LIBOR plus a margin of 0.95% to 1.40% based on the Company’s leverage ratio, as defined in the agreement to the facility. Net proceeds from a sale, or the Company’s share of excess proceeds from any refinancings, of any of the properties originally purchased with borrowings from this unsecured term facility must be used to pay down any remaining outstanding balance. The facility matures in November 2010 and has two one-year extension options, which are at the Company’s election, for an outside maturity date of November 2012.

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 LIBOR plus a margin ranging from 0.80% to 0.95% and had a weighted average interest rate of 3.70% at June 30, 2009. 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%. The following summarizes certain information about the secured lines of credit as of June 30, 2009:

 

 

 

 

 

 

 

 

Total
Capacity

 

Total
Outstanding

 

Maturity Date

 

 

 

 

 

 

 

$

105,000

 

$

 

June 2011

 

 

524,850

 

 

489,850

 

February 2010

 

 

20,000

 

 

20,000

 

March 2010

 

 

17,200

 

 

5,200

 

April 2010

 

   

 

   

 

 

 

$

667,050

 

$

515,050

 

 

 

   

 

   

 

 

 

               The agreements to the Company’s $560,000 unsecured line of credit, the $524,850 secured line of credit and the unsecured term facilities with balances of $209,494 and $228,000 as of June 30, 2009, each with the same lender, contain default provisions customary for transactions of this nature and also contain cross-default provisions.

          The Company has received commitments from lenders representing 98% of the capacity on its $524,850 secured line of credit. The commitments reflect an extension of the $524,850 secured facility from February 2010 to February 2012, with an option to extend the maturity for one additional year to February 2013 (subject to continued compliance with the terms of the facility).

Letters of Credit

           At June 30, 2009, the Company had additional secured and unsecured lines of credit with a total commitment of $38,410 that can only be used for issuing letters of credit. The letters of credit outstanding under these lines of credit totaled $17,574 at June 30, 2009.

21


Covenants and Restrictions

          The secured and unsecured line of credit agreements contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum net worth requirements, and limitations on cash flow distributions. Additionally, certain property-specific mortgage notes payable require the maintenance of debt service coverage ratios on their respective properties. The Company was in compliance with all covenants and restrictions at June 30, 2009.


          Forty-two 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. 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.

Scheduled Principal Maturities

          As of June 30, 2009, the scheduled principal maturities of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other notes payable, including construction loans and lines of credit, are as follows:

 

 

 

 

 

2009

 

$

154,394

 

2010

 

 

1,659,573

 

2011

 

 

644,399

 

2012

 

 

595,604

 

2013

 

 

453,358

 

Thereafter

 

 

2,169,998

 

 

 

   

 

 

 

 

5,677,326

 

Net unamortized premiums

 

 

11,276

 

 

 

   

 

 

 

$

5,688,602

 

 

 

   

 

          Of the $154,394 of scheduled principal maturities in 2009, maturities representing $101,612 have extensions available at the Company’s option, leaving a maturity of $52,782 in 2009 that must be retired or refinanced. The $52,782 represents a non-recourse, property-specific commercial mortgage-backed securities loan that matures in December 2009. The Company intends to pay off this loan with availability on its $560,000 unsecured credit facility.

Interest Rate Hedge Instruments

          Effective January 1, 2009, the Company adopted SFAS No. 161. SFAS No. 161 improves financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. In accordance with SFAS No. 133, the Company records its derivative instruments on its condensed consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the derivative has been designated as a hedge and, if so, whether the hedge has met the criteria necessary to apply hedge accounting.

          The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses

22


interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

          The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in Accumulated Other Comprehensive Loss and is subsequently


reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2009, such derivatives were used to hedge the variable cash flows associated with variable-rate debt.

          As of June 30, 2009, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

 

 

 

 

 

 

 

 

Interest Rate Derivative

 

Number of
Instruments

 

Notional
Amount

 

 

 

 

 

 

 

Interest Rate Swaps

 

 

4

 

$

527,500

 

Interest Rate Cap

 

 

1

 

$

80,000

 

          The Company has an $80,000 interest rate cap agreement to hedge the risk of changes in cash flows on a letter of credit supporting certain municipal bonds equal to the then-outstanding cap notional. The interest rate cap protects the Company from increases in the hedged cash flows attributable to overall changes in the USD-SIFMA Municipal Swap Index above the strike rate of the cap on the debt. The strike rate associated with the interest rate cap is 4.00%. The interest rate cap had a nominal fair value as of June 30, 2009 and December 31, 2008 and matures on December 3, 2010.

          The Company has a $40,000 pay fixed/receive variable interest rate swap agreement to hedge the interest rate risk exposure on the borrowings of one of its operating properties equal to the swap notional amount. This interest rate swap hedges the risk of changes in cash flows on the Company’s designated forecasted interest payments attributable to changes in 1-month LIBOR, the designated benchmark interest rate being hedged, thereby reducing exposure to variability in cash flows relating to interest payments on the variable-rate debt. The interest rate swap effectively fixes the interest payments on the portion of debt principal corresponding to the swap notional amount at 5.175%. The fair value of the swap was $(740) and $(772) as of June 30, 2009 and December 31, 2008, respectively, and matures on November 7, 2010.

          The Company has an $87,500 pay fixed/receive variable interest rate swap agreement to hedge the interest rate risk exposure on the borrowings of one of its operating properties equal to the swap notional amount. This interest rate swap hedges the risk of changes in cash flows on the Company’s designated forecasted interest payments attributable to changes in 1-month LIBOR, the designated benchmark interest rate being hedged, thereby reducing exposure to variability in cash flows relating to interest payments on the variable-rate debt. The interest rate swap effectively fixes the interest payments on the portion of debt principal corresponding to the swap notional amount at 5.85%. The fair value of the swap was $(3,195) and $(3,787) as of June 30, 2009 and December 31, 2008, respectively, and matures on September 23, 2010.

          The Company has a $150,000 pay fixed/receive variable interest rate swap agreement to hedge the interest rate risk exposure on an amount of borrowings on its largest secured line of credit equal to the swap notional amount. This interest rate swap hedges the risk of changes in cash flows on the Company’s designated forecasted interest payments attributable to changes in 1-month LIBOR, the designated benchmark interest rate being hedged, thereby reducing exposure to variability in cash flows relating to interest payments on the

23


variable-rate debt. The interest rate swap effectively fixes the interest payments on the portion of debt principal corresponding to the swap notional amount at 4.353%. The fair value of the swap was $(2,364) and $(3,989) as of June 30, 2009 and December 31, 2008, respectively, and matures on December 30, 2009.

          The Company has a $250,000 pay fixed/receive variable interest rate swap agreement to hedge the interest rate risk exposure on an amount of borrowings on its largest secured line of credit equal to the swap notional amount. This interest rate swap hedges the risk of changes in cash flows on the Company’s designated forecasted interest payments attributable to changes in 1-month LIBOR, the designated benchmark interest rate being hedged, thereby reducing exposure to variability in cash flows


relating to interest payments on the variable-rate debt. The interest rate swap effectively fixes the interest payments on the portion of debt principal corresponding to the swap notional amount at 4.505%. The fair value of the swap was $(4,132) and $(7,022) as of June 30, 2009 and December 31, 2008, respectively, and matures on December 30, 2009.

          The above interest rate swaps’ total fair value of $(10,431) and $(15,570) as of June 30, 2009 and December 31, 2008, respectively, is included in Accounts Payable and Accrued Liabilities in the accompanying condensed consolidated balance sheets.

          In January 2009, the Company entered into a $129,000 interest rate cap agreement to hedge the risk of changes in cash flows on the construction loan of one of its properties equal to the then-outstanding cap notional. The interest rate cap protects the Company from increases in the hedged cash flows attributable to overall changes in 1-month LIBOR above the strike rate of the cap on the debt. The strike rate associated with the interest rate cap is 3.25%. The Company did not designate this cap as a hedge because it did not meet the hedge accounting requirements of SFAS No. 133. Changes in the fair value of this cap are recorded directly in earnings and totaled $1 and $72 for the three and six month periods ended June 30, 2009, respectively. The interest rate cap had a nominal fair value as of June 30, 2009 and matures on July 12, 2010

Note 6 – Discontinued Operations

          As of March 31, 2008, the Company determined that 19 of the community center and office properties originally acquired during the fourth quarter of 2007 from the Starmount Company met the criteria to be classified as held-for-sale. In conjunction with their classification as held-for-sale, the results of operations from the properties were reclassified to discontinued operations.

          In April 2008, the Company completed the sale of five of the community centers located in Greensboro, NC to three separate buyers. In June 2008, the Company completed the sale of one of the office properties. The Company completed the sale of an additional community center located in Greensboro, NC in August 2008. In December 2008, we completed the sale of an additional office property and adjacent, vacant development land located in Greensboro, NC. The results of operations of these properties are included in discontinued operations for the three and six month periods ended June 30, 2008.

          As of December 31, 2008, the Company determined that the properties that had not been sold during the year no longer met the held-for-sale criteria due to the improbability of additional sales related to the depressed real estate market. The results of operations from these remaining properties have been reclassified to continuing operations for all periods presented.

          During June 2008, the Company sold Chicopee Marketplace III in Chicopee, MA. The results of operations of this property are included in discontinued operations for the three and six month periods ended June 30, 2008.

          Total revenues of the centers described above that are included in discontinued operations were $1,533 and $3,436 during the three and six month periods ended June 30, 2008. Discontinued operations during the three and six month periods ended June 30, 2009 and 2008 also include true-ups of estimated expenses to actual amounts for properties sold during previous years.

Note 7 – 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:

24


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2009

 

Malls

 

Associated
Centers

 

Community
Centers

 

All Other (2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

241,001

 

$

10,304

 

$

3,687

 

$

11,532

 

$

266,524

 

Property operating expenses (1)

 

 

(80,258

)

 

(2,459

)

 

(1,005

)

 

6,502

 

 

(77,220

)

Interest expense

 

 

(61,721

)

 

(2,173

)

 

(996

)

 

(7,952

)

 

(72,842

)

Other expense

 

 

(2

)

 

 

 

 

 

(5,912

)

 

(5,914

)

Gain on sales of real estate assets

 

 

4

 

 

 

 

9

 

 

59

 

 

72

 

 

 

   

 

   

 

   

 

   

 

   

 

Segment profit

 

$

99,024

 

$

5,672

 

$

1,695

 

$

4,229

 

 

110,620

 

 

 

   

 

   

 

   

 

   

 

 

 

 

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(75,793

)

General and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,893

)

Interest and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,362

 

Equity in earnings of unconsolidated affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(152

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

$

25,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Capital expenditures (3)

 

$

47,996

 

$

2,641

 

$

429

 

$

23,352

 

$

74,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2008

 

Malls

 

Associated
Centers

 

Community
Centers

 

All Other (2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

245,828

 

$

10,775

 

$

5,250

 

$

10,630

 

$

272,483

 

Property operating expenses (1)

 

 

(86,277

)

 

(2,846

)

 

(1,506

)

 

7,634

 

 

(82,995

)

Interest expense

 

 

(62,768

)

 

(2,301

)

 

(1,040

)

 

(10,346

)

 

(76,455

)

Other expense

 

 

 

 

 

 

 

 

(6,541

)

 

(6,541

)

Gain on sales of real estate assets

 

 

2,260

 

 

29

 

 

394

 

 

1,586

 

 

4,269

 

 

 

   

 

   

 

   

 

   

 

   

 

Segment profit

 

$

99,043

 

$

5,657

 

$

3,098

 

$

2,963

 

 

110,761

 

 

 

   

 

   

 

   

 

   

 

 

 

 

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(73,064

)

General and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,114

)

Interest and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,182

 

Equity in losses of unconsolidated affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(186

)

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,838

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

$

24,741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Capital expenditures (3)

 

$

58,867

 

$

1,645

 

$

311

 

$

52,185

 

$

113,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2009

 

Malls

 

Associated
Centers

 

Community
Centers

 

All Other (2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

485,032

 

$

20,758

 

$

9,057

 

$

22,737

 

$

537,584

 

Property operating expenses (1)

 

 

(164,350

)

 

(5,513

)

 

(3,072

)

 

11,550

 

 

(161,385

)

Interest expense

 

 

(122,560

)

 

(4,340

)

 

(2,020

)

 

(15,807

)

 

(144,727

)

Other expense

 

 

(2

)

 

 

 

 

 

(11,069

)

 

(11,071

)

Gain (loss) on sales of real estate assets

 

 

(1

)

 

 

 

98

 

 

(164

)

 

(67

)

 

 

   

 

   

 

   

 

   

 

   

 

Segment profit

 

$

198,119

 

$

10,905

 

$

4,063

 

$

7,247

 

 

220,334

 

 

 

   

 

   

 

   

 

   

 

 

 

 

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(154,104

)

General and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,372

)

Interest and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,943

 

Impairment of investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,706

)

Equity in earnings of unconsolidated affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,596

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(755

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

$

39,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Total assets

 

$

6,884,164

 

$

334,788

 

$

70,489

 

$

654,091

 

$

7,943,532

 

Capital expenditures (3)

 

$

71,076

 

$

8,847

 

$

1,384

 

$

64,362

 

$

145,669

 



25



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2008

 

Malls

 

Associated
Centers

 

Community
Centers

 

All Other (2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

499,801

 

$

21,725

 

$

10,544

 

$

21,345

 

$

553,415

 

Property operating expenses (1)

 

 

(178,654

)

 

(5,490

)

 

(3,111

)

 

13,873

 

 

(173,382

)

Interest expense

 

 

(125,837

)

 

(4,607

)

 

(2,175

)

 

(24,060

)

 

(156,679

)

Other expense

 

 

 

 

 

 

 

 

(13,540

)

 

(13,540

)

Gain on sales of real estate assets

 

 

5,351

 

 

29

 

 

413

 

 

1,552

 

 

7,345

 

 

 

   

 

   

 

   

 

   

 

   

 

Segment profit

 

$

200,661

 

$

11,657

 

$

5,671

 

$

(830

)

 

217,159

 

 

 

   

 

   

 

   

 

   

 

 

 

 

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(148,144

)

General and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,645

)

Interest and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,909

 

Equity in earnings of unconsolidated affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

793

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,195

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

$

46,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Total assets

 

$

6,857,666

 

$

346,367

 

$

209,214

 

$

679,654

 

$

8,092,901

 

Capital expenditures (3)

 

$

111,348

 

$

1,912

 

$

22,744

 

$

153,368

 

$

289,372