UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM _____________ TO _______________
COMMISSION FILE NO. 1-12494 (CBL & ASSOCIATES PROPERTIES, INC.)
COMMISSION FILE NO. 333-182515-01 (CBL & ASSOCIATES LIMITED PARTNERSHIP)
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
(Exact Name of registrant as specified in its charter)
Delaware (CBL & ASSOCIATES PROPERTIES, INC.) | 62-1545718 | |
Delaware (CBL & ASSOCIATES LIMITED PARTNERSHIP) | 62-1542285 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
2030 Hamilton Place Blvd., Suite 500, Chattanooga, TN 37421-6000
(Address of principal executive office, including zip code)
423 - 855-0001
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
CBL & Associates Properties, Inc. | Yes | ☒ | No | ☐ | |
CBL & Associates Limited Partnership | Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
CBL & Associates Properties, Inc. | Yes | ☒ | No | ☐ | |
CBL & Associates Limited Partnership | Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
CBL & Associates Properties, Inc. | ||||
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ | |||
CBL & Associates Limited Partnership | ||||
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
CBL & Associates Properties, Inc. | Yes | ☐ | No | ☒ | |
CBL & Associates Limited Partnership | Yes | ☐ | No | ☒ |
Securities registered under Section 12(b) of the Act:
CBL & Associates Properties, Inc.
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.01 par value | CBL | New York Stock Exchange | ||
7.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value | CBLprD | New York Stock Exchange | ||
6.625% Series E Cumulative Redeemable Preferred Stock, $0.01 par value | CBLprE | New York Stock Exchange |
CBL & Associates Limited Partnership: None
As of November 1, 2017,May 29, 2020, there were 171,101,611191,970,853 shares of CBL & Associates Properties, Inc.'s common stock, par value $0.01 per share, outstanding.
EXPLANATORY NOTE
(Dollars in thousands, except share data)
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2017March 31, 2020 of CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries. The terms "we," "us" and "our" refer to the Company or the Company and the Operating Partnership collectively, as the context requires.
As previously disclosed in the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 30, the Company relied on Release No. 34-88465 issued by the SEC on March 25, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, to delay the filing of the Company’s Quarterly Report on Form 10-Q due to circumstances related to the current novel coronavirus (“COVID-19”) pandemic. The need to address the immediate and evolving impacts of COVID-19 on the Company’s business and operations, including impacts on the operations at each of its properties, increased the demands on its employees at a time when normal working conditions were altered, with health and safety precautions in mind, to accommodate a “work from home” model.
The Company is a real estate investment trust ("REIT") whose stock is traded on the New York Stock Exchange. The Company is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At September 30, 2017,March 31, 2020, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.0% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned an 84.8%94.2% limited partner interest for a combined interest held by the Company of 85.8%95.2%.
As the sole general partner of the Operating Partnership, the Company's subsidiary, CBL Holdings I, Inc., has exclusive control of the Operating Partnership's activities. Management operates the Company and the Operating Partnership as one business. The management of the Company consists of the same individuals that manage the Operating Partnership. The Company's only material asset is its indirect ownership of partnership interests of the Operating Partnership. As a result, the Company conducts substantially all its business through the Operating Partnership as described in the preceding paragraph. The Company also issues public equity from time to time and guarantees certain debt of the Operating Partnership. The Operating Partnership holds all of the assets and indebtedness of the Company and, through affiliates, retains the ownership interests in the Company's joint ventures. Except for the net proceeds of offerings of equity by the Company, which are contributed to the Operating Partnership in exchange for partnership units on a one-for-one basis, the Operating Partnership generates all remaining capital required by the Company's business through its operations and its incurrence of indebtedness.
We believe that combining the two quarterly reports on Form 10-Q for the Company and the Operating Partnership provides the following benefits:
• | enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business; |
• | eliminates duplicative disclosure and provides a more streamlined and readable presentation, since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and |
• | creates time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
To help investors understand the differences between the Company and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Company and the Operating Partnership. Noncontrolling interests, shareholders' equity and partners' capital are the main areas of difference between the condensed consolidated financial statements of the Company and those of the Operating Partnership. A single set of notes to condensed consolidated financial statements is presented that includes separate discussions for the Company and the Operating Partnership, when applicable. A combined Management's Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents combined information and discrete information related to each entity, as applicable.
In order to highlight the differences between the Company and the Operating Partnership, this report includes the following sections that provide separate financial and other information for the Company and the Operating Partnership:
• | condensed consolidated financial statements; |
• | certain accompanying notes to condensed consolidated financial statements, including Note 7- Unconsolidated Affiliates and Noncontrolling Interests; Note 8- Mortgage and Other Indebtedness, Net; and Note 11- Earnings per Share and Earnings per Unit; |
• | controls and procedures in Item 4of Part I of this report; |
• | information concerning unregistered sales of equity securities and use of proceeds in Item 2of Part II of this report; and |
• | certifications of the Chief Executive Officer and Chief Financial Officer included as Exhibits 31.1 through 32.4. |
Combined Guarantor Subsidiaries of the Operating Partnership
In January 2019, the Operating Partnership entered into a new $1,185,000 senior secured credit facility which replaced all of the Operating Partnership’s prior unsecured bank facilities. The secured credit facility is secured by 17 malls and 3 associated centers that are directly or indirectly owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional four malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties.” In addition to the secured credit facility, the Operating Partnership’s debt includes three separate series of senior unsecured notes (the “Notes”). Based on the terms of the Notes, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.
This report also includes as an exhibit the condensed combined financial statements and notes to the condensed combined financial statements of the Combined Guarantor Subsidiaries. Each of the Combined Guarantor Subsidiaries meet the criteria in Rule 3-10(f) of SEC Regulation S-X to provide condensed consolidating financial information as additional disclosure in the notes to the Operating Partnership's condensed consolidated financial statements or within Management’s Discussion and Analysis which accompanies the condensed consolidated financial statements because each Combined Guarantor Subsidiary is 100% owned by the Operating Partnership, the guaranty issued by each Combined Guarantor Subsidiary is full and unconditional and the guaranty issued by each Combined Guarantor Subsidiary is joint and several. However, the Operating Partnership has elected to provide condensed combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including Note 5 - Unconsolidated Affiliatesthe condensed consolidating financial information in the notes to its condensed consolidated financial statements. These condensed combined financial statements and Noncontrolling Interests; Note 6 - Mortgage and Other Indebtedness, Net; Note 7 - Comprehensive Income; and Note 11 - Earnings per Share and Earnings per Unit;
CBL & Associates Properties, Inc.
CBL & Associates Limited Partnership
Table of Contents
PART I | ||
CBL & Associates Properties, Inc. | ||
5 | ||
CBL & Associates Limited Partnership | ||
6 | ||
7 | ||
8 | ||
9 | ||
10 | ||
CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership | ||
11 | ||
Item 2. | 34 | |
54 | ||
54 | ||
55 | ||
55 | ||
56 | ||
59 | ||
60 | ||
60 | ||
60 | ||
61 | ||
62 |
PART I – FINANCIAL INFORMATION
ITEM 1: Financial Statements
CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
ASSETS (1) |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Real estate assets: |
|
|
|
|
|
|
|
|
Land |
| $ | 719,142 |
|
| $ | 730,218 |
|
Buildings and improvements |
|
| 5,360,133 |
|
|
| 5,631,831 |
|
|
|
| 6,079,275 |
|
|
| 6,362,049 |
|
Accumulated depreciation |
|
| ( 2,218,254 | ) |
|
| ( 2,349,404 | ) |
|
|
| 3,861,021 |
|
|
| 4,012,645 |
|
Developments in progress |
|
| 31,009 |
|
|
| 49,351 |
|
Net investment in real estate assets |
|
| 3,892,030 |
|
|
| 4,061,996 |
|
Cash and cash equivalents |
|
| 159,117 |
|
|
| 32,816 |
|
Available-for-sale securities - at fair value (amortized cost of $153,150 in 2020) |
|
| 153,172 |
|
|
| — |
|
Receivables: |
|
|
|
|
|
|
|
|
Tenant |
|
| 72,157 |
|
|
| 75,252 |
|
Other |
|
| 10,152 |
|
|
| 10,792 |
|
Mortgage and other notes receivable |
|
| 2,928 |
|
|
| 4,662 |
|
Investments in unconsolidated affiliates |
|
| 299,797 |
|
|
| 307,354 |
|
Intangible lease assets and other assets |
|
| 131,962 |
|
|
| 129,474 |
|
|
| $ | 4,721,315 |
|
| $ | 4,622,346 |
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY |
|
|
|
|
|
|
|
|
Mortgage and other indebtedness, net |
| $ | 3,789,692 |
|
| $ | 3,527,015 |
|
Accounts payable and accrued liabilities |
|
| 205,470 |
|
|
| 231,306 |
|
Total liabilities (1) |
|
| 3,995,162 |
|
|
| 3,758,321 |
|
Commitments and contingencies (Note 8 and Note 12) |
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests |
|
| 1,062 |
|
|
| 2,160 |
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Preferred Stock, $.01 par value, 15,000,000 shares authorized: |
|
|
|
|
|
|
|
|
7.375% Series D Cumulative Redeemable Preferred Stock, 1,815,000 shares outstanding |
|
| 18 |
|
|
| 18 |
|
6.625% Series E Cumulative Redeemable Preferred Stock, 690,000 shares outstanding |
|
| 7 |
|
|
| 7 |
|
Common stock, $.01 par value, 350,000,000 shares authorized, 191,965,622 and 174,115,111 issued and outstanding in 2020 and 2019, respectively |
|
| 1,920 |
|
|
| 1,741 |
|
Additional paid-in capital |
|
| 1,977,891 |
|
|
| 1,965,897 |
|
Accumulated other comprehensive income |
|
| 22 |
|
|
| — |
|
Dividends in excess of cumulative earnings |
|
| ( 1,284,024 | ) |
|
| ( 1,161,351 | ) |
Total shareholders' equity |
|
| 695,834 |
|
|
| 806,312 |
|
Noncontrolling interests |
|
| 29,257 |
|
|
| 55,553 |
|
Total equity |
|
| 725,091 |
|
|
| 861,865 |
|
|
| $ | 4,721,315 |
|
| $ | 4,622,346 |
|
ASSETS (1) | September 30, 2017 | December 31, 2016 | |||||
Real estate assets: | |||||||
Land | $ | 811,742 | $ | 820,979 | |||
Buildings and improvements | 6,668,312 | 6,942,452 | |||||
7,480,054 | 7,763,431 | ||||||
Accumulated depreciation | (2,411,560 | ) | (2,427,108 | ) | |||
5,068,494 | 5,336,323 | ||||||
Held for sale | — | 5,861 | |||||
Developments in progress | 100,106 | 178,355 | |||||
Net investment in real estate assets | 5,168,600 | 5,520,539 | |||||
Cash and cash equivalents | 31,351 | 18,951 | |||||
Receivables: | |||||||
Tenant, net of allowance for doubtful accounts of $2,075 and $1,910 in 2017 and 2016, respectively | 86,947 | 94,676 | |||||
Other, net of allowance for doubtful accounts of $838 in 2017 and 2016 | 5,554 | 6,227 | |||||
Mortgage and other notes receivable | 19,279 | 16,803 | |||||
Investments in unconsolidated affiliates | 251,664 | 266,872 | |||||
Intangible lease assets and other assets | 180,361 | 180,572 | |||||
$ | 5,743,756 | $ | 6,104,640 | ||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | |||||||
Mortgage and other indebtedness, net | $ | 4,216,178 | $ | 4,465,294 | |||
Accounts payable and accrued liabilities | 270,046 | 280,498 | |||||
Total liabilities (1) | 4,486,224 | 4,745,792 | |||||
Commitments and contingencies (Note 6 and Note 12) | |||||||
Redeemable noncontrolling interests | 13,076 | 17,996 | |||||
Shareholders' equity: | |||||||
Preferred stock, $.01 par value, 15,000,000 shares authorized: | |||||||
7.375% Series D Cumulative Redeemable Preferred Stock, 1,815,000 shares outstanding | 18 | 18 | |||||
6.625% Series E Cumulative Redeemable Preferred Stock, 690,000 shares outstanding | 7 | 7 | |||||
Common stock, $.01 par value, 350,000,000 shares authorized, 171,096,895 and 170,792,645 issued and outstanding in 2017 and 2016, respectively | 1,711 | 1,708 | |||||
Additional paid-in capital | 1,971,447 | 1,969,059 | |||||
Dividends in excess of cumulative earnings | (827,292 | ) | (742,078 | ) | |||
Total shareholders' equity | 1,145,891 | 1,228,714 | |||||
Noncontrolling interests | 98,565 | 112,138 | |||||
Total equity | 1,244,456 | 1,340,852 | |||||
$ | 5,743,756 | $ | 6,104,640 |
(1) | |
As of |
The accompanying notes are an integral part of these condensed consolidated statements.
1
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
REVENUES: |
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 161,173 |
|
| $ | 190,980 |
|
Management, development and leasing fees |
|
| 2,092 |
|
|
| 2,523 |
|
Other |
|
| 4,309 |
|
|
| 4,527 |
|
Total revenues |
|
| 167,574 |
|
|
| 198,030 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
Property operating |
|
| ( 25,709 | ) |
|
| ( 28,980 | ) |
Depreciation and amortization |
|
| ( 55,902 | ) |
|
| ( 69,792 | ) |
Real estate taxes |
|
| ( 18,448 | ) |
|
| ( 19,919 | ) |
Maintenance and repairs |
|
| ( 11,208 | ) |
|
| ( 12,776 | ) |
General and administrative |
|
| ( 17,836 | ) |
|
| ( 22,007 | ) |
Loss on impairment |
|
| ( 133,644 | ) |
|
| ( 24,825 | ) |
Litigation settlement |
|
| — |
|
|
| ( 88,150 | ) |
Other |
|
| ( 158 | ) |
|
| — |
|
Total operating expenses |
|
| ( 262,905 | ) |
|
| ( 266,449 | ) |
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
Interest and other income |
|
| 2,397 |
|
|
| 489 |
|
Interest expense |
|
| ( 46,992 | ) |
|
| ( 53,998 | ) |
Gain on extinguishment of debt |
|
| — |
|
|
| 71,722 |
|
Gain on sales of real estate assets |
|
| 140 |
|
|
| 228 |
|
Income tax provision |
|
| ( 526 | ) |
|
| ( 139 | ) |
Equity in earnings of unconsolidated affiliates |
|
| 1,018 |
|
|
| 3,308 |
|
Total other income (expenses) |
|
| ( 43,963 | ) |
|
| 21,610 |
|
Net loss |
|
| ( 139,294 | ) |
|
| ( 46,809 | ) |
Net loss attributable to noncontrolling interests in: |
|
|
|
|
|
|
|
|
Operating Partnership |
|
| 16,414 |
|
|
| 7,758 |
|
Other consolidated subsidiaries |
|
| 207 |
|
|
| 75 |
|
Net loss attributable to the Company |
|
| ( 122,673 | ) |
|
| ( 38,976 | ) |
Preferred dividends declared |
|
| — |
|
|
| ( 11,223 | ) |
Preferred dividends undeclared |
|
| ( 11,223 | ) |
|
| — |
|
Net loss attributable to common shareholders |
| $ | ( 133,896 | ) |
| $ | ( 50,199 | ) |
Basic and diluted per share data attributable to common shareholders: |
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
| $ | ( 0.75 | ) |
| $ | ( 0.29 | ) |
Weighted-average common and potential dilutive common shares outstanding |
|
| 179,133 |
|
|
| 173,252 |
|
CBL & Associates Properties, Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
REVENUES: | |||||||||||||||
Minimum rents | $ | 150,836 | $ | 164,444 | $ | 468,195 | $ | 502,289 | |||||||
Percentage rents | 3,000 | 3,225 | 7,127 | 10,590 | |||||||||||
Other rents | 3,790 | 3,866 | 11,171 | 13,747 | |||||||||||
Tenant reimbursements | 63,055 | 69,489 | 192,577 | 212,951 | |||||||||||
Management, development and leasing fees | 2,718 | 4,177 | 8,747 | 10,825 | |||||||||||
Other | 1,251 | 6,520 | 4,079 | 19,362 | |||||||||||
Total revenues | 224,650 | 251,721 | 691,896 | 769,764 | |||||||||||
OPERATING EXPENSES: | |||||||||||||||
Property operating | 31,295 | 35,116 | 96,250 | 104,804 | |||||||||||
Depreciation and amortization | 71,732 | 71,794 | 225,461 | 220,505 | |||||||||||
Real estate taxes | 21,573 | 22,492 | 62,343 | 68,354 | |||||||||||
Maintenance and repairs | 11,254 | 13,236 | 36,322 | 39,574 | |||||||||||
General and administrative | 13,568 | 13,222 | 45,402 | 46,865 | |||||||||||
Loss on impairment | 24,935 | 53,558 | 71,401 | 116,736 | |||||||||||
Other | 132 | 5,576 | 5,151 | 20,313 | |||||||||||
Total operating expenses | 174,489 | 214,994 | 542,330 | 617,151 | |||||||||||
Income from operations | 50,161 | 36,727 | 149,566 | 152,613 | |||||||||||
Interest and other income (loss) | (200 | ) | 451 | 1,235 | 1,062 | ||||||||||
Interest expense | (53,913 | ) | (54,292 | ) | (165,179 | ) | (162,710 | ) | |||||||
Gain on extinguishment of debt | 6,452 | (6 | ) | 30,927 | — | ||||||||||
Loss on investment | (354 | ) | — | (6,197 | ) | — | |||||||||
Income tax benefit | 1,064 | 2,386 | 4,784 | 2,974 | |||||||||||
Equity in earnings of unconsolidated affiliates | 4,706 | 10,478 | 16,404 | 107,217 | |||||||||||
Income (loss) from continuing operations before gain on sales of real estate assets | 7,916 | (4,256 | ) | 31,540 | 101,156 | ||||||||||
Gain on sales of real estate assets | 1,383 | 4,926 | 86,904 | 14,503 | |||||||||||
Net income | 9,299 | 670 | 118,444 | 115,659 | |||||||||||
Net (income) loss attributable to noncontrolling interests in: | |||||||||||||||
Operating Partnership | 81 | 1,372 | (8,702 | ) | (12,056 | ) | |||||||||
Other consolidated subsidiaries | (415 | ) | (983 | ) | (25,266 | ) | 449 | ||||||||
Net income attributable to the Company | 8,965 | 1,059 | 84,476 | 104,052 | |||||||||||
Preferred dividends | (11,223 | ) | (11,223 | ) | (33,669 | ) | (33,669 | ) | |||||||
Net income (loss) attributable to common shareholders | $ | (2,258 | ) | $ | (10,164 | ) | $ | 50,807 | $ | 70,383 | |||||
Basic and diluted per share data attributable to common shareholders: | |||||||||||||||
Net income (loss) attributable to common shareholders | $ | (0.01 | ) | $ | (0.06 | ) | $ | 0.30 | $ | 0.41 | |||||
Weighted-average common and potential dilutive common shares outstanding | 171,096 | 170,792 | 171,060 | 170,751 | |||||||||||
Dividends declared per common share | $ | 0.265 | $ | 0.265 | $ | 0.795 | $ | 0.795 |
The accompanying notes are an integral part of these condensed consolidated statements.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)thousands, except share data)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net loss |
| $ | ( 139,294 | ) |
| $ | ( 46,809 | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities |
|
| 22 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
| ( 139,272 | ) |
|
| ( 46,809 | ) |
Comprehensive loss attributable to noncontrolling interests in: |
|
|
|
|
|
|
|
|
Operating Partnership |
|
| 16,412 |
|
|
| 7,758 |
|
Other consolidated subsidiaries |
|
| 207 |
|
|
| 75 |
|
Comprehensive loss attributable to the Company: |
| $ | ( 122,653 | ) |
| $ | ( 38,976 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 9,299 | $ | 670 | $ | 118,444 | $ | 115,659 | |||||||
Other comprehensive income: | |||||||||||||||
Unrealized gain on hedging instruments | — | — | — | 877 | |||||||||||
Reclassification of hedging effect on earnings | — | — | — | (443 | ) | ||||||||||
Total other comprehensive income | — | — | — | 434 | |||||||||||
Comprehensive income | 9,299 | 670 | 118,444 | 116,093 | |||||||||||
Comprehensive (income) loss attributable to noncontrolling interests in: | |||||||||||||||
Operating Partnership | 81 | 1,372 | (8,702 | ) | (12,119 | ) | |||||||||
Other consolidated subsidiaries | (415 | ) | (983 | ) | (25,266 | ) | 449 | ||||||||
Comprehensive income attributable to the Company | $ | 8,965 | $ | 1,059 | $ | 84,476 | $ | 104,423 |
The accompanying notes are an integral part of these condensed consolidated statements.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
| Equity |
| |||||||||||||||||||||||||
|
|
|
|
|
| Shareholders' Equity |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Redeemable Noncontrolling Interests |
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Dividends in Excess of Cumulative Earnings |
|
| Total Shareholders' Equity |
|
| Noncontrolling Interests |
|
| Total Equity |
| ||||||||
Balance, January 1, 2019 |
| $ | 3,575 |
|
| $ | 25 |
|
| $ | 1,727 |
|
| $ | 1,968,280 |
|
| $ | ( 1,005,895 | ) |
| $ | 964,137 |
|
| $ | 68,028 |
|
| $ | 1,032,165 |
|
Net loss |
|
| ( 453 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 38,976 | ) |
|
| ( 38,976 | ) |
|
| ( 7,380 | ) |
|
| ( 46,356 | ) |
Dividends declared - common stock ($0.075 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 13,010 | ) |
|
| ( 13,010 | ) |
|
| — |
|
|
| ( 13,010 | ) |
Dividends declared - preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 11,223 | ) |
|
| ( 11,223 | ) |
|
| — |
|
|
| ( 11,223 | ) |
Issuance of 863,174 shares of common stock and restricted common stock |
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| 708 |
|
|
| — |
|
|
| 717 |
|
|
| — |
|
|
| 717 |
|
Cancellation of 57,656 shares of restricted common stock |
|
| — |
|
|
| — |
|
|
| ( 1 | ) |
|
| ( 133 | ) |
|
| — |
|
|
| ( 134 | ) |
|
| — |
|
|
| ( 134 | ) |
Performance stock units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 313 |
|
|
| — |
|
|
| 313 |
|
|
| — |
|
|
| 313 |
|
Amortization of deferred compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,033 |
|
|
| — |
|
|
| 1,033 |
|
|
| — |
|
|
| 1,033 |
|
Adjustment for noncontrolling interests |
|
| 1,038 |
|
|
| — |
|
|
| — |
|
|
| ( 2,356 | ) |
|
| — |
|
|
| ( 2,356 | ) |
|
| 1,318 |
|
|
| ( 1,038 | ) |
Distributions to noncontrolling interests |
|
| ( 1,143 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 4,450 | ) |
|
| ( 4,450 | ) |
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 455 |
|
|
| 455 |
|
Balance, March 31, 2019 |
| $ | 3,017 |
|
| $ | 25 |
|
| $ | 1,735 |
|
| $ | 1,967,845 |
|
| $ | ( 1,069,104 | ) |
| $ | 900,501 |
|
| $ | 57,971 |
|
| $ | 958,472 |
|
|
|
|
|
|
| Equity |
| |||||||||||||||||||||||||||||
|
|
|
|
|
| Shareholders' Equity |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Redeemable Noncontrolling Interests |
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Accumulated Other Comprehensive Income |
|
| Dividends in Excess of Cumulative Earnings |
|
| Total Shareholders' Equity |
|
| Noncontrolling Interests |
|
| Total Equity |
| |||||||||
Balance, January 1, 2020 |
| $ | 2,160 |
|
| $ | 25 |
|
| $ | 1,741 |
|
| $ | 1,965,897 |
|
| $ | — |
|
| $ | ( 1,161,351 | ) |
| $ | 806,312 |
|
| $ | 55,553 |
|
| $ | 861,865 |
|
Net loss |
|
| ( 1,158 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 122,673 | ) |
|
| ( 122,673 | ) |
|
| ( 15,463 | ) |
|
| ( 138,136 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 22 |
|
Conversion of 16,333,947 Operating Partnership common units into shares of common stock |
|
| — |
|
|
| — |
|
|
| 163 |
|
|
| 20,888 |
|
|
| — |
|
|
| — |
|
|
| 21,051 |
|
|
| ( 21,051 | ) |
|
| — |
|
Issuance of 1,633,345 shares of common stock and restricted common stock |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| 520 |
|
|
| — |
|
|
| — |
|
|
| 537 |
|
|
| — |
|
|
| 537 |
|
Cancellation of 116,781 shares of restricted common stock |
|
| — |
|
|
| — |
|
|
| ( 1 | ) |
|
| ( 96 | ) |
|
| — |
|
|
| — |
|
|
| ( 97 | ) |
|
| — |
|
|
| ( 97 | ) |
Amortization of deferred compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 633 |
|
|
| — |
|
|
| — |
|
|
| 633 |
|
|
| — |
|
|
| 633 |
|
Performance stock units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 390 |
|
|
| — |
|
|
| — |
|
|
| 390 |
|
|
| — |
|
|
| 390 |
|
Adjustment for noncontrolling interests |
|
| 60 |
|
|
| — |
|
|
| — |
|
|
| ( 10,341 | ) |
|
| — |
|
|
|
|
|
|
| ( 10,341 | ) |
|
| 10,281 |
|
|
| ( 60 | ) |
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 731 | ) |
|
| ( 731 | ) |
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 668 |
|
|
| 668 |
|
Balance, March 31, 2020 |
| $ | 1,062 |
|
| $ | 25 |
|
| $ | 1,920 |
|
| $ | 1,977,891 |
|
| $ | 22 |
|
| $ | ( 1,284,024 | ) |
| $ | 695,834 |
|
| $ | 29,257 |
|
| $ | 725,091 |
|
Equity | |||||||||||||||||||||||||||||||||||
Shareholders' Equity | |||||||||||||||||||||||||||||||||||
Redeemable Noncontrolling Interests | Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Dividends in Excess of Cumulative Earnings | Total Shareholders' Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||
Balance, January 1, 2016 | $ | 25,330 | $ | 25 | $ | 1,705 | $ | 1,970,333 | $ | 1,935 | $ | (689,028 | ) | $ | 1,284,970 | $ | 114,629 | $ | 1,399,599 | ||||||||||||||||
Net income (loss) | (2,119 | ) | — | — | — | — | 104,052 | 104,052 | 13,726 | 117,778 | |||||||||||||||||||||||||
Other comprehensive income | 3 | — | — | — | 371 | — | 371 | 60 | 431 | ||||||||||||||||||||||||||
Purchase of noncontrolling interest in Operating Partnership | — | — | — | — | — | — | — | (11,754 | ) | (11,754 | ) | ||||||||||||||||||||||||
Dividends declared - common stock | — | — | — | — | — | (135,780 | ) | (135,780 | ) | — | (135,780 | ) | |||||||||||||||||||||||
Dividends declared - preferred stock | — | — | — | — | — | (33,669 | ) | (33,669 | ) | — | (33,669 | ) | |||||||||||||||||||||||
Issuances of 331,324 shares of common stock and restricted common stock | — | — | 3 | 429 | — | — | 432 | — | 432 | ||||||||||||||||||||||||||
Cancellation of 31,293 shares of restricted common stock | — | — | — | (226 | ) | — | — | (226 | ) | — | (226 | ) | |||||||||||||||||||||||
Performance stock units | — | — | — | 775 | — | — | 775 | — | 775 | ||||||||||||||||||||||||||
Amortization of deferred compensation | — | — | — | 2,857 | — | — | 2,857 | — | 2,857 | ||||||||||||||||||||||||||
Adjustment for noncontrolling interests | 1,686 | — | — | (11,647 | ) | (2,306 | ) | — | (13,953 | ) | 12,267 | (1,686 | ) | ||||||||||||||||||||||
Adjustment to record redeemable noncontrolling interests at redemption value | 3,617 | — | — | (3,514 | ) | — | — | (3,514 | ) | (103 | ) | (3,617 | ) | ||||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | — | 11,240 | 11,240 | ||||||||||||||||||||||||||
Distributions to noncontrolling interests | (5,775 | ) | — | — | — | — | — | — | (29,712 | ) | (29,712 | ) | |||||||||||||||||||||||
Balance, September 30, 2016 | $ | 22,742 | $ | 25 | $ | 1,708 | $ | 1,959,007 | $ | — | $ | (754,425 | ) | $ | 1,206,315 | $ | 110,353 | $ | 1,316,668 |
Equity | |||||||||||||||||||||||||||||||
Shareholders' Equity | |||||||||||||||||||||||||||||||
Redeemable Noncontrolling Interests | Preferred Stock | Common Stock | Additional Paid-in Capital | Dividends in Excess of Cumulative Earnings | Total Shareholders' Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
Balance, January 1, 2017 | $ | 17,996 | $ | 25 | $ | 1,708 | $ | 1,969,059 | $ | (742,078 | ) | $ | 1,228,714 | $ | 112,138 | $ | 1,340,852 | ||||||||||||||
Net income | 481 | — | — | — | 84,476 | 84,476 | 33,487 | 117,963 | |||||||||||||||||||||||
Dividends declared - common stock | — | — | — | — | (136,021 | ) | (136,021 | ) | — | (136,021 | ) | ||||||||||||||||||||
Dividends declared - preferred stock | — | — | — | — | (33,669 | ) | (33,669 | ) | — | (33,669 | ) | ||||||||||||||||||||
Issuances of 342,008 shares of common stock and restricted common stock | — | — | 3 | 471 | — | 474 | — | 474 | |||||||||||||||||||||||
Redemptions of Operating Partnership common units | — | — | — | — | — | — | (593 | ) | (593 | ) | |||||||||||||||||||||
Cancellation of 37,758 shares of restricted common stock | — | — | — | (327 | ) | — | (327 | ) | — | (327 | ) | ||||||||||||||||||||
Performance stock units | — | — | — | 1,115 | — | 1,115 | — | 1,115 | |||||||||||||||||||||||
Amortization of deferred compensation | — | — | — | 3,135 | — | 3,135 | — | 3,135 | |||||||||||||||||||||||
Adjustment for noncontrolling interests | 2,224 | — | — | (5,635 | ) | — | (5,635 | ) | 3,413 | (2,222 | ) | ||||||||||||||||||||
Adjustment to record redeemable noncontrolling interests at redemption value | (4,196 | ) | — | — | 3,629 | — | 3,629 | 566 | 4,195 | ||||||||||||||||||||||
Deconsolidation of investment | — | — | — | — | — | — | (2,232 | ) | (2,232 | ) | |||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | 263 | 263 | |||||||||||||||||||||||
Distributions to noncontrolling interests | (3,429 | ) | — | — | — | — | — | (48,477 | ) | (48,477 | ) | ||||||||||||||||||||
Balance, September 30, 2017 | $ | 13,076 | $ | 25 | $ | 1,711 | $ | 1,971,447 | $ | (827,292 | ) | $ | 1,145,891 | $ | 98,565 | $ | 1,244,456 |
The accompanying notes are an integral part of these condensed consolidated statements.
4
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
| $ | ( 139,294 | ) |
| $ | ( 46,809 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 55,902 |
|
|
| 69,792 |
|
Net amortization of deferred financing costs, premiums on available-for-sale securities and debt premiums and discounts |
|
| 1,990 |
|
|
| 2,304 |
|
Net amortization of intangible lease assets and liabilities |
|
| ( 687 | ) |
|
| ( 551 | ) |
Gain on sales of real estate assets |
|
| ( 140 | ) |
|
| ( 228 | ) |
Gain on insurance proceeds |
|
| ( 511 | ) |
|
| ( 690 | ) |
Write-off of development projects |
|
| 158 |
|
|
| — |
|
Share-based compensation expense |
|
| 1,545 |
|
|
| 2,043 |
|
Loss on impairment |
|
| 133,644 |
|
|
| 24,825 |
|
Gain on extinguishment of debt |
|
| — |
|
|
| ( 71,722 | ) |
Equity in earnings of unconsolidated affiliates |
|
| ( 1,018 | ) |
|
| ( 3,308 | ) |
Distributions of earnings from unconsolidated affiliates |
|
| 4,235 |
|
|
| 5,671 |
|
Change in estimate of uncollectable rental revenues |
|
| 2,312 |
|
|
| 1,540 |
|
Change in deferred tax accounts |
|
| ( 239 | ) |
|
| 63 |
|
Changes in: |
|
|
|
|
|
|
|
|
Tenant and other receivables |
|
| 1,424 |
|
|
| ( 387 | ) |
Other assets |
|
| ( 3,746 | ) |
|
| ( 3,826 | ) |
Accounts payable and accrued liabilities |
|
| ( 16,847 | ) |
|
| 76,771 |
|
Net cash provided by operating activities |
|
| 38,728 |
|
|
| 55,488 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Additions to real estate assets |
|
| ( 22,760 | ) |
|
| ( 26,429 | ) |
Proceeds from sales of real estate assets |
|
| 520 |
|
|
| 35,260 |
|
Purchase of available-for-sale securities |
|
| ( 153,193 | ) |
|
| — |
|
Proceeds from insurance |
|
| 600 |
|
|
| 548 |
|
Payments received on mortgage and other notes receivable |
|
| 503 |
|
|
| 266 |
|
Additional investments in and advances to unconsolidated affiliates |
|
| ( 2,679 | ) |
|
| ( 566 | ) |
Distributions in excess of equity in earnings of unconsolidated affiliates |
|
| 4,668 |
|
|
| 4,979 |
|
Changes in other assets |
|
| ( 290 | ) |
|
| ( 321 | ) |
Net cash provided by (used in) investing activities |
|
| ( 172,631 | ) |
|
| 13,737 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from mortgage and other indebtedness |
|
| 365,000 |
|
|
| 941,217 |
|
Principal payments on mortgage and other indebtedness |
|
| ( 103,582 | ) |
|
| ( 978,006 | ) |
Additions to deferred financing costs |
|
| ( 1,300 | ) |
|
| ( 15,107 | ) |
Proceeds from issuances of common stock |
|
| 3 |
|
|
| 17 |
|
Contributions from noncontrolling interests |
|
| 668 |
|
|
| 455 |
|
Payment of tax withholdings for restricted stock awards |
|
| ( 87 | ) |
|
| ( 132 | ) |
Distributions to noncontrolling interests |
|
| ( 731 | ) |
|
| ( 5,593 | ) |
Dividends paid to holders of preferred stock |
|
| — |
|
|
| ( 11,223 | ) |
Dividends paid to common shareholders |
|
| — |
|
|
| ( 12,949 | ) |
Net cash provided by (used in) financing activities |
|
| 259,971 |
|
|
| ( 81,321 | ) |
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 126,068 |
|
|
| ( 12,096 | ) |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period |
|
| 59,058 |
|
|
| 57,512 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
| $ | 185,126 |
|
| $ | 45,416 |
|
Reconciliation from consolidated statements of cash flows to consolidated balance sheets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 159,117 |
|
| $ | 21,055 |
|
Restricted cash (1): |
|
|
|
|
|
|
|
|
Restricted cash |
|
| 175 |
|
|
| 79 |
|
Mortgage escrows |
|
| 25,834 |
|
|
| 24,282 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
| $ | 185,126 |
|
| $ | 45,416 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
| $ | 25,321 |
|
|
| 35,659 |
|
|
|
|
|
|
|
|
|
|
(1) | Included in intangible lease assets and other assets in the condensed consolidated balance sheets. |
CBL & Associates Properties, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 118,444 | $ | 115,659 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 225,461 | 220,505 | |||||
Net amortization of deferred financing costs, debt premiums and discounts | 2,904 | 2,019 | |||||
Net amortization of intangible lease assets and liabilities | (1,235 | ) | (204 | ) | |||
Gain on sales of real estate assets | (86,904 | ) | (14,503 | ) | |||
Loss on investment | 6,197 | — | |||||
Write-off of development projects | 5,151 | 44 | |||||
Share-based compensation expense | 4,569 | 4,011 | |||||
Loss on impairment | 71,401 | 116,736 | |||||
Gain on extinguishment of debt | (30,927 | ) | — | ||||
Equity in earnings of unconsolidated affiliates | (16,404 | ) | (107,217 | ) | |||
Distributions of earnings from unconsolidated affiliates | 16,361 | 12,337 | |||||
Provision for doubtful accounts | 3,353 | 3,377 | |||||
Change in deferred tax accounts | 2,911 | (1,780 | ) | ||||
Changes in: | |||||||
Tenant and other receivables | (4,893 | ) | (7,759 | ) | |||
Other assets | (12,368 | ) | (10,028 | ) | |||
Accounts payable and accrued liabilities | 32,929 | 6,428 | |||||
Net cash provided by operating activities | 336,950 | 339,625 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Additions to real estate assets | (149,302 | ) | (165,091 | ) | |||
Acquisitions of real estate assets | (79,799 | ) | — | ||||
(Additions) reductions to restricted cash | 1,261 | (10,020 | ) | ||||
Proceeds from sales of real estate assets | 201,291 | 125,606 | |||||
Proceeds from disposal of investment | 9,000 | — | |||||
Additions to mortgage and other notes receivable | (4,118 | ) | (3,259 | ) | |||
Payments received on mortgage and other notes receivable | 3,443 | 790 | |||||
Additional investments in and advances to unconsolidated affiliates | (17,199 | ) | (21,805 | ) | |||
Distributions in excess of equity in earnings of unconsolidated affiliates | 15,743 | 74,242 | |||||
Changes in other assets | (14,471 | ) | (4,786 | ) | |||
Net cash used in investing activities | (34,151 | ) | (4,323 | ) |
CBL & Associates Properties, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) (Continued) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from mortgage and other indebtedness | $ | 1,097,006 | $ | 614,671 | |||
Principal payments on mortgage and other indebtedness | (1,151,494 | ) | (755,579 | ) | |||
Additions to deferred financing costs | (5,003 | ) | (1,169 | ) | |||
Prepayment fees on extinguishment of debt | (8,871 | ) | — | ||||
Proceeds from issuances of common stock | 150 | 131 | |||||
Purchases of noncontrolling interests in the Operating Partnership | (593 | ) | (11,754 | ) | |||
Contributions from noncontrolling interests | 263 | 11,085 | |||||
Payment of tax withholdings for restricted stock awards | (322 | ) | — | ||||
Distributions to noncontrolling interests | (51,925 | ) | (35,742 | ) | |||
Dividends paid to holders of preferred stock | (33,669 | ) | (33,669 | ) | |||
Dividends paid to common shareholders | (135,941 | ) | (135,700 | ) | |||
Net cash used in financing activities | (290,399 | ) | (347,726 | ) | |||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 12,400 | (12,424 | ) | ||||
CASH AND CASH EQUIVALENTS, beginning of period | 18,951 | 36,892 | |||||
CASH AND CASH EQUIVALENTS, end of period | $ | 31,351 | $ | 24,468 | |||
SUPPLEMENTAL INFORMATION: | |||||||
Cash paid for interest, net of amounts capitalized | $ | 150,816 | $ | 150,512 |
The accompanying notes are an integral part of these condensed consolidated statements.
Condensed Consolidated Balance Sheets
(In thousands, except unit data)
(Unaudited)
ASSETS (1) |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Real estate assets: |
|
|
|
|
|
|
|
|
Land |
| $ | 719,142 |
|
| $ | 730,218 |
|
Buildings and improvements |
|
| 5,360,133 |
|
|
| 5,631,831 |
|
|
|
| 6,079,275 |
|
|
| 6,362,049 |
|
Accumulated depreciation |
|
| ( 2,218,254 | ) |
|
| ( 2,349,404 | ) |
|
|
| 3,861,021 |
|
|
| 4,012,645 |
|
Developments in progress |
|
| 31,009 |
|
|
| 49,351 |
|
Net investment in real estate assets |
|
| 3,892,030 |
|
|
| 4,061,996 |
|
Cash and cash equivalents |
|
| 159,110 |
|
|
| 32,813 |
|
Available-for-sale securities - at fair value (amortized cost of $153,150 in 2020) |
|
| 153,172 |
|
|
| — |
|
Receivables: |
|
|
|
|
|
|
|
|
Tenant |
|
| 72,157 |
|
|
| 75,252 |
|
Other |
|
| 10,104 |
|
|
| 10,744 |
|
Mortgage and other notes receivable |
|
| 2,928 |
|
|
| 4,662 |
|
Investments in unconsolidated affiliates |
|
| 300,327 |
|
|
| 307,885 |
|
Intangible lease assets and other assets |
|
| 131,841 |
|
|
| 129,354 |
|
|
| $ | 4,721,669 |
|
| $ | 4,622,706 |
|
LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL |
|
|
|
|
|
|
|
|
Mortgage and other indebtedness, net |
| $ | 3,789,692 |
|
| $ | 3,527,015 |
|
Accounts payable and accrued liabilities |
|
| 205,541 |
|
|
| 231,377 |
|
Total liabilities (1) |
|
| 3,995,233 |
|
|
| 3,758,392 |
|
Commitments and contingencies (Note 8 and Note 12) |
|
|
|
|
|
|
|
|
Redeemable common units |
|
| 1,062 |
|
|
| 2,160 |
|
Partners' capital: |
|
|
|
|
|
|
|
|
Preferred units |
|
| 565,212 |
|
|
| 565,212 |
|
Common units: |
|
|
|
|
|
|
|
|
General partner |
|
| 1,372 |
|
|
| 2,765 |
|
Limited partners |
|
| 135,077 |
|
|
| 270,216 |
|
Accumulated other comprehensive income |
|
| 22 |
|
|
| — |
|
Total partners' capital |
|
| 701,683 |
|
|
| 838,193 |
|
Noncontrolling interests |
|
| 23,691 |
|
|
| 23,961 |
|
Total capital |
|
| 725,374 |
|
|
| 862,154 |
|
|
| $ | 4,721,669 |
|
| $ | 4,622,706 |
|
ASSETS (1) | September 30, 2017 | December 31, 2016 | |||||
Real estate assets: | |||||||
Land | $ | 811,742 | $ | 820,979 | |||
Buildings and improvements | 6,668,312 | 6,942,452 | |||||
7,480,054 | 7,763,431 | ||||||
Accumulated depreciation | (2,411,560 | ) | (2,427,108 | ) | |||
5,068,494 | 5,336,323 | ||||||
Held for sale | — | 5,861 | |||||
Developments in progress | 100,106 | 178,355 | |||||
Net investment in real estate assets | 5,168,600 | 5,520,539 | |||||
Cash and cash equivalents | 31,350 | 18,943 | |||||
Receivables: | |||||||
Tenant, net of allowance for doubtful accounts of $2,075 and $1,910 in 2017 and 2016, respectively | 86,947 | 94,676 | |||||
Other, net of allowance for doubtful accounts of $838 in 2017 and 2016 | 5,505 | 6,179 | |||||
Mortgage and other notes receivable | 19,279 | 16,803 | |||||
Investments in unconsolidated affiliates | 252,195 | 267,405 | |||||
Intangible lease assets and other assets | 180,241 | 180,452 | |||||
$ | 5,744,117 | $ | 6,104,997 | ||||
LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL | |||||||
Mortgage and other indebtedness, net | $ | 4,216,178 | $ | 4,465,294 | |||
Accounts payable and accrued liabilities | 270,117 | 280,528 | |||||
Total liabilities (1) | 4,486,295 | 4,745,822 | |||||
Commitments and contingencies (Note 6 and Note 12) | |||||||
Redeemable common units | 13,076 | 17,996 | |||||
Partners' capital: | |||||||
Preferred units | 565,212 | 565,212 | |||||
Common units: | |||||||
General partner | 6,806 | 7,781 | |||||
Limited partners | 662,102 | 756,083 | |||||
Total partners' capital | 1,234,120 | 1,329,076 | |||||
Noncontrolling interests | 10,626 | 12,103 | |||||
Total capital | 1,244,746 | 1,341,179 | |||||
$ | 5,744,117 | $ | 6,104,997 |
(1) | |
As of |
The accompanying notes are an integral part of these condensed consolidated statements.
6
CBL & Associates Limited Partnership
Condensed Consolidated Statements of Operations
(In thousands, except per unit data)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
REVENUES: |
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 161,173 |
|
| $ | 190,980 |
|
Management, development and leasing fees |
|
| 2,092 |
|
|
| 2,523 |
|
Other |
|
| 4,309 |
|
|
| 4,527 |
|
Total revenues |
|
| 167,574 |
|
|
| 198,030 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
Property operating |
|
| ( 25,709 | ) |
|
| ( 28,980 | ) |
Depreciation and amortization |
|
| ( 55,902 | ) |
|
| ( 69,792 | ) |
Real estate taxes |
|
| ( 18,448 | ) |
|
| ( 19,919 | ) |
Maintenance and repairs |
|
| ( 11,208 | ) |
|
| ( 12,776 | ) |
General and administrative |
|
| ( 17,836 | ) |
|
| ( 22,007 | ) |
Loss on impairment |
|
| ( 133,644 | ) |
|
| ( 24,825 | ) |
Litigation settlement |
|
| — |
|
|
| ( 88,150 | ) |
Other |
|
| ( 158 | ) |
|
| — |
|
Total operating expenses |
|
| ( 262,905 | ) |
|
| ( 266,449 | ) |
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
Interest and other income |
|
| 2,397 |
|
|
| 489 |
|
Interest expense |
|
| ( 46,992 | ) |
|
| ( 53,998 | ) |
Gain on extinguishment of debt |
|
| — |
|
|
| 71,722 |
|
Gain on sales of real estate assets |
|
| 140 |
|
|
| 228 |
|
Income tax provision |
|
| ( 526 | ) |
|
| ( 139 | ) |
Equity in earnings of unconsolidated affiliates |
|
| 1,018 |
|
|
| 3,308 |
|
Total other income (expenses) |
|
| ( 43,963 | ) |
|
| 21,610 |
|
Net loss |
|
| ( 139,294 | ) |
|
| ( 46,809 | ) |
Net loss attributable to noncontrolling interests |
|
| 207 |
|
|
| 75 |
|
Net loss attributable to the Operating Partnership |
|
| ( 139,087 | ) |
|
| ( 46,734 | ) |
Distributions to preferred unitholders declared |
|
| — |
|
|
| ( 11,223 | ) |
Distributions to preferred unitholders undeclared |
|
| ( 11,223 | ) |
|
| — |
|
Net loss attributable to common unitholders |
| $ | ( 150,310 | ) |
| $ | ( 57,957 | ) |
Basic and diluted per unit data attributable to common unitholders: |
|
|
|
|
|
|
|
|
Net loss attributable to common unitholders |
| $ | ( 0.75 | ) |
| $ | ( 0.29 | ) |
Weighted-average common and potential dilutive common units outstanding |
|
| 201,258 |
|
|
| 200,010 |
|
The accompanying notes are an integral part of these condensed consolidated statements .
7
CBL & Associates Limited Partnership
Condensed Consolidated Statements of Comprehensive Loss
(In thousands, except per unit data)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net loss |
| $ | ( 139,294 | ) |
| $ | ( 46,809 | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities |
|
| 22 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
| ( 139,272 | ) |
|
| ( 46,809 | ) |
Comprehensive loss attributable to noncontrolling interests |
|
| 207 |
|
|
| 75 |
|
Comprehensive loss attributable to the Company: |
| $ | ( 139,065 | ) |
| $ | ( 46,734 | ) |
CBL & Associates Limited Partnership Condensed Consolidated Statements of Operations (In thousands, except per unit data) (Unaudited) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
REVENUES: | |||||||||||||||
Minimum rents | $ | 150,836 | $ | 164,444 | $ | 468,195 | $ | 502,289 | |||||||
Percentage rents | 3,000 | 3,225 | 7,127 | 10,590 | |||||||||||
Other rents | 3,790 | 3,866 | 11,171 | 13,747 | |||||||||||
Tenant reimbursements | 63,055 | 69,489 | 192,577 | 212,951 | |||||||||||
Management, development and leasing fees | 2,718 | 4,177 | 8,747 | 10,825 | |||||||||||
Other | 1,251 | 6,520 | 4,079 | 19,362 | |||||||||||
Total revenues | 224,650 | 251,721 | 691,896 | 769,764 | |||||||||||
OPERATING EXPENSES: | |||||||||||||||
Property operating | 31,295 | 35,116 | 96,250 | 104,804 | |||||||||||
Depreciation and amortization | 71,732 | 71,794 | 225,461 | 220,505 | |||||||||||
Real estate taxes | 21,573 | 22,492 | 62,343 | 68,354 | |||||||||||
Maintenance and repairs | 11,254 | 13,236 | 36,322 | 39,574 | |||||||||||
General and administrative | 13,568 | 13,222 | 45,402 | 46,865 | |||||||||||
Loss on impairment | 24,935 | 53,558 | 71,401 | 116,736 | |||||||||||
Other | 132 | 5,576 | 5,151 | 20,313 | |||||||||||
Total operating expenses | 174,489 | 214,994 | 542,330 | 617,151 | |||||||||||
Income from operations | 50,161 | 36,727 | 149,566 | 152,613 | |||||||||||
Interest and other income (loss) | (200 | ) | 451 | 1,235 | 1,062 | ||||||||||
Interest expense | (53,913 | ) | (54,292 | ) | (165,179 | ) | (162,710 | ) | |||||||
Gain on extinguishment of debt | 6,452 | (6 | ) | 30,927 | — | ||||||||||
Loss on investment | (354 | ) | — | (6,197 | ) | — | |||||||||
Income tax benefit | 1,064 | 2,386 | 4,784 | 2,974 | |||||||||||
Equity in earnings of unconsolidated affiliates | 4,706 | 10,478 | 16,404 | 107,217 | |||||||||||
Income (loss) from continuing operations before gain on sales of real estate assets | 7,916 | (4,256 | ) | 31,540 | 101,156 | ||||||||||
Gain on sales of real estate assets | 1,383 | 4,926 | 86,904 | 14,503 | |||||||||||
Net income | 9,299 | 670 | 118,444 | 115,659 | |||||||||||
Net (income) loss attributable to noncontrolling interests | (415 | ) | (983 | ) | (25,266 | ) | 449 | ||||||||
Net income (loss) attributable to the Operating Partnership | 8,884 | (313 | ) | 93,178 | 116,108 | ||||||||||
Distributions to preferred unitholders | (11,223 | ) | (11,223 | ) | (33,669 | ) | (33,669 | ) | |||||||
Net income (loss) attributable to common unitholders | $ | (2,339 | ) | $ | (11,536 | ) | $ | 59,509 | $ | 82,439 | |||||
Basic and diluted per unit data attributable to common unitholders: | |||||||||||||||
Net income (loss) attributable to common unitholders | $ | (0.01 | ) | $ | (0.06 | ) | $ | 0.30 | $ | 0.41 | |||||
Weighted-average common and potential dilutive common units outstanding | 199,321 | 200,004 | 199,325 | 199,992 | |||||||||||
Distributions declared per common unit | $ | 0.273 | $ | 0.273 | $ | 0.819 | $ | 0.819 |
The accompanying notes are an integral part of these condensed consolidated statements.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
|
|
|
| Number of |
|
|
|
|
|
| Common Units |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Redeemable Common Units |
|
| Preferred Units |
|
| Common Units |
|
| Preferred Units |
|
| General Partner |
|
| Limited Partners |
|
| Total Partner's Capital |
|
| Noncontrolling Interests |
|
| Total Capital |
| |||||||||
Balance, January 1, 2019 | $ | 3,575 |
|
|
| 25,050 |
|
|
| 199,415 |
|
| $ | 565,212 |
|
| $ | 4,628 |
|
| $ | 450,507 |
|
| $ | 1,020,347 |
|
| $ | 12,111 |
|
| $ | 1,032,458 |
|
Net loss |
| ( 453 | ) |
|
| — |
|
|
| — |
|
|
| 11,223 |
|
|
| ( 590 | ) |
|
| ( 56,914 | ) |
|
| ( 46,281 | ) |
|
| ( 75 | ) |
|
| ( 46,356 | ) |
Issuances of common units |
| — |
|
|
| — |
|
|
| 863 |
|
|
| — |
|
|
| — |
|
|
| 717 |
|
|
| 717 |
|
|
| — |
|
|
| 717 |
|
Distributions declared - common units ($0.086 per unit) |
| ( 1,143 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 151 | ) |
|
| ( 15,897 | ) |
|
| ( 16,048 | ) |
|
| — |
|
|
| ( 16,048 | ) |
Distributions declared - preferred units |
| — |
|
|
| — |
|
|
| — |
|
|
| ( 11,223 | ) |
|
| — |
|
|
| — |
|
|
| ( 11,223 | ) |
|
| — |
|
|
| ( 11,223 | ) |
Cancellation of restricted common units |
| — |
|
|
| — |
|
|
| ( 58 | ) |
|
| — |
|
|
| — |
|
|
| ( 133 | ) |
|
| ( 133 | ) |
|
| — |
|
|
| ( 133 | ) |
Performance stock units |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 309 |
|
|
| 312 |
|
|
| — |
|
|
| 312 |
|
Amortization of deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 1,022 |
|
|
| 1,033 |
|
|
| — |
|
|
| 1,033 |
|
Allocation of partners' capital |
| 1,038 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 34 | ) |
|
| ( 1,004 | ) |
|
| ( 1,038 | ) |
|
| — |
|
|
| ( 1,038 | ) |
Distributions to noncontrolling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 1,412 | ) |
|
| ( 1,412 | ) |
Contributions from noncontrolling interests |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 455 |
|
|
| 455 |
|
Balance, March 31, 2019 | $ | 3,017 |
|
|
| 25,050 |
|
|
| 200,220 |
|
| $ | 565,212 |
|
| $ | 3,867 |
|
| $ | 378,607 |
|
| $ | 947,686 |
|
| $ | 11,079 |
|
| $ | 958,765 |
|
|
|
|
|
|
| Number of |
|
|
|
|
|
| Common Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Redeemable Common Units |
|
| Preferred Units |
|
| Common Units |
|
| Preferred Units |
|
| General Partner |
|
| Limited Partners |
|
| Accumulated Other Comprehensive Income |
|
| Total Partner's Capital |
|
| Noncontrolling Interests |
|
| Total Capital |
| ||||||||||
Balance, January 1, 2020 |
| $ | 2,160 |
|
|
| 25,050 |
|
|
| 200,189 |
|
| $ | 565,212 |
|
| $ | 2,765 |
|
| $ | 270,216 |
|
| $ | — |
|
| $ | 838,193 |
|
| $ | 23,961 |
|
| $ | 862,154 |
|
Net loss |
|
| ( 1,158 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 1,406 | ) |
|
| ( 136,523 | ) |
|
| — |
|
|
| ( 137,929 | ) |
|
| ( 207 | ) |
|
| ( 138,136 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| 22 |
|
|
| — |
|
|
| 22 |
|
Issuances of common units |
|
| — |
|
|
| — |
|
|
| 1,633 |
|
|
| — |
|
|
| — |
|
|
| 536 |
|
|
| — |
|
|
| 536 |
|
|
| — |
|
|
| 536 |
|
Cancellation of restricted common units |
|
| — |
|
|
| — |
|
|
| ( 116 | ) |
|
| — |
|
|
| — |
|
|
| ( 97 | ) |
|
| — |
|
|
| ( 97 | ) |
|
| — |
|
|
| ( 97 | ) |
Allocation of partners' capital |
|
| 60 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 1 | ) |
|
| ( 64 | ) |
|
| — |
|
|
| ( 65 | ) |
|
| — |
|
|
| ( 65 | ) |
Amortization of deferred compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| 615 |
|
|
| — |
|
|
| 633 |
|
|
| — |
|
|
| 633 |
|
Adjustment to record redeemable interests at redemption value |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 8 | ) |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| ( 731 | ) |
|
| ( 731 | ) |
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 668 |
|
|
| 668 |
|
Performance stock units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 386 |
|
|
| — |
|
|
| 390 |
|
|
| — |
|
|
| 390 |
|
Balance, March 31, 2020 |
| $ | 1,062 |
|
|
| 25,050 |
|
|
| 201,706 |
|
| $ | 565,212 |
|
| $ | 1,372 |
|
| $ | 135,077 |
|
| $ | 22 |
|
| $ | 701,683 |
|
| $ | 23,691 |
|
| $ | 725,374 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 9,299 | $ | 670 | $ | 118,444 | $ | 115,659 | |||||||
Other comprehensive income: | |||||||||||||||
Unrealized gain on hedging instruments | — | — | — | 877 | |||||||||||
Reclassification of hedging effect on earnings | — | — | — | (443 | ) | ||||||||||
Total other comprehensive income | — | — | — | 434 | |||||||||||
Comprehensive income | 9,299 | 670 | 118,444 | 116,093 | |||||||||||
Comprehensive (income) loss attributable to noncontrolling interests | (415 | ) | (983 | ) | (25,266 | ) | 449 | ||||||||
Comprehensive income (loss) of the Operating Partnership | $ | 8,884 | $ | (313 | ) | $ | 93,178 | $ | 116,542 |
The accompanying notes are an integral part of these condensed consolidated statements.
9
CBL & Associates Limited Partnership
Condensed Consolidated Statements of Capital
(In thousands)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
| $ | ( 139,294 | ) |
| $ | ( 46,809 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 55,902 |
|
|
| 69,792 |
|
Net amortization of deferred financing costs, premiums on available-for-sale securities and debt premiums and discounts |
|
| 1,990 |
|
|
| 2,304 |
|
Net amortization of intangible lease assets and liabilities |
|
| ( 687 | ) |
|
| ( 551 | ) |
Gain on sales of real estate assets |
|
| ( 140 | ) |
|
| ( 228 | ) |
Gain on insurance proceeds |
|
| ( 511 | ) |
|
| ( 690 | ) |
Write-off of development projects |
|
| 158 |
|
|
| — |
|
Share-based compensation expense |
|
| 1,545 |
|
|
| 2,043 |
|
Loss on impairment |
|
| 133,644 |
|
|
| 24,825 |
|
Gain on extinguishment of debt |
|
| — |
|
|
| ( 71,722 | ) |
Equity in earnings of unconsolidated affiliates |
|
| ( 1,018 | ) |
|
| ( 3,308 | ) |
Distributions of earnings from unconsolidated affiliates |
|
| 4,235 |
|
|
| 5,671 |
|
Change in estimate of uncollectable rental revenues |
|
| 2,312 |
|
|
| 1,540 |
|
Change in deferred tax accounts |
|
| ( 239 | ) |
|
| 63 |
|
Changes in: |
|
|
|
|
|
|
|
|
Tenant and other receivables |
|
| 1,424 |
|
|
| ( 387 | ) |
Other assets |
|
| ( 3,746 | ) |
|
| ( 3,826 | ) |
Accounts payable and accrued liabilities |
|
| ( 16,851 | ) |
|
| 76,770 |
|
Net cash provided by operating activities |
|
| 38,724 |
|
|
| 55,487 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Additions to real estate assets |
|
| ( 22,760 | ) |
|
| ( 26,429 | ) |
Proceeds from sales of real estate assets |
|
| 520 |
|
|
| 35,260 |
|
Purchase of available-for-sale securities |
|
| ( 153,193 | ) |
|
| — |
|
Proceeds from insurance |
|
| 600 |
|
|
| 548 |
|
Payments received on mortgage and other notes receivable |
|
| 503 |
|
|
| 266 |
|
Additional investments in and advances to unconsolidated affiliates |
|
| ( 2,679 | ) |
|
| ( 566 | ) |
Distributions in excess of equity in earnings of unconsolidated affiliates |
|
| 4,668 |
|
|
| 4,979 |
|
Changes in other assets |
|
| ( 290 | ) |
|
| ( 321 | ) |
Net cash provided by (used in) investing activities |
|
| ( 172,631 | ) |
|
| 13,737 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from mortgage and other indebtedness |
|
| 365,000 |
|
|
| 941,217 |
|
Principal payments on mortgage and other indebtedness |
|
| ( 103,582 | ) |
|
| ( 978,006 | ) |
Additions to deferred financing costs |
|
| ( 1,300 | ) |
|
| ( 15,107 | ) |
Proceeds from issuances of common units |
|
| 3 |
|
|
| 17 |
|
Contributions from noncontrolling interests |
|
| 668 |
|
|
| 455 |
|
Payment of tax withholdings for restricted stock awards |
|
| ( 87 | ) |
|
| ( 132 | ) |
Distributions to noncontrolling interests |
|
| ( 731 | ) |
|
| ( 2,554 | ) |
Distributions to preferred unitholders |
|
| — |
|
|
| ( 11,223 | ) |
Distributions to common unitholders |
|
| — |
|
|
| ( 15,988 | ) |
Net cash provided by (used in) financing activities |
|
| 259,971 |
|
|
| ( 81,321 | ) |
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 126,064 |
|
|
| ( 12,097 | ) |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period |
|
| 59,055 |
|
|
| 57,512 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
| $ | 185,119 |
|
| $ | 45,415 |
|
Reconciliation from consolidated statements of cash flows to consolidated balance sheets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 159,110 |
|
| $ | 21,054 |
|
Restricted cash (1): |
|
|
|
|
|
|
|
|
Restricted cash |
|
| 175 |
|
|
| 79 |
|
Mortgage escrows |
|
| 25,834 |
|
|
| 24,282 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
| $ | 185,119 |
|
| $ | 45,415 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
| $ | 25,321 |
|
| $ | 35,659 |
|
(1) | Included in intangible lease assets and other assets in the condensed consolidated balance sheets. |
Redeemable Interests | Number of | Common Units | |||||||||||||||||||||||||||||||||||||||||||
Redeemable Noncontrolling Interests | Redeemable Common Units | Total Redeemable Interests | Preferred Units | Common Units | Preferred Units | General Partner | Limited Partners | Accumulated Other Comprehensive Income (Loss) | Total Partners' Capital | Noncontrolling Interests | Total Capital | ||||||||||||||||||||||||||||||||||
Balance, January 1, 2016 | $ | 5,586 | $ | 19,744 | $ | 25,330 | 25,050 | 199,748 | $ | 565,212 | $ | 8,435 | $ | 822,383 | $ | (868 | ) | $ | 1,395,162 | $ | 4,876 | $ | 1,400,038 | ||||||||||||||||||||||
Net income (loss) | (2,763 | ) | 644 | (2,119 | ) | — | — | 33,669 | 839 | 80,956 | — | 115,464 | 2,314 | 117,778 | |||||||||||||||||||||||||||||||
Other comprehensive income | — | 3 | 3 | — | — | — | — | — | 431 | 431 | — | 431 | |||||||||||||||||||||||||||||||||
Distributions declared - common units | — | (3,429 | ) | (3,429 | ) | — | — | — | (1,600 | ) | (158,422 | ) | — | (160,022 | ) | — | (160,022 | ) | |||||||||||||||||||||||||||
Distributions declared - preferred units | — | — | — | — | — | (33,669 | ) | — | — | — | (33,669 | ) | — | (33,669 | ) | ||||||||||||||||||||||||||||||
Issuances of common units | — | — | — | — | 331 | — | — | 432 | — | 432 | — | 432 | |||||||||||||||||||||||||||||||||
Redemption of common units | — | — | — | — | (965 | ) | — | — | (11,754 | ) | — | (11,754 | ) | — | (11,754 | ) | |||||||||||||||||||||||||||||
Cancellation of restricted common stock | — | — | — | — | (31 | ) | — | — | (226 | ) | — | (226 | ) | — | (226 | ) | |||||||||||||||||||||||||||||
Performance stock units | — | — | — | — | — | — | 8 | 767 | — | 775 | — | 775 | |||||||||||||||||||||||||||||||||
Amortization of deferred compensation | — | — | — | — | — | — | 29 | 2,828 | — | 2,857 | — | 2,857 | |||||||||||||||||||||||||||||||||
Allocation of partners' capital | — | 1,686 | 1,686 | — | — | — | (148 | ) | (2,083 | ) | 437 | (1,794 | ) | — | (1,794 | ) | |||||||||||||||||||||||||||||
Adjustment to record redeemable interests at redemption value | 2,729 | 888 | 3,617 | — | — | — | (37 | ) | (3,580 | ) | — | (3,617 | ) | — | (3,617 | ) | |||||||||||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | — | — | — | — | 11,240 | 11,240 | |||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | (2,346 | ) | — | (2,346 | ) | — | — | — | — | — | — | — | (5,470 | ) | (5,470 | ) | |||||||||||||||||||||||||||||
Balance, September 30, 2016 | $ | 3,206 | $ | 19,536 | $ | 22,742 | 25,050 | 199,083 | $ | 565,212 | $ | 7,526 | $ | 731,301 | $ | — | $ | 1,304,039 | $ | 12,960 | $ | 1,316,999 |
Number of | Common Units | ||||||||||||||||||||||||||||||||
Redeemable Common Units | Preferred Units | Common Units | Preferred Units | General Partner | Limited Partners | Total Partners' Capital | Noncontrolling Interests | Total Capital | |||||||||||||||||||||||||
Balance, January 1, 2017 | $ | 17,996 | 25,050 | 199,085 | $ | 565,212 | $ | 7,781 | $ | 756,083 | $ | 1,329,076 | $ | 12,103 | $ | 1,341,179 | |||||||||||||||||
Net income | 481 | — | — | 33,669 | 607 | 58,421 | 92,697 | 25,266 | 117,963 | ||||||||||||||||||||||||
Distributions declared - common units | (3,429 | ) | — | — | — | (1,600 | ) | (158,124 | ) | (159,724 | ) | — | (159,724 | ) | |||||||||||||||||||
Distributions declared - preferred units | — | — | — | (33,669 | ) | — | — | (33,669 | ) | — | (33,669 | ) | |||||||||||||||||||||
Issuances of common units | — | — | 342 | — | — | 474 | 474 | — | 474 | ||||||||||||||||||||||||
Redemptions of common units | — | — | (73 | ) | — | — | (593 | ) | (593 | ) | — | (593 | ) | ||||||||||||||||||||
Cancellation of restricted common stock | — | — | (38 | ) | — | — | (327 | ) | (327 | ) | — | (327 | ) | ||||||||||||||||||||
Performance stock units | — | — | — | — | 11 | 1,104 | 1,115 | — | 1,115 | ||||||||||||||||||||||||
Amortization of deferred compensation | — | — | — | — | 32 | 3,103 | 3,135 | — | 3,135 | ||||||||||||||||||||||||
Allocation of partners' capital | 2,224 | — | — | — | (68 | ) | (2,191 | ) | (2,259 | ) | — | (2,259 | ) | ||||||||||||||||||||
Adjustment to record redeemable interests at redemption value | (4,196 | ) | — | — | — | 43 | 4,152 | 4,195 | — | 4,195 | |||||||||||||||||||||||
Deconsolidation of investment | — | — | — | — | — | — | — | (2,232 | ) | (2,232 | ) | ||||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | — | 263 | 263 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | — | (24,774 | ) | (24,774 | ) | ||||||||||||||||||||||
Balance, September 30, 2017 | $ | 13,076 | 25,050 | 199,316 | $ | 565,212 | $ | 6,806 | $ | 662,102 | $ | 1,234,120 | $ | 10,626 | $ | 1,244,746 |
The accompanying notes are an integral part of these condensed consolidated statements.
CBL & Associates Limited Partnership Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 118,444 | $ | 115,659 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 225,461 | 220,505 | |||||
Net amortization of deferred financing costs, debt premiums and discounts | 2,904 | 2,019 | |||||
Net amortization of intangible lease assets and liabilities | (1,235 | ) | (204 | ) | |||
Gain on sales of real estate assets | (86,904 | ) | (14,503 | ) | |||
Loss on investment | 6,197 | — | |||||
Write-off of development projects | 5,151 | 44 | |||||
Share-based compensation expense | 4,569 | 4,011 | |||||
Loss on impairment | 71,401 | 116,736 | |||||
Gain on extinguishment of debt | (30,927 | ) | — | ||||
Equity in earnings of unconsolidated affiliates | (16,404 | ) | (107,217 | ) | |||
Distributions of earnings from unconsolidated affiliates | 16,362 | 12,366 | |||||
Provision for doubtful accounts | 3,353 | 3,377 | |||||
Change in deferred tax accounts | 2,911 | (1,780 | ) | ||||
Changes in: | |||||||
Tenant and other receivables | (4,893 | ) | (7,710 | ) | |||
Other assets | (12,368 | ) | (10,028 | ) | |||
Accounts payable and accrued liabilities | 32,935 | 6,349 | |||||
Net cash provided by operating activities | 336,957 | 339,624 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Additions to real estate assets | (149,302 | ) | (165,091 | ) | |||
Acquisition of real estate assets | (79,799 | ) | — | ||||
(Additions) reductions to restricted cash | 1,261 | (10,020 | ) | ||||
Proceeds from sales of real estate assets | 201,291 | 125,606 | |||||
Proceeds from disposal of investments | 9,000 | — | |||||
Additions to mortgage and other notes receivable | (4,118 | ) | (3,259 | ) | |||
Payments received on mortgage and other notes receivable | 3,443 | 790 | |||||
Additional investments in and advances to unconsolidated affiliates | (17,199 | ) | (21,805 | ) | |||
Distributions in excess of equity in earnings of unconsolidated affiliates | 15,743 | 74,242 | |||||
Changes in other assets | (14,471 | ) | (4,786 | ) | |||
Net cash used in investing activities | (34,151 | ) | (4,323 | ) |
CBL & Associates Limited Partnership Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) (Continued) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from mortgage and other indebtedness | $ | 1,097,006 | $ | 614,671 | |||
Principal payments on mortgage and other indebtedness | (1,151,494 | ) | (755,579 | ) | |||
Additions to deferred financing costs | (5,003 | ) | (1,169 | ) | |||
Prepayment fees on extinguishment of debt | (8,871 | ) | — | ||||
Proceeds from issuances of common units | 150 | 131 | |||||
Redemptions of common units | (593 | ) | (11,754 | ) | |||
Contributions from noncontrolling interests | 263 | 11,085 | |||||
Payment of tax withholdings for restricted stock awards | (322 | ) | — | ||||
Distributions to noncontrolling interests | (28,203 | ) | (11,246 | ) | |||
Distributions to preferred unitholders | (33,669 | ) | (33,669 | ) | |||
Distributions to common unitholders | (159,663 | ) | (160,196 | ) | |||
Net cash used in financing activities | (290,399 | ) | (347,726 | ) | |||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 12,407 | (12,425 | ) | ||||
CASH AND CASH EQUIVALENTS, beginning of period | 18,943 | 36,887 | |||||
CASH AND CASH EQUIVALENTS, end of period | $ | 31,350 | $ | 24,462 | |||
SUPPLEMENTAL INFORMATION: | |||||||
Cash paid for interest, net of amounts capitalized | $ | 150,816 | $ | 150,512 |
10
CBL & Associates Properties, Inc.
CBL & Associates Limited Partnership
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per share and per unit data)
Note 1 – Organization and Basis of Presentation
Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries.
CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. Its properties are located in 26 states, but are primarily in the southeastern and midwestern United States.
CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”), which is a variable interest entity ("VIE"). In accordance with the guidance in Accounting Standards Codification ("ASC") 810,
As of September 30, 2017,March 31, 2020, the Operating Partnership owned interests in the following properties:
|
|
|
|
|
| All Other Properties |
|
|
|
|
| |||||||||
|
| Malls (1) |
|
| Associated Centers |
|
| Community Centers |
|
| Office Buildings and Other |
|
| Total |
| |||||
Consolidated Properties |
|
| 53 |
|
|
| 20 |
|
|
| 1 |
|
|
| 4 |
| (2) |
| 78 |
|
Unconsolidated Properties (3) |
|
| 10 |
|
|
| 3 |
|
|
| 5 |
|
|
| 2 |
|
|
| 20 |
|
Total |
|
| 63 |
|
|
| 23 |
|
|
| 6 |
|
|
| 6 |
|
|
| 98 |
|
Malls (1) | Associated Centers | Community Centers | Office Buildings | Total | |||||
Consolidated properties | 60 | 20 | 4 | 5 | (2) | 89 | |||
Unconsolidated properties (3) | 8 | 3 | 5 | — | 16 | ||||
Total | 68 | 23 | 9 | 5 | 105 |
(1) | |
Category consists of regional malls, open-air centers and outlet centers (including one mixed-use center). |
(2) | |
Includes CBL's |
(3) | |
The Operating Partnership accounts for these investments using the equity method because one or more of the other partners have substantive participating rights. |
At September 30, 2017,March 31, 2020, the Operating Partnership had interestsan interest in two self-storage facilities that were under development (the "Construction Properties").
The Malls, All Other Properties ("Associated Centers, Community Centers, Office Buildings and Other") and the following properties under development:
CBL is the 100% owner of two2 qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At September 30, 2017,March 31, 2020, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.0% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned an 84.8%94.2% limited partner interest for a combined interest held by CBL of 85.8%95.2%.
The noncontrolling interest in the Operating Partnership is held by CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively "CBL's Predecessor"), all of which contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993, and by various third parties. In March 2020, the Company issued 16,333,947 shares of the Company’s common stock to CBL’s Predecessor in exchange for a like number of common units of limited partnership interest in the Operating Partnership pursuant to exchange notices received from CBL’s Predecessor.At September 30, 2017,March 31, 2020, CBL’s Predecessor owned a 9.1%0.9% limited partner interest and third parties owned a 5.1%3.9% limited partner interest in the Operating Partnership. CBL's Predecessor also owned 3.821.3 million shares of CBL’s common stock at September 30, 2017,March 31, 2020, for a total combined effective interest of 11.0%11.5% in the Operating Partnership.
The Operating Partnership conducts the Company’s property management and development activities through its wholly owned subsidiary, CBL & Associates Management, Inc. (the “Management Company”), to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
11
The accompanying condensed consolidated financial statements are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. All intercompany transactions have been eliminated. The results for the interim period ended September 30, 2017March 31, 2020 are not necessarily indicative of the results to be obtained for the full fiscal year.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K, as amended, for the year ended December 31, 2016.
COVID-19
The COVID-19 pandemic has had, and likely will continue to estimatehave, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where the Company’s tenants operate their businesses or where the Company’s properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on its business and the businesses of its tenants. The full extent of the adverse impact on, among other things, the Company’s results of operations, liquidity (including its ability to access capital markets), the possibility of future impairments of long-lived assets or its investments in unconsolidated joint ventures, its compliance with debt covenants, its ability to renew and re-lease its leased space, the outlook for the retail environment, potential bankruptcies or other store closings and its ability to develop, acquire, dispose or lease properties, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. The Company expects a material adverse impact on its revenues, results of operations, and cash flows for the year ended December 31, 2020. The situation is rapidly changing and additional impacts to the business may arise that the Company is not aware of currently.
Listing Criteria
On February 5, 2020, the Company received notice from the New York Stock Exchange ("NYSE") that its common stock is no longer in compliance with NYSE continued listing criteria set forth in Section 802.01C of the Listed Company Manual of the NYSE, which require listed companies to maintain an average closing share price of at least $1.00 over a period of 30 consecutive trading days. The Company has until October 14, 2020, inclusive of extensions of the cure period provided by the NYSE in response to the COVID-19 pandemic, to regain compliance with the continued listing criteria. During this period, the Company expects its common stock to continue to trade on the NYSE, which will allow for flexibility in addressing this matter. On May 7, 2020, the Company’s shareholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split at a ratio between 1-for-5 and 1-for-25, and a proportionate reduction in the number of awards expectedauthorized shares of common stock, to be forfeited. The Company elected to account for forfeitures of share-based payments as they occur. Asdetermined at the amountdiscretion of the retrospective adjustment was nominal, the Company elected not to record the change. See
Liquidity and related disclosures. The change in the Company's condensed consolidated statements of cash flows related to the prior-year periods is as follows:
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2016 | ||||||||||||||||
Net cash provided by operating activities (1) | $ | 85,777 | $ | 128,384 | $ | 125,464 | $ | 128,954 | ||||||||
Reclassification of cash payments for withheld shares | 202 | 87 | (69 | ) | 60 | |||||||||||
Net cash provided by operating activities (2) | $ | 85,979 | $ | 128,471 | $ | 125,395 | $ | 129,014 | ||||||||
Net cash used in financing activities (1) | $ | (95,505 | ) | $ | (162,774 | ) | $ | (89,447 | ) | $ | (137,348 | ) | ||||
Reclassification of cash payments for withheld shares | (202 | ) | (87 | ) | 69 | (60 | ) | |||||||||
Net cash used in financing activities (2) | $ | (95,707 | ) | $ | (162,861 | ) | $ | (89,378 | ) | $ | (137,408 | ) |
In October 2016, the FASB issued ASU 2016-17,
The Company was in compliance with the financial covenants of its secured credit facility and the senior unsecured notes (the “Notes”) as of March 31, 2020, with the exception of one covenant under the secured credit facility. At March 31, 2020, the Company was not in compliance with a covenant under the secured credit facility, which provides that the Company may not have more than $100,000 of cash on hand that constitutes borrowings on the secured line of credit. In March 2020, the Company drew $280,000 from the secured line of credit and anticipated promptly purchasing $180,000 of U.S. Treasury securities, which would leave $100,000 of cash on hand from such borrowings. However, due to market conditions, the Company was not able to purchase the U.S. Treasury securities promptly, which resulted in the Company violating this covenant. Violation of this covenant provides the lenders with the option to accelerate the maturity of the potential impactsenior secured credit facility. The administrative agent of the secured credit facility notified the Company that it was in default and that the adoptionadministrative agent and lenders reserve all rights and remedies under the secured credit facility. The lenders have not exercised their right to accelerate the maturity of ASU 2014-09,
12
to purchase U.S. Treasury securities and ASU 2016-13,
The Company has considered the projected impact of COVID-19 on its cash flows and its analysis of future compliance with the financial statements. ASU 2017-03 was effective upon issuancecovenants and has determined that it is probable it will fail to meet the minimum debt yield covenant under the senior secured credit facility during the third quarter of 2020, the fourth quarter of 2020 and the first quarter of 2021. The minimum debt yield covenant provides that the ratio of the adjusted net operating income, as defined, of the borrowing base properties that secure the senior secured credit facility to the total outstanding balance on the senior secured credit facility must be greater than 10.0%. Violation of this covenant provides the lenders with the option to accelerate the maturity of the senior secured credit facility. The Company could remain in compliance with the debt yield covenant if it (i) added additional unencumbered assets to the collateral pool, subject to lender approval, which is not to be unreasonably withheld, (ii) paid down the amount of debt outstanding with projected available cash or (iii) negotiated a waiver of the covenant with the lenders.
Management has incorporated this guidance withinengaged Weil, Gotshal & Manges LLP and Moelis & Company LLC (the “Advisors”) to assist the Company in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of its current disclosures.
As described in Note 15 – Subsequent Events, the Company elected to not make the $11,813 interest payment due and payable on June 1, 2020, with respect to the Operating Partnership’s 5.25% senior unsecured notes due 2023 (the “2023 Notes”) (the “Interest Payment”). Under the indenture governing the 2023 Notes, the Operating Partnership has a 30-day grace period to make the Interest Payment before the nonpayment is considered an event of default with respect to the 2023 Notes. Any event of default under the 2023 Notes for nonpayment of the Interest Payment would also be considered an event of default under the Operating Partnership’s senior secured credit facility, which allowscould lead to an additional one year deferralacceleration of ASU 2014-09. Asamounts due under the facility. Further, if the trustee for the 2023 Notes should exercise its right to accelerate the maturity of the full balance owed on the 2023 Notes as a result ASU 2014-09 is effective for annual periods beginning after December 15, 2017of such an event of default, that would also constitute an event of default under the Operating Partnership’s 4.60% senior unsecured notes due 2024 and interim periods withinthe Operating Partnership’s 5.95% senior notes due 2026, which could lead to the acceleration of all amounts due under those years using one of two retrospective application methods. Early adoption would be permitted only for annual reporting periods beginning after December 15, 2016 and interim periods within those years. As the majority of the Company's revenue is derived from real estate lease contracts, the Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements. The Company expects to adopt the guidance using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the Company's adoption, which will be January 1, 2018.notes. The Company has elected to applyenter the guidance30-day grace period with respect to contractsthe Interest Payment in order to advance discussions with open performance obligations as of January 1, 2018.
Given the nine months ended September 30, 2017. Approximately 1%impact of the Company's other revenues are not inCOVID-19 pandemic on the scope of ASU 2014-09. Other revenue streams primarily include earnings from property management, leasingretail and development agreements with unconsolidated affiliates and third parties in addition to
Note 2 – Summary of Significant Accounting Policies
Accounting Guidance Adopted
13
Description | Expected Adoption Date & Application Method | Financial Statement Effect and Other Information | ||||
Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments | January 1, 2020 - Modified Retrospective | The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity’s estimate of contractual cash flows not expected to be collected. The Company has determined that its available-for-sale debt securities, guarantees, mortgage and other notes receivable and receivables within the scope of ASC 606 fall under the scope of this standard. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or disclosures. | ||||
ASU 2018-13, Fair Value Measurement | January 1, 2020 - Prospective | The guidance eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or disclosures. | ||||
ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract | January 1, 2020 - Prospective | The guidance addresses diversity in practice in accounting for the costs of implementation activities in a cloud computing arrangement that is a service contract. Under the guidance, the Company is to follow Subtopic 350-40 on internal-use software to determine which implementation costs to capitalize and which to expense. The guidance also requires an entity to expense capitalized implementation costs over the term of the hosting arrangement and include that expense in the same line item as the fees associated with the service element of the arrangement. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or disclosures. | ||||
Accounting Guidance Not Yet Adopted | ||||||
Description | Financial Statement Effect and Other Information | |||||
ASU 2020-04, Reference Rate Reform | On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions as of March 31, 2020, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve. | |||||
14
Lease Modification Q&A | In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance related to lease concessions provided as a result of COVID-19. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Topic 842, Leases. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e. assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract). Both lessees and lessors may make this election. The Company is evaluating its election on a disaggregated basis, with such election applied consistently to leases with similar characteristics and similar circumstances. The future impact of the Lease Modification Q&A is dependent upon the extent of lease concessions granted to tenants as a result of COVID-19 in future periods and the elections made by the Company at the time of entering into such concessions. The Company is evaluating the impact that this update may have on its condensed consolidated financial statements and related disclosures. |
Carrying Value of Long-Lived Assets
The Company evaluates its real estate assets and investment in unconsolidated affiliates for impairment indicators whenever events or changes in circumstances indicate that recoverability of its investment in the asset is not reasonably assured. Furthermore, this evaluation is conducted no less frequently than quarterly, irrespective of changes in circumstances. The prolonged outbreak of the COVID-19 pandemic has resulted in sustained closure of the Company’s properties, as well as the cessation of the operations of certain of its tenants, which will adopt ASU 2016-02likely result in a reduction in the revenues and cash flows of many of its properties due to the adverse financial impacts on its tenants, as well as reductions in other sources of income generated by its properties. In addition to reduced revenues, the Company’s ability to obtain sufficient financing for such properties may be impaired as well as its ability to lease or re-lease properties as a result of worsening market and economic conditions resulting from the COVID-19 pandemic.
As of March 31, 2020, the Company’s evaluation of impairment considered its estimate of cash flow declines caused by the COVID-19 pandemic, but its other assumptions, including estimated hold period, were generally unchanged given the highly uncertain environment. The worsening of estimated future cash flows due to a change in the Company’s plans, policies, or views of market and economic conditions as it relates to one or more of its properties adversely impacted by the COVID-19 pandemic could result in the recognition of substantial impairment charges on its assets, which could adversely impact its financial results. For the period ended March 31, 2020, the Company recorded $133,644 of impairment charges for 2 of its malls and 6 other properties had impairment indicators; however, based on the Company’s plans with respect to those properties and the economic environment as of January 1, 2019.March 31, 2020, 0 additional impairment charges were recorded.
Note 3 – Revenues
Revenues
The following table presents the Company's revenues disaggregated by revenue source:
|
| Three Months Ended March 31, 2020 |
|
| Three Months Ended March 31, 2019 |
| ||
Rental revenues (1) |
| $ | 161,173 |
|
| $ | 190,980 |
|
Revenues from contracts with customers (ASC 606): |
|
|
|
|
|
|
|
|
Operating expense reimbursements (2) |
|
| 2,389 |
|
|
| 2,143 |
|
Management, development and leasing fees (3) |
|
| 2,092 |
|
|
| 2,523 |
|
Marketing revenues (4) |
|
| 743 |
|
|
| 874 |
|
|
|
| 5,224 |
|
|
| 5,540 |
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
| 1,177 |
|
|
| 1,510 |
|
Total revenues (5) |
| $ | 167,574 |
|
| $ | 198,030 |
|
(1) | Revenues from leases that commenced subsequent to December 31, 2018 are accounted for in accordance with ASC 842, Leases , whereas all leases existing prior to that date are accounted for in accordance with ASC 840. |
( 2 ) | Includes $2,321 in the Malls segment and $68 in the All Other segment for the three months ended March 31, 2020, and includes $2,192 in the Malls segment and $( 49) in the All Other segment for the three months ended March 31, 2019. |
( 3 ) | Included in All Other segment. |
( 4 ) | Marketing revenues solely relate to the Malls segment for all periods presented. See description below. |
( 5 ) | Sales taxes are excluded from revenues. |
15
See Note 10for information on the Company's segments.
Revenue from Contracts with Customers
Expected credit losses
During the three months ended March 31, 2020, the Company expects substantially all leases will continueindividually evaluated tenant receivables within the scope of ASC 606, of which a significant portion are short term. Based on this information and the quarterly analysis of the tenant receivables, the Company wrote off $220 that was deemed uncollectable related to be classified as operating leases under the new leasing guidance. Under the new guidance, certain common area maintenance ("CAM") recoveries must be accounted for as non-lease components under the new revenue guidance. The FASB clarified in June 2017 that entities, which do not adopt ASU 2016-02 concurrently with the new revenue recognition guidance, will only be required to evaluate CAM as a non-lease component for new leases executed after the effective date, which would be January 1, 2019this class of receivables for the Company. three months ended March 31, 2020.
Outstanding Performance Obligations
The Company is evaluating how the bifurcationhas outstanding performance obligations related to certain noncancellable contracts with customers for which it will receive fixed operating expense reimbursements for providing certain maintenance and other services as described above. As of CAM may affect the timing or recognition of certain lease revenues. Additionally,March 31, 2020, the Company expects to expense certain deferredrecognize these amounts as revenue over the following periods:
Performance obligation |
| Less than 5 years |
|
| 5-20 years |
|
| Over 20 years |
|
| Total |
| ||||
Fixed operating expense reimbursements |
| $ | 23,908 |
|
| $ | 48,366 |
|
| $ | 45,869 |
|
| $ | 118,143 |
|
The Company evaluates its performance obligations each period and makes adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration, which is based on sales, are constrained.
Note 4 – Leases
Lessor
The components of rental revenues are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Fixed lease payments |
| $ | 137,394 |
|
| $ | 159,278 |
|
Variable lease payments |
|
| 23,779 |
|
|
| 31,702 |
|
Total rental revenues |
| $ | 161,173 |
|
| $ | 190,980 |
|
Lessee
The Company has 8 ground leases and 1 office lease costs duein which it is a lessee. The maturities of these leases range from 2021 to 2089 and generally provide for renewal options ranging from five to ten years. We included the narrowed definitionrenewal options in our lease terms for purposes of indirect costs that may be capitalized. As a lessee,calculating our lease liability and ROU asset where we have plans to continue operating our assets under the current terms associated with each ground lease. The ground leases relate to properties where the Company has 11owns the buildings and improvements, but leases the underlying land. The lease payments on the majority of the ground leases are fixed, but in the instances where they are variable they are either based on the CPI index or a percentage of sales. The one office lease arrangements in which the Company is the lessee for land.subleased as of March 31, 2020. As of September 30, 2017,March 31, 2020, these ground leases have future contractual paymentsa weighted-average remaining lease term of approximately $15,199 with maturity dates ranging from January 2019 through July 2089.
The objectivecomponents of ASU 2016-13 is to provide financial statement users with information about expected credit losses on financial assets and other commitments to extend credit by a reporting entity. The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity's estimatelease expense are presented below:
|
| Three Months Ended March 31, 2020 |
|
| Three Months Ended March 31, 2019 |
| ||
Lease expense: |
|
|
|
|
|
|
|
|
Operating lease expense |
| $ | 125 |
|
| $ | 218 |
|
Variable lease expense |
|
| 85 |
|
|
| 32 |
|
Total lease expense |
| $ | 210 |
|
| $ | 250 |
|
16
Note 35 – Fair Value Measurements
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820,
Fair Value Measurements and Disclosure, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:Level 1 – | Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date. |
Level 2 – | Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability. |
Level 3 – | Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment. |
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable
Fair Value Measurements on a Recurring Basis
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. Based on the interest rates for similar financial instruments, the carrying value of mortgage and other notes receivable is a reasonable estimate of fair value. The estimated fair value of mortgage and other indebtedness was $4,250,556$2,661,981 and $4,737,077$2,970,246 at September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.
During March 2020, the Company purchased U.S. Treasury securities that are scheduled to mature between April 2021 and June 2021. The carrying amountCompany has designated these securities as available-for-sale (“AFS”). The fair value of net mortgagethese securities was calculated based on quoted market prices in active markets and other indebtedness was $4,216,178are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The following table sets forth information regarding the Company’s AFS securities that were measured at fair value for the three months ended March 31, 2020:
AFS Security |
| Amortized Cost |
|
| Allowance for credit losses (1) |
|
| Total unrealized gains/(losses) |
|
| Fair Value |
| ||||
U.S. Treasury securities |
| $ | 153,150 |
|
| $ | — |
|
| $ | 22 |
|
| $ | 153,172 |
|
(1) | U.S Treasury securities have a long history with no credit losses. Additionally, the Company notes that U.S Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity’s currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly viewed as a reserve currency, all of which qualitatively indicate that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, the Company did not record expected credit losses for its U.S Treasury securities for the three months ended March 31, 2020. |
The Company adopted the ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), on January 1, 2020. Under ASC Topic 326-30, the Company elected to exclude applicable accrued interest from both the fair value and $4,465,294 at September 30, 2017the amortized cost basis of the available-for-sale debt securities, and Decemberseparately present the accrued interest receivable balance within the Other Receivables line item of the condensed consolidated balance sheets. The accrued interest receivables balance totaled $1,082 as of March 31, 2016, respectively.
17
Fair Value Measurements on a Nonrecurring Basis
The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income ("NOI"), occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models as noted below.
Long-lived Assets Measured at Fair Value in 2020
The following table sets forth information regarding the Company's assets that are measured at fair value on a nonrecurring basis and related impairment charges for the
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
|
|
|
|
| |||||||||
|
| Total |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Total Loss on Impairment |
| |||||
2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
| $ | 114,300 |
|
| $ | — |
|
| $ | — |
|
| $ | 114,300 |
|
| $ | 133,644 |
|
Fair Value Measurements at Reporting Date Using | |||||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Loss on Impairment | |||||||||||||||
Long-lived assets | $ | 81,350 | $ | — | $ | — | $ | 81,350 | $ | 71,401 |
During the ninethree months ended September 30, 2017,March 31, 2020, the Company recognized impairments of real estate of $71,401 primarily$133,644 related to two malls, a parcel project near an outlet center and one outparcel. The properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See
Impairment Date |
| Property |
| Location |
| Segment Classification |
| Loss on Impairment |
|
| Fair Value |
|
| ||
March |
| Burnsville Center (1) |
| Burnsville, MN |
| Malls |
| $ | 26,562 |
|
| $ | 47,300 |
|
|
March |
| Monroeville Mall (2) |
| Pittsburgh, PA |
| Malls |
|
| 107,082 |
|
|
| 67,000 |
|
|
|
|
|
|
|
|
|
| $ | 133,644 |
|
| $ | 114,300 |
|
|
Impairment Date | Property | Location | Segment Classification | Loss on Impairment | Fair Value | ||||||||||
March | Vacant land (1) | Woodstock, GA | Malls | $ | 3,147 | $ | — | (2) | |||||||
June | Acadiana Mall (3) | Lafayette, LA | Malls | 43,007 | 67,300 | ||||||||||
June / September | Prior period sales adjustments (4) | Various | Malls/Office Buildings | 606 | — | (2) | |||||||||
September | Hickory Point Mall (5) | Forsyth, IL | Malls | 24,525 | 14,050 | ||||||||||
$ | 71,285 | $ | 81,350 |
(1) | |
In accordance with the Company's quarterly impairment |
(2) | In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $67,000. The mall had experienced a decline of NOI due to store closures and rent reductions. Management determined the fair value of Monroeville Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of |
Long-lived Assets Measured at Fair Value in 2019
The following table sets forth information regarding the Company's assets that were measured at fair value on a nonrecurring basis and related impairment charges for the three months ended March 31, 2019:
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
|
|
|
|
| |||||||||
|
| Total |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Total Loss on Impairment |
| |||||
2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
| $ | 70,800 |
|
| $ | — |
|
| $ | — |
|
| $ | 70,800 |
|
| $ | 24,825 |
|
During the three months ended March 31, 2019, the Company recognized impairments of real estate of $25,054 related to two malls:
18
Impairment Date |
| Property |
| Location |
| Segment Classification |
| Loss on Impairment |
|
| Fair Value |
|
| ||
March |
| Greenbrier Mall (1) |
| Chesapeake, VA |
| Malls |
| $ | 22,770 |
|
| $ | 56,300 |
|
|
March |
| Honey Creek Mall (2) |
| Terre Haute, IN |
| Malls |
|
| 2,284 |
|
|
| 14,500 |
|
|
January/March |
| Other adjustments (3) |
| Various |
| Malls |
|
| ( 229 | ) |
|
| — |
|
|
|
|
|
|
|
|
|
| $ | 24,825 |
|
| $ | 70,800 |
|
|
(1) | |
In accordance with the Company's quarterly impairment |
(2) | The Company adjusted the book value of the mall to the net sales price of $14,360 based on a signed contract with a third-party buyer, adjusted to reflect estimated disposition costs. The mall |
( 3 ) | Related to true-ups of |
Note 6 – Dispositions and Held for segment reporting purposes in the All Other category. See Note 9 for segment information.
Sears Stores | Macy's Stores | Total | ||||||||||
Land | $ | 45,028 | $ | 4,635 | $ | 49,663 | ||||||
Building and improvements | 14,814 | 1,965 | 16,779 | |||||||||
Tenant improvements | 4,234 | 377 | 4,611 | |||||||||
Above-market leases | 681 | — | 681 | |||||||||
In-place leases | 8,364 | 579 | 8,943 | |||||||||
Total assets | 73,121 | 7,556 | 80,677 | |||||||||
Below-market leases | (356 | ) | (522 | ) | (878 | ) | ||||||
Net assets acquired | $ | 72,765 | $ | 7,034 | $ | 79,799 |
Sears Stores | Macy's Stores | |||
Above-market leases | 2.0 | N/A | ||
In-place leases | 2.2 | 2.2 | ||
Below-market leases | 5.4 | 2.2 |
The Company evaluates its disposals utilizing the guidance in ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity2020 Dispositions
Sales Price | ||||||||||||||||||
Sales Date | Property | Property Type | Location | Gross | Net | Gain | ||||||||||||
January | One Oyster Point & Two Oyster Point (1) | Office Building | Newport News, VA | $ | 6,250 | $ | 6,142 | $ | — | |||||||||
April | The Outlet Shoppes at Oklahoma City (2) | Mall | Oklahoma City, OK | 130,000 | 55,368 | 75,434 | ||||||||||||
May | College Square Mall & Foothills Mall (3) | Mall | Morristown, TN / Maryville, TN | 53,500 | 50,566 | 546 | ||||||||||||
$ | 189,750 | $ | 112,076 | $ | 75,980 |
The Company |
Transfer Date | Property | Property Type | Location | Balance of Non-recourse Debt | Gain on Extinguishment of Debt | |||||||||
January | Midland Mall (1) | Mall | Midland. MI | $ | 31,953 | $ | 3,760 | |||||||
June | Chesterfield Mall (2) | Mall | Chesterfield, MO | 140,000 | 29,187 | |||||||||
August | Wausau Center (3) | Mall | Wausau, WI | 17,689 | 6,851 | |||||||||
$ | 189,642 | $ | 39,798 |
Note 57 – Unconsolidated Affiliates and Noncontrolling Interests
Unconsolidated Affiliates
Although the Company had majority ownership of certain joint ventures during 20172020 and 2016,2019, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights, such as approvals of:
• | the pro forma for the development and construction of the project and any material deviations or modifications thereto; |
• | the site plan and any material deviations or modifications thereto; |
• | the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto; |
• | any acquisition/construction loans or any permanent financings/refinancings; |
• | the annual operating budgets and any material deviations or modifications thereto; |
• | the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and |
• | any material acquisitions or dispositions with respect to the project. |
As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.
At March 31, 2020, the Company had investments in 28 entities, which are accounted for using the equity method of accounting. The Company's ownership interest in these unconsolidated affiliates ranges from 20% to 65%. Of these entities, 17 are owned in 50/50 joint ventures.
19
20 20 Activity - Unconsolidated Affiliates
Atlanta Outlet JV, LLC
In August 2017, the Company sold its 25% interest in River Ridge MallFebruary 2020, Atlanta Outlet JV, LLC, a 50/50 joint venture, closed on a new loan in the amount of $4,680, with an interest rate of LIBOR plus 2.5% and a maturity date of November 2023 .. Proceeds were used to retire the previous loan. The Operating Partnership and its joint venture partner for $9,000 in cash. In the second quarter of 2017, the Company recorded a $5,843 loss on investment related to the sale of its interest and recorded an additional $354 loss on investment upon the sale closing in August 2017. The Company's property management agreement with River Ridge Mall JV, LLC ended September 30, 2017.
Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates is as follows:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
ASSETS: |
|
|
|
|
|
|
|
|
Investment in real estate assets |
| $ | 2,288,173 |
|
| $ | 2,293,438 |
|
Accumulated depreciation |
|
| ( 819,034 | ) |
|
| ( 803,909 | ) |
|
|
| 1,469,139 |
|
|
| 1,489,529 |
|
Developments in progress |
|
| 70,039 |
|
|
| 46,503 |
|
Net investment in real estate assets |
|
| 1,539,178 |
|
|
| 1,536,032 |
|
Other assets |
|
| 141,501 |
|
|
| 154,427 |
|
Total assets |
| $ | 1,680,679 |
|
| $ | 1,690,459 |
|
LIABILITIES: |
|
|
|
|
|
|
|
|
Mortgage and other indebtedness, net |
| $ | 1,422,015 |
|
| $ | 1,417,644 |
|
Other liabilities |
|
| 32,675 |
|
|
| 41,007 |
|
Total liabilities |
|
| 1,454,690 |
|
|
| 1,458,651 |
|
OWNERS' EQUITY: |
|
|
|
|
|
|
|
|
The Company |
|
| 146,192 |
|
|
| 149,376 |
|
Other investors |
|
| 79,797 |
|
|
| 82,432 |
|
Total owners' equity |
|
| 225,989 |
|
|
| 231,808 |
|
Total liabilities and owners’ equity |
| $ | 1,680,679 |
|
| $ | 1,690,459 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Total revenues |
| $ | 60,514 |
|
| $ | 55,867 |
|
Net income (1) |
| $ | 5,043 |
|
| $ | 6,010 |
|
ASSETS | September 30, 2017 | December 31, 2016 | |||||
Investment in real estate assets | $ | 2,093,950 | $ | 2,137,666 | |||
Accumulated depreciation | (607,685 | ) | (564,612 | ) | |||
1,486,265 | 1,573,054 | ||||||
Developments in progress | 29,209 | 9,210 | |||||
Net investment in real estate assets | 1,515,474 | 1,582,264 | |||||
Other assets | 204,686 | 223,347 | |||||
Total assets | $ | 1,720,160 | $ | 1,805,611 | |||
LIABILITIES | |||||||
Mortgage and other indebtedness, net | $ | 1,251,994 | $ | 1,266,046 | |||
Other liabilities | 46,538 | 46,160 | |||||
Total liabilities | 1,298,532 | 1,312,206 | |||||
OWNERS' EQUITY | |||||||
The Company | 216,107 | 228,313 | |||||
Other investors | 205,521 | 265,092 | |||||
Total owners' equity | 421,628 | 493,405 | |||||
Total liabilities and owners' equity | $ | 1,720,160 | $ | 1,805,611 |
Total for the Three Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Total revenues | $ | 57,395 | $ | 59,104 | |||
Depreciation and amortization | (20,151 | ) | (20,227 | ) | |||
Interest income | 356 | 295 | |||||
Interest expense | (12,907 | ) | (14,281 | ) | |||
Operating expenses | (17,431 | ) | (18,216 | ) | |||
Gain on extinguishment of debt | — | (393 | ) | ||||
Income from continuing operations before gain on sales of real estate assets | 7,262 | 6,282 | |||||
Gain on sales of real estate assets | 606 | 16,854 | |||||
Net income (1) | $ | 7,868 | $ | 23,136 |
(1) | |
The Company's pro rata share of net income is |
Total for the Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Total revenues | $ | 175,250 | $ | 186,162 | |||
Depreciation and amortization | (60,276 | ) | (63,085 | ) | |||
Interest income | 1,186 | 963 | |||||
Interest expense | (38,891 | ) | (41,951 | ) | |||
Operating expenses | (52,818 | ) | (56,621 | ) | |||
Gain on extinguishment of debt | — | 62,901 | |||||
Income from continuing operations before gain on sales of real estate assets | 24,451 | 88,369 | |||||
Gain on sales of real estate assets | 529 | 158,190 | |||||
Net income (1) | $ | 24,980 | $ | 246,559 |
Date | Property | Stated Interest Rate | Maturity Date | Amount Extended | ||||||
August | Ambassador Town Center - Infrastructure Improvements (1) | LIBOR + 2.0% | August 2020 | $ | 11,035 |
Date | Property | Interest Rate at Repayment Date | Scheduled Maturity Date | Principal Balance Repaid (1) | ||||||
July | Gulf Coast Town Center - Phase III (1) | 3.13% | July 2017 | $ | 4,118 |
Noncontrolling Interests
Noncontrolling interests consist of the debt on the properties owned by the unconsolidated affiliates listed above is non-recourse, except for debt secured by Ambassador Infrastructure, Hammock Landing and The Pavilion at Port Orange. See
|
| As of |
| |||||
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Noncontrolling interests: |
|
|
|
|
|
|
|
|
Operating Partnership |
| $ | 5,566 |
|
| $ | 31,592 |
|
Other consolidated subsidiaries |
|
| 23,691 |
|
|
| 23,961 |
|
|
| $ | 29,257 |
|
| $ | 55,553 |
|
Variable Interest Entities
In accordance with the guidance in ASU 2015-02, Amendments to the Consolidation Analysis , and ASU 2016-17, as discussed in
The Company consolidates the Operating Partnership, which is a VIE, for which the Company is the primary beneficiary. The Company, through the Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general
20
partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to the Company's business activities and the business activities of the other investors.
Consolidated VIEs
As of March 31, 2020, the Company'sCompany had investments in 12 consolidated VIEs as of September 30, 2017:
Unconsolidated VIEs
The table below lists the Company's unconsolidated VIEs as of September 30, 2017:March 31, 2020:
Unconsolidated VIEs: |
| Investment in Real Estate Joint Ventures and Partnerships |
|
| Maximum Risk of Loss |
| ||
Ambassador Infrastructure, LLC (1) |
| $ | — |
|
| $ | 9,360 |
|
BI Development, LLC |
|
| — |
|
|
| — |
|
Bullseye, LLC |
|
| — |
|
|
| — |
|
Continental 425 Fund LLC |
|
| 7,231 |
|
|
| 7,231 |
|
EastGate Storage, LLC (1) |
|
| 712 |
|
|
| 3,962 |
|
Hamilton Place Self Storage (1) |
|
| 1,411 |
|
|
| 8,413 |
|
Parkdale Self Storage, LLC (1) |
|
| 1,157 |
|
|
| 7,657 |
|
PHG-CBL Lexington, LLC |
|
| 35 |
|
|
| 35 |
|
Self Storage at Mid Rivers, LLC (1) |
|
| 683 |
|
|
| 3,677 |
|
Shoppes at Eagle Point, LLC (1) |
|
| 16,579 |
|
|
| 29,319 |
|
Vision - CBL Hamilton Place, LLC |
|
| 2,223 |
|
|
| 2,223 |
|
|
| $ | 30,031 |
|
| $ | 71,877 |
|
Unconsolidated VIEs: | Investment in Real Estate Joint Ventures and Partnerships | Maximum Risk of Loss | ||||||
Ambassador Infrastructure, LLC (1) | $ | — | $ | 11,035 | ||||
Shoppes at Eagle Point, LLC (2) | 14,754 | 14,754 | ||||||
G&I VIII CBL Triangle LLC | 1,464 | 1,464 |
(1) | |
The |
Note 68 – Mortgage and Other Indebtedness, Net
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of the Company's debt. CBL is a limited guarantor of the 5.25%, 4.60%, and 5.95% senior unsecured notes (collectively, the(the "Notes"), issued by the Operating Partnership, as described below, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates.
The Company also provides a similar limited guarantee of the Operating Partnership's obligations with respect to its unsecuredsecured credit facilitiesfacility and three unsecuredsecured term loansloan as of September 30, 2017.
Net mortgage and other indebtedness net consisted of the following:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
| Amount |
|
| Weighted- Average Interest Rate (1) |
|
| Amount |
|
| Weighted- Average Interest Rate (1) |
| ||||
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating Properties |
| $ | 1,236,179 |
|
|
| 5.19 | % |
| $ | 1,330,561 |
|
|
| 5.27 | % |
Senior unsecured notes due 2023 (2) |
|
| 448,016 |
|
|
| 5.25 | % |
|
| 447,894 |
|
|
| 5.25 | % |
Senior unsecured notes due 2024 (3) |
|
| 299,962 |
|
|
| 4.60 | % |
|
| 299,960 |
|
|
| 4.60 | % |
Senior unsecured notes due 2026 (4) |
|
| 617,692 |
|
|
| 5.95 | % |
|
| 617,473 |
|
|
| 5.95 | % |
Total fixed-rate debt |
|
| 2,601,849 |
|
|
| 5.31 | % |
|
| 2,695,888 |
|
|
| 5.35 | % |
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse loan on operating Property |
|
| 41,500 |
|
|
| 4.23 | % |
|
| 41,950 |
|
|
| 4.34 | % |
Construction loan |
|
| 29,400 |
|
|
| 4.42 | % |
|
| 29,400 |
|
|
| 4.60 | % |
Secured line of credit |
|
| 675,925 |
|
|
| 3.83 | % |
|
| 310,925 |
|
|
| 3.94 | % |
Secured term loan |
|
| 456,250 |
|
|
| 3.83 | % |
|
| 465,000 |
|
|
| 3.94 | % |
Total variable-rate debt |
|
| 1,203,075 |
|
|
| 3.86 | % |
|
| 847,275 |
|
|
| 3.98 | % |
Total fixed-rate and variable-rate debt |
|
| 3,804,924 |
|
|
| 4.85 | % |
|
| 3,543,163 |
|
|
| 5.02 | % |
Unamortized deferred financing costs |
|
| ( 15,232 | ) |
|
|
|
|
|
| ( 16,148 | ) |
|
|
|
|
Total mortgage and other indebtedness, net |
| $ | 3,789,692 |
|
|
|
|
|
| $ | 3,527,015 |
|
|
|
|
|
September 30, 2017 | December 31, 2016 | ||||||||||
Amount | Weighted- Average Interest Rate (1) | Amount | Weighted- Average Interest Rate (1) | ||||||||
Fixed-rate debt: | |||||||||||
Non-recourse loans on operating properties | $ | 1,807,519 | 5.34% | $ | 2,453,628 | 5.55% | |||||
Senior unsecured notes due 2023 (2) | 446,868 | 5.25% | 446,552 | 5.25% | |||||||
Senior unsecured notes due 2024 (3) | 299,944 | 4.60% | 299,939 | 4.60% | |||||||
Senior unsecured notes due 2026 (4) | 615,669 | 5.95% | 394,260 | 5.95% | |||||||
Total fixed-rate debt | 3,170,000 | 5.37% | 3,594,379 | 5.48% | |||||||
Variable-rate debt: | |||||||||||
Non-recourse term loans on operating properties | 10,868 | 3.04% | 19,055 | 3.13% | |||||||
Recourse term loans on operating properties | 89,612 | 3.87% | 24,428 | 3.29% | |||||||
Construction loan (5) | — | —% | 39,263 | 3.12% | |||||||
Unsecured lines of credit | 79,970 | 2.43% | 6,024 | 1.82% | |||||||
Unsecured term loans | 885,000 | 2.69% | 800,000 | 2.04% | |||||||
Total variable-rate debt | 1,065,450 | 2.77% | 888,770 | 2.15% | |||||||
Total fixed-rate and variable-rate debt | 4,235,450 | 4.72% | 4,483,149 | 4.82% | |||||||
Unamortized deferred financing costs | (19,272 | ) | (17,855 | ) | |||||||
Total mortgage and other indebtedness, net | $ | 4,216,178 | $ | 4,465,294 |
(1) | |
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs. |
(2) | |
The balance is net of an unamortized discount of |
(3) | |
The balance is net of an unamortized discount of |
(4) | |
The balance is net of an unamortized discount of |
Non-recourse term loans, recourse term loans, the secured line of credit and the secured term loan include loans that are secured by Properties owned by the Company that have a net carrying value of $2,422,116 at March 31, 2020.
Senior Unsecured Notes
Description |
| Issued (1) |
| Amount |
|
| Interest Rate |
|
| Maturity Date (2) | ||
2023 Notes |
| November 2013 |
| $ | 450,000 |
|
|
| 5.25 | % |
| December 2023 |
2024 Notes |
| October 2014 |
|
| 300,000 |
|
|
| 4.60 | % |
| October 2024 |
2026 Notes |
| December 2016 / September 2017 |
|
| 625,000 |
|
|
| 5.95 | % |
| December 2026 |
Description | Issued (1) | Amount | Interest Rate (2) | Maturity Date (3) | ||||||
2026 Notes | December 2016 / September 2017 (4) | $ | 625,000 | 5.95% | December 2026 | |||||
2024 Notes | October 2014 | 300,000 | 4.60% | October 2024 | ||||||
2023 Notes | November 2013 | 450,000 | 5.25% | December 2023 |
(1) | |
Issued by the Operating Partnership. CBL is a limited guarantor of the Operating Partnership's obligations under the Notes as described above. |
( 2 ) | |
The Notes are redeemable at the Operating Partnership's election, in whole or in part from time to time, on not less than 30 days and not more than 60 days' notice to the holders of the Notes to be redeemed. The 2026 Notes, the 2024 Notes and the 2023 Notes may be redeemed prior to September 15, 2026, July 15, 2024, and September 1, 2023, respectively, for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date and a make-whole premium calculated in accordance with the indenture. On or after the respective dates noted above, the Notes are redeemable for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest. If redeemed prior to the respective dates noted above, each issuance of Notes is redeemable at the treasury rate plus 0.50%, 0.35% and 0.40% for the 2026 Notes, the 2024 Notes and the 2023 Notes, respectively. |
See Note 15 – Subsequent Eventsfor information regarding the Company’s election to not make the interest payment related to the 2023 Notes that was due and payable on June 1, 2020.
Senior Secured Credit
Total Capacity | Total Outstanding | Maturity Date | Extended Maturity Date | |||||||||||
Wells Fargo - Facility A | $ | 500,000 | $ | — | (1) | October 2019 | October 2020 | (2) | ||||||
First Tennessee | 100,000 | 36,034 | (3) | October 2019 | October 2020 | (4) | ||||||||
Wells Fargo - Facility B | 500,000 | 43,936 | (5) | October 2020 | ||||||||||
$ | 1,100,000 | $ | 79,970 | (6) |
The Company has a $350,000 unsecured$1,185,000 senior secured credit facility, which includes a revolving line of credit with a borrowing capacity of $685,000 and a term loan whichwith an outstanding balance of $456,250 at March 31, 2020. The facility matures in July 2023 and bears interest at a variable rate of LIBOR plus 1.35% based on the credit ratings for the Operating Partnership's senior unsecured long-term indebtedness. In July 2017, the Company exercised its option to extend the maturity date to October 2018.2.25%. The loan has a one-year extension option, subject to continued compliance with the terms of the loan agreement, for an outside maturity date of October 2019. At September 30, 2017, the outstanding borrowings of $350,000facility had an interest rate of 2.59%.
22
The secured credit facility is secured by 17 malls and 3 associated centers that are owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional 4 malls, 2 associated centers and 4 mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties.” The terms of the Notes provide that, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered into a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.
Each of the Combined Guarantor Subsidiaries meet the criteria in Rule 3-10(f) of SEC Regulation S-X to provide condensed consolidating financial information as additional disclosure in the notes to the Operating Partnership's senior unsecured long-term indebtedness. In July 2018,consolidated financial statements or within Management’s Discussion and Analysis which accompanies the principal balance will be reduced to $300,000. The loan will mature in July 2020 and has two one-year extension options, the second of whichcondensed consolidated financial statements because each Combined Guarantor Subsidiary is at the lenders' discretion, for a July 2022 extended maturity date. At September 30, 2017, the outstanding borrowings of $490,000 had an interest rate of 2.74%.
Financial Covenants and Restrictions
The agreements for the Notes described aboveand senior secured credit facility contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to $50,000 of the Operating Partnership will constitute an event of default under the Notes.
At March 31, 2020, the Company was not in compliance with a requirementcovenant under certain loan agreementsthe secured credit facility, which provides that are includedthe Company will not have more than $100,000 of cash on hand that constitutes borrowings on the secured line of credit. The Company has also determined that it is probable that it will fail to meet the minimum debt yield covenant under the senior secured credit facility in the Company’s condensed consolidated financial statements. third quarter of 2020, the fourth quarter of 2020 and the first quarter of 2021. The sole business purposeminimum debt yield covenant provides that the ratio 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,adjusted net operating income, as defined in the loan agreements,senior secured credit facility agreement, of the cash flows from these properties after payments of debt service, operating expenses and reserves, are available for distributionthat secure the senior secured credit facility to the Company.
See Liquidity and Going Concern Considerationsin Note 1 – Organization and Basis of Presentationand Note 15 – Subsequent Eventsfor additional information.
Mortgages on Operating Properties
2020 Loan Repayments
Date |
| Property |
| Interest Rate at Repayment Date |
|
| Scheduled Maturity Date |
| Principal Balance Repaid (1) |
| ||
February |
| Parkway Place |
| 6.50% |
|
| July 2020 |
| $ | 33,186 |
| |
February |
| Valley View Mall |
| 6.50% |
|
| July 2020 |
|
| 51,360 |
| |
|
|
|
|
|
|
|
|
|
| $ | 84,546 |
|
Date | Property | Interest Rate at Repayment Date | Scheduled Maturity Date | Principal Balance Repaid (1) | ||||||
January | The Plaza at Fayette | 5.67% | April 2017 | $ | 37,146 | |||||
January | The Shoppes at St. Clair Square | 5.67% | April 2017 | 18,827 | ||||||
February | Hamilton Corner | 5.67% | April 2017 | 14,227 | ||||||
March | Layton Hills Mall | 5.66% | April 2017 | 89,526 | ||||||
April | The Outlet Shoppes at Oklahoma City (2) | 5.73% | January 2022 | 53,386 | ||||||
April | The Outlet Shoppes at Oklahoma City - Phase II (2) | 3.53% | April 2019 | 5,545 | ||||||
April | The Outlet Shoppes at Oklahoma City - Phase III (2) | 3.53% | April 2019 | 2,704 | ||||||
September | Hanes Mall (3) | 6.99% | October 2018 | 144,325 | ||||||
September | The Outlet Shoppes at El Paso | 7.06% | December 2017 | 61,561 | ||||||
$ | 427,247 |
(1) | |
The Company retired the loans with borrowings from its |
23
Date | Property | Interest Rate at Repayment Date | Scheduled Maturity Date | Balance of Non-recourse Debt | Gain on Extinguishment of Debt | |||||||||
January | Midland Mall | 6.10% | August 2016 | $ | 31,953 | $ | 3,760 | |||||||
June | Chesterfield Mall | 5.74% | September 2016 | 140,000 | 29,187 | |||||||||
August | Wausau Center | 5.85% | April 2021 | 17,689 | 6,851 | |||||||||
$ | 189,642 | $ | 39,798 |
Scheduled Principal Payments
As of September 30, 2017,March 31, 2020, the scheduled principal amortization and balloon payments on all of the Company’s consolidated mortgage and other indebtedness,debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, including construction loans and the secured line of credit, are as follows:
2020 (1) |
| $ | 118,560 |
|
2021 |
|
| 557,328 |
|
2022 |
|
| 465,455 |
|
2023 |
|
| 1,491,825 |
|
2024 |
|
| 341,398 |
|
2025 |
|
| 36,105 |
|
Thereafter |
|
| 711,636 |
|
|
|
| 3,722,307 |
|
Net unamortized discounts and premium |
|
| ( 9,330 | ) |
Unamortized deferred financing costs |
|
| ( 15,232 | ) |
Principal balance of loan secured by Lender Malls in default (2) |
|
| 91,947 |
|
Total mortgage and other indebtedness, net |
| $ | 3,789,692 |
|
(1 ) | Reflects payments for the fiscal period April 1, 2020 through December 31, 2020. |
( 2 ) | Represents the aggregate principal balance as of March 31, 2020 of two non-recourse loans, secured by Greenbrier Mall and Hickory Point Mall, which were in default. The loans secured by Greenbrier Mall and Hickory Point Mall matured in December 2019. |
2017 | $ | 134,159 | ||
2018 | 667,320 | |||
2019 | 329,846 | |||
2020 | 551,004 | |||
2021 | 498,168 | |||
Thereafter (1) | 2,067,125 | |||
4,247,622 | ||||
Unamortized premiums and discounts, net | (12,172 | ) | ||
Unamortized deferred financing costs | (19,272 | ) | ||
Total mortgage and other indebtedness, net | $ | 4,216,178 |
Of the $134,159$118,560 of scheduled principal maturitiespayments in 2017, $123,3012020, $64,233 relates to the maturing principal balance of one1 operating property loan and $10,858 represents scheduled principal amortization. The $123,301 loan secured by Acadiana Mall matured in April 2017. The Company is in discussions with the lender to modify the loan and extend its maturity date.
The Company’s mortgage and other indebtedness had a weighted-average maturity of 4.73.5 years as of September 30, 2017March 31, 2020 and 4.43.7 years as of December 31, 2016.
Gain Recognized in OCI/L (Effective Portion) | Location of Losses Reclassified from AOCI into Earnings (Effective Portion) | Loss Recognized in Earnings (Effective Portion) | Location of Gain Recognized in Earnings (Ineffective Portion) | Gain Recognized in Earnings (Ineffective Portion) | ||||||||||||||||||||||||
Hedging Instrument | Nine Months Ended September 30, | Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||
Interest rate contracts | $ | — | $ | 434 | Interest Expense | $ | — | $ | (443 | ) | Interest Expense | $ | — | $ | — |
Redeemable Noncontrolling Interests | The Company | Noncontrolling Interests | |||||||||||||
Unrealized Gains (Losses) - Hedging Agreements | Total | ||||||||||||||
Beginning balance, January 1, 2016 | $ | 433 | $ | 1,935 | $ | (2,802 | ) | $ | (434 | ) | |||||
OCI before reclassifications | 3 | 814 | 60 | 877 | |||||||||||
Amounts reclassified from AOCI (1) | (436 | ) | (2,749 | ) | 2,742 | (443 | ) | ||||||||
Net current year-to-date period OCI | (433 | ) | (1,935 | ) | 2,802 | 434 | |||||||||
Ending balance, September 30, 2016 | $ | — | $ | — | $ | — | $ | — |
Redeemable Common Units | Partners' Capital | ||||||||||
Unrealized Gains (Losses) - Hedging Agreements | Total | ||||||||||
Beginning balance, January 1, 2016 | $ | 434 | $ | (868 | ) | $ | (434 | ) | |||
OCI before reclassifications | 3 | 874 | 877 | ||||||||
Amounts reclassified from AOCI (1) | (437 | ) | (6 | ) | (443 | ) | |||||
Net current quarterly period OCI/L | (434 | ) | 868 | 434 | |||||||
Ending balance, September 30, 2016 | $ | — | $ | — | $ | — |
Note 89 – Mortgage and Other Notes Receivable
The Company’s mortgage notesnote receivable is collateralized by either a first mortgage, a second mortgage, or by an assignment of 100% of the partnership interests that own the real estate assets. Other notes receivable include amounts due from tenants or government-sponsored districts and unsecured notes received from third parties as whole or partial consideration for property or investments. The Company believes that its mortgage and other notes receivable balance is collectable as of September 30, 2017.
Mortgage and other notes receivable consist of the following:
|
|
|
| As of March 31, 2020 |
|
| As of December 31, 2019 |
| |||||||||||||||
|
| Maturity Date |
| Interest Rate |
|
| Balance |
|
| Interest Rate |
| Balance |
| ||||||||||
Mortgages |
| Dec 2016 | (1) | 3.48% |
|
| $ | 1,100 |
|
| 4.28% - 9.50% |
| $ | 2,637 |
| ||||||||
Other Notes Receivable |
| Sep 2021- Apr 2026 |
| 4.00% - 5.00% |
|
|
| 1,828 |
|
| 4.00% - 5.00% |
|
| 2,025 |
| ||||||||
|
|
|
|
|
|
|
| $ | 2,928 |
|
|
|
| $ | 4,662 |
|
As of September 30, 2017 | As of December 31, 2016 | |||||||||||||
Maturity Date | Interest Rate | Balance | Interest Rate | Balance | ||||||||||
Mortgages: | ||||||||||||||
Columbia Place Outparcel | Feb 2022 | 5.00% | $ | 307 | 5.00% | $ | 321 | |||||||
Gulf Coast Town Center - Phase III (1) | Jan 2018 | 5.00% | 4,118 | —% | — | |||||||||
The Landing at Arbor Place Outparcel (2) | N/A | —% | — | —% | — | |||||||||
One Park Place | May 2022 | 5.00% | 1,044 | 5.00% | 1,194 | |||||||||
Village Square | Mar 2018 | 4.00% | 1,608 | 3.75% | 1,644 | |||||||||
Other (3) | Dec 2016 - Jan 2047 | 6.25% - 9.50% | 2,512 | 3.27% - 9.50% | 2,521 | |||||||||
9,589 | 5,680 | |||||||||||||
Other Notes Receivable: | ||||||||||||||
ERMC | Sep 2021 | 4.00% | 3,018 | 4.00% | 3,500 | |||||||||
Horizon Group (4) | N/A | —% | — | 7.00% | 300 | |||||||||
RED Development Inc. | Oct 2023 | 5.00% | 5,979 | 5.00% | 6,588 | |||||||||
Southwest Theaters | Apr 2026 | 5.00% | 693 | 5.00% | 735 | |||||||||
9,690 | 11,123 | |||||||||||||
$ | 19,279 | $ | 16,803 |
(1 ) | |
Includes a |
Expected credit losses
As of March 31, 2020, the one mortgage note receivable is in default, but as noted above, the Company has a noncontrolling interest recorded related to the defaulting partner’s interest that serves as collateral on the note, and that amount is greater than the outstanding balance on the note. Based on this information, the Company did not record a credit loss for this class of receivables for the three months ended March 31, 2020.
During the three months ended March 31, 2020, the Company assessed each of its three note receivables factoring in credit quality indicators such as collection experience and future expectations of performance to determine whether a credit loss should be recorded. Based on this information, the Company wrote off the $1,230 note receivable associated with amounts due from a government sponsored district at The Shoppes at St. Clair. The Company did not record any other credit losses for this class of receivables for the three months ended March 31, 2020.
24
Note 910 – 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:
Three Months Ended March 31, 2020 |
| Malls |
|
| All Other (1) |
|
| Total |
| |||
Revenues (2) |
| $ | 153,351 |
|
| $ | 14,223 |
|
| $ | 167,574 |
|
Property operating expenses (3) |
|
| ( 52,098 | ) |
|
| ( 3,267 | ) |
|
| ( 55,365 | ) |
Interest expense |
|
| ( 18,147 | ) |
|
| ( 28,845 | ) |
|
| ( 46,992 | ) |
Other expense |
|
| — |
|
|
| ( 158 | ) |
|
| ( 158 | ) |
Gain (loss) on sales of real estate assets |
|
| ( 25 | ) |
|
| 165 |
|
|
| 140 |
|
Segment profit (loss) |
| $ | 83,081 |
|
| $ | ( 17,882 | ) |
|
| 65,199 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
| ( 55,902 | ) |
General and administrative expense |
|
|
|
|
|
|
|
|
|
| ( 17,836 | ) |
Interest and other income |
|
|
|
|
|
|
|
|
|
| 2,397 |
|
Loss on impairment |
|
|
|
|
|
|
|
|
|
| ( 133,644 | ) |
Income tax provision |
|
|
|
|
|
|
|
|
|
| ( 526 | ) |
Equity in earnings of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
| 1,018 |
|
Net loss |
|
|
|
|
|
|
|
|
| $ | ( 139,294 | ) |
Capital expenditures (4) |
| $ | 18,056 |
|
| $ | 2,276 |
|
| $ | 20,332 |
|
Three Months Ended March 31, 2019 |
| Malls |
|
| All Other (1) |
|
| Total |
| |||
Revenues (2) |
| $ | 183,864 |
|
| $ | 14,166 |
|
| $ | 198,030 |
|
Property operating expenses (3) |
|
| ( 57,181 | ) |
|
| ( 4,494 | ) |
|
| ( 61,675 | ) |
Interest expense |
|
| ( 23,190 | ) |
|
| ( 30,808 | ) |
|
| ( 53,998 | ) |
Gain on sales of real estate assets |
|
| — |
|
|
| 228 |
|
|
| 228 |
|
Segment profit (loss) |
| $ | 103,493 |
|
| $ | ( 20,908 | ) |
|
| 82,585 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
| ( 69,792 | ) |
General and administrative expense |
|
|
|
|
|
|
|
|
|
| ( 22,007 | ) |
Litigation settlement |
|
|
|
|
|
|
|
|
|
| ( 88,150 | ) |
Interest and other income |
|
|
|
|
|
|
|
|
|
| 489 |
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
| 71,722 |
|
Loss on impairment |
|
|
|
|
|
|
|
|
|
| ( 24,825 | ) |
Income tax provision |
|
|
|
|
|
|
|
|
|
| ( 139 | ) |
Equity in earnings of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
| 3,308 |
|
Net loss |
|
|
|
|
|
|
|
|
| $ | ( 46,809 | ) |
Capital expenditures (4) |
| $ | 28,024 |
|
| $ | 115 |
|
| $ | 28,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
| Malls |
|
| All Other (1) |
|
| Total |
| |||
March 31, 2020 |
| $ | 3,998,280 |
|
| $ | 723,035 |
|
| $ | 4,721,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
| $ | 4,180,515 |
|
| $ | 441,831 |
|
| $ | 4,622,346 |
|
Three Months Ended September 30, 2017 | Malls | Associated Centers | Community Centers | All Other (1) | Total | |||||||||||||||
Revenues | $ | 205,020 | $ | 9,720 | $ | 4,023 | $ | 5,887 | $ | 224,650 | ||||||||||
Property operating expenses (2) | (59,602 | ) | (2,643 | ) | (843 | ) | (1,034 | ) | (64,122 | ) | ||||||||||
Interest expense | (28,922 | ) | (43 | ) | (89 | ) | (24,859 | ) | (53,913 | ) | ||||||||||
Other expense | — | — | — | (132 | ) | (132 | ) | |||||||||||||
Gain (loss) on sales of real estate assets | (1,994 | ) | — | — | 3,377 | 1,383 | ||||||||||||||
Segment profit (loss) | $ | 114,502 | $ | 7,034 | $ | 3,091 | $ | (16,761 | ) | 107,866 | ||||||||||
Depreciation and amortization expense | (71,732 | ) | ||||||||||||||||||
General and administrative expense | (13,568 | ) | ||||||||||||||||||
Interest and other income (loss) | (200 | ) | ||||||||||||||||||
Gain on extinguishment of debt | 6,452 | |||||||||||||||||||
Loss on impairment | (24,935 | ) | ||||||||||||||||||
Loss on investment | (354 | ) | ||||||||||||||||||
Income tax benefit | 1,064 | |||||||||||||||||||
Equity in earnings of unconsolidated affiliates | 4,706 | |||||||||||||||||||
Net income | $ | 9,299 | ||||||||||||||||||
Capital expenditures (3) | $ | 47,246 | $ | 594 | $ | 331 | $ | 110 | $ | 48,281 |
Three Months Ended September 30, 2016 | Malls | Associated Centers | Community Centers | All Other (1) | Total | |||||||||||||||
Revenues | $ | 228,918 | $ | 9,997 | $ | 4,776 | $ | 8,030 | $ | 251,721 | ||||||||||
Property operating expenses (2) | (68,189 | ) | (2,311 | ) | (1,149 | ) | 805 | (70,844 | ) | |||||||||||
Interest expense | (35,915 | ) | (1,424 | ) | (858 | ) | (16,095 | ) | (54,292 | ) | ||||||||||
Other expense | — | — | — | (5,576 | ) | (5,576 | ) | |||||||||||||
Gain on sales of real estate assets | 273 | — | — | 4,653 | 4,926 | |||||||||||||||
Segment profit (loss) | $ | 125,087 | $ | 6,262 | $ | 2,769 | $ | (8,183 | ) | 125,935 | ||||||||||
Depreciation and amortization expense | (71,794 | ) | ||||||||||||||||||
General and administrative expense | (13,222 | ) | ||||||||||||||||||
Interest and other income | 451 | |||||||||||||||||||
Gain on extinguishment of debt | (6 | ) | ||||||||||||||||||
Loss on impairment | (53,558 | ) | ||||||||||||||||||
Income tax benefit | 2,386 | |||||||||||||||||||
Equity in earnings of unconsolidated affiliates | 10,478 | |||||||||||||||||||
Net income | $ | 670 | ||||||||||||||||||
Capital expenditures (3) | $ | 64,085 | $ | 61 | $ | 1,452 | $ | 32,420 | $ | 98,018 |
Nine Months Ended September 30, 2017 | Malls | Associated Centers | Community Centers | All Other (1) | Total | |||||||||||||||
Revenues | $ | 632,830 | $ | 28,704 | $ | 12,459 | $ | 17,903 | $ | 691,896 | ||||||||||
Property operating expenses (2) | (182,926 | ) | (6,723 | ) | (2,394 | ) | (2,872 | ) | (194,915 | ) | ||||||||||
Interest expense | (93,481 | ) | (1,269 | ) | (247 | ) | (70,182 | ) | (165,179 | ) | ||||||||||
Other expense | — | — | — | (5,151 | ) | (5,151 | ) | |||||||||||||
Gain on sales of real estate assets | 75,434 | — | — | 11,470 | 86,904 | |||||||||||||||
Segment profit (loss) | $ | 431,857 | $ | 20,712 | $ | 9,818 | $ | (48,832 | ) | 413,555 | ||||||||||
Depreciation and amortization expense | (225,461 | ) | ||||||||||||||||||
General and administrative expense | (45,402 | ) | ||||||||||||||||||
Interest and other income | 1,235 | |||||||||||||||||||
Gain on extinguishment of debt | 30,927 | |||||||||||||||||||
Loss on impairment | (71,401 | ) | ||||||||||||||||||
Loss on investment | (6,197 | ) | ||||||||||||||||||
Income tax benefit | 4,784 | |||||||||||||||||||
Equity in earnings of unconsolidated affiliates | 16,404 | |||||||||||||||||||
Net income | $ | 118,444 | ||||||||||||||||||
Capital expenditures (3) | $ | 126,290 | $ | 1,678 | $ | 1,036 | $ | 2,874 | $ | 131,878 |
Nine Months Ended September 30, 2016 | Malls | Associated Centers | Community Centers | All Other (1) | Total | |||||||||||||||
Revenues | $ | 700,407 | $ | 30,096 | $ | 14,747 | $ | 24,514 | $ | 769,764 | ||||||||||
Property operating expenses (2) | (208,975 | ) | (7,010 | ) | (3,552 | ) | 6,805 | (212,732 | ) | |||||||||||
Interest expense | (105,797 | ) | (4,557 | ) | (321 | ) | (52,035 | ) | (162,710 | ) | ||||||||||
Other expense | — | — | — | (20,313 | ) | (20,313 | ) | |||||||||||||
Gain on sales of real estate assets | 489 | 478 | 3,239 | 10,297 | 14,503 | |||||||||||||||
Segment profit (loss) | $ | 386,124 | $ | 19,007 | $ | 14,113 | $ | (30,732 | ) | 388,512 | ||||||||||
Depreciation and amortization expense | (220,505 | ) | ||||||||||||||||||
General and administrative expense | (46,865 | ) | ||||||||||||||||||
Interest and other income | 1,062 | |||||||||||||||||||
Loss on impairment | (116,736 | ) | ||||||||||||||||||
Income tax benefit | 2,974 | |||||||||||||||||||
Equity in earnings of unconsolidated affiliates | 107,217 | |||||||||||||||||||
Net income | $ | 115,659 | ||||||||||||||||||
Capital expenditures (3) | $ | 125,406 | $ | 3,158 | $ | 2,420 | $ | 49,554 | $ | 180,538 |
Total Assets | Malls | Associated Centers | Community Centers | All Other (1) | Total | |||||||||||||||
September 30, 2017 | $ | 5,086,855 | $ | 243,840 | $ | 235,680 | $ | 177,381 | $ | 5,743,756 | ||||||||||
December 31, 2016 | $ | 5,383,937 | $ | 259,966 | $ | 215,917 | $ | 244,820 | $ | 6,104,640 | ||||||||||
(1) | |
The All Other category includes associated centers, community centers, mortgage and other notes receivable, office buildings, self-storage facilities, corporate-level debt and the Management |
(2) | Management, development and |
(3) | |
Property operating expenses include property operating, real estate taxes and maintenance and repairs. |
(4) | |
Includes additions to and acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category. |
25
Note 11 – Earnings per Share and Earnings per Unit
Earnings per Share of the Company
Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable 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 noncontrolling interests in the Operating Partnership into shares of common stock are not dilutive.
Earnings per Unit of the Operating Partnership
Basic earnings per unit (“EPU”) is computed by dividingusing the two-class method. The two-class method is required when either (i) participating securities or (ii) multiple classes of common stock exists. The Operating Partnership’s special common units, and common units issued upon the conversion or redemption of special common units, meet the definition of participating securities as these units have the contractual right and obligation to share in the Operating Partnership’s net income (loss) and distributions. Under this approach net income (loss) attributable to common unitholders is reduced by the amount of distributions made (declared) to all common unitholders and by the amount of distributions that are required to be made (declared and undeclared) to special common unitholders. Distributed and undistributed earnings is subsequently divided by the weighted-average number of common and special common units outstanding for the period.period to compute basic EPU for each unit. Undistributed losses are allocated 100 percent to common units, other than common units issued upon the conversion or redemption of special common units. The special common units, and common units issued upon the conversion or redemption of special common units, only participate in undistributed losses in the event of a liquidation. Diluted EPU is computed by considering either the two-class method or the if-converted method, whichever results in more dilution. The if-converted method assumes the issuance of common units for all potential dilutive special common units outstanding.
The following table presents basic and diluted EPU for common and special common units for the three and nine month periods ended September 30, 2017March 31, 2020 and 2016.2019.
|
| Three Months Ended March 31, |
| |||||
(In thousands, except per unit data) |
|
| 2020 |
|
|
| 2019 |
|
Net Loss Attributable to Common Unitholders |
| $ | ( 150,310 | ) |
| $ | ( 57,957 | ) |
Distributions to Common Unitholders - Declared Only |
|
| — |
|
|
| ( 14,594 | ) |
Distributions to Special Common Unitholders - Declared and Undeclared |
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
| — |
|
|
| ( 178 | ) |
S-SCUs |
|
| ( 1,143 | ) |
|
| ( 1,143 | ) |
L-SCUs |
|
| ( 433 | ) |
|
| ( 433 | ) |
K-SCUs |
|
| ( 844 | ) |
|
| ( 844 | ) |
Total Undistributed Losses Available to Common and Special Common Unitholders |
| $ | ( 152,730 | ) |
| $ | ( 75,149 | ) |
|
|
|
|
|
|
|
|
|
Distributed Earnings: |
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
| — |
|
| $ | 178 |
|
S-SCUs |
|
| 1,143 |
|
|
| 1,143 |
|
L-SCUs |
|
| 433 |
|
|
| 433 |
|
K-SCUs |
|
| 844 |
|
|
| 844 |
|
Common Units |
|
| — |
|
|
| 14,594 |
|
|
|
|
|
|
|
|
|
|
Undistributed Losses: |
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
| $ | — |
|
| $ | — |
|
S-SCUs |
|
| — |
|
|
| — |
|
L-SCUs |
|
| — |
|
|
| — |
|
26
K-SCUs |
|
| — |
|
|
| — |
|
Common Units |
|
| ( 152,730 | ) |
|
| ( 75,149 | ) |
|
|
|
|
|
|
|
|
|
Weighted Average: |
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
| 2,300 |
|
|
| 2,373 |
|
S-SCUs |
|
| 1,561 |
|
|
| 1,561 |
|
L-SCUs |
|
| 572 |
|
|
| 572 |
|
K-SCUs |
|
| 1,137 |
|
|
| 1,137 |
|
Common Units |
|
| 195,688 |
|
|
| 194,368 |
|
|
|
|
|
|
|
|
|
|
Basic EPS: |
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
| $ | — |
|
| $ | 0.08 |
|
S-SCUs |
|
| 0.73 |
|
|
| 0.73 |
|
L-SCUs |
|
| 0.76 |
|
|
| 0.76 |
|
K-SCUs |
|
| 0.74 |
|
|
| 0.74 |
|
Common Units |
|
| ( 0.78 | ) |
|
| ( 0.31 | ) |
|
|
|
|
|
|
|
|
|
Total Basic EPS |
| $ | ( 0.75 | ) |
| $ | ( 0.29 | ) |
|
|
|
|
|
|
|
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
| $ | — |
|
| $ | 0.08 |
|
S-SCUs |
|
| 0.73 |
|
|
| 0.73 |
|
L-SCUs |
|
| 0.76 |
|
|
| 0.76 |
|
K-SCUs |
|
| 0.74 |
|
|
| 0.74 |
|
Common Units |
|
| ( 0.78 | ) |
|
| ( 0.31 | ) |
|
|
|
|
|
|
|
|
|
Total Diluted EPS |
| $ | ( 0.75 | ) |
| $ | ( 0.29 | ) |
For additional information regarding the participation rights and minimum distributions relating to the common and special common units, see Note 9. Shareholders’ Equity and Partners’ Capital and Note 10. Redeemable Interests and Noncontrolling Interests of the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2019.
Note 12 – Contingencies
Litigation
In April 2019, the Company entered into a settlement agreement and release with respect to the class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The settlement agreement stated that the Company had to set aside a common fund with a monetary and non-monetary value of $90,000 to be disbursed to class members in accordance with an agreed-upon formula that is based upon aggregate damages of $60,000. The Court granted final approval to the proposed settlement on August 22, 2019. Class members are comprised of past and current tenants at certain of the Company's shopping centers that it owns or formerly owned during the class period, which extended from January 1, 2011 through the date of preliminary court approval. Class members who are past tenants and made a claim pursuant to the Court's order will receive payment of their claims in cash. Class members who are current tenants will receive monthly credits against rents and future charges, beginning no earlier than January 1, 2020 and continuing for the following five years. Any amounts under the settlement allocated to tenants with outstanding amounts payable to the Company, including tenants which have declared bankruptcy or declare bankruptcy over the relevant period, will first be deducted from the amounts owed to the Company. All attorney’s fees and associated costs to be paid to class counsel (up to a maximum of $28,000), any incentive award to the class representative (up to a maximum of $50), and class administration costs (which are expected to not exceed $100), have or will be funded by the common fund, which has been approved by the Court. Under the terms of the settlement agreement, the Company did not pay any dividends to holders of its common shares payable in the third and fourth quarters of 2019. The settlement agreement does not restrict the Company's ability to declare dividends payable in 2020 or in subsequent years. The Company recorded an accrued liability and corresponding litigation settlement expense of $88,150 in the three months ended March 31, 2019 related to the settlement agreement. The Company reduced the accrued liability by $26,396, a majority of which was related to past tenants that did not submit a claim pursuant to the terms of the settlement agreement with the remainder relating to tenants that either opted out of the lawsuit or waived their rights to their respective settlement amounts. The Company also reduced the accrued liability by $23,050 related to attorney and administrative fees that were paid pursuant to the settlement agreement. The Company also received document requests in the third quarter of 2019, in the form of subpoenas, from the Securities and Exchange Commission and the Department of Justice regarding the Wave
27
Lengths Hair Salons of Florida, Inc. litigation and other related matters. The Company is continuing to cooperate in these matters.
Securities Litigation
The Company and certain of its officers and directors were named as defendants in three putative securities class action lawsuits (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Eastern District of Tennessee, on behalf of all persons who purchased or otherwise acquired the Company’s securities during a specified period of time. Those cases were consolidated on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation , 1:19-cv-00149-JRG-CHS.
The complaints filed in the Securities Class Action Litigation allege violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the periods of time specified above. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. The outcome of these legal proceedings cannot be predicted with certainty.
Certain of the Company’s current and former directors and officers have been named as defendants in nine shareholder derivative lawsuits (collectively, the “Derivative Litigation”). On June 4, 2019, a shareholder filed a putative derivative complaint captioned Robert Garfield v. Stephen D. Lebovitz et al. , 1:19-cv-01038-LPS, in the United States District Court for the District of Delaware (the “ Garfield Derivative Action”), purportedly on behalf of the Company against certain of its officers and directors. On June 24, 2019, September 5, 2019 and September 25, 2019, respectively, other shareholders filed three additional putative derivative complaints, each in the United States District Court for the District of Delaware, captioned as follows: Robert Cohen v. Stephen D. Lebovitz et al. , 1:19-cv-01185-LPS (the “ Cohen Derivative Action”); Travis Lore v. Stephen D. Lebovitz et al. , 1:19-cv-01665-LPS (the “ Lore Derivative Action”), and City of Gainesville Cons. Police Officers’ and Firefighters Retirement Plan v. Stephen D. Lebovitz et al. , 1:19-cv-01800 (the “ Gainesville Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. The Court consolidated the Garfield Derivative Action and the Cohen Derivative Action on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Derivative Litigation , 1:19-cv-01038-LPS (the " Consolidated Derivative Action"). On July 25, 2019, the Court stayed proceedings in the Consolidated Derivative Action pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On October 14, 2019, the parties to the Gainesville Derivative Action and the Lore Derivative Action filed a joint stipulation and proposed order confirming that each of those cases is subject to the consolidation order previously entered by the Court in the Consolidated Derivative Action and that further proceedings in those cases are stayed pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On July 22, 2019, a shareholder filed a putative derivative complaint captioned Shebitz v. Lebovitz et al. , 1:19-cv-00213, in the United States District Court for the Eastern District of Tennessee (the “ Shebitz Derivative Action”); on January 10, 2020, a shareholder filed a putative derivative complaint captioned Chatman v. Lebovitz, et al., 2020-0011-JTL, in the Delaware Chancery Court (the “Chatman Derivative Action”); on February 12, 2020, a shareholder filed a putative derivative complaint captioned Kurup v. Lebovitz, et al., 2020-0070-JTL, in the Delaware Chancery Court (the “ Kurup Derivative Action”); on February 26, 2020, a shareholder filed a putative derivative complaint captioned Kemmer v. Lebovitz, et al., 1:20-cv-00052, in the United States District Court for the Eastern District of Tennessee (the “ Kemmer Derivative Action”); and on April 14, 2020, a shareholder filed a putative derivative complaint captioned Hebig v. Lebovitz, et al., 1:19-cv-00149-JRG-CHS, in the United States District Court for the Eastern District of Tennessee (the “ Hebig Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. On October 7, 2019, the Court stayed the Shebitz Derivative Action, pending resolution of an eventual motion to dismiss in the related Securities Class Action Litigation; the Company expects the Chatman, Kurup, Kemmer, and Hebig Derivative Actions to be stayed as well.
28
The complaints filed in the Derivative Litigation allege, among other things, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the federal securities laws. The factual allegations upon which these claims are based are similar to the factual allegations made in the Securities Class Action Litigation, described above. The complaints filed in the Derivative Litigation seek, among other things, unspecified damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures. The outcome of these legal proceedings cannot be predicted with certainty.
The Company's insurance carriers have been placed on notice of these matters.
The Company is currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
Environmental Contingencies
The Company evaluates potential loss contingencies related to environmental matters using the same criteria
Guarantees
The Operating Partnership may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on the Operating Partnership’sPartnership's investment in the joint venture. The Operating Partnership may receive a fee from the joint venture for providing the guaranty. Additionally, when the Operating Partnership issues a guaranty, the terms of the joint venture agreement typically provide that the Operating Partnership may receive indemnification from the joint venture partner or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.
The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of September 30, 2017March 31, 2020 and December 31, 2016:2019:
|
| As of March 31, 2020 |
|
| Obligation recorded to reflect guaranty |
| ||||||||||||||||||||||
Unconsolidated Affiliate |
| Company's Ownership Interest |
|
| Outstanding Balance |
|
| Percentage Guaranteed by the Operating Partnership |
|
|
| Maximum Guaranteed Amount |
|
| Debt Maturity Date (1) |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||
West Melbourne I, LLC - Phase I |
| 50% |
|
| $ | 39,612 |
|
| 50% |
|
|
| $ | 19,806 |
|
| Feb-2021 | (2) |
| $ | 198 |
|
| $ | 199 |
| ||
West Melbourne I, LLC - Phase II |
| 50% |
|
|
| 15,557 |
|
| 50% |
|
|
|
| 7,779 |
|
| Feb-2021 | (2) |
|
| 78 |
|
|
| 78 |
| ||
Port Orange I, LLC |
| 50% |
|
|
| 53,792 |
|
| 50% |
|
|
|
| 26,896 |
|
| Feb-2021 | (2) |
|
| 269 |
|
|
| 270 |
| ||
Ambassador Infrastructure, LLC |
| 65% |
|
|
| 9,360 |
|
| 100% |
|
|
|
| 9,360 |
|
| Aug-2020 |
|
|
| 101 |
|
|
| 101 |
| ||
Shoppes at Eagle Point, LLC |
| 50% |
|
|
| 35,189 |
|
| 35% |
| (3) |
|
| 12,740 |
|
| Oct-2020 | (4) |
|
| 127 |
|
|
| 127 |
| ||
EastGate Storage, LLC |
| 50% |
|
|
| 6,377 |
|
| 50% |
| (5) |
|
| 3,250 |
|
| Dec-2022 |
|
|
| 33 |
|
|
| 33 |
| ||
Self Storage at Mid Rivers, LLC |
| 50% |
|
|
| 5,803 |
|
| 50% |
| (6) |
|
| 2,994 |
|
| Apr-2023 |
|
|
| 30 |
|
|
| 30 |
| ||
Parkdale Self Storage, LLC |
| 50% |
|
|
| 4,878 |
|
| 100% |
| (7) |
|
| 6,500 |
|
| Jul-2024 |
|
|
| 65 |
|
|
| 65 |
| ||
Hamilton Place Self Storage, LLC |
| 54% |
|
|
| 2,485 |
|
| 100% |
| (8) |
|
| 7,002 |
|
| Sep-2024 |
|
|
| 70 |
|
|
| 70 |
| ||
Atlanta Outlet JV, LLC |
| 50% |
|
|
| 4,680 |
|
| 100% |
| (9) |
|
| 4,680 |
|
| Nov-2023 |
|
|
| — |
|
|
| — |
| ||
Louisville Outlet Shoppes, LLC |
| 50% |
|
|
| 9,182 |
|
| 100% |
| (10) |
|
| 9,182 |
|
| Jul-2020 |
|
|
| — |
|
|
| — |
| ||
Total guaranty liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 971 |
|
| $ | 973 |
|
29
As of September 30, 2017 | Obligation recorded to reflect guaranty | ||||||||||||||||||||||
Unconsolidated Affiliate | Company's Ownership Interest | Outstanding Balance | Percentage Guaranteed by the Operating Partnership | Maximum Guaranteed Amount | Debt Maturity Date (1) | 9/30/2017 | 12/31/2016 | ||||||||||||||||
West Melbourne I, LLC - Phase I (2) | 50% | $ | 42,397 | 20% | $ | 8,479 | Feb-2018 | (3) | $ | 86 | $ | 86 | |||||||||||
West Melbourne I, LLC - Phase II (2) | 50% | 16,377 | 20% | 3,275 | Feb-2018 | (3) | 33 | 33 | |||||||||||||||
Port Orange I, LLC | 50% | 57,298 | 20% | 11,460 | Feb-2018 | (3) | 116 | 116 | |||||||||||||||
Ambassador Infrastructure, LLC | 65% | 11,035 | 100% | 11,035 | Aug-2020 | (4) | 177 | 177 | |||||||||||||||
Total guaranty liability | $ | 412 | $ | 412 |
(1) | |
Excludes any extension options. |
(2) | |
These loans have 2 one-year extension options at the joint venture’s election. |
(3) | The guaranty is for a fixed amount of $12,740 throughout the term of the loan, including any extensions. |
(4) | The loan has |
(5) | The guaranty was reduced to 50% once construction was completed during the second quarter of 2019. The guaranty may be further reduced to 25% once certain debt and operational metrics are met. |
(6) | The Company received a 1% fee for the guaranty when the loan was |
(7) | Parkdale Self Storage, LLC, a 50/50 joint venture, closed on a construction loan with a total borrowing capacity of up to $6,500 for the development of a climate controlled self-storage facility adjacent to Parkdale Mall in |
(8) | Hamilton Place Self Storage, LLC, a 54/46 joint venture, closed on a construction loan with a total borrowing capacity of up to $7,002 for |
(9) | In December 2019, the Company deconsolidated this entity. |
(10) | In November 2019, the Company deconsolidated this entity. |
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 $14,000$11,600 as of September 30, 2017.March 31, 2020. The Company 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 it is obligated to fund under the guaranty. The Company did not include an obligation for this guaranty because it determined that the fair value of the guaranty was not material as of September 30, 2017March 31, 2020 and December 31, 2016.
Expected credit losses
During the three months ended March 31, 2020, the Company evaluated each guarantee individually by looking at the debt service ratio, cash flow forecasts and the performance of each loan. The result of the analysis was that each loan is current and performing, and if applicable, none of the loans that are guaranteed by the Company are in violation of their debt covenants, each operating property has positive cash flows that are sufficient to cover debt service and forecasted cash flows for each operating property do not indicate that there is more than a remote probability that the Company will be required to perform under each guaranty. Historically, the Company has not had to perform on any of its guarantees of unconsolidated affiliates’ debt. Based on current and future conditions, the Company does not expect to have to perform, and therefore did not record a credit loss for the three months ended March 31, 2020.
Performance Bonds
The Company has issued various bonds that it would have to satisfy in the event of non-performance. The total amount outstanding on these bonds was $21,372$6,384 and $21,446$13,660 at September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.
Note 13 – Share-Based Compensation
As of September 30, 2017, there was one share-based compensation plan under whichMarch 31, 2020, the Company has outstanding awards under the CBL & Associates Properties, Inc. 2012 Stock Incentive Plan ("the 2012 Plan"), which was approved by the Company's shareholders in May 2012. The 2012 Plan permits the Company to issue stock options and common stock to selected officers, employees and non-employee directors of the Company up to a total of 10,400,000 shares. As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expense associated with the Company's share-based compensation plans.
Restricted Stock Awards
The Company may make restricted stock awards to independent directors, officers and its employees under the 2012 Plan. These awards are generally granted based on the performance of the Company and its employees. None of these awards have performance requirements other than a service condition of continued employment, unless otherwise provided. Compensation expense is recognized on a straight-line basis over the requisite service period.
Share-based compensation expense related to the restricted stock awards was $812$1,144 and $886$1,713 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $3,175 and $2,834 for the nine months ended September 30, 2017 and 2016,2019, respectively. Share-based compensation cost capitalized as part of real estate assets was $94$7 and $83$14 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $308 and $274 for the nine months ended September 2019, respectively.
30 2017 and 2016, respectively.
A summary of the status of the Company’s nonvested restricted stock awards as of September 30, 2017,March 31, 2020, and changes during the ninethree months ended September 30, 2017,March 31, 2020, is presented below:
|
| Shares |
|
| Weighted- Average Grant-Date Fair Value |
| ||
Nonvested at January 1, 2020 |
|
| 971,846 |
|
| $ | 5.16 |
|
Granted |
|
| 1,628,397 |
|
| $ | 0.86 |
|
Vested |
|
| ( 1,051,783 | ) |
| $ | 2.86 |
|
Forfeited |
|
| ( 4,852 | ) |
| $ | 5.81 |
|
Nonvested at March 31, 2020 |
|
| 1,543,608 |
|
| $ | 2.19 |
|
Shares | Weighted-Average Grant Date Fair Value | |||||
Nonvested at January 1, 2017 | 602,162 | $ | 15.41 | |||
Granted | 326,424 | $ | 10.75 | |||
Vested | (247,729 | ) | $ | 14.78 | ||
Forfeited | (6,870 | ) | $ | 13.04 | ||
Nonvested at September 30, 2017 | 673,987 | $ | 13.41 |
As of September 30, 2017,March 31, 2020, there was $6,788$3,165 of total unrecognized compensation cost related to nonvested stock awards granted under the plans, which is expected to be recognized over a weighted-average period of 2.72.6 years.
Long-Term Incentive Program
In 2015, the Company adopted a long-term incentive program ("LTIP") for its named executive officers, which consists of performance stock unit ("PSU") awards and annual restricted stock awards, that may be issued under the 2012 Plan. The number of shares related to the PSU awards that each named executive officer may receive upon the conclusion of a three-year performance period is determined based on the Company's achievement of specified levels of long-term total stockholder return ("TSR") performance relative to the National Association of Real Estate Investment Trusts ("NAREIT") Retail Index, provided that at least a "Threshold" level must be attained for any shares to be earned.
Beginning with the 2018 PSUs, two-thirds of the quantitative portion of the award over the performance period is based on the achievement of TSR relative to the NAREIT Retail Index while the remaining one -third is based on the achievement of absolute TSR metrics for the Company. Beginning with the 2018 PSU grant, to maintain compliance with a 200,000 share annual equity grant limit (the “Section 162(m) Grant Limit”) that was included in the 2012 Plan to satisfy the “qualified performance-based compensation” exception to the deduction limits for certain executive compensation under Section 162(m) of the Code, to the extent that a grant of PSUs could result in the issuance of a number of shares of common stock at the conclusion of the performance period that, when coupled with the number of shares of time-vesting restricted stock granted in the same year the PSUs were granted, would exceed such limit, any such excess will be converted to a cash bonus award with a value equivalent to the number of shares of common stock constituting such excess times the average of the high and low trading prices reported for CBL's common stock on the date such shares would otherwise have been issuable.
In conjunction with the February 2020 approval of the 2020 LTIP grants for the named executive officers, the 2012 Stock Incentive Plan was amended to remove the Section 162(m) Grant Limit, which no longer served its original purpose because the “qualified performance-based compensation” exception to the Section 162(m) deduction limits was repealed by the 2017 tax reform legislation. However, NYSE rules also include an annual equity grant limit which effectively limits the number of shares that can be subject to stock awards to any individual named executive officer, without additional shareholder approval, to one percent ( 1%) of the total number of outstanding shares of the Company’s Common Stock (the “NYSE Annual Grant Limit”). To maintain NYSE compliance following elimination of the Section 162(m) Grant Limit, the Company’s Compensation Committee revised PSU awards under the LTIP, beginning in 2020, to provide that if a grant of PSUs could result in the issuance of a number of shares to a named executive officer at the conclusion of the 3-year performance period that would exceed the NYSE Annual Grant Limit, when coupled with the number of shares subject to other stock awards (e.g., the time-vesting restricted stock component of the LTIP) issued in the same year that such PSUs were issued, any such excess will instead be converted to a cash bonus award, while remaining subject to vesting conditions as described below.
Any such portion of the value of the 2018 PSUs, the 2019 PSUs or the 2020 PSUs earned payable as a cash bonus will be subject to the same vesting provisions as the issuance of common stock pursuant to the PSUs. In addition, to the extent any cash is to be paid, the cash will be paid first relative to the vesting schedule, ahead of the issuance of shares of common stock with respect to the balance of PSUs earned.
31
Annual Restricted Stock Awards
Under the LTIP, annual restricted stock awards consist of shares of time-vested restricted stock awarded based on a qualitative evaluation of the performance of the Company and the named executive officer during the fiscal year. Annual restricted stock awards under the LTIP, which are included in the totals reflected in the preceding table, vest 20% on the date of grant with the remainder vesting in four4 equal annual installments.
Performance Stock Units
A summary of the respective yearsstatus of the Company’s PSU activity as follows:
|
| PSUs |
|
| Weighted-Average Grant Date Fair Value |
| ||
Outstanding at January 1, 2020 |
|
| 1,766,580 |
|
| $ | 2.96 |
|
2020 PSUs granted (1) |
|
| 3,408,083 |
|
| $ | 0.84 |
|
Outstanding at March 31, 2020 (2) |
|
| 5,174,663 |
|
| $ | 1.56 |
|
(1) | Includes 211,375 shares classified as a liability due to the potential cash component described above. |
( 2 ) | NaN of the PSUs outstanding at March 31, 2020 were vested. |
PSUs granted | Weighted-Average Grant Date Fair Value | |||||
2015 PSUs | 138,680 | $ | 15.52 | |||
2016 PSUs | 282,995 | $ | 4.98 | |||
2017 PSUs | 277,376 | $ | 6.86 |
Shares earned pursuant to the PSU awards vest 60% at the conclusion of the performance period while the remaining 40% of the PSU award vests 20% on each of the first two anniversaries thereafter.
Compensation cost is recognized on a tranche-by-tranche basis using the accelerated attribution method. The resulting expense, for awards classified as equity, is recorded regardless of whether any PSU awards are earned as long as the required service period is met.
The fair value of the potential cash component related to the 2020 PSUs is measured at each reporting period, using the same methodology as was used at the initial grant date, and classified as a liability on the condensed consolidated balance sheet as of March 31, 2020 with an adjustment to compensation expense. If the performance criterion is not satisfied at the end of the performance period for the 2020 PSUs, previously recognized compensation expense related to the liability-classified awards would be reversed as there would be no value at the settlement date.
Share-based compensation expense related to the PSUs was $386$478 and $258$426 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively. Share-based compensation expense related to the PSUs was $1,115 and $774 for the nine months ended September 30, 2017 and 20162019, respectively. Unrecognized compensation costs related to the PSUs was $2,548$4,678 as of September 30, 2017.
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the 2017 PSUs and the 2016 PSUs:
|
| 2020 PSUs |
|
| 2019 PSUs |
|
| 2018 PSUs |
| |||
Grant date |
| February 10, 2020 |
|
| February 11, 2019 |
|
| February 12, 2018 |
| |||
Fair value per share on valuation date (1) |
| $ | 0.84 |
|
| $ | 4.74 |
|
| $ | 4.76 |
|
Risk-free interest rate (2) |
|
| 1.39 | % |
|
| 2.54 | % |
|
| 2.36 | % |
Expected share price volatility (3) |
|
| 57.98 | % |
|
| 60.99 | % |
|
| 42.02 | % |
2017 PSUs | 2016 PSUs | ||||||
Grant date | February 7, 2017 | February 10, 2016 | |||||
Fair value per share on valuation date (1) | $ | 6.86 | $ | 4.98 | |||
Risk-free interest rate (2) | 1.53 | % | 0.92 | % | |||
Expected share price volatility (3) | 32.85 | % | 30.95 | % |
( 1) | |
The value of the PSU awards is estimated on the date of grant using a Monte Carlo |
(2) | |
The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation |
( 3) | |
The computation of expected volatility was based on a blend of the historical volatility of CBL's shares of common stock based on annualized daily total continuous returns over a |
32
Note 14 – Noncash Investing and Financing Activities
The Company’s noncash investing and financing activities were as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Accrued dividends and distributions payable |
| $ | — |
|
| $ | 17,191 |
|
Additions to real estate assets accrued but not yet paid |
|
| 19,478 |
|
|
| 19,757 |
|
Transfer of real estate assets in settlement of mortgage debt obligations: |
|
|
|
|
|
|
|
|
Decrease in real estate assets |
|
| — |
|
|
| ( 60,059 | ) |
Decrease in mortgage and other indebtedness |
|
| — |
|
|
| 124,111 |
|
Decrease in operating assets and liabilities |
|
| — |
|
|
| 9,333 |
|
Decrease in intangible lease and other assets |
|
| — |
|
|
| ( 1,663 | ) |
Conversion of Operating Partnership units to common stock |
|
| 21,051 |
|
|
| — |
|
Increase (decrease) in lease liabilities arising from right-of-use assets |
|
| ( 200 | ) |
|
| 4,024 |
|
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Accrued dividends and distributions payable | $ | 54,375 | $ | 54,313 | |||
Additions to real estate assets accrued but not yet paid | 12,204 | 16,495 | |||||
Capital contribution of note receivable to joint venture | — | 5,280 | |||||
Capital contribution from noncontrolling interest to joint venture | — | 155 | |||||
Write-off of notes receivable | — | 1,846 | |||||
Mortgage debt assumed by buyer of real estate assets | — | 38,237 | |||||
Deconsolidation upon assignment of interests in joint venture: (1) | |||||||
Decrease in real estate assets | (9,131 | ) | — | ||||
Decrease in mortgage and other indebtedness | 2,466 | — |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Decrease in operating assets and liabilities | 1,286 | — | |||||
Decrease in noncontrolling interest and joint venture interest | 2,232 | — | |||||
Transfer of real estate assets in settlement of mortgage debt obligation: (2) | |||||||
Decrease in real estate assets | (149,722 | ) | — | ||||
Decrease in mortgage and other indebtedness | 189,642 | — | |||||
Decrease in operating assets and liabilities | (122 | ) | — | ||||
Deconsolidation upon formation of joint venture: | |||||||
Decrease in real estate assets | — | (14,025 | ) | ||||
Increase in investment in unconsolidated affiliate | — | 14,030 | |||||
Decrease in accounts payable and accrued liabilities | — | (5 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Current tax benefit | $ | 225 | $ | 927 | $ | 7,695 | $ | 1,194 | |||||||
Deferred tax benefit (provision) | 839 | 1,459 | (2,911 | ) | 1,780 | ||||||||||
Income tax benefit | $ | 1,064 | $ | 2,386 | $ | 4,784 | $ | 2,974 |
Note 1615 – Subsequent Events
Subsequent to March 31, 2020, the United States continues to be severely impacted by the COVID-19 pandemic and by the economic effects of government responses, such as “stay-at-home” orders and various restrictions on certain business activities, which have materially disrupted the economy. The Company has received rent relief requests from a majority of its tenants at its properties, most often in the form of rent deferral requests, as a result of COVID-19. The Company is evaluating each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in the Company granting any form of rent or other relief, nor does it plan to forgo its contractual rights under its lease agreements in connection with any such requests. While the Company is not able to estimate the impact of the COVID-19 pandemic at this time, the pandemic could materially affect its future financial and operational results.
In October 2017,May 2020, the unconsolidated 50/50 joint venture, Shoppes at Eagle Point, LLC, closedlender notified the Company that the loan secured by EastGate Mall was in default because the April 2020 debt service payment was not made.
The Company elected to not make the $11,813 Interest Payment due and payable on a construction loan forJune 1, 2020, with respect to the development of The Shoppes at Eagle Point, a community center located in Cookeville, TN. TheOperating Partnership’s 5.25% senior unsecured notes due 2023. Under the indenture governing the 2023 Notes, the Operating Partnership has guaranteed 100%a 30-day grace period to make the Interest Payment before the nonpayment is considered an event of default with respect to the 2023 Notes. Any event of default under the 2023 Notes for nonpayment of the loan. The maximum amountInterest Payment would also be considered an event of default under the Operating Partnership’s senior secured credit facility, which could lead to an acceleration of amounts due under the facility. Further, if the trustee for the 2023 Notes should exercise its right to accelerate the maturity of the construction loan is $36,400,full balance owed on the 2023 Notes as a result of such an event of default, that would also constitute an event of default under the Operating Partnership’s 4.60% senior unsecured notes due 2024 and bears interest atthe Operating Partnership’s 5.95% senior notes due 2026, which could lead to the acceleration of all amounts due under those notes. The Company has elected to enter the 30-day grace period with respect to the Interest Payment in order to advance discussions with its lenders and explore alternative strategies. The Company was notified by the administrative agent of the senior secured credit facility that the failure to make the Interest Payment constitutes a variable ratedefault under the senior secured credit facility and that, if not cured within the applicable 30-day grace period, it will be an event of LIBOR plus 275 basis points. default under the senior secured credit facility. The loan hasCompany could prevent an initial maturity dateevent of October 2020 and has one two-year extension option available atdefault if it paid the joint venture's election.
33
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” and “our” refer to the Company or the Company and the Operating Partnership collectively, as the text requires.
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. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” and variations of these words and similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the potential adverse effect of the COVID-19 pandemic, and federal, state, and/or local regulatory guidelines to control it, on our financial condition, operating results and cash flows, our tenants and their customers, the real estate market in which we operate, the global economy and the financial markets. The extent to which the COVID-19 pandemic impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the direct and indirect economic effects of the pandemic and containment measures, and potential changes in consumer behavior, among others. In addition to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016,2019, and in Part II, Item 1A of this report, such known risks and uncertainties, many of which may be influenced by the COVID-19 pandemic, include, without limitation:
• | general industry, economic and business conditions; |
• | interest rate fluctuations; |
• | costs and availability of capital, including debt, and capital requirements; |
• | costs and availability of real estate; |
• | inability to consummate acquisition opportunities and other risks associated with acquisitions; |
• | competition from other companies and retail formats; |
• | changes in retail demand and rental rates in our markets; |
• | shifts in customer demands including the impact of online shopping; |
• | tenant bankruptcies or store closings; |
• | changes in vacancy rates at our properties; |
• | changes in operating expenses; |
• | changes in applicable laws, rules and regulations; |
• | sales of real property; |
• | uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the recent COVID-19 pandemic; |
• | cyber-attacks or acts of cyber-terrorism; |
34
Table of capital and capital requirements;Contents
• | changes in , or withdraw al of, the credit ratings of the Operating Partnership's senior unsecured long-term indebtedness; |
• | 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 refinancing requirements and business; and |
• | other risks referenced from time to time in filings with the SEC and those factors listed or incorporated by reference into this report. |
This list of risks and uncertainties is only a summary and is not intended to be exhaustive. We 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 REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers, office and officeother properties. Our properties are located in 26 states, but are primarily inSee Note 1to the southeastern and midwestern United States.condensed consolidated financial statements for information on our property interests as of March 31, 2020. We have elected to be taxed as a REIT for federal income tax purposes.
On March 11, 2020, the World Health Organization classified COVID-19 as a pandemic. Due to the extraordinary governmental actions taken to contain COVID-19, we are unable to predict the full extent of the pandemic’s impact on our results of operations for the remainder of 2020. As a result, we previously withdrew our full-year 2020 same-center NOI and FFO per share, as adjusted, guidance and underlying assumptions and do not plan to reinstate full-year 2020 guidance until there is further clarity on the impact of the pandemic.
In response to local and state mandated closures, our entire portfolio, except for a few properties, closed. Beginning in late April, certain government agencies have begun allowing the re-opening of certain properties with specified health and safety restrictions or solely for curbside service. As of May 25, 2020, all but three of our business throughmalls had re-opened including twelve properties that were offering curbside or exterior only service. The safety and health of our customers, employees and tenants remains a top priority. With each re-opening, we instituted a comprehensive re-opening plan that includes strict procedures and guidelines for our employees, tenants and property visitors based on Centers for Disease Control and Prevention (“CDC”) and other health agency recommendations.
The majority of our tenants requested rent relief, either in the form of rent deferrals or abatements. We have placed a number of tenants in default for non-payment of rent. For the month of April, we received approximately 27% of billed cash rents. We estimate a collection rate for the month of May in the range of 25-30% based on preliminary cash receipts and conversations with retailers. We still anticipate a significant portion of April and May rents will be collected later in 2020 and into 2021 under agreed upon deferral plans and, to a lesser degree, certain rents may be abated. However, negotiations are ongoing, and it is premature to estimate a recovery rate at this time.
In addition, the negative impact of COVID-19 has resulted in certain retailers filing for bankruptcy. JCPenney recently filed for Chapter 11 bankruptcy protection and announced their plan to close approximately 30% of their owned and leased stores and pursue rent reductions for stores that would stay open. As of March 31, 2020, JCPenney had 47 stores in our portfolio comprising approximately $13.1 million in gross annual rent. Based on preliminary discussions with JCPenney, we anticipate up to eight owned or leased stores in our portfolio may close comprising $2.1 million of gross annual rent. JCPenney has also requested significant rent abatement and reductions for their remaining stores. We are in early discussions with JCPenney and are unable to predict the outcome at this time.
We implemented a full financial COVID-19 response to improve liquidity and reduce costs. These significant actions included drawing $280 million on our secured line of credit, eliminating all non-essential expenditures, implementing a company-wide furlough and salary reduction program and delaying and suspending capital expenditures, including redevelopment investments. See the "Liquidity and Capital Resources"section for more information.
As discussed in “Note 1 – Organization and Basis of Presentation” to the condensed consolidated financial statements and in “Liquidity and Capital Resources” herein, we are in violation of a covenant under our secured credit facility and it is probable that we will fail to meet another covenant in the third quarter of 2020, the fourth quarter of 2020 and the first quarter of 2021. These factors raise substantial doubt about our ability to continue as a going concern within one year of the date that our condensed consolidated financial statements are issued.
35
We have engaged Weil, Gotshal & Manges LLP and Moelis & Company LLC (the “Advisors”) to assist us in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of our debt including (i) the senior secured credit facility, which includes a revolving facility with a balance of $675 .9 million and term loan with a balance of $456 .3 million as of March 31, 2020, that matures in July 2023 and (ii) the Notes with balances of $450 .0 million , $300 .0 million , and $625 .0 million , as of March 31, 2020, that mature in December 2023, October 2024 and December 2026, respectively, as well as the cumulative unpaid dividends on our preferred stock and the special common units of limited partnership interest in the Operating Partnership. The Advisors recently commenced discussions with advisors to certain holders of theN otes and the credit committee of the senior secured credit facility .We may pursue a comprehensive solution that includes a potential exchange of debt with the holders of the Notes, addressing our preferred stock and the special common units of limited partnership interest in the Operating Partnership, consolidatesamendments to the financial statementscovenants under the senior secured credit facility and the Notes and other options that may result in the reorganization of the Company.
We elected to not make the $11.8 million Interest Payment due and payable on June 1, 2020, with respect to the 5.25% senior unsecured notes due 2023 (the “2023 Notes”). Under the indenture governing the 2023 Notes, we have a 30-day grace period to make the Interest Payment before the nonpayment is considered an event of default with respect to the 2023 Notes. Any event of default under the 2023 Notes for nonpayment of the Interest Payment would also be considered an event of default under the senior secured credit facility, which could lead to an acceleration of amounts due under the facility. Further, if the trustee for the 2023 Notes should exercise its right to accelerate the maturity of the full balance owed on the 2023 Notes as a result of such an event of default, that would also constitute an event of default under the 4.60% senior unsecured notes due 2024 and the 5.95% senior notes due 2026, which could lead to the acceleration of all entitiesamounts due under those notes. We have elected to enter the 30-day grace period with respect to the Interest Payment in which it hasorder to advance discussions with the lenders and explore alternative strategies.
Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets and significant uncertainties associated with each of these matters, we believe that there is substantial doubt that we will continue to operate as a controllinggoing concern within one year after the date our condensed consolidated financial interest or where it is the primary beneficiary of a VIE.
Malls (1) | Associated Centers | Community Centers | Office Buildings | Total | |||||||
Consolidated properties | 60 | 20 | 4 | 5 | (2) | 89 | |||||
Unconsolidated properties (3) | 8 | 3 | 5 | — | 16 | ||||||
Total | 68 | 23 | 9 | 5 | 105 |
We had a net loss for the three months ended March 31, 2020 of $139.3 million compared to $0.7 million and $115.7 million ina net loss for the prior-year period.three months ended March 31, 2019 of $46.8 million. We recorded a net loss attributable to common shareholders of $2.3 million for the three months ended September 30, 2017asMarch 31,2020 of $133.9 million compared to a net loss of $10.2 million in the prior-year period. For the nine months ended September 30, 2017, net income attributable to common shareholders was $50.8 million compared to $70.4 million for the nine months ended September 30, 2016.
Same-center NOI and FFO are non-GAAP measures. For a description of same-center NOI, a reconciliation from net income (loss) to same-center NOI, and an explanation of why we believe this is a useful performance measure, see
Non-GAAP Measure - Same-center Net Operating Incomein “Results ofRESULTS OF OPERATIONS
Properties that were in operation for the entire year during 20162019 and the ninethree months ended September 30, 2017March 31, 2020 are referred to as the “Comparable Properties.” Since January 1, 2016,2019, we have opened one community center developmentself-storage facility, deconsolidated three outlet centers and one outlet center development as follows:
Properties Opened
Property | Location | Date Opened | ||
Mid Rivers Mall – CubeSmart Self-storage (1) | St. Peters, MO | January 2019 |
(1) | ||||
This property is owned by a |
36
Deconsolidations
Property | Location | Date of Deconsolidation | |||
The Outlet Shoppes at | Woodstock, GA | December 2019 | |||
The Outlet Shoppes at El Paso (1) | El Paso, TX | August 2019 | |||
The Outlet Shoppes of the Bluegrass (1) | Simpsonville, KY | November 2019 |
(1) | This property is owned by a |
Dispositions
Property | Location | Sales Date | ||
850 Greenbrier Circle | Chesapeake, VA | July 2019 | ||
Acadiana Mall | Lafayette, LA | January 2019 | ||
Barnes & Noble parcel | High Point, NC | July 2019 | ||
Cary Towne Center | Cary, NC | January 2019 | ||
Courtyard by Marriott at Pearland Town Center | Pearland, TX | June 2019 | ||
Dick’s Sporting Goods at Hanes Mall | Winston-Salem, NC | September 2019 | ||
The Forum at Grandview | Madison, MS | July 2019 | ||
Honey Creek Mall | Terre Haute, IN | April 2019 | ||
Kroger at Foothills Plaza | Maryville, TN | July 2019 | ||
The Shoppes at Hickory Point | Forsyth, IL | April 2019 |
Non-core properties are defined as Excluded Malls - see definition that follows under " Operational Review. "
Comparison of the Three Months Ended March 31, 2020 to the Three Months Ended March 31, 2019
Revenues
|
| Total for the Three Months Ended March 31, |
|
|
|
|
|
| Comparable Properties |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| Core |
|
| Non-core |
|
| Deconsolidation |
|
| Dispositions |
|
| Total Change |
| ||||||||
Rental revenues |
| $ | 161,173 |
|
| $ | 190,980 |
|
| $ | (29,807 | ) |
| $ | (11,288 | ) |
| $ | (2,581 | ) |
| $ | (10,497 | ) |
| $ | (5,441 | ) |
| $ | (29,807 | ) |
Management, development and leasing fees |
|
| 2,092 |
|
|
| 2,523 |
|
|
| (431 | ) |
|
| (431 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (431 | ) |
Other |
|
| 4,309 |
|
|
| 4,527 |
|
|
| (218 | ) |
|
| 8 |
|
|
| 136 |
|
|
| (216 | ) |
|
| (146 | ) |
|
| (218 | ) |
Total revenues |
| $ | 167,574 |
|
| $ | 198,030 |
|
| $ | (30,456 | ) |
| $ | (11,711 | ) |
| $ | (2,445 | ) |
| $ | (10,713 | ) |
| $ | (5,587 | ) |
| $ | (30,456 | ) |
Rental revenues from the Comparable Properties declined due to store closures, rent concessions for tenants with high occupancy cost levels and tenants that closed in 2019 due to bankruptcy.
37
Operating Expenses
|
| Total for the Three Months Ended March 31, |
|
|
|
|
|
| Comparable Properties |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| Core |
|
| Non-core |
|
| Deconsolidation |
|
| Dispositions |
|
| Total Change |
| ||||||||
Property operating |
| $ | (25,709 | ) |
| $ | (28,980 | ) |
| $ | 3,271 |
|
| $ | (661 | ) |
| $ | 77 |
|
| $ | 2,423 |
|
| $ | 1,432 |
|
| $ | 3,271 |
|
Real estate taxes |
|
| (18,448 | ) |
|
| (19,919 | ) |
|
| 1,471 |
|
|
| (59 | ) |
|
| 173 |
|
|
| 931 |
|
|
| 426 |
|
|
| 1,471 |
|
Maintenance and repairs |
|
| (11,208 | ) |
|
| (12,776 | ) |
|
| 1,568 |
|
|
| 617 |
|
|
| 136 |
|
|
| 241 |
|
|
| 574 |
|
|
| 1,568 |
|
Property operating expenses |
|
| (55,365 | ) |
|
| (61,675 | ) |
|
| 6,310 |
|
|
| (103 | ) |
|
| 386 |
|
|
| 3,595 |
|
|
| 2,432 |
|
|
| 6,310 |
|
Depreciation and amortization |
|
| (55,902 | ) |
|
| (69,792 | ) |
|
| 13,890 |
|
|
| 4,691 |
|
|
| 4,441 |
|
|
| 3,454 |
|
|
| 1,304 |
|
|
| 13,890 |
|
General and administrative |
|
| (17,836 | ) |
|
| (22,007 | ) |
|
| 4,171 |
|
|
| 4,171 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,171 |
|
Loss on impairment |
|
| (133,644 | ) |
|
| (24,825 | ) |
|
| (108,819 | ) |
|
| (107,082 | ) |
|
| (3,792 | ) |
|
| — |
|
|
| 2,055 |
|
|
| (108,819 | ) |
Litigation settlement |
|
| — |
|
|
| (88,150 | ) |
|
| 88,150 |
|
|
| 88,150 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88,150 |
|
Other |
|
| (158 | ) |
|
| — |
|
|
| (158 | ) |
|
| (158 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (158 | ) |
Total operating expenses |
| $ | (262,905 | ) |
| $ | (266,449 | ) |
| $ | 3,544 |
|
| $ | (10,331 | ) |
| $ | 1,035 |
|
| $ | 7,049 |
|
| $ | 5,791 |
|
| $ | 3,544 |
|
Property operating expenses at the Comparable Properties increased primarily due to maintenance and repairs related to events covered by insurance. Real estate tax expense declined as a number of the Comparable Properties experienced reductions in real estate taxes in their respective markets due to favorable revisions to property assessments. Maintenance and repairs expenses at the Comparable Properties decreased primarily due to lower snow removal costs.
The Outlet Shoppes at Laredo is included$9.1 million decrease in our operations on a consolidated basisdepreciation and is referred to as the "New Property." The transactionsamortization expense related to the New Property impactComparable Properties primarily relates to a decrease in write-offs of tenant improvements and intangible lease assets related to store closings in the comparison of results of operations forprior year period, as well as a lower basis in depreciable assets resulting from impairments recorded since the threeprior year period.
General and nine months ended September 30, 2017administrative expenses decreased primarily due to higher legal expenses in the prior year period related to the resultslitigation settlement and the new secured credit facility, as well as reductions in salary and stock compensation expenses.
In the first quarter of operations for2020, we recognized $133.6 million of loss on impairment of real estate to write down the three and nine months ended September 30, 2016. book value of two malls. In the first quarter of 2019, we recognized $24.8 million of loss on impairment of real estate to write down the book value of two malls. See Note 45 to the condensed consolidated financial statements for information on 2017 acquisitions and dispositions.
During the three months ended March 31, 2019, we recognized $88.2 million of the Three Months Ended September 30, 2017litigation settlement expense related to the Three Months Ended September 30, 2016
Other Income and Expenses
Interest and other income increased $1.9 million during the three months ended March 31, 2020 compared to the prior-year period primarily due to additional interest income received related to a mortgage note receivable that was retired in the current year.
Interest expense decreased $27.1$7.0 million for the three months ended September 30, 2017 compared to the prior-year period. Rental revenues and tenant reimbursements declined by $20.3 million due to decreases of $15.3 million related to dispositions and $7.0 million attributable to the Comparable Properties, which was partially offset by an increase of $2.0 million attributable to the New Property. The $7.0 million decrease in revenues at the Comparable Properties was primarily due to a decrease of $6.1 million at our core properties and a $0.9 million decrease related to non-core properties and those in redevelopment. The decline in revenues at our core properties continues due to the challenging retail environment, including a decrease in base rents due to lower occupancy as a result of retailer bankruptcies, as well as lower tenant reimbursements in addition to straight-line rent write-offs due to lower rent from renewed leases.
During the three months ended September 30, 2017,March 31, 2019, we recorded a $6.5$71.7 million of gain on extinguishment of debt which primarily consisted of a $6.9 million gain, related to the conveyance of a malltwo malls. We transferred Acadiana Mall to the lender in satisfaction of the non-recourse debt secured by the property, whichproperty. We sold Cary Towne Center and used the net proceeds from the sale to satisfy a portion of the non-recourse loan that secured the property. The remaining principal balance was partially offset by a $0.4 million loss related to prepayment fees for the early retirement of debt. See
Equity in earnings of unconsolidated affiliates decreased by $5.8$2.3 million during the third quarter of 2017three months ended March 31, 2020 compared to the prior-year period. The decrease is due to a $29.4 million gain related to the sale of an unconsolidated affiliate in the second quarter of 2016 as well as a gain of $29.2 million recognized in the second quarter of 2016 related to the foreclosure of Gulf Coast Town Center (owned in a 50/50 joint venture).
38
Non-GAAP Measure
Same-center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of our shopping centers and other properties. We define NOI as property operating revenues (rental revenues tenant reimbursements and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
We compute NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated properties. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. Our definition of NOI may be different than that used by other companies, and accordingly, our calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of our shopping center properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, and amortization of above and below market lease intangibles and write-offs of landlord inducement assets in order to enhance the comparability of results from one period to another.
We include a property in our same-center pool when we have owned all or a portion of the property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year and current year-to-date period. New Propertiesproperties are excluded from same-center NOI until they meet thisthese criteria. Properties excluded from the same-center pool that would otherwise meet thisthese criteria are properties which are being repositioned or properties where we are considering alternatives for repositioning, where we intend to renegotiate the terms of the debt secured by the related property or return the property to the lender and those in which we own a noncontrolling interest of 25% or less. Properties that we are currently repositioning are Cary TowneBurnsville Center, andEastGate Mall, Hickory Point Mall, Greenbrier Mall and Park Plaza were classified as Lender Malls at September 30, 2017. We own a noncontrolling interest of 10% in Triangle Town Center at September 30, 2017.
Due to the exclusions noted above, same-center NOI should only be used as a supplemental measure of our performance and not as an alternative to GAAP operating income (loss) or net income (loss). A reconciliation of our same-center NOI to net incomeloss for the three and nine month periods ended September 30, 2017March 31, 2020 and 20162019 is as follows (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net loss |
| $ | (139,294 | ) |
| $ | (46,809 | ) |
Adjustments: (1) |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 68,489 |
|
|
| 78,301 |
|
Interest expense |
|
| 54,086 |
|
|
| 58,802 |
|
Abandoned projects expense |
|
| 158 |
|
|
| — |
|
Gain on sales of real estate assets |
|
| (140 | ) |
|
| (858 | ) |
Gain on extinguishment of debt |
|
| — |
|
|
| (71,722 | ) |
Loss on impairment |
|
| 133,644 |
|
|
| 24,825 |
|
Litigation settlement |
|
| — |
|
|
| 88,150 |
|
Income tax provision |
|
| 526 |
|
|
| 139 |
|
Lease termination fees |
|
| (220 | ) |
|
| (1,017 | ) |
Straight-line rent and above- and below-market rent |
|
| (1,795 | ) |
|
| (1,045 | ) |
Net loss attributable to noncontrolling interests in other consolidated subsidiaries |
|
| 207 |
|
|
| 75 |
|
General and administrative expenses |
|
| 17,836 |
|
|
| 22,007 |
|
Management fees and non-property level revenues |
|
| (4,177 | ) |
|
| (2,666 | ) |
Operating Partnership's share of property NOI |
|
| 129,320 |
|
|
| 148,182 |
|
Non-comparable NOI |
|
| (5,665 | ) |
|
| (12,720 | ) |
Total same-center NOI |
| $ | 123,655 |
|
| $ | 135,462 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 9,299 | $ | 670 | $ | 118,444 | $ | 115,659 | |||||||
Adjustments: (1) | |||||||||||||||
Depreciation and amortization | 79,195 | 80,313 | 247,203 | 242,910 | |||||||||||
Interest expense | 58,573 | 58,632 | 178,834 | 177,371 | |||||||||||
Abandoned projects expense | 132 | 11 | 5,151 | 44 | |||||||||||
Gain on sales of real estate assets | (1,610 | ) | (12,944 | ) | (60,454 | ) | (107,843 | ) | |||||||
Loss on investment | 354 | — | 6,197 | — | |||||||||||
Gain on extinguishment of debt | (6,452 | ) | 6 | (33,902 | ) | — | |||||||||
Loss on impairment | 24,935 | 53,558 | 71,401 | 116,736 | |||||||||||
Income tax benefit | (1,064 | ) | (2,386 | ) | (4,784 | ) | (2,974 | ) | |||||||
Lease termination fees | (879 | ) | (857 | ) | (1,990 | ) | (2,202 | ) | |||||||
Straight-line rent and above- and below-market lease amortization | (637 | ) | (464 | ) | (3,685 | ) | (4,006 | ) | |||||||
Net (income) loss attributable to noncontrolling interests in other consolidated subsidiaries | (415 | ) | (983 | ) | (25,266 | ) | 449 | ||||||||
General and administrative expenses | 13,568 | 13,222 | 45,402 | 46,865 | |||||||||||
Management fees and non-property level revenues | (2,762 | ) | (1,379 | ) | (10,312 | ) | (12,429 | ) | |||||||
Operating Partnership's share of property NOI | 172,237 | 187,399 | 532,239 | 570,580 | |||||||||||
Non-comparable NOI | (4,513 | ) | (15,169 | ) | (22,766 | ) | (52,998 | ) | |||||||
Total same-center NOI | $ | 167,724 | $ | 172,230 | $ | 509,473 | $ | 517,582 |
(1) | |
Adjustments are based on our Operating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties. |
Same-center NOI decreased 2.6%8.7% for the three months ended September 30, 2017March 31, 2020 as compared to the prior-year period. The $4.5$11.8 million decrease for the three month periodmonths ended September 30, 2017March 31, 2020 compared to the same period in 20162019
39
primarily consisted of a $4.2$1 2. 1 million decrease in revenues and an increase of $0.4offset by a $ 0.3 million decline in operating expenses. The $0.4 Rental revenues declined $1 3. 6million increase in operating expenses on a same-center basis wasduring the quarter primarily due to an increasethe impact of $2.1 million in real estate taxes, which was partially offset by a decrease of $1.0 million in maintenance and repairs expense and $0.7 million in property operating expense.
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 rents in the fourth quarter. Additionally, the malls earn most of their 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.
In response to local and state mandated closures due to the COVID-19 pandemic, our entire portfolio, except for a few properties, closed. Beginning in late April, certain government agencies have begun allowing the re-opening of certain properties with specified health and safety restrictions or solely for curbside service. As of May 25, 2020, all but three of our malls have re-opened including twelve properties that are offering curbside or exterior only service.
The majority of our tenants requested rent relief, either in the form of rent deferrals or abatements. We have placed a number of tenants in default for non-payment of rent. For the month of April, we received approximately 27% of billed cash rents. We estimate a collection rate for the month of May in the range of 25-30% based on preliminary cash receipts and conversations with retailers. We still anticipate a significant portion of April and May rents will be collected later in 2020 and into 2021 under agreed upon deferral plans and, to a lesser degree, certain rents may be abated. However, negotiations are ongoing, and it is premature to estimate a recovery rate at this time.
We classify our regional malls into three categories:
(1) | Stabilized Malls – Malls that have completed their initial lease-up and have been open for more than three complete calendar years. |
(2) | Non-stabilized Malls - Malls that are in their initial lease-up phase. After three complete calendar years of operation, they are reclassified on January 1 of the fourth calendar year to the stabilized mall category. The Outlet Shoppes at Laredo |
(3) | Excluded Malls - We exclude malls from our core portfolio if they fall in one of the following categories, for which operational metrics are excluded: |
a. | Lender Malls - Malls for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender. |
b. | Repositioning Malls - Malls that are currently being repositioned or where we have determined that the current format of the mall no longer represents the best use of the mall and we are in the process of evaluating alternative strategies for the mall. This may include major redevelopment or an alternative retail or non-retail format, or after evaluating alternative strategies for the mall, we may determine that the mall no longer meets our criteria for long-term investment. The steps taken to reposition these malls, such as signing tenants to short-term leases, which are not included in occupancy percentages, or leasing to regional or local tenants, which typically do not report sales, may lead to metrics which do not provide relevant information related to the condition of these malls. Therefore, traditional performance measures, such as occupancy percentages and leasing metrics, exclude Repositioning Malls. |
We derive the majority of our total revenues from the mall properties. The sources of our total revenues by property type were as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Malls |
|
| 91.5 | % |
|
| 92.8 | % |
Other Properties |
|
| 8.5 | % |
|
| 7.2 | % |
Nine Months Ended September 30, | |||
2017 | 2016 | ||
Malls | 91.5% | 91.0% | |
Associated centers | 4.1% | 3.9% | |
Community centers | 1.8% | 1.9% | |
Mortgages, office buildings and other | 2.6% | 3.2% |
Mall store sales include reporting mall tenants of 10,000 square feet or less for stabilized malls and exclude license agreements, which are retail contracts that are temporary or short-term in nature and generally last more than three months but less than twelve months. The following is a comparison of our same-center sales per square foot:
|
| Twelve Months Ended February 29, 2020 |
|
| Twelve Months Ended February 28, 2019 |
|
| % Change |
| |||
Stabilized mall same-center sales per square foot |
| $ | 392 |
|
| $ | 380 |
|
|
| 3 | % |
Same-center sales per square foot for mall tenantsthe twelve-months ended February 29, 2020, increased 3% to $392 per square foot compared with the prior-year period ended February 28, 2019. The majority of 10,000stores in our portfolio closed during the month of March 2020 as a result of the COVID-19 pandemic, which resulted in a decline in reported same-center sales per square feet or less:
Twelve Months Ended September 30, | |||||
2017 | 2016 | % Change | |||
Stabilized mall same-center sales per square foot | $373 | $380 | (1.8)% |
Occupancy
Our portfolio occupancy is summarized in the following table
(1):
|
| As of March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Total portfolio |
|
| 89.5 | % |
|
| 91.3 | % |
Malls: |
|
|
|
|
|
|
|
|
Total Mall portfolio |
|
| 87.8 | % |
|
| 89.4 | % |
Same-center Malls |
|
| 87.8 | % |
|
| 89.8 | % |
Stabilized Malls |
|
| 88.0 | % |
|
| 89.7 | % |
Non-stabilized Malls (2) |
|
| 80.0 | % |
|
| 76.4 | % |
Other Properties: |
|
| 94.7 | % |
|
| 97.3 | % |
Associated centers |
|
| 93.2 | % |
|
| 96.9 | % |
Community centers |
|
| 95.8 | % |
|
| 97.6 | % |
As of September 30, | |||
2017 | 2016 | ||
Total portfolio | 93.1% | 93.5% | |
Total mall portfolio | 91.6% | 92.6% | |
Same-center malls | 91.8% | 93.0% | |
Stabilized malls | 91.7% | 92.5% | |
Non-stabilized malls (2) | 87.9% | 93.6% | |
Associated centers | 98.2% | 96.1% | |
Community centers | 98.2% | 97.5% |
(1) | |
As noted above, excluded properties are not included in occupancy metrics. Occupancy for malls represents percentage of mall store gross leasable area occupied under 20,000 square feet. Occupancy for other properties represents percentage of gross leasable area occupied. |
(2) | |
Represents occupancy for The Outlet Shoppes at Laredo |
Leasing
The following is a summary of the total square feet of leases signed in the three and nine month periodsthree-month period ended September 30, 2017 as compared to the respective prior-year periods:March 31, 2020:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Operating portfolio: |
|
|
|
|
|
|
|
|
New leases |
|
| 278,366 |
|
|
| 271,813 |
|
Renewal leases |
|
| 632,760 |
|
|
| 692,127 |
|
Development portfolio: |
|
|
|
|
|
|
|
|
New leases |
|
| 7,929 |
|
|
| 149,737 |
|
Total leased |
|
| 919,055 |
|
|
| 1,113,677 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Operating portfolio: | |||||||||||
New leases | 178,332 | 334,006 | 916,442 | 1,155,870 | |||||||
Renewal leases | 678,304 | 429,350 | 1,765,682 | 1,863,460 | |||||||
Development portfolio: | |||||||||||
New leases | 131,744 | 28,701 | 258,746 | 538,769 | |||||||
Total leased | 988,380 | 792,057 | 2,940,870 | 3,558,099 |
Average annual base rents per square foot are based on contractual rents in effect as of September 30, 2017March 31, 2020 and 2016,2019, including the impact of any rent concessions. Average annual base rents per square foot for comparable small shop space of less than 10,000 square feet were as follows for each property type
41
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Malls (1): |
|
|
|
|
|
|
|
|
Same-center Stabilized Malls |
| $ | 31.82 |
|
| $ | 32.52 |
|
Stabilized Malls |
|
| 31.91 |
|
|
| 32.45 |
|
Non-stabilized Malls (2) |
|
| 24.89 |
|
|
| 25.21 |
|
Other Properties (3): |
|
| 15.74 |
|
|
| 15.34 |
|
Associated centers |
|
| 14.26 |
|
|
| 13.80 |
|
Community centers |
|
| 17.02 |
|
|
| 16.82 |
|
Office buildings |
|
| 19.13 |
|
|
| 17.32 |
|
As of September 30, | |||||||
2017 | 2016 | ||||||
Same-center stabilized malls | $ | 32.69 | $ | 32.46 | |||
Stabilized malls | 32.83 | 32.18 | |||||
Non-stabilized malls (2) | 26.25 | 26.48 | |||||
Associated centers | 13.85 | 13.91 | |||||
Community centers | 15.65 | 15.28 | |||||
Office buildings | 19.12 | 20.01 |
(1) | |
Excluded properties are not |
(2) | Represents average annual base |
( 3 ) | Average base rents for associated centers, community centers and office buildings include all leased space, regardless of size. |
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the three and nine month periodsperiod ended September 30, 2017March 31, 2020 for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows:
Property Type |
| Square Feet |
|
| Prior Gross Rent PSF |
|
| New Initial Gross Rent PSF |
|
| % Change Initial |
|
| New Average Gross Rent PSF (1) |
|
| % Change Average |
| ||||||
All Property Types (2) |
|
| 460,524 |
|
| $ | 27.98 |
|
| $ | 25.54 |
|
|
| (8.7 | )% |
| $ | 25.90 |
|
|
| (7.4 | )% |
Stabilized Malls |
|
| 444,724 |
|
|
| 27.75 |
|
|
| 25.36 |
|
|
| (8.6 | )% |
|
| 25.71 |
|
|
| (7.4 | )% |
New leases |
|
| 49,204 |
|
|
| 22.47 |
|
|
| 28.17 |
|
|
| 25.4 | % |
|
| 29.55 |
|
|
| 31.5 | % |
Renewal leases |
|
| 395,520 |
|
|
| 28.41 |
|
|
| 25.01 |
|
|
| (12.0 | )% |
|
| 25.23 |
|
|
| (11.2 | )% |
Property Type | Square Feet | Prior Gross Rent PSF | New Initial Gross Rent PSF | % Change Initial | New Average Gross Rent PSF (1) | % Change Average | |||||||||||||||
Quarter: | |||||||||||||||||||||
All Property Types (2) | 529,055 | $ | 40.50 | $ | 34.46 | (14.9 | )% | $ | 35.00 | (13.6 | )% | ||||||||||
Stabilized malls | 493,779 | 41.92 | 35.66 | (14.9 | )% | 36.19 | (13.7 | )% | |||||||||||||
New leases | 60,159 | 51.65 | 49.79 | (3.6 | )% | 51.78 | 0.3 | % | |||||||||||||
Renewal leases | 433,620 | 40.58 | 33.70 | (17.0 | )% | 34.03 | (16.1 | )% | |||||||||||||
Year-to-Date: | |||||||||||||||||||||
All Property Types (2) | 1,590,088 | $ | 41.45 | $ | 38.96 | (6.0 | )% | $ | 39.81 | (4.0 | )% | ||||||||||
Stabilized malls | 1,485,284 | 42.55 | 39.95 | (6.1 | )% | 40.80 | (4.1 | )% | |||||||||||||
New leases | 306,343 | 42.78 | 45.27 | 5.8 | % | 47.23 | 10.4 | % | |||||||||||||
Renewal leases | 1,178,941 | 42.49 | 38.56 | (9.2 | )% | 39.13 | (7.9 | )% |
(1) | |
Average gross rent does not incorporate allowable future increases for recoverable common area expenses. |
(2) | |
Includes stabilized malls, associated centers, community centers and office buildings. |
New and renewal leasing activity of comparable small shop space of less than 10,000 square feet for the nine month period ended September 30, 2017 based on the lease commencement date is as follows:
|
| Number of Leases |
|
| Square Feet |
|
| Term (in years) |
|
| Initial Rent PSF |
|
| Average Rent PSF |
|
| Expiring Rent PSF |
|
| Initial Rent Spread |
|
| Average Rent Spread |
| ||||||||||||||||
Commencement 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
| 65 |
|
|
| 228,800 |
|
|
| 7.53 |
|
| $ | 29.03 |
|
| $ | 30.57 |
|
| $ | 24.34 |
|
| $ | 4.69 |
|
|
| 19.3 | % |
| $ | 6.23 |
|
|
| 25.6 | % |
Renewal |
|
| 290 |
|
|
| 937,250 |
|
|
| 2.69 |
|
|
| 27.91 |
|
|
| 28.15 |
|
|
| 32.07 |
|
|
| (4.16 | ) |
|
| (13.0 | )% |
|
| (3.92 | ) |
|
| (12.2 | )% |
Commencement 2020 Total |
|
| 355 |
|
|
| 1,166,050 |
|
|
| 3.57 |
|
|
| 28.13 |
|
|
| 28.62 |
|
|
| 30.55 |
|
|
| (2.42 | ) |
|
| (7.9 | )% |
|
| (1.93 | ) |
|
| (6.3 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commencement 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
| 1 |
|
|
| 794 |
|
|
| 7.42 |
|
|
| 211.58 |
|
|
| 215.38 |
|
|
| 211.58 |
|
|
| — |
|
|
| — |
|
|
| 3.80 |
|
|
| 1.8 | % |
Renewal |
|
| 38 |
|
|
| 124,456 |
|
|
| 3.34 |
|
|
| 38.30 |
|
|
| 38.93 |
|
|
| 37.63 |
|
|
| 0.67 |
|
|
| 1.8 | % |
|
| 1.30 |
|
|
| 3.5 | % |
Commencement 2021 Total |
|
| 39 |
|
|
| 125,250 |
|
|
| 3.44 |
|
|
| 39.40 |
|
|
| 40.05 |
|
|
| 38.74 |
|
|
| 0.66 |
|
|
| 1.7 | % |
|
| 1.31 |
|
|
| 3.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2020/2021 |
|
| 394 |
|
|
| 1,291,300 |
|
|
| 3.56 |
|
| $ | 29.22 |
|
| $ | 29.73 |
|
| $ | 31.34 |
|
| $ | (2.12 | ) |
|
| (6.8 | )% |
| $ | (1.61 | ) |
|
| (5.1 | )% |
Number of Leases | Square Feet | Term (in years) | Initial Rent PSF | Average Rent PSF | Expiring Rent PSF | Initial Rent Spread | Average Rent Spread | |||||||||||||||||||||||||||
Commencement 2017: | ||||||||||||||||||||||||||||||||||
New | 156 | 420,187 | 7.85 | $ | 44.56 | $ | 47.54 | $ | 40.30 | $ | 4.26 | 10.6 | % | $ | 7.24 | 18.0 | % | |||||||||||||||||
Renewal | 457 | 1,245,753 | 3.47 | 39.01 | 39.60 | 41.29 | (2.28 | ) | (5.5 | )% | (1.69 | ) | (4.1 | )% | ||||||||||||||||||||
Commencement 2017 Total | 613 | 1,665,940 | 4.58 | $ | 40.41 | $ | 41.61 | $ | 41.04 | $ | (0.63 | ) | (1.5 | )% | $ | 0.57 | 1.4 | % | ||||||||||||||||
Commencement 2018: | ||||||||||||||||||||||||||||||||||
New | 12 | 39,198 | 8.48 | $ | 53.17 | $ | 55.04 | $ | 48.05 | $ | 5.12 | 10.7 | % | $ | 6.99 | 14.5 | % | |||||||||||||||||
Renewal | 111 | 350,183 | 3.63 | 34.75 | 35.34 | 39.12 | (4.37 | ) | (11.2 | )% | (3.78 | ) | (9.7 | )% | ||||||||||||||||||||
Commencement 2018 Total | 123 | 389,381 | 4.10 | $ | 36.60 | $ | 37.32 | $ | 40.02 | $ | (3.42 | ) | (8.5 | )% | $ | (2.70 | ) | (6.7 | )% | |||||||||||||||
Total 2017/2018 | 736 | 2,055,321 | 4.50 | $ | 39.69 | $ | 40.79 | $ | 40.85 | $ | (1.16 | ) | (2.8 | )% | $ | (0.06 | ) | (0.1 | )% |
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2017,March 31, 2020, we had approximately $80.0$675.9 million outstanding on our three unsecuredsecured credit facilitiesfacility leaving approximately $690.8$4.3 million of availability, based on the termsafter considering outstanding letters of the credit facilities. of $4.8 million, as well as unrestricted cash and cash equivalents of $159.1 million. Our total pro rata share of debt at March 31, 2020 was $4.5 billion.
In the third quarter of 2017,February 2020, we retired threeutilized our secured credit facility to pay off two loans with an aggregate principal balance of $210.0 million. These loans were secured by two consolidated properties, HanesParkway Place and Valley View Mall andtotaling $84.5 million. Also, we closed on a new loan secured by The Outlet Shoppes at El Paso,Atlanta – Phase II in the amount of $4.7 million, with an interest rate of LIBOR plus 2.5% and an unconsolidated property, Gulf Coast Town Center - Phase III. Our consolidated unencumbered properties generated approximately 56.9%a maturity date of total consolidated NOINovember 2023. Proceeds were used to retire the $4.4 million existing loan. In March 2020, we drew $280.0 million on our secured line of credit to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. We purchased $154.2 million, including accrued interest, of U.S. Treasury securities with a portion of the borrowings on our secured line of credit.
42
In response to the COVID-19 pandemic, w e implemented comprehensive programs to halt all non-essential expenditures, to reduce operating and overhead expenses and to reduce, defer or suspend capital expenditures, including redevelopment investments. These programs include a temporary 50% reduction to the compensation of our Chairman of the Board, our CEO and our President as well as independent director fees, a temporary 20% reduction to the compensation of our other named executive officers, salary reductions to all staff, a broad-based furlough program and 2020 capital expenditure reductions or deferrals estimated in the range of $60.0 million to $80.0 million. While we have paused several major projects, we are pursuing capital lite solutions for backfilling our remaining available anchors, including joint venture partnerships, favorable lease structures and third-party arrangements – all of which benefit our portfolio while preserving capital. Additionally, we were able to achieve debt service payment deferrals for a portion of our secured loans. Securitized lenders in general have shown minimal flexibility in amending loan payments.
We have addressed nearly all of our major debt maturities for 2020 and are in discussions with existing lenders for certain 2021 secured loan maturities. We have no significant unsecured debt maturities until December 2023. We are being proactive to determine the nine months ended September 30, 2017 (excluding dispositionsbest strategies for addressing these future maturities and Excluded Malls).
See the third quartersection below titled Senior Unsecured Notesfor a discussion regarding the violation of 2017, we extendeda covenant under our secured credit facility and modifiedthe projected probable violation of another covenant under our secured credit facility within the next twelve months.
We have engaged Weil, Gotshal & Manges LLP and Moelis & Company LLC (the “Advisors”) to assist us in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of our debt including (i) the senior secured credit facility, which includes a revolving facility with a balance of $675.9 million and term loan with a balance of $456.3 million as of March 31, 2020, that matures in July 2023 and (ii) the Notes with balances of $450.0 million, $300.0 million, and $50.0$625.0 million, unsecured term loanas of March 31, 2020, that mature in December 2023, October 2024 and exercised an option to extend our $350.0 million term loan to October 2018. We also modified our three unsecured credit facilities and $350.0 million unsecured term loan to modify a debt covenant for consistency with the modification of our $400.0 million unsecured term loan. We also issued and sold an additional $225.0 million of series ofDecember 2026, Notes. See
We elected to not make the $11.8 million Interest Payment due and payable on June 1, 2020, with respect to the 5.25% senior unsecured notes due 2023 (the “2023 Notes”). Under the indenture governing the 2023 Notes, we have a 30-day grace period to make the Interest Payment before the nonpayment is considered an event of default with respect to the 2023 Notes. Any event of default under the 2023 Notes for nonpayment of the Interest Payment would also be considered an event of default under the senior secured credit facility, which could lead to an acceleration of amounts due under the facility. Further, if the trustee for the 2023 Notes should exercise its right to accelerate the maturity of the full balance owed on the 2023 Notes as a result of such an event of default, that would also constitute an event of default under the 4.60% senior unsecured notes due 2024 and the 5.95% senior notes due 2026, which could lead to the acceleration of all amounts due under those notes. We have elected to enter the 30-day grace period with respect to the Interest Payment in order to advance discussions with the lenders and explore alternative strategies.
We derive athe majority of our revenues from leases with retail tenants, which have 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, dividends and distributions. We believe that the combination of cash flows generated from our operations, combined with cash on hand and our debt and equity sources and the availability under our credit facilities and proceeds from dispositionsinvestment in U.S. Treasury securities will, for the foreseeable future, provide adequate liquidity to meet our cash needs. In addition to these factors, we have options available to us to generate additional liquidity, including but not limited to, debt and equity offerings, joint venture investments issuances of noncontrolling interests in our Operating Partnership, and decreasing expenditures related to tenant construction allowances and other capital expenditures. We also generate revenues from sales of peripheral land at our properties and from sales of real estate assets when it is determined that we can realize an optimal value for the assets.
Cash Flows - Operating, Investing and Financing Activities
There was $185.1 million of cash, cash equivalents and restricted cash as of March 31, 2020, an increase of $126.0 million from December 31, 2019. Of this amount, $159.1 million was unrestricted cash and cash equivalents as of September 30, 2017, an increaseMarch 31, 2020. Also, at March 31, 2020, we had $153.2 million in U.S. Treasuries that are scheduled to mature between April 2021 and June 2021.
43
Table of $12.4 million from December 31, 2016. Contents
Our net cash flows are summarized as follows (in thousands):
|
| Three Months Ended March 31, |
|
|
|
|
| |||||
|
| 2020 |
|
| 2019 |
|
| Change |
| |||
Net cash provided by operating activities |
| $ | 38,728 |
|
| $ | 55,488 |
|
| $ | (16,760 | ) |
Net cash provided by (used in) investing activities |
|
| (172,631 | ) |
|
| 13,737 |
|
|
| (186,368 | ) |
Net cash provided by (used in) financing activities |
|
| 259,971 |
|
|
| (81,321 | ) |
|
| 341,292 |
|
Net cash flows |
| $ | 126,068 |
|
| $ | (12,096 | ) |
| $ | 138,164 |
|
Nine Months Ended September 30, | |||||||||||
2017 | 2016 | Change | |||||||||
Net cash provided by operating activities | $ | 336,950 | $ | 339,625 | $ | (2,675 | ) | ||||
Net cash used in investing activities | (34,151 | ) | (4,323 | ) | (29,828 | ) | |||||
Net cash used in financing activities | (290,399 | ) | (347,726 | ) | 57,327 | ||||||
Net cash flows | $ | 12,400 | $ | (12,424 | ) | $ | 24,824 |
Cash Provided by Operating Activities
Cash provided by operating activities decreased $2.7$16.8 million primarily due to the impact of lowera decline in rental revenues related to store closures and rent concessions for tenants with high occupancy oncost levels, including tenants that closed in 2019 and 2020 due to bankruptcy, as well as a decline in rental revenues partially offsetrelated to dispositions.
Cash Provided by reductions in operating expenses, and the operating cash flows of the properties that were disposed of in 2016.
Net cash used in investing activities increased $29.8 million as comparedfor 2020 was primarily related to the prior-year period. In 2016,purchase of $153.2 million of U.S. Treasury securities using a portion of the $280.0 million that we reinvesteddrew on our secured line of credit. We also expended $22.8 million on additions to real estate assets, primarily related to redevelopment projects. Net cash provided by investing activities in both our consolidated and unconsolidated properties through capital expenditures for developments and redevelopments, in additionthe prior year period related to tenant improvements and ongoing deferred maintenance. This investment was mostly offset by$35.3 million of proceeds from the dispositiondispositions of consolidated and unconsolidated properties. In 2017, we continued to reinvest in our portfolio through developments and redevelopments, including the acquisition of Macy’s and Sears locations at several malls. The increase in cash outflows due to the acquisition of the Macy’s and Sears locationsproperties, which was partially offset by slightly higher proceeds from sales$26.4 million of additions to real estate assetsassets.
Cash Provided by (Used in) Financing Activities
The net cash inflow for 2020 is primarily due to the $280.0 million draw on our secured credit facility in 2017.
Debt
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of our debt. CBL is a limited guarantor of the Notes, as described in
NoteThe 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):
March 31, 2020: |
| Consolidated |
|
| Noncontrolling Interests |
|
| Unconsolidated Affiliates |
|
| Total |
|
| Weighted- Average Interest Rate (1) |
| |||||
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating Properties (2) |
| $ | 1,236,179 |
|
| $ | (30,505 | ) |
| $ | 619,946 |
|
| $ | 1,825,620 |
|
|
| 4.80 | % |
Recourse loans on operating Properties (3) |
|
| — |
|
|
| — |
|
|
| 9,360 |
|
|
| 9,360 |
|
|
| 3.74 | % |
Senior unsecured notes due 2023 (4) |
|
| 448,016 |
|
|
| — |
|
|
| — |
|
|
| 448,016 |
|
|
| 5.25 | % |
Senior unsecured notes due 2024 (5) |
|
| 299,962 |
|
|
| — |
|
|
| — |
|
|
| 299,962 |
|
|
| 4.60 | % |
Senior unsecured notes due 2026 (6) |
|
| 617,692 |
|
|
| — |
|
|
| — |
|
|
| 617,692 |
|
|
| 5.95 | % |
Total fixed-rate debt |
|
| 2,601,849 |
|
|
| (30,505 | ) |
|
| 629,306 |
|
|
| 3,200,650 |
|
|
| 5.06 | % |
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse loans on operating Properties |
|
| 41,500 |
|
|
| — |
|
|
| 68,936 |
|
|
| 110,436 |
|
|
| 4.02 | % |
Construction loans |
|
| 29,400 |
|
|
| — |
|
|
| 43,000 |
|
|
| 72,400 |
|
|
| 4.20 | % |
Secured line of credit |
|
| 675,925 |
|
|
| — |
|
|
| — |
|
|
| 675,925 |
|
|
| 3.83 | % |
Secured term loan |
|
| 456,250 |
|
|
| — |
|
|
| — |
|
|
| 456,250 |
|
|
| 3.83 | % |
Total variable-rate debt |
|
| 1,203,075 |
|
|
| — |
|
|
| 111,936 |
|
|
| 1,315,011 |
|
|
| 3.87 | % |
Total fixed-rate and variable-rate debt |
|
| 3,804,924 |
|
|
| (30,505 | ) |
|
| 741,242 |
|
|
| 4,515,661 |
|
|
| 4.72 | % |
Unamortized deferred financing costs |
|
| (15,232 | ) |
|
| 304 |
|
|
| (2,774 | ) |
|
| (17,702 | ) |
|
|
|
|
Total mortgage and other indebtedness, net |
| $ | 3,789,692 |
|
| $ | (30,201 | ) |
| $ | 738,468 |
|
| $ | 4,497,959 |
|
|
|
|
|
December 31, 2019: |
| Consolidated |
|
| Noncontrolling Interests |
|
| Unconsolidated Affiliates |
|
| Total |
|
| Weighted- Average Interest Rate (1) |
| |||||
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating Properties (2) |
| $ | 1,330,561 |
|
| $ | (30,658 | ) |
| $ | 623,193 |
|
| $ | 1,923,096 |
|
|
| 4.88 | % |
Recourse loans on operating Properties (3) |
|
| — |
|
|
| — |
|
|
| 10,050 |
|
|
| 10,050 |
|
|
| 3.74 | % |
Senior unsecured notes due 2023 (4) |
|
| 447,894 |
|
|
| — |
|
|
| — |
|
|
| 447,894 |
|
|
| 5.25 | % |
Senior unsecured notes due 2024 (5) |
|
| 299,960 |
|
|
| — |
|
|
| — |
|
|
| 299,960 |
|
|
| 4.60 | % |
Senior unsecured notes due 2026 (6) |
|
| 617,473 |
|
|
| — |
|
|
| — |
|
|
| 617,473 |
|
|
| 5.95 | % |
Total fixed-rate debt |
|
| 2,695,888 |
|
|
| (30,658 | ) |
|
| 633,243 |
|
|
| 3,298,473 |
|
|
| 5.10 | % |
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse loans on operating Properties |
|
| 41,950 |
|
|
| — |
|
|
| 69,046 |
|
|
| 110,996 |
|
|
| 4.13 | % |
Construction loans |
|
| 29,400 |
|
|
| — |
|
|
| 35,362 |
|
|
| 64,762 |
|
|
| 4.45 | % |
Secured line of credit |
|
| 310,925 |
|
|
| — |
|
|
| — |
|
|
| 310,925 |
|
|
| 3.94 | % |
Secured term loan |
|
| 465,000 |
|
|
| — |
|
|
| — |
|
|
| 465,000 |
|
|
| 3.94 | % |
Total variable-rate debt |
|
| 847,275 |
|
|
| — |
|
|
| 104,408 |
|
|
| 951,683 |
|
|
| 4.00 | % |
Total fixed-rate and variable-rate debt |
|
| 3,543,163 |
|
|
| (30,658 | ) |
|
| 737,651 |
|
|
| 4,250,156 |
|
|
| 4.86 | % |
Unamortized deferred financing costs |
|
| (16,148 | ) |
|
| 318 |
|
|
| (2,851 | ) |
|
| (18,681 | ) |
|
|
|
|
Total mortgage and other indebtedness, net |
| $ | 3,527,015 |
|
| $ | (30,340 | ) |
| $ | 734,800 |
|
| $ | 4,231,475 |
|
|
|
|
|
September 30, 2017 | Consolidated | Noncontrolling Interests | Unconsolidated Affiliates | Total | Weighted- Average Interest Rate (1) | |||||||||||||
Fixed-rate debt: | ||||||||||||||||||
Non-recourse loans on operating properties (2) | $ | 1,807,519 | $ | (77,494 | ) | $ | 524,099 | $ | 2,254,124 | 5.06% | ||||||||
Recourse term loans on operating properties (3) | — | — | 11,035 | 11,035 | 3.74% | |||||||||||||
Senior unsecured notes due 2023 (4) | 446,868 | — | — | 446,868 | 5.25% | |||||||||||||
Senior unsecured notes due 2024 (5) | 299,944 | — | — | 299,944 | 4.60% |
September 30, 2017 | Consolidated | Noncontrolling Interests | Unconsolidated Affiliates | Total | Weighted- Average Interest Rate (1) | |||||||||||||
Senior unsecured notes due 2026 (6) | 615,669 | — | — | 615,669 | 5.95% | |||||||||||||
Total fixed-rate debt | 3,170,000 | (77,494 | ) | 535,134 | 3,627,640 | 5.19% | ||||||||||||
Variable-rate debt: | ||||||||||||||||||
Non-recourse term loan on operating property | 10,868 | (5,434 | ) | — | 5,434 | 3.04% | ||||||||||||
Recourse term loans on operating properties (7) | 89,612 | — | 58,692 | 148,304 | 3.62% | |||||||||||||
Unsecured lines of credit | 79,970 | — | — | 79,970 | 2.43% | |||||||||||||
Unsecured term loans | 885,000 | — | — | 885,000 | 2.69% | |||||||||||||
Total variable-rate debt | 1,065,450 | (5,434 | ) | 58,692 | 1,118,708 | 2.79% | ||||||||||||
Total fixed-rate and variable-rate debt | 4,235,450 | (82,928 | ) | 593,826 | 4,746,348 | 4.63% | ||||||||||||
Unamortized deferred financing costs | (19,272 | ) | 719 | (2,357 | ) | (20,910 | ) | |||||||||||
Total mortgage and other indebtedness, net | $ | 4,216,178 | $ | (82,209 | ) | $ | 591,469 | $ | 4,725,438 |
December 31, 2016 | Consolidated | Noncontrolling Interests | Unconsolidated Affiliates | Total | Weighted- Average Interest Rate (1) | |||||||||||||
Fixed-rate debt: | ||||||||||||||||||
Non-recourse loans on operating properties | $ | 2,453,628 | $ | (109,162 | ) | $ | 530,062 | $ | 2,874,528 | 5.29% | ||||||||
Senior unsecured notes due 2023 (4) | 446,552 | — | — | 446,552 | 5.25% | |||||||||||||
Senior unsecured notes due 2024 (5) | 299,939 | — | — | 299,939 | 4.60% | |||||||||||||
Senior unsecured notes due 2026 (6) | 394,260 | — | — | 394,260 | 5.95% | |||||||||||||
Total fixed-rate debt | 3,594,379 | (109,162 | ) | 530,062 | 4,015,279 | 5.30% | ||||||||||||
Variable-rate debt: | ||||||||||||||||||
Non-recourse term loans on operating properties | 19,055 | (7,504 | ) | 2,226 | 13,777 | 3.18% | ||||||||||||
Recourse term loans on operating properties | 24,428 | — | 71,037 | 95,465 | 2.80% | |||||||||||||
Construction loan (7) | 39,263 | — | — | 39,263 | 3.12% | |||||||||||||
Unsecured lines of credit | 6,024 | — | — | 6,024 | 1.82% | |||||||||||||
Unsecured term loans | 800,000 | — | — | 800,000 | 2.04% | |||||||||||||
Total variable-rate debt | 888,770 | (7,504 | ) | 73,263 | 954,529 | 2.18% | ||||||||||||
Total fixed-rate and variable-rate debt | 4,483,149 | (116,666 | ) | 603,325 | 4,969,808 | 4.70% | ||||||||||||
Unamortized deferred financing costs | (17,855 | ) | 945 | (2,806 | ) | (19,716 | ) | |||||||||||
Total mortgage and other indebtedness, net | $ | 4,465,294 | $ | (115,721 | ) | $ | 600,519 | $ | 4,950,092 |
(1) | |
Weighted-average interest rate includes the effect of debt premiums |
(2) | |
An unconsolidated affiliate has an interest rate swap on a notional amount outstanding of |
(3) | |
The unconsolidated affiliate has an interest rate swap on a notional amount outstanding of |
(4) | |
The balance is net of an unamortized discount of |
(5) | |
The balance is net of an unamortized discount of |
(6) | |
The balance is net of an unamortized discount of |
45
The weighted-average remaining term of our total share of consolidated and unconsolidated debt was 4.93. 7 years and 5.43.9 years at September 30, 2017March 31, 2020 and December 31, 2016,201 9 , respectively. The weighted-average remaining term of our pro rata share of fixed-rate debt was 5.6 years3. 9 and 3.84. 1 years at September 30, 2017March 31, 2020 and December 31, 2016,201 9 , respectively.
As of September 30, 2017March 31, 2020 and December 31, 2016,2019, our pro rata share of consolidated and unconsolidated variable-rate debt represented 23.6%29.2% and 19.3%22.5%, respectively, of our total pro rata share of debt. As
See Note 7to the condensed consolidated financial statements for information concerning activity related to unconsolidated affiliates.
Credit Ratings
The credit ratings of September 30, 2017, our share of consolidated and unconsolidated variable-rate debt represented 15.9% of our total market capitalization (see
Rating Agency | Rating | Outlook | ||
Fitch | CCC+ (1) | Negative | ||
Moody's | B2 | Negative | ||
S&P | B | Negative |
(1 ) In May 2020, Fitch affirmed and withdrew its credit rating.
Senior Unsecured Notes
The increase is primarilyfollowing presents the Company's compliance with key covenant ratios, as defined, of the Notes and the senior secured credit facility as of March 31, 2020:
Debt Covenant Compliance Ratios (1) | Required | Actual | ||||
Total debt to total assets | < 60% | 55 | % | |||
Secured debt to total assets | < 40% | 36 | % | |||
Total unencumbered assets to unsecured debt | > 150% | 198 | % | |||
Consolidated income available for debt service to annual debt service charge | > 1.5x | 2.7 | x | |||
Minimum debt yield on outstanding balance (2) | > 10% | 12 | % |
(1 ) | The debt covenant compliance ratios for the secured line of credit, the secured term loan and the senior unsecured notes are defined and computed on the same basis. |
(2) The minimum debt yield on outstanding balance debt covenant compliance ratio only applies to the secured credit facility.
At March 31, 2020, we were not in compliance with a covenant under the secured credit facility, which provides that we may not have more than $100.0 million of cash on hand that constitutes borrowings on our secured line of credit. In March 2020, we drew $280.0 million from the secured line of credit and anticipated immediately purchasing $180.0 million of U.S. Treasury securities, which would leave $100.0 million of cash on hand from such borrowings. However, due to market conditions, we were not able to purchase the declineU.S. Treasury securities immediately, which resulted in us violating this covenant. Violation of this covenant provides the lenders with the option to accelerate the maturity of the senior secured credit facility. The administrative agent of the secured credit facility notified us that we were in default and that the administrative agent and lenders reserve all rights and remedies under the secured credit facility. The lenders have not exercised their right to accelerate the maturity of the secured credit facility. In March 2020, we used $154.2 million to purchase U.S. Treasury securities and subsequent to March 31, 2020 utilized an additional $26.4 million to fund April debt service payments and operating expenses, which reduced the amount of cash on hand that constitutes borrowings on the secured line of credit to less than $100.0 million. However, this did not cure the default per the terms of the senior secured credit facility. We will pursue obtaining a waiver from the lenders. If we are not able to obtain a waiver directly, then we will seek to obtain a waiver as part of the alternatives we are exploring, as previously described above under Liquidity and Capital Resources ..
We considered the projected impact of COVID-19 on our stock price from $11.50 at December 30, 2016cash flows and our analysis of future compliance with the financial covenants and determined that it is probable we will fail to $8.39 at September 29, 2017.
46
Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets and significant uncertainties associated with each of these matters, we believe that there is substantial doubt that we will continue to operate as a going concern within one year after the date our condensed consolidated financial statements for the three months ended March 31, 2020 are issued. See
NoteUnencumbered Consolidated Portfolio Statistics
(Dollars in thousands, except sales per square foot data)
|
| Sales Per Square Foot for the Twelve Months Ended (1) (2) |
|
| Occupancy (2) |
|
| % of Consolidated Unencumbered NOI for the Three Months Ended |
|
|
|
| |||||||||||
|
| 2/29/20 |
|
| 2/28/19 |
|
| 3/31/20 |
|
| 3/31/19 |
|
| 3/31/20 |
|
| (3 | ) | |||||
Unencumbered consolidated Properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Malls |
| $ | 393 |
|
| $ | 365 |
|
|
| 87.9 | % |
|
| 85.3 | % |
|
| 19.3 | % |
| (4 | ) |
Tier 2 Malls |
|
| 341 |
|
|
| 334 |
|
|
| 82.9 | % |
|
| 87.7 | % |
|
| 33.7 | % |
|
|
|
Tier 3 Malls |
|
| 282 |
|
|
| 276 |
|
|
| 84.3 | % |
|
| 87.7 | % |
|
| 25.7 | % |
|
|
|
Total Malls |
|
| 327 |
|
|
| 317 |
|
|
| 84.4 | % |
|
| 87.3 | % |
|
| 78.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Associated Centers |
| N/A |
|
| N/A |
|
|
| 91.5 | % |
|
| 96.7 | % |
|
| 15.6 | % |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Centers |
| N/A |
|
| N/A |
|
|
| 98.2 | % |
|
| 99.0 | % |
|
| 4.8 | % |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Office Buildings & Other |
| N/A |
|
| N/A |
|
|
| 100.0 | % |
|
| 86.7 | % |
|
| 0.9 | % |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unencumbered Consolidated Portfolio |
| $ | 327 |
|
| $ | 317 |
|
|
| 87.3 | % |
|
| 90.6 | % |
|
| 100.0 | % |
|
|
|
Date | Property | Consolidated/ Unconsolidated Property | Stated Interest Rate | Maturity Date | Amount Extended (1) | ||||||
March | Statesboro Crossing (1) | Consolidated | LIBOR + 1.8% | June 2018 | $ | 10,930 | |||||
August | Ambassador Town Center - Infrastructure Improvements (2) | Unconsolidated | LIBOR + 2.0% | August 2020 | 11,035 |
(1) | |
Date | Property | Consolidated/ Unconsolidated Property | Interest Rate at Repayment Date | Scheduled Maturity Date | Principal Balance Repaid (1) | ||||||
January | The Plaza at Fayette | Consolidated | 5.67% | April 2017 | $ | 37,146 | |||||
January | The Shoppes at St. Clair Square | Consolidated | 5.67% | April 2017 | 18,827 | ||||||
February | Hamilton Corner | Consolidated | 5.67% | April 2017 | 14,227 | ||||||
March | Layton Hills Mall | Consolidated | 5.66% | April 2017 | 89,526 | ||||||
April | The Outlet Shoppes at Oklahoma City (2) | Consolidated | 5.73% | January 2022 | 53,386 | ||||||
April | The Outlet Shoppes at Oklahoma City - Phase II (2) | Consolidated | 3.53% | April 2019 | 5,545 | ||||||
April | The Outlet Shoppes at Oklahoma City - Phase III (2) | Consolidated | 3.53% | April 2019 | 2,704 | ||||||
July | Gulf Coast Town Center - Phase III (3) | Unconsolidated | 3.13% | July 2017 | 4,118 | ||||||
September | Hanes Mall (4) | Consolidated | 6.99% | October 2018 | 144,325 | ||||||
September | The Outlet Shoppes at El Paso | Consolidated | 7.06% | December 2017 | 61,561 | ||||||
$ | 431,365 |
Date | Property | Interest Rate at Repayment Date | Scheduled Maturity Date | Balance of Non-recourse Debt | Gain on Extinguishment of Debt | |||||||||
January | Midland Mall | 6.10% | August 2016 | $ | 31,953 | $ | 3,760 | |||||||
June | Chesterfield Mall | 5.74% | September 2016 | 140,000 | 29,187 | |||||||||
August | Wausau Center | 5.85% | April 2021 | 17,689 | 6,851 | |||||||||
$ | 189,642 | $ | 39,798 |
Sales Per Square Foot for the Twelve Months Ended (1) (2) | Occupancy (2) | % of Consolidated Unencumbered NOI for the Nine Months Ended 9/30/17 (3) | ||||||||||||||||
09/30/17 | 09/30/16 | 09/30/17 | 09/30/16 | |||||||||||||||
Unencumbered consolidated properties: | ||||||||||||||||||
Tier 1 Malls | $ | 402 | $ | 417 | 93.5 | % | 92.6 | % | 33.1 | % | ||||||||
Tier 2 Malls | 326 | 337 | 91.8 | % | 93.2 | % | 50.1 | % | ||||||||||
Tier 3 Malls | 261 | 267 | 87.2 | % | 86.9 | % | 5.7 | % | ||||||||||
Total Malls | $ | 345 | $ | 357 | 92.0 | % | 92.5 | % | 88.9 | % | ||||||||
Total Associated Centers | N/A | N/A | 97.9 | % | 96.3 | % | 6.7 | % | ||||||||||
Total Community Centers | N/A | N/A | 98.9 | % | 98.9 | % | 3.2 | % | ||||||||||
Total Office Buildings and Other | N/A | N/A | 94.2 | % | 95.3 | % | 1.2 | % | ||||||||||
Total Unencumbered Consolidated Portfolio | $ | 345 | $ | 357 | 93.5 | % | 93.6 | % | 100.0 | % |
Represents same-center sales per square foot for mall tenants 10,000 square feet or less for stabilized malls. |
(2) | |
Operating metrics are included for unencumbered operating properties and do not include sales or occupancy of unencumbered |
(3) | |
Our consolidated unencumbered properties generated approximately |
(4) | NOI is derived from unencumbered portions of Tier One properties that are otherwise secured by a loan. The unencumbered portions include outparcels, anchors and former anchors that have been redeveloped. |
Equity
In 2019, we paidsuspended all future dividends of $169.6 million to holders of CBL'son our common stock and preferred stock, as well as $51.9 million in distributions to theall noncontrolling interest investors in our Operating Partnership. The dividend arrearage created by our board of directors’ decision to suspend the dividends that continue to accrue on our outstanding preferred stock currently makes us ineligible to use the abbreviated, and less costly, SEC Form S-3 registration statement to register our securities for sale. This means we will be required to use a registration statement on Form S-1 to register additional securities for sale with the SEC, which we expect to hinder our ability to act quickly in relation to, and raise our costs incurred in, future capital raising activities. This preferred dividend arrearage (and the Operating Partnership’s related arrearage in distributions to its preferred units of limited partnership underlying our outstanding preferred shares) also will require that we not resume any payment of dividends on our common stock unless full cumulative dividends accrued with respect to our preferred stock (and such underlying preferred units) for all past quarters and the then-current quarter are first declared and paid in cash, or declared with a sum sufficient for the payment thereof having been set apart for such payment in cash. In addition, for so long as this distribution suspension results in the existence of a distribution shortfall (as described in the Partnership Agreement of the Operating Partnership) with respect to any of the S-SCUs, the L-SCUs or the K-SCUs (an “SCU Distribution Shortfall”), we (i) may not cause the Operating Partnership to resume distributions to holders of its outstanding common units of limited partnership until all holders of SCUs have received distributions sufficient to satisfy the SCU Distribution Shortfall for all prior quarters and other consolidated subsidiaries. Thethe then-current quarter (which effectively also prevents the resumption of common stock dividends, since our common stock dividends are funded by distributions the Company receives on the underlying common units it holds in the Operating Partnership) and (ii) may not elect to settle any exchange requested by a holder of common units of the Operating Partnership paid distributionsin cash, and may only settle any such exchange through the issuance of $33.7 million and $159.6 million onshares of common stock or other units of the preferredOperating Partnership ranking junior to any such units and common units, respectively, as well as distributionsto which a distribution shortfall exists. Our board of $28.2 milliondirectors has prospectively approved that, to the noncontrolling interests in other consolidated subsidiaries.
47
Table of $0.265 per share payable Contents
See Listing Criteriain cash that was paid on July 17, 2017. On February 24, 2017,Note 1to the condensed consolidated financial statements for additional information regarding a notice we announced a first quarter 2017 common stock dividend of $0.265 per share payable in cash that was paid on April 17, 2017. Future dividends payable will be determined byreceived from the NYSE regarding our Board of Directors based upon circumstances at the time of declaration. As noted above, the common stock dividend is being re-set to an annualized rate of $0.80 per share effectivenon-compliance with the fourth quarter 2017 dividend. Our dividend payout ratio was 54.6%NYSE Listing Standards and 54.2% for the three and nine months ended September 30, 2017, respectively.
As a publicly traded company, and as a subsidiary of a publicly traded company, we previously have access toaccessed capital through both the public equity and debt markets. We currently have a shelf registration statement on Form S-3 on file with the SEC authorizingthat previously authorized us to publicly issue unspecified amounts of senior and/or subordinated debt securities, shares of preferred stock (or depositary shares representing fractional interests therein), shares of common stock, warrants or rights to purchase any of the foregoing securities, and units consisting of two or more of these classes or series of securities and limited guarantees of debt securities issued by the Operating Partnership. Pursuant to theThis shelf registration statement also authorized the Operating Partnership is also authorized to publicly issue unsubordinated debt securities. There isThis shelf registration statement was due to expire in July 2021. However, as a result of both (i) the fact that the Company no limitlonger qualifies as a well-known seasoned issuer under SEC rules and (ii) our loss of eligibility to the offering price or numberuse Form S-3 to register offers and sales of securities thatas described above, we may issue underare unable to use this shelf registration statement.
Additionally, while we entered into Sales Agreements with a number of sales agents to sell shares of CBL'shad previously suspended quarterly dividend payments on our common stock having an aggregate offering priceduring 2019, a very small amount of upmonthly “cash option” investments in shares have continued pursuant to $300.0 million,the terms of the Company’s dividend reinvestment plan (“DRIP”). Due in part to impacts on the Company’s operations and staffing resulting from timeongoing efforts to time through an ATM program. In accordanceaddress the COVID-19 pandemic, we inadvertently failed to suspend the operation of these “cash option” investments during the months of March, April and May 2020, after we lost the ability to use the Form S-3 registration statement for the DRIP, effective with the Sales Agreements, we will setfiling of our Annual Report on Form 10-K in March, due to the parameters fordividend arrearage with respect to our preferred stock. We have now fully suspended the salesoperation of shares,our DRIP, including the numbercash option feature but, as a result of shares to bethis oversight, we issued the time period during which sales are to be made and any minimum price below which sales may not be made. The Sales Agreements provide that the sales agents will be entitled to compensation for their services at a mutually agreed commission rate not to exceed 2.0%total of the gross proceeds from the sales of shares sold through the ATM program. For each share of common stock issued by CBL, the Operating Partnership issues a corresponding number of common units of limited partnership interest to CBL in exchange for the contribution of the proceeds from the stock issuance. We include only share issuances that have settled in the calculation of shares outstanding at the end of each period.
Market Capitalization
Our total-market capitalization as of September 30, 2017. Actual future sales under this program, if any, will depend on a variety of factors including but not limited to market conditions, the trading price of CBL's common stock and our capital needs. We have no obligation to sell the remaining shares available under the ATM program.
|
| Shares Outstanding |
|
| Stock Price (1) |
| ||
Common stock and operating partnership units |
|
| 201,706 |
|
| $ | 0.20 |
|
7.375% Series D Cumulative Redeemable Preferred Stock |
|
| 1,815 |
|
|
| 250.00 |
|
6.625% Series E Cumulative Redeemable Preferred Stock |
|
| 690 |
|
|
| 250.00 |
|
Shares Outstanding | Stock Price (1) | Value | ||||||||
Common stock and operating partnership units | 199,316 | $ | 8.39 | $ | 1,672,261 | |||||
7.375% Series D Cumulative Redeemable Preferred Stock | 1,815 | 250.00 | 453,750 | |||||||
6.625% Series E Cumulative Redeemable Preferred Stock | 690 | 250.00 | 172,500 | |||||||
Total market equity | 2,298,511 | |||||||||
Company’s share of total debt | 4,746,348 | |||||||||
Total market capitalization | $ | 7,044,859 | ||||||||
Debt-to-total-market capitalization ratio | 67.4 | % |
(1) | |
Stock price for common stock and Operating Partnership units equals the closing price of CBL's common stock on |
Capital Expenditures
Deferred maintenance expenditures are generally included in the determination of CAM expense that is billed to tenants as common area maintenance expense, and mostin accordance with their lease agreements. These expenditures are generally recovered over a 5 to 15-year period. Renovation expenditures are primarily for remodeling and upgrades of malls, of which a portion is recovered from tenants over a 5 to 15-year period. We recover these costs through fixed amounts with annual increases or pro rata cost reimbursements based on the tenant’s occupied space.
The following table, which excludes expenditures for developments, redevelopments and expansions, summarizes these capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the three and nine month periodsthree-month period ended September 30, 2017March 31, 2020 compared to the same periodsperiod in 20162019 (in thousands):
48
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Tenant allowances (1) |
| $ | 7,223 |
|
| $ | 2,254 |
|
|
|
|
|
|
|
|
|
|
Deferred maintenance: |
|
|
|
|
|
|
|
|
Parking area and parking area lighting |
|
| 254 |
|
|
| 88 |
|
Roof repairs and replacements |
|
| 151 |
|
|
| 62 |
|
Other capital expenditures |
|
| 3,090 |
|
|
| 3,586 |
|
Total deferred maintenance |
|
| 3,495 |
|
|
| 3,736 |
|
|
|
|
|
|
|
|
|
|
Capitalized overhead |
|
| 631 |
|
|
| 947 |
|
|
|
|
|
|
|
|
|
|
Capitalized interest |
|
| 726 |
|
|
| 563 |
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
| $ | 12,075 |
|
| $ | 7,500 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Tenant allowances (1) | $ | 9,658 | $ | 17,811 | $ | 29,774 | $ | 50,707 | |||||||
Renovations | 5,190 | 6,390 | 9,255 | 11,011 | |||||||||||
Deferred maintenance: | |||||||||||||||
Parking lot and parking lot lighting | 4,060 | 9,171 | 8,321 | 11,936 | |||||||||||
Roof repairs and replacements | 1,544 | 2,178 | 4,607 | 3,221 | |||||||||||
Other capital expenditures | 5,616 | 1,464 | 15,833 | 7,292 | |||||||||||
Total deferred maintenance | 11,220 | 12,813 | 28,761 | 22,449 | |||||||||||
Capitalized overhead | 1,370 | 1,103 | 5,661 | 4,051 | |||||||||||
Capitalized interest | 452 | 616 | 1,676 | 1,612 | |||||||||||
Total capital expenditures | $ | 27,890 | $ | 38,733 | $ | 75,127 | $ | 89,830 |
(1) | |
Tenant allowances primarily relate to new leases. Tenant allowances related to renewal leases were not material for the periods presented. |
Annual capital expenditures budgets are prepared for each of our properties that are intended to provide for all necessary recurring and non-recurring capital expenditures. As noted above, in response to the impact from COVID-19 we have deferred or suspended capital expenditures, including redevelopment expenditures, in the range of $60.0 million to $80.0 million. We believe that property operating cash flows, which include reimbursements from tenants for certain expenses, and readily available cash on hand will provide the necessary funding for these expenditures.
Developments, Expansions and Expansions
The following tables summarize our development, expansion and redevelopment projects as of September 30, 2017.
Redevelopments Completed During the NineThree Months Ended September 30, 2017
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
| CBL's Share of |
|
|
|
|
|
|
| |||||||||
Property |
| Location |
| CBL Ownership Interest |
|
| Total Project Square Feet |
|
| Total Cost (1) |
|
| Cost to Date (2) |
|
| 2020 Cost |
|
| Opening Date |
| Initial Unleveraged Yield |
| ||||||
Mall Redevelopments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dakota Square Mall - Herbergers Redevelopment (Ross/shops) |
| Minot, ND |
|
| 100 | % |
|
| 30,096 |
|
| $ | 6,410 |
|
| $ | 4,537 |
|
| $ | 188 |
|
| Jan-20 |
|
| 7.2 | % |
Hamilton Place - Sears Redevelopment (Cheesecake Factory/Dicks Sporting Goods/Dave & Buster's/Office) (3) |
| Chattanooga, TN |
|
| 100 | % |
|
| 195,166 |
|
|
| 38,715 |
|
|
| 27,394 |
|
|
| 1,539 |
|
| Mar-20 |
|
| 7.8 | % |
Mall del Norte - Forever 21 Redevelopment (Main Event) |
| Laredo, TX |
|
| 100 | % |
|
| 81,242 |
|
|
| 10,514 |
|
|
| 6,599 |
|
|
| 941 |
|
| Sep-19/Feb-20 |
|
| 9.3 | % |
The Promenade - (Five Below/Carter's) |
| D'Iberville, MS |
|
| 100 | % |
|
| 14,007 |
|
|
| 2,832 |
|
|
| 2,241 |
|
|
| 230 |
|
| Feb-20/Apr-20 |
|
| 11.4 | % |
Total Redevelopments Completed |
|
|
|
|
|
|
|
| 320,511 |
|
| $ | 58,471 |
|
| $ | 40,771 |
|
| $ | 2,898 |
|
|
|
|
|
|
|
(1) | Total Cost is presented net of reimbursements to be received. |
(2) | Cost to Date does not reflect reimbursements until they are received. |
CBL's Share of | |||||||||||||||||||
Property | Location | CBL Ownership Interest | Total Project Square Feet | Total Cost (1) | Cost to Date (2) | Opening Date | Initial Unleveraged Yield | ||||||||||||
Outlet Center: | |||||||||||||||||||
The Outlet Shoppes at Laredo | Laredo, TX | 65% | 357,755 | $ | 69,936 | $ | 68,968 | April-17 | 9.6% | ||||||||||
Mall Expansions: | |||||||||||||||||||
Kirkwood Mall - Lucky 13 (Lucky's Pub) | Bismarck, ND | 100% | 6,500 | 3,200 | 3,109 | Sep-17 | 7.6% | ||||||||||||
Mayfaire Town Center - Phase I | Wilmington, NC | 100% | 67,766 | 19,073 | 15,112 | Feb-17 | 8.4% | ||||||||||||
74,266 | 22,273 | 18,221 | |||||||||||||||||
Mall Redevelopments: | |||||||||||||||||||
College Square - Partial Belk Redevelopment (Planet Fitness) (3) | Morristown, TN | 100% | 20,000 | 1,549 | 1,434 | Mar-17 | 9.9% | ||||||||||||
Dakota Square Mall - Partial Miracle Mart Redevelopment (T.J. Maxx) | Minot, ND | 100% | 20,755 | 1,929 | 1,584 | May-17 | 12.3% | ||||||||||||
Hickory Point Mall Redevelopment (T.J. Maxx/ Shops) | Forsyth, IL | 100% | 50,030 | 4,070 | 2,592 | Sep-17 | 8.9% | ||||||||||||
Pearland Town Center - Sports Authority Redevelopment (Dick's Sporting Goods) | Pearland, TX | 100% | 48,582 | 7,069 | 6,325 | April-17 | 12.2% | ||||||||||||
South County Center - DXL | St. Louis, MO | 100% | 6,792 | 1,266 | 1,137 | June-17 | 21.1% | ||||||||||||
Stroud Mall - Beauty Academy | Stroudsburg, PA | 100% | 10,494 | 2,167 | 1,932 | June-17 | 6.6% | ||||||||||||
Turtle Creek Mall - Ulta Beauty | Hattiesburg, MS | 100% | 20,782 | 3,050 | 1,763 | April-17 | 6.7% | ||||||||||||
York Galleria - Partial JCP Redevelopment (Gold's Gym/Shops) | York, PA | 100% | 40,832 | 5,370 | 3,849 | July-17 | 12.4% | ||||||||||||
York Galleria - Partial JCP Redevelopment (H&M/Shops) | York, PA | 100% | 42,672 | 5,582 | 4,377 | April-17 | 7.8% | ||||||||||||
260,939 | 32,052 | 24,993 | |||||||||||||||||
Associated Center Redevelopment: | |||||||||||||||||||
The Landing at Arbor Place - Ollie's | Atlanta (Douglasville), GA | 100% | 28,446 | 1,946 | 1,813 | Aug-17 | 8.6% | ||||||||||||
Total Properties Opened | 721,406 | $ | 126,207 | $ | 113,995 | ||||||||||||||
(1) Total Cost is presented net of reimbursements to be received. | |||||||||||||||||||
(2) Cost to Date does not reflect reimbursements until they are received. | |||||||||||||||||||
(3) This property was sold in May 2017. |
(3) | The return reflected represents a pro forma incremental return as Total Cost excludes the cost related to the acquisition of the Sears building in 2017. |
49
Properties Under DevelopmentD evelopment at September 30, 2017
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
| CBL's Share of |
|
|
|
|
|
|
| |||||||||
Property |
| Location |
| CBL Ownership Interest |
|
| Total Project Square Feet |
|
| Total Cost (1) |
|
| Cost to Date (2) |
|
| 2020 Cost |
|
| Expected Opening Date(3) |
| Initial Unleveraged Yield |
| ||||||
Outparcel Developments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fremaux Town Center - Old Navy |
| Slidell, LA |
|
| 90 | % |
|
| 12,467 |
|
| $ | 1,919 |
|
| $ | 1,549 |
|
| $ | 95 |
|
| Q2 '20 |
|
| 9.2 | % |
Hamilton Place - Self Storage (4) (5) |
| Chattanooga, TN |
|
| 60 | % |
|
| 68,875 |
|
|
| 5,824 |
|
|
| 2,668 |
|
|
| 1,549 |
|
| Q2 '20 |
|
| 8.7 | % |
Hamilton Place Development - Aloft Hotel (4) |
| Chattanooga, TN |
|
| 50 | % |
|
| 89,674 |
|
|
| 12,000 |
|
|
| 2,672 |
|
|
| 2,029 |
|
| Q2 '21 |
|
| 9.2 | % |
Mayfaire Town Center - First Watch |
| Wilmington, NC |
|
| 100 | % |
|
| 6,300 |
|
|
| 2,267 |
|
|
| 1,169 |
|
|
| 803 |
|
| Q3 '20 |
|
| 10.1 | % |
Parkdale Mall - Self Storage (4) (5) |
| Beaumont, TX |
|
| 50 | % |
|
| 69,341 |
|
|
| 4,435 |
|
|
| 3,437 |
|
|
| 933 |
|
| Q2 '20 |
|
| 10.2 | % |
Pearland Town Center - HCA Offices |
| Pearland, TX |
|
| 100 | % |
|
| 48,416 |
|
|
| 14,186 |
|
|
| 1,434 |
|
|
| 577 |
|
| Q1 '21 |
|
| 11.8 | % |
|
|
|
|
|
|
|
|
| 295,073 |
|
|
| 40,631 |
|
|
| 12,929 |
|
|
| 5,986 |
|
|
|
|
|
|
|
Mall Redevelopments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CherryVale Mall - Sears Redevelopment (Tilt) |
| Rockford, IL |
|
| 100 | % |
|
| 114,118 |
|
|
| 3,508 |
|
|
| 2,953 |
|
|
| 51 |
|
| Q2 '20 |
|
| 8.3 | % |
Coastal Grand - Dick's Sporting Goods/Golf Galaxy/Flip N' Fly |
| Myrtle Beach, SC |
|
| 50 | % |
|
| 132,727 |
|
|
| 7,071 |
|
|
| 2,865 |
|
|
| 1,800 |
|
| Q3 '20 |
|
| 11.6 | % |
Cross Creek - Sears Redevelopment (Dave & Buster's/restaurants) (6) |
| Fayetteville, NC |
|
| 100 | % |
|
| 65,746 |
|
|
| 17,538 |
|
|
| 4,671 |
|
|
| 2,018 |
|
| Q3 '21 |
|
| 10.3 | % |
Westmoreland Mall - JC Penney Redevelopment (Chipotle) |
| Greensburg, PA |
|
| 100 | % |
|
| 2,300 |
|
|
| 1,017 |
|
|
| 502 |
|
|
| 257 |
|
| Q3 '20 |
|
| 9.4 | % |
|
|
|
|
|
|
|
|
| 314,891 |
|
|
| 29,134 |
|
|
| 10,991 |
|
|
| 4,126 |
|
|
|
|
|
|
|
Total Properties Under Development |
|
|
|
|
|
|
|
| 609,964 |
|
| $ | 69,765 |
|
| $ | 23,920 |
|
| $ | 10,112 |
|
|
|
|
|
|
|
(1) | Total Cost is presented net of reimbursements to be received. |
(2) | Cost to Date does not reflect reimbursements until they are received. |
CBL's Share of | |||||||||||||||||||
Property | Location | CBL Ownership Interest | Total Project Square Feet | Total Cost (1) | Cost to Date (2) | Expected Opening Date | Initial Unleveraged Yield | ||||||||||||
Community Center: | |||||||||||||||||||
The Shoppes at Eagle Point (3) | Cookeville, TN | 50% | 233,489 | $ | 22,413 | $ | 6,963 | Fall-18 | 8.2% | ||||||||||
Mall Expansion: | |||||||||||||||||||
Parkdale Mall - Restaurant Addition | Beaumont, TX | 100% | 4,700 | 1,481 | 912 | Fall-17 | 9.2% | ||||||||||||
Mall Redevelopments: | |||||||||||||||||||
East Towne Mall - Flix Brewhouse | Madison, WI | 100% | 40,795 | 9,874 | 2,147 | Spring-18 | 8.5% | ||||||||||||
East Towne Mall - Lucky 13 | Madison, WI | 100% | 7,758 | 3,014 | 1,513 | Winter-17 | 6.5% | ||||||||||||
48,553 | 12,888 | 3,660 | |||||||||||||||||
Total Properties Under Development | 286,742 | $ | 36,782 | $ | 11,535 | ||||||||||||||
(1) Total Cost is presented net of reimbursements to be received. | |||||||||||||||||||
(2) Cost to Date does not reflect reimbursements until they are received. | |||||||||||||||||||
(3) We will fund 100% of the required equity contribution. The remainder of the project will be funded through a construction loan with a total borrowing capacity of $36,400, which closed subsequent to September 30, 2017. |
(3) | As a result of government mandated construction halts due to the COVID-19 pandemic, opening dates may change from what is currently reflected. |
( 4 ) | Yield is based on expected yield once project stabilizes. |
( 5 ) | Total cost includes an allocated value for the Company’s land contribution. |
( 6 ) | The return reflected represents a pro forma incremental return as Total Cost excludes the cost related to the acquisition of the Sears building in 2017. |
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in 1728 unconsolidated affiliates as of September 30, 2017March 31, 2020 that are described in
The following are circumstances when we may consider entering into a joint venture with a third party:
• | Third parties may approach us with opportunities in which they have obtained land and performed some pre-development activities, but they may not have sufficient access to the capital resources or the development and leasing expertise to bring the project to fruition. We enter into such arrangements when we determine such a project is viable and we can achieve a satisfactory return on our investment. We typically earn development fees from the joint venture and provide management and leasing services to the property for a fee once the property is placed in operation. |
50
• | We determine that we may have the opportunity to capitalize on the value we have created in a property by selling an interest in the property to a third party. This provides us with an additional source of capital that can be used to develop or acquire additional real estate assets that we believe will provide greater potential forgrowth. When we retain an interest in an asset rather than selling a 100% interest, it is typically because this allows us to continue to manage the property, which provides us the ability to earn fees for management, leasing, development and financing services provided to the joint venture. |
Guarantees
We may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on our investment in the joint venture. We may receive a fee from the joint venture for providing the guaranty. Additionally, when we issue a guaranty, the terms of the joint venture agreement typically provide that we may receive indemnification from the joint venture or have the ability to increase our ownership interest.
See Note 12to the condensed consolidated statements for information related to our guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of September 30, 2017March 31, 2020 and December 31, 2016 (in thousands):
As of September 30, 2017 | Obligation recorded to reflect guaranty | ||||||||||||||||||||||
Unconsolidated Affiliate | Company's Ownership Interest | Outstanding Balance | Percentage Guaranteed by the Operating Partnership | Maximum Guaranteed Amount | Debt Maturity Date (1) | 9/30/2017 | 12/31/2016 | ||||||||||||||||
West Melbourne I, LLC - Phase I (2) | 50% | $ | 42,397 | 20% | $ | 8,479 | Feb-2018 | (3) | $ | 86 | $ | 86 | |||||||||||
West Melbourne I, LLC - Phase II (2) | 50% | 16,377 | 20% | 3,275 | Feb-2018 | (3) | 33 | 33 | |||||||||||||||
Port Orange I, LLC | 50% | 57,298 | 20% | 11,460 | Feb-2018 | (3) | 116 | 116 | |||||||||||||||
Ambassador Infrastructure, LLC | 65% | 11,035 | 100% | 11,035 | Aug-2020 | (4) | 177 | 177 | |||||||||||||||
Total guaranty liability | $ | 412 | $ | 412 |
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our Annual Report on Form 10-K, as amended, for the year ended December 31, 20162019 contains a discussion of our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results
Recent Accounting Pronouncements
See
Note 2to the condensed consolidated financial statements for information on recently issued accounting pronouncements.Impact of Inflation and Deflation
Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand. Restricted lending practices could impact our ability to obtain financings or refinancings for our properties and our tenants’ ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
During inflationary periods, substantially all of our tenant leases contain provisions designed to mitigate the impact of inflation. These provisions include clauses enabling us to receive percentage rent based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than 10 years, which may provide us the opportunity to replace existing leases with new leases at higher base and/or percentage rent if rents of the existing leases are below the then existing market rate. Most of the leases require the tenants to pay a fixed amount, subject to annual increases, for their share of operating expenses, including common area maintenance,CAM, real estate taxes, insurance and certain capital expenditures, which reduces our exposure to increases in costs and operating expenses resulting from inflation.
Non-GAAP Measure
Funds from Operations
FFO is a widely used non-GAAP measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. NAREIT defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships, joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO provides an additional indicator of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of well-maintained real estate assets have historically risen or fallen with market conditions, we believe that FFO, which excludes historical cost depreciation and amortization, enhances investors’ understanding of our operating performance. The use of FFO as an indicator of financial performance is influenced not only by the operations of our properties and interest rates, but also by our capital structure.
We present both FFO allocable to Operating Partnership common unitholders and FFO allocable to common shareholders, as we believe that both are useful performance measures. We believe FFO allocable to Operating Partnership common unitholders is a useful performance measure since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in our Operating Partnership. We believe FFO allocable to common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to common shareholders.
In our reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of our Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. We then apply a percentage to FFO of the Operating Partnership common unitholders to arrive at FFO allocable to common shareholders. The percentage is computed by taking the weighted-average number of common shares outstanding for the period and dividing it by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating our operating performance.
The Company believes that it is important to identify the impact of certain significant items on its FFO measures for a reader to have a complete understanding of the Company’s results of operations. Therefore, the Company has also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders below for a description of these adjustments.
FFO of the Operating Partnership decreased 7.4%increased 15.7% to $102.9$50.9 million for the three months ended September 30, 2017March 31, 2020 as compared to $111.1 million for the prior-year period, and decreased 17.3% to $325.5 million for the nine months ended September 30, 2017 as compared to $393.7$44.0 million for the prior-year period. Excluding the adjustments noted below, FFO of the Operating Partnership, as adjusted, decreased 14.1%14.7% for the three months ended September 30, 2017March 31, 2020 to $98.7$51.6 million compared to $114.9$60.5 million for the same period in 2016, and decreased 12.6% for the nine months ended September 30, 2017 to $301.4 million compared to $344.7 million for the same period in 2016.2019. The decrease in FFO, as adjusted, was primarily driven by lower property-level NOI and dilution from asset sales in the prior year and the current year-to-date period and $5.1 millionsales.
52
The reconciliation of net income (loss)loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands, except per share data):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income (loss) attributable to common shareholders | $ | (2,258 | ) | $ | (10,164 | ) | $ | 50,807 | $ | 70,383 | |||||
Noncontrolling interest in income (loss) of Operating Partnership | (81 | ) | (1,372 | ) | 8,702 | 12,056 | |||||||||
Depreciation and amortization expense of: | |||||||||||||||
Consolidated properties | 71,732 | 71,794 | 225,461 | 220,505 | |||||||||||
Unconsolidated affiliates | 9,633 | 10,756 | 28,533 | 29,090 | |||||||||||
Non-real estate assets | (934 | ) | (838 | ) | (2,590 | ) | (2,397 | ) | |||||||
Noncontrolling interests' share of depreciation and amortization | (2,170 | ) | (2,237 | ) | (6,791 | ) | (6,685 | ) | |||||||
Loss on impairment, net of taxes | 24,935 | 51,812 | 70,185 | 114,990 | |||||||||||
(Gain) loss on depreciable property, net of taxes and noncontrolling interests' share | 1,995 | (8,685 | ) | (48,761 | ) | (44,206 | ) | ||||||||
FFO allocable to Operating Partnership common unitholders | 102,852 | 111,066 | 325,546 | 393,736 | |||||||||||
Litigation expenses (1) | 17 | 601 | 69 | 2,308 | |||||||||||
Nonrecurring professional fees expense (reimbursement) (1) | — | 662 | (919 | ) | 1,781 | ||||||||||
Loss on investment (2) | 354 | — | 6,197 | — | |||||||||||
Equity in (earnings) losses from disposals of unconsolidated affiliates (3) | — | 1,145 | — | (54,485 | ) | ||||||||||
Non-cash default interest expense (4) | 1,904 | 1,374 | 4,398 | 1,374 | |||||||||||
Gain on extinguishment of debt, net of noncontrolling interests' share (5) | (6,452 | ) | 6 | (33,902 | ) | — | |||||||||
FFO allocable to Operating Partnership common unitholders, as adjusted | $ | 98,675 | $ | 114,854 | $ | 301,389 | $ | 344,714 | |||||||
FFO per diluted share | $ | 0.52 | $ | 0.56 | $ | 1.63 | $ | 1.97 | |||||||
FFO, as adjusted, per diluted share | $ | 0.50 | $ | 0.57 | $ | 1.51 | $ | 1.72 | |||||||
Weighted-average common and potential dilutive common shares outstanding with Operating Partnership units fully converted | 199,321 | 200,004 | 199,325 | 199,992 | |||||||||||
(1) Litigation expense and nonrecurring professional fees expense are included in General and Administrative expense in the Consolidated Statements of Operations. Nonrecurring professional fees reimbursement is included in Interest and Other Income (Loss) in the Consolidated Statements of Operations. |
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net loss attributable to common shareholders |
| $ | (133,896 | ) |
| $ | (50,199 | ) |
Noncontrolling interest in income (loss) of Operating Partnership |
|
| (16,414 | ) |
|
| (7,758 | ) |
Depreciation and amortization expense of: |
|
|
|
|
|
|
|
|
Consolidated Properties |
|
| 55,902 |
|
|
| 69,792 |
|
Unconsolidated affiliates |
|
| 13,510 |
|
|
| 10,666 |
|
Non-real estate assets |
|
| (917 | ) |
|
| (897 | ) |
Noncontrolling interests' share of depreciation and amortization |
|
| (923 | ) |
|
| (2,157 | ) |
Loss on impairment |
|
| 133,644 |
|
|
| 24,825 |
|
(Gain) loss on depreciable property |
|
| 25 |
|
|
| (242 | ) |
FFO allocable to Operating Partnership common unitholders |
|
| 50,931 |
|
|
| 44,030 |
|
Litigation settlement, net of taxes (1) |
|
| — |
|
|
| 87,667 |
|
Non-cash default interest expense (2) |
|
| 690 |
|
|
| 542 |
|
Gain on extinguishment of debt (3) |
|
| — |
|
|
| (71,722 | ) |
FFO allocable to Operating Partnership common unitholders, as adjusted |
| $ | 51,621 |
|
| $ | 60,517 |
|
|
|
|
|
|
|
|
|
|
FFO per diluted share |
| $ | 0.25 |
|
| $ | 0.22 |
|
|
|
|
|
|
|
|
|
|
FFO, as adjusted, per diluted share |
| $ | 0.26 |
|
| $ | 0.30 |
|
(1) | |||||||||||||||
The three months ended |
(2) | The three months ended March 31, 2020 includes default interest expense related to Greenbrier Mall and |
(3) | The three months ended |
The reconciliation of diluted EPS to FFO per diluted share is as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Diluted EPS attributable to common shareholders | $ | (0.01 | ) | $ | (0.06 | ) | $ | 0.30 | $ | 0.41 | |||||
Eliminate amounts per share excluded from FFO: | |||||||||||||||
Depreciation and amortization expense, including amounts from consolidated properties, unconsolidated affiliates, non-real estate assets and excluding amounts allocated to noncontrolling interests | 0.40 | 0.40 | 1.23 | 1.21 | |||||||||||
Loss on impairment, net of taxes | 0.13 | 0.26 | 0.35 | 0.57 | |||||||||||
Gain on depreciable property, net of taxes and noncontrolling interests' share | — | (0.04 | ) | (0.25 | ) | (0.22 | ) | ||||||||
FFO per diluted share | $ | 0.52 | $ | 0.56 | $ | 1.63 | $ | 1.97 |
The reconciliations of FFO allocable to Operating Partnership common unitholders to FFO allocable to common shareholders, including and excluding the adjustments noted above, are as follows (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Diluted EPS attributable to common shareholders |
| $ | (0.75 | ) |
| $ | (0.29 | ) |
Eliminate amounts per share excluded from FFO: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense, including amounts from consolidated Properties, unconsolidated affiliates, non-real estate assets and excluding amounts allocated to noncontrolling interests |
|
| 0.34 |
|
|
| 0.39 |
|
Loss on impairment |
|
| 0.66 |
|
|
| 0.12 |
|
FFO per diluted share |
| $ | 0.25 |
|
| $ | 0.22 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
FFO of the Operating Partnership |
| $ | 50,931 |
|
| $ | 44,030 |
|
Percentage allocable to common shareholders (1) |
|
| 89.01 | % |
|
| 86.62 | % |
FFO allocable to common shareholders |
| $ | 45,334 |
|
| $ | 38,139 |
|
|
|
|
|
|
|
|
|
|
FFO allocable to Operating Partnership common unitholders, as adjusted |
| $ | 51,621 |
|
| $ | 60,517 |
|
Percentage allocable to common shareholders (1) |
|
| 89.01 | % |
|
| 86.62 | % |
FFO allocable to common shareholders, as adjusted |
| $ | 45,948 |
|
| $ | 52,420 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
FFO allocable to Operating Partnership common unitholders | $ | 102,852 | 111,066 | $ | 325,546 | 393,736 | |||||||||
Percentage allocable to common shareholders (1) | 85.84 | % | 85.39 | % | 85.82 | % | 85.38 | % | |||||||
FFO allocable to common shareholders | $ | 88,288 | $ | 94,839 | $ | 279,384 | $ | 336,172 | |||||||
FFO allocable to Operating Partnership common unitholders, as adjusted | $ | 98,675 | $ | 114,854 | $ | 301,389 | $ | 344,714 | |||||||
Percentage allocable to common shareholders (1) | 85.84 | % | 85.39 | % | 85.82 | % | 85.38 | % | |||||||
FFO allocable to common shareholders, as adjusted | $ | 84,703 | $ | 98,074 | $ | 258,652 | $ | 294,317 |
(1) | |
Represents the weighted-average number of common shares outstanding for the period divided by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units |
53
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risk exposures, including interest rate risk. The following discussion regarding our risk management activities includes forward-looking statements that involve risk and uncertainties. Estimates of future performance and economic conditions are reflected assuming certain changes in interest rates. Caution should be used in evaluating our overall market risk from the information presented below, as
Interest Rate Risk
Based on our proportionate share of consolidated and unconsolidated variable-rate debt at September 30, 2017,March 31, 2020, a 0.5% increase or decrease in interest rates on variable-rate debt would decrease or increase annual cash flows by approximately $5.6$6.6 million and $5.6 million, respectively, and increase or decrease annual interest expense, after the effect of capitalized interest, by approximately $5.5 million and $5.5 million, respectively.
Based on our proportionate share of total consolidated and unconsolidated debt at September 30, 2017,March 31, 2020, a 0.5% increase in interest rates would decrease the fair value of debt by approximately $56.1$29.0 million, while a 0.5% decrease in interest rates would increase the fair value of debt by approximately $109.2$34.1 million.
ITEM 4: Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our management, of the
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's or the Operating Partnership's internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
Litigation
In April 2019, the Company entered into a settlement agreement and release with respect to the class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The settlement agreement stated that the Company had to set aside a common fund with a monetary and non-monetary value of $90.0 million to be disbursed to class members in accordance with an agreed-upon formula that is based upon aggregate damages of $60.0 million. The Court granted final approval to the proposed settlement on August 22, 2019. Class members are comprised of past and current tenants at certain of the Company's shopping centers that it owns or formerly owned during the class period, which extended from January 1, 2011 through the date of preliminary court approval. Class members who are past tenants and made a claim pursuant to the Court's order will receive payment of their claims in cash. Class members who are current tenants will receive monthly credits against rents and future charges, beginning no earlier than January 1, 2020 and continuing for the following five years. Any amounts under the settlement allocated to tenants with outstanding amounts payable to the Company, including tenants which have declared bankruptcy or declare bankruptcy over the relevant period, will first be deducted from the amounts owed to the Company. All attorney’s fees and associated costs to be paid to class counsel (up to a maximum of $28.0 million), any incentive award to the class representative (up to a maximum of $50,000), and class administration costs (which are expected to not exceed $100,000), have or will be funded by the common fund, which has been approved by the Court. Under the terms of the settlement agreement, the Company did not pay any dividends to holders of its common shares payable in the third and fourth quarters of 2019. The settlement agreement does not restrict the Company's ability to declare dividends payable in 2020 or in subsequent years. The Company recorded an accrued liability and corresponding litigation settlement expense of $88.2 million in the three months ended March 31, 2019 related to the settlement agreement. The Company reduced the accrued liability by $26.4 million, a majority of which was related to past tenants that did not submit a claim pursuant to the terms of the settlement agreement with the remainder relating to tenants that either opted out of the lawsuit or waived their rights to their respective settlement amounts. The Company also reduced the accrued liability by $23.1 million related to attorney and administrative fees that were paid pursuant to the settlement agreement. The Company also received document requests in the third quarter of 2019, in the form of subpoenas, from the Securities and Exchange Commission and the Department of Justice regarding the Wave Lengths Hair Salons of Florida, Inc. litigation and other related matters. The Company is continuing to cooperate in these matters.
Securities Litigation
The Company and certain of its officers and directors were named as defendants in three putative securities class action lawsuits (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Eastern District of Tennessee, on behalf of all persons who purchased or otherwise acquired the Company’s securities during a specified period of time. Those cases were consolidated on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation , 1:19-cv-00149-JRG-CHS.
The complaints filed in the Securities Class Action Litigation allege violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the periods of time specified above. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. The outcome of these legal proceedings cannot be predicted with certainty.
Certain of the Company’s current and former directors and officers have been named as defendants in nine shareholder derivative lawsuits (collectively, the “Derivative Litigation”). On June 4, 2019, a shareholder filed a putative derivative complaint captioned Robert Garfield v. Stephen D. Lebovitz et al. , 1:19-cv-01038-LPS, in the United States District Court for the District of Delaware (the “ Garfield Derivative Action”), purportedly on behalf of the Company against certain of its officers and directors. On June 24, 2019, September 5, 2019 and September 25, 2019, respectively, other shareholders filed three additional putative derivative complaints, each in the United States District Court for the District of Delaware, captioned as follows: Robert Cohen v. Stephen D. Lebovitz et al. , 1:19-cv-01185-LPS (the “ Cohen Derivative Action”); Travis Lore v. Stephen D. Lebovitz et al. , 1:19-cv-01665-LPS (the “ Lore Derivative Action”), and City of Gainesville Cons. Police Officers’ and Firefighters Retirement Plan v. Stephen D. Lebovitz et al. , 1:19-cv-01800 (the “ Gainesville Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. The Court consolidated the Garfield Derivative Action and the Cohen Derivative Action on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Derivative Litigation , 1:19-cv-01038-LPS (the " Consolidated Derivative Action"). On July 25, 2019, the Court stayed proceedings in the Consolidated Derivative Action pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On October 14, 2019, the parties to the Gainesville Derivative Action and the Lore Derivative Action filed a joint stipulation and proposed order confirming that each of those cases is subject to the consolidation order previously entered by the Court in the Consolidated Derivative Action and that
55
further proceedings in those cases are stayed pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On July 22, 2019, a shareholder filed a putative derivative complaint captioned Shebitz v. Lebovitz et al., 1:19-cv-00213, in the United States District Court for the Eastern District of Tennessee (the “ShebitzDerivative Action”); on January 10, 2020, a shareholder filed a putative derivative complaint captioned Chatman v. Lebovitz, et al.,2020-0011-JTL, in the Delaware Chancery Court (the “Chatman Derivative Action”); on February 12, 2020, a shareholder filed a putative derivative complaint captioned Kurup v. Lebovitz, et al.,2020-0070-JTL, in the Delaware Chancery Court (the “KurupDerivative Action”); on February 26, 2020, a shareholder filed a putative derivative complaint captioned Kemmer v. Lebovitz, et al.,1:20-cv-00052, in the United States District Court for the Eastern District of Tennessee (the “KemmerDerivative Action”) ; and on April 14, 2020, a shareholder filed a putative derivative complaint captioned Hebig v. Lebovitz, et al.,1:19-cv-00149-JRG-CHS , in the United States District Court for the Eastern District of Tennessee (the “HebigDerivative Action”) , each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. On October 7, 2019, the Court stayed the ShebitzDerivative Action, pending resolution of an eventual motion to dismiss in the related Securities Class Action Litigation; the Company expects the Chatman, Kurup, Kemmer , and HebigDerivative Actions to be stayed as well .
The complaints filed in the Derivative Litigation allege, among other things, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the federal securities laws. The factual allegations upon which these claims are based are similar to the factual allegations made in the Securities Class Action Litigation, described above. The complaints filed in the Derivative Litigation seek, among other things, unspecified damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures. The outcome of these legal proceedings cannot be predicted with certainty.
The Company's insurance carriers have been placed on notice of these matters.
The Company is currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on ourthe liquidity, results of operations, business or financial condition.
ITEM 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of operations that are discussed under the caption “Risk Factors” in Part I, Item1AItem 1A of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2019. The risk factor set forth below updates, and should be read together with, such risk factors. Moreover, risk factors set forth in the Annual Report on Form 10-K, as amended, for the year ended December 31, 2016. There2019 could be heightened as a result of the impact of the COVID-19 pandemic.
The current pandemic of the novel coronavirus, or COVID-19 has, and could continue to, materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance, as could any future outbreak of another highly infectious or contagious disease.
Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
The COVID-19 pandemic has had, and may continue to have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many - including the United States - have reacted by instituting quarantines, mandating business and school closures and restricting travel.
Certain states and cities, including where we own properties and where our corporate headquarters is located, have also reacted by instituting quarantines, restrictions on travel, “shelter-in-place” rules, restrictions on types of business that
56
may continue to operate, and/or restrictions on the types of construction projects that may continue. The Company cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will be lifted . As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including the retail industr y in which the Company and our tenants operate.
A majority of our tenants have announced temporary closures or other limits on the operations of their stores and requested rent deferral or rent abatement during this pandemic or have failed to pay rent. In addition, state, local or industry-initiated efforts, such as tenant rent freezes, or governmental or court-imposed delays in the processing of landlord initiated commercial eviction and collection actions in various jurisdictions in light of the COVID-19 pandemic, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. We believe our tenants do not have a contractual right to cease paying rent due to government-mandated closures and we intend to enforce our rights under our lease agreements. However, COVID-19 and the related governmental orders present fairly novel situations for which the ultimate legal outcome cannot be assured, and it is possible future governmental action could impact our rights under the lease agreements. The extent of tenant requests and actions, and the resulting impact to the Company’s results of operations and cash flows, is uncertain and cannot be predicted.
In addition, in response to an executive order issued by state and local authorities, most of our employees based at our headquarters are currently working remotely. The effects of the executive order, including an extended period of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.
The COVID-19 pandemic, or a future pandemic, could also have further material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:
• | a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action; |
• | the reduced economic activity severely impacts our tenants' businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations; |
• | the reduced economic activity, as well as any lasting reduction in consumer activity at brick-and-mortar commercial establishments due to changed habits in response to the prolonged existence and threat of the COVID-19 pandemic, could result in a prolonged recession and could negatively impact consumer discretionary spending; |
• | difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us; |
• | permitting, inspections and reviews by jurisdictional planning commissions and authorities is also likely to be delayed or postponed which could materially impact the timeline and budgets for completing redevelopments; |
• | projects in our redevelopment pipeline may not be pursued or may be completed later or with higher costs than anticipated, potentially causing a loss that exceeds our investment in the project; |
• | the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our credit facility, indentures and other recourse and non-recourse debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our revolving credit facility and pay dividends; |
• | any impairment in value of our tangible assets and intangible lease assets that could be recorded as a result of weaker economic conditions; |
• | a deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations could adversely affect our operations and those of our tenants; |
• | the ability to renew leases or re-lease vacant spaces on favorable terms, or at all; and |
• | the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption. |
The extent to which the COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional closures by our tenants of their stores and early terminations by our tenants of their leases could further reduce our cash flows, which could impact our ability to resume paying dividends to our stockholders at any point in the future.
57
The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. T he COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance .
We have determined that there is substantial doubt about our ability to continue as a going concern.
In evaluating whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued, our management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and conditional and unconditional obligations due over the next twelve months.
At March 31, 2020, we were not in compliance with a covenant under our senior secured credit facility, which provides that we may not have more than $100.0 million of cash on hand that constitutes borrowings on our secured line of credit. Violation of this covenant provides the lenders with the option to accelerate the maturity of the senior secured credit facility. The administrative agent of the secured credit facility notified us that we were in default and that the administrative agent and lenders reserve all rights and remedies under the secured credit facility. The lenders have not exercised their right to accelerate the maturity of the secured credit facility. We will pursue obtaining a waiver from the lenders.
We also considered the projected impact of COVID-19 on our cash flows and our analysis of future compliance with the financial covenants and determined that it is probable we will fail to meet the minimum debt yield covenant under the senior secured credit facility during the third quarter of 2020, the fourth quarter of 2020 and the first quarter of 2021. The minimum debt yield covenant provides that the ratio of the adjusted net operating income, as defined, of the borrowing base properties that secure the senior secured credit facility to the total outstanding balance on the senior secured credit facility must be greater than 10.0%. Violation of this covenant provides the lenders with the option to accelerate the maturity of the senior secured credit facility. We could remain in compliance with the debt yield covenant if we (i) added additional unencumbered assets to the collateral pool, subject to lender approval, which is not to be unreasonably withheld, (ii) paid down the amount of debt outstanding with projected available cash or (iii) negotiated a waiver of the covenant with the lenders.
We have engaged advisors to assist us in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of our debt including (i) the senior secured credit facility, which includes a revolving facility with a balance of $675.9 million and term loan with a balance of $456.3 million as of March 31, 2020, that matures in July 2023 and (ii) the Notes with balances of $450.0 million, $300.0 million, and $625.0 million, as of March 31, 2020, that mature in December 2023, October 2024 and December 2026, respectively, as well as the cumulative unpaid dividends on our preferred stock and the special common units of limited partnership interest in the Operating Partnership. The advisors recently commenced discussions with advisors to certain holders of the Notes and the credit committee of the senior secured credit facility. We may pursue a comprehensive solution that includes a potential exchange of debt with the holders of the Notes, addressing our preferred stock and the special common units of limited partnership interest in the Operating Partnership, amendments to the financial covenants under the senior secured credit facility and the Notes and other options that may result in the reorganization of the Company.
We elected to not make the $11.8 million Interest Payment due and payable on June 1, 2020, with respect to the 5.25% senior unsecured notes due 2023 (the “2023 Notes”). Under the indenture governing the 2023 Notes, we have a 30-day grace period to make the Interest Payment before the nonpayment is considered an event of default with respect to the 2023 Notes. Any event of default under the 2023 Notes for nonpayment of the Interest Payment would also be considered an event of default under the senior secured credit facility, which could lead to an acceleration of amounts due under the facility. Further, if the trustee for the 2023 Notes should exercise its right to accelerate the maturity of the full balance owed on the 2023 Notes as a result of such an event of default, that would also constitute an event of default under the 4.60% senior unsecured notes due 2024 and the 5.95% senior notes due 2026, which could lead to the acceleration of all amounts due under those notes. We have elected to enter the 30-day grace period with respect to the Interest Payment in order to advance discussions with the lenders and explore alternative strategies. We could prevent an event of default if we paid the Interest Payment prior to the expiration of the 30-day grace period or if we reached an alternative arrangement with the holders of the 2023 Notes.
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the condensed consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should the Company be unable to continue as a going concern. Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets and significant uncertainties associated with each of these matters, we believe that there is substantial doubt that we will continue to operate as a going concern within one year after the date our condensed consolidated financial statements for the three months ended March 31, 2020 are issued.
58
O ur common stock could be delisted from the NYSE if we fail to meet applicable continued listing requirements, which could have materially adverse effects on our business.
On February 5, 2020, we received notice from the New York Stock Exchange ("NYSE") that our common stock is no material changeslonger in compliance with NYSE continued listing criteria set forth in Section 802.01C of the Listed Company Manual of the NYSE, which require listed companies to such
Our common stock could also be delisted if (i) our average market capitalization over a consecutive 30 trading-day period is less than $15 million, or (ii ) our commo n stoc k trade s a t a n “abnormall y low ” price .. I n eithe r case , our commo n stoc k woul d b e suspende d fro m tradin g o n th e NYSE immediately , an d th e NYS E woul d begi n th e proces s t o delis t ourcommo n stock , subjec t t o ourrigh t t o appea l unde r NYS E rules .. I f thi s wer e to occur , ther e i s n o assuranc e tha t an y appea l we undertak e i n thes e o r othe r circumstance s woul d b e successful , no r i s ther e an y assuranc e tha t we will continue to comply with the other NYSE continued listing standards. However, effective on March 20, 2020, the SEC granted the NYSE temporary relief until June 30, 2020 regarding the $15 million 30 trading day average minimum market cap threshold standard.
The threat of delisting and/or a delisting of our common stock could have adverse effects by, among other things:
• | Reducing the liquidity and market price of our common stock; |
• | reducing the number of investors willing to hold or acquire our common stock, thereby further restricting our ability to obtain equity financing; |
• | causing an event of default or noncompliance under certain of our debt facilities and other agreements; and |
• | reducing our ability to retain, attract and motivate our directors, officers and employees. |
As a result of the cumulative, unpaid dividends on our preferred stock we are no longer eligible to register the offer and sale of securities on SEC Form S-3, which will impair our capital raising activities and could result in the Company being required to repurchase a limited number of shares sold under our DRIP.
We are no longer eligible to use SEC Form S-3 to register offers and sales of our securities under the Securities Act, as a result of the existing dividend arrearage on our preferred stock, which will continue to accumulate following our board of directors’ decision in December 2019 to suspend such dividends. Historically, we have relied on shelf registration statements on Form S-3 for our public capital raising transactions, and also to register the offer and sale of shares of common stock under our DRIP. Our inability to use Form S-3 may harm our ability to raise capital in the future, as we will be required to use a registration statement on Form S-1 to register securities with the SEC, which may be expected to hinder our ability to act quickly in raising capital to take advantage of market conditions and to increase our cost of raising capital. Further, we inadvertently failed to suspend small monthly “cash option” investments in common stock under our DRIP during the months of March, April and May 2020, and as a result of this oversight, we issued a total of 6,134 shares of common stock that were not registered under the Securities Act for aggregate consideration of $1,346.94. The purchasers of these shares, issued pursuant to our DRIP when we were not eligible to issue shares on Form S-3, could bring claims against us for rescission and other damages under federal or state securities laws
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds
Period |
| Total Number of Shares Purchased (1) |
|
| Average Price Paid per Share (2) |
|
| Total Number of Shares Purchased as Part of a Publicly Announced Plan |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan |
| ||||
Jan. 1–31, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
Feb. 1–29, 2020 |
|
| 111,929 |
|
|
| 0.78 |
|
|
| — |
|
|
| — |
|
Mar. 1–31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 111,929 |
|
| $ | 0.78 |
|
|
| — |
|
| $ | — |
|
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) | Total Number of Shares Purchased as Part of a Publicly Announced Plan | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan | ||||||||||||||
July 1–31, 2017 | 2,850 | $ | 8.38 | — | $ | — | ||||||||||||
August 1–31, 2017 | — | — | ||||||||||||||||
September 1–30, 2017 | — | — | — | — | ||||||||||||||
Total | 2,850 | $ | 8.38 | — | $ | — |
(1) | |
Represents shares surrendered to the Company by employees to satisfy federal and state income tax requirements related to the vesting of shares of restricted stock. |
(2) | |
Represents the market value of the common stock on the vesting date for the shares of restricted stock, which was used to determine the number of shares required to be surrendered to satisfy income tax withholding requirements. |
59
Cash Option Investments Under DRIP Plan
While we had previously suspended quarterly dividend payments on our common stock during 2019, a very small amount of monthly “cash option” investments in shares have continued pursuant to the terms of the Company’s DRIP. Due in part to impacts on the Company’s operations and staffing resulting from ongoing efforts to address the COVID-19 pandemic, we inadvertently failed to suspend the operation of these “cash option” investments during the months of March, April and May 2020, after we lost the ability to use the Form S-3 registration statement for the DRIP due to the existing dividend arrearage with respect to our preferred stock. We have now fully suspended the operation of our DRIP, including the cash option feature but, as a result of this oversight, we issued a total of 6,134 shares of common stock that were not registered under the Securities Act for aggregate consideration of $1,346.94 prior to such suspension. The purchasers of these shares, issued pursuant to our DRIP when we were not eligible to issue shares on Form S-3, could bring claims against us for rescission and other damages under federal or state securities laws.
Operating Partnership Units
There is no established public trading market for the Operating Partnership’s common units and they are not registered under Section 12 of the Securities Exchange Act of 1934. Each limited partner in the Operating Partnership has the right to exchange all or a portion of its common units for shares of the Company’s common stock, or at the Company’s election, their cash equivalent.
ITEM 3: Defaults Upon Senior Securities
Dividends on the Series D and the Series E preferred stock are cumulative and therefore will continue to accrue at an annual rate of $18.4375 per share and $16.5625 per share, respectively. As of March 31, 2020, the cumulative amount of unpaid dividends on the preferred stock totaled $22.4 million.
Distributions on the Series K, L and S special common units are cumulative and therefore will continue to accrue at an annual rate of $2.96875 per unit, $3.0288 per unit and $2.92875 per unit, respectively. As of March 31, 2020, the cumulative amount of unpaid distributions on the special common units totaled $4.8 million.
ITEM 4: Mine Safety Disclosures
Not applicable.
ITEM 5: Other Information
None.
ITEM 6: Exhibits
INDEX TO EXHIBITS
Exhibit Number | Description | |
* | ||
* | ||
* | ||
101.INS | ||
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (Filed herewith.) | ||
101.SCH | Inline XBRL Taxonomy Extension Schema | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). (Filed herewith.) |
* | |
Commission File No. 1-12494 and |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CBL & ASSOCIATES PROPERTIES, INC. |
/s/ Farzana Khaleel |
Farzana Khaleel |
Executive Vice President - |
Chief Financial Officer and Treasurer |
(Authorized Officer and Principal Financial Officer) |
CBL & ASSOCIATES LIMITED PARTNERSHIP |
By: CBL HOLDINGS I, INC., its general partner |
/s/ Farzana Khaleel |
Farzana Khaleel |
Executive Vice President - |
Chief Financial Officer and Treasurer |
(Authorized Officer and Principal Financial Officer) |
62