Edgar Filing: CBL & ASSOCIATES PROPERTIES INC

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UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

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.)

COMMISSION FILE NO. 333-182515-01 (CBL & ASSOCIATES LIMITED PARTNERSHIP)

______________

CBL & ASSOCIATES PROPERTIES, INC.

CBL & ASSOCIATES LIMITED PARTNERSHIP

(Exact Name of registrant as specified in its charter)

______________



DELAWARE (CBL & ASSOCIATES PROPERTIES, INC.)		62-1545718
DELAWARE (CBL & ASSOCIATES LIMITED PARTNERSHIP)		62-1542285
(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.



CBL & Associates Properties, Inc.	Yes x	No o
CBL & Associates Limited Partnership	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).



CBL & Associates Properties, Inc.	Yes x	No o
CBL & Associates Limited Partnership	Yes x	No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



CBL & Associates Properties, Inc.
Large accelerated filer x		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o
Emerging growth company o

CBL & Associates Limited Partnership
Large accelerated filer o		Accelerated filer o
Non-accelerated filer x (Do not check if a smaller reporting company)		Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



CBL & Associates Properties, Inc.	Yes o	No x
CBL & Associates Limited Partnership	Yes o	No x

As of May 5, 2017, there were 171,096,104 shares of CBL & Associates Properties, Inc.'s common stock, par value $0.01 per share, outstanding.

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2017 of CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries. The terms "we," "us" and "our" refer to the Company or the Company and the Operating Partnership collectively, as the context requires.

The Company is a real estate investment trust ("REIT") whose stock is traded on the New York Stock Exchange. The Company is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At March 31, 2017, 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 84.8% limited partner interest for a combined interest held by the Company of 85.8%.

As the sole general partner of the Operating Partnership, the Company's subsidiary, CBL Holdings I, Inc., has exclusive control of the Operating Partnership's activities. Management operates the Company and the Operating Partnership as one business. The management of the Company consists of the same individuals that manage the Operating Partnership. The Company's only material asset is its indirect ownership of partnership interests of the Operating Partnership. As a result, the Company conducts substantially all its business through the Operating Partnership as described in the preceding paragraph. The Company also issues public equity from time to time and guarantees certain debt of the Operating Partnership. The Operating Partnership holds all of the assets and indebtedness of the Company and, through affiliates, retains the ownership interests in the Company's joint ventures. Except for the net proceeds of offerings of equity by the Company, which are contributed to the Operating Partnership in exchange for partnership units on a one-for-one basis, the Operating Partnership generates all remaining capital required by the Company's business through its operations and its incurrence of indebtedness.

We believe that combining the two quarterly reports on Form 10-Q for the Company and the Operating Partnership provides the following benefits:


•	enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation, since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and


•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

To help investors understand the differences between the Company and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Company and the Operating Partnership. Noncontrolling interests, shareholders' equity and partners' capital are the main areas of difference between the condensed consolidated financial statements of the Company and those of the Operating Partnership. A single set of notes to condensed consolidated financial statements is presented that includes separate discussions for the Company and the Operating Partnership, when applicable. A combined Management's Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents combined information and discrete information related to each entity, as applicable.

In order to highlight the differences between the Company and the Operating Partnership, this report includes the following sections that provide separate financial and other information for the Company and the Operating Partnership:


•	condensed consolidated financial statements;


•	certain accompanying notes to condensed consolidated financial statements, including Note 5 - Unconsolidated Affiliates and Noncontrolling Interests; Note 6 - Mortgage and Other Indebtedness, Net; Note 7 - Comprehensive Income; and Note 11 - Earnings per Share and Earnings per Unit;


•	controls and procedures in Item 4 of Part I of this report;


•	information concerning unregistered sales of equity securities and use of proceeds in Item 2 of Part II of this report; and


•	certifications of the Chief Executive Officer and Chief Financial Officer included as Exhibits 31.1 through 32.4.

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CBL & Associates Properties, Inc.

CBL & Associates Limited Partnership

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PART I	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1

CBL & Associates Properties, Inc.
	Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	1

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016	2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016	3

	Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2017 and 2016	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	6

CBL & Associates Limited Partnership
	Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	8

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016	9

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016	10

	Condensed Consolidated Statements of Capital for the Three Months Ended March 31, 2017 and 2016	11

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	13

CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership
	Notes to Unaudited Condensed Consolidated Financial Statements	15
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54

PART II	OTHER INFORMATION	55

Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	55

	SIGNATURES	56

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PART I – FINANCIAL INFORMATION

ITEM 1: Financial Statements

CBL & Associates Properties, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)



ASSETS ⁽¹⁾	March 31, 2017			December 31, 2016
Real estate assets:
Land	$	851,977		$	820,979
Buildings and improvements	6,964,175			6,942,452
	7,816,152			7,763,431
Accumulated depreciation	(2,477,356		)	(2,427,108		)
	5,338,796			5,336,323
Held for sale	—			5,861
Developments in progress	185,228			178,355
Net investment in real estate assets	5,524,024			5,520,539
Cash and cash equivalents	27,553			18,951
Receivables:
Tenant, net of allowance for doubtful accounts of $1,875 and $1,910 in 2017 and 2016, respectively	90,485			94,676
Other, net of allowance for doubtful accounts of $838 in 2017 and 2016	11,519			6,227
Mortgage and other notes receivable	16,347			16,803
Investments in unconsolidated affiliates	262,216			266,872
Intangible lease assets and other assets	194,005			180,572
	$	6,126,149		$	6,104,640

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgage and other indebtedness, net	$	4,522,480		$	4,465,294
Accounts payable and accrued liabilities	273,745			280,498
Total liabilities ⁽¹⁾	4,796,225			4,745,792
Commitments and contingencies (Note 6 and Note 12)
Redeemable noncontrolling interests	15,472			17,996
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, 171,093,900 and 170,792,645 issued and outstanding in 2017 and 2016, respectively	1,711			1,708
Additional paid-in capital	1,971,155			1,969,059
Dividends in excess of cumulative earnings	(764,524		)	(742,078		)
Total shareholders' equity	1,208,367			1,228,714
Noncontrolling interests	106,085			112,138
Total equity	1,314,452			1,340,852
	$	6,126,149		$	6,104,640


(1)	As of March 31, 2017, includes $663,290 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $444,033 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Company. See Note 5.

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

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

	Three Months Ended March 31,
	2017			2016
REVENUES:
Minimum rents	$	159,750		$	170,629
Percentage rents	2,389			4,673
Other rents	3,652			5,062
Tenant reimbursements	67,291			73,366
Management, development and leasing fees	3,452			2,581
Other	1,479			6,767
Total revenues	238,013			263,078

OPERATING EXPENSES:
Property operating	34,914			38,628
Depreciation and amortization	71,220			76,506
Real estate taxes	22,083			23,028
Maintenance and repairs	13,352			14,548
General and administrative	16,082			17,168
Loss on impairment	3,263			19,685
Other	—			9,685
Total operating expenses	160,914			199,248
Income from operations	77,099			63,830
Interest and other income	1,404			360
Interest expense	(56,201		)	(55,231		)
Gain on extinguishment of debt	4,055			6
Income tax benefit	800			537
Equity in earnings of unconsolidated affiliates	5,373			32,390
Income from continuing operations before gain on sales of real estate assets	32,530			41,892
Gain on sales of real estate assets	5,988			—
Net income	38,518			41,892
Net (income) loss attributable to noncontrolling interests in:
Operating Partnership	(3,690		)	(4,945		)
Other consolidated subsidiaries	(713		)	3,127
Net income attributable to the Company	34,115			40,074
Preferred dividends	(11,223		)	(11,223		)
Net income attributable to common shareholders	$	22,892		$	28,851

Basic and diluted per share data attributable to common shareholders:
Net income attributable to common shareholders	$	0.13		$	0.17
Weighted-average common and potential dilutive common shares outstanding	170,989			170,669

Dividends declared per common share	$	0.265		$	0.265

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

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CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Net income	$	38,518		$	41,892

Other comprehensive income:
Unrealized gain on hedging instruments	—			877
Reclassification of hedging effect on earnings	—			(443		)
Total other comprehensive income	—			434

Comprehensive income	38,518			42,326
Comprehensive (income) loss attributable to noncontrolling interests in:
Operating Partnership	(3,690		)	(5,008		)
Other consolidated subsidiaries	(713		)	3,127
Comprehensive income attributable to the Company	$	34,115		$	40,445

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

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CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Equity

(In thousands, except share data)

(Unaudited)



				Equity
				Shareholders' Equity
	Redeemable Noncontrolling 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, 2016	$	25,330		$	25	$	1,705	$	1,970,333		$	1,935		$	(689,028	)	$	1,284,970		$	114,629		$	1,399,599
Net income (loss)	(3,225		)	—		—		—			—			40,074			40,074			5,043			45,117
Other comprehensive income	3			—		—		—			371			—			371			60			431
Dividends declared - common stock	—			—		—		—			—			(45,261		)	(45,261		)	—			(45,261		)
Dividends declared - preferred stock	—			—		—		—			—			(11,223		)	(11,223		)	—			(11,223		)
Issuances of 323,353 shares of common stock and restricted common stock	—			—		3		339			—			—			342			—			342
Cancellation of 23,066 shares of restricted common stock	—			—		—		(214		)	—			—			(214		)	—			(214		)
Performance stock units	—			—		—		258			—			—			258			—			258
Amortization of deferred compensation	—			—		—		1,254			—			—			1,254			—			1,254
Adjustment for noncontrolling interests	288			—		—		(1,490		)	(2,306		)	—			(3,796		)	3,509			(287		)
Adjustment to record redeemable noncontrolling interests at redemption value	592			—		—		(592		)	—			—			(592		)	—			(592		)
Distributions to noncontrolling interests	(2,134		)	—		—		—			—			—			—			(9,528		)	(9,528		)
Balance, March 31, 2016	$	20,854		$	25	$	1,708	$	1,969,888		$	—		$	(705,438	)	$	1,266,183		$	113,713		$	1,379,896

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CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Equity

(In thousands, except share data)

(Unaudited)

(Continued)



				Equity
				Shareholders' Equity
	Redeemable Noncontrolling Interests			Preferred Stock		Common Stock		Additional Paid-in Capital			Dividends in Excess of Cumulative Earnings			Total Shareholders' Equity			Noncontrolling Interests			Total Equity
Balance, January 1, 2017	$	17,996		$	25	$	1,708	$	1,969,059		$	(742,078	)	$	1,228,714		$	112,138		$	1,340,852
Net income	204			—		—		—			34,115			34,115			4,199			38,314
Dividends declared - common stock	—			—		—		—			(45,338		)	(45,338		)	—			(45,338		)
Dividends declared - preferred stock	—			—		—		—			(11,223		)	(11,223		)	—			(11,223		)
Issuances of 330,938 shares of common stock and restricted common stock	—			—		3		371			—			374			—			374
Cancellation of 29,683 shares of restricted common stock	—			—		—		(294		)	—			(294		)	—			(294		)
Performance stock units	—			—		—		344			—			344			—			344
Amortization of deferred compensation	—			—		—		1,246			—			1,246			—			1,246
Adjustment for noncontrolling interests	730			—		—		(1,572		)	—			(1,572		)	842			(730		)
Adjustment to record redeemable noncontrolling interests at redemption value	(2,315		)	—		—		2,001			—			2,001			314			2,315
Deconsolidation of investment	—			—		—		—			—			—			(2,231		)	(2,231		)
Contributions from noncontrolling interests	—			—		—		—			—			—			263			263
Distributions to noncontrolling interests	(1,143		)	—		—		—			—			—			(9,440		)	(9,440		)
Balance, March 31, 2017	$	15,472		$	25	$	1,711	$	1,971,155		$	(764,524	)	$	1,208,367		$	106,085		$	1,314,452

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

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

	Three Months Ended March 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	38,518		$	41,892
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	71,220			76,506
Net amortization of deferred financing costs, debt premiums and discounts	1,113			717
Net amortization of intangible lease assets and liabilities	(748		)	(622		)
Gain on sales of real estate assets	(5,988		)	—
Write-off of development projects	—			1
Share-based compensation expense	1,912			1,802
Loss on impairment	3,263			19,685
Gain on extinguishment of debt	(4,055		)	—
Equity in earnings of unconsolidated affiliates	(5,373		)	(32,390		)
Distributions of earnings from unconsolidated affiliates	3,995			4,113
Provision for doubtful accounts	1,744			2,104
Change in deferred tax accounts	1,608			99
Changes in:
Tenant and other receivables	(2,838		)	(4,458		)
Other assets	(4,816		)	(5,115		)
Accounts payable and accrued liabilities	5,321			(18,557		)
Net cash provided by operating activities	104,876			85,777

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets	(51,522		)	(34,304		)
Acquisitions of real estate assets	(79,799		)	—
Additions to restricted cash	(412		)	(3,133		)
Proceeds from sales of real estate assets	13,716			33,425
Additions to mortgage and other notes receivable	—			(2,484		)
Payments received on mortgage and other notes receivable	456			231
Additional investments in and advances to unconsolidated affiliates	(2,723		)	(4,363		)
Distributions in excess of equity in earnings of unconsolidated affiliates	7,907			9,023
Changes in other assets	(7,749		)	(528		)
Net cash used in investing activities	(120,126		)	(2,133		)

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

	Three Months Ended March 31,
	2017			2016
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other indebtedness	$	389,391		$	90,702
Principal payments on mortgage and other indebtedness	(298,374		)	(118,102		)
Additions to deferred financing costs	(120		)	(79		)
Proceeds from issuances of common stock	49			40
Contributions from noncontrolling interests	263			—
Payment of tax withholdings for restricted stock awards	(292		)	—
Distributions to noncontrolling interests	(10,582		)	(11,662		)
Dividends paid to holders of preferred stock	(11,223		)	(11,223		)
Dividends paid to common shareholders	(45,260		)	(45,181		)
Net cash provided by (used in) financing activities	23,852			(95,505		)

NET CHANGE IN CASH AND CASH EQUIVALENTS	8,602			(11,861		)
CASH AND CASH EQUIVALENTS, beginning of period	18,951			36,892
CASH AND CASH EQUIVALENTS, end of period	$	27,553		$	25,031

SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized	$	37,063		$	45,115

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

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CBL & Associates Limited Partnership

Condensed Consolidated Balance Sheets

(In thousands, except unit data)

(Unaudited)



ASSETS ⁽¹⁾	March 31, 2017			December 31, 2016
Real estate assets:
Land	$	851,977		$	820,979
Buildings and improvements	6,964,175			6,942,452
	7,816,152			7,763,431
Accumulated depreciation	(2,477,356		)	(2,427,108		)
	5,338,796			5,336,323
Held for sale	—			5,861
Developments in progress	185,228			178,355
Net investment in real estate assets	5,524,024			5,520,539
Cash and cash equivalents	27,547			18,943
Receivables:
Tenant, net of allowance for doubtful accounts of $1,875 and $1,910 in 2017 and 2016, respectively	90,485			94,676
Other, net of allowance for doubtful accounts of $838 in 2017 and 2016	11,470			6,179
Mortgage and other notes receivable	16,347			16,803
Investments in unconsolidated affiliates	262,748			267,405
Intangible lease assets and other assets	193,883			180,452
	$	6,126,504		$	6,104,997

LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL
Mortgage and other indebtedness, net	$	4,522,480		$	4,465,294
Accounts payable and accrued liabilities	273,807			280,528
Total liabilities ⁽¹⁾	4,796,287			4,745,822
Commitments and contingencies (Note 6 and Note 12)
Redeemable common units	15,472			17,996
Partners' capital:
Preferred units	565,212			565,212
Common units:
General partner	7,528			7,781
Limited partners	732,686			756,083
Total partners' capital	1,305,426			1,329,076
Noncontrolling interests	9,319			12,103
Total capital	1,314,745			1,341,179
	$	6,126,504		$	6,104,997


(1)	As of March 31, 2017, includes $663,290 of assets related to consolidated variable interest entities that can only be used to settle obligations of the consolidated variable interest entities and $444,033 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Operating Partnership. See Note 5.

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

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CBL & Associates Limited Partnership Condensed Consolidated Statements of Operations (In thousands, except per unit data) (Unaudited)

	Three Months Ended March 31,
	2017			2016
REVENUES:
Minimum rents	$	159,750		$	170,629
Percentage rents	2,389			4,673
Other rents	3,652			5,062
Tenant reimbursements	67,291			73,366
Management, development and leasing fees	3,452			2,581
Other	1,479			6,767
Total revenues	238,013			263,078

OPERATING EXPENSES:
Property operating	34,914			38,628
Depreciation and amortization	71,220			76,506
Real estate taxes	22,083			23,028
Maintenance and repairs	13,352			14,548
General and administrative	16,082			17,168
Loss on impairment	3,263			19,685
Other	—			9,685
Total operating expenses	160,914			199,248
Income from operations	77,099			63,830
Interest and other income	1,404			360
Interest expense	(56,201		)	(55,231		)
Gain on extinguishment of debt	4,055			6
Income tax benefit	800			537
Equity in earnings of unconsolidated affiliates	5,373			32,390
Income from continuing operations before gain on sales of real estate assets	32,530			41,892
Gain on sales of real estate assets	5,988			—
Net income	38,518			41,892
Net (income) loss attributable to noncontrolling interests	(713		)	3,127
Net income attributable to the Operating Partnership	37,805			45,019
Distributions to preferred unitholders	(11,223		)	(11,223		)
Net income attributable to common unitholders	$	26,582		$	33,796

Basic and diluted per unit data attributable to common unitholders:
Net income attributable to common unitholders	$	0.13		$	0.17
Weighted-average common and potential dilutive common units outstanding	199,281			199,926

Distributions declared per common unit	$	0.273		$	0.273

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

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CBL & Associates Limited Partnership

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Net income	$	38,518		$	41,892

Other comprehensive income:
Unrealized gain on hedging instruments	—			877
Reclassification of hedging effect on earnings	—			(443		)
Total other comprehensive income	—			434

Comprehensive income	38,518			42,326
Comprehensive (income) loss attributable to noncontrolling interests	(713		)	3,127
Comprehensive income of the Operating Partnership	$	37,805		$	45,453

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

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CBL & Associates Limited Partnership

Condensed Consolidated Statements of Capital

(In thousands)

(Unaudited)



	Redeemable Interests									Number of						Common Units
	Redeemable Noncontrolling Interests			Redeemable Common Units			Total Redeemable Interests			Preferred Units	Common Units		Preferred Units			General Partner			Limited Partners			Accumulated Other Comprehensive Income (Loss)			Total Partners' Capital			Noncontrolling Interests			Total Capital
Balance, January 1, 2016	$	5,586		$	19,744		$	25,330		25,050	199,748		$	565,212		$	8,435		$	822,383		$	(868	)	$	1,395,162		$	4,876		$	1,400,038
Net income (loss)	(3,489		)	264			(3,225		)	—	—		11,223			344			33,188			—			44,755			362			45,117
Other comprehensive income	—			3			3			—	—		—			—			—			431			431			—			431
Distributions declared - common units	—			(1,143		)	(1,143		)	—	—		—			(533		)	(52,895		)	—			(53,428		)	—			(53,428		)
Distributions declared - preferred units	—			—			—			—	—		(11,223		)	—			—			—			(11,223		)	—			(11,223		)
Issuances of common units	—			—			—			—	323		—			—			342			—			342			—			342
Cancellation of restricted common stock	—			—			—			—	(23	)	—			—			(214		)	—			(214		)	—			(214		)
Performance stock units	—			—			—			—	—		—			3			255			—			258			—			258
Amortization of deferred compensation	—			—			—			—	—		—			12			1,242			—			1,254			—			1,254
Allocation of partners' capital	—			288			288			—	—		—			(31		)	(496		)	437			(90		)	—			(90		)
Adjustment to record redeemable interests at redemption value	592			—			592			—	—		—			(6		)	(586		)	—			(592		)	—			(592		)
Distributions to noncontrolling interests	(991		)	—			(991		)	—	—		—			—			—			—			—			(1,361		)	(1,361		)
Balance, March 31, 2016	$	1,698		$	19,156		$	20,854		25,050	200,048		$	565,212		$	8,224		$	803,219		$	—		$	1,376,655		$	3,877		$	1,380,532

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CBL & Associates Limited Partnership

Condensed Consolidated Statements of Capital

(In thousands)

(Unaudited)

(Continued)



				Number of						Common Units
	Redeemable Common Units			Preferred Units	Common Units		Preferred Units			General Partner			Limited Partners			Total Partners' Capital			Noncontrolling Interests			Total Capital
Balance, January 1, 2017	$	17,996		25,050	199,085		$	565,212		$	7,781		$	756,083		$	1,329,076		$	12,103		$	1,341,179
Net income	204			—	—		11,223			271			26,107			37,601			713			38,314
Distributions declared - common units	(1,143		)	—	—		—			(533		)	(52,716		)	(53,249		)	—			(53,249		)
Distributions declared - preferred units	—			—	—		(11,223		)	—			—			(11,223		)	—			(11,223		)
Issuances of common units	—			—	331		—			—			374			374			—			374
Cancellation of restricted common stock	—			—	(30	)	—			—			(294		)	(294		)	—			(294		)
Performance stock units	—			—	—		—			3			341			344			—			344
Amortization of deferred compensation	—			—	—		—			13			1,233			1,246			—			1,246
Allocation of partners' capital	730			—	—		—			(31		)	(733		)	(764		)	—			(764		)
Adjustment to record redeemable interests at redemption value	(2,315		)	—	—		—			24			2,291			2,315			—			2,315
Deconsolidation of investment	—			—	—		—			—			—			—			(2,231		)	(2,231		)
Contributions from noncontrolling interests	—			—	—		—			—			—			—			263			263
Distributions to noncontrolling interests	—			—	—		—			—			—			—			(1,529		)	(1,529		)
Balance, March 31, 2017	$	15,472		25,050	199,386		$	565,212		$	7,528		$	732,686		$	1,305,426		$	9,319		$	1,314,745

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

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CBL & Associates Limited Partnership Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)

	Three Months Ended March 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	38,518		$	41,892
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	71,220			76,506
Net amortization of deferred financing costs, debt premiums and discounts	1,113			717
Net amortization of intangible lease assets and liabilities	(748		)	(622		)
Gain on sales of real estate assets	(5,988		)	—
Write-off of development projects	—			1
Share-based compensation expense	1,912			1,802
Loss on impairment	3,263			19,685
Gain on extinguishment of debt	(4,055		)	—
Equity in earnings of unconsolidated affiliates	(5,373		)	(32,390		)
Distributions of earnings from unconsolidated affiliates	3,995			4,113
Provision for doubtful accounts	1,744			2,104
Change in deferred tax accounts	1,608			99
Changes in:
Tenant and other receivables	(2,838		)	(4,410		)
Other assets	(4,816		)	(5,115		)
Accounts payable and accrued liabilities	5,323			(18,605		)
Net cash provided by operating activities	104,878			85,777

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets	(51,522		)	(34,304		)
Acquisition of real estate assets	(79,799		)	—
Additions to restricted cash	(412		)	(3,133		)
Proceeds from sales of real estate assets	13,716			33,425
Additions to mortgage and other notes receivable	—			(2,484		)
Payments received on mortgage and other notes receivable	456			231
Additional investments in and advances to unconsolidated affiliates	(2,723		)	(4,363		)
Distributions in excess of equity in earnings of unconsolidated affiliates	7,907			9,023
Changes in other assets	(7,749		)	(528		)
Net cash used in investing activities	(120,126		)	(2,133		)

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CBL & Associates Limited Partnership Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) (Continued)

	Three Months Ended March 31,
	2017			2016
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other indebtedness	$	389,391		$	90,702
Principal payments on mortgage and other indebtedness	(298,374		)	(118,102		)
Additions to deferred financing costs	(120		)	(79		)
Proceeds from issuances of common units	49			40
Contributions from noncontrolling interests	263			—
Payment of tax withholdings for restricted stock awards	(292		)	—
Distributions to noncontrolling interests	(2,672		)	(2,352		)
Distributions to preferred unitholders	(11,223		)	(11,223		)
Distributions to common unitholders	(53,170		)	(54,491		)
Net cash provided by (used in) financing activities	23,852			(95,505		)

NET CHANGE IN CASH AND CASH EQUIVALENTS	8,604			(11,861		)
CASH AND CASH EQUIVALENTS, beginning of period	18,943			36,887
CASH AND CASH EQUIVALENTS, end of period	$	27,547		$	25,026

SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized	$	37,063		$	45,115

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

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CBL & Associates Properties, Inc.

CBL & Associates Limited Partnership

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except per share and per unit data)

Note 1 – Organization and Basis of Presentation

Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries.

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 and mixed-use 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”), which is a variable interest entity ("VIE"). In accordance with the guidance in Accounting Standards Codification ("ASC") 810, Consolidations, the Company is exempt from providing further disclosures related to the Operating Partnership's VIE classification. 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 VIE. As of March 31, 2017, the Operating Partnership owned interests in the following properties:



	Malls ⁽¹⁾	Associated Centers	Community Centers	Office Buildings		Total
Consolidated properties	64	20	4	5	⁽²⁾	93
Unconsolidated properties ⁽³⁾	9	3	5	—		17
Total	73	23	9	5		110


(1)	Category consists of regional malls, open-air centers and outlet centers (including one mixed-use center).


(2)	Includes CBL's two corporate office buildings.


(3)	The Operating Partnership accounts for these investments using the equity method because one or more of the other partners have substantive participating rights.

At March 31, 2017, the Operating Partnership had interests in the following consolidated properties under development:



	Malls	Associated Centers
Development	1	—
Expansions	2	—
Redevelopments	7	1

The Operating Partnership also holds options to acquire certain development properties owned by third parties.

CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At March 31, 2017, 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 84.8% limited partner interest for a combined interest held by CBL of 85.8%.

As used herein, the term "Company" includes CBL & Associates Properties, Inc. and its subsidiaries, including CBL & Associates Limited Partnership and its subsidiaries, unless the context indicates otherwise. The term "Operating Partnership" refers to CBL & Associates Limited Partnership and its subsidiaries.

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 March 31, 2017, CBL’s Predecessor owned a 9.1% limited partner interest and third parties owned a 5.1% limited partner interest in the Operating Partnership. CBL's Predecessor also owned 3.8 million shares of CBL’s common stock at March 31, 2017, for a total combined effective interest of 11.0% in the Operating Partnership.

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The Operating Partnership conducts the Company’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”).

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 March 31, 2017 are not necessarily indicative of the results to be obtained for the full fiscal year.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2016.

Note 2 – Recent Accounting Pronouncements

Accounting Guidance Adopted

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 identifies areas for simplification of accounting for share-based payment transactions. ASU 2016-09 allows an entity to make an accounting policy election to either (1) recognize forfeitures as they occur or (2) continue to estimate the number of awards expected to be forfeited. The Company elected to account for forfeitures of share-based payments as they occur. As the amount of the retrospective adjustment was nominal, the Company elected not to record the change. See Note 13 for further information on the adoption of this guidance. The guidance also requires that when an employer withholds shares upon the vesting of restricted shares for the purpose of meeting tax withholding requirements, that the cash paid for withholding taxes is classified as a financing activity on the statement of cash flows. The Company previously included these amounts within operating activities. For public companies, ASU 2016-09 was effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period and was to be applied on a modified retrospective basis as a cumulative-effect adjustment to retained earnings as of the date of adoption. The Company adopted ASU 2016-09 as of January 1, 2017 and it did not have a material impact on its condensed consolidated financial statements and related disclosures. The change in the Company's condensed consolidated statements of cash flows related to the prior-year periods is as follows:



	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	2016
Net cash provided by operating activities ⁽¹⁾	$	85,777		$	128,384		$	125,464		$	128,954
Reclassification of cash payments for withheld shares	202			87			(69		)	60
Net cash provided by operating activities ⁽²⁾	$	85,979		$	128,471		$	125,395		$	129,014

Net cash used in financing activities ⁽¹⁾	$	(95,505	)	$	(162,774	)	$	(89,447	)	$	(137,348	)
Reclassification of cash payments for withheld shares	(202		)	(87		)	69			(60		)
Net cash used in financing activities ⁽²⁾	$	(95,707	)	$	(162,861	)	$	(89,378	)	$	(137,408	)


(1)	Prior to adoption of ASU 2016-09.


(2)	Subsequent to adoption of ASU 2016-09.

In October 2016, the FASB issued ASU 2016-17, Interests Held Through Related Parties That Are under Common Control, ("ASU 2016-17") which amended the consolidation guidance in ASU 2015-02, Amendments to the Consolidation Analysis ("ASU 2015-02"), to change how a reporting entity that is a single decision maker of a VIE should consider indirect interests in a VIE held through related parties that are under common control with the entity when determining whether it is the primary beneficiary of the VIE. ASU 2016-17 simplifies the analysis to require consideration of only an entity's proportionate indirect interest in a VIE held through a party under common control. For public companies, ASU 2016-17 was effective for fiscal years beginning after December 15, 2016 including interim periods therein. The guidance was applied retrospectively to all periods in fiscal year 2016, which is the period in which ASU 2015-02 was adopted by the Company. The Company adopted ASU 2016-17 as of January 1, 2017 and it did not have a material impact on its condensed consolidated financial statements and related disclosures.

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In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, ("ASU 2017-01"), which provides a more narrow definition of a business to be used in determining the accounting treatment of an acquisition. Under ASC 805, Business Combinations, the Company generally accounted for acquisitions of shopping center properties as acquisitions of a business. Under ASU 2017-01, more acquisitions are expected to be accounted for as acquisitions of assets. Transaction costs for asset acquisitions are capitalized while those related to business acquisitions are expensed. For public companies, ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods therein and is to be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted. The Company adopted ASU 2017-01 as of January 1, 2017. The Company expects most of its future acquisitions of shopping center properties will be accounted for as acquisitions of assets in accordance with the guidance in ASU 2017-01.

In January 2017, the FASB issued ASU 2017-03, Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings, ("ASU 2017-03"), which provides guidance related to the disclosure of the potential impact that the adoption of ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"); ASU 2016-02, Leases ("ASU 2016-02") and ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") could have on the Company's condensed consolidated financial statements. ASU 2017-03 was effective upon issuance and the Company has incorporated this guidance within its current disclosures.

Accounting Guidance Not Yet Effective

In May 2014, the FASB and the International Accounting Standards Board jointly issued ASU 2014-09. The objective of this converged standard is to enable financial statement users to better understand and analyze revenue by replacing current transaction and industry-specific guidance with a more principles-based approach to revenue recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that the entity expects to be entitled to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other guidance such as lease and insurance contracts. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date, ("ASU 2015-14") which allows an additional one year deferral of ASU 2014-09. As a result, ASU 2014-09 is effective for annual periods beginning after December 15, 2017 and interim periods within those years using one of two retrospective application methods. Early adoption would be permitted only for annual reporting periods beginning after December 15, 2016 and interim periods within those years. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"). The guidance in ASU 2016-08 clarifies the implementation of ASU 2014-09 on principal versus agent consideration and has the same effective date as ASU 2014-09, as deferred by ASU 2015-14. During the quarter ended June 30, 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, ASU 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, and ASU 2016-12, Narrow Scope Improvements and Practical Expedients. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These amendments are intended to improve and clarify the implementation guidance of ASU 2014-09 and have the same effective date as ASU 2014-09, as deferred by ASU 2015-14. As the majority of the Company's revenue is derived from real estate lease contracts, the Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements. The Company expects to adopt the guidance using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the Company's adoption, which will be January 1, 2018.

In February 2016, the FASB issued ASU 2016-02. The objective of ASU 2016-02 is to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, lessees will be required to recognize a right-of-use asset and corresponding lease liability on the balance sheet for all leases with terms greater than 12 months. The guidance applied by a lessor under ASU 2016-02 is substantially similar to existing GAAP. For public companies, ASU 2016-02 is effective for annual periods beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted. Lessees and lessors are required to use a modified retrospective transition method for all leases existing at, or entered into after, the date of initial application. Accordingly, they would apply the new accounting model for the earliest year presented in the financial statements. A number of practical expedients may also be elected. Under the new guidance, common area maintenance recoveries must be accounted for as a non-lease component. The Company is evaluating whether the bifurcation of common area maintenance will affect the timing or recognition of certain lease revenues. Also, only direct leasing costs may be capitalized under ASU 2016-02. Current guidance also allows the capitalization of indirect leasing costs. Additionally, the Company is analyzing its current ground lease obligations under ASU 2016-02. The Company has done a preliminary assessment and continues to evaluate the potential impact the guidance may have on its condensed consolidated financial statements and related disclosures and will adopt ASU 2016-02 as of January 1, 2019.

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In June 2016, the FASB issued ASU 2016-13. The objective of ASU 2016-13 is to provide financial statement users with information about expected credit losses on financial assets and other commitments to extend credit by a reporting entity. The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity's estimate of contractual cash flows not expected to be collected. For public companies that are SEC filers, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. Early adoption is permitted. The guidance is to be applied on a modified retrospective basis. The Company plans to adopt ASU 2016-13 as of January 1, 2020 and is evaluating the impact that this update may have on its condensed consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). The objective of ASU 2016-15 is to reduce diversity in practice in the classification of certain items in the statement of cash flows, including the classification of distributions received from equity method investees. For public companies, ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The guidance is to be applied on a retrospective basis. The Company plans to adopt ASU 2016-15 as of January 1, 2018 and does not expect the guidance to have a material impact on its condensed consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, ("ASU 2016-18") to address diversity in practice related to the classification and presentation of changes in restricted cash. The update requires a reporting entity to explain the change in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents in reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. For public companies, ASU 2016-18 is effective on a retrospective basis for fiscal years beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. The Company plans to adopt the update as of January 1, 2018 and does not expect ASU 2016-18 to have a material impact on its condensed consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"), which will apply to the partial sale or transfer of nonfinancial assets, including real estate assets, to unconsolidated joint ventures. ASU 2017-05 requires 100% of the gain or loss to be recognized for nonfinancial assets transferred to an unconsolidated joint venture and any noncontrolling interest received in such nonfinancial assets to be measured at fair value. ASU 2017-05 has the same effective date as ASU 2014-09, as deferred by ASU 2015-14, and is effective for the Company on January 1, 2018. ASU 2017-05 is to be applied using either a full or modified retrospective transition method. This adjustment will (1) mark investments in unconsolidated joint ventures to fair value as of the date of contribution to the unconsolidated joint ventures, and (2) recognize the remainder of the gain or loss associated with transferring the assets to the unconsolidated joint venture. The Company is in the process of determining which method to use for the application of this guidance and is identifying transactions related to the partial sale of real estate assets in prior periods that it expects the guidance in ASU 2017-05 will impact. The Company expects the application of this guidance will result in higher gains due to the requirement to recognize 100% of the gain on the sale of the partial interest and record the retained noncontrolling interest at fair value.

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.

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 and under current market conditions. 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.

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Fair Value Measurements on a Recurring Basis

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 $4,759,526 and $4,737,077 at March 31, 2017 and December 31, 2016, 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 net mortgage and other indebtedness was $4,522,480 and $4,465,294 at March 31, 2017 and December 31, 2016, respectively.

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. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models as noted below.

Long-lived Assets Measured at Fair Value in 2017

During the three months ended March 31, 2017, the Company recognized impairments of real estate of $3,263 when it divested its interests in a parcel project near an outlet center and wrote down one outparcel to its estimated fair value upon its sale. The properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See Note 9 for segment information.

Impairment Date

Property

Location

Segment Classification

Loss on Impairment

Fair

Value ⁽¹⁾

March

Vacant land ⁽²⁾

Woodstock, GA

Malls

3,147

—


(1)	The long-lived asset is not included in the Company's consolidated balance sheets at March 31, 2017 as the Company no longer has an interest in the consolidated joint venture as described below.

(2)

The Company wrote down the book value of its interest in a consolidated joint venture that owned land adjacent to one of its outlet malls upon the divestiture of its interests in March 2017 to a fair value of $1,000. In conjunction with the divestiture and assignment of the Company's interests in this consolidated joint venture, the Company was relieved of its debt obligation by the joint venture partner. See Note 6 for more information.

During the three months ended March 31, 2017, the Company recorded an impairment of $116 related to the sale of one outparcel. Outparcels are classified for segment reporting purposes in the All Other category. See Note 9 for segment information.

Note 4 – Acquisitions and Dispositions

Asset Acquisitions

During the three months ended March 31, 2017, the Company acquired several Sears and Macy's stores, which include land, buildings and improvements, for future redevelopment at the related malls. These transactions are accounted for as asset acquisitions in accordance with ASU 2017-01.

In January 2017, the Company purchased five Sears department stores and two Sears Auto Centers for $72,765 in cash, which includes $265 of capitalized transaction costs. Sears will continue to operate the department stores under new ten-year leases for which the Company will receive an aggregate initial annual base rent of $5,075. Annual base rent will be reduced by 0.25% for the third through tenth years of the leases. Sears will be responsible for paying common area maintenance charges, taxes, insurance and utilities under the terms of the leases. The Company has the right to terminate each Sears lease at any time (except November 15 through January 15), with six month's advance notice. With six month's advance notice, Sears has the right to terminate the lease at one mall after a four-year period and may terminate the leases at the four other department stores after a two-year period. The leases on the Sears Auto Centers may be terminated by Sears after one year, with six month's advance notice.

The Company also acquired four Macy's stores in January 2017 for $7,034 in cash, which includes $34 of capitalized transaction costs. Three of these locations closed in March 2017. The Company entered into a lease with Macy's at the fourth store under which Macy's will continue to operate the store through March 2019 for annual base rent and fixed common area maintenance charges of $19 per year, subject to certain operating covenants. If Macy's ceases to operate at this location, the Company will be reimbursed for the pro rata portion of the amount paid for the operating covenant based on the remaining lease term.

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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the respective acquisition dates:



	Sears Stores			Macy's Stores			Total
Land	$	45,028		$	4,635		$	49,663
Building and improvements	14,814			1,965			16,779
Tenant improvements	4,234			377			4,611
Above-market leases	681			—			681
In-place leases	8,364			579			8,943
Total assets	73,121			7,556			80,677
Below-market leases	(356		)	(522		)	(878		)
Net assets acquired	$	72,765		$	7,034		$	79,799

The intangible assets and liabilities acquired with the acquisition of the Sears and Macy's stores have weighted-average amortization periods as of the respective acquisition dates as follows (in years):



	Sears Stores	Macy's Stores
Above-market leases	2.0	—
In-place leases	2.2	2.2
Below-market leases	5.4	2.2

Dispositions

The Company evaluates its disposals utilizing the guidance in ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Based on its analysis, the Company determined that the dispositions described below do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation. Thus, the results of operations of the shopping center properties described below, as well as any related gain or impairment loss, are included in net income for all periods presented, as applicable.

2017 Dispositions

Net proceeds realized from the 2017 dispositions were used to reduce the outstanding balances on the Company's credit facilities. The following is a summary of the Company's 2017 dispositions:

Sales Price

Sales Date

Property

Property Type

Location

Gross

Net

Gain

January

One Oyster Point & Two Oyster Point ⁽¹⁾

Office Building

Newport News, VA

6,250

6,142

—


(1)	The Company recorded a loss on impairment of $3,844 in the third quarter of 2016 to write down the office buildings to their estimated fair value based upon a signed contract with the third party buyer, adjusted to reflect disposition costs.

The Company recognized a gain on extinguishment of debt for the property listed below, which represented the amount by which the outstanding debt balance exceeded the net book value of the property as of the transfer date. See Note 6 for additional information. The following is a summary of the Company's other 2017 disposition:

Transfer

Date

Property

Property Type

Location

Balance of

Non-recourse

Debt

Gain on

Extinguishment

of Debt

January

Midland Mall ⁽¹⁾

Mall

Midland. MI

31,953

4,055


(1)	The mortgage lender completed the foreclosure process and received title to the mall in satisfaction of the non-recourse debt secured by the property. A loss on impairment of real estate of $4,681 was recorded in the first quarter of 2016 to write down the book value of the mall to its then estimated fair value. The Company also recorded $479 of aggregate non-cash default interest expense.

The Company also realized a gain of $5,988 primarily related to the sale of five outparcels during the first quarter of 2017.

Subsequent to March 31, 2017, the Company closed on the sale of an outlet center. See Note 16 for more information.

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