CBL-9.30.2012-10Q
Table of Contents

UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012
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 x   
  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
 Large accelerated filer x
Accelerated filer o
 Non-accelerated filer o (Do not check if smaller reporting company)
Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes o  
  No x
As of November 2, 2012, there were 161,028,146 shares of common stock, par value $0.01 per share, outstanding.


Table of Contents

CBL & Associates Properties, Inc.

Table of Contents

PART I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1:   Financial Statements

CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
ASSETS
September 30,
2012
 
December 31,
2011
Real estate assets:
 
 
 
Land
$
872,171

 
$
851,303

Buildings and improvements
7,020,344

 
6,777,776

 
7,892,515

 
7,629,079

Accumulated depreciation
(1,920,906
)
 
(1,762,149
)
 
5,971,609

 
5,866,930

Held for sale
1,852

 
14,033

Developments in progress
170,435

 
124,707

Net investment in real estate assets
6,143,896

 
6,005,670

Cash and cash equivalents
66,350

 
56,092

Receivables:
 

 
 

 Tenant, net of allowance for doubtful accounts of $2,004
     and $1,760 in 2012 and 2011, respectively
79,900

 
74,160

 Other, net of allowance for doubtful accounts of $1,257
      and $1,400 in 2012 and 2011, respectively
12,916

 
11,592

Mortgage and other notes receivable
26,007

 
34,239

Investments in unconsolidated affiliates
302,635

 
304,710

Intangible lease assets and other assets
258,612

 
232,965

 
$
6,890,316

 
$
6,719,428

 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 

 
 

Mortgage and other indebtedness
$
4,701,390

 
$
4,489,355

Accounts payable and accrued liabilities
337,926

 
303,577

Total liabilities
5,039,316

 
4,792,932

Commitments and contingencies (Notes 5 and 11)


 


Redeemable noncontrolling interests:  
 

 
 

Redeemable noncontrolling partnership interests  
40,929

 
32,271

Redeemable noncontrolling preferred joint venture interest
423,834

 
423,834

Total redeemable noncontrolling interests
464,763

 
456,105

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, 1,815,000 shares outstanding
18

 
18

 Common stock, $.01 par value, 350,000,000 shares
     authorized, 159,094,361 and 148,364,037 issued and
     outstanding in 2012 and 2011, respectively
1,591

 
1,484

Additional paid-in capital
1,702,321

 
1,657,927

Accumulated other comprehensive income
4,387

 
3,425

Dividends in excess of cumulative earnings
(470,430
)
 
(399,581
)
Total shareholders' equity
1,237,892

 
1,263,278

Noncontrolling interests
148,345

 
207,113

Total equity
1,386,237

 
1,470,391

 
$
6,890,316

 
$
6,719,428

The accompanying notes are an integral part of these condensed consolidated statements.

3
Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 
Three Months
Ended September 30,
 
Nine Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
REVENUES:
 
 
 
 
 
 
 
Minimum rents
$
168,887

 
$
172,973

 
$
495,557

 
$
510,250

Percentage rents
3,113

 
3,001

 
8,321

 
8,786

Other rents
3,786

 
4,175

 
13,735

 
13,686

Tenant reimbursements
72,793

 
76,796

 
214,193

 
229,550

Management, development and leasing fees
3,139

 
1,909

 
7,574

 
4,814

Other
7,895

 
8,409

 
23,894

 
26,362

Total revenues
259,613

 
267,263

 
763,274

 
793,448

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 

 
 

 
 
 
 
Property operating
37,437

 
38,601

 
110,632

 
112,788

Depreciation and amortization
67,186

 
70,720

 
198,123

 
209,925

Real estate taxes
23,109

 
23,506

 
69,464

 
72,635

Maintenance and repairs
13,922

 
13,661

 
40,079

 
43,075

General and administrative
10,171

 
10,092

 
35,964

 
33,133

Loss on impairment of real estate
21,654

 
51,304

 
21,654

 
51,304

Other
5,871

 
7,446

 
19,188

 
22,795

Total operating expenses
179,350

 
215,330

 
495,104

 
545,655

Income from operations
80,263

 
51,933

 
268,170

 
247,793

Interest and other income
822

 
595

 
3,193

 
1,752

Interest expense
(62,433
)
 
(70,133
)
 
(183,687
)
 
(208,216
)
Gain on extinguishment of debt
178

 
—

 
178

 
581

Gain on sales of real estate assets
1,659

 
2,890

 
1,753

 
3,602

Equity in earnings of unconsolidated affiliates
2,062

 
989

 
5,401

 
4,222

Income tax (provision) benefit
(1,195
)
 
(4,653
)
 
(1,234
)
 
1,770

Income (loss) from continuing operations
21,356

 
(18,379
)
 
93,774

 
51,504

Operating income (loss) from discontinued operations
(8,952
)
 
90

 
(6,321
)
 
23,495

Gain (loss) on discontinued operations
88

 
(31
)
 
983

 
121

Net income (loss)
12,492

 
(18,320
)
 
88,436

 
75,120

Net (income) loss attributable to noncontrolling interests in:
 

 
 

 
 
 
 
Operating partnership
1,776

 
7,760

 
(7,783
)
 
(5,443
)
Other consolidated subsidiaries
(6,194
)
 
(6,166
)
 
(17,139
)
 
(18,708
)
Net income (loss) attributable to the Company
8,074

 
(16,726
)
 
63,514

 
50,969

Preferred dividends
(10,594
)
 
(10,594
)
 
(31,782
)
 
(31,782
)
Net income (loss) attributable to common shareholders
$
(2,520
)
 
$
(27,320
)
 
$
31,732

 
$
19,187



4
Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
(Continued)
 
 
Three Months
Ended September 30,
 
Nine Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
Basic per share data attributable to common shareholders:
 

 
 

 
 
 
 
Income (loss) from continuing operations, net of preferred dividends
$
0.03

 
$
(0.18
)
 
$
0.24

 
$
0.01

Discontinued operations
(0.05
)
 
—

 
(0.03
)
 
0.12

Net income (loss) attributable to common shareholders
$
(0.02
)
 
$
(0.18
)
 
$
0.21

 
$
0.13

Weighted average common shares outstanding
158,689

 
148,363

 
152,721

 
148,264

 
 
 
 
 
 
 
 
Diluted earnings per share data attributable to common shareholders:
 
 

 
 
 
 
Income (loss) from continuing operations, net of preferred dividends
$
0.03

 
$
(0.18
)
 
$
0.24

 
$
0.01

Discontinued operations
(0.05
)
 
—

 
(0.03
)
 
0.12

Net income (loss) attributable to common shareholders
$
(0.02
)
 
$
(0.18
)
 
$
0.21

 
$
0.13

Weighted average common and potential dilutive common shares outstanding
158,731

 
148,405

 
152,765

 
148,310

 
 
 
 
 
 
 
 
Amounts attributable to common shareholders:
 

 
 

 
 
 
 
Income (loss) from continuing operations, net of preferred dividends
$
4,876

 
$
(27,366
)
 
$
36,019

 
$
793

Discontinued operations
(7,396
)
 
46

 
(4,287
)
 
18,394

Net income (loss) attributable to common shareholders
$
(2,520
)
 
$
(27,320
)
 
$
31,732

 
$
19,187

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.22

 
$
0.21

 
$
0.66

 
$
0.63


The accompanying notes are an integral part of these condensed consolidated statements.


5
Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)

 
Three Months
Ended September 30,
 
Nine Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
12,492

 
$
(18,320
)
 
$
88,436

 
$
75,120

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
   Unrealized holding gain (loss) on available-for-sale securities
522

 
(5,210
)
 
2,101

 
(3,403
)
Reclassification to net income of realized (gain) loss on available-for-sale securities
—

 
—

 
(160
)
 
22

   Unrealized loss on hedging instruments
(234
)
 
(3,394
)
 
(715
)
 
(5,466
)
Total other comprehensive income (loss)
288

 
(8,604
)
 
1,226

 
(8,847
)
 
 
 
 
 
 
 
 
Comprehensive income (loss)
12,780

 
(26,924
)
 
89,662

 
66,273

  Comprehensive (income) loss attributable to noncontrolling interests in:
 
 
 
 
 
 
 
     Operating partnership
1,729

 
9,660

 
(8,047
)
 
(3,490
)
     Other consolidated subsidiaries
(6,194
)
 
(6,166
)
 
(17,139
)
 
(18,708
)
Comprehensive income (loss) attributable to the Company
$
8,315

 
$
(23,430
)
 
$
64,476

 
$
44,075


The accompanying notes are an integral part of these condensed consolidated statements.


6
Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands)
 (Unaudited)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable Noncontrolling Partnership Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Accumulated Other Comprehensive Income
 
Dividends in Excess of Cumulative Earnings
 
Total Shareholders' Equity
 
Noncontrolling Interests
 
Total
 Equity
Balance, January 1, 2011
$
34,379

 
$
23

 
$
1,479

 
$
1,657,507

 
$
7,855

 
$
(366,526
)
 
$
1,300,338

 
$
223,605

 
$
1,523,943

Net income
3,055

 
—

 
—

 
—

 
—

 
50,969

 
50,969

 
5,661

 
56,630

Other comprehensive loss
(73
)
 
—

 
—

 
—

 
(6,894
)
 
—

 
(6,894
)
 
(1,880
)
 
(8,774
)
Conversion of operating partnership special
     common units to shares of common stock
—

 
—

 
1

 
728

 
—

 
—

 
729

 
(729
)
 
—

Dividends declared - common stock
—

 
—

 
—

 
—

 
—

 
(93,459
)
 
(93,459
)
 
—

 
(93,459
)
Dividends declared - preferred stock
—

 
—

 
—

 
—

 
—

 
(31,782
)
 
(31,782
)
 
—

 
(31,782
)
Issuance of common stock and restricted
     common stock
—

 
—

 
2

 
233

 
—

 
—

 
235

 
—

 
235

Cancellation of restricted common stock
—

 
—

 
—

 
(184
)
 
—

 
—

 
(184
)
 
—

 
(184
)
Exercise of stock options
—

 
—

 
2

 
1,953

 
—

 
—

 
1,955

 
—

 
1,955

Accrual under deferred compensation arrangements
—

 
—

 
—

 
41

 
—

 
—

 
41

 
—

 
41

Amortization of deferred compensation
—

 
—

 
—

 
1,629

 
—

 
—

 
1,629

 
—

 
1,629

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,040

 
1,040

Distributions to noncontrolling interests
(6,405
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(31,545
)
 
(31,545
)
Adjustment for noncontrolling interests
2,181

 
—

 
—

 
(3,243
)
 
—

 
—

 
(3,243
)
 
1,062

 
(2,181
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
(8,630
)
 
—

 
—

 
8,630

 
—

 
—

 
8,630

 
—

 
8,630

Balance, September 30, 2011
$
24,507

 
$
23

 
$
1,484

 
$
1,667,294

 
$
961

 
$
(440,798
)
 
$
1,228,964

 
$
197,214

 
$
1,426,178


The accompanying notes are an integral part of these condensed consolidated statements.


7
Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
(Continued)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable Noncontrolling Partnership Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Accumulated Other Comprehensive Income
 
Dividends in Excess of Cumulative Earnings
 
Total Shareholders' Equity
 
Noncontrolling Interests
 
Total
 Equity
Balance, January 1, 2012
$
32,271

 
$
23

 
$
1,484

 
$
1,657,927

 
$
3,425

 
$
(399,581
)
 
$
1,263,278

 
$
207,113

 
$
1,470,391

Net income
2,441

 
—

 
—

 
—

 
—

 
63,514

 
63,514

 
6,993

 
70,507

Other comprehensive income
10

 
—

 
—

 
—

 
962

 
—

 
962

 
254

 
1,216

Costs of preferred stock offering
—

 
—

 
—

 
(134
)
 
—

 
—

 
(134
)
 
 
 
(134
)
Conversion of operating partnership
     common units to shares of common stock
—

 
—

 
103

 
48,174

 
—

 
—

 
48,277

 
(48,277
)
 
—

Redemption of operating partnership common units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(9,836
)
 
(9,836
)
Dividends declared - common stock
—

 
—

 
—

 
—

 
—

 
(102,581
)
 
(102,581
)
 
—

 
(102,581
)
Dividends declared - preferred stock
—

 
—

 
—

 
—

 
—

 
(31,782
)
 
(31,782
)
 
—

 
(31,782
)
Issuance of common stock and restricted
     common stock
—

 
—

 
2

 
367

 
—

 
—

 
369

 
—

 
369

Cancellation of restricted common stock
—

 
—

 
—

 
(261
)
 
—

 
—

 
(261
)
 
—

 
(261
)
Exercise of stock options
—

 
—

 
2

 
4,432

 
—

 
—

 
4,434

 
—

 
4,434

Accrual under deferred compensation arrangements
—

 
—

 
—

 
44

 
—

 
—

 
44

 
—

 
44

Amortization of deferred compensation
—

 
—

 
—

 
1,957

 
—

 
—

 
1,957

 
—

 
1,957

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5,559

 
5,559

Distributions to noncontrolling interests
(6,221
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(25,716
)
 
(25,716
)
Adjustment for noncontrolling interests
2,379

 
—

 
—

 
(5,929
)
 
—

 
—

 
(5,929
)
 
3,550

 
(2,379
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
10,049

 
—

 
—

 
(4,256
)
 
—

 
—

 
(4,256
)
 
(5,793
)
 
(10,049
)
Acquire controlling interest in shopping center property
—

 
—

 
—

 
—

 
—

 
—

 
—

 
14,498

 
14,498

Balance, September 30, 2012
$
40,929

 
$
23

 
$
1,591

 
$
1,702,321

 
$
4,387

 
$
(470,430
)
 
$
1,237,892

 
$
148,345

 
$
1,386,237


The accompanying notes are an integral part of these condensed consolidated statements.


8
Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
  
 
Nine Months Ended
September 30,
 
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net income
$
88,436

 
$
75,120

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

Depreciation and amortization
198,700

 
211,582

Net amortization of deferred finance costs and debt premiums
5,563

 
8,143

Net amortization of intangible lease assets and liabilities
(551
)
 
(1,179
)
Gain on sales of real estate assets
(4,789
)
 
(3,602
)
Gain on sale of discontinued operations
(983
)
 
(121
)
Write-off of development projects
(115
)
 
51

Share-based compensation expense
2,211

 
1,769

Net realized (gain) loss on sale of available-for-sale securities
(160
)
 
22

Write-down of mortgage and other notes receivable
—

 
1,900

Loss on impairment of real estate
21,654

 
51,304

Loss on impairment of real estate from discontinued operations
8,759

 
6,696

Gain on extinguishment of debt
(178
)
 
(581
)
Gain on extinguishment of debt from discontinued operations
—

 
(31,434
)
Equity in earnings of unconsolidated affiliates
(5,401
)
 
(4,222
)
Distributions of earnings from unconsolidated affiliates
11,724

 
6,171

Provision for doubtful accounts
1,310

 
1,999

Change in deferred tax accounts
3,681

 
(5,032
)
Changes in:
 

 
 

Tenant and other receivables
(7,374
)
 
(3,908
)
Other assets
(3,152
)
 
552

Accounts payable and accrued liabilities
284

 
2,905

Net cash provided by operating activities
319,619

 
318,135

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(159,414
)
 
(149,321
)
Acquisition of real estate assets
(61,289
)
 
(12,172
)
Additions to restricted cash
(2,595
)
 
(13,571
)
Proceeds from sales of real estate assets
49,366

 
20,495

Additions to mortgage and other notes receivable
(3,584
)
 
(5,300
)
Payments received on mortgage and other notes receivable
2,962

 
4,817

Additional investments in and advances to unconsolidated affiliates
(4,994
)
 
(20,041
)
Distributions in excess of equity in earnings of unconsolidated affiliates
17,620

 
13,094

Changes in other assets
(1,759
)
 
(10,770
)
Net cash used in investing activities
(163,687
)
 
(172,769
)
 


 



9
Table of Contents

 
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
2012
 
2011
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from mortgage and other indebtedness
$
1,348,822

 
$
1,373,265

 
Principal payments on mortgage and other indebtedness
(1,311,827
)
 
(1,315,890
)
 
Additions to deferred financing costs
(2,864
)
 
(16,154
)
 
Proceeds from issuances of common stock
128

 
136

 
Costs of preferred stock offering
(134
)
 
—

 
Proceeds from exercises of stock options
4,434

 
1,955

 
Purchase of noncontrolling interest in the Operating Partnership
(9,836
)
 
—

 
Contributions from noncontrolling interests
5,559

 
1,040

 
Distributions to noncontrolling interests
(49,437
)
 
(55,033
)
 
Dividends paid to holders of preferred stock
(31,782
)
 
(31,782
)
 
Dividends paid to common shareholders
(98,737
)
 
(91,887
)
 
Net cash used in financing activities
(145,674
)
 
(134,350
)
 
 
 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
10,258

 
11,016

 
CASH AND CASH EQUIVALENTS, beginning of period
56,092

 
50,896

 
CASH AND CASH EQUIVALENTS, end of period
$
66,350

 
$
61,912

 
 
 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

 
Cash paid for interest, net of amounts capitalized
$
175,610

 
$
202,097


 
The accompanying notes are an integral part of these condensed consolidated statements.


10
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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, associated centers, community centers and office properties.  Its 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”). As of September 30, 2012, the Operating Partnership owned controlling interests in 77 regional malls/open-air centers (including our mixed-use center), 29 associated centers (each located adjacent to a regional mall), five 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 ("VIE").  At September 30, 2012, the Operating Partnership owned non-controlling interests in ten regional malls/open-air centers, three associated centers, five community centers and six office buildings. Because one or more of the other partners have substantive participating rights, the Operating Partnership does not control these partnerships and joint ventures and, accordingly, accounts for these investments using the equity method. The Operating Partnership had controlling interests in the development of one outlet center and the expansion of one outlet center, both of which are owned in 75% /25% joint ventures at September 30, 2012. The Operating Partnership also had controlling interests in one mall expansion, two community center developments and one mall redevelopment under construction at September 30, 2012.  The Operating Partnership also holds options to acquire certain development properties owned by third parties.
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At September 30, 2012, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.0% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned an 82.6% limited partner interest for a combined interest held by CBL of 83.6%.
The noncontrolling interest in the Operating Partnership is held primarily by CBL & Associates, Inc. and its affiliates (collectively “CBL’s Predecessor”). 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. At September 30, 2012, CBL’s Predecessor owned a 9.8% limited partner interest and third parties owned a 6.6% limited partner interest in the Operating Partnership.  CBL’s Predecessor also owned 7.8 million shares of CBL’s common stock at September 30, 2012, for a total combined effective interest of 13.9% 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 “Internal Revenue 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 ("SEC"). 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. All intercompany transactions have been eliminated. The results for the interim period ended September 30, 2012 are not necessarily indicative of the results to be obtained for the full fiscal year.
Certain historical amounts have been reclassified to conform to the current year's presentation. The financial results of certain properties that had been classified in continuing operations have been reclassified to discontinued operations in the condensed consolidated financial statements for all periods presented herein. Except where noted, the information presented in the Notes to Unaudited Condensed Consolidated Financial Statements excludes discontinued operations.

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, 2011, as amended.



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Note 2 – Recent Accounting Pronouncements
 
Accounting Guidance Adopted
 
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The objective of ASU 2011-04 is to align fair value measurements and related disclosure requirements under GAAP and International Financial Reporting Standards (“IFRSs”), thus improving the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. For public entities, this guidance was effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The adoption of ASU 2011-04 did not have a material impact on the Company's condensed consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). The objective of this accounting update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. ASU 2011-05 requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but continuous statements of net income and other comprehensive income. For public entities, this guidance was effective for interim and annual periods beginning after December 15, 2011 and should be applied retrospectively. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”). This guidance defers the changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. Other requirements of ASU 2011-05 are not affected by ASU 2011-12. The guidance in ASU 2011-12 was effective at the same time as ASU 2011-05 so that entities would not be required to comply with the presentation requirements in ASU 2011-05 that ASU 2011-12 deferred. The adoption of this guidance changed the presentation format of the Company's condensed consolidated financial statements but did not have an impact on the amounts reported in those statements.

In December 2011, the FASB issued ASU No. 2011-10, Derecognition of in Substance Real Estate - a Scope Clarification (“ASU 2011-10”). This guidance applies to the derecognition of in substance real estate when the parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate because of a default by the subsidiary on its nonrecourse debt. Under ASU 2011-10, the reporting entity should apply the guidance in Accounting Standards Codification ("ASC") 360-20, Property, Plant and Equipment - Real Estate Sales, to determine whether it should derecognize the in substance real estate. Generally, the requirements to derecognize in substance real estate would not be met before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. Thus, even if the reporting entity ceases to have a controlling financial interest under ASC 810-10, Consolidation - Overall, it would continue to include the real estate, debt, and the results of the subsidiary's operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date. For public companies, this guidance is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted. The Company elected to adopt ASU 2011-10 effective January 1, 2012. The adoption of this guidance did not have an impact on the Company's condensed consolidated financial statements.
Note 3 – Fair Value Measurements
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") 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.
    


12
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The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions, and risk of nonperformance.
Fair Value Measurements on a Recurring Basis
The following tables set forth information regarding the Company’s financial instruments that are measured at fair value on a recurring basis in the accompanying condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011:

 
 
 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
September 30, 2012
 
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
$
27,614

 
$
15,785

 
$
—

 
$
11,829

Privately held debt and equity securities
2,475

 
—

 
—

 
2,475

Interest rate cap
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Interest rate swaps
$
6,313

 
$
—

 
$
6,313

 
$
—



 
 

 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
December 31, 2011
 
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
$
30,613

 
$
18,784

 
$
—

 
$
11,829

Privately held debt and equity securities
2,475

 
—

 
—

 
2,475

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$
5,617

 
$
—

 
$
5,617

 
$
—

    
The Company recognizes transfers in and out of every level at the end of each reporting period. There were no transfers between Levels 1, 2, or 3 for all periods presented.
Intangible lease assets and other assets in the condensed consolidated balance sheets include marketable securities consisting of corporate equity securities, mortgage/asset-backed securities, mutual funds and bonds 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 and nine months ended September 30, 2012 and 2011, the Company did not record any write-downs related to other-than-temporary impairments.  During the nine month period ended September 30, 2012, the Company recognized realized gains of $160 related to sales of marketable securities. During the nine months ended September 30, 2011, the Company recognized realized losses of $22 related to sales of marketable securities.  The fair values of the Company’s available-for-sale securities that

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are based on quoted market prices are classified under Level 1.  Tax increment financing bonds ("TIF bonds") are classified as Level 3. The following is a summary of the available-for-sale securities held by the Company as of September 30, 2012 and December 31, 2011:
 
 
 
Gross Unrealized
 
 
 
Adjusted Cost
 
Gains
 
Losses
 
Fair Value
September 30, 2012:
 
 
 
 
 
 
 
Common stocks
$
4,207

 
$
11,583

 
$
(5
)
 
$
15,785

Government and government sponsored entities
13,371

 
—

 
(1,542
)
 
11,829

 
$
17,578

 
$
11,583

 
$
(1,547
)
 
$
27,614


 
 

 
Gross Unrealized
 
 

 
Adjusted Cost
 
Gains
 
Losses
 
Fair Value
December 31, 2011:
 

 
 

 
 

 
 

Common stocks
$
4,207

 
$
9,480

 
$
(5
)
 
$
13,682

Mutual funds
928

 
23

 
—

 
951

Mortgage/asset-backed securities
1,717

 
10

 
(4
)
 
1,723

Government and government sponsored entities
15,058

 
45

 
(1,542
)
 
13,561

Corporate bonds
636

 
26

 
—

 
662

International bonds
33

 
1

 
—

 
34

 
$
22,579

 
$
9,585

 
$
(1,551
)
 
$
30,613

The Company uses interest rate swaps and caps to mitigate the effect of interest rate movements on its variable-rate debt.  The Company had four interest rate swaps and one interest rate cap as of September 30, 2012 and December 31, 2011, that qualify as hedging instruments and are designated as cash flow hedges.  The interest rate cap is included in intangible lease assets and other assets and the interest rate swaps are reflected in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.  The swaps and cap 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 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 hedges, classified under Level 2, are determined 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 6 for further information regarding the Company’s interest rate hedging instruments.
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 and other notes receivable is a reasonable estimate of fair value.  The estimated fair value of mortgage and other indebtedness was $5,153,568 and $4,836,028 at September 30, 2012 and December 31, 2011, respectively.  The fair value was calculated by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.
The Company holds TIF bonds, which mature in 2028, received in a private placement as consideration for infrastructure improvements made by the Company related to the development of a community center. The Company has the intent and ability to hold the TIF bonds through the recovery period. To value the TIF bonds at September 30, 2012, the Company performed a probability-weighted discounted cash flow analysis using various bond redemption scenarios and a net present value based on a discount rate of 7% and a lack of marketability discount of 5%. The valuation assumes a 5% long-term revenue growth rate. Due to the significant unobservable estimates and assumptions used in the valuation of the TIF bonds, the Company has classified the TIF bonds under Level 3 in the fair value hierarchy. There were no changes in the $11,829 classified as available-for-sale securities (Level 3) for the period from December 31, 2011 through September 30, 2012.
The Company holds a secured convertible promissory note from 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 a probability-weighted discounted cash flow analysis using various sale, redemption and initial public offering ("IPO") exit strategies. The fair value analysis as of September 30, 2012 forecasts a 0% to 10% reduction in estimated cash flows. Sale

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and IPO scenarios employ capitalization rates ranging from 10% to 12% which are discounted 20% for lack of marketability. Due to the significant unobservable estimates and assumptions used in the valuation of the note, the Company has classified it under Level 3 in the fair value hierarchy.  Based on the valuation as of September 30, 2012, the Company determined that the current balance of the secured convertible note of $2,475 is not impaired.  There were no changes in the $2,475 classified as privately held debt and equity securities (Level 3) for the period from December 31, 2011 through September 30, 2012. See Notes 5 and 15 for further discussion.
The significant unobservable inputs used in the fair value measurement of the TIF bonds are the forecasted growth in sales and marketability discount. The significant unobservable inputs used in the fair value measurement of the Jinsheng note include revenue estimates and marketability discount. Significant increases (decreases) in revenues could result in a significantly higher (lower) fair value measurement whereas significant increases (decreases) in the marketability discount could result in a significantly lower (higher) fair value measurement.
Fair Value Measurements on a Nonrecurring Basis
The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income, occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experienced impairment, the Company has classified them under Level 3 in the fair value hierarchy. The fair value analysis for long-lived assets as of September 30, 2012 used various probability-weighted scenarios comparing the property's net book value to the sum of its estimated fair value. Assumptions included up to a 10-year holding period with a sale at the end of the holding period, capitalization rates ranging from 10% to 12%, and an estimated sales cost of 1%.
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
September 30, 2012
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Total
Losses
Assets:
 
 
 
 
 
 
 
 
Long-lived assets
$
27,043

 
$
—

 
$
—

 
$
27,043

$
20,743

In accordance with the Company's quarterly impairment review process, the Company recorded a non-cash impairment of real estate of $3,000 in the third quarter of 2012 related to The Courtyard at Hickory Hollow, an associated center located in Antioch, TN, to write-down the depreciated book value as of September 30, 2012 from $5,843 to an estimated fair value of $2,843 as of the same date.
Additionally during the third quarter of 2012, the Company recorded a non-cash impairment of real estate of $17,743 to write-down the depreciated book value of Willowbrook Plaza, a community center located in Houston, TX, from $41,943 as of September 30, 2012 to an estimated fair value of $24,200 as of the same date.
The revenues of The Courtyard at Hickory Hollow and Willowbrook Plaza accounted for approximately 0.5% of total consolidated revenues for the trailing twelve months ended September 30, 2012. A reconciliation of each property's carrying values for the nine months ended September 30, 2012 is as follows:
 
The Courtyard
at
Hickory Hollow
 
Willowbrook Plaza
 
Total
Beginning carrying value, January 1, 2012
$
5,754

 
$
42,666

 
$
48,420

Capital expenditures
191

 
98

 
289

Depreciation expense
(102
)
 
(821
)
 
(923
)
Loss on impairment of real estate
(3,000
)
 
(17,743
)
 
(20,743
)
Ending carrying value, September 30, 2012
$
2,843

 
$
24,200

 
$
27,043

The Company recorded an impairment of real estate of $911 related to the sale of two outparcels in July 2012. One

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outparcel was sold for net proceeds after selling costs of $276, which was less than its carrying amount of $914. The other outparcel was sold for net proceeds after selling costs of $541, which was less than its carrying amount of $814.
See Note 4 regarding impairments of real estate related to properties included in discontinued operations.

Note 4 – Acquisitions and Discontinued Operations
Acquisitions
Dakota Square Mall
In the second quarter of 2012, the Company acquired Dakota Square Mall, located in Minot, ND. The purchase price of $91,475 consisted of $32,474 in cash and the assumption of $59,001 of non-recourse debt that bears interest at a fixed rate of 6.23% and matures in November 2016. The Company recorded a debt premium of $3,040, computed using an estimated market interest rate of 4.75%, since the debt assumed was at an above-market interest rate compared to similar debt instruments at the date of acquisition. The results of operations of Dakota Square Mall are included in the condensed consolidated financial statements beginning on the date of acquisition. The Company incurred $272 of transaction related charges, which were recorded as general and administrative expense. The pro forma effect of this acquisition was not material. The following table summarizes the preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
Land
 
$
4,749

Buildings and improvements
 
84,086

Tenant improvements
 
2,426

Above-market leases
 
2,233

In-place leases
 
12,489

Total assets
 
105,983

Below-market leases
 
(11,468
)
Mortgage note payable assumed
 
(59,001
)
Debt premium
 
(3,040
)
Net assets acquired
 
$
32,474

The Outlet Shoppes at Gettysburg
In the second quarter of 2012, the Company and its noncontrolling interest partner exercised their rights under the terms of a mezzanine loan agreement with the borrower, which owned The Outlet Shoppes at Gettysburg in Gettysburg, PA, to convert the mezzanine loan into a member interest in the outlet shopping center. After conversion, the Company owns a 50.0% interest in the outlet center. The investment of $24,837 consisted of a $4,522 converted mezzanine loan and the assumption of $20,315 of debt. The $40,631 of debt, of which our share is 50.0%, bears interest at a fixed rate of 5.87% and matures in February 2016. The results of operations of The Outlet Shoppes at Gettysburg are included in the condensed consolidated financial statements beginning on the date of acquisition. The following table summarizes the preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
Land
 
$
20,915

Buildings and improvements
 
19,750

Tenant improvements
 
2,134

Above-market leases
 
1,097

In-place leases
 
9,282

Total assets
 
53,178

Mortgage note payable assumed
 
(40,631
)
Below-market leases
 
(3,503
)
Noncontrolling interest
 
(4,522
)
Net assets acquired
 
$
4,522

The Outlet Shoppes at El Paso
In the second quarter of 2012, the Company acquired a 75.0% joint venture interest in The Outlet Shoppes at El Paso, an outlet shopping center located in El Paso, TX for $31,592 and a 50.0% joint venture interest in outparcel land adjacent to The Outlet Shoppes at El Paso (see Note 5) for $3,864 for a total of $35,456. The amount paid for the Company's 75.0% and 50.0% interests was based on a total value of $116,775 less non-recourse mortgage debt of $66,924, which bears interest at a fixed rate of 7.06% and matures in December 2017. The debt assumed was at an above-market rate compared to similar debt instruments

16
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at the date of acquisition, so the Company recorded a debt premium of $7,700 (of which $5,775 represents the Company's 75.0% share), computed using an estimated market interest rate of 4.75%. The entity that owned The Outlet Shoppes at El Paso used a portion of the proceeds to repay a $9,150 mezzanine loan from the Company. After considering the repayment of the mezzanine loan to the Company, the net consideration paid by the Company in connection with this transaction was $28,594. The Outlet Shoppes at El Paso's results of operations are included in the condensed consolidated financial statements beginning on the date of acquisition. The following table summarizes the preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
Land
 
$
12,846

Buildings and improvements
 
92,305

Tenant improvements
 
3,845

Above-market leases
 
2,912

In-place leases
 
15,629

Investments in unconsolidated affiliates
 
3,864

Total assets
 
131,401

Mortgage note payable assumed
 
(66,924
)
Debt premium
 
(7,700
)
Below-market leases
 
(6,926
)
Noncontrolling interest
 
(14,395
)
Net assets acquired
 
$
35,456

Discontinued Operations
In the third quarter of 2012, the Company determined that Towne Mall, located in Franklin, OH and Hickory Hollow Mall, located in Antioch, TN met the criteria to be classified as held for sale as of September 30, 2012. The Company recorded a non-cash impairment of real estate of $419 related to Towne Mall and a non-cash impairment of real estate of $8,047 related to Hickory Hollow Mall in the third quarter of 2012 to write down the depreciable basis of Towne Mall from $1,311 to its estimated fair value of $892 and to write down the depreciable basis of Hickory Hollow Mall from $9,007 to its estimated fair value of $960 as of the same date. The results of operations of these malls as well as the loss on impairment of real estate are included in discontinued operations for all periods presented, as applicable. See Note 15 for additional information related to the sale of these properties in October 2012.
In July 2012, the Company sold Massard Crossing, a community center located in Fort Smith, AR, for a gross sales price of $7,803 less commissions and customary closing costs for a net sales price of $7,432. Proceeds from the sale were used to reduce the outstanding borrowings on the Company's secured credit facilities. The Company recorded a gain of $98 attributable to the sale in the third quarter of 2012. The results of operations for this property as well as the gain attributable to the sale are included in discontinued operations for the three and nine month periods ended September 30, 2012 and 2011, as applicable.
In March 2012, the Company completed the sale of the second phase of Settlers Ridge, a community center located in Robinson Township, PA, for a gross sales price of $19,144 less commissions and customary closing costs for a net sales price of $18,951. Proceeds from the sale were used to reduce the outstanding borrowings on the Company's secured credit facilities. The Company recorded a gain of $883 attributable to the sale in the first quarter of 2012. The Company recorded a loss on impairment of real estate of $4,457 in the second quarter of 2011 to write down the book value of this property to its then estimated fair value. The results of operations of this property and the related gain on the sale are included in discontinued operations for the nine months ended September 30, 2012. The results of operations for this property as well as the loss on impairment of real estate are included in discontinued operations for the three and nine month periods ended September 30, 2011, as applicable.
In January 2012, the Company sold Oak Hollow Square, a community center located in High Point, NC, for a gross sales price of $14,247. Net proceeds of $13,796 were used to reduce the outstanding balance on the Company's unsecured term loan. The Company recorded a loss on impairment of real estate of $255 in the first quarter of 2012 related to the true-up of certain estimated amounts to actual amounts. The Company recorded a loss on impairment of real estate of $729 in the fourth quarter of 2011 to write down the book value of this property to the estimated net sales price. The results of operations of this property, including the loss on impairment of real estate, are included in discontinued operations for the nine months ended September 30, 2012 and for the three and nine month periods ended September 30, 2011, as applicable.
In November 2011, the Company completed the sale of Westridge Square, a community center located in Greensboro, NC, for a sales price of $26,125 less commissions and customary closing costs for a net sales price of $25,768. The Company recorded a loss of $160 attributable to the sale in the fourth quarter of 2011. Proceeds from the sale of Westridge Square were used to reduce the outstanding borrowings on the unsecured term loan used to acquire the Starmount Properties. The results of operations of this property are included in discontinued operations for the three and nine month periods ended September 30, 2011.

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In February 2011, the Company completed the sale of Oak Hollow Mall in High Point, NC, for a gross sales price of $9,000.  Net proceeds were used to retire the outstanding principal balance and accrued interest of $40,281 on the non-recourse loan secured by the property in accordance with the lender’s agreement to modify the outstanding principal balance and accrued interest to equal the net sales price for the property and, as a result, the Company recorded a gain on the extinguishment of debt of $31,434 in the first quarter of 2011.  The Company also recorded a loss on impairment of real estate in the first quarter of 2011 of $2,746 to write down the book value of the property to the net sales price. The results of operations of this property, including the gain on extinguishment of debt and loss on impairment of real estate, are included in discontinued operations for the nine months ended September 30, 2011.
Total revenues of the properties described above that are included in discontinued operations were $229 and $2,747 for the three months ended September 30, 2012 and 2011, respectively, and $3,164 and $8,247 for the nine months ended September 30, 2012 and 2011, respectively.  Discontinued operations for the three and nine month periods ended September 30, 2012 and 2011 also include settlements of estimated expenses based on actual amounts for properties sold during previous periods.
Note 5 – Unconsolidated Affiliates, Noncontrolling Interests and Cost Method Investments
 
Unconsolidated Affiliates
 
At September 30, 2012, the Company had investments in the following 18 entities, which are accounted for using the equity method of accounting:
Joint Venture
Property Name
Company's
Interest
CBL/T-C, LLC
CoolSprings Galleria, Oak Park Mall, West County Center
   and Pearland Town Center
60.3%
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%
El Paso Outlet Outparcels, LLC
The Outlet Shoppes at El Paso (vacant land)
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 (Coastal Grand Crossing
   and vacant land)
50.0%
Port Orange I, LLC
The Pavilion at Port Orange Phase I
50.0%
Triangle Town Member LLC
Triangle Town Center, Triangle Town Commons
   and Triangle Town Place
50.0%
West Melbourne I, LLC
Hammock Landing Phases I and 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:
•
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

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•
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 of these unconsolidated affiliates is as follows:
 
As of
ASSETS
September 30,
2012
 
December 31,
2011
Investment in real estate assets
$
2,226,364

 
$
2,239,160

Accumulated depreciation
(498,938
)
 
(447,121
)
 
1,727,426

 
1,792,039

Developments in progress
23,499

 
19,640

Net investment in real estate assets
1,750,925

 
1,811,679

Other assets
180,600

 
190,465

    Total assets
$
1,931,525

 
$
2,002,144

 
 
 
 
LIABILITIES
 
 
 
Mortgage and other indebtedness
$
1,467,038

 
$
1,478,601

Other liabilities
47,818

 
51,818

    Total liabilities
1,514,856

 
1,530,419

 
 
 
 
OWNERS' EQUITY
 
 
 
The Company
252,048

 
267,136

Other investors
164,621

 
204,589

Total owners' equity
416,669

 
471,725

    Total liabilities and owners' equity
$
1,931,525

 
$
2,002,144


 
Total for the Three Months
Ended September 30,
 
Company's Share for the Three
Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Revenues
$
61,821

 
$
37,290

 
$
32,803

 
$
20,683

Depreciation and amortization expense
(20,423
)
 
(12,481
)
 
(10,828
)
 
(7,020
)
Interest expense
(21,002
)
 
(12,903
)
 
(11,022
)
 
(7,195
)
Other operating expenses
(18,742
)
 
(10,842
)
 
(9,527
)
 
(5,599
)
Gain on sales of real estate assets
1,271

 
79

 
636

 
120

Net income
$
2,925

 
$
1,143

 
$
2,062

 
$
989


 
Total for the Nine Months
Ended September 30,
 
Company's Share for the Nine
Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Revenues
$
186,320

 
$
114,237

 
$
99,190

 
$
63,667

Depreciation and amortization expense
(61,907
)
 
(37,581
)
 
(32,877
)
 
(21,132
)
Interest expense
(63,199
)
 
(39,140
)
 
(33,289
)
 
(21,655
)
Other operating expenses
(55,765
)
 
(33,647
)
 
(28,474
)
 
(18,024
)
Gain on sales of real estate assets
1,701

 
1,744

 
851

 
1,366

Net income
$
7,150

 
$
5,613

 
$
5,401

 
$
4,222

    
In July 2012, JG Gulf Coast Town Center LLC ("Gulf Coast") closed on a three-year $7,000 loan with an institutional lender, secured by the third phase expansion of Gulf Coast Town Center, a shopping center located in Ft. Myers, FL. Interest on the loan is at LIBOR plus a margin of 2.5%. The Company has guaranteed 100.0% of this loan. Proceeds from the loan were distributed to the Company in accordance with the terms of the joint venture agreement and the Company used these funds to

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reduce the balance on its secured credit facilities.
    
In the second quarter of 2012, the Company acquired a 50.0% interest in a joint venture, El Paso Outlet Outparcels, LLC, simultaneously with the acquisition of a 75.0% interest in The Outlet Shoppes at El Paso (see Note 4). The Company's investment was $3,864. The remaining 50.0% interest is owned by affiliates of Horizon Group Properties. El Paso Outlet Outparcels, LLC owns land adjacent to The Outlet Shoppes at El Paso. The terms of the joint venture agreement provide that voting rights, capital contributions and distributions of cash flows will be on a pari passu basis in accordance with the ownership percentages.
During the first quarter of 2012, York Town Center, LP ("YTC") closed on a $38,000 ten-year non-recourse loan, secured by York Town Center in York, PA, which bears interest at a fixed rate of 4.90%. Proceeds from the new loan, plus cash on hand, were used to retire an existing loan of $39,379 that was scheduled to mature in March 2012.
Also during the first quarter of 2012, Port Orange I, LLC ("Port Orange") closed on the extension and modification of a construction loan, secured by The Pavilion at Port Orange in Port Orange, FL, to extend the maturity date to March 2014, remove a 1% LIBOR floor, and reduce the capacity from $98,883 to $64,950. Port Orange paid $3,332 to reduce the outstanding balance on the loan to the new capacity amount. There is a one-year extension option remaining on the loan, which is at the joint venture's election, for an outside maturity date of March 2015. Interest on the loan is at LIBOR plus a margin of 3.5%. The Company has guaranteed 100% of the construction loan.
All of the debt on the properties owned by the unconsolidated affiliates is non-recourse, except for West Melbourne, Port Orange, High Pointe Commons, and Gulf Coast. See Note 11 for a description of guarantees the Company has issued related to certain unconsolidated affiliates.
Noncontrolling Interests

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 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 $40,929 as of September 30, 2012 consisted of noncontrolling interests in the Operating Partnership and in the Company’s consolidated subsidiary that provides security and maintenance services to third parties of $34,714 and $6,215, respectively.  At December 31, 2011, the total redeemable noncontrolling partnership interests of $32,271 consisted of noncontrolling interests in the Operating Partnership and in the Company’s consolidated security and maintenance services subsidiary of $26,036 and $6,235, 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 11 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:
 
Nine Months Ended
September 30,
 
2012
 
2011
Beginning Balance
$
423,834

 
$
423,834

Net income attributable to redeemable noncontrolling
     preferred joint venture interest
15,486

 
15,436

Distributions to redeemable noncontrolling
     preferred joint venture interest
(15,486
)
 
(15,436
)
Ending Balance
$
423,834

 
$
423,834


In the third quarter of 2012, eleven    holders of 533,708 common units of limited partnership interest in the Operating Partnership exercised their conversion rights. The Company elected to issue 533,708 shares of common stock in exchange for the common units in the third quarter of 2012. Additionally, during the third quarter of 2012, JCP Realty, Inc., a wholly owned subsidiary of J.C. Penney Corporation, Inc., which held 1,895,358 common units of limited partnership interest in the Operating Partnership, and another holder of 36,376 common units of limited partnership interest in the Operating Partnership exercised their conversion rights. The Company elected to issue 1,931,734 shares of common stock in exchange for the common units in the fourth quarter of 2012. See Note 15 for additional information related to the registration of these shares for public resale.

Noncontrolling interests include 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

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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 September 30, 2012, the total noncontrolling interests of $148,345 consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of $125,552 and $22,793 respectively.  The total noncontrolling interests at December 31, 2011 of $207,113 consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of $202,833 and $4,280, respectively.
    
Jacobs Realty Investors Limited Partnership ("JRI"), a holder of 9,757,100 common units of limited partnership interest in the Operating Partnership, exercised its conversion rights in May 2012. The Company elected to issue 9,757,100 shares of common stock in exchange for the common units in June 2012 and registered these shares for public resale by JRI in July 2012 pursuant to JRI's exercise of its contractual registration rights.
In the second quarter of 2012, the Company elected to pay cash of $3,475 to a holder of 194,572 common units of limited partnership interest in the Operating Partnership upon exercise of its conversion rights in the first quarter of 2012.
In the first quarter of 2012, the Company elected to pay cash of $6,359 to three holders of 431,380 common units of limited partnership interest in the Operation Partnership upon exercise of their conversion rights.
Cost Method Investments
The Company owns a 6.2% noncontrolling interest in subsidiaries of Jinsheng, an established mall operating and real estate development company located in Nanjing, China. As of September 30, 2012, Jinsheng owns controlling interests in 12 home furnishing shopping malls.
The Company also holds a secured convertible promissory note secured by 16,565,534 Series 2 Ordinary Shares of Jinsheng (which equates to a 2.275% ownership interest). The secured note is non-interest bearing and was amended by the Company and Jinsheng in July 2012 to extend to January 2013 the Company's right to convert the outstanding amount of the secured note into 16,565,534 Series A-2 Preferred Shares of Jinsheng. The amendment also provides that if Jinsheng should complete an IPO, the secured note will be converted into common shares of Jinsheng immediately prior to the IPO.
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.  See Note 3 for information regarding the fair value of the secured note and Note 15 for subsequent events related to the secured note. The noncontrolling interest and the secured note are reflected as investment in unconsolidated affiliates in the accompanying condensed consolidated balance sheets. 
Variable Interest Entities
In the second quarter of 2012, the Company entered into a joint venture, Atlanta Outlet Shoppes, LLC ("Atlanta Outlet Shoppes"), with a third party to develop, own, and operate The Outlet Shoppes at Atlanta, an outlet center development located in Woodstock, GA. The Company holds a 75% ownership interest in the joint venture. The Company determined that its investment in this joint venture represents a variable interest in a VIE and that the Company is the primary beneficiary. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of September 30, 2012 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest. In August 2012, the joint venture closed on a construction loan with a maximum capacity of $69,823 that bears interest at LIBOR plus a margin of 2.75%. The loan matures in August 2015 and has two one-year extension options available. The Company has guaranteed 100% of this loan.  See Note 11 for additional information related to the guarantee. 
In the second quarter of 2012, the Company entered into a joint venture, Gettysburg Outlet Center Holding LLC, with a third party to develop, own, and operate The Outlet Shoppes at Gettysburg. The Company holds a 50% ownership interest in this joint venture. The Company determined that its investment in this joint venture represents a variable interest in a VIE and that the Company is the primary beneficiary. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of September 30, 2012 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.
In the second quarter of 2012, the Company entered into a joint venture, El Paso Outlet Center Holding, LLC, with a third party to develop, own, and operate The Outlet Shoppes at El Paso. The Company holds a 75% ownership interest in the joint venture. The Company determined that its investment in this joint venture represents a variable interest in a VIE and that the Company is the primary beneficiary. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of September 30, 2012 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.


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Note 6 – Mortgage and Other Indebtedness
 
Mortgage and other indebtedness consisted of the following:
 
September 30, 2012
 
December 31, 2011
 
Amount
 
Weighted
Average
Interest
Rate (1)
 
Amount
 
Weighted
Average
Interest
Rate (1)
Fixed-rate debt:
 
 
 
 
 
 
 
Non-recourse loans on operating properties (2)
$
3,772,111

 
5.43
%
 
$
3,656,243

 
5.55
%
Recourse term loans on operating properties
50,160

 
5.83
%
 
77,112

 
5.89
%
Total fixed-rate debt
3,822,271

 
5.43
%
 
3,733,355

 
5.54
%
Variable-rate debt:
 

 
 

 
 

 
 

Non-recourse term loans on operating properties
124,250

 
3.33
%
 
168,750

 
3.03
%
Recourse term loans on operating properties
71,513

 
2.07
%
 
124,439

 
2.29
%
Construction loans
31,246

 
3.28
%
 
25,921

 
3.25
%
Secured lines of credit
256,901

 
2.70
%
 
27,300

 
3.03
%
Unsecured term loans
395,209

 
1.63
%
 
409,590

 
1.67
%
Total variable-rate debt
879,119

 
2.25
%
 
756,000

 
2.18
%
Total
$
4,701,390

 
4.84
%
 
$
4,489,355

 
4.99
%
 
(1)
Weighted-average interest rate includes the effect of debt premiums (discounts), but excludes amortization of deferred financing costs.
(2)
The Company has four interest rate swaps on notional amounts totaling $114,884 as of September 30, 2012 and $117,700 as of December 31, 2011 related to four variable-rate loans on operating properties to effectively fix the interest rate on the respective loans.  Therefore, these amounts are reflected in fixed-rate debt at September 30, 2012 and December 31, 2011.

See Note 4 for a description of debt assumed in connection with acquisitions completed during the nine months ended September 30, 2012.
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 plus an applicable spread, ranging from 1.75% to 3.00%, based on the Company’s leverage ratio, and had a weighted average interest rate of 2.70% at September 30, 2012. The Company also pays fees based on the amount of unused availability under its secured lines of credit at rates ranging from 0.15% to 0.35% of unused availability. The following summarizes certain information about the secured lines of credit as of September 30, 2012:     
 
Total
Capacity
 
 
Total
Outstanding
 
 
Maturity
Date
 
Extended
Maturity
Date
$
525,000

 
$
77,500

(1) 
 
February 2014
 
February 2015
520,000

 
150,196

 
 
April 2014
 
N/A
105,000

 
29,205

 
 
June 2015
 
June 2016
$
1,150,000