CBL-6.30.2013-10Q
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 JUNE 30, 2013
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 August 2, 2013, there were 169,905,872 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
June 30,
2013
 
December 31,
2012
Real estate assets:
 
 
 
Land
$
909,585

 
$
905,339

Buildings and improvements
7,237,585

 
7,228,293

 
8,147,170

 
8,133,632

Accumulated depreciation
(2,061,148
)
 
(1,972,031
)
 
6,086,022

 
6,161,601

Held for sale
—

 
29,425

Developments in progress
210,086

 
137,956

Net investment in real estate assets
6,296,108

 
6,328,982

Cash and cash equivalents
64,430

 
78,248

Receivables:
 

 
 

 Tenant, net of allowance for doubtful accounts of $2,154
     and $1,977 in 2013 and 2012, respectively
78,803

 
78,963

 Other, net of allowance for doubtful accounts of $1,283
      and $1,270 in 2013 and 2012, respectively
29,985

 
8,467

Mortgage and other notes receivable
25,020

 
25,967

Investments in unconsolidated affiliates
282,389

 
259,810

Intangible lease assets and other assets
257,908

 
309,299

 
$
7,034,643

 
$
7,089,736

 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 

 
 

Mortgage and other indebtedness
$
4,622,395

 
$
4,745,683

Accounts payable and accrued liabilities
327,399

 
358,874

Total liabilities
4,949,794

 
5,104,557

Commitments and contingencies (Notes 5 and 12)


 


Redeemable noncontrolling interests:  
 

 
 

Redeemable noncontrolling partnership interests  
40,471

 
40,248

Redeemable noncontrolling preferred joint venture interest
423,777

 
423,834

Total redeemable noncontrolling interests
464,248

 
464,082

Shareholders' equity:
 

 
 

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

 
 

 7.375% Series D Cumulative Redeemable Preferred
     Stock, 1,815,000 shares outstanding
18

 
18

 6.625% Series E Cumulative Redeemable Preferred
     Stock, 690,000 shares outstanding
7

 
7

 Common stock, $.01 par value, 350,000,000 shares
     authorized, 169,906,529 and 161,309,652 issued and
     outstanding in 2013 and 2012, respectively
1,699

 
1,613

Additional paid-in capital
1,955,990

 
1,773,630

Accumulated other comprehensive income
7,855

 
6,986

Dividends in excess of cumulative earnings
(510,761
)
 
(453,561
)
Total shareholders' equity
1,454,808

 
1,328,693

Noncontrolling interests
165,793

 
192,404

Total equity
1,620,601

 
1,521,097

 
$
7,034,643

 
$
7,089,736

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 June 30,
 
Six Months
Ended June 30,
 
2013
 
2012
 
2013
 
2012
REVENUES:
 
 
 
 
 
 
 
Minimum rents
$
170,185

 
$
164,613

 
$
340,663

 
$
322,123

Percentage rents
2,376

 
1,756

 
7,291

 
5,208

Other rents
4,698

 
4,664

 
9,995

 
9,950

Tenant reimbursements
72,576

 
70,994

 
146,935

 
140,686

Management, development and leasing fees
2,849

 
1,967

 
5,924

 
4,436

Other
9,753

 
7,850

 
17,606

 
15,910

Total revenues
262,437

 
251,844

 
528,414

 
498,313

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 

 
 

 
 
 
 
Property operating
35,098

 
35,491

 
76,176

 
72,356

Depreciation and amortization
70,515

 
67,156

 
142,070

 
129,414

Real estate taxes
22,013

 
23,211

 
45,055

 
45,540

Maintenance and repairs
13,772

 
13,034

 
28,463

 
25,791

General and administrative
12,875

 
11,993

 
26,299

 
25,793

Loss on impairment
21,038

 
—

 
21,038

 
—

Other
8,190

 
6,559

 
14,846

 
13,317

Total operating expenses
183,501

 
157,444

 
353,947

 
312,211

Income from operations
78,936

 
94,400

 
174,467

 
186,102

Interest and other income
661

 
1,295

 
1,388

 
2,370

Interest expense
(57,205
)
 
(61,400
)
 
(117,033
)
 
(121,231
)
Loss on extinguishment of debt
(9,108
)
 
—

 
(9,108
)
 
—

Gain on sale of real estate assets
457

 
—

 
1,000

 
94

Gain on investments
2,400

 
—

 
2,400

 
—

Equity in earnings of unconsolidated affiliates
2,729

 
2,073

 
5,348

 
3,339

Income tax provision
(757
)
 
(267
)
 
(583
)
 
(39
)
Income from continuing operations
18,113

 
36,101

 
57,879

 
70,635

Operating income (loss) from discontinued operations
35

 
3,308

 
(627
)
 
4,414

Gain (loss) on discontinued operations
91

 
(16
)
 
872

 
895

Net income
18,239

 
39,393

 
58,124

 
75,944

Net income attributable to noncontrolling interests in:
 

 
 

 
 
 
 
Operating partnership
(36
)
 
(5,197
)
 
(3,527
)
 
(9,559
)
Other consolidated subsidiaries
(6,479
)
 
(4,805
)
 
(12,560
)
 
(10,945
)
Net income attributable to the Company
11,724

 
29,391

 
42,037

 
55,440

Preferred dividends
(11,223
)
 
(10,594
)
 
(22,446
)
 
(21,188
)
Net income attributable to common shareholders
$
501

 
$
18,797

 
$
19,591

 
$
34,252



4
Table of Contents

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,
 
2013
 
2012
 
2013
 
2012
Basic per share data attributable to common shareholders:
 

 
 

 
 
 
 
Income from continuing operations, net of preferred dividends
$
0.00

 
$
0.11

 
$
0.12

 
$
0.20

Discontinued operations
0.00

 
0.01

 
0.00

 
0.03

Net income attributable to common shareholders
$
0.00

 
$
0.12

 
$
0.12

 
$
0.23

Weighted-average common shares outstanding
166,607

 
150,913

 
164,088

 
149,704

 
 
 
 
 
 
 
 
Diluted earnings per share data attributable to common shareholders:
 
 

 
 
 
 
Income from continuing operations, net of preferred dividends
$
0.00

 
$
0.11

 
$
0.12

 
$
0.20

Discontinued operations
0.00

 
0.01

 
0.00

 
0.03

Net income attributable to common shareholders
$
0.00

 
$
0.12

 
$
0.12

 
$
0.23

Weighted-average common and potential dilutive common shares outstanding
166,607

 
150,954

 
164,088

 
149,746

 
 
 
 
 
 
 
 
Amounts attributable to common shareholders:
 

 
 

 
 
 
 
Income from continuing operations, net of preferred dividends
$
394

 
$
16,184

 
$
19,383

 
$
30,071

Discontinued operations
107

 
2,613

 
208

 
4,181

Net income attributable to common shareholders
$
501

 
$
18,797

 
$
19,591

 
$
34,252

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.23

 
$
0.22

 
$
0.46

 
$
0.44


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
(In thousands)
(Unaudited)

 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
18,239

 
$
39,393

 
$
58,124

 
$
75,944

 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Unrealized holding gain (loss) on available-for-sale
     securities
(1,015
)
 
61

 
(252
)
 
1,579

Reclassification to net income of realized gain on available-for-sale securities
—

 
(160
)
 
—

 
(160
)
   Unrealized gain (loss) on hedging instruments
443

 
(1,332
)
 
163

 
(1,610
)
Reclassification to net income of hedging loss included in
     net income
562

 
567

 
1,119

 
1,129

Total other comprehensive income (loss)
(10
)
 
(864
)
 
1,030

 
938

 
 
 
 
 
 
 
 
Comprehensive income
18,229

 
38,529

 
59,154

 
76,882

Comprehensive income attributable to noncontrolling
     interests in:
 
 
 
 
 
 
 
Operating partnership
(21
)
 
(5,019
)
 
(3,688
)
 
(9,776
)
Other consolidated subsidiaries
(6,479
)
 
(4,805
)
 
(12,560
)
 
(10,945
)
Comprehensive income attributable to the Company
$
11,729

 
$
28,705

 
$
42,906

 
$
56,161


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, 2012
$
32,271

 
$
23

 
$
1,484

 
$
1,657,927

 
$
3,425

 
$
(399,581
)
 
$
1,263,278

 
$
207,113

 
$
1,470,391

Net income
1,620

 
—

 
—

 
—

 
—

 
55,440

 
55,440

 
8,595

 
64,035

Other comprehensive income
8

 
—

 
—

 
—

 
721

 
—

 
721

 
209

 
930

Conversion of operating partnership
     common units to shares of common stock
—

 
—

 
98

 
45,599

 
—

 
—

 
45,697

 
(45,697
)
 
—

Redemption of Operating Partnership common units
—

 
—

 
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
(67,579
)
 
(67,579
)
 
—

 
(67,579
)
Dividends declared - preferred stock
—

 
—

 
—

 
—

 
—

 
(21,188
)
 
(21,188
)
 
—

 
(21,188
)
Issuance of common stock and restricted
     common stock
—

 
—

 
2

 
327

 
—

 
—

 
329

 
—

 
329

Cancellation of restricted common stock
—

 
—

 
—

 
(255
)
 
—

 
—

 
(255
)
 
—

 
(255
)
Exercise of stock options
—

 
—

 
2

 
4,432

 
—

 
—

 
4,434

 
—

 
4,434

Accrual under deferred compensation arrangements
—

 
—

 
—

 
29

 
—

 
—

 
29

 
—

 
29

Amortization of deferred compensation
—

 
—

 
—

 
1,496

 
—

 
—

 
1,496

 
—

 
1,496

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
4,042

 
4,042

Distributions to noncontrolling interests
(4,536
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(17,540
)
 
(17,540
)
Adjustment for noncontrolling interests
1,485

 
—

 
—

 
(4,242
)
 
—

 
—

 
(4,242
)
 
2,757

 
(1,485
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
7,370

 
—

 
—

 
(7,370
)
 
—

 
—

 
(7,370
)
 
—

 
(7,370
)
Acquire controlling interest in shopping center property
—

 
—

 
—

 
—

 
—

 
—

 
—

 
14,505

 
14,505

Balance, June 30, 2012
$
38,218

 
$
23

 
$
1,586

 
$
1,697,943

 
$
4,146

 
$
(432,908
)
 
$
1,270,790

 
$
164,148

 
$
1,434,938


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, 2013
$
40,248

 
$
25

 
$
1,613

 
$
1,773,630

 
$
6,986

 
$
(453,561
)
 
$
1,328,693

 
$
192,404

 
$
1,521,097

Net income
1,996

 
—

 
—

 
—

 
—

 
42,037

 
42,037

 
3,863

 
45,900

Other comprehensive income
10

 
—

 
—

 
—

 
869

 
—

 
869

 
151

 
1,020

Issuance of common stock
—

 
—

 
84

 
209,422

 
—

 
—

 
209,506

 
—

 
209,506

Dividends declared - common stock
—

 
—

 
—

 
—

 
—

 
(76,791
)
 
(76,791
)
 
—

 
(76,791
)
Dividends declared - preferred stock
—

 
—

 
—

 
—

 
—

 
(22,446
)
 
(22,446
)
 
—

 
(22,446
)
Issuance of restricted common stock
—

 
—

 
2

 
(2
)
 
—

 
—

 
—

 
—

 
—

Cancellation of restricted common stock
—

 
—

 
—

 
(705
)
 
—

 
—

 
(705
)
 
—

 
(705
)
Amortization of deferred compensation
—

 
—

 
—

 
1,887

 
—

 
—

 
1,887

 
—

 
1,887

Distributions to noncontrolling interests
(3,838
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(15,368
)
 
(15,368
)
Adjustment for noncontrolling interests
2,909

 
—

 
—

 
(29,057
)
 
—

 
—

 
(29,057
)
 
26,148

 
(2,909
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
(854
)
 
—

 
—

 
815

 
—

 
—

 
815

 
39

 
854

Acquire controlling interest in shopping center property
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(41,444
)
 
(41,444
)
Balance, June 30, 2013
$
40,471

 
$
25

 
$
1,699

 
$
1,955,990

 
$
7,855

 
$
(510,761
)
 
$
1,454,808

 
$
165,793

 
$
1,620,601


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)
  
 
Six Months Ended
June 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net income
$
58,124

 
$
75,944

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

Depreciation and amortization
142,177

 
131,399

Net amortization of deferred finance costs and debt premiums
2,503

 
3,787

Net amortization of intangible lease assets and liabilities
(180
)
 
(147
)
Gain on sale of real estate assets
(1,000
)
 
(3,130
)
Gain on investment
(2,400
)
 
—

Gain on sale of discontinued operations
(872
)
 
(895
)
Write-off of development projects
1

 
(123
)
Share-based compensation expense
1,887

 
1,739

Net realized gain on sale of available-for-sale securities
—

 
(160
)
Loss on impairment
21,038

 
—

Loss on impairment from discontinued operations
—

 
293

Loss on extinguishment of debt
9,108

 
—

Equity in earnings of unconsolidated affiliates
(5,348
)
 
(3,339
)
Distributions of earnings from unconsolidated affiliates
7,911

 
7,314

Provision for doubtful accounts
927

 
1,331

Change in deferred tax accounts
1,824

 
2,316

Changes in:
 

 
 

Tenant and other receivables
(5,796
)
 
5,745

Other assets
5,173

 
2,923

Accounts payable and accrued liabilities
(45,408
)
 
(5,207
)
Net cash provided by operating activities
189,669

 
219,790

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(147,327
)
 
(88,890
)
Acquisition of real estate assets
(26,444
)
 
(61,419
)
Additions to restricted cash
(528
)
 
(1,270
)
Proceeds from sales of real estate assets
45,039

 
38,161

Additions to mortgage and other notes receivable
(2,700
)
 
(2,965
)
Payments received on mortgage and other notes receivable
3,699

 
2,160

Proceeds from sales of investments and available-for-sale securities
15,877

 
—

Additional investments in and advances to unconsolidated affiliates
(29,079
)
 
(3,969
)
Distributions in excess of equity in earnings of unconsolidated affiliates
4,239

 
7,316

Changes in other assets
(11,677
)
 
2,066

Net cash used in investing activities
(148,901
)
 
(108,810
)
 


 



9
Table of Contents

 
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)
 
 
 
 
 
 
Six Months Ended
June 30,
 
 
2013
 
2012
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from mortgage and other indebtedness
$
752,835

 
$
1,136,081

 
Principal payments on mortgage and other indebtedness
(882,239
)
 
(1,108,292
)
 
Additions to deferred financing costs
(900
)
 
(2,688
)
 
Prepayment fees on extinguishment of debt
(8,708
)
 
—

 
Proceeds from issuances of common stock
209,506

 
87

 
Proceeds from exercises of stock options
—

 
4,434

 
Purchase of noncontrolling interest in the Operating Partnership
—

 
(9,836
)
 
Contributions from noncontrolling interests
—

 
4,042

 
Distributions to noncontrolling interests
(29,437
)
 
(34,323
)
 
Dividends paid to holders of preferred stock
(22,446
)
 
(21,188
)
 
Dividends paid to common shareholders
(73,197
)
 
(63,852
)
 
Net cash used in financing activities
(54,586
)
 
(95,535
)
 
 
 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
(13,818
)
 
15,445

 
CASH AND CASH EQUIVALENTS, beginning of period
78,248

 
56,092

 
CASH AND CASH EQUIVALENTS, end of period
$
64,430

 
$
71,537

 
 
 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

 
Cash paid for interest, net of amounts capitalized
$
114,360

 
$
115,507


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


10
Table of Contents

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, outlet 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 June 30, 2013, the Operating Partnership owned controlling interests in 77 regional malls/open-air and outlet centers (including one mixed-use center), 28 associated centers (each located adjacent to a regional mall), seven community centers and eight 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 June 30, 2013, the Operating Partnership owned noncontrolling interests in nine regional malls/open-air centers, four associated centers, four community centers and seven 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 two outlet center developments, four mall expansions, three mall redevelopments and one associated center redevelopment at June 30, 2013.  The Operating Partnership had a noncontrolling interest in one community center development at June 30, 2013. 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, 2013, 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 84.2% limited partner interest for a combined interest held by CBL of 85.2%.
The noncontrolling interest in the Operating Partnership is held by CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively "CBL's Predecessor"), all of which 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, and by various third parties. At June 30, 2013, CBL’s Predecessor owned a 9.1% limited partner interest and the third parties owned a 5.7% limited partner interest in the Operating Partnership.  CBL’s Predecessor also owned 3.2 million shares of CBL’s common stock at June 30, 2013, for a total combined effective interest of 10.7% in the Operating Partnership.
The Operating Partnership conducts CBL’s property management and development activities through its wholly-owned subsidiary, 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”).
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 June 30, 2013 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, 2012.

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Note 2 – Recent Accounting Pronouncements
 Accounting Guidance Adopted
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). The objective of ASU 2013-02 is to improve reporting of reclassifications out of accumulated other comprehensive income ("AOCI") by presenting information about such reclassifications and their corresponding effect on net income primarily in one place, either on the face of the financial statements or in the notes. ASU 2013-02 requires an entity to disclose information by component for significant amounts reclassified out of AOCI if the amounts reclassified are required to be reclassified under GAAP to net income in their entirety in the same reporting period. For amounts not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. For public companies, this guidance was effective on a prospective basis for fiscal years, and interim periods within those years, beginning after December 15, 2012. ASU 2013-02 did not change the calculation of or amounts reported as net income and comprehensive income but did change the presentation of the components of AOCI reported in the Company's condensed consolidated financial statements.
In July 2013, the FASB issued ASU 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes ("ASU 2013-10"). ASU 2013-10 permits the Overnight Index Swap ("OIS") Rate, also referred to as the Fed Funds Effective Swap Rate, to be used as a U.S. benchmark for hedge accounting purposes, in addition to London Interbank Offered Rate ("LIBOR") and interest rates on direct U.S. Treasury obligations. The guidance also removes the restriction on using different benchmarks for similar hedges. ASU 2013-10 is effective prospectively for qualifying new or redesignated hedges entered into on or after July 17, 2013. The Company does not expect the adoption of this guidance to have a material effect on its condensed consolidated financial statements.
Accounting Pronouncements Not Yet Effective
In February 2013, the FASB issued ASU 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date ("ASU 2013-04"). ASU 2013-04 addresses the diversity in practice related to the recognition, measurement and disclosure of certain obligations which are not addressed within existing GAAP guidance. Such obligations under the scope of ASU 2013-04 include debt arrangements, other contractual obligations, settled litigation and judicial rulings. The guidance requires an entity to measure these joint and several obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors as well as any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose information about the nature and amount of these obligations. For public companies, ASU 2013-04 is effective on a retrospective basis for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company may elect to use hindsight for the comparative periods (if the Company changes its accounting as a result of the adoption of this guidance). Early adoption is permitted. The Company is evaluating the impact that this update may have on its consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). The objective of this update is to reduce the diversity in practice related to the presentation of certain unrecognized tax benefits. ASU 2013-11 provides that unrecognized tax benefits are to be presented as a reduction of a deferred tax asset for a net operating loss ("NOL") carryforward, a similar tax loss or a tax credit carryforward when settlement in this manner is available under the governing tax law. To the extent such an NOL carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position or the entity does not intend to use the deferred tax asset for this purpose, the unrecognized tax benefit is to be recorded as a liability in the financial statements and should not be netted with a deferred tax asset. ASU 2013-11 is effective for public companies for fiscal years beginning after December 15, 2013 and interim periods within those years. The guidance should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Early adoption and retrospective application are permitted. The Company is evaluating the impact that this update may have on its consolidated financial statements.

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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 Accounting Standards Codification ("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.

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 June 30, 2013 and December 31, 2012:
 
 
 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
June 30, 2013
 
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
$
16,304

 
$
16,304

 
$
—

 
$
—

Interest rate cap
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Interest rate swaps
$
4,528

 
$
—

 
$
4,528

 
$
—

 
 

 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
December 31, 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
$
27,679

 
$
16,556

 
$
—

 
$
11,123

Privately-held debt and equity securities
2,475

 
—

 
—

 
2,475

Interest rate cap
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$
5,805

 
$
—

 
$
5,805

 
$
—


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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 any periods presented.
Intangible lease assets and other assets in the condensed consolidated balance sheets include marketable securities consisting of corporate equity securities 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 AOCI in redeemable noncontrolling interests, shareholders’ equity and noncontrolling interests.  If a decline in the value of an investment is deemed to be other than temporary, the investment is written down to fair value and an impairment loss is recognized in the current period to the extent of the decline in value. During the three and six month periods ended June 30, 2013 and 2012, the Company did not record any write-downs related to other-than-temporary impairments.  During the three and six month periods ended June 30, 2013, the Company did not recognize any realized gains or losses related to sales of marketable securities. During the three and six month periods ended June 30, 2012, the Company recognized realized gains of $160 related to sales of marketable securities. The fair values of the Company’s available-for-sale securities are based on quoted market prices and are classified under Level 1.  Tax increment financing bonds ("TIF bonds"), which were classified as Level 3 as of December 31, 2012, were redeemed in January 2013.
The following is a summary of the available-for-sale securities held by the Company as of June 30, 2013 and December 31, 2012:
 
 
 
Gross Unrealized
 
 
 
Adjusted
Cost
 
Gains
 
Losses
 
Fair
Value
June 30, 2013:
 
 
 
 
 
 
 
Common stocks
$
4,195

 
$
13,124

 
$
(1,015
)
 
$
16,304

 
 

 
Gross Unrealized
 
 

 
Adjusted
Cost
 
Gains
 
Losses
 
Fair
Value
December 31, 2012:
 

 
 

 
 

 
 

Common stocks
$
4,195

 
$
12,361

 
$
—

 
$
16,556

Government and government-sponsored entities
11,123

 
—

 
—

 
11,123

 
$
15,318

 
$
12,361

 
$
—

 
$
27,679

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 June 30, 2013 and December 31, 2012, 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) ("OCI/L") 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 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 $4,817,491 and $5,058,411 at June 30, 2013 and December 31, 2012, respectively.  The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently. The carrying amount of mortgage and other indebtedness was $4,622,395 and $4,745,683 at June 30, 2013 and December 31, 2012, respectively.

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Prior to February 2013, the Company held TIF bonds, which had a 2028 maturity date and were received in a private placement as consideration for infrastructure improvements made by the Company related to the development of a community center. The Company had the intent and ability to hold the TIF bonds through the recovery period. The Company adjusted the bonds to their net realizable value as of December 31, 2012 and they were redeemed in January 2013. Due to the significant unobservable estimates and assumptions used in the valuation of the TIF bonds, such as the forecasted growth in sales and lack of marketability discount, the Company had classified the TIF bonds under Level 3 in the fair value hierarchy. The following table provides a reconciliation of changes between the beginning and ending balances of the TIF bonds (Level 3):
 
 
Six Months Ended
June 30, 2013
 
Year Ended
 December 31, 2012
Available-for-sale securities (Level 3):
 
 
 
 
     Balance, beginning of period
 
$
11,123

 
$
11,829

       Redemption of TIF bonds
 
(11,002
)
 
—

       Reclassification adjustment AOCI
 
—

 
1,542

       Transfer out of Level 3 (1)
 
(121
)
 
(2,248
)
     Balance, end of period
 
$
—

 
$
11,123

(1)
The TIF bonds were adjusted to their net realizable value as of December 31, 2012 and were redeemed in January 2013. The difference in estimate was recorded as a transfer to real estate assets.
    
Prior to May 2013, the Company held a secured convertible promissory note from Jinsheng Group (“Jinsheng”), in which the Company also holds a cost-method investment.  The secured convertible note was non-interest bearing and secured by shares of Jinsheng.  Since the secured convertible note was non-interest bearing and there was no active market for Jinsheng’s debt, the Company performed a probability-weighted discounted cash flow analysis for its valuation as of December 31, 2012 using various sale, redemption and initial public offering ("IPO") exit strategies. The fair value analysis as of December 31, 2012 forecasted a 0% to 10% reduction in estimated cash flows. Sale and IPO scenarios employed capitalization rates ranging from 10% to 12% which were discounted 20% for lack of marketability. Due to the significant unobservable estimates and assumptions used in the valuation of the note, the Company had classified it under Level 3 in the fair value hierarchy.  The Company exercised its right to demand payment of the note and received $4,875 from Jinsheng in May 2013, recognizing a realized gain of $2,400 in the second quarter of 2013. The Company had previously recorded a $2,400 other-than-temporary impairment related to the Jinsheng note in 2009 due to China's declining real estate market. See Note 5 for further discussion. The following table provides a reconciliation of changes between the beginning and ending balances of the Jinsheng note (Level 3):
 
 
Six Months Ended
June 30, 2013
 
Year Ended
 December 31, 2012
Privately-held debt and equity securities (Level 3):
 
 
 
 
     Balance, beginning of period
 
$
2,475

 
$
2,475

       Net settlement
 
(4,875
)
 
—

       Realized gain recorded in earnings
 
2,400

 
—

     Balance, end of period
 
$
—

 
$
2,475


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 ("NOI"), 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 experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. The fair value analysis as of June 30, 2013 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%.

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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, 2013
 
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
$
23,900

 
$
—

 
$
—

 
$
23,900

$
20,453

In accordance with the Company's quarterly impairment review process, the Company recorded a non-cash impairment of real estate of $20,453 in the second quarter of 2013 related to Citadel Mall, located in Charleston, SC to write-down the depreciated book value to its estimated fair value as of the same date. The mall has experienced declining cash flows which are insufficient to cover the debt service on the mortgage secured by the property. The loan is currently in default and the Company has classified Citadel Mall as a non-core property as of June 30, 2013.
The revenue of Citadel Mall accounted for approximately 0.7% of total consolidated revenue for the trailing twelve months ended June 30, 2013. A reconciliation of Citadel Mall's carrying value for the six months ended June 30, 2013 is as follows:
 
 
Citadel Mall
Beginning carrying value, January 1, 2013
 
$
45,178

Capital expenditures
 
69

Depreciation expense
 
(894
)
Loss on impairment of real estate
 
(20,453
)
Ending carrying value, June 30, 2013
 
$
23,900


Additionally, during the second quarter of 2013, the Company recorded a non-cash impairment of $585 to write-down the depreciated book value of the Company's corporate airplane to its fair value at its trade-in date.


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Note 4 – Acquisitions and Discontinued Operations
Acquisitions
The pro forma effect of the acquisitions described below was not material.
In April 2013, the Company acquired the remaining 51% noncontrolling interest in Kirkwood Mall in Bismarck, ND. See Note 5 for additional information.
The following table summarizes the final allocation of the estimated fair values of the assets acquired and liabilities assumed as of the respective acquisition dates for the Company's 2012 acquisitions, consisting of a 75% interest in The Outlet Shoppes at El Paso, a 50% interest in The Outlet Shoppes at Gettysburg, Dakota Square Mall, a 49% interest in Kirkwood Mall, and the remaining 40% interests in Imperial Valley:
 
 
Preliminary
Purchase Price
Allocation
 
Adjustments (1)
 
Final
Purchase Price
Allocation
Land
 
$
88,066

 
$
(197
)
 
$
87,869

Buildings and improvements
 
378,550

 
1,213

 
379,763

Investments in unconsolidated affiliates
 
3,864

 
—

 
3,864

Tenant improvements
 
15,429

 
(101
)
 
15,328

Above-market leases
 
15,451

 
(92
)
 
15,359

In-place leases
 
67,112

 
(1,298
)
 
65,814

    Total assets
 
568,472

 
(475
)
 
567,997

Mortgage note payables assumed
 
(259,470
)
 
—

 
(259,470
)
Debt premium
 
(15,334
)
 
—

 
(15,334
)
Below-market leases
 
(40,173
)
 
475

 
(39,698
)
Noncontrolling interest
 
(60,295
)
 
—

 
(60,295
)
Value of Company's interest in joint ventures
 
(65,494
)
 
—

 
(65,494
)
    Net assets acquired
 
$
127,706

 
$
—

 
$
127,706

 
 
 
 
 
 
 
(1) Represents adjustments to Dakota Square based on final valuation report.


    











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Discontinued Operations
The results of operations of the properties described below, as well as any gains or impairment losses related to those properties, are included in discontinued operations for all periods presented, as applicable. Net proceeds from these sales were used to reduce the outstanding balances on the Company's credit facilities. The following is a summary of the Company's dispositions since January 1, 2012:
 
 
 
 
 
 
 
 
Sales Price
 
Gain/
(Loss)
Sales Date
 
Property
 
Property Type
 
Location
 
Gross
 
Net
 
March 2013
 
1500 Sunday Drive
 
Office Building
 
Raleigh, NC
 
$
8,300

 
$
7,862

 
$
(549
)
March 2013
 
Peninsula I & II (1)
 
Office Building
 
Newport News, VA
 
5,250

 
5,121

 
598

January 2013
 
Lake Point & Suntrust
 
Office Building
 
Greensboro, NC
 
30,875

 
30,490

 
823

 
 
 
 
 
 
2013 Activity
 
$
44,425

 
$
43,473

 
$
872

 
 
 
 
 
 
 
 
 
 
 
 
 
December 2012
 
Willowbrook Plaza (2)
 
Community Center
 
Houston, TX
 
$
24,450

 
$
24,171

 
$
—

October 2012
 
Towne Mall (3)
 
Mall
 
Franklin, OH
 
950

 
892

 
—

October 2012
 
Hickory Hollow Mall (4)
 
Mall
 
Antioch, TN
 
1,000

 
966

 
—

July 2012
 
Massard Crossing
 
Community Center
 
Fort Smith, AR
 
7,803

 
7,432

 
—

March 2012
 
Settlers Ridge - Phase II
 
Community Center
 
Robinson Township, PA
 
19,144

 
18,951

 
867

January 2012
 
Oak Hollow Square (5)
 
Community Center
 
High Point, NC
 
14,247

 
13,796

 
(1
)
November 2011
 
Westridge Square (6)
 
Community Center
 
Greensboro, NC
 
 
 
 
 
29

 
 
 
 
 
 
2012 Activity
 
$
67,594

 
$
66,208

 
$
895

(1) Classified as held for sale as of December 31, 2012.
(2) Loss on impairment of $17,743 recorded in the third quarter of 2012 to write down the book value of this property to its then estimated fair value.
(3) Loss on impairment of $419 recorded in the third quarter of 2012 to write down the book value of this property to expected sales price.
(4) Loss on impairment of $8,047 recorded in the third quarter of 2012 to write down the book value of this property to expected sales price.
(5) Loss on impairment of $255 recorded in the first quarter of 2012 related to the true-up of certain estimated amounts to actual amounts.
(6) Reflects subsequent true-up for settlement of estimated expenses based on actual amounts.

Total revenues of the properties described above that are included in discontinued operations were $3 and $3,754 for the three months ended June 30, 2013 and 2012, respectively, and $450 and $8,367 for the six months ended June 30, 2013 and 2012, respectively. The total net investment in real estate assets at the time of sale for the office buildings sold during the six months ended June 30, 2013 was $42,693. There were no outstanding mortgage loans for any of the office buildings that were sold during the six months ended June 30, 2013. Discontinued operations for the three and six month periods ended June 30, 2013 and 2012 also include settlements of estimated expenses based on actual amounts for properties sold during previous periods.



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Note 5 – Unconsolidated Affiliates, Noncontrolling Interests and Cost Method Investments
 
Unconsolidated Affiliates
 
At June 30, 2013, the Company had investments in the following 17 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%
Fremaux Town Center JV, LLC
Fremaux Town Center
65.0%
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%
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 had majority ownership of certain joint ventures during 2013 and 2012, it evaluated the investments and concluded that the other partners or owners in these joint ventures had 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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Table of Contents

Condensed combined financial statement information of these unconsolidated affiliates is as follows:
 
As of
ASSETS
June 30,
2013
 
December 31,
2012
Investment in real estate assets
$
2,147,166

 
$
2,143,187

Accumulated depreciation
(522,680
)
 
(492,864
)
 
1,624,486

 
1,650,323

Developments in progress
74,038

 
21,809

Net investment in real estate assets
1,698,524

 
1,672,132

Other assets
170,975

 
175,540

    Total assets
$
1,869,499

 
$
1,847,672

 
 
 
 
LIABILITIES
 
 
 
Mortgage and other indebtedness
$
1,454,758

 
$
1,456,622

Other liabilities
41,279

 
48,538

    Total liabilities
1,496,037

 
1,505,160

 
 
 
 
OWNERS' EQUITY
 
 
 
The Company
218,639

 
196,694

Other investors
154,823

 
145,818

Total owners' equity
373,462

 
342,512

    Total liabilities and owners' equity
$
1,869,499

 
$
1,847,672

 
Total for the Three Months
Ended June 30,
 
Company's Share for the Three
Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenues
$
60,024

 
$
62,205

 
$
30,776

 
$
32,976

Depreciation and amortization
(19,122
)
 
(20,718
)
 
(9,923
)
 
(11,008
)
Interest expense
(19,043
)
 
(21,086
)
 
(9,764
)
 
(11,093
)
Other operating expenses
(17,105
)
 
(18,076
)
 
(8,360
)
 
(9,022
)
Gain on sale of real estate assets
—

 
430

 
—

 
220

Net income
$
4,754

 
$
2,755

 
$
2,729

 
$
2,073

 
Total for the Six Months
Ended June 30,
 
Company's Share for the Six
Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenues
$
120,743

 
$
124,499

 
$
62,446

 
$
66,387

Depreciation and amortization
(38,270
)
 
(41,484
)
 
(19,871
)
 
(22,119
)
Interest expense
(38,711
)
 
(42,197
)
 
(19,836
)
 
(22,296
)
Other operating expenses
(35,518
)
 
(37,023
)
 
(17,391
)
 
(18,853
)
Gain on sale of real estate assets
—

 
430

 
—

 
220

Net income
$
8,244

 
$
4,225

 
$
5,348

 
$
3,339

Fremaux Town Center JV, LLC
In January 2013, the Company formed a 65/35 joint venture, Fremaux Town Center JV, LLC ("Fremaux"), to develop, own and operate Fremaux Town Center, a community center development located in Slidell, LA. Construction began in March 2013 with completion expected in July 2014. The partners contributed aggregate initial equity of $20,500, of which the Company's contribution was $18,450. Following the initial formation of Fremaux, all required future contributions will be funded on a 65/35 pro rata basis. In March 2013, Fremaux obtained a construction loan on the property that allows for borrowings up to $46,000 and bears interest at LIBOR plus 2.125%. The loan matures in March 2016 and has two one-year extension options, which are at the joint venture's election, for an outside maturity date of March 2018. The Company has guaranteed 100% of the construction loan. As of June 30, 2013, $5,531 was outstanding under the loan. The Company holds the majority ownership interest in Fremaux

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but the noncontrolling interest partner holds substantive participating rights. As a result, the Company accounted for its investment in Fremaux using the equity method of accounting as of June 30, 2013.
2013 Financings
In the first quarter of 2013, Renaissance Phase II CMBS, LLC closed on a $16,000 10-year, non-recourse commercial mortgage-backed securities ("CMBS") loan, secured by Renaissance Center Phase II in Durham, NC. The loan bears interest at a fixed rate of 3.4895% and matures in April 2023. Proceeds from the loan were used to retire the existing $15,700 loan that was scheduled to mature in April 2013.
Also during the first quarter of 2013, CBL-Friendly Center CMBS, LLC closed on a $100,000 10-year, non-recourse CMBS loan, secured by Friendly Center, located in Greensboro, NC. The loan bears interest at a fixed rate of 3.4795% and matures in April 2023. Proceeds from the new loan were used to retire four existing loans aggregating $96,934 that were secured by Friendly Center, Friendly Center Office Building, First National Bank Building, Green Valley Office Building, First Citizens Bank Building and Bank of America Building, all located in Greensboro, NC and scheduled to mature in April 2013.
All of the debt on the properties owned by the unconsolidated affiliates is non-recourse, except for Fremaux, West Melbourne, Port Orange, High Pointe Commons, and Gulf Coast Phase III. See Note 12 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 include the aggregate noncontrolling ownership interest in other consolidated subsidiaries that is held by third parties and for which the related partnership agreements contain redemption provisions at the holder’s election that allow for redemption through cash and/or properties.  The total redeemable noncontrolling partnership interests of $40,471 as of June 30, 2013 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 $34,209 and $6,262, respectively.  At December 31, 2012, the total redeemable noncontrolling partnership interests of $40,248 consisted of noncontrolling interests in the Operating Partnership and in the Company’s consolidated security and maintenance services subsidiary of $33,835 and $6,413, 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 12 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,
 
2013
 
2012
Beginning Balance
$
423,834

 
$
423,834

Net income attributable to redeemable noncontrolling preferred joint venture interest
10,228

 
10,286

Distributions to redeemable noncontrolling preferred joint venture interest
(10,285
)
 
(10,343
)
Ending Balance
$
423,777

 
$
423,777

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 partnership interests for shares of the Company’s common stock, or at the Company’s election, their cash equivalent.  Noncontrolling interests also include 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 June 30, 2013, the total noncontrolling interests of $165,793 consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of $144,043 and $21,750 respectively.  The total noncontrolling interests at December 31, 2012 of $192,404 consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of $128,907 and $63,497, respectively.
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 June 30, 2013, Jinsheng owned controlling interests in eight home furnishing shopping malls.

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Prior to May 2013, the Company also held a secured convertible promissory note secured by 16,565,534 Series 2 Ordinary Shares of Jinsheng (which equated to a 2.275% ownership interest). The secured note was non-interest bearing and was amended by the Company and Jinsheng to extend to May 30, 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 provided that if Jinsheng should complete an IPO, the secured note would be converted into common shares of Jinsheng immediately prior to the IPO. Furthermore, the secured note would bear interest of 8.0% until the extended maturity date and, if not paid prior to or on the maturity date, would thereafter bear interest at 30.0%. The Company exercised its right to demand payment of the note and received payment from Jinsheng in May 2013. See Note 3 for additional information.
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. The noncontrolling interest and the secured note are reflected as investment in unconsolidated affiliates in the accompanying condensed consolidated balance sheets. 
Variable Interest Entities
Louisville Outlet Shoppes, LLC
In May 2013, the Company entered into a joint venture, Louisville Outlet Shoppes, LLC, with a third party to develop, own and operate The Outlet Shoppes at Louisville located in Simpsonville, KY. Construction began in June 2013 with completion expected in summer 2014. The Company holds a 65% ownership interest in the joint venture. The Company determined that its investment in this joint venture represents an interest in a VIE and that the Company is the primary beneficiary because of its power to direct activities of the joint venture that most significantly impact the joint venture's economic performance as well as the obligation to absorb losses or right to receive benefits from the VIE that could be significant. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of June 30, 2013 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.
Kirkwood Mall Mezz, LLC
In the fourth quarter of 2012, the Company acquired a 49% ownership interest in Kirkwood Mall Mezz, LLC, which owns Kirkwood Mall located in Bismarck, ND. The Company determined that its investment in this joint venture represented an interest in a VIE and that the Company was the primary beneficiary, since under the terms of the agreement the Company's equity investment was at risk while the third party had a fixed price for which it would sell its remaining 51% equity interest to the Company. As a result, the joint venture was presented in the consolidated financial statements as of December 31, 2012 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest. In accordance with its executed agreement, the Company acquired the remaining 51% interest in April 2013 and assumed $40,368 of non-recourse debt. Following the Company's acquisition of the noncontrolling interest in April 2013, this joint venture is now wholly-owned, and is no longer a VIE.
Gettysburg Outlet Center Holding LLC
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 an interest in a VIE and that the Company is the primary beneficiary since it has the power to direct activities of the joint venture that most significantly impact the joint venture's economic performance as well as the obligation to absorb losses or right to receive benefits from the VIE that could be significant. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of June 30, 2013 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.
El Paso Outlet Center Holding, LLC
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 an interest in a VIE and that the Company is the primary beneficiary since it has the power to direct the activities of the joint venture that most significantly impact the joint venture's economic performance as well as the obligation to absorb losses or right to receive benefits from the VIE that could be significant. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of June 30, 2013 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:
 
June 30, 2013
 
December 31, 2012
 
Amount
 
Weighted-
Average
Interest
Rate (1)
 
Amount
 
Weighted-
Average
Interest
Rate (1)
Fixed-rate debt:
 
 
 
 
 
 
 
Non-recourse loans on operating properties (2)
$
3,516,429

 
5.56%
 
$
3,776,245

 
5.42%
Financing method obligation (3)
18,264

 
8.00%
 
18,264

 
8.00%
Total fixed-rate debt
3,534,693

 
5.57%
 
3,794,509

 
5.43%
Variable-rate debt:
 

 
 
 
 

 
 
Non-recourse term loans on operating properties
134,525

 
3.00%
 
123,875

 
3.36%
Recourse term loans on operating properties
78,820

 
2.33%
 
97,682

 
1.78%
Construction loans
40,963

 
2.94%
 
15,366

 
2.96%