form10q.htm
 
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 MARCH 31, 2010
 
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     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 May 4, 2010, there were 138,062,257 shares of common stock, par value $0.01 per share, outstanding.


 
1
 

CBL & Associates Properties, Inc.

Table of Contents
 

 
       
 
       
   
       
   
       
   
       
   
       
   
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
61
       
 
       
 
61
       
 
       
   

2

PART I – FINANCIAL INFORMATION

ITEM 1:   Financial Statements
 
CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
 
March 31,
2010
    
December 31,
2009
  
           
Real estate assets:
            
   Land
   $ 946,570     $ 946,750  
   Buildings and improvements
     7,576,916       7,569,015  
      8,523,486       8,515,765  
      Less accumulated depreciation
     (1,568,868 )     (1,505,840 )
      6,954,618       7,009,925  
   Developments in progress
     91,321       85,110  
      Net investment in real estate assets
     7,045,939       7,095,035  
Cash and cash equivalents
     50,215       48,062  
Receivables:
                
Tenant, net of allowance for doubtful accounts of $3,217 in 2010
        and $3,101 in 2009
     66,783       73,170  
    Other
     8,668       8,162  
Mortgage and other notes receivable
     39,051       38,208  
Investments in unconsolidated affiliates
     186,628       186,523  
Intangible lease assets and other assets
     270,656       279,950  
    $ 7,667,940     $ 7,729,110  
                 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
          
Mortgage and other indebtedness
   $ 5,458,577     $ 5,616,139  
Accounts payable and accrued liabilities
     248,323       248,333  
   Total liabilities
     5,706,900       5,864,472  
Commitments and contingencies
                
Redeemable noncontrolling interests:
                
    Redeemable noncontrolling partnership interests
     28,520       22,689  
    Redeemable noncontrolling preferred joint venture interest
     421,506       421,570  
        Total redeemable noncontrolling interests
     450,026       444,259  
Shareholders’ equity:
                
   Preferred stock, $.01 par value, 15,000,000 shares authorized:
                
      7.75% Series C Cumulative Redeemable Preferred Stock,
         460,000 shares outstanding
     5       5  
      7.375% Series D Cumulative Redeemable Preferred Stock,
         1,330,000 and 700,000 shares outstanding in 2010 and
         2009, respectively
     13       7  
   Common stock, $.01 par value, 350,000,000 shares authorized,
      138,016,637 and 137,888,408 issued and outstanding
      in 2010 and 2009, respectively
     1,380       1,379  
  Additional paid-in capital
     1,512,607       1,399,654  
  Accumulated other comprehensive income
     2,665       491  
  Accumulated deficit
     (300,314 )     (283,640 )
     Total shareholders' equity
     1,216,356       1,117,896  
Noncontrolling interests
     294,658       302,483  
          Total equity
     1,511,014       1,420,379  
    $ 7,667,940     $ 7,729,110  

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
  
   
March 31,
  
   
2010
    
2009
  
           
     Minimum rents
   $ 168,821     $ 171,937  
     Percentage rents
     4,013       4,804  
     Other rents
     4,576       4,280  
     Tenant reimbursements
     79,823       81,484  
     Management, development and leasing fees
     1,706       2,465  
     Other
     7,237       6,090  
          Total revenues
     266,176       271,060  
EXPENSES:
                
     Property operating
     38,897       44,017  
     Depreciation and amortization
     72,012       78,311  
     Real estate taxes
     24,992       24,154  
     Maintenance and repairs
     16,184       15,994  
     General and administrative
     11,074       11,479  
     Other
     6,701       5,157  
          Total expenses
     169,860       179,112  
Income from operations
     96,316       91,948  
     Interest and other income
     1,051       1,581  
     Interest expense
     (73,460 )     (71,885 )
     Loss on impairment of investment
     -       (7,706 )
     Gain (loss) on sales of real estate assets
     866       (139 )
     Equity in earnings of unconsolidated affiliates
     539       1,534  
     Income tax benefit (provision)
     1,877       (603 )
Income from continuing operations
     27,189       14,730  
     Operating income (loss) of discontinued operations
     14       (66 )
     Loss on discontinued operations
     -       (60 )
Net income
     27,203       14,604  
  Net income attributable to noncontrolling interests in:
                
      Operating partnership
     (4,110 )     (1,306 )
      Other consolidated subsidiaries
     (6,137 )     (6,131 )
Net income attributable to the Company
     16,956       7,167  
     Preferred dividends
     (6,028 )     (5,455 )
Net income available to common shareholders
   $ 10,928     $ 1,712  








 
4
 

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

   
Three Months Ended
  
   
March 31,
  
   
2010
    
2009
  
             
Basic earnings per share available to common shareholders:
            
     Income from continuing operations, net of preferred dividends
   $ 0.08     $ 0.03  
     Discontinued operations
     -       -  
     Net income available to common shareholders
   $ 0.08     $ 0.03  
     Weighted average common shares outstanding
     137,967       66,407  
                 
Diluted earnings per share available to common shareholders:
                
     Income from continuing operations, net of preferred dividends
   $ 0.08     $ 0.03  
     Discontinued operations
     -       -  
     Net income available to common shareholders
   $ 0.08     $ 0.03  
     Weighted average common and potential dilutive common shares outstanding
     138,006       66,439  
                 
Amounts available to common shareholders:
                
     Income from continuing operations, net of preferred dividends
   $ 10,918     $ 1,784  
     Discontinued operations
     10       (72 )
     Net income available to common shareholders
   $ 10,928     $ 1,712  
                 
Dividends declared per common share
   $ 0.2000     $ 0.3700  

























The accompanying notes are an integral part of these statements.




 
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
Equity
  
                                                       
 $
18,393
  
 $
 12
  
 $
 664
  
 $
 993,941
  
 $
 (12,786
 ) 
 $
 (193,307
 ) 
 $
 788,524
  
 $
 380,472
  
 $
 1,168,996
  
Net income
  
971
    
              -
    
               -
    
                  -
    
                        -
    
 7,167
    
 7,167
    
 1,411
    
 8,578
  
Other comprehensive income:
                                                      
   Net unrealized loss on available-for-sale
      securities
  
(28
 )   
              -
    
               -
    
                  -
    
 (1,191
 )   
                    -
    
 (1,191
 )   
 (884
 )   
 (2,075
 ) 
   Net unrealized gain on hedging instruments
  
24
    
              -
    
               -
    
                  -
    
 1,135
    
                    -
    
 1,135
    
 771
    
 1,906
  
   Realized loss on foreign currency
      translation adjustment
  
1
    
              -
    
               -
    
                  -
    
 27
    
                    -
    
 27
    
 20
    
 47
  
   Unrealized gain on foreign currency
      translation adjustment
  
 11
    
              -
    
               -
    
                  -
    
 382
    
                    -
    
 382
    
 355
    
 737
  
      Total other comprehensive income
  
8
                                  
 353
    
 262
    
 615
  
Dividends declared - common stock
  
                        -
    
              -
    
               -
    
                  -
    
                        -
    
 (24,576
 )   
 (24,576
 )   
                        -
    
 (24,576
 ) 
Dividends declared - preferred stock
  
                        -
    
              -
    
               -
    
                  -
    
                        -
    
 (5,455
 )   
 (5,455
 )   
                        -
    
 (5,455
 ) 
Issuance of common stock and restricted
   common stock
  
                        -
    
              -
    
               -
    
 254
    
                        -
    
                    -
    
 254
    
                        -
    
 254
  
Cancellation of restricted common stock
  
                        -
    
              -
    
               -
    
 (11)
    
                        -
    
                    -
    
 (11
 )   
                        -
    
 (11
 ) 
Accrual under deferred compensation
   arrangements
  
                        -
    
              -
    
               -
    
 19
    
                        -
    
                    -
    
 19
    
                        -
    
 19
  
Amortization of deferred compensation
  
                        -
    
              -
    
               -
    
 774
    
                        -
    
                    -
    
 774
    
                        -
    
 774
  
Distributions to noncontrolling interests
  
 (1,430
 )   
              -
    
               -
    
                  -
    
                        -
    
                    -
    
                   -
    
 (18,796
 )   
 (18,796
 ) 
Adjustment for noncontrolling interest in
   Operating Partnership
  
 305
    
              -
    
               -
    
 2,429
    
                        -
    
                    -
    
 2,429
    
 (2,734
 )   
 (305
 ) 
Adjustment to record redeemable
   noncontrolling interests at redemption value
  
 (400
 )   
              -
    
               -
    
 400
    
                        -
    
                    -
    
 400
    
                        -
    
 400
  
 Balance, March 31, 2009
 $
 17,847
  
 $
 12
  
 $
 664
  
 $
 997,806
  
 $
 (12,433)
  
 $
 (216,171
 ) 
 $
 769,878
  
 $
 360,615
  
 $
 1,130,493
  

 
6
 

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands, except per share data)
(Continued)
         
Equity
  
         
Shareholders' Equity
              
 
Redeemable Noncontrolling Partnership
Interests
  
Preferred
Stock
  
Common
Stock
  
Additional
Paid-in
Capital
  
Accumulated
Other Comprehensive Income
  
Accumulated Deficit
  
Total
Shareholders' Equity
  
Noncontrolling Interests
  
Total
Equity
  
                                                       
Balance, January 1, 2010
 $
 22,689
  
 $
 12
  
$
 1,379
  
 $
 1,399,654
  
 $
 491
  
 $
 (283,640
 )  $
 1,117,896
  
 $
 302,483
  
 $
 1,420,379
  
Net income
  
 1,055
    
              -
    
              -
    
                 -
    
                     -
    
 16,956
    
 16,956
    
 4,086
    
 21,042
  
Other comprehensive income (loss):
                                                      
   Net unrealized gain on available-for-sale
      securities
  
 29
    
              -
    
              -
    
                 -
    
 2,571
    
                  -
    
 2,571
    
 939
    
 3,510
  
   Net unrealized gain on hedging instruments
  
 5
    
              -
    
              -
    
                 -
    
 442
    
                  -
    
 442
    
 162
    
 604
  
   Realized loss on foreign currency
      translation adjustment
  
 1
    
              -
    
              -
    
                 -
    
 123
    
                  -
    
 123
    
 45
    
 168
  
   Unrealized gain (loss) on foreign currency
      translation adjustment
  
 (397
 )   
              -
    
              -
    
                 -
    
 (962
 )   
                  -
    
 (962
 )   
 1,203
    
 241
  
      Total other comprehensive income (loss)
  
 (362
 )                                 
 2,174
    
 2,349
    
 4,523
  
Dividends declared - common stock
  
                     -
    
              -
    
              -
    
                 -
    
                     -
    
 (27,602
 )   
 (27,602
 )   
                      -
    
 (27,602
 ) 
Dividends declared - preferred stock
  
                     -
    
              -
    
              -
    
                 -
    
                     -
    
 (6,028
 )   
 (6,028
 )   
                      -
    
 (6,028
 ) 
Issuance of preferred stock for equity offering
  
                     -
    
 6
    
              -
    
 121,035
    
                     -
    
                  -
    
 121,041
    
                      -
    
 121,041
  
Issuance of common stock and restricted
   common stock
  
                     -
    
              -
    
 1
    
 58
    
                     -
    
                  -
    
 59
    
                      -
    
 59
  
Cancellation of restricted common stock
  
                     -
    
              -
    
              -
    
 (24
 )   
                     -
    
                  -
    
 (24
 )   
                      -
    
 (24
 ) 
Exercise of stock options
  
                     -
    
              -
    
              -
    
 133
    
                     -
    
                  -
    
 133
    
                      -
    
 133
  
Accrual under deferred compensation
   arrangements
  
                     -
    
              -
    
              -
    
 3
    
                     -
    
                  -
    
 3
    
                      -
    
 3
  
Amortization of deferred compensation
  
                     -
    
              -
    
              -
    
 931
    
                     -
    
                  -
    
 931
    
                      -
    
 931
  
Income tax effect from share-based
   compensation
  
 (10
 )   
              -
    
              -
    
 (923
 )   
                     -
    
                  -
    
 (923
 )   
 (337
 )   
 (1,260
 ) 
Distributions to noncontrolling interests
  
 (1,893
 )   
              -
    
              -
    
                 -
    
                     -
    
                  -
    
                      -
    
 (15,142
 )   
 (15,142
 ) 
Adjustment for noncontrolling interest in
   Operating Partnership
  
 712
    
              -
    
              -
    
 (1,931
 )   
                     -
    
                  -
    
 (1,931
 )   
 1,219
    
 (712
 ) 
Adjustment to record redeemable
    noncontrolling interest at redemption value
  
 6,329
    
              -
    
              -
    
 (6,329
 )   
                     -
    
                  -
    
 (6,329
 )   
                      -
    
 (6,329
 ) 
Balance, March 31, 2010
 $
 28,520
  
 $
 18
  
 $
 1,380
  
 $
 1,512,607
  
 $
 2,665
  
 $
 (300,314
 ) 
 $
 1,216,356
  
 $
 294,658
  
 $
 1,511,014
  


The accompanying notes are an integral part of these statements.


 
7
 

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

 
   
Three Months Ended
March 31,
  
   
2010
    
2009
  
           
Net income
   $ 27,203     $ 14,604  
Adjustments to reconcile net income to net cash provided by operating activities:
                
    Depreciation
     48,334       48,033  
    Amortization
     24,549       31,196  
    Net amortization of above and below market leases
     (882 )     (1,557 )
    Amortization of deferred finance costs and debt premiums (discounts)
     1,397       (623 )
    (Gain) loss on sales of real estate assets
     (866 )     139  
    Realized foreign currency loss
     169       48  
    Loss on discontinued operations
     -       60  
    Impairment of investment
     -       7,706  
    Share-based compensation expense
     979       970  
    Income tax effect from share-based compensation
     (1,270 )     -  
    Equity in earnings of unconsolidated affiliates
     (539 )     (1,534 )
    Distributions of earnings from unconsolidated affiliates
     1,022       3,727  
    Write-off of development projects
     99       76  
    Provision for doubtful accounts
     1,455       2,131  
    Change in deferred tax asset
     (486 )     (309 )
    Changes in:
                
        Tenant and other receivables
     4,426       5,129  
        Other assets
     (2,206 )     (4,110 )
        Accounts payable and accrued liabilities
     (14,974 )     (13,951 )
            Net cash provided by operating activities
     88,410       91,735  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
    Additions to real estate assets
     (28,186 )     (61,328 )
    Proceeds from sales of real estate assets
     1,266       4,721  
    Additions to mortgage notes receivable
     -       (4,437 )
    Payments received on mortgage notes receivable
     205       3,083  
    Distributions from restricted cash
     9,932       11,208  
    Distributions in excess of equity in earnings of unconsolidated affiliates
     11,379       21,339  
    Additional investments in and advances to unconsolidated affiliates
     (12,965 )     (22,306 )
    Changes in other assets
     (1,292 )     2,256  
        Net cash used in investing activities
   $ (19,661 )   $ (45,464 )
 
 
8
 

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


   
Three Months Ended
  
   
March 31,
  
   
2010
    
2009
  
             
             
CASH FLOWS FROM FINANCING ACTIVITIES:
            
    Proceeds from mortgage and other indebtedness
   $ 161,391     $ 105,276  
    Principal payments on mortgage and other indebtedness
     (317,291 )     (104,020 )
    Additions to deferred financing costs
     (1,510 )     (841 )
    Proceeds from issuance of common stock
     14       66  
    Proceeds from issuance of preferred stock
     121,041       -  
    Proceeds from exercise of stock options
     133       -  
    Income tax effect from share-based compensation
     1,270       -  
    Distributions to noncontrolling interests
     (18,720 )     (24,644 )
    Dividends paid to holders of preferred stock
     (6,028 )     (5,455 )
    Dividends paid to common shareholders
     (6,895 )     (24,568 )
        Net cash used in financing activities
     (66,595 )     (54,186 )
                 
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH
     (1 )     761  
NET CHANGE IN CASH AND CASH EQUIVALENTS
     2,153       (7,154 )
CASH AND CASH EQUIVALENTS, beginning of period
     48,062       51,227  
CASH AND CASH EQUIVALENTS, end of period
   $ 50,215     $ 44,073  
                 
SUPPLEMENTAL INFORMATION:
                
    Cash paid for interest, net of amounts capitalized
   $ 70,764     $ 73,856  

 













The accompanying notes are an integral part of these statements.

 
9
 

CBL & Associates Properties, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except 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.  Its shopping center properties are located in 27 states, 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 March 31, 2010, the Operating Partnership owned controlling interests in 76 regional malls/open-air centers (including one mixed-use center), 30 associated centers (each located adjacent to a regional mall), ten community centers, 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 March 31, 2010, the Operating Partnership owned non-controlling interests in nine regional malls, four associated centers, four 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 a controlling interest in one community center, owned in a 75/25 joint venture that was under construction at March 31, 2010.  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 March 31, 2010, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.1% 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 72.7%.

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 March 31, 2010, CBL’s Predecessor owned a 9.8% limited partner interest, Jacobs owned a 12.1% limited partner interest and third parties owned a 5.4% limited partner interest in the Operating Partnership.  CBL’s Predecessor also owned 7.3 million shares of CBL’s common stock at March 31, 2010, 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 Securities
10
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 March 31, 2010 are not necessarily indicative of the results to be obtained for the full fiscal year.

In April 2009, the Company paid its first quarter dividend on its common stock of $0.37 per share in cash and shares of common stock.  The Company issued 4,754,355 shares of its common stock in connection with the dividend, which resulted in an increase of approximately 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 (“EPS”) purposes pursuant to accounting guidance that was in effect at that time.  Therefore, all share and per share information related to EPS was adjusted proportionately to reflect the additional common stock issued on a retrospective basis.  However, in January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-01, Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash (“ASU 2010-01”) requiring that stock dividends such as the one the Company made in April 2009 be treated as a stock issuance that is reflected in share and per share information related to EPS on a prospective basis.  Pursuant to the provisions of ASU 2010-01, the Company adopted this guidance on a retrospective basis.  Thus, the share and per share information related to EPS presented in the Company’s Form 10-Q for the quarterly period ended March 31, 2009, has been revised to reflect this adoption.

The Company has evaluated subsequent events through the date of issuance of these financial statements.

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, 2009, filed on February 22, 2010, as amended.


Note 2 – Recent Accounting Pronouncements

Effective January 1, 2010, the Company adopted ASU No. 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements (“ASU 2010-06”).  ASU 2010-06 provides that significant transfers in or out of measurements classified as Levels 1 or 2 should be disclosed separately along with reasons for the transfers.  Information regarding purchases, sales, issuances and settlements related to measurements classified as Level 3 are also to be presented separately.  Existing disclosures have been updated to include fair value measurement disclosures for each class of assets and liabilities and information regarding the valuation techniques and inputs used to measure fair value in both measurements classified as Levels 2 or 3.  The guidance was effective for fiscal years beginning after December 15, 2009 excluding the provision relating to the rollforward of Level 3 activity which has been deferred until January 1, 2011.  The adoption did not have an impact on the Company’s condensed consolidated financial statements.

Effective January 1, 2010, the Company adopted ASU No. 2009-16, Transfers and Servicing: Accounting for Transfers of Financial Assets (“ASU 2009-16”).  The guidance eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional related disclosures.  The adoption did not have an impact on the Company’s condensed consolidated financial statements.

Effective January 1, 2010, the Company adopted ASU No. 2009-17, Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”).  ASU 2009-17 modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting, or similar, rights should be consolidated.  The guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose
11
and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.  This guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity.  It also requires additional disclosure about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement.  The adoption did not have an impact on the Company’s condensed consolidated financial statements.

On February 24, 2010, the FASB issued ASU No. 2010-09, Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”).  ASU 2010-09 amends the disclosure provision related to subsequent events by removing the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated.  The new accounting guidance was effective immediately and was adopted by the Company upon the date of issuance.
 
Note 3 – Fair Value Measurements

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.

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 March 31, 2010 and December 31, 2009:
 
         
Fair Value Measurements at Reporting Date Using
  
   
Fair Value at
March 31, 2010
    
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
   $ 7,578     $ 7,578     $ -     $ -  
   Privately held debt and equity securities
     2,475       -       -       2,475  
   Interest rate caps
     79       -       79       -  
                                 
Liabilities:
                                
   Interest rate swaps
   $ 2,148     $ -     $ 2,148     $ -  

12

         
Fair Value Measurements at Reporting Date Using
  
   
Fair Value at
December 31, 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
   $ 4,039     $ 4,039     $ -     $ -  
   Privately held debt and equity securities
     2,475       -       -       2,475  
   Interest rate cap
     2       -       2       -  
                                 
Liabilities:
                                
   Interest rate swaps
   $ 2,907     $ -     $ 2,907     $ -  
 
 
Intangible lease assets and 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 income 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 months ended March 31, 2010 and 2009, the Company did not recognize any realized gains and losses or write-downs 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 equity securities held by the Company as of March 31, 2010 and December 31, 2009:

         
Gross Unrealized
        
   
Adjusted Cost
    
Gains
    
Losses
    
Fair Value
  
                         
March 31, 2010
   $ 4,207     $ 3,373     $ 2     $ 7,578  
December 31, 2009
   $ 4,207     $ -     $ 168     $ 4,039  
 
The Company holds a secured convertible promissory note from, and a warrant to acquire shares of, Jinsheng Group (“Jinsheng”), in which the Company also holds a cost-method investment.  The secured 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 then downturn of the real estate market in China.  An impairment charge of $2,400 was recorded in the Company’s condensed consolidated statement of operations for the three month period ended March 31, 2009, to reduce the carrying values of the secured convertible note and warrant to their estimated fair values.  The Company performed a qualitative analysis of its investment as of March 31, 2010 and determined that the current balance of the secured convertible note and warrant of $2,475 is not impaired.  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 Company currently has two interest rate swaps included in accounts payable and accrued liabilities and two interest rate caps included in intangible lease assets and other assets in the accompanying condensed consolidated balance sheets that qualify as hedging instruments and are designated as cash flow hedges.  The swaps and caps have predominantly met the effectiveness test criteria since inception and changes in their fair values are, thus, primarily reported in other comprehensive income (loss) and are
13
reclassified into earnings in the same period or periods during which the hedged items affect earnings.  The fair values of the Company’s interest rate hedge instruments, 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.  See Note 5 for further information regarding the Company’s interest rate hedging activity.

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 indebtedness was $5,814,762 and $5,830,722 at March 31, 2010 and December 31, 2009, 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.

As of March 31, 2010, the Company did not have any assets or liabilities measured at fair value on a non-recurring basis for which the carrying value exceeded fair value.
 
Note 4 – Unconsolidated Affiliates, Noncontrolling Interests and Cost Method Investments

Unconsolidated Affiliates

At March 31, 2010, the Company had investments in the following 20 entities, which are accounted for using the equity method of accounting:

Joint Venture
  
Property Name
  
Company's
Interest
           
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 %
 
Although the Company has majority ownership of certain of these joint ventures, it has evaluated these investments and concluded that the other partners or owners in these joint ventures have substantive participating rights, such as approvals of:
14

·  
the pro forma for the development and construction of the project and any material deviations or modifications thereto;
·  
the site plan and any material deviations or modifications thereto;
·  
the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto;
·  
any acquisition/construction loans or any permanent financings/refinancings;
·  
the annual operating budgets and any material deviations or modifications thereto;
·  
the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and
·  
any material acquisitions or dispositions with respect to the project.

As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.

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

   
Total for the Three
Months Ended March 31,
    
Company's Share for the Three
Months Ended March 31,
  
   
2010
    
2009
    
2010
    
2009
  
                         
Revenues
   $ 39,722     $ 41,832     $ 20,970     $ 24,868  
Depreciation and amortization expense
     (13,122 )     (12,636 )     (6,885 )     (7,509 )
Interest expense
     (13,972 )     (12,688 )     (7,228 )     (7,865 )
Other operating expenses
     (12,652 )     (13,876 )     (6,268 )     (8,524 )
Gain (loss) on sales of real estate assets
     (122 )     988       (50 )     564  
Net income (loss)
   $ (146 )   $ 3,620     $ 539     $ 1,534  
 
CBL Macapa

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. The Company provided total funding of $1,189 related to the development.  In December 2009, the Company entered into an agreement to sell its 60% interest in this partnership with one of the condominium partnership’s investors for a gross sales price of $1,263, less closing costs for a net sales price of $1,201.  The sale closed in March 2010.  Upon closing, the buyer paid $200 and gave the Company two notes receivable totaling $1,001 for the remaining balance of the purchase price.  The notes receivable of $300 and $701 bear interest at 10% each and are due on April 23, 2010 and June 8, 2010, respectively.  There was no gain or loss on this sale.  On April 22, 2010, the buyer paid the first note of $300, plus applicable interest, to the Company.

Noncontrolling Interests

Noncontrolling interests includes the aggregate noncontrolling partnership interest in the Operating Partnership that is not owned by the Company and for which each of the noncontrolling limited partners has the right to exchange all or a portion of its partnership interests for shares of the Company’s common stock, or at the Company’s election, their cash equivalent.  Noncontrolling interests also includes the aggregate noncontrolling ownership interest in the Company’s other consolidated subsidiaries that is held by third parties and for which the related partnership agreements either do not include redemption provisions or are subject to redemption provisions that do not require classification outside of permanent equity.  As of March 31, 2010, the total noncontrolling interests of $294,658 consisted of third-party interests in the Operating Partnership and in other consolidated subsidiaries of $293,883 and $775, respectively.  The total noncontrolling interests at December 31, 2009 of $302,483 consisted of third-party interests in the Operating Partnership and in other consolidated subsidiaries of $301,808 and $675, respectively.
15

Redeemable noncontrolling interests include a noncontrolling partnership interest in the Operating Partnership that is not owned by the Company and for which the partnership agreement includes redemption provisions that may require the Company to redeem the partnership interest for real property.  Redeemable noncontrolling interests also include the aggregate noncontrolling ownership interest in other consolidated subsidiaries that is held by third parties and for which the related partnership agreements contain redemption provisions at the holder’s election that allow for redemption through cash and/or properties.  The total redeemable noncontrolling partnership interests of $28,520 as of March 31, 2010 consisted of third-party interests in the Operating Partnership and in the Company’s consolidated subsidiary that provides security and maintenance services to third parties of $22,080 and $6,440, respectively.  At December 31, 2009, the total redeemable noncontrolling partnership interests of $22,689 consisted of third-party interests in the Operating Partnership and in the Company’s consolidated security and maintenance services subsidiary of $16,194 and $6,495, respectively.
 
 
The redeemable noncontrolling preferred joint venture interest includes the preferred joint venture units (“PJV units”) issued to the Westfield Group (“Westfield”) for the acquisition of certain properties during 2007.  Activity related to the redeemable noncontrolling preferred joint venture interest represented by the PJV units is as follows:
 
   
Three Months Ended
March 31,
  
   
2010
    
2009
  
Beginning Balance
   $ 421,570     $ 421,279  
Net income attributable to redeemable noncontrolling
   preferred joint venture interest
     5,105       5,055  
Distributions to redeemable noncontrolling preferred
   joint venture interest
     (5,169 )     (5,169 )
Ending Balance
   $ 421,506     $ 421,165  

Cost Method Investments

In February 2007, the Company acquired a 6.2% noncontrolling 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 March 31, 2010, 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, 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 expired on January 22, 2010.

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 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 noncontrolling interest and the secured note are reflected as investment in unconsolidated affiliates in the accompanying condensed consolidated balance sheets.
16
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 statements of operations for the three months ended March 31, 2009 to reduce the carrying value of the Company’s cost-method investment to its estimated fair value.  The Company performed a qualitative analysis of its noncontrolling investment as of March 31, 2010 and determined that the current balance of its investment is not impaired.


Note 5 – Mortgage and Other Indebtedness

Mortgage and other indebtedness consisted of the following:

   
March 31, 2010
  
December 31, 2009
   
Amount
    
Weighted
Average
Interest Rate (1)
  
Amount
    
Weighted
Average
Interest Rate (1)
Fixed-rate debt:
                        
   Non-recourse loans on operating properties
   $ 3,774,126       6.01 %   $ 3,888,822       6.02 %
   Recourse loans on operating properties (2)
     160,170       4.96 %     160,896       4.97 %
      Total fixed-rate debt
     3,934,296       5.97 %     4,049,718       5.98 %
Variable-rate debt:
                                
   Non-recourse term loans on operating properties
     72,000       4.25 %     -       -  
   Recourse term loans on operating properties
     373,905       2.11 %     242,763       1.89 %
   Secured lines of credit
     640,882       3.76 %     759,206       4.19 %
   Unsecured term facilities
     437,494       1.73 %     437,494       1.73 %
   Construction loans
     -       -       126,958       2.48 %
      Total variable-rate debt
     1,524,281       2.80 %     1,566,421       3.01 %
         Total
   $ 5,458,577       5.08 %   $ 5,616,139       5.15 %
 
(1)  
Weighted-average interest rate includes the effect of debt premiums (discounts), but excludes amortization of deferred financing costs.
(2)  
The Company has entered into interest rate swaps on notional amounts totaling $127,500 as of March 31, 2010 and December 31, 2009 related to two of its variable-rate loans on operating properties to effectively fix the interest rates on those loans.  Therefore, these amounts are currently reflected in fixed-rate debt.

Secured Lines of Credit

The Company has three secured lines of credit that are used for mortgage retirement, working capital, construction and acquisition 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, subject to a floor of 1.50%, plus a margin ranging from 0.75% to 4.25% and had a weighted average interest rate of 3.76% at March 31, 2010. The Company also pays fees based on the amount of unused availability under its two largest secured lines of credit at a rate of 0.35% of unused availability. The following summarizes certain information about the secured lines of credit as of March 31, 2010:

 
 
Total
Capacity
    
Total
Outstanding
  
Maturity Date
  
Extended
Maturity Date
$
 560,000
  
$
 376,532
  
August 2011
  
April 2014
 
 525,000
    
 262,850
 (1)
February 2012
  
February 2013
 
 105,000
    
 1,500
  
June 2011
  
June 2011
$
 1,190,000
  
$
 640,882
        
 
 (1)
There was an additional $7,291 outstanding on this secured line of credit as of March 31, 2010 for letters of credit.  Up to $50,000 of the capacity on this line can be used for letters of credit.
 
17
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 March 31, 2010, the outstanding borrowings of $228,000 under the unsecured term facility had a weighted average interest rate of 1.95%.  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 March 31, 2010, the outstanding borrowings of $209,494 under this facility had a weighted average interest rate of 1.50%.  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.

Letters of Credit

At March 31, 2010, the Company had additional secured and unsecured lines of credit with a total commitment of $30,971 that can only be used for issuing letters of credit. The letters of credit outstanding under these lines of credit totaled $11,387 at March 31, 2010.

Covenants and Restrictions

The $560,000 and $525,000 secured 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.  The Company was in compliance with all covenants and restrictions at March 31, 2010.

The agreements to the $560,000 and $525,000 secured credit facilities and the two unsecured term facilities described above, each with the same lender, contain default and cross-default provisions customary for transactions of this nature (with applicable customary grace periods) in the event (i) there is a default in the payment of any indebtedness owed by the Company to any institution which is a part of the lender groups for the credit facilities, or (ii) there is any other type of default with respect to any indebtedness owed by the Company to any institution which is a part of the lender groups for the credit facilities and such lender accelerates the payment of the indebtedness owed to it as a result of such default.  The credit facility agreements provide that, upon the occurrence and continuation of an event of default, payment of all amounts outstanding under these credit facilities and those facilities with which these agreements reference cross-default provisions may be accelerated and the lenders’ commitments may be terminated.  Additionally, any default in the payment of any recourse indebtedness greater than $50,000 or any non-recourse indebtedness greater than $100,000, regardless of whether the lending institution is a part of the lender groups for the credit facilities, will constitute an event of default under the agreements to the credit facilities.

Forty-five 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.
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Mortgages on Operating Properties

During the first quarter of 2010, the Company closed on a $72,000 non-recourse loan secured by St. Clair Square in Fairview Heights, IL with a new lender and received excess proceeds of $13,230, net of closing costs and payment of accrued interest, after the payoff of the existing mortgage with a principal balance of $57,237.  The excess proceeds from the refinancing were used to pay down the secured credit facilities.  Also during the first quarter, we repaid a commercial mortgage-backed securities (“CMBS”) loan secured by Park Plaza Mall in Little Rock, AR with a principal balance of $38,856 with borrowings from the $560,000 credit facility and the property was added to the collateral pool securing that facility.

Subsequent to the end of the first quarter, we retired a CMBS loan with a principal balance of $8,988 secured by WestGate Crossing in Spartanburg, SC with borrowings from the $560,000 credit facility and the property was added to the collateral pool securing that facility.

Scheduled Principal Payments

As of March 31, 2010, the scheduled principal payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, including construction loans and lines of credit, are as follows:
 
2010
   $ 923,049  
2011
     1,128,730  
2012
     870,202  
2013
     446,417  
2014
     183,442  
Thereafter
     1,900,362  
      5,452,202  
Net unamortized premiums
     6,375  
    $ 5,458,577  
 
Of the $923,049 of scheduled principal payments in 2010, $873,551 relates to the maturing principal balances of twelve operating property loans and an unsecured term facility.  Maturing debt with principal balances of $482,930 outstanding as of March 31, 2010 have extensions available at the Company’s option, leaving approximately $390,621 of loan maturities in 2010 that must be retired or refinanced.  One loan secured by an operating property with a principal balance of $8,988 as of March 31, 2010 was retired subsequent to the end of the quarter with borrowings from the $560,000 credit facility and the property was added to the collateral pool securing that facility.  The remaining $381,633 of loan maturities in 2010 represents eight operating property mortgage loans.  The Company has obtained term sheets or commitments on its remaining loan maturities for 2010 and expects to close on the loans on or before their respective maturity dates.

The Company’s mortgage and other indebtedness had a weighted average maturity of 3.52 years as of March 31, 2010 and 3.66 years as of December 31, 2009.

Interest Rate Hedge Instruments

The Company records its derivative instruments in 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 these objectives, the Company primarily
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uses 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 income (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  Such derivatives are used to hedge the variable cash flows associated with variable-rate debt.

As of March 31, 2010, 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
     2     $ 127,500  
Interest Rate Caps
     2     $ 152,000  
 
 
Instrument Type
Location in Consolidated
Balance Sheet
  
Notional
Amount
  
Designated
Benchmark
Interest Rate
  
Strike Rate
    
Fair
Value at
3/31/10
    
Fair
Value at 12/31/09
  
Maturity
Date
Cap
Intangible lease assets and other assets
  
$ 72,000 (amortizing
to $69,375)
  
3-month LIBOR
     3.000 %   $ 77     $ -  
Jan-12
Cap
Intangible lease assets and other assets
     80,000  
USD-SIFMA
Municipal Swap Index
     4.000 %     2       2  
Dec-10
Pay fixed/ Receive
   variable Swap
Accounts payable and accrued liabilities
     40,000  
1-month LIBOR
     2.175 %     (511 )     (636 )
Nov-10
Pay fixed/ Receive
   variable Swap
Accounts payable and accrued liabilities
     87,500  
1-month LIBOR
     3.600 %     (1,637 )     (2,271 )
Sep-10


Hedging Instrument
  
Gain Recognized in OCI/L
(Effective Portion)
  
Location of Losses Reclassified from AOCI/L into Earnings (Effective Portion)
  
Loss
Recognized in Earnings
(Effective Portion)
  
Location of Gain Recognized in Earnings (Ineffective Portion)
  
Gain Recognized in Earnings
(Ineffective Portion)
    
 
Three Months Ended
March 31,
    
Three Months Ended
March 31,
    
Three Months Ended
March 31,
    
 
2010
  
2009
    
2010
  
2009
    
2010
  
2009
    
Interest rate hedges
  
 $609
  
 $1,930
  
Interest Expense
  
 $(943)
  
 $(4,104)
  
Interest Expense
  
 $8
  
 $13
    

         In addition, the Company has a $129,000 notional amount interest rate cap agreement to hedge the risk of changes in cash flows on a loan of one of its properties up to the cap notional amount.  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 under GAAP and, thus, records any changes in fair value on the cap as interest expense in the condensed consolidated statements of operations.  The Company recognized a loss of $71 during the three months ended March 31, 2009.  No gain or loss was recognized during the three months ended March 31, 2010.  The interest rate cap had a nominal value as of March 31, 2010 and December 31, 2009 and matures in July 2010.

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Note 6 – Comprehensive Income

Comprehensive income includes all changes in redeemable noncontrolling interests and total equity during the period, except those resulting from investments by shareholders and partners, distributions to shareholders and partners and redemption valuation adjustments. Other comprehensive income (“OCI”) includes changes in unrealized gains (losses) on available-for-sale securities, interest rate hedge agreements and foreign currency translation adjustments.  The computation of comprehensive income is as follows:
 
   
Three Months Ended
March 31,
  
   
2010
    
2009
  
Net income
   $ 27,203     $ 14,604  
Other comprehensive income:
                
   Net unrealized gain on hedging agreements
     609       1,930  
   Net unrealized gain (loss) on available-for-sale securities
     3,539       (2,103 )
   Realized loss on foreign currency translation adjustment
     169       48  
   Net unrealized gain (loss) on foreign currency translation adjustment
     (156 )     748  
Total other comprehensive income
     4,161       623  
Comprehensive income
   $ 31,364     $ 15,227  
 
The components of accumulated other comprehensive income (loss) as of March 31, 2010 and December 31, 2009 are as follows:

   
March 31, 2010
  
   
As reported in:
        
   
Redeemable Noncontrolling
Interests
    
Shareholders'
Equity
    
Noncontrolling
Interests
    
Total
  
Net unrealized gain (loss) on hedging agreements
   $ 405     $ 123     $ (2,879 )   $ (2,351 )
Net unrealized gain on available-for-sale securities
     290       2,542       539       3,371  
Accumulated other comprehensive income (loss)
   $ 695     $ 2,665     $ (2,340 )   $ 1,020  
 

 
   
December 31, 2009
  
   
As reported in:
        
   
Redeemable Noncontrolling
Interests
    
Shareholders'
Equity
    
Noncontrolling
Interests
    
Total
  
Net unrealized gain (loss) on hedging agreements
   $ 400     $ (319 )   $ (3,041 )   $ (2,960 )
Net unrealized gain (loss) on available-for-sale
   securities
     261       (29 )     (400 )     (168 )
Net unrealized gain (loss) on foreign currency
   translation adjustment
     396       839       (1,248 )     (13 )
Accumulated other comprehensive income (loss)
   $ 1,057     $ 491     $ (4,689 )   $ (3,141 )
 
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:

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Three Months Ended March 31, 2010
  
Malls
    
Associated
Centers
    
Community
Centers
    
All Other (2)
    
Total
  
Revenues
   $ 237,756     $ 10,371     $ 6,619     $ 11,430     $ 266,176  
Property operating expenses (1)
     (80,438 )     (2,862 )     (2,837 )     6,064       (80,073 )
Interest expense
     (58,337 )     (2,044 )     (1,805 )     (11,274 )     (73,460 )
Other expense
     -       -