AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 2002
REGISTRATION NO. 333-97831
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
CBL & ASSOCIATES PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1545718
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CBL Center
2030 Hamilton Place Blvd., Suite 500
Chattanooga, Tennessee 37421-6000
(423) 855-0001
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
Stephen D. Lebovitz
President and Secretary
Watermill Center
800 South Street, Suite 395
Waltham, MA 02453- 1436
(781) 647 3330
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
with copies to:
Yaacov M. Gross, Esq. Jeffery V. Curry, Esq.
Willkie Farr & Gallagher Shumacker Witt Gaither & Whitaker, P.C.
787 Seventh Avenue 2030 Hamilton Place Blvd., Suite 210
New York, New York 10019 Chattanooga, Tennessee 37421-6000
(212) 728-8225 (423) 855-1814
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the Registration Statement becomes effective.
Approximate date of commencement of proposed sale of the securities to the
public: From time to time after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective Registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
======================================== ============== =========== ==================== ==============
Proposed
maximum
Title of each class offering Proposed maximum Amount of
of securities to Amount to be price per aggregate offering registration
be registered registered share(1) price(1) fee
---------------------------------------- -------------- ----------- -------------------- --------------
Common Shares, par value $.01 per share 446,652 $36.33 $16,226,867 $1,493
---------------------------------------- -------------- ----------- -------------------- --------------
(1) Estimated pursuant to Rule 457(c) under the Securities Act solely for the purpose of calculating
the registration fee based upon the average of the high and low prices of the Common Shares quoted
on The New York Stock Exchange on August 5, 2002.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell the securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 2002
PROSPECTUS
----------
446,652 SHARES
CBL & ASSOCIATES PROPERTIES, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Prospectus relates to 446,652 shares of our common stock that may be
sold from time to time by the selling stockholders listed on page 13.
Information on the selling stockholders and the times and manner in which they
may offer and sell shares of our common stock under this prospectus is described
under the sections entitled "Selling Stockholders" and "Plan of Distribution" in
this prospectus. We will not receive any of the proceeds from the sale of these
shares by the selling stockholders.
Our common stock is listed on the New York Stock Exchange and traded under
the symbol "CBL". The last reported sale price of our common stock on the New
York Stock Exchange on September 9, 2002 , was $38.14 per share.
Our principal executive offices are located at the CBL Center, 2030
Hamilton Place Blvd., Suite 500, Chattanooga, Tennessee 37421-6000 and our
telephone number is (423) 855-0001.
Investing in our Common Stock involves certain risks. See "Risk Factors"
commencing on page 4 of this prospectus.
--------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
--------------------------
The date of this Prospectus is _________, 2002.
1
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. NEITHER WE NOR THE SELLING STOCKHOLDERS HAVE
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THE PROSPECTUS IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
--------------------------
TABLE OF CONTENTS
WHERE TO FIND MORE INFORMATION.................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................3
RISK FACTORS...................................................................4
CBL & ASSOCIATES PROPERTIES, INC..............................................12
USE OF PROCEEDS...............................................................13
SELLING STOCKHOLDERS..........................................................13
PLAN OF DISTRIBUTION..........................................................13
FEDERAL INCOME TAX CONSIDERATIONS.............................................15
LEGAL MATTERS.................................................................32
HISTORICAL FINANCIAL STATEMENTS...............................................32
--------------------------
WHERE TO FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance with those requirements we file
reports and other information with the SEC. The reports and other information
can be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Office of the SEC at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of this
material can be obtained by mail from the Public Reference Section of the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The SEC maintains a Web
2
site (http://www.sec.gov) that contains reports, proxy and information
statements and other materials that are filed through the SEC Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. In addition, our common stock
and Series A and Series B preferred stock are listed on the New York Stock
Exchange, and we are required to file reports, proxy and information statements
and other information with the New York Stock Exchange. These documents can be
inspected at the principal office of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
We have filed with the SEC a registration statement on Form S-3 covering
the securities offered by this prospectus. You should be aware that this
prospectus does not contain all of the information contained or incorporated by
reference in that registration statement and its exhibits and schedules,
particular portions of which have been omitted as permitted by the SEC rules.
For further information about our company and our securities, we refer you to
the registration statement and its exhibits and schedules. You may inspect and
obtain the registration statement, including exhibits, schedules, reports and
other information filed by us with the SEC, as described in the preceding
paragraph. Statements contained in this prospectus concerning the contents of
any document we refer you to are not necessarily complete and in each instance
we refer you to the applicable document filed with the SEC for more complete
information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed the documents listed below with the Commission under the
Exchange Act and they are incorporated herein by reference: (i) Annual Report on
Form 10-K for the fiscal year ended December 31, 2001; (ii) Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2002; (iii) Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 2002; (iv) Current Report on
Form 8-K filed on March 15, 2002; (v) Current Report on Form 8-K filed on May
13, 2002; (vi) Current Report on Form 8-K filed on June 17, 2002; and (vii) the
description of our common stock contained in our Registration Statement on Form
8-A dated October 25, 1993.
Any document which we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to termination
of this offering of securities shall be deemed to be incorporated by reference
into, and to be part of, this Prospectus from the date of filing of each such
document.
Any statement contained in this Prospectus or in a document incorporated or
deemed to be incorporated by reference into this Prospectus shall, to the extent
applicable, be deemed to be modified, superseded or replaced by later statements
included in supplements or amendments to this Prospectus or in subsequently
filed documents which are in or deemed to be incorporated by reference in this
Prospectus.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or oral
request of any such person, a copy of any or all documents incorporated by
reference herein (other than exhibits thereto, unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be addressed to our investor relations department, CBL Center, 2030
Hamilton Place Blvd., Suite 500, Chattanooga, Tennessee 37421-6000, (telephone
number (423) 855-0001).
3
RISK FACTORS
This prospectus and those documents incorporated by reference herein may
include certain "forward-looking information statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
(without limitation) statements with respect to anticipated future operating and
financial performance, growth and acquisition opportunities and other similar
forecasts and statements of expectation. Words such as "expects," "estimates,"
"plans," "anticipates," "predicts," "intends," "believes," "seeks," and "should"
and other similar expressions and variations of these expressions are intended
to identify these forward-looking statements. Forward-looking statements made by
us are based on our estimates, projections, beliefs and assumptions at the time
of the statements and are not guarantees of future performance. We disclaim any
obligation to update or revise any forward-looking statement based on the
occurrence of future events, the receipt of new information or otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by us as a result of a number
of risks, uncertainties and assumptions. Representative examples of these
factors include (without limitation) general industry and economic conditions,
interest rate trends, costs of capital, capital requirements, availability of
real estate properties, competition from other companies and venues for the
sale/distribution of goods and services, shifts in customer demands, tenant
bankruptcies, changes in operating expenses, including employee wages, benefits
and training, governmental and public policy changes, changes in applicable
laws, rules and regulations (including changes in tax laws), the ability to
obtain suitable equity and/or debt financing, and the continued availability of
financing in the amounts and on the terms necessary to support our future
business.
Risks of Expansion and Development Activities
We intend to pursue development and expansion activities as opportunities
arise. In connection with any development or expansion, we will incur various
risks including the risk that development or expansion opportunities explored by
us may be abandoned and the risk that construction costs of a project may exceed
original estimates, possibly making the project not profitable. Other risks
include the risk that we may not be able to refinance construction loans which
are generally with full recourse to us, the risk that occupancy rates and rents
at a completed project will not meet projections and will be insufficient to
make the project profitable; and the need for anchor, mortgage lender and
property partner approvals for certain expansion activities. In the event of an
unsuccessful development project, our loss could exceed our investment in the
project.
We have in the past elected not to proceed with certain development
projects and anticipate that we will do so again from time to time in the
future. If we elect not to proceed with a development opportunity, the
development costs ordinarily will be charged against income for the then-current
period. Any such charge could have a material adverse effect on our results of
operations for the period in which the charge is taken.
4
General Factors Affecting Investments in Shopping Center Properties; Effect of
Economic and Real Estate Conditions
A shopping center's revenues and value may be adversely affected by a
number of factors, including:
o The national and regional economic climates
o Local real estate conditions (such as an oversupply of retail space)
o Perceptions by retailers or shoppers of the safety, convenience and
attractiveness of the shopping center
o The willingness and ability of the shopping center's owner to provide
capable management and maintenance services.
In addition, other factors may adversely affect a shopping center's value
without affecting its current revenues, including:
o Changes in governmental regulations, zoning or tax laws
o Potential environmental or other legal liabilities
o Availability of financing
o Changes in interest rate levels
There are numerous shopping facilities that compete with our properties in
attracting retailers to lease space. In addition, retailers at our properties
face continued competition from:
o Discount shopping centers
o Outlet malls
o Wholesale clubs
o Direct mail
o Telemarketing
o Television shopping networks
o Shopping via the Internet
Competition could adversely affect revenues and funds available for
distribution.
5
Geographic Concentration
Our properties are located principally in the southeastern United States
(Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South
Carolina, Tennessee and Virginia). Thirty-one malls, fifteen associated centers,
forty-eight community centers and one office building are located in this
region. Our results of operations and funds available for distribution to
stockholders therefore will be subject generally to economic conditions in the
southeastern United States. The properties located in the southeastern United
States accounted for 59.9% of our total assets, and provided 60.6% of our total
revenues from all properties for the three months ended March 31, 2002.
Third-Party Interests in Certain Properties
We own partial interests in eleven malls, six associated centers, three
community centers and one office building. We are the managing general partner
of the partnerships that own these properties, except for Governor's Square
Mall, Governor's Plaza and Kentucky Oaks, in which we are non-managing general
partners.
Where we serve as managing general partner of the partnerships that own our
properties, we may have certain fiduciary responsibilities to the other partners
in those partnerships. In certain cases, the approval or consent of the other
partners is required before we may sell, finance, expand or make other
significant changes in the operations of such properties. To the extent such
approvals or consents are required, we may experience difficulty in, or may be
prevented from, implementing our plans with respect to expansion, development,
financing or other similar transactions with respect to such properties.
With respect to Governor's Square, Governor's Plaza and Kentucky Oaks, we
do not have day-to-day operational control or control over certain major
decisions, including the timing and amount of distributions, which could result
in decisions by the managing general partner that do not fully reflect our
interests. This includes decisions relating to the requirements that we must
satisfy in order to maintain our status as a real estate investment trust for
tax purposes. However, decisions relating to sales, expansions, dispositions of
all or substantially all of the assets and financings are subject to approval by
the operating partnership.
We have generally agreed not to sell an acquired property for a number of
years if such sale would trigger adverse tax consequences for the seller.
Dependence on Significant Properties
In the three months ended March 31, 2002, no property accounted for more
than 3% of revenues except for Hanes Mall, Burnsville Center, Coolsprings
Galleria and Hickory Hollow Mall which accounted for 4.1%, 3.6%, 3.1% and 3.0%
of revenues respectively.
Dependence on Key Tenants
In the three months ended March 31, 2002, no tenant accounted for 3% or
more of revenues except for The Limited Stores Inc. (including Intimate Brands,
Inc.) which maintains 186 stores in our malls and accounted for approximately
6.4% of our total revenues.
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The loss or bankruptcy of this or any other key tenant could negatively
affect our financial position and results from operations.
Dependence on Significant Markets
The top five markets with one or more of our malls and various associated
centers and community centers are:
o Nashville, Tennessee with three malls, three associated centers and
one community center and which represents 9.6% of our revenues for the
three months ended March 31, 2002.
o Chattanooga, Tennessee with one mall, four associated centers, three
community centers and two office buildings and which represents 4.6%
of our revenues for the three months ended March 31, 2002.
o Winston-Salem, North Carolina with one mall and which represents 4.1%
of our revenues for the three months ended March 31, 2002.
o Charleston, South Carolina with two malls and which represents 3.5% of
our revenues for the three months ended March 31, 2002.
o Minneapolis (Burnsville), Minnesota with one mall and which represents
3.6% of our revenues for the three months ended March 31, 2002.
Our financial position and results of operations will therefore be affected
by the results experienced at these properties in these five markets.
Rising Interest Rates and Other Factors Could Adversely Affect Our Stock Price
and Borrowing Costs
Any significant increase in market interest rates from their current levels
could lead holders of our securities to seek higher yields through other
investments, which could adversely affect the market price of our stock. One of
the factors that may influence the price of our stock in public markets is the
annual distribution rate we pay as compared with the yields on alternative
investments. Numerous other factors, such as governmental regulatory action and
tax laws, could have a significant impact on the future market price of our
stock. In addition, increases in market interest rates could result in increased
borrowing costs for us, which may adversely affect our cash flow and the amounts
available for distributions to our stockholders.
Dependence on Management
Certain of the operating partnership's lines of credit are conditioned upon
the operating partnership continuing to be managed by certain members of its
current senior management and by such members of senior management continuing to
own a significant direct or indirect equity interest in the operating
partnership (including any ownership interests such members of senior management
may hold in us).
7
Conflict of Interest: Retained Property Interests
Members of our senior management own interests in certain real estate
properties that were retained by them at the time of our initial public
offering. These consist primarily of outparcels at certain of our properties,
which are being offered for sale through our management company.
Conflict of Interest: Tax Consequences of Sales of Properties
Since certain of our properties had unrealized gain attributable to the
difference between the fair market value and adjusted tax basis in such
properties immediately prior to their contribution to the operating partnership,
the sale of any such properties, or a significant reduction in the debt
encumbering such properties, could cause adverse tax consequences to the members
of our senior management who owned interests in our predecessor entities. As a
result, members of our senior management might not favor a sale of a property or
a significant reduction in debt even though such a sale or reduction could be
beneficial to us and the operating partnership. Our Bylaws provide that any
decision relating to the potential sale of any property that would result in a
disproportionately higher taxable income for members of our senior management
than for us and our stockholders, or that would result in a significant
reduction in such property's debt, must be made by a majority of the independent
directors of the Board of Directors. The operating partnership is required, in
the case of such a sale, to distribute to its partners, at a minimum, all of the
net cash proceeds from such sale up to an amount reasonably believed necessary
to enable members of our senior management to pay any income tax liability
arising from such sale.
Conflicts of Interest: Policies of Board of Directors
Certain entities owned in whole or in part by members of our senior
management, including the construction company which built most of our
properties, may continue to perform services for, or transact business with, us
and the operating partnership. Furthermore, certain property tenants are
affiliated with members of our senior management. The Bylaws provide that any
contract or transaction between us or the operating partnership and one or more
of our directors or officers, or between us or the operating partnership and any
other entity in which one or more of our directors or officers are directors or
officers, or have a financial interest, must be approved by our disinterested
directors or stockholders after the material facts of the relationship or
interest of the contract or transaction are disclosed or are known to them.
Federal Tax Consequences: REIT Classification
We intend to continue to operate so as to qualify as a real estate
investment trust under the Internal Revenue Code. Although we believe that we
are organized and operate in such a manner, no assurance can be given that we
currently qualify and in the future will continue to qualify as a real estate
investment trust. Such qualification involves the application of highly
technical and complex Internal Revenue Code provisions for which there are only
limited judicial or administrative interpretations. The determination of various
factual matters and circumstances not entirely within our control may affect our
ability to qualify. In addition, no assurance can be given that legislation, new
regulations, administrative interpretations or court
8
decisions will not significantly change the tax laws with respect to
qualification or its corresponding federal income tax consequences. We have
received an opinion from our counsel, Willkie Farr & Gallagher, that we have
been organized and operated in conformity with the requirements to qualify as a
real estate investment trust and that our proposed method of operation will
enable us to continue to meet such requirements. Such legal opinion, however, is
not binding on the Internal Revenue Service. See "Federal Income Tax
Considerations."
If in any taxable year we were to fail to qualify as a real estate
investment trust, we would not be allowed a deduction for distributions to
stockholders in computing our taxable income and we would be subject to federal
income tax on our taxable income at regular corporate rates. Unless entitled to
relief under certain statutory provisions, we also would be disqualified from
treatment as a real estate investment trust for the four taxable years following
the year during which qualification was lost. As a result, the funds available
for distribution to our stockholders would be reduced for each of the years
involved. We currently intend to operate in a manner designed to qualify.
However, it is possible that future economic, market, legal, tax or other
considerations may cause our Board of Directors, with the consent of a majority
of our stockholders, to revoke the real estate investment trust election. See
"Federal Income Tax Considerations."
Federal Tax Consequences: Limits on Ownership Necessary to Maintain REIT
Qualification
To maintain our status as a real estate investment trust under the Internal
Revenue Code, not more than 50% in value of our outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code to include certain entities) during the last half of a
taxable year. Our Certificate of Incorporation generally prohibits ownership of
more than 6% of the outstanding shares of our capital stock by any single
stockholder determined by vote, value or number of shares (other than Charles
Lebovitz, David Jacobs, Richard Jacobs and their affiliates under the Internal
Revenue Code's attribution rules).
Federal Tax Consequences: Effect of Distribution Requirements
To maintain our status as a real estate investment trust under the Internal
Revenue Code, we generally will be required each year to distribute to our
stockholders at least 90% of our taxable income after certain adjustments.
However, to the extent that we do not distribute all of our net capital gain or
distribute at least 90% but less than 100% of our real estate investment trust
taxable income, as adjusted, we will be subject to tax on the undistributed
amount at ordinary and capital gains corporate tax rates, as the case may be. In
addition, we will be subject to a 4% nondeductible excise tax on the amount, if
any, by which certain distributions paid by us during each calendar year are
less than the sum of 85% of our ordinary income for such calendar year, 95% of
our capital gain net income for the calendar year and any amount of such income
that was not distributed in prior years. In the case of property acquisitions,
including our initial formation, where individual properties are contributed to
our operating partnership for operating partnership units, we have assumed the
tax basis and depreciation schedules of the entities contributing properties.
The relatively low tax basis of such contributed properties may have the effect
of increasing the cash amounts we are required to distribute as dividends,
thereby potentially limiting the amount of cash we might otherwise have been
able to retain for use in
9
growing our business. This low tax basis may also have the effect of reducing or
eliminating the portion of distributions made by us that are treated as a
non-taxable return of capital.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of petroleum, certain hazardous or toxic substances
on, under or in such real estate. Such laws typically impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such substances. The costs of remediation or removal of such
substances may be substantial. The presence of such substances, or the failure
to promptly remediate such substances, may adversely affect the owner's or
operator's ability to lease or sell such real estate or to borrow using such
real estate as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, regardless
of whether such facility is owned or operated by such person. Certain laws also
impose requirements on conditions and activities that may affect the environment
or the impact of the environment on human health. Failure to comply with such
requirements could result in the imposition of monetary penalties (in addition
to the costs to achieve compliance) and potential liabilities to third parties.
Among other things, certain laws require abatement or removal of friable and
certain non-friable asbestos-containing materials in the event of demolition or
certain renovations or remodeling. Certain laws regarding asbestos-containing
materials require building owners and lessees, among other things, to notify and
train certain employees working in areas known or presumed to contain
asbestos-containing materials. Certain laws also impose liability for release of
asbestos-containing materials into the air and third parties may seek recovery
from owners or operators of real properties for personal injury or property
damage associated with asbestos-containing materials. In connection with the
ownership and operation of properties, we may be potentially liable for all or a
portion of such costs or claims.
All of our properties (but not properties for which we hold an option to
purchase but do not yet own) have been subject to Phase I environmental
assessments or updates of existing Phase I environmental assessments within
approximately the last nine years. Such assessments generally consisted of a
visual inspection of the properties, review of federal and state environmental
databases and certain information regarding historic uses of the property and
adjacent areas and the preparation and issuance of written reports. Some of the
properties contain, or contained, underground storage tanks used for storing
petroleum products or wastes typically associated with automobile service or
other operations conducted at the properties. Certain properties contain, or
contained, dry-cleaning establishments utilizing solvents. Where believed to be
warranted, samplings of building materials or subsurface investigations were
undertaken. At certain properties, where warranted by the conditions, we have
developed and implemented an operations and maintenance program that establishes
operating procedures with respect to asbestos-containing materials. The costs
associated with the development and implementation for such programs were not
material.
We believe that our properties are in compliance in all material respects
with all federal, state and local ordinances and regulations regarding the
handling, discharge and emission of hazardous or toxic substances. We have not
been notified by any governmental authority, and
10
are not otherwise aware, of any material noncompliance, liability or claim
relating to hazardous or toxic substances in connection with any of our present
or former properties. We have not recorded in our financial statements any
material liability in connection with environmental matters. Nevertheless, it is
possible that the environmental assessments available to us do not reveal all
potential environmental liabilities. It is also possible that subsequent
investigations will identify material contamination, that adverse environmental
conditions have arisen subsequent to the performance of the environmental
assessments, or that there are material environmental liabilities of which
management is unaware. Moreover, no assurances can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the properties has not
been or will not be affected by tenants and occupants of the properties, by the
condition of properties in the vicinity of the properties or by third parties
unrelated to us, the operating partnership or the relevant property's
partnership. The existence of any such environmental liability could have an
adverse effect on our results of operations, cash flow and the funds available
to us to pay dividends.
Lack of Consent of Arthur Andersen LLP and Possible Limitations on Recovery by
Investors
On March 14, 2002, Arthur Andersen LLP was indicted on federal obstruction
of justice charges arising from the government's investigation of Enron. On May
8, 2002, we dismissed Arthur Andersen as our independent public accounting firm
and retained Deloitte & Touche LLP for our 2002 fiscal year. Our historical
financial statements for the years ended December 31, 1999, 2001 and 2002, which
were included in our most recent Annual Report on Form 10-K and are incorporated
by reference herein, were audited by Arthur Andersen and their audit reports are
incorporated by reference herein in reliance upon the authority of that firm as
experts in giving such reports. However, we have not been able to obtain, after
reasonable efforts, the written consent of Arthur Andersen to the incorporation
by reference of its reports in this registration statement, and we have not
filed that consent in reliance on Rule 437a promulgated under the Securities
Act. Because Arthur Andersen has not consented to the inclusion of its reports
in this registration statement, your ability to assert claims against Arthur
Andersen may be limited. In particular, because of this lack of consent, you
will not be able to sue Arthur Andersen under Section 11(a)(4) of the Securities
Act for untrue statements of a material fact, if any, contained in the financial
statements audited by Arthur Andersen or omissions to state a material fact, if
any, required to be stated in those financial statements and therefore your
right of recovery under that section may be limited.
Recent Events and Tenant Bankruptcies May Adversely Affect the Retail Climate
A significant portion of our earnings are derived from tenant occupancy and
retail sales during the holiday season. The deterioration recently experienced
in the national economy and the tragic events of September 11, 2001 have
negatively affected the retail climate. In addition, a number of local, regional
and national retailers have closed locations or filed for bankruptcy within the
last two years. We are unable to determine what effect these developments may
have on our future earnings.
11
Our Insurance Coverage May Change in the Future and not Include Coverage for
Acts of Terrorism
The property and liability insurance policies on our properties currently
do not exclude from coverage loss resulting from acts of terrorism. We believe,
however, that post September 11, 2001, the cost of policies which do not exclude
coverage for acts of terrorism has risen significantly. As a result, many
companies within our industry are agreeing to exclude this coverage from their
policies. We are unable at this time to predict whether we will continue our
policy coverage as currently structured when our policies are up for renewal on
December 31, 2002.
CBL & ASSOCIATES PROPERTIES, INC
We are a self-managed, self-administered, fully integrated real estate
company. We own, operate, market, manage, lease, expand, develop, redevelop,
acquire and finance regional malls and community and neighborhood shopping
centers. We have elected to be taxed as a REIT for federal income tax purposes.
We are one of the largest mall REITs in the United States. We currently own
interests in a portfolio of properties, consisting of 48 regional malls, three
of which are currently being expanded, 15 associated centers, each of which is
part of a regional shopping mall complex, 62 community centers, one office
building, joint venture investments in six regional malls, three associated
centers and three community centers, and income from ten mortgages.
Additionally, we own two regional malls, two associated centers and two
community centers currently under construction. We also own options to acquire
certain shopping center development sites.
We conduct substantially all of our business through our operating
partnership, CBL & Associates Limited Partnership, a Delaware limited
partnership. We currently own an indirect 54.6% interest in the operating
partnership, and one of our wholly owned subsidiaries, CBL Holdings I, Inc., a
Delaware corporation, is its sole general partner. To comply with certain
technical requirements of the Internal Revenue Code of 1986, as amended,
applicable to REITs, our property management and development activities, sales
of peripheral land and maintenance operations are carried out through a separate
management company, CBL & Associates Management, Inc. Currently, our operating
partnership owns 100% of the preferred stock of the management company, which
entitles the operating partnership to substantially all of the management
company's earnings. Our operating partnership also owns 6% of the management
company's common stock. Certain of our executive officers and their children
hold the remaining 94% of the management company's common stock.
In order to maintain our qualification as a REIT for federal income tax
purposes, we must distribute each year at least 90% of our taxable income,
computed without regard to net capital gains or the dividends-paid deduction.
We were organized on July 13, 1993 as a Delaware corporation to acquire
substantially all of the real estate properties owned by our predecessor
company, CBL & Associates, Inc., and its affiliates. Our principal executive
offices are located at CBL Center, 2030 Hamilton Place Blvd., Suite 500,
Chattanooga, Tennessee 37421-6000, and our telephone number is (423) 855-0001.
Our website can be found at www.cblproperties.com.
12
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling stockholders
of any of the shares of common stock covered by this prospectus.
SELLING STOCKHOLDERS
We are registering all 446,652 shares covered by this prospectus on behalf
of the selling stockholders named in the table below and their respective
pledgees, donees, transferees or other successors in interest. We are
registering the shares in order to permit the selling stockholders to publicly
offer these shares for resale from time to time. The selling stockholders may
sell all, some or none of the shares covered by this prospectus. See "Plan of
Distribution." Faye L. Peterken, the sole beneficiary of the Trust U/W Moses
Lebovitz f/b/o Faye L. Peterken (formerly, Israel) (the "Peterken Trust"), is
the sister of Charles B. Lebovitz, our Chairman of the Board of Directors and
Chief Executive Officer. Otherwise, none of the selling stockholders has had any
material relationship with us within the past three years other than as a result
of the acquisition and ownership of these shares or other securities of ours.
The table below lists the selling stockholders and other information regarding
the ownership of common stock by each of the selling stockholders.
Name of Selling Stockholder Number of Shares
--------------------------- ----------------
Robert T. Samuels .............................................. 122,000
Perlick Holdings, LLC........................................... 10,000
Sheldon A Perlick Marital Trust................................. 100,000
Michael Montlack................................................ 18,869
Benjamin Family Partnership..................................... 194,983
Trust U/W Moses Lebovitz, f/b/o Faye L. Peterken
(formerly, Israel).............................................. 800
-------
Total........................................................... 446,652
=======
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling stockholders (other
than the Peterken Trust) pursuant to registration rights agreements between us
and the selling stockholders, dated August 27, 1998, and, with respect to the
shares owned by the Peterken Trust, pursuant the registration rights terms set
forth in the partnership agreement of our operating partnership. The shares may
be offered and sold by the selling stockholders, or by purchasers, transferees,
donees, pledgees or other successors in interest, directly or through brokers,
dealers, agents or underwriters who may receive compensation in the form of
discounts, commissions or similar selling expenses paid by the selling
stockholders or by a purchaser of the shares on whose behalf such broker-dealer
may act as agent. Sales and transfers of the shares may be effected from time to
time in one or more transactions, in private or public transactions, on the
NYSE, in the over-the-counter market, in negotiated transactions or otherwise,
at a fixed price or prices that may be changed, at market prices prevailing at
the time of sale, at negotiated prices, without consideration or by any other
legally available means. Any or all of the shares may be sold from time to time
by means of:
13
(a) a block trade, in which a broker or dealer attempts to sell the shares
as agent but may position and resell a portion of the shares as principal to
facilitate the transaction;
(b) purchases by a broker or dealer as principal and the subsequent sale by
such broker or dealer for its account pursuant to this prospectus;
(c) ordinary brokerage transactions (which may include long or short sales)
and transactions in which the broker solicits purchasers;
(d) the writing (sale) of put or call options on the shares;
(e) the pledging of the shares as collateral to secure loans, credit or
other financing arrangements and subsequent foreclosure, the disposition of the
shares by the Lender thereunder; and
(f) any other legally available means.
To the extent required with respect to a particular offer or sale of the
shares, we will file a prospectus supplement pursuant to Section 424(b)(3) of
the Securities Act of 1933, as amended, which will accompany this prospectus, to
disclose:
(a) the number of shares to be sold;
(b) the purchase price;
(c) the name of any broker, dealer or agent effecting the sale or transfer
and the amount of any applicable discounts, commissions or similar selling
expenses; and
(d) any other relevant information.
The selling stockholders may transfer the shares by means of gifts,
donations and contributions. Subject to certain limitations under rules
promulgated under the Securities Act, this prospectus may be used by the
recipients of such gifts, donations and contributions to offer and sell the
shares received by them, directly or through brokers, dealers or agents and in
private or public transactions.
In connection with distributions of the shares or otherwise, the selling
stockholders may enter into hedging transactions with brokers, dealers or other
financial institutions. In connection with such transactions, brokers, dealers
or other financial institutions may engage in short sales of our common stock in
the course of hedging the positions they assume with the selling Stockholders.
To the extent permitted by applicable law, the selling Stockholders also may
sell the shares short and redeliver the shares to close out such short
positions.
The selling stockholders and any broker-dealers who participate in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any discounts, commissions or similar
selling expenses they receive and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. As a result, we have informed the selling
14
stockholders that Regulation M, promulgated under the Securities Exchange Act of
1934, as amended, may apply to sales by the selling stockholders in the market.
The selling stockholders may agree to indemnify any broker, dealer or agent that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act.
The aggregate net proceeds to the selling stockholders from the sale of the
shares will be the purchase price of such shares less any discounts, concessions
or commissions. We will not receive any proceeds from the sale of any shares by
the selling stockholders. We will pay all expenses incurred by the selling
stockholders in connection with this offering and the sale of the shares, other
than brokerage fees or underwriting commissions, attorney fees and expenses or
transfer taxes.
The selling stockholders are acting independently of us in making decisions
with respect to the timing, price, manner and size of each sale. We have not
engaged any broker, dealer or agent in connection with the sale of the shares,
and there is no assurance that the selling stockholders will sell any or all of
the shares. In connection with the offer and sale of the shares, we have agreed
to make available to the selling stockholders copies of this prospectus and any
applicable prospectus supplement and have informed the selling stockholders of
the need to deliver copies of this prospectus and any applicable prospectus
supplement to purchasers prior to any sale to them.
The shares covered by this prospectus may become qualified for sale under
Section 4(1) of the Securities Act or Rule 144 promulgated thereunder, whereupon
they may be sold pursuant to such provisions rather than pursuant to this
prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain U.S. federal income tax considerations is
based on current law, is for general information only, and is not tax advice.
The tax treatment of a holder of any of the offered securities will depend on
the holder's particular situation, and this discussion does not attempt to
address all aspects of federal income tax considerations that may be relevant to
holders of the offered securities in light of their personal investment or tax
circumstances, or to certain types of stockholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States), except to the extent discussed in this section. This summary assumes
that the stockholder holds the stock as a capital asset. Current law may change,
possibly with retroactive effect.
Each prospective purchaser of the offered securities is advised to consult
his or her own tax advisor regarding the specific tax consequences to the
purchaser of the purchase, ownership and sale of the offered securities and of
our election to be taxed as a REIT, including the federal, state, local, foreign
and other tax consequences of the purchase, ownership, sale and election and of
potential changes in applicable tax laws. In particular, foreign investors
should consult their own tax advisors concerning the tax consequences of an
investment in our company, including the possibility of United States income tax
withholding on our distributions.
15
Taxation of CBL
We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code and applicable Treasury Regulations, which set forth the
requirements for qualifying as a REIT, commencing with our taxable year ended
December 31, 1993. We believe that, commencing with our taxable year ended
December 31, 1993, we have been organized and have operated, and are operating,
in such a manner so as to qualify for taxation as a REIT under the Code. We
intend to continue to operate in such a manner, but we may not operate in a
manner so as to qualify or remain qualified.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income tax treatment of a REIT.
This summary is qualified in its entirety by the applicable Code provisions and
Treasury Regulations, and administrative and judicial interpretations of the
applicable Code provisions and Treasury Regulations. Willkie Farr & Gallagher
has acted as our special tax counsel in connection with our election to be taxed
as a REIT.
In the opinion of Willkie Farr & Gallagher, commencing with our taxable
year ended December 31, 1993, we were organized and have operated in conformity
with the REIT requirements, and our proposed method of operation will enable us
to continue to meet REIT requirements. Willkie Farr & Gallagher's opinion is
based on certain factual representations and assumptions and methods of
operations which are beyond its control and which it will not monitor on an
ongoing basis. In particular, this opinion is based upon our factual
representations concerning our business and properties and certain factual
representations and legal conclusions of Shumacker Witt Gaither & Whitaker, P.C.
Moreover, our qualification and taxation as a REIT depend upon our ability to
meet, through actual annual operating results, certain distribution levels, a
specified diversity of stock ownership, and the various other qualification
tests imposed under the Code as discussed below. Our annual operating results
will not be reviewed by Willkie Farr & Gallagher. Accordingly, the actual
results of our operations for any particular taxable year may not satisfy these
requirements. Further, the anticipated income tax treatment described in this
prospectus supplement may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time. For a discussion of the tax
consequences of failure to qualify as a REIT, see "Federal Income Tax
Considerations--Failure to Qualify" below.
For as long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on our income that is currently
distributed to stockholders. The REIT requirements generally allow a REIT to
deduct dividends paid to its stockholders. This treatment substantially
eliminates the "double taxation" (once at the corporate level and again at the
stockholder level) that generally results from investment in a corporation.
Even if we qualify for taxation as a REIT, we may be subject to federal
income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed
"real estate investment trust taxable income," including undistributed net
capital gains. However, we can
16
elect to "pass through" any of our taxes paid on our undistributed net capital
gains income to our stockholders on a proportional basis.
Second, under certain circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference, if any.
Third, if we have (1) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or (2) other nonqualifying net income from
foreclosure property, it will be subject to tax at the highest corporate rate on
that income. Foreclosure property means property acquired by reason of a default
on a lease or an indebtedness held by a REIT.
Fourth, if we have net income from "prohibited transactions," which are, in
general, certain sales or other dispositions of property, held primarily for
sale to customers in the ordinary course of business other than sales of
foreclosure property and sales that qualify for a statutory safe harbor, that
income will be subject to a 100% tax.
Fifth, if we should fail to satisfy the 75% gross income test or the 95%
gross income test, as discussed below, and have nonetheless maintained our
qualification as a REIT because certain other requirements have been met, we
will be subject to a 100% tax on an amount equal to the greater of (1) the
excess of (a) 90% of our gross income less (b) the amount of our gross income
that is qualifying income for purposes of the 95% test or (2) the excess of (a)
75% of our gross income less (b) the amount of our gross income that is
qualifying income for purposes of the 75% test, multiplied by a fraction
intended to reflect our profitability.
Sixth, if we should fail to distribute with respect to each calendar year
at least the sum of (1) 85% of our REIT ordinary income for that year, (2) 95%
of our REIT capital gain net income for the year, and (3) any undistributed
taxable income from prior periods, we will be subject to a 4% excise tax on the
excess of that required distribution over the amounts actually distributed.
Seventh, if we acquire in the future any asset from a "C" corporation in a
carryover basis transaction, or if we held assets beginning on the first day of
the first taxable year for which we qualified as a REIT, and we subsequently
recognize gain on the disposition of the asset during the 10-year period
beginning on the date on which we acquired the asset or we first qualified as a
REIT, then the excess of (a) the fair market value of the asset as of the
beginning of the period, over (b) our adjusted basis in the asset as of the
beginning of the period will generally be subject to tax at the highest regular
corporate rate. A "C" corporation means a corporation subject to full
corporate-level tax.
Eighth, for taxable years beginning after December 31, 2000, if we receive
non-arms length income as a result of services provided by a taxable REIT
subsidiary to our tenants, or if we receive certain other non-arms length income
from a taxable REIT subsidiary, we will be subject to a 100% tax on the amount
of the non-arms length income.
17
Requirements for Qualification
Organizational Requirements
In order to remain qualified as a REIT, we must continue to meet certain
requirements, discussed below, relating to our organization, sources of income,
nature of assets, and distributions of income to our stockholders.
The Internal Revenue Code defines a REIT as a corporation, trust or
association (1) that is managed by one or more trustees or directors, (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) that would be taxable as a
domestic corporation but for the REIT requirements, (4) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code, (5) the beneficial ownership of which is held by 100 or more persons,
(6) during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, directly or indirectly, by five or fewer
individuals, and (7) that meets certain other tests, described below, regarding
the nature of its income and assets. The REIT requirements provide that
conditions (1) to (4), inclusive, must be met during the entire taxable year,
and that condition (5) must be met during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year of less than 12
months. For purposes of condition (6), certain tax-exempt entities are generally
treated as individuals. However, a pension trust generally will not be
considered an individual for purposes of condition (6). Instead, beneficiaries
of the pension trust will be treated as holding stock of a REIT in proportion to
their actuarial interests in the trust.
We have satisfied the requirements of conditions (1) through (4) and (7),
and we believe that the requirements of conditions (5) and (6) have been and are
currently satisfied. In addition, our certificate of incorporation provides for
restrictions regarding transfer of our shares in order to assist us in
continuing to satisfy the share ownership requirements described in conditions
(5) and (6) above.
We currently have three "qualified REIT subsidiaries," CBL Holdings I,
Inc., CBL Holdings II, Inc. and CBL/North Haven, Inc., and may have additional
qualified REIT subsidiaries in the future. A corporation that is a qualified
REIT subsidiary will not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a qualified REIT
subsidiary will be treated as assets, liabilities, and items of the REIT. Thus,
in applying these requirements, the separate existence of our qualified REIT
subsidiaries will be ignored, and all assets, liabilities, and items of income,
deduction, and credit of these subsidiaries will be treated as our assets,
liabilities and items.
In the case of a REIT that is a direct or indirect partner in a
partnership, Treasury Regulations provide that the REIT will be deemed to own
its proportionate share of the assets of the partnership and will be deemed to
be entitled to the income of the partnership attributable to that share. In
addition, the character of the assets and gross income of the partnership will
retain the same character in the hands of the REIT for purposes of the REIT
requirements, including satisfying the gross income tests and the asset tests,
described below. Thus, our proportionate share of the assets, liabilities and
items of income of the operating partnership and the property partnerships will
be treated as our assets, liabilities and items of income for purposes of
applying
18
the requirements described in this section, provided that the operating
partnership and property partnerships are treated as partnerships for federal
income tax purposes.
Finally, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. Our taxable year is the calendar year.
Income Tests
In order for us to maintain our qualification as a REIT, there are two
gross income requirements that must be satisfied annually. First, at least 75%
of our gross income, excluding gross income from prohibited transactions, for
each taxable year must consist of defined types of income derived directly or
indirectly from investments relating to real property or mortgages on real
property, including "rents from real property," as described below, and, in
certain circumstances, interest, or from certain types of temporary investments.
Second, at least 95% of our gross income, excluding gross income from prohibited
transactions, for each taxable year must be derived from real property
investments of those kinds, dividends, other types of interest, gain from the
sale or disposition of stock or securities that do not constitute dealer
property, or any combination of the foregoing. Dividends that we receive on our
indirect ownership interest in the management company, as well as interest that
we receive on our loan to the management company and other interest income that
is not secured by real estate, generally will be includable under the 95% test
but not under the 75% test.
Rents received or deemed to be received by us will qualify as "rents from
real property" for purposes of the gross income tests only if several conditions
are met:
First, the amount of rent must not be based, in whole or in part, on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
Second, rents received from a tenant will not qualify as rents from real
property if the REIT, or a direct or indirect owner of 10% or more of the REIT,
owns, directly or constructively, 10% or more of the tenant, except that for tax
years beginning after December 31, 2000, rents received from a taxable REIT
subsidiary under certain circumstances qualify as rents from real property even
if we own more than a 10% interest in the subsidiary.
Third, if rent attributable to personal property leased in connection with
a lease of real property is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to the personal property will
not qualify as rents from real property.
Fourth, a REIT may provide services to its tenants and the income will
qualify as rents from real property if the services are of a type that a tax
exempt organization can provide to its tenants without causing its rental income
to be unrelated business taxable income under the Code. Services that would give
rise to unrelated business taxable income if provided by a tax exempt
organization must be provided either by the management company or by an
independent contractor who is adequately compensated and from whom the REIT does
not derive any income; otherwise, all of the rent received from the tenant for
whom the services are provided will fail to qualify as rents from real property
if the services income exceeds a de minimis
19
amount. However, rents will not be disqualified if a REIT provides de minimis
impermissible services. For this purpose, services provided to tenants of a
property are considered de minimis where income derived from the services
rendered equals 1% or less of all income derived from the property, with the
threshold determined on a property-by-property basis. For purposes of the 1%
threshold, the amount treated as received for any service may not be less than
150% of the direct cost incurred in furnishing or rendering the service. Also
note, however, that receipts for services furnished, whether or not rendered by
an independent contractor, which are not customarily provided to tenants in
properties of a similar class in the geographic market in which our property is
located will in no event qualify as rents from real property.
Substantially all of our income is derived from our partnership interest in
the operating partnership. The operating partnership's real estate investments,
including those held through the property partnerships, give rise to income that
enables us to satisfy all of the income tests described above. The operating
partnership's income is largely derived from its interests, both direct and
indirect, in the properties, which income, for the most part, qualifies as
"rents from real property" for purposes of the 75% and the 95% gross income
tests. The operating partnership also derives dividend income from its interest
in the management company.
None of us, the operating partnership or any of the property partnerships
currently under existing leases, nor will any of them in the future in
connection with new leases, (1) charge rent for any property that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a percentage of receipts or sales, as described above) other than
relatively minor amounts which do not cause noncompliance with the above tests;
(2) rent any property to a tenant of which we, or an owner of 10% or more of our
stock, directly or indirectly, own 10% or more, other than under leases with CBL
& Associates, Inc., certain of our affiliates and officers and certain
affiliates of those persons which produce a relatively minor amount of
non-qualifying income and which we believe will not, either singly or when
combined with other non-qualifying income, exceed the limits on non-qualifying
income; (3) derive rent attributable to personal property leased in connection
with property that exceeds 15% of the total rents other than relatively minor
amounts which do not cause noncompliance with the above tests; or (4) directly
perform any services that would give rise to income derived from services that
give rise to "unrelated business taxable income" as defined in Section 512(a) of
the Internal Revenue Code, and none of them will in the future enter into new
leases that would, either singly or in the aggregate, result in our
disqualification as a REIT.
We have obtained from the IRS a ruling that direct performance of the
services and the undertaking of the activities described above by the management
company with respect to properties owned by us or by the operating partnership
or the property partnerships, and the management company's other services to
third parties, will not cause the amounts received directly or through
partnerships by us from the rental of our properties and of properties of the
partnerships to be treated as something other than rents from real property for
purposes of the Code.
The management company receives fees in exchange for the performance of
certain management and administrative services. These fees do not accrue to us,
but we receive dividends and interest from the management company, which qualify
under the 95% gross income test. We believe that the aggregate amount of any
nonqualifying income in any taxable
20
year will not exceed the limits on nonqualifying income under the 75% and 95%
gross income tests.
For purposes of the gross income tests, the term "interest" generally does
not include any amount received or accrued, directly or indirectly, if the
determination of the amount depends in whole or in part on the income or profits
of any person. However, an amount received or accrued generally will not be
excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentage of receipts or sales. Although the operating
partnership or the property owners may advance money from time to time to
tenants for the purpose of financing tenant improvements, we and the operating
partnership do not intend to charge interest in any transaction that will depend
in whole or in part on the income or profits of any person or to make loans that
are not secured by mortgages of real estate in amounts that could jeopardize our
compliance with the 5% asset test described below.
Any net income derived from a prohibited transaction is subject to a 100%
tax. We believe that no asset owned by us, the operating partnership or the
property partnerships is held for sale to customers, and that the sale of any
property will not be in the ordinary course of our business, or that of the
operating partnership or the relevant property partnership. Whether property is
held primarily for sale to customers in the ordinary course of a trade or
business and, therefore, is subject to the 100% tax, depends on the facts and
circumstances in effect from time to time, including those related to a
particular property. We and the operating partnership will attempt to comply
with the terms of safe-harbor provisions in the Code prescribing when asset
sales will not be characterized as prohibited transactions. We may not always be
able to comply with the safe-harbor provisions of the Code or avoid owning
property that may be characterized as property held primarily for sale to
customers in the ordinary course of business.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for that year if we are
entitled to relief under certain provisions of the Code. These relief provisions
generally will be available if our failure to meet those tests is due to
reasonable cause and not willful neglect, we attach a schedule of our sources of
income to our federal income tax return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible to
state whether in all circumstances we would be entitled to the benefit of these
relief provisions. As discussed above in "--Taxation of CBL", even if these
relief provisions apply, a tax would be imposed with respect to the excess net
income.
In addition to the two income tests described above, we were subject to a
third income test for our taxable years before 1998. Under this test, short-term
gains from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years, apart from involuntary conversions and
sales of foreclosure property, were required to represent less than 30% of our
gross income, including gross income from prohibited transactions, for each of
these taxable years.
Asset Tests
In order for us to maintain our qualification as a REIT, we, at the close
of each quarter of our taxable year, must also satisfy three tests relating to
the nature of our assets. First, at least
21
75% of the value of our total assets must be represented by real estate assets.
Real estate assets for the purpose of this asset test include (1) our allocable
share of real estate assets held by partnerships in which we own an interest or
held by qualified REIT subsidiaries and (2) stock or debt instruments held for
not more than one year purchased with the proceeds of our stock offering or
long-term (at least five years) debt offering, cash items and government
securities. Second, although the remaining 25% of our assets generally may be
invested without restriction, securities in this class may not exceed either (1)
5% of the value of our total assets as to any one issuer, or (2) 10% of the
outstanding voting securities of any one issuer.
In addition to the asset tests described above, we are prohibited, in
taxable years beginning after December 31, 2000, from owning more than 10% of
the value of the outstanding debt and equity securities of any subsidiary other
than a qualified REIT subsidiary, subject to an exception. The exception is that
we and a non-qualified REIT subsidiary may make a joint election for the
subsidiary to be treated as a "taxable REIT subsidiary." The securities of a
taxable REIT subsidiary are not subject to the 10% value test and the 10% voting
securities test, and also are exempt from the 5% asset test. However, no more
than 20% of the total value of a REIT's assets can be represented by securities
of one or more taxable REIT subsidiaries. The management company is a taxable
REIT subsidiary.
It should be noted that the 20% value limitation must be satisfied at the
end of any quarter in which we increase our interest in the management company.
In this respect, if any partner of the operating partnership exercises its
option to exchange interests in the operating partnership for shares of common
stock (or we otherwise acquire additional interests in the operating
partnership), we will thereby increase our proportionate (indirect) ownership
interest in the management company, thus requiring us to recalculate our ability
to meet the 20% test in any quarter in which the exchange option is exercised.
Although we plan to take steps to ensure that we satisfy the 20% value test for
any quarter with respect to which retesting is to occur, these steps may not
always be successful or may require a reduction in the operating partnership's
overall interest in the management company.
The new rules regarding taxable REIT subsidiaries contain provisions
generally intended to insure that transactions between a REIT and its taxable
REIT subsidiary occur at arm's length and on commercially reasonable terms.
These requirements include a provision that prevents a taxable REIT subsidiary
from deducting interest on direct or indirect indebtedness to its parent REIT
if, under a specified series of tests, the taxable REIT subsidiary is considered
to have an excessive interest expense level or debt to equity ratio. In some
cases, a 100% tax is imposed on the REIT with respect to certain items
attributable to any of its rental, service or other agreements with its taxable
REIT subsidiary that are not on arm's length terms.
We believe that we are in compliance with the asset tests. Substantially
all of our investments are in properties that are qualifying real estate assets.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
We intend to maintain
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adequate records of the value of our assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance.
Annual Distribution Requirements
In order to remain qualified as a REIT, we are required to distribute
dividends, other than capital gain dividends, to our stockholders in an amount
at least equal to (A) the sum of (1) 90% of our real estate investment trust
taxable income, computed without regard to the dividends paid deduction and our
net capital gain, and (2) 90% of the after tax net income, if any, from
foreclosure property, minus (B) the sum of certain items of noncash income. In
addition, if we dispose of any asset with built-in gain during the ten-year
period beginning on the date we acquired the property from a "C" corporation or
became a REIT, we will be required, according to guidance issued by the IRS, to
distribute at least 90% of the after tax built-in gain, if any, recognized on
the disposition of the asset. These distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
we timely file our tax return for the year and if paid on or before the first
regular dividend payment after the declaration. For taxable years beginning on
or before December 31, 2000, the 90% distribution requirement was a 95%
distribution requirement.
To the extent that we do not distribute all of our net capital gain or
distribute at least 90% but less than 100% of our real estate investment trust
taxable income, as adjusted, we will be subject to tax on the undistributed
amount at ordinary and capital gains corporate tax rates, as the case may be.
If we so choose, we may retain, rather than distribute, our net long-term
capital gains and pay the tax on those gains. In this case, our stockholders
would include their proportionate share of the undistributed long-term capital
gains in income. However, our stockholders would then be deemed to have paid
their share of the tax, which would be credited or refunded to them. In
addition, our stockholders would be able to increase their tax basis in our
shares they hold by the amount of the undistributed long-term capital gains,
less the amount of capital gains tax we paid, included in the stockholders'
long-term capital gains.
Furthermore, if we should fail to distribute during each calendar year at
least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of
our REIT capital gain income for the year, and (3) any undistributed taxable
income from prior periods, we would be subject to a 4% excise tax on the excess
of the required distribution over the amounts actually distributed. We intend to
make timely distributions sufficient to satisfy all annual distribution
requirements.
Our taxable income consists substantially of our distributive share of the
income of the operating partnership. We expect that our taxable income will be
less than the cash flow we receive from the operating partnership, due to the
allowance of depreciation and other non-cash charges in computing REIT taxable
income. Accordingly, we anticipate that we will generally have sufficient cash
or liquid assets to enable us to satisfy the 90% distribution requirement.
It is possible that, from time to time, we may experience timing
differences between (1) the actual receipt of income and actual payment of
deductible expenses and (2) the inclusion
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of the income and deduction of the expenses in arriving at our taxable income.
Further, it is possible that, from time to time, we may be allocated a share of
net capital gain attributable to the sale of depreciated property which exceeds
our allocable share of cash attributable to that sale. In these cases, we may
have less cash available for distribution than is necessary to meet our annual
90% distribution requirement. To meet the 90% distribution requirement, we may
find it appropriate to arrange for short-term or possibly long-term borrowings
or to pay distributions in the form of taxable stock dividends. Any borrowings
for the purpose of making distributions to stockholders are required to be
arranged through the operating partnership.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, we will be required to
pay penalties and interest to the IRS based upon the amount of any deduction
taken for deficiency dividends.
Under applicable Treasury Regulations, we must maintain certain records and
request certain information from our stockholders designed to disclose the
actual ownership of our stock. We have complied with these requirements.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
will not be deductible by us nor will they be required to be made. In this
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Internal Revenue Code, corporate distributees may
be eligible for the dividends-received deduction. Unless we are entitled to
relief under specific statutory provisions, we will also be disqualified from
taxation as a REIT for the four taxable years following the year in which our
qualification was lost. It is not possible to state whether in all circumstances
we would be entitled to statutory relief.
Taxation of U.S. Stockholders
As used in this section, the term "U.S. stockholder" means a holder of
offered securities that for United States federal income tax purposes is (1) a
citizen or resident of the United States, (2) a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision of the United States, (3) an estate the income of
which is subject to United States federal income taxation regardless of its
source, (4) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust or (5) a person or entity otherwise subject to U.S. federal income
taxation on a net income basis. For any taxable year for which we qualify for
taxation as a REIT, amounts distributed to taxable U.S. stockholders will be
taxed as follows.
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Distributions Generally
Distributions to U.S. stockholders, other than capital gain dividends
discussed below, will constitute dividends to those holders up to the amount of
our current or accumulated earnings and profits and are taxable to the
stockholders as ordinary income. These distributions are not eligible for the
dividends-received deduction for corporations. To the extent that we make
distributions in excess of our current or accumulated earnings and profits, the
distributions will first be treated as a tax-free return of capital, thus
reducing the tax basis in the U.S. stockholder's shares, and distributions in
excess of the U.S. stockholder's tax basis in its shares are taxable as capital
gain realized from the sale of the shares. Dividends declared by us in October,
November or December of any year payable to a U.S. stockholder of record on a
specified date in any of these months will be treated as both paid by us and
received by the U.S. stockholder on December 31 of the year, provided that we
actually paid the dividend during January of the following calendar year. U.S.
stockholders may not include on their own income tax returns any of our tax
losses.
We will be treated as having sufficient earnings and profits to treat as a
dividend any distribution we make up to the amount required to be distributed in
order to avoid imposition of the 4% excise tax discussed in "--Taxation of CBL"
above. As a result, our stockholders may be required to treat certain
distributions that would otherwise result in a tax-free return of capital as
taxable dividends. Moreover, any deficiency dividend will be treated as a
dividend--an ordinary dividend or a capital gain dividend, as the case may be --
regardless of our earnings and profits.
Capital Gain Dividends
Dividends to U.S. stockholders that we properly designate as capital gain
dividends will be treated as long-term capital gain, to the extent they do not
exceed our actual net capital gain, for the taxable year without regard to the
period for which the stockholder has held its stock. Capital gain dividends are
not eligible for the dividends-received deduction for corporations; however,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. If we elect to retain capital gains rather
than distribute them, a U.S. stockholder will be deemed to receive a capital
gain dividend equal to the amount of its proportionate share of the retained
capital gains. In this case, a U.S. stockholder will receive certain tax credits
and basis adjustments reflecting the deemed distribution and deemed payment of
taxes by the U.S. stockholder.
Passive Activity Loss and Investment Interest Limitations
Our distributions and gain from the disposition of the offered securities
will not be treated as passive activity income and, therefore, U.S. stockholders
may not be able to apply any passive losses against that income. Our dividends,
to the extent they do not constitute a return of capital, will generally be
treated as investment income for purposes of the investment income limitation.
Net capital gain from the disposition of offered securities and capital gains
generally will be eliminated from investment income unless the U.S. stockholder
elects to have the gain taxed at ordinary income rates.
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Certain Dispositions of Our Stock
A U.S. stockholder will recognize gain or loss on the sale or exchange of
offered securities to the extent of the difference between the amount realized
on the sale or exchange and the stockholder's tax basis in such securities. The
gain or loss generally will constitute long-term capital gain or loss if the
stockholder held the securities for more than one year. Losses incurred on the
sale or exchange of offered securities held for six months or less will be
deemed long-term capital loss to the extent of any capital gain dividends
received by the U.S. stockholder with respect to such securities.
Treatment of Tax-Exempt Stockholders
The IRS has ruled that amounts we distribute to a tax-exempt employees'
pension trust do not constitute unrelated business taxable income. Based upon
this ruling and the analysis in the ruling, our distributions to a stockholder
that is a tax-exempt entity generally should not constitute unrelated business
taxable income, provided that the tax-exempt entity has not financed the
acquisition of its offered securities with "acquisition indebtedness" within the
meaning of the Internal Revenue Code and that the offered securities are not
otherwise used in an unrelated trade or business of the tax-exempt entity.
Revenue rulings, however, are interpretive in nature and subject to revocation
or modification by the IRS. In addition, certain pension trusts owning more than
10% of our equity interests may be required to report a portion of any dividends
they receive from us as unrelated business taxable income.
Special Tax Considerations for Foreign Stockholders
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates, which we refer to collectively as "non-U.S. stockholders," are complex,
and the following discussion is intended only as a summary of these rules.
Prospective non-U.S. stockholders should consult with their own tax advisors to
determine the impact of federal, state and local income tax laws on an
investment in the company, including any reporting requirements.
In general, a non-U.S. stockholder will be subject to regular United States
income tax with respect to its investment in our company if the investment is
effectively connected with the non-U.S. stockholder's conduct of a trade or
business in the United States. A corporate non-U.S. stockholder that receives
income that is, or is treated as, effectively connected with a U.S. trade or
business may also be subject to the branch profits tax under Section 884 of the
Internal Revenue Code, which is payable in addition to regular United States
corporate income tax.
The following discussion will apply to non-U.S. stockholders whose investment in
our company is not effectively connected, as discussed above.
A distribution that we make that is not attributable to gain from our sale
or exchange of a United States real property interest and that we do not
designate as a capital gain dividend will be treated as an ordinary income
dividend to the extent that it is made out of current or accumulated earnings
and profits. Generally, unless the dividend is effectively connected with the
non-U.S. stockholder's conduct of a United States trade or business, the
dividend will be subject to a United States withholding tax equal to 30% of the
gross amount of the dividend
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unless this withholding is reduced by an applicable tax treaty. A distribution
of cash in excess of our earnings and profits will be treated first as a
nontaxable return of capital that will reduce a non-U.S. stockholder's basis in
its shares, but not below zero, and then as gain from the disposition of such
shares, the tax treatment of which is described under the rules discussed below
with respect to disposition of the shares. A distribution in excess of our
earnings and profits will be subject to 30% dividend withholding if at the time
of the distribution it cannot be determined whether the distribution will be in
an amount in excess of our current and accumulated earnings and profits. If it
is subsequently determined that the distribution is, in fact, in excess of
current and accumulated earnings and profits, the non-U.S. stockholder may seek
a refund from the IRS. We expect to withhold United States income tax at the
rate of 30% on the gross amount of any distributions made to a non-U.S.
stockholder unless (1) a lower tax treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with us or (2) the
non-U.S. stockholder files IRS Form W-8ECI with us claiming that the
distribution is effectively connected income.
For any year in which we qualify as a REIT, our distributions that are
attributable to gain from the sale or exchange of a United States real property
interest will be taxed to a non-U.S. stockholder in accordance with the Foreign
Investment in Real Property Tax Act of 1980, which we call "FIRPTA." Under
FIRPTA, distributions of this kind are taxed to a non-U.S. stockholder as if the
distributions were gains effectively connected with a United States trade or
business. Accordingly, a non-U.S. stockholder will be taxed at the normal
capital gain rates applicable to a U.S. stockholder, subject to any applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals. Distributions subject to FIRPTA may also be
subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder that is not entitled to treaty exemption. We will be required to
withhold from distributions to non-U.S. stockholders, and remit to the IRS, 35%
of the amount of any distribution that could be designated as capital gain
dividends. This amount is creditable against the non-U.S. stockholder's tax
liability. It should be noted that the 35% withholding tax rate on capital gain
dividends is higher than the maximum rate on long-term capital gains of
individuals. Capital gain dividends not attributable to gain on the sale or
exchange of United States real property interests are not subject to United
States taxation if there is no requirement of withholding.
Tax treaties may reduce our withholding obligations. If the amount of tax
we withheld with respect to a distribution to a non-U.S. stockholder exceeds the
stockholder's United States liability with respect to the distribution, the
non-U.S. stockholder may file for a refund of the excess from the IRS.
If the offered securities fail to constitute a United States real property
interest within the meaning of FIRPTA, a sale of the offered securities by a
non-U.S. stockholder generally will not be subject to United States taxation
unless (1) investment in the offered securities is effectively connected with
the non-U.S. stockholder's United States trade or business, in which case, as
discussed above, the non-U.S. stockholder would be subject to the same treatment
as U.S. stockholders on the gain, (2) investment in the offered securities is
attributable to a permanent establishment that the non-U.S. stockholder
maintains in the United States if that is required by an applicable income tax
treaty as a condition for subjecting the non-U.S. stockholder to U.S. taxation
on a net income basis, in which case the same treatment would apply to the
non-U.S.
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stockholder as to U.S. stockholders with respect to the gain or (3) the non-U.S.
stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and who has a tax home in
the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
The offered securities will not constitute a United States real property
interest if we are a domestically controlled REIT. A domestically controlled
REIT is a real estate investment trust in which at all times during a specified
testing period less than 50% in value of its shares is held directly or
indirectly by non-U.S. stockholders. We believe we are a domestically controlled
REIT, and therefore that the sale of the offered securities will not be subject
to taxation under FIRPTA. However, because we are publicly traded, we may not
continue to be a domestically controlled REIT.
If we did not constitute a domestically controlled REIT, whether a non-U.S.
stockholder's sale of offered securities would be subject to tax under FIRPTA as
sale of a United States real property interest would depend on whether the
offered securities are "regularly traded," as defined by applicable Treasury
Regulations, on an established securities market (e.g., the New York Stock
Exchange, on which the offered securities will be listed) and on the size of the
selling stockholder's interest in our company. If the gain on the sale of our
offered securities were subject to taxation under FIRPTA, the non-U.S.
stockholder would be subject to the same treatment as a U.S. stockholder with
respect to the gain, subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals. In any
event, a purchaser of offered securities from a non-U.S. stockholder will not be
required under FIRPTA to withhold on the purchase price if the purchased offered
securities are regularly traded on an established securities market or if we are
a domestically controlled REIT. Otherwise, under FIRPTA, the purchaser of
offered securities may be required to withhold 10% of the purchase price and
remit that amount to the IRS.
Information Reporting Requirements and Backup Withholding Tax
U.S. Stockholders
Under certain circumstances, U.S. stockholders may be subject to backup
withholding on payments made with respect to, or on cash proceeds of a sale or
exchange of, offered securities. Backup withholding will apply only if the
stockholder (1) fails to furnish its taxpayer identification number, which, for
an individual, would be its social security number, (2) furnishes an incorrect
taxpayer identification number, (3) is notified by the IRS that it has failed to
report properly payments of interest and dividends or (4) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct taxpayer identification number and has not been notified by the IRS
that it is subject to backup withholding for failure to report interest and
dividend payments. Backup withholding generally will not apply with respect to
payments made to certain exempt recipients, such as corporations and tax-exempt
organizations. U.S. stockholders should consult their own tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining this exemption.
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Non-U.S. Stockholders
Proceeds from a disposition of the offered securities will not be subject
to information reporting and backup withholding if the beneficial owner of the
offered securities is a non-U.S. stockholder. However, if the proceeds of a
disposition are paid by or through a United States office of a broker, the
payment may be subject to backup withholding or information reporting if the
broker cannot document that the beneficial owner is a non-U.S. person. In order
to document the status of a non-U.S. stockholder, a broker may require the
beneficial owner of the offered securities to provide it with a completed,
executed IRS Form W-8BEN, certifying under penalty of perjury to the beneficial
owner's non-U.S. status.
Refunds
Backup withholding is not an additional tax. Rather, the amount of any
backup withholding with respect to a payment to a stockholder will be allowed as
a credit against any United States federal income tax liability of the
stockholder. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the United
States.
State and Local Taxation
We and our stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which we or they
transact business or reside. The state and local tax treatment of us and our
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
our company.
Tax Aspects of the Operating Partnership
The following discussion summarizes certain federal income tax
considerations applicable solely to our investment in the operating partnership
through CBL Holdings I and CBL Holdings II and represents the view of Willkie
Farr & Gallagher. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
Income Taxation of the Operating Partnership and Its Partners
Partners, Not the Operating Partnership, Subject to Tax. A partnership is
not a taxable entity for federal income tax purposes. Rather, we will be
required to take into account our allocable share of the operating partnership's
income, gains, losses, deductions and credits for any taxable year of the
operating partnership ending within or with our taxable year, without regard to
whether we have received or will receive any direct or indirect distribution
from the operating partnership.
Operating Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and losses among partners, these
allocations will be disregarded for tax purposes under Section 704(b) of the
Internal Revenue Code if they do not comply with the provisions of that section
and the Treasury Regulations promulgated under that section.
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If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to the item. The operating partnership's
allocations of taxable income and loss, and those of the property partnerships,
are intended to comply with the requirements of Section 704(b) of the Code and
the Treasury Regulations promulgated under that section.
Tax Allocations with Respect to Contributed Properties. Under Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for federal income tax purposes in
a manner such that the contributor is charged with, or benefits from, the
unrealized gain or unrealized loss that is generally equal to the difference
between the fair market value of the contributed property at the time of
contribution and the adjusted tax basis of the property at that time. The
partnership agreement for the operating partnership requires allocations of
income, gain, loss and deduction attributable to contributed property to be made
by the operating partnership in a manner that is consistent with Section 704(c)
of the Code.
The allocation methods proposed to be applied by the operating partnership
are described below.
Basis in Operating Partnership Interest. Our adjusted tax basis in our
indirect partnership interest in the operating partnership generally (1) will be
equal to the amount of cash and the basis of any other property that we
contribute to the operating partnership, (2) will be increased by (a) our
allocable share of the operating partnership's income and (b) our allocable
share of certain indebtedness of the operating partnership and of the property
partnerships and (3) will be reduced, but not below zero, by our allocable share
of (a) the operating partnership's loss and (b) the amount of cash distributed
directly or indirectly to us, and by constructive distributions resulting from a
reduction in our share of certain indebtedness of the operating partnership and
of the property partnerships. With respect to increases in our adjusted tax
basis in our indirect partnership interest in the operating partnership
resulting from certain indebtedness of the operating partnership, Section 752 of
the Code and the regulations promulgated under that section provide that a
partner may include its share of partnership liabilities in its adjusted tax
basis of its interest in the partnership to the extent the partner bears the
economic risk of loss with respect to the liability. Generally, a partnership's
non-recourse debt is shared proportionately by the partners. However, if a
partner guarantees partnership debt or is personally liable for all or any
portion of the debt, the partner will be deemed to bear the economic risk of
loss for the amount of the debt for which it is personally liable. Thus, the
partner may include that amount in its adjusted tax basis of its interest in the
partnership.
By virtue of our status as the sole stockholder of CBL Holdings I, which is
the sole general partner of the operating partnership, we will be deemed to bear
the economic risk of loss with respect to indebtedness of the operating
partnership that is not nonrecourse debt as defined in the Code. As a result,
our adjusted tax basis in our indirect partnership interest in the operating
partnership may exceed our proportionate share of the total indebtedness of the
operating partnership.
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If the allocation of our distributive share of the operating partnership's
loss would reduce the adjusted tax basis of our partnership interest in the
operating partnership below zero, the recognition of the loss will be deferred
until the recognition of the loss would not reduce our adjusted tax basis below
zero. To the extent that the operating partnership's distributions, or any
decrease in our share of the nonrecourse indebtedness of the operating
partnership or of a property partnership, would reduce our adjusted tax basis
below zero, such distributions and constructive distributions will normally be
characterized as capital gain, and if our partnership interest in the operating
partnership has been held for longer than the long-term capital gain holding
period (currently, one year), the distributions and constructive distributions
will constitute long-term capital gain. Each decrease in our share of the
nonrecourse indebtedness of the operating partnership or of a property
partnership is considered a constructive cash distribution to us.
Depreciation Deductions Available to the Operating Partnership. The
operating partnership was formed in 1993 principally by way of contributions of
certain properties or appreciated interests in property partnerships owning
properties. Accordingly, the operating partnership's depreciation deductions
attributable to the properties will be based on the contributing partners'
depreciation schedules and in some cases on new schedules under which the
property will be depreciated on depreciation schedules of up to 40 years, using,
initially, the adjusted basis of the contributed assets in the hands of the
contributing partners. The operating partnership has estimated that the
aggregate, adjusted basis of its assets was approximately $430 million as of the
date of the formation.
Section 704(c) Allocations. Section 704(c) of the Code requires that
depreciation as well as gain and loss be allocated in a manner so as to take
into account the variation between the fair market value and tax basis of the
property contributed by a partner to a partnership. See "--Operating Partnership
Allocations". Applicable Treasury Regulations provide a choice of several
methods of taking such differences between value and tax basis into account. The
operating partnership will apply the "traditional method", without special or
curative allocations, giving effect to the ceiling rule.
Sale of the Operating Partnership's Property
Generally, any gain realized by the operating partnership on the sale of
property held by the operating partnership or a property partnership or on the
sale of a partnership interest in a property partnership will be capital gain,
except for any portion of the gain that is treated as depreciation or cost
recovery recapture. Any unrealized gain attributable to the excess of the fair
market value of the properties over their adjusted tax bases at the time of
contribution to the operating partnership must, when recognized by the operating
partnership, generally be allocated to the limited partners that contributed the
properties to the operating partnership, including CBL & Associates, Inc. with
respect to the properties it has contributed to the operating partnership under
Section 704 (c) of the Code and Treasury Regulations promulgated under that
section.
In the event of the disposition of any of the properties which have
pre-contribution gain, all income attributable to the undepreciated gain will be
allocated to the limited partners of the operating partnership, including to us,
and we generally will be allocated only our share of
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capital gains attributable to depreciation deductions we enjoyed and
appreciation, if any, occurring since the acquisition of our interest in the
operating partnership. Any decision relating to the potential sale of any
property that would result in recognition of such gain will be made by the
independent directors of our Board of Directors. The operating partnership will
be required in such case to distribute to its partners all of the net cash
proceeds from such sale up to an amount reasonably believed necessary to enable
the limited partners (including us) to pay any income tax liability arising from
such sale.
Our share of any gain realized by the operating partnership on the sale of
any property held by the operating partnership or property partnership as
inventory or other property held primarily for sale to customers in the ordinary
course of the operating partnership's or property partnership's trade or
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. For more information about the penalty tax, see
"--Requirements for Qualification--Income Tests" above. Prohibited transaction
income of this kind will also have an adverse effect upon our ability to satisfy
the gross income tests for real estate investment trust status. See
"--Requirements for Qualification--Income Tests" above for more information
about these tests. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business is
a question of fact that depends on all the facts and circumstances with respect
to the particular transaction. The operating partnership and the property
partnerships intend to hold their properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning and operating the properties and other shopping centers and to make
occasional sales of the properties, including peripheral land, that are
consistent with the operating partnership's and the property partnerships'
investment objectives.
LEGAL MATTERS
The validity of the issuance of the shares and certain tax matters will be
passed upon for us by Willkie Farr & Gallagher, New York, New York. Certain
other matters will be passed upon for us by Shumacker Witt Gaither & Whitaker,
P.C., Chattanooga, Tennessee. Certain members of Shumacker Witt Gaither &
Whitaker, P.C. serve as our assistant secretaries.
HISTORICAL FINANCIAL STATEMENTS
The financial statements and schedules incorporated by reference in our
Form 10-K and incorporated by reference in this registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto and have been included in reliance upon the
authority of that firm as experts in giving such reports. However, we have not
been able to obtain, after reasonable efforts, the written consent of Arthur
Andersen to the incorporation by reference of its reports in this registration
statement, and we have not filed that consent in reliance on Rule 437a
promulgated under the Securities Act. Because Arthur Andersen has not consented
to the inclusion of its reports in this registration statement, your ability to
assert claims against Arthur Andersen may be limited. In particular, because of
this lack of consent, you will not be able to sue Arthur Andersen under Section
11(a)(4) of the Securities Act for untrue statements of a material fact, if any,
contained in the financial statements audited by Arthur Andersen or omissions to
state a material fact, if any,
32
required to be stated in those financial statements and therefore your right of
recovery under that section may be limited.
33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with the
sale and distribution of securities being registered, other than discounts,
concessions and brokerage commissions.
SEC registration fee.................................................. $ 1,493
Blue sky fees and expenses............................................ 500*
Legal fees and expenses............................................... 50,000*
Accounting fees and expenses.......................................... 10,000*
Miscellaneous (including NYSE listing fees)........................... 1,500*
--------
Total........................................................ $ 63,493*
--------------------
* Estimated
The Company will bear all of the foregoing expenses.
Item 15. Indemnification of Directors and Officers.
The Company is a Delaware corporation. In its Certificate of Incorporation,
the Company has adopted the provisions of Section 102(b)(7) of the Delaware
General Corporation Law (the "Delaware Law"), which enables a corporation in its
original certificate of incorporation or an amendment thereto to eliminate or
limit the personal liability of a director for monetary damages for breach of
the director's fiduciary duty, except (i) for any breach of the director's duty
of loyalty to the corporation or its shareholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 174 of the Delaware Law (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director
derived an improper personal benefit.
The Company has also adopted indemnification provisions pursuant to Section
145 of the Delaware Law, which provides that a corporation may indemnify any
persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that such person was an officer, director, employee or agent of the corporation,
or is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such officer, director, employee or
agent acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's
II-1
best interests and, with respect to criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers or directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against expenses (including attorneys' fees) that
such officer or director actually and reasonably incurred.
The Company has entered into indemnification agreements with each of the
Company's officers and directors. The indemnification agreements require, among
other things, that the Company indemnify its officers and directors to the
fullest extent permitted by law, and advance to the officers and directors all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company is also required to indemnify and
advance all expenses incurred by officers and directors seeking to enforce their
rights under the indemnification agreements, and to cover officers and directors
under the Company's directors' and officers' liability insurance, provided that
such insurance is commercially available at reasonable expense. Although the
indemnification agreements offer substantially the same scope of coverage
afforded by provisions in the Certificate of Incorporation and the Bylaws, they
provide greater assurance to directors and officers that indemnification will be
available, because as a contract, they cannot be modified unilaterally in the
future by the Board of Directors or by the shareholders to eliminate the rights
they provide.
Item 16. Exhibits.
5.1 Opinion of Willkie Farr & Gallagher, counsel for the Company.*
8.1 Tax opinion of Willkie Farr & Gallagher, counsel for the Company.*
23.1 Consent of Willkie Farr & Gallagher (included in Exhibit 5.1 and
Exhibit 8.1).
23.2 Consent of Arthur Andersen LLP (omitted pursuant to Rule 437a of the
Securities Act).
24.1 Powers of Attorney of certain officers and directors of the Company
(included on signature page).
*Previously filed.
Item 17. Undertakings.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
II-2
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section l3(a) or Section 15(d) of the Exchange Act and each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than insurance payments and the payment by the
registrant of expenses incurred or paid by
II-3
a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment No. 1 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chattanooga, State of Tennessee, on
the 10th day of September, 2002.
CBL & ASSOCIATES PROPERTIES, INC.
By: /s/ John N. Foy
------------------------------
John N. Foy
Vice Chairman of the Board
and Chief Financial Officer
II-5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles B. Lebovitz, John N. Foy and Stephen D.
Lebovitz and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this registration statement, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
/s/ Charles B. Lebovitz Chairman of the Board of September 10, 2002
-------------------------- Directors and Chief
Charles B. Lebovitz Executive Officer
(Principal Executive
Officer)
/s/ John N. Foy Director, Vice Chairman September 10, 2002
-------------------------- of the Board of Directors,
John N. Foy Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
/s/ Stephen D. Lebovitz Director, President and September 10, 2002
-------------------------- Secretary
Stephen D. Lebovitz
/s/ Claude M. Ballard Director September 10, 2002
--------------------------
Claude M. Ballard
/s/ Leo Fields Director September 10, 2002
--------------------------
Leo Fields
/s/ William J. Poorvu Director September 10, 2002
--------------------------
William J. Poorvu
/s/ Winston W. Walker Director September 10, 2002
--------------------------
Winston W. Walker
/s/ Martin J. Cleary Director September 10, 2002
--------------------------
Martin J. Cleary
/s/ Gary L. Bryenton Director September 10, 2002
--------------------------
Gary L. Bryenton
II-6
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
5.1 Opinion of Willkie Farr & Gallagher, counsel for the Company.*
8.1 Tax Opinion of Willkie Farr & Gallagher, counsel for the Company.*
23.1 Consent of Willkie Farr & Gallagher (included in Exhibit 5.1 and
Exhibit 8.1).
23.2 Consent of Arthur Andersen LLP (omitted pursuant to Rule 437a of
the Securities Act).
24.1 Powers of Attorney of certain officers and directors of the
company (included on signature page).
* Previously filed.