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 JUNE 30, 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 August 4, 2010, there were 138,076,295 shares of common stock, par value $0.01 per share, outstanding.


 
1
 



CBL & Associates Properties, Inc.

Table of Contents
 

 
     
     
 
     
 
     
 
     
 
     
 
     
     
     
50
     
 
     
     
     
     
     
     
     
     
 

 
2
 

PART I – FINANCIAL INFORMATION

ITEM 1.  Financial Statements

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


ASSETS
  
June 30,
2010
    
December 31,
2009
  
Real estate assets:
            
Land
   $ 943,492     $ 946,750  
Buildings and improvements
     7,557,570       7,569,015  
      8,501,062       8,515,765  
Less accumulated depreciation
     (1,612,950 )     (1,505,840 )
      6,888,112       7,009,925  
Developments in progress
     99,748       85,110  
Net investment in real estate assets
     6,987,860       7,095,035  
Cash and cash equivalents
     60,649       48,062  
Receivables:
                
Tenant, net of allowance for doubtful accounts of $3,241 in 2010
     and $3,101 in 2009
     69,268       73,170  
Other
     13,240       8,162  
Mortgage and other notes receivable
     38,025       38,208  
Investments in unconsolidated affiliates
     214,682       186,523  
Intangible lease assets and other assets
     273,253       279,950  
    $ 7,656,977     $ 7,729,110  
                 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
                
Mortgage and other indebtedness
   $ 5,455,867     $ 5,616,139  
Accounts payable and accrued liabilities
     290,347       248,333  
Total liabilities
     5,746,214       5,864,472  
Commitments and contingencies (Notes 4 and 9)
                
Redeemable noncontrolling interests:
                
Redeemable noncontrolling partnership interests
     25,933       22,689  
Redeemable noncontrolling preferred joint venture interest
     421,562       421,570  
Total redeemable noncontrolling interests
     447,495       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, 138,075,609
     and 137,888,408 issued and outstanding in 2010 and 2009, respectively
     1,381       1,379  
Additional paid-in capital
     1,508,116       1,399,654  
Accumulated other comprehensive income
     4,310       491  
Accumulated deficit
     (335,173 )     (283,640 )
Total shareholders’ equity
     1,178,652       1,117,896  
Noncontrolling interests
     284,616       302,483  
Total equity
     1,463,268       1,420,379  
    $ 7,656,977     $ 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
June 30,
    
Six Months Ended
June 30,
  
   
2010
    
2009
    
2010
    
2009
  
REVENUES:
                        
Minimum rents
   $ 170,239     $ 170,491     $ 339,060     $ 342,428  
Percentage rents
     2,127       1,604       6,140       6,408  
Other rents
     4,598       4,142       9,174       8,422  
Tenant reimbursements
     76,347       81,695       156,170       163,179  
Management, development and leasing fees
     1,601       1,615       3,307       4,080  
Other
     7,234       6,977       14,471       13,067  
Total revenues
     262,146       266,524       528,322       537,584  
EXPENSES:
                                
Property operating
     37,514       39,355       76,411       83,372  
Depreciation and amortization
     70,652       75,793       142,664       154,104  
Real estate taxes
     24,866       24,449       49,858       48,603  
Maintenance and repairs
     13,561       13,416       29,745       29,410  
General and administrative
     10,321       10,893       21,395       22,372  
Loss on impairment of real estate
     25,435       -       25,435       -  
Other
     6,415       5,914       13,116       11,071  
Total expenses
     188,764       169,820       358,624       348,932  
Income from operations
     73,382       96,704       169,698       188,652  
Interest and other income
     948       1,362       1,999       2,943  
Interest expense
     (73,341 )     (72,842 )     (146,801 )     (144,727 )
Loss on impairment of investment
     -       -       -       (7,706 )
Gain (loss) on sales of real estate assets
     1,149       72       2,015       (67 )
Equity in earnings of unconsolidated affiliates
     409       62       948       1,596  
Income tax benefit (provision)
     1,911       (152 )     3,788       (755 )
Income from continuing operations
     4,458       25,206       31,647       39,936  
Operating income of discontinued operations
     59       86       73       20  
Loss on discontinued operations
     -       (12 )     -       (72 )
Net income
     4,517       25,280       31,720       39,884  
Net (income) loss attributable to noncontrolling interests in:
                                
Operating partnership
     2,723       (5,109 )     (1,387 )     (6,415 )
Other consolidated subsidiaries
     (6,124 )     (6,580 )     (12,261 )     (12,711 )
Net income attributable to the Company
     1,116       13,591       18,072       20,758  
Preferred dividends
     (8,358 )     (5,454 )     (14,386 )     (10,909 )
Net income (loss) attributable to common shareholders
   $ (7,242 )   $ 8,137     $ 3,686     $ 9,849  

 











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,
  
   
2010
    
2009
    
2010
    
2009
  
Basic per share data:
                        
Income (loss) from continuing operations, net of preferred dividends
   $ (0.05 )   $ 0.10     $ 0.03     $ 0.13  
Discontinued operations
     -       -       -       -  
Net income (loss) attributable to common shareholders
   $ (0.05 )   $ 0.10     $ 0.03     $ 0.13  
Weighted average common shares outstanding
     138,068       82,187       138,018       74,341  
Diluted per share data:
                                
Income (loss) from continuing operations, net of preferred dividends
   $ (0.05 )   $ 0.10     $ 0.03     $ 0.13  
Discontinued operations
     -       -       -       -  
Net income (loss) attributable to common shareholders
   $ (0.05 )   $ 0.10     $ 0.03     $ 0.13  
Weighted average common and potential dilutive common
    shares outstanding
     138,112       82,226       138,059       74,378  
Amounts attributable to common shareholders:
                                
Income (loss) from continuing operations, net of preferred dividends
   $ (7,285 )   $ 8,092     $ 3,633     $ 9,880  
Discontinued operations
     43       45       53       (31 )
Net income (loss) attributable to common shareholders
   $ (7,242 )   $ 8,137     $ 3,686     $ 9,849  
                                 
                                 
Dividends declared per common share
   $ 0.20     $ 0.11     $ 0.40     $ 0.48  





















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
  
                                                       
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  
Other comprehensive income:
                                                                        
   Net unrealized gain (loss) on available-for-sale securities
     193       -       -       -       192       -       192       (249 )     (57 )
   Net unrealized gain on hedging instruments
     342       -       -       -       3,053       -       3,053       1,728       4,781  
   Realized loss on foreign currency translation adjustment
     3       -       -       -       44       -       44       28       72  
   Net unrealized gain on foreign currency translation
      adjustment
     350       -       -       -       2,529       -       2,529       1,300       3,829  
      Total other comprehensive income
     888                                               5,818       2,807       8,625  
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 interest 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 interests
   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  
 
The accompanying notes are an integral part of these statements.

 
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 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
     1,874       -       -       -       -       18,072       18,072       1,550       19,622  
Other comprehensive income (loss):
                                                                        
   Net unrealized gain on available-for-sale securities
     40       -       -       -       3,557       -       3,557       1,299       4,856  
   Net unrealized gain on hedging instruments
     12       -       -       -       1,101       -       1,101       402       1,503  
   Realized loss on foreign currency translation adjustment
     1       -       -       -       123       -       123       45       168  
   Net unrealized gain (loss) on foreign currency translation
      adjustment
     (397 )     -       -       -       (962 )     -       (962 )     1,203       241  
      Total other comprehensive income (loss)
     (344 )                                             3,819       2,949       6,768  
Dividends declared - common stock
     -       -       -       -       -       (55,219 )     (55,219 )     -       (55,219 )
Dividends declared - preferred stock
     -       -       -       -       -       (14,386 )     (14,386 )     -       (14,386 )
Issuance of preferred stock for equity offering
     -       6       -       121,262       -       -       121,268       -       121,268  
Issuance of common stock and restricted common stock
     -       -       1       121       -       -       122       -       122  
Cancellation of restricted common stock
     -       -       -       (175 )     -       -       (175 )     -       (175 )
Exercise of stock options
     -       -       1       941       -       -       942       -       942  
Accrual under deferred compensation arrangements
     -       -       -       16       -       -       16       -       16  
Amortization of deferred compensation
     -       -       -       1,485       -       -       1,485       -       1,485  
Income tax effect of share-based compensation
     (10 )     -       -       (1,468 )     -       -       (1,468 )     (337 )     (1,805 )
Distributions to noncontrolling interests
     (4,536 )     -       -       -       -       -       -       (29,489 )     (29,489 )
Adjustment for noncontrolling interests
     837       -       -       (8,297 )     -       -       (8,297 )     7,460       (837 )
Adjustment to record redeemable noncontrolling interests
   at redemption value
     5,423       -       -       (5,423 )     -       -       (5,423 )     -       (5,423 )
Balance, June 30, 2010
   $ 25,933     $ 18     $ 1,381     $ 1,508,116     $ 4,310     $ (335,173 )   $ 1,178,652     $ 284,616     $ 1,463,268  




The accompanying notes are an integral part of these statements.

 
7
 

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


 
   
Six Months Ended June 30,
  
   
2010
    
2009
  
             
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net income
   $ 31,720     $ 39,884  
Adjustments to reconcile net income to net cash provided by operating activities:
          
Depreciation
     97,420       96,393  
Amortization
     47,058       62,142  
Amortization of deferred finance costs and debt premiums (discounts)
     3,440       (938 )
Net amortization of above- and below-market leases
     (1,735 )     (3,112 )
(Gain) loss on sales of real estate assets
     (2,015 )     67  
Realized foreign currency loss
     169       75  
Loss on discontinued operations
     -       72  
Write-off of development projects
     359       143  
Share-based compensation expense
     1,561       1,875  
Income tax effect of share-based compensation
     (1,815 )     -  
Loss on impairment of investment
     -       7,706  
Loss on impairment of real estate
     25,435       -  
Equity in earnings of unconsolidated affiliates
     (948 )     (1,596 )
Distributions of earnings from unconsolidated affiliates
     2,730       6,020  
Provision for doubtful accounts
     1,745       3,797  
Change in deferred tax accounts
     349       712  
Changes in:
                
Tenant and other receivables
     (2,995 )     639  
Other assets
     739       (2,787 )
Accounts payable and accrued liabilities
     (21,297 )     (11,947 )
Net cash provided by operating activities
     181,920       199,145  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Additions to real estate assets
     (45,417 )     (115,718 )
Distributions from restricted cash
     688       2,699  
Proceeds from sales of real estate assets
     2,607       4,722  
Additions to mortgage notes receivable
     -       (4,437 )
Payments received on mortgage notes receivable
     1,278       7,437  
Additional investments in and advances to unconsolidated affiliates
     (24,750 )     (42,012 )
Distributions in excess of equity in earnings of unconsolidated affiliates
     24,861       45,464  
Changes in other assets
     (2,366 )     15,439  
Net cash used in investing activities
     (43,099 )     (86,406 )








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,
  
   
2010
    
2009
  
             
             
CASH FLOWS FROM FINANCING ACTIVITIES:
            
Proceeds from mortgage and other indebtedness
   $ 371,323     $ 347,017  
Principal payments on mortgage and other indebtedness
     (528,867 )     (750,349 )
Additions to deferred financing costs
     (2,343 )     (4,075 )
Proceeds from issuances of common stock
     62       381,686  
Proceeds from issuances of preferred stock
     121,268       -  
Proceeds from exercises of stock options
     942       -  
Income tax effect of share-based compensation
     1,815       -  
Purchase of noncontrolling interests in other consolidated subsidiary
     -       (500 )
Distributions to noncontrolling interests
     (41,550 )     (41,349 )
Dividends paid to holders of preferred stock
     (14,386 )     (10,909 )
Dividends paid to common shareholders
     (34,498 )     (34,405 )
Net cash used in financing activities
     (126,234 )     (112,884 )
                 
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH
     -       (293 )
NET CHANGE IN CASH AND CASH EQUIVALENTS
     12,587       (438 )
CASH AND CASH EQUIVALENTS, beginning of period
     48,062       51,227  
CASH AND CASH EQUIVALENTS, end of period
   $ 60,649     $ 50,789  
                 
SUPPLEMENTAL INFORMATION:
                
Cash paid for interest, net of amounts capitalized
   $ 142,088     $ 148,309  













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.  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 June 30, 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 June 30, 2010, the Operating Partnership owned non-controlling interests in eight 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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 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
 
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intercompany transactions have been eliminated. The results for the interim period ended June 30, 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 for the three and six months ended June 30, 2009 as previously presented in the Company’s Form 10-Q for the quarterly period ended June 30, 2009, has been revised herein 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 – New Accounting Guidance

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 measurements classified as either 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 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
 
 
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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 June 30, 2010 and December 31, 2009:
         
Fair Value Measurements at Reporting Date Using
  
   
Fair Value at
June 30, 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
   $ 8,935     $ 8,935     $ -     $ -  
   Privately held debt and equity securities
     2,475       -       -       2,475  
   Interest rate caps
     21       -       21       -  
                                 
Liabilities:
                                
   Interest rate swaps
   $ 1,197     $ -     $ 1,197     $ -  


         
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
 
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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 month periods ended June 30, 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 June 30, 2010 and December 31, 2009:

         
Gross Unrealized
        
   
Adjusted Cost
    
Gains
    
Losses
    
Fair Value
  
                         
June 30, 2010
   $ 4,207     $ 4,732     $ 4     $ 8,935  
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 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 qualitative and quantitative analyses of its investment as of June 30, 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 and are 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 $5,823,793 and $5,830,722 at June 30, 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.

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The following table sets forth information regarding the Company’s assets that are measured at fair value on a nonrecurring basis:

         
Fair Value Measurements at Reporting Date Using
        
   
Fair Value at
June 30, 2010
  
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Total Loss
  
Assets:
                              
Long-lived assets
   $ 11,969     $ -     $ -     $ 11,969     $ 25,435  
 
The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when its estimated future undiscounted cash flows are less than its carrying value. If it is determined that impairment has occurred, the amount of the impairment charge is equal to the excess of the asset’s carrying value over its estimated fair value. The Company’s estimates of undiscounted cash flows expected to be generated by each property are based on a number of assumptions such as leasing expectations, operating budgets, estimated useful lives, future maintenance expenditures, intent to hold for use and capitalization rates.  These assumptions are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter the assumptions used, the future cash flows estimated in the Company’s impairment analyses may not be achieved.

During the course of the Company’s normal quarterly impairment review process for the second quarter of 2010, it was determined that a write-down of the depreciated book value of Oak Hollow Mall in High Point, NC, to its estimated fair value was necessary, resulting in a non-cash loss on impairment of real estate assets of $25,435 for the three and six months ended June 30, 2010.  Subsequent to June 30, 2010, the Company entered into a contract to sell this property, subject to due diligence and customary closing conditions, for a sales price that is significantly less than the property’s carrying value.  The impending sale was considered in the quarterly impairment review process, which resulted in a fair value of $11,578.  If the sale of this property closes in accordance with the terms of the current contract, the lender of the non-recourse loan secured by this property with a principal balance of $39,559 as of June 30, 2010 has agreed to modify the outstanding principal balance of the loan to equal the net sales price of the property.  See Note 9 for additional information.

The revenues of Oak Hollow Mall accounted for approximately 0.4% of total consolidated revenues for the trailing twelve months ended June 30, 2010.  A reconciliation of the property’s carrying values for the six months ended June 30, 2010 is as follows:
 
   
Oak Hollow
Mall
  
Beginning carrying value, January 1, 2010
   $ 37,287  
Capital expenditures
     512  
Depreciation expense
     (786 )
Loss on impairment of real estate
     (25,435 )
Ending carrying value, June 30, 2010
   $ 11,578  


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Note 4 – Unconsolidated Affiliates, Noncontrolling Interests and Cost Method Investments

Unconsolidated Affiliates

At June 30, 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 LLC
  
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 (1)
     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 %  
 
 (1) Plaza del Sol was sold in June 2010. 
 
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:

·  
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.

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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,
  
    2010     2009     2010     2009  
                         
Revenues
   $ 38,331     $ 39,940     $ 21,686     $ 22,817  
Depreciation and amortization expense
     (14,286 )     (13,071 )     (8,403 )     (7,471 )
Interest expense
     (13,858 )     (12,691 )     (8,449 )     (7,426 )
Other operating expenses
     (11,295 )     (13,490 )     (4,647 )     (7,942 )
Gain on sales of real estate assets
     1,412       701       170       82  
Operating income of discontinued operations
     103       4       52       2  
Net income
   $ 407     $ 1,393     $ 409     $ 62  


   
Total for the Six
Months Ended June 30,
    
Company's Share for the Six
Months Ended June 30,
  
    2010     2009     2010     2009  
                         
Revenues
   $ 77,373     $ 81,096     $ 42,311     $ 47,343  
Depreciation and amortization expense
     (27,244 )     (25,539 )     (15,205 )     (14,895 )
Interest expense
     (27,701 )     (25,234 )     (15,612 )     (15,218 )
Other operating expenses
     (23,627 )     (27,045 )     (10,753 )     (16,303 )
Gain on sales of real estate assets
     1,290       1,689       121       646  
Operating income of discontinued operations
     170       46       86       23  
Net income
   $ 261     $ 5,013     $ 948     $ 1,596  

Mall Shopping Center Company
 
In June 2010, the Company’s 50.6% owned unconsolidated joint venture, Mall Shopping Center Company, sold Plaza del Sol in Del Rio, TX.  The joint venture recognized a gain of $1,244 from the sale, of which the Company’s share was $75, net of the excess of its basis over its underlying equity in the amount of $554.  The results of operations of Mall Shopping Center Company have been reclassified to discontinued operations in the tables above for all periods presented.

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, both with an interest rate of 10%, for the remaining balance of the purchase price.  There was no gain or loss on this sale.  On April 22, 2010, the buyer paid the first note of $300, due on April 23, 2010, plus applicable interest.  Upon maturity of the second note of $701, due on June 8, 2010, the buyer requested additional time for payment.  The Company and buyer have agreed to revised terms regarding the second note of which the buyer will pay monthly installments of $45 from July 2010 to June 2011, with a final balloon installment of $161 due in July 2011.  Interest on the revised note is payable at maturity.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

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 provisions or are subject to redemption provisions that do not require classification outside of permanent equity.  As of June 30, 2010, the total noncontrolling interests of $284,616 consisted of third-party interests in the Operating Partnership and in other consolidated subsidiaries of $283,737 and $879, 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.

Redeemable noncontrolling interests includes 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 includes 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 $25,933 as of June 30, 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 $19,461 and $6,472, 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.  See Note 9 for additional information related to the PJV units.  Activity related to the redeemable noncontrolling preferred joint venture interest represented by the PJV units is as follows:
   
Six Months Ended
June 30,
  
   
2010
    
2009
  
Beginning Balance
   $ 421,570     $ 421,279  
Net income attributable to redeemable noncontrolling
   preferred joint venture interest
     10,217       10,343  
Distributions to redeemable noncontrolling preferred
   joint venture interest
     (10,225 )     (10,165 )
Ending Balance
   $ 421,562     $ 421,457  

Cost Method Investments

In February 2007, the Company acquired a 6.2% noncontrolling interest in subsidiaries of Jinsheng, an established mall operating and real estate development company located in Nanjing, China, for $10,125.  As of June 30, 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 initially recorded the secured note at its estimated fair value of $4,513, which included 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.

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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 was recorded in the Company’s condensed consolidated statements of operations 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 qualitative and quantitative analyses of its noncontrolling investment as of June 30, 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 at June 30, 2010 and December 31, 2009, respectively:

   
June 30, 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
   $ 3,849,952       5.94 %     $ 3,888,822       6.02 %  
   Recourse loans on operating properties (2)
     159,443       5.27 %       160,896       5.28 %  
      Total fixed-rate debt
     4,009,395       5.92 %       4,049,718       5.99 %  
Variable-rate debt:
                                    
   Recourse term loans on operating properties
     377,027       2.09 %       242,763       1.68 %  
   Secured lines of credit