UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C
. 20549

 

 

 

FORM 10-Q

 


 

 

x

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

 

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

 

 

Or

 

 

o

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

 

 

FOR THE TRANSITION PERIOD FROM _______________ TO _______________


 

 

COMMISSION FILE NO. 1-12494

 

 

CBL & ASSOCIATES PROPERTIES, INC.

(Exact Name of registrant as specified in its charter)

 

 

 

DELAWARE

62-1545718

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

2030 Hamilton Place Blvd., Suite 500, Chattanooga, TN 37421-6000
(Address of principal executive office, including zip code)

423.855.0001
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x          No o

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

 

 

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o (Do not check if smaller reporting company)

Smaller Reporting Company o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o          No x

As of April 30, 2009, there were 71,208,067 shares of common stock, par value $0.01 per share, outstanding.

1




CBL & Associates Properties, Inc.

Table of Contents

 

 

 

 

PART I

FINANCIAL INFORMATION

 

3

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008

 

4

 

 

 

 

 

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2009 and 2008

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008

 

8

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

10

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

27

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

46

 

 

 

 

Item 4.

Controls and Procedures

 

47

 

 

 

 

PART II

OTHER INFORMATION

 

47

 

 

 

 

Item 1.

Legal Proceedings

 

47

 

 

 

 

Item 1A.

Risk Factors

 

47

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

60

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

60

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

60

 

 

 

 

Item 5.

Other Information

 

60

 

 

 

 

Item 6.

Exhibits

 

60

 

 

 

 

 

SIGNATURE

 

61

2



PART I – FINANCIAL INFORMATION

ITEM 1: Financial Statements

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

 

 

 

 

 

 

 

 

 

 

March 31,
2009

 

December 31,
2008

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Real estate assets:

 

 

 

 

 

 

 

Land

 

$

926,663

 

$

902,504

 

Buildings and improvements

 

 

7,553,549

 

 

7,503,334

 

 

 

   

 

   

 

 

 

 

8,480,212

 

 

8,405,838

 

Less accumulated depreciation

 

 

(1,371,814

)

 

(1,310,173

)

 

 

   

 

   

 

 

 

 

7,108,398

 

 

7,095,665

 

Developments in progress

 

 

189,679

 

 

225,815

 

 

 

   

 

   

 

Net investment in real estate assets

 

 

7,298,077

 

 

7,321,480

 

Cash and cash equivalents

 

 

44,073

 

 

51,227

 

Cash held in escrow

 

 

2,490

 

 

2,700

 

Receivables:

 

 

 

 

 

 

 

Tenant, net of allowance for doubtful accounts of $1,892 in 2009 and $1,910 in 2008

 

 

70,314

 

 

74,402

 

Other

 

 

11,104

 

 

12,145

 

Mortgage notes receivable

 

 

55,867

 

 

58,961

 

Investments in unconsolidated affiliates

 

 

197,498

 

 

207,618

 

Intangible lease assets and other assets

 

 

293,447

 

 

305,802

 

 

 

   

 

   

 

 

 

$

7,972,870

 

$

8,034,335

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

 

 

Mortgage and other notes payable

 

$

6,094,897

 

$

6,095,676

 

Accounts payable and accrued liabilities

 

 

308,468

 

 

329,991

 

 

 

   

 

   

 

Total liabilities

 

 

6,403,365

 

 

6,425,667

 

 

 

   

 

   

 

Commitments and contingencies

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

439,016

 

 

439,675

 

 

 

   

 

   

 

Shareholders’ equity:

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

7.75% Series C Cumulative Redeemable Preferred Stock, 460,000 shares outstanding

 

 

5

 

 

5

 

7.375% Series D Cumulative Redeemable Preferred Stock, 700,000 shares outstanding

 

 

7

 

 

7

 

Common stock, $.01 par value, 180,000,000 shares authorized, 66,453,651 and 66,394,844 issued and outstanding in 2009 and 2008, respectively

 

 

664

 

 

664

 

Additional paid-in capital

 

 

997,794

 

 

993,925

 

Accumulated other comprehensive loss

 

 

(12,420

)

 

(12,773

)

Accumulated deficit

 

 

(216,171

)

 

(193,307

)

 

 

   

 

   

 

Total shareholders’ equity

 

 

769,879

 

 

788,521

 

Noncontrolling interests

 

 

360,610

 

 

380,472

 

 

 

   

 

   

 

Total equity

 

 

1,130,489

 

 

1,168,993

 

 

 

   

 

   

 

 

 

$

7,972,870

 

$

8,034,335

 

 

 

   

 

   

 

The accompanying notes are an integral part of these balance sheets.

3



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

Minimum rents

 

$

171,937

 

$

174,531

 

Percentage rents

 

 

4,804

 

 

4,996

 

Other rents

 

 

4,280

 

 

5,014

 

Tenant reimbursements

 

 

81,484

 

 

86,423

 

Management, development and leasing fees

 

 

2,465

 

 

2,938

 

Other

 

 

6,090

 

 

7,029

 

 

 

   

 

   

 

Total revenues

 

 

271,060

 

 

280,931

 

 

 

   

 

   

 

EXPENSES:

 

 

 

 

 

 

 

Property operating

 

 

44,017

 

 

48,292

 

Depreciation and amortization

 

 

78,311

 

 

75,081

 

Real estate taxes

 

 

24,154

 

 

24,179

 

Maintenance and repairs

 

 

15,994

 

 

17,916

 

General and administrative

 

 

11,479

 

 

12,531

 

Other

 

 

5,157

 

 

6,999

 

 

 

   

 

   

 

Total expenses

 

 

179,112

 

 

184,998

 

 

 

   

 

   

 

Income from operations

 

 

91,948

 

 

95,933

 

Interest and other income

 

 

1,581

 

 

2,727

 

Interest expense

 

 

(71,885

)

 

(80,224

)

Impairment of investment

 

 

(7,706

)

 

 

Gain (loss) on sales of real estate assets

 

 

(139

)

 

3,076

 

Equity in earnings of unconsolidated affiliates

 

 

1,534

 

 

979

 

Income tax provision

 

 

(603

)

 

(357

)

 

 

   

 

   

 

Income from continuing operations

 

 

14,730

 

 

22,134

 

Operating income (loss) of discontinued operations

 

 

(66

)

 

283

 

Loss on discontinued operations

 

 

(60

)

 

 

 

 

   

 

   

 

Net income

 

 

14,604

 

 

22,417

 

Net income attributable to noncontrolling interests in:

 

 

 

 

 

 

 

Operating partnership

 

 

(1,306

)

 

(4,742

)

Other consolidated subsidiaries

 

 

(6,131

)

 

(6,049

)

 

 

   

 

   

 

Net income attributable to the Company

 

 

7,167

 

 

11,626

 

Preferred dividends

 

 

(5,455

)

 

(5,455

)

 

 

   

 

   

 

Net income available to common shareholders

 

$

1,712

 

$

6,171

 

 

 

   

 

   

 

The accompanying notes are an integral part of these statements.

4



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic per share data attributable to common shareholders:

 

 

 

 

 

 

 

Income from continuing operations, net of preferred dividends

 

$

0.03

 

$

0.08

 

Discontinued operations

 

 

(0.01

)

 

0.01

 

 

 

   

 

   

 

Net income available to common shareholders

 

$

0.02

 

$

0.09

 

 

 

   

 

   

 

Weighted average common shares outstanding

 

 

71,161

 

 

70,994

 

 

 

 

 

 

 

 

 

Diluted per share data attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of preferred dividends

 

$

0.03

 

$

0.08

 

Discontinued operations

 

 

(0.01

)

 

0.01

 

 

 

   

 

   

 

Net income available to common shareholders

 

$

0.02

 

$

0.09

 

 

 

   

 

   

 

Weighted average common and potential dilutive common shares outstanding

 

 

71,196

 

 

71,158

 

 

 

 

 

 

 

 

 

Amounts attributable to common shareholders:

 

 

 

 

 

 

 

Income from continuing operations, net of preferred dividends

 

$

1,784

 

$

6,011

 

Discontinued operations

 

 

(72

)

 

160

 

 

 

   

 

   

 

Net income available to common shareholders

 

$

1,712

 

$

6,171

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.3700

 

$

0.5450

 

5



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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred
Stock

 

Common
Stock

 

Additional
Paid-In
Capital

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Accumulated
Deficit

 

Noncontrolling
Interests

 

Total

 

Comprehensive
Income

 

 

 

 

 

   

 

Balance, January 1, 2008

 

$

12

 

$

662

 

$

986,772

 

$

2

 

$

(70,154

)

$

482,217

 

$

1,399,511

 

$

 

Net income

 

 

 

 

 

 

 

 

 

 

 

11,626

 

 

4,677

 

 

16,303

 

 

16,303

 

Net unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

(1,972

)

 

 

 

(1,468

)

 

(3,440

)

 

(3,440

)

Unrealized loss on hedging instruments

 

 

 

 

 

 

 

 

(5,102

)

 

 

 

(3,799

)

 

(8,901

)

 

(8,901

)

Unrealized gain on foreign currency translation adjustment

 

 

 

 

 

 

 

 

113

 

 

 

 

84

 

 

197

 

 

197

 

Dividends declared - common stock

 

 

 

 

 

 

 

 

 

 

(36,056

)

 

 

 

(36,056

)

 

 

Dividends declared - preferred stock

 

 

 

 

 

 

 

 

 

 

(5,455

)

 

 

 

(5,455

)

 

 

Issuance of common stock and restricted common stock

 

 

 

 

1

 

 

22

 

 

 

 

 

 

 

 

23

 

 

 

Exercise of stock options

 

 

 

 

 

 

250

 

 

 

 

 

 

 

 

250

 

 

 

Accelerated vesting of share-based compensation

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

35

 

 

 

Accrual under deferred compensation arrangements

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

27

 

 

 

Amortization of deferred compensation

 

 

 

 

 

 

1,591

 

 

 

 

 

 

 

 

1,591

 

 

 

Income tax benefit from share-based compensation

 

 

 

 

 

 

1,501

 

 

 

 

 

 

 

 

1,501

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

(27,092

)

 

(27,092

)

 

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

203

 

 

203

 

 

 

Adjustment for noncontrolling interest in Operating Partnership

 

 

 

 

 

 

603

 

 

 

 

 

 

(627

)

 

(24

)

 

 

Adjustment to record redeemable noncontrolling interest  at redemption value

 

 

 

 

 

 

(73

)

 

 

 

 

 

 

 

(73

)

 

 

Reclassification of noncontrolling interests related to deconsolidation

 

 

 

 

 

 

 

 

 

 

 

 

(3,257

)

 

(3,257

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                       

 

   

 

Balance, March 31, 2008

 

$

12

 

$

663

 

$

990,728

 

$

(6,959

)

$

(100,039

)

$

450,938

 

$

1,335,343

 

$

4,159

 

 

 

                                       

 

   

 

6



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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred
Stock

 

Common
Stock

 

Additional
Paid-In Capital

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Accumulated
Deficit

 

Noncontrolling
Interests

 

Total

 

Comprehensive
Income

 

 

 

                         

 

 

 

Balance, January 1, 2009

 

$

12

 

$

664

 

$

993,925

 

$

(12,773

)

$

(193,307

)

$

380,472

 

$

1,168,993

 

$

 

Net income

 

 

 

 

 

 

 

 

 

 

7,167

 

 

1,411

 

 

8,578

 

 

8,578

 

Net unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

(1,191

)

 

 

 

(884

)

 

(2,075

)

 

(2,075

)

Net unrealized gain on hedging instruments

 

 

 

 

 

 

 

 

1,039

 

 

 

 

771

 

 

1,810

 

 

1,810

 

Realized loss on foreign currency translation adjustment

 

 

 

 

 

 

 

 

27

 

 

 

 

20

 

 

47

 

 

47

 

Unrealized gain on foreign currency translation adjustment

 

 

 

 

 

 

 

 

478

 

 

 

 

355

 

 

833

 

 

833

 

Dividends declared - common stock

 

 

 

 

 

 

 

 

 

 

(24,576

)

 

 

 

(24,576

)

 

 

Dividends declared - preferred stock

 

 

 

 

 

 

 

 

 

 

(5,455

)

 

 

 

(5,455

)

 

 

Issuance of common stock and restricted common stock

 

 

 

 

 

 

254

 

 

 

 

 

 

 

 

254

 

 

 

Cancellation of restricted common stock

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

(11

)

 

 

Accrual under deferred compensation arrangements

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

19

 

 

 

Amortization of deferred compensation

 

 

 

 

 

 

774

 

 

 

 

 

 

 

 

774

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

(18,796

)

 

(18,796

)

 

 

Adjustment for noncontrolling interest in Operating Partnership

 

 

 

 

 

 

2,925

 

 

 

 

 

 

(2,739

)

 

186

 

 

 

Adjustment to record redeemable noncontrolling interest at redemption value

 

 

 

 

 

 

(92

)

 

 

 

 

 

 

 

(92

)

 

 

 

 

                                       

 

   

 

Balance, March 31, 2009

 

$

12

 

$

664

 

$

997,794

 

$

(12,420

)

$

(216,171

)

$

360,610

 

$

1,130,489

 

$

9,193

 

 

 

                                       

 

   

 

7



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

14,604

 

$

22,417

 

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

 

 

 

 

 

 

 

Depreciation

 

 

48,033

 

 

44,472

 

Amortization

 

 

32,608

 

 

33,504

 

Net amortization of above and below market leases

 

 

(1,557

)

 

(2,597

)

Amortization of debt premiums

 

 

(2,035

)

 

(1,975

)

(Gain) loss on sales of real estate assets

 

 

139

 

 

(3,076

)

Realized foreign currency loss

 

 

48

 

 

 

Loss on discontinued operations

 

 

60

 

 

 

Impairment of investment

 

 

7,706

 

 

 

Share-based compensation expense

 

 

970

 

 

1,588

 

Income tax benefit from stock-based compensation

 

 

 

 

1,501

 

Equity in earnings of unconsolidated affiliates

 

 

(1,534

)

 

(979

)

Distributions of earnings from unconsolidated affiliates

 

 

3,727

 

 

4,163

 

Write-off of development projects

 

 

76

 

 

1,713

 

Changes in:

 

 

 

 

 

 

 

Tenant and other receivables

 

 

5,129

 

 

3,013

 

Other assets

 

 

(2,288

)

 

(5,357

)

Accounts payable and accrued liabilities

 

 

(13,951

)

 

(5,434

)

 

 

   

 

   

 

Net cash provided by operating activities

 

 

91,735

 

 

92,953

 

 

 

   

 

   

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Additions to real estate assets

 

 

(61,328

)

 

(126,998

)

Proceeds from sales of real estate assets

 

 

4,721

 

 

6,187

 

Additions to mortgage notes receivable

 

 

(4,437

)

 

(9,597

)

Payments received on mortgage notes receivable

 

 

3,083

 

 

103,885

 

Distributions from restricted cash

 

 

10,998

 

 

 

Distributions from (additions to) cash held in escrow

 

 

210

 

 

(2,640

)

Distributions in excess of equity in earnings of unconsolidated affiliates

 

 

21,339

 

 

13,370

 

Additional investments in and advances to unconsolidated affiliates

 

 

(22,306

)

 

(33,447

)

Changes in other assets

 

 

2,256

 

 

674

 

 

 

   

 

   

 

Net cash used in investing activities

 

 

(45,464

)

 

(48,566

)

 

 

   

 

   

 

The accompanying notes are an integral part of these statements.

8



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from mortgage and other notes payable

 

 

105,276

 

 

217,381

 

Principal payments on mortgage and other notes payable

 

 

(104,020

)

 

(185,412

)

Additions to deferred financing costs

 

 

(841

)

 

(489

)

Proceeds from issuance of common stock

 

 

66

 

 

86

 

Proceeds from exercise of stock options

 

 

 

 

250

 

Income tax benefit from stock-based compensation

 

 

 

 

(1,501

)

Contributions from noncontrolling interests

 

 

 

 

203

 

Distributions to noncontrolling interests

 

 

(24,644

)

 

(33,465

)

Dividends paid to holders of preferred stock

 

 

(5,455

)

 

(5,455

)

Dividends paid to common shareholders

 

 

(24,568

)

 

(36,069

)

 

 

   

 

   

 

Net cash used in financing activities

 

 

(54,186

)

 

(44,471

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

 

 

761

 

 

 

 

 

   

 

   

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(7,154

)

 

(84

)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

51,227

 

 

65,826

 

 

 

   

 

   

 

CASH AND CASH EQUIVALENTS, end of period

 

$

44,073

 

$

65,742

 

 

 

   

 

   

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

 

Cash paid for interest, net of amounts capitalized

 

$

73,856

 

$

83,499

 

 

 

   

 

   

 

The accompanying notes are an integral part of these statements.

9



CBL & Associates Properties, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except share data)

Note 1 – Organization and Basis of Presentation

          CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air centers, community centers and office properties. Its shopping center properties are located in 27 states and in Brazil, but are primarily in the southeastern and midwestern United States.

          CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”). At March 31, 2009, the Operating Partnership owned controlling interests in 75 regional malls/open-air centers, 30 associated centers (each located adjacent to a regional mall), eight community centers, one mixed-use center and 13 office buildings, including CBL’s corporate office building. The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a variable interest entity. The Operating Partnership owned non-controlling interests in nine regional malls, three associated centers, four community centers and six office buildings. Because one or more of the other partners have substantive participating rights, the Operating Partnership does not control these partnerships and joint ventures and, accordingly, accounts for these investments using the equity method. The Operating Partnership had four community centers (each of which is owned in a joint venture) under construction at March 31, 2009. The Operating Partnership also holds options to acquire certain development properties owned by third parties.

          CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At March 31, 2009, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.6% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned a 55.2% limited partner interest for a combined interest held by CBL of 56.8%.

          The minority interest in the Operating Partnership is held primarily by CBL & Associates, Inc. and its affiliates (collectively “CBL’s Predecessor”) and by affiliates of The Richard E. Jacobs Group, Inc. (“Jacobs”). CBL’s Predecessor contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993. Jacobs contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for limited partner interests when the Operating Partnership acquired the majority of Jacobs’ interests in 23 properties in January 2001 and the balance of such interests in February 2002. At March 31, 2009, CBL’s Predecessor owned a 14.9% limited partner interest, Jacobs owned a 19.6% limited partner interest and third parties owned an 8.7% limited partner interest in the Operating Partnership. CBL’s Predecessor also owned 7.2 million shares of CBL’s common stock at March 31, 2009, for a total combined effective interest of 21.0% in the Operating Partnership.

          The Operating Partnership conducts CBL’s property management and development activities through CBL & Associates Management, Inc. (the “Management Company”) to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”). The Operating Partnership owns 100% of both of the Management Company’s preferred stock and common stock.

          CBL, the Operating Partnership and the Management Company are collectively referred to herein as “the Company”.

          The accompanying condensed consolidated financial statements are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the

10



Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Material intercompany transactions have been eliminated. The results for the interim period ended March 31, 2009 are not necessarily indicative of the results to be obtained for the full fiscal year.

          Certain historical amounts have been reclassified to conform to the current year presentation. Certain properties for which the financial results were originally reported as discontinued operations in the condensed consolidated financial statements for the three months ended March 31, 2008 no longer meet the criteria to be classified as held for sale and are, thus, currently reflected in continuing operations for all periods presented. Except where noted, the information presented in the Notes to Unaudited Condensed Consolidated Financial Statements excludes discontinued operations. See Note 6 for further discussion. Also see Notes 4 and 8 for discussion regarding the impact on the presentation of the condensed consolidated financial statements and share information related to the adoption of certain accounting pronouncements as of January 1, 2009.

          In April 2009, the Company paid its first quarter dividend on its common stock. The Company issued 4,754,355 shares of its common stock in connection with the dividend, which resulted in an increase of 7.2% in the number of shares outstanding. The Company has elected to treat the issuance of its common stock as a stock dividend for earnings per share purposes. Therefore, all share and per share information related to earnings per share for all periods presented have been increased proportionately to reflect the additional common stock issued.

          These condensed consolidated financial statements should be read in conjunction with CBL’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2008.

Note 2 – Recent Accounting Pronouncements

Accounting Pronouncements Adopted

          Effective January 1, 2009, the Company adopted the previously deferred portion of Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which applies to fair value measurements of nonfinancial assets and liabilities. The adoption of these provisions did not have an impact on the Company’s condensed consolidated financial statements. See Note 3 for further information.

          Effective January 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51. See Noncontrolling Interests in Note 4 for further information regarding the adoption of this standard, which did have an impact on the Company’s condensed consolidated financial statements.

          Effective January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. The adoption of this standard did not have an impact on the Company’s condensed consolidated financial statements, but did require additional disclosures regarding the Company’s hedging activities. See Interest Rate Hedge Instruments in Note 5 for further information.

          Effective January 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. The adoption did not have a material impact on the Company’s earnings per share. See Note 8 for further information.

11



          Effective January 1, 2009, the Company adopted SFAS No. 141(R), Business Combinations, which changes certain aspects of current business combination accounting for business combinations entered into subsequent to December 31, 2008. SFAS No. 141(R) requires, among other things, that entities generally recognize 100 percent of the fair values of assets acquired, liabilities assumed and noncontrolling interests in acquisitions of less than a 100 percent controlling interest when the acquisition constitutes a change in control of the acquired entity. Shares issued as consideration for a business combination are to be measured at fair value on the acquisition date and contingent consideration arrangements are to be recognized at their fair values on the date of acquisition, with subsequent changes in fair value generally reflected in earnings. Pre-acquisition gain and loss contingencies generally are to be recognized at their fair values on the acquisition date and any acquisition-related transaction costs are to be expensed as incurred. The adoption of SFAS No. 141(R) did not have an impact on the Company’s condensed consolidated financial statements.

          Effective January 1, 2009, the Company adopted FSP Financial Accounting Standard (“FAS”) 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP FAS 141(R)-1 amends the guidance of SFAS No. 141(R) related to accounting for pre-acquisition contingencies to more closely resemble the guidance originally issued under SFAS No. 141, Business Combinations. According to the provisions of FSP FAS 141(R)-1, an acquirer is required to recognize assets or liabilities arising from contingencies at fair value if fair value can be reasonably estimated. Otherwise, the asset or liability would generally be recognized in accordance with SFAS No. 5, Accounting for Contingencies. The provisions of FSP FAS 141(R)-1 are prospectively applied to business combinations completed subsequent to December 31, 2008. The adoption SFAS No. 141(R)-1 did not have an impact on the Company’s condensed consolidated financial statements.

Accounting Pronouncements Not Yet Effective

          In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly decreased or when circumstances indicate that a transaction is not orderly. The provisions of this pronouncement are effective for interim and annual reporting periods ending after June 15, 2009. The Company is currently assessing the potential impact of the adoption of FSP FAS 157-4 on its condensed consolidated financial statements.

          In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments to improve the presentation and disclosure of other-than-temporary impairments of debt and equity securities in an entity’s financial statements. FSP FAS 115-2 and FAS 124-2 does not amend the existing recognition and measurement guidance on other-than-temporary impairments of debt and equity securities. The provisions of this pronouncement are effective for interim and annual reporting periods ending after June 15, 2009. The Company is currently assessing the potential impact of the adoption of FSP FAS 115-2 and FAS 124-2 on its condensed consolidated financial statements.

          In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. The pronouncement amends existing fair value disclosure and interim reporting requirements to require disclosures about fair value of financial instruments for interim reporting periods and to require those disclosures in summarized financial information at interim reporting periods. The provisions of FSP FAS 107-1 and APB 28-1 are effective for interim reporting periods ending after June 15, 2009. The Company is currently assessing the potential impact of the adoption on its condensed consolidated financial statements.

12



Note 3 – Fair Value Measurements

          Pursuant to the provisions of SFAS No. 157, the Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:

Level 1 – Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.

Level 2 – Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.

Level 3 – Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.

          The following tables set forth information regarding the Company’s financial instruments that are measured at fair value in the condensed consolidated balance sheets as of March 31, 2009 and December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

 

 

 

 

Fair Value at
March 31, 2009

 

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

$

2,106

 

 

 

$

2,106

 

 

 

$

 

 

 

$

 

 

Privately held debt and equity securities

 

 

 

2,475

 

 

 

 

 

 

 

 

 

 

 

 

2,475

 

 

Interest rate caps

 

 

 

31

 

 

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

$

13,619

 

 

 

$

 

 

 

$

13,619

 

 

 

$

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

 

 

 

 

Fair Value at
December 31, 2008

 

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

$

4,209

 

 

 

$

4,209

 

 

 

$

 

 

 

$

 

 

Privately held debt and equity securities

 

 

 

4,875

 

 

 

 

 

 

 

 

 

 

 

 

4,875

 

 

Interest rate cap

 

 

 

30

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

$

15,570

 

 

 

$

 

 

 

$

15,570

 

 

 

$

 

 

13



          Other assets in the condensed consolidated balance sheets include marketable securities consisting of corporate equity securities that are classified as available for sale. Net unrealized gains and losses on available-for-sale securities that are deemed to be temporary in nature are recorded as a component of accumulated other comprehensive loss in shareholders’ equity. During the quarters ended March 31, 2009 and 2008, the Company did not recognize any realized gains and losses or write-downs related to sales or disposals of marketable securities or other-than-temporary impairments. The fair value of the Company’s available-for-sale securities is based on quoted market prices and, thus, is classified under Level 1.

          The Company holds a convertible note receivable from, and a warrant to acquire shares of, Jinsheng Group, in which the Company also holds a cost-method investment. The convertible note receivable is non-interest bearing and is secured by shares of the private entity. Since the convertible note receivable is non-interest bearing and there is no active market for the entity’s debt, the Company performed an analysis on the note considering credit risk and discounting factors to determine the fair value. The warrant was initially valued using estimated share price and volatility variables in a Black Scholes model. Due to the significant estimates and assumptions used in the valuation of the note and warrant, the Company has classified these under Level 3. As part of its investment review as of March 31, 2009, the Company determined that its investment in Jinsheng was impaired on an other than temporary basis due to a decline in expected future cash flows as a result of declining occupancy and sales related to the downturn of the real estate market in China. An impairment charge of $2,400 was recorded in the Company's condensed consolidated statement of operations for the three month period ended March 31, 2009, resulting in a remaining value of the secured notes receivable and warrants, of $2,475. See Note 4 for further discussion.

          The Company uses interest rate swaps and caps to mitigate the effect of interest rate movements on its variable-rate debt. The interest rate swaps and caps are accounted for in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related amendments. The Company currently has four interest rate swap agreements included in Accounts Payable and Accrued Liabilities and one cap in Other Assets that qualify as hedging instruments and are designated as cash flow hedges. The qualifying derivative instruments have met the effectiveness test criteria since inception and changes in the fair values of the instruments are, thus, reported in other comprehensive income (loss) and will be reclassified into earnings in the same period or periods during which the hedged item affects earnings. The Company has engaged a third party firm to calculate the valuations for its interest rate hedges. The fair values of the Company’s interest rate swaps and caps, classified under Level 2,are determined using a proprietary model which is based on prevailing market data for contracts with matching durations, current and anticipated London Interbank Offered Rate (“LIBOR”) and other rate information, consideration of the Company’s credit standing, credit risk of the counterparties and reasonable estimates about relevant future market conditions. See Note 5 for further information regarding the Company’s interest rate hedging activity.

          SFAS No. 157 requires separate disclosure of assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a nonrecurring basis. As of March 31, 2009, no assets or liabilities were measured at fair value on a nonrecurring basis.

          In February 2008, the FASB issued FSP 157-2 which delayed the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. Effective January 1, 2009, the Company adopted this portion of SFAS No. 157. The adoption had no impact on the Company’s condensed consolidated financial statements. The provisions of SFAS No. 157 will be applied at such time a fair value measurement of a nonfinancial asset or nonfinancial liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of SFAS No. 157.

14



Note 4 – Unconsolidated Affiliates, Noncontrolling Interests and Other Partially Owned Investments

Unconsolidated Affiliates

          At March 31, 2009, the Company had investments in the following 22 entities, which are accounted for using the equity method of accounting:

 

 

 

 

 

Joint Venture

 

Property Name

 

Company’s
Interest

 

 

 

 

 

CBL Brazil

 

Plaza Macae

 

60.0%

CBL Macapa

 

Macapa Shopping

 

60.0%

CBL-TRS Joint Venture, LLC

 

Friendly Center, The Shops at Friendly Center and a portfolio of six office buildings

 

50.0%

CBL-TRS Joint Venture II, LLC

 

Renaissance Center

 

50.0%

Governor’s Square IB

 

Governor’s Plaza

 

50.0%

Governor’s Square Company

 

Governor’s Square

 

47.5%

High Pointe Commons, LP

 

High Pointe Commons

 

50.0%

High Pointe Commons II-HAP, LP

High Pointe Commons - Christmas Tree Shop

50.0%

Imperial Valley Mall L.P.

 

Imperial Valley Mall

 

60.0%

Imperial Valley Peripheral L.P.

 

Imperial Valley Mall (vacant land)

 

60.0%

JG Gulf Coast Town Center

 

Gulf Coast Town Center

 

50.0%

Kentucky Oaks Mall Company

 

Kentucky Oaks Mall

 

50.0%

Mall of South Carolina L.P.

 

Coastal Grand—Myrtle Beach

 

50.0%

Mall of South Carolina Outparcel L.P.

 

Coastal Grand—Myrtle Beach (vacant land)

 

50.0%

Mall Shopping Center Company

 

Plaza del Sol

 

50.6%

Parkway Place L.P.

 

Parkway Place

 

50.0%

Port Orange I, LLC

 

The Pavilion at Port Orange Phase I

 

50.0%

Port Orange II, LLC

 

The Pavilion at Port Orange Phase II

 

50.0%

Triangle Town Member LLC

 

Triangle Town Center, Triangle Town Commons and Triangle Town Place

 

50.0%

West Melbourne I, LLC

 

Hammock Landing Phase I

 

50.0%

West Melbourne II, LLC

 

Hammock Landing Phase II

 

50.0%

York Town Center, LP

 

York Town Center

 

50.0%

          Condensed combined financial statement information for the unconsolidated affiliates is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total for the Three Months
Ended March 31,

 

Company’s Share for the
Three Months
Ended March 31,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

41,832

 

$

38,286

 

$

24,868

 

$

19,799

 

Depreciation and amortization expense

 

 

(12,636

)

 

(13,000

)

 

(7,509

)

 

(6,677

)

Interest expense

 

 

(12,688

)

 

(13,006

)

 

(7,865

)

 

(6,626

)

Other operating expenses

 

 

(13,876

)

 

(11,343

)

 

(8,524

)

 

(5,946

)

Gain on sales of real estate assets

 

 

988

 

 

472

 

 

564

 

 

429

 

 

 

   

 

   

 

   

 

   

 

Net income

 

$

3,620

 

$

1,409

 

$

1,534

 

$

979

 

 

 

   

 

   

 

   

 

   

 

          In September 2008, the Company entered into a condominium partnership agreement with several individual investors, to acquire a 60% interest in a new retail development in Macapa, Brazil. In February 2009, the Company negotiated a divestment agreement with its Macapa partners obligating the Company to fund an additional $592 to reimburse the other partners for previously incurred land acquisition costs in exchange for the termination of any future obligations on the part of the Company to fund development costs, and to provide the other partners the option to purchase the Company’s interest

15



in this partnership for an amount equal to its investment balance. As of March 31, 2009, the Company had incurred total funding of $825, including the $592 of reimbursements noted above.

          In April 2008, the Company entered into a 50/50 joint venture, TENCO-CBL Servicos Imobiliarios S.A., with TENCO Realty S.A. to form a property management services organization in Brazil. The Company had contributed $2,000 and, in February 2009, negotiated the exercise of its put option right to divest of its portion of the investment in the TENCO-CBL Servicos Imobiliarios S.A. pursuant to the joint venture’s governing agreement. Under the terms of the agreement, TENCO Realty S.A. agreed to pay the Company $250 on March 31, 2009, and will pay monthly installments beginning January 2010 totaling $250 annually with an interest rate of 10% and a balloon payment of $1,250 on December 31, 2011.

Noncontrolling Interests

          Effective January 1, 2009, the Company adopted SFAS No. 160 which requires that a noncontrolling interest, previously referred to as a minority interest, in a consolidated subsidiary be reported as a separate component of equity and the amount of consolidated net income specifically attributable to a noncontrolling interest be presented separately, net of tax, below net income on the Company’s condensed consolidated statements of operations. SFAS No. 160 also requires that after control of an investment or subsidiary is obtained, a change in ownership interest that does not result in a loss of control should be accounted for as an equity transaction. A change in ownership of a consolidated subsidiary that results in a loss of control and deconsolidation is a significant event that triggers gain or loss recognition, with the establishment of a new fair value basis in any remaining ownership interests.

          The adoption of SFAS No. 160 resulted in certain presentation reclassifications and adjustments in the Company’s condensed consolidated financial statements for all periods presented. Any previous minority interests for which the related partnership agreements either do not include redemption provisions or may be redeemed with the Company’s stock, at its election, were reclassified to noncontrolling interests in the equity section of the Company’s condensed consolidated balance sheets at their carrying value. The presentation of net income attributable to noncontrolling interests was reclassified in the condensed consolidated statements of operations for all periods presented and is included as a reduction to net income to derive net income attributable to the Company. There were no changes in ownership interests during the periods presented.

          The FASB has amended EITF Topic D-98 (“EITF D-98”), Classification and Measurement of Redeemable Securities, to reflect the issuance of SFAS No. 160. In connection with the Company’s retrospective adoption of SFAS No. 160, a concurrent review of the measurement provisions of EITF D-98 was performed and retrospectively adopted. The Company has one limited partner in the Operating Partnership and partners in two other consolidated subsidiaries that can require the Company to redeem their interests in the future with cash or real property. Accordingly, pursuant to the provisions of EITF D-98, the Company’s redeemable noncontrolling interests were recorded for all periods presented at their redemption values as of the end of the period, with any changes in value being reflected in retained earnings, or in the event of a deficit, in additional paid-in capital, and continue to be reported within temporary equity in the Company’s condensed consolidated balance sheets. Subsequent adjustments to the carrying amounts of these redeemable noncontrolling interests to reflect the changes in their redemption values at the end of each reporting period are to be recorded in the same manner. Adoption of the standard resulted in a decrease to additional paid-in capital of $5,137 as of December 31, 2008.

16



          Activity related to the Company’s redeemable noncontrolling interests is as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Beginning Balance

 

$

439,675

 

$

441,334

 

Noncontrolling interest in earnings of Operating Partnership and other consolidated subsidiaries

 

 

(6,026

)

 

6,114

 

Distributions to noncontrolling interest

 

 

(6,599

)

 

(6,438

)

    Other comprehensive income (loss) allocable to noncontrolling interests:
      Net unrealized loss on available-for-sale securities

(28

)

(46

)

        Net unrealized gain (loss) on hedging instruments

24

(122

)

        Realized loss on foreign currency translation adjustment

1

        Unrealized gain on foreign currency translation adjustment

11

3

Adjustment for noncontrolling interest in Operating Partnership

 

 

(186

)

 

(24

)

Increase in redemption value

 

 

92

 

 

73

 

 

 

   

 

   

 

Ending Balance

 

$

439,016

 

$

440,942

 

 

 

   

 

   

 

Cost Method Investments

          In February 2007, the Company acquired a 6.2% minority interest in subsidiaries of Jinsheng Group (“Jinsheng”), an established mall operating and real estate development company located in Nanjing, China, for $10,125. As of March 31, 2009, Jinsheng owned controlling interests in four home decoration shopping centers (“deco malls”), two general retail shopping centers and four development sites.

          Jinsheng also issued to the Company a secured convertible promissory note in exchange for cash of $4,875. The note is secured by 16,565,534 Series 2 Ordinary Shares of Jinsheng. The secured note is non-interest bearing and matures upon the earlier to occur of (i) January 22, 2012, (ii) the closing of the sale, transfer or other disposition of substantially all of Jinsheng’s assets, (iii) the closing of a merger or consolidation of Jinsheng or (iv) an event of default, as defined in the secured note. In lieu of the Company’s right to demand payment on the maturity date, at any time commencing upon the earlier to occur of January 22, 2010 or the occurrence of a Final Trigger Event, as defined in the secured note, the Company may, at its sole option, convert the outstanding amount of the secured note into 16,565,534 Series A-2 Preferred Shares of Jinsheng (which equates to a 2.275% ownership interest).

          Jinsheng also granted the Company a warrant to acquire 5,461,165 Series A-3 Preferred Shares for $1,875. The warrant expires upon the earlier of January 22, 2010 or the date that Jinsheng distributes, as a dividend, shares of Jinsheng’s successor should Jinsheng complete an initial public offering.

          The Company accounts for its noncontrolling interest in Jinsheng using the cost method because the Company does not exercise significant influence over Jinsheng and there is no readily determinable market value of Jinsheng’s shares since they are not publicly traded. The Company recorded the secured note at its estimated fair value of $4,513, which reflects a discount of $362 due to the fact that it is non-interest bearing. The discount is amortized to interest income over the term of the secured note using the effective interest method. The noncontrolling interest and the secured note are reflected as investment in unconsolidated affiliates in the accompanying condensed consolidated balance sheets. The Company recorded the warrant at its estimated fair value of $362, which is included in other assets in the accompanying condensed consolidated balance sheets.

          As part of its investment review as of March 31, 2009, the Company determined that its investment in Jinsheng was impaired due to a decline in expected future cash flows. The decrease is a result of declining occupancy and sales due to the downturn of the real estate market in China. The Company performed a quantitative and qualitative analysis of its investment as of March 31, 2009 and determined that the impairment is other than temporary. An impairment charge of $7,706 was recorded for the three month period ended March 31, 2009, resulting in a remaining investment balance, including the carrying values of the secured notes receivable and warrants, of $7,800.

17



Note 5 – Mortgage and Other Notes Payable

          Mortgage and other notes payable consisted of the following at March 31, 2009 and December 31, 2008, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2009

 

December 31, 2008

 

 

 

 

 

 

 

 

 

Amount

 

Weighted
Average
Interest
Rate(1)

 

Amount

 

Weighted
Average
Interest
Rate(1)

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse loans on operating properties

 

$

4,019,774

 

6.15

%

 

$

4,046,653

 

6.14

%

 

Recourse loans on operating properties (2)

 

 

161,047

 

5.71

%

 

 

161,694

 

5.71

%

 

Secured line of credit (3)

 

 

400,000

 

4.45

%

 

 

400,000

 

4.45

%

 

 

 

   

 

 

 

 

   

 

 

 

 

Total fixed-rate debt

 

 

4,580,821

 

5.98

%

 

 

4,608,347

 

5.99

%

 

Variable-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

Recourse term loans on operating properties

 

 

291,324

 

1.81

%

 

 

262,946

 

2.49

%

 

Unsecured lines of credit

 

 

522,500

 

1.58

%

 

 

522,500

 

1.92

%

 

Secured lines of credit

 

 

166,050

 

1.34

%

 

 

149,050

 

1.45

%

 

Unsecured term facilities

 

 

437,494

 

2.01

%

 

 

437,494

 

1.88

%

 

Construction loans

 

 

96,708

 

2.12

%

 

 

115,339

 

1.74

%

 

 

 

   

 

 

 

 

   

 

 

 

 

Total variable-rate debt

 

 

1,514,076

 

1.76

%

 

 

1,487,329

 

1.95

%

 

 

 

   

 

 

 

 

   

 

 

 

 

Total

 

$

6,094,897

 

4.93

%

 

$

6,095,676

 

5.01

%

 

 

 

   

 

 

 

 

   

 

 

 

 


 

 

(1)

Weighted-average interest rate including the effect of debt premiums (discounts), but excluding amortization of deferred financing costs.

(2)

The Company has entered into interest rate swaps on notional amounts totaling $127,500 as of March 31, 2009 and December 31, 2008 related to two of its variable-rate loans on operating properties to effectively fix the interest rates on those loans. Therefore, these amounts are currently reflected in fixed-rate debt.

(3)

The Company has entered into interest rate swaps on notional amounts totaling $400,000 as of March 31, 2009 and December 31, 2008 related to its largest secured credit facility to effectively fix the interest rate on that portion of the line of credit. Therefore, this amount is currently reflected in fixed-rate debt.

Unsecured Line of Credit

          The Company has an unsecured credit facility with total availability of $560,000 that bears interest at LIBOR plus a margin of 0.75% to 1.20% based on the Company’s leverage ratio, as defined in the agreement to the facility. Additionally, the Company pays an annual fee of 0.1% of the amount of total availability under the unsecured credit facility. The credit facility matures in August 2009 and has two one-year extension options, which are at the Company’s election, for an outside maturity date of August 2011. At March 31, 2009, the outstanding borrowings of $522,500 under the unsecured credit facility had a weighted average interest rate of 1.58%.

Unsecured Term Facilities

          In April 2008, the Company entered into a new unsecured term facility with total availability of $228,000 that bears interest at LIBOR plus a margin of 1.50% to 1.80% based on the Company’s leverage ratio, as defined in the agreement to the facility. At March 31, 2009, the outstanding borrowings of $228,000 under the unsecured term facility had a weighted average interest rate of 2.23%. The facility matures in April 2011 and has two one-year extension options, which are at the Company’s election, for an outside maturity date of April 2013.

18


          The Company has an unsecured term facility that was obtained for the exclusive purpose of acquiring certain properties from the Starmount Company or its affiliates. At March 31, 2009, the outstanding borrowings of $209,494 under this facility had a weighted average interest rate of 1.78%. The Company completed its acquisition of the properties in February 2008 and, as a result, no further draws can be made against the facility. The unsecured term facility bears interest at LIBOR plus a margin of 0.95% to 1.40% based on the Company’s leverage ratio, as defined in the agreement to the facility. Net proceeds from a sale, or the Company’s share of excess proceeds from any refinancings, of any of the properties originally purchased with borrowings from this unsecured term facility must be used to pay down any remaining outstanding balance. The facility matures in November 2010 and has two one-year extension options, which are at the Company’s election, for an outside maturity date of November 2012.

Secured Lines of Credit

          The Company has four secured lines of credit that are used for construction, acquisition and working capital purposes, as well as issuances of letters of credit. Each of these lines is secured by mortgages on certain of the Company’s operating properties. Borrowings under the secured lines of credit bear interest at LIBOR plus a margin ranging from 0.80% to 0.95% and had a weighted average interest rate of 3.54% at March 31, 2009. The Company also pays a fee based on the amount of unused availability under its largest secured credit facility at a rate of 0.125% of unused availability. The following summarizes certain information about the secured lines of credit as of March 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

Total
Available

 

Total
Outstanding

 

Maturity Date

 

 

 

 

 

 

 

 

 

$

105,000

 

$

17,000

 

 

June 2010

 

 

 

524,850

 

 

524,850

 

 

February 2010

 

 

 

20,000

 

 

20,000

 

 

March 2010

 

 

 

17,200

 

 

4,200

 

 

April 2010

 

 

   

 

   

 

 

 

 

 

$

667,050

 

$

566,050

 

 

 

 

 

   

 

   

 

 

 

 

           The agreements to the Company's $560,000 unsecured line of credit, the $524,850 secured line of credit and the unsecured term facilities with balances of $209,494 and $228,000 as of March 31, 2009, each with the same lender, contain default provisions customary for transactions of this nature and also contain cross-default provisions.

Letters of Credit

          At March 31, 2009, the Company had additional secured and unsecured lines of credit with a total commitment of $38,410 that can only be used for issuing letters of credit. The letters of credit outstanding under these lines of credit totaled $17,574 at March 31, 2009.

Covenants and Restrictions

          The secured and unsecured line of credit agreements contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum net worth requirements, and limitations on cash flow distributions. Additionally, certain property-specific mortgage notes payable require the maintenance of debt service coverage ratios on their respective properties. The Company was in compliance with all covenants and restrictions at March 31, 2009.

          Thirty-nine malls/open-air centers, nine associated centers, three community centers and the corporate office building are owned by special purpose entities that are included in the Company’s consolidated financial statements. The sole business purpose of the special purpose entities is to own and operate these properties. The real estate and other assets owned by these special purpose entities are restricted under the loan agreements in that they are not available to settle other debts of the Company. However, so long as the loans are not under an event of default, as defined in the loan agreements, the cash flows from these properties, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.

19



Scheduled Principal Maturities

          As of March 31, 2009, the scheduled principal maturities of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other notes payable, including construction loans and lines of credit, are as follows:

 

 

 

 

 

2009

 

$

981,353

 

2010

 

 

1,335,414

 

2011

 

 

623,703

 

2012

 

 

599,065

 

2013

 

 

456,126

 

Thereafter

 

 

2,086,253

 

 

 

   

 

 

 

 

6,081,914

 

Net unamortized premiums

 

 

12,983

 

 

 

   

 

 

 

$

6,094,897

 

 

 

   

 

          Of the $981,353 of scheduled principal maturities in 2009, excluding net unamortized premiums of $109, related to eleven operating properties and the Company’s unsecured line of credit, maturities representing $757,300 have extensions available at the Company’s option, leaving approximately $224,053 of maturities in 2009 that must be retired or refinanced. The $224,053 of maturities in 2009 represents non-recourse, property-specific mortgage loans. All of the mortgages are held by life insurance companies, with the exception of a $53,055 commercial mortgage-backed securities loan that matures in December 2009. The Company has three loans totaling $111,838 that are with the same lender and have maturity dates ranging from May 2009 to October 2009. The Company is currently in the process of completing its negotiations with the lender on the loans and, subsequent to the first quarter of 2009, paid a nonrefundable commitment fee for a ten-year extension relating to two of the three loans.  The remaining loan will be repaid in full using excess proceeds from the refinancing and the Company's cash.  Also subsequent to the first quarter of 2009, the Company completed its refinancing negotiations with the lender of a loan that matured in April 2009 totaling $59,160 to extend the maturity date for one year to April 2010.

Interest Rate Hedge Instruments

          Effective January 1, 2009, the Company adopted SFAS No. 161. SFAS No. 161 improves financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. In accordance with SFAS No. 133, the Company records its derivative instruments on its condensed consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the derivative has been designated as a hedge and, if so, whether the hedge has met the criteria necessary to apply hedge accounting.

          The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

          The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in Accumulated Other Comprehensive Loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During

20



2009, such derivatives were used to hedge the variable cash flows associated with variable-rate debt.

          As of March 31, 2009, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate
Derivative

 

Number of
Instruments

 

Notional
Amount

 

 

 

 

 

 

 

Interest Rate Swaps

 

 

4

 

$

527,500

 

Interest Rate Cap

 

 

1

 

$

80,000

 

          The Company has an $80,000 interest rate cap agreement to hedge the risk of changes in cash flows on a letter of credit supporting certain municipal bonds equal to the then-outstanding cap notional. The interest rate cap protects the Company from increases in the hedged cash flows attributable to overall changes in the USD-SIFMA Municipal Swap Index above the strike rate of the cap on the debt. The strike rate associated with the interest rate cap is 4.00%. The interest rate cap had a nominal value as of March 31, 2009 and December 31, 2008 and matures on December 3, 2010.

          The Company has a $40,000 pay fixed/receive variable interest rate swap agreement to hedge the interest rate risk exposure on the borrowings of one of its operating properties equal to the swap notional amount. This interest rate swap hedges the risk of changes in cash flows on the Company’s designated forecasted interest payments attributable to changes in 1-month LIBOR, the designated benchmark interest rate being hedged, thereby reducing exposure to variability in cash flows relating to interest payments on the variable-rate debt. The interest rate swap effectively fixes the interest payments on the portion of debt principal corresponding to the swap notional amount at 5.175%. The swap was valued at $(840) and $(772) as of March 31, 2009 and December 31, 2008, respectively, and matures on November 7, 2010.

          The Company has an $87,500 pay fixed/receive variable interest rate swap agreement to hedge the interest rate risk exposure on the borrowings of one of its operating properties equal to the swap notional amount. This interest rate swap hedges the risk of changes in cash flows on the Company’s designated forecasted interest payments attributable to changes in 1-month LIBOR, the designated benchmark interest rate being hedged, thereby reducing exposure to variability in cash flows relating to interest payments on the variable-rate debt. The interest rate swap effectively fixes the interest payments on the portion of debt principal corresponding to the swap notional amount at 5.85%. The swap was valued at $(3,682) and $(3,787) as of March 31, 2009 and December 31, 2008, respectively, and matures on September 23, 2010.

          The Company has a $150,000 pay fixed/receive variable interest rate swap agreement to hedge the interest rate risk exposure on an amount of borrowings on its largest secured line of credit equal to the swap notional amount. This interest rate swap hedges the risk of changes in cash flows on the Company’s designated forecasted interest payments attributable to changes in 1-month LIBOR, the designated benchmark interest rate being hedged, thereby reducing exposure to variability in cash flows relating to interest payments on the variable-rate debt. The interest rate swap effectively fixes the interest payments on the portion of debt principal corresponding to the swap notional amount at 4.353%. The swap was valued at $(3,303) and $(3,989) as of March 31, 2009 and December 31, 2008, respectively, and matures on December 30, 2009.

          The Company has a $250,000 pay fixed/receive variable interest rate swap agreement to hedge the interest rate risk exposure on an amount of borrowings on its largest secured line of credit equal to the swap notional amount. This interest rate swap hedges the risk of changes in cash flows on the Company’s designated forecasted interest payments attributable to changes in 1-month LIBOR, the designated benchmark interest rate being hedged, thereby reducing exposure to variability in cash flows relating to interest payments on the variable-rate debt. The interest rate swap effectively fixes the interest payments on the portion of debt principal corresponding to the swap notional amount at 4.505%.

21



The swap was valued at $(5,794) and $(7,022) as of March 31, 2009 and December 31, 2008, respectively, and matures on December 30, 2009.

          The above interest rate swaps’ total fair value of $(13,619) and $(15,570) as of March 31, 2009 and December 31, 2008, respectively, is included in Accounts Payable and Accrued Liabilities in the accompanying condensed consolidated balance sheets.

          In January 2009, the Company entered into a $129,000 interest rate cap agreement to hedge the risk of changes in cash flows on the construction loan of one of its properties equal to the then-outstanding cap notional. The interest rate cap protects the Company from increases in the hedged cash flows attributable to overall changes in 1-month LIBOR above the strike rate of the cap on the debt. The strike rate associated with the interest rate cap is 3.25%. The Company did not designate this cap as a hedge because it did not meet the hedge accounting requirements of SFAS No. 133. Changes in the fair value of this cap are recorded directly in earnings and totaled $71 for the three months ended March 31, 2009. The interest rate cap had a nominal value as of March 31, 2009 and matures on July 12, 2010.

Note 6 – Discontinued Operations

          As of March 31, 2008, the Company determined that 19 of the community center and office properties originally acquired during the fourth quarter of 2007 from the Starmount Company met the criteria to be classified as held-for-sale. In conjunction with their classification as held-for-sale, the results of operations from the properties were reclassified to discontinued operations.

          In April 2008, the Company completed the sale of five of the community centers located in Greensboro, NC to three separate buyers. In June 2008, the Company completed the sale of one of the office properties. The Company completed the sale of an additional community center located in Greensboro, NC in August 2008. In December 2008, we completed the sale of an additional office property and adjacent, vacant development land located in Greensboro, NC. The results of operations of these properties are included in discontinued operations for the three months ended March 31, 2008.

          As of December 31, 2008, the Company determined that the properties that had not been sold during the year no longer met the held-for-sale criteria due to the improbability of additional sales related to the depressed real estate market. The results of operations from these remaining properties have been reclassified to continuing operations for all periods presented.

          During June 2008, the Company sold Chicopee Marketplace III in Chicopee, MA. The results of operations of this property are included in discontinued operations for the three months ended March 31, 2008.

          Total revenues of the centers described above that are included in discontinued operations were $1,903 during the three months ended March 31, 2008. Discontinued operations during the three months ended March 31, 2009 and 2008 include true ups of estimated expenses to actual amounts for properties sold during previous years.

Note 7 – Segment Information

          The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments. Information on the Company’s reportable segments is presented as follows:

22



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2009

 

Malls

 

Associated
Centers

 

Community
Centers

 

All Other (2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

244,031

 

$

10,454

 

$

5,370

 

$

11,205

 

$

271,060

 

Property operating expenses (1)

 

 

(84,092

)

 

(3,054

)

 

(2,067

)

 

5,048

 

 

(84,165

)

Interest expense

 

 

(60,839

)

 

(2,167

)

 

(1,024

)

 

(7,855

)

 

(71,885

)

Other expense

 

 

 

 

 

 

 

 

(5,157

)

 

(5,157

)

Gain (loss) on sales of real estate assets

 

 

(5

)

 

 

 

89

 

 

(223

)

 

(139

)

 

 

   

 

   

 

   

 

   

 

   

 

Segment profit

 

$

99,095

 

$

5,233

 

$

2,368

 

$

3,018

 

 

109,714

 

 

 

   

 

   

 

   

 

   

 

 

 

 

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(78,311

)

General and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,479

)

Interest and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,581

 

Impairment of investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,706

)

Equity in earnings of unconsolidated affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,534

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(603

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

$

14,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Total Assets

 

$

6,867,725

 

$

339,489

 

$

71,266

 

$

694,390

 

$

7,972,870

 

Capital expenditures (3)

 

$

47,192

 

$

6,195

 

$

22,740

 

$

26,458

 

$

102,585

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2008

 

Malls

 

Associated
Centers

 

Community
Centers

 

All Other (2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

253,845

 

$

10,950

 

$

3,794

 

$

12,342

 

$

280,931

 

Property operating expenses (1)

 

 

(92,285

)

 

(2,645

)

 

(1,191

)

 

5,734

 

 

(90,387

)

Interest expense

 

 

(63,069

)

 

(2,306

)

 

(1,135

)

 

(13,714

)

 

(80,224

)

Other expense

 

 

 

 

 

 

 

 

(6,999

)

 

(6,999

)

Gain on sales of real estate assets

 

 

1,398

 

 

 

 

2

 

 

1,676

 

 

3,076

 

 

 

   

 

   

 

   

 

   

 

   

 

Segment profit (loss)

 

$

99,889

 

$

5,999

 

$

1,470

 

$

(961

)

 

106,397

 

 

 

   

 

   

 

   

 

   

 

 

 

 

Depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(75,081

)

General and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,531

)

Interest and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,727

 

Equity in earnings of unconsolidated affiliates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

979

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(357

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

$

22,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Total Assets

 

$

6,880,765

 

$

348,057

 

$

219,173

 

$

580,953

 

$

8,028,948

 

Capital expenditures (3)

 

$

52,481

 

$

267

 

$

22,433

 

$

101,183

 

$

176,364

 


 

 

(1)

Property operating expenses include property operating expenses, real estate taxes and maintenance and repairs.

(2)

The All Other category includes mortgage notes receivable, Office Buildings, the Management Company and the Company’s subsidiary that provides security and maintenance services.

(3)

Amounts include acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category.

Note 8 – Earnings Per Share

           In February 2009, the Company’s Board of Directors declared a quarterly dividend for the Company’s common stock of $0.37 per share for the quarter ended March 31, 2009, to be paid in a combination of cash and shares of the Company’s common stock. The dividend was paid on 66,407,096 shares of common stock outstanding on the record date. The Company issued 4,754,355 shares of its common stock in connection with the dividend, which resulted in an increase of 7.2% in the number of shares outstanding. The Company has elected to treat the issuance of its common stock as a stock dividend for per share purposes. Therefore, all share and per share information related to earnings per share for the periods presented have been increased proportionately to reflect the additional common stock issued.

          Effective January 1, 2009, the Company adopted FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1 requires that unvested share-based payment awards that contain nonforfeitable rights to dividends or

23



their equivalent be treated as participating securities for purposes of inclusion in the computation of earnings per share (“EPS”) pursuant to the two-class method. Pursuant to the provisions of FSP EITF 03-6-1, all prior-period EPS data presented has been adjusted accordingly. The adoption of FSP EITF 03-6-1 did not have a material impact on the Company’s reported earnings per share.

          Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes the issuance of common stock for all potential dilutive common shares outstanding. The limited partners’ rights to convert their minority interest in the Operating Partnership into shares of common stock are not dilutive. The following summarizes the impact of potential dilutive common shares on the denominator used to compute earnings per share:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

66,407

 

 

66,243

 

Effect of stock dividend

 

 

4,754

 

 

4,751

 

 

 

   

 

   

 

Denominator – basic earnings per share

 

 

71,161

 

 

70,994

 

Dilutive effect of:

 

 

 

 

 

 

 

Stock options

 

 

 

 

134

 

Deemed shares related to deferred compensation arrangements

 

 

35

 

 

30

 

 

 

   

 

   

 

Denominator – diluted earnings per share

 

 

71,196

 

 

71,158

 

 

 

   

 

   

 

Note 9 – Contingencies

          The Company is currently involved in certain litigation that arises in the ordinary course of business. It is management’s opinion that the pending litigation will not materially affect the financial position or results of operations of the Company.

          The Company consolidates its investment in a joint venture with the Westfield Group (“Westfield”), CW Joint Venture, LLC (“CWJV”). The terms of the joint venture agreement require that CWJV pay an annual preferred distribution at a rate of 5.0% on the perpetual preferred joint venture units (“PJV units”) of CWJV that are held by Westfield. Subsequent to October 16, 2008, Westfield has the right to have all or a portion of the PJV units redeemed by CWJV for, at Westfield’s election, cash or property. The Company will have the right, but not the obligation, to purchase the PJV units after October 16, 2012 at their liquidation value, plus accrued and unpaid distributions. On the earliest to occur of June 30, 2013, immediately prior to the redemption of the PJV units, or immediately prior to the liquidation of CWJV or Westfield’s PJV units in CWJV, Westfield’s capital account may be increased by a capital contribution adjustment amount (“CCAA”). The CCAA represents the excess, if any, of the fair value of a share of the Company’s common stock on the above-specified date less $32.00 multiplied by 2.6 million shares. However, in no event shall the CCAA be greater than $26,000. The Company accounts for this contingency using the method prescribed for earnings or other performance measure contingencies. As such, should the CCAA provision result in additional consideration to Westfield, the Company will record the current fair value of the consideration issued as a purchase price adjustment at the time the consideration is paid or payable.

Guarantees

          The Company has guaranteed 100% of the construction loan of West Melbourne I, LLC (“West Melbourne”), an unconsolidated affiliate in which the Company owns a 50% interest, of which the maximum guaranteed amount is $67,000. West Melbourne is currently developing Hammock Landing, an open-air shopping center in West Melbourne, FL. The total amount outstanding at March 31, 2009 on the loan was $39,144. The guaranty will expire upon repayment of the debt. The loan matures in August 2010, and has three one-year extension options, which are at the Company’s election, for an outside

24



maturity date of August 2013. The Company has recorded an obligation of $670 in the accompanying condensed consolidated balance sheets as of March 31, 2009 and December 31, 2008 to reflect the estimated fair value of this guaranty.

          The Company has guaranteed 100% of the construction loan of Port Orange I, LLC (“Port Orange”), an unconsolidated affiliate in which the Company owns a 50% interest, of which the maximum guaranteed amount is $112,000. Port Orange is currently developing The Pavilion at Port Orange, an open-air shopping center in Port Orange, FL. The total amount outstanding at March 31, 2009 on the loan was $45,605. The guaranty will expire upon repayment of the debt. The loan matures in June 2011, and has two one-year extension options, which are at the Company’s election, for an outside maturity date of June 2013. The Company has recorded an obligation of $1,120 in the accompanying condensed consolidated balance sheets as of March 31, 2009 and December 31, 2008 to reflect the estimated fair value of this guaranty.

          The Company has guaranteed the lease performance of York Town Center, LP (“YTC”), an unconsolidated affiliate in which the Company owns a 50% interest, under the terms of an agreement with a third party that owns property as part of York Town Center. Under the terms of that agreement, YTC is obligated to cause performance of the third party’s obligations as landlord under its lease with its sole tenant, including, but not limited to, provisions such as co-tenancy and exclusivity requirements. Should YTC fail to cause performance, then the tenant under the third party landlord’s lease may pursue certain remedies ranging from rights to terminate its lease to receiving reductions in rent. The Company has guaranteed YTC’s performance under this agreement up to a maximum of $22,000, which decreases by $800 annually until the guaranteed amount is reduced to $10,000. The guaranty expires on December 31, 2020. The maximum guaranteed obligation was $20,400 as of March 31, 2009. The Company has entered into an agreement with its joint venture partner under which the joint venture partner has agreed to reimburse the Company 50% of any amounts the Company is obligated to fund under the guaranty. The Company has not recorded an obligation for this guaranty because it has determined that the fair value of the guaranty is not material.

          The Company owns a parcel of land that it is ground leasing to a third party developer for the purpose of developing a shopping center. The Company has guaranteed 27% of the third party’s construction loan and bond line of credit (the “loans”) of which the maximum guaranteed amount is $31,554. The total amount outstanding at March 31, 2009 on the loans was $43,996 of which the Company has guaranteed $11,879. The Company has recorded an obligation of $315 in the accompanying condensed consolidated balance sheets as of March 31, 2009 and December 31, 2008 to reflect the estimated fair value of the guaranty.

Performance Bonds

          The Company has issued various bonds that it would have to satisfy in the event of non-performance. At March 31, 2009, the total amount outstanding on these bonds was $47,705.

Note 10 – Share-Based Compensation

          The share-based compensation cost that was charged against income was $962 and $1,300 for the three months ended March 31, 2009 and 2008, respectively. Share-based compensation cost capitalized as part of real estate assets was $71 and $277 for the three months ended March 31, 2009 and 2008.

          The Company’s stock option activity for the three months ended March 31, 2009 is summarized as follows:

25



 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted
Average
Exercise
Price

 

 

 

 

 

 

 

Outstanding at January 1, 2009

 

 

608,015

 

$

15.89

 

Exercised

 

 

 

 

 

 

 

   

 

 

 

 

Outstanding at March 31, 2009

 

 

608,015

 

 

15.89

 

 

 

   

 

 

 

 

Vested at March 31, 2009

 

 

608,015

 

 

15.89

 

 

 

   

 

 

 

 

Exercisable at March 31, 2009

 

 

608,015

 

 

15.89

 

 

 

   

 

 

 

 

          A summary of the status of the Company’s stock awards as of March 31, 2009, and changes during the three months ended March 31, 2009, is presented below:

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted
Average
Grant-Date
Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2009

 

 

257,840

 

$

33.60

 

Granted

 

 

50,678

 

 

2.71

 

Forfeited

 

 

(720

)

 

32.69

 

Vested

 

 

(67,728

)

 

3.36

 

 

 

   

 

 

 

 

Nonvested at March 31, 2009

 

 

240,070

 

 

34.23

 

 

 

   

 

 

 

 

          As of March 31, 2009, there was $5,278 of total unrecognized compensation cost related to nonvested stock awards granted under the plan, which is expected to be recognized over a weighted average period of 2.2 years.

Note 11 – Noncash Investing and Financing Activities

          The Company’s noncash investing and financing activities were as follows for the three months ended March 31, 2009 and 2008:

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Accrued dividends and distributions

 

$

44,354

 

$

64,372

 

 

 

   

 

   

 

Additions to real estate assets accrued but not yet paid

 

 

16,082

 

 

22,738

 

 

 

   

 

   

 

Notes receivable from sale of interest in Tenco-CBL

 

 

1,750

 

 

 

 

 

   

 

   

 

Additions to real estate assets from forgiveness of mortgage note receivable

 

 

6,502

 

 

 

 

 

   

 

   

 

Note 12 – Income Taxes

The Company is qualified as a REIT under the provisions of the Code. To maintain qualification as a REIT, the Company is required to distribute at least 90% of its taxable income to shareholders and meet certain other requirements.

          As a REIT, the Company is generally not liable for federal corporate income taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal and state income taxes on its taxable income at regular corporate tax rates. Even if the Company maintains its qualification as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed income. State tax expense was $1,656 and $1,380 during the three months ended March 31, 2009 and 2008, respectively.

26



          The Company has also elected taxable REIT subsidiary status for some of its subsidiaries. This enables the Company to receive income and provide services that would otherwise be impermissible for REITs. For these entities, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if the Company believes all or some portion of the deferred tax asset may not be realized. An increase or decrease in the valuation allowance resulting from changes in circumstances that may affect the realizability of the related deferred tax asset is included in income or expense, as applicable.

          The Company recorded an income tax provision of $603 and $357 for the three months ended March 31, 2009 and 2008, respectively. The income tax provision in 2009 consisted of a current income tax provision of $1,326 and a deferred income tax benefit of $723. The income tax provision in 2008 consisted of a current income tax provision of $1,501 and a deferred income tax benefit of $1,144.

          The Company had a net deferred tax asset of $2,155 at March 31, 2009 and $2,464 at December 31, 2008. The net deferred tax asset at March 31, 2009 and December 31, 2008 is included in other assets and primarily consisted of operating expense accruals and differences between book and tax depreciation.

          The Company reports any income tax penalties attributable to its properties as property operating expenses and any corporate-related income tax penalties as general and administrative expenses in its statement of operations. In addition, any interest incurred on tax assessments is reported as interest expense. The Company reported nominal interest and penalty amounts for the three months ended March 31, 2009 and 2008, respectively.

Note 13 – Subsequent Events

          In April 2009, the Company entered into a one-year extension on its loan of $59,160 that is secured by St. Clair Square in Fairview Heights, IL with the existing lender at a fixed interest rate of 7.50%, which is 50 basis points higher than the 7.00% fixed interest rate on the original loan. The extended loan matures in April 2010.

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that are included in this Form 10-Q. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the condensed consolidated financial statements. In this discussion, the terms “we”, “us”, “our” and the “Company” refer to CBL & Associates Properties, Inc. and its subsidiaries.

          Certain statements made in this section or elsewhere in this report may be deemed “forward looking statements” within the meaning of the federal securities laws. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. In addition to the risk factors described in Part II, Item 1A. of this report, such risks and uncertainties include, without limitation, general industry, economic and business conditions, interest rate fluctuations, costs of capital and capital requirements, availability of real estate properties, inability to consummate acquisition opportunities, competition from other companies and retail formats, changes in retail rental rates in the Company’s markets, shifts in customer demands, tenant bankruptcies or store closings, changes in vacancy rates at our properties, changes in operating expenses, changes in applicable laws, rules and regulations, 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. We

27



disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.

EXECUTIVE OVERVIEW

          We are a self-managed, self-administered, fully integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air centers, community centers and office properties. Our shopping centers are located in 27 domestic states and in Brazil, but are primarily in the southeastern and midwestern United States. We have elected to be taxed as a REIT for federal income tax purposes.

           As of March 31, 2009, we owned controlling interests in 75 regional malls/open-air centers, 30 associated centers (each adjacent to a regional mall), eight community centers, one mixed-use center and 13 office buildings, including our corporate office building. We consolidate the financial statements of all entities in which we have a controlling financial interest or where we are the primary beneficiary of a variable interest entity. As of March 31, 2009, we owned noncontrolling interests in nine regional malls, three associated centers, four community centers and six office buildings. Because one or more of the other partners have substantive participating rights, we do not control these partnerships and joint ventures and, accordingly, account for these investments using the equity method. We had four community centers (each of which is owned in a joint venture) under construction at March 31, 2009.

           Given the challenging capital markets and economy in general over the past year, we have placed great emphasis on the need to preserve liquidity and maintain our earnings growth. We have implemented a number of measures to achieve these goals, and as such, we are pleased with the overall results for the three months ended March 31, 2009. We have made significant progress in addressing our remaining 2009 loan maturities and are working closely with lenders to obtain additional extensions beyond those already available to us on our lines of credit. In addition to working with lenders to meet our liquidity needs, we are also exploring other potential sources of capital including, among others, equity offerings, joint venture investments and asset sales.

           During the fourth quarter of 2008, we announced a reduction in the quarterly dividend rate, effective with the fourth quarter 2008 declaration, on our common stock to $0.37 per share from $0.545 per share. The reduction is expected to generate approximately $80.0 million of additional free cash flow on an annual basis. During the first quarter of 2009, we announced that our dividend for the quarter of $0.37 per share would be paid in a combination of cash and shares of our common stock as part of our effort to continue to maximize liquidity. Our board of directors will evaluate the nature and amount of our dividends each quarter, but if we were to maintain quarterly dividends consistent with that for the first quarter of 2009, we estimate that it would generate additional available cash of approximately $70.0 million on an annual basis.

           Our operating results for the first quarter of 2009 reflect the significant progress that we have made through our cost reduction initiatives that were implemented last year at the properties and our corporate office. We reported a reduction in our general and administrative expenses of 8.4% compared to the prior year period, helping to mitigate the anticipated pressure on our income from operations. We are also pleased with our Funds From Operations (“FFO”) for the three months ended March 31, 2009 compared with the prior year period. FFO for the current quarter was positively impacted by higher lease termination fees and decreased interest expense. Offsetting these improvements were higher bad debt expense and a non-cash impairment charge related to our investment in Jinsheng, a Chinese real estate company. FFO is a key performance measure for real estate companies. Please see the more detailed discussion of this measure on page 45.

           We are encouraged that the level of store closures and bankruptcies experienced to date in 2009 has been less than expected. The majority of our retailers continue to operate with strong financial

28



fundamentals and have proven resilient in dealing with the economic challenges. In addition, the geographic markets in which our properties are located have withstood the difficult economic conditions better than most due to the diversification of major employers in the regions.

           Our business is built on a strategy of financial discipline, proactive management and preservation of excellent relationships with our retail and financial partners, each of which contribute to the underlying strength and resiliency of our portfolio of properties. While we recognize that we continue to face challenging times, it is evident that the steps we have taken in the past year to preserve shareholder value have positioned our company to move forward effectively. We are encouraged by the results of the first quarter of 2009 and are confident that our strategy, experience and expertise will serve to help us successfully overcome the challenges that lie ahead.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2009 to the Three Months Ended March 31, 2008

          We have acquired or opened three community centers, one mixed-use center and one office building since January 1, 2008 (collectively referred to as the “New Properties”). These transactions impact the comparison of the results of operations for the three months ended March 31, 2009 to the results of operations for the comparable period ended March 31, 2008. Properties that were in operation as of January 1, 2008 and March 31, 2009 are referred to as the “Comparable Properties.” We do not consider a property to be one of the Comparable Properties until it has been owned or open for one complete calendar year. Any reference to the New Properties in this section excludes those properties that are accounted for using the equity method of accounting. The New Properties are as follows:

 

 

 

 

 

 

 

Property

 

Location

 

 

Date Acquired/
Opened

 

 

 

 

 

 

 

 

Acquisition:

 

 

 

 

 

 

Renaissance Center (1)

 

Durham, NC

 

 

Feb-08

 

 

 

 

 

 

 

 

New Developments:

 

 

 

 

 

 

CBL Center II

 

Chattanooga, TN

 

 

Jan-08

 

Pearland Town Center

 

Pearland, TX

 

 

Jul-08

 

Plaza Macaé (2)

 

Macaé, Brazil

 

 

Sep-08

 

Statesboro Crossing

 

Statesboro, GA

 

 

Oct-08

 


 

 

(1)

This property represents a 50/50 joint venture that is accounted for using the equity method of accounting and is included in equity in earnings of unconsolidated affiliates in the accompanying condensed consolidated statements of operations.

(2)

This property represents a 60/40 joint venture that is accounted for using the equity method of accounting and is included in equity in earnings of unconsolidated affiliates in the accompanying condensed consolidated statements of operations.

Revenues

          The $8.5 million decrease in rental revenues and tenant reimbursements was attributable to a decrease of $10.4 million from the Comparable Properties, partially offset by an increase of $1.9 million from the New Properties. The decrease in revenues of the Comparable Properties was driven by reductions of $4.6 million in base rents and $5.5 million in common area maintenance (“CAM”) reimbursements. Base rents declined due to decreased occupancy and leasing spreads in the current quarter compared to the prior year period. Tenant reimbursements decreased as a result of lower reimbursable property operating expenses, coupled with more tenant bankruptcies that resulted in a loss of tenant reimbursements. Our cost recovery ratio improved to 96.8% for the quarter ended March 31, 2009 from 95.6% for the prior-year period.

29



          The decrease in management, development and leasing fees of $0.4 million was mainly attributable to lower development fee income due to the completion in the prior year of certain developments that were under construction during the prior year quarter.

          Other revenues decreased by $0.9 million primarily due to a reduction in miscellaneous income. Miscellaneous income for the prior year quarter included $0.4 million of insurance proceeds related to a structure on one of the Company’s outparcels and $0.4 million of sponsorship fees related to the Company’s change in gift card providers.

Operating Expenses

          Property operating expenses, including real estate taxes and maintenance and repairs, decreased $6.2 million due to a decrease of $7.8 million related to the Comparable Properties, partially offset by an increase of $1.6 million of expenses attributable to the New Properties. The decrease in property operating expenses of the Comparable Properties is primarily attributable to reductions of $4.5 million in payroll expenses, $1.1 million in advertising costs, $1.8 million in janitorial and security services and $0.7 million in snow removal costs, partially offset by increased bad debt expense of $1.0 million. Payroll expenses have declined due to our cost containment initiatives that were implemented during the latter half of the prior year which included staff reductions and eliminations of certain pay increases and bonuses. Janitorial and security services declined due to renegotiations of service contracts at reduced rates. Bad debt expense increased as a result of higher store closures and bankruptcies compared to the prior year quarter.

          The increase in depreciation and amortization expense of $3.2 million resulted from increases of $1.1 million from the New Properties and $2.1 million from the Comparable Properties. The increase attributable to the Comparable Properties is due to capital expenditures for renovations, expansions, tenant allowances and deferred maintenance since the prior-year period.

          General and administrative expenses decreased $1.1 million primarily as a result of declines of $3.9 million in payroll and related expenses and $0.7 million in travel expenses, partially offset by a reduction in capitalized overhead of $3.4 million. The prior year quarter general and administrative expenses included a charge of $1.3 million incurred in relation to the retirement of a senior officer. As a percentage of revenues, general and administrative expenses decreased to 4.2% for the first quarter of 2009 compared with 4.5% for the prior year period.

Other Income and Expenses

          Interest expense decreased $8.3 million primarily due to the decrease in variable interest rates as compared to the first quarter of 2008. Our weighted average interest rate on variable-rate debt declined 205 basis points compared with the prior year period.

          During the first quarter of 2009, we incurred an impairment loss of $7.7 million on our investment in Jinsheng Group (“Jinsheng”), an established mall operating and real estate development company located in Nanjing, China, due to a decline in expected future cash flows. The decrease is a result of declining occupancy and sales due to the downturn of the real estate market in China. We performed a quantitative and qualitative analysis of our investment as of March 31, 2009 and determined that the impairment is other than temporary.

          During the first quarter of 2009, we recognized a loss on sales of real estate assets of $0.1 million related to the disposition of one of our investments in Brazil. We recorded a gain on sales of real estate assets of $3.1 million in the first quarter of 2008 related to the sale of four parcels of land.

30



          Equity in earnings of unconsolidated affiliates increased by $0.5 million during the first quarter of 2009, primarily due to a gain on an outparcel sale at one project.

          The income tax provision of $0.6 million for the three months ended March 31, 2009 relates to the earnings of our taxable REIT subsidiary and consists of a provision for current income taxes of $1.3 million, partially offset by a deferred tax benefit of $0.7 million. During the three months ended March 31, 2008, we recorded an income tax provision of $0.4 million, consisting of a provision for current income taxes of $1.5 million, partially offset by a deferred tax benefit of $1.1 million.

          We recognized a loss on discontinued operations of $0.1 million during the first quarter of 2009, compared to a gain of $0.3 million during the first quarter of 2008. Discontinued operations for the three months ended March 31, 2008 reflect the operating results of seven community centers and two office properties that were sold during 2008. Discontinued operations for the three months ended March 31, 2009 and 2008 include the true up of estimated expenses to actual amounts for properties sold during previous years.

Operational Review

          The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rent income in the fourth quarter. Additionally, the malls earn most of their “temporary” rents (rents from short-term tenants) during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.

We classify our regional malls into two categories – malls that have completed their initial lease-up are referred to as stabilized malls and malls that are in their initial lease-up phase and have not been open for three calendar years are referred to as non-stabilized malls. Alamance Crossing in Burlington, NC, which opened in August 2007, and our mixed-use center, Pearland Town Center, which opened in July 2008, are our only non-stabilized malls as of March 31, 2009.

          We derive a significant amount of our revenues from the mall properties. The sources of our revenues by property type were as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Malls

 

 

90.0

%

 

90.4

%

Associated centers

 

 

3.9

%

 

3.9

%

Community centers

 

 

2.0

%

 

1.3

%

Mortgages, office buildings and other

 

 

4.1

%

 

4.4

%

          We have continued to experience sales pressure in the first quarter of 2009. Mall store sales for the trailing twelve months ended March 31, 2009 on a comparable per square foot basis were $326 per square foot compared with $341 per square foot in the prior year period, a decline of 4.4%.

Occupancy

          Our portfolio occupancy is summarized in the following table:

31



 

 

 

 

 

 

 

 

 

 

At March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Total portfolio occupancy

 

 

88.6

%

 

91.6

%

Total mall portfolio

 

 

88.9

%

 

91.3

%

Stabilized malls

 

 

89.1

%

 

91.4

%

Non-stabilized malls

 

 

80.3

%

 

89.2

%

Associated centers

 

 

89.0

%

 

94.9

%

Community centers

 

 

86.5

%

 

90.0

%

          Occupancy levels in the first quarter of 2009 were impacted by the residual closures from the bankruptcy activity in 2008. Many retailers who filed for bankruptcy protection during 2008 did not close until the first quarter of 2009. 

          During the first quarter of 2009, three national retailers in our portfolio announced that they had filed for bankruptcy protection: Strasburg Children, Ritz Camera and S&K Menswear. We have seven Strasburg Children locations totaling 11,000 square feet and approximately $0.2 million in annual gross rents. We have 26 Ritz Camera locations totaling 48,000 square feet and approximately $1.6 million in annual gross rents. We have 16 S&K Menswear locations totaling 60,000 square feet and approximately $1.2 million in annual gross rents.

          We have approximately 50 junior anchor locations totaling 1,800,000 square feet of available space as a result of bankruptcies that occurred during 2008. We have executed leases or letters of intent for thirteen of these locations totaling more than 400,000 square feet. Our leasing efforts have broadened to include non-retail tenants such as learning centers, community colleges and fitness centers. These types of tenants can deliver new sources of customers and complement the properties’ traffic flow patterns.

Leasing

          Average annual base rents per square foot were as follows for each property type:

 

 

 

 

 

 

 

 

 

 

At March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Stabilized malls

 

$

29.34

 

$

29.03

 

Non-stabilized malls

 

 

26.68

 

 

25.14

 

Associated centers

 

 

12.08

 

 

11.75

 

Community centers

 

 

14.62

 

 

13.51

 

Office Buildings

 

 

19.05

 

 

18.11

 

          During the three months ended March 31, 2009, we experienced negative results overall from the leasing spreads of comparable small shop space for spaces that were previously occupied as summarized in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square Feet

 

Prior Gross
Rent PSF

 

New Initial
Gross Rent PSF

 

% Change
Initial

 

New Average
Gross Rent PSF

 

% Change
Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Property Types (1)

 

 

543,392

 

$

37.17

 

$

32.35

 

 

(13.0

)%

$

33.01

 

 

(11.2

)%

Stabilized malls

 

 

490,923

 

 

39.00

 

 

33.97

 

 

(12.9

)%

 

34.67

 

 

(11.1

)%

New leases

 

 

92,349

 

 

40.35

 

 

37.93

 

 

(6.0

)%

 

40.55

 

 

0.5

%

Renewal leases

 

 

398,574

 

 

38.68

 

 

33.05

 

 

(14.6

)%

 

33.31

 

 

(13.9

)%


 

 

(1)

Includes stabilized malls, associated centers, community centers and office buildings.

32



          During the first quarter of 2009, we executed certain leases on several spaces at negative lease spreads that had a disproportionate effect on the overall results. This was primarily due to the execution of a number of renewal deals on a one-year basis with certain retailers in order to maintain occupancy while we seek other tenants to backfill the locations.

LIQUIDITY AND CAPITAL RESOURCES

          We derive a majority of our revenues from leases with retail tenants, which has historically been the primary source for funding short-term liquidity and capital needs such as operating expenses, debt service, tenant construction allowances, recurring capital expenditures and dividends and distributions. To the extent that cash flows from operating activities are not sufficient to fund longer-term liquidity needs such as acquisitions, new developments, renovations and expansions, we typically have financed, and expect to continue to finance, such activities with our revolving credit facilities, property specific mortgages (which are generally non-recourse), construction and term loans, equity offerings, joint venture investments and issuances of noncontrolling interests in our Operating Partnership. We also generate revenues from sales of peripheral land at the properties and from sales of real estate assets when it is determined that we can realize a maximized value for the assets. Proceeds from such sales are generally used to reduce borrowings on our credit facilities.

          We expect that the current economic downturn will continue to create pressure on the fundamentals of our business, including our ability to collect rental revenues from tenants in a timely manner, maintain current occupancy levels, and achieve positive growth in rents from renewals of existing tenant leases or from leases with new tenants. These conditions could negatively impact our future cash flows and financial condition. Additionally, the deteriorating economic conditions have resulted in increased volatility and uncertainty in the financial markets. As a result, there has been a reduction in the availability of financing as lenders have become more conservative when granting credit, which generally results in lower loan-to-value ratios and higher interest rates.

Cash Flows From Operations

          There was $44.1 million of unrestricted cash and cash equivalents as of March 31, 2009, a decrease of $7.2 million from December 31, 2008. Cash provided by operating activities during the three months ended March 31, 2009, decreased $1.3 million to $91.7 million from $93.0 million during the three months ended March 31, 2008. The decrease was primarily attributable to lower occupancy and higher bad debt expense, partially offset by lower operating, interest and general and administrative expenses.

Debt

          We refinanced or obtained extensions on more than $700.0 million of debt during the quarter, including more than $180.0 million on maturing mortgages and approximately $525.0 million on our largest secured credit facility.

          Of the $1,006.7 million of our pro rata share of consolidated and unconsolidated debt that is scheduled to mature during the remainder of 2009, including debt premiums of $0.1 million, we have extensions of $782.6 million available at our option that we intend to exercise, leaving approximately $224.1 million of maturities in 2009 that must be retired or refinanced. We completed a refinancing in April 2009 on one loan totaling $59.2 million with the same lender that extended the maturity for one year.

          All of the remaining 2009 loans, totaling $164.9 million, are non-recourse and property-specific and are held by life insurance companies, with the exception of a $53.1 million commercial mortgage-backed securities loan that matures in December 2009. We have three loans totaling $111.8 million that are with the same lender and have maturity dates ranging from May 2009 to October 2009. We are in the process of completing our negotiations with the lender on the loans and, subsequent to the first quarter of 2009, we paid a non-

33



refundable commitment fee for a ten-year extension relating to two of the three loans.  The remaining loan will be repaid in full using excess proceeds from the refinancing and our cash.

          Our unsecured line of credit with a balance as of March 31, 2009 totaling $522.5 million has an original maturity date of August 2009. The unsecured line of credit, with a capacity of $560.0 million, has two one-year extension options for an outside maturity date of August 2011. This facility, along with our largest secured line of credit with a capacity and an outstanding balance of $524.9 million as of March 31, 2009 that matures in February 2010, are both led by Wells Fargo (“Wells”). We are already in discussions with Wells and the additional syndicate participants regarding the refinancings of these lines of credit.

          Based on the status of our discussions with the lenders and the quality of the underlying properties, we believe that we will be successful in refinancing the loans maturing in 2009 and that the proceeds from those refinancings combined with cash flows generated from our operations, our reduced dividend, our equity and debt sources and the availability under our lines of credit will, for the foreseeable future, provide adequate liquidity to make distributions to our shareholders in accordance with the requirements applicable to real estate investment trusts. If we are not successful in achieving the anticipated level of proceeds from the refinancing of loans maturing in 2009, we have options available to us to generate additional liquidity, including but not limited to, equity offerings, joint venture investments, issuances of noncontrolling interests in our Operating Partnership, decreasing the amount of expenditures we make related to tenant construction allowances and other capital expenditures and implementing further cost containment initiatives. We also generate revenues from sales of peripheral land at the properties and from sales of real estate assets when it is determined that we can realize a maximized value for the assets.

          The secured and unsecured lines of credit contain, among other restrictions, certain financial covenants including the maintenance of certain coverage ratios, minimum net worth requirements, and limitations on cash flow distributions. As of March 31, 2009, we are in compliance with our debt covenants. Our debt to gross asset value at March 31, 2009 was 57.5%, well under the required maximum of 65%. Our interest coverage ratio was 2.34 compared to the required minimum of 1.75 and our debt service coverage ratio was 1.93 compared to the required minimum of 1.55. We have also performed stress tests on our covenant calculations assuming changes in cap rate assumptions and interest rates that would negatively impact our calculation results. Based on the results of these tests, we believe that we currently have adequate capacity to continue meeting the requirements of our debt covenants. However, if necessary, we may pay down a portion of the lines of credit.

          The weighted average remaining term of our total share of consolidated and unconsolidated debt was 3.8 years at March 31, 2009 and 3.9 years at December 31, 2008. The weighted average remaining term of our pro rata share of fixed-rate debt was 4.5 years and 4.6 years at March 31, 2009 and December 31, 2008, respectively.

          As of March 31, 2009 and December 31, 2008, our pro rata share of consolidated and unconsolidated variable-rate debt represented 25.3% and 24.6%, respectively, of our total pro rata share of debt. As of March 31, 2009, our share of consolidated and unconsolidated variable-rate debt represented 23.3% of our total market capitalization (see Equity below) as compared to 21.2% as of December 31, 2008.

          The following tables summarize debt based on our pro rata ownership share, including our pro rata share of unconsolidated affiliates and excluding noncontrolling investors’ share of consolidated properties, because we believe this provides investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands):

34



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

Noncontrolling
Interests

 

Unconsolidated
Affiliates

 

Total

 

Weighted
Average
Interest
Rate(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse loans on operating properties

 

$

4,019,774

 

$

(23,477

)

$

408,342

 

$

4,404,639

 

 

6.15

%

Recourse term loans on operating properties (2)

 

 

161,047

 

 

 

 

 

 

161,047

 

 

5.71

%

Secured line of credit (3)

 

 

400,000

 

 

 

 

 

 

400,000

 

 

4.45

%

 

 

   

 

   

 

   

 

   

 

 

 

 

Total fixed-rate debt

 

 

4,580,821

 

 

(23,477

)

 

408,342

 

 

4,965,686

 

 

5.95

%

 

 

   

 

   

 

   

 

   

 

 

 

 

Variable-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recourse term loans on operating properties

 

 

291,324

 

 

(928

)

 

46,625

 

 

337,021

 

 

1.78

%

Construction loans

 

 

96,708

 

 

 

 

108,189

 

 

204,897

 

 

2.12

%

Land loans

 

 

 

 

 

 

11,940

 

 

11,940

 

 

1.99

%

Unsecured line of credit

 

 

522,500

 

 

 

 

 

 

522,500

 

 

1.58

%

Secured lines of credit

 

 

166,050

 

 

 

 

 

 

166,050

 

 

1.34

%

Unsecured term facilities

 

 

437,494

 

 

 

 

 

 

437,494

 

 

2.01

%

 

 

   

 

   

 

   

 

   

 

 

 

 

Total variable-rate debt

 

 

1,514,076

 

 

(928

)

 

166,754

 

 

1,679,902

 

 

1.78

%

 

 

   

 

   

 

   

 

   

 

 

 

 

Total

 

$

6,094,897

 

$

(24,405

)

$

575,096

 

$

6,645,588

 

 

4.90

%

 

 

   

 

   

 

   

 

   

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

Minority
Interests

 

Unconsolidated
Affiliates

 

Total

 

Weighted
Average
Interest
Rate(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse loans on operating properties

 

$

4,046,653

 

$

(23,648

)

$

418,761

 

$

4,441,766

 

 

5.95

%

Recourse term loans on operating properties (2)

 

 

161,694

 

 

 

 

 

 

161,694

 

 

5.71

%

Secured line of credit (3)

 

 

400,000

 

 

 

 

 

 

400,000

 

 

4.45

%

 

 

   

 

   

 

   

 

   

 

 

 

 

Total fixed-rate debt

 

 

4,608,347

 

 

(23,648

)

 

418,761

 

 

5,003,460

 

 

5.96

%

 

 

   

 

   

 

   

 

   

 

 

 

 

Variable-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recourse term loans on operating properties

 

 

262,946

 

 

(928

)

 

46,346

 

 

308,364

 

 

2.52

%

Construction loans

 

 

115,339

 

 

 

 

85,182

 

 

200,521

 

 

2.19

%

Land loans

 

 

 

 

 

 

11,940

 

 

11,940

 

 

3.04

%

Unsecured line of credit

 

 

522,500

 

 

 

 

 

 

522,500

 

 

1.92

%

Secured lines of credit

 

 

149,050

 

 

 

 

 

 

149,050

 

 

1.45

%

Unsecured term facilities

 

 

437,494

 

 

 

 

 

 

437,494

 

 

1.88

%

 

 

   

 

   

 

   

 

   

 

 

 

 

Total variable-rate debt

 

 

1,487,329

 

 

(928

)

 

143,468

 

 

1,629,869

 

 

2.02

%

 

 

   

 

   

 

   

 

   

 

 

 

 

Total

 

$

6,095,676

 

$

(24,576

)

$

562,229

 

$

6,633,329

 

 

4.99

%

 

 

   

 

   

 

   

 

   

 

 

 

 


 

 

(1)

Weighted average interest rate including the effect of debt premiums (discounts), but excluding amortization of deferred financing costs.

(2)

We have entered into interest rate swaps on notional amounts totaling $127,500 as of March 31, 2009 and December 31, 2008 related to two of our variable-rate loans on operating properties to effectively fix the interest rates on those loans. Therefore, these amounts are currently reflected in fixed-rate debt.

(3)

We have interest rate swaps on notional amounts totaling $400,000 as of March 31, 2009 and December 31, 2008 related to our largest secured credit facility to effectively fix the interest rate on that portion of the line of credit. Therefore, this amount is currently reflected in fixed-rate debt.

Unsecured Lines of Credit </